ISSN 1940-204X
Caribbean Brewers: Transfer Pricing, Ethics and Governance
Douglas Kalesnikoff University of Saskatchewan Suresh Kalagnanam University of Saskatchewan
INTRODUCTION
It is April 2011 and you have used your newly acquired business degree to secure a management job as advisor to the chief financial officer with Caribbean Brewers Inc., located in Antigua in the Caribbean Sea. Caribbean Brewers Inc. is a 75%-owned subsidiary of Gera International, a conglomerate in the business of brewing and distributing beer. It is barely a week since you started your job and you already have major projects to deal with.
GERA INTERNATIONAL
Gera beer has been a well-established international brand of beer for over half a century,
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Antigua already had a successful brewery that produced Tigua beer, a popular brand in Antigua and throughout the eastern Caribbean. In 2000, the Antiguan brewery had negotiated a 15-year income tax holiday with the government of Antigua on income earned from sales of Tigua beer. The combination of the central location of Antigua in the eastern Caribbean, the success of the Tigua beer line, and the tax concession on Tigua beer made Antigua a good choice for Gera International; it purchased 75% of the Antiguan brewery, Caribbean Brewers Inc., in 2005. The remaining 25% of the common shares of Caribbean Brewers remained held by senior management and other employees. Caribbean Brewers is one of the many subsidiaries of varying sizes under Gera International’s control. The production facilities of Caribbean Brewers were expanded in 2008, thereby effectively doubling the productive capacity. This expansion was funded through a 10-year amortized loan from Gera International at a fixed interest rate of 10%. All of the production of Gera beer for the eastern Caribbean region was transferred to Caribbean Brewers after the plant expansion. The resulting production figures for Caribbean Brewers are provided in Figure 1.
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VOL. 5, N O. 2, ART. 1, JUN E 2012
RECENT ISSUES
Upon arrival in your new position, you discover that all is not rosy at Caribbean Brewers. On only your second day in the office,
Gera International is a well established international brand of beer that is ranked amongst the top three brands of beer in the world. With transportation prices rising, Gera International decided to purchase a plant in Antigua in 2005 and they renamed the subsidiary, Caribbean Brewers, Inc. (CBI). In 2008, the production facilities of CBI were expanded and their productive capacity doubled. Furthermore, we are then introduced to Jason Joseph a production manager who is unhappy and distressed because along with the production doubling, he lost ownership in the company, bonuses, and annual dividends. JJ comes to us (the financial advisor to the CFO) and informs us
High turnover is something that goes hand in hand with low wage jobs, so companies are always looking for a workers replacement. Finally Ehrenreich is able to secure employment at a place she give the pseudonym, Hearthside. To help protect identies of companies and people she actually worked for and with, Ehrenreich decides to use fake names to achieve anonymity. Ehrenreich starts out at 2.43 an hour plus tips. One of the first things Ehrenreich notices is that the people around her are only working hard enough to get by. Because the managers will yell at anybody who is done with their work, and not doing something new, the workers seem to be happy with just working at a slow pace, doing just one job. Because the only reward for finishing early is being yelled at by a manager, that apparently spends his day doing nothing, there is no real bonus to go the extra mile. Due to this negative reinforcement, Ehrenreich notes that the restaurant is almost moving in counterproductive mode. With less being worked on, less is being accomplished, attributing to the overall sad appearance and low morale of the restaurant and its employees. The next problem Ehrenreich encounters is the constant berating handed out by her supervisor "Stu". Ehrenreich observes that due to this constant barrage of insults and degradations, workers are forced to feel like they are subhuman. Weekly the managers announce
Sammy’s experience gave me a personal insight to an experience I once had while being employed at Kroger. The location of the Kroger I was working at was just about to have a grand opening. We had all gathered to the front of the store to have a store meeting to prepare for the opening. Our manager at the time was speaking to us and just telling us about how he was expecting everyone to be on his or her tasks. He wanted to make sure that no one had any questions or concerns of their jobs.
Cerjugo SA is the largest manufacturer and distributor of beer in a country in Latin America.* Started in 1960, Cerjugo currently sells 360 million bottles of beer annually with revenues last year in excess of $200 million. Cerjugo employs 2500 employees and its four beer brands account for 98 percent of the market share. The beer manufacturer has been growing steadily with the GDP of the country thanks to little competition and no new entrants in the market. Cerjugo has its own distribution fleet and manufacturing facility, its entire customer base is local, and customers are loyal to the flagship brand.
