Expanding Jacob's Creek Wine into China: Market Analysis and Entry Strategy

This paper analyzes the potential of expanding Jacob's Creek Wine into China, including market analysis, competition, and entry strategy. The paper also discusses the wine industry in China and the cultural and economic factors that influence it.

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International Business management
By (Name)
Course
Instructor’s Name
Institutional Affiliation
The City and State
The Date

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Introduction
China was chosen as a potential country for expansion of Jacob’s Creek
international wine market after a thorough analysis and understanding of the
Chinese market. It was also chosen due to the potential customers and the
ever growing market for imported wines. Further,this paper emphasizes
Jacob Creek Wine in order to gain a deeper understanding of its overall sale,
market share and trend of the wine industry. Also, social factors like culture
in addition to income, are also critically important while analyzing factors
which influence a given product in the market. Therefore, knowing the
cultural aspects and the economic status of the target market is very crucial
while analysis the success of the product in different markets.
Jacob Creek Wine.
Jacob Creek, an Australian wine Brand, was released by the Orlando
wines in the year of 1976 (Wine-searcher 2017). It’s among the largest wine
organizations operating in the Southern part of Australia. Its major aim as a
company is to offer contemporary standard wine together with maximum
verity while carrying out their services (Jacob's Creek 2018). The Company
deals in more than one brand of wines and some of these include; Sauvignon
Blanc and Shiraz.

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In order to increase profits of the company, there is need for extension of
company’s services into China. A choice of China was made because China
has a favorable economic, technological, and political environment that
could raise revenue for the company (Santander Trade Portal2018).

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Reasons why China was chosen
China has a strong economic climate. It has a very favorable climate
for foreign investment that could possibly favor the establishment of
international companies. Referring to UNCTAD 2018 World report on
Investment (United Nations 2018), this country was graded the second
biggest country with largest Foreign Direct Index close to the United States
of America. China’s FDI (Foreign Direct Index) grew steadily from $133 billion
in 2016 to $136 billion in 2017 (United Nations 2018.). The major reasons for
these developments was because of trade liberalization in china, friendship
with neighboring countries, as well as rapid population growth(Brian 2015).
The foreign exchange rates in china are very favorable, the current
currency exchange rate was given to be 6.87 Chinese Yuan being equivalent
to 1 United States dollar(Santander Trade Portal2018). China also has a very
high population which givesit a large market base for the products produced
and sold (Brian 2015). The large population would also be useful in providing
cheap labor in the company. This country has over 1.68 billion people
making it the country with the highest population in the whole world (Brian
2015).
There is also a low corporate tax within china. This rate has always
been constant at 25% thus favoring the growth of companies. The country
also has low restriction policies to immigrants and foreigners thus making it

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a politically stable country as compared to other potential countries for
Jacob’s Creek expansion.
A graph illustrating the corporate tax rate within china, source
(Santander Trade Portal2018)
China has a very favorable economic policy. One of the components of
this policy is the good economic relation between China and neighboring
countries for example Australia. The also has a strong GDP (Gross Domestic
Product) growth rate, the GDP for its economy increased by 6.8% in 2018
though there was a higher expectation for this rate (World Bank Group
2018). The country's per capita income is also recorded to increase to
7329.09 US dollars in 2017, this means there is an increase in family income
within China (Santander Trade Portal2018). Politically china is operating
under a single party. This happened after the birth of a communist state,
therefore there will be peace for foreign Investment.

