Question:
Discuss about the Cheers Company Business Expansion.
The Australian market is huge and suitable for almost every product but is not big enough to accommodate the ideas of focused entrepreneurs. According to Jensen and Cornwell (2017), growth-minded business people often focus on the rest of the world as their oyster. The same study denotes that the idea of seeking international growth is essential for global entrepreneurs to access more opportunities for customers, with the aim of profit expansion. Focusing the expansion of a business into the international market enables the business to extend the sales life of the existing services and products into the new markets.
International business expansion also gives a business competitive experience of the international business competition, an aspect that can give them an added advantage in their ground as pointed out by van Dijk and Buijs (2016, p. 3). Like other global companies, the management of CHEERS Company has the desire of expanding their business into the international market with a focus on Brazil and India. This paper hence evaluates the nature of business in the selected countries with a focus on the opportunities and risks that can affect the business. The paper hence settles in examining India as a suitable country for expansion. It then presents the applicable methods of entry into the chosen market.
The craft beer has continued to grow over the past years in India with an increase of 6%. In the year 2014 and 2015 and has grown twice faster compared to the previous years but at a low rate over the past decade (Reuben 2010). There has been an uneven dynamic change in growth rates in the last two preceding years of 2015 and 2016 respectively. The average retail price for beer in 2014-2015 was about 80 rupees, but it has continued growing up to about 120 rupees. Beer forms one of the most consumed products in India. India, with a population of about 1.28 billion, translating to about 18% of the total planet population, it is observable that only about 600 million of the total population is falling below the poverty line. The population barely have food to eat, therefore, does not consider liquor in their daily budgets as their daily income can even afford to sustain the basic needs (Reuben 2010). The population mostly resides in rural areas that are characterized by the poorly developed economy and infrastructure.
From the remaining 600 million of the population, only about 400 million are below the drinking age hence leaving the 200 million people in the bracket drinking. Among this 200 million, who may be either taking alcohol or not, with a probability of 0.5, it will leave 100 million people who are potential alcohol consumers. According to WHO about is 68% of the world population does not consume alcohol, but in India, the percentage is a bit higher. India is a young country of an average age of 25.1 years and the portion of people of age up to 24 years takes about 47% making the market for beer to be more promising for the Brewers. The number of the potential beer consumers tends to increase by about a million in every year, caused by the constant balance of growth and loss of population (Reubens 2010). The light beer consumption in India can be translated to the poorly developed retail network, making the consumers travel a longer distance and queue at the stores only for them to be able to buy beers. The stress that one undergoes tends to discourage a large number of people who may have the urge to consume beer; they will eventually opt for other types of alcohol such as industrialized beers. Consequentially, most of the beer consumers in India are characterized as affluent people with non-conservative who consider it more luxurious expensive item.
The correlation between the GDP and the volume of the beer consumption in underdeveloped countries with low incomes such as Sri-Lanka is double of that of India (Appelegate et al. 2013, p. 89).The growth of beer market is mostly affected by the government regulation. The western countries where is observable that the married people take more alcohol than the unmarried unlike in India, the married couple tends to take less alcohol due to the low incomes. The low wages cannot be enough for other budgets and beers. The low GDP and beer consumption can also be related to the religion and philosophy, where the religious beliefs control the decisive influence on the beer consumption. It is common that the Islam and Sikh religions prohibit the use of alcohol and are very strict more than Christianity and Hinduism Hinduism is the dormant religion forming of about 78.4% while Muslims forms about 14.8%, therefore, from the studies it is realizable that most of the alcohol consumers are the Hindus and Christians. The Mahatma Gandhi philosophy has been one of the primary facilitators of anti-alcohol consumption movement in India. Gandhi always encouraged people to be sober and assisted those people suffering from alcohol in regaining their health after abstaining from alcohol. Gandhi’s actions against alcoholism were promoted by the nation’s ban on alcoholism after independence and the commitment to abstain from it that was stipulated in the constitution and is still effective up to now.
There are 29 states in India with separate marketing boundaries. It is observable that a market can frequently show a constant growth in certain specific regions but fail to make good sales in the neighbouring areas (Reubens 2010). The main problem is that most of the Indian brewers do not have control over the pricing of the beer since mostly it is regulated by the government policies such as excise, special VAT, and different alcoholic licenses. Therefore the regulation is seen as dualism since the complete ban will see that there is no revenue collected for the government which is very important. Through this control of beer sales, 2/3 is achievable from the state companies. Therefore, even with small drinking population, India became the second largest world consumer of alcohol and tended to increase in the future though offers little opportunity to the business.
Craft beer movement continues to grow in Brazil even though it does not offer the threat to major players in the sector. According to the Brazilian Beer Association, the craft beer market is expecting an increase of about 10% shortly (Alonso et al., 2017). According to the study, the figure of craft beer is more impressive when compared to the 3% perceived increase of the industrialized beers. The increase comes as the craft breweries are building their reputation, brands, increasing their volumes and improving their brands to meet the quality demanded by the Brazilians beer-drinkers.
