Choice of mode of entry
Chinese spirit market by PESTLE analysis is shown as a huge market with strong local and foreign competitors; with unfamiliar preferences for Bacardi limited therefore joint venture (JV) has advantages over acquisition. Even a main disadvantage of forming a JV is that partner shares the profits of the business, but the downside of acquisition method is worse than that since not only a significant capitalisation cost is inevitable, but it also requires Bacardi’s own efforts to build up a complex Chinese market knowledge and supply chain system which will be a very time consuming process and the chance of ending up failure is likely to occur. JV permits firms to share entering market’s costs and risks, allows rapid access to local know-how, and gives managers the flexibility to respond more quickly to dynamic global competition, also allows firms to take advantage of the Chinese partner’s local knowledge, to use distribution channels (Gupta, 2004).
JV undoubtedly keeps the speed of entry to high level which is very important, as Bacardi is losing its leading position every year among competitors (Euromonitor, 2009a). To sum up, a greenfield strategy is not preferred to Bacardi limited and for the reason that Bacardi currently does not have baijiu product in its portfolio, licensing also is not available as a mode of entry.
Due to the fact that more than 18,000 baijiu producers are existing in China (Yang, 2009), the largest company should best suit with the scale of Bacardi company. Joining forces with strongest Chinese partner will not only be beneficial for the company to sell directly to every region of Chinese domestic market by the used of its superior existing distribution network and relationship with local retailer. It also enables Bacardi to perceive quickly the implications of promoting, marketing and to understand Chinese culture and habits in each particular region. Moreover, Bacardi will get know-how of the process to produce premium baijiu product, hence extend its portfolio further in the area of spirits in which perfectly match with the company’s main focus.
Tables on Company Shares of Spirits by National Brand Owner 2003-2007 and Company Shares of Spirits by Global Brand Owner 2003-2007 in Chinese spirit market (Appendix C) show Sichuan Yibin Wuliangye Company Limited is the leading company in spirits in China, with 2 % of volume sales in 2007 (Euromonitor, 2009e) and with 1.8% Company Shares of Spirits by National Brand Owner 2007. The company supplies the local market from in country, with almost all products of Wuliangye Group Co Ltd being produced in Yibin, Sichuan.
After all analyses and considering assessed characteristics, the decision was made that the best method to enter to Chinese market for Bacardi Company is to distributing its brands with baijiu product through joint venture (JV) agreement with Wuliangye Yibin Company Limited while Bacardi possess the controlling stake. As Wuliangye Yibin Company’s brand is well-known in China, Bacardi’s brand is more famous as an international brand, which appears as the third place in the world’s most powerful spirits & wine brands 2008 report (Intangible business, 2009), the second place as The Strongest Brand by Brand Score and as The Most Powerful Brand by Share of Market. Therefore it is recommended to use the existing brand for this premium baijiu product and every product later on in this JV. Doing this is not only reflecting the primary objective why Bacardi make an investment in China but also it helps strengthen Bacardi brand awareness in the Chinese customer mind. In this way, all other products from Bacardi will also receive the benefit from this effort.
While Bacardi concentrates on selling premium baijiu product with its JV partner, it can acquire knowledge about the Chinese market and adjust their marketing campaign accordingly, which will help them to optimally penetrate the market and gain dominance for their product portfolio.
After adjusting to the Chinese spirit market with premium Baijiu, it is suggested to use China as the base of production for expanding into Asian-Pacific region. Subsequently to increase production of alcoholic products, thereafter it is recommended to change the mode of entry by either increasing a share in the JV or acquire controlling stake in Yibin wuliangye distillery company.
This report introduces Bacardi’s current situation in the world market through the Porter’s five forces analysis. Analysis is done to find a suitable entry country and a strategy to overcome its growth stagnation. After intense study of the prospected target, it was decided to enter the Chinese market which has the largest market size and good growth rate in the spirits industry. To add up, China is considered as a gateway to Asian-Pacific market, which is strategically important for Bacardi limited. Understanding Chinese market is also crucial before taking any actions, so PESTLE has been used. Since China is an enormous country, SWOT analysis was done to find an apt region to start business.
Premium baijiu spirit was chosen as a most attractive product according to the framework of choice of product. The recommendation on conducting JV with Chinese domestic company – Yibin wuliangye distillery was done based on the PESTLE analysis and trends in Chinese spirit market.
The controlling share of the JV with a Chinese domestic company will give an opportunity for Bacardi to penetrate the Asian market.
Two main limitations need to be addressed here,
* firstly relating to the type and range of data used here, which is secondary data. It is advisable that Bacardi should perform more research into marketing with updated information from both primary and secondary data;
* taking into account both risk management and other uncertainty factors, which many of them are not covered in this report, and could have significant impact in reality to a business;
* in depth financial aspects, the critical part for the real-world investment, as well as competitors’ strategies were not included in this report. Retaliation from competitors against any movement in the market which have ignored in this report, should be considered in reality. All in all, intensive feasibility study with the latest information is suggested before Bacardi makes any decision.
The second limitation is related to its JV partner. The question to be answered is that whether Wuliangye yibin Company interested in doing JV with Bacardi. It depends on many uncontrollable factors for example the current situation in the market, financial term of the company or the decision from CEO. Even if they agree to do JV, the negotiation process will need to be focused to ensure it meets both Bacardi’s and Wuliangye yibin’s expectations. If Wuliangye yibin is not interested in this deal, Bacardi might have to consider the other Chinese local company instead.