Australian-Made Liquor - Bolivian Market Entry - Case Study Example

Australian-Made Liquor: Bolivian Market Entry Name Course Tutor Date Australian-Made Liquor: Bolivian Market Entry Executive summary This report is formulated to analyze Australian wine industry and which entry strategy and modes Treasury Wine Estates should use to enter into Bolivia or Madagascar market. The wine industry of Australia is considered the fourth major exporter of wine globally with roughly 760 million litres per year with just approximately 40% of the production used domestically (IBISworld, 2014). Even though most of the wine is exported, Treasury Wine Estates believes some markets having potential yet to be exploited. These markets include Bolivia and Madagascar market. Targeting these markets can not only increase export volumes of the Australia, but also increase the competitive advantage of Treasury Wine Estates Company. Table of Contents Australian-Made Liquor: Bolivian Market Entry 2 Executive summary 2 Table of Contents 3 1.0Introduction 4 2.0 Company Background 5 3.0 Analysis of two potential countries (Bolivia or Madagascar) 6 3.1 Bolivia 6 3.2 Madagascar 8 4.0 Most appropriate country 9 4.1 CAGE Distance Framework of Bolivia 9 5.0 Best mode of entry into Bolivian market 10 6.0 Conclusion 11 7.0 References 13 8.0 Appendix 15 1.0 Introduction With the changing business environment and competition, organizations are forced to rethink their strategies so as to sustain competition (Backhaus, Buschken & Voeth, 2005). Increasing their distribution channels is one of the strategies which organizations use to create market advantage. However, globalization is not easy because companies have to face challenges like barrier to entry, regulation, cultural differences and economic issues just to name but a few (Ghemawat & Siegel, 2011). Based on the analysis of Bolivian and Madagascar wine industries, this report looks at Treasury Wine Estates market strategies and recommends modes of entry into one of these markets. 2.0 Company Background Treasury Wine Estates is a wine-making and Distribution Company based in Southbank, Melbourne, Australia (IBISworld, 2014). Until a May 2011, this company was a division of global company Foster's Group. according to WFA (2013) the company is divided into 4 international regions; Australia and New Zealand, Middle East & Africa, Asia and the Americas; Europe. At the international arena, Treasury Wine Estates limited controls vineyards worth more than 12,000 hectares with 4,000 staffs in 12 nations, with sales accumulating to more than 36 million of wine yearly, creating profits of A$2 billion (WFA, 2013). Currently, this company is a strong brand with the largest share of the market of 15.3% followed a its major competitors Premium Wine Brands with 10.0%, Accolade Wines Holdings Limited with 8.9% and Casella Wines with 6.6% (appendix 1) (IBISworld, 2014). Treasury Wine Estates limited has several products which it uses to target different market segments. These include Abel's Tempest which is being sold in Tasmania, Angel Cove being sold in Marlborough and Great Western sold in W Victoria among others (IBISworld, 2014). Other products under this companies name are Heemskerk, Jamiesons Run, Robertson's Well, Tierra Secreta, etc. It should be noted that this companies products has a varying prices depending of the demographics factors like income, occupation and social class. Similarly the company has elaborate promotional strategy and access to major markets Australia. IBISworld (2014) argues that the combination of 4Ps of marketing mix (product, price, promotion and place) has ensured that the company has the competitive advantage of other market players. TWE credits much of its good performance to its varied operations and diversification of its products across the Australia and international. According to IBISworld (2014) the strategic positioning of operations all over different regions in Australia and globally enable TWE to increase performance generally. An economic contraction from 2008-09 in the mid-level wines for the US market was compensated by the great performance of the region of Asia (IBISworld, 2014). Additionally to this, Treasury Wine Estates’ common trend of premiumization, together with its boutique and luxury wines all through the United States and Asia, added to its increasing position as an international wine producer (ABS, 2011). TWE has begun on a constant strategy to increase sales of premium wine both in Australian and expand its market either in Bolivia or Madagascar. This approach has already been effective, with international sales volumes dropping, whilst net sales profits per case are going up (WFA, 2013). 