The paper examines critical management issues and strategies which should be considered in the event of an organization planning to venture into international markets. Consideration should be made based on three strategic variables which includes; resource-based, industry-based and institution-based. The paper starts with introduction followed by analysis of external environment, then internal environment analysis where the organization’s tangible, intangible resources and capabilities are analysed. SWOT analysis of Penfold Company is done with explicit discussion on challenges and finally recommendations. The company discussed in this article is an Australian wine making company with a plan to venture into Vietnam market.
Penfolds Company in Australia has been associated with producing impressive and quality wines since its inception in 1844. It is known to have spearheaded the development of Australian fine wine industry. Penfolds Grange was introduced in 1951 and starting form this point, change was experienced in the whole Australian fine wine industry. The company undertook intense research into winemaking by performing several trials in 1990s, by the year 2002 Penfold wines had penetrated into various markets of the world (Penfold Company, 2010).
The strength of the Company is the fact that its wines come first with fine reflection of Australian beautiful landscape. Its wine portfolio appears amongst top ten celebrated brands. One of the brands Penfold Grange became one of the most famous wines within Australia. The company has been considered the fastest growing within the southern hemisphere. According to consumers, Penfold produces world’s most exotic and concentrated wines which have been of remarkable quality for the past over hundred years.
The company has come up with variety of fine wine both red and white which brought tremendous changes within Australian wine industry. This study has been approached by emphasizing on the positive impact of information flow on industry performance with reference to Penfold wine Company in Australia (Aitken and Harrison, 1999; Penfold Company, 2010).
The current strategy on how Penfold plans to capture Vietnam market and its position within the wine industry is discussed. This case analysis addresses whether Penfold is capable of maintaining its status in Vietnamese market as one of the leaders in wine production and distribution within global market. The case largely concentrates on the possibility of Penfold’s products succeeding in Vietnam market. The company plans to approach the market through brand image, culture and economic strength. The report also gives some information concerning domestic market within Australia and Vietnam. This helps in the understanding of the various opportunities and threats found within these markets and ways of handling these issues.
External environment analysis
For Penfold to succeed in implementing its recommended future strategies, individual variables which could affect the company’s processes need to be carefully considered. The various external influences include; political, economic, social, technological, environmental, and legal variables. These factors could influence the performance of the company either positively or negatively, hence affects profitability and success of the Penfold Company (Antal-Mokos, 1998).
Penfold should consider cautiously the business environment within Vietnam. As a developing nation Vietnam is bogged down by immense levels of bureaucracy so it becomes very difficult to start up a business as a foreign exporter. Furthermore, some developing nations like Vietnam have high populations, most of them living on less than a dollar a day and may as well.
|Political||Penfold is an Australian Company and conducts all of its production activities in its various factories within the country. Australian political environment is unpredictable hence presenting few challenges to company. This ranges from corruption within government cycles which could eventually lead to unexpected reactions from the public and other neighbouring countries. Ultimately this may affect trade relationships between Australia and other countries. However, the target market in Vietnam is very unstable politically, the country experiences wars quite often and this presents some level of threat towards market penetration. Unstable political ground influences the use unethical export and import policies. At times heavy taxes and tariffs are imposed on the goods leading to great damage in the company’s profitability; this is since Penfold may be tempted to price its products higher than local wines. The stability of Vietnam is affected by terrorism which represents potential threat to safety making the country appear dangerous at some point. This may affect the distributions of Penfold products within the country (Grant, 1987, pp. 79-89).|
|Economic||Economic conditions influence the performance of the wine industry within Australia. During positive economic cycles, wine producing companies are able to do quite well. However, in times of recession depending on strategies applied, companies at times tend to perform well. One of the challenges to Penfold is the volatility of the Australian and Vietnamese economies and the effects this has on currency exchange rates. Variations in exchange rates could affect the success of the export and import activities. As the value of the Australian dollar falls, it becomes increasingly more expensive to export to other countries (Aulakh, 2007, pp. 235-402; Caves, 1996).|
