Competition in the Global Beer Industry - Case Study Example

? Heineken What is the structure of the global beer industry? Perform an industry analysis using Porter’s Five Forces framework. Which of the competitive forces seem to have the greatest effect on industry attractiveness? Which of the competitive forces have the least effect on industry attractiveness? Explain. The international beer industry can be identified to operate majorly in three geographic regions, such as Northern, Western, as well as the Eastern European region and Asian region. In its recent trends, the industry is being witnessed to gain a growing attention from the consumers all around the world. Nonetheless, the consumption level of beer has been increasing along with its price (Colen & Swinnen, 2011). The diagram represented below exhibits the structure of the internationally expanded beer market as on 2005 along with highlighting the changes since 1961: Structure of the Global Beer Market Source: (Colen & Swinnen, 2011) From the above figure, the consumption level of beer in the global market can be observed and thus it can be stated that the profit ratio of beer industry is also rising with its demand and consumption in various global markets. It is worth mentioning in this regard that with the passing time, the degree of competition along with the threat of substitute products have increased considerably. In this context, wine can be regarded as a major substitute of beer in the global market (Colen & Swinnen, 2011). With reference to Porter’s Five Forces, the threat of substitute products in the global beer market can be regarded as other alcoholic drinks like wine and various other types of liquors. However, in recent phenomenon, the industry also needs to witness a strong influence from non-alcoholic substitute products such as soft drinks exhibiting a high degree of substitution threat. Threat of new entrance can also be identified as high within the current structure of the industry as the venture is considered to require only experience and expertise workers involving affordable costs for manufacturing beer. Bargaining power of buyers does not seem to have a major affect on the beer industry mostly owing to its size and diversity. From a similar point of view, the bargaining power of suppliers also has an insignificant impact over the current structure of beer industry due to the easy availability of raw materials. Nonetheless, competitive rivalry indicates the presence of multiple market players, dealing with the similar product. With the increasing threat of new entrants and substitution effects to beer products, it is quite likely that the competitive rivalry is expected to increase in the near future (Ekanayake, Getov, & Naridze, 2012). It is in this context that the degree of substitution effect can be regarded as the greater threat to the industry. Contradictorily, the bargaining power of buyers can be regarded to have a minimal effect over the industry operations. 2. What strategy does Heineken follow in the global beer market? Discuss this with respect to competitive strategy, corporate strategy, and international strategy. Concerning its competitive strategies, the company emphasized on adopting various innovative measures intended to change the traditional family-oriented marketing ideologies towards a more technology-oriented modern process. Considering the current industrial structure, it can be stated that a beer company needs to value its competitive strategies along with its corporate and international strategies so as to sustain in its competitive position for a longer period of time. With a similar concern, Heineken also adopted the corporate strategy to acquire relatively smaller market players, who were mostly identified as new entrants to the industry. Hence, the corporate strategies adopted by Heineken can be observed as highly influenced by the threat of new entrants in the international arena. Apart from acquisitions, the company also emphasized on encouraging cross-border deals in its international strategy facilitating its distribution channel and thus gaining the advantage of globalization. 3. Evaluate the performance of Heineken from 2006 to 2010 using ratio analysis. Heineken’s financial performances for the past few years can be evaluated with the help of ratio analysis. In this respect, a debt ratio analysis along with the evaluation of the net profit ratio, pay-out ratio, asset turnover ratio and current ratio have been considered in the discussion of this section: The calculated debt ratio indicates that a considerable fluctuation was witnessed by Heineken in its business operations from 2006 to 2010. The above presented chart reveals that the leverage of Heineken has been continuously declining. Considering the net profit ratio analysis, it can be observed that the company has witnessed an increasing trend in its profitability since 2008. However, concerning its performance between the years 2006 to 2008, it can be stated that high fluctuations can be observed rather than a stable growth in terms of profitability. From a similar perspective, the payout ratio indicates that the company has been focusing on retaining its annual earnings and thus securing its dividends maintaining a lower ratio standard. Evaluating the company performance since 2006 to 2010 with reference to the asset-turnover ratio, it can be stated that the Heineken has been able to facilitate its efficiency for years now making appropriate utilization of its resources in generating revenues. With regards to the current ratio calculated above, a considerable growth can be identified in terms of company’s efficiency to pay back its short-term debts. Hence, over the past years, the company has emerged as quite capable to repay its obligations in the short-term period. 4. What changes has Heineken made that will help it deal with its challenges? Do you think these changes will work? What additional changes would you suggest to Heineken’s top management? Heineken observed that the business was not improving at the desired pace within the rapidly changing external environment and thus the management decided to instigate change in its operational processes. Heineken management further faced the challenge of leadership crisis after the death of Freddy Heineken. Another major challenge faced by the company was the continuously increasing competition in the global beer industry. The changes incorporated by Heineken to mitigate these challenges can be identified as aggressive expansion strategies focusing on its corporate and international strategies by a large extent. However, it should be mentioned that such strategies are subjected to huge investments and thus can hamper the financial viability of the company in the long run. Therefore, it shall be suggestible that the company should emphasize more on its competitive strategies to attain a leadership position within the industry. References Colen, L., & Swinnen, J. F. M. (2011). Beer drinking nations the determinants of global beer consumption. Retrieved from https://lirias.kuleuven.be/bitstream/123456789/319669/1/DP270.pdf Ekanayake, T., Getov, M., & Naridze, N. (2012). Boston Beer Company Inc. Retrieved from http://www.trinity.edu/smf/inc/reports/sp2012/SAM.pdf Read More