BEER BRANDS’ FREELANCE?

(1)

Master’s Thesis:

BEER BRANDS’ FREELANCE?

An investigation of the influence a Turkish EU accession has on the external environment of the Turkish beer market

STEFFEN FOKKEMA Student nr. 1346113

University of Groningen

Faculty of Management and Organization MSc. International Business & Management

Supervisor: Dr. B. Neuijen 2^nd Supervisor: Dr. A. Saka-Helmhout

Tel: +31 6 43907394

E-mail: s.p.fokkema@student.rug.nl

August 2006

(2)

PREFACE

To start with, let me explain the context and the requirements of the master’s thesis that lies in front of you. In order to graduate as a Master of Science in the field of International Business and Management at the University of Groningen, students have to round off their knowledge in a 25 ECTS thesis. Yet in the first term of the year 2005/2006 I attended the Research Methodology course in which Dr. B.J.W. Pennink taught me how to think of preliminary research topics for such a time-consuming project.

A first flash of intuition led me toward the thought of writing a thesis about Turkey, the country in which I had stayed for half a year as part of my study. The Turkish culture and market had intrigued me ever since. The additional benefit of actuality of the topic made me elaborate the initial idea of a marketing-focused research on the changes a Turkish European Union admission would have for business.

When the time was there to start working on the thesis, I faced the most difficult step in this project. That was finding an interested company. My preference laid in the alcoholic beverages business, because of the Islam impact in Turkey. After a while, when I had agreed upon assistance with the well-reputed Dutch brewery Heineken, I decided to regard this company as a case study in an overlapping context of European beer brands that either are active in the Turkish market or aim to do so. I integrated a case study about Heineken’s success in the new EU member Poland, as I felt the research was in need of a comparative element.

Honestly, I found conducting such a research very interesting. It fortified my wish to pursue a PhD-study and, ultimately, a career in the International Business and Management field. I have been working on this paper in the period of February 2006 through August 2006. In the month of May I have visited Heineken’s quarters in Warsaw and Istanbul, as well as other authorities that supplied useful information. Hence, I owe them many thanks for that and the effort they have put in assisting me. I would also like to thank my supervisors Dr. B. Neuijen and Dr. A. Saka-Helmhout, who provided me with new insights and valuable comments throughout the research process.

It only remains for me to wish you a pleasant reading time.

Steffen Fokkema

(3)

EXECUTIVE SUMMARY

After successfully implementing Customs Union stipulations and being granted the EU candidate status in 1999, Turkey’s suitability as an EU member is a major issue of discussion. By the end of 2005, starting negotiations paved the way for a real Turkish membership. This process opened investment avenues for internationalizing enterprises.

Hence, macro-economic indicators currently show splendid figures.

This paper unravels the changes a European Union admission of Turkey would involve for EU-based contenders in the beer market, both after the real accession and in the years before. The proposition is that the EU influences the external environment of the industry, which is divided by Leeflang (2003) into economic, technological, political, legal, cultural / social and demographic variables. Porter’s renowned industry analysis model serves the function of picturing the industry’s internal environment. Resources and competences of specific firms are considered black boxes in this study. The research objective is:

“To outline the changing external environment for EU-based beer producers in Turkey, the consequences these changes entail for their business and the way they should be managed in order to become or remain profitable.”

And the following interrelated research question is adopted:

“What would Turkish EU membership imply for EU-based competitors in the beer market, and how should these firms anticipate this process?”

The literature research that the basic analysis constitutes is supplemented with a practical facet of two case studies on the topic. Heineken’s quarters in Poland provide insight into the factors that are affected by EU accession. In this country that joined the EU in 2004, Heineken has been very successful in anticipating altering macro-environments. The Dutch multinational occupied a major spot in the Polish market upon the Iron Curtain downfall and managed to keep hold of this advantageous position after 2004.

The same global brand possesses a mere 0.1% market share in Turkey, and, in spite of having the desire to grow, it is trapped in a vicious circle. Turkish customers appear to be very happy with the taste, quality and price of the two leading brands, Efes and Carlsberg’s Türk Tuborg. A smaller market player such as Heineken therefore has to establish a sound brand image in order to grow. However, the Turkish legislation severely restricts promotional activities for alcoholic products, and the high taxes dampen the ability to drop selling prices. Another criterion for significant market growth is a position in the strongly prevailing mainstream segment of the beer market. This requires a circumvention of importing costs through either establishing an own production plant or acquiring an existing one. The latter option seems to be unfeasible though, since all the Turkish breweries are owned by the two dominators, whereas the former demands for at least a decent market share. Presently Heineken is active in Turkey through a non-equity partnership with distributor İmpeks.

(4)

The Turkish beer market offers a huge potential for the country’s size and the low per capita beer consumption of 13 liters. In the previous years a different competition tool emerged by means of product differentiation, particularly launched by Efes and Tuborg.

As of 2003, Efes’ share equals 74.5% and Tuborg accounts for 23.2% of the remainder.

Porter’s model confirms the strength and sustainability of their empires.

Having discussed the background and the case studies now, it is time to examine the results. The booming economy and its reforms will continue to deliver positive outlooks.

The Union impact will stabilize the growth rates, cut down the inflation and increase FDI levels as well as international trade. The beer market will experience these developments through an augmenting per head consumption and patterns that change towards the preference of exclusive beers.

Legal issues are expected to alter most substantially. Turkey is working hard on reforming her institutions and legislation and eliminating the leftover trade barriers.

