Global & International Business Contexts (Chilean wine industry) - Essay Example

? Global & International Business Contexts (Chilean wine industry) Contents Part Porter’s National Diamond Analysis: Application to Chilean wine industry 3 Part 2: Market Entry Strategy 11 Strategy 1: Branding 11 Strategy 2: Technology and innovation 12 References 15 Part 1: Porter’s National Diamond Analysis: Application to Chilean wine industry Porter’s National Diamond model is an extended version of the Porter’s strategic forces that were proposed for analysis of an industry in the country’s economy. The Chilean wine industry have been analysed using the Porter’s National Diamond Model which takes into consideration the industry factors and the available resources that facilitate the functions of the industry and also the industry constraints that contribute to the development of substitute products in the industry (Porter, 1990). According to Porter’s National Diamond Model, the information on the factor conditions of the Chilean wine industry, the related and supporting industries in Chile, the demand conditions in the industry and the structure and rivalry in the industry have been taken into account for analyzing the Chilean wine industry (Dunning, 1993). A diagrammatic representation of the Porter’s Diamond Model have presented in the figure as shown below (Figure 1). Figure 1: Porter’s National Diamond Model The factors conditions in the Chilean wine industry refer to the natural factors as well as the economic resources that support the growth of the Chilean wine industry. The various strengths and weaknesses of the Chilean economy that influences the decision on investment in Chilean wine industry have been discussed below. The competitive industry scenario of the Chilean wine industry is also an important input for the analysis of the Chilean wine industry. Chile has strong macroeconomic fundamentals and has favourable infrastructure for business operations. The wine industry in Chile is well supported by the infrastructure that has been put in place due to the government policies. The cost of electricity is comparatively cheaper in the Chilean markets which support the growth of the wine industry (Wines of Chile, 2013). The communication infrastructure is also favourable in Chile that has allowed the wine industry to grow into a strong network in Chile’s national conditions. The highly competitive environment in the telecommunication sector has led to low pricing of the communication services that has reduce the cost of the business infrastructure for companies in Chilean markets (William, Beaujanot and Zuniga, 2010). The administrative infrastructure has also been favourable for quick registrations reduced the time of obtaining licences for the new companies entering the wine industry (Rugman and Collison, 2012). The physical infrastructure in Chile supports the growth of wine industry as the country has high efficient air port and sea port facilities to support the distribution of wine. The government has always encouraged development of skills of the available manpower. This has been advantageous for the Chilean wine industry as the efficiency of the workforce is closely linked to the business output (Wines of Chile, 2013). The weakness of the Chilean conditions lay in the lack of good quality of education at various levels in the education system. The government has been coordinating for laying the infrastructure of proper training and development, specialized training for certain industries like the wine industry to provide favourable business environment for the investors. The wine industry of Chile, however, faces the risk of natural disaster like earthquake, volcanoes, etc. Due to these disasters, the wine industry has faced million dollar losses as a result of the damages on the physical infrastructure like the airports, transport facilities, etc. However, the overall industry environment supports adequate level of production to meet the export requirements of the wine industry. The foreign currency regulation is weak in Chile due to which the wine industry faces drawbacks in maximizing the foreign currency earnings (Jenster, Hayes and Smith, 2005). The research and development of the wine industry is also an area of focus as the Chilean wine industry has to depend on other countries for acquiring the accessory products for supply of wine. The corks and caps of the wine bottles are imported from Portugal, the oak barrels are imported from Germany and United States, the stainless steel components from Italy and Germany (William, Beaujanot and Zuniga, 2010). The demand for wine has been on the rise for the last twenty years. The Chilean wine industry has received increasing acceptance for its wine products exported to all corners of the world. As a result of this increasing demand of wine, the volume of wine exports has increased over the years (Peng, 2011). The value of wine exports has also grown during this time. The increasing demand for the wine and the expansion of the Chilean wine industry started to take place from the 1990s. The