Tag Archives: Contractual

Build your Beer Brand and Business Internationally

logo

Before you send your beer outside your home country and build your brand and business internationally there are a few critical decisions you need to plan.  We will share those key decisions and discuss in more depth with 3 Australian craft breweries – Kaiju Beer, Prancing Pony and Hawkers Beer exporting around the world at the upcoming Australian Craft Brewers Conference in Adelaide on Thursday 27 July 2017 from 2pm – 2.45pm in the Kegstar Room.

Come and join us for Export – Triumphs and Tribulations and gather some usual insights and learning shared by Callum Reeves – Chief Boss @KaijuBeer; Corrina Steeb – CEO and Co-Founder @Prancing Pony; Mazen Hajjar – CEO and Co-Founder @Hawkers Beer and Ben Giles – Senior Trade Advisor at Austrade as you seek to export your beer, brand and business internationally.

  • Where to go? Before you venture off-shore and start shipping or brewing your beer in overseas lands you need to decide Where to go? Which market(s) are best suited to your product(s) in which order of priority? There are a myriad of factors and indicators you can use to help you come to this conclusion.  Unfortunately, in export and in small business too often we see “reactionary undirected spray and pray” approaches to export as opposed to “deliberate, considered, choice based strategic decision making” when it comes to the first fundamental question to answer: Where to go?  Working with many food and beverage clients and delivering capability courses on behalf of the Australian Government to food businesses across Australia we have narrowed the key factors to consider to 5 underneath which you can come up with some lead indicators to make a measured and objective decision on where to go? 1st, 2nd, 3rd… etc in terms of international business development:
  1. Socio-demographics – it is easy to get blinded by the newspaper headlines – like 3 billion middle class drinkers in Asia by 2030 (Rohde, 2012) but you need to dig past the headlines to see that middle class is defined as annual per capita expenditure between US$3,650 and US$36,500. Our work with premium quality food clients suggests you look past the simple population to define your target in terms of age, income and urbanisation and other socio-demographic indicators including penetration of high disposable income luxury chain retailers and/or disposable income for food and entertainment.
  2. Market Attractiveness – the obvious one – what do the numbers say? How much volume, value, cumulative annual growth and more importantly $/L are drinkers willing to spend on beer and other parallel world beverages (alcoholic or non-alcoholic). Some markets may appear huge on the surface in terms of consumption and volume e.g. China but you need to dig again below the surface to see that the average price of a domestically brewed draught beer of 500mL in China is 6.00 ¥ or A$1.15 per pint vs the average Imported Beer 33cl bottle 15.00 ¥ or A$2.88 per 330mL bottle or 250% more for 33% less beer and that is mainstream beer before we even get into craft beer pricing differentials compared to domestic and/or other imported craft beer brands.
  3. Open to Trade – Which markets are open? Importing and exporting a lot of beer around the world? You can dig for data in this space as well to use you head as well as your heart when you consider where you can relatively easily ship your beer in terms of foreign markets.  Common data sources available to mine in this space include ABS statistics for outbound Australian exports (follow the leader) or UN Comtrade for import / export data.  You need to be across your HS Codes and where possible use multiple data sources to triangulate the information.  Knowledge of Free Trade Agreements and where the tariffs are and where they are falling fast is also an important indicator of opportunity.
  4. Market Deterrents – You need to be aware of behind the border trade barriers or markets that have product registrations or stringent labeling guidelines like local language labeling and/or religious certification before port of entry. Some Asian markets have their own local equivalent of a Food & Drug Administration and require product registration before entry including: Thailand, the Philippines and Indonesia to name but a few.
  5. Dispersion – highly concentrated markets either in terms of supply side power of suppliers or retail side in terms of power of buyers are more difficult to penetrate for obvious reasons. Where you see a concentration of market share in a few strong local players or a concentration of market share on the retail side of the value chain you will need to factor in a higher % share of the value chain to the retailers.  Markets with retail duopolies or oligopolies that extract high retail margins not only include Australia but New Zealand, Singapore and Hong Kong as well.

