This Document Contains Cases 1 to 4 Case 1: Kindle Fire: Amazon’s Heated Battle for the Tablet Market INTRODUCTION This case is about how Amazon started to compete in the tablet market from the perspective of its founder Jeff Bezos. It provides an overview of the strategic entrepreneurship process under his vision, emphasizing the entrepreneur mind-set and innovation. Bezos was able to formulate and utilize the entrepreneurial opportunities presented to him. The case opens with a history of Amazon, describing how Bezos started out his company in a 400-square foot garage. By 1999, Amazon became the largest online bookstore, and by 2001, it turned its first profit. While other brick-and-mortar-based competitors struggled to transit to e-commerce, Amazon was able to succeed by many innovative strategic moves, such as user-based reviews of products and 1-click ordering on the website. All the while, Bezos tried to be innovative and be the first mover. As he stated in his 2010 annual letter to shareholders, “invention is in [Amazon’s] DNA.” Amazon continues to offer more innovative products such as cloud-based services. This case focuses on one particular product from Amazon, the Kindle Fire. The Amazon Kindle was launched in 2007 and went through many product development phases. Bezos believed that the e-book ecosystems can bring Amazon many potential revenue streams, and thus Amazon Kindle was selling at cost (or below cost as some analysts believed). Kindle Fire was previewed in 2011 and referred as “the culmination of the many things we’ve [Amazon has] been doing for 15 years.” The strategies of Kindle Fire are examined and the competitors (mainly Apple and Barnes & Noble) are analyzed. This case is ideal for demonstrating the importance of the business-level strategy, competitive rivalry, and strategic entrepreneurship. The following points are to guide a review and discussion of these important concepts. • Define Amazon’s business-level strategy. Based on the analysis, what changes should Bezos make in his efforts to significantly differentiate the company? • How does Amazon’s Kindle Fire strategy stand up against competitive rivalry in the industry? • Describe the entrepreneurial characteristics of Amazon. How has Bezos promoted innovation within the organization? • Is the current strategy for Amazon’s Kindle Fire suitable for the existing market? What recommendations can be made to address strategic concerns and safeguard Amazon’s growth and market share? ANALYSIS • Define Amazon’s business-level strategy. Based on the analysis, what changes should Bezos make in his efforts to significantly differentiate the company? The purpose of a business-level strategy is to create differences between a firm’s position and those of its competitors. Base on the target market and basis for customer value, there are five business-level strategies as shown below: For Amazon, most of its products target broad market and focus on lowest cost possible. Thus, Amazon implements a cost leadership business-level strategy. For example, even though a Kindle device cost a lot in R&D and many efforts in terms of bringing in publishers to convert their books to e-books, a Kindle device was sold at a profit margin of barely 5%. Amazon believes that once a customer has a Kindle device, the device will become a tool for brining in the customer into Amazon’s ecosystem of content. Over the years, Kindle 6” e-readers’ price has dropped significantly. The table below shows the price change from 2007 to 2012. The key of implementing a cost leadership business-level strategy for Amazon is to offer relative standardized products with features acceptable to most customers at the lowest competitive price. In order to remain a cost leader, Amazon has employed process innovations that facilitate extremely efficient production and distribution methods. It has also successfully controlled production costs and overheads and minimized costs of sales and service. Bases on Porter’s five forces of competition, the analysis is as below: » The threats posed by new entrants: The treat is high because Amazon usually is the leader in innovation and also the first mover in many products. For example, soon after Kindle was introduced, Barnes & Noble also came out with a similar product called the Nook. Apple also released the iPad, which was proven to be very successful. » The power of suppliers: Because Amazon is a very big online retailer, suppliers do not have very much bargaining power. In fact, if a supplier cannot offer a competitive price, it will eventually be driven out of the competition. » The power of buyers: The customer base for Amazon demands lowest price, and most of them know how to shop online for the best price. Thus, Amazon has to remain a cost leader in order to keep its customers. » Product substitutes: There are many substitutes for the products that Amazon offers. For example, the Nook Tablets and the iPads are substitutes for the Kindle devices. » The intensity of rivalry among competitors: It is hard for other companies to compete with Amazon because of Amazon’s size and efficient distribution methods. Rivals are usually hesitant to compete on basis of price. Based on the Five Forces analysis, it will not be easy for Amazon to remain a cost leader unless Bezos continues to innovate and cut cost. The main issues with implementing a cost leadership business-level strategy are obsolescence, cost reductions, and imitation. In order for Amazon to remain a cost leader, it will need to constantly improve its products and services, and come out with newest technology and solutions; at the same time, Amazon has to offer all these at a very competitive price. • How does Amazon’s Kindle Fire strategy stand up against competitive rivalry in the industry? The Kindle Fire was previewed in 2011, and it came preloaded with a modified version of the Google Android OS. It has 7” color LCD touch screen, a Wi-Fi radio, a powerful dual-core processor, a fixed 8 GB of internal storage, and a free cloud storage. In 2011, the global top media tablet brands are: As the table demonstrated above, Amazon’s Kindle devices do not even compete well against Apple’s iPads. Kindle Fire’s direct competitors are the Nook Tablets by B&N, and the iPad 2 by Apple. Apple has been extremely successful in terms of the tablet market. The iPad 2 is bigger than a Kindle Fire (in terms of screen size) but thinner than a Kindle Fire (though also heavier). A Kindle Fire targets media junkies, children and mobile gamers, and higher education. How does amazon compete against Apple and B&N? » The Kindle Fire against the iPad: The iPad was the first mover in the tablet market. Apple has very royal customer base because it has successfully implemented a differentiation business-level strategy. The late Steve Job became the face of Apple that signified innovation, simple but yet sleek design, and perfection to details. The iPad is a perfect device in between a smart phone and a laptop. It serves as a multipurpose, Swiss army knife–type device. However, it is also 3 to 4 times more expensive than a Kindle Fire. If Amazon can secure its content offerings, for example, making the Amazon TV selections significantly larger than its competitors, the Kindle Fire may be able to take away Apple’s iPad market because of its substantially lower price. » The Kindle Fire against the Nook: The Nook and the Kindle Fire are very similar in terms of the hardware specifications. However, B&N was selling the Nook with heavy promotions that might have been ultimately responsible for the profit loss of B&N (it was selling the Nook for $99 if a customer subscribed to the New York Times.) The Nook and the Kindle Fire offer different user experiences: Amazon’s focus was on its own content and services, whereas B&N focused on providing its own text-based content and allowing third parties to deliver the rest. If Amazon can continue to offer a full package, including a better browsing experiences and cloud-based services, the Kindle Fire can remain ahead of the competition against the Nook. • Describe the entrepreneurial characteristics of Amazon. How has Bezos promoted innovation within the organization? Strategic entrepreneurship is composed of entrepreneurial actions (exploiting found opportunities in the external environment) through a strategic