In the early 2000s, Carlsberg, a well-known Danish brewing company, decided to pursue new areas of development by expansion. This decision was arrived at as a solution to the possibility of being taken over or staying as a minor player in the international global beer market. Over several years, such decision proved to be a success as Carlsberg was named as one of the five largest breweries in the world. It has become one of the fastest growing markets in the world in the Russian market and the world's largest beer market in terms of size and population in China. This case study analysis discusses how Carlsberg's entry in China resulted in such development.
Michael W. Hansen; Torben Pedersen; Marcus Moller Larsen
Harvard Business Review (W11045-PDF-ENG)
March 09, 2011
Case questions answered:
Analyze the Carlsberg Case, an interesting example of a company targeting two markets at once. You should set the stage by explaining why Carlsberg chose to enter Russia and China and then analyze their decisions about globalization. Explain whether Carlsberg’s strategy was successful and discuss the takeaways about brand management that should be applied as they try to grow the brand.
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Carlsberg in Emerging Markets Case Answers
Carlsberg, the fifth-largest brewing company globally, is originally from Copenhagen, Denmark, and currently sells beer to more than 150 countries. Carlsberg envisions being “the consumer’s first choice” in an increasingly consolidated global industry while expanding its profitability and geographical presence.
The company has entered the Chinese and Russian markets under one overall strategy: to develop the Asian market successfully in the long run while obtaining high returns from Eastern Europe in the process.
Although their vision was too narrow regarding the possibilities for geographical expansions (e.g., African countries were of little interest), entering these two emerging markets has made Carlsberg a global company that grows by understanding the particularities of each market it enters.1
Entering China and Russia
As the Western European market accounted for the majority of Carlsberg’s revenue (i.e., 66% in 2007), and it became a region with relatively low expected potential for growth (i.e., 2.5% per year in comparison to China’s 8%), Carlsberg had to develop a strategy that would allow for a robust global presence that was both long-term oriented and short-term financially optimistic.
The company, therefore, decided to invest in China and Russia as central players in the development of the Asian and Eastern European markets, respectively.
As the world’s largest market for beer production and consumption, China emerged as an attractive alternative for Carlsberg’s expansion in Asia. Although it was a fragmented market where local non-premium brands constituted the absolute majority of sales and entry barriers were high, investment in the Western Chinese provinces could be the solution.
Most foreign brewing companies entered the market by purchasing shares of regional brands to the East of the country, where consumption rates were more significant. Therefore, starting in the West implied buying cheaper companies and not expecting revenues from the region in five to ten years, but also the opportunity to grow in an environment where consumer trust is key.
Entering Russia, on the other hand, was a decision aimed at rapid growth. Russia already had the infrastructure Carlsberg needed to thrive in the market. Acquiring Baltic Beverages Holding (BBH) granted Carlsberg a market-leader status. The company used BBH’s distributing system to introduce foreign brands (e.g., Carlsberg Pilsner and Tuborg) to the Russian market.
The low costs to start operating in the country and the synergetic benefits that emerged from using BBH’s distribution plans allowed Carlsberg to generate high returns in Russia, which would later correspond to approximately 75% of the sales in Eastern Europe (2015).
Carlsberg’s Globalization
Carlsberg’s globalization plan focused all the company’s efforts on three regions: Western Europe, which accounted for two-thirds of the company’s sales (2007); Eastern Europe, which presented the potential to grow rapidly; and Asia, which was the main target for long-term development. Although this strategy has been working for Carlsberg, it is based on the assumption that Carlsberg has an “inability to become a truly global company.”
The premises for that argument are that the markets in North and South America have been lost to other large breweries and that African markets were not remarkably interesting. That may be the case, but it is still an overgeneralization. Just like in Asia, it could be fruitful to invest in emerging economies in Africa (e.g., South Africa), for instance.
The investment would probably be similar to China’s (i.e., long-term oriented with low expectations for profitable operations in the first years). Still, it could be valuable for Carlsberg to develop another market where they would-be leaders.2
Brand Management for Next Steps
Carlsberg became an established company that enjoys global-operations benefits for being in three distinct regions, but one of their main competitive advantages might not be on developing standardized products to collect these benefits; rather on specializing to local preferences to nurture a trust-based relationship with consumers.
China, for example, is a demanding market with high entry barriers.3 Understanding the country as a target for sales and as a production hub can be useful for Carlsberg. The Chinese government often creates protectionist regulations that make it hard for foreign businesses to thrive.
Carlsberg should, therefore, produce the beers that will be sold in China with as many local resources – from raw materials to laborers at all levels of the value chain – as possible.
Proving the point that the company creates a positive impact on the economy in many ways (e.g., through the creation of jobs) can be useful to develop a beneficial relationship with the government but also to promote the brand among customers, who tend to value it more the products that are produced in their own land.4
Carlsberg’s decision to enter China and Russia was an effective strategy to use emerging markets to grow as a global company. While each country represented a series of opportunities and risks, the synergies that emerged on the company level (e.g., being able to invest resources in the development of the Chinese market based on the financial stability the high returns from Russia enabled) should be seen as an invitation for Carlsberg to overcome their assumed inability to be global and expand to markets beyond Europe and Asia.
Endnotes:
1 #thesis: The paper’s thesis is described in this paragraph, setting the organization of the entire essay and the flow of content that the reader should expect.
2 #whyGlobal: While Carlsberg’s motivations to expand beyond Western Europe are explained (i.e., the markets there are matured, so they need places with growth potential), the lack of reasons for dismissing entire continents (e.g., Africa) is questioned as part of their global strategy.
3 3 #poliStrat: Entering the Chinese market requires a business’s ability to adapt to regulations that can substantially change how it operates in a country. Being aware of this scenario of legal instability is useful for Carlsberg to prevent losses and develop a strategy that might even become a competitive advantage.
4 #levelsofanalysis: The implications of adapting changes in regulations are analyzed in this paragraph on political and cultural spheres.
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