Anheuser Busch (Global Expansion Strategy)


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ABII global expansion, market entry and marketing strategy.

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Anheuser Busch (Global Expansion Strategy)

  1. 1.   Anheuser  Busch  Inc  International  Case  Analysis:     Global  Expansion  Strategy   Emily  Purdie,  Zeenat  Rasheed,  Holly  Turner   GM601  Marketing  Management  (Fall  2008)    
  2. 2. I. Executive Summary In 2005, Anheuser-Busch Inc. is at a position of strength. The company is the industry leader in the United States, with net sales of $14.9 billion in 2004. It is also ranked as the world’s largest brewer and its subsidiary, Anheuser-Busch International Inc. (A-BII) has built a significant presence in foreign markets, selling beer in 80 countries worldwide. Additionally, A-BII is successfully meeting its business objectives for its key brands through powerful marketing mix strategies. Budweiser and Bud Light, the company’s flagship products, are extremely successful on a domestic and global scale. Budweiser is the world’s best-selling beer, accounting for 4.4% of the global beer market, and Bud Light is ranked fourth in global beer sales, with 1.5% market share. Given the general worldwide consumption trend towards lighter and less bitter beers, these products are expected to see continued success and growth. Global distribution is one of A-BII’s greatest strengths. Through strategic partnerships with top local brewers and distributors, the company is able to develop robust distribution models in countries throughout the world and can exercise influence in growing foreign beer markets. These partner relationships are large scale and mutually beneficial, allowing both partners to enjoy shared production and management best practices. For instance, Kirin Lager is the world’s third most popular beer, with a 1.7% share of the global beer market. However, Kirin Brewery Co. Ltd. is also a licensed brewer for A-BII in Japan, and provides marketing, sales and distribution support to the company. This kind of partnership allows A-BII to gain a strong foothold in the Japanese market, but also helps Kirin grow its business, and makes the Japanese beer industry more competitive for the end-consumer, as well as all parties in the supply chain. From a promotions standpoint, A-BII tries to cater to local audiences while maintaining its Americana appeal. The company often collaborates with local partners through joint marketing efforts, and also employs local advertising agencies. In Latin America, the company has a local advertising agency in every country which customizes campaigns originally developed to target U.S. Hispanic audiences. Generally, promotional efforts seem to have been successful in building a cohesive brand image for Budweiser, since the company is focused on ensuring that “Bud [is] Bud wherever you get it.” However, the company might be facing marketing process and pricing inefficiencies due to its fragmented operations in Latin America, and there may be opportunities for streamlining and improving the promotions process. A-BII products are competitively priced in foreign markets, although mark-ups are higher in countries where the beer is imported instead of being locally produced through licensing or joint- ventures, allowing A-BII products to benefit from premium pricing. Many of these markets, however, are in countries where incomes are generally lower, so A-BII may need to monitor this situation closely to ensure that they do not price themselves out of the market entirely. Overall, however, A-BII’s marketing mix strategies have been working well and contributing successfully towards growing the Budweiser and Bud Light brands. 2  
  3. 3. II. Competitive Strategies Anheuser-Busch Inc. International (A-BII) has employed a number of competitive strategies to position itself successfully in foreign markets. Some of these tactics include the following:  Equity-Based Partnerships A-BII often uses equity-based partnerships as its mode of entry into foreign markets. The company invests in leading foreign brewers and distributors, such as its 37% stake in Grupo Modelo (Mexico), and is able to benefit from the market expertise and distribution channels of a local expert, while maintaining control over its marketing and management practices. The company also exchanges representation on the board of foreign brewing companies and is thus able to participate in and influence the international beer market. In situations such as Brazil, where A-BII’s 10% investment in Antarctica marked the first American equity deal with a Brazilian brewer, the company is able to benefit from first-mover advantage in a lucrative market with high growth potential. Most significantly, however, equity-based partnerships essentially convert potential competitors, indeed the most entrenched and successful foreign brands, into A-BII’s partners, and immediately provide the company with the ability to compete aggressively in foreign markets.  