Introduction
The beer industry plays has an essential role in the global business and accounts for
significant revenues for many economies.Rapidly changing lifestyles, rapid urbanization,
increasing disposable incomes, and an increase of beer popularity have ensured a steady growth
of the industry. After milk, tea, coffee, and carbonates, beer beverages are the fifth most popular
drinks (Shin & Searcy 2018). In 2014, the overall impact of the sector in the U.S. economy was
about $250 billion or 1.5 % of the national output (Cabras & Higgins, 2016).The total sales tax
and excise duty were more than $ 11 billion.The brewing industry is generally fragmented in
many countries but the world’s largest brewers including AB InBev, Carlsberg, Heineken, and
SABMiller control a significant portion of the global market. Consequently, the competition
structure of the beer industry is oligopolistic. Present times have seen the advent of mergers and
acquisitions between multinational companies and national breweries that have started complex
trajectories which have altered the global attributes of the industry. For instance, in 2006,
Anheuser- Busch InBev (AB InBev) a Belgian publicly listed company acquired a full stake of
Fujian Sedrin Brewery in China. While multinationals such as AB InBev gain considerable
market power through acquisitions and mergers, nationalization has several advantages. Further,
international products undergo a lifecycle and AB InBev can use qualitative interviews and
quantitative surveys as its research strategy to estimate the future demand of its goods.
Why did AB Inbev increase its market share?
AB InBev's expansion was aimed at increasing its market share in fast growing markets.
AB InBev is an American, Brazillian, Belgian beer and soft drink company based in Belgium
and operates like a holding company and engages in the manufacturing and distribution of both
non- alcoholic and alcoholic beverages. The Company has a portfolio of more than 400 beer
brands including international brands such as Corona, Budweiser and Bud Light among others.
The organization also distributes soft drinks such as Gatorade, 7UP, and PepsiCo. AB InBev is
the world’s largest beer company by market share and reveneue. On the other hand, State-owned
Fujian Sedrion was one of the largest brewers in China before a 100% acquisition by AB InBev
in mid-2006. Further, the beer industry in China is the largest globally by volume and is mainly
fragmented. Moreover, due to low beer prices, the Chinese market has thin profit margins. One
of the main reasons for the acquisition was to win stakes and buy assets in the undeveloped and
MERGERS AND MULTINATIONALS 5
largest beer market in a tough bidding war with other international brewers such as Carlsberg
and Heineken (Barboza 2005). Intense globalization by major beer makers has led to an
oligopolistic competition in many markets characterized by mergers and takeovers, barriers to
entry, economies of scale and product differentiation. The acquisition of Fujian Sedrion
increased AB InBev’s market share and its profitability due to a larger consumer base. Thus, AB
InBev's acquisition of Fujian Sedrian was to increase its international market share in emerging
markets.
Task 1b
Nationalization
Nationalization refers to when the government takes over the control of an industry or
company. It often occurs without compensation for loss of income and net worth of the various
seized assets. The action may arise from power consolidation, resentment of foreign-owned
companies or assisting local industries that are of significant importance to the local economy.
Nationalization is more prevalent in developing countries marked by frequent regime changes
and is one of the main risks multinationals face in foreign countries. The main outcome as a
result of nationalization is redirection of company’s revenue to the national government as
opposed to private investors. Proponents of nationalization argue that it represents an efficient
manner of running industry and translating decisions about investment and price. Thus,
nationalization refers to government takeover of assets of foreign companies.
The main advantage of nationalization is the medium term rise in the state’s share of
revenue. Whereas the profit margins in private firms benefit a few owners, nationalization
ensures that the government receives more revenue which benefits the taxpayers. Mahdavi
(2014) explains that within the oil industry, benefits of nationalization include direct supervision
of production and operations and control of lucrative administrative positions as instruments of
patronage. In such instances, the government increases its share of profits since it does not have
to split earnings with the foreign owners. Hall (2016) points out the reasons for nationalization of
the gas and electricity systems in the U.K is to enhance the attainment of critical public
objectives, developing renewable energy to control climate change, democratic accountability
and efficiency. Nationalization also ensures universal coverage since private companies have no
MERGERS AND MULTINATIONALS 6
incentives to help consumers who cannot afford basic necessities. Therefore, nationalization
increases government revenues and improves oversight.
