Business Across Cultures: Case Study of Fosters’ Expansion

4175 words (17 pages) Essay

8th Feb 2020 International Business Reference this

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Introduction

Meaning of ‘BUSINESS’

A business is an entity. It is involved in commercial, industrial and professional activities. Business is an occupation or trade and purchase or sale of good and services.

‘Business is the activity of making one’s living or making money by producing or buying and selling (goods and services) products’ [wikipedia (2018)]. It is an activity entered into for profit. The owner of the business is responsible for all the debts of the company.

Business activities include accounting, finance, manufacturing, marketing, research and development, safety, sales.

Definition of Business:

“Business is profit can be more the main objective of a business than betting is the main of making profit and acquiring wealth through the satisfaction of human want”.[David Premraj, K., Deepa, B., Kondal Rao and Bobby, M. 2017].

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“Business comprises all profit seeking activities and enterprises that provide goods and services necessary to an economic system. It is the economic system. It is the economic pulse of a nation, striving to increase society’s standard of living. Profits are a primary mechanize for motivating these activities”. [David Premraj, K., Deepa, B., Kondal Rao and Bobby, M. 2017].

“Business means the whole of complex commerce and industry- the basic industries and the network of ancillary industry, distribution, banking, transportation and so on” [David Premraj, K., Deepa, B., Kondal Rao and Bobby, M. 2017].

Business is a person’s regular occupation, profession or trade. It is a commercial activity. Business is an organization or economic system where gods and services are exchanged from one another for money.

Business refers to an economic system in which goods and services are exchanged form one another for money, on the basis of their worth. Every business requires some form of investment or funds and a sufficient number of customers to whom its output can be sold at profit.

Meaning of Culture:

According to Mitchell, “Culture is a set of learned core values, beliefs, standards, knowledge morals, laws and behaviors shared by individuals and societies determination how an individual acts, feel, and views oneself and other”.

Culture plays a major role; it is a key component in the business and has an impact on strategic direction of business. ‘Culture influences managerial decisions and all forms of business functions from accounting to production’ [Dictionary of International Trade (2018)].

The culture of each country has its own values, ethics, process, beliefs and activities. So we have to beware of the host country and our own country and try to fit in with their business culture for the growth in our business.

Business Culture:

Business culture is defined as the “Models or styles of business operations within a company. The business culture determines how different levels of staff communicate with one other as well as how employees deal with clients and customers” [BusinessDictionary.com. (2018)].

Business can be profit entities and nonprofit entities also known as nonprofit organizations which operate to fulfill a social cause. Business is the organized efforts and activities of individuals to produce and sell goods and services for profit.

Business begins with the concept or the idea and a name. Depending on size, nature and culture of the country and place where business is going to setup, market research is necessary to determine whether the idea of business is feasible and if the business can deliver values to customers.

Culture plays a prominent role in formulation of business strategies. Ignoring customs, traditions, values, tastes and preferences can be very high.

‘Culture is a key component in business and has an impact on the strategic direction of business. Culture influences management decisions and all business functions from accounting to production’ [Business Culture (2018)].

Culture and globalization:

As one moves from one country to another there comes confusion, disorientation and emotional upheaval. To overcome this there is a need for understanding and appreciating culture differences across the countries.

Culture determines the type of clothes people wear, the food they eat, the drinks they prefer to drink, the building material they to use to construct houses vary from culture to culture and time to time within same culture.

Business should recognize and realize these culture differences and make products and services accordingly. This way culture determines good and services.

Time dimension also plays a major role in business. It is an aspect of culture that influences business. Ethics is important because ethics and profit go together. Business performance lies in understanding how the organizations culture translates across to customers.

Globalization:

Globalization is a process of integration and interaction of people, business, social and cultural aspects worldwide. Globalization has grown due to advancement in transportation, technology and communication.

‘Globalization represents the global integration of international trade, investment, information, technology and cultures’ [Staff, I. (2018)]. It impacts government and investors both in positive and negative way. Globalization is associated with social and cultural aspects across global.

The geographic dispersion of inputs, production and distribution across the countries is known as Business globalization. It is a trade across borders for goods and services.

Several dozen cross-cultural experts have proposed dimensions. None has yet succeeded in capturing the whole field. The best known models are: [cuco_admin (2015)]

Edward Hall, who classified groups as mono-chronic or poly-chronic.

Kluckholn gave 5 dimensions- attitude to problems, time, nature, nature, nature of man, form of activity and reaction to compatriots.

Lewis model on dimensions of behavior.

Hofstede’s 4-D model is about collectivism vs. individualist, femininity vs. masculinity and uncertainty avoidance. Then he added long term orientation vs. short term orientation.

Trompenaar’s dimensions are as Universalist vs. particular list, individualist vs. collectivist, specific vs. diffuse, achievement- oriented vs. ascriptive and neutral vs. emotional or affective.

Tonnies dwelt on Gemeinschaft vs. Geselleschaft cultures.

Cross Cultural Business:

A Business Environment where participants from different countries or regions interact, bringing different values, view points and business practices. Often this setting requires substantial training and employee support [BusinessDictionary.com. (2018)].

