Analysis of the French Wine Sector

Analysis of the French Wine Sector Introduction The wine industry is one of the oldest industries in the world with a number of countries being that major players in the industry. One of the countries in which the wine industry has existed for a very long time is France. For a long time, France has been known to be one of the renowned nations in the production and consumption of wine. This means that there are very many firms that produce wine in France. France has a large population that consumes wine thus this population acts as the first market for the wine sector or industry in the country. The government of France has been supporting the Wine sector for a long time due to the expansiveness, and thus influence of the industry to the economy of France. The government support has backed the sector from both internal and external economic pressure and threats (Jenster, 2008). Over many years, the wine industry in France has been influenced the interests in English and the Dutch market. This happened before the French revolution. The ancient regions in France which have been known to produce wine include Alsace, Bordeaux, Burgundy, Loire Valley, Champagne, Languedoc and Rhone. France dominated the wine industry globally till near the end of the 20th century. However, the 21st century has brought about significant changes in the wine industry.Advertising We will write a custom research paper sample on Analysis of the French Wine Sector specifically for you for only $16.05 $11/page Learn More The global wine market has become significantly competitive. Other regions of Europe and the world have come in the industry and are giving France a cut throat competition. In Europe, Spain and Italy have joined wine producing countries in the world. Also, there are other recent wine produces like Australia, California – United States and a number of countries in the South American region (Wherry, 2011). The wine sector in France started booming in the 19th century after the e nd of French revolution. The French Revolution brought about the rise in incidences of production of poor quality wine in France. This was because there was inadequate knowledge among the producers of wine in the country. The technology that was being utilized in the processing of wine was poor. Therefore, investment was made in order to come up with improved technologies in wine production. Therefore, a wine processing technology known as â€Å"chaptalization† which entails the addition of sugar into wine to raise alcohol levels was developed. This was a turning point in the wine sector in France as this technology was further built on to better the industry. By around 1850s, the wine industry had sky had attained voluminous growth. During the same time, the upper class commonly referred to as the bourgeoisie had emerged. This class formed part of the largest group of wine consumers. The bourgeoisie provided a big market for the wine sector. Many technological developments t ook place in the wine sector to better quality of wine. Towards the end of the 19th century, the government of France gave Louis Pasteur the task of studying the problems that were facing the wine industry. Pasteur carried out research and established findings that revolutionized the science of winemaking in France. In his study, he discovered what caused wine spoilage and developed processes of eliminating wine spoilage. Also, the development of the French railway systems added to the betterment of the wine sector as it opened up more area for trading of the French wines. More regions became accessible (Anderson, 2004). Wine is produced in different regions of France. France as a country produces approximately 60 million hectoliters of wine annually. The country has the second widest total vineyard area globally. The leading county in terms of the size of vineyard area in the world is Spain. France still leads the production of wine in the world.Advertising Looking for rese arch paper on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More It was only eliminated from the top spot in the year 2008 by Italy. The country produces a wide variety of wines. Expensive and high vined wines are produced and exported to other countries where they are consumed. Modest wines are also produced though they are mostly sold in the local market (Anderson, 2004). France has different varieties of grape, and this is one of the factors that give this country a competitive advantage in the wine sector. These different varieties of grape include chardonnay, pinot noir, cabernet sauvignon, syrah, and sauvignon blanc. However, these varieties have been introduced and are now being cultivated in other countries. The wine making practices that were only utilized in France have also been imported by other countries. This has been coupled with other pressures like the drop in the local consumption and the growth of wine i ndustries in other countries within and outside Europe. This has put pressure on the wine sector and reduced the competitive advantage of this sector in the world market. The per capita wine consumption dropped by almost 20 percent in the 1900 decade. This means that reliance on foreign markets remains to be the focus of wine producers in the country. France has been depending on the regional market for the sale of its wine. Therefore, the production of wine in other states within and without the European Union threatens the wine sector. Expensive wines have been fetching a lot of in some for the sector as most of the expensive wines find markets in the wealthy markets of Europe and the United States (Dougherty, 2011). The wine sector is an important booster of the agricultural sector of France. Agriculture forms part of the important sectors in the economy of France. The main crops