A Market Feasibility Study of South China, India and Vietnam

Summary

This paper seeks to analyze the market structure of the three Asian countries that HolyCow Wine Company Limited –an Australian Wine industry Firm—has identified as possible destination for market penetration of its products and services. The paper will analyze the Political socio-economic and technological factors that can affect the business operation in all the three countries. Further, a recommendation precedes the thorough international market analysis for the management consideration in decision making process.

Contents

Summary…………………………………………………………………………………………..2

Introduction. 4

Pre-Feasibility Study. 4

1.South China. 5

2. India. 6

3. Vietnam.. 7

Feasibility Report 7

1.    Hong Kong China. 7

2.    India. 8

3.    Vietnam.. 9

Comparison of the Market Demands between the Countries. 10

Tabular Analysis of the Three Countries. 10

Recommendations. 12

Reference List 13

A Market Feasibility Study of South China, India and Vietnam

Introduction

The local Australian wine market is saturated with competitors. Therefore, to ensure the maintenance of competitive advantage by the HolyCow Pty Wine Company Limited, there is need of consideration to wider global markets. Okpara (2008) observes that the first step towards this achievement, the management is required to make proper consideration of the regional market of the neighboring countries. In fact, the unprecedented economic boom in most of the recently industrialized Asian nations begs the opportunistic need to tap into the recently liberalized market. Additionally, the observed population boom over the last half of the century implies the presence of cheap labor and widening group of mid- income earners who are the target market segment for any successful wine industry(Brooks et. al, 2011). The most promising countries for possible expansion of the wine company includes the highly market liberalized Hong Kong, the well populated India and the strategically located Vietnam.

Pre-Feasibility Study

There are various factors that should be considered by every company that intends to become a well established global competitive player. These considerations include the level of technological advancements, especially in relation to the production level in the company. Recent advancement in robotic technology, especially in the industrialized economies, have subsequently replaced humans, thus ensuring significant cuts on the cost of operation while at  the same time ensuring higher efficiency levels of production. Consideration of this is crucial to any company that seeks to gain a competitive status in a global business environment. Also, political factors such as government policies, regulations and commitment to offer assistance to foreign companies should also be looked into. The situation of political stability yields an influence on market expansion decisions given the political harmony that any business venture requires in order to fully operate and attain its goals and objectives. Social and cultural status plays a role in that they should be favorable to business activities. There are countries whose citizen's cultural activities prohibits entry of businesses especially those operated by foreigners. This is because their past history in welcoming foreign entities led to subsequent colonization by the same foreigners. Additionally, language barriers can discourage business expansion to other countries given the possible difficulties that will ensue during operations. In fact, it will lead the Wine Company incurring additional costs of hiring translators so that marketing strategies can be able to run smoothly. Further, the economic conditions of a given country portray the level of demand for goods and services. An economy that is lowly performing, for example, symbolizes that the demand level is significantly lower more so for the luxurious products like wine considered being reserved for the wealthy in the society. On the other hand, consumers especially those that just joined the mid-income earning club from the well performing global economies have an urge of showing off their recently gained status by extravagantly spending on luxurious products and services, wine included. Finally, the market legal requirements should be promptly met by any international company that seeks to widen its market. Therefore, the HolyCow Pty wine company is mandated to international law legal experts that will be able to analyze appropriately the legal requirements of the three proposed countries for market expansion and subsequently advise accordingly as to which target country’s market fully satisfies and complies with the company’s policies and standards of operation (Miller et. al, 2011)

