Carlsberg project Essay
Carlsberg is one of the leading breweries in the world, and in the meantime it is one of the fastest growing and best-known beer brands worldwide. A key part of Carlsberg’s strategy is to drive both domestic and international markets, in order to achieve a sustainable growth. Nowadays, the globalization narrows down the distance of the world and makes it easier for companies to enter to an unknown market compared to just a decade ago. Their business is focused in the three regions of the world which are Western Europe, Eastern Europe and Asia1.2012 annual report showed that Western Europe market declined by 3%2 and Eastern Europe beer market was reported as flat3. Only the Asian market showed strong growth over the year4.
A firm seeking to enter a foreign market must make an important strategic decision on which entry mode to use for that specific market. In this case it would be interesting to focus on Brazil as the potential market because we see an opportunity for Carlsberg group to extend their business area. Brazil is now represented as the 3rd largest market for beer in the world and as well is one of the BRIC countries. In fact, the Brazilian beer consumption has grown so fast so they have one the highest per capita consumption rates in the world (67liters annually). According to a report by research firm Bernstein, Brazilian beer sales are expected to gain a $300 million boost when the world cup 2014 kicks off next year.
1.2 Company background
Carlsberg brewery was founded by J.C. Jacobsen in 1847 outside the Copenhagen, Denmark. The first export begun at 1868 by sending one barrel of beer to Edinburg, Scotland.5 Later on Mr. Jacobsen created Carlsberg foundation and Carlsberg Laboratory.
The Carlsberg Group is the fourth largest brewer in the world. The Group employs 41,000 people and is characterized by a high degree of diversity of brands, markets, and cultures. The product portfolio consists of more than 500 beer brands. The Flagship of the company is Carlsberg beer and it is one of the best knows beer brands in the world. The Carlsberg group businesses
are mainly focused in Western Europe, Eastern Europe and Asia where they hold strong market positions. The rest of the world is mainly serviced through export and licensing agreements. Their ambition is to be the fastest growing brewer on the global scale.6
1.3 Problem formulation
How can Carlsberg Group enter the Brazilian market?
In order to answer this question we have this sub-questions to answer
– What entry mode should Carlsberg group use to enter the Brazilian market?
– How attractive is Brazilian market and culture?
– How can cultural differences influence Carlsberg sales in Brazil?
Methodology: This project combines several theories to obtain a useful theoretical framework for the research. The framework shows how to design a market entry strategy for a brewery company like Carlsberg. A market entry strategy requires the choice of an entry mode as well as a marketing plan. The market entry mode is intended to penetrate the foreign market country, the marketing plan is intended to penetrate the foreign target market. The focus of the research will be the choice of entry mode. In order to analyze the different key macro environmental factors that Carlsberg does not have direct influence on but which affect the industry and as well as Carlsberg a PESTEL was used.
The PESTEL model aims at analyzing all the political, economic, sociological, Technological, environmental and legal factors that might affect the market value of Carlsberg and in the industry analysis which aims at describing which specific industry conditions affect the brewing industry and which five forces determine the competitive intensity and attractiveness of the industry.
The industry analysis will be structured according to Porter´s five forces model and will include the following five elements: the threat of substitute products, the bargaining power of customers, and the overall competitive rivalry within the industry. The research is based on preliminary researches. The sources of this research carlsberggroup annual report, relevant sources from the internet and Euromonitor. The disadvantage of this method of researching is that the research relies on secondary data which are the opinions of other scholars instead of facts based on empirical research. Therefore informations gatheres from this sources will be used to increase the reliability and credibility of this project.
Delimitation Data collection
We have collected our data about the Carlsberg group on their website on the internet. It was not very to find our data because Carlsberg group is a big company and they share a lot of their information’s like balance sheets, annual reports, company history and etc. In the process of data collection we have used as well our books and useful PowerPoint presentations from the fronter. All the research about Brazil, Brazilian market, culture we have searched on internet databases and other relevant web sites.
GDP of Brazil is at 2.5 trillion$.
Savings rate is low in Brazil – people tent to lend money when they go shop Despite the fact that in Brazil there is huge gap between rich and poor, disposable income rose strongly in last five years and for 2013 is on the US$8,3457. Unemplyment rate is at level of 6%.
