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Sab Miller Corporate Strategy



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    Corporate Strategy SAB Miller Assignment by Matthew Jackson Table of Contents: Page 1. Assignment Cover Sheet3 2. Question 14 3. Question 25 – 8 4. Question 3 9 – 11 5. Question 412 6. Question 513 – 16 7. Bibliography17 Surname:Jackson First Names:Matthew William Subject:Corporate Strategy Date Submitted:2008. 05. 05 I hereby declare that the assignment submitted is an original piece of work produced by myself. Matthew Jackson 75122350090882008. 05. 05 Question 1: Critically analyze SAB’s Globalization Strategy in the food and beverage industry.

    Support your presentation with relevant theories and/or models. Introduction 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: 1. A well managed, competitive strategic domestic business base. 2. 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 1. Maintain a national (one–country) production base and export goods to foreign markets. 2. License foreign firms to use the companies’ technology to produce ands distribute the companies’ products. 3. Employ a franchising strategy. 4. Follow a multi-country strategy. 5. Follow a global strategy. 6. 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: 1. Management and leadership Support 2. Culture 3. Technology 4. Strategy 5. Measurement 6. Roles and Responsibilities 7. Processes 8. Rewards and Recognition Key strategic success factors Davenport (1998) mentions are: 1. Senior Management Support 2.

    Knowledge Friendly Culture 3. Proper Technical Infrastructure Standard and Flexible Knowledge structure 4. Clear Purpose and language 5. Link to economic performance or industry value 6. Organization Infrastructure 7. Multiple channels for knowledge transfer 8. Change in motivational practices Importance of Certain Key Factors Discussed There are several key success factors identified in the article that has allowed SAB to rise to its current position as Market leader. These include the careful selection of strategic mergers and acquisitions virtually since its inception in 1883 as Ohlsson’s.

    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.

    Without the efficiency in business processes created by each of the key success factors, such a large organization would not survive. Question 3: Critically discuss how SAB utilizes its strengths and overcomes its weaknesses to compete in foreign markets. Introduction Robson (1997) has the opinion that to examine a company’s strategic position to compete in foreign markets includes considering their strengths and weaknesses against what is happening in the environment Theoretical Theories involved in strengths and Weaknesses Porter discusses the diamond model for a nation’s comparative advantage.

    This provides the areas in which strengths and weaknesses can be examined. They are: 1. Firm strategy, structure and rivalry 2. Demand conditions 3. Related supporting industries 4. Factor conditions David (2001) uses the S. W. O. T and P. E. S. T analysis structures to assess a company’s internal and external strengths and weaknesses. He identifies the following key external factors: 1. Economy 2. Political/Legal/Governmental 3. Social/Cultural/Demographic/Environmental 4. Technology 5. Competitive As well as the following internal factors: 1. Management 2. Marketing 3. Finance/Accounting 4.

    Production/Operations 5. Research and Dev elopement 6. Computer Information 7. Systems A S. W. O. T analysis helps provide a strategy that takes advantage of the firm’s internal opportunities and strengths while avoiding its weaknesses and threats to its success (Perreault & McCarthy (1996)). External factors affecting SABMiller a P. E. S. T analysis for SABMiller contains country specific environmental factors that are most effective when performed for all countries of interest. Political Analysis The beer industry in which SABMiller competes is one of the highest regulated industries in the world.

    Nationalism and Government interference needs to be negotiated. The South African Government is trying to create three distinct tiers in the liquor industry e. g. manufacturing, distribution and retailing and the linkages between these tiers will be regulated through the Liquor Bill passed in Parliament 22 October 2003. SABMiller has hotel and gaming interests through the Tsogo Sun Group, one of the largest hotel and gaming groups in South Africa. The group was created in 2003 when SABMiller and Tsogo Investments merged their activities.

    At the time, it was the largest empowerment transaction in the sector and SABMiller holds a 49% interest in the group. The inflow of capital allowed them to search for acquiring existing breweries in other African emerging economies, firstly in Tanzania. It has also forced them to overcome adversity using international markets where the “sin” tax on alcoholic beverages is less. Economical Analysis The negative impact of the Miller beer brand, pack and geographic mix, increased cost of raw materials and greater energy costs make business in the USA difficult (SABMiller (2003)).

    This has allowed them to gain access to their technology, and distribution channels to allow other brands to be introduced Social Analysis SABMiller assess their alcohol issues policy regularly to ensure responsible advertising, packaging, promotions and that the underage is not targeted. SABMiller recognize their social responsibility towards HIV/Aids and provides support and training that focuses on the prevention of the disease. Technological analysis Perreault and McCarthy (1996) mentions that technological developments affect marketing in two basic ways: with new products and with new processes.

    SABMiller has an aggressive program to implement production systems across the world with the optimum level of flexibility. SYSPRO 6. 0, a fully integrated business software solution providing complete control over the planning and management of all facets of business, forms a critical element of SABMiller’s business mode (SABMiller (2003)). Internal Factors affecting SABMiller Strengths Implementing affirmative action programs in South Africa from the 1970’s gave SABMiller the experience to deal with cross-cultural issues effectively. SABMiller’s policy of entering into long-term ventures with its suppliers ensures consistency of supplies.

    In most of its markets SABMiller holds a #1 or #2 position. There is scope for consumption growth in all these markets, particularly in light of good economic growth in Africa, so the focus is on expanding beer’s share of alcohol by introducing clearer brand segmentation, including more affordable brands, and broadening distribution to more rural areas. A range of beer sales and marketing plans which, in combination with its strong relationships with its routes to market, has for instance led to an ongoing rise in beer’s share of alcohol by volume (“ABV), now some 60% in South Africa.

