We recommend proceeding with proposed investment plan with some revision. Detail analyses and rationalities state in the following sections.
Japan's beer industry is concentrated and highly regulated. The industry was projected to grow by approximate 7.6% for 1988 as 1987 realized growth. There were mainly four kinds of beers: Dry, Draft, Lager, & Melt. Consumer taste was graduating changing. Their preferences were switching from Lager beer to dry and draft beer. The government has tremendous power in this industry in terms of price and distribution (a distributor or retailer needs a license issued by the government to sell beers). Therefore, both the beer license and structure of distribution channels act as barriers to entry. Since price is regulated by the government, buyers (consumers) do not have much influence on the price in the market. Firms compete in a Cournot-like environment. Achieving economy of scale is important. However, if Asahi not only announces its capacity expansion plan, but also commits to the expansion, the environment would become more Sackelberg-like.
In addition, buyers are quite loyal to a specific brand. The following graphic is obtained by converting data in exhibit 8. Although the monthly demands are fluctuated for all brands, Kirin has the biggest fluctuation between high and low seasons. Sapporo and Suntory have the most stable monthly demands. The implication of stable monthly demands is that firms could utilize their capacities more efficiently than otherwise. Understanding the seasonality of demand is important to Asahi's resource allocation, and expansion & investment plan.
In the period between 1986 and 1988, Asahi Beer exited the traditional lager segment and became the leading producer of Dry and Draft beer in Japan, by commanding estimated 33% of the non-lager beer market in 1988.
Secure financial position. Lots of valuable real estate.
Ability to conduct insightful market research, and turn those researches into new product offerings.
Production capacity of 880 KL.
Ability to reach large part of consumers through distributors.
Established, yet revitalized brand.
Established relationship with exclusive distribution channel.
Reputation for introducing new products.
Quality control process was in place for over 4 years.
Corporate image has risen significantly because of the successful introduction of dry beers, in part showing effectiveness of its Corporate Identity Introduction program.
Internal constituents are willing to question taboos, more so than other firms in the industry, leading to a livelier, innovation-friendly environment. (This willingness is connected to the relative weakness of Asahi product are the time. There are questions about how sustainable are this willingness, hence the innovation-friendly environment, once Asahi changes role from the challenger to the incumbent.)
Long steady relationship with bank.
Asahi was able to establish its Dry beer product as the original dry beer among consumers. The profits earned from the expanding customer base would then provide funds for advertisement to reinforce that image. Large profits can also enable Asahi to conduct market research to track consumer needs, and provide new products when new taste changes are observed. With an established brand as the only original, and ability to take new market segments when they emerge, Asahi is making sure its competitive advantages are sustainable over time.
To complete this strategy logic, Asahi must develop its ability to translate market demand for its products into profits. The three critical capabilities Asahi must have to capture value are capacity, quality, and distribution. Without production capacity, potential customers are forced to buy competitors' products, giving away values created by Asahi....
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