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The purpose of writing this report is to exploring new business opportunities overseas for a multinational company. The company choose Chilean wine as an option to start the business. In order to evaluate the attractiveness of Chilean wine Industry, a specific analysis on the Chilean Wine Industry was conducted by applying the Porters National Diamond Model and two possible market entries.
The Chilean Wines have ranked very highly in the world, it’s the world’s eighth largest wine producer and the fifth largest exporter, reaching a market share of 8 per cent by illume of the global international wine market at the close of 2010. (International Organization of Vine and Wine, 2010) However, percent of Chile’s wine production were exported, making it the world’s most globalizes wine industry, with great flexibility, innovation and a long-term commitment to quality and service second to none.
There are demand conditions, Related and supporting industries, firm strategy, structure and rivalry, government and chances. These determinants create the national environment in which companies are born and how to compete. (Porter, 1990). This diagram, Figure shows the extended version of the Porter’s National Diamond. It will be used to determine the conditions of the Chilean wine industry, and decide which strategy will be used for the company. Figure Extended Porter’s National Diamond (Porter, 1990) 2. 1 Factor Conditions As we all know, the most important ingredient of wines is grapes. By having a good quality and quantity of grapes, the chances of making a good wine are high. Chile has a good geography and climate to make an ideal winegrowers land.
Chile has a few good geographical barriers which are the Tacoma Desert to the north, the Andes Mountains to the east, the Patagonian ice fields to the south, and the Pacific Ocean to the west, which make them a veritable agricultural land. (Infeasible, 2005) These barriers help maintain healthy conditions and protect vineyards against Pests and disease. The climate features the warm, dry summers and cold, rainy winters that vines love. Furthermore, the effects of the sea and those of the Andes result in a growing season that revels in bright sunny days and temperatures that take an intense dip each night to create the broad daily temperature oscillation that wine grapes need to develop fresh fruit flavors, crisp acidity, and high level of antioxidants and flavors. Wines of Chile, 2010) Due to the good condition of the soil, more wine making companies had made use of most of the areas as vineyards. The number of vineyards in hectares has increased over time, reaching a total of 198000 hectares of vineyards by 2008. However, in the latest year the percentage of growth of vineyard has stagnant due to geographical constraint to expand the vineyards. (USDA Foreign Agricultural Service, 2013). According to Table 4, it shows that the increase area planted will increase the wine production. More and more wine will be sold by the Chilean wine industry. Table Chile Wine Production Year Area Planted (The. Has) Production (Mill.
Liter) 1982 1992 1994 1996 1998 2000 2002 2004 2006 2008 2009 2013 105 62 53 56 75 104 109 112 115 118 117 126 603 370 411 481 547 679 574 655 845 869 1009 915 1046 1255 1260 (USDA Foreign Agricultural Service, 2013) Besides this, Chilean wine industry uses high technology to improve its production processes and standards. The industry is aware that maintaining the privileged place n the international context largely to continuously innovating, create and adopt new technologies. Universities associate with wineries in order to create and adopt new technologies. The Vinous and Tectonic technological consortium are entities whose objective is to develop R&D projects that meet the needs of the wineries.
The results proven that there is an increase in production and wine quality after using the Vinous and Tectonic technological consortium. (Wines of Chile, 2010) Many markets and consumers can be accessed if there are connected countries a country s distant from most major markets as Chile can be a major player in the high-end world food and drink market, supplying to consumers in Asia, Europe, and North 32 over 150 countries and has done better in terms of performance that the world average in the 6 main indicators that it is used for comparison: timeliness of deliveries, quality of transport and IT infrastructure, efficiency of border clearance processes, competence of the local logistics industry, domestic costs of services and provide time and data.
Table Comparison of Logistic performance between Chile and World world sank, 2010) With the better logistic performance, Chile will have good performance in terms of Ports airports, warehousing telecommunication; but Chile is lagging behind in terms of Roads and rail tracks which shown in Figure 2. (World Bank, 2010) Figure trade and transport related infrastructure in different country (World Bank, 2010) After reviewing all the results above, we can conclude that Chile had a good efficiency on exporting and trading goods. This will bring huge advantages for the Chilean wine industry as they can easily export their goods. 2. 2 Demand Condition More than 50 per cent of the products in the Chilean Wine industry are exported to worldwide.
USA, the I-J and China are the primary target markets of the Chilean wine industry. The consumer from these countries will be more intelligent, as they seek wines that are affordable and nice. (Wines of Chile, 2010) Chilean wines are cheaper compare to the ‘Old world’ wines and have better quality among the ‘new world’ wines. Therefore, the demand of Chilean wines will increase in the USA, the I-J and China. Table Chilean Wine Exports by Country of Destination 34,047 One of the countries that import Chilean Wine is China. Imported wines gained more recognition among Chinese consumers compare to China’s domestic wines. Nowadays, the demand of ‘new world’ wines in China has increased.
This is because they can get cheaper wine compare to French wine as China’s tariffs on Chilean products have reduced year by year. The tariff has been reduced to 2. 8 per cent this year and is expected to be reduced to zero on wines. (Jinx, 2013) Therefore, the demand for Chilean Wines in China will increase. According to DEEP, 2012 the country’s wine production will reach a record of 1. 28 billion elites in 2014. Besides individual customer, retail shop also demands for wines as they can act as the channel distributor for Chilean winemaker and customer. Most of the customers can’t buy the wines directly from the winemaking company, they will buy their product body.
These benefits includes promotes longevity, reduces heart-attack risk, lowers risk of heart disease, reduces risk of type 2 diabetes, lowers risk of stroke, cuts risk of cataracts, cuts risk of Colon cancer and slows brain decline. (Quintal, 2007) Consumer will tend to buy wines from Chile as they are mostly to be organic wines and will be healthier to drink. (Wines of Chile, 2010) 2. Related and supporting industry Figure Wine industry Cluster Related and supporting industry shows the value of how internationally competitive home-based suppliers create advantages in several ways. First, they will use the method that saves cost, efficient and rapid. (Porter, 1990).
The concept of Wine tourism is now firmly established in Chile. Wine tourism is the visiting of finery and witness the process of winemaking process. There are several vineyards used for wine tourism in Chile. For example, Avian Balladic, Avian Charismatic Furlough, Avian Domains Oriental, Avian El Aroma, Avian Hugo Casanova, Avian J. Boucher, Avian Segue, Avian Tabulations, Vines del Sure, Vines Terminable, Avian Salina and Avian Cart Viejo. Besides this, there are several packages tours for the wine tourism in Chile such as The Valleys of Chile, Wine and Spa, Wine Land Tour, Wine, Wineries and Cuisine and Sibilance Winery. (Sharpies,2002) In short, Wine tourism was used to promote wine and attract customers.
According to Figure , there are many factors that have to done in order to complete the wineries/ processing of wine. These include winemaking equipment, storage, bottles and caps and cork bottling. The wine industry needs these items to complete their wine. If there is lack of one of the items, the whole process will not complete or the production will decrease. For example, if the bottles suppliers supply less or did not supply any bottle to the wine making company, they will produce lesser or not produce any wine as they have no medium to store the wine. Besides this, the main material of wine is grapes. The grapes production in Chile was increasing in these recent years but there is a decrease in year 2012.