Australian-Made Export Product - Assignment Example

Heading: Australian-Made Export Product Your name: Course name: Professors’ name: Date Introduction Australian-made consumer goods are on the rise in the Indonesian market, today. Some of the products range from agricultural products, mechanical products, electronics, and chemicals. In terms of the agricultural products, some of the Australian-made consumer products exported to Indonesia include fruits, grains, beef, live animals, honey, and beverages. In this essay, focus is put on Australian-made wine exports to Indonesia. Here, its viability is analyzed in terms of legal, economic, cultural, and market factors. Market overview of the wine in Indonesia As Pekerti (2011, pp. 2-12) reports, wine consumption in Indonesia initially was low due to the fact that it is a Muslim-populated country (Gray 2012). As a result, there was a small market for wine imports because majority of the population kept away from alcoholic drinks. Currently, there are reports that wine market has improved with the consumption rates increasing by 25% per year, for the last six years. This improvement is attributed to the development of the global four and five hotels, and important expansion in up-scale dining businesses. Additionally, Indonesia is a home for budding middle class consisting of young, learned and urban populations. In 2010, the Government of Indonesia (GOI) modified the taxes and tariffs on alcoholic drinks, and increased import quotas levels and added licensed importers numbers (Woods 2008, pp. 2-28). Viability of the wine exports in Indonesia Consumption rate Pekerti (2011, pp. 2-12) also says that in the past, wine market was relatively low in Indonesia because of its social and religious beliefs. For instance, most of the Indonesian population was dominated by Muslims who do not value alcohol consumption; hence, lowering the wine market in the country (Gray 2012). Nevertheless, market researchers have realized that there is a growing demand for wine products in the country due to various environmental, social, political, economic, and legal changes. Gray (2012) and Corra (2007) argue that there are apparent market opportunities all over South East Asian markets like, Singapore, Thailand, and Vietnam. These markets are in the major accessible to wine, and thus, Australian wine firms ought to be looking to make exports to these areas. Nonetheless, there is an overlooked market in the region; Indonesia by Western Wine companies. This is because of the wide view that the country predominantly occupied by Muslims; hence, holding little chances for Australian wine. Despite the challenge of developing a wine market in a Muslim-influenced culture, there is a great opportunity for an upcoming wine market in Indonesia (Gray 2012; Australian Government Austrade, 2007). Notably, Gray (2012) further maintains that there are few chances for low-cost and bulk wine sales to Indonesia. These price levels are impractical in relation to the Indonesian politics. This does not apply for finest wine sales, for the Australian wine shelf’s US$15-50 price level. In the Indonesia, the same products are sold at an extra premium of $40-150. Individuals pay for the wine products, and those in the middle class people in the cities, such as, Jakarta, consume them. Besides, hotels and restaurants across the country seek for wine products because they want to satisfy their consumer needs. In addition, Gray (2012) says that despite the fact the Muslim culture in Indonesia, there are no restrictions for alcohol sales. Therefore, Australian-made wine export opportunity is viable in the Indonesian market and has a possibility of a long-term growth. Furthermore, HRI and Importer sources foresee that wine imports will progressively expand by almost 20% per annum through 2015. Just like Southeast Asian markets, wine is getting increasingly popular. Indonesians have begun to view wine as a healthier option to other alcoholic drinks. They also believe that wine builds an image of absolute healing, and that drinking wine is seen as sign of status (Australian Government Austrade, 2008; Pekerti 2011, pp. 2-12). By 2010, all importers would import majority of the brands, even though some brands were still restricted to particular importers. In 2010, the breakdown of whole import quota was almost 70% wine, 10% spirits, and 20% beer. Almost 80% of imported alcoholic drinks are sent to Bali and Jakarta. The remainder 20% goes to other main urban centers like Surabaya, Medan, and Bandung. Estimates demonstrate that the HRI sector accounts for 90% of whole sales with retail outlets responsible for the remainder 10%. The consumption of white and red wines is of equivalent sum in common. Bali consumers, who are majorly tourists, prefer white wines, while those in Jakarta among other cities in the country prefer red wines (Pekerti 2011, pp. 2-12). According to Pekerti (2011, pp. 2-12) holds that most of the wine imports in Indonesia originate from Chile (20%); South Africa (30%); Australia (20%); Spain and Germany and Italy (10%); and United states (10%). Indonesian imported spirits mostly come from Europe (50%), Russia (15%); United States (15%); and other countries (20%). in 2009, 70,000 cartons of beer were imported. Indonesia’s most well-liked beer is from Mexico (40%), and the European countries like Italy, Germany, Belgium, and Australia (40%). Others include United States and Australia (20%). Market entry Secondly, Australian-made wine export opportunity is feasible in the Indonesian market in terms of favorable market entry conditions. In the case of