International Business Strategy of South African Breweries - Case Study Example

Introduction In order to successfully carry out business in any country, it can be seen that there are various business models that can be adopted by the managers. The other important factor that has to be taken into consideration is the fact that any business environment is characterized by changes hence sound business strategies have to be implemented by different companies. As such, this paper has been designed to carry out a strategic analysis of South African Breweries’ (SAB) operations in this country. The paper will use the following models to analyse the strategic business model of the company: Mintzberg, diversification, and value chain. The paper starts by giving a brief overview of the company and the main part of the report will focus on different business models that have been used by the company in its operations. Overview of SAB “Founded in 1895, the South African Breweries Ltd (SAB) is the South African subsidiary and historical birthplace of SABMiller plc, one of the world’s largest brewers by volume with more than 200 brands and brewing interests and distribution agreements in 75 countries across six continents,” (http://www.sab.co.za/sablimited/content/en/sab-overview,2012) The company strives to be an integral part of the social fabric in South Africa and it plays a pivotal role in the development of the national economy. The company employs 9 400 employees of which 75 % of them come from previously disadvantaged groups. According to its Sustainable Development Report (2008), the company’s success in the alcohol and beverages industry can be attributed to various factors. The company uses different business models that are going to be explained in detail below. Diversification The concept of diversification mainly derives from Ansoff’s matrix shown in Appendix 1. Ansoff suggests that there are four elements that can be used by a company intending to expand its business if it is operating in a global environment and these include the following: penetration, product expansion, market expansion, and diversification (Kotler, 1999). However, this paper will focus on how SAB implements the strategy of diversification which is mainly concerned with offering a diverse range of products to the customers. According to its official website, SAB operates seven breweries and 40 depots in South Africa and it produces an annual capacity of 3.1 billion litres of alcohol. The company has a wide portfolio of beers that are designed to meet the needs of different customers. Its portfolio includes six of the country’s popular beer brands namely: Carling Black Label, Hansa Pilsener, Castle Lager, Castle Lite and Castle Milk Stout. However, it can be seen that the full portfolio is comprised of ten beers as well as five types of flavoured alcoholic drinks. From this information, it can be seen that SAB offers a diversified portfolio of beer to its customers. This strategy has been very effective to SAB given that it has been in a position to offer a variety of beers that are designed to satisfy the tastes of different people. If there is variety in the market, there are more likely chances that the customers can have a wide range of choice of beer. Information obtained from SAB’s Sustainable Development Report (2008) shows that diversification has played a big role in the development of the organization since it has managed to form successful joint ventures with other local and international companies. Through diversification of its products, the company has been in a better position to minimise risk in case one product performs poorly in the market. The other products can cover up for the losses that are likely to be caused by the product that has been poorly performing. Customers have freedom of choice if the products are diversified and this can promote growth and development of the company which has been the case with regards to SAB’s operations in the alcohol and beverages industry. Mintzberg’s 5 P’s of strategy Mintzberg developed 5 Ps of strategy which are essential in as far as development of s robust business strategy is concerned. According to information obtained from (http://www.mindtools.com/pages/article/mintzberg-5ps.htm, 2012), Mintzberg’s 5 Ps of strategy are: plan, ploy, pattern, position and perspective. This model is going to be analysed using the case of SAB to establish the extent to which this company is harnessing this strategy. According to Mintzberg (2000), strategic planning can be defined as the process of attempting to strike a balance between the organisation’s objectives and resources with regards to its changing opportunities. This is an essential element in terms of strategy formulation that can impact on the operations of a particular business in a given area. Sustainable Development Report (2008), suggests that the company plans its activities so as to be in a better position to appeal to the interests of the customers. Whenever engaged in a business venture, it can be seen that planning is an essential ingredient for the success of the initiative otherwise failure to plan will be equivalent to planning to fail in the envisaged business. Mintzberg also describes strategy as a ploy which entails that efforts can be made to disrupt other actors from penetrating the industry. Similar to this, a strategy can also be seen as a pattern. These two Ps of strategy are somehow similar since they are specifically designed to disrupt other companies from establishing their own business ventures. However, it can be seen that these strategies are not commonly used by SAB since it has little competition in this particular industry. When competition is low, it can be seen that such strategies are not often used. The aspect of position is also very important since it determines the success of the company in its operations. In typical fashion, it can be seen that SAB operates seven breweries and 40 depots in South Africa and it produces an annual capacity of 3.1 billion litres of alcohol. This entails that the company is strategically positioned such that its products are readily available in the market. The company is present in the whole of South Africa and it can be noted that retailers of alcohol can get it readily from the depots that are around them. A product is likely to succeed in the market if it is readily available to the customers and this is an advantage for SAB. Strategy is also viewed as perspective under this business model. This is a scenario where culture plays a significant role