An Investigation Into the Factors in the Chinese Market That Influence Wine Imports from South Africa
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AN INVESTIGATION INTO THE FACTORS IN THE CHINESE MARKET THAT INFLUENCE WINE IMPORTS FROM SOUTH AFRICA BY LI XIAOBIN Submitted in fulfillment of the requirements for the degree of MAGISTER TECHNOLOGIAE ENTREPRENEURSHIP in the Faculty of Business & Economic Science at the Nelson Mandela Metropolitan University Promoter: Professor N. D. Kemp December 2009 DECLARATION I, Li Xiaobin, hereby declare that: z The work in this dissertation is my own original work; z All sources used or referred to have been documented and recognised; and z This dissertation has not been previously submitted in full or partial fulfilment of the requirements for an equivalent or higher qualification at any other recognised educational institution. ---------------------------- --------------------------- Li Xiaobin Date i ACKNOWLEDGEMENTS The completion of this study would not have been possible without the support, guidance, advice and encouragement of certain individuals and organisations. I wish to express my sincere and grateful thanks to all those individuals who contributed to the successful completion of this study. In particular, the assistance of the following is gratefully acknowledged: z Prof. N. D. Kemp, my promoter, for his expert guidance, unending patience, constructive advice, support and encouragement throughout this study; z Mr Jo Zeelie, for his professional advice and assistance; z Prof. Hendrik Lloyd, for his support and encouragement; z Dr. Hua Tao, my friend, for his assistance in the improvement of the readability of this document; z Ms. Muthebeni, my friend, for her editing and grammatical skills; z All the staff of the Faculty of Business and Economic Sciences at Nelson Mandela Metropolitan University for their assistance and support; z My family and parents, for their unfailing encouragement and support during my study; and z The respondents of the study who supplied the empirical data. ii ABSTRACT As an important part of a nation’s history and culture, South African wine industry contributes vastly towards South Africa’s economy and job creation. However, under the influence of the widespread globalisation, South African wineries have to face many new issues and challenges. How to expand their overseas markets and obtain a sustainable development mode has drawn more attention from South African entrepreneurs in this field. Due to the rapid economic development and the huge population, China can provide a market with enormous potential to South African wineries. The fast growing trade between the two countries can also bring opportunities to South African entrepreneurs to explore the Chinese market. Therefore, it is necessary and vital for South African wineries to understand the Chinese market and the factors that influence wine imports from South Africa before they enter the wine market in China. The research problem addressed in this study was to investigate the factors in the Chinese market that influence wine imports from South Africa. To achieve this objective, a literature study was undertaken to probe the various aspects of the wine market in China, including the characteristics, the status quo and the development trends of this market. The driving factors that attribute to a great increase in wine consumption in China were also explored and discussed. Based on the literature study, a survey questionnaire was developed to obtain the empirical data. By means of comparison and integration of the findings of the empirical survey with the literature study, the results were obtained for solving the research problems. In addition, conclusions and recommendations iii were drawn to assist South African wineries and other marketers in choosing appropriate marketing strategies and avoiding potential risks. iv TABLE OF CONTENTS DECLARATION i ACKNOWLEDGEMENTS ii ABSTRACT iii TABLE OF CONTENTS v LIST OF FIGURES xiii LIST OF TABLES xv LIST OF ANNEXURES xvi CHAPTER 1 INTRODUCTION, PROBLEM STATEMENT AND DEFINITION OF CONCEPTS 1.1 INTRODUCTION 1 1.2 PROBLEM STATEMENT 7 1.2.1 Main problem 8 1.2.2 Sub-problems 8 1.3 DEFINITION OF KEY CONCEPTS 8 1.3.1 Wine and wine industry 8 1.3.2 Entry barriers 9 1.3.3 Competitive advantage 9 1.3.4 Marketing strategy 9 1.4 DELIMITATION OF THE RESEARCH 10 1.4.1 Geographical delimitation 10 1.4.2 Wine industry 11 1.4.3 Importers 11 1.5 ASSUMPTIONS 11 v 1.6 OVERVIEW OF RELATED LITERATURE 12 1.7 THE SIGNIFICANCE OF THE RESEARCH 16 1.8 RESEARCH METHODOLOGY 17 1.8.1 Literature review 17 1.8.2 Empirical study 17 1.8.2.1 Research approach 17 1.8.2.2 Measuring instrument 18 1.8.2.3 Sampling and sample size 18 1.8.2.4 Data analysis and findings 18 1.8.2.5 Integration of the study 18 1.9 PROPOSED PROGRAMME OF STUDY 19 CHAPTER 