1. XXXXXXX xxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxSTRATEGY : Strategic Growth Executive Summary

2. Content

I. Industry Analysis

II. Strategy Formulation

III. Phase I Strategy

3. I. Industry Analysis

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Domestic beer market

xxxx beer industry overview

Environmental analysis

Segmentation of the industry

Competitive Forces

Key Factor Success

Strategy groups

4. 1. Competitive Domestic Market Losing domestic beer market share from domestics and imports 5. Maturing Domestic Beer Industry Introduction Emergence Maturity Decline Demand (units/year) Time 6. 2. Xxxxx Industry overview

An increasing market with a huge potential

1 strank for volume per year but 11 thrank for liters per person

Low average price

Huge foreign interest in this market but foreign investment usually failed

7. 3 . Environmental Analysis:

Decentralizedpower structure

Unstated hierarchy of power

Big power of the local and provincial authorities

Important growth of China economy

Huge and fragmented market

Increase of urbanization rate

Low income and standard of living

Poor infrastructures

Development of urban aeras

Reduce emissions of carbon dioxide

Obligation to share technology and knowledge for foreign firms

High tax for on trasportation

POLITICAL ECONOMICAL SOCIAL TECHNOLOGICAL ENVIRONMENTAL LEGAL 8. 4. Segmentation of the industry 9. 5. Competive Forces

• The market is a large market

• Substitutes depends on the 4 different regional location of customers

• A very large growth potential

• Average sale price is low

• There is a growth in the target population and the rise in average income

S ubstitutes E ntry 10. Competive Forces (contd)

• Average customers are poor, live in agricultural heartland and are extremely price conscious

• No loyalty to any particular brand

• Twice as much of consumed at home as is consumed in

• Suppliers are quite fragmented

• Between 500 and 1,000 firms manufactured beer

• Foreign brewers are willing to pay high prices for even minority positions in local

Buyer Power Supplier Power 11. Competitive Forces (contd) Rivalry

• There are no dominant national or international

• There are only powerful regional

• The top 5 firms in the industry generate 38% of the result of the market

12. 6. Key Success FactorsKey Factor of Success What do customers want?How does the firm survive competition?

• Average customers:

• • are poor

• • live in agricultural heartland

• • are extremely price conscious

• • consume beers at home

• • do not form any allegiances to particular brand.

• Highly Fragmented market

• Consumers did favor well-known brands in public

• Larger regional preferred to support smaller local brand

• Foreign are willing to pay high prices for even minority positions in local breweries

• Foreign investors have to follow some restrictions (interest charges) or establish presences through licensing agreements

13.

• The market is the largest in the world

• Its still possessed the largest growth potential

• In, the population and the natural resources presented opportunities

• xxxxx Culture is emerging in the cities

• The population is increasing in the cities

• No dominant national or international

• Politics make the rules on the market and help some brewers (privatization plans)

Key Success Factors(contd) 14. 7. Strategic Groups (contd)National Wide Product Range Geographical Scope Regional Narrow xxxxEntreprises xxxxx Xxxx Group xxx xxxx Group 15.

Many of the foreign brewers had started to target

the economy segment, indeed the

consumer is price conscious. Competition is intense

North : saturated market

East : greatest promise for growth in Per

capita consumption

Mid : Low capita income and the slowest

growth market

South : the next hot beer market

Strategic Groups(contd) 16.

Premium witnessed a higher rate of growth

Improving standard of living in the bigger cities

National Strategy: Expand its presence in east and south of by increasing its market share in these two regions. Higher investment in premium segment

Strategic Groups(contd) 17. II. Strategy Formulation

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Focus on the industry life cycle

Evolution of the life cycle over the life cycle

Scenario 1

Scenario 2

Scenario 3

Optimal Scenario

18. The industry life cycle Introduction Emergence Maturity Decline Demand (units/year) Time 19. Evolution of the life cycle over the life cycleEnd of Growth / Beginning of Maturity Demand - Mass market - Increasing demand Technology - Improvement of product composition Products - Commoditization - New products Manufacturing - Harbin achieved 90% capacity utilization - Consolidation Trade - Increasing demand imported brewing barley Competition - Bloody competition - Profits fall Key Factors of Success - Brand local presence - Price & Cost Management - Foreign Direct Investment 20. The market 20012002200320042005 21. A fragmented market 20012002200320042005 22. Drawing scenarios Buyer power

Scenario 1

Increasing gap between highest and weakest revenues

East strategy VS West strategy

Standard lager segment renunciation

Focus on Prenium and Economy segments

Threat ofnew entry

Increased interest for standard lager segment

Generating a new demand

Looking for market leadership 23. Drawing scenarios(contd) Threat of substitution

Scenario 2

Increased interest for wine

Decrease of standard lager sales

Favorising the development of new products

Threat ofnew entry

Uniqueness of service

Specialist knowledge

Supplier power Become a leader in a niche market 24. Drawing scenarios(contd) Threat of substitution

Scenario 3

Suppliers are growing slower than the demand

Shortage of xxxx

Competitors

Supplier power Adaptation / Reconversion Buyer power

Sensitiveness to differences between competitor

Cost of changing

25. Optimal scenarioRewardProfile Risk Profile H H L Scenario 1 * Scenario 2 * Scenario 3 * Poor Optimal 26. III. Phase I Strategy

