Strategic Management of the Anheuser-Busch InBev Company - Case Study Example

Strategic Management Part I Background Information Anheuser-Busch InBev is a leading global beer brewer and one of the world’s top five consumer product companies. It has grown and developed from a company that was confined to local activities into a company that is one of the key players in the beer industry in the international economy and market. Anheuser-Busch InBev has roots that can be traced back to Den Horen in Leuven, Belgium, which began making beer in 1366. Anheuser & Co brewery was established in 1860 in the USA. In 1987 two of the largest breweries on Germany, Artois and Piedboeuf merged forming Interbrew. Following the merger Interbrew acquired a number of local breweries in Belgium. (Beverage Daily 2004). In 2000, Interbrew acquired Bass and Whitbread in the UK. In 2002 Interbrew strengthened its position in China. In 2004 the combination of Interbrew and AmBev created InBev. In the year 2006 InBev acquired the Fujian Sedrin brewery in China thus making it the number three brewery in China. In November 2008, the industry transforming, revolutionary combination of Anheuser-Busch and InBev was complete to make today’s top five consumer product companies in the world, Anheuser-Busch InBev. Anheuser-Busch InBev has its headquarters in Leuven, Belgium. They operate in six international zones and market close to 300 brands, and the organization has spread its strong hold in the all the major markets across the globe. Anheuser-Busch InBev holds the number one or number two position in over more than 20 key markets and has strong market presence in both developed and developing markets. Anheuser-Busch InBev leverages the strength of close to 120,000 people from across 30 countries worldwide. Their primary objectives and goals include commitment to responsible drinking with specific programs in each market, commitment to strong environmental management with the recycling of 92.7% of the company’s waste and encouraging young talent with their programs. Anheuser-Busch InBev is a truly consumer-centric, sales driven organization. It has over the years developed and changed to adapt the requirements and demands that have risen in the market, and has successfully adopted the technological changes to ensure that its production and marketing processes are more efficient and economic. With operations and license agreements across the globe Anheuser-Busch InBev is considered to be a truly global brand (Anheuser-Busch InBev). The Idea Anheuser-Busch InBev, in its attempt to establish itself in the new emerging markets, has now planned to extend its global arm towards Vietnam and establish itself as a leading brand in that country through a joint effort with a Vietnamese company Hapro Corporation. Hapro Corporation is the daughter company of Hanoi Trading Corporation, a state-owned company with 33 member companies. Hapro Corporation is involved in manufacturing, processing, exporting and importing a variety of goods ranging from agricultural products, machinery, and distribution through supermarkets to food, spices and beverage manufacturing and infrastructure development (Hapro Group). Joint venture with this company will provide Anheuser-Busch InBev easy access to the Vietnamese market. Since Vietnam has a developing market for beer Anheuser-Busch InBev is looking to expand its business in that country. Anheuser-Busch InBev is looking to gain significant market share and establish itself fully in the Vietnamese market. This will help it gain control over the markets that have recently entered the global economic system. (News and Events) Another reason that has led Anheuser-Busch InBev to introduce its beer into the Vietnam beer market is because the company is experiencing a decrease in the volume of stock. Through the introduction of its beer products into a new market that has great potential it hopes to exploit and completely explore the opportunity which can result in an increase in the volume of stock of the company. The company is trying to cover more market and bring more area under its fold of influence. This is an imperative move in the company’s long term plans to grow, develop and establish itself as a global leader in the industry. The company faces a number of problems while going into this venture. It will have to face tough competition in the market from BGI, Hanoi, etc. It will also have to establish and adopt itself according to the social and cultural construct which is very different from what it has earlier experienced. Thus, the joint venture will act as an advantage for the company and give it the leverage it requires to establish itself strongly in the emerging market. The company will be producing mainstream beer and not premium beer and this will also act as an added advantage as it will it a wider scope in the market, but it will still have to face tough competition from the local brewer Heineken. The joint venture with Habro will