Faculty of Economics and Business
Master Thesis MSc Business Administration – International Management Track
The gradual adaptation of Chinese taste towards a more Westernized one: How European managers overcome the social, legal, operational, and economic barriers. The case of wine in China.
Alessandro Croce Student number: 11103833 Thesis supervisor 1: Erik Dirksen MSc. Thesis supervisor 2: Dr. Ilir Haxhi Word count: 24,300
12th of February, 2017 | Final Version
1
2 Statement of originality
This document is written by Alessandro Croce who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
3 Acknowledgements
To my mother, my father, my grandmother & my brother who have always supported me unconditionally and who gave me the chance to do whatever I believe is best for me without any form of restrictions or narrow-minded constrains.
To all my extraordinary and life-changing friends who consistently give me reasons for do not pull the plug at the last-ditch effort and who always have a good word for motivating me, encouraging or inspiring me.
To all the tiny, determinant but stimulating hapless events, which have led to shaping my viewpoints, my identity, and my personality. To all the surprising, unexpected and pleasant things that have characterized my life's journey and that formed me as a human being.
And finally, to you, Erik: You gave me the opportunity to explore an argument a bit unconventional according to the UvA old ways without any ousting and allowing me the thing most dear to me. Freedom.
4 Table of Contents
Statement of originality……………………………………………………………...….3 Acknowledgements………………………………………………………...…….……..4 Abstract…………………………………………………………………………..…..…6 1. Introduction………………………………………………………………..….……...7 1.1 Limitations………...………………………………………….……….…….9 1.2 Structure of the thesis………………………………………….…...... 9 2. Literature Review…………………………………………………...……………....11 2.1 The globalization phenomenon…………………………………………….11 2.2 The drive towards the westernization……………………………...... …....13 2.3 The modern world as dependent on culture and economy…...………...….16 2.4 The case of wine in China………………………………………….…..….19 2.5 Europe vs. China: two economic models…………...... …24 3. Methodology……………………………..………………………………....……....39 3.1 Research project.…………………………………………………….….....39 3.2 Appraisal of the methods….…...……………………………...….…...... …43 3.3 Data……………………………………………………………....…...... ….45 4. Results……………………………………………………………………………....49 4.1 The cultural differences……………………………………..…….....….…49 4.2 The complex legal system……………………………….………….….….54 4.3 The physical discrepancies affecting the operational channel…..….….…..59 4.4 The business strategy……………………………………...…………….....64 4.5 How is the AAA model affected?………………………...... 69 5. Discussion…………………………………………………………………..…….…72 6. Conclusion………………………………………………………………….…….…77 6.1 Limitations of the study……………………………...……...……….....….79 6.2 Future researches……………………………………………………….….79 Bibliography………………………………………………………………………...…80
5 Abstract
Chinese tastes and habits are gradually getting closer to a more Western way of life. This phenomenon is discernible in the introduction in China of a product such as wine that has always been linked to a narrow European traditionalism. This thesis makes reasonable efforts to determine what are the social, legal, operation and economic implications of commencing this product in China, taking into consideration the existence of challenges that must be overcome by savvy managers. By the use of the CAGE model and the AAA approach, the study has endeavored to explore the interviews conducted by qualified firms in the field to provide a general strategy usable by European companies that would like to expand their market in China shortly. Moreover, the thesis is committed to providing tips and useful suggestions for the successful establishment of less specific food and beverage goods.
6 1. Introduction
It has been a few centuries since European explorers had the very first close encounter with
East and Southeast Asia, but apparently, the necessity of exploring and adopting a stance on the Oriental world remains unchanged, to the extent that companies still stand up for a market share nowadays. Asian culture, notwithstanding being in several aspects radically at odds with
Western preferences and views, it is still a bone of careful analysis on the part of the most diverse economists. The element that makes this world so unique is the heterogeneity of financial, political and cultural factors characterizing any society. The globalization has certainly contributed to the growth of economic and commercial relations between China and the European Union. In addition, the subsequent integration of common goods and markets have led to a gradual deterioration of cultural diversity. Probably without this phenomenon, there would not have been the opportunity to cross the national borders and to compare and discover the world in the way we used to. The longer this situation goes, the better prospect we have of comprehending the advancements of a particular kind of society or country. The impact of globalization on the international economy has resulted in the renovation of the world. More specifically, it has been instrumental in combining markets sufficiently interlinked among themselves to interact efficiently without observing geographical borders too meticulously (Fraser and Oppenheim, 1997). Firms from local got into a more transnational profile and businesses, which traditionally belonged to other societies, started to achieve global predominance in lands where the reasonableness of enlargement and viability were nigh on inexistent (Ohmae, 1990). This development may be experienced in the progressive alignment of Asian inclinations towards greater consciousness of the European tastes to such an extent that Chinese are somewhat shaping their peculiar lifestyle. In fact, the
Western culture is currently replacing people's regular lives that have characterized the
Chinese community during the last centuries. From food to music, to fashion and movies,
7 Oriental societies have frequently taken Western heritage in such a manner as to make them their own, adopting and adapting regular habits distant from their surrounding world. It is specifically for this reason that some products initially not employed in their society and thus never perceived as primary assets have now turned out to be key issues in their everyday life.
Probably the most significant impact that the Western world has exerted on China is the introduction of a product that may be regarded as the emblem of Mediterranean countries, more specifically wine. Indeed, even if this good started to be exported and appreciated in
China in the recent past, it still represents a significant untapped potential for the European economy (Lee, 2009). Exactly, for this reason, the following research question on which the thesis is based contains these words:
R.Q.: “How can European managers overcome the challenges of introducing wine in China, considering the different taste and tradition of Chinese consumers?”
The history that wine has built itself in China is long and troubled; indeed its very first footprints can be traced back to more than 4,600 years ago. Even if grape wine production was once present in Bronze Age China, it has never been used to consume it on a large scale.
Its manufacturing has always been associated with sacrificial rite or, in any case, with something almost inevitable due to its natural juicy texture. The Chinese history has always faced multiple famines and wars and, for this reason, a range of alcoholic beverages made from rice or grain typically replaced wine consumption until the economic reforms of the
1980s. Consequently, this item is still perceived as a brand-new product and surprisingly,
China is now ranked amongst the top ten international markets for wine despite its history relatively recent (Hsing-Tsung, 2000; Kjellgren, 2004; Vinexpo Hong Kong, 2016). Suitably for this, some remarkable contributions have been made, but many types of research are mostly focused only on the marketing aspect of the commercialization of wine in China or on the incentives that bring Chinese to the purchase of grapes wine. In fact, no particular studies
8 were carried out to understand the factors that encourage managers to move towards markets in which enormous cultural differences such as the European and Chinese ones subsist.
Furthermore, only theoretical models or negligible quantitative researches has been conducted to analyze this particular field.
The main objective of this thesis is to address the struggles that firms have to deal with the introduction of wine in China. Therefore, the primary purpose is to give new insights and an easier path to follow to managers that are interested in expanding from Europe to the Chinese territory, despite the cultural, legal and logistic challenges. In fact, no notable inquiries were carried out to explain how the Chinese taste adjustment altered the marketplace and what are the determinants that have animated wine firms to tap into this challenging market. The following study not only will help to correct the deficiency in the previous literature but it will also provide some key strategies to people who desire to expand abroad or to interact with the
Chinese community.
1.1 Contribution
The aid that this work offers is a more consistent application of a general strategy for breaking through a sector relatively new in Asia, and that can be boosted and exploited in a dramatically more efficient manner. The wine industry represents a significant untapped potential because its massive benefits for the European economy still must be widely harnessed. In fact, its trade is intensely related to wealthy entrepreneurs, collectors or young hip people that try to emulate the occidental lifestyle but it is not considered such as a mass product or a good to be consumed daily (Woodruff, 2012; Willsher, 2014).
1.2 Structure of the thesis
This study gives an extensive review of the literature about the effects that globalization has involved in the destruction of geographical boundaries and the consequences that have led to
9 the modern world. This phenomenon resulted in the Westernization of countries where a gradual approach towards different ways of living would have been totally out of the question until recently. The progressive modification of Chinese customs in relation to a more
European taste will be handled to explain the adoption of standard applications created by the globalization. Then, the use of a general culture closer to all the world's citizens will be debated so as to narrow down the search towards the impact of the wine sector that affected the Chinese territory. Finally, the theoretical framework would be wound up with the tabling of the CAGE model provided by Ghemawat to point out the main differences between the
European and Chinese markets. In that way, the identification of relevant sub-questions will complement the central research question on which the dissertation is based. The process will be an inductive search, and the study aim that may fit better is the exploratory one because the focus is on perfecting the theory and exploring new conceptions and insights. More information will be provided about the choice fell on the utilization of a qualitative approach.
Semi-structured interviews directed to European managers and experts within the wine sector will be conducted to incorporate contemporary evaluations on the topic. Moreover, efforts will be made to explain what strategies ensure success or defeat of the wine sector in the
Chinese world and why this market is still perceived so attractive. Italy, France, Spain, and
Albania are the countries addressed in the interviews. Through the results obtained, the primary intention will be to create guidelines to help future managers in accessing the Chinese market in a more simplified and intuitive way compared to what it is known now.
10 2. Literature Review
The following section provides an extensive theoretical background of the current notions previously processed by experts that are particularly significant for the argument discussed.
The purpose is to ensure that available models and notions will be able to give meaningful insights towards the topic of the study.
2.1 The globalization phenomenon
The globalization is an invisible force that is leading to the integration of nations and individuals of the world. This word is becoming increasingly common in the everyday language because of its tremendous influence over the industrial employment, the improvement of the living standards, the growing innovation and technological sharing and the wide-ranging convergence of global cultures (Peng, 2015). Precisely as a result of all the changes that has meant in the daily existence, naysayers of globalization put forward that it is a brand-new strength starting out at the end of the twentieth century. It is spearheaded not only by an always more vibrant and active digital advancement, but also by an Occidental political doctrine centered on taking advantage and overriding the globe by the use of multinational enterprises (Scholte, 2005; Held, 2007, Keohane et al., 2000). But really, globalization is not anything new or a single force because, in all likelihood, it is simply a pendulum that sways from side to side throughout the centuries. Under such circumstances, the international markets have become extremely interconnected because of the immense drop of conveyance and communication expense. However, due to its innate feature of free- swinging, it changes over time, and it can show both bright and gloomy sides (Stiglitz, 2002;
Peng, 2016). But notwithstanding the ballyhoo, the globalization is not yet completed because we are pretty far out to declare that we are living in a universally integrated marketplace in all respects (Arregle et al., 2013; Ariño, 2015). In fact, this phenomenon is still a long way off achieving, and the world is not globalized as many researchers contemplate: national
11 boundaries still have a significant role because otherwise, there would never be an accord in the definition of cross-borders, physical distances or topographical context. Undeniably, the boundaries of market integration at borders are high, but not sufficiently high to entirely seal off countries from one another. It is specifically for this reason that companies might not have waived to extend their authority overseas because they are enticed by some innate ambition to expand abroad (Ghemawat, 2003; Ghemawat, 2013; LaConte, 2013). From the moment humanity began, individuals always had the inevitability to go beyond their confines and thinking out of the box. Consequently, they started to migrate, explore and discover new countries but also face new challenges. Without this magnetism to internationalization, Marco
Polo never would have embarked on his successful journey to uncovering the East Indies and the Asian population and so, The Travels of Marco Polo would never have inspired
Christopher Columbus in its successful conquest of the New World (Landström, 1967).
Ghemawat’s theory is the other way round of the notions put forward by Thomas Friedman.
According to the last economic researcher mentioned, the entire planet is flat and hence everything has already been achieved and exploited. But actually, it is only through the information described by Ghemawat that the study and the assessment of the extension in a new country undertaken by a foreign company still make sense, and therefore also the formation of a new commodity in a newly minted state (Friedman, 2005; Ghemawat, 2007).
In support of this view, the globalization phenomenon could be seen as the cross-border integration of markets for goods, services, and funds. However, it does not necessarily imply that it is a straightforward process because there are various risk drivers to consider such as the economic, political, ecological and community aspects. The process of globalization deeply renovated the international economy in an assembly of connected markets that interact with each other effectively and efficiently without reading too much into the geographic boundaries. Cross borders still matter, but the acceleration of globalization dramatically weakened their impact in the interests of an integrated global market, which has resulted in an
12 appearance of increasing number of transnational firms (Ohmae, 1990; Fraser and
Oppenheim, 1997; Brune and Garrett, 2005; Ghemawat, 2007).
Globalization in the 21st century is likely to be ruled by the progressively great mainstreaming of a variety of tiny and medium-sized actors in the global system of manufacture, free movement of commodities and flows of information and consciousness.
Moreover, its advancement is achieved as the result of various futures engendered by companies from the outer boundary along with some others created from the center. On this basis, the globalization does not lead to the convergence or standardization because organizations from the Asia-Pacific area have been laid down as tenacious global actors not homogenizing but embracing diverse standpoints and mindsets (Mathews, 2006). In view of the above, the argument is not ideologically illustrative of what is happening in the conventional reality because many other researchers have been able to testify the exact opposite. Therefore, the scheme does not affect either homogenization or diversification because the aspect erroneously overlooked is the indisputable “westernization” of the world around us (Beck, 2003). This phenomenon started to become more evident in the 80s from the moment when the rapid technology transfer, the international trade, the transportation, and the telecommunication services sharply intensified and led to a considerable economic development (McGee, 1991; Knox, 1995). On all these changes, an area where it is as clear as possible to observe this evidence is the urbanization one. Indeed, in most of the leading cities of Asia, the globalization process has resulted in the convergence to a remarkable degree with those of the US and Europe. In fact, gated built-up regions, considerable department stores, and dual carriageways are already getting largely westernized (Dick et al., 1998).
2.2 The drive towards westernization
Westernization is a method through which cultures fall within or assume occidental customs and practices in areas such as legislation, finance, innovation, lifestyle, food, apparel,
13 linguistic and values (Thong, 2012). It is nothing new that one of the countries more consistently affected by this phenomenon is the People's Republic of China, a nation where adjustments and adaptations towards a more Western way of life are visible in many aspects of the daily occurrence. Furthermore, the global free trade started to get more along the lines back in the 1980’s as result of enhancement of information technology and more and more everyday journeys in all universal seas. Exceptional quality, affordable price, and regular way products may lead to firms in competitive advantages, and that is why humans’ predilections have turned into standardized actions and thoughts (Johansson, 2010). First of all, this aspect could be perceived within the Asian Pacific firms indeed if customers are gradually shifting their outlook or way of thinking, the aforementioned viewpoint suggested by Mathews does not find any basis in reality. Therefore, the globalization is indubitably changing Chinese values towards a greater appreciation of the Western standards, and so, the theory that Asian
Pacific firms are just adopting a different perspective of strategies is incorrect (Tse et al.,
1989; Mathews, 2006; LaFarha, 2015).
