This paper consists of seven chapters:
Strategy is an incremental part of every company, and its success depends mainly on the way it is developed and implemented. Expansion to the foreign markets requires long-term planning and thus good preparation. These factors influence the company’s current and future position on the chosen market. The aim of my thesis is to prove that well-developed strategy is the main key to success in expansion to the foreign markets, and it will be based on the case of the polish branch of the Dutch brewery company, Royal Unibrew. Royal Unibrew entered the polish market in 1995, and since this year it has become one of the leading beer producers in Poland. This country has become an opportunity for the foreign investors after the fall of the communism in 1989.
Royal Unibrew decided to wait a few years until the polish economy stabilizes, then entered the brewery market and invested in its significant brands. Its further successes were supported by the well-derived strategy, acquaintance with the polish culture, potential customers needs, and rules of the new market. Strategies vary along with the cultures and Case of Royal Unibrew investing in Poland is a great example of the successful foreign investment, which required a clear vision of the company’s long-term future, supported by a lot of effort, budget, and experience of the management. Strategy plays here a very important role, and therefore it is considered in the topic of this thesis. Strategy is a part of the vision. is a part of the strategy. Therefore implementation of the strategy Why is the strategy so important for the company?
Why is the strategy so important? There is no victory without a good plan of campaign. Strategy is a long-term plan, connected with the current and future position in the environment, and consistent action plan, which helps achieve the goal that has been set earlier. It differentiates one company from another, and separates winners and losers. However, the company cannot focus too much or too less on its vision, because the result may be tragic, for example it influences board problems in personnel, quality, or poor productivity. If we ask any manager about vision of the strategy, he or she is going to give a broad range of different solutions, in order to make person understand difference between corporate strategy and operational planning. Companies Strategy as a determinant of business success in the expansion to the foreign markets :
Economy is strongly influenced by the brewery industry. Brewery market sales in Poland in 2008 made almost 35,6 million hectolitres, what – in financial term – gave almost 45 billions PLN. This amount was equal to the governments spending for defence which was provided in 2009. There was a double increase between 1993 and 2002 in the beer production, and in 2006 – by 7%, where the average Pole has drank about 87 litres. If we compare this achievement to year 1996, we can observe a big difference – there were consumed only 29 litres of beer. Polish beer amateurs have caught Europeans, and drink nowadays almost 95-100 litres per year. When it comes to the beer consumption, Poland holds the fifth position in Europe. Brewery industry is one of the main revenues sources for the Treasury. According to the data from year 2007 provided by the Brewing Industry Employers Association of Polish Breweries, it has conducted almost 1,48 billion zloty ( PLN ) for duty. Comparing to the analogue year 2006, there was a 3% increase observed. Moreover, CEOs of the leading breweries were satisfied about the sales. Kompania Piwowarska has sold 18% of the beer more than in 2006 ( 2,2 millions hectolitres have been consumed), and Royal Unibrew Poland boasted with the 5% increase in sales, and 13% in revenues.
Basic problem Poland had to deal with after the fall of the communism were its internal economic problems. Any kind of investment was impossible because the former system contributed huge foreign debt, and 500% hyperinflation ( until 1990 ). Prof. Grzegorz Kolodko mentions, that ” because of the increasing financial, economic, social, and political imbalance former socialist economies had lost their tempo, and then ability capacity to grow “. Moreover, he explains this situation as follows: ” Huge deficiencies, caused by the inflation pressure, which source lays in the structure and wrong macro-economic management, intensified micro-economic inefficiency and prevented fulfilment of the social needs”. The first non-communist government, led by Tadeusz Mazowiecki , decided to implement a so called Balcerowicz’s plan ( first minister of finance after 1989 ). The idea of this plan was to liberalise internal prices, increase import, tighten the financial policy and wages control towards enterprises, implement the interest rates which are higher than inflation, stabilize the dollar and implement possibility of its exchange. Polish economy was stabilized and was opened to the world. Banking system and monetary and credit policy have been reformed. New government created capital market, labour market, and implemented privatisation law in 1990. Transformation of the ownership, independence of the companies, and stimulation of the internal competition were very important in the reformation systems. Policy of the state assets privatization, free-market principles implementation, and decrease of the budget deficit were very fruitful:
Poland is nowadays a country with the stabilized political system and still developing economy. What’s more, it is an active member of the World Trade Organisation ( WTO ), Organisation for Economic Co-Operation and Development ( OECD ), and Central European Free-Trade Agreement ( CEFTA ). Transformation processes had a strong influence on the re-valuation of all of the economic areas. Free-market rules, which are based on the dominating and still growing private entrepreneurship position, have been effectively implemented after 1989. Private sector was the main engine of the economic growth. What’s interesting, private sector has led to 75% of increase in the Gross Domestic Product, and employed 70% of the professionally active polish society.
After the transformation in 1989, polish economy observed a strong economic growth throughout the years 1995-2005, and recession in 2001-2003 in the meantime. Next years are characterised by the constantly changing growth rate with an emphasis on the expected relatively high rate of growth in the subsequent years. Poland is a country with the big economic dynamics. In concentrates mainly the Gross Domestic Product generation in some Poland’s areas. Years 1995-2005 belonged to Wielkopolskie, Slaskie, Dolnoslaskie, Mazowieckie, and Malopolskie Voivodeships ( provinces ). Since 1996 it has been a member of the OECD, which unites the richest countries in the world. Economic growth in this year was very slow, however still high. GDP increased by 6,6%, and was one of the highest in Europe.
Polish economy has developed very much after the transformation in 1989, and has become one of the biggest economies in the world ( 6th economy in the European Union, and 21st economy in the world ). According to the OECD IX report from 2006, polish economy is in a good condition, since it joined European Union in May, 2004. Social-economic policy has been positively assessed by OECD, and the country has potential to grow and quickly develop. But the main problem Poland has to get through is high rate of unemployment, GDP is below 45% of the EU average, university education doesn’t prepare young people for their potential jobs, too high social transfers, and entrepreneurs still have to face the administrative barriers. OECD report mentions areas which have to be changed in order to make polish economy grow faster. First of all these barriers, such as in the supervision or administrative area have to be lifted for the entrepreneurs, simplifying the taxation system, reducing the parafiscal burden and elimination of the corruption. Next thing to consider is improvement of the economic flexibility, and reducing the start-up costs.
However, the latest data, presented by Eurel Hermes analysts, shows that the global crisis from 2009 had a strong impact on the global, and polish as well, economy. External financing gap has deepened, and thus government decided to cover it by liquidating the foreign exchange reserves, which melted by 28% from 2008 until the first quarter of 2009. Polish economic structure corresponds to the economic structure of the well developed countries. 64% of the Gross Domestic Product is generated by the services, 32% by the industry, and 4% – by the agriculture. Ratio of exports to GDP is 40%, and thus polish economy is not open enough as the foreign economies of the region. What’s more, it has not been influenced negatively by the global recession, which spread over the trade links. Polish economy has been one of the well developing and healthiest in the emerging Europe for the first half a year of 2009. However, as a country which is dependent on the rest of the world it had felt results of the global financial crisis, especially in the . Value of the Polish Zloty has decreased in relation to the major world currencies. However, according to the statistics, GDP has increased in 2009 by 1,7%. What’s more, Central Statistical Office informs, that the industry labour productivity has increased by 2,4%, with the 5,5% smaller employment growth and increase of the average monthly gross payment by 4,9%.
Brewery industry revolution started in the 19th century, when the craftsmen decided to change their profession for the well developing business. Thanks to the improvements in the technological development, focusing mainly the methods of bottom-fermentation development of the beer, which required cooling fermenters. Owners of the smaller businesses decided to give up, and gave place to the technologically stronger plants. These were the times, when Okocim brewery from Brzesk began to take its first steps in this business. Most important for the brewery industry were its first ten years of the 20th century. Polish market was seized by almost 500 breweries. Formulas of the beers have been enhanced, and thus new tastes were implemented. Development of the brewery industry had a significant impact on the beers consumption – every beer lover drank almost 35 litres of this beverage. Progress of the beer industry development was stopped by the First World War. It bloomed at the end of the gap between First and Second World War, and gained the similar results that it had in year 1915. During the World War II there were thirty six breweries on the lands that belonged to the General Government ( administrative-territorial entity, created under the decree of Adolf Hitler in year 1939 ).
After the war first government, the communist party, decided to take over all of the breweries. There were new enterprises coming into existence, like for instance “Kasztelan ” brewery from Sierpc ( small polish town ), but the political situation of the country was very adverse for this industry. However the state enterprises were doing their best to follow the western standards with the different degrees of success. After the transformation in 1989 polish breweries had to adapt to the new market economy, and therefore were able to show their real potential. Beer has a very long historical background, and it still finds new amateurs all over the world. Technological development, production improvements, and increasing demand for this beverage make its sales increase every year. Moreover, thanks to the innovation in the polish brewery industry and its potential, foreign investors feel more encouraged than before 1989.