South China

Hong Kong also referred to as South China an autonomous Chinese territorial region. Therefore, it enjoys relatively higher market liberalization status especially due to its democratic nature of politics and a contrasting capitalistic policy in comparison to the communist mainland China. However, the radical reforms being implemented in the mainland China will ensure openness of the future Chinese market hence the coexistence with the autonomous Hong Kong. It should be noted, however, that there are strong cultural, economic and political terms between the two regions under Chinese political influence. Further, the highly democratized political system of South China has attracted numerous foreign investors which in turn have remarkably boosted the technological capability this geographical location, furthermore the educational standards in the South China have reached the global accepted standards. Considering all these, there is an implication that HolyCow Pty Wine Company should invest in the strategic Hong Kong, an autonomous Chinese region. Another factor that leads to this conclusion is that there is a well-established infrastructure network that will ease and significantly cut on the cost of operation by the company. Also, the close ties between Hong Kong and the mainland China will provide the company with the ability to penetrate to the most populous nation in the planet. In fact, the raw materials for wine production—the high quality grapes grown in Hebei, Sichuan and Jillin regions of the mainland China will be at a closer proximity if the company’s management implements a decision of setting up an industry in Hong Kong. Also, given that Hong Kong is an English-speaking nation, the problem of the language barrier is consequently eliminated (Andrew, 2009).

India

On the other hand, the Indian nation is currently undergoing a rapid industrialization program aimed at easing the business processes. However, the economy is yet to fully recover from the global economic slump that occurs five years ago. This display the weaknesses plunges the entire country of India to an economic shock, thus multiplying the risks that the wine business can be prone to in case of an eventual decision of preference of investment in the country. Further, both the advancement in technology and the infrastructural capability of India in its entirety are yet to reach its full potential as compared to those seen in the wider china region. This implies that the wine company will have to source for the wine production technology-- that gives it a competitive advantage—outside the Indian territories, which further leads to incurrence of additional unnecessary costs that threatens the overall operation of the activities in the firm. Additionally, the observed economic stagnation of indie mirrors the inexpansive nature of its middle-income earners, which further reflects the future inability of the wine company's inability to grow if a decision of investing in the country is arrived at with immediate effect (Kumar et. al, 2012).

Vietnam

            Lastly, Vietnam is a communist country located in the Southern Asia region. Its turbulent past has led the country to remain behind in terms of development in relative comparison to its giant neighbors like Japan and the greater China .Besides, the country is fast-tracking and implementing economic policies and reforms that have seen it rebound from the past economic troubles like the 1990s hyperinflation. While it is an optimistic place to invest in, there are economic, strategic and demographic drawbacks that weigh it down. For instance, the country is a developing nation thus it lacks adequate infrastructure with which proper facilitation of industrial activities can be achieved. Secondly, the levels of technology are way below the international technological standards therefore it will be difficult to exploit the full potential of technological assistance in the wine industry to boost the production levels and efficiency. Third, there is an observed contrasting cultural environment between the Australian demography and the Vietnam counterparts. Therefore, business operations will be more difficult especially if the language barrier is factored in. Also most of the population falls in into low-income earners, further complicating the market demand prospects (Harrison, 2013).

Feasibility Report

The following is the feasibility status of the three countries proposed for international market expansion policy by the HolyCow Wine Company Limited;

1.      Hong Kong China

Hong Kong China wine market is in many ways similar to that of the local Australian market. The similarity is portrayed in the level of economic per capita income and the status of market liberalization. Also, both the countries are English speaking nations and possess almost identical cultural values. With an approximated economic per capita income of $56,428, the success of the Company in an international market expansion effort to Hong Kong is guaranteed.  Further, the finance industry of Hong Kong is highly advanced, with most scholars referring to Hong Kong as the world financial capital. Given the strength of foreign relations that Hong Kong has especially with western countries and its status as a metro city, the products of Holy Cow Wine company is guaranteed of a chance to reach out to a well represented multi-diverse global market simulated Hong Kong (Meiners et. al, 2008).