Sprinkler Expansion Strategy As the world’s largest brewer, A-BII can enter new markets as a challenger, and can use its extensive capital to effectively shut down the competition. In 1994, A-BII adopted a sprinkler expansion strategy and simultaneously entered six Central American markets (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama). The company was able to utilize its vast capital resources, buy out a 20% investment in market leader Compania Cerveceria Unidas (CCU), and enter the region on a large scale. Such tactics serve to intimidate other competitors looking to enter these markets, as they are likely unable to leverage enough capital to back up a similarly aggressive expansion strategy, and may not venture into the region at all.  Country of Origin Branding A-BII brands, such as Budweiser, consistently position themselves in global markets as American beers. This positioning works to their competitive advantage in two ways: (1) in countries where beer consumers place a premium on imported products, A-BII is able to position its brands as high quality American products that are for niche upper-class consumers; (2) in markets where consumers are fascinated with American culture, the company is able to benefit from the emphasis on its all-American brand image and heritage. In both cases, this ‘aspirational’ product differentiation based on A-BII’s country of origin provides its beer products with a competitive edge in markets around the world.  Aggressive Marketing Budweiser brands are an established and powerful icon in American sports, and the company uses its marketing might in similar ways in its worldwide marketing efforts. In 1994, A-BII signed a multi-million dollar deal with the FIFA World Cup and obtained the exclusive rights to 3  
  4. 4. be the tournament’s official beer. Budweiser was able to build high levels of brand awareness among a global audience and create positive associations with millions of soccer fans worldwide, particularly in South and Central America where A-BII was rapidly expanding. The company’s substantial marketing budget ensured that they could ‘own’ this event and that no other competing beer product had a chance of being associated with it.  Customer-Focused Approach In the international arena, A-BII focuses on the Budweiser brand almost exclusively, foregoing support of its other beer brands because they do not fit the increasing global demand for lighter, less-bitter beers. Additionally, Budweiser meets these new taste requirements by staying loyal to its recipe, eschewing the idea of local flavor enhancements, in order to maintain differentiated taste. Both these tactics suggest that A-BII is focused on customer preferences, and this approach serves as an additional competitive strength for the company. III. Top Three Challenges To ensure its continued global success, A-BII will need to proactively address certain potential pitfalls in its business and marketing strategies. 1. High Prices in Low Income Markets A-BII has been able to establish competitive pricing for Budweiser in countries where it holds licensing agreements, such as Brazil. In countries where no licensing agreements exist, however, such as Mexico and the countries in Central America, the cost of importation necessitates Budweiser’s price to be set at 2-3 times the cost of domestic beers. A-BII has attempted to position Bud as a premium beer in these countries, thereby justifying the high price. However, the low per capita income in these countries (Mexico’s per capita income is 1/10th of that in the U.S.) may eventually prove to be a problem for Budweiser. An aggressive marketing campaign that positions any one of the competing, domestic brands as a beer with premium taste at a discount price could easily steal market share from Budweiser. A-BII should consider establishing licensing agreements in these countries, allowing its products to sell at more competitive prices by offsetting the high cost of importation, with the additional advantages of protecting A-BII from any future rises in import tariffs or fuel costs. 2. Low Beer Consumption Rates Brazil and Mexico are the two largest beer markets in Latin America, and two of the top three fastest-growing beer markets in the world, yet each consume only half the amount of beer per capita as the United States. While the beer market is growing at impressive rates in both countries (15% in one year in Brazil; 6.5% over several years in Mexico), both will have to grow significantly more before equaling the beer market in the United States. Other Latin American countries, such as Argentina, Chile, and Venezuela, consume even less beer per capita annually. In order to achieve the level of sales it enjoys in the United States, A-BII will need to market its products aggressively, not just to gain market share in the current beer market but also to appeal to and emotionally connect with category avoiders, and eventually convert them into beer drinkers. 4  