|Social||Societal changes has got great influence in the nature of activities consumers indulge in, this should be taken into consideration when making operational decisions. For example, unlike in Australia the culture in Vietnam does not make it open for women to indulge in drinking alcohol, this is considered an exclusive male dominated activity. This reduces the level of consumer base within the markets. However, the celebrated Penfold Grange brand provides women with better option hence satisfying their needs. The content of the wine has also been proved to lead to healthier lifestyles. It calls for frequent research which would help in maintaining the product line desired by most consumers. The other social challenge is the increased mortality rate and migration of Vietnamese to other neighbouring nations due to internal conflicts and wars (Chen and Chen, 1998, pp. 445-467).|
|Technological||Technological changes enables Penfold to develop better brewing processes, more efficient distribution channels, and facility upgrades which leads to increased output at reduced costs. Penfold requires an up-dated system to enable the company cope with frequent changes within the wine industry and the market as a whole. In order for Penfold to stay competitive, they must keep up with new and available technological innovations. The company should not give chance to other wine making companies to streamline their value chain at the expense of Penfold (Chen and Chen, 1998, pp. 445-467).|
|Environmental||With society becoming more environmentally conscious, Penfold’s approach to social responsibility within Vietnam requires a lot of caution. This could lead to either promotion or demotion of their brand image within the country. Penfold should start several consumer related initiatives geared towards environmental conservation to enable reinforcement of its brand image (Chen and Chen, 1998, pp. 445-467).|
|Legal||Due to the increased media outlets available, Penfold need to be careful about where and how they advertise within Vietnam. Their normal brand usually contains Australian landscape, this might require some change to enhance on consumers attitude towards their products. Their wines should reflect some issues on Vietnamese culture. In addition to Australian laws, Penfold should adhere to the laws guarding Vietnam markets as well as its citizens (Chen and Chen, 1998, pp. 445-467).|
There is need to determine future strategies which they could use for the purposes of remaining relevant within the market and industry in particular. For this to be possible it is important to consider the level of attractiveness of the wine industry both in Australia and Vietnam. Being one of the top brands within Australian market, it is important to determine the strength of the company in relation to its external environment (Chen and Chen, 1998, pp. 445-467).
Threat of Substitutes
Penfold Company has got potential threat from substitutes. There are many choices the consumers could opt for inform of beverages. These may range from alcoholic drinks, non-alcoholic beer and liquor. The population within Vietnam are used to their traditional drinks which command better size of the population (Chen and Chen, 1998, pp. 445-467). The Australian wine industry is currently getting numerous supplies from what is known as cool climate wine grapes, this presents some threat to Penfold’s local supplies. In the Vietnamese market the people prefer taking special type of wine drinks called snake wine, which is made of rice, deadly creatures like venomous snakes as well as scorpions, they love taking things which look dangerous. This is a complete threat to Australian wine which is mostly made from grapes.
Threat of New Entrants
There is stiff competition from large firms like Wolf Blass wine Company, which was established in 1966. Wolf Brass commands good export market to foreign countries especially United Kingdom. There are numerous small microbreweries throughout Australia. However, it makes it difficult for microbreweries to compete with large wine companies like Hardy and Penfold since such large companies have got the advantage of economies of scale. Forward integration in the value chain allows large companies to have cost advantages over smaller companies. The other disadvantage to small scale providers is that wine industry requires heavy start-up capital making the industry unattractive for new entrants (Chen and Chen, 1998, pp. 445-467).
Bargaining Power of Buyers
Bargaining power of buyers presents moderate threat for the Wine industry within Australia and Vietnam. Penfold should be aware of taste preferences of Vietnamese and what they direly need. There is also price sensitivity within various markets. Penfold should be prepared to be subjected to the market demand price, and therefore more restricted as to what they could charge. Buyers also have some power due to the fact that costs of switching to different brands are low. Penfold Company should aspire to keep their customers satisfied with the product they receive or else they will buy other brands.
Bargaining Power of Suppliers
Most of the suppliers for wine making equipments are easily available. These equipments include distillation, fermentation, filtration, winepress amongst other equipments. They are readily available within respective states making the cost of switching suppliers too low. There is approximately one hundred and thirty variety of grapes supplied to the wine industry from different suppliers. However, the bargaining power of the suppliers within Australia has been reduced since many companies are considering using varieties of grapes from other countries like France, Italy and Spain.