market access, wines and spirit importation before April 2010 was restricted by a formal quota calculated every the Ministry of Trade. Input is offered by a single importer and many key distributors, as well as the Hotel and Restaurant Association. This includes the following year’s approximated consumption of spirits and wines. Besides, Pekerti (2011, pp. 2-12) notes that the Minister of Trade, under a decree No: 15/M-DAG/PER/3/2006, closely monitored and regulate any importation, selling, distribution, and licensing of spirit and wine. Upon negotiations with private sector and GOI stakeholders, the Ministry of Finance gave a regulation No. 62/PMK.011/2010 in 2010 that held that luxury taxes would no longer be imposed on beverage products that contain ethyl alcohol, as well as ethyl alcohol concentrates. No. 431/M-DAG/SD/4/2010 issue of the Minister of Trade’s regulation permitted eight vendors to guide import duty paid spirit, wine and alcoholic drinks through the approval of the lists stated in the issue. These policy changes on wine and alcoholic beverages importation in the country were designed to contribute to the tourism industry and prevent unlawful importations in the country. According to the industry sources, real demand for spirit and wine is approximated at 3-4 times greater that the formal quota every year (Pekerti 2011, pp. 2-12). To further illustrate the viability of the product in Indonesia, an importer demonstrated that his net sales in 2010 were $790,000. This was calculated on the basis of his 45,000 cartons quota. The importer’s breakdown of quota imports indicated that there were 30,000 wine cartons, 5,000 spirit cartons, and 10,000 beer cartons, and this amounted to $6.3 million for all alcohol categories (Pekerti 2011, pp. 2-12). Besides, the single leading importer bought 80,000 cartons of beer, spirits and wine. The law permits every importer to supply spirits and wines to their appropriate retail outlets, distributors, and consumers. Every main Indonesian city has over 20 alcoholic drinks distributors who are endorsed by the local authorities to supply them to HRI industry. Many importers have specific distributors and retail outlets. In addition to the official channels, sources demonstrate that there is a considerable volume of wine imports via unofficial channels (Pekerti 2011, pp. 2-12). Therefore, the product is legally feasible in Indonesian market, and indicates a potential of long-term growth. Pekerti (2011, pp. 2-12) suggests that in order to gain full access to the market, it is vital to comply with National Agency for Drug and Food Control (BPOM) (HK.00/05.1.2569, 2004), which state that all imported, duty paid spirits, wine, and beer should obtain a product registration, ML, number. This is possible through submission of all the necessary documents to the BPOM before importing alcoholic drinks. On the other hand, duty-free wines with 170,000 quota cartons, in 2010, which amounts to 30% of the alcoholic drinks brought into the country, need no ML number. When products are under special duty-free regulation, the only authorized importer obtains the custom or excise label. Import distribution channels In Indonesia, the Ministry of Trade is in charge of wine importation. This is done through issuance of wine importation license, and establishment of yearly quota. In 2011, wine importation process was slightly distinct from the past years. By 2011, there were eight authorized importers of wine, one in Bali, and seven in Jakarta, dealing in duty paid spirit, wine and other alcoholic drinks with a sum of 40,000 cartons quota in 2010. GOI appoints one firm to handle the importations of the duty-free wines, beers and spirits, and in 2010, it gave it with 170,000 cartons quota, with equal distribution to duty-free firms (Winemakers’ Federation of Australia, 2011; Pekerti 2011, pp. 2-12). The eight duty-paid wine importers, together with more than 20 distributors sell wine and other alcoholic products to bars, five-star hotels, night-clubs, up-scale supermarkets, and independent wine lounges. On contrast, the duty-free market comprises of about 15 firms owning duty-free stores all over the country. Such outlets sell wine to tourists, expatriates and diplomatic communities. Therefore, wine is an Australian-made consumer product that is highly feasible in the Indonesian market due to an easy and open access to the market (Pekerti 2011, pp. 2-12). Market opportunities In terms of market opportunities, it is explicit that Australian-made wine can be highly viable in the Indonesian market. This is because of the clear increase in the country’s demand for the product (Australian Government Austrade, 2007). While the consumption rates rise, Indonesian wine importers have a variety of origin choices for its wine. In spite of their great interest in the US wine, the Australian-made wine product can be promoted so as to secure larger market share in the market, as compared to other countries. The presence of five-star hotels, up-scale supermarkets, autonomous wine lounges, night-clubs, and bars in Indonesian major cities offer many market opportunities for the Australian consumer product. Some of the promotional activities that wines importers in Indonesia perform include advertisements and free wine tasting; hence attracting new consumers, and launching new labels and varieties. In fact, a single wine store in the Jakarta City contains between 800 and 1,000 labels of wines. Pekerti (2011, pp. 2-12) further notes that one of the most developed Jakarta-based wine importer and retailer sponsors wine promotional campaigns for about 16 years