  5. 5. 3. Marketing Message Fragmentation A-BII’s marketing process is currently operating rather inefficiently. In the Latin American region, for instance, the company uses five different agencies to advertise its products, including its American agency (Carter Advertising), which provides U.S. ads that target American Hispanics, and various local agencies in Central America countries, which pick messages from Carter’s pool of ads, customize the advertising, and do local media planning for their specific markets. This fragmented process is likely delivering an inconsistent message across a small geographical area without effectively appealing to any of the target audiences. To address this, A-BII could consider learning from its cost-efficient, long-term, pan-regional deal with ESPN Latin America, and use one centralized agency, with a specialty in multi-ethnic marketing, to cater to the Latin American market. This would maximize efficiencies due to increased media buying leverage, and allow for the production of targeted messages that are specifically oriented to the Latin American market. The agency could adjust language within ads to match the local vernacular of each country, while ensuring that the positioning and overall message remain consistent and appropriate to the Latin American market. IV. Global Marketer Evaluation Global marketers view the entire world as one integrated market. While marketing mix strategies across different countries may not be completely standardized due to environmental differences, conceptually speaking, the company does not create a distinction between domestic and foreign markets and has one integrated positioning across the world. A truly global marketing program builds a strong brand image, reduces cost inefficiencies, and provides competitive leverage through the cross-subsidization of markets. Using this definition of a global marketer, it is clear that A-BII does employ some attributes of global marketing. The company capitalized on the globalization of the world marketplace and now distributes its products in more than 80 countries. A-BII has partnered with the top brewers and distributors in 25 countries and has a significant presence on every continent except Africa. Also, A-BII promotes its brands using a consistent Americana theme while customizing the message to suit local audiences. This message resonates on a global scale as foreigners become increasingly westernized, but appeals to local preferences as well. From a product perspective, given the international trend toward lighter, less-bitter beers, A-BII has stopped customizing beer exports to suit foreign tastes and now sells the same beer worldwide. The company recognized that in foreign markets, local brands had a loyal following and that “Bud should be Bud wherever you get it.” Therefore, the taste of the beer remains the same worldwide, and by staying loyal to its recipe, Budweiser and Bud Light have grown to become two of the top ten beers on a global scale. Although A-BII has utilized these tactics, however, the company cannot be defined as a truly global marketer. The company’s corporate structure is still separated into Anheuser Busch Inc. and Anheuser Busch Inc. International, and this two-fold structure suggests that the company 5  
  6. 6. approaches its foreign markets separately compared to its domestic market. A truly global marketer would not make that distinction between markets. Additionally, the company has not consolidated its marketing and advertising under one agency or even one umbrella group on a worldwide scale. While on-target in terms of message, the global marketing process seems generally fragmented and there remain opportunities for increased streamlining and efficiency. It appears that A-BII is operating, at most, under a regiocentric approach. A-BII does not consider the world as a single market, but rather divides it into regions such as Latin America, Europe, and Asia. As outlined in the following section the company considers the markets in each region separately, and operates using regionalized plans for development and growth. V. Mode of Entry Analysis A-BII has three distinct foreign entry strategies. These strategies and the criteria used to determine their implementation are outlined below. 1. Cooperative Export Model Under this model, foreign companies import A-BII products and manage local distribution. In France, A-BII’s partner also develops product packaging, likely due to stringent government labeling regulations for alcoholic beverages. The company employs this strategy in the following countries (year of entry):  Latin America: Mexico (1989), Central America (1994) (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama)  Europe: France (1996), Denmark (1998) The following criteria are used to determine this mode of entry: i. Limited Market Size and Growth Potential  Denmark and Central American countries have small populations, Latin Americans generally consume less beer compared to the U.S and the French have a strong cultural preference for wine. Since the overall potential of these markets is relatively low, exporting acts as an effective way to mitigate the risk of failure. As a low-commitment, low-involvement strategy, exporting allows A-BII to test these markets before making significant financial and resource commitments. ii. Opportunity for Premium Pricing  Mexicans have a strong preference for U.S. products and exporting allows A-BII to markup the price of its brands and increase profits through premium positioning and pricing. 6  
