SWOT, PESTLE, Porters Five forces Model of SABMiller - Case Study Example

Contents Contents 2 2 Introduction: 3 Strategic policy: 3 Appendix SWOT: 3 Appendix 2. PESTLE: 5 Appendix 3.Porter's Five forces Model: 8 Appendix 4. Power / Interest Matrix: 11 Appendix 5. Ansoff's matrix: 13 Use and limitation of tools applied: 14 Conclusion: 14 Appendix: 15 Bibliography: 15 Introduction: SABMiller started its operations in South Africa during the apartheid era and since then grown to be one of the biggest beer brands in the world. It has taken a strategy of expansion based on organic and inorganic methods both. It is now spread over all major countries and regions of the world. This spectacular journey has been made over a period of many years through various strategic plans and processes. Strategic policy: SABMiller has been following a strategic policy which is a mix between organic and inorganic growth and also acquisitions. SABMiller acquired many companies between the period 1978 to 2005, spread over varied geographies, from Swaziland and Botswana in Africa to North and South America. It has got into tie-ups with local producers to leverage their skills and also got into joint ventures with some of them as in case of India, Angola and Zambia. It has got into distribution alliances with entities in Vietnam. It has also followed organic growth, but after evaluation it is evident that SABMiller has relied significantly on inorganic strategies in its path of development. The company's current strategic position of expansion and spreading of risks would augur well for the company, specially in the prevailing environment of economic slowdown in the western economies. The Asian economies are relatively in a better shape and this provides better growth opportunities for the brand. Appendix 1. SWOT: STRENGTH Global presence Capability of flourishing under unfavourable conditions Spreading of risk WEAKNESS South African origin Numerous and varied challenges from varied economic environments and geographies OPPORTUNITY Emerging economies like China, India, Vietnam Emerging markets still growing THREAT Local brands Protectionism Unknown conditions in newer markets SWOT Analysis: This tool analyses the strengths, weaknesses, opportunities and threats of an entity in this case of SABMiller. Strength: SABMiller global presence, which is spread across different regions of the world, is a major strength. From economically developed markets like US or UK, or economically attractive markets like the rapidly developing nations like China or India, SABMiller has a presence everywhere. Being a South African origin company it is very strong in various African countries also. One of its prime strengths has been to grow and function amidst unfavourable conditions. During the apartheid era in South Africa, the company did not give up in face of hostile trade sanctions by the international community; instead it focussed on growing its business in South Africa itself for the forty years following the 1950s. The training and practice the company management received during this long period stayed with them and has been a major plus point in their portfolio, whenever they have expanded their operations later on in different parts of the world, to manage unhelpful situations and realities. Weakness: SABMiller till recently was a successful brand which had its base in Africa or to be specific in South Africa. This fact was not considered to be a positive by the business analysts, specially those form the established powers of the western part of the world namely, UK, USA. It was always pointed out that for the brand to be well accepted even in the West it had o acquire an established brand in that part of the world. In other words it was made clear that just basing upon its competence and products the South African breweries won't taste much success in the western market, instead it had to market itself hard in that region in order to gain respect and command. As a result of this in 2003 the company had to acquire US based Miller and rebranded itself as SABMiller, which has ultimately paid dividends for the company. It was not easy for an Africa based company to travel the path of success in the west. Again the very fact that the company today has numerous brands operating over a diverse geographical area of the world is fraught with challenges and tribulations of its own. Socio cultural, political and economical realities are different in different regions and to manoeuvre them to the companies advantage is not always easy. Opportunity: The company has focused primarily on South Africa fro almost four decades and only towards the start of the 1990s it initiated expansion in other parts of the world. It has just started expanding its market and brand in emerging economies like China, India or Vietnam, etc and the opportunity these regions offer in terms of future growth is enormous. Threat: Threat could emanate from the unknown local conditions in the newer markets the company is trying to penetrate. Moreover the local brands on face of bigger competition might resort to pressurising the local governments in bringing legislations or other sanctions against companies like SABMiller which would be detrimental for their business. Appendix 2. PESTLE: Political factors: Apartheid in South Africa which affected and influenced SABMiller's business strategy and plans. Protectionist measures in newer emerging economies against SABMiller. Economic Factors: Competition from local established brands and other multi nationals. Apartheid era and resulting sanctions had effects of SABMiller's operations and strategies. Not easy for a South African brand to make a mark on the world scene. Strategy of spreading risk by expanding into various geographies. Targeting growth in fast growing emerging economies. Social factors Pioneering effort in introducing the 'code of non discriminatory