Australian Wine Industry

Question: Discuss about the Report for Australian Wine Industry. Answer: Introduction Australia, the leader in wine production and producing several wine approach which range from intense reds to deep, dessert and fortified style, looks fruity whites to dazzling, a big country with every sort of climate and having all kinds of soil. The menus of many best restaurants get beautified by the high quality of Australian bottling, while the trendy variety and blend of wines contend on the shelve of the supermarkets and wine retailers in more than 80+countries worldwide. Australian wine owns a universal triumph story since 1980s to 1990s, and assisted to fabricate and create an international consumer based market, especially for wine and particularly renowned in the countries such as the UK, Canada and USA. Presently, Australia has around 2,350 wine manufacturers and the wine segment hired nearly 33,000 people. There are almost 172,680 hectares. Is being covered by wine producers. Australia is known as sixth largest wine producer in the world and comes with rank following France, Italy, Spain, USA and Argentina. Along with that, it is the 4th largest exporter. Wine comes 4th in the case of Australian farm exports subsequent to wheat, wool, and beef dairy (Curran Thorpe, 2014). The report includes the survey of Australians Industry of Wine and thus, assessment covers two models. The models used to analyze are Porter National Diamond Analysis Model and Foreign Direct Investment (FDI). Porter Diamond Analysis Model is basically based on the essential circumstances, assessing the state of the location is appropriate for the trade in respect to a few factors. The factors are Demand, Geographical factors, Support and Foreign Direct Investment (FDI) is examined to invest via diverse past situation and information which can help in taking the decision to do investment in the Australian Industry or not. By the help of both of these tools, it can be concluded that making investment in the Australian Wine Industry will certainly result in the creditable profit or not. Part 1: Porters National Diamond Analysis In this report, we will discuss the Porter's National Diamond Analysis and then will assess and carry out the analysis of the present condition of the Wine industry of Australia. The significant assessment is essential to present the pro and cons which the countrys market brings to this industry (Castaldi, Cholette, Hussain, 2006). To initiate a trade plan, it is essential to make sure the accessibility of funds, ease of employing an expert workforce, current order in the market of the specific product, tactic for increasing the margin, sustaining industries, etc. Considering all these, Michael Porter has projected a sculpt known as National Diamond Analysis, which mainly aimed at the premeditated analysis of the company in regards to consideration of key aspects, resource and industrial opinion. This model suggests that when there are several states and industries surrounded by nations, then it turns out to be more aggressive situation than the others on the worldwide level, then there is an intrinsic basis for this. The argument is that the nationwide home country of such type of industry would facilitate provides the industrys with explicit reasons, which will produce cutthroat and aggressive rewards on the international grounds (Australian Trade Commission, 2016). This model is basically dependent on key pillars which are written and mentioned below: - Factor Conditions: It states to the accessibility of sources in the area either it is home ground or innate bequest. These situations can be characterized by assistance available within the state which is therefore built by the organizations to additional higher factor of the competition. The prosperous sum of the unrefined objects, extremely accomplished employment, and shortage of workforce and communication capability of the labor force are few of the examples of these conditions. Demand Conditions: This is the main factor in regards to the modernism, eminence development and development of the industry. Whereas preparing a plan for setting up a business, one must review that what is in stipulation and what is the scope of anticipated development. When the home country for a particular product is massive and more challenging at the local level in comparison to the overseas markets, local organization always tries to focus more on the extension than entry in new countrys market. This will enhance the opposition of the local export company internationally and would be capable of being recognized the level of requirement of the services they provide or the product and how well they are capable to assemble and understand the consumer requirements (Baker, 2014). Associated and Relative Industries: It defines to the assistance that is effortlessly present by supplementary industries in the products growth with deference to the propinquity. Companies of domestic country would probably acquire extra cost-effectiveness and attain additional pioneering products and part while assisting the industries and thus, suppliers locally turn out to be aggressive while competing. It will yield higher product sales if there is more competition in the supporting companies. The Strategy Structure and Rivalry: Strategy plan and strong structure are the methods, which is the must for any company to stand firm in a competitive market. Industry and trade leaders could make analysis recognize with pre-determined aspects exist in the industrys domestic country by use of the Porter's Diamond Analysis, and out of such factors, which may be adapted for attaining the international competitive return. Through a globalization segment, the commercial leaders could also apply the Porter's Diamond Model, examine if the domestic factors could able to sustain the process, in case of the situations initiated in the domestic country are capable enough to create aggressive benefits on the global scale of competition (Moffett, 