RAYAT LONDON COLLEGE

Analysis of South African Brewery (SAB).

Overview of business in five countries in Africa.

Presented to Student Id number Course Date of Submission

: Carlos Gomez. : R01-000723. : MBA CTE VII. : 18-11-2011.

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CHAPTER 1 2 3

TABLE OF CONTENT INTRODUCTION TO SOUTH AFRICAN BREWERY (SAB) MOZAMBIQUE KENYA

PAGE NO 3 3 5

TANZANIA

ZIMBABWE

GHANA

CONCLUSION

BIBLIOGRAPHY

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South African Brewery (SAB)

Introduction

South African Breweries (SAB) was founded in 1895 as castle Brewery producing Castle Lager to supply a growing market in the newly established goldfields around the mining town of Johannesburg. By 1902 the company was the most valuable non mining company in South Africa (Johanson and Vahlne, 1990). In 1910 the Union of South Africa was formed as part of the British Commonwealth. The company expanded into Rhodesia forming Rhodesian Breweries was formed and then the company listed in the Johannesburg Stock exchange list. Furthermore, the company started to grow in terms of brewery and financial terms (Needle, 2010). SAB expanded in whole of Africa and listed them in the London Stock Exchange market. Peroni famous beer from Italy is produced in Italy but processed by SAB Miller. Thus it can be seen that the company had a powerful strategy in entering the foreign market. This report will analyse their empire stretching in the African countries what market strategy mode they have adopted with the help of pestle which can be highlighted on their mission and vision. OUR VISION To be the most admired company in South Africa; a partner of choice, an investment of choice and an employer of choice. OUR MISSION To own and nurture local and international brands which are the consumers first choice.

Mozambique
SAB Miller had invested in Cervejas de Mocambique in 1995 which holds 84% of the market share there are few factors which created an impetus for development of the South African Brewery giant to invest money they are: Political Potential labour has increased due to unemployment. Countries infrastructure has increased due to governments investments and help of World Bank. Political progress in neighbouring Zimbabwe would lead to economic stabilisation and offer market opportunities. The government has achieved a wide range of fiscal reforms by amending financial rules and regulations. Despite progress in addressing corruption, it remains a major problem and is a disincentive to foreign investment. 3|Page

Economical World Bank has rated Mozambique in 41st out of 183 countries as the improving economy with the growth of 5%increase in the GDP which shows a economical upgrade in the country. Due to government interventions the transportation facilities has increased thus enabling a smooth flow of commodities. On the other hand also due to political progress the drop in the Rand makes this country vulnerable of social instability. (Mozambique 2011). Social Due to high unemployment there is a mass storage of cheap labour thus enhancing the work force by providing employment. There are different entry approaches in the foreign market first is competitive approach which indicates that a firm is trying to compete with the existing firm may of same calibre. The other approach is cooperative approach by joining hands and working for similar type of contract deals the profits would be shared equally (Chen and Messner, 2011). In the SAB case they have opted cooperative approach to become global. According to Walker and Johannes (2003) suggests that to reduce the gaps it becomes essential for a firm to collaborate with another firm to strengthen the firms stability and to increase cash flow. This in further can be termed as partnership. The key aspects of partnership are to utilise the key aspect of trading business and help firms to anchor business. Moreover it has been observed by the researchers that partnerships happen when an established companies spreads their wings globally to achieve their mission and vision (Das and Kumar, 2007). As mentioned in the companys mission of being the top brewery companies of the world SAB entered into a partnership with the Cervejas De Mocambique in the year 1995 to trade in Mozambique analysing the political, social and economical scenario the report suggests that SAB has shown interest in Mozambique due to cheap labour, joint venture with the established firm in the country so that they can trade in the country. It has also been highlighted to enter in the Mozambique market the brewery obtained licensing from SAB. Licensing is defined as an conceptual agreement made by the licensee (Mozambique) to use the brand name of Licensor (SAB) to manufacture the same products and of set standards and quality maintained by the Licensor (Chen and Messner, 2011). Hence the strategy of SAB to enter in Mozambique can be highlighted through this entry mode strategy also.