In conformity with the convergence criteria, modern globalization is a process of westernization that is inevitable, and it goes hand-in-hand with the developing awareness of cultural differences. Indeed, growing cross-cultural communication, exchange, mobility, population movements and sightseeing, all are a component that is setting up the consciousness of cultural discrepancy (Pieterse, 2015). The Chinese genuinely changed their personal preferences on behalf of a more European taste, and this growing influence of
Western culture affect people in their regular lives. This switching is readily observable in their daily choices only by dint of a progressive reduction of foreign trade barriers, which have enabled some categories of products such as fashion, music or food of infiltrating the social and business structures of the Chinese society (Gerth, 2011; Frith, 2011). Through an economic policy increasingly hostile toward the protectionism movement, Western brands and mindsets have imposed themselves in the last 30 years, as soon as the economic
14 improvement has sprouted within their middle-class (Dong, 2009; Kharas, 2010). China’s finest young generation is more than ever intrigued and attracted of experimenting this new perspective of life: they wish to enroll in the most prestigious American or European universities, or even they hope to see with their own eyes the greater freedom distinguishing
Western communities. If they have to choose between a Chinese or a foreign luxury fashion brand, they will pick up for the Italian Gucci rather than a territorial name, or they would prefer a German Mercedes compared to a Geely. They may buy an iPhone as opposed to a
Huawei and they might deny their roots dyeing the color of their hair blond or red (Wang,
2010).
It is precisely due to the global standards resulting from newly developed strategies that marketing communications technologies and mass media are now distributed in the wider world in real time with affordable prices. Thanks to an always-broader information flow, the cultural sphere changed and now it is safely possible to state that we are living in a
“Macworld”. In fact, the Western culture - or even more notably the popular culture - has been increasingly assertive and it has resulted in the dismantling of the cultural diversity
(Barkemeyer et al., 2011). The above-mentioned “Macworld” accurately describes the integration of social media, television, theaters, sporting events, shopping centers, and food court chain into a unique massive business (Barber, 1995). Shortly, the surrounding world is on the way to a unique global culture that it will lead to a trend where the consistency and convergence energies will eventually result in a single society where each one will behave, believe and live almost correspondingly (Ritzer, 1998). At present, to give a simple illustration, the only language that may be considered to be a monolithic extent embodying all the Western perspectives of the globe and that is conjointly used throughout the world is
English (Reddy, 1979). The globalization phenomenon is then regarded as a homogenization of all the civilizations in the world in Occidental words, as shown in the following concepts as
15 “Englishization” or “Macworld.” The English language could be seen as a theoretical Trojan horse of the Western culture and comprehensive global vision (Wolf and Polzenhagen, 2009).
Some researchers are opposed to that vision of globalization because it is more likely resulting in an automatic matching and mixing of local and global necessities. For this reason, some philosophies are more focused on leaning towards hybridization or glocalization.
However, it is impossible to fail to notice the presence of a gradual process of homogenization headed by streams and news of faster social relationship and liaison
(Pieterse, 1995; Robertson, 1995; Block, 2004). The American and European pop culture is big and getting bigger in all the Asian countries and therefore, the Chinese society is in a certain sense getting westernized. A profoundly representative word that may synthesize this concept is the Cantonese term “Jook-sing” (or Banana in English). This word is always more utilized by young Chinese who more willingly or warmly identify themselves with the
Western culture rather than the traditional Chinese one. Sometimes perceived as a pejorative expression, jook-sing is actually an expression that describes an Asian individual who lives in an Occidental nation and that has lost all sense of the conventional distinctiveness of his/her home state. Specifically, the phrase stems from the fruit banana, which is "yellow externally, but white internally " (Penaksovic, 1992; Louie, 1998; Quintero, 2006; Sung, 2011).
2.3 The modern world as dependent on culture and economy
While at the same time a vast range of the world's population is steadily altering parts of its distinctive customs, it is also indispensable to point out that the contemporary culture is still a chiefly disputed theme in all the peer-reviewed studies due to its volatility and involvedness constituent (Almond et al., 2015). What it is clear, instead, are the massive cultural and economic developments that took place in Eastern Europe or in the East, where some states pioneered noteworthy financial and governmental changes. Taiwan, South Korea, China, and
India are four of the countries that benefited most from this situation as a result of building
16 industries with foreign direct investment, and thus they experienced a conspicuously fast economic growth thanks to the globalization force. Firms should not overlook cultural matters when they are engaged in position choices, even if accessing overseas countries with an average cultural distance suggests a higher prospect of boosting earnings. Furthermore, it seems that the opportunity to be successful is greater in the case organizations walk into emerging markets with less openness, less risk and those that are economically and culturally close to the home market (Hennart, 2007; Johnson et al., 2008; Schaan et al., 2008).
Obviously, embarking upon new offshore business projects is demanding because making deals with foreign states inside the same bunch put both humans and organizations indisputably at ease. Pooling the same policies, linguistic, standards, culture or past occurrences allow overhauling the downsides that foreign companies tackle in host countries owing to their overseas status. At a stage where the firm gradually enters many new countries in a strengthening cycle nowhere near its local market, the company cultivates new assets and develops superior awareness. The strategy applied by some MNEs shows that it is possible to be successful also in countries where the cultural dimension is divergent (Huntington, 1996;
Tayeb, 1998; Johanson et al., 2009; Johansson, 2010). Even if some researchers interrelated with the stage model state that corporations will expand in more culturally isolated countries only during the concluding stage, many others are firmly convinced that it is more appropriate to place larger prominence on the strategic objectives like market and efficiency instead of concentrating only on cultural and institutional dimensions. Some nations that share different beliefs or norms are ordinarily doing business together because, in the challenging analysis on which it is based the process of decision-making whether entering or not entering in a foreign country, location is just one of the multipart aspects to take into consideration. Indeed, also excellent timing and entry modes are not to underestimate (Pan et al., 2000; Xu et al., 2002;
Johanson et al., 2015; Peng, 2015). Several of the biggest companies that are relevant in the global marketplace started their outward expansion in regions not too culturally and
17 territorially dissimilar to their native country. Despite this, it does not mean that they did not manage to occupy a prominent position in nations where the cultural barriers were high.
Following the establishment of two thousand stores in China, the American Starbucks has completed a proposal declaring that the Chinese market is going to be its landmark not later than the end of 2019; Gucci's largest market is situated in the Asia-Pacific zone where nearly
40% of its returns are created. Over and over, Mercedes-Benz Malaysia is the market in which the biggest increase in sales was observed in 2015, and it is also becoming one of the most dynamic regions in the world (Brown, 2016; Tianran, 2011; Weidner, 2015). On the same level, it happens very often that some multinational enterprises carry out acquisitions in ethnically foreign countries. The acquisitions take place when MNEs present a little international experience or give subsidiaries the opportunity to develop sufficient autonomy in the marketing field; otherwise, the hypothesis to enter a culturally distant country through
Greenfield appears more likely. Contrary to the claims of critics who say that M&A are less favorable compared to Greenfield, generally this relation stems from firms that fit into culturally distant or less known countries via M&A. Hence, this failure is entirely related to the competitiveness and inadequate knowledge of the culture of the host country. In fact, there is not a better or less effective alternative for the entrance into new territories (Shaver, 1998;
Slangen et al., 2008). In this context, a lot of goods that were totally irrelevant in other cultures now have taken over a remarkable market share that was out of the question until a few years ago. This process started between the 1950s and 1970s when Western nations were no longer engaged in the global investment and exchange of commodities because of the rising Communism and the Cold War. So, some developing economies in the Asian hemisphere started to participate in the worldwide economy, cleverly making the most of this uncertain and unstable situation (Rider, 1998; Peng, 2015).
Globalization, like a pendulum, is not in the position to travel in one way only. Hence, after a steady scaling-down of the strengths that resulted in the internationalization of
18 unindustrialized nations in the late 1990s, now this phenomenon happens to be pointing again on some Asian economies (Khalid, 2003; Cerra et al., 2008). Recently, East and Southeast
Asia have indeed become one of the most attractive places to invest, work or live thanks to their impressive economic and social development. Moreover, a true understanding of all the peculiar characteristics of those countries has become essential to provide an exhaustive clear distinction between the Western and the Oriental world in its entirety (De Cieri et al., 2009;
Baker, 2010; Insch, 2011). They are two drastically divergent universes not only concerning their topographical position but also in their predilection and approach to handling the same effort with a different viewpoint. Distinct communities throughout the world have separate past, and they conserve different values. In fact, there is not a universal human values system yet, and probably there will never be because dissimilar societies have different resources and meet various practical problems. Additionally, it is clear that political and economic factors have had an impact on those two distinct realities but the dimension that has suffered an irrevocable permutation is the cultural one because it is the cause of all the significant social, behavioral and attitudinal dissimilarities. Those distinctions led to not congruous wants and needs, but gradually the cultural diversity has lost some of its main features and values for the popular culture (Huntington, 1996; Berger, 2002; Hofstede, 2007). In this regard, some goods rarely used or wholly free of any tradition have developed far beyond national borders and established themselves in all facets of life. An item that imposes itself on others and that stretched to all conduits without an equivalent is the example of the wine insertion and consumption in China (Dougherty, 1990; Wakolbinger et al., 2013; Muhammad, 2014).
2.4 The case of wine in China
A new industry traditionally belonging to the range of others that had a beneficial impact in countries where its dissemination was considerably modest and limited is the wine trade.
Surprisingly, this product turned from a predominantly European beverage to one of the most
19 widely used Asian alcoholic drinks (Lee, 2009). Particularly, the country where wine spread has achieved remarkable peaks during the past decade is China, in which its consumption has reached incredible results to the point of decreeing China as the fifth largest wine market worldwide in 2015 (Vinexpo Hong Kong 2016). This steady growth is chiefly due to four motives: 1) a transformation in the Chinese culture thanks to an extensive socio-economic wellbeing of the bourgeois; 2) an always fiercer view shared by many that red wine has favorable influences over their own bodies and health; 3) a grander inclination to consume
'low alcohol content' related to hard liquor or spirits; 4) the ongoing opening up to foreign markets after Maoist China through economic and financial changes (Lee, 2009, Xu, 2011;
Somogyi et al., 2011).
Little attention has been paid to the introduction and tradition of wine in the Chinese territory in the previous literature. Nevertheless, contrary to what the collective imagination might suggest, wine has a long history in China in fact the first traces of grape wine is dated back to
4,600 years. However, the product was mingled with other grains such as oat and rice so as to obtain a compound of brewed different alcoholic drink. For this reason, Mainland China is not only the longest-lasting society of the planet, but it is also the nation where grape wine should be regarded as the most common beverage. Unfortunately, various factors have led to a very troubled history, mainly littered with terrible vicissitudes and obstacles, which probably have impaired its high circulation (Kjellgren, 2004; Rozelle et al., 2006; Hubble, 2013). There have been some interesting findings, which demonstrate the wide distribution of wine in Bronze
Age China (c. 2000–700 BC) and also during the Han dynasty (206 BC–220 AD). After this period of prosperity, successive Chinese dynasties restricted the free movement of wine due to various wars and epidemics that hit the Empire. Indeed, the production and cultivation of this product have always been seasonal and limited during disaster relief. During Tang
Dynasty (618- 907), the grape wine was still manufactured with the identical local “qu”
(ferment cake) method, which was brought on for producing cereal beverages. Probably
20 because of this rough technique, the flavor of the result was not particularly pleasant which led to its widespread failure. Including at the point when the wine had its finest hour because particularly appreciated by the sovereigns of the Yuan dynasty (1206-1368), the method for creating the beverage was still quite a long way away from the grape wine known nowadays..
The wine sector does not have a significant impact on its recovery both during the Ming
(1368-1644) and Qing (1616-1911) Dynasties. After a gradual resumption, the wine manufacturer has been impeded once again with the offensive establishment of the
Communist Party of China that prohibited the item till 1978 when its acquisition and employment were refurbished. Consequently, the early 1980s were characterized by the gradual opening up to the Western world in various sectors (Huang, 2000; Kjellgren, 2004;
Demei, 2013; Florcruz, 2015; Wang, 2016).
The reason why grape wine is always being considered and perceived as one of the most famous Mediterranean delicacies is essentially because the wine known in the modern sense of the term can only be adequately obtained through the European species “Vitis vinifera”
(This et al., 2006). But unexpectedly, this particular species of grape was introduced in China in olden times, despite the fact that grape wine kept playing a subordinate role in the drinking scenario in its entirety (Li et al., 2011). Greek settlers have contributed its dissemination in
China when scouted out some Chinese regions such as Xinjiang in the second millennium
BC. Particularly, the Xinjiang autonomous region is the only Chinese territory in which the cultivation of Vitis vinifera was pretty standard and, precisely for this reason, this is the only area where grape wine production remained consistent. In fact, grain beverages have replaced its production very rarely, contrary to what occurred throughout China over the centuries
(Temple, 2013; Plocher, 2003). Indeed, bunches of grapes are not merely seasonal in nature.
Anyway, the reason grape wine has never been considered as an appealing beverage notwithstanding having a huge story, it is because it has always been narrowly connected to organizational, commercial and societal surroundings. The primary source of sustenance for
21 the extended and densely populated Mainland China has consistently been subsistence farming. However, given that the financial and social conditions of the nation have never been flourishing and rosy, wine manufacturing was always going to depend on the decent agricultural and environmental status of the crop of wheat to prevent a million folks die of starvation (Zhengping, 2011). Mainly for antique reasons, wines and spirits consumed by the
Chinese populace are principally manufactured by grain. The living conditions of the greatest number of Chinese people have improved only during the last twenty years and, for this reason, despite being clouded and eclipsed by alcohol products of various kinds, grape wine utilization is experiencing a time of great renaissance and opportunity only now. After the implementation of structural reforms starting in the 1980s, Chinese trade for the first time came in contact with other realities, and this has facilitated the gradual opening up to a more
Western taste. This factor contributed significantly to the expansions of local wineries from the Chinese larger urban centres to other areas less dependent on foreign imports (Rozelle et al., 2003; Kjellgren, 2004; The Economist, 2013).
