Mng00723 Global Business-Alcoholic Beverages Industry Assessment Answers

In the year 2010, 5 business graduates of Southern Cross University came together to pursue their dream of starting a new business. They conducted a thorough analysis of the Australian market and found a growing demand for craft beers not only from local residents, but also from tourists from other countries. So they decided to start a small brewing company named ‘CHEERS’ on the Gold Coast with an initial start-up cost of $ 500,000 (each partner contributing $ 100,000) and brew 3 varieties of craft beer.

The choice of craft beers was also to avoid competition with and differentiate from beers produced by larger and more established brands in the local market. The product was well received within this Australian niche market, and even with a slightly higher price (when compared to other mainstream beer brands), demand for CHEERS’ varieties did not seem to deter.

In the following 6 years, the business experienced significant growth. Turnover increased from $ 2.5 million in the financial year 2010-2011 to $ 30 million in the financial year 2015-2016. Number of employees also increased from 8 to 28 during the same period.  However, growth of the business has somehow stalled since end of 2015, and the management team at CHEERS realised that they will need to look for overseas market to maintain the growth momentum. They looked into numerous potential target markets and shortlisted 2 countries – Brazil and India.

You, being a recent recruit as an International Operations Manager at CHEERS, have been asked to prepare a report (2500 words) for the company’s executive evaluating the risks and opportunities in each of these two countries and recommend the best destination for the company. As a part of this project, you have been also requested to suggest the most appropriate entry mode for the chosen country.

When completing this assignment you are required to access and use materials beyond your text and readings. As a guide you should include 15 references which may include academic sources, government websites, and reports published by international organisations and consultancies. Please place the word count for this assignment on the cover sheet. 10% more or less than the stated word count is acceptable. Executive summary, table of contents, tables, visuals, references and appendices will not be included in the word count. The marker may, at their discretion, discontinue marking if you go above 10% of the recommended word limit.

Some suggestions/tips: 

For this assessment task, you are expected to demonstrate your understanding of the following:

• How to assess country potential through an analysis of risks and opportunities. Risks that should be emphasised (but not limited to) in particular are those relevant to brewing businesses such as cultural and legal aspects, government regulations and financial/currency risks. Opportunities may include (but not limited to) market size, economic growth and trade agreements between the 2 countries.
• How to identify the best market entry strategy based on the business type and host country business environment (this includes the level of economic integration between home and host country, the political and legal environment of the host country). The recommended strategy must be well justified based on all the factors (e.g. organisational goals and objectives, resource requirement, degree of control required, risks in the target market, etc.) to consider when deciding entry strategy.

The company is experiencing a considerable growth during last 6 years. Now, the management team at the company is planning to expand its business in overseas market. For expansion, the company has selected two emerging markets, i.e. Brazil and India. This report examines different aspects about analyzing both the markets in context of expansion of CHEERS. It analyses the risks and opportunities for organization in both countries. Furthermore, it includes a specific destination for expansion and justifies the decision for choosing this specific market. At the end, there is the discussion about the proposed market entry in the chosen market.

Analysis of Risks and Opportunities 

Emerging markets are the markets, which are emerging in the developing nations to offer identifiable business opportunities. These markets present some risks and opportunities for both small and large corporations, which are looking for acquiring new business and expanding its existing business in new countries. These risks may arise as these new markets come with the new expectations and needs and opportunities may arise due to innovation and adoption of new and effective business processes and systems (Deresky 2017). The organizations need to create a plan to mitigate these risks.

Brazil

Brazil is an emerging market, where each and every business may grow effectively. There is a significant growth in some specific Brazilian producers, which currently have major positions in the country. Brazil is the third largest beer producer in the market and comes in the premium sector in the industry. The business people are forecasting the growth of 13% in this sector for past decade (Gammelgaard & Dorrenbcher, 2013). The market has too much potential that craft and special beers have attracted the attention of people. In this country, there are some leading players, which are producing craft beer in Brazil, i.e. AmBev, Wals, Germania, Colonia Pilsen, New Age etc.

