Professional Documents
Culture Documents
IB Term Project
SEC-B | GROUP 7
ANUGRAHA SATHEESH- PGP05059
BARATH SINGH- PGP05063
MUDIT SINGH- PGP05078
SEJAL AGARWAL- PGP05091
SHREY KARN- PGP05092
Contents
Introduction Pernod Ricard................................................................................................................. 3
Background of Pernod Ricard ............................................................................................................ 3
Objective of the Project ..................................................................................................................... 3
Methodology ...................................................................................................................................... 4
II. Literature Study:................................................................................................................................. 4
1. Business Model............................................................................................................................... 4
Decentralization Model.................................................................................................................. 4
Interaction between Regions, Brand Companies and Market Companies .................................. 5
Regional Presence .......................................................................................................................... 6
Market Companies ......................................................................................................................... 6
Brand Companies ........................................................................................................................... 6
2. History and Organization ............................................................................................................... 7
Laying the Foundations of Worldwide Network ........................................................................... 7
Consolidation and Organization .................................................................................................... 7
Refocusing the Business Strategy .................................................................................................. 7
III. Company Assessment ....................................................................................................................... 8
International Strategy ........................................................................................................................ 8
McKinseys 7S Framework ................................................................................................................. 9
VRIN ANALYSIS: ................................................................................................................................ 10
COMPETITIVE & COMPARATIVE ANALYSIS ........................................ Error! Bookmark not defined.
IV. Market Assessment: Global Spirits & Wine Industry .................................................................... 10
CAGE Analysis: .................................................................................................................................. 11
Global PESTEL analysis ..................................................................................................................... 11
PEST Analysis for Asia...................................................................... Error! Bookmark not defined.
V. Discussion: Performance Evaluation ............................................................................................... 13
Region-wise Performance: ............................................................................................................... 13
Entry Mode Rationale: Localization vs Globalization ..................................................................... 14
VI. Alternative Recommendation ........................................................................................................ 15
For functioning globally, companies adopt various strategies to enter into other local markets. It can be
through acquisitions, mergers, joint ventures or Greenfield investments. Access to markets, acquisition of
resources, and minimisation of risks and economies of scale are some of the reasons why businesses go
global. There are many reputed companies which emerged through subsidiaries also. Pernod Ricard is one
such company which entered International business with the help of subsidiaries. Pernod Ricard is a French
company which involved in Alcohol business worldwide. Global Alcohol market is a growing market with high
global expenditure and high market demand worldwide. Asia Pacific is the highest-demand market, region
wise with Japan, China, India and Thailand being the major alcohol trade-markets.
Background of Pernod Ricard
Pernod Ricard is a French company that produces distilled beverages. It is a worldwide conglomerate and owns
the distilled beverage division of the former corporation Seagram, along with many other holdings. In 2005,
the company acquired a British-based competitor, Allied Domecq plc. In 2008, it announced the acquisition of
Swedish-based V&S Group, which produces Absolut Vodka.
Pernod Ricard boasts a large portfolio of premium international and local brands. 37 premium international
brands are organized in the House of Brand and the Group strongly invests and bases its development on
these prestigious names. The USP for Pernod Ricard amongst the other players in the industry is their
consistency, positioning and richness of the brand portfolio. Premiumisation and Innovation are two major
focuses of their strategy to create value and capture leadership. Some of the key figures are:
No. 1
7945 M
Net sales
2056 M
1185 M
18,000
80
101
Production sites
Market Entry Risk Assessment: Analyse the decision of choosing the mode of entry into a foreign market,
understand the various economic, political and environment risks associated with the decision and the
economies of scale that the companies seek to achieve. (Anugraha)
Market Entry Decision Rationale: Understand the decision of Pernod Ricard to expand globally through
subsidiaries.
Performance Evaluation:
o
Analyse the corporate structure of Pernod Ricard and the amount of control, ownership and risk
that is associated between the parent company and its subsidiaries
Compare the performances of the various subsidiaries of Pernod Ricard in each of these countries
through comparative and competitive analysis.
Analyse how Pernod Ricard achieved this strategic and cultural fit and aligned it with its own
visions.
