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Literature Review: International Wine Industry

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Question:

Discuss about the Literature Review for International Wine Industry.

 

Answer:

Introduction

Australian wine industry has gained a significant place in the international wine industry. In about 200 years, the industry has grown from very few plants to a renowned industry for quality, depth and innovation, worldwide. Australian wine industry has been one of the top ten wine producing countries throughout the world as well as one of the countries that make each of the major wine styles. However, to understand the success of the industry, it is important to figure out how much consumers are liking and seeking the wine products (Balestrini and Gamble 2006). Moreover, while doing business in foreign country, it is important to understand consumer behaviour trends towards wine products along with their demand and pricing strategy of the country. In addition, it should also be reviewed that whether there are significant opportunities to conduct business between China and Australia. Literatures have been suggested a potential and profitable business within Australia and China wine industry since a long period (Somogyi et al. 2011). Here, in this review, the literatures related to the competitive strategies of Australian wine industry will be compared with the Chinese and European brands for their success in Chinese industry, along with the analysis of political, legal and market trends of wine industry.

Australia is a large country, with every climate and soil type, thus, the country is capable for producing all the main types of wine including “red, white, fortified, sweet and sparkling wines”. Australia consist some older grape vines throughout the world. Australian wines are sold in more than 100 countries, as argued by Li et al. (2011).  It is one of the chief exporters of wine among the world. UK is bringing in wine from Australia compared to France.  However, in China, France is the importer. Australian wine exports have grown to $2.1 billion every year; the average price paid for Wine grapes has become $526/ tonne, which has been grown by 14 % (Williamson et al. 2012). One of the key reasons behind growth and success in Chinese market is the growing middle class in china, who are now able to pay for top shelf wines.

 

Competitive Strategy

France is dominating the Chinese wine industry with a market share of 48 %, whereas Australia has a 14 % share. Australia is the second largest wine exporter by value and third largest wine industry by volume in 2012. Australia is giving significant effort to change the image from the quality wine provider to a relatively cheap and diverse range of wine producer. The Chilean wines increased by 52.8 % in first half of 2014, the “Chilean and Italian wine” are the key competitors at core price segment with “Australian wines’, particularly in middle to high-end price array, as reported by Lereboullet et al. (2013). EU wine exports to Chine have reached about 257.3 million litres in 2012 with a value of about $1 billion, which is approximately 10 fold increase since 2006 as rapidly increasing wealth changed the lifestyle and taste in the country (Anderson and Nelgen 2015). However, fake European wine is more worrying than tariffs. For this China has escalated a trade dispute with the EU trade through the announcement of an anti-dumping investigation into EU wine exports. The top Chinese wine brands include Yantai Changyu Group Company Limited, China Great Wall Wine Co. Ltd and Tonghua Grape Wine Co. Ltd. The top selling imported foreign brand of Australia in 2008 was Jacobs Creek and from France, Castel Freres and Rochemazet (Anderson and Wittwer 2013). The Australian share in Chinese wine industry has been increased for customer’s demand for premium wines. This has boosted up the Australian wine export by 7 % in 2016, which has been reached to $2.2 bn. The annual export report has represented the standard value of Australia’s wine exports, which has been raised 6 % to $2.96/ litre (Giuliani et al. 2011). This strong growth of Australian wine export is due to Australian bottled wines. The China-Australia free trade agreement, 2015 allowed the strong growth to bottled Australian premium wines in both value and volume.

 

Operating Cost in China

In Australia, the export priced $ 10 per litre, but it is 47 % high in china. However, the operating cost of conducting business in China is even on rise. China introduced two taxes for the foreign corporations, as argued by Camillo (2012). The foreign companies are now bound to “pay education and urban maintenance taxes”. According to social insurance law, the foreign marketers should maintain regulations of work injury, health, unemployment and maternity insurance, it will be beneficial for uninsured foreign nationals, but will impose additional operating costs on such corporations, which are providing “international insurance coverage” for workers (Bo Liu et al. 2014).

