Tunisian Wine Industry - Essay Example

Global and International: Tunisian Wine Industry By: Introduction Tunisia is a region with numerous contrasts and surprises of landscape. The land of Tunisia has varied cuisine, opinions and geography. Tunisia is renowned in history for possession of a well-developed and historical viticulture. The Mediterranean climate and the soils of Tunisia boost the production of a wide variety of grapes used in the production of wine. The Tunisian wine history records back to nearly 2,000 years. Wine production commenced in Tunisia during the Carthaginian era. Magon (2nd-3rd Century BCE), a renowned Carthaginian agronomist, authored a dissertation about agriculture. Magon focused on the manufacture of winemaking, which served as a platform for agricultural activities of the Roman. The Romans acclaimed Magon’s treatise and regarded it as valuable. Consequently, the Romans transferred the treatise to Rome upon the obliteration of Carthage. The Romans translated the dissertation into the Latin language. The Byzantines, Vandals and Romans, proceeded with the production of wine in Tunisia. On the other hand, the Arab leaders repressed the production of wine after Tunisia was conquered in the 8th Century AD. The large-scale production of wine in Tunisia returned in 1881 after the French invasion. The French anticipated the benefits derived from Tunisia’s soil and climate that is naturally suitable for the production of wine. The French numerous huge vineyards for the production of wine created to French standards. However, the dynamics of production in Tunisia changed in 1956 after attaining independence. The citizens of Tunisia fully controlled the production of wine. The situation is similar presently. Numerous varied vineyards and domains currently exist in Tunisia. Nevertheless, Tunisia is yet to attain the full potential of wine production. Subsequently, the country exports minimal wine to outside countries. The drawback in realization of full potential of wine is reprehensible. The wine that Tunisia produces matches international standards. Therefore, Tunisia can compete favorably with other countries whose terrains produce exceptional wine. Tunisia offers quality and tasty wine for oenophiles inside the nation at low cost. By 2008, the area in Tunisia covered with vineyards was 31,000 hectares. Of the total land covered by vineyards, 108,000 acres is dedicated to grapes that are utilized in wine making. The major varieties of grapes found in the vineyards of Tunisia are identical to grapes in southern France. The similarity occurs because of the indulgence of France in Tunisia’s viticulture. The grapes that yield red-wine include Merlot, Mourvedre, the Bordeaux reds Cabernet Sauvignon, Grenache, Cinsaut, Carignan, Cinsaut, and Syrah. Smaller proportions of wines in Tunisia are white. The varieties of grapes that produce white-wine include Pedro Ximenez, Ugni Blanc, Muscat of Alexandria and Chardonnay. The regions producing wine in the country are areas around Cap Bon. The country has an Appellation Controlee (AOC) system that consists of AOCs: Côteaux d’Utique, Kélibia, Grand Cru Mornag, Sidi Salem, Thibar, Coteau de Tébourba, and Mornag. Wine making falls third in among agricultural activities in Tunisia, behind wheat and olive oil. Moreover, it yields substantial revenue from the exports of approximately a million liters of wine per year to United States, Russia, and Europe. The annual production of wine is approximately 30 million gallons. The exports account for half of the total wine produced in Tunisia. According to the Food and Agricultural Organization (FAO), the total global production of wine in 2011 was 26,216,967 tons. The top ten producers of the wine accounted for 85% of the annual total volume. In the same year, Tunisia was ranked 39th and yielded an annual production of 23,200 tons. Literature Review Out of the total production of wine, approximately 20 million are manufactured by cellars belonging to ‘Les Vignerons de Carthage’. According to reports by oenologist Belgacem D’Khili, approximately 70% of the total wine production in Tunisia is sold locally. However, it is mistaken to think that tourists consume considerable amounts of Tunisian wine. The tourist sector accounts for only 25% of the total wine sales produced in the country. Wine forms an essential part in the culture of Tunisian. Nearly 98% of people inhabiting Tunisians are Muslims. As real populaces of the Mediterranean, they exhibit extreme likeness for wine and even better prefer classy wines. Belgacem D’Khili reports that the Carignan vines and oldest Grenache Noir and Carignan vines have been maintained. Belgacem’s corporations worked for numerous years towards the upgrading for cellars. Thus, the hygiene standards for such cellars would serve as models for cooperative cellars of Europe. The financial input from foreign and local investors has facilitated the planting of current varieties, for instance, Merlot, Noir, Pinot, Cabernet Sauvignon and Chardonnay. Efforts are underway to avoid production of bulk wine since it inhibits the development in the production of wine. Currently, Tunisia is thriving on exports to countries like Germany and France, which are steadily growing. The Tunisian wine industry has the potential to be competitive and attractive for local and foreign investors. An analysis of the competitive advantage can be well illustrated by Porter’s National Diamond models. 