San Miguel Brewery
Hong Kong Limited
San Miguel Brewery
Hong Kong Limited
Helen Fung
Kevin Chan
Maggie Lam
Ricky Chan
Steven Sung
Wilson Ho
Winnie Ho
Presentation Outline
•PEST
1
Introduction

•Porter’s Five Forces Model
Strategic problems & issues
•Competitive Analysis in HK Market
2
3
4
Analysis
Strategy
Implementation
5
Contingency plan
6
Conclusion

External Environment
•Competitive Analysis in PRC Market

Internal Environment
•Financial Analysis

SWOT Analysis

Mission Statement, Strategic Vision and Objectives

Business Strategy

Functional Strategy

Execution of the Strategy

Strategic Action Plan

Budget

How to deal with unexpected events
Presentation Outline
1
2
3
4
Introduction
Analysis
Strategy
Implementation
5
Contingency plan
6
Conclusion

Strategic problems & issues

External Environment

Internal Environment

SWOT Analysis

Mission Statement, Strategic Vision and Objectives

Business Strategy

Functional Strategy

Execution of the Strategy

Strategic Action Plan

Budget

How to deal with unexpected events
Strategic Problems
Lost more than half of its market share
during mid-90’s
Low profit and high cost
Leadership status in South China was
being challenged
Strategic Issues
Demand of beer in the PRC increased rapidly
SMBHK increase the investment in the PRC market
Influx of foreign beer into HK and the PRC (More
than 130 brands in HK now)
Beer market in HK mature
Competitors launched low-priced beers in HK
Growth of “economy beer segment” became a threat
to SMBHK’s position in HK
Presentation Outline
1
2
3
4
Introduction
Analysis
Strategy
Implementation
5
Contingency plan
6
Conclusion

Strategic problems & issues

External Environment

Internal Environment

SWOT Analysis

Mission Statement, Strategic Vision and Objectives

Business Strategy

Functional Strategy

Execution of the Strategy

Strategic Action Plan

Budget

How to deal with unexpected events
PEST - Political
Hong Kong market:
Increasing cost
Tariff for foreign beer decrease
The law of prohibited teenagers under 18 purchase
beer
High Tariff on imported of aluminum
Government tax
Mainland China market:
Open door policy of China
PEST - Economic
Hong Kong market:
Economic Downturn
Mainland China market:
IMF changed method of computing GNP
Propose of China’s entry of WTO
The rapid economic development
Both Hong Kong and China markets:
Globalization
PEST - Social
Hong Kong market:
Consumer spending was soft
Inactive social gathering
High purchasing power of young generation
Increase in health conscious
Both Hong Kong and China markets:
Soccer matches
PEST - Technological
Both Hong Kong and China markets:
The popularity of refrigeration in the late
1980’s
More people use the Internet
Porter’s Five Forces
Substitute Products
(of firms in other industries)
Suppliers
of Key
Inputs
Rivalry
Among
Competing
Sellers
Potential
New
Entrants
Buyers
Rivalry Among Competing Sellers
Hong Kong market:
Mature market
Very Strong
Intensive competition
SMBHK was losing its market shares
Many low-priced foreign beers
Price war in retail chains in 1999 among distributors intensified
competition
Both Hong Kong and China markets:
Low switching cost
China market:
800 national, multi-international, large and small brewers
Very keen competitions
Rivalry Among Competing Sellers

