Executive Summary
Tsingtao Brewery Import and Export Co. Ltd is one of the biggest beer manufactures in China that is also active in the global market providing both import and exports of its products. The company has a potential for further globalization because it provides product of high quality for affordable price. Moreover, a well-developed supply chain as well as focus on customer satisfaction make Tsingtao a successful international brand.
Both product life cycle analysis and Solberg’s nine windows model provide evidence of high possibility of success for a company in the global market. The selected direction for globalization is Belarus in Eastern Europe, where contract manufacturing as a market entry mode can be effective. Market penetration is empowered by a developed market entry plan, which is grounded on value equation.
Desires and Needs for Globalization
Organization in the focus of this analysis is Tsingtao Brewery Import and Export Co. Ltd (further referred to as Tsingtao). Currently, it is the most influential stakeholder of the urban China beer market with 30.7 percent of value share (Bao, 2018). The company is involved in both import and export of beer all over the world. The major markets for Tsingtao include China itself, Australia, Central and South America, Eastern Europe, Japan, Korea, North America, Scandinavia, Southwest Asia, and Western Europe.
SWOT framework can be applied to discover diverse aspects of Tsingtao functioning and its readiness for further globalization. It is evident that the company has significant strengths. For example, its product is the second best-selling beer in the world (National Beer Distributors Organization, 2017). Another strength worth mentioning is high quality of products proved by international certificates.
Thus, Tsingtao Brewery as a company aimed not only at an increase in revenue but at careful control over quality, environment, sanitation and safety among its competitors, and obtained verifications from ISO9001, ISO14001, OHSAS18001, HACCP, and ISO22000 (“Tsingtao Brewery Co Ltd – China (Shandong),” 2018). One more strong point, which is a good background for global expansion, is more than 40 years of importing and exporting experience that Tsingtao has. Thus, having entered American beer market in 1972, the company has been increasing in popularity and the related sales since then (“History,” 2018).
Supply chain is of particular interest in the context of company’s development. Tsingtao builds its supply chain to provide the highest quality at the lowest price thus meeting the demands of the changing global beer market (“The beer cases,” 2012). Attention to supply chain resulted in one more strength, which is product cost, because careful approach to suppliers allows making a product of high quality and still reduce its cost.
Nevertheless, there are some weaknesses in the activity of Tsingtao. First of all, the company does not have a strong brand policy. Its focus on a single brand can be good for conservative China but will not be effective in the global beer market overloaded by high-quality original products of competitors. Another weakness is the fact that the company presents a relatively new global brand. Despite its popularity in the United States and the United Kingdom, Tsingtao is not familiar to consumers in many other regions.
At the same time, the company has broad opportunities for globalization. First of all, Tsingtao has sufficient experience in the industry with 69 breweries across China (“History,” 2018). Thus, the company has effective strategies for organizing and managing the industrial network as well as the supply chain. Another opportunity for Tsingtao in the global market is that it makes a high-quality product at affordable price. This policy is likely to attract new consumers in new markets the way it formed a group of loyal customers in China.
Finally, the company should consider threats to be able to develop strategies for their mitigation. The major treat faced by Tsingtao is high competition in the global beer market. Moreover, most of these markets are already mature and have certain obstacles for new companies that are going to enter them. Despite the fact that Tsingtao’s beer is already sold to many regions and countries, the threats of new markets should be assessed before globalization interventions.
Product life cycle analysis has a potential to present an overview of Tsingtao as a brand and the stage of its product development. Every product entering the market passes some stages of sales volume. Usually, during the first year the sales are the lowest and this stage is called introductory or that of market development. The next stage is known as growth or takeoff stage. It is characterized with an increase in demand as well as the general acceleration of the market size.
The third stage is called market maturity and is characterized with further increase of demand but at a lower rate. Finally, the stage of market decline implies the loss of consumers’ appeal for a product, which results in a decrease of sales due to the reduced demand. Currently, Tsingtao is in the growth stage. The company is already successful and has an original product, but there are still opportunities for opening new markets.
The company is aware of its market place and puts much value in its customers focusing on customer satisfaction. One of the objectives of this stage is to find specific features that differentiate the company’s product from its competitors, and Tsingtao found it in providing a high-quality product at a lower price compared to other companies.
In the context of globalization, the company should also be analyzed from the positions of Solberg’s nine windows model (Solberg, 2018). It has two basic aspects, industry globalism and preparedness for internationalization. Industry globalism can be local. Potentially global, and global while preparedness for internationalization is differentiated as mature, adolescent, and immature (Solberg, 2018). It is evident that beer industry can be considered global.
Tsingtao as a company that is mature in its preparedness for internationalization because it already sells products to many countries and even those that are powerful beer manufacturers themselves such as the United States, The United Kingdom, Germany, and Mexico (“History,” 2018). Therefore, according to Solberg’s nine windows model, the recommendation for Tsingtao is to strengthen its global position, which means that further globalization is likely to be successful.
