Transformational Corporate Strategy Study: South African Breweries
We examine the internationalization decisions made by one of Africa's most successful companies, South African Breweries, as it underwent a period of aggressive expansion. We see processes of both institutional complementarity and substitution at different phases and with different motives. At first it sought countries that played to its strength, namely the knowledge of doing business in environments of institutional uncertainty, but later it pursued an institutional diversification strategy whereby it attempted to minimize its institutional risk exposure. As it became larger, its aspirations increased too, and its over‐exposure to emerging market institutional risk saw it engage in institutional substitution into advanced countries. Through this phased international process, it was able to develop its internal assets, and this enabled the moves into developed markets. We demonstrate that firms can exploit their knowledge of ‘weak’ institutional settings and turn it into a source of advantage as they internationalize into locations with similar institutional ‘weaknesses. ’ Using the case of one of Africa's most successful multinational enterprises, we illustrate the value gained from initially capitalizing upon institutional complementarity (utilizing the comparative advantage linked to institutional know‐how) by exploiting the experience of the home country's environment into similar settings. Over time and through learning‐by‐doing, pressure arose to diversify the risk linked with over‐exposure to institutional uncertainty and country risk, and this was associated with the process of institutional substitution into more advanced countries. We see emerging multinational learning and building its capabilities by leveraging its understanding of its home country institutional environment
Background
South African Breweries, commonly known as SAB was established in 1895. It is the one of the largest brewer in South Africa and developing countries and the first industrial company to be listed in the Johannesburg Stock Exchange (JSE). SAB major business includes the production of beer, beverages, non-alcohol beverages, manufacturing which is brewing and packaging of beer and beverages. The company also does farming of raw material such as barley and hops and they do products distribution. Various regions perform manufacturing, sales and distribution. They exploited developing countries and developed market opportunities around 2006 and in the 1990’s after the lifting of the international sanctions against South Africa, SAB were able to capture new growth. This was done by expanding into developing countries and at the same time the company consolidated its existing South Africa regional market. The company entered developed markets of United States by acquiring Miller Brewing Company in 2002 and SABMiller plc was formed and they now own 200 brands in six countries. SAB was able to compete with the reputable oppositions in the brewery industry and test their products internationally. SAB makes the biggest impact in South Africa and it is South Africans that have developed the skills, courage and sheer determination to push the company into the global stage. The company has a reputation for people-quality in terms of the quality of the relationship that they have with the employees, international stakeholders, consumers of their products, their suppliers and services providers. This is demonstrated by fact that in 1971 they introduced their first equity strategy. This included a number of programs which includes community involvement. In acquiring Miller Brewery shows that the SAB has a capable leadership structure because it turned out to be the best move for SAB. They adapted to changes very quickly and they were able to identify a potential business opportunity when they needed to and having vision. That is what being a leader all is about.
Operating environment
To analyse SABMiller’s internal and external operating environment and performance, a PESTEL and SWOT analysis approach has been carried out.
SWOT Analysis
According to Jones and George (2011:253) SWOT analysis is a planning exercise in which managers identify internal organisational strengths (S) and weaknesses (W) and external environment opportunities (O) and threats (T).
Strength
Brand equity – SABMiller is one of the One of the world’s three largest brewers with 200 brands. Good reputation in South Africa, several developed countries and developing countries. First industrial company to be listed on the Johannesburg Stock Exchange in 1897. Using world class standards to compete with giant companies.
Benchmarking with the entire world in terms of information technology, sales, production, accounting and administration. Launched malting capability resource. Competing with the with the world big companies because of their world class standards. Since 2006 SABMiller’s strategic priorities has not changed therefore this confirms the company’s proper focus and strategic direction.
Differentiated premium portfolio. SABMiller has become an international leader by excelling locally fostering strong, local brands and building a brand portfolio that meets the needs of consumers in each market (Annual Report). SABMiller decentralization strategy where enabling country managers to focus on the local consumers, customers and other stakeholders. Their decentralized management structure reflects the local nature of beer branding and distribution.
Weaknesses
Misperception between SAB and SABMiller. Marketing strategy was poorly implementedLost a bid to Annheuser-Busch. In the overhauling the packaging of their flash brandLow scale opposition companies exploited in SAB mistake when revamping their packaging of their flagship brand Castle Lager. Their mistake was that they did not clearly indicate what exactly they were doing. They should have indicated that they were only changing the packaging not content.
Opportunities
For decades SAB invested heavily in Plant and equipment. Buying small scale brewing companies in developing and developed countries. Market increase in international premium beer divisions. After the lifting of political sanctions by the apartheid government SAB Identified potential markets internationallyIncreased investment in emerging market in terms of volume and production.
Threats
Political sanctions and labour unrest. Political fighting. Unstable liquor legislation due to many changes in the act. This impacted on the customers directly because of lack of outlet licenses. Water scarcityBarley is dependent on the weather.
PESTEL
According to Louw and Venter (2013:181) PESTEL approach provides a useful way of identifying factors and forces that are relevant to the organisation within the industry in which it operates. The strategies of the SABMiller are influenced by the external environment forces. Analysing the factors influencing the company’s macro-environment and industry sector, PESTEL, also known as PEST approach. The following below are the key external drivers of change which are affecting SABMiller:
Political
Markets in developing and developed countries where SABMiller have operations, is what the company relies on for their growth objectives. They therefore have to conform to different set of local and international regulations and tax laws that are exclusive to these countries. Any kind of political turmoil will have a negative effect on the operations and profitability. Therefore SABMiller is reliant on on the political stability of these countries. The will have to also face and adopt harsher alcohol laws is the different countries they are operating in.
