It appears I could write an entire blog this semester on beer and dogs. Not sure what this says about the state of our world, but nonetheless, here is another fascinating article about beer. This time, the Wall Street Journal reports how big beer companies are racing to get market share in developing nations, specifically in poor areas in Africa. Although people in these nations may make as little as $2-3 per day, their incomes are increasing. To increase market share, beer companies are selling inexpensive, high alcohol content beer (sounds like a college student’s dream, really). This allows beer drinkers to buy and drink more.
The governments are actually encouraging all this beer drinking, believe it or not. Many are offering significant tax breaks to these companies, by lowering the taxes on the beers sold. The companies were able to convince the governments that selling their beer in those countries increased farming jobs locally because of locally sourced ingredients, and beer is a healthier alternative to the bootleg liquor otherwise consumed.
This is an interesting example of large multinational corporations that have tapped out the Western markets (get it, “tapped out”) and need to expand their customer base globally to continue growth. I am all for corporate growth, but a similar business strategy (pressure to make numbers forced Wal-Mart to look to developing markets for growth) is what got Wal-Mart into so much trouble in Mexico for bribery. Of course companies can expand globally without breaking the law or violating their ethical standards, but certainly the idea of pushing lots of cheap beer into developing nations has to raise questions about ethics, particularly because of health concerns. If you were the CEO of a beer company (imagine the perks!), would you be comfortable implementing this strategy?
2 Comments
Joe DiFilippo posted on April 2, 2013 at 1:37 pm
Your blog makes some excellent points and there are many pros/cons of using this business strategy. The developing nations are what major corporations salivate over in order to increase their market share and shareholder value. The incentives such as tax breaks are huge because the companies are not taking on as much risk and having to pay a large amount on taxes. What these corporations are inevitably doing are getting these citizens addicted to their high alcohol content which can make their bodies dependent on the substance.
If I were the CEO I would need to do a lot of thinking. My main job as the CEO is to increase shareholder value and continue to grow the company to increase profit margins. Developing nations are the perfect opportunity to gain international market share. On the other hand it is wrong. But, if your company does not move first your competitors will and it will negatively affect your performance.
Will England posted on April 3, 2013 at 11:49 am
I think that almost every company in every field is expanding globally to increase company value and to get ahead of the competition. The beer industry seems to be no different. I like that the company’s current main point is that beer is healthier for people than the current “bootleg liquor” that they are currently drinking, and that seems ethical appropriate to me. If I was livin’ the dream as the beer company CEO, I would be comfortable implementing this strategy. I think that it might encourage job growth in developing countries in Africa since this is an untapped (see what I did there) market. It could cause more farms to hire more people and help increase the income per capita. Last, I think other competitors will definitely pursue this market, so I can’t sit back and miss out on the opportunity.