China still consists of an undoubtedly massive market whose tremendous assets have yet to be abundantly exploited by European businesses and, above all, by wine organizations (Curran et al., 2014). With a population consisting of 109 million citizens with financial resources between $50,000 and $500,000, China is the state with the largest quantity of moneyed persons on the planet (Yan, 2015; The Telegraph, 2015). Chinese purchasers are offering excellent prospects for proactive transnational companies, and now quite a lot of investors are carefully watching China as the leading market for a long time to come. Because of increasing adjustment and adaptation of their personal tastes, Chinese are not only sharing many
Occidental traditions, but they are also redesigning common trading patterns with their habits and heritage establishing new commercial opportunities (Anderlini, 2009). Foremost vicissitudes took place in the wine production and, for this reason, some lands and properties formerly owned or controlled by the Chinese authority have been rearranged to vineyards.
22 Chinese recent turnover has brutally hit various sectors of the Chinese economy, and so also the wine industry was not spared from the financial crisis. Since 2000, there has been a significant upturn in wine consumption and this phenomenon saw its economic and geographical expansion from individual producer nations, chiefly France and Italy, to new wine passionate, such as China and The USA. In fact, from 2009 to 2013, the purchase of this product has reached peak rates of 162 million cases a year, making China the global reference market as regards the selling of red wine (Willsher, 2014; Hennelly, 2015; Ge, 2016; Mercer,
2016). Properly because of the policy of austerity adopted by the current president and the economic hardship that China experienced, the wine market hit a bump after a decade of uninterrupted growth. In any case, this unexpected strong deceleration in wine consumption in late 2013 has in some way influenced the industry in a positive direction. in the early stages of its expansion, an inadequate and exorbitant speculation about wine prices was practically a daily occurrence due to the high level of corruption that marked the Chinese system. Today, thanks to strict public juridical measures, the government has allowed the establishment of a healthier market and a much more consistent purchase on the part of loyal consumers. In fact, since the beginning of 2016, the consumption of this product in China has once again demonstrated its potential given that it has been able to achieve again the results obtained before the financial crisis (Gao, 2016; Ge, 2016; Vinexpo Hong Kong, 2016). This general reactivation of the economy with regard to the wine market should encourage talented
European producers in the conception of new opportunities that were hidden because of unspecified boundaries which distinguished China (Ho, 2015; Joannin, 2015). Indeed, the local market is still mainly characterized by the acquisition of wine manufactured within the limits of the Chinese territory and so only 30% of the wine acquired has foreign origins. In this particular context, European countries should try to exploit segments that remain untouched, despite the considerable potential showed but still untapped (Butch, 2016;
Vinexpo Hong Kong, 2016).
23 2.5 Europe vs. China: The AAA & CAGE models
Geographical integration is nowhere near complete and, more than likely, it is going to stay this way as long as a distant future will face. It is necessary to handle the various discrepancies amongst marketplaces so as to establish a prominent position on the world scene. The globalization phenomenon has diminished differentiations between countries, particularly by ensuring the opportunity to make use of analogies among themselves.
Moreover, it also gave the chance to combine and assimilate the global value chain more efficiently, assisting in overcoming practical differences that have remained in existence. The magnetism held by external markets is influenced by the competitive advantage and by the company assets. Furthermore, the agglomeration of the global economies would allow companies to share fixed prices and improve technologies. Numerous approaches have been recently planned to lead firms towards this direction. However, numerous compromises between global efficiencies and indigenous requirements have not been overrun (Rodrigue,
2006; Ascani et al., 2012; Kluyver, 2012). Ghemawat’s “AAA” global strategy framework proved to be the correct starting point for dealing with various dissimilarities between different states in the international integrations adapted by various organizations. In fact, the
CAGE model is more suitable to be used when firms venture into the process of entering or not entering the foreign market, taking into consideration the cultural, legal, operational and economic dimensions. When a company has already experienced some overseas businesses, the AAA theory might give rise to interesting reflections given that it is more focused on how to preserve a successful business in foreign states distant from the home country (Collins et al., 1998; Ghemawat, 2001; Ghemawat, 2007; Collins et al., 2012; Campbel, 2014).
The AAA triangle model, in which the three As indicate Adaptation, Aggregation, and
Arbitrage, suggests three broad methods to worldwide value-added. The Adaptation approach is generally the most used strategy among the three proposed because there are typically more
24 incentives for a firm to adopt local customs and practices in the entrance into a brand new market. This method makes it possible to increase considerably the future cash flow, to spread out the market share and to build in new clientele in the nascent market environment by fitting some local predilections and necessities. Moreover, it enables firms to fit comfortably with the requirements of the state considered, and it encourages a local approach given that the
CAGE model refers to the world not entirely globalized yet. Implementation of the CAGE framework allows managers to recognise and evaluate the effect of distance on numerous businesses. Distances still matters in globalization because the more two nations are different in their nature in accordance to 4 specific dimensions, the more dangerous the target foreign market. The values of the above dimensions vary between populations and countries given that they refer to the cultural, administrative, geographic, and economic distance model.
Culture has frequently an imperceptible but permanent impact on individuals` beliefs and attitudes. Administrative dimension reproduces the past and contemporary political and bureaucratic relations amongst commercial partners. Geographic distance refers to the physical discrepancies between two states. Lastly, economic distance defines essential distinctions in relation to finance, income, and the purchasing power of a geographic market.
The Aggregation approach takes a rather different view from the one previously explained because it does not adapt to dissimilarities but it rather focuses its attention on exploiting similarities and creating synergies among distant countries. This method attempts to accomplish economies of scale and economies of scope by generating superior involvement and effectiveness in the manufacture and development procedure, through the use of standardization. Given that this strategy is more focused on the regional level, the distance should not be restricted solely to the geographical dimension because also the economic, legal or cultural ones are well placed to deal with the aggregation tactic. The Arbitrage approach takes greater care to the evaluation of the general situation concerning the globalization of an individual firm. In this case, it is necessary to exploit the differences detected in the various
25 countries where the business is operating. So, leveraging economies of scale and scope results essential for the survival of commercial transactions. In fact, this approach is concerned with the creation of a global value by making use of the degree of differences in the independent supply chain’s portions in distinct countries. Specifically, if a company is struggling to achieve positive outcomes in a single country but it excels in another one as regards production processes, it is possible to transfer the competitive advantage and the competencies from one country to another thanks to economies of scale. Besides, The CAGE model is still to be taken into consideration to exploit differences in the most efficient way
(Ghemawat, 2001; Ghemawat, 2007; Gupta, 2015). Either way, firms can implement from a minimum of one to a maximum of two of these strategies because, otherwise, the complexity may damage the effectiveness of the AAA Triangle model. With these purposes in mind, managers should understand which features and components will meet their businesses’ necessities and prioritize correspondingly.
Companies adopt several stratagems to upsurge the odds of efficacious accomplishment depending on the market surroundings. The distance has always been perceived as a negative force on international investments, but there are also examples of positive effects on the global business value creation. Multinational enterprises can overcome the distance thanks to firm-specific advantages because some benefits could be accomplished only towards an international expansion. Still, the delineation of the distances is not something well defined or codified in the transnational showground, and for this reason, it is beneficial to rely on the
CAGE distance framework. The model helps to identify and evaluate the differences between countries, considering four types of forces given that the gap between nations is a multidimensional concept (Ghemawat, 2001; Buch, 2004; Rugman et al., 2008; Biggs, 2013;
Campbell, 2014).
26 Table 1. Cultural differences between Southern Europe and China
CULTURE Southern Europe People's Republic of China
Languages The dominating factor that connects in Ethnically and linguistically, Mainland some way those countries is the ancient use China is more homogeneous compared to of Latin language in most of the regions. Europe because there are only two official However, given that every country has got languages: Cantonese and Mandarin. its cultural identity and that the European Conversely, local dialects are very Union establishment is relatively young, widespread (Liang, 2014). the heterogeneity is undeniable. In any case, English is the language of business and political communication (Phillipson, 2003). Religion The leading faith in Southern Europe is the Chinese folk religion is the fastest-growing Christian religion, even if Greek Orthodox religion in the PRC. The rest of the and Roman Catholic are common in some population is atheist or Buddhist (Fan et al., areas (Davie, 2006). 2015) Social norms Body language, the perception of time, Confucianism, collectivism, guanxi, gift family-focused, individual networks, giving, the importance of “face,” non- exposing themselves and traditions are verbal communication (Commisceo, 2015) relevant, “meridionalism” (Tassinari, 2014). Social networks Facebook, WhatsApp, Tumblr, YouTube, The social networks segment in China is Twitter, Instagram, LinkedIn and Snapchat very spotty, local and fast changing. The are the most popular social networks in the most common are We Chat (go-to platform Western world (Statista, 2016). and P2P transfer), Taobao or Alibaba(e- commerce) (Flemming, 2016). Food & beverages This sector is extremely heterogeneous Like other areas of Chinese daily life, the because every single state has its traditions cuisine is deeply affected by geographic and recipes. Moreover, every region within range and cultural variety. Rice, pork, tofu, the same nation has its specific features. soy, and tofu are the primary food source Oil, steak, wheat flour bread and dairy (Zimmermann, 2015). As regards products are preferred. The primary factor beverages, tea, rice wine, beer, and Baijiu that links all the European countries is the are the most common (Huang, 2000). historical tradition for wine; indeed “Vitis vinifera” owes its public thanks to Christian rituals in the Mediterranean area (Fuller, 1999). Traditionalism Sport, capitalism, science development, Kung Fu; liturgical stories; Spring Festival; painting and sculptures, pop culture, Spiritual Buddha's statues; fireworks; cinematography, capitals of culture, dragons; paper lanterns (Zimmermann, westernization, fashion, Christmas 2015). (Inglehart et al., 2000) Diaspora It is not possible to define a diaspora In the last few years Europe faced a great correctly from European citizens to China, wave of immigration by Chinese but according to the last untraceable data, immigrants, and now Southern European expatriates prefer to live in Shanghai, countries (Italy, France and Spain) seem to Beijing, and Shenzhen. About 10% of the have become the most popular destinations overall 600,000 expats living in China are (Latham et al., 2013). French, Germans, Italians and Spaniards (Scout Real Estate, 2015). Source: Author
27 Table 1 shows the cultural dissimilarities that make Southern Europe and China unique and distinct. Given that the internal distinctions for Europe as a whole are clearly obvious to everyone, the analysis has sought to highlight the characteristics that unite the countries manufacturing wine. Cultural differences tend to make investments and the commercial exchange between separate countries more difficult. In the last two decades, the wine business improved unbelievably in China thanks to the noticeable intensification of a more demanding, flourishing and refined middle class that led up to a kind of transformation of palates and customs to the conventional Chinese culture. Over the past decade, the domestic wine was capable of fulfilling the overwhelming majority of the demand. Indeed, European traders in the Chinese internal market exported only about 5 percent of wine acquired. European wine makers have never contemplated the idea of changing their recognized homegrown goods for the advantage of a roughly more oriented outcome relating to bigger targeted Chinese tastes.
But in spite of that, higher incomes and an improved highlighting on the standard of living are generating unexpected prospects for wine. Especially in the last few years, the percentage of acquired or distributed wine deriving from international trade has perceived an increase of
30%, and it is foreseeable that imports are bound to grow as long as around 800 million liters by 2018. This improvement in consumption resulted from a westernized elite located in the biggest Chinese metropolises that gradually recognized the formidable promising future of grape wine thanks to its tremendous wasted potential and their innate highly brand-conscious.
This delayed predisposition has contributed to the strengthening of high-level and polished merchandises thanks to this reasonably limited group of Chinese people. For this reason, a slow but steady habit of consuming Western products in fancy hotels, boutique, nightclubs, and restaurants rose to unprecedented levels of popularity in any city located on the territory of China (Rozelle et al., 2006; Anderlini, 2009; Florcruz, 2015; Kumar, 2015; Butch, 2016).
These achievements strengthened by an increased susceptibility to foreign goods have undoubtedly facilitated European managers to recognize more effectively the cultural
28 differences that characterize consumers in Asia. An aspect that should not be underestimated in the process of European and Chinese taste rapprochement is the striking amount of travellers that every year reaches far away coastlines to bargain luxury commodities in the native nation of their desired brands. This aspect is helping managers to understand better the
Chinese users because Europe continues to symbolize the ideal destination for most Chinese tourists outside Asia. Besides, Chinese’s passion for high-end products does not seem faded given the fact that they wholly acquired 46 percent of all luxury goods such as fashion, food and beverages and technology available on a global scale in 2015. One of the most common items to take back to their homeland is wine (Martin, 2016; Daily, 2016). Wine lovers in the
People's Republic of China have a distinctive perception of this product. Indeed, it could be seen as a status symbol, as a pain reliever, as a healthy product or as a good that embeds a brand spanking new lifestyle. Chinese used up around 135 million boxes of red wine in 2015, and the success of red wine is mainly due to the color of the product that is largely emblematic in China given that it symbolizes happiness and good luck. The red color evokes the popular traditional storytelling of Ancient China in which a legendary monster called Nian was terrorizing the whole China with the approach of each Chinese New Year. So, to prevent the frightening assaults of this beast, the only solution was the usage of some vermilion liquids as a safeguard (Kumar, 2015; Rehberger, 2016; Chinese Chamber of Commerce in
The Netherlands, 2016). This general situation of prosperity cannot be associated with white wine because it could be chalked up to negative connotations such as death or sadness. During tasting tests consumers like the flavor but in the purchasing process, Chinese perceive white wine as something unhealthy, very acidic, or girlish. Moreover, it might be misunderstood because it reminds the Oriental rice wine or Baijiu – a beverage containing high alcohol volume and with a not very pleased savor (Marketing China, 2012; One World Nations
Online, 2015; Boyce, 2015). Taking into consideration the main distinguishing characteristics of China and Southern Europe discussed previously in the CAGE model, and also the cultural
29 factors that had led to the intensification of wine such as a regular purchase by wealthy consumers or Chinese travellers around Europe, the following sub-question was made. Its main goal is to investigate the difficulties that managers have to face in the introduction of this product, despite the numerous cultural dissimilarities that differentiate the two societies.
Sub-question (SQ) 1: “How do European managers identify the cultural differences which distinguish users in the Chinese territory?”
