business feasibility report on new zealand’s wine industry

Running head: BUSINESS FEASIBILITY REPORT ON NEW ZEALAND’S WINE INDUSTRY

Business Feasibility Report on New Zealand’s Wine Industry

Author’s Name

SM0269

Northumbria University: Newcastle Business School

WORD COUNT: 2975

2BUSINESS FEASIBILITY REPORT ON NEW ZEALAND’S WINE INDUSTRY

Table of Contents

Table of Contents..........................................................................................................................2

TASK 1: PORTER’S NATIONAL DIAMOND MODEL...................................................................3

Introduction....................................................................................................................................3

Porter’s National Diamond Model..................................................................................................3

Factor Conditions.......................................................................................................................4

Demand Conditions....................................................................................................................4

Firm, Strategy, Structure and Rivalry.........................................................................................5

Related and supporting industries.............................................................................................5

TASK 02: MARKET ENTRY STRATEGIES..................................................................................6

Marketing Strategy.........................................................................................................................6

Types of Market Strategies............................................................................................................7

Exporting.............................................................................................................................8

Licensing.............................................................................................................................8

Exporting....................................................................................................................................8

Advantages of Exporting............................................................................................................9

Disadvantages of Exporting.....................................................................................................10

Licensing..................................................................................................................................10

Advantages of Licensing..........................................................................................................11

Disadvantages of Licensing.....................................................................................................12

Recommendations.......................................................................................................................12

References..................................................................................................................................14


TASK 1: PORTER’S NATIONAL DIAMOND MODEL

A report on New Zealand’s wine industry in context of porter’s national diamond model

Introduction

New Zealand is the world’s famous destination for production of award winning wine

brands and has a developed wine industry. The scenario reveals that the industry is

quite developed as far as production, processing, packaging and export of quality wine

is concerned. Being a revenue generation source for the New Zealand of $1.2 billon, it

is the eighth most exported commodity worldwide. Therefore, the prospects for

extension of business in the wine production of industry are quite bright. The report will

analyze these prospects further in the context of porter’s national diamond model to

evaluate the competiveness and investment attractiveness of New Zealand’s wine

industry (Gabzdylova, Raffensperger & Castka, 2009).

Porter’s National Diamond Model

The countries are competing in the tough economies and to gain stability they intend to

take competitive advantage over other countries to increase their revenues, outreach in

global market and to place their products in every other market where any potential

consumer might exist.

Michael porter adopted a model termed as “porter’s national model” keeping in view the

above scenario to evaluate the competitive advantage the nations and organizations

might have over the others when it come to the idea of going global. This model is a

combination of Porter’s Five Force Theory, Value Chain Theory and Competitive

Advantage Theory.

In this report Porter’s National Diamond Model will be discussed in the context of Wine

Industry as a potential competitive business in the target country as New Zealand. An


analysis of New Zealand’s competitive advantage in the wine industry will be discussed,

keeping in view the competitiveness of investment in the said industry (Dunning, 1993).

Factor Conditions

The factor conditions evaluate the market in the target country in terms of the factors

like skilled labor, resources, capacity, skills, infrastructure and other natural and human

factors.

The application of these factors when applied to the wine industry of New Zealand, the

results seem to be very encouraging. The country has excellent Indian weather which

extends till the harvest in the vineyard for the production of excellent ripened fruit in the

fields. The production had reached up to 345000 tons during the summer of 2013 which

could have resulted in the production of 250 million liters of good wine. Almost 35733

hectares of the land was cultivated in the country resulting in the production of 9.7 tons

per hector yield. The statistics clearly reflect that $1.2 billion industry of wine is on rise in

New Zealand with all supporting factors (Rosenfeld, 1997).