Economic
Global economic cycles like exchange rate, GDP, levels of disposable income and exchange rate will be the factors influencing SABMiller’s profit and income growth. The fall of income levels in emerging markets will negatively affect beer consumption, the fluctuation in exchange rate will have a significant effect on the profits and the increase of the price of raw material and transportation costs will also have an effect on the profits. The key raw material prices remain highly volatile and the volatility keeps increasing.
Social
In respect to developing countries, severe religious practices can also have a serious impact on the company. The constant change of consumer behavior and the competition becoming more sophisticated.
Competition
As one of the world’s largest three brewing company SABMiller enjoys the competitive advantage in the economies of scales and low prices. They also face fierce competition from the established global brewing market.
Buyer Power
Due to changing lifestyles buyers can easily change from beer consumption to wine or any other spirits. In developed countries wine have become so popular. EnvironmentalIntroduction of carbon tax by government and worries around climate change. For example, COP 17.
Technology
Using finest ingredients and the best technologies and processes is SABMiller strategy. The company continuously seeks to improve their beer and brewing methods, that is, state of the art brewery technique. Below is the issue priority matrix, used in identifying, analysing critically important developments in the macro-environment.
Strategic resources and capabilities
From external analysis (PESTEL) and internal analysis (SWOT), SABMiller’s success factors can be attributed to it unique resource and capabilities. According to Richard Lynch (2015) the resources of an organisation are those assets that deliver value added in the organisation. The capabilities of an organisation are those management skills, routines and leadership that deploy, share and generate value from the resources of the organisation.
Resources and capabilities are the enablers for any business to compete more effectively in their industry. It also enables the company or business to determine their strategic direction.
Scanning business environment
SABMiller shows a unique capabilities of scanning business environment and making strategic choices. During the apartheid regime, the company was faced with growth constraints due to international sanctions. The company was willing to diverse away from its primary business. They ventured into match and hotel business for their regional growth and were able to identify unique opportunities in emerging countries, this was the lifting of sanctions.
Acquisitions and take over
Another unique competence that SABMiller has is acquisitions and taking over companies that are not doing well in the industry. This is another form of growth strategy for SABMiller because they were able to penetrate developing markets, acquiring business and growing them. They managed to acquire high profile businesses in developed countries, companies like Miller and Fosters.
Value adding and corporate parenting
It is mentioned in the case study that about 150 South African executive were posted at SABMiller’s operations abroad. This is another indication of a unique competency that the company possess. It proves that they work well in different countries. They possess value adding parenting capability. This increases operational efficiencies and transform acquired businesses. Management skills and corporate parenting was used to turnaround Miller. They brought operational efficiencies and employee performance practices.
Managerial skills
SABMiller moved from their outdated practices of conducting businesses in emerging economy to the developed countries. This shows that management has developed and mastered the skill and experience successfully. Management’s flexibility to adapt to changes is shown and are capable of developing sophisticated logistics in developed regions.
Stakeholder expectation
One of the strategic choices that SABMiller made was the acquisition of Miller. This played a big role in fulfilling stakeholder expectation and gave the company the opportunity to establish themselves as a global player in the world.
Value chain analysis
The value chain identifies where the value is added in an organisation and links the process with the main functional parts of the organisation. A number of organisation uses the method to identify business enabler’s activities that add value to the production. They analyse these activities in order to reduce cost or differentiation.
In order to welcome change of artificial intelligence in their industries and environment companies need to migrate from legacy technology and systems. They can use artificial intelligence to do critical jobs. SABMiller’s key capabilities are put in corporate acquisitions and management. The abilities to develop their brand locally through their brand management systems, and in their exceptional outbound supply management.
- Corporate Social Responsibility
- Corporate Social Investment
By ethics and corporate social responsibility (CSR), is meant the standards and conduct that an organisation sets itself in its dealings within the organisation and outside with its environment. These needs to be reflected in the mission statement. There have been three main approaches to the study of CSR: stakeholder driven that focuses on the pressures of outside organisations; performance driven that concentrates on the outcomes of CSR; and motivation driven that explores the reasons behind CSR.
According to the case study SABMiller invest a huge amounts of monies in trying to empower the communities and customers. The investment goes beyond just trying to empower. They are also trying to eradicate poverty. In the drive of trying to give back the company is also involved in skills development in the communities, sports and government. This is done through social activities and community development. There’s also billions that have been made to government funds in trying to assist the government to do away with poverty.
Recommendation
Supplier relationship management (SRM)This should be viewed as a means of achieving superior financial performance. It should be viewed as a strategic, process oriented, cross-functional and value creating for buyer and seller. Increasingly, supplier relationship management (SRM) is being viewed as strategic, process‐oriented, cross‐functional, and value‐creating for buyer and seller, and a means of achieving superior financial performance. This paper seeks to describe a macro level cross‐functional view of SRM and to provide a structure for managing business‐to‐business relationships to co‐create value and increase shareholder value.
In order to identify the sub‐processes of SRM at the strategic and operational levels as well as the activities that comprise each sub‐process, focus group sessions were conducted with executives from a range of industries. The focus groups were supplemented with visits to companies identified in the focus groups as having the most advanced SRM practices.
Findings
The research resulted in a framework that managers can use to implement a cross‐functional, cross‐firm, SRM process in business‐to‐business relationships.