Rivalry among existing competitors
The competitive nature of wine within the global market is on the increasing trend making it difficult for Penfold to compete favourably in both domestic and export markets. Australia is known to be one of the top wine producers in the world making the industry major contributor to the economy. The industry experiences intensified competition amongst top wine making groups like Foster’s Group, Hardy Wine Company, and Orlando Wines amongst others. Stiff external competition is experienced from other countries like U.S which produces double what Australian Wine Industry produces. However, Australian wine is preferred due to its reasonable prices and excellence.
There are intense competitive forces within Australian wine industry. This fierce competition represents the greatest threat for Penfold. Australian wine is known to be rich and exciting; which makes the country one of the largest producers and exporters of wine worldwide. This makes the production and advertising sectors very differentiated. Stiff competition is experienced from domestic products other than import wines.
There is also a great threat from the possibility of mergers and acquisitions within the industry. Domination of the market by few is possible especially if the companies agree to merge; it grants the benefits on costs, brand and economies of scale. In conclusion the market seems very attractive for Penfold Company, since they face low pressure from suppliers, low threat of new entrants and moderate buyer pressure. The industry is highly competitive with many substitutes available, these requires Penfold to strategise appropriately in order to capture target markets.
Internal environment analysis
Penfold’s Company tangible assets and competencies includes modern wine processing facilities, its unique recipes producing exciting tastes, well co-ordinated distribution network and unique brands like Grange. Each of these is central to wine production and to the overall sales. Facilities of other competitors like Hardy wine company are also modern and continue to be up-graded; they indeed also have strong distribution networks and convenience stores within various countries (Barney, 2001, pp. 643-650). The quality of Penfold’s wine will fully depend on the reactions of the Vietnamese consumers. They should work hard towards producing wines conforming to the tastes of native citizens. This ensures attraction of non-drinking population and reinforced partnership with export distributors.
Other resources include strong brand image, stable financial records and large market share nationally and internationally. These form some of the known core competencies for Penfold. Wine production and distribution market benefits from economies of scale this means that larger market share and production would be of benefit to the company within the Vietnam market. The high market share will also improve on the visibility of Penfold’s brand image (Barney et al, 2001, pp. 625-641).
Mode of entry and recommended initial business strategy
Any organization wishing to have market success or high profitability should be prepared for stiff battle within the market place. Penfold should use appropriately its public relations tools to gain the competitive advantage. This can only happen when Penfold resorts to offering better advertisement of their goods and services compared to other competitors within the market. Penfold Company should use its instruments to cover the special needs of Vietnam market segments which are ignored by other wine producing Company’s. In order to win public confidence the company should prepare to offer best prices for quality brand wines or unique qualities which make consumers be willing to pay higher prices (Horton, 2005, pp 1-8).
Competitor’s strength and weaknesses can always be assessed through analysing consumer values within the market. This could be achieved by asking the customers the benefits they value and the important attributes they use to grade the company in comparison to other competitors within the industry. These relations help the organization to identify the areas which seems easy target for other competitors. The presence of competitors can at times result in more benefits by helping in improving the total demand (Filatotchev et al., 2007).
Penfold’s reputation represents one of the factors determining the level of company’s interaction with local communities within Vietnam. The organization’s ability to grow is dependent on the support it gets from the community in terms of labour standards, respect to cultural beliefs including environmental conservation and other key reputations. Public relations act as a link enabling smooth adaptation between Penfold and the locals. The process enables the company to easily analyze issues which impact the society positively or negatively, hence adjust its services and products to suit public interest (Filatotchev et al., 2007).
Penfold Company could easily loose societal approval when it experiences trouble with the labour force, or lacks considerable market share within its native country. The company could easily loose reputation by not adhering to government’s policies and regulations. This can be very detrimental since it affects the market success of Penfold wines. This shows that good reputation and public relations should always precede quality products and services. Corporate social performance impacts organization’s profit levels by influencing its reputations. This acts as a direct influence on the company’s competitive advantage and ability to attract and retain consumer base within target market (Horton, 2005, pp 1-8).
The strength of the Company lies in the fact that its wines comes first and also maintains outstanding relationships with distributors within Australia and overseas. This allows them to give their distributors more responsibility in branding and marketing the product. The company boasts for strong financial background which enables them co-ordinate their activities with confidence. They have also developed strong and popular brand image and marketing campaign for their products. Penfold has a strong portfolio of top performing wines. Through vertical integration of the supply chain, Penfold has been able control costs and better manage quality control (Grant et al, 1988, pp. 771-801).
