EXECUTIVE SUMMARY:

Anheuser Busch is one of the leading brands of beer established in St. Louis, Missouri, United States. Anheuser Busch has grown to be one of the world’s largest beer companies offering the world’s top two selling beers, Bud Light and Budweiser. Chinese beer market is an increasing market with a huge potential. Though there is a huge foreign interest on this market, most foreign investment usually failed. In 2004 company acquire Harbin brewery in China. Foreign companies tend to face problem as provincial regulation are there to protect local companies and furthermore to keep the tax revenues within province. Regulatory roadblocks were designed to keep tax revenues at home. Many recognized global brands were unable to achieve their company goals because the company really didn’t understand the customer taste and preference.

Anheuser-Bush entry into China was in 1993 through 5% participation to the capital of Tsingtao brewery, the internationally renowned Chinese brewer based on the East coast and later in February 1995, through a $140 Million acquisition of 80% stake in Zhongde Brewery, a large brewery in Wuhan, in Hubei province, eastern China. The company produced its global brand “Budweiser” in Wuhan and engaged a massive advertising campaign to build the name as a premium brand all over China. The results were not as expected due to the fragmented nature of the market, the severe competitive rivalry in the crowded premium segments and the difficult logistical problems in transportation, warehousing and distribution. The market share of Anheuser-Bush in China in 2003 was around 1%.

Finally, we outline three major strategies that AB could follow: market development, horizontal integration, and transnational strategy. Of these three strategies, is the transnational strategy for it to be adopted by AB. The transnational strategy best deals with the issue of keeping prices low through increased economies of scale and the need for local responsiveness simultaneously.

COMPANY PROFILE

Anheuser-Busch

Based in St. Louis, Missouri, Anheuser-Busch is the leading American brewer, holding a 48.3 percent share of U.S. beer sales to retailers. The company brews the world’s largest-selling beers, Budweiser and Bud Light, and distributes these and many other popular brands through a strong network of more than 500 independent wholesalers. Anheuser-Busch operates 12 breweries across the United States, is a major manufacturer of aluminum cans and has been a leading aluminum recycler for more than 30 years.

Anheuser Busch and its employees build on a legacy of corporate social responsibility by focusing on three keys areas: promoting alcohol responsibility, preserving and protecting the environment and supporting local communities.

• In the past three decades, Anheuser-Busch and its wholesalers have committed more than $875 million in national advertising campaigns and community-based programs to encourage responsible drinking and prevent underage drinking and drunk driving.

• Anheuser-Busch reduced total water use at its breweries by 34 percent in the last three years and the company has been a leading aluminum recycler for more than 30 years.

• Since 1997, Anheuser-Busch and its Foundation have invested in local communities through donations of nearly $475 million to charitable organizations. The company also has provided more than 70 million cans of drinking water to people impacted by natural and other disasters since 1988.

Company Vision and Mission

VISION

“Through all over our products, services and relationships, we will add to life’s enjoyment.”

MISSION

• Be the world’s beer company.

• Enrich and entertain a global audience.

• Deliver superior returns to our shareholders.

| | |

STATEMENT OF THE PROBLEM:

The case’ main problem is about Anheuser Busch and its takeover with the Harbin Brewery Group. AB had won the takeover battle for Harbin Brewery Group Ltd., the second largest brewer in China. AB won the battle by a price of $720 million dollars and now the problem is if AB’s venture was really worth the risk. One of the biggest challenges that they will face is the challenge of gaining market share in a country mainly looking at cost and is dedicated to cultural tastes as well through the venture.

OBJECTIVES:

• Be the world’s leading beer company.

• Enrich and entertain a global audience.

• Deliver superior returns to our shareholders

• Increase market share in Northeast China and become the dominate market shareholder within the next 10 years.

• Move the company’s flagship brand into the premium category and achieve coverage of the larger economy segment through acquisitions and joint ventures.

• Intensify the competition between Harbin and China Resources Brewery, the two breweries dominating the Northeast China market.

