New Market Potential For Heineken Economics Essay

Heineken N.V. is a Dutch brewing company, headquartered in Amsterdam, Netherland. It is founded in 1864 by Gerard Adriaan Heineken. Continuous enlargement in productions and gross revenues has led Heineken to emerge as the largest beer maker in Europe, and the 3rd largest planetary beer manufacturer, following closely behind two planetary leaders of the brewing industry, Belgium-based Anheuser-Busch InBev and London-listed SABMiller. [ ] Currently, it has 140 breweries in more than 70 states [ ] ( Figure 1, under Exhibits ) , doing HeinekenA® one of the most recognized and valuable trade names in the universe. Heineken besides produces and sells regional, local and forte beers, cyders, soft drinks and vinos to consumers worldwide.

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Heineken achieves its planetary coverage through a combination of entry manners: exporting chief merchandises such as HeinekenA® and AmstelA® to profitable markets worldwide ; and through Foreign Direct Investment ( FDI ) schemes in India, Africa, Asia and Latin America to procure a strong platform for future growing from emerging beer markets ; every bit good as through licence understandings, strategic partnerships and confederations.

Foreign Market Analysis

Before choosing an entry manner, Heineken has to carry on foreign markets analysis to make up one’s mind on a favorable foreign market for its enlargement. Heineken has to measure and measure the chances and hazards offered by each foreign market by sing the undermentioned issues: market potency, degree of competition, the legal and political environment and sociocultural influences.

Market Potential

The market potency of different states reflects the future market size available for Heineken beer merchandises. One of the of import determiners of market potency is the consumer demand for intoxicant or beer drinks, which has a direct relationship with the gross revenues prognosiss for beer merchandises. States with high and turning intoxicant ingestion would bring forth high volume of gross revenues, and finally high net incomes. High intoxicant ingestion in the European states ( Figure 2 ) has occupied over 50 % of the amalgamate gross revenues volume of Heineken merchandises in 2010. ( Figure 3 ) Hence, such states provide great chances for Heineken to work.

States with high or turning GDP ( Gross Domestic Product ) and population growing rate, like African states have high markets potencies every bit good. As written by Heineken in a statement, “ With its big, turning population, political stableness, bettering economic system and quickly turning beer market, Ethiopia is a promising, long-run growing market for Heineken in Africa, ” [ ]

Degree of Competition

Heineken would necessitate to measure the figure and size of other beer breweries that are viing in the foreign market. The being of a high figure of dominant beer manufacturers, local and foreign, would bespeak a extremely competitory and concentrated market. In United States ( U.S. ) , the high degree of local competition may hold led Heineken to utilize an export scheme, so as to distinguish its merchandise from those of the established American breweries.

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Legal and Political Environment

Legal imbibing age differs across states, or even within states. For illustration in India, the legal minimal age for purchasing and imbibing intoxicant is 18 to 25 old ages, which varies from province to province. [ ] This affects the market potency in the state.

Another legal issue is the prohibition of intoxicant in Islamic states. Hence particular considerations have to be made when come ining into the Middle East and North African markets, such as United Arab Emirates and Egypt. To counter the job, Heineken has credits its mix of drinks – such as fruit-flavoured malt-based drinks, popular among youth as a beer replacement in these markets. [ ] This strategic determination has helped it to procure a 40 % market portion in the United Arab Emirates and 90 % in Egypt.

In 2003, Heineken acquired Fayrouz, a popular fruit-flavoured drink, when it took over the Egypt ‘s lone brewery, Al Harham Beverages Co ( ABC. [ ] This became a springboard for its enlargement into the possible Muslim consumer markets around the universe by supplying non-alcoholic drinks.

Sociocultural Distance

Sociocultural distance reflects the degree of similarities in concerns patterns, linguistic communication and educational degree between states. Sociocultural differences discourage investings because of the troubles involved in reassigning selling, engineering, and human resources. [ ] Incremental internationalization is the key to Heineken ‘s success – whereby it bit by bit additions sufficient experience and resources from operating in similar markets ( i.e. European states ) before traveling on to dissimilar market sections in the universe.

