Australian Wine in Chinese Market - Case Study Example

Australian Wine in Chinese Market Student’s Name: Instructor’s Name: Course Code: Date of Submission: Executive summary The purpose of this report was to take a critical analysis of the process of the taking Koona Hill which is an Australian wine to the Chinese market. The report was also to cover various micro environmental factors such as political and legal, economical, social and cultural and technology factors that influence the market strategy for this wine. Other factors that have been considered in this report include Production and Distribution patterns and Consumption patterns, market segmentation and buy behaviour. This analysis has established that political and legal environment is not real favoring the wine industry given the weaker legislation to regulate the industry. Despite the vast population, China has recorded high levels of economic growth something that can translate into increased spending power. On the other hand, the Chinese have town values that have been guided by Confucian theory. Further, despite major strides in the field of technology, still, cost of production has been a major issue as the government has not shown much interest or support for the industry. Finally, with this kind of scenario, it has recommended that buying grapes directly from the farmers, establishing own distribution channels, use of strong brands such as Coca Cola and PepsiCo and changing the wine content to suit the tastes of the Chinese market will help improve the performance of the wine in the Chinese market. Australian wine in Chinese market Koona Hill is a red wine that is very common in Australia and more particularly in the southern parts. After reaching virtually almost every part of the southern Australia region, there is an attempt to expand the market of this Koona Hill to the Chinese market. The Koona Hill is being preferred among the Australians for it is flavours. The Koona Hill is commonly known for its Merlot Styles that has been associated with plum fruits, excellent line and tannin and to some addition of various multi-complex flavours that add to the taste of this wine among the consumers. To add on the aroma of the wine, the use of cool climate Merlot that contains Mulberry, cherry and musk as well as spice have been very instrumental. To add to the complexity of the Koona Hill Wine, rhubarbs and herbs as well as smoky herbs are used. Further, in the preparation of this wine, the palate which has a very strong tannin backbone and berry flavours as well as good balance of acidity is being used. Finally, the Merlot Style is processed in such away that it’s excellent with any food and for use by ages 5 to 7. This has helped develop some secondary bottled aged characters of ruffle and antique letter. Chinese wine microenvironment Political and legal environment China is considered one of the many world countries that have no reached high level of transparency in their legislations. The country is known to have ill defined laws, lack of ability to enact and implement different policies and ill-trained lawyers and state judges. However, in the recent past, the country has made major strides in trying to improve its legal systems in order to address matters related to issues of national importance such as environmental protection and management and streamlining business policies. This can be learnt from the enactment of over 100 administrative laws and 25 environmental protections legislations in the last one decade. The purpose of enacting these laws is to ensure that the country at its disposal has got good legislations that can be viable in the contemporary society. Further, the enactment of these policies has been motivated with the need to enhance transparency in governance. However, still the weakness lies on the inability of the judiciary to enforce different laws especially at a time when the world political and economical factors have come into play. Further, in the case of alcohol and wine related products and the process involved in distribution and labeling, the country has a lot to do to ensure that active and vibrant laws are put in place to raise the standards of the industry. Finally, the country’s tax on the imported wine is considered among the highest in the world. For example, for over years, the country’s duty on imported wine has been 70% making it very difficult for foreign wines to trade below $5 which is the common wine retail price level in the country (Glasse 2010). Economic factors China is emerging as one of the great forces in the world in terms of economy. It is estimated that the country’s average economic growth rate for the last two decades has been about 8%. What this has done to the people of the Republic of China is to improve their standards of living. Further, the living styles have continued to change as more people now have more spending power as they have extra coin to spend in some luxury products and services. China over the past view years has also been a great beneficiary of direct foreign investment (FDI). For instance FDI is estimated to be contributing about 27% to the country’s value added production and 4.1% of the country’s total revenues and 58% of foreign trade. Over 190 countries of the world have companies operating in the country including 450 of the Worlds Fortune 500 companies. These foreign activities in the country have been contributed by the formation of the Chinese National Development and Reform Commission (NDRC) in 2006 to better manage FDI activities in the country. This is because the commission was established with the primary of overseeing the relationship that existed by the national security and the investment activities in the country (Clasm 2012). Social/cultural trends China has highest population as opposed to any other country. The country’s population is estimated to be about 2 billion and the population is said to be increasing by about 15 million people each year a population that is more than half of the whole population of Australia. The increased population growth rate has been associated with the change of lifestyles and decrease in mortality rates as a result improved quality of life. In china there is nothing like race but culture. In other words, irrespective of one’s origin, color, language or race, as long as one is able to behave and live like a Chinese, then is one of them. For years, the Chinese values have been derived from the Confucian theory and they are all core in identity in China. Important of the country’s values are promotion of families, following hierarchies, enhancement of morality and self-discipline as well as in hard work and achievement according to Yang (2011). Technology China is one of the most advanced countries in the world in terms of technology. For example, the country is aimed at