Marketing of Wine Sector in Hong Kong - Essay Example

?Introduction Hong Kong wine market is one of the most sophisticated in Asia, according to a research on global wine and spirits consumption, production and international trade by International Wine and Spirits Record (The IWSR). It has positioned itself as the Asian hub for the trading and distribution of wine (Franz, 2008). The per capita wine consumption of Hong Kong legal drinkers is an average of 3.3 liters which is higher than Japan (2.3 liters) and Singapore (1.9 liters) (Suen, 2009). Hong Kong wine consumption is expected to reach 4.2 liters by 2012. Despite financial tsunami, the development of Hong Kong wine market has high growth potential. The growth in Hong Kong wine market is attributed to the abolishing of the duty on wine by the Hong Kong government. About 40% of the US$ 1.3bn worth of wine traded annually in London is bought by consumers in Hong Kong and China (Franz, 2008). Similarly, according to Parker (2010) a glass of wine raised by a Hong Kong resident is likely to have come from the Australian vineyard. The Australian wine industry considers Hong Kong as a major market. Because of the abolition of duties and taxes on wine in Hong Kong, exports from Australia to Hong Kong has increased manifold. Australia is an important source for high quality beverages including wine for Hong Kong’s restaurants. Hong Kong’s strategy to become the hub for wine trading in the Asian region presents opportunities for the Australian wine producers and for providers of wine-related services, like storage and auctioning (Dfat, 2010). Hong Kong enjoys locational advantage as far as wine auctions in the region are concerned. The total wine auction sales in the region reached $160 million and now along with the United States, Hong Kong has become one of the two most important centers for wine auction (Hong Kong Digest, 2011). This is the reason that Australian wine makers, Brown Brothers, are eyeing Hong Kong to market its products. Hong Kong has the potential to influence trends in the region through events such as Wine and Spirits Fair which attracts audience from mainland China and other countries. Brown Brothers offers the most seasoned and diverse ranges of quality wine. Decrease in taxes makes cheaper wine popular (Asia Travel Tips, 2011). The Hong Kong youth between 21-28 years would prefer cheaper wines as they are yet to be established in life. Thus this study aims to evaluate marketing of wine to this segment. An external environmental analysis would help Brown Bothers understand and formulate the marketing strategy for Hong Kong. The external environment can be analyzed based on the political, economical, socio-cultural and legal environment, along with the wine sector in Hong Kong. Wine sector in Hong Kong Hong Kong’s alcoholic beverage market faced distortions because of the excessive duties on wines and spirits (APCO, 2010). The prices were artificially high and the local residents as well as the expatriates were forced to choose lower-quality beverages which impacted consumer choice. Hong Kong had very high level of taxation on wines compared to its neighbors and this increased illegal smuggling of alcoholic beverages. This caused loss of government tax revenue. The Hong Kong Wine & Spirits Industry Coalition (HKWSIC) used the services of APCO to represent the views of the consumers and the industry. Study and presentation of the results by APCO forced the Hong Kong government to abolish the taxation on wine products. External environment analysis Political environment Hong Kong is governed by the Basic Law of the Hong Kong Special Administrative Region of the People's Republic of China (Dfat, 2010). Hong Kong is a Special Administrative Region and is a capitalist society enjoying high political stability. It has an ‘executive-led’ system inherited from the British Colonial Administration. The Chief executive is appointed by Beijing after election and has the power to initiate legislation (Dfat, 2010). There is limited democracy as it still follows the Basic Law approved in 1990. There is political interference from the West in Hong Kong. The US consulate General in Hong Kong has criticized the Hong Kong government’s economic policy and political development (Law, 2010). Political stability of a nation impacts the success of the financial sector. Hong Kong and Australia have long-established trading relationship. They enjoy a strong relationship built on mutual cooperation and people to people links (Dfat, 2010). Economical The financial sector in Hong Kong is dominated by foreign banks as a result of which these banks are less committed to the economy. The foreign financial institutions have withdrawn under economic and financial crisis, which makes the Hong Kong financial system vulnerable (Law, 2010). The local financial institutions lack interest and the capability to withstand external shock or speculative attack. The commercial banks prefer to extend loans to the real estate sector