The choice of entry mode can be based on the expected contribution to profit. Choosing the right market entry mode(s) is one of the most decisive factors that can influence company’s success in a foreign market.
8In establishing export channels Carlsberg has to decide which functions will be the responsibility of external agents and which will be handled by the firm itself. While export channels may take many different forms, for the purpose of simplicity three major types may be identified:
Indirect export: In this channel Carlsberg does not take direct care of exporting activities but instead they need to work in collaboration with a domestic based company, such as an export house or a trading company. The domestic company is going to perform the involvement of Carlsberg product in the Brazilian market but such an approach to exportation is most likely to be appropriate for firms with limited international expansion objectives and also can be adopted by a firm with minimal resources to devote to international expansion which want to enter international markets gradually, testing out markets before committing major resources and effort to developing an export organization.
Direct export: In this channel Carlsberg or an exporter sells directly to an importer or buyer located in the Brazilian market area. In this case Carlsberg is typically involved in handing documentation, physical delivery and pricing policies, with the product being sold to the agent and distributor. Intermediate entry modes Intermediate entry modes include a variety of arrangement, such as licensing, franchising, management contracts, turnkey contracts, joint venture and technical know-how or coproduction arrangement.
Contract manufacturing: it operates in a way that will enable Carlsberg to have a foreign sourcing (production) without making a final commitment. Management may lack resources or be unwilling to invest equity to establish and complete manufacturing and selling operations, but contract manufacturing keeps the way open for implementation a long-term foreign development policy when the time is right. This system can enable Carlsberg to develop and control R&D, marketing, distribution, sales and servicing of its products in international market, while handing over responsibility for production to a local firm.
Licensing: This is another way Carlsberg can establish local production in the Brazilian market without capital investment. It differs from contract manufacturing in that it is usually for a longer term and involves much greater responsibilities for the national firm, because more value chain function have been transferred to the licensee by Carlsberg (licensor). In this sense Carlsberg can operate in two different approach to the licensee Stand-alone licensing agreement
Licensing plus licensing agreement
Franchising: is a marketing orientation method of selling a business service, often to small independent investors who have working capital but little or no prior business experience. However, it is something of an umbrella term that is used to mean anything from the right to use a name to the total business concept. Thus there are two major types of franchising. Product and trade name franchising
Business format package franchising
Franchising is a market entry mode that is going to that involve a relationship between the entrant which is Carlsberg (the franchisor) and the host country entity, in which the former transfer, under contract, a business package that it has developed and owns, to the latter. The franchise system can be set up as a direct or indirect system. In the direct system Carlsberg will be controlling and coordinating the activities of the franchisees directly. In the indirect system a master franchisee (sub franchisor) is appointed to establish and service its own subsystem of franchisee within the territory.
Joint venture/strategic alliances: This is going to be a partnership between two or more parties. In international joint ventures these parties will be based in different countries, and this obviously complicates the management of such arrangement. The formal different between a joint venture and a strategic alliance is that a strategic alliance is typically a non-equity cooperation, meaning that the partners do not commit equity into or invest in the alliance. The joint venture can be either a contractual non-equity joint venture or an equity joint venture. In a contractual joint venture no joint enterprise with a separate personality is formed. Two or more companies form a partnership to share the cost of investment, the risk and the long-term profits. An equity joint venture involves the creation of a new company in which foreign and local investors share ownership and control. Thus, according to these definitions, strategic alliances and non-equity joint venture are more or less the same.
Management contract: emphasizes the growing importance of service and management know-how. In this case Carlsberg supplies management know-how to another company that provides the capital and takes care of the operating value chain functions in the Brazilian market. This typically arise in situations where one company seeks the management know-how of another company with established experience in the field. The lack of management capability is most evident for developing countries. Normally the financial compensation to the contractor for the management services provided is a management fee, which may be fixed irrespective of financial performance or may be percentage of the profit. Wholly owned subsidiaries: A wholly owned subsidiary is the entering of a foreign target market with 100 percent ownership. There are two primary ways to set up a WOS; green-field operations, and mergers and acquisitions. Green-field Operation
Green-field operations refer to building factories and offices from scratch. A green-field WOS gives a multinational complete equity and management control. This control leads to a better protection of proprietary technology and know-how. In addition, a WOS allows for centrally coordinated global actions. Further, green-fields do not have problems with integrating different corporate cultures of parent companies, as is the case partially with joint venture and particularly with acquisitions. Hence, green-fields give the company more freedom and flexibility.