remaining at the top of world in developing and using the most modern technology. This is to modernize the energy infrastructure both at home and markets abroad. For example, china has budgeted for $250 billion in upgrading the power infrastructures, for the next five years, of which about $45 billion will be spent on the development of the smart grid technologies (Pike 2009). With the completion of these technology investments in 2020, it is expected that the country will be energy efficiency by reducing carbon emissions by around 80% and at the same time give the investors and the households the opportunity to control their own utilities. Further, the country is well advanced in general infrastructure in terms of communication and transport with report showing high preferences use of internet and development of one of the fastest electric trains in the country. However, the major challenge has been to meet the needs of all people with the appropriate technology because of the large population (Hart 2011). Production and Distribution patterns Wine production in the country is still of low standards despite being among the top grape growers in the country. According to the Reuters 2011, it is not easy to get the best wines in China especially for the foreigners. This is because many of the brands are considered low quality and cannot meet the international standards. Very little effort has been made to improve the wine production processes. On the other hand, the distribution process of wines in china is chaotic. Many of the wine producers and distributors, who were supported by the government, are now left to operate on their own. This is after the central government had withdrawn its support. For instance in China there is nothing like wine cellar or a refrigerated storage for wines that are on the distribution channel (Reiss 2011). Consumption patterns/market segmentation/ buy behaviour. In china, the consumption or the willingness of one to spend some money in buying a wine is influenced by the level of value or intoxication that will be achieved. What this means is that in China, wine is likely to be given preference last after all other items on the consumer list have been fulfilled. Consumption of wine among the Chinese people is also associated with the strength of the brand. That means “the stronger the brand, the higher the chances of the wine to attract a large market.” Further, because of high population and to feed the masses, consumption is also shifting from grain-based beverages to fruit-based beverages. Further, the in China it is very difficult sell any product that is being considered to be coming from the West as opposed to the indigenous. Finally, as the cost of living in China has continued to skyrocket, it’s becoming unworthy for a Chinese to consider paying 2 to $4 dollars for a bottle of wine let alone the imported one that costs more than $10. This is way beyond the reach of many consumers in the country (Yang 2011). Part2 Based on the analysis the wine market and industry in China, it is emerging that for every for foreign investor and this case for Australia, he must be able to formulate the most suitable strategy to be successful. Even though there are various strategies that can be used by the investors, the 4Ps which include product, place, price and promotion are key tools for developing important marketing strategies. Product The analysis of the industry has shown that in China the wine industry is being affected by poor controls especially from the legislation. This has encourages such practices as false labeling of wines even though they might not be original. On the same line, the Chinese market is very cautious on their values. In this case, labeling should be unique and hard to imitate and also in the case of aesthetics, the wine bottles must shows those features that show respect for families and upholding of morality. Place Place as a marketing strategy, is aimed at ensuring that the product is always made available for the customer convenience and this in most instances can be determined with the available distribution channels. However, with lack of reliable and sustainable wine distribution channels in China, the development of own distribution channel could help deliver the product to the market. Price Pricing of wine in China, is a big challenge as many Chinese are not ready spend anything more than $4 for a bottle of wine. With this kind of situation therefore, use of appropriate technology that can allow for low cost production, would provide an important strategy to offer quality but affordable wines for the market. This will be important in beating the market competition. Promotion Promotion entails the process of making the product known and acceptable to the market. With the emerging trend that that products from the West are not much welcome in the Chinese market, promotion should be used to help the market understand how spending on such product will add to their value. The promotion mix will include the identification of the area promotion has to concentrate on, the advertising media to use, the target audience, the time to do the promotion and the benchmarking of the promotion with that of the competitors. Recommendation 1. Seek to buy grapes direct from the farmers rather than retailers so as to help cut down the cost of production of wine. 2. Develop own distribution channel that can be used to deliver wine to the market. 3. Use common and acceptable brands such as Coca Cola and PepsiCo to market own wines in the Chinese market 4. Come up with the content for wine that is acceptable in the market. This is because the Chinese prefer seeing what looks like their own References Hart, M 2011, Energy and environment: China Pours Money into Smart Grid Technology, retrieved on 31st August 2012, available at: http://www.americanprogress.org/issues/green/report/2011/10/24/10473/china-pours- money-into-smart-grid-technology/ Clasm, E 2012, China’s environmental challenge: Political, social and economic implications, retrieved on 31st August 2012, available at: http://www.cfr.org/china/chinas- environmental-challenge-political-social-economic-implications/p5573 Glasse, J 2010, Foreign Business in China Political Instability. Retrieved March 17, 2010, from http://www.faqs.org/abstracts/Business-international/ Pike. J 2009, People’s Republic of China Infrastructure. Retrieved June 19, 2009, From http://www.globalsecurity.org/military/world/china/infras.htm Reiss S 2011, WineEducation.com: The Chinese wine market and industry analysis, retrieved on 31st August 2012, available at: http://www.wineeducation.com/chinadet.html Yang C 2011, Reuters: China’s wine industry ripens as local thirst grows, retrieved on 31st August 2012, available at: http://www.reuters.com/article/2011/11/08/uk-china-wine- idUSLNE7A701320111108 Read More