perspective (innovation efforts). The key is to identify opportunities to exploit through innovations and determine the best way to manage the firm’s innovation efforts. Jeff Bezos started his company in a 400-square-foot garage. By 2011 (fifteen years later), Amazon reported $50 billion in revenues, and controlled 10 percent of the North American e-commerce market. Amazon fosters entrepreneurship through the following: » Risk-taking: Bezos has been willing to take risks in the world of e-commerce. First, Amazon was one of the first online retailers to offer Amazon Prime express shipping subscription services. For an annual fee of $79, subscribers to Amazon Prime can enjoy unlimited 2-day express shipping, making the customers more motivated to shop at Amazon. In addition, Bezos founded Lab126 hardware development group, which developed the e-reader, the Kindle. Bezos took a lot of risks because the R&D cost a lot of time and money. It took Amazon six years to become profitable because of its commitment to innovation and Bezos’ willingness to take risk. » Committed to innovation: Bezos stated in his 2010 annual letter to shareholders that invention is in Amazon’s DNA. Under his leadership, Amazon has gone from a small online retailer to the world’s largest bookstore by 1999, and by 2011, controlled 10 percent of the North American e-commerce market. Under Bezos strategic entrepreneurship, Amazon has been repeatedly been at the forefront of the e-commerce market by pushing out new products and services, such as cloud-based services and the Kindle device. Amazon also promotes a “service-oriented architecture” the “fundamental building abstraction” for all Amazon technologies. This focus on internal technology development had led to a culture of innovation for Amazon. » Proactive in creating opportunities rather than waiting to respond to opportunities created by others: As described above, Amazon was in the front of innovation and created its own opportunities by offering new services and products. Amazon has a long history of investing in emerging opportunities years ahead of revenues or profitability. STRATEGY • Is the current strategy for the Amazon’s Kindle Fire suitable for the existing market? What recommendations can be made to address strategic concerns and safeguard Amazon’s growth and market share? The Amazon’s Kindle Fire was previewed on 9/28/2011. It was an improved version of the Kindle device that Amazon had offered before. It had a 7-inch, color LCD touchscreen, a Wi-Fi radio, a dual-core processor, an 8 GB of internal storage, and free cloud storage for content purchased from Amazon. It also featured Amazon Silk, a cloud-accelerated web browser that can handle the computation necessary to render webpages in the cloud. Other featured included: » Tens of thousands of preapproved apps and games available for purchase and download through the Amazon app market » Movies, TV shows, songs, and magazines available for streaming or download (Prime subscribers received streaming access to more than 13,000 movies and TV shows for free) » The Kindle Fire came with a free one-month subscription to Amazon Prime to encourage a customer’s integration into the Amazon ecosystem of content, goods, and services The Kindle Fire was speculated to have been sold at cost or even below cost. The Kindle Fire would soon face competition from Apple (iPad 2) and B&N (The Nook). There are several customer segments for the Kindle Fire: » Media Junkies » Children and Mobile Gamers » Higher Education In terms of Positioning, the Kindle Fire’s biggest competitor is the iPads. The iPad was the first mover in the tablet market. Apple has a very royal customer base because it has successfully implemented a differentiation business-level strategy. However, it is also 3 to 4 times more expensive than a Kindle Fire. The Kindle Fire’s second largest competitor is the Nook. The Nook and the Kindle Fire are very similar in terms of the hardware specifications. However, the Nook and the Kindle Fire offer different user experiences: Amazon’s focus was on its own content and services, whereas B&N focused on providing its own text-based content and allowing third parties to deliver the rest. The Kindle Fire also faces the traditional Kindle E-readers as a competitor. Though they are different in terms of hardware specifications, it is possible that the Kindle Fire can cut into the traditional Kindle E-readers’ business. In terms of pricing and business model decisions, there are several revenue streams: hardware, content, commerce, advertising, and application marketplace revenue streams. Considering the Kindle Fire’s current strategy, below are the recommendations to address strategic concerns and safeguard Amazon’s growth and market share. 1. Challenging leading competitors: Amazon’s leading competitor, Apple, is known to bringing the best personal computing, mobile communication, portable digital music, and video experience to customer segments through innovative hardware, software, peripherals, services, and Internet offerings. In order for Amazon to gain market share from Apple’s, it needs to strengthen its cost leadership position. Amazon needs to keep the Kindle Fire’s price low and affordable, while offering the best customer user experience. In doing so, other competitors, such as B&N, will not be able to compete with Amazon. 2. Innovation: Amazon needs to invest heavily in R&D, with a broadly defined competitive scope. By constantly improve the Kindle Fire, it will be very easy and convenient for users to learn and use the Kindle Fire. 3. Personalization: Amazon can offer users the opportunity to turn the Internet into a unique and personal online portal by displaying specific content, pages, and applications chosen by the user. This way, the Kindle Fire can turn into a lifestyle product that a user can depend on and become used to it (instead of switching to the competitors’ products). Amazon Kindle Price Market Share Case 2: American Express: Bank 2.0 INTRODUCTION This case describes a unique opportunity for one of the largest financial brand names in the world, American Express, whose leaders have demonstrated a knack for identifying obscure market niches. The rapid success of Green Dot has drawn attention to American Express and creates an interesting opportunity to explore the dynamics within a company attempting to diversify its revenue stream and to discover a long-term strategy. This case begins with the birth of Enterprise Growth. The CEO of American Express, Kenneth Chenault, named Dan Schulman to lead the group, and stated, “[t]he Enterprise Growth group is designed to extend our leadership into the world of alternative payments and to create new fee-based revenue streams for the post-recession environment.” Other leaders include Chokshi as the president and Wright as the head of the product development. The case then delves into the American Express’s primary and traditional business model, the model of exclusion for the affluent consumers. The leadership team, competitive landscape, history of prepaid products, the target customer segments, and marketing efforts are presented to justify why American Express wants to serve the unbanked and the underbanked. Financial records are also included, so that an assessment of the company’s performance and capital structure can be conducted. This case is ideal for demonstrating the importance of the business-level strategy, competitive rivalry, and the SWOT analysis. The following points are to guide a review and discussion of these important concepts. • Define American Express’s overall business-level strategy. Does Bank 2.0 fit into American Express’s overall business-level strategy? • How does Bank 2.0 stand up against the competitors in the industry? • What insights does a SWOT analysis reveal about how Bank 2.0 should be positioned in the future? • Integrate the results of the analysis into recommendations for growing the business and combatting competitive pressures to maximize performance. ANALYSIS • Define American Express’s overall business-level strategy. Does Bank 2.0 fit into American Express’s overall business-level strategy? The purpose of a business-level strategy is to create differences between a firm’s position and those of its competitors. Base on the target market and basis for customer value, there