450 words

Module 7: Technological Investment - Case Study "Wine Markets"

COLLAPSE

The wine industry, affected by globalization, has changed from being concentrated in Europe to spreading to other countries outside the old continent. Producers in the Americas and Asia have entered the global market and are now an essential part of the worldwide competition over wine markets.

Local Knowledge of value nets and value chain configuration:

Companies seeking competitive advantage in global markets should develop local knowledge to be able to compete in these new markets. Wine companies should be aware of the specifics of value nets in different markets:

European market – Wine is rooted deeply in the European tradition. France, as an example, has traditionally set the standard for quality wine. Customers, suppliers, competitors, and complementors know how to appreciate these traditions, and firms are locally responsive. However, market potentials are low.

American market – Winemaking and reputation are fairly new; the market adapted the European appellation system. Production (suppliers and competition) is concentrated geographically, and markets (customers) are spread widely. The value nets, in general, are excellent in achieving efficiency, and market potentials are high.

Asian market – Market potentials are the highest among all three. The wine culture is fairly new and is still in the developing stage. Marketing wine should concentrate on educating customers about the product. Substitutes in the value nets are strong and could cause a threat, because of their traditional presence.

The configuration of value chain for a wine company, in my opinion, should adopt a transitional strategy. The drive for global integration and local responsiveness in the wine industry is high. Standardizing where feasible and adapt to local conditions, is appropriate to attend to the three different markets. As an example, in Europe - concentrating on wine quality and status; in Americas – taking advantage of the competitive advantages of suppliers, marketing and distribution; and, in Asia – integrating education in marketing strategies.

Local value addition in Asia

The local value addition opportunities in Asia are summarized in two factors. a) to concentrate on the experiments the wineries are providing to their customers. This experimenting experience is a decisive factor in growing the wine market, and is part of the educational marketing; and, b) to emphasize on knowledge sharing and learning; and how they were able to transfer the global wine knowledge and present it locally.

The early internationalization process requires that Asian wine producers adopt a home replication strategy; maybe in other similar international markets. While it will be difficult for the Asian wine companies to enter traditional European markets, it is easier for them to replicate their home strategy to other Asian countries. Applying their educational marketing model to smaller markets in Asia (or even in America), is one value addition that represents a differentiated value and can build their global wine niche.

Unique value proposition advantages

The value nets (i.e. customers, suppliers, competitors, and complimenters) that help sustain regional differentiation are as follows:

The European advantages are the diversity of the national markets, the deeply rooted wine traditions, the local knowledge, the large numbers of wineries, and the volume of consumption. The American advantages are the large domestic market, the concentrated efficient large-scale production, the local knowledge base, and market growth opportunities. The Asian advantages are the customers eagerness to learn more, the wine companies learning ability and leveraging this learning worldwide, and the potential local market growth.

Finally, the American wine market is witnessing some sort of confusion with the exchange rate fluctuation and changing environmental circumstances. The flexibility of the American firms to handle this confusion is a fact. However, international firms have to adapt to these disorganization through global integration to achieve efficiency. One way to adapt is through mergers and acquisitions; a good example is the size of operations reported by “International Wine Associates”, which topped $1.5 billion in wine mergers and sales.

References:

(*) International Wine Associates, www.intlwine.com/about.html

(*) Susan Cholette, Ph.D., “The Globalization of the Wine Industry: Implications for old and new world producers”, San Francisco State University

(*) Kimberly Buchanan, “The Grape Wall of China”, CCTV News

(*) Interview with “Judy Leissner, CEO of Grace Vineyard, on company strategy”

(*) “Global Strategy and Organization”, Reading from our Course Material.