3.0 Analysis of two potential countries (Bolivia or Madagascar) 3.1 Bolivia Bolivia is a developing country with economy increasing slowly but steadily. Heritage (2014) posits that in 2012, it is estimated that this country had a gross domestic product (GDP) of $27.43 billion demonstrating positive move. According to Weisbr, Ray & Johnston (2009) Bolivia is a resource-rich nation with great growth credited to confined markets for both tine and natural gas. Following a terrible economic crisis in the 1980s, reforms encouraged private investment, inspired economic development, and reduce poverty levels in the late 1990s (Weisbrot, Ray & Johnston, 2009). The county economy also depends on agriculture for its growth. Grapes for making wine are one of the crops that are grown in this country. There are only two major regions that produce grapes; Tarija and Chuquisaca (Johnson & Robinson, 2007). Johnson & Robinson (2007) contends that at present, the wine is grown in sizeable scale therefore it can be argued that production of wine in Bolivia is small compared with its close neighbors Chile and Argentina. In this country, there are only major producers of wine; production which is not able to supply the whole country as well as exporter. Some of the wines produced in this country include Bodegas y Viñedos Casa Grande, Vinedos Saucini, Bodegas Magnus and Vinos y Bodegas La Concepción among others (Johnson & Robinson, 2007). Weisbrot, Ray & Johnston (2009) believe that the wine consumption is boosted by growth in spurred by natural gas, economic stability and increase in number of foreign tourists. With economic conditions increasing and most people are being economically empowered, disposable income is set to increase in future making most of Bolivian nationals to have stable income to spend on luxury goods like wine and beer. Currently, the government of Bolivia is stable and welcome direct foreign investment to boost its economic situation of the country (Weisbrot, Ray, & Johnston, 2009). A surplus of government programs and income transfers have managed to reduce income inequality and decreased considerable poverty among Bolivians. Bolivian consumer behavior has transformed steadily in the recent. Weisbrot, Ray & Johnston (2009 assert that at present, Bolivians pay much attention to product quality, and have interest in new products. Additionally, some segment of its population is keen to pay best prices for expedient, packaged, and quality liquors (Johnson & Robinson, 2007). Alcoholic and non-alcoholic drink expenditures differ broadly within Bolivia owing to the nation's income distribution. An obvious disparity exists in spending patterns between urban population and semi-urban areas (Weisbrot, Ray & Johnston, 2007). Economic growth is likely to increase the consumers purchasing power; a situation which makes this country a potential market for Treasury Wine Estates wine. 3.2 Madagascar Madagascar is an island nation in the Indian Ocean with a population of 22 million people. It is estimated that 90% of this people lives below a dollar as result of economic challenges (BAA, 2011). This country faces political instability which threats business and economic activities. BAA (2011) argues that since 2009, this country has witnessed several protests due to rising cost of living and falling standards of living amongst the poor and some sections of the middle class. This prompted the president of the day Marc Ravalomanana to resign and power transferred to Andry Rajoelina. At one point Madagascar went bankrupt, and it forced the IMF to write-off the country under the administration of Ravalomanana. The economy o this country depends on agriculture, mining and fishing (BAA, 2011). Numerous key projects are in progress in the oil and gas mining sectors which are predictable to give an important boost to the economy of Madagascar. According to Heritage (2014) this country’s GDP was projected at 8.6 billion USD in 2009 (BAA, 2011). Not well recognized globally, this country produces wine. Wine-making in Madagascar began during French colonization. However, it only took off in the late 1970s upon the Swiss development aid (Wine Searcher, 2011). At the time Swiss withdrew their aid few years ago, the wine sector declined, and it is currently struggling to regain its past strength. The country has seven major wine-makers, comprising of S.A. Chan Foui et Fils, Chan Fao Tong bot Chinese companies, Lazan ‘I Betsilio S.A, Lazan ‘I Betsilio S.A, Malaza Sarl, Domaine Lovasoa, Domaine Mendrika etc (Wine Searcher, 2011). However, consumer behavior has not change much since majority of Madagascar citizens live below the poverty line (BAA, 2011). They do not pay much attention to quality and new products but go basic products which can sustain their lives. Economic disparity has lowered the consumer purchasing power, a condition which has prompted the public to go for low prices in their expenditure. With Australian company Treasury Wine Estates wine trying to expand and get into new markets, this country may not have the potential for this company to grow. 4.0 Most appropriate country 4.1 CAGE Distance Framework of Bolivia From the economic point of view, Bolivia would form the best market for Australian wine. This decision is reached based on the CAGE Distance Framework covering Bolivian culture, Administrative, Geographic and Economic issues. According to Weisbrot, Ray & Johnston (2009) Bolivia is a country in the South America which was colonized by the Spain. For that reason, the country has a mixture of American and Spanish cultures (Weisbrot, Ray & Johnston, 2009). American and Spanish cultures are characterized by life of partying and using expensive wines. To some extent, the cultures have influenced Bolivian culture. Expansion of economy could make many people to move the social structure; particular middle class increase their consumer buying power (Weisbrot, Ray & Johnston, 2009). These may enhance their leisure activities and increase their wine consumption. On the administrative perspective, Bolivia is a democratic country. This