Nationalization helps the government introduce competition within monopolized
industries. Government ownership prevents a few firms from exploiting monopoly power.
Additionally, nationalization enhances positive externalities such as congestion and pollution
which are largely ignored by the profit-maximizing private firms. Some companies suffer growth
setbacks due to a lack of long term capital investment. Accordingly, nationalized firms in China
such as Sinochem Corporation, China Petrochemical Corporation, and Zhejiang Gelly Group
have been successful internationally because they got a lot of long term capital investment from
the government. Consequently, twenty state-owned Chinese multinationals had about $ 665
Billion in assets by the year 2013 (Columbia 2016). Thus, nationalization is beneficial since it
promotes social benefits, reduces monopolies and assists local firms.
Task 2
Task 2a
Product Life cycle
The international product life cycle describes the cycle products undergo when placed in
an international market. The model focuses on the main benefits and production characteristics.
As the manufactures start to mass-produce the product, the production process often tends to
shift to other countries. The model’s stages begin with the introduction of the new product such
that consumers are not aware of its presence hence profit and sales are low. The next stage
involves growth where the popularity of the product increases as well as the promotional budget.
The number of sales is high as the production costs decrease. The maturity stage has low demand
and sales volume compared to the growth stage. Customer awareness of the product is high and
there is difficulty in getting new buyers. Foreign demand increases which forces the company to
set up new branches in foreign countries. The next stage is saturation where competing
organizations have each taken a considerable share of the market. There is neither a decrease nor
an increase in sales volume during this stage. The last stage marks a decline in sales and profit
margins. The economic justification of sustaining the business reduces drastically. The
organization can choose to sell the company or discontinue production. Thus, the international
MERGERS AND MULTINATIONALS 7
product life cycle describes how a company develops over time and across various national
borders.
AB InBev’s international product life cycle is at the growth stage as it continues to access
new markets having saturated local markets using its main flagship beers such as Budweiser.
Aggressive marketing by major beer brands is meant to take advantage of increasing income
levels and the growing popularity of beer as the alcoholic beverage of choice. Increasing
disposable incomes in some regions has led to the adoption of high –quality and premium beers.
Consumer awareness of international brands as a result of marketing and proliferation of
technology such as the internet has altered the business landscape of the beer industry. Moreover,
a surge in a youthful population and female drinkers have fueled the growth of the industry.
While Budweiser’s sales have declined in developed countries, sales have improved in
international markets where younger customers are experimenting with foreign beers. The
adoption of western values and other cultural changes in developing countries has also played a
role in influencing the perception of consumers towards alcoholic beverages. These
developments have led major brewers such as AB InBev to focus on emerging markets. Hill
(2015) explains that South America, Central America, and Asia have lots of growth potential as
sales decline or stagnate in developed countries. Thus, consumers shift from consumption of
traditional products and rising disposable incomes in emerging markets coupled with aggressive
marketing by brewers’ highlights that AB Inbev’s Budweiser is at growth stage internationally.
Task 2b
Market-oriented Strategy
In an increasingly global economy that has witnessed a proliferation of many brands from
which consumers can choose, companies are forced to adopt a market-oriented strategy in order
to remain competitive. Market orientation refers to a customer-based approach to product design,
price, and distribution. It entails analysis to determine what customers perceive as their primary
concerns, personal preferences and main concerns within a given product category. Market
orientation ensures customer satisfaction which promotes brand loyalty as the foundation for
consistent and lasting growth. Market orientation also includes product differentiation where the
company adopts an advertising strategy aimed at identifying attributes that distinguish the brand
from other competitors. The main significance of a market-oriented strategy is the shift of
MERGERS AND MULTINATIONALS 8
emphasis from a competition based decision making to customer – service based decision
making. This change came from the realization that beating competition through cost structure
and distribution cannot guarantee the long term success of an organization. Market-oriented
organizations often describe their activities as service focused on the main objective of being
meeting customer needs. The market-oriented approach within the beer industry is highlighted
by the vast promotional budgets of various brewers that help advertise their high quality, low-
cost product mix to their customers. Additionally, communication technology has enabled
companies to study customer needs and preferences to align organizational activities
appropriately to meet customer requirements. Thus, a market-oriented firm is more focused on
the consumer rather than the competition.
