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1 For further discussion of this periodization see Chapters 2 and 3.

232
Table a6.1. Evolution of governance structures in the distribution of alcoholic beverages
Period
1961“1970 1971“1990 1991“2000 2001“2005
Before 1960
Largest ¬rms Seagram Seagram Grand Metropolitan Diageo (Grand Diageo (Grand
Metropolitan / Metropolitan /
Guinness) Guinness)
Distillers Distillers Anheuser-Busch Anheuser-Busch Anheuser-Busch
National Distillers National Distillers Kirin Kirin Kirin
Guinness Allied Allied Seagram Pernod Ricard
Geographical scope Domestic (regional) Domestic (national)/ International/ Multinational/ Multinational/
International Multinational Global Global
Governance Structures in Distribution
0 0 0 0
Market alliances +
With distributors
0 0 0
Local Agents ++ +
0
Local Distributors ++ + + +




233
0
Networks of merchant + + + +
houses
With Competitors
Leader in domestic market + ++ ++ ++ ++
0 0
Multinational + ++ ++
0
Direct sale to retailers + + + +
Hierarchy
Employee working abroad + + + + +
E-commerce “ “ “ + +
Wholly owned channels + + ++ + +

Main forms used by ¬rms Local Agents Local Distributors Wholly owned channels Wholly owned channels Competitors:
Competitors: leaders in Competitors: leaders in Competitors: leaders in multinationals Wholly
domestic market domestic market domestic market owned channels
Competitors: Competitors: leaders in
multinationals domestic market

Note: the author; ++: Very usual; +: usual; 0: not usual; “: not applicable.
234 Global Brands
High

Wholly owned channel
e-commerce Joint venture channel

Market control and
Employee working in the
information
market of destination


Direct sale

Distributors
Agents


Networks of
merchant houses
Low
Low High
Resources committed

Fig. a6.1. Governance structures in the distribution of alcoholic beverages, 1900“
2005.2

The “networks of merchant houses” were private organizations that essen-
tially operated in distant markets in Asia, Africa, or Latin America. Begun
mostly in the eighteenth and nineteenth centuries, they played a fundamen-
tal role in fostering trade between European and the developing countries.
Although their core business was to provide intermediation services, they
also owned assets in several countries. They could specialize in the trade of
one product to different regions or distribute several products to one speci¬c
region. Alcoholic beverages were only one of the possible types of products
they could handle in their portfolios. Depending on the product, the market,
the level of demand for the product, and the ¬rm supplying the product,
merchant houses could either carry products on their own account and han-
dle all the activities related to the export of the product (administration,
logistics and marketing), or work under commission, being responsible for
only some of those activities.
“Agents” were very important intermediaries in the distribution of alco-
holic beverages until World War II. Their activities covered very limited
regions and they worked under commission or consignment, receiving a per-
centage proportional to their sales. They assumed a very limited risk as they
never owned the products they carried, nor had responsibility for those prod-
ucts in case of deterioration or theft. Each ¬rm tended to use several agents
per country, the span of activity and the level of sales of each being very small.
Frequently, agents used subagents, who covered speci¬c locations within
an already limited region. There existed essentially three types of agents.
The exclusive agents who represented only one ¬rm in a given market; the

2 Axes are based on Stephen Young, James Hamill, Colin Wheeler and J. Richard Davies,
International Market Entry and Development (Exeter: Harvester Wheatsheaf, 1989): 87.
235
Appendix 6
semi-exclusive agents who represented only one ¬rm for a particular type
of alcoholic beverage (e.g., beer, whisky, gin, or port), but who could trade
other goods or different types of alcoholic beverages; and the nonexclusive
agents, the least common type of agents, who could simultaneously represent
various competing ¬rms producing the same type of alcoholic beverage.
According to Bucklin™s study of the U.S. market, “distributors” (whole-
salers) developed after World War II and took the place of agents.3 The
majority of these distributors were small family businesses whose activity
was based on the personal contacts of the founders with their customers. In
other markets, distributors generally encompassed a much broader range of
functions than those usually allocated in the United States. They were usually
responsible for many of the marketing functions for those markets. Distribu-
tors were distinct from agents, as they operated in wider geographical regions
(often the whole country or even several countries geographically close), and
took responsibility for the products they handled. Very often they were also
responsible for bottling the beverages.4 By the beginning of the twenty-¬rst
century, they were still a very important channel of distribution for smaller
¬rms that lacked the size to trade on their own with large supermarkets
and hypermarkets. They were particularly important for those ¬rms that
wanted to target market niches or markets where the retailing industry was
less developed.
Another type of distribution channel is the “direct sale.” Basically, there
are three different groups of “direct sale” retail institutions for alcoholic bev-
erages. One group refers to the “off-premises” licensed take-home outlets
and includes supermarket chains, cooperatives, independent grocery stores,
outlets that exclusively sell alcoholic beverages, Duty Free Stores (whose gen-
esis dates to 1949 and which decreased in importance after 1997 as a result
of the European economic integration), and military sales outlets. Another
major set of take-home outlets are public sector and private establishments
with exclusive control over the sale of alcoholic beverages in markets such as
Canada and Scandinavian countries. In these markets, alcohol can only be
sold through these outlets.5 The other group includes “on-premises” outlets
such as restaurants, pubs, caf´ s, and hotels.
e