  7. 7. 2. Licensing Model Under this model, A-BII signs licensing agreements with foreign companies to brew its beer locally and also provide joint marketing support. In Japan, A-BII’s partner, Kirin Brewery Co., also provides assistance with sales and distribution, potentially due to the unique, culturally influenced consumption patterns of the Japanese. The company employs licensing in the following countries:  Asia: South Korea (1986), Japan (2000)  Great Britain: Ireland (1986)  Europe: Italy (1993) It is important to note that, with the exception of Japan, each of these licensed breweries was the first foray that A-BII made into each geographical region. Given the rapid way that licensing allows any company to gain entry into a new market with minimal investment, A-BII’s strategy suggests that the company used licensing as a way to establish a solid presence in large, high demand markets, to gain ground in surrounding areas through regional exportation, and to benefit from cost efficiencies, faster restocking and shipping times and fresher products in each key region. Ireland, for instance, provided access to Great Britain whereas South Korea allowed the company to reach Asian markets. Therefore, licensing gave A-BII the opportunity to solidify its global presence by developing centers of influence on a regional level. This appears to be a preferable mode of entry when A-BII sees the need to become active in a particular region. The following criteria are used to determine this mode of entry: i. Large Market Size, Growth Potential and Access  All of these markets have large populations with high growth potential and are natural candidates for a more high-involvement entry strategy than simple exportation. ii. Strong, Credible Partners  Given the higher level of involvement necessitated by the licensing model, A-BII needs a partner that shares its global scope and size, has the necessary infrastructure to deliver on sophisticated brewing processes, and can be trusted to ensure high product quality. Therefore, countries with globally successful brewing companies, such as Ireland’s Guinness and Japan’s Kirin, are stronger candidates for licensing agreements.  A-BII also needs partners who are knowledgeable and well-entrenched experts in their markets, in order to reduce the need for expensive international marketing research, and to be advised on employing effective joint marketing strategies.  Based on its company philosophy, A-BII looks for partners that can provide an opportunity for shared learning, presumably without being a direct competitive threat. Each of these partners meets these criteria. Guinness specializes in heavy beers; therefore it is not a direct competitor for Budweiser in Ireland. However, 7  
  8. 8. both companies could benefit from learning about the different markets that demand their differed products. The beer category in Italy is not sufficiently mature for there to be a formidable home-based competitor for Budweiser, and in South Korea and Japan, Budweiser’s Americana appeal provides the product with a competitive edge that cannot really be matched by any of Kirin’s local brands. iii. Risky Markets  South Korea and Ireland are both politically sensitive areas that must cope with threats of terrorism, while Italy and Japan have seen significant economic instability in the past two decades. Given the volatile nature of these markets, licensing is the most effective entry strategy for A-BII, as the licensee absorbs all of the risk associated with these factors, while A-BII is guaranteed a stable royalty-driven income stream.   3. Equity-Based Partnerships or Greenfield Model Under this model, A-BII purchases either a minority equity-based stake in a foreign country’s leading brewer or builds its own brewing facility. This allows the company to gain greater control over licensed/company-owned local production, marketing and distribution, as well as more leverage within the industry. The company employs this strategy in the following countries:  Latin America: Mexico (1993), Chile (2001), Brazil (Late 2000s, exact year unknown)  Asia: China (1993) The nature of each of these endeavors was somewhat different:  In 1993, A-BII made a 4.5% equity investment in China’s leading Tsingtao Brewery, but two years later, the company set up its own Greenfield operations with the Budweiser Wuhan International brewery, where it had 98% ownership and handled its own production, sales, marketing and distribution.  After working with Grupo Modelo for four years as an indirect exporter, A-BII purchased a 37% stake in Modelo and its subsidiaries in 1993. However, the nature of the relationship did not change, and Modelo continued being the exclusive importer of A-BII products in Mexico, likely because A-BII wanted to maintain its premium pricing through the exportation model and the country was close enough that local brewing provided little competitive advantage.  In 1995, A-BII made a 28.6% equity investment in Compania Cerveceria Unidas (CCU) in Argentina, which appears to be the most powerful and extensive brewer in the entire Latin American region. Given that CCU subsidiaries in Central American countries were already A-BII partners through indirect exporting, the equity investment was likely an extension of that relationship. In 2001, A-BII took the relationship further by making a 20% equity investment in CCU, headquartered in Chile. 8  
