Table of Contents

1. INTRODUCTION.................................................................................................................1
2. COMPANY BACKGROUND...............................................................................................1
3. EXTERNAL ENVIRONMENT ANALYSIS.......................................................................2
3.1. GENERAL ENVIRONMENT.................................................................................................2
3.1.1. Political/Legal segment............................................................................................2
3.1.2. Economic Segment....................................................................................................3
3.1.3. Socio-cultural Segment.............................................................................................3
3.1.4. Technological Segment.............................................................................................4
3.1.5. Environmental Segment............................................................................................4
3.2. INDUSTRY ENVIRONMENT.................................................................................................5
3.2.1. Bargaining power of suppliers..................................................................................5
3.2.2. Bargaining power of buyers......................................................................................5
3.2.3. Threats of new entrants.............................................................................................6
3.2.4. Threats of substitutes................................................................................................6
3.2.5. Industry rivalry.........................................................................................................6
3.3. COMPETITOR ENVIRONMENT............................................................................................6
3.3.1. InBev and Anheuser-Busch.......................................................................................7
3.3.2. SABMiller.................................................................................................................7
3.3.3. Heineken...................................................................................................................7
4. INTERNAL ENVIRONMENT ANALYSIS........................................................................7
4.1. RESOURCES......................................................................................................................8
4.2. CAPABILITIES....................................................................................................................8
4.3. CORE COMPETENCIES & COMPETITIVE ADVANTAGE.........................................................8
5. SWOT ANALYSIS................................................................................................................9
5.1. STRENGTHS.......................................................................................................................9
5.2. WEAKNESSES....................................................................................................................9
5.3. OPPORTUNITIES...............................................................................................................10
5.4. THREATS.........................................................................................................................10
6. BUSINESS LEVEL STRATEGY.......................................................................................10
7. COMPETITIVE DYNAMICS............................................................................................11
7.1. COMPETITOR ANALYSIS..................................................................................................11
7.1.1. Market commonality...............................................................................................11
7.1.2. Resource similarity.................................................................................................11
7.2. COMPETITIVE DYNAMICS................................................................................................11
8. CORPORATE LEVEL STRATEGY.................................................................................12
9. ACQUISITION AND RESTRUCTURING STRATEGIES.............................................12
10. INTERNATIONAL STRATEGY.....................................................................................13
10.1. INTERNATIONAL CORPORATE-LEVEL STRATEGY & ENTRY............................................13
10.2. INTERNATIONAL RISK....................................................................................................14
11. FINDINGS.........................................................................................................................14
12. RECOMMENDATIONS...................................................................................................14
13. IMPLEMENTATION........................................................................................................15
14. CONCLUSION..................................................................................................................16
BIBLIOGRAPHY.......................................................................................................................17
 1. Introduction

Among all alcoholic beverages, beer is consumed the most around the world. The
brewing and production of beer remained locally based and privately owned up until the
late mid- to late-nineteenth century [Cab16]. National brands, let alone global ones,
barely existed. The evolution began in the twentieth century and the beer industry quickly
turned into a global behemoth. Brands became national prides and even reached out to
foreign markets. A few names started standing out in the global beer scene and Carlsberg
was one of them. Started in Denmark and then capturing the Western Europe's heart, the
brewery worked its way to the growing Russian market and the emerging Chinese market
in spite of the challenging paths.

The objective of this paper is to examine different aspects of Carlsberg's strategies global-
wide and its experiences in emerging markets, especially in the early of the twenty-first
century. We aim to:
 Analyze the external and internal environments of Carlsberg
 Assess strengths, weaknesses, threats and opportunities that were presented
 Summarize different strategies utilized by Carlsberg
 Recommend a strategic plan for Carlsberg's future operations

2. Company Background
Claiming the fifth spot on the list of largest brewing companies in the world, the success
story of Carlsberg A/S goes way back to the 19th century. In 1847, the company was
founded by J.C. Jacobsen in Copenhagen, Denmark. In 1969, Carlsberg opened the doors
of its first foreign brewery in Malawi. Since then, the company has been growing and
continuously branching out to other markets. By 2007, the company had successfully
owned 75 breweries around the world and made its presence in more than 150 countries
[Han11].

Carlsberg's vision was to "be consumer's first choice, and [...] lead the industry in
profitability and growth through a culture of quality, innovation and continuous
improvement" [Han11]. With over centuries of success, the company proudly saw itself
as "probably the best beer company in the world."

Carlsberg focused its operations in the mature beer markets of Western Europe, the fast
growing markets of Eastern Europe and the emerging markets of Asia.

