Business Environment in Malaysia

According to Department of statistic and economic planning unit, 2010, Malaysia has a population of 28.96 million with about 63.8 % of the population being urban and 36.2 % rural. The median age for Malaysian is 24.2 years old which is particularly young. The Malaysian society is multi-ethnic comprising of Malays (67 %), Chinese (24 %), Indians (7 %) and several other indigenous populations. GNP per capita is US $ 3,311.76 [Nation Master, 2010] and GDP US$ 218.95 billion is estimated by 2010. The average distribution of labor force by sector is agriculture – 9.4 %, industry 40.9 % and services 49.7 % [Global Finance, 2010]

Although Malaysia official religion is Islam and alcohol is forbidden in Islam, but with the multi-ethnic culture alcohol are allowed to purchase and consume by non-Muslim. Malaysia is the 10th largest consumer of alcohol in the world. Each year Malaysians spend over US$ 500 million on alcohol, which can be seen that Malaysian is heavy consumer of alcohol product. The Beer consumption in Malaysia is 11 liters per capita. Among the drinking population, Malaysia Indians who make up about 7 % of the population are by far the heaviest drinkers with an annual consumption of absolute alcohol exceeding 14 liters. The average age for alcohol dependence is 22 years old. [Global Alcohol Policy Alliance, 2006]

In Malaysia beer and stout are sold are sold and consumed without license requirement but there an age requirement for buyer which is 18 years old and above. The ease of availability of alcoholic drinks in coffee shops, supermarkets and store with advertising and promotions are driving Malaysian to drink.

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There are two main breweries in Malaysia, which are located in or near the capital city of Kuala Lumpur. Guinness Anchor Berhad is a joint venture between Guinness and Asia Pacific Breweries of Singapore, itself a joint venture with Heineken and a local soft drinks company. Carlsberg Group controls the largest shares of Carlsberg Brewery Malaysia Berhad. Today the two companies split the malt beverage market, with Carlsberg Group holding roughly 44 % to Guinness 57 % of the market share. [Apapaonline, 2010]

Malaysia is rank No.2 in the world on alcohol tax, which is relatively high. Beer and stout manufactured in Malaysia are subject to Malaysian excise duty and sales tax. Excise duty payment is at RM 7.40 per liter. There is an “Ad Valorem” duty payment of 15% on the ex-brewery price for the beer products. Sales tax is also levied at 5.0% of principally the ex-factory invoice price on all product sold. [Carlsberg, 2010]

Direct alcohol advertising is not allowed over the broadcast media and on billboards, except in the state of Sabah in East Malaysia. Alcohol advertising is permitted in cinemas, on video cassettes and the print media. Sponsorship activities are allowed.

Company Background

Incorporated in December 1969, Carlsberg Brewery Malaysia Berhad (CBMB) began brewing Carlsberg Green Label beer locally in 1972. Since then, the brand has become part of everyday life and is the undisputed market leader with more than a 50% share of the Malaysian beer market.

Carlsberg Malaysia is 51% owned by the Carlsberg Group and is listed on the Main Board of Bursa Malaysia Securities Berhad (Malaysia Stock Exchange) under the consumer products sector. It is an established brewery that manufactures and distributes beer, stout and other beverages mainly in the domestic Malaysian market via its 100% subsidiary; Carlsberg Malaysia Sdn. Bhd. Carlsberg Malaysia also has investments in Sri Lanka, Taiwan and in a Malaysian alcoholic beverage company.

Carlsberg Malaysia aims to be at the forefront of innovation and quality and has always led the market with dynamic product launches and massive consumer campaigns. It is a champion of many Corporate Social Responsibility initiatives and is acknowledged in Malaysia for its dedication and commitment. Like other breweries within the Carlsberg Group, its production facilities are certified to ISO 9001 (quality) and ISO 14001 (environment) standards.

Today, Carlsberg Group lead by Dato’ Lim Say Chong with the position of Independent Non-Executive Chairman of the Board of Carlsberg Brewery Malaysia have more than 570 Employees and have a 44% share over the alcohol industry market with the 2nd position after Guinness .Carlsberg Brewery Malaysia Berhad operates on several SBUs (Strategic Business Units), namely Carlsberg Green Label, Club Bottle, SKOL, Special Brew, Tetley’s, Royal Stout, Jolly Shandy and Nutrimalt. Each product Unit is different from one another, and target at different market segments that satisfy different types of customers. [Carlsberg, 2010]

Legal & Political environment

A business can be affect by legal environment in many way, for example the nature of the relationship between the organization and its customer, suppliers that influenced by the prevailing law. Over time, every company has been tendency for the law and provide the additional right to buyers of goods, Carlsberg also will not exception of this.