Weaknesses of Penfold lay it its lack of sustainable competitive advantages. This present big challenge to the company’s penetrative abilities since there exists, high rivalry within the Australian industry. They do not have any partner wine company which could help them penetrate Vietnamese market. This is a potential weakness since it could lead to huge financial losses. Opportunities for Penfold lay in the fact that it shares some of the far-east roots. This could enable Penfold capture considerable wine drinking population.
The increasing popularity of its latest brand Grange could be utilized to satisfy the market environment. This could be used to increase the company’s economies of scale and distribution networks as well as brand recognition (Flowers, 1976, pp. 43-55). One of the threats faced by Penfold is that its domestic profitability still depends on the nature of Australian currency in relation to other stronger currencies of the world. This could be of great damage to the company’s profitability if the currency declines in value. The possibility of differences in tax and tariffs within these countries represents some threat to financial performance (Caves, 1974, pp. 176-193).
Recommendation on further prospective strategies based on the analysis
Expanding internationally into other countries like United Kingdom provides better compensation to potential threats created by the volatile Vietnam’s economic and political environments. Such kind of risks could be resolved by expanding further into global markets. This calls for further continuation of contracting distributors within target regions. This could be of benefit since local distributors understands their market environments better, hence having the ability of rebranding Penfold wines to suite local market. Penfold should also consider expanding its product portfolio due to changes in social set-up which would help the company recover its competitive advantage (Deng, 2009).
Likely challenges the organization could face
However, there is a possibility that those in the management team could act in a manner likely to reduce the company’s corporate reputation, especially when they have little understanding of the consumers’ culture and social needs. Marketing strategies used in Australia might not apply in Vietnam due to some reasons such as economic differences. Penfold could also face the challenge on frequent depreciation of currency. Establishing a branch in Vietnam will require a wealth of changes in the whole structure i.e. management, shifting customer demand, technologies and dynamics. The difference in culture could pose more challenges in the company considering indulging in a joint venture, the social set-up within Vietnam threatens trust and mutual confidence in alliances (Keegan and Green, 2002).
Sound financial position of Penfold Company is of prime importance since it determines its ability to respond positively to the community and the environment. This makes the organization posses strong abilities of attracting potential consumers. The management qualities as well as the quality of goods and services remain an important factor which determines the response of consumer to Penfold products hence its durability within Vietnam market. All the drivers of financial excellence in an organization are basically linked to the extent on which the company utilizes its tools on public demand and this applies on both social and environmental sectors (Geringer, 2000, pp. 51-80).
Recommendations for the Challenges
Penfold Company should prepare to channel its products and services according to consumer needs within Vietnamese market. For success to be realised in Vietnam market, the company has to assess the needs and preferences of consumers. Another way of maximizing on the company’s customer base is through creation of alliances which enables organizations to concentrate on their businesses while providing new capabilities (Keegan & Green, 2002).
At the same time Penfold should think of diversifying its production from grape-based wine to snake wine through partnering with other local companies. Penfold Company should also consider venturing into Global Strategy Partnership (GSP) which presents the opportunity of diversifying their macroeconomic and operational risks. These range from harmonising labour related problems as well as countering the occurrence of human related risks like political instability. Penfold should be prepared to support the native Vietnamese employees in receiving further training concerning various expertise areas in wine making.
Generally, Australian wine industry appears attractive domestically and globally, presenting Penfold Company with great opportunity for competition. The market is favourable since there is low pressure from suppliers, low threat of new entrants and moderate pressure from buyers. The wine industry seems highly competitive with many substitutes available within Australia, Vietnam and international market.
This presents essential chance for Penfold Company to develop strategies which will work well against pressures from the global market forces and hence attract and retain consumers. Porter’s five forces have great influence on the decision-making processes and designing of Penfold’s strategies. The level of competition within Vietnam market eventually determines the choice of products and services which would grant them competitive advantage. Most important part of the plan is to for Penfold to focus on consumer tastes and demands.
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Appendix I: SWOT Analysis