3 Louis P. Bucklin, Competition and Evolution in the Distributive Trades (Englewood Cliffs,
NJ: Prentice Hall, 1972): 206.
4 There were other types of distributors that were speci¬c to the kind of alcoholic beverage. One
example is export bottlers, who were very important in the distribution of beer until World
War II, but basically their role was similar to that of the distributors. See, e.g., S. R. Dennison
and Oliver MacDonagh, Guinness 1886“1939: From Incorporation to the Second Word War
(Dublin: Cork University Press, 1998): chapters 5 and 13; Terry Gourvish and Richard G.
Wilson, The British Brewing Industry, 1830“1980 (Cambridge: Cambridge University Press,
1994).
5 Frederick Clairmonte and John Cavanagh, Merchants of Drink: Transnational Control of
World Beverages (Penang: Third World Network, 1988): 175“90.
236 Global Brands
The large supermarkets and hypermarkets carrying wide assortments of
goods are particularly important today in the retailing of consumer goods.
The trend towards concentration of distribution had started in the United
States in the 1930s, spreading to the rest of North America in the 1940s and
to Western Europe in the 1950s.6 However, it was the process of globalization
of the world economy and the changes in consumer lifestyles from the 1960s
that dramatically transformed the retailing of consumer goods. The advent of
large retailers has done more than erode manufacturers™ traditional hold on
consumer markets. Channels of distribution were no longer passive physical
conduits of goods but had an active role as generators of value addition,
especially in logistics and marketing.7
The second group of “direct sale” retail institutions refers to “on premise”
sales. Although the general pattern was for ¬rms to sell to restaurants, hotels,
and caf´ s through distributors or agents, there were some cases where orders
e
were processed directly by the ¬rms. A third group, widely seen in some Asian
countries, comprises vending machines, and the purchase is made without
any relation to a vendor or retailer. In addition, ¬rms often had their own
retail chains.
Another seldom-used distribution channel is “employees working in the
market of destination.” These employees who lived abroad established con-
tacts in those markets, distributed the products, and simultaneously provided
reliable feedback to the ¬rms. They were especially important while ¬rms
were penetrating new markets or when those markets were considered to be
strategic, but where demand did not justify having a wholly owned distri-
bution channel (a subsidiary). In these situations, there was no autonomous
subsidiary (either wholly owned by the ¬rm or in alliance with a partner) but
merely an employee (or employees) living abroad. Although the risk involved
and the resources committed were higher than when using agents or distrib-
utors, they were not particularly signi¬cant and the level of ¬‚exibility of the
¬rm to pull out of the market if necessary remained high.
The “wholly owned channels,” often used in previous centuries more by
entrepreneurial based ¬rms than by large ¬rms from different sectors of alco-
holic beverages only developed to become an important part in the strategy
of ¬rms from the 1970s and 1980s. The wholly owned distribution sub-
sidiaries, which were legally autonomous corporations, played a similar role

6 Erderner Kaynak (ed.), Trans-National Retailing (New York: W. de Gruyter, 1988); Luca
Pellegrini and Srinivas K. Reddy (eds.), Retail and Marketing Channels (London: Routledge,
1989).
7 Susan Segal-Horn and John McGee, “Strategies to Cope with Retailer Buyer Power,” in
Pellegrini and Reddy, Retail and Marketing: 27. In developing countries there was a time lag
of around twenty years before the “direct sales” channels developed. By the beginning of the
twenty-¬rst century, while large supermarkets and hypermarkets accounted for an important
part of the trade of consumer goods in the Western World, in developing countries small
retailers still distributed a substantial proportion of these consumer goods.
237
Appendix 6
to the “employee working in the market of destination,” the main difference
being the volume of sales they were able to handle, their increased capacity
to respond to customers™ orders, their greater control of decision taking, the
higher risk and the lower ¬‚exibility to pull out of the market if necessary.
“Joint venture channels” involve the creation of distribution channels
where control and costs are spread over the marketing and distribution of
products. These joint venture alliances can take several forms and involve
distinct partners, such as a large multinational with a local producer of alco-
holic beverages, a large multinational with another multinational, a large
multinational with a local distributor, and two small competing ¬rms. The
size of the partners involved and the scope of the alliances tend to vary over
time.
Finally, developments in information systems including the Internet at the
end of the twentieth century, led to the emergence of a new type of dis-
tribution channel that involved a relatively low commitment of resources
while simultaneously providing a high level of market control and informa-
tion. Through this type of distribution channel, ¬rms (even those of small
size) could have direct contact with wholesalers, retailers, or ¬nal customers
in any part of the world, and respond to large or small purchasing orders
without incurring high risks and intermediation costs. These developments
clearly marked the end of relationships with some wholesalers and retail-
ers and the beginning of new arrangements where these intermediaries still
played an important role, since many of the e-commerce companies were
essentially brokers.
Appendix 7

Schematic Representation: Alliances as
Dynamic Processes for Acquiring
Marketing Knowledge

This appendix provides a schematic representation of the main types of
alliances used by a standard leading alcoholic beverages ¬rm, P1 , over time.
It offers a visual illustration of the process through which ¬rms acquire and
transfer marketing knowledge using four main types of alliances: with local
agents, with local distributors, with different kinds of competitors “ lead-
ing alcoholic beverages ¬rms in their domestic markets, and other leading
multinationals in the industry.
Each of the four columns represents a different country.1 Country 1 is
the origin of P1 . The second, third, and fourth columns change with the
type of alliance. There are n countries, each one dominated by an alcoholic
beverages ¬rm. Countries 1 and n develop large multinationals and countries
2 and i only develop large ¬rms, leaders in their domestic markets.
The analysis in Figure A7.1 is static, and does not re¬‚ect that at a particular
moment in time ¬rms from different countries might form distinct types of
alliances. Production and distribution operations are symbolized by squares,
marketing knowledge by a circle, and knowledge about brands by a triangle.
Ownership of production and distribution by P1 is indicated by shading;
otherwise, these activities appear unshaded or with stripes. When ownership
is shared in an alliance, the square appears half-shaded.
Flows of marketing knowledge, which include the routines and procedures
within the ¬rm about marketing methods and the management of brands and
distribution channels, are represented by single arrows.2 They connect the


1 Figure A7.1 employs the conventions introduced and re¬ned by Buckley and Casson™s work
on the theory of the multinational ¬rm. Peter J. Buckley and Mark Casson, “A Theory
of Co-operation in International Business,” in F. J. Contractor and P. Lorange (eds.), Co-
operative Strategies in International Business (Lexington, Mass: Lexington Books, 1988);
idem, “Analysing Foreign Market Entry Strategies: Extending the Internalisation Approach,”
Journal of International Business Studies, Vol. 29, No. 3 (1998): 539“61; Mark Casson,
The Organisation of International Business (Aldershot: Elgar, 1995); idem, Information
and Organisation: A New Perspective on the Theory of the Firm (Oxford: Clarendon,
1996).
2 For a more comprehensive de¬nition of marketing knowledge, see Chapter 1.