AB InBev is a market-oriented multinational organization. The decisions for
organizational activities are based on customer wants and preferences rather than what the
organization thinks the customer needs. Current consumer trends include preference for
competitively priced premium beer brands among drinkers in emerging markets such Asia and
South America. AB InBev has responded to customer preferences by launching production in
countries such as China. Mokuolu (2015) explains that AB InBev is considered as a cost-
efficient player within the industry, which has allowed it to invest more resources into marketing
to increase brand awareness and build strong connections with its customers. Its presence in
multiple markets increases buyers' willingness to use its products by leveraging its brand equity
of global brands. AB InBev’s management understands that market orientation is concerned with
customer satisfaction to promote brand loyalty as a basis for consistent lasting growth. The
company invests in getting insights about consumers' drinking preferences which helps in
developing packaging changes, new products, and product extensions. Moreover, the
oligopolistic structure of the industry means that the firms are interdependent of each and
decisions can only be executed after considering the potential reaction of rivals. Oligopolies
make it easy for buyers to make price comparison for various products which forces firms to set
competitive prices leading to stable prices. In such an environment the firm can only gain
competitive advantage through product differentiation and other non- price strategies to prevent
price wars. Therefore, AB InBev is a market-oriented organization due to its customer-centered
MERGERS AND MULTINATIONALS 9
approach including quality of products, competitive pricing, and brand awareness campaigns.
Task 3
Task 3a
Market power
An ideal marketplace situatition is where there is perfect competition with many firms
producing similar competing products. No organization has economically significant market
power and pricing power and all firms are price takers. Market power is described as the ability
of a firm to increase and maintain prices above levels that prevail in a competitive environment.
The firm controls prices by manipulating demand, supply or both as a direct consequence of
scaling of operation. Organizations with significant market power can manipulate market prices
thereby controlling their profit margin. Firms with market power are price makers as they can
adjust the market price of products without relinquishing their market share. Such conditions
can arise after mergers and acquisitions. As a result, many nations have antitrust laws and other
similar legislation that is meant to limit market power by one firm. While the main reason for
mergers is not gaining market power, mergers lead to increased market share which can lead to
high profitability due to economies of scale. One approach of measuring market power involves
identifying the extent to which prices exceeded marginal costs. AB InBev gained substantial
market power after joining the highly fragmented Chinese beer industry. Thus, firms with market
power are price setters.
Recent developments in the brewery industry have been marked by industry
consolidation through mergers and acquisitions and the expansion of large breweries into new
markets. Such trends have globalized the industry as opposed to localized production as in the
case in China. The Chinese brewery industry is highly fragmented. Additionally, beer production
is largely small scale composed of small breweries and brewpubs. However, rapid urbanization,
rising disposable incomes and changing consumer preferences are driving demand for
international brands.AB InBev sought to capture the market by acquiring one of the biggest
brewers in China, Fujian Sedrin Brewery, as part of its international expansion plan. Takeovers
can lead to rapid growth for firms and are often perceived as a strategy for extending control
over a broader geographical area.Piesse et. al (2012) explain that market power is the basis for
vertical and horizontal takeovers. The researchers also explain that oligopoly structures offer
MERGERS AND MULTINATIONALS 10
potential benefits of gaining market power aspects such as barriers to entry and higher profits.
The undue concentration and subsequent lack of competition can cause a situation where a few
firms with oligopolistic power share profits through non-competitive pricing. The current
preference for international beers that are sold at a premium can lead to market power for AB
InBev since it has reduced local competition by acquiring the full stake of Fujian Sedrin
Brewery. Thus, AB InBev might gain considerable market power after acquiring a 100% stake of
Fujian Sedrin Brewery.
