Foreign Market Entry and Diversification

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Assignment #3 Foreign Market Entry and Diversification
Daniel S. Carrera
Dr. Kimberly Anthony
Strategic Management - BUS 599
Strayer University – Newport News
4 August 2011

This paper will identify and discuss the trends in global beer markets. It will discuss how Modelo’s International expansion was made possible through strategic partnerships with experienced distributors in local markets. The paper will focus on how Modelo should enter in the foreign market and what is the best strategy. We will discuss various challenges Modelo will face from his competitors and whether he should diversify his business to promote growth.

During the past five years, on a pure alcohol-equivalent basis, beer has increased its share of total alcohol consumption by more than 200 basis points (bps) to 41.1% (Kaplan, 2003). In 2008 the trend slowed somewhat and beer’s year-on-year share of total alcohol consumption remained flat. In emerging markets, beer has generally shown higher growth than other alcohol categories as consumers gradually switch from local, generally high-alcohol, subsistence products towards attractively packaged, higher-quality, commercially produced beer. In South and Central America, beer’s share of total alcohol consumption is now 51.5% with increases in Colombia partly offset by recent declines in Mexico and Brazil (Karrenbrock, 1990). In Eastern Europe, beer has been gaining share from spirits for some time and now accounts for 48.0% of alcohol consumption. The past five years have also seen consistent gains in Africa and Asia where beer’s share of commercially produced alcohol now stands at 49.0% and 32.8% respectively – thanks, partly, to a greater emphasis on quality and accessibility (Karrenbrock, 1990). In more mature markets, a wider variety of alcohol products compete in a sophisticated marketing and retail environment. In North America, beer has been losing share as spirits have benefited from more extensive marketing and greater availability in certain states that said, beer’s share stabilized at 56.3% during 2008 as the economy slowed and brewers introduced innovative products, new packs and marketing initiatives (Berndt, 1996). In Western Europe, where beer now claims 36.8%, the wine category has increased its share as lower-cost offerings have become more widely available. Over the past five years, the beer category has maintained a Compound Annual Growth Rate (CAGR) of 4.8% globally (Narver, 1990). During this period, Eastern Europe saw a high single-digit CAGR as personal disposable incomes increased (Czinkota, 1997). In Western Europe, the prevalence of competitive categories and a shift in beer consumption away from on-premise outlets meant that CAGR was negative. Recently, consumer spending in Eastern Europe has also slowed – an indication, along with already high per capita consumption, that the beer category is maturing. Central and South Africa grew at a CAGR of 6.3% over the period while North America had modest growth at a 0.5% CAGR. Africa shows strong levels of growth with a five-year CAGR of 6.4%. Asia’s growth in beer over the past five years remains the highest of any region, averaging 8.4%. China in particular has seen growth in beer averaging 10.7% per year, fuelled by the growing economy and the increasing availability of beer. Looking forward, there is a significant opportunity for the beer category to grow at the expense of non-commercial forms of alcohol, particularly in Latin America, Africa and Asia. In Africa, per capita levels are still relatively low but accelerating, and local players are expanding their portfolios in all segments. Asia, in general, is seeing rising incomes and higher levels of beer consumption. In parts of Latin America, efforts by brewers to transform the beer category should boost per capita consumption. Over the past five years, the beer industry has seen a trend towards consumers trading up to more expensive...
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