Some key milestones of Carlsberg include:

1847: The Carlsberg brewery was founded.
1868: Carlsberg export began.
1875: J.C. Jacobsen founded the Carlsberg Laboratory to study the malting, brewing and
fermenting process.

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1876: The Carlsberg Foundation was established to manage the Carlsberg Laboratory and
to support Danish scientific research.
1889: Carlsberg started export to Asia.
1904: Carlsberg's famous pilsner was brewed for the first time.
1969: Carlsberg built its first owned brewery outside Denmark in Malawi.
1970: Carlsberg and Tuborg merged and became the world's leading exporter of beer.
2000: Carlsberg merged with Norwegian Orkla ASA, resulting in the creation of
Carlsberg Breweries.
2008: Carlsberg Group, together with Heineken, bough the British brewer, Scottish &
Newcastle.
[Carnd]

3. External Environment Analysis

1. General Environment
Performing a PESTEL analysis allows us to gain an insight into the general environment
that is comprised of segments that are external to Carlsberg. In this analysis, we look at
the most important external factors and how they affected the company's strategy.
1. Political/Legal segment
The most critical legal areas affecting Carlsberg and the beer industry in general were the
legal drinking age in different countries, liquor sale regulations (hours, contents, places)
and other liquor-related laws.

The minimum legal drinking age in majority of the countries that Carlsberg operated in,
including Russia and China, was 18. However, this age could be significantly higher or
lower in the remaining countries, for example Denmark at 16 and some states of India at
21, 25 or even illegal [Pro16]. In addition, the enforcement of legal drinking ages also
varied widely between countries and often within countries. The enforcement tended to
be stricter in the Western countries; meanwhile, the laws were often violated and ignored
in Asia.

Liquor sales were also regulated differently in each country and even in each state of a
country. In some states, the sales of liquor including beer were banned completely while
in others, there were policies restricting hours of alcohol sales and services.

Some countries might even establish regulations and restrictions on liquor advertising.
For example, in Russia, advertising alcohol products was banned from almost all media,
including television and billboards [Whe04]. Meanwhile, in Sweden, advertisements
were legal for wine and beer, but not on television and radio [Wiknd]. China also allowed
advertising for alcohol but did have some restrictions regarding advertising contents
[Jia17].

Regarding the political aspect, corruption could pose a tremendous threat to Carlsberg’s
performance in different countries. Corruption was considered a strong constraint on
growth and development, consequently affecting the attractive of a country to foreign

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investors. Over the year, corruption was consistently high in Eastern Europe and Asia,
where Carlsberg was directing its focus on. Meanwhile, Western Europe and North
America remained relatively clear[Tra09].

The wide variance in laws, regulations and political conditions meant that Carlsberg had
to adjust its strategy, more specifically its target market and marketing plan, for each
country accordingly in order to be able to operate and gain success in such market.
2. Economic Segment
Carlsberg had its operations across the global and thus was affected by many countries'
economy conditions.

Western Europe, Carlsberg's first and largest market, was seen as one of the richest
regions of the world and the "hub" of European economies. These economies were
relatively stable and very industrially developed, ensuring favourable economic
environments for the Danish brewery. Carlsberg's operations in most of Western Europe
were also not affected much by the currency exchange rate fluctuations as the Danish
krone was more or less fixed against the Euro, the dominant currency of Western Europe.

Eastern Europe's economies were also catching up with the Western neighbors and
offering very promising business environments for Carlsberg with generally low interest
rates and inflation rates. However, there was a wider variety of currencies used in this
region, implying higher risk of currency exchange rate fluctuations. Russian Ruble, in
particular, had been experiencing quite a lot of fluctuations in value over the years
compared to Danish Krone [Excnd]. As Carlsberg was shifting its focus on the Russian
market, the continuous fluctuation in Russian Ruble value might hurt the total profit
earned from this market when being converted to Danish Krone.

Meanwhile, China's economy was growing fast, coupling with a rising disposable income
level and living standard. The development in the Chinese inflation rate had been more or
less stable since 1999, only fluctuating from around -2 to 9 percent [Trand]. This is
compared to drastically fluctuating period from 1986 to 1999, where the inflation rate
reached as high as 28.4 percent in 1989. In addition, raw material and labor were
relatively cheap in China compared to Europe or America. All economic factors seemed
to be advantageous for Carlsberg’s expanding operation in this country.
3. Socio-cultural Segment
In addition to different economies, Carlsberg's business was also impacted significantly
by different attitudes, shared beliefs and cultural values of the countries it operated in.
The other factors to consider under this section included different characteristics of a
population such as population growth, age distribution, and health consciousness.

