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Case Study Intermarket Essay



FORD MOTOR COMPANY AND DIE DEVELOPMENT *32. CITIBANK IN JAPAN *33. KAO CORPORATION: DIRECTION FOR THE 21ST CENTURY *34. PLANET HOLLYWOOD: THE PLATE IS EMPTY *35. HOECHST MARION ROUSSEL: RABIPUR RABIES VACCINE ? Indicates available on the Web at: www. wiley. com/college/kotabe 621 622 • Case 1 • Club Med: Making a Comeback C ASE 1 CLUB MED: MAKING A COMEBACK ? Club Mediterranee (Club Med), a corporation in the allinclusive resort market, manages over 140 resort villages in Mediterranean, snow, inland, and tropical locales in over 40 countries.

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Its resorts do business under the Club Med, Valtur, Club Med Affaires (for business travelers), and Club Aquarius brand names. Club Med also operates tours and two cruise liners: Club Med 1 cruises the Caribbean and the Mediterranean, and Club Med 2 sails the Paci? c. The company ? also arranges specialized sports facilities. Club Mediterranee’s clientele is about one-third French, with the rest being mainly from North America and Japan. Club Med found that its all-inclusive price is not as widely accepted today as it was in the past and that consumers’ preferences have changed.

Vacationers are not willing to spend large amounts of money for vacations that include many activities they are not using as much as they had been in the past. This change in preference poses a problem for the company because Club Med’s competition has been able to customize travel packages for each consumer at prices that vacationers feel more comfortable with. Although it appears easy for Club Med to customize travel packages, the company is at a disadvantage compared to its competition.

Most of the competitors are found in a small number of locations, whereas Club Med has resorts scattered all over the world. Currency devaluation and political boycotts are some of the situations that Club Med faces worldwide on an ongoing basis. These external factors are reducing the company’s ability to increase sales and gain new customers. BACKGROUND AND HISTORY ? Club Mediterranee, otherwise known as ‘‘Club Med,’’ was originally founded by a group of travelers, headed by Gerald Blitz, in 1950. However, through the years, as this group was increasing in size, it was becoming increasingly more dif? ult to manage. Blitz, therefore, took the opportunity to turn this ‘‘association’’ into a business, with the aid of Gilbert Trigano, in 1954. Trigano sought to establish this organiza? tion, and by 1985, Club Mediterranee S. A. was transformed into a publicly traded company on the Paris Stock Exchange. Club Med Inc. became the U. S. -based subsidiary of Club ? Mediterranee, headed by Trigano’s son Serge. Today, Club Med encompasses over 114 villages, on six continents, and 33 countries (see Exhibit 1). In addition, Club Med has two cruise ships.

The Club Med style can be best described by the sense of closeness found among the managers. All managers are former village chiefs and are therefore knowledgeable of the This case was prepared by Karen Bartoletti, Alexandra Doiranlis, Steven Kustin, and Sharon Salamon of New York University’s Stern School of Business and updated by Sonia Ketkar of Temple University under the supervision of Professor Masaaki Kotabe for class discussion rather than to illustrate either effective or ineffective management of a situation described (2006). company’s everyday operations. This immediately re? cts on the ‘‘friendly’’ relationships that the GOs (Club Med-speak for assistants or gracious organizers) and GMs (Club Medspeak for guests or gracious members) have with each other, making every vacationer’s experience a memorable one. A distinguishing feature of a Club Med resort is the living area, which is much simpler than that of a typical hotel chain. Rooms are sparsely decorated (i. e. , no phones, televisions, etc. ). Unlike typical hotel chains, Club Med measures its capacity in each resort by the number of beds, not the number of rooms, because singles have roommates.

This simpler approach has made Club Med very successful. Another key to success was Club Med’s image as a place to go when you want to escape. However, in the year 2004, after years of trying to make higher pro? ts, the company altered its strategy hoping to make a comeback. The new strategy aimed at giving consumers a differentiated product that was more upscale and luxurious, especially in the Americas. INDUSTRY STRUCTURE Until 1986, Club Med had a very strong position in the all-inclusive resort market.

The corporation’s level of bargaining power with buyers, suppliers, and labor was high (see Exhibit 2). During that time period, a client interested in duplicating ‘‘the Club Med experience’’ would have had to pay an additional 50 percent to 100 percent to have an identical experience at other resorts (see Exhibit 3). With regard to suppliers, companies that provided vacation-related services, such as airlines, were willing to give Club Med signi? cant discounts in exchange for mass bookings. In keeping with the advance in information technology and the value of the Web, Club Med launched a Web site www. lubmed. com at the end of 2003. The Internet now accounts for around 20 percent of its sales. This proved to be a huge boon to travel agents who check availability, prices, air fares, and even make bookings online. The Web site also allows travel agents to block reservations rather than book and con? rm them for up to 48 hours. In 2004 Club Med developed a specialist program for travel agents. Under the program, the company certi? ed 12,000 travel agents and apparently the certi? cation has enabled the agents to increase bookings signi? cantly.

Finding labor was not a problem for this resort chain because thousands of people were interested in working at such a pleasurable location. COMPETITION As of 1986, Club Med began facing competition. This company was no longer the only all-inclusive resort. Many of the ? rm’s competitors were realizing similar success. In 1986, most of the all-inclusive competitors had adopted Club Med’s style of recreational activities, with staff members acting as directors of these organized games. By then, the only major difference that Club Med maintained was the fact that their price did not include drinks.

At the start of the year 2004, after several years of listening to agents complain that vacationers Case 1 • Club Med: Making a Comeback • 623 EXHIBIT 1 THE CLUB MEDITERRANEE GROUP VILLAGES WORLDWIDE THE CLUB MEDITERRANEE GROUP VILLAGES WORLD WIDE SWITZERLAND Pontresina Pontresina (winter) Saint Moritz Victoria (winter) Saint Moritz-Roi Soliel Valbella Villars-sur-Ollon Villars-sur-Ollon (winter) Wengen ITALY Caprera NORTH Cefalu Donoratico SEA Kamarina Metaponto Otranto Santa Teresa Sestriere Villages operated or managed by Club Med Inc. (the U. S. ubsidiary) Villages operated by Club Mediterrance SA (the French parent company) FRANCE Avoriaz Cargese Chamonix Chamonix (winter) Dieulefit Forges-les-Eaux L’Alpe d’Huez L’Alpe d’Huez (winter) La Plagne Les Arcs Les Menuires Meribel (winter) Opio Pompadour Sant’Ambrogio Superbagneres Superbagneres (winter) Tignes Val Claret (winter) Val d’Isere Vittel SPAIN Cadaques Don Miguel Ibiza BERMUDA Porto Petro BAHAMAS MOROCCO Columbus Isle Agadir Eleuthera Al Hoceima Paradise Island TURKS & CAICOS Marrakech Ouarzazate Turquoise Smir HAITI Yasmina Magic Haiti DOMINICAN REPUBLIC Punta Cana GUADELOUPE SENEGAL Cap Skirring Les Almadies MARTINIQUE IVORY COAST Assinie SOUTH TUNISIA AMERICA Hammamet Jerba la Douce Jerba la Fidele EGYPT BRAZIL Itaparica Rio das Pedras YUGOSLAVIA ROMANIA BULGARIA Roussalka

