Channel Design for the European Trade with Beverages - A Case Study about Beer-Mixtures

Table of Contents

Executive Summary

Acknowledgements

List of Figures

List of Tables

List of Abbreviations

1. Introduction
1.1. Background - Change Is The Only Constant
1.2. Problem Discussion - At the Crossroads
1.3. Purpose - The Thesis’ Intention
1.4. Limitations - Flagging the Claim
1.5. Theoretical and Practical Relevance
1.5.1. Theoretical Relevance
1.5.2. Practical Relevance
1.6. Definitions

2. Methodology
2.1. Preunderstanding
2.1.1. General Knowledge
2.1.2. Specific Knowledge
2.1.3. Personal Attributes
2.2. Research Journey
2.3. Scientific Perspectives (Positivistic / Hermeneutics)
2.4. Research Approach (Quantitative / Qualitative)
2.5. Research Approach (Deductive / Inductive / Abductive)
2.6. Research Strategy (Survey / Archival Analysis / Case Study)
2.7. Data Collection
2.7.1. Theoretical Data Collection
2.7.2. Empirical Data Collection
2.8. Value of the Study
2.8.1. Construct Validity
2.8.2. Internal Validity
2.8.3. External Validity
2.8.4. Reliability

3. Theory
A - International Trade
3.1. Going Global
3.2. Triggers for Internationalisation
3.3. International Distribution Channel Strategies
3.4. Distribution Channel Design
B - Exporting
3.5. Market Entry Forms
3.6. Partnerships and Alliances in the Exporting Business
3.6.1. Strategic Partnerships
3.6.2. Alliances in Fast Moving Consumer Goods Industry
3.6.3. Retailer – Supplier Partnerships (RSP)
3.7. International versus Regional Products
3.8. Location Selection
C - Requirements for Beverage Export
3.9. Production Aspects
3.9.1. Packaging
3.9.2. Postponement
3.9.3. Intermediaries in a Grocery Distribution Channel
3.10. Transportation Aspects
3.10.1. International Transportation
3.10.2. Importance of Inexpensive Transportation
3.10.3. Company Controlled Transportation
3.10.4. The Influence of New Technologies on Export

4. The Swedish Market
4.1. The Procurement Side
4.1.1. Population in Southern Sweden
4.1.2. Beer Consumption Statistics
4.1.3. Swedish Government Monopoly
4.1.4. Alcohol Tax
4.1.5. Import Ordinances
4.1.6. Value Added Tax (VAT)
4.2. The Return Side

5. Empirical Data
5.1. Herforder Brewery – Company Description
5.2. The Bottling as a Major Business in the Export Channel
5.2.1. Ball Packaging Europe GmbH,
5.2.2. DIS (Dranken Industry Sittard)
5.2.3. Fuglsang Brewery
5.2.4. Åbro Brewery
5.3. Coordination in Sweden
5.3.1. Galatea Spirits AB
5.3.2. ICA Sverige AB
5.4. Transportation Issues
5.4.1. DHL
5.4.2. Hoyer Transportation Company
5.5. Distribution Channel Overview
5.5.1. Bottling at DIS
5.5.1. Bottling at DIS
5.5.2. Bottling at Fuglsang
5.5.3. Bottling at Åbro

6. Analysis
6.1. Market Analysis
6.2. Location Analysis
6.3. Cost Analysis
6.4. Channel Analysis
6.4.1. First Channel: Herford - Sittard – Sweden
6.4.2. Second Channel: Herford - Denmark - Sweden
6.4.3. Third Channel: Herford – Åbro - Sweden
6.5. Product Analysis
6.6. Technology Analysis
6.7. Analysis about Relationships in the Beverage Industry

7. Conclusion
7.1. Results and Possible Use
7.2. Generalisations
7.3. Reflections and Critics
7.4. Suggestions for Further Research

List of References

Appendix

Executive Summary

The thesis on hand is dealing with the rather specific issue of the export business of the German brewery Herforder, which considers to market its product branch “beer-mixtures” in Sweden. Within the thesis, there are presented three possible distribution channel designs, consisting for example of the manufacturer, can-supplier, contract-bottlers, importers and transportation companies.

Each channel opportunity is described and the reasons that influence the decision for or against one particular channel are explained. Furthermore, the theoretical background is given, which exemplifies why companies start to consider internationalisation and how they can cope with the related challenges. The exporting issue is observed from a theoretical point of view and supplemented with much information concerning relationships within distribution channels. Two aspects which are very important for international trade are also investigated theoretically. Firstly there is the production aspects of beverages respectively beer and beer-mixtures including requirements for packaging and the production process itself. And secondly there is the transportation aspect including some information about IT systems.

With respect to the target market Herforder aims at, there is one special chapter about the Swedish market, its constraints and its peculiarities in connection with alcohol import. Moreover, the high-sophisticated return system for beverage repositories in Sweden is discussed in this context.

In the empiricism potential companies that are suitable to make up the export distribution channel Herforder desires are presented in detail. The empirical part finalises with the setting up of three distribution channels which are determined through the location of bottling facilities.

Since an analysis of all aspects at once is not expedient in this thesis the analysis chapter is split up in seven subchapters. In each subchapter a separate analysis takes place dealing in particular with the decision aspects market, location, cost, channel, product, technology and relationship all with regard to Herforder ’s requirements.

Finally the conclusion reveals a cross-classified table in whose columns are given fourteen decision factors and in the rows the three pre-determined distribution channel options. The body of the table contains the results from the analysis in form of ratings about each factor’s importance for Herforder. By means of this table, Herforder is enabled to assess which option is most suitable with its internationalisation strategy.

Keywords: distribution channel, export, Sweden, beverages, grocery

Acknowledgements

Research work is always time consuming and the way from the first observations to the final conclusions is long. Therefore, work is facilitated a lot, if one is cooperating with people who not only have a far reaching competency in the research field but also have the capability of motivation. Especially in the case, when the feeling of having reached a dead end occurs, such people are valuable beyond measure.