Western Europe had an aging population. This shift from a large generation of young
people to a large proportion of older people meant significant changes in the consumption
behaviour. Older generations were more likely to drink wine or premium alcoholic
beverages rather than cheap or mainstream drinks. The consumption pattern change
would affect Carlsberg's sales as well as the product portfolio in this region.

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Meanwhile in emerging markets such as Russia and China, the populations were
relatively younger than the one in Western Europe. However, in term of cultures and
religions, these emerging markets were significantly more diverse than the Western
European market. There were cultures and religions that forbid the consumption of
alcoholic beverages, including beer. This meant Carlsberg had to be extra cautious with
its promotions and strategies in these regions.

The growing number of health-conscious consumers around the world also directly
affected Carlsberg's strategy. Consumers were more aware of beer drinking related health
problems and increasingly concerned with healthy eating and exercising in general.
Carlsberg should not ignore this trend; otherwise, it would lose a significant portion of its
market share to other competitors who were able to catch on the trend. In fact, Carlsberg
had made its move to approach health-conscious consumers by introducing several kinds
of light beer, both in types of a lower alcohol level and beer with fewer calories but with
the same level of alcohol as regular beer. The company planned to continue expanding its
product portfolio to corner the lucrative health-conscious alcoholic market.
4. Technological Segment
Brewing companies relied heavily on technology to develop and refine distribution
channels. A brew was only as good as its process, and that included the methods used to
cultivate and harvest ingredients. A better process meant potential cost reductions. Many
brands had been looking into using information technology (IT) to speed up the
production process with as few mistakes as possible. National brewery brands that made
and distributed their beers internationally would need IT systems to accurately produce
their products around the world.

With the operations scattering all over the world and the lightning-speed evolution of
technology, Carlsberg was undoubtedly in need of various IT tools and other technologies
to be able to keep up with its competitors. Indeed, the company had been showing
continuous innovations in different areas such as products, packaging and dispensing
equipment. Carlsberg also opened a research laboratory to develop new brewing science
technology during industrialization to ensure a high quality final product. Several
discoveries had been made such as the purification of yeast, the role of enzymes and the
pH scale, making it possible for the Danish brewery to brew beer at high and consistent
level [Carnd1]. Carlsberg also had its Supply Chain system to manage the worldwide
brewery network.
5. Environmental Segment
Companies were redirecting their business practices toward a more sustainable and
environmental-friendly direction in response to various negative environmental
disruptions caused by human. In many countries, governments and involved
organizations tried to push forward environment-related initiatives such as waste
recycling, water conservation and treatment, and energy management. The sustainability
movement also received a lot of attention and support from consumers, making it more
important for firms to direct its attention on this issue.

4
As a global player, Carlsberg would not be able to ignore this movement; otherwise, the
company would experience huge backlash from the public. On the other hand, Carlsberg's
productions replied heavily on agricultural products, which were usually affected by the
environmental conditions.

In fact, Carlsberg was very active on the environmental front. The company had a
recycling system for all of their bottles and cans in the Nordic countries. In the home
country, the Danish brewery was the major shareholder of the company that created the
recycling system for the supermarkets. Carlsberg also published environmental reports
very frequently to update on their efforts of creating a sustainable environment.

2. Industry Environment
A Porter's 5 forces analysis is completed to examine the extent of influence of five
different forces on Carlsberg.
1. Bargaining power of suppliers (low-medium)
The production of beer requires several key ingredients namely water, barley, hops and
yeast. They were acquired from outside suppliers and thus, a subject of concern for
Carlsberg in connection with the bargaining of suppliers. It is reasonable to assume that
these raw ingredients were usually available in abundant quantities and could be
purchased from several suppliers in most of the countries that Carlsberg had its operation
in. Prices of these materials would mostly be controlled by the market's supply and
demand. Besides, Carlsberg likely purchased all of these inputs in large quantities. All of
these factors make the bargaining power of this supplier category relatively low.

Another main supplier category is packaging suppliers (bottles, cans, steel kegs...). There
would be fewer suppliers in this category compared to the previous category because of
significant capital investment, required facilities and many other factors. This meant their
bargaining power would be medium, higher than one of raw material suppliers. Even if
there were always several choices of supplier available for Carlsberg to switch, the
switching cost would be significant. The selection process would not be easy either since
new potential suppliers needed to have large capacity production systems, meet
Carlsberg's packaging requirements and be able to ensure reliability in their delivery.
2. Bargaining power of buyers (low-medium)
Carlsberg's direct buyers would be supermarkets, bars and restaurants. It would be very
unlikely for individual consumers to purchase directly from the company.

