The Global Strategy of Red Bull

Red Bulls internal and external drivers for expansion and CSR practices

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Table of contents 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Introduction Red Bulls challenges before it went global Expand Abroad Capturing Worlds Emerging Middle Class Understanding the International Context Matrix Management The central challenge of Global strategy An Evolving Global Role Servings the Worlds Poor Conclusion List of References Appendix p. 3 p. 4 p. 5 p. 5 p. 6 p. 7 p. 8 p. 9 p. 11 p. 11 p. 13 p. 16

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1. Introduction The Austrian entrepreneur Dietrich Mateschitz, and Thai businessman Chaleo Yoovidya, founded Red Bull in 1984. During the time when Mateschitz was employed for a German company in 1982, he travelled to Thailand and met the owner of a pharmaceutical firm, Yoovidya. Mateschitz found that a drink developed by Yoovidyas company, called Krating Daeng, helped to overcome the jet lag he suffered from. After seeing market potential, Mateschitz agreed for a partnership with Yoovidya in order to establish production in Europe. Both decided to invest $500.000 into Red Bulls foundation. That is how the first energy drink was born. Red Bulls main target group includes young people, and its consumer demographic consists i.e. of athletes, workers and clubbers. The product is being recognized by its ability to regenerate body and mind, and provide ones with new energy. Nowadays, Red Bull operates in 164 countries and employs over 8000 people. Regardless the fierce competition in the beverage market, Red Bull remains the world's most-consumed energy drink with 5.2 billion cans sold in 2012. The company`s aspiration to maintain their leadership position is reflected in their mission statement To spread our wings over the world (Red Bull, 2013). This paper examines Red Bull`s global operations with a particular focus on the companys internal and external drivers, as well as Red Bulls attitude towards corporate social responsibilities. Firstly, it provides the background information about Red Bull as a firm and its internal motivation to globalize their operations. Secondly, it examines the external forces that shaped Red Bulls strategy. Finally, it describes different CSR programmes that Red Bull has in place.

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2. Red Bulls challenges before it went global Nowadays, Red Bull has grown internationally due to two main reasons. The first one is defensive; in order to be competitive Red Bull had to globalize. For instance, manufacturing and distribution in emerging markets would give companies an opportunity for expansion. The second one is to explore new international opportunities. Currently, Red Bull is establishing a new work facility in Brazil, which aims at making the retail prices more competitive than those of imported products. (Euromonitor, 2013).

However, there are challenges that global companies face at their start. Daniel J. Isenberg in his article The Global Entrepreneur, introduces the three major challenges, which include geographic distance, foreign context and the resources of the company. Before going global, the company modified the taste and ingredients of the beverage because it needed to reduce the geographic distance between its East origins and Western demand. The differences in nations political, judicial, environmental, cultural and labour systems vary, and thus it constitutes another challenge (Isenberg, 2008). Red Bull faced problems with expansion within Europe due to its high level of caffeine and taurine. Last, the resources constitute another challenge. The company succeeded to satisfy the customers global needs even though it had only one plant in Austria. In order to stay profitable, the company had to adjust its pricing strategy. As a result, the energy drink pioneer is more expensive than products of competition. Due to the fact that the energy drink market is nowadays very competitive and the strong brand identity cannot guarantee the stable growth, the company is currently building a plant in Brazil, which would lower the Red Bull price in Latin America (Passport, 2013).

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3. Expanding Abroad In order for a company to be perceived as a MNE, there are two requirements that need to be fulfilled. First, a firm should have foreign direct investment, and second it has to actively manage strategically and organizationally. For many years Red Bull did not possess any plants in foreign countries. Nevertheless, it is currently operating in Switzerland and building its plant in Brazil (Passport, 2013). Furthermore, the company has focused on extensive investment in its marketing campaigns, distribution systems, as well as sponsorship of extreme sports, individuals, and clubs. Moreover, the firm has a well-coordinated marketing strategy, as well as its global operations have become an integral part of managing the enterprise (Expanding Abroad). Apart from that, the company organizes a variety of events, such as sport contests, concerts or festivals.