1) Porter’s National Diamond Analysis In the analysis the Tunisian wine sector, the investment attractiveness and the competitiveness are two crucial factors. Competitiveness encompasses the measurement of determinant variables. However, in order to provide an in-depth assessment of the competitiveness of the Tunisian wine industry, it is vital to provide a proper definition as well as the metrics of measurement. Different perceptions exist regarding the definition of competitiveness. Some scholars define competitiveness based on the levels of performance of macroeconomics. Other scholars define competitiveness based on the levels of innovation. Companies that are capable of innovating products demanded by customers are competitive. On the other hand, firms incapable of innovation lose the competitive edge and cannot sustain market pressures. Porter created a new dimension for defining competitiveness. According to Porter, competitiveness refers to a country’s, industry’s or a firm’s level of productivity that ensures success. Porter diamond model depicts an inclusive tool for assessing the input of stakeholders towards increasing the productivity levels. The four facets making up the model represent a system that forms competitive advantage diamond. The investment attractiveness and the competitiveness of the Tunisia wine industry are based on the four facets that include Factor Condition, Demand Condition, Related and Supporting, and Firm, Strategy, Structure and Rivalry. The four factors form a model. Factor Condition refers to the position of the country in terms of factors of production, for instance, infrastructure, natural endowment, and skilled labor; required for competition in a particular industry. Demand Condition refers to the characteristics of the local markets in the demand for products and services of the industry. Related and Supporting refers to the existence supplier firms and other related sectors capable of competing internationally. Firm, Strategy, Structure and Rivalry refers to the organization and management of regulatory bodies, and the nature of local competition. Tunisian Industry Diamond Model Factor Condition Compared to other crops, grapes can thrive in varied soils and climates. Despite the lack of scientific proofs, environmental pressure probably improves the sensory features of wines and grapes that result in better products. The renowned concept of terroir by the French illustrates that the composition of grape grown in a particular region is likely to be affected d by the indigenous environment. The composition will transform into the wines of the region. The concept also entails little intervention in modifying the growing environment that depicts the terroir. Compared to other agricultural products, the marketing of wine corresponds to the geographical location of making. On the other hand, the quality corresponds to minimal manipulations and inputs of vineyard. The characteristics of the in Tunisian soils support the growth of grapes. The acres of Tunisian vineyards have increased over the years, recording an overall area of 31,000 hectares in 2008. Nevertheless, the growth of vineyards stagnated in recent years because of geographical constraints in the expansion of vineyards. Tunisias location is in the northernmost region of Africa on a latitude location of between 37 and 30 degrees north. The quality of wine production in regions close to the equator is poor. The health of the vineyards suffers substantially in extreme heat and tropical humidity associated with deserts. Thus, viticulture only thrives in the gulf, on the north coast, and in the northern fringes of Tunisia. The Mediterranean vitally influences the climatic conditions in the zone. The hot and dry summers and the wet and mild winters characterize the Tunisian climate. Grapevine leafroll-associated viruses (GLRaVs) affect most of the vineyards in Tunisia. The viruses affect the productivity of the grape vineyards. Regression and empirical studies complement the analysis of the factor condition. Consequently, a positive relationship exists between the levels of Revealed Comparative Advantage (RCA) in the wine sector and the performance in logistics. Thus, the wine producing country with a favorable environment for logistics of exporting the wine sectors will probably be more competitive. Market conditions compel connected nations to access numerous markets and customers. Contrariwise, a nation like Tunisia that is distant from the major global markets can play a crucial role in the drinks and food markets in North America, Europe and Asia. Five major indicators determine the logistic performance of the Tunisian wine sector. They include the promptness of delivery, the efficacy of the processes at border clearance, costs of product and services, competence of the indigenous logistics sector, infrastructural development. The logistic performance of the Tunisia wine sector is slow-paced. Tunisia distributes wine to Europe. Only recently has the country started distributing wines to the US markets. Consequently, the competitiveness of the Tunisian wine industry in the global market was slow. However, with the involvement of France, the wine industry slowly grew to become a significant player in the global markets. Based on the logistic performance of Tunisia comparing to other “New World” wine manufacturers, Tunisia recently recorded good results in infrastructural development, efficacy of export procedures, and quality of service. However, in the global map, Tunisia yields mixed results in infrastructural development compared to high performing competitors. The warehousing, airport and port sectors record significant results. However, the communication and marketing of wine lags behind. Demand Conditions Of all the “New World” wine making countries, the consumption per capita of