Global brewery industry is a business which consists of a few dominating multinational companies and hundreds of other smaller beer producers, such as ” home made ” or regional breweries. According to the statistics, there are almost 134 billion litres of beer sold per year, what enriched the global treasury by $294,5 billion in 2006. Such a high revenues global brewery industry owes to the Asian, Eastern European, and African beer fans. Consumption of the beer increases every year. Canadean firm’s report shows, that in year 2002 there was almost 1,4 billions hectolitres drank all over the world. This number was said by analysts to increase by 7% in 2005. According to the statistics, predictions have come true and it reached 1,5 billions of hectolitres. This table shows, that Czech Republic is the leader in the beer consumption. Each beer fan from this country drinks yearly almost 157 litres of this golden drink . Republic of Ireland takes the second place with 131,1 litres drank, and Germany third place with 115,8 litres. Poland is said to be one of the most drinking countries in the world. According to these data, its position is not that high, because it takes 18th place with 69,1 litres per each beer drinking Pole annually. Modern brewery market wide opened for the other types of beer selling. Microbrewery is responsible for producing a limited amount of beer, which depends on the region and on the authority. It has permission for making 18,000 hectolitres per year, in order to adjust the production to the predetermined standards required for the regional breweries. Nowadays, the global brewery market leader is Belgian Anheuser-Busch InBev with 25% of the market share. It was taking the third position after SABMiller, the first leader, and InBev which holded the second place. In 1987 its first equivalent, Anheuser-Busch decided to merge with InBev, and this operation has led it to the top in the brewery industry. Its fourteen brands, out of 300, generate almost $ 1 billion annually in revenue.
Transformation in 1989 has led to intensive changes in the polish brewery industry. They are connected with the increase in the beer consumption, and production concentration in the newest great breweries. Looking back at the changes that were implemented in the polish economy after 1989, and comparing them to what the former government has achieved between years 1945-1989, we can observe a positive influence of the new political system and thus potential and opportunities to increase growth in every area. Brewery industry in Poland had experienced a violent sales growth between 1994-2000, and then the consumers slowed down their beer consumption. But this situation did not have any negative impact on its further development. On the contrary brewery market is still developing and growing, and high operation profits have been observed in this branch. There are four main and few local brewery companies operating on the polish market ( and their market shares in %; data for year 2009):
Comparing the situation on the market from the last year to year 2008, we can observe a diametrical changes that occurred in the meantime. There were three main players on this market two years ago: Kompania Piwowarska ( 41% ), Zywiec Group ( 34%) , and Carlsberg Poland ( 12%). Royal Unibrew joined them in 2009. As we see, market shares of each of them have increased at least by 1% ( Carslberg Poland and Zywiec Group ), and by 4% ( Kompania Piwowarska ) after one year.
There are two fields which characterise the todays brewing industry:
In this case small and medium-sized brewery companies start to actively operate on their market and therefore develop a wide range of products which have their roots in the territory they come from Nowadays the global brewery market offers its consumers almost 1,5 billions of hectolitres. In year 2003 the leader and the best beer producers market on the global brewery market and was Anhauser Busch, with the almost 130 millions of beer hectolitres sold all over the world. SABMiller took the second place with 125 millions of hectolitres sold, and third place belonged to Heineken with 99 millions of hectolitres sold. In 2010 two breweries decided to merge: Belgian InterBrev and Brasilian Ambev. According to the analysts predictions, effect of this merge will lead to the annual sale of 190 millions hectolitres in the future.
Royal Unibrew was the local leader in the brewery market, but during its 150 year old existence it has become”the second largest brewery group in Denmark”. It has been operating on the European brewery market since 1856, however the name of the company is of recent date. Two companies, “Faxe Bryggeri A/S and Jyske Bryggerier A/S (Ceres Bryggerierne and Thor Bryggerierne)”, operating on the Dutch market in the 80s wanted to grow stronger and thus become leaders in the brewery industry in Denmark. They decided to merge in 1989, and changed the name for Bryggerierne Faxe Jyske A/S, but the final decision was Bryggerigruppen A/S in 1992. The company is listed on the Copenhagen Stock Exchange since 1998, and one forth of its shareholders ( 14,000 of all ) are foreigners. Now, Faxe, Ceres and Thos complemented each other perfectly:
In the beginning of its foreign expansion Royal Unibrew focused Italy, Germany, and the Carribean as its first export markets. Strong brands of Ceres have made it a leader among the imported brands in the Italian market. Its product “Der Grosse Dane” has won the hearts of the German society. There are three markets Royal Unibrew takes into consideration:
Royal Unibrew decided to invest in Poland in the early 90s, and then started exporting Faxe beer from Denmark to Poland. It expanded the business in Poland in 1994, created a trade-distribution company and named it Faxe Poland LLC. Next step it made was purchasing its first breweries in JedrzejA³w and Koszalin in Poland in 2005. Royal Unibrew is the second alcohol producer in the Baltic states, and the largest Scandinavian alcohol exporter. There are four breweries on Denmark, three in Poland ( Strzelec in JedrzejA³w, Strzelec/Brok, Lomza Brewery, Sagittarius/Brok, and half of the shares in Perle ) and one non-alcohol plant in Latvia.
The aim of my research was to find out how the strategy makes company successful during its expansion to the foreign market. Royal Unibrew is a Dutch global company, and I decided to focus its polish branch. The reason for this approach is that the management board from Warsaw and people living and working in this city are more accessible for me in order to get an appropriate data for my research. I had a possibility to have a closer look on the different types of data that I was provided with, and thus describe them in my MA thesis, and answer the stated primary and secondary questions:
How does the strategy influence the Royal Unibrew international success?
Deductive approach has been undertaken in this research.
This approach has helped me in gaining detailed data about situation of the Royal Unibrews alcohol products on the polish market, and deepen it by considering different different approach methods. Face-to-face interview with Mrs Beata Pawlowska (CEO of the Royal Unibrew Poland ) and survey among beer consumers of a different age and gender were required to make this analysis better understood. They were asked about the motivations behind choosing the given beer brand. Customers choice is driven by the prepared strategy, which is implemented by the company and thus the good advertisement. I took a closer look at the information covered in the magazines and newspapers articles about the brewery market in Poland, subjective opinions of people, and internet different latest data sources were taken into consideration as well.
They will help me support the data I gather for my thesis research. Poland is an attractive country for different types of investments. Dutch branch of Royal Unibrew found an opportunity for extra revenues after fall of communism in Poland in 1989 and thus open up for the developed western side. It had to adapt to the brand new culture and A larger group of respondents was helpful and thus I could have a more clear view on the beer demand from the practical side. However, with the respect to the scheduled time of Mrs Beata Pawlowska and beer consumers, in accordance with Saunders, Lewis and Thornhill ( 2000 ) all ethical issues had to be considered during the interview. When it comes to the consumers opinions, they were relatively similar.
They appreciate Lomza beer, because it tastes more bitter than Zywiec, Warka, or Zubr. They said that the more bitter is the chosen beer, the more masculine is the person that drinks it. I asked also a seller working in the local area shop ( ” Jago ” in Warsaw, Bielany district ) about the beer which is more appreciated by the customers. According to their opinions price of the product is very attractive ( Lomza – 3 zl, Zywiec – 3,50 zl, Warka – 3,70 zl ), and thus they are more eager to buy it. Lower price actually does not result in the clients suspicion towards the beer, because they don’t really care about its quality. Zywiec and Warka are considered often by both genders in the age between 20 and 45, however there appeared a strong increase in the Lomza’s sales.
This is confirmed by Mrs Beata Pawlowska: ” Within ten months in year 2009 we have increased our sales by 4%, and I can say that we have closed the previous year with the 5% increase” . Lomza beer is sold in 500 ml bottles, and interviewed people mentioned that thanks to its shape it is easy to handle and therefore they enjoy it more while drinking. They put an emphasis on the beers association with the summer, when it easily quenches thirst. Taste of bitter beverage makes them feel relaxed. This means, that the value of the Royal Unibrew Polands products gained importance in the consumers eyes. Moreover, distribution and sales increase of the Lomza beer has been supported by the marketing actions and TV campaigns in the whole Poland. Frequent promotions and low prices catch customer’s attention, and So the results are positive for the company.
I collected the data by interviewing CEO of the Royal Unibrew Poland, accidental people, the local shop seller, and searching through the internet database. Sample group was chosen for this approach, and both genders were asked different questions that were strongly connected with the company’s strategy. I focused a non-standardised unstructured interviews, where the data needed for the research could be analysed in-depth. I followed Sauners, Lewis and Thornhill ( 2000 ) where they inform that the sample group should have an opportunity to talk freely about the area of the chosen research. Non-directive approach was taken in this case. This method is good for the area of my research because it helps me gain all appropriate data that I need in order to start prove that the strategy implemented by Royal Unibrew while expanding to polish market was successful. Structured and unstructured interviews, Open ended, open closed, answers, questions . dlaczego ta metoda dobra lub zla
I chose a sample group consisting of 30 men and 30 women, in the age range between 19 and 60. The group which declared is a loyal beer consumer were people in the age 19-26. Young women ( age 20-29 ) represent majority among young people of both genders, when it comes to drinking an alcohol. 73% said they drink it 3-5 times a week, usually during home visits or partying outside with friends. Most of them, and it is 63%, are still studying, in the private or state universities, 24% drinks occasionally ( for instance birthdays, promotions, or toasting someone ), and 12% is working already ( these are usually part-time jobs, physical jobs, minority studies and works at the same time ( 7%) ) or still looking for a job. Women in the age between 30-47 were considered as well. 45% of them are working already, 23% are looking for a job, and 6% are unemployed or decided for early retirement. All women were asked about their favourite beer brands and what drives them while choosing the given product. There were five brands mentioned during the interviews: Zywiec, Warka, Zubr, Tyskie and Lomza. They typed beers they like the most, and the least. Data I received were surprising: 35% of the respondents said they prefer Zywiec, because of its refreshing taste and delicate smell. Tyskie was considered by 31% of interviewers, however they are more driven by the attractive promotions and TV campaigns rather than taste. Warka and Lomza have almost similar number of consumers among women – one after another 27% and 26%. Both have strong bitter tastes, however Lomza is seen as a stronger. It is said that such taste is usually recommended for men, because it makes them feel more masculine. But as it can be observed, women drink it as well. Zubr is the least favourable among the other beers.