growth of the Chilean wine industry was evident as the volume of exported wine from Chile increased by approximately 4 times during the period of 1995 to 2007. During this time, the value of the Chilean wine increased by approximately six times. The average price per litre of wine increased by 46% and it is a positive signal for businesses that are looking to invest in the Chilean wine industry. The growth of Chilean wine industry supported the increasing demand of wine from the Chilean markets (William, Beaujanot and Zuniga, 2010). Due to this increasing demand, the exports of Chilean wine increased by 11% and the domestic sale of wine increased by 7% with respect to the figures of 1990. The average per capita of Chilean wine industry is 16 litres of wine. This consumption level has sustained over several years after the rise of consumption demand of wine. The Porter’s National Diamond Model suggests analysis of the strengths and the weaknesses of the Chilean wine industry in order to make an informed decision for business in investments. The domestic wine markets are forecasted to grow in Chile which is good news for the Chilean wine industry. Due to the rising demands and the growth of the wine industry, the volume and value of wine to be supplied is also expected to increase in the domestic market. The investment in the wine industry also considers the weakness of the Chilean wine market. The domestic consumers, however, lack sophistication in their style of wine consumption. The domestic consumers prefer to have wine in the wine boxes which are less sophisticated. This has created stagnancy in the market in terms of creativity and innovation among the Chilean wine producers in the markets of Chile. The Chilean wine industry lacks in the aspect of branding due to their weakness in the marketing strategies. The new markets entrants who are willing to invest in the Chilean wine industry could look to focus on developing effective marketing strategies and strengthen their brand name in order to tap the potential of market (Rogers, 2001). The government has also looked to encourage the private and the public entities in the wine industry. This is likely to increase competitive scenario in the Chilean wine industry. Thus, the business has high potential due to the rising demand and market potential of the Chilean wine industry (Wines of Chile, 2013). The Porter’s National Diamond Model could be applied to the Chilean industry to analyse the business potential with the information on the supporting and the related industries. According to the model, the performance of the industry in the economy depends on the support it receives from the supporting and the related industries in the economy. It has been noticed that the demand of the Chilean wine industry has been increasing at a rapid rate. In order to produce and supply wine to meet the increasing demand, the role of the supporting and the related industries are extremely important for the Chilean wine industry (OaShaughnessy, 1995). Looking at the strengths and weakness of the Chilean markets, the government has played a significant role in supporting the business of the wine producers. The new proposal for investment in the Chilean wine industry should look to take advantage of the opportunities and benefits in this aspect. The tourism industry has been an area of focus of the government and necessary steps have been taken in order to stimulate the growth of the Chilean tourism industry. Due to the growth of tourism, the number of tourists in Chile has started to increase. The Chilean tourist industry has prospered over the last five years. The tourists have varied interests over the consumption of the wine that has gained popularity over the years. In order to cater to the growing number of tourists and the growth in consumption of wine in terms of volume and variety has led to the increase in the number of wine producers. The variety of wine demanded by the customers has increased rapidly which is an opportunity for the new businesses to invest in the Chilean wine industry. The agriculture industry has also been a supporting industry to the Chilean wine market. The seeds required for the production of wine are supplied by the agricultural sector in Chile. The agricultural supplies to the wine industry have supported the wine business to produce more wine and supply them in order to meet the demand of the customers. The Chilean wine industry also has inherent weakness that exposes it to the foreign tourists. The Chilean wine industry is less sophisticate and lacks innovation and technological up-gradation. The tourists and the customers who have high income levels and are extremely wealthy, look for varied fashion and style for consuming wine (Jenster,  Hayes and Smith, 2005). While this is a weakness for the Chilean wine industry, the new investments in wine business could look to address the market demands for sophisticated nature of wine consumption. The wine industry in Chile imports high technology products for supplying wine to high net worth customers. The seed capital of the wine