Foreign Market Entry and Diversification Research Paper

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Corona Beer (Modelo)

Identify and discuss the trends in the global beer markets.

Driven by the rapid consolidation of breweries and channel-based selling organizations the global beer markets continue to experience flat or slow growth. With the cost of entry into this industry high from a capital investment standpoint, accentuated by high interest rates, the overall industry growth rates continue to be flat with differentiation at the product level contributing little to overall market growth. The key to gaining market share in the global beer industry today are distribution and selling alliances. Alliances and partnerships on the sell-side of breweries are very high priority, as are continued investment in information systems and technologies to streamline the supply chain operations (Sahin, Robinson, 2002). Gaining greater supply chain efficiencies can significantly increase overall profitability by reducing stock-outs by minimizing pricing and delivery inaccuracies and increasing product quality. The brewery industry has as a result been one of the more progressive in terms of its adoption of technologies that can enable greater logistics efficiencies and cost reductions. Examples of the information systems and technologies they are investing in include Radio Frequency Identification (RFID) and other advanced technologies for streamlining sourcing, quality inspection and logistics delivery for the brewery and beverage industry (Reisch, 2004).

In conjunction with the investments in IT, the brewery and beverage industry continues to invest heavily in business process automation and process efficiency techniques and programs to minimize any wasted time or costs in their value chains. The use of Business Process Management (BPM) and Business Process Re-engineering (BPR) is also being pervasively used by brewery and beverage companies in an attempt to gain greater cost efficiencies out of their production systems and logistics workflows. The use of BPM and BPR in the distribution networks in this industry is also being strengthened and enhanced with the use of RFID as a means to better manage process-based inventory levels (Sahin, Robinson, 2002). Despite the specific case not concentrating on global markets, it is noteworthy that the industry is forecast to grow at a 1.6% annual growth rate from 2011 to 2015 (United States Food & Drink Report, 2010). The case illustrates how critical distribution channels are and the alliances that can significantly increase overall market share growth despite a modest industry growth rate overall. The case also illustrates how critical it is for a channel alliance to have the same series of metrics and key performance indicators (KPIs) to measure itself on over time. All of these factors are critical for successful launch of new brewery and beverage products in the U.S., where any company looking to manufacture or distribute products needs to meet a series of compliance and quality management criteria as defined by the federal government (United States Food & Drink Report, 2010). One of the key factors driving greater adoption of BPM and BPR investment is the need to stay in compliance to government requirements, which continually focus on interprocess quality management checks on production systems over time (United States Food & Drink Report, 2010). The North American market is one of the more regulated from a quality and compliance standpoint, yet also one of the largest, which makes expansion into the U.S. are critically important goal for Corona Beer (Modelo) to attain.

2. Discuss how Modelo's international expansion was made possible through strategic partnerships with experienced distributors in local markets.

Early in the development of the Modelo business model, the founders and first managers of the business quickly realized that growth would be more attainable with a distribution-centric, not necessarily production-centric priority of their efforts. In conjunction with this focus, the company chose to invest heavily in branding and messaging to further support its distribution-centric business model. This proved to be an excellent decision, as Modelo quickly rose to be one of the leaders in its served markets and also was able to win bids to supply the U.S. Army with beer through a series of contracts. The combining of branding, distribution alliances, and growth through support of an indirect channel strategy all combined to get Modelo the foundation they needed to financially grow profitable, even in a slow growth market, and set the stage for additional expansion into the 21st century (Mora-Mass, 2002). This strategy of branding and distribution alliances also proved to be one of the catalysts which helped the company survive economic recessions, as Mexican consumers stayed loyal to the brand and continued to purchase it despite economic slowdowns (Malkin, 1995). This strategy of concentrating on distribution channel build-out through alliance and strong branding has also served as an effective competitive deterrent against smaller, faster growing micro-breweries and regional competitors in the economically prosperous areas of Mexico (Reid, 1997). Modelo's continued expansion into the U.S. using these techniques has provided a foundation for further growth. The strengths of this strategy have also been instrumental in ensuring the Corona brand can overcome the competitive threat of their most significant competitor, who is Ambev.

In summary, Modelo's expansion into foreign markets was fueled by their expertise in creating and sustaining extensive distribution alliances and partners, relying on their branding and name recognition to drive product sales. These two aspects of their strategy complimented each other and eventually led to the company having a solid foundation on which to launch products from across a variety of national markets. Senior management at Modelo deliberately invested heavily into their brand so it would be an incentive for distributors and channel partners to create and also invest in alliances with them. Modelo sees their brand as the currency that enables the intricate and effective channel management strategies to be effective across the geographies it competes in (Mora-Mass, 2002). As the case indicates, this strategy was highly effective in launching Corona beer. Within 24 months of the product launch, Corona became the 3rd best-selling in the U.S. And the best-selling beer in Mexico (Menzies, 2000). The combination of a highly effective distribution channel and alliance strategy, strong brand, and profit sharing to distribution partners together created a formidable competitive strength for Modelo in a slow-growth industry.

3. Identify and discuss the next foreign market that Modelo should enter and discuss the strategy it should use to enter the market.

North America is the best foreign market for Modelo to address, and the easing of trade costs and complexity due to NAFTA has helped many other companies expand rapidly from Mexico into these North American markets (United States Food & Drink Report, 2010). This decision is supported by the fact that Modelo clearly understands the demographics and psychographics of the markets in Mexico, and the case alludes to their similarity to North American markets as well (Mora-Mass, 2002). Due to all of these factors, it makes the most sense for Modelo to expand into the U.S. market. This decision is further supported by the expertise the company has gained in using it brand as a catalyst and accelerator of continued growth in its channel strategies (Menzies, 2000). Modelo has also shown insight and expertise in managing the competitive threats that expanding into the U.S. market present, by effectively competing against both Ambev and a potential hostile takeover by American beer conglomerate Anheuser-Busch. Given the depth of expertise Modelo has in process improvement and technologies, they have the potential to expand their distribution networks throughout North America, fully gaining the benefits these technologies have the potential of delivering.

4. Discuss the challenges that Modelo faces from its competitor Ambev, and how it might respond strategically to the industry giant.

There are many challenges Modelo faces in competing with Ambev with the two most significant being the hostile take-over this competitor is attempting to pursue and the price competition directly against the Corona brand. In addition to initiating a hostile takeover and inciting a price war, Ambev is also acquiring a series of smaller breweries throughout Mexico, in effect creating their own supply chain network and seeking to gain significant control of critical brewery and beverage supplies throughout the country as well (Reid, 1997). Ambev's focus is on attempting to capture as much of the supply chain as possible, up to three layers deep to the grain and raw materials suppliers, poses a significant threat to Modelo in the long-term. This is the greatest competitive threat at a strategic level as Ambev, once they gain control of the supply chain, can completely re-define the pricing structure of the industry and cause massive disruption as a result. Modelo's strategy of creating loyalty and longevity of channel alliances and partners, anchored by the strength of their brand, has also opened up significant opportunities for them to command greater shelf space in retailers as well (United States Food & Drink Report, 2010). Modelo needs to keep the pressure on Ambev by taking away shelf space and the "last mile" of distribution of their beverages throughout Mexico. Modelo is in a far better position to competitively to drive Ambev into secondary distribution markets where sales are only a…[continue]

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