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Scope & strategic objectives

Unique resources

Sources of competitive advantage

Functional strategies

Development Mode

SWOT Analysis

Risk factors

Phase I Recomendation

27. 1.Scope & strategic objectives National Wide Product Range Geographical Scope Regional Narrow xxxxxxxxxxxxxEntreprises Xxxxxxc xxxxxxxxxx Xxxxxxxxxxxx Group Xxxxxx xxx xxxxxxxGroup 28. Scope & strategic objectives (contd)

Scenario 1

Increasing gap between highest and weakest revenues

East strategy VS West strategy

Standard lager segment renunciation

Focus on Prenium and Economy segments

Looking for market leadership Reminder 29. Scope & strategic objectives (contd)

East VS West

• • • • A strategy based on locations and revenues

Competing in two opposite segments

• • • • Impose a double brand image

• • • • Strategic use of media & distribution network

• • • • Brands Top 3 within the next 5 years

30. 2. Unique resources

Human Resources:

• Mix of local people and international decision makers

Intangible resources:

• Technology: producing cheaper than competitors

• Reputation: xxxxx is the 4 thbeer drunk in xxxxx

Tangible resources:

• Financial: international group financial capital

• Physical: Presence with acquisition of xxxxxxx group

31. Unique capabilities

Knowledge and Know-Howforbreweriesas a well-known internationalcompany

Managing several brands

• • Developing different alcohol rate lager

• • Ability to build sustainable alliances with other breweries of distributors (ability to work with local people)

32. 3. Sources of competitive advantage

For economy lager:

Cost advantage

• • substantial capital

• • low cost for production and packaging

• • know-how in beverage marketing

• • For premium lager:

• • Differentiation advantage

• • Know-how in branding beers

• • R&D department sustained by the international group

33. 4. Functional strategies

• • Cost strategy for the economic segment

• • Using the Value Chain to identify differentiation potential on the supply side

34. Cost Strategy for the Economic Segment Not high quality of bottles and packaging Defect free products.No wide variety.Produce cheaper than competitors.Use of xxxxdistributionnetwork Marketing on know-how, no creation effort, keep the same sales service as the standard segment No Service 35. Using the Value Chain to Identify Differentiation Potential on the Supply Side High quality of components & materials Defect free products.High quality of the beer Use the distributionNetwork ofxxxxxxx Effort on advertising.Building brand reputation on quality.Sales department management.Invest in marketing department Customer technology support.Enhance cultural advantage 36. 5. Development Mode for the Economic Segment

Alliances

• Alliance with XXXXXXXX

Acquisitions

• Acquisitions of small local brewers

Internal development

• No particular internal development

37. Development Mode for the Premium Segment

Alliances

• No alliance

Acquisitions

• Acquisitions of xxxxxxx

Internal development

• Development of the paper and bottles production department

• Development of the marketing department

38. 6. Internal strategic factor analysis summary (IFAS) 3.45 1 Total Weighted Score 0.05 1 0.05 Lack of social responsibilities 0.05 1 0.05 Dependent on regulatory and legislation changes 0.05 1 0.05 Vulnerable to currenct exchange rate fluctuations 0.45 3 0.15 Weaknesses Multiple ownership changes since 2001 - Target 0.8 4 0.2 Gets raw materials from internall sources 0.6 4 0.15 Packaging operations allows cost advantage 1 4 0.25 Vast resuources to take risks 0.45 3 0.15 Strengths Industry leader with dominant market share Weighted Rating Weight Internal Strategic Factors 39. 6. External factor analysis summary (EFAS) 2.8 1 Total Weighted Score 0.025 1 0.025 Shortage of malt 0.075 1 0.075 Foreign investors have to follow some restrictions 0.3 2 0.1 No loyalty to any brand 1 4 0.25 Loss of Competitors Threats 0.3 2 0.15 Rapidly growing population 0.05 1 0.05 No loyalty to any brand 0.45 3 0.15 Gain of market share of foreign brands 0.6 3 0.2 Premium Market Growing Opportunities Weighted Score Rating Weight External Strategic Factors 40. 6. SWOT Matrix * To adjust policies and procedures regarding derivatives and hedging in the event of potentially negative foreign currency exchange * To continue dominating market share thanks to competitiveadvantages and extensive advertising WT Strategies ST Strategies Threats * To reinvest in core business to improve the performance of AB * To adjust prices to offset taxes * To develop our product on 2segments: premium + economy * To increase equity investment on China market WO Strategies SO Strategies Opportunities EFAS Weaknesses Strengths IFAS 41. 7. Risk factors 1 3 2 Total Risks The company has to make moreefforts to understand Chinesecustomers and encourage them tofind habit in xxxxxxxx beers X * No brand attachment for the customer Customer Relationship Risks X * Increase in beer excise taxes or other taxes will impact demand andfinancial return The company's top managers have tocare about the authorities to avoid high taxes and restrictions X * Influences of authorities Tax Risks The company has to be sensitive to the local people and outsiders.They willco-cummunicate X * Obligation to make alliances to work with local people: it could create conflicts or misunderstanding Development Risks X * Increased competitive pressures may reduce revenues andincrease costs The company's staff has to make moreefforts to maintain sustainability of the activity X X *Many Competitors Market Risks Strategic Objectives L M H Risk Factors 42. 8. Phase I xxxxxx Recommendation

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