Good Example Of A Market Audit To Define The Current State Of Affairs On The Chinese Wine Market; Business Plan

Introduction

In the year 2003, after China’s accession to the World Trade Organization, the country was opened up to international trade and investments from most countries in the developed world. This report examines a possible plan for the expansion of Mission Hill Family Estate Wines, a Canadian wine brand to China. The purpose of this report will be to provide a thorough and comprehensive analysis of the markets, environmental conditions, product analysis and the assessment of a market entry strategy. In order to attain this end, the following objectives will be explored:

A critical evaluation of market entry alternatives;
An assessment of the products of the brand and the alternative segments on the Chinese market;
The formulation of a strategy for the entry into the Chinese markets.
It must be noted that this report is in partial fulfilment of the degree requirements of the writer. Therefore, reasonable effort will be made to acquire data and information through scientific and empirical methods. However, the findings are not applicable to real-life situations and must not be construed as such.

Market Audit

This section of the report will include a critical and thorough analysis and review of the external environment of China. This will culminate in the identification of the opportunities and threats on the market.

PEST

PEST Analysis is a tool for the evaluation of the external environment within which a firm seeks to operate. It provides information about the Political, Economic, Sociological and Technological changes that are relevant to the market and business under review.
Political: China is a centrally planned country and the Communist Congress draws plans for the development of the country. The recent plan of the Chinese Communist Party is to reignite economic growth and boost investor confidence in the Chinese economy. The Communist Party Congress sought to liberalize the banking sector and empower the private sector. There is little or no regulation on wine bottling and labelling, however, there is a lot of bureaucracy relating to exporters seeking licenses. The 2012 regulations that were issues required the provision of information on the winery hygienic standards, measure of scale of production and the safety of raw materials. However, the Chinese taxation systems are complicated and they include duty rates, sales tax, VAT and custom fees and could culminate in many excess taxes.
Economic: China’s economy has gone through some kind of slowdown. This is because the export of products overseas has reduced significantly. However, in spite of that, there is an increased urbanization of the population and the growth consumption. This means China is likely to become a lucrative market. This is likely to increase as the Chinese Communist Party announced this year that they are going to re-ignite their economic growth.
Sociological: There are a lot of foreigners in China now and this provides a sub-market of significance. Then there is a growing middle class that comes with the rapid urbanization of the Chinese economy. China is rapidly being internationalized and me people are getting used to western products
Technological: China’s technological system is keeping pace with the global levels. There are many opportunities for e-commerce now since the banks are also liberalizing. However, China’s local terrain has strong local supply chain systems in the wine industry.

Key Demographic Trends

China has a population of 1.36 billion people, making it the most populous country in the world. Of the total population, 50% of the people live in urban areas like major cities and towns. About 10% of the population are over the age of 65 and about 17% are between the ages of 0 and 15. This shows that its majority are within the active working population.

Opportunities and Threats

The opportunities for Mission Hill Wines include the fact that China has a large market and it is on the quest to improve economically. There is also the opportunity for e-commerce and there are simple regulations they can easily meet.
However, there are threats like high taxes and strong local supply chain systems. There are some issues and problems with economic growth fluctuations and major problems with government regulations and bureaucracy (further details disclosed in the SWOT Analysis below).

Industry Analysis

The economic slowdown of China has affected all industries including the wine industry. It is announced that between January and June 2014, wine import dropped by 5.7% in China. This led to over 800 wine importers leaving the Chinese wine industry. The problem is attributed to the Chinese government’s austerity measures that are meant to assist the country to adjust to its current economic conditions as well as checks on the economy that has fundamentally affected the rich who had enough money to afford luxurious products. In spite of this, there are a number of things relating to the wine industry that makes it lucrative and promising.

