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Domestic Environment and Impact of Government Regulations
Anheuser-bush is a major brewer in the US (50% market share). In the US, brewing industry accounts for 1.5% of GDP or $198bn (MarketLine, 2014, p. 3). The recent global recession affected US significantly and this negatively affected beer industry. For instance, beer sales, reduced by 2.2% in the US and consumers became cost conscious during the economic downturn. There is also stiff competition and there are many players in the beer industry. In 2010, the traditional brewers were 20 and the craft/ Specialty brewers were 1,599. Nevertheless, the main competitor for Anheuser-bush in the US market is MillerCoors (29% market share). Men are the main beer consumers and represent 80% of consumers. The total population of US was about 310m in 2010 with 79.5m people in ‘Generation Y’. Anheuser-bush mainly targets consumers above 21 years and those in the late 20s since they tend to drink most compared to other consumer segments such as “Generation X” (MarketLine, 2014, p. 6).
TTB, at the level of the federal government, regulates all wineries, breweries and distillers as well as wholesalers and importers in the US. Each state also has their own laws which regulate the beer industry further including taxes and the licenses to sell and manufacture beer (Qiu and Zhou, 2006, p. 39). The legal age from which one can drink is 21 years, thus a large group of potential consumers is left out since they are underage. However, underage drinking is a problem in the society leading to heavy regulations on alcoholic beverage consumption. Beer institute mainly represents beer industry in state and federal government. In addition, there are laws on drunk driving, which also affect the domestic environment of beer companies. By increasing penalty for DUI and apprehending law breakers, the government regulations have contributed to the declining or flat sales of beer in the industry since most consumers have reduced their beer consumption.
Global Environment and Impacts of Government Regulations
In the global environment, there has been increased population growth with expectation of 7.2bn people by next year. There is also increased urbanization and economic growth in developing countries, leading to accumulation of wealth and enhanced living standards (Larimo, Marinov and Marinova, 2006, p. 371). Globalization has also increased, hence beer companies compete globally rather than nationally. The growth of global market and increased competition has impacted on the beer industry. Anheuser-bush is present in the global market since it merged with InBev from Belgian to combine shipping, production and packaging processes, hence attaining greater efficiency, scale economies, decreasing costs and increasing sales volume. Globally, there have been changes in attitudes and preferences towards consumption of beer, which impacts on the amount of beer consumed the brands that thrive and type of drink consumed.
Government regulations and higher tax for beer companies have discouraged operations of the company plants in the US market and the necessitated the need to move operations overseas. Since Anheuser-Bush has a huge presence, economic impact and market share in the US, moving plants overseas could affect US as well. Introduction of BEER Act in 2009 advocated for a reduction in excise tax to $9 from $18 per barrel. However, there are projections that government regulations affecting operations of beer companies will continue to produce varied reactions as the government experience the fiscal pressure, increased deficit and rising cost of health care (Elekdağ, 2008, p. 624). TTB strictly regulates labeling and advertising of beer products which also affects operations of the company in global markets since it must prepare for challenges relating to their practices and be cautious. Non compliance with the government regulations and laws could negatively affect the beer industry since TTB can close or penalize the brewers. Consequently, the response of Anheuser-bush to additional laws and existing regulations will determine whether government regulates impacts on its operations in the global market either negatively or positively.
Hard and Soft Technology and Anheuser-bush Characteristics
In the beer industry, there are major advances in technology relating to beer storage and production and transportation. Consequently, technological advances in quality control and brewery equipment require the breweries to upgrade regularly so as to ensure competitive advantage (Platzek, Winzker and Pretorius, 2011, p. 99). Nonetheless, it is expensive to keep up with technological advancement hence ROI becomes difficult to realize. For consumers like cold beer, the companies have devised ways, such as using cans that appear blue in certain parts when it contains cold beer. Hence soft and hard technology is also required on the production processes and equipments.
In order for Anheuser-bush to be sustainable in both the global and domestic environment, it must characteristics such as efficient production and adopts new innovations used to attract consumers. For instance, the use of beer cans, which can indicate that the beer is cold, can greatly increase its competitive advantage. In addition, since consumers globally are concerned about conservation, the company must consider innovations in alternative sources of energy, recycle products and resource reuse (MarketLine, 2014, p. 8). This may include a ‘Zero Wastage’ goal. Another important consideration for Anheuser-bush is to ensure it understands the global environment, including the beliefs, attitudes, preferences and behaviours of each target market. Besides, given that Anheuser-bush has a huge market both globally and domestically, it must maintain and adopt IT to ensure it has an informative website where existing consumers and potential consumers can obtain information regarding its brands, annual reports, CSR and financial statements. Increased information flow will influence consumer and investor confidence in the Anheuser-bush.
Legal and Political Barriers and How Anheuser-bush Can Succeed
As regards the legal and political barriers in global and domestic environment that impacts on Anheuser-bush, there are mainly four. These include the drinking age, operation hours during the day, the ban on smoking in bars, pubs and restaurants and high taxation. Various target markets and countries have different legal and political barriers since there are liberalized markets and some are not completely liberalized (MarketLine, 2014, p. 10). However, the legal and political barriers are dynamic and can change anytime, hence greatly impact on operations of Anheuser-bush in global and domestic markets. Some markets have high prices for beer products due to the high taxes breweries must pay. Selling its products in selected and strategic stores can also impact on sales volume. Alcohol consumers tend to smoke cigarettes as well as pubs and restaurants, but the passing of laws that ban smoking in restaurants and public bars high impact on the company operations in various global markets. This is because the smokers will not consider visiting public places and bars to take beer.
