South African Breweries limited (SAB) is a holding company Essay
South African Breweries limited (SAB) is a holding company whose principal line of business is brewing. Aggressive overseas expansion following the end of apartheid, however, has also given SAB ownership of, or stakes in, more than 25 breweries in the emerging markets of central Europe, China and sub-Saharan Africa. Overall, in terms of volume, a South African brewery is the world’s fourth largest brewer. SAB also has a variety of non-brewing operations, such as carbonated and natural fruit drinks and other beverages, retailing, hotels and gaming and manufacturing of safety matches and glass.
1. 2 Aim The purpose of this report is to identify the corporate logics that SABMiller have adopted over the course of the case, explain the strategic position that Sounth African Breweries finds itself in 2007, explain the implications of its current strategic position for the future of SABMiller and on the basis of the analysis, recommend the strategy that South African Breweries should follow.
1. 3 Scope The report is divided into six parts.
The first part is about SABMiller’s corporate logics which include: creating a balance and attractive global spread of business, developing strong relevant brand portfolios in the relevant market, constantly raising the performance of the local businesses and leveraging SABMillers global scale. The second part explains the strategic position that South African Breweries finds itself in 2007. To find out its strategic position, the environmental analysis such as PESTLE and SWOT (internal and external) has been used. The third part explains the implications of its current strategic position for the future of SABMiller.
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According to 2006 Annual report of SabMiller, the company has completed a three-year turnaround plan, establishing a platform for future growth. Most of the current strategies adopted by SabMiller had worked well for them. The fourth part shows some recommendations that SABMiller should use to improve their strategies and future progress. The last two sections: conclusions and recommendations have been written based on findings.
2. Corporation logics identification There are four major strategy outlined in the annual report SABMiller in 2006.
Firstly, the company successes depend on ‘creating a balanced and attractive globe spread of businesses. The second strategy is developing strong relevant brand portfolios in the relevant market. Thirdly, is constantly raising the performance of the local businesses. Last is leveraging their globe scale. ’(Economist). Those strategies may be seen as a synthesis of the learning the company has developed over its history, first weathering the political crises of twentieth-century South African history, then building it is operations in emerging and mature markets, where its expertise as ‘a turnaround specialist’ was further consolidated.
2. 1 Creating a balanced and attractive global spread of business SABMiller which has a good reputation and also take an important role in South Africa ,create a balanced and attractive business spread all over the world in the fierce international competition is their next strategic. By using this strategy will help the business accepted by the world and also can make more profit than before. The top management in this step should always close enough to customers or get sufficient feedback from the produced awareness. The early research can help the business to know difference countries have different custom.
Then can make further development cater to the needs of customers. This requires a learning organization ‘is one capable of continual regeneration from the variety of knowledge, experience and skills of individuals within a culture that encourages mutual questioning and challenge around a shared purpose or vision. ’ (Scholes 2005 P421).
2. 2 Developing strong relevant brand portfolios in the relevant market To survive in the fiercely competition, the company staff have to know the shortage of the business, and also need to manage the competitors information so that can take good position in the market.
2.3 Constantly raising the performance of the local businesses To make outstanding achievement, SAB have to constantly raising the performance of the local businesses. The strategy here is logical instrumentalism, there is a simple analogy. To move forward when you walk, you create an imbalance, you lean forward and you don’t know what is going to happen. Fortunately, you put a foot ahead of you and you recover your balance. Well, that’s what we’re doing all the time, so it is never comfortable. The same like business have to move forward show the customer you make new performance then it always works.
2.4 Leveraging SABMiller’s global scale Leveraging their globe scale can be seen as a basic promotion tool. SAB’s beer takes an important role in South Africa and even other country. So to open a new company in some countries is not too difficult. Customer will consider their good reputation then buy the product. SABMiller focus on dominating domestic beer production through acquisition of competitors and rationalization of production of competitors and rationalization of production and distribution facilities. By 1990 the process for the establishment of a multiracial democracy was irrevocably in train.