2004). Porters Diamond Analysis Model with respect to the Australian Wine Industry The Wine Industry of Australia is well-known for its eminence and serving the best in terms of clients value of paying around the world. It is a key business because of the accessibility of wine grapes in profusion which may possibly grow faultlessly in those surroundings with suitable atmosphere, climate circumstances and rain water. The associated industries like grape mounting, shipping are also rising at a lofty speed, which can be a goodwill for the industry of the wine along with the recent rising new industries and wine tourism (Corporation, 2015). Michael Porter has assessed the development of this industry in Australia with respect to National Diamond Analysis Model explained below: - Factor Condition One should look for the home grown resources in a case if need to set up a new industry in any specific area whose raw material is various natural resources. Australia is known as the best place because of the good growth of wine grapes there which results into a very good place for setting up the Wine Industry. The favorable conditions like good rainfall, optimal temperature along with the good weather of Australia are very well suited for the wine grapes to grow there with a very high quality. Western Australia, South-Wales, Tasmania, and South Australia are the main wine producing areas in Australia (Government, 2016). Skilled labor is required for the Grapes plantation and the process of wine making, and people residing in Australia have a lot of enthusiasm for that. In the Australian universities also, making of wine is a key area of research. Students will help in discovering the new process of yielding good production of wine grapes with the help of their technological innovations. To sum up, we can say that Australia is the prominent place for the foreigners to make their investment for making fine use of the accessibility of resources, innovative technology, and skilled labor. Demand Condition If there is a huge demand for any product, it will automatically encourage for the improvement of that products and services as this will work as a motivational factor. In Australia, the production of wine is very enormous with high eminence and variety, which will automatically result into the large demand in the market. (Palousis, 2014) The demand feature as per the Porter National Diamond Analysis stated that getting more magnetism to the conditions of demand in the home as well as foreign level. To summarize, due to the good taste, quality and verse variety, Australian wines are is in huge demand which also results in the attraction for investors. Strategy, Structure and Rivalry While planning for setting up an industry, the main focus should depend on the structure and plan to make that industry successfully, so that they can contend with the existing industries in a good way. Thus, strategies along with the structure are the vital reasons that play a significant role in finding the inner environment of any industry. (Svala, 2015) The most well-known winery is located in Penfolds Range which is in Australia, which we can say is a natural place for generating the top level quality wine. Another famous area is the Barossa Valley situated in South Australia, which is well-known for the high rank varieties. To conclude, Australia is a top producer of wine, so complete information on the market competition along with a well prepared plan should be there with the foreign investors, whenever they plan to set up (Fickle, Folwell, Ball, Clary, 2005). Supporting and Relating Industries The Government of Australia acquiesce a good business as Australia has major industries of wineries, therefore they give much effort on providing the associated services to support them. The Australian Govt. spends a good amount on railways and roads as transportation services are given major emphasis for the smooth communication between the manufacturers of wineries and distributors available at domestic and world level. The development of wineries is well supported by the related industries of Grape growing, wine marketing, as an industry all alone, cannot flourish without the support of the connected other industries. Australians are capable of manufacturing approximately every type of wine and they export it all over the world. From this factor, it is simple to state that due to a great support provided by the Government and other related industries, one can invest very well in the Wine industries. Part 2 Market Entry Strategy Analysis made by the Porter National Diamond Through the help of the Porter National Diamond Analysis, we come towards some of the determinants that are essential for setting up an industry. The Porter Diamond Analysis approves the investment in the Wine Industry due to the below reasons:- Natural resources which are wine grapes are available in good quantity due to the favorable conditions of climate along with the good quality of soil, and favorable temperature for the plantation of grapes. Availability of the expert workforce for the process of plantation and manufacturing. High demand due to the reason of good quality and variety. Planning strategy along with good structure needs to be very pioneering to stay competitive in the market. All the basic circumstances set up for an industry is met, so it is significant to ensure the Australian Investment Framework, so that it also gives support to the foreigners to develop their business (Schmitz, Carpenter, Dunung, 2012). Foreign Direct Investment Whenever a country plans to invest in the business of another country is termed as FDI of foreign investment. FDI is the kind of investment made by an organization or entity based on lone country, into an organization or entity based in another country. FDIsvary considerably from the indirect investments like portfolio flows, wherein the overseas organization spends inequitieslisted on NSE i.e. Nation Stock Exchange. Entities, making direct investments normally have a