Methodology
The project analysis will include collecting data through secondary research. The following websites and
databases will be used for the purpose of analysis:
1) Market Realist- To get an overview of the alcohol industry
2) Pankaj Ghemawats official website- For CAGE analysis and globalization index
3) Pernod Ricards annual report to gauge its current performance
4) World Bank Database and Hofstede Index to look at the cultural and economic parameters of the
various regions
5) Proquest Database and EuroMonitor- To get insights on the alcohol market
6) Harvard Business Review on Strategic Alliances to understand the rationale behind setting
subsidiaries
Way of Working
The Values
Way of Being
Entrepreneurial Spirit
Decentralization
Mutual Trust
Conviviality
Sense of Ethics
A Collective Commitment to Performance
Decentralization Model
The company organizes its operations under two groups: Brand companies and Market companies. The brand
companies own the brands, define their global strategy, coordinate production and ensure quality assurance.
These companies are responsible for developing the overall strategy and all production aspects of the brand
portfolio.
Pernod Ricards six brand companies are The Absolut Company, Chivas Brothers, Martell Mumm Perrier Jouet,
Irish Distilleries, Premium Wine Brands, and Havana Club International. These companies are headquartered in
Cuba, France, Ireland, the UK, Sweden and Australia. The market companies adapt the global strategy to their
local market and are responsible for the distribution of the global and local brands. The company has 75
market companies including Pernod Ricard Asia, Pernod Ricard Americas, Pernod Ricard Europe, Societe
Pernod and Societe Ricard.
The company classifies its business into three geographic divisions: Asia/Rest of the World, Americas and
Europe.
Pernod Ricard respects the operational independence of its affiliates based on the principle of subsidiarity.
This allows decision-making as close as possible to the market, enabling it to be highly responsive to the needs
of customers and consumers, regardless of the country concerned. Consequently, every affiliate is managed as
a profit centre and has full responsibility and autonomy for achieving the objectives it is set.
Pernod Ricard
Brand Companies
Market Companies
Chivas Brothers
Irish Distillers
Societe Pernod
Pernod Ricard Winemakers
Societe Ricard
Havana Club International
Holding Company
Brand Companies
Regions
Market Companies
Interaction between Holding Company, Regions, Brand Companies and Market Companies
Apart from the autonomy given to the Brand and Market Companies, a set of ground rules are implemented
that need to be followed:
Regional Presence
Regions have operational responsibility for managing the Groups business in their respective geographic
areas. They are empowered to ensure implementation of Group strategy and key policies and are accountable
for business development as well as cash and profit generation in conjunction with Brand companies.
Regions operate on two levels:
At Regional Level: Defines priorities, optimises resource-allocation and seeks to enhance ways of
working with Brand companies, approves the strategy and key attributes of local and regional brands,
identifies and shares best practice.
At Market Level: Sets objectives and budgets for its affiliates and ensures their achievement, oversees
the implementation of brand strategies agreed between Brand and Market companies, ensures the
provision of an optimised sales structure to serve brands and Group strategy
Market Companies
Market companies are responsible for managing the Groups business in their local market. They report to the
Region and are empowered to implement the Groups strategy and key policies, develop their business and
deliver profit in the local market. They are managed as profit centres.
Market companies key responsibilities are to:
Brand Companies
Brand companies are located in the country of origination of their brands and are in charge of developing and
implementing the strategy for the brands in their portfolio in conjunction with Market companies. They are
accountable for the overall profitability (Contribution after Advertising & Promotion) of their brands. In line
with Group principles, Brand companies must submit any major changes to a strategic brand, such as those
affecting product formulation, new products or advertising for Holding-company approval.
Company
Reason
Country
To become a major
French beverage
company
France
No International brand
in their portfolios. They
were expanding their
portfolio of white spirits
and wine to increase
their global presence
and get access to
established sales and
distribution structures
Scotland
1975
1976
Purchased Cusenier
1985
Ramazotti
Argentina
Italy
1988
Irish Distillers
Ireland
1989
Australia
1993
Cuba
1994
Russia
1997
Spain
1999
To obtain international
distribution rights
Armenia
2001
To cater to
opportunities in the
Asian Markets where
Seagram had a strong
foothold
2005
Enabled PR to become
worlds number 2 wine
and spirits operator
World
2008
Sweden
2013
To accelerate its
presence in the African
Continent
2014
USA
2. McKinseys 7S Framework
Strategy: Premiumisation, Innovation and expansion into new markets- based on long term vision. The Top 14,
composed of the 14 strategic brands, posted record growth of 10% in value this year, and now represents 60%
of the net sales. It also concentrates more on its core wine and spirits business and divested its non-alcoholic
business which helped finance the purchase of Seagram and Allied Domecq.