Drawbacks with a green-field WOS are the costs and risks involved and the slow entry speed Merger/Acquisition: Mergers are usually the result of a friendly arrangement between companies of roughly equal size, whereas acquisitions are unequal partnerships, often the product of a battle.Advantages with acquisitions are fast entry speed and the same benefits that green-field WOS have. Acquisitions share all the disadvantages of green-fields except slow entry speed. Other disadvantages are the differences in the corporate culture of the merging/acquiring companies and the result of the acquisition does not always achieve the expectations. Furthermore, acquisitions can turn out to be very expensive, because attractive partners are scarce and usually not willing to be acquired.
Brazil is the 5th largest country in the world11, both in terms of population (est. 201 million) and territory (8,5 million km2). Using a PEST analysis will enlighten which existed macro environment factors that will have influence on Carlsberg’s entry decisions. PEST analysis is a powerful yet easy tool that consists of political, economic, social-cultural and technological variables in the operating market.
Traffic accident is second –leading cause of death in Brazil. Over 40.000 lost their life in traffic every year. The Brazilian government passed the law Lei12 Seca(literally “Dry law”) in the early of 2013. This law doubles the fine for those who are caught driving drunk. The domino effects are such as consuming of alcohol on Sunday will not be prohibited in some places, or selling of alcohol after midnight in bars, restaurants are banned in some places. Additionally, imports can be very complicated due to various taxes and charges.
Import costs mainly are consisted of three taxes: import tax(II), industrialized products tax(IPI) and Merchandise and services circulation tax(ICMS). In appendix page , there is a chart showing some examples of how import taxes in brazil look like. Corruption continues to be an issue for Brazil, which ranked as 73rd out of 183 countries, in terms of governmental transparency13.
In 2012 Brazil became the fifth largest economy in the world. Brazil’s economy grew by 3.8% in real terms in 2011 to reach a value of US$2,581,501 million14 according to Euromonitor, as expansionary fiscal policy and strong export markets supported growth. In Brazil the phenomenal of rapidly increasing disposable income has produced an ever-growing domestic market. Retail, construction and public service sectors have all grown strongly as a result. Despite the fact that in Brazil there is a huge gap between rich and poor, disposable income rose strongly in last five years and for 2013 is on the US$8,34515. The success of Brazil continues to support the shift in global consumption and economic growth, from the developed economies to the developing. With consistent growth between 2001 and 2009 has pulled more than 19,7 million Brazilian people out of poverty (international poverty line: below 2 dollars per day). Also it is interesting to notice that unemployment rate is at a level of 6%16, which indicates a relatively stable labor market. In 2010 unemployment rate decreased from 25% to 6,2% compared to the year before, since then it has been stable and encouraged. Also the Brazil Real has presented as a strong currency in global trade, which has weakened the Brazilian competitiveness, through there has been interfered by the government. This factor has influenced the economic growth, as its pace shows to slow down a little bit. Decline in economic growth sends a dangerous signal for Carlsberg, because a possible entry to the market can be hampered by the fact that consumers would be more willing to save up than purchase private goods.
Key social indicators have improved over the last decade. And the Brazilian elite, or high class, is also growing significantly in tandem with the expansion of the country. Due to the high taxes percentage, there is a significant consumption happens informal. It means, that the sale does not happen through authorized-dealers. Because of the increased disposable income, more and more consumers in Brazil are beginning to buy more luxury goods such as electronics products, as these items become more available. 17Brazilians enjoy social drinking, meeting friends or workmates after work in bars restaurants, and more recently at home. The good weather in Brazil favors the consumption of alcoholic beverages, and alcohol is drank on special occasions, such as festivities, barbeques, or simple gatherings to watch football matches. Brazilians consumed an average of 78 liters of alcohol per person in 2011, up from 66 liters in 2006. Alcohol consumption is clearly a ‘male habit’, as men generally consume four times more than women.
