Calsberg Russia

t
os
W28541
CARLSBERG BREWERIES A/S: FACING POLITICAL RISK IN RUSSIA1
rP
Klaus Meyer and Bent Petersen wrote this case solely to provide material for class discussion. The authors do not intend to illustrate
either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying
information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveypublishing.ca. Our goal is to publish
yo
materials of the highest quality; submit any errata to [email protected]. i1v2e5y5pubs
Copyright © 2022, Ivey Business School Foundation Version: 2022-07-11
Carlsberg Breweries A/S (Carlsberg) was a Danish brewer that had become a leading global player in the
brewing industry by focusing on opportunities in emerging markets in Europe and Asia.2 Via its subsidiary
Baltic Beverages Holding (BBH), Carlsberg held leading market positions in Russia, Ukraine, and Belarus.3
op
However, after early successes, its business in Russia proved difficult to manage due to a weak economy,
a series of bureaucratic obstacles,4 and political tensions between the European Union and Russia after the
Russian invasion of Crimea in 2014.5
On February 24, 2022, the business faced further challenges when Russian troops invaded Ukraine. In the
evening of the same day, Carlsberg executives worked late into the night and established a working group
to analyze the consequences of the invasion, such as the supply of aluminium and energy, care for
tC
employees in Russia and Ukraine, and cybersecurity.6 With 9.8 per cent of its sales in Russia, Carlsberg
was far more exposed to Russia than most other Western consumer goods companies.7 Thus, the executive
board was caught in a difficult ethical dilemma: How should Carlsberg balance its suddenly much more
complex ethical and economic concerns? As a high-profile consumer goods brand, both reputational and
financial risks had to be considered in developing and communicating an appropriate strategy.
The company’s annual general meeting was coming up, on March 14.8 By then the executive board had to
communicate to shareholders concerned with both the company’s financial performance and its
No
international reputationas well as to Carlsberg employees across Europe (including both Russia and
Ukraine) and the increasingly impatient Danish mediawhat steps they would take to address the crisis.9
FALL OF THE IRON CURTAIN AND EMERGENCE OF THE MARKET ECONOMY
The end of the Soviet regime in 1990 marked a cornerstone in European history. The Soviet Union
disintegrated and most of its successor states experimented with democracy. Russia, the largest of the
successor states of the Soviet Union, held free elections in 1991, resulting in the election of Boris Yeltsin
Do
as president. Economic reform included liberalization, opening to international trade, and mass privatization
of historically state-owned enterprises. However, the short-term benefits for the people of Russia were
mixed: while they enjoyed more political freedoms, the economy collapsed, declining by 40 per cent from
1989 to 1998 (see Exhibit 1). The privatization process was highly imperfect as well: connected elites could
accumulate control over key enterprises. Russia thus developed a distinctive form of “oligarchic capitalism”
in which a small number of very large and powerful financial-industrial groups dominated highly
concentrated industries, notably the exploration of natural resources.10
This document is authorized for educator review use only by Gemma Vallet, Berlin School of Business and Innovation GmbH until Apr 2024. Copying or posting is an infringement of copyright.
[email protected] or 617.783.7860
Page 2 W28541
t
For companies in Western Europe, the fall of the Iron Curtain provided attractive business opportunities that
os
would also support broader social objectives helping societies in Central and Eastern Europe to transition from
plan economy to market economy, and from authoritarian regimes to democracy. Consumers eagerly picked up
Western consumer goods, which they had long been deprived of by the central plan regime.11
From 1999 onwards, the economy recovered from the drawn-out recession of the 1990s, achieving
rP
economic growth of 5 per cent or more for ten years (see Exhibit 1). In 2000, Vladimir Putin was elected
president of Russia, promising political stability, economic recovery, and a fight against corruption. While
Putin was able to show initial economic progress, the Russian economy remained volatile. Russia was
highly dependent on exports of oil and gas, and thus on the world market prices of these commodities.12
CARLSBERG: FROM REGIONAL TO GLOBAL PLAYER
yo
Carlsberg went through a transformation from diversified local player to global leader in a focused industry
segment. In 1970, it consolidated its leadership in the Danish brewing sector by acquiring the country’s
second largest brewery, Tuborg. In 1973, the famous tagline “Probably the best beer in the world” was
created.13 In the 1990s, it divested non-brewing assets in Denmark, such as its equity stakes in Rynkeby
Foods A/S (fruit juices), Tivoli Gardens (amusement park and gardens), and Royal Copenhagen (porcelain),
as well as a number of technology-based subsidiaries. Carlsberg also started investing in brewing activities
in emerging economies by setting up joint ventures in countries such as Vietnam (1993) and Poland (1996),
op
while in China a license agreement in 1991 was followed by the acquisition of a local brewery in 1995.14
Meanwhile, in 1991, two Scandinavian brewers, Pripps (Sweden) and Hartwall (Finland), established Baltic
Beverages Holding (BBH) to acquire and modernize breweries across the former Soviet Union. They
created the Baltika brand, and introduced modern marketing and distribution practices. Smaller breweries
were merged or shut down, while a small number of breweries with larger scale economies were
tC
modernized. BBH positioned Baltika as a regional premium brand, complemented by a portfolio of local
brands across the region. The Swedish co-owner, Pripps, was acquired by Orkla (Norway) in 1995.15
Carlsberg stepped up its effort to engage in the region in 2000 by forming a 6040 joint venture with Orkla,
which in turn owned 50 per cent of BBH. In 2004, Carlsberg bought out Orkla from the joint venture to
take full control. The Orkla acquisition marked a major shift in Carlsberg’s global strategy. Previously, it
had focused on its Danish premium brands Carlsberg and Tuborg; from this point onwards Carlsberg would
No
be managing a portfolio of global and local brands, mirroring the strategies of its global peers at the time:
Interbrew SA, based in Belgium; Heineken N.V. (Heineken), based in Netherlands; and South African
Breweries (SAB), based in South Africa.16
BBH operated across the former Soviet Union, including the Baltic States, Russia, Ukraine, Kazakhstan,
Uzbekistan, and Belarus. In Belarus, BBH acquired the oldest brewery in the country, Alivaria, in 2006 together
with the European Bank for Reconstruction and Development (EBRD). BBH increased its equity stake in
Alivaria to 90 per cent in 2011, thus attaining operational control of the market leader in Belarus.17 Yet BBH’s
main focus was Russia, which contributed 79 per cent of its sales and 86 per cent of its operating profits.18
Do
The second largest shareholder of BBH was UK-based Scottish & Newcastle plc (S&N), which had
acquired Hartwell in 2002. The joint ownership structure of BBH, however, was difficult to manage. A
merger between Carlsberg and S&N was not feasible because they both had substantial market shares in
several European countries, and a merger would have triggered interventions from the competition
authorities. Heineken faced a similar problem when contemplating a merger with either Carlsberg or S&N.
Page 3 W28541
t
Thus, Carlsberg and Heineken worked together to structure a special deal: they would jointly acquire S&N
os
and then split it up in such a way that neither of them was attaining a dominant market position in any one
country that would attract opposition from the competition authorities. As a result of this complex deal,
Heineken got, among other assets, S&N’s operations in the United Kingdom, Ireland, and Portugal, whereas
Carlsberg got S&N’s activities in China, Vietnam, and France, along with the Kronenbourg brand and the
equity stake in BBH. Carlsberg paid DKK 57 billion,19 at the time the biggest acquisition by a Danish
rP
company ever.20 After the acquisition, the Eastern Europe region accounted for 28.5 per cent of Carlsberg’s
global revenues.21
Originally, the breweries of BBH operated with high autonomy and had local minority shareholders. Over
the next four years, Carlsberg bought out the local partners and centralized the operations in each country.