According to studies, Brazil forms the third biggest country in the globe that consumes beer with 1,252 kg and hold about 6.6% of the global share (Casey 2010). Beer in Brazil represents the highest proportion of the liquor market with 60% followed by spirits with 36% and 4% of the wine. Pilsner is the most consumed beer in Brazil with 98% market share as 50% is consumed in the bars and restaurants 45% being distributed through the supermarkets and liquor stores. Most of the beer consumers in Brazil are the young age a population of about 61% it is still observable as relatively small customers due to the low purchasing power.
As much it is the third largest beer producing country in the world, the per capita consumption in Brazil is relatively small. The growth rate has increased substantially to about 6.6% per year between the year of 2008 and 2013. The increase is perceivable as twice more than the growth seen in most of the mass producing regions. There has been growing interest in production and consumption has been influencing by the increase in the income. It is observable that the income growth in Brazil is continually expanding at the rate of 3.8% per year. The income elasticity of demand for the beer with a 1% increases the consumers demand the beer by 1.2%. Hence, it is an implication that there is a critical opportunity for growth in the brewing industry (Casey 2010) Brazil crafts beer market consists of more than 300 small breweries that sell its products three times more than the industrial beer brands. Therefore, it is possible for Brazil to register an increase in the market growth over the few years in future hence crafting beer industry has a potential opportunity in Brazil.
For many businesses, Errichiello (2017) denote that developed countries such as Japan, Mexico, Europe, and Canada among others are often the obvious and primary targets for most entrepreneurs. However, the Indian market is an example of other fast growing and less competitive markets that are ripe for global business expansion (Husain 2016, p. 72). When a foreign business in advancing towards expansion in a chosen market, it is essential to focus on the infrastructure, the culture of the people, acceptability of the product into the market, and whether there is a familiarity with the product (van Dijk & Buijs 2017, P. 89). With stable economic activities such as intensive agricultural activities like horticulture, aquaculture, aviculture, sericulture, etc, the Indian market has strong economic growth just like other emerging economies such as Nigeria, China, Russia, and Turkey among others (Mirsa 2009, p. 110). Technological expansion has also made business easier through the adoption of the e-commerce in addition to greater government support for businesses and companies with the desire to expand overseas as pointed out by Jian and Jing (2017). The same study as well denotes that the mining of crude oil puts money into the hands of the citizens hence giving them the ability to purchase the CHEERS Company products.
In whatever suitable method of business entry into the international market, the management of the company needs to consider certain specific aspects that have both direct and indirect effects of the business (El Kahal 2001, p. 227). For instance, cultural differences, language issues, and legislation are among the primary aspects that should be considered. The study asserts that a business needs to understand the possible influences that the local culture may have on the business to effectively operate with the people as the target customers. It hence requires effective sales and marketing skills that would identify the cultural aspects that need to be considered for effective operation of the business in the Indian market. Even though English is adopted as the most common global business language globally, it will be more effective if the business markets its products in the local language spoken by the target market, an aspect that will require CHEERS to hire professional translators and market agencies in the first days of operation into the market. In a systematic review, Mieg (2014) denotes that legislation varies widely in the international market and hence requires the company to adhere to the local laws that govern all foreign businesses operating in the chosen market.
In a systematic study, van Dijk and Buijs (2017) denote that there are several methods of entry that can be adopted by a business with the aim of entering into a foreign market. For instance, CHEERS Company Limited can begin with exporting its products into the market. Exportation it is regarded as the easiest and most effective method of business entry into a foreign market that is commonly used by many international companies. The company is a planned exporter that wishes to expand its presence in India. The company can hence begin with exporting its products into the market as a way of monitoring the response of the customers towards its products before physically locating into the market. Anderson and Gatignon (2011) denote that exporting products often requires less investment and is adopted by many international businesses as a handy way of testing and developing the international strategy without a greater commitment. Through exporting, the company can concentrate its production in a single location allowing for quality control measures and better economies of scale.
The company can as well adopt joint ventures as an arrangement between CHEERS and another competing company in the chosen market with the aim of investment where every business has a share in both the management and financial running of the business. According to Jensen and Cornwell (2017), joint ventures are often adopted as an alternative to building a wholly owned manufacturing operation. This method of entry has advantages such as sharing the capital outlay, reducing possible risks such less reduced government interventions, closer control over production, management, and production among other business operations. The joint venture will also give the company better local market intelligence from the indigenous joint venture companies. The company, however, needs to take care of the concept of conflict of interest such as amount invested, profit shares, marketing strategy, and business management.
Conclusion
From the study, it is evident that business expansion into the international market is essential for every entrepreneur with the desire for market expansion. As a fast growing economy, the Indian market is a suitable market for the expansion of the business than Brazil. Working on building an international brand presence by CHEERS in the chosen market requires the management of the organization to think globally and adopt comprehensive business strategies that will be effective in ensuring proper entry. Therefore, it means that there is a need for care when it comes to the choice of entry of the business into the market as some countries allow restricted levels of import while other methods are questionable on the practical basis. The company also need to gather historical information of the currency value fluctuations as well as the export and import timelines in addition to the laws and regulations governing international business in the Indian market.
References
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Applegate, T. and Nelson, D. 2013, Craft Beer and Tampa. AAG Newsletter.
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