In this context we would like to thank all the people who have supported us in the last four months. First of all a big thank goes to Mr. Josef Becker from Herforder Brewery without his cooperation this whole thesis would never have been done at all. He has spent a lot of his precious time on the phone accommodating us with important information about Herforder Brewery in particular and the brewery issue in general.

Mr. Boiler from Wagner & Co GmbH in Lengerich was the person who led us in the right direction when we were confused about not finding partners for contract-filling respectively independent bottlers for the industrial filling of cans. Consequently, the next one our thank goes to is Mr. Grabow from Ball Packaging Europe, who helped us in gathering a lot of information not only about Ball Packaging but he also could give us a lot of advice concerning the beverage packaging industry.

Mr. Pilz from Chemopack Junghanns KG provided us with some data about the filling process and the requirements for beer brewing. Mr. Torbian Sundmann from Galatea Spirits in Stockholm gave comprehensive explanations about the tasks of an importer to the Swedish market. And Mrs. Hammers, Mr. Heiko Luetjen, Mr. Andreas Imme and Mr. Bernd Wockenfuss from the DHL Group were responsible for data about transportation related issues as well as the calculations of transportation costs. Concerning the bottling facilities and other filling related issues, we show gratitude to all the helpful people at Åbro, Fuglsang and DIS.

Last but not least we show gratitude to Mr. Leif Enarsson of Växjö University for his valuable support and his encouraging comments in the preparatory meetings and the individual tutoring. And, not to forget about our colleagues in the master course, we like to thank especially Sonja, Gonçalo and Jens for their criticism and their back-up and all the other ones for interesting discussions and inventiveness.

Susanne Wemken & Andreas Eckert.

List of Figures

Figure 1: A Theoretical Distribution Channel

Figure 2: Map of Counties in Southern Sweden

Figure 3: Sweden's Population by Age and Sex on December 31, 2003

Figure 4: Systembolaget's History 1850 - 2001

Figure 5: Udo Tydecks, CEO for Marketing, Sales and Logistics at Herforder

Figure 6: Beverage Cans for Beer-Mixtures from Ball Packaging Europe

Figure 7: From Single Can to Full Pallets

Figure 8: Distribution Channel Overview

Figure 9: Development of Transportation Costs 2005-2008

List of Tables

Table 1: Comparison between Different Scientific Perspectives

Table 2: Relevant Situations for Different Research Strategies

Table 3: Consideration of Item Characteristics in Evaluation of New Product Introductions

Table 4: Population on Dec. 31, 2003 and Population Changes 2003

Table 5: Consumption of Beer-Mixtures in Germany in Relation to Age, Spring 2002

Table 6: Data from the Brewery Industry Europe 2002

Table 7: Beer Consumption in Sweden and Germany in the Period 1996-1999 [l/ person]

Table 8: Container Measures for Shipments by Sea

Table 9: Cost Scheme depending on Means of Transportation

Table 10: Costs for Transportation in Liquid Cargo Trucks

Table 11: Cost Scheme Herford – Sittard – Rotterdam - Gothenburg

Table 12: Cost Scheme Herford – Sittard - Malmö

Table 13: Cost Scheme Herford – Fuglsang - Malmö

Table 14: Cost Scheme Herford – Åbro

Table 15: Distance Scheme from Point of Entry – ICA Hubs

Table 16: Average Costs per Pallet and Supply

Table 17: Total Costs per Supply

Table 18: Total Costs per Can

Table 19: Sensitivity Analysis

Table 20: Decision Factor Overview

List of Abbreviations

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1. Introduction

The intention of the introduction chapter is to provide the reader with necessary background information. First of all, the frame in which the thesis is established is presented closely followed by a discussion about the problems that come along. The problem discussion is then narrowed down towards a research question. Moreover, the thesis’ purpose and its limitations will be explained and the theoretical and practical relevance of the research is given. Finally the introduction is complemented with some useful definitions about technical terms appearing later in the thesis.

1.1. Background - Change Is The Only Constant

At the beginning of the third millennium the business environment of companies is changing. Many companies, which have been merely active in the national business area so far, undergo a change towards a glut on the inland market in the course of time. A slower or even stagnating market growth, shorter product-life-cycles and increased competition lead to sales problems in domestic markets.^[1]

That European markets are in an ongoing downswing phase cannot be denied. The bad market situation limits market growth to a maximum degree of 2 % a year. The German market is symptomatic for this negative trend.^[2] Although European trade is eased, a prospering market performance cannot be noticed in Germany. On the contrary, an increasing number of foreign companies penetrate the German markets and hence increase the competition. When we focus on the brewery market, this development becomes obvious.

Mergers in the brewery sector have lead to big companies in Germany. These big companies like Interbrew, Holsten, Radeberger, Brau und Brunnen and Warsteiner are leading the market and displacing the small breweries from it. Hence, for small breweries the management question arises of how to cope with this present threat.

A strategy to find new sales areas is the differentiation of markets due to the invention of new products. Especially smaller breweries try to reach niche markets with innovations. Thus, the beer variety in Germany increased in the last years. Mixtures of beer with lemonade, Cola or juice have been the most successful. But after having had a great track record for some years, declining sales of beer-mixtures could be observed in the last two years. Accordingly, the assumption that this kind of beverage has only been a trend must be made. The future sales would further decline in this case. Modern theory which expects shrinking product-life-cycles underlines this development.^[3]

Consequently the strategy of the German breweries to only find niches in their domestic markets cannot be seen as the best solution to survive in the increasingly competitive market. Shrinking life-cycles of the new products lead to a bigger impact of introduction costs in the product cost calculation while at the same time profitability of the products decreases. Of course, innovative products and the penetration of market niches are important in every business, but for German breweries, which in general can be proud of a long tradition in Germany, it seems to be crucial that new ways have to be found for maintaining the success.

