Anheuser Busch 104 142 146
Miller 63 47 46
Heineken 48 81 81
Kirin 36 33 38
SAB 32 62 80
Fosters 31 18 17
Carlsberg 26 50 67
Interbrew 18 76 97
Ambev/Brahma 31 59 58
S&N 4 35 58
Internal Analysis
To further investigate the strategic position of SAB, a better look into its internal environment can be explored by using SWOT analysis furthermore to analyze SAB`s different resources and how these resources form its distinctive capabilities.
Stacey (2000) maintains that the environmental opportunities are only potential opportunities unless the firm can employ resources to take advantage of them. Hence it is crucial to evaluate environmental opportunities in relation to the organisations strengths and weaknesses in terms of resources, culture and the environment in which it operates (finlay). Strengths and weaknesses are factors internal the organisation, whereas opportunities and threats are the future possibilities that are firm must address.
SWOT ANALYSIS
Strengths:
Market dominance: SABMiller is the second largest brewer in the world by volume and dominate more than 90 per cent of its domestic market in South Africa.
Competitive advantages: SAB has a competitive advantage which is the ability to sustain and improve in 4 areas:
- Value adding capability
- Cost leadership
- economies of scale
- efficient distribution
Cost leadership: Every year for the past two decades, SAB has reduced its prices in real terms: since the late 1970s, the real price of beer has fallen by half. The firm thus avoided charges of abusing its monopoly, and wooed poor, price-sensitive customers, which is to say most South Africans. (economist)
To break SAB’s hold over the mass market, a new entrant would have to build big enough breweries and lean enough distribution channels to match its prices. SAB would certainly cut its prices still further to defend its territory. Leadership and management skills: SAB’s strength derives from its abnormal skill at coping with the demands of a highly abnormal market. (economist)
SAB is using its expertise which has been gained over 100 years in south Africa .
Product or service quality: undoubtedly the proved high quality SABMiller products has is of the main strengths .
Weaknesses:
The trouble is, with brewers merging worldwide, whenever a company comes up for sale, there are several bidders—and firms already established in the same market can afford to offer a premium for the chance to swallow a competitor. SAB, as an outsider, cannot.
SAB is not yet developed in the majority developed countries or created international brands
SABMiller needs to create an international brand after the several mergers and acquisitions it has done .
The African heritage could be considered as a weakness for SABMiller.
Opportunities
New market segments: SAB may face very little threat at home, but it also has little room to expand. That is why it has been buying up ailing breweries in other African countries, in Central and Eastern Europe and in China. Its experience in South Africa equips it well for tackling other emerging markets, But, although SABMiller is now the world’s second largest brewer by volume, it has yet to continue establishing itself in rich countries, or to turn any of its products into global brands
Due to many social, political and cultural factors changes globally. The Beer consumption is growing fast, which certainly SABMiller will exploit.
SABMiller still has several Diversification opportunities world wide
Threats
-SABMiller is still Vulnerable to take over and other market forces.
-Sufficient capital might be a threat towered SABMiller.
-SABMiller is moving quickly to internationalise its earnings.
-2000: Zimbabwe’s political instability, SA Rand decreased against the US Dollar and the High political risk and volatility there might be a threat.
To analyze the different resources and how these resources form SAB`s distinctive capabilities, The framework in (appendix 2) is appropriate .this framework will identify SAB’s tangible resources (financial resources and physical resources), intangible recourses (technological resources and reputation) and human resources.
The right combination of all the above resources built SAB’s distinctive capabilities to be able to largely expand through acquisitions, to afford big cost savings, and to have a unique organizational culture that is able to complement the Groups strategy.
Tangible Resources
Financial Resources: The firm’s borrowing capacity to, and its internal funds generation determine its resilience and capacity for investment.
