Essay: Strategic position of SABMiller in 2007

EXECUTIVE SUMMARY

To analyse the current strategic position of SABMiller I need to conduct an environmental scan which includes the following components: External analysis of SABMiller’s current situation. (PEST) Internal analysis of SABMiller’s current situation. (SWOT) Appendix 3 Analysis of SABMiller’s industry. (BCG Growth-Share Matrix) Appendix 4 The internal analysis can identify SABMiller’s strengths and weaknesses generated by means of a SWOT analysis and the external analysis reveals opportunities and threats that are affecting SABMiller’s performance in the market. A profile of the strengths, weaknesses, opportunities and threats is generated by means of a PEST analysis. An industry analysis can be performed using a BCG Matrix.
SABMiller is evolving from an operating company, focussing predominantly on brewing, to a brand-led company. For nearly a century, the company’s operations were mainly limited to South Africa and other African countries. The last 10 years, however, have seen rapid international expansion. Through acquisitions, SABMiller has put down roots in Europe, Asia, North and South America, and transformed itself into a global business. It has dual listing on the Johannesburg Stock Exchange and London Stock Exchange (entering in 1999). By recognising their economic performance, growth and the success of the business were and are the main priorities.
SABMiller has dominant position in South Africa in term of profit and cash. They followed an acquisition method to enter into the new market. By acquisition of the American brewer Miller in 2002 became world second largest brewer (volume wise). SABMiller main competitor is Anheuser-Busch.

SABMiller Strategic Vision

Their incremental focus was on emerging global market (economy), where they could use their core competencies for incremental growth, both organic and through acquisition which was being pursued in a hostile way.
SABMillers strategy is to create a balanced global spread of businesses, develop strong brand portfolios, constantly improvise its local business and enhance its global scale. Itdifferentiates them from their competitors and supports their vision to become the most admired company in the global beer industry. It’s about understanding developing markets, respecting heritage, being a leading brewer and delivering sustainable growth.
According to 2006 report they changed their vision stressing the need of consolidation rather than acquisition. Also the focus of SABMiller shifted back to developing economies.

SABMiller Strategic Position

SABMiller have an aggressive strategy to drive volume and productivity in major markets, optimise and expand established positions in developing markets, seek value-adding opportunities to enhance their position as a global brewer, grow their brands in the international premium beer segment and actively participate in the ongoing industry consolidation. SABMiller success depend on its some strategic priorities, which are :
• balanced and attractive global style of business
• strong brand portfolio in relevant market
• performance appraisal of activities
• Expanding the operation on global level.
• Developing strong relevant market

First Mover Advantage

First or early industry movers are more likely to succeed because of being able to establish and build brand loyalty, develop relationship with customers and maintain good distribution network.
Even listed back in LSE but Share price decline due to failure to make a major acquisition of first world brand and its over reliance on its developing market. Miller share price dropped 19.6% to 18.7% in 2003. Employees performance appraisal and dismissed their job if unsatisfactory performance. Brand portfolio reduced from 50 to 12. In current decade, the company made a series of acquisitions.
Core Competency.
SABMiller core competency is actually its competitive advantage of global presence in such a way it has 100 years of brewing experience as no others imitate or obtain. SABMiller has competency to acquisition of competitors and rationalisation of production and distribution facilities. One successful industry may lead to advantage in related and supporting industries. SABMiller establish and sustain operations that incorporate all the elements of manufacturing, sales and distribution and marketing through the utilization of well trained human resources and move to other global markets where it rapidly became leading beer manufacturers in the world.

PORTER VALUE CHAIN

Generic Strategies – Michael Porter (1980)
These generic strategies actually based on efficiency, quality, innovation and customer responsiveness.
The significance of foreign growth and investment (through LSE & Johannesburg) in China and India is the consequence of the world brewery market has now become dominant by South Africa and Europe.
M. Porter generic strategies are appropriate for SABMiller. The generic strategies are: Cost leadership, Differentiation, and Focus.
Cost Leadership
SABMiller is getting competitive advantage for being a cost leader in terms of well trained human resources, efficient infra structure and economy of scale production in brewing industry. Costs are shaved off every element of the value chain.

Differentiation

SABMiller differentiates their products by satisfying customer’s need through a sustainable competitive advantage. It allows SABMiller to desensitize prices and focus on value that generates a comparatively higher price and a better margin.

