Executive Summary
The study is mainly focused on the analysis of the two destinations Brazil and India and for the evaluation of the potential business risks and opportunities for brewing. It is also focusing on the type of market entry mode to be chosen by CHEERS and its proper justification is important. The study is based on the development of a comprehensive business report where there should be evaluating risks and opportunities of Brazil and India to the executive of the company CHEERS as an international Operations Manager.
Introduction
It is important to understand the fact that the 5 graduates of Southern Cross University have laid the foundation of starting a business of their own. They have the dream of starting their own business which should become sustainable in the future. They have actually conducted the detailed analysis and evaluation of the Australian market and found that the brewing industry has been very much effective as the potential business opportunities they have it (Tremblay and Tremblay, 2005). They found that there has been high demand and needs for the customers of Australia for the craft beers from the local residents of Australia but it is also from the tourists come in Australia. They have started to develop the business of craft beer with the development of a company known as CHEERS which should be located at the Gold Coast with the initial starting capital of $500,000 and they should be brewing 3 various types of beer. There has been very high and significant growth in this brewing industry to be taken place. The craft beers have been very good for the Australian residents and it should also be liked by the other people living in Australia and from the other countries.
In the 6 years it has been depicted that there has been very high growth in this brewing industry to be taken place. There has been increase in the sales turnover of around $2.5 million in the financial year 2010-2011 to $30 million in the FY 2015-16. There have been increased employees from 8-28 at the same period (Kleban and Nickerson, 2011). It is also seen that during the financial year 2015 there has been slow growth and the momentum has changed or slowed down a bit towards the end. The five graduates from the Southern Cross University has developed a strategy that they would like to enhance their business in the potential markets where there has been high demand for the beers and brewing plays a major role into it.
Fig 1: Statistics of global Beer market
Analysis of the selected country and its justification
In accordance with the analysis of the potential risks and the business opportunities from the above the selection of the country for CHEERS for starting their business would be none other than Brazil. Brazil has been chosen as the country for brewing craft beers as Brazil has been considered as the third largest beer manufacturing country in this world. The culture of Brazil is not so much diverse and they are basically fond of drinking and consuming beers a lot. The total market share for Brazil in terms of the brewing industry to be operating and contributing to the economy of Brazil is 98 percent. There has been only one culture in Brazil and they spend a different and lavish lifestyle which allows them to consume beers a lot. Brazil has been very good in developing strong relationship with the different countries in the world which results in developing and maintaining trade relationships which will be ensuring strong communication to be built up for Brazil (Wilson and Gourvish, 1998) . There has encouragement from the different political parties and the legal structure of Brazil is good for the brewing business to be developed. On the other hand in India there has been diverse culture and the needs and demands of the people living in the society always varies and it is difficult to identify and understand the perception of people from different culture about the consumption of beer. There have been political restrictions and some of the stringent policies and legislations to be developed which restricts trading relationships with the other countries regarding the selling and buying of beers.
Analysing the various challenges and opportunities in Brazil and India:
With the growing population of India, the demand for craft beer is also increasing among the young and the aged crowds of the country. It has been evidenced by several surveys that India can be ranked as one of the most potential country that can achieve great economic growth in the next 5 years from the production and sales of craft beer that is estimated to grow to about 7.5 %. Moreover as the reports of All India Brewing Association suggests the sales of the craft beer has been increasing at 20% every year due to the operation of 80 microbreweries that increased in number from 2 microbreweries in 2008 (Colen and Swinnen, 2010).
Fig 2: Market overview of Alcohol in India
Fig 3: Market Growth of Craft Beer globally
On the other hand, Brazil’s beer industry has been flourishing constantly with the increased demand and sales of the beer that contributes a large portion to the economy of the country. In fact Brazil caters for one of the largest market for the beer production in the world due to the huge demand of beer among the alcohol consumers (Laranjeira et al, 2010). However due to the enhanced demand of beer there is also huge competition among the beer producing companies that are racing against each other to get hold of the largest share of the market.