Demand Conditions

Demand conditions in Porter’s model determine the demand of the product or services

in the local market which in one way or other might affect certain factor condition. Porter

argues that demand condition is a mixture of three other factors which are

The demands of the consumers

The growth rate of these demands

The mechanisms which influence local demand on international markets

The wine industry of the New Zealand is a combination of all these factors and the mix

of the above mentioned factors seem to be perfectly blended there (Grant, 1991).

Owning to huge production of wine in the country the high local demand is no exception.

The annual sale of wine during the year 2013 in New Zealand was 66.4 million liters

while in 2012 the sale remained around 64.6 million. Likewise the per capita

consumption of the wine was 21.2 liters during the year 2013 which remained 20.9 liters


in the year 2012. The above mentioned statistics clearly reflect that not only demand of

the consumers of locally produced wine is high in the country but it is on rise as well on

yearly basis. High quality production process and target marketing in the countries like

United Kingdom, USA and Australia, being the major markets of New Zealand’s wine

industry, have become lifeline of the industry in the recent past which no doubt will be o

rise in the coming years (Gabzdylova, Raffensperger & Castka, 2009).

Firm, Strategy, Structure and Rivalry

These factors determine the level of local or domestic competition among the firms by

the policies adopted by the governments as how they are established, structured

organized and managed. The local culture, working environment, morale shape the

environment in which the companies work. These factors vary from one country to the

other. According to Porter, the competitive environment and domestic rivalry among the

companies gives a competitive advantage to the organizations to confront such

environment globally and seek competitive advantage.

The wine industry in New Zealand is very competitive in terms of regulations and

policies adopted by the government to help boost the industry. The worldwide

distribution of wine and third most exported product of the country the companies are on

the verge of ever increasing competition to product the quality wine which meets the

international standards. Steve Green Carrick is the best and top producers of wine in

the country since the year 2000. The country has associations and councils for the

grape growers and wine producers to protect their rights and to ensure that industry

thrives each year with the quality production (Porter, 2000).

Related and supporting industries

This factor of Porter’s model analyses the presence or absence of related support

industries to a specific industry which might give it a competitive advantage at

international markets. He is of the view that success of one industry might lead to the

success of other related industry at global level.


When viewed on a large scale such industries can be evidently observed in New

Zealand, the first and the fore most industry related to wine is the agriculture produce

like those of vineyards. The states in New Zealand even compete with one another in

production of quality grape crop in which Marlborough exceeds Hawke’s Bay by

producing 251, 623 tons of grapes than 38000 tons during the year 2013.

Likewise, brewing industry and related machinery production in the country is quite well

established. The other factor which gives a competitive advantage to the country on

account of tis industry is rising volume of exports in which is increasing at the rate of

22% since the year 2009. This industry not only gives a huge volume of exports to the

country but also increase the percentage of foreign direct investment by large

multinational organizations (Aylward, 2003).

TASK 02: MARKET ENTRY STRATEGIESA comprehensive report has been developed to analyze the feasibility of establishing

the vine industry in New Zealand. The second focus of this report is to analyze the best

possible strategies to be adopted to enter in this industry.

Marketing StrategyGlobalization has boosted the competition in different industries that is why many

companies are moving to other countries to establish its business as New Zealand’s

wine industry is also very attractive prospect for different organizations to invest in it. In

this era of competition companies want to extend their business to other countries

markets and rule on it and this desire rest on the foundation of many reasons.

Adoption of right strategy for this purpose is key to success but a good strategy must be

in synchronization with the objectives of company and international market environment.

Different types of strategies are adopted by different organization based upon their

feasibility to their organization (Tielmann, 2010).

There are so many things which are involved while deciding ad formulating the strategy.

All of them are explained in pictures below.


Figure01: Important steps for Strategy Choice

Types of Market Strategies

There are so many market entry strategies with different forms of risk and profit

potential for the organization for entering into the new market. Below is the list of all

types of market strategies which could be adopted to establish a business into wine

industry of New Zealand (Bettis, 1981).