Since the German beer market is in a bad constitution, it might be interesting to focus on foreign markets. The development as well as the actual enlargement of the EU provides new market opportunities. Nearly similar customer tastes and free trade should encourage breweries to increase their export business. Transportation has never been so easy and cheap as it is nowadays. From this point of view one could say that former national companies are obliged to enter new markets respectively new countries, if they desire further growth and increasing turnover.^[4] And in fact, the beer export from Germany steadily increased in the last years whereas the total sales in Germany were falling.^[5]

Foreign markets always differ in some points from domestic markets. Mainly, demand structure and preference of buyers are different. Thereby uncertainties in export willing companies arise. Nevertheless it must be pointed out when comparing the advantages and disadvantages of exporting that the ongoing movement in politics has only one aim: To strengthen the business and trade in Europe. The risk of different preferences of customers in different markets is sinking as European trade and consequently harmonisation of product offers all over the continent is growing.

Considerations regarding the best strategy of entry in new markets should concern managers. But before decisions about famous strategies like the cost-leadership, the innovation-leadership or the strategy of differentiation can be made^[6], it is important to clarify the logistical challenge for entering new European markets. Only well sophisticated logistics enable successful exporting. To react to the changing conditions in the business environment, it is crucial to possess powerful logistics solutions.

The example of the Herforder Brewery which is dealt with in this thesis shows that there are problems in logistics which hinder companies to enter new markets.

1.2. Problem Discussion - At the Crossroads

Since transportation has become simpler and markets open and free in the European development of the last two decades one might asks why there are still problems in the logistics area. But in fact, there can be observed very different product offers in different European markets. In Sweden for example it is obvious that beer-mixtures are not offered and one can wonder why German breweries hesitate to export these well selling products to increase their profit.

When diving deeper into this topic it becomes clear, that the logistics issue is a big challenge. At the beginning, the Swedish market has to be analysed according to criteria which have to be met by new products. To successfully market them, it would be important to find a mode of package that suits with the Swedish system. The Swedish return system for beverage packaging will be described in more detail in a later part of this thesis. It will turn out that cans are crucial for the export.

Unfortunately, Herforder does not fill their beer-mixtures in cans nor has the facilities for that, so that a solution must be found to bottle the beer-mixtures in cans. This issue will be the core of this thesis since two important perceptions can be derived from it.

Firstly, the location of the bottlers defines the main design of a distribution channel. It is essential where the cans are filled because strategic questions for Herforder as well as the channel design are influenced by the location of the bottler.

Secondly, general opportunities of exporting can be experienced. The possibility of bottling facilities is of interest for Herforder since they are faced to an export problem. In the future, where a growth of export business due to a growth of European markets can be expected, the bottling problem in the beverage industry will arise. Beer bottlers are not easy to find but the issue is important for a successful export. The outsourcing of bottling is a very good opportunity to gain from postponement strategies in production since the beer can be mixed at the bottling plant and the lemonade can be delivered as concentrate. Thus, nearly fifty percent of the transport costs can be saved. To find out which alternatives exist for bottling, the market of bottlers must be investigated.

Furthermore the purchase of cans is a task which has to be answered. During a bottling activity up to several millions of cans are produced. To assure that long transportation ways from the production plant of the cans to the filling plant do not negatively influence the cost structure of a filling process we have to put an eye on this market.

To finally be able to design transportation channels the means of transportation have to be chosen. A comprehensive work must be done in order to choose the right means. When delivering an amount of up to millions of cans to a foreign market, the right means of transportation can save a significant amount of money to make the export profitable.

All the above mentioned aspects which have to be regarded concerning the export of beer-mixtures from Germany to Sweden we summarise in the expression “distribution channel design”. The most appropriate distribution channel design for export in the brewery sector is difficult to elaborate. Research must be done in different kinds of industry which are finally linked to a powerful channel. Breweries which have been focusing on their regional market for the last hundred years are nowadays forced to co-operate with other companies, perhaps even with competitors to gain from new market circumstances.

Our investigation in the export channel design of breweries with the example of the Herforder Brewery should contribute to the right decision for maintaining success due to the enlargement of sales markets. Hence, our research device is:

“Export to Scandinavia: Channel Design for the European Trade with Beverages –

A Case Study about Beer-Mixtures.”

1.3. Purpose - The Thesis’ Intention

This thesis’ main goal is to find an appropriate distribution channel for Herforder Brewery ’s beer-mixtures . This will be achieved by:

- first providing some general theory about exporting and different channels of distribution to achieve a comprehensive picture

- describing the status quo which includes the current situation for the Herforder Brewery and the present peculiarities in the Swedish beverage market

- collecting empirical data from Herforder itself and from other companies which are acting as intermediaries

- analysing the actual situation with regard to foreign distribution of beer-mixtures out of Herforder ’s point of view

- deducing from the results which concept and why the selected concept should be used

- presenting a conclusion, which summarises the findings and in which critical reflections are made and recommendations concerning future research opportunities are given

1.4. Limitations - Flagging the Claim

The empirical research is constricted towards the specific needs of Herforder Brewery. So, it can be stated that the first and most exclusive limitation of our research is related to the company and the product we are working with. The Herforder Brewery is situated in Herford, Germany and wants to export its beer-mixtures Herforder 50/50. As the target market the southern part of Sweden is chosen.

To achieve consistency the company’s activities will be observed only from the export’s and therefore distributional point of view, but not from the view of a Swedish purchaser.

Although marketing has a big impact on the export activity, in our thesis we do not consider it in detail, since our main focus is on distribution. Nevertheless, where it appears to be useful we will refer to some marketing aspects to smooth the image.

Concerning the means of transportation recommendations from the consulted transport companies are followed. According to this railway as well as airfreight delivery are not considered.

