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South African Breweries in Tanzania Case Study Analysis

Prepared by Amit Kirti Presented to Dr. Rajesh Panda International Trade & Globalization SiBM Executive PGDBM Batch III May 2012

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Analyze the sources of Competitive advantages for South African Breweries (SAB) in South Africa.
FIRST-MOVER-ADVANTAGE Founded in South Africa as early as 1880s, they had the advantage of being one of the first companies on the African continent (South Africa) to enter into the beer industry. It is known that first or early industry movers are more likely to succeed and continue to succeed in an industry because of Being able to establish and build brand loyalty Acquire and tie up the available distribution networks Develop relationships with customers Develop scale economies Develop and tie up the supply chain Establish firm relationships with legislators. ECONOMIES OF SCALE With a presence in more than 21 countries in Africa & Asia, SAB use their scale to generate maximum value and competitive advantage. It is the fourth largest brewer in the world (40mil hectoliters) and the largest brewer in Africa (30mil hectoliters). Accounts for over 50% of beer consumed in Africa. SAB does the production & distribution of its main competitor, Guinness. Does distribution of Heineken (third largest brewer in the world) in Africa. Being brewers & distributors gives them an competitive edge in the market place. WELL-ESTABLISHED DISTRIBUTION NETWORK SAB currently distributes its range of products through a highly developed network of distribution centers, comprising of SAB depots, contracted distributors and franchised distribution centers. Simple & well designed distribution network to cater to the Traditional retailers. Complex & Personalized network to cater to large number (approx million) of informal retailers. INDUSTRY FORESIGHT An important component of the success of SAB has been its ability to forecast and predict what it will need to do to remain successful. SAB has been well ahead of the industry in developing and commercializing new technologies Operational Excellence in production, Packaging & Distribution.
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Info tech to track the product from Production to Point of Sales, helping reduce delivery cycle thereby ensuring product quality & freshness. All round efficiencies translated into one of the best EBITDA Margin (37.6%) in beer industry worldwide. High margins giving freedom to make lucrative investments to consolidate & scale businesses.

GOOD MARKETING SAB has been with clever and insightful marketing been able to capture market share not only in South Africa but also in the other countries where it has established itself. Marketing is considered a key function at SAB. It consists of Advertising of the company's products Getting intimate knowledge of, and close relationship with, the customer. VARIED PORTFOLIO OF LOCALLY PRODUCED BRANDS SAB seeks to understand consumer preferences and create brand portfolios that are Relevant and appealing, Having a strong competitive advantage in their market mapping system - a formal process identifying the main clusters of consumer preference in any given market and comparing these with the brands currently on offer. This is illustrated in their initiative to activate the Safari Lager brand in Tanzania with a tag line Tanzanian product that Tanzanians can take pride in.

What is the competitive scenario in Tanzania? Describe the appropriate International Strategy for South African Breweries (SAB) in Tanzania.

Competitive Analysis Porters five forces analysis

Bargaining Power of Suppliers Limited availability of raw materials (Barley & Maize) therefore high dependency on imports therefore balance of power tilted towards the international suppliers
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Bargaining Power of Customers Higher demand created due to shortage of supplies arising from restricted practices by the Govt in allotting production licenses and restricted Imports due to high taxes Poor infrastructure leading to lower reach of the distribution network. Rampant grey market due to the corruption Threat of New Entrants The beer industry in Tanzania was Govt controlled and therefore entry is restricted. Monopoly of Tanzania Breweries till 1998. Invitation by the Tanzanian Govt to East African Breweries (Guinness JV), SABs main competitor in Africa. Threat of Substitute Products Sorghum beer is the inexpensive and locally produced alternative to Beer. It a great alternative to higher priced alcoholic drinks in a region with one of the lowest GDP per capita It is a traditional home brewed drink part of the African culture as a way of offering to the elders / Guests. Therefore it has great affinity with the local population. Competitive Rivalry within the Industry Due to restrictive trade practices the Tanzanian beer industry is dominated by the Govt supported players, mainly SAB (Tanzania breweries) and very recently Guinness (East African Breweries). Other international players like Interbrew & Heineken having limited presence through imports or local distributors

International Strategy
SAB has adopted a Multi Domestic international strategy where there low involvement of the head quarters in the new entity which functions more like an independent company disconnected from the other group companies. The initial underlined international strategy of SAB was using the joint venture strategy for international markets. Secondly, the company had the international strategy of having local partners in the international markets. As an example, Tanzania Breweries was one of them. Using this strategy, SAB was able to take advantage of the local firms' experience and contacts. Following that, other two international strategies of SAB was to acquire local breweries and to expand the existing ones. These strategies were very helpful for SAB to increase their strength internationally.

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Then, SAB had brand portfolios which were used as an eye-catching international strategy. In regards to that one, the company had established several brands which were targeting very diverse consumers. For example, some brands were targeting the low-income customers while others were targeting the high-income customers. So, SAB was able to generate profits from all classes of consumers. Next, SAB gave a lot of importance to gain economics of scale with its operations. This international strategy was very helpful since it was able to present a great cost saving advantage for the company. Moreover, SAB was a kind of business which was focusing on the distribution channels. Forming good relationships with key distributors was also highly valued. This international strategy did also bring a lot of benefits for the business. Furthermore, SAB put forward the international strategy of transferring personnel and equipment. So, when SAB did expand to new international markets, personnel and equipment were sent from the headquarters. SAB also had some specific international strategies. The company invested in countries that were in transition from state-run to market economics. As an international strategy for entry, SAB acquired state-run breweries that lacked adequate capital investment and management, and upgraded production facilities and processes, making them more efficient. Besides, after acquiring a new brewery in an international market, SAB even sometimes changed the management to approach the best results. This strategy also sometimes helped to increase the market share in great quantities.

Conclusion
Keeping in mind the above illustrated competitive advantages and the well thought out international strategy, it is believed that they would tide over the entry of Guinness (East African Breweries) and would be manage to retain their market leadership in Tanzania. With increased competition, SAB is well placed to tackle the threat with its Multi Domestic strategy, where its Tanzanian unit has low bureaucratic controls and higher degree of local responsiveness which enables it to act faster & take a proactive approach. In the long term, SAB should move towards being a Transnational Organization leading to Higher degree of global integration leading to cost benefits & enhanced learning. Agility of a domestic company to be highly responsive to the local environment. This would reap greater benefits of SAB going International.
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