30 Table 2. Administrative differences between Europe and China
ADMINISTRATIVE Europe People's Republic of China
Colonial ties The colonialism event has a historical During the First and Second Opium Wars, connection to Europe because it involved China was defeated, and so it was forced to predominantly European countries that grant some concessions to the European undertook several trips abroad to securing winners. Hong Kong was passed on to the new areas of influence in various regions British Empire, more than ten port cities were of the World from the 16th century to half opened to European traders and foreigners of the 20th century (Stuchtey, 2011). were entitled to travel in Central China. China did not engage in proper Nevertheless, this phenomenon could be colonialism because the Emperor was labeled as semi-colonialism because the UK always veering towards tributary networks and the United States' link with China brought rather than European style colonization. in the influence and control of its economy Moreover, the Chinese tributary and commerce rather than a real invasion organization did not cease until the Opium (Allingham, 2013; Volz et al., 2010). Wars, without which the opening of its market would not happen (Eisenman, 2007). Currency Euro, EUR, €. Renminbi, CNY, ¥. The Chinese Yuan increased in value just shy of 20% against Euro in the last few years (Chen et al., 2015). Trade agreements Recently, China is the EU's 2nd The admission of China into the WTO in negotiating partner just behind the US, December 2001 led to a dramatic increment and it also matured in one of the EU's of commercial exchange between UE and fastest rising export markets. (European China. The WTO solidified the EU as China’s Commission, 2016). major trading partner for the past ten years, in a. “Horizon 2020” is a pact that stimulates fact, the turnover shared exceed €1 billion per long-term joint R&D partnerships day (European Commission, 2016). between the two countries (EUbusiness, Some trade agreements: 2016). a. “The EU-China 2020 Agenda for b. “The Joint Communication on elements Cooperation” is the highest-level joint for a new EU strategy on China” was held document in EU-China relations (EUbusiness, in June 2016 to promote long-term 2016). advantages for both populations b. In the current years, there has been a rich (EUbusiness, 2016). debate on “EU-China FTA”: Chinese c. “Investment Plan for Europe,” and the government started contemplating free trade "One Belt, One Road" initiative, discussed agreements with the belt and road countries at the 17th EU-China Summit (Bendini et (Ministry of Commerce of China, 2016). c. The EU-China Connectivity Platform in al., 2015). 2015 (EUbusiness, 2016). Political hostility The above-mentioned “EU-China 2020 The EU is getting on with fully opening Strategic Agenda for Cooperation” trading affairs with China more and more. resulted in uncertainties because it However, Europe demands that China trade testifies the increasingly dominant honestly, is more transparent in all operations, influence of the Chinese political respect intellectual property rights, and reduce impositions on the world (European government interference in the economy. The Commission, 2016.) China remains EU is encouraging China to play a significant displeased with the EU’s failure to grant involvement in the WTO and other the state “market economy” position, and multilateral and plurilateral negotiation it genuinely believes that this situation works. Also, Europe no longer tolerates the could restrict the Chinese open up to the corruption issue in China (European Single Market (Bendini et al., 2015). Commission, 2016; EUbusiness, 2016).
31 Trade in goods and Trade in goods from China represented Trade in goods from the 28 EU Member €350 billion in 2015. The EU trade deficit States is estimated at €170 billion in 2015 services in goods with China is around €180 then (EUbusiness, 2016). (EUbusiness, 2016). Trade in services Trade in services from EU to China is € 25.7 from China accounted for €25.7 billion in billion in 2015. The EU-28 noticed surplus in 2015 (Eurostat, 2016). trade in services with China is €10.3 billion (Eurostat, 2016). Delicate Issues The EU perceived many prospects to The EU has undertaken to promote the global channel China's growing dynamic human rights ‘protection and requires that contribution to international governance, China introduces the same thorough rules safety and defense issues in zones of (EU-China Human Rights Dialogue held in mutual relevance (EU-China cooperation in Africa) (EUbusiness, 2016). 2015). Through the “EU-China Legal Affairs Dialogue” held in 2016, the two states nations have established a political link composed of a better comprehension of their distinct legal system ((EUbusiness, 2016). Corruption Northern Europe is the least corrupted China's President Xi Jinping planned to fight geographical area all over the world but, dishonesty towards anti-corruption nevertheless, Eastern European countries campaigns, but this strategy is sowing terror are still the long distance from the EU and vastly damaged the Chinese economy for standards. The estimation of total loss more than $100 million in 2014. Also, brought on by corrupted European censorship in China is still incredibly high countries led to a loss of £782 billion in because of the “Not Free” press status of the 2015. Those negative results are above country, and the level of corruption has eight times compared to the previous reached record levels within the two-year estimates (Owen, 2016). period 2014-2015 (Hewitt, 2016; Freedom House, 2016; Transparency International, 2016). Source: Author
From an administrative point of view, table 2 demonstrates that the two countries are quite far removed from one another in connection with differences in laws, policies, and institutions.
The Chinese government can influence without great difficulties the consumption of wine in the country through the medium of strict regulations, import taxes, fees and customs detention. The decrease in wine purchase provoked by the anti-corruption program instigated in 2012 has eroded the market share of the industry. In fact, it has resulted in the dramatic reduction in the level of dinners, banquets and additional events wherein imported wine would be widely consumed, or given as a gift to state officials (Bellamy, 2012; Donovan,
2014). These kinds of restrictions have been implemented because of the elevated level of corruption previously legally residing within the government. Indeed, Chinese administrators and functionaries were prone to acquire wine or to consume premium goods exclusively for
32 own personal gain by use of public funds. By the time the austerity program was adopted and put into effect by the Chinese governor, some people were making massive bets that these measures would fail or that it would have been relatively short-lived. For this reason,
European managers were not concerned with the strict policies taken suddenly by the competent authority. So, the impact on sales has been traumatic because very limited precautions were taken in time. But anyway, reducing luxurious articles spending by administrators, also as regards high-priced wine bottles, has made it possible to quicken the initiation of a business concentrated on customer needs. In fact, whereas the anti-corruption laws have affected the upper range of the marketplace considerably, non-local wines for a reasonable price are progressively purchased and appreciated by a younger and excellent
Chinese customer base (Timms, 2014; Boyce, 2016; Wu, 2016). The group of people that are gradually bringing a breath of fresh air to the traditional system is the wealthy and literate young Chinese people. They are not only in the position to pay a premium price for an imported bottle of wine, but they are also willing to try something new from their culture.
(Gao, 2016; Chinese Chamber of Commerce in The Netherlands, 2016; Verot, 2016).
Contemplating the central individual features of China and Europe examined in table 2, and furthermore the rigid regulation adopted by the government in order to limit the entrance of some foreign goods and to reduce the corruption at the highest levels of the bureaucratic structure, the subsequent sub-question was prepared. Its objective is to deal with the legal complications that firms and managers have to deal with the wine placement on the Chinese market.
Sub-question (SQ) 2: “How do European managers identify the complex legal systems within the Chinese territory?”
33 Table 3. Geographical and logistic differences between Europe and China
GEOGRAPHICAL Europe People's Republic of China
Physical distance The Westernmost spot on the European The Westernmost spot in China is Akto continent is Cabo da Roca in Portugal, County, Xinjiang and the Easternmost and the Easternmost point in Mainland point in Mainland China is Fuyuan Europe is Gora Anoraga in Russia. It County, Heilongjiang. It means that the means that the distance between Europe distance between China and Europe and China (Beijing) may vary from 9693 (Amsterdam) may vary from 5474 km to km to 4333 km. 7844 km. Infrastructures To increase the connection between Since 2011, Trans-Eurasia railroad links Central and Eastern Europe with Asia, the city of Chongqing in southwestern China funded and fabricated the first China to Duisburg, Germany via a train bridge throughout the Danube River in path of 11,200 km (Chen et al., 2015). 2014 (Chen et al., 2015). China acquired China is supporting and building in one of the biggest piers in the UK to turn Greece the biggest harbor and maritime it into a first-rate global business hub economic center in the Mediterranean to using capital investment of almost create China’s new marine Silk Road $2billion (Werdigier, 2014). China is from Asia to Africa, Middle East and improving the connection and the Europe (Ivanovitch, 2016). The infrastructures with Europe by creating infrastructure investments by China per “belt and road Initiative” whose purpose year are above that of the US, and is to obtain facilities in railway, air and Western Europe calculated marine transport (García-Herrero, 2016). simultaneously (Coy, 2016). Communication Standard broadband is accessible to all Under the impact of China’s entrance to Europeans, but the 2020 Digital Agenda the WTO, European and North American for Europe intends to promote progress companies started to dominate the better connectivity, technology progress, communications equipment market. sustained economic growth and job- Chinese savers are increasing investing on creating innovations (Davies, 2015). urban development, communication Power utilities have to design a infrastructures and tourism, because they communication diversity, and they need are trying to shorten the long-haul routes to find an equilibrium between the most between China and Europe with the productive, cost-effective and long- intention of creating a “digital” Silk Road, lasting communication technologies to updated to the 21st century (Chen et al., safeguard configuration and distribution 2015). in a smooth the way for the next future (Accenture, 2014). Time zone From UTC-1 to UTC+5 China Standard Time (UTC+8)
Climate zone The Gulf Stream has a great influence on On account of the large terrestrial space the European temperatures that led to and extremely varied geography, the mild winters and summers in the weather in China is vastly wide-ranging. It is characterized by not wet periods and overwhelming majority of the mainland. moist monsoons that imply huge changes Further away from the Atlantic, between winters and summer seasons. seasonality is moderately higher than Mainly, the weather is polar in the North close to the coast (Minobe et al., 2008). and tropical in the South (Fu, 2008). Geographic size If Europe is considered in its entirety, its China’s geographical size is around extension is around 10,180,000 km2. 9,596,961 square kilometers. Specifically, Governmentally, Europe has structured in China is the 3rd biggest country in the around 50 independent countries, and the World and the 2nd largest one in Asia continent represents the westernmost after Russia.
34 portion of Eurasia. Sea neighboring The Arctic Sea to the north, the Atlantic Three seas border China: the Yellow Sea, Ocean to the west, and the Mediterranean the East China Sea, and the South China Sea to the south border Europe. Sea. Source: Author
Even if the physical distances between countries is often overlooked because it represents the most immediate connection to the word “range”, table 3 does not look only to the topographical characteristics of the two states, but it also discusses some human operations and intercessions. The geographical distance in this context is intended as the physical discrepancy resulting from the extremely opposite terrestrial location between China and
Europe. Moreover, it is concerned to analyze how these long distances affect the distributional channel in the allocation of wine in the Chinese territory. The predominant part of the wine acquired in Mainland China is mass-produced nearby, but a countless part needs to be done concerning the value of Chinese wines with respect to the imported ones. Sure enough, at these times wine produced on the spot is still affected by the impression of two-bit quality and comparatively excessive manufacture budget producer costs. Numerous Chinese wines are experiencing difficulties with the increasing competition of foreign manufacturers' bottles that are sold at a greater commercial discount (Delacour et al., 2011; Butch, 2016;
Gao, 2016; Vinexpo, 2016). Anyway, China has undertaken a feisty attitude to enhance its natural wine making throughput indeed, it is actively collaborating with external manufacturers to generate an excellent wine that may be able to keep up with products of excellence in the long-term (Hatton, 2013). For this reason, sometimes it is impracticable or unmanageable competing with such wines due to their ultimate advantageous cost.
Consequently, it is necessary to implement a diversification strategy in order to permit transcontinental wines to establish themselves in the Chinese terrain. Either way, some countries have carved out a place for themselves on the Chinese market: France can boast to have 50% of the foreign market share in terms of quantities, immediately followed by
Australian and Spanish producers. While relying on an enviable reputation for quality, the
35 Italian wine attracts only 5% of the Chinese consumers, and for this reason, the former Italian
Prime Minister Matteo Renzi entered into a contract with the founder of Alibaba Group in order increase earnings by $2 billion no later than 2020 (Delacour et al., 2011; Chow, 2013;
Segreti et al., 2016; Ybanez, 2016). The long distances separating Asia and Europe are an insurmountable question for European managers because the allocation of wine on the
Chinese territory is challenging due to a series of innumerable reasons. Moreover, firms are defenseless in some operations that make up the channel of distribution because some problems are independent of the skills of managers. In fact, it is not very easy to find a very well established distributor as long as the firm involved does not have a universally accepted brand, an unusual amount of additional assets to fund in marketing and communication instruments or a unique feature that is implicitly improbable to face in other contenders
(Bellamy, 2012). In order to investigate the complications that managers have to tackle in the allocation of this good due to the long geographical distances, the following sub question has been formulated.
Sub-question (SQ) 3: “How do European managers identify the physical discrepancies which affect the operational channel in the Chinese territory?”
36 Table 4. Economic differences between Southern Europe and China
ECONOMIC Europe People's Republic of China
GDP per capita (in The European Union has a GDP per capita of China has got a GDP per capita of $14,239 $34,861 in 2015 (Trading Economics, 2016). in 2015 (The World Bank, 2016) International $)
Nominal GDP (Millions $17,110,523 (International Monetary Fund, $11,391,619 (International Monetary Fund, 2016). 2016). of USD$)
GDP PPP $19,973,035 (purchasing power parity of $20,853,017 (purchasing power parity of European Union), (International Monetary Mainland China), (International Monetary (Millions of INT$) Fund, 2016). Fund, 2016).
Human development Almost all the countries belonging to the China is placed at number 90 on the table of European Union maintained a position inside 188 countries, which corresponds to just kind index (millions of the top 50, which corresponds to a very high of the limit of high human development human development index (Jahan, 2015). index (Jahan, 2015). USD$)
Internet penetration 79.3 % of the population. European Union 52.2 % of the population. Internet Users: Internet Users: 402,937,674 in 2015 (Internet 721,434,547 in 2016 (Internet Live Stats, World Stats, 2016). 2016). Natural resources Northern Europe: metals, copper, iron, coal China is the earth's highest mining nation, reserves, fishing center, oil and natural gas. but bearing in mind its vast populace, the Southern Europe: reserves of coal, mercury, resources are not that broad as a whole indeed the local firms are looking for new zinc, bauxite, partial quantity of petroleum mining agreements internationally. China and well-rounded fishing trade. Western owns leading position with 216 mining spots, Europe: some oil and natural gas, coal by a vast majority of Australia with only 144 reserves, the leader in hydropower and points. Gold, silver, copper, natural gas, geothermal power production, some gold and hydropower, nickel, coal are mostly peat as fuel. Eastern Europe: vast oil reserves widespread in China (Basov, 2015). and natural gas, limited supplies of gold and silver (Johnson, 2016). Foreign Direct EU’s transactional investments into China China currently manages a $3.5 billion worth just $1.6 billion in the first quarter of portfolio of direct investment projects in Investment (FDI) 2016 (European Commission, 2016). In 2013, Europe (Ivanovitch, 2016). Chinese’s the EU invested $6.5 billion in China, up transaction investment in the EU worth $5.1 21.9% from 2012, which duplicate China’s billion in the first quarter of 2016, more than $3.6 billion in the other trend, an 20% growth compared to the prior quarter intensification of 6.2% (Chen et al., 2015). (European Commission, 2016). The increasing size of FDI from China to European countries reveals a key change of China’s inclinations, from acquiring natural resources in emerging nations to purchasing trademarks, technology, and other properties in industrialized states (Chen et al., 2015). Source: Author
Table 4 shows the economic distances referring to the factors that influence cross-border commercials and financial activities. The economically more exceptional nations are more
37 engaged in transnational transactions in comparison with those less well off. This dimension not only deals with rich/poor differences but it also includes differences in costs and qualities of natural, financial, human and infrastructural resources. In 2015, China overtook Canada in
4th position on the best-seller list of wine usage, and apparently, it is going to exceed
Germany not later than the end of 2017. Presently, around 40 million of Chinese see themselves as wine lovers and this data is intended to grow dramatically by enabling China of becoming the country with the highest number of imported wine. In conformity with the
Chinese Association for Import and Export of beverages, the wine purchased from external countries during the first nine months of 2016 corresponds to a total market value of $1.77 billion, indicating a 19.1% year-on-year expansion. Moreover, it is estimated that China’s total volume of wine imports will amount to more than $6 billion over 3 years (Blau, 2016;
Verot, 2016; TopWine China, 2016). However, even if future expectations with regard imported wine market are very high, wine consumption slightly decreased between 2014 and
2015. The reasons that have sparked this situation are various: 1) the Shanghai bond market breakdown as result of the recession that has affected the whole Chinese finance; 2) the inferior production costs but not always suitable prices of the regional wine distribution; 3) the not clearly identified acceptance in respect of wine by the related ruling class. In all events, in recent times affluent millennials have proved to be China’s new wine lovers. For this reason, their particular approach to the Western idea of good life opened up encouraging prospects for European managers that still want to create great opportunities in the wine industry in China (Gao, 2016; Ge, 2013; Junqian, 2016; Vinexpo, 2016). Considering the economic differences of Europe and China examined in the CAGE model, and also all the recent phases of expansion and recession that wine consumption has experienced in China, the following sub-question was built.