The bargaining power of buyers would vary from low to medium, depending on the
popularity and demand of Carlsberg's products in the regions and countries. For example,
buyers in Denmark would not have much bargaining power since Carlsberg dominated
the beer market, leading to high demands for its products. Similarly, in Russia, Carlsberg
had in hand the best-selling beer of this market - Baltika. That meant the buyers of this
product would not have much say and influence. However, in China, Carlsberg was still
not as widely known as in Europe. The company faced intense competitions with other

5
international breweries and cheap local brands. As a result, some bargaining power was
shifted from Carlsberg to buyers.
3. Threats of new entrants (low)
The entry barriers would be considered relatively high in the beer industry since it
required significant capital commitment to get started in this business. Companies would
have to invest heavily in plants, facilities, equipment and technology from the get go but
it might take years to regain and be profitable. New entrants would also face difficulties
in penetrating the distribution networks, which were dominated and influenced by the big
players in the industry such as Carlsberg or Heineken. Another barrier in the beer industry
was economies of scales. Economies of scales were critical and often exploited in all
aspects of beer producers’ value chain, with the biggest difference mainly in production
and distribution. Achieving economies of scale would take a long time for any new
players and may even be impossible. Last but not least, the constant acquisitions and
mergers happening in the global beer industry made it even overall hard for new entrants
to survive. Overall, threat of new entrants would be relatively low in the beer industry.
4. Threats of substitutes (medium-high)
Substitute products in this industry would be other alcoholic beverages such as wine. In
the recent years, more and more types of alcoholic beverages were introduced to the
market. The variety of each type also increased remarkably. Besides, the switching costs
were very minimal. As a result, the threats of substitutes were quite high in this industry.
That being said, a certain portion of consumers might be very particular when it came to
the taste of alcoholic beverages. Beer consumers' preference reduced the threats of
substitutes slightly, putting it in medium to high range.
5. Industry rivalry (medium-high)
The beer industry rivalry, though varied geographically, was generally on a higher end.
The big players such as Anheuser-Busch, Inbev, SabMiller, Heineken and Carlsberg itself
dominated the global industry and were present in very similar markets. Once a player
entered a new market, the other big players would follow to not fall behind the game. In
China and Russia, the markets were still growing, leaving room for all players to expand
and thus made the rivalry slightly less intense. However, the Western European market
was at the mature stage, if not declining. This meant the competition was intense for
Carlsberg in this region, especially when it remained as the main market of the company.

3. Competitor Environment
The final part of the external environment requiring study is the competitor environment.
The competitor analysis focuses on the companies that Carlsberg competed directly,
which were Inbev, Anheuser-Busch, Heineken and SABMiller. Strategies, capabilities,
competitive advantage and market shares of each company are explored to help Carlsberg
prepare an anticipated response profile for each competitor.
1. InBev and Anheuser-Busch
By 2007, InBev was the largest brewery in the world with the sale volume more than
double of Carlsberg’s figure; meanwhile, Anheuser-Busch was the third worldwide with
slightly higher volume than Carlsberg[Cab16]. In 2008, InBev acquired Anheuser-Busch

6
to form AB InBev, once again reinforcing its top spot in the global beer industry [Ble08].
The industry leader held more than 20% of the global market share [Katnd]. A significant
portion of AB Inbev came from Americas.

Growing its global brands was one of the most four goals of AB Inbev, in addition to
premiumizing and invigorating beer, elevating its core and developing the near beer
segment [ABI16]. A distinctly strong M&A integration ability had contributed
significantly to the success of the company. Other core competencies of AB Inbev
included standardization and cost-efficiency.
2. SABMiller
SABMiller was the second largest brewer in the world, with sales and distribution across
six different continents. Founded in South Africa, SABMiller’s sales came mostly from
Africa, with other notable portions from Europe, Australia and North of Latin America.
The company held approximately 10% of the global beer market share [Katnd].

The African culture had shaped the strategic development of the company. The core
competencies of SABMiller were its know-how in operating and restructuring in
developing countries. The brewery kept its strategy flexible and responsive to its markets,
majority of which were unstable both economically and politically
3. Heineken
Heineken claimed the fourth spot on the world’s largest breweries list, right above
Carlsberg. Generating majority of its sales from Western Europe, the Dutch brewery was
considered the most direct competitor of Carlsberg [Cab16].

Similarly other big players in the global beer industry, Heineken pursued a differentiation
with cost leadership strategy. With its size and scale grown through acquisitions, the
company was able to achieve economies of scale and gained high bargaining power with
both suppliers and buyers. Simultaneously, the brewery also tried to diversify its product
portfolio as much as possible to accommodate beer consumers around the world. It is
noteworthy that Heineken was generally perceived to have higher quality products
compared to other big players in the industry.