1.5. Theoretical and Practical Relevance

1.5.1. Theoretical Relevance

This thesis is dealing with the rather concrete problem of distributing Herforder 50/50 to the Swedish market. From the situation Herforder is confronted with, general deductions can be made. It will show that relationships are very important in the export business, particularly when it can be gained from postponement of the production like the mixing of the beer-mixtures. A critical discussion about the link between co-operation and a successful logistics approach can be found in the analysis part. Trust in co-operation plays an important role in exporting for Herforder, but this topic can only be regarded from a theoretical point of view. Furthermore we present a future model for the cost development of different means of transportation. In the form of a sensitivity analysis we compare the different modes and come to theoretical results about their future performance.

1.5.2. Practical Relevance

Practical relevance in comparison to theoretical relevance is definitely much higher in this thesis, because it is strongly related to the ambition of one specific company. This company, Herforder Brewery, has a deep interest in the results of the research. The practical relevance might as well be extended to other companies that met similar conditions. For example other producers of beverages may find the results of this thesis adaptable for their own export strategy. Moreover, the general findings regarding opportunities and restrictions in the export business, for example if issues like contract-filling, contract-packaging and the design of distribution channels are concerned, are transferable not only to the beverage sector but to the food producing sector as a whole. Canned fruits and vegetables are an obvious sample not stemming from the beverage sector, for which nearly the same assumptions apply.

1.6. Definitions

As authors never know who will read their work later on and especially which background of knowledge the future readers have, it may be useful, to shortly define some terms used throughout this thesis at this early point of reading.

Beer-Mixtures Beer-mixtures are in general mixtures that consist of beer and flavoured lemonade one half each. The most popular mixtures of this kind are the so-called Radler or Alster, but also beer with Cola belongs to this category. The alcoholic content of beer-mixtures differs between 2.2 and 2.8% vol.

Distribution Channel Distribution channels consist of one or more companies or individuals who participate in the flow of goods and services from the manufacturer to the final user or consumer.^[7]

Product-Life-Cycle A product’s life-cycle is the period that starts with the initial product conceptualisation and ends with the withdrawal of the product from the marketplace and its final disposition. A product-life-cycle is characterised by certain defined stages, including research, development, introduction, maturity, decline and abandonment.^[8]

Supply Chain 1) Starting with unprocessed raw materials and ending with the final customer using the finished goods, the supply chain links many companies together.

2) The material and informational interchanges in the logistical process stretching from acquisition of raw materials to delivery of finished products to the end user. All vendors, service providers and customers are links in the supply chain.^[9]

At first glance, it may seem as if there is no difference between distribution channels and supply chains. In the thesis on hand, there will be used the term distribution channels, when it is dealt with the flow of physical goods from the manufacturers in direction to the final point of sale, that is the flow of beer-mixtures from Germany to Sweden As this is only a part of a complete supply chain which usually starts with the supplier’s supplier of raw materials and ends after the final disposition of a good, the authors agreed upon avoiding the term supply chain to avoid confusion. Distribution channel per se is perceived at best illustrating the flow of goods like meant in this context.

2. Methodology

For the authors, dealing with research from the methodology perspective is a good way to become clear about how to carry out the research work and why. In particular, methodology helps to get a better understanding about which theory is appropriate and which empirical data is needed. Additionally, to be involved with methodology is a good opportunity to think about one’s own personality and its impact on research. Hence, the next chapter will present some important content for the readers’ comprehension.

2.1. Preunderstanding

“Preunderstanding refers to things such as people’s knowledge, insights and experience before they engage in a research program…”^[10]

It is a matter of fact that each of the two authors is running an individual development apart from the actual learning process in school and university. This in turn influences their way of apprehension and their sight of things.

“The term preunderstanding […] also implies a certain attitude and a commitment on the part of researchers […]. It involves their personal experience as an essential element in the process of collecting and analyzing information.”^[11]

On the other hand, one has as well to be aware that a lack of preunderstanding may lead to a choice of inappropriate information sources or misinterpretation. Even a “blocked preunderstanding”^[12] can emerge, if correct knowledge is used in a wrong way due to misleading paradigms. According to this, it is important for the authors to reflect upon their preunderstanding in terms of general knowledge, specific knowledge and personal attributes in the light of the research that lies ahead.

2.1.1. General Knowledge

General knowledge of theories in this case is based on the studies each of the two authors has pursued so far. Knowledge of course is primarily the understanding and applicability of concepts, models and approaches being the content of school and university lectures.^[13]

General knowledge of techniques according to Gummesson comprises techniques, methods and tools needed to plan, implement, analyse and report scientific research and other educated work. An example would be the reliable application of computer programs and other electronic equipment meanwhile being standard in modern business.^[14]

Additionally, there are contributions to knowledge not stemming from direct learning but coming from individual experiences, which cannot be classified under personal attributes. Universal validity is their definite attribute which separates it from the more subjective signs of personal intuition etc. Know-how which is gained through personal trial and error, like the experience that fire is able to burn skin if lacking care, can even be a valuable pool suitable to acquire from.

In particular, both authors are pursuing business studies and have covered most of their duration of studies at German universities. As both have already finished their basic studies, which are nearly the same in all parts of Germany, the base of theory knowledge is presumably the same.

In addition to the general knowledge of theories provided by university the authors attended to lectures about methodology held at Växjö University, which dealt with the way of conducting scientific research. This contributed to a better comprehension about the way research should be carried out and enabled the authors to achieve to a better structure both for the thesis and for the accompanying work.

Knowledge about techniques is partly conveyed by university work like the preparation of several term papers and a bachelor thesis as well as by permanent use of computers and electronic equipment and resources.

As far as know-how is concerned, both author experienced it by working either as industrial clerk for some time or by attending diverse industrial placements before and during the course of studies. .

2.1.2. Specific Knowledge

Specific knowledge covers two distinct categories. The first one is the knowledge about institutional conditions comprising “technical conditions, customary practice, key decision makers and other specific mechanisms and factors relating to a particular industry, company, market, product, service and so forth.”^[15] It is the skill to use correct methods under the existing conditions for the problems on hand and to understand internal structures accurately. Institutional knowledge is predominantly acquired by long term experience.