CROATIA Pakostane TURKEY Bodrum Foca Kemer Palmiye GREECE Corfou Ipsos Gregolimano Helios Corfou Kos ISRAEL Arziv Coral Beach ASIA EUROPE PACIFIC OCEAN NORTH AMERICA USA Copper Mountain Sandpiper MEXICO Cancun Huatulco Ixtapa Playa Blanca Sonora Bay ARCHAEOLOGICAL VILLAS FRENCH WEST INDIES Buccaneer’s Creek Caravelle Club Med 1 (winter) FRENCH POLYNESIA (TAHITI) Bora Bora Club Med 2 Moorea JAPAN Sahoro CHINA (PROVINCE OF) THAILAND Phuket MALAYSIA Cherating MEDITERRANEAN SEA Club Med 1 AFRICA INDIAN OCEAN PORTUGAL Da Balaia INDONESIA Bali Ria Bintan MALDIVE ISLANDS Faru MAURITIUS La Pointe aux Canonniers REUNION AUSTRALIA Lindeman Island NEW CALEDONIA Chateau Royal Club Med 2 (winter) ere skeptical above booking Club Med resorts due to its exclusive prices, Club Med reverted to an all-inclusive deal and launched its ‘‘total’’ all-inclusive package in most of its villages. In the ? rst part of 2005, the company declared the Alps area, in which it operates 22 villages, a cash-free zone, meaning that an all-inclusive package with snacks and drinks around the clock. That area of the world being a major ski locale, it attracts thousands of people every year. Therefore, Club Med has also launched ski programs for its members at its resorts around the Alps. One competitor, Jack Tar Village, the Jamaica-based company, operates resorts located mostly in the Caribbean. Jack Tar positions the resorts as more glamorous and modern than those of Club Med.

This can be seen in advertisements where the company implicitly criticizes the spartan rooms and methods of Club Med. Jack Tar’s claim to fame in relation to Club Med is its open-bar policy. Another competitor that the ? rm must consider is the SuperClubs Organization, which operates four resorts in Jamaica. These resorts have reputations for being the most uninhibited and sexually oriented resorts. SuperClubs also follow a system of having drinks included in their price, but the other distinction from Club Med is the vacation’s packaging and distribution. Club Med bundles the ground transportation with the rest of their packages while air transportation was to be distributed directly to consumers or travel agencies.

SuperClubs, on the other hand, bundled ground transportation packages to be sold through large tour wholesalers, who in turn grouped these packages to be sold to the travel agencies. Activities that Club Med and their competition offer are similar, but the way they are offered is somewhat different. Club Med’s competitors offer the same activities but do not include them in the initial price of the vacation. A few of SuperClubs’ activities that were included were tennis, basketball, and exercise rooms, but jet-skiing and parasailing were available for an additional fee. This allowed Club Med’s competitors to offer lower prices and take away potential clients from Club Med. This concept has worked for the competition because consumers ? d that they are not using all the activities offered. Therefore, there is no reason to pay an all-inclusive price. Club Med, on the other hand, suffers from ecological, economic, and political constraints that prevent the ? rm from using this individual pricing method, which could lead to customized packages for vacationers. THE SERVICE CONCEPT Club Med has a worldwide presence in the resort vacation business that has allowed the ? rm to grow and dominate this industry. The original mission statement includes the idea that the company’s goal is to take a group of strangers away from 624 • Case 1 • Club Med: Making a Comeback EXHIBIT 2 FORCES DRIVING INDUSTRY COMPETITION

Barriers to Potential Entrants Economics of Scale Volume discounts Air travel Food Advertising Semitransferable demand among numerous villages Experience-Curve Effects 30 years’ experience “Proprietary” Process Recipe for Club Med “magic” Village chiefs Determinants of Supplier Power Many price-competitive airlines Airline seats cannot be inventoried Many price-competitive food companies Host governments want hard foreign currency Strong demand to work for Club Med at low wages Minimal threat of forward integration by suppliers Brand Identity Club Med name 65% new business through word of mouth Fantasy and romance High Capital Requirements $20 million to $25 million per 600-bed club Need several clubs to gain scale economies Favored Political Status Tax incentives Joint ventures with host governments Determinants of Buyer Power Purchasers are private individuals Price of similar vacation 50%–100% higher if buyers self-package High perceived risk of wrong vacation choice Buyers cannot integrate backward (except for buying a second home or timesharing Intra-Industry Rivalry Few rival firms Most based in Jamacia (Club Med has no Jamacia villages) Determinants of Substitute Threat Buyers Face High-Switching Costs High opportunity cost of leisure time Reasonable Club Med price Risk-averse buyers Price of equivalent alternative vacations Substitutes Few and Dissimilar Cruise ships Traditional resorts EXHIBIT 3 COST COMPARISON

Average Costing of a 7-day holiday in Don Miguel ? Return airfare London/Malaga Coach transfer to resort U. K. government departure taxes Hotel (3-star equivalent) & breakfast Seven three-course lunches (@ ? 15) Wine with lunch and dinner (7 bottles @ ? 5) Seven three-course dinners (@ ? 17) Cycling (6 days @ ? 5/hr) Tennis lessons (6 days @ ? 8/hr) Night club entrance (6 ? ?5) Tips to staff (7 ? ?2) Child care facilities (6 ? 4 hrs @ ? 5/hr) Total Normal Marbella Prices ? 199 ? 20 ? 5 ? 300 ? 105 ? 35 ? 119 ? 30 ? 48 ? 30 ? 14 ? 120 ? 1,025 Typical Club Med Holiday Included Included Included Included Included Included Included Included Included Included Included Included From ? 569

Other activities/facilities included in the price at Club Med Don Miguel: Swimming Pool, Circus School, Archery, Weights Room, Keep? t Classes, Specialty Restaurant, Bridge, Evening Entertainment/Shows, Ping Pong, Jacuzzi, Sauna, Hamman. Other on-site conveniences at Club Med: Bank, Boutique, Medical Center, Bars (bar drinks extra cost), Car Rental, and Laundry Service. Case 1 their everyday lives and bring them together in a relaxing and fun atmosphere in different parts of the world. This feeling can be expected in any of the 110 resorts. This mission is the key to Club Med’s competitive advantage. Consumers anywhere in the world know they will get the same preferential treatment while they are in the Club Med villages.

The company’s strategy of keeping members coming back is carried out by having their guests join a club as members with an initiation fee as well as annual dues. With the membership, they receive newsletters, catalogs featuring their resorts, and discounts on future Club Med vacations. This makes people feel more like a part of the Club Med and creates strong brand loyalty. In fact, an average Club Med vacationer revisits four times after their initial stay at one of its resorts. All Club Med villages are similar in their setup regardless of what part of the world they are located. The resort sites are carefully chosen by taking into consideration the natural beauty (i. e. , scenic views, beachfront, woodland, no swampland, etc. ), good weather, and recreational potential.

