French Producers’ Dominance in the Global Wine Market
In my opinion, while developing the argument of the competitive advantages of the French wine industry, SWOT analysis can be of use. SWOT presupposes the description of a company’s internal and external advantages and disadvantages, which are categorized as “Strengths, Weaknesses, Opportunities, and Threats” (Braun and Latham 21). It is peculiar that in the case of French industries, its major strength, which helped it to gain its prominence, seems to have turned into a weakness due to changes in the market.
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I can suggest that the French wine export industry developed predominantly as a high-end, luxury-goods industry, and it supported its position through a promise of high quality and exquisite experiences (Heine et al. 178). Bartlett and Mcara demonstrate that historically, the niche of luxury wines was developing due to the transportation costs, but the costs decreased as a result of various innovations while the prestige remained and was solidified with the help of wine classification systems (Bartlett and Mcara 2). Thus, at a point in time, the wine industry of France significantly benefited from innovation.
Bartlett and Mcara define wine classification systems as a marketing tool (2). I agree that this technique must have helped the customers in understanding and appreciating the differences in the quality of the production and created a form of industry brand, a tradition, which was supposed to guarantee the quality and cement the luxury nature of the product (Heine et al. 185). Bartlett and Mcara also point out that the quality standards resulted in greater barriers for potential entrants, which must have been helpful at a point in time. Thus, the classification system was a major source of competitive advantages for French wines.
Unfortunately, this classification also proved to be a weakness. Indeed, while ensuring the high status of a luxury good for the wine, the system was also purposefully made rigid, which eventually prevented it from evolving. In turn, the lack of evolution prevented the French wines industry from making use of the new opportunities and addressing the challenges of the changing market, which proved to be rather rapid since the second half of the twentieth century (Bartlett and Mcara 6). As shown by Bartlett and Mcara, the industry kept valuing tradition over development and consumer knowledge, which could protect it from the entrants who valued the same tradition but could not help it evade the threat of innovative entrants. Thus, the appearance of new entrants who seized the opportunities that Old World winemakers were purposefully avoiding was a matter of time.
New World Challengers Taking a Market Share
I argue that the major forces which helped the New World wines enter the market included demand and, especially, innovation. According to Bartlett and Mcara, the major change which led to a boost in the New World wine production (Including Australia and the US) was the domestic market demand, which increased in the post-war era. The New World winemakers have been distinctly customer-oriented, which may have prevented them from establishing luxury brands and oriented them towards a more mass-consumption strategy (Bartlett and Mcara 7). Apart from that, an indirect effect resulted from innovation and available resources: the New World had a lot of land at its disposal and a lack of traditions’ constraint, which allowed them to apply a variety of technologies to the process of winemaking. As a result, the process became easier, more convenient, and less costly for every stakeholder, including the consumer (Morrison and Rabellotti 9).
The changes were comprehensive and involved the production, packaging, distribution, marketing, which made the wines quite competitive and helped the New World producers to enter the wine market. In the end, even the legal action against brand name usage, which Old World winemakers took, was responded to with innovation: new brand names were successfully coined and promoted, taking their niches in the market. The “Judgement of Paris” served to prove that the New World could produce quality wines at reduced costs, which appears to have triggered another change in the demand (Bartlett and Mcara 4). Thus, a combination of demand and innovation created an opportunity for new entrants, which helped them to catch up with the incumbents (Morrison and Rabellotti 2).
Advice to Chinese Players
Due to its age, the wine industry can offer some lessons on survival in the market (Heine et al. 182). Bartlett and Mcara show concisely that there is an ongoing struggle in the market, which is made more difficult as a result of external challenges, including the unstable demand (worsened by excessive production), the costs of fuel and water, and other aspects. Therefore, I argue that Chinese market players and regulators need to consider the lessons of the Wine War, which, in my view, include the importance of innovation and a customer-oriented, market-focused, and evidence-based strategic development.
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When advising China’s Minister of Agriculture or the head of the Chinese wine industry association, I would suggest taking into account the fact that prohibitive rules and rigid standards do not seem to improve the development of industry, which is why they are to be avoided. However, this suggestion maybe not applicable to every case. For example, supplier control seems to be proved to be important by the fact that the Chinese winemakers seem to have repeated the mistake of Old World winemakers: they both used to pay for the weight of the grapes, which resulted in lower-quality supply (Bartlett and Mcara 2, 9). With this respect, China’s Minister of Agriculture could introduce more restrictive standards to regulate and improve the quality of domestic supply. On the other hand, supplier control can also be exerted by individual entrepreneurs, and it is clearly in their best interests by Porter’s Five Forces (Braun and Latham 32).
Another lesson that is of importance for individual entrepreneurs is that concerning customer orientation. These two parameters are proved to be important by the Old World winemakers who isolated themselves from distribution and, consequently, from the customer. The buyer is another power that should be taken into account according to Porter’s Five Forces (Braun and Latham 38). As for the means of addressing the challenge, the New World winemakers seem to offer a solution, and it consists of investigating the demand and introducing relevant innovations, which should provide a competitive advantage.
Finally, I suppose that every stakeholder of the Chinese wine industry needs to remember that they are likely to face immense competition. Age remains a significant advantage in the wine industry, and it is often associated with notable reputation and authenticity (Heine et al. 178). Apart from that, Old World winemakers attempt to improve their position by promoting mass production and innovation while keeping the tradition (Morrison and Rabellotti 11). The Australian winemakers struggle to get out of an economically unfavorable situation, through which they are strategically led by its government-supported wine groups (Bartlett and Mcara 11-12). Other new entrants are also fighting for their share. Thus, competition is harsh, but, at the same time, the entry barriers have been lowered by the New World winemakers, and the domestic market of China offers a noticeable opportunity, which, in my view, should be taken (Morrison and Rabellotti 12).
Bartlett, Christopher, and Sarah Mcara. “Global Wine War 2015: New World Versus Old.” Harvard Business School, 2017. Web.
Braun, Michael, and Scott Latham. Mastering Strategy. ABC-CLIO, 2015.
Heine, Klaus et al. “Authenticity and Prestige: What Luxury Brands Could Learn from the Wine Industry?”. Luxury Research Journal, vol 1, no. 2, 2016, pp. 177-190.
Morrison, Andrea, and Roberta Rabellotti. “Gradual Catch Up and Enduring Leadership in the Global Wine Industry”. Research Policy, vol 46, no. 2, 2017, pp. 417-430.