The Effects of Asean Economic Community on Thai Beverage Public Company Limited

Thai Beverage Public Company limited (“ThaiBev”) is Thailand’s leading producer of beer and spirits and one of the largest beverage alcohol companies in South East Asia. Thapana Sirivadhanabhakdi founded the company in 2003, he is now the president and CEO. His vision: one group company that consolidates Thailand’s leading spirits and beer producers.

Before the companies establishment the leading spirits and beer business belonged to shareholders and other investors. In October 2003, 58 related companies in the production and marketing of alcoholic beverage group and related businesses merged into the Thai Beverage Public Company Limited (Thai Beverage Public Company Limited”, 2012) ThaiBev took a leap of faith in 2006 by enlisting in the Singapore Exchange (“SGX”) where they currently rank top 30 largest company by market cap, with a market capitalization in excess of US$4Billion.

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After entering the stock exchange, ThaiBev expanded their product portfolio into the non-alcohol and food business in order to increase customer appeal, reduce business risks and enhance management efficiency (Thai Beverage Public Company Limited”, 2012). The company operations by business consist of 4 segments: spirits, beer, non-alcoholic beverages and food.

Their International Product portfolio includes: Thai Brands (Chang), Single Malt Scotch Whisky, Blended Scotch Whisky, Vodka, Gin, Chinese Spirits and Chinese Wine. ThaiBev recognized spirits brands include Ruang Khao, SangSom, Mekhong, Hong Thong and Blend 285.

Some of their non-alcoholic beverages include ThaiBev’s flagship and Oishi RTD green tea (Thai Beverage Public Company Limited”, 2012). The company’s signature beer is Chang Beer, introduced in 1995 as the only Thai-made beer that has Thai script on their labeling, thus signifying a sense of pride for Thai culture. In 2004, the success of Beer Chang propelled the company to be a market leader in domestic beer products. Currently, Chang is the top selling brand in Thailand overtaking Singha, the previous biggest brand. it is sold nationwide and also exported around the world.

The total sales revenue for the company in 2011 was 132. 2 BILLION baht, 64% spirits sales (Thai Beverage Public Company Limited”, 2012). Currently, Thai Beverage Public Company Limited comprises 63 subsidiaries. The ThaiBev headquarters are located in the heart of city: Bangkok, Thailand. The assets today comprise 18 distilleries in Thailand, 5 Scotch whisky distilleries in Scotland, one distillery in China, 3 breweries in Thailand and 7 non-alcoholic beverage facilities in Thailand (Thai Beverage Public Company Limited”, 2012).

ThaiBev generates business in Thailand and various markets in over 80 countries around the world with over 30,000 employees. They have international offices in Hong Kong, Singapore, The US, the UK, Malaysia and Cambodia. (Thai Beverage Public Company Limited”, 2012) In an effort to internationally expand liquor operations, last year ThaiBev acquired Yunnan Yulinquan Liquor Co Ltd the producer of white liquor in Kunming, China for 318 million baht. International operation grew that year 35% to generate more than five billion baht in sales.

This year, ThaiBev is targeting a 20% expansion of its international operation. ThaiBev continues its acquisition spree to enlarge its products range because it has proven successful in the Food and Beverage industry. David Lind, the Vice President for marketing at subsidiary International Beverage Holdings, said “We aim to be a top five Asian beer brand in the world market by 2015” (Thai Beverage Public Company Limited”, 2012) Below is the product portfolio of Thai Beverage Plc. (Thai Beverage Public Company Limited”, 2012)

The power of Thailand’s liquor and beer industries is essential in fighting foreign product from flooding into the country and having a direct impact on Thailand’s economic development. It is essential for the company to stay proactive in its future strategies because of the opening of the Asean Economic Community in 2015. In the following, I will use Porter’s five-force analysis to explain ThaiBev position in Thailand’s competitive market. Then, I will discuss the key objectives of Asean Economic Community 2015 and its effects on the companies future business.

Michael Porter hypothesized that the original economic structure determines the intensity of competition in an industry. He opposes that the industry structure is shaped by five basic competitive forces: the threat of new entrances into the industry, the bargaining power of suppliers to the industry, the threat of substitute products or services, the bargaining power of customers or buyers, and the Rivalry among Existing Firms (Wheelen and Hunger, 2006). The figure 1. 1 diagrams these competitive forces (Manuel, 2007). Porter’s analysis is a useful business tool for assessing the potential and profitability within an industry.