The success of international business depends on interaction between employees from different culture and regions. In international business cross culture is the main issue.

Concerns which are included in cross cultural business are the differences caused by culture, language, beliefs, law etc. Effects on Business culture can be distinguished into three types:

 

Business Roles:

Cultural differences directly effect on the manner in which business is carried out by the employees. The management and staff of the company have to find out common grounds on which business partners and employees and meet and communicate.

 Business Law:

Business law is the other consideration in cross cultural business. International law affects the business manner they conduct. Miscommunication occurs easily so this is very important.

Different countries have different laws for business. Business holders should go through law and customs of that country before it ventures into that particular country.

Hofstede’s Dimensions of national culture

Professor Geert Hofstede has made a survey on the way how the values at a work place is influenced by culture. According to Hofstede, culture is a group of people having collective programming of mind. From the survey he has developed six dimensions of national culture. The dimensions usually represent different cultural preferences in different countries. Initially he has developed four dimensions and later developed the other two.

Power Distance Index (PDI):

Power distance is defined as the degree which is accepted and expected that power is distributed unequally among the members in that society. It is completely on how the society deals with this inequalities among people.

Individualism vs Collectivism (IDV):

Individualism is a dimension where the society is concerned only about themselves and their immediate families. Whereas, collectivism reflects a particular individual in terms of ‘I’ or ‘We’.

Masculinity vs Femininity (MAS):

Masculinity stands for heroism, achievement and rewards for success. Femininity is a dimension that’s stands for caring for weak and quality of life. It is also known as tough versus tender culture.

Uncertainty avoidance index (UAI):

The dimension of vulnerability evasion indicates how a people from a culture treat any circumstance of vulnerability or show resistance towards a startling result. As seen by Hofstede, there are sure societies which make individuals agreeable to any questionable circumstance while in certain culture individuals will think that it’s hard to manage unstructured circumstances.

Long term orientation versus Short term orientation (LTO):

The score in this measurement is desirable over be high as it prompts have a down to earth approach and are loaded up with current musings. With regards to low score social orders they will in general be standards.

Indulgence versus Restraint (IND):

Social orders with liberality are a greater amount of like remembered and appreciates life having some good times. Where limitation society supresses the fulfillment of requirements and more into the conventional standards.

FOSTER’S GROUP

Foster’s group is an Australian beer company. This company is interested in brewing and soft drinks. Now this company is known as ‘Foster’s Group Pty. Ltd.’

Foster’s Lager is an internationally distributed brand for Lager. It is owned by the international brewing group AB InBev, and is brewed under licensee in a number of countries, including its biggest market, the UK where the Europeans rights to the brand owned by Heineken International. [En.wikipedia.org. (2018)]

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Fosters group was founded by two American brothers William and Ralph Foster of New York who own a refrigeration plant in Southbank, Melbourne, Australia in 1888. Its products are Victoria Bitter, Foster’s lager. Fosters group revenue is A$2.27 Billion as per 2011.

Foster group distributes a large number of brands, imports and licenses. This group distributes Skyy Vodka, Stella Artios, Cinzano, Perrier and 42 other drinks.

In Australia’s hot climate cooling was necessary for brewing and storage of lagers. Elders brewing group in 1990 was named as Fosters Group, to reflect the name of internationally recognized product. Steel can where introduced in 1958. In 1971 Foster lager was first imported into UK, and in 1972 it was launched in US.

Fosters group acquired the Australian wine making group southcrop in 2005. This acquisition has added famous brands to foster group like Penfolds, Lindemans and Rosemount. In the Australian market Foster’s enjoyed some renewed success in the year 2014.

Fosters group Treasury Wine Estates were divided into separate company in May 2011. The first day itself they saw the share price soaring of valuing a separate entity at A$ 2.2 billion. Foster’s now the world’s biggest wine producer, and sold its Chinese brewery and Foster’s brand in Europe.

There had been a long speculation that all fosters group will take over by a larger firm. Groups which expressed interest over the year are Diageo, SABMiller, Molson Coors and Heineken International.

Fosters group agreed to a takeover bid by SABMiller in the year September 2011, valuing the company at A$9.9 Billion. Foster group is own by Anheuser Busch InBev SA/NV since October 2016 when SABMiller was acquired by Anheusar Dusch InBev.

In Australia and in the UK the slogan ‘The Amber Nectar’ was used by Foster’s Lager and for overseas as ‘Australian for Beer”. Foster company is a duopoly which means its half of a very competitive and not so competitive.

Foster is famous for different brands of beer both domestically and globally. Some famous brands of Beers and breweries of Foster include:

Carlton and united breweries include Reschs, Crown Lager, Carlton Black, Carlton Draught etc.

Cascade Brewery includes Cascade Lager, Cascade Bitter, Cascade Draught, Cascade Green, Cascade Pale ale, Cascade Stout etc.

Grolsch, KB, Great Northern Brewing Co., Pilsner Urquell, Power’s Brewery.

Miller- Miller Chill, Miller Genuine Draft.