238
239
Appendix 7
Country 1 Country i Country i + 1 Country n

...
b3
M b1 b2
local agents
...
With

P3
P1 P2


...
D1 D3
D2



...
domestic market local distributors




b3
M b2
b1

...
With
TYPES OF ALLIANCES




P1 P2 P3


...
D1 D2 D3
With competitors:




...
M
M b2
b1 b3


...
P1 P2 P3


...
D2
D1 D3
With competitors:




M M
bn
b1
MNEs




Pn
P1 n




... R ... ... ...
D1,2,–6 D1, nn
D D1, nn
R1, nn R1,2,–6 1,
1, 1, n 1,
1, n
1,2,–6




Legend:

“ General marketing knowledge “ brand
M
“ production (P) or distribution (D) unit
“ Flows of products
“ Flows of marketing knowledge “ Accumulation of marketing knowledge
Fig. A7.1. Types of alliances in the distribution of alcoholic beverages.

unit in the ¬rm that accumulates general marketing knowledge (M) with
the unit that centralizes the speci¬c or sticky marketing knowledge about
the brands (b), and production operations (P) as well as distribution units
(R) (wholly or partially owned).
240 Global Brands
Flows of products are represented by double arrows and connect produc-
tion with retail distribution, which can either be wholly owned (represented
by a shaded square), partially owned through an alliance (represented by a
half-shaded square) or owned by a third party (represented by a square with
stripes). The direction of the double arrows represents the ¬‚ow of products.
The direction of the single arrows represents the direction of the ¬‚ows of
acquisition and transfer of knowledge.
The construction of Figure A7.1 relied on eight sets of assumptions on the
role of brands in the evolution of multinationals. First, the long-term goal
of the largest ¬rms in alcoholic beverages is survival, and the choice of the
most ef¬cient distribution channel for their brands helps prevent ¬rms from
becoming a target for takeovers. Second, P1 is constantly changing the modes
through which it distributes its beverages, responding to the transformations
in the environment, and, when entering a market for the ¬rst time, seeks to
minimize risk. It is only later that P1 chooses the mode of distribution that
provides a higher level of control, marketing knowledge, and economies of
scale and scope. Third, while Pn ranks among the largest ¬rms worldwide,
the diagram only analyzes the alternative modes for P1 ™s distribution strategy.
Fourth, P1 acquires marketing knowledge through its exposure to overseas
markets. Fifth, there is no information asymmetry and opportunism in the
formation of alliances. Sixth, the distribution activity includes distribution
subsidiaries (which have their own sales force) and also retail outlets such as
pubs/inns and specialty shops. Seventh, brands 1, 2, n “ 1, and n are assumed
to be complementary. Eighth, P1 only uses one channel of distribution in each
country.
The ¬rst diagram in Figure A7.1 represents an alliance between P1 and
local agents in different markets who also distribute other brands. It illus-
trates the lack of transfer or accumulation of marketing knowledge, as well
as P1 ™s lack of control of the marketing of its brand b1 .
The second diagram describes an alliance between P1 and a local dis-
tributor, and shows that it is possible for P1 to accumulate sticky market-
ing knowledge. There is, however, still no control over the marketing of b1
or the transfer of knowledge about the marketing of the brand to the dis-
tributor.
The third diagram shows a situation in which the ¬rm is vertically inte-
grated in the domestic market and has an alliance with a local competitor
abroad, a leader in its own market. It illustrates the transfer and accumula-
tion of sticky marketing knowledge, with some control by P1 of the opera-
tions and the decision making of the marketing of the brand.
Finally, the last diagram represents a situation in which P1 (a large multi-
national) forms an alliance with another large multinational. The situation
includes multiple markets and sales through jointly owned and managed
distribution channels. In this situation, control is shared. Acquisition and
241
Appendix 7
transfer of marketing knowledge and also the possibility of obtaining
economies of scale and scope are illustrated by the large number of com-
plementary brands “ 1, 2, n “ 1, and n. Overall, Figure A7.1 shows the
bene¬ts of alliances with direct competitors, where ¬rms minimize risk and
control and yet are able to acquire marketing knowledge.
Appendix 8
Diversi¬cation Strategies
Table a8.1. Percentage of sales in alcoholic beverages to total sales, 1960“2005

Distillers Grand Hiram Pernod Anheuser-
Company IDV Metropolitan Diageo Guinness Allied Walker Seagram Ricard Heineken LVMH Busch

Origin UK UK UK UK UK UK CAN CAN FRA NL FRA US
Year
1960 80 100 0 100
“ n/a n/a n/a “ n/a “ n/a
1961 82 100 0 91 100
“ n/a n/a “ n/a “ n/a
1962 88 100 0 94 100
“ n/a n/a “ n/a “ n/a




242
1963 86 100 0 96 100
“ n/a n/a “ n/a “ n/a
1964 83 100 0 98 100 97
“ n/a n/a “ “ n/a
1965 81 100 0 92 100 96
“ n/a n/a “ “ n/a
1966 100 0 92 100 94
n/a “ n/a n/a “ “ n/a
1967 100 0 89 100 95
n/a “ n/a n/a “ “ n/a
1968 91 100 0 87 100 96
“ n/a n/a “ “ n/a
1969 91 100 0 84 100 78
“ n/a n/a “ “ n/a
1970 90 100 0 84 100 80
“ n/a n/a “ “ n/a
1971 89 100 5 85 98 84
“ n/a n/a “ “ n/a
1972 89 100 33 85 98 86
“ n/a n/a “ “ n/a
1973 88 100 34 81 98 84
“ n/a n/a “ “ n/a
1974 88 100 29 81 97 86
“ n/a n/a “ “ n/a
1975 86 32 79 94 75 86
“ “ n/a n/a “ n/a
1976 86 77 92 87
“ n/a “ n/a n/a n/a “ n/a
1977 86 74 58 92 89
“ n/a “ n/a n/a “ n/a
1978 84 61 58 60 93 88
“ n/a “ n/a “ n/a
1979 84 49 62 64 62 93 87
“ “ n/a “ n/a
1980 84 50 64 66 57 88 88
“ “ n/a “ n/a
1981 84 57 69 70 50 100 89
“ “ n/a “ n/a
1982 83 35 73 69 43 100 90 98
“ “ n/a “
1983 83 43 84 67 41 100 81
“ “ n/a n/a “
1984 67 31 85 64 100 88 83
“ “ “ n/a “
1985 60 30 69 64 100 61 87 77
“ “ “ “
1986 33 73 66 100 64 87 77
“ “ “ “ “
1987 38 79 67 100 64 87 56 77
“ “ “ “
1988 43 95 72 100 60 87 54 77
“ “ “ “
1989 30 98 71 85 65 87 52 78
“ “ “ “
1990 24 98 75 78 64 87 52 76
“ “ “ “
1991 28 99 77 79 62 86 53 76
“ “ “ “