Brewing was largely a local business because transport costs for beer were high relative to value. Thus,
BBH breweries mostly sourced raw materials locally and sold local brands into local markets, while
brewing the Carlsberg brand under licence and importing other brands, such as Tuborg.22
yo
Meanwhile the brewing industry was undergoing a concentration process globally. In 2000, Anheuser-
Busch (United States) was the largest brewer globally with a world market share of 8.8 per cent, followed
by Heineken (Netherlands) with 4.3 per cent, Interbrew SA (Belgium) with 4.0 per cent, Miller Brewing
Company (United States) with 3.6 per cent, SAB (South Africa) with 3.3 per cent, and Carlsberg (Denmark)
with 1.7 per cent. Following mergers between the largest players, and multiple acquisitions of smaller
players, the global market leaders in 2009 were Anheuser-Busch InBev (AB InBev) with 19.5 per cent,
op
Heineken with 6.9 per cent, SABMiller plc with 6.5 per cent, and Carlsberg with 5.8 per cent.23
With full equity control over BBH, Carlsberg was set to ride on the growth of Russian consumer demand.
The company was full of optimism: BBH held 37.6 per cent of what was expected to be a rapidly growing
market in Russia.24 At the same time, the Baltika brand and existing breweries were seen as a foundation
for growth in neighbouring countries, including Ukraine.25
tC
DETERIORATING BUSINESS CLIMATE IN RUSSIA
Carlsberg had been optimistic, yet sales in Russia did not grow as expected due to a combination of
government interventions and sluggish economic growth. The political system of Russia gradually became
more authoritarian, as the government tried to push back on the power of oligarchs but also weakened
No
democratic control. At the same time, nationalist policies and less-transparent regulatory processes (see
Exhibit 2) created pressures for foreign investors. Military conflicts within Russia (notably Chechnya,
19992009) and neighbouring countries (notably Georgia, 2008) added to the uncertainty. After its
significant oil-price-supported recovery in the 2000s, the Russian economy was strongly affected by the
global financial crisis in 2008, and failed to resume its earlier rapid economic growth path (see Exhibit 1).
Russian culture historically had a strong affinity with alcoholic beverages, especially vodka. Russian
leaders, from the czars to Boris Yeltsin, had periodically tried to convince Russians to drink less, but their
attempts were met limited success. In 2011, the Russian parliament made a new attempt, increasing beer
Do
duties in three steps over three years from ₽1226 per litre to ₽18 per litre. This corresponded to a 5 per cent
increase in beer retail prices.27 Such an excise tax increase created operational challenges on multiple levels.
First, logistics had to cope with volatile demand: before the deadline of a tax increase, demand surged as
consumers stocked up on beer supplies. Yet, demand dropped sharply after the deadline as consumers first
drank what they had stored. Second, tax increases shifted the pattern of demand, affecting in particular the
cheaper volume segment. Marketing thus had to re-allocate resources to premium segments.28
Page 4 W28541
t
Another law introduced new restrictions on the marketing and selling of alcoholic beverages. Specifically,
os
all TV, radio, and outdoor advertising for beer was banned from July 2012 onwards. Moreover, effective
January 2013, the law banned all sales of beer with more than 0.5 per cent alcohol from “non-stationary”
outlets, which traditionally played an important role for beer sales in Russia. In 2008, kiosks (stationary
and non-stationary) still accounted for about 26 per cent of beer sales, but that share had fallen to about 20
per cent by 2011.29 These duties and restrictions reduced alcohol consumption (see Exhibit 3), but some
rP
argued that due to lobbying by (mostly domestically owned) vodka producers, the rules were unfairly biased
against (mostly foreign owned) breweries.30
Despite these administrative obstacles, the long-term market outlook remained positive. Notably, Russia
joined the World Trade Organization in 2013, and thenceforth was trading on most-favoured-nation status
with most other countries around the world. Despite what appeared to be temporary obstacles, Carlsberg
remained optimistic, stating in its 2012 annual report: “Our strong Russian brand portfolio, our no. 1
position in every price segment and our strong value chain footprint across the Russian landscape are, and
yo
will remain, a significant competitive advantage. We are committed to regaining market share as a trend
while at the same time securing the balance between volume and value.”31
Crimea and Its Consequences
On February 27, 2014, Russian forces occupied and then annexed Crimea, a major island off the coast of
op
Ukraine with the important maritime port of Sevastopol. At the same time, rebels supported by Russia took
control of two districts in the Donbas region in the Eastern part of Ukraine. These expansions of Russian
military control were viewed by Ukraine as a violation of its sovereignty, and many Western nations
introduced trade sanctions on Russia in response. Specifically, the European Union blocked the export of
extraction equipment for the oil and natural gas mining industries which was deemed to be close to the Russian
government. This resulted in an estimated loss of exports of US$ 1.5 billion per year.32 Russia responded by
tC
blocking the import of all food and agriculture products from the European Union, purportedly due to health
concerns. These countersanctions resulted in a drop of Russian imports of estimated US$ 12.6 billion.33
Beyond trade, foreign direct investment into Russia also declined (see Exhibit 4).
Yet, sanctions were not the only concern for foreign investors in Russia; the entire political and legal
infrastructure was becoming more challenging to manage. Under the Putin presidency, “the state began to
weaken, reverse, supplant, or ignore laws, regulations, and structural reforms” that had been implemented
in the 1990s to promote democracy and the market economy (see Exhibit 2).34 Thus, as Russia experts
No
Sheila Puffer and her team explained,
By mid-2018, Russia had evolved into a high-risk proposition for multinational enterprises. Much
of that risk stemmed from uncertainty created by the fundamental erosion in the country’s formal
institutions, as well as Russia’s contentious relationship with Western governments that have led
to the imposition of severe economic sanctions that have affected both import and exports, as well
as inward and outward direct investment.35
The political changes after 2014 were reinforced by a weakening economy and hence declining demand for
Do
consumer goods. Foreign investors such as Carlsberg faced a worsening political relationship between Russia
and the European Union, while the devaluation of the ruble forced Carlsberg to write-down the Russian assets
on its balance sheet.36 The trade sanctions introduced by the European Union did not hit BBH directly, because
most of the beer it sold in Russia was brewed in Russia. However, capacity utilization in BBH’s Russian
breweries dropped to below 60 per cent in 2014, and in 2015 BBH closed two breweries to reduce excess
capacity.37 Every time there was bad news from Russia, Carlsberg’s share price took a hit.
Page 5 W28541
t
In 2017, the brewing industry was hit by another round of tax increases and new regulations, such as
os
restrictions on sales of 1.5-litre bottles. Overall, the beer market shrank by about 40 per cent from 2008 to
2016 (see Exhibit 3). At the same time, Carlsberg lost market share as local competitors with excess
capacity put pressure on market prices, and it decided to protect its margin rather than engage in a price war
for market share. Carlsberg’s competitors AB InBev and Anadolu Efesnumber two and number four in
the Russian market, respectivelyresponded to the declining market by merging their operations in 2017.
rP
Their joint operation attained a market share of 31 per cent, second to BBH (39 per cent) and ahead of
Heineken (15 per cent),38 and soon overtook Carlsberg as market leader in Russia.39
Carlsberg’s market share in Russia continued to decline (see Exhibit 5), while the contribution of Russia to
Carlsberg’s global sales also declined (see Exhibit 6). In view of the declining attractiveness of the Russian
market, Carlsberg explored opportunities to sell the business, but it did not find a suitable buyer.40
yo
Carlsberg launched new products, notably non-alcoholic beers, to counter the trend. These new products
helped during the COVID-19 crisis in 2020 to grow sales in Russia when most other countries were
