The Bacardi limited

INTRODUCTION and RESEARCH CHALLENGE

Bacardi Limited is one of the biggest Spirits company in the world, being the biggest family owned one,,
managing a largely diversified portfolio, covering most price point's levels and core categories.
It operates in more than 110 markets, mainly through its own distiribution net, or via local joint-ventures,
with approximately 5.000 employees, showing a very interesting ratio of 1 Million Euros of gross sales
per employee.
Being one of the biggest in the world (3rd), it still has a great distance from the 1st (Diageo) and the 2nd
(Pernod-Ricard), raising a critical mass challenge in order to protect future revenues.
Knowing that FY 2009 represented the year in which a steady gross sales growth was interrupted, my goal
is to raise some paths for Bacardi in order to address its weaknesses, leverage its strengths, so that it will
be able to seize the biggest business opportunities ahead.
I believe that Bacardi owns an un-leveraged strength that can catapult the company to a much near
position to the Top2 players in the world.

ENVIRONMENT
PEST Analysis
Political:

There is a clear trend of increasing regulation concerning alcohol brands communication. It is not
possible to use high traffic TV or Radio time spots. Near school locations tend to be out of access
to develop activities.
Night activities neighborhoods increasingly tend to be under time limits or pressure, due to
security, noise or political image issues (example: Red Light District in Amsterdam reduced
number of Coffee-Shops and Prostitute windows licenses; Bairro Alto neighborhood in Lisbon saw
its opening limit for Bars/Discos limited from 4am to 2am)
Specific alcohol taxing changes heavily throughout markets, however it still is a big source of
revenues for government authorities, and dramatically changes the price positioning of brands
since it usually is not proportional (related to alcoholic degree and type of drink). The taxes part
for a typical branded low priced Vodka or Whisky usually account for at least 50% of final price,
being the rest split between producer and distributors.
Full accessibility is not authorized (through dispensing machines for example), and its increasingly
more regulated (chocolates, soft drinks are watching higher regulation on this issue)
Legal age: changes across the globe, but there is a clear trend on establishing 18 years old as the
norm. Still there are 30 countries in the world with less than 18 or no limit for alcohol drinking.
This group has been steadily shrinking (see exhibit 1).

Economical:

Spirits business is valued in more than 18.000 million litters worldwide

Market has been slightly decreasing at a CAG -0,3% (00/05), and it's expected to grow onwards at
1% rate, until 2011
Asia, Latin America, North America, Africa and Middle East have been the most dynamic regions
in consumption during the last 5 years. Western Europe has been very slightly positive and Eastern
Europe negative. It is expected that this trend split among regions keeps.
Bacardi holds a rather strong position in North America and Western Europe, but it's clearly out of
scope from Latin America and Eastern Europe large regions, as well as from dynamic Africa and
Middle East.

Socio-Cultural:

Social responsibility concerning alcohol consumption is increasingly getting visible. Spirit

companies like Bacardi invest today more in these kind of initiatives in order to clearly show to
authorities that they protect and communicate responsible drinking. Besides the lobby/influence
issue, among urban centers, social responsibility initiatives are turning more important as a brand
decision factor (see exhibit 2)
Alcohol consumption moments are changing - youngsters are less brand-driven. However, adults
seem to be increasingly brand driven. These social trend can lead to the creation of a bigger gap
between premium and non-premium brands, jeopardizing the critical mass for mainstream (inbetween) brands.
The need state tends to be than split among 2 big reasons: the Kick need (alcohol kick to feel
integrated in your young social group), and the pleasure-social need (in which you drink to feel
pleasure, relax and have fun).
Nevertheless, for both, easiness to drink is an increasing feature that is clearly related to specific
brands growth during the last years. The sweet flavors, ready to drink mixtures, and the mix-ability
are key to recruit youngsters that don't have the patience for complex drinking rituals.

Technological:
In this industry, technology doesn't play a highly relevant role on the business. However, state of the art
producing technology is increasingly important to develop quality products, which must have its
organoletics under absolute control, in order to keep consumer satisfied and confident on product intrinsic
characteristics.

INDUSTRY ANALYSIS
Substitutes
There are several substitutes for spirits. The most important is spirits itself, since strong consumer trends
lead to substitution among sub-categories over time (example: in Spain, during the last 10 years, the
Whisky category lost almost 50% of the consumers that were largely transferred to the Brown Rum
category).
Beer and Wine are the major competitors, followed by Water and Soft Drinks. However there is an
essential complimentary role of soft drinks with spirits which is its mix-ability (see exhibit 3).
Nevertheless, due to increasing alcohol control, some consumers are increasingly drinking soft-drinks
during lunch and night. Beer industry is, in the end, the most dangerous substitute for spirits.

Competitive Rivalry

Night outlets have small space for spirits visibility and stock, so rivalry in the process of achieving
an outlet loyalty is very high (mainly through local agreements, rebates, discounts, offers, etc)
This is especially true having in account that for mainstream and low priced products, there is little
or no differentiation, which means that there is a low brand call in the spirits category (exception
made for some premium brands). The regular consumer does not ask for a specific brand when
drinking vodka, whisky, gin or rum.
This situation clearly leads to price wars and highly spread distribution capacity dependence.
The ability to own a local distribution company is competitive advantage versus others that don't.
Nevertheless, is very common to watch distribution agreements between apparent competitors in
certain markets (for example, Brown-Forman is distributed by Bacardi in Europe, but not in Spain,
as well as most part of eastern Europe).

Power of Customers

Comparing to other industries like Household, Body Care, and general consumer goods categories,
the power of customers for Spirits is relatively low, since the dependence on big international
retailers is also lower than average. This means that the weight of independent and local
wholesalers is usually high, reducing the dependence on big national chains.
Going one layer below (Restaurants, Hotels, Discos, Bars, Resto-Bars, Cafes, etc) the power is
completely diluted
However, the commoditization of some categories have allowed the easy switching between
brands

Power of Suppliers

It is very low - one can buy cane, malt, sugar, glass, labels and manufacturing machines from
several suppliers.
here is however a reasonable variability of natural raw materials, depending on market quotations,
which may not be immediately recovered because customers/markets do not accept several price
movements within a short period of time.

THE COMPANY

Bacardi Limited.
Bacardi is privately owned, meaning that financial information for the company is disclosed in a very
limited manner. However, as it produces only spirits (and wine), sales and profits can be said to directly
derive from these businesses.
Gross sales in 2006 stagnated at just over US$4.5 billion after the previous year's 10% leap in sales. It
could be in part explained by a mixed performance in terms of volumes, with RTDs[1], wine remaining
static but spirits seeing good growth.
This category trend reinforced throughout the next years, specially the strong growth in spirits, turning
possible Bacardi to achieve just over US$4.9 billion in 2007, US$5.5 billion in 2008, and finally US$5.3
billion in 2009. This fiscal year (FY'09) was responsible for the stop of a steady growth during the last 4
years.
The continued global role out of its Grey Goose vodka brand, as well as the Bombay Sapphire gin brand
positive performance, seem to be the main factors for recent growth.
Overall finances seem healthy as the company's CEO said the company would have no problem funding a
bid for Swedish company V&S, Vin & Sprit, valued at US$5-6 billion, 50% higher than its current gross
sales, which was finally bought by Pernod-Ricard. Funds would probably come from a combination of
cash reserves and bank loans.
Bacardi is headquartered in Hamilton, Bermuda and has a 16-member board of directors led by the
original founder's great-great grandson, Facundo L. Bacardi.
Facundo Bacard was born in Sitges, Catalonia, Spain in 1814 and emigrated to Cuba in 1830. During this
period, rum not considered a refined drink, so Don Facundo began attempting to "tame" rum. He finally
hit a perfect technique upon filtering the rum through charcoal (removing impurities) and aging it oak
barrels ("mellowing" it).
Facundo and his brother Jos set up shop in a Santiago de Cuba distillery they bought in 1862, in which
rafters lived fruit bats, which finally became the symbol of the rum and the company. After the
independence war and the US occupation, "The Original Cuba Libre" and the Daiquiri were both born
with Bacardi rum. It then started the company's international expansion by opening new bottling plants in
Barcelona and New York City.
Some Bacardi family members initially supported the Cuban revolutionaries (including Fidel Castro).
Family members, employees and facilities were put to use by the movement, and the company supported
the revolution publicly with advertisements and parties. But their support turned to fierce opposition as the
pro-Soviet Che Guevara wing of the movement began to dominate, and as Castro turned dictatorial.

