This report takes the perspective of an Australian company, Carlton & United Breweries (CUB), and provides an analysis and evaluation of the profitability of prospective opportunities for the international expansion of CUB into China. It explores the company's own performance and success factors, and measures itself against the target market in order to assess the viability of entry, as well as propose a recommendation of potential entry modes and strategic timeline for implementation.

1.
CARLTON & UNITED BREWERIES PTY LTD
PROJECT CHINA PROPOSAL
2015

2.
IBUS 90002 ASIAN BUSINESS AND MANAGEMENT
MELBOURNE BUSINESS SCHOOL
SEMESTER ONE, 2015
ROBERT AU (329510)
JAMES ANAGNOSTIDIS (319316)
CHRISTIAN ANDERSEN (733691)
LIEN NGUYEN (736333)
DAVID NICHOLLS (390074)

3.
Table of Contents
05 Executive
Summary
(From
the
Director)
06 About
the
Company
07 Financial
Performance
10 Key
Success
Factors
12 Subregional
Analysis
13 Entry
Mode
Analysis
16 Discussion
18 Proposed
Strategy
21 Implementation
Timeline
24 Reference
27 Appendices

5.
FROM THE DIRECTOR
Carlton
&
United
Breweries
(CUB)
is
a
subsidiary
of
SABMiller
PLC,
operating
in
Australia.
Our
portfolio
comprises
of
iconic
brands
such
as
Carlton
Draught,
Foster’s
and
Crown
Lager.
We
believe
that
timing
is
optimal
for
us
to
engage
international
expansion,
setting
our
sights
upon
the
Chinese
market.
This
report
provides
an
analysis
and
evaluation
of
the
proPitability
of
prospective
opportunities
for
the
international
expansion
of
Carlton
&
United
Breweries
into
China.
Factors
deemed
most
responsible
for
the
success
of
our
expansion
include
creation
of
a
strong
brand
identity
through
existing
marketing
channels,
as
well
as
continued
growth
in
GDP
per
capita
and
increased
disposable
income,
leading
to
increased
consumer
spending.
Capitalising
on
existing
distribution
networks
of
a
partner
is
vital
in
a
market
where
distributors
and
suppliers
have
high
bargaining
power.
Furthermore,
three
signiPicant
decision
factors
were
analysed
in
the
proposed
expansion
into
China:
the
differing
levels
of
protectionist
policies
at
the
local
and
regional
government
level;
distribution
of
age
groups,
particularly
those
who
consume
alcohol
regularly;
and
GDP
per
capita
forecasts,
using
a
proxy
for
determining
levels
of
disposable
income
growth.
From
our
evaluation,
we
recommend
the
following:
establish
a
strong
relationship
with
a
partner,
forming
a
link-­‐joint
venture
with
Tsingtao,
whose
experience
in
the
Chinese
market,
incorporates
a
Western
Plair;
compete
in
the
premium
beer
market
as
in
response
to
consumer
preferences
for
foreign
products;
distribute
and
promote
through
our
partner’s
existing
channels;
enter
swiftly
during
the
upcoming
2016
Shanghai
Grand
Prix;
and
Pinally,
to
investigate
the
feasibility
of
foreign
direct
investment
following
the
establishment
of
a
strong
brand
identity.
Robert Au | Director, Business Analytics

6.
ABOUT
THE COMPANY
6 Project
China
Proposal
Carlton
United
Breweries
(CUB)
dates
back
to
1854
when
our
Plagship
Australian
beer,
Victoria
Bitter,
was
Pirst
brewed
in
Melbourne,
establishing
the
Pirst
Carlton
Brewery.
Soon
thereafter,
and
independently,
the
Foster’s
brand
was
launched
in
1888,
with
William
and
Ralph
Foster
brewing
Foster’s
Lager
in
Melbourne.
It
fast
became
one
of
Australia’s
most
iconic
and
internationally
recognised
brands.
In
1903,
the
Carlton,
Foster’s,
Victoria,
Shamrock,
McCracken
and
Castlemaine
breweries
formed
a
cartel
known
as
the
Society
of
Melbourne
Brewers;
and
merged
in
1907
to
create
Carlton
&
United
Breweries,
an
entity
that
transformed
itself
into
Australia’s
largest
brewing
business
(Dun
and
Bradstreet,
2015;
Anning,
2015).
In
1983,
Elders
IXL
purchased
Carlton
&
United
Breweries,
renaming
it
Elders
Brewing
Group.
The
company
underwent
a
name
change
to
Foster’s
Brewing
Group
Limited
in
1990
to
rePlect
its
most
recognised
product,
before
settling
on
Foster’s
Group
Limited
in
2001
(Dun
and
Bradstreet,
2015).
In
late
2011,
SABMiller
Beverage
Investments
Pty
Ltd,
a
wholly-­‐owned
subsidiary
of
UK-­‐based,
SABMiller
PLC,
executed
the
buyout
of
Foster’s
Group
Limited.
It
was
subsequently
removed
from
the
ASX,
though
trading
continued
as
Carlton
&
United
Breweries
(Dun
and
Bradstreet,
2015).
Today,
we
produce
and
market
alcoholic
beverages
that
services
over
7,000
customers
across
on-­‐premise
and
off-­‐premise
channels.
Our
national
brewing,
logistics
and
sales
network
delivers
to
over
20,000
customers
including
hotels,
clubs,
liquor
stores,
restaurants
and
bars.
As
a
leading
beer
and
cider
company,
our
portfolio
comprises
of
Australia’s
most
iconic
brands,
including
Victoria
Bitter,
Carlton
Draught,
Foster’s
and
Crown
Lager
(Dun
and
Bradstreet,
2015).