INDUSTRY ANALYSIS:

The beverage industry is extremely competitive, with private labels greatly influencing the environment. A few global beverage giants produce many brands, but those brands fall into self-contained categories as well. Thus, the ?beverage market is not really one market; it is a collection of markets with many different types of products, processes and requirements. The beverage market includes several different products that can be grouped into two main categories: alcoholic (beer, wine, spirits) and non-alcoholic (carbonated soft drinks, juice, water, sports drinks, etc.). Each category, and often each type, of beverage have its unique issues and needs.[1]

The beer industry produces more than 70 styles of beer worldwide, with some made exclusively in certain countries. Consumers have their pick when it comes to taste, with options including ales, lagers, pilsners, bocks, wheat and stouts. All classic styles of beer originally came from the northern parts of western and central Europe.[2]

The modern Beer Industry was built upon a solid foundation of industry integrity, corporate responsibility, a strong work ethic, and great foresight of industry leaders. Some of the accomplishments of the past years are clear extension of practices and principles established in the 1930's. While the brewers of the 1930's could not have imagined the global reach of brewers in the 21st century, their values and commitment to the future were critical to the industry success. Those qualities remain alive and strong today in the Beer Industry and in thousands of men and women working in Beer companies throughout the world.[3]

The Chinese beer market has grown at an astounding pace in recent years, spurred on by the massive levels of foreign investment in the market, along with the rise in the average levels of consumer spending in China, thanks to the economic reform policies of the government. China is the largest national beer market in the world. Thus China is an important market, which needs to be understood more clearly. Despite its huge market size, there remains great scope for development, and many new opportunities are still available in China. Per capita beer consumption in China is continue to rise but the development in the market will in future rely much more on raising the average value of purchases, and persuading Chinese consumers (especially the growing ranks of urban middle-income consumers) to trade-up to premium products and brands. Thus the market has switched from simply achieving national and regional volume capacity to fill the market, towards developing national and regional brand share. To this end, the consolidation in the industry continues, and this increasingly means significant mergers and acquisitions between leading players in the market.[4]

Our group had analyzed China’s Brewery/ Beer Industry through Porter’s Five Force Model to understand its competitiveness. We have derived a matrix that will determine the competitive intensity and, at the same time, attractiveness of the industry. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. Below is an analysis of the Brewery Industry of China using Porter’s Five Force Matrix:

|PORTER’S FIVE FORCE MODEL |ANALYSIS |
|Threat of New Entrants (HIGH) |China’s beer market was already populated by hundreds of small, unrelated, fragmented |
| |producers. |
| |Foreign brewers follows a strict for-profit orientation from the local government |
| |Economies of scale in marketing, production and distribution |
| |Government regulations |
| |Distribution system (bicycle and trucks) |
| |Distribution Network (supermarket, food store, convenience store) |
|Bargaining Power of Buyers (LOW) |Average Chinese Beer customers are poor, live in agricultural heartland and are extremely |
| |price conscious |
| |No loyalty to any particular brand |
| |Twice as much of beers is consumed at home as is consumed in bar & restaurant |
|Bargaining Power of Suppliers (MODERATE) |Suppliers are quite fragmented |
| |Between 500 and 1 000 firms manufactured beer in China |
| |Foreign brewers are willing to pay high prices for even minority positions in local |
| |breweries |
| |Consolidated suppliers of bottles/cans |
|Competitive Rivalry in the Industry (HIGH) |There are no dominant national or international brewers |
| |There are only powerful regional brewers |
| |The top 5 firms in the industry generate 38% of the result of the market |
| |Creative and enticing advertising by majors. |
| |Growing popularity of micro-breweries and other craft-beers. |
| |Alternative: expansion to super-premium beers and other segments with lower demand |
| |elasticity. |
|Threat of Substitutes (HIGH) |Different brands of beer |
| |Non-alcoholic drinks (juice, soda, water) |
| |Substitutes depends on the 4 different regional location of Chinese customers |

China’s Brewery Industry is an attractive market due to the sheer size of its market, its population, and its natural resources. Also, its market was already the largest in the world and still possessed the largest growth potential.

COMPETITOR ANALYSIS:

|Competitors |Resources |Capabilities |Core Competencies |
|TSINGTAO |- Over the years, Tsingtao had |- The company has parlayed its early |- Market consolidation |
| |acquired 45 smaller rivals and |founding to build a distinctive |- Most widely recognized beer brand|
| |retained most of their brands. |position of advantage in its home |in China and the closest to |
| |- A healthy export business that |market. |claiming national stature. |
| |saw its brands enter 40 different |- It can build a significant position|- Strongest markets were in the |
| |countries. |in the central provinces due to its |populous East and the |
| | |being well known. |North/Northeast provinces. |
|CHINA RESOURCE ENTERPRISES |- Well known for its Snowflake |- Has launched an aggressive |- Low-cost leader |
| |brand |acquisition strategy within the |- Second largest brewer in the |
| |- SABMiller from South Africa had |context of its regional dominance. |country |
| |entered into a joint venture with |- Acquire local brewers with |- Particularly dominant position in|
| |CRE in the northeastern China, |established brand reputations in |the southwest and central |
| |called CRB. |fairly small markets. |provinces, both regions known for |
| | | |fairly low levels of disposable |
| | | |income and a taste for economy |
| | | |brews. |
|BEIJING YANJING GROUP |- Developed China’s leading brand |- Pursue its national ambitions. |- Advanced Distribution |
| |of local beer, Yanjing. |- Develop other brands that could |- Its mainstay was the Beijing |
| |- Yanjing occupies the pride of |surpass the success of Yanjing. |region where it held an |
| |place among domestic brands for |- Being a relative newcomer, BYG can |unassailable 85% share of the |
| |over seven years and was always |widen its market position and expand |market. |
| |ranked among the leading consumer |in different areas. |- Impressive positions in the |
| |brands in China. | |populous and wealthy eastern and |
| | | |north/northeastern provinces. |

