978-1259278211 Case 29 Solution Manual

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Teaching Note: Case 29 – Heineken

Case Objectives

1. To investigate how a firm competes in a global market.

See the table below to determine where to use this case:

NOTE: There are both PRIMARY and Secondary chapters that can be used for this case. The Teaching

Note gives guidance for the PRIMARY use chapters, and provides suggestions if the instructor wants to

use the case to illustrate concepts from the optional Secondary chapters.

Chapter Use Key Concepts Additional Readings or

Exercises

PRIMARY

International expansion;

NOTE additional reading, case

SECONDARY

Environment

External scanning and monitoring;

NOTE additional reading on

5: Business Level

Competitive strategy; generic

9: Strategic Control

& Governance

Strategic control; traditional vs.

contemporary control system;

Case Synopsis

This case deals with a firm that had been a pioneer in establishing itself as a global competitor in the beer

business, gaining recognition around the world based on its well-known green bottle. Heineken had to

Jean-Francois van Boxmeer was appointed as Heineken’s first non-Dutch CEO in October 2005. Since his

appointment, Heineken restructured itself to increase its ability to respond to the mega-acquisitions done

by its formidable competitors such as Belgium’s InBev and South Africa/United Kingdom’s SAB Miller.

Heineken entered into a joint venture deal with Denmark’s Carlsberg to acquire Scottish-based brewer

Scottish & Newcastle, and most recently had acquired breweries in Nigeria, Ethiopia, and Mexico. This

would help establish Heineken as the leading brewer in Europe, the second largest in Africa, and

a supplier to the growing Hispanic population in the U.S. Heineken had needed to raise its stature in its

various worldwide markets and respond to the changes that were occuring in the global beer industry.

Were the current strategies effective?

Teaching Plan

This is a fairly brief case, which can be covered quickly. The major opportunity here is to demonstrate the

ICEBREAKER

This case can start with an icebreaker. Starting from the perspective of a customer may make it easier for

students to transition to a strategic analysis.

How many of you are beer drinkers? Who do you think are the top beer companies in the world?

Students may call out beer BRANDS, not realizing that the global strategy of companies in the beer

industry is to consolidate brands into an increasingly smaller group of beer companies. After InBev’s

acquisition of Anheuser–Busch in 2008, the top 3 beer companies in the world are InBev (Belgium),

South Africa/United Kingdom’s SABMiller, and Heineken (Dutch). Other top companies worldwide

include the Japanese firms Kirin Holdings and Asahi, Carlsberg (Denmark) and Grupo

For an additional perspective on this industry, consider also assigning Case 14: The Boston Beer

How many of you drink Heineken by choice? Why or why not?

Here’s where students can discover just how hard it is to “differentiate” a brand. Is their preference based

on taste or on marketing? How many of them would be willing to bet they could identify their favorite

beer in a blind taste test?!

Before engaging in discussion, you might want to test student’s basic knowledge regarding the case and

Which of the following statements is most true?

a. Heineken is one of the most widely recognized beer brands worldwide.

b. Heineken started in Belgium, and has become a leading brewer in Europe.

c. Although sales of beer in stagnating in other places, demand is growing in the U.S. and Europe.

d. CEO Jean-Francois van Boxmeer is Dutch.

ANSWER: a. Due to its distinctive stubby green bottle, Heineken is one of the most widely recognized

beer brands worldwide. Although a leading European brewer, Heineken has always been a Dutch

Stella Artois, along with Amstel, is one of Heineken’s brands.

a. Yes

b. No

ANSWER: b. Although Amstel is one of Heineken’s brands, Stella Artois is a Belgium beer made by

Summary of Discussion Questions

Here is a list of the suggested discussion questions. You can decide which questions to assign, and also

Discussion Questions:

1. PRIMARY QUESTION: What strategy does Heineken follow in the global beer market?

2. SECONDARY QUESTIONS: What is the structure of the global beer industry?

3. What changes has Heineken made that will help it deal with its challenges?

Discussion Questions and Responses

1. What strategy does Heineken follow in the global beer market?

Strategy is all about the ideas, decisions, and actions that enable a firm to succeed. See Chapter 1, Exhibit

1.1: Strategic management consists of the analyses, decisions, and actions an organization undertakes in

order to create and sustain competitive advantages:

●strategy directs the organization toward overall goals and objectives;

