Kiwi Prestige: Entry Strategy For Exporting Fine Wine To China

To ensure that the entry strategy proposed is appropriate for the product/market/situation and that the required changes to the current organisation are understood. 

1. Show the company’s existing value chain and develop a new (export-focussed) value chain and identify in the chain where the product/service will earn $NZ.

2. Recommend an entry strategy into the new market.  Determine any required partners/intermediaries, and detail who their role in export related activities.

3. Complete a risk analysis with mitigations and show how success will be measured over time.

4. Estimate product costs and pricing.

5. Complete a high-level timeline of all operational activities required.

6. Include a diagram showing the existing organisational chart and where export related activities will sit.

7. State which HRM policies and practices will need to be amended and state any new positions and their purpose (a full job description is not required).

8. Describe marketing decisions which will be required and any amendments to the product/service and its related packaging/advertising.

9. Determine what changes will be required to financial systems and reports eg how will export earnings be reported on and what will be the overall estimated financial impact of the plan if implemented.

Kiwi Prestige is a new company with the sole initial purpose of exporting fine wine from select Hawke’s Bay, New Zealand producers for consumption in the Chinese market, specific company offerings can be sighted in Kiwi Prestige’s portfolio in the appendix section of this document. Kiwi Prestige will act as an international wine distribution firm, buying directly from producers local to Hawke’s Bay and selling direct to Asian consumers in China. Kiwi Prestige’s strategic goal is to successfully penetrate China’s elite wine buying market and remain relevant and competitive in the mid long term.

The company will start out as a medium small size operation (SME) managed by the three owners of the business, Jason Lambert, Sylvia Liu, and Farha Jalia. The responsibility kiwi prestige’s operations will be divided as follows:

Sylvia Liu will be overseeing all marketing management and customer relations from Kiwi Prestige’s Hong Kong headquarters with a small team of three sales assistants whom will operate in tandem to Sylvia from Beijing, Shanghai and Guangzhou. The sales assistants will have a good working knowledge of the beverage and service industry and will have completed at least the introductory level of international sommelier qualifications (Court of Master Sommeliers, n.d.). The sales and CRM practices will be anchored in education of the product’s merits and attributes when compared with other products from the global market place as well as the correct handling, service protocols, and responsible consumption of alcoholic items.

Jason Lambert will manage Kiwi Prestige’s logistics from the company’s head office and micro storage facility in Ahuriri, Napier. Where a limited inventory of library stock will be stored, and managed by a time store manager/office assistant, answering directly to Jason. Jason will manage the relationships with all the local winery representatives ensuring accessibility and the best possible allocations of each season’s product releases (quarterly sales forecasts will be imperative to getting the export sales and internal purchase ratio right).

All sales requirements will be managed with a cloud based order and inventory management software package. Sales will be entered by Sylvia and her team. The order information will be interpreted from Kiwi Prestige’s head office where they will be packaged and dispatched.

Farha Jalia will act as Kiwi Prestige’s Chief Executive Officer, managing the direction of Jason and Sylvia’s individual department’s projects and goals in line with the firms’ strategic plan. Farha will manage a company accountant and the communication of budgetary requirements amongst each of the firm’s department.  

The World Bank (2017, March 28) reports, “China has been the largest contributor to world growth since the global financial crisis of 2008. Even with a bit slowdown since 2012, it is still faster than the current global standards”. Evidence of this can be seen in Fig 1 above.

Importing Country and Market Assessment

China Daily (2017, January 18) reports, Chinese upper-middle class tended to buy foreign premium goods overseas to avoid high import tariff. Cutting down tariffs of imported goods is a way to encourage the spending potential of the Chinese wealthy families. When it comes to New Zealand wines, duty rates were reduced to zero because New Zealand and China have entered a free trade agreement in 2008.

Vinexpo Newsroom (2017, April 4) shows that China ranked the fourth largest import wine market in 2016 and China is foreseen to become the second most valuable wine market in the world by 2020. It is predicted that the total market value will be increased by over 40% within four years, compared to only 0.2% in the UK.

In the Chinese culture, red is a symbol of fortune, wealth and power, and red wine linked to good health. Although Chinese consumer has been drinking mostly red wines, it is a fast-changing market as wine drinkers get more and more wine education. Wine Intelligence (2017, June 27) suggests, 56% of imported wine consumers drink white wine from time to time.

