Spanish Vine Case Analysis – Part 2

Spanish Vine Case Analysis – Part 2

Chapter Three: Problem Statement, Plan of Analysis

Spanish Vine has an opportunity to enter the Colombian market following the trade agreement between the EU and Colombia. Subsequently, the company is expected to benefit from tax benefits and value-added tax.  The primary problem that Spanish Vines faces is the inability to identify if the Colombian market is a prospective market for its wines or not, and how to successfully tap into the Colombian market.  In addition, there are issues related to the identification of consumer attitudes, the appropriate distribution channel, and the message to convey to the consumers.

Proposed plan of analysis

The case study analysis was done through the use of SWOT analysis, Porter’s five-force model, PESTLE, and the 4ps to determine whether investing in Spanish Vines would be successful. Also, the most appropriate market entry model was analyzed (Johnson & Scholes 2008). As noted by Johnson, Scholes, and Whittington (2010) the strategy for an organization is “the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations” (p.3). Thus, SWOT analyses, Porter’s five-force model, and the PESTLE are strategic management tools used in this study. The external factors were explored under the political, social, technological, legal, and environmental influencers of the Spanish Vines (Mintzberg, Lampel, & Ahlstrand, 2008). On the other hand, internal factors were used to establish the threats and opportunities the Spanish Vines faced and the possible strengths and weaknesses of the company.

The Porter’s five-force model is used to analyse the level of competition in the wine industry. The Porter’s 5 Forces model is composed of five components which are: threats of new entrants, bargaining power of buyers, bargaining power of suppliers, and competitors, and threat of substitutes (Thompson 2001).  For instance, the wine industry is competitive, although open to new entrants and close substitutes such as spirits and beers. Thus, the model was used to analyse the external factors that have effects on the operations of Spanish Vines after establishing its presence in Colombia.

The PESTLE analysis is composed of political, social, technological, legal, and macro-environmental influencers of the Spanish Vines (Mintzberg et al., 2008). For example, the legal-political factors are related to regulations and laws, as well as stability. Economic factors focus on the economic and financial stability of Colombia, interest rates, and trade treaties. Social-cultural factors relate to the ways of life, while technology focuses on the effects of technological advancements on message communication and the distribution of products to the targeted customers.

The marketing models used were the 4ps marketing, Ansoff matrix, and the Porter (1985) generic strategies needed for a company to remain competitive, and they include Cost Leadership, Differentiation, and Focus-Differentiation strategy. The 4ps are price, product, place, and promotion. The 4ps is a marketing strategy that focuses on pricing strategy, distribution of products to Colombia, promotion of the products to Colombian customers, and the competitiveness of the Spanish Vines’ wines in the new market. The Ansoff matrix is composed of market penetration, market development, and product development strategies that are explored when a business is entering into a new market to establish its position (Ansoff, 2007).

When businesses operating in international markets make entry into new markets, different models of entry are considered.  The models include export-import business models, joint ventures, and licensing (Daniels, Radebaugh, & Sullivan, 2008). Under the exporting model, Spanish Vines would export its wines directly to Columbia and make the sales. Exporting requires coordination between the government, transport provider, importer, and exporter. The joint venture is whereby a company partners with an already established business entity in a foreign market. The five objectives of a joint venture are technology sharing, joint product development, market entry, risk and reward sharing, and conforming to the set government regulations (Rugman & Collinson, 2008). A joint venture is preferred in most cases because it promotes strategic alliances, sharing of scarce resources such as a distribution channel, market power, and partners ability to operate successfully in a new market. Licensing is a business arrangement whereby a business like Spanish Vines would allow another wine company in Colombia to its trademarks, patents, and production techniques for a fee.

Research Design

In this report, the research was conducted through the application of the Deductive approach. The deductive process helped in the analysis of the plans, actions, and strategies undertaken by the Spanish Vines to compete effectively in the Colombian market. The treaty between the EU and the government of Columbia assisted Spanish Vines in re-establishing its dominance in the new markets.  In order to realize this purpose, the company’s management needed to rethink its strategies and develop new ones needed to capture the wine market of Colombia. Thus, Spanish Vines would be the first to take the opportunity before any other countries from Europe start selling wine in Colombia. On the other hand, explanatory research helped in the provision of analysis of the problems which were defined clearly. For example, exploratory research was applied to understanding the customers’ behaviors and attitudes, especially those in the Colombian market (Hill & Jones 2004).