4. Internal Environment Analysis

A firm's environment is as important as its external environment since the internal factors
affect directly the competitiveness of the firm. In this section, we thoroughly analyze
different elements of Carlsberg's internal environment in order to see how the Danish
brewery differentiated itself from the crowd.

1. Resources
An internal environment analysis starts with the resource element. Every company needs
some kind of resources to start, either tangible or intangible. In case of Carlsberg, it
possessed both types of resource.

7
Carlsberg's tangible resources included its production equipment, manufacturing facilities
and distribution channels across the globe. The active merger and acquisition strategy had
been continuously enlarged the company's tangible resources. Carlsberg Research
Laboratory in Copenhagen was another notable tangible resource that contributed
significantly to the company's success.

Carlsberg also owned a remarkable amount of intangible resources. Being in the beer
industry since 1847, the Danish brewery had acquired a substantial know-how of the beer
production processes and the industry in general. In addition, as a well-established
manufacturing company, Carlsberg had certainly established numerous valuable
connections and relationships without other companies inside and outside of the beer
industry. Secret recipes and patents were also parts of the company's intangible resources.
Last but not least, the company's brand and reputation built over the years were extremely
important intangible resources that assisted the company in the worldwide conquest.

2. Capabilities
Different resources are combined together to create capabilities, which are the foundation
of a firm's core competencies.

Carlsberg's main capabilities definitely lay in its manufacturing area. The company
operated advanced manufacturing facilities around the world that were capable of
producing high-quality products and meeting high-volume demand. Research and
development (R&D) area provided other valuable capabilities for Carlsberg. Its own
research laboratory had been continuously developing new scientific basis for malting,
brewing and fermenting operations, which eventually led to new products and processes.
This innovative capability was particularly critical to Carlsberg’s survival in the
stagnating Western European market.

3. Core competencies & Competitive Advantage

Core competencies are capabilities that serve as a source of competitive advantage for a
firm over its rival. In order to identify core competencies, firms assess their capabilities
based on four specific criteria of sustainable competitive advantage, which are valuable,
rare, costly to imitate and nonsubstitutable.

Assessing all of Carlsberg's capabilities, it is clear that the R&D capabilities were its core
competencies. The strong R&D roots allowed Carlsberg to pursue many of its strategic
priorities, for example the brewery's ambition to grow its beer portfolio and further
develop its business in selected big cities around the world. In term of other criteria of
sustainable competitive advantage, R&D capabilities were definitely costly to imitate.
This area required significant resources and capital investments, which led to them being
rare among competitors. It is likely that only big players in the industry possessed this
kind of capabilities. Last but not least, Carlsberg's innovative capabilities produced both
tangible and intangible resources for the company, making it nonsubstitutable and
strategically valuable.

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 5. SWOT Analysis
Given the internal and external factors in connection with Carlsberg analyzed above, a
comprehensive SWOT analysis gives an insight into the strengths and weaknesses present
internally in Carlsberg as well as the opportunities and threats that the company would
face externally. The SWOT analysis emphasizes on Carlsberg's operations in Russia and
China, the two markets that the company wanted to focus in the upcoming years.

1. Strengths
Carlsberg had a strong brand and a durable presence in most of the markets that it
operated. Gaining access to BBH through the Orkla ASA merger was undoubtedly the
foundation of Carlsberg's strengths in the Russian market. Owning 50% of Russia's
brewing market leader allowed Carlsberg to quickly build a strong brand image and brand
awareness in this market. The company even had in hand the best-selling brand of Russia
- Baltika. The acquisition also helped Carlsberg have instant access to Russian
distribution channels. Moreover, with large production volumes, the company was able to
achieve economies of scale, leading to cost efficiency. Similarly, the strengths of
Carlsberg in China lay in its achievement of leadership in Western China. Reaping first-
mover advantages, the company successfully created its market presence in this highly
fragmented market portion of China.

A wide portfolio of beer and other drinks including many local brands is another strength
of Carlsberg. This allowed the Danish brewery to satisfy different customer taste in every
market that it operated in.

2. Weaknesses
In Russia, even though Carlsberg successfully dominated the market, the company still
struggled financially. Several acquisitions and mergers to build the path to the Eastern
Europe markets in general and Russia in particular put the company into severe debt.
Meanwhile, in China, the company could not build its presence in the Southeast, the more
developed region with higher living standards as well as level of beer consumptions. In
addition, due to its assets being tied up in Thailand and its capital being strained from the
lawsuit with Change Beverages, the company in generally was unable to invest in large
production facilities in China.

Carlsberg Foundation was another weakness. The structure made it challenging for
Carlsberg to acquire sufficient capital for big acquisitions and mergers, leading to a need
of restructuring in the later years.