suffering from lockdowns of restaurants and bars.41 In particular, demand for non-alcoholic beer gained
momentum, albeit from a low base. Carlsberg attained 50 per cent market share in this new market segment,
though the segment was still small: just 2 per cent of the overall beer market, compared to 8 per cent in
Germany and 11 per cent in Spain.42
Globally, the concentration of the brewing industry continued, while local players in emerging economies
op
like China gained market share especially in their home market. Thus, the global market shares reported
for 2020 showed AB InBev as the brewing industry’s lead firm with 25.7 per cent, followed by Heineken
(12.2 per cent), Carlsberg (6.1 per cent), China Resources Snow Breweries Ltd. (5.9 per cent), Molson
Coors Beverage Company (4.6 per cent), Tsingtao Brewery Co., Ltd. (4.4 per cent), Asahi Breweries, Ltd.
(3.3 per cent), and Anadolu Efes (2.0 per cent).43
tC
WAR IN UKRAINE, 2022
The year 2022 started with an optimistic forecast: Carlsberg was expecting a global recovery from the
COVID-19-induced decline of beer consumption. It was hoping for consumers to resume their social
activities, especially in the summer which is usually the peak for beer consumption in Europe. Its primary
concern at the time were rising costs in the supply chain due to indirect consequences of the COVID-19
No
crisis.44 However, speculations of possible military action by Russia in Eastern Ukraine started impacting
Carlsberg’s share price, which dropped by 28 per cent from the beginning of the year to March 4.45
In 2021, Carlsberg held beer market shares of 27 per cent in Russia, 31 per cent in Ukraine, and 31 per cent
in Belarus (see Exhibit 5). In Russia alone, Carlsberg employed 8,400 people in 2021 (down from 9,200 in
2018), 21 per cent of its global workforce. In Ukraine, Carlsberg employed over 1350 people.46 The Eastern
Europe region (which included the states of the former Soviet Union, other than the Baltics) in 2020
accounted for revenues of DKK 10.0 billion, or 17.1 per cent of total revenues. In contrast, at the peak in
2012 the region’s contribution had been DKK 20.2 billion, or 30.4 per cent of total revenues (see Exhibit
Do
7). In 2021, Russia alone accounted for only 9.8 per cent of global sales. However, the book value of the
Russia operations was still high, a result of the valuation of the Baltika brand during the acquisition in 2008.
Thus, Carlsberg’s non-current assets in Russia were valued at DKK 19 billion (about 19.1 per cent of total
non-current assets) in 2021, down from 61.6 billion (48 per cent) in 2012.47
Page 6 W28541
t
On February 24, 2022, Russian troops invaded Ukraine from multiple directions. On the day of the invasion,
os
Carlsberg’s three breweries in Ukraine had to shut down because gas supplies were cut.48 At headquarters,
the executive committee established several working groups to explore, among other challenges, how to
secure aluminum supplies traditionally sourced from Russia for beers cans, how to respond if a gas embargo
were to lead to a shortage of energy at Carlsberg’s plants in Western Europe, how to secure information
technology security in view of the heightened threat of cyberattacks, how to handle the legal consequences
rP
of possible sanctions, and how to take care of the welfare of employees in both Ukraine and Russia.49
Meanwhile, unconfirmed rumours suggested that Carlsberg was providing bottles to the Ukrainian
resistance to assemble Molotov cocktails.50
In the Danish media, Carlsberg came under pressure to reduce its engagement in Russia to demonstrate
solidarity with the people of Ukraine. For example, one pub owner gained a great deal of publicity after
announcing a boycott of Carlsberg, which had previously supplied 90 per cent of his beverages.51 Thomas
Rohden of the Danish Social-Liberal Party argued, “It is time for Danish companies to decide for
yo
themselves on which side they want to be when the history books are written. In this conflict, there is no
room for modern ‘goulash barons’, who want to make money on both sides of Europe’s new Iron Curtain.”52
With the prospect of the European Union and Russia each introducing new sanctions on the other, Carlsberg
was concerned that Russia might simply expropriate all its assets in Russia, and continue operating the
breweries and using their brands without Carlsberg having any influence over this.53 The Russian
ambassador to Denmark, Vladimir Barbin, wrote a letter to a leading Danish newspaper, explaining:
op
The West is . . . putting unseen pressure on its own companies, forcing them to leave the Russian
market. Here, Denmark is ahead of all other European countries. . . . Consensus is emerging [in
Russia] on establishing external management in companies that cease their activities in Russia.
This is a temporary measure dictated by the need to prevent a disruption of production and logistics,
to avoid shortages of goods in the Russian market, and to fulfill social and occupational obligations
tC
to the employees in these companies. . . . Companies that remain in the Russian market and continue
their production activities will receive the necessary support [from the Russian government].54
Confiscating Danish assets was one possibility indicated by the ambassador, as was continuing running the
companies under Russian leadership. Peter Thagesen, the deputy head of the national confederation of
industry, Dansk Industri, described the potential nationalization of Danish companies as a serious threat:
No
“We risk that Putin’s oligarch pals, who have had their assets frozen, will be given the keys to these
companies so they can skim the profits, and some of that will no doubt go to Putin and the war in
Ukraine.”55
Other Western consumer brands, such as Nestlé and Danone, as well as retailers, such as Metro and Auchan
Retail, pushed back against pressure to divest, arguing that they were providing basic needs for already
deprived people and needed to look after their loyal employees.56 They considered it unreasonable to
penalize employees for the actions of their political leaders, over which they had no influence. Handing
control to local agents would place the operation under direct control of the disliked Russian authorities.
Do
Another concern was how much operational control foreign owners actually had over the breweries, which
were largely operating with local raw materials (such as hops, water, and malt) and did not depend on
imported intermediate products (in contrast to, say, machinery or automotive manufacturers). According to
Carlsberg’s former chief executive officer, Niels Smedegaard Andersen, it would be completely ineffective
to ask the Russian Baltika breweries to stop operating. As he put it bluntly, “Baltika does not necessarily
stop producing beer because an SMS [text message] arrives from Copenhagen.”57
Page 7 W28541
t
In Smedegaard Andersen’s opinion, others (such as an oligarch or the Russian authorities) would just take
os
over the breweries and simply continue to produce beer. Besides, a shutdown would also have a high price
for regular employees, who would likely face unemployment without pay. The reason was that the local
business units would quickly run out of cash when they were not producing, and the sanctions would make
it impossible to transfer money from Copenhagen. In the words of Smedegaard Andersen, “All companies
that are considering closing down in Russia face a dilemma about their employees because they are quite
rP
dependent on having their salaries paid.”58
Pressure to divest came from Ukrainian politicians and ambassadors abroad, supported by civil society
groups across Western Europe. Peter Chernyshow, a Ukrainian businessperson who had been a director of
Carlsberg operations in several post-Soviet republics before 2014, articulated the arguments for Carlsberg
to leave Russia. Speaking from Lviv to Danish television, he acknowledged that in a fire sale, Carlsberg
would not get a good price. However, he argued,
yo
“I am not saying that they have to stop operations immediately. What I am saying [is] that they
have to announce that they put up their Russian operations for sale. And absolutely sure, there are
some Chinese or Arab investors who love to buy these operations in Russia. That’s what I think
they have to do immediately. Right now!”59
The Ukrainian ambassador to Denmark, Mykhailo Vydoinyk, also advised Carlsberg to leave Russia as
other Western companies had done:
op
“I have spoken to Carlsberg and I have said that they should not wait any longer. The Russians still
want to nationalize their breweries or freeze them, so Carlsberg can just as well avoid losing face
and do the right thing now.”60
Thomas Bustrup, deputy director of Dansk Industri, counter-argued:

