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Name: Ly Quoc Hien

Subject: SIM337
Word Count: 3024

Executive summary
This reports content will focus on researching about the influences of external environment to
the chosen company which is Heineken and then evaluate the effectiveness of the firms response
due to the governments regulations.
In the first part, I will use PESTEL factors as the methodology to analyze the external impacts on
the operation of Heineken and its importance. The second part of the report will be done and
mainly discussed about global regulations affecting beer markets which are the area of
Heinekens business. Evaluation will be included to assess how well that Heineken response to
the changes of those regulations.

Task 1: The primary external influences on Heineken and their importance:


The culture customer live in, family, social environment can influenced to customer eats, wears
and believes. All of these are external factors that affect purchases (Tim Friesner, 2014). Then
according to Tim Friesner, not only the behavior of clients will be influenced by external factors
including religious, ecological, political, etc but it also affects organizations. External factors are
components that completely outside of the company but it influences internal factors and create
opportunities and threats for firm.
Heineken Lager Beer is an organization which owns approximately 170 beer brands and being a
giant in the industry of alcoholic beverage, Heineken also is influenced by four or these external
factors which are: Political and Legal, Economical, Socio-cultural, Technology and Ecological
Political and Legal
In 2013, the total amount of alcohol consumed is 3 trillion liters and per one man is 32 liters, this
consumption makes Viet Nam is the king in terms of drinking beers in ASEAN regions and
ranked third in the Asia just after China and Japan and 28th over the whole world. Because of
over using alcoholic products may harm the health of the users, otherwise it is reason for many
serious society problems such as violence, disorder security, criminal and traffic accidents in the

holiday. Because alcohol is addictive then the government excises it by putting heavy taxes on
emerging beer markets. The Excise Tax Law edited in 2015 of Vietnams government raise the
tax percentage from 50% to 65% since July 1st 2015. In Australia, around 20 per cent of the beer
at the pub is made of for tax, which is a very high rate, the customer must pay very high price to
buy beers.
According to the World Health Organization (WHO) , alcohol when goes to a human body just
2-8 percent of it are excreted through sweat, urine and breath, the rest is absorbed directly to the
liver. The recommendation of WHO is that men shouldnt take more than 2 units of alcohol and
women no more than one unit per day but it Vietnam, the amount of it is greater than that many
times so the government is going to prohibit selling beers after 10p.m in bars and restaurants.
Heineken and other company in alcohol beverage industry will be impacted by this change, it
may affect their profit but still they have to follow it.
In Vietnam, the issue is water contamination has the signal to increase dramatically in recent
years. Heineken and other companies in alcoholic beverage industry in Vietnam have to follow
the environment protection laws including Air Pollution Control Law enacted in 1999, Water
Quality Conservation Law enacted in 2005 of to protect the environment According to the
research Developing system using water to adapt to climate change by Tokyo University, about
10% of the urban water is not undergone treatment process and 36% of it comes to the lake and
river. The problem of CO2 emission is also noticeable if we looking to the data from this graph
below:

.
Economical
There are many factors within the economical scales will affect directly to the operation of
Heineken. For example, the prices of the ingredients which used to produce beer is increasing
recently such as glass in European rise 50% because of the usage of offices goes up and supply
shortages. Also, the price of grain in the US has been rising for 35% in just last two years which
crucially impact to the production line of business like Heineken. This is the problem of
commodity and so far its hedging with financial counterparty by Heineken is limited to
aluminum, grain and gas hedging , which are done with risk policies. One more key problem is
that the increasing of unemployment globally.

Looking at the diagram we can see that the rate of unemployment all around the world is
extremely needed to concern, most of the major market of Heineken is seeing this issue. As high
as the number of people are unemployed will lead to the problem that less money will be spent
on leisure time and drinking beer is absolutely be affected.

The graph shows us the visualization of the fluctuation of Euros, with these rapid changes it will
affect on many businesses including Heineken. If a US-base organization makes EUR 100
million, they can eventually end up with much more or less than they expected depending on the
movement of US/EUR exchanges rate. For example, in June 2015 it would have been worth $15
million, but in June 2016 it would have been worth $3 million less. Heineken can choose to
manage the currency of them through business practices and they might think of setting all the
contracts in their core currency to avoid the risks. In fact, Heineken has a policy of hedging
exchange risks which will postpone the influence on the financial result. In the first half year of
2015, the exchange rate of EUR/USD is 1.32 for hedging and the net US dollars inflow is
expected at about US $527 million and 96% of it is hedged at EUR/USD 1.33 as 29th July 2015.
Intra-Heinekens finance in foreign currencies is major in US dollars, Swiss Franc, British
Pound and Polish zloty.
Another factor that can impact on Heineken is the high advertising cost if you are a beer brand in
most countries. For example, Budweiser- a company competes with Heineken, has to pay
$9million to buy one minute advertisement in the Super Bowl events. Meanwhile Heineken must
pay $70 million to sustain the contract of them with the UEFA Champions League per year,
which is one of the highest contracts to advertise in terms of sport broadcasting.

