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Publication Date : 21-08-2012
Major Japanese beer companies are in a quandary over poorly performing corporate acquisitions and enormous investments they have made promoting mainly in emerging countries.
These companies are lagging behind their Western counterparts in expanding overseas businesses, making it difficult for them to benefit from acquisitions of overseas companies. They also have failed to produce sufficient results from the investments.
Given the circumstances, companies are planning to review their overseas strategy with an aim of expanding their businesses and strengthening the earning capacity of their overseas businesses through structural changes or development of human resources.
However, it likely will take some time for such new strategies to yield results.
In July, Thailand's major beverage maker Thai Beverage Ltd. acquired a more than 20 per cent stake in Singaporean counterpart Fraser & Neave Ltd. (F&N), becoming the firm's largest shareholder.
Previously, Kirin Holdings Co. cited F&N as a key for its soft drink business in Southeast Asia after Kirin Holdings agreed on a capital and business alliance with F&N and acquired a 15 per cent stake in the company in 2010. The move by Thai Beverage was a bolt out of the blue for Kirin Holdings.
At present, Thai Beverage is believed to be interested only in F&N's beer business. However, if Thai Beverage increases its stake in F&N, Kirin Holdings could be forced to review their business strategy in Southeast Asia.
At home, there have been similar cases in which two or more Japanese companies invested in the same foreign company.
For example, Suntory Holdings Ltd. announced in June it agreed on a business tie-up with major Chinese firm Tsingtao Brewery Co. in the Chinese province of Jiangsu and Shanghai.
Asahi Group Holdings Ltd. already had a 20 per cent stake in the Chinese company, but Asahi and Tsingtao Breweries have failed to produce visible results through the tie-up. The latest announcement by Suntory means that the capital ties between Asahi and Tsingtao mean virtually nothing.
Outwardly, Asahi Group Holdings appears undaunted. "We expect [the business agreement between Suntory and Tsingtao] will raise Tsingtao's corporate value," an executive official at the firm said.
In the future, however, battles for Tsingtao between Suntory Holdings and Asahi Group Holdings could intensify.
Scrambling for small firms
To cope with the shrinking domestic market due to the declining population, Japanese beer companies started to acquire and invest in companies mainly in emerging Asian nations in the late 2000s.
Meanwhile, Western rivals expanded the size of companies through mergers between major companies, and started acquiring minor beverage brands in emerging countries using abundant financial resources from around 2000.
Consequently, Japanese companies lagged behind their Western rivals in businesses in such countries, left with no choice but to battle for a dwindling number of independent beverage makers in these countries.
Furthermore, in a scramble for the limited number of beverage companies, the amounts paid to acquire other firms have been on the rise.
Last year, Kirin Holdings acquired major Brazilian beer and beverage maker Schincariol for about 300 billion yen (US$3.78 billion). Some observers say that while Kirin Holdings knew it was an expensive acquisition, it was regarded as a good bargain because of the Brazilian firm's reputation.
However, the impact of such enormous investments are unclear.
US based rating company Moody's Japan K.K. downgraded its rating on Kirin Holdings in October 2011 due to the poor cost-benefit performance of the firm's overseas investments.
Kirin Holdings posted consolidated operating profits of 142.8 billion yen in the business year ended in December 2011. Operating profits from overseas businesses were 15.3 billion yen, accounting only for about 10 per cent of the firm's entire operating profits.
To cope, Japanese beverage companies shifted their strategies to boost involvement in overseas companies in which they had already invested.
For example, Kirin Group will establish a new domestic integrated beverage company called Kirin Company, Ltd. in January 2013. The new firm is slated to concentrate on the domestic beverage business, whereas Kirin Holdings will focus on overseas business. It will halve its workforce to about 100 employees, who will work on strengthening the earning capacity of overseas companies in which it is invested using a few select employees.
Asahi Group Holdings, meanwhile, started a personnel training system under which young employees are dispatched to overseas companies it acquired. Suntory introduced a similar system several years ago.
"We've concentrated so much on domestic businesses that we have done almost nothing about the overseas companies we have acquired," an executive at Kirin Holdings said.
The success of their overseas business strategies likely will depend on whether they can learn from past failures.
US$1 = 79.3 Japanese yen