  • How to enter? Once you have narrowed your choice of market(s) to enter to your top 1 or 2 or 3 in terms of order of priority and opportunity you are now able to head to the market and test your hypotheses and validate your assumptions on the right mode of market entry to successfully set up your brand and business in that host country. Depending on how deep your pockets are or the pockets of your investors and shareholders there are three key modes of market entry:
    1. Export the most common and lowest risk first entry mode of many small businesses you need to also take note of the different modes within export and the pros and cons of each entry mode from selling locally to an Australian Based Consolidator or using a local agent to using an in-market agency or selling to a local importer and distributor or direct to an end retail customer. Fundamental to your success in export will be partnering up with the perfect partner to help you implement you go to market launch plan and activate your brand in the host country. Some tips and guidance on how to objectively measure and evaluate a perfect partner for distribution are outlined in our Creatoblog – Looking for Love .  You would not marry someone sight unseen over the internet without meeting them, first would you? So, why would you ship your precious beer sight unseen to an inbound inquiry when you have not checked out the warehouse, distribution, sales and marketing capability of a potential importer in a foreign country?
    2. Contractual modes of market entry include two very common to the brewing industry – licensing and contract manufacturing. Brewing under licence is common for “large multinational brewers” and we might see more of this in craft in the future if craft beer drinkers start to base purchase decisions on factors like freshness and brewed locally for sustainability reasons.  While uncommon to date in craft beer there are some businesses already experimenting with this entry mode the most notable close to home example being Yeastie Boys brewed under licence in UK by Brew Dog and in Australia by Nomad.
    3. Investment is the preferred mode of market entry of the well-resourced large multinational enterprises in search of fast growth. Investment modes of entry include Joint Ventures, Strategic Alliances, Greenfield Investment and Merger & Acquisition.  Some recently publicised equity raisings in craft beer have indicated this mode of entry is under serious consideration for notable northern hemisphere craft brewers looking to more aggressively expand their businesses into the US, Australian and Asian Markets (Kamps, 2016 and The Drinks Association, 2017).

  • When to enter? Finally you need to allocate sufficient $/people/time to resource a go to market launch and activate and generate trial and repeat purchase for your beer in the new host country. You need to be strong at home before you head overseas as your Homebase will fund the early years of investment in your off-shore markets.  There are many ways to get your beer in the hands of drinkers and it is vital you resource your business with sufficient funds and people to support your brand during the vital Go to Market launch phase as the saying goes you only get one chance to make a first impression and there are many great craft beers out there!  Some innovative collaborative ways to activate and share the cost of activating your brand in foreign lands are evident in both craft beer and independent wine and worthy of a closer look:
    1. Brewers Association – Export Development Program (EDP) – set up by the Brewers Association in 2004 the EDP objectives include educating international trade and media about US craft beer diversity and informing BA EDP members about international opportunities based around a host of support activity from participation in trade shows, competitions, seminars, inbound buyer missions, export market research and promotion through international media.
    2. New Zealand Beer Collective – friends abroad the NZ Beer Collective is the collective pooling of resources of 5 Kiwi Craft Brewers to enter the UK market and make a bigger dent together than they can make individually pooling their resources to assist with trade activation and distribution. The members include 8 wired, Renaissance Brewery, Three Boys Brewery, Tuatara, and Yeastie Boys and the Collective was established in was formed in 2016 to act as exclusive importer, national distributor, brand management and sales of the New Zealand Beer Collective in the UK market.
    3. The Craft Beer Clan of Scotland – a collection of 35 Scottish Craft Breweries collectively marketed by J W Filshill Ltd, a wholesale business based in Glasgow and run by very experienced international liquor executives they market collectively their craft beers into fast growth craft beer markets like North East and South-East Asia.
    4. Margaret River Wines – 14 winemakers, ranging from some of the region’s smallest to biggest, are stocking their product in four stores branded “Margaret River Wines” in China. And there are plans afoot to open another six by year’s end, and up to 300 within three years (Pancia, 2017). Teaming up they can directly distribute and educate the Chinese wine drinkers on the premium value and position of “Margaret River Wines”.