2 THE WINE INDUSTRY AND MARKET IN CHINA 2.1 INTRODUCTION 21 2.2 THE HISTORY OF CHINESE ALCOHOLIC BEVERAGES 22 2.3 THE HISTORY OF CHINESE WINE 23 2.4 THE ALCOHOLIC BEVERAGE MARKET IN CHINA 25 2.4.1 Gerneral classification of the alcoholic beverages in the Chinese market 26 2.4.2 Overview of the alcoholic beverage market in China 27 2.5 THE GRAPE WINE MARKET IN CHINA 29 2.5.1 The domestic wine industry 30 2.5.1.1 Hectares under vine 30 2.5.1.2 The grape varieties 31 2.5.1.3 The grape growing regions 32 2.5.1.4 The production scale 32 vi 2.5.1.5 The main wine producers 33 2.5.2 The status quo of the wine market in China 34 2.5.2.1 The market size and value 34 2.5.2.2 The market share 36 2.5.2.3 The wine consumption 38 2.5.2.4 The distribution channels and target consumers 41 2.5.2.5 The wine prices 43 2.5.3 The development trends of the wine market in China 45 2.6 THE IMPORTED WINE MARKET IN CHINA 48 2.6.1 The scale and value of China’s imported wine market 48 2.6.2 The main countries exporting wine to China 51 2.6.3 The consumption styles and target consumers for imported wine 54 2.6.4 The prices of imported wine 55 2.6.5 The development potential of China’s imported wine market 55 2.7 THE FACTORS THAT ATTRIBUTE TO A GREAT INCREASE IN WINE CONSUMPTION IN CHINA 56 2.7.1 An improvement in the living conditions of Chinese people 56 2.7.2 The media reports of wine's health benefits 57 2.7.3 The government’s support in wine consumption 57 2.7.4 The import tariffs 57 2.7.5 The foreigners and returned Chinese from overseas 58 2.7.6 The popularity of Western lifestyle 58 2.8 AN OVERVIEW OF SOUTH AFRICAN WINE INDUSTRY 58 2.8.1 The history of South African wine 58 2.8.2 The current state of South African wine industry 59 2.8.3 The grape varieties 60 2.8.4 The main wine-making regions 61 2.8.5 The wine producers and cellars 63 2.8.6 The wine exports 64 vii 2.9 THE NECESSITY OF ENTERING THE WINE MARKET IN CHINA FOR SOUTH AFRICAN WINE 66 2.10 CONCLUSION 68 CHAPTER 3 THE FACTORS THAT INFLUENCE IMPORTED WINE ENTERING THE CHINESE MARKET AND ENTRY STRATEGIES 3.1 INTRODUCTION 69 3.2 THE FACTORS THAT AFFECT IMPORTED WINE ENTERING THE CHINESE MARKET 69 3.2.1 The Chinese traditional alcohol culture and drinking habits 69 3.2.2 Lack of grape wine culture and knowledge 71 3.2.3 Lack of famous brands and promotion 74 3.2.4 Price 77 3.2.5 Tariffs, Customs Duties and Taxes 78 3.2.6 Distribution, Transportation and Storage 80 3.2.7 Import regulations and laws 82 3.2.8 Counterfeiting 85 3.2.9 Difficult to find suitable partners or agents 86 3.2.10 Others 87 3.3 MARKET ENTRY STRATEGIES 88 3.3.1 Exporting 89 3.3.1.1 Direct exporting 90 3.3.1.2 Indirect exporting 90 3.3.2 Licensing 91 3.3.3 Franchising 91 3.3.4 Joint ventures 92 viii 3.4 FACTORS INFLUENCING THE CHOICE AND IMPORTANCE OF MARKET ENTRY MODE 93 3.5 CONCLUSION 95 CHAPTER 4 RESEARCH METHODOLOGY AND DESIGN 4.1 INTRODUCTION 96 4.2 RESEARCH METHODOLOGY 97 4.3 RESEARCH DESIGN 98 4.3.1 The types of research 99 4.3.2 Choosing the most appropriate research method 100 4.4 PLANNING THE EMPIRICAL STUDY 102 4.5 DATA COLLECTION METHOD 102 4.6 THE SURVEY 103 4.7 QUESTIONNAIRE DESIGN 104 4.7.1 Types of questions 106 4.7.2 Wording of questions 107 4.7.3 Length of questionnaire 108 4.8 PRE-TESTING THE QUESTIONNAIRE 108 4.9 THE RESEARCH POPULATION AND SAMPLE 110 4.10 INTERNET SURVEY 110 4.11 ADMINISTERING THE QUESTIONNAIRE 112 4.12 RESPONSE RATE 113 4.13 VALIDITY 113 4.14 RELIABILITY 113 4.15 CONCLUSION 114 ix CHAPTER 5 ANALYSIS OF THE EMPIRICAL STUDY AND INTERPRETATION OF DATA 5.1 INTRODUCTION 115 5.2 RESULTS OF SECTION 1 OF THE QUESTIONNAIRE 115 5.2.1 Gender 116 5.2.2 Job position 117 5.2.3 The size of organisation 118 5.2.4 The ownership of organisation 119 5.2.5 Years of relevant experience 120 5.3 RESULTS OF SECTION 2 OF THE QUESTIONNAIRE 121 5.3.1 The respondent’s opinion as to whether the wine imports of their company has increased in recent years 121 5.3.2 The three most important purposes for imported wine consumption 122 5.3.3 The main age group for imported wine consumption 124 5.3.4 The most important social class for imported wine consumption 125 5.3.5 The factors that attribute to a great increase in imported wine consumption in China 126 5.4 RESULTS OF SECTION 3 OF THE QUESTIONNAIRE 127 5.4.1 The respondents’ opinion about whether the company imports wine from different countries 128 5.4.2 The kind of imported wine 128 5.4.3 The main category of imported wine 129 5.4.4 The three most important countries from which the company mostly imports bottled wine 130 5.4.5 The most important purpose for bulk wine imports 131 5.4.6 The position of imported wine in the current Chinese market 132 x 5.4.7 The importance of factors that influence Chinese consumers’ decision of buying imported wine 133 5.4.8 The factors that influence the sales of imported wine in China 134