Following quota explains the reason for a low interest in this beverage: ” taste is very vague, not sweet nor bitter, it is just a typical beer implemented without any special nuances of flavour”. Interview considered a group of young and old men in the age between 21-56. They were asked the same questions about the beer they favour and the force that drives them while choosing the given brand. 61% of the interviewed said that they drink beer 3-4 times a week, at home, usually with a group of friends, and the rest of respondents prefers to drink outside at the parties, or pubs and clubs 2-3 times a week. 83% of respondents is still studying ( 41% studies at the state universities, 25% at the private ones, and the rest is working already ). Older men are presented as follows: 27% are working, 7% of them are unemployed or retired. These are mainly men over 50, however two interviewers were 43 and 46. The following chart shows their beer preferences out of the list of five given brands: This picture shows that Zywiec is still a leader among the preferred by young and old men beer brands. 33% of respondents pointed it as their most favourable, because of its refreshing properties and delicate smell. 31% pointed Tyskie, however strong TV campaigns, and good marketing have influenced this choice ( everyone who chose this beer mentioned that ). Warka ( 28% of respondents ) is ahead Lomza and Zubr because its taste is similar to Zywiec.
Therefore its position is so high. Lomza was chosen by 25% of the interviewed, because they identify themselves with this brand. They like beers with a strong and distinct taste, and large amount of foam. Moreover, they declared that one of the major reasons they chose Lomza was aggressive, visible, eye-catching advertisement in TV, poster hanged in the subway, and billboards hanged in the strategic points of Warsaw. Thus Lomza fullfills their needs for a moment of indulgence. Interviewees said that while choosing a beer they are driven firstly by its brand, taste, and then the prestige among their friends. But there are many other factors which influence the consumers choice of product: its positioning, beers quality, price, and packaging. Moreover, while choosing canned beer they are driven mainly by the comfort rather than only by the mentioned factors ( Drummond et al, 2002 ). It is also influenced by the brand image, and hence brewery companies focus the intensive development of marketing communications and many other innovations to attract consumers attention.
There have occurred a few limitations during collection of the data, and therefore different approaches had to be considered in order to make analysis work. instead of the pre-established ones. The main weakness of this research was that the outcome couldn’t be applied to a general population. Data gathered from interviewing the sample group cannot be related to the whole society, because answers given by the interviewees vary. The sample may not be very representative, because it is quite limited. Moreover, their lack of time was another barrier, and therefore interview had to be shortened. This has influenced the quality of the research ( Saunders et al, 2009 ), and thus the results are not as precise as it was granted before. Another problem that occurred during the research was that CEO of Royal Unibrew Poland refused to provide the researcher with the firms financial data. They could be relevant for the analysis of some areas of the research topic, but according to the company’s rules, third parties cannot be given this information. Royal Unibrew Poland is not on the Warsaw Stock Exchange, and therefore it is not obliged to share such an important data with the researcher. What’s more, there was no opportunity to talk to members of the other departments, so I had to stick only to the information provided by Mrs Beata Pawlowska.
What is strategy?
Strategy is a very broad term. There are many books about the theoretical background and examples of the implemented strategies effectiveness ( for example Coca-Cola, Apple, BCG ). However, business magazines ( such as Forbes, Harvard Business Review, Manager ), internet articles or newspapers ( Rzeczpospolita or Wyborcza) discuss the practical side of strategy based on the current situation on the international market. Strategy is an incremental part of every company and it is the key to its national and worldwide success. According to the definition ” it is a general business program which focuses on the use of the roduction potential and resources to achieve set goals “, but well known economists describe it in details. A.D. Chandler ( 1962 ) says, that ” The strategy takes a long-term business objectives, corresponding to the general direction of the action, and presents the allocation of resources that are necessary to achieve these objectives “. W.F. Gluck ( 1980 ) has broadened this definition,and explained it as follows: ” it is an overarching and integrating plan, which outlines the benefits of the company in connection with the expectations and challengers of the environment “. In 1996, RW Griffin added: “A well-conceived strategy focuses on four main factors:
“Strategy is the determination of the basic long term goals and objectives, and the adoption of courses of action and the allocation of resources necessary for carrying out goals” explains Chandler ( 1969 ) in his book “Strategy and Structure: Chapters in the History of the Industrial Enterprise”. This term was first used in the 60s, when the strategic problems were defined as the ” long-term planning “. The father of this term is Igor Ansoff, who formulated theory of Ansoff’s Matrix. Phillip Kotler ( 2002 ) says, that the objective of this theory is to formulate strategic variants and choose the optimal solution, by combining the two criteria: product ( existing or new ), and market ( existing or new ). End of the 60s was a breakthrough from the strategy development. Consultants working for the Boston Consulting Group and McKinsey have invented new concepts of the strategic planning. General Motors CEO, Jack Welch, changed its strategy in 1982, and decided to focus on only these operation areas in which the company was a leader, or could achieve such a position. Concepts and instruments which have been created until 80s, had a strong influence on the organisations management team and their further success. Michael Porter ( 1985 ) put forward three types of strategy: segmentation, differentiation, and cost leadership types. Companies use them in order to achieve the competitive advantage and thus become successful on the market. Robert S. Kaplan adds, that ” a sustainable position, in Porter’s view, comes from a system of activities, each of which reinforces the others ” ( Kaplan et. Al, 2001 ). So, the success of the company comes not only from the proper adaptation of the Porter’s strategies, but also from these internal reinforcements.
Strategic analysis is a process consisting of three stages: analysis, planning and management. We can divide it into two types: connected with function and the one connected with tools. The functional strategic analysis is a set of actions which diagnose both. the organisation and its environment, and thus facilitate strategic plan and its development. When it comes to the tools, strategic analysis is a set of methods which help examine, assess, and predict the future states of selected company’s elements and its environment in order to make it survive and develop on the market. Every The object of strategic thinking is to create a long-term plan and vision of the company, by understanding its current position, analyzing the chances, setting the goals and rules. What’s more, it requires the use of different methods and tools which help reach the targets and gain all the needed information. Strategic thinking is characterised by the constant need of changing areas and formulas of the company’s actions. Strategic management development had a strong influence on the strategic analysis. Since 50s and 60s the world that surrounds the company has been more and more unstable and complex, and thus forced scientists to create methods which would help the companies adapt to all the changes. Strategic management development began in the 80s. It helps understand the evolution of methods and strategic analysis techniques, changes in the way of its usage in the company’s management, and treating the strategic analysis creation as a separate category. Strategic planning, mainly in the global corporation, required more effort and thus analysis of the competitive environment, macro-environment, and measurement of the company’s strategic position.
The main factors that forced people to dig deeply into the strategic analysis and strategic planning were tough times of the sudden changes in the global economy and technology advancement. Companies improve their strategic analysis, because they face repeating organisational crises, lack of internal development, lower market share, or change of the target market. What is interesting, these changes are very often influenced by the management board changes, or new strategy development and its implementation. According to Richard Koch (1998) there are two consulting companies, which implemented the strategy analysis into their businesses and thus became successful in the early 50s: Boston Consulting Group and McKinsey. Until the end of 70s, seven school of the strategic thinking were created. They were connected with the two important management paradigms: strategic rationality ( Harvard School, Strategic Planning School, Matrix Positioning School, and Quantitative school ) and strategic behaviours ( Behavioural school, System School, Incrementalists school ) . First paradigm describes “strategy’s technical-economical dimension, normative approach, which create rational patterns of behaviours, assessments and way of acting” ( Gierszewska et al, 2007). The first group of schools is described below:
Second paradigm is defined as “exposing of the socio-political strategy dimensions and strategic analysis ” ( Gierszewska et al, 2007 ). Three schools of strategic thinking were based on that paradigm . They are as follows:
This school represents pragmatic approach. The only way to improve the quality of management is to follow the already proved patterns implemented in business. What’s more, motivation of the management process participants and the example of other successful corporations plays a very important role. ( Giermaszewska, 2007 ). As we can see, these schools provide us with different approaches to the analysis methods improvement and strategic management. According to Giermaszewska ( 2007 ), and Janasz ( 2007 ), the schools based on the paradigm of the strategic rationality are more valuable than the ones based on the paradigm of strategic behaviours. Modern classifications ignore the older schools and methodology proposition. M.F. Gouillart has chronologically ordered the best known strategic analysis schools and presented the following list:
Stage one presents LCAG analysis from the harvard school, portfolio analysis corresponds to the matrix positioning school, Porter model stands for the industry analysis model, and “price of perfection” stage represents the incrementalists school. However, M.F. Gouillart has enriched this group with two more models. They are as follows: analysis of the shareholders benefits, and Japanese influence. He adds also three issues that occurred in the early 90s: time-based competition, goal, strategic skills, and strategic changes. Analysis of the shareholders benefits – type of the company’s position assessment. It comes together with the financial analysis signification increase, and capital market forecasts. Moreover, it focuses shares value increase as a main goal of the company, and implementation of the financial analysis into the strategy formulation and its development Japanese influence – originated in the 70s, when Japanese economy became successful and was admired by the western companies. “Just-in-time” describes best the idea of this school, which underlines the precision and punctuality, one of the main key success factors. Time-based competition – time advanced companies have a serious competitive advantage.