243
1992 36 100 60 78 55 50 76
“ “ “ “ n/a
1993 42 100 59 77 53 87 47
“ “ “ “ n/a
1994 43 100 56 76 49 42
“ “ “ “ n/a n/a
1995 41 100 63 76 48 86 38
“ “ “ “ n/a
1996 40 100 62 72 50 37
“ “ “ “ n/a n/a
1997 61 57 74 67 26 82
“ “ “ “ “ n/a
1998 62 56 48 68 27 82
“ “ “ “ “ n/a
1999 61 51 39 70 87 26 83
“ “ “ “ “
2000 60 88 39 69 85 20 82
“ “ “ “ “
2001 59 89 42 100 20 82
“ “ “ “ “ “
2002 77 91 70 100 18 82
“ “ “ “ “ “
2003 95 92 97 100 18 82
“ “ “ “ “ “
2004 100 93 97 100 18 81
“ “ “ “ “ “
2005 100 98 100 19 80
“ “ “ “ “ “ “

Sources: Companies™ annual inputs.
Table a8.2. Percentage of sales generated outside the continent of origin of the ¬rm, 1960“2005

Distillers Grand Hiram Pernod Anheuser-
Company IDV Metropolitan Diageo Guinness Allied Walker Seagram Ricard Heineken LVMH Busch

Origin UK UK UK UK UK UK CAN CAN FRA NL FRA US
Year
1960 n/a n/a n/a “ n/a n/a n/a n/a “ n/a “ n/a
1961 n/a n/a n/a “ n/a n/a n/a n/a “ n/a “ n/a
1962 n/a n/a n/a “ n/a n/a n/a n/a “ n/a “ n/a
1963 n/a n/a n/a “ n/a n/a n/a n/a “ n/a “ n/a
1964 n/a n/a n/a “ n/a n/a n/a n/a “ n/a “ n/a
1965 91
n/a n/a n/a “ n/a n/a n/a “ n/a “ n/a




244
1966 29
n/a n/a “ n/a n/a n/a n/a “ n/a “ n/a
1967 36 30 16
n/a “ n/a n/a n/a “ n/a “ n/a
1968 44 30 0 19
“ n/a n/a n/a “ n/a “ n/a
1969 48 30 4 28
“ n/a n/a n/a “ n/a “ n/a
1970 47 30 1 31
“ n/a n/a n/a “ n/a “ n/a
1971 46 30 1 21
“ n/a n/a n/a “ n/a “ n/a
1972 46 20 3 19
“ n/a n/a n/a “ n/a “ n/a
1973 46 25 4 17
“ n/a n/a n/a “ n/a “ n/a
1974 44 28 6 20
“ n/a n/a n/a “ n/a “ n/a
1975 42 5 26 0
“ “ n/a n/a n/a n/a “ n/a
1976 39 “ n/a “ n/a n/a n/a n/a n/a n/a “ n/a
1977 37 21
“ n/a “ n/a n/a n/a n/a n/a “ n/a
1978 40 20 4 23
“ n/a “ n/a n/a n/a “ n/a
1979 38 6 22 11 26
“ “ n/a n/a n/a “ n/a
1980 39 11 18 11 30
“ “ n/a n/a n/a “ n/a
1981 40 23 24 11 15 32
“ “ n/a n/a “ n/a
1982 44 27 21 12 14 31
“ “ n/a n/a “ n/a
1983 45 31 20 14 12 32
“ “ n/a n/a “ n/a
1984 45 36 20 17 12 29
“ “ n/a n/a “ n/a
1985 52 38 19 18 11 32
“ “ n/a n/a “ n/a
1986 34 27 16 36
“ “ “ “ n/a n/a “ n/a
1987 34 30 18 43 52
“ “ “ “ n/a n/a n/a
1988 32 41 26 51 56
“ “ “ “ n/a n/a n/a
1989 45 40 25 47 27 60
“ “ “ “ n/a n/a
1990 54 39 27 47 24 56
“ “ “ “ n/a n/a
1991 56 38 24 52 25 51
“ “ “ “ n/a n/a
1992 60 41 23 52 25 60
“ “ “ “ n/a n/a




245
1993 65 44 24 55 27 63
“ “ “ “ n/a n/a
1994 69 45 26 55 20 30 62 5
“ “ “ “
1995 67 43 28 54 19 30 62 6
“ “ “ “
1996 69 44 24 44 19 29 61 6
“ “ “ “
1997 66 19 41 19 31 70 7
“ “ “ “ “
1998 65 21 43 19 29 63 6
“ “ “ “ “
1999 65 23 49 19 10 63 6
“ “ “ “ “
2000 65 43 51 19 10 66 6
“ “ “ “ “
2001 68 74 26 32 64 7
“ “ “ “ “ “
2002 68 72 44 32 63 7
“ “ “ “ “ “
2003 69 72 43 34 62 8
“ “ “ “ “ “
2004 68 72 44 33 62 12
“ “ “ “ “ “
2005 60 24 65 17
“ “ “ “ “ “ “

Source: Companies™ annual reports.
Table a8.3. Diversi¬cation by the largest multinational in alcoholic beverages in 2000

Country Level of Alcoholic Other Other Businesses™
Multinational of Origin Total Sales Diversi¬cation Beverages (%) Businesses (%) Scope of Operation

3,842
Allied Domecq UK Low Wines and spirits Quick-service restaurants Global market
diversi¬cation (88%) (12%)
2,706
Ambev BRA Medium Beer (79%) Soft drinks (21%) Domestic market
diversi¬cation
12,499
Anheuser-Busch US No Beer (100%)
diversi¬cation
12,983
Asahi Breweries JAP Low Wines, spirits, Soft drinks and food Domestic market
diversi¬cation and beer (81%) (16%)
Others (3%)