thus help in ensuring a more stabilized production process which will be viable economically. Internal and External Analysis of the Company’s Environment Internal Analysis Anheuser-Busch InBev has very good market presence in North America, Latin America North, Latin America South, Western Europe, Central and Eastern. There are a number of internal factors that the company has to take into account when deciding whether or not to pursue new ventures. While Anheuser-Busch InBev has extensive market presence in the above mentioned geographical locations, with a significant market share and market position of either 1 or 2, its market presence in Asia Pacific is very limited as its presence in Asia Pacific extends only as far as China and South Korea. (Reuters 2008) Now with this joint venture with Harpo Corporation, Anheuser-Busch InBev wishes to enter the Vietnamese market and gain significant market share as it sees considerable potential for development in the country. There are however, some internal factors that can influence this decision. Anheuser-Busch InBev recorded a sales figure of more than €16 billion at the end of the year 2008 (Corporate Information). It recorded a normalized profit of more than €4000 million from operation. Anheuser-Busch InBev has a wide brand presence across the globe and good product stability, which can be used as an advantage when expanding into Vietnam. Anheuser-Busch InBev also has a wide employee base which will further contribute towards this new venture. This will help in the social context of the country as this will generate more employment opportunities in the country and have a positive effect on the economic conditions prevalent there. The company also has a highly developed management strategy in place, and this helps the company in ensuring that it reads the demands of the market efficiently and allows it to establish itself as required, thus leading to better sales, and maintaince of a high value of its products in the market. The cost of the beer that is to be launched in Vietnam is to be Mainstream and not Premium as the market share of mainstream beer in Vietnam is much higher, as will be seen in the next section of this paper. External Factors The external factors include the current environment in Vietnam, nature of the market and the potential available for development. It also includes the political and economic factors in Vietnam. With a population of close to 78 million people, Vietnam is one of the most populated countries in the world. The increase in income of the people and improvement in their living standards, brought about through a much liberalized policy since the year 1987. This liberalized economic policy has brought about an increase in demand for beer, and has made it easier for foreign investment in the country. (Anheuser-Busch InBev Press 2008) The main reason for liberalized policies in Vietnam is due to the Sixth Party Congress of 1986, which approved broad economic reforms and opened the country for foreign investment. This dramatically improved Vietnam’s business climate. The shift away from a centrally planned economy to a more market-oriented economic model was responsible for improving the quality if life for the Vietnamese. The Vietnamese government however still has a tight rein over major sectors of the economy through large, state-owned enterprises and the banking system. The Bilateral Trade Agreement between the US and Vietnam marked a milestone in the economic development of Vietnam, as it had provisions on trade in goods and services, enforcement of intellectual property rights, protection for investment and transparency. Thus the conditions are very favorable in the country for setting up production and the economic as well as the socio-political factors all are acting as a push factor for growth. There is also the added advantage that the markets of the country are still not explored to their full potential, and it is still the early phase of liberalization, so it will be easier to capture market, and establish a place in the country’s market and create brand recognition without opposition from any competition. Also since production is to be set up with the local brewery, it will act as an added advantage and give the company the local insight into the requirements of the market. Current statistics show that Vietnamese consume eight liters of beer per year on an average. This figure continues to grow. The primary drinkers are in the age group between 25 and 45 years old which is accounted for almost half the population in Vietnam. The total sales volume in Vietnam has increased by 21.8% and this increase came about from the low income segment. The mainstream beer segment in Vietnam constitutes more than 50% of the total beer market. The sales volume of this segment reached more than 2.5 million hectoliters in the year 1997 and it continues to increase due to growing demand (Quang & thi Huyen, 1999). Part III Porter’s Five Forces Model Porter’s