The Chinese Brewing Industry

This week's case and readings concern how and on what basis top management makes the strategic decisions that tend to affect the entire organization.

The Chinese brewing industry has been characterized a highly fragmented structure as a result of competing interests of local governments forcing the breweries to focus on targeting local markets. As a result, the industry was consisting of a large number of small breweries. Due to the high involvement of Chinese local governments, the ability to gain market share was closely linked in with the granting of special privileges from the government. However, as China increasingly opened up to Western practices of business and loosened some of its control, the industry moved towards more consolidation and more intense competition.

Five Star Beer is one of the oldest breweries in China, with a history dating back to 1915. Before the 1990s, Five Star enjoyed a strong market position due to the company's status as a state enterprise giving it special privileges such as exclusivity as supplier to all State banquets. However, in the early 1990s, Five Star's market position began to decline due to increased competition. In addition, Five Star Beer was faced with deterioration of the quality of Five Star Beer products. This was in part a result of the central planning mentality with no connection between reward and effort. Improvements were therefore needed in several areas such as the quality of the beer, the packaging as well as the efficiency with which the products were being produced while at the same time keeping costs down.

A large part of the responsibility was thought to lie with the CEO who was unable to motivate the employees. In order to solve the problems of quality and efficiency ASIMCO, the capital fund owning a majority in the company, and ABG, a management service group, therefore decided to hire a new CEO, Mr. Zhao. However, Mr. Zhao's focus on monetary punishment as an incentive mechanism was doubted to be effective by the management of ASIMCO and ABG.

According to Ghemawat (1991), when dealing with errors occurring within an organisation it is important to distinguish between mistakes and distortions where mistakes are characterized as being accidental by nature whereas distortions are deliberate actions. In the case