Main tools used in this stage are techniques which help elaborate the “dynamics of the given phenomenon, processes, and organisation” ( Gierszewska, 2007 ).Time is one of the main factors which influence the result of the rivalry between companies. Goal and strategic skills – the main role of the organisation is to define the company’s mission and most important goals. Success is the ability to use the company’s strategic skills. Strategic change – it describes the problem of the company’s and executives adaptation to the changes in the environment and in the organisation as such. If too much attention is put on the changes, the goal of the strategic management is lost. This means, that “elaboration and implementation of the strategy development” are not taken into consideration ( Gierszewska, 2007 ) Some of the above methods and schools are outdated, while some are still being implemented. The older methods from 50s and 60s are still being used in the consulting companies and business schools. LCAG method, product life-cycle, and BCG matrix are invaluable help for the beginning analysts. One more classification of the strategic management schools needs to be mentioned, the one created by the Polish economists Krzysztof OblA³j. He has named and described them as follows:
Modern strategic analysis is partially based on the methodology of science, such as sociology, psychology, economy, and management. This connection helps to list the following characteristics of the strategy analysis approach:
The purpose of strategic planning is to set the needs and methods of carrying on the strategic analysis in the company. First issue that must be considered is the analysis of the company’s environment, its strengths and weaknesses, staff development, and the potential to develop the new strategy. Good strategic plan helps the company use its potential and not to loose any opportunity offered by the market. Strategic management means, that the strategic decisions have to be put in the right order, “findings in the different areas must be coordinated, and on the different levels of the management” ( Gierszewska, 2007 ). The following methods, presented by Maria Romanowska ( Gierszewska et al, 2007 ), are very helpful in putting the company’s strategy on the right track: The most important decisions for the company come from the board. Portfolio operations ” depend on the number and type of sectors of the future activity, type of technology, and geographical scope of sales ” ( Porter, 1996 ). So, according to what is said the corporate strategy should be considered as a first step to the further internal solutions. Sector strategy is divided into two sub-groups: suppliers strategy, and competition strategy. Strategy making process in all these cases is limited by the goals and hierarchy that was implemented in the company development process. If corporations that operate only in one sector, there are no two strategic planning levels. They are just treated by the management board as one strategic plan. Last type of the strategy is the functional one. Its aim is to ” evaluate the goals and ways of achieving them in the area of the financial management, marketing, personal policy, structure shaping, focusing the management procedures, and technology development” ( Gierszewska, 2007). To conclude, the aim of the functional strategies is to oversee all strategic plans in the whole organisation.
Strategic management requires capability to differentiate internal and external events/phenomena. Managers are able mainly to research internal problems of the company rather than external ( Gierszewska, 2007 ). External problems estimation needs the help of the consultants. Corporation which constantly observes the environment is prepared for any threat that may occur. Situation on the market helps the company prepare the good strategy plan for the future. If it is more elastic to the changing environment it “is better prepared for the more creative behaviours” ( Koch, 1998 ). According to Porter ( 1980 ), corporate environment is divided into two groups: macro-environment, and competitive environment ( industrial or sector ):
According to Peter Drucker ( 1998 ), most important factors of this element are suppliers, shareholders, and customers. Corporate strategic analysis is the last stage of the strategic analysis. It should consider every area of the company: economic, technological, marketing, social and cultural. This means, that both qualitative and quantitative methods play here a very important role. They require simple actions and scientific thinking.
There are two types of macro-environment analysis:
What influences the success is ability to clearly identify threats and opportunities that come from the environment. The idea of this concept is to “base the whole strategy formulating process on the predictions, and deducting conclusions from the changes in the environment that have already shown up or have been recognized as the changes that can be predicted in the future” ( Gierszewska, 2007 ).
Company should prepare different scenarios for various situations and problems, with which it is going to struggle. Then it focuses strategic plan which follows this analysis. Gierszewska ( 2007 ) adds, that “scenario concept lays in the exploratory study that is done in the initial phase of the planning process “. Kozlinskis, Vulfs (Journal of Business Management; 2008, Issue 1, p30-34, 5p, 1 diagram, 3 graphs ) mentions in his paper, that the competitiveness of the organization can be measured by the business macro-environment ( BME ). BME can be evaluated by analysis of key indicators ( PESTEL analysis ), business surveys, and overall employment situation.
PEST analysis is a “typical look from the bird’s-eye view on the business, political, and social landscape, in which operates a given company” ( OblA³j, 2007 ). It is probably the simplest way to segment the environment, and thus has been divided into four sub-groups:
Graph. Xx. Corporate environment segmentation All these segments are interdependent. They are very important for the company because:
Companies from the same industry are strongly influenced by the same trends and events that appear in the environment. Prof OblA³j gives a very good example of the internal changes in the polish companies in the early 90s. Purchasing power decrease had a strong impact on the lower demand for the holidays after the fall of the communism. Competition on the market was increasing and therefore smaller travel agencies couldn’t satisfy the increasing demand. They turned out not to be professional and bankrupted very quickly. People prefer to go for a holiday with the reputable agency and pay more, in order to feel safe.
The main characteristic of this type of environment is the ability to influence the company. As it works both ways, the company can influence its environment ( it can change and shape it ). However, it depends on the company’s competitive position on the market. Competitive environment analysis identifies conditions of the sector in which company operates and develops. Corporate sector analysis helps in getting significant information about “opportunities and threats which are connected with the age and dynamics of the sector, behaviour of the suppliers and customers, and, two most important issues to consider, behaviour of the competition and possibility of the new players appearance” ( OblA³j, 2007 ). What’s more, company is able to assess current and future attractiveness of its sector. Before the company focuses on the sector analysis, “it should begin with the analysis of the whole industry and the national economy” ( Gierszewska, 2007). This will help indicate the global, macroeconomic, and structural conditions of the given sector. Before large corporations enter the foreign market, they should remember to analyse the chosen sector globally and regionally.
The essence of formulating the competitive strategy is relating company to its environment. Sector in which company operates has a strong influence on the market competition rules. According to Michael E. Porter, one of the most respected economists in the business world, “awareness of the five forces can help a company understand the structure of its industry and stake out a position that us more profitable and less vulnerable to attack ” adds Michael Porter (Harvard Business Review; Jan2008, Vol. 86 Issue 1, p78-93, 16p, 1 diagram, 1 illustration, 1 graph, 1 map, 1 color ). Porter’s five forces are: rivalry among existing firms within the industry, bargaining power of suppliers, threat of new entrants, bargaining power of buyers, and threat of substitute products or services. All interactions among these forces are shown in the picture below. The forces can be described as follows:
Many companies gain profits after exceeding some production scale, because unit costs are decreasing together with the production scale. Fixed costs per unit costs are decreasing, because the same or similar costs are spread over increasing production volume. Production scale has a very positive influence on the company. Employees are getting more skills, losses are decreasing, technology is developing very fast. Economy of scale plays a very important role on the so called commodities market. Price of the products is dependent from the situation on the market, financial situation of the company from its costs, and these costs from the economy of scale.
Capital is one of the most important issues to run the business. If the investor decides to run the small business, for example cd/dvd or children bike rental store, there is relatively small capital required. However, dominating and well developing technology and market characteristics require big amount of capital. Additionally, it is one of the factors, which discourage potential competition from entering the market on a small scale with the gradual capital engagement
Market, which is strongly dominated by the well known, promoted and respected brands, has high entry barriers. Company entering the such market can face huge problems. Dominating companies have their loyal customers, and the new players goal is to convince these people to try its products ( by the price attractiveness, good promotion and using parameters ), make them change their likings and switch to the brand new product. If the product is more attractive than the existing ones, company can be very successful on the target market.
Switching suppliers in the consumption goods and industrial goods markets is costly. However, in the first case these costs are pretty low. For example, if the consumer decides to change favourite shampoo for another one, and is dissatisfied with its effects, he or she can just simply return to the favourite product. The only costs are connected with the price of the bad shampoo.
This barrier is probably the most effective entry barrier. According to prof. OblA³j, ( 2007 ), the only society which mastered distribution systems to perfection, were Japanese. Most of the western suppliers complain about not being able to enter the Japanese market.
Companies do their best to patent their products, and thus have the whole market for themselves for some period of time. For example Xerox company and its lawyers have been protecting the printer market for many years.
They protect the producers and consumers. Most of the cases are imported products, which are blocked by the government regulations. The reason of this is their limitation or not fulfilling special requirements.
This is the hardest managerial decision. Factory or activity closure are a very costly decisions, “which result from the two exit barriers: assets specialisation and psychological barriers” ( OblA³j, 2007 ). So, assets specialization is the first exit barrier. This means, that if the company stops the production, most of the assets are being scrapped or sold. Second barrier is the psychological barrier. Many managers from all over the world do not make enough profits to cover costs of the invested capital. However, as they are emotionally connected with their unprofitable businesses, they do not resign. The reason for such behaviour lays in the big investment. If the company engages big money in the business and its best working people, it makes costs and thus psychical setup for the future success and is aware that the whole effort cannot be lost. Employees strongly believe, that more effort and money will help company make profits. What makes the situation more difficult is that the managers put their whole hope in the problematic investments. Psychological exit barriers are so high, that the companies invest as long in their programme, as they have money. Psychological exit barrier is very often an element of the company’s strategy. Michael Porter has created a simple analysis scheme, which helps define the profitability of the branch depending on the entry and exit barriers. According to this picture, most optimistic situation occurs only when the entry barriers are high, and exit barriers are low.