From the very beginning Red Bull was motivated to expand internationally. The product aimed for spreading within Europe and Asia, thus the company kept many premises to go global. Red Bull`s primary motivator for internationalization was market-seeking behaviour. This motivation was specifically strong for the company as the enterprise was looking to establish strong brand recognition. Red Bull was aware of the fact that a successful marketing would provide them with the possibility to gain a competitive advantage in foreign markets, especially due to its pioneer brand identity. Although initial moves that the company made were opportunistic, it took the firm some years to expand internationally. Due to the responsive marketing approaches in the different national markets, Red Bull can be perceived as the one having a global mentality.

4. Capturing the worlds emerging middle class For Red Bull the worlds emerging middle class is a huge potential market, since the market consists of estimated two billion people with a total annual spending of $6.9 trillion. To capture that it is
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indeed emerging, David Court and Laxman Narasimhan (2010) identified two criteria; speed and scale. With their highly efficient plants and short distribution chains Red Bull will be able to fulfil these basic criteria. For Red Bull the question was how to expand in these emerging markets and capture large enough shares to justify expansion. Therefore, Red Bull has to assess the ability of middle class to afford their product as well as the expressed needs of the customers.

In terms of affordability scores high since its product is widely available at reasonable prices in emerging markets such as the BRIC states. A can of Red Bull in India cost about 95 rupees (1.12) and 5.87 real in Brazil (humuch.com, 2012). Moreover, the demand for energy drinks in those markets is rapidly growing, which is enforced by Red Bulls extensive marketing campaigns and sponsoring. Thus, the consumer needs of Red Bulls target group is similar across countries and can be treated globally. Consequently, energy drinks are located on top right quadrant of the categoryspecific strategy matrix introduced by Court and Narasihman (Exhibit 1).

5. Understanding the International Context Red Bull sees itself confronted with numerous external forces in the past particular legislative ones that influence and shape their strategy of international expansion. In its early years Red Bull enjoyed a substantial first mover advantage, as they were the first to introduce an energy drink to Europe. That was the foundation for a new category of beverages. The lack of competitors paved the way for Red Bull to quickly leave their home market in Austria and expand to other European key markets such as the UK and Germany in the mid-90s. (Salzburg.com, 2013) Due to health concerns of national authorities worldwide, the introduction to some local markets was hindered. In Norway it was only sold as medicine, in Japan it could only be bought at pharmacies until the year 2000 and France banned the regular Red Bull because of concerns over taurine, one
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Red Bulls main ingredients. In response, Red Bull developed a taurine free version of Red Bull especially for the French market (The Independent, 2004).

Red Bulls CEO Dietrich Mateschitz was also concerned about punitive tariffs imposed by the US government as a reaction on a dispute with the EU about trade restrictions. Therefore Mateschitz decided to urge his only supplier Rauch Fruchtsfte GmbH & Co OG to build a bottling plant in Switzerland to gain easier access to the US market (Industriellenvereinigung Voralberg, 2005). Red Bulls other bottling plant is located in Nziders, Austria. Together both plants produce all of Red Bulls output, which amounted to over 5.226 billion cans and bottles in 2012 (Red Bull, 2013).

With only two plants in close geographic proximity to Red Bulls headquarter in Austria, the company clearly follows a global strategy with a high degree of centralization. Their focus lies on scaleintensive manufacturing operations to capture economies of scale and scope, and leveraging these through worldwide exports of their standardized product. Therefore, economic forces of globalization mainly dominate the company. In recent years Red Bull experienced pressure from competitors such as Rockstar (owned by PepsiCo) or Monster Energy, which also make use of highly efficient plants and serve the same market. Rockstar and Monster both offer several different tastes. In response, Red Bull launched three adapted versions with different tastes in 2011.

