Corporate Logics Adopted By SABMiller
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Published: Mon, 24 Apr 2017
Since inception SABMiller has shown tremendous elasticity in its operations and organisation. The mining communities in South Africa provided recognition of enormous potential in the market which established SABMiller in Johannesburg. Over a timeline of few decades the company started dominating the beverage industry in South Africa and made a firm position in the market. The overall development during this period showed enhanced combined effect of management logic through mergers and acquisitions. As the further growth and development was constrained due to the protests and fight for equality against the apartheid which was an example of external environment, reduced the overall impact of business opportunities locally and globally. Subsequently a shift of corporate logic from managing one business portfolio to other diversifying business such as becoming a leader in manufacturing safety matches and the hotel and gambling industry gave a boost to the surplus investments. As new opportunities opened up in Europe, Asia, America and rest of Africa they grabbed the prospect and globalised the business having an international access.
Thus this report exemplifies how the internal competencies and external environment manipulates and evolves in the formation of the strategy and corporate logic for SABMiller.
2a. Strategic Position that SAB finds itself in 2007
This case study along with the annual reports of the company for the year 2007 helps us to analyse the strategic position of SABMiller in terms of Business environment in different global markets, Strategic capability and Stakeholders expectations. The different markets in which SABMiller operates in can be grouped as Africa, Asia/E.Europe, Latin America and Western Countries. SABMiller basically had 4 strategic priorities such as
Creating a balanced and attractive global spread of business.
Creating strong relevant brand portfolios that wins the local market.
Constantly raising the profitability of business sustainably.
Leveraging their skills and global scale.
These strategies were expertise and implemented all over their operations on a global scale.
Business environment means the external forces which influence/affect the business strategies/decisions. These forces can be political, economical, social or technological (PEST) factors affecting the business. These factors are not in the control of the business.
This region provides a significant portion of the profits and sales of SABMiller as it traditionally dominates and has a monopoly. But in spite of the positive past reviews about the region, there are some real threats for the company. The HIV/AIDS pandemic that hit the country can saturate the market as they wont get enough workforce. This will also negate on the consumer spending of the country and would indirectly affect the company’s future prospectus in this country.
Both the markets are emerging economies and show similar characteristics of high fragmentation and home-grown breweries being relatively ineffective. This gave SABMiller a great opportunity to take over the small breweries and enter into the market. They faced some problems like political sensitivity and high competition. Efforts to take over Harbin brewery in China went down seeing the competition to face Anheuser-Busch. But they still expanded in Vietnam which was one of the fastest growing beer markets.
After the merger of SABMiller with Grupo Empresarial Bavaria of South America, the company consolidated itself to number 2 position in the world in terms of volume. This also made Latin America the biggest source of profits after Africa. The business in Columbia, Ecuador, Peru started flourishing. But again the external impact on the business in Honduras and El Salvador gave a setback as they were affected by hurricanes and floods.
These markets were totally different from the ones which SABMiller used to operate in as they were more saturated and competent. The acquisition with Miller which diversified the currency and geographic risk of the group was important for the mature cash cow. This was also due to the stakeholder’s pressure who felt they dealt with only soft currencies. The immediate effect of this merger shows the dipping of the share price from 19.6% to 18.7%. SABMiller then tried to implement their parenting skills and practises to improvise on these conditions.
Strategic capabilities of the company are on the basis of its core competencies and the resourcefulness. From the very beginning, SABMiller demonstrated flexibility in developing strategies as per the market and showed god resistance to the external factors. The shifting of headquarters from London to Johannesburg and publishing a code for non-discriminatory employment shows appreciation for the possible outlook of the company. They also dominated the domestic beer production in the country and expanded their portfolio obtaining license to brew locally Guinness. They also shifted back the headquarters to London to raise enough capital and to have a global access and listed themselves on London Stock Exchange. This gave the whole new set of stakeholders a rise in hope. The merger with Miller further added to the competency it shows as it steps in the 21st century. This also made them known as “turnaround specialists”. This improved their capability to handle Western markets.
It was amazing to see the managerial capabilities of SABMiller when they came up with an alternative of hosing the beer vats by fire brigade water when the water supply was cut down in Mozambique instead of shutting down the plant. This excels the abilities of the company in managing problems and situations right from micro to the macro level. Facing regulatory problems and international restrictions in Asian and Eastern European market didn’t stop them from expanding. They recharged their competence level and showed it with their joint ventures in Asia and Eastern European countries. Expansion on a global perspective also shows their expertise on their parenting skills and demonstrates a elusive balance between choice and brand loyalty.
