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
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
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
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
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
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
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
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 help to correct the deficiency in the previous literature but it will
also provide some key strategies to people who desire to expand abroad or to interact with the
Chinese community.
1.1 Contribution
The aid that this work offers is a more consistent application of a general strategy for breaking
through a sector relatively new in Asia, and that can be boosted and exploited in a
dramatically more efficient manner. The wine industry represents a significant untapped
potential because its massive benefits for the European economy still must be widely
harnessed. In fact, its trade is intensely related to wealthy entrepreneurs, collectors or young
hip people that try to emulate the occidental lifestyle but it is not considered such as a mass
product or a good to be consumed daily (Woodruff, 2012; Willsher, 2014).
1.2 Structure of the thesis
This study gives an extensive review of the literature about the effects that globalization has
the modern world. This phenomenon resulted in the Westernization of countries where a
gradual approach towards different ways of living would have been totally out of the question
until recently. The progressive modification of Chinese customs in relation to a more
European taste will be handled to explain the adoption of standard applications created by the
globalization. Then, the use of a general culture closer to all the world's citizens will be
debated so as to narrow down the search towards the impact of the wine sector that affected
the Chinese territory. Finally, the theoretical framework would be wound up with the tabling
of the CAGE model provided by Ghemawat to point out the main differences between the
European and Chinese markets. In that way, the identification of relevant sub-questions will
complement the central research question on which the dissertation is based. The process will
be an inductive search, and the study aim that may fit better is the exploratory one because the
focus is on perfecting the theory and exploring new conceptions and insights. More
information will be provided about the choice fell on the utilization of a qualitative approach.
Semi-structured interviews directed to European managers and experts within the wine sector
will be conducted to incorporate contemporary evaluations on the topic. Moreover, efforts
will be made to explain what strategies ensure success or defeat of the wine sector in the
Chinese world and why this market is still perceived so attractive. Italy, France, Spain, and
Albania are the countries addressed in the interviews. Through the results obtained, the
primary intention will be to create guidelines to help future managers in accessing the Chinese
2. Literature Review
The following section provides an extensive theoretical background of the current notions
previously processed by experts that are particularly significant for the argument discussed.
The purpose is to ensure that available models and notions will be able to give meaningful
insights towards the topic of the study.
2.1 The globalization phenomenon
The globalization is an invisible force that is leading to the integration of nations and
individuals of the world. This word is becoming increasingly common in the everyday
language because of its tremendous influence over the industrial employment, the
improvement of the living standards, the growing innovation and technological sharing and
the wide-ranging convergence of global cultures (Peng, 2015). Precisely as a result of all the
changes that has meant in the daily existence, naysayers of globalization put forward that it is
a brand-new strength starting out at the end of the twentieth century. It is spearheaded not
only by an always more vibrant and active digital advancement, but also by an Occidental
political doctrine centered on taking advantage and overriding the globe by the use of
multinational enterprises (Scholte, 2005; Held, 2007, Keohane et al., 2000). But really,
globalization is not anything new or a single force because, in all likelihood, it is simply a
pendulum that sways from side to side throughout the centuries. Under such circumstances,
the international markets have become extremely interconnected because of the immense drop
of conveyance and communication expense. However, due to its innate feature of
free-swinging, it changes over time, and it can show both bright and gloomy sides (Stiglitz, 2002;
Peng, 2016). But notwithstanding the ballyhoo, the globalization is not yet completed because
we are pretty far out to declare that we are living in a universally integrated marketplace in all
respects (Arregle et al., 2013; Ariño, 2015). In fact, this phenomenon is still a long way off
boundaries still have a significant role because otherwise, there would never be an accord in
the definition of cross-borders, physical distances or topographical context. Undeniably, the
boundaries of market integration at borders are high, but not sufficiently high to entirely seal
off countries from one another. It is specifically for this reason that companies might not have
waived to extend their authority overseas because they are enticed by some innate ambition to
expand abroad (Ghemawat, 2003; Ghemawat, 2013; LaConte, 2013). From the moment
humanity began, individuals always had the inevitability to go beyond their confines and
thinking out of the box. Consequently, they started to migrate, explore and discover new
countries but also face new challenges. Without this magnetism to internationalization, Marco
Polo never would have embarked on his successful journey to uncovering the East Indies and
the Asian population and so, The Travels of Marco Polo would never have inspired
Christopher Columbus in its successful conquest of the New World (Landström, 1967).
