With regards to answering which country within the BRIC should Bacardi invest in, the data of products in Bacardi’s portfolio will analyzed (Appendix A). After consideration, we cerebrate that Chinese market looks the most promising for investment as it has the largest market size and its predicted growth rate is around 24.8% from 2008-2013 which makes its volume growth two times the size of India, which comes in second (Dash, 2007).
To further examine the business environment and the market for spirits in China, PESTLE analysis is done:
The China’s accession to WTO brought about many changes to the business environment. It is considering drafting a flat tax rate of 25-28%, regardless of the company being foreign or domestic. China is considering reducing taxation on its middle class to improve consumption. Recent success of Chinese IZ policy and incentives has resulted in massive inflows of FDI (China-Britain Business Council, 2009a).
* Growing annually at 10% Chinese economy is the second largest worldwide. Typically, Chinese expenditure is 20-30% lower than India and immune to pay inflation and worker turnover (Devott, 2009).
* Expected growth of 5% between 2008 and 2013 (Euromonitor, 2009b).
* Disposable income is rising in the middle income group, though this doesn’t hide the underlying income inequality.
* China employs a progressive tax system which advances with income from 5 to 45%. Accounting for 12% of global spending, Chinese elite still allow themselves to splurge on luxury items (Euromonitor, 2009c).
* Buying of premium spirits will continue increasing during the forecast period, with champagne, scotch and cognacs in high requirements.
* Prices increased significantly up to 9% mostly due to companies increasing their product pricing (Euromonitor, 2009c).
* 250 million Chinese middle class is increasing becoming brand aware (UK trend & Investment, 2007).
* Increasingly, consumers are paying attention to the health awareness. Hence drinks with low calorie and alcohol content are the main selling point.
* Demographically being the largest market in the world with 1.3 billion consumers (China access, 2009).
* The increase in pubs and bars contributes to the popularity of foreign alcoholic drinks like cognac, whisky and rum (Euromonitor, 2009d).
* Chinese consumer prefers gifting premium brands of both Chinese as well as foreign alcohol as ideal gifts for family and friends, with an aim to highlight their generosity and economic status (Euromonitor, 2009b).
* Rapid urbanisation has led to major improvements in transportation infrastructure (UK trend & Investment, 2007)
* Regulations are imposed on alcoholic drinks advertisements on televisions and radios (Euromonitor, 2009d).
There are many legal requirements in starting an enterprise in China, primarily obtaining an authorized business licence. After that there are nine more government bodies with which the company must register. Various locations have differing policies. It usually takes around 3-12 months to set up business in China (China-Britain Business Council, 2009b).
Though there is no legislation enforcing the legal drinking age, alcoholic drinks are not allowed to be sold to individuals below the age18.
Taxation and Duty Levies on Alcoholic Drinks: alcoholic drinks and alcohol white spirits made from cereal – 25%, white spirits made from potatoes – 15%, yellow spirits – 240 yuan per tonne, beer – 220 yuan per tonne, other alcoholic drinks – 10%, alcohol – 5%.
For television advertising, no more than two advertisements for alcoholic drinks are allowed on any channel between 19.00hrs and 21.00hrs, and no more than 10 are permitted per day. Also, TV channels may not show than two advertisements for alcoholic drinks in an hour. (Euromonitor, 2009d).
Chinese government is focusing on attracting FDI in environmental sector, with emphasis on pollution control and water resources management (UK trend & Investment. 2007).
However, main risks and uncertainty factors in Chinese alcohol market also should not be ignored, even market looks attractive: economic crisis, which has a greater impact on high-end products, in our case, our premium spirits brands; natural disasters (earthquakes and flood) might damage manufacture sites.
Choice of product
Before entering into Chinese market it is crucially important to recognize which product or line of products should be produced. Framework for choice of products was prepared based on secondary information from Euromonitor (2009a,2009b, 2009d).
According to a framework for choice of products (Gupta, 2004), after considering the required degree of local adaptation and the expected payoffs in the Chinese spirit market the most attractive product for internationalization in China is a baijiu, a “white liquor”, which is the most popular local spirit in China and the world’s best selling spirit by volume.
Choice of location
The difficulties for foreign producers looking to enter the market are presented by a vast size and scope of Chinese market. For analyzing all regions SWOT analysis was done for Bacardi (Leu, 2007):
The entry process from analysis on regions in China (SWOT analysis) shows that Southwest and Central regions are the most appropriate location to start business: high demand on baijiu drinks, local spirits preferences, good transportation networks and low efforts of threats compared to other regions.