  9. 9.  A-BII recently extended its presence in Latin America even further by purchasing a 10% equity stake in Antarctica, a leading beer producer and distributor in Brazil. The partnership ensures that A-BII has the majority control over licensed production, joint marketing and distribution operations. Therefore, it appears that the following criteria are used to determine this mode of entry: i. Extremely Large Market Size/Potential and Need for Greater Control  All of these markets represent an extremely valuable opportunity for growth. Developing a sizeable presence in China is likely to provide great success given the market size, and entrenching A-BII in Latin America is certainly one of the keys to the company’s long-term growth in the international beer business. Mexico and Brazil are two of the top three fastest-growing beer consumers in Latin America, and both countries are seeing a population explosion, with a heavy emphasis on youth. Although per capita incomes in these countries are low, they are rising, and the favorable attitudes towards the U.S. translate into high demand for American premium products. Since these markets are critical to the success of A-BII, the company needs a greater level of involvement and control, and equity investments or wholly owned operations are the most effective market entry or consolidation strategies. ii. Conducive Economic Environment  Business conditions in Latin America have made it easier to invest more in those countries. In Brazil, free market reforms were introduced and heavy import tariffs were significantly lowered. In Mexico, government regulation of the beer industry is lessening and the industry is becoming increasingly privatized. Additionally, NAFTA has encouraged the opening up of borders, and the reduction/elimination of tariffs for U.S. exports. As a result, deeper foreign investment has been economically more feasible in this region. It is important to note that while A-BII made some form of long-term investment in both Asia and Latin America, a similar presence in Europe did not appear to be a priority. Given the tri- regional approach to foreign market entry that A-BII has displayed thus far, this seemed like a deliberate oversight. Perhaps A-BII did not feel that Europe warranted a heavy commitment due to competitive threats or cultural distance, or perhaps the company was unable to negotiate a satisfactory deal with a European partner. In either case, the lack of a formidable company presence in Europe could prove to be an Achilles heel for A-BII in the future. VI. Country Evaluation Models A-BII has two decisions to make when evaluating a country for foreign expansion. The first consideration is whether or not A-BII should enter the country; the second is the mode of entry that should be used. These two considerations take different criteria into account and thus require separate frameworks. 9  
  10. 10.  Question of Entry Framework When deciding whether or not to enter a country, A-BII needs to take the following factors into consideration and plot the countries along the framework provided below.   o Market size and potential for growth  Are there enough beer drinkers in the country to support A-BII’s entry and is it likely that beer consumption will increase in the future?   o Availability of a Strong Partner  Is there a strong local brewer in the country that A-BII can partner with to share best practices, get help with distribution, and learn about the alcoholic beverage market in the country? A-BII should enter countries that answer yes to both questions, and therefore fall in the top-right quadrant of the framework above. These countries would likely have large populations or high beer consumption rates; for example, Germany has a large population and might have one of the highest beer consumption levels per capita in the world. There are also strong partners, such as Beck’s, that A-BII could connect with in Germany to streamline distribution. This makes Germany a very attractive market for A-BII to enter, and places it solidly above the diagonal line (line of discretion). A-BII should avoid countries that fall within the bottom-left quadrant since they do not meet any of the required criteria. These would be countries with very small populations, or those where 10  
  11. 11. alcohol is forbidden, such as Muslim countries where there would be no target audience and no potential for growth. These countries would also likely have a strong partner because they have no alcoholic beverage industry; therefore markets fall definitively below the line of discretion, and should be avoided by A-BII. Countries that do not have clear-cut answers to these questions and generally fall to the right of the line of discretion should be investigated for further consideration.    Mode of Entry Framework After a market has been selected, A-BII must determine how it should enter. The company has several entry modes to choose from, ranging from lowest risk/reward strategies, such as indirect exporting, to highest risk/reward strategies such as wholly owned subsidiaries. A-BII should evaluate each country to see whether it should enter using exporting, licensing, joint venture or FDI using the model below. The framework above uses three criteria to determine mode of entry: market size/potential, proximity to an existing A-BII brewery and relative strength of a local partner. Export: A-BII should export if the country is geographically close to an Anheuser-Busch brewery, or when there is smaller market size and potential, or when it has a relatively weak partner. Exporting is helpful when A-BII has a minimal presence and is just beginning its investment trajectory in a new country or region. Within the framework, the country would be positioned in the pink areas, i.e. wherever there is no overlap between variables. License: A-BII should license when the country is geographically too far away from an Anheuser-Busch brewery to export, when it has a relatively strong partner, and/or when it has 11  