Ghemawat’s theory is the other way round of the notions put forward by Thomas Friedman.
According to the last economic researcher mentioned, the entire planet is flat and hence
everything has already been achieved and exploited. But actually, it is only through the
information described by Ghemawat that the study and the assessment of the extension in a
new country undertaken by a foreign company still make sense, and therefore also the
formation of a new commodity in a newly minted state (Friedman, 2005; Ghemawat, 2007).
In support of this view, the globalization phenomenon could be seen as the cross-border
integration of markets for goods, services, and funds. However, it does not necessarily imply
that it is a straightforward process because there are various risk drivers to consider such as
the economic, political, ecological and community aspects. The process of globalization
deeply renovated the international economy in an assembly of connected markets that interact
with each other effectively and efficiently without reading too much into the geographic
appearance of increasing number of transnational firms (Ohmae, 1990; Fraser and
Oppenheim, 1997; Brune and Garrett, 2005; Ghemawat, 2007).
Globalization in the 21st century is likely to be ruled by the progressively great
mainstreaming of a variety of tiny and medium-sized actors in the global system of
manufacture, free movement of commodities and flows of information and consciousness.
Moreover, its advancement is achieved as the result of various futures engendered by
companies from the outer boundary along with some others created from the center. On this
basis, the globalization does not lead to the convergence or standardization because
organizations from the Asia-Pacific area have been laid down as tenacious global actors not
homogenizing but embracing diverse standpoints and mindsets (Mathews, 2006). In view of
the above, the argument is not ideologically illustrative of what is happening in the
conventional reality because many other researchers have been able to testify the exact
opposite. Therefore, the scheme does not affect either homogenization or diversification
because the aspect erroneously overlooked is the indisputable “westernization” of the world
around us (Beck, 2003). This phenomenon started to become more evident in the 80s from the
moment when the rapid technology transfer, the international trade, the transportation, and the
telecommunication services sharply intensified and led to a considerable economic
development (McGee, 1991; Knox, 1995). On all these changes, an area where it is as clear as
possible to observe this evidence is the urbanization one. Indeed, in most of the leading cities
of Asia, the globalization process has resulted in the convergence to a remarkable degree with
those of the US and Europe. In fact, gated built-up regions, considerable department stores,
and dual carriageways are already getting largely westernized (Dick et al., 1998).
2.2 The drive towards westernization
Westernization is a method through which cultures fall within or assume occidental customs
linguistic and values (Thong, 2012). It is nothing new that one of the countries more
consistently affected by this phenomenon is the People's Republic of China, a nation where
adjustments and adaptations towards a more Western way of life are visible in many aspects
of the daily occurrence. Furthermore, the global free trade started to get more along the lines
back in the 1980’s as result of enhancement of information technology and more and more
everyday journeys in all universal seas. Exceptional quality, affordable price, and regular way
products may lead to firms in competitive advantages, and that is why humans’ predilections
have turned into standardized actions and thoughts (Johansson, 2010). First of all, this aspect
could be perceived within the Asian Pacific firms indeed if customers are gradually shifting
their outlook or way of thinking, the aforementioned viewpoint suggested by Mathews does
not find any basis in reality. Therefore, the globalization is indubitably changing Chinese
values towards a greater appreciation of the Western standards, and so, the theory that Asian
Pacific firms are just adopting a different perspective of strategies is incorrect (Tse et al.,
1989; Mathews, 2006; LaFarha, 2015).
