To monitor the achievement of company’s mission and vision, the management team needs to study and analyze the environment of company. One of the environment analysis models that company applies is PEST Analysis. PEST is a framework that helps to scan the macro environment in each company. PEST is acronym in term of Political factor, Economic Factor, Social factor and Technology factors. Some writer will separate the Legal factor from political become PESTEL.
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Political factor derived from the decision make by government which may affect Carlsberg meeting their mission. Malaysia government has introducing several legislation & regulation to control the alcohol industry. Government introduces license system with different types of licenses in alcohol industry. For example, some licensee can only sale beer and wine, while other licensee allow to sale hard liquor. Government enforced restaurant who want to sale alcohol to apply alcohol license, and involve the restaurant liquor licenses into the business plan as a business start up cost. Other than that, Malaysia government also presents 26 types of different rates of taxes for alcoholic beverages. In Malaysia, duties tax and excise tax on beer is now RM7.40 per litre, second highest duties tax for alcoholic drinks in the world, while 20 per cent sales tax will levies by government. From 2013 budget report, Malaysia alcohol and Tobacco tax remain at the same rate, for example RM7.40 per litre.
Due to high alcoholic tax and to avoid paying any additional import charges this may indirectly encourage some of its competitors from niche market to smuggling beer or wine from surrounding countries and sale to its consumer at lower price compare Carlsberg. This may affect the revenue of CBMB and thus its profit margin. In addition, government also restricted alcohol advertisement over the broadcast media and on billboards but company sponsoring music and charity event to increase company visibility.
From political factor, government virtually encouraged black economy of smuggling. This would have adverse impact on overall economy with lower employment rate, economic depression. Alcohol price are not cheap which consider luxury beverage for human being. When economic depression, for drinker who has lower income, they are not able to demand more alcoholic drink as before, thus the revenue of the company will decline.
However, when the economy prosperity, the sale volume will be increase, this is because event or entertainment place will use more alcoholic drink as one of the beverage to serve their customers. Besides that, in special season like Chinese New Year, a larger volume of alcoholic beverage will be on sale, and the price of the products will be higher than normal day. That is because alcoholic drink in prosperity economic, due to it culture, become a necessary product, and are at affordable price to it consumer.
In addition, drinker will addicted to alcohol while they not have enough physical strength and mental in their work cause unemployment rate gradually rise up. The higher labour cost for the professional consultant, professional technicians in brewery because they need to control all the process system in brewery going smooth to prevent any sudden case happen.
CBMB has aim its target consumer at the age range from 18 to 25 years old. The major consumers are from non-Muslim. In current and foreseeable future, we notice that consumer’s lifestyle and preference is changing, especially in the city life, people are start aware of healthy lifestyle, consumers are willing to spend more on buying healthy products rather than alcohol products, competitors from healthy products may threaten their financial performance. However, they are still groups of people consuming alcohol products.
Different classes of people have different enjoyment. For people who have higher education and higher income, they will pursue the quality, value, taste of the alcohol, like wine. For the people who have lower income, they only can afford for lower price alcohol to satisfy their desired. Community would like to develop alcohol or smoke rehabilitation programs and disseminate drawback of alcohol through magazines, billboard, newspaper and campaign. All these activities carry out either by government or community are threatening company’s position in the market.
CBMB they have their own website which allows drinker and community to know about company condition, various products and event that going on. Through the internet, consumers can compare the quality, ingredient, and the price of beer with other company. Consumers also can through internet know the benefit offer by the company. CBMB have their own brewery industry, which installed a specialist machine and technology to brewery beer. For example, they introduce innovative draught system which produces less waste and uses less Carbon Dioxide (CO2). Many of their machines are expert by their own professional technicians to control whole the process to produce the beer and practical application are always clear in mind. CBMB would keep on upgrade existing technology to avoid impact of emerging technology.
CBMB is actively involves and committed in Corporate Social Responsibility (CSR). It has proven its good social behaviour after winning two award, for example “We are engaged with Society” at the Winning Behaviours Award 2010 and “Asia Responsible Entrepreneurship Awards (AREA)” 2011 (8). As part of their effort to educate consumers on responsible drinking, the company had introduce 4 stands, ‘Be Safe, Be in Control, Drink Smart and Drink Responsible’ to combat with misuse and abuse of alcohol.