If the consumers find our products not valuable,
they will simply…..
Threat of Substitutes
Both Hong Kong and China markets:
Many substitutes available in the market
Substitutes are either of lower priced or
having higher quality than beer
The substitutes are able to satisfy most of the
attributes beer do
Very Strong
Barriers to Entry
Neutral
Hong Kong market:
The existing brewers in Hong Kong are not able to
confront the influx of low-priced foreign imported
beers
Legal barrier is low
Barriers to entry are overall relatively low
Both Hong Kong and China markets:
high Technological barrier
Power of Suppliers
Ingredients: mainly water and wheat
For water, government is the sole supplier,
bargaining power is therefore very high
For wheat, climate affect the production very much.
If there is a climate disaster, price will go up. High
bargaining power of wheat supplier.
High
Power of Buyers
Both Hong Kong and China markets:
Relatively high bargaining power
Low switching cost
Substitutes are easily accessible
High brand loyalty towards beer
Neutral
Driving Forces in Brewery Industry
Globalization
The popularity of Internet
Introduction of sewage services charge
Changing societal concerns attitudes and
lifestyles
Key Success Factors in Brewery Industry
Keep manufacturing cost low
Strong wholesales distributors network
Successful advertising campaign
Strategic Group Map of the Brewery Industry
GEOGRAPHIC COVERAGE
Global
Carlsberg,
Heineken,
Guinness,
Budweiser,
Asahi
Royal
Dutch
Regional
Pabst,
San Miguel,
Kingway,
Tsingtao,
Tiger
Blue Ice
Local
Low
Medium
OVERALL COST TO CUSTOMERS
High
Competitive Analysis – Hong Kong
San Miguel
Brewery Hong
Kong
Heineken
Hong Kong
Limited
Carlsberg
Brewery Hong
Kong
Originated
Philippines
Holland
Denmark
Year of Establishment
1948
----
1978
Market Position
Leader
Second
Third
Market Share
25%
5.3%
4.7%
Ownership
Neptunia
Corporation
Limited (64%)
Production
Local
Manufactory
Import from
Holland
Local
Manufactory
(ceased on
31/4/99)
No. of Employee
---
69.5
250
Profitability (99)
60.1M
45M Loss
69.5M
Heineken
Swire Pacific
International BV Limited (49%)
(100%)
Competitive Analysis – Hong Kong
San Miguel
Brewery Hong
Kong
Carlsberg
Brewery Hong
Kong
Heineken
Hong Kong
Limited
Products in HK
5 versions of beer
1 version of beer
7 versions of beer
Price
Lowest among
the three
Similar to
Heineken
Similar to
Carlsberg
More than half in
supermarkets, Tai
Pai Dongs, Chinese
Restaurant and
grocery stores
Greater coverage
on western bars
and restaurants
Found in
convenience stores,
supermarkets and
western bars
Local advertising,
more sponsorship
activities, local
celebrity as
endorsement
Global
advertising
Global
advertising
Sales location
Advertisement
Competitive Analysis – China
Tsing Tao
Brewery
Limited
Year of
establishment
Yan Jing
Brewery
Limited
San Miguel
Brewery Hong
Kong
1903
1980
1948
1
2
Not in Top 10
Brand Image
Premium
Premium
Premium
Originated
Tsing Tao
Beijing
Shunde
Price
Similar as
SMBHK
Higher than the
other 2
Similar as
Tsing Tao
Market
Position
Product Life Cycle
Sales
Sales Growth
slow down
Sales 0
Time
Maturing Product Stage
During the maturing stage

Consumers feel bored to the products…
Product Life Cycle
Sales boost up
again
Sales
Sales 1
Sales Growth
slow down
Sales 0
New product
sales
Time
Maturing Product Stage
Financial Situation
1.
Compare with Tsing Tao (Tsingtao beer)
and Guangdong (kingway beer) which are
also listed company in HK
2.
Compare with the previous years of the
same firm
Profitability Ratio

evaluate a company’s ability to making profits
e.g. return on total assets (%)
SMBHK
Tsing
tao
Guang
dong
MKT
Average
Dec, 2000
2.92 %
0.92
0.64
1.49
Dec, 1999
2
0.77
2.86
1.88
Dec, 1998
0.58
0.96
4.38
1.97
Great improvement in return!
Liquidity Ratio

