The art of winemaking has a long history that dictated its modern state of affairs. Generally, all wine-producing companies are divided into the Old World and New World vineyards both of which are competing against one another in the global market. However, each of the two competitors has its consumers and builds its strategies in accordance with policies stated by the countries. The purpose of the paper is to present an overview of the situation that prevails in the modern winemaking business. The paper consists of an introduction, a discussion of main issues, and a conclusion that includes the lessons learned and recommendations.
The Major Issues of Winemaking Market in Regards to French Policies
Both Old World and New World vineyards have their benefits and limitations that form their competitive advantage. The benefits of Old World vineyards are their recognized quality and the high level of respectability they have gained over the centuries (Griffin & Pustay, 2015). The competitive disadvantage of these vineyards is that it is sometimes difficult for consumers to choose the wine because the wines are named after geographic areas. Moreover, after the Judgment of Paris, the prestige of Old World vineyards was undermined (Godoy, 2016).
The biggest competitive advantage of New World vineyards is that they rely on branding instead of vineyard names. Also, these vineyards benefit from the use of technology (Griffin & Pustay, 2015). The competitive disadvantage of New World vineyards is that the real connoisseurs prefer to choose a wine from the Old World vineyards.
The reason why French wines are able to command a price in export markets is that the Appellation d’origine contrôlée (AOC) system entitles these wines with the guarantee of quality (Griffin & Pustay, 2015). The average price of a liter of French wine is more than twice as high as the average global estimate (“Wine lovers pay a premium for French wine,” 2015). The AOC keeps strict control over the process of wine production and labeling (Griffin & Pustay, 2015). As a result, consumers can be sure that they are buying wines of the highest quality. Due to these facts, the French wines determine the prices in export markets.
One of the major disadvantages of the AOC system is the restrictions it poses to the winemakers. The chateâux owned by French vintners are rather small in comparison to those of other countries’ winemakers (Griffin & Pustay, 2015). Therefore, it would be a good idea to relax the AOC system by letting French vintners increase the areas of their vineyards. By doing so, the French government would enable the vintners to expand their enterprises and produce wine on a larger scale. Such a policy would lead to a number of positive outcomes, the greatest one of them being the decreased price of French wine due to the expansion of the production scale. Therefore, allowing French vintners to expand the size of their chateâux would bring benefits both for wine producers and consumers.
Since the AOC system has proven to impact the French winemaking industry in both positive and negative ways, it is necessary to regard the possibility of the adoption of this system by the U.S. with cautiousness. The U.S. government takes good care of the quality of products made in the country. Particularly, its control of winemakers’ business is good enough to provide customers with high-quality goods (Pellechia, 2015).
The statistic of 2015 indicates that the Americans surpassed the French in wine consumption, which is also proof of the products’ value (Pellechia, 2015). Therefore, taking into consideration the strictness with which the U.S. government controls its wine industry, it seems irrelevant to adopt the AOC system for the U.S. wines destined for export markets.
Different retailers have different approaches to choosing what wines to order. Small retail outlets called “bottle shops” are more likely to specialize in Old World wines whereas large companies such as Walmart or Tesco are inclined to order New World wines. The reasons for such choices are related to the type of a store and its customers. Small shops may allow themselves the luxury to sell wines for high prices, and their customers prefer to buy something of prime quality but in small numbers. The situation with huge stores is the opposite. Customers come there at regular intervals to make purchases for a long period of time. Thus, they prefer to buy several bottles of wine at a moderate price and consume it over several weeks before they go to the store again.
The peculiarities of the AOC system and other issues discussed in the case study are closely connected with the modern firm-based international trade theories. The theory of country similarity suggests that customers living in the countries with the same level of development are likely to have common interests in products (“What is international trade theory?” n.d.). This theory holds true when talking about the winemaking industry. People in developed countries generally enjoy quality products and are willing to pay a moderate or high price for wine.
The theory of product lifecycle differentiates between three stages: new product, maturing, and standardized product. According to this theory, all three stages can be fulfilled in the country where a product originated (“What is international trade theory?” n.d.). Speaking of the winemaking industry, its stages of development were completed in France much earlier than in the U.S. However, the modern U.S. winemaking business has already reached the level of a standardized product. The global strategic rivalry theory describes the barriers a company may face when entering a new business (“What is international trade theory?” n.d.).
The U.S. winemakers did have obstacles when trying to compete with French companies, but they succeeded in maintaining their competitive advantage. Finally, Porter’s national competitive advantage theory states that competitiveness is related to the ability and readiness for innovation and development (“What is international trade theory?” n.d.). In this concern, the U.S. winemakers have reached success due to their constant enhancement of product quality which led to winning the market.
Conclusion and Lessons Learned
The industry of winemaking in France used to be considered the best-developed in the world. However, other countries worked hard to reach success in their national markets as well as in the global market. The division of French vineyards into Old World and New World, the Judgment of Paris, and the introduction of the AOC system undermined France’s superiority in the winemaking business. The best lesson learned from the case study is that each country should choose the most appropriate approach for its business development. The U.S. does not need to adopt the AOC system because its regulations are already strict enough to provide a high quality of products. Other things learned from the case study are concerned with international trade theories. These theories prove the thesis statement and demonstrate that the competitive advantage depends not only on history but also on quality and modern approaches to business.
Godoy, M. (2016). The Judgment of Paris: The blind taste test that decanted the wine world. NPR. Web.
Griffin, R. W., & Pustay, M. W. (2015). International business: A managerial perspective (8th ed.). Thousand Oaks, CA: Pearson.
Pellechia, T. (2015). The U.S. wine market is the goal post. Forbes. Web.
What is international trade theory?. (n.d.). Web.
Wine lovers pay premium for French wine. (2015). Wine-Searcher. Web.