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SABMiller Case Stady

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    Table of Contents {text:bookmark-start} INTRODUCTION: {text:bookmark-end} It is important for organizations operating and competing at global level to understand how it fits into the external environment that it operates in. The twenty first century has witnessed frequent fluctuations in these international environment in which businesses operate which in turn has encouraged these businesses to concentrate heavily on strategising the manner in which the company survives, grows, competes and achieves its goals.

    The top management of these organizations take decisions with an ultimate holistic goal of achieving a sustained competitive advantage and in order to achieve this they have been focussing on managing their internal resources and competencies to reap profits from the opportunities created by the external environment (Barney, 1991). Hence it is clear that the international organizations require a strong strategy in place for it to help achieve and sustain this competitive advantage in the long run.

    This report deals with identifying the strategic issues and options available to South African Breweries (SAB) based on the understanding from the case study “SABMiller” (Johnson et al. , 2008, pg. 740-745). After a brief introduction to what strategy means for organizations, the report tries to explain the current strategic position of SABMiller by analysis of the organization’s competencies internally and also the external industry and environmental structure, followed by this the report will discuss the implications of this current position for the future.

    Finally the report will conclude highlighting the importance of strategic management to SABMiller. Firstly it is very essential to understand what strategy means. Johnson et al. (2008) explains it as ‘… direction and scope of an organization over a long term… ’ (Johnson et al. , 2008, pg. 3) that involves planning in management of its resources and competencies to exploit the fluctuating external environment which would result in it reaching its goals.

    Strategic management involves taking highly complex decisions that are based on careful reading of the environments and predictions of the future changes in them. There are always choices in strategies available for the decision makers to implement, thus it becomes essential for the strategy planners to evaluate these options by analysing all the related factors through the use of certain basic tools and frameworks. This report in the next section will analyse the strategic position of SABMiller through the use of certain tools. text:bookmark-start} ANALYSIS OF CURRENT STRATEGIC POSITION OF SABMILLER: {text:bookmark-end} The case study “SABMiller” (Johnson et al. , 2008, pg. 740-745) reveals that SABMiller has been successful at a global level because of implementing right strategies at the right instant of time during its existence. It grew by exploiting its strengths of having the expertise in running strong businesses in developing markets gained from its experiences in Africa.

    SABMiller have been focussing on ‘four strategic priorities’ (Johnson et al. , 2008, pg. 740) first, developing their business globally by entering the new emerging markets all around the globe, secondly to have a optimum range of brand portfolio in suitable markets, thirdly to improve the performance of each business unit under the organization and finally to use all the knowledge gained from various businesses around the world to be shared between each other for mutual support to achieve growth at global level.

    To analyse the present strategic position of SABMiller this report will first analyse both internal and external environment of the organization through a general global perspective by using SWOT and PESTLE framework. Next the report will analyse the strategies employed by SABMiller in its different markets around the globe through tools like Ansoff Matrix, Boston Consulting Group’s (BCG) Matrix and GE/McKinsey Matrix. These tools will be described along with their limitations. text:bookmark-start} 2. 1 SWOT ANALYSIS: {text:bookmark-end} This is an important tool to analyse the current internal capabilities of SABMiller through a look at its strengths and weakness and also predict the external changes in the environment SABMiller operates in by recognising the opportunities for the organization to grow in and also to recognise the threats the organization may have to face and to convert them back into opportunites.

    From the SWOT framework applied to SABMiller (see appendix 1) it is seen that the main strength of SABMiller lies in its skills to succeed in developing markets like that of several African, European, South American and Asian countries. This experience of handling and managing successful businesses in emerging markets is a key internal capability that is a source of its competitive advantage. Also from the list of strengths and weaknesses it can be observed that SABMiller’s strengths in having a geographically diversified business with its wide premium brand portfolio and strong supply chain along with xcellent operational productivity capabilities are countered by weaknesses as a result of overemphasis on developing markets and premium brands. The external analysis reveals opportunities in the developing economies and new markets like China, Colombia, Peru, Ecuador and several markets in Africa and Europe. But the significant number of threats in the external environment is a critical area that SABMiller has a clear focus upon to minimise the negative effects on its businesses.

    Developing markets can have situations related to political and economic issues along with high rate in change of consumer trends, SABMiller are aware of these threats and the risk impact through any of the mentioned threats are spread out globally over a large scale. From the SWOT analysis it can be concluded that the key focus of SABMiller is preserving and exploiting its main strength in form of a source of competitive advantage- SAB Miller’s expertise in developing markets.

    SABMiller’s overall corporate strategy does fit this factor into itself as it has clear emphasis on developing itself in new emerging markets. {text:bookmark-start} 2. 1. 1 Limitations: {text:bookmark-end} SWOT analysis is basically a list of factors that enable the managers to recognise the internal capabilities of the organization and also be aware of the changing external environment to tap up the opportunities and reducing affects of threats.