indicates a company’s ability to meet current obligations
and sustain its operations by using current assets
e.g. Quick Ratio
SMBHK
Tsing
tao
Guang
dong
MKT
Average
Dec, 2000
2.81
0.44
0.87
1.37
Dec, 1999
2.03
0.52
0.77
1.11
Dec, 1998
1.83
0.99
0.75
1.19
The liquidity is too high, which mean many
cash is not utilized.
Leverage Ratio

measure company equity vs liability
e.g. Total debt over equity (%)
SMBHK
Tsing
tao
Guang
dong
MKT
Average
Dec, 2000
20.96%
122.56
29.56
57.69
Dec, 1999
22.09
75.5
52.78
50.12
Dec, 1998
22.74
47.54
67.62
45.97
Maintain the least liability
Activity Ratio

measure management’s ability to use its company’s
assets efficiently
e.g. Inventory turnover
SMBHK
Tsing
tao
Guang
dong
MKT
Average
Dec, 2000
15.37
4.71
7.75
9.28
Dec, 1999
12.01
5.41
6.94
8.12
Dec, 1998
14.32
4.44
5.48
8.08
High inventory turnover
Growth Ratio
•
Annual % growth in earning
SMBHK
Tsingtao
Guangdong
Dec, 2000
45.9 %
($87.66mn)
58.6
(60.26)
(-80.6)
(10.24)
Dec, 1999
252.5
(60.1)
3.7
(38)
(37.6)
(52.71)
Dec, 1998
210.5
(17.05)
38.1
(36.65)
(12.3)
(84.49)
Sustainable growth in earning
Positive Sign !
Stock Price
Stable
Stock
Price
Conclusion on Financial Analysis
•Extremely stable in
Financial situation
Superb Confident
•Low risk of financial
disaster
SWOT
• S trengths
• W eaknesses
• O pportunities
• T hreats
S
O
W
T
SWOT - Strength
In Hong Kong market:
Production and distribution efficiency
ISO9002 certification in 1998
Brand name of “Made in Hong Kong”
Listed company
Well-established distribution channels
For Middle-age class, Brand loyalty towards beer
In China market:
Joint venture with local firm
In both Hong Kong and China markets:
Marketing expertise
Wide product range
low raw material costs
SWOT - Weaknesses
In Hong Kong market:
For youngster, San Miguel is too old style
Large scale of layoff
In China market:
No sub-ordinate office in PRC
Lack of coverage in the Western and Eastern
China
SWOT - Opportunities
In Hong Kong market
Increase popularity of internet
The forthcoming 2002 World Cup
More football match’s live transmission by Cable TV
In China market
International Sports Events
Economic development
Popular use of refrigerators
Internet restriction in PRC is lessen
In Overseas markets
Economic recovery
SWOT - Threats
In the Hong Kong market
Government regulations
Brand loyalty of young generation is strong
Economic downturn
Health conscious
Many economy competitors and substitutes
In the PRC market
Open door policy
Poor distribution, transportation routes
In the Overseas markets
Saturated and mature markets
Strong brand loyalty
SWOT Matrix
So Strategy:
ST Strategy:
Bid
Launch
for sponsorship of World Cup 2002
and Women World Cup 2003
Use
strong financial backup to invest in
orange beer
of orange beer targeted the
young generation and increase the healthy
element of SM beer
Low
product cost of Shunde beer used to
confront the low-priced foreign beers in HK
Production
in PRC can avoid the high tax
and strict regulation on “Hong Kong Made”
beer
WO Strategy:
WT Strategy:
Search
Do
The
for joint venture in Xi An
mature brand image sustain the
customer base from the mid-aged people
with high brand loyalty
not invest in other overseas markets
in short-term
Remember the boy feeling bored?
Presentation Outline
1
2
3
4
Introduction
Analysis
Strategy
Implementation
5
Contingency plan
6
Conclusion