SAB invested in the development of three mega-breweries across the country. The change in the political system also eased SAB’s return and expansion through the rest of Africa. SAB using Strategy development which is means the same as formalized strategic planning systems. By using this system, it might help structure analysis and thinking about complex strategic problems. It can also help the planning horizons vary.
3. Analysis of strategy position This part of report is concerned with the strategy position of SABMiller, which is consisted by external factors and internal elements.
On the one hand, external factors refer to environment matters. On the other hand, internal factors relate to organization’s strategic capability, purposes and culture (Johnson et al 2008).
3. 1 Environment analysis – PESTEL Political: due to the inevitable establishment of multiracial democracy, SAB developed new breweries across the country. This new policy caused the SAB’s joint venture with Tanzanian government to open new market. Economic: after the racist system of “apartheid”, SAB experienced the campaign for economic sanction on South Africa.
The aim of this campaign was to restrict the business between South Africa international markets. SAB has to focus business on domestic market’s acquisition rather than international expansion. Social: there is a special relationship between the society structure change and spending level. According to SABMiller’s 2000 annual report, consumer spending increase led to the development of more varied life-style, which encouraged beer consumption. Technological: technological factors relate to produce innovation or research development activities, which could reduce cost or improve production.
In this case, SAB produced new kinds of beer to meet Europe market demand. Environmental and legal: SAB believed that listing on the London Stock Exchange could put SAB in strong position and help them to access to world capital markets. However, in 1999, after SAB listed on LSE, they found the result was not as good as they thought before. SAB needed more time to explain them in London to establish better reputation.
3. 2 Strategic capability – SWOT Strength: global business is one of the most strength.
The spread of SABMiller’s international business provides “portfolio effects”, which reduce risk in the individual country. Moreover, due to the long history of this brand, SABMiller has good brand reputation among customers. Especially in the developing markets, such as Vietnam market which is the fast growing one. Good reputation could help SABMiller expanding their capability and improving their quantity and quality in the new market. Finally, new Head of Miller Norman Adami introduced traditional SAB system of employee performance rating, which marking clearly employees performance.
Compared with pervious performance system, new system is fair enough to motivate staff. Weakness: in 2000, although listing on LSE brought SAB limited benefits, disadvantages should not be ignored. SAB over relined on developing market, which result in their share price lost 15. 55 per cent. Also, the failure of major acquisition of first-world brand was another negative signal to share price (SAB annual report 2000). In 2003, SAB acquired Miller because they needed a mature cash cow. However, this acquisition activity led SAB lost more market share than they expected. Match each of the international organizations below with one of its functions
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Furthermore, global business brought SAB most “soft currencies” and lost profit in “hard currencies”, which was another weakness for SAB. Threat: when SABMiller entry into new market, there were lot of uncertainty of new environment. SABMiller invested US$550m to takeover Harbin Brewery in China, which is the beer market growing at 6-8 per cent per year. However, China market is not only highly attractive market but also a costly one. In the new market, SABMiller needs time to set up reputation and collect information to do research. 4. Implications of current strategic position for future
This part is co-related with the second part. In this, we will see the effect of current strategies on the future of SabMiller. We know the strategies implemented by SabMiller and also we did SWOT analysis in part b. Following are the core concepts for making strategy. A strategic capability refers to the resources and competences of an organization needed for it to survive and prosper. We can explain strategic capabilities and the competitive advantage with the below table. Tangible resources are the physical assets of an organization such as plant, people and finance.
While intangible are non-physical assets such as information, reputation and knowledge. The following are the resources are considered as vital for an organization to function smoothly.
1. Physical resources – such as machines, buildings or the production capacity of organization.
2. Financial resources – capital, cash. Debtors and creditors and suppliers of money.
3. Human resources – including skills and knowledge of employees and other people in an organization networks.
4. Intellectual capital – is an intangible resource which includes patents, brands, business systems and customer databases.
Importance of framing effective strategies:
5. They relate to an activity that underpins the value in the product features. 6. They lead to levels of performance that are significantly better then competitors.