The Bacardi family and company left Cuba after it became clear that Castro was serious about his pledges
for nationalizing and banning all private property on the island as well as all bank accounts. However, the
company moved the all important Bacardi international trademarks out of the country to the Bahamas
prior to the revolution. The fact that it owned a plant in Puerto Rico to save in import taxes for rum being
imported to the US, also helped the company survive after the communist government nationalized all
Bacardi assets in the country.
Bacardi, despite having no production (and businesses) in Cuba today, have decided to re-emphasize their
Cuban heritage in recent years, mainly due to commercial reasons: the main brand of rum in Cuba is
called Havana Club, a formerly private company nationalized by the government. In 1998, under the
distinctive bat logo, the phrase "company founded in Santiago de Cuba in 1862" was added. Bacardi
continues to fight a war in the courts with the Cuban government of the rights to trademarks around the
world.

Products
Bacardi has made several acquisitions to diversify away from the Bacardi rum brand: in 1992 acquired
Martini & Rossi, the famous Italian producer of Martini vermouth and sparkling wines; in 1998 acquired
Dewar's scotch and Bombay Sapphire gin for $2 billion; in 2001 acquired the Cazadores tequila brand; in
2004 purchased Grey Goose, a French made vodka, from Sidney Frank for $2 billion; in 2006 purchased
New Zealand vodka brand 42 Below. Other associated brands include the U.S. version of Havana Club,
Drambuie Scotch whisky liqueur, Disaronno Amaretto, Eristoff vodka and B&B and Bndictine liqueurs.

Strategy
Bacardi's strategic objectives are difficult to define due to the private nature of the company. However it
seems its main aim is to become one of the leading global spirits companies.
Despite having a number of wine brands (especially its Martini vermouth), the company does not seem to
see this as a particularly core area and unlike similar international companies like Diageo, Pernod Ricard
and Fortune Brands, Bacardi has not added to its wine portfolio since the turn of the century.
The company seems increasingly focused on vodka as a key growth driver for its spirits business. The last
two major acquisitions by the company have been vodka brands, notably Grey Goose in 2004 and 42
Below in 2006. This was followed in March 2007 by the company expressing a written interest in V&S,
the owner of Absolut (that finally was bought by Pernod-Ricard).
Despite having a relatively broad portfolio of spirits brands, the company does lack in certain categories,
and should seriously expand further into other areas especially brown spirits, such as single malt Scotch
whisky, Irish whiskey, bourbon/other US whiskey, cognac and liqueurs. Extending its brown spirits
portfolio would also help it expand into rapidly expanding emerging markets such as China, India and
Russia, where actually are the most dynamic markets and in which Bacardi has the lowest position.
To become a global company and not fall too far behind other global players the company needs to rapidly
expand its distribution network into the more dynamic emerging markets, such as China and India. Yet to
do this, as stated before, it will need to expand its brown spirits portfolio.

Financials
The aggressive acquisition strategy of Bacardi has clearly brought strong results in gross sales (just below
6% CAG), mainly supported by its already installed and spread distribution structures.
One can confirm also that Gross Profit has been growing at an almost double rate of Gross Sales' one (just
over 11%), which should be related to good improvements in cost of goods (mainly driven by plant
closings and production rationalization), and also the increasing weight of white spirits and premium
brands in business, which have lower relative cost of goods, compared to vermouths and lower priced
brands.
Operating profit has been registering very good progression (just over 16% CAG), which show a good
control on fixed costs (structure, people), which permit the company to continue to fuel the growth
redirecting funds to Advertising, Promotion, Selling structure and IT support.

Finally, the just over 27% CAGR on Net Profit shows that interest expenses and taxes are decreasing its
relative weight in the operating profit, showing an superior ability to pay its debt, as well as an aggressive
fiscal policy. [2]
Nevertheless, the downturn in 2009 figures (caused by the economic depression that we are still facing at
this time) raises perhaps other challenges that were slightly covered by the previous good figures.
Looking specifically to 09 - 08 progression, although there is a good performance on adapting to the
negative sales situation, both trade investments rates and COG's (see Gross Profit less negative variation
of -1%), the same didn't happen when looking to Operating Profit, probably due to the choice of not
stopping most of the advertising & promotion campaigns in order to accommodate the higher relative
weight of infrastructure in business.
Once we know that Bacardi has a very decentralized operational organization (local OPCO's are full P&L
responsible), it has, on the contrary, a very centralized Strategic Marketing department (with full
responsibility for global brands campaigns, which account for 55% of total business). The natural question
is that if this structure is the ideal one for next years, in order to fuel the growth?

Implementation of Strategy
SWOT
Once there is very little information available about Bacardi Limited, instead of addressing the strategy
implementation area by area (which is almost totally unknown), I will address the challenge starting with a
global SWOT analysis.

Strengths

Bacardi owns the world's leading rum brand - the company accounted for 18% of global sector
volume sales in 2005. This has provided the company with a strong consumer base and a high level
of recognition in the valuable North American and Western European markets.
Strong finances - plenty of resources to expand in which ever way it chooses.
Broad sector coverage - Bacardi has also expanded its portfolio in the direction of fast-growing
spirits such as vodka, blended Scotch and tequila, in addition to moving towards premium
products, which are capturing share in developed markets.
Strong distribution network - Bacardi has achieved global reach, with strong distribution networks
in North America, Latin America and Western Europe. Bacardi has also established significant
strategic alliances with other major alcoholic beverage producers (bigger example is BrownForman), which are extremely important as the company meets the challenges of a rapidly
consolidating market.

