MW Topic of the Week: China and Paper 4

This week, we're diving into Paper 4: the business of wine. A reminder – I'm studying along with you (as are  and ), so below are my notes and analysis as a thought-starter to this conversation, not the key to the castle  Two out of the last three years' exams have included a focused question on the Chinese market, and examiners have noted that a good understanding of that market would benefit any P4 question.
2017 focused on the potential and risks for exporting to China as an export manager: You are Export Director of an established large wine company producing in excess of one million nine litre cases (standard case 12 bottles/750ml). How would you seek to capitalise on the potential of the growing Chinese market for imported wine? What are the risks and how can they be managed?  
2019 meanwhile took more of a Chinese consumer point of view, and the impact consumer preference has on the channel: How do wine consumers in mainland China decide what wine to buy and what are the implications of their choices for producers and distributors?
Fundamental to both is an understanding of:
  • Strengths of the market
  • How distribution works in China (national/regional)
  • How consumers learn about – and most importantly buy – wine (here, an understanding of direct-to-consumer/DTC and digital sales matters immensely)
  • The impact of taxes and trade deals on the wine market (e.g. As of Aug 2019: 93% tax on American wines imported into China re: the US trade war versus free trade agreements with Australia and Chile)
How would you tackle this question and define your scope? Do you have any statistics to share? Any specific experiences you personally have had to bring up as an examples? Hard numbers always appreciated if they can be shared in a public forum.
Here are some resources my study groups have pulled together; others always appreciated!
  • A key aspect to consider is that in China, there is no three-tier system. To enter the China market, it's likely that an export director started with meeting a Chinese person/company called an "importer". That importer can import and sell wines to anybody in China - to wholesalers, to distributors, to retailers and direct to consumers. As an export director, it's necessary to identify the business nature, the business structure and the potential of the Chinese importer that help sell and promote your products.

    Regarding the potential of the market, it’s of course complicated because China is big and diverse. In MW essays, it’s important to use reliable information and data to back up the arguments, and also put some analysis and original thoughts. For example, when they say Australian wines are performing extremely well in the Chinese market nowadays, maybe it’s worth to consider what kind of Australian wines are doing well? Which Australian brands performed well? Where (in which cities/provinces) do they sell Australian wines that well in such a big country? Do people actually consume the wines for sensory pleasure, or do many people still buy most Australian wines for gifting purposes (maybe relevant to the 2019 question)?

    Now it's 93% tax on American wines to mainland China. But will it slow down the importation of ultra-premium American wines to China?

  • Anecdotally (per your last question), I was in a customs line the other day with a gentleman who turned out to be a Chinese wine collector, and all he could talk to me about was why he couldn't get his hands on more Opus One. We had to have a little discussion about how wine production works to start, but we kept returning to why he only got a 3 bottle allocation... and how much money he could make reselling if he could get more. Was interesting.