In respond to environment, the cans and bottle of CBMB are able to recycle, reuse and to reduce the pollution of environment and save earth. Its commitment and goodwill in corporate behaviour while presenting their strong financial performance should gain its confidence from employee, business partners and other stakeholder their continue support. For uncontrollable incident where there is Natural disaster that will affect the company’s operation and the raw material encounter destroy. That may cause company loss the chance to produce more, and lead company stop working. Thus company should always monitor its risk management to prevent any unwanted result.
To carry out industry level analysis on the Carlsberg Brewery Malaysia Berhad (CBMB), we use Porter’s five forces model to analyze the industry competitive environment. The framework provides us with an outside-in perspective on the competitive situation within the market, moreover the relationship between competitors as well as relationships with customers, suppliers and other externalities. Porter’s Five Forces measure the degree of competitive forces of our competitors and us. The different structural features of the element in the Porter’s Five Forces contribute to the competitive forces of the competitors. Different structural features give different strength in the competitive forces. The elements of the Porter’s Five Forces are Threat of New Entrants, Rivalry among existing firms, Threat of Substitute, Bargaining power of Buyers and Bargaining power of Suppliers.
Carlsberg’s distribution channel is nationwide and easy to access as they can be found in supermarkets, restaurants, pubs all over the country. This creates competitive advantage for CBMB by providing an easy way for its customer to access to its products hence creates a high barrier for new entrants to enter the industry.
Besides that, the capital requirement for entering this industry is costly and huge for new entrant to entry into this market. The equipment needed to brew beer is expensive and special in term of technology hence the barrier would be high for the new entrants to come in.
The switching cost of product is low for buyer because the price of the similar products is set at a competitive price. This enable buyers to switch to new products or similar product more easily hence it increase the competitive force of the competitors.
However, Carlsberg became one of the market leaders of beer industry in Malaysia and the high initial capital requirement set up a high barrier for the new entrants to enter into this industry. Besides that, the distribution channel also helps in stopping the competitors to entry into the industry. This would not pose any threat onto CBMB’s cash flow or profit.
In Malaysia, the number of rivals is low since there is only one competitor of CBMB in the industry which is Guinness Anchor Berhad (GAB). The competition between CBMB and GAB is intense. However, the rivalry among existing firm is low because there are only two main companies in the industry.
The switching cost of beer is low because of the rivalry between CBMB and the competitors. The price that they offered is not much difference. This makes the competitor able to compete with CBMB and would causes the profit of CBMB easily affected.
The switching costs of substitute are low because there are many choices of substitutes available for the buyers to choose and easily available, for example wines, cocktail and hard liquor. This cause the profit and cash flow of CBMB to be affected.
Other than that, the buyer’s propensity on substitute or beer cannot be control and it bring high risk to the company that the profit and cash flow will be negatively affected due to the change of taste of the buyer. Besides that, today customers who are more health conscious, they might change to a more healthier substitute such as red wine which believe is better for health, gradually decrease the demand for beer and poses threat to the CBMB.
Taking the substitute of wine as example, the trend of drinking wine is growing nowadays which may affect the sales of CBMB. But in some events or vacation, the sales of substitute is low because Carlsberg has its own competitive advantages over the substitute which are lower cost and more widely used in celebrating special events like Chinese New Year or football event.
In conclusion, despite as the low cost beverage among the beer, CBMB faced high threat of substitute which could bring high risk to affect the profit and cash flow of CBMB negatively.
Buyers’ concentration to firm concentration ratio is high because there are only two major malt-liquor brewing company in Malaysia which are GAB and CBMB. GAB and CBMB both hold most of the market share in the industry. The numbers of buyers are many and they have no other source of product that they can obtain besides getting the product from CBMB and GAB. Hence the bargaining power of buyer is very low.
There are not much product differentiation between CBMB and its competitor because they both selling beer which only have a certain degree of product differentiation. Its price elasticity of demand is low and this decreases the bargaining power of buyers.
Because of the open and transparent prices among the market, buyers are aware of the prices of the beer and hence the awareness of buyer is high. Their bargaining power will increase because they are exposed to the information.