Bottled or draft beer is the most popular alcoholic beverage among consumers. Beer accounts for around 61% of overall alcohol consumed, followed by wine (25%), spirits (12%) and ready-to-drink beverages (2%). Among spirits, cachaça is the most popular, followed by whiskey, vodka and regular rum. Women consumers tend to drink wine while men tend to drink more spirits. Ready-to-drink beverages are popular among both male and female consumers, particularly younger drinkers. Young consumers aged 18 to 24 years are the biggest volume drinkers of alcohol. According to a survey conducted in 2011 by the National Anti-Drugs Secretariat, these young Brazilians consumed 89% more than those aged 60 years-old and older. The survey also found that 39% of under-aged consumers have purchased alcohol and that more than 30% of drinkers aged up to 44 years-old usually consume five or more units on the occasions when they drink. Technological
The government has aimed to improve the railway system hence to make it to the most important shipping method, since it only represents 21% of the total shipping currently.
Over the past few years, Brazil has moved from a country with great promise”somewhere in the future” to be considered as one of the most
promising investment destination in the world. Overall, economic and infrastructure in Brazil has been rapidly developed, additionally poverty and living standard have been strongly improved to an international recognized level. Apart from cultural barriers and market difficulties, Brazil is ready for its second round of welcoming multi-international investors. Although most of them will inevitable have to face some external factors, such as corruption, governmental inefficiency, legal complications, excessive taxes etc., which can cause great disappointment for international business partners. Therefor it is vital to understand the local business landscape in order to succeed. Factors affects Carlsberg’s entry mode
The company should consider various factors, externally and internally, which will have influence on the entry mode, when they choose to go abroad.
Market (industry analysis)
The majority of Brazil’s beer market belongs to Americas’ Beverage Company (Companhia de Bebidas das Américas), known as AmBev. And since its merger with InterBrew, it is now the second biggest brewery in the world. But others breweries are also important for the whole contribution of Brazilian beer market. The market structure under which a firm operates will determine its behavior. The Brazilian beer industry is highly characterized as an oligopoly. Oligopoly occurs when just a few firms between them share a large proportion of the industry18. The figure below shows the company share of the Brazilian beer market. Ambev continues to dominate with a 63% of total volume sales in 2012. However Brasil Kirin has registered for 14,6%, and Petrópolis with 10,5%. Since companies in an oligopolistic market have full control over it, therefor they are capable of deciding the prices as it favors them, theoretically. Thus this act would be considered illegal.
Leader in the beer market, AmBev, announced new investments to increase its production capacity in the South and Northeast, along with increasing the incentive package ” Litrão” (big bottle), initially offered only in the Skol brand and is now found in almost all portfolios of brands, followed later by key competitors, consolidating increasingly packing. The deputy leader in market share, Brazil Kirin has increased in total volume share after the acquisition of Schincariol. It was the result after they spent a lot of effort and resources on Nova Schin. Meanwhile, Cervejaria Petropolis launched light beer, in order to attract consumers to a yet not-well-developed type in Brazil. Even with a strong marketing campaign, including tv commercials, Petropolis’ light beer is still restricted to a few supermarkets and hypermarkets19. Economy beer in Brazil in losing ground and its share is expected to decline over the following period. That is the result of increasing share of premium lager and its launch of new brands and packing. Brands like Brasil Kirin, Crystal and Cervejaria Petrópolis are facing a critical challenge of losing market shares. Also read why buying a franchise might be a good decision
The Carlsberg brand, by having the position of putting itself as brand Premium over the world, aims to target the consumer that appreciates the finer things in life, the status and quality. Meanwhile the brewery wants to exceed its ambition to be the fastest growing global beer company. “”Carlsberg is the name above the door. We are proud of our Carlsberg brand – for the pleasure it gives to many” comments Jørgen Buhl Rasmussen, Carlsberg’s CEO20. Carlsberg’s customers vary massively in terms of age, but mainly audience is for over 25 years of age. And Carlsberg claims itself that successful educated customers, who will be appreciating the best in the choices they make, are likely the main target consumer group.
