Business Management For Chilean Wine Country Regions

Discuss about the Business Management for Chilean Wine Country Regions.

In the given scenario, it can be said that wine making has become an important business activity in Chile (Chilean Wine 2016). Though not very much significant, the country has a presence in the world market as wine producers and exporters. In the given case study, Matias wanted to wanted to start a vineyard in their farm in Leyda. He was inspired by his ancestral business of producing table grapes and wanted to indulge in full time farming. In order to fulfil his dreams, he undertook a considerable amount of work to improve the soil conditions of the farm. Irrigation was arranged so that farming can be done without any hindrance (Thecasecentre.org 2016). After consulting with the experts and after consulting with his family members, Matias has to take a suitable decision with respect to the business.

In order to take an effective decision in this matter, it is imperative to discuss and analyse several factors that have a direct bearing with the decision making process (Reuters 2016). These important elements include the condition of the farm terroir, prior experience of the family members in farming, professional expertise of the family members, investment and finance decisions, future cash-flows, etc. All these factors are required to be accounted for while making the decision to undertake the business of producing wine.

We need to address the first and foremost important question of whether the natural conditions of the place are suitable for growing grapes or not and if they are, what should be the variety that should be grown there (Thecasecentre.org 2016). According to the experts, the sloping hillside is an advantage, as the gravity of the place will help to move grape juice to its destination. This has an advantage from costing point of view as the costs of deploying pumps can be dispensed with. This in return results in less contamination of the wine and preserves its good quality. Therefore, from a strategic viewpoint, the location will provide an edge to the business. On the other hand, the temperature and sea breeze reduces costs and facilitates better quality of the grapes to be grown. The wine experts considered all these factors and they opined that the place is ideal for growing cold climate white variety of premium wine grapes.

On the backdrop of the present conditions, the most suitable decision for Matias will be to venture into the business with his family members. Involvement of the family members will enable the business to grow properly as each member can be delegated separate work according to their capabilities and expertise (Thecasecentre.org 2016). This will also allow them to pool in resources for the business, as it will require heavy initial investments. On the other hand, even though Chile is famous for its red wine, the conditions of Leyda are ideal for producing high quality white in the premium and super premium quality (Felzensztein 2016). Therefore, Matias should produce white wine because this has the potential to fetch future profits.

Generally, a brand name helps is differentiating products. As they will be starting a new business, much has to be though about in this regard. The family has prior experience of growing grapes and selling them. Therefore, the white wine produced shall be marketed by using the name of the family. Much should be emphasized on the prior experience of the family while marketing their products. Apart from experience, the advantages weather conditions of the location shall be communicated that are ideal for producing premium quality white wine. All these factors will contribute towards making a new face of the business and establish their wine as a family brand with aristocracy.

The wine business surely has synergy with other businesses owned and performed by the family members. Matias is in the advertising business and Antonio is in the export import business. Both of them are competent enough to market their products and promote the same. On the other hand, his other brothers are effective marketing personnel. They will be able to sell and promote the products locally. Antonio senior has the required experience in farming. All these elements will prove to be very much beneficial to the wine making business (Thecasecentre.org 2016).

 It can be concluded from the above points of discussion, that the family may undertake the wine making business. However, it is a fact that the family does not have experience and prior exposure to the wine making business. However, it has a prior and important experience of farming and the family members have to the intent to continue and indulge themselves in farming. Every business carries with it a certain level of risk. On the other hand, taking risk is the essence undertaking business activities. The decision to enter into the business will be backed by so many contributing elements such as the climate and weather conditions, advantages of the location that will tend to lower the overall cost of production, effective experience of the family members in the field of marketing, advertising and import-export (Thecasecentre.org 2016). All these factors will be contributing towards the success of the business. Therefore, the ploy in Leyda shall be converted from recreational farm to a vineyard.

The table shows the revenue of the manufacturing of wine from the year 2008 to 2016.