246
2,800
Bacardi CB/BER No Spirits and wines
diversi¬cation (100%)
2,146
Brown Forman US Medium Wines and spirits Luggage and chinaware Domestic market
diversi¬cation (72%) (28%)
4,272
Carlsberg DEN Low Beer (99%) Other businesses (1%) Domestic market
diversi¬cation
2,414
Adolph Coors US No Beer (100%)
diversi¬cation
2,162
Constellation Brands / US No Wines and spirits
Canandaigua diversi¬cation (73%)
Beer (distribution
(27%)
17,053
Diageo UK High Wines, spirits, Quick-service restaurants Global market
diversi¬cation and beer (60%) (8%)
Packaged foods (32%)
1,650
E. & J. Gallo US No Wines (100%)
5,845
Fortune Brands / US High Wines and spirits Home products (38%) Domestic market
American Brands (21%) Of¬ce products (25%)
Golf products (16%)
1,835
Foster Brewing AUS High Beer (48%) Leisure and hospitality Domestic market
Wines and spirits (27%)
(20%) Other (5%)
7,469
Heineken NL Low Beer (80%) Soft drinks (11%) Domestic market
Wines and spirits Other (4%)
(5%)
5,212
Interbrew BEL Low Beer (98%) Other (2%) Domestic market
14,669
Kirin JAP Medium Beer (71%) Soft drinks (20%) Domestic market




247
Other (9%)
10,670 Global market
LVMH FRA High Wines and spirits Fashion and leather goods
(20%) (28%)
Perfumes and cosmetics
(18%)
Selective retailing (28%)
Watches and jewelry (5%)
Other (1%)
4,806—
Philip Morris (Miller) US Unrelated Beer (5%) Tobacco (61%) Domestic market
Food (33%)
Financial services (1%)

(continued)
Table a8.3 (Continued)

Country Level of Alcoholic Other Other Businesses™
Multinational of Origin Total Sales Diversi¬cation Beverages (%) Businesses (%) Scope of Operation

1,181
Molson CAN None Beer and related
(100%)
4,037
Pernod Ricard FRA High Wines and spirits Processed fruits (31%) Domestic market
(69%)
674
R´ my Cointreau
e FRA None Wines and spirits
(100%)
5,419 Leisure (11%) Domestic market
Scottish & Newcastle UK Low Beer (58%)
Retail (pub,
restaurant)




248
(31%)
15,686
Seagram CAN High Wines and spirits Music (54%) Global market
(39%) Entertainment, recreation
(7%)
4,806
South African SA Medium Beer (72%) Other beverages (22%) Domestic market
Breweries Hotels and gaming (6%)
7,879
Suntory JAP High Wines and spirits Food (44%) Domestic market
(24%) Other (15%)
Beer (17%)

Note: Amounts in millions of current U.S. dollars.
— Total Sales for Miller only, the brewing business of Philip Morris.

Source: Various annual reports and newspapers.
Appendix 9
Patterns of Diversi¬cation within Alcoholic Beverages
Table a9.1. Patterns of diversi¬cation within the alcoholic beverages industry
1960“69 1970“79 1980“89 1990“99 2000“05
No diversi¬cation/Low diversi¬cation
Beer:
- Anheuser-Busch beer beer
- Molson Coors beer beer
- Carlsberg beer beer
- Interbrew (merged 2004) •
beer
- Tsingtao beer beer
- Inbev (formed in 2004) beer
- San Miguel beer beer
Spirits:
- Teacher (acquired in 1975) spirits




249

- Arthur Bells (acquired in 1984) spirits •
- Distillers (acquired in 1985) spirits •
Beer => spirits
- Guinness (merged in 1996) beer spirits •
Beer => spirits and wines
- Heineken beer spirits wines (d) beer, spirits, wines (d)
wines
- Asahi Breweries beer spirits, wines (d) beer, spirits, wines (d)
Beer => processed wines => spirits =>
(beer) => wines
- Allied Domecq beer, processed wines spirits (beer), wines •
Wines => spirits
- E & J Gallo wines spirits wines, spirits
- Constellation Brands wines spirits, beer (d) wines, spirits

(continued)
Table a9.1 (Continued)
1960“69 1970“79 1980“89 1990“99 2000“05
Spirits => wines
- R´ my Cointreau
e spirits wines spirits, wines
- Bacardi spirits spirits, wines
wines
- Highland Distillers spirits spirits, wines (d)
wines (d)
Medium diversi¬cation
Beer:
- Ambev (formed in 2000, Beer
merged 2004)
Beer => spirits and wines
- Kirin Breweries beer spirits, wines (d) wines beer, spirits, wines
- Sapporo beer wines and spirits beer, spirits, wines
- SABMiller beer beer, spirits, wines
spirits, wines
Spirits => processed wines => wines
- Brown Forman spirits, processed wines
(d) wines spirits, wines




250
High diversi¬cation
Spirits and wines:
- Pernod Ricard (formed in 1975) processed wines, spirits wines, spirits
- Mo¨ t-Hennessy (formed in 1971)
e processed wines, spirits wines, spirits
Spirits => wines
- Seagram spirits, wines spirits, wines
- Fortune Brands spirits spirits, wines
wines
Beer => processed wines, wines and
spirits => (beer)
- Grand Metropolitan
(merged in 1996)
beer spirits, wines (beer) •
Beer => wines
- Foster™s beer wines beer, wines
Beer, wines and spirits:
- Diageo (formed in 1997) beer, spirits, wines beer, spirits, wines
- Suntory spirits, wines, beer
spirits, wines, beer

Notes: • “ ¬rm merged or acquired; (d) “ distribution; (beer) “ divestment from the beer business
Appendix 10

Schematic Representation: Brands
and Marketing Knowledge in
Mergers and Acquisitions

Figure a10.1 provides a schematic representation of the process of growth
of the largest multinationals of alcoholic beverages at the beginning of the
twenty-¬rst century. It illustrates how brands in¬‚uenced that evolution by
constantly changing the boundaries of ¬rms in a series of different stages. It is
based on the assumption that a standard multinational of alcoholic beverages
P1 evolves in several stages corresponding largely to “waves” of international
mergers and acquisitions. Penrose™s concepts on the growth of the ¬rm, and
Johanson and Vahlne™s stages model of the internationalization of the ¬rm
are used to help explain the internationalization process, despite not directly
addressing entry into foreign markets through globalization of brands.1 The
¬gure shows that the world™s largest alcoholic beverages ¬rms ¬rst grew
through geographical expansion using their existing successful brands, and
through international mergers, acquisitions, and alliances. It highlights the
increasing importance of marketing knowledge in the development of ¬rms.
Figure a10.1 does not, however, suggest that the industry evolved over time
into a monopoly, but rather that P1 grew from being the leader in its domestic
market to being a globalized multinational ¬rm.
The schematic representation focuses in particular on three types of growth
strategies of ¬rms “ exports, mergers and acquisitions, and alliances. As in
other industries in developed economies, these were the predominant forms
of international expansion of alcoholic beverages ¬rms since the 1960s.2
However, since the evolution in the patterns of ownership in mergers is
very similar to that of acquisitions, they are not included in the schematic
representation.