7. 2014
HIGHLIGHTS
- 4%Revenue
2014:
US$26,311
million
2013:
US$23,313
million
+ 1%EBITDA
2014:
US$6,453
million
2013:
US$6,379
million
- 8%Net
debt
2014:
$US14,303
million
2013:
$US15,600
million
- 21%Free
cash
Glow
2014:
US$2,562
million
2013:
US$15,600
million
203%Shareholder
return
Peer
median:
105%
+ 3%Adjusted
EPS:
2014:
242.0
US
cents
2013:
237.2
US
cents
+ 3%ProGit
before
tax
2014:
$US4,823
million
2013:
$US4,679
million
+ 1%Lager
volumes
2014:
245
million
hectolitres
2013:
242
million
hectolitre
Figure 1: Financial performance highlights (Source: SABMiller, 2014)

8.
Total 1,847 employees
Carlton Draught
Victoria Bitter
Crown Lager
Foster’s
Cascade
Melbourne Bitter
Miller
Peroni
Pure Blonde
Abbotsford
Great Northern
Grolsch
Matilda Bay
Pilsner Urquell
Strongbow
Bulmers
Mercury
Dirty Granny
Kopparberg
Cougar
The Black Douglas
Karloff Vodka
Akropolis Oyzo
BEER
CIDER
SPIRITS
“SABMiller
Beverage
Investments
Pty
Ltd
produces,
distributes
and
markets
alcoholic
beverages
through
our
CUB
business.
Our
main
focus
is
beer
brewing
and
distribution,
with
CUB
owning
and
distributing
a
number
of
leading
brands
from
both
Australia
and
around
the
world.”
Source: Dun and Bradstreet, 2015
Source: SABMiller, 2014
Source: IBISWorld, 2015

9. 2014 REMARKS
Our
View
of
the
Beer
Market
-­‐
a
Growth
Opportunity
On
the
local
front,
forecasted
lager
volumes
were
negatively
impacted
by
persistent
economic
uncertainty
and
weak
consumer
sentiment,
along
with
increased
competitive
intensity,
experiencing
only
1%
growth.
A
continuing
focus
on
price
realisation
and
effective
cost
control
resulted
in
EBITA
growth
(see
Figure
1),
which
we
aim
to
make
more
efPicient
(SABMiller,
2014).
We
believe
that
beer
markets
around
the
world
can
be
developed
further
and
are
showing
an
increasing
appetite
for
new
beer
styles
and
prices.
Additionally,
there
is
still
signiPicant
opportunities
to
increase
beer
consumption
in
the
Asia-­‐PaciPic,
in
particular
in
that
of
the
Chinese
market
(see
Appendix
1)
(SABMiller,
2014).
Per
capita,
consumption
in
developing
markets
is
substantially
lower
than
in
more
mature
markets
(SABMiller,
2014).
As
these
economies
continue
to
grow,
we
expect
to
see
a
natural
increase
in
momentum
of
the
demand
for
beer
(see
Appendix
2).
Brewers
are
continuing
to
produce
a
wider
range
of
high
quality
brands
and
package
formats.
In
conjunction
with
greater
positioning
and
marketing
strategies,
the
need
to
differentiate
and
diversify
within
the
each
category
is
paramount,
as
consumer
trends
are
showing
support
of
this
evolution.
Innovation
and
category
expansion
are
two
ways
we
can
deliver
more
premium
options;
the
fragmentation
of
consumer
tastes
and
preferences
seen
over
the
past
decade
has
become
a
dePining
feature
of
the
market
for
alcoholic
beverages.
This
is
both
broadening
the
Pield
of
competition
and
re-­‐igniting
consumer
interest
(SABMiller,
2014).
Traditional
lagers
still
dominate
the
bulk
of
global
industry
volume
and
are
continually
being
bolstered
through
inventive
marketing
and
packaging
strategies.
However
there
is
also
a
Plow
of
new
product
development,
across
different
varieties;
ranging
from
richer,
more
deeply
Plavourful
beers
to
sweeter
or
fruit-­‐Plavoured
ales,
all
appealing
to
more
variety-­‐seeking
adult
consumers
in
varying
consumption
contexts
and
with
different
palates
(SABMiller,
2014).
Across
all
beer
markets,
our
interactions
with
national
and
local
government
regulators,
supranational
bodies
and
NGOs
continue
to
support
responsible
consumption
efforts.
Brewers
continue
to
work
in
the
interests
of
consumer
health
and
safety
and
to
support
the
development
of
local
communities
and
local
enterprises
up
and
down
the
value
chain
(SABMiller,
2014).