The buyers in this industry can choose their own preference of beer because there are many kinds of beer in Malaysia which could be the substitutes for Carlsberg and the switching cost is low. The buyers have no incentives to stick with Carlsberg and this causes the profit and cash flow of CBMB could be easily affected.
The main competitors, GAB, have launched many parties around Malaysia named Heineken Thirst, which is a music and lifestyle event that successfully attracted a huge amount of crowd. Heineken Thirst returned as a new ¬‚agship event from Heineken Music, fusing cutting edge electronic sounds and creative lifestyle content for a new and immersive way to experience music.
The bargaining power of buyers is high for Carlsberg because they have the ability to substitute their product. The price sensitivity is also a matter for their consumers. Hence, it is important for Carlsberg to maintain strong relationship with its consumers.
Based on the annual report of CBMB of year 2011, it stated that the bargaining power of buyer is low because the CBMB does not transact with a single external customer amounting to 10% or more than the CBMB’s total revenue.
As a conclusion, the bargaining power of CBMB customers is low due to the addiction to beer and also the few supplier of beer in the market.
Beer is produced by water, barley, hops and yeast. These ingredients are supplied by farmers. The suppliers of raw materials are mainly farmers. The threat for power of supplier is low for the ingredients because CBMB is a big customer to the farmer where CBMB purchase a lot of barley from them. This secures their income in long term benefit.
On the other hand, the bargaining power of supplier is moderate low as Carlsberg produced and brew their beer themselves. However, they do have bottling partners working with their production department, point-of-sale suppliers working with Procurement, and transportation suppliers working with Logistics. Although the bargaining power of supplier is not high, they still manage to maintain good relationships with their suppliers for mutual benefits. The bargaining power of supplier is low and it does not pose any threat to the company.
Carlsberg, the Danish brewer, is the fourth largest brewer in the world, competing with Anheuser-Busch, SABMiller and Heineken. The Carlsberg Malaysia is placing the second market position after its main rival Guinness Anchor. The company has 4 business segments according to geographical region which are Malaysia, Singapore, Hong Kong and Taiwan.
Based on Martin Reeves’ article ‘Your strategy needs a strategy’ in Harvard Business Review, beverage market is classified as low malleability and high predictability (refer to Appendix 1). It means the industry is predictable but you cannot change it. Therefore, classical strategy works best for company operating in this kind of environment and has a better chance to succeed. This style is familiar to business school graduates because five forces, Blue Ocean and growth-share matrix are all manifestation of it. Other strategies would be adoptive strategy, shaping strategy and visionary strategy.
Thus, we adopt BCG Growth-Share Matrix for Carlsberg Malaysia positioning analysis based on above justification.
This matrix crystallized the relationship between market growth and market share to determine the overall prospects and attractiveness for various business segments. It categorized the business segments into cash cows, dogs, star and question mark (refer to Appendix 2).
Question marks refer to the business units that are low market share but have high growth rate. The matrix proposes a life cycle where funds can be invested in the question mark in order to make them stars (tomorrow’s breadwinners) or divest it.
Am-Research analyst stated that beer market in Singapore was still fragmented despite saturated with myriad brands. The Asia Pacific Breweries Ltd is the current market leader and the key brands offered are Tiger beer, Heineken, Anchor Beer and Baron’s Strong Brew. While Carlsberg brewery offered Carlsberg Gold, Danish Royal Stout and Kronenbourg 1664.
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Carlsberg Malaysia has obtained 19.9% of market share and place second in market position in Singapore after its main rival Asia Pacific Breweries Limited. In term of market growth rate, the annual percentage changes in sales volume have increased 11.21% in year 2011 which is slightly higher than its performance in Malaysia.
The market is still attractive as the group has achieved a stable growth in revenue mainly due to improved mix and pricing. Therefore, further investment should be taken in account.
Taiwan Beer which brewed by Taiwan Tobacco and Liquor Corporation has monopolized the domestic market under Kuomingtang rule since early of 20th centuries. In 1990, Taiwan entered its modern period of pluralistic democracy and free trade law forced the opening of Taiwan beer market. However, Taiwan Beer still remains as the island’s best-selling beer which accounted 77.5% of total market share. Whereas Heineken NV, the largest imported brewery, has recorded 4.6% of the market. The third one goes to Anheuser-Busch Cos Inc which has obtained 3.8% of the whole market.
