The report aims to discuss the various aspects related to the brewing industry in Australia. The company ‘Cheers’ has aimed to start business in the foreign markets therefore, identifying the appropriate market for craft beer which is the chief product of the company is necessary. It also identifies the best destination for business by discussing the risks as well as opportunities in the markets of both India and Brazil. The report suggests the most fitted entry mode for the company and various strategies like marketing and human resources that the company must adopt to run a successful business in the chosen market.
Analysis of risks and opportunities:
Challenges in India:
India has a rigid spirits market and beer is less preferred by the alcohol consuming community. Beer makes 4% revenue in total alcohol market. On the other hand, beer industry in India is beleaguered with different kinds of countless taxes as well as levies. These differ from state to state. Factually, in India, no two state or UT have same and even a comparable policy. The inconsistency in the policies results in fostering an ambience of mismanagement. These policies are short termed therefore, have no thought of long-term interests of the stakeholders as well as general people.
- Higher taxes: in India, beer is highly taxed in compare to the other hard liquor. In case of craft beer, it is taxed more than 60% due to the absolute alcohol basis.
- Regulated industry: The beer industry in India is most regulated. It has more than 26 different types of alcohol specific taxes that constitute about more that 50% of consumer price which is one of the highest in the world.
- Price restrictions: price restriction in the large market like India has proved to be the biggest challenge. The state government’s decision of End Consumer Price has left the producers with no power in determining the price of their product.
- Restriction of movement: for business in India, export and import licence is required. There are various regulations in producing and selling of alcohol in different states of India. In some states the company can sell beer only if it produces beer on that particular states. These are the reasons why the Indian regulations can be hugely burdensome
Starting a beer industry in India is difficult due to its high corruption index. The companies are exposed to the national as well as local politics, local disruption as well as regional administration issues like rad tapes and unrest. It has a mixed economy that provides scope for economic freedom and increase availability of labour but working in brewing industry is somehow disparaging. Beside this, the transportation system in India have poor situation therefore, in the states where transportation of craft beer is allowed, it needs to be pasteurised, something that many western craft brewers do not need or avoid, because the refrigerated transport is unreliable here.
India has various barriers that abstain people from consuming alcohol. The social as well as religion systems have built several restrictions on selling and even working in such industry. Therefore, the cultural framework does not support brewing industry and some of the states in India has banned consumption and selling of alcohol for these reasons.
Opportunities in India:
According to Euromonitor the beer industry in India has recorded rise of 96% from 2010n to 2016. In spite of no definite estimate on the country’s emerging craft brewing sector, the sales are enhancing roughly 20% per year. According to All India Brewers Association the growth rate has been recording a steady growth in recent years with the volumes passing 300 million cases during 2013 from a mare 155 million cases in 2008. The market in India is largely dominated by strong beer that accounts for 70% of total beer industry. The market of premium beer is mere 5% but this section is growing rapidly that touches a growth rate of almost 35%. The international market has been experiencing low or stagnant growth therefore, the focus is on the Asia –pacific region. Unlike China, India has been growing at an outstanding pace for last few years spurred by massive levels of multinational investment along with rise of average levels of the consumers spending on beer and economic reform policies of recent government.
Beside all these, the most important factor is that the changing socio-political scenario, which has recorded growth with an increasing affluent middle class. This particular community is changing India’s alcohol consumption habits. Therefore, small-scale craft beer can have a good future prospect. This socio-cultural change has also decreased the backward mentality or prejudices associated with alcohol consumption and selling. Therefore, the blanket ban on direct advertising the product has been gradually demonising. In India, the brewer industry concentration is quite low in compared to that of Brazil’s therefore, stating business in India may have a good future prospect.
Opportunities in Brazil:
In terms of growth in production, the beer market in Brazil is one of the strongest market after United States and China. The research reveals that the Brazilians drink almost 15 billion litres of beer, compared to more than 20 billion litres consumed by the Americans. Over the last five years, the sector of craft beer in Brazil has been demonstrating growth eight times more than the traditional industrial market. It has more than 560 craft breweries well established. Despite the fact that the sector presently accounts for only near about 0.7 percent of the overall beer market in Brazil, the trend of growth is set to last as well as the volume of beer production in the breweries.