According to Porter, stronger buyers are in a comfortable situation, because they can coordinate their operations, and thus they have an advantage on the market.
This is the next variable which has an influence on the branch dynamics and its attractiveness is the variety of products and their substitutes. “Substitution means, that the existing products or services different from those offered in trade satisfy the same or at least similar needs ” ( Kotler, 2005 ). Substitutes discourage main players on the market from increasing their prices in a given branch. For example bad management of the polish post offices has led to creation of the competition – In Post – which is a solid player on the polish market. DHL, TNT, or FedEx are global equivalents of this company.
For some companies it is a great and exhausting challenge. For example Coca Cola and Pepsi, two main global players in the soft drinks industry, are fighting for the market share: attractive prices, product innovations, production development, distribution channels improvements, aggressive promotions are the stable parts of this game. Each mistake, marketing, promotion, or distribution leads to the loss of market. Another thing that has to be taken into consideration is the degree of product differentiation. This term is well described by Phillip Kotler ( 2006 ): ” [..] opportunity to build brand, that will have loyal purchasers “. Gives a great example of a branch with the two competitors. It perfectly describes the potential loyalty of the customers ( in % ). This table presents two different situations. Situation A is an example of the loyal customers case. Companies operating on the market have presented a very attractive offer, and therefore have differentiated their products and segmented the market. However, according to the information from the table, 20% of the purchasers will decide to look for a better occasion, but the rivalry is limited. In the A1 situation the company’s offer is not enough attractive for the target group. Products have not been differentiated and thus seem to be identical.
Only 10% of the purchasers stay loyal. This leads to the price decrease, and the winner ( company that offers lowest price ) gains loyal customers. Companies decide to compete aggressively, and their target is to gain the 75% of the disloyal customers. The third group is represented by the fixed costs participating in the total costs. Technology and increasing production capacity are the main reasons for the high costs covered by the companies. This leads to the price wars among airlines, periodic cars price decrease, etc. Both cases require increase of the production capacity, and covering fixed costs. The last significant variable is the number of competitors and their differentiation. Companies that follow the same competing philosophy are predictable, and thus their strategies are expected to lead to the equilibrium in the branch. What’s more, new agreements will block price decreases that attract the customers. But the situation changes, if the market is overwhelmed by many competitors which represent different strategy philosophies. As the market is dominated by the rule: anything goes, companies are allowed to do everything. Therefore, unethical actions, such as hacking the competitors computers, or making fake phone calls to the competitors buyers, are on a daily basis.
The essence of the strategic groups leads to the competition inside the sector. Conditions and sales extent are the main targets of the traditional competition. Companies which produce the basic group of goods from a given type, determine the market value of these goods. Organisation which are better prepared and own a better technology, can expect high profits. Companies, which have higher costs than expected in a given department , are in trouble and do not gain even average profits. In order to stay on the market they are forced to imitate the technological and organisational solutions of the successful competition. According to OblA³j ( 2007 ), “traditional way of competing on the market is the rivalry among companies in a given sector”. Strategic group is created by the companies competing with each other, by having the same competition philosophy. This means, that:
Michael Porter ( 1994 ) describes map of the strategic groups as ” analytic tools. […] It is an useful way of presenting graphically the competition in its sector, and checking the influence of the changes and tendencies that appear in this sector on this competition. It is a map of the strategic space, instead of prices and sales volumes “. In order to create such a map, prof. Gierszewska ( 2007 ) suggests the following steps:
The table below, created by prof. Gierszewska ( 2007 ) presents the criteria of the companies differentiation strategies in a sector: Michael Porter ( 1994 ) mentions strategic variables, which are a part of the strategic groups maps. They are described as the maps axis, which help analysts chart the map. Prof. Porter points out a few rules that should be taken into account:
After making the map of the sectors strategic groups, Michael Porter ( 1994 ) proposes a few analytical actions:
Recognizing of this barrier helps in protecting the group from the attacks of the other groups. What differs and protects the high-quality group are well-known brand, technology and network of the representatives who run the service. Economy of scale, experience and relationship with the customers selling under their own names are the main barriers that protect the group, which benefits from those selling under their own names. Porter ( 1994 ) says, that this exercise can help evaluate the threat for each of the groups, and probable change of location of the companies
Structural analysis helps in identifying the marginal groups, which are of the negligible importance. These groups are candidates to leave or switch the groups
This is a very important issue, because it shows all the possible directions of the company’s strategic moves from the sectors perspective. It helps also draw arrows that show the possible direction of the strategic group in the strategic space. Competition stabilizes in the sector and groups spread in terms of strategy. What’s more, the result of such an exercise may be the convergence of the strategy’s location, and thus the destabilization.
Consequences of each tendency, that appears in the sector, for the map of the given strategy group play here very important role. All factors can help predict the sectors evolution. Michael Porter advices to follow these questions:
Map is very useful for the prognosis of the sectors response to some event. Companies from the same group are prone to react symmetrically to the appearing tendencies or interferences.
Prof. Gierszewska ( 2007 ) says, that the most popular theoretical approach to the management strategy is a resources approach. Michael Porter ( 1994 ) adds that this approach focuses on the success opportunities that exist in the company. According to the resources concept the success of the company depends on:
All company’s resources can be divided into two groups:
Capital, technologies, technical equipment, resources, distribution network, etc
Staff and its qualifications, organisation culture which influences the dynamics of the company’s development, company’s reputation, achievements ( patterns, patented and not patented inventions, structures and procedures efficiency ). According to these points resources approach ” helps take a look on a company as a source of successes and failures” ( Najlepszy, 2002 ). Companies, which put more attention to their key capabilities, and use them effectively in the competitive struggles, are very successful. Moreover, they focus companies resources analysis as well. This is the basis for the further increase of their competitive advantage, which is compared to the competitions resources and its capabilities. There are two types of the strategic resources and company’s capabilities analysis approaches:
All these three approaches: corporate strategic balance, key success factors analysis and value chain analysis focus the company’s key strengths and weaknesses, and additionally allow to make an overall analysis and corporate strategic potential evaluation.
According to Laura Lake’s definition by, key success factors are the factors that ” are a necessary condition for success in a given market “. The origin of this method is well known as the Pareto rule. It says, that 20% of the events/actions are responsible for the 80% of results, and vice versa – 80% of the events/actions leads to the 20% of results. This rule shows that the deep and detailed analysis of the 20% of success or failure factors should be taken into consideration, and not all corporate success factors. Quality of the key success factors analysis depends on marking the significance of the resources and capabilities from the given sector. According to Prof. Gierszewska ( 2007 ), there are two ways to analyse the company’s strategic position:
Michael Porter ( 1994 ) adds, that the success of the company’s condition analysis ( basing on its key success factors ) depends on the certain group of criteria:
It is measured by the percentage share in the market, its dynamics, and by the development of the share in relation to the closest competitor
It can be measured by the size of the unit cost, relation between variable and fixed costs, structure of the costs and dynamics of the individual groups of costs
It is measured by the knowing the customers, their opinions about the logo, company itself, and its products. This data is provided by the marketing researches.
This can be measured by the product quality assessment and the unit cost, or by the technical condition of the company, technical skills of the employees, competitiveness of the used technologies, and funds invested in the technology.
In order to measure this part, company must analyse all its products life-cycles, and then assess critically the current and the future production portfolio
This is measured by indicators, which describe the management and employees skills, adaptation of the organisational structure and procedures to the company’s goals, quality of the strategy, efficiency of the information system, etc. According to prof. Gierszewska ( 2007 ) age of the sector has a very strong influence on the key success factors. The following table presents the importance of the factors in different aspects of the sector life: Prof. Gierszewska ( 2007 ) says, that using the list of the key success factors for the strategic position assessment can create many methodological difficulties. Koch ( 1995 ) mentions another problem: what point of reference and what time perspective should be considered in the company’s development condition assessment? According to prof. Gierszewska ( 2007 ) , in order to answer this questions, the following three questions should be answered firstly:
In the opinion of the strategic analysis specialists, strengths and weaknesses should be evaluated by consultants, managers, and specialists from the evaluated industry. The role of the last group is to share the most important, often informal, information about what happens within their company, and consultants take care of the evaluation objectivity. Well prepared list of the key success factors for the sector and assessment of the competition give an opportunity to implement other analysis methods, such as strategic groups maps, competitive profiles analysis, and benchmarking.
