The Impact of Multinational Investment on Alcohol Consumption Since The

The Impact of Multinational Investment on Alcohol ConsumptionSince the 1960s Teresada Silva LopesI Departmentof Economics, TheUniversity of Reading UniversidadeCatdlica Portuguesa Though much has been written about the alcohol beveragesindustry, lit- tle hasbeen said about its internationalisation.This articleattempts to analyse the impact of multinational enterprises(hereafter MNEs) on the availability and consumptionof alcohol in the world economyin the context of the evolution of the alcoholicbeverages industry since the beginningof the 1960s.2 It also givesspecial emphasis to the resourcesof the firm, and to the issuesof internationalrelated diversification and branding.For that purpose,it drawson businesshistory literature[Chandler, 1990;Jones and Morgan, 1994;Jones, 1996] and internationalbusiness theory. The studyis basedon the evolutionof the largestfive MNEs in the world in 1997,in terms of salesvolume - Allied Domecq, Bacardi-Martini,Diageo, Moat-HennessyLouis Vuitton and Seagram.These account for an increasingly large shareof the world trade in alcoholicbeverages. Because the aim of this article is to find a pattern of growth basedon comparativeanalysis of suc- cessfulfirms, rather than causalityrelations between growth and its determi- nants,the sampledoes not includeany 'control' firms, to which the behaviour of the successfulMNEs of alcoholicbeverages can be compared.It drawson evidencefrom the businessarchives of the MNEs, annualreports, interviews with top managers,other specialistsin the industry,and secondarydata. Existingstatistics on consumption,trade and number of firms in the alcoholic beveragesindustry are not very robust,but the patternof an increasingly concentratedindustry since the 1960sis significant.For example,in 1996a publishedlist of the drinks companieswith internationalactivity showeda total of 2061 firms in the industry?In this period the big five MNEs account- • Thisarticle has been substantially improved because of the commentsof GeoffreyJones and Paul Duguid.Michael Jackaman, James Espey, Tony Froget, Phil Taylor, George Sandeman and David Orr were extremelyhelpful in givingme their commentson the industryand on accessto information.Salvador Guedes,Paul Smith, Vicky Nobles, Michael Hallows, Brigitte Dreville, Gillian Bouzy, and Sue Phillips were helpfulin providingaccess to the internalrecords of the MNEsin whichthey work for. Mrs. Bellamy from CompaniesHouse greatly assisted my researchon the British-basedalcoholic beverages firms. • The category"alcoholic beverages" includes - wine,spirits and beer [World Drink l?ends, 1998, p.8; Cavanaghand Clairmonte,1985, p.21]. • ImpactWorld Directory [1996]. BUSINESS./tNDECONOMIC HISTORY, Volume Twenty-eight, no. 2, Winter 1999. Copyright¸ 1999by the BusinessHistory Conference. ISSN 0894-6825 110/ TERESADA SILVALOPES ed for around one-fifth percentof world trade in volume, in a market where the number of equivalentfirms usingthe Herfindahl index is 70.4 Businesshistory literature,following Chandler [1990], has until recently been largelyfocused on managerialindustrial enterprises. Theories of MNE have also had as their empiricalbackground such enterprises,stressing issues related to technologicalinnovation as the core explanationsin the under- standing of their evolution [Dunning, 1981]. Studies of industrieswhere brandsand distributionservices are a crucialpart of the valueadded by MNEs are still very scarce?For that reason,the caseof the MNEs in alcoholicbev- eragesgains particular relevance,since it illustrateshow important interna- tionalisationstrategies and brandinghave been in determiningthe processof growth of the MNE. The Period of Analysis, 1961-1997 The last four decadesof the twentieth century sawboth rising incomes,at least in the industrialisedworld, and the creation, or re-creation,of a global economy[Jones, 1996; Pollard, 1997]. Total consumptionof alcoholicbeverages,like all other consumergoods, increased, rising from 6,215 million litres in 1961 to 15,056 million litres in 1997, at an averagegrowth rate of three per- cent per year.However, in per-capitaterms, there has been a generaldecrease in consumptionof alcoholic beverages.6 The fast growth rate in alcohol consumptionduring the 1960sand 1970s was mainly related to increasingincomes in Western countries,to changing lifestylesand consumertastes. The stagnationand decreaseof per-capitacon- sumptionin 1980sand 1990s,on the other hand, reflectedthe maturingof marketsin industrialisedcountries, as well as the economic and social crisisin the former SovietUnion. In Westerncountries, the decreasewas due to changes in the legislationon drinking and driving,to fiscalpolicies established by gov- ernments(set to restrictdrinking), and to the higherlevels of educationby consumers(who becamemore concernedwith qualitywines, health, and other side effectsrelated to addictionand health). In the former Soviet Union the high declinein consumptionof alcohol, at least accordingto official figures,was relatedto the political and economicinstability. 