In conformity with the convergence criteria, modern globalization is a process of
westernization that is inevitable, and it goes hand-in-hand with the developing awareness of
cultural differences. Indeed, growing cross-cultural communication, exchange, mobility,
population movements and sightseeing, all are a component that is setting up the
consciousness of cultural discrepancy (Pieterse, 2015). The Chinese genuinely changed their
personal preferences on behalf of a more European taste, and this growing influence of
Western culture affect people in their regular lives. This switching is readily observable in
their daily choices only by dint of a progressive reduction of foreign trade barriers, which
have enabled some categories of products such as fashion, music or food of infiltrating the
social and business structures of the Chinese society (Gerth, 2011; Frith, 2011). Through an
improvement has sprouted within their middle-class (Dong, 2009; Kharas, 2010). China’s
finest young generation is more than ever intrigued and attracted of experimenting this new
perspective of life: they wish to enroll in the most prestigious American or European
universities, or even they hope to see with their own eyes the greater freedom distinguishing
Western communities. If they have to choose between a Chinese or a foreign luxury fashion
brand, they will pick up for the Italian Gucci rather than a territorial name, or they would
prefer a German Mercedes compared to a Geely. They may buy an iPhone as opposed to a
Huawei and they might deny their roots dyeing the color of their hair blond or red (Wang,
2010).
It is precisely due to the global standards resulting from newly developed strategies that
marketing communications technologies and mass media are now distributed in the wider
world in real time with affordable prices. Thanks to an always-broader information flow, the
cultural sphere changed and now it is safely possible to state that we are living in a
“Macworld”. In fact, the Western culture - or even more notably the popular culture - has
been increasingly assertive and it has resulted in the dismantling of the cultural diversity
(Barkemeyer et al., 2011). The above-mentioned “Macworld” accurately describes the
integration of social media, television, theaters, sporting events, shopping centers, and food
court chain into a unique massive business (Barber, 1995). Shortly, the surrounding world is
on the way to a unique global culture that it will lead to a trend where the consistency and
convergence energies will eventually result in a single society where each one will behave,
believe and live almost correspondingly (Ritzer, 1998). At present, to give a simple
illustration, the only language that may be considered to be a monolithic extent embodying all
the Western perspectives of the globe and that is conjointly used throughout the world is
English (Reddy, 1979). The globalization phenomenon is then regarded as a homogenization
“Englishization” or “Macworld.” The English language could be seen as a theoretical Trojan
horse of the Western culture and comprehensive global vision (Wolf and Polzenhagen, 2009).
Some researchers are opposed to that vision of globalization because it is more likely
resulting in an automatic matching and mixing of local and global necessities. For this reason,
some philosophies are more focused on leaning towards hybridization or glocalization.
However, it is impossible to fail to notice the presence of a gradual process of
homogenization headed by streams and news of faster social relationship and liaison
(Pieterse, 1995; Robertson, 1995; Block, 2004). The American and European pop culture is
big and getting bigger in all the Asian countries and therefore, the Chinese society is in a
certain sense getting westernized. A profoundly representative word that may synthesize this
concept is the Cantonese term “Jook-sing” (or Banana in English). This word is always more
utilized by young Chinese who more willingly or warmly identify themselves with the
Western culture rather than the traditional Chinese one. Sometimes perceived as a pejorative
expression, jook-sing is actually an expression that describes an Asian individual who lives in
an Occidental nation and that has lost all sense of the conventional distinctiveness of his/her
home state. Specifically, the phrase stems from the fruit banana, which is "yellow externally,
but white internally " (Penaksovic, 1992; Louie, 1998; Quintero, 2006; Sung, 2011).
2.3 The modern world as dependent on culture and economy
While at the same time a vast range of the world's population is steadily altering parts of its
distinctive customs, it is also indispensable to point out that the contemporary culture is still a
chiefly disputed theme in all the peer-reviewed studies due to its volatility and involvedness
constituent (Almond et al., 2015). What it is clear, instead, are the massive cultural and
economic developments that took place in Eastern Europe or in the East, where some states
pioneered noteworthy financial and governmental changes. Taiwan, South Korea, China, and
industries with foreign direct investment, and thus they experienced a conspicuously fast
economic growth thanks to the globalization force. Firms should not overlook cultural matters
when they are engaged in position choices, even if accessing overseas countries with an
average cultural distance suggests a higher prospect of boosting earnings. Furthermore, it
seems that the opportunity to be successful is greater in the case organizations walk into
emerging markets with less openness, less risk and those that are economically and culturally
close to the home market (Hennart, 2007; Johnson et al., 2008; Schaan et al., 2008).