The objective of the competitive profiles analysis is to compare strengths and weaknesses of the evaluated company with the competitors chosen from the sector or a strategic group. Prof. Gierszewska ( 2007 ) gives a very good example of the corporate competitive profiles: A, B, and C. Three groups were compared basing on the five key success factors (respectively: Quality, Service, Elasticity, Sources, Price): This picture shows at which point the evaluated company is better and worse than its competition. Additionally, competitive profiles can be used to present the competitive position analysis results in front of the management board and other employees, because pictures more stimulate the imagination than theory. Next analysis technique is benchmarking. Prof. Gierszewska ( 2007 ) describes this term as learning from the best. However, longer definition says, that it is ” the process of identifying “best practice” in relation to both products […] and the processes by which those products are created and delivered. The search for “best practice” can take place both inside a particular industry, and also in other industries. The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to “best practice” and to identify areas and means of performance improvement. It […] involves looking outward (outside a particular business, organisation, industry, region or country) to examine how others achieve their performance levels and to understand the processes they use”. According to William M. Lankford, there are three main types of benchmarking ( taken from www.coastal.edu/business/cbj/pdfs/benchmark.pdf ):
“[…]focuses on the day-to-day operations of the organization. It is the task of improving the way processes performed every day. Some examples of work processes that could utilize process benchmarking are the customer complaint process, the billing process, the order fulfilment process, and the recruitment process (Bogan, 1994). All of these processes are in the lower levels of the organization. By making improvements at this level, performance improvements are quickly realized. This type of benchmarking results in quick improvements to the organization “
“[…] focuses on assessing competitive positions through comparing the products and services of other competitors. When dealing with performance benchmarking, organizations want to look at where their product or services are in relation to competitors on the basis of things such as reliability, quality, speed, and other product or service characteristics”
“deals with top management. It deals with long term results. […] focuses on how companies compete. This form of benchmarking looks at what strategies the organizations are using to make them successful. This is the type of benchmarking technique that most Japanese firms use (Bogan, 1994). This is due to the fact that the Japanese focus on long term results.” Main idea of the benchmarking is to systematically search for the better solutions used outside of the company. Adapting solutions of others stimulates the creativity and speeds up an improvements within the company. P.M. Nattermann (https://www.scribd.com/doc/3951852/Mckinsey-Best-Practice-Strategy ) adds, that implementation of the benchmarking doesn’t always lead to the best strategy development. Lower profits are the result of companies efforts to be more efficient than the competitors, and repeating the leaders successes. They fight for the same resources and thus smaller market segments. Following the strategy of the leader ruins the value in the segment, because all profits are shared between several companies. Prof. Phillip Nattermann calls this a decreasing rate of the strategic differentiation. Before the company implements benchmarking it should firstly pinpoint the purpose of this operation. The results of the effective benchmarking are as follows:
“The best benchmarking effects present these companies which systematically learn and create behaviour patterns that ensure success” says prof. Gierszewska ( 2007 ). She adds, that such companies are very innovative, because they search for the new methods outside of the sector, are flexible, and are ready to adapt the novelties.
Value chain analysis concept has been popularised by Michael Porter in the early 80s. Prof. Gierszewska ( 2007 ) says, that the concept of this analysis relates to the other two concepts:
This concept presents the path all the materials and resources have to get through before they arrive to the ultimate purchaser in a form of a product or service. Extraction of the sector on the economic path is one of the forms which define the sector, and shows its suppliers and buyers. The following picture presents the economic path of the polish furniture sector: If the analysed company is found on this economic path, it may occur to operate on different links of the economic path, may be integrated or vertically diversified. “Each sector is a link in the economic value chain, and in sector each company is a link of a chain which consists of the company’s suppliers, company itself, and its receivers” points out prof. Gierszewska ( 2007 ).
Value chain system is presented below: Each company is a link of the wider value chain, but makes an internal value chain as well. According to Porter ( 1994 ), basing on the value chain model company can be presented as a sequence of actions, where resources, materials, purchased technologies and services are transformed into the final goods. He called these phases the basic functions. In order to work properly they are supported by the support functions. Both integrated with the suppliers and buyers value chains lead to gaining profits and the company’s development. It’s easy to search the source of the company’s successes and failures, if it is presented as a value chain. “Value chain is a very useful tool for searching the internal and external sources of the company’s competitive advantage. It is also very helpful in creating the successful strategy for both the diversified and single sector companies” says prof. Gierszewska ( 2007 ). Michael Porter ( 1985 ) adds, that the value chain method enables searching the competitive advantage inside the company, and in the close environment as well. Moreover, it puts pressure on the analysis of the company’s resources and its skills, and then their innovative use. Additionally, Prof. Gierszewska ( 2007 ) and Michael Porter ( 1985 ) usefulness of the value chain analysis. This method forces the managers to search for the competitive advantage within their company and in its environment. It is very helpful in analysing the resources and the company’s skills. Eugeniusz Najlepszy ( 2002 ) adds, that it allows do an analysis in a professional way, and use the analysis tools required for the given research area ( for example marketing or financial analysis ).
SWOT analysis is a very useful tool for analysing the internal ( Strenghts and Weaknesses ) and external ( Opportunities and threats ) situation of the company. It is one of the methods, which classify factors that determines the company’s strategy ( Gierszewska et al, 2007 ). The following table presents the classification of the factors which influence the strategic position of the company in the SWOT analysis: Strenghts and weaknesses describe the company and its products. According to Garbarski ( Garbarski et al, 2006 ) they cannot be analysed separately. This analysis should be done when we compare one company to the competition. Thus, the idea of the company’s strengths and weaknesses is to evaluate of its competitive position on the market. This position is a result of the position on the market, economic and technological position, and skills and capabilities of the organisation. SWOT analysis aim is to identify all these factors, describe their importance for the company’s development, and possibility to weaken or strengthen their impact. Basing on this model, we can assess the firms strategic position ( Gierszewska, 2007 ). Its objective is the identification of the key factors, which have the decisive influence on the company’s future. “Development of this method simplifies searching for the detailed strategic solutions, but makes difficult comparing scale and number of the factors which positively and negatively influence the development opportunities of the organisation” says Gierszewska ( 2007 ). Company cannot control its opportunities and threats that come from the market. These factors define the attractiveness of the market, where the company wants to operate. Prof. Garbarski adds that attractiveness of the market depends on the four factors:
Additionally, Prof. Wladyslaw Janasz mentions about the fifth factor, growth rate and size of the market ( Janasz et al, 2001 ). H. Weihrich ( 1982 ) has linked SWOT analysis with the strategy process projecting. He recommends making SWOT matrix for different periods: past, present, and future, depending on the scope and analysis objective. What’s more, he has combined internal and external factors, and received four combinations ( taken from https://www.scribd.com/doc/24074568/C36-Planning-W-Revisions, pg.19 ):
Competitive position factors ( strengths and weaknesses ) and market attractiveness factors ( opportunities and threats ) are different for all companies and situations. Well developed SWOT analysis ” is a chance for the correct use of the company’s strengths, and avoidance of weaknesses in the opportunities areas, where it can protect against the possible threats ” ( Garbarski et al, 2000 ).
According to the definition provided by Steve Peet ( Manager: British Journal of Administrative Management; Summer 2007, Issue 59 ) Ansoff matrix is”a framework which generates alternative strategic directions for an organisation, through considering its product-market options. The options generated support corporate growth objectives, which for this model, are deemed a priority”. Business development is possible by mixing current and new products/services and new and current markets. The results can later be demonstrated in a pattern presenting four strategic options, which are shown in a table below: ( Ansoff, 1957 )
Company which uses the markets opportunities and offers the same product as the competition does, wants to develop by the penetration strategy. In order to do that, it has to increase its sales and consumption among its customers, or gain a new ones. Market penetration requires aggressive promotions. Market segmentation helps the company focus a so called ” heavy users ”
Basing on the Ansoff’ theory, Steve Peet says, that the aim of the organisation is to ” seek, or create new market segments for its current product offer “. It is used when there is no opportunity of the further development on the current market. Strategy can be used only if one of the company’s strengths is its technology and product.
This is done by the companies, which brand has a strong position on the market. They can increase their activities portfolio, by introducing brand new product, or making their products more innovative – new design or packaging change, and quality improvement. The goal is to satisfy the customers needs ( Koch, 1998 )
Adam Stabryla ( 2000 ) says, that diversification can be achieved by ” purchasing the license, know – how, another companies acquisition, or merging with them “. He adds, that there are three possible directions of the diversification: vertical, concentric, and parallel. Drazek ( Drazek et al., 2003 ) describes these directions as follows:
company takes over its suppliers and purchasers, in order to keep the whole production process under control
In this case company, by fulfilling their customer needs with the brand new product, widens the portfolio of its activities
Company deals with this type of diversification, if it decides to leave the current industry, and changes for the other one. It creates a new development opportunities, however it is risky. If the company decides to implement it, it will have to operate in the different segments and in the diversified environment conditions. But at least ” it is useful in distributing the financial risk, which is connected with the cyclicality and seasonality fluctuations in sales ” ( Rajzer, 2001 )
Shareholders, employees with their families and collaborators with their families benefit from the beer business. According to the industry estimates this branch and cooperating industries employs almost 200 000 workers in Europe, and 600 000 is the number of employees who would like work for the brewing industry in the future. Polish brewery market employs about 15 000 people, and sectors that cooperate with it have higher employment rate ( 56,2 thousand employees ). People are hired in HORECA and trade and almost 186,000 of them make a living by working for the breweries. This makes 740,000 families altogether that owe their financial stability to this industry.