Goods that ensure by a supplier are of satisfactory quality and no misleading description is made. With the law of trade descriptions act 1968 to protect consumer, an offence could not make a false or misleading trade description and creates three principal offences. For example, Carlsberg clearly list out the amount of alcohol content on the product and customer are ease to get details information from Carlsberg web sites.

Business also affect by the Copyright Act 1987 in Malaysia that can protect the right of a company product. The law of copyright work well with Carlsberg product, with the right registration Carlsberg will be the owner of the product and can prevent infringements from criminals.

There a big change for Carlsberg from 1995 as the way of advertising for alcohol product is outlaw on radio and television. No alcohol advertises can be shown before 10pm.

Fluctuation of Tax rate is a statement that concern by Alcohol Company every year. As we know, Malaysia alcohol tax rate is second highest in the world, and average income of drinker in Malaysia are low compare with the highest tax rate country. Fluctuation of tax to Carlsberg is a big challenge and definitely a threat to them. Raise in tax will add on the cost of alcohol drinks to customer and result in drop in sales. Raise in alcohol tax also will cause smuggled beers activity increase, this is another big threat for Carlsberg because Malaysia alcohol tax rate is high.

Social-Cultural Environment

Malaysia is a multi-racial country and there are around 67% of the population are Malays. Although Malaysia official religion is Islam and alcohol is forbidden in Islam, but with the multi-ethnic culture alcohol are allowed to purchase and consume by non-Muslim

Carlsberg have their focus on the largest non-Muslim group in Malaysia which is the Chinese and India community. Even though Carlsberg are allowed to sell their product to non-Muslim, but direct alcohol advertising is ban by using broadcast media on billboards, except in the state of Sabah in East Malaysia. With this particular constraint, Carlsberg commercial ads and product knowledge are hard to deliver to consumer. Carlsberg seek for tolerance with the legalism; advertise in cinema, video cassettes, print media and sponsorship activities are permitted. Carlsberg grip this as an opportunity for them and result in big amount of marketing budget in the sponsorship activities and charity service as their marketing tactics to market Malaysian.

In the previous day, people took beer and stout as a replacement for liquor because of the economical of price and the ease to obtain. As the time changing, beer and stout are no longer a replacement for liquor. People now drink beer and stout in any occasions and anytime they want.

For the heavy drinker group which majority is the Indian community, Carlsberg will have a special treats and privileges for the Indian community when Deepavali celebrations. Collaboration between Carlsberg and local movie production house to cast a Tamil movie named “Undercover Rascals” sponsored by Carlsberg to have fund raising campaign for the underprivileged children from Tamil schools. With every “Undercover Rascals” DVD sold, a sum of RM 3 will be donate to underprivileged children of Tamil schools

The concern and social responsibility towards the India community by Carlsberg can be seen in their social program. With the partnership of Carlsberg with Tamil daily newspaper-Malaysia Nanban, Carlsberg sponsored school bags, document folders and water tumblers to more than 400 Indian students in Kuala Lumpur, Selangor, Perak, Johor, Penang and Butterworth who had scored straight As in 2008 UPSR examination. Carlsberg also donated 2,000 school bags to needy primary one student in 20 rural Tamil schools in Johor, Melaka, Negeri Sembilan, Penang, Perak, Kuala Lumpur and Selangor.

Besides Indian community, Chinese group is another focus group of Carlsberg as Chinese love to drink alcohol when festival or celebration; it is a must for Chinese to have alcohol beverages when festival or celebration. Chinese have lots of festival and celebration, the alcohol drinking habits is a tradition for Chinese community since the ancestor. Carlsberg study the Chinese custom culture and come out with a lot marketing strategy to have bigger slice of cake from the market share.