that are grown are sugar beets, barley, wheat, corn and potatoes and fruits. The fruits are utilized in the making of wine. Therefore, the wine industry holds a big part of the local economy through the support of the horticultural sector. The wine sector provides employment to a relatively big number of people. Apart from this, the wine industry is a foreign exchange earner for the country by way of the payments that are made from the sale of wine in the international market. The wine sector boosts other industries in the country; therefore, its importance in the French economy is too open (Dougherty, 2011). The wine sector in France has been coping well in the global wine industry. However, the competitive developments in the 21st century have affected innovation and the wine export opportunities for the country. However, the country is still ranked as the leading producer and in consumption of wine.Advertising We will write a custom research paper sample on Analysis of the French Wine Sector specifically for you for only $16.05 $11/page Learn More It is important to note that the gap at which it is leading is shrinking at an increasing rate. By the year 2007, France only had a 20 percent of the total world production while its consumption stood at 14 percent. More competition is likely to shrink its market more and force the country out of the international wine market. The wine exports are reducing while the local sales are also going down (Jordan, Zidda Lockshin, 2007). Strategy Exploration – Exporting, Differentiation and New Technology Owing to the recent developments in the wine sector of France, a number of strategies have been adopted to streamline the sector. These strategies are differentiation, exporting and new technology. All the strategies aim at improving the competitiveness of a sector in the economy. Differentiation, commonly known as product differentiation in economics and business studies can be defined as the approach that a firm in the industry adopts in order to develop and increase marketing of its u nique goods for different segments of customers. This strategy works well where a firm has an upper hand when it comes to competitive advantage and the ability to sustain costly advertising campaigns. Essentially, this is regarded as one of the marketing strategies. This strategy is also called market segmentation. Product differentiation simply means separating the products of a firm from those of competitor firms. The major objective of product differentiation in an industry is to boost the competitive advantage of the product in the market. In other words, product differentiation increases the competitive advantage of products if it is properly applied by a firm in the industry or economy. In economics, well conducted product differentiation results in monopolistic competition. It eliminates perfect competition. There are there different types of product differentiation, which are simple, horizontal and vertical differentiation (Zanni, 2004). The exporting strategy involves the a ssessment of the products as it appertains to their potentiality for export. Exporting strategies aims at helping a firm to enter and gain grounds in the international market. Exports expand the market for products and the competitive base of a firm. New technologies are applied in either the business processing or production stages of products of a firm. When applied in the production process, new technologies do aim at raising the quality and the value of products in the market. When the product quality is improved by way of applying new technology, the products become more competitive in the market (Jordan, Zidda Lockshin, 2007).Advertising Looking for research paper on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The various strategies may be used differently at a time; however, in certain instances, firms may decide to use various strategies concurrently. However, this depends with the intensity of the problem that is being solved by these strategies or the objectives of the firm that is applying the strategies. More often, one strategy is applied. Nevertheless, the success of the strategy determines the employment of the proceeding strategy. The wine sector of France has applied all these strategies at different times. These strategies have been applied to increase the competitiveness of the sectors as a result of internal and external constraints that have been affecting the operation of the sector in the country. New technology has for instance been applied from the earliest time of the industry with a lot of changes being made to enhance wine quality. Product differentiation has also been adopted by the wine industry and applied in different ways. The wine has been branded differently t o make it distinctive from other wine products from Italy, Spain and other wine producers in the United States and the South American region. Other aspects of product differentiation like packaging have also been employed by the French wine industry. With the shrinkage of the local market, the wine sector of France has been forced to develop export marketing strategy which will see it increase foreign sales that will be useful in offsetting the effect of the shrunken local market (Moulton Lapsley, 2001). Strategy Analysis: French Wine Sector (Impact on ) Strategy Exporting Strategy II Differentiation Strategy III New Technology Customers There are different types or brands of wine produced in France. France Produces high quality wine which is suits the customers in the foreign market. The quality of wine that is mostly consumed at the local market is of medium quality. Also, there will be price differences that come with each developed wine brands. Therefore, they are attrac ting customers of different income bases. The different brands