The Brazilian beer market is the strongest among the other countries in southern America in terms of production growth. This growth in production particularly emphasises on the North-eastern region. The country has a population almost more than 200 million inhabitants, therefore, stands second in the world in respect to demand growth by the market prospects. The consumption of alcohol per capita is though lower than most of the European countries yet the popularity is continuously expanding. Therefore, it can be stated that the Brazilian market is extremely attractive to the large and medium international players. This new prospect of the beer market in Brazil is the result of change in the consumer preference and this is because the citizen has experienced an upsurge of income in the recent years. The fixed prices of Brazilian breweries have been high, because there have been investments in the plants, equipment’s and labours.
This high fixed costs are the reason why the large brewery sector is seeking for operating at full capability to achieve the economies of scale as well as maintain a firm control of all the production costs, Zero Based Budgeting (ZBB) and the cash flow generation of the company. These reasons increase the rivalry among the competitors in this sector, therefore, each firm wants to production along with selling more products. This helps in searching for new of markets with higher growth rates. Investments of an international company in the aspects of equipment, ingredients, recipes, pavilions and resources for production is minimum $600 million. Still, these reasons do not prove to be a significant barrier because of the tax incentives of the states as well as the niche strategies of the competitors.
Brazil has diversified economy that provides opportunities for foreign companies to run their business successfully but it needs a sound knowledge of the local environment as well as direct and indirect cost of that particular sector. These costs are basically related to the distribution of the products, government procedures, labour benefits, ecological laws and complex tax structure of the country.
Logistics has proved to be a specific challenge in this country. It has a considerable amount of insufficient in infrastructure that will help in keeping up with its economic expansion. In addition to tariffs, Australian companies can find problematic complex customs as well as legal system. The country has a good concentration of craft beer companies. Therefore, competition level is severely high. This is demonstrated by the entrance of over 200 craft breweries in last 10 years. The barriers for entering the market needs a major operation as well as strategy of regional along with national scope.
The Brazilian government is the nation’s largest buyer of goods and services therefore, navigating the governmental procurement procedure are challenging. The companies find competitive disadvantage if they avoid the significance of in-country presence. This can be achieved via established partnerships with any Brazilian entities or any kind of company subsidiary. They need to have patience as well as strong financial resources for responding to legal challenges along with the bureaucratic issues. Beside these, there are scandals and corruption in the administrative level the oppose business climate for both the local and international companies.
Reason for selecting Brazil as the best destination for expanding ‘Cheers’:
In spite of high concentration of brewing company in Brazil, it provides a considerable amount of advantages that Indian market do not provide.
First, Brazil has high per capita consumption growth than that of India. In Brazil, though people endure severe economic crisis, the sales of craft beer still grows for its preference and growing popularity. In this country of 220 million people, the per capita consumption is more than 69 litres each year which attract the breweries.
Secondly, despite the fact that people of Brazil traditionally preferred light and low alcohol lagers because of the hot, tropical climate of the country, now are shifting to more complex brews. They have started to acquire the taste for experimental beverages with less glycerine percentage. ‘Cheers’ offers such a product that has been reputed for its unique taste as well as aroma that can differentiate it from its competitors.
Finally, the government policies and regulations do not create barriers for production and sale of beer by a foreign company because it directly supports the country’s economy. Therefore, all needed infrastructure and labour is open for a company to set up their business. Developed communication system, raw materials and resources are available for business to be established in Brazil.
Market entry strategy:
The attractiveness of the beer company depends on the best strategic planning for entering a foreign market. A great prospect to enter the market by this international player it would be by the franchising. Investments in the equipment, pavilion, inputs as well as processes are major barriers for entering in the Brazilian market. Moreover, it has a great concentration of competitors therefore, it affects the company in obtaining high level sales and profits. the high concentration of brewer firms in the market makes it unattractive to the investors with limited resources. The entrance with a niche strategy is rather relatively easy. The company just needs to have the entrepreneurial attitude, knowledge of brewing processes and only a small amount for investment.
For entering the beer market in Brazil, the company must opt for franchising which will help them in building contractual relation with other franchisee and indulge in a legal independent business. With the help of this method, the company will be able to sell independent franchisee the use of their intangible property like trademark. This is also essential for the franchisee’ business that will help in operational assistance and run the business on a continuing basis. This is through sales promotion as well as training. This method will be beneficial for ‘Cheers’ as it provides cover for risk and balance the company’s resource capabilities.