Examples of entry barrier include: brand identity, economies of scale, switching costs, proprietary product differences, government policy, capital requirement, absolute cost advantage, access to distribution and expected retaliation (Czinkota ;amp; Ronkainen, 2009). These barriers make it a challenge for a company to enter an industry. In Thailand’s beverage industry entry barriers are high (i. e. huge capital investment in breweries) resulting in low threat of new entrants. In fact these markets imply highs fix and variable costs.

The barriers are also determined by the governmental regulation of countries or regions where the firm is because all companies are subject to numerous environmental laws and regulations. This makes it harder for new companies to enter into the existing market. It is also important to note that ThaiBev has a well-established brand name with a well-respected reputation. The company continuously organizes music events while smaller competitors focus on expediting their growth with low selling price.

In the beer market, ThaiBev and large-sized business competitors focus on brand building through sports marketing, especially football, ‘s well as music marketing. According to ThaiBev’s annual report from 2011,“The alcohol beverage market was not impacted by the risk from competition, since both targeted top line and bottom line were met. ” With little to no threat amongst competitors, the future opportunities of the company’s expansion appear in their favor.

Some rivalry determinants include: Industry growth, price change/value added, intermittent differences, product differences, brand identity, concentration and balance, informational complexity, diversity of competitors, corporate stakes; exit barriers (Manuel, 2007). The beverage industry in Thailand does have high rivalry primarily because of the number of competitors and brand awareness. Some of Chang’s global beer market competitors include: Thailand’s Singha, Tsingtao Tiger, San Miguel, Sapporo, Asahi and Kirin.

Although for ThaiBev, their main rivalry is not a result of their product range, it is due to customer appeal. In order to reduce strong aggressive competition ThaiBev focuses on maintain good public relations and brand investment. They develop marketing to appeal to their target customers and they give back to their community through CSR activities. (Thai Beverage Public Company Limited, 2011) Competition is the drive that makes business possible and without rivalry ThaiBev would not hold their leading position in the Thai market.

With the opening of the AEC I believe that rivalry will increase but I also believe that ThaiBev’s strategic positioning of new products will help them succeed in the new market. Innovative products are launched constantly to stay ahead of the changing trends of consumers and I believe that opportunities after AEC opens will benefit the company. Threat of Substitute Products or Services Substitute products are alternative products that can satisfy the same need as another product. These can hinder profitability charge in an industry because the substitutes limit the potential returns by placing a maximum on the price firms.

Substitutes limit the potential returns of an industry by placing a ceiling on the prices firms in the industry can profitably charge. The extent that switching costs are low, substitutes may have a strong effect on an industry. ?Substitute products that deserve the most attention from an organization are those that: tend to improve their price performance trade-off with the industry’s product’s and are made by high profit industries. (Manuel, 2007) In a single-product company, this factor can determine their success in the market.

Since ThaiBev has a wide product portfolio and a large customer appeal, the substitutes are low. The company also intends to, “expand our product portfolio to better respond to the demands of various customer segments as well as the spending trend and higher buying power in line with the recovering economy” (Thai Beverage Public Company Limited, 2011). * Bargaining Power of Buyers ? Powerful buyers have the ability to lower prices, bargain for higher quality or more services, and position competitors against each other. The more power the buyer has, the less control the supplier has.

Buyers are powerful if: they purchase a large proportion of the seller’s product or service, for example, oil filters purchased by a major automaker (Manuel, 2007). The purchased product is unimportant to the final quality or price of a buyer’s products or services and thus can be easily substituted without affecting the final product adversely (Manuel, 2007). In the ThaiBev’s Annual Report of 2011, ThaiBev said they are continuously adjusted the route-to-market, distributors in the US market and the sales teams as well as the management for the markets in the USA, Singapore, Cambodia, and Hong Kong.

The ThaiBev’s buyers power is low. Wholesalers and agents are considered as buyers for ThaiBev in which they have to follow the predetermined prices.  Powerful suppliers have the ability to raise prices or reduce the quality of purchased goods and services. A suppliers power is determined through: differentiation of inputs, switching cost of suppliers and firms in the industry, presence of substitute inputs, supplier concentration, importance of volume to supplier, cost relative to total purchase in the industry, impact of input on cost or differtiation.

Suppliers are powerful when a few companies dominate their industry. The determinants of supplier powers are the following: differentiation of inputs, switching costs of suppliers and firms in the industry, presence of substitute inputs, supplier concentration, Importance of volume to supplier, cost relative to total purchases in the industry, impact of inputs on cost or differentiation (Manuel, 2007). The threat of suppliers is low for ThaiBev because ingredients are neither concentrated nor organized and the cost of switching is not high.