in which the wine is offered gives an opportunity to customers in the foreign market to enjoy the variation and differences min tastes of wine. There is a likelihood of increase in the number of customers in the foreign market. Innovation in the wine industry, through the introduction of new technologies, has resulted to the development of new tastes and variations in wine products. Therefore, the number of customers has also risen. Technology has a positive impact especially so when it turns out positive on products. Employees When the export strategy succeeds, the employees will get an assurance of being sustained in the industry. With increased exports, there will be increments in income for the company. Therefore, the workers will get an increment in wages which will better their economic conditions and motivate them. Differentiation has a direct effect on employees. When the industry diversifies its production and distribution process, this results in an increased number of employees. There will be structural changes that come with differentiation which will have a short-term effect on the employees as the program picks up. However, the employees will get benefits as the program picks up. The new technology is leading to the production of different brands of wine. New brands of wines mean that the market will expand the meaning that more jobs will be created, and the current employees will be remunerated. Community There will be different types of wines available for the community. Increase in wine exports has encouraged wine tourism, which will better the community. Wine sector differentiation offers the community with employment activities as differentiation creates more diversification and thus more job opportunities. Community development results from improved technologies and improved productivity. Innovation will lead to the growth of the wine sector. This will benefit the community directly through offering employment opportunities. Also, it will have indirect benefits through corporate social responsibility activities of the firms in the sector. Government Increasing exports are helping the government of France to advance international business relations with other countries through bilateral and multilateral trade agreements. It opens up the country to increased trading activities. Differentiation has been the source of business diversification that has led to the development of tourism and hotel industry. This is because most French wine accompanies meals. The government uses wine as the major tourism feature. Support of research and development in order to innovate results in industrial growth meaning that the government will directly gain from industrial growth. More jobs will be created for the citizens and the government will garner more taxes from the industry. Alliances France is cooperating with other wine companies in other countries. This will help the country to gain new techniques of production and improve its access into the foreign market. This also improves its reputation in the international market. Alliances are part of the facets f the differentiation strategy. A business alliance, which is part of business partnership, helps in the development of technology and production invention and innovation. His s helping in the bettering of products in the industry. Competitors New competitors have come into the wine industry. These competitors are Italy, Spain and other countries in South America for instance Chile. In order to overcome the competition, France has chosen to adopt differentiation strategies that help to maintain their products in the international wine market and maintain a good share of the wine market in the international market. The competition that has developed in the global wine market has necessitated the rebranding of products to and increased promotion of the French wines both at the local and i n the international market. Wine firms in France are adopting all measures that will see them maintain the status and sales of their products in the now competitive wine market. As part of the efforts of fighting competition, new brands are developed through research and development thereby helping to raise the competitive levels of the French wine industry. Investors The whole process of the wine sector improvement gives an opportunity to investors in the agricultural sector of France. This sector produces raw materials that are used in the making of wine. The export of wine products into the international market results in other business deals giving a chance to both foreign and local investors. Investors in the industry directly benefits from the export of wine. This opens a window for investors in the wine and related sectors. More income is generated as a result of new technologies, more income to the investors thus more investments. The different strategies that have been used in the improvement of the wine sector in the country have different effects on the different business groups in the wine industry. Overall, these strategies have the primary aim of beating the competition in the wine market. As earlier explained, the exporting strategy has been the focus of the wine sector in France due to the witnessed decreasing rate of local consumption of wine. This strategy has aided in increasing the access of new brands into the international market thereby leading to stakeholder benefits. The investors have benefited in different ways. The government of France and investors in the wine industry has been the major beneficiaries from the exporting strategies. The international business agreements that are established opens up the country to cross-country trading activities. These trading opportunities are taken up by investors who build on the opportunities presented to establish other trading