Directions for Globalization
Tsingtao is a company that already has developed import and export activities. Still, there are new locations to consider that have a potential to stimulate company’s globalization. Therefore, an opportunity for market extension should be found in the countries that are not active beer consumers but can be stimulated by advertising and thus become a good investment. One of the regions where Tsingtao beer is not actively sold is Africa.
Tsingtao is imported to South Africa while the rest of the continent was not previously considered as a market for Chinese beer companies. On the whole, most of African countries do not have high rates of alcohol consumption, which can be explained by climate and low income of population. Five African countries where people drink the most are Nigeria, Uganda, Kenya, Rwanda, and Namibia (“Top-10 alcohol-drinking countries in Africa,” 2017).
Still, the share of beer in Nigeria, Uganda, and Rwanda are low and thus these countries should not be considered as potential markets for Tsingtao product. At the same time, in Kenya 43 percent of the consumed alcohol is beer and in Namibia this percentage is 67 (“Top-10 alcohol-drinking countries in Africa,” 2017). Consequently, both states can provide marketplaces for a Chinese company and stimulate its globalization. Tsingtao is also sold in Eastern Europe but there is no information about Belarus as one of the importers. Therefore, this country should be included in the list of potential import markets because of the positive experience of Chinese beer sales in the neighboring Russia and Ukraine.
CAGE framework should be applied to analyze the opportunities of every of the mentioned countries as a market for Tsingtao beer. It implies cultural, administrative, and economic distance. All of the selected countries are at a significant cultural distance due to different languages, ethnic diversity, different religions, and not similar social norms. Nevertheless, Tsingtao already has some experience of sales both in African and Eastern Europe countries.
Therefore, cultural distance will not be an obstacle for the company. As for the political distance, it can lead to problems in business due to government policies in Belarus. The other determinants such as colonial ties or shared monetary or political association are equally absent in all of the countries. However, in case with Kenya, its state border with Somali should be considered as a political risk factor.
Geographic distance is a vital factor because it can affect the cost of product due to logistics’ expenses. All of the selected countries are physically remote from China and none of them has a state border. While Belarus is geographically the nearest variant, it has a disadvantage because it does not have sea access while both Kenya and Namibia can be approached by sea. As for the country size, Namibia is the largest one among the three and Belarus is the smallest one.
Belarus has a population of almost 9.5 million people, Kenya has about 51 million of people, and Namibia is inhabited by more than 2.5 million (“Countries in the world by population,” 2018). However, in case Tsingtao the opportunity of building a brewery in addition to importing, Belarus has the most favorable natural resources. Economic diversity is also a factor to consider. Belarus has the highest GDP per capita among the selected countries, which contributes to purchasing opportunities of its citizens.
Namibia has a similar GDP rate and Kenya has the lowest GDP and thus is less favorable for business expansion due to economic conditions. Speaking about human resources, they are better trained in Belarus and the infrastructure in the country is better developed compared to African countries. On the whole, it can be concluded that Belarus is the most beneficial choice for Tsingtao beer globalization due to better economic resources of the country, which are decisive for business development.
Market Entry Mode
Speaking about the market entry mode, one of the intermediate modes should be selected. Intermediate modes provide more flexibility and control opportunities as well as minimize the risks related to business expansion. In the context of Belarus, contract manufacturing can be considered as a productive entry mode. First of all, it allows approaching foreign customers thus contributing to their loyalty and an increase in trust to a new product. Also, it is a good choice because transportation costs can be high while foreign production costs are lower. Another reason for selecting contract manufacturing is the availability of natural and agricultural resources necessary for beer production. Finally, an important factor is government preference for national suppliers compared to foreign producers.
Market Entry Plan
- Setting goals: to enter top-five beer producers in the country in three-year period.
- Market research: visit the country; investigate social, cultural, and political peculiarities; know specific features of running a business there.
- Study the competition in the market: discover local producers as well as successful importers.
- Mode of entry selection: contract manufacturing
- Discovery of the target audience: middle-class consumers, mainly young adults and adult population.
- Investigate financing needs to follow the selected mode of entry.
- Develop the strategy based on value equation: the most general value equation for the company is calculated through dividing the perceived benefits by the cost of this intervention. 4Ps can be applied to communicate the value to customers. Thus, Product and Price will have the best possible correlation to satisfy the need for high-quality product and make the product affordable. Promotion will consider interests of target audience and will be provided directly from stores, in social networks, and during sporting events supported by the company. Place for communicating the value includes the supermarkets, beer restaurants, and social media.
References
Bao, A. (2018). Opportunities are brewing in China’s craft beer industry.
The beer cases ©: Tsingtao Brewery. (2012). Richard Ivey School of Business.
Countries in the world by population. (2018).
History. (2018). Web.
National Beer Distributors Organization. (2017). Beer by the numbers. A look inside the global beer market. Web.
Solberg, C. A. (2018). International marketing. Strategy development and implementation. New York, NY: Routledge.
Top-10 alcohol-drinking countries in Africa. (2017).
Tsingtao Brewery Co Ltd – China (Shandong). (2018). Web.
Appendix A
SWOT Analysis
Appendix B
Appendix C