10.
KEY SUCCESS
FACTORS
The beer industry in China is a
mature yet growing market with
several key factors contributing to
the success of market entry.
Increasing
Brand
Awareness
Upon
market
entry,
it
is
imperative
that
we
establish
a
foothold
in
consumers’
minds
–
by
creating
a
perceived
value-­‐add
in
consumption.
This
is
primarily
dictated
by
the
method
of
market
entry.
In
a
joint
venture,
leveraging
existing
marketing
channels
is
critical
for
success;
whereas
being
a
late
mover
with
direct
investment,
we
would
seek
to
incorporate
the
proven
strategies
of
those
before
us
whilst
still
aiming
to
differentiate
(Wei,
2012).
The
use
of
public
events
(national
or
international)
can
also
be
used
to
increase
our
brand
awareness.
This
has
been
successful
in
the
past
with
beer
sponsorship
at
the
2008
Beijing
Olympics,
where
all
three
beer
sponsors,
Budweiser,
Tsingtao
and
Beijing-­‐Yanjing,
experiencing
growth
in
market
share,
as
well
as
Tsingtao’s
sponsorship
of
the
Shanghai
Expo
in
2010
which
further
grew
the
company’s
market
share
(Madden,
2008;
2010).
These
campaign
precedents
will
set
the
foundations
for
optimising
our
company’s
strategy,
where
the
focus
lies
upon
understanding,
and
subsequently
capturing,
the
world’s
largest
beer
consumer
market
(IBISWorld,
2014).

11.
“Competition is very intense in the
distribution sector… products that cannot
offer high-value adding services to clients
would reduce profitability.”
- Li & Fung Research Centre, 2012
Continued
Growth
in
GDP
Per
Capita
The
forecasted
growth
in
GDP
per
capita
(7.1%
by
2014,
according
to
the
World
Bank)
will
be
a
contributing
factor
to
the
success
of
the
beer
industry
in
China.
As
disposable
income
increases,
so
will
consumer
conPidence
and
subsequent
consumption
(NBSC,
2015).
When
viewed
in
conjunction
with
the
increasing
demands
for
consumer
goods
in
the
Chinese
market,
it
presents
a
unique
opportunity
to
capitalise
on
potentially
attractive
growth
trend
(NBSC,
2015).
11 Project
China
Proposal
Distribution
Channels
Competition
is
extremely
intensive
in
the
distribution
sector.
Existing
distributors
have
high
bargaining
power,
and
products
that
cannot
offer
value-­‐adding
services
to
clients,
would
have
to
reduce
prices
thereby
reducing
proPitability.
Distributors
often
enjoy
exclusive
distribution
rights
which
discourage
potential
market
entrants,
particularly
those
of
foreign
investments
(Li
&
Fung
Research
Centre,
2012).
This
discourages
direct
investment,
though
a
market
entry
analysis
can
highlight
approaches
to
mitigate
this
risk
through
strategic
entrance
methods
that
can
ensure
access
to
distribution
networks.

12.
SUBREGIONAL ANALYSIS
In
this
section,
we
examine
key
decision
factors
based
on
regionality.
With
numerous
regions,
each
rich
and
diverse
in
culture,
it
becomes
necessary
to
consider
what
consumer
trends
have
emerged
in
each
respective
market.
This
section
therefore
aims
to
provide
the
essential
data
and
analysis
required
to
determine
which
regions
are
most
suitable
for
entry.
Level
of
Protectionist
Policies
-­‐
Local
Government
Each
region
within
China
is
governed
by
a
set
of
local
policies.
The
exact
nature
of
these
highly
protectionist
policies
are
unknown,
as
these
are
not
documented,
and
are
more
than
often
implemented
in
reaction
to
the
entrance
of
a
foreign
investor
into
a
region.
However,
there
are
certain
instances,
where
policies
are
implemented
to
encourage
companies
to
operate
in
the
region,
in
order
to
stimulate
local
growth.
These
areas
allow
for
ease
of
consolidation
for
a
company’s
operations,
though
this
does
not
directly
correlate
to
ease
of
access
to
local
markets.
Most
of
these
areas
are
located
along
the
coastline,
with
the
majority
located
in
Guangdong
(Changhui,
2002).
Age
Group
(20
-­‐
30
years)
IBISWorld
(2014)
reports
that
the
biggest
consumers
of
beer
in
China
are
those
in
the
20-­‐34
age
bracket.
The
population
distribution
of
ages
15-­‐64
across
the
regions
of
China
are
ranked
in
Appendix
3;
current
statistics
do
not
provide
the
exact
data
for
our
speciPic
age
demographic,
but
can
be
seen
as
an
accurate
representation
of
the
trend
of
concentration
of
population
by
ranking.
Regions
with
the
highest
concentrations
of
the
target
age
group
are
located
along
the
China’s
coastlines,
where
urbanisation
rates
are
also
the
highest
(National
Bureau
of
Statistics
of
China,
2015).
Per
Capita
Disposable
Income
Wealth
distribution
varies
widely
across
the
regions
of
China
(see
Appendix
3).
The
data
indicates
that
coastal
city
citizens,
on
average,
also
have
higher
levels
of
disposable
income.
These
results
align
to
the
notion
that
coastal
cities,
such
as
Shanghai,
Beijing,
Guangzhou
and
Shenzhen,
are
known
as
the
“metropolises”
of
China.
However,
McKinsey
&
Company
(Barton
et.
al.,
2013)
forecasted
regional
growth
trends
across
China
and
found
that
the
middle
class
(those
earning
60,000
to
229,000
CNY
[AUD$9,000
to
AUD$34,000]
per
year)
demographic
will
spread
from
predominantly
Tier-­‐1
cities,
characterised
by
economic
development
and
political
importance,
to
Tier-­‐2
and
Tier-­‐3
cities,
which
comprise
of
relatively
lower
regional
GDP
(see
Appendix
3).
Overall
population
in
Tier-­‐1
cities
will
not
markedly
decrease,
though
growth
rates
will
be
relatively
higher
in
the
lower-­‐Tier
cities.
Trends
show
that
despite
the
wealth
disparity,
there
are
forecasts
this
it
will
change
in
the
coming
future;
and
will
be
a
strategic
factor
in
determining
company
direction
(Barton
et.
al.,
2013).