6. Matrix Management Due to their highly centralized manufacturing operations Red Bull is possibly a subject of falling in the strategic trap. Emerging markets are more volatile and demand can fluctuate. Their centralized operations, however, make it easier to communicate a clear and strong vision throughout the entire company. Every Red Bull employee has a clear understanding of what the companys goals are and
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shares a similar set of values. The company wants every employee to be innovative and give wings to people and ideas (Red Bull, 2013). These values have been continuously spread through the company in the last 25 years. However, the Red Bull has never experienced major changes, so there is no final proof of how continuous their values are. How consistent Red Bulls spirit of giving everything wings is, is shown and lived by its CEO Mateschitz, who is a collector of aircrafts and used to do mountain biking himself. Overall, there is a strong corporate culture which uniforms the organization.

7. The Central Challenge of Global Strategy As described by Pankaj Ghemwat in his article Developing Transnational Strategies: Building the Layers of Competitive Advantage, the focal point of any global strategy is to succeed in managing the differences between countries. The author has introduced the AAA Triangle framework, which allows leaders to decide which out of three main strategies will provide the company with the most leverage for the companies within the industry of interest.

The first A stands for Adaptation, which aims at increasing revenues and market share by modifying one or more components of business in order to fit local preferences (Ghemawat, 2007). Due to cultural differences and beliefs, Red Bull uses a different can design in order to suit the Chinese market. The western Red Bull can depicts a multi-colour logo and background, where red symbolizes courage and action; silver symbolizes maturity, whilst blue depicts peace and youth. On the other hand, Chinese packaging characterizes by gold and red design. This is mainly due to the Chinese belief that red is a symbol of happiness, while gold depicts wealth (Exhibit 2).

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Regarding aggregation, Red Bull extensively uses economies of scale and scope. The product is established in more than 160 markets served by only two plants. The company has its headquarter in Fuschl am See, in Austria, and the enterprise describes itself as the one having one production hub serving the globe (Red Bull, 2013). According to Ghemawat (2007) arbitrage is the exploitation of differences between national or regional markets. With an average price of 2.06 worldwide, the prices range from 5.96 in the Maldives to 1.12 in India (humuch.com). In their current key markets, however, an can of Red Bull costs around 1.50. The high price of Red Bull in the Maldives might be a consequence of their remote geographic position and the higher associated transportation costs and not due to deliberate arbitrage practices. (Exhibit 3)

8. An Evolving Global Role Even thought the drink consumed in greater amounts can have a negative effect on ones health, t he successful marketing strategy by Red Bull has appealed to its main target group. The enterprise claims not to have any dangerous effect on consumers well-being. Nevertheless, scientific studies have proven differently. This resulted in the legal restrictions of trading Red Bull. Here, the question emerges whether or not the company does what it should do.

The company has met legal barriers in different countries. Due to the bad influence on humans health, the consumption of Red Bull has been banned for instance in Norway, Uruguay, or Denmark. Furthermore, it faced the restrictions in Sweden, where a woman who had drank the product in combination with alcohol died due to dehydration. Similar incidents happened in Hong Kong or United Kingdom. Red Bulls home country- Austria, as one of the few, includes the health warning labels on the product.

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With its centralized production and sourcing Red Bull has neither much opportunity nor need to exploit foreign countries. In fact, Red Bull has am more responsive approach in reacting to their stakeholders needs in terms of corporate social responsibility. Red Bull has worked closely with their bottler to minimize transport ways of the cans. Red Bull implemented the so called wall-to-wall production, which means that all cans are produced in a plant right next to bottling plant to reduce the carbon footprint of the can. The saved amount of CO sums to more than 5313 tons per year (Red Bull, 2013). Furthermore, 80% of the electricity used in the plants comes from renewable energy.