Market Infrastructure

China’s wine industry as of the year 2009 was valued at US$10 billion, making it one of the world’s largest wine markets. Red wine is fundamentally preferred in China and it is seen to have health benefits to Chinese consumers. This implies that the market is matured and disposed towards red wine and this is mainly presented to the industry.
The Chinese wine market infrastructure is such that it is based on an export system that is steeped in the Hong Kong international trade hub and process. This implies that most exporters will have to use the normal route through Hong Kong to enter the traditional channels of Shanghai.
Premium wines are available in high-end urban areas and this creates a unique market in a country where luxury is not to be shown openly. This implies that there is the need for premium wines to be sent to these high-end urban areas to achieve a respectable profit for consumers.
The main factors that keep the Chinese wine industry going include the domestic demand which is the central feature of the growing demand for wine in China. However, the availability of land and the growing access to capital for distribution firms has promoted the taste and desire for foreign wine

Buyer Characteristics

On the other hand, for profitability purposes, Chow identifies that success in the Chinese wine market is based on the purchases of lesser-priced wines and the utilization of e-commerce which is growing. This is because the Chinese wine market and industry is somewhat based on the purchase of a lot of people based on large levels of demand by the many people who can afford these large volumes of cheap wine.
Also, anonymity is preferred in China. Therefore, the growing trend towards e-commerce in which there is a general approach towards using the newly provided electronic payment platforms are making the Chinese wine markets profitable.
Additionally, it must be said that there is a growing health consciousness in China and this has boosted the demand for red wine, which is believed to be healthy in China. There is a general trend towards the purchase of red wine as a means of protecting the health of consumers.
Finally, China has a problem with the threat of fake wine. This fake wine is advertised and sold to numerous people in China. Due to the fact that the average Chinese consumer cannot tell the difference, there is a lot of fake wines on the market and there is little anyone can do about it.

Competitor Analysis

In order to analyse the competitors of a given industry, there is the need for the conduct of a conscious evaluation and analysis of competitors. This is done through various tools like the Porter’s Five Forces. Porter’s Five Forces is a model for examining competing forces in an industry and it is used for the analysis of competitors. This includes the critical evaluation of five main elements and variables that are relevant to a given entity entering an industry. The five forces of relevance include:

Potential Entrants: This is the possibility of new entities to enter the market;

Bargaining Power of Buyers: This is a situation where the buyers of a given industry come together in an industry to become competitors against established firms;

Bargaining Power of Suppliers: This is a situation whereby the suppliers come together to integrate and become competitors;

Closeness of Substitutes: This is an evaluation of the possibility of substitutes replacing the core products of the firms under review;

Competitive Rivalry in Industry: This is a competition between firms of similar levels of competency in a given industry

In the case under review, Mission Hill is seeking to compete in a very volatile industry in China. This is because there are no real barriers and no real regulations that keep out new entrants. This means there is a high risk of new entrants entering the Chinese wine import industry.
The bargaining power of buyers is quite moderate. This is because there are strong distribution networks that are growing throughout China. With time, there could be a merger of these entities to become competitors to import entities.
Supplier power is very little because foreign wines do not really rely on local suppliers. Hence, this threat is minimal. The threat of substitutes is quite high because China has a very large counterfeit market. This implies that Chinese wine exporters could easily get their products duplicated and copied.

Competitive Rivalry

Competitive rivalry in China’s wine industry has two dimensions. The first is from Western exporters like exporters from South America, Europe, Australia and the United States. These firms use the same mechanisms and processes as Mission Hill Wines. Therefore they are direct competitors. However, on the local front, there are many local state-owned wine producers that produce cheap wine for Chinese consumers. These entities control large tranches of the market and pose a direct and major threat to firms like Mission Hill.

Internal Analysis of Mission Hill

In this section, the internal elements of Mission Hill will be evaluated. This includes the assessment and evaluation of the products, competitive advantage elements and the strategic segmentation of these products.

Product Analysis

Mission Hill is known for producing award winning red and white wine that defines the cultural terrain of wine. This includes the presentation of unique brands and unique products with high quality standards and targets.
The production of Mission Hill wines is also done in distinct settings and places which make the wines so unique and distinct from other products. There are high-quality and best quality wines that are produced through vintage systems and quality standards. The raw materials are fresh and they are taken from the highest and the best quality products and grapes throughout Canada. Products are grown using organic methods and sustainable farming and production techniques are employed in Mission Hills’ affairs.