Each resort has approximately 40 acres to accommodate all the planned activities: windsur? ng, sailing, basketball, volleyball, tennis, and so on. The resorts’ secluded atmosphere is further exempli? ed by the lack of daily ‘‘conveniences’’ such as: TV, clocks, radios, even writing paper. This is done to separate individuals from civilization so they can relax as much as possible. However, under the new luxury experience model, Club Med is in fact adding room facilities in some of its resorts. Club Med organizes everything in a manner that encourages social interaction between guests. The rooms are built around core facilities such as the pool.

Meals are done buffet style, and the tables seat six to eight people so guests can sit and meet with many different people at every meal. All activities and meals are included in the fee paid before the vacation begins. The only exceptions are bar drinks and items purchased in the small shops; those items are put on a tab and paid for at the end of the vacation as guests check out. The goal behind this all-inclusive price is to limit the number of ? nancial decisions made by the guests so that, once again, they do not have to think of the pressures of the ‘‘real world. ’’ Each day the guests have a choice of participating in a variety of activities.

As evening sets in, there are choices for after-dinner activities such as dancing and shows. All activities are designed to encourage guests to join in. Even the shows allow for audience participation. PROBLEMS ? Until 1996, Club Mediterranee was predicted to have strong sales growth due to successful market penetration in other countries (see Exhibit 4). However, the same expansion that helped the ? rm become famous may be the cause of the ? rm’s disadvantage in relation to its competitors. Club Med does not have as large of a sales increase as it had anticipated. This is due to economic and ecological disasters in countries where Club Med resorts are located. This makes it dif? cult for Club Med to aintain its beautiful resorts in countries that suffer from such disasters. With this knowledge taken into consideration, contracts are drawn up between Club Med and the government of the corresponding country. The key clause in these contracts states that if Club Med is allowed to enter the country, the ? rm • Club Med: Making a Comeback • 625 will increase tourism in the area. In turn, the government will provide ? nancial aid to help pay for the costs of maintaining the new resort facilities. EXHIBIT 4 REVENUES BY REGION (2002) France Europe (excluding France) America Asia 32% 20% 17. 7% 10. 2% Joint ventures with host governments have not proven to be as pro? table as expected.

An example of such a disappointment occurred when the Mexican government agreed to maintain Club Med’s facilities if the corporation would increase Mexico’s tourism level. However, unexpected occurrences, such as depreciation in the country’s currency, limited the amount of capital the Mexican government could allocate to maintain the resort’s facilities. This put Club Med in a dif? cult situation when the ? rm had to suddenly maintain its facilities with less government funds than expected. Although Club Med’s resorts are very pro? table in Mexico, the devaluation of the peso has caused Club Med’s maintenance costs to rise dramatically. This in turn prevents Club Med from reducing its prices and offering customized packages to its vacationers.

A second example of how international resorts reduce the ? rm’s ability to compete effectively is Club Med’s penetration into France. The resorts in the area had been doing well until March 1996. At that time, it became known that France had been conducting nuclear tests in the South Paci? c. This ? caused Club Mediterranee to receive fewer bookings than expected in its Tahiti-based resorts. Tourists avoided these resorts because of riots among residents concerned about the testing; this resulted in negative publicity in this part of the world. The riots, which often occurred in airports, deterred potential tourists from ? ying into this region. Another signi? ant event in the history of Club Med was September 11, 2001, in the United States, which caused a considerable reduction in travel the world over. For Club Med, however, it was followed by the closing of 15 of its villages. Since then, it has reopened six and opened four new villages. The hurricanes in the Caribbean in 2004 also caused some serious damage to Club Med’s resorts in those regions. The company had to rebuild its Punta Cana village and at the time it gave out hurricane protection certi? cates that allowed guests who had lost out on vacation days due to the category 1 hurricane. Guests can exchange those certi? cates for travel to that destination in the future.

Worse still, the terrible tsunami disaster in South East Asia devoured most of its coastline and Club Med’s properties in Malaysia, Phuket, and the Maldives. Furthermore, the region has experienced a huge reduction in tourism. Happenings in one area where Club Med is based often indirectly affect other Club Med resorts as well. With a lower clientele in its Tahiti-based resorts, and in the surrounding territories, Club Med experiences lower revenues and, therefore, acquires less money to maintain these resorts. As a result, 626 • Case 1 • Club Med: Making a Comeback to concentrate its sales and marketing efforts on France, the United States, Canada, Belgium, Japan, Italy, Germany and Switzerland. These countries account for 74 percent of visitors.

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Club Med also plans to enter the Chinese market once again. It tried to enter China a few times before but the effort was largely unsuccessful. Therefore, this time it will not open a resort until it has developed brand familiarity in China by opening a sales of? ce ? rst. The company intends to follow this similar strategy it adopted while entering the South Korean market, which has been growing every year. In January 2005, the company announced that it was opening its ? rst report in Albania. The company’s next step is opening villages in Italy and Brazil. The U. S. is Club Med’s No. 1 target. To increase U. S. visitors, Club Med is considering opening three new resorts around the U. S. one of them being a resort for couples in the Dominican Republic, another being a family report in the Yucatan Peninsula near Mexico, and the third being a family resort in Brazil. It has invested over $350 million from 1998 to 2004, in advertising to rejuvenate their strong brand name in the U. S. , which has been misunderstood because of poor advertising campaigns. Each village is now ranked with two, three, or four tridents, based on amenities and comfort level, with the result that the 13 budget Club Aquarius villages are being folded into the two-trident category. A major expansion is under way around the Paci? c Rim, including new resorts in Indonesia, China, the Philippines, and Vietnam.

As part of its agenda to promote itself and leverage occupancy, Club Med has started entering strategic alliances with ? rms all over the world. In November 2002, it signed a deal with match. com, an online dating company and a part of USA interactive, to offer vacation packages for singles who could ‘casually’ meet people in a different setting. This was part of its focus on the American customer. In the year 2004, Club Med executed its new upmarket strategy. Prior to that, French hospitality group Accor had acquired a 28. 9 percent stake in Club Med, which provided it with the much needed ? nancial assistance and association with a powerful ally. To start with, it changed its brand identity and logo with a makeover expenditure of more than 500 million euros.

The company believed that with consumers’ changing preferences, these were looking for a different vacation experience and it launched its New Luxury product. This included major renovations at its U. S. locations, namely Club Med Columbus Isle, Club Med Buccaneer’s Creek and Club Med Turkoise. Club Med Columbus Isle went through a $5 million upgrade to include more luxury features that include king sized beds, ? at screen TVs and well-stocked minifridges among many other such facilities. Add to that three new dining options and a poolside with eclectic music, daybeds, and lounges that it hopes to offer an experience like no other. The company also spent $ 50 million on refurbishing its resorts at Buccaneer’s Creek and $6 million on the one at Turkoise.