Weaknesses

Too much rum - despite recent acquisitions the company is still overly reliant on rum which
accounted for just over 60% of the company's volume sales FY05, which is its only spirit with a
truly global reach.
Broad coverage, but weaker depth - the company has a limited range of brands in each product
area and is too reliant on key brands such as Bacardi in Rum, Grey Goose in vodka and Dewar's in
whisky. There fore, product portfolio is still wanted - Bacardi still lacks a major presence in a
number of sectors, such as: single malt whisky, cognac and liqueurs. The first two categories are
relatively small but growing strongly, and due to their premium nature offer good margins, while
liqueurs are expected to grow strongly especially in Western Europe and North America where the
company is strongest.
oo reliant on North America and Western Europe - these two regions accounted for around 80% of
the company's sales in FY05. This is not bad with spirits (performing strongly in both regions), yet
RTDs show this is as a weakness as both regions have seen a sharp decline in volumes.
Additionally, it still has a Weak distribution in dynamic growth markets (still a negligible presence
in South Africa or China)

Opportunities

Dynamic rum - Bacardi's core sector is forecast to show strong growth over the 2006-2011 period
(with volume sales up 15%), particularly in North and Latin America, Western Europe and AsiaPacific. Demand is driven by rum's suitability for use with mixers and in cocktails and the growing
popularity of flavored varieties.
Dynamic vodka - vodka is expected to see strong growth in Bacardi's two leading regions (North
America and Western Europe). Bacardi seems well positioned to exploit this growth.
Booming blended Scotch - blended Scotch whisky is expected to grow strongly in many
developing markets such as China but also in Latin America (+20.7 million litres, 2006-2011),
where Dewar's is well placed and holds an established prestige.
Booming tequila in Mexico and the US - Bacardi substantially increased its presence in the
fashionable tequila market when it acquired Tequila Cazadores. Global sales of tequila are
predicted to grow by up to 30% over the next 5 years, especially driven by the US and Mexico.

Threats

Increased consolidation in global spirits industry - following Pernod Ricard's and Fortune Brand's
acquisition of Allied Domecq, Bacardi has slipped one place in the US to third.As wll as in
Europe, Bacardi's bargaining power has decreased compared to Pernod's after Allied Domecq
acquisition.
Havana Club dispute - the company was involved in a number of court cases at the time of writing,
including one with Pernod Ricard and the Cuban Government over the ownership of the Havana
Club brand name, which has the potential to act as a significant drain on company resources.
Besides this fact, if Bacardi loses the Havana Club trademark for US, Pernod may invest
signigicant amount of resources to develop the brand and capture market share in this market.
Changes to taxation and legislation relating to alcohol - changing government policies such as in
the advertising of spirits may well adversely affect spirits manufacturers, as governments in major
markets become increasingly sensitive to the negative health impact of alcohol consumption and
the rise in binge drinking amongst younger consumers.

Organization
Bacardi is a global company operating in 110 countries in three world regions (EMEA, Americas and
Asia-Pacific), with about 5,000 employees. Corporate headquarters is in Hamilton, Bermuda, being that
each of the regions has its own regional headquarters and bottling plants, as well as each market local
operating companies.
Under the region headquarters, Bacardi business activities are organized around role & responsibilities
silos, reporting to the Regional Vice-President: Marketing, Finance, Sales, Supply chain/Operations, IT
and HR. However local markets General Directors (and its teams) report to the Regional Vice-President.
Product research and development is centralized in the U.S., in a non-disclosed department. However it is
known that the same base products are sold worldwide, suffering sometimes regional customizations.
Countries, Regions and markets are free to develop its own R&D, although with very scarce resources.

Processes
Bacardi owns a regional company for each of the 3 regions, which buys all products to the bottling plants,
reselling them to the local operating companies. Manufacturing is organized by region - no additional
information is disclosed.

Talent Management and Employee Development

Very recent HR initiatives include talent identification/retention. Each local market has its own
performance planning process. No additional disclosed information.

Incentives and Rewards.

According to collected information, sales teams usually have 30% of its yearly gross salary based on
commercial performance, and managers do have yearly targets. No disclosed information.

The Culture
In line with its local entrepreneurship spirit and almost full local autonomy, there isn't a unique Bacardi
culture, but a mix of cultures, coming from the Cuban heritage from the American region, and an Italian
heritage from Martini & Rossi acquired company in Western Europe region.

Corporate Governance and Control

Recent increase of executive teams at regional headquarter may indicate there is a project on corporate
governance, that is totally different from the previous in which the only global structure was the Strategic
Marketing one.

CONCLUSIONS & RECOMMENDATIONS

The conclusions have 2 main dimensions: the portfolio/market one, and the organizational/intrinsic one.
Both are interconnected at a certain point.

Broad sector spread offers Bacardi potential

The company's leading position in global rum should be able to exploit the dynamic growth rate of
3% in global rum sales especially in the company's largest regions (Americas and Western
Europe).
Following the acquisition in 2006 of the 42 Below vodka brand the company has a range of vodkas
which it can use to exploit the strong growth in vodka predicted for North America and Western
Europe.

Narrow geographic spread inhibits full potential

The company's current strength in three regions will limit its ability to exploit generic growth, but
especially in blended Scotch whisky. Asia-Pacific, Latin America, Eastern Europe, Africa and the
Middle East are predicted to grow a total of (52 + 26 + 7 + 18 million litres respectively over the
next 5 years). Meanwhile Western Europe and North America will remain flat, thus fully exploit
blended Scotch whisky's growth it will need to improve distribution in those dynamic regions.
The lack of presence in the emerging markets, will not allow it to exploit full growth potential in
rum and vodka.
The focus on Western Europe and North America is very pronounced in RTDs, which leaves the
company equally vulnerable, as both regions will suffer declines in sales of RTDs. The company
needs to exploit the dynamic growth in other regions.

More attention needed on brown spirits

Bacardi could also do with expanding its range of brown spirits (notably in single malt Scotch
whisky and cognac), because they would greatly enhance value sales and give the company greater
strength when trying to develop its distribution network into emerging markets.
The company could also look to expand its portfolio into other whisky products notably Irish
whiskey and bourbon whiskey, which are expected to grow.
The acquisition of Rmy Cointreau would give Bacardi leading brands in two of the three
categories, notably the world's second biggest cognac, Rmy Martin, and the Cointreau liqueur
brand. The French company has indicated that it is likely to be up for sale with its announcement
of leaving the Maxxium distribution alliance. Additionally, family-owned William Grant & Sons
and Edrington Group have strong single malt Scotch brands. Any acquisition would be reliant on
the companies' owners wanting to sell.
The acquisition of Brown-Forman would fill Bacardi's liqueur and bourbon whiskey portfolio and
it would also gain a vodka with good international presence.
The company should also look to expand its distribution network in dynamic markets such as in
Asia-Pacific and Eastern Europe. The company should look to do this by creating joint ventures

with local companies, especially in countries such as China where it has very limited local
knowledge.

Core / Organizational recommendations

Create a Vision for the Bacardi company within 5 years, and clarify the transversal values needed
to bring the "task" fulfilled, rolling out through regional structures the necessary local markets
plans. This could be completed with the identification of core competencies to identify, follow and
develop.
Develop a Top-Down activity in order to create common ground and objectives among markets
should be taken place. This is key to put top managers around the world struggling for the same
final goals, instead of executing whatever actions they might think are the best for its own
business.
Develop a process through which the global strategic marketing department clarifies global brand
positioning, without jeopardizing local market flexibility. This could be done revisiting the roles
and responsibilities of local and global structures, as well as turning it nearer to consumer and
shopper trends.
Besides looking to acquisitions, strong R&D developments should be undertaken. Under current
brands, it may exist potential extensions, flavors or product developments in order to fulfill
consumer trends and needs.