  12. 12. large enough market size and potential. When any two of the above criteria overlap, licensing is the recommended mode of entry. Joint Venture: It is only in rare cases that A-BII should begin with a joint venture, as it did in China. In this case, all three variables must overlap on the mode of entry framework. There are very few countries that would fit this entry strategy due to the fact that joint ventures are much riskier than exporting and licensing. VII. Placing Mexico and Brazil in Strategic Frameworks  Mexico Question of Entry Framework Size/Potential of Market: Mexico is a large and swiftly growing country, with a population of 105 million people, and it is expected to reach 112 million people by 2010. While its beer consumption per capita (44 liters) is only half that of the United States (87 liters), the Mexican beer market is also growing at a rapid rate, having gained 6.5% in recent years, with further growth expected. It is currently the second largest beer market in Latin America, and the third fastest-growing beer market in the world, at +100% between 1990-2000. The GDP per capita in Mexico is high for a Latin American country (registering above Argentina, Uruguay, Chile, Brazil, Venezuela, and Peru), indicating a relatively high potential disposable income. Further, the ratio of per capita beer consumption (44 liters per year) to GDP per capita ($6,506) is considered to be high. As such, Mexico’s beer market is strong now, and it will be even more lucrative in upcoming years. Strength of Partner: Additionally, A-BII found a very strong partner in Mexico. Grupo Modelo is Mexico’s largest brewer, and the tenth largest brewer in the world. Modelo produces Corona, Mexico’s best selling beer, which holds a 51% market share. The partnership includes an exchange of executive and management personnel, which will maximize human resources and cultural knowledge in the fields of accounting/auditing, marketing, operations, planning, and finance. A-BII will have representation on Modelo’s board of directors, and a Modelo representative will sit on Anheuser-Busch’s board. This arrangement is doubly beneficial to A- BII, as all of its international decisions will include an expert on the Mexican beer industry, and it will also maintain a certain amount of control over its importation and distribution in Mexico through its representation on the Modelo board. In sum, the partnership with Modelo is a strong and potentially profitable union. Based on the Question of Entry Framework, A-BII made a wise decision to enter Mexico. When Mexico is plotted on both axes of the first framework, it lands squarely in the top right corner – the “yes” portion of the framework, far away from the line of discretion. The combination of a large market with high growth potential and a strong local partner make Mexico a clear and positive choice for international market entry. 12  
  13. 13. Mode of Entry Framework A-BII first entered Mexico in 1989, using exportation. This was A-BII’s third international venture (after Ireland and South Korea, both in 1986), and its first venture into Latin America. Proximity to Anheuser-Busch Brewery: Anheuser-Busch owned at least 12 American breweries in 1989. Presumably, this number included the Houston and Los Angeles breweries from which A-BII exports to Mexico today. As such, Mexico would earn a “high” ranking in the element of proximity to an Anheuser-Busch brewery. Size and Potential of the Market: Due to recent growth in population and beer consumption, it can be safely inferred that the market was significantly smaller in 1989. However, even before recent increases, Mexico’s population was still sizable. The combination of these factors gives Mexico a “medium” rating for size and potential of market in 1989. Strength of Partner: The case gives little information about Grupo Modelo’s status in 1989. However, if we assume that Modelo has grown at a similar rate as A-BII over the years, it would have earned a “medium” strength rating in 1989. When one “high” rating and two “medium” ratings are plotted on the Mode of Entry Framework, no overlap exists, resulting in a recommendation to export. As such, an initial strategy of exportation in 1989 was a wise decision by A-BII. In 1993, A-BII furthered its union with Grupo Modelo to include distribution, as well as continued exportation. A-BII originally purchased a 37% direct and indirect interest in Modelo and its subsidiaries; in 2002, A-BII moved further along the investment trajectory and increased its share to 50%.  