Beer Industry, 2010. Chinese Beer Industry Typically, production and marketing are very local, . Largest in the world by production volume: 43B litres in compared to other global industries 2009 (from 41B litres in 2008 . Transportation costs: beer is a high weight, low-value item . Thin margins challenged profitability . Consumers in different locations have different preferences Annual per capita consumption at 36.5 litres (2005-09), less and tend to favour local beer than half of the developed countries . Imported beer accounted for less than 1 percent AB InBev Corporate M&A History _Brouwerij Artois . AB InBev is a recently merged organization (Nov. 2008) (Est 1366, Named Artois 1717, Merged 1968) edboeuf Brewery . AB InBev went after many mergers and acquisitions over the past 15 (Merged 1988 - Belgiu years and now becoming a consolidation of 18 companies. Interbrew ferged 2004 - Belgium) Labatt Brewing Company (Est 1847, Acq 1995 - Canada) . Become the 'Best Beer Company in a Better World Lakeport Brewing Company (Est 1992, Acq 2007 - Canada) Top 5 fast-moving consumer goods (FMCG) companies AmBev(Formed 1999) Companhia Antarctica Paulista Anheuser-Busch InBe (Merged 1999 - Brazil) . HQ: Leuven, Belgium Anheuser-Busch InBev (Formed 2006) Cerveza Quilmes Operations in 23 developed and developing countries Merged 2004 - Brazil (Acq 2006 - Argentina) Cerveceria Nacional Dominicana . Organized into 6 'regions' (Acq 2012 - Dominican Republic) Grupo Modelo . Strongest positions in N. America, S. America and Europe (Acq 2012 - Mexico) Weakest in Africa South African Breweries (Acq 1947 - South Africa) US$36B revenues; 116K employees; >200 brands SABMiller Foster's Group (Acq 2011 - Australia) Meantime Brewery (Acq 2015 - England) AB InBev in 2010 InBev IPO (Int'l Purchasing Office) in China . Internal cultural differences between InBev and Anheuser- . In operation by 2007 Busch . Functions: . Traditionally decentralized in decision-making Supply market research . Competitor analysis . 95% of items are locally sourced in each of the 6 regions . Development of short/medium/long term supply markets . Supplier relationship management . Negotiation with local suppliers . Order management . Logistics management . Quality management InBEVInBev Chief Procurement Officer Main Objectives , Pascal Baltussen, CPO ' Grow revenue better than industry growth and inflation combined =' Drive higher profitability and cash generation Strengthen financial foundation thr0ugh further reductions and leverage AB Operations in China '- Fully focused on promotion of the Budweiser brand in China -- Market Potential - AB InBev leadership team believed huge market potential in China - Goal: become the market leader (currently 2\"'1 or 3'\") = Production Efficiency in China - Lower direct costs in labour, raw materials, brewery size/location - L0west unit product costs compared to other 5 geographic regions, e.g., USA, Europe - Operations were traditionally decentralized, with 95% local sourcing .'k. 33:. Web-W lnBev IPO in China Invest US$300-4ooM on sourcing in China - China is the preferred location because of its cost advantage and proximity to most key members of the industry's supply chain. ,- IPO (international procurement office) functions: - Evaluate sites for InBev's Chinese operations - Establish parameters for IPO - Deals with suppliers in China for all 6 regions Target: save US$1ooM at the end of Year 2 EnBev lkBlnBev SCM Challenges & Issues ' Corporate culture differences Geographic locations of the two companies " How to benefit from the increased scale and realize potential synergies ' How to qualify and integrate suppliers and products into one supply chain ' Reaction from Chinese suppliers to merger Risks of delivery delays, rising costs How to challenge the traditional ways and methods of operations \" Gain buy-in from regional decision-makers Expected challenges -' Striking a balance between centralization and decentralization Quality, logistics, distribution, local warehousing, human resources