country has nine administrative units or towns which can form market segments for Australian wines. In fact, Santa Cruz, Beni and La Paz are the wealthiest states and have large Population with majority of the middle class with slightly high income to spend of luxury products like wine (Weisbrot, Ray & Johnston, 2009). Bolivia is located in central zone in the South America with favorable climate for grapes. The grape producing locations in Bolivia have 21 and 23 degrees in southern hemisphere. Wine Searcher (2011) affirms that the largest producers of wine include Tarija and Chuquisaca. Therefore, Australian company Treasury Wine Estates which intend to invest in Bolivia has the advantage of deciding to grow grapes grape in Tarija and Chuquisaca which they can use to produce wine locally than exporting the ready-made. On the economic perspective, the statistics claims that the country is growing steadily. Weisbrot, Ray & Johnston (2009) contend that the Bolivia Government has adopted a comprehensive initiative of structural reform and macroeconomic stabilization intended at creating price stability, building states for sustained development, and improving scarcity. Economic improving will improve disposable income making it possible for most citizens be ale able to spend on wine. Ghemawat & Siegel (2011) argue that consumer behavior normally changes with income and this can influence the sales of wine. The increase in number of tourist who visits this country is also a determinant that wine consumption may go up a great deal. With its good marketing strategies consisting of high diversification, innovation and quality, will probable do well in this country (IBISworld, 2014). 5.0 Best mode of entry into Bolivian market Nippa, Beechler & Klossek (2007, p.279) are of the view that the International entry strategy of TWE has to be tailored in consideration with pertinent factors. Such factors include investment risks, culture of the country and cost of operation among others (Nippa, Beechler & Klossek, 2007, p.279). The strategy puts a particular emphasis on establishing own company in Bolivia. It is important for Treasury Wine Estates to create a joint venture with any local distributor or small scale company who is a cornucopia and more information about the Bolivian wine market. In this manner, the company will reduce barriers to market entry and other complex regulations enforced on imported wines (Nippa, Beechler & Klossek, 2007, p.286). This strategy must to involve a close working correlation with the distributor and the gent. All the advertising expenditures have to be provided by Treasury Wine Estates. Nippa, Beechler & Klossek (2007, p.283) maintains that globally joint ventures are accepted by less developed nations to draw foreign direct knowledge and investment. This statement is valid in the perspective of Bolivia which is a developing country. By means of Joint venture with the foreign business, it will assist in knowledge and skill transfer with regard to technology (Nippa, Beechler & Klossek, 2007, p.304). This process will also will create job opportunities in Bolivia and increase the foreign currencies flow. On the other side, Treasury Wine Estates will be less exposure to market risks like slow growth. 6.0 Conclusion In the competitive business environment, the capability to have distribution channels in major potential markets an important factor in improving the firm’s revenue. As the rapid pace of globalization makes the traditional means of conducting business irrelevant, it is critical for business managers to keep a global approach to remain effective. As for Treasury Wine Estates managers, getting into still developing Bolivian wine industry will not be easy. However, effective promotion activities, innovation, diversification, segmentation and getting the right marketing mix will determine how they perform in this market. 7.0 References Australian Bureau of Statistics (ABS) (2011). Australian Wine and Grapes Industry. Retrieved 31st March 2013 from http://www.abs.gov.au Backhaus, K., Buschken, J. & Voeth, M. (2005). International Marketing. New York: Palgrave Macmillan Bureau of African Affairs (BAA) (2011). Background Note: Madagascar. U.S. Department of State Ghemawat, P & Siegel.J (2011). Cases about Redefining Global Strategy. Harvard Business Review Press Heritage. (2014).Country Rankings. Retrieved 31st March 2013from http://www.heritage.org/index/ranking IBISworld. (2014). IBISWorld Industry Report C121: Wine Production in Australia. Retrieved 31st March 2013 from http://clients1.ibisworld.com.au.ezproxy.lib.uts.edu.au/reports/au/industry/default.aspx?e ntid=117 Johnson, H & Robinson, J. (2007). The World Atlas of Wine. Mitchell Beazley. Nippa., M, Beechler, S., & Klossek, A . (2007). Success Factors for Managing International Joint Ventures: A Review and an Integrative Framework. Management and Organization Review, 3, 277-310. Weisbrot, M., Ray, R & Johnston, J. (2009). "Bolivia: The Economy During the Morales Administration". CEPR – Center for Economic and Policy Research. Winemakers Federation of Australia (WFA) (2013). Winemakers Federation of Australia. Retrieved 31st March 2013 from http://www.wfa.org.au/board.aspx Wine Searcher. (2011). Bolivian Wine. Retrieved 31st March 2013from http://www.wine- searcher.com/regions-bolivia 8.0 Appendix Appendix 1: Australian wine industry Market Share Read More