Five Force model is framework used for analysis of industry and business strategy development. “The Five Forces model is an outside-in business unit strategy used to make an analysis of the attractiveness of an industry structure.” (12Manage). According to Luo (1999), although this model was designed for domestic markets, it can also be applied when selecting industry in a foreign context. He says that selecting the right industry overseas is largely responsible for determining the MNE’s profitability and competitive position in the host country. Determining the intensity of competition in the industry and potential to gain profit is a function of this model. (Quick MBA) This model is based on the strength of the five forces that act on any given industry. The following analysis will help us determine a strategy for Anheuser-Busch InBev in order to enable it to enter the Vietnamese market. Barriers to Entry – There are no significant barriers to entry in the Vietnamese beer market except for gaining licenses and few government restrictions. (Strategy in Small Doses) Apart from that there are not many barriers and the Vietnamese beer markets are seeing new entrants’ everyday, thanks to the very liberated economic policy of the country. This will help in swift growth in the company as it shall not have to face barriers and will not have to compete with the local brewery. But it can also act as a disadvantage as it allows for other foreign investments to enter the market. Threat of Substitutes – Since Anheuser-Busch InBev is planning to enter the mainstream beer market there is an extensive threat of substitutes. The main threat comes from two state-owned breweries, Hanoi Brewery and Saigon Beer Company and multinational brands such as Heineken. (Pfitzer and Krishnaswamy 2007) This is because there are limited barriers to entry and the switching cost between brands is much less. Thus, the company losses an edge in the market, and has to develop alternative marketing and communicative strategies to ensure that it is able to establish itself in the market. Bargaining Power of Buyers – The power and position of buyers is very strong in this market as the average consumption of beer per year in Vietnam continues to grow. According to an estimate Vietnam’s beer market grew from 12% to 20% in one year. They can work together in ordering large volumes and increasing sales. Bargaining Power of Suppliers – The growing beer market has attracted a large number of suppliers of many sizes and sources. (Business Plan) Many current and potential suppliers exist and have a considerably strong hold on the market. Hence switching costs are very less which consequently means that the bargaining power of suppliers is limited. This adds to the disadvantage of the company and the company has to pursue aggressive marketing strategies, which only adds to the cost burden of the company. Rivalry – Strong competition exists among current players in the market. As stated above state-owned breweries, Hanoi Brewery and Saigon Beer Company together occupy almost 40-50% of the market share. There is tough competition among local brands for survival. International rivalry through foreign and joint ventures come from brands such as Heineken, Tiger, San Miguel, Carlsberg etc., although the main players in the mainstream beer market include Saigon, Hanoi, Halida and BGI. But if the company decides to and can carry out its plans of merger with the company will have an advantage over its rivals in the market and will be able to establish itself as a strong competitor in the market. Value Chain Analysis The Value Chain Management is a systematic approach to examine the development of competitive advantage that an organization has. The chain consists of a series of primary and support activities that build value to the organization and helps determine the total value delivered by the organization (Marketing Teacher). This analysis helps in analyzing the value generation that takes place during the production process and allows for improvements and changes that can be made to ensure that the system is more economic and efficient. Primary Activities Research and Development – This refers to the activities involved in the development of different brews of beer to suit the customer requirements as requirements in Vietnam differ from other countries. This will help in helping them with the better management of the inbound logistics also. They look into the resources that are being employed and direct them towards the production of those goods and services that are demanded by the consumers. R & D will be taken by Anheuser-Busch InBev. This will help the company realize that social and cultural factors that affect the demand in the market and help in establishing production more in sync with these requirements. Production – This refers to the actual brewing of beer, the processes involved and the final packaging to make it sales ready. This includes the operations and outbound