Taiwan is the hardcore-competitive battlefield for international brewery, mainly due to local consumers’ drinking flavor and habits. For instance, multinational brand Jebsen & Co Ltd’s Blue girls failed to advertise when launched in Taiwan. In addition, there is another player entered the beer market in 2009 – Hey Song Corp and the company planned to have partnership with current market leader. This will further post a threat the Carlsberg sales in Taiwan.
The market is relatively unattractive because of the protection of government on local breweries as well as there is less than 20% of market share for imported beers and there are many strong rivals among the imported beers. Therefore, divestment would be appropriate. The latest financial report shows that the group has completed a capital restructuring exercise to dilute its shareholdings of Carlsberg Distributors Taiwan Ltd from 50% to 0.36%. Thus, divestment could be considered.
Dogs are low market share and low growth businesses. The possible strategies include divestment, liquidation or shrinkage. Dogs may bounce back after strenuous restructuring.
The Big Two in Malaysia beer market – Carlsberg Brewery and Guinness Anchor. Prior year 1999, Guinness Anchor used to be market leader. From year 1999 to 2006, Carlsberg Brewery fought back and became number one in beer market. However, the market position of these two traditional rivals changed again after year 2006.
Based on The Star research, Carlsberg Malaysia is accounted 41% of total market share compare with Guinness Anchor’s share of 59% in year 2011. For market growth, the company has increased its sale volume by 9.75% in which the company revenue rose from RM1 million to RM1.1 million in year 2011.
Carlsberg, however, still maintain its popularity in small towns and villages. It can be explained by Carlsberg’s sponsor the construction of primary schools and halls for kid’s education. The citizens keep supporting Carlsberg for a debt of gratitude.
The market is still attractive despite the Malaysia segment is categorized as dog. It is because it still provides a positive contribution and the contribution is the largest among other 3 segments. The opportunity cost to exit the market is too huge. Besides, there is only one rival for the group to compete in Malaysia. So, further investment is appropriate.
The brewery manufacturers have faced intense competition in Hong Kong beer market. The foreign brands in Hong Kong include San Miguel, Blue Girl, Carlsberg, Budweiser, Blue Ribbon, Lowenbrau and TsingTao. San Miguel is the best seller in Hong Kong, which brewed by San Miguel Brewery Hong Kong.
According to the report of International Market Bureau, San Miguel Brewery accounted for 35.7% of total market share; Jebsen & Co Ltd accounted 17.8% followed by Carlsberg 9.5% and Heineken 8.3% (Appendix 3). However, the market growth of Carlsberg in Hong Kong has declined 91% with the sales volume of RM14 million in 2010 dropped to RM1.2 million in 2011.
Based on Hong Kong SAR Government’s research, it stated that beer is losing share to wine and whisky in the whole alcohol market. Carlsberg represent the mainstream segment and it has experienced value erosion because of gradually increase in market volume of economy segment and stable growth of premium segment.
The market in Hong Kong is unattractive as the beer market in Hong Kong is mature and fragmented as there is 6 breweries obtained more than 3% of market share. Besides, the segmented revenue is the smallest among four operating segments and it has declined 91% compared to previous year. In addition, beer is losing share in whole alcohol market in Hong Kong and it has experienced value erosion as market trend is shifting to economy segment. Therefore, company should divest it.
The Carlsberg Brewery Malaysia’s managing director Soren Ravn in his recently interview said that the beer market is changing from coffee shops to trendy bars, pubs, restaurants and night clubs. And there are more female beer drinkers. The beer market trend is changing from mainstream to premium segment. The company is experienced a growth in premium beer line. The establishment of premium segment of imported beer brands such as Hoegaarden, Erdinger and Stella Artois in 2007, Kronenbourg 1664 & Blanc in 2011 and recently-launched Asahi Super Dry has contributed strong revenue growth for the group.
The generic trend is the mainstream segment would shrink while premium and discount segment will grow. Therefore, the company could introduce new products to existing market to capture this new opportunity and new market share.
The alcohol-based drinks producer in Malaysia choose not to disclose their segment reports because the competition in the brewery industry is very high as Carlsberg and Guinness are the only two alcohol-based drinks companies that have a manufacturing presence in Malaysia which has a predominantly Muslim population. As both of the companies are at a constant competition with each other to be a leader, they prefer not to disclose any segment profitability as the disclosure would reveal too much information.