13.
Following analyses of the
different regions according to
the critical success factors, an
overview of the benefits and
disadvantages of the different
entry modes are presented.
Foreign
Direct
Investment
Foreign
direct
investment
(FDI)
into
China,
via
the
opening
of
a
new
branch
of
CUB,
will
allow
us
to
retain
full
decision-­‐making
power,
develop
our
capacity
further,
maintain
intellectual
property
over
our
products
and
operations,
as
well
as
providing
our
company
access
to
all
proPits.
Although
Xi
Jingping
has
stated
that
he
will
“...protect
the
lawful
rights
and
interests
of
foreign-­‐invested
companies...”
and
“...ensure
their
rights
to
equal
participation
in
government
procurement
and
independent
innovation,”
we
bear
all
risks
from
our
direct
investment
(BBC
Business
News,
2013).
The
consequences
of
this
involves
signiPicant
monetary
loss
and
damage
to
our
brand,
wasted
time
and
resources
involving
the
creation
of
new
company
tax
and
legal
legislation,
foreign
exchange
risk
mitigation,
and
the
forfeiture
of
any
newly
developed
or
purchase
infrastructure.
As
mentioned,
there
are
regions
where
it
would
be
problematic
to
enter
through
FDI,
and
regions
where
the
policies
are
more
favourable
(Carpenter
and
Dunung,
2015;
Delios,
Beamish
&
Lu
2012).
ENTRY MODE
ANALYSIS
13 Project
China
Proposal

14. Joint
Venture
A
joint
venture
into
the
Chinese
market
will
allow
us
to
reach
areas
of
China
that
we
may
otherwise
be
unable
to
due
to
the
protection
by
local
governments
(see
Subregional
Analysis,
p.
12).
Through
a
strategic
alliance,
we
will
be
seen
as
a
local
entity
within
the
Chinese
market
and
government;
advantageous
in
to
circumventing
local
policies.
Additionally,
a
joint
venture
will
minimise/remove
a
potential
competitor
for
the
duration
of
the
partnership,
assist
our
company
in
gaining
market
traction
by
using
their
existing
client
base
as
a
starting
point,
as
well
as
established
channels
of
marketing
and
product
distribution.
As
the
two
partners
are
contributing
unique
sets
of
resources,
a
Link-­‐Joint
venture
would
be
negotiated,
where
both
parties
gain
-­‐
being
intellectual
property
regarding
recipes
and
manufacturing
and
market
and
distribution
knowledge,
respectively.
While
these
factors
drastically
reduce
our
investment
risk
(when
compared
to
FDI),
we
must
share
intellectual
property
and
technologies
with
a
potential
future
competitor
(in
the
case
the
JV
ends)
and
may
experience
communication
and
integration
problems
when
creating
a
joint
venture
between
the
two
companies.
Research
shows
that
there
are
different
survival
rates
linked
with
different
levels
of
equity
sharing
and
suggests
that
there
is
a
benePit
of
handing
over
50%
of
the
equity
to
the
local
partner
(see
Appendix
5).
However,
even
with
the
equity
decided
upon,
there
is
still
the
question
of
control.
The
Joint
Venture
can
have
dominant,
shared
or
split
control.
Cultural
differences
between
Western
societies
and
China
that
may
impact
our
integration
strategy
include:
social
and
professional
practices,
gender
inclusion,
etiquette
and
language
barriers
(Carpenter
and
Dunung,
2011;
Cheng
and
Bowskill,
2015;
Delios,
Beamish
&
Lu,
2012;
MacLeod,
2015).
Exporting
Exporting
goods
into
China
is
a
relatively
low
Pinancial
risk
option,
It
allows
us
to
gauge
an
initial
reaction
to
our
products
before
embarking
on
a
more
penetrating
venture.
Although
agencies
exist
that
assist
with
marketing,
placement
and
distribution,
it
does
not
provide
us
with
much
control.
Exporting
may
also
require
us
to
modify
the
packaging
or
product
itself
to
meet
regulatory
requirements
or
the
needs
of
those
acting
our
behalf
through
contractual
agreements
which
requires
research
and
additional
costs.
However,
policies
in
China
could
pose
a
challenge
due
to
their
rigorous
protection
of
local
products.
Exporting
also
runs
the
risk
of
brand
damage
as
with
limited
knowledge
in
the
region,
our
product
may
not
meet
these
consumer
expectations
(Carpenter
and
Dunung,
2011;
Delios,
Beamish
&
Lu,
2012).
14 Project
China
Proposal

