Over the years, India’s beer industry has grown rapidly, thanks to a growing number of beer drinkers in the country (United Breweries Ltd 2011). One of the leading and oldest beer companies in India is United Breweries (UB) holdings.
The company came into inception in 1915 and over the years, it has grown in sales volumes and market share to become the leading beer manufacturer in India. The company is ranked as the third largest manufacturer of wine and spirits in the world. Beer is classified as the third most popular drink in the world, after water and tea.
The objective of this report is to undertake an analysis of United Breweries holdings, a beer company based in India. The analysis will primarily entail a comparison of the beer industry in India with that of the U.S, China, and the Netherlands.
To do so, the research paper shall conduct a Porter’s 5 Force industry analysis and PESTEL analysis on the beer industry in the three aforementioned countries and the results compared with the beer market in India. The paper shall also provide recommendations on the holding level of the beer manufacturer in the global investment index.
PESTEL analysis
This analytical tool examines the macro-economic factors affecting a company externally. It comprises of the political, environmental, socio-cultural, technological, economics and legal matters affecting the environment in which an organization operates (Phatak, Bhagay & Kashlak 2009)
Political: India has different taxation policy compared with China, the U.S, and the Netherlands. For example, imports are highly taxed in China than in the U.S and the Netherlands. This means that United Breweries (UB) is faced with strong political barriers in China than in the Netherlands or the US.
Tax on beer and spirits in India has been increased with the aim of increasing revenue and reducing the number of alcoholics (United Breweries Ltd 2011).
The industry faces high government taxation, increase in price of raw materials and restricted communication. Policies on waste disposal and deprivation of natural resources such as water continue to leverage the business.
Socio-cultural: In India, there has been a social change towards alcohol consumption as more people adopt healthy lifestyles. Compared with the three industries, UB would perform better in India than in the any of the other countries.
Although China is ranked as the leading producer of alcohol, new brands from UB would still compete with established Chinese beer brands (Heracleous 2001). Western culture and urbanization would also act as positive shift towards the consumption of alcohol in India (United Breweries Ltd 2011).
Technological factors such as innovation affect the packaging and marketing of beer. Compared with China and the US, India lags behind technologically although labor is cheap.
Economics: UB has been registering high revenues from the sale of beer. This is attributed to better economic performance of India’s economy due to an increase in consumer purchasing power. However, the company faces high levels of price fluctuations and the global financial crisis which hit the US and European markets.
Porter’s 5 Force Industry Analysis
Porter’s 5 Forces industry analysis focuses on rivalry from existing companies, threats from potential entrants, threats of potential substitutes, bargaining power of buyers, and bargaining power of suppliers (Porter 1980).
According to the United Breweries Ltd (2011), the beer industry in India is quite large and over the years, UB has seen its niche in the market grow tremendously. The company has also widened its gap with close rivals. Although the beer industry in India is competitive, the company is not threatened by new entrants.
Just like in China, the US and Netherlands, new entrants in the beer industry have no place in the industry. Over the past years, UB has outpaced global beer brands entering India from the US and Europe. This implies that the company has gained market power in India before going globally.
Like other beer industries in China, the US and the Netherlands, the presence of potential substitutes in India would threaten the market performance of UB. Therefore, cheap beer threatens the success of UB. Given that most of the raw materials are supplied to the company, UB faces a high bargaining power from suppliers.
Suppliers have detrimental effects especially when they raise the price or raw materials. Since the company has established itself as a market leader with high quality brands and innovative drinks, the level of buyers bargaining power is extremely low giving UB a competitive advantage.
Conclusion and recommendations
Based on the PESTEL and Porter’s 5 Force Industry analyses, UB is a highly competitive organization which can perform better in other beer industries such as in China, the Netherlands, and the US. Therefore, it is recommended that United Breweries Limited would perform above average weighting (+1) on the three selected industries.
The reason behind this recommendation is that the company has been able to create a niche in India and at the global market, and this has given it a competitive advantage over its competitors (United Breweries Limited 2011).
In addition, the company has a high financial capacity and is ranked third in the world after the major manufacturer in the US. Therefore, UB can perform better than similar companies in the industry and as such, it should have a higher level of investment than it represents in the relevant investment index.
This is because the company is well placed in the industry and product differentiation has played a major role in its success.
Reference List
Heracleous, L 2001, ‘When local beat global: The Chinese beer industry’, Business Strategy Review, Vol.12, no. 3, pp 37-45.
Phatak, A V, Bhagay, R S & Kashlak, R J 2009, International management: managing in a diverse and dynamic global environment, McGraw-Hill Company, New York.
Porter, M E 1980, Competitive strategy: techniques for analyzing industry and competitors, The Free Press, London.
United Breweries Ltd 2011, United Breweries Ltd 2010-2011 annual report. Web.