The company is also sponsoring the foundation Wings for life, which works closely with the Paracelsus Medical University in Salzburg to find therapies for paraplegia (University of applied science upper Austria, 2009). In addition to that, Red Bull takes responsibility in the Mentorfoundation, which educates children and teenagers worldwide about prevention of addiction and sponsors selected hospitals that are specialized in drug treatment (Vorarlberg Online, 2007). Because of the Thai roots of the company, Red Bull is helping the Thai society to become more active in volunteering and social activities. The associated program is called Red Bull Spirit and promotes the value and benefits of voluntary work towards society in Thailand. In 2008 the Red Bull Spirit foundation gathered several hundred people to build houses for disabled athletes of the Thai Special Olympics squad. In the late 1990s the foundation raised awareness for a water shortage in northern Thailand and coordinated people to help building new wells for villages (Siamentis, 2008). Finally, Red Bull takes responsibility in the society it operates in and actively works with partners to have a positive impact. It adapts to local realities and structures to implement their CSR programs. Thus, Red Bull fits in the role of a responsive MNE.

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9. Serving the Worlds Poor In the long term, Red Bull plans to increase its sales in emerging markets such as India, Indonesia or South Africa. Especially India is a main target of Red Bull. The country boasts with 98 million people between 20 and 24 the highest number of Red Bulls target group, many of which are at the bottom-of-the-pyramid (BOP) (marketresearchworld.net, 2012). These largely untapped potential and the growing average income in India generate a very positive outlook for Red Bull.

To tap that potential more efficiently Red Bull parted ways with its Indian distributor Rahul Narang Group in 2012, which then turned to distribute Monster energy drinks (austriantimes.at, 2012). Red Bull plans to establish their own distribution networks with various local partners to cover rural areas in India as well. Nevertheless, Red Bull has not announced any plans to adapt its product to the Indian market. The price of 95 rupees (1.12) per can, however, is about 25% less than in Germany and about 20% less than in the US. Thus Red Bull does try to make its product more affordable for the BOP. Furthermore Red Bull exploits the opportunity for top-line growth in the emerging countries. In 2012 Red Bull sold 42% more in India than in the year before, which shows the enormous potential and demand in these countries (Red Bull, 2013).

10. Conclusion Before Red Bull went global it faced diverse challenges, due to national differences. In order to be successful abroad, the company decided to pursue a global strategy. This focuses mainly on a highly standardized product, which is not adjusted to local needs. Because of the fact that Red Bull was the first company to market energy drinks worldwide, it gained a substantial first mover advantage. For a long time the enterprise operated globally, whilst having only one plant in Austria. Trade barriers were one of the main reasons for the company to open another plant in Switzerland. This proves
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highly centralized operations. Nowadays, the firm decided to open another manufacturing facility in Brazil, which aims at capturing higher share in emerging markets.

Red Bulls marketing strategy focuses on sponsoring extreme sports events, concerts, and festivals that are globally known. The company uses adaptation only to the certain extent, namely by repackaging product and adapting it to local preferences. Therefore, Red Bull clearly pursues a global strategy.

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11. List of References

Bloomberg Business Week (2011). Red Bull's Billionaire Maniac. [ONLINE] Available at: http://www.businessweek.com/magazine/content/11_22/b4230064852768.htm. Accessed 2 December 2013]. Christopher Bartlett & Paul Beamish, (2013). 'Chapter 1: Expanding Abroad: Motivations, Means, and Mentalities'. In: Ivey Publishing (ed), Transnational Management: Text, Cases & Readings in Cross-Border Management . 7th ed. Singapore: McGraw-Hill Education (Asia). Christopher Bartlett & Paul Beamish, (2013). Reading: The Global Entrepreneur'. In: Ivey Publishing (ed), Transnational Management: Text, Cases & Readings in Cross-Border Management . 7th ed. Singapore: McGraw-Hill Education (Asia). Euromonitor (2013). RED BULL GMBH IN SOFT DRINKS (WORLD). [ONLINE] Available at: http://www.euromonitor.com/medialibrary/PDF/RedBull-Company-Profile-SWOTAnalysis.pdf. [Last Accessed 2 December 2013]. Forbes (2013). The World's Billionaires. [ONLINE] Available at: [Last