Among the new experiences that Club Med is trying to bring to its members are the unique gym facilities in some of its resorts and the ‘Seven Senses of Summer Program’ offering a different activity every day of the week (including art classes, movie nights, dancing, and meditation). In early 2005, the company launched its ? rst ? agship store in London, UK, known as the ‘The Travel Boutique. ’ the ? rm compensates for such losses by using the pro? ts from other resorts that have not suffered from similar disasters. Problems such as these prevent Club Med from reducing prices by implementing a customized travel package, which would enable the ? rm to compete more effectively in the vacation resort market. WHAT LIES AHEAD? Club Med fell on hard ? ancial times through much of the 1990s, as a result of rundown properties, a reputation for mediocre food and amenities, the aging of the baby boomers, a backlash against the sexual revolution, and an inconsistent message that was ? ltered through eight advertising agencies in different countries. In 1998, Philippe Bourguignon, who is credited with turning around Euro Disney, was brought in as the new chairman to stem the decline. He immediately instigated a $500-million, three-year rescue program. Unpro? table villages and some sales of? ces were closed, and older resorts are being refurbished. Thanks to the new chairman’s leadership, Club Med is making a comeback. Attendance is rising, the company turned a modest pro? t last year, and 74 villages are undergoing a $350 million restructuring.

In April 1999, after the growth strategy was put into action, the stock bounced back from a 12-month low of $63. 67 to close at $84. 17. Occupancy rose to 72. 3 percent last year, up from 69. 1 percent in the 1997 ? scal year and 66. 9 percent in the 1996 ? scal year to 73. 7 percent in 2000. In ? scal 1998, attendance at Club Med rose 5 percent to almost 1. 6 million, although it is still well below the record 1. 8 million set in 1989. Equally important, after huge losses in both 1997 ($215 million) and 1996 ($130 million), the company earned $30 million in revenue of $1. 5 billion in sales. In 2001, revenues were up 5. 1 percent, to 1. 985 billion euros.

Although many problems still confront the resort club, such as a 10 percent loss of room space because of renovations, Club Med appears to be back on track to success. The company ? nally reported a net pro? t of 3 million euros for the six months ended April 2005 compared with a loss of 4 million euros the previous year, its ? rst time in four years, despite calamities such as the devastating tsunami in the Indian Ocean and the continuous storms in the Caribbean, which caused a drop of 4. 3 percent in sales. The company also attributed this positive pro? tability to a slight change in its strategy away from ‘‘two-trident’’ properties to a more upscale position. Boosted by these results, the company is aiming at an operating pro? t of 100 million euros in the year 2006.

After serious losses and cash problems in 2002, former chairman Bourguignon resigned and Henri Giscard d’Estaing was appointed as the new chairman. With this new appointment, the company started looking toward a change in strategy and a brighter future. Current management is well aware of the strong brand recognition that Club Med holds. It is synonymous with the pursuit of pleasure. However, management would like to alter this perception. It would like to eliminate the perception of Club Med as a ‘‘swingers’’ paradise. Even if Club Med wanted it to be such a resort, it would be virtually impossible to compete with resorts that have sprung up in Europe, Asia and the Caribbean in recent years catering exclusively to hedonistic life styles.

But Club Med has not just been renovating properties. A big change is the decision Case 2 For the future, Club Med is scanning for new properties in the Americas that it can convert into boutique style luxury properties like the one on Columbus Isle. DISCUSSION QUESTIONS 1. Given Club Med’s current problems, do you feel the company could have avoided its pricing scheme problems through different expansion plans? 2. Why is Club Med unable to offer competitive prices? • Honda in Europe • 627 3. Given Club Med’s current problems, do you think that ‘‘the Club’’ will be able to survive by keeping its current pricing strategy, or do you think a new strategy should be implemented? 4.

How can Club Med continue to differentiate itself in order to sustain its competitive advantage against its competitors who seem to be imitating its service concepts? C ASE 2 HONDA IN EUROPE INTRODUCTION The Honda Motor Company ? rst entered the European market in the early 1960s through the sale of its motorcycles. The company’s motor vehicles were introduced into Europe at a much later date. Honda’s motor vehicle sales in Europe have been relatively poor, especially in the previous ? ve years. Despite its huge success in the North American market, Honda is struggling to gain a signi? cant foothold in the European market. Honda executives wonder why their global strategy is sputtering.

Is global strategy just a pipedream, or is something wrong with Honda’s European strategy? HISTORY OF HONDA In 1946, Souichiro Honda founded the Honda Technology Institute. The company started as a motorcycle producer and by the 1950s had become extremely successful in Japan. In 1956, Honda entered the U. S. market and was able to position itself effectively, selling small-sized motorcycles. In the early 1960s, the company commenced automobile manufacturing and participated in Formula-1 racing (F-1) to assist its technology development. Thanks mainly to its F-1 efforts, Honda became recognized as a technologically savvy company not only in Japan but in the rest of the world as well.

Until the early 1990s, the company experienced serious organizational mismanagement resulting from tension between the technology side and the marketing-sales side. The situation became so dire that the technology-biased president and founder, Souichiro Honda, was forced out, as a result of his neglect in important marketing decisions. After Souichiro Honda’s departure, the company became more marketingtechnology balanced, and by 1999 it was second in sales only to Toyota in the Japanese market. The company’s underlying success is best summarized in its mission statement, ‘‘pleasure in buying, selling and producing,’’ and ‘‘Beat GM, not Toyota. ’ Honda currently has 25 separate factories in the world, and its operations cover automobiles, motorcycles, ? nancial services, power products, and power tools. In ? scal 2004, 83 percent of Honda’s revenues came from its automobile sector, as outlined in the accompanying table. HONDA’S BUSINESS PORTFOLIO (IN MILLION YEN) Motor cycle Automobile Others Total 446,622 2,918,750 123,733 3,489,105 AUTOMOBILE INDUSTRY The automobile industry worldwide is in the mature stage of its life cycle. By the 1990s, an oversupply of motor vehicles became such a problem to the industry that a number of mergers and acquisitions (M&A) and alliances took place.

In the late 1990s, industry experts stated that only six or seven companies would remain global players, while other companies would be forced to sell in niche markets. In the last decade, DaimlerChrysler acquired a major share of Mitsubishi, GM became the controlling shareholder of Fiat and Saab, Ford acquired Volvo, Jaguar, and a major share of Mazda, and Renault became the controlling shareholder of WORLD AUTOMOBILE PRODUCTION RANKING IN SALES Ranking 1 2 3 4 5 6 7 8 9 10 Name GM Toyota Ford Volkswagen Daimler-Chrysler Peugeot(Citoreng) Honda Nissan Hyundai-Kia Renault Number (million) 8. 303 6. 768 6. 459 4. 881 3. 995 3. 013 2. 904 2. 901 2. 777 2. 282

This case was prepared by Jong Won Ko, Peter Wirtz, Mike Rhee, and Vincent Chan of the University of Hawaii at Manoa and updated by Sonia Ketkar of Temple University under the supervision of Professor Masaaki Kotabe for class discussion rather than to illustrate either effective or ineffective management of a situation described (2006). 628 • Case 2 • Honda in Europe players in the market. The company needs to expand its sales and production in order to survive in global scale competition. Nissan. Global scale production and sales became important as a way to cut cost through developing a common platform or engines as well as global procurement. Unlike their European and American counterparts, Japanese automobile companies, including Honda, did not adopt the M&A strategy for expansion. To remain a global competitor, Honda instead expanded its operations by setting up plants in regional markets.