Focus

Here different organizations focus effort and resources on a specific or defined segment of a market. SABMiller uses this strategy by acquisition method of entry to the new market.
Corporate Social Responsibility (CSR)
In 1978, SABMiller published a code of non-discriminatory employment which is not immunising it against the growing pace of situation.
Secondly, SABMiller realise that the impact of HIV/AIDS pandemic of the workforce and other stakeholders in context of their CSR.
Diversification or Flexibility
Beside of their normal brand portfolio their most high profile development in hotels and gambling. And at the same time it became leading safety match manufacture in Africa.

Market Development

SABMiller have an aggressive strategy to drive volume and productivity in major markets, optimise and expand established positions in developing markets, seek value-adding opportunities to enhance their position as a global brewer, grow their brands in the international premium beer segment and actively participate in the ongoing industry consolidation.

America

Acquiring of American Miller Brewing Company in 2002 made SABMiller world leading Brewery Company as it stood on number 2nd position by volume. In North America they made further progress and firmed their price policy against their initial price cutting policy. In Latin America they had significant growth and got largest source of profits after South Africa.

Europe

They entered in this market by acquisition. In very short time there was a growth in Europe market especially in Poland, Russia, Romania and Czech.

India

SABMiller bought its joint venture partner. Although here they got less immediate success of profits but grew satisfactorily, so they set their focus to expand capacity and improve quality and productions.

China

In 2004, they made a aggressive take over of Harbin Brewery. Although the China market was costly but they made impressive performance of Snow brand which became top selling brand in Chinese beer market.

The MACRO-Environment

In an environment where customers have other options or choices, more complex choice through which to pursue them, simple, integrated solution to problem win the allegiance of the time pressed consumer ( Meyer & Schwager 2007, p.1).
SABMiller were good at their marketing activities, which is not only of the advertising of the company’s products but also involves in intimate knowledge of, and close relationship with the customers.
SABMiller always considers customers need, forecast technological trends, assess profitability, allocate resources across competing proposals for investment, and take new products to markets (Bower & Christensen, 1995, p.1).
Decline in traditional key markets is due to several factors. Governments are campaigning strongly against drunken driving, affecting the propensity to drink beer in restaurants, pubs and bars.
PORTER’S BARRIER TO NEW ENTRANTS
SABMiller’s current strategies of growth and optimisms seem to be very successful. SABMiller has strong internal process with well-developed distribution system, which is seen as critical in brewery industry.
Over the past 20 years they have grown rapidly from original South African base into a global operation, developing a balanced and attractive portfolio of businesses. Their markets range from developed economies such as the USA, to fast growing emerging markets such as China and India. So the 5 competitive elements that Porter has discovered forced (barrier) SABMiller’s competitors to keep away from the market when in 2000 SABMiller’s overall market share was 98% with respectively lower growth so according to BCG Model it was like a mature cash cow.
SABMiller are buying out or buying into competitive power avoiding mistakes of reducing customer choice by eliminating competition.

Threat of substitute

To avoid threat they expanded their product portfolio by obtaining licence to brew locally e.g. Guinness, Amstel and Carling Black Label.

Bargaining Power of Customers

In South Africa SABMiller had 98% of total market share so there was a scarcity of choices for the customers and on the other hand it was the threat to the potential entrants.

Bargaining Power of Suppliers

Bargaining power of suppliers is very low as there are only few players in the market. And above all the major share of the market rest with SABMiller.

PESTEL Approach

A PEST analysis is an analysis of the external macro-environment that affects all the firms within the industry. Such external factors usually are beyond the firm’s control and sometimes present themselves as threats. According to Byars (1991) PESTEL analysis is merely a framework so the results can then be used to take advantage of opportunities and to make contingency plans for threats.
When we apply PESTEL on SABMiller’s macro-environment, it is important to identify the factors that might in turn affect a number of vital variables that are likely to influence the organization’s supply and demand levels with associated costs (Kotter and Schlesinger, 1991; Johnson and Scholes, 1993).

Political

SABMiller organic growth and acquisition concerns with its political influence in certain countries such as in 1994 they are being invited to participate with Tanzanian government as a joint venture to revitalise their brewing industry there.
SABMiller always showed political stability when dealing with Governments, Partners and Local communities. The Economist magazine in 2000 reported an incident when the water supply to one of its breweries in Mozambique failed and SABMiller then paid high cost to local fire brigade to get expensive water to keep continue the production process.

Social Analysis

They recognise their social responsibility towards HIV/Aids and provides support and training that focuses on the prevention of the disease.

LEGAL

SABMiller used acquisition procedure to expedite entry into new market and has excellent optimisation know how that it obtained from diverse portfolio. In 1960 they obtained licence to brew Guiness, Amstel and Carling Black Label locally to remain strategically competitive. They also obtained licences for using idle outlets as active revenue generating units or Strategic Business Units (SBU). In this regard they trained around 6,000 newly-licensed taverners in marketing professionals.

