South African Breweries (SAB) is one of South Africa’s largest Multi-National Enterprises (MNE). From their humble beginnings in 1883 they have grown to a Global Market leader in the food and beverage industry. The success SAB earned has been in part to the core values they have displayed through their business activities. These include:
- A well managed, competitive strategic domestic business base.
- Maximum decentralization and development of the separate, independent and individual identities.
- Striving for consistently high productivity with performance matching risk and return.
From these statements, we will discuss how the concepts of mergers and acquisitions, diversification, coming to grips with the political policy environment, research and development, sound foreign direct investment and a definite corporate code of contact, has helped SAB to truly become a global industry giant. Globalization Strategy Theoretical concepts Thompson, Strickland and Gamble (2008) discuss the six strategic options available for entering and competing in foreign markets.
They are
- Maintain a national (one–country) production base and export goods to foreign markets.
- License foreign firms to use the companies’ technology to produce ands distribute the companies’ products.
- Employ a franchising strategy.
- Follow a multi-country strategy.
- Follow a global strategy.
- Use strategic alliances or joint ventures with foreign companies as the primary vehicle for entering foreign markets. Yip (1997) discusses the multi-domestic and pure global strategy in five strategic dimensions.
The dimensions relate to market participation, product offering, location of value added activities, marketing approach and competitive moves. Thompson, Strickland and Gamble (2008) state that multi-country competition exist when competition in one national market is not closely connected to competition in another national market. Global competition is when competitive conditions across national markets are linked strongly enough to form a true international market. According to this definition, SAB Miller is a truly global competitor because the consumption of products in the food and beverage markets is universal.
Since SAB decentralize its separate identities, do local marketing and in some cases offers customized product offerings it is actually also competing as multi-national competition. Bartlett and Ghoshal (1989) introduce a new concept in which companies become transnational. They manage overseas operations as an independent portfolio, but they also manage operations as delivery pipelines for a unified global market. They are therefore dispersed, interdependent and specialized in their structure. They conduct Research and Development jointly and share it with the other subsidiaries.
Their role becomes one of differentiated contributions. We will discuss how SAB Miller is a good example of this transnational model, and critically discuss their strategy in each of these characteristics. Critical Discussion Ellis and Williams (1995) identifies four phases if internationalization where companies move on from restricted national market scope to international market entry and development, international regional and lastly worldwide competition. This is the position that SAB Miller currently holds.
Thompson, Strickland and Gamble (2008) discuss the four major reasons why companies expand into foreign markets. Globalization was the logical choice for SABMiller since they were under pressure from the South African economic and political environment to find healthier profits and new markets elsewhere. Thompson, Strickland and Gamble (2008) state firstly that expansion takes place because they want to gain access to new customers, achieve lower costs and enhance the company’s competitiveness. SAB state on their web-site” Beer tends to be a local business, subject to local tastes and legislation.
Leveraging scale, therefore, is not simply a case of putting two or more businesses together and saving costs. While some such synergies are possible, the real benefits arise in driving sales using our scale to grow the business. Our global reach provides a valuable platform for distributing and selling our international premium brands’. SABMiller secondly capitalized on their core competencies as Thompson, Strickland and Gamble (2008) suggests. The SABMiller web-site state “It also helps as we develop regional brands such as Kozel in Europe and Eagle in Africa.
It is possible for individual businesses to select particular beers from our global portfolio and apply them in their own markets as Miller. Our global scale allows us to share brand innovation. We use our scale to help us grow by transferring skills, methods and technologies around the group. This clearly applies when we buy a new business. In South America, for instance, the rigorous application of SABMiller tools and techniques, and the infusion of talent from around the group, is generating tremendous growth and transforming the beer market in the region.
Thompson, Strickland and Gamble (2008) agree with SAB’S views “that the careful and appropriate management of risk is a key management role. Managing business risk to deliver opportunities is a key element of all SAB business activities”. SAB state “For these reasons, it’s no longer sufficient for a successful brewer just to do well in the mainstream segment. To maximise our profits in each market, we need a portfolio of brands that spans consumers’ needs on different occasions and across the spectrum from premium to economy. SAB therefore use their giant size and global reach to do both.
They use the cultural adaptation of the company’s product offerings for premium beer brands, as well as mainstream brands for global reach. This maximizes their profit margins through differentiation and concentration of the market simultaneously. Globalization brings the benefit of Research and Development for SAB. They have improved their manufacturing efficiency by consuming less water and energy for each hectolitre of beer brewed, producing more beer from given quantities of raw material while also improving the shelf-life and quality of SAB products.
They also customized their point-of-sale activity to vary from market to market because local conditions are so different. SAB created an international spread of businesses, that is weighted advantageously towards fast growing, developing markets. They are actively involved in buying and building production capacity, forming partnerships to take advantage of new markets and acquiring new brands. This clearly proves that they are a trans-national company according to Bartlett and Ghoshall.
The SAB structure is dispersed over all continents, acting as independent units, specializing for their own markets. Their Role contributes to the overall efficiency of the company through contributions like The SABMiller ‘Ways’, a set of tools, common terminologies and processes developed centrally but applied locally, are intended to deliver a consistent approach to manage and integrate core disciplines. This will provide a platform for exchange of knowledge which will result in rapid and ongoing improvement of performance.
