Lacking the capital to expand as it would like, Foster's Group seems set to sell its Asian brewing operations and seek partners to brew the Foster's brand under licence. But, writes David Robertson, Foster's already has reservations about its licence deals in Europe and the Americas, making the search for suitable candidates a delicate process.

Foster's is known around the world as the Australian beer but, in reality, the brand has little to do with the land Down Under and the ties could be about to loosen still further.

Just-drinks revealed two weeks ago that the Foster's Group (FGL) was looking to sell its Asian brewing facilities and that SABMiller and Scottish & Newcastle were thought to be interested bidders. Foster's is brewed in Europe and the Americas under licence but FGL had hoped to control production of the brand in the rapidly growing Asian market itself.

At the end of the 1990s, the company set up operations in India, Vietnam and China but it has now concluded that its Asian operations are unlikely to grow much further because of a lack of capital for overseas investment, particularly after the A$3.7bn acquisition of Southcorp last year.

If the facilities in India, Vietnam and China are sold it could raise as much as A$200m, analysts estimate, and leave FGL with just two small breweries outside Australia, in Fiji and Samoa.

A spokesman for FGL refused to comment on the speculation, but an informed observer said: "India, China and Vietnam were set up as blue-sky projects that would give FGL opportunities in the future. But the company lacks the capital to do anything substantial and it is now just giving in to reality. If FGL wants to go global it will have to do it with wine, not beer."

What is not yet clear is how FGL sees its future in Asia after the sale of these assets. It will presumably seek new licensing agreements - deals that will allow other brewers to make and sell the Foster's brand on FGL's behalf - but the real question is how it manages these arrangements.

Two of the favourites to pick up Foster's licences in Asia are S&N and SABMiller, which already control the brand in Europe and the Americas respectively. But closer ties with either of these companies presents FGL with difficulties and it may decide to follow a different path.

When FGL was facing bankruptcy in the early 1990s, it struck one of the most infamous deals in the drinks industry, handing control of the Foster's brand in Europe to Scottish & Newcastle forever. In return, S&N, which makes about GBP100m a year in profit from the brand, pays FGL an annual fee of about GBP13m - a figure that does not change much even if sales rise.

The deal with S&N has irritated FGL ever since, particularly as Foster's is the second best-selling beer in the UK and is now performing well in a number of other European markets.

Last year, FGL chief executive Trevor O'Hoy was campaigning to renegotiate the licensing deals, complaining that they were unfair. "We are hell-bent on changing those agreements," he said, "and getting our share of probably the fastest growing premium beer brand in the world today. We just have to change the mechanics of old deals that have been around for some time."

However, S&N is naturally reluctant to renegotiate, and informed opinion appears to suggest O'Hoy's efforts will be in vain. "It's the most one-sided deal in history," said a source familiar with FGL's strategy. "It is so iron-clad that FGL is going to have to just accept it will never get anything more from S&N."

Handing more of the Foster's brand to S&N by giving it licences for Asian markets would therefore stick in FGL's craw.

But FGL also has problems with the other likely multinational bidder for Asian licences - SABMiller, which manages Foster's in the Americas. SAB was the original licensee for Foster's but, when it bought Miller in 2002, the company's need for another US brand was drastically reduced. SABMiller has been busy turning around Miller and FGL is understood to have complained that insufficient care and attention was being put into Foster's. The brand's sales have been in decline since 2002 and it is now ranked 11 out of 12 imported beers.

FGL has managed to get SABMiller to commit more sales staff to the brand but there are still concerns that Foster's is being short-changed in the Americas. "SABMiller is saying all the right things," said a source close to FGL, "but the moment SAB took on Miller it became a lot less interested in Foster's. It's clear they are paying less attention to it now."

Given this situation, FGL is thought to be concerned about rewarding SABMiller with more Foster's licences until more commitment is shown in the Americas.

The third option for FGL in Asia is to sign franchise agreements with local brewers, who would manufacture and distribute Foster's but leave the marketing to the Australians. But in the rapidly consolidating beer market, local brewers are going to keep being swallowed by the majors and this will create conflicts of interest similar to that already seen in the Americas.

Also, FGL would have to take the lead in marketing Foster's at a time when the company is looking to rationalise its global marketing of the brand. For example, it is looking to scrap its multi-million dollar sponsorship of motor racing.

At the moment, FGL appears to favour doing deals with regional and local brewers because it gives the company more control of its property and better returns.

But a number of external FGL-watchers believe that this is a short-term solution and that the best thing for Foster's in the long term is to seek closer ties with the company that has shown most devotion to the brand, namely S&N.

S&N already controls 60% of Foster's production and if it could replicate its European success in Asia it would put the brand in a very strong position. The problem of the miserly retainer in Europe remains but if FGL gave S&N more control of the Foster's brand it should be able to sign significantly better deals for new territories.

The decision over what sort of partner to seek in Asia will be one of the most important in Foster's history as it will have a significant impact on the future of the world's seventh largest beer brand - and an Australian icon.