When local beat global: the Chinese beer industry
Read about a rare example of failure by the world’s biggest global brand companies.
This article is about a rare example of failure by the world’s biggest global brand companies. In the 1990s the world’s top beer producers tried to set up in China.
After years of failing to break into the market, many of them have recently been cutting back, even selling their new stateof-the-art production facilities to local brewers.
A few, however, have succeeded in entering the China market. This article discusses how they did so and the lessons their experience holds for other companies looking to invest in China. China’s longanticipated entry into the WTO has made this issue important even for companies which have hitherto ignored it.
Expatriate veterans of the China beer wars of the 1990s were so traumatized by their experiences in the world’s second-largest beer market that they talk about them in linguistic shorthand. “It was the corporate Vietnam,” says Tim Murray, a former sales and marketing manager for Australiabased Foster’s, the brewer that led the foreign charge into China in 1993. “It's hard to get over.” (Lawrence 2000)
In the mid-1990s, dozens of foreign brewers entered the Chinese market. They were lured by 1.25bn Chinese consumers with increasing affluence, a rapidly-growing beer market, and relatively low consumption rates per capita which they interpreted as indicating huge future potential. They made multimillion dollar investments in state-of-the-art production facilities. A few years later, most of them were still operating at a loss, and many wished they had never entered China. Their once-promising ventures were sucking funds into a black hole.
A minority of foreign brewers managed to succeed in this hostile marketplace, against intense competition, with different rules of the game than in developed markets, and razor-thin margins. Why did most foreign brewers fail, and how did the few who succeeded do so? What competitive strategies were involved in each case? What should foreign companies do now?
The failure of the global giants has been highlighted by the success of local brewers. In spite of older plants, generally untrained management, problematic human resources, lower product quality and weaker marketing capabilities, local brewers seem to be winning the competitive game. As foreign brewers started retrenching in the late 1990s, many local brewers took advantage of this situation to acquire leading edge technology on the cheap. So far, the Chinese beer market belies the widespread belief that the onward march of global brands is inevitable.
