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ASSESSMENTTITLE Feasibility Report
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3. iii
ExecutiveSummary
This report discusses the feasibility of an organisation entering and trading in
a foreign market. The report gives a background view of the Dorrien Estate
wine-making facility and its product, wine. The report highlights that the
organisation is seeking to internationalise its operations and market its
product to one of the world’s fastest growing foreign markets, China.
The report discusses the advantages and disadvantages of an organisation
internationalising a product in a foreign market. Main advantages include
larger trade markets and selling opportunities and the benefits of risk
distribution and greater economies. Uncontrollable factors such as foreign
economies, political climates, technological and legal factors may be
disadvantageous for a company trading in a foreign market, along with the
challenges presented by socio-cultural factors, such as language and cultural
barriers, in conjunction with an organisations’ Self-Reference Criterion and
Ethnocentrism.
The state of the Chinese economy is discussed, highlighting that the nation is
the second largest economy in the world and plays an influential role in the
global economy. The Gross Domestic Product of China accounts for 11.7% of
the world economy. Coupled with a surplus Current Account of USD$65.8
Billion, the national wealth has given rise to high levels of disposable income
for citizens, leading to increased demand for foreign products, and in
particular, Australian wine.
Socio-cultural factors are analysed and show that the proliferation of
consumer wealth has seen a demand from China for high-quality wine from
Australia. Cultural attitudes reflect that wine is seen as sophisticated and
represents images of luxury and decadence, increasing consumption.
The report delivers a SWOT analysis covering key issues and concludes with
a summary of all points raised, along with recommending that the
internationalisation of Dorrien Estate is feasible if all economic and socio-
cultural factors are analysed, addressed, understood and taken into
consideration before marketing to the Chinese wine market.
4. iv
Table of Contents
ExecutiveSummary…………………………………………………..ii
1: Introduction .................................................................................1
2: Organisation and Product Background...................................1
3: Internationalisation Discussion................................................2
3.1: Advantage and Benefits ......................................................2
3.2: Disadvantages and Challenges..........................................3
4: Economic Environment Summary ...........................................4
4.1: China Gross Domestic Product..........................................4
4.2: China Current Account........................................................5
4.3: Disposable Income per Capita............................................7
5: Trade between Australia and China.........................................7
6: The Socio-Cultural Environment..............................................9
7: Key Issues..................................................................................10
7.1: Strengths .............................................................................10
7.2: Weaknesses.........................................................................10
7.3: Opportunities ......................................................................10
7.4: Threats .................................................................................10
8: Summary and Recommendations..........................................11
Reference........................................................................................13
5. 1
1: Introduction
The purpose of this report is to outline all of the factors relating to the
internationalisation, penetration and marketing of an organisation into new,
emerging foreign trade markets. The report first delivers a background of the
organisation, Dorrien Estate and its product, wine. The report then leads into
a discussion of internationalisation of an organisation within a foreign market,
including an analysis of advantages, benefits and disadvantages of
internationalisation.
The report also addresses the current economic and socio-cultural climate of
the target market, China. An overview of the current state of the Chinese
economy is addressed, along with an evaluation of the current social and
cultural factors that may effect and influence the business and marketing
practices of the organisation in entering the Chinese Wine Market.
The report then outlines key issues and addresses relevant strengths,
weaknesses, opportunities and threats associated with entry of the
organisation into the target market. The report concludes with a summary of
all points raised and delivers recommendations based on the elements
discussed within the body of the report.
2: Organisationand ProductBackground
Dorrien Estate is a state-of-the-art winemaking facility based in the Barossa
Valley of South Australia. Owned by Woolworths, Dorrien Estate is a contract
winemaking facility that specialises in producing small parcels of premium
boutique wines for Australian growers and winemakers as well as producing
wine under its own label (Dorrien Estate, 2013). Dorrien Estate has the ability
to crush 16,000 tonnes of fruit and warehouses approximately half a million
cases of finished wine and is capable of holding 8.9 million litres of wine within
tanks located at the facility. (Dorrien Estate, 2013). The organisation does not
actively market it’s products in the international market and due to the large-
scale nature of operations, is seeking to export and market the commodity to
larger, international markets, with a focus on the Asian market, and in
particular, China.
6. 2
3: InternationalisationDiscussion
The proliferation of globalisation, highlighted by Picton and Broderick (2005)
as the process through which individuals, organisations and governments
become increasingly interconnected, has led to the expansion of markets
across borders and continents and increased trading of commodities across
international borders by organisations. This expansion of markets and
increased global competition has led to organisations adopting and
implementing marketing processes and activities, referred to as international
marketing, to take advantage of growth and profit opportunities beyond
domestic boundaries (Simmonds, 1999; Rundh, 2007).
