GBE Project Report

Analysis of the French Wine Making Industry

SUBMITTED TO: Prof. Pradip Chakrabarty

SUBMITTED BY: Hitaishi Gupta(043026)

Analysis of French Wine Making Industry

FRENCH BUSINESS ENVIRONMENT ECONOMIC CONDITIONS

Worlds 5th largest economic power, at the heart of 495 million-strong consumer market. 3rd leading destination worldwide for FDI, 2nd only to the U.S. and the U.K. Worlds 5th largest exporter of goods and services. 48% of French listed companies owned by international investors.

With a GDP of $2.865 trillion, France is the worlds fifth-largest economy. It has substantial agricultural resources, a large industrial base, and a highly skilled work force. A dynamic services sector accounts for an increasingly large share of economic activity and is responsible for nearly all job creation in recent years. France became one of the first European countries to officially exit recession by posting a 1.2% growth (quarter on quarter annualized) in the second quarter of 2009, and then 1.2% growth (annualized) in the third. Governments economic policy aims to promote investment and domestic growth in a stable fiscal and monetary environment. Creating jobs and reducing the high unemployment rate has been a top priority.

POLITICAL CONDITIONS
After his inauguration in May 2007 as France's sixth president under the Fifth Republic, Nicolas Sarkozy focused his first months in office on improving the performance of France's economy through liberalization of labor markets, higher education, and taxes. Despite significant reform and privatization over the past 15 years, the government continues to control a large share of economic activity. Government spending, at 52.7% in 2008, is among the highest in the G-7. The government continues to own shares in corporations in a range of sectors, including banking, energy production and distribution, automobiles, transportation, and telecommunications. Befitting wines perceived luxury good status, the general observation is that wine consumption per person increases as income increases.

CULTURAL AND LANGUAGE DIFFERENCES

The aspect of cultural differences seems to have no significant bearing in regard to the European countries. Language problems, not cultural differences are perceived as a trade barrier with France. In France, the willingness to communicate in English seems not exceptionally high, and as few companies have English-speaking employees, starting business with France is perceived as more difficult than with other EU Nations.

FORE School of Management 2010-2012 |IMG

Analysis of French Wine Making Industry

SOCIAL CONDITIONS
NATIONALITY French LANGUAGE French RELIGION Roman Catholic 85% (est.), Muslim 10% (est.), Protestant 2%, Jewish 1%. EDUCATION Years compulsory--10. Literacy--99%. POPULATION 64.3 million (including overseas territories); 62.9 million (metropolitan)

A HIGHLY QUALIFIED WORKFORCE France ranks among the top 5 for the number of employees with higher education degrees in OECD countries. France is ranked #1 for young employees with science degrees in Europe, and #2 in the world. . In October 2007, under President Nicolas Sarkozy's impetus, overtime work beyond the 35 impetus, 35hour work week was exempted from income taxes and payroll taxes, a move to encourage work and to increase work time. In July 2009, meanwhile, the French Parliament approved a controversial bill allowing more businesses to stay open on Sundays Sundays.

PROCEDURAL RISKS:
In France, the procedural risks are low because of the following reasons:

LOWEST COST OF CREATING/RUNNING A BUSINESS IN EUROPE

According to KPMG, France has the lowest According cost of running a business among the European countries studied. It It takes 7 days to create a company in France.

WORLD-CLASS INFRASTRUCTURE CLASS

One of Europes longest and safest road One networks One of the best high-speed train network speed Charles de Gaulle airports hub ranks 2nd in Charles Europe and 6th in the world Paris is accessible to major European capitals Paris within 2 hour

FORE School of Management 2010-2012 |IMG 2012

Analysis of French Wine Making Industry

WINE MARKET CHARACTERISTICS:

WINE CONSUMPTION: Share of world total, 2009 - 13.14% WINE PRODUCTION : Share of world total 16.09% WINE CONSUMPTION PER PERSON : Wine 57.44 litres WINE EXPORTS: Share of world total, by volume, 17.6%

VINE YARD AREA: World's second-largest total vineyard area -10.38 % of the world total

FRENCH WINE MARKET

WINE IMPORTS: Share of world total 8.0%

KEY TRADE BARRIERS AND ISSUES:

Tariffs Tariffs on wine are generally low by world standards Tariff escalation bulk wine tariff is lower than bottled wine tariff. Taxes Excise duties of 3.40 euro per hectolitre for still wine imports and 8.40 euro per hectolitre for sparkling wine imports is applied. Preferential arrangements / wine agreements Wine trade between the members of the European Union is tariff free. The EU has wine agreements with Australia, Chile and South Africa on the acceptance of EU standards. There are continued negotiations on an accord with the US that covers issues such as oenological practices, protection of geographical indications, and labeling requirements. Domestic support EUs Common Market Organization. The French Office of Wine and Vine is responsible for the administration of funding, including subsidies for the wine sector, which is provided by the French government and the European Commission. Export subsidies are granted to most of the wines. FORE School of Management 2010-2012 |IMG

