Foreign Market Entry and Diversification

Foreign Market Entry and Diversification

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Foreign Market Entry and Diversification

Introduction

Grupo Modelo, founded in 1925, is a Mexican beer production, distribution and marketing company. In the Mexican beer market, it commands over 60% of the total market share, while in the international market, it is the leading exporter of beer in the U.S. market. It brews and markets 13 brands, and exports 6 of these brands. One of its brands, Corona Extra is the leading Mexican beer in sales in the world. In the U.S., Corona Extra is the most consumed imported brand. It is therefore a highly successful company in its domestic market and internationally.

 Trends in global beer markets

China has the largest market for beer in the world; although its consumption is not as high as in other parts of the world such as Germany and the U.S. Leading beer manufacturers have a strong market both in their home countries and in foreign markets. They focus on marketing aggressively locally and internationally. Emerging markets such as Chins, South Africa and Brazil also have a strong dominance in the global beer market. The U.S. is the largest consumer of beer products, thus a beer company that is able to capture the U.S. market is bound to maintain its strength in the global beer market. For instance, Grupo Modelo’s success can be attributed to the fact that it exports five brands of beer to the United States. These are Corona Light, Pacifico Clara, Negra Modelo, Modelo Especial and Corona Extra. Of these 5 brands, Corona Extra, Modelo and Corona light are among the top 10 most imported brands in the United States; Corona Extra commands a market share of around 40% of the imported beers market (Som, n.d.)

Each country’s beer has its unique recipe and taste, hence the reason why some beers are more popular than others in the global beer market do. The marketing strategies employed by the beer companies also influence the popularity of the beer brand.

Germany and Ireland have the highest number of medium sized and large sized brewing companies. One of the key expansion strategies of beer firms is to acquire a sizeable number of breweries in various countries and market the beer globally. It is however not economically viable to establish a brewery in each of its markets, therefore the breweries are therefore lower in number than the number of countries marketed to. In order to achieve dominance therefore, strong and aggressive distribution channels are required.

Modelo’s international expansion

Modelo’s successful expansion into the international Markey is a result of strategic partnerships with experienced distributors. For instance, Grupo Modelo collaborated with Anheuser-Busch in order to increase its market share, since Anheuser-Busch already enjoys a large command of the international beer market because it was formed by merging two large beer manufacturers. This enhanced the market base by the two companies that was larger than what they would have achieved individually.

Upon entry into the United States market, Modelo strategically collaborated with the largest beer importing company in the 25 western states, Barton Beers. The partnership’s chances of success was increased by the fact that Barton Beers was highly experienced in the marketing and sales of imported beer; hence leading to the popularity of Modelo beer brands within the Western region. Therefore, one company would be in charge of an area where another had not excelled in thereby providing a more potentially profitable institution. In order to expand to the eastern states, Modelo collaborated with Gambrinus Inc., which was also experienced in the marketing and distribution of imported beer. The selection of two different companies in different regions fostered competition between them, and this ultimately increased the companies’ marketing efforts (Thompson, Strickland & Gamble, 2010).

New Foreign Markets

Grupo Modelo should target China as a viable market. The viability of the Chinese market results from the fact that it has a population of over 1 billion people and a large middle class. The average beer consumption per capita is 5.19 liters which if translated to the entire beer drinking population would earn Grupo Modelo massive profits. In order to enter the market, the company should target the young urbane Chinese generation, and market its beers as aggressively as it did in the United States. The young generation is easier to market to because they can easily switch to the product they perceive as being superior. Modelo beers should be positioned as a trendy drink for this young upwardly mobile generation. However, in order to attract this market it is important to have a good understanding of the Chinese language to advertise in a language they value and understand.

The company should also market aggressively through social media and other networking sites. The young Chinese generation is very technology savvy and marketing beer products in the media that they frequently use would make them more familiar with the product and make it attractive to them. In addition to this, Modelo should use digital media to advertise their beers to the target market. In order to penetrate the market effectively, Grupo Modelo should collaborate with a well-established and experienced beer manufacturer or marketer.

Challenges in respect to InBev

InBev is a larger beer manufacturer than Modelo since it is a merger between two beer companies, which are AmBev and Interbrew. InBev’s products are fast gaining popularity all over the world due to its aggressive marketing campaigns; it spends more of its revenues on advertising than Modelo. Due to the increasing popularity of InBev’s beers particularly in the States, Modelo stands to be overtaken by InBev as the leading importer of beer in the States.

It can respond to the industry giant in either of two ways; first, it can increase its advertising expenditure and create advertisements that leave a lasting impact on the beer drinking population (Kurtz & Snow, 2009). Through its advertisements, it should position itself as the most superior imported beer in the U.S. Modelo can also explore new advertising media such as frequently visited online sites. Another effective way of creating brand dominance through advertising is by using a celebrity as brand-ambassador for the company’s beer.

Secondly, Modelo may also respond to the increasing competition by forming a merger with an equally strong company such as Heineken. In so doing, it will have managed to increase its market share and increase its capital base in order to make it as large as or even larger than InBev. A merger would also present the Modelo with the ability to have a large working capital that would cater for expansion and operation costs, excelling the company even further in its market.

Enhancing Diversity

In order to grow and handle the increasing competition, it is important for Grupo Modelo to diversify. By diversifying, the firm also increases its market share and hence increases its earnings and profitability. Diversification also reduces costs through economies of scale, especially where the company diversifies into a line of business that is closely related to the original one. Due to the increasing competition, Modelo may also need to diversify in order to reduce the uncertainty of future cash flows. By diversifying into other markets, Modelo also increases the popularity of its brand name among different market segments, the advantage of which is that it will not have to spend a large percentage of its funds on advertising in future once the new products become popular in the market.

Modelo should enter into the water-bottling business since it can easily ride on the success of the Modelo brand name, thus will not require as much advertising. The water-bottling business is also lucrative because everyone consumes water, unlike beer, which only a fraction of the market consumes. Thus, water can be marketed to all segments of the market including the young, the middle-aged or the old. Modelo may also diversify into the business of manufacture of non-alcohol fizzy drinks. These products may be popular with the fraction of society that does not consume alcohol but does not want to seem out of place in social gatherings where alcohol is sold or consumed. This product may be marketed as the non-alcoholic alternative to the Modelo beers.

Conclusion

            The global beer market is highly competitive, and Grupo Modelo will have to create and adopt new innovative strategies in order to maintain its competitive ability. It can achieve this by marketing its products more aggressively to its current markets. In future, Grupo Modelo will also have to expand into more markets as it is currently marketed in only 17 countries, unlike its competitors who are going global. Therefore, a company may seek to increase its market share by either seeking more aggressive marketing strategies or by seeking the opportunity with mergers with similar-minded companies. A merger will present the company with a larger working capital allowing it to stake its claim in a market that is indeed competitive, and which requires significant funding to excel in.

 

References

Kurtz, D. L. & Snow, K. (2009). Contemporary Marketing‎. London, UK: Profile Books.

Som, A. (n.d.). Corona Beer: From a Local Mexican Player to a Global Brand. France: ESSEC Business School.

Thompson, A. A., Strickland, A. J., & Gamble, J. E. (2010). Crafting and executing strategy: The quest for competitive advantage. New York, NY: McGraw-Hill-Irwin.