Summarizing:

In order to exploit organic business opportunities (rum, vodka and tequila), it is key to develop and
roll-out processes to secure that all managers and its teams share the same core objectives and
values., as well as investing in R&D (innovation) for actual core brands.
Bacardi should develop its distribution coverage (fully owning or joint-venturing) especially
aiming towards Asia-Pacific, Eastern Europe, Africa and Middle-East. However in most of these
areas it is key to own a brown spirits portfolio and/or a single malt scotch whisky, which still is not
a reality. Therefore, it is key to previously acquire strong brands in these categories, so that the
distribution expansion delivers a highly positive return.

BIBLIOGRAPHY

http://www.bacardilimited.com/view_file.aspx?f=bacardi_annual_report_2009.pdf
http://www2.potsdam.edu/hansondj/index.html
http://www.euromonitor.com

1. Ready to drink (often known as RTD) is a term used to describe packaged beverages that are sold
in a prepared form, ready for consumption. The term is typically used to contrast packaged forms
of beverages that are also sold in forms that require preparation, for example iced tea (which can
also be prepared using tea leaves and fruit juice) and Alcopops (which can be prepared by mixing
alcoholic beverages with fruit juices or soft drinks)
2. Collected and summarized information from Euromonitor and Bacardi Annual Reports
3. Prof. David J. Hanson, Ph.D. - Sociology Department, State University of New York, Potsdam, NY
13676.
4. Global Marketing Campaign and replication for Portuguese Market (call a Taxi)

SWOT Analysis of Bacardi with USP, Competition, STP (Segmentation, Targeting, Positioning) - Marketing
Analysis

Bacardi
Parent
Company

Anheuser-Busch

Category

Beverages

Sector

Food & Beverages

Tagline/ Slogan You know when it's Bacardi; Live like you mean it
BACARDI rum is the worlds favorite, most awarded and the top-selling rum in the
world.

USP
STP
Segment

People who like to socialize over drinks at a relaxing and inviting atmosphere.

Target Group

Young urban men and women

Positioning

Great drinks and great parties at an affordable price.

SWOT Analysis
1. Public image-well established brand
2. Vast product line and one of the most popular brands
3. Commercials, tie-ups with clubs & parties
4. Good Availability across the world in over 150 countries
5. Strong brand presence through advertising
6. Bacardi Limited has a employee base of over 6000 and has 27 facilities in 16
markets.
Strengths

7. It sells an average 200 million bottles per year globally

1. Strong competition from other brands and local products means market share
growth restricted

Weaknesses

2. Govt rules and policies on drinking affects performance and sales

Opportunities

1. More penetration International markets

2.Newer ways of distilling
3. Innovating marketing and branding

Threats

1. Competition from other brands

2. Low calorie drinks
3. Rising cost of goods and services

Competition

Competitors

1.Havana club
2.Appleton

Introduction
There is continuing interest in the study of the forces that impact on an organisation, particularly those that can be harnessed
to provide competitive advantage. The ideas and models which emerged during the period from 1979 to the mid-1980s (Porter,
1998) were based on the idea that competitive advantage came from the ability to earn a return oninvestment that was better
than the average for the industry sector (Thurlby, 1998).

As Porter's 5 Forces analysis deals with factors outside an industry that influence the nature of competition within it, the forces
inside the industry (microenvironment) that influence the way in which firms compete, and so the industrys likely profitability is
conducted in Porters five forces model. A business has to understand the dynamics of its industries and markets in order to
compete effectively in the marketplace. Porter (1980a) defined the forces which drive competition, contending that the
competitive environment is created by the interaction of five different forces acting on a business. In addition to rivalry among
existing firms and the threat of new entrants into the market, there are also the forces of supplier power, the power of the
buyers, and the threat of substitute products or services. Porter suggested that the intensity of competition is determined by the
relative strengths of these forces.

Main

Aspects

of

Porters

Five

Forces

Analysis

The original competitive forces model, as proposed by Porter, identified five forces which would impact on an organizations
behaviour in a competitive market. These include the following:

The rivalry between existing sellers in the market.

The power exerted by the customers in the market.

The impact of the suppliers on the sellers.

The potential threat of new sellers entering the market.

The threat of substitute products becoming available in the market.

Understanding the nature of each of these forces gives organizations the necessary insights to enable them to formulate the
appropriate strategies to be successful in their market (Thurlby, 1998).

Force

1:

The

Degree

of

Rivalry

The intensity of rivalry, which is the most obvious of the five forces in an industry, helps determine the extent to which the value
created by an industry will be dissipated through head-to-head competition. The most valuable contribution of Porter's five
forces framework in this issue may be its suggestion that rivalry, while important, is only one of several forces that determine
industry attractiveness.

This force is located at the centre of the diagram;

Is most likely to be high in those industries where there is a threat of substitute products; and existing power of
suppliers and buyers in the market.

Force

2:

The

Threat

of

Entry

Both potential and existing competitors influence average industry profitability. The threat of new entrants is usually based on
the market entry barriers. They can take diverse forms and are used to prevent an influx of firms into an industry whenever
profits, adjusted for thecost of capital, rise above zero. In contrast, entry barriers exist whenever it is difficult or not
economically feasible for an outsider to replicate the incumbents position (Porter, 1980b; Sanderson, 1998) The most common
forms of entry barriers, except intrinsic physical or legal obstacles, are as follows:

Economies of scale: for example, benefits associated with bulk purchasing;

Cost of entry: for example, investment into technology;

Distribution channels: for example, ease of access for competitors;

Cost advantages not related to the size of the company: for example, contacts and expertise;

Government legislations: for example, introduction of new laws might weaken companys competitive position;

Differentiation: for example, a certain brand that cannot be copied (The Champagne)

Force

3:

The

Threat

of

Substitutes

The threat that substitute products pose to an industry's profitability depends on the relative price-to-performance ratios of the
different types of products or services to which customers can turn to satisfy the same basic need. The threat of substitution is
also affected by switching costs that is, the costs in areas such as retraining, retooling and redesigning that are incurred
when a customer switches to a different type of product or service. It also involves:

Product-for-product substitution (email for mail, fax); is based on the substitution of need;

Generic substitution (Video suppliers compete with travel companies);

Substitution that relates to something that people can do without (cigarettes, alcohol).

Force

4:

Buyer

Power

Buyer power is one of the two horizontal forces that influence the appropriation of the value created by an industry (refer to the
diagram). The most important determinants of buyer power are the size and the concentration of customers. Other factors are
the extent to which the buyers are informed and the concentration or differentiation of the competitors. Kippenberger (1998)
states that it is often useful to distinguish potential buyer power from the buyer's willingness or incentive to use that power,
willingness that derives mainly from the risk of failure associated with a product's use.

This force is relatively high where there a few, large players in the market, as it is the case with retailers
an grocery stores;

Present

where

there

is

large

number

of

undifferentiated, small suppliers,

such

assmall

farming

businesses supplying large grocery companies;

Force

Low cost of switching between suppliers, such as from one fleet supplier of trucks to another.

5:

Supplier

Power

Supplier power is a mirror image of the buyer power. As a result, the analysis of supplier power typically focuses first on the
relative size and concentration of suppliers relative to industry participants and second on the degree of differentiation in the
inputs supplied. The ability to charge customers different prices in line with differences in the value created for each of those

buyers usually indicates that the market is characterized by high supplier power and at the same time by low buyer power
(Porter, 1998). Bargaining power of suppliers exists in the following situations:

Where the switching costs are high (switching from one Internet provider to another);

High power of brands (McDonalds, British Airways, Tesco);

Possibility of forward integration of suppliers (Brewers buying bars);

Fragmentation of customers (not in clusters) with a limited bargaining power (Gas/Petrol stations in remote places).

