The main objectives of this research were: 1) to review trends in the global wine market, in the importation of wine to China, and in Chinese wine consumption; 2) to identify and analyze the current market entry modes used by NZ wine exporters to China; and 3) to identify key elements in successful exportation of NZ wine to China. The objectives of this exploratory research were achieved by adopting a qualitative research strategy and through conducting interviews to collect primary data.
Secondary data was collected from national and international publications and reports such as FAO, New Zealand Trade and Enterprise, New Zealand Winegrowers Statistics New Zealand, OIV, and other relevant studies.
Primary data was collected through telephone semi-structured interviews. Interviewees were selected based on the Kompass database and recommendations from the regional New Zealand Trade and Enterprise Office and included seven New Zealand wineries, two New Zealand multinational wine and spirit distribution companies and two New Zealand-based wine brokers. Three China-based wine import distributors were also interviewed in order to understand their point of view. All fourteen interviews were conducted using an open-ended questionnaire.
The use of Dictaphone was very important to this study, due to the quantity of data collected and the informal nature of the interview process. The entirety of each recorded interview was carefully transcribed into written documents in order to capture every detail of the data. This ensured a much greater accuracy and breadth to the data than would have been possible if only written notes had been made during the interview process. Ethical issues were a high concern in this research relating to the participants’ privacy and confidentiality.
@DC The literature review shows that there are a number of entry modes available for businesses to choose from including indirect exporting, direct exporting, licensing, franchising, joint venture, contracting, acquisition, and Greenfield operations (Albaum and Duerr, 2011; Zou et al., 2009; Fletcher and Brown, 2008; Kotabe et al., 2005).
The major factors affecting businesses’ selection of market entry modes include external and internal factors, which refer to market environment and business environment. However, different researchers have different ways of categorizing these factors, such as product-related factors, market-based factors, and organizational factors (Zou et al, 2009; Zhao et al., 2004); or management characteristics, firm’s characteristics, product characteristics, overseas market potential, government regulations and trade barriers (Fletcher and Brown, 2008). In addition, the literature review covers some key elements to successful market entry, including distribution channel decision (Albaum and Duerr, 2011; Pacek and Thorniley, 2007; Branch, 2006; Kim, 1993; Kim and Daniels, 1991), effective communication systems (Albaum and Duerr, 2011), frequent visits to the overseas market (Branch, 2006), and the ability to deal with corruption (Pacek and Thorniley, 2007). The current research tends to confirm many of these opinions and has demonstrated a successful flow of NZ wine exporting to China as follows:
Market entry modes:
The market entry modes identified in this study are indirect exporting, direct exporting, joint venture, and acquisition.
This study revealed the characteristics of the NZ wine exporters selecting corresponding entry modes are different: a) exporters adopting indirect exporting modes have generally limited financial resources, and are lack of market access and knowledge in China; b) exporters adopting direct exporting modes have certain level of market understanding although are still lack of financial resources; c) the exporter adopting joint venture mode has advanced understanding of China; and d) the exporter selecting acquisition mode has strong financial resources.
@DD This study revealed two types of geographic access strategies adopted by NZ wine exporters: first tier cities approach and second/third tier cities approach. The first tier city approach enables the NZ wine exporters to penetrate the metropolitan cities and seaboard regions for improving business profile and brand reputation as consumers’ opinions and preference trends are formed in these developed regions. In contrast, the second/third tier cities approach enables exporters to avoid the intensive competition in large cities and focus more on boosting the sales without heavy and risky investments.
Key influencing factors of market entry modes’ selection:
This study identified a few critical internal factors (including organizational factors and product-related factors) and external factors (including market-base factors) that strongly influence the NZ wine exporters’ decision on market entry modes.
The organizational factors identified are company size, financial resource, and managers/owners’ attitude. The product-related factors identified are unknown image of the NZ wine in China, limited product range/production, and premium quality. The market-base factors identified are complexity of the Chinese market, market power of distributors/importers in China, and the low level of wine education in China.