The following table shows that Honda is currently ranked seventh in the world in auto production. HONDA IN EUROPE Currently, Honda has ? ve regional operations: North America, South America, Japan, Asia-Oceania, and Europe. The European operation covers Europe, the Middle East, and Africa. Honda entered the European market in 1961 as a motorcycle manufacturer, with its automobile operations following several years later. In 1986, Honda started engine production in the UK, and six years later it launched its European production at Swindon in Somerset, UK. Honda opened production facilities in Turkey in 1999 to target the Middle East and Eastern European markets.

The European operation accounts for a small portion of Honda’s global operation, as shown in the following table. BRAND IMAGE IN EUROPE Brand image High BMW DMC Audi Volvo Peugeot Honda Daewoo Hyundai Low Low Fiat GM, Ford VW Renault Toyota Breadth of product High HONDA’S EUROPEAN MARKETING The four largest markets within the European market are those of Germany, the UK, Italy, and France. HONDA’S GLOBAL SALES BY REGION Net Sales (in billion Yen) Japan United States Europe Other Year 2004 3930 4673 948 348 Year 2005 Unit Sales (in thousands) 4138 4705 1043 465 Japan United States Europe Other Year ended March 31 Year 2004 716 1558 231 137 Year 2005 712 1575 267 176 There are a number of reasons for the low sales in Europe. Honda entered the

European market rather late, and its ? rst production facility in the region was built in 1992, at a time when Honda was still only a minor player in the Japanese market. Prior to 1992, Honda Europe was forced to import its vehicles from the United States, making it impossible for the company to aggressively attack the European market. One of the most important reasons for the lack of success was that the European market was highly saturated with locally owned car manufacturers. Companies such as Saab, Volvo, BMW, Audi, Volkswagen, DM, Opel, Renault, Peugeot, and Fiat have been dominating the European market for a considerable number of years.

In addition, other foreign companies, such as Toyota, Nissan, Ford, and Hyundai make the European market extremely competitive. In 2001, Volkswagen was ranked number one in Europe with 17. 6 percent of the market and Peugeot number 2 with 15. 8 percent. Renault, Ford, Fiat, and GM had approximately 10 percent of the market each, and Toyota, BMW, and Audi had a market share in the region of 5 percent. Honda captured only 2. 4 percent of the European market. The competitive industry map below shows Honda’s current position in the European automobile market. The Honda brand image in Europe is relatively weak, and the product line is narrow compared to the other major Product.

Honda’s European manufacturing plant is located in the UK, and as a result, the country has more Honda models than any other country in Europe, with a total of 20. Germany, the country with the highest number of vehicle registrations, has the next largest number of models, 16. Italy and France, both similar in size to the UK, have 11 and 9 models, respectively. The products found in Italy and France are found in Germany and the UK. The UK has a number of automobiles that cannot be found in the other three countries, including diesel-powered cars. Price. The prices of Honda’s vehicles in Europe are comparable to those of similar cars produced by local manufacturers. AUTOMOBILE PRICES

Vehicle Honda Jazz Peugeot 307 VW Polo Renault Clio Opel Astra Fiat Stilo Price (euro) 13,800 13,250 13,930 13,650 13,400 13,500 Case 2 The following table compares the price in euro of Honda’s new 1. 4-liter Jazz with similar cars offered in the European market. The table clearly implies that Honda is attempting to price its product at a similar level to that of the competition. EUROPEAN SALES • Honda in Europe • 629 The following table shows the sales ? gures for Honda’s eight most popular motor vehicles through 2002. Honda’s most successful year was in 1998; since then, however, sales have been decreasing dramatically. HONDA’S UNIT SALES IN EUROPE: 1996–2001

Year 1996 1997 1998 1999 2000 2001 Civic 150,783 160,530 151,270 99,156 74,653 83,024 Accord 44,248 39,410 31,536 48,835 46,579 28,822 Shuttle 3,255 3,278 4,670 4,261 2,956 320 CR-V 11 16,502 41,886 35,923 29,751 24,381 HR-V Logo S2000 Stream Total 203,276 232,242 240,489 234,942 201,284 169,922 88 26,257 28,537 17,726 12,856 10,593 4,145 1,179 3,948 2,195 7,283 Distribution. The image of Honda’s vehicles and motorcycles in Europe is aligned together. Consequently, Honda vehicles throughout Europe are distributed at the same locations that their motorcycles are. Vehicles produced in the UK Honda’s motor vehicles have been relatively unpopular in the majority of Europe, in particular Italy and France. The company’s best sales have occurred in the UK and Germany as shown in the accompanying table. HONDA’S UNIT SALES IN EUROPE BY COUNTRY: 1994–2003

Country UK Germany France Italy 1994 38,187 53,687 14,411 12,063 1995 45,772 52,614 11,848 14,101 1996 50,075 54,550 13,260 15,014 1997 55,611 55,918 12,585 25,406 1998 61,044 48,247 14,095 24,532 1999 65,290 43,610 15,270 22,031 2000 68,736 33,536 8,717 18,570 2001 63,459 31,868 6,495 13,732 2002 77,842 32,580 6,392 15,509 2003 81,858 34,251 5,547 18,887 and Turkey are distributed throughout Europe, the Middle East, and Africa. Recently, because of the depreciating euro ` vis-a-vis the U. S. dollar, cars manufactured in the UK have also been exported to the United States. Promotion. The promotion of Honda’s motor vehicles is essentially the same throughout Europe, whether in France, Germany, Italy, or the UK.

The company spends very little time and money in promotion, however. It believes that its success in Formula-1 racing, together with its ability to produce high-mileage fuel-ef? cient products that exhibit great engineering, is enough to make it popular in the European market. It relies on word of mouth by its customers to potential customers and, to a lesser extent, on the Internet and the company’s various Web sites. In the recent 2002 launch of the Jazz (known as the Fit in Japan), the company relied heavily on word of mouth and on a Web site created especially for the occasion. The Web site, using the same design for all European countries, promoted the car as suitable for young working women.