In 2009, which is the year of Ox for Chinese calendar, Carlsberg had launched a conceptualized Chinese New Year campaign with tag line of “Life favors those who see things differently” which encourages all to view things differently and see opportunities during good and bad times. Carlsberg had come out the limited edition of “festive cool can” which have an innovative design feature that have a “牛”(ox) feature on the side of the can which represent the ox year and when the can is chilled at 6°C, which is the right drinking temperature, the Chinese character of ‘牛’ (ox) will have a special Carlsberg swoosh, revealing the word ‘生’ (life)

The single word “福” (prosperity) is often displayed in many homes and stores. The custom written Chinese character “福” means good luck and prosperity. So Carlsberg Malaysia is also giving its loyal customers a special treat in the form of a music video in DVD format entitled the Carlsberg “福” Chinese New Year (CNY) album with the purchase of selected items.

Carlsberg had been funding the Top Ten Charity Campaign (十å¤ä¹‰æ¼”) since 1987, which has raised approximately RM 339 million in funds over 22 years that benefited more than 560 Chinese schools. In 2009, Carlsberg Malaysia who organizes the Top Ten Charity Campaign successfully raised a total of RM17.9 million in building funds for 14 Chinese educational institutions through the contributions of ever generous donors and fund raisers from all walks of life. This long term project is supported by media partners Nanyang Siang Pau and China Press.

Economic Environment

Economic environment is economic factor which have their affect on the working of the business, consumer purchasing power and spending patterns. Economic factor that are affecting the Carlsberg group include level of income, level of beer consumption, inflation, unemployment rate.

The economy of Malaysia is changing rapidly. There is a rise in per capita income from RM13, 939 in 2000 to RM 23, 841 in 2009(Statistics Gov, 2010). This indicates that the disposable income of Malaysian also increase as per capita income increase. Disposable income is the personal income less personal taxes. The increase of disposable income will lead to they have higher propensity to consume especially entertainment sector, such as alcohol beverages. This will help Carlsberg group increase their sales. But, the wine industry is seemed the most imminent threat to the beer industry as disposable income of consumer increase. This is because the price of wine is affordable for them now.

Level of Beer consumption is also will impact to the Carlsberg group. If the beer consumption in Malaysia is low, the sales of beer will be infected and profit also will going down. But according independent market research group, ‘Euromonitor International, has predicting the beer consumption in Malaysia will increase to 171 million liters in 2014, from 137 million liters in 2008’ [1] . If the level of beer consumption is the same as predicting, this will made more sales to the Carlsberg group.

The increase of unemployment rate will made a positive impact to the Carlsberg group. The unemployment rate is increase from 3.2 in 2007 to 3.5 in 2010 estimated by International Monetary Fund (IMF) (2010). This situation can make positive impact to the Carlsberg group because the people who do not have a work will drink more beer in order to release stress, so they will lead increase level of beer consumption. Increase level of beer consumption is lead increase sales of beer and profitability of Carlsberg group.

Another factor that affect Carlsberg economy situation is the inflation. Inflation refers to the rate at which prices of goods and services in an economy are rising. A commonly indicator of inflation is the consumer price index. The inflation rate of Malaysia is increase from 0.6 to 2.2 in 2009 to 2010 estimated by International Monetary Fund (IMF) (2010). This will have a negative impact to the Carlsberg group. The people may experience the inflation and the discretionary income will be decreased. This will cause to people reduce the times to drink beer and the sales of Carlsberg group will be dropped.

Technological environment

Technological environment is the firm’s external environment that embraces mechanics, electrics, electronics, physics, chemistry, biology and derivatives. The changing in technological environment may pose threats or opportunities to the company.

Carlsberg achieve time saving in productivity by replacing the advance technology in terms of machine and various component of the equipment so that the beer manufacture process can be done in a shorter period of time rather than using the traditional method.

Gene Technology

Yeast which is the main ingredient of beer contains rich sources of nutrients and other vitamins. Carlsberg considers the use of gene technology to be a natural part of scientific development. Carlsberg can enchant the gene of the yeast to contain more sources of nutrients and vitamins thus make its beer a healthier product to consume and help to decrease the risk getting sick of over consuming alcoholic product.

