Miller's reasons to diversify - Heineken

Résumé du document

In today's increasingly global economic world, it is hard to find a company focused only on its own national market and single product. The key word for global companies is diversification. Specialized newspapers such as “The Financial Times” abound with news of company takeovers, rumors of mergers, and analysis of how companies managed their growth.

As an example of this trend, the OECD published a document1 on June 2006 reporting that the Foreign Direct Investment into OECD countries jumped by 27% to reach USD 622 billion. Global companies are competing in international markets and as a result they are investing worldwide. At the same time, major global companies have recorded some of their best financial results.
- Example: companies featuring on the French CAC40 Index had a 34% increase in turnover in the first semester of 20052.
So, does a company churn out more profits as it becomes more global and diversified? Is it just to increase their financial results that companies diversify their activities? Is it a sustainable strategy?

To gain a better understanding of such an issue, it is easier to overlook this macroeconomic point of view and focus instead on a single market. The beer market is a very interesting and aggressive market. The five major players have adopted different strategies in a bid to increase their market share and stay one step ahead of the competition. Their presence in international markets is complemented by their diversification of activities. Not only are these companies competing with their products or marketing campaigns but also with their acquisitions and their growth strategies. In the current scenario, these companies are struggling in their domestic markets. SabMiller, Heineken, Carlsberg, Anheuser–Busch and Interbrew are all more or less dependent on the sales in their domestic market which is mature, saturated and not growing fast enough. So, in order to improve their growth ratio and revenue they have to expand internationally.

Extraits

[...] As an example of this trend, the OECD published a document[1] on June 2006 reporting that the Foreign Direct Investment into OECD countries jumped by 27% to reach USD 622 billion. Global companies are competing in international markets and as a result they are investing worldwide. At the same time, major global companies have recorded some of their best financial results. - Example: companies featuring on the French CAC40 Index had a 34% increase in turnover in the first semester of 2005[2]. So, does a company churn out more profits as it becomes more global and diversified? Is it just to increase their financial results that companies diversify their activities? [...]

[...] In December 2005, Heineken Brewery LLC launched Amstel brand in St Petersburg. Other breweries that joined Heineken Russia in 2004-2005 are: Volga brewery in Nizhni Novgorod, Shikhan brewery in Sterlitamak (Bashkortostan republic), Heineken Brewery Siberia in Novosibirsk, Patra brewery in Yekaterinburg, Stepan Razin brewery in St. Petersburg, Baikal brewery in Irkutsk, and Ivan Taranov Breweries (ITB) located in Kaliningrad, Novotroitsk and Khabarovsk. The portfolio of Heineken Russia features 36 brands. The acquisitions provided the company with a strong third market position in Russia. Heineken Russia employs over 9500 people. [...]

[...] What was the strategy behind those acquisitions? What prompted Heineken to extend its network in Russia? - Increasing market power: thanks to those breweries, Heineken now controls around 20% of the market shares in Russia and has become the third biggest brewer in this country. - Sharing Infrastructures: With the help of local breweries, Heineken is now able to deliver fresher beers to the market quickly. Furthermore it will license the production of Heineken in those new breweries and will reduce logistical expenses by producing it locally. [...]

[...] It is regionally divided and each region can be viewed as a market. The strategy of Heineken is to invest in the most profitable (in sales volume) regions and to build a network of local producers to sell its own Premium Brand, as Thony Ruys, Chairman of the Executive Board of Heineken N.V. said, "Jiangsu DaFuHao Breweries' profitability in a competitive market such as Jiangsu, is a testament to its strength. With a strong position in one of the key beer markets in China, the acquisition of DaFuHao is a further step in our long-term growth path in China. [...]

[...] In a mature market, innovation is the key to increasing growth (i.e. to make the product life circle longer). So, Heineken launched a new product in the US market: light premium beer”. However, as this is not sufficient while competing on a global scale, the company is planning to increase its growth in international markets. The best way to do so is to focus on emerging markets with a strong growth ratio of consumption in the present economic climate and a sustainable growing trend in the future. [...]