The nature of competition in an industry is strongly affected by the suggested five forces. The stronger the power of buyers and
suppliers, and the stronger the threats of entry and substitution, the more intense competition is likely to be within the industry.
However, these five factors are not the only ones that determine how firms in an industry will compete the structure of the
industry itself may play an important role. Indeed, the whole five-forces framework is based on an economic theory know as
the Structure-Conduct-Performance (SCP) model: the structure of an industry determines organizations competitive
behaviour (conduct), which in turn determines their profitability (performance). In concentrated industries, according to this
model, organizations would be expected to compete less fiercely, and make higher profits, than in fragmented ones. However,
as Haberberg and Rieple (2001) state, the histories and cultures of the firms in the industry also play a very important role in
shaping competitive behaviour, and the predictions of the SCP model need to be modified accordingly.

How

to

write

Good

Porter's

Forces

analysis

The Porters Five Forces model is a simple tool that supports strategic understanding where power lies in a business situation.
It also helps to understand both the strength of a firms current competitive position, and the strength of a position a company
is looking to move into. Despite the fact that the Five Force framework focuses on business concerns rather than public policy,
it also emphasizes extended competition for value rather than just competition among existing rivals, and the simplicity of its
application inspired numerous companies as well as business schools to adopt its use (Wheelen and Hunger, 1998).

With a clear understanding of where power lies, it will enable a company to take fair advantage of its strengths,
improve weaknesses, and avoid taking wrong steps. Therefore, to apply this planning tool effectively, it is important to
understand the situation and to look at each of the forces individually.

In conducting an analysis of Porters Five Forces, it is required to brainstorm all relevant factors for the companys market
situation, and then check against the factors presented for each force in the diagram above. The next step is to highlight the
key factors on a diagram, and summarize the size and the scale of the force on the diagram. It is suggested to use relevant
signs, for instance, + and -" to represent the forces moderately in companys favour, or for a force strongly against.

After identifying favourable and unfavourable forces for the companys performance and industrys attractiveness, it is
important to analyse the situation and examine the impacts of the forces. One of the critical comments made of the Five Forces
framework is its static nature, whereas the competitive environment is changing turbulently. Are the five forces able to foresee
industry expansion? Is it the corporate strategist's goal to find a position in the industry where his or her company can best
defend itself against these forces or can influence them in its favour, or is the goal to become part of the ongoing commerce
with the intention to produce innovative ideas that will expand the size of the industry? Is it true that the environment poses a
threat to the organisation, leading to the consideration of suppliers and buyers as threats that need to be tackled, or does it
offer the ground for a constitutive industry player co-operation?

By thinking through how each force affects a company, and by identifying the strength and direction of each force, it provides
an opportunity to identify the strength of the position and the ability to make a sustained profit in the industry (Mind Tools,
2006).

Limitations

of

Porters

Five

Force

Model

Porters model is a strategic tool used to identify whether new products, services or businesses have the potential to be
profitable. However it can also be very illuminating when used to understand the balance of power in other situations.

Porter argues that five forces determine the profitability of an industry. At the heart of industry are rivals and their competitive
strategies linked to, for example, pricing oradvertising; but, he contends, it is important to look beyond ones immediate
competitors as there are other determinates of profitability. Specifically, there might be competition from substitute products or
services. These alternatives may be perceived as substitutes by buyers even though they are part of a different industry. An
example would be plastic bottles, glass bottles, and cans for packaging soft drinks. There may also be the potential threat of
new entrants, although some competitors will see this as an opportunity to strengthen their position in the market by ensuring,
as far as they can, customer loyalty. Finally, it is important to appreciate that companies purchase from suppliers and sell to
buyers. If they are powerful they are in a position to bargain profits away through reduced margins, by forcing either cost
increases or price decreases. This relates to the strategic option of vertical integration, when the company acquires,
or merges with, a supplier or customer and thereby gains greater control over the chain of activities which leads from basic
materials through to final consumption (Luffman and et al., 1996; Wheelen and Hunger, 1998).

It is important to be aware that this model has further limitations in today's market environment; as it assumes relatively static
market structures. Based originally on the economic situation in the eighties with its strong competition and relatively stable
market structures, it is not able to take into account new business models and the dynamism of the industries, such as
technological innovations and dynamic market entrants from start-ups that will completely change business models within short
times. For instance, the computer and software industry is often considered as being highly competitive. The industry structure
is constantly being revolutionized by innovation that indicates Five Forces modelbeing of limited value since it represents no
more than snapshots of a moving picture. Therefore, it is not advisable to develop a strategy solely on the basis of Porters
models (Kippenberger, 1998; Haberberg and Rieple, 2001), but to examine it in addition to other strategic frameworks
of SWOT and PEST analysis.

Nevertheless, that does not mean that Porters theories became invalid. What needs to be done is to adopt the model with the
knowledge of its limitations and to use it as part of a larger framework of management tools, techniques and theories. This
approach, however, is advisable for the application of every business model (Recklies, 2001).

Porter's

Six

Forces

model

and

its

relationship

to

the

standard

Five

Forces

model

Porters Five Forces model actually has an extension referred to as Porters Six Forces model. It is considerably less popular
than the Five Forces model as its acceptance has been less positive than the Five Forces model. The Six Forces model
though is very similar to the Five Forces model with the only difference being the addition of the sixth force in the framework.
This sixth force in the model is termed as the relative power of otherstakeholders, and can refer to a number of other groups
or entities, depending on the factor which has the greatest influence including:

Complementors One school of thought looks at the sixth force to be complementors, which are businesses offering
complementary products to the sector in focus and being analysed (Grove 1996). The author states that these complementary

businesses, as a sixth factor, affect the industry as changes in these businesses (such as new techniques, approaches or
technologies) can impact on the dynamics between the industry and the complementors.

The government The sixth force in the framework can also be considered to be the government, and is included in the
framework if it has potential to impact on all the other five forces (Gordon, 1997). Thus, the government can have direct impact
on the industry as the sixth force, but can also have indirect impact or influence by affecting the other five forces, whether
favourably or unfavourably.

The public Yet other viewpoints look at the public as the sixth force in the model, particularly if the public has a strong
influence in the dynamics of the sector resulting in changes to the other forces or in the sector as a whole.

Shareholders This group can also be considered potentially as the sixth force. This is more important in recent years
where shareholder activity has increased significantly in the boardroom, and management of firms has been scrutinised much
more and even given threats if certain actions favoured by the shareholders were not pursued.

Employees Employees could also be considered as the sixth force if they wielded extraordinarily strong influence on the
firm in a particular sector. The status of employeesseems to follow similar rules in certain sectors, and thus could be
considered a strong influence in these sectors. For example, in the automobile sector in the US, a large part of the work force
are unionised, and thus could be considered the sixth force instead of the government or complementors.

While a sixth force has been added to Porters original Five Forces model, the acceptance of this framework has been
somewhat limited. This could be for two reasons. First, is that there is no definite and specific sixth force in all sectors, as it is
different for each sector. Second, while a sixth force could be defined for all sectors, the influence of this factor can also be
captured in the other five forces and thus the necessity of having it in the framework is less compelling.