are five business-level strategies as shown below: American Express’s overall business-level strategy is focused differentiation based on the following: » Focus on non-standardized products » Appropriate when customers value differentiated features more than they value low cost » Focus on a particular buyer group The key of implementing a focused differentiation strategy for American Express is to offer products and services that customers perceive as different in ways that are also important to them. In order to remain a leader in focused differentiation strategy, American Express needs to continue to offer its card members exceptional customer service and the perceived prestige and status. American express is often associated with affluence and exclusivity, and its average annual spend per cardholder tended to be higher than that of American Express’ competitors. The average annual spend per card increased at a double-digit rate from 2009 to 2011, growing from $11,505 to $14,124.11. Because American Express’s overall business strategy of focused differentiation is successful, American Express has annual gross revenues of $33 billion while Visa earns just $14 billion per year, while American Express has just 107 million cards compared to Visa that has more than 2 billion cards in use worldwide. Below is a table that shows selected financial highlights of American Express. American Express’ Bank 2.0, on the other hand, targets people who are unbanked or underbanked. These are the people that live paycheck-to-paycheck and pay 10% of their income on fees and interest to complete everyday transactions. The idea of Bank 2.0 is to provide these people with a platform that they would conduct the bulk of their financial activities, such as direct deposit of paychecks, wiring money, and cashing paychecks. This idea will expand American Express from a brand of exclusion to inclusion. It is a prepaid model, in which it is different from the postpaid dispersal of credit and will be more accessible than the traditional AXP product. Because Bank 2.0 has very minimal fees and targets a specific segment of people (unbanked or underbanked), Bank 2.0’s business-level strategy is focused cost leadership, whereas the overall American Express’ business-level strategy is focused differentiation. Therefore, Bank 2.0 does not seem to fit in the overall business-level strategy of American Express. However, as a business grows, American Express needs to attract more customers. As Chokshi puts it, “why wouldn’t you want to serve more people?” For Bank 2.0, volume is the key and it will be able to bring American Express more customers and raise its brand awareness. • How does Bank 2.0 stand up against the competitors in the industry? Bank 2.0’s target customers are mainly the underbanked. They are: » Constantly engaged in financial transactions outside of the traditional banking system » Being attracted by many other competitors, such as Green Dot » Being offered mobile and digital technology as alternatives to traditional banks These underbanked customers mainly use prepaid products. The purchase volume on US general-purpose cards by type is as below: There are several competitors: Competitors Their Strengths Current Market Green Dot Partnership with Wal-Mart Already in the market and known Square Cash Provide an opportunity for consumers to send and receive money to and from one another Just launched Traditional financial institutions Have physical branches to serve people Already in the market and known Retailers One-stop shop for customers Already in the market and known Other potential competitors are the credit card companies. The tables below show a companion of prepaid versus credit cards: Bank 2.0 will enjoy the brand image of American Express and will charge very minimal fees. The best definition is a debit and checking alternative. Bank 2.0 will not charge the customers annual or overdraft fees, and a minimum balance is not required. American Express already has 22,000 ATMs that can serve the Bank 2.0 customers. Thus, in this analysis, Bank 2.0 stands a very good change against the competition. • What insights does a SWOT analysis reveal about how Bank 2.0 should be positioned in the future? Delving into the American Express’ internal and external environments reveals the strengths, weaknesses, opportunities, and threats prevailing in the current situation. Strengths Visionary leadership Strong balance sheet, returns, and revenues American Express brand image High gross revenue Exceptional customer service Had acquired “Revolution Money,” a payment company 22,000 ATMs Brand awareness Prepaid product experience Management experience “Closed-loop” network Complex campaign- advertising advantage Weaknesses Not as many users as Visa or MasterCard has Traditionally been a brand of exclusion Distribution channel different from the traditional American Express customers Other people in the company may not buy in Opportunities Target customers that are traditionally outside of the banking system Can potentially increase a large number of customers Can build or partner Can expand American Express brand image into a new segment of customers Threats Diluting American Express brand image Fierce competition on the rise Imitators able to undercut price and create value Rival companies with means to expand aggressively Visibility of the market Response from traditional retailer bankers Based on the SWOT analysis, American Express as a company has a lot to offer for Bank 2.0. Although there are some weaknesses, the strengths seem to outweigh them. However, there are some threats posted to the company that need to be addressed before Bank 2.0 can launch its product. STRATEGY • Integrate the results of the analysis into recommendations for growing the business and combatting competitive pressures to maximize performance. There are several recommendations that can be made based on this analysis: » Viability of the market: Although American Express’ former product, Pass prepaid card, was not successful, the new Bank 2.0 should be able to learn from the experience. For example, Pass card charged a monthly fee that most people could not justify of paying. As demonstrated in the SWOT analysis, the new Bank 2.0 should have the visibility of the market and should prove to be more successful than its predecessor. » Build or partner choice: American Express has been a leader in credit card logistics and pioneered the “closed-look” networks; it can utilize the existing management and marketing talents for Bank 2.0. Thus, building Bank 2.0 will be a better choice. American Express can of course seek a partner that already has a strong relationship with the underbanked. This can minimize the risks that American Express will take. However, this will also take away the profits. In addition, if American Express’ goal is to expand the customer base, then building the product is a better choice. » Acquiring: Alternatively, American Express can acquire its competitors such as Green Dot. This way, it will gain access to Green Dot’s existing technology, logistics, and distribution channels. » Distribution channels: American Express can use its existing distribution channel (it has 22,000 ATMs) and can partner with established retailer bankers to offer even more ATMs for customers to use. The key is that there need to be as many ATMs as possible so customers can conveniently use Bank 2.0 anywhere. If a customer cannot find an ATM to use the product, he/she will have very little motivation to sign up for Bank 2.0. » American Express Brand: Many critics are skeptical about American Express’ pursuit on the underbanked. Given that American Express has been a brand of exclusion and a brand of exceptional services, it is possible that serving a new segment of people such as the underbanked will hurt the brand image of American Express. However, as previously discussed, for any company to grow, it has to increase its customer base. Right now, American Express only serves a small segment of people that are affluent, and this prevents the company to grow bigger. By serving a new segment of customers, American Express will be able to expand and grow. However, it will be important for American Express to differentiate these 2 customer segments. For example, customer service representatives that focus on