tC
The ambassador is unreasonable and unvarying, and I do not understand that he argues so fiercely.
I do not think it is in his interest to leave [the Carlsberg assets] to the Russians. We want the same
thing, because there is no one who wants to finance Putin’s war, but it is unreasonable to demand
20 billion kroner worth of assets to be handed over to Putin. In that way, one risks helping Putin’s
war machine more by leaving the country than by staying. 61
No
However, it was unclear what the consequences of a sudden sale of the breweries would be, especially in a
market where the most likely buyers would be politically well-connected oligarchs in Russia.
OUTLOOK: HOW AND HOW MUCH TO DISENGAGE
In early March 2022, the Carlsberg executive board (see Exhibit 8) was reviewing the situation. The annual
general meeting was scheduled for March 14. By that time, shareholders needed to be given a clear
direction. With shifting geopolitics, Carlsberg had to re-evaluate its global strategy.62 The recent reduction
Do
of Russian operations appeared to have reduced the risk exposure, but was now a good time to divest
completely? While public opinion in Denmark seemed to favour a complete disengagement, Carlsberg had
to consider how and how much to disengage.
Both financial returns and international reputation were at risk for Carlsberg. Remaining neutral or passive
might trigger boycotts of Carlsberg and thus a loss of sales in other European markets. Yet, Carlsberg also
Page 8 W28541
t
had to consider its 8,400 employees in Russia, many of whom had been loyal to the company for many
os
years.63 Closing the operations and continuing to pay salaries was not a realistic option because EU
sanctions prevented the transfer of cash resources, and the local operation could not generate revenues if
production was closed.64
The range of possible actions was wide. Carlsberg could take symbolic actions such as declaring support
rP
for Ukraine, making charitable donations, or stopping marketing of its premium brands in Russia. At the
other end of the spectrum, Carlsberg might shut down the entire operation or sell it to local or third-country
investors, presumably for a price close to zero. Yet, who might be potential buyers for its Russian
breweries? Domestic buyers would probably be related to the Putin regime, while foreign buyers would
have to come from countries that had not imposed sanctions on Russiayet, effectively handing over
control of the assets to allies of President Putin did not seem right, either. Finally, how should the sales
contract be structured: was there anything Carlsberg might put in the sales contract to protect its economic
yo
interest or its broader social responsibility agenda?
op
tC
No
Do
Page 9 W28541
t
EXHIBIT 1: GDP GROWTH IN THE FORMER SOVIET UNION SINCE 1990
os
15%
10%
rP
5%
0%
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
yo
‐5%
‐10%
‐15%
op
‐20%
‐25%
Belarus Kazakhstan Russia Ukraine
tC
Note: GDP = gross domestic product.

