Pacific Western Brewing
...ss market) presents a negative image in the beer market segment that differentiates based on product quality. The threat of substitutes is likely to be low as PWBC products are marketed to customers seeking unique product benefits. However, imported US beers that provide product benefits similar to PWBC at lower costs are likely to be considered by consumers as product substitutes. The threat of suppliers is moderate, given the regulatory environment of product distribution in the Canadian provinces. Taken together, the five forces imply that PWBC could earn above average returns by pursuing a differentiation strategy in the beer industry. To implement the focused differentiation strategy, PWBC needs to develop internal competencies that compliment its strategy. Komatsu has already implemented elements of the company’s differentiation strategy by implementing value creating activities such as superior handling of logistics by better inventory control, company wide emphasis on producing high quality products, superior personnel training on managing change, investments in Information systems for supporting business decisions, encouraging worker productivity through employee participation in business management, building stronger marketing through improved product packaging, advertisement and product service. Market demand. The consumption of beer in North America has become stagnant due the health consciousness of the consumers. In addition, the aging of the population tends to diminish overall beer consumption. The outlook for beer demand in North American is stagnant. Faced with a stagnant demand in the domestic markets, firms like PWBC have an incentive to pursue international opportunities. New Products. PWBC has many firsts to its credit: being the first to market malt beer and draft beer in cans and bottles, first to market dry beer and first to market canned beer in BC. By having a variety in the products offered for a discerning market segment (customers with a preference for PWBC beers due to its quality and taste) PWBC can maintain small batch sizes which cannot profitably fit into the scale production operations preferred by major brewers. Thus product variety affords a ‘protection’ to PWBC from the competition by major brewers. The success of dry beer in the market is yet to be gauged – and depends on the acceptance of the product’s distinctive taste, despite the high alcohol content, by the Canadian beer drinkers. Mode of entry. Given the incentive for international business operations ( i.e to overcome the stagnancy of domestic beer market), PWBC is faced with the question of choosing a strategy for international expansion and the choice of entry into the international market. PWBC’s strength lies in providing unique benefits to the customers in terms of product taste, manufacturing processes (cold filtering and not pasteurized) and use of special ingredients (aquifer spring water). Therefore a focused differentiation strategy that targets a market segment in an international market is a prudent strategy. Presently, the company has two opportunities – expanding sales to Japan and to the US. Japan: The pros and cons of business operations in Japan and the impact on market entry mode for the company are as follows:- Pros Cons Differentiation based on use of aquifer spring water of North America as an ingredient is appreciated in Japan. This means that a key ingredient needs to be sourced from Japan. Higher transportation costs (given the low value for a given volume / weight of product). Alcohol content preferred by Japanese consumers is closer to the content in own (Canadian) beer. Beer consumers need to accept the unique differentiating features of the products. This factor raises the risks of a high initial investment in foreign operations. Komatsu’s exporting experience to Japan. Strong need for advertisement and marketing to establish brand image. Despite the high transportation costs of exporting to Japan, as the product is differentiated due to the perceived benefits of using pure spring water, exporting products to Japan becomes an advantageous option. The disadvantage of exporting is that PWBC needs to rely on Japanese distributors, advertiser and marketers for its product’s success. Although licensing may be an option to consider, the prospect of lesser control on manufacturing makes the option risky. Moreover, the value derived from using N. American aquifer spring water may be lost. Similarly, unless economies of scale can be achieved in sourcing spring water from N. America as an ingredient, product manufacturing in Japan may not be an advantageous option. Therefore, exporting products to Japan is a viable option. Given the uncertainties associated with the acceptance of the product’s unique features (taste, alcohol content, spring water ingredient, non pasteurized product, etc.) in the Japanese market, investment modes of entry such as joint ventures may be a risky proposition. Exporting is a viable mode of entry for the company into the Japanese market. Unites States: The pros and cons of business operations in the West Coast of US and the impact on market entry mode are as follows:- Pros Cons Lower transportation costs. Government regulations on beer cans affects product packaging and distribution. Komatsu’s ability to overcome the impact of US regulations. Beer consumers need to accept the unique differentiating features of the products. Strong need for advertisement and marketing to establish brand image. Given the advantage of low transportation costs across the border and the low volume of high quality product sales, market entry mode by exporting to the US is an attractive option. Since PWBC products are differentiated by quality and taste and do not lend themselves to economies of scale by mass production, setting up additional manufacturing sit...