Sub-question (SQ) 4: “How do European managers identify the business strategies required for being successful in the Chinese territory?”
38 3. Methodology
The following chapter handles the methodology applied to tackle the problems related to the research study. First and foremost, the reason for which the qualitative method was selected as the approach is clarified. In the second place, the particular investigation project and sampling procedures are taken into account. And in conclusion, a general assessment of the approach is being implemented.
3.1 Research project
The grounds for qualitative approach
The application of the qualitative analysis best suits for comprehending and explaining community connections and estimating the depth, detail, and breadth of events. The intention of the thesis is to study a restrictive set of people not haphazardly selected, and the investigation of the whole is more relevant than categorical variables. Moreover, the scientific method selected is the exploratory one thanks to its specific eligibility as regards the qualitative approach and its particular fit in consideration of entry strategies in developing countries such as China. The primary focus is indeed to engender new assumption, to refine theory from the data collected and to discover new ideas and insights (Hoskisson et al., 2000;
Lichtman, 2006; Johnson et al., 2008). Trying hypothesis out is not the prerogative of the research given that exploring new areas and dealing with “how” interrogations has proved to be the procedure most likely to the nature of the interpretivism model. And in fact, understanding humanity expertise and the life of society throughout their life context is the kind of interpretation that has been used most extensively about interviewees (Ritchie et al.,
2013). Furthermore, the qualitative research is particularly suitable for the topic since too little research has yet been carried out to describe an uncharted field such as the struggling insertion of wine in a culturally and legislatively foreign country where local traditions are the
39 exact opposite of the product proposed (Bryman, 2004). The thought process affiliated with qualitative methods is induction, subjectivity, and meaning mainly due to the nature of the investigation that is a sort of narrative description and persistent evaluation of differences. For this reason, the inductive method on the assortment of master data gathering procedures and study development is best suited for conducting qualitative research. The appropriateness of the inductive process is relevant because it assists in the deep accepting of dynamics, regular appearance, flexibility, concentrate on personal behavior and creating substitute expectations
(Alexandiris, 2006; Lodico et al., 2010; Bernard, 2011). However, owing to the nature of the qualitative study, the purpose is to generate a new general theory based on accurate data and answers deducted from the people questioned throughout the interviews conducted. The production of concepts by the expressed notions may be spotted in the painstaking designation of Ghemawat’s CAGE model. Nevertheless, intellectual and intangible connections, theories and implicit postulations govern the theoretical framework anyway.
Drawing up of the research question
“How can European managers overcome the challenges of introducing wine in Mainland
China, considering the different market characteristics and consumer tastes?”
The research question as mentioned earlier has been selected after several careful analyses.
Evaluating the wine sector in China is deeply fascinating because wine is still perceived as a brand-new product on the grounds of its remarkable spread only during the last two decades and now it is unexpectedly numbered among the top ten global markets for wine (Vinexpo
Hong Kong, 2016). Precisely owing to this time-consuming and intricate spread, European managers are still investigating and embracing the most various strategies to affirm themselves in this region. Surprisingly, the Chinese market has proven to be ready for this article indeed, contrary to what the collective imagination might suggest, wine has a long history in China unlike the lack of any tradition. Mainland China is a country where grape
40 wine should be contemplated as one of the most common beverages, but many dynamics have awkwardly led to a history littered with appalling fluctuations and hindrances (Kjellgren,
2004; Rozelle et al., 2006; Hubble, 2013). This enduring tumultuous past may still be perceptible to the uncountable uncertainties, and missteps demonstrated in all the strategic business operations that are representative of a noticeable orientation towards a 'way forward' not entirely clear. Strict regulations, ambiguous and fast-changing laws, unique tastes, heterogeneous demand and intricate distribution channel infeasible without proper connections are only of the various difficulties that managers are facing in the integration of wine in China. For this reason, the research question contains the following words: “market characteristics” and “consumer tastes.” The first expression in inverted commas indicates the innumerable administrative, economic and operational transactions that must be considered when a foreign country decides to introduce its products to China because some undetectable complications should be examined in the antecedent phase of the expansion. Conversely, the second sentence communicates the various inclinations, attitudes, and habits that distinguish the Chinese clients. Besides, in the second chapter, four sub-questions with corresponding overview and specification were presented and outlined. These features and their additional requests make up the groundwork of solving the top portion of the research question as showed below in figure 1. The reference to Ghemawat’s CAGE model is evident since it was the method that has had the most significant role both in the theoretical framework and in the formulation of the sub-questions. Thanks to its appropriateness of comparing different countries, it allowed the broadest possible representation of the dissimilarities that confer to the European continent and China the conditions to be such distinctive locations (Ghemawat,
2001).
41 Figure 1. The four sub questions
Source: Author
Design and sample
The research question and the following sub-questions are analyzed and responded by 11 semi-structured interviews in their entirety. The selection of the sampling resulted from two independent variables: a) multinational corporation b) Chinese market competence. A firm that was able to export its products overseas crossing over the many legislative and logistic obstacles, transaction costs and cultural barriers were necessary and sufficient conditions to achieve to be taken into consideration. Moreover, the level of expertise demonstrated by top
European managers concerning the Chinese territory and market was another important term.
In fact, interviewing businesspeople with full awareness of the distinctions between the two countries considered in the analysis was necessary to make a clear explanation of the context.
42 3.2 Appraisal of the methods
Reliability and validity
The typical single case research design was the one handpicked even if the topic could be seen moderately new given that it was analyzed and discussed by researchers in a rather limited way since the data are often discordant among them. Also, a snapshot single case study has been adopted because the phenomenon deals with current events that are gradually changing the current behavior of people in the most recent period (Tellis, 1997; Thomas,
2001; Yin, 2009). The word “reliability” is a notion employed to control and determine the quality of qualitative research, and it is designed to create understanding. Also, to guarantee reliability in this kind of approach, it is relevant to assess the trustworthiness and consistency of the report at the core of the matter (Seale, 1999; Stenbacka, 2001). The internal reliability takes into account the use beyond of a single silent delegate in the research. In the case of the qualitative approach, the internal reliability is considered as one of the most stable and appropriate techniques because the monitoring is limited to just one actor. Moreover, the adaptability amongst the investigator inspections and the notional concepts formed is perceived as resilient (Golafshani, 2003; Shenton, 2004; Yin, 2009). On the other hand, the external reliability is viewed as faint because of the limited possibilities for replying the investigation in its complete entirety. With regard the qualitative approach, the external reliability is strenuous and challenging to obtain due to the inadequacy of barring some moderately volatile agents carrying out a noteworthy leverage on cultural backdrops (Brink,
1993; Leung, 2015).
One of the possible hazards in which there is any chance to stumble upon concerns the causation of the correlation amongst the researcher and the participants. In such a way as to ensure equal conditions for both sides, the transcripts of the interviews have been documented word by word to generate genuineness, and any result has been reported in citations in the
43 result paragraph. Semi-structured interviews were preferred over the structured one in order to do not confer an excessive structure that may create biases, and that could also throw off the concentration to the respondents (Leech, 2002). Furthermore, the interrogations raised during the discussion consisted of open-ended queries divided by topics in such a manner as to assure an ideal freedom of interpretation and expression to respondents. Some supplementary demands have been put to respondents about the type of response in a way that guarantees the greatest debate possible. Besides, given that the research shall be severely conditional on the collected data from the interviews, the threat that people polled misinterpret the requests raised by the researcher could be real and, consequently, the production of biases as well.
The qualitative study has repeatedly been reproached due to the shortage of methodical stringency with reduced explanation of the techniques undertaken, scarcity of transparency in the systematic processes and the outcomes arising from a set of own impartial view of the researcher (Rolfe, 2006). For this reason, the concept of validity was also introduced in the qualitative approach to ensure austerity and veracity in the implementation of the procedures assumed and in the meticulousness of the data collected (Long et al., 2000). The internal validity is relatively strong because it concerns the reliability and plausibility of participant’s perspective concerning the research carried out. Given that theoretical concepts were included in the drafting of interviews and that the interviewees are the individual subjects that may declare the entitlement and the trustworthiness of the outcomes, the utter linking of the respondents’ perspective and the gathering of data are firmly assured (Trochim, 2006). The external validity relates to the extent of the outcomes concerning the qualitative approach that could be widespread, relocated and generalized to other social backgrounds (Yin, 2009). In this particular instance, if the factors that have led to the introduction and consumption of
European wine in China are due to the progressive adaptation of Chinese taste to Western habits combined with strategic actions adopted by successful managers, the external validity could be perceived pretty high. Notwithstanding, when taking into account additional factors
44 such as the sampling and the number of people involved, the validity of qualitative research drops significantly.
3.3 Data
The interview process
To approach the potential respondents in the procedure leading up to the interviews, around
90 emails, direct phone calls, fax messages or calls done by third parties were used.
Eventually, fourteen managers were interviewed from mid-October through December, including 7 top managers, 3 experts about the Chinese market and 4 CEOs. Only 11 of those interviews have been analyzed because 2 of them did not meet the qualitative criteria required, and the first interview was used to provide a reliable representative sample. On this basis, the first interview was mainly linked to ensure compliance and conventional procedures on the composition of the following interviews and besides that, it enabled me to improve some questions and key topics to be reckoned with.
Four different countries of provenance have been involved (Italy, France, Spain and Albania), as to give the most relevant and broad idea of the commerce. The Italian wine has a strong international reputation and is a synonym for quality. Also, it keeps getting elected as the favorite agricultural food product of all, partly thanks to its impressive value for money
(Larner, 2015). In table 5, the characteristics about the Italian interviewed organizations are exhibited.
45 Table 5. Italian participants to the interviews conducted
Source: Author
In table 6, the participating French, Spanish and Albanian companies that were involved in the investigation are exposed. France had developed its global predominance as early as 1154 when Eleanor of Aquitaine, Queen of France, married Henry II of England. This relationship enabled the trade of Bordeaux’s wine in the British courts, and within a few short years it became the only wine available in the United Kingdom. France wine reputation is still unaffected and persists to be one of the preeminent brands in the current business (Lev, 2016).
At the end of the 70s, Spain’s wine-producing status was limited to inferior quality mass- market products, but nowadays some regions are considered several of the most flourishing and esteemed areas in the world (Brooks, 2016). The Albanian wine, contrary to what one might expect, has ancient roots given that its origin is dated back to the Ottoman Empire.
Anyway, its finest hour has peaked only in the recent years thanks to some policies, which support development and employment (Zhllima et al., 2012). It is fascinating to take into consideration the Albanian wine because some vineyards have nothing to envy compared to more established competitors in Southern Europe. Furthermore, it is not an issue that people
46 dealt with frequently and given that the quality is high and the rate is very appealing, it has prominent and reliable possibilities of extensions in China.
Table 6. Albanian, French, and Spanish precipitants to the interviews conducted
Source: Author
Everyone engaged in the investigation plays a key role in the company, and they could count on long work experience. The selection of the attendees has been made according to their particular relevance to the industry, the country of origin and a very full and exhaustive level of competence about the Chinese market. The interviews were conducted vis-a-vis, via Skype or through telephone calls. Seven men and four women aged between 28 and 66 years were then selected to partake in this research. Getting in touch with the managers was intensely laborious and challenging due to their busy schedule, but this process proved treasured and rewarded in helping me understand the constraints that arise in the establishment of a particular product such as wine in a culturally different country.
The data analysis
The interviews were imposed in the form of a semi-structured procedure given that in each one there is a particular focus on the “Made in (origin marking),” specifically questioning
Italian managers about “Made in Italy” products, French managers about “Made in France”
47 ones and so forth. The conversations were filmed and registered on the personal MacBook or iPhone of the researcher. Everyone proved to be willing and professional during the conduction of the interviews, and nobody declined to answer some scrupulous questions.
Remarks and feedbacks about the inquiries were favorable and constructive, and some of them requested a replica of the final work. Subsequently, the raw sound file was transcribed immediately after the accomplishment of the interview so as to prevent data distortion. At the moment when all the chatters were correctly reported and re-read, the documents were processed via the leading software for qualitative data inspection, precisely Nvivo. This tool for data analysis primarily served to organize, shape and assess the alphabetic information.
After that, it played the role of drawing up the most useful data through the setting up of codes and highlighting important topics to the results part. Its coding process conceptualizes intangible data; however Nvivo is just focused on the tracing of codes, so it proved inadequate for proper analysis of data (Holton, 2010). For this reason, the investigator personally conducted the carrying out and the reporting of the assessment. At the end of this process, the program has detected more than 80 codes, and some credentials ranged from one to eleven.
By all means, only a narrow part of those codes was pertinent to the final work and consequently explored by any measure within the section of results.
48 4. Results
The following chapter is in charge of discussing the findings derived from the interviews conducted and broadly described in the previous section. The most relevant quotes of the respondents will be incorporated into the text to clarify some concepts that probably constitute the trigger that did not permit efficient integration of wine in China and so it still represents an untapped opportunity for European businesses. The first four sections will be dedicated to the cultural, legal, operational and financial sides respectively. Also, the last part presents the analysis of the Adaptation, Aggregation and Arbitrage model in order to obtain exhaustiveness and to guarantee consistency to the research.