15.
Acquisition
Similar
to
the
joint
ventures,
the
acquisition
of
a
Chinese
brewer
poses
many
solutions
to
problems
we
would
have
with
FDI.
The
acquirement
over
of
a
company
will
allow
us
to
not
only
remove
a
competitor
and
realise
a
swift
entry
into
China,
but
be
provided
with
an
established
marketing
and
distribution
network
and
knowledge
of
the
market
(with
the
retention
of
local
employees).
We
realise
the
similarity
in
disadvantages
to
establishing
a
JV
such
as
potentially
experiencing
problems
with
integration
linked
to
cultural
differences,
overestimating
the
synergy
achieved.
In
addition,
there
are
premiums
for
the
acquisition
of
a
company
and
require
the
appropriate
permits
to
successfully
complete
the
transaction.
Currently,
the
Ministry
of
Commerce
of
the
People
retains
powers
of
supervision
and
approval
of
foreign
investments,
but
the
National
Development
and
Reform
Commission
(NDRC)
also
plays
an
important
role
in
approving
large
investment
projects,
including
foreign
investment
projects
as
the
extensive
process
may
cloud
the
transparency
of
the
transaction.
This
may
incur
high
costs,
and
an
acquisition
may
be
in
breach
of
certain
laws
within
these
regulatory
statutes
(Davies,
2013;
Delios,
Beamish
&
Lu,
2012).
15 Project
China
Proposal

16.
DISCUSSION
Timing
of
Entry
As
many
joint
ventures
and
FDIs
have
been
attempted
in
the
past
decade,
we
therefore
do
not
have
the
opportunity
to
capitalise
upon
neither
majority
market
share
nor
Pirst
mover
advantages.
However,
we
are
able
to
observe
inefPiciencies
from
other
companies
and
tailor
our
operational
strategies
to
mitigate
against
the
same
failures.
Most
notably,
the
high
costs
associated
with
research
and
development
that
a
Pirst
mover
will
experience,
would
have
been
previously
established
from
prior
competitors,
and
the
opportunity
cost
can
be
reallocated
towards
the
research
and
development
of
our
new
products
and
strategies,
effectively
strengthening
our
impact
on
the
Chinese
market
(Delios,
Beamish
&
Lu,
2012;
Mat
Isa
et.
al.,
2012).
Culture
Distance
Joint
ventures
and
acquisitions
are
quite
often
difPicult
to
manage
as
a
result
of
the
cultural
and
ethical
differences.
However,
these
methods
of
market
entry
gives
us
support
from
our
Chinese
partners
to
assist
with
local
government
regulations
as
well
as
formalities
and
political
risks.
As
a
wholly-­‐owned
enterprise
introduced
into
the
Chinese
market,
we
will
not
experience
cultural
management
and
integration
issues,
though
this
does
expose
us
to
risks
regarding
lack
of
knowledge
of
the
market
and
customary
practices.
This
may
lead
to
loss
of
sales,
brand
damage
and
potential
failure
of
investment.
Advantages and disadvantages of each respective entry mode;
measured against the key factors of success.
16 Project
China
Proposal

