Market Challenges

The company has circumvented the cultural challenges that are experienced by an internationalizing firm. It has chosen to retain the structure that had been so effective and literally did not interfere with the successful operations. Taxation regimes are stringent in Colombia are inclined to rise further.

There are the stiffest and compares to those in El Salvador and this discourages increased investment in the industry. The premium market is constrained as mainstream brands account for 95% of the entire market while only 5% is taken by premium brands (SAB Miller, 2013b). This affects margins since premium brands generate more than mainstream brands.

Illegal alcohol is rampant in Latin America with Colombia, Ecuador, and Peru accounting for 94% of these activities for SAB Miller (SAB Miller, 2013b). There initiatives to counter the threat through community policing, increasing social awareness, enhancing security patrols, and revising the legal frameworks to provide better protection for legitimate businesses.

Relative insecurity is still rampant in the rural areas as the government purge on the FARC rebel group unwinds. This has impact on the development of requisite infrastructure to support growth in these regions. Generally, the rural areas in Colombia are underserved and much poorer than the general level in the major cities and affects brand awareness and product demand as the market has minimal penetration of economy brands.

Chapter 5: Discussion of Findings

Introduction

This chapter undertook an analysis of the findings derived from the prevision chapter. It examined the performance of Diageo in Kenya and SAB Miller in Colombia determining their performance and appropriateness of the internationalization strategy. It also appraises the two internationalization cases by undertaking a cross-case analysis.

Case Analysis: Diageo (Kenya)

Diageo pursued an acquisition strategy through the purchase of publicly-listed equity from disparate investor groups. The fact that the company was already listed and with a fragmented ownership meant that it would be significantly difficult to negotiate with all the related parties to acquire a much larger stake in the company.

In addition, EABL had other equity relationships in the region which complicated such a move. Diageo executed an effective strategy that had low cost implications especially with the fact that market was at its lowest level in over a decade. This meant that the acquisition costs relative to the real value of the company was much lower.

The company has more than quadrupled its initial investment and in addition has had a constant revenue stream from a growing dividend income. It also did not require investing more capital in expanding capacity. EABL has been very successful in all its markets with a stranglehold of its home market, Kenya.

There have been noticeable challenges particularly those related to legislation and taxation. Taxation continues to escalate with rising excise duties on all alcohol categories. The law that limited the opening hours of licensed pubs and clubs has affected volumes. Generally, the market attractiveness is strong but taxation regime disenfranchises value creation.

Population growth in the market has been robust and with legislations focusing on limiting the proliferation of illegal alcohol, the market of legal alcohol is expanding. It has also been boosted by rising incomes in the country. Diageo executed an effective entry strategy into Kenya that has been immensely profitable and valuable strategically.