International Trade : A Competitive Advantage

Key success factors in the winery industry include competitive pricing, high grape quality, label and blend differentiation, and diverse distribution channels.

Smaller firms such as the family run operations in Europe may not be able to realize these same cost efficiencies. Furthermore, grapes represent 50 to 70% of a winemakers COGS, thus the competition for sourcing high quality grape growers is quite high. Just as Mondavi does for 75% of its purchases, most premium wine makers enter into long-term contracts with growers to not only ensure that their demand is met but also to make sure that they receive grapes that are consistent in quality.

The dynamics of the global wine industry are better understood through a brief history of wine as well as an overview of the wine making process. Some countries have longer historical and cultural ties with wine then others and that can affect the quality and perception of the product in the eyes of the consumer. Also, the conditions in which the wine grapes are raised and the processes used to make the wine can create a superior wine and therefore a competitive advantage.

The buyer’s power within the wine industry varies between different places in the world. There are for example strategic differences between Europe and the “New World”. The “New World” includes countries like the US, Australia, Chile and South Africa. In Europe there is a big competition

Countries have different endowments. Differing climates give advantages to the production of different crops. Differing histories and inclinations result in different advantages in finance, skills and manufacturing.

1.Discuss critically the competitive advantages of New World wine producers and contrast these against their Old World competitors.

Vincor International goal is to become one of the top five wine companies in the world in terms of earnings. In order to attain this goal they have implemented a corporate strategy that focuses on using their existing powerful position in market to help them developing sales, marketing, distribution capabilities on an international scale. The strategy also includes acquiring new wineries and wine brands in new emerging region in the wine market also called “New World regions”(Vincor, 2005) throughout the world.

However, it was apparent to economists that nations with similar resource endowments exchanged similar products with each other. Economists felt that trade explained solely by comparative advantage was an incomplete analysis of international trade. Furthermore, since the classical trade theory was unable to explain intraindustry trade, economists decided to expand on the classical trade theory by creating a new theory of trade (Carbaugh, 2011). The new theory states that economies of scale provide incentive for a country to specialize in a particular product (Carbaugh, 2011). Furthermore, based on economies of scale, nations with similar factor endowments will trade with each other as sometimes it is beneficial (Carbaugh, 2011). Arguments stemming from this new trade theory puts the economic case for free trade in doubt.

Commercial wine production was then re-established. The first commercial winemaker, Calona Vineyards in Kelowna has established during 1935. It used Labrusca vines to create dessert and fortified wines. During the 1960s, the wine industry moved away from fortified wines and focused on hybrid grapes (Hickton, 2005). Drinkers were being more specific in wine drinking. They search for wines that are suitable to drink and to pair with food. During the 1980s, winemakers believe that they have to produce quality wine in order to enter the competitive market. They then started to grow vinifera vines. From this point, the wine industry starts to grow and has been successful in the last few decades.

Historically, the French had been the dominant competitor in the global wine industry due to the low effect of the five forces of competition. The main barriers to entry that kept the threat of competitors low for the French were incumbency advantages, unequal access to distribution channels and restrictive government policies. This first barrier, incumbency advantages, can be explained by the domestic French Wine Industry in the late 18th to mid 19th century that was already supporting 1.5 million families for both the growing of grapes and other wine-related businesses. France already had a domestic market for the growth and cultivation of vineyards that was able to provide French producers with a steady supply of agricultural inputs.

All of these comparable elements affect the industry attractiveness in different ways. However, I feel that when comparing both worlds, the industry attractiveness is almost the same. The industry attractiveness for wine production is moderate. The wine industry has been affected by the various governments throughout its history. They governments have regulated bottling and packaging as well as the distribution systems. The industry has also shifted with the amount of education offered to consumers about wine. This has led to some firms just reaping the benefits of those who are promoting general industry awareness. A main reason this industry would be attractive is because consumers must first try the product in order to determine if they like it or not. Consumers also tend to be brand loyal if they are satisfied with a certain type of wine and will go to great measures in order to repurchase. There are also many consumers who are uneducated about wine and mainly purchase on price. Price in the wine industry can be very effective in relaying perceived quality. The wine industry is attractive also if one firm owns their own vineyard because the life of the vineyard is extremely long and will be relatively constant for a producer.

The Robert Mondavi Winery became one of America’s most innovative, high-quality winemakers in the late 1960s and early 1970s. There are over 1 million wine producers worldwide and no winery accounted for more than 1% of global retail sales. Because of this and the fact that there are many substitutes, there is an issue to try to gain economies of scale and become a leader in the wine market. Wine tends to stay it its local region, which makes it harder to compete with its substitutes. In the strategic analysis portion of this case analysis, we discuss Porter’s Five Forces and how they affect the Robert Mondavi Winery. We conclude that in order for the winery to stay

In the recent years, business become more larger due to the advancement of technology, a renewed enthusiasm for entrepreneurship and a global sentiment that favors international trade to connect people, business and market. The economist emphasize about the international trade can increase the production of goods and service, increase the demand from the consumer in local or international, the diversification of goods and services and the stability in the supply and prices of goods and services. As a result, it becomes the main part of the international business and motivated countries to trade with borders. The United States implied the government intervention since the great depression through the financial sector rescue

MontGras became a successful story only through their marketing strategy. It took a determined path of exporting to the top rated wine importers in the world.

In the article “The Competitive Advantage of Nations” Michael Porter describes a diamond shaped relationship of forces that define a country’s potential for being competitive in a specified industry. The four points on the diamond representing the different forces are: factor conditions; demand conditions; firm strategy, structure and rivalry; and related and supporting industries. According to Porter, the four points apply pressure to each other resulting in a national