4.1 How do European managers identify the cultural differences which distinguish users in the Chinese territory?
Shifting tastes
The gradual adaptation of Chinese tastes towards a more European or Western one turned out to be among the topics the most discussed. Concerning the complexity and modernity of the argument, wider ranges of viewpoints have emerged. Some of the interviewees highlighted that the Western corporation does not have to adapt minimally the product they offer because the European lifestyle always more attracts Chinese, so they are willing to change their habits without big efforts.
“The more time passes, the more Chinese individuals adapt their habits towards Western tastes. They are intrigued and fascinated by the European lifestyle mainly because of the high level of traditionalism and the limited exposure to the external world, which has defined the
Chinese system over a very long period of time. Now Chinese not only have the freedom to undertake spontaneous preferences, but they also have a sizeable disposable income which undoubtedly had a positive impact on a closer approach to Western premium products and
49 life expectations... Chinese are incredibly careful about the new trends, and for this reason, our Occidental luxury lifestyle is considered a status symbol in China.” - Hervé Berland,
Château Montrose.
To bring to a higher level the theme, some respondents stated that the differences between these two worlds sometimes is barely perceptible because, in any case, there are some primitive necessities shared by almost everyone on a global scale. So, persisting in evaluating the dissimilarities between populations is not correct because it should not even be a subject of critical debate.
“Cultural differences between Europe and some Asian countries such as China are somewhat overestimated because it is a sort of cliché or Western hypocrisy. Raising the level of cultural differences for snobbish reasons is wrong because experience teaches us that some attitudes, feelings or preferences are not so far apart. Nowadays, personality traits are starting to get a little familiar everywhere because the globalization has led to a sort of unique culture with all its nuances and influences, naturally. (…) It is essential to do not push things kind of far or take cultural differences to the extreme because this could become a simple case of autosuggestion. Also, from a management point of view, autosuggestion only leads to mistakes because it is better to follow our sensations without blaming cultural differences or some stereotypes for our mistakes.” – Luca Furlotti, Principe Corsini.
Further evidences of the difficulty and subjectivity of the perception of a different culture can be detected in the local population itself. In fact, due to the actual situation in which habits, culture, and markets are constantly evolving and changing, it is not possible to have a clear mutual identity. This is why even the citizens themselves belonging to a specific society are not able to identify correctly whatever they truly need.
50 “China makes the laws on the timing, methods, and consumption for many categories of products at the moment. I am under the impression that they are sufficiently aware of the fact that wine is something completely new and it has yet to be unexplored from them. For this reason, they are still at the stage where you have to take and accept the product. (…)
Ironically, it seems that they are still unaware of what they think to love and what they really and sincerely love.” – Luigi Rivetti, Fontanafredda
Another version that was highlighted during the interviews is the persistent strong need for combining and implementing the most accurate of the producer skills to sell the right product on the market. Indeed, even if the questioning in relation to Western or European goods is insistently rising in the recent years, Chinese are not changing their tastes. Apparently, they are naturally drawn to the Western culture because of the indirect charm regarding foreign imported brands. Moreover, it is not properly right to talk about switching of demand to potential new tastes because European producers sometimes have to adjust their products to the Chinese market because of some flavours not particularly suitable for their palate.
Reaching a sort of compromise between the offer and the demand in the introduction of a product particularly distant from a culture might be the right choice to use.
“Some Chinese Territories have usually been used as a kind of gateway to Asia. Therefore, an incredible change is happening and then this condition has led to a prosperous and booming condition that could be explained as the result of potential Westernization of some Chinese cities. In other words, I do not think that they are completely adapting to our way of living because they are simply using their way to our style.”- Hugues Lepin, Wine Source Group.
Education
The Education was a topic mentioned in all the conversations and it obtained an absolute consensus on the part of all the interviewees. It is labeled as one of the inner motivations why
51 managers invest time and money in China. Wine is still considered as a brand new product in all the Second-tier and Third-tier cities so basically the expansion of the product in the biggest and more Westernized Chinese metropolis would not have been possible without large investment projects focused on education. The demand has been promoted using communication and teaching and, in this context, consumer education is the only instrument that could encourage buyers to the expenditure. This term should not be perceived merely as explaining in details how to use a product or how to create the occasion of use but also telling consumers everything, from characteristics to incredible quality, to the origin of the product and the history behind it.
“…So, of course, educating consumers is highly necessary. I know this from my experience; in fact, China will be bombarded from companies focusing just on volumes for the next 30-50 years at least. For this reason, the education is essential because there will always be another competitor that will introduce a product at a lower price or a little less good trying to sell it as outstanding. Moreover, local producers should not be taken lightly either. Then, creating loyalty and brand awareness through education is vital.” – Luigi Rivetti, Fontanafredda.
A question asked in all interviews was concerned with investigating the formation of the demand in the Chinese territory. Basically, managers were asked if they had tried to create from scratch the need for wine in Mainland China or if the demand was simply hidden and consequently, encouraging the consumers to buy was sufficient. In mostly all the interviews, it has emerged that managers supposed to create the demand because it was entirely absent from the whole territory. What has emerged very clearly from the conversations is that China is a country where the national beverage is tea or drinks to very little in terms of substance since ancient times. For this reason, wine is perceived like something upscale and consequently not for all citizens. However, it should not overlook the influence on demand that Chinese nationals living abroad have exercised.
52 “A lot of Chinese decided to establish themselves across borders (...). This reason has inevitably influenced the introduction of the product but also the Chinese community coming from Guangzhou who moves permanently to Milan or Prato has undoubtedly helped the diffusion of Italian wines in their home country. Especially in their hometown, they are responsible for the proper assimilation of the product because they are the ones that started to realize the potential behind Italian goods and so they decided to introduce it to family and friends. Thank to their help, a sort of word of mouth has increased the penetration of this item also to individuals that have never had the opportunity to travel abroad.” - Gaia Gaja, Gaja.
Anyway, in some cases, respondents found the word “education” as something too restrictive, so other concepts similar have been introduced to explain better the phenomenon.
“Dedication is better than education because you are teaching something that they might be aware of, but that probably have still to insert in their culture. Then, you cannot impose something to the potential consumer target”. – Hugues Lepin, Wine Source Group.
Traditionalism
China is still seen as a very conservative country where ties to ancient traditions are strong and where people are afraid to try new things that are distant from their local habits. This link to the past could be perceived in their marriage procedure, religion, political system or manner of dress. But actually, there is a multitude of Chinese citizens that decided to establish themselves abroad in order to experiment a more liberal life. In addition, their primary purpose is to return to their native country with a new outlook on life with the aim of modernizing the system and generating new chances and opportunities for all individuals.
“The new generation is adapting to the European culture even if in Mainland China the older people are more traditionalist or are individuals in pursuit of the American dream. This new tendency has mostly affected the Chinese migratory flows that are moving from the US toward
53 a new destination, such as the European continent. (…) Chinese people drink as a sense of community and as a sign of respect. The wine has dramatically amplified its diffusion because it is considering such as a healthy drink. In general, Chinese drink red wine firstly due to its particular color because it symbolizes good luck. On the other hand, white color is associated with funerals and death. Another thing is that Chinese do not like to drink cold drinks indeed they usually drink hot water in the northernmost part of the country. Chinese drink wine every day as if it were water because it is considered healthy and it is a low-alcohol beverage compared to some other Chinese drinks.” – Fion Leung, Claudio Mariotto.
In summary, China and Europe are still characterized by extremely different ways of living, but it must not necessarily be seen as a limitation to the actions employed by European managers. In fact, it is sometimes possible to combine the two different lines of thoughts in such a way as to keep the distinctive characteristic of a population unchanged, but also giving a new air of freshness to some products that lacked any kind of strength because they did not take into account some insurmountable cultural differences.
4.2 How do European managers identify the complex legal systems within the
Chinese territory?”
Anti-corruption laws
One of the challenges that made the greatest impression on the firms interviewed is the implementation of the anti-corruption laws. The introduction of this new legal system has made it possible to monitor more efficiently all the products that are introduced in the Chinese territory. It has also had a favorable impact on the traceability of corruption at all levels: from the border station to all the processes involving the allocation of the product by means of multiple distribution channels. On the other hand, the anti-corruption program adopted by
President Xi Jinping has weakened the position of all the European companies due to a series
54 of legal constraints, which radically restricted the importation of some product categories that were already well established within the territory.
“...The anti-corruption program has had an enormous impact on the sale of wine because now state officials cannot participate anymore to wine dinners, wine-tasting or private dinners. This maneuver has weakened wine exports because some influential people cannot be invited to this kind of representations and so the word of mouth as free advertisement do not result very fruitful anymore.” – Francesco Zaganelli, Lungarotti.
“In our case study, the anti-corruption laws had a tremendous impact because the premium
Italian wine was getting bigger mostly because it was customary to use it or give it away during business dinners or meetings... It was a very prestigious present. It was used to make a good impression. Moreover, our partners took specified measures concerning implementation and investment planning, but everything has been formally blocked at the end.. We ran out of ideas at times.” – Luigi Rivetti, Fontanafredda.
Substantially, this strict regulation has been put into action to counter price increases and to reduce the corruption of the state and government officials in China that were used to acquire extremely expensive goods outside of the work environment. The actions in question were ascribable to the State and financed by State resources, and so, the request for reimbursement of expenses was approved without any limits. Unfortunately, this basic maneuver did not only limit state administrators power but also led to a small market share for European producers.
The consequences have been immediate to such an extent that the legislative framework has tightened and it became very complicated introducing some categories of products in China without getting involved in additional costs prohibitively expensive.
55 “Chinese government dictated many limits and taxes on alcohol import, which, together with the complex bureaucracy, makes the expansion of wine in China incredibly difficult...” –
Lumir Osoja, Center Shqiptare Group.
“It is tough to sell wine in Mainland China regarding taxes, the fees, the high control power carried out by the government and the total non-transparency of some actions. It is not the same in Hong Kong or Macau, to be honest.” - Hugues Lepin, Wine Source Group
A surprising and critical aspect that has emerged in the debate is the idea that before the anti- corruption laws the wine market was substantially overblown, overstated and unwholesome because dominated exclusively by an exchange policy focused on little awareness about the products and massive speculations. In any case, the situation seems firmly for the Western producers given that financial pointers such as profitability and return on investment have risen during the last year and a half. Apparently, the creation of a healthy and genuine market is slowly approaching completion in recent times.
“Until two years ago, Chinese wine market was very messy because it was an inflated market... Now, thanks to the new president, things changed and I am feeling safe to say that the real market just started now because Chinese are finally buying wine with their financial means.” – Fion Leung, Claudio Mariotto.
“Before government regulations, wine products were simply received as a gift without the real perception or a particular interest in the comprehension of the item. There was absolutely no kind of attractiveness to the profound discovery of the good because the key element was entrusted to the huge price of the present. Now, it is like the real and healthy market is finally ready to be penetrated properly because wine is gradually acquired not only by a restricted elite group, but also by an always more cultured and educated middle class.
56 They buy wine because they are eager to learn and to identify their predilections and inclinations for future purchases focused on self-awareness.” – Gaia Gaja, Gaja.
Counterfeit products
Another critical aspect that has always been associated with the Chinese territory is the capacity to replicate exactly a broad range of products and put them on the market as authentic. This viewpoint was not taken into account in the original interview structure because wine would seem to be as one of those goods not directly affected by this phenomenon. Actually, it appeared that also this object has not been spared to the abovementioned imitations.
“…Another problem was the trade in counterfeit and pirated goods that were sold in ordinary supermarkets, but now the situation seems to have improved considerably thanks to the increase of local control rate.” – Miriam Masciarelli, Masciarelli Tenute Agricole S.r.l.
Anyway, this phenomenon seems linked to the spontaneous attitude of Chinese to buy fake products with the sole aim of showing off. In fact, a good part of them is indifferent in buying original or fake products with the intention of taking satisfaction of the product itself because they are mainly stimulated by the chance to show people what they can afford.
“…Chinese are completely aware of the downsides of purchasing fake goods. Nevertheless, they are willing or opened to spend a large amount of money on counterfeit goods with the sole purpose of grandstanding or showing off.” – Fion Leung, Claudio Mariotto.
Registration
Another of the challenges that European managers can cope with is the obligation to register the brand and all the goods entering Chinese territory to the competent authority on request.
The government takes this process very seriously because, without the complete recording of
57 the products to the customer detention, all the commodities could be declared as unlawful and then be stuck indefinitely or banned because they are not conforming to the directive in force.
“We have to be very careful about the legislation on the Chinese territory indeed, for example, every good must be registered. It is indispensable to register the brand and all the different varieties of wine in both Italian and Chinese languages... So, sometimes we chose to translate the words from Italian to Chinese in order to grant a name similar to the Italian pronunciation. For some of our wines, we opted instead to bring the meaning of the products literally with a view to maintaining their original denotations.” – Gaia Gaja, Gaja.
Cross-border blocks
Any product crossing the border of the Chinese territory must go through an approval process at the customs house given that the legal restrictions are innumerable and vary per product categories. In fact, additional tariffs, barriers to entry and obstructive arrangements for any ingredient or a not very diversified panel of goods are tremendously regular. The customs detentions process is still not very clear to most and, additionally, there are not any tactics to apply to skip it unless you have excellent contacts with the intergovernmental community.
“The legal barriers are multiple but unfortunately, they are not even that clear. It already happened that for some shipments the exported products were blocked at the Chinese border station without adducing any clear or material reasons. It is very expensive to sell your product in China because, for each vintage and each type of wine products, the Chinese government expressly requires a certificate of analysis and the registration of your brand or sub-brands.” – Francesco Zaganelli, Lungarotti.
The veiled but still resilient protectionism that characterizes China can then cause food- importing blocks very orderly. Moreover, the regulation is continuously shifting. It is not easy
58 to predict the customs detentions at the Chinese external border because it is virtually unmanageable to keep up with the latest update on the regulation.
“Strict laws and guidelines as regards the introduction of sample products are a big problem because they slow down the potential recognition and approval of the products you are willing to sell. There are also huge problems in the dissemination of wine and to its full discovery.” – Luca Furlotti, Principe Corsini.
Basically, the legal boundaries are many and varied. In fact, it represents a dimension that still causes quite a few problems for foreign managers that are trying to expand their business in
China. The circumstances are still somehow unclear but, in any case, none of the interviewees got serious issues in the real dissemination of their product on the territory considered.
4.3 How do European managers identify the physical discrepancies which affect the operational channel in the Chinese territory?
