Sabmiller in China

The new company is seeking to establish some of its brands in the markets where it has no presence before the acquisition: Miller brands in Europe, and SAB brands in the United States. The company is facing tough competition with Anheuser-Busch InBev, the world’s largest brewer. This company has globally established brands like Heineken, Amstel, and Guinness; and SABMiller aims for its brands to achieve the same global status. The two companies are making strategic investments in China, the largest beer market in the world with annual sales of $6 billion. -------------------------------------------------

ISSUE IDENTIFICATION What foreign entry strategies should SABMiller employ in order to (1) Introduce Pilsner Urquell and Tyskie in the United States, and Miller Genuine Draft in Eastern Europe; and (2) Penetrate the Chinese beer market? -------------------------------------------------

ANALYSIS In deciding what strategy to utilize in introducing the SABMiller brands into new markets, these points should be taken into consideration: 1. Brand Positioning SABMiller wishes to build Pilsner Urquell into a national brand in the United States, eventually leading to the status of a premium global brand that will rival Heineken. The company also hopes to successfully launch Miller Genuine Draft as a premium global brand in Eastern Europe.

With these in mind, one can expect that there will be a massive launch and marketing campaign for the brands in those markets. This implies that a sizable volume should be supplied. On the other hand, Tyskie, being a popular Polish brand, is targeted to US cities which are home to large numbers of Polish immigrants. Launching to this niche market means that sales will be limited, and little adaptation will be required. 2. Sources and Availability of Breweries

SABMiller has 9 breweries in the United States that focus on manufacturing Miller brands, such as Miller Lite, Miller Genuine Draft, and Miller High Life. It also has newly acquired breweries in Central and Eastern Europe that manufactures SAB brands.

These breweries employ techniques and standards that are tailored to their brands, and they have established relationships with suppliers and distributors. European breweries can share their systems to US breweries, and vice versa. With these little adjustments, SABMiller can utilize these breweries in manufacturing the brands. SABMiller also has partnerships with more than two dozen breweries in China, including China Resources Snow Breweries Ltd. 3. Costs

SABMiller, like any other company in the industry, has to deal with rising costs of operations (labor, inputs, overhead, etc.). This makes exportation inefficient when dealing with large volumes of final products, as compared to direct investments where they can utilize economies of scale. On the other hand, if products are in small quantities, exporting might be a better alternative.

Costs of operating businesses in the US and the richer Western Europe has continued to rise that is why developing markets with huge potentials like China and Eastern Europe are becoming more and more attractive for SABMiller and its competitors. Not only are inputs inexpensive but they also present promising returns (large beer consumer market) with minimum risk and investment.

Meanwhile, SABMiller’s entry into the Chinese market is complicated by the emergence of its stiff rival, Anheuser-Busch. Both companies are trying to use Harbin as a source of entry into the local market as well as a strategic partner that will provide information about the Chinese beer market. Due to Anheuser-Busch’s acquisition of majority shares in Harbin, SABMiller will not be able to enjoy first mover advantage. However, SABMiller can still utilize its partnerships with more than two dozen Chinese breweries in its attempt to penetrate the Chinese beer market. -------------------------------------------------

RECOMMENDATIONS 1. Foreign Brands Enter the US Market Brands like Tyskie are primarily marketed to cater to niche markets. This means that there is no urgency to source supply from local production which entails higher investments. As such, it would be to the best interest of SABMiller to export these products and use its network in the United States for distribution. In the long-run, one cannot discount the possibility of any of these niche brands to turn into candidates to become global premium brands. In that case, SABMiller should consider shifting from exporting to local production via licensing or investments in local production.

On the other hand, Pilsner Urquell, initially marketed as a national brand, is poised to become a global premium brand. In the short-run, SABMiller should stick with a combination of exporting and local production. When demand picks up, it can invest more in local production. Setting the initial investment level will be crucial as it will not want to under or over invest which can derail the whole project. 2. Miller Genuine Draft Takes Over Eastern Europe

Miller Genuine Draft aims to be a global premium brand in Eastern Europe. In the short run, SABMiller should export from its European breweries to adjacent countries wherein they have no brewery. Due to the land-locked nature of Eastern Europe, transportation will not be much of an issue. When demand picks up, SABMiller can look into the acquisition of more breweries and export licenses to increase its reach in the European market. 3. SABMiller Penetrates China

In order to neutralize Anheuser-Busch’s efforts in China, SABMiller should act fast and acquire majority interest in a Chinese brewery that rivals Harbin in size. This acquisition represents SABMiller’s long-term commitment to an already large Chinese beer market that still has potential to grow. This will also respond to SABMiller’s need to establish a foothold in the Chinese beer market. In the long-run, SABMiller will find this acquisition useful as it will have a wider range of strategies to employ when it introduces foreign brands to Chinese consumers.