Advantages and Disadvantages of Exporting

Near the beginning of its constitution, Heineken has chosen a direct export scheme to come in new foreign markets, whereby its beer merchandises are sold to independent intermediary ( distributers ) outside of its place state.

Advantages

Export scheme is a low-risk entry manner. It allows Heineken to spread out its operations without incurring high investing on capital and expertness, therefore exposing it to low fiscal hazards. By avoiding high set-up and production cost, Heineken is able to impart more resources to promotional and advertisement attempts, which are powerful tools to increase its trade name acknowledgment and gross revenues net incomes.

Due to its deficiency of international experience at the beginning, exporting provides clip for Heineken to measure the local environment and adapt to local clients ‘ demands and wants. For case, Heineken has observed the autumn in gross revenues of a Munich-brewed beer, Lowenbrau when it was produced locally in US during the seventiess. To avoid perpetrating the same error, Heineken has refused to set up a brewery in U.S. because it understood that U.S. consumers believe the high quality of an ‘imported-beer ‘ image. This image enables Heineken to distinguish its merchandises and avoid tete-a-tete competition with other dominant beer makers such as Anheuser-Busch Inc, who owns 12 breweries in the United States. [ ] Currently, U.S. is its largest export market

Disadvantages

However, exporting bounds Heineken ‘s ability to be a dominant force in the foreign market due to limited entree to information, every bit good as restricted control over the price-setting and local distribution of its merchandises.

To counter such job in the U.S. , Heineken has strategically acquired the U.S. distribution company, Van Munching & A ; Company ( presently, it is named Heineken USA ) to derive better control over the import, selling and distribution of beer merchandises. Heineken could besides salvage on high market research cost by tapping on the information of the local market, which is antecedently analysed by Van Munching & A ; Company.

Heineken besides invested to a great extent in engineering to pull off its complex international distribution system, maintaining its worldwide distributers inform of gross revenues and publicities.

Through export operations, Heineken is vulnerable to merchandise barriers such as import responsibilities. Import responsibilities would raise the monetary value of its beer merchandises, doing it hard to vie with domestic trade names in local markets. To get the better of such state of affairs in Russia, Heineken has acquired a Bravo, a Russian brewery. As Russia has really high import responsibilities ; the Heineken trade name will hold a competitory advantage in the Russian premium market when it is brewed in the state itself. [ ]

Key Issues of International Licensing

International licensing involves the sale of the right to utilize rational belongings from one house ( licensor ) to another house ( licensee ) , in exchange for a royalty fee. Heineken has started prosecuting licensing understandings in 1970s, leting domestic breweries such as in France, Ireland, Spain and Italy to bring forth HeinekenA® beer merchandises for local markets. The licensing policy pursued in the 1970 ‘s hasA contributed well to the furtherA internationalisation of the group. [ ]

International licensing has comparatively low fiscal hazard ; it provides the chance to larn about gross revenues possible in foreign markets ; it besides allows them to capitalize on location advantages of foreign markets. Despite the advantages, there are several cardinal issues to see:

High common dependence is developed between Heineken and its licensee. Therefore, it is of import to understate the possibilities of struggles and misinterpretations sing footings on licence understanding, particularly when sociocultural distance exists between them. When outlining an understanding, Heineken and its brewing spouse would necessitate to clearly specify and stipulate footings and conditions, compensation and royalty fees to forestall future jobs.

The transportation of intangible belongingss, engineering or even proprietary and confidential information related to production of Heineken beer merchandises to its licensee could be extremely hazardous. The licensee could go a future possible rival of Heineken by pull outing valuable information and resources and utilize it for its ain advantages, particularly if licensee ‘s rights and privileges or continuance of contract are non clearly stated. Heineken ‘s might lose its belongings rights and its hard-earned trade name repute might be tarnished if no safeguards are made.