A holistic specific knowledge about the institutional conditions in connection to the company this thesis is about, would necessitate to become familiar with the internal organisation of Herforder to a much higher degree than the tight time frame admits. However, the authors as external researchers try to get as much information as possible about the area they are doing their research in. Anyhow, there already is a universal institutional preunderstanding which the authors have achieved by performing internships or projects, jobbing or working as industrial clerk.

The second category is an awareness of social patterns cultivating a company’s very “own cultural value system of rules […] of cooperation, social intercourse [and] communication”.^[16] Although both authors have already worked in social organisations and hence experienced the existence of informal hierarchies and networks, every new organisation requires a readjustment. As this in turn typically calls for spending a certain period of time within the organisation, the knowledge of social patterns in this case is to be assessed rather low. It does not go beyond the general knowledge that there exist social patterns, but those will not be discovered in detail.

2.1.3. Personal Attributes

Personal attributes, for instance intuition, creativity, vitality and social ability are influencing the personality of researchers and the decisions made by them. Moreover, personal attributes can either support or hinder the implementation of the different kinds of knowledge presented above. The author’s individual preunderstanding, knowledge and personal characteristics are only in combination enabling the entire appreciation of processes in an organisation.

As stated before, some parts of the necessary knowledge are not within reach of the authors. Therefore, a full understanding of the organisation’s processes is not likely to achieve. Nevertheless, the authors are trying to approach the issue from a more objectivistic point of view. By this, the impact of a lack of e.g. the specific knowledge is lessened and also personal attributes do not play such a big role anymore.

2.2. Research Journey

Our research journey for finding an interesting research area was rather short. When we first met to discuss about potential interesting topics, we very fast came to the point, where we both agreed of having made the same observation. Some products are not available in Swedish supermarkets, which are very common in our home country, Germany. Certainly, this observation is merely valid if a comparison is only made between Sweden and Germany. Nevertheless, this situation nourished the idea to do further investigations. Requests at several German and Swedish breweries and importers of alcoholic beverages as well as checking the comprehensive range of products at Systembolaget led us to the result that our observation was correct at least for one product. Nowhere in Sweden are beer-mixtures available at present.

The next step was to ask breweries if there already had been thoughts or actual arrangements about bringing beer-mixtures to the Swedish market. We received several feedback messages from big German breweries, but in fact only one had thought about exporting concretely to Sweden so far. Herforder Brewery turned out to really having considered it, but dropped the idea due to cost and effort aspects. After establishing phone contact, Mr. Becker from Herforder appeared very interesting in our idea of writing a thesis about it and agreed to provide us with necessary information for the empirical part.

For being able to elaborate different distribution channels for the export business of Herforder, there was the need to find several companies. The most important channel intermediaries were companies which are able to mix beer with lemonade and fill the beverage in cans. It was a big surprise that no real market for this business exists. After calling many contract-fillers from which no company had the capacity to fill up to 1,000,000 cans of beer-mixture, we decided to choose another way. By contacting the producers of the cans we hoped to get information about the later use of these products. In fact, Mr. Grabow from Ball Europe was very helpful in this context.

Since bottling of cans is mostly done directly at breweries or at the DIS in Sittard, the Netherlands, we had to search breweries to co-operate within distribution channels from Germany to Sweden. Two strategic companies with free bottling capacity were selected. Firstly we decided upon the Fuglsang Brewery in Denmark and secondly the Åbro Brewery in Sweden into consideration. The third channel we built around the DIS.

Since importers are needed as well for the export business, we took Galatea Spirits into account. It is a company which is known by Herforder. Their main business is to import beer, wine and spirits and introduce them in the Swedish stores.

Finally, it was important to find transportation companies for the channels. As a premier company DHL can offer solutions for the transportation by truck, ship and tank. Mr. Wockenfuss consulted us very well with wide-ranging information about the logistics issue. Unfortunately it came to misunderstandings at the DHL since departments in Hamburg, Stuttgart, Cologne and Aachen were concerned to calculate transportation costs for us. Somehow they got the impression that we consulted different departments with one question and it took a lot of effort to clear the situation. Hoyer was chosen as a second transportation company, because they provide special solutions for tank transportation of the brewed beer. Thus, we could gather all transportation costs we needed for building up the distribution channels.

Of course a calculation must be based on the distribution from Herford to the final customer. As sales intermediary of our distribution channels we therefore considered ICA. According to the hubs of ICA Handlarna Syd AB, the hubs in Malmö, Växjö, Linköping and Helsingborg are the final destinations of our distribution channels.

2.3. Scientific Perspectives (Positivistic / Hermeneutics)

Discussing the two traditional perspectives called the Positivistic and the Hermeneutic Scientific Perspective, it can be said that in this thesis the research is more influenced by the Hermeneutic paradigm as shown in Table 1^[17]:

illustration not visible in this excerpt

Positivistic Perspective

Hermeneutic Perspective

Our Perspective

Research (R) concentrates on description and explanation

R concentrates on understanding and interpretation

The main part of our focus lies on describing and explaining, although sometimes there is a need for interpretation, too

The viewpoint is mainly deductive; thought is governed by explicitly stated theories and hypotheses

The viewpoint is mainly inductive; researcher’s attention is less focused and is allowed to “float” more widely

Our viewpoint is more inductive than deductive as the starting point is in empirical observations and thought is not governed by explicitly stated theory.

R concentrates on generalisation and abstraction

R concentrates on the specific and concrete but also attempts to generalise

Although the thesis is related to a specific company, there is also an attempt to generalise the results.

Quantitative data preparation is done with statistical and mathematical techniques

There normally is only few quantitative data; qualitative data dominates

Quantitative as well as qualitative data are used, while the qualitative one dominates.

Distance towards the research object; researchers are external observers

Distance and involvement; researchers want to experience from the inside

For objectivity’s sake there has to be kept a certain distance otherwise the research might be influenced by personal wishes etc.

