Running head: BUSINESS FEASIBILITY REPORT ON NEW ZEALANDS WINE INDUSTRY

Business Feasibility Report on New Zealands Wine Industry

Authors Name
SM0269
Northumbria University: Newcastle Business School

WORD COUNT: 2975

2
BUSINESS FEASIBILITY REPORT ON NEW ZEALANDS WINE INDUSTRY

Table of Contents

Table of Contents

TASK 1: PORTERS NATIONAL DIAMOND MODEL

Introduction

Porters National Diamond Model

Factor Conditions..................................................................................................................... 4
Demand Conditions.................................................................................................................. 4
Firm, Strategy, Structure and Rivalry........................................................................................5
Related and supporting industries............................................................................................5
TASK 02: MARKET ENTRY STRATEGIES 6
Marketing Strategy

Types of Market Strategies

Exporting........................................................................................................................... 8

Licensing........................................................................................................................... 8

Exporting.................................................................................................................................. 8
Advantages of Exporting.......................................................................................................... 9
Disadvantages of Exporting...................................................................................................10
Licensing................................................................................................................................ 10
Advantages of Licensing........................................................................................................11
Disadvantages of Licensing...................................................................................................12
Recommendations
References

14

12

3
BUSINESS FEASIBILITY REPORT ON NEW ZEALANDS WINE INDUSTRY

TASK 1: PORTERS NATIONAL DIAMOND MODEL

A report on New Zealands wine industry in context of porters national diamond model

Introduction
New Zealand is the worlds famous destination for production of award winning wine
brands and has a developed wine industry. The scenario reveals that the industry is
quite developed as far as production, processing, packaging and export of quality wine
is concerned. Being a revenue generation source for the New Zealand of $1.2 billon, it
is the eighth most exported commodity worldwide. Therefore, the prospects for
extension of business in the wine production of industry are quite bright. The report will
analyze these prospects further in the context of porters national diamond model to
evaluate the competiveness and investment attractiveness of New Zealands wine
industry (Gabzdylova, Raffensperger & Castka, 2009).

Porters National Diamond Model

The countries are competing in the tough economies and to gain stability they intend to
take competitive advantage over other countries to increase their revenues, outreach in
global market and to place their products in every other market where any potential
consumer might exist.
Michael porter adopted a model termed as porters national model keeping in view the
above scenario to evaluate the competitive advantage the nations and organizations
might have over the others when it come to the idea of going global. This model is a
combination of Porters Five Force Theory, Value Chain Theory and Competitive
Advantage Theory.

4
BUSINESS FEASIBILITY REPORT ON NEW ZEALANDS WINE INDUSTRY

In this report Porters National Diamond Model will be discussed in the context of Wine
Industry as a potential competitive business in the target country as New Zealand. An
analysis of New Zealands competitive advantage in the wine industry will be discussed,
keeping in view the competitiveness of investment in the said industry (Dunning, 1993).
Factor Conditions
The factor conditions evaluate the market in the target country in terms of the factors
like skilled labor, resources, capacity, skills, infrastructure and other natural and human
factors.
The application of these factors when applied to the wine industry of New Zealand, the
results seem to be very encouraging. The country has excellent Indian weather which
extends till the harvest in the vineyard for the production of excellent ripened fruit in the
fields. The production had reached up to 345000 tons during the summer of 2013 which
could have resulted in the production of 250 million liters of good wine. Almost 35733
hectares of the land was cultivated in the country resulting in the production of 9.7 tons
per hector yield. The statistics clearly reflect that $1.2 billion industry of wine is on rise in
New Zealand with all supporting factors (Rosenfeld, 1997).
Demand Conditions
Demand conditions in Porters model determine the demand of the product or services
in the local market which in one way or other might affect certain factor condition. Porter
argues that demand condition is a mixture of three other factors which are

The demands of the consumers

The growth rate of these demands
The mechanisms which influence local demand on international markets

