International Business on Heineken

Identify 2 strategic objectives that your firm had for entering a specific foreign country. In 2010 entered the Latin American market by acquiring the beer businesses of FEMSA in Mexico and Brazil. The FEMSA, Fomento Economico Mexicano is the largest Mexican and Latin American beverage company.1 Reasons for entering this continent is to achieve their goals, also mentioned as objectives in Heineken’s annual report. Two of these goals include Grow the Heineken brand and Capture the opportunities in emerging markets. Entering the Latin American market, would enlarge the brand awareness of Heineken. By aiming on expanding the brand name,The brand performance in 2012 was strong both in developed and emerging markets. It was particularly noticeable in Brazil, Russia, India, China and Nigeria where Heineken enjoyed double digit growth. This development was largely due to a global approach to brand management and to effective marketing. 2 Furthermore Heineken aims on capturing opportunities in emerging market, especially focussing on Mexico. Heineken has transformed its emerging market presence in recent years through a clear acquisition strategy, strong organic growth and joint venture partnerships. The beer volume increased from … in 2007 to…. In 2012.

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In mexico they continue to implement their value growth strategy following the acquisition in 2010. Focused brand investment behind new marketing campaigns and upgraded packaging have supported growth of Carta Blanca, Tecate, Dos Equis, So and India brands. In addition, increased outlet distribution and targeted activation programmes resulted in the Heineken brand volume more than doubling in 2012. 5b) Which foreign entry modes has your firm used in the last 6 to 8 years, and which mode was used for which country? Please also explain for one of the entry modes used whether you think that mode was the best one or whether another entry mode should have been used instead. Substantiate our answer with at least two arguments. Heineken operates in more than 71 countries.3 The most common used entry modes are joint ventures and acquisitions.

If acquisition in a foreign company is not possible due to government restrictions, Heineken decides to operate as joint ventures. Heineken aims on dominating the market and gaining the largest market share for beer. For this goal, the company tries to enter foreign markets by using Greenfield acquisitions and have full control over their operations without having to add new capacity to the industry. This entry mode has also a faster entry speed and is used for emerging markets, where the competition and growth of the market is high. In this case, acquisitions are operated in the emerging markets. For example, the acquisition of the brand Tiger between Heineken and APB and APIPL enabled the brand to lift with the growth of Heineken. and established local premium brands including Biere Larue in Vietnam, Bintang in Indonesia, SP in Papua New Guinea and Tui in New Zealand.4 As for companies that do already have a dominant market share in a country and do not need to upgrade to fit the global operations, Heineken decide to go for joint ventures, where the two companies work together, and limit the financial risk of investment by working together with local firms. Also Heineken enjoys knowledge of the local market.

Full acquisitions have a high degree of equity control. Also the resource growth is external. Full acquisitions are chosen if it is important to enter the market quickly, if the it is a fast growing market, emerging markets? Also acquisitions are chosen if there are already companies existing of the same product. Certain costs will be avoided by doing so. As for joint ventures, the degree of equity control is low and has an internal resource growth. 5c) which of the four multinational strategies described in chapter 15 of the textbook most closely resembles your firm;s multinational strategy? Please explain your answer.

4 A) Consider the case of the focal company deciding to set up a new production facility in an emerging market of your choice. Why is this an appealing emerging market?

The African market for Heineken is an appealing emerging market to expand in. This is due to a number of reasons: Population growth on the African continent is expected to grow from 1 billion as of today to 1.2 billion in 2020 and the African population is still relatively young in comparison to other established markets such as Europe and North America. Besides this, the middle class in the African content is growing steadily, consumers are becoming more band-conscious and GDP per capita has been positively growing since the last decades due to the improving political and economical environment. Heineken is thus, presented with a number of advantages, in which the long term clearly outweighs the threats in establishing itself firmer in this emerging market.

What are the threats that Heineken faces in penetrating the African continent as an emerging market more firmly? An issue that has encircled Africa throughout its history is the problem of corruption and bureaucracy. However, due to globalization and the increased interconnectivity around the globe this ethical issue has become a more prevalent topic amongst societies to be discussed and the same goes for the African countries. Although the issue still exists MNO’s argue that there’s a slow but gradual decrease in the severity of it in the African countries in which the improved political and economical environment is a positive contributor. Another threat that Heineken faces in the African emerging markets is the lack of good infrastructure and power supplies. On top of this poor education, health care, life expectancy and poverty are some of the other threats that can have an effect on the MNO.

