University of Western Sydney
School of International Business

“Which of the Europe’s Beer Markets offers the highest unrealised Market Potential?”
Market potential analysis of the European Beer Market in order to recommend a foreign market entry strategy for the fictive company OBUL

Unit: Master’s Project in International Business (51030)

by

Endrik Hasemann Andreas Spors

Date: 09th of July 2004

Table of Contents

Declaration on plagiarism ... 6
List of tables ... 7
Executive summary ... 9

1. Purpose and Objectives of the project ... 10

2. Background and issues ... 10
2.1. Background ... 10
2.2. Issues ... 10
2.2.1. Market viability ... 10
2.2.2. Commercial viability ... 11
2.2.3. Technical feasibility ... 11

3. Literature Review ... 12
3.1. Entry strategies for International markets by Franklin R. Root ... 12
3.2. Global marketing strategy by Susan P. Douglas and C. Samuel Craig. ... 13
3.3. Global Marketing Strategy by J.P. Jeannett and H. D. Hennessey ... 14
3.4. Marketing in the International Environment by E. Cundiff and M. T. Hilger ... 15
3.5. Global Marketing Management by W. Keegan ... 16
3.6. Global Marketing by Svend Hollensen ... 17
3.7. International Marketing’ by L. S. Walsh ... 18

4. The questions ... 20
4.1. Consumer ... 20
4.2. Competitors ... 20
4.3. Merchants ... 21
4.4. Industry ... 21
4.5. Legal ... 21
4.6. Political ... 22
4.7. Financial ... 22
4.8. Infrastructure ... 22
4.9. Distribution ... 22

5. Methodology ... 23
5.1. The indexes ... 24
5.1.1. The indexes for the screening ... 24
5.1.1.1. Market viability ... 24
5.1.1.2. Commercial Viabilities ... 24
5.1.1.3. External Technical feasibilities ... 24
5.1.2. The sub indexes for the screening ... 24
5.1.2.1. Sub index consumers: ... 24
5.1.2.2. Sub index merchants: ... 25
5.1.2.3. Sub index competitors: ... 25
5.1.2.4. Sub index industry ... 25
5.1.2.5. Sub index Political ... 26
5.1.2.6. Sub index Legal ... 26
5.1.2.7. Sub index Financial ... 26
5.1.2.8. Sub index Infrastructure ... 26
5.1.2.9. Sub index Distribution ... 26
5.2. The criteria ... 27
5.2.1. The criteria for the preliminary and secondary screenings ... 27
5.2.1.1. Population size ... 27
5.2.1.2. Market size ... 27
5.2.1.3. Market growth ... 28
5.2.1.4. GNI per capita ... 28
5.2.1.5. GNI growth rate ... 28
5.2.1.6. Alcohol consumption ... 29
5.2.1.7. Political stability ... 29
5.2.1.8. Corruption level ... 30
5.2.2. The Criteria for the third screening ... 31
5.2.2.1. Criteria concerning consumers index ... 31
    Market Size ... 31
    Market growth ... 31
    GNI PPP per capita ... 31
    GNI PPP growth per capita ... 31
    Alcohol consumption ... 31
    Percentage of habitants employed in agriculture ... 31
5.2.2.2. Criteria concerning merchants index ... 32
    Proportion between beer sales in retail and gastronomy ... 32
5.2.2.3. Criteria concerning competitors index ... 32
    Market share of the market leader ... 32
    Market share of the top three market leaders ... 32
    Number of competitors ... 33
    Market share of local breweries ... 33
    Market share of foreign breweries ... 33
    Market growth of foreign breweries ... 33
5.2.2.4. Criteria concerning the industry index ... 33
    Average price in the retail channel ... 33
    Average price in the gastronomy channel ... 33
5.2.2.5. Criteria concerning Political index ... 34
    Political stability ... 34
5.2.2.6. Criteria concerning Legal index ... 34
    Taxes ... 34
    FDI index ... 34
    Corruption ... 34
5.2.2.7. Criteria concerning Financial index ... 34
    Inflation 34
5.2.2.8. Criteria concerning Infrastructure ... 35
    Motorway/ inhabitant ... 35
    Railway/inhabitant ... 35
    Harbour and airport/inhabitant ... 35
5.2.2.9. Criteria concerning distribution index ... 35
    Number of retailers ... 35
    Number of wholesalers ... 35
    Number of gastronomies ... 35
5.3. Weights ... 36
5.3.1. Weights for the preliminary and secondary screening ... 36
5.3.1.1. Market size and market growth – the weight of 0.25 ... 36
5.3.1.2. GNI per capita in PPP basis –the weight of 0.13 ... 37
5.3.1.3. GNI growth rate – the weight of 0.12 ... 37
5.3.1.4. Alcohol consumption – the weight of 0.10 ... 37
5.3.1.5. Political stability – the weight of 0.1 ... 37
5.3.1.6. Corruption level – 0.08 ... 37
5.3.2. Weights for the third screening ... 38
5.3.2.1. Market Viability – the weight of 70% ... 38
5.3.2.2. Consumer index – the weight of 35% ... 38
    Market size – the weight of 25% ... 39
    Market Growth – the weight of 25% ... 39
    GNI PPP per capita – the weight of 13% ... 39
    GNI PPP per capita growth rate – the weight of 12% ... 39
    Alcohol consumption – the weight of 10% ... 39
    % of habitants employed in agriculture – the weight of 15% ... 39
5.3.2.3. Competitor index – the weight of 35% ... 39
    Market share of number 1 competitor – the weight of 25% ... 39
    Market share of the top 3 competitors – the weight of 25% ... 40
    Number of competitors – the weight of 25% ... 40
    Market share of local breweries – the weight of 5% ... 40
    Market share of foreign breweries – the weight of 5% ... 40
    Market share growth rate of foreign breweries – the weight of 15% ... 40
5.3.2.4. Merchant index – the weight of 15% ... 40
5.3.2.5. Industry index – the weight of 15% ... 41
    Average beer price by gastronomy – the weight of 50% ... 41
    Average beer price by retailers – the weight of 50% ... 41
5.3.2.6. The commercial viability – the weight of 15% ... 41
5.3.2.7. The legal index – the weight of 80% ... 41
    Taxes – the weight of 80% ... 41
    Corruption – the weight 10% ... 41
    FDI – the weight of 10% ... 42
5.3.2.8. The political index – the weight of 10% ... 42
5.3.2.9. The financial index – the weight of 10% ... 42
5.3.2.10. The external technical feasibility – the weight of 15% ... 42
5.3.2.11. The infrastructure index – the weight of 20% ... 42
    Airports per habitant – the weight of 25% ... 42
    Ports per habitant – the weight of 25% ... 43
    Railway per habitant – the weight of 25% ... 43
    Km highway per habitant – the weight of 25% ... 43
5.3.2.12. The distribution index – the weight of 80% ... 43
    No of retailers – the weight of 50% ... 43
    No of wholesalers – the weight of 50% ... 43
5.4. How to class? ... 44
5.5. How to get the data ... 44
5.6. The countries ... 45
5.7. Preliminary Screening ... 46
5.7.1. Selecting 47 countries ... 46
5.7.2. Access to the relevant data ... 46
5.7.3. Countries distinction ... 46
5.8. Secondary Screening ... 46
5.8.1. Describing and defining all criteria ... 46
5.8.2. Which criteria for the Secondary Screening? ... 47
5.8.3. Why these Criteria for Secondary Screening? ... 47
5.8.4. Results of the Secondary Screening ... 47
5.9. Third Screening ... 47
5.9.1. Describing and defining the third screening process ... 47
5.9.2. Which criteria for the screening ... 48
5.9.3. Result of the screening process ... 49
5.10. Overview of the screening steps ... 50