The wine industry of the New Zealand is a combination of all these factors and the mix
of the above mentioned factors seem to be perfectly blended there (Grant, 1991).
Owning to huge production of wine in the country the high local demand is no exception.
The annual sale of wine during the year 2013 in New Zealand was 66.4 million liters
while in 2012 the sale remained around 64.6 million. Likewise the per capita

5
BUSINESS FEASIBILITY REPORT ON NEW ZEALANDS WINE INDUSTRY

consumption of the wine was 21.2 liters during the year 2013 which remained 20.9 liters
in the year 2012. The above mentioned statistics clearly reflect that not only demand of
the consumers of locally produced wine is high in the country but it is on rise as well on
yearly basis. High quality production process and target marketing in the countries like
United Kingdom, USA and Australia, being the major markets of New Zealands wine
industry, have become lifeline of the industry in the recent past which no doubt will be o
rise in the coming years (Gabzdylova, Raffensperger & Castka, 2009).
Firm, Strategy, Structure and Rivalry
These factors determine the level of local or domestic competition among the firms by
the policies adopted by the governments as how they are established, structured
organized and managed. The local culture, working environment, morale shape the
environment in which the companies work. These factors vary from one country to the
other. According to Porter, the competitive environment and domestic rivalry among the
companies gives a competitive advantage to the organizations to confront such
environment globally and seek competitive advantage.
The wine industry in New Zealand is very competitive in terms of regulations and
policies adopted by the government to help boost the industry. The worldwide
distribution of wine and third most exported product of the country the companies are on
the verge of ever increasing competition to product the quality wine which meets the
international standards. Steve Green Carrick is the best and top producers of wine in
the country since the year 2000. The country has associations and councils for the
grape growers and wine producers to protect their rights and to ensure that industry
thrives each year with the quality production (Porter, 2000).
Related and supporting industries
This factor of Porters model analyses the presence or absence of related support
industries to a specific industry which might give it a competitive advantage at
international markets. He is of the view that success of one industry might lead to the
success of other related industry at global level.

6
BUSINESS FEASIBILITY REPORT ON NEW ZEALANDS WINE INDUSTRY

When viewed on a large scale such industries can be evidently observed in New
Zealand, the first and the fore most industry related to wine is the agriculture produce
like those of vineyards. The states in New Zealand even compete with one another in
production of quality grape crop in which Marlborough exceeds Hawkes Bay by
producing 251, 623 tons of grapes than 38000 tons during the year 2013.
Likewise, brewing industry and related machinery production in the country is quite well
established. The other factor which gives a competitive advantage to the country on
account of tis industry is rising volume of exports in which is increasing at the rate of
22% since the year 2009. This industry not only gives a huge volume of exports to the
country but also increase the percentage of foreign direct investment by large
multinational organizations (Aylward, 2003).

TASK 02: MARKET ENTRY STRATEGIES

A comprehensive report has been developed to analyze the feasibility of establishing
the vine industry in New Zealand. The second focus of this report is to analyze the best
possible strategies to be adopted to enter in this industry.

Marketing Strategy
Globalization has boosted the competition in different industries that is why many
companies are moving to other countries to establish its business as New Zealands
wine industry is also very attractive prospect for different organizations to invest in it. In
this era of competition companies want to extend their business to other countries
markets and rule on it and this desire rest on the foundation of many reasons.
Adoption of right strategy for this purpose is key to success but a good strategy must be
in synchronization with the objectives of company and international market environment.
Different types of strategies are adopted by different organization based upon their
feasibility to their organization (Tielmann, 2010).
There are so many things which are involved while deciding ad formulating the strategy.
All of them are explained in pictures below.

7
BUSINESS FEASIBILITY REPORT ON NEW ZEALANDS WINE INDUSTRY

Risk
Aversion

Vision

Capital
Availibility

Strategic
Choice

Level of
Control

Figure01: Important steps for Strategy Choice

Types of Market Strategies
There are so many market entry strategies with different forms of risk and profit
potential for the organization for entering into the new market. Below is the list of all
types of market strategies which could be adopted to establish a business into wine
industry of New Zealand (Bettis, 1981).