industry is also low. The agricultural seeds are also imported from other countries in order to cater to the customers of the foreign markets. The strategies and the rivalry prevailing among the wine producers in the Chilean wine markets are also important for analysing the Chilean wine industry. The level of competition in the Chilean wine industry in quite healthy in nature that has the objective of producing quality wine products for supplying to the customers in domestic and foreign markets (Jenster, Hayes and Smith, 2005). The Chilean wine industry has witnessed strong regional competition among the wine producers. Due to the high prospects and the lucrative business opportunities in the wine industry of Chile, there have been foreign direct investments in this sector. The foreign investors have increased their presence in the Chilean wine industry thereby increasing the competition for the production of good quality of wine at competitive prices. The instances of joint ventures have also been noticed in the wine industry. The joint venture between Err azuriz and Mondavi is an example. Thus the competitive rivalry in the wine industry has been quite intense which led to the increase in performance of wine production and supply over the years. The areas of weakness of the wine industry are also important to analyse the investment proposal of the new business. The wine industry of Chile lacks in the area of governance among the wine producers and suppliers operating in the market (Visser and Langen, 2006). The wine producers and the suppliers lack mutual trust among each other. The practise of copying the marketing and distribution styles of other players has been observed. The Chilean wine industry has shown signs of regional differentiation. The strategies of the Chilean wine producers and distributors have shown preference to the foreign customers and addressed their needs in a higher proportion as compared to the domestic customers. The consumption of beer has increased in the face of increasing demand of wine. The branding of Chilean wine has not been up to the mark in the industry. Due to weak branding of the wine products, a large segment of the customers are not aware of the products of the Chilean wine industry (Visser and Langen, 2006). There is a dearth of the value label in the wine industry of Chile and the wine products are viewed mostly as “Table wine”. The market share of the Chilean wine industry needs to penetrate the European markets in a much large degree. The wine products of the industry are not labelled as sophisticated wine products. There domestic markets do not look for premium wine which has created roadblocks in the overall improvement in the use of technology and innovation in the production and supply of wine (Hutt and Speh, 2012). The creative offerings of Chilean wine industry is limited as majority of the players look to tap the domestic market demands which does not demand creativity and innovative style in the consumption of wine. Part 2: Market Entry Strategy Strategy 1: Branding The first strategy that could be adopted for investing in the business of wine in Chilean wine industry is the approach of creating a brand name for the wine products to be offered to the customers. The branding strategy is to be designed in such a way that it fulfils the demand of domestic as well as the foreign markets. The brand should include wine products which are offered at competitive prices and also contain premium wine label that are sophisticated in terms of taste and quality. The brand image and the value label have to be created with the help of increase in the distribution of wine to different target markets that match taste and style of customers (Kotler, 2009). The branding strategy includes defining the target customer segment and showcasing them the suitability of the wine offered by the business in order to satisfy the market demand. Advantage The advantages of the branding strategy are advantageous in the long run. The branded wine would be able to differentiate itself from the other wine products available in the market. As the brand would include low price and well as high priced products, the brand would be able to penetrate the domestic market. At the same time, the brand would gain popularity in the foreign markets being a unique Chilean wine among the available wine products. In the long run, the market share of the brand would increase leading to higher volume and value of sale in several markets. Limitation The branding strategy adopted in the Chilean wine industry could have limitation s for the expansion of the business. The customers of the wine market in Chile prefer table wine which are not labelled brands and are not considered to be premium wines. The brand created in the Chilean industry would not belong to the choice of the population in the initial stages. This poses the risk of initial losses as acquiring the market share could be difficult in the initial stages for this brand. The efforts of creating the brand value for the wine product includes high expenditures which has to be borne by