but this threatens the financial and economic stability. The financial sector in Hong Kong is not forward-looking. Its regulations continue to be institutionally-based rather than being based on functionality (Law, 2010). The Hong Kong government has instituted a consultation paper on the banking sector and a policy paper to bring about changes, the government is not considering overhauling the economic and financial system. However, the Hong Kong economy has been recognized as the world’s freest economy which according to the authorities is the reason for sustained economic growth, stability and prosperity (HKT, 2011). Hong Kong’s economic prospect depends upon its link with China, and is now in the midst of economic recovery. Its GDP grew 6.8 percent year-on-year in the third quarter of 2010. Since January 2004 CEPA (Closer Economic Partnership Arrangement) has accelerated integration between Hong Kong and mainland China (Dfat, 2010). With the abolition of taxes, the wine business has grown manifold in Hong Kong making a huge impact on the economy of the country. Several sectors have received a boost due to this. These sectors include wine trading, distribution, auction and allied sectors such as tourism, catering services, brand promotion, wine appreciation and related educational activities (IRD, 2010). In 2008 and 2009 there has been an increase of about 850 wine-related companies in Hong Kong such as retailing, storage, restaurants, distribution, bars, hotels and logistic companies. There was an increase of 30% in wine related business receipts over 2007. This also impacted the job market as the number of people engaged in wine-related business increased by more than 5,000 bringing the total to about 40,000 by end June 2009. This is equivalent to almost 1,000 full-time jobs. Social environment Life expectancy is high in Hong Kong, being 79 years for men and 85 years for women (World Business Culture, n.d.). The adult literacy rate is 93 percent. The emerging middle class in Hong Kong has become affluent and alcohol consumption has arisen as shown in Appendix A. wine consumption is 9% of the total alcohol consumption while beer stands at 88 percent (International Markets Bureau, 2011). Wine is totally imported in Hong Kong and because of large number of international brands available in the market, the discerning consumers look for brand differentiation. Wine is a part of life style in Hong Kong (Suen, 2009). Hong Kong consumers predominantly prefer red wines (80.6%) with wines accounting for 16.3% and rose 3.3 percent in consumption (Asia Travel Tips, 2011). Red wine sale is expected to grow more than white wine. Consumers believe that drinking two glasses of wine is beneficial to health and this is responsible for the boom in the wine market in Hong Kong. Health has become a global concern and the Hong Kong consumers believe that wine is the best positioned alcoholic beverage. While Hong Kong has a large number of multinationals because of its colonial past, the managerial style is along the paternalistic lines which epitomize the entrepreneurial spirit of Chinese traders (World Business Culture, n.d.). To work with people in Hong Kong, business entering Hong Kong must know the type of organization they would deal with, the attitude towards management style, the decision-making process. Respect for age and seniority run deep into the attitude of people. Managers are respected for the position they hold. Decision-making is fast, centralized and flexible which is a sharp contrast against the measured approach of the multi-national. Small businesses are generally floated by Chinese and remain under the control of the family. Decision-making is highly centralized and hence there is immense flexibility to change decisions quickly. Chinese cultural traits permeate all Hong Kong business life. Guanxi or relationships is very important in Chinese Hong Kong culture and business relations. Hong Kong employees have a tendency to withhold bad news from the managers and hence multinationals entering Hong Kong should ensure that decision-making is based on complete information. Language constraint too can be experienced by any organization entering Hong Kong. While English is spoken by bulk of employees in larger organizations it is not universally spoken. Communication difficulties are likely and misunderstandings can occur. What has been spoken may not be understood and accepted in the right spirit. During interactions, personal concerns about family and health should be expressed apart from business related questions. This helps in building relationships, critical to businesses in Hong Kong. Dress code is important and designer labels are valued. The older mature consumers in Hong Kong are switching over to wine from the traditional spirits while the young consumers still prefer beer and other spirits (International Markets Bureau, 2011). Hong Kong has a large community of expatriate Australian – about 40,000 – and wine in Hong Kong is consumed in social