EXTERNAL ANALYSIS:

|External Analysis |Implications |
|Quickly Growing population |China was becoming more prosperous and was bilging at the seams with a population segment in|
| |the prime drinking bracket. There was money to be made, or so it seemed. |
|No loyalty to any brand |At the current time, Chinese consumers don’t have loyalty to a particular brand. You don’t |
| |say, ‘This guy’s a Budweiser drinker’. Tomorrow he’s a Becks drinker and the day after, |
| |Foster’s – whatever is going. |
|Gain of market share by foreign brands |In China’s leading cities, a pub culture was emerging, complete with an array of top global |
| |brands that were sold at premium prices. |
| |Much of the clientele lived in the coastal region were exposed to products from the West. In|
| |these markets, global brands did carry the allure and cachet that they did in developed |
| |countries. |
|Growing beer consumption in China |China’s thirst for beer had become prodigious by the late 1990’s. The market was already the|
| |largest in the world and still possessed the largest growth potential. |
|Lots of competitors |The market for beer in China was quite fragmented. It was estimated that there were between |
| |500 to 1,000 firms that manufactured beer. There were no dominant national brewers, only |
| |powerful regional ones. |
|No loyalty to any brand |Since much of the beer was consumed at home, brands did not seem to matter very much in |
| |general. Consumers seemingly did not form any allegiances to particular brews on the |
| |strength of either the brand or the taste, favoring price over all else. |
|Foreign investors have to follow some |Foreign investors had established presences in the Chinese market through licensing and |
|restrictions (interest charges) or establish |agreements with local producers. |
|presences through licensing agreements |The Chinese government had for many years required all foreign entries via JVs. This |
| |requirement usually constrained the foreign investor to a limited set of local partners who |
| |had been identified by the government. |
|Lack of centralization in China’s government |Although most Westerners believed China to be highly centralized and bureaucratic, in |
| |reality the country always operated with an extremely decentralized power structure in which|
| |the national Chinese communist government simply added an additional layer of bureaucracy. |
|Poor infrastructure as an obstacle for efficient |The Chinese distribution system was notoriously inefficient and corrupt. The ability to |
|distribution system |control and monitor the distribution of a product, largely taken for granted in most |
| |industrialized countries, was still an immense challenged in China. |

TOWS ANALYSIS:

| | | |
| |OPPORTUNITIES |THREATS |
| |Rapid increase in population |Countless numbers of competitors |
| |No loyalty to any brand |No loyalty to any brand |
|External |Gain of market share by foreign brands |Foreign investors have to follow some |
| |Growing beer consumption in China |restrictions (interest charges) or establish |
| | |presences through licensing agreements |
| | |Lack of centralization in China’s government |
|Internal | |Poor infrastructure as an obstacle for efficient |
| | |distribution system |
| | | |
| | | |
|STRENGTHS |S-O Strategies |S-T Strategies |
|Anheuser-Busch is the leading American brewer |Continue acquisition of companies in China to |Horizontal integration - acquisition of smaller |
|Hardin Brewery is the second largest brewer in China |gain market share |breweries |
|Strategic alliance with Tsingtao |Offer lower cost products to compete with the |Increase brand loyalty |
| |largest segment of beer drinkers. |Transnational strategy |
| |Increase brand loyalty | |
| |Market development | |
| | | |
|WEAKNESSES |W-O Strategies |W-T Strategies |
|Harbin Brewery Group passed through multitude of |Market development |Horizontal integration - acquisition of smaller |
|ownership changes beginning in 2001. | |breweries |
|AB is highly dependent upon regulatory and | |Innovation |
|legislation changes | |Transnational strategy |

