Strategic Management - Achieving Growth in the Global Beer Market - Essay Example

11 December 2006 Case Analysis for South African Breweries: Achieving Growth in the Global Beer Market In general, a case study on a particular business organization provides an in-depth analysis on its operation, structure, and situation. However, a study accomplishes more than just that by giving us a view of a company copes with the internal pressures and the external trends, challenges, and opportunity. For industry analysts, a case study offers a wealth of information regarding the competitive environment of the sector as well as the different strategic directions taken by industry players in response to the competition. Case studies also offer reliable outlook on how the industry will perform in the future. For a company’s competitor, a case study provides an essential basis for the creation of a counter strategy for battling head on. For students, case studies give insight on what happens in the real corporate world. It gives them the chance to diagnose and prescribe solutions to company’s dilemma, training them to become managers (Thomson 2002). This paper will focus on the case study entitled South African Beverages (SAB): Achieving Growth in the Global market. The main focus is to expose the central issues on the business organization’s alternative strategic directions. In order to fully understand the situation of SAB, this report will also make use of strategic management techniques and concepts. Case Background According to Krasner (1999, p.34-35), globalization can mean some mix of developments that might include the legitimization of human rights, the digitalization of transactions, the speed of communication, the density of global non-governmental organization (NGO) networks, the transmission of diseases, the growth of international capital markets, the surge of manufacturing in geographically dispersed areas, the universal availability of MTV, the increase in illegal migration, legal migration, and the like. For business organizations like SAB, globalization means the integration of the world into a single economic village posting various opportunities to expand their operations overseas. SAB, as with any firm, is faced with the challenge of crafting an efficient global strategy in order to strengthen its position in the rapidly evolving global market. The case gives three alternatives that the company can take: merge with a major developed country brewer; find a large emerging market brewer to acquire; and focus on emerging market growth opportunities. The case lays out the significant information that SAB needs to consider before it can make any strategically efficient choice. Looking closely, this wealth of information can either be classified as products of internal or environmental scanning. Internal scanning essentially looks at the vision, mission, objectives, structure, strategy, core competence, strengths and weaknesses of a company while environmental scanning refers to the analysis of the external factors which affects the business organization such as opportunities, threats, trends, changes, and developments. Internal Scanning Any strategic direction taken by SAB should always be in line with how it wants to see itself in the future and its strategic goals. The company’s vision is to be one of the top five brewers in the world. Setting its eyes on global opportunities, its mission communicates that it aspires to be “a world class brewer and marketer of fine quality beers, while behaving in a socially responsible and progressive manner” (Sprague and Klein 2000). Supporting these goals are SAB’s core values to which it is highly committed: customer service; product quality; continuous improvement; respect, dignity, and social responsibility; participation and empowerment; wealth creation, reward, and recognition; communication; employee development; safe and healthy work environment; and community and environmental commitment (Sprague and Klein 2000). In terms of organizational structure, it is apparent that SAB is employing a decentralized strategy in managing its human resource. The company capitalizes on its capability of its workforce by empowering them or giving them enough discretion in their posts. This workforce strategy is very much common in organizations which opt for continuous improvement. Company’s personnel are highly motivated in order through the use of monetary benefits, rewards, and recognition. It is notable that this type of human resource strategy is widely employed by large global companies like Dell, Inc (Dell Inc. 2006). In order to attain its goals, SAB has crafted a specific strategy according to its strengths and core competences. It should be noted that the brewer is utilizing one of the generic strategies emphasized by Porter which is cost leadership. Cost leadership strategy entails pricing at par or even below the industry average in order to gain market share but also delivery of a certain level of product or service quality (Porter’s Generic Strategies 2006). This type of strategy is also employed by business organizations like Southwest Airlines (Thomson 2002). Notably, SAB is charging a relatively lower price for its product than its competitors. The cost leadership strategy of SAB is made possible by its core competencies namely, “understanding developing world conditions, understanding how to utilize assets, cost management, and delivery of product that was both high quality and low cost” (Sprague and Klein 2000). It should be noted that SAB, being based in a developing country has an in-depth understanding of the issues that business organizations face in such regions. In fact, the company is noted by its ability to adjust to the abnormal conditions in its domestic market. Being one of the oldest players in the industry, SAB has also gained adequate expertise in utilizing its assets in order to gain a maximum return. The brewer has the capacity to generate sufficient returns and maximize the productivity of its facility and human capital. SAB also