17. Market
Barriers
Expansion
into
a
foreign
market
will
come
with
certain
restrictions
upon
entry.
Those
speciPic
to
an
international
brewing
company
entering
the
Chinese
market
include:
-­‐
Local
Protectionism
This
makes
acquisition
and
exporting
quite
difPicult
as
regional
governments
within
China
are
aiming
to
protect
local
businesses
and
provide
them
a
platform
to
grow,
as
opposed
to
allowing
foreign
competition.
Joint
ventures
are
more
favorable
as
we
are
able
to
combine
and
create
synergies
with
a
local
organisations,
thereby
bypassing
protectionist
legislation.
Tax
adjustments
and
alterations
may
cause
pressure
on
prices
(17%
VAT
and
3-­‐5%
excise),
as
regulation
places
increasing
restrictions
on
the
availability
and
marketing
of
beer
anti-­‐alcohol
advocates
erode
industry
reputation
leading
to
stunted
growth
and
proPitability,
even
though
the
awareness
surrounding
the
effects
of
alcohol
is
still
low
in
China
(IBISWorld,
2014).
A
strategic
alliance
will
allow
for
us
to
have
access
to
the
knowledge
on
how
to
manage
these
risks.
-­‐
High
Competition
High
competition
within
the
distribution
network
means
only
companies
who
can
create
value
for
distributors
and
pay
a
premium
for
their
services
are
able
to
transport
their
goods
around
the
country;
thereby
increasing
the
price
of
distribution.
The
market
is
also
seen
as
highly
competitive
as
only
companies
under
the
protection
of
the
government
or
those
with
great
economies
of
scale
survive,
as
they
can
produce
at
a
lower
costs,
being
able
to
cut
their
prices
while
retaining
high
levels
of
proPits
(Li
&
Fung
Research
Centre,
2012).
To
minimise
risk,
joint
ventures
are
preferable
to
capitalise
on
these
intercontinental
and
government
relationships
and
to
expand
operations
creating
less
production
costs.
-­‐
Low
Product
Differentiation
The
Chinese
beer
market
recognises
low
product
differentiation
(IBISWorld,
2014).
As
brewing
is
a
difPicult
process
to
vary
from
your
competitors,
it
makes
market
entry
challenging
however
it
provides
excellent
opportunities
for
SABMiller
if
the
ideas
and
implementation
abilities
for
a
new
product
line
are
available.
-­‐
High
Cost
for
PPE
(Plant,
Property
and
Equipment)
Establishing
new
bricks
and
mortar
through
directly
venturing
into
a
country
can
be
very
expensive
and
increases
the
risk
of
investment
(as
well
as
price
of
failure),
particularly
with
little
experience
in
the
area.
Joint
ventures
allow
for
the
sharing
and
use
of
previously
established
PPE
and
minimises
risk
upon
initial
entry.
-­‐
Change
in
Consumer
Preferences
The
beverage
and
alcohol
industry
may
become
more
fragmented.
Exporting
is
a
less
risky
option,
as
we
can
focus
on
the
product
by
offering
beers
that
appeal
to
speciPic
local
tastes,
before
attempting
a
strategic
alliance
or
sole
venture
into
the
country.
A
Joint
venture
will
also
allow
for
testing
of
the
market
with
minimal
risk.
17 Project
China
Proposal

18.
PROPOSED
STRATEGY
Our
recommendation
to
the
board
is
that
our
company
establish
a
strategic
and
long-­‐
term
commitment
to
be
facilitated
by
a
third
party,
with
established
experience
and
knowledge
of
the
Chinese
market.
This
comprises
of
a
focus
on
developing
synergies
and
an
equity
joint
venture
where
we
will
compete
in
the
premium
beer
market,
as
per
consumer
preferences
for
foreign,
upmarket
and
exotic
products.
This
joint
venture
is
seen
as
a
more
suitable
option
as
the
risk
is
spread
between
two
parties,
and
depending
upon
the
outcome
of
strategic
negotiations,
we
recommend
that
CUB
aim
to
retain
control
over
the
entity,
due
to
the
a
higher
success
rate
seen
when
at
least
50%
of
the
equity
of
the
joint
venture
entity
is
owned
by
the
local
company
(see
Appendix
5).
Companies
to
consider
are
prominent
Chinese
brands
such
as
Tsingtao,
CR
Snow,
or
a
premium,
boutique
brand.
There
is
a
cost-­‐benePit
trade-­‐off
between
a
strategic
alliance
with
smaller
brands:
our
company
are
able
to
exert
more
power
in
negotiations,
whereas
an
alliance
with
one
of
China’s
leading
companies
would
allow
our
brand
access
to
a
wider
range
of
available
experience
and
resources.
18 Project
China
Proposal

19. Therefore,
we
suggest
that
the
joint
venture
is
made
with
Tsingtao.
Founded
by
British
and
Germans,
they
have
consolidated
experience
in
working
with
Western
brands
and
cultures,
and
their
distribution
networks
extend
to
most
of
the
world
(Tsingtao,
2015).
In
the
initial
stages,
our
Chinese
partner
will
initially
manage
the
these
established
channels.
The
choice
of
region
to
concentrate
on
would
in
the
end
be
made
in
conjunction
with
the
partnering
company.
It
is
shown
that
the
populations
with
the
highest
rates
of
disposable
income
are
located
in
coastal
areas,
along
with
the
highest
population
of
the
target
age
group
(see
Appendix
4).
However,
in
regards
to
target
consumer
age
brackets,
Sichuan
ranks
in
the
top
5,
as
well
as
being
out
the
cluster
of
coastal
options.
We
also
noted
that
a
cluster
of
Tier
2-­‐4
cities
are
located
in
Sichuan,
whose
populations
are
steadily
climbing.
We
suggest
that
distribution
be
set
up
here(with
the
possibility
of
setting
up
a
production
in
the
future),
as
intensity
of
competition
would
be
milder
due
to
minimal
existing
entries
(see
Appendix
4).
Additionally,
as
part
of
our
fully-­‐integrated
expansion
strategy,
CUB
will
also
aim
to
establish
a
presence
in
a
more
mature
market,
where
initial
production
will
be
located
in
Ningbo,
in
the
Zhejiang
region.
This
region
was
a
top
contender
in
each
factor
of
our
demographic
analyses
(see
Appendix
3).
As
Ningbo
is
a
seaport
city,
transactions
and
operations
between
Australia
and
the
Sino-­‐Australian
joint
venture
are
smoother,
with
this
hub
acting
as
the
economic
center,
thus
offering
preferential
policies
about
foreign
investments,
such
as
reduced
tax
for
projects
with
foreign
investment
exceeding
U S D $ 3 0
m i l l i o n
( N F T Z b ,
2 0 1 3 ) .
Furthermore,
Ningbo
is
only
one
of
Pifteen
Free
Trade
Zones
authorized
by
government,
a
factor
upon
which,
as
a
foreign
entity,
is
something
that
we
must
take
advantage
of
(NFTZa,
2013).
“Being founded by British
and Germans, [Tsingtao]
h a v e c o n s o l i d a t e d
experience in working with
We s t e r n b r a n d s a n d
cultures.”
19 Project
China
Proposal

