Nigeria Breweries Plc

Nigeria Breweries Plc


 

Table of Contents

Introduction. 3

Company Background of Internationalization. 4

Critical Analysis of Internationalization Strategies. 5

Joint Ventures. 5

Product Distribution through Third Parties. 7

IB Theory in Relation to Nigerian Breweries Foreign Markets Entry. 8

Recommendations. 9

Improvement and Expansion of Distribution Channels. 10

Mergers and Acquisition in West Africa. 11

Foreign Direct Investment in Emerging Markets. 12

Conclusion. 13

References. 14

 

 


 

Introduction

            This paper will highlight the internationalization history and structure of Nigeria Breweries Plc, a global business lauded as Nigeria’s very first and largest Brewing firm, and details some of the company’s strengths, weaknesses, and areas in need of improvement (Ogunbiyi, 2007).  The company dates to 1946 and, three years later, Nigeria Breweries Plc “recorded a landmark when the first bottle of STAR lager beer rolled off our Lagos Brewery bottling lines” (Nigerian Breweries, 2017). Throughout the years, the Lagos-based company has underwent many optimization processes to make it competitive and able to meet the ever changing demands of its customer base and international clientele. As a consequence of the company’s attention to marketing demands and trends, it is not one of the most highly recognized modern brew houses in Nigeria. (Nigerian Breweries Plc, 2009; Nigerian Breweries, 2017)

A decade later, in 1957, Nigeria Breweries Plc commissioned another brewery in Aba, Nigeria.  Over the years, this brewery, too, has undergone many optimization changes and processes.  Today, it is fitted with the best and most innovative brewing technology. In 1963, the company expanded, once more, and commissioned yet another brewery in Kaduna. It was not until nearly twenty years later, in 1982, that Nigeria Breweries Plc opened its Ibadan Brewery.  In 1993, the Enugu-based brewery was opened.  Finally, the Ama Brewery in commissioned in 2003 and, today, it serves as the largest of all the company’s holdings in Nigeria. A malting plant was finally acquired in 2008 and located in Aba. (Nigerian Breweries Plc, 2009; Nigerian Breweries, 2017)

Company Background of Internationalization

            It was not until 2011 that Nigeria Breweries Plc decided to internationalize and expand into the global marketplace.  To make this lofty transition, Nigeria Breweries Plc bought out the majority of the equity in “Sona Systems Associates Business Management Limited, (Sona Systems) and Life Breweries company Limited from Heineken N.V” (Nigerian Breweries, 2017).  Subsequently, Heineken acquired the majority control of five Nigerian-based breweries from Sona Group.  Since these changes have transpired two new breweries, one located in Ota and the other in Kaduna, as well as the prestigious Life Breweries located in Onitsha have been incorporated into the greater Nigerian Breweries Plc.  Furthermore, three brands of beer – Malta Gold, Life Continental Lager, and Goldberg Lager, have all merged into one company owned by Nigerian Breweries Plc. (Nigerian Breweries Plc, 2009; Nigerian Breweries, 2017)

Three years later, in 2014, Nigerian Breweries Plc and Consolidated Breweries PLC merged their operations with the approval of the Securities and Exchange Commission.  This merger was finalized at year’s end, 2014.  The company reports that “Following the successful merger, we now have three additional breweries in Ijebu-Ode, Ogun State, Awo-Omamma in Imo State and Makurdi in Benue State. The merger also brought an additional seven brands into our portfolio” (Nigerian Breweries, 2017).

Therefore, the company has grown from one, small brewery that only served Nigerian clientele to an international business which boasts 11 distinct breweries, 2 plants for malting beverages, and 26 depots for sales.  (Nigerian Breweries Plc, 2009; Nigerian Breweries, 2017) The high-quality beverages are distributed throughout the entire country and internationally as well. Starting in 1986, the company really expanded its international distribution push and offered sales, logistics, and marketing support to its international customer base.  Currently, its products are found in fifteen nations throughout Britain, the United States, South Africa, continential Europe, and the Middle-East. It also boasts “world-class outlets such as TESCO and ASDA Stores in the United Kingdom.” (Nigerian Breweries, 2017).

Country Internationalization Strategy
South Africa Joint Venture (Heineken)
West African Nations and the United Kingdom Third Party Distribution

 

Critical Analysis of Internationalization Strategies

Currently, Nigerian Breweries Plc employs three primary internationalization strategies: mergers and acquisitions, joint ventures, and product distribution through third parties (Frankel, 2009). The following is a brief description of each.