Sources of data:

The case study is based on data collected from other research done earlier related to the topic. Thus, secondary sources of data were used to gather the information required to realize the research aim and objectives. Data was collected from secondary sources such as journals, books, reports, and online sources from Google Scholar. Secondary data analysis was applied to analyze data collated from secondary materials. Heaton (1998) has defined secondary analysis as ‘the use of existing data collected for the purposes of a prior study, in order to pursue a research interest which is distinct from that of the original work” (p.1). Thus, secondary data analysis comprises the use of prior data in a different manner to answer research questions that were not in mind when the data was previously collected (Cresswell, 2008). A search strategy was used to come up with the necessary sources required in this report. The sources used were not more than ten years old, were related to the case study, and were written in English.

Chapter Four: Analysis & Findings

SWOT Analysis             

The SWOT analysis was applied to analyze the current resources and capabilities of the Spanish Vines (Johnson & Scholes 2008). It was also used to assist the company in examining the available market opportunities in the Colombian market and the scope of future growth. SWOT analysis was used to provide an analysis of both the internal and external faced by Spanish Vines.

Table 1: SWOT Analysis

PESTLE Analysis

Legal-Political Factors: The political stability of the country has helped in the establishment of an excellent framework for international trade. As such, the business environment in Colombia is suitable for Spanish Vines. Colombia which is the third largest country in Latin America has an estimated population of 48 million people (Department of International Trade, 2015). Such a population is attractive to Spanish Vines. The laws and regulations related to wine distribution are well-stipulated and so far, Spanish Vines has identified no restrictions.

Economic Factors: Spanish Vines operates from Spain which was adversely affected by the Eurozone crisis, hence the need for expansion. On the other hand, Columbia has set tax incentives and free trade agreements with the EU (Andean Countries, 2012). In the past decade, Colombia experienced fast economic growth, which made it attractive to Spanish Vines. Colombia’s alcoholic beverages market is dominated by distilled spirits and beer, thus, wine exportation would be more attractive in terms of demand and sakes. Between 2006 and 2011, Colombia experienced a 46% increase in per capita consumption of wine (Euromonitor, 2012)

Social-cultural factors: From the case study, there has been an increased demand for Spanish wines in Colombia. This is because Spain has a unique culture and is traditionally a quality wine producer. In addition, the drinking culture of Colombians is an incentive for Spanish Vines. Colombians have a high affinity for Spanish culture and this would enable the Spanish Vines to position itself as high-quality, high-value wines (Roth and Turpin, 2013).

Technological: Presently, the emergence of technology has created new means of marketing products such as online platforms and social networking websites. Thus, Spanish Vines could use such platforms to reach targeted consumers who are tech-savvy.  For instance, 59% of Gen Xers and 83% of Millenials use social media for communication (Roth and Turpin, 2013). The regulations by Colombia on the use of social media for wine advertisement are well laid. Facebook and Twitter as well as YouTube are communication tools that are effective because they provide virtual experiences.

Environmental: The wine industry is at the forefront in reducing its carbon footprint. Subsequently, this would help the industry in contributing to a sustainable environment. Thus, Spanish Vines would be compelled to follow the environmental requirements in Columbia.

Porter’s Five Force Analysis

Bargaining power of the suppliers: The Spanish Vine has a high bargaining power with the suppliers of grapes. This is because the company depends on local grape suppliers operating in a saturated market. Thus, Spanish Vines is exposed to a variety of quality grapes for its wine products.

Bargaining power of the customers: The buyers have more power because they are exposed to a wide variety of products such as wines, beer, and spirits. Thus, consumers have a high power over Spanish Vines.

Entry of new potential competitors: There is a threat of new entrants into the wine and spirits industry. This follows the EU-Colombia tax agreement that would favor new entrants into Colombia’s market.