Source: Case authors’ calculations using data from “GDP Growth (Annual %) – Russian Federation, Ukraine, Belarus,
Kazakhstan,” The World Bank, accessed April 24, 2022, https:// data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locatio
ns=RU-UA-BY-KZ.
No
Do
Page 10 W28541
t
EXHIBIT 2: RUSSIA INSTITUTIONAL CHANGE AS REFLECTED IN FREEDOM HOUSE INDICES, 19962020
os
7
Corruption Judicial Framework Media
Civil Society Electoral Process
6
rP
Freedom and Democracy Index
yo
3
1
op
Note: The items are scored 1 to 7, where 1 equals freedom and democracy and 7 equals a consolidated authoritarian
regime. Data for 1997, 1999, and 2001 are interpolated.
Source: Case authors’ calculations using data “Worldwide Governance Indicators,” subset Freedom House indices, The
World Bank, accessed April 24, 2022, http://info.worldbank.org/governance/wgi/Home/Reports.
tC
EXHIBIT 3: PER CAPITA BEER CONSUMPTION IN FORMER SOVIET UNION COUNTRIES

(IN LITRES)
90
80
70
No
60
50
40
30
20
10
Do
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Russia Ukraine Belarus Kazakhstan
Source: Case authors’ calculation using data from Carlsberg Group, Annual Report, 20082021, available at “Report Listing,”
Carlsberg Group, https://www.carlsberggroup.com/reports-downloads/.
Page 11 W28541
t
EXHIBIT 4: RUSSIA FOREIGN DIRECT INVESTMENT INFLOW, 20052020
os
80
70
rP
60
US$ billions
50
40
30
20
yo
10
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

op
Source: Case authors’ calculations based on data from “World Bank Open Data,” The World Bank, accessed April 8, 2022,
data.worldbank.org.
EXHIBIT 5: CARLSBERG BREWERIES MARKET SHARE IN SELECTED COUNTRIES

tC
50%
40%
30%
No
20%
10%
0%
Do
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Page 12 W28541
t
EXHIBIT 6: SHARE OF RUSSIA (AND CHINA) IN CARLSBERG BREWERIES GLOBAL SALES
os
30%
25%
rP
20%
15%
10%
5%
yo
0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
China Russia
op
EXHIBIT 7: CARLSBERG BREWERIES KEY FINANCIALS (IN DKK)
DKK million 2009 2012 2015 2018 2021

Net revenue 59,382 66,468 65,354 62,503 66,634
Gross profit 29,185 32,637 31,925 31,220 31,327
tC
EBITDA n/a 13,812 13,213 13,420 15,474

