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Global Wine War 2009 New World versus Old Case Solution
The case study pertains to the global wine wars. There are essentially two systems defined: Traditional system and the New World system. The Traditional system incorporates countries such as France, Germany, Spain, and Italy, whilst, the New World system includes countries such as China, Argentina, US, Chile, and Australia. The Traditional methodology pertains to the processing of premium wines which were pioneers of the process, until they fell into a problem relevant to pests. The solution of this problem was found in the New World, which was characterized by full value chain utilization, innovation leadership, and technological advancement, as opposed to the attributes of heavy government intervention, high cost of production, standardization, and limited distribution aspect of the Traditional wine producers.
Following questions are answered in this case study solution:
How were the French able to dominate the worldwide wine trade for centuries? What sources of competitive advantage did they develop to support their exports?
Given the longstanding dominance of Old World wine producers, how were the New World producers, such as the Australians, able to expand their market share so rapidly in the 1990s?
What changes in the global industry structure and competitive dynamics led the France and other traditional producers to lose market share to challengers from Australia, US, and other New World countries?
What should be done for France to restore its position?
Global Wine War 2009 New World versus Old Case Analysis
1. How were the French able to dominate the worldwide wine trade for centuries? What sources of competitive advantage did they develop to support their exports?
The French wine production essentially dates back to the time when it was part of the pioneering niche market for high quality premium wine. The factor conditions such as land and climate were pertinent attributes of the France, compared to other European countries. Cross border shipping costs surged in the early 19th century. However, France was able to amalgamate the relevant industries that supported wine production, within their borders. Therefore, France was able to raise the level of its competitive advantage throughout the various sources, absent any relative impact from other countries.
Eventually, the wine industry proliferated and became the second largest export segment for France. This was combined with an extravagant culture of rich food, whilst making the customers more demanding, with respect to a certain quality of wine produced. In the aftermath of such demand shifts, the French government created the classification system, which raised the barriers to entry so that foreign competition can be limited.
This classification system also aided the consumers in making easy decisions through the complexity of a fragmented market. It was essentially a depiction of standardization of quality measures to maintain industry standards of French wine worldwide.
Much was relied on the vintner with respect to other operational capacities such as marketing and research. Due to a fragmented market, most small scale farmers relied on the wine maker for most market activities. However, the prime vulnerability of the French market pertained to the high level of fragmented vineyard and subsequent production, pushing up of prices per acre, extensive multilevel value chain, intricate tax and fare system, weather risks, and complexity of the distribution system and the relevant sales system.
2. Given the longstanding dominance of Old World wine producers, how were the New World producers, such as the Australians, able to expand their market share so rapidly in the 1990s?
As the demand rose in the post war period, specific resource conditions of the New World producers, such as the availability of suitable land and its prioritized affordability, allowed the New World wine industry to meet the demand requirements and perpetuated sales performance.
The change in demand conditions inclined towards better quality wines. It was a pertinent factor that arose from the advent of new generations, whereby in line with the economic upheaval and rising inflation figures, consumers turned towards being more price conscious and preferred convenience on average. Traditional firms could not capture this ideology due to stringent AAOC regulations and lack of creativity pertaining to productivity. However, the New World producers quickly met these changing demand conditions of consumers through the introduction of a complete firm structure, competitiveness, and strategy pertaining to operations and marketing as opposed to the Traditional producers.
The key word in the New World strategy was innovation. Innovation was proliferated due to a more globalized ideology that cascaded from technological advancements and openness to new production techniques. This could be linked to the increased distribution power. In the Traditional market, “negociants”, handled the marketing aspect, whereby they were rather isolated from understanding the fast paced changes relevant to consumer tastes and trends, especially when their occurrence was in a distant export market. Their understanding of the retail channel was also limited. On the other, since most New World producers controlled their value chain in its entirety i.e. from vineyard to retailer, consumer preferences could be easily identified, and subsequent responses could ultimately be molded with purpose.
3. What changes in the global industry structure and competitive dynamics led the France and other traditional producers to lose market share to challengers from Australia, US, and other New World countries?
Vineyards and vintners had made their presence in numerous New World countries since the early 18th century. However, the consumption pattern was not that attractive as compared with European countries. Mid-1960s marked the entrance of New World countries into the vinery business and eventually made a key position by continuously challenging the production process and marketing norms.
There were several advantages relevant to the New World countries compared to the traditional producer. Primarily, land availability was convenient at reasonable pricing, which perpetuated the growth of extensive vineyards. Secondly, absence of any traditional ideologies, allowed for experimenting with grape growing and subsequent technological advancements such as utilization of mechanical harvesters and irrigation methods. Additionally, experimentation with fertilizers and various pruning methods paved the way to an increase in yield and freshness in grape flavor. Thirdly, they surpassed numerous wine-making traditions and utilized on-site research laboratory to provide analytical perspective in numerous decisions such as harvesting, tasting, and making. Lastly, due to such innovative techniques, cost per tonne abated to almost half of its French counterparts.
There were numerous challenges on the supply and demand side of the wine business. Primarily, consumption per capita starting abating through the 1960s, in most of the countries with Traditional producers, whilst, surging in the New World countries. Secondly, innovative marketing techniques were being perpetuated by the New World countries. These techniques involved “wine in a box” techniques, whereby screw caps were utilized instead of cork ones. Additionally, they tried to appeal to the palates by launching new products for that specific segment. Various global giants such as Coca Cola and Nestle entered the market and left after a few years, but their value addition pertained to the influx of customer focused attitude and high-end marketing skills for the industry. Lastly, the whole value chain was controlled by the New World wine producer, which aided in extracting margins at various levels of the process, whilst retaining bargaining power. On average pertinent changes in production and marketing led to a market share loss to the traditional wine producers.
4. What should be done for France to restore its position?
The primary factor creating a barrier for French revolution is the AAOC regulations, which entails strict laws to be followed by all, eliminating the provision for improvisation and creativity. These regulations had played a vital role in bringing the industry to a paramount footing of being the best wine producers, but the emergence of New World producers has changed the grounds of industry environment pertaining to processing, R&D, marketing, so on and so forth, which implies that the AAOC regulations are merely straining the French innovation possibility.
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