China is an emerging market for imported wines and the growth of the Chinese middle class has driven demand for wine consumption. The latest Wine Intelligence (2016, June 14) study suggests that the number of imported wine drinkers reached to 48 million in 2016, a 153% increase vs 2010. The Drink Business magazine (2017, March 2) showed that China's per capita wine consumption is only 1.34 litres vs France's 47.19 litres. According to the China Wine & Spirits Awards (n.d.), one of the leading wine competitions in China, the Chinese drinkers are enjoying a broad range of wines from every price point and every country and region. Chinese consumers are open to a variety of labels have made China a very important target for global wine sellers.

Regarding the New Zealand wine, many Chinese consumers have never tried any wines other than Marlborough Sauvignon Blanc. It is a challenge for Kiwi Prestige because the company must develop and maintain a niche market. According the Drink Business magazine (2014, September 19), there is no such thing as brand loyalty in the wine industry, people are much more experimental when it comes to trying new wines. Therefore, the Kiwi Prestige will source other prestige wines from all other New Zealand wine regions as its business grows in the Chinese market.

Target Market

Many Chinese consumers buy prestige wines for gifting or entraining clients at business banquets. According to a report by Raymond Paul Noppé (2012) entitled “Rise of the Dragon: The Chinese Wine Market”, “face saving” plays a crucial role in influencing consumers’ buying behaviour. Most Chinese lovers buy wines to impress of gain “face” within their social groups. In Chinese society, people “are always under strong constraints to act to meet the expectations of others to maintain face”.

Sylvia Liu has been teaching wine tasting in China and has amassed a network of wine connoisseurs. Her sales assistants will start to promote and sell wines from the existing wine student base and develop new customers as well. The sales team of Kiwi Prestige will be traveling around the major cities and keep very active in the market.

Kiwi Prestige’s target consumer will be between 30 and 50 years of age. Chinese wine consumers can fall in to the following seven categories; government and corporate, young, image focused individuals; gift purchasers, regular wine drinkers/consumers; the wine connoisseurs as well as other occasional wine purchasers (ProWine China, n.d.). Kiwi Prestige will focus its marketing attention on the businessmen/ corporate purchasers, government functionaries and the small but growing number of wine connoisseurs.

China experiences substantial annual growth in the imported wine market, an increase from 600,000 cases imported in 2003 had increased to 31 million cases by 2013 China’s wine consumer may not be as developed as they are in the west, but they have already shown huge progress since even 2007. The consumer will continue to grow and mature into the future as the market experiences further exposure to imported wines, the Chinese consumer will also experience more education on these products (Rieger, 2017).

There are numerous competitors in international wine imports to China. These include ASC Fine Wines, JEBSEN, Torres Group, all with large product portfolios spanning over 14 wine producing countries that have all established strong business relationships and distribution channels, however the New Zealand offerings are very limited.

Kiwi Prestige can differ from its competitors, as it aims to specialise in region specific wines, as the company grows it will do so by carefully adding to its portfolio wines region by region to truly offer a speciality ‘New Zealand’ wine experience, adding to the overall wine market distribution already available in China. The company will sell prestige wines to educated consumers from the ever growing, upper middle class of China. Kiwi Prestige will control the sales and distribution rather than adopting third party distributors. Direct sales will allow Kiwi Prestige to maintain its internal price margins whilst also offering optimum value to its customers without devaluing or cheapening New Zealand’s wines in the international marketplace.

Foreign risks in the global business are many. The first risk factor is protecting intellectual property (Boyce, 2013). In an effort to create its niche market, Kiwi faces risks of losing its logos, brand name and product image to unscrupulous dealers. The global market has risks of lack of appropriate wine distillation skills. Strategies to minimise skill deficit risks encourage an effective supply chain that protects its brand elements. In order to prevent misleading labels, the company needs to develop legal mechanisms suitable for China and New Zealand. These are legal provisions for its partnerships, technology use and information sharing. The brand may also encounter local resistance from the local brands and cultural factors   

Currency exchange as another risk means that New Zealand dollar is different from the Chinese Yen. Global business analysts attest to this pointing to the benefit of making large-scale purchases as a strategy to combat this risk (Camarda, 2017). Differences in the foreign exchange depend on the source and supplier factor hence Kiwi needs to weigh its production costs against the Chinese markets. Some companies prefer producing in China because of the cheaper costs of labour but raw materials also count. The opening up of global industries means that it is possible to produce wine from New Zealand at a cheaper cost but there are risks of maintain the quality (Simpson, 2011).