High dependance on its brewing spouse would restrict the market chances of Heineken when its determinations have to travel through the understanding of its spouse before executing. This would impact the velocity of entry into new foreign markets and other dominant breweries would hold seized the chances, seting Heineken at a disadvantage.

Foreign Direct Investment ( Heineken VS Anheuser-Busch InBev )

Foreign Direct Investments ( FDI ) enables Heineken to hold full control and ownership over the resources and its subordinates, enabling better coordination of production activities.

FDI could come in three signifiers, which are utilised in Heineken planetary enlargement:

Greenfield Investings

Acquisition Schemes

Joint Ventures

Heinekensets up new breweries in foreign markets, with the aid from local authorities and fiscal establishments.

Heinekenhas set up breweries in states of different parts ( Ireland, Italy, etc ) so as to work location advantages ( comparative pay rates, production capacity, R & A ; D installations, market potency )

Heinekenbuys over local bing breweries in foreign state, thereby holding entree to new markets, engineering, trained and skilled employees, and merchandise distribution systems.

E.g. In 2010, the company ‘s public presentation was significantly boosted by its acquisition of the 2nd largest Mexican beer maker and bottler FEMSA, which granted entree to the fast growth Mexican and Brazilian markets. [ ]

Heinekenjoins with one or more foreign houses to work the common benefits. Via joint ventures with states, Heinekenis able to farther spread out into new states in the same part.

E.g. Asia Pacific Breweries Limited, the Singapore-based joint venture of Heinekenand Fraser & A ; Neave [ ] has served as a springboard for Heinekento execute its gross revenues and operations in other Asia Pacific states.

Belgium-based Anheuser-Busch InBev is the taking planetary beer maker and one of the universe ‘s top five consumer merchandises companies. [ ] Its planetary operations span 23 states through six zones [ ] ( Figure 4 ) . This greatly differs from Heineken, who presently operates in around 70 states across the Earth, including the Middle East and African parts, which are non covered by Anheuser-Busch InBev. This indicates that FDI schemes are less widely used in Anheuser-Busch InBev ‘s planetary enlargement.

As high investing of resources and clip are required for FDI schemes, Anheuser-Busch InBev may take concentrate its investings in its top-selling consumer markets, such as U.S. and European states, instead than diversifying its operations. By apportioning more resources towards beef uping its trade name image, Anheuser-Busch InBev is still able to achieve top market places in many states and procure big part of market portion in the brewing industry despite its comparatively little figure of operations.

With increasing strong competitions in the brewing industry, Heineken has to go on imparting resources to construct up its trade name image in its planetary markets. It besides has to put in R & A ; D to contrive new regional and local merchandises to suit to the possible niche markets, such as in Middle East and Africa. By conveying its superior quality and alone gustatory sensation of beer to consumers all around the universe, Heineken will go on to emerge as one of the top planetary trade names in the brewing industry.

Exhibits

Figure 1: Operational Zones of Heineken ( Source: Heineken Annual Report 2010, Where We Operate )

Figure 2: Alcohol ingestion per capita ( age 15 or older ) , per twelvemonth, by state, in litres of pure intoxicant ( beginning: Wikipedia )

In 1000s of hectoliters

2010

2009

%

Western Europe

45,394

47,151

31.1

Central and Eastern Europe

42,237

46,165

29.0

Africa and the MIddle East

19,070

19,820

13.1

The Americas

37,843

9,430

25.9

Asia Pacific

1,328

2,681

0.9

Amalgamate beer volume

145,872

125,247

100

Figure 3: Geographic distribution of amalgamate beer volume ( beginning: Heineken Annual Report 2010 )

Figure 4: Six operational zones of Anheuser-Busch InBev ( Beginning: Anheuser-Busch InBev web page )

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