We can divide Carlsberg’s customers in different categories. Consumer market: This group of consumer contributes at the highest level in terms of purchase power, due to this market includes individuals and households. Individuals mostly buy Carlsberg for repeat purchase whether in bars, restaurants, football games etc., while households act in case of daily use in large number. Reseller market: Carlsberg is a diverse company, operating in more than 150 countries21. This is the market where resellers buy the product from company and resell it at profit. International market: The international market means literally a market for international buyers. ExLiD (Export License and Duty Free) is responsible for the group’s export and license business in markets where Carlsberg do not have their own breweries
For a growing international business, it is a temptation to land international customers and expand overseas. In this chapter we learned that it is critical for Carlsberg to understand their customer base inside and out. We have concluded that the Brazilian beer market is presented as oligopoly. Key factors to enter such an industry is all about strong branding and marketing. For Carlsberg to be successful they must focus on variety, relationship with distributors, diversified by innovative marketing etc.
The four elements of the marketing mix; place, product, price, and promotion, are the controllable variables of the internal environment. The variable ‘place’ is also called channels of distribution. The four variables should be mixed in an optimal way to generate the best response in the target market. Managers should determine the marketing plan for a target country over a period of three to five years. The marketing plan should be adjusted on a frequent basis to meet the changes in the target market and other dynamics in the external environment. The function of the model is to develop a plan that satisfies the needs of the customers within the Brazilian markets through adaptation. Product: Carlsberg needs to know exactly what product they are going to sell to this market. Define it in terms of what it does for its customer. They must be clear about the benefit they offer and customer satisfaction.
Price: The element price refers to the amount of money that potential customers are willing to pay. The pricing strategy depends on the degree of product differentiation in the market. Together with sales volume, price determines sales revenue. The instrument price includes discounts, financing, leasing options, and allowances
Place (Channels of distribution): Carlsberg needs to know how they are going to sell this product, if they are going to sell directly from their own company or through wholesalers or retailers.
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Cultural differences are amongst the most important factors that impact international communications. Hofstede describes culture as the collective programming of the mind which distinguishes the members of a group or a category of people from those of another group. In order to succeed in international communications, Carlsberg have to understand the cultural difference in the Brazilian market as compare to the other market they have been operating in. The reason for this is that, since customers grow up in a certain culture and are used to that culture’s values and beliefs they will respond differently to marketing communications. Cultural and legal differences between the market communications of Carlsberg can cause a lot of problems in the Brazilian marketplace.
Different cultural component can have a major impact on international communications campaigns. The translation from the message strategy ‘what to say’ into a creative strategy ‘how to say it’ is even more problematic in international marketing communication than it is in domestic communications. Furthermore Carlsberg have to consider differences in media availability and popularity of different media. Due to differences in international marketing environment, a Carlsberg has to consider the major question: to what extent should it localize (adapt) or globalize (standardize) its marketing communication across the Brazilian market?
Top global rank, and being well known for a long time
High market share on Asian market
Carlsberg only operates in markets where it has a leading position and therefor can support their sales with manufactories in a reasonable scale. This strategy has resulted that Carlsberg has a leading position in a couple of countries in Asia, and has been able to obtain an impressive market share. In Cambodia and Nepal market shares are respectively 60.1% and 80%.
They have an extensive portfolio of more than 500 beer brands provide a beer for every occasion and palate. Additionally, Carlsberg is a well-known beer brand in the world. In 2011, they launched a global rebranding campaign with new label, packing design and slogan in efforts to reach out to a younger and more adventurous audience. Weakness
Non-experience on the South America beer market
Remains overly reliant on Eastern and Western Europe
Decreased sales in Eastern and Western Europe
One of Carlsberg’s weaknesses is the brewery’s facing a major challenge due to a decreased sales in Eastern and Western Europe. The Western Europe declines overall by around 3% in 2012 and the Russian market was flat. Carlsberg lacks consistency in terms of growth ambitions, due to the fact that it’d become too reliant on their existent market. Furthermore Carlsberg has not enough experience concerning penetration in the emerging countries, Africa and Middle East. It might become a concern.