Pricing

To establish a good market in the Chinese industry, the Australian as well as European brands need to understand the Chinese market’s prancing strategy. As it has been seen that the consumer’s behaviour has been shifted towards expensive price, the pricing strategy should be aligned with that. Chinese customers symbolises red wine as a symbol of wealth, thus they are sensitive to high price. Purchasing an expensive premium Australian, French or Italian wine helps to earn face in China. In this context, Chinese wine consumers are usually market followers and they seek to feel safe about their purchase, instead of losing face towards their guests (Zhang et al. 2013). The Australian premium bottled wine has enhanced Chinese customer’s thrust, as they are not losing their face, while purchasing this wine. In contrast, the European brands are not providing quality wines at highly expensive price, which is promoting consumer’s loss of face, which has in turn pushed raise of wine war. In 2014, the total import value was reached US$1.9 bn, which was 37 %, as reported by (Fleming et al. 2014).  It indicated that average price of import bottled wines remained same in compared to 2014. The increase of bottled Australian wines in both volume and value consequentially increased the average price of Australian bottled wines in China. Within next 12 months, it is expected by china to become Australia’s second largest wine export. According to this agreement, in 2019, China will abolish the import tariff on Australian wines in full (Muhammad et al. 2015).

 

Labelling

The packaging and labelling are two key factors, affecting the wine business. The “CIQ” or “China Entry-Exit Inspection and Quarantine Bureau” have been categorised wines in production batches, with the requirement of separate labelling. The production batches for the wine from a diverse production unit will be dissimilar, irrespective of similarity of labelling. The wine industry and the retail sector drivers have showed that attractive front label is one of most important element that is affecting customer’s purchasing behaviour. Initially, the back labels are more important for motivating the purchasing behaviours of customers. It has been revealed from consumer survey that Chinese citizen prefers wines from developed countries with high price, instead of local wine manufacturer. In addition, information on label is also important for wine producers to influence customer’s purchase behaviour (Zhang et al. 2013). According to Australian Wine and Brandy Corporation Act 1980 and Food Standards Code, Australian premium bottled wines come with proper labelling, which include declaration of alcohol, statement of number of standards drinks, proper logo or the brand, information regarding manufacturing and expiry date and he name of producing country (Bo Liu et al. 2014). On the other hand, in European industry, according to the wine law and regulation in Europe, the compulsory items should be on the label which include sales design, alcoholic strength or the drink, nominal volume, lot number, presence of sulphite indication about the person involved in marketing quality wine, manufacturing date and location. Both of the countries showed potential labelling strategies for providing customers important information.

Functioning

There is no particular licence requirement for importation of wine from EU. For importing, an EU brand needs to manage customs clearance itself along with the registration of Chinese subsidiary as a foreign trade operator after establishment. In addition, the importer should follow the “Chinese food safety law” and other appropriate regulations. Moreover, the foreign shareholders appealing in distribution of food and beverages need to appeal for the food distribution permission at “local Administration of industry and commerce”. Compared to local Chinese brands and European brands, Australian brands are being preferred by the Chinese consumers due to their premium quality and pricing strategy (Bo Liu et al. 2014). Usually wine is consumed at occasions and celebrations. Moreover, unlike the other types of alcoholic beverages, wine is highly consumed by aged population along with the young generation. People see it as the indication of success, which helps them to show their wealth and happiness, thus, the quality is not compromised for the high price. This is the point, where the Australian wine manufacturers are growing significantly by providing premium quality wines in a range of variety. Due to the perfect climate and the acceptance of Australian wine’s taste to the Asian, the Australian red wine has a competitive advantage compared to Chinese or European countries.

 

Factors and Opportunities in China Market Associated with Success of Australian Wine Industry

There several political, economic, cultural as well as social factors, which promoted the success of Australian, wine industry to grow significantly in Chinese market Curran and Thorpe (2015) argued that Australia has significant opportunity to grow in this country with the support of both Australian government as well as the consumers. It is because, it has been revealed that Chinese consumers prefer expensive imported wines, with a high quality and the Australian premium bottle wine has enhanced Chinese citizen’s thirst significantly. On the other hand, China wine industry has targeted to be Australia’s largest market for export. Australian wine export value has been increased to 14 %, reaching $2.1 billion in 2015. China’s market environment has played a key role following the success story of Australia. The soaring demand of china has helped potentially to drive the Australian wine exports value to the highest level, prior financial crisis. Australian wine is being exported with record growth in the top 15 export markets of the world. Though USA is the still the most profit-making export market for Australian wine industry, China have already undertaken initiative for being Australia’s largest export market. The chief consumers of Australian wine are the Chinese citizen, claimed by (Balestrini and Gamble 2006).

The partnership within Australia and China through Free Trade Agreement has positively pushed access of Australian wine business in the country, by eliminating the issues regarding taxation policies and foreign business regulations in China (Roy 2016). The “China FTA” originated at the year ending, which will have a significant impact upon tariff reduction to ensure further growth opportunity in China market. China has also supported the growth of Australian wine business by providing the choice of e-commerce and partnership with the major Chinese online retailer. In addition, the growth has even pushed further by the expensive price of a bad quality wine provided in middle kingdom, which has been overwhelmed by the Australian premium quality and best priced wine (Zhongguo-wine.com 2017). Finally, it helps Australia to combat with conflicts that may be raised in pricing to import licensing, marketing, language and packaging.