Year	Revenue
2008	152
2009	156
2010	76
2011	71
2012	65
2013	64
2014	65
2015	61
2016	60

It can be effectively said that the family has commendable advantages that a business requires. All the experience of the family members will enhance the efficiency of the business and its entire process. On the other hand, the family lacks specific trade knowledge of wine making. In order to resolve this problem and its drawbacks, a professional shall be hired by the family to guide them through the entire process. Hiring a professional will provide the required guidance and focus to the business activities (Thecasecentre.org 2016). This will also enable minimisation of costs and maximisation of profits by resorting to optimum utilisation of valuable resources of the business. In the long-run such a decision will prove to be suitable as the initial stage is crucial for attaining success and establishment of the business.

Decisions about the Business

Porter’s five forces analysis is used to analyze development strategy of any firm within the industry in terms of level of competition. This analysis includes industry rivalry, bargaining powers of suppliers, threat of substitutes, threat of new entrants and bargaining powers of buyers.

Threats of new entrants

There are a number of entrants in the wine industry of Chile. The main reason for this is that there are no barriers to the entry to this industry.  The main reason for this is that climate of Chile is quite favourable for wine production.

Threats of substitutes:

The threat of the substitutes includes the red wine vinegar, cranberry, pomegranate and grape juice and beef stock.  The white wine also includes substitutes include lemon juice, white wine vinegar and white grape juice.

Bargaining power of buyers:

The bargaining power of the buyers is great the main reason is that there is over supply and the consumption is seen to lag behind.  The oversupply in the grapes production is due to favourable condition of weather and planting of saplings.

Bargaining power of suppliers  

The bargaining power of the supplier is low, the main reason for this is that oversupply of the grapes is the driving force would prevent prices to fall as there is excess capacity.

Industry rivalry

The competition in the wine industry is quite intense. The large share of wine production comes from France. The second and the third country are Italy and Spain. There are 150 wineries but the sixty-seven percent of the sales of wine comes from Santa Rita and SanPedro a brand that is recognised in the world.

Conclusion

It can thus be concluded that the wine business surely has synergy with other businesses owned and performed by the family members. Matias is in the advertising business and Antonio is in the export import business. Every business carries with it a certain level of risk. On the other hand, taking risk is the essence undertaking business activities. However, in this case the bargaining power of the supplier is low and the major reason for this is that oversupply of the grapes.

References

Chilean Wine. (2016). Chilean Wine Country Regions. [online] Available at: https://www.chilean-wine.com/chileanwinecountry/ [Accessed 26 Jun. 2016].

Chilean Wine. (2016). Chilean Wine History. [online] Available at: https://www.chilean-wine.com/chilean-wine-history/ [Accessed 26 Jun. 2016].

Economywatch.com. (2016). Chile Trade, Exports and Imports | Economy Watch. [online] Available at: https://www.economywatch.com/world_economy/chile/export-import.html [Accessed 4 Jul. 2016].

Felzensztein, C. (2016). The Chilean wine industry: new international strategies for 2020. [online] www.vdqs.net/. Available at: https://www.vdqs.net/2013Talca/documents/informations/The%20Chilean%20Wine%20Industry.pdf [Accessed 26 Jun. 2016].

Reuters. (2016). Climate change sends Chile’s wine industry southward. [online] Available at: https://www.reuters.com/article/us-climatechange-summit-chile-wine-idUSKBN0TC18W20151123 [Accessed 26 Jun. 2016].

Thecasecentre.org. (2016). COASTAL WINE: ‘A MYSTERY HIDES ALONG CHILE’S PACIFIC COAST…’ | The Case Centre, for educators. [online] Available at: https://www.thecasecentre.org/educators/products/view?id=97286 [Accessed 26 Jun. 2016].

Totalwine.com. (2016). Wine Guide. [online] Available at: https://www.totalwine.com/wine-guide/chilean-wine [Accessed 26 Jun. 2016].

wijn.nl/. (2016). The Global Wine Industry. [online] Available at: https://wijn.nl/wp-content/uploads/2015/04/Winnaar-2008-How-small-Chilean-wineries-should-compete.pdf [Accessed 26 Jun. 2016].

Winesofchile.org. (2016). Wine Lovers | Wines of Chile. [online] Available at: https://www.winesofchile.org/ [Accessed 26 Jun. 2016].