Task 3b
Profit Maximizing
AB InBev is seeking to maintain profitability by expanding to overseas markets. Beer is
the most consumed alcoholic beverage and the fifth most consumed beverage globally. However,
in recent years sales in developed markets have stagnated or are declining due to economic
recession and change in customer preferences. Consumers in advanced economies are turning to
craft beers in addition to shunning alcohol due to health concerns. Fashion trends towards other
beverages such as bottled water and wine are also constraining beer sales growth. The traditional
target customer is evolving and firms have to adjust accordingly. Major beer companies are
carving out territories in emerging economies such as Asia and South America where there is a
growing demand for foreign brands. For instance, AB InBev sales of Budweiser and Budlight
have dropped in the U.S market but are recording a steady rise globally.The growing demand is
linked to increasing disposable incomes, rapid urbanization, and adoption of western cultural
norms among other factors. More importantly, consumers in emerging markets are shifting from
traditional beers to attractively branded and higher quality international beers. To gain
substantial market power in countries with undeveloped beer industries such as China,
International brands are acquiring local brewers. Thus, due to declining and flat sales in
developed economies, AB InBev is expanding internationally to increase revenue.
MERGERS AND MULTINATIONALS 11
Task 4
Task 4a
Demand
Demand refers to the number of goods consumers buy at each price. The demand
changes with price changes when other factors are held constant. Demand elasticity refers to the
demand sensitivity of goods and services resulting from changes in other factors. Demand
elasticity is used to predict consumer spending behavior and patterns when some factors are
considered. Demand curves illustrate various prices consumers are willing to pay for specific
quantities of goods. Goods that have high demand elasticity for a given economic variable
highlight that the demand for such goods is more sensitive to changes. There are other non- price
factors that cause the demand curve to shift to the leftward or to the right depending on the
demand elasticity (Welch & Welch 2016). These factors include income level of buyers,
preferences of consumers and prices of related goods.
Tastes and preferences
A good whereby consumer’ preference is great relative to other product offerings in the
market would have a high demand would have a demand curve that would lie at the highest
level. Consumer’s tastes and preferences regarding goods often change over time resulting in a
change in demand. For example, beer consumption habits are changing in developed countries
resulting in fewer sales.Such changes can occur due to fashion trends or marketing tactics used to
lure the consumer from rival products. Persuasive advertising aims to change the populations
‘tastes and preferences which can lead to enhanced demand for goods and services.Demand for
goods declines when people can no longer find certain goods favorable to them. Thus, tastes and
preferences can influence the demand for products.
Incomes
Also referred to as the income effect, the demand for goods depends on income levels of
the population. Higher incomes result in higher demand for goods. During recessions, the
incomes of the population decline which leads to a reduction in the demand for non- basic items.
Sometimes the income effect depends whether the product is a normal or inferior good. In
normal goods, a rise in income translates to a rise in demand while the demand for inferior goods
declines with rising incomes. The traditional beers served in China might be regarded as inferior
MERGERS AND MULTINATIONALS 12
goods as consumers are preferring international brands as their disposable incomes rise. When
drawing a demand curve of a given good, the income is assumed to be constant. If the income in
a region rises and demand increases, then the demand curve will shift upwards and downwards if
demand declines. Greater incomes result in greater purchasing power. Thus, when incomes
increase, people can afford to buy more. Increasing incomes have a positive impact on the
demand for goods. As a result of growth of Gross Domestic Product (GDP ) in many Asian and
South Americans nations over the last few decades, the incomes of people in these countries
have increased significantly. Countries with high disposable are suitable for multinationals to
invest in since they can afford to pay for the products. Thus, the income of the population can
influence the demand.
Price of related goods
The demand is also influenced by other prices of related goods which can be
complements or substitutes products. When drawing the demand curve for an individual good,
the prices of other related goods are assumed to be constant. When the prices of complements or
substitutes change, the entire demand curve shifts upwards or downwards. Should the price of a
substitute goods fall, its demand will decline and vice versa. For instance, beer and wine are
close substitutes, if the price of beer and incomes remain constant but the price of wine drops
considerably, consumers are likely to shift to demand less beer and more wine. Therefore, if
wine becomes cheaper, buyers will substitute beer for coffee leading to a decline in the demand
for beer. On the other hand, the fall in price of a complementary good would positively affect the
demand of the other product. Complementary goods refer to products that are often used
together to fulfill a specific need. An example of complementary goods includes fuel and
cars.Therefore, the price of substitutes and complements can influence demand for a good.
