Australian Exports: Spirits and Wines - Case Study Example

Name: Tutor: Course: Date: University: Abstract The study is majored on the Australian Exports: Spirits and Wines and whether the organisation should export its products in Latvia or establish a branch company there. This study’s objective is also to explain the profitability of alcoholic beverages industry using porter’s five forces model. The porter’s five forces model gives the background of the industry’s attractiveness and sustainable profitability. The five forces will also help establish whether the Australian organisation will make a profit or not in the alcoholic beverage industry. For the company to do well in the competitive market, there are business level strategies it needs to employ. There is a particular business level strategy that the company needs to implement in order to compete in the market. Keywords: “alcoholic beverages”, “wine industry”, “Australian Exports: Spirits and Wines”, “porter’s five forces model”, and “business level strategies”. Porter’s five forces and business level strategy Introduction The alcoholic beverage industry is a broad and very competitive business. There are many companies that deal with the production and distribution of wine and beer. A company may choose to export their products their products to other companies or establish branch companies in other countries. The Australian Exports: Spirits and Wines may choose to export their alcoholic products to Latvia. The company also may choose to establish branches in Latvia where they produce their wine and beer in the country and sell it there. Before the company makes this decision, they need to analyse some factors and then make a critical decision on the way to take (Australia | Latvia – Exports Actual Data - Historical Charts 2015). Porter’s five forces analysis. The start-up capital involved in starting up a firm that produces alcoholic drinks are quite substantial, and many people fail to raise it. For a new company to carry its production well, they need to raise money for acquiring current technology in order for them to compete with the Australian Exports: Spirits and Wines. Some businesses find it hard to meet the legal requirements [Por081]. hence minimizing the threat of new entry to the alcoholic beverages industry in Latvia. The Australian Exports: Spirits and Wines can overcome the threat of new entry by coming up with a new way of marketing its products hence attracting more attention from the consumers. Another tool that Australian Exports: Spirits and Wines should employ to overcome the issue of new entries is the economies of scale. It entails high quantity productions of alcohol hence reduced the cost of production [Por081]. It can also differentiate its products so as to create a brand that people will have interest and appreciate. The alcoholic industry gets a boost in the attractiveness aspect since the threat of new entrants is minimal. The bargaining power of purchasers increases when there are few distributors in the market, when there is little or no new competition emerging and when the distribution industry grows faster that the manufacturing sector. In the Australian alcoholic beverage industry, the bargaining power of buyers is currently high due to the existence of a vast variety of alcoholic products like the Latvijas Balzams Company that also deals with wines and beer (www.cube.lv, 2015). The presence of the various alcoholic products from different firms are providing an extensive range for consumers to choose. Competition is stiff in the alcoholic drinks industry due to the high bargaining power of buyers [Por081]. Distributors control the prices based on the profit margin they require in this industry. The distributors also limit new competition hence the consumer power force is a negative for the alcohol beverage industry in Australia. High bargaining power of buyers discourages the possibility of entering into business in the alcohol industry [Por081]. The suppliers have little bargaining power in the Australian Exports: Spirits and Wines that works in the brewer’s favour. In the alcoholic beverage industry, the bargaining power of the suppliers is low since the raw materials for producing alcohol are not expensive, and they are readily available [Por081]. Beer and wine production requires the following raw materials corn, wheat, hops barley, sugar, malt, and preservatives (Manufacture of Food Products and Beverages in Latvia 2015). There are a number of raw materials suppliers, who provide the necessary materials to the alcohol production firms a situation that contributes to low supplier power. In the Australian Exports: Spirits and Wines, the supplier power rises when the providers are concentrated. In the industry high supplier power reduces the attractiveness of commencing business in the industry. Little supplier concentration results in increased sustainable profits. It benefits the firms since they maximize in their profits hence becoming competitive in the market [Por081]. The intensity of rivalry entails the extent to which it competes for the market. Currently, there are many alcoholic beverage firms in including Latvijas Balzams that deals in beer and wine, and Australian Exports: Spirits and Wines industry competing for the available markets (www.cube.lv, 2015). The two companies have a stiff competition to attract the available consumers, which may even scare away potential investors who may be interested in starting a business in the industry [Por081]. The industry experiences a neutral effect from the rivalry effects. One competitive move from this particular company causes a notable impact on the other companies in the market. The competitor companies must retaliate and come up with the counter efforts in order to deal with the competition posed by the rival companies. They should focus on differentiating their products so that they can gain the trust of their customers in order to compete with the rival companies like Latvijas Balzams [Por081]. The alternatives limit the potential returns of the Australian Exports: Spirits and Wines by putting a ceiling on the prices that the corporation can profitably charge. The situation affects the switch costs such that they become low. The accessibility of other products that can replace alcohol products impacts on the firm’s profits. This is because the consumers may choose the alternatives over the alcohol beverages. From research, it shows that more beer is sold than liquor. Australian Exports: Spirits and Wines should also focus on advertising wine in the market. There is more profit in the beer and wine industry compared to the spirits and liquor industries. Australian Exports: Spirits and Wines should watch out on the substitutes so as to avert an adverse impact on the profits of the industry. The Australian Exports: Spirits and Wines should pay substantial attention to substitutes being produced by industries that earn high profits [Por081]. Consumers who use complementary goods find it more effective using