Distinction between science and personal experience

No distinction; influence from both sides is allowed

A distinction between science and personal experience is preferable although it is hard not to rely on personal attributes.

Clear distinction between sanity and sensation

No distinction, both are allowed to guide decisions

Again for objectivity’s sake the distinction between sanity and sensation is desirable, but also again it is hard to stick to it.

Table 1: Comparison between Different Scientific Perspectives

2.4. Research Approach (Quantitative / Qualitative)

Researchers have the choice between two different approaches depending on the method appropriate for the area of research. On the one hand, there is the qualitative approach which is sometimes regarded as not scientific enough, because it is dominated by interpretative arguments rather than facts. Qualitative data therefore is often coloured by subjectivity. On the other hand, there is the quantitative approach, whose data is clear cut and mostly based on mathematical and statistical rules.

At first glance, the approaches seem to exclude each other, but at second, a combination of both is imaginable. If done properly, using both methods may even provide a broader basis for the understanding of the research area and enable more reliable results.

Hence, in this thesis, it was decided upon applying the quantitative and the qualitative research approach in combination. Qualitative data, of course is used in a far bigger amount than quantitative one, because the choice of sources, regardless of them stemming from books, articles, the Internet or other resources, is always influenced by subjectivity. This kind of data cannot be 100 percent objectively correct, but the authors can at least strive for validity in terms of context. In contrast, there is used quantitative data in form of numerical tables, sales figures and other statistical measures, which is objective in itself. Moreover, in the empirical part there are presented transportation costs resulting from company interviews. But as soon as this quantitative data is embedded in the thesis’ context, it has to be interpreted to a certain extent and thereby becomes more subjective. However, the authors do not see this as a reason for omitting any form of useful data, as long as it is utilised correctly and reasonably. So, both research approaches are applied at once in this thesis.

2.5. Research Approach (Deductive / Inductive / Abductive)

In his book, Gummesson states that “only the starting point for research separates deductive and inductive research”.^[18] Deductive research, in this context, has its starting point in already available, preconceived theory and tries in the progress of work to test hypotheses formulated by the researchers. Inductive research in turn starts with empirical observations, their description and explanation, which is followed by building up models and finally generating new theory that can also be transformed to other areas.

Both approaches have got drawbacks if not carried out accurately. Inductive research might lead to “reinvent[ing] the wheel”^[19] while the deductive one is accused to just generating “more of the same and already accepted ‘knowledge’”.^[20] Coffey and Atkinson argue that beyond the initial stages of work, every kind of research is an iterative loop between deduction and induction and for that reason cannot be separated from each other. They call this phenomenon abductive research but warn against misinterpreting this as a third form of research approach.^[21]

Having all this in mind, the authors agreed to have a real-life background as described in the research journey, which automatically leads to an inductive research approach. It is characterised by findings in several companies that lead to different distribution channel configuration models. From these models insights into the varying distribution channels can be obtained. So, in the course of the thesis, an empirical observation is investigated, described and explained. Finally, there will be generated new theory in form of a possible problem solution which is transferable to related areas.

2.6. Research Strategy (Survey / Archival Analysis / Case Study)

Before starting research in any field, every researcher has to think about the optimal research strategy. In social science there are at least five different approaches whose actual application is depending on different conditions. Table 2 gives an overview about this correlation.

For this thesis, the most appropriate research strategy is to be seen in a case study. It is assumed to be the best method to deliver consequential results, if “holistic and meaningful characteristics of real-life events”^[22] are investigated. In the following the rationale for this choice is presented step by step.

The appropriate research strategy depends on the following conditions^[23]:

- Type of research question

“The form of the question can provide an important clue regarding the appropriate research strategy to be used.”^[24]

In this case no question is posed at all. The formulation “Export to Scandinavia: Channels Design for the European Trade with Beverages - A Case Study about Beer-Mixtures” approves the opportunity, not having to answer a stringent question, but to observe the problem area from several aspects. However, it implies questions like how is the export performed and why is it done in one way and not in the other one. Hence, according to the characteristics shown in Table 2 the most appropriate choice of a strategy has to be a case study. It has to have descriptive as well as explanatory elements.

- Degree of focus on contemporary as opposed to historical events

As the research field is to try to create a running and efficient distribution system for the export of beer-mixtures from Germany to Sweden it can be stated that this thesis deals with contemporary events. The degree of up-to-dateness concerning current methods in logistics and technology is clearly outweighing the share of information one can eventually derive from historical data. So, this point also leads to the use of a case study as research strategy.

- Extent of control an investigator has over actual behavioural events

The relevant behaviour, meaning mainly decision power, does obviously not lie under direct control of the investigators. Although Herforder and the authors are joining efforts in developing a realisable export system, the influence of the authors as investigators is limited on recommendations and proposals. The precise power of decision is surely not in the authors’ sphere of control.

illustration not visible in this excerpt

Table 2: Relevant Situations for Different Research Strategies^[25]

Thus, all three conditions recommend the use of a case study as research strategy. According to the nature of case studies, the thesis will contain a big amount of explanatory as well as descriptive elements and, in combination with the idea of conducting a survey, a multiple strategy, namely a case study containing a survey, would be the result. As this is not the case in this thesis, the research strategy is merely a normal case study.

2.7. Data Collection

2.7.1. Theoretical Data Collection

The theoretical data is mostly taken from books respectively articles but also the Internet is used for the collection of appropriate and current information. Some utilised books come from the library of Växjö University and some are borrowed from other libraries. Växjö University also provides an online database from where many useful articles are taken^[26]. Books dealing with the issue especially from the German point of view are consulted, too, by borrowing them from German Universities. Additionally, books and other information sources belonging to the authors in person are availed.

By employing search engines and online databases in the Internet lots of information about beer-mixtures and beverages in general can be found rather quickly. Even so the problem remains that not every piece of information is relevant. For this reason, the Internet inquiry is narrowed on some special databases like i.a. emerald^[27] and gbv^[28].