Brazil Question of Entry Framework Size/Potential of Market: Brazil is the largest Latin American beer market, and the sixth largest in the world. It is also the fastest-growing beer market in the world, increasing by 200% from 1990-2000, with beer consumption rates increasing as much as 15% in a single year. Brazil’s massive population of 175 million people is increasing at a rate of 1.7% per year. Additionally, reduced import tariffs and free market reforms have dramatically improved Brazil’s economy in recent years, and made it a much more profitable market. As a result, Brazil should be considered both an extremely large and extremely potentially profitable market, delivering a score of “high” on the Size/Potential of Market axis. Strength of Partner: Antarctica controls 35% of the Brazilian beer market, and owns Antarctica Paulista, the eighth best-selling beer in the world. In 1998 alone, Antarctica produced 20 million barrels of beer and currently has a network of nearly 1,000 Brazilian wholesalers. Much like the union with Grupo Modelo in Mexico, the partnership with Antarctica allows for an exchange of board representation. Again, such a union is mutually beneficial to A-BII, as all international 13  
  14. 14. decisions will be made with the input of a Brazilian market expert, and A-BII will maintain a certain level of control over its licensing and equity investments in Brazil, as well as any upcoming endeavors in the country. Antarctica’s strength in the Brazilian market, its access to distribution channels, and its ability to create a desirable union with A-BII give it a score of “high” on the Strength of Partner axis. Based on the Question of Entry Framework, A-BII made a wise choice to enter Brazil in recent years. When Brazil’s current conditions are plotted on the framework, Brazil, much like Mexico, lands squarely in the upper right corner, well in the middle of the “yes” recommendation, far from the line of discretion. Additionally, A-BII chose an excellent time to enter Brazil – during a stage of significant and rapid growth. The market is not yet fully mature, which gives A-BII the opportunity to create market share for its brands, rather having to steal market share from competitors. If A-BII had attempted to enter Brazil several years prior, the low market size and high import tariffs would have earned it a lower score on the Market Size/Potential axis, possibly placing Brazil to the left of the line of discretion, indicating that A-BII should not enter. Mode of Entry Framework A-BII entered Brazil only recently, with both a licensing agreement and an equity investment. Proximity to Anheuser-Busch Brewery: The closest licensed brewery to Brazil is in Argentina. While Brazil and Argentina share a small stretch of national border, the massive size of both countries creates a huge distance between the southern tip of Argentina and the northern tip of Brazil – spanning nearly the entire vertical length of the continent of South America. Such a huge distance means that many areas of Brazil would difficult to reach by importation from the Argentine brewery, perhaps even necessitating travel through Bolivia or Paraguay. For this reason, Brazil receives a “low” rating for proximity to an Anheuser-Busch brewery. Size/Potential of Market: As outlined above, the Brazilian market at the time of A-BII’s entry is extremely large, with significant potential and enormous expected growth. As such, Brazil receives a “high” rating for size and potential of the market. Strength of Partner: As outlined above, Antarctica is a strong contender in the Brazilian beer market, as well as the global beer market. It has significant market share, as well as a strong distribution network. Therefore, it receives a “high” strength rating. Given these ratings, Brazil is placed on the framework where all three criteria overlap, indicating a recommendation of joint venture. Additionally, overlap exists in all three licensing regions. These results indicate that A-BII made two strong decisions when choosing to enter into a joint venture and licensing agreement with Antarctica in Brazil. 14  
  15. 15. VIII. Avoiding Acquisition Anheuser-Busch was the leading beer producer on a global scale until 2004, when Brazilian brewer AmBev and Belgian firm Interbrew merged to create the world’s largest beer company, InBev, with a global market share of 14% and revenues of over $12 billion. This new alliance was headquartered in Belgium, placing the central hub of the beer industry in Europe. As mentioned earlier, A-BII did not make a long-term investment in Europe through a joint venture or wholly owned subsidiary, leaving it vulnerable in this region. A-BII had traditionally seen great success by turning its competitors into partners, but the company did not pursue this strategy anywhere in Europe. The company ignored Interbrew, a major player in the European beer industry, and left the door open for another large brewer, AmBev, to join hands with the European company and establish a dominant presence in the region. As a result, the InBev merger caused Anheuser-Busch to lose its number one status. The newly formed company then used its newfound muscle to turn Anheuser-Busch’s strategy against them and InBev acquired the company in 2006. If A-BII had created a stronger presence in Europe, the acquisition could likely have been avoided. 15