Australian Wine in the Chinese Market

The report analyzes the opportunities and challenges of providing Australian wine in the Chinese market, with a focus on the political, economic, social, and technological factors. The report recommends partnering with local distributors to reach the designated clientele within the set time frame.

Australian wine in the Chinese market 1
Aspects relating to the provision of Australian wine in the Chinese market
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Australian wine in the Chinese market 2
Aspects relating to the provision of Australian wine in the Chinese market
Executive Summary
The market available in China offers lucrative opportunities for winemakers from different
nations. More specifically, Australian wine is gaining an expansive clientele in China. The
method used to analyze information for the prospective market of entry was both qualitative as
well as quantitative. The findings obtained from the research indicate that most of the clients to
be catered for are millennials. However, some challenges of the culture affiliated with the region
must be given some consideration. The recommendations relating to the market available in
China is that it would offer the desired prospects for the Australian manufacturer. The challenges
to be anticipated pertaining to the expenses of ensuring that the products on offer reach the
designated clientele within the set time frame. Moreover, additional effort is required to ensure
that clients are able to purchase brands which are more expensive with an Australian origin.

Australian wine in the Chinese market 3
Contents
Executive Summary.........................................................................................................................2
1.0 Introduction................................................................................................................................4
2.0 An analysis of the Chinese general business environment in which a direct investment will
take place.........................................................................................................................................4
2.1. PEST analysis.......................................................................................................................4
2.1.2 Political factors...............................................................................................................4
2.1.3 Economic trends.............................................................................................................5
2.1.4 Social factors..................................................................................................................5
2.1.5 Technological provisions................................................................................................5
2.2 Porter’s forces analysis..........................................................................................................6
2.2.1 Competition (Rivalry in the industry dealing in wine production).................................6
2.2 Advice on location (i.e., country choice)...................................................................................6
3.0 International process..............................................................................................................7
3.1 Uppsala model...................................................................................................................7
3.2 Entry mode(s) the investment should adopt with regards to the Chinese market.................9
3.2.1 Partnership......................................................................................................................9
3.2.2 Acquisition......................................................................................................................9
3.2.3 Franchising.....................................................................................................................9
3.4 Possible cultural/institutional obstacles to the investment..................................................11
3.6 Additional aspects relating to importing wine in Australia.................................................12
3.6.1 Challenges.....................................................................................................................12
3.6.2 Opportunities................................................................................................................13
3.7 The desirability of the objectives.........................................................................................13
4.0 Conclusion...............................................................................................................................14
5.0 Recommendations....................................................................................................................14
6.0 Bibliography............................................................................................................................15
1.0 Introduction

Australian wine in the Chinese market 4
Globally, the demand for wine from consumers has decreased drastically. The five years
which preceded 2017 were marked by an increased supply of wine from different new world
producers. The profits which accrue to the industry depict a 1.1% annual improvement (Cohen et
al. 2017). Hence, the revenue which accrues to the industry is summed at $102.9 billion for five
years before 2017. The industry dealing in Australian wine is ranked fourth globally concerning
its exportation endeavors. Annually, it is estimated that the liters of wine which are exported to
other markets are 750 million in total. The rate at which production is consumed is evaluated at
40% domestically (Lockshin et al. 2017). The market dealing with the exportation of Australian
wine was valued at $2.76 billion as of 2018. The report endeavors to evaluate the aspects which
are to be anticipated with the company's provision of Australian wine in the market available in
China and the hurdles which are to be anticipated.
2.0 An analysis of the Chinese general business environment in which a direct investment will
take place
2.1. PEST analysis
2.1.2 Political factors
China is considered a powerful country economically. The environment available in
China politically is quite stable (Williamson et al. 2018). A system which supports socialism is
opted for in China, and the endeavors that the nation's citizens may choose to engage in are
categorized under the government's mandate. However, the freedom that enterprises are accorded
to conduct their business in China is quite restricted. Even so, some improvements are being
implemented to ascertain that foreign companies can operate in the country. For example, new