the affluent customers have to continue to offer exceptional service. American Express Financial highlights Purchase Volume Prepaid vs. Credit Case 3: BP in Russia: Bad Partners or Bad Partnerships? INTRODUCTION This case portrays the challenging events and circumstances confronting BP in Russia during 2011. It illustrates the difficulties of managing issues associated with cooperative strategies, especially complex cross-border alliances. The case opens with background on the oil industry in Russia and provides a timeline of the investments and strategic alliances made by BP to access the market. The company’s recent attempt to form a partnership with Rosneft is then described, followed by an explanation of the five basic alliances that are common in the oil industry. In the wake of unraveling relations with cooperative partner, AAR, and the failed alliance attempt with Rosneft, ideal strategic conditions in Russia seem implausible for the global oil company. In order to maximize outcomes in such an imperfect business climate, BP needs to fully measure situational opportunities against environmental risks, understand the dynamics and motivations driving stakeholder behavior, and establish a plan which can satisfy the interests of all parties. The following analysis is designed to shape an informed decision about how to proceed and manage the company’s Russian business holdings in this uncertain environment. • Outline the challenges of conducting business in Russia’s oil industry. Why is it strategically important for BP to secure a position in this market? • Who are the prominent stakeholders in this situation, and what important motivational factors underlie their behavior? • Review the terms, nature, and timing of BP’s strategic alliances in Russia. What are the benefits and costs of the arrangement for each party? • Assess BP’s management of its investments and strategic alliances in Russia. Why is the TNK-BP partnership experiencing so much internal conflict? What can BP do to salvage the situation in Russia? Do you agree with BP’s decision to block a TNK-BP cooperative arrangement with Rosneft? ANALYSIS • Outline the challenges of conducting business in Russia’s oil industry. Why is it strategically important for BP to secure a position in this market? Reforms in the early 1990s opened up Russia’s oil and gas industry to private enterprises. International environments typically carry political and economic risks for firms with business interests outside of their domestic markets. But entering and navigating Russian markets is particularly troublesome due to the following conditions: - Institutional instability - Indefensible property rights - Weaknesses in the judicial system - Government corruption - Regulatory and licensing uncertainty - Recent political actions to regain central control - Conflict with neighboring and Western nations Expectations that Russia would eventually adopt international rules of trade have not been fully realized. Since the 1990s, political leaders have vacillated in their positions, judicial rulings have been reactive to changing policies, and increased instability in many regions has led to volatile interactions with the rest of the world. The oversight of a nation’s vital natural resources is often intense, especially in the energy sector. The importance of crucial oil and gas supplies to local and global economies makes this industry highly vulnerable to major shifts in government policy. Furthermore, the interplay between powerful nations influences decisions made regarding friendly nations as well as countries with poor relations. National leaders use petroleum production and gas exports as a means of achieving foreign policy objectives and manipulating international political events. Thus, it is not surprising that the government would want to retain heavy influence or control over oil and gas companies in Russia. Recent aggression by the state toward neighboring Ukraine and actions by Gazprom (the largest state-controlled gas company) to take greater control of oil projects across Russia are two specific circumstances that heighten insecurities in this market. National policy and regulatory actions in Russia are also impacted by complex relationships between officials and company principals. Labor laws have been exploited to drive out foreign managers and specialists from global companies trying to do business in the country. Under the government’s control and due to the influence of the business elite, visa renewals for BP managers are in peril at all times. BP is also continually vulnerable to the loss of existing exploration and production licenses. Ongoing conflict amongst major industry players has to be resolved through legal disputes, where foreign-owned interests have little influence. The company knows from past experience that authorities can manipulate legal requirements to force the transfer of ownership control to state-owned firms or to completely dismantle out-of-favor firms. Russia's weak judicial system gives foreign interests little legal recourse to ensure property rights or to fight against state-sanctioned corporate raiding practices. The ability to manage operations and safeguard investments is continuously at risk in this environment. Narrowing the focus to the specific challenges of working with its partner, AAR, BP is operating from a weakening position. The relationship between BP and AAR has been contentious since its inception . As a result of ongoing power plays between the two firms since that time, their working relationship has severely deteriorated and is plagued with mistrust. As events escalate and unfold, the situation is becoming almost untenable. The company's ability to manage, and perhaps to maintain control of, its asset base in this unfriendly environment is at real risk. Exit barriers and strategic stakes are high. Current Russian laws limit foreign investment in strategic industries, including ownership in major oil and gas fields. Nearly all of BP's Russian assets are tied to the TNK-BP alliance. The company has already lost operating control and risks being forced into a minority position in the joint venture, or perhaps even nationalization of its private assets. The possible loss in investment is great, but the loss in access to future reserves has the potential to harm the long-term viability of BP's global business. Despite these unfavorable conditions, success in Russia is critical to the achievement of BP's strategic objectives. Two major factors underscore the company’s need to secure a strong position in the Russian oil market. First, competitiveness in the oil and gas industry depends upon continually increasing oil and gas production and replacing reserves. The industry is capital-intensive, and BP faces intense rivalry amongst several international oil giants. Therefore, the company’s ability to expand its global portfolio of oil assets and to grow revenues (especially after the company’s extraordinary losses in the Gulf) is crucial. Second, since opening its markets to private investment, Russia has grown to become the second largest oil producing nation in the world. Reserves are limited globally, which restricts new exploration and development options available to industry participants. The size, importance, and potential of the oil industry in Russia are a big draw for companies in BP’s situation. Access to reserves in one of the greatest oil and gas provinces of the world is essential to the company's international competitiveness and financial performance. Not only does Russia have sizable reserves, but it also offers enormous opportunities for further exploration and new oil discoveries. Based on the recent rulings by London’s High Court and the Stockholm Arbitration Tribunal, it appears that BP’s future exploration and development will be constrained by its existing cooperative agreement with AAR. Therefore, success in Russia is directly dependent on the success of TNK-BP. To remain in the market, BP will need to restore its relationship with AAR and improve its ability to function within the sociocultural and political environment of Russia. For starters, the firm needs to understand and take into account the motivating factors which are driving the actions of shareholders and national leaders. • Who are the prominent stakeholders in this