substantial level of influence and power over the organization into which the investment is made. Openeconomieswith fine growth prospects and trained workforces are likely to draw vast amounts of foreigndirect investment (Austrade Chief Economist, 2015). FDI is growing in its universal significance, though at the same instance development in case of industrys spotlight, the relative share is embarked on by the individual investors and the degree of funds is assisted by Emerging Market Multinational Enterprises (EMNEs). This development takes place of creative questions for the global business assumption, as the impetus and itinerary of EMNEs appear for diverging from those of the conventional MNEs. In this perception, numerous professionals has currently emphasized and considering the requirements to be paid off to the idea of eventuality, inclusive of organizational framework, in consideration with the EMNE strategy. Foreign Direct Investment in Australian Wine Industry The Australian Govt. has regularly invited overseas investors as it has assisted always to develop their market and put efforts for creativity, economic development and affluence. To pop-in funds, one is required to proffer their plan and then it is accessed by the Foreign Investment Review Board of Australia (AFIRB) (Australia's Foreign Investment Team, 2015). The country holds a well- established legislative system and well set governing bodies which can be defined as a financier affable and also holds effective overseas venture rules, which are broad minded and promote inward investment. The wine industry is an inexpensive and cost- effective key area, rely on selling overseas for its elongated-term endurance and development. Though, there are few enthralling variances in host country aspect, which would facilitate for sorting out the problems related to investment issues. The significant investigation questions which can be discovered are as follows: - What is the scale and possibility of countrys venture in the areas assessed? Is there a fact of the vulnerability associated with the Liability of Foreignness (LOF)? Do they have details of Liability of Origin (LOR) or Asset/Possessions of Foreignness (AOF) for the country financing? Market Size The main industry statistics on the Australias wine market (2012) are: - The presented figures demonstrate that the wine market in Australia produces total revenues of nearly $26.5 billion in the year 2012, representing a Compound Annual Growth Rate i.e. CAGR of approximately 4.3% for the period between the years 2008 and 2012. Australia has been ranked in the top 10 international destinations for the foreign direct investment (FDI) for the 4th consecutive year by the World Investment Report published by the United Nations Conference on Trade and Development (UNCTAD) in the year 2015. Australia earned nearly US$165 billion in the FDI inflows over three years to 2014 which is up by almost 30% from the US$125 billion during the last three years. This conclusion shows Australias recommendation as a destination for the investment, underpinned by its investment ties, sturdy economic expansion, global trade, strategic location and good record for innovation (Kurihara, 2012). Liability of Foreignness as a Barrier to Successful FDI Earnings for the industry from Foreign Direct Investment demand is ample enough to balance Liability of Foreignness: the details that industry bears socio economic costs, when they operate in the foreign markets. This notion is created by Zaheer in the year1995, looking for validation of the under-performance of overseas in comparison with the mature domestic companies and owes the aim of embracing scholarship. Thus, a report is made in such as way to give the broad review by Denk, Kaufmann and Roesch in the year 2012 which elucidates that the work which has been completed in the last 2 decades, including the theoretical basics of LOF and its consequence on Multinational Enterprises. One of the key significant assistance to the LOFs literature is that they had included the Eden and Millers work in the year 2004, which distinguish among unawareness, unfairness and relative hindrance (Robson, 2014). Few scholars suggested that there is a requirement for an improved approach to LOF enchanting COO effects into account. Firstly, the actuality of being overseas investment would be a profit in the context of domestic image and congregation, nation advantages, i.e. which can be an AOF, and can persuade on the outcome. In regards to the report, various finances might be in an enhanced situation than the local estate owners for exploiting their countrys market. Secondly, few authors have pinpointed out that the issues adept with the foreign companies possibly vary on the COO of the company. The divergence is related to every foreign company and may not be regarded equally foreign. Thus, few companies, especially EMNEs from the different country milieu of the host country and may have an improved Liability of Origin (LOR) than the others. So, LOF might be trained in an abnormal way by EMNEs in a developed countrys market in comparison with the companies from the same trade and having cultural possessions. This problem is predominantly likely for the Chinese companies, provided the value of the state in their domestic economy and the large numeral of SOEs indulged in OFDI (Boriraj, 2008). Case Study foreign Direct Investment of China in Wine Industry The investment done by the Chinese MNEs in Australian vineyards and France has two major characteristics which may influence the LOF are as follows: - Firstly, in case of the wine industry, one of the major entrance modes i.e. Greenfield is efficiently closed to the potential investors, as the most appropriate area in the chief designated regions is already cultivated. Therefore, the prospect FDI entry mode is acquirement or an enterprise. As described below, the final is an accepted approach which is being adopted, specifically in France. This policy has been manifest as a factor vulnerable to