After the fall of the communism in 1989 polish brewery market has been dominated by the multiple foreign investors. They knew that this market has a potential, and needs money, technology, and experience in order to be successful. At the beginning of the 90s consumption of the beer was not exceeding 30 litres per person per year. It was of a poor quality and the beer consumption culture did not equal the western reality. This investment needed big money, and therefore investors decided to start the brewery business on the polish market from the scratch. For example SABMiller has spent almost 2 billions zloty ( PLN ) on the development of its four brands, and thus one of them, Tychy, became the largest in Europe. Brewpole, an Australian company, was the first leading investor on the market. It created new production lines and introduced a new brand: EB. Then it gained almost 16% of the market shares. However, later on it had to merge with the Zywiec Group ( because of some of its advertisement failures ). Finally, production scale and good marketing were the most important issues that must have been considered. Big players were taking over smaller ones, and others were just closed down because were not profitable. Foreign investors have helped the polish brewery market by putting into it $ 1 billion – and now it is the most modern in Europe. Almost 80% of the beer production is under their control. Therefore technology development in the brewery industry has been influenced by them, and this has led to increase of the beer production between 1990-1997. Today polish brewery industry belongs mainly to the global corporations. They knew Poles are patriots, and therefore decided to take advantage of this attitude. Tyskie, Okocim, Lech, Zywiec, Warka, Lomza and Strzelec sound polish, and thus are the most popular on this market in Poland. This shows that the foreign investors respect polish tradition and decided to combine it with their corporate global culture.
Beer is one of the most popular global products. According to the data men are a vast majority when it comes to the beer consumption ( 65%). In case of women, 45% of them does drink beer. 76% of the beer drink consumers are in the age below 47, and what’s interesting, 35% of people between 18-29 declare to be the loyal beer purchasers and its consumers. When it comes to frequency of the consumed beer, 47% of the consumers are between 30-65. What’s surprising, there is a huge difference in the education of the beer consumers. People with the Masters degree and over make up only 8% of the beer fans. Almost 26% of people with the basic education belong to this group, 34% with the vocational education does drink beer, and 37% with the secondary education are loyal beer consumers. 72% of the consumers usually drinks beer at home, 21% in pubs and the restaurants, and only 6% while enjoying the nature. They prefer light beer rather than dark. The reason for his choice lays not only In the taste, but also In its healthy properties. Light beer strengthens our bones, helps fight the osteoporosis, and bone tissue disease, which leads to the multiple fractures. For the last 10 years Poles have been drinking beer more than before. They treat beer as a substitute for wines and vodkas. According to the researches, 60% of the overall annual alcohol consumption goes to beer, 10% to vodka, and only 10% to wine. Poles are patriots and therefore almost 98% of them chooses polish beer. But when it comes to the quality of beer and its price, 45% definitely chooses german, dutch or Czech products. The price is usually too high In Poland, and thus the consumers are forced to buy the imported beers. However, the quality and taste of the beer are improved every year, and therefore beer consumption increases by a few percent.
Brewery industry requires specific type of suppliers. This sector is supplied by the hop, and metal and glass packaging producers. Moreover, brewery industry focuses also the printing plant services. Brewery industry is supplied with the hop by the foreign importers and domestic suppliers. More than a half of the imported hop is used in the beer production, and suppliers are usually Hungary and Czech Republic, from the agri-food branch. Breweries sign with them the hop supply contracts in order to avoid the sudden price changes of the resource on the market. Domestic producers are the second group of the hop suppliers. They do not strongly influence the breweries, which then do not fell threatened by them. The reason for such situation is that there is a low duty and low prices that encourage the breweries to import rather than use the services offered by the domestic suppliers, which subsequently focus only the brewery with the best parameters. Drugim dostawca chmielu sa krajowi producenci. Niskie clo oraz niskie ceny sprawiaja, iz browarowi bardziej oplaca sie go importowac, niz kupowac na rodzimym rynku. Krajowy jest skupowany tylko ten o najlepszych parametrach. Uwarunkowania te sprawiaja, iz browar nie odczuwa zagrozenia ze strony dostawcA³w, (przynajmniej tych krajowych), gdyz nie maja oni mozliwosci wywierania zbyt duzego wplywu na browar. Next type of suppliers for the breweries are those who supply glass and/or metal packages. There is a strong competition, and each of them tries to make his offer more attractive for the customer than the others: low price, good quality, and possibly best parameters. Most of the producers have a very attractive offers, and thus the breweries feel free in the choice of the offers. Printing plant services are in the same situation as glass and metal packages suppliers. Because of the strong competition on this market, they try to make their offers attractive as it is possible, and thus make the customer to choose them. Large breweries use mainly the services offered by the bigger plants. Na rynku opakowan szklanych, wsrA³d hut szkla panuje duza konkurencja. Browar Zywiec stara sie wybierac tych dostawcA³w, ktA³rzy maja najlepsza oferte, a wiec produkt o odpowiednich parametrach, niskiej cenie i dobrej jakosci. Oferta wiekszosci producentA³w spelnia wymagania stawiane przez browar, tak wiec moze on sobie pozwolic na duza swobode w wyborze oferty. Podobna sytuacja panuje na rynku poligraficznym, z uslug ktA³rego browar rA³wniez korzysta. Panuje tam duza konkurencja, wiec wybierane sa oferty najbardziej atrakcyjne. Zywiec korzysta glA³wnie z uslug wiekszych zakladA³w.
PEST Analysis is a combination of parts of the environment, that are put together in order to be easily researched by the company. It considers influence of the politics on the market, economy, social aspects, and technological development. Brewery industry challenges increase every time when European countries start to join the European Union, for example Poland, Hungary and Czech Republic in 2004, and decide to co-operate with the non-European countries. There are many opportunities and limitations which breweries have to challenge. Governments policies which consider alcohol sales include price regulations, sales limitations ( such as age, unsober customers, time when alcohol can be sold, place of selling and consumption ), and license for sale. Governments try to influence the price rivalry by limiting the advertisements or licensing the alcohol sales. They also increase prices in order to increase states revenues, and prevent increase of the consumption ( and alcoholism problems of the society ), especially among young people. Government wants to minimise the negative effects of the alcohol consumption, such as car accidents or its overdose. Sales licensing helps control whether the alcohol companies adhere to the sales rules and pay taxes. State monopoly is the factor which does not apply to the brewery industry.
Economic and social environments are the most favourable factors for the industry’s development. There are different economic systems in the countries of operation, and therefore there needed different approaches. However, European Union rules are similar for all of its members: common trade policy and rules of the export trade policy. Exchange policy is another issue to consider. There are still some countries that haven’t changed their currency yet ( f.ex. Poland ). Effects of the global financial crisis in 2009 are still felt on the currency market, and therefore polish zloty varies every day. “Labour costs are on the employer’s (demand) side of the labour market framework”. The average hourly labour cost in 2006 in the European Union was 20,35 Euro. However, there was a 20% increase in 2008 in Czech Republic, Russia, Bulgaria, Latvia, Poland and Lithuania. Year 2009 was economically disadvantageous for every country, but the prognosis seem to be optimistic and look forward to improvements on the market. During the last years inflation has influenced GDP growth rate, and the following table shows how it was changing between years 2006-2010. As we can conclude from this table, GDP growth rate varies every year by 0,1%, however, it declines until the year of the financial crisis in 2009, where it drastically fell down by 1%-2% ( -2,5% was the lowest and the worst moment ).
Luckily GDP started to catch up on losses quickly in 2010, and seems to follow the statistics from year 2006. Financial crisis had also influenced the employment rate – almost 34 mln people have lost their jobs in Europe, and 212 mln all over the world. 13,4% of the young and 5,2% of the older people were among the unemployed. Social and cultural influences in business are different in all countries. The dominant religion in the world is Christianity – 33% of respondents claim they do believe in God, Islam – 21%, Atheists – 16%, Hinduism – 14%. The following picture presents all known religions and their followers in percentage ( out of the overall humanity ): Brewery industry will not find its potential consumers among Muslims, because their religion forbids them to drink any kind of alcohol. Older generation is usually very traditional and therefore sticks to the domestic products, that are proven and are mostly with the tradition. Young people perceive foreign products as unique and attractive, therefore they have positive attitude towards innovation and modernity of the foreign products and services. But in order to get their loyalty and trust brewery companies must consider the cultural and linguistic differences. Moreover, society’s wealth influences the possible sale of the product. Western countries, such as France or Germany, unlike Poland, Lithuania or Estonia can afford expensive products, without violating much their budget ( for example German retirees going for a holidays abroad ). Modern technology plays also important role in the production. It helps make products cheaply and with a good quality. Foam of the beer is more stable, and the taste is more adapted to the consumers needs. Moreover, technology can be implemented in order to save the natural environment. Adnams, the British brewery, has invested in such a technology, without influencing negatively the nature and taste of its ecological product – East Green. During the brewing process offset minimises CO2 emission to zero.
This method helps analyse the sector by researching factors that make it attractive for the current and potential investors. There are four entry barriers in the brewery industry: scale of economy, no access to the distribution channel, lack of the capital, differentiation of products, and the state policy. Technology used by the brewery companies and their developed production allow them produce at the lowest unit costs. However, company which decides to enter the market cannot produce at a unit cost that is lower than the market price. Next problem company must challenge is lack of the distribution channels. Market belongs to the brewery corporations, and thus the new competitor has look for the other distributors. More over, it has also to invest in the beer producing technology, for the marketing and promotion, market research, and acquisition of the raw material. What’s more, government policy counters by the social insobriety ( anti alcohol legislation ), therefore alcohol sales are impeded. Last barrier is the product differentiation. Some brands, such as Heineken or Lomza have achieved high positions on the brewery market, and thus the new competition may have problems with gaining trust and loyalty of its target group. Bargaining power of suppliers in the beer market has been strongly influenced by the reduce of the aluminium costs control, and therefore this has led to the increase of the packaging materials costs. In order to avoid being dependent on these materials some breweries started to run recycling programmes. Brewery target group are the beer consumers. They choose whether they want to buy the product or not, and therefore influence sales of the company. Thus breweries care about the quality of their products, packaging, add some gadgets, and consider the way the product is served to the customer. He has a wide range of beers to choose and is given an information about each of them. Therefore he can choose the brand that mostly fits his taste.