situation, and what important motivational factors underlie their behavior? Capital Market Stakeholders – AAR. Capital market stakeholders are the shareholders with financial interests in the firm. They have expectations for wealth preservation and growth and for returns that are commensurate with the risks associated with their investments. In addition to BP, whose interests are explained above, Alpha Access Renova (AAR) is the other primary capital market stakeholder in this scenario. AAR is one of the largest privately-owned financial-industrial conglomerates in Russia – a consortium of Soviet-born oligarchs – with widespread interests in oil, gas, and banking. In other words, it is a group of privileged, entitled, powerful, and connected investors. It is not a far reach to claim that TNK-BP's Russian shareholders are motivated by greed and power. They are large investment and business developers who use their wealth and political power to achieve personal objectives. They are driven by the desire to maximize the financial results of TNK-BP, which they believe comes from profits and growth. (A critical tenet of these beliefs is that achieving their objectives depends on expansion outside of Russia ). In addition to BP assets, access to the experienced oil company's managerial expertise and judgment, credibility, global position and connections, and advanced technologies is fundamental to achieving AAR’s goals. Based on their behaviors, AAR’s interests are clearly focused on maintaining TNK-BP’s position in the oil market and maximizing the joint venture’s opportunities and performance results. The proposed BP-Rosneft venture was a direct threat to these interests. And their actions in 2011 were motivated by the desire to be included in the potentially lucrative Kara Sea development. Product Market Stakeholders – State of Russia. In this case, another powerful stakeholder is the state of Russia. Like other host governments in oil-producing nations, Russia seeks the best contractual terms to maximize the financial benefits earned from its natural reserves. The nation’s oil and gas revenues provide Russia with stability and clout in the eyes of the world. International recognition of rising political stability and progress in economic development helps the country attract and support foreign investment and integrate with the world economy (assuming these are, in some form, objectives of the Russian government). Even though Western nations and BP leaders believe that it is in Russia's best interest to attract professionally-run, modernized companies capable of competing in the world marketplace, the country's legal measures and political actions show that the country is equally motivated by generating revenues and protecting strategic natural resources which can be used for international posturing on issues of national importance. After initially permitting foreign ownership of substantial assets in important oil-bearing areas, Russia has begun to retract. Recent actions by state-owned oil companies, such as Glazcom and Rosneft, demonstrate the government’s interest in restoring central control in the oil and gas sector. Support of the joint Arctic exploration project with BP is based on the government’s desire to ensure energy security for Russia and Europe. Russia acknowledges its responsibility to the world as a leading supplier of crucial energy resources. By setting the terms for licensing, exploration, taxation, and property ownership within its borders, the state can pose a threat to both BP and any privately-run business that interferes with national objectives. Interestingly, the recent court rulings (in London and Stockholm) upheld private interests over claims from the state. Both of these decisions were made by judicial systems beyond Russian borders. Depending on the will of Russian national leaders to regain control, this development could escalate into more aggressive behavior from the state, which could further increase the risks to both BP and AAR interests in TNK-BP. Conversely, Russian firms are having difficulty integrating internationally. Working with a firm like BP could be a potential way to build acceptable trade practices beyond domestic borders and demonstrate international cooperation. • Review the terms, nature, and timing of BP’s strategic alliances in Russia. What are the benefits and costs of the arrangement for each party? Exploration and development are cost prohibitive in the oil industry unless collaborative relationships are formed to obtain required capital. And due to the strategic importance of energy to national interests, many countries do not allow foreign majority ownership of oil and gas resources. Consequently, access to existing or newly-discovered oil sources in Russia requires BP to establish domestic partners. The table below outlines BP’s investments and cooperative activities in Russia since 1997. It includes the year and known terms of the company’s agreements with Russian parties, as well as their benefits and costs to BP. Agreements made with Rosneft (state) are entered in red, and agreements made with AAR (private) are entered in blue. Year Agreements/Terms Benefits Costs 1997 Purchased 10% stake in Sidanko (Private) Entry into privatized Russian oil market US$571 million 1998 Joint venture with Rosneft (State) To explore and mine licensed areas of Sakhalin Island (East Coast) Over 10 billion tons of oil and natural gas reserves Exploration funding $40 million 1999 Equitable share in Sidanko with TNK (Private) and managerial authority Control over highly prized Chernogorneft oil field (Western Siberia) 25% equity stake in Sidanko to TNK – and one veto share 2002 Purchased additional 15% stake in Sidanko Carry agreement with Rosneft (51%) To explore and develop Sakhalin-5 Expanded ownership share in Sidanko Rosneft liable for costs if project successful US$375 million Exploration funding $40 million 2003 2005 50/50 Consolidated joint venture with AAR (Private) Created separate entity TNK-BP and greatly increased BP’s scope in Russian oil market Voluntary share exchange program to consolidate minor TNK subsidiaries into TNK-BP holding company 51% share in TNK 56% share in Sidanko 50% share in Slavneft 29% share in Russia Petroleum 85% share in OAO Onako Combined majority ownership in RP’s Kovyotka gas field license to explore opportunities offshore Sakhalin Island, refineries, and extensive retail network (Russia and Ukraine) US$6.75 billion 25% share in Sidanko 33% share in Russia Petroleum Capital, experience, expertise, introduce AAR to world oil market 2006 Carry agreement with Rosneft (51%) To explore and develop Sakhalin-4 Rosneft liable for costs if project successful Exploration funding $700 million 2007 TNK-BP takeover attempt by Gazprom (State) Allegations of license violations Takeover thwarted Forced to sell Kovyotka gas field to Gazprom Year Agreements/Terms Benefits Costs 2009 TNK-BP board restructuring and change in leadership Shareholders’ agreement Retain 50% ownership in TNK-BP joint venture Operating control lost to AAR Control of independent projects ceded to joint venture 2011 Proposed US$16.5 billion share swap alliance with Rosneft To collaborate on development of Kara Sea oil reserves (Russian Arctic) TNK-BP Offer 9.5% share of Rosneft 125,000 square acres for development on the Arctic continental shelf US$8.1 billion 4.75% share of Rosneft 5% stake in BP 5% stake in BP A strategic alliance is a cooperative strategy that combines firms’ resources and capabilities in order to create a competitive advantage. The TNK-BP partnership agreement between BP and AAR in 2003 was a cross-border alliance that expanded BP’s scope in the Russian oil market and offered AAR access beyond Russia into global oil markets. AAR contributed massive domestic resources; and BP infused US$6.75 billion and a wealth of experience into the consolidated joint venture. By 2005, the Russian assets and interests of the two firms were fully integrated into one legally independent entity. The joint venture is a 50-50 partnership which combines AAR's human resources, political connections, and cultural knowledge of the country with BP's Russian assets, retail network, equity investments, and expansive management expertise. Through the words of the shareholders’ agreement (“AAR and BP must implement all the