Franchising as a Suitable Option for Cheers Beer's Entry into Brazil

The Cheers Beer organization is considering expanding into foreign markets to overcome stagnant growth in Australia. Brazil and India have been shortlisted as potential markets, with Brazil being a more suitable option due to its large middle-income group and growing demand for beer. Franchising is proposed as the best entry strategy, allowing the company to access market knowledge without investing in marketing research and consumer litigation. This approach would also save time and cost compared to other methods such as licensing or exporting.

Running Head: International Business Expansion 1
International Business Expansion

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Executive Summary
The present report discusses the international expansion strategy of Cheers Beers. It is an
Australian small craft beer brewing organization which has developed a niche customer segment
in the Australian customer market. The report has examined the proposition if two different
destinations, nearly, India and Brazil. The analysis conducted in the report has highlighted that
the market of Brazil is the best market for the company. The market entry strategy of franchising
has been selected for the market entry. It will be suitable for the company as it is a cost-effective
method and the organization can readily access other resources such as market intelligence and
market knowledge in an instant manner.

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Table of Contents
Introduction.................................................................................................................................................4
Analysis of Risk and Opportunities..............................................................................................................4
Brazil:.......................................................................................................................................................5
Opportunities......................................................................................................................................5
Risks.....................................................................................................................................................6
India:........................................................................................................................................................7
Risks:....................................................................................................................................................7
Opportunity.........................................................................................................................................8
Selected Destination Country......................................................................................................................9
Justification for the proposed Entry Method...............................................................................................9
Conclusion.................................................................................................................................................12
References.................................................................................................................................................13

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Introduction
In the recent years, there is increased popularity for craft beers. It is a specialized
beverage which is brewed in small manufacturing firms. Five business graduates from Australia
have identified the opportunity in the business and established a small firm for beer brewing. The
company has observed a significant growth as the local residents as well as the tourists in the
country preferred the unique taste of the beer. The company was established with an initial cost
of five hundred thousand Australian dollars and brewed the beer in three different categories.
With the passing time, the demand for beer did not deter as and a large number of people would
become addicted to the specific beer. It gave strong competition to other alcoholic beverages and
drinking products. However, the growth of the company has become slower with more
competition and the slow-down in the demand.
Therefore, it is important that the company assures its growth by looking for new opportunities.
In this regard, the markets of India and Brazil have been shortlisted for the expansion of the
company. The present report will identify the most suitable market for the organization and
identify the risks and opportunities in different counties. On the basis of the analysis, the report
will select the most suitable market for the organization. Moreover, the report will also propose
the best-fit strategy for entry into the foreign market.
Analysis of Risk and Opportunities
The selection of the foreign market is a complex decision for the business organizations.
It is due to the reason that the international expansion need to strong financial investment from
the organization and the success or the failure of the organization is dependent upon the selected
market. Therefore, in the present case, the markets of Brazil and India have been selected for the

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future expansion. However, in order to select the best market, it is important to examine the risks
and opportunities posed by both the markets. In this regard, the present section will conduct
PESTLE analysis of both the countries.
Brazil:
Brazil is the one of the fastest growing economy of the country and it is the third largest beer
market across the globe and the citizens consume alcohol inn their daily lives. The country is the
oldest beer producer and consumer (Vashishth & Tripathi, 2016). There are several laws and
regulations which are associated with the license to run operations.
Opportunities
Legal and Cultural Aspects
It is a developing economy and in the recent years it has observed a strong growth. The
middle-class population of the country is growing exponentially and the government has
developed various policies to encourage foreign companies. The country has developed various
policies related to taxation, intellectual property and employee remuneration. These policies have
been formed to encourage healthy competition in the country. The country also has flexible
polices related to alcohol consumption and its outlets. The social factors refer to differences in
the lifestyle and the routine of the people which affects the demand of the consumer products. A
significant portion of the country’s population is below poverty line which may impact on the
demand of the organization. The Brazilian beer market is strong and the people consume beer in
festive mood and at other times. Several micro-breweries and craft beer organizations have also
been developed in the country; therefore, there is a strong market for the organization (Flander
Investment and Trade, 2015).
Market Size and Economy

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In the recent years, the economy of Brazil has shown strong potential for growth. With the
changes in the policy, the FDI inflow in the country has increased which has strengthened the
economy. The middle-class community of the country is growing and the difference between the
rich and the poor community is declining. The inflation rate of the country is low and the
purchasing power of the customers is increasing regularly. However, the government imposes
high taxes on commercial enterprises. The economy is still in developing stage; therefore, the
labor cost to the company is reduced. The country has developed a lot in recent years and it has
resulted in the development of several technological developments in the country. The local
infrastructure of the country has resulted in the development of small and medium enterprises in
the country. In the recent years, several production and development technologies have been
developed which has resulted in the efficiency and the growth of the company.
Risks
Intense Competition
The primary risk for the organization is the intense competition in the marketplace. There
are several companies which are selling craft beer at different flavors and sizes to the customers.
The competition in the market is intense and the company will need to adopt different marketing
strategies to establish its position in the marketplace.
Government Regulations
There are several government regulations in the country related to the organization
structure and the work environment. The Brazilian government is also encouraging healthy
drinking due to the high crime level; therefore, the business of the organization will be restricted
in the country.

