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