oil and gas projects in Russia and Ukraine only through TNK-BP”), the intentions of both parties were clear. The case provides no evidence that the pre-existing Rosneft agreements dating from 1998 and 2002 were disputed or to be dissolved when TNK-BP was formed. (In fact, BP’s subsequent 2006 carry agreement with Rosneft to explore and develop Sakhalin-4 also proceeded without challenge.) The fact that the previously-established BP-Rosneft joint agreements were not addressed in the 2009 TNK-BP shareholders’ agreement is conspicuous in its omission. With the two companies fully-combined, one is left to wonder why it was excluded. And as both firms were clearly aware of the BP-Rosneft agreements, it is possible to imply that they allowed the BP-Rosneft partnership to stand on its own. The shift in power at TNK-BP in 2009 strengthened TNK-selected leadership and prioritized AAR objectives, which was in line with the national trend to drive foreign managers from firms which own critical natural resources and to increase the number of Russians in top management positions. Nonetheless, BP still retains 50% ownership and a large voice in the management of the joint venture. The British firm’s depth of knowledge is essential to the joint venture’s success and Russia stakeholders’ interests. The purpose of BP’s proposed cooperative strategy with Rosneft in 2011 was to develop Russian Arctic oil and gas reserves on 125,000 square acres of the continental shelf in the Kara Sea. This was no small proposal. The US$16.5 billion value of the share swap more than doubled the exchange value in the TNK-BP partnership. In addition, the agreement involved a sizeable exchange of a 5% share in BP (giving the Russian state an ownership stake in BP) for development rights and a larger (9.5%) share of the state-owned oil company. When this arrangement was derailed, TNK-BP extended an offer that would have enabled the three interests to proceed with the Kara Sea development. Perhaps as a reaction to growing conflicts within TNK-BP, BP blocked the bid. As the next section discusses, this may prove that damaged working relationships with partners can lead to actions that undermine common goals and can prevent potential collaborative or relational advantages. STRATEGY • Assess BP’s management of its investments and strategic alliances in Russia. Why is the TNK-BP partnership experiencing so much internal conflict? What can BP do to salvage the situation in Russia? Do you agree with BP’s decision to block a TNK-BP cooperative arrangement with Rosneft? BP’s mode of entry into the Russian oil industry was midway on the cost-risk-control-return scale. BP followed a tentative pattern of international expansion, transitioning from minority ownership share to equity joint ventures as the company’s experience and confidence grew. Engaging in strategic alliances is a favorable approach for entering new markets. Especially when faced with high levels of uncertainty, connection with an experienced partner can be of great value. But sharing resources and risks does not always guarantee compatibility or preclude integration problems. Through its cooperative partnerships – characterized by shared costs, shared resources, shared risks, shared control – BP has established a strong presence in the market. At this time, most of BP's Russian assets are vested in the TNK-BP joint venture. The analysis above describes the resource constraints and development demands in the industry that support the company’s use of cooperative alliances to enter the foreign market. Despite the advantages of this entry mode, cross-border alliances like TNK-BP can be complex and difficult to manage. 50% of all strategic alliances end in failure. Incompatibility and conflict are the primary reasons for the failure of strategic alliances; and equity positions can serve as a barrier to relationship building. To overcome these challenges (and those presented by differences in national trade policies, cultures, laws, and host government politics), trust must be carefully managed for success with international partnerships. BP has clearly failed to cultivate trust in its relationship with AAR. In fact, quite the opposite has occurred. Partner conflict within TNK-BP is undermining common goals and fostering opportunistic behavior. Efforts to build trust are affected by at least four fundamental issues. The table on the next page lists these issues and documents the nature of AAR relations for each. These factors help explain the lack of trust and strained relationship between BP and AAR. Trust-Related Issues BP-AAR Relationship The initial condition of the relationship The relationship was initially established in the battle and settlement for the Chernogorneft oil field. The negotiation process to arrive at an agreement The shareholders’ agreement neglected to directly address BP’s joint agreements with Rosneft. Partner interactions Internal conflicts over leadership and board of director representation and legal recourse to address unresolved Rosneft issues are indicative of destructive interactions between the partners. External events Legal disputes with the Russian government and state-owned oil companies along with state efforts to reduce foreign-controlled interests are external events contributing to TNK-BP’s environment of distrust. Despite their fractious beginnings, by 2005, BP’s and AAR’s Russian assets were fully consolidated (with the exception of the extant Rosneft exploration agreements.) From that point, the relationship between BP and AAR deteriorated to such an extent that internal issues had to be resolved through legal disputes. Unfortunately, BP did not structure an exit plan in the event that the partnership went sour or inadequate returns resulted. Now, the complexity of TNK-BP’s organizational units is such that the likely losses from dissolution would be enormous. The question is: have the interests of the two parties diverged so far that resolution is no longer possible? BP requires an integrated strategic plan that ensures the company’s lasting presence, protects its assets, and maximizes the performance of ongoing operations in Russia. The situation seems dire, but BP is not entirely out of options. Direct investment acquisitions, disengagement from TNK-BP, new cooperative alliances, and withdrawal from Russia are not viable solutions. And the company cannot realistically or feasibly change its strategy at this stage. However, it still has a valuable 50% stake in a substantial joint venture. Therefore, BP needs to focus its strategic energies on taking actions within the partnership to rebuild operational TNK-BP relationships and establish shared objectives that (1) reinforce its ability to outperform rivals and (2) disarm the pervasive political threats in Russia’s oil market. Strengthen TNK-BP Partnership. BP needs to conduct itself as a full faith partner with AAR in order to alleviate impediments to progress, maximize joint performance results, and pursue opportunities that TNK-BP is missing due to internal conflicts. Competitive risks can be managed and opportunistic behavior minimized if BP and AAR recognize that their interests really are aligned. There is no way to avoid the need for formal contracts between the two companies that monitor behavior and can be legally upheld. Unfortunately, formal contracts and monitoring systems can stifle the identification and pursuit of value-adding opportunities. But increasing trust lowers monitoring costs, and both companies would benefit from the value creation of a maximization approach. The potential to build competitive advantages by sharing risks and resources depends upon the ability of partners to effectively collaborate. The manner in which unique resources come together to generate new capabilities is what contributes to strategic competitiveness. Success is more likely when partners behave cooperatively, which involves jointly solving problems, opening channels of communication, acting trustworthy, creating full awareness and disclosure, and consistently pursuing ways to combine organizational resources and capabilities to create value. Trust, respect, and transparency are the instruments of success. Resources and capabilities must be exchanged, shared, and co-developed, not only to succeed in the partnership, but to outperform large