Peroni- Peroni Nastro Azzuro

Ciders like Blumers, Mercury, and Strong bow.

Spirits like Black Jack, Kirov, The Black Douglas, Prince Albert’s Gin, Karloff, Coyote Tequila, and Continental Liqueurs.

Non- Alcohol drinks like Cascade, Torquay.

From 1986 to 2006 Foster’s Lager brand sponsored Formula One events regularly. This brand was also track side sponsor and prime sponsor for many other Grand’s Prix during that time.

Foster’s Lager was in sponsorship deal from 2005 to 2007 with A1 team Australia. Foster’s Lager brand is currently in a major sponsorship deal with ASP World Tour.

The comedy centric advertising was focused in UK division by Fosters Group. Foster’s lager advertisement featured ‘good call’ from 2010 to 2015 by which Australians where phoned up by numerous Britons and thanked for great advice.

Foster Group Limited (FGL) in Vietnam:

Fosters group Limited (FGL) was founded in Vietnam in the year 1997. FGL entered into Vietnam with wholly owned subsidiaries Vietnam Limited. It was located on Ho Chi Minch city. In Vietnam foster operated two breweries, Fosters Tien Giang Brewery outside of Ho Chi Minh City and Fosters Danang Brewery in Central Vietnam.

Beer brand Larue became the fastest growing local beer and gave huge hit in Vietnam. Foster lager has become most recognized beer brand. Foster met increasing demands by doubling its brewing capacity to one million hectoliters in 2002 by the purchase of Danang and state owned enterprise for AUD$8 million.

Foster doubled its market share in Vietnam from its initial investment to 12% as a result achieved a maiden profit in 2002 which was two years ahead of the schedule.

Beer Market in Vietnam:

In 2003 beer output in Vietnam has increased from 1.29 billion liters to 2 billion litters in 2008. By 2010 output was expected to reach 2.7 billion. An annual growth rate of 14% was experienced by beer industry. Vietnam people every year spent over VND$20 trillion on beer. This growth was expected to continue further.

Entering into Vietnam market was difficult because international companies where required to get business license and government approval. In Vietnam by 2008 there were 350 breweries operating.

Fosters in Vietnam:

Fosters brought two breweries from French company and entered into Vietnam in 1997. The total capacities of breweries were 90 million liters. Foster formulated a five year plan and was very optimistic to succeed in Vietnam. Foster acquired Danang and State Brewery in 2002 in order to meet its growing demand, this allowed fosters to double its brewing capacity. As a result Fosters group limited was recognized as the Asia’s most recognized beer brand.

It launched Larue which became the fastest growing local beer brand. Fosters Group Limited made massive investments in Vietnam is a plan to use Vietnam as a production base catering for not only Vietnam, but also for exporting to other countries like Asia region.

For fosters group limited the overall result was disappointing, despite the initial success in Vietnam. The company experienced internal managerial problems which impacted on staff hiring, reward and retention policy, occupational health and safety requirements. This was the main reason for loss for foster group limited. As a result fosters group limited market share began to shrink from 2002.

From 2002 to 2006 foster group limited struggled to meet strict and regularly changing government regulations. This ultimately led Fosters group limited to exit from Vietnam by selling their business in 2006.

There are various cultural differences between Australia and Vietnam, foster group limited had to deal with a wide range of cultural differences which impacted on the ability to promote effectively. Cultural and government regulations also impacted of reward and retention policy, staff hiring. The brand expression of foster ‘The Australian styled beer” failed to capture the interest of Vietnamese.

The slogan made Vietnam people unpleasant in the sense that it has an Australian style but it was served to Vietnam customers. The company was unable to replicate the experience of Vietnam customers with that of Australian consumers. Because the tagline of the beer made Vietnam people by consuming their beer felt like they were giving the identity of another country and made them feel unpleasant. Beer was sold to Vietnam customers by it has highlighted the Australian style so Fosters connection with beer drinkers has been has been loosened.

The fosters group limited also made error in identifying its target customer base as it did not identify that the Vietnamese market living standards in the country were low.

So FGL sold their business in 2006 in Vietnam for USD $105 million to Asia Pacific Breweries (APB). ‘‘As Chairman David Crawford later admitted, Foster Group Limited has been crippled by paying too much for its acquisition’s, especially Southcorp, the company behind the Penfolds and Rosemount brands (Speedy 2008)’’. [Tushar sharma (2012)]

As Foster Group Limited paid too much for acquisition’s, resulted in selling breweries in Da Nang and Tien Gang and local brands to Asia Pacific Breweries (APB).

Foster provided technical support to Asia Pacific Breweries and retained its ownership of the brand. Asia Pacific breweries were a leading brewer in their region and operated 27 breweries in 10 countries at that time and produced Fosters for export across Asia.

Conclusion:

Foster’s Group Limited should have carried out a concise internal analysis to reframe their tagline with culture and identity of Vietnamese people. Foster’s Group did not understood Vietnam peoples taste. The tagline that was used, Vietnam and Australian cultural differences, frequently changing government regulations have biased Foster Group Limited in my opinion. Not every Vietnam people will resonate well with Australian styled products.

 

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