LOF and expected to pursue a stronger force for the Chinese company to reveal the authority. Also, the investors basically dont desire to create the host market, but moderately require protecting the quality supply and excelling in examining of the domestic market of China. So, the prospect of pessimistic thinking would direct to consumer variables in the host market with a reduction of the key concern. A smaller amount of awareness with the regulations of host country, unfairness by the prospect associates, Govt. and the owners are anticipated to be the gigantic sources of the LOF in this specific case (Australian Govt., 2015). Part 3: Contemporary Management Issues The companies should look for alliances and collaboration with the companies renowned working in Australia, might be in fruit and fruit juices sector, alcohol sector or with few distilleries. So that they can get into merger or may go for a profitable joint venture, which can lead to good margin in the business. As Australian Wine sector shows 0.2% growth every year since year 2011 till 2016, thus there seems to better and fruitful future is anticipated in such case of collaboration with small but renowned players of Australia. Evaluation on the basis of National Diamond Analysis Model As per the model projected by Michael Porter, which has mainly four points on which to set up industry depends are: Factor conditions Demand factors Support and relating industries and strategy Structure and rivalry analysis So, all the mentioned conditions are met with commendable advantageous. Firstly, the situation which embraces the home is the abundance and availability of wine grapes. Also, the trained and skillful workforce is present in the planting and production process. Secondly, due to the good and very high quality, the demand factor is also very high which is also favored by the different variety and good taste. Thirdly, the support provided by the Government of Transport and Communication becomes a feature of magnetism for the investment in this industry. Lastly, the plan, structure and rivalry depict the competition in the market and new innovation helps for leading this business. (Wine Australia Team, 2015). One of the disadvantages in opening up a wine industry is that as the competition is very high tough and for any newcomer to stand firm and competitive in the market, fresh technology and new ideas of innovative are necessary with which they can magnetize the customers to carry out high-quality business there. So, its a great idea for making an investment in the Australian Wine Industry as it can yield a good business along with a good profit. The key stress should be given to the technology along with the innovation with the help of which, one can contend in the existing market. Also the place should be selected very smartly for setting up an industry with respect to the nearness and abundance accessibility of the resources. Evaluation on the basis of Foreign Direct Investment It is very important to check the support of the Government in the country, whereas business needs to be planned. Investing in any new country will for sure create issues and some problems in the starting phase, so they can reduced if one gather all the important information from the companies which are already established or growing in that country. The Wine Industry of Australia are majorly working with the Chinese Foreign investors and as per the comments from China industries and people, the people of Australian are friendly and supporting in nature and its quite beneficial and easy to adjust and to work to carry out business with them. In the past few years, China has nearly established 7 vineyards in Australia, which conclude that there is a good profit or margin we can say in investing in the Australian Wine Industry. Despite of profit, there are few management and investment related issues which foreign investor had to face in the other country, described as follows: - Unfamiliarity hazards such as due to lack of understanding and knowledge of the host country business environment which can be proved as a drawback to the foreign firm. Prejudice hazard such as biasness, is associated with the potential for consumers or Govt. in a way to differentiate against the company and its products just because it is from a different country. Also, relational hazards reveal that a huge amount is needed for the management of commerce country crosswise and can embrace such things as low levels of trust, communication issues and high costs of administration management. The High Operational cost would required start a business in the foreign country. Since, Australia owns numerous vineyards and Wineries, thus the level of competing is very high, thus some innovative strategy may assist to win the vicious competition. Conclusion The report shown above reflects a survey done on the Wine Industry of Australian in regards to the investment in which two aspects are mainly covered namely, Porter Diamond Analysis and Foreign Direct Investment. Porter Diamond Analysis recommended that it is very beneficial and profitable to invest in the Australian Wine Industry due to the favorable conditions. As far as FDI is concerned, with the help of survey and statistics we can conclude that Australia is an enhanced and enhanced place to make the investments due to the support of Government in that country. So, as per this report we can say that it is recommended investing in the Australian Wine Industry. Bibliography Austrade Chief Economist. (2015, May 11). Increase in Australian foreign investment approvals. Retrieved from https://www.austrade.gov.au/: https://www.austrade.gov.au/International/Invest/Investor-Updates/2015/increase-in-australian-foreign-investment-approvals Australian Govt. (2015). Australia open for business. Retrieved from https://openforbusiness.gov.au: https://openforbusiness.gov.au/welcome/burch-family-wines Australian Trade Commission. (2016). Reports and resources. 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