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Strategy Carlsberg Vs. Heineken Essay

2363 words - 10 pages


| Carlsberg vs. Heineken |


Industry Overview1
Competitive Advantage and its Sustainability1
Cost Advantage1
Differentiation Advantage2
Future Scenarios for the next ten years4
Strategic Options facing each Scenario5

Industry overview
For thousands of years, beer has been sold in similar form and taste all over the world. However, it has remained a highly local product due to barriers such as local tastes, short shelf life, high transportation costs, taxes on imported alcoholic products and difficult-to-penetrate local distribution networks.
In 1999, the top-four brewers ...view middle of the document...

This way, Carlsberg and Heineken were able to develop the mentioned advantages, however, with a relative different weight. Carlsberg has a relative source of competitive advantage in scale in the value chain, whereas Heineken’s source is brand strength.
Cost Advantage
The companies under analysis reached a dimension which enables them to enjoy various internal economies of scale. The gains from these scale economies allow the companies to sustain its profitability. Carlsberg and Heineken are operating in the premium segment which means that the benefits of its large scale are directed to an increase in margins rather than to a price reduction. The companies produce more than one type of beer but the production technology and processes required are mainly the same which means that the same machinery and infrastructure can be used for different production processes, increasing capacity and lowering cycle times. Moreover, due to the companies’ size, they have been able to develop strong relationships with distribution channels and sponsors, strengthening their position within the industry and allowing them to reduce costs.
The internationalization strategy pursued by both companies – Mergers & Acquisition – allows them to penetrate in new markets and thus, have access to local distribution networks. Therefore, obtaining distribution line efficiencies, erasing exports barriers and enabling a wider market reach.
Recently, there has been a new trend of centralization in major breweries, partially led by Carlsberg. In 2011, the company developed the Business Standardization Program moving towards centralization of its supply chain management. This program was traduced into shared accounting service center in Poland, centralized procurement in Switzerland and harmonized IT systems across the Group. As the pioneer of this trend, this initiative made possible to reduce costs and improve brand marketing and innovation and, simultaneously, allow Carlsberg to benefit from the advantages of scale and standardization of functions and processes.
At the same time, and as a proof of rising in the “globalization curve”, Heineken implemented the Global Business Services Program focused on Heineken Global Procurement and Global Shared Services, intended to share service centers and harmonize IT systems. These programs allowed Heineken to manage input price volatility, leverage the company’s scale, improve supply chain financing and extract more quality and value of each operation. Overall, it has improved cost efficiencies through economies of scale, standardization and concentration of processes in optimal locations. Moreover, Heineken has achieved a higher level of control through standard and consistent ways of working. IT had a crucial role as an enabler of these programs by creating synergies and scalability for growth.
* Carlsberg’s operating cost productivity relative advantage
Carlsberg has a higher operating cost productivity, meaning that...

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