http://www.forbes.com/profile/dietrich-mateschitz/. [Last Accessed 2 December 2013]. Forbes (2013). The World`s Billionaires. [ONLINE] Available at:

http://www.forbes.com/profile/yoovidhya-family/. [Last Accessed 2 December 2013]. Ghemawat, P. (2007). Managing Differences: The Central Challenge of Global Strategy. Havard Business Review . Humuch.com. (n.d.). Red Bull (250 mL). Retrieved 2013 from http://www.humuch.com/prices/RedBull-original84-fl-oz-250-mL/______/299 Industriellenvereinigung Vorarlberg. (2005). Rauch kauft in Windau dazu. Retrieved 2013 from http://www.iv-vorarlberg.at/b253 Naturesbasket.co.in. (2013). Red Bull 250Ml. Retrieved 2013 from

http://www.naturesbasket.co.in/Products/Home-Tea-Coffee--Beverages-SportsDrink/Others/red-bull-250ml-1/pid-2825577.aspx

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Red Bull GmbH. (2013). Red Bull - Das Unternehmen. Retrieved 2013 from http://energydrinkde.redbull.com/unternehmen Red Bull Gmbh (2013). The Company Behind The Can. [ONLINE] Available at:

http://energydrink.redbull.com/company. [Last Accessed e.g. 31 August 11]. Red Bull Gmbh (2012). How it all started. [ONLINE] Available at:

http://www.redbull.com/cs/Satellite/en_INT/How-it-allstarted/001242939605518?pcs_c=PCS_Product&pcs_cid=1242937556879. [Last Accessed 2 December 2013]. Red Bull (2013). Wall-to-Wall Production. [ONLINE] Available at:

http://energydrink.redbull.com/production. [Last Accessed 2 December 2013]. Reuters (2008). France ends 12-year ban on energy drink Red Bull. [ONLINE] Available at: http://www.reuters.com/article/2008/07/15/us-france-redbull-idUSL1576964720080715. [Last Accessed 2 December 2013]. Salzburg Wiki. (2013). Red Bull. Retrieved 2013 from

http://www.salzburg.com/wiki/index.php/Red_Bull Siamentis. (2008). Launching Red Bull CSR Programm. Retrieved 2013 from

http://www.siamentis.com/en/stories/news/57-launching-red-bull-sprit-csr-program The Independent. (2004). European court backs ban on Red Bull over health concerns. Retrieved 2013, from http://www.independent.co.uk/life-style/health-and-families/health-

news/european-court-backs-ban-on-red-bull-over-health-concerns-569117.html The Times 100 Business Case Studies (n.d.). Engaging consumers through word of mouth marketing. [ONLINE] Available at: http://businesscasestudies.co.uk/red-bull/engaging-consumers[Last Accessed 2

through-word-of-mouth-marketing/introduction.html#axzz2mJJBVu3b. December 2013].

University of Applied Sciences Upper Austria. (2009). Give it back to society. Retrieved 2013 from http://www.fh-ooe.at/campus-linz/aktuelles/fh-ooe-news-linz/fh-ooe-news-linz/article/giveit-back-to-society/

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Vorarlberg Online. (2007). Red Bull investiert jhrlich Millionen in soziale Engagements . Retrieved 2013 from http://www.vol.at/red-bull-investiert-jaehrlich-millionen-in-soziale-

engagements/news-20070919-05513957

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12. Appendix Exhibit 1

Reinventi ng the business model

Similar needs in different markets Targeting premium consumer s

Localizing the market

Exhibit 2

Chinese Advertisement (2013)

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US advertisement (2010)

Exhibit 3

AAA Triangle

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