employment'. Had to bear brunt of social ills like Apartheid for a considerable span of time. Technological factors Use of new age technology and IT is crucial to the success of a SABMiller's operations which are spread over different continent and countries. Environmental factors Every industry has its own environmental norms and regulations to be followed in context of its production process and SABMiller is no exception. Legal factors Legal environment has changed considerably since SABMiller started its operation during the apartheid era and now i.e. the 21st century, the era of trade liberalisation, globalisation and WTO. PESTLE Analysis: This tool analyses the political, economic, social, technological, legal and environmental aspects of overall environment surrounding the industry and the company. Political: SABMiller's history is inseparable from certain political realities which have had enormous consequence on the organization. It is a South Africa based organisation and started its operation during the era of apartheid. In context of this it had to face enormous amount of sanctions and difficulties from the international community and as result after 1948 the company focussed on the South African market itself for the next 40 years almost. Later on in the 1990s the company started focusing on its expansion plans all through the world. Threat of protectionism against the company by local governments in the emerging economies and other newer markets is also there. Economic: The company began its journey during the apartheid in South Africa era and had to face international sanctions which in turn had negative effects on its business plans and prevented it from expanding elsewhere in the world, which it could only initiate in the 1990s when a proper democracy was established there. Then onwards the company took up a expansion policy which resulted in the brand's powerful presence in faraway countries of the world. It focussed greatly on emerging economies as it believed that these economies show great promise for the future due to their rising income levels. The expansion strategy and the spreading up of the business in different countries has emanated from the companies strategy based on the dictum of spreading the risks. They believed that negative performance in one region will be balanced out by a better and positive performance in other regions and this ploy has served them well. Due to its origin in South Africa, the brand did not get much positive review from critics and business analysts of Western nations. Ultimately the company relented to the views of investors and took over US abased brewery, Miller in the year 2003 and rechristened itself as SABMiller. The company has been following a mix of both organic and inorganic growth strategy. Economic opportunities and threats, both originate from the company's strategy of geographical expansion as well as organic and inorganic growth depending upon the degree of judiciousness applied in each of them. It had even diversified into areas like match making and casinos to usher in more revenues and spread risk. Social: Society and its ills have had a huge consequence on the company. Being a part of the apartheid era, it had to suffer in terms of many sanctions. Due to these the company was incarcerated within a small boundary for a long period of time. But it did not take its eyes off the path of growth and became a hugely successful brand in its own geographical area. It even became the first organisation at that point of time to come up with a socially relevant and forward thinking 'code of non discriminatory employment'. Technological: Brewing is an industry which is based on a mix of long drawn historical skills of humankind along with technological developments throughout the ages. The fact that this company has been successful proves that it has been able to strike a sensible balance between the two. Legal: SABMiller's strategy of growth through a mix of organic and inorganic path across economies ,that are developed or developing , over a period of time that spans from before , during and after the apartheid era signifies that it has had to go through many alterations in the legal environment. Environmental: The fact that SABMiller has been successfully able to expand and operate its business across varied countries and regions of the world stands testimony to the reality that it has ably handled the environmental issues and has adhered to the environmental norms and regulations stipulated for the industry. Appendix 3.Porter's Five forces Model: Intensity of rivalry: Rivalry from the big multinational competitors is generally high as all are vying for the top position. Rivalry between SABMiller and small local brands is lesser as local small brands can't compete with SABMiller which is the 2nd largest brewery in the world. Threat of substitutes: Threat to the firm's core business beer comes from other brands as well as other drinks like soft drinks or wine, the later is even increasing its popularity day by day. Ever changing taste of the consumer also decides the product she wants to consume. Bargaining power of Buyers: Avid beer drinkers are loyal to their brands of choice and its specific taste. Also SABMiller offers its beer at different price ranges, from premium to light and general. Bargaining powers of Suppliers: SABMiller can leverage its global presence by procuring raw materials from the best possible locations at competitive prices. It being a large company has the bargaining upper hand with its suppliers, who are dispersed and smaller in stature. Threat from new entrants: Its size and scale of operation provides a degree of safety against new entrants. The company systematically acquires promising entrants and grows inorganically in the process mitigating the threat. Porter's Five Forces Analysis: Intensity of rivalry: SABMiller has been pursuing the strategy of