8
BUSINESS FEASIBILITY REPORT ON NEW ZEALANDS WINE INDUSTRY

Profit Potential
Risk

Joint
Venture

Direct
Investment

Franchising
Licensing

Exports

Figure 02: Relationship between the risk and Profit Potential of adopted Strategy
This picture describes the relationship between the risk and profit potential associated
with the adopted strategy. So while formulating the strategy company could keep in
mind this relationship which would help it adopt the best strategy which it should adopt
to establish business in wine industry of New Zealand.
After the evaluation of the relationship described by Bettis for the strategy adoption at
entry level following two strategies are the best suited for the establishment of new
business in New Zealands Wine Industry.

Exporting
Licensing

Exporting

Exporting is to send your product to that countrys market where you want to establish
business as according to Bettis(1981) this method involves minimum risks because in
this organization could produce wine in its local industry and send it to New Zealand for

9
BUSINESS FEASIBILITY REPORT ON NEW ZEALANDS WINE INDUSTRY

the trial base whether its product gets enough appraisal from the target market or not
(Bernard & Jensen, 2004).
Rather than establishing a new unit in the country company should send its agents and
sales men to sell its product in the targeted country which would cost less. As these
agents and distributors become face of company then organization must be very careful
in selection of these agents and distributors because all the future business of company
and profit depend upon their performance (Roberts & Tybout, 1997).
Advantages of Exporting
There are so many potential advantages of exporting for the organization which pave
the way for organization to enter into the wine industry of New Zealand. In case of
exporting company will directly send its product to target customers in New Zealand that
is why profit rate would be higher for organization along with that company would be
having complete control on everything related to business and could used any method
of delivering its product to the customers. When company would directly send its wine to
the target market in the New Zealand and get frequent updates from its own appointed
distributors then it would be aware of the targeted customers that which type of
customers are taking interest in their wine. Customers would become aware of the real
organization producing and delivering in wine and would trust in dealing and purchasing
its wine. Through direct exporting organization could get direct feedback about the
quality of wine through their website and would know how to improve its quality of
product (Bernard & Bradford Jensen, 1999).
By exporting wine to New Zealand, Company would develop trust regarding the
trademark, patents and copy rights and express itself as fully committed in delivering
quality product. As New Zealand would be new place to start wine business for the
organization so rather than establishing a unit in that country at initial level if
organization just exports its products then it would develop understanding about the
market of New Zealand and demand of its product in that country which would help it to
decide whether to establish a unit of Wine production in New Zealand or not. Through
just exporting wine at initial level into New Zealand it would make organization in better
position to expand its business (Bilkey & Tesar, 1977).

10
BUSINESS FEASIBILITY REPORT ON NEW ZEALANDS WINE INDUSTRY

Disadvantages of Exporting
Along with advantages there are so many disadvantages of just exporting the wine in
New Zealand rather than establishing the new unit of wine production in New Zealand. It
is not much economical to export wine in New Zealand because it involves so much
money, time and man power to establish the foundation of company and build the trust
of customers on it without seeing any production plant in their company. As
organizations employees would be having more responsibility keep a complete check
on the distributors whether they are performing their duties properly or not. As customer
complaints regarding wine of organization could not be resolve on war footing as they
could be resolved when organization would have its unit in New Zealand (Blalock &
Gertler, 2004).
Licensing

New organization can enter in New Zealand wine industry through licensing which
involves minimum risk. Organization could give license to the any other organization
operating in the New Zealand wine industry along with its patent rights, trademark
rights, copyrights or know-how on products and processes. That organization would sell
the product on the behalf of the organization which would give organization insight into
how much their product is able to catch the eye of customers and how much market
share they can capture in New Zealand wine industry. The organization to which license
would be given it will pay the licensing fee to the organization as compared to the sales
incurred of that organization. This type of entry of organization is most welcome by the
industry of New Zealand wine industry because it will bring revenue to the country
(Kkol

& Twarowska, 2013).