enjoys significant economies of scale aside from the fact that its management team is armed with the much needed know how in cost management. Even in times of economic and financial difficulty, SAB is able to minimize and manage cost allowing it to show profit. Lastly, the cost leadership strategy is possible with the company’s ability to offer high quality products at significantly lower prices. SAB banks on its capability of improving the quality and “drinkability” of its beer. Its efficient cost management and utilization of assets enable it to charge a lower price. SAB, as with other companies, is also struggling with its weaknesses. The brewer is a strong player in its domestic market making it very much dependent on soft currencies. As global expansion needs to be backed by stronger currencies, this posts the challenge for SAB to raise financing. This is even coupled by the recent decline in its share prices making potential investors hesitant of holding its stock. The dependence of the company in its local market also makes it vulnerable to the impact of unfavorable events in the single market. Another hindrance in pursuing a global strategy in developed countries is the perception that South African products are lower in quality. This is detrimental for SAB as it makes its products unattractive to buyers. Environmental Scanning The rest of the case talked about the environment of SAB. As globalization progresses, SAB is exposed not only to the issues in its South African market but also to the challenges in the global brewing industry. This report, thus, divides the environmental scanning into the South African market and the global market. African Market In the African market, SAB is largely affected by the changes in the socioeconomic and legislative changes. The operation of SAB has become significantly shaped by the policies like competition and labor legislation and liquor market reregulation. Currently, it is expected that the liquor market reregulation will increase the number of establishments selling liquor giving opportunity for SAB to innovate in terms of sales and distribution prices. The company is also faced with the opportunity and challenges posted by South Africa’s recent re-admission to the international community. With this, it is expected that the country will be experience a better economic performance which can be very advantageous for SAB. However, it also implies higher competition as it will facilitate the entry of foreign companies in the new competitive landscape. The entry of new competitors by joint ventures and acquisitions can be detrimental to SAB. SAB is also faced with the challenge of maintaining its profitability in its domestic market amidst the fact the beer consumption is in a declining trend. Global Brewing Industry The global brewing industry, surprisingly, is not dominated by a single player. The largest players in the sector are Anheuser Busch, Heineken, Miller, SAB, Brahma, Interbrew, Carlsberg, Modelo, Kirin, and Fomsa. It should be noted that all of these companies are major players in their domestic markets. This trend is attributed to the fact that beer storage and transportation across geographical borders are traditionally inefficient and costly. Moreover, domestic customers have already developed a liking and preference for locally produced beer because of their availability. This situation has changed with the rapid technological evolution. The new technology has facilitated the improvement in telecommunication, transportation, and infrastructure which allows brewing companies to enhance their operations. Technological improvement has also significantly altered the value chain activities of industry players. Companies which have specialized in one activity in the value chain benefits from economies of scale in terms of declining transaction costs, increased access to market and deregulation. Technological advancements and other facets of globalization have opened up the global markets for brewing companies. However, some industry analysts and experts have expressed that there will be never be a global brand for beer. It is noted that customers will also be loyal to their domestic brands. A closer look at the current global situation reveals that there are opportunities for global expansion. There is an observed “convergence in customer choice, easier access to customers, specialization in high-value areas of industries that were previously vertically integrated, and benefits of intangible scale” (Sprague and Klein 2000). These factors indicate that companies in the beer industry can pursue global strategies and the emergence of a global brand is possible. In order to succeed in the global brewing industry, SAB or any business organizations needs to have a portfolio of strong brands, strong management, large financial muscle to support expansion, strong acquisition strategy, and strategic partnership with local entities. SAB is poised to enter the global market but is in the process of establishing the proper global strategy. It should be noted that its competitors have also realized the profit and gains from overseas operation and began launching their own strategies to capture the global market. SAB has a choice of expanding in either developed or emerging economies. However, emerging economies appear to be the rational choice as SAB has more experience in this type of market as well as it has the proper cost leadership strategy which seems to be more appropriate in developing countries. Works Cited Dell, Inc. 2006, Retrieved 12 December 2006, from http://www.dell.com Krasner, S 1999, ‘Globalization and Sovereignty’ in D Smith et al. (eds), States and Sovereignty in the Global Economy, Routledge, USA and Canada, pp. 34-52. “Porter’s Generic Strategies.” 2006, Retrieved 12 December 2006, from http://www.quickmba.com/strategy/generic.shtml Sprague, C & Klein, S. 2000, “South Africa Brewery: Achieving Growth in the Global Beer Market.” Wits Business School Thomson, A. & Strickland, J. 2002, ‘Strategic Management,’ New Jersey: Thomson Read More