Strategic problems & issues

External Environment

Internal Environment

SWOT Analysis

Mission Statement, Strategic Vision and Objectives

Business Strategy

Functional Strategy

Execution of the Strategy

Strategic Action Plan

Budget

How to deal with unexpected events
Mission Statement
SMBHK offers adults with pleasant
moments and sensation feeling during
social gatherings and individual
enjoyments by its cool, fresh, tasty, variety
of choices and value for money beer.
Strategic Vision
SMBHK strikes to become one of
the top brewers in Asia by sharing
pleasant moments and sensation
feelings with people in the region.
Strategic Objectives
Hong Kong :
recapture market share to 65% within a year
Western part of China:
extent to the area within 3 years
Southern region of China:
Reinforce the market share
Also, to establish a healthy image for San Miguel’s beer
Financial Objectives
To obtain earnings around HKD$ 100
million within 3 years
To increase EPS to 0.35 within 3
years
Generic Competitive Strategy
Overall
Low-cost
Leadership
Strategy
Broad
Differentiation
Strategy
Best-Cost
Provider
Strategy
Focused
Low-cost
Strategy
Focused
Differentiation
Strategy
Generic Competitive Strategy
Hong Kong market
To keep the leadership in this mature market, we will…
Produce “Made in Hong Kong” beers
Introduce IT system
Make heavy advertising and sponsorship
Introduce a new version of beer – Orange Beer
Import an economy beer from Shunde
Keep price reasonable with attractive quality
build new capacity
Penetrate to “Tai Pai Dong” and grocery stores
Generic Competitive Strategy
China market
To compete in this emerging and fragmented market, we will build
strategic alliances with local small brewers in China
The advantages are:
Lessen the effects of trade restrictions
Gain more knowledge on local market
Give preliminary support to SMBHK
Direct the competitive energies towards mutual rivals
Functional (Production Strategies)
New product development--orange beer
Import beer from Shunde
Increase production in Yuen Long plant
Increase production in Shunde plant
Purchase of raw materials via SMC
Form join venture with small local brewer in
Xian An
Outsource the production of “San Miguel Boy”
accessories
Functional (Marketing Strategies)
Product:
Design a new spokesman “San Miguel Boy”
Show both package date and expire date
Price:
Keep constant for San Miguel beer (mid-price)
Orange beer priced high in the premium segment
Low priced Shunde beer to captured the economy group
Functional (Marketing Strategies)
Place
Use the well-established distribution network of SMBHK in
Hong Kong to promote the Shunde beer
Use the well-established distribution network of Shunde beer
in Shunde to promote the San Miguel beer
Redesign the bottles and cans of San Miguel beer
Develop free delivery service to party holders
Use venders and Smart ID card for selling
Functional (Marketing Strategies)
The venders can benefit us ……
Functional (Marketing Strategies)
Promotion
Sponsor the World Cup 2002
Sponsor the Women World Cup 2003
Sponsor the China Soccer (Series A) League
Sponsor some youth soccer training
Sponsor some music concerts
Design a character as the spokesman of our products
Organize “Beer Festival” in Hong Kong
Employ “Beer Boy” to sell beers in bars and restaurants
Functional (HRM Strategies)
Recruit IT specialists in developing IT system
Recruit personnel with fruitful experience for China
branches
Implement performance appraisal
Strengthen the professional sales team
Functional (Financial Strategies)
Self-financing $20M to support the new orange beer
product line including R & D, working capital change, and
promotion cost
Increase ownership of the Shunde Joint venture by
purchasing more shares
Cut cost in all departments and layoff excess staffs
Roll over debt (refinancing) and maintain stable financial
situation e.g. debt equity ratio
Presentation Outline
1
2
3
4
Introduction
Analysis
Strategy
Implementation
5
Contingency plan
6
Conclusion