SAB has been following the acquisition strategy for many of years, to be able to expand geographically and also diversify its operations in different sectors. Although, we are assuming that SAB has been able to generate a high rate of ‘retained earnings’ and/or access to debt agreements with financial institutions, the ability to improve the marketing and distribution channels of its acquired businesses, underline the financial power of SAB. For example, in 2000, SAB, acquired Pilsner Urquell a major brewer in Czech Republic. This also helped them acquire 44% share of the Czech Republic beer market.
Physical Resources: Physical resources constrain the firm’s set of production possibilities and impact its cost position. Key characteristics include:
Although SAB’s physical resources are mainly located in Africa, it does have a strong presence in Eastern Europe and Asia. Its facilities include many factories, which are mainly attained through acquisition. These acquired breweries are renovated with modern technology which not only helps the firm to meet the changes in demand level, but also provide its customers with high quality end product. For example, SAB, completed renovation and construction of its brewery at Kalougra/Russia, and launched its own brand Golden Barrel that was a great success. Due to high quality beer and increase in demand, led SAB to expand its operations from producing 1.4 to 2.0 million hectoliters.
Intangible Resources
In the case study there is no specific information regarding patents, copyrights and trade secrets that the SAB might cherish.
Reputation:
One of the major goals of the SAB is to establish a brand identity among its stakeholders in order to create customer loyalty and credibility. Through its competence of marketing and sales groups SAB ‘integrates’ the products into the culture of every country, strengthening the relationship with its stakeholders. This can be seen in practice, in Poland, where SAB successfully merged two Polish beer companies and created a unified brand portfolio. This in turn led to an increase in the reputation of the products supplied by SAB and an increase of 33% in the sales volume and a great improvement in the market share.
Human Resources
- The education, training and experience of employees determine the skills available to the firm.
- The adaptability of employees contributes to the strategic flexibility of the firm.
- The social and collaborative skills of employees determine the capacity of the firm to transform human resources into organizational capabilities.
- The commitment and loyalty of employees determine the capacity of the firm to attain and maintain competitive advantage.
One of the most important characteristics of the SAB is its investment in human resources. Although it is a capital-intensive corporation, SAB maintains a large number of employees (69000), who are well trained and motivated to work effectively and efficiently. The top management of the SAB is a combination of committed, well-organized, intelligent and experienced people that have a strong entrepreneurial character and are collaborative.
Although SAB is expanding, and its vision is to be in the top of the brewers in the world, (source, website) it makes sure that training and other measures are taken to develop a very skillful workforce around the globe. For those employees that did not adapt easily, further attempts were made to infuse them into this system of values. Achieving the above, many innovative ideas and plans were promoted, something that is important for the survival of the firm in this mature market.
A right combination of all the above resources not only helps SABMiller to have distinctive capabilities but also to acquire various businesses around the globe and enjoy great economies of scale. This also helps the organization to complement its global strategy.
Strategic options available to south African breweries
Nature/Type of Strategy
The capabilities mentioned above, help SAB to maintain its generic strategy. SAB according to Michael Porters’ generic strategies has been able to sustain a cost leadership strategy. This is evident in the analysis carried out in (appendix 2).
SAB is able to follow its generic strategy, by the implementing, corporate, business level and functional strategies. In order to understand these strategies, an analysis is drawn up. (See appendix 3)
The core competencies SABMiller had, were geared toward: emerging market economies, understanding the developing world conditions, understanding how to utilize world conditions, cost management and high quality low cost product .
Until 1990 the world was watching south Africa as not appropriate to enter the first world market, and the skills learnt in southern Africa would serve them better in emerging markets, during this period there was two core challenges facing SAB to implement its international strategic options that are (1)the incremental operational improvement (2)the balancing demand .
Graham Mackay says: “SAB is seeking expansion into first world, Our long term strategy is basically to participate in consolidation and growth opportunities in the first world as well as the emerging markets”
There are three considered options for SAB’s international growth strategy
-
Merger with major developed country brewer
-
Acquisition in emerging markets
-
Continue to focus on organic growth in emerging markets
SAB chose the merger strategy since it bought 100% of miller brewing through an agreement with Phillip Morris Company Inc. consequently their name changed to SABMiller then it became the second largest brewer in the world by volume with over 69000 employees.