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Cultural Factors
The culture of the country is as such that the people of the country consume alcohol only
on festive occasions. Therefore, the sales of the organization will be bounded by the
phenomenon of seasonality.
Currency Fluctuation Risk
The currency of the country real is quite weak. The country’s currency is weak and keeps
fluctuating. In the recent years, the currency of the Brazilian real has dropped to a record low
which shows that the currency of a country is weak (BBC News, 2015).
India:
Risks:
Government Regulations:
India is a developing country and in the recent years, the government has implemented a number
of policies and reforms to encourage foreign businesses in the country. As a result of these
reforms, currently the company is considered as one of the major market across the globe.
However, the country is not well-receptive for alcoholic beverages. There are several regulations
which prohibit or limit the alcohol consumption in the country. Alcohol and other beverages can
only be served in bars or restaurants with the help of license. The consumption of alcohol is
controlled by the local state government; therefore, several states have been declared dry or
prohibit alcohol consumption. Along with it, there are also certain states which have declared
that the maximum age of alcohol consumption above 25 years old and control the sales of the
product. Therefore, there are several political regulations which control the overall alcohol
consumption in the country (Mathur, 2014).

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Cultural Factors:
Alcohol consumption is considered as a negative influence and is not a part of the Indian
social setting. There are several stigmas associated with the alcohol consumption and only a few
families or people are open to drinking alcohol regularly. However, with the rise of the working
population, the youth of the country has become more docile to the alcohol consumption. With
the changing culture, several foreign companies as well as local alcohol companies have
emerged which have declined the cost of the alcoholic beverages in the country. The surge in
café and drinking culture has also increased alcohol consumption. Therefore, the social factors
are amiable in the country (Ponnam, Acharya, Mitra and Banerjee, 2017).
Currency Fluctuation Risk:
The economy of the country is showing promising growth. In the recent years, the currency of
the country has remained stable.
Opportunity
Financial/ Currency Factors:
In the recent years, the company has observed drastic economic growth. It has been the
result of liberalization policies and reforms in the economic structure of the country. The
spending power of the consumers has increased and the middle class section of the country is
growing exponentially. Currently, the ratio of working population or the youth is very high and;
therefore, the customers are spending on expensive and luxury products. Therefore, the
economic conditions of the country are favorable for the economic growth (Davies, 2017).
Technological Factors:

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In the present, the technical infrastructure of the country is well-developed and the
government is focusing on developing the infrastructure so that it can attract more foreign capital
in the country. The company can use its technical expertise and the infrastructure of the country
to set up a plant in the country.
Trade Agreements
India has several bilateral ties and agreements with Australia. These agreements will
assist the organization in setting up business operations in India. It will also accumulate the
organization in tariff liberalization and resource accumulation in the new target market (IANS,
2017).
Selected Destination Country
With the help of the evaluation conducted for both the countries, it has been examined
that the Brazil is the most viable option for business expansion. The primary reason for the
selection of the country is that it is a growing economy and there is common culture for alcohol
consumption in the country. The demand in the country for beer consumption is high and the
company will access readily available market if it enters the Brazilian market. It will access the
new market and the customers of the organization will also have access to the whole Brazilian
market as well as it will have access to other markets in the South American subcontinent. The
company can also achieve high profits at the time of high seasonality.
Cheers Company can also maintain high level of growth in Brazilian market.

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Justification for the proposed Entry Method
In order to make entry into the Brazilian foreign market, the company has to choose one
of the specific entry methods. Cheers Beer is an Australian company which may enter into the
Brazilian market with the help of direct market entry, franchise, licensing or joint venture. In the
current situation, the strategy of franchising will be the most suitable method of foreign market
entry. The franchising agreement has limited risk and can assist the organization in setting up a
new manufacturing plant in the most cost-effective method (Seid & Thomas, 2006).
In the franchising system, a semi-independent business owner pays royalty to the business
organization and obtains the trademark, logo and license to sell the products of the company in
the most cost-effective method. The franchisor can establish as many franchisees as possible.
The franchising agreement is commonly formed for longer duration and provides several forms
of right to the franchisees which includes training, equipment, and site approval and operations
system. The franchisor provides all the necessary training and provides assistance in setting up
the operations. There are several benefits of international franchising such as low political risk,
low cost, expansion in different parts of the world and bringing managerial capabilities in the
organization’s operations. However, there are also certain shortcomings of the franchising mode
of operations such as maintaining control over franchisee is difficult. It is very difficult to
maintain harmonious relations with the franchisee and they are most likely to result in legal
disputes due to controversy in the licensing and other intellectual property issues. If the
franchisee is not operating properly or enter into legal dispute with other company, it may
detriment the image of the franchisor (Applegate & Johnsen, 2007).
The franchisor should also monitor and evaluate the performance of the franchisee and provide
regular assistance to them. It may create financial burden on the performance of the organization.