now, in South Jakarta, a place dominated by expatriates. The organization has created a Wines and Spirits Circle that currently has 1000 members. The members comprise of Indonesians and expatriates. After five years, the same organization started a Klub Wine that was aimed at more Indonesian citizens, and has acquired 350 members. Through these clubs, wine market is widened by the promotional activities and sponsorships. Consequently, several wine shops are being opened in Bali, Surabaya, Bandung, and Jakarta, which serve expatriates and the rising number of upper class individuals. Further, through the yearly Wine and Cheese Expo held in Jakarta in 2004, by six distributors, wine market tremendously widened in the country. These promotional events and activities have reportedly attracted close to 2.1 to 2.6 million tourists every year. Other events include wine tastings, wine workshops, sommelier competitions, and food and wine pairing classes (Pekerti 2011, pp. 2-12). Constraints Despite the conditions that favor high feasibility of wine industry in Indonesia, there are constraints that Australia exporters ought to put into account. Some of these constraints include taxes, tariffs, and quotas on Australian-made wine into Indonesian market. Secondly, wine market in Indonesia is only sustained by a few high income earners (Winemakers’ Federation of Australia, 2011 & Pekerti 2011, pp. 2-12). Most of the wine clients in the country include well-employed, well-travelled, and highly educated individuals. There are also challenges in the acquisition of necessary documentations in the import process. A lot of time is also lost in the process of obtaining a registration number at the BPOM. Additionally, BPOM personnel have insufficient knowledge on alcoholic beverages like spirits and wines; product specification, and ingredients. This is because the products were strictly regulated for a long time; hence, sounding new to the BPOM staff (Pekerti 2011, pp. 2-12). Competition In as much as Australian-made wine export opportunity is viable in Indonesia, there is a stiff competition offered by other wines from countries like Chile, South Africa, and US. South African and Chilean wines are getting more popular in the country due to aggressive promotions and low prices relative to French and Australian wines. Nevertheless, the Australian-made wines are preferred because of their reduced distribution costs and high quality (Pekerti 2011, pp. 2-12). On the other hand, Pekerti (2011, pp. 2-12) maintains that Indonesians also see the costly French wine as the best quality. Notably, Indonesia has a prominent consumption culture, and usually, highly priced products sell well due to its recognized status. Other than the foreign competition, the product is likely to face a steep competition from domestic wine producers like the company situated at Bali. However, local wine production is still seen as insignificant in relation to the whole imported wine consumption. Conclusion Despite the Muslim culture that barred alcohol consumption in Indonesia, the country has continued to witness a growing demand for imported wine (Gray 2012). The country’s wine market is feasible in terms of economic, technological, legal, operational, and cultural factors. Indonesian consumers have reportedly increased their wine consumption rates relative to the past years. The country’s adjusted policies are influential in creating a feasible market for the Australian product. Market access is easy based on compliance with the legal requirements. There are also numerous retail outlets, distributors, hotels, supermarkets, and bars, which provide a variety of market opportunities. Several promotions and sponsorships have contributed to a feasible wine market in the country. Nevertheless, there are some challenges affecting its viability like tedious registration and certification processes, inadequate knowledge by BPOM staff, and stiff competition from other countries’ consumer products (Pekerti 2011, pp. 2-12). References Australian Government Austrade, 2008, Wine Overview, Australia Unlimited. Retrieved on May 3, 2012, from http://www.austrade.gov.au/Wine-overview/default.aspx Australian Government Austrade, 2007, Indonesia's Growth Too Important To Ignore: Austrade, Australia Unlimited. Retrieved on May 3, 2012, from http://www.austrade.gov.au/Indonesia-s-growth-too-important-to-ignore-Austrade/default.aspx Corra, G 2007, Exporting wine in a competitive world environment, Paper Prepared for ‘Outlook 2007’, Canberra, Pp. 5-10.http://adl.brs.gov.au/data/warehouse/pe_abare99001351/corra_wine.pdf Gray, NH 2012, The Indonesian Wine Market: Exploring Wine Export Opportunities beyond China, navigating a multi-cultural globe. Retrieved on May3, 2012 from. http://nathanhgray.wordpress.com/tag/wine-exports/ Pekerti, S 2011, Indonesia; Market Brief-Wine. USDA Foreign Agricultural Service. Global Agricultural Information Network. Pp. 2-12. http://www.calwinexport.com/files/Market%20Brief-Wine_Jakarta_Indonesia_5-10-2011.pdf Winemakers’ Federation of Australia, 2011, Submissions on the Indonesia‐Australia Comprehensive Economic Partnership Agreement (IA‐CEPA). Pp. 1-6.http://www.dfat.gov.au/fta/iacepa/submissions/winemakers-federation-australia.pdf Woods, M 2008, Department of Agriculture and Food Western Australia’s Submission to the Department Of Foreign Affairs and Trade’s Request for Public Submissions on the Feasibility Study into an Australian-Indonesian Free Trade Agreement. Pp.2-8.http://www.dfat.gov.au/fta/iacepa/feasibility-study submissions/WA_Government_Department_of_Agriculture_and_Food.pdf Read More