Free «Global Strategic Management» UK Essay Paper
Table of Contents
Grolsch company has been very successful in its operations. This success has made its brands gain share in markets where giant companies such as Heineken dominate in the UK. Generally, company’s success has been attributed to effective management which has been able to use sound mechanisms to differentiate the company form its competitors in a positive manner. Because of positive outcomes in countries where Grolsch has presence through SAB Miller, the company’s management thinks it would be an effective move to enter new markets and replicate the same strategy to achieve high performance. To do this, the company has to consider several issues that influence international business. This paper, therefore, provides solutions to all these issues based on academic research. The issues have been divided into four parts as it is articulated on the subsequent pages.
Q1: Countries that Grolsch should expand into. General strategies for Grolsch to expand internationally into untapped markets
One thing that comes out from the facts presented in the case is that as from 2007 company’s earnings have decreased in international markets. The case clearly shows that by 2007 51.5% of company’s sales were made in the international market. This means that going global is the only way for this company to remain competitive and maintain a sound balance sheet. In order to continue this trend, the company will have to strengthen its position in those countries in which it already has presence and its brands are proving to be profitable. On the same note, the company has to be aggressive enough and move forward to determine new markets with positive prospects. This can be done using its integrated MABA framework formula (Earley, 1997).
One of the countries that Grolsch should consider for its massive expansion is the United Kingdom (UK). From the case presented, United Kingdom is Grolsch’s second largest market after company’s home country Netherlands. The company should use aggressive strategies to strengthen its grip in this already profitable market which accounts for 25% of company’s total production and a corresponding 1.3% of the beer market in the UK. It should be realized that having 1.3% share in highly competitive beer market in the UK means that Grolsch is a trusted brand. The company should find ways to increase this share to approximately 5%. In this way the company will have attractive future prospects. Information showing company’s presence in the world market is presented in Table 1 and Figure 1 in Appendix 1 of this paper (Earley, 1997).
South Africa is another promising market to which the company should expand intensively in addition to its current strategy in the area. For many years poor countries of Africa have received little direct foreign investments. But based on statistics after recent world economic shocks Africa has become the next business frontier for foreign investments. This new twist in the business arena has been realized by Grolsch since South African market accounts for 12% of company’s revenue in the last financial year. Africa is the only continent that was not significantly impacted during the recent world economic recession, hence investing a substantial amount of money in this continent would prevent the company from experiencing the shock currently battled by Europe which is company’s number one market (Earley, 1997).
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The next market where the company should invest in is China. Latest statistics about China’s economy shows that China can present significant business opportunities. For instance, it is estimated that 1.1 billion of Chinese people have achieved legal drinking age. There is no other place in the world with such huge market, therefore, Grolsch should currently think of developing strategies to enter this market. To make it even further lucrative, it is estimated that 430 million Chinese will fall under the category of ‘middle income class’. This means that an increasing number of Chinese will have the capacity to purchase beer drinks and, therefore, companies such as Grolsch have to make use of this potential (Business Standard Articles, 2009).
In order for Grolsch to have a strong grip of the new as well as the existing markets, the company must adopt robust strategies that will help it gain competitive advantage over the rest of competitors like Heineken which already has a bigger share of the world beer market. Some of the best strategies will involve diversification of general company’s operations and marketing which can make the company more innovative than it is currently (Business Standard Articles, 2009).
In order to continue being ahead of rival companies, Grolsch should implement what is known as horizontal diversification of its operations. The focal point of this kind of diversification is the incremental satisfaction of current customers’ tastes. Many companies have failed because of their inability to continually satisfy the needs of their current customers. Grolsch should never take this tricky path if it wants to survive in the volatile global market. By diversifying horizontally the company should opt to add new products that have no technological or commercial resemblance to its current line of products. This kind of diversification is favoured in situations where a company has loyal customers, and introducing new products of high quality will serve to flavour existing ones even more. It was beneficial for Grolsch’s management to realize this fact in the year 2007 when a new standard green crown bottle was introduced in the market (Business Standard Articles, 2009).
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Another key general strategy that the company has to implement is called market promotion strategy. Producing new products is not enough since they must be supported by market promotion strategies to be successful. There are many market promotion tactics that the company can employ to promote its line of products. This entails marketing which can be done through diverse media such as print media, Internet, TV, and Radio advertising among others. Grolsch has been successful in its extensive market promotions especially in the developed markets of the UK and Netherlands. Similar strategy should be replicated in developing markets since the future of global business moves in that direction.