Risks 

Risks are the threats, which can come in the way of an organization, when it expands its business in new and emerging market. As CHEERS is planning to expand its business in Brazil, so it may confront some threats or risks in this process. The expected and related risks are discussed below;

Government Regulations

In looking for the overseas market, CHEERS is seeking to expand business in Brazil country. The organization may face the issues related to government regulations and taxes. The government regulations and tax system in Brazil are very much complex and it is very important that CHEERS understand them prior to entering in the market. Brazilian government is making more money by increasing the taxes. The existing players in the Brazil are facing the issues related to country’s fiscal complexity. There are eight types of taxes, which are imposed on drinks logistics and supply chain. The examples are like; federal VAT, State sales tax, ICMS, profit sharing taxes etc.

The government is campaigning against the drinking and levying penalties, while public drive in drunken state. These risks may influence the business growth of CHEERS in the Brazilian beer industry. The organization needs to understand before entering in the Brazilian market (Box 2017).

Legal Aspects

Brazil has complicated labor laws and there are very much restrictions on the location of alcoholic beverage factories and plants. The country refers a federal law related to drink driving bans the on-plants operations to offer the alcoholic beverages, if their stores are next to the highway. There are different restrictions on the import and sale of craft beer and other alcoholic drinks. It in turn can decline the sales of beer of the company (Hill, 2008). For example; there is a law, i.e. named as “Lei Seca”, which decreased the consumption of alcoholic products in night clubs and bars due to strong supervision. The rules and regulations in the communication, like; the warnings about drinking and driving and selling the beer products to under age population can increase the time spent and cost of advertising in Brazil.

Competition

Furthermore, CHEERS may face the risks due to strong players in the beer industry. As mentioned above, Brazil is third largest beer producer in the world that already has well-established players in this alcoholic beverage industry. In the industry, AB InBev is the biggest competition that is popular as largest beer producer in the world (Hadi, 2015). This Brazilian Brewery is dominating the entire beer industry in the country.

Opportunities 

The organization may have various opportunities by entering into Brazil beer industry, which are stated below;

Market Size

As per the Kirin Holdings Report, 2013, Brazil was the third largest nation in the world by the consumption of alcoholic beverage products. It is behind United States and China. The country has held 6.6% of the global market share. The demand and preferences of consumers are shifting from the mass consumption of the beer to the craft beer consumption (Kipley & Jewe, 2014). It can assist CHEERS in increasing market size in new country.

Growth of Business

In Brazil, CHEERS may have the opportunities to grow its business in competitive beer industry. The organization can grow its business in the country by offering the craft beer with different varieties and flavors. Brazil hosts various sports events, like; Summer Olympics and World Cup. The company can take its advantage to grow the business and generate the revenues. Additionally, the organization can sponsor these events. By doing this, company can make and develop a strong brand name, reputation, image among people. In this industry, there is a higher growth and lower failure (Landrum, Gardner & Boje, 2014).

Increased Gross Domestic Product

One of the major factors that can develop opportunities for CHEERS is Gross Domestic Product (GDP). The GDP of country is increasing continuously, so the people have higher purchasing power and capacity to spend money on leisure. So, it will be beneficial for the organization to expand business in this country. It can increase the sales and revenues of CHEERS in emerging market.

India 

The beer market in India is expanding in different countries all over the world. Beer consumption in the country is increasing at the rate of 12%.  There are many international players, who are creating a competitive business environment for new players. Carlsberg is one of these players. Indian beer industry has been increasing rapidly over last 10 years because of expected changes and demographic trends (Laufs and Schwens, 2014).

Risks 

“CHEERS” is planning to expand its business in Indian market. In this process, the organization may face some risks, which can have impact on its business.

Political and social factors

India is the biggest democracy in the world. There are some political and social factors, which may cause threat or risk for the organization. The political scenario in India is very different from rest countries in the world. Any organization, which is venturing in Indian market, will need to study its political environment deeply. In India, different states have different rules and regulations for alcoholic beverages.

Some of the states like; Gujrat are labeled as Dry states, where sales and distribution of beer or craft beer is totally banned. In this country, the advertisement and promotion of the alcoholic beverage is also banned. So, CHEERS may face these political and social risks in India (Madonna, 2014). The government is very much concerned about anti-social behavior and binge consumption of beer and other alcoholic products. Moreover, there are various tight social policies on the consumption of alcoholic beverages. This can decrease the sales and overall performance of CHEERS.