ALTERNATIVE COURSES OF ACTIONS:

|STRATEGIES |PROS |CONS |
|Innovation |Better performance |Upfront cost |
| |Savings in the long run | |
|Market development |can establish your company as the industry |requires additional time/effort that may/may |
| |leader |not result in optimal allocation of resources |
| |it enhances the rest of your marketing efforts| |
|Cost-leadership strategy |Protected from industry competitors by cost |Technological change that nullifies past |
|Improve their cost-effectiveness |advantage |investment or learning |
| |Less affected by increased prices of inputs if|Low cost learning by industry newcomers |
| |there are powerful suppliers |Inability to see required product or market |
| |Less affected by fall in price of inputs if |change |
| |there are powerful buyers |Inflation in costs |
| |Ability to reduce price to compete substitutes|Competitors may lower their cost structures |
| |Low costs and prices are a barrier to entry |Competitors may imitate the cost leader’s |
| |Cost leaders are able to charge a lower price |methods |
| |or are able to achieve superior profitability |Cost reductions may affect demand |
| |that their competitors at the same price | |
|Strategic cost savings |Ability to estimate the cost of individual |it is very difficult to implement changes to |
| |products and services precisely. |something as fundamental as a company’s |
| |helps identify inefficient or non-profitable |“cost-profit structure” |
| |products or activities that eat into the | |
| |profitability of efficient processes or highly| |
| |can provide an opportunity for the company to | |
| |carry out radical reorganizations to bring | |
| |things more in line with the overall strategy | |
| |prove to be profitable on a sustained basis | |
|Horizontal integration |Achieve Greater Economies of Scale |Synergies may be more imaginary than real. |
| |Synergy, economies of scope |Substitutes markets are often different. To |
| |Increase its market share |turn a n acquisition into a success is a big |
| |Reduction in average cost as a result of |and lengthy management challenge. |
| |rationalization |Reduction in competition, or even monopoly, may|
| |Defense against substitutes |lead to anti-trust issues |
| |Reduction in competition | |
| |Fulfilling customer expectation | |
| |Increased negotiation power. Get more leverage| |
| |over powerful suppliers or customers | |
|Increase brand loyalty |First mover advantage |Consumer: |
| |improve the way it communicates with and deals|Overpaying |
| |with its customers |Discontinuation |
| | |Missing out on features |
|Transnational Strategy |Cost reduction |Very difficult to implement & manage |
| |Reducing duplication of assets |Organizational Structures have to be very |
| |Creating global brands |complex and it can lead to |
| |Manufacturing in places that have a |Performance ambiguity |
| |comparative advantage in the production of |Confusion over corporate goals |
| |that product |Culture issues |
| |Increase market share by beating your |High coordination needs that are both formal |
| |competitors prices |and informal |
| |Core competencies can develop in any of the | |
| |firm’s worldwide operations | |
| |Reap benefits of global learning | |

RECOMMENDATION:

Anheuser-Busch (AB) is once again pushing forward in their attempt to gain market share in China. Many major global brewing corporations over the last 10 years have failed to achieve any degree of success in the tough Chinese market. Many challenges exist for foreign entrants into the Chinese market and very few foreign companies have been able to gain market share. We have determined that the strategic issue at hand is the challenge of gaining market share in a country mainly looking at cost and is dedicated to cultural tastes as well. The five major firms in the industry make up only 38% of the market. AB has purchased a 10% minority interest in the number one firm, Tsingtao. AB’s recent takeover of Harbin Brewery shows that AB believes it is the right time to start acquiring dominant players and further pursue China’s potential.

Based on the identified problem, its strengths, weaknesses, opportunities and threats, also with the consideration of the objectives, we outlined three major strategies that AB could follow: market development, horizontal integration, and transnational strategy. Of these three strategies, is the transnational strategy for it to be adopted by AB. The transnational strategy best deals with the issue of keeping prices low through increased economies of scale and the need for local responsiveness simultaneously. Through transnational strategy, they would be able to gain market share and also deliver superior returns to the shareholders. By incorporating this strategy, they would be able to intensify the competition between Harbin and China Resources Brewery, the two breweries dominating the Northeast China market and Move the company’s flagship brand into the premium category and achieve coverage of the larger economy segment through acquisitions and joint ventures. By accomplishing such, they would be able to enrich and entertain the global audience and finally be the world’s leading beer Company.

Since it very difficult to implement and manage, the company should exert enough effort and cooperate with everyone in the company and elaborate on their goals to avoid performance ambiguity and confusion over corporate goals and settle culture issues. High coordination that is both formal and informal is needed.
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[1] http://www.scribd.com/doc/18709189/Environmental-Scan-The-Global-Beer-Industry
[2] http://www.ehow.com/facts_7602011_beer-industry.html
[3] http://www.scribd.com/doc/18709189/Environmental-Scan-The-Global-Beer-Industry
[4] http://findarticles.com/p/articles/mi_m0EIN/is_20100224/ai_n50217585/