global competitors and improve the firms’ ability to perform in the uncertain environment. There is value in building a long-term relationship that allows the transfer of tacit knowledge (which builds core competencies because it cannot be codified or imitated). In addition, establishing trust between strategic partners is highly critical for developing and managing technology-based capabilities. BP also needs to encourage the exercise of proper corporate governance and the concepts of transparency, safety, and ethics. Governance mechanisms are meant to align owner interests with manager interests and to improve relationships among stakeholders. By establishing Board oversight of strategic planning and financial projections, fairness and a voice for all shareholders can be assured. Even though all terms may not be enforceable through legal authorities in Russia, values consistent with international trade standards will be instilled, and their importance will be emphasized at TNK-BP. Trust is one of the most efficient way to influence and control alliance partner behavior. Building trust and social capital will prevent AAR from acting only in its own best interests, enable TNK-BP to prioritize collaborative advantages, and exploit the partnership’s potential by positioning it to take advantage of unexpected opportunities in the marketplace. By working collaboratively with AAR to achieve aligned objectives, BP can maximize TNK-BP performance to satisfy the interests of all capital market stakeholders. Minimize Risks in Russian Oil Market. By building a stable alliance network that includes Rosneft, TNK-BP can also address the interests of the host government stakeholders that pose such a grave threat to BP. A network cooperative strategy would enable the company to bridge the interests of multiple parties by establishing shared objectives and for the collaborative purposes of achieving economies amongst a group of partners. Even with a confined set of parameters and a fixed set of resources, BP has an opportunity here to build an integrative collaboration with all three parties to strive for shared success. Perhaps it was a mistake to block the proposed Kara Sea alliance between TNK-BP and Rosneft. Perhaps the proposal was actually a promising approach to adjoin the interests of the three parties. Reconsider the Rosneft alliance proposals at the top of page 6. The proposed agreement expands BP’s opportunities and influence in Russia, while sharing the costs and risks of exploration. It also secures access to Russian resources while protecting the company from lost ownership rights or assets to the state. It satisfies the following decision criteria: - Does it help to achieve performance objectives? - Does it reduce threats? - Does it increase future opportunities? - Is it manageable? Rather than blocking plans for TNK-BP to work together with Rosneft, BP should be facilitating an opportunity to achieve the company’s objectives as well as the interests of each of the other major stakeholders. Consider the two models and assessments below. Based on this assessment, it is advisable for BP to reconsider its objections to a Rosneft-TNK-BP agreement. While it increases management and relationship complexities, it reduces tensions and threats of predatory behavior by other state-owned institutions or the Russian government. However, to protect BP’s independent interests, the following suggestions are also recommended. • Based on the difficulties BP has experienced managing shared stakes (ownership share swaps), a non-equity alliance strategy with Rosneft should be considered. The company should be very cautious about allowing the state of Russia to attain an ownership stake in the BP parent company. • It is essential for BP to protect the company’s intellectual property. It should not withhold capabilities that have been promised to the joint venture and are critical to success, but to sustain its value in the alliance(s), maintaining control of BP’s knowledge resources is important. • If control issues worsen, the company may be able to alleviate pressure from the state by considering an alliance structure which puts BP in control of only non-strategic portions of the supply chain, such as processing and distribution. Conclusion. Given the current landscape, there are troubling risks associated with doing business in Russia. The success of BP is linked to the success of the joint venture. And the threats of operating in Russia’s volatile oil industry would be reduced by securing an ongoing and mutually-beneficial relationship with the state. Because this may not be possible independent of its AAR partners, this relationship should be established through the TNK-BP organization. The suggestions proposed above are aimed at reducing those risks and taking advantage of the interdependence among all stakeholders for mutual gain. To further improve conditions, top executives within the organization need to make more of their own political connections, build better relationships at the Kremlin, and work to be a trusted ally of key players in the industry and the state. Representatives of the company need to acknowledge and respect that Russia is trying to protect its vital national energy-producing activities. It would also help to confirm that Russian authorities support any new agreement arranged with AAR or any other partners. Additionally, the company should absolutely use its connections within the British government to take forward issues which benefit trade between the two nations. It is in BP's best interest to leverage all of the political connections which can be developed. BP in Russia Case 4: Carlsberg in Emerging Markets INTRODUCTION This case identifies a unique strategy for the 5th largest breweries in the world, Carlsberg A/S, whose leaders have recognized that in order to survive in the business, it has to be either the first or second leader in any market it is operating in. The CEO of Carlsberg A/S, Jørgen Buhl Rasmussen, decided that the emerging markets determine the future success of the company and thus his vision shaped the long-term strategy of Carlsberg A/S. This case begins with the history of Carlsberg A/S, in which the core businesses were brewing, marketing and selling beer. In 1847, Carlsberg A/S’s first brewery was opened in Copenhagen, Denmark, and then the first foreign brewery was established in Malawi in 1968. Although by 2008, Carlsberg A/S became the 5th largest breweries in the world, it was losing its market position as one of the strongest brands in the world. One of the difficulties Carlsberg A/S faced was the ownership structure. The Carlsberg Foundation was obligated to own at least 51% of the Carlsberg A/S shares, and this created a disadvantage for Carlsberg A/S to release capital quickly for acquisitions. However, the situation was improved after it bought Orkla’s shares, making the Foundation obligated to own only 25% of the shares. Carlsberg A/S then continued to grow through expansions in Russia and China, making Eastern Europe and Asia its future primary markets. This case is ideal for demonstrating the importance of the industry environment analysis, reasons for acquisitions, and the international corporate-level strategy. The following points are to guide a review and discussion of these important concepts. •Conduct an industry environment analysis. Is Carlsberg A/S in an attractive industry? •Identify the reasons for Carlsberg A/S’ mergers and acquisitions (M&As)? What type of the M&A strategy does Carlsberg A/S use? •Describe Carlsberg A/S’ international corporate-level strategy. •Integrating the results of the analysis, do you think Carlsberg A/S’ decision to go into the emerging markets is a good decision? Summarize your findings and propose recommendations that could improve Carlsberg A/S’ market performance in the industry. ANALYSIS •Conduct an industry environment analysis. Is Carlsberg A/S in an attractive industry? An industry is a group of firms that produce similar products or offer similar services that are close substitutes. An industry’s profit potential is a function of the five forces of competition: » The threats posed by new entrants: According to the case, the global brewing industry of the mid-2000s was characterized by a process of intense consolidation. Because of this reason, the number