Operating profit before special items 9,390 9,793 8,457 9,329 10,862
Special items, net −695 85 −8,659 −88 −253
Financial items, net −2,990 −1,772 −1,531 −722 −381
Income tax −1,538 −1,861 −849 −2,386 −2,219
Consolidated profit 4,167 6,245 −2,582 6,133 8,009
No
Regional performance
Western Europe: Net revenue 36,434 37,727 38,811 36,151 31,547 (a)
Western Europe: Operating margin (%) 11.6% 13.6% 13.7% 15.0% 15.8% (a)
Eastern Europe: Net revenue 18,543 20,236 10,890 10,780 10,010 (a)
Eastern Europe: Operating margin (%) 28.5% 21.3% 17.5% 20.6% 19.2% (a)
Asia: Net revenue 4,224 9,114 15,339 15,530 19,459
Do
Asia: Operating margin (%) 15.8% 18.5% 18.2% 20.4% 24.5%
Note: DKK = Danish krone. EBITDA = earnings before interest, taxes, depreciation, and amortization. (a) = Data refers to the
year 2020; due to a change in accounting practices, regional segment data in the company’s 2021 annual report are not
comparable to earlier years.
Source: Case authors’ calculations using data from Carlsberg Group, Annual Report, 2009, 2012, 2015, 2018, 2020, and
2021, available at “Report Listing,” Carlsberg Group, https://www.carlsberggroup.com/reports-downloads/.
Page 13 W28541
t
EXHIBIT 8: CARLSBERG BREWERIES EXECUTIVE COMMITTEE AND SUPERVISORY BOARD
os
Carlsberg Executive Committee
Cees t’Hart Søren Brinck Joris Huijsmans
Chief Executive Officer EVP, Strategy and Digital Chief Human Resources Officer
Dutch Danish Dutch
Heine Dalsgaard Leo Evers Lars Lehman
rP
Chief Financial Officer EVP, Asia EVP, Central and Eastern
Danish Dutch Europe
Danish
João Abecasis Graham Fewkes Victor Shevtsov
Chief Commercial Officer EVP, Western Europe EVP, Supply Chain
Portuguese British Russian
Carlsberg Supervisory Board Members
yo
Flemming Besenbacher Henrik Poulsen Hans Anderson
Chair Deputy Chair Employee Representative
Professor of Nanoscience and Independent Director Danish
Physics Danish
Representing Carlsberg (proposed as new chair at AGM)
Foundation
Danish
(announced retirement at AGM)
op
Majken Schultz Magdi Batato Eva Vilstrup Decker
Professor of Management and Independent Director Employee Representative
Organization Studies Swiss Danish
Danish EVP, Nestlé SA
Representing Carlsberg
Foundation
(proposed as new deputy chair
tC
at AGM)
Carl Bache Lilian Fossum Biner Finn Lok
Professor of Language and Independent Director Employee Representative
Communication Swedish Danish
Danish Multiple Non-Exec Directorships
Representing Carlsberg
Foundation
No
Søren-Peter Olesen Richard Burrows Erik Lund

