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Introduction
Given the sheer amount of demand for Western products in China, SAB Miller’s expansion into the country has a considerable amount of potential based on the number of new consumers that it could garner. The expansion of other foreign brands into the local market has already proven to be successful as evidenced by Pabst Blue Ribbon’s marketing campaign which resulted in a relatively mediocre beer being sold for $44 a bottle. However, the biggest problem with establishing a supply chain into China is the far lower cost of comparable local products when compared to more highly priced imports as well as the presence of high import tariffs (Caplan, 2013).
Analysis
One of the reasons that companies find it initially difficult to expand into China is the presence of a relatively robust local market that contains a wide variety of comparable locally produced products. China is notorious for producing fake goods on a massive scale which is not limited to just bags, shoes, and DVDs but also encompasses food products. SAB Miller’s expansion into China would need to contend with the potential presence of these fakes as well as local products that are much cheaper due to the lower price on labor.
Related Assumptions
The primary assumption that can be drawn from the information presented is that SAB Miller should establish a factory in China to lower their overall cost so that they can be more competitive. This is based on the ease of building factories and other manufacturing facilities within the country, the government tax exemptions that come during the first year of operation as well as other incentives. The scope of its creation would encompass all necessary brewing and production aspects for canning.
Alternatives
a.) Importing from the UK
While importing SAB Miller’s products directly from its factories in the UK would cut down on the investment cost of establishing a plant in China, one of the problems with this method of supply chain creation is the long term cost associated with taxes and tariffs (Measures of the People’s Republic of China on Control over and Taxation for Import and Export Goods of Enterprises with Foreign Investment, 2005). This approach could potentially be used to introduce the product in China to determine how the general market responds to SAB Miller’s products but is unsuitable in the long term.
b.) Production in Taiwan – producing the beer in Taiwan then exporting it to China does have potential given the lower taxes associated with this method of production; however, there are substantial shipping costs.[Need an essay writing service? Find help here.]
c.) Production in Korea – production in Korea could have potential, given the potential access to a new market in Korea as well. However, labor is cheaper in China so it would be more viable to have the factory there instead.
Evaluation
Based on the information presented, SAB Miller should pursue a strategy where it initially imports its products direct from the UK to China to test the reaction of the Chinese market. If the result is positive, it should implement a better supply chain strategy by cutting out the middle man by establishing a factory within the country. This helps to lower the amount of risk that the company is exposed by creating an initial evaluation period. [“Write my essay for me?” Get help here.]
Recommendation
It is recommended that the firm establish a local factory in China instead of importing its products. It cannot compete directly with cheaper Chinese goods despite the popularity of western branded products (Chen, Lobo, & Rajendran, 2014). As such, by being able to sell its products competitively as well as having a western name, this would help the company gain a substantial market share.[Click Essay Writer to order your essay]
Implementation
The firm should develop a partnership with a local food importer that specializes in Western goods so that SAB Miller can determine through their expertise where they should initially distribute their product. If the reception is positive, the company should then build its own brewery and canning facility within China to cut down on the cost of production to make it more competitive.
Conclusion
Overall, expanding into China is a good idea given the current level of demand within the country for western goods. However, the supply chain should not focus primarily on imports since this will substantially increase costs in the long term. As such, it is highly recommended that the company create a local brewery and cannery to limit the distances involved in shipping and to eliminate costs associated with high tariffs.
Reference List
Caplan, N. (2013). Not for all the wine in China. New Statesman, 142(5155), 55.
Chen, J., Lobo, A., & Rajendran, N. (2014). Drivers of organic food purchase intentions in mainland China – evaluating potential customers’ attitudes, demographics and segmentation. International Journal Of Consumer Studies, 38(4), 346-356.
Measures of the People’s Republic of China on Control over and Taxation for Import and Export Goods of Enterprises with Foreign Investment. (2005). China Business Laws & Regulations (pp. 381-386).
