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Chinese Beer Industry

MGMT2105
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cynthia huang

on 27 September 2012

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Transcript of Chinese Beer Industry

Chinese Beer Industry and the demise of Foreign competitors Cynthia Huang
Stella Chen
Ricky Cheng Question 1:
Describe the characteristics of China’s beer industry Characteristics I. Rapid Growth Rate
2000-2004, growth rate of 8.1% p.a
1999, Top 4 brewers = 9% market
2002, Top 10 brewers = 40% market
2004, 325 market competitors

Four major competitors in the industry:
Tsingtao Breweries
Yanjin Beer Group
South African Breweries (SAB)
AB InBev Characteristics Characteristics Characteristics Characteristics Characteristics II. Dominance of National Players

Strategic Alliances:
Tsingtao & Anheuser Busch
South African Brewery
& China Resource Breweries Regional and local players are losing the consolidation battle :
Zhujiang Brewery, Guandong
2009, market share drop 47% to 33% III. Patriotism to Local Beer Brand IV. Segmentation Attributed to:
protective local policies
geographical proximity
underdeveloped infrastructure
preference for local beer V. Uneven Wealth Distribution IV. High Tax on Imported Beer Foreign beer:
0.3% volume consumption
3/6% value consumption Imported beer are subject to
import duty
exercise duty
value added tax Question 2:
What are the opportunities and challenges facing foreign companies operating in this industry in China?

Question 1:
Describe the characteristics of China’s beer industry

Question 2:
What are the opportunities and challenges facing foreign companies operating in this industry in China?

Question 3:
What strategies did SAB adopt in China to outperform other foreign brewers?

Question 4:
Do you think SAB’s strategies will give them sustainable competitive advantages in China? Why? What are the lessons for other foreign companies operating in the same industry and also in other industries in China? Overview Challenges Foreign Firms face,

Fragmented Industry
Fierce Competition
Nationwide Presence
Cost Advantages Strategies Foreign Investment Enterprises have implemented strategies such as,

Join-Ventures with Chinese partners
Investing equity in big Chinese breweries
Acquisition of local breweries Current Beer Trends Premium Beer Trends Premium beer

Constitutes 5% of Chinese beer market
Projected to constitute 25% in 10 years time
Are priced up to 50% more than regular beers
CR Snow - prominent beer brand Snow Non-Premium Beer Market Share Beer Trends Premium Beer

Local brew sells for less than 2RMB per bottle.
Foreign premium beer is popular among younger, educated, image conscious Chinese.
But Beer is about national pride. Question 3:
What strategies did SAB adopt in China to Outperform other foreign brewers? Guanxi networks Guanxi network is...

Synonymous with networking; process of exchanging favours
A major source of competitive advantage
Example: SAB - CRB Joint Venture
SAB's utilisation of CRB's guanxi network Company Specific Advantages SAB's success can be also attributed to ... Company history
Company culture
Company experience (overseas) SAB vs. other FIEs Other FIEs faced barriers such as
local protectionist policies
distribution issues & licenses
local knowledge & experience
weather, geography, advertising Question 4:

Do you think SAB’s strategies will give them sustainable competitive advantages in China? Why?

What are the lessons for other foreign companies operating in the same industry and also in other industries in China? SAB vs. Late FIE entrants Late FIE entrant strategies mimicked aspects of SAB
entering strategic alliances
investing in local brands
building greenfield sites Late FIE entrants ALSO introduced
promotion of international brands as well as local brands
two tier marketing campaign SAB's Strategic Response In response to the two tier system
SAB merged with Miller Brewing Company, a prominent global beer brand
compliments SAB, a producer of low end brand To Sustain its competitive advantage
cultivation and deepening of existing guanxi networks have positive long term impacts Conclusion "Chinese have a very strong sense of home place..." -Li Guirong, chairman of Tsingtao Consumer has a preference for their local brew over foreign brews. Consumers are divided into 3 tiers:
Economy, standard, premium
Local beer- US$0.85/L
Foreign beer- priced 400-500% higher
Full transcript