Despite the recent protests that disrupted business activities in Hong Kong, the autonomous Chinese region has witnessed a relative political stability in comparison to the mainland China and the two other countries. This gives it an upper hand as the preferred investment destination in Asia by the wine company.  Also, its strategic position in the busy South China Sea and the well developed infrastructure provides a rare chance for ease in shipment of the wine products to other parts of the globe (Stone et. al, 2010). With current reforms that will ultimately further open the mainland China to the globe, venturing into the Hong Kong is the first step in preparation for a company’s bigger goal of future penetration to the wider mainland China market; given its ‘miraculous’ expansion that has seen rapid transformation of rural areas to urban areas. A number of economic experts projects that by the year 2030, the Chinese economy will have surpassed that of the United States as a world’s leading economy. Therefore, the long-term plan for expansion of HolyCow Pty Wine Company Limited should consider this projection and include proper strategies with which to penetrate the newly industrialized Chinese market (Hawken, 1999).

2.      India

India is one of the BRICS nations that are projected to economically dominate the globe in the near future. However, the current economic, technological and cultural situation in India is far from achieving the international status. As a result, the decision by the HolyCow Pty Wine Company Ltd to make India its first target in its global expansion program will be an uninformed. Currently, more than half of the Indian population is living under abject poverty situation. This implies that the country is yet to set up a working model of raising the living standards of its citizens to a level that products from luxurious industries like wine industry can comfortably be afforded by the population. Further, huge swathes of the country are still underdeveloped in terms of business infrastructure. These regions include the state of Bihar and the larger remote Uttar Pradesh in India. Given that these regions are highly populated, such witnessed levels of underdevelopment hinder the wine business efforts to expand and be able to reach a wider market (Weidner, 2012).

India is a highly religious country, whereby its culture and religion can act as a hindrance to the success of the wine industry in the country, especially a foreign wine company such as HolyCow Wine Company. In fact, one religion that enjoys following of a remarkable size of the Indian population directly restricts its followers to leisurely consume wine products, unless for religious purposes only. Such a mindset by the population will eventually lead to the wine company operating at a loss.

While the political environment in India is in favor of market penetration by the international countries, traditional factors tend to frustrate this effort. Language barriers are common in the region, especially to a business from an English speaking nation like Australia. Also, there is an observed instability in the legal business environment though there are clear signs of success in the incorporation of rules and regulations that will favor future market structures from foreign countries. 

On a positive note, average Indians naturally possess a business oriented mindset even with the consideration of the poor educational policies and environment. Therefore, the Wine Company’s Management if it deems fit, should initiate a training programs to instill knowledge to the most promising entrepreneurs in the country whereby they will be contracted to operate wine business on behalf of the company at the end of the training process. It should be noted though that such an undertaking will require total resource commitment by the management towards the undertaking. In addition, further funds should be annually allocated for research and development activities mainly targeting the Indian market (McManus et. al, 2007).

3.      Vietnam

Vietnam is a communist country located at the Southeastern Asian region. With its population approximated at just over 90 million inhabitants, the country’s economy is seen as emerging from the past Vietnam War that threatened its stability and economy as well. Notably, the country has embarked on policies aimed at ensuring that the Vietnam market is liberalized hence its penetration by foreign investor companies like the HolyCow Wine Company. The per capita income for the residents stands at $2,072 one of the least rated in the globe. This signifies the level of living standards endured by the citizens. The main aim of a business entity that seeks to venture in a new environment is to maximize profit and the sales revenue from its products. However, economic situations such as those currently experienced in Vietnam presents higher risks to the company seeking to expand to newer markets. These risks are further propelled by the inadequacy in the infrastructural development and the necessary skills and expertise of the local population (Hamilton, 2015).

The communist political policies and uncertainties further escalate the fears fair competition in the country, especially for newer market entrants. Unlike the capitalistic structure in Australia, communist market structures have a lot of restrictions that tends to inhibit the operations of a firm and thus threatening the implementation of the policies and business strategies that are the pillars of its existence (Saleem, 2010).

Like India, there is a language barrier in Vietnam and also the level of technology that can be employed in wine production and marketing are still of lower standards. Additionally, the transport network such as air cargo transfers from Australia to Hanoi and vice versa is unreliable and not fully explored like in the case of Hong Kong, China (Bettignies, 1997).