The following discussion will focus on the various risks and opportunities that the brewing company Cheers will have to encounter if it wishes to expand its business in the countries of Brazil and India.
According to various reports and surveys Brazil ranks to be third in terms of annual consumption of beer by the people. Though there are a lot of opportunities for the significant growth of the beer brewing company Cheers within the country every year, there are various challenges that need to be considered by the international operation manager of the company before developing strategy to enter the market of the beer industry of Brazil. These challenges are explicitly explained as follows:
Legal restrictions:
Though Brazil ranks as the third largest beer consuming country, the statistical reports developed by WHO evidences that out of all the diseases of South America, 8 to 15% are caused due to over consumption of alcohol. In fact several school students are also affected by the addiction of alcohol that necessitated the government to implement strict regulations for ensuring the limited consumption of alcohol across the country (Bedendo et al, 2013). These regulations have compelled the alcohol producing organizations to promote the adverse effects of alcohol consumption that is applicable to the beer manufacturing organizations as well. Therefore this kind of promotion can be threats for the enhancement of the business of Cheers in Brazil as it can restrict the demands of craft beer among the consumers and therefore reduce the collection of revenue. In absence of adequate revenue the organization will face difficulty in paying the taxes as the business organizations in Brazil need to pay tax as per the scale of the business.
Social and cultural threats:
Though the consumption of beer is very much popular in the Brazilian society there are certain restrictions that are implemented by the local and state government in the form of rules and regulations in relation to the alcohol consumptions. These include various warning clauses and age restrictions policies that are promoted and advertised through various mediums for preventing road accidents due to over consumption of alcohol, extreme aggressive behaviours, etc. The rules and policies also prevent the purchase of alcoholic beverages below 18 years in Brazil (Vendrame et al, 2010). Thus the brewing company may encounter problems in expanding its business in Brazil and earn expected revenues from the sale of beer. In India there has been rise of population in the urban areas rather than the rural areas and there has been high rise in the employment in India took place. This is due to the high rise in the population of India and this will be enhancing the disposable income which they have been spending much more on the products to be sold and bought for leading a lavish lifestyle through the consumption of crafts beer. This has been a real threat for damaging the inherent culture and traditions of the diverse people and it has a bad impact on the society as well. There has been increase in the prevalence of the women to consume alcohol related products like beers and whisky and there has been radical changes in the lifestyle of the women took place and the growing number of pubs and cocktail culture has resulted in huge demand for alcohol products but manufacturing or brewing is not at all suitable here in this Indian alcoholic market.
Financial problems:
Since Brazil has one of the largest worldwide market for beer brewing companies, there are a number of organizations such as Hocus Pocus, Three Monkeys, etc. that have already established their business in the industry. Thus Cheers will require a huge capital investment to establish its business within the country and compete with the established organizations that have already occupied huge shares in the market. However since this is a comparatively new company it can be difficult for the company to organize such huge resource of capital required for providing their products with a touch of innovation to gain a competitive advantage in the Brazilian market.
Government Rules:
The Brazilian government has introduced some strict policies and legislations to control the alcohol consumption among the young population that includes the age restriction policy, taxation policies, etc. along with the prevention of the promotion and advertisement of alcoholic beverages (Colen and Swinnen, 2010). Thus it can be challenging for Cheers to promote their craft beer in the Brazilian market. There has been high amount of taxes to be levied on the alcoholic products like crafts beers and other products which is actually making the consumption for the people to be made less in India. There have been high tariffs to be imposed on the alcoholic products like craft beers making it impossible for the people loving alcohol to get sold from the respective stores and shopping malls. This is posing the risks of sales and profitability for CHEERS wanted to start their brewing business in India.
Corruption Index
According to the corruption Index India has been ranked 89 among the 176 countries in this world. In accordance with the corruption index Brazil ranked 76 which is much better than India. So there is always a high risk of corruption for starting business in India.