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Kenya
In April 1997, construction of brewery began in Thika near Nairobi, with a planned capacity of 500,000 hectolitres. Brewing commenced in October 1998. Political Social Kenyas beer industry is rapidly developing and is arguably Africas most promising. Middle class has been rapidly increasing in this country giving a boost to beer industry Focus of people is shifting towards brand conscious and keen interest in new products. Large number of people is interested in consumption of alcoholic drinks. Restriction of alcohol consumption due to Islamic law has also a concern on the drinking habits. Privatisation plans which have started in the 1990s have started by the government. Support from World Bank to increase privatisation. New tax policy was introduced to balance the economy.

Economical The per capita consumption still remains low in this country. With consumption standing at just 10 litres per capita per annum, the beer industry has merely scratched the surface of its potential. Although the trend is less pronounced than in more developed economies, economic weakness is affecting near-term growth of the beer industry. (Kenya Food & Drink Report 2011) After carefully monitoring the progress of the company in investing in Kenya it can be analysed that company has adopted foreign direct investment strategy the factors that leads to this strategy are the consumption pattern as mentioned in the social frame which suggests that the growth in the middle class sector and the consumption leads to demand. Foreign direct investment (FDI) is a vehicle of globalisation which renders firm to migrate and start business in an alien country. The main aspect of the FDI is that the company should posses a strong financial balance sheet which can render them to invest money in the country. The factor which has been mentioned above suggests that the company has adopted FDI system to capitalise markets in Kenya. According to Bonache, and Brewster (2001) suggest that a company should have qualities of product, process technological knowhow and skills of marketing with respect to these factors financial factor is the important one. As seen from the case study SAB has a sound financial factor along with technological knowledge and marketing skills which enabled them to trade in Kenya. Furthermore, Chakrabarti (2002) also suggests that with low budget in the developing country will not enhance the companys profile, but in SABs case it is good in monetary terms. Also FDI contributes to the development process in the country by way of labour. Hence to enter in Kenya SAB adopted FDI strategy to make business. 5|Page

Tanzania
SAB became a privatisation partner with the Tanzanian government in 1993, becoming a shareholder in Tanzania Breweries which owns the countrys most popular beer brands, and has a licence to distribute Castle Lager. Political Political stability had a toll on the development on the countrys economy. Government steps to improve the business climate include redrawing tax codes, floating the exchange rates. Poor infrastructure of water, electricity and supply of raw materials. Good relations with South Africa and neighbouring countries.

Economic Less than 10% of GDP, Tanzanias industrial sector is one of the smallest in Africa. 90% of the dominance of the industry is Small Medium Enterprise (SMEs). In 1990s there was a consistent growth of 15% GDP growth due to foreign aid and thus leading to increase in the infrastructure growth in the country. Environmental National Environmental Policy has been amended in the year 1994 meeting the basic need of the present and future generations without degrading the environment. Drought has been the major problem in this country and hence proper packaging is essential in these countries. Public awareness about famine and redevelopment of food.

(International Business Publications, 2011) East African Community (EAC) was formed in which countries like Kenya, Uganda, Burundi and Rwanda and Tanzania as its member which established expanding trading, political implications, economic and social cooperation among the states. The other aspect of the country is that there is more of privatisation and hence SAB invested their firm with strategically aliening with the Tanzania brewery. Evaluating on the evolution of market in Tanzania it can be seen that SAB invaded this market due to positive political reforms. Due to change in the environmental regulatory reforms it has been noticed that there had been investment in Tanzania to create an ecological balance taking in consideration of the political reforms in the country SAB miller invested on this country. Secondly it has been noted that in the year 1994 SAB entered a joint venture with Tanzania brewery and acquired share in the country to produce which tripled the profit. This mode of entry in the market can be referred to as strategic alliance. In the contemporary business landscape there is a need for strategic 6|Page

alliance firms are getting together by means of globalisation to join hands and work for a common goal. On the other hand Curhan et.al (2006) argues that strategic alliance is a part of business reincarnation to enter in foreign country to make revenue. SAB has used strategic alliance strategy to work the Tanzania brewery which tripled their profits as SAB had money, political knowledge and environmental investments. Thus after carefully monitoring the issue we can say that SAB Miller entered Tanzania to obtain share in the market and with the aim of globalisation to be known in the marketing books.