Besides, the government imposed high taxes on alcoholic drinks over the last decade. Thus, by divulging the segment report might pull unnecessary attraction and might force certain parties to pressure the government to impose heavier taxes on these companies. In addition, Carlsberg decided not to reveal its other operating segments because the other segments are not significant and the group primarily operates in Malaysia for its production and sale of beer, stout, shandy and non-alcoholic beverages.
In addition, performance is measured based on segment profit as included in the internal management reports that are reviewed by the Group’s Managing Director whereas segment profit is used to measure performance. This is because the management believes that such information is the most relevant in evaluating the results of the segments relative to other entities that operate within these industries. However, the segment assets, liabilities and capital expenditures information is neither included in the internal management reports nor provided regularly to the Group’s Managing Director. Hence no disclosure is made. Therefore, the efficiency and effectiveness of the segment performance will be measured by other alternative ways.
The Group has three reportable segments which are the Group’s geographical segments. This includes Malaysia which focuses primarily on manufacturing, marketing and distribution of both alcoholic and non-alcoholic beverages in Malaysia, Singapore and others which focus on marketing and distribution of both alcoholic and non-alcoholic beverages in their own countries. The strategic business units offer similar products but are managed separately because they require different marketing strategies due to the geographical locations.
The major competitor of CBMB in Malaysia is Guinness Anchor Bhd (GAB) . The GAB’s business is primarily in Malaysia and focused only in malt liquor brewing including production, packaging, marketing and distribution of its products. Only one reportable segment analysis is prepared and approximately 1% (2010: 2%) of the total sales is exported mainly to Southeast Asian countries. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of the segments relative to other entities that operate within these industries. (Refer to Appendix 3 for the financial ratio calculation)
CBMB had achieved a growth of 14.51% in the segment profit. This is due to the aggressiveness growth strategy pursuing by the CBMB. Moreover, the revenue only grows up by 9.75% but the profit had grown up by 14.51%. CBMB’s operation performance is effectively and efficiency to cut down the operational expenses. Besides, there is also a growth of 7.66% in revenue from external customer. CBMB is successfully generating more sales to its local customer. This may due to the marketing strategy by campaign or promotion. This may also due to the reputation enhancement through being official beer for the Euro 2012. Besides, inter-segment revenue had been increase by 17.9%. Since the manufacturing and brewery are only located in Malaysia, the increase in the inter-segment revenue mean that there are more brewery being exported to other geographical segment. CBMB are achieving a high growth in foreign countries and there are spaces for them to growth.
However, by looking at its major competitor, GAB had achieved a better performance than CBMB. GAB had achieved a growth of 18.73% in its segment profit that is higher than the CBMB. Besides, although the growth in revenue 9.57% is lower than the CBMB, but the GAB able to generate the increase of 18.73% in profit. This show that GAB is more effectively and efficiency in cutting the operation costs by implement the Total Productive Management (TPM) in its supply chain. Besides, the increase of 8.83% in revenue from external customer is slightly higher than the CBMB too. In overall, GAB marketing strategy and operational performance is much better than CBMB.
The total assets employ by the CBMB has been reducing by 5.02%. This is due to the decrease in the cash and cash equivalents and the receivables. The receivables of CBMB has been reduced which may due to the improvement in credit control and tighten in credit policy. However, the cash and cash equivalents had been reduce largely. This is due to the repayment of loans and borrowings thus contribute to a decrease of 24.38% in total liabilities. There is also an slightly decrease of 0.48% in total equity which support the point that the liabilities is settle by cash than by issuance of shares. Therefore, CBMB’s operation performance had done very well as they not only able to generate more sales, but also able to collect back the cash to repay their obligations.
On another side, GAB had achieves an increase of 3.41% in the total assets which is mainly due to the increase in receivables and cash and cash equivalents. Although there is an increase in receivables, it may due to the increase in sales and credit term to the customers. Besides, increase largely in cash and cash equivalents show that GAB is able to collect back its cash and debt which shown that GAB is very good in credit control as well. Other than that, the total liabilities had been reducing by 12.06%, which is mainly due to repayment of debt to its trade payables and derivatives. Early settlement of debt might increase the confident of supplier to GAB beyond the enjoyment of discount for early settlement. Besides, there is an increase of 9.7% in total equity that is mainly contributing from the retained earnings. This mean that GAB had achieve a higher profit thus increase the retained earnings.