Exporting can be a great way to diversify your business, reduce risk and increase scale and economies of production in your brewery at home, not to mention the brand equity and business value you can create abroad if you do it well. Come along to the Australian Craft Brewers Conference in Adelaide on Thursday 27th July 2017, and join us in the Kegstar Room for Export – Triumphs and Tribulations with shared experiences from three Australian craft brewers who are already exporting and be informed of the Government support and assistance available to you from Austrade.

Bibliography and References:

Australian Government (2017) DFAT https://ftaportal.dfat.gov.au/ Free Trade Portal viewed on 11/07/2017.

Austrade (2017) What is EMDG? https://www.austrade.gov.au/Australian/Export/Export-Grants/About/what-is-emdg viewed on 02/07/2017

Australian Brews News (2016) Yeastie Boys announces Sydney venture http://www.brewsnews.com.au/2016/11/yeastie-boys-announces-sydney-venture/ November 14, viewed on 02/072017.

Australian Bureau of Statistics (2017) International Trade http://www.abs.gov.au/International-Trade

Beertown NZ (2016) Yeastie Boys’ future is in the UK http://beertown.nz/wellington/273-yeastie-boys-future-is-in-the-uk Mon, 12 Sep. Viewed on 02/07/2017

Brewers Association (2004) Export Development Program https://www.brewersassociation.org/business-tools/exporting-beer/join-the-edp/ viewed on 02/07/2017.

Cost of Living in China  https://www.numbeo.com/cost-of-living/country_result.jsp?country=China

Creatovate (2014) Take your business off the Road to Nowhere into Lands of Opportunity https://creatovate.wordpress.com/2014/07/23/take-your-business-off-the-road-to-nowhere-into-lands-of-opportunity/ July 23.

Creatovate (2014) How to enter new markets…Export https://creatovate.wordpress.com/2014/10/09/how-to-enter-new-marketsexport/ Oct 9.

Creatovate (2014) Looking for Love? Partnering for growth internationally https://creatovate.wordpress.com/2014/06/19/looking-for-love-partnering-for-growth-internationally/ June, 19.

Creatovate (2014) How to enter new markets…Contractual Modes of Entry https://creatovate.wordpress.com/2014/11/19/how-to-enter-new-markets-contractual-modes-of-entry/ November 19.

Creatovate (2014) How to enter new markets…Investment modes of entry https://creatovate.wordpress.com/2014/12/04/how-to-enter-new-marketsinvestment-modes-of-entry/ December 4.

Chloe Fraser (2017) First Margaret River wine store opens in China https://thewest.com.au/news/busselton-dunsborough-times/first-margaret-river-wine-store-opens-in-china-ng-b88460098z Fri 28 April. Viewed on 02/07/2017.

Haje Jan Kamps (2016) BrewDog brewery raising $50M from the crowd to secure U.S. expansion https://techcrunch.com/2016/08/04/brewdog-equity-crowd/ August 4, viewed on 02/07/2017.

Anthony Pancia (2017) Margaret River wine producers see big future in exports to China as demand grows http://www.abc.net.au/news/2017-05-12/margaret-river-wine-producers-see-big-future-in-exports-to-china/8519932, May 12, viewed on 02/07/2017.

David Rohde (2012) THE SWELLING MIDDLE, Davos, http://www.reuters.com/middle-class-infographic retrieved on 2/07/2017.

Efic (2017) About Efic https://www.efic.gov.au/about-efic/

Food Innovation Australia Ltd (FIAL, 2017) Export Development Program https://fial.com.au/export-market-activity viewed on 02/07/2047.