The discussion above proves extensively that SAB is a trans-national Company but has strong elements of a Global influence driven exclusively though product offerings. Global brands are treated through Global distribution channels, while most manufacturing gets done locally, and local premium or low-cost value brands are tailor made. Reid (1997) points out that if demand starts to stagnate, this tendency can be self-reinforcing, with firms who are not industry leaders going to the wall, and a tendency to monopolisation asserting itself.
SAB needs to be careful that their guidance mechanisms should neither be used to blunt the market mentality, nor to reverse the trend of liberalisation. However, they need to be put in place to guard against instability and stagnation. The other major disadvantage of SAB’s trans-national strategy is that it exposes them to the exchange rate fluctuations present in the world economy. This can be very difficult for SAB to negotiate, if their control over input factors for supply chain management is not decentralized. Conclusion
Overall SAB has done excellently at negotiating the tricky road avoiding the potholes that globalization brings, and putting the proper mix of both Global competition strategies and Trans-national elements to satisfy market demand. Their strategy to acquire further breweries in more places, allows the product to travel far less – which is good for both costs and quality, since it is perishable. Question 2: Discuss the importance of key success factors in businesses and organizations with specific reference to SAB. Introduction
SABMiller plc has its origins in South Africa where the original brewing operations of the group was founded in 1895, known as “Castle Brewing”. After participating in industry consolidation, including acquiring the Ohlsson’s and Chandlers Union Breweries in 1956, after which the company became known as “The South African Breweries” and the beer interests of the Rembrandt group during 1979. In addition, it obtained the franchise for bottling and distributing Coca-Cola products in 1976, separately managed by the Amalgamated Beverages Industries (“ABI”).
The South African lager and sparkling beverage businesses are now integrated after 2004. Key Success Factors Identified Davenport (1998) mentions several critical key success factors for organizations. This refers specifically to the knowledge obtained to run these organizations. These are related to several general factors:
- Management and leadership Support
- Culture
- Technology
- Strategy
- Measurement
- Roles and Responsibilities
- Processes
- Rewards and Recognition
SAB decentralizes to the maximum and develops the separate, independent and individual entities of the subsidiaries and their managements. SAB conducts performance matching risk and return, and strives to maintain high levels of productivity globally through standardized operational procedures. Diversification activities, lowering ownership bases, mass marketing through acquisition of diversified brands, SAB also negotiates punitive taxation laws by government, conduct Research and Development, improving quality of life for the local labor force, meaningful reporting and disclosure of financial results.
A corporate code of Conduct allows a corporate culture to build a common value base from which all Management decisions are evaluated. As Davenport (1998) suggests the board of directors for SAB, with advice from the audit committee, complete its annual review of the effectiveness of the system of internal control in accordance with the updated Turnbull Guidance Framework. This proves they are actively using senior management support as a key success factor. Concerning a knowledge friendly culture, the result is a series of SABMiller ‘Ways’ that set out how they do things in key areas of their business.
This knowledge is not static but is constantly refreshed through the knowledge and experience of the entire group, ensuring that they remain a learning, self-refreshing organization. This also refers to the standardization of the knowledge and the flexibility to change unproductive business processes. A proper technical infrastructure allowed manufacturing efficiency to improve, continuing to produce more beer from given quantities of raw material while also improving the shelf-life and quality of our products. This also relates to using less water and electricity in the processes involved.
Davenport (1998) reports that it is a critical success factor clear purpose and language is used throughout the company. The SAB web-site clearly states ”The business strategy is to strengthen our positions in existing and nearby provinces, take advantage of our unmatched scale to reap significant synergies, and then build up our brands and distribution with particular emphasis on our highly successful Snow brand – China’s number one national beer. ” SAB reports “Our 2006 joint venture in Vietnam gave us our first entry into another fast growing market.
We’ve built a new brewery near Ho Chi Minh City, which commenced production in early 2007, and we have a distribution capability through our local partner, Vinamilk. The venture will first concentrate on serving southern Vietnam and will then expand nationally. We’ve followed a similar strategy in Australia by linking up with Coca-Cola Amatil, a local company with a strong sales and distribution infrastructure. Formed in August 2006, our joint venture imports, markets and distributes our three international premium brands – Peroni Nastro Azzurro, Pilsner Urquell and Miller Genuine Draft.
We bottle soft drinks for The Coca-Cola Company in seven of our African markets”. These statements show that new distribution channels are actively exploited continually. SAB also ensures that expansion is linked to economic performance or industry value. Changes in motivational practices have all been playing an active role in the success that SAB has achieved especially in Australia. From these we can see that from Porters Five forces model, the global success SAB has achieved is mainly from exploiting factor conditions, and less market demand conditions.
Demand conditions tend to be more sensitive to domestic localized economic fluctuations, while factor conditions tend to be more global. For this reason I agree that the globalization success SAB has achieved can be ascribed to the proper allocation of resources to the proper business processes. This is very much in line with true organizational effectiveness, because there is maximum productivity for each step in the value chain. SAB localized their strong differentiated markets and customize their product offerings there; they also use local natural resources.
This allows the right factors to stimulate domestic market development also. They do however also use global brands in their capacity to have economies of scale through exports, as in the example of Australia above. Conclusion All the key success factors mentioned in Davenport’s models have been proven to be present in SAB. Therefore, it is possible to say that these key success factors played a very important role in allowing SAB to develop into an organizationally complex giant, while still operating as an effective unit growing inter-nationally and globally.