Obviously, embarking upon new offshore business projects is demanding because making
deals with foreign states inside the same bunch put both humans and organizations
indisputably at ease. Pooling the same policies, linguistic, standards, culture or past
occurrences allow overhauling the downsides that foreign companies tackle in host countries
owing to their overseas status. At a stage where the firm gradually enters many new countries
in a strengthening cycle nowhere near its local market, the company cultivates new assets and
develops superior awareness. The strategy applied by some MNEs shows that it is possible to
be successful also in countries where the cultural dimension is divergent (Huntington, 1996;
Tayeb, 1998; Johanson et al., 2009; Johansson, 2010). Even if some researchers interrelated
with the stage model state that corporations will expand in more culturally isolated countries
only during the concluding stage, many others are firmly convinced that it is more appropriate
to place larger prominence on the strategic objectives like market and efficiency instead of
concentrating only on cultural and institutional dimensions. Some nations that share different
beliefs or norms are ordinarily doing business together because, in the challenging analysis on
which it is based the process of decision-making whether entering or not entering in a foreign
country, location is just one of the multipart aspects to take into consideration. Indeed, also
excellent timing and entry modes are not to underestimate (Pan et al., 2000; Xu et al., 2002;
Johanson et al., 2015; Peng, 2015). Several of the biggest companies that are relevant in the
territorially dissimilar to their native country. Despite this, it does not mean that they did not
manage to occupy a prominent position in nations where the cultural barriers were high.
Following the establishment of two thousand stores in China, the American Starbucks has
completed a proposal declaring that the Chinese market is going to be its landmark not later
than the end of 2019; Gucci's largest market is situated in the Asia-Pacific zone where nearly
40% of its returns are created. Over and over, Mercedes-Benz Malaysia is the market in which
the biggest increase in sales was observed in 2015, and it is also becoming one of the most
dynamic regions in the world (Brown, 2016; Tianran, 2011; Weidner, 2015). On the same
level, it happens very often that some multinational enterprises carry out acquisitions in
ethnically foreign countries. The acquisitions take place when MNEs present a little
international experience or give subsidiaries the opportunity to develop sufficient autonomy
in the marketing field; otherwise, the hypothesis to enter a culturally distant country through
Greenfield appears more likely. Contrary to the claims of critics who say that M&A are less
favorable compared to Greenfield, generally this relation stems from firms that fit into
culturally distant or less known countries via M&A. Hence, this failure is entirely related to
the competitiveness and inadequate knowledge of the culture of the host country. In fact, there
is not a better or less effective alternative for the entrance into new territories (Shaver, 1998;
Slangen et al., 2008). In this context, a lot of goods that were totally irrelevant in other
cultures now have taken over a remarkable market share that was out of the question until a
few years ago. This process started between the 1950s and 1970s when Western nations were
no longer engaged in the global investment and exchange of commodities because of the
rising Communism and the Cold War. So, some developing economies in the Asian
hemisphere started to participate in the worldwide economy, cleverly making the most of this
uncertain and unstable situation (Rider, 1998; Peng, 2015).
unindustrialized nations in the late 1990s, now this phenomenon happens to be pointing again
on some Asian economies (Khalid, 2003; Cerra et al., 2008). Recently, East and Southeast
Asia have indeed become one of the most attractive places to invest, work or live thanks to
their impressive economic and social development. Moreover, a true understanding of all the
peculiar characteristics of those countries has become essential to provide an exhaustive clear
distinction between the Western and the Oriental world in its entirety (De Cieri et al., 2009;
Baker, 2010; Insch, 2011). They are two drastically divergent universes not only concerning
their topographical position but also in their predilection and approach to handling the same
effort with a different viewpoint. Distinct communities throughout the world have separate
past, and they conserve different values. In fact, there is not a universal human values system
yet, and probably there will never be because dissimilar societies have different resources and
meet various practical problems. Additionally, it is clear that political and economic factors
have had an impact on those two distinct realities but the dimension that has suffered an
irrevocable permutation is