Structure: Decentralized model where the holding company is responsible for defining overall Group strategy
and managing its implementation, as well as overseeing the Groups activities, setting objectives and creating
an environment for best-practice sharing across all subsidiaries. The management teams of these subsidiaries
operate as if they were running their own companies and so are entirely responsible for operational decisions.
System: Internal control and risk management system in relation to the company financial reporting process,
automated systems for manufacturing, waste disposal system. To guarantee that its products are of the
highest quality, the Group does the majority of its product manufacturing in-house and may occasionally use
subcontractors.
Style: Pernod Ricard encourages straightforward, direct relationships across hierarchical boundaries to speed
up decision-making. The Group promotes opportunities for its employees to mix with the aim of fostering the
exchange of ideas and experience.
Staff: Over 18,000 employees in 80 markets across 3 major regions. They are highly committed towards
achieving the visions and missions of Pernod Ricard.
Skills: The Pernod Ricard Research Centre (CRPR) has technical expertise and material resources (analysis
equipment, pilot workshop) that is unrivalled in the spirits industry. It is also available to provide direct
technical support for affiliates, the Holding Company and the Groups innovation structures (BIG, Kangaroo
Fund) for the development of new products, process improvements and food safety.
Shared Values: Entrepreneurial spirit is at the core of Pernod Ricards identity. It is a key part of Pernod
Ricards management philosophy because of the Groups decentralised nature. Pernod Ricard expects all its
employees to have a strong sense of ethics, with respect and transparency as its watchwords and promotes
mutual trust between its people and entities.
3. VRIN ANALYSIS:
VRIN
Framework
VALUABLE
RARE
INIMITABLE
NONSUBSTITUTABLE
Competitive
Implications
Brand Equity
(Tacit knowledge)
Yes
Yes
Yes
Yes
Sustained
Advantage
Entrepreneurial
Culture
Yes
Yes
Yes
Yes
Sustained
Advantage
Distribution Strategy
(synergy)
Yes
Yes
Yes
Yes
Sustained
Advantage
Decentralized
Operational Structure
Yes
Yes
Yes
Yes
Sustained
Advantage
Premiumisation and
Innovation
Yes
No
Yes
Yes
Competitive
Parity
Leadership
Yes
No
No
Yes
Competitive
Parity
Commitment to Ethics
Yes
Yes
No
Yes
Competitive
Parity
Marketing
Yes
Yes
No
No
Competitive
Parity
4. SWOT
Strengths
-Geographically diversified operations
-Strong brand portfolio
-Strong solvency position
Weaknesses
-Declining liquidity position
-Legal hassles
SWOT
Opportunities
-Growing spirits market in the US
-Increasing consumption of wine in the US
-Product and brand innovation
Threats
-Economic instability of EU nations
-Expansion by competitors
-Fluctuations in raw material costs
-Limitations on commercialization
China
1.18
0.28
1.53
0.35
1.38
0.50
0.87
1.80
2.67
1.40
1.96
0.88
1.00
0.75
0.88
0.55
0.17
0.36
1.02
Japan
0.79
0.65
2.21
1.07
1.40
0.88
1.17
1.00
1.33
1.00
1.11
0.75
1.00
0.75
0.83
0.59
0.82
0.70
0.95
USA
0.59
1.28
1.44
0.53
0.41
1.42
0.95
0.40
0.67
0.80
0.62
1.00
1.00
1.00
1.00
0.75
1.23
0.99
0.89
SA
0.72
0.92
1.47
0.57
0.54
1.31
0.92
1.40
1.67
1.20
1.42
0.63
0.67
0.88
0.72
0.90
0.15
0.52
0.90
UK
0.51
1.25
1.53
0.41
0.81
1.44
0.99
0.60
0.67
0.60
0.62
1.00
1.00
1.00
1.00
0.95
1.02
0.99
0.90
Australia
0.53
1.27
1.42
0.59
0.33
1.48
0.94
0.60
1.00
0.60
0.73
1.13
0.67
1.13
0.97
1.00
1.37
1.19
0.96
France
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
Reference
hofstede index
http://geert-hofstede.com/
Observations: It is seen that China, Australia and Japan are very similar to France as the CAGE distance
between them is very less. This distance between USA, SA, UK and France is also low but India is very far from
France on the basis of the CAGE distance. That implies the entry strategy for high distance countries have to be
different as compares to the ones with low distance.