of breweries continuously declined. The trend is due to the saturation of the European and American markets. In those markets, consumers are becoming more health conscious and are increasingly consuming more wine and spirits. In addition, the costs of inputs for the breweries are increasing. Therefore, there are no visible threats of new entrance due to the need of economies of scale. » The power of suppliers: The costs of the inputs, such as glass, aluminum, and hops have increased. There are no real substitutes for making beer with other inputs. Thus, the power of suppliers is relatively high. » The power of buyers: The power of buyers is high in the brewery industry. There are many substitutes, for example, wine and spirits, and there are many different brands of beer in the industry that the buyer can easily switch to. » Threats of substitute products: There are many substitute products in the market, and they all have an effect in the profitability of the brewery industry. For example, a consumer can choose wine over beer. This is what happened in the European and American markets where consumers are changing their preferences from beer to wine and spirit. » The intensity of rivalry among competitors: The intensity of the rivalry is very high in the industry. There are several equally balanced competitors (InBev, SABMiller, Anheuser-Busch, Heineken, and Carlsberg) and there is a slow market growth in Europe and America. In addition, consumers can switch brands easily (low switching costs). Based on the brief analysis of industry environment, Carlsberg A/S is not in an attractive industry. With the exception of the threats of the new entrants, the power of suppliers and buyers, the treats of substitute products, and the intensity of the rivalry are high. However, this does not mean that Carlsberg A/S should exit the industry. It is already in the industry and is the 5th largest breweries in the world. The table below shows the top global breweries: Given that Carlsberg A/S is already a global leader, it should be able to improve its market leader position and generate positive returns. • Identify the reasons for Carlsberg A/S’ mergers and acquisitions (M&As)? What type of the M&A strategy does Carlsberg A/S use? There are many reasons for Carlsberg A/S’ M&As, and they are: » Increase market power: Although Carlsberg A/S is the 5th largest breweries in the world, it was losing ground. The key financial numbers below show that it has not grown very much since 2003: In order for the company to grow and gain market share relatively quickly, M&As is one of the best strategies. For example, Carlsberg A/S acquired Orkla, resulting in owning 50% of the BBH’s shares, and then finally gained 100% of control over BBH. The table below shows Carlsberg A/S’ global market. » Overcoming entry barriers: Another major reason for M&As is to overcome entry barriers. In the case of Russia, if Carlsberg A/S did not acquire BBH, it would have been very difficult for Carlsberg A/S to enter the Russian market and gain market leader position so quickly. » Decrease cost of new product development and increase speed to market: BBH’s best-selling brand is Baltika, “a foamy, golden brew with a delicate flavor of hops and the aroma of first-class malt.” Jørgen Buhl Rasmussen plans to introduce this brand to the world. By controlling BBH’s products, Carlsberg A/S now owns the Baltika brand without investing any R&D in it. Because it is a popular brand in Russia, it has considerably lower risk than developing a completely new product. Other reasons include increased diversification, reshaping the firm’s competitive scope, and learning and developing new capabilities. The M&A strategy that Carlsberg A/S uses is mainly horizontal acquisitions because it is buying other firms in the same industry. •Describe Carlsberg A/S’ international corporate-level strategy. Carlsberg A/S’ international corporate-level strategy is mainly transnational strategy given it seems to achieve both global efficiency and local responsiveness. It requires both global coordination and control and local flexibility. Using this strategy, Carlsberg A/S is constantly pursuing organizational learning to achieve competitive advantages. For example, Carlsberg A/S started out in Europe and then America, but then slowly moved into the emerging markets in Eastern Europe and Asia. Below are the regional strategies: Carlsberg A/S Regional Strategies Western Europe BBH and the rest of Eastern Europe Asia Strategy Improved profitability through innovation and streamlining Rapid growth and higher earnings Long-term growth through build-up of market positions Group focus •Innovation •Marketing and brand building •Continuous streamlining •Corporate culture and management development Regional focus •Maintaining and developing market positions •Marketing •Innovation •Focus on value •Streamlining on every level •Strengthening and developing market positions •Increased focus on premium segments •Investments •Optimization •Strengthening the product range •Improving sales work •Strengthening existing market positions through organic growth •Establishing new market positions through acquisitions As the table above shows, there are different strategy and regional focus for different regions, but there is a group focus that all regions share. STRATEGY •Integrating the results of the analysis, do you think Carlsberg A/S’ decision to go into the emerging markets is a good decision? Summarize your findings and propose recommendations that could improve Carlsberg A/S’ market performance in the industry. As previously mentioned, the brewery industry is very saturated in the European and American markets. The top competitors of Carlsberg A/S have market shares as below: As the tables above shown, there are still not a lot of competitions in Asia and Eastern Europe. Carlsberg A/S’ strategy is to become a market leader in Russia and China before other competitors. The strategies are: » Carlsberg in Russia: After Carlsberg A/S gained access to BBH, Carlsberg A/S will reap the benefits of the Eastern European market. Carlsberg A/S’ strategy in terms of BBH and the Russian market is to grow organically by capturing new market share. Eventually, Carlsberg A/S wants to promote the best-selling brand in Russia, Baltika, to the rest of the world. o Issues: Carlsberg A/S is not the only international company eyeing in Russia. Heineken acquired five breweries in Russia in 2005 and was the third-largest beer company in the Russian market in terms of volume by 2007. South African/British SABMiller was also active in the Russian market. » Carlsberg in China: Carlsberg A/S’ strategy in China is through a focus on achieving leadership and the first-mover advantage in Western China, while avoiding the fierce competition in the southeast. Carlsberg A/S tried the strategy mainly through joint ventures with local partners. Carlsberg A/S decided to focus on the highly fragmented, poor Western Chinese provinces. “Our strategy is to pursue the provinces in the west, as we can buy cheap and because it is a foundation for growth,” explained by Carlsberg’s information officer, Margrete Skov. o Issues: The living standard in Western China is not yet increased rapidly. Carlsberg A/S will have to invest in a lot of precious time and resources in order to cultivate the market. This means, it may take years for the market in Western China to take off and the shareholders have to be very patient. Based on the analysis, the strategies in Eastern Europe and Asia will only work if the current CEO can convince the shareholders the long-term objective of the company. A good strategy is for Carlsberg A/S to continue to show short-term profits and market growth every year. In any given year, if there is a deficit or loss of market share, it is very likely that the shareholders will lose their patience. Carlsberg A/S should continue to utilize the local best-seller and try to promote it to other regions. New beers with new flavors may be able to attract new customers. Carlsberg Global Beer Industry Financials . Global Market Competitors Solution Manual Case for Strategic Management: Concepts and Cases: Competitiveness and Globalization Michael A. Hitt, R. Duane Ireland, Robert E. Hoskisson 9781305502147, 9780357033838
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