Costing and pricing are important in the procurement of international products. Subcontracting the supply chain involves numerous suppliers. Carrying out a marginal analysis for costs and benefits highlights the additional costs that Kiwi needs to consider. Affordable sourcing considers the drivers of the international trade such as technological advancement for cheaper distribution through e-commerce such recent development offer opportunity  through the use of entrepreneurship networks within China (Zott, Amit, & Massa, 2011). This influences the pricing, which covers all stakeholders, involved in the distribution channel. Incremental pricing may work at the product introduction stage but flexibility in costs will allow merchants in the distribution channel to also gain. The model should not destroy the purchasing power of the locals. Tariffs and additional costs are part of the deal.

Having multiple options helps companies to consider the operating procedures because of efficiency. Figure 2 shows ways in which export companies are raising their production by considering alternative locations for production. Decision making in the global is a value addition factor. Of grave importance is the reduction of costs, transit time and access to production for a competitive advantage (Cavusgil, et al; 2014). China as an emerging market has immense advantages and global organizations tap into its market because of these benefits. Independent suppliers or direct investment depends on the firm’s objectives and resources.

Kiwi Prestige refer to its manufacturing, distributional, marketing and selling processes. These are important because they determine the profitability of the company. Global investments include subsidiaries and brand affiliates. Important activities that add value include the regional benefits of doing business in China and its region. Asia as a whole presents a larger market for the brand (Su, 2014). The free market allows Kiwi Prestige to market its products in the region for greater profits. Customer segments in the same region share culture and preferences, which Kiwi Wine may need in its marketing agenda. In this segment, taxation affects the ideal plan because nations have diverse tax systems.

Besides regional operations, the brand also needs local distribution channels. Widening sources of revenue calls for changes in the business process design, technology flexibility and improved agility. A faster process must also be within the legal and industry codes in order to prevent risks. Overreliance on local suppliers is an operation risk. Employees become a significant part of the operation hence proper structures must be in place. In case of a partnership, third party logistics must be in place. The table below identifies these with typical activities of the actors in the local supply chain (Cavusgil, et al, 2014).

Table 1: Global supply chain functions (adopted from Cavusgil et al, 2014)

HR policies need a multicultural perspective that allows employees to adjust in the new environment. Kiwi prestige may need to hire from locals in order to avoid challenges of having expatriate. However, in case of skill deficit especially in the technical and innovation sector, finding foreign employees becomes necessary. Standardization of HR practices ensures that there is fairness when hiring locals and internationals. The talent development approach is appropriate because it seeks to train and retain employees who have competence.

International employees need motivation to work in a foreign structure. The brand also needs to abide by labour laws in China. The idea of having a FDI in the region is to create employment and improve skills in the location (Rieger, 2017). The HR factors include cost of recruiting, and labour union policies. Almost half of Chinas population features women and over 17% of them are in the management work levels (Catalyst, 2017). Having insight into the skilled workforce, and working norms is important.

Marketing mix is a common strategy for global marketing that include the 4P factors of place, price, promotion and product (Chikweche & Fletcher, 2012). A regional strategy may accommodate local cultural elements such as language and values. There is need to create a balanced approach that considers global standards such as technology and local needs. Efficient and effective adverts promote the brand by encouraging brand loyalty in the region. In order for Kiwi prestige to gain the confidence and trust of the Chinese and Asian markets, it needs to connect with the consumer preferences. Developing consumer trust starts with the market entry strategy

Collaboration in marketing is sometimes safe because of cultural differences. Kiwi Prestige needs to safeguard its core competencies but it needs to make a compromise in the new environment. The goals and objectives of a brand, profitability, and market share determine the competitive positioning through marketing tactics. Hollensen (2015) suggests an approach that is relationship bassed in order to connect with the new consumer market.

Global financial reporting considers the business model in order to measure the initial costs against the international venture. Profitability in this case comprises of the domestic and global returns. International assets and liabilities affect the balance. Factors influencing the business stability such as inflation apply. The financial reports also adhere to a combination of risks in the industry, regional and national setting. Global corporate finance captures regulations such as CSR and mandatory reporting (Hong, Hung, & Lobo, 2014).

Conclusion and recommendations

Internationalisation is an ongoing experience and firms venturing globally need to go through stages. Market entry strategies help the brand to take roots. However, its future success depends on the creation of a brand that locals can connect with and remain loyal to despite challenges. Therefore, a multifaceted approach to cross border business is necessary. This is a deeper analysis of the marketplace opportunities and risk factors. An attempt by New Zealand Kiwi Prestige to venture into the Chinese market present massive opportunities because China is a leading emerging market. It economic growth is stable and it has advantages that other foreign countries lack. However, it is crucial to consider market uncertainties too.

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