Hypothesis: Ha

Australia has a high potential to grow and sustain significantly in Chinese wine industry, which enhances the opportunity for new Australian wine company to start business in this foreign market.

Conclusion

From the review of existing literatures related to Australian wine business in China revealed that Australia has been on a right tract to conquer the Chinese market but Australia should think about the ways to elaborating any marketing campaign by the Chinese social media for adapting in Chinese culture. To sum up all the findings from the literatures reviewed, it has been revealed that it is suitable for Australian company to start a business in China. However, it is tough for new foreign entrants to explore the Chinese market initially, thus it would take some time for building the relationship, but once the partnership is established properly, there is a high potential for the Australian wine company to target Chinese customers with their needed flavour and taste of premium quality wine.

 

Reference List

Anderson, K. and Nelgen, S., 2015. Global wine markets, 1961 to 2009: a statistical compendium (p. 468). University of Adelaide Press.

Anderson, K. and Wittwer, G., 2013. Modeling global wine markets to 2018: exchange rates, taste changes, and China's import growth. Journal of Wine Economics, 8(02), pp.131-158.

Balestrini, P. and Gamble, P., 2006. Country-of-origin effects on Chinese wine consumers. British Food Journal, 108(5), pp.396-412.

Bo Liu, H., McCarthy, B., Chen, T., Guo, S. and Song, X., 2014. The Chinese wine market: a market segmentation study. Asia Pacific Journal of Marketing and Logistics, 26(3), pp.450-471.

Camillo, A.A., 2012. A strategic investigation of the determinants of wine consumption in China. International Journal of Wine Business Research, 24(1), pp.68-92.

Curran, L. and Thorpe, M., 2015. Chinese FDI in the French and Australian wine industries: Liabilities of foreignness and country of origin effects.

Fleming, E., Mounter, S., Grant, B., Griffith, G. and Villano, R., 2014. The New World challenge: Performance trends in wine production in major wine-exporting countries in the 2000s and their implications for the Australian wine industry. Wine Economics and Policy, 3(2), pp.115-126.

Giuliani, E., Morrison, A. and Rabellotti, R. eds., 2011. Innovation and technological catch-up: The changing geography of wine production. Edward Elgar Publishing.

Lereboullet, A.L., Beltrando, G. and Bardsley, D.K., 2013. Socio-ecological adaptation to climate change: A comparative case study from the Mediterranean wine industry in France and Australia. Agriculture, ecosystems & environment, 164, pp.273-285.

Li, J.G., Jia, J.R., Taylor, D., Bruwer, J. and Li, E., 2011. The wine drinking behaviour of young adults: an exploratory study in China. British food journal, 113(10), pp.1305-1317.

Muhammad, A., Leister, A.M., McPhail, L. and Chen, W., 2014. The evolution of foreign wine demand in China. Australian Journal of Agricultural and Resource Economics, 58(3), pp.392-408.

Roy, R., 2016. The China hand in Australia’s wine exports: Soaring demand rakes in $2.1 billion, highest since 2007. [online] International Business Times AU. Available at: <https://www.ibtimes.com.au/china-hand-australias-wine-exports-soaring-demand-rakes-21-billion-highest-2007-1501794> [Accessed 31 Jan. 2017].

Somogyi, S., Li, E., Johnson, T., Bruwer, J. and Bastian, S., 2011. The underlying motivations of Chinese wine consumer behaviour. Asia Pacific Journal of Marketing and Logistics, 23(4), pp.473-485.

Williamson, P.O., Robichaud, J. and Francis, I.L., 2012. Comparison of Chinese and Australian consumers' liking responses for red wines. Australian Journal of Grape and Wine Research, 18(3), pp.256-267.

Zhang Qiu, H., Yuan, J., Haobin Ye, B. and Hung, K., 2013. Wine tourism phenomena in China: an emerging market. International Journal of Contemporary Hospitality Management, 25(7), pp.1115-1134.

Zhongguo-wine.com, 2017. Will Australian Wines succeed to conquer China ? | Zhongguo Wine. [online] Zhongguo-wine.com. Available at: <https://www.zhongguo-wine.com/2016/01/28/will-australian-wines-succeed-to-conquer-china/> [Accessed 31 Jan. 2017].

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