Tunisia has steadily improved. France, “Old World” wine producing country influenced the performance of Tunisian local markets. Consequently, the consumption of wine improved significantly. In 2006, the production of wine increased by 22%, producing 402,000 hl, in comparison to the total production of 331,000 hl in the preceding year. Of the total production, local markets consumed 90% of the wine produced. Perhaps the consumption per capita for the local market increased. According to reports published by Euromonitor, in 2010, Tunisia recorded the highest retail sales per capita of wine of 2.07 liters, after South Africa (per capita sales of 5.0 liters). Morocco, Kenya, Cameroon, Algeria, and Nigeria followed respectively. The consumption per capita of wine steadily increased from 2006 to 2010. In Tunisia’s case two phenomena arising from the increased per capita consumption. First, the elevated consumption levels promote the competitiveness of local/domestic industry. Additionally, it creates a “snob culture” whereby customers endeavor to emulate Western consumption trends. Tunisians attempt to adopt the lifestyle of French consumers. The perception of experiencing the culture and lifestyle of the French prompts the increased consumption of wine. Subsequently, the demand for wine, specifically great quality of wine increases. Increased demand attracts new investments as stakeholders endeavor to exploit a niche in the market created by the increased demand. With new investments, the competitiveness of the wine industry significantly increases. The quality of wine produced is likely to improve as investors seek outdoor each other through the provision of quality wine to markets. Related and supporting industry The determinant forms a major part of Porter’s model for determining the competitiveness of a given industry. The international competitiveness of domestic suppliers benefits downstream sectors in numerous ways. The suppliers offer the delivery of cost-effective inputs in appropriate and efficient ways. Most of the domestic suppliers in Tunisian wine industry are of French descent. Thus, the suppliers have beneficial relations with the international markets. Consequently, the international trends benefit the local firms and improve the competitiveness. Tunisia, like all other firms based on natural endowments; tend to cluster in particular regions because of the cost advantages related to the resources. Based on the configuration of the wine sector in Tunisia, numerous service and supporting material providers form crucial players. Porter’s analytical frameworks gather the stakeholders encompassed in production, bottling, retailing, and promotion. As aforementioned, two key players - grape cultivators and wineries – form the value chain of the wine industry. Several crucial stakeholders focus on boosting the production of wine. The stakeholders include government agencies, distributors, wine associations, dedicated R&D and financial organizations. The stakeholders interact towards the benefit of the value chain. Based on investments on R&D in the wine sectors, Tunisia holds an advantage of possessing knowledge regarding the viticulture. The country can also gain more expertise and experience from wine making industry of France. 2) Contemporary Management Issues Various management issues are taken into account before developing the operations of the Tunisia wine sector. a) Logistic Performance The performance in logistics complements the exports levels for Tunisia wine. Thus, before developing operations in the wine industry, it is important to ensure a logistic performance. The government and other management bodies in charge of the wine industry implement policies that improve logistic exports, for instance, train, road, and railroad. The policies minimize costs for exportation. Consequently, the management strategies enhance competitiveness and efficiency in the volume and timeliness of exports. A favorable logistic performance would enhance production since investors would be willing to produce more wine that would be distributed appropriately. The distribution channels from the vineyards to the wineries determine the logistical performance. Before developing operations, management bodies should ensure that the physical; distribution network functions effectively. The efficiency in the transportation of grapes from the vineyards to the wineries depends on the management of logistics. Timely supply and delivery increase the competitiveness of the industry in domestic and global markets. A high logistic performance increases the efficacy of marketing wine. Private wine refineries and cooperatives should develop logistic strategies that ensure direct marketing to customers rather than depending on intermediaries b) Business Innovation and Science Connections The growth of the wine industry in Tunisia has been inhibited lack of innovation caused by disconnections between wine producing firms and the systems for research and development. Tunisian firms investing on research and development have been steadily declining over the years. Additionally, few stakeholders in the wine industry are capable conducting innovative research. By internationals standards, the intensity of the Tunisian ICT intensity is very low. Thus, the trend limits the industry’s capability to be innovative. Implementation of technological progress does not result in steady upgrade in knowledge upgrade and the growth of capital and human assets necessary for innovations and improved productivity. By international standards, Tunisia’s scientific productivity is relatively low. The private and public sector in Tunisia lack