Where

to

find

information

for

Porter's

Forces

analysis

In conducting the analysis it is crucial to examine the existing literature:

Periodicals, business articles on the industry performance, etc;

Analyst reports and trade organisations;

Company annual reports and its publications on the main suppliers and distribution network;

Anything that will give the exposure to the market situation, competitors present in the market, new emerging
companies in the industry.

It is important to make sure that the sources are reliable and relevant to the current condition of the industry. It has to be viable,
reliable and valid, in order to conduct a good analysis of the model. For this purpose, the gathered data and information has to
be checked and be applied to the current business conditions. Further limitations could be present in the nature of market
forces that reduce the applicability of the information sources to present situations; and the amount of detailed information
required. This can be prohibitive to its practical use. For example, the level of competitor information required is very detailed
and may not always be available.

Conclusion
Any company must seek to understand the nature of its competitive environment if it is to be successful in achieving its
objectives and in establishing appropriate strategies. If a company fully understands the nature of the Porters five forces, and

particularly appreciates which one is the most important, it will be in a stronger position to defend itself against any threats and
to influence the forces with its strategy. The situation is fluid, and the nature and relative power of the forces will change.
Consequently,

the

need

to

monitor

and

stay

aware

is

continuous.

Some issues during the implementation of these Five Forces are crucially important for organizations to build longterm business strategy and sustaining competitive advantagesrather than simply list the forces. Successful use of the Porter
Model Analysis includes identifying the sources of competition, the strength and likelihood of that competition existing, and
strategic recommendations for the action a company should take in order to develop barriers to competition.

If you found this article useful please have a look at the other articles we have written:Ansoff analysis, McKinsey 7S
Framework, SWOT analysis, BCG Growth-Share Matrix,Porter's Generic Strategies, Scenario Planning, Value chain
analysis, Pest Analysis,Balanced Scorecard, Competitor Analysis, Critical Success Factors, Industry Lifecycle,Marketing
Mix and Product Life Cycle.

References
Haberberg, A. and Rieple, A. (2001) The Strategic Management of Organizations, Essex: Pearson Education Limited.

Kippenberger, T. (1998) Strategy according to Michael Porter, The Antidote, Vol. 3 Issue 6, pp. 24-25.

Luffman, G., Lea, E., Sanderson, S. and Kenny, B. (1996) Strategic Management, Oxford: Blackwell Publishers Inc.

Porter, M. (1980a) How Competition Forces Shape Strategy, Harvard Business Review, September-October, pp.137-145.

Porter, M. (1980b) Competitive Strategy, New York: Free Press.

Porter, M. (1998) Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York: Free Press.

Sanderson, S. (1998) New approaches to strategy: new ways of thinking for the millennium, Management Decision, Vol. 36
issue 1, pp.9-13.

Thurlby B (1998) Competitive forces are also subject to change, Management Decision London

Wheelen, T. and Hunger, J. (1998) Strategic Management and Business Policy, 6th ed., Reading: Addison-Wesley.

Bibliography
Baker, M. (1992) Marketing Strategy and Management, London: Macmillan.

Freeman, R. (1984) Strategic Management: A Stakeholder Approach, Boston: Pitman.

Ghemawat, P., Collis, D., Pisano, G. and Rivkin, J. (2001) Strategy and the Business Landscape: Core Concepts, Upper
Saddle River: Pearson Education.

Gordon, P. J. 1997. Ten strategic audit questions. Business Horizons. [online]. 40 (5). Available from: http://www.factiva.com.
[cited 9 December 2007].

Grove, A. 1996. Paradigms of paranoia every company will be confronted by external crises that revolutionise the rules of its
business. How can CEOs identify these exigencies before it is too late? Business Today. [online]. [Published 22 November
1996]. Available from: http://www.factiva.com. [cited 9 December 2007].

OShaughnessy, N. (1996) Michael Porters revisited, Management Decision, Vol. 34 Issue 6, pp.12-20.

Porter, M. (1979) How competitive forces shape strategy, Harvard Business Review, Vol. 57 Issue 2, pp.5-8.

Scott-Morton, M. (Ed.) (1991) The Corporation of the Nineties, Oxford: OUP.

Wolpert, J. (2002) Breaking out of the innovation box, Harvard Business Review, pp.77-83.

http://www.mindtools.com/pages/Newsletters/20Jan05.htm

http://www.themanager.org/Strategy/BeyondPorter.htm

Copyright 2002-2009 Papers4You.Com All Rights Reserved

Bacardi Limited
Published: 23, March 2015

Introduction
Bacardi Limited is an international firm that is one of the leading alcohol producers in
the world. Company has expanded its product line from rum drinks for young, partying
teens to expensive, premium drinks for sophisticated drinkers. The variety of products
was gained from merges of several large liquor companies.
The purpose of this report is to analyze Bacardi Limited competition position and give
recommendations on internationalising its products. It will include a description,
competitive analysis of the company, analysis based on choice of potential market
(PESTLE, SWOT) and product to enter with into the market with decision making on the
choice of mode of entry.

1. Description of company
BACARDI Limited is the world's largest privately held spirits company. With its
headquarters in Bermuda and several operating subsidiaries around the world,
BACARDI produces, markets and distributes a variety of internationally recognized
spirits such as BACARDI rum, GRAY GOOSE vodka, DEWAR'S scotch whiskey, BOMBAY
SAPPHIRE gin, CAZADORES tequila and many more (Bacardi Limited, 2009).
The company recorded revenues of $5,334.707 million during the fiscal year ended
March 2009 (FY2009). The operating profit of the company was $1,071 million during
FY2008, an increase of 12.9% over FY2007, however it dropped 4% during the FY2009.
The net profit was $805 million in FY2009, an increase of 1% over FY2008.
Bacardi currently operates in 110 different markets worldwide with the 39% of sales less
excise taxes in North America, 51% of sales less excise taxes in Europe, Middle East and
Africa, 10% of sales less excise taxes in Latin America and Asia Pacific for Fiscal 2009
(Bacardi limited Annual Report, 2009).

Barriers to entry
The spirits industry is highly competitive business, where the major global spirits
producers hold approximately 60% of the market share. There are often new entrants
into the market as it is relatively inexpensive to enter the spirit market but the larger
companies such as Diageo and Bacardi which already have established brand identities
make it difficult for the smaller companies to succeed within the market place. So hence
it would be fair to say that in this industry innovation plays a vital role. Even though not

all the new innovations always succeed, the multinationals still hold the advantage of
higher potential to invest large amounts of money into the market (ICAP, 2006).

Threat of substitutes
Bacardi has a range of non alcoholic drinks which is not included in its portfolio: beer,
wine, cider and even non alcoholic drinks which could be a potential threat to Bacardi's
market share. Apart from the market rivals, the growing health awareness continues to
have a negative impact on alcohol consumption and hence affects the alcohol market
on the whole.
* Healthier types of drinks: low-alcohol and non-alcoholic beer, reduced-sugar, lowalcohol products such as wine with a lower ABV, beauty alcoholic drinks, added Fibre
Beer.
* Rising obesity means consumers more aware of calorie content of alcoholic drinks:
Light, Low-calorie and Low-carbohydrate beer, soy-based carbohydrate-and gluten-free
vodka. Alcoholic drinks with flavor extensions: Pear, peach, pomegranate and grapefruit
were popular flavor launches in 2006 and 2007 (Euromonitor, 2008a).
* Energy and soft drinks: Red Bull, Burn
* Traditional drinks: Chinese liquor, or baijiu.