Task 4b
Research strategy
Every research study has unique characteristics that necessitate the need for new
approaches and procedures for every new study through a research strategy. The research
strategy offers a comprehensive guide for the researcher when planning, conducting and
supervising the study. Moreover, it introduces the major components of the study project such as
the research topic area, the research perspective, and research design. The type of research
MERGERS AND MULTINATIONALS 13
strategy adopted depends on the time frame of the study, the objectives of the study and the
environment where the study is conducted. Johannesson and Perjons (2014) describe the research
strategy as the overall plan used in carrying out a research study. While a research strategy offers
essential support on higher levels, there is need to complement it with the correct research
methodology to guide the research activities on a detailed level. Further, research strategies help
one in selecting the correct methodology. Research methods elaborate how the researcher can
collect and conduct data analysis such as through statistical methods, questionnaires, and
interviews. The main research strategies include quantitative surveys, case studies, action-
oriented research and qualitative interviews among others. Thus, a research strategy will provide
high-level guidance for the study. To estimate the demand for its products in future, AB InBev
could use qualitative interviews and quantitative surveys as its research strategy.
Qualitative interviews
There are various kinds of qualitative interviews.Unstructured, structured and semi-
structured are the most commonly used methods when gathering data. Their structure can range
from those that address specific hypotheses to highly exploratory ones. Some can have loose
conversations while others have structured exchanges where all interviews answer the same set
of interview questions. Follow up questions can be incorporated to encourage elaboration of
ideas that are deemed very relevant to the study. Interviews provide the researcher with an
opportunity to access detailed and rich information concerning how persons understand and
experience events in their daily lives. It is an ideal method when the study seeks to theorize and
ascertain prominent issues by uncovering the lived world of participants prior to scientific
conclusions (Jamshed 2014). Therefore, qualitative interviews use conversations to investigate
phenomena.
Qualitative interviews require extensive planning regarding how the structure will be
developed, decisions about how and who to interview. It also requires planning about whether to
conduct group or individual interviews and how to record and later analyze them. The researcher
needs several skills such as good social skills, communication, and listening skills. Interviews
can be conducted over the phone or face to face. However,Face to face interviews are preferred
because it is harder to establish rapport and trust over the phone. Qualitative interviews offer a
degree of flexibility where the researcher can use their expertise and knowledge to explore
MERGERS AND MULTINATIONALS 14
unexpected themes and ideas raised by respondents. Additionally, steps should be taken to
minimize bias during the design phase. Researchers are obliged to observe some ethical issues
such as confidentiality and ensuring that they get informed consent from participants.
Accordingly, AB InBev can use qualitative interviews on consumers in various markets to
understand their attitudes and beliefs about its product to help in estimating future demand.
Quantitative survey
Quantitative surveys help to identify and isolate particular variables within a study
framework to seek relationships causality and correlation. They also help in controlling the
environment where the data is gathered to avoid the risk of irrelevant variables being accounted
for in the relationship identified. This is often applied in business studies as it enables a
considerably high number of respondents. The availability of many online survey sites enables a
cost-effective method for distributing survey material. Developing of survey questions for
meaningful questionnaires requires the assistance of experienced researchers to ensure data
validity.Additionally, a common method of conducting surveys is use of scaled questions where
respondents rate their experiences using a number such as from one to five. Such data helps in
understanding the extent of response. The data can help explore relationship between behaviors
and attitudes which can be used to make predictions such as the likelihood an individual will use
a product based on their attitude towards. Linear regressions are used to correlate independent
variables with dependent variables to pinpoint important factors. Questionnaires should be
appealing to participants, concise, easy to understand and containing non-intrusive questions.
The questions should also accurately measure the problem under investigation.
Additionally,when the sample size is chosen is an accurate representation of the entire population
under study it provides a high internal and external validity (Showkat & Parveen 2017). Surveys
can also be administered to the entire population such as employees of a specific organization.
Thus, AB InBev can use quantity surveys to get insights from consumers to help in estimating
future demand.
The beer industry is an important sector global business and accounts for significant
revenues for many countries. Traditionally, the brewing industry is generally fragmented in
many countries however ,the world’s largest brewers including AB InBev, Carlsberg, Heineken,
and SABMiller control a significant portion of the global market. Rapidly changing lifestyles,
MERGERS AND MULTINATIONALS 15
rapid urbanization, increasing disposable incomes, and an increase of beer popularity have
ensured a steady growth of the industry in emerging countries. While developed economoies are
witnessing a decline in beer consumption, there is a surge in demand for international brands in
emerging markets such as in China. Multinationals are trying to gain considerable market share
in such countries through acquisitions such as the AB InBev takeover of Fujian Sedrin Brewery.