Q2: Currency Risk Minimization Strategies for Grolsch in Operating in Different Countries
Generally, any business that wants to go global has to be aware of currency risks that might present a serious obstacle for its development. Currency risk is the degree to which investment or business operation is likely to be impacted by changes in foreign exchange rates. The rationale for currency risk management is that when currency risk is considered to be low, the management of Grolsch company should increase its international investments as profits will surpass the loss associated with currency risks. When the currency risk is high the reverse should happen. However, currency risk which is also referred to as exchange rate risk is not possible to be avoided completely. This is because the company will always be involved in making transactions in currencies other than Euro, which is company’s major currency of use (Jesswein, 1995).
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Having information concerning the inevitable nature of currency risks, several strategies have to be adopted in order to minimize these risks as much as possible. Such strategies can be divided into four groups of operating performance measurement: investment risks analysis, economic analysis, and liquidity and valuation interpretation (Jesswein, 1995).
Measuring operating performance is one of the accounting practices at play in international business. It is a common practice which evaluates financial positions of multilateral companies on the basis of transactions from the operation currency to the reference currency identified by the company. This system can be inconsistent due to constant variations in the values of currency. Such uncertainties have implications to any company’s financial analysis. To solve this problem, Grolsch company have to resort to general accounting principles where all commercial operations and practices in the foreign markets are evaluated from the perspective of the economy in which the company is operating. This should be done in consideration of the operations currency (Jesswein, 1995).
One thing that Grolsch should realize while engaging in multilateral transactions is that multiple currency engagements go beyond contemporary accounting principles. Hence, the established method where operating results are distinct from their consolidation counterparts should be applied when the company managers are evaluating company’s international prospects. This system will create a more realistic situation where Grolsch’s external business operations are evaluated in the operations currency, consolidated interests are evaluated on reference currency, and, lastly, capital investment estimated on the basis of investment currency. When evaluations are done in this manner, the company management will be able to foresee clearly what influence the change in exchange rate will have on each of the segments identified. More so, this action makes it possible for the company to offset currency loses in one segment by making adjustments in portfolio in other segments (Adler, 1986).
The second important strategy commonly implemented in relation to mediation of currency risks is investment risks analysis. One fact that supports this strategy is that before a company makes external investments, it will make exports which in many occasions are measured in terms of reference currency. However, changing the focus to having a physical presence in these external markets changes the whole strategy as the company now has to evaluate its finances in terms of operation currency. This change calls for sound decisions about investments which is the essence of this strategy (Adler, 1986).
To put things into perspective, making proactive investment assessment to eliminate currency risks of this nature has to be based on accurate translations when transactions move from using one currency to the other. Whenever a company wants to make decisions about external market, one of the fundamental issues to be considered is the anticipated rate of return measured in investment currency. Therefore, Grolsch, as a company interested in increasing its market internationally, should consider the overall amount of projections in each market, total expenditure to be incurred in such markets, and the subsequent cash flow estimated in the operations currency. If Grolsch wants to remain competitive in the global market, it has to seriously consider the above steps because skipping either of them can result to a serious increase of currency risks which might cost the company a great deal (Adler, 1986).
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Within this strategy of investment risks assessment aimed at eliminating currency risks, Grolsch company needs to realize the fact that transactions exposure usually takes an entirely different twist during investment assessment. As such, two general sub-strategies are usually considered. The first one is that inter-currency exchange rates have to be altered within internal mechanisms of the company. This should be done in consideration of two aspects: the time the company is considering when making external investments and the time it converts its investment currency to the operations currency of the host country. The second consideration should entail altering inter-currency exchange rates for all dividend remittances from offshore affiliates. In summary, if all these actions and strategies are put into practice, Grolsch company will be able to deal with the issue of currency risks and expand more (Adler, 1986).
Q3: Ways to Be Used by Grolsch to Manage Different Cultures and Values of Customers in Different Countries
There is no doubt that in the last twenty years or so, the world has become more connected than ever before due to international commercial activities. Multi-national companies do not only engage in the mere practice of buying and selling raw materials to foreign countries, but are now making extensive direct investments into these countries accompanied by widely used slogan ‘think global, act local’. In this perspective, therefore, Grolsch company must acquaint themselves with relevant strategies to manage different cultures in their quest to think global and act local (Chapel, 1997).
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One of the safest methods of managing cultural diversity that multilateral company like Grolsch has to adopt is first of all to identify basic components of culture or cultural dimensions in all countries it has presence or seeks to venture into. Theoretical reasoning and academic statistical analysis over the years have revealed four aspects of culture that managers for MNCs must know. These are power distance, uncertainty avoidance, individualism and masculinity. The fifth dimension of long-term orientation has been identified later amongst Asian communities (Chapel, 1997).
Power distance in different countries is one of the critical aspects of culture that any manager of multi-national company has to take into consideration before engaging in business operations in a foreign country. Power distance is the acceptance by nationals of a country of an unequal distribution of power which is usually embedded in variables such as wealth, prestige, and power. Understanding power distance, Grolsch company managers should take into account the fact that customers in countries where they have or intend to have operations accord different weights to the status identified. Most importantly, reinforcing inequality among the management of Grolsch company through hierarchical structure, the company should also take into account societal belief of the host country concerning this issue. In this way, it will be possible to avoid conflicts with cultural beliefs of host countries (Chapel, 1997).
