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Tsingtao Beer vs Heineken Managing Across Borders

Introduction

Business management comprises organizing, planning, directing, facilitating, and leading a group of people and other resources to accomplish a desired economic goal. The success of any business entity is largely hinged on the ability of the management to wade through constantly changing business challenges and emerge with an optimal solution that either maximizes benefits or minimizes losses to the firm. Improving managerial practices has thus become the common focal point for all businesses. Even more challenging is the growing number of multinational corporations (MNCs). They have brought about new and unique challenges to the management profession requiring extra engagement and the ability to conceptualize unfamiliar scenarios for effective management.

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This paper focuses on two firms, Tsingtao and Heineken which are among the largest producers of alcoholic beverages (beer) in the world and have global networks. The paper evaluates the strategies applied by the two firms in the globalization of their operations as well as the fundamental principles applied in operating across borders. It also stipulates the organizational issues facing the two firms while identifying areas of convergence and

Tsingtao and Heineken are some of the largest beer companies today. They cover large international markets which are diverse and unique in terms of the anthropological, cultural, and economic dimensions. This has over the years prompted their managers to dismiss many traditional strategic and managerial approaches in a bid to capture the bigger and more complex scenes presented by the international markets. The approaches have thus differed for different entities deviating from the traditional processes and structures used in management.

The two global companies have come up with very diverse approaches to the changes in the economic environment worldwide. They have successfully tackled the challenges to emerge healthier and stronger while other brewers have been pushed out of business or are merely surviving and still trying to fine-tune their operations to match the often contradictory and multifaceted demands (Christopher and Bartlett 1989 p22).

In the early stages of expansion into international markets, many head office managers in both Tsingtao and Heineken failed to utilize glaring opportunities by refusing to constructively liaise with their counterparts in other countries especially in companies new to international expansion. They never took into consideration the significant local socioeconomic in managing foreign subsidiaries as opposed to the imposition of decisions vertically with little regard to local factors. The aim should always be to optimize value within a country by ensuring the local processes work well within the environment and also with the central organization because rejecting beneficial assimilation based on the need to preserve the integrity of corporate cultural norms translates to lost opportunities to further business. This came out as the biggest challenge in the management of the two firms.

Strategy and Globalisation

The continued acquisition of markets internationally positions the firm to become a major world player with significant influence on trends in globalization. A case in point is the Heineken Company. It was founded in 1864 and brewed beer for the local market until the period after the First World War. By this time it had gained enough resources and expanded local market share to sizeable levels. The venturing into international markets was aimed at expanding markets for the firm to be able to produce more and grow. Currently, Heineken’s strategy in most countries is to differentiate itself from others. This is by offering a high degree quality of beer. The firm ensures that the beer not only tastes good but also exceeds the expectations of customers. The firm does this by building local brands. It acquires the local market leaders and adds the Heineken brand. The firm is equipped with complex brand-building competencies that surpass those of local brands. It is also much better endowed financially to undertake heavy advertising and promotional campaigns to grab the attention of the customers.. Tsingtao on the other hand is weak at branding, after 35 years in the US market it has only captured 0.04% of the market. Its availability is mainly constrained in Chinese restaurants (John Wendy Roy Frazer Mike & John 2005 p13).

Secondly, a multinational’s strategy may be efficiency-seeking. Tsingtao was founded in China in the 1930s. In China, the beer market then was highly underdeveloped thus the firm focused on producing for the international markets especially in Germany which is well known for beer consumption. The firm could produce large quantities of beer for export while still selling domestically. This produced a growth platform supported by the international markets as opposed to the domestic markets. The strategy was successful enough to sustain the beer company up to the 1980s when the beer markets became well developed in China (John et.al. 2005 p 16).

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This presents a case where research conducted on a particular area shows that supplying a certain range of products to certain locations in the international markets is highly cost-effective and hence beneficial for the firm. Various factors may be at play here. First, the product may be more accepted in certain foreign countries than locally yet the local production process may be low enough to offset the transportation costs. The low labor and material costs in China easily offset the cost of transporting beer to Germany from China. This presents a case where the firm takes advantage of factors that enhance efficiency through international trade.

Thirdly, multinationals may advance to the international markets as a strategy to seek knowledge. This is called the internationalization of multinationals learning. Tsingtao and Heineken have over the years pursued international markets to encounter new challenges in product development. This is a measure to decentralize research and development to improve its ability to capture more diverse elements affecting the firm Tsingtao has concentrated on Europe and the Americas while Heineken has expanded further to include Africa.