1 Edith Penrose, The Theory of the Growth of the Firm (Oxford: Blackwell, 1959); J. Johanson
and J. E. Vahlne, “The Internationalisation Process of the Firm: A Model of Knowledge Devel-
opment and Increasing Market Commitment,” Journal of International Business Studies,
Vol. 8 (1977): 23“32.
2 John M. Stopford and Louis T. Wells, Managing the Multinational Enterprise (London:
Longman, 1972); Brent D. Wilson, “The Propensity of Multinational Firms to Expand
Through Acquisitions,” Journal of International Business Studies, Vol. 11, No. 2 (1980):
59“65.




251
252 Global Brands

Market 1 Market i Market i + 1 Market n



...
Stage 0 (i = 2)


M b1 b2 b3 bn


...
P1 P2 P3 Pn


...
R1 Rn
R2 R3




...
M
Stage 1 (i = 2)




b3 bn
b1 b2


...
P1 P2 P3 Pn


...
R1 Rn
R3
R2




...
M b3 bn
b2
b1
Stage 2 (i = 2)




...
P3
P1 P2 Pn


...
R1,2 R1,2 R3 Rn




Legend:
“ General marketing knowledge
M
“ Flows of marketing knowledge

“ Flows of products
“ brand

“ production (P) or retail distribution (R) unit

Fig. a10.1. The role of brands in the evolution of multinationals in alcoholic
beverages
253
Appendix 10

Market 1 Market i Market i + 1 Market n


M
Stage 3 (i = 3)

b1 b2 b3
bn

...
P1 P3 Pn


... R ... R ...
R1,2,3 Rn
1,2,3 1,2,3
Stage 4 (i = 4)




... b
M b2
b1 bn
4




... Pn
P1 P4



... R ...
... R
R1,2,...,4 Rn
1,2,...,4
1,2,...,4




... b
Stage 5 (i = 5)




M b2
b1 bn
5
6 n



... Pn
P5
P1 2




...
... R
R1,2,–6 R1,2,–6 Rn
1,2,...,5
1,2,–6 1,2,...,5
1,2,...,5




Fig. a10.1 (Continued)

Each of the four columns represents a different country.3 The two mid-
dle columns change with the evolution of ¬rm P1 (in stages). There are n

3 Figure A10.1 employs the conventions introduced and re¬ned by Buckley and Casson™s work
on the theory of the multinational ¬rm. Peter J. Buckley and Mark Casson, “A Theory
of Co-operation in International Business,” in F. J. Contractor and P. Lorange (eds.), Co-
operative Strategies in International Business (Lexington, Mass: Lexington Books, 1988);
idem, “Analysing Foreign Market Entry Strategies: Extending the Internalisation Approach,”
Journal of International Business Studies, Vol. 29, No. 3 (1998): 539“61; Mark Casson,
254 Global Brands
countries, each one dominated by an alcoholic beverages ¬rm. Markets from
1 to i + 1 are culturally and politically similar and geographically proxi-
mate, with i corresponding to different markets ranging from 2 to n “ 1,
and referring to the number of relevant markets at a particular stage in the
development of the ¬rm. Country 1 in the ¬rst column is the origin of P1 .
Country n is culturally and geographically distant from the other markets.
The symbols used for production and distribution operations, ¬‚ows of
products and ¬‚ows of marketing knowledge, as well as the assumptions
on the role of brands in the evolution of markets, are the same as used in
Appendix 7.
The construction of Figure a10.1 relies on eight sets of assumptions, based
on the evidence provided by the evolution of the world™s largest multination-
als analyzed in previous sections. First, their long-term goals are survival
and maximization of shareholders™ wealth, or at least the maintenance of
a level of market capitalization that prevents them from becoming targets
for takeovers, within a context of modern global capital markets. Despite
some short-term moves to outmaneuver competitors, it is assumed that these
long-term goals can be achieved through one main strategy “ the merger and
acquisition of ¬rms that own successful brands with global potential. This
is why ¬rms follow several stages in their evolution, ¬rst selling in markets
culturally, politically, and geographically proximate, then acquiring produc-
tion ¬rms and distribution channels in those markets, and only subsequently
entering markets with a high cultural and geographic distance (especially by
forming alliances).
Second, P1 produces brand 1 (b1 ), which from the late 1950s until the
beginning of the twenty-¬rst century, develops into one of the world™s largest
multinationals in the industry. It grows in evolutionary stages (correlated
with the waves of mergers and acquisitions) by merging and acquiring other
large ¬rms in distinct markets, and constantly changing its boundaries. In its
international strategy, P1 ¬rst acquires ¬rms in those markets to which it was
already exporting and which are culturally, politically, and geographically
closer, and only later enters more distant markets. Third, all the ¬rms from
P1 to Pn rank among the largest ¬rms worldwide, but only P1 ™s growth and
survival is analyzed. Firms P2 to Pn are close followers of P1 .
Fourth, P1 has ¬rm-speci¬c advantages over its competitors,4 and ranks
among the world™s largest ¬rms. These ¬rm-speci¬c advantages, which are

