Tsingtao is continuing its acquisition spree by purchasing 90% stakes in two Chinese breweries. The brewer, China's largest, plans to establish a brewery in the capital of every province in the country.

It has devoted significant efforts to building a brand, which should help it both domestically and in the export market. However, as competition and consolidation mount in
Chinese brewing, Tsingtao must try hard not to overextend itself.

Tsingtao Brewery has been under pressure to continue its purchasing spree after the death of CEO Peng Zuoyi in July. Tsingtao has now paid US$7.1m for 90% stakes in two breweries, Fuliyun (Tianmen) Brewery and Fuliyan (Suizhou) Brewery. China's biggest beer producer also gained board approval for a 30% purchase of Guangxi Nanning Wantai Brewery and spent a further US$1.2m increasing its stake in Tsingtao Brewery (Zhuhai) from 60% to 76.67%.

Yet despite its scale, Tsingtao has only secured 5% of the fast-growing Chinese market. This is a shortcoming it is trying to do something about. Peng's growth plans involved acquiring a brewery in the capital of every province. Despite criticism of this strategy and its effect on profits, the company is committed to continuing its late CEO's plan.

China has one of the fastest growing beer markets in the world, and is already the second largest market by volume, behind the US. Both factors have made it a tempting market for many: 60 foreign brewers, including Carlsberg, Beck's and Anheuser-Busch, tried their luck in the early 90s. Most have now given up and exited the country.

It is a different story for Tsingtao, however. It is one of the few Chinese companies to have focused on developing a brand, and has become one of the most well known names in the country. But while its expansion plans may well help it continue its success, there is also a defensive element involved.

Domestic rivals, Huarun Beer and Beijing Yanjing Beer Group are also attempting to expand and in October South African Breweries took hold of a joint venture in Sichuan, making it China's second biggest brewer.

The expansion strategy certainly looks like the best option, but Tsingtao needs to be selective about which breweries it buys. Many of China's breweries have operational problems, and while Tsingtao is good at sorting out these difficulties it must be careful not to overextend itself during this period of rapid expansion.