3. Opportunities
There existed many possibilities for Carlsberg to become larger, enter new markets and
grow in their existing ones.

9
Even though Carlsberg had been active in Russia for a while, this market still maintained
its potential and offered various opportunities for the company to grow. After all, Russia
was considered to be one of the fastest-growing beet markets in the world. This market
constantly showed its growth, with beer consumption per capita staying well above the
average in the Scandinavian markets. The hike in taxes on liquor also aided the
continuation of the beer market's positive development.

In China, despite the company's inconsistent presence across the regions, there were a
number of potential directions for Carlsberg's Chinese operation. Living standards and
beer consumption in the Western Chinese market were expected to rise rapidly, which
means Carlsberg could continue to enjoy the benefits of its leadership in this region.
There were also opportunities for the company to expand its product lines since Chinese
consumers had not yet developed loyalty to any particular brands. Last but not least, there
were always chances for Carlsberg to re-enter the Southern regions.

4. Threats
Plentiful opportunities for Carlsberg to exploit in the different markets did come hand-in-
hand with some potential threats for the company. As the Russian market became
increasingly attractive, many more international brewing companies would be eyeing for
the Russian market shares. This would likely lead to more consolidations and increase the
competition for Carlsberg. Besides, the Russian government was contemplating
worrisome taxation proposals for beer, which could seriously hurt the profitability of
Carlsberg's Russian operation.

Meanwhile, the characteristics of the Chinese market and Chinese consumers were the
most significant threats to Carlsberg. High entry barriers and capital intensity in both
production and distribution might make it more challenging for Carlsberg to expand
outside of the Western regions. The low level of brand loyalty among Chinese beer
consumers, though offering some opportunities for Carlsberg, could be a threat since it
might give local competitors with low-priced beer more advantages. And the
consolidation craze in the Southeast might move toward the Western part, threatening
Carlsberg's profitability and its leader position.

6. Business Level Strategy

The basis for customer value and target market is the components that need to be studied
in order to identify the overall business level strategy of Carlsberg. In term of target
market, it is apparent that the company's goal was to sell beers that pleased most people.
Carlsberg seemed to aim more for a popular rank in general, as reflected in its vision of
becoming "the consumer's first choice" [Han11]. The Danish brewery clearly chose to
target the broad market rather than a niche one. Regarding the basis for customer value,
instead of standardized products, the company offered consumers a wide variety of
regional and local brands. It also emphasized on driving its growth through innovation in

10
its vision statement. Thus, it can be well argued that Carlsberg A/S pursued a broad
differentiation strategy.

7. Competitive Dynamics
1. Competitor Analysis
Analyzing market commonality and resources similarity in a competitor analysis are
usually the first steps that a firm takes to be able to predict the extent and nature of its
rivalry with competitors. Thus, we carry out a competitor analysis between Carlsberg and
its four competitors to gain an understanding of how the competitor is played out.
1. Market commonality
Market commonality is concerned with the number of markets with which the firm and a
competitor are jointly involved and the degree of importance of each individual markets
to each.

It is apparent that Carlsberg share a high level of market commonality with all four direct
competitors. The Danish brewery rivaled InBev, Anheuser-Busch, Heineken and
SABMiller in the core beer market as well as the soft drink market. In addition, these
companies competed across multiple geographic markets, namely Western Europe,
Eastern Europe and Asia. All of these common markets, either in term of product or
geography, were critical to the success of Carlsberg and its competitors.
2. Resource similarity
Resource similarity is the extent to which a firm's tangible and intangible resources are
comparable to its competitors in terms of both type and amount.

Beer products are made from the same ingredients and usually only slightly different in
tastes, values and bottles. Thus, it is reasonable to assume that Carlsberg and its
competitors shared similar types of resources. In terms of amount, since Carlsberg’s
competitors such as InBev and SABMiller had twice the amount of sales, we assume that
the resource amounts varied slightly among these five breweries. In general, the resource
similarity shared between Carlsberg and its competitors was relatively high, especially
because they operated in many identical geographic regions.

The high level in both market commonality and resource similarity implies that Carlsberg
and four other breweries were direct and mutually acknowledged competitors.

2. Competitive Dynamics
Competitive dynamics concerns the ongoing actions and responses among all firms
competing within a market for advantageous positions, in this case, the beer market.

Assessing the critical elements, we conclude that the beer market was a standard-cycle
market. Firms' competitive advantages could be partially shielded from imitation.
Imitation was possible but moderately costly and happened not so rapidly. When a
brewery brought a new product to market, its competitors could imitate and introduce

11
something similar. However, producing new beer needed recipes and manufacturing
processes, which required some times to develop.