Comparison of the Market Demands between the Countries

According to HKTDC research based in Hong Kong, the statistics reveal that there is a rapidly growing demand for wine products. This is mainly due to the growing demand in the mainland china. Therefore as a global gateway to the mainland, Hong Kong wine imports rose by 4% from previous year to peak at nearly 53 million liters (Bobik, 2012). In India, there is a growing taste for wine products hence the demand. Indian scholars approximate that the wine demand for the Indian market is growing at an approximated rate of 13% on an annual basis. However, the wine demand in India still lags behind that of Hong Kong, China (Larcon, 2009). Elsewhere in Vietnam, there has been experienced a drop in the wine demand mainly due to the harsh economic times that the country has been undergoing in the recent past. For instance, in the year 2013, a French wine company based in Vietnam (De Lat Wine) suffered a 9% loss in the wine industry.

Tabular Analysis of the Three Countries

Factors	Hong Kong	India	Vietnam
Political	-Hong Kong has a democratic political structure that favors capitalistic business operations -the set rules and policies have been enacted to ensure ease in doing business, also the policies favor market liberalization thus enabling foreign firms to freely operate without government political interference	- Enjoys a democratic political government structure that favors capitalistic business activities. - there is a presence of political will to assist the multinational business operation in adapting to the local market, however, there are still many political barriers to trade from one Indian state to the other.	-  The political government structure is communism, which remarkably restrains the business activities, especially multinationals. The government has enacted political policies that seek to interfere with the free operation of business activities.
Economic	Enjoys a relatively well performing upper middle-income economy with the per capita of $56, 428	Is a lower middle-income economy with a per capita income of $1,808, signifying the disparity and a widening gap between the rich and the poor.	Is a lower middle-income economy with a per capita income of $2, 072. It is significantly lower in relative comparison to that of Hong Kong China.
Socio-Cultural	-It is an English speaking nation thus elimination of language barrier -Enjoys a westernized lifestyle similar in most cases to that of Australia which favors the expansion program of the wine company.	-English is spoken in some parts such as urban areas. Therefore, there is still the problem of the language barrier in other parts of the country, hindering business transactions. It is a highly religious environment, thus directly affecting the wine industry	There is the problem of language barrier -A repellent culture towards foreigners
Technological	-Highly advanced	-Moderately advanced	- initial stages of embracing technology
Environmental	-Favorable business environment	-A favorable entrepreneurial business environment with minimal and manageable hiccups.	- Unfavorable business environment especially towards capitalistic business structure
Legal	-Clearly set business legal structure and environment	- Currently setting laws to govern international businesses and to bring reforms positively affecting the business environment.	- Poorly laid down business legal structure, leading to difficulty and regular interference by external forces during its implementation process.
Demographic	7,234,800 people according to 2014 estimates	1, 210,193,422 people as at 2014	90,630,000 people  as of 2014 estimate

Recommendations

From the market analysis above, I strongly recommend Hong Kong China. This is because the country is highly industrialized and it serves as a gateway to the entirety of the mainland china, the world's rapidly growing economy and a home to the largest middle-income earners. Given that the wine products are mostly consumed by the middle-income earners due to its prestigious status, penetration into such a market will tremendously increase the sales revenue income, hence profit. Additionally, the capitalistic nature and the many similarities shared between the Hong Kong population and that of the Australian market ensures that the cost of establishing the Company’s wine business in the different geographical location will be negligible. Other advantages include the presence of highly skilled labor and the advanced technology.

Conclusion

In order for a medium sized company to realize its full potential, there is a need to embrace globalization in its business structure. As a first step towards achieving this, expansion to the neighboring regional companies is highly suggested. However, proper analysis of the market conditions in the countries should be carefully analyzed. By so doing, the company such as HolyCow Wine Company has the ability to avert the business risks and uncertainties that can threaten the existence and survival of the company in the foreseen future.

Reference List

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