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The Wine and Beverage industry in China.
Thiswine industry in China industry has grown dramatically since 1980
economic reforms. This has made China one of the Top ten distributors of
wine in the global market in tie with France (Julie 2016). The Chinese wine
market for quite a long time has been overshadowed by a very well distilled
spirit known as "Baiju" and "huangjiu" occasionally referred to as "yellow
wine"(Wang 2017). China has over years has been operating with over 90
alcoholic beverage brands which have won a number of awards
internationally and domestically (Julie 2016). Because of the many brands
within china, there is an expectation of a stiff competition between Jacob’s
Creek products and products produced within China.
Besides globalization and trade liberalization as some of main factors
for increasing sales of Jacob’sCreek wine company in China, the country has
the biggest population of people within the whole world (Centre 2014). The
current population statistics in china show 1.68 billion people within the
country, therefore there is a possibility for creating market for the Brand.
One of the other brands that is internationally recognized within China is
"Yantai Changyu group company Limited". It is ranked as China's leading
wine in the wine industry occupying 25% of the wine market share(Centre
2014). The other top selling brands are "China Great wall Wine Co. Ltd" and
“Tonghua Grape wine co. ltd". The Wine industry in China is characterized

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with 80% of the market share belonging to the locally distributed wines
where 50% belongs to the listed three major brands (Julie 2016). The
remaining market share belongs to the imported brands from other distillers
for example from France and United States of America. The industry is also
characterized with rapid growth because of the increased demand of wine in
the country (Brian 2015).
Entry objective of Jacob Creek wine in the market
Strengths, Weakness, Opportunities, and Threats need to be
understood by Jack Creek before investing in China (Chen & Funke 2009).
The main reason why there is need to invest in China is to increase revenue
for the company through increasing sales by expanding the market base.
Market Analysis
There is a growing market for wine in China due to the increasing
number of customers who have knowledge and preference for foreign wines.
This has been combined with the Chinese government’s plan to improve on
the access of china’s interior market (Chen & Funke 2009).
Developed cities like Beijing, Shanghai, Guangzhou, and Shenzhen
have the highest share by volume of imported wines (Julie 2016). However,
with expansion of the economy in the developing cities and government

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improvement of the distribution, the markets of wine are expected to greatly
continue growing (Centre 2014). On the other hand, the packaging and
pricing are very important factors for the new wine consumers.
Market Environment
The size of China and its growing middle class level have made it a
very attractive export market of wine producers around the world. China was
ranked the most populated country in the world in 2015 with an
approximation of 1.68 billion people. From the current population growth
rate statistics of about 2%, it is expected that by 2020 the population would
reached about 1.7 billion. China has one of the largest growing economies in
the world with a GDP of about US$12.2 trillion in 2017. There is an increase
in consumer spending (Julie 2016).
In addition, the increase in travels among the Chinese has increased
the interest in the western culture that is taken to be more advanced, there
is increase in modern life style. As reported in 2012, Chinese exceeded the
Americans and Germans as the top world spenders on tourism. They took 83
million foreign trips and they spent US$102 billion. Still the number of foreign
trips is being expected to go up to two hundred million by 2020 (Centre
2014). As the tourist increase their trips to wine drinking countries, they
acquire knowledge and preference of foreign wines use it back in China (King
& Mallesons 2012).

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Consumption
The total alcohol consumption, as reported by Euro monitor
international, increased by about 21.6% between the year of 2009 and
2014(Ceicdata.com 2018). The increase in the incomes of households has
allowed consumers to enjoy a wide range of alcoholic drinks although Baiju
the locally produced alcohol has been the highly consumed alcoholic drink.
The imported drinks especially the wines have been taken as symbol of
status and therefore considered a vital component of doing business. The
new generation for consumers of wine is taking wine as part of the social life
besides their work schedules (Lardy 2016). The segment of consumers that
belong to this section are mostly graduates holding high paying jobs in their
youthful ages of between 20 and 30 years (Santander TradePortal 2018).(Chi
Keung Marco Lau 2015)(Chi Keung Marco Lau, 2015)(Chi Keung Marco Lau,
2015)(Chi Keung Marco Lau, 2015) Consumers at the elderly age tend to be
more sensitive to prices of the drinks while the young and middle age are
sensitive to brand as a way demonstrating dignity, honor and pride among
the mates(Julie 2016).
Consumers in the Chinese are also more concerned with the safety of
products because of the many product issues that are exposed in the media.
The concern of food safety attracts consumers to foreign brands because