7. They are difficult for competitors to imitate. According to 2006 Annual report of SabMiller, the company has completed a three-year turnaround plan, establishing a platform for future growth. Most of the current strategies adopted by SabMiller had worked well for them. The Miller group acquired by Sab has made a very good progress in North America.
The main reason behind this success was that the company had kept their prices very firm comparing to their competitors. The investment of US$550m to takeover Harbin Brewery in China has been fruitful. The sales data collected in the twelfth century year showed that SabMiller is second largest brewer company in China and the demand in the country was more than satisfactory. The whole year saw good progress done by company. Well not only in China, but in the year 2005 SabMiller bought out its joint-venture partner in India as well.
But unfortunately in terms of profit it was not much impressive though there was demand for the volumes but profits were below par. The main reason behind this was the high regulations in Indian Beer market. Hence the profit there was below expectations. By implementing the new strategies adopted by SabMiller the company’s reputation and goodwill spread world-wide. In the meantime it also grew well in Vietnam. In 2005, Sabmiller merged with Groupo Empresarial Bavaria, second largest brewer company in South America, after South Africa
The 2006 annual report of the company showed that a change in emphasis stressing the need for consolidation rather then acquisition is required. Thus we can say that the current strategies adopted looks very much bright for the future of SabMiller. The demand in the market has gone up and the company’s reputation is also good. The company has expanded which has resulted in many new customers, which will boost the sales in the future. 5. Recommendations This is the final part of the assignment where on the basis of our analysis, we have framed some recommendations for the strategies South African Breweries should follow.
The first and foremost important thing is strategic business units as most of the organizations have a number of SBUs, because they compete in different markets or market segments. These SBUs may not be organizationally separate but it may required be necessary to consider if different competitive strategies are adopted. Thus it helps to identify SBUs of an organization. The next base is strategy is considering SBUs like price-based strategies, differentiation strategies, and hybrid and focus strategies. 5. 1 Differentiation Strategy:
It provides for products or services that offer benefits different from those of competitors and are valued by customers. The main aim is to provide competitive advantage by offering better product or services at same price or just slightly higher price. The success of differentiation approach is dependent on two key factors: 1) Identifying and understanding the strategic customer The strategy is very important in understanding which customer to target or focus. It’s essential to think for a company to think on behalf of customers. For example, how customer will react to that particular product?
2) Identifying key competitors Who is organization competing against? Its very necessary to understand who is the competitor and which policies they implement.
3) Difficulty of imitation
4) Extent of vulnerability to price based competition.
5. 2 other recommendations SABMiller got fully incorporated in South Africa in 1970. It is easy for the company to do that since there are only few competitors in South Africa, but not the global markets. The brewer industry in developed countries is in an oligopoly market with few dominating firms.
SABMiller can expand fast by buying those dominating firms and get existing customers. There is a risk of losing those customers after acquisition cause of change in management and production. On the other hand, expansion in developing countries is harder than developed countries. For developing countries like China, there are hundreds of brewers, a huge population and only two dominating firms. The company has limited capital resources to buy all of those small brewers or the dominating firms. Although the company may have the ability to buy it, but the interest expensive really need to be considered.
As a result of this, SABMiller should focus on getting new customers by existing brand instead of keep buying customer and brand in global market. This can be done through advertising, charity, and sponsor local sports activities. However, there is another issue need to be considered in branding. The company currently keeps the local brands after acquisition and using portfolio branding to reduce the barrier of people prefer buying local products. There is a limitation of doing portfolio branding, it is hard for SABMiller to achieve global well known brand and this might be one of the reason why the share price in London market keep falls.
People have bad expectation when thing is not focused, which is the brand. Despite SABMiller already does the second largest brewer in the world, but not too many people know that. People only know that they are still drink the same beer as before but not from SABMiller. Focus on main brand takes time and have risk, but the company never can achieve well known brand if not start by doing it. Since the beer industry has high bottleneck compare with wine and spirits, the selling price for both wine and spirits increase as the longer made time, but not for beers.