The Organisation of International Business (Aldershot: Elgar, 1995); idem, Information and
Organisation: A New Perspective on the Theory of the Firm (Oxford: Clarendon, 1996).
4 John H. Dunning, “Reappraising the Eclectic Paradigm in an Age of Alliance Capitalism,”
Journal of International Business Studies, Vol. 26, No. 3 (1995): 461“91. The de¬nition of
¬rm-speci¬c advantages is based on John Dunning™s concept of “ownership advantage,” in
John H. Dunning, “Trade, Location of Economic Activity and the MNE: A Search for an
Eclectic Approach,” in B. Ohlin, P. O. Hesselborn, and P. M. Wijkman (eds.), The Interna-
tional Allocation of Economic Activity (London: Macmillan, 1977); Stephen Hymer, “On
Multinational Corporations and Foreign Direct Investment,” selected by John H. Dunning
255
Appendix 10
endogenous and differentiate the ¬rm from its competitors promoting its suc-
cess, include its marketing knowledge, in particular its superior capacity to
manage brands, and also its ownership structure, entrepreneurial capabilities
of its managers, organizational structure, ¬rst-mover advantages, economies
of scale and scope, technology, and distribution networks. These are advan-
tages that form the basis for the international growth and survival of ¬rms
in alcoholic beverages. Fifth, with each acquisition P1 acquires additional
marketing knowledge. Sixth, all the ¬rms acquired own successful brands;
brands can only be acquired with the ¬rms that produce them; search for
brands is rational and there are no costs associated with information asym-
metry and opportunism in their acquisition. In the real world, the process
of growth involves both decisions to grow a handful of local and regional
brands into global brands, and also to eliminate the majority of other brands
considered lacking in growth potential. However, as the aim of the schematic
representation is to explain how successful brands contribute to the evolu-
tion of multinationals in alcoholic beverages, these issues are not discussed
here.5 It is assumed that all brands are successful and remain so during
the period of analysis. The schematic representation also does not discuss
whether and how the de¬nition of a “successful brand” changes over time
and does not concern itself with the decision to divest brands. Seventh, only
one single level of distribution is considered. This links production to ¬nal
demand and includes distribution subsidiaries (which have their own sales
force).
From stages 0 to 3, the environment is assumed to be benign (no wars or
major crisis) and the relevant level of competition to be local. In stages 4
and 5, competition becomes global. Stages 0 and 1 do not correspond to the
period analyzed in this book, but help the understanding of the evolution
of P1 in the subsequent stages. These preliminary stages correspond to the
evolution of multinationals of alcoholic beverages and their predecessors
before the 1960s. Stages 2 to 5 rely on the empirical evidence presented in
previous sections, and relate to the period from 1960 until 2005.
Stages 0 and 1 illustrate that before the 1960s, when the world alcoholic
beverages industry was still fragmented, the largest alcoholic beverages ¬rms
had a restricted regional scope, relying on organic growth to expand geo-
graphically and using the existing brands. At this stage, very few ¬rms got
involved in international mergers and acquisitions. Stage 0 shows the start-
ing point for P1 , a standard leading ¬rm, from market 1. At this stage, it is
assumed there is one leading ¬rm in each market and no trade takes place
between markets since P1 ™s levels of general and sticky marketing knowledge


from “The International Operations of National Firms: A Study of Foreign Direct Investment”
(PhD dissertation, MIT, 1960), in C. N. Pitelis and R. Sugden (eds.), The Nature of the
Transnational Firm (London: Routledge, 1991): 23“43; Richard Nelson, “Why Do Firms
Differ and How Does It Matter,” Strategic Management Journal, Vol. 14 (1991): 61“74.
5 For a discussion of this topic, see Chapter 7, “Acquiring brands.”
256 Global Brands
(which is speci¬c to the ¬rm) are very low, and the ¬rm owns only one single
successful brand (b1 ).
In stage 1, P1 creates ¬rm-speci¬c advantages and decides to start sell-
ing/exporting to market 2 using an independent distributor. In this process
it also develops additional ¬rm-speci¬c advantages over the local competi-
tor P2 , in particular by obtaining additional marketing knowledge, which
facilitates the acquisition of P2 in the subsequent stage.
In stage 2, with the acquisition of P2 , P1 is able to obtain economies of
scale and scope in distribution, and also to import brand b2 into its home
market. In this process P1 acquires additional general market knowledge. In
stage 3 (which corresponds to the period from the 1960s to the 1980s), P1
acquires P3 , a close competitor (owner of b3 ), which also has an established
international activity. The purpose of this acquisition of a ¬rm that owns an
already successful brand (b3 ) is to transform it into a global brand.
In stages 4 and 5 (which correspond to the period from the 1980s), entry in
markets culturally, politically, and geographically distant becomes possible
because P1 has acquired extensive marketing knowledge that provides the
ability to explore the potential of other brands. In stage 4 (corresponding
to the merger wave between 1985“1988), P1 continues to acquire ¬rms that
own successful brands and distribute those brands through wholly owned
distribution channels in markets culturally, politically, and geographically
proximate. However, it also enters markets culturally, politically, and geo-
graphically distant by using wholly owned distribution channels, and also by
forming alliances with local partners or other large competitors. In stage 5
(which corresponds essentially to the 1990s), P1 disintegrates vertically, and
alternatively forms alliances in distribution with another multinational P6 ,
covering with that alliance multiple markets worldwide.
This model provides a more formal explanation of the growth process of
large multinational ¬rms in alcoholic beverages since the 1960s. It shows
the impact of brands and marketing knowledge on the pattern and pace of
growth of ¬rms, and how their interaction constantly changed the boundaries
of ¬rms. Over time, successful brands became increasingly a major determi-
nant for mergers, acquisitions, and alliances with distributors or competitors.
They also had an indirect role in accelerating the process of multinational
growth and long-term survival of ¬rms, as their acquisition allowed ¬rms to
acquire knowledge more rapidly.
Appendix 11
Evolution of Sales of the World™s Leading Brands by Beverage Type
Table a11.1. Leading brands in wines, champagnes, and low-alcohol refreshers

Date Brand Country of
Type of Wine / Launched / Origin of Country of Total Sales, Total Sales, Total Sales,
1990 1997 2002
Brand Name Foundation the Brand Owner Owner

Table Wine
1933 19.4 23.2 24.6
Gallo / E. & J. Wine US E. & J. Gallo US
1981 6.40 17.90 20.96
Franzia US The Wine Group US




