SWOT Analysis for Carlsberg Company Strategic Management Case Discussion SWOT Analyst- (Job G). Conduct a SWOT analysis on the company we are studying. You

SWOT Analysis for Carlsberg Company Strategic Management Case Discussion SWOT Analyst- (Job G). Conduct a SWOT analysis on the company we are studying. You may use a chart for this deliverable. However, you need to make one recommendation based upon the information you provide in your analysis.no word limit C-47
Case 4: Carlsberg in Emerging Markets
CASE 4
Carlsberg in Emerging Markets
A breeze of optimism blew through the office of Carlsberg
A/S’s CEO, Jørgen Buhl Rasmussen. After finally gaining 100 percent control over the giant Russian brewery
Baltic Beverages Holding (BBH), and with the investments in Western China beginning to bear fruit, the
newly appointed CEO was confident that the Danish
brewing company’s intensified focus on emerging markets would pay off. The company was counting on tapping the massive potential in emerging markets in order
to achieve a much-needed reduction in its dependency
on the maturing and stagnating Western European beer
markets, which accounted for a full 61 percent of the
company’s revenue in 2007.
Indeed, Carlsberg’s emerging market efforts had
come a long way. In the Russian market, which was considered to be one of the fastest-growing beer markets
in the world, Carlsberg enjoyed market-leader status
through its ownership of BBH. In that market, it had a
sales volume of approximately 23 million hectoliters of
beer in 2007 and revenue of kr 9 billion (US$1.8 billion).
As for the highly promising Chinese market, which was
regarded as the world’s largest beer market in terms of
population and size, the Danish company had achieved a
55 percent market share in the western parts of the country, and it operated 20 brewery plants in China with close
to 5,000 employees. In fact, as Carlsberg recognized that
the European markets would eventually reach a point of
saturation, the aim of the Chinese investments was to
create a platform for future growth and revenue.
The outlook for Carlsberg had not always been as
bright as it appeared by 2008. Carlsberg’s emerging
market strategy had taken a long and winding road. For
instance, Carlsberg’s acquisition of the BBH shares was
the result of a troubled and expensive partnership with
Norwegian Orkla ASA. In addition, before Carlsberg
had become successful in the western provinces of China,
the company had spent plenty of valuable time and
resources trying to enter the rich provinces of southeastern China, a strategy that had failed. Furthermore, in the
early 2000s, Carlsberg was on the brink of being reduced
to a secondary player in the global beer market—as the
consolidation of the industry proceeded, Carlsberg A/S
became an obvious takeover target and was also at risk
of being cornered as a small regional player. Nonetheless,
in 2008 as the first decade of the millennium neared an
end, Carlsberg was the fifth-largest brewery in the world
in terms of volume produced. Much of this reversal of
fortune could be attributed to the company’s emerging
market focus.
Despite Buhl Rasmussen’s optimism about the future,
the real question was how Carlsberg A/S could successfully continue to capitalize on its growing engagement
in emerging markets. “We don’t know how large the
Chinese market will be in five years, and I don’t know
if China can become a new BBH,” the CEO explained,
“but it is definitely not impossible, as the market is
enormous.”1 It was no surprise that competition was
becoming increasingly fierce in this booming emerging
market, and history had clearly proven that doing business successfully in this market required unconventional
approaches.
Introducing Carlsberg A/S
The successful course and strategy which Carlsberg has
pursued in recent years will remain basically the same
no matter what. The strategy has proved its worth with
growth and better results, and it is now strongly rooted in
our organisation. Our business is thus to focus on the beer
markets in Western Europe, Eastern Europe and Asia.
— Carlsberg A/S CEO, Jørgen Buhl Rasmussen2
As the fifth-largest brewing company in the world,
Carlsberg A/S’s vision was “our brands will be the consumer’s first choice, and we will lead our industry in
profitability and growth through a culture of quality,
innovation and continuous improvement.” Moreover,
Carlsberg saw itself as “probably the best beer company
in the world.”3
The core businesses of Carlsberg A/S were brewing,
marketing and selling beer. In 1847, J.C. Jacobsen opened
the doors of Carlsberg A/S’s first brewery in Copenhagen,
Denmark, and the first foreign brewery was established
in Malawi in 1968. In 2007, the company had 33,000
Associate Professor Michael W. Hansen, PhD Student Marcus Møller Larsen and Professor Torben Pedersen wrote this case solely to provide material for class
discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain
names and other identifying information to protect confidentiality. Richard Ivey School of Business Foundation prohibits any form of reproduction, storage
or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization.