Porter’s 5 forces can be used to understand how Anheuser-bush can operate successfully. Regarding new entrants and their threats to Anheuser-bush, there are high entry barriers relating to a distribution network, government regulations and a fragmented market. Hence Anheuser-bush must utilize scale economies in distribution, production and marketing its products. As regards rivalry, there is the large number of competitors and increasing popularity of craft beers, although competition in price has largely reduced (Qiu and Zhou, 2006, p. 41). Hence Anheuser-bush must adopt enticing and creative advertisement and consider expanding to beer segments whose demand elasticity is lower. Substitutes include the non-alcoholics like mineral water and juices as well as malt beverage. Nonetheless, beer still remains to be the most consumed drink. The bargaining power of buyers is low due to the brand loyalty and low cost of switching. But Anheuser-bush must focus on light beer since consumers are increasingly health conscious. The bargaining power of suppliers such as farmers and labourers is also low since supplies for Anheuser-bush come from industries that are fragmented compared to the beer industry. However, those supplying cans and bottles may impact on the Anheuser - bush.
Social and Cultural Factors in Global and Domestic Environment
American culture constantly evolves with new generations hence beliefs and ideals change. In a domestic environment, the society believes that excessive drinking and drunk driving are wrong morally (Larimo, Marinov and Marinova, 2006, p. 375). Also, the adoption of social media and the internet make information and opinions to spread quickly in the society, thus the consumers’ voice has high influence on alcohol sales and business operations. Beer drinkers also want options that are healthier as the society shifts towards lower calories and lower fat choices leading to the production of light beer (Hofstede, 2001, p. 13).
In a global environment, there have been changes in demographics with markets such as Western Europe growing older. Also, changes in the proportion of younger and older people affect beer consumption. Another indicating is that younger people globally are more interested in developing careers and education before marriage hence prolonging years when they are single which is advantageous to Anheuser-bush.
In both global and domestic environments, the people are shifting towards healthy lifestyles such as healthy exercising and eating. Both global and domestic environments, staying healthy has become important as the consumption of lighter beers have increased. In contrast, the American culture records higher underage drinking and alcohol abuse that many countries in the global environment (Hofstede, 2001, p. 11). In this regards, the company must continue advocating for a culture of responsible drinking.
Economic Theories of Global and Domestic Environment
PEST analysis can be used to understand the both environments. Politically, there is high taxation, strict laws and regulations on beer consumption and the states have power over breweries (Platzek, Winzker and Pretorius, 2011, p. 98). Economically, the economy in general has been growing globally and as well as the rate of urbanization. Socially, the standard of living has increased globally and domestic environment has improved as the income and spending power of consumers have risen. Technologically, beer industries are keen to adopt technologies and innovations in order to provide quality services to the consumers.
Another economic theory is a SWOT analysis of Anheuser-bush to operate in both environments. Strength of Anheuser-bush includes extensive brands which increases its awareness in global markets. In addition, Anheuser-bush has balanced and diversified exposures in various regions which are important for reducing business risk while production innovation enables sales of Anheuser-bush to grow. Weakness of Anheuser-bush is that retirement benefits of employees, which are unfunded may affect its liquidity (MarketLine, 2014, p. 5). There are also opportunities for Anheuser-bush and this relates to cultural acceptance of alcoholic beverages, rising income, growing market for beer and economic growth. Nevertheless, Anheuser-bush also faces threats from negative perception of beer effects on health, booming counterfeit beer and strict advertising laws and regulations.
Both PEST and SWOT analysis reveal that Anheuser-bush has high potential for growth and expansion due to the various opportunities and strengths of Anheuser-bush. However, there are certain barriers and weaknesses of Anheuser-bush that have been addressed in both PEST and SWOT analysis and these must be addressed accordingly for Anheuser-bush to be successful in both environments. Recommended Strategies for Anheuser-bush
The company also needs to practice premium pricing and strategically increase the brand prices since some consumers associate higher product quality with premium pricing. Since technological advances increase the competitiveness of firms in the beer industry, Anheuser-Bush should also invest more in R&D in order to attain production efficiency and product innovations. The production efficiency may relate to automation as well as packaging and these are important for scale economies and low cost production. Eventually, the company will outperform all the competitors in the global market as in the domestic market.
References
Elekdağ, S. (2008). How does the global economic environment influence the demand for IMF resources? IMF Staff Papers, 55, 4, 624-653.
Hofstede, G. (2001). Culture's recent consequences: using dimension scores in theory and research. International Journal of Cross Cultural Management, 1, 1, 11-17.
Larimo, J., Marinov, M. & Marinova, S. (2006). The Central and Eastern European brewing industry. Journal of management, 108, 5, 371- 375
MarketLine (2014, June 19). Company Profile: Anheuser-Busch InBev SA/NV. Retrieved from www.marketline.com
Platzek, B. P., Winzker, D. & Pretorius, L. (2011). Global business environment: Holistic entrepreneurship. SCMS Journal of Indian Management, 8, 1, 96-114
Qiu, L.D. & Zhou, W. (2006). International mergers: Incentives and welfare. Journal of International Economics, 68, 1, 38-58.