Socio-cultural
Nowadays, more women are drinking beer, a survey of Chris Crowell, a reporter of Craft
Brewing Business shows that 26 per cent of women named beer as their favorite alcoholic
beverage in September 2013, increase 4 percent from the same period in 2012 which is a good
sign for Heineken because they are having the chance to attract more and more range of
customers. And in an era of fast pace life, with the existence of more and more bars and pub,
more people choose to drink beer on their meeting then it benefits for organization like
Heineken. Health is precious, people know that, they understand the dangerous things can come
to them if they drink too much beers, in the past people might not aware of it but now many
channel like TV, Radio and Internet usually talks about the harm of alcoholic then people are
more conscious in the act of drinking beer, which may lead to the decreasing of sales in beers.
Technology
Technology is instantly developing every single day, facilitating businesses like Heineken on
many ways such as the company is easier to approach to their customers. In the past, only short
advertisement on TV or stickers on streets can get them close to the clients but now, with a smart
phone, everyone can order a package or beer to drink with their family very fast. They also create
an app call Heineken experience on mobile to give the users the feature and information about
their products in a fascinating ways. With a broad way of advertising then can give Heineken
more favorable opportunity to penetrate new market in the future.
In Vietnam, to handle with copyright infringement is very hard because of indicating the owner
of the website; most of the violated websites are registered in the international domains or in
anonymous form to avoid from being banned. The percentage of violation about intellectual
property in 2009 of Vietnam is 85%, a very high rate. This lead to the risk for Heinekens
identity to be misused which can harm and damage to their brands image.

For Ecological, it also have an big impact for Heineken, in 2013, there was a time that an
unseasonable cold weather in Europe, US and Brazil leads to the drop of 8% in beer sales
because the cold weather keep people to stay indoors instead of going out to have a beer for

example at outdoor coffee. And there is a period in 2013 that decreasing in sales results in the fall
of net profit by 53% in which is $1.87 billion comparing to the number of $4 billion in 2012,
which is a big fall.

Task 2: Government regulation of market:


Government regulation of market is inevitable one of the most influencing factors that will
directly related to the capability of a company to develop and sustain in a country. Being a
company that operates in many countries and governments, Heineken has to follow all of the
regulations provided so as to avoid the penalties which can affect to their reputation and
profitability. Heineken is a multinational firm so they need to cope with the changes within
different market and its regulations. The regulation can either enable the company to have more
opportunity or may be a threat to the operation of them. This task will analyze some regulations
that significantly impact on Heineken and whats their move to react with those changes. Also,
recommendation of what thing that Heineken can do to improve the current situation.
Governments regulations of markets with its impact to Heineken decision making:
China is always very cautious when adjusting the policies related to the issue of Foreign Direct
Investment. In the period of 1979 to 1986, China had released a combination of laws about FDI
including Enterprise Law of business, Union Law about business contracts between the foreign
investment and Chinese and regulations to perform. China gathered these above laws as Business
Law for Industrial using FDI in April 1986 to make the legal implementation to be more
effective and consistent. In 2006, with the purpose to urge the Mergers and Acquisition to be
more active, China adjusted their Foreign Investment Law through basic change is to enable the
foreign investors to purchase and merge with state business. In the late of 1990s, the Chinese
government also raised the tax rate and limits the import of high strength alcohol into the
domestic market and denies extending new productions licenses for foreign spirits
manufacturers leading to the decline in the market that period. When China joined the World
Trade Organization led to the decrease in foreigner alcohol importing (from 35% to 17%) (China
Business, n.d)
In 2012, Heineken won the control of Asia Pacific Breweries (APB) after the $5,6 billion offer is
approved by Frase and Neave, the main shareholders. With this result, Heineken has the ambition
to even more have higher growth in Asians market and China- which is the number one alcoholic
beverage market in the world is expected to bring the highest growth rate to Heineken which is
12 per cent when comparing to 8 per cent of other regions. And in 2014, Heineken and APB

China took their commitment even further by opening the largest brewery in the Zhejiang
Province, China. This move marks the milestone of 20-year effort of Heineken in cultivating the
Chinese market and aim to the long term strategy in this country to take the growth to higher
level.
Alcoholic beverage always received many attentions by every government in the world because
of its addictive and effects on the society. Every year, there are about 88,000 people die and one
eighth of them is caused by drunk drivers in the US between 2006 and 2010 (Centers for
Decease Control and Prevention, 2010).In many countries, its illegal to promote alcohol on TV
and other broadcasting channels. Government in Europe protects their young generations by
prohibiting those advertisements related to alcohol: Alcohol advertisements are banned from
appearing in and around programs commissioned for or principally targeted at audience below
the age of 18, as well as programs likely to appeal particularly to audiences below the age of 18.
In Canada, there is rule against showing scenes in which any such products is consumed, or
that give the impression, visually or in sound, that is being or has been consumed. In Vietnam,
because Heineken is a brand containing less than 5% of the alcohol concentration so they are
freely to do the advertising program .These regulations have negative impacts because it makes
Heineken to lose partly of their customers by the most interacting channel in term of advertising
beer which is through Television.
In April 2012, Heineken with other producers in beer industry agreed to implement the common
standard of responsible advertising aimed at adult of legal purchasing age. The Responsible
Marketing Pact marks the first time that beverage companies came together to seek common
standard throughout the EU and it has these main priority areas: Prevent minors from
accidentally seeing the alcoholic beverage communications through marketing by social media,
establish the common demographically standard across all media which could limit the exposure
of minors to drink advertisements, prohibit any alcoholic marketing that might be attractive to
minors by ensuring that the contents of adverts are more appeals to adults. In 2015, Heineken
and Wieden&Kennedy are reached to an agreement of terminating the global advertising
contracts for the Heineken brands which is a big move after their 5 years relationship. Heineken
has been a sponsor of the UEFA Champions League-the world most exciting club football