The functioning of the company depends largely on his beer choice. There are no substitutes for the beer, because there are no substitutes for hop. Brewery industry is very specific, because new products from this area are rarely launched to the market. However, they don’t influence the beers consumption. Even non-alcohol beers haven’t increased its volume sales. Competition within the brewery industry is very active. Success of the brewery companies depend on the good advertisement, economies of scale benefits, costs minimisation and attractive packaging. Leaders on the global beer market are Heineken and Carlsberg. Smaller breweries try to reach their position and claim to have 40% increase in sales, and therefore bigger corporation try to save their position by comparing their successes to the weaker competition. Smaller players on the market increase their shares by selling the low quality products, and thus encourage potential investor to take over the brewery. Breweries try to reach their customers by selling them cheaper products. Customer looking at the low price resigns from the quality. Middle breweries dominate the segments with the low price products. Bigger corporations promote their brands by investing big capital in the marketing and promotion campaigns. Smaller companies can’t afford such a big investment, and thus they just encourage and motivate their salesmen to be more effective.
Brewery industry is one of the most developing industries in the world. Its internal ( strengths, weaknesses ) and external ( opportunities, threats ) factors can be audited by using the strategic environment analysis called SWOT analysis. It is presented below: All these factors relate individually to each of the companies operating in the brewery industry. Strengths shown in the table are their resources and capabilities that are used in order to develop their competitive advantage on the market ( Garbarski et al, 2000 ). There will be always a high demand for beer, and developed technology will be the background for the products improvement and making it more attractive for the customers. This creates a relationship between both, product and its consumer. Strengths prevail over the weaknesses, however they strongly influence the market operations of the companies. High advertising costs are a main financial burden for the smaller and medium players. Moreover, because of the low budget they have to deal with the narrow product line, and thus the weak and slow distribution. However, If the industry considers its opportunities that appear during the analysis of the environment, it may observe some growth and generate more profits. Demographic increase and smaller range of age for drinking alcohol help reach a wider range of customers. However, tax increases, changing customers tastes, or anti-alcohol campaigns may threaten actions taken to improve the financial situation within the industry.
Royal Unibrew Poland’s main goal is to provide high-quality branded products, for its consumers and customers. However, Mrs Beata Pawlowska has extended the mission’s description. Company wants to be recognized and respected in the Polish beer, malt beverages, and soft drinks market, by being competent, strong and innovative expert facing the challenges that appear in the industry. Therefore customers would perceive it as professional and active in brewing. Moreover, it wants to reach its target group by building and selling its own regional brands all over Poland. Simplicity of the strategy and its implementation is the foundation of Royal Unibrew Poland’s mission as well. Company’s mission for year 2010 is based on the Asnoff Matrix
Vision is an incremental part of the company’s existence on the market. However, many managers and entrepreneurs know that they cannot predict the future, and therefore follow the path that is created by opportunities and past of their firms ( OblA³j, 2007 ). But there are companies where managers were capable to create visions that let them become successful, and Royal Unibrew is one of them. Its management board creates the company’s vision together with the increasing profitability. Its main goal is to become a number one company among the regional breweries, and one of the three most profitable companies in the brewery industry in Poland. Moreover, the company’s growth vision is based on the Ansoff’s Matrix: It wants to penetrate the beer market, where it currently operates, with its existing products. Lomza, Strzelec and Brok are its main assets, and increasing their sales by investing more in different forms of aggressive promotions and campaigns. They will help increase the market share of Royal Unibrew Poland in the future, and thus stimulate better the beer consumption among its current and potential customers. Also it will focus more deeply its competition, and by well deigned price strategy try to make the beer market unattractive for it.
Wraz ze zwiekszajaca sie rentownoscia zamierzamy umocnic swoja pozycje jako jeden z czolowych dostawcA³w napojA³w w Europie PA³lnocnej. Poza tym rejonem rozwiniemy rentowne rynki eksportowe.
With increasing profitability we will strengthen our position as a leading provider of beverages in Northern Europe, Italy, and in our markets for malt beverages. Outside these areas we will develop selected profitable export markets.
Strategic goals are the milestones on the way to the implementation of the strategy. After change of CEO in 2009, Royal Unibrew Poland decided to follow the strategy already set in the past, and still invests in the regional brands. Lomza brand is available in these places where the company has its organised distribution. Although outdoor in Warsaw and TV campaigns are held outside of the beers region of origin, it still uses a slogan which is exploited in Lomza. Company strongly believes in the power of the regional brands favoured by their consumers, because they have potential and different tastes, and therefore had to be introduced outside of their regions. Lomza beer is a main brand and hallmark of Royal Unibrew Poland. It is distributed all over Poland, and is available in many commercial networks. What’s more, strategy of developing the regional favourite brands ” records ” them in the consumers awareness, who then decide to choose this brand, and not the other one. Lomza and Strzelec have been awarded for their taste and quality in the multiple international contests ( ” Superior Taste Award ” in Brussels, or Australian ” International Beer Awards ” ). Company found out that it is worth to let people from the other regions taste beers from the different parts of Poland, and thus decided to keep to already set strategy.
Royal Unibrew Poland’s portfolio consists of five brands:
Light beer with the 5,7% of the pure alcohol. It’s elegant packaging attracts the consumers attention, and its content fulfils their needs. This product is offered in three ways: 0,5 l bottle that can be returned to the shop, 0,5 l bottle that cannot be returned, and 0,5 l canned beer.
Light beer with the 6% of the pure alcohol. It has a long tradition and is popular among consumers in the North-Eastern Poland. Beer tasting is accompanied by experts positive reviews, and different contests successes. It is offered in 0,5 l and 0,33 l bottle, and 0, 5 l canned beer
Strong light beer with the 7% of the pure alcohol. It is offered in the 0,33 l bottle, and 0,5 l canned beer.
There are two types of this beer:
Beer with the tradition going back to medieval times. Contains 5,2% of pure alcohol. It is offered in 0,5 l bottle, and 0,5 l canned beer
Beer of a delicate taste and strong bitterness. Contains 7% of the pure alcohol. It is packaged in 0,5 l canned beer, and 0,5 l and 0,33 l bottles
One of the most important beers in Silesia, North-Western Poland. It contains 6,2 % of the pure alcohol, and is offered in 50 cl bottle and 500ml canned beer. Strong bitterness, and delicate smell
First refreshing beer of a fruit taste: lemon, and apple. It contains 4% of the pure alcohol, and it is packaged in the 0,5 l bottle and 0,5 l canned beer.
Strong bitterness beer and 10% of a pure alcohol. It is offered in a 0,5 l bottles and 0,5 l canned beers. Tastes and smells like a spirit, but still has a large group of loyal consumers
Year 2009 was hard for Royal Unibrew Poland, because increase of the excise tax had influenced the increase in prices of resources and materials. Therefore the beer production costs were much higher. Price of the malt, the main resource of the beer production has increased by almost 130%. Prices of the hop and barley increased as well. Company had to pay extra for the resources of the packaging, such as aluminium, which were 60% more expensive than in 2007. However, it cannot lower the quality of substrates, because then it would lower the quality of the product. Moreover, in the times of crisis beer is treated as a luxury good, and thus Royal Unibrew Poland can’t increase the prices of its products. For now they are as follows:
Place, (or distribution ), is the means that helps the company reach the customers of its focus. Royal Unibrew Poland reaches its target group through different channels of distribution. Polish distribution and production standards are less optimized than those valid in Denmark. It seems to be the consequence of some acquisitions conducted abroad as well as the lack of time to prepare and carry out the proper strategy. The company has decided recently to quit production in one of the cities, Koszalin, and concentrate its efforts in two other sites. Marketing actions are focused in Warsaw branch. These moves were the result of not entirely satisfying results Royal Unibrew achieved in Poland. There are still some places in Poland, which Royal Unibrew Poland has not reached yet, and thus it wants to develop its distribution all over country. Cities in the western part of Poland, such as Poznan and Szczecin, are the directions in which Royal Unibrew wants to go. Brewery companies in Poland sell their products through the traditional trade channels and on-trade channels, and therefore distribution network will still be based on cooperation with the local distributors and wholesalers. Majority of the wholesale firms have been operating on the polish market for many years, and have built a strong relationships with their customers. Cooperation with the wholesalers is more effective than organizing your own distribution centres with facilities of direct sellers.
Royal Unibrew Poland takes care of its business partners, customers and consumers. Company cooperates with the trading partners such as wholesalers and their representatives. It provides them with the information materials and promotional tools in order to help expose its products at the selling points, and with the rotation of its products. Royal Unibrew Poland organizes some contests with prizes for its trading partners. Advertising campaigns are the main distribution channel to communicate with the customer, and therefore company supports its main brands with the active advertising campaigns and promotional activities at the points of sale.
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