From the assigned reading it becomes clear that there are a number of symptoms which suggest that beverage manufacturer and distributer Cerjugo SA is a company in crisis. The main signal that Cerjugo is not living up to its expectations is that its forecasted sales and profit targets, for its juice division, have not been met for two consecutive years this is especially troubling for a company which in the past boasted a 98% share of the beer market in Latin America. Beyond the lack luster sales numbers there are many other symptoms that Cerjugo’s juice division is ailing, such as reports that potential customers are not aware of the
The understanding of the goal to be envisioned at Seagram moving forward is to become, remain, and develop an outside reputation as the top beverage company with 15% growth each year (Jick & Peiperl, 2011). The vision must effectively be passed to the 200 senior managers to make it a shared goal to be given and embraced company wide. The hope is that the top managed beverage company will be efficient and customer-centered, recognizing employees, while not micro-managing. The old model, based on decades old vision, needs to be replaced with a quasi-tried vision that has helped Seagram remain as one of the top, well-known companies. The new vision has seen success and is moving the company alongvtowards being the top managed beverage company. There are yet and still steps that will provide some right now actions that may help Seagram reach this goal of being the top managed company in the near future.
Upon review of the information provided, it is clear that a vision set forth by Upper management, President and CEO Edgar Bronfman, Jr. had not been implemented and there is much work that needs to be completed to fulfill his legacy. Bronfman’s statement was clear and concise with a vision to be sought after no matter the cost. His vision, according to Jick & Peiperl, 2011 is for Seagram’s to be the “best managed beverage company” (p. 255). Bronfman had an idea/image of how he wanted Seagram’s to be viewed by the world and its employees. His vision offered a baseline for all employees to follow which in turn offers a one company initiative. Offering this baseline for the corporation leaves no chance for deviation from the cause. This company with deep roots in diversity and was losing ground due to changes in the new ideas of sobriety, increases in taxes on liquor, the 1990s recession, increased government regulation and social criticism (Jick & Peiperl, 2011). To define this project is to give direction and purpose to Bronfman’s word by backing them with actual progress towards his vision. This vision for Seagram’s is to not be confused with the need of the newly acquired MCA Corporation. This company should have its own visions and values.
New Belgium has created a mission statement that is implemented in every facility and among every worker within the company. The company embraces the idea that they are a small company and promotes the sale of their products by creating a mission statement that is appealing to customers. A well thought of mission statement serves as a guide for the company and customers to understand the direction the company wants to progress in as well as develop a company purpose (Bartkus, Glassman, and McAfee, 2000). New Belgium’s mission statement is “to operate a profitable brewery which makes our love and talent manifest” (Ferrell and Hartline, 2005, p. 354). Therefore, the mission statement is one way for the company to express how whimsy and fun the
iii. Import beer companies: These companies include Beck’s(Germany), Heineken (Holland) and Corona (Mexico). They control about 12% of the region’s market. However, these companies are seen to operate at disadvantage due to higher shipping costs, weaker distribution networks and an inability to control product freshness
Beer has a long history. In 2000 B.C.E., Sumerians had prepared eight different beer types, ranging from “strong,” “red brown,” and “good dark” (Mauk, 2013). Breweries have created their own recipes, brewed their own beers—some with alcohol, some without. Over the past few years, craft beer gained steady market share away from the national and international breweries (Murray & O 'Neill, 2012). Separating one beer from the next is the product itself, and what the product has to offer. Competition is ferocious due to more informed, sophisticated consumers, as well as globalization and the spread of technology (Murray & O 'Neill, 2012).
Peter Browning’s job is to revitalize a mature business in the face of serious competitive threats, but without discouraging the loyalty and morale of a family style culture. Market share of plastic bottles was growing fast and White Cap is losing customers due to that, so a change is necessary. However, few managers or employees at White Cap acknowledged the need for change and were resistant to change. Employees have been accustomed to a culture of little change, and consisted of years of rituals, ceremonies and traditions set by the White family. They are extremely loyal due to their expectation of job security and generous benefits. Browning was asked by Continental to
4.Create and man a global brand stewardship coordination officer position to support Beers and enable her to focus on selling the vision to the clients.
After a two-month temporary assignment in Brazil, Wolfgang (Wolf) Keller was returning to Europe, where he would meet his family in Switzerland for a 10-day ski vacation. His boss, Dr. Hans Häussler, had insisted that he take the time off before returning to Ukraine, where Keller was managing director1 of Königsbräu’s Ukrainian subsidiary, Königsbräu-TAK A.E. The parent corporation, Königsbräu A.G., was a Munich-based brewer of premium beers with worldwide sales of 10.3 billion Euros (€). Königsbräu was known as one of the best-managed and most profitable brewers of premium beer in the world, and its brand enjoyed high recognition and prestige on
One of Vizcarrondo’s strengths is that his goal is to create a global company. He “outlined his plans for China-the world’s third biggest pharmaceutical market…[he] cannot create a global company without being in Europe and in the U.S. and in Asia, particularly China” (Treadgold, 2016). Planning to open stores in China will help Sneerglaw dive deeper into the pharmaceutical market and expand. Being a global company is ambitious, and there are many steps required to accomplish this goal. In order to do so, each department in Sneerglaw has its duties and responsibilities. Through the hierarchy, tasks are delegated and expected to be completed on time.
Beer Company 2 is a brewer of “seasonal and year-round beers with smaller production volume and higher prices” that “outsources most of its brewing activity” (pg. 120). It is financially conservative, and has undergone a “major cost-savings initiative to counterbalance the recent surge in packaging and freight costs” (pg. 120).