The Impacts of Globalization on

Company’s Strategy and Structure

By Lucas Pederzini

MScIB 2011-2012 Principles and Practices of Global Business

Home Assignment

Budapest, December 2011

2

Company Overview

Agenda

Global Strategy

Market Analysis

Conclusion & Final Considerations

3

Timeline and Company Consolidation

1999

2004

2008

4

Global Market Information

Leading global brewer - consolidation; One of the top 5 consumer products companies in the world; Has 4 of the top 10 selling beers; Six operational zones; 116 000 employees in 23 countries;

Source: ABInbev business at a glance webpage - http://www.ab-inbev.com/go/about_abinbev/our_business_at_a_glance

Regional Market Share Breakdown

Asia13%

C&E EU7%

W EU8%

LatAm37%

NA35%

North America High Unemployment; Weakness offset by organic expansion.

Latin America New brewery in Brazil – 2012;• Slow down in GDP growth.• Inflation rate nearing minimum wage.

Consumption increasing in Argentina;• Revenue growth remain strong.

Western Europe Minor growth in 2011 and expected for 2012; High Competition – Low margins.

Central-Eastern Europe Projected growth of 10% in 2012.

Asia Annual Growth of 10%;

Source: ABinbev 3rd Q 2011 Results Presentation 5

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Global Financial Information

ABInbev General Key Results (Million US dollar) 2011 2010Revenue 18,955.00 17,501.00 Cost of sales (8,231.00) (7,830.00)Gross profit 10,724.00 9,671.00 Distribution expenses (1,620.00) (1,375.00)Sales and marketing expenses (2,540.00) (2,300.00)Administrative expenses (990.00) (994.00)Other operating income/(expenses) 239.00 208.00 Normalized profit from operations (Normalized EBIT) 5,813.00 5,210.00 Non-recurring items (104.00) (182.00)Profit from operations (EBIT) 5,709.00 5,028.00 Depreciation, amortization and impairment 1,375.00 1,295.00 Normalized EBITDA 7,155.00 6,440.00 EBITDA 7,084.00 6,323.00

Source: ABInbev 2011 Report – Period ended 30 June 2011

Financial Information – NA and LatAmKey Results - North America 2010 2011

Volumes (hl) 65,180.00 63,462.00 Revenue 7,662.00 7,706.00 Cost of sales (3,535.00) (3,419.00)Gross profit 4,127.00 4,287.00 Distribution expenses (387.00) (399.00)Sales & marketing expenses (774.00) (834.00)Administrative expenses (285.00) (268.00)Other operating income/(expenses) 27.00 (31.70)Normalized EBIT 2,709.00 2,805.00 Normalized EBITDA 3,155.00 3,233.00 Normalized EBITDA margin 41.20% 42.00%

Key Results Latin America - North & South 2010 2011Volumes (hl) 72,329.00 71,917.00 Revenue 5,524.00 6,558.00 Cost of sales (1,877.00) (2,271.00)Gross profit 3,647.00 4,287.00 Distribution expenses (585.00) (740.00)Sales & marketing expenses (682.00) (766.00)Administrative expenses (299.00) (278.00)Other operating income/(expenses) 115.00 177.00 Normalized EBIT 2,195.00 2,680.00 Normalized EBITDA 2,526.00 3,101.00 Normalized EBITDA margin 45.90% 46.50%

Source: ABInbev 2011 Report – Period ended 30 June 2011 Amounts in USD Millions, except the ones in hectoliters. 7

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Share Price – 5 Year Progression

Share Price: 5 years activity.• 24/11/2008 price reached rocky bottom: EUR 12.88;• Actual trading price at EUR 44.90.

Source: ABInbev online share monitor system - http://www.ab-inbev.com/go/investors/share_information/share_monitor.cfm

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Strategic Pillars

Source: Author (2011) and ABInbev Mission and Strategy - http://www.ab-inbev.com/go/about_abinbev/dream_people_culture/mission_and_strategy.cfm

BrandStrengthening

Strong relationship

with Consumers

CostEfficiency

PEOPLE & ORGANIZATIONAL CULTURE

FINANCIAL DISCIPLINE

INOVATION

GrowthOf

Revenues

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InboundLogistics Operations Outbound

LogisticsMarketing

& Sales Service

Procurement

TechnologicalDevelopment

HumanResources

InfraStructure

Increase on Gross Profit

& Cost Saving initiatives

Purchasing of Raw Material, Supplies and Fixed Assets

R&D, Product Design and Processes Design

Recruiting, Hiring, Training, Developing and Compensating

General Management, Finance, Accounting and IT

• Call-of to Suppliers;• Material Handling;• Warehousing;• Inventory Control.

• Conversion;• Assembling;• Packing;• Maintenance.

