Essay Sample on Basis of Competitive Advantage in the Industry

Competitive advantage involves a situation where a company is engaged in the production of a product of similar value at a reduced cost and which allows it to have an edge against its rivals in the market (Kumar & Pansari, 2016). In the beer industry, firms always strive to attract a large customer base to increase their market share. Moreover, withstanding competitive pressure has been the critical foundation of competitive advantage in the beer industry (Kumar & Pansari, 2016). Many firms in the industry have been putting great effort in consolidating and adopting modern technology in their operations to enhance customer benefits and most importantly create a product with a unique value that cannot be imitated by other players in the market. It is instructive to note that cost structure and branding plays an integral role in helping the firms in the beer industry to get more customers which forms the main basis of competitive advantage.

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Furthermore, the market in the beer industry is complex and large in volume, and different firms are always in perpetual pursuit of high returns. The distribution network is often utilized by different firms to enable them to have a competitive advantage over the rivals (Kumar & Pansari, 2016). The beer distribution always varies from nation to nation and firms that have an elaborate distribution network always reflect on their market share and consumption patterns. Countries like Belgium and France are always involved in the direct distribution of beer to the customers, and this results to competitive advantage compared to countries that involve intermediaries in their distribution network (Kumar & Pansari, 2016). Moreover, the establishment of limited brands in the beer industry always helps firms in staying ahead of other firms because of enhanced production and most importantly market efficiency. Also, merger integration as in the case of InBev and Anheuser-Busch helps in creating a substantial advantage where there is a consolidation of the limited resources to improve production and ensure efficient operations which therefore creates an edge against competing firms in the industry (Kumar & Pansari, 2016).

Strategic Rationale

Consolidation in the beer industry always involve the largest brewers, and this is has morphed into a vital characteristic of the industry in the recent past. The SAB, a South African brewer, successfully acquired Miller Brewing Company in 2002, which led to the creation of SABMiller (Hancock, 2010). Consequently, in the year 2005, SABMiller acquired a substantial interest in Bavaria S.A and 2008, it acquired Grolsch, which were the second-largest brewers in South America and the Netherlands respectively (Hancock, 2010). Also, the InBev Company sought consolidation with the Anheuser-Busch to create a larger and stronger company that would compete favorably in the beer industry. Competition is always a key aspect in every industry, and the conceived merger arrangement of the InBev and Anheuser-Busch was to create a large brewer from companies that enjoy a long period of brewing tradition will significantly allow them to emerge as the beer industry global leader (Hancock, 2010).

Concerning the overlaps in the businesses, both the InBev and Anheuser-Busch had limited overlaps where it would not necessarily need the two companies to merge to continue their operations independent of each other (Hancock, 2010). Moreover, the strategic rationale of the deal was premised on the complementary elements of the businesses of both InBev and Anheuser-Busch particularly in bringing together the various ideas and strategies maintained by the independent companies to create an edge against other competitors in the beer industry (Hancock, 2010). For instance, the InBev Company had an attractive culture where it had an elaborate cot cutting strategies and lucrative compensation programs that were going to complement the corporate culture of Anheuser-Busch significantly and hence emerge as a leading brewer in the industry.

Source of Synergies

Concerning the source of the synergies, in 2004, a multifaceted deal arrived, that led to the merger of AmBev and Interbrew resulting into the formation of a greater company called InBev (Hancock, 2010). Since AmBev was the fifth largest brewer in the world mainly focusing its markets in Latin America, while Interbrew being the third and concentrating its sales in 120 nations, especially in North America and Europe. The motive of the merger was to provide a larger foothold for Interbrew in the rapidly growing markets of the Latin America, as well as enabling sufficient access by the AmBev to the markets in North America and Europe. The two companies had confidence that the new InBev would be best positioned and favorably compete in the global market while taking advantage of any development arising in the lung-run (Hancock, 2010). The vibrant company was expected to have revenue that is almost $12 billion, and its shares would worth 14% of the market share (Hancock, 2010). Its complexity, operation and rapid growth would give it either number one or two positions in the twenty critical markets.

More imperatively, the stock market reaction was positive to the deal in spite of the significant premium that was paid to the AmBev shareholders (Hancock, 2010). The integrated synergy per year from the deal was estimated at around EUR280 million by integrating the commercial synergies and the cost-saving. Additionally, more speculations emerged that the purpose of the deal was also to pass the financial and operational know-how of the AmBev to Interbrew's rambling and separate global business. Most importantly, InBev Company had several brands which were divided into three categories, including multicountry, global and the local brand. The company was organized in to operate in seven trade regions: North America where 4.8% consolidated sales revenue of 10.7%, Latin America South and Latin America North had 41.7% and 47.2% respectively (Hancock, 2010). Central and Eastern Europe had 18.4% and 16.0%, Western Europe had 12.8% and 22.5%, while the Asia Pacific had 14% and 6.9%. More importantly, the worldwide experts and the holding companies made the balance.

Regarding the country level, the company had ten biggest markets including Russia, China, Argentina, Brazil, Canada, UK, South Korea, Germany, Ukraine and Belgium, while the minor position was in the United States where it had 20% of the global sales (Hancock, 2010). Focusing on financial performance, the company had 112 plants globally, and the company's culture was to prevent unnecessary costs in production. It operated with a margin of 34.6% which was more than the major competitors in the market. Concerning its financial analysis, InBev realized revenue of EUR13308 and EUR14430 in 2006 and 2007 respectively (Hancock, 2010

Merger Integration Issues

Several organizations are affected by challenges that result as a consequence of business mergers (Hancock, 2010). Many merger integration issues arise to influence the operation of InBev Company. The company is expected to embark on performance improvements. The company has to improve in terms of cost-saving and to ensure revenue growth, as well as concentrate on efficient saving. In terms of geographical issues, the company has to explore emerging markets such as Africa, thereby boosting market growth (Hancock, 2010). The nature of InBev and the strategy of the SAB miller is one of the crucial cultural challenges that the company is to overcome. Finally, it is estimated that many integrations have not delivered to the expectations; therefore, this is an issue that InBev must focus on to ensure its long-term benefit.

References

Hancock, G. D. (2010). How much is too much? The case of the Anheuser-Busch INBEV takeover. International Review of Accounting, Banking and Finance, 2(1), 23-31.

Kumar, V., & Pansari, A. (2016). Competitive advantage through engagement. Journal of Marketing Research, 53(4), 497-514.