How can companies look to succeed in today’s tough economic climate?
Two mergers earlier this month illustrate how companies are either looking to go on the defensive when it comes to navigating the uncertain waters of the world economy, or come out swinging.
The action they choose to take, when an opportunity presents itself, does of course depend on the initial position businesses find themselves in but companies are increasingly looking to play to their strengths.
Diageo, owner of Johnnie Walker whiskey, Smirnoff and other global brands, continued its own tried and tested method of acquiring major players in emerging markets. Its recent acquisition of a majority stake in USL, India's biggest manufacturer of spirits, follows a similar transaction last year that saw Diageo take a majority stake in China's Shuijingfang, a maker of white spirits.
These types of acquisitions allow multinational companies to offset sluggish performance in slow growing developed world markets, by piggybacking on the rapid growth of developing economies. Another consumer branded goods manufacturer, Unilever, now generates over half of its sales from emerging markets; meaning it has fared better than rivals that are more exposed to Europe's weakening economies, France's Danone and US based Proctor and Gamble have recently issued profit warnings, with the former partly attributing the move to its exposure in the battered Spanish economy.
A more conservative move, often favoured by regional brands, is one of consolidation in developed markets. Here companies look to squeeze efficiency and growth from their existing old world operations by forming strategic alliances with complementary partners. The merger between AG Barr, maker of a fizzy beverage called IRN-BRU, "Scotland's other national drink", and Britvic, which produces Robinsons Barley Water among other things, is one such example.
Britvic's big distribution network will expand IRN-BRU'S reach and more Scots will presumably now chug Robinsons and Tango. This is not to say that it has all been plain sailing, Britvic has stumbled recently, with an expensive recall of its Fruit Shoot children's drink, where the caps were faulty, and an unrewarding foray into Ireland. However, the merger has the blessing of Pepsi, which licenses British bottling and distribution of several drinks, including Pepsi and Gatorade, to Britvic. Pepsi presumably see the expansion of Barr Britvic's market coverage as mutually beneficial for both themselves and the newly formed company, which will be majority owned by Britvic's shareholders but run by AG Barr's CEO, Roger White.
When mergers involving Scotland's two national drinks happen within a week of each other it counts as an odd coincidence. It may also hold a lesson for the way the world is going, at least for makers of branded consumer goods.
I think this goes to show that companies who recognise where they hold a competitive advantage will always be well placed to recover from adversity and come out of it on the other side even stronger than before. It is therefore crucial, now more than ever, to understand exactly what your offering is and how best to communicate that message to your customers and capitalise on one's key differentiations.