in shaping the behaviour of the employees towards the company’s perspectives. As aptly stated in the Sustainable Development Report 2008, SAB is committed to operate within a framework that is shaped by the culture of South Africa as a whole. The company strives to make sure that it does not violate the societal norms and values through its operations. This stance also takes a pivotal role in shaping the company’s perceptions towards the notion of corporate social responsibility since it is committed to act in a socially acceptable way. The company is committed to uplift the welfare of the people who are impacted by its operations. The ideas of different stakeholders are taken into consideration by the company in carrying out its business. Porter’s value chain analysis In order to keep pace with the ever changing tastes and demands of the customers, changes in value systems as well as changes in the external business environment, a market oriented company should have information that can enable it to carry out a value analysis of the products it offers. Porter (1985) describes value chain analysis as the process that is mainly concerned with establishing what the people want and the reasons why they want it. Thus, marketing essentials are designed in such a way that they will develop some bundles of value or satisfaction that is likely to be derived by the customers from purchasing a certain product. Value is created so that the product can meet or exceed the expectations of the customers. This is a very effective business model given that more customers are likely to be attracted to the product since they are assured of getting the value they want from their money. The customers will be mainly concerned with deriving certain benefits from purchasing a particular product. According to the SAB’s Sustainable Development Report 2008, the company emphasizes on the aspect of quality of its product. The company has a brand portfolio of 12 brands namely: “Castle Lager, Castle Lite and Castle Milk Stout; Carling Black Label; Hansa Pilsener and Hansa Marzen Gold; Dreher Premium Lager; Redd’s; Brutal Fruit; Sarita; Skelters Straight and Blakes & Doyle.” The company is also responsible for selling for of SAB’s international premium brands which include the following: Pilsner Urquell, Miller Genuine Draft, Peroni Nastro Azzurro, and – most recently – Grolsch. Precision is taken when these brands are being brewed so as to make sure that the customers can get the value fro they want from these beers. As a result of the stance taken by SAB towards the concept of value management in its brands, the company has been recognised as the favourite brand by the Sunday Times top brands 2008 (Sustainable Development Report 2008). In as far as the aspect of quality is concerned, the company ensures that all necessary precautions are taken to ensure that the taste of beer does not vary. According to SAB’s Sustainable Development Report (2008), the employees undergo several months of training at the SAB Training Institute, and some of them are posted to respected institutions in different parts of the globe. The period of training ranges between 12 and 18 months and these people undergo a thorough skills development in order to ensure that the final product is satisfactory to the targeted customers. The company also has its own premium brand called Heineken and this brand is quite expensive compared to other brands. The main reason for this is that it is valued by different customers who believe that it has great quality and taste. A valuable product is likely to attract as many customers as possible. In order to carry out the strategy of value chain analysis, the company uses different strategies that are designed to improve the quality of the products offered. The company’s marketing employees conduct consumer group initiatives that are meant to solicit for the views and ideas of the customers about their perceptions of the brands offered by SAB. The company also uses consumer feedback in order to gain insight about their perceptions of the products offered by the company. All these efforts are directed towards ensuring that the company is in a better position to offer valuable products to the customers. Conclusion and recommendations The success of international business is mainly influenced by various factors that obtain in the environment in which the company will operate. There are various business models that can be used to set up a business venture so that it can be effective in its operations. A critical analysis of the case of South African Breweries shows that models such as Mintzberg, diversification and value chain analysis are very effective in as far as the success of the business is concerned. Though SAB has all signs of positive growth in its performance, it can be noted that it also needs to take certain aspects into consideration so that it can continue to enjoy its market share in the alcohol and beverages industry. For instance, it is recommended that the company should continue to carry out product development so that it can keep the pace of the changes taking place in the environment in which it operates. . References Ansoff’s Matrix, ND viewed 8 December, 2012 Armstrong, G & Kotler, P 1996, Principles of Marketing, 7th Edition, Englewood Cliffs: Prentice Hall, NJ. Kotler, P 1999, Kotler on Marketing: How to create, win and dominate Markets, Free Press, London. Lancaster, G & Reynolds, P 1999, Introduction to Marketing: A step by step Guide to all the tools of Marketing, Kogan Page, London. Hill, CWL 2011, International business Eighth editionMcGraw-Hill/Irwin: NY. Mind Tools, Mintzberg’s 5 Ps of strategy, Viewed 8 December, 2012 . Mintzberg, H 2000, The rise and Fall of Strategic Planning, Pearson Education Limited. McCarthy, JE & Perreault, WD 1996, Basic Marketing: A Global Managerial Approach, 12th Edition, Irwin McGraw-Hill, New York: NY. Porter, ME 1985, Competitive Advantage; Creating and Sustaining Superior Performance, The Free Press, New York: NY. Porter M., “The State of Strategic Thinking” Economist, May 23 1987 P.21 Robinson, W 1997, Strategic Management and information system: Prentice hall, London. South African Breweries (SAB, 2012), viewed 8 December 2012 . SAB Miller, 2012, Company overview, viewed 8 December, 2012, . SAB, Sustainable Report 2008. Smith, PR 1999, Great Answers to Tough Marketing Questions, Kogan Page, UK. Strydom, J 2004, Marketing, 3rd Edition, Juta & Co Ltd, CT. Appendix 1 Ansoff’s Matrix Present Products New Markets New Source: www.learnmarkerting.net Read More