Australian wine in the Chinese market 5
businesses are allowed to commence after 37 days while the global average is 38days (Howell
2015).
2.1.3 Economic trends
Global corporations choose to operate in China owing to various factors including the
availability of labor which is quite cheap. However, the prices at which property can be acquired
to set up business premises is quite high. The rate at which corporations are required to pay taxes
for their income is set at 25% (Williamson et al. 2016). Furthermore, operations affiliated with
industries encouraged by the government attract a rate of 15% particularly if they are qualified.
The rate which applies to individuals where tax is involved is 3%-45% (Bowe et al. 2015).
2.1.4 Social factors
The population residing in China is estimated to be 1.4 billion (Morrison and Rabellotti
2017). Products suitable for consumption have a massive market should the proprietors venture
into China. Hence, enterprises can benefit from the propensity of their clients to spend.
Moreover, the nation's residents also prefer to purchase items which serve as an indication of
their success and status. The rate of literacy evident among locals is estimated at 96.4% (Fleming
et al. 2015). In addition, the country’s efforts have paved the way for a reduction of the levels
relating to the nation’s poverty.
2.1.5 Technological provisions
China's vision is to be among global leaders concerning science and technology. In 2015,
the nation launched a programme to facilitate innovation as well as massive entrepreneurship for
its citizens (Corsi, Cohen and Lockshin 2017). The implication is that China is bound to become
a country whose economy is driven by efforts which are innovative. Technologies of making

Australian wine in the Chinese market 6
payments have received a reduced reception in China. For example, the utilization of credit cards
in China is rated at 1% even where online transactions are involved (Masset et al. 2015).
2.2 Porter’s forces analysis
2.2.1 Competition (Rivalry in the industry dealing in wine production)
The products available for the consumption of clients are quite diverse. Apart from the
imports obtained from foreigners, China also produces some of its wine locally. Currently, the
wineries operating locally in China are considered to be 100 in total (Maguire and Lim 2015).
However, Yantai Changyu Group Company Limited is among the few enterprises which have
succeeded in catering to the taste of the locals where wine is involved. In 2009, the company
controlled 20.1% of the share available in the Chinese market (Varsei and Polyakovskiy 2017).
Most wineries heavily focus on the production of brandy and various alcoholic beverages which
were traditionally preferred by the Chinese.
Premium wines which are cork finished are considered to be a minority. The wines
include Cabernet as well as Chardonnay (Fleming, Park and Marshall 2015). The nations from
which the manufacturer can anticipate some competition include France, the U.S as well as
Chile. In 2016, the nations in addition to Australia contributed to a 16.4% increase in available
wine.
2.2 Advice on location (i.e., country choice)
The market available in China is undergoing numerous changes. The nation is
experiencing an increase of individuals who can be considered as part of the middle class. The
individuals residing in various urban areas were considered to be 730 million as per the figures
obtained in 2015. According to McKinsey & Company, it is estimated that by 2022, 76% of the

Australian wine in the Chinese market 7
population residing in China's urban areas are bound to be regarded as part of the middle class
(Yang and Paladino 2015). The earnings for such households are valued at US$9,000 to
US$34,000 annually. The outcome is that additional needs are becoming evident among such
individuals. Wine consumption has undergone tremendous growth providing numerous
opportunities which can be capitalized on (Gómez, Pratt and Molina 2018).
Since 2014, the market dealing in importing wine to China has grown by a 37%margin.
The sales attributed to the industry are evaluated at over $ 2 billion (Muhammad et al. 2014).
Globally, China is ranked fourth concerning its wine importation propensity. Wine consumers
comprise of 38 million which is an opportunity to the seized by the manufacturers and retailers
of wine. However, the clients are often located in regions such as Shenzhen, Beijing as well as
Shanghai. Moreover, young people constitute a large portion of the industry's customers. Wine
lovers whose age is from 18-29 constitute 40% of the nation's consumers (Sun et al. 2018).
Chinese clients depict increased sensitivity to modifications which might be price-related.
In addition, their decisions to make appropriate purchases often take into consideration the
country from which the wine originates (Qing, Xi and Hu 2015). Wine shops that feature a
boutique style are regarded highly among wine lovers as well as supermarkets from which
different brands can be obtained. Students prefer to obtain their drinks from the platforms which
are available online.
3.0 International process
3.1 Uppsala model
The concept primarily focuses the processes implemented by firms to ensure that their
processes relating to markets which are foreign are intensified. The model stipulates that firms

Australian wine in the Chinese market 8
obtain their experience from firms in the respective countries before they venture into the
markets available abroad. Initially, traditional exports are opted for before graduating to
operation modes which are not only demanding, but also intensive.
The prospects for Australian wine in the market available in China are quite lucrative.
Australia is reputed for providing affordable wine albeit some limitations concerning variety.
The regions which are considered to be highly receptive of Australia's products are HongKong as
well as Macau. However, some competition should also be anticipated by other nations with
interest in the market available in China. For example, wine emanating from France account for
70% of the imported drinks which are preferred by the locals (Duan, Arcodia and Ma 2015).
Moreover, French products are also able to cater for clients who would prefer to restrain their
consumption to their budgets
3.2 Entry mode(s) the investment should adopt with regards to the Chinese market
3.2.1 Partnership
The manufacturer should consider relying on partnerships for success in the market
available in China. Currently, partnerships are formed primarily between companies in China
and their Western counterparts. Partnerships avail numerous resources and expertise for
enterprises interested in having their operations in China. Moreover, the risks or expenses which
arise can be shared. The demerits expected include limited flexibility and equal involvement may
also be limited.
3.2.2 Acquisition