tournaments since 1994 and this contract between these two will continue in a long term. Its a
cornerstone to promote and marketing the brand globally.
In Vietnam, there are many regulations by the government about alcoholic beverage industry,
Heineken joined Vietnam in 1992 so they have to follow these terms as other company operating
in Vietnam. According to the Environmental Protection Law, 17th Article, Chapter 3, the business
must comply with all the regulations during producing the alcoholic beverage with the awareness
of protecting the environment. Heineken has been trying to apply many methods as a way to
contribute to the environment protection. For the transportation, the carriage of beer is replaced
by truck to rail (Vietq, 2014). When the beer is transferred by truck, which use petrol then the
amount of CO2 emission is noticeable. This will cause the air to be polluted and negatively affect
to human health. Then the solution of Heineken is to reduce the percentage of possible air
pollution during their process of transporting. Moreover, Heineken proved that waste water in
fact is still useful by building a very large aquarium using the waste water from their factory to
indicate that its safe for the environment (BrandVietnam, 2013) Heineken is a partner in a
project call ICOOL which developing the more sufficient refrigerator to reduce to emissions of
CO2 across the operation.

Effectiveness of organizations response


The integration of APB was successfully completed, strengthening our competitive position.
Continued investment in our brands delivered strong growth in key market. And for the first time
Heineken surpass 1mhl in China. (Roland Pirmez, President Asia Pacific, 2013). And according
to Theo de Rond, The acquisition of APB has given us direct access to a number of high growth
markets and strengthen Heinekens brand portfolio. Its obviously that Heineken takes full
control of APB leads to the positive of the company operation; the percentage of group beer
volume in Asia Pacific according to the Regional Review is 6.2 percent and 11.3 percent in 2012
and 2013 respectively. The strong performance of ABP with pro-forma organic profit up goes up
by 14%. In China, the sales volume grows by 27 per cent which leads to the growth of Heineken
brands in the international premium segments.

The spending of Heineken in sports sponsorships is appeared to be paid off. The Americans said
that they are preferred to buy their beer during some Champions League games. Adults over 21
years old are indicated to have a high awareness of Heineken advertisement and they have the
intention to buy the brands product next time.

Purchase consideration for Heineken vs. Beer sector

The number of potential customer that Heineken has reached is a very high figure as its
advertising is seen by around 47 million fans per week. Purchase Consideration research tells
that Ad Awareness among Adults in America increase from 13 per cent to 16 per cent in the
quarter-final stage of the tournament, which is well above the US beer sector average proportion.

Ad Awareness for Heineken vs. Beer sector

Heineken Vietnam is proud to be the first business to set up a waste water treatment system
which can reach to the international standard. This system helps the company to succeed in
processing all of industrial water discharging from the factory to ensure that their parameters are
standardized. Heineken Vietnam has achieved the quality management system of ISO standard
such as : ISO 14001, ISO 9001, ISO 22000 (BrandVietnams,2013). Having a strict process of
producing the beer, Heineken ensures that the quality as well as the requirement of safety issue is
guaranteed because they have one of the most modern machines in term of manufacturing beer.
The image of the company is widely expanded leads to the result of 2000 billion VND in
revenue of Heineken last year (Superbrands,2014). . From 2010, ICOOL prototype has been
delivering an improvement of 80% in energy consumption, which is a step forward in preserving
the environment resources of Heineken. Also Heineken always prepare for recalling their
products if its not reach to the standard of Quality Assurance, they also has the sustainability
program which is supported by EcoVadis as a tool to cover the risk about material.

Appendix

1.
Company name
Industry
Headquarters
Website URL
Founded
Founder
Area served
Number of

Heineken
Beverage
Amsterdam, Netherlands
www.theheinekencompany.com
July 12,1864
Gerard Adrian Heineken
Worldwide
76,136

employees
Revenue

19.257 billion

Heineken was establish in 1864 has the long history as an international global brewer; the
company is committed to enthusing the customers everywhere. Enjoyed in 178 countries all
around the world with unique footprint with operations in more than 70 nations, which is broader
than any other brewer. Today, Heineken is ranked as number one brewer in Europe and 3th in the
world in term of volume. The company is continuing in their path to increase the presence within
emerging markets to keep the instant growth in the future.

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