Key elements in successfully exporting NZ wine to China
Two types of wine distribution channels were identified by this research: the open market distribution channels and the hidden market distribution channels. The open market channels include the food and beverage industry (hotels and restaurants), and grocery (super/hypermarkets). The hidden market channels include corporate accounts and government accounts. Although both market channels require guanxi (relationship), the open market channels focus more on marketing and branding, while the hidden market channels rely completely on networks and connections.
Finding suitable importer/distributors in China is very important. This study identified four platforms to target potential business partners: a) tradeshows and events held by NZTE and NZ Winegrowers; b) being introduced by other businesses; c) hiring specialists in China for targeting and observing the distributors in China; d) being
@DE approached by Chinese or NZ business people who have networks or resources in China.
Setting up the wine exporting process to China is another critical element in a successful wine exporting business to China. This involves verifying business partners by background checks, sending samples to the potential business partners in China, and negotiating the minimum volume of orders.
Managing transportation and payment is essential. This refers to deciding on freight forwarding methods, terms of sales, and credit terms.
Improving business relationships is a vital target the NZ wine exporters should work on continuously. This study revealed four ways of reinforcing mutual relationships: a) email and telephone communications; b) market visits; c) providing business support; d) personal friendship building.
The challenges of the NZ wine exporting to China
Although this study demonstrated that exporting NZ wine to China could be successfully set up by paying attention to the key elements shown above, there were also challenges identified in China that threaten the success of the exporting businesses, including difficulties in finding suitable business partners in China, the complexity of the administrative work in China, risk of being overpromised, limited access to properly equipped carriers and warehouses, the short-term orientation of many traders’ mindset, slow turnaround time of NZ wine producer, internal gatekeeper barriers set by business partners, low understanding of wine leading to biased perceptions, the predominance of red wine consumption in China, lack of public image for NZ as a whole, small scale of the NZ wine industry, limited product diversity, high average price points of the NZ wine, and the poor competitiveness of NZ top-end premium wine in China. These challenges could affect the development of the NZ wine exporting to China in a negative way.
@DF 7.2 Conclusions
This study focused on the topic of the NZ wine exporting to China. It has identified that China, as an emerging wine market, has been becoming more and more important on the global wine map. The country’s wine consumption and imports have been enjoying double-digit growth annually. As fast-growing wine producers and exporters on the New World wine map, the NZ wine industry has begun to focus more on China.
In this research, the first question that needed to be answered was why many NZ wine exporters selected China. Three key reasons were identified: market research carried on by the NZ wine exporters, business opportunity introduced by Chinese businesspeople, and the NZ wine exporters’ personal belief. Four market entry modes were identified: indirect exporting, direct exporting, JV, and acquisition. Due to the small scale of the NZ wine industry, the most popular entry modes selected by the exporters in this study were indirect and direct exporting modes because of the relatively low level of resources required. JV has been adopted by the wine exporter with a good understanding of China’s wine market. Acquisition was adopted by the multinational wine and spirit company which had strong financial resources.
One of the most important findings concerning the successful exportation of wine to China was the selection of distribution channels. There are two distribution channels: the open market distribution channels and the hidden market distribution channels. Both are very important in terms of boosting wine sales. The distributors in each distribution channel are essential to the success of the business. Therefore, it is very important to use multiple platforms to find suitable business partners such as attending tradeshows and hiring wine specialists in China. In order to verify the quality of the potential business partners, the NZ wine exporters use multiple criteria to guide their background checks including business visits, investigations of historic volumes of sales, strengths in terms of distribution channels, sales force, marketing ability, and the understanding of NZ wine. This study also revealed that a strong business relationship was essential to the NZ wine exporting to China. In order to maintain a strong relationship with the local import distributors in China, the NZ wine exporters adopted several methods such as email and telephone communications,
@DG market visits, and personal relationship building. In addition, this research revealed four categories of challenges faced by the NZ wine exporters towards market entry to China. They were challenges relating to China, challenges related to NZ, challenges related to business culture, and challenges related to people. These challenges were very real in many NZ wine exporters’ business in China and required great patience and time to provide useful solutions.