Rivalry between the competing firms: Rivalry among the competing firms is a major drawback for Spanish Vines. There is a significant number of wineries in Colombia that would provide cheap wines. Also, the Spanish vines will at some point compare with its rivals when exporting wine to Colombia.

Development of substitute commodities: the market is saturated with alcoholic and non-alcoholic beverages. Accordingly, people choose the closest substitute for wine. For example, the presence of low-quality and low-cost wines in the Colombian market. However, Spanish vines could still enjoy the production of wine and realize a competitive advantage in the new market.

Porter’s Generic Strategy:

The Porter’s generic strategy for Spanish Vines has been evaluated as follows:

 Cost leadership strategy: The Spanish Vines faces challenges in entering into the Columbian market. Thus, it could think to reduce the costs of wines for greater customer attraction. Subsequently, the company would experience increased profitability (Hancock & Algozzine, 2015). Being a cost leader in a new market would increase repeat purchases, and increase the profitability of the operations.

Differentiation and focus strategy: Spanish Vines uses this form of business strategy to create a competitive advantage over its rivals. The company has a unique variety of products that form its brand (Daft & Marcic 2011). It has high-quality wines compared to the Chilean and Argentinian wines sold in Colombia. Tax exemption could therefore help the Spanish Vines to increase its sales in Colombia after developing a loyal customer base.

The 4ps Marketing Models

Marketing mix from the perspective of wine product consumers conveys the following messages: cost sacrificed products (by price), value-added and satisfaction (by-product); the communication received by consumers (by promotion), and product availability (by place). Thus, the products (wine) produced by Spanish Vines are of high quality, high price, and readily available based on the in-just-time model of distribution. Under the promotion, Spanish Vines lacks an understanding of consumer attitudes and opinions in the Colombian market. In addition, the company does not know which communication tools to use and the message to convey to the targeted consumers. nonetheless, Hacker (2008) pointed out that the “Company prides itself on providing customers with unparalleled quality, coupled with unbeatable prices while serving as an ambassador of Spanish culture to help consumers understand and enjoy the Spanish way of life” (p. 1). In spite of the effective communication and products offered at competitive prices, Spanish Vines’s top management has been unable to identify the purchasing trends of customers and their attitudes and perceptions towards the purchase of exported wine.

Ansoff’s Matrix

The Ansoff’s Matrix – market penetration, market development, and product development (Ansoff, 2007) presented in the figure below is concerned with global expansion.

Figure 1: Ansoff’s Matrix. Source: Ansoff (2007).

Market penetration strategy is used by companies to enter existing market via the use existing products (Ansoff, 2007). Product development comprises of the introduction of a new product into an existing market, and this is not applicable in the case of Spanish Wines. Market expansion entails of expansion into markets for growth purposes (Johnson et al. 2010). Diversification is comprised of introducing a variety of products in a new market. One of these strategies could be used to formulate effective strategies required to boost the overall growth of the Spanish Vines, especially when entering into the Colombia’s market.

Market Entry Options

The table below provides a summary of the possible modes that can be used by Spanish Vines to enter into the foreign market entry:

Table 2: Foreign Market Entry Modes Comparison

Chapter Five: Proposed Solution to the Problem

The Colombian opportunity was the right one for expanding Spanish Vines internationally. This is because, Colombia is politically and economically stable, and also, the local people have a high affinity for Spanish wines. The entry models proposed for Spanish Vines into Colombia’s market are joint ventures, licensing, and exporting.  Based on the comparison done in Table 2, joint ventures seem to be the most appropriate. This is because Spanish Vines could agree to pool their resources with the intent of accomplishing a competitive advantage. For example, the company would enter into partnership with a local business in Columbia which has already established distribution networks (Campbell & Netzer, 2009).  Subsequently, Spanish Vines could survive the challenges associated with understanding the customer’s needs and attitudes. The partners in Colombia are essential for the business, especially during its expansion endeavors. The partners would assist in sharing the risks and the assets required to initiate business operations. Partnership should be used to establish the most feasible way possible. Spanish Vines has strong brands, therefore, launch with house brands and partner with local companies to distribute its high-quality and high-cost brands (Roth and Turpin, 2013). This would therefore enable Spanish Vines to position itself in the market and provide Colombian wine drinkers with products at affordable prices. Licensing is not appropriate for Spanish Vines because the company would lose its control while exporting is linked with increased transportation costs.

