Int. Management

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NOTES INTERNATIONAL MANAGEMENT:
BUSINESS CASE: GLOBAL WINE WAR 2009:
French became the dominant competitors in the increasingly global wine industry for centuries, because they were able to develop sources of competitive advantage. By the Christian era, wine became part of the liturgical services and monasteries planted vines and built wineries and the European nobility began planting vineyards as a symbol of prestige, competing in quality of wine they serve on their table = start of premium wine market. French wine producers became the dominant competitors as a result of four reasons: -First because of their geographic and climatic features played a significant role. As France is in the middle of Europe, has a suitable climate and soil condition for harvesting grape, had enabled them with a significant advantage and established its place as the dominant competitor in the global wine industry. -Second, they became the first high quality market and gained a lot of experience. Because the negotiators traded wine between France and other countries they caused a word-of-mouth effect increasing the dominance of French wine. -Third, they used the latest innovations such as mass production of glass bottles, use of cork stoppers and pasteurization. These innovations increased the stability and longevity of wine which allowed the transportation of wine to distant places, and birth of global wine market. -Last, the government support made significant effect on the reputation and improvement of French wine industry. Government controlled the wine production and quality. Regulations such as AOC set detailed and quite rigid standards for vineyards and wine makers. The main vulnerable aspects of French wine industry were highly fragmented vineyard and wine production, increasing vineyard prices per acre, complex distribution and sales system. Also made them vulnerable, the long value chain, the risk of bad weather and disease, and poor roads and complex toll and tax system. There were changes in the global industry structure and competitive dynamics. This led France and other traditional producers lose market share to challengers from Australia, US and other New World countries. Vineyards and wine makers had been set up in many New World countries since 18th century, but consumption wasn´t as high as it was in European countries. By the 1960s the New World countries entered the wine industry and became a key player in the market with challenging production and marketing norms. These New World countries had several advantages over traditional producer countries in production norms. First, suitable land was widely available and less expensive, allowing the growth of much more expensive vineyards. Second, they became to experiment with grape growing and winemaking technology. They used mechanical harvesters, irrigation methods, etc. Other experiments with fertilizers and pruning methods increased yield and improved grape flavor. Third, they broke the many wine making traditions and used on-site labs to provide analysis helpful in making growing harvest decisions. Lastly, as a result of these innovations in production they were able to reduce their cost per ton nearly to half of French wine. Also, they innovated on marketing and demand side. We should start by saying that consumption per capita of wine in traditional producer countries had started to decline since 1966, but it was increasing for New World countries. They were reinventing the marketing model. They came up with innovative packaging designs like “wine-in-a-box”, screw caps instead of cork ones. Moreover, they controlled the whole value chain, extracting margins at every level and retaining bargain power. So in the end, traditional wine producers were having a loss in market share.

One of the major disadvantages that French wine industry faces is the strict AOC regulations. Up to a point this is an advantage, cause these regulations forced French wine industry to...
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