The competitive environment in China is largely fragmented and dominated by regional and local breweries. This is especially the case in Western China. The potential market in China for Carlsberg is enormous. Even though the yearly beer consumption per capita is much lower than in other parts of the world, the estimated size of the market is growing at a rate of about 8 percent, much higher than the rest of the world. However, entry barriers into the Chinese beer market and high costs of production and distribution require that an international brewery become a market leader in order to make a profit.
Carlsberg faced strong competition in the southeastern Chinese market, led by other giant international breweries such as Anheuser-Busch, SABMiller, Interbrew, and Heineken. The strong competition in southeastern China, along with an unsuccessful partnership with the Thai company Chang Beverages Pte Ltd, proved to be too much for Carlsberg.The fragmented Western Chinese market featured very little competition. Carlsberg was able to use its resources to acquire local breweries, eventually becoming the dominant brewer in Western China, with a market share of approximately 60 percent.
Carlsberg’s success in Western China, with products such as Carlsberg Chill, allowed it to slowly spread east to the more established and competitive markets.Carlsberg has positioned itself to be the leader in the emerging market of Western China. This market is currently unprofitable, but has enormous potential. Carlsberg has formed partnerships with local breweries in a region that includes around 100 million people.
With a steadily growing rate of beer consumption in the region, Carlsberg’s investments are likely to pay off in the future. While the southeastern region of China is already saturated with competition and consumption rates per capita are likely to plateau relatively soon, Western China provides the greatest opportunity for Carlsberg. Joint ventures with local partners will improve Carlsberg’s ability to promote, distribute, and sell beer to the emerging market in Western China. It is only a matter of time before Carlsberg’s investments and positioning strategy pay off.