Bargaining power of buyers

Bacardi s products present in various places around the world. Bacardi has relatively
strong power over the retailers because of brand awareness and the high quality of the
products. Most of brands in Bacardi's portfolio are well-known therefore end-customer
will definitely look for them. Since the economic situation is getting better and better
after recent recession, customer will have more purchasing power and Bacardi will likely
to gain benefit from it. However, company heavily driven by consumer preference and
tastes, which is different from country to country.

Bargaining power of suppliers

The bargaining power of the suppliers within the industry is relatively small. For
example, in the case of Bacardi, the production depends upon the availability of
sugarcane, molasses, barley, wine grapes etc. hence any change in prices of these raw
materials effects the price of the spirit (Purwanto, 2009). However bargaining power of
suppliers within the alcohol industry would be relatively small: there are substitutes for
what supplier group provides. Fully-owned operation is its most popular method and is
prevalent in all Bacardi's major markets. The company operates 27 production facilities,
including bottling, distilling and manufacturing facilities, located in 17 countries
including Puerto Rico, Scotland, Italy, France, Spain, Germany and Mexico (Bacardi
limited Annual Report, 2009).

Rivalry

Bacardi is the world's sixth biggest spirits company and world's third largest
international company, behind Diageo and Pernod Ricard (Exhibit 1), with almost 2% of
global volume sales in 2007(Euromonitor, 2009a).
According to Euromonitor (2009a) report the company is facing high pressure from all
sides, as if compare to its two main rivals Diageo and Pernod Ricard, Bacardi has underperformed in growth terms in both organic and inorganic terms over the 2002-2007
period.
Company's poor performance has meant that its global volumes were less than half
both Diageo and Pernod Ricard in 2007. The company achieved growth of 15% over the
2002-2007 period, compared to Diageo's 22% and Pernod Ricard's 84%, from much high
2002 volume growth.
Source: Euromonitor, 2008b. Global Alcoholic Drinks: Buying and Winning Share in
Global Spirits 2008 25 p
Mission of Bacardi is distribution its portfolio of international brands to trade clients
and consumers all over the world. As it is a major producer of distilled liquors, the goals
of the company seem logical: to expand the sales of the products internationally is the
goal of most mainstream companies, and to expand the product line successfully is to
expand the profit. Also from the competitive analysis it can be seen the company's poor
performance compared to its competitors, which is also drive to further
internationalisation (Bacardi Limited, 2007).

2. Analysis on choice of entry country.

Prior to making a choice of entry country, it was required to analyse existing markets
and look at other potential markets as well.
Primarily, Bacardi's main focus is on developed economies as 76% of volume sales were
from North America and Western Europe, where expected growth in these markets is
CAGR of 1% and 0% respectively over 2008-2013.
Considering Bacardi has only 10% of its volumes sales in other markets combined, it is
missing out on opportunities to grow its non rum brands.
Secondly, Bacardi's over reliance on rum which accounts for 60% of its global volume
sales in 2007, reveals a major flaw as white rum is being outperformed by dark rum in
all markets. And where white rum market is growing, the brand has reached saturation
point.
To recover market share, Bacardi should consider growth in emerging economies as
many Bacardi's brands are expected to grow in these markets. For instance, Chinese
and Thai markets are expected to grow by 24 million litres and 11 million litres
respectively in blended Scotch whiskey over 2008-2013. In India, expected growth of
vodka and rum is about 71 and 56 million litres respectively.

There is potential growth of blended Scotch whiskey, cognac, premium vodka and
tequila in the Russian market, whereas in Brazil, vodka and blended Scotch whiskey
have strong growth prospects. (Euromonitor, 2009)
Bacardi should focus its attention in BRIC countries viz. Brazil, Russia, India and China.
The rationality for this approach are the following reasons: these countries account for
43% of world's population
Show real growth prospects in the near future i.e. 5-20 years as compared to developed
economies (Exhibit 2).
Chinese economy will probably overtake both UK and German economies by year 2015
and expectation is that it will deliver around 1 billion new consumers over the next
quarter of a century
Fundamental advantage of BRIC countries is that, as they develop, money filters down
to the general population, which in turn increases their purchasing power.
(LearnMoney.co.uk Ltd, 2009)

Source??
With regards to answering which country within the BRIC should Bacardi invest in, the
data of products in Bacardi's portfolio will analyzed (Appendix A). After consideration,
we cerebrate that Chinese market looks the most promising for investment as it has the
largest market size and its predicted growth rate is around 24.8% from 2008-2013 which
makes its volume growth two times the size of India, which comes in second (Dash,
2007).
To further examine the business environment and the market for spirits in China,
PESTLE analysis is done:

Political:
The China's accession to WTO brought about many changes to the business
environment. It is considering drafting a flat tax rate of 25-28%, regardless of the
company being foreign or domestic. China is considering reducing taxation on its
middle class to improve consumption. Recent success of Chinese IZ policy and
incentives has resulted in massive inflows of FDI (China-Britain Business Council, 2009a).

Economic:
* Growing annually at 10% Chinese economy is the second largest worldwide. Typically,
Chinese expenditure is 20-30% lower than India and immune to pay inflation and
worker turnover (Devott, 2009).
* Expected growth of 5% between 2008 and 2013 (Euromonitor, 2009b).
* Disposable income is rising in the middle income group, though this doesn't hide the
underlying income inequality.

* China employs a progressive tax system which advances with income from 5 to 45%.
Accounting for 12% of global spending, Chinese elite still allow themselves to splurge on
luxury items (Euromonitor, 2009c).
* Buying of premium spirits will continue increasing during the forecast period, with
champagne, scotch and cognacs in high requirements.
* Prices increased significantly up to 9% mostly due to companies increasing their
product pricing (Euromonitor, 2009c).

Sociological:
* 250 million Chinese middle class is increasing becoming brand aware (UK trend &
Investment, 2007).
* Increasingly, consumers are paying attention to the health awareness. Hence drinks
with low calorie and alcohol content are the main selling point.
* Demographically being the largest market in the world with 1.3 billion consumers
(China access, 2009).
* The increase in pubs and bars contributes to the popularity of foreign alcoholic drinks
like cognac, whisky and rum (Euromonitor, 2009d).
* Chinese consumer prefers gifting premium brands of both Chinese as well as foreign
alcohol as ideal gifts for family and friends, with an aim to highlight their generosity and
economic status (Euromonitor, 2009b).

Technological:
* Rapid urbanisation has led to major improvements in transportation infrastructure
(UK trend & Investment, 2007)
* Regulations are imposed on alcoholic drinks advertisements on televisions and radios
(Euromonitor, 2009d).

Legal:
There are many legal requirements in starting an enterprise in China, primarily
obtaining an authorized business licence. After that there are nine more government
bodies with which the company must register. Various locations have differing policies.
It usually takes around 3-12 months to set up business in China (China-Britain Business
Council, 2009b).
Though there is no legislation enforcing the legal drinking age, alcoholic drinks are not
allowed to be sold to individuals below the age18.
Taxation and Duty Levies on Alcoholic Drinks: alcoholic drinks and alcohol white spirits
made from cereal - 25%, white spirits made from potatoes - 15%, yellow spirits - 240
yuan per tonne, beer - 220 yuan per tonne, other alcoholic drinks - 10%, alcohol - 5%.