activities. On the other hand, the foreign business transacti ons, which serve as sources of foreign exchange, are crucial to the economy of a country. More foreign exchange earnings mean that the French economy will be stronger. Therefore, the wine industry is coming to Exporting strategies continues to support the wine sector of France that has been facing a stiff competition since the beginning of this decade (Jordan, Zidda Lockshin, 2007). Analysis of Competitive Strategies Competition also exists between different wine producers in France. In the year 2010, private labeled wines continued to lead in sales. The privately labeled wines had a market share of 28 percent. In terms of sales in the chain stores like the hypermarkets and supermarkets, the brand accounted for almost 80 percent of sales in the same year. A similar trend was also seen in the year 2011. The high sales of the private labels are attributed to the value which customers attach to the private labeled products (Jordan, Zidda Lockshin, 2007). The wines that target niche c onsumers such as the young people, women and consumers who are more conscious with their health are the driving forces of innovation in the wine sector. Light wine versions are expected to feature considerably in the market. The production and supply of organic wines is also expected to rise. A large number of wine producers in France are turning into producing organic wine because of the changing customer preference. The French government came up with a modernization plan to aid the sector and increase its competitiveness due to competition in the sector. The plan was unveiled in the year 2008. The aim of the plan was to bring down the complex regulations that blocked wine companies from effectively competing with other producers in the international arena. Players in the sector conquered with the content of the plan. The plan was developed in line with the business reforms f the European Union. The plan allowed for the production of grape wine, as well as putting the year on the l abel of the wines. Also, cheaper wine making techniques have been adopted courtesy of the plan. The cheap wine production techniques are used in countries that compete with France in wine production. The categorized wine producers into three groups whish are Vignobles de France also known as wines of France. This label replaced the Vin de table. Wines under this category carry both the year on the label and the variety of grapes uses in making it. The second category is Indication Geographique Protà ©gà ©e also known as Protected Geographical Region. This group replaced the Vin de pays. The last group is the Appellation d’Origine Protà ©gà ©e (Jean-Guillaume, 2009). The plan had the objective of attaining originality in production and encouraging massive wine production. This plan has been adopted in the industry. Also, the government of France has had pressures to amend the law which bared the online marketing of wines. Online wine marketing is now legal, and many busine ss analysts argue that this is the likely trend as we move into embracing information technology in easing commerce (Jean-Guillaume, 2009). Some critiques have argued that the French wine industry is suffering from inadequate entrepreneurship. This problem has given room for external competition, which threatens the sector. From quite a long time, the young winemakers in France were not encouraged to invest in the industry. There has been little aggressiveness among the French businessmen. Many businessmen avoid taking risks and have shunned from investing in the wine industry. This is contrary to what has been happening in the wine industry of other countries for instance Australia, which is now amongst the biggest competitors of France. Australia has been supporting investment and innovation which has resulted in massive investments in the industry by young investors. The French wine industry has worked on a conservative perspective which explains why it has been caught up by the emerging competitors in the wine industry (Jean-Guillaume, 2009). If at all more players will continue to come into the global wine industry and the French government fails to revive the local wine market, the competition may grow stiffer causing negative effect on the whole wine industry in the country. Conclusion Form the discussion; it is can be concluded that the wine sector in France has been under some economic pressures. These pressures have mostly resulted from an accelerating trend of competition in the international wide industry. It is important to highlight the problems or crises that the sector is facing. This will be critical in giving a clear understanding of how adopting business strategies have been critical in saving the sector from collapse. From the consumer pint of view, the producers are not producing cheap wine that will be affordable for them. Many factors lie behind this problem. The government has put up tough rules to govern the production of wine. These r ules have not been favoring the production of quality cheap wine. The French government has been in the limelight for failing to embrace the forces in the wine market. Nonetheless, the government has woken up to the challenge and has been nurturing plans that are helping to bail the industry. However, some of the measures have not solved the compelling issues in the industry. Wine diversity has been reserved through the categorization that was part of the government plan to modernize the wine sector. Nonetheless, quality improvement has not been done living the problem of reduction of local wine consumption unresolved. Furthermore, the least focus on quality may work against the French wine brands in the international market. The three strategies borrowed by the wine firms in France have been very