    However the drawback of this framework is one, a factor that maybe listed as strength can also be a source of weakness to the organization as seen in case of SABMiller where its premium brand acts as its source of strength and weakness (refer appendix 1), secondly this framework is not clearly defined in terms of what exactly is a strength or weakness of the organization and what exactly are the opportunities and threats to an organization which may result in managers tending to be very subjective when listing down the factors based on their perception of the organization. text:bookmark-start} 2. 2 PESTLE ANALYSIS: {text:bookmark-end} This framework is used to analyse the macro-environment to identify the current and future trends in various fields as in Political, Economical, Socio-cultural, Technological, Legal and Environmental factors. This list is based on facts and should not be speculated upon. SABMiller is a major player in the brewing industry at an international level, but this brewing industry is regulated tightly in various markets around the globe where SABMiller has established its business units.

    This is seen from the PESTLE analysis (refer appendix 2) applied to the environment SABMiller functions in, these factors mentioned are self explanatory. It can be said that the Socio-cultural factors play the most crucial role in SABMiller planning its corporate strategy, the key driver being the prediction by SABMiller that in developing markets the disposable income of consumers would be on the rise hence resulting them in spending on alcoholic drinks for leisure as living standards increase. In reality developing countries are easily vulnerable to global crisis which would result in fall of disposable income levels of consumers.

    SABMiller’s current strategy has covered the risks from the fore mentioned issue through establishing itself considerably in developed markets as in USA to have guaranteed returns. {text:bookmark-start} 2. 2. 1 Limitations: {text:bookmark-end} PESTLE framework is similar to SWOT analysis in terms of both being a list of factors that fall under various categories that are not clearly defined and overlap over each other and are based on the managers interpretation and prediction of the future trends.

    Even though it does give a guideline for organizations to design a strategy based on the future predictions, its success largely depends on the accuracy of the prediction of the future. {text:bookmark-start} 2. 3 ANSOFF’S MATRIX: {text:bookmark-end} The Ansoff’s matrix (Ansoff, 1968) describes the strategic direction in which the organization is moving based on its product and market scope taken on two axes. This is applied to analyse the present strategic position of SABMiller and the direction which it intends to take in its different markets of operation (refer appendix 3).

    If we consider SABMiller’s strategic direction in Africa even though they are established since long time in South Africa it has been recently entering new markets like Tanzania, Uganda and Mozambique and have been using existing products to be offered in them so it is following a market development strategy by targeting new segments and users in these new markets. In South American and European markets SABMiller has taken a market penetration stand where it is trying to increase its market share as there is an existing market and it is using existing products.

    USA and UK too are in the similar situation but here SABMiller has gained major market share through acquisition of huge businesses, it has rationalised its brand portfolio to a narrower range through consolidation and intends to defend its market share. SABMiller operates only in few countries in Asia where they have used the existing markets to offer new products; this allows them to focus on product development hence offering better products to its customers. The example of the ‘Snow’ brand (SABMiller, Johnson et al. , 2008, pg. 45) introduced into Chinese market leading SABMiller gaining a leading position in that market. {text:bookmark-start} 2. 3. 1 Limitations: {text:bookmark-end} This framework forecasts the direction in which the organization would strategise itself based on the product-market dimensions; this may not be very accurate. Moreover this matrix is a very simple framework without giving more scope for greater detail during analysis of markets for example- few markets may be in neither new nor in existing stage instead in some intermediary stage of development.

    Hence organizations can have more than four strategic directions to employ in their chosen markets. {text:bookmark-start} 2. 4 BOSTON CONSULTING GROUP’S MATRIX (BCG): {text:bookmark-end} BCG matrix (Grant, 2005) is a framework useful to analyse the strategic positions of organizations along with its competitors and to get an overview of the attractiveness in the industry and indicate its competitive advantage. It uses two dimensions namely: rate of market growth and relative market share of the business. Refer to appendix 4 to view the application of this framework on SABMiller.

    SABMiller has enjoyed a high market share in Africa and also in China along with great prospects of growth of the market in these regions. Hence SABMiller takes the position of the star where it earns growing profits at high rate and strategizes to grow through heavy investments. South American business units and the ones in USA have a huge market share, but the recent performances have shown that there isn’t much scope for growth in market thus making these units cash cows that give high returns constantly.

