Global Forces and Western European Breweries

Question 1 (One)

1. A PESTLE analysis for the global forces and the western European brewing industry

The PESTEL framework provides a comprehensive list of influences on the possible success or failure of particular strategies (Johnson Scholes and Whittington, 2008). PESTEL stands for Political, Economic, Social, Technological, Environment and legal.

The PESTEL analysis have had significant impact for the Western European Brewing Industry in so many ways as highlighted below:

POLITICAL

Organizations are influenced by government politics such as taxation policies, political orientations, legislative structures, trade union power and so on. (Porter, 1994)

Most governments in Europe have been campaigning strongly against excess drinking, particularly drunken driving which has negative effect in society. There has been on increase in social marketing campaigns in major media such as Television showing the fatal results of excessive drinking leading to accidents. This has contributed to the reduction of alcohol consumption in larger markets such as in Germany and the United Kingdom.

ECONOMIC

Organizations have to operate in conditions of boom and bust (recession) at times. Interest rates change, tax rates change, the money supply can alter, investment levels go up and down, as people try to give likely future market movements (Johnson, Scholes and Whittington, 2008).

Economic recession has also negatively impacted on the demand for beer products in Europe. This was the case in the United Kingdom in 2009 recessionary years when about 50 pubs closed per week.

SOCIAL

According to Mullins (2007), the culture of an organization is affected by the culture of the society in which it operates.

Society has now become more sensitive towards healthy eating and drinking habits particularly due to obesity. As a result of social marketing by governments and other not for profit organizations regarding health and fitness issues, there has been a significant decline in beer drinking which is the excessive alcohol consumption in pubs and clubs. This has affects a number of breweries brewing beer in traditional beer markets in UK and Germany. However, social trends show a growth in demand amongst low consumption such as Norway, Italy and Switzerland

TECHNOLOGY

The level and focus of both government and industrial research and development expenditure have an effect on technological changes in the environment. The nature of such changes and the speed of technology transfer will have an impact on an organizations own technology.

Most of the leading brewers such as Anheuser - Busch Inbev, South African Breweries and FEMSA have expanded their brewing business as a result of either acquisition licensing or through strategic alliances.

This has facilitated quick entry into more international markets on a global perspective. SAB Miller, for instance acquired most privatized brewing state owned Enterprises in Africa including Zambia and re-capitalized these plants by investing into modern plants.

* Environmental Issues

Environmental issues have become more important over the last 10-20years, with the growing concerns on the effects of global warming. (Ansoff 1985). Brewing companies are also contributors towards environmental issues.

* Legal/Regulatory

Organizational strategies must reflect and take account of legal/ regulatory factors. (Johnson, Scholes and Whittington 20080

This was the case when the European Commission fined Heineken and Kronenboug in 2004 for price fixing in France, and Heineken, Grotrch and Bavaria in 2007 for a price fixing cartel in the Dutch market.

FIVE FORCES ANALYSIS OF THE WESTERN EUROPE BREWERING INDUSTRY

According to Forter (2004), he suggests that there are five basic competitive forces which influence the state of competition in an industry and can be used as the outline for a structural analysis of industry.

New entrants into the beer industry are unlikely due to the dominance of larger brewing companies such as inter brewing.

* The threat from a substitute products

As a result of concern for drinks that should not affect consumer's health and fitness, consumers are now switching to non-alcoholic beers and wine rather than beers.

* The bargain power of customers.

Customers want better quality products and services at lower prices. Customers have more choices on the types of beer due to many suppliers of alcoholic drinks.

* The bargainry power of suppliers can also influence profitability by exerting pressure for higher prices for the products or services they will supply to originations (Michael 1994)

Suppliers of packaging materials used in the brewing industry have move more bargaining power than the brewing companies due to a concentrated industry dominated by international companies such as crown in cans and owens Illinois in glass bottles. In the UK there is ball packaging Europe, Crown Bencan and Rexam

* Rivalry amongst current competitors in the industry.

Most large brewing companies are able to compete through market expansion by pursuing acquisition strategies.

The competitive advantages are usually based in the quality of the beer brand and aggressive marketing strategies.

Amongst retailers price competition is a common