Zimbabwe
SAB holds a 23% interest in Delta, one of the largest industrial companies listed on the Harare stock Exchange, and owner of Zimbabwe Breweries. Political Prior to economic collapse the drink industry started to boom in the Zimbabwe markets. 87% share of the brewery was held by Delta brewery which has influence in the Zimbabwe market. Steady GDP growth by 6%.

Economy Abundant natural resources make the country exiting for the foreign companies to invest money in Zimbabwe. Stabilised inflow of FDI has good influence in the countries inflow. Starved domestic funds also leads to economic strangle in the private sector. International companies showing a lot of interest specially UK and South Africa showing a strong position in the Zimbabwe market. Social Unemployment has risen to 80% according to living standard have plummeted, and domestic demand is very weak. Achieving social- political stability will require the goodwill of donors for years. Delta brewery from Zimbabwe provided employment to people of Zimbabwe. Population being dragged to HIV due to less education. SAB has played a vital role in investing some part of money for the improvement of people.

(Zimbabwe Food and Drink Report, 2010) Polanski (2004) considers that labour as being the important aspect in varying an organisational structure. Labour shapes in both central and peripheral to such integration, moreover labour shapes up economy well being also as discussed in the report that Zimbabwe has 80% unemployment which renders SAB to capitalise the marketing condition and go global. Furthermore as seen in the case study SAB joined hands 7|Page

with the Delta brewery to hold 23% share in the Harare stock market. Labour costs in Zimbabwe are comparatively low hence these factors made SAB to enter in this country. Secondly Delta itself is a brand in Zimbabwe and hence SAB strategically allied with this company keeping the same brand. Brand is defined as a value to the owner which assists in perceived quality and a differentiation in competing products. Branding provides consumer attention and retains consumer loyalty it also aims at a certain targeted market (Calderon, et al., 1997). The case study highlights that SAB purchased share from Delta brewery one reason would be that Delta as a brand is popular in Zimbabwe and hence the strategy was to enter into a joint venture. Thus entering into a joint venture SAB maintained its branding policy to enter in the Zimbabwean market.

Ghana
Entering the West African market in 1997, SAB acquired an initial 50.5% of Accra Brewery, a leading brewery in Ghana. This shareholding later increased to 69%. Political Development of democratic country in Ghana enabled global marketing. Increase in the literacy rate from 28% in the year 1990 to 40% in the year 2000. Unhealthy demographics of culture, religion and status clash in the country still prevails. (Centre for Democratic development Ghana, 2005).

Economy A steady growth in the GDP of 15% in the year 1984 to 2000. International investment of funds in the country especially from SAB and USA. Investment of money on public transports and social infrastructure. Gap in the class of living like rich are very rich and poor are poorer. (Kanbur, 1993) Environmental

Drought and famine prone country and hence needs assistance in redeveloping the country. Physical changes that occur in the country. Over exploitation of resources. Leading to kill the natural habitat. No strict Corporate Social Responsibility regulations in the country. (Tettey et al., 2003)

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On analysing the political, social and environment sector it can be noted that there is a constant growth in the GDP of the Ghana economy. Literacy rate has also increased during that span of time which clearly reflects that the country is progressing. Environmental changes were hampering the country but it can be sorted out through strict government interventions. Tettey (et al., 2003) mentions that to enter in the foreign market it is essential for the company to strengthen CSR policy. As mentioned in the case study SAB has been actively donating money for improving the countries welfare. Furthermore to stay afloat in the competition there is a need for competitive advantage in the firm. There are many researches which suggest that in the world of globalization it is essential for a firm to offer prices in a competitive manner (Bauerschmidt et al., 1985). This objective is achieved by exporting a product and maintaining the cost level. SAB has established share in Ghana to export their products for a cheaper value which eliminates competition. Withstanding the stream of export the firm can conceptualizes the trading tricks by new product development and cost strategy. Though Ghana being closer to South Africa it renders through control on the products and minimizes the competition.