Australian wine in the Chinese market 9
New opportunities offered in China can be exploited through acquisitions. Vineyards as
well as winery facilities can be acquired to ascertain that productivity is improved. Economies of
scale can be enjoyed from such arrangements. Moreover, a brand can easily cultivate its presence
in its respective market (Lockshin et al. 2017). However, financial fallouts should be anticipated
from such arrangements. Acquisitions included extensive expenses.
3.2.3 Franchising
Franchising would be the best method through which the market available in China can
be penetrated. The parties involved in the arrangements often include franchisees and the
franchisors. The franchisees who are business owners allowed to act independently to make
some royalties or fee payments to their respective franchisers who operate as the parent company
(Lewis, Byrom and Grimmer 2015). The outcome is that franchisees can identify themselves
with the trademark which is often associated with the main operator. Furthermore, they are also
allowed to not only possess but also sell the products as well as services offered by the main
company. Business activities can rely on the format used by the enterprise which assumes the
role of the franchisor.
The approach promises many merits and demerits for a manufacturer intending to offer
some Australian wine to the market available in China. The manufacturer can anticipate limited
risks politically. In addition, the expenses that must be catered for are likely to be extensively
reduced. Apart from China, other regions may provide opportunities which can be capitalized on.
The method offers the possibility of expanding into different markets simultaneously
(Kristensen, Taylor and Evans 2016). The partners with whom the manufacturer may decide to
team-up with to ensure that the enterprise can access the resources it might require. Such
resources are financial.

Australian wine in the Chinese market 10
However, various challenges can also be expected as a result of the utilization of the
strategy. The franchiser might face some hurdles in their efforts to ensure that franchisees are
adequately controlled. Conflicts are bound to arise which may require legal settlement. The
efforts required to ascertain that the image which may be associated with the franchisor is
positive are quite extensive (Quintal et al. 2017).
In China, foreigners engaging in the exportation of wine seek to partner with companies
which are registered. The enterprises are expected to serve as local distributors. The
requirements mandatory for engagement to be initiated is that the distributors operating
domestically must be qualified to engage in the sale of liquor. The details regarding how they
may opt to operate must be indicated in the licenses used in the course of their business
activities. In addition, licenses that permit wine importation must be acquired by the franchisees
(Bonn, Cho and Um, H. (2018). The stations which can be used for wine transfers can be located
in Hong Kong. The region is reputed as it is close to the mainland. The outcome is that the broad
market available inland can be catered for with relative ease.
3.4 Possible cultural/institutional obstacles to the investment
Individuals intending to conduct their operations in China must be sensitive to the culture
practiced by the locals. Regardless of the profitability evident in the nation, foreigners are likely
to chance upon multiple hurdles which can only be overcome through deliberate efforts. For
example, enrolment in various training programmes intended to facilitate the interactions of
individuals from different cultures can be relied on (Quintal et al. 2017). Enterprises must also
seek to understand the reasons which pave the way for the differences which might be culturally
evident. The outcome is the formulation of strategies which can be relied on to ensure that
maximum effectiveness is attained as well as the benefits of doing business in China.

Australian wine in the Chinese market 11
The concepts that must be considered where business is to be conducted are quite varied.
The society in China heavily ascribes to rules related to etiquette. For example, “songli”
provides the requirement that gifts must not only be given but also received (Varsei and
Polyakovskiy 2017). Furthermore, some guidelines are also stipulated concerning the adequate
personal space when conversing with other parties or even in dealings which involve the elderly.
Body language conventions are equally important as well as the treatment of individuals whose
positions are of importance. For example, open hands are used to point out what might be desired
as opposed to pointing at someone or an object using a finger.
The “mianzi” must be protected during business dealings. This is often considered as the
face which is conjoined to an individual’s pride. Moreover, the “mianzi” is the foundation of the
status which accrues to an individual socially (Howell 2015). In addition, it also forms part of
their reputation. Overt confrontation is often regarded as one of the factors that can damage the
face. The foundation on which Chinese hierarchy is founded is thought to be threatened by
criticism with a great potential to hamper Chinese business interactions.
The Chinese are strongly influenced by Confucianism concerning their attitudes or even
actions. The emphasis of Confucian philosophies is the responsibility an individual has to their
community and for the preservation of harmony. In addition, deference is expected particularly
where authority is involved. For example, greetings should feature slight bows which can be
substituted by firm handshakes or a simple nod. In places where work is carried out, individuals
are expected to adorn formal attire.
The style used to communicate different ideas is often a source of the misunderstandings
evident among individuals who choose to operate in China. Indirect communication which