Conclusion

Despite the fact that the global wine industry has reached the maturity stage, Spanish Vine can enhance its long-term survival in the global wine industry by adjusting its operational practices. This outcome can be achieved by implementing effective strategic initiatives. Amongst the most viable strategic initiatives that the firm should take into consideration relates to employing effective marketing practices. Venturing into new markets is one of the strategies that the firm should consider. Irrespective of the fact that the Columbian wine industry is characterized by challenging environmental dynamics as illustrated by the PESTLE, SWOT, and Porter’s five forces model, there is a high potential for the firm maximizing profitability by entering the Columbian market. Spine Vine has developed adequate internal strengths such as financial capability, strong market reputation, and the development of a diversified product portfolio. The firm should focus on applying these strengths in exploiting the available market opportunities.

The firm should focus on minimizing internal weaknesses and managing the threats emanating from the external environment. The industry analysis further shows that there is a high probability of the Columbian wine industry experiencing an increase in the intensity degree of concentration due to increase in the level of rivalry amongst new entrants and the existing firms.  In spite of this, the market potential inherent in the wine industry outweighs the market challenges. Therefore, it is imperative for Spine Vine’s management team to target the Columbian market. However, Spine Vine’s success in attaining sustainable competitive advantage in the Columbian market will be influenced by how effectively the firm applies its internal capabilities, strengths, and core competencies in dealing with the industry challenges.

 Recommendations

In actualizing its strategic decision to enter the Columbian wine market, Spine Vine’s management team should take into consideration the following issues.

1. Differentiation and focus strategy;   to develop competitiveness in the new market, Spine Vine should entrench differentiation and focus strategies.  Integration of the differentiation strategy will enable the firm to develop a strong market position.  One of the approaches through which the firm can achieve this outcome entails undertaking extensive product development. Additionally, the firm should also consider undertaking continuous new product improvement.  The rationale of these approaches is to enable the firm to establish an extensive product portfolio. By developing an extensive product portfolio, Spine Vine will increase its probability of meeting the diverse needs, tastes, and preferences of its target customers. In order to enhance the effectiveness of the firm’s differentiation strategy in enhancing competitiveness,   Spine Vine should also consider integrating the focus strategy. The firm can achieve this goal by targeting a market niche that it will consider in developing a new product. Effective identification of the market niche will increase the likelihood of Spine Vine developing products that are aligned with the market demand. Subsequently, the firm will be able to increase its sales revenue.
2. Marketing mix; the firm should also ensure that its entry into the Columbian wine market segment is based on an effective marketing mix strategy.  One of the models that the firm should consider in achieving this outcome entails the 7P’s model, which is comprised of different dimensions of marketing products and services that include pricing, place, product, promotion, physical evidence, people, and process. Effective integration of the 7P marketing mix model will enable the firm to achieve a strategic market position.
3. Mode of market entry; during the initial phase of its entry into the Colombian market, Spine Vine should employ the exporting and joint venture modes of entry. Its applicability arises from the fact that it is characterized by a relatively low cost of entry. However, to develop a strong market presence in the new market, the firm should consider employing a Greenfield market entry strategy by establishing its own retail outlets in Columbia.

Limitations of the Study, Scope For Further Research

The study was limited to the use of secondary sources to support the analysis.  The findings provided in this study were formulated based on existing outcomes which were based on someone’s research study and interpretation of the findings.  In addition, other than the case study, there were limited statistical findings to support the study’s findings. Thus, the study was more descriptive in nature.

A further study could be conducted in the future to explore specific issues such as the entry of new markets by small companies. The study could explore message and media communications challenges experienced in the process of establishing a new brand in a fresh marketplace under a restricted budget. Also, a further study could be undertaken to explore the successful promotional strategies applicable in the wine industry. The scope of the study would be to investigate a promotion strategy that best describes the wine industry and is successful from a cost-efficient perspective. In such context, the study would explore how social media such as Facebook and YouTube could be used to support market promotion.

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