Foreign Market Entry and Diversification Grupo Modelo
Recommendations are given as to whether Grupo Modelo should diversify or not. Considerations like risks and returns are assessed, while the final recommendation is to pursue economies of scale by replacing the international with the global strategy, in order to increase the company’s market scope and production capabilities.Since the fourteenth century, the global beer industry has been characterized as cluttered. Because of the limitations in terms of transportation, brewing beer is limited to domestic or national operations. However, with the advancement of technology, the global beer industry, with the smaller breweries around the world opens up a consolidation as a major strategy for players to grow.Higher capital requirements in the form of plants and technological infrastructure require big players to focus on expanding their economies of scale in order to achieve high profitability. By consolidating the industry through mergers and acquisitions, big players are able to capture the local markets as well as the production facilities of their smaller domestic competitors. Growing inorganically has been the major trend over the years in the global beer industry.These mergers and acquisitions do not only lead to players’ increase in their production abilities, but these consolidated players have larger access to financing and can better utilize leverage which is a very huge advantage over Grupo Modelo. This trend is a major threat to the company. so while Grupo Modelo does not have the adequate resources to compete in the same way that competitors expand by acquisitions, the company’s strategy in order to enter markets is by strategic alliances, instead.The major players in the global beer industry have expanded internationally through acquisitions. The first one to adopt this strategy was Interbrew, a Belgian company that has acquired small breweries in 20 countries while it has expanded its sales in 110 countries through these local acquisitions.