Professor of Molecular Independent Director Employee Representative
Cardiology Irish Danish
Danish Chair of the Board, Pepco
Representing Carlsberg Group NV
Foundation
Lars Stemmerik Lars Fruergaard Jorgensen Peter Pedersen
Professor of Geology Independent Director Employee Representative
Danish Danish Danish
Representing Carlsberg Chief Executive Officer, Novo
Do
Foundation Nordisk A/S
Note: The Carlsberg Foundation controls the majority of votes at the annual general meeting. EVP = executive vice-
president; AGM = annual general meeting.
Source: Carlsberg Group, Annual Report 2021, February 4, 2022, https://www.carlsberggroup.com/media/48855/carlsberg-
goup-annual-report-2021.pdf.
Page 14 W28541
t
ENDNOTES
os
1
This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives
presented in this case are not necessarily those of Carlsberg Breweries A/S or any of its employees.
2
Klaus E. Meyer and Yen Thi Thu Tran, “Market Penetration and Acquisition Strategies for Emerging Economies”, Long
Range Planning 39, no. 2 (2006): 177197.
3
Carlsberg Group, Annual Report 2021, 20, February 4, 2022, https://www.carlsberggroup.com/media/48855/carlsberg-
goup-annual-report-2021.pdf.
rP
4
Carlsberg Group, Annual Report 2011, February 20, 2012, https://www.carlsberggroup.com/media/5253/carlsberg_2011-
annual_report_english.pdf.
5
Matěj Bělín and Jan Hanousek, “Making Sanctions Bite: The EU–Russian Sanctions of 2014,” VoxEU (blog), April 29,
2019, https://voxeu.org/article/making-sanctions-bite-eu-russian-sanctions-2014.
6
Lasse Friis, ”Carlsbergs dramatiske farvel til russisk storsatsning risikerer langt efterspil” [in Danish], Berlingske Tidende,
April 2, 2022.
7
FT Reporters “Stay or Go? Western Consumer Brands Wrestle with Russian Dilemma,” Financial Times, March 10, 2022,
https://www.ft.com/content/7c959692-49d7-42b6-80e4-4d6877995663.
8
J. Schneider, “Liveblog: Carlsberg skifter formand midt i konflikten med Rusland” [in Danish], Berlinske online, March 14, 2022.
yo
9
J.A. Thomsen, “Carlsberg vil ikke boykotte Rusland: ‘Vi har taget faste skridt'” [in Danish], Danmarks Radio (DR) online,
March 15, 2022.
10
Saul Estrin, Jan Hanousek, Evzen Kocenda, and Jan Svejnar, “The Effects of Privatization and Ownership in Transition
Economies,” Journal of Economic Literature 47, no. 3 (2009): 699728; Sheila M. Puffer and Daniel J. McCarthy, “Can
Russia’s State-Managed, Network Capitalism be Competitive?: Institutional Pull versus International Push,” Journal of World
Business 42, no. 1 (2006): 113.
11
Klaus E. Meyer, “International Business Research on Transition Economies,” in Oxford Handbook of International
Business, Thomas L. Brewer and Alan M. Rugman, eds. (Oxford, UK: Oxford University Press, 2001), 716759.
12
Sheila M. Puffer, Daniel J. McCarthy, Ruth C. May, Galina V. Shirokova, and Andrei Yu Panibratov, “Managing Emerging
op
Markets in Russia,” in The Oxford Handbook of Management in Emerging Markets, Robert Grosse and Klaus E. Meyer, eds.
(Oxford, UK: Oxford University Press, 2019), 705726.
13
Carlsberg Group, no date, “Our rich heritage”, https://www.carlsberggroup.com/who-we-are/about-the-carlsberg-group/our-rich-
heritage/, accessed May 19, 2022.
14
Meyer and Tran, “Market Penetration and Acquisition”; Ha Thanh Nguyen, Hung Vo Nguyen, and Ca Ngoc Tran,
“Vietnamese Case Studies,” in Investment Strategies in Emerging Markets, Saul Estrin and Klaus E. Meyer, eds.
(Cheltenham, UK: Elgar, 2004); Mieczysław Bąk, “Growth through Multiple Acquisitions: Carlsberg Breweries in Poland,” in
Acquisition Strategies in European Emerging Markets, Klaus E. Meyer and Saul Estrin, eds. (Houndsmills, UK: Palgrave-
tC
Macmillan, 2007).
15
Meyer and Tran, “Market Penetration and Acquisition.”
16
All information in this paragraph is based on Meyer and Tran, “Market Penetration and Acquisition.”
17
M. Lund, “Ny mistanke om corruption over is pres på Rusland-forretninger er ‘gift’ for Carlsberg” [in Danish], Berlingske
Tidende, March 25, 2022.
18
Michael W. Hansen, Marcus M. Larsen, and Torben Pedersen, Carlsberg in Emerging Markets (London, ON: Ivey
Publishing, 2011), product no. 9B11M009.
19
DKK = Danish krone; US$1= DKK 6.67 on February 28, 2022.
20
Friis, “Carlsbergs dramatiske farvel.” [in Danish].
No
21
Carlsberg Group, Annual Report 2009, p.27.
22
Carlsberg Group, Annual Report 2011, 16.
23
Erik S. Madsen, Kurt Pedersen, and Lars Lund-Thomson, “Effects of the M&A Wave in the Global Brewing Industry 2000-
2010,” German Journal of Agricultural Economics 61, no. 4 (2012): 235243.
24
Michael W. Hansen, Marcus Møller Larsen, Torben Pedersen, Bent Petersen, and Peter Wad, Strategies in Emerging Markets: A
Case Book on Danish Multinational Corporations in China and India (Copenhagen, Denmark: CBS Press, 2010), 31.
25
S.L. Jacobsen, ”Carlsberg har ambitiøse mål for russisk marked” [in Danish], Børsen, March 19, 2003.
26
₽ = RUB = Russian ruble; US$1 = ₽29.3893 on average in 2011.
27
28
29
30
Lasse Friis, “Carlsberg under pres fra alle sider, mens den russiske forretning smuldrer” [in Danish], Berlingske Tidende,
Do
March 4, 2022.
31
32
M. Bĕlín and J. Hanousek, “Which Sanctions Matter? Analysis of the EU/Russian Sanctions of 2014”, Journal of
Comparative Economics, 49, no 1, (2021): 244-257.
33
Bĕlín and Hanousek, Which Sanctions matter?
34
Ruth C. May, Gregory R. Rayter, and Donna E. Ledgerwood, “Institutional Erosion and Its Effect on Russia’s Corporate
Leadership,” Journal of Leadership & Organizational Studies 23, no. 2 (2016): 191–207, 194.
35
Puffer, McCarthy, May, Shirokova, and Panibratov, “Managing Emerging Markets in Russia.”
Page 15 W28541
t
os
36
M. Jes-Iversen, ”Kun en tåbe frygter ikke Rusland” [in Danish], Børsen, August 21, 2014; J. Nymark and M. Butler,
“Russiske nedskæringer i vente” [in Danish], Børsen, August 21, 2014.
37
Carlsberg Group, Annual Report 2015, February 10, 2016,
https://www.carlsberggroup.com/media/5256/carlsberg_as_annual_report_2015.pdf.
38
“Russia: Carlsberg Suffers from ‘Russian Disease,’” Inside Beer, August 18, 2017,
https://www.inside.beer/news/detail/russia-carlsberg-suffers-from-russian-disease/.
39
rP
40
Friis, “Carlsberg under pres.”
41
Jacob Gronholt-Pedersen, “Carlsberg Raises Guidance as Beer Volumes Recover,” Reuters, August 18, 2021,
https://www.reuters.com/business/carlsberg-raises-guidance-after-beating-quarterly-expectations-2021-08-18/.
42
“Baltika, the Leader of the Russian Beer Market, Increased Sales and Made a Considerable Contribution to the Well-
Being of the Whole Community,” Baltika, February 6, 2019, https://eng.baltika.ru/newsroom/baltika-the-leader-of-the-
russian-beer-market-increased-sales-and-made-a-considerable-contribution-to-the-well-being-of-the-whole-
community/#:~:text=06.02.19-
,Baltika%2C%20the%20leader%20of%20the%20Russian%20beer%20market%2C%20increased%20sales,World%20Cup%
20impact%20in%20Q3; Anna Rzhevkina, Reuters, “Russians’ Taste for Non-Alcoholic Beer to Grow at Double-Digit Pace,
yo
Says AB InBEV Efes,” Financial Post, June 16, 2021, https://financialpost.com/pmn/business-pmn/russians-taste-for-non-
alcoholic-beer-to-grow-at-double-digit-pace-says-ab-inbev-efes.
43
Statista, Global Market Share of the Leading Beer Companies in 2020, Based on Volume Sales, 2021, accessed March
26, 2022, https://www.statista.com/statistics/257677/global-market-share-of-the-leading-beer-companies-based-on-sales/.
44
Judith Evans, “Carlsberg Warns Sales Will Probably Suffer as Prices Rise to Offset Growing Costs,” Financial Times,
February 4, 2022, https://www.ft.com/content/9abb2a17-7b0b-430a-a074-cf880f95bd6f.
45
Nasdaq Nordic (stock exchange website), accessed May 4, 2022.
46
Carlsberg, “Carlsberg Group in Ukraine”, no date, www.carlsberggroup.com/who-we-are/about-the-carlsberg-
group/global-presence/ukraine/, accessed May 26, 2022.
47
Carlsberg Group, Annual Report 2013, 74, February 19, 2014, https://www.carlsberggroup.com/media/5248/carlsberg-
op
group-annual-report-2013.pdf; Carlsberg Group, Annual Report 2021, 68.
48
Jacob Gronholt-Pedersen and Yadarisa Shabong, “Companies Shut Ukraine Operations and Brace for Sanctions on
Russia,” Reuters, February 24, 2022, https://www.reuters.com/business/companies-shut-ukraine-operations-watch-
sanctions-russia-attacks-2022-02-24/.
49
Friis, “Carlsbergs dramatiske farvel.”
50
“Ukrainian Brewery Switches from Beer to Molotov Cocktails,” France 24, February 27, 2022,
https://www.france24.com/en/live-news/20220227-ukrainian-brewery-switches-from-beer-to-molotov-cocktails.
51
J.L. Larsen and M.G. Fallentin, ”Et af Danmarks ældste værtshuse boykotter Carlsberg: »De skal helt ud af Rusland, før vi
tC
sælger det igen«” [in Danish], Berlingske Tidende, March 3, 2022.