●includes multiple stakeholders in decision making;

Corporate strategy focuses discussion on the questions of what businesses a corporation should compete

Diversification is the process of firms expanding their operations by entering new businesses. In related

diversification, a firm enters a different business in which it can benefit from leveraging core

competencies, sharing activities, or building market power. Some possibilities include:

●Mergers and acquisitions

●Strategic alliances

Whatever the choice, it should create value for all stakeholders – employees, suppliers, distributors, and

Referencing Chapter 7: International Strategy: Creating Value in Global Markets

International expansion is a viable diversification strategy, however before pursuing this, a firm needs to

There are several reasons to expand internationally. A firm’s motivation for international expansion could

involve the following:

▪To increase the size of potential markets

▪To attain economies of scale

When choosing a country to expand into, firms must assess certain factors: the degree of consumer

demand, the degree to which resources such as skilled labor and other supplier or supporting

There are two opposing forces that firms face when entering international markets: cost reduction, and

adaptation to local markets. Therefore there are four basic strategies firms can use: international, global,

multidomestic, and transnational. See Chapter 7, Exhibit 7.4.

Strategies that favor global products and brands should standardize all of a firm’s products for all of their

worldwide markets and should reduce a firm’s overall costs by spreading investments over a larger

market. These strategies are based on three assumptions:

●Customer needs and interests worldwide are becoming more homogeneous

●Economies of scale in production and marketing can be achieved through supplying global

Heineken’s global strategy was to create a corporate office to coordinate and control operations across the

Heineken’s expansion strategy was to pursue acquisitions of local breweries known in regional markets.

This means these acquisitions can be geared to local tastes. Of interest is a comment Heineken CEO made

Heineken also engaged in joint venture partnerships with other brewers, as it did with Danish-based

Issues Heineken still needed to address: substantial investments may be needed to build up the activities

Acquisition is the incorporation of one firm into another through purchase. It can be a means of obtaining

valuable resources that can help an organization expand its product offerings and services. Acquisition

Heineken had already acquired local breweries in Italy, France, Austria, and Germany. Heineken’s

acquisition of the Scottish-based Scottish & Newcastle brewer allowed it access to not only the brewery,

Acquisition of Asian Pacific Breweries gave it access to many popular Asian beers such as Tiger and

Bintang.

Other acquisitions included an acquisition in Singapore, an aggressive push into Russia, and purchase of

Everyone likes beer. Using its international reach and its local partners, Heineken could brew a type of

beer that met local tastes while also marketing its Heineken brand in that region. This reduced overall

NOTE – ADDITIONAL READING AND VIDEO VIEWING:

Visit Heineken’s website to see current news and product positioning:

http://www.theheinekencompany.com/age-gate?returnurl=%2f

Go to Investors, Reports and Presentations to see the Annual Reports from previous years. For instance,

the 2007 report cites strong increases in sales in Central & Eastern Europe, Africa and the Far East, plus

plans to construct a brewery in South Africa, all supporting long-term growth. At the same time, growth

In an attempt to broaden the appeal of the Heineken brand, several interesting TV commercials have been

made. See, for instance, the video “The Date” at https://www.youtube.com/watch?v=57zo8O5pDXc

See SAB Miller’s take on the global beer market:

http://www.sabmiller.com/home and http://www.sabmiller.com/about-us/where-we-operate

News in 2007 of the change in the European competitive landscape, with Russian beer consumption

growing, and a Russian brewery, Baltika, gaining market share is here:

http://www.businessweek.com/globalbiz/content/jul2007/gb2007073_616975.htm. No wonder Heineken

identified Russia as a major growth target.

The #2 brewer SAB Miller targeted Africa for growth. Recognizing that the economies of most African

countries don’t support much beer drinking by the low income population, SAB Miller was looking into

using cheaper, African-grown ingredients such a barley and cassava. A reduction in the cost of production

In the U.S. market, although sales are dominated by U.S. brewers Anheuser-Busch InBev, Miller Coors

Brewing Co. and Pabst Brewing Co., with competition from global competitors Heineken and Grupo

Modelo/Crown, the “craft” brewers, notably Sam Adams, which holds .009 market share, are gaining

ground. For an historical perspective, see the 2009 documentary “Beer Wars”, which documents the rise

of the craft brewers such as Boston Beer and Dogfish Head. For instance, “Beer Wars exposes a clear and

Have these growth areas been adequately anticipated by Heineken’s competitive strategy? What else can

Heineken do to fuel growth?

