The purpose of this report is to find out what are the factors that contribute to the success of the china beer industry. The report will covers the analysis on how SAB is able to compete in the china beer industry using their core competency. It will also provide us with an understanding of SAB business level strategy and whether their business level strategy is strength in the china beer industry. Lastly, the report will cover the success of SAB international strategy. I will apply several theories and models in Hitt to support me with the analysis to cover the above issue.
Applying the External Environment Analysis
By analyzing the external environment, we can identify the success factors that contribute to the China beer industry. The External Analysis helps us scan through the demographic, global, economic, political, socialculture and technological. Analyzing the external environment from the position of a firm within China beer industry can helps us understand and explore the opportunities and threats in the China beer industry.
Demographic analysis can provide us with information in the population size, age structure, ethnic mix, geographic distribution and income distribution. The Asian markets have a demographic profile of younger people. More that 60 percent of the population in Malaysia, India and Philippines are under the age of 30. China has a population of 1.25 billion people. In China, the numbers of people under the age of 30 is approximate to be 50 percent of the whole population.
Analyzing the economic factors, we can understand and predict the growth of the beer industry. It allows us to identify which regions of the world are doing well in the beer industry. The average growth of the world beer industry was growing at a rate of 2.6 percent during the 1995- 2000. At the same period, the Asia pacific market was having a 7.7 percent growth rate. In a general view of the top few largest continental in the beer market, the Western Europe grew at 0.1 percent; the North America grew at 1.2, while the Latin America grew at 3.7. It shows that Asia pacific market is a growing market compared to other regions.
In developed countries with high GDP, the income elasticity of beer expenditure was only 0.4. For merging markets, the income elasticity was 1.35. For 1 percent increase in the GDP per capita would lead to a 1.35 percent increase in beer expenditure. The growth rate of China’s GDP was around 10 percent throughout 1990s. The expected growth rate for China from 2001 to 2005 is 8 percent. The strong growth rate in China’s GDP will led to an increase in beer expenditure.
The 19 percent taxation rate on beer retail price in China is considered to be the lowest in the world as compared to other countries such as Australia at 52.8 percent, United Kingdom at 44.6 percent and South Korea at 53.5 percent. By having low taxation rate, a firm can earn more profit margin and revenue doing beer business in China.
The table in Exhibit 1 (Singh et al. 2010, Pg 120) shows that China market size is considered to be one of the largest in the world. The volume of china beer industry is approximate to account for 18,516 million liters. China market size was the largest in Asia pacific and it accounted for about 65% of the total market size in Asia pacific.
During 1995 to 2000, the growth rate of china beer industry was 8.6 percent. From 2000 to 2004, the growth rate drop to 6.7 percent. The reason for the drop in growth rate is due to the exit of competitors in china beer industry. In China, the consumption rate per capita during year 2000 is relatively low. Compared to North America and the Western Europe with 85 liters per capita and close to 70 liters per capita respectively. The world average consumption was less than 10 liter per capita. The China beer industry shows that there was no dominant or international brewer during the 1994. Most foreign brewers...