Strategic Management for the Hunter Valley Wine Company - Case Study Example

Strategic Management for the Hunter Valley Wine Company Author Author’s Affiliation Executive Summary This report evaluates the strategy that is to be used by Hunter Valley Wine Company (HVWC) to enter the Asian market. It is divided into various sections each having its own importance. The first section introduces the report by giving an overview of the company. The next section then outlines the internal and external analysis. The next section looks at the available competitive advantages as well as their stability in the company. The next section offers an overview on wine consumption patterns and the economic drivers in the wine market. The next section then analyzes the industry based on Porters’ five force analysis. The section that follows then looks at the applicable blue ocean strategies for the company. The next section looks at the relevance of the strategic leadership and entrepreneurship based on HVWC. The next section then evaluates the organizational structure, control and corporate governance of HVWC and makes necessary recommendations. Noteworthy is the fact that there is no recommendation section being that in every section there are recommendations made for the company’s strategic management. There is also a reference list that was consulted when preparing this document. There is then an appendix section that further has material that backs up the report. Table of Contents Table of Contents 3 Introduction 4 Internal and External Environment Analysis 4 Internal Audit 4 External Environment 5 Political factors 5 Economical factors 5 Socio-Cultural and environmental factors 5 Technological factors 6 Legal factors 6 Competitive Advantages of HVWC and their Sustainability 6 Relevant Economic Market Drivers and Wine consumption Patterns 7 Porters’ Five Force Analysis 8 Blue Ocean Strategies for HVWC 8 Potential for Mergers and Acquisitions 9 Relevance of Strategic Leadership and Entrepreneurship 9 Organizational Structure, Control, and Corporate Governance 10 Conclusion 10 References 12 Appendix 13 The Eliminate-Reduce-Raise-Create grid for HVWC 13 Introduction Hunter Valley Wine Company abbreviated as HVWC was established in 1990 by the Smith family. The company initially had 25 hectares vineyard that consisted of Chardonnay, Semillon, Cabernet Sauvignon, and Shiraz vines. The company has since then expanded its winery through acquisition of additional vineyards raising their potential of grape production and thus wine production. After being exhibited in 2000 in all the Australian Annual Wine shows, the company has received recognition in the past 15 years for its quality production. This has raised the demand in the Australian domestic market. The company has partnered with Dan Murphy’s where it delivers its wine products. With the rise in consumption patterns both in Australia and the Australian wine in Asia the company is aiming at entering the market. The company is intending to venture into the Asian market that is well established and mature. The aim of this report is to come up with a good strategic plan that will enable the company enter the Asian market amidst the competition. Internal and External Environment Analysis Internal Audit The company has a range of factors that makes it unique. First off, in terms of resources and capabilities the company has invested in viniculture and viniculture techniques. The company also has a 25 hectare vineyard that ensures the production of grapes is continuous. HVWC has also acquired other vineyards all over Australia to boost its wine production through increased quality grapes production. The company has been recognized from 2000 as one of the quality wine makers in the region and has a wide domestic market following rising demands in Australia. The company has been operational since 1990. The company ensures the distribution and marketing of its product through the partnership with Dan Murphy’s. Second, HVWC also has brand awareness all over Australia reflected by the high demand. The prices are favorable compared to the production cost. Thirdly, the company also has well established relationships. First, it is a Smith family owned business. Second, the company has partnered with Dan Murphy’s where it makes for further distribution as well as market its wine products; through Dan Murphy’s website. The company has also developed good relationships with the other grape producers in Hunter valley thus boosting its production. External Environment Political factors To export wine from Australia there must be compliance with various legislations. According Wine Australia (2015) Australian Grape Wine Authority Regulations that applies to the export of 100 litres of wine requires that there be expert approval. The approval is meant to protect the reputation of the Australian wine through compliance with the International regulatory requirements and investigating when there are breaches (Wine Australia, 2015). HVWC would be required to obtain a license to export, registration of its products, export permits and the bulk consignee approval (Wine Australia, 