Challenges Facing BrewDog’s Expansion Into China
BrewDog is a global craft beer company that originated in Scotland in 2007. Over recent years, the company has grown significantly and BrewDog has been named as “one of the UK’s fastest growing businesses every year for the last 5 years”. At present, they have 50 BrewDog bars, the majority being located in the UK and Europe, and two breweries – one in Scotland and one in the United States.
BrewDog also exports it’s beers to 60 export markets globally and one market in particular saw a huge amount of growth in 2016. According to BrewDog’s figures, their export volume to China grew by 117% and is now one of their largest export markets. For this reason, BrewDog are now planning on opening a brewing facility in Asia (specifically China) which is intended to alleviate the logistical challenges of shipping to this continent from Scotland. The concern regarding this development is that it is BrewDog’s first real venture outside of predominantly westernized cultures and therefore previous models that they have used for growth may not be suitable or effective. Cultural Differences At present, BrewDog have successfully opened two breweries, each with a taproom located nearby. The first of these was opened in Scotland in 2012 and has been expanded several times since, followed by the building and launch of their American brewery in Columbus, Ohio in 2017. They are also reasonably far down the road with their plans for an Australian brewery. Due to the success and relative simplicity of these ventures, it would be easy to see why BrewDog might be lulled into a false sense of security when approaching the task of launching a similar project in China. They did however launch a BrewDog bar in Hong Kong in February 2016 which later failed and closed down. As a result, it is therefore incredibly important that they take the topic of cultural differences very seriously whilst they move closer to their goals.
Whilst it is true that due to the internet and general ‘globalization’ that many areas of the world do have access to very similar products, media and conveniences such as Starbucks, iPhones and Facebook, the degree of cultural convergence or ‘Americanization’ can often be easily overstated. Culture itself runs much deeper than behaviors such as these and it is the underlying and often hidden aspects of a country’s culture that need to be paid particular attention to when it comes to international business.
Attempts have been made by a number of theorists to capture and define the more subtle aspects of culture across the world. In doing this, Geert Hofstede was originally able to develop 4 dimensions (later expanded to 6) which allows us to draw a comparison between the countries that BrewDog have focused on in the past and their new venture in China.
As can be seen from the above chart, there are many areas in which the Chinese culture is at the opposite end of the spectrum to all other countries. Most starkly: indulgence, long term orientation, individualism and power distance. Of particular concern to BrewDog should be the individualism score – this demonstrates that China is a collectivist society which means that they act on behalf of the interests of the group and that “employee commitment to the organization is low”. BrewDog invests huge effort in developing employee loyalty to the company through various different means, usually involving individual perks such as free beer and healthcare. These types of incentives and the mentality to make the employee loyal to the company may not be a successful way of endearing their future employees and they will need to think carefully about the dynamics of building a strong team of people that will encourage loyalty and a group mentality. This also impacts the behavior of the local customers as well as employees however the ‘Equity For Punks’ crowdfunding program that BrewDog runs periodically encourages ordinary customers to invest in the company. This is a good way to create a group mentality amongst its customers, making them feel like a part of the company and not just a consumer. Of equal concern perhaps is the low score for indulgence. Obviously the consumption of alcohol in itself is perhaps considered an indulgence by some people but much of BrewDog’s brand is built around responsiveness and having a good time, perhaps not taking life too seriously. This approach seems at odds with a society that would be described as ‘restrained’ and that ‘do not put much emphasis on leisure time’. Valerie Hoeks also emphasized in her Tedx speech that there is a strong sense of ‘personal and governmental morality’ and ‘correctness of social relationships’ in China. Once again, this is at odds with the rebellious, anti-establishment nature of the BrewDog brand. Fons Trompenaars also expanded on Hofstede’s work, creating 7 different dimensions and comparing countries relative to one another. He also concluded through his research that there is a significant psychic distance between China and the UK and US with regards to cultural traits however he was also able to identify gradual shifts over time in the attitude of the Chinese in particular aspects such as achievement orientation. This is a reminder that culture is a fluid concept which needs to be constantly monitored for adjustment. It would of course be dangerous to base too many decisions on cultural stereotypes like the above however they do help to highlight what might be some key differences between cultures that they might need to consider before they invest too heavily in their branding and HR department. It is also worth remembering that China is a huge country and there are likely to be many subtle cultural differences between individuals living in different areas (as is the case simply between Scotland, England and Wales or the North and South of England) so being mindful of this is also important.
Company Structure and Market Entry
Another concern when BrewDog is venturing into new markets is whether the company will be structured in an appropriate way to get the full benefit of everyone’s expertise. Also, the issue of who is employed to take on certain roles will have an effect on how well the company adjusts in the new market and ultimately the success of the venture. Currently, the plan is for BrewDog to buy land in China and enter the market this way by building a brewery and tap room on the land that they buy (as they did in the U.S), rather than through mergers and acquisitions. Typically, in order to gain entry into this market it is often necessary that a company has a Chinese partner and in some cases a joint venture may be required in order for the business to overcome some of the bureaucratic hurdles and ensure success.
Many of the larger breweries that have entered China have done so through M&A in recent years due to evolving legislation governing foreign direct investment and have been much more cautious in their approach after failings in this industry in China in the mid-1990s. By using this approach, they are able to take advantage of the lessons learned by the company they acquire or merge with and potentially circumvent lengthy processes involving the Chinese government who (whilst being less involved in consumer products of late) do still retain substantial control over land and property. Additional benefits of this approach are that if the venture is not on the governments list of desired investments, it makes access to this market particularly difficult along with the fact that preferential treatment is often given to local firms.