Joint Ventures

Joint ventures are basic business arrangements or agreements made between two or more parties (Netzer, 2009).  In these instances, the two parties agree to merge or pull their own resources in order to accomplish or fulfill a very specific and much needed task.          With a joint venture, each individual entities is fully responsible for all business dealings to include profits, risks, debts, losses, and costs.  Yet, the venture becomes its own entity and is considered to be fully separate and distinct from the other holdings of each participant (Netzer, 2009).

Today, one of the most common uses of joint ventures is to enter foreign and international markets without having to jump through all of the hoops associated with the paperwork, bureaucracy, and legalities. A very common use of this arrangement is to help a local business enter into a larger foreign market.  The business which wants to enter into a new market can benefit from an already existing distribution network and a company which has already done all of the legal paperwork.  Moreover, many nations, particularly in socialized nations, have very strict laws and restrictions on foreigners entering into their markets.  The joint venture is an excellent option because the company can partner with a local entity and enter into the new market legally (Netzer, 2009).

Currently, Nigerian Breweries Plc has managed to form a joint venture with Heineken. Initially, the IJV was aimed at increasing Nigeria’s domestic dominance which resulted in its having over 70% of the alcohol market in Nigeria. However, according to the Nigerian Breweries financial report of 2013, the company also benefited from forming a partnership to provide hybrid sorghum together with Heineken Supply Chain B.V (Nigerian Breweries, 2013). Further, in 2016, when Nigeria Breweries decided to start selling in South Africa, the prior establishment of Heineken in South Africa made it easier for the company to make its investments in South Africa.

The approach taken by Nigerian Breweries is the industrial network approach. This theory views the industrial system as a network of firms that are engaged in the production, distribution, and use of goods and services which results in the creation of lasting business relationships. As such, each firm in the network has to consider its relationship with customers, distributors, and suppliers. Further, it has to consider the importance of competition within the industry. Therefore, any industry comprises of four groups of variables which are the processes of interaction, atmosphere surrounding the interaction, characteristics of parties involved, and environment within which the interactions are carried out. As such, Nigerian Breweries has to account for other factors apart from its own position before venturing into other markets. For this reason, a joint venture with Heineken results in injecting more capital for the company. Further, when considering an export destination such as South Africa, the country is more economically developed than Nigeria. However, having its origins in the Netherlands, Heineken has a higher level of acceptability. As a result, the Nigerian Breweries products are able to trounce those in South Africa through using the Heineken name.

Product Distribution through Third Parties

Another strategy is to use already established, effective, and efficient product distribution channels to sell products in a new location, internationally.  This is done, typically, through third parties. (Dent, 2011) The benefits to this type of an arrangement are obvious; the system is already established and the physical building is already in place.  The chain of distribution is firmly rooted and does not have to be tweaked or altered to ensure that the product is properly distributed to all stakeholders. Studies indicate that third party storage and distribution makes the most sense in the earliest stages of a company trying to internationalize its products and services (Liberman, 2013).

Dent (2011) reports that new businesses that are trying to enter the interntional market are “in a precarious situation when it comes to planning for the future.”  This can place extreme pressure on the company and result in major challenges. “On one hand, the business plan lays out specific steps for growth, on the other; it’s unlikely that everything will go exactly as planned. In addition, they rarely have the experience, capital or real estate necessary to provide for adequate distribution and warehousing of products.” (Dent, 2011) Therefore, the evidence shows that “in these situations, a start-up partnering with an experienced 3PL is a sound decision with several benefits.” (Dent, 2011). Nigerian Breweries Plc has benefited from using third parties’ distribution channels to internationalize its business.  For instance, it has connections with TESCO and ASDA Stores in the United Kingdom, and uses their distribution networks to ensure that products are available in all parts of the nation (Nigerian Breweries, 2017).

The decision to use third party distributions can be best explained by the eclectic paradigm. Based on this paradigm, a company is likely to consider the costs against benefits of exploring into a certain foreign market. For Nigerian Breweries, while it is well established in Nigeria, trying to explore other markets through direct investment would mean learning the local market and competing with other already established products (Whitelock, 2002). Considering that beer is not a product that would be said to have a high level of specificity, it would not make sense trying to control the distribution channel. As a result of this, the decision by the company to use third part distributors such as TESCO results in reduced transactional costs.

IB Theory in Relation to Nigerian Breweries Foreign Markets Entry

The eclectic paradigm is the theory best placed to explain the decisions made by Nigerian Breweries. This approach assumes that markets are competitive (Whitelock, 2002). When there is a lot of competition, then a low control model is considered the best approach since any organization must consider the likelihood of replacement and the ability of suppliers to perform well in the conditions of competition. In the business model of Nigeria Breweries, though the company’s local market share is 70%, it has not had the same success outside Nigeria. Since there are numerous beers competing, the company’s model of ensuring that it does not involve itself with direct foreign export is informed by its aim to reduce transactional costs.