Informational and Communication on Technology [ICT]

Carlsberg also invest in ICT (Informational and Communication on Technology).ICT help Carlsberg to reach globalization, Carlsberg can share information quickly and efficiently, but can also bring down barriers of linguistic and geographic boundaries. Second is communication: with the help of ICT, communication has also become cheaper, quicker and more efficient. Carlsberg communicate with its customer and suppliers around the globe by using internet. ICT also enables Carlsberg to help country solve the unemployment problem by creation of new job. By using ICT Carlsberg has created many jobs. For example: Computer programmers, web designers, and hardware and software developers. ICT also helps Carlsberg to increase the efficiency and the productivity of its products. Because human will tired and lose concentration then make mistake that will affect the company but machine can perform repeatedly and faster than human, with consistent quality and machine never rest.

Customer

Customer is the key stakeholder for a company, this group of stakeholder is the most crucial part that affects organization’s microenvironment, because without a company can operate without customer, Carlsberg is one of them. Carlsberg study customer demand and innovate new way to fulfill customer needs. To achieve this statement, Carlsberg released new product named Hoegaarden, the result of the Carlsberg study can be seen in Carlsberg sales report that Hoegaarden having the highest fluctuation sales.

However, each of the product that buy from a person that not necessarily the same as those who consume them. Carlsberg also clearly understand this is a consumer mind, Carlsberg increase availability of product in this market in order to convenience of consumer.

Product long term benefit is another consideration for customer when selecting a brand. Carlsberg bring out the message of drink beer in a healthy way by not abuse of alcohol drink. In addition, Carlsberg also bring out message that drink beer to have faith, and believe what is good for you.

The image of a business can direct affect a company sale because tastes of the product might not be the first consideration when customer purchase, as some of them might more focus on the company or brand image. Carlsberg donated RM 339 million in funds over 22 years that benefit more than 560 Chinese schools. The long term fund donation had constructed a solidity positive brand image for Carlsberg. Carlsberg honored two prestigious brand awards in 2010. ‘Carlsberg won Gold Award in the Beverage Alcohol category at the inaugural Putra Brand Awards 2010, which is a consumer research group that measures the most preferred brand in Malaysia. Carlsberg also wont the “Reader’s Digest Trusted Brand Gold Award”, an award it has won for 11 years in a row.’ [2] 

Competitor

It is essential for every company to understand competitor move and tendency

There are 2 types of competitor, indirect competitor and direct competitor.

Guinness, the alcohol market leader is the most crucial and direct competitor to Carlsberg who serving the same needs of customer and both of the company conduct most of the market share in alcohol industry in Malaysia.

Both companies running different strategy to promote their product goodness e.g. Carlsberg encourage people drink beer in a healthy way without abusing of alcohol drinks in others hand Guinness promote their beer as good for your health.

Indirect competitor of Carlsberg is Kampai another high sales alcohol product. ‘Kampai addressed them as “The Ultimate Alcoholic Stimulant”, but Kampai is something differences with beer because they are promoting that they are not ‘full of beer’ drinks, the only similar is both of them are alcoholic drinks.’ [3] 

Stakeholders

Employees

Employees are the prime stakeholder of the company and also the person who are making the company running and operate. Carlsberg had aim to provide rewards that will assist and motivate its employees to support and full fill the objective of the company. Carlsberg will always offer a competitive and flexible package to attract and retain the right people. Example Carlsberg encourage employees to face challenge head on with a passion for winning. In Carlsberg employing and developing the right people is the key to success. Carlsberg also create a wide range of career to its employees. The employees can work and experienced in all job area or work internationally. Carlsberg also provide incentives to its employees to help progress its long term business goals, Carlsberg provide vehicle, petrol incentive, cash incentives to its employees. Carlsberg had a modern open office concept which has a board less concept which allows employees to intermingle without reference to status and hierarchy. Carlsberg treat its employees fair and nicely so its employees will willingly contribute more effort to the company thus increase the efficiency of the company.

CMBB (Confederation of Malaysia Brewers Berhad)

CMBB is the voice of the Malaysia Brewery Industry and represent the industry in promoting and establishing relationship with the government and other international interested parties. CMBB aims to resolve various political, social and environment issues faced by the brewers industry. Take Carlsberg as an example: when the government raise the tax for alcoholic products, CMBB will represent the brewers industry to deal with the government for not doing so.