International Marketing is defined as the execution of activities by an
organisation which attempts to plan, price, promote and channel the flow of
commodities to various global markets (Cateora et al, 2012). International
marketing is closely aligned with internationalisation, which can be described
as the processes leading to identifying and entering international markets
(Elliot, Rundle-Theile & Waller, 2010). Internationalisation is an increasing
trend amongst organisations and can be attributed to a number of factors
including rapid domestic market saturation and limits placed on domestic
growth in the home country by public policies that limit further growth in
market share for an organisation (Chen, 2011). Internationalisation can be
advantageous for an organisation, but can also deliver challenges and
disadvantages.
3.1: Advantage and Benefits
There are many advantages for an organisation to internationalise its
operations. The expansion of trade across borders and continents allows
organisations to enter and compete in larger markets, which can lead to
greater market share and profits (Calof & Beamish, 1995). Internationalisation
allows for identification of organisational growth or niche opportunities located
across borders and continents (Anderson, 1999). Entering the international
marketplace allows for greater risk distribution for the company, alleviating the
susceptibility to domestic economic cycles and reducing the reliance on
domestic economies to generate profit (Cadogan, 2012).
7. 3
Firms also benefit from greater economies of scale by increasing the
dimension of operations, leading to reduced production costs and greater
profit margins (Williams, 2011). Internationalisation also has the benefit of
expanding both product and brand awareness across both domestic and
international markets. Companies also benefit from accessing new
technologies or information gathered from international markets, allowing for
more efficient and effective business and marketing practices (Cadogan,
2012; Williams, 2011). In line with these advantages and benefits, there are
also disadvantages and barriers.
3.2: Disadvantages and Challenges
In line with the advantages of internationalisation, there are also potential
disadvantages and challenges presented to organisations seeking to expand
business operations on an international scale. Organisations are faced with
several uncontrollable macro-economic aspects including demographic,
socio-cultural, economic, legal, political, technological and natural factors that
may affect international operations (Cateora et al, 2012).
Firstly, companies may be susceptible to economic downturns occurring in
foreign markets, along with fluctuations in monetary exchange rates that may
affect logistical and production costs, leading to reduced profit margins
(Rundh, 2007). Organisations are also vulnerable to political instability that
may adversely affect current trade agreements and profit repatriation policies
(Chung, Wang & Huang, 2012). Companies may also be at a disadvantage in
relation to reduced or inadequate information technologies and industrial
infrastructures in foreign markets. The difficulty of obtaining scarce, required
natural resources in foreign markets may also place companies at a
competitive disadvantage (Leisch, Welsh & Buckley, 2011).
In conjunction with numerous possible disadvantages, organisations face
several challenges that need to be addressed in order to successfully expand
and succeed within foreign environments. The primary challenge to success
in a foreign marketplace is a marketer’s self-reference criterion (SRC), which
is an unconscious reference to one’s own cultural values, experiences and
knowledge for a basis for decisions (Cateora et al, 2012). A marketers’ SRC
8. 4
can adversely affect business decisions relating to international environments,
as philosophies, values and knowledge may not be easily transferrable across
differing markets and cultures. In combination with SRC, ethnocentrism, which
is the belief in the superiority of one’s own culture or company (Cateora et al,
2012), is also seen as a challenge to successful internationalisation.
Ethnocentrism affects the ability of an organisation to effectively assess
foreign market situations and may impede the execution of accurate
management decisions in an international market environment.
Finally, companies are faced with religious, cultural and language barriers that
may adversely affect or change the ways business is conducted in a foreign
market. Organisations operating in more than one foreign marketplace also
face a greater range of managerial obstacles, as solutions and policies may
not be easily transferrable between foreign markets, and uncontrollable
factors may differ from country to country (Williams, 2011).
4: Economic EnvironmentSummary
Dorrien Estate has chosen to enter the foreign market of the People’s
Republic of China, an in the course of due diligence, must have a thorough
knowledge of the current economic climate of the target market before
undertaking international marketing opportunities.
4.1: China Gross Domestic Product
With a population of 1.3 billion, China recently became the second largest
economy behind the United States of America (The World Bank, 2013), and is
increasingly playing an important and influential role in the global economy.