Licensing is fastest way to generate profit because there is no manufacturing or sales

involved through this method organization can take advantage of the infrastructure of
any other organization of the wine industry which is involved in wine business and

11
BUSINESS FEASIBILITY REPORT ON NEW ZEALANDS WINE INDUSTRY

generate high revenue at the start of business. The organization to whom license would
be given it would use its own infrastructure to produce the specified product for the
limited time period until the organization does not get assured of its high prosperity
prospects in the wine industry of New Zealand after that com[any can open its franchise
in New Zealand (Agarwal & Ramaswami, 1992).
Advantages of Licensing
The most important advantage of licensing to organization would be that it has not bear
any cost to establish any unit in New Zealand for the production of wine and risk would
be minimum because it would not ruin the so much capital of organization if the
experience failed. If the organization awards the license to the company which is
already a power full player in the wine industry of New Zealand then it would provide
organization instant access to the market. The licensee would be able to take and
deliver the wine of organization to those areas of New Zealand where organization
cannot establish its unit. Another most important advantage of giving license would be
that very big market could be captures in wine industry and revenue generation would
also optimize (Frynas, Mellahi & Pigman, 2006).
Another advantage of licensing is that organization can award license to more than one
company which would cost it less and would generate more revenue in terms of high
sale and more revenue generation. There would also be more customers following if
more than one company would be offering same wine. Awarding license to any
organization in New Zealand which is already a high competitor in wine industry would
make the organization to learn so many things and improve its product. Organization
management can analyze their performance and learn that what are the factors of their
competence in that particular industry and what improvement in its wine could make it
also a high competitor in this industry in short time period. Organization should award its
license to the already well know brand so that it increase the repute of organization in
that industry (Oviatt & McDougall, 1994).
Disadvantages of Licensing

12
BUSINESS FEASIBILITY REPORT ON NEW ZEALANDS WINE INDUSTRY

It is universal rule that everything with advantages have some disadvantage like this
licensing also have some disadvantages which organization must keep in mind while
awarding license to any company in wine industry of New Zealand. Licensing could
prove to be disastrous for the organization if it does not finds the appropriate partner for
itself because licensing any organization and its success depend upon the best partner
with whom organization is going to start its business. In case of licensing there are
chances that organization would not be having control over the manufacturing,
distribution and sales of the product and would not be able to review the product quality.
That is why organization before awarding license must drat an agreement of license
with the help of professionals working in its organization so that it can audit the
performance of company to which it would award license (Johanson & Vahlne, 1990).
As licensing could not be adopted by the company as long term strategy to start a
business in the New Zealand wine industry because it only serves the purpose of short
term business needs and only thing which could be able to generate high revenues for
business are that license agreement should be well draft and royalty payments be made
clear and proper audit provisions should be kept with itself by the organization. If
organization keep all the other matters itself and hire the other organization just to
provide technical assistance then licensing could be beneficial for the organization.
While awarding license organization must make sure that organization would be able to
attract the customers toward its product and help to capture a major market share of
New Zealand wine industry (Dunning, 1979).

Recommendations
Strategies of establishing business in wine industry of New Zealand has been analyzed
as there are so many strategies to start new business but two of them were discussed
and thoroughly analyzed related to wine industry. Every strategy has its own
advantages and disadvantages so for the starting a new business in new country
requires such strategy in which low level of risk is involved according to the Bettis
(1981) exports and licensing are those strategies for starting new business in which low
level of risk is involved. Though the profit ratio also would be less at initial level but for

13
BUSINESS FEASIBILITY REPORT ON NEW ZEALANDS WINE INDUSTRY

any organization at initial level risk aversion is most important thing because profit could
be maximized when any organization establishes its repute in that particular industry.
According to analysis of this report wine industry in New Zealand is very flourishing
industry and investment in this industry would make the organization to generate high
revenue but this fruit could only be ripened with the adoption of right strategy for
establishing business in New Zealand. According to analysis adoption of export strategy
would be best because it has minimum risk and offer maximum control over the
production and distribution of product to the customers and could get direct feedback
from the customer. Through this strategy company can hire its own distributors in New
Zealand for the distribution of wine to customers and could get speedy entry in the wine
industry of New Zealand because of direct dealing with customers. This method also
offers the minimum investment so if this experience of organization fails in New Zealand
then it would not have to bear heavy loss. The biggest disadvantage of licensing is this
that company to which license would be given can become competitor in future.