Opportunity/Risk Assessment
Positive
Effect
Negative
Effect
Observation
Environment
Global number of 15-34 year olds
increasing.
15-34 year olds spend the most on alcohol and are key
target market.
Social/Cultural
High end brands are growing in
demand across the world.
Increased
health-consciousness
increases healthier and high priced
brands
Political/Legal
High Trade Tariffs in emerging
countries
Economic
Emerging Markets beginning to have
a more disposable income.
Technological
The need for distilleries that can
produce gluten free products is on
the rise.
No Advantage
-Nationally Segmented
Markets
Advantage
-Inter-industry Trade
-International Vertical
integration of firms
I
Competitive Advantages of
Firms
Advantage
-Intra-industry Trade
-International
Horizontal integration
of firms
II
Internationally
vertically and
horizontally integrated
firms with different
configurations of
Market penetrations
and sourcing sites
III
Observation:
Pernod Ricard lies in the third quadrant (III) as it has been successful in leveraging both its competitive and
comparative advantages through clever acquisitions, seamless integration and organic growth.
Others
4%
North America
38%
Eastern Europe
7%
Western Europe
32%
ASIA
As the worlds most dynamic zone and the growth engine for the Group, Asia chalked up spectacular advances.
At the forefront are China, where sales volumes rose by 50% this year, and South Korea, where the Group saw
its market share for whisky jump from 4% to 35%** following the acquisition of Allied Domecq. India is also
among the frontrunners, while Thailand experienced difficulties associated with an unstable political-economic
situation.
Europe
Russia, Greece and the Scandinavian countries progressed rapidly, Italy and Germany had to cope with a more
difficult environment. Europe, which nonetheless remains the Groups primary region with more than 30% of
volumes, was however able to derive benefits from the acquisition of Allied Domecq.
America
The Americas Region is indisputably the one that has most benefited from the Allied Domecq acquisition.
Pernod Ricard now has a leading position on the three North American markets, the United States, Canada and
Mexico. In the United States, where the Group now ranks 3rd, the potential for growth is enormous. In Latin
America, performances over the past year have been exceptional: Pernod Ricard is No. 1 on a market that just
keeps growing.
Pacific
Following the acquisition of Allied Domecq, Orlando Wyndham Group (OWG) and Allied Domecq Wines New
Zealand (ADWNZ) were merged to form a new entity, Pernod Ricard Pacific. Created in February 2006, the
subsidiary plays a dual role: Brand Owner for the Groups Australian and New Zealand wines and distributor of
the entire Pernod Ricard brands portfolio for the Pacific region.
Volume-wise Performance:
Breakdown of International Spirits Consumption
2%
6% 2%
14%
Scotch Whiskies
51%
7%
18%
3%
6%
7%
28%
4%
Other Whiskies
Scotch Whiskies
Cognac and Brandy
17%
Liqueurs
Bitters
35%
Countries
India
CAGE
Distances
HIGHEST
Mode of Entry
Acquisition of
Seagram
Risk
High Political
and
Form
Market
Company
Rationale of Strategy
Localization with four key
brands
China
LOW
Acquisition of
Seagram
Japan
LOW
Acquisition of
Seagram
USA
HIGH
SA
HIGH
Marketing of
premium Vodka
and Whiskey
Brands
Set up
operations
UK
HIGH
Acquisition of
Allied Domecq
Australia
LOWEST
Purchase of
Orlando Wines
Administrativ
e Risks
High
Economic
Risks- Low
consumption
No Risk as of
Now. Social
Risk in the
future
High
Economic
RisksChanging
consumption
patterns
High Political
Risks
High Political
and Economic
Risks
High
Economic
RisksDeclining
demand
Brand
Company
Brand
Company
Market
Company
Market
company
Increasing demand
Access to local markets
and international exports
Market
Company
Premiumisation
Brand
Company
With a population of roughly 126 million, of which its labour force is 62.64 million strong (MoIA 2011) and only
2.88 million unemployed, Japan is a market with huge sales volume potential. It is the 16 th largest beer
consumer in the world (GMID 2002). Despite the bursting of the Japanese bubble in the 1990s, Japan remains
a strong exporter and in fact, due to the on-going recession. Traditionally strong and deliberately byzantine
import regulations have weakened over the last decade, although imported goods do tend to be sourced from
within East and South-East Asia, and in particular it must be noted that trade and cultural relations with
neighbouring Republic of Korea have rarely been stronger.