The Gross Domestic Product (GDP), which is the total value of goods
produced and services provided in a country during one year, in China was
worth 7298.10 billion US dollars in 2011, as shown in figure 1. The GDP value
of China represents 11.77 percent of the world economy (World Trade
Organisation, 2013), highlighting the fact the country has a very robust
economy and strong trading power.
9. 5
4.2: China Current Account
As shown in figure 2, China has a Current Account of USD$65.8 Billion. The
current account is the sum of the balance of trade (exports less imports of
goods and services), net factor income and net transfer payments (Griffin &
Pastay, 2013) China’s current account reflects the fact that the country has a
positive account surplus, which highlights the fact the country’s wealth
generation exceeds its expenditure, allowing the country to invest and create
better domestic infrastructure and employment opportunities, which in turn
leads to an increased standard of living for the population. This increase in
living standards has led to a greater demand for foreign products by Chinese
consumers, opening up new markets for products.
Figure 1: China GDP (www.tradingeconomics.com, 2013)
10. 6
Figure 2: China Current Account (www.tradingeconomics.com, 2013)
Figure 3: China Disposable Income Per Capita (www.tradingeconomics.com,
2013)
11. 7
4.3: Disposable Income per Capita
The rapid growth of the Chinese economy in recent years has led to a rise in
the Disposable Income per Capita for a larger proportion of the Chinese
population, as shown in figure 3. Disposable Income is the amount of money
that households or persons have available to spend and save after paying
income taxes and pension contributions to the government (Griffin & Pustay,
2013). Higher levels of disposable income has seen increases in demand for
foreign products, which in turn opens up new opportunities for Dorrien Estate
to promote and sell wine in the Chinese Market.
5: Trade between Australia and China
Currently, there is no Free Trade Agreement (FTA) between Australia and
China. An FTA is an international agreement between two or more countries
to eliminate tariffs on all trade between them (Department of Foreign Affairs
and Trade, 2013). Wine imported to China from Australia is subject to tariffs
as well as a range of other taxes, duties and fees such as a liquor tax, an
education tax, a value-added tax of 17.5%(VAT) and a consumption tax
(Department of Agriculture, Fisheries and Forestry, 2012). A tariff is defined
as a tax imposed by a government on goods entering its country (Cateora et
al, 2012). Import tariffs provide an effective barrier to trade by raising the price
of a commodity in the importing country, and as a result, demand for the
imported good fails (Griffin & Pustay, 2013). In spite of the barriers of entry
imposed, Australian wine exports to China have seen a significant rise and
China has surpassed Japan, becoming the largest export market in Asia for
the Australian wine industry since 2007(Wine Australia, 2013), with Australia
also ranking second largest overall supplier of bottled wine to China after
France, as shown in figure 4.
12. 8
Figure 4: China Wine Market Imports by Country of Origin (Department of
Foreign Affairs and Trading, 2013)
Currently, there are no import limits or product exclusions relating to the
export of wine to China from Australia. China currently has free trade
agreements with both Chile and New Zealand in respect to wine imports.
Australia and China entered into bi-lateral dialogue in 2005 and the Australian
Trade Commission is working closely with the Chinese government to
eliminate tariffs imposed on wine and other agricultural imports by China
(Department of Foreign Affairs and Trade, 2013). A reduction or elimination of
current tariffs would benefit the Australian wine industry with an increased
demand for Australian wine in the Chinese market and a significant reduction
in price of Australian wine for the Chinese consumer (Department of
Agriculture, Fisheries and Forestry, 2012). In line with understanding the
current economic climate of China, Dorrien Estate must be aware of and
evaluate the Chinese socio-cultural environment.
13. 9
6: The Socio-CulturalEnvironment
Upon entering a new foreign trade market, organisations must be ‘globally
aware’, taking into consideration and being conscious of cultural and social
influences, along with having a sound knowledge of economic and political
trends (Williams, 2011). Socio-cultural factors such as thoughts, beliefs,
rituals, cultural, social and historical values can affect consumer attitudes and
shape buyer behaviour (Clow & Baack, 2012; Pickton & Broderick, 2005), with
culture seen as one of the most critical factors for organisations to consider
when entering new foreign markets, as it can hinder an organisations’ global
integration and coordination on international marketing strategy (Tae Won &
Sang Il, 2011, p.19). Dorrien Estate must take into consideration the outlined
socio-cultural factors. Understanding wine consumption behaviour and the
cultural and behavioural attitudes will assist the organisation to develop
innovative marketing strategies, increase sales and produce higher profits (Lui
& Murphy, 2007).
