1) What accounts for Deutsche Brauerei’s rapid growth in recent years? Specifically, what policy choices account for this success? There are several factors that lead to rapid growth of Deutsche Brauerei. To begin with, Deutsche Brauerei itself has succeed in Germany by winning quality awards consistently over the years. Secondly, After a fire destroyed the manufacturing plant in 1994, the more efficient equipment was purchased. It was capable of increasing the brewery’s potential output. Once Deutsche Brauerei expanded into the Ukraine, the additional capacity became necessary to handle the expansion in Ukrainnian market.Therefore, Deutsche Brauerei can effectively utilize the unused capacity. Next, Entering the Urainian market is considered to be one of the significant factor to the rapid growth. The dissolution of the U.S.S.R. brought market reforms so Deutsche Brauerei decided to enter this fragmented beer industry because Ukraine has large population and it located within Central and Eastern Europe.In 1998. Oleg Pinchuk was hired away from a competitor as the marketing manager. Pinchuk had set up the credit and inventory policy which are extending credit to distributors in Ukraine from 2% 10, net 40 to 2% 10, net 80 and implementing field warehousing in order to support the fragile distributor network. Then, Deutsche’s beer quickly became so popular that the volume sales can offset the negative currency effects due to Russian debt crisis. The next 2 years saw a dramatic increase in sales to 25,847 by the end of 2000.That is mean sales in Ukraine had greater impact on Deutsche’s total sales that account for 21% and 28% in the year of 1999 and 2000 respectively.
Change in credit and inventory policies
The new marketing strategy helped to capture the market efficiently
Serving market through a network of independent distributors
2) What is Deutsche Brauerei’s credit policy toward its distributors in Ukraine? Why is it different from the policy toward its other distributors? Is the company’s credit policy appropriate? Is it profitable? If not, how would you change it? If so, what arguments would you offer to the board of directors in its defense?
The DB beer in Germany served its markets through a network of independent distributors. The distributors purchased the beer, stored the beer in their refrigerated warehouses and then sold the beer to their customers. Since the Ukrainian market was new, Oleg could not rely upon an established network of distributors. He had to establish a distribution strategy for DB in the Ukraine. Oleg is providing financing to the Ukrainian distributors. But he has had to relax the terms several times now. It started at 2 percent 10, net 40. It was increased to net 80, and will be increased again to net 90. When DB first entered the Ukranian market, Oleg relaxed the credit policy for Ukranian distributors from 2 percent 10, net 40 to 2 percent 10, net 80 (clients could take a 2% discount if payment was made within 10 days of the invoice, otherwise payment was due in full within 80 days). The credit policy for Ukranian distributors differed because Ukrainian entrepreneurs, while eager and entrepreneurial, were not privy to the same capital or bank loans that German distributors had access to. The credit policy for the Ukranian distributors was appropriate, given that they were expanding, getting new equipment, and required more time than usual to pay. A flexible credit policy in the Ukraine is appropriate initially while building relationships and as the beer distribution pipeline is developed. However, Oleg would like to extend the credit policy from 80 to 90 days. The current receivables show 6,168 in 2000 and is projected to increase about 50% in 2001 and then another 30% in 2002. Having money tied up in accounts receivables is certainly not as profitable as having cash in hand. Oleg’s proposal to relax the credit policy even further is a high risk...
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