The Web site attempted to give the car a cool, young image by associating it with Feng Shui, Yoga, and other relatively hip activities. A sense of fun was also attached to the Web site in an attempt to draw in young women. Once inside the Jazz Web site, the user could easily ? nd the nearest dealership to purchase the vehicle. EUROPEAN CULTURE Honda’s relatively poor showing in Europe may be explained by a number of reasons. The main problem was that the company failed to truly understand the culture of Europe, and, more importantly, it treated Europe as one giant single market. Although France, Germany, the UK, and Italy are all European, cultural differences abound among them. One theory that explains the differences between the four nations is that of igh-context versus low-context cultures. In a highcontext culture, the interpretation of messages depends on contextual cues like gender, age, and balance of power, and not on physical written text. In a high-context culture things may be understood, rather than said. High-context cultures include those of China, Japan, Italy, France, Spain, and Latin America. Conversely, a low-context culture emphasizes a distinctive written text or spoken words, where ideas are communicated explicitly. Low-context cultures expect others to say what they mean and do what they say. There is far less emphasis on contextual cues, such as ranking and balance of power.

Examples of countries that fall within this category are the United States, the Scandinavian nations, and Germany. The accompanying ? gure presents a graphical view of high-context and low-context countries. 630 • Case 2 • Honda in Europe CULTURAL CONTEXT Cultural Context High context Japanese IMPLICIT Arabian Latin American Spanish Italian English (U. K. ) French English (U. S. ) Scandinavian Low context Swiss German EXPLICIT CULTURAL CONTEXT Successful advertising in low-context cultures differs from that in high-context cultures. An advertisement for a high-context culture is based on an implicit style where the emphasis is on the overall feel and outlook rather than on the feeding of pure information.

In this type of advertisement, the actual product may not even be shown. The audience may only be given implied images and subliminal messages. Honda’s Jazz Web site contained a large amount of information which would have been too much for high-context cultures such as the French and the Italians. In addition, high-context cultures have been much slower than their low-context counterparts in adopting the Internet. On the other hand, the advertisement for a low-context culture includes the actual product, together with a large amount of information. Low-context nations such as Germany would have most likely been able to appreciate Honda’s Jazz Web site.

It is therefore unlikely that an advertisement/promotion campaign created for a high-context culture will be effective in a low-context culture country and vice versa. Since Europe consists of both high-context and low-context culture countries, companies such as Honda, intending to expand its business, should take into consideration two separate market segments when planning its marketing strategy. Honda’s situation in France, Italy, Germany, and the UK in regard to their culture is outlined in the following sections. France. France is a high-context culture where style and image are of the utmost importance. The perceived quality of a product means that the French have a bias toward the style and image of a product.

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The image of Japanese cars in France is relatively poor, dating back to the 1930s when Japanese manufacturers entered the European market with low-quality products. Since that time, Japanese carmakers, in particular Honda, have not understood the concept of style and image in marketing. They appear to show a car only in a factual way, which is extremely low-context. Japanese carmakers in France have recently tried to alter their image, though with limited success. Today France’s image of Japanese cars, and in particular that of Honda, is that of a small, low-quality car, suitable only for a second car. Most buyers of Japanese cars are young career women who have just entered the workforce and housewives with limited cash.

The main family car is likely to be a Renault or Peugeot and is driven by the man in the family. In addition, the French are risk-averse people, who dislike trying new things. They are also highly patriotic, supporting and purchasing their national products, such as Renault and Peugeot cars. The patriotism and risk averseness of the French, together with their low image of Japanese cars and the large number of other European automobiles available in the market, makes it extremely dif? cult for Honda to be successful in this market. Italy. Italy, like France, is a high-context culture where a great deal of emphasis is placed on feeling and style.

The Italian culture is re? ected in their daily lifestyle, which gives a sense of romance to the people living there. As in France, the Italians view Japanese cars as small, low-quality vehicles, suitable only as a second family car. The most popular automobile in Italy, especially for families, is the Fiat. The Fiat is dominant because the Italians, like their high-context cousins the French, are very patriotic. Italians are also risk-averse and are not adventurous in sampling products outside of Europe. Italians, like the majority of Europeans, love to drive diesel automobiles. Only the French enjoy driving diesel cars more than the Italians.

Case 2 However, Honda produces very few diesel cars, and the only country in which they are offered is the UK, where they are relatively unpopular. The following table shows the ? ve-year diesel car market share percentages in the UK, Germany, France, and Italy. • Honda in Europe • 631 MARKET SHARE OF DIESEL CARS BY COUNTRY Year 1997 1998 1999 2000 2001 UK 16. 17 15. 28 13. 8 14. 1 17. 7 Germany 14. 9 17. 6 22. 4 30. 3 N. A. France 41. 8 40. 2 44. 1 49. 1 N. A. Italy 16. 9 22. 3 32. 1 33. 3 N. A. Euro Avg. 25. 2 27. 7 33. 1 33. 3 N. A. Italy but is more conservative in nature. On the other hand, the English are more individualistic and less risk averse than the French and Italians. Hence, it should be easier for Honda to introduce its range of cars in the UK and to improve sales.

The fact that the manufacturing plant is located in the UK helps in the promotion of the cars. The construction of a second assembly plant should also help Honda’s position in the UK. The existence of the assembly plant, together with the risk-taking nature of the English, has increased the number of Hondas sold in the UK in the last ? ve years to such a level that it is easily Honda’s best market. The number sold in the UK as of 2001 was twice that of Germany, which only ? ve years before had recorded more sales than the UK. However, no Honda vehicle has entered the list of the top ten cars sold in the UK, as shown in the following table for 2001.

The table shows that diesel cars account for 30 to 50 percent of vehicles in France, Italy, and Germany. Diesel cars are hugely popular because of the high gasoline prices in those countries. Diesel engine cars are cheaper to maintain in the long run, compared to gasoline engine cars. A large number of European cars compete in Europe, particularly at the luxury end. BMW, Mercedes, and Audi are very popular for the very rich, as are Ferrari, Lamborghini, and Porsche. It is dif? cult for Japanese cars to enter the European market, especially at the higher end. The only Japanese cars that are selling reasonably well are Toyota’s Yaris, Nissan’s Micra, and Jazz from Honda. All three models compete in the 1. 4 liter and under segment. Germany.

Of the four main European countries in which Honda is sold, Germany has had the second highest sales volume. Germany is a low-context culture where practicality and durability are two of the main concerns of a product. Consumers are concerned with every detail regarding a product and wish to know all relevant information before making a purchase. The promotion style used by Honda on the Internet, bursting with information on their automobiles, seems to be an appropriate form of promotion for the low-context nature of the Germans. Another factor that should place Honda’s products in a better position in Germany is the Germans’ greater willingness to take risks and to purchase new products.

As a result, Honda would not have to spend additional resources to change the image of their vehicles in Germany, as it should probably do in France and Italy. In reality, however, Honda’s sales have been dropping rapidly in the past ? ve years—50 percent of what they were ? ve years ago. If Honda’s promotion is in line with the German’s low-context nature, there must be another reason for the decrease in sales. The most logical is the perceived nature of Honda’s quality. The company needs to use its marketing to promote quality because competitors such as Mercedes (under DaimlerChrysler), Audi, Volvo, Jaguar (under Ford), and Volkswagen, to name a few, are seen as high-quality carmakers. The United Kingdom. The English are a moderately highcontext culture, who focus on tradition and class.