Strategic Choice

Vision

Risk Aversion

Capital Availibility

Level of Control


Figure 02: Relationship between the risk and Profit Potential of adopted Strategy

This picture describes the relationship between the risk and profit potential associated

with the adopted strategy. So while formulating the strategy company could keep in

mind this relationship which would help it adopt the best strategy which it should adopt

to establish business in wine industry of New Zealand.

After the evaluation of the relationship described by Bettis for the strategy adoption at

entry level following two strategies are the best suited for the establishment of new

business in New Zealand’s Wine Industry.

Exporting

Licensing

Exporting

Exporting is to send your product to that country’s market where you want to establish

business as according to Bettis(1981) this method involves minimum risks because in

this organization could produce wine in its local industry and send it to New Zealand for

Exports

Licensing

Franchising

Joint Venture

Direct Investment

Risk

Profit Potential


the trial base whether its product gets enough appraisal from the target market or not

(Bernard & Jensen, 2004).

Rather than establishing a new unit in the country company should send its agents and

sales men to sell its product in the targeted country which would cost less. As these

agents and distributors become face of company then organization must be very careful

in selection of these agents and distributors because all the future business of company

and profit depend upon their performance (Roberts & Tybout, 1997).

Advantages of Exporting

There are so many potential advantages of exporting for the organization which pave

the way for organization to enter into the wine industry of New Zealand. In case of

exporting company will directly send its product to target customers in New Zealand that

is why profit rate would be higher for organization along with that company would be

having complete control on everything related to business and could used any method

of delivering its product to the customers. When company would directly send its wine to

the target market in the New Zealand and get frequent updates from its own appointed

distributors then it would be aware of the targeted customers that which type of

customers are taking interest in their wine. Customers would become aware of the real

organization producing and delivering in wine and would trust in dealing and purchasing

its wine. Through direct exporting organization could get direct feedback about the

quality of wine through their website and would know how to improve its quality of

product (Bernard & Bradford Jensen, 1999).

By exporting wine to New Zealand, Company would develop trust regarding the

trademark, patents and copy rights and express itself as fully committed in delivering

quality product. As New Zealand would be new place to start wine business for the

organization so rather than establishing a unit in that country at initial level if

organization just exports its products then it would develop understanding about the

market of New Zealand and demand of its product in that country which would help it to

decide whether to establish a unit of Wine production in New Zealand or not. Through


just exporting wine at initial level into New Zealand it would make organization in better

position to expand its business (Bilkey & Tesar, 1977).

Disadvantages of Exporting

Along with advantages there are so many disadvantages of just exporting the wine in

New Zealand rather than establishing the new unit of wine production in New Zealand. It

is not much economical to export wine in New Zealand because it involves so much

money, time and man power to establish the foundation of company and build the trust

of customers on it without seeing any production plant in their company. As

organization’s employees would be having more responsibility keep a complete check

on the distributors whether they are performing their duties properly or not. As customer

complaints regarding wine of organization could not be resolve on war footing as they

could be resolved when organization would have its unit in New Zealand (Blalock &

Gertler, 2004).

Licensing

New organization can enter in New Zealand wine industry through licensing which

involves minimum risk. Organization could give license to the any other organization

operating in the New Zealand wine industry along with its patent rights, trademark

rights, copyrights or know-how on products and processes. That organization would sell

the product on the behalf of the organization which would give organization insight into

how much their product is able to catch the eye of customers and how much market

share they can capture in New Zealand wine industry. The organization to which license

would be given it will pay the licensing fee to the organization as compared to the sales

incurred of that organization. This type of entry of organization is most welcome by the

industry of New Zealand wine industry because it will bring revenue to the country

(Kąkol & Twarowska, 2013).


Licensing is fastest way to generate profit because there is no manufacturing or sales

involved through this method organization can take advantage of the infrastructure of

any other organization of the wine industry which is involved in wine business and

generate high revenue at the start of business. The organization to whom license would

be given it would use its own infrastructure to produce the specified product for the

limited time period until the organization does not get assured of its high prosperity

prospects in the wine industry of New Zealand after that com[any can open its franchise

in New Zealand (Agarwal & Ramaswami, 1992).