The merger has given SAB access to the brewing industries most important market, The US.
This transaction has given a lot of benefits to SABMiller. The strong cash flow, an improved credit profile with a significantly lower cost of capital and the ability to continue to participate in ongoing consolidation of the global beer market, furthermore the benefit of having Phillip Morris as a supportive long-term shareholder
These benefits are the most important benefits on the distant range.
As mentioned in the company history, SAB has implemented many strategies since it has been established, these strategic options vary from internal development based, Market development based to product development based and diversification
Many options are no longer work with SAB because of many changes happened, these changes might be technological, globalization, geographical, economical, political etc….
So, SAB has to be aware of developing a strategy which doesn’t meet its purpose or aim and get it in a high risk .
Assessment of generic strategy.
Johnson & Scholes SFA and Rumelt’s test, the above-mentioned generic strategy followed by SAB in light of the core business is rational considering characteristics of the company.
Johnson & Scholes and SFA.
Suitability:(Is the strategy suitable to deliver the mission?)
Since the mission of the group is to be a world class manufacturer and deliver high quality beer, the strategy used by SAB is appropriate. SAB has been able to gain a significant market share and improve its quality by not only acquiring different companies around the globe, but by having a decentralized marketing and sales group within each country. This strategy has also helped it to increase the economies of scale by effectively utilizing its capacity and productive methods. The highly committed and professional management team of SAB at the corporate level additionally achieves this.
Feasibility:(Does the company have the resources and capabilities needed to attain the strategy?)
As shown in appendix 2, SAB, has been using its resources and capabilities as effectively as possible in order to follow and attain its strategies
Acceptability:(Is it acceptable by the stakeholders?)
SAB has achieved to establish a global business network. By doing so, the company increases its turnover and its profits, which without doubt satisfies stakeholders’ expectations. That’s why they should support the pursue of the strategy even if they feel insecure about certain acquisitions. Furthermore, since SAB’s main target is to increase profits this should address stakeholders needs more specifically.
Rumelt’s Test
Consistency(Is the Group’s core strategy consistent with the other strategies?)
The core strategy followed by SAB is to be a cost-leadership in the industry of its operation. However, this is not inconsistent with the evidence given to us in the case, that is SAB tries to acquire different brewing firms across the globe which add to risk and demand high capital investment. Therefore, it cannot be considered that there is a consistency followed by the firm.
Consonance(Is it a strategy that is comfortable to the company?)
Due to the fact that SAB operates in a mature industry it has to measure all its resources and capabilities and use them as effectively as possible. This in addition with presence in other markets around the globe helps it to cover any kind of decline or downturn in any specific industry.
Advantage:(Will the strategy yield an advantage toward the competitors?)
Although SAB has been following a cost leadership strategy, it must be able to sustain it in order to remain competitive and profitable among its rivals. However, more information would be required regarding the strategies followed by the competitors in order to give a clear judgment.
Strategy Implementation Issues
In order to know if the generic strategies are implemented and will not arise any problematic issues, we will have to see if it is coherent with the organizational structure and the organizational culture. We would also have to check if the existing recourses (as already mentioned) are appropriate for this strategy.
Organisation structure:
According to Mintzberg’s structural types of configurations, SAB is a diversified/divisionalised organisation.
SAB is operating in 23 different countries within the brewing industry. Although SAB has a core product that is Castle beer it has a highly diversified product portfolio. It can be assumed, that managers are appointed by the headquarters to coordinate the various activities being carried out in different countries. Apart from that, each brewery in the Eastern Europe, sustains its autonomy in the decision-making procedure at a functional level.
It can also be assumed, that not only in the entire national but also in all the international product divisions, moderate amount of capital is invested in order to have standardized production procedures. This in turn assists SAB’s factories to achieve high economies of scale and scope, due to their size and cost efficient production procedures. This structure allows some synergies among the different business units. However it must be mentioned that SAB’s produces portfolio of drinks according to the country of its operation.