2. SECONDARY QUESTION: What is the structure of the global beer industry?

NOTE this section does not have any accompanying PowerPoint slides.

Referencing Chapter 2: Analyzing the External Environment

As part of strategic analysis, it’s necessary to engage in external scanning: surveillance of a firm’s

external environment to predict environmental changes to come, detect changes already under way, put

Strategic analysis assesses the segments of the external competitive environment that include competitors,

customers, and suppliers, substitutes and new entrants. One key issue that must be addressed is the

question what industry are you in? Heineken is in the beer industry, which is different from the general

Rivalry

High

Substitutes’

Threat

High

Buyers’

Power

Med

Suppliers’

Power

Low

Suggested: High – largest

brewers expanding across

the globe through

acquisitions of smaller

regional/national players;

fragmented industry; beer

consumption in the U.S.

has declined.

Suggested: There are no

industry buyers, only local

consumers who do not have

negotiating power over price;

however, there are abundant

choices for consumers, and

the appeal of the brand is

difficult to maintain. Brand

image, therefore the

marketing strategy, is

important.

Suggested: Low –

Supplier commodities are

those such as water,

hops, barley, etc.

Suggested: High

– Growing

appreciation of

wine. Hard liquor

still popular in

many places.

Suggested: Med – The top four

brewers account for only about

a third of the global market

share – a number of local

brewers operate successfully in

their niches.

Threat of

New

Entrants

Med

Once the industry is defined, Porter’s five forces model allows strategists to anticipate where the industry

Based on the external environmental factor analysis, the beer business has some opportunity for

NOTE – ADDITIONAL READING:

Historically, the global beer industry has looked to acquisitions or product innovations to fuel growth in

the past. In this report from 2008 it appears that the opportunities for continued acquisitions were

becoming limited. This meant major players would have to look at regional/local brewers if they wanted

to grow through acquisition – or they would have to do internal development:

http://www.businessweek.com/globalbiz/content/jul2008/gb20080714_615944.htm

In June 2013, Anheuser-Busch InBev audaciously completed its acquisition of Grupo Modelo. This means

the brands Corona, Modelo Especial, and Pacifico, which occupy top places in market share of U.S.

imported beer sales, will now add clout to the A-B InBev stable of products. A-B InBev now has Corona

to add to Budweiser, Stella Artois, and Beck’s, positioning the company as a global powerhouse in beer

products. See http://online.wsj.com/article/SB10001424052702303649504577495921266834262.html for

From early 2013, here is a story about this consolidation in the beer industry. See this video discussing

Anheuser-Busch InBev’s acquisition of Mexican’s Modelo:

http://www.bloomberg.com/news/videos/b/b96f37ba-d801-44fa-b549-ada5fc44eaa5 According to this

Here’s a fun facts graphic on A-B InBev: http://www.businessweek.com/articles/2012-10-25/99-facts-

about-beer-on-the-wall-dot-dot-dot

Regarding the global socioeconomic challenges of beer, here’s a story issued by Russia’s biggest beer

brand, Baltika, a division of international brewer Carlsberg about the outlook for beer and alcohol

consumption in Russia. Macroeconomic issues reduced opportunity in Russia in 2015, and the brand’s

long-term growth opportunities in the region are very uncertain:

http://www.themoscowtimes.com/article/520630.html

Referencing Chapter 5: Business-Level Strategy

In order to achieve a sustainable competitive advantage, Heineken has to assess its ability to contend with

other consumer goods providers, especially its main rivals, SAB Miller and InBev. The question of how

to compete in a given business to attain competitive advantage requires an assessment of the types of

competitive strategies, including the three generic strategies that are used to overcome the five forces and

achieve a competitive advantage:

●Overall cost leadership

oLow-cost-position relative to a firm’s peers

●Differentiation

oCreate products and/or services that are unique and valued

●Focus strategy

oNarrow product lines, buyer segments, or targeted geographic markets

Ask the students which strategy they think Heineken should pursue, and why.