In Chinese culture, wine has always represented an image of both luxury and
decadence (Camillo, 2010; Thorpe, 2009). The majority of Chinese
consumers assess the quality of imported wine based on perceived factors,
including (in order of priority) price, country of origin, packaging labeling,
image and quality, and less emphasis on variety, aging or cellar management.
(Camillo, 2010: Jenster & Chen, 2008) Literature shows that social interaction
and word-of-mouth recommendation, primarily through friends and co-workers
is the most widely accepted channel of awareness among Chinese
consumers (Lui & Murphy, 2007; Yu et al, 2009). Due to the expansion of the
Chinese economy and the proliferation of middle and upper income classes,
consumption and knowledge of imported wines is seen as a symbol of status
and sophistication. Another critical socio-cultural factor is the perception that
wine is healthier than Chinese spirits because wine contains less alcohol (Lui
& Murphy, 2007; Yu et al, 2009). Furthermore, China’s culture of face value,
mainzi (“Face” in Mandarin) is a factor than plays a critical role in Chinese
culture (Camillo, 2010, p.74). Chinese purchase expensive wine for public
occasions and celebrations, yielding more “face”, or recognition and respect in
the presence of others. Chinese consumers also purchase and consume wine
14. 10
for the perceived health benefits as well as symbolic reasons, such as good
luck, as the colour red in China is seen as a symbol of good fortune and
prosperity (Lui & Murphy, 2007; Camillo, 2010; Yu et al, 2009).
7: Key Issues
7.1: Strengths
China is an expanding economy and as shown in figures 1, 2 and 3, reflect
that the Chinese economy is growing, with the standard of living and levels of
disposable income rising, leading to increased consumer spending and
demand for both foreign and domestic products. The growth of the economy
has allowed organisations to internationalise and enter the Chinese market.
The large scope of the Chinese market
7.2: Weaknesses
Differing managerial processes, lack of socio-cultural understanding,
organisational ethnocentrism and SRC can be detrimental to an organisation
seeking to expand into the Chinese market. Dorrien Estate must have a
thorough understanding of Chinese business practices and socio-cultural
factors and be ‘globally aware’ in order to be competitive and capture market
share in the Chinese trade environment.
7.3: Opportunities
Social-cultural attitudes and beliefs of the Chinese consumer towards wine
open up a range of opportunities for Dorrien Estate. With effective marketing
and a good understanding of social and cultural trends, the organisation has
the opportunity to deliver quality products to an ever-expanding consumer
base.
7.4: Threats
Uncontrollable elements such as economic, political, competitive and cultural
factors can be perceived to be a threat to market entry by Dorrien Estate.
Import tariffs and free trade agreements with other countries can also attribute
to difficulty in gaining a competitive advantage within the Chinese wine
15. 11
market. Due to the proliferation of the Chinese economy and the new,
emerging demand for foreign wine, other organisations are entering the
Chinese market, leading to a greater amount of competition within the
marketplace.
8: Summaryand Recommendations
China is an emerging global power with a thriving economy. Increasing
standards of living, rising levels of disposable income and expanding social
classes has led to an increasing demand for foreign products and services,
including imported wine. Dorrien Estate is seeking to enter the Chinese
market and take advantage of the growing trend of imported wine
consumption. In entering the foreign market, the organisation must take into
consideration certain uncontrollable political, legal economic, cultural,
technological, environmental and competitive factors. Advantages can be
gained from internationalising the organisation, including larger target
markets, greater brand awareness and risk distribution. In entering the
Chinese market, Dorrien Estate also faces several disadvantages such as
heavy tariffs imposed on wine imported from Australia, and the unfamiliarity of
fluctuating exchange rates and increased competitor activity due to the
thriving Chinese market. The organisation also faces the challenges of
understanding an interpreting the socio-cultural values and must address and
adapt the organisational SRC and have a clear understanding of ethnocentric
philosophises that may hinder marketing to the foreign market.
Although there are tariffs currently imposed on Australian wine imports and
there is strong competition from other organisations due to free trade
agreements, the report has shown that Chinese buyer behaviour and socio-
cultural attitudes reflect that Australian wine is perceived to be of high quality
and value and there is a great demand for Australian product due to the
perception of wine consumption being associated to symbols of status,
wealth, heath and well-being.
Dorrien Estate can take advantage of these beliefs and attitudes when
executing its marketing strategy and plan. In light of all the analysis given in
the report, it can be recommended that Dorrien Estate has a good opportunity
16. 12
to internationalise and gain a good percentage of market share, leading to
greater brand and product awareness and competitive advantage.
17. 13
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