52
M.G. Fallentin, ”Nu melder Carlsberg ud om fremtiden i Rusland” [in Danish], Berlinske Tidende, March 4, 2022.
53
Lasse Friis and J. Schneider, ”Carlsberg-topchef frygter for alvor en russisk nationalisering” [in Danish], Berlingske
Tidende, March 15, 2022.
54
V. Barbin, “Rusland vil beskytte sin økonomi med ethvert middel” [in Danish], Politiken, 19, March 14, 2022.
55
Christian Westergaard, “Ambassador: Russia could seize Danish firms,” CPH Post Online, March 14, 2022,
https://cphpost.dk/?p=132113.
56
Leila Abboud, “Danone Chief Defends Staying in Russia as He Sets out Global Strategy,” Financial Times, March 8, 2022;
Leila Abboud, “Nestlé Justifies Staying in Russia as Criticism Mounts,” Financial Times, March 21, 2022.
No
57
Friis, “Carlsberg under pres.” [in Danish].
58
59
Peter Chernyshow, interview on Danish television station DR, March 21, 2022, /www.dr.dk/nyheder/penge/tidligere-
direktoer-i-boen-til-carlsberg-toppen-i-saetter-penge-over-moral-i-rusland.
60
Lasse Friis, Ukraine lancerer kampagne til global boykot af Carlsberg” [in Danish], Berlingske Tidende, March 26, 2022.
61
Friis, “Ukraine lancerer kampagne.” [in Danish].
62
Friis, “Carlsbergs dramatiske farvel.” [in Danish].
63
Thomsen, “Carlsberg vil ikke boykotte.” [in Danish].
64
Do

Calsberg Russia

Uploaded by

Copyright:

Available Formats

Calsberg Russia

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Calsberg Russia

Uploaded by

Copyright:

Available Formats

t

CARLSBERG BREWERIES A/S: FACING POLITICAL RISK IN RUSSIA1

Copyright © 2022, Ivey Business School Foundation Version: 2022-07-11

FALL OF THE IRON CURTAIN AND EMERGENCE OF THE MARKET ECONOMY

CARLSBERG: FROM REGIONAL TO GLOBAL PLAYER

DETERIORATING BUSINESS CLIMATE IN RUSSIA

Crimea and Its Consequences

Sheila Puffer and her team explained,

WAR IN UKRAINE, 2022

Thomas Bustrup, deputy director of Dansk Industri, counter-argued:

OUTLOOK: HOW AND HOW MUCH TO DISENGAGE

Note: GDP = gross domestic product.

EXHIBIT 3: PER CAPITA BEER CONSUMPTION IN FORMER SOVIET UNION COUNTRIES

Russia Ukraine Belarus Kazakhstan

Russia Ukraine Belarus Kazakhstan

EXHIBIT 5: CARLSBERG BREWERIES MARKET SHARE IN SELECTED COUNTRIES

Russia Ukraine Belarus Kazakhstan

DKK million 2009 2012 2015 2018 2021

EBITDA n/a 13,812 13,213 13,420 15,474

Asia: Operating margin (%) 15.8% 18.5% 18.2% 20.4% 24.5%

Carlsberg Supervisory Board Members

Søren-Peter Olesen Richard Burrows Erik Lund

Foundation Nordisk A/S

sælger det igen«” [in Danish], Berlingske Tidende, March 3, 2022.

You might also like