Since competitive advantages are only partially sustainable, firms in a standard-cycle

market have to continuously upgrade the quality of their capabilities to stay ahead of
competitors. That explains why Carlsberg chose to grow through "a culture of quality,
innovation and continuous improvement." Only by doing so, Carlsberg stayed in the
competition with its larger

8. Corporate Level Strategy

Carlsberg utilized a dominant-business diversification strategy. Even though the company
did branch out to craft & specialty, non-alcoholic beers, soft drinks and water, the core
businesses of Carlsberg A/S remained brewing, marketing and selling traditional beer.
The Danish brewery still generated 70-95% of its total revenue from the beer production
[Car07].

This corporate-level strategy fitted well with Carlsberg's objectives and goals. After all, it
wanted to become "the best beer company in the world". A low level of diversification
allowed Carlsberg to focus its resources on developing specialization and expertise useful
for the beer market and providing superior products to its customers. In addition, the low-
level diversification strategy lessened the challenges in managing a large set of
businesses while the company strived to make its presence in numerous markets around
the world.

9. Acquisition and Restructuring Strategies

In the 2000s, mergers and acquisitions (M&A) were a big part of Carlsberg's strategy.
The company placed a significant portion of its resources on horizontal M&A. The most
notable mergers and acquisitions during this time were the merger with Norwegian Okla
ASA and the acquisition of Scottish & Newcastle. Even though these M&A put Carlsberg
in a debt-burdened financial situation in the beginning, they did pay off and could be
considered successful.

The M&A activities helped Carlsberg achieve several goals. First and foremost, they
allowed Carlsberg to increase its market power and market shares. The company was
losing ground as one of the strongest brands in the world at the beginning of the 2000s.
After several mergers and acquisitions, Carlsberg successfully regained its spot in the top
5 breweries list. The second benefit that the company reaped from the horizontal M&A
was breaking down entry barriers to enter the foreign markets while simultaneously
minimizing the risks associated with entering such markets, especially as a foreign player.
The acquisition of Norwegian Okla ASA, for example, led to the possession of BBH,
which allowed Carlsberg to enter the growing Russian market. The last goal that the
Danish brewer was able to achieve through these successful M&A was to learn and

12
develop new capabilities that were only available in foreign markets such as Russia and
China.

It is apparent that the horizontal M&A strategy aided well Carlsberg's ambition to
become "the best beer company in the world" [Han11]. The wise selection of M&A
candidates that matched with Carlsberg’s core business and served various goals that the
company was aiming at that time was the main contributor to Carlsberg's M&A success.
And since all these activities served Carlsberg's core business of producing beer, there
existed no restructuring initiatives.

However, it is notable that the significant debts incurred during these acquisitions might
put a temporary halt to Carlsberg's M&A activities until the financial situation was
improved.

10. International Strategy

1. International Corporate-level strategy & entry
With operations in multiple countries and a large portfolio of products, Carlsberg was in
need of an international corporate-level strategy. Given that the beer culture could be very
different from one country to the other, Carlsberg chose the transnational strategy. The
company catered to local tastes by offering a wide range of local power brands such as
Ringnes in Norway, Feldschlosschen in Switzerland, Chongqing in China and Baltika in
Russia. The target markets and marketing strategies were also tailored accordingly to
each country's regulations as well as demographic and sociocultural characteristics.
Carlsberg also opened offices in many countries in order to achieve the maximum level
of local responsiveness. That being said, Carlsberg still had several international brands
such as Carlsberg Pilsner, Tuborg, 1664, Grimbergen and Somersby that were distributed
in more than 100 markets with identical tastes, logos and bottle designs throughout the
world. In addition, the company centralized the product development functions such as
research and development. Many other activities were also coordinated in the
headquarters in Denmark. Manufacturing and marketing functions were usually
established in each country Carlsberg operated. The transnational strategy was
undoubtedly the most suitable strategy for Carlsberg, allowing the company to greatly
benefit from centralization and simultaneously achieve desired local responsiveness.

In term of international entry mode, Carlsberg entered many of its foreign market through
mergers and acquisitions. In countries where Carlsberg did not have breweries, it sold its
products through exports and licensing agreements.

2. International risk
Despite many successful international market entries, Carlsberg would always face
certain international risks, namely political and economic ones. Political conditions of
many foreign countries that Carlsberg entered such as Russia and other Eastern European
countries were relatively unstable. That meant the probability of disruption of the
operations by political forces or events was high and required Carlsberg's close attention

13
and monitoring. Economic risks were also significant concerns of the Danish brewery
since the economic conditions of Carlsberg's foreign markets varied widely. The
differences and fluctuations in the value of currencies were among the foremost
economic risks. Or as Carlsberg was eyeing several emerging economies such as China,
the availability of important infrastructure could also become a concern. International risk
mitigation and management strategies were essential for Carlsberg to maintain its success
in international markets.