collaboration as depicted by the disconnection between the entrepreneurial and the scientific sectors of the wine industry. Institutions conducting research on the grapes and wine are not linked to the business world of investors. Consequently, investors bear the resulting low productivity caused by factors like grape viruses or drastic changes in climate. Thus, before developing operations, managing bodies in Tunisia should endeavor to create connections between investors in wine making and research institutions, for instance, universities. Global leaders in wine production utilize such strategies in improving the quality of wines. Thus, shareholders in Tunisia wine industries should adopt such strategies to improve quality and productivity. The Union Centrale des Coopératives Viticoles (UCCV) are the union cooperative producing most of the Tunisian wines. With around eight wineries, the cooperative produces over 20 wine types. Thus, the governmental management bodies should connect the cooperatives and scientific institutions. 3) Market Entry Strategies Tunisia wine industry has the potential of thriving in both domestic and international markets. However, the wine industry requires apt strategies for entry into foreign markets. The two suitable that the wine industry should adopt are exporting (direct, indirect or piggy) and licensing. a) Exporting Exporting offers the most traditional way of establishing operations in foreign markets. Exporting refers to the marketing of commodities produced in one nation into another country. Exporting does not entail manufacturing in the overseas countries. Nevertheless, the strategy requires substantial investment into marketing information. Because of the connections with the French that thrive in wine production and marketing, Tunisia should adopt a strategy to enter foreign markets. Exporting may be indirect or indirect depending on the intermediaries utilized. Indirect exporting entails the utilizations of export merchants, an overseas subsidiary, export agents, or government agencies to market products overseas. Indirect exporting can work best for the Tunisian wine industry since the cost advantage surpasses direct exporting. Direct exporting is whereby a firm may set up departments for exporting. The technique is capital intensive and requires investments. Since most of the wine in Tunisia is produced by cooperatives, the cooperative exporting (piggyback exporting) can also be a viable marketing strategy. Piggyback exporting is whereby small firms may utilize the exporting services of other established firms. Additionally, the technique involves the consolidation of products of adjacent small firms to yield huge amounts of products that can be exported cost-effectively. The UCCV of Tunisia has established wineries in clustered wine growing regions of Tunisia. Thus, the firm can consolidate the respective products to yield substantial wine that can be exported competitively into foreign markets. Indirect exporting is advantageous as it helps firms to establish contacts in foreign markets. Moreover, the technique exempts the exporter from the burden of credit acceptance and exporting expertise. Nevertheless, the technique is costly – especially direct exporting – and requires proper assessments of markets as well as export agencies. b) Licensing The Tunisia wine industry thrives on connections with France. France is a major player in the foreign markets. Thus, licensing can be a suitable strategy for entry of Tunisia into the foreign markets. Licensing refers to a technique of operating in the foreign markets whereby one company in a particular country permits another company in another country to use its trademark processing in producing products. The wine sector in Tunisia should license thriving firms in Europe and Asia to produce its product. The only costs incurred in licensing include the cost signing of the agreement and passing implementation policies. Thus, licensing is less costly compared to other techniques. Licensing is a strategy that provides an apt way of making novel entries into the market. Both the licensor and licensee firm benefit from the technique. The technique provides fast penetration and easy access of foreign markets. Moreover, it empowers small firms that lack adequate resources with the capability to expand into global markets. However, licensing may negatively affect other avenues of entering foreign markets. The licensee may also grow into a competitor in the future. The possible returns from manufacturing and marketing may also be lost. The wine industry in Tunisia may not be the most dynamic in the world. However, the wine sector has a full potential to be a leader in Africa and surpass South Africa as a leader in wine production. The most suitable way to expand into foreign markets is through licensing. The relative costs involved are less, whereas Tunisia will rapidly enter the foreign markets. Although Tunisia can export its wine overseas, it should utilize licensing to establish and dominate markets. Bibliography BENJAMIN LEVI, K. J. (2006). Market entry strategies of foreign Telecom companies in India. Wiesbaden, Dt. Univ.-Verl. http://dx.doi.org/10.1007/978-3-8350-9453-6. DA SILVA, C. A. (2009). Agro-industries for development. Wallingford, UK, CABI. INTERNATIONAL BUSINESS PUBLICATIONS, USA. (2012). Tunisia Business Law Handbook Strategic Information and Laws. Intl Business Pubns USA. LYMBERSKY, C. (2008). Market entry strategies text, cases and readings in market entry management. Hamburg, Management Laboratory Press. NESTO, B., & DI SAVINO, F. (2013). 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