At present, the set up within BrewDog groups all international business under one heading and all domestic business under another. At the moment, due to being in very culturally similar markets to their domestic market, this system has worked well and has allowed for internal promotion to these roles. However, given that China is a very different prospect, it would seem logical that instead of operating under the same generic ‘international’ umbrella as the Columbus brewery, it has its own team dedicated specifically to Asia. Based on the job advertisement that BrewDog have listed for this role, their intention is to create a ‘Head of Asia’ role who will work closely with the International Marketing team.
With a structure like the above, there is a risk that the domestic and international divisions will compete against one another in a way that could create an unhealthy atmosphere of resentment and discontent if one group feels they are being treated as second best. There is also the burden on the head office to change their mind set from that of a western company to one of a global business.
However, as BrewDog are planning on opening a brewery specifically to satisfy the Asian market that they have been building over the past few years, the challenge of allocating resources appropriately is lessened as they are not entering this market with no idea of scale. Additionally, by creating a brewery in Asia to supply this market and creating a whole marketing division alongside it, this allows this section of the business to be reasonably autonomous which is a huge benefit for the subsidiary as it will need to be flexible and adapt to local conditions in order to meet the company’s strategic objectives of maximizing revenues through appealing to the local consumer’s needs and tastes. In reality, however, the co-founder of BrewDog James Watt is incredibly hands on with all aspects of the company and ultimately all heads of department report to him on a very frequent basis and he makes the final decision on much of what goes on. So far, this approach has worked for BrewDog however these have all been markets that James is familiar with on a personal level i.e. westernized. Therefore when BrewDog invest in a significant physical presence in the Chinese market, it is possible that the instinctive input from their co-founder may be less valuable and a reliance on someone who is more familiar with this market should be encouraged.
Whilst having a government relations department specifically associated with each international division is entirely necessary in China as there are a “variety of levels of government, from central to provincial to city and town”, the impact of legislation in one country may not be limited to that country alone. BrewDog have seen an example of this domestically with the proposed introduction of new minimum alcohol pricing laws introduced in Scotland scheduled to begin in May. This has affected the promotions that BrewDog can offer on its website that caters to Scottish, English and international customers as it can’t be seen to be promoting ‘free’ beer under these new laws. This demonstrates how important it is for the lines of communication to be open across the different departments. Not only is important that the structure of the company is set up to deal appropriately with the business that it creates, but given the cultural and legal differences between the UK and China, the individuals filling in key roles in the new brewery should be very familiar with China and how it operates. Whilst this is not a merger or acquisition, it is still important to remember that the temptation to promote someone internally to this role should be resisted in favor of the added value that an appropriately qualified local employee could bring to the role. BrewDog appear to acknowledge this fact and make a point to openly acknowledge this in their job advertisement by stating that they have ‘done very little in the way of consumer insight or marketing communication of any kind, let alone executions designed for the emerging Chinese consumer’. The advert goes on to admit that in certain aspects of Chinese social media, BrewDog is a ‘blank sheet of paper’. In acknowledging these gaps in BrewDog’s current capabilities, they are quite clearly advertising for someone whose knowledge is very specific to that country and culture which will give them the best chance at appealing to their local market.
Conclusion and Recommendations
As this is primarily an output orientated investment, in order for it to be successful much of it comes down to BrewDog’s approach to the new venture in terms of marketing and sensitivity towards local employees and customers. As they admit, in the past they have used instinct primarily to guide them to their current levels of success however I fear that this approach will not be well suited to the complexities of China. As many have learned in the past, those that have failed to do their research have been “surprised at how different, difficult and risky the country is for inward investors”. For this reason, I think that BrewDog should spend a significant amount of time familiarizing themselves with the Chinese culture and identifying the key differences that might impact the success of their brand during this transition. This should ideally go beyond the opinions of theorists and be much more immersive and specific to the precise location proposed, ideally with the help and guidance of a Chinese partner. In particular, further investigation into the downfall of the Hong Kong BrewDog bar might prove particularly useful in order to learn any lessons from that experience and avoid a repetition of its failure in the taproom of the new brewery. If possible, serious consideration should be given to the prospect of a merger or acquisition as this would vastly reduce the risks of foreign direct investment on the basis that they will have a knowledgeable and established foundation upon which to build which, as long as the M&A is approached sensitively and knowledgeably, can overcome many of the cultural issues addressed in this assignment with regards to satisfying employees and consumers. This is particularly suitable in this instance as the strategic objectives of the company are such that they require this division to be reasonably autonomous in order for them to be able to adapt quickly to uncertainty in the environment and local conditions as their intention is to cater specifically to the needs and tastes of that local population, rather than looking to export back into the domestic markets. This means that James needs to be able to trust in the people responsible for this division and resist temptation to intervene, allowing them to make their own decisions, even if this means tailoring the brand differently in order to appeal to this market. As a way of engaging the local population, continuing to use Equity for Punks as a way of creating a group mentality and building a solid and loyal customer base in China is also recommended. Giving people the opportunity to invest in the development of the new brewery and taproom will make this project feel less like yet another large, western company has landed on their doorstep and will hopefully attract similar privileges to local firms.