Australian wine in the Chinese market 12
features a high context is often preferable to the Chinese. The outcome is that most ideas are not
communicated directly, but are instead inferred. Relationships, emotions and other clues are
given utmost importance as opposed to the words spoken. In situations where conflicts arise,
solutions must be sought privately as well as indirectly.
3.6 Additional aspects relating to importing wine in Australia
3.6.1 Challenges
The trends which continue to change among Chinese consumers are quite worrying.
Initially, clients indicated a tremendous shift from local brands commonly referred to as baijiu
for imported brands. The wines originating from Australia which were commonly preferred by
Chinese consumers included Penfolds Bin 389 as well as Penfolds Bin 95 Grange (Howell
2015). However, the focus is increasingly changing such that regions which are not very famous
are receiving attention from clients. The implication is a reduced share for companies providing
different wine varieties.
The use of online sources to increase wine sales is among the options to be capitalized on
by wine sellers. The platforms used to facilitate e-commerce include Tmall in addition to
JD.com. The predicament evident is that clients cannot sample different wines before making
purchases (Lockshin et al. 2017). The outcome is that the models which are diverse must be
adopted to ensure that enterprises can make the profits desired. The implication is that additional
resources must be directed toward developing strategies that would be effective in catering to
client requirements.

Australian wine in the Chinese market 13
3.6.2 Opportunities
Tariffs on Australian wine have drastically improved owing to the implementation of the
China Australia Free Trade Agreement. The agreement implies that from January 2019, the
tariffs ranging from 14-20% which had been imposed on wine are bound to be abolished.
Currently, bottled wines enjoy a 2.8% tariff (Lockshin et al. 2017). The outcome has been
significant growth concerning the amount of wine that Australia can export to China.
Australian wines are set to benefit from the provision of an extensive variety to the
Chinese market. Products which were previously considered to be high-end can be purchased by
the nation’s middle class owing to an increase in their income levels. Hence, China is open for an
influx of brands which might have been regarded as expensive. Red varieties can be made
available for consumers to make their purchases whereas white wine can be provided in different
coastal regions to ensure that the consumption of seafood is complemented.
3.7 The desirability of the objectives
China has grown as an importer of commodities from other regions globally. The
opportunities available in the country would serve to benefit the manufacturers of Australian
wine. China’s move to increase tariffs on commodities from America creates opportunities
which can be capitalized by Australian winemakers (Howell 2015). Currently, wine shipped
from the U.S attracts a 15% tariff which has reduced the availability of the beverages in
respective markets.
The market available in China is yet to mature. Moreover, the changes evident in the
respective market indicate an increased propensity for clients to taste unknown brands. This is an
opportunity that new manufacturers can rely on to ascertain that their brands obtain some

Australian wine in the Chinese market 14
recognition in the market available in China (Williamson et al. 2018). The market is also subject
to extensive growth owing to the increased popularity accorded to wines which are imported.
The objectives are feasible, particularly where a younger market is targeted. Clients aged 30
years and below are willing to make purchases at the prices indicated regardless of how
exorbitant they might be. In addition, the segment is more experimental when compared to their
older counterparts.
4.0 Conclusion
The market available in China promises huge profits for operational enterprises.
However, the cultures relating to the locals must be considered as well as factors which can be
relied on to ensure that available opportunities are effectively optimized. Regardless of the
restrictions that may be evident preventing the entry of foreign enterprises into the nation,
Franchise agreements can be used to ascertain that desirable outcomes are attained.
5.0 Recommendations
Chinese provinces depict different trends concerning the consumption of wine. The
profits attainable from Guangdong province are quite lucrative. In 2017, wine worth US$909
million was brought to the region from different foreign nations for local clients. Hence, the
business should consider being part of the opportunities evident in Guangdong province.
Shanghai can also be reviewed owing to the profits amassed from the sale of wine which was
valued at US$735.5 million (Cohen et al. 2017). However, efforts should also be made to scout
for regions where demand is not satisfied to ensure that the business can build its reputation in
various emerging Chinese markets.

Australian wine in the Chinese market 15
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