beneficial. Through the exporting strategy, small firms in other countries. Such companies have attained financial growth and expansion. When a firm opens up into the foreign market, the o perations of the company will expand thereby leading to the growth of the sector under which the company lies. When the French wine enters the entire market world including the Asian market as it the trend that is being observed, growth and development will be imminent for both the individual companies and the industry at large. Export growth means the growth in demand for the products. The industry is thus active in terms of continuous and increased production to meet the demand in the growing external market. Product differentiation that has been going on has resulted in the production of different wine varieties. In addition to the new technologies aimed at improving the quality of these brands, the wine companies are recording increased sales both in the local and international market. The three categories of wines that were reached under the modernization plan are part of the differentiation strategy. Companies have become more diversified and produce different types of wines o f different standards widening their market. Differentiation has made the wine industry breach its culture of mostly producing expensive wine for the purpose of export. Companies are borrowing examples from the upcoming countries like Australia. These upcoming countries do not concentrate on producing expensive wine; they produce fairly cheap wine which is easily marketed as it is favored by its prices. Also, technology does not only feature in the production of wine. The companies have pressured the French government which has been forced to amend the laws and allow for online marketing of wine products. Internet marketing helps companies in reaching a wide network of consumers or customers. Internet marketing, which is a component of e-commerce, is easing the marketing of wine and subsequent expansion of the wine market. The French wine sector needs to keep improving on these strategies as the competition in the wine market is stiffening with more players coming in the industry. O ne thing that has not been emphasized by the industry is the restoration of the local market. There was a drastic fall in the quantity of local customers. Drop in local consumption of wine was significantly severe in during the financial crisis of 2008 to 2010. The local market has remained low from then. This paper has given an insight into the wine industry. Through the paper, I have known the real economic forces and trends in the wine industry. I had only known France as the leading and dominant in the world wine industry. However, from doing this paper, I have gotten to know that the wine industry is a competitive industry just like other industries in the world. Also, i have learnt that, at one point, France was overtaken by Italy in average wine production. Competition in business necessitates actions which have been taken by way of adopting business strategies. Some of the strategies are working well while others will have to be improved. The paper has also helped me to know the importance of different strategies and how they can benefit different stakeholders in business. Business is in itself a process. There are different cycles in business. The business can perform well at some times due to favorable conditions. However, businesses will encounter challenges which will require strategies that will help to make the business to stand the challenges. This is where business strategies become significantly important. Business strategies are mostly developed at the beginning of programs and are adjusted according to the challenges that come in the process of doing business. Business strategies give companies gives companies the framework of handling an issue or implementing a business program. The strategy establishes various steps and how these steps and actions will be coordinated so that the business goals are attained. Business strategies emphasize on the opportunities present in the external and internal business environment. Also, the threats that f ace the business from either within the company or from outside the company are highlighted in the strategies. The business environment is not static. It keeps changing with the changes in business forces. As the external environment in business shifts due to changes in either the competitors or customers and or sociopolitical and technological changes, the business goes back to the board to draft a set of action that will help it adapt to the changes as these changes causes a changes in the way a business or company functions. The threats have to be eliminated, and a good environment cultivated. This is the chief aim of business strategies. References Anderson, K. (2004). The worlds wine markets: Globalization at work. Northampton, MA: Edward Elgar Pub. Dougherty, P. H. (2011). Viticulture: The Geography of Wine. Berlin: Springer Verlag. Jean-Guillaume, D. (2009). An Institutional Approach to French Wine Strategies: the Cahors Case: 4th Bacchus Interdisciplinary and International W ine Conference Dijon, 8-9-10 July 2009. Web. Jenster, P.V. (2008). The business of wine: A global perspective. Copenhagen: Copenhagen Business School Press. Jordan, R., Zidda, P. Lockshin, L. (2007). Behind the Australian wine industrys success: does environment matter? International Journal of Wine Business Research, Vol. 19 Iss: 1, pp.14 – 32. Moulton, K.S. Lapsley, J.T. (2001). Successful wine marketing. Gaithersburg, Md: Aspen Publishers. Wherry, F.F. (2011). Culture of markets. S.l.: Polity Press. Zanni, L. (2004). Leading firms and wine clusters: Understanding the evolution of the Tuscan wine business through an international comparative analysis. Milano: F. Angeli.