logistics that is what process is the company going to follow, and the activities that are required to get the finished products to the customers. (Net MBA) Production of beer will be undertaken by both Anheuser-Busch InBev and Hapro Corporation. They will establish the best possible mode of production to follow which will be efficient as well as economic and help in insuring sustainable management of the resources of the company. They will also decide what storage and transport facilities to use, and look into the management of the finished products. Marketing and Sales – refers to the activities involved by the joint venture to create an offering that will suit the requirements of the Vietnamese customers. Marketing and Sales will be taken up by Hapro Corporation as they are already an established brand who have expertise in addressing the Vietnamese market through advertising and sales techniques. This is most effective as Hapro Corporation is a local enterprise and will be able to understand the social and cultural aspect more and thus be able to establish more effective marketing strategies. Service – refers to the customer service given by Hapro, after sales service and feedback mechanisms involved. Customer service and feedback will be taken up by Hapro Corporation as they have more interaction with the Vietnamese market and have better understanding of Vietnamese customers. (BBC News 2008). Support Activities Company Infrastructure – refers to the employee base, facilities, level of technological advancement etc available at Anheuser-Busch InBev. As mentioned previously Anheuser-Busch InBev has a wide employee base and a strong infrastructure well equipped to handle a new market and new demands associated with it. Information Systems – includes strategic planning and other mechanisms for planning and control including accounting department at Hapro. Hapro Corporation should have a good information system that will facilitate effective trade which will help in the establishment of a stronger management strategy which will prove more effective. Materials Management – refers to the activities involved at Hapro Corporation and Anheuser-Busch InBev in the purchasing of material necessary at the lowest possible price and highest possible quality for production, and this will help in ensuring that the production methodology that is followed is more cost effective and efficient, and help the collaboration in achieving a high value for its products. Human Resources – refers to the strategies involved in recruiting, remunerating and managing employees at Hapro Corporation for the joint venture as employees are most vital to the organization’s growth and progress. Resources Thus, the strategic management of the company is imperative for ensuring that the company is able to not only establish itself in the country but also to ensure that it is able to meet the demands in the market and establish a strong hold in the country’s market and economy in the long run. Reference: Anheuser-Busch InBev: Our Company. Anheuser-Busch InBev Website. Accessed on August 7, 2009 at http://www.ab-inbev.com/ Anheuser-Busch InBev Press 2008: Anheuser-Busch Rejects InBev Proposal as Financially Inadequate, Not In Best Interests of Shareholders, accessed on Friday, August 14, 2009 at http://www.anheuser-busch.com/Press/ABRejectsOffer.html. BBC News 2008: Bid talk boosts Budweiser marker, pub: May 23rd, 2008, accessed on Friday, August 14, 2009. Beverage Daily 2004: Interbrew buys AmBev and becomes world number one, pub March 3rd, 2004, accessed on Friday, August 14, 2009. Business Plan: Porter’s Five Force Model, accessed on Monday, August 17, 2009 at filebox.vt.edu/users/kfilep/BusinessPlan/porters.htm Corporate Information (2009): Anheuser-Busch InBev: Company Snapshot. Corporate Information Website accessed on August 7, 2009 at http://www.corporateinformation.com/Company-Snapshot.aspx?cusip=C05648140 Hapro Group. About Us: Hanoi Trading Corporation. Hapro Website accessed on August 7, 2009 at http://www.haprogroup.vn/english/index.php/aboutus.html Luo, Y (1999). Entry and Cooperative Strategies in International Business Expansion. Greenwood Publishing Group, 1999. p 207 accessed on August, 14 2009. Marketing Teacher. Value Chain Analysis. Marketing Teacher Website accessed on August 7, 2009 at http://www.marketingteacher.com/Lessons/lesson_value_chain.htm News and Events: Vietnam Brewery Limited (VBL) Danang opened, accessed on Friday, August 14, 2009 at http://www.danang.gov.vn/home/view.asp?id=83&ID_tin=14859&id_theloai=696. Net MBA: The Value Chain, Porter’s Generic Value Chain, accessed on Monday, August 17, 2009 at http://www.netmba.com/strategy/value-chain/. Pfitzer M, Krishnaswamy R 2007: The role of food and beverage sector in expanding economic opportunity, accessed on Monday, August 17, 2009 at http://www.hks.harvard.edu/m-rcbg/CSRI/publications/report_20_EO%20Food%20&%20Beverage%20Final.pdf. 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