Introduction
Foreign market entry refers to the process through which companies join overseas markets in order to expand their operations. Businesses expand in order to increase their market share and competitiveness in the market.
Diversification refers to the process through which companies invest in different industries in order to improve their growth and stability. This paper focuses on the application of the concept of foreign market entry and diversification in the context of Modelo and the beer market.
Trends in the Global Beer Market
The global beer market is characterized by the following trends. First, the companies that operate in the industry are focusing on market consolidation. This has been done through international expansion and acquisitions. In 2008 the top ten firms in the industry accounted for 59% of the market. Second, the sales volume in the developed Western economies is steady.
However, in a few developed economies the sales are slowly declining. The sales in the emerging economies in Asia and Eastern Europe are growing rapidly. Third, the rise in sales in the market is attributed to high quality of beer products, rise in disposable income and effective marketing and sales campaigns. Besides, local spirits are being substituted by beer due to “increased responsiveness to brands and marketing”.
The rate of consumption in the developed economies depends on the level of product differentiation. Finally, most markets are divided into two levels. The lower end of the market features discounted brands while the higher end of the markets features premium and imported brands.
Modelo’s International Expansion Plan
Modelo’s rapid expansion in the global beer market is attributed to strategic partnerships with experienced distributors. The company implemented this strategy in two ways. First, the company formed strategic alliances with other brewers and soft dinks manufacturers. Under these alliances the company distributes the products of its partners in various markets (Modelo 2011).
Second, the company has formed joint ventures with independent distributors in various parts of the world (Modelo 2011). The distributors are responsible for selling the five brands that are exported by the firm. The company has established offices in all markets where its products are sold.
The offices are responsible for coordinating and supervising the activities of its distributors in order to ensure that sales targets are achieved (Modelo 2011). The joint ventures have enabled the firm to serve the global market without necessarily establishing production plants in every market.
The Next Foreign Market
Modelo should join the East African market using the joint venture strategy due to the following reasons. First, there is low competition since there is only one main brewer in the region, EABL. Second, the emerging breweries in the region lack the capital to expand. Thus Modelo can partner with them in order to introduce its products in the region.
Third, the East African region is currently encouraging foreign investors to join the region in order to achieve rapid growth. This means that foreign investors enjoy incentives such as low taxations in return for their presence in the region. Finally, several independent distributors have emerged in the region due to the steady economic growth and availability of infrastructure.
Challenges that Modelo Faces from its Competitor, InBev
InBev is one of the main competitors of Modelo since it controls a better part of the global beer market. Modelo finds it difficult to compete with InBev due to the limited number of brands that it offers. While Modelo has only 13 brands, InBev has 200 brands (Modelo 2011). This gives InBev a greater competitive advantage as compared to Modelo since the customers of the former have a wider range of brands to choose from.
In response to this challenge, Modelo has formed alliances with other brewers in order to expand its brand portfolio. InBev also controls the distribution channel in the major markets since most of the well established distributors have partnered with it. This makes it difficult for Modelo to expand by partnering with distributors.
Modelo can respond to these challenges by focusing on product differentiation and cost leadership strategies. This will enable it to position its products as the best in the market. Besides, it will be able to increase its market share by selling its products at low prices.
Diversification
Modelo should diversify its business by investing in two industries namely, the soft drink and shipping and logistics industry. This proposal is informed by the following reasons. First, the high threat of substitute products in the beer market is attributed to the goods that are produced in the soft drink industry.
Thus investing in the soft drink industry will enable the company to cushion its investments from the threat of substitute products (soft drinks). Second, the company will be able to use its subsidiary in the shipping industry to import and export its products in time and at low costs. Besides, the firms in the shipping industry are likely to be profitable since the industry is very stable.
Conclusion
The above analysis indicates that the global beer industry is yet to reach its maturity stage. This means that firms can increase their profits by expanding their operations in the market. Modelo has achieved its expansion objectives by partnering with experienced distributors (Modelo 2011).
The firm can use the same strategy to join the East African market that is associated with low competition. The company should also diversify its business by joining other industries such as shipping and soft drink industry.
References
Modelo. (2011). Annual reports: 2010.
Wade, J. (2010). Heady days for beer. Business Wire, vol. 23 (1) , 67-101.