Essentially, this means that when entering a foreign market, a company would consider giving its products to numerous distributors. At this point, the competition to sell is no longer between the manufacturers. Instead, it is distributors who will be competing to sell the product (Whitelock, 2002).  For example, with both TESCO and ASDA selling Nigerian Breweries products, the two companies conduct free advertising of these products for them to increase client flow. As such, using the eclectic paradigm, it is expected that the producer will select the method that produces the lowest level of costs while enabling him to have the highest level of returns.

It is through the consideration of the factors outlined in the eclectic paradigm that Nigerian Breweries decided on having joint ventures and distribution of products through third parties (Whitelock, 2002). For example, considering that Nigeria Breweries sells its products to most of the West African countries, Nigeria is the most developed country in the region. Further, it is the most populous. Comparing itself to other countries in West Africa, Nigeria thus has the best means of production from skilled employees to well-developed infrastructure. Further, being the largest brewer in Nigeria, it has a higher flow of revenue than other companies in West Africa. In this case, Nigeria Breweries reduces its production cost by producing large quantities in Nigeria and then uses its higher financial ability to market the products in the other West African countries.

Further, the decision to form a joint venture with Heineken was the result of perceiving the ability access raw materials that are produced in the Netherlands and also importing the production technology. As a result of this, the partnership with Heineken resulted in reduced costs of transaction in obtaining a technology that other firms in Nigeria do not have (Whitelock, 2002). Further, Nigeria Breweries has been able to exploit the connections that Heineken has in South Africa in order to export its products to the country. The use of this approach is as predicted in the eclectic approach of investment in the foreign markets.

Recommendations

            While the company has done an excellent job of marketing and distributing its product to the greater international community and has managed to internationalize in a relatively short period of time, there are still ample areas in which improvements could be made. (Hamersveld and Bont, 2007) There are always areas that could be improved and the company has yet to employ some of its more appropriate tactics in order to gain a wider and more diverse international audience.  The following are areas where the company would greatly benefit from internationalization improvements.

Improvement and Expansion of Distribution Channels

            Right now, connections with TESCO and ASDA Stores in the United Kingdom help to ensure that the companies many alcoholic offerings are available to people living within the UK; however, this is not nearly sufficient.  There are so many more distribution outlets within the UK, not to mention the rest of the European Union, that Nigeria Breweries Plc has failed to properly target and exploit.  The company should have at least five to ten distribution channels in each of its major areas of interest (Weathington, Cunningham and Pittenger, 2012).  Two is a small number and hardly maximizes the potential for exposure available.  It would be extremely fruitful for the company to reach out to local area consultants in each of its target international areas and form working relationships with distributers.  This would take minimum effort and resources and have high returns (Weathington, Cunningham and Pittenger, 2012).

According to the eclectic paradigm, a company should try to increase its investments in different countries provided that the transactional costs are not going to exceed the gains. So far, considering that Nigeria Breweries though with a good revenue flow in Nigeria may not be in a position to have foreign direct investment in developed countries, it would be beneficial to aggressively use third party distributors. For example, Australia is renowned as one of the most lucrative markets for the selling of alcoholic beverages (Smith, 2000).  Not only do Australians consume a lot of beer and related products, studies show that they appreciate variety and diversity in their products (Smith, 2000).  Therefore, it is absurd that Nigerian Breweries Plc has yet to market its products to this target audience.  Here is an audience that is already established.  There is no need to convince Aussies to partake in alcohol (unlike many Middle Eastern nations where alcohol is not commonly consumed).  All the company needs to do is form appropriate partnerships and relationships with distribution channels and other similar businesses in Australia and it would have an entirely new clientele to sell to.  It is imperative that businesses which want to internationalize be able to readily see where there is an already thriving market and target it (Roberts, 2009).

Mergers and Acquisition in West Africa

The use of mergers and acquisition as an internationalization strategy is one of the areas that Nigeria Breweries has failed in. Its most recent acquisition of Consolidated Breweries giving it a domestic market of 71% did not improve its standings in the international market. However, this showed that the company has the financial capacity to acquire other companies. According to the industrial approach theory of internationalization, a company should compare itself with other companies in the market it wishes to invest in and also the consumers.

Taking advantage of the above scenario, it would be appropriate for Nigeria Breweries to venture into the West African market by acquiring breweries in these countries such as Mali, Ghana, Benin e.t.c. Since Nigerian Breweries performs financially better than these companies, it would not be difficult to carry out such a process. Further, there are other factors that cement its advantage. Hofstede (2011) cautions that one of the factors that would predict failure in such a venture would be a huge difference between the cultures of the countries involved. However, in this case, the cultural differences in the West African countries are minor. Therefore, the company should critically consider merging with other companies.