2.7.2. Empirical Data Collection

For the empirical data collection we searched the Internet for German breweries providing beer-mixtures. Then we wrote some e-mails to get in contact with these companies. We received an answer from Mr. Josef Becker who is working in the department Logistics and Export at Herforder Brewery. He gave us his telephone number and we conducted several telephone interviews with him. As the empirical part is depending on the theoretical one, we decided to contact Mr. Becker regularly in certain intervals, according to our advances with the theory. By this, we were able to determine exactly which information we needed.

A parallel step for us was to contact bottlers and transport companies. To get an overview about which bottlers exist in general, the Internet was used once again and associations were consulted. Then we refined the search according to our specific needs and started to contact several of the remaining companies. Besides, there had been profitable discussions with DHL and Hoyer concerning the transport issue via phone and e-mail, too. While conducting telephone interviews with the most suitable companies we achieved at getting many valuable information directly for the empirical part as well as a lot of good advice for further contact. All this in combination enabled us to complete the empirical research with plenty of high-specific data concerning among others the supply with beverage cans, the bottling of beer and the transportation related challenges.

2.8. Value of the Study

Each scientific research has the intention of generating valid and reliable outcomes which turn out to be valuable for future projects. Therefore, it is important that researchers when carrying out their work are permanently aware of conforming to this aim. Several checkpoints are suitable to support researchers at reaching validity and reliability in their study.

- Construct Validity
- Internal Validity
- External Validity
- Reliability

2.8.1. Construct Validity

Construct validity is obtained by using correct data and measures.

The sources of information used in this study are the Internet, books, magazines and newspaper articles as well as interviews. All these sources are better to be used accurately in order to generate good and appropriate results. Therefore, the authors are very attentive of only using sources coming from scientific literature or data stemming from scientific institutions. By this the risk of utilising invalid data is kept at a minimum and construct validity is very likely.

2.8.2. Internal Validity

Internal validity shows how good the thesis’ results correspond to reality.^[29] Ratcliff states that “Results are always interpreted. Results do not speak for themselves. An activity cannot be measured or observed without being changed. Results are presented by figures, equations and words that are abstract and symbolic representations of the studied system.”^[30]

In this context, the researchers play an active role in determining the internal validity of the study. The first thing they are able to influence is, if the problem formulation is suitable or not. Then they can assure that the right data is collected and that the right companies are contacted.

For this thesis, at first the field for doing research in was determined and after that companies were contacted to get to know, if there was a need for research in the predetermined area. After getting positive feedback from Herforder Brewery more information about the topic was gathered and the research field was narrowed down in order to be closer to the company’s surroundings and in order to conform reality’s needs.

2.8.3. External Validity

External validity shows how transparent the results from this research are as well as whether the results can be applied to other situations and problems or not.^[31]

This thesis deals with a very specific market with very specific market conditions. It is limited to the beer brewing industry in Germany respectively Sweden. Furthermore, the main idea is about issues that are significant in the area of the beverage industry but could be less important in other industrial areas. However, the observed company is representative for the beer-brewing industry in Germany. So, the study could be applicable to the whole German brewery industry. It could also be applicable to other European countries provided that the other constraints are similar.

2.8.4. Reliability

Reliability deals with the question that, if one specific research project is carried out once again by another researcher, would the results and conclusions be the same as for the first one.

The research work is carried out in a specific area in a specific company. The environment of the company is very dynamic at present. Indeed, this branch of industry has undergone a wave of concentration recently and governmental regulations have had a deep impact on sales and organisation structures. Additionally, the research approach is more qualitative and based on hermeneutics. These parameters will make it difficult to have the same results later.

The facts of this thesis are believed to be correct at the time of writing but cannot be guaranteed. Please note that the findings, analysis and conclusions are based on information gathered in good faith from primary and secondary sources, whose accuracy cannot always be guaranteed. As such the authors do not want to accept any responsibility for anything based on any information that may prove to be incorrect afterwards.

3. Theory

Chapter three of the thesis provides the reader with the necessary theory. It is separated itself into three parts A, B and C.

In part A there is given theory about international trade from a more general perspective that is not only valid for the beverage sector but also for other manufacturing industries. In part B the exporting issue is discussed in more detail and with a yet stronger connection to the beverage industry. Finally, in part C, some very special theory concerning the requirements for the export of beverages is presented.

A - International Trade

3.1. Going Global

For Richard J. Hunt, president of the Institute of Logistics and Transport, going global means:

“Exposure to turbulence, resilience in supply-chain design, managing risk, increased operational scale and complexity and driving change.”^[32]

So, daring to enter new territories always contains risks. But on the other hand, only the one who dares to step on unfamiliar ground has the chance to affect the course of the world.

Particularly in the modern economic business world, sourcing, manufacturing and selling globally have obviously certain benefits. The development in the consumer goods industry is in many cases moving towards standardised products. By taking advantage of this trend, companies can realise vast economies of scale in terms of production, management, distribution, marketing and so forth. Moreover, open markets make international business easier and thus enable a flexible surrounding for companies.^[33]

But as said before, regardless of all the advantages one also has to be aware of the risks of “going global”. In a global business a company is mainly confronted with three parties: The customers, the channel intermediaries and of course the competitors. As all these parties have an influence on prices and costs, the pure administration of multinational business becomes increasingly complicated. And in addition to the three parties which only affect the direct business of a company, there are other external risks making global business of a company risky.^[34]

Especially the impact of governmental decisions should be highlighted at this point. These decisions play a decisive role on the global stage. For example, interventions of Governments to stabilise currencies or even directly support them, endanger companies by providing subsidies or tariffs. Likewise tax situations can change rapidly because politics dictates different treatment of corporations, particularly foreign corporations, in various regions.^[35]

Moreover, there is the risk of foreign companies entering the domestic market. These companies may even use domestic profits to subsidise low-priced goods in foreign markets. This could also affect companies that have decided not to compete on the global stage.^[36]

It is comprehensible that companies who plan to enter or already are on the global market have to concentrate a great deal more on addressing the risks than on benefiting from the advantages, which will happen rather automatically, if it is succeeded to prevent those risks.