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Uncertainty avoidance generally concerns the management and employees of the company. This is one area where cultural understanding has to be practiced so that employees which make the face of the company are treated respectfully. Uncertainty avoidance is synonymous to risk taking and is measured in terms of the extent to which nationals of a country tend to avoid risky situations where outcomes are not clear. In other words, it is the extent to which nationals of a country feel unconformable with highly ambiguous and obscure definition of roles in a country. This kind of fear will be transferred up to the management of Grolsch in different countries and reactions to this act might vary form country to country. For instance, it has been determined through research that employees with high uncertainty avoidance tend to follow company rules strictly. This is different for those with low uncertainty avoidance. Grolsch company management should, therefore, take into consideration different orientations by different countries on the subject of uncertainty avoidance. It should realize that those countries that have high levels are better in terms of employee performance than those with lower levels. This kind of approach will help Grolsch in managing one of the most valuable assets of the company - its human resource (Giffin et al, 1998).
Another cultural dimension that dominates the global business arena is the concept of individualism. Individualism is so entrenched in certain cultures that doing something to change that status quo is always met with resentment. Individualism is the comparison between individual interests and those of the larger group to which one belongs. The common denominator of individualistic beliefs is the connotation that a person’s interest comes before anything else. This concept is important in business because it will help Grolsch in determining those products with which nationals of a country associate themselves (Giffin et al 1998).
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Masculinity which other scholars call goal orientation also should not be overlooked by Grolsch management in handling operations in different countries. Masculinity is seen in the context of man’s innate ability to be aggressive in his pursuit of material resources. Broadly, the concept of masculinity can be conceived in the context of masculinity versus femininity which always causes a heated debate, especially in the developing nations of the world, where females in the society still face the problem of discrimination. In this regard, one may find that certain products in the market are only allowed for or popular with particular gender and are not meant for the other. For instance, in Africa drinking of alcohol is perceived to be a male dominated activity. It, therefore, becomes clear that in such countries, Grolsch company has to target male customers. It can also look for ways of changing the existing order to encourage drinking even amongst the women gender. If the company misses this important fact, it can develop products with no consumer base resulting in losses for the company (Giffin et al, 1998).
In handling issues of culture in management, the company should be aware of the fact that culture is one of the most dynamic things in the world. The company can actually manipulate certain cultures to work in its favour, while at the same time, it should be aware that the opposite can happen. Thorough research should, therefore, be taken before it decides to invest in a new economy.
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Q4: Ways in which Grolsch Company May Me Able to Implement Its Strategies in Untapped Markets
Entering into an untapped market is one of the most challenging things that even experienced managers are concerned about when starting a business in another country. There is a lot of uncertainty when entering a new market. Therefore, conducting both pre-feasibility and feasibility studies should accompany any investment decision. Grolsch made headway in its pursuit of external investment when it developed the famous MABA framework. Besides looking at dynamics and complexities associated with making international investment, the key concern for the company should be the evaluation of the viability of international market in terms of how promising the prospects will be (Business Standard Articles, 2009).
One important aspect of MABA framework crucial for implementation of strategies to enter untapped markets is the distance measure. It seeks to provide a support for the management of different cultures in Grolsch’s line of operation. The distance measure looks at issues like language, country membership in European Union, cost of transportation, and GDP per capita of the host country. These are some of the important variables that the company have to consider while implementing their strategies since distance measurements provide a wholesome summary of key determinants of success in international business (Business Standard Articles, 2009).
Having studied the dynamics of investing in external markets, the company then takes serious steps in marketing its brands in those markets in which it has presence or seeks to enter. This is important because before having physical presence in an external market, the company must have prior operations in that country through exportation of its products. What follows is that to achieve full presence, a rigorous marketing of company’s products in the host country must occur. The company will have to make investment in media such as radio, television, and Internet. The whole concept behind marketing promotion is to make nations of new markets to identify with Grolsch brands so that they are able to internalize it and make it part of their lives (Business Standard Articles, 2009).
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From facts presented above, there is no doubt that SAB Miller faces real challenges as any other multi-national company. One fact that the company should take into consideration is the benefit of staying ahead of others in the game. This is in realization of the fact that drinks industry is one of the most crowded and as such, staying ahead of other competitors is the only sure way for a sustainable future. If SAB Miller utilizes recommendations and suggestions presented in this paper, it will be able to ensure a sustainable future. There is one aspect of management that SAB Miller managers should never forget about - the incorporation of cultural diversity in their quest to go global. The company should perceive the issue of culture cautiously because a simple mistake might negatively affect the company presence in a particular country.
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