organic and inorganic growth through acquisitions and joint ventures and has been expanding its business all over the world. The intensity of rivalry in each of these markets depends upon the maturity of the prevailing operators there. In developed economies like US or UK there are big brands which are entrenched in the consumer's mind, hence the degree of rivalry is fierce and also at the same scale which is big. In developing markets there are local players who are small and therefore usually do not have the wherewithal in terms of resources to fight with a big brands like SABMiller. But the smaller players have niche market segments as their targets and are reasonably successful in their ventures. SABMiller offers differentiated products which span across the whole spectrum of product range to take on both big and small brands. Threat of substitutes: The threat to SABMiller's core business i.e. beer does not only come from beer but form other hard ,soft drinks and wine which is gaining in importance in recent years. Therefore depending upon the prevailing and changing taste of the consumer, situations might alter in favour of or against SABMiller's core business of beer. Bargaining power of Buyers: Buyers for different segments of beer market are from different socio economic sections. Beer is a drink for true connoisseurs of the drink and usually they are very loyal to the taste and flavour of their favourite brand. Untill a company drastically increases its price which affects the consumer negatively; she sticks to her favoured brand. Same should be true with SABMiller. Bargaining power of Suppliers: Suppliers play an important role in any industry and particularly in the beer industry they are crucial. The quality of the raw material i.e. malt or barley is crucial for the quality of the beer produced. Again SABMiller being a big player and important brand suppliers would want to supply to it at decent terms and they would generally refrain from strong arm tactics. Also the fact that SABMiller has expanded its chain of activities throughout the world, it can always procure the best available raw materials from different corners of the world through its worldwide network in the process saving cost and ensuring highest quality. Threat from new entrants: SABMiller is an important player in the beer industry worldwide and has been systematically acquiring smaller and big companies in conformity with its strategic plan. Smaller players find it difficult to fight with bigger ones like SABMiller but that can not rule out the possibility of new brands entering the market or newer sub brands being launched, particularly from its long time competitors like Anheuser-Busch, who would always like to encroach upon SABMiller's market share. But the inorganic strategy through with SABMiller has gained huge scales of operations world over, ensures a certain degree of safety from the new entrants, big or small. Appendix 4. Power / Interest Matrix: High Interest High Power Government Shareholders High Interest Low power Suppliers Employees Low Interest Low Power Society Low Interest High Power Consumer base Analysis through Power / Interest Matrix: This is a tool for analysis of the quantum of power and level of interest respectively possessed and shown by the different stake holders of an organisation. This matrix shows four segments under which the different stake holders are mapped and then decision is taken on what kind of relationship is to be maintained with them. (Recklies D., 2001) These segments are: High interest and high power: These stake holders have high interest in the organisation and also high level of power in their hands which could have an effect on the company. Example: the government, share holders. In case of SABMiller also the government and shareholders could have a huge effect on the companies operations through their power. In case of government it is statutory and legislative power, while in case of shareholders it is their collective might supported by the amount of stocks or equity they hold in the company. High interest low power: These stake holders though have high interest in the company yet they hold very low power through which they can't alter the company's decisions or operation. Example: Suppliers. In case of big behemoth like SABMiller, it is even more difficult for the small suppliers who are huge in number, to take the company to task for any of its actions. The balance of power in this case is heavily skewed towards SABMiller and these small suppliers can't do much in spite of high interest in the organisation. Same applies with the employees of the company who have high interest in the organisation but very low power which would yield any favourable result for them. Low interest low power: These stake holders have low amount of interest in the company and posses low power in this context. Example: Broader society as a whole. In case of SABMiller the society though likes its products but is not highly concerned about the company's functions and if anything goes wrong with the company, they would just switch over to a competing brand. Nor does the society possess high power with which it can think of influencing SABMiller. Low Interest high power: This category consists of stakeholders who have low interest in the wellbeing of the company but have considerably high power in their hands. Example: Consumers. IN case of SABMiller, the consumers are not concerned about the betterment of the company; they only want their product to be good. In case they are unhappy they would switch brands which would have huge negative effects on SABMiller's business. Implications of its current strategic position: Currently the company holds a strong position in its respective industry. It has innovatively managed its strategies of organic and inorganic growth and spread of its risk factor across different regions of the world with