In Brazil, franchising has been becoming a good strategy for small and medium companies like ‘Cheers’. Franchising strategy allows geographic diversification as well as promote growth of the company as they have proved to be more attractive than merging or acquiring. Franchising requires fewer resource commitments yet permits better strategic flexibility. As ‘Cheers’ is trying to enter the market therefore, it has limited market information. Therefore, franchising as the best entry mode will help in keeping an equilibrated relationship between the standardization and the adaptation, because in the case of this particular company, adaptation is one of the fundamental characteristics of franchise format. This will also include service, product quality and design of the location. So, both franchisor and franchisee will be collaborating in starting the business successfully and reach the desired goal.
For starting the business in the foreign market, having a bold marketing message is essential. The franchise marketing plan must be designed for attracting the serious prospects. The company needs to identify and reach the customers primarily by analysing situation as well as marketing goals. Identification of the target audience and finding their tastes will help the company to more market penetration. According to the researchers, there are some basic elements that ‘Cheers’ must follow. These are-
- Budget: Setting a realistic budget is the first essential step and defining the appropriate budget helps in balancing actions between the available resources and the goals. The company needs to develop a long-term growth strategy and time frame that translate the goal into a proposed business so that it can achieve the desired goal and then working backward to more specific short term objective.
After the creation of goal and using appropriate measures and based on the industry average, the franchise marketing budget will be developed by multiplying the sale of franchises at assumed cost.
- Narrowing market: In Brazil ‘Cheers’ will have different competitors with variety of franchise opportunities. For competing with these other franchisors are inevitable but for this particular company, for being a start-up, finding and generation of lead will be more difficult. For narrowing the focus there is a need to consult with the market research On the other hand, the company also can speak to other franchisors or business associations as well as franchisees of the similar brands.
- Marketing funnel: the market funnel is the most cliché concept in the marketing plan but the company needs to spend marketing as it leads to selling of more franchise and generation of leads. The sales funnel helps in analysing the efficiency of the current efforts and identifying areas for improvement. The company will generate franchise sales lead from the public relations, trade shows, media and direct mail. The leads from the brokers are pre-qualified therefore needs to be given most priority.
- Distribution plan: the company must be aware the methods through which the products are going to the market. It must identify the proper distribution channel. This can be direct, one stage or traditional. The cost associated with distribution and delivery terns also must be considered.
- Pricing strategy: craft beer in Australia was much expensive so also in Brazil. Despite the fact that in Brazil, ‘Cheers’ will have to face more competition, than India, the price must be similar and accessible to the consumers. Through pricing, the company may get competitive advantage.
Human resource strategy:
The HR Management Strategy for the company needs to follow some principles. These are basically training and staffing issue. The company has to support the employees for maintaining high performance, being focused on the delivery of key outputs, being motivational and rewarding. The company needs to mix the hiring trends like parent country national and host country national. This will be fruitful for the company for increasing more brand recognition because the HCN will balance marketing, sales as well as distribution in the foreign land. On the other hand, the PCNs will be managing operations in the parent country and keep a good coordination. They need to understand the cultural differences and also respect for the sake of the company’s growth.
The company while starting business in Brazil needs to cover following areas:
- hiring and new hire orientation;
- high-performance organization
- keeping the focus of the team;
- providing training to the expatriate employees about the cultural difference
- meeting and trusting the eligibility of the HCNs.
Therefore, it can be concluded that the company has a wide opportunity to become an international brand offering craft beer. It has opportunity to achieve international recognition if it introduces innovation by incorporating exotic flavours of Brazil in their products. The report has analysed the risks and opportunity of both India and Brazil and found Brazil to be the best destination for starting business and increase brand recognition. Despite the fact that India has lower concentration of brewer industry where the company might have earned more profit but the market in India has various risk with will definitely be a potent threat for the company. The market of Brazil though has an already established market for craft beer, ‘Cheers’ will be able to found brand recognition and popularity by utilizing the franchising method to enter the market. The government policies and infrastructure will be beneficial for the company’s various strategy.
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