While such acquistions can benefit the multinational through gain of market power,
nationalization of national industries offers advanatges such as protecting local industries and
other social benefits. Further, international products have a lifecycle, AB InBev can use
qualitative interviews and quantitative surveys as its research strategy to estimate the future
demand of its goods.
(Word count 4177)
MERGERS AND MULTINATIONALS 16
References
Barboza, D.(2005). World's Largest Brewer Set to Increase China Holdings. New York Times.
[online].Available at:
https://www.nytimes.com/2005/12/09/business/worldbusiness/worlds-largest-brewer-
set-to-increase-china-holdings.html [Accessed 2 Nov. 2019].
Cabras, I. and Higgins, D. M. (2016). Beer, brewing, and business history. Business
History, [online] Volume 58(5),pp.609-624.Available at
https://www.tandfonline.com/doi/full/10.1080/00076791.2015.1122713 [Accessed 2
Nov. 2019].
Columbia. (2016). The Top 20 Chinese Multinationals: Changes and Continued Growth of
Foreign Investment. Columbia Center on Sustainable Investment. [online] Available at
http://ccsi.columbia.edu/files/2013/10/EMGP-China-Report-2016-FINAL-Oct-4-
2016.pdf [Accessed 2 Nov. 2019]
Hall, D. (2016). Public ownership of the UK energy system – benefits, costs and processes.
Public Services International Research Unit [online] Available at
psiru.org/sites/default/files/2016-04-E-UK-public.pdf [Accessed 2 Nov. 2019].
Hill, T. (2015). A Shift in the International Beer Market. Global Edge [online] Available at
https://globaledge.msu.edu/blog/post/31023/a-shift-in-the-international-beer-market
[Accessed 2 Nov. 2019]
Jamshed, S.,2014. Qualitative research method-interviewing and observation. NCBI, [online]
5(4), pp.87–88. [online] Available at
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4194943/ [Accessed 2 Nov. 2019]
Johannesson, P. and Perjons, E. (2014). An Introduction to Design Science. Springer, pp.39-77.
Mahdavi, P.(2014). Why do leaders nationalize the oil industry? The politics of resource
expropriation. Energy Policy, [online]75, pp 228-243.Available at:
http://paashamahdavi.com/EnergyPolicy2014-75-C.pdf [Accessed 2 Nov. 2019]:
Mokuolu, C. A. (2015). Anheuser-Busch InBev (AB InBev): The Winning Formula –
Technology and Operations Management. Harvard Buiness School.[Online] pp 1-6.
Available at:http://digital.hbs.edu/platform-rctom/submission/anheuser-busch-inbev-ab-
inbev-the-winning-formula/[Accessed 2 Nov. 2019].
MERGERS AND MULTINATIONALS 17
Piesse, J. Lee, C. Lin, L. and Kuo, H. (2012). Merger and acquisition: Definitions, motives, and
market responses. Encyclopedia of Finance, [online] pp.541-554. Available at:
https://nscpolteksby.ac.id/ebook/files/Ebook/Accounting/Encyclopedia%20of%20Financ
e%20(2006)/52.%20Chapter%2027%20-
%20MERGER%20AND%20ACQ%20UISITION%20DEFINITIONS-
MOTIVES%20AND%20MARKET%20RESPONSES.pdf [Accessed 2 Nov. 2019].
Shin, R. and Searcy, C. (2018). Evaluating the Greenhouse Gas Emissions in the Craft Beer
Industry: An Assessment of Challenges and Benefits of Greenhouse Gas Accounting.
Retrieved from https://www.mdpi.com/2071-1050/10/11/4191/html [Accessed 2 Nov.
2019].
Showkat, N. and Parveen, H. (2017). Quantitative Methods: Survey. Aligarh Muslim University,
26, pp.1-9. Available at:
https://www.researchgate.net/publication/318959206_Quantitative_Methods_Survey.
[Accessed 2 Nov. 2019].
Welch, P. J. and Welch, G. F. (2016). Economics: Theory and Practice. New Jersey:John Wiley
& Sons, p. 63.