4 B) How should your firm address the opportunities and threats of this emerging market?

Some of the strategies Heineken as the multinational organization can undertake is by introducing unreleased brands into the continent. Some examples: are the introduction of the alcoholic apple cider beverage ‘Strong Bow’ in South-Africa, non-alcoholic beverages such as ‘Amstel ZERO’ alcohol that taste like alcoholic beer and a large variety of other alcoholic beverages which all fall under the global Heineken brand of beers. Besides that, Heineken can introduce TCM due to operational excellence, acquired throughout the years, and it can implement innovative and at the same time environmentally friendly PET bottles which they have recently introduced into the Democratic republic of Congo as example to underline their technological innovations.

As consumption per capita is growing in the African countries, whilst excluding the steady population growth amongst the African countries, an increase in demand for premium beer brands is emerging such as the ‘Heineken’ and ‘Amstel’ beers in the African continent in which the MNO Heineken is expected to face tremendous growth opportunities in the following decades. These strategies have been introduced into the European continent and have proven to be very successful, with Africa as an emerging market Heineken can introduce the successfully proven strategies, which the company has used throughout the years to solidify its market position even further.

Heineken has a long history of in house training- and development. It has already established regional training schools in Nigeria and the DRC wherein they have established strong management development programs to attract and retain local talents. This is a way for the company to combat the threat of poor education. Heineken tries to better the life of its employees working for the company and as well the lives of people in the region: Heineken has established a healthcare program for all 30,000 of its employees where the government often lacks to adequately provide this. It has set up HIV programs in sub-Saharan breweries to educate its personnel and besides that founded African foundation programs such as Health clinics and malaria projects to better the lives of the people in its direct surrounding.

5 A) Identify two strategic objectives (i.e., reasons) that your firm had for entering a specific foreign country. Please explain your answers.

Heineken has recently decided in 2013 that it will be planning on building a 60 million Euros Brewery in Burma (Myanmar). The Heineken group has decided to do so after it has seen positive progress in terms of political and social reforms in Burma. On the 22nd of April this year all sanctions against Burma were lifted by the EU council and on top of this other large MNE such as Coca Cola, Pepsi and Carlsberg have recently decided to move into the country as well. Another reason for entering the Burmese market is that beer consumption in Burma is still at a relatively low level: 3 litres a year per capita whereas its neighbour Vietnam is at a staggering 30 litres+ a year per capita. This gives out a signal that there are a lot of potential profits still to be made especially now that political and social reforms are taking place. By investing with a 60 million Euros brewery, Heineken plans on solidifying it’s market position even further across the globe.

5 B) Which foreign entry modes has your firm used in the last 6 to 8 years, and which mode was used for which country?

Heineken operates in over 71 countries.6 The most common used entry modes that the firm uses consist out of joint ventures and acquisitions. In case acquisition of a foreign company is not a possibility due to government restrictions, Heineken will decide to try and operate as a joint venture. Heineken aims on dominating the global market and is constantly seeking to acquire a larger market share for beer. For this goal, the company tries to enter foreign markets by using Greenfield acquisitions so that they have full control over their operations without having to add new capacity to the industry. This entry mode on top of not adding unnecessary extra capacity to the industry as well comes with a faster entry speed and is most commonly used for emerging markets, where competition and growth in the markets is high. In this case, acquisitions are operated in emerging markets such as Asia and Africa. For example, the acquisition of the beer brand Tiger between Heineken and APB and APIPL enabled the brand to lift with the growth of Heineken. Established local premium brands including Biere Larue in Vietnam, Bintang in Indonesia, SP in Papua New Guinea and Tui in New Zealand share similar stories.7 As for companies that have already acquired a dominant market share in their home country, Heineken opts for joint ventures if they are unwilling to sell, where the two companies then work together instead, and thus limit the financial risk of investment by working together with local firms.

5 C) which of the four multinational strategies described in chapter 15 of the textbook most closely resembles your firm’s multinational strategy?