Copyright © 2011, Richard Ivey School of Business Foundation. One time permission to reproduce granted by Richard lvey School of Business Foundation.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
C-48
Part 4: Case Studies
Exhibit 1 Carlsberg A/S Financial Figures
2003
2004
2005
2006
2007
Beer
81.4
92.0
101.6
100.7
115.2
Soft drinks
21.2
19.4
19.1
20.2
20.8
34,626
36,284
38,047
41,083
44,750
2,688
1,651
1,892
3,029
3,634
Sales volume (million hl)
Profit and loss account (kr million)
Net revenue
Profit before taxation
Profit for the year
1,719
1,269
1,371
2,171
2,596
Balance sheet total
46,712
57,698
62,359
58,451
61,220
Equity
11,276
15,084
17,968
17,597
18,621
8,929
21,733
20,753
19,229
19,726
Operating margin, %
10.3
9.4
9.2
9.8
11.8
ROIC, %
12.4
8.1
7.8
9.2
11.7
Equity ratio, %
38.3
29.1
31.3
32.5
32.6
Net interest-bearing debt
Key ratios
Debt/equity (financial gearing), X
Employees
0.50
1.29
1.06
1.01
0.99
31,531
31,703
30,208
31,680
33,420
Source: Carlsberg Annual Report 2007.
employees, held a portfolio of 75 breweries around the
world and sold approximately 115 million hectoliters
of beer in more than 150 countries, with net revenue
of kr44,750 million (€6,000 million) (see Exhibit 1).
Carlsberg’s areas of operation focused on the mature
beer markets of Western Europe, the growth markets of
Eastern Europe and the emerging Asian markets. Behind
this strong position of the company was a major reorientation and restructuring of the company in recent years:
“Progress in revenue and share prices has been driven
by a fundamental revolution of the company,” explained
former CEO Nils Smedegaard Andersen. “We have purchased and then professionalized the business. At the
same time, we have worked with the structure.”4
Organization
Despite Carlsberg’s position as the fifth-largest brewery in the world by 2008 (see Exhibits 2 and 3), at
the beginning of the 2000s, it had found itself largely
excluded from the league of large international breweries. Carlsberg, it then seemed, was losing ground as one
of the strongest brands in the world, and was considered
by analysts to be an obvious takeover target for larger
breweries. In an attempt to cope with these difficulties,
a merger with Norwegian Orkla ASA’s brewing activities was executed in 2000 and resulted in the creation
of Carlsberg Breweries. Carlsberg A/S owned 60 percent
Exhibit 2 The Global Beer Industry, 2007
Largest breweries
Sales volume (mil. hl)
1 InBev
271.0
2 SABMiller
239.0
3 Anheuser-Busch
128.4
4 Heineken
119.8
5 Carlsberg
115.2
Source: Companies’ annual reports.
of the new entity, while Orkla held 40 percent. Among
the positive aspects of this merger was Orkla ASA’s 50
percent ownership in Baltic Beverages Holdings (BBH),
which offered Carlsberg the possibility to strengthen its
position in the Eastern European markets. However, after
a number of strategic disagreements, Carlsberg bought
Orkla out of the merger in 2004. Although this move put
Carlsberg into severe debt, former CEO Nils Smedegaard
Andersen was content: “We are market leaders in a handful of large countries, we own half of the largest brewery
in Eastern Europe and we possess a majority share in
a number of European breweries.” He also emphasized
that “the acquisition of Orkla’s Carlsberg shares, as well
as Holsten, prove that, during the last five years, we have
reached a size and economic capacity that allow us to
invest very large sums of money.”5
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
C-49
Case 4: Carlsberg in Emerging Markets
Exhibit 3 Carlsberg A/S Global Markets, 2007
Beer consumption
per capita (L/year)
Market
Position
Market
Share (%)
Employees
Breweries
Denmark
83
1
64
2,332
2
Norway
59
1
52
1,554
3
Sweden
52
1
38
1,152
1
Finland
87
1
50
1,003
2
United Kingdom
91
4
13
2,060
2
Western Europe
Germany
115
1
Switzerland
59
1
1,449
4
41
1,453
2
Italy
32
Portugal
64
3
6
802
1
1
52
892
2
75
1
38
n.a.