    SABMiller just ‘milks’ its units in these regions to reap the benefits of high cash flows into the organization. The European countries and in India the market growth rate has been high but the market share of SABMiller has been considerably low. These units are the problem child which would have fluctuating returns or profits, they are carefully dealt by SABMiller to force them into a position of the star. {text:bookmark-start} 2. 4. Limitations: {text:bookmark-end} Even though this framework helps in analysing individual business positions and comparing itself to its competitors they have their limitations as Grant (2005) rightly indicates. For instance it is a very simple matrix that uses just two dimensions of market share and growth rate to indicate a complex concept of competitive advantage. This framework considers these business units as independent ignoring the linkages and interdependencies between these units in the organization. {text:bookmark-start} 2. GE/McKINSEY MATRIX: {text:bookmark-end} This framework is more detailed than the BCG matrix and helps measure industry attractiveness and competitive advantage of the business units to analyse the strategic options. Grant (2005) discusses this framework and explains that industry attractiveness is based on factors like market size, growth rate, profitability and the competitive advantage of the business unit is on basis of factors such as market position, competitive position in terms of returns earned, quality, production, marketing, distribution and so on.

    This analysis is carried on in appendix 5. The Strategic Business Units (SBU) in USA and UK have medium level of competitive advantage in terms of it having just a marginally better position in the market when compared to competitors, but these regions have low industry attractiveness as it is not possible to achieve great market growth rates, hence SABMiller has to consolidate its business considerably and not invest heavily in these regions.

    In Africa, South America and China the SBU strength are high with superior market position and industry attractiveness is high as well with greater market size in these regions. SABMiller looks to build its business by investing heavily and reaping high earnings from them with good prospects of future growth. SABMiller deploys a hold strategy in countries like India where the industry attractiveness and SBU strength can be considered to be in a medium position. Such business units are treated between the other two types with not too much of investment neither is it neglected totally. text:bookmark-start} 2. 5. 1 Limitations: {text:bookmark-end} This framework is more developed than BCG matrix but is similar in terms of its drawback as the complex measurement of competitive advantage is simplified to a very great extent by analysing it just on two dimensions. This does help an organization as huge as SABMiller to view the relative positions of its various units. Again as mentioned previously for BCG matrix, the GE/McKinsey matrix does not consider the linkages between the business units as a possible factor influencing its performance. text:bookmark-start} FUTURE IMPLICATIONS OF CURRENT STRATEGIC POSITIONS: {text:bookmark-end} From the strategic analysis undergone in the previous section it can be deduced that SABMiller has achieved considerable dominance in developed markets like USA and UK through acquisitions, but since its competitive advantage lies in its skills of managing business in developing and underdeveloped economies and lack of growth prospects in developed economies has turned the focus to grow into emerging markets.

    SABMiller has rightly placed itself to reap the benefits of short term profits from business units that act as cash cows in developed economies and invest carefully to reap the long term profits from the developing economies. It is clear that SABMiller has been working hard on its top four strategic priorities as mentioned earlier. The balance achieved from spreading its business both into the developed world and the developing world will not only minimise and spread the impacts of risks in failures of SBU’s but also increase SABMiller’s reputation in developed markets which is presently suppressing it to get higher share values.

    SABMiller emphasis on managing its brand portfolio and the success achieved from its premium brands will improve its business prospects in developing and underdeveloped markets as they push towards developing their economies which in turn raises the living standards of the consumers. Careful exploitation of its internal capabilities in marketing, distribution and superior operational productivity these brands in different market will bring huge profits to SABMiller. The strategic direction into which SABMiller has placed itself in different markets was discussed using the Ansoff’s matrix in previous section.

    SABMiller seems to be taking the right approach in all its different markets with emphasis on developing the markets in African countries, developing products in Asian countries and further penetration of markets in European and South American markets show positive signs for the future of SABMiller. As from the BCG matrix the present positions of few business units as problem child in India and a few European countries will mean that SABMiller would have to invest and develop these business units to take them towards a position of star and avoid them from falling into the dog category.

    SABMiller has grown globally in the last two decades at a very high rate through acquisitions of major businesses across the globe as in American Miller’s acquisition, Topvar in Slovakia, small businesses in China and other similar businesses at several markets, these acquisitions may impact the performance of the organization negatively if a fit between these new businesses and the rest of the organization are not achieved. Acquisitions usually tend to be failures when the process of taking over is not managed efficiently.

    It is important for SABMiller to constantly evaluate the external environment, be aware of its internal capabilities and predict the future accurately and strategise itself well to maintain its success rate at an international level. {text:bookmark-start} CONCLUSION: {text:bookmark-end} For an organization as huge as SABMiller which has its businesses spread across the globe with a wide range of product portfolio to manage it becomes very crucial for the management to make critical corporate level strategic decisions to drive the various business units to growth that would provide positive effects on the entire organization.