Scope and size of the market
India has been a huge market of selling and developing the products manufactured from alcohol. In India there has been huge scope for the alcohol industry to be established which has a high potential to bringing in high profits for CHEERS. The size of the alcohol market in India has been very large. The IMFL segment has the estimation of reaching market valuation over 1400 Bn by the end of 2016. This helps in the Y-o-Y rate of growth of 5 percent over 2015. This alcohol market should have the increase in the value of say INR 3000 Bn by 2026 which is expanding the CAGR growth of 5.2 percent (Mussatto et al, 2006). According to the statistics India has been ideal market for high growth in the revenue for alcohol as there has been huge consumption to be taken place among the individuals.
Fig 4: Market value of Alcohol in India
Economic Growth
India is considered as one of the largest economy in this world still now which is in terms of the growth in the GDP rates. According to the WEF report in 2015 the GDP growth of the country is around 7.5 percent which has been compared with the developed country in Asia which is China. It is said that with the rise in the population and different demographic profiles of the different individuals to be introduced there has been high growth of economy to be expected to increase in the near future (Carroll and Swaminathan, 2000). With the demonetisation and different cultural and political restrictions on trading agreements making it is slowing down the economy of India and there has been heavy rise in the unemployment to be taken place as well. India has been an open economy market where there have been the trade barriers or restrictions to be imposed so new companies like CHEERS have that urge and motivation of starting their own business in India. In the recent days there has been some political instability and trade restrictions imposed on the brewing and alcohol market in India took place. So this has been a risk as well an opportunity for starting their business in Indian alcoholic market.
Discussion and justification of proposed mode of entry for CHEERS
The proposed country where CHEERS should be starting their brewing business could be Brazil and not India. The mode of entry chosen for CHEERS to start their business in Brazil could be the market entry mode of JV or which is known as joint ventures. The reason behind choosing JV as the market entry mode for starting their business by CHEERS in Brazil is that the type of business for CHEERS. As CHEERS has trying to start their business of crafts beer and brewing process or the brewing industry in India has not been so much famous so the type of business is suitable for CHEERS to start in Brazil and not in India. In Brazil the business environment is very good for crafts beer (Jernigan, 2009). It is seen that despite of the economic crisis there has been high sales of around 40 percent of crafts beer in India. It is also seen that there has been high growth in the sales of crafts beer from 2008-2015 which is around 131 percent (Bamforth, 2009). There has been high number of craft breweries to be introduced in Brazil which is around 500. Over the next five years there has been high quality of craft beer to be introduced. The political and the legal environment of Brazil have been very good and stable. There have been challenges of developing kegs for the first time as the product needs to be handled at the brewery properly.
It is seen that for JV market entry mode there should be the collaboration and partnerships to be developed with the local brewing partners to be providing the support and there should be the effective use of the resources to be taken place which includes the human assets like the skills and knowledge of the employees working in CHEERS and with the local partners should be encouraged so JV has been considered.
The other modes of entry was not chosen for starting the business by CHEERS as they have do not have high capital of providing fees or charge to the organization in starting their business. As this has been the starting business there should not be franchising to be adopted. As the company is a new one does not have the branding power and could not compete with the other local brewing companies of developing crafts beer so strategic alliance is also not possible.
Conclusion
From the study it has been evident that India is not the country of developing or manufacturing crafts beer as the focus for the Indian companies are to developing the other alcoholic products rather than the crafts beer. It is concluded that Brazil by far the third largest manufacturing or brewing company of crafts beer in this global world and they have the high and reputed fame in the brewing of crafts beer in the Brazilian and in the world beer market (Murray and O’Neill, 2012). It is also evident that there have eben high legal and political restrictions to be taken place while starting their business by CHEERS in Indian market as compared with the Brazilian market. The diverse culture and society of India has been restricting and providing stringent rules and regulations for starting the business of brewing in India though the Indian alcoholic market has been very good currently. So CHEERS would become profitable and make their business to have sustained growth if the management of CHEERS has been chosen Brazil as the best destination of brewing crafts beer.
References
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ilson, R.G. and Gourvish, T.R. eds., 1998. The dynamics of the international brewing industry since 1800 (Vol. 3). Psychology Press.
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