2015). The Australian government through the department ensures that the reputation of the Australian wine market both locally and internationally is maintained. Economical factors The recent economic downturns that have plagued the economy, companies HVWC inclusive, have to restructure their marketing and sales campaigns. Economic conditions have the highest influence on business. HVWC has the advantage of the strong Australian dollar and the current exchange rate that is stable. This is likely to make the entry into the Asian market favorable. Socio-Cultural and environmental factors There is a rising wine consumption among individuals due to awareness of the health benefits amongst the consumers (Asian New Zealand Foundation, 2014). Additionally, some consumers also attach value to wine as a status symbol (Asian New Zealand Foundation, 2014). These two factors have been the key drivers of the wine market in China, India, South Korea as well as Singapore and the stable Japanese wine market. Grapes are affected by hot temperatures forcing wine producers to mist the grapes. Technological factors The rise of social media use as a marketing tool is one factor that HVWC has to consider. The other technological factor is the rise of online purchasing. The company should be able to invest well in the aforementioned technological factors. Legal factors There is a plethora of legal implications in the wine industry. First off, there must be a complete labeling of the wine indicating the content of the wine (Australian Government, 2015). There are also advertising restriction to children and labor costs as well. In Australia the wine producing companies have to comply with the Food Standards Code which underpins how the wine is produce. The other regulation is the Australian Grape and Wine Authority Act that determines the best description of wine through label integrity and export control (Australian Government, 2015). HVWC will have to comply with all these legal requirements. Competitive Advantages of HVWC and their Sustainability Competitive advantage refers to a business concept that describes the attributes that allow a given firm to outperform its competitors (Chaston, 2012). The attributes in this case may include high skilled personnel, geographic location, high entry barriers, and access to natural resources (Chaston, 2012). Simply put it is a strategic advantage that a business has over its rivals within the industry (Chaston, 2012). When a company achieves competitive advantage, its position in the market is strengthened. On the other hand, a sustainable competitive advantage results when a given firm acquires a combination of attributes that are not imitable by the competitors, and thus can be maintained for a long period of time (Chaston, 2012). HVWC has invested well in all the resources. This includes the acquisition of more vineyards additional to the initial 25 hectare yard so as to increase grape production. The company has also linked with other producers and invested in viniculture as well as viniculture techniques. The four varieties of wines produced by the firm are unique to it and form its major brand base. Worth to note is that quality of the products has also been in place reflected in the recognition the company gets since 2000 until now. The company produces 10000 cases for each of the four varieties aforementioned annually. The retailers get the goods at efficient and cost effective prices. HVWC sells a case at $96.00 to Dan Murphy’s that in turn sells the sane case at $167.88 per case. HVWC has the power of good location through the partnership with Dan Murphy’s that distributes its wine products to the 174 nationwide stores. Relevant Economic Market Drivers and Wine consumption Patterns Asia-Pacific will consume more than 4 billion bottles of wine by 2017. Wine consumption in Asia is ranked third after Europe and America. According to VINEXPO (2014) the Asian consumers had consumed 289.72 million 9-litre cases of wine by the end of 2013. The consumption is predicted to grow by at least 22.4 percent by the end of 2017 (VINEXPO, 2014). In comparison the American consumption patterns are expected to grow by 10 % and that of Europe to fall by 0.15 % by the end of 2017. The total world production of wine is expected to grow twice. Despite the maturity of the Asian-Pacific wine market, the imports into the region account for half of all the wine in the region. This means that HVWC is assured of market in Asian wine markets (VINEXPO, 2014). The mid class and the upper class are associated with wine consumption (Asian New Zealand Foundation, 2014). This has been due to the increase in the middle class as well as the awareness of health and social benefits of wine. Both men and women equally consume wine for a variety of purposes such as treat, complement food, special occasions and tasting (Asian New Zealand Foundation, 2014). The consumers of wine can be divided into segments. The home hedonist consumers are women, middle class aged between 34 and 55 and those that have received tertiary education. They are concerned with the origin country of the wine they consume (VINEXPO, 2014). The other segment is the image oriented consumers who are young men and women aged less than 34 years old who mostly drink wine in restaurants and public places (VINEXPO, 2014). Thirdly, the eclectic consumers, who are well educated and form the general population of individuals between 45 and 54, consume wine as part of their diet (VINEXPO, 2014). Lastly, the conservative consumers with have average education. They represent heavy wine consumers in any wine market. Porters’ Five Force Analysis Porter’s five force model is a framework used to classify and analyze the most importance factors that affect the intensity of competition in a competitive industry and its corresponding profitability levels (Roy, 2011). These forces include threat of entry, bargaining power of buyers and suppliers, threat of substitutes, and the degree of competitive rivalry (Roy, 2011).Considering the fact that HVWC is yet to explore the Asian market it is likely to encounter some of these forces. First off, the wine industry requires a high investment costs that are likely to deter the entry of the business into Asia. The economies of scale of the existing firms are also another barrier of entry (Roy, 2011). Hong Kong, China, and other Asian countries have well established companies that produce wine (Asian New Zealand Foundation, 2014). Japan is ranked best in terms of wine production (VINEXPO, 2014). The level of customer loyalty to the brands already in the market also poses a threat of entry for HVWC (Roy, 2011). The other barrier to entry into Asian market would be the access of suppliers for the raw materials as well as access to distribution channels. Lastly, there might be retaliation by the already established products. This is likely to create price wars that are in favor of established firms in the market. However, HVWC has the cushion of competition law that will keep off such predatory pricing strategies. The bargaining power of supplier enables them to sell their products at high prices and thus squeezing the industry profits (Roy, 2011). There are many suppliers for grapes all across Australia. HVWC therefore will not be affected by the high bargaining power of the suppliers. In relevance to threat of substitutes, the wine industry keeps changing in terms of innovation. There are likely to be substitutes in the market with lower prices and better quality. The degree of competitive rivalry is high as there are many players in the already established and mature wine market in Asia. The Japanese, Singapore, Hong Kong, and Korean wine markets are well established and mature (Asian New Zealand Foundation, 2014). Blue Ocean Strategies for HVWC Blue ocean strategies are meant to eliminate competition in the competitive industry. Successful blue oceans strategies reject the traditional strategic positioning where there is a trade-off between differentiation and cost; instead it focuses on low cost and differentiation simultaneously (Kim & Mauborgne, 2015). The first move would be to conduct a market research on the non consumers of wine. This will ensure that HVWC is able to create demand for this segment and unlock a new mass of customers that were nonexistent previously. After researching and creating demand the company should then consider introducing a new drink branded under a different name (Kim & Mauborgne, 2015). The drink should be appealing in terms of price, quality and ease of access to both non-consumers and the consumers segment. The company should extend its culture of wine exhibition so as to further raise its brand awareness among the consumers. Through a well differentiated and low cost drink the company will be able to gain entry and thus recognition in the market through minimizing competition yet at the same time boosting its sales (Kim & Mauborgne, 2015). This is achieved through ensuring that the buyers are compelled to buy the product at the price (Kim & Mauborgne, 2015).HVWC should also conduct an analysis of the strategic groups in the market and the industry based on the pricing and performance. There is the eliminate-reduce-raise and create grid constructed in the appendix, for HVWC to ensure the sustainability of its blue ocean strategy. Potential for Mergers and Acquisitions Entry into new markets that are globalized proves to be difficult if a firm gives it a try on its own. This is due to the fact that regulations and the cost of expansion being limiting factors (Cooper et al, 2009). As such the only way to conquer the market is to enter into mergers and acquisition. Mergers and acquisition refers to a general term used to refer to the consolidation of companies (Cooper et al, 2009). A merger is where two companies combine into one new company, while on the other hand acquisition refers to the purchase of one company by another (Cooper et al, 2009). To enter the new market and evade the competition therein HVWC has to undergo merger and acquisition. This will help pass over the entry barriers in the new market in Asia that is yet to enter. Instead of partnering with Dan’s Murphy’s, HVWC should consider acquiring it so that its base in the domestic market is well