Economical

Miller’s success depends on its overall integrity of its operations like price cutting of several products because of economies of large scale production facilities. There was a problem with the SABMiller that they earn most of its profits in soft currencies in emerging markets which were very sensitive hence a loss of confidence in these markets that ultimately effect profits in hard currencies.
Red Ocean & Blue Ocean Strategy
W. Chan Kim and Renée Mauborgne have argued that if organisations simply concentrate on competing head-to-head with competitive rivals this will lead to competitive convergence where all ‘players’ find the environment tough and threatening. They describe this as a ‘red ocean’ strategy – red because of the bloodiness of the competition and the red ink caused by financial losses.
In the context of SABMiller, they are in Red Ocean but looking to find the ways to get into Blue Ocean so there would be no competition so far.

SWOT Analysis

SWOT was developed by Ken Andrews in the early 1970s. This situation analysis tool, is used in the preliminary stage of strategic decision-making [Johnson et al 1989] where it provides the basic framework for strategic analysis.

Strength

As discussed earlier 98% of whole consumption within the country is brewed by SAB which was the expertise gained over 100 years in South Africa. It’s become further strengths by listing in two stock exchanges. Their distribution system is a major competitive advantage for them. Economies of scale enable them to price cutting of several products. This was on another side was the potential threat for new entrants and rivals.

Weakness

Although listing gave SABMiller more capital however its share price decrease about 15.5% during November 2000 due to failure to make a major acquisition of first class brand and over reliance on its development market.
SABMiller realise that the HIV/AIDS was the significant risk which was the potential to impact on the business on different perspective. Have a positive influence on the communities in which we operate. Protect and enhance our corporate reputation.
1- Limit the suffering and loss that the pandemic generates for our employees and in some cases within our value chain.
2- Address and manage the business risks that the company faces.

Opportunities

Their 100 years of expertise in beer producing and developing and optimum brand portfolio with economies of scale in production and distribution were prove to be its opportunity in emerging or developed economies. They made incremental growth, both organic and through acquisition, being pursued in a hostile way.

Threats

It was the threat to SABMiller when the water supply to one of its breweries in Mozambique failed but they got rid of the situation by paying high water cost to local fire brigade to get enough water to carry-on beer production process.

LIMITATION OF MODELS (SWOT/PESTLE/5 FORCES etc..)

SWOT Analysis Limitations

New competitors entering the industry and the associated changes in the competitive patterns sometime affect the strengths of company or losing their former strategic significance. Similarly, extra reliance on SWOT while generating and selection of strategies, bring company harm rather than benefit.
And the main limitation is that SWOT doesn’t take into account to the core competencies of other company e.g. if SABMiller consider that they are getting profits in all foreign currencies but actually they lead to a loss of profits in hard currencies.
While useful for reducing a large quantity of situational factors into a more manageable profile, the SWOT framework has a tendency to oversimplify the situation by classifying the firm’s environmental factors into categories in which they may not always fit. The classification of some factors as strengths or weaknesses, or as opportunities or threats is somewhat arbitrary. For example, SABMiller parenting style can be either strength or a weakness. A technological change can be a either a threat or an opportunity. In my opinion superficial classification is important factor for SABMiller’s awareness and development of a strategic plan to use them to its advantage

Limitation of Porter’s Five Forces model

When applying Porter forces model these are some limitations for the application of this model.
The model is based on the idea of competition. It assumes that companies try to achieve competitive advantages over other players in the markets as well as over suppliers or customers. With this focus, it dos not really take into consideration strategies like strategic alliances as SABMiller strategy to get into new market. Sometimes it may create completely new markets instead of selecting from existing ones (Blue Ocean Strategy). Therefore, there is none of any 5 forces nor any competition.
This model assumes relatively static market structures. This is hardly the case in today’s dynamic markets. Technological breakthroughs and dynamic market entrants from start-ups or other industries may completely change business models, entry barriers and relationships along the supply chain within short times.
Its main weakness results from the historical context in which it was developed. In the early eighties, cyclical growth characterized the global economy. Thus, primary corporate objectives consisted of profitability and survival.
Overall, Porters Five Forces Model has some major limitations in today’s market environment. It is not able to take into account new business models and the dynamics of markets. The value of Porters model is more that it enables managers to think about the current situation of their industry in a structured, easy-to-understand way – as a starting point for further analysis.