4 Estimatesbased on the companiesannual reports, International lgqne and SpiritRecord 1997 and ImpactInternational 13(16). UnfortunateIy, there exist no officialestimates on the sizeof themarket in sales value.The MNEs market sharein volume,as welI as the Herfindahl Index, can understatethe extentof powerof theseleading MNEs in the industry[The Economis• 2 May 1998;Fortune, 31 May 1982]. sHowever, Wilkins [1970, 1974] is noteworthyfor includingdistribution and servicesin her general surveyof US multinationals.See also Tedlow and Jones (1993) and Jones and Morgan (1994). 6 Averagegrowth rate estimated using per-capita consumption by country-lr/orldDrink •ends,1998; and populationby country-DemographicYearbook (United Nations, 1998)-estimates of mid-yearpopula- tion. THE IMPACTOF MULTINATIONALINVESTMENT ON ALCOHOLCONSUMPTION / 111 In this period, the MNEs in alcoholic beveragesintensified their invest- mentsabroad, increasing the availabilityand diversityof brandeddrinks in the emergingmarkets of Latin America,Asia and EasternEurope, where formerly the alcohol consumedwas largely of locally produced beverages,frequently home made and home consumed.That is why, in many of thesemarkets, sta- tisticson consumptionand production,only start to be reliableand systema- tised after MNEs investedlocally. Although largecountries such as the United Statesand Japan figure among the largestabsolute consumers of alcohol, the biggestmarkets in per-capita terms are found in a clusterof WesternEuropean countries. It is in theselat- ter countries that there has been the most marked decline in absolute consumptionsince the 1980s. Apart from the dispersionof alcohol drinking around the world sincethe 1960s,there has alsobeen a trend towardsthe consumptionof a similarmix of alcoholicbeverages (wine, beer and spirits)by differentcountries [Spawton, 1990].In Northern Europe,where markets traditionally consumed beer, there has been an increasein wine consumption.The UK, where consumptionof beer is still around six times more important in volume than wine, is a good exampleof a fast growingmarket in terms of wine consumption.In Southern Europe,where the most important wine producersare located,while wine still accountsfor the majority of alcohol consumption,beer consumptionis grow- ing fast. France,Italy and Portugalare good examplesof this pattern of consumption,confirming the trend towardsglobalisation of the alcoholicbever- agesindustry. Multinational Enterprise in Alcoholic Beverages The period sincethe 1960sis one of fast growth in foreigndirect investment [Dunning 1993,p.15]. Many industriesbecame increasingly concentrated in a handful of giant corporations,with oligopolisticpower, and startedcon- fronting each other in different markets[Hymer, 1968]. The alcoholicbever- agesindustry exemplifies such a pattern of concentration,with MNEs inte- gratingvertically and horizontally,combining production of differenttypes of drinks with trade and distribution. The type of diversificationstrategy followed by eachMNE varied,depend- ing on the specificmarket opportunities,on the corporateresources available and on the type of products produced and traded. Penrosehighlights the importanceof the creativeand dynamic interactionbetween the firms internal resourcesand its market opportunities,in the processof growth of the firm [Penrose,1995(1957)]. This sectiongives a brief highlight of the direction of expansionof the MNEs of alcoholic beveragesselected in this study.Table 1 includesa summary of their businessactivities by decade,and their dates of foundationand country of origin. The history of internationalbusiness in this industry is complex. Even the date of foundationof the MNEs, as well as their country of origin, can be dif- 112/ TERESADA SILVALOPES ficult to determine,since they all resultfrom a seriesof mergersand acquisi- tions.For the purposeof this work, the date of foundationand country of origin consideredfor each MNE will be the one that refersto the corporation that had the most active role in its processof growth. For example,Allied- Domecq is the resultof severalacquisitions and mergers.Although it may seem a young firm (havingbeen formed in 1961),it wasthe outcomeof the merger of three regionalbreweries founded in the eighteenthand nineteenthcentury. 7 All the MNEs owe their initial growth to consumptionfrom developed countries,which for the majority of the cases,coincide with the country of origin. Bacardi seemsto be the exception,since it

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