Operating across borders

Heineken has five territories mapping the entire scope of operations. The territories are then organized into regional operations. They are The Americas, Africa, Western Europe, Central, and Eastern Europe, The Middle East, and the Asia Pacific. In total there are 115 brewing plants in over 65 nations. They brew Heineken as an addition to local brands. Some countries have several breweries while others have none but have their products imported from neighboring countries. Considering the expansiveness of the firm’s operations, the firm has established some basic codes to guide the overall process of decision making in the entire empire but has ensured enough room is left for country managers to make critical decisions that take full consideration of local factors and are in harmony with the basic guidelines. This has lead to huge success in the expansion of the international markets for the firm.

Tsingtao on the other hand brews exports its brands only to other countries and has a more conservative culture which limits the scope of operations for country managers. Most decisions have to conform to the stipulated guidelines from the head office. The firm is more biased towards exporting its culture to the countries of operations as opposed to simply adopting those of host countries, unlike Heineken.

Tsingtao is facing real challenges in the US market. The lack of experience in brand building has caused Americans to brand it as a product “made in China” this has a very negative image of low quality. Indeed, Tsingtao has been described by analysts as an exporter, not a brand builder.

However, the firm intends to break out of the niche market. Crown, the main beer importer in the US has acknowledged the need to expand the distribution of the brand more extensively. This has been prompted by the potential of the beer based on its quality standards to be accepted.

Organizational Issues In A Global Context

Tsingtao and Heineken being global businesses contribute a lot to foreign direct investment. The host countries benefit largely due to the employment and proper remuneration of workers by the two firms. This being the case, many national governments seek to encourage them to invest in their countries by offering various incentives. The incentives may be in the form of tax cuts or the development of a more business-friendly environment.

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In light of these, managers from the two firms have always sought to take maximum advantage of such initiatives to grow the business. Tsingtao is known to openly focus on taking advantage of incentives on tax to expand its network. Heineken on the other hand concentrates more in countries with good infrastructure.

Being a global company, Tsingtao faces huge challenges in marketing. Heineken is known to sponsor the UEFA Champions League which is a football league with global viewers ship every nine months of a year. This is the envy of any marketing manager. Tsingtao’s attempts to market the 2008 Beijing Olympics were ineffective due to the inclusion of other beer makers such as Budweiser and Yanjing Brewery. The exclusivity was lost thus diluting the effect. The firm has not been able to explore the possibilities of taking advantage of sponsorship activities to attract the attention of a larger pool of customers. This conservatism in spending has been detrimental to the sales volumes of the otherwise top-quality beer, especially in the US.

Staffing And Training For Global Operation

A critical component for the success of firms operating in international markets is the ability to hire flexible and qualified staff in all areas of operation. Heineken has developed a greater ability to develop global workers than Tsingtao. The global capability for Heineken has been significantly improved through the sharing of practices formally or informally. Managers can be rotated or assigned overseas jobs to further introduce them to diverse cultures and expectations. All the countries of operations are viewed as potential training grounds for employees. This helps them to experience unique challenges which improve their ability to handle future challenges more confidently and most suitably.

Heineken unlike Tsingtao better understands that Individuals are more receptive to assignments located in areas of cultures that are culturally similar to their own. The firm emphasizes hiring locals of the host countries to a much greater scale than in Tsingtao.

There are three types of employees in such multinationals. First are the parent country nationals. These are employees posted in foreign countries from the firm’s country of origin. For Heineken, they come from the Netherlands while for Tsingtao, they come from China. They are usually very familiar with the corporate culture of the company and have the ability to effectively communicate with the head office. They also are better able to maintain control over the operations of the subsidiary. The second category of employees is the host country nationals. These are the employees who are citizens of the country where the subsidiary they work in is located. They are usually high in touch with the political, cultural, legal, and economic environment of the host country. They are also well able to respond to the requirements of the host country. This makes them very valuable to multinationals. Tsingtao’s subsidiaries employ a higher proportion of parent country nationals than host country nationals. On the other hand, Heineken’s subsidiaries employ a higher proportion of host country nationals than parent country nationals. This means that Heineken subsidiaries have a higher ability to interpret and respond to requirements and emerging situations than Tsingtao’s. The process of business development is thus easier and smoother for Heineken (Ibraiz & Randall n. d p4).

Tsingtao has many senior executives who cannot speak the local languages. They may be learning fast but Heineken is well ahead having hired local people to run most of its operations.