CMBB also have its own code of marketing that mandatory for members of CMBB to follow. It is the responsibility to ensure that its brands are advertised and marketed responsibly so all activities carried out by Carlsberg has to get approval from CMBB before the project is carrying out.

Intermediaries

Intermediaries is also called middleman. Intermediaries is the firm or person who acts as a mediator on a link between parties to a business deal, investment decision, negotiation. Carlsberg group sell their product through intermediaries. The intermediaries include normal retailer in Malaysia. Normal retailer is include supermarket, hypermarket or convenience shop. For example: Carrefour, Tesco, Giant, 7-11, 99 speedmart and so on. Besides that, on-premise retailer also is an intermediary of Carlsberg group. For example: pubs, clubs, discos and bar

Strength

Brand Image

It is clearly stated that when Carlsberg crowned as Malaysia’s Most Preferred Beer Brand. In April 2010, Malaysia consumers have chosen to place Carlsberg as their most preferred beer brand in Malaysia. ‘The award that won by Carlsberg is Gold Award in the Beverage – Alcohol category at the inaugural Putra Brand Awards 2010, a consumer research that measures the most preferred brand in Malaysia’ [4] . This award initiated by Association of Accredited Advertising Agents Malaysia with the Malaysia’s Most Valuable Brands (MMVB). This award confirms that market leading position of Carlsberg and how strong preference of Malaysian consumers.

Market Leading Position

Current market shares of Carlsberg group in the Malaysian beer industry are 44% which is the second highest of market share in the Malaysia. ‘Carlsberg brand has been established in Malaysia for over 30 years and is holding a market leader position.’ [5] Carlsberg had develop various type of beer product to satisfying different type of consumers and try to create better product for the consumer in order to maintain their market leader position.

Wide use of ICT

Informational and communication on technology (ICT) had help Carlsberg to raise its productivity and efficiency. ICT help Carlsberg achieve efficiency by globalization. Carlsberg can share information quickly and efficiently by using internet, it can also help Carlsberg bring down barriers of linguistic because of the existence software that will translate multiple language and solve the geographic boundaries because the internet can connect anyone around the globe. Next is communication, communication now are become cheaper, quicker and more efficient. Carlsberg communicate with its customer and suppliers around the globe by using internet. Carlsberg also communicate with the world by showing its company website that can access by anyone. By using advance technology, (gene technology) Carlsberg can create a healthier product that can help to compete with its competitor and increase the product line. ICT enables Carlsberg to increase the efficiency and the productivity of the company by using advance machine. Human will tired and lose concentrate while doing the same thing over and over again thus lead to making mistake but machine can perform repeatedly and faster than human, with consistent quality and machine never rest.

Weakness

Fail to being the market leader in alcohol industry Carlsberg vs Guinness

Guinness has developed a lot of activities to increase their brand image such as sponsorship. Besides that, Guinness Stout also has a good campaign. For example, a Guinness campaign, “Guinness Stout is good for you” has been a successful campaign in capturing the all social class of consumer. Carlsberg fail to cope with the environment and growth steadily making it drop from the market leader position to 2nd position.

Inefficiently emphasis on its SBUs

Carlsberg group does not efficiently place its optimum level of emphasis on its SBUs. SBUs stand for strategic business unit. SBUs are ‘necessary when corporation starts to provide different products and hence, need to follow different strategies. To ease its operation, corporate set different groups of product or product line regarding the strategy to follow. These strategies group is called strategic business unit.’ [6] Due to Carlsberg group has many product such as Green Label, Skol, Royal Stout, Jolly Shandy and many more, so they are difficult to concentrate the strategies of each product in terms of substitutability, competition ,style, quality, and prices.

Improvement needed in diversity of product

Nowadays, the new generation are tend to pursuit freshness and excitementin their life, Carlsberg do not react to this trend as the youth require more diversify of product with more excitement. Although Carlsberg released Jolly Sandy as the flavour so call ” soft drink” product but the alcohol content of Jolly Sandy is not enough for the youth to have excitement feeling. They require more flavour [ e.g. with fruits flavour] alcohol drinks with higher alcohol content. More studies and change are require for Carlsberg to suit the new generation as they will be replacing generation X [1966-1976].

