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Capabilities of Southern Peninsula Wines

Discuss about the International Market Opportunities Report for Southern Peninsula Wines.

Internationalisation being very important aspect for any business to sustain long term growth this report analyses the international market opportunities for Southern Peninsula Wines, a well known premium wine producing company.

Organisations’ Mission or Vision

The main vision of Sothern Peninsula Wines is to establish a very high quality facility of wine, which caters to boutique wines at much reasonable price that will help it to establish long term and long-lasting relationship with customers and helps in developing better customer relationships as well.

Strategic Goals of Southern Peninsula Wines

Since they believe that their lives are intertwined with the wines business, so their main strategic goal is to create a comfortable lifestyle for their families, thus promoting and allowing them to carry it to the future generations as well.

The main expertise of Southern Peninsula Wines is being created on the cold climate that supports viticulture as well as wine making. It has an 83 acres  vast Gretten Forest Estate  and along with that they have 30 acres of  vines that have been planted  as well as  another 100 acres  vineyard that has been planted at  Morington , which carries  about 70 acres  of vines spread in the vineyard.

Both Eddy and Frank have the successful support of an experienced workforce of 50 employees together and the winery currently has the capacity to produce 500,000 cases of wines every year with an expanding capacity too.

The main product that Southern Peninsula Wines wants to make entry in Chinese markets is boutique premium wines as Australian wine   enjoys good reputation in various parts of the world. Some of the best varieties of wines that it plans to export include Cabernet sauvignon, Sauvignon Blanc and Shiraz. However all these labels would be adopted as per Chinese markets carrying tasteful symbols of Australia if need be.

Overview of Current Global Business Environment

In the global wine industry there are two main categories of wine producers:  The New World producers and the Old World Producers. The larger New Word Producers are:  US, Argentina, Australia and Chile, while France and Italy are the two largest Old World Producers. Australian  wine industry falls in the category of hard knocks , due to the resources bloom which is fuelled through  China's the  currency of Australia has  appreciated as opposed to the currency of other nations , which has lead to diminished  competitiveness of  non-mineral exports in the country that also includes wine. The world wine production share of Australia was 4.4 percent in 2009 (Anderson & Nelgen, 2011) .

Product under Consideration for Entry into China

The growth and production of wine in new Zealand  has been spectacular  as compared to Australia  as its exports almost doubled from 2003 to 2005  followed by more than double  of the are so vineyards  in the country and it gained popularity in white wines category which is reflected by  highest unit values  of the bottled still wine. International exports of the wine produced in US have very small portion in total sales however Californian exports of wine to the nation is largest amongst all bilateral trades of wine. In the coming two years US will be replacing France as the largest consumer of wine across the world, so it is quite important region for wine industry in world (Grant et al., 2015).

With huge rise in demands of wine across China and is emerging as the potential importer of wine. It has huge per capita incomes, a bigger cut in the tariffs imposed on wine imports due to WTO obligations as well as the outlawing practice of adding sugar along with water to the domestic wine has lead to this rise of imports (Wittwer, 2007).

It has been found that during the two decades of 20th century the internationalisation of wine production as well as wine consumption has been continuous at regular pace. It has been observed that the broad delineation between Southern Hemisphere New World and the Old World wine producing countries in the form of discrete markets has been completely eroded (Robinson, 2006) . The reason being development of new markets, diversification of traditional markets as well as mapping of international wine-trade has become very much routinised (Anderson & Nelgen, 2011) .

Country

Volume (million litres) 2000

Volume (million litres) 2009

% Increase

Value (US$m) 2000

Value (US$m) 2009

% Increase

Australia

311

772

248

897

1802

201

New Zealand

20

129

645

90

637

708

Argentina

73

291

399

150

636

424

Chile

297

692

233

577

1374

238

South Africa

155

429

277

243

711

293

Table 1: Changes in export volume and value: SHNW producers, 2000–2009.

Trade Patterns, Policies and Relevant Agreements between Australia and China

China-Australia Free Trade Agreement (ChAFTA) was implemented on 20th December, 2015. This laid a historical foundation for the historical relationship between two countries (Department of Foreign Affairs and Trade, 2015) . This agreement will open major opportunities for Australia in Chinese markets as it is the largest exports market for Australia accounting for almost one-third of exports. Even the economic relationship between Australia and China   has increased in rapid manner recently mainly the trade relationship as China is the largest trading partner of Australia in terms of both exports as well as imports and on the other hand Australia is China’s 6th largest merchandise trading partner (DFAT, 2012).

China’s Share of Australian total merchandise trade

Figure 1: China’s Share of Australian total merchandise trade

Global Business Environment

Australia has been the topmost foreign direct investment destination for China since it started off its “go global” policy (Larum & Qian, 2012) . Australia investments in China started in 1979 and has been one of the earliest nations to start investing (Yu, 2012) , but till date the investment of Australia remains lower when compared to its trade relationships. But Australian investment in China has improved in the recent years with 1.4 percent of total stock.

Although China has Free Trade agreement with Australia but as part of austerity measures the wine consumption has declined in 2013 after 10 years of continuous growth of Australian Wine Exports that also showed a decline in 2014 by approximately 12 percent. Due to Free Trade Agreements the Australian wine companies will be getting better access to the important markets, which will be providing an improved competitive position for Australian exports and better prospects for two-way investments (Dawes, 2014).

