LIBARIES HOW KIRIN CAN MAXIMIZE the SYNERGIES of ITS GROUP COMPANIES to ATTAIN SUSTAINABLE GROWTH by Kei Watanabe
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HOW KIRIN CAN MAXIMIZE THE SYNERGIES OF ITS GROUP COMPANIES TO ATTAIN SUSTAINABLE GROWTH by KEI WATANABE BA, Law and Politics, Rikkyo University, Japan (1989) Submitted to the MIT Sloan School of Management in Partial Fulfillment of the Requirements for the Degree of MASTER OF BUSINESS ADMINISTRATION at the MASSACHUSETTS INSTITUTE OF TECHNOLOGY June 2005 © 2005 Kei Watanabe. All Rights Reserved. The author hereby grants to MIT permission to reproduce and to distribute publicly permit and electric copies this thesis document in whole or in part. Signature of Author: v ,/ cs MIT Sloan School of Management May 6, 2005 Certified by: Ai \ '. Michael A. Cusumano Sloan Management Review Professor of Management Thesis Advisor / / Accepted by: / v / I Stephen J. Sacca Director, Sloan Fellows Program in Innovation and Global Leadership SEP 01 2E005 SlYHIVESS -r. LIBARIES HOW KIRIN CAN MAXIMIZE THE SYNERGIES OF ITS GROUP COMPANIES TO ATTAIN SUSTAINABLE GROWTH by Kei Watanabe Submitted to the MIT Sloan School of Management on May 6, 2005 in partial fulfillment of the requirements for the Degree of Master of Business Administration Abstract At the end of twentieth century, Kirin Brewery Co. began a strategic move to break out of the saturated domestic market by adopting an international orientation and diversification effort to become a leading company in the Asia and Oceania markets. Following consolidation of its distribution channels and plant networks in the target region through successful strategic alliances with Lion Nathan Ltd. and Sun Miguel Corporation, Kirin Group has now grown into a large corporate group. However, history is full of examples of food/beverage companies that encountered difficulties achieving sustainable growth after early experiences of rocketing sales at takeoff-even though many such companies know that the key to success is taking advantage of group synergies. This thesis identifies a corporate strategy for Kirin that can be realized by creating two kinds of synergies: synergies of resource sharing in various phases of the value chain in order to upgrade Kirin Group's set of resources, and a synergy in the company's strategic thrusts. My research found that sharing intangible resources could play an important role in attaining architectural innovation. Each resource sharing idea builds on three strategic thrusts that could counter the external environment in the target geographic region. I address how to create synergies across multiple positive feedback loops that consist of the three strategic thrusts as a virtuous cycle. I stress that kicking on path dependence of the multiple loops could snowball Kirin's growth. Then I discuss ways to shift a leading organization in order to achieve a new strategy. Possible methods for managing this proposed organizational change include invigorating group dynamics by managing the Communication Loop, Career Anchor, and Creative Tension; activating organization dynamics by controlling Informal Network, Inquiry and Advocacy; and treating deep-rooted organizational culture by tracing the steps of each individual's Ladder of Inference. I argue that upgrading Kirin's resources to enable it to compete through sharing intangible resources, firing up the company's development engines to encourage growth by linking multiple positive feedbacks, and reinforcing the organization by invigorating human resources, will enable Kirin Group to build strong customer bonding through Total Customer Solution. The central focus of Kirin's corporate strategy in this thesis is its alcohol business, which accounts for 74% of sales and 75% of operating income within the alcohol and soft drink business in 2004. The market scope is the off-premise market in which opportunities and threats grow larger as global retailers continue to expand their reach beyond their own national borders. Thesis Advisor: Michael A. Cusumano Title: Sloan Management Review Professor of Management 2 TABLE OF CONTENTS Page Introduction .. 6 Chapter 1 Strategic Positioning ........................................ 11 1.1 Conventional Strategy ................................... 11 1.2 Changes in Strategy ........................................ 12 Chapter 2 Mission of the Firm .................................... 16 2.1 Business scope of Kirin Group ................................... ..... 16 2.1.1 Product and Service Scope . .................................. 17 2.1.2 Market Scope ........................................ 19 2.1.3 Geographical Scope .............................................................. 21 2.2 Unique Competencies of the Parent Company .................................. 22 2.3 Segmentation ..................................................................................... 23 2.3.1 Product vs. Market Segmentation ........................................ 23 2.3.2 Product vs. Geography Segmentation ................................... 25 2.4 Mission Statement................................... 27 2.5 Conclusion ......................................................................................... 29 Chapter 3 Types of Group Synergy ................................... 31 3.1 Analysis of the Soft Drink Industry ................................................... 32 3.1.1 System Lock In ..................................................................... 32 3.1.2 Horizontal Expansion ........................................................ 33 3.1.3 Vertical Expansion ................................................................ 36 3.2 Analysis of the Beer Industry ............................................................ 39 3.2.1 Economies of Scale or Scope ................................................ 39 3.2.2 The Chinese M arket Today ................................................... 41 3.3 Conclusion ......................................................................................... 42 Chapter 4 External Scan ......................................................................................... 44 4.1 China 4.1.1 Economic Factors................................... 44 4.1.2 Industrial Factors................................... 45 4.2 Australasia 4.2.1 Economic Factors................................... 50 4.2.2 Industrial Factors ................................... 51 4.3 Japan 4.3.1 Economic Factors................................... 55 4.3.2 Industrial Factors................................... 56 4.4 Opportunities and Threats: the "4V's" . ............................... 60 4.4.1 Velocity of Product Lifecycles .............................................. 60 4.4.2 Variety of Consumer Preferences .......................................... 60 4.4.3 Vitality of Suppliers and Buyers ........................................ 61 4.4.4 Vying by Price ........................................ 61 3 TABLE OF CONTENTS (continued) Page Chapter 5 Internal Scrutiny......................................... 62 5.1 Business Segmentation ...................................................................... 63 5.2 Resource Overview......................................... 64 5.2.1 Kirin Brewery Domestic Alcohol Biz ................................... 64 5.2.2 Anheuser-Busch .................................................................... 65 5.2.3 Lion Nathan Ltd ................................................................... 66 5.2.4 San Miguel Co ..................................................................... 67 5.3 Resource Assessment ......................................... 68 5.4 Resource Bridging ......................................... 71 5.4.1 Horizontal Interrelationships......................................... 71 5.4.2 Vertical Linkages ......................................... 79 5.5 Strength and Weakness - the "3C's" . ....................................... 81 5.5.1 Complementary Assets ......................................... 81 5.5.2 Concept of Marketing and Customer Solution..................... 81 Chapter 6 Strategic Posture ......................................... 83 6.1 Strategic Thrust ......................................... 84 6.2 Strategic Dynam ics ............................................................................ 86 6.3 The Role of the Company's Business Process ................................. 91 Chapter 7 O rganizational Reinforcem ent ........................................ .....................92 7.1 Backlash ......................................... 92 7.2 Function of Individuals in Team s ........................................ ..............93 7.2.1 Conversation Dynamics ........................................................ 93 7.2.2 Creative Tension ......................................... 94 7.2.3 Career Anchor ....................................................................... 95 7.3 Network across the Team in Organizations ....................................... 96 7.3.1 Inform al Networks ................................................................ 96 7.3.2 Inquiry and Advocacy ........................................ ...................97 7.4 Cultural Norm s .................................................................................. 98 7.4.1 Habits of Thought ................................................................. 98 7.5 Sum m ary ......................................... 99 Chapter 8 Conclusion ......................................... 101 References ......................................................................................... 105 4 Acknowledgements I owe sincere thanks to the many