• Warehousing;• Order Processing;• Picking;• Shipment;• Delivery.

• Channels to Market;• 5 P’s;• Customer Value, Cost to Consumer, Convenience, Communication;• Sales Force Effectiveness.

• Installations;• Repairs;• Training.

Chain Value

Source: Author (2011) and ABInbev Mission and Strategy - http://www.ab-inbev.com/go/about_abinbev/dream_people_culture/mission_and_strategy.cfm

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Double Diamond Analysis

Market Consolidation

Resources, suppliers, and Distribution Channels

Customers &Market Conditions

Customers &Market Conditions

Resources, suppliers, and Distribution Channels

Brewering Industrial Structure

Brewering Industrial Structure

NADiamond

LatAmDiamond

Source: the Author (2011)

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WeaknessesStrengths

SWOT Analysis

ThreatsOpportunities

INTERNAL

EXTERNAL

Strong Governance; Organizational Culture; Lean Value Chain; Leading Brands; Possibilities for Price and Brand-Mix; Market Share; Relationship with Retailers and Consumers.

Business Development on Emerging Markets – such as Brazil, China, Eastern of Europe. Brand-mix.

Special Crafted Premium Brands – strengthening on classes A and B; “Big 4” competition; NGO’s campaigns and pressure against alcohol consumption; Financial and economical crises. Price of commodities.

Source: Author (2011)

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Resources Availability; Industrial Facilities and Distribution Setup; Emerging Market (LatAm).

Market leading brand; Largest market share; High Competitiveness.

Global Competitiveness Analysis

Source: Author (2011)

CSA

FSA

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Firm Specific AdvantagesCo

untr

y Sp

ecifi

c Ad

vant

ages

StrongSt

rong

WeakW

eak

Global Competitiveness Analysis

31

2 4

Source: Author (2011)

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Competition• High Consolidation;• Increase with higher globalization.

Market Analysis – Porter’s 5 Forces

NewEntries

• High Capital Requirements;• Distribution Channels;• Economies of Scale;• Taxation and Regulations.

BuyerPower

• Drinking based in occasions;• Distribution connected to Retailers.• Variable customers segments on emerging economies.

SubstituteProducts

• Low switching costs – leisure activities;• Growing substitute industry – wine, cider, spirits and liquors.

SupplierPower

• Global purchasing management with local suppliers;• Hedge strategies may reduce market volatility for beer companies.

Source: Author (2011)

Low

High

Low

Med

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1. Market liberalization;

2. Legal Policies.

PEST Evaluation of Brewery Industry

1. Exchange rate fluctuation;

2. Slow down of developed countries economies;

3. Development of emerging countries economies.

1. Changes on consumption patters;

2. Development of classes B and C;

3. Increasing trend of urbanism.

1. New Products;2. Development of

Techniques.

Political Economical Social Technological

Changes on global consumption

behavior, opening new markets for

global companies.

Market prospection strategy moving towards emerging

economies.

Changes on global consumption behavior,

increasing beer consumption.

Focus on economy of scale by applying

leverage of the global scale sales and

operations.

Source: Author (2011)

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Conclusion

Market consolidation done with correct and proper timing;• Good evaluation of Countries and Firms advantages in NA and LatAm; • Focus on organizational culture;• Lean and objective Value Chain;• Healthy financial stability.

Company focusing on Geographical Expansion in Emerging Markets:• Brazil;• China;• Central-Eastern Europe.

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North America Organic GrowthTotal Volumes -3.10%Own Beer Volumes -3.20%Revenue -0.30%EBITDA 3.00%

Latin America Organic GrowthTotal Volumes 5.70%Own Beer Volumes 2.60%Revenue 23.60%EBITDA 25.20%

Asia Organic GrowthTotal Volumes 4.70%Own Beer Volumes 4.70%Revenue 17.00%EBITDA 3.70%

Final Considerations – Revenues and EBITDA

Source: ABinbev 1st Semester 2011 Results Report

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Launching of Budweiser in 2011-2012:

• Initial distribution and seeding in Sao Paulo and Rio de Janeiro in 2011;• Full launch campaign and national availability in 2012.

Final Considerations – Geographical Expansion

Brazil

Source: ABinbev 3rd Q 2011 Results Presentation

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Growth of focus brands;

Best practices on revenue management;• Revenue per hl +11.7% 3Q2011 – mainly driven by brand mix and price increase.

Lead the premium segment;

M&A.• 2 closed acquisitions – Liaoning Dalian Daxue and Henan Weixue Beew Group.• Greenfields: 1 opening – Sichuan.

China

Final Considerations – Emerging Markets

Source: ABinbev 3rd Q 2011 Results Presentation

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Thank You!

Lucas PederziniMSc International Business

IBS – Budapestlucasabrantes@gmail.com