The training of the recruited staff also requires extra thought for firms operating across borders. The human resource department has to thoroughly be aware of the specific requirements for specific jobs to effectively recruit the best-suited candidates. Certain positions require certain qualities on the part of the employee for effectiveness. Some departments such as marketing require personnel with full knowledge of the local cultures, tastes, and preferences. Such departments should be highly staffed with nationals of the host country. Other departments such as finance and administration may require high-level skills and experience in the firm’s operations. Personnel from head office countries can effectively handle the positions (Ibraiz & Randall n. d p6).

Heineken is a master in adapting training designs for managers that opens up their thought processes to situations occurring beyond their borders. Some key staff members from different countries are made to regularly meet trained on some ideas that cut across borders to improve their understanding of the global factors In addition the training designs adopted by the firms have to be cross-cultural. This involves identifying the type of employee and the cross-cultural competency needed to effectively execute the roles outlined for a certain position. This promotes a company’s growth prospects and widens its vision, especially when tackling problems. The benefits are immense and worth every effort towards the deep understanding of local culture. This is unlike Tsingtao whose training efforts focus less on ensuring the trainees acquire a higher understanding of cross-border synergies. They have mostly trained on work-related issues and minimal exposure is offered for exploration.

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Effectively managing workers in multinationals entails two broad aspects. First is the idea of legitimizing diversity which incorporates the balancing of multiple perspectives and secondly the management of diversity which entails the development of flexible Coordination.

Heineken has been very open in legitimizing diversity. This involves gradually allowing the change of management perspectives to broaden the company’s competitive ability by being flexible and able to learn from global challenges. The management recognizes that the development of the organization is not necessarily a zero-sum game. It is very possible to constantly develop new perspectives in management with little or no undermining the existing individuals and groups that hold the skills and knowledge currently in use in the organization. This understanding has been fundamental to the acceptability of new ideas and ways of thinking that have led to the company’s continued growth. Changing cultural barriers is however the most daunting task for the managers (Christopher & Bartlett 1989 p157).

Both Tsingtao and Heineken largely engage the services of expatriates due to their ability to properly remunerate them. Huge perks and allowances are offered to make them most comfortable as well as offering paid visits and schooling for children in countries where the expatriates have been posted. Levels of application of International Expatriates are very different for the two firms. Heineken involves more expatriates than Tsingtao. This is because the firm is more open to better remuneration. It makes better consideration for some family arrangements such as paying for visits by family members and this has proved to be very helpful. The firm has maintained salary levels and other reward schemes being considerably higher than those of other employees. Harmonious relationships and issues of fair treatment have been well handled at the firm as well as reporting relationships at the workplace.

All these concerns require careful management to ensure full exploitation of the capabilities of expatriates. Also, things that happen when the person lands back home should be of concern to the management. While these problems may not lead to major disruptions such as strikes, they can be very detrimental to the motivation and morale of the workers (Richard 1999 p158).

Conclusion

The analysis points to the fact that Heineken has been more successful in managing growth in international markets than Tsingtao. Management across borders is a more complex undertaking than managing locally. Its success is largely hinged on the ability of the firm operating in the international markets to develop “Glocal managers”. These are managers who are fully inducted into the local firm’s operational processes but are very open to accommodating different global issues in running a business. They harmonize response to international challenges and are key to the continued growth of the firm. Tsingtao and Heineken have applied the search for such managers in their international markets to fit their preferences. This has greatly contributed to the particular level of success of their brands internationally. The US has however presented a greater challenge for Tsingtao than Heineken. This being the biggest single market for beer, the firm is constantly seeking innovative ways of positioning the brand to lure more customers. The tag “made in China” has however remained the single biggest challenge to the improvement of the brand. It should be noted though that the cost savings made by Tsingtao are very high as compared to Heineken. Heineken is out to spend huge sums of money in building a brand meaning that payoffs take much longer than those of Tsingtao. This is a major competitive advantage for Tsingtao.

Reference

Christopher, A., Bartlett, S., 1989. Managing across borders: the transnational solution. 2009. Web. 

Ibraiz, T., & Randall, S., n. d. Staffing and Developing the Multinational Workforce. 2009. Web.

John, W., Wendy, C., Roy F., Frazer, D., Mike, M., & John, R., 2005. Fermentation in the China Beer Industry. Organizational Dynamics. 2009. Web. 

Richard, P., 1999. Effective employee relations: a guide to policy and practice in the workplace. [e-book]. McGraw Hill. 2009. Web.

Robert, P., 2006. Globalization and development: an international business strategy approach [Online] pp1-36, Web.

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