There are three major ways of addressing risks to be found in theory:^[37]

- Speculative Strategies

Using speculative strategies, a company bets on a single scenario, with often spectacular results if the scenario is realised, and dismal ones if it is not.

- Hedge Strategies

Using hedge strategies, a company designs the distribution channel in such a way that any losses in one part of the distribution channel will be offset by gains in another part. Depending on macroeconomic conditions, certain distribution channel parts may be more profitable at various times than others. Hedge strategies, by design, are simultaneously successful in some locations and unsuccessful in others.

- Flexible Strategies

When properly employed, flexible strategies enable a company to take advantage of different scenarios. Typically, flexible distribution channels are designed with multiple suppliers and excess manufacturing capacity in different countries. In addition, factories are designed to be flexible, so that products can be moved at minimal costs from region to region as economic conditions demand.

For most companies, the last of these three strategies is the most appropriate one in dealing with global risks, due to the fact that it mostly removes the drawbacks from the speculative and hedge strategy. So, if the design of a future distribution channel is done in accordance, several approaches can be utilised to implement a flexible strategy effectively^[38]:

Production Shifting: Flexible factories and excess capacity and suppliers can be used to shift production from region to region to take advantage of current circumstances. As exchange rates, labour cost etc. change, manufacturing can be relocated.

Information Sharing: Having an increased presence in many regions and markets will often increase the availability of information which can be used to anticipate market changes and find new opportunities.

Global Coordination: Having multiple facilities worldwide provides a company with a certain amount of market leverage that it might otherwise lack. If a foreign competitor attacks one of the domestic company’s main markets, it can attack back. Of course, various international laws and political pressures place limits on this type of retaliation.

Political Leverage: The opportunity to move operations rapidly gives companies a means of political leverage in overseas operations. For example, if governments are lax in enforcing contracts or international law, or present expensive tax alternatives, companies can move their operations. In many cases, the implicit threat of movement is sufficient to prevent local politicians from taking unfavourable actions.^[39]

3.2. Triggers for Internationalisation

But once again back to the reasons that can trigger the internationalisation decision. The Product-Life-Cycle Theory of International Trade has been found to be a useful model for explaining not only trade patterns of manufacturers but also multinational expansions of sales and production subsidiaries. According to the product-life-cycle concept, many manufactured goods experience a trade cycle. During the process, which can be described in various stages, the innovator country of a new product is initially an exporter, then loses its competitive advantage vis-à-vis its trading partners, and may eventually become an importer of the product some years later.^[40]

When a domestic market is satisfied and sales are about to decrease in this market, the manufacturer begins to export its product to foreign markets, which are likely to be countries with similar tastes, income levels and demand structures.^[41]

But once the innovative technology becomes fairly commonplace in the new market, foreign producers begin to imitate the production process. The innovating company gradually looses its comparative advantage and its export cycle begins to experience a declining phase.^[42]

Thus, the exporting company has two opportunities to address the increasing competition in the foreign market. Firstly, it can try to win the competition in the foreign market. Therefore the market position of the exporter must be very strong and competitive. Secondly, the exporting company can leave the foreign market and search for new sales areas in other markets. Hence, the foreign competition can lead to the result that the home country of the exporting company may itself become a net importer of the product as the monopoly position in international markets is eliminated by foreign competition.^[43]

In terms of life-cycle-time this thesis’s problem is to be arranged in the phase, where a domestic market is satisfied and sales is about to decrease. Therefore, the Product-Life-Cycle Theory of International Trade cannot yet be taken into account in its complete dimension, but it is still useful for explaining one reason of the internationalisation consideration.

[...]

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^[1] Albaum / Strandskov / Duerr, p.15

^[2] www.diw.de 2004-05-03

^[3] Mattson, p. 62

^[4] ibid., p. 59ff.

^[5] www.brauerbund.de 2004-05-03

^[6] Porter, p. 11 et seqq.

^[7] Vitasek, p. 45

^[8] Vitasek, p. 73

^[9] Vitasek, p. 113

^[10] Gummesson, p. 57

^[11] ibid., p. 60

^[12] Lindholm, pp. 18 and 115

^[13] Gummesson, p. 72

^[14] ibid., p. 73

^[15] ibid., p. 73

^[16] ibid., p. 74

^[17] acc. to: Gummesson

^[18] Gummesson, p.64

^[19] ibid., p.64

^[20] ibid., p.64

^[21] Coffey and Atkinson, p. 155 et seqq.

^[22] Yin, p. 2

^[23] ibid., p. 5

^[24] ibid., p. 7

^[25] acc. to: COSMOS Corporation

^[26] http://www.bib.vxu.se/eng/databaser/ 2004-04-09

^[27] http://konstanza.emeraldinsight.com/vl=10390812/cl=44/nw=1/rpsv/index.htm 2004-04-09

^[28] http://www.gbv.de 2004-04-09

^[29] Johnsson, p. 162

^[30] Ratcliff, pp.147-167

^[31] Johnsson, p. 164

^[32] Institute of Logistics and Transport, p.44

^[33] Lambert / Stock / Ellram, p. 386

^[34] acc. to: Dornier / Ernst / Fender / Kouvelis

^[35] Simchi-Levi / Kaminsky / Simchi-Levi, p. 156

^[36] acc. to: Dornier / Ernst / Fender / Kouvelis

^[37] Simchi-Levi / Kaminsky / Simchi-Levi, p. 156

^[38] ibid., p. 156

^[39] ibid., p. 156

^[40] Albaum / Strandskov / Duerr, p. 43

^[41] ibid., p. 45

^[42] ibid., p. 45

^[43] ibid., p. 45