Opportunity

Increasing trend of entertainment lifestyle

As culture change, new generation nowadays has more tendencies toward nightlife and this had long played in urban area. Alcohol drinks are playing an important role for nightlife premise. The night time economy, especially the growth of cafe bars and night clubs, has a key part to play in this new entertainment infrastructure. New generation nowadays is more often to enjoy nightlife, even take part as one of their entertainment lifestyle. They enjoy relax, chit chat, make new friend in the nightlife premise, more and no less will order alcohol drinks in nightlife premise. Carlsberg view this as an opportunity for them.

More sponsorship proposed by non-competing organization which induces brand-position opportunities

Sponsorship is a great way to create a brand character and associations that generate real passion and emotion from consumers. Carlsberg Malaysia organized lots of sponsorship event such as Carlsberg Hua Zong Education Fund, financial support to refurbish Tamil primary school, Carlsberg Golf classic charity, Top Ten charity campaign and so on. With these, Carlsberg Malaysia can increase visibility of their company, brand awareness and also provides a greats means of broadening their competitive edge by improving their company’s image, prestige and credibility by supporting events that Carlsberg Malaysia’s target market finds attractive.

Festival

Festival which is also an opportunity of Carlsberg Malaysia it is because Malaysia is a multi-racial country. So there will be a lot of different festival have to celebrate in a year. Such as Deepavali celebrations for Malaysia Indian, Chinese New Year celebration for Malaysia Chinese. When celebrate festival, they will buy a lot of beer as they custom and they will consume more than usual when celebrating festival.

Threat

Rise in Tax

Rise in alcohol and tobacco tax in Malaysia lead decrease in sales volume. Malaysia alcohol tax amounted to 7.40 ringgit a liter, giving Malaysia the second-highest alcohol tax in the world after Norway. This will be a threat for Carlsberg because increases of alcohol tax rate can direct affect prices of beer.’ According to Euromonitor, beer sales fell to 4.8 liters a year for each person from 5.4 liters in 2004 after the last tax increase in 2005.’ [7] 

Politic Parties

Politic parties will influence Malaysia is an Islamic or not Islamic country. In Malaysia, the current dominant politic party is Barisan National [BN] and Barisan National [BN] refuse to admit that Malaysia is an Islamic country. But there another politic party named Parti Islam Semalaysia [PAS] which is a traditional politic party, they insist and tend to change Malaysia to a Islamic environment, there will be another story and if they win the election, as Islamic environment do not accept non-halal food and product.

Smuggled alcohol drinks

Malaysia alcohol tax is the second highest in the world after Norway. The high tax of beer lead to rise in price of alcohol product, which result in many of the alcohol customer cant afford to consume, the illegal solution that they seek for a replacement is the smuggled alcohol drinks. The smuggled alcohol drinks had been populated recent year, government and Carlsbeg should take concern on the illegal activities and also the tax rate of alcohol product.

Recommendation

Improvement on communication strategies

Carlsberg group should change their communication strategies. Due to the ban on advertising of alcoholic product through the media, so ‘Carlsberg has been is relying on other form of indirect promotion’. [8] For example, sponsorship of events, campaign such as Top Ten charity campaign and sponsorship of Carlsberg Hua Zong Education Fund (CEF). Carlsberg group should continue and upgrade its current indirect promotional strategies. For example, Carlsberg can use logo placement and sponsorship while maintaining a specific and consistent theme throughout the campaign. Besides that, ‘the communication strategies should be centered on the promotion of Carlsberg as a lifestyle choice, not as a product.’ [9] 

Improvement in alcohol drink’s value by using BioTechnology

Carlsberg should have more investment towards increasing alcohol drink’s value by using BioTechnology to create a new market as the old market already in the maturity stages. People now have a tendency to be more healthy and not likely to drink beer because it will hurt your liver badly, a recommendation for Carlsberg to invent a new alcohol product that will strengthen your liver while you consume or alcohol drinks that will not hurt alcohol. With this will create a new market opportunity for Carlsberg to target healthy style customer but would like to have alcohol excitement.

Prevention of smuggled alcohol drinks

Smuggle alcohol activities had been populated recently, one of the major reason is because Malaysia is the 2nd highest alcohol tax rate after Norway. The high tax rate of alcohol drinks result in drop in sales because customer can’t afford to pay such high price. Carlsberg should negotiate with government to lower the tax rate of alcohol because Malaysia is a multi-ethnic country with different races, governm