settings (Parker, 2010). Wine is usually consumed in restaurants and bars where personal recommendation and knowledge of wine becomes essential. However, recently there has also been an increase in retail sales in the wine sector. Legal environment Hong Kong had a high-duty wine trading environment which has now transformed into a duty-free zone and this has been done with remarkable speed and efficiency (Fridjhon, 2009). The government has abolished tax on wine (Suen, 2009). Wine duties slashed from 40% to zero has been a real boost for wine consumption. The abolishing of taxes was done with the aim to promote Hong Kong as the Asian hub for wine trading. This has induced sales in wine auction market and Hong Kong is all set to take over the traditional hubs of London and New York. Hong Kong also has an excellent transportation and logistics system which gives confidence to the consumers that wine handling would be efficiently dealt with (Fridjhon, 2009). Conclusion It can thus be seen that wine consumption has grown in Hong Kong and continues to grow. Wine is totally imported in Hong Kong and Hong Kong has now become the region hub for importing and auctioning wine. The political and legal environment is totally conducive to exporting wine from Australia by Brown Brothers. Moreover, Australia and Hong Kong already have trading relationship for long. Thus entering Hong Kong would not be a major hurdle but the Australian company has to take note of the socio-cultural differences and make their moves accordingly. Brown Brothers can succeed in Hong Kong market with the right local partner, a commitment towards long-term relationship and must maintain regular visits to the market as consumer tastes change rapidly. To enter the Hong Kong market and establish itself in the wine industry, Brown Brothers should engage in personal face-to-face meeting with local importers as they would first like to meet the exporters in a private environment. This would help develop guanxi or relationship which is essential to the success of business in Hong Kong. The consumers in Hong Kong strongly believe that consuming some amount of wine everyday is good for health. However, the younger adults between 21 and 28 years are still inclined towards beer and other alcoholic beverages. Thus, to promote wine among the young adults, Brown Brothers has to focus on wine benefits to health. Wine fits into the wellness trend that the youth is attracted to, and the “clean and green” image of Australian wine is a significant selling point (Global Consumer Trends, 2010). References APCO. (2010). HONG KONG WINE & SPIRITS INDUSTRY COALITION. APCO Worldwide. Retrieved from http://www.apcoworldwide.com/content/client_success/client_success.aspx?pid=0&csid=254a1416-e90d-4e6b-a3e4-d81ab52fc5b4 Asia Travel Tips. (2011). Hong Kong’s Growing Taste for Wine. Asia Travel Tips. Retrieved from http://www.asiatraveltips.com/news10/33-Vinexpo.shtml Dfat. (2010). Hong Kong Brief. Australian Government. Retrieved from http://www.dfat.gov.au/geo/hong_kong/hong_kong_brief.html Franz, P. (2008). As Wine Consumption in Asia Grows, Business Opportunities Abound. Retrieved from http://paris-franz.suite101.com/hong-kong-aims-to-become-hub-for-wine- trade-a82267 Fridjhon, M. ( July 14, 2009). Hong Kong goes duty free. Meininger's. Retrieved from http://www.wine-business-international.com/156-bWVtb2lyX2lkPTM3OCZtZW51ZV9jYXRfaWQ9--en-magazine-magazine_detail.html Global Consumer Trends. (2010). WINE AUSTRALIA: DIRECTIONS TO 2025. Retrieved From http://www.wineaustralia.com/australia/LinkClick.aspx?fileticket=8mCneGIpB3M%3D&tabid=3533 HKT. (January 12, 2011). Hong Kong ranked world's freest economy for 17th consecutive year. Retrieved from http://www.info.gov.hk/gia/general/201101/12/P201101120149.htm Hong Kong Digest. (2011). U.S. wine industry urged to tap growth potential in Hong Kong. Retrieved from http://www.hketony.gov.hk/ny/e-newsletter/11apr/WineHub.htm International Markets Bureau. (2011). Consumer Trends Wine, Beer and Spirits in Hong Kong. Agriculture and Agri-food Canada. Retrieved from http://publications.gc.ca/collections/collection_2011/agr/A74-1-12-2011-eng.pdf IRD. (2010). PRESS RELEASE. Retrieved from http://www.ird.gov.hk/eng/ppr/archives/10121503.htm LAw, C.K. (2010). Weaknesses of Hong Kong's Financial System. Hong Kong Policy Research Institute. Retrieved from http://www.hkpri.org.hk/bulletin/10/ads-law.html Parker, D. (November 12, 2010). Australian wines prove flavour of the month. The Australian. Retrieved from http://www.theaustralian.com.au/special- reports/hong-kong/australian-wines-prove-flavour-of-the-month/story-fn6ueghy-1225947702532 Suen, S. (2009). Hong Kong: Highest Wine consumption per Capita. China Wine online. Retrieved from http://www.winechina.com/en/read.asp?id=200903952 World Business Culture. (n.d.). Doing Business in Hong Kong. Retrieved from http://www.worldbusinessculture.com/Business-in-Hong-Kong.html Appendix A Source: International Markets Bureau. (2011). Read More