The Drinks Association (2017) BrewDog announces plans to build Australian craft brewery http://www.drinkscentral.com.au/4751?Article=brewdog-to-open-australian-brewery April 12, viewed on 02/072017.

UN Comtrade (2017) https://comtrade.un.org/ viewed on 02/07/2017

Advertisements

How to enter new markets…Investment modes of entry

Investment

Investment modes of entry are the most significant in terms of investment of your resources – $, people and time and correlating to that can be your most rewarding and risky entry mode.  Following on from the all-important Where to Go? Question as you plan your international business growth strategy is the “How to enter new markets?” Question.  In this our third post of our How to enter new markets …, the first being Export and the second being Contractual  we will explore 4 common Investment modes of entry, their objectives, advantages and disadvantages and pitfalls to be aware as you undertake potentially your most rewarding mode of new market entry.

joint venture

1. Joint Venture

Collaboration between two or more known parties with mutual interest that may or may not necessarily be equal in shareholding and usually relates to a single product or market. Fundamental to building any Joint Venture will be trust and mutual interests and understanding.  Often a ‘marriage of equals’ is favoured over an elephant and a flea type joint venture despite the obvious attraction for the flea to partner with an elephant for growth opportunity.  Finding, getting to know and understanding your joint venture partner(s) interests is fundamental as you are literally ‘getting into bed with a foreign company in a foreign land so best you look for your ‘perfect partner’ wisely and use your head as well as your heart in the decision or match making process.

The advantages of a joint venture are that they are good for accessing manufacturing and/or distribution in markets that are hard to enter e.g. Japan or Korea.  They also help to break down ‘physic distance’ or bridge cultural divides where two cultures come together that are very different as they force parties to get to know each other much more deeply than simple transactional business and take time to understand the host market for your new business.  The disadvantages are they take time to a) find the right partner and b) build the relationship of trust to the point both parties are willing to invest and share resources and profit rewards. They can create competitors and if there is misunderstanding or disagreements they can end badly for the foreign company entering the new country e.g. Danone & Wahaha Joint Venture in China that turned sour or Carlsberg & Thai Beverage falling out after 12 years together in Thailand.  Common interests and mutual benefits may dissolve over time and this is something each party needs to be aware of and plan for alternative dispute resolution in their JV agreements should separation become a reality down the line.

Strategic_Alliances_are_Built_Around_Trust_1

 2. Strategic Alliances

Independent partners come together and develop a long term vision or strategy to cooperate rather than compete in the territories of the alliance.  There typically are no equity investments or binding agreements although that may eventuate over time.  The relationship is organised along horizontal lines with sharing of technology, knowledge, systems and resources.  Strategic Alliances are commonly used in the Airline industry e.g. Star Alliance or Oneworld to pool planes and resources.  Alliances are a great way to share the capital cost of accessing new markets.  Another well documented Strategic Alliance that resulted in cross country and company equity investment that has endured in a hyper competitive industry is the Nissan Renault Strategic Alliance.

Advantages of strategic alliances are that they do not require immediate equity investments or binding agreements however that can also result in less commitment to overcome initial challenges by the parties to the alliance.  Alliances can be good for product, market and distribution development.  The fact there may not be a solid binding agreement locking the parties together or binding agreement means it is likely they can dissolve once the initial mutual agreed objective is met.  For further tips and guidance on building great alliances you can read Kanter’s blog on 15 Steps for Successful Strategic Alliances (and Marriages).