Finance costs of CBMB had been reducing by 16.5% mainly is due to the repayment of the short-term borrowing, which can see from the cash flow statement of the company. Besides, loan and borrowing at the balance sheet also shown a zero amount and there are no increase in equity. Therefore, CBMB is achieving a highly effectives and efficiency in settle its liabilities by utilize its operation profit. In contrast, GAB’s finance cost had been increase by 24.35%, which is due to the large amount of liabilities and obligation. Although the liabilities have been reduce but it is mainly due to repayment of debt to trade payables which doesn’t include any interest charges.
Interest income of CBMB is reducing by 27.95% whereas GAB had increase by 35.43%.
Interest income is deriving from the interest charges to the borrowing made to its investment or subsidiary. Reduce in CBMB’s interest income can be explain by reduction in the inter-segment borrowing which mean that the other segment is able to finance its operation by using its own operating profits. Whereas the increase in the GAB might due to the increase in borrowing to its other segment of the operation thus the interest charges are high. The other operating segment may still unable to finance its operation by using its own resources.
There are four ratios being calculated which are segment profits as a percentage of segment revenue, return on capital employed, return on total asset and return on equity. In overall, CBMB and GAB both had achieve improvement in these four ratios. However, the ratios results shown by the GAB is much healthier than the CBMB.
The segment profit as a percentage of segment revenue of GAB improved more than the CBMB. CBMB’s ratio had improved slightly from 12.28% to 12.81% whereas GAB’s ratio had improved from 15.07% to 16.33%. This shown GAB is more effectively and efficiently in reduce the operation expenses. Although the revenue only increases by 9.57% but the segment profit can be increase by 18.73%. As compare to CBMB, although the increase in segment profit (ie,14.51%) is also higher than the increase in revenue (ie,9.75%), both of their growth in revenue is almost the same but GAB can achieve 4% more on the growth in segment profit. This shown that GAB is more efficiency in managing the operating expenses and enjoys a higher profitability than CBMB.
For Return on Capital Employed (ROCE), CBMB had improved from 22.56% to 25.88% whereas GAB had improved from 40.73% to 44.27%. Based on the figure itself, GAB utilizes its capital employed more effectively and efficiency than CBMB because for every Ringgit Malaysia of capital employed, GAB can generate about 40% more profit than CBMB. The capital employed by both companies is almost the same (about RM500 million) but GAB is able to generate 40% more profit than the CBMB. It show that the CBMB is weak on utilize the liabilities and equity to generate the profit as compared with GAB.
For Return on Total Asset (ROA), CBMB had improved from 18.8% to 22.67% whereas GAB had improved from 30.91% to 35.49%. Based on the figure itself, GAB utilizes its assets more effectively and efficiency than CBMB because for every Ringgit Malaysia employed in the asset, GAB can generate about 35% more profit than CBMB. The total assets employed by both companies is almost the same (about RM600 million) but the GAB is able to generate 35% more profit than the CBMB. It shown that GAB is more effectively and efficiency in utilize the asset to generate more profit as compared to CBMB.
For Return on Equity (ROE), CBMB had improved from 23.21% to 26.71% whereas GAB has improved from 43.49% to 47.06%. Based on the figure itself, GAB utilize the shareholder’s funds more effectively and efficiency than CBMB because for every Ringgit Malaysia contribute by the shareholders, GAB is able to generate about 40% more profit than CBMB. The shareholder’s funds employed by the GAB are lesser than the CBMB but it able to generate more profit than CBMB. It shown that GAB is more effectively and efficiency in utilize the shareholder fund to generate more profit as compared to CBMB.
The current ratio and quick ratio of CBMB become worsening as compared with last year. The current ratio had slightly dropped from 1:10 to 1:0.93 whereas quick ratio had been drop from 1:0.80 to 1:0.66. This is mainly due to the repayment of the short-term debt that causes the cash and cash equivalent drop thus cause the liquidity ratio drop. Although repayment of debt can reduce the liability or gearing level of