20.
“With the Formula One being one of the most
prestigious sporting events in the world, attracting
300 millions fans all over China and the globe,this
sponsorship deal will be our alliance’s best
opportunity to enter the market.”
Moreover,
our
Chinese
partner
will
initially
manage
the
distribution
and
promotion
of
the
combined
company
through
their
established
marketing
networks.
We
will
leverage
our
new
partnership
and
sponsor
the
upcoming
2016
Chinese
Grand
Prix
in
Shanghai.
With
the
Formula
One
attracting
300
millions
fans
all
over
China
and
the
globe
(Wu,
2015).
Having
recently
ended
their
sponsorship
agreement
with
UBS,
the
Chinese
Grand
Prix
are
now
looking
for
new
partnerships,
and
this
sponsorship
deal
will
be
our
alliance’s
best
opportunity
to
enter
the
market,
investing
mainly
in
advertising,
promotions
and
athlete
endorsements
(Wu,
2015).
Finally,
we
recommend
that
a
team
is
formed
to
further
research
the
feasibility
of
our
direct
investment
into
the
Chinese
market
in
the
long-­‐term,
once
a
robust
and
trustworthy
brand
identity
has
been
established.
20 Project
China
Proposal

21.
APRIL
2015
CUB & Tsingtao enter agreement
to establish a joint venture.
CUB & Tsingtao negotiate
terms of arrangement.
OCT
2015
APRIL
2016
MAY
2016
APRIL
2018
SUMMER
2016-18
APRIL
2019
BEYOND
2019
Joint venture
commences
operations.
Production
commences
with Tsingtao
resources.
Chinese Grand
Prix sponsorship
campaign.
Commencement of further
expansion.
Operations will have been
established for two years, and
joint venture will establish new
plants in Ningbo/Sichuan to cater
for growth.
Monitor/reassess
expansion plan.
Commence takeover.
As a foreign partner with local
knowledge and experience, we
will undertake the acquisition of
the joint venture to become a
wholly-owned subsidiary.

22.
Step
One
(April
2015)
Our
strategic
joint
venture
will
be
established
with
a
third
party,
Tsingtao.
Together,
both
parties
provide
unique
skill
sets
and
products
to
ensure
successful
integration
and
synergies
imperative
for
growth;
which
would
not
be
possible
as
separate
entities.
Step
Two
(October
2015)
Over
the
following
six
months,
the
boards
from
both
the
foreign
and
local
parent
companies
will
negotiate
the
speciPic
terms
of
the
agreement.
A
transparent
and
thorough
agreement
that
is
consistent
with
guidelines
set
by
Pinancial
and
government
regulators
must
be
developed,
but
must
be
done
so
in
a
way
also
conforms
to
both
parties’
operational
values,
leaving
both
entities
Pinancially
and
legally
secure.
Prior
to
commencing
the
joint
venture
operation,
both
parties
are
required
to
reach
agreements
on
the
following
factors:
-­‐
Equity
share;
CUB
ideally
with
a
small
controlling
stake,
as
this
would
ease
the
later
steps,
while
still
allowing
for
a
higher
chance
of
success
(see
Appendix
5)
-­‐
The
exact
contributions
of
each
entity;
monetary,
existing
resources
and
technologies,
human
capital.
Tsingtao
will
offer
their
current
production,
distribution
resources
and
knowledge
of
the
market
to
the
joint
venture,
while
our
company
would
provide
the
brand,
materials
and
production
strategy
(i.e.
brewing
methods
and
relevant
expertise).
-­‐
Intentions
of
the
joint
venture;
i.e.
“What
are
the
intended
outcomes
of
this
strategic
alliance?”
“How
will
the
joint
venture
outcomes
will
be
achieved
efPiciently?”
“What
is
on
the
investment
horizon?”
-­‐
How
development
and
progress
with
be
monitored
and
measured.
-­‐
The
establishment,
distribution
and
protection
of
each
party’s
intellectual
property.
-­‐
Conditions
for
termination
of
the
agreement:
How
will
joint
intellectual
property
will
be
split
and
continue
to
be
protected;
how
future
proPits
from
combined
projects
will
be
split;
how
we
can
buy
out
the
partner,
and
who
will
bear
the
responsibility
for
any
future
obligations.
-­‐
Management
of
speciPic
business
areas;
deciding
between
dominant
control,
split
or
shared
control
of
the
joint
venture.
Step
Three
(April
2016)
Joint
venture
operations
commence
full-­‐time.
Step
Four
(May
2016)
In
order
to
reduce
our
Pinancial
risk
associated
with
a
foreign
joint
venture,
production
will
initially
utilise
Tsingtao’s
production
facilities.
IMPLEMENTATION
TIMELINE