Strategic problems & issues

External Environment

Internal Environment

SWOT Analysis

Mission Statement, Strategic Vision and Objectives

Business Strategy

Functional Strategy

Execution of the Strategy

Strategic Action Plan

Budget

How to deal with unexpected events
Execution of the Strategy
Organization
The strategy-critical activities are production and
marketing and sales activities
Building organization’s capabilities on these two areas
Execution of the Strategy
Strategy-supportive policies and procedures
Strict control on the production time on every parts in the
production process
Offer clear instructions to the newly employed salespeople on
how to do the selling activities in the PRC market
Clear guideline of conduct of ethics on the PRC operation such
as selling activities to oppose the corruption business practice in
the PRC
Execution of the Strategy
Rewards and incentives
Progressive commission system for
salespeople
Stock options for senior management
Annual bonus for all employees
Outstanding salespeople will be include in the
selection of sales management positions
Execution of the Strategy
IT system
Develop the IT system by in-house human
resources
Enhance the security of confidential information
Strategic Action Plan
Strategies
Launch of orange beer
Joint venture with local brewer in Xi An
Strengthen distribution network in PRC
Develop IT system
Bid for sponsorship of 2002 World Cup
Bid for sponsorship of 2003 Women World Cup
Launch “San Miguel Boy” character
Increase ownership in the Shunde joint venture
Evaluate the efficiency of Joint Venture in Xi An
Launch of online ordering & delivery service
Use of Smart ID card vending machines
Increase ownership in the Xi An Brewery Company
Import of Shunde beer
Evaluate the efficiency of orange beer
2001
2002
2003
Budget
Assumptions
All campaigns is paid a lump-sum in the first year and is
last for 5 yrs
No inflation consideration
Required rate of return: 20% (risk-depend)
Acquisition of Shunde factory with $100 million and will
not count as investment in the following calculation.
-
Budget

Budgets

1. Initial investment:





-
-New product line
-New promotion campaigns
-Explore China MKT
-IT System
2. Cash Flow :
-New product line’s revenue
-Promotion Campaigns
-Explore China MKT
-IT System
-Integrations of facilities
-Mass purchase of raw materials
-Maintenance Cost of new product line
Net Profit per year
$20,000,000
$10,000,000
$ 5,000,000
$ 3,000,000
$ 2,000,000
$ 6,500,000
$ 1,000,000
$ 500,000
$ 100,000
$ 100,000
$ 100,000
$ (300,000)
$ 8,000,000
Budget
Expected
-net profit decrease 5% per yr
NPV  20M 
8M
7.6M
7.22M
6.86M
6.52M




(1  20%)1 (1  20%) 2 (1  20%) 3 (1  20%) 4 (1  20%) 5
NPV=6.46M
NPV is positive
Budget
Recession
-net profit decrease 10% per yr
-net income is 80% of expected
NPV  20M 
6.4M
5.76M
5.184M
4.67 M
4.20M




(1  20%)1 (1  20%) 2 (1  20%) 3 (1  20%) 4 (1  20%) 5
NPV = - 0.47M
NPV is slightly negative !
Budget
Blooming
-net profit decrease 2% per yr
-net income is 120% of expected
NPV  20M 
9.6M
9.41M
9.22M
9.04M
8.85M




(1  20%)1 (1  20%) 2 (1  20%) 3 (1  20%) 4 (1  20%) 5
NPV=27.79M
NPV is positive
Presentation Outline
1
2
3
4
Introduction
Analysis
Strategy
Implementation
5
Contingency plan
6
Conclusion

Strategic problems & issues

External Environment

Internal Environment

SWOT Analysis

Mission Statement, Strategic Vision and Objectives

Business Strategy

Functional Strategy

Execution of the Strategy

Strategic Action Plan

Budget

How to deal with unexpected events
Contingency Plan
Climate disaster: poor harvest or even short-term lack of
supply
Solution: Hold certain amount of inventory as backup
China new ever changing policy, for foreign investment
Solution: Keep tracking on the changing
The inefficient collaboration with joint venture in Xi An
Solution: Seeking for several potential local brewers as
backup & flexible joint venture contract with Xi An brewery
Question and Answer