them together than using them apart. The effectiveness nature is brought about by the incorporation of the porter’s sixth force. The force should be used as it is a theory widely used in business management. The Australian Exports: Spirits and Wines makes profit when the business for the complementary goods is thriving (Concurrent Alcohol and Tobacco Dependence 2015). In Latvia alcohol and tobacco are complementary goods. A decrease in the consumption of alcoholic drinks result to a decrease in the consumption of tobacco and vice versa. On the other hand an increase in alcohol consumption leads to an increase in tobacco consumption (Portals, 2015). An analysis of the industry indicates that it is an attractive industry to venture into if it is well planned and implemented. Australian Exports: Spirits and Wines can venture into this business in Latvia. However, the company should take the time to plan and come up with a well-established firm following the laws of forming a company in Latvia (Atrium Incorporators – Setting Up a Limited Liability Company in Latvia – Advantages 2015). The consumption of alcoholic drinks is increasing in Australia and Latvia a situation that is brought about by the rising in the income and increase in the population. The Increase in alcohol consumption has caused the industry to experience growth. Australian Exports: Spirits and Wines industry must be aware of the dynamics in the alcohol beverages industry in order to compete effectively in the market. The porter’s forces can be used to analyse and determine the profitability of the industry. The alcohol drinks industry is a profitable sector that the Australian Exports: Spirits and Wines industry can consider venturing into. The company should take into the account all those factors that affect the profitability in the alcoholic beverage industry and address the emerging issues appropriately. It is worthwhile for the organisation to commence business in this industry. The Australian Exports: Spirits and Wines industry is likely to do well in the competitive market by doing critical evaluation and analysis of the factors raised by porter’s five forces [Por11]. Business level strategies The most applicable approach for organisations in the alcoholic beverage industry is the differentiation strategy. In the differentiation strategy, a company produces goods and services that are highly differentiated from those of the competitors. The difference can be in the design features or producing products of high quality. In this approach, the consumers get provided with value through the unique characteristics and features of the products rather than the lowest price. The organisations achieve this through; high customer service, producing wines and beer of high quality, unique taste that is attractive to the consumers [Cug10]. Customers are attracted to high-quality products that satisfy their needs fully. It is the obligation of every organisation to ensure that they provide high-quality goods and services. They should also be very creative so that they can always be ready to make quick product innovations. They should also strive to maintain the right image and be up to date with the new technologies in the market. This aspect of differentiation encourages loyalty that is vital because of the competition in the market. The strategy also creates value creating barriers that provide sustainability that is brought about by the perception of uniqueness and reputation. The business level strategy shows how a particular business should carry its activities in order to succeed in a specific marketplace. The alcohol beverage industry experience stiff competition among the companies in the business. Differentiation is a strategy that organisations should adopt in order to do well in the market. The companies need to be aggressive in order to establish a brand that is different and does well in the market[Cox07]. Impact of differentiation on Australian Exports: Spirits and Wines The strategy, differentiation, has positive impacts on the Australian Exports: Spirits and Wines. For instance, even when there is rivalry from other firms, the company can be able to overcome other competitive companies in the industry. Even if there is competition in the market, Australian Exports: Spirits and Wines will have fewer worries because they have already established loyal consumers who are less sensitive to a price increase. The consumers only concern it to satisfy their need using their favourite brand. The loyalty also provides a barrier that is difficult to overcome even by new entrants. It gives the organisation an advantage over the other firms hence making a profit than other competitors. The organisation should focus on this strategy so as to remain competitive in the market[Smi14]. It gives them an advantage over their competitors hence making more profit. They can use these profits and channel it into expanding the business. They can even invest in different parts of the world hence expanding their returns. Making more money enables the organisation to acquire the state of the art technology that they can use to make their production work easier and faster. Employing the latest technology ensures that the organisation increases their outputs which mean more income for the firm [Smi14]. The income also earned enables the organisation to pay all the taxes as required by the laws (VID – Taxes 2015). It is also able to take care of the employees by paying them better remuneration hence encouraging them to perform better. Paying the staff better than those in the competitive firms, it encourages them to be loyal to the organisation hence smooth running of the activities. However, before the organisation employs this strategy, they must have the tangible, and intangible resources needed before implementing this strategy. They should also have fundamental success factors, the strengths, opportunities, weaknesses, and threats and the value adding activities so as to ensure successful implementation of the strategy. The organisation should invest enough finances to ensure that the strategy is well executed so that the company can benefit fully [Smi14]. Conclusion The alcoholic beverage is a big and a competitive industry. The industry is growing considerably, and the demand of the products is also increasing. The industry faces challenges from both internal and external factors. Some of the challenges are out of the firms’ control so they should just learn to cope with them. They should also develop some mechanisms how to handle those challenges that are out of their control. Before starting a business in this industry, one should have a clear plan and enough capital so as to produce a very competitive product in the market. The Australian Exports: Spirits and Wines should also come up with appropriate business level strategies that are applicable to them. Bibliography Atrium Incorporators – Setting Up a Limited Liability Company in Latvia – Advantages . 2015. 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