A Case of Czech Beer: Competition and Competitiveness in the Transitional Economies
| Date | 01 September 1996 |
| Author | P. T. Muchlinski |
| DOI | http://doi.org/10.1111/j.1468-2230.1996.tb02685.x |
| Published date | 01 September 1996 |
A
Case
of
Czech Beer: Competition and
Competitiveness in the Transitional Economies
P.
T.
Muchlinski*
Among the leaders in the process of transition from a command to
a
free market
economy is the Czech Republic. It is a popular destination for foreign direct
investment.
’
It faces considerable problems associated with the modernisation and
capitalisation of its newly privatising companies. Consequently, such firms may
be prime targets for foreign capital willing to undertake the commercial risk
involved.* Among the newly privatising firms and industries, some have a business
potential that extends into international markets. A prime example is the brewing
industry. Several state-owned brewers have been, or are in the process of being,
privatised. This offers opportunities for investment in such breweries at a time
when the demand for premium quality lager beers, the type most commonly
brewed in the Czech Republic, is increasing worldwide.
This article examines the process in the context of one brewery which has made
perhaps the greatest mark on international markets, Budejovicke Pivovary (Czech
Budvar), famous for its ‘Budweiser Budvar’ lager beer. This brewery has recently
become
an
object of attention for the world’s largest brewer, Anheuser-Busch of
the
US.
The
US
firm has sought,
so
far unsuccessfully, to acquire a stake in Czech
Budvar. The case raises important questions concerning the role of legal regulation
as a means of protecting the competitive position
of
potentially successful national
industries from the transitional economies in their dealings with multinational
enterprises
(MNEs).
Indeed, it may be said that the case challenges the often
repeated wisdom that firms from the transitional economies must link up with
foreign
MNEs
so
as
to acquire their skills and e~perience.~ As will
be
seen
below,
the Czech authorities are exploring options for Czech Budvar that do not involve
foreign ownership. This has significant implications for the manner in which the
relevant laws are being applied. Furthermore, the case raises some unique
complications in that the
US
firm also brews a lager beer sold under the name
‘Budweiser.’ This has led to a long-standing international dispute over trade marks
and markets with Czech Budvar. Thus, an integral part of this study is a
consideration of possible solutions to the trade mark dispute and how this may
affect the application of the Czech Republic’s laws.
The article begins by outlining the history of relations between the two
‘Budweisers,’ explaining in particular why the trade mark dispute has arisen and
how this has prompted Anheuser-Busch to seek an equity stake in the Czech
*Senior Lecturer in Law, London School of Economics.
I
would like
to
thank Iain Dobson of CAMRA for his invaluable help with the preparation of this article.
I
would also like to thank Anne Barron, Klara Burianova, Damian Chalmers, Teny Gourvish and John
Kallaugher for their helpful and instructive comments on earlier drafts.
1
2
See
Robinson, ‘Too much
of
a good thing,’
Finuncial Times,
29 July 1994.
For an instructive analysis of the broader issues surrounding the Czech Republic’s transformation into
a
free market economy and of the role of foreign investors therein, see OECD,
Indusrry
in the Czech
and
Slovak
Republics
(Paris:
OED, 1994).
See,
for example, UNCTAD-DTCI,
World
Investment
Report
1995
(New York and Geneva: UN,
1995)
Part
Two.
Q
The
Modem Law Review Limited
1996
(MLR
595,
September). Published by Blackwell Publishers,
108
Cowley Road.
Oxford
OX4
IJF
and
238
Main Street, Cambridge,
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USA.
3
658
September
19961
Competition
in
the Transitional Economies
brewer.
Part
two then considers the competitive situation of Czech Budvar as a
brewer operating
in
an international market, asking whether it can act
as
an
independent global player and whether there is a necessary role for Anheuser-
Busch
in
this process. Part three considers the various sources of regulation that
can affect the future of Czech Budvar and the manner in which the goals of
regulation raised by the present case have been handled. Among the transitional
economies, the Czech Republic is the only one to have abolished specialised
foreign investment laws. Consequently, the focus of regulation has fallen onto the
privatisation and competition laws of that country which, as will
be
shown below,
can act and have acted as vehicles for the close screening of Anheuser-Busch’s
proposed investment. A further element
in
the regulatory system of the Czech
Republic concerns
the
possible role of European Community (EC) law as a source
of principles for the regulation of foreign investment
in
privatisations. This issue
will be examined, in part four, for two reasons. First, as a result of the increasing
internationalisation of the brewing industry, the development of Czech Budvar’s
business strategy is likely to affect its position not only in Czech domestic markets,
but also in EC consumer markets. In particular, the ongoing trade mark dispute
with Anheuser-Busch requires an effective settlement that will cover the whole
European market. Secondly, the Czech Republic has committed itself by treaty
with the European Union (EU) to bring its commercial and economic laws into line
with EC law as a prelude to possible future membership of the EU. Consequently,
the application of EC legal principles by the Czech authorities will undoubtedly
affect future responses to any bid by Anheuser-Busch
for
the Czech brewer.
The result is that a complex series of hitherto distinct regulatory fields
-
foreign
investment, privatisation and competition
-
and the distinct levels of Czech
national and European supranational laws, are coming together into an integrated
web of standards to be used as a means of protecting and furthering the
competitiveness of Czech business enterprises. Furthermore, the discretion enjoyed
by the authorities
in
the application of these laws has created opportunities for
active lobbying on the part of interested parties. Apart from Anheuser-Busch itself,
two further interest groups have sought to influence Czech government policy in
this case. The first is
the
British consumer group, the Campaign for Real Ale
(CAMRA), which is trying to prevent the proposed acquisition for fear that it
might lead to the loss of Budweiser Budvar beer as a distinct product. The second
consists
of
Czech financial institutions with shares in other Czech breweries,
whose aim
is
to build up an independent Czech brewing industry that can compete
in
international markets. As will
be
shown, each interest group has had
a
signifi-
cant effect on the manner in which the applicable Czech laws have been applied.
Relations between the two ‘Budwei~ers’~
Czech Budvar is the state-owned legal successor to
a
brewery established
in
1895
by Czech speakers in the town of Ceske Budejovice. This brewery was nationalised
in
1945.5
Anheuser-Busch has its origins in the
1860s
in St Louis, Missouri. In
1876,
it developed a lager beer which
it
called ‘Budweiser,’ after the town
of
4 The facts appearing
in
this section are taken from the more dztailed summary
in
the Chancery
Division and Court of
Appeal
judgments
in
Anheuser-Busch
Inc
v
Budejovicky
Budvar
Nf
[I9841
10
FSR
413.
See Tolar, ‘Budejovicky Budvar
in
1993,’
Kvusny
frumysl
(October 1993), English translation by
Peter Dyer.
5
8
The Modern Law Review Limited
1996
659
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