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The franchisee can also take advantage of the information provided to the organization and they
may become the future competition for the organization (Stack, Gartland and Keane, 2016).
In the present case, there are several advantages of franchising business model for the
international expansion. Firstly, Cheers Beer is a small beer brewing organization and has
limited access to the financial capital. Franchising is the most viable business model of
expansion with limited financial capital. It offers several advantages such as risk of debt and cost
of equity. The organization can grow with limited capital with limited liabilities. The risk is only
limited with the capital invested in developing the franchise company. Another important benefit
of the franchising model is that the business owner remains motivated throughout the tenure.
While establishing a new unit in a foreign country, the business management of the organization
finds it difficult to find a motivated and talented manager to manage the new subsidiary in a
foreign country. The management finds it difficult to recruit a talented candidate in the
organization or to retain them for longer duration. Moreover, the organization invests a
significant amount of finance on training of managers (Bensoussan & Fleisher, 2008).
However, there long-term association with the organization is not guaranteed. However, when an
organization selects a franchisee then they will be able to establish long-term relationships based
on mutual benefits. The franchisee will be able to learn more about business and business
operations. The franchise operators are the owners of their branch and; therefore, they make
extra efforts to improve the performance of their organization. The organization will also be able
to improve the operational quality of the organization. They keep the job location clean and train
the employees better to manage the business. Moreover, they are also more concerned for the
profitability and the innovation process in the business. They are constantly looking for
opportunities to improve their business. In addition, they also have a stake in the business;

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therefore, they keep a sharper eye on the labor cost, theft and inventory items (Nunez and
Castaño, 2016).
In Brazil, the beer business is established and a large number of organizations are familiar with
the business environment and the market characteristics; therefore, it can be critiqued that the
selection of franchisor will be beneficial for the organization to enter into the market. The
company will get the added benefits as it will obtain the market knowledge of the new market. It
will not need to invest in the marketing research activities and the organization can immediately
access the market. As Brazil is a new business location, the company will easily obtain the
support of the local business man.
Summarizing, it can be stated that franchising is the apt business model for the organization. It is
a cost-effective and appropriate business model for the organization and it can readily access the
market knowledge and other crucial information specific to the market. The company will not
require investing in consumer litigation and other legal information related to the organization.
All the management responsibility will be with the franchisee owner and the organization will
not require meddle is small affairs. Craft Beer can save up time and cost to invest in other
locations and marketplace. Other foreign market entry methods such as licensing or exporting
will require heavy investment. If the venture of the organization fails, it has to bear heavy losses.
Therefore, franchising is the most suitable option for the company.
Conclusion
Conclusively, it can be stated that the Cheers Beer is a small craft beer organization
which deals with specialized beer production. The company has developed a niche market in
Australia; however, the growth of the organization has become stagnant in the rent years. If the

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organization needs to grow in future, it needs to enter into foreign markets. In this case, the
markets of Brazil and India have been shortlisted for the future expansion of the organization. It
can be critiqued that the organization should invent in the market of Brazil for the future
expansion. Drinking beer and alcoholic beverages are a social phenomenon and the people deer a
large amount of beer at festive occasions. Moreover, it is also a developing economy and the
middle-income group is growing immensely in the country. Therefore, it is an appropriate
market for the organization.

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References
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Situations for Tomorrow's Managers. Rowman & Littlefield.
Bensoussan, B.E., & Fleisher, C.S. (2008). Analysis Without Paralysis: 10 Tools to Make Better
Strategic Decisions. FT Press.
BBC News. (2015). Real worries: Why is Brazil's currency now so weak? [Online] Available at:
http://www.bbc.com/news/business-34455980 [Accessed on: 26 August 2017].
Davies, W. (2017). India’s days as a beer-drinking lightweight may soon be over. Livmint.
[Online] Available at: [Accessed on: 26 August 2017].
Flander Investment and Trade. (2015). Beer Sector In Brazil.
IANS. (2017). India’s economic success vital for global economy: UK envoy. [Online] Available
at: [Accessed on: 26 August 2017].
Mathur, A.K., 2014. Alcoholic Beverages Industry in India: An Exploratory Study. Eduved
Global Management Research ISSN, pp.2394-0085.
Nunez, S. and Castaño, R. (2016). Building Brands in Emerging Economies: A Consumer-
Oriented Approach. Business Analytics and Cyber Security Management in
Organizations, p.18
Ponnam, A., Acharya, A., Mitra, A.N. and Banerjee, P., 2017. Deterrents to wine consumption in
the emerging market of India: A qualitative study. International Food Research Journal,
24(3).
Seid, M.H., & Thomas, D. (2006). Franchising For Dummies. John Wiley & Sons.

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Stack, M., Gartland, M. and Keane, T. (2016). Path Dependency, Behavioral Lock-in and the
International Market for Beer. In Brewing, Beer and Pubs (pp. 54-73). Palgrave
Macmillan UK.
Vashishth, A., & Tripathi, N. (2016). Study on Market Analysis of Indian Beer Industry.
International Journal of Business and Management Invention 5(7), 28-32.