6. Entry mode ... 51
6.1. Exporting ... 51
6.2. Licensing/Franchising ... 51
6.3. Joint Venture ... 51
6.4. Creation of the subsidiary ... 52

7. APPENDIX ... 53
7.1. Appendix I: About the preliminary Screening ... 53
7.2. Appendix II: About the Secondary Screening ... 54
7.2.1. The countries and Criteria ... 54
7.2.1.1. Market Size ... 55
7.2.1.2. Forecast of the beer consumption 2003 ... 55
7.2.1.3. Market Growth ... 56
7.2.1.4. GNI Growth Rate in % ... 56
7.2.2. The weighted points ... 56
7.2.2.1. Market size ... 57
7.2.2.2. Market Growth ... 58
7.2.2.3. GNI per Capita ... 60
7.2.2.4. GNI growth rate ... 63
7.2.2.5. Alcohol Consumption ... 65
7.2.2.6. Political Stability ... 67
7.2.2.7. Corruption ... 70
7.2.3. Evaluation of the countries ... 72
7.3. Appendix III: About the third screening ... 74
7.3.1. The calculation of the sub indexes and indexes ... 74
7.3.1.1. The result ... 74
7.3.1.2. Overview of the calculation ... 74
7.3.2. Calculation of the weighted points per criteria ... 76
7.3.2.1. Consumer Index ... 76
7.3.2.2. The merchant Index ... 78
7.3.2.3. Competitor index ... 78
7.3.2.4. The industry index ... 80
7.3.2.5. The legal index ... 80
7.3.2.6. The political index ... 81
7.3.2.7. The financial index ... 82
7.3.2.8. The infrastructure index ... 83
7.3.2.9. The distribution index ... 84
7.4. Appendix IV: The Diary ... 85
7.4.1. Diary of the Proposal Phase ... 85
7.4.2. Diary of the interim report phase ... 86
7.4.3. Diary of the final report phase ... 89

8. Reference list ... 92
8.1. References from the internet ... 92
8.2. References from books ... 93

Executive summary

The overview of the whole process that enabled us to suggest the final candidate country for the future business expansion in Europe presents steps that our consulting team had to take in order to present the best possible option.