Networking
The distribution channel was another concern cited in all interviews. As the respondents stated, the operational network in China can be reasonably widespread. Indeed, the geographical gap between China and Europe could make some trouble for industries and it is not immediately available on a cost-effective basis. Administrative limits such as logistical barrier or additional customs taxes are particularly recurrent. And because of that, good connections are indispensable because they allow firms to avoid some procedures or, in some other cases, they can help overcoming the distribution and allocation matter. Managers need to be proactive, and they must be in the position to expand and improve their direct contacts or recommendations because they constitute an essential prerequisite for the effective implementation of strategies in the Chinese territory.
59 “Having someone located in the market is relevant. Transferring people in China is too expensive because you need competent and expert professionals prepared to move far away.
Good connections to build a business are categorically advantageous in China because the direct access to the market is somehow blocked, and for this reason, alternative choices are slim.” – Alice Schenetti, Mercato Metropolitano.
“Without good connections and networks, it is impossible for a European company to introduce its business in the Chinese market, mainly due to the extremely complex legislative and administrative systems.” – Lumir Osoja, Center Shqiptare Group.
“The wine sector is based on relationships and networks. If you are a wine producer you have to understand the finance, marketing and communication world... This characteristic is even more critical in China.” – Miriam Masciarelli, Masciarelli Tenute Agricole S.r.l.
Guanxi represents a fundamental element of the organization of businesses established in the
People’s Republic of China. It defines the elementary trend in interpersonal relationships that could be explained as the individualized network developed by humans with any others. It symbolizes a fundamental notion in the Chinese culture because it could lead to economic harmony and social order in the collective society. Predominantly, there is a specific attention to the importance of tacit reciprocal commitments, mutuality and confidence building.
“Trust is an important value in interpersonal relations and Chinese rely a lot on relationships to run their business. Some Chinese can trust their instincts in very strong terms and when their trust is conquered, they will definitely act honestly, fairly, professionally towards you” –
Luca Furlotti, Principe Corsini.
By an implemented program focused on expanding the networking and the direct relationships with highly respected individuals in the community, the relevant figure of partners emerges in the interviews. Almost all the respondents have placed faith in old or
60 acquired partners given that by doing so, the person clearing the goods has a chance to avoid additional legal obstacles and to speed things up. Additionally, sometimes partners undertake complicated processes in respect of the implementation of the investment planning.
“The distribution in China is very complicated and for this reason, we have partners in Hong
Kong that take care of this process also because they are aware of any change in laws and regulations.” – Hugues Lepin, Wine Source Group.
However, in some cases, there was some negative feedback concerning the use of partners.
Indeed there have been some bad experiences because a few of them declared to have a decade-long expertise and extraordinary capabilities, but basically, they were impostors or unqualified.
“…It is imperative to find a worthy and successful partner with which we could build a strong brand also in China. There are a lot of partners that declare a high-end reputation, but actually, they do not have the means to tackle the first challenges.” – Francesco Zaganelli,
Lungarotti.
Importer
In more than half of the interviews has been cited the significance of finding the best importer that fits best with the values and philosophy of the company, taking into consideration the current market requirements and the necessary consistency needed despite a considerable heterogeneity of Chinese tastes and needs. The approach to the various importers is pretty distinct indeed some of the respondents declared that the best way to start a business in China is to find a local merchant who deals with the distribution on the national scale. On the contrary, others stated the exact opposite, namely that it is necessary to find many importers that deals with different areas.
61 “Right now I am selling my wine to 8/9 importers including private labels only in China, and for example, I have 2 in Beijing, (…). It depends on the company but some importers are just focused on the local market, and some of them are also competent in the whole Chinese territory, but they have to find the most suitable local distributer, so it is a pretty long process... Another important task that must be carried forward by the importer is the total dedication to the recognition and distinction between fake and original products. Exactly for this reason, the importers should be continuously monitored, tracked and supervised.” – Fion
Leung, Claudio Mariotto.
“At the moment, we have a national distributor, but we have all always felt that the national framework is the most efficient way to achieve our objectives. (…) In the future, we are planning to change from a national importation to a more fractionated one due to the heterogeneity of the market and the distinctive preferences that are characterizing the
Chinese territory. For this reason, we should be prepared to provide a different service in various territories and actually, we are absolutely ready to open ourselves to new horizons.”
– Hervé Berland, Château Montrose.
Anyway, the singularity of the Chinese market is also perceived in the selection of the right importer owing to the problematic nature of variables, which may interact and result in potential undesirable events. In fact, the Chinese fragmentation is perceived even higher in the distributional channel: the creation and establishment of a durable relationship with a national importer is very peculiar and it is very different to what happens with all the other nations. This uniqueness is given by the heterogeneity of the territory and also by the difficulty in finding an importer who is able to differentiate the demand at the national level, considering the distinct preferences and cultural peculiarities of the consumers. Consequently, it is extremely challenging to come into contact with a sole importer that is able to differentiate the offers, rates, and promotions by districts or provinces. In the light of it, the
62 recruitment of importers with prodigious abilities in reselling the products at the national level is tremendously costly and time-consuming.
“China is a different world compared to all the other traditional markets such as Germany or the UK where it is possible to sell the product directly to the importer. Normally, we have a program with them to promote the brand, the product in different channels and doing different activities. Basically, in China we need to encourage or to push the importer both in finding the best local distributors and doing some activities to promote the product. (…) For example, the price suggested, or the restaurant chose will never correspond to the previously established.” – Alberto Ruiz, Dinastia Vivanco.
Distributor
The best way to search new distributors is the participation in fairs, exhibitions, and festivals where new collaborations, targets or annual work programs could be set out. In fact, contrary to the expectations, fairs are not efficient in detecting new clients or educating the consumers.
Also, in some cases, the best strategies for entering the market are represented by the option to rely on big distributors. Therefore, the wisest strategy is reckoning upon a sophisticated network of competent and large-scale distributors that are capable of taking care of all distribution channels and promotional plans.
“Every year we participate in professional wine exhibitions where we sell our wines to the importer and its responsibility is to find the best local distributer that is aligned with the company's goals. In general, Chinese people want to be the exclusive agent distributors in whole China, but it is very difficult even for powerful companies because China is a huge market. Even in only one region the effort to spend is very high to develop the market and to make sure that the product is efficiently promoted.” – Fion Leung, Claudio Mariotto.
63 The distribution channel is complex, and it is one of the biggest challenges to overcome such as the legal boundaries. But either way, through reliable partners, an extensive network of good relationships and investing on appropriate figures with experience, the difficulties could get subverted more quickly.
4.4 How do European managers identify the business strategies required for being successful in the Chinese territory?
Marketing
The marketing campaign still represents a perfect recipe for breaking through cultural barriers or geographic distances because it may ensure an adequate extension of the product exploiting research and innovation investments. The strategies applied could be different, and they depend on the actual position of the company in the market considered or on the strategic options undertaken by the firm. In any case, there are some key elements to do not underestimate. The packaging is an essential item in which businesses should invest money because in China it often assumes a symbolical meaning that occasionally is even more valuable than the article enclosed inside. Short Western names to be re-spoken are another critical thing because the majority of the Chinese are incapable of talking or understanding
English. The label should be personalized, or it should provide an additional meaning to the item to sell because something easy to remember can encourage the recognition, and by that the acquisition of the product. Exerting a little leverage on these concepts can increase the chances to leave a strong impression on people's minds. For this reason, the vast majority of the companies questioned have opted to focus their marketing program on the recognition of their country of origin. Consequently, telling the history that lies behind the product is vital because Chinese consumers pay considerable attention to this argument in the purchasing process.
64 “I am for giving priority to the story of our company, to our philosophy and to our values.
Linking our products to a territoriality is important because explaining the uniqueness of our local cuisine is interesting and valuable. Wine is a product of culture, and for this reason, it is essential to tell a complete story, which includes all the particular nuances and facets from culture to territoriality, to traditions and values.” – Gaia Gaja, Gaja.
“It is very important to show and to explain the history of the firm, its logo or the family crest.
(…) Being able to give priority to Italy, to its rich and long story, to its diverse and very wide range territories may give the company an invaluable added value. The story of the individual wineries could be introduced only after these aspects.” – Luigi Rivetti, Fontanafredda.
A curious feature directly linked to the promotion of the country of origin is the new phenomenon of the direct sale from wine cellars to Chinese on their way across Europe. In fact, an increasing number of people in China prefer buying a product in its original homeland. In greater detail, the direct purchase on the proper territory of the good itself is becoming widespread among the wealthy Chinese citizens because, through this procedure, buyers can sense a greater emotional and social involvement about the luxury good purchased. The acquisition on the places of origin of the products is not only appreciated because of an additional perception of enhanced quality and status, but also due to the sale prices considerably lower than Western goods sold in China. In this prospective, Chinese travelers can prevent some custom duties arising from the shipment and exportation of foreign merchandising.
“…Purchases on our domestic territory by non-residents are something to do not underestimate indeed the number of Chinese who prefer to acquire our products directly from the cellar has gone up very substantially. There are always more Chinese consumers that give priority to purchasing products in their historic homeland, and so they are willing to come here during their business trips or sightseeing. Throughout this process, the wine takes on a
65 whole new meaning in symbolic terms because it is perceived as a trophy to be exhibited immediately after their return home.” – Hervé Berland, Château Montrose.
On the other hand, another marketing approach adopted by the managers interviewed is more focused on feelings and affections that could be established promptly through an evocative marketing. Following this kind of strategy, it is easier and quicker penetrating inside attitudes and spirits of the most vigilant buyers.
“Emotional and evocative marketing is more efficient compared to jingles, popular songs or colors. It is fundamental to do not make mistakes in the market price establishment. For instance, the number 4 is pronounced like the word “death,” so some companies had significant problems because consumers did not buy a product just for this aim... Chinese market is evolving (…), but in general, it is very attached to an emotional marketing.”– Alice
Schenetti, Mercato Metropolitano.
In all events, not everyone agreed on the importance of a strong marketing campaign or building up a program entirely focused on the origin of the product. In fact, whether the brand is endowed with extraordinary potential of recognition at all levels, then this strategy might prove to be not that beneficial and it could be just a waste of money.
“If you are selling a luxury brand for the masses, the country of origin is not essential because your label is enough strong to be associated to an exceptional quality even if maybe you are not even selling an outstanding product.” – Luca Furlotti, Principe Corsini.
Mass product
From the age of the Greeks or the Romans, wine was considered as a status symbol and its figure has always been connected to prosperous, educated and sophisticated individuals in whatever society. With the passage of time, wine increased its popularity, and so it started to be acquired to prevailing all classes of society all over the world. Nevertheless, this
66 phenomenon did not spread out completely evenly in China, although it is a very brand sensitive community where if a brand or product is starting to get big, everyone begins to purchase it regardless of price.
“The target client for the wine industry is the élite segment, which is westernized and live in big urban areas, and the medium-high category, at the quest for the “European style”… The rest of the population segments are still closely bound to local alcoholic products.” – Lumir
Osoja, Center Shqiptare Group
“It is absolutely not a mass product.. It is a luxury product.. Something that it is not purchased or consumed very often. It is acquired in order to celebrate or when you are with your friends... It is not an everyday product.”– Miriam Masciarelli, Masciarelli Tenute
Agricole S.r.l.
For this reason, wine is still considered a product not for everyone and probably it will stick here in this situation for quite some time yet. In the case firms and managers do not understand this market correctly, any product would anyway spread in China, even though slowly - mainly driven by a gradual adaptation to Western taste. In this context indeed, some quiet innovators are indirectly helping wine producers to expand further: women and the young generation are unequivocally one of these unexpected centrifugal forces. Young
Chinese are westernized because they either had the opportunity to travel or study abroad or feel some fascination towards European and American lifestyles. For this reason, their cultural background allows them to support newest things and also be willing to reconsider a previous conviction thanks to the enrichment of their culture. Simply by dint of their excellent academic education, many youngsters do not even need to get close to wine or to be educated towards a proper wine appreciation as they are not afraid of tasting new goods. Additionally, they frequently consume European wine with their friends in restaurants or clubs.
67 “The young generation is more open-minded, and their approach towards wine is far- reaching because they want to appreciate and learn this product and they prove to be very passionate. (…) Young Chinese people that had the opportunity to travel, to experience new cultures or to study abroad demonstrate a greater openness than Europeans or Hong
Kongers because they are less traditionalist…”– Fion Leung, Claudio Mariotto.
“Young customers with a first-class education in Canada, California or Europe are not to be underestimated because their return to their homeland is powered by a strong desire for change and by a gradual replacement of old-fashioned beliefs. They are very curious and they are always willing to try new products so, from the French ones, they move slowly to different origin products such as the Italian wine.” – Gaia Gaja, Gaja.
Another category of consumers that should not be underestimated is the new generation of businesswomen that shall be responsible for ensuring a renewal support of the Chinese system. In fact, they are willing to try new things, and they are not afraid to show their renewed emancipation.
“…Women are the ones who are actually responsible for the authentic innovation and openness of China because they are helping revolutionize the old habits and traditions.
Women are contributing to change or help out with this transition because they have a profound pioneering spirit: they go out very often, they drink, and they have the desire to experiment new products... Women with purchasing power are the ones that are introducing wine within families, so this is a very relevant segment...” – Luigi Rivetti, Fontanafredda.
The economic dimension is relevant because it allows managers to understand if the strategies implemented are successful or not. In the case taken into consideration, some companies identified their target in a restricted elite group without significant issues, and others have
68 placed faith in new kind of innovators. For all these reasons and more besides, the interviewees have revealed positive potential in tackling future uncertainties.
4.5 How is the AAA model affected?
Adaptation
The adaptation strategy is implemented when a firm has an interest in the creation of a product variable that is capable of adapting better to a given country condition, so as to enhance business efficiency and cost effectiveness. In this particular case, wine companies that established a business in China can leverage on a competitive advantage thanks to a more close and operational similarity. Moreover, this strategy should be deployed when a company has found there to be several concerns surrounding the penetration into a new nation where preferences and requirements are different compared to the normality. In fact, it can make it possible to resolve some internal conflicts through the generation of economic capital in the short run, without major additional investment costs. For example, some European wine producers should adjust the packaging, the label or the flavor of the product offered in order to suit better the Chinese customers that generally present different predilections.
“…European producers have to adapt and adjust their products to the Chinese market because, for example, sweet and fruity flavors are the most popular because they reduce the aromatic and spicy flavors that characterized the Chinese cuisine… Dry wine is not appreciated just because it does not fit that much with the Chinese taste. Chinese also have problems with acidity because they do not accept sour tastes and, for these reasons, the white wine is not very requested.”– Fion Leung, Claudio Mariotto.
“Yes we are adapting our products to the Chinese market as much as we can.” – Alberto
Ruiz, Dinastia Vivanco.