    SABMiller has been predicting the future right from the times of turbulent environments in Africa and strategising its businesses to survive the difficult conditions and then grow into a major global player in the brewery industry. To maintain this level of strategic accuracy the strategy planners make use of tools and frameworks to analyse and identify the competencies and capabilities within the organization, the factors external to the organization and the industry it operates in that would affect the manner in which it would conduct its businesses.

    As seen in the report the organization and its external macro environment are analysed through the use of frameworks such as SWOT and PESTLE analysis. The strategic direction SABMiller has taken in different markets are analysed through the Ansoff’s Matrix and the competitive position of the several business units and finding their relative positions is possible through frameworks such as BCG and GE/McKinsey Matrices.

    It is essential to understand that these frameworks cannot be used individually to determine the strategic position of organizations, the strategy planners need to use several of such frameworks to reduce massive information available to them into simpler versions and interpret results from all the tools to achieve a more accurate picture of the future into which the organization would be directed towards. As Mintzberg et al. (1995) explains that strategic management is essential for SABMiller to set its business units in right direction by selecting the strategy that fits into the organization’s ission and structure, this strategy should be feasible for SABMiller to achieve in terms of available resources and also acceptable in terms of the financial returns, meeting stakeholders expectations and other such factors. Finally it is important to keep businesses flexible to continuously evolve according to the changes in environment, with right fit strategy to facilitate success and profitability. {text:bookmark-start} APPENDIX 1: SWOT Framework {text:bookmark-end} {text:bookmark-start} APPENDIX 2: PESTLE Framework {text:bookmark-end} POLITICAL:

    Political instability in regions of Africa. Taxes imposed by the Government on the company that is operating in the country, imports, exports etc. Employment laws established by the government related to minimum wages, management of workforce. Government prohibition or strict regulations on alcohol advertising in countries like India and China. Government regulations to control market shares of organizations to avoid monopoly. ECONOMIC: Operating costs in different regions. Fluctuating exchange rates between various currencies.

    Varying inflation rate of different economies. Economic stability of developing countries. SOCIO-CULTURAL: Change in consumer trends in alcohol consumption. Disposable income of the consumers. Social responsibility of spreading awareness about alcohol consumption. TECHNOLOGICAL: Development in brewing techniques through research and development to produce improved quality of products. Investment in advanced machineries in production units. LEGAL: Legal issues pertaining to health and safety of employees. Employment laws similar to ones on minimum wages.

    Environmental laws related to factory emissions, waste disposal. Regulations on alcohol advertising. ENVIRONMENTAL: Environmental concerns on waste disposal, emissions from the production units. Environment friendly packaging of products. {text:bookmark-start} APPENDIX 3: ANSOFF’S MATRIX {text:bookmark-end} Source: adapted from Ansoff (1976) Summary for SABMiller: {text:bookmark-start} APPENDIX 4: BOSTON CONSULTING GROUP’S (BCG) {text:bookmark-end} Source: Adapted from Grant (2005) Summary for SABMiller: text:bookmark-start} APPENDIX 5: GE/McKINSEY MATRIX {text:bookmark-end} Source: Grant (2005). Summary for SABMiller: {text:bookmark-start} REFERENCES AND BIBLIOGRAPHY: {text:bookmark-end} Ansoff, H. I. , (1976), ‘Corporate Strategy’, Penguin Books. Ansoff, H. I. , (2007), ‘Strategic Management’, Palgrave MacMillan, Classic Edition. Barney, J. , (1991), ‘Firm Resources and Sustained Competitive Advantage’, Journal of Management, vol. 17, No. 1, pp. 99-120. Grant, R. M. (2005), ‘Contemporary Strategy Analysis’, Blackwell Publishing, 5th Ed. Johnson, G. , Scholes, K. And Whittington, R. , (2008), ‘Exploring Corporate Strategy: Text and cases’, Pearson Education Ltd. Kelly, P. , (2008), ‘International Business and Management’, 1 edition, Cengage Learning EMEA. McKechnie, D. S. , Grant. J. , and Katsioloudes, M. , (2008), ‘Positions and positioning: Strategy Simply Stated’, Business Strategy Series, Vol. 9, No. 5, pp. 224-230. Mintzberg, H. , Ahlstrand, B. , and Lampel, J. (1998), ‘Strategy Safari’, Free press. Porter, M. E. , (1984), ‘Competitive Advantage: Creating and Sustaining Superior Performance. ’ The Free Press. Porter, M. E. (1986), ‘Changing Patterns of International Competition’, California Management Review, winter86, Vol. 28 Issue 2, pp. 9-41. Porter, M. E. , (1990), ‘New Global Strategies for Competitive Advantage’, Planning Review, May/June 1990, vol. 18, No. 3, pp. 4-14. Wit, B. D. , and Meyer, R. , (1998), ‘Strategy: Process, Content, Context’, International Thomson Business Press, 2nd Ed.

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