Business transparency is an important issue and also laws that encourage fair competition are on the verge. The high taxation and advertisement control stays subjects to domestic legislation, although the EU forces are expected to indirectly pressurize these.

The progress in the accession talks will largely depend on the political stability, besides the implementation of the Copenhagen criteria. Domestic politics currently pursue vigorous and widely approved goals of EU admission. It is found that a membership would entail more political stability, though with an enduring fear of external threats.

Solving turmoil hazards such as the Cyprus tension and the Kurdish separation movement are focal points.

Technologically, changes through spillover effects are expected along with an FDI influx, though not in the beer market. Globalization forces and the industry’s slim innovativeness yet harmonized Turkish brewing methods with the western standards.

Also culturally, socially and demographically the European Union will not immediately impact the market. In this respect the tourism rise and changing consumption patterns constitute considerable developments, as well as a slight population reduction triggered by a workers’ exodus.

Finally three plausible scenarios have been delineated; one baseline scenario that extends the current trends into the future, as well as a positive and a negative picture. These scenarios start with macro-environmental projections that are applied to the beer market.

The Danish Tuborg brand has been the only flourishing European beer launch in Turkey.

It appears that Tuborg’s as well as Efes’ leading positions, which stem from first-mover advantages, can not be attacked directly by other aspirants. Nevertheless, the EU will pressurize the external environment, i.e. taxation and advertisement opportunities, advantageously for their rivals. Product standards are being aligned to EU procedures.

Global brands that take up a minor place in the Turkish market may have the resources of purchasing or establishing a production facility. Their market share may not suffice to gain back the initial costs by economies of scale. A central production hub, supplying to neighboring countries can turn out to be feasible then. If it does not, then product differentiation is the most conceivable tactic of anticipating the changing environment.

(5)

TABLE OF CONTENTS

Preface………2

Executive Summary……….. 3

Table of Contents……….. 5

Chapter 1: Problem Introduction………... 7

1.1 Problem background………...7

1.2 Problem statement………...8

1.3 Problem relevance………..9

1.4 Paper outline………10

Chapter 2: Theoretical Background………..12

2.1 Introduction………..12

2.2 Porter’s industry analysis model………..12

2.3 External environment………...13

2.4 Scenario analysis...16

2.5 Conceptual model………17

Chapter 3: Methodology……….20

3.2 Research approach………...20

3.3 Case studies………..21

Chapter 4: Case Study Heineken Poland………..23

4.2 Beer market………..23

4.3 Heineken in Poland………...25

4.4 Environmental changes………26

4.5 Conclusion………...28

Chapter 5: Turkey and the EU………...29

5.2 Turkey – EU relations………..29

5.3 Implications for business……….33

Chapter 6: Industry Structure………...35

6.2 Beer market………..35

6.3 Porter’s model applied……….40

(6)

Chapter 7: Expected Changes………42

7.2 Economic environment………42

7.3 Technological environment……….44

7.4 Political environment………...46

7.5 Legal environment………...47

7.6 Cultural / social environment………...49

7.7 Demographic environment………...50

7.8 Other environmental changes………..52

7.9 Scenario analysis……….53

7.10 Conclusion……….54

Chapter 8: Case Study Heineken Turkey……….55

8.1 Introduction……….55

8.2 Heineken in Turkey……….55

8.3 Environmental changes………...56

Chapter 9: Comparison Case Studies………58

9.2 Comparison macro-environments………58

9.3 Considerations for the Turkish beer market….………60

Chapter 10: Conclusion………..62

10.1 Introduction………62

10.2 Implications of a Turkish EU accession...………62

10.3 Needed anticipations....………..63

Chapter 11: Discussion………...64

Glossary………66

References……...……….67

Appendix A: Turkey at a Glance….………..72

Appendix B: Case Study Protocols………...….……79

(7)

CHAPTER 1: PROBLEM INTRODUCTION

“He was a wise man who invented beer.”

• Plato, ancient Greek philosopher

1.1 Problem background

Nowadays, the media are widely speculating about Turkey’s possible entry into the European Union. Hardly anybody seemed indifferent to the outcome of this hotly debated topic. In December 2004, the Turks finally won their reward for decisive progress in reforming its economy and improving its domestic human rights situation. Then, in the beginning of October 2005, Ankara received the green light for starting negotiations.

Nonetheless, there is still significant concern about Turkey’s suitability as an EU member, for political, economic and cultural reasons. The continuing disputes with Greece about Cyprus are also a thorn in the flesh of the EU member states. Therefore the official Turkish admission to the EU will take at least 10 years as the country is, albeit being on the right path, yet far away from meeting the criteria.

So as Turkey got ‘closer’ to Europe, the country became more attractive for European exporting firms. The country’s economy grows at a 9% annual rate nowadays and an average 5% growth rate is expected for the coming years¹. The Dutch business response to the Near-Eastern market growth became clear in the amount of acquired Turkish firms in the previous years, especially in the banking and housing chains. The beer market however, has not attracted a considerable amount of FDI yet.

The Turkish beer market experienced a 20% sales increase in the last five years. Over the same period, the growth in beer intake exceeded 50% to a level of 16.8 liters per person per year, though still a relatively low per capita consumption compared to other European countries (Koksalan & Salman, 2003). And, as The Economist (2005) states it, alcohol consumption is considered fashionable by the young population. One could call it an ideal market for exporting firms. A quickly growing industry, with still plenty of further growth opportunities², in a quickly growing economy, which just is about to drop its trade barriers.

However, Miller and Demirel (1988) state that Turkey is a mixed nation in terms of beer marketing possibilities. Positive characteristics of the markets include fast population growth, European orientation, high income and an urban population. The last factor is important, since the consumption is most substantial in large cities like Istanbul and Ankara. Between 1980 and 2005, Turkey’s population increased by 55% from 45 million to 70 million. Besides that, 15 million tourists visit the country on a yearly basis. They account for a prominent part of the beer consumption as well.

1 Source: Political Risk Yearbook, 2006.

2 The Turkish beer market has a size of 730 million liters and around $ 294 million sales value, according to a 2001 report by Finansinvest Research Group (www.finansinvest.com). They pointed out the potential for growth in the market considering that an annual population growth of 1.2% is expected.

(8)

Negative influences are the impact of the Islam, severe income restraints and patterns of consumption of social beverages in Turkey. The legal and governmental system does not rest on the Islamic law of the Koran although the influence of the Islam is still an important element in the people’s attitude towards beer (Miller & Demirel, 1988). In contrast to European cultures, public consumption of social beverages in Turkey is primarily a male activity. Furthermore, the Turkish government banned broadcast advertising for all alcohol products in 1995 (Koksalan & Salman, 2003).

Although a major international brewer like Carlsberg has ties with the leading Turkish companies, some other important global players have no real presence in Turkey.

Heineken, for example, has significant stakes in a number of Eastern European brewers but not with Turkish companies (Koksalan & Salman, 2003). Despite having no manufacturing plants in Turkey, Heineken has slightly penetrated the beer market and is positioned as a premium quality brand. They are active in Turkey only for a couple of years. Efes Pilsen is the price leader in the Turkish beer market, with a market share of 74.5% in 2003 (IGEME, 2006).

1.2 Problem statement

Now, if Turkey will indeed join the European Union, how does the beer market change?

And what are the consequences for breweries from the European Union? Would it lead to more rivalry or extra opportunities for sales? Major changes seem to be on the verge for European Union-based firms in Turkey. A rise in the economic level implies more consumption and therefore the prices would tend to rise too. Another possibility would be a development of antipathy against European firms in Turkey.

How should the beer producers anticipate in time, in order to remain competitive and make use of the new situation? A comparative case study to a country that recently joined the European Union enables me to better project the future. According to Rafal Jedrzejczak, Heineken International employee responsible for Near- and Middle-Eastern markets, Heineken Poland has been successful in realizing its strategies of becoming the market leader after the downfall of communism and retaining this privileged position after EU accession. Moreover, of the 10 countries that acceded to the EU in 2004, Poland is the one that approaches Turkey best in its size with a population of approximately 40 million. For these three reasons (the recent admission date, Heineken’s success and a comparable size), Heineken Poland seems to be an appropriate benchmark. Questions such as ‘What was the influence of the European Union on the Polish beer market?’ and

‘How did the European breweries manage this process?’ can be useful input for the Turkish market participators.

Research objective:

“To outline the changing external environment for EU-based beer producers in Turkey, the consequences these changes entail for their business and the way they should be managed in order to become or remain profitable.”

(9)

All above leads us to the following research question:

The main question is split up into five sub-questions, namely:

1. How did Heineken Poland experience the changes that were due to EU accession?

2. What are the characteristics of the Turkish beer market?

3. What changes for the EU-based firms in this market when Turkey joins the EU, and along the path towards this accession?

4. What can Heineken Turkey do to anticipate these developments?

5. Which scenarios are plausible and how should they be managed?

1.3 Problem relevance

The Turkish market is of interest for almost every multinational firm in Europe. The huge economic growth this country generated in the previous years rewarded them with the nickname ‘China of Europe’ (MKB Nederland, 2005: 2). Logically, ample firms want to get into the act of this craze. Therefore the outcomes of this paper are of a high practical relevance for beer brands, although an actual Turkish EU admittance seems to be yet far away. Even then however, this study may lead to useful results, because the firms can react in advance and thus be well-prepared for the expected transformations. The case study of Poland includes a comparative element, to which firms in the Turkish market can benchmark themselves.

Since the focus is on modifications in the external environment, and not on the internal, this study can also generate interesting information for other markets and firms outside the beer branch. Nonetheless, generalizations to other samples should not be made because macro-environments of different industries are mostly comparable, but certainly not similar. The overarching question could be what external changes can be expected for European firms in Turkey alongside an EU entry.

In a theoretical sense, this paper offers less. Extrapolation is not derived from a large sample but from logical inference. One industry is the unit of analysis and theoretically it is not possible to deduct any conclusions to other samples. New theories will not be developed, but rather theories will be applied as a thorough compass in real-life situations. However, important frameworks that are linked in this thesis will be explained in Chapter 2. Connecting these theories is the main theoretical contribution.

(10)

1.4 Paper outline

Table 1.1 presents a stepwise overview of the thesis design. First, a theoretical background of the problem will be supplied, in which the used models are explained.

Methodological matters dealing with the how-question of the research cover Chapter 3.

Next is a case study research of Heineken Poland in the fifth chapter. What can be learned from the experiences in this country that joined the EU in 2004?

Ch. Subject Question³ Function 1 Problem

Introduction

RQ Introducing and formulating the problem.

2 Theoretical Background

RQ Explaining the research and its models.

3 Methodology RQ Describing the setup of the research process.

4 Case Study

Heineken Poland

SQ1 Understanding the forces that have changed in a country that recently joined the EU and the way a successful company managed this process.

5 Turkey and the EU

RQ Describing the background and the chances of a Turkish admission and the impact it would have for business.

6 Industry Structure SQ2 Presenting the research population in the beer market, the current trends and its attractiveness

7 Expected Changes

SQ3, SQ5 Literature research of the present situation and deduction of expected changes in the macro- environment. Projecting future paths.

8 Case Study

Heineken Turkey

SQ4 Bringing the problem into practice. How does Heineken Turkey perceive and anticipate the EU impact and what does it expect?

9 Comparison Case Studies

SQ1, SQ4 What can Heineken Turkey learn from Heineken Poland? Comparing differences and similarities between theory and practice.

10 Conclusion RQ Summarizing the findings: the macro- environmental changes impacted by EU accession and the needed anticipations.

11 Discussion RQ Illuminating the value of the findings by adopting a broader perspective and suggesting follow-up research.

Table 1.1 Research per chapter

3 RQ refers to the main research question, whereas SQ stands for sub-question.

(11)

Chapter 5 has a background function through explicating the relationships between Turkey and the European Union in a historical as well as contemporary perspective.

Porter’s industry analysis model (see e.g. Porter, 1980) is a well-suited framework to map out the structure and attractiveness of the beer industry, stressing five forces: new entrants, supplier power, buyer power, intensity of rivalry and substitutes/complements. It is applied to the beer market of Turkey in the following chapter.

Six environmental features derived from Leeflang’s (2003) study will be extended with other external issues that changed in Poland. These factors and the way they are affected by EU accession will be assessed and described in detail in the analysis section, Chapter 7. Moreover, this chapter consists of a scenario breakdown insofar the outlook of this problem can be projected. The Turkish case study of Heineken, aiming to shine practical light on the problem, and a comparison of both case studies follow subsequently. Finally, having gathered all the necessary information, the main environmental changes for firms in the beer market and the needed anticipations will be presented under the conclusion heading. The practical and theoretical value of the research will be assessed in the discussion.

(12)

CHAPTER 2: THEORETICAL BACKGROUND

“Theory guides, experiment decides.”

• Dutchman Izaak Maurits Kolthoff, father of analytical chemistry

2.1 Introduction

Diverse factors influence the beer consumption and business, such as income, demographic developments, price (and therefore excises), climate, social habits, health awareness and the availability of substitute products. To determine which factors are likely to change because of the EU influences, this chapter comes up with the frameworks that form the theoretical basis of this report. Thus, a review of the models that serve as the fundament of the study will be discussed in the following paragraphs.

Firstly, Porter’s famous industry structure forces (see e.g. Porter, 1980) are explicated, in order to outline the structure of the beer market. Leeflang’s (2003) marketing research model helps in examining the changes that occur in the market’s macro-environment.

Scenario analysis literature aims to build a framework in which the future developments can be projected, and this chapter ends with a conceptual model and its explanation.

2.2 Porter’s industry analysis model

To delineate the attractiveness of a certain industry, the most widely used framework is Porter’s industry model. It determines the presence and strength of competitors, and thus the ability of companies to reach or sustain an above average return within the industry.

As a matter of course this also depends upon internal factors such as the firm’s resources and its strategy. By mapping out five forces, in this thesis applied to the Turkish beer market, the attractiveness of an industry can be assessed. The five forces are the threat of new entrants, the bargaining power of buyers, the rivalry between existing competitors, substitute and complementary products and the bargaining power of suppliers.

Although the value of his work in business research is undeniable, Porter’s model has been criticized for neglecting the power of innovation (see e.g. Karagiannopoulos, Georgopoulos & Nikolopoulos, 2005), the possibility of cooperation strategies (see e.g.

Conklin & Tapp, 2000) and globalization dynamics (see e.g. Lazonick, 1993). This research draws on the framework by outlining the present Turkish beer market. For merely taking a snapshot of the present situation, Porter’s model is particularly appropriate. A brief overview of the five forces is presented below.

Threat of new entrants

Governments can pose specific threats to market entrants by putting constraints to foreign investment. Trade barriers and taxation are among these, but the cultural fit belongs to this category as well. It is very difficult to enter a completely different market.

Furthermore, one can think of R&D costs, economies of scale, product life cycles,

(13)

switching costs of buyers and the need of distribution channels. In short, they all come down to the initial costs.

Bargaining power of buyers

The consumers can be loyal to their preferred brand and may have either high or low switching costs. A degree of backward integration and the concentration of buyers can further strengthen buyer power

Rivalry between existing competitors

The intensity of the current rivalry depends on the amount of competitors, the homogeneity of the products (and thus, the ability to differentiate), the exit barriers and the product life cycle. Most importantly, the capacity of the market counts: how is the fight for shares? What do companies do to survive?

Substitute and complementary products

All firms are competing not only in the narrow sense of an industry, but in the broad one too. That is, other alcoholic beverages are substitutes for beer. Similarly, increasing demand for a complementary product may boost the focal product’s sales. For example, when more DVD players are being sold, the demand for DVDs will also rise.

Bargaining power of suppliers

‘The greater availability of suppliers, the less power they have’, is the rule that generally holds. For example, the supplier power is somewhat larger in protected economies, where the raw materials or other inputs are controlled by state monopolies. Also scarcity of skilled labor and intermediate distributors fortify their influence.

2.3 External environment

Leeflang (2003: 94) presents a marketing research model that charts the internal and external environment of a particular firm or industry. Variables that comprise the macro- environment are divided into six main categories, namely the economic, technological, political, legal, cultural/social and demographic variables of the environment. In this thesis, the logic is that these six groups universally determine the external environment of the Turkish beer market. Such a comprehensive representation of the macro-environment serves the purpose of scrutinizing the overall EU impact in an excellent way, even though it stems from marketing research. The main question covers the way these factors are affected by EU membership and what the implications of such changes are for firms that penetrate the beer market in Turkey. Here it is once again:

Likewise, the internal environment of a firm can be analyzed, thereby emphasizing the marketing processes, organizational design and strategy. Since the focus of this research is on the beer market in general, this marketing aspect will be regarded as a black box.

(14)

Let me first introduce the population of this study, the EU-based competitors on the Turkish beer market in tabular form. The beer market is the market for every kind of beer, bottled, canned and draught, strong as well as lighter beers and on-trade (catering) as well as off-trade (retail). Table 2.1 shows the 13 beer brands that are active in this market in Turkey as of January 2006.

Beer brand Home country

Türk Tuborg⁴ Denmark

Beck’s⁵ Germany

Erdinger Germany Franziskaner Germany König Germany Löwenbräu Germany Oettinger Germany Tucher Germany Guinness Draught Ireland

Birra Moretti Italy

Grolsch The Netherlands

Heineken The Netherlands

Newcastle Brown Ale⁶ United Kingdom

Table 2.1 EU-based competitors on the Turkish beer market

Now the population is known, it is time to describe Leeflang’s (2003) factors. Note that they are not static, in fact they all change through time. Of course, some variables (e.g.

national culture) are less dynamic than others (e.g. economic factors). Since it will still take years and years before Turkey is able to join the EU, this makes long-term advice not very useful. In the meantime, many features can transform. To exemplify, the government can have raised the beer excises, the economic tide is likely to be different and rivalry might become more or less fierce. This study aims to unravel these developments.

Each discussion of an environmental feature discusses the content and its link to the beer market. Based on literature, a proposition will give an indication of the way EU membership influences the environmental aspect.

2.3.1 Economic factors

To start with, macro-economic features are important to consider, since they are underlying determinants for the beer sales. A flourishing economy would mean high consumption of the population and government. Total beer consumption will tend to rise, but also the consumption patterns and preferences. The development of the GDP growth, unemployment, FDI, inflation are some of these economic figures. Also the cross-border trade, institutional changes and financial risk matter, as they may clear the way for more foreign investment in the beer industry.

4 Türk Tuborg is part of the Danish Carlsberg Group.

5 Beck’s, being part of Interbrew, is produced under license by Efes Pilsen in Turkey.

6 Newcastle Brown Ale is produced under license by Türk Tuborg in Turkey.

(15)

Lejour, de Mooij and Capel (2004) assess the economic implications of a Turkish EU accession. As a result of an increasing bilateral trade, they predict gains from integration, specialization and trade creation. Also institutional reforms and migration effects will usher economic benefits. Ahead of time, the following proposition is adopted:

The Turkish economy will react positively to a European Union accession.

2.3.2 Technological factors

Secondly, technological developments need to be taken into account. Are brewing methods in Turkey yet up to the EU standards, and if not, are they prone to become so?

Important issues to consider in this respect are productivity, competitive advantages, innovative capability, spillover effects and product standards. Also FDI levels need to be stipulated for technology diffusion and productivity in a country is widely linked to FDI (see e.g. Ciruelos & Wang, 2005). Breuss’ (2000) review of the Austrian results upon joining the EU shows that the FDI had almost tripled in four years after the accession.

Accordingly, the proposition is:

Technology will be diffused and productivity will tend to grow in the Turkish beer market alongside an increasing FDI that is triggered by EU membership.

2.3.3 Political factors

The political environment is significant because politics rule the industry’s background.

Key questions are: ‘What is the politicians’ attitude towards certain businesses?’ and ‘To what extent does the European Parliament impact the Turkish market?’. However, the discussion goes beyond domestic or regional policies, it is also concerned with the stability. In Turkey this question weighs heavily for its persistent turmoil in the Cyprus quarrel, the Kurdish separation movement and terrorist attacks.

Varblane (2005) researches the EU impact on the political stability of member states. He concludes that membership and its prospect will support medium- and long-term political stability, a thesis that is confirmed by Lejour et al. (2004). Needless to say however, the political setting varies per country and hence, its changes can not merely be projected upon a general argument. The proposition:

The political environment will become more stable through the EU impact.

2.3.4 Legal factors

Fourth then, the European Union regulations will integrate with the domestic legislation.

Along the path towards EU accession, Turkey attempts to restructure its legal system to the European requirements. Subject to change are inter alias trade barriers, competition laws, transparency issues, and, specifically important for the beer producers, taxation and advertisement laws. Taxation levels largely determine the profitability for a market of alcoholic beverages, whereas advertising and sponsoring are the most common ways of establishing a strong brand image.

Nespor and Csémy (2001: 3) state that ‘unfortunately the global alcohol industry need not be too worried because present EU regulations dealing with alcohol advertising and taxation are weak’. This suggests that such legal issues remain subject to domestic

(16)

legislation. Because Turkey and the EU are yet engaged in a Customs Union, an EU entry would not mean the abolishment of many tariffs. The proposition:

Neither taxation and advertisement, nor trade barriers will change significantly alongside a Turkish EU accession and its prospect.

2.3.5 Cultural and social factors

Fifth, consumers belong to a certain society that possesses a specific (business) culture.

Several famous scholars (Hofstede, 1983; Schwartz, 1999) have addressed disparities between national cultures. An important aspect of the culture is the religion. Turkey’s population is 99% Islamic (The Economist, 2005: 4), and because drinking alcohol is forbidden in the Islam, Turkish beer consumption patterns probably vary significantly from those in West European countries, but also from those of stricter Islamic nations such as Saudi Arabia. Some scholars suggest a more global focus would lead to a cultural convergence (Dunphy, 1987; Webber, 1969), while others argue that cultural diversity will always remain or even expand (Cole, 1973; Lincoln, Olson & Hanada, 1978).

Social factors comprise of relationships between individuals mutually, between individuals and groups or within groups. For example, the impact of a family member on purchasing decisions. Also tourism and eating and drinking habits belong to these.

Assuming now that either Europeanization or a cultural divergence may appear following EU accession, Sunier’s (1998) persuasive argument of the presence of a strong Turkish self-identification and nationalism settles the matter. The proposition therefore is:

The EU impact will not Europeanize the Turkish culture and consumption patterns.

2.3.6 Demographic factors

Finally the way demographic variables are altered will be discussed. Turkey has 72 million inhabitants and growth numbers suggest Turkey’s population will continue to grow at a fast rate in the coming years. And an even larger market implies more beer consumers. Furthermore the composition and age distribution of the population, as well as the urbanization levels are key demographic factors. Miller and Demirel (1988) suggest urban young people to be the most beer consuming population. At first glance, these issues are not influenced by the EU impact.

Directly linked to a European Union admission are the composition and size of the population. Free movement of labor, which admittedly is by no means a concluded part of EU membership, will activate a foreseeable outflow of workers, Erzan, Kuzubaş and Yıldız (2004) argue. All this leads me to the following proposition:

The demographic environment will not be strongly impacted by the EU pressure.

2.4 Scenario analysis

In order to follow the right strategic paths, managers search for reliable future scenes.

‘What is likely to happen to the business and in which way do we respond?’ is their

(17)

question in such situations. This project requests such a forecast for the EU-based brewers that are active in Turkey.

As to examine the possible scenarios the beer producers face and the right manner to anticipate them, Wack’s (1985) review of the Royal Dutch/Shell Group experiences and techniques used in times of the oil crises has been particularly useful. The key problem with these uncertain methods is the rigidity of the managers, being the targets of the scenario analysts, who neglect or ignore the interface of the scenarios. They yearn for some kind of assurance, especially in times of rapid change and increased complexity like Turkey is going through. Leveraging scenario analysis in such periods can make a difference, as opposed to stable times which merely ask for fine-tuning of decision scenarios (Wack, 1985: 150).

This difficulty leaves the predictors that aim to persuade their bosses with nothing but to use the most sophisticated means and to come up with straightforward actions. It takes an accurate understanding of the pressures that drive the business, but also the quality of explaining them to the decision makers, which are utmost concerned about the underlying uncertainties and the critical forces of the scenarios. Furthermore, the stakeholders of the breweries are closely tracking the behavior of exploiting chances. The purpose of such a technique is therefore twofold: a protective function of anticipating and understanding risk; and the entrepreneurial function of noticing strategic possibilities of which you were previously unaware. The first function is most important in the light of this thesis, because it answers the second part of the core question: viz. ‘how should the firms anticipate this process?’.

To the extent it is possible Wack stipulates the way scenarios are structured. The interconnectedness of forces, trends and breaks in trends, events in the pipeline whose effects have yet to unfold; they all need to be dealt with. Lejour et al. (2004) propose to bring up three scenarios, of which one extrapolates the present situation into the future, the so-called baseline scenario. One positive and one negative picture complete the set.

The forecast at the end of Chapter 7 applies the three scenarios of the Political Risk Yearbook (2006) to the external environment of the beer market. Attention is paid to economic, political and legal variables to make up the aggregate.

2.5 Conceptual model

Before presenting the research model, let me draw an overview of the circumstances in which this study will be conducted. Figure 2.1 shows that the beer market consists of several black boxes, the internal environment of each single competitor.

Using Porter’s model, the structure of this industry will be described in Chapter 6. The market is surrounded by its macro-environment which is divided into the six charted factors. Chapter 7 deals with the current situation of each of these environmental features, as well as the expected changes influenced by a possible European Union accession. This is an example of a transnational institution that exerts pressure on national institutions to redefine their rules of the game, called a trickle-down effect by Djelic and Quack (2003:

306). The way these changes impact the beer market’s structure are a matter of discussion in section 7.9 and in Chapter 10, the conclusion.

(18)

Fig 2.1 Sketch of research objects

Figure 2.1 Sketch of research objects

Thus, an important methodological contribution of this paper is the determination of an industry’s surroundings by using Porter’s forces for the internal environment and Leeflang’s model for the external environment. The internal situation is regarded as a given; only the changes in the macro-environment affected by a possible EU membership are studied.

The first case study applies this in retrospective to Poland through the eyes of one of the market players. It serves as a guide through the forecast of environmental changes and adopts therefore a supportive function. An illustration of the problem in Turkey is supplied by the second case study. Since the study stresses this market, a country background is provided in Appendix A.

The research involves particularly the ‘how’-question and the consequences it entails for the firms that participate in the market. In this thesis, the two case studies serve a purpose of applying the problem in real-life situations. The block arrows therefore should not be read as a determinant or trigger, but rather as a sort of input. The straightforward conceptual model for this research as it is explained above is shown below in figure 2.2.

European Union impact

EXT. ENV.

Leeflang factors

Beer market

(Structure described by using Porter’s model)

Demographic Political

Cultural / social Legal

Economic Technological

(19)

Figure 2.2 Conceptual model

Changes in the external environment of EU-based beer brands on the Turkish market

Economic environ-

ment

Demo- graphic environment Cultural

and social environ-

ment Legal

environment Political

environment Techno-

logical environment

Expected Turkish European Union membership

Expected changes in the Turkish beer industry

Needed anticipations of present or aspiring EU-based breweries in Turkey

Experienced EU impact of Heineken in Poland

Application of research in case study Heineken Turkey

(20)

CHAPTER 3: METHODOLOGY

“Watch a cat when it enters a room for the first time. It searches and smells about, it is not quiet for a moment, it trusts nothing until it has examined and made acquaintance with everything.”

• Jean-Jacques Rousseau, eighteenth century Swiss philosopher

Now the problem has been introduced and a detailed description of the theoretical concepts is given, the methodology section attempts to enlighten the setup of the research process. Compare it with the tactical plan for a sports match. It contains the means, not the ends, with which the study will be conducted. It consists of the research approach, consisting of the actual research design, and an elucidation of the case study methods.

3.2 Research approach

The setup and theories being outlined now, it is time to describe the actual research process. After having agreed upon cooperation with Heineken, I searched for in-hand knowledge about the beer market, Turkey and the European Union. Building a theoretical foundation, designing the methodology and the case study research and writing the case study protocols⁷ were the subsequent steps. The protocol serves as a guide through case study research. Hence, before going to Poland and Turkey, the structure of the report was evidently clear and a theoretical background shone a preliminary light on the problem.

I visited Grupa Zywiec’s quarters in Warsaw, and Heineken in Istanbul for having in- depth interviews, lasting approximately two hours, with prominent employees. In Warsaw Mr. Krzysztof Rut, the Group’s corporate communication director answered my questions, and in Turkey I was informed by the recently appointed country manager Mr.

Altan Kosova. Please find the protocols belonging to these interviews attached in Appendix B. Note that the questions are starting points and left space for elaboration.

After leaving Istanbul, some other potential information sources were to be approached in the Turkish capital Ankara. First I met Mr. Cengiz Karabayır, IGEME’s specialist of the beer market who supplied me with very useful statistics about this market. Then, the Dutch embassy lighted their perception of the European Union impact in Turkey, stressing the consequences for business. And finally, I went to the Turkish Tobacco Products & Alcoholic Beverages Regulatory Market Authority (TAPDK), where Mrs.

Gül Varol provided me with information about the beer market, import regulations et cetera. The data gathered from all of the interviews were transcribed at the same time and worked out immediately afterwards. This left me, the interviewer, with a lot of functions

7 Following Yin (2003: 67 – 77).

(21)

during the interview: noting, questioning, obtaining answers, assessing the answers’

value and leading the conversation (see Emans, 2002).

Particularly in Turkey, it appeared that the business transparency is yet far away from the West European standards. More than once key information was withheld by the interviewees, although it did not significantly influence the data gathering process. A more severe limitation may be the lack of internal validity. It is not a priori comprehensible which effects can be attributed to the EU pressure and which not.

Back home a stack of gathered information waited to be interpreted and worked up. This process demanded insight, causal and logical thinking, as well as creativity. Guided by Leeflang’s model, the analysis was conducted based upon the interviews and literature research. This thesis follows the style guide of the Academy of Management Journal⁸.

Learning from the case study of Heineken in Poland, this study encompasses an assessment of the external environment of EU-based beer brands in Turkey, through literature review and interviewing. The other case study that scrutinizes Heineken in Turkey serves the purpose of regarding the management problem from inside a firm, instead of the overarching industry. Analyzing the expected environmental changes and determining Heineken’s practices in Poland breed the possible future scenarios. A comparison of Heineken Turkey to Heineken Poland is the final step before concluding and discussing the findings. Can Heineken’s success in Poland be imitated by European brands in Turkey, a country which is likely to go through a process of EU influence?

3.3 Case studies

Case study definitions are abundant. In this report, Yin’s (2003: 13) definition is used, where case studies are understood as ‘an empirical enquiry that investigates a contemporary phenomenon within its real-life context; especially when the boundaries between phenomenon and context are not clearly evident; and in which multiple sources of evidence are used.’ The European Union pressures to the Turkish beer market can be regarded as the contemporary phenomenon.

The suitability of the comparative aspect notwithstanding, the research approach does not please this definition of case studies, in that single rather than multiple sources provided evidence for the cases. In Warsaw as well as in Istanbul, I have just interviewed one employee that might have been biased in any kind of direction.

Single and multiple case studies are considered different research types more than once in business literature (see Lieberman, 2005). Two case studies are used in this thesis and their approach is alike. Undertaking multiple cases is not a matter of providing firmer evidence here; it serves as a basis for comparison and future predictions. The underlying logic is still the same. The choice for cases should predict either similar results, named a literal replication, or contrasting results for predictable reasons, the theoretical replication. As such this replication logic must be distinguished from sampling logic that

8 Source: http://aom.pace.edu/amjnew/style_guide.html

(22)

is regularly applied for surveys. The sampling logic is not appropriate for this study since it does not take the different contexts of the phenomena into account, nor does it assess its prevalence (Yin, 2003).

Within the field of multiple case study research, broad distinctions are made between large N and small N samples, implying either generalizing or knowledge-based, qualitative conclusions (Carmel, 1999; Lieberman, 2005). A research approach of comparing only two cases thus fits in the latter category, or in so-called Qualitative Comparative Analysis (QCA). Such research ‘mimics the process of case-oriented research and attempts to honor its essentially configurational nature’ (Ragin, 2005: 33).

Carmel (1999) brings such research into practice by comparing pre- and post-unification Germany in terms of changing external conditions. She conducts this research by integrating a contextual analysis with theory, in order to build new theories. However, they often face the criticism of not being able to construct theory, in being only implicitly comparative. Therefore Skocpol (1984) identifies interpretive and analytic approaches, in which the former aim to understand the processes and events, and the latter are concerned with explaining its causes. Large N studies comply with the needs of analytic studies and go beyond the borders of this thesis. Thus, the two case studies help in understanding the contemporary phenomenon.

Nonetheless, the emphasis is on untangling the Turkish beer market. Heineken Turkey therefore benchmarks the targeted company Grupa Zywiec. Chapter 9 consists of a comparative case analysis, adopting an outside-in approach that stresses the external environment. It is conducted by comparing Leeflang’s forces of both cases, to deem it meaningful and bias-free.

(23)

CHAPTER 4: CASE STUDY HEINEKEN POLAND

“Drive thy business, or it will drive thee.”

• Benjamin Franklin, eighteenth century American politician and scientist

Notwithstanding a research focus on Turkey, I start with the case study of Heineken in Poland. The findings are useful input for the analysis and the Turkish case. Being in Poland, one will not have the impression of a glorious presence of the Dutch giant Heineken. The beers you will find in the shelves or in bars are generally confined to Polish brand names. Just a couple of famous brands are available. However, those appearances are deceptive; the beer market is dominated by international players.

Cooperation between Heineken and the Polish beer producer Grupa Kapitalowa Zywiec S.A. has been remarkably successful in terms of profitability. This, added to the size of the market and the recent date of the accession make a comparison to Turkey well-suited.

Grupa Zywiec’s main brand Zywiec had been one of the best sold beers in the market.

The overview of the country’s background and the beer market is less extensive than the discussion on Turkey, since this case study merely serves a supportive function.

4.2 Beer market

Poland is one of the 10 recently acceded EU members. Of these countries, there is the most concern about the appropriateness of Poland. The country still suffers from financial trouble, high corruption and unemployment and is therefore unable to comply with all the EU standards, particularly in agricultural issues. On the positive front, the current account deficit has reached sustainable levels (Rabobank International, 2004). The implementation of all the claims is planned to be finished by 2012.

Traditionally, spirits such as vodka were inherited in the Polish drinking habits. After the communist regime collapsed in Poland, the demand for beer (and also wine) increased and, consequently, its quality and technology improved. Major brands ventured upon this unexplored field by expanding their sales to the Polish market. The result is a modern but fragmented industry with qualified employees and mounting demand. And, through the years the Polish beer market has experienced a remarkable growth in terms of sales numbers and consumption per capita. Figure 4.1 underlines this trend.

In 2006, there is talk of two dominant brands in the beer market in Poland. SABMiller (38%) and Heineken (36%) are followed on a respectable distance by Carlsberg (14%). In the previous years, the American company SABMiller has passed by Heineken as being the largest player. Kompania Piwowarska SA, on behalf of SABMiller, increased their sales substantially, whereas Grupa Zywiec’s output remained constant.

(24)

By mentioning this, the main difficulty for entering this market can be elucidated.

Although the Polish beer market can be considered an attractive growth market, with the presence of two powerful market leaders it is particularly hard to gain a respectable position. SABMiller and Heineken have all the devices in hand and they can utilize them arbitrarily. Thus, the size of the companies is important in realizing strategies. The market seems to be divided; no local brands are seeking for partnerships with international players anymore and a Greenfield investment is too costly.

Beer in Poland

0 20 40 60 80 100

199 4

1996

1998

2000

2002

2004 Year

Liters of beer / %

Per capita consumption Consumption increase

Fig. 4.1 Beer in Poland⁹

The Polish beer market is divided into five price segments. On top one can find the international premium brand beers, of which the Heineken brand is undoubtedly the leader. This segment accounts for a mere 4% of total beer sales. Next is the segment of national premium brands, which is dominated by Zywiec and Lech (a SABMiller brand).

Zywiec is the most sold beer in Poland. Though growing, the subsequent mainstream segment is surprisingly smaller in size in comparison to the national premium segment.

The most important brands in this segment are Warka (Heineken) and Tyskiej (SABMiller). Lower mainstream and discount beers cover the inferior segments in the beer industry. Segmenting the market into beer types, four segments can be distinguished, viz. regular beer, strong beer, fruit-flavored beer and alcohol-free lager beer.

The price is around 0.55 euro for import beer, 0.30 for local brands, 0.27 for mainstream and 0.17 for discount. Not only for its pricing, but also because the consumers can identify themselves with it, the local brands remain being very important.

In spite of the high inflation that was prevailing in Poland over the past decade, as well as the growing retailer power that put pressure on the prices, beer prices did not rise. On the contrary, they even slightly decreased. Major brands are switching from strategies of acquisition to organic growth and increasing market share. That means increased investment in brands and value chain optimization in a time of increased price competition and pressure on margins. The straightforward result of such pricing rivalry, and better production methods, are falling prices. And as becomes clear from table 4.1, the beer consumption is expected to grow even more.

9 Source: Rabobank International, 2004.