In fact, by failing to expand its production sites, the company opens itself to being greatly affected by the market turbulence in Nigeria without a backup plan. In considering the concept of eclectic paradigm, the cost of remaining in Nigeria only is too high especially considering the cycles of political instability experienced in the country (Sun, et al., 2012). Therefore, expansion would mean that even in times of turbulence in Nigeria, the company would have alternative incomes coming from other countries.

Foreign Direct Investment in Emerging Markets

            Foreign direct investment is one of the internationalization strategies that requires the company to take bold steps in its investment decisions. In order for Nigerian Breweries to decide on using the FDI approach, it is important that the PESTLE analysis of the country targeted to be favorable for investment (Huo, 2013). Nigerian Breweries should target carrying out its FDI processes in Asia. Basically, Asia and in particular the Far East represents one of the highest developing emerging markets. With a high population and increasing favorable governments, it means that the political and economic environments are ripe for business. While the company may experience a few issues in terms of the legal systems, these are compensated by the superior technologies found in the countries.

            Though traditionally, the Asian marketplace has not had a robust demand for alcoholic beverages, it certainly has become a vital place for international trade and commerce.  With people visiting many international business cities, such as Hong Kong, Shanghai, and Beijing, the demand for alcohol in these locations has skyrocketed.  Nigerian Breweries Plc would be well-served to take this into consideration and consider marketing its products to these major commerce and trade cities. (Hamersveld and Bont, 2007) This suggestion does not have to be taken too far.  Simply by just targeting the largest trade cities, the company could see significant augmentation in its bottom number.

Conclusion

            To date, it is obvious that Nigeria Breweries Plc’s internationalization strategies are based on the assumption that partnerships and cooperatives are the key to moving their company forward and targeting new markets (Frankel, 2009).  The company has revolutionized its operations in just a few short years and done an impeccable job of extending its influence into the international marketplace.  It has diversified its products, appropriately, and today it is one of the most productive and esteemed beer, lager, and malt liquor companies in all of Africa. It is likely that it will continue to expand and grow into the future, and save money, limit its risks, and maximize its chances of success in a highly competitive foreign marketplace (Haahti, Hall and Donckels, 2014).  The future looks incredibly promising for the company and it is likely that it will see lucrative returns in the future.

 

References

Dent, J. (2011). Distribution channels. 1st ed. London: Kogan Page.

Frankel, J. (2009). The Internationalization of equity markets. 1st ed. Chicago: University of Chicago Press.

Haahti, A., Hall, G. and Donckels, R. (2014). The internationalization of SMEs. 4th ed. London: Routledge.

Hamersveld, M. and Bont, C. (2007). Market research handbook. 1st ed. Chichester, West Sussex, England: John Wiley & Sons.

Hofstede, G., 2011. Dimensionalizing Cultures: The Hofstede Model in Context. Online Reading in Psychology and Culture, 2(1), pp. 3-23.

Huo, D., 2013. Cluster analysis of market potential in emerging markets: A dynamic Research Based on MArkov Chain. Romanian Journal of Economic Forecasting, XVI(4), pp. 218-231.

Liberman, L. (2013). Internationalization. 1st ed. Palgrave Macmillan.

Netzer, A. (2009). International joint ventures. 1st ed. Alphen aan den Rijn: Kluwer Law International.

Nigerian Breweries Plc. (2009). 1st ed. Lagos: FSDH.

Nigerian Breweries, (2017). Home. [online] Nigerian Breweries. Available at: https://nbplc.com/ourcompany.html# [Accessed 5 Jan. 2017].

Nigerian Breweries, 2013. Nigerian Breweries Plc: 2013 Annual Report and Accounts, Lagos: Nigerian Breweries.

Ogunbiyi, Y. (2007). Sixty years of winning with Nigeria. 1st ed. Ibadan: Bookcraft.

Roberts, D. (2009). Mergers & acquisitions. 1st ed. Hoboken, N.J.: John Wiley & Sons.

Smith, R. (2000). Cold beer and crocodiles. 1st ed. Washington, D.C.: Adventure Press, National Geographic Society.

Sun, S. L., Peng, M. W., Ren, B. & Yan, D., 2012. A comparative ownership advantage framework for cross-border M&As: The rise of Chinese and Indian MNEs. Journal of World Business, Volume 47, pp. 4-16.

Weathington, B., Cunningham, C. and Pittenger, D. (2012). Understanding business research. 1st ed. Hoboken, N.J.: John Wiley & Sons.

Whitelock, J., 2002. Theories of internationalisation and their impact on market entry. International Market Review, 19(4), pp. 342-347.

 

 

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