SABMiller made different strategic choices to please their stakeholders. The merger of SABMiller was mainly due to the pressure after getting listed on LSE and dealing in soft currencies. They even saw a unfavourable performance in stock market for the first year but later on recovered themselves after the expansion in western parts of Europe and USA. This gave the stakeholders, a reliance as they were dealing in hard currency.
2b. Implications of Current Strategic Position for future of SAB Miller
Consolidation is reducing the risks over the major developed economies like Europe, USA and South Africa and ensuring a concrete base in the emerging market which are more vulnerable. This completely seems feasible when we take a look at SABMiller’s competitive advantage in delivering resourceful operations in future, however it contradicts the past which has been more of gaining success in business involving risks. Certain problems like the risks associated with the people in Africa and the rest of the emerging economies are not manageable by SABMiller. Moreover it is undoubtedly possible for SABMiller to improve their position in the developed economies but it would be marginal. Now when SABMiller has completed all its Western acquisitions it is unclear as to what pressures they may have to handle from the stakeholders for the growth in the business, and the risk in it would be that it can be a victim for takeover by some big player in near future.
Product Development is coming up with new products and conversion of products and brands between competitive markets. SABMiller has been constantly developing new varieties of beer and improving those which are alive. It has also been conveying a product from one country to other country so as to have product diversification. For example it sells Australian premium brand Fosters in India which has enormous appreciation. It can continue doing so which would explore the overall global market, however it may be not the kind of growth that the company expects in near future and may understand the importance brand reliability in future.
Market Development in Africa means entering newer markets and penetrate into the existing ones. This obviously looks feasible because of past competitive advantage and overall success. But looks dicey due to the saturation in the market up to some extent. Zimbabwe which was once a promising market seems too narrow and the fright of HIV/AIDS with the political and economical instability in Nigeria and Congo can cause huge disruptions.
Market development in Asia/E. Europe is further development of the ongoing strategy to enter into a potential market. This constructs on the strategy that has been used by SABMiller so far. It also applied all the disciplines and policies used at SAB throughout the world which makes the operations uniform and gives them a chance to improvise on the productivity and efficiency overall and creates an global brand image. Perhaps this can be continued and developed further but the extent to which the growth will be continued is unknown. China which is the well known biggest market in terms of volume is not so famous due to the tiny return on investment. For long term it may need great amount of patience and may be critical before it starts giving returns above the investment. However this may force the stakeholders to pressurize the company to take a review on their strategy of concentrating on developing economy which gives them soft currency growth. With the new countries coming up in European Union, capturing Eastern Europe market can be an alternative over directly focusing on Western Europe breweries.
Western market development is developing their presence more in Western parts of America and Europe. The stakeholders had huge expectations following the company’s listing on London Stock Exchange to acquire a western brewery which was put down. The immediate effect of this was the fall in the share price on the first day by 1%. So this gave a setback to the investors and stakeholders who started doubting their strategy on expansion in western countries.
Diversification is moving away from brewing and participating in retail, sales and distribution activities. This can be seen through the buying of Casino resort project and being the leader of manufacturing safety matches in Africa. This strategy is not a matter of concern as the firm is well known for its diversifying attributes until and unless their main focus does not change. Recently the company has consolidated more around breweries rather than diversification which has taken a back stage for a while. The competence of a firm can be measured by the flexibility it adopts for the corporate logic. This strategy can tempt the future expansion. However this can confuse the stakeholders when they see that the company has required resources and they strive for diversification in regions which has very little margin and scope.
Joint Venture with a Western brewer would benefit the company. The western brewer can guide them towards the entry points in their country and SABMiller can use and apply their expertise and experience in developing countries. This would obviously benefit the company but experiencing the setback of acquiring Miller would confuse them and would be of less advantage.
Sell can be the acquisition by any other major brewery. SABMiller market presence and their set of protocols can be attractive for any other major brewer in the western market. Stakeholders may even agree if the forecast a healthy run for the future, but it’s questionable whether the management would agree to it.
After critically analysing the SABMiller case as a student I can recommend the company to extend its operations in Asia which is undoubtedly a big market, the only problem being the encouragement for alcohol is not appreciated so they may refocus on their advertisement, marketing and sales skills for this market and try different permutations and combinations to acquire the market. For example they can spread their brand name by first selling packaged drinking water which will create awareness and later on introduce their rationalised products. They can also emphasize on maximizing zero waste operations which would be ideal for future environmental conditions seeing the current alarming rate of global warming. But as we say Idealism kills every deal, the company should just incorporate this factor into their system rather than making it an issue of prime focus.
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