257
1964 13.0 12.09 10.65
Carlo Rossi US E. & J. Gallo US
1966 5.2 9.3 10.7
Tavernello IT Caviro Societa IT
Cooperative Arl
1852 7.8 7.62 9.75
Almaden US Constellation US
Brands
Champagne
1743 2.00 2.19 2.12
Mo¨ t & Chandon
e FRA LVMH FRA
1772 0.79 0.94 1.18
Veuve Cliquot FRA LVMH FRA
1848/1976 0.22 0.47 0.58
Vranken Laf¬tte FRA Vranken Pommery FRA
Monopole
1827 0.83 0.64 0.56
Mumm FRA Seagram FRA
1760 0.61 0.45 0.55
Lanson FRA Lanson FRA

(continued)
Table a11.1 (Continued)

Date Brand Country of
Type of Wine / Launched / Origin of Country of Total Sales, Total Sales, Total Sales,
1990 1997 2002
Brand Name Foundation the Brand Owner Owner

Ready to Drink
2002 43.9
Smirnoff Ice US Diageo UK “ “
1990 4.43 4.93 16.19
Bacardi Breezer US/BER Bacardi-Martini US/BER




258
2002 6.88
Skyy Blue US Campari ITA “ “
2002 5.68
Bacardi Silver US Bacardi US/BER “ “
1986 0.75 2.29 4.41
Jim Beam and Cola US Jim Beam Brands US

Note: Amounts stated in millions of 9-L cases. n/a “ not available.
Sources for Tables A11.1 and A11.2: Impact International (various publications); Seagram Collection (Wilmington Delaware, Hagley Museum and
Library, USA); Mo¨ t & Chandon Archive (Epernay, France); Charles Craig, The Scotch Whisky Industry Record (Dumbarton: Index Publishing Limited,
e
1994); Janice Jorgensen (ed.), Encyclopaedia of Consumer Brands (London: St James Press, 1994); Bartles & Jaymes, Consumer Relations (June 2002).
Table a11.2. Leading brands in premium spirits

Type of Premium Date Brand Country of
Spirit / Brand Launched / Origin of Country of Total Sales, Total Sales, Total Sales,
1990 1997 2002
Name Foundation the Brand Owner Owner

Other Whisky (Excluding Scotch)
1866 4.29 5.19 6.6
Jack Daniels US Brown Forman US
1795 4.63 4.92 4.64
Jim Beam US American/ Fortune US
Brands
1934 1.97 2.74 3.63
Crown Royal CAN Diageo UK
1857 4.03 2.84 2.57
Seagram™s 7 Crown CAN Diageo UK
1989 2.80 2.89 2.41
Suntory Kakubin JPN Suntory JP
Scotch Whisky
1820 5.75 7.29 6.90
Johnnie Walker Red UK Diageo UK




259
Label
1749 5.41 5.95 5.52
J & B Rare UK Diageo UK
1872 4.78 4.59 4.90
Ballantines Finest UK Allied Domecq UK
1899 2.21 3.75 3.67
Grants Family UK William Grant UK
Reserve
1846 3.14 2.87 3.48
Dewar™s White Label UK Bacardi CB/BER
Vodka Premium Brands
1864 13.58 13.52 17.0
Smirnoff RUS Diageo UK
1879 3.09 4.37 7.50
Absolut SWE Vin & Spirit SWE
1995/1575 0.64 1.76
Bols NL Remy Cointreau FRA “
1953 1.36 1.29 2.40
Stolichnaya RUS Soyuzplodimport RUS
(SPI)
1970 0.92 1.65 1.70
Finlandia FIN Brown Forman US

(continued)
Table a11.2 (Continued)

Type of Premium Date Brand Country of
Spirit / Brand Launched / Origin of Country of Total Sales, Total Sales, Total Sales,
1990 1997 2002
Name Foundation the Brand Owner Owner

Gin/Genever Premium Brands
1769 6.26 5.22 4.83
Gordons Gin UK Diageo UK
1857 4.06 3.28 2.99
Seagram Gin US/CAN Pernod Ricard FRA
1820 1.99 2.11 2.27
Beefeater UK Allied Domecq UK
1863 3.36 2.25 2.02
Larios SPN Pernod Ricard FRA
1830 1.44 1.39 1.48
Tanqueray UK Diageo UK
Rum
1876 11.20 19.7
Tanduay 5 year Gold PHIL Tanduay Distillery PHIL n/a




260
1862 16.22 13.24 13.05
Bacardi Carta Blanca CB Bacardi CB/BER
1983 0.72 1.85 3.67
Captain Morgan JAM Diageo US/CAN
Spiced Rum
1888 1.85 1.79 2.70
Brugal Gold SPN Brugal & Co SPN
1862 2.93 2.25 2.41
Bacardi Oro CB Bacardi CB/BER
Cognac and Other Brandy
1910 2.56 3.80 2.70
Dreher BRA Campari IT
1958 5.36 4.47 2.42
Presidente SPN Allied Domecq UK
1765 1.89 1.48 2.01
Hennessy FRA LVMH FRA
1.00 2.00 2.03
Wilthener Goldkrone n/a GER Hardenberg GER
Wilthen
2.55 1.82 1.94
E. & J. n/a US E. & J. Gallo US
Liqueurs
1974 3.36 4.13 5.84
Baileys Irish Cream IRE Diageo UK
1920 2.31 2.39 2.68
De Kuyper NL De Kuyper NL
1937 2.59 2.29 2.23
Kahlua MEX Allied Domecq UK
1980 1.30 1.60 2.26
Malibu UK Diageo UK
1880 2.47 2.25 2.14
Southern Comfort US Brown Forman US
Other Flavored Spirits (Excluding Liqueurs)
1932 7.08 6.03 6.53
Ricard FRA Pernod Ricard FRA
1935 1.67 2.52 3.19
Jagermeister GER Mast-Jagermeister GER
AG




261
1860 2.32 2.57 2.61
Campari ITA Campari ITA
1954 2.55 1.98 2.01
Pastis 51 FRA Pernod Ricard FRA
1845 1.43 1.37 1.37
Fernet Branca ITA Fratelli Branca ITA
Tequila
1980 1.38 1.64 4.08
Cuervo Gold MEX Cuervo MEX
1873 0.26 0.64 0.73
Sauza Gold MEX Allied Domecq UK
1790 0.06 0.21 0.63
Cuervo Anejo Super MEX Cuervo MEX
2000 0.53
Sauza 100 Anos MEX Allied Domecq UK “ “

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