distributed through a secure distribution system. Relevance of Strategic Leadership and Entrepreneurship Entrepreneurship refers to the process of recognizing opportunities and then creation of resources to implement innovative ideas in leveraging on the opportunities through planned ventures (Bessant & Tidd, 2010). Entrepreneurship is mainly associated with value creation (Bessant & Tidd, 2010). HVWC should develop strategies that will make it an entrepreneur. Risking the investment on export business to Asian markets would make the company more of an entrepreneur (Bessant & Tidd, 2010). Strategic leadership refers to the process of applying tactics that communicate the vision of a given organization (Hanson et al, 2013). It is also a tool that institutes change in organizational structure within the firm (Hanson et al, 2013). HWVC should clearly outline its vision that will be communicated by the managers through a variety of ways. Restructuring the organizational structure will also be in order so that there is a clear distinction between the employees, the management and the owners of HWVC. Organizational Structure, Control, and Corporate Governance Organizational structure refers to the hierarchical arrangement of the authority lines, communication channels, tasks, duties, and rights in an organization (Hill & Jones, 2013). HWVC should clearly outline its organizational structure and if possible draw an organizational chart. This will help in making the company perform better and save on costs in the long run. Control of the firm is stipulated in the organizational structure (Hill & Jones, 2013) Corporate governance refers to the set of relationships or links between the company’s management, the board, and shareholders as well as other stakeholders (Hill & Jones, 2013). It provides a framework through which the objective and monitoring performance are determined (Hill & Jones, 2013). HWVC should come up with a corporate governance structure inclusive of board of directors, managers, grape growers, wine marketers, wine merchants and wine brokers among others. This will help solve the common urgency problem resulting from poorly performing managers. Conclusion Entry into the Asian market would not be smooth for HVWC as such. There are barriers to entry in the new market as outlined in the report. The best strategy the company can choose to use is the Blue Ocean strategy that has been explored in the report. The company has its own unique competencies currently including the cost effective pricing that is based on the balancing between the cost of production and profits. The only way to go best into the Asian market will be through mergers and acquisitions so as to counter the possible barriers that are in the market. Strategic leadership and entrepreneurship is very relevant not only in the wine industry but also the other industries in general. Organizational structure, control and also corporate governance have also been expounded on in the report. References Asian New Zealand Foundation. (2014, November 26). Asian wine markets now a global industry driver | Asia New Zealand Foundation. Retrieved from http://asianz.org.nz/our-work/knowledge-and-research/research-features/asian-wine-markets Australian Government. (2015). AGWA’s regulatory activities are aimed at preserving Australia’s internationally recognised reputation for quality and integrity. Retrieved from www.agwa.net.au/regulatory-services Bessant, J. R., & Tidd, J. (2010). Innovation and entrepreneurship. Chichester, England: John Wiley & Sons. Chaston, I. (2012). Strategy for sustainable competitive advantage: Surviving declining demand and China's global development. New York: Routledge. Cooper, C. L., Finkelstein, S., & Ebrary, Inc. (2009). Advances in mergers and acquisitions: Volume 8. Bingley, UK: Emerald. Hanson, J., Meacheam, D., & Prior, D. (2013). Strategy, management and leadership: An introduction. Frenchs Forest, N.S.W. Hill, C. W., & Jones, G. R. (2013). Strategic management: An integrated approach. Mason, OH: South-Western, Cengage Learning. Kim, W. C., & Mauborgne, R. (2015). Blue ocean strategy: How to create uncontested market space and make the competition irrelevant. Boston, Massachusetts: Harvard Business Review Press. Roy, D. (2011). Strategic Foresight and Porter's Five Forces: Towards a Synthesis. München: GRIN Verlag GmbH. VINEXPO. (2014, May 29). The Wine and Spirits Market in Asia-Pacific and Worldwide with Prospects Until 2017. Retrieved from http://www.vinexpo.com/media/cms_page_media/437/IWSR%20-%20Monde%20-%20ANG.pdf Wine Australia. (2015). Exporting Wine. Retrieved from http://www.wineaustralia.com/en/Production%20and%20Exporting/Exporting%20Wine.aspx Appendix The Eliminate-Reduce-Raise-Create grid for HVWC Eliminate Aging Qualities Brand Distinctions Raise Brand Awareness Quality Unique Brands Retail and Food store involvement Health Benefits Awareness Market Segmentation and targeting Reduce Complexity of Wine Range of the Wines Prestige of the Vintage vineyards Domestic market dependence Create Ease of drinking Online Purchasing presence Ease of Access Fun and Adventure Products Read More