23. Step
Five
(Summer
2016
-­‐
2018)
The
summer
months
present
the
optimal
season
to
commence
branding
of
our
new
luxury
beer
brand
towards
the
Chinese
market.
Drawing
upon
Tsingtao’s
marketing
knowledge,
as
well
as
their
experience
in
sponsoring
worldwide
events,
such
as
the
Beijing
Olympics
and
Shanghai
Expo,
our
new
luxury
brand
will
aid
Western
Plair
towards
an
upmarket
consumer
group.
We
will
bid
to
sponsor
2016
Chinese
Grand
Prix,
whom
are
currently
searching
for
new
partners
since
their
partnership
with
UBS
had
been
completed.
With
300
million
fans,
this
will
be
our
promising
opportunity
to
introduce
the
CUB
brand.
Step
Six
(April
2018)
After
consolidating
our
venture,
and
gaining
recognition
in
the
Chinese
market,
we
will
consider
further
domestic
expansion
in
order
to
cater
to
the
growth
of
the
population
and
demand.
This
involves
setting
up
our
own
local
production
plants.
Depending
upon
an
external
cost-­‐benePit
analysis
of
further
investment,
Tsingtao
may
continue
to
produce
our
line
of
product.
If
expansion
is
necessary,
we
shall
incorporate
plants
in
Ningbo
or
Sichuan
as
per
our
previous
analysis.
Step
Seven
(2016-­‐2019)
Through
the
venture’s
formative
years,
it
is
crucial
to
follow
our
intended
middle-­‐class
target
demographic
growth,
and
expand
with
it.
At
this
stage,
it
is
hard
to
precisely
predict
the
outcome,
we
must
follow
our
analyses
and
forecasts
for
different
regions,
and
our
operations
focus
on
the
continual
reassessment
of
new
marketing
strategies
that
are
required
to
be
developed
for
differing
regions
and
consumers.
Step
Eight
(2019
-­‐
)
If
the
joint
venture
proves
successful
for
our
brand
beyond
the
Pive-­‐year
horizon,
we
will
begin
to
analyse
the
viability
of
a
takeover.
With
what
will
be
Pive-­‐years
of
local
knowledge
and
experience,
we
will
be
prepared
for
our
eventual
direct
investment
in
the
world’s
largest
beer
consumption
market,
beginning
with
the
newly-­‐acquired
venture
that
will
become
our
wholly-­‐
owned
subsidiary.
In
conjunction
with
lagging
local
growth,
we
feel
the
time
is
right
to
expand
Carlton
&
United
Breweries
into
China:
a
mature
market,
that
is
continually
seeking
premium
quality
beer,
presents
an
opportunity
for
proPit,
that
is
still
showing
signs
of
growth.
Strong
brand
awareness,
along
with
continued
growth
in
GDP
and
capitalisation
of
existing
distribution
channels,
are
key
in
determining
success
of
the
expansion.
Through
a
joint
venture,
with
Tsingtao,
we
believe
CUB
can
overcome
protectionist
policies
to
take
advantage
of
the
rising
disposable
income
of
the
growing
middle
class
and
burgeoning
20-­‐34
age
bracket
in
increasingly
urbanised
cities.
Beyond
the
immediate
horizon
of
international
expansion
through
a
strategic
alliance,
direct
investment
in
wholly-­‐owned
subsidiary
may
be
the
next
step
in
the
direction
towards
integrated
success
for
Carlton
&
United
Breweries
in
the
Asian
market.

24.
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27.
APPENDIX ONE
Volume Growth Rates of Beer Consumption (Source: SABMiller, 2014)
APPENDIX TWO
Premium Beer as Percentage of Total Beer Consumption
Source: SABMiller, 2014

28. Top Ten Ranking of Regions by Age Group Concentration,
Gross Regional Product and Disposable Income
(Source: China Bureau of Statistics, 2015)
APPENDIX THREE
Ranking
Population of 15-64
year olds
Gross Regional
Product per capita
Per capita Disposable
Income
1 Guangdong Tianjian Shanghai
2 Shandong Beijing Beijing
3 Henan Shanghai Zhejiang
4 Jiangsu Jiangsu Guangdong
5 Sichuan Zhejiang Jiangsu
6 Hebei Inner Mongolia Tianjian
7 Hunan Laioning Fujian
8 Hubei Guangdong Shandong
9 Zhejiang Fujian Liaoning
10 Anhui Shandong Inner Mongolia

29.
Middle Class Sub-regional Distribution
Source: McKinsey & Company, 2015
APPENDIX FOUR

30.
APPENDIX FIVE
Joint Venture Performance, Based on Equity
Structure
Source: Delios, Beamish, 2004

31. MELBOURNE
BUSINESS
SCHOOL
APRIL
2015
DESIGNED
BY
ROBERT
AU
FOR
JANE
LU