    This massive market share in South Africa has allowed SAB to use this strength to move into foreign markets. SAB also capitalise on the huge popularity of the Snow brand to build closer relationships with their distributors. Their strategy is to acquire further breweries in more places, the products now have less far to travel – which is good for both costs and quality. In South American SAB businesses they are developing their skills in segmented channel marketing. In Colombia they’ve broken down their channels by type of drinking occasion and analysed the outlets, consumption patterns and service needs in each case.

    This process enables them to focus resources, ensuring that each channel gets the right products in the right packaging, accompanied by the right brand messages and merchandising material. Scale helps SAB to develop their brands. Global reach provides a valuable platform for distributing and selling their international premium brands like Peroni, Miller Genuine Draft and Pilsner. It also helps them develop regional brands such as Kozel in Europe and Eagle in Africa. Individual businesses may now select particular beers from the global portfolio and apply them in their own markets.

    Global scale allows SAB to share brand innovation. Redd’s, for example, originated in South Africa, moved to Poland, where it benefited from further innovation, and is now doing well in Russia. Scale helps SAB grow by transferring skills, methods and technologies around the group. This clearly applies when we buy a new business. The transfer of skills is not confined to new acquisitions. SAB examined those elements of management and processes that have made SAB successful and codified them to ensure they are transferable. SAB learns from each subsidiary’s responses to international trends in their markets.

    It gives global scale also provides opportunities for cost savings and efficiencies. Raw materials such as malt, glass and aluminium have been rising in price. SAB mitigates these effects by purchasing more efficient. SAB’s Europe division has been buying malt on a regional basis rather than country by country for a number of years and made considerable savings in the process. More recently, SAB capitalised on this expertise by having Europe purchase all the malt for the group. Other divisions have taken responsibility in the same way for other raw materials. Weaknesses

    Large staff numbers need to be controlled and make SABMiller vulnerable for labor action. To keep abreast of technological developments the retrenchment of labor becomes unavoidable. The Food and Allied Workers Union took SABMiller to labor court for alleged racism due to the retrenchment of several hundred employees during the 2002 and 2003 years. Siehl (2001) is not of the same opinion. She argues that SAB is at the forefront of embedding diversity as a strength in their workforce, and encourages SABMiller to implement the lessons learned in South Africa, from the Employment Equity Act of 1998 throughout their global operations.

    Overcoming local brand negativity during acquisitions, as in the case of Miller in the U. S. market, will force SAB to face the challenge continually every-time a new merger or acquisition takes place. This also refers to damaged reputation of breweries they procure, and the poor quality of goods and services they may provide. This places extra pressure on Total Quality Management, and if no adequate organizational structures exist to absorb these stresses, it could make this Giant Company unstable, and possibly vulnerably be their Achilles Heel. The lack of marketing expertise is overcome by customizing and differentiating product offers.

    Through the decentralization of locations, SAB avoid supply chain costs, and facilitates Just-In-Time delivery, essential for food and beverages that need hygienic, refrigerated conditions. The inability to respond to localized business risk as a key management role. Managing business risk to deliver opportunities is a key element of all SAB business activities. This is undertaken using a practical and flexible framework which provides a consistent and sustained method of implementing the company’s values. These business risks may be strategic, operational, reputation, financial or environmental.

    The globalization of SAB as a business in itself brings with it the stresses that cultural, language and communication, demographic and competitive forces colludes. Conclusion The combination of emerging market growth potential and the earning of hard currencies through Miller made SABMiller one of the most diverse players in the industry but its lack of experience and the loss of focus might be risky on the long run. SABMiller’s strategy of growing through acquisitions put them in a position where the threat of hostile takeover is now highly unlikely. Bibliography: 1. Author unknown] 2007 SABMiller. available online at http://www. sabmiller. com/NR/rdonlyres/B536B436-8DD3-4FFA-8863-47B1743EA7D6/0/SnapshotgoldFeb2008. pdf 2. Marshall, D. H. , McManus, W. W. and Viele, D. F. (2008) Accounting: What The Numbers Mean. 8th Edition. New York: McGraw Hill. pp. 242 – 426. 3. Bartlett, C. A. and Ghoshal, S. (1989) Global Strategic Management: Impact on the frontiers of strategy research, Strategic Management Journal, 12(1). pp. 5 – 16. 4. David, F. R. (2001) Strategic Management Concepts and Cases. 4th Edition. New York: Prentice Hall. pp. 33 – 36. . Meyer, K. E. and Tran, Y. T. T. , (2006) Market Penetration and Acquisition Strategies for Emerging Economies, Long Range Planning. 39(2). pp. 177 – 197 6. Perreault, W. D. , and McCarthy, S. (1996) Essentials of Marketing A Global-managerial approach. 1st Edition. New York: McGraw Hill. pp 107 – 164, 276. 7. Porter, M. E. (1998) The Comparative Advantage of Nations. 5th Edition. New York: The Free Press. pp. 89 – 127 summary available at http://www. valuebasedmanagement. net/methods_porter_diamond_model. html 8. Robinson, C. G. (1986) Strategic Management Techniques. st Edition. Durban: Butterworths. pp. 156 – 158, 178, 179. 9. Robson, W. [ed. ] (1997) Strategic Management and Information Systems. 2nd Edition. New York: Pitman Publishing. pp. – 75 – 85Siehl, C. (2001) South African Breweries Group, Thunderbird International Business Review, 43(4). pp. 569 – 580. 10. Thompson, A. A and Strickland A. J (1987) 4th Edition. Texas: Business Publications Inc. pp. 129 – 133, 168. 11. Yip, G. S. , Loewe, P. M. and Yoshino, M. Y. (1998) How to take you Company to the Global Market, Columbia Journal of World Business, 23(4). pp 5 – 9.

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