In ThaiBev’s annual report it states: “For the production year 2012, we mitigate the risk by entering into forward contracts at appropriate prices and adequate volumes for production throughout the year. As for major packaging materials, including fuels used in production, we also entered into forward contracts for most items to mitigate the risk of supply shortage and inadequate volumes for production. ” The company uses contracts to maintain their control over suppliers and prevent production increase. ThaiBev has a comprehensive 6-pronged strategy to promote future growth and remain in control of their company. Thai Beverage Public Company Limited”, 2012).

The Association of South East Asian Countries (ASEAN) was founded in 1967. Recognized as South East Asia’s first major trading bloc, ASEAN used the model of European Union (EU) and significances changed the world of international business. The ASEAN Economic Community (AEC) shall be the goal of regional economic integration by 2015. AEC aims to transform ASEAN into: a single market and product base with free movement of goods, services and skilled labor and a freer flow of capital.

The economic goal by 2015 is to have a single market of over 600 million people encompassing 10 countries including Indonesia, Malaysia, Philippines, Singapore, and Thailand (founding members), Brunei Darussalam, Vietnam, Laos, Myanmar and Cambodia. The single Community producing politically cohesive, economically integrate, and socially responsible with ASEAN’s integration being a cornerstone in the economic integration. With the future of Asean Economic Community becoming a single market and product base.

ThaiBev has planned to premiumize products to expand to? he premium market, both in terms of quality and price, in accordance with the changes in markets. The plan includes globalizing the image of our products to compete in an international arena, developing current and new products with high profit margin to expedite growth of both top line and bottom line of the business as well as to expand our product portfolio to better respond to the demands of various customer segments as well as the spending trend and higher buying power in line with the recovering economy.

Once the AEC becomes effective in 2015, I believe that ThaiBev will be able to sustain their leading position in the free market. With the free movement of goods, services and skilled labor and a freer flow of capital, the company will have more opportunities. This is also the result of less regulation and government policies. it will allow ThaiBev to continue their expansion with less effort. As seen as a result of their international business, ThaiBev is a company capable of making innovative decision to adapt to new market opportunities.

For example, exported Chang Beer remained focusing on music and sports marketing to ride the momentum and achieve a vivid brand identity in consumers’ mind. (Thai Beverage Public Company Limited, 2011) The closer ASEAN moves towards becoming a “single market and production base”, the more it has become attractive to trading partners wanting to forge free trade (FTA) or comprehensive economic partnership (CEP) arrangements with ASEAN. (Jakarta: ASEAN Secretariat, 2011) This will have a positive effect on Thailand’s beverage industry because it will allow for more revenue to flow into the domestic and international market.

Market potential will increase with the enhance access to new resources that will also allow the competitive position to change. The focus will shift into direct completion within ASEAN regions. Since ThaiBev already does business in China, Cambodia, and Singapore the trading partners can use this opportunity to establish stronger public relations. Exporters/manufacturers in the region will have greater market access brought about by the tariff liberalization to trade in goods and liberalization in the services sector.

This also allows for the company to focus on regional expansion within the ASEAN regions since trading partners will be attracted to the FTA. According to the AEC blueprint 2008, “ASEAN’s FTAs/CEP are expected to attract foreign direct investment which in turn opens up opportunities for employment and technology transfer, increased commercial activities and enhanced collaboration among the economic operators in ASEAN and the FTA partner.

The FTAs/CEP also create a business environment that promotes certainty, predictability and transparency, which are all necessary to ensure that commercial activities are not unnecessarily interrupted or disrupted. ” The blueprint of the AEC sets up a “schedule” for the upcoming market, therefore companies, like ThaiBev know what to expect and plan for. I believe this will help ThaiBev since they already have plans to adapt to new markets.

In the Annual report 2011 the company discusses this, “The plan includes globalizing the image of our products to compete in an international arena, developing current and new products with high profit margin to expedite growth of both top line and bottom line of the business as well as to expand our product portfolio to better respond to the demands of various customer segments as well as the spending trend and higher buying power in line with the recovering economy. ” With the change in market, customer segments and trading partners ThaiBev will continue to strategically plan to benefit their expansion.

In the end, Asean Economic Community can be seen as an opportunity for ThaiBev to improve and increase their international business. ThaiBev says, the companies within the Thai Beverage Plc. group, apart from being a leader in alcoholic beverage industry with the highest potentials in the country, have continuously played a major role in social activities at all levels and the results of every activity have contributed positively and led to the strengthening of the Thai society through mutual caring. Thai Beverage Public Company Limited, 2012) Together AEC and ThaiBev can work together to change the domestic and international market making for a stronger economy and a brighter society.


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