Advantages of Licensing

The most important advantage of licensing to organization would be that it has not bear

any cost to establish any unit in New Zealand for the production of wine and risk would

be minimum because it would not ruin the so much capital of organization if the

experience failed. If the organization awards the license to the company which is

already a power full player in the wine industry of New Zealand then it would provide

organization instant access to the market. The licensee would be able to take and

deliver the wine of organization to those areas of New Zealand where organization

cannot establish its unit. Another most important advantage of giving license would be

that very big market could be captures in wine industry and revenue generation would

also optimize (Frynas, Mellahi & Pigman, 2006).

Another advantage of licensing is that organization can award license to more than one

company which would cost it less and would generate more revenue in terms of high

sale and more revenue generation. There would also be more customers following if

more than one company would be offering same wine. Awarding license to any

organization in New Zealand which is already a high competitor in wine industry would

make the organization to learn so many things and improve its product. Organization

management can analyze their performance and learn that what are the factors of their

competence in that particular industry and what improvement in its wine could make it

also a high competitor in this industry in short time period. Organization should award its

license to the already well know brand so that it increase the repute of organization in

that industry (Oviatt & McDougall, 1994).


Disadvantages of Licensing

It is universal rule that everything with advantages have some disadvantage like this

licensing also have some disadvantages which organization must keep in mind while

awarding license to any company in wine industry of New Zealand. Licensing could

prove to be disastrous for the organization if it does not finds the appropriate partner for

itself because licensing any organization and its success depend upon the best partner

with whom organization is going to start its business. In case of licensing there are

chances that organization would not be having control over the manufacturing,

distribution and sales of the product and would not be able to review the product quality.

That is why organization before awarding license must drat an agreement of license

with the help of professionals working in its organization so that it can audit the

performance of company to which it would award license (Johanson & Vahlne, 1990).

As licensing could not be adopted by the company as long term strategy to start a

business in the New Zealand wine industry because it only serves the purpose of short

term business needs and only thing which could be able to generate high revenues for

business are that license agreement should be well draft and royalty payments be made

clear and proper audit provisions should be kept with itself by the organization. If

organization keep all the other matters itself and hire the other organization just to

provide technical assistance then licensing could be beneficial for the organization.

While awarding license organization must make sure that organization would be able to

attract the customers toward its product and help to capture a major market share of

New Zealand wine industry (Dunning, 1979).

RecommendationsStrategies of establishing business in wine industry of New Zealand has been analyzed

as there are so many strategies to start new business but two of them were discussed

and thoroughly analyzed related to wine industry. Every strategy has its own

advantages and disadvantages so for the starting a new business in new country

requires such strategy in which low level of risk is involved according to the Bettis

(1981) exports and licensing are those strategies for starting new business in which low


level of risk is involved. Though the profit ratio also would be less at initial level but for

any organization at initial level risk aversion is most important thing because profit could

be maximized when any organization establishes its repute in that particular industry.

According to analysis of this report wine industry in New Zealand is very flourishing

industry and investment in this industry would make the organization to generate high

revenue but this fruit could only be ripened with the adoption of right strategy for

establishing business in New Zealand. According to analysis adoption of export strategy

would be best because it has minimum risk and offer maximum control over the

production and distribution of product to the customers and could get direct feedback

from the customer. Through this strategy company can hire its own distributors in New

Zealand for the distribution of wine to customers and could get speedy entry in the wine

industry of New Zealand because of direct dealing with customers. This method also

offers the minimum investment so if this experience of organization fails in New Zealand

then it would not have to bear heavy loss. The biggest disadvantage of licensing is this

that company to which license would be given can become competitor in future.


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business feasibility report on new zealand’s wine industry

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