The decentralization of SAB, gives flexibility to its structure, enabling it to have immediate responses to changes in the demand level in different market areas. However it must be noted, this helps into spread the risk when experiencing a downturn in the demand of its products in a single geographical area, for example, adverse climate conditions in Tanzania and economic problems in Romania, were easily offset by the spectacular growth in Poland and China.
Of course this delayering in the structure of the SAB, incorporates danger regarding the efficient control of the separate business units. Although it can be thought, in order to reduce this risk SAB has established regular meetings between managers from the headquarters and the diversified units, thus sustaining strong information flows. Furthermore, it might have and should have invested in network systems that are appropriate for the coordination of every business unit around the Globe.
Therefore, all the above characteristics concerning the organizational structure help SAB in implementing its group generic strategies.
Organizational Culture:The organizational culture should also be examined in order to check the suitability of the strategy pursued by SAB.
This culture of SAB can be characterized by 3 main words: communication, motivation, and teamwork. We conclude that the organizational culture, when effectively transmitted to the acquired companies, is in consonance with the strategy.
Appropriateness of existing resources:In addition, an examination of the existing use of resources will be carried out. This in turn would help us, to judge if they are being used appropriately according to the strategy pursued.
Recommended strategies:
Obviously, SABMiller has implemented many of the common strategic options which have been available for it since it has been established.
In terms of Market strategic based its the time for acquisitions and mergers as so many multinational organizations are doing. The experience and skills SAB has can lower the high risk of implementing these strategies. This allows SABMiller to fully consolidate its position in both the developed and developing economies, while gearing itself up for the number one position.
To consolidate its position in the developed countries SAB should focus into acquiring the main competitors in Western Europe and the USA, that doesn’t mean this operation is simple.
But SAB still need the time to have enough experience in the developed markets because as shown in the annual reports since 2002 some ratios have been decreasing,
Assets reduction strategy can be followed by SAB as what happened in 1997 when SAB sold and closed non core operations, that will generate a cash flow for SAB when insufficient capital experienced.
Doing so will make SAB able to concentrate in acquiring and operating in its main business which is breweries.
Revising the existing strategy: the financial review shows a steady decrease in the turnover of Hotels and gaming, moreover some revising for the existing strategy should be done to get higher results. That can be done by implementing a marketing strategy, selling assets or merging with another major hotels company.
SAB needs to revise it strategy in terms of the brand specially after entering the developed markets. Otherwise this would be considered as a potential weakness.
Nothing mentioned about non alcoholic beer either in the case study or in the other resources. SAB follow a product development strategy and to target a huge segment who demands this product in some countries which prohibit purchasing the alcoholic drinks.
Cost based strategy is needed to consolidate the new markets SABMiller has entered in order to defend its strategic position .
Generally, the acquisition choice is adopted by so many multinational organisation, and recently this phenomenon has appeared more clearly .adoption of such strategy is due to many advantages it has for instance:
- Can be relatively fast
- May reduce competition from a rival, although such a move usually has to be sanctioned by government competition authorities .
- Cost savings from economies of scale or saving in shared overheads
- Maintenance of company exclusively in technical expertise
- Extend into new geographical area
- Buy market size and share
- Financial reasons associated with purchase of undervalued assets that may then be resold
SABMiller has many core competencies allow her to overcome many obstacles in terms of this choice.
APPENDIX 1:PEST analysis
Appendix 2
Resources, Capabilities & Competitive Advantage
Tangible Resources
Financial Resources: The firm’s borrowing capacity to, and its internal funds generation determine its resilience and capacity for investment.
Physical Resources: Physical resources constrain the firm’s set of production possibilities and impact its cost position. Key characteristics include:
-The size, location, technical sophistication, and flexibility of plant and equipment
-Location and alternative uses for land and buildings
-Reserves of raw materials.