Competitive Pressure

Competition is one of the major forces that can pose threat to the business of CHEERS in India. The country already has some international players. There are so many competitors in Indian Beer industry, such as; Carlsberg, Budweiser, Corona, Heineken etc. In India, industry rivalry may create an entry barrier for the company to successfully establish its business in the country (Machado at el, 2017).

Legal and Regulatory Aspects

Moreover, CHEERS may face the risks related to the legal and regulatory issues. As discussed above, alcoholic beverages are fully banned in some of the states of country. There are different acts and laws, which need to understand in making entry in this brewing industry, such as; Licensing act, 2003, Private Security Industries Act etc. As the laws and regulations are different in different parts of the country, so the organization needs to play smartly in advertising and promoting its products in the country (Piekkari, Welch and Welch, 2014). It can influence the business of organization.

Opportunities 

In India, the organization may have opportunities, which may enhance its business operations in the country’s market. These opportunities are stated below;

Market Size

By expanding its business in India, CHEERS can increase its market size in India and its home country. The consumption of alcoholic beverages in India is very high; it will assist CHEERS to cover a huge market share in the production of craft beer. Microbreweries may have higher growth opportunities in India (Sankrusme, 2011).

Economic factors

Economic conditions in India are enhancing continuously. The Gross Domestic Product is forecasted 2.965 trillion. Country has a continuous growth in its Per Capita Income. The buying power of Indian customers is very high. It is causing increase in the consumption of beer in country. CHEERS can take advantage of this economic factor in India and expand its business. It can increase the sales of CHEERS’s craft beer in India (Schmitt, 2011).

The Selected Destination Country (Brazil)

For overseas market, CHEERS should select Brazil as a destination country. It will be beneficial for the organization in the future (Successive, Collin, Johnson and Hillexplore, 2014). The beverage industry in Brazil has a significant importance for the national economy, not only in the value of production, but also because of innovation, which the industries in Brazil have currently experienced. The company should choose Brazil over India, because the situations are more positive in this country.

The political and social factors are major forces, which can affect the business of CHEERS and its revenues. This decision can be taken by the company by considering the fact that there are more opportunities for the company. In this craft beer industry, the risks are also fewer (Davies, 2010). Currently, Brazil is the eighth largest economy in the world and it is estimated to grow to become fifth largest in some years. So, it will be beneficial for the organization to survive in this economy. Domestic output and performance of the nation is also very strong, so it will be good for an organization to expand business operations in Brazil country.

Proposed Entry in Chosen Country (Brazil)

When an organization enters into a new market, it looks for a specific set of customers to increase its overall customer base and diversify its business operations. An effective market penetration strategy depends on the aptitude of the company to fulfill the needs and demands of customers. The decision of how to enter in an emerging market may have a considerable impact on the outcomes of expansion. Entry in the international markets can be attained by using different market entry modes.

There are some major entry modes, which can be adopted by the organization while entering into foreign market, such as; joint venture, exporting, sole venture, licensing and exporting and merger and acquisition (KPMG, 2017). Choice of entry mode plays an important role in process of business expansion in international market. After understanding the goals and objectives of the organization, it should choose the entry mode.

Location advantage of Brazil, such as market size, Brazil is one of the biggest beer producers in the world and contributes to the national economy. In this analysis, it is suggested that CHEERS should go with the licensing agreement (Vashishth & Tripathi, 2016). This is the most appropriate mode of entry for CHEERS in Brazil.

The organization can adopt licensing model to expand the business in Brazil. Under this market entry strategy, CHEERS can sign a licensing agreement with Brazilian companies to brew its craft beer locally and offer marketing assistance. In Brazil, CHEERS can make agreement with Ambev Brewery that can offer the company distribution and sales assistance. This market strategy can be used by the organization to develop a strong presence in huge and high demand market, like; Brazil. Licensing agreement can give CHEERS the opportunity to strengthen its international presence by establishing centers of impact on the regional extent (KPMG, 2017).  This entry mode appears most preferable mode, when CHEERS looks the requirement to enter in overseas market, like; Brazil. In the process of this model, it needs to consider the political and legal requirements of both host and home country.

As CHEERS is operating its business in Australia only, it is first time when it is expanding its business in foreign market. So, there be need of agreement with the leading players, who are experienced, knowledgeable and well-established in Brazil. It is essential to reduce the requirement for conducting research in Brazilian market. Along with this, the company can employ joint marketing strategies. With these joint marketing strategies, CHEERS can expand its business activities in Brazil and survive in new market. These strategies will assist the organization in fulfilling the resource requirement in the host country (Warner, 2010).