From the four multinational strategies described in International Business book Heineken organizational structure most closely resembles a transnational strategy. This is because Heineken, being the third largest beer brewer in the world, has practically managed to penetrate itself in all markets in which it sells over 200 international premium, regional, local and specialty beers and cider. This vast variety of different brands has made the Heineken group highly responsive to consumers in which all their needs can be satisfied due to such a broad assortment. Due to Heineken’s high aggregation of benefits such as economies of scale and operational excellence the MNE captures the best of two worlds by being cost efficient and locally responsive, depicting the structure of a transnational strategy.

6 A) Identify two ethical dilemmas that the focal firm faces in a host country of your choice. Why are these issues ‘dilemmas’ and how has your firm dealt with them?

An environmental issue that brewers cope with is the negative media of the use of alcohol. Consuming excessive alcohol has many negative health and behavioral risks. For this reason, many governmental laws and regulations charges alcoholic beverages. As a social issue for the company, more than 800,000 car accidents in Mexico occur due to the use of alcohol. Even though these issues impact the social side of sustainability, the health and well being of people. This is an issue to the firm, because they are accused as contributors of the harms as consequences of alcohol causing the firm to suffer from brand damage. Heineken must defend its image as a brewery, especially since the firm is leader of the industry. To avoid shifting the blame on breweries, due to the fact that they have no influence on controlling consumers‘ behavior, they aim on increasing awareness of the consequences of excessive consumption of alcohol. Heineken supports the idea of no physically or behavioral harm when moderately consuming alcohol. Heineken aims on contributing to the positive role of beer in society by encouraging responsible attitudes towards alcohol and discouraging the misuse of alcohol. The most important stakeholders in these social dilemmas are the consumers.

6b) Drawing on stakeholder theory, argue to what extent the focal firm should develop a globally standardized strategy to cope with the selected dilemma. The excessive use of alcohol occurs is a global issue. The use of alcohol and driving does not only occur in Mexico, but causes many accidents and fatalities all over the world. Thus the issues discussed are of global relevance. The harm that this issue emphasizes applies to the users of alcohol and their environment. That is why Heineken launched an Enjoy Heineken Responsibly (EHR) Campaign in 2004, which is globally used. Measures that the firm has been taken include putting this message on all of their cans, bottles and packages. Also, in commercials and on their website they quote: ‘Great opportunities belong to moderate drinkers’ to encourage moderately drinking.

Furthermore, they advertising boarding on all major sponsorships or sports. Furthermore, the company also tailored its strategy locally in Mexico, where they launched a Designated Driver Program to encourage attendees of to become or choose a designated driver for different occasions. The program is presented in 92 universities across the country and other youth organizations and events. By doing so, Heineken hopes to decrease the probability of accidents caused due to alcohol. To conclude, Heineken already has a global strategy and a local strategy to cope with the issues. The social issue in Mexico is actually a global issue, since it occurs in many other countries. The reason why Heineken focuses on Mexico is due to the explosive high rates of alcohol fatality in traffic in this country. We support the idea to expand the measurements taken for Mexico to other countries with high fatality rates, for instance in the United States where 31 percent of all accidents include fatality due to alcohol use in traffic in 2009.8

6c) How do the actual solutions to the focal dilemmas relate to the solutions practiced by Unilever and which approach is better? Sustainability living is the core of Unilever’s operations. It aims on doubling the size of their business and simultaneously reducing their environmental footprint and increasing the positive social impact. As for reducing its impact on the environment through its supply chain, it aims to maximize their Reduce, Recycle and Replace journey. Concluded from their research, 68 percent of their total GHG footprint is founded by the consumer self. 26% of the footprint is due to the raw materials. To solve this, the company came up with improving eco-efficient production and improving the agriculture practices. The related dilemmas that occur between Heineken and Unilever is to influence consumers behavior. Both companies cope with the fact that they cannot control the consumer use.

Furthermore both companies try to communicate their issues through brand name. Unilever copes with this issue by adapting the sustainability plan. As for Heineken, they launched the Enjoy Heineken Responsibly campaign, as mentioned before. What differs is that Unilever focuses on sustainability across the value chain, while Heineken emphasizes the consumer use. From one point of view, the approach of Unilever is preferred over Heineken’s approach, because it tackles the entire value chain. Also, it works on the long-term solution. From another point of view it is clarified that Heineken works on valuing life on a social and physical level, by reducing the possibility of harming social and health. However this does not add value to future generations, thus we believe that Unilever has a better approach to tackle its issues. file://localhost/Users/raymondjansen/Documents/IB/annual%20report%20heineken%202012.pdf book, 373

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