Societal/Cultural Factors
Japan is an East Asian country with a unique culture based on powerful native belief systems of Shintoism and
Bushido influenced by India (Buddhism), China (Confucianism), and the West* (nationalism, imperialism,
democracy) (Nitobe 1900). This diverse and mixed heritage has led to Japan being described by many as a
country of contrasts. From a market entry viewpoint for an alcohol beverage product, however, the most
pertinent societal and cultural factors are the following:
An important demographic feature of the Japanese population is that they have one of the oldest populations
of any country with over 35 million people over 55 years old, this longevity often being attributed to a
Japanese lifestyle and diet (Bennett and Blythe 2002).
Technological Factors
Despite Japan being known for its high technology exports, the use of technology within the country can seem
to lag behind many foreign visitors expectations (Kerr 2002). The only relevant technological issues for
marketing an alcohol product in Japan, however relate to data storage practices, distribution of goods and the
role of the internet in marketing/sales. Despite being well known for its computers, many Japanese
organisations from banks and the post office, to schools and private firms tend to use computers as a back up
and paperwork still very much means work with paper (Morris 2002). This is commonly ascribed to a
combination of labour laws that make it very hard for firms to fire employees, and the English-language centric
nature of a lot of the software available to those organisations.
PESTEL India:
Political:
There is a very high level of taxes being levied on the liquor companies. Right from the acquisition of raw
materials to selling the final product, each and every step involves payment of a high amount of taxes or
duties. This makes it very difficult for liquor companies to make high margins.
There are strict restrictions on direct advertising of alcoholic products in the whole country. This makes it
very difficult for the liquor companies to increase awareness about its products within the market.
Economic:
The latest economic surveys show that there has been a rise in the level of disposable income of an
average individual of the country. This poses a great opportunity for the liquor industry as liquor is already
seen as a luxury product.
The lending rates to liquor companies have been increased by the banks as a result of the lower margins
being raised by those companies. This has posed serious threat for the industry, because sooner or later
every company needs to approach the banks for financial support.
Sociocultural:
There are various religious and cultural barriers against consumption of liquor in most parts of the
country. Some religions dont permit drinking, while some cultures have been looking at it as a vice.
Fighting these perceptions is the prime requirement of the industry.
With the changing times and increase in modernization of the country, the acceptance of liquor has
increased amongst the youth. This again raises a market segment to be tapped by the industry.
Technological:
With the advent in the field of biotechnology, new, cheaper and easier ways of blending and malting have
been discovered. This has helped the companies to cut down heavily on the costs incurred on production.
The spare grains left after the manufacturing of malted scotch whiskies are now being used in new ways
to broaden the product line and offerings of the companies.
Environmental:
Since all the distilleries use a lot of water to produce their products, there is always a problem faced
regarding water pollution. A no. of steps have been taken in the direction, but the problem still remains.
Another environmental concern is regarding the emission levels of the manufacturing plants. Also waste
disposal planning is an important activity undertaken by these companies towards controlling
environmental pollution.
Legal:
Alcoholic beverages have been facing different types of bans in some parts of the country. E.g. Gujarat has
banned the manufacturing and sale of these beverages in the entire state; whereas some of the northeastern states have banned the manufacturing units of alcoholic beverages in their territories.
Economic
National and international economic downturn means people generally have less disposable income
for socialising
Rise in staff wages due to National Insurance and Minimum Wage increases
Cut price offers for alcohol in supermarket promotions
Increases in transport costs in line with Fuel pricing
Social
Culturally pub centre of social life, place to meet friends and for locals to socialise
Easily accessible as pub situated close to Town Centre on main route in and out of town
Localised venue known for gigs, live music, themed nights for younger consumers
Demographically increased local student population
Media concern with negative aspects of binge drinking
Increased awareness of health concerns
Increased advertising on mainstream media of consuming alcohol responsibly
Wider choice and taste of alcoholic drinks in supermarkets for consumers
Technological
Legal
Smoking Ban
Stronger enforcement of underage drinking regulations on local and national level
Changes in Drink Driving Laws
EU legislation on measures of drinks served
Environmental
Recycling
Waste, litter, refuse produced in local area
Transportation and delivery costs of goods