SABMiller COMPETITVE ADVANTAGE

SABMiller has competitive advantage in many directions of its operations and distributions. The most important are
• Brand Equity
• Financial Strength (listing in LSE and Johannesburg Stock Exchange)
• Wide Geographic range
• Intellectual Capital
• Operations efficiency &
• Distribution system
SABMiller uses these elements for turning around brewers internationally.
ANSOFF GROWTH MODEL

PAST FLEXITBILITY

SABMiller used to control its operations from London but later in 1950 they shift their control from London to Johannesburg and Southern Africa was remain focused for the majority of its business but in 1999 they moved its primary listing back to London.
SABMiller have an aggressive strategy to drive volume and productivity in major markets, optimise and expand established positions in developing markets, seek value-adding opportunities to enhance their position as a global brewer, grow their brands in the international premium beer segment and actively participate in the ongoing industry consolidation.
Analyse the current strategic position of SABMiller. (Include an in-depth evaluation of the internal and external variables that affect the company’s market performance, as well as a comprehensive interpretation of its competitive advantage in the global beverage industry).

• Capabilities & Competences
• Business Environment
• Stake Holder Expectations

Reference:

• Johnson, G. and Scholes, K (1993) Exploring Corporate Strategy, Prentice Hall International, London.
• Porter, M.E (1985) Competitive advantage; Creating and Sustaining Superior Performance, Free Press, New York.
• Byars, L (1991), Strategic Management, Formulation and Implementation – Concepts and Cases, HarperCollins, New York
• Kotter, J, Schlesinger, L (1991), “Choosing strategies for change”, Harvard Business Review, pp.24
• W.C. Kim and R. Mauborgne, ‘Value innovation: a leap into the blue ocean’, Journal of Business Strategy, vol. 26, no. 4 (2005), pp. 22 28, and W.C. Kim and R. Mauborgne, Blue Ocean
• Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant, Harvard Business School Press (2005).
• W.C. Kim and R. Mauborgne, ‘Value innovation: a leap into the blue ocean’, Journal of Business Strategy, vol. 26, no. 4 (2005), pp. 22 28, and W.C. Kim and R. Mauborgne, Blue Ocean
• Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant, Harvard Business School Press (2005).
• Meyer C & Schwager A, 2007, “Understanding Cutomer Experience” Harvard Business Review, September, p.1.
• Bower J.L & Christensen C.M, 1995, “Disruptive Technologies: catching the wave”,Harvard Business Review, January, p.1.
• Johnson, G., K. Scholes and R.W. Sexty (1989). Exploring Strategic Management. Prentice Hall, Scarborough, Ontario.
• Andrews, K. The Concept of Corporate Strategy. Homewood, IL: R.D. Irwin, 1971.

GUIDELINES

• THEORY
• APPLICATION
• EVALUATION OF APPLICATION

STRATEGIC POSITION:

• USE RATIONALE STRATEGIC PLANNING MODEL.
• LOOKING AT THE PASS CHOICES
• EXTERNAL ANALYSIS – USE MODELS

PESTEL – MACRO ENVIRONMENT ANALYSIS

• PURPOSE AND BACKGROUND OF MODEL – ACADEMIC REFS
• APPLY MODEL (APPENDIX)
• OPPORTUNITIES AND THREATS FOR SAB MILLERS
– EXPLAIN THE STRATEGIC POSITION OF SAB MILLER IN THE CONTEXT OF THE GENERAL MACRO ENVIRONMENT.
– IMPLICATION FOR THE FUTURE OF SAB MILLER.
– LIMITATIONS OF THE MODELS
• SWOT
• PORTERS 5 FORCES EXTERNAL MACRO
• INDUSTRY LIFE CYCLE
• PORTERS DIAMOND

INTERNAL ANALYSIS

• STRATEGIC CAPABILITY- CORE COMPETENCES.
• BCG PORTFOLIO ANALYSIS
• PORTERS VALUE CHAIN

MISSIONS AND OBJECTIVES

• STAKE HOLDERS ANALYSIS
• CORPORATE SOCIAL RESPONSIBILITY

FUTURE IMPLICATIONS

• ANSOFF MODEL

APPENDIX

PRODUCT LIFE CYCLE
LAYERS OF BUSINESS ENVIRONMENT
Johnson and Scholes define strategy as follows:
“Strategy is the direction and scope of an organisation over the long-term: which achieves advantagefor the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations”.

How Strategy is Managed – Strategic Management

In its broadest sense, strategic management is about taking “strategic decisions”
In practice, a thorough strategic management process has three main components, shown in the figure below:
The Johnson and Scholes model follows Michael Porter analysis in conceiving generic strategy as the achievement of comparative advantage either through the choice of price/cost leadership, differentiation and focus (Porter 1985, pp. 11-16).