Southern Peninsula Wines International Market Opportunities

Question: Discuss about the International Market Opportunities Report for Southern Peninsula Wines. Answer: Introduction 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. Capabilities of Southern Peninsula Wines 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. Product under Consideration for Entry into China 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. Global Business Environment 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) . 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). Market Trends or Developments 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, 20002009. Trade Patterns, Policies and Agreements 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 Chinas 6th largest merchandise trading partner (DFAT, 2012). Figure 1: Chinas Share of Australian total merchandise trade 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. Ease of Entry and Trading for Company 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). Environmental Factors 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. Technological and E-Commerce Factors Impacting the Opportunity 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 W oodHarper, 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 Peoples 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. 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