11. Findings
The brewing industry went through several transformations in the mid-2000s, including
changes in consumer taste as well as the competitive landscape. The competition became
fiercer for all industry players. The consolidation wave spread worldwide, allowing the
major players to grow even bigger and hold more power in their hands. Western Europe,
the original beer market, was slowing down while Eastern Europe and Asia showed great
potential.

Carlsberg was fully aware of the industry transformation and the competition. The
company's activities were centered on markets where it had the strengths and the right
products to secure a leading position. It is clear that the company had made wise choices
of strategy (business-level, corporate-level, international), which suited the company's
conditions and core competencies as well as aided the Danish brewery in the global
market conquest. Especially, the company successfully utilized the M&A strategy to save
time breaking into new markets such as China and Russia and build its presence.

That being said, Carlsberg's future was challenging. The competition continued being
intense and Carlsberg's main competitors were all present in the company's promising
markets. The brewery needed to clearly identify directions for future operations in order
to maintain its position on the market and improve profitability.

12. Recommendations
From the analysis of different aspects of Carlsberg, we wish to consider the future
prospects for the Danish brewery. There are several strategic moves that the company can
choose for its near-future operations, which include:

1. Vertical acquisitions
2. Entering new markets
3. Focusing on the markets that the company is already in to maintain or improve
its position.

Vertical acquisitions would give Carlsberg more control backwards in its supply chain,
potentially improving manufacturing efficiency. Merging with a manufacturer of
packaging (bottles, cans...) may give the brewery exclusive rights to the supply and

14
potentially reduce costs. However, it is important to keep in mind that vertical integration
brings the most benefits when there is only one supplier. When there exists multiple
suppliers, which seems to be the case for Carlsberg, they likely compete on prices. As a
result, Carlsberg will receive more competitive costs from suitable suppliers and be better
off without owning one. In addition, Carlsberg has no experience in vertical acquisitions.
It might be risky for the Danish brewery to pursue this strategy immediately, especially
given its current financial situation.

Penetrating completely new markets, such as other Asian countries, is another option.
Carlsberg can continue its M&A strategies used in other markets like Russia and China to
gain a quick access and build its presence. However, the debt-heavy financial condition
together with the complex ownership structure would limit the company from fulfilling
its strategy to the full extent, and from expanding as much as Carlsberg wishes. Thus, this
strategy would be more beneficial for the company in the long run rather than in the
immediate future.

Staying focused on Carlsberg's current operating markets would be the most suitable
strategy at the moment. This would help the Danish brewery stabilize its financial
standing without incurring too much risk.

13. Implementation
The recommended strategy requires Carlsberg to have a tailored plan for each of its major
markets, similarly to how the company had done before.

The Danish brewery should not lose its focus on the Western European market. In spite of
being stagnating, Western Europe still accounts for a major portion of Carlsberg's sales
volume and is the least risky market that Carlsberg operates in. Maintaining its position
and revenue streams in this market would allow Carlsberg to finance and assist other
markets' operations. The focus in the market would be innovation and renewing. New
product development is critical in this region in order to keep up with consumers'
changing preference and maintain their interest in the company's products in general.

In Eastern Europe and Asia, depending on prevailing beer consumption patterns,

Carlsberg can choose to focus on either premium products or mainstream beer. Carlsberg
should also consider introducing successful existing products of one market to others.
This can help the company save time on product developments. That being said, when
cross-introducing products, Carlsberg has to be careful and make sure that such product
has the potential to do well in the new market, fitting both general consumer tastes and
the living standard.

14. Conclusion

15
Much had happened for Carlsberg A/S over the years in terms of growth and
development of the company. It seems that the company had chosen its strategies wisely
to grow and expand. Those strategic moves allowed the Danish brewery to claim the fifth
spot on the world's largest breweries list and successfully build market-leading positions
in two most growing markets, Russia and China.

Nonetheless, with the larger breweries actively seeking new revenue sources, Carlsberg's
foothold in emerging markets would be at risk. Meanwhile, brand loyalty and customer
acquisition costs would preclude growth in already established and mature markets like
America and Western Europe. Carlsberg has to stay several steps ahead of their
competitors to survive. Even a slight shift in market shares could cripple its long-term
viability. Whether the brewery continues to grow depends on its ability to outcompete
larger, better-capitalized breweries and to seek untapped opportunities.

16
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