Analysis of French Wine Making Industry

Intellectual property protection French wines are entitled to the Appellation dOrigine Contrle (AOC; controlled name of origin), which is based on a hierarchy of specific geographic areas known to produce the best wines. To receive any of these rigorous appellations, wines must be produced within specific areas and must meet standards of grape variety, alcoholic content, quantity of harvest, and techniques of vine growing and wine making. Typical examples are Champagne and Burgundy wines, which have geographical indication of being French wine producing regions. Sanitary and phytosanitary regulations Most important to wine trade are the EU regulations requiring that imported wines not produced with wine making practices authorized for the production of EU wine be labeled as such. That is, the process by which wine is produced can be a barrier to market access even though there may be no scientific evidence to suggest that these processes are any less safe than traditional processes. This can be an important barrier to New World producers of wine who may be using wine making practices that are innovative and not proven to be unsafe but are not yet recognized by the European Union. Technical requirements While different regions may have their own different classifications of wines, all wines produced in France are subjected to very strict labeling laws to protect consumers. The French Government has instituted regulations that limit alcohol advertising on radio, television, point of sale and event sponsorship. Technological Innovation Another important factor affecting wine production is the development and adoption of technological innovation in both grape growing and wine making. New World wine producers have enjoyed large increases in both the quantity and quality of wine produced due in part to the adoption of new and improved technologies. In contrast, countries within the European Union have become locked into specific production technologies through strict government regulation that has stifled any ability for productivity improvements and to some extent reduced their competitiveness in international markets. Organizations: L'Office national interprofessionnel des vins, abbreviated ONIVINS, is a French association of vintners.

CONCLUSION:
From the study of the French business environment, I would like to conclude that though starting a wine making industry in France would have the following advantages: Low procedural risk (It takes 7 days to start a business in France). Trade among EU Nations is tariff free. Highly productive and qualified labour French wines have a good brand image. 17.6 % of the worlds wines is exported by France. 13.14 % of the worlds wine is consumed by France FORE School of Management 2010-2012 |IMG

Analysis of French Wine Making Industry

But starting a wine making industry in France has the following disadvantages: LACK OF GOOD QUALITY: The appellation dorigine controlee (AOC) system is to be praised for its role in preserving wine diversity. But it fails to ensure quality. Marketing wines by AOC (e.g. Chablis) simply doesnt work. It assumes that regulations about yield, site, pruning, harvesting and so on ensure a certain level of quality. That they dont is evidenced by the fact that all appellations still produce lots of rubbish wine, and that the average level attained is mediocrity. In the new world the brand owners are the producers, and they have a very strong incentive to maintain quality. LANGUAGE BARRIERS: Lack of English speaking labour. Learning French is compulsory. LACK OF INNOVATION: AOC also fails spectacularly for cheap wines, and has been part of the reason that France has largely failed to produce successful brands. Export markets have grown fussy: the Australians have been able to make cheap wine through innovation, which tastes OK, so the same is expected of the French. LACK OF ADVERTISING AND PROPER DEMAND ANALYSIS: The French attitude has for too long been one of make the wine first, then try to sell it. Its the wrong way round. Things have changed over recent years. There is now a global over-supply of wine. The UK marketplace has been wooed by the wines of Australia, Chile, Argentina and South Africa, all of whom have been able to make cheap wines that taste good and which are easy to understand. They are also made in the sorts of quantities to match the demands of the supermarkets (where most wine is now sold), and support promotional campaigns targeted around single brands. These days, people who want to succeed in selling their wines look at the market and what it wants before they even crush a grape. LACK OF COMMERCIAL DRIVE: The modern marketplace is a tough one. At the top end, France has nothing to fear. It makes a diverse range of profound fine wines that the new world cant even begin to match. But the bulk of its production is more commercial wine, and this is currently very hard to sell because it is uncompetitive. Outside the fine wine sector, the French look doomed unless they can do something quickly to turn their wine industry around.

After considering all the advantages and disadvantages of starting a business in France, I would like to suggest that one should not start a wine making industry in France. REFERENCES: http://www.wineinstitute.org/resources/statistics http://www.intracen.org http://en.wikipedia.org/wiki/Economy_of_France http://en.wikipedia.org/wiki/French_wine

FORE School of Management 2010-2012 |IMG