14
BUSINESS FEASIBILITY REPORT ON NEW ZEALANDS WINE INDUSTRY

References
1. Agarwal, S., & Ramaswami, S. (1992). Choice of foreign market entry mode:
Impact of ownership, location and internalization factors. Journal Of International
Business Studies, 1--27.
2. Aylward, D. (2003). A documentary of innovation support among New World wine
industries.Journal Of Wine Research, 14(1), 31--43.
3. Bernard, A., & Bradford Jensen, J. (1999). Exceptional exporter performance:
cause, effect, or both?. Journal Of International Economics, 47(1), 1--25.
4. Bernard, A., & Jensen, J. (2004). Why some firms export. Review Of Economics
And Statistics, 86(2), 561--569.
5. Bettis, R. (1981). Performance differences in related and unrelated diversified
firms. Strategic Management Journal, 2(4), 379--393.
6. Bilkey, W., & Tesar, G. (1977). The export behavior of smaller-sized Wisconsin
manufacturing firms. Journal Of International Business Studies, 93--98.
7. Blalock, G., & Gertler, P. (2004). Learning from exporting revisited in a less
developed setting.Journal Of Development Economics, 75(2), 397--416.
8. Dunning, J. (1979). Explaining changing patterns of international production: in
defence

of

the

eclectic

theory. Oxford

Bulletin

Of

Economics

And

Statistics, 41(4), 269--295.

9. Dunning, J. (1993). Internationalizing Porter's diamond. MIR: Management
International Review, 7--15.
10. Frynas, J., Mellahi, K., & Pigman, G. (2006). First mover advantages in
international

business

and

firm-specific

political

resources. Strategic

Management Journal, 27(4), 321--345.

11. Gabzdylova, B., Raffensperger, J., & Castka, P. (2009). Sustainability in the New
Zealand wine industry: drivers, stakeholders and practices. Journal Of Cleaner
Production, 17(11), 992--998.
12. Gabzdylova, B., Raffensperger, J., & Castka, P. (2009). Sustainability in the New
Zealand wine industry: drivers, stakeholders and practices. Journal Of Cleaner
Production, 17(11), 992--998.

15
BUSINESS FEASIBILITY REPORT ON NEW ZEALANDS WINE INDUSTRY

13. Grant,

R.

(1991).

Porter's

competitive

advantage

of

nations:

an

assessment. Strategic Management Journal, 12(7), 535--548.

14. Johanson,

J.,

&

Vahlne,

J.

(1990).

The

mechanism

of

internationalisation. International Marketing Review, 7(4).

15. Kkol, M., & Twarowska, K. (2013). INTERNATIONAL BUSINESS STRATEGY
REASONS AND FORMS OF EXPANSION INTO FOREIGN MARKETS.
In Management, Knowledge and learning International Conference 2013 (p.
1007). Zadar.
16. Oviatt, B., & McDougall, P. (1994). Toward a theory of international new
ventures. Journal Of International Business Studies, 45--64.
17. Porter, M. (2000). Location, competition, and economic development: Local
clusters in a global economy. Economic Development Quarterly, 14(1), 15--34.
18. Roberts, M., & Tybout, J. (1997). The decision to export in Colombia: an
empirical model of entry with sunk costs. The American Economic Review, 545-564.
19. Rosenfeld, S. (1997). Bringing business clusters into the mainstream of
economic development.European Planning Studies, 5(1), 3--23.
20. Tielmann, V. (2010). Market Entry Strategies. University Of Applied Sciences
Fulda Fulda, Germany.