Strategic Segmentation

Mission Hill Wines are presented to consumers through the use of various techniques to select the best markets. The target market involves the presentation of these products to the premium level consumers and premium level producers around the world. These consumers are high-end individuals who have enough money to pay a lot of money for Mission Hill’s wines.

Target Market Selection

China’s upmarket consumers are mainly government officials. These individuals are under serious scrutiny at the moment and they could be scrutinised at any point in time. Hence, there is the need to focus on a market of mass production markets. This could be done by providing cheap production systems and processes that will allow Mission Hill to turn in a few of the wines in their ranges to consumers in Canada. This includes the presentation of this wine to a lot of people through a given channel that will be cheapest and provide an opportunity for the highest numbers of people to purchase these products.

Level of Standardisation and Adaptation

In order to enter the Chinese market, there might be the need to blend between a standardised Canadian product, but with some adjustments to the product for local Chinese brand identification and brand equity formation.
There is the need to keep the Canadian tag and the Canadian standards and make it conspicuous to the Chinese consumers to make it look western and exotic. However, there is the need for some kind of adaptation of Chinese standards and Chinese cultural practices. This is because such an act will allow the Chinese to connect to the brand. Canadian features must be retained to prevent imitation and this should be done in a way and manner that will promote brand identification and the retention of prestige and connection to the Mission Hill brand.
It might also be wise to produce some of the wines in China. This will help to cut down costs and retain a reputation and connection as a locally committed entity. This will allow Mission Hill to compete and achieve the best results in its operations.

SWOT Analysis

This section will outline the strengths, weaknesses and opportunities of Mission Hill Wine entering the Chinese markets. It will be a culmination of the different pointers and ideas identified in the analysis above and lay the foundation for the presentation of recommendations for the entrance into the Chinese market.

Mode of Entry

There are several alternatives and options for the entry of Mission Hill into China. The main alternatives include:
The presentation of a specialized premium brand for the Chinese consumers
The presentation of a low-cost brand to consumers in China.
The presentation of portfolio that blends premium and low-cost brands to consumers;
The first option will involve the presentation of the specialized and unique Canadian brand and try to get consumers to buy it and utilise it as their main brand of choice .This will include the presentation of products in a small and limited fashion and try to get consumers to pay premium prices for them. However, this comes with a risk because at a volatile time and period like this, most government officials who purchase premium brands are trying to maintain a low-key profile. Hence, they are not purchasing premium wines. On the other hand, the demand could only rise in future when a new set of entrepreneurs show up and more people are willing to spend openly. However, this could take about a decade.
The second option includes providing low-cost brands through the presentation of a mass-produced version of their products. This will mean competing with a lot of suppliers and producers in the Chinese market. There will be a challenge in beating the competition and as normal, the risk of having to compete with a lot of people could cause sales to be stunted.
The third option will present a portfolio of mass produced generic versions of the Mission Hill wines alongside the premium wines. This is a more rational option because it will mean complementing the risks and studying the market appropriately. This will mean monitoring sales closely in order to vary the supply on the basis of what happens. The mass produced generic version of the Mission Hill wines will involve the presentation of one of the brands and this will help to create brand awareness and this will help the company to enter and build brand equity. In the meanwhile, the sales of the premium brands could go on albeit on a lower scale. As the premium wine market improves, there will be the presentation of their premium wine to consumers

Recommended Strategy

The research recommends that there must be an attempt to present a blended portfolio of a mass produced generic brand of the Mission Hill range and the presentation of a few premium red wine brands. The generic brand must be localised and produced locally in China to make use of cheap labour and cheap costs of production. However, the Canadian identity should be connected to it to prevent replication and create a western brand image. The premium brands must be sold in small quantities and this should be done in a proactive manner in order to increase the volumes of sales as demand for premium wines increase after the Chinese austerity ends

Works Cited

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