Thus, these are the proposed market entry options and strategies, which CHEERS can adopt while entering into chosen destination country, i.e. Brazil. These entry modes will assist the organization in successfully entering the market and surviving in Brazilian beer market. There are some other beer companies, like; Anheuser-Busch, which have already entered in Brazil with the licensing agreement and making equity investment. If the company chooses other modes of entry, they will be expensive in comparison to licensing agreement. Making partnership and mergers is very expensive for the company (Vashishth & Tripathi, 2016). So, the organization should focus on choosing this entry mode. In this way, CHEERS can also make these types of agreements in the country to establish international presence.

Conclusion 

From the above report, it can be concluded that it is a good decision of CHEERS to expand its business in other countries. Although, both India and Brazil offer opportunities to the company, but Brazil is the best destination market for CHEERS to enter in the international market. The organization may have various opportunities in this market, which have positive impact on overall growth of beer business in both host and home country. There are so many reasons behind the fact that company should choose to enter in the Brazilian beer market.

It will enhance the performance of the company like it has during last five years. By this expansion, the organization will be able to achieve its predetermined objective in this competitive business environment. The above analysis about CHEERS indicates that it should focus on some specific mode of entry, which can assist the organization in surviving in new merging market.

References 

Box, M., 2017. Bring in the brewers: business entry in the Swedish brewing industry from 1830 to 2012. Business History, pp.1-34.

Davies, M, 2010, 4 Reasons to Expand Your Business to Brazil, American Express Company.

      Deresky, H, 2017, International management: Managing across borders and cultures, Pearson Education India.

Gammelgaard, J. & Dorrenbcher, C, 2013, The Global Brewery Industry, Edward Elgar Publishing.

Hadi, M, 2015, How a tiny Brazilian brewery came to dominate the beer industry, Retrieved from https://www.businessinsider.in/How-a-tiny-Brazilian-brewery-came-to-dominate-the-beer-industry/articleshow/48993002.cms. 

      Hill, C, 2008, International business: Competing in the global market place, Strategic Direction, 24(9).

     KPMG, 2017, Developing a Marketing Strategy for Brazil, Retrieved from https://www.kpmg.de/docs/Folder_Market_Entry_ing-Final.pdf.

Kipley, D. & Jewe, R, 2014, Effective Strategic Management: From Analysis to Implementation, Cognnella.

Landrum, N. E., Gardner, C., & Boje, D. M, 2014, An integral foundation for international strategic management, Humanistic Perspectives on International Business and Management, 120-133.

Laufs, K. and Schwens, C., 2014. Foreign market entry mode choice of small and medium-sized enterprises: A systematic review and future research agenda. International Business Review, 23(6), pp.1109-1126.

Madonna, A, 2014, Indian beer market growth certain despite hurdles: United Breweries, Retrieved from https://www.business-standard.com/article/companies/indian-beer-market-growth-certain-despite-hurdles-united-breweries-114030500280_1.html. 

Machado, P.P., Claro, R.M., Canella, D.S., Sarti, F.M. and Levy, R.B., 2017. Price and convenience: The influence of supermarkets on consumption of ultra-processed foods and beverages in Brazil. Appetite, 116, pp.381-388.

Piekkari, R., Welch, D. and Welch, L.S., 2014. Language in international business: The multilingual reality of global business expansion. Edward Elgar Publishing.

Sankrusme, S, 2011, Marketing Strategy Competition among Beer Companies before Liquor Liberalization, Journal of Marketing Development and Competitiveness, Vol. 5 (6), pp. 65-82.

Schmitt, C, 2011, Brewing Industry Analysis, The MIT Press.

Successive, U.K., Collin, J., Johnson, E. and Hillexplore, S., 2014. Government support for the alcohol industry: promoting exports, jeopardising global health?. BMJ, 348, p.19.

Vashishth, A. & Tripathi, N., 2016, ‘Study on Market Analysis of Indian Beer Industry, International Journal of Business and Management Invention’, vol. 5, No. 7.

Warner, A.G, 2010, Strategic Analysis and Choice: A Structural Approach, Business Express Book.