10
Eastern Europe (BBH)
8,174
Russia
Ukraine
58
3
20
n.a.
3
Baltic states
67–98
1
45
n.a.
4
Kazakhstan
34
1
23
n.a.
1
Uzbekistan
11
2
25
n.a.
2
88
3
13
1,319
3
64–84
2–3
15–23
1,336
4
11
2
15
564
1
Malaysia
5
2
44
596
1
Singapore
19
2
23
67
Vietnam
17
4
10
570
2
(1)
(55)
4,754
20
n.a.
n.a.
n.a.
5
Eastern Europe (excl. BBH)
Poland
Southeast Europe
Turkey
Asia
China (Western China)
29 (15)
Other countries
n.a.
Invested capital
(kr mil.)
Western Europe
Beer Sales Pro
Rata (mil. hl)
Revenue
(kr mil.)
Operating
Profit (kr mil.)
Operating
Margin (%)
ROIC (%)
16,152
28.5
27,944
2.738
10.0
16.0
Eastern Europe (BBH)
8,987
29.1
10,435
2.338
22.4
29.1
Eastern Europe (excl. BBH)
4,248
14.8
4,267
477
11.2
11.3
Asia
3,033
9.6
2,535
330
13.0
11.5
Source: Carlsberg Annual Report 2007.
In retrospect, Carlsberg’s ownership structure was a
main contributor to the difficulties of financing expansion. The largest shareholder of Carlsberg A/S was the
Carlsberg Foundation, which was established by J.C.
Jacobsen in 1876 with the purpose of funding scientific
research and social work. The Foundation was obliged to
own at least 51 percent of Carlsberg A/S’s shares, which
hindered the quick release of capital for acquisitions and
blocked potential fusions with large, foreign breweries.
This was a serious disadvantage for an international
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
C-50
Part 4: Case Studies
brewery fighting to be among the top players in a rapidly
consolidating industry.
Carlsberg A/S appeared unable to secure continuous growth and development, and many feared that the
company would become a superfluous player. However,
after the buyout of Orkla ASA, Carlsberg’s management
started to look forward. As Povl Krogsgaard-Larsen, the
Carlsberg Foundation’s chairman, pointed out, “We then
began to prepare ourselves for our next move, namely to
change the charter of the Foundation. This would give
Carlsberg more freedom to act, as the Foundation was
locked in terms of capital after we bought Orkla’s shares
back.”6 As a result of this process, the Foundation was ob­­
li­­gated to own only 25 percent of Carlsberg A/S shares
after May 2007, which created more room for new capital.
In May 2008, Carlsberg, in cooperation with
Heineken, completed a kr104 billion (US$22 billion)
acquisition of the largest British brewer, Scottish &
Newcastle. This acquisition gave Heineken control over
Scottish & Newcastle’s British activities, while Carlsberg
obtained the remaining 50 percent of the Russian brewery Baltic Beverages Holding. Naturally, this major
acquisition increased Carlsberg’s debt, which reached
kr58.3 billion in May 2008 (US$12.1 billion).
Towards an Emerging Market Strategy
With global beer brands such as Carlsberg Pilsner
(“Probably the best beer in the world”), regional brands
such as Tuborg, Holsten and Baltika, and a number of
leading local brands, Carlsberg’s most important markets were in Western Europe, which accounted for 61
percent of revenue in 2007. Furthermore, the company
held a strong position in the growth markets of Eastern
Europe and in the emerging Asian markets, with Russia
and China serving as the most notable examples. The
booming Indian market was also regarded as a market of
increasing importance. The Eastern European and Asian
markets accounted for 33 percent and 6 percent of revenue in 2007, respectively (see Exhibit 3).
The global brewing industry of the mid-2000s was
characterized by a process of intense consolidation, in
which the number of breweries continuously declined.
By 2007, the industry was basically controlled by the
four largest breweries in the world (see Exhibit 4). This
consolidation process could be ascribed to changes in
consumers’ beer-drinking habits as well as increasing
production costs. In the mature European and American
markets, beer consumption had been falling as a result
of growing health consciousness and increased competition from wine and spirits, while the Eastern European
and Asian beer markets were booming. Given the rising
costs of inputs, such as glass, aluminum and hops, the
large breweries were seeking to consolidate and increase
their market share as they searched for economies
of scale in relation to everything from production to
advertising. For the consolidation of foreign markets,
acquisitions and joint ventures with local firms were the
preferred modes of entry for the largest companies in
the beer industry, as they allowed acquiring companies
to gain access to local brands, distributional networks
and local market knowledge through partnerships with
local breweries.