Greenfield Investment

3. Greenfield Investment

The type of investment is where companies typically build plant, infrastructure or manufacturing and sales capacity from the ground up in the foreign host market. In addition to creating new facilities the parent company will create new jobs hiring local and placing international staff in many cases to run the new subsidiary offshore.  The advantages of Greenfield investment are 100% control of your own destiny on the ground overseas and there are often local host government tax incentives to invest and build infrastructure behind their trade borders.  You immediately avoid costs of import/export, tariffs, and behind the border trade barriers.  Questions you need to consider before such significant investment include if you are not working with local business partners, are you confident you can independently source raw materials, manage and access local government departments, understand local customer preferences and recruit, train and retain talented local staff?  The risk level for Greenfield Investment increases significantly with the cross cultural differences or psychic distance and we advise extreme caution in this regard if your business home country and host country are polar opposites in terms of culture and ways of doing business.  This mode of entry tends to be favoured by well-resourced large multi-national corporations or in countries neighbouring or close to home markets where cultures are not that divergent.

M&A

4. Merger & Acquisition (M&A)

Refer to the consolidation of companies. A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed (Investopedia, 2014). More common than uncommon these days as firms seek faster growth “let the buyer beware” is our caution here as it has been widely researched and documented the vast majority of M&A activity does not deliver a return on investment over time.  Study after study puts the failure rate of mergers and acquisitions somewhere between 70% and 90% (Christensen, et al 2011).

The attraction and advantages of M&A include almost immediate access to the new host market with new capacity, people and incoming knowledge and systems to take your own goods or services to market.   Other perceived advantages include a diversification of product and service offerings, an increase in plant capacity, larger market share, utilization of host market operational expertise and research and development (R&D) and a perceived reduction of financial risk compared to greenfield investment.

Time and time again however, we see the same scenario play out post M&A with culture clashes, turf wars, different processes and systems not integrating as easily as planned and dilution of a company brand (Dumon, 2014).  In addition the acquirer often overestimates the synergy savings that can be extracted and in seeking to extract cost saving often dilutes the strength of the independent businesses and brands in the process.

Summary

Investment modes of entry are not for the weak of heart or mind.  Be prepared to stump up more capital, invest more of your top talent time and scarce resources to make new alliances, joint ventures, Greenfield Investments or M&A activity a success.  If you seek to form alliances or joint ventures be sure to use your head as well as your heart to find the perfect partner.  If you seek to be in control and make your own Greenfield Investment or undertake M&A take stock of the cultural and physic differences in your host market.  Audit your own company capability to integrate smoothly into the host market and your understanding of the local culture, customs, and ways of doing business and rule of law and how to interact with government in that market.  Do not be afraid to ask for professional help and services and look to your networks in both your home and host market for case study examples of successful and unsuccessful Investment entry modes into the new market.

Please feel free to add your own comments and experience on investment modes of market entry below and reach out to us for a follow-up face to face discussion at no obligation on your objectives for international business expansion.  Without a clear strategy of Where to Go? How to Enter? Export? Contractual? Or Investment? And lastly when to enter? You risk making mistakes and damaging your growth plans.

Dermott Dowling is Managing Director @Creatovate, International Business consultancy. Creatovate help businesses grow outside their home base from market entry strategy to route to market to go to market launch. Contact Dermott if your business needs help expanding your business internationally.

References:

Clayton M. Christensen, Richard Alton, Curtis Rising, and Andrew Waldeck (2011) The Big Idea: The New M&A Playbook https://hbr.org/2011/03/the-big-idea-the-new-ma-playbook/ar/1   viewed on 4/12/14.

Marv Dumon (2014) Biggest Merger & Acquisition Disaster http://www.investopedia.com/articles/financial-theory/08/merger-acquisition-disasters.asp  viewed on 4/12/2014.

Rosabeth Moss Kanter (2010) 15 Steps for Successful Strategic Alliances (and Marriages), June 10

https://hbr.org/2010/06/15-steps-for-successful-strate HBR Blogs retrieved on 28 Nov 2014.

http://www.investopedia.com/terms/g/greenfield.asp viewed on 4/12/2014.

http://www.investopedia.com/terms/m/mergersandacquisitions.asp  viewed on 4/12/14.


%d bloggers like this: