San Miguel Brewery Hong Kong Limited

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San Miguel Brewery Hong Kong Limited
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San Miguel Brewery Hong Kong Limited
Helen Fung Kevin Chan Maggie Lam Ricky
Chan Steven Sung Wilson Ho Winnie Ho
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Presentation Outline

• PEST
• Porters Five Forces Model
• Competitive Analysis in HK Market
• Competitive Analysis in PRC Market

1 Introduction Strategic problems issues
2 Analysis External Environment
2 Analysis Internal Environment
2 Analysis SWOT Analysis
3 Strategy Mission Statement, Strategic Vision and Objectives
3 Strategy Business Strategy
3 Strategy Functional Strategy
4 Implementation Execution of the Strategy
4 Implementation Strategic Action Plan
4 Implementation Budget
5 Contingency plan How to deal with unexpected events
6 Conclusion

• Financial Analysis

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Presentation Outline
1 Introduction Strategic problems issues
2 Analysis External Environment
2 Analysis Internal Environment
2 Analysis SWOT Analysis
3 Strategy Mission Statement, Strategic Vision and Objectives
3 Strategy Business Strategy
3 Strategy Functional Strategy
4 Implementation Execution of the Strategy
4 Implementation Strategic Action Plan
4 Implementation Budget
5 Contingency plan How to deal with unexpected events
6 Conclusion

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Strategic Problems

• Lost more than half of its market share during
  mid-90s
• Low profit and high cost
• Leadership status in South China was being
  challenged

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Strategic Issues

• Demand of beer in the PRC increased rapidly
• SMBHK increase the investment in the PRC market
• Influx of foreign beer into HK and the PRC (More
  than 130 brands in HK now)
• Beer market in HK mature
• Competitors launched low-priced beers in HK
• Growth of economy beer segment became a threat
  to SMBHKs position in HK

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Presentation Outline
1 Introduction Strategic problems issues
2 Analysis External Environment
2 Analysis Internal Environment
2 Analysis SWOT Analysis
3 Strategy Mission Statement, Strategic Vision and Objectives
3 Strategy Business Strategy
3 Strategy Functional Strategy
4 Implementation Execution of the Strategy
4 Implementation Strategic Action Plan
4 Implementation Budget
5 Contingency plan How to deal with unexpected events
6 Conclusion

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PEST - Political

• Hong Kong market
• Increasing cost
• Tariff for foreign beer decrease
• The law of prohibited teenagers under 18 purchase
  beer
• High Tariff on imported of aluminum
• Government tax
• Mainland China market
• Open door policy of China

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PEST - Economic

• Hong Kong market
• Economic Downturn
• Mainland China market
• IMF changed method of computing GNP
• Propose of Chinas entry of WTO
• The rapid economic development
• Both Hong Kong and China markets
• Globalization

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PEST - Social

• Hong Kong market
• Consumer spending was soft
• Inactive social gathering
• High purchasing power of young generation
• Increase in health conscious
• Both Hong Kong and China markets
• Soccer matches

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PEST - Technological

• Both Hong Kong and China markets
• The popularity of refrigeration in the late
  1980s
• More people use the Internet

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Porters Five Forces
Substitute Products (of firms in other industries)
Rivalry Among Competing Sellers
Buyers
Suppliers of Key Inputs
Potential New Entrants
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Rivalry Among Competing Sellers

• Hong Kong market
• Mature market
• Intensive competition
• SMBHK was losing its market shares
• Many low-priced foreign beers
• Price war in retail chains in 1999 among
  distributors intensified competition
• Both Hong Kong and China markets
• Low switching cost
• China market
• 800 national, multi-international, large and
  small brewers

Very Strong
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Rivalry Among Competing Sellers

• If the consumers find our products not valuable,
  they will simply..

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Threat of Substitutes

• Both Hong Kong and China markets
• Many substitutes available in the market
• Substitutes are either of lower priced or having
  higher quality than beer
• The substitutes are able to satisfy most of the
  attributes beer do

Very Strong
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Barriers to Entry
Neutral

• Hong Kong market
• The existing brewers in Hong Kong are not able to
  confront the influx of low-priced foreign
  imported beers
• Legal barrier is low
• Barriers to entry are overall relatively low
• Both Hong Kong and China markets
• high Technological barrier

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Power of Suppliers

• Ingredients mainly water and wheat
• For water, government is the sole supplier,
  bargaining power is therefore very high
• For wheat, climate affect the production very
  much. If there is a climate disaster, price will
  go up. High bargaining power of wheat supplier.

High
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Power of Buyers

• Both Hong Kong and China markets
• Relatively high bargaining power
• Low switching cost
• Substitutes are easily accessible
• High brand loyalty towards beer

Neutral
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Driving Forces in Brewery Industry

• Globalization
• The popularity of Internet
• Introduction of sewage services charge
• Changing societal concerns attitudes and
  lifestyles

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Key Success Factors in Brewery Industry

• Keep manufacturing cost low
• Strong wholesales distributors network
• Successful advertising campaign

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Strategic Group Map of the Brewery Industry
Global
GEOGRAPHIC COVERAGE
Carlsberg, Heineken, Guinness, Budweiser,Asahi
Royal Dutch
Regional
San Miguel,
Pabst, Kingway, Tiger
Tsingtao, Blue Ice
Local
Low
Medium
High
OVERALL COST TO CUSTOMERS
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Competitive Analysis Hong Kong
San Miguel Brewery Hong Kong Heineken Hong Kong Limited Carlsberg Brewery Hong Kong
Originated Philippines Holland Denmark
Year of Establishment 1948 ---- 1978
Market Position Leader Second Third
Market Share 25 5.3 4.7
Ownership Neptunia Corporation Limited (64) Heineken International BV (100) Swire Pacific Limited (49)
Production Local Manufactory Import from Holland Local Manufactory (ceased on 31/4/99)
No. of Employee --- 69.5 250
Profitability (99) 60.1M 45M Loss 69.5M
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Competitive Analysis Hong Kong
San Miguel Brewery Hong Kong Carlsberg Brewery Hong Kong Heineken Hong Kong Limited
Products in HK 5 versions of beer 1 version of beer 7 versions of beer
Price Lowest among the three Similar to Heineken Similar to Carlsberg
Sales location More than half in supermarkets, Tai Pai Dongs, Chinese Restaurant and grocery stores Greater coverage on western bars and restaurants Found in convenience stores, supermarkets and western bars
Advertisement Local advertising, more sponsorship activities, local celebrity as endorsement Global advertising Global advertising
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Competitive Analysis China
Tsing Tao Brewery Limited Yan Jing Brewery Limited San Miguel Brewery Hong Kong
Year of establishment 1903 1980 1948
Market Position 1 2 Not in Top 10
Brand Image Premium Premium Premium
Originated Tsing Tao Beijing Shunde
Price Similar as SMBHK Higher than the other 2 Similar as Tsing Tao
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Product Life Cycle
Sales
Sales Growth slow down
Sales 0
Time
Maturing Product Stage
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During the maturing stage

• Consumers feel bored to the products

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Product Life Cycle
Sales boost up again
Sales
Sales 1
Sales Growth slow down
Sales 0
New product sales
Time
Maturing Product Stage
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Financial Situation

1. Compare with Tsing Tao (Tsingtao beer) and
   Guangdong (kingway beer) which are also listed
   company in HK
2. Compare with the previous years of the same firm

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Profitability Ratio

• evaluate a companys ability to making
  profitse.g. return on total assets ()

SMBHK Tsing tao Guang dong MKT Average
Dec, 2000 2.92 0.92 0.64 1.49
Dec, 1999 2 0.77 2.86 1.88
Dec, 1998 0.58 0.96 4.38 1.97
Great improvement in return!
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Liquidity Ratio

• indicates a companys ability to meet current
  obligations and sustain its operations by using
  current assets
• e.g. Quick Ratio

SMBHK Tsing tao Guang dong MKT Average
Dec, 2000 2.81 0.44 0.87 1.37
Dec, 1999 2.03 0.52 0.77 1.11
Dec, 1998 1.83 0.99 0.75 1.19
The liquidity is too high, which mean many cash
is not utilized.
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Leverage Ratio

• measure company equity vs liability
• e.g. Total debt over equity ()

SMBHK Tsing tao Guang dong MKT Average
Dec, 2000 20.96 122.56 29.56 57.69
Dec, 1999 22.09 75.5 52.78 50.12
Dec, 1998 22.74 47.54 67.62 45.97
Maintain the least liability
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Activity Ratio

• measure managements ability to use its companys
  assets efficiently
• e.g. Inventory turnover

SMBHK Tsing tao Guang dong MKT Average
Dec, 2000 15.37 4.71 7.75 9.28
Dec, 1999 12.01 5.41 6.94 8.12
Dec, 1998 14.32 4.44 5.48 8.08
High inventory turnover
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Growth Ratio

• Annual growth in earning

SMBHK Tsingtao Guangdong
Dec, 2000 45.9 (87.66mn) 58.6 (60.26) (-80.6) (10.24)
Dec, 1999 252.5 (60.1) 3.7 (38) (37.6) (52.71)
Dec, 1998 210.5 (17.05) 38.1 (36.65) (12.3) (84.49)
Sustainable growth in earning Positive Sign !
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Stock Price
Stable Stock Price
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Conclusion on Financial Analysis

• Extremely stable in Financial situation
• Low risk of financial disaster

Superb Confident
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SWOT

• S trengths
• W eaknesses
• O pportunities
• T hreats

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SWOT - Strength

• In Hong Kong market
• Production and distribution efficiency
• ISO9002 certification in 1998
• Brand name of Made in Hong Kong
• Listed company
• Well-established distribution channels
• For Middle-age class, Brand loyalty towards beer
• In China market
• Joint venture with local firm
• In both Hong Kong and China markets
• Marketing expertise
• Wide product range
• low raw material costs

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SWOT - Weaknesses

• In Hong Kong market
• For youngster, San Miguel is too old style
• Large scale of layoff
• In China market
• No sub-ordinate office in PRC
• Lack of coverage in the Western and Eastern China

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SWOT - Opportunities

• In Hong Kong market
• Increase popularity of internet
• The forthcoming 2002 World Cup
• More football matchs live transmission by Cable
  TV
• In China market
• International Sports Events
• Economic development
• Popular use of refrigerators
• Internet restriction in PRC is lessen
• In Overseas markets
• Economic recovery

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SWOT - Threats

• In the Hong Kong market
• Government regulations
• Brand loyalty of young generation is strong
• Economic downturn
• Health conscious
• Many economy competitors and substitutes
• In the PRC market
• Open door policy
• Poor distribution, transportation routes
• In the Overseas markets
• Saturated and mature markets
• Strong brand loyalty

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SWOT Matrix
So Strategy Bid for sponsorship of World Cup 2002 and Women World Cup 2003 Use strong financial backup to invest in orange beer ST Strategy Launch of orange beer targeted the young generation and increase the healthy element of SM beer Low product cost of Shunde beer used to confront the low-priced foreign beers in HK Production in PRC can avoid the high tax and strict regulation on Hong Kong Made beer
WO Strategy Search for joint venture in Xi An The mature brand image sustain the customer base from the mid-aged people with high brand loyalty WT Strategy Do not invest in other overseas markets in short-term
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Remember the boy feeling bored?
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Presentation Outline
1 Introduction Strategic problems issues
2 Analysis External Environment
2 Analysis Internal Environment
2 Analysis SWOT Analysis
3 Strategy Mission Statement, Strategic Vision and Objectives
3 Strategy Business Strategy
3 Strategy Functional Strategy
4 Implementation Execution of the Strategy
4 Implementation Strategic Action Plan
4 Implementation Budget
5 Contingency plan How to deal with unexpected events
6 Conclusion

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Mission Statement

• SMBHK offers adults with pleasant moments
  and sensation feeling during social gatherings
  and individual enjoyments by its cool, fresh,
  tasty, variety of choices and value for money
  beer.

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Strategic Vision

• SMBHK strikes to become one of the top
  brewers in Asia by sharing pleasant moments and
  sensation feelings with people in the region.

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Strategic Objectives

• Hong Kong
• recapture market share to 65 within a year
• Western part of China
• extent to the area within 3 years
• Southern region of China
• Reinforce the market share
• Also, to establish a healthy image for San
  Miguels beer

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Financial Objectives

• To obtain earnings around HKD 100 million within
  3 years
• To increase EPS to 0.35 within 3 years

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Generic Competitive Strategy
Overall Low-cost Leadership Strategy
Broad Differentiation Strategy
Best-Cost Provider Strategy
Focused Low-cost Strategy
Focused Differentiation Strategy
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Generic Competitive Strategy

• Hong Kong market
• To keep the leadership in this mature market, we
  will
• Produce Made in Hong Kong beers
• Introduce IT system
• Make heavy advertising and sponsorship
• Introduce a new version of beer Orange Beer
• Import an economy beer from Shunde
• Keep price reasonable with attractive quality
• build new capacity
• Penetrate to Tai Pai Dong and grocery stores

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Generic Competitive Strategy

• China market
• To compete in this emerging and fragmented
  market, we will build strategic alliances with
  local small brewers in China
• The advantages are
• Lessen the effects of trade restrictions
• Gain more knowledge on local market
• Give preliminary support to SMBHK
• Direct the competitive energies towards mutual
  rivals

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Functional (Production Strategies)

• New product development--orange beer
• Import beer from Shunde
• Increase production in Yuen Long plant
• Increase production in Shunde plant
• Purchase of raw materials via SMC
• Form join venture with small local brewer in Xian
  An
• Outsource the production of San Miguel Boy
  accessories

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Functional (Marketing Strategies)

• Product
• Design a new spokesman San Miguel Boy
• Show both package date and expire date
• Price
• Keep constant for San Miguel beer (mid-price)
• Orange beer priced high in the premium segment
• Low priced Shunde beer to captured the economy
  group

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Functional (Marketing Strategies)

• Place
• Use the well-established distribution network of
  SMBHK in Hong Kong to promote the Shunde beer
• Use the well-established distribution network of
  Shunde beer in Shunde to promote the San Miguel
  beer
• Redesign the bottles and cans of San Miguel beer
• Develop free delivery service to party holders
• Use venders and Smart ID card for selling

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Functional (Marketing Strategies)

• The venders can benefit us

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Functional (Marketing Strategies)

• Promotion
• Sponsor the World Cup 2002
• Sponsor the Women World Cup 2003
• Sponsor the China Soccer (Series A) League
• Sponsor some youth soccer training
• Sponsor some music concerts
• Design a character as the spokesman of our
  products
• Organize Beer Festival in Hong Kong
• Employ Beer Boy to sell beers in bars and
  restaurants

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Functional (HRM Strategies)

• Recruit IT specialists in developing IT system
• Recruit personnel with fruitful experience for
  China branches
• Implement performance appraisal
• Strengthen the professional sales team

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Functional (Financial Strategies)

• Self-financing 20M to support the new orange
  beer product line including R D, working
  capital change, and promotion cost
• Increase ownership of the Shunde Joint venture by
  purchasing more shares
• Cut cost in all departments and layoff excess
  staffs
• Roll over debt (refinancing) and maintain stable
  financial situation e.g. debt equity ratio