Accordingly, the type of advertising and marketing promotion that will appeal to the English is similar to that popular in France and TOP 10 CARS SOLD IN EUROPE 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Ford Focus Vauxhall Astra Ford Fiesta Peugeot 206 Vauxhall Corsa Ford Mondeo Renault Clio Renault Megane Volkswagen Golf Citroen Xsara POSSIBLE ENTRY WEDGE A possible entry wedge exists in Europe that could help Honda recover some of its lost ground. The European automotive industry is committed to a voluntary agreement to reduce CO2 emissions by 25 percent from the 1995 levels by 2008 for all new cars. As an incentive for individuals to drive lowemission cars, special tax brackets will be given to drivers of low-emission cars.

In 2001, Honda’s Insight produced the lowest levels of CO2 emission of any car in Europe. The following table shows the ? ve cars with the lowest CO2 emission. TOP 5 CARS WITH THE LOWEST CO2 EMISSION Rank 1. 2 3 4 5 Car Honda Insight Peugeot 206 Toyota Prius Renault Clio Audi A2 Engine 1 liter 1. 4 liter 1. 5 liter 1. 5 liter 1. 4 liter Gas Type Gasoline Diesel Gasoline Diesel Diesel Co2 g/km 80 113 114 115 116 The ranking is an excellent opportunity for Honda to promote its cars in Europe, where people (especially in Germany) are obsessed with the environment and are burdened with high taxes. In addition, Honda is introducing the Civic Hybrid in 2003.

It is a gasoline-electric power train, fuel-ef? cient car with a low CO2 emission level. Although the car has an electric engine, it does not need to be plugged in and recharged. The battery pack recharges itself automatically as the car is running. 632 • Case 3 THE ISSUE • Anheuser-Busch International, Inc. : Making Inroads into Brazil and Mexico 2. Is it wise for Honda to market its products the same way in every country? 3. Is pricing its vehicles similar to the competition a good strategy for Honda? 4. Should Honda change its product mix from country to country? 5. Is distributing its motor vehicles together with its motorcycles a good strategy for Honda? 6.

Is the European market too competitive for Honda? Honda is currently at the crossroads of its European expansion in the automobile market. It has been successful in managing to market essentially the same cars in many parts of the world, particularly in the North American and Japanese markets. Honda executives are wondering whether or not they should adopt more localized product development in Europe. DISCUSSION QUESTIONS 1. Does adapting the promotion of its motor vehicles to suit each country’s culture make sense for Honda? C ASE 3 ANHEUSER-BUSCH INTERNATIONAL, INC. : MAKING INROADS INTO BRAZIL AND MEXICO HISTORY In 1852 George Schneider started a small brewery in St. Louis.

Five years later the brewery faced insolvency. Several St. Louis businessmen purchased the brewery, launching an expansion ? nanced largely by a loan from Eberhard Anheuser. By 1860 the enterprise had run into trouble again. Anheuser, with money already earned from a successful soapmanufacturing business, bought up the interest of minority creditors and became a brewery owner. In 1864 he joined forces with his new son-in-law, Adolphus Busch, a brewery supplier, and eventually Busch became president of the company. Busch is credited with transforming it into an industry giant and is therefore considered the founder of the company. Busch wanted to break the arriers of all local beers and breweries, so he created a network of railside icehouses to cool cars of beer being shipped long distances. This moved the company that much closer to becoming one of the ? rst national beers. In the late 1870s, Busch launched the industry’s ? rst ? eet of refrigerated cars but needed more to ensure the beer’s freshness over long distances. In response, Busch pioneered the use of a new pasteurization process. In 1876 Busch created Budweiser, and today the company brews Bud the same way it did in 1876. In 1896 the company introduced Michelob as its ? rst premium beer. By 1879 annual sales rose to more than 105,000 barrels, and in 1901 the company reached the one-million barrel mark.

In 1913, after his father’s death, August A. Busch Sr. took charge of the company, and with the new leadership came new problems: World War I, Prohibition, and the Great Depression. To keep the company running, Anheuser-Busch switched its emphasis to the production of corn products, baker’s yeast, ice cream, soft drinks, commercial refrigeration units, and truck bodies. They stopped most of these activities when This case was prepared and updated by Masaaki Kotabe with the assistance of Sonia Ketkar of Temple University for class discussion rather than to illustrate either effective or ineffective management of a situation described (2006). Prohibition ended.

However, the yeast production was kept and even expanded to the point that Anheuser-Busch became the nation’s leading producer of compressed baker’s yeast through the encouragement of the company’s new president in 1934, Adolphus Busch III. August A. Busch Jr. succeeded his brother as president in 1946 and served as the company’s CEO until 1975. During this time eight branch breweries were constructed, and annual sales increased from 3 million barrels in 1946 to more than 34 million in 1974. The company was extended to include family entertainment, real estate, can manufacturing, transportation, and major league baseball. August A. Busch III became president in 1974 and was named CEO in 1975.

From that time to the present, the company opened three new breweries and acquired one. Other acquisitions included the nation’s second-largest baking company and Sea World. The company also increased vertical integration capabilities with the addition of new can manufacturing and malt production facilities, container recovery, metalized label printing, snack foods, and international marketing and creative services. CORPORATE MISSION STATEMENT Anheuser-Busch’s corporate mission statement provides the foundation for strategic planning for the company’s businesses: The fundamental premise of the mission statement is that beer is and always will be Anheuser-Busch’s core business.

In the brewing industry, Anheuser-Busch’s goals are to extend its position as the world’s leading brewer of quality products; increase its share of the domestic beer market 50% by the late 1990s; and extend its presence in the international beer market. In non-beer areas, Anheuser-Busch’s existing food products, packaging, and entertainment will continue to be developed. The mission statement also sets forth Anheuser-Busch’s belief that the cornerstones of its success are a commitment to quality and adherence to the highest standards of honesty and integrity in its dealings with all stakeholders. Case 3 • Anheuser-Busch International, Inc. : Making Inroads into Brazil and Mexico • 633

ANHEUSER-BUSCH INTERNATIONAL PARTNERSHIPS Country Argentina Partner ? ?a Compan? Cervecer? Unidas ? as S. A. -Argentina (CCU—Argentina) (Cervecer? Costa Rica ? a –La Constanc? ?a –Cervecer? Centroamericana ? a ? –Cervecer? Hondurena ? a ? –Compania de Nicaragua –Cervecer? Nacional) ? a ? Cervecer? Unidas ? Compan? a ? as (CCU) Budweiser Wuhan International Brewing Co. Tsingtao Brewery Co. Ltd. Carlsberg Breweries A/S Brasseries Kronenbourg Guinness Ireland Ltd. Birra Peroni Industrial S. p. A. Kirin Brewery Co. Ltd. Investment Equity investment (of which 28. 6% is direct and indirect); licensed brewing and joint marketing Import, distribution Date Dec. 1995