As markets around the world became increasingly
consolidated, Carlsberg recognized its inability to become
a truly global company. The North and South American
markets had been lost to other well-known, established
breweries, and the potential offered by the African
markets was of limited interest. The Western European
markets were already consolidated to a great extent, so
Carlsberg decided to focus on Eastern Europe and Asia
as a means of achieving future growth. Investments in
these emerging markets were financed through revenues from activities in the Western European markets.
Carlsberg’s activities in Eastern Europe, particularly
in Russia, were expected to offer sizeable potential for
several years. However, expectations were perhaps even
greater for the long-term potential of the Asian markets,
especially China, where Carlsberg was making considerable investments. In fact, Carlsberg’s emerging market
focus was considered vital for the company’s ability to
remain a major player in the beer industry. “We want to
ensure that we have positions with future growth potential, and we will be relatively patient,” former CEO Nils
Smedegaard Andersen argued in 2005. “We are unable
to say anything about how long it will take, but right now
we believe that a market-leading position will be interesting in five to 10 years. How interesting will depend on
the competition, the economic development and many
other conditions.”7 The increase in optimism concerning Carlsberg’s future was, therefore, due in large part to
the fact that the company had abandoned its strategy of
becoming a global player and instead focused on capitalizing on emerging markets.
Central to Carlsberg’s business strategy was a focus
on value creation and profitable growth. The Western
European strategy was to ensure “improved profitability through innovation and streamlining,” while “rapid
growth and higher earnings” were emphasized in Eastern
Europe. The Asian strategy was “long-term growth
through building up market positions” (see Exhibit 5).8
The beer industry’s mantra, according to Heineken
CEO Jean-Francois van Boxmeer, was that it was not
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
C-51
Case 4: Carlsberg in Emerging Markets
Exhibit 4 Carlsberg’s Competitors
InBev
2003
2004
2005
2006
2007
108
162
224
247
271
7,004
8,568
11,656
13,308
14,430
505
719
904
1,411
2,198
Sales volume (mil. hl)
Net revenue (mil. €)
Net profit (mil. €)
Worldwide beer volume 2007, %
North America
4.6
Latin America North
37.3
Latin America South
11.3
Western Europe
13.3
Central and Eastern Europe
18.2
Asia Pacific
13.4
Global Export and Holding Companies
1.9
Famous brands: Stella Artois, Beck’s, Hoegaarden, Leffe, Staropramen, Labatt Blue.
Anheuser-Busch
2003
2004
2005
2006
2007
110
117
122
125
128
Net revenue (mil. €)
9,151
9,660
9,726
10,166
10,793
Net profit (mil. €)
1,343
1,449
1,190
1,271
1,368
Sales volume (mil. hl)
Worldwide beer volume 2007, %
United States
81.3
International
18.7
Famous brands: Budweiser, Michelob.
Heineken
2003
2004
2005
2006
2007
85
97
101
112
120
9,255
10,062
10,796
11,829
12,654
798
642
761
807
1,211
Sales volume (mil. hl)
Net revenue (mil. €)
Net profit (mil. €)
Worldwide beer volume 2007, %
Western Europe
30.4
Central and Eastern Europe
10.5
Americas
36.8
Africa and the Middle East
Asia Pacific
6.5
15.8
Famous brands: Heineken, Amstel.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
C-52
Part 4: Case Studies
Exhibit 4 Carlsberg’s Competitors (continued)
SABMiller
2003
2004
2005
2006
2007
Sales volume (mil. hl)
n.a.
n.a.
n.a.
n.a.
239
Net revenue (mil. €)
8,179
9,407
11,048
13,354
15,412
417
984
931
1,067
1,309
Net profit (mil. €)
Worldwide beer volume 2007, %
Latin America
25
Europe
20
North America
10
Africa and Asia
12
South Africa
33
Famous brands: Pilsner Urquell, Peroni Nastro Azzurro, Grolsch, Carling’s Black Label.
Source: Companies’ annual reports.
Exhi…
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