Thus the case study mentions that the Ghana shares shows a tremendous leap of 69% market share which suggests that the company is trying to acquire competitive edge on any other brewery company.

Conclusion
On the bases of study it can be conclude that SAB Miller has adopted various marketing strategy to anchor their business trade. The report mentions strategy like foreign direct investment, exporting, licensing, globalisation and strategic alliance with various breweries across Africa. Furthermore the company has strong marketing knowledge to capitalise the developing nations. The report also suggests that SAB had some loop holes in managing their market in the European market may be because of competition and hence their strategy of only concentrating in Africa lead them to trading glory.

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BIBLIOGRAPHY
Bauerschmidt, A., Sullivan, D. and Gillespie, K. (1985) Common Factors Underlying Incentive to Export: Studies in the US Paper Industry. Journal of International Business Studies. Vol. 16, pp. 111-23.

Bonache, J. and Brewster, C. (2001) Knowledge transfer and the management of expatriation. Thunderbird International Business. Review, Vol. 43 No. 1, pp. 145-68

Calderon, H., Cervera, A. and Molla, A. (1997) Brand assessment: a key element of marketing strategy. Journal of Product & Brand Management. Vol. 6 No. 5, pp. 293-304.

Centre for Democratic development Ghana (2005) Financing political parties in Ghana: Policy guidelines. Available at: http://www.ndi.org/files/1883_ghcddpolicylines.pdf (Accessed 28th October 2011).

Chakrabarti, A. (2002) A theory of the spatial distribution of foreign direct investment. International Review of Economics and Finance. Vol. 12, pp. 1-21.

Chen.C and Messner.J (2011) Characterizing Entry Modes for International Construction Markets: Paving the Way to a Selection Model. Engineering, Construction and Architectural Management. Vol. 18 No.6 pp 67-72.

Curhan, J.R., Elfenbein, H.A. and Xu, H. (2006) What do people value when they negotiate? Mapping the domain of subjective value in negotiation. Journal of Personality and Social Psychology. Vol. 91 No. 3, pp. 493-512.

Das, T.K. and Kumar, R. (2007) Learning dynamics in the alliance development process. Journal of Management Decision. Vol. 45 No. 4, pp. 684-707.

Johanson, J. and Vahlne, J.E. (1990) The Mechanism of Internationalisation. International Marketing Review, Vol. 7 No. 4, pp. 11-24.

International Business Publications (2011) Tanzania Investment and Business Guide. Washington: Ibp Publications. Kenya Food & Drink Report. (2011) Business Monitor International: Industry Report and forecasts series Fourth Quarter. London: United Kingdom.

(http://proquest.umi.com/pqdweb?index=3&did=2481317601&SrchMode=1&sid=1&Fmt=6&VInst=PROD&V Type=PQD&RQT=309&VName=PQD&TS=1321044017&clientId=20191)

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Kanbur (1993) Welfare economics, political economy and policy reform in Ghana. Ghana: The World Bank publications. Mozambique (2011) Mozambique Agribusiness Report. London: Business monitor International Fourth Quarter. (http://proquest.umi.com/pqdweb?did=2478672481&sid=1&Fmt=2&clientId=20191&RQT=309&VName=PQ D) Needle. D (2010) Business in Context: An Introduction to Business and Its Environment. London: Thomas Rennie publications. Polanski, S. (2004) Protecting labour rights through trade agreements: an analytical guide. Journal of International Law and Policy. Vol. 10 No. 13, pp. 13-25.

Tettey.W,

Puplampu. K.P, Berman.K (2003) Critical perspectives in politics and socio-economic

development in Ghana. Netherlands: Koninklijke Brill Publications.

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