the view and expectation of one territory covering the loss of the other with its own better performance. Though this ploy of the company spreads the risk factor yet the same strategy could be responsible for its ruin also if it is unable to manage its huge business spread over a diverse area with equally diverse problems and challenges. The company's continued success depends on how it is able to balance the different realities in the different business units it operates in different areas. For its future strategy the company could take the help o Ansoff's Matrix. Appendix 5. Ansoff's matrix: Market penetration: SABMiller penetrated its existing market thoroughly for a span of almost 40 years after 1948. Market extension: It offered both premium brands and relatively low priced ones to different markets spread over different parts of the world. Product Development: Augmented its products and delivery skills through joint efforts with local breweries. Diversification: The company has diversified into areas like Casino and Match making. Ansoff's matrix: This matrix is useful in analysis of the company's strategies in context of products, diversification, market penetration, etc. This tool analyses the various alternatives and shows them in four categories, each signifying some special characteristics of its own. The results out of this analysis help the organisation in evaluating the possible alternative strategies and their plausible effects which ultimately helps it in choosing the right option. The four strategies are: Market penetration: Under this the company penetrates its existing market through its existing products only. SABMiller had to resort to this strategy since 1948, during the apartheid era when there were countless international sanctions against South Africa by the international community. The company did not loose heart instead it made sure that it had penetrated length and breath of the region and ultimately ended up as the number one selling brand there within the year 1979. It turned a negative situation into a positive one through focus and strategic planning. Under this category a company usually sells its existing products to the market which already prevails but it aims to penetrate it more. Market extension: This deals with taking the existing services or products to newer markets with the eye on growing the business. After a proper democracy was ushered in South Africa and racial issues were cooled off, the company concentrated on organic growth by expansion into newer markets all across the globe. SABMiller took the strategy of spreading its business into far away area like Russia, China, India, etc with the goal of spreading its risk. It offered premium brands to the consumers as it believed that these brands offered a good growth momentum and also relatively low cost products to customers who wanted it. Product development: Under this strategy a company usually develops new service or products for markets which already exist. SABMiller has concentrated in developing new brands whenever it has deemed it to be the need of the hour and it has also partnered with local existing breweries to augment its operations locally which ultimately lead to better products and delivery systems. Diversification: Under this strategy the company or the firm develops completely new products or diversifies into completely unknown territories and also in new markets. SABMiller has done product diversion which is completely disparate from its core area of business. For example it has gone ahead and acquired a Casino and also a match manufacturing unit. The company has been successful in even these ventures. Use and limitation of tools applied: These analytical tools i.e. SWOT, PESTEL, Porter's five forces, Ansoff's Matrix is no doubt useful in a broad based understanding and analysis of the realities of the beer industry in context of SABMiller. But as SABMiller is global company and its scale and area of operation is huge, it would be impossible for any tool to analyse and present the macro and micro economic realities concerned in an all-inclusive manner. This is because the verticals are many and the uncertainties are even more in reality. More over these tools are not used for calculation of financials of the company, which otherwise provide a little better view of the companies position., as the financial reality has huge consequence on any organisation's functioning. In this era of globalisation and technological changes it is very difficult to analyse the proper situation prevailing, as it keeps on changing with each passing moment like the index of a stock market. But on a broad basis these tools do try and present a birds eye view of the different possibilities and eventualities in terms of economic environment and its corresponding effect on the organisation. Conclusion: Since the days of apartheid SABMiller has travelled a long distance in its corporate journey and now spans over numerous brands and geographical areas. It is a strong brand in itself and has been able to strike a fine balance between organic and inorganic growth. Its strategic manoeuvres have mostly paid huge dividends for it and its shareholders. But in the 21st century, the business world is fraught with uncertainties and turbulences like the global economic slowdown or credit crisis and to continue to be successful the company would have to continue striving harder. Appendix: Appendix 1. SWOT Appendix 2. PESTLE Appendix 3.Porter's Five forces Model Appendix 4. Power / Interest Matrix Appendix 5. Ansoff's matrix Bibliography: Stone P., 2001, Make marketing work for you, How To Books Ltd Joyce P. and Woods A., 2001, Strategic management, Kogan page Publishers Channon F. D., 1999, The Blackwell encyclopedic dictionary of strategic management, Wiley-Blackwell Ranchhod A. and Marandi E., 2006, Strategic Marketing in Practice, Butterworth-Heinemann Read More