Entry and Trading for Company

Social, Cultural, Political and Economical Factors Impacting Organisation

Although China does not have  a wine tradition of their own  , however the  people of China are fast adopting  wine as a healthy option , which is quite a new , as well as lower cost alternative  for the traditional drinks  for example  Chinese liquor etc. Due to rising middle class, exponential increase in income and the rising familiarity with the foreign lifestyle in Chinese society there is seen rise in the consumption of wine. Some of the major uses of wine have been found in the Chinese society   for business dinners, personal drinking and gifts (Reyneke et al., 2011). The population of China has more percentage of young white collared people along with foreigners that have started developing taste for wine (Euromonitor, 2016).

 In 2010 the per capita disposable income of the urban residents of China was 19,109 Yuan which is a real time increase of 7.8 percent as compared to that in 2009. In 2010 the GDP of China was found to be 39.7983 trillion Yuan which indicates the rise in disposable income of the people to great extent. Variety of imported grape wine has been positioned quite advantageously and their price is quite competitive with the locally produced grape wine (Schmitt, 2015) .

China has established  international wine  production standards that need to be confirmed by the wine exporters and it has also issued wine making  regulations to produce better quality wine. The total import tax that is levied on imported wine is fourteen percent along with 10 percent consumption tax as well as 17 percent value added tax in Mainland China. One the other hand Hong Kong and Macau have totally eliminated all kinds of duties on alcoholic beverages that includes both beer and wine.

Market Trends or Developments

In China itself there are more than 500 wineries that are operational and the topmost 10 Chinese producers make almost 10-12 million litres of wine per year. Local producers do not have the expertise and also lack good quality grapes. However by opening the Chinese economy many new opportunities have been made available for Mainland manufacturers so that they can upgrade and update their production process on the basis of foreign imported technology as well as greater expertise. In Australia the larger wine companies have implemented new supply chain systems so the manufacturers in China will also gain benefit from effective supply chain management systems adopted by Australian wine producers. Cross-enterprise supply chain is being planned amongst the businesses. Currently Internet is being used by wine exporters just to  keep updated about the  products available  and do not consider Information and Communication  Technology ( ICTs)  important for  managing supplies or ordering (Monday & WoodHarper, 2010) .With the increase in online sales  of wine  e-commerce is also becoming much important in the wine industry as it is making varied kinds of tools available  for customer interactions  as well as influence for example  vlogs,  social networks,  podcasts,  blogs as well as  online virtual communities . In China the adoption level of these tools is found to be very low currently (Thach, 2009).

Conclusion

Since Southern Peninsula wines have gained an exemplary reputation in the category of bottled wines and have won multiple awards not just in Australia but recently in countries like UK and China so they have strategic goals of expanding into international markets as well. All these vineyards have the capability of producing a wide range of varied wine styles for the boutique wine lovers. In a single year the import of Australian wine to China has tripled that has overtaken Japan, Netherlands, Sweden, Denmark and Ireland as the major buyers of Australian wine in volumetric terms. International market most viable for the Southern Peninsula Wines to enter is thus China which also depends on whether the Chinese consumers are capable of acquiring a taste for wine as their income rises or not.

The bilateral trade Agreements has been signed between Government of Australia and Government of People’s Republic of China that have helped in establishing economic relationships between two countries. China being huge country has hundreds of cities with population of more than one million people, so tier 2 cities will provide better opportunities for Australian exporters. There is seen a rise in the interest of towards grape wine amongst consumers mainly imported light grape wine that has resulted in boosting the wine consumption in 2015. Thus China proves to be the right choice for international expansion for the company.

References

Anderson, K. & Nelgen, S., 2011. Global Wine Markets, 1961 to 2009: A Statistical Compendium. , Adelaide: University of Adelaide Press.

Dawes, G., 2014. Wine to China - Current export specific considerations. Australian Business , 18 November.

Department of Foreign Affairs and Trade, 2015. China-Australia Free Trade Agreement. [Online] Available at: https://dfat.gov.au/trade/agreements/chafta/Pages/australia-china-fta.aspx [Accessed 28 August 2016].

DFAT, 2012. China Fact Sheet. [Online] Available at: https://www.treasury.gov.au/PublicationsAndMedia/Publications/2012/Economic-Roundup-Issue-4/HTML/article1 [Accessed 28 August 2016].

Euromonitor, 2016. Wine in China. [Online] Available at: https://www.euromonitor.com/wine-in-china/report [Accessed 28 August 2016].

Grant, B. et al., 2015. The Australian wine industry at the crossroads: a comparison of performance across major wine exporting countries in 2000. Australasian J. Reg. Stud., 21(1).

Larum, J. & Qian, J., 2012. A long march: the Australia-China investment relationship. Australia China Business Council.

Monday, A. & WoodHarper, T., 2010. Exploring the supply chain of small and medium-sized South Australian wine producers. Supply Chain Forum An International Journal, 1(11).

Reyneke, M., Berthon, P.R., Pitt, L.F. & Parent, M., 2011. Luxury Wine Brands as Gifts: Ontological and Aethetic Perspectives. International Journal of Wine Business Research, 23, p.258.

Robinson, J., 2006. Old World v New World - a thing of the past? [Online] Available at: https://www.jancisrobinson.com/articles/winenews060506.html [Accessed 28 AUgust 2016].

Schmitt, P., 2015. China Wine Market Returns to Rapid Growth. The Drinks Business, 16 November.

Thach, L., 2009. Wine 2.0—The Next Phase of Wine Marketing? Exploring US Winery Adoption of Wine 2.0 Components. Journal of Wine Research, 20(2), pp.143-47.

Wittwer, G., 2007. The Global Wine Market in the Decade to 2015 with a Focus on Australia and Chile. Centre of Policy Studies Monash University.

Yu, C.S., 2012. Sino-Australian economic relations: a general review. Sydeny: UNSW Press.

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