69 Aggregation
This approach presents some differences compared to the adaptation one because here the primary focus is concentrated on the regional level and it is not limited to the local dimension anymore. Wine companies should concentrate and centralize some operational and organizational processes in order to achieve considerable cost advantages or sustained competitive advantages. In fact, only with the integration of manufacturing activities, firms can achieve adequate levels of profitability through the attainment of economies of scale or scope.
“Shanghai and Beijing are still considered as two essential poles both as regards volumes of sales and also the expansion of the knowledge and awareness of a brand (…). Contrary to expectations, the cities were the largest potential growth of consumption is most significant are the second and third-tier cities. So, the best thing to do is to have a spotless distribution in
Beijing, Shanghai, Guangzhou, and Shenzhen in order to expand the name of the brand in other cities that are experiencing an economic boom during recent years. China received this year for the first time a “Master of Wine, ” and for this reason, it is vitally necessary to invest in cities such as Shanghai or Beijing. In fact, they are the cities where the most number of web influencers, writers, journalists, and reports are located, and they can lead to the increment of quality information also in second-tiers cities.” – Gaia Gaja, Gaja.
Arbitrage
According to the arbitrage strategy, wine firms could generate absolute economies only exploiting economic or other dissimilarities among domestic or local marketplaces by positioning distinct segments of the supply chain in diverse areas. So, effectiveness could be reached only diversifying customs and associates, decreasing supply chain and other market and nonmarket threats, and allocating local knowledge. For this reason, if a wine producer is
70 having a hard time building a stronger position on the Chinese territory due to lack of traditionalism towards this product, the possibility to transfer capabilities and abilities from a similar country to another can be a powerful tool in leveraging economies of scale and scope.
“…I think it is a very challenging market. It is very hard to comprehend it and it is also difficult as regards the easiest way of communication. It is a severe market because it is such a fragmented country with widely differing regions and different latitudes. (…) It is like there is a different world inside the same world. For this reason, probably the best strategy to adopt is to exploit the success that we experienced in other Asian markets such as Japan or South
Korea because they do not differentiate that much from the Chinese culture or from its complex legal system. By acting in this way, we could both understand better the Chinese market and moreover, we could achieve a reasonable level of profit in all the countries.” –
Luigi Rivetti, Fontanafredda.
71 5. Discussion
The previous section has been involved in analyzing the findings obtained from the various opinions of experts in the Chinese territory. The approach taken by European managers in the introduction of wine has been explored through the technical, financial, governmental and societal backdrops of the Asian country par excellence, namely China. The core target of the research was to pinpoint an understandable, consistent and meaningful way forward covering the strategic setbacks that all companies standing by to expand down to China has to address.
For this reason, it has been put forward a thorough surrounding environment from the strategic to the problematic organizational issues that the managerial department has to handle when taking part in today’s Chinese society. So, all such standards have been selected to examine and explore at a deeper level all matters of defeating the several hurdles to the establishment of a unique refreshment product such as wine in China. First of all, this subject has been treated merely because of the very sparse available data in the most common databases used by experts. And secondly, probably some researchers or executives have underestimated this topic: given that wine is perfectly integrated into the Western society, they might have presumptuously assumed that it faced the same fate throughout the world.
A case study centered on wine has been chosen after several investigations because it still represents a throbbing brand new product in China. Numerous factors have led to a slow integration of it into the society, such as historical vicissitudes, Chinese’s revised market openness, swelling prices, active connection with the Mediterranean heritage and a gradual convergence of Chinese lifestyle towards Western tastes. In any case, as emerged in different interviews, the difficulties that managers have encountered in the establishment of wine as a popular drink in China is not unique and rare because they are essentially the same concerns that companies have faced in the introduction of any other food and beverage product. Its complexity affected the Chinese business due to border blocks, heterogeneity of the demand,
72 fragmentation of the territory, customer education, while registration of every brand, sample or product is a necessary component of the region. Even if its economy is getting bigger and bigger, to the point to be considered a country with an economic power similar to that observed in the US or Europe, a protective and nationalist government is still clearly perceptible in the regulatory and normative measurement of the Chinese political and financial framework. In fact, the importance of guanxi did not experience a sharp decrease given that it still represents a crucial component of the society. The necessity of establishing trust and loyalty through a dense network of interpersonal relationship is the initial step that any product will face for its complete expansion on the territory. Corruption is something existing but approximately invisible to the most given the limitless confining regulations and the excessive authority executed by the state comptrollers. Moreover, counterfeit products are regularly sold in shopping malls or supermarkets because Chinese are perfectly capable of judging the quality of a product quality or its value, but they are equally able to spend lots of money with the sole intent of showing off their economic possibilities. In spite of that, China still presents an invaluable untapped opportunity not exploited yet by European managers in pursuit of an extensive, wealthy and full of potentials market but, at the same time, it also represents a double-edged sword. Therefore, long timescales, considerable investments, highly skilled personnel and proper connections on the territory are something technically unavoidable in any business area and could be implemented with a sustained employment of energies.
With respect to the “AAA” global strategy scheme, there is not an approach that happens to be the best choice because it predominantly depends on the concerns and requirements expressed by the various national corporations. The adaptation strategy may be the most cost effective choice due to the high degree of feasibility and the low costs of implementation.
However, this method could damage the status of a company in an irreversible way if the bottle, the label or the brand has an international reputation for some features that could be
73 adversely affected by the adaptation on a local level. The aggregation strategy may be beneficial if the enterprise is capable of incorporating some of their individual activities that are able to reach a higher level of efficiency only working in close contact with each other.
For example, the company could increase the production or the distribution through the use of collaborative programs or cross-regional exports. Finally, the arbitrage strategy could prove to be the optimal strategy when the degree of uncertainty on the Chinese territory is high due to the heterogeneity or complexity of the market and submarkets. In this context, big companies serving overseas or that are competent between adjacent Chinese areas should exploit this advantage to transfer their experience in the Chinese market and doing so, finally accomplishing a gratifying market share and a thriving turnover. For this reason, considering the reputation of European wines, this fact could be leveraged in order to increase profits by setting the market where the request for such items subsists.
A factor that permitted Western food and beverages corporations to achieve a more than satisfying market share in China is the exceptional attention credited to the healthy and balanced food on the part of Chinese users. Contrary to what one might think, this Oriental society pays singular attention to nourishment due to the significant danger of coming across rotten or contaminated food and refreshments. Knowing that the product can rely on immense quality and high hygiene requirements is of paramount importance for the clients. It is in this perspective that Chinese consumers are always willing to try a wide range of Western product types because they firmly believe that they are safer compared to some products that legally circulate on their lands. For this reason, they are interested in learning about the ingredients used and all the components contained within the product: an obvious and sometimes underestimated sampling in supermarkets could help achieving credibility and awareness to the brand. Chinese have the perception that European products are still produced in a traditional way without the addition of preservatives or chemicals. Food tasting is important, but they are open to trying only products that are considered to be good for one's health. The
74 wine has endured a public acceptance thanks to its innate inclination to be obtained only toward fruits and also because it is seen as a healthful commodity due to its long-term prevention of heart attacks, diabetes, and colon tumor. Also, it is associated with a high natural insomnia relief and the perfect curator to matters of the heart. The red one is that among all the wines have received the warmest welcome in the country not only thanks to the listed above but also to its particular color that is the emblem of good luck, happiness and the color of prestigious gifts together with gold. In this particular context, placing on the market a product with incredibly high quality and with wholesome ingredients is the best strategy to follow considering the peculiar characteristics being demanded by Chinese customers.
Focusing entirely on quantity looks to be a powerless project given that shoppers still have a trifling consciousness about the product proposed and that high quality could lead to brand awareness, loyalty, engagement, benefits and customer insights. Testing the market frequently enough through biannual business trips and maintaining a balanced combination of active marketing campaigns, supported distribution channel, excellent quality products and regular communication with buyers are the guidelines to obtain a superior competitive advantage.
The Chinese territory is vast, and indeed volumes are relevant to achieve satisfactory earnings, but it also depends on managers’ ability to exploit their expertise and to allow a better knowledge and expansion of the product proposed by the firm. Educating the consumers is vital and the only way to achieve a good sales volume is creating chances, directives, and opportunities of use through a campaign focused on food instructions.
The cultural aspect of Chinese buyers is substantially dissimilar compared to the European thinking. So, taking into account the regular driving force behind the growing process of bringing these two cultural horizons less remote, it is essential to penetrate the market without making irretrievable mistakes. Along these lines, managers should not undervalue some key features to be successful in a heterogeneous area such as the People's Republic of China.
Referencing to traditional European icons or places of interest, personalization, gadgets and
75 direct sampling in stores are relevant. In addition, leveraging on symbols, numbers or colors proved its efficiency as well. About the issue of the distribution channel and communication networks, Chinese are more inclined to rely on family members, friends or known associates given that the society still vastly supports trustfulness and relationships between community members. Therefore, companies should count upon local distributors and importers because
Chinese citizens prefer to place trust in subjects belonging to their delimited circle of private acquaintances. In fact, there is a pretty high possibility that the commercial trade for this kind of asset will remain confined to secure already-exiting interpersonal links because word of mouth and respected confidence building still exist within the society. Besides, Chinese have a flair for alcoholic beverages, so they are more prone to acquire a box of wine compared to a single decanter because, according to their traditional customs, it is associated with anything out of commemorating. They are not concerned with meticulous gustatory or olfactory scrutiny because the central purpose that leads to the consumption of this merchandise is the necessity to celebrate and to acknowledge the little things of life with their loved ones.
Indubitably, wine is not a mass product even if the young generation and some businesswomen are contributing to its extension. An inner circle of quite well off people still mainly consumes it however Chinese individuals are beginning to perceive wine as an aggregation product more and more frequently. Consequently, it needs to be shared with respectable and upstanding guests, with family and friends to celebrate a special event, or even as a sign of gratefulness and respect. The long Chinese tradition towards the utilization of a lot of alcoholic beverages is mainly interconnected to their age-old culture, given the fact that it consists in the most obvious method of demonstrating generosity and friendliness on people and make them feel esteemed, respected and pleased. Happiness is the fundamental conception behind the usage of wine or other alcoholic refreshments because they are distinguished as the emblem of pooling, sharing, and trustfulness.
76 6. Conclusion
The thesis originated from the composition of a single primary research question:
“How can European managers overcome the challenges of introducing wine in Mainland
China, considering the different market characteristics and consumer tastes?”
The study has made a commitment to answer the request using interviews targeted at top managers across Europe. Above all, the dissertation has inspected the globalization phenomenon that has made it possible to a continuous convergence path towards the Western world on the part of several states in the world that are historically rooted in different tradition, first and foremost China. The Westernization has led to a sort of culture shared by the most that have helped to create a new demand for products that were originally used only in particular areas or only by a limited bunch of people. Wine is one of these goods that from the Mediterranean coast managed to achieve a position of respect in communities where it was just unthinkable to obtain it until a short while ago. After careful analysis of these changes, the cultural, administrative, geographic and economic dissimilarities enabling the
European continent and the Chinese territory to be identified as they currently are have been taken into consideration. Following the outcomes resulting from the examination of the differences between these two zones, four sub-question have been identified. Their identification could be linked to the proper understanding of the challenges that managers encountered in the introduction of wine in China, taking into account the diverse way of thinking and the most cost-efficiency way in allocating the product by the requirements imposed. The following aspects characterizing the sub-questions have made it possible to ensure thoroughness and transparency to the interviews conducted: (1) prevailing cultural disparities, (2) fast-changing and confusing bureaucratic system, (3) operational channel complications suffered by physical distance, (4) practical economic approaches to adopt. In such a way as to dig a little deeper these topics, 11 top managers working in different large-
77 size corporations producing and exporting wine located in Italy, Spain, France, and Albania were interviewed. After a careful inspection of the thorny issues and codes resulting from the data evaluation, the most relevant points that would have gone to develop an efficient strategy to follow for all the European firms that are planning to expand their wine products in China have been identified. The cultural sphere still presents a culture gap between the EU and
China rather pronounced. Chinese indeed prefers labels with musical, short and easy to remember names given that the majority of the community is incapable of comprehending the classical Latin alphabet. Chinese are gradually adapting towards a more Western lifestyle because they are very sensitive about brands and also because of the delight and fascination, which they feel about the European culture. Nevertheless, classical icons, symbols, colors, and tasting should not be underestimated. Managers are still trying to educate the consumers but, in any case, Chinese can already perceive wine as an aggregation product. In fact, it is mainly consumed to demonstrate generosity, trust, and euphoria with prestigious guests or within their personal lives. Given that the legal dimension is largely dominated by protectionism and state intervention, fast-changing and complex regulations and also frequent customs seizures, managers should expand their networking in the most efficient way possible given that guanxi still represents a dominant sphere in the Chinese community. Moreover, regarding the operational side, it would be more appropriate to find local partners and distributors because they know better how to prevent customs detentions, legal barriers and other risks deriving from the considerable geographical distance. Chinese individuals prefer acquiring alcoholic beverages from their narrow circle of known associates, so this aspect should not be overlooked to decrease transactional costs and uncertainties in the allocation of the good. On the economic dimension, emphasizing the origin of the product with a corresponding declaration of the history, values, and philosophies of the brand is crucial. In fact, Chinese are careful when it comes to buying food and beverage products due to the high percentage of counterfeit or damaged products, which are sold in the ordinary local shops.
78 6.1 Limitations of the research
The limits concerning the research are associated with the restricted number of participants who have taken part in the individual interviews. In fact, only 11 correspondents have been traced primarily due to the lack of time and the very few positive responses received given that the Chinese maker remains to be penetrated by the vast majority of European companies producing wine owing to the high potential of uncertainty observable. Moreover, all the firms engaged in the study are huge names in the business, and so they offer products addressed to an upper middle class. It means that the average market price is considerably high and therefore some results cannot be generalized to the entire Chinese population. For this reason, in some respects, the external validity may appear weak. Another limitation is that just one
Asian country has been taken into analysis without any comparison because a broader assessment of the market would have required a significant amount of time, energy and data that would have prolonged the procedure for its completion. Undoubtedly, it would have been more interesting and fascinating exploring the overall view of the Asian context given that wine remains a Western tradition.
6.2 Future researches
Future studies should engage in some new researchers such as the implementation of the model suggested in the dissertation in a more practical and concrete way. Moreover, the comparison between two Oriental countries or the analysis of some other markets such as the
Japanese or the South Korean ones that present more favorable tax treatments and where wine was established in a much more uniform way within the society would give bring forth new insights into the research.
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102 Appendix I – Interview transcripts
For the transcripts of the conversations please see document ‘’Interview transcripts’’.
103