Carlsberg Case Analysis
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While originating from Denmark, Carlsberg A/S is the fifth-largest global brewing firm. The beer production industry is one of the most attractive and profitable sectors in different markets. Many people consume beer as a refreshment and to crown different occasions, including wedding parties and other cultural rituals. As such, Carlsberg A/S is in a beautiful industry. Even when the economy is on the downfall, many people continue to consume beer to “get rid of some disturbing thoughts.” However, the Chinese market was overly fragmented and that both regional and local brewers dominated the industry. In the Chinese market, pricing was the most determining factor for success. Besides, entry into the market was not easy because of various market barriers in addition to the amount of capital required. The beverage industry has been attractive, mainly because a more significant population uses beer to permit some communication that can otherwise be hard to manage.
Reasons for Carlsberg A/S’ mergers and acquisitions
According to Carlsberg A/S’ Chief Executive Officer, Jorgen Rasmussen, the company decided to perform mergers and acquisition as one of the strategies towards successful entry into the Asian market. Also, Carlsberg decided to have alliances and acquisition was a restructuring strategy to address the failed market entry strategies (Hitt, Ireland & Hoskisson, 2016). For example, Carlsberg managed to acquire Baltic Brewing Holding (BBH) shares because of the company’s poor performance while in a partnership with Orkla ASA, a Norwegian brewing firm. As such, Carlsberg A/S strategy towards mergers and acquisitions was to recover from past failed experiences in the Chinese market. The primary reason behind these acquisitions was to develop an organic growth by acquiring new market share. Nonetheless, Carlsberg A/S could not believe that Russia could permit other share acquisitions, given that BBH was the largest holding in the country and the region.
Negotiations with BBH’s CEO demonstrated that Carlsberg A/S might move on with its strategy and increase its market share by having additional shares, mergers, and acquisitions. While negotiating on the organic strategy, BBH’s CEO, Christian Ramm-Schmidt, informed Carlsberg A/S’ CEO that “I cannot see why this could not be possible.” In light of this, the Carlsberg obtained clear information that could guide the company’s market share growth policy (Hitt, Ireland & Hoskisson, 2016). Of importance, Carlsberg A/S used the merger and acquisition strategy that aimed to acquire all the prominent brewing companies in various countries within the Asian market, including China and Russia. The strategy made it easy for Carlsberg not only to grow its international market but also to minimize risks within these overseas markets.
Carlsberg A/S used a horizontal merger and acquisition strategy. While using this mergers and acquisition strategy, the company aimed to increase the company’s market share. For instance, the company acquired BBH, one of the largest company in the Asian market, to have greater control over the Asian market. Notably, Carlsberg A/S leadership was motivated to building a sustainable market in the region while ensuring sufficient revenue in the future rather than in the current times.
International corporate strategy
As demonstrated in this case, the company’s global-level strategy focused on “achieving leadership and fast-mover advantage and competitive advantage.” For instance, Carlsberg decided to emphasize on western china while minimizing competition in the southeastern part of China. Also, Carlsberg projected an increase in beer consumption within various markets, including the Asian market following a stagnation in the European market. Carlsberg A/S’ leadership was optimistic that the company would raise its revenue after capturing a considerable global market share. While expecting a rise in living standards in different areas, the company have a considerable presence in different world markets.
Notably, the leadership argued that their presence in the Asian market, particularly in China, was to create a leadership position rather than making profits for about 5 to 10 years. The management noted that Western Europe’s market was not only mature but also stagnated and hence the need for Carlsberg to establish new markets from other parts of the world. As such, the company’s leadership understood that both Russia and “Eastern Europe as growth markets while Asia was a developing market” (Hitt, Ireland & Hoskisson, 2016). Earlier in 2000, Carlsberg decided to operate a partnership with Chang Beverages Pte Ltd, another leading company on alcoholic manufacturing in Asia. In this sense, the Carlsberg strategy was to become the leading beer company internationally while eliminating other big companies in the market to enjoy market control advantage. In the arrangement with the Chang Beverages, Carlsberg A/S’ objective was “to strengthen the company’s position in the Asian markets.” As such, the merger resulted in Carlsberg Asian Ltd.
