Global Wine War: Benefits & Drawbacks Of International Trade
Global Wine War 2015
Firstly, the global demand patterns have changed. Demand has fallen sharply in countries that used to have the highest wine consumption, such as France, Italy and Spain. Domestic demand from major importers, such as the UK, the US and China, has increase.
Secondly, consumption patterns have changed. The drop in daily table wine consumption by working families has been offset by purchases by high-end urban consumers, which are often based on brands, grape varieties, regions and fashion. Demand for grape varieties also varies with fashion. For Old World growers constrained by limited space and tight regulations, the inability to respond to these changes costs them dearly.
Thirdly, the global distribution power increases. The New World producers completely control the value chain and distribution, while French producers’ lack of consumer knowledge and marketing skills was compounded by their limited bargaining power, often forcing them to compete on price. Lower shipping costs also make it easier for challengers to export.
Lastly, the ascendancy of brand power has emerged. Extreme fragmentation in the Old-World wine industry (for example, Bordeaux alone has 20,000 producers) means that few has the volume to support branding strategies. Government-supported classifications turn to be negative when consumer confidence erodes over time as low-quality producers ride on the classification’s prestige.
Classification schemes are also impeded by their complexity. Although the wine industry lacks an international dominant brand, New World producers use branding as a core marketing skill. All of these changes have led to significant changes in the ranking of global wine companies. Despite emerging markets and relatively small domestic markets, the world's top 10 wine brands all come from the new world in 2014.The challengers are not limited to Australia, but also Chile, Argentina, the United States, South Africa and China. Any country with hot climate and suitable soil conditions, as well as a willingness to adopt the latest grape planting and wine-making techniques, could be a challenger.
France's greatest strength is the reputation and prestige that its strict regulation and classification bring to it. Although the variety of French wines is difficult to establish brand advantage, coming from France is a guarantee of high quality. The core competitiveness of the challengers is their suitable grape planting environment, acceptance of new technologies and innovations, and emphasis on marketing. All the challengers have adopted a similar strategy of reducing costs through mass production, control of distribution and innovations.China's biggest opportunity lies in the huge potential wine buyers of its huge population.
Since China's demand for wine is growing much faster than its production, a huge import market has opened up. In addition, Chinese consumers regard wine as an upscale luxury item and thus value prestige and brand in their choice of wine. The risks in China are as follow. While imports are valued for their prestigious image, few brands are widely recognized. Imports in the retail market face additional obstacles: high mark-ups and counterfeits. Besides, foreign producers have to navigate complex regulatory requirements which requires a long period to clear customs.
French Minister of Agriculture should plan the use of land more rationally. Grape growing areas with low production capacity or efficiency should be abolished in time and repurchased by the government for other usage. In addition, French Minister of Agriculture could also consider expanding existing grape growing estates to increase production of prestigious wines. The French wine producing association should reform the classification system based on the original one. For example, it can add a level under AOC at which the use of innovative technologies to boost wine production is allowed.
In addition, the association should balance the price of French wine around the world by setting a more reasonable price system, rather than force established customer being priced out of the market because of high prices in China.The owner of vineyard producing premium-above wines should continue to insist on producing prestigious wines and prevent the production of low-quality wines from damaging his own reputation. In addition, he could look for Chinese importers or distributors to directly sell wine in China without losing the profit that French merchants would take away.
Moreover, he should invest more on marketing to build brank power.Given the high proportion of Australian wine exports in its total exports, the Australian minister of Agriculture should continue to expand this advantage. The minister should introduce policies to subsidise Australian grape cultivation to make Australian wines more competitive against lower-priced Chilean wines. The minister should also encourage producers to increase their scope for wine rather than focusing on lower-end wines. Moreover, the minister should encourage consolidation of wineries to solve the problem of overproduction.The Australian wine producing association should continue to promote the use of innovative technologies to enhance wine taste and quality.
In order to save the declining image of Australian wines, the association should promote wines that reflect Australian customs and practices to increase cultural value.The owner of vineyard producing premium-above wines should focus on the production of premium wines and use innovations to increase production. He should also invest heavily in education through trade shows, social media campaigns, retail promotions, taste road shows and courses to build a brand edge.The Northern California wine association should encourage collaboration and technology sharing among wineries to study the application of innovations in wine production. The association should encourage wineries to expand the scale of growing grapes to meet China's huge demand for wine after the economy recovers. It is necessary for the Northern California wine association to communicate and cooperate with relevant Chinese agencies and associations in order to reduce the obstacles from Chinese customs when exporting to China especially considering the large amount of wine exported by the United States to China.
The owner of vineyard producing sub-premium category should continue to focus on producing this type of wines. The owner should use California's advantaged hot climate and soil environment as well as innovative technologies to increase wine production and reduce costs with scale advantage. The owner should also try to launch premium wines to test The Chinese market. Due to the confusion of the wine brand globally, the owner should promote and marketing his own wine to build reputation in Chinese low-end wine market.
Benefits and Drawbacks of International Trade
Benefits:· International trade effectively utilizes resources from all parts of the world, provides countries with more development opportunities and greatly enriches and facilitates people's daily life.· International trade helps countries and individuals to leverage comparative advantage to enhance production and technology.· Because of the worldwide division of labour, international trade gives each country and individual more chances.· International trade has created conditions for developing countries to improve their international status.· International trade promotes the rise and development of knowledge economy.
Drawbacks:· Because of the imbalance of social and economic development between different countries, international trade could widen the world wealth gap.· International trade can lead to overexploitation and destruction of the global ecosystem.· International trade is dominated by developed countries, which facilitates the transfer of crisis from developed countries to developing countries.· International trade can expose individuals to worldwide competition and thus increase personal pressure.