the business with the uncertainty of customer reactions in the Chilean wine industry (Visser and Langen, 2006). Recommendation to Board of Directors Based on the advantages and limitations of the branding strategy, it is recommended to the Board of Directors that the Branding Strategy would prove to be useful for new businesses entering the Chilean industry. The Branding strategy would help the wine business to create a unique position for itself in the long run and address the needs of a wide segment of customers both in the domestic as well as foreign market. Strategy 2: Technology and innovation The second strategy that would be adopted for entering the Chilean markets is the approach of using technology in the production and distribution of wine products. The use of technology would help the wine business to produce sophisticated wine products that meets the demands of the high income group of customers. The wine industry in Chile is supported by the tourism industry which brings in tourists with high amount of disposal income. The innovative wine products would be able to capture this target market which forms a substantial part of the wine industry (Doole and Lowe, 2005). The investments in technology and innovation would reduce the cost of importing the wine bottles, corks, caps and oaks and the wine business would be self sufficient in adding value to the wine products. Advantage The use of technology and innovation would be advantageous for the wine business in Chile as they would be able to create a label for themselves as the premium wine. The needs for sophistication would be addressed by the creative wine products. The huge export demands in the foreign markets could be met with the creative and innovative wine that are also of enhanced quality (Coade, 1997). The containers of wine would be made sophisticated in terms of designs and variations in the taste of the wine would be experimented in order to match the changing customer behaviour in the wine industry. This would lead to increase in acceptance among the elite customer segment resulting in the increase of revenues and profits. Limitation The limitations of the use of technology and creativity could pose drawbacks for the wine business in the markets of Chile. The innovative products of wine would be priced slightly higher than the table wine or the commonly available products in the industry. The comparatively high priced sophisticated products may not be able to penetrate the Chilean markets (McLoughlin and Aaker, 2010). The domestic market has no inclination towards sophistication of wine products and thus the investments in technology may not produce high returns for the business. The technologically advanced wine products may find difficulty to position themselves in the domestic markets of Chile. Recommendation to Board of Directors Based on the advantages and limitations of the strategy of using technology and creativity as an approach of market entry, it could be recommended to the Board of Directors that this approach would be useful in entering the market of Chile. Although the implementation of technology and creativity in the wine business would require initial high investments, the offering of innovative wine products that are unique in the taste and style would be accepted increasingly by the tourists and the high income group that form a considerable portion of the target market of Chilean wine industry. References Coade, N. (1997). Managing International Business. Stamford: Cengage Learning. Doole, I. and Lowe, R. (2005). Strategic Marketing: Decisions in Global Markets. Stamford: Cengage Learning. Dunning, J. (1993). Internationalizing Porter's diamond. Management International Review. 2(1): 7-10. Hutt, M. D. and Speh, T. W. (2012). Business Marketing Management: B2b. Cengage Learning; USA. Jenster, P. V.,  Hayes, H. M. and Smith, D. E. (2005). Managing Business Marketing & Sales: An International Perspective. Copenhagen: Copenhagen Business School Press DK. Kotler, P. (2009). Marketing Management. New Delhi: Pearson Education India. McLoughlin, D. and Aaker, D. A. (2010). Strategic Market Management: Global Perspectives. New Jersey: John Wiley & Sons. OaShaughnessy, J. (1995). Competitive Marketing: A Strategic Approach. New York: Routledge. Porter, M. (1990). What is Michael Porter’s Diamond Model?. Retrieved from: http://www.businessmate.org/Article.php?ArtikelId=49. Rogers, S. C. (2001). Marketing Strategies, Tactics, and Techniques: A Handbook for Practitioners. New York: Greenwood Publishing Group. Visser, E. J. and Langen, P. (2006). The importance and quality of governance in the Chilean wine industry. GeoJournal. 65(3): 177-197. William, F., Beaujanot, A. and Zuniga, J. (2010). Marketing Focus in the Chilean Wine Industry. Journal of Wine Research. 13(1), 35-42. Wines of Chile. (2013). Chilean Wine. Retrieved from: http://www.winesofchile.org/chilean-wine/. Rugman, A. and Collison, S. 2012. Corporate Strategy and National Competitiveness. New York: Pearson Education Limited. Peng, 2011. Entering foreign markets. New York: Cengage Learning. Read More