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IB Assignment
Academic Group : 28 Chandan Agarwal Harsh Bedi Jyothi Krishnakumar Mansi Bhargava Neha Pareek Ponappa SM 1/21/2013
WHITE WINE
Produced six different varieties Chardonnay and Rhine Riesling were the two brands which accounted for over 80% of the company's white wine sales. Dry white wines accounted for 85% of the total company sales. Produced five different varieties Cabernet Sauvignon and Hermitage were the two brands which accounted for majority of the company's red wine sales.
RED WINE
SWOT ANALYSIS
STRENGTHS Barossa Winery had solid reputation throughout Australia as a consistent producer of high quality premium table wines it was renowned for using the finest grapes and latest technology in producing many award-winning wines. The company was known for its marketing skills (which had contributed to its rapid growth between 1980 and 1985): Marketing initiatives, which were regarded by the industry as exceptional in terms of communicating the quality of the wines and standing out among the many competitive brands Innovative advertising campaigns which contributed to the recognition and acceptance of the companys brands Successful distribution system which resulted in the prominent display of products in many retail outlets THREATS There was a slowdown in the growth of both the overall market and the table wine market. In the years prior to 1987, the export sales of WEAKNESSES Market share of competitors like Wolf Blass and Leasingham was increasing at a faster rate than that of Barossa Winery. As the company did not engage in price discounting unlike its competitors, it was adversely affected (market is price sensitive). Barossa Winery had remained a passive exporter and hence, did not have an explicit export strategy in place. The company catered to the bottled table wine segment which constituted only 24% of the total table wine sales by volume (in Australia).
OPPORTUNITIES There was an increasing recognition by many knowledgeable buyers of the quality of Australian and the companys wines. Growing awareness in many countries of
the company generated a price per case of approximately 15% less than the average price received in the domestic market. The European Community countries produced a surplus of wines and collectively exported over 4 billion litres annually. The value per liter of export sales varied considerably by country.
the quality of Australian wines. The Australian wine exports were increasing due to a favourable exchange rate of the Australian dollar against most foreign currencies.
Along with the ample opportunities for growth, Barossa winery also had certain drawbacks with its current system of exports. Drawbacks Importers/ Exporters were free to buy from or sell to anyone There was no strong link with importers or exporters in terms of contracts or exclusive agreements Company had little experience in exporting Most of the marketing was done by importer or exporter, so the company had no exclusive presence in the market
Triggers for Canada as an export destination Not well developed wine industry Not recognized as producing good quality wines Consumption increasing: Per capita consumption risen from 6.3 liters per year in 1976 to 10 liters per year in 1985
Triggers for United States as export destination Huge market for wine : Estimates for 1988 2 billion Current Australian market share was 0.06% 313 million liters import
Triggers for United Kingdom as export destination 10 liters per capita consumption in 1985 and increasing
Increasing Commitment
USA
Canada
Increasing Geographical Diversity
About 10000 cases thru 2 australian exporters to New Zealand, Micronesia and Far East
Increasing Internationalization
United Kingdom: Sales to the importer were done through two different UK importers in three years. Between 1981-1984 Star Importers purchased up to 10000 cases of Barossa Wines in a given year. In late 1984, they moved to a winery in New South Wales. Hence, in 1985 Reid Company started buying Barossa wines which went up to 18000 cases in 1987. According to Uppsala Model, United Kingdom as an export destination is in the category of Sporadic Exports in terms of commitment. United States: Barossa winery conducted business with 6 different U.S importers in 5 years with sales in the range of 4004500 cases per year. In 1987 sold a total of 9000 cases through 4 importers to U.S market. According to Uppsala Model, United States as an export destination is in the category of Regular Exports in terms of commitment Canada: Barossa winery had 2 sales agents in Canada who had been importing wines for about 4 years. According to Uppsala Model, Canada as an export destination is in the category of Regular Export thru agents in terms of commitment. Rest of the world: Barossa winery had sold about 10000 cases to the rest of the world through 2 Australian exporters. These firms approached the company and then sold the wines to the distributors as wholesaler or retailers to other countries. According to Uppsala Model, we can say that sporadic export was done through agents but the level of commitment was only restricted to supplying orders which came from the exporters.
FUNCTIONAL MODEL
According to this model, Barossa Winery currently appears to be in stage 1 of evolution as a global company. The company has remained a passive exporter with no explicit export strategy in place. Functions like manufacturing, marketing, R&D and sales are carried out in Australia, while it exports wines on a small scale to countries like UK through its distributors (the export sales had been generated by the wine importers who had approached the Winery). To start off, the company should focus on expanding its markets in UK. The advantages of this strategy include: UK is the prominent exporter for the company and the brand awareness can be built upon with the help of the good reviews of existing importers. Obtaining import license in the UK is relatively easier as compared to the US.
As the company does not have any formal contracts with imports, it should focus on strengthening its distribution network in UK. In order to leverage on the market size and face existing competition, Barossa should consider establishing its sales office in the country. The company would thus enter stage 2 of the functional model. To combat the existing threat of a change in the export policies, the company should also set up its manufacturing unit in the country. However, in view of the contamination scare in the region, the company should consider such an expansion after a few years (thus, entering stage 3). Since the climatic conditions in Canada are not conducive to grape growing, Barossa should refrain from setting up its manufacturing division there. However, to boost exports, it must strengthen its distribution networks in the US and Canada.
SCALE-SCOPE-SYNERGY MODEL
Barossa Winery appears to be in the pre-international phase of global evolution as its operations are predominantly focused in the domestic market. The company does not have an explicit export strategy in place. As the first step of entering phase 1, Barossa has identified Canada, USA and UK as potential import markets. We consider the thrust and triggers for the company in the initial entry phase (scope): Thrust: Expanding to new geographic locations where there is growing awareness and increasing recognition of the quality of Australian wines. Marketing initiative and innovative advertising campaigns of the company which contributed to the acceptance and recognition of the companys brand in Australia (and resulted in Barossas rapid growth between 1980 and 1985).
Triggers: There was a slowdown in the growth of both the overall market and the table wine market in Australia.
The new tax policies had hampered the growth of the price sensitive market in the home country. The favorable exchange rate of the Australian dollar against most foreign currencies due to which provide impetus to exporters. Increasing market share of competitors like Wolf Blass and Leasingham and the consequent price discounting. As the company lacks formal contracts or strong links with the importers, it has to strengthen its distribution network and leverage on its adept marketing skills to capture market share.
Retail Price
Production Cost : Australia Retail Price : Australia Retail Price : United Kingdom Retail Price : United States Retail Price : Canada Assuming 2% market capture in each of the export destinations: Export Destination United States United Kingdom Canada Total Profit Export Costs Net Profit Total Import of Table Wines 15650000 4320000 126000000 Share of Barossa Winery 313000 86400 2520000 Profit Margin $1.65 $1.65 $1.65 $4817010 $220000 $4597010 $3.02 $11.08 $15.00 $9.40 $14.20
Hence, it is a good idea to go forward with the export options. Based on our analysis, we can say that TCA Model is the best model for internationalization. It gives a clear idea about the benefits associated with a transaction in order to decide whether a company should go ahead with the process or not.