Although any company in this crowded industry must keep costs low, if only to achieve parity with

competition, the only way Heineken has chosen to compete is through differentiation. The hope is that

3. What changes has Heineken made that will help it deal with its challenges?

See Chapter 1, Exhibit 1.3 for a depiction of the strategic management process. During strategic analysis,

the leader does “advance work” to anticipate unforeseen environmental developments, identify

In strategy implementation, depending on the type of organization structure, the leader might include key

individuals in a discussion around selecting which strategies might be best to implement at which level

within the organization. The leader must ensure proper strategic controls and organizational design, and

The basic question strategic management tries to answer is: How can we create a sustainable competitive

advantage in the marketplace that is not only unique and valuable but also difficult for competitors to

copy or substitute?

Heineken adopted a new organizational structure to speed up decision-making – reduced size of

management, created clear areas of responsibility. It also concentrated on key brands – building a global

Referencing Chapter 9: Strategic Control and Corporate Governance

Strategic control involves the process of monitoring and correcting a firm’s strategy and performance.

In a traditional control system, top management formulates strategies and sets goals. These strategies are

implemented, and then performance is measured against the predetermined goals. In a contemporary

Contemporary control systems must have four characteristics to be effective.

1. The focus is on constantly changing information that has potential strategic importance.

2. The information is important enough to demand frequent and regular attention from all levels

3. The data and information generated are best interpreted and discussed in face-to-face meetings.

4. The control system is a key catalyst for an ongoing debate about underlying data, assumptions,

An executive’s decision to use the control system interactively – in other words, to invest the time and

attention to review and evaluate new information – sends a clear signal to the organization about what is

Students should therefore recognize the importance of involving all operating managers in setting

Upon taking over the helm of Heineken in 2005, CEO Jean-Francois van Boxmeer had announced that he

would have to work on the company’s culture in order to accelerate the speed of decision making.

Heineken had been run by three generations of Heineken ancestors, whose portraits still adorned the dark-

Furthermore, van Boxmeer seemed quite comfortable working within the family-controlled structure.

“Since 1952 history has proved it is the right concept,” he stated about the current ownership structure.

Highlighting the importance of using contemporary controls, involving all levels of management in

decision making, Heineken created management positions that would be responsible for five different

operating regions and several different functional areas. These positions were created to more clearly

Corporate governance refers to the need for a firm’s shareholders (the owners) and their elected

representatives (the board of directors) to ensure that the firm’s executives (the management team) strive

to fulfill their fiduciary duty of maximizing long-term shareholder value. In this, students also should

Although the management of Heineken moved away from the family for the first time, the managers were

well aware that the long-standing and well-established family traditions would be difficult to change.

The family members were behind some of the changes announced at the time of van Boxmeer’s

appointment that would support the firm’s next phase of growth as a global organization. As part of the

plan, dubbed “Fit 2 Fight,” the executive board was cut down from five members to CEO van Boxmeer

The Executive Committee of Heineken was cut down from 36 to 12 members in order to speed up the

decision-making process. Besides including the two members of the executive board, this management

Finally, all of the activities of Heineken were overseen by a supervisory board, which consisted of 10

members. Individuals on this board were drawn from different countries and had a wide range of

These changes were evidence that Heineken recognized the need to align key stakeholders’ interests and

NOTE – ADDITIONAL MATERIAL ON HEINEKEN LEADERSHIP:

Regarding management and leadership, the Heineken Supervisory Board in Amsterdam had asked its

chief executive Anthony Ruys to step down in 2005 after only two years in the position, to be succeeded

by a Belgian, Heineken executive board member Jean Francois van Boxmeer. Van Boxmeer had been

with Heineken for over 20 years, and would become the first non-Dutchman to lead the company. The

change was prompted by poor financial performance and the perceived need to streamline the

management structure. According to the following article, Heineken would replace a single-market

approach with operations grouped on geographic lines. This would put in place a structure aligned “with

the rest of the industry”:

http://www.ft.com/intl/cms/s/0/44265a32-abb9-11d9-893c-00000e2511c8.html#axzz3oqsdS2JZ

Here is information about the management structure:

http://www.heinekeninternational.com/management.aspx

Van Boxmeer had said he “would continue a strategy built on partnerships, the acquisition of regional

players and organic growth.” Playing down prospects of a mega-merger, he added: “Beer is a multi-

regional business. World scale is not what you should pursue.” He said this in 2005. Do you think he

would say this today?

Given Van Boxmeer’s approach to strategy, do you think Heineken will be able to continue its growth?