Central America (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama) Apr. 1994 Chile China 20% equity investment 98% A-B owned brewery, A-B sales, marketing, distribution 4. 5% Equity investment Import, distribution Import, distribution, packaging Licensed brewing; joint marketing Licensed brewing; joint marketing Licensed brewing; joint marketing Kirin sales, distribution Import, distribution Equity investment (of which 50% is direct and indirect) Jan. 2001 Feb. 1995 China Denmark France Ireland Italy Japan June 1993 May 1998 Jan. 1996 June 1986 Apr. 1993 Jan. 2000 Mexico Grupo Modelo July 1989 Jan. 1993 Dec. 1986 South Korea Oriental Brewery Co. Ltd. Licensed brewing; joint marketing

BEER AND BEER-RELATED OPERATIONS Anheuser-Busch, which began operations in 1852 as the Bavarian Brewery, ranks as the world’s largest brewer and has held the position of industry leader in the United States since 1957. More than four out of every ten beers sold in the United States are Anheuser-Busch products. In 2004, when the world’s third largest brewing company, Brazil’s Companhia de Bebidas das Americas (AmBer) joined hands with Belgium’s Interbrew, the combined ? rm InterbrewAmBer became the world’s largest Brewer with a global market share of 14 percent and revenues of over $12 billion. Anheuser-Busch’s principal product is beer, produced and distributed by its subsidiary, Anheuser-Busch, Inc. ABI), in a variety of containers primarily under the brand names Budweiser, Bud Light, Bud Dry Draft, Michelob, Michelob Light, Michelob Dry, Michelob Golden Draft, Michelob Gold, Draft Light, Busch Light, Natural Light, and King Cobra, to name just a few. In 1993 Anheuser-Busch introduced a new brand, Ice Draft from Budweiser, which is marketed in the United States and abroad as the preferred beer because it is lighter and less bitter than beer produced in foreign countries. Bud Draft from Budweiser was ? rst introduced in the United States in late 1993 in 14 states, with a full national rollout in 1994 in the United States and abroad. SALES Anheuser-Busch’s sales grew slowly after a sales decline in 1994.

Net sales increased consistently from 1993 to almost $13. 3 billion in 1998 but fell again to $11. 8 billion in 1999. Net sales were up again in the next ? ve years to $14. 9 billion in 2004. ANHEUSER-BUSCH INTERNATIONAL, INC Anheuser-Busch International, Inc. (A-BII), was formed in 1981 to explore and develop the international beer market. A-BII is responsible for handling the company foreign beer operations and for exploring and developing beer markets outside the United States. Its activities include contract and license brewing, export sales, marketing and distribution of the company’s beer in foreign markets, and equity partnerships with foreign brewers. 34 • Case 3 • Anheuser-Busch International, Inc. : Making Inroads into Brazil and Mexico investing internationally through both brand and partnership development. Through partnerships, A-BII will continue to identify, execute, and manage signi? cant brewing acquisitions and joint ventures, partnering with the number-one or number-two brewers in growing markets. This strategy will allow A-BII to participate in beer industries around the world by investing in leading foreign brands, such as Corona in Mexico through Modelo. A-BII’s goal is to share the best practices with its partners, allowing an open interchange of ideas that will bene? t both partners.

LATIN AMERICA The development of Budweiser in Latin America is one of the keys to long-term growth in the international beer business, for it is one of the world’s fastest growing beer markets and is a region with a growing consumer demand for beer. Anheuser-Busch products are sold in 11 Latin American countries—Argentina, Belize, Brazil, Chile, Ecuador, Mexico, Nicaragua, Panama, Paraguay, Uruguay, and Venezuela—with a total population of over 380 million consumers. In particular, the three countries showing the fastest growth in total beer consumption in the 1990–2000 period are Brazil (+200 percent), Colombia (+130 percent), and Mexico (+100 percent). In Brazil and Mexico—the two largest beer markets in Latin America—Anheuser-Busch International acquired an equity position in their major local breweries. Brazil.

Anheuser-Busch International recently made an initial investment of 10 percent in a new Antarctica subsidiary in Brazil that consolidates all of Antarctica’s holdings in af? liated companies and controls 75 percent of Antarctica’s operations. Anheuser-Busch will have an option to increase its investment to approximately 30 percent in the new company in the future. The amount of the initial investment was approximately $105 million. The investment has established a partnership that gives Antarctica a seat on the board of Anheuser-Busch, Inc. and gives Anheuser-Busch International proportionate representation on the board of the new Antarctica subsidiary. The two brewers will also explore joint distribution opportunities in the fast-growing South American beer market.

According to Scott Bussen (South American representative for A-BII), A-BII is currently in the process of signing a deal that calls for establishing an Anheuser-Busch–controlled marketing and distribution agreement between the two brewers to support sales of Budweiser in Brazil. The deal makes Anheuser-Busch the ? rst American brewer to hold an equity stake in the Brazilian beer market, which is the largest in Latin America and the sixth-largest in the world. Last year the Brazilian beer market grew by more than 15 percent. Its potential for future growth markets is one of the most important global beer markets. The second component of the partnership will be a licensing agreement in which Antarctica will brew Budweiser in Brazil.

The joint venture will be 51 percent owned and controlled by Anheuser-Busch and 49 percent by Antarctica. Antarctica’s production plants will produce Budweiser according to the brand’s quality requirements. Local sourcing of Budweiser will allow more competitive pricing and increased sales of the brand in Brazil. A-BII has a two-pronged strategy: (1) build Budweiser into an international brand and (2) build an international business through equity investments and creating partnerships with, or leading foreign brewers. In seeking growth, Anheuser-Busch International emphasizes part-ownership in foreign brewers, joint ventures, and contract-brewing arrangements.

These elements give the company opportunities to use its marketing expertise and its management practices in foreign markets. The success of these growth opportunities depends largely on ? nding the right partnerships that create a net gain for both companies. Other options for international expansion include license-brewing arrangements and exporting. In addition to its domestic breweries in the United States, the company operates two international breweries in China and the United Kingdom, respectively. Budweiser beer is locally brewed through partnerships in seven other countries, Argentina, Canada, Italy, Ireland, Spain, Japan, and South Korea.

A-BII is currently pursuing the dual objectives of building Budweiser’s worldwide presence and establishing a signi? cant international business operation through joint ventures and equity investments in foreign brewers. Anheuser-Busch brands are exported to more than 60 countries and are brewed under Anheuser-Busch’s supervision in ? ve countries. A-BII has experienced international growth in all operating regions, with a 9-percent market share worldwide, and has the largest export volume of any U. S. brewer. Anheuser-Busch had more than 45 percent of all U. S. beer exports and exported a record volume of more than 3. 4 million barrels of beer in 1998.

From 2002 to 2003, Anheuser-Busch’s international sales volume increased by 5 percent to 8. 4 million barrels. The company now sells beer in over 80 countries worldwide. MARKET SHARE The top 10 beer brands worldwide for 2000 in worldwide market share are shown in Exhibit 1. Most recently, AnheuserBusch has announced several agreements with other leading brewers a

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Case Study Intermarket Essay
2018-10-23 02:41:31
Case Study Intermarket Essay
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