Intangible Resources
Technological Resources:
-Intellectual property: patent portfolio, copyright, trade secrets
-Resources of innovation
Reputation:
-Reputation with customers through the ownership of brands and trademarks; established relationships with customers; the reputation of the firm’s products and services for quality and reliability.
-The reputation of the company with suppliers (including component suppliers, banks and financiers, employees and potential employees), with government agencies and the community.
Human Resources
-The education, training and experience of employees determine the skills available to the firm.
-The adaptability of employees contributes to the strategic flexibility of the firm.
-The social and collaborative skills of employees determine the capacity of the firm to transform human resources into organizational capabilities.
-The commitment and loyalty of employees determine the capacity of the firm to attain and maintain competitive advantage. (Grant, R., 2002 p. 140)
Appendix three
FEATURES OF CORPORATE, BUSINESS AND FUNCTIONAL LEVEL STRATEGIES
CORPORATE STRATEGY:
It is drawn by the head managers of SAB. Their responsibilities include activities like the following:
The set of the long-term goals and objectives of the firm that comprises the culture of the firm. The decision upon the corporate portfolio, which includes, financing of projects, the management of human resources, of the different business units as well as the financial and organizational integration of the acquired brewers. Finally they co-ordinate the performance of strategy formation of different divisions.
BUSINESS STRATEGY:
Corporate and divisional managers draw this strategy. The latter implement the strategy while being responsible for issues like:
Co-ordination of performance of different breweries; its production; sales and marketing groups. They also examine the dynamics of potential markets, implement and monitor research and development policies and make sure that the competitive advantages of the firm are sustainable.
FUNCTIONAL STRATEGY:
Divisional and functional managers draw up this strategy. However, the managers of each individual functional unit put the strategy in practice. They are responsible for:
The efficient and effective use of financial and technical resources in each functional unit. Another issue is total quality management. They make suggestions for better production procedures and development of the product portfolio. Other occupations are inventory controls, logistics and internal marketing policies.
Appendix 4
SABMiller plc
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
for the years ended 31 March 37
2003 2002
Unaudited Audited
Rm Rm
Turnover (including share of associates’ turnover) 86,564 42,373
Continuing operations 53,574 42,373
Acquisitions 32,990 -
Less: share of associates’ turnover (all continuing) (7,762) (6,276)
Group turnover 78,802 36,097
Net operating costs (71,170) (30,090)
Group operating profit 7,632 6,007
Continuing operations 7,411 6,007
Acquisitions 221 -
Share of operating profit of associates (all continuing) 1,190 828
Profit on partial disposal of subsidiary 39 -
Profit on ordinary activities before interest and taxation 8,861 6,835
Net interest payable (1,552) (956)
Group (1,353) (810)
Associates (199) (146)
Profit on ordinary activities before taxation 7,309 5,879
Taxation on profit on ordinary activities (3,312) (2,021)
Profit on ordinary activities after taxation 3,997 3,858
Equity minority interests (1,190) (1,020)
Profit for the financial year 2,807 2,838
Dividends (2,687) (1,813)
Retained profit for the financial year 120 1,025
Basic earnings per share (SA cents) 260.9 395.0
Headline earnings per share (SA cents) 499.6 466.6
Adjusted basic earnings per share (SA cents) 513.0 472.5
Diluted earnings per share (SA cents) 264.1 390.9
Adjusted diluted earnings per share (SA cents) 500.4 463.6
References:
-Gerry Johnson and Kevan scholes, Exploring the corporate strategy, sixth edition ,prentice hall
- Stacey ,Strategic management and organisational dynamics : the challenge of complexity 2000, prentice hall
-peircy, market led strategic change ,third edition, Butterworth Heinemann, third edition ,2002
- Robert M. Grant.
-Finlay paul, ,prentice hall 2000
websites:
Business Editor .Giant brewery mulls post-merger options.2002
www.theherald.co.za
Big lion, small cageAug 10th 2000 JOHANNESBURG From The Economist print edition
www.economist.com