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they are considered to be safer, conforming to the safety standards and
therefore they are trusted more than the local products (Lardy 2016).
Health and Wellness Trend
In the past few years, the market of health and wellness foods and
beverages drinks in the Chinese market increased by about seventy six
percent 76% reaching US$116.6 million in 2015. The organic category of the
wines got the most growth with about 244% increment from the year of 2011
to 2015. The growth of this category was followed by fortified at 81% and
then naturally healthy at 70% (Santander TradePortal 2018). From these
trends, there is an indication of a growth opportunity for organic and fortified
wines (Lardy 2016).
Retails sales
The market for wine in the Chinese market had an estimated value of
US$38.3 billion in 2015 and was still expected to increase by 17.8% by the
end of the year 2016 making it to reach 45.1 billion US dollars. The market of
wine in China increased by an annual growth rate of about 19.7% between
2010 and 2015 and it was expected though at a lower rate of about 15.4% in
the next four years till 2019 reaching 69.3 billion US dollars (Lardy 2016).
The volume of wine in the Chinese market also increased with a similar
annual growth rate of about eighteen percent between the years of 2010 and

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2015, taking it to an estimated volume of about 2.5 billion liters in 2015
(Wang 2017).
The most common alcoholic beverage category through the consumers
in China is still wine, it represented approximately 96.8% of the value of wine
in 2014. It was followed by fortified wine that took a market share of 1.8%
(Lardy 2016). Red wine that occupies about 75.2% of total volume among
the still wines is particularly popular because the healthy benefits are
associated to it by the consumers. Its red color which is significant the
Chinese culture which represents wealth good luck and power gives it a favor
among the consumers. Rose wine is the smallest segment among still wines
in regard to volume but has registered an increase in volume with 105%
from 2010 to 2014 (Centre 2014).
Top competitors
In the target market, the top three companies by value of market
share and volume are Yantai Changyu pioneer wine, China Foods Limited and
the Weilong wine. Some other companies have also registered growth over
the past years (Wang 2017). CiticGuoan Wine registered its most growth by
volume with an increase of about 57.2% from 2012 to 2014. While the other
first growing company is Tonghua wine that got a growth of about 50%
increase by volume during the same period (Julie 2016).
SWOT Analysis

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Using SWOT analysis, the "Strengths", "Weakness", "Opportunities",
and "Threats" of the company while operating within China where analyzed
(Chen & Funke 2009). According to the research carried out, the following
where analyzed:
Strength
 Big market share
 favourable foreign policy
 Cheap labour due to large
population.
 Customer loyalty (Chen & Funke
2009).
Weakness
 lack of product diversification
Opportunity
 Increased advertisement
 Potential market
 Increased production to meet the
market base
Threats
 Stiff competitions to the
company (Julie 2016).
 Changing cultures since the
Chinese culture is quite
different from the Australian
culture.
International strategy.

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International strategy applied by the company is industry-based rather
than resource-based. Industry-based is used as the strategy because of the
cool business conditions within the wine industry in China (Centre
2014).Trade liberalization and globalization in China have managed to bring
the wine industry in china on an international Scale thus creating a larger
market base (Harvard Business Review 2018).
Entry mode
There are many options that Jacob’s Creek could choose for the entry
mode that include licensing, export, acquisition and joint venture. However,
depending on the motives and the resources of the company, the export
entry mode is appropriate(Uche 2016). China has minimal trade barriers and
this favors the export entry mode. Situating the company in the home
country gives Jacob’s Creek and advantage of the value attached to the
imported wines in the Chinese market. This mode also requires a low initial
investment in expansion in the new and therefore gives Jacob’s Creek a
competitive advantage related to costs(Uche 2016). This mode in addition
gives the company control over its production and as there is a decrease in
the average production cost per unit. For Jacob’s Creek to favorably compete
with the other existing companies and brands in the industry, it would apply
"direct exporting" which is a form of non-equity market entry mode