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Presentation Outline
1 Introduction Strategic problems issues
2 Analysis External Environment
2 Analysis Internal Environment
2 Analysis SWOT Analysis
3 Strategy Mission Statement, Strategic Vision and Objectives
3 Strategy Business Strategy
3 Strategy Functional Strategy
4 Implementation Execution of the Strategy
4 Implementation Strategic Action Plan
4 Implementation Budget
5 Contingency plan How to deal with unexpected events
6 Conclusion

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Execution of the Strategy

• Organization
• The strategy-critical activities are production
  and marketing and sales activities
• Building organizations capabilities on these two
  areas

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Execution of the Strategy

• Strategy-supportive policies and procedures
• Strict control on the production time on every
  parts in the production process
• Offer clear instructions to the newly employed
  salespeople on how to do the selling activities
  in the PRC market
• Clear guideline of conduct of ethics on the PRC
  operation such as selling activities to oppose
  the corruption business practice in the PRC

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Execution of the Strategy

• Rewards and incentives
• Progressive commission system for salespeople
• Stock options for senior management
• Annual bonus for all employees
• Outstanding salespeople will be include in the
  selection of sales management positions

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Execution of the Strategy

• IT system
• Develop the IT system by in-house human resources
• Enhance the security of confidential information

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Strategic Action Plan
Strategies 2001 2001 2002 2002 2003 2003
Launch of orange beer
Joint venture with local brewer in Xi An
Strengthen distribution network in PRC
Develop IT system
Bid for sponsorship of 2002 World Cup
Bid for sponsorship of 2003 Women World Cup
Launch San Miguel Boy character
Increase ownership in the Shunde joint venture
Evaluate the efficiency of Joint Venture in Xi An
Launch of online ordering delivery service
Use of Smart ID card vending machines
Increase ownership in the Xi An Brewery Company
Import of Shunde beer
Evaluate the efficiency of orange beer
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Budget

• Assumptions
• All campaigns is paid a lump-sum in the first
  year and is last for 5 yrs
• No inflation consideration
• Required rate of return 20 (risk-depend)
• Acquisition of Shunde factory with 100 million
  and will not count as investment in the following
  calculation.

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Budget

• Budgets
• 1. Initial investment 20,000,000
• -New product line 10,000,000
• -New promotion campaigns 5,000,000
• -Explore China MKT 3,000,000
• -IT System 2,000,000
• 2. Cash Flow
• -New product lines revenue 6,500,000
• -Promotion Campaigns 1,000,000
• -Explore China MKT 500,000
• -IT System 100,000
• -Integrations of facilities 100,000
• -Mass purchase of raw materials 100,000
• -Maintenance Cost of new product line
  (300,000)
• Net Profit per year 8,000,000

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Budget

• Expected
• -net profit decrease 5 per yr
• NPV6.46M
• NPV is positive

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Budget

• Recession
• -net profit decrease 10 per yr
• -net income is 80 of expected
• NPV - 0.47M
• NPV is slightly negative !

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Budget

• Blooming
• -net profit decrease 2 per yr
• -net income is 120 of expected
• NPV27.79M
• NPV is positive

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Presentation Outline
1 Introduction Strategic problems issues
2 Analysis External Environment
2 Analysis Internal Environment
2 Analysis SWOT Analysis
3 Strategy Mission Statement, Strategic Vision and Objectives
3 Strategy Business Strategy
3 Strategy Functional Strategy
4 Implementation Execution of the Strategy
4 Implementation Strategic Action Plan
4 Implementation Budget
5 Contingency plan How to deal with unexpected events
6 Conclusion

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Contingency Plan

• Climate disaster poor harvest or even short-term
  lack of supply
• Solution Hold certain amount of inventory as
  backup
• China new ever changing policy, for foreign
  investment
• Solution Keep tracking on the changing
• The inefficient collaboration with joint venture
  in Xi An
• Solution Seeking for several potential local
  brewers as backup flexible joint venture
  contract with Xi An brewery

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• Question and Answer