For television advertising, no more than two advertisements for alcoholic drinks are
allowed on any channel between 19.00hrs and 21.00hrs, and no more than 10 are
permitted per day. Also, TV channels may not show than two advertisements for
alcoholic drinks in an hour. (Euromonitor, 2009d).

Environmental:
Chinese government is focusing on attracting FDI in environmental sector, with
emphasis on pollution control and water resources management (UK trend &
Investment. 2007).
However, main risks and uncertainty factors in Chinese alcohol market also should not
be ignored, even market looks attractive: economic crisis, which has a greater impact on
high-end products, in our case, our premium spirits brands; natural disasters
(earthquakes and flood) might damage manufacture sites.

Choice of product
Before entering into Chinese market it is crucially important to recognize which product
or line of products should be produced. Framework for choice of products was
prepared based on secondary information from Euromonitor (2009a,2009b, 2009d).
According to a framework for choice of products (Gupta, 2004), after considering the
required degree of local adaptation and the expected payoffs in the Chinese spirit
market the most attractive product for internationalization in China is a baijiu, a white
liquor, which is the most popular local spirit in China and the world's best selling spirit
by volume.

Choice of location
The difficulties for foreign producers looking to enter the market are presented by a
vast size and scope of Chinese market. For analyzing all regions SWOT analysis was
done for Bacardi (Leu, 2007):
The entry process from analysis on regions in China (SWOT analysis) shows that
Southwest and Central regions are the most appropriate location to start business: high
demand on baijiu drinks, local spirits preferences, good transportation networks and
low efforts of threats compared to other regions.

Choice of mode of entry

Chinese spirit market by PESTLE analysis is shown as a huge market with strong local
and foreign competitors; with unfamiliar preferences for Bacardi limited therefore joint
venture (JV) has advantages over acquisition. Even a main disadvantage of forming a JV
is that partner shares the profits of the business, but the downside of acquisition
method is worse than that since not only a significant capitalisation cost is inevitable,
but it also requires Bacardi's own efforts to build up a complex Chinese market
knowledge and supply chain system which will be a very time consuming process and

the chance of ending up failure is likely to occur. JV permits firms to share entering
market's costs and risks, allows rapid access to local know-how, and gives managers the
flexibility to respond more quickly to dynamic global competition, also allows firms to
take advantage of the Chinese partner's local knowledge, to use distribution channels
(Gupta, 2004).
JV undoubtedly keeps the speed of entry to high level which is very important, as
Bacardi is losing its leading position every year among competitors (Euromonitor,
2009a). To sum up, a greenfield strategy is not preferred to Bacardi limited and for the
reason that Bacardi currently does not have baijiu product in its portfolio, licensing also
is not available as a mode of entry.
Due to the fact that more than 18,000 baijiu producers are existing in China (Yang,
2009), the largest company should best suit with the scale of Bacardi company. Joining
forces with strongest Chinese partner will not only be beneficial for the company to sell
directly to every region of Chinese domestic market by the used of its superior existing
distribution network and relationship with local retailer. It also enables Bacardi to
perceive quickly the implications of promoting, marketing and to understand Chinese
culture and habits in each particular region. Moreover, Bacardi will get know-how of the
process to produce premium baijiu product, hence extend its portfolio further in the
area of spirits in which perfectly match with the company's main focus.
Tables on Company Shares of Spirits by National Brand Owner 2003-2007 and Company
Shares of Spirits by Global Brand Owner 2003-2007 in Chinese spirit market (Appendix
C) show Sichuan Yibin Wuliangye Company Limited is the leading company in spirits in
China, with 2 % of volume sales in 2007 (Euromonitor, 2009e) and with 1.8% Company
Shares of Spirits by National Brand Owner 2007. The company supplies the local market
from in country, with almost all products of Wuliangye Group Co Ltd being produced in
Yibin, Sichuan.
After all analyses and considering assessed characteristics, the decision was made that
the best method to enter to Chinese market for Bacardi Company is to distributing its
brands with baijiu product through joint venture (JV) agreement with Wuliangye Yibin
Company Limited while Bacardi possess the controlling stake. As Wuliangye Yibin
Company's brand is well-known in China, Bacardi's brand is more famous as an
international brand, which appears as the third place in the world's most powerful
spirits & wine brands 2008 report (Intangible business, 2009), the second place as The
Strongest Brand by Brand Score and as The Most Powerful Brand by Share of Market.
Therefore it is recommended to use the existing brand for this premium baijiu product
and every product later on in this JV. Doing this is not only reflecting the primary
objective why Bacardi make an investment in China but also it helps strengthen Bacardi
brand awareness in the Chinese customer mind. In this way, all other products from
Bacardi will also receive the benefit from this effort.
While Bacardi concentrates on selling premium baijiu product with its JV partner, it can
acquire knowledge about the Chinese market and adjust their marketing campaign

accordingly, which will help them to optimally penetrate the market and gain
dominance for their product portfolio.
After adjusting to the Chinese spirit market with premium Baijiu, it is suggested to use
China as the base of production for expanding into Asian-Pacific region. Subsequently
to increase production of alcoholic products, thereafter it is recommended to change
the mode of entry by either increasing a share in the JV or acquire controlling stake in
Yibin wuliangye distillery company.

Conclusion efficiency
This report introduces Bacardi's current situation in the world market through the
Porter's five forces analysis. Analysis is done to find a suitable entry country and a
strategy to overcome its growth stagnation. After intense study of the prospected
target, it was decided to enter the Chinese market which has the largest market size and
good growth rate in the spirits industry. To add up, China is considered as a gateway to
Asian-Pacific market, which is strategically important for Bacardi limited. Understanding
Chinese market is also crucial before taking any actions, so PESTLE has been used. Since
China is an enormous country, SWOT analysis was done to find an apt region to start
business.
Premium baijiu spirit was chosen as a most attractive product according to the
framework of choice of product. The recommendation on conducting JV with Chinese
domestic company - Yibin wuliangye distillery was done based on the PESTLE analysis
and trends in Chinese spirit market.
The controlling share of the JV with a Chinese domestic company will give an
opportunity for Bacardi to penetrate the Asian market.

Two main limitations need to be addressed here,

* firstly relating to the type and range of data used here, which is secondary data. It is
advisable that Bacardi should perform more research into marketing with updated
information from both primary and secondary data;
* taking into account both risk management and other uncertainty factors, which many
of them are not covered in this report, and could have significant impact in reality to a
business;
* in depth financial aspects, the critical part for the real-world investment, as well as
competitors' strategies were not included in this report. Retaliation from competitors
against any movement in the market which have ignored in this report, should be
considered in reality. All in all, intensive feasibility study with the latest information is
suggested before Bacardi makes any decision.
The second limitation is related to its JV partner. The question to be answered is that
whether Wuliangye yibin Company interested in doing JV with Bacardi. It depends on
many uncontrollable factors for example the current situation in the market, financial
term of the company or the decision from CEO. Even if they agree to do JV, the

negotiation process will need to be focused to ensure it meets both Bacardi's and
Wuliangye yibin's expectations. If Wuliangye yibin is not interested in this deal, Bacardi
might have to consider the other Chinese local company instead.

https://prezi.com/fkm0onsyxp5x/bacardi-limited-analysis/

https://prezi.com/yuz0i7ty909k/bacardi-strategic-plan/