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(Lymbersky 2008). This will require direct involvement of the company into
marketing their wine into China.
The Trade
In regard to importation of quality wine, France has been always
ranked the supplier of wins to china. However, its growth has been moderate
over the past years at a growth rate of about 56.7% (Becker & Elfstrom
2010). Among the highest twelve ranked suppliers of wine to the China,
Chile has registered the highest growth of its exports with the growth of
about 191.6% during the past years, and it had a compound annual rate of
growth of about 30.7% (Julie 2016). Australia is the second biggest and most
important wine supplier of China. It has registered a significant growth of its
exports to China, it realized a growth of about 171.3 over the past five years.
The United States and Canada are also among the countries that realized
increase in their exports to china in the market (Newell 2018).
Distribution channels
As reported by the Asian journal of Management Research, imported
wines have the largest market share by volume in the developed cities like
Beijing, Shanghai, Guangzhou, and Shenzhen. They account for about 53%
by volume of the sales of imported wines, the on-trade channels represent

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80% of sales in total (Julie 2016). This is attributed to the fact that these
cities have the biggest number of expatiates and western educated young
professionals who form a class consumers with knowledge and preference
for foreign wine. With the program by the Chinese government focusing on
the economic development of its interior and economic expansion of the tier
2 cities, the distribution channel with be greatly improved (Newell 2018). The
interior cities will have easy access to the imported products and there by
developing new markets for the imported wines. However, for these new
consumers, the price and packaging of the wine is an important factor to
motivate their consumption. It should be noted that packaging plays a vital
role in stimulating demand thus bringing about product trial among new
customers in the market. This in turn increases the level of market share
thus leading to high levels of sales and revenues (Newell 2018).
New wine exporters can have access to the market in China in two
ways; specialized importing and use of distribution agents. This can aid easy
distribution directly to access points for consumers like supermarkets,
restaurants and liquor stores. Imported wines are mainly sold in high profile
places like hotels, restaurants and also can be sold through foreign retail
while for the local wines majority is sold in supermarkets. Consumers trust
products in international stores more because they believe that these ensure
better of goods (Julie 2016). However, the challenge that Jacob’s Creek

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should be aware of is that there is undeveloped infrastructure and
management of distribution relationships.
International organization design and control methods
Given the market situation in China and the fact that to succeed in the
Chinese requires a local distribution agency, Jacob’s Creek should have a
global functional design. The company has similar product lines and requires
to form department in China to responsible for market penetration and
adoption(John and Kidger 1999). This will make it easy for the company to
still maintain centralized control over their product sales and distribution.
For Jacob’s Creek to monitor their performance to attain the set goals,
strategic control should be used as their control method. This control method
helps in monitoring formulation and implementation of market strategies.
International Human Resource
Jacob’s Creek to properly manage the three function of human
resource namely; procurement, utilization and allocation, in the new market.
It should employ an appropriate and modern human resource strategy. There
should be a balance between integration and differentiation of management
policies(Wall 2010). These polices should interplay the two dimensions,
that’s is to say, logic of product market and social cultural environment. It
should apply a polycentric approach for global integration. Directors of the

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various departments like marketing and finance should be those familiar with
the brand i.e. should be brought Australia. However, to reach the market
effectively, distribution and other lower positions should be given to the
locals.
Company growth forecast
Jacob’s Creek has potential to expand and capture the market in China especially with its
red wine brand with has color favor and the Chinese culture. The pricing should be done
carefully to enable the brand to the tier 2 cities. Basing on the sales of similar imported wine
brands from other countries, Jacob’s Creek will grow by market value and volume, however, it
needs to obtain a brand royalty among the customers. Advertisements through media and
magazines are a potential avenue for market growth through this, sales are expected to grow
steadily by volume and value. By 2022, the product will have reached into the interior and taking
a greater portion in market.
Recommendation and conclusion
Much as there is room in the Chinese wine market for more imported
wines, Jacob’s Creek wine needs to consider intently the distribution agents
used in the country. Wines should be well packaged and moderately priced
for easy penetration into the new market. There is no special license needed
for importing wines in china, however, Jacob’s Creek should use importers
familiar with customs processes particularly regarding labeling.

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