According to our consulting team, Germany presents the strongest advantages for OBUL and should be chosen as the ideal for the business operation and also the base for the further European expansion. Thanks to the highest size of population in Europe and its overall wealthy condition from the very beginning of our analysis Germany became one of the possible final candidates.
However, during the whole process of defining attractiveness of individual markets, several other countries also presented strong advantages for the future investment. The strongest advantages were shown by Spain and Italy which presented nearly the same result in the evaluating process than Germany did.
In the final stage of the analysis Germany was selected form the group of four strongest European candidates. These were also Ireland, Italy and Spain. All of the candidate countries presented very strong and attractive beer markets in terms of beer and alcohol consumption as well as the GNI PPP income per capita. Moreover, the analysis of the infrastructure, legal and political environment also proved that these countries were the top four; amongst all of the candidate countries that were analyzed at the beginning of the selection process (42 countries took part in the first step of the selection, 27 in the second).

Germany proved to be the best possible choice for the future business expansion in Europe. The analysis showed that the German market was more attractive for OBUL in three main areas of operation: market viability, commercial viability and technical feasibility.
The analysis of the market viability as the most important area for a market entry showed, that the German beer market was very attractive in terms of its size and trends that appeared in it. Moreover, the overall financial situation of the customers was also considered to be strongly attractive.
In terms of the commercial viabilities, Germany also presented its strong position. Even though, the corporate tax was defined as a very high, the market size and its potential should compensate loses that company will have to face in terms of the taxation.
Finally, Germany’s infrastructure also confirmed to be well established and will definitely be able to cope with needs of OBUL.

1. Purpose and Objectives of the project

The purpose of this project is to evaluate the market viability, commercial viability and the external technical feasibility of the Overseas Beer Union Ltd. (OBUL) to enter one of the 47 European countries with its new Beer “Scal”.
The objective is to find out which of these countries OBUL should enter to get a new main pillar in the European market.

2. Background and issues
2.1. Background

Overseas Beer Union Ltd. was the result of a merger between the South African Company “Trinkmeister Brew”, founded in Cape Town, South Africa in 1905 by Klaus-Peter-Willhelm Trinkmeister and the Canadian company “Pijany Brew”, founded in Montreal, Canada in 1919 by Gregor Pijany, in 1970. Until the merger, both family owned companies signalized mediocrity. Since the merger, the company is reorganized as a public limited company, has its office in Montreal and become a big northern American and South African player in the beer industry. Because of the latest success, OBUL wants to expand its beer’s to the European market to confirm its leading position worldwide and to find a new main pillar outside America and South Africa.

2.2. Issues

To decide which country should be chosen, the following main issues should be discussed.

• market viability
• commercial viability
• technical feasibility

2.2.1. Market viability

This means the question: “Does the market offer sufficient opportunities that enable the market entry?”, and “what is the current competitor’s situation in the market?”

• Consumers
• Competitors
• Industry

2.2.2. Commercial viability

For OBUL and for each market entry the commercial environment is the most important. The commercial environment involves the basic issues that decide if a market is remunerative or not.
• Legal issues
• Political issues
• Financial issues

2.2.3. Technical feasibility

The project supposes indirectly that our company have the ability to enter a foreign market, so the question: “Does our company has the ability to execute internationally?” is answered with yes. Therefore we will just have a look at the external technical feasibility.

• External technical feasibility
-Distribution issues
-Infrastructure issues

3. Literature Review

3.1. Entry strategies for International markets by Franklin R. Root

Franklin R. Root “Entry strategies for International markets”. The whole book is divided into nine main parts which take a closer look on particular aspects of the international market decision entry issues.

Content:

The author provides in this book a detailed plan of the market entry strategies for the potential entrants. For this report, the chapter which provides the necessary information for the final decision of the target market country is very useful. This particular chapter also takes a closer look on the process of selecting the ideal product for the future market. In this part of the book, the author emphasises on the future managers and describes preliminary screening of potential country markets as vital for the whole further research. According to the author, the possible mistakes in this stage of the selection process could possibly play the vital role for the project as a whole. The author makes all the potential managers from two basic and very common mistakes they could make in the first stadium of the project. The first is the situation in which the particular countries could be ignored by the researchers even though offering high potential. Secondly, managers could pay far too much attention to the countries with low potential. Situations like these could be avoided if a proper and detailed preliminary screening would be done.
Moreover, the author also provides in this part of the book the additional information about the criteria that could be used to estimate the market size and industry potential.

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