Evaluating Carlsberg A/S’ decision to capture emerging markets
Typically, every business aims to enhance its market share and value presence. As such, Carlsberg A/S’ strategy to go global in the emerging markets was a good move. Although the company encountered fierce competition in the Chinese market, it managed to restructure and successfully enter the Russian market through mergers and acquisitions of BBH among other big companies. It is observed that Carlsberg A/S was the fifth biggest company in the brewing industry. Still, the process of capturing the emerging markets was partially turf on the company and effective in other areas. In this regard, the company can be more successful by engaging other strategies for international market sustainability.
Notably, the company’s leadership established that the stagnated Western Europe’s market was Carlsberg A/S’ primary source of revenue and hence the need to get to the emerging markets (Berning & McCullough, 2017). As such, when the company encountered hardships during the implementation of the mergers and acquisitions, Carlsberg did not hesitate to use its resources and revenue gained from Western Europe’s market. Although the business fared well in some strategies, some mergers like the merger with the Chang Beverages introduced unhealthy disagreements that negatively impacted on the company’s market share and the projected growth. In light of this, establishing new strategies would help the company achieve its core objectives while improving its performance. While the business focused on the market
Recommendations
For Carlsberg to improve its market performance, it can use different strategies. Firstly, the company needs to gather sufficient facts about the target market. While China was a vast beer market, especially because of its wide population, Carlsberg could have established the culture and the existing companies in the market (Karabín, Jelínek, Kotrba, Cejnar & Dostálek, 2018). The latter could enlighten the company on the most effective strategies for market entry. In this regard, Carlsberg carefully understands the culture and the level of cooperation that the company needs to observe. Employee teamwork is one of the most critical elements of business success. As such, the company must determine the organizational cultures of various target companies for mergers and acquisitions. The latter can highly reduce conflicts such as those identified in the association between Carlsberg A/S and the Chang Beverages Ltd.
Secondly, the company can improve its general performance by leveraging technology for value addition. Competition is one of the most apparent factors in the contemporary world of business (Hanson, Hitt, Ireland & Hoskisson, 2016). In this regard, value addition improves the business’ performance by attracting new consumers while improving the acceptance by the existing consumers. Of importance, value addition is a competitive advantage for any business, and thus many consumers would have to purchase from the company. By leveraging technology, Carlsberg can ensure value addition and hence promoting its international performance. Effective marketing can highly increase market performance.
Conclusion
From the above analysis, it is apparent that Carlsberg A/S used mergers and acquisition strategy to expand its global presence. The company realized that the Western European market had stagnated and hence the need to enter into the emerging markets. Most importantly, the company determined to emphasize acquiring a leadership position by acquiring all big companies in the beer manufacturing industry. While using this horizontal type of merging and acquisition, the business aimed to gain considerable market share for growth and minimization of competition. However, the company encountered some resistance in some markets, including the Chinese market, but further restructuring enabled Carlsberg A/S to capture the Russian market. However, by leveraging technology, value addition, and understanding organizational cultures of the target market, the company can improve its global performance.
References
Berning, J., & McCullough, M. P. (2017). Theme Overview: Global Craft Beer Renaissance. Choices: The Magazine of Food, Farm, and Resource Issues, 32(3).
Hanson, D., Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2016). Strategic management: Competitiveness and globalization. Cengage AU.
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2016). Strategic management: Concepts and Cases: Competitiveness and globalization. Cengage Learning.
Karabín, M., Jelínek, L., Kotrba, P., Cejnar, R., & Dostálek, P. (2018). Enhancing the performance of brewing yeasts. Biotechnology advances, 36(3), 691-706.