Chinese Beer Industry

Case Summary: (The Chinese Beer Industry)

During the mid 1990s, the Chinese beer industry was highly attractive to foreign beer brewers worldwide, due its rapidly growing lowly consolidated beer market, high population and future potential stemming from relatively low consumption rates per capita. However, after entering China, many global brands found themselves uncompetitive against local brands, and endured large losses as they all chased the same tiny premium beer segment and invested in state of the art production facilities, failing to acknowledge key elements of China’s context and competitive environment.

The resource based view suggests that “firm-specific capabilities drive performance differences” (Walker 2010). International firms expanding into China need to focus on development of distribution, human resource and marketing capabilities, as well as enhancing production and networking capabilities, in order to address the challenges and differences presented by the Chinese macro-environment.

China’s underdeveloped operating environment is renowned for distribution difficulties, unreliable energy sources, an inconsistent supply of outputs and weak infrastructure. Understanding and adapting to these challenges was part of the reason SAB/China Resource’s strategy of setting up smaller seperate manufacturing plants with separate distribution channels in carefully chosen targeted regions, as opposed to one or two central ‘state-of-the-art’ plants to produce for the entire country, was so successful.

Developing production capabilities in the Chinese beer indsutry to achieve economies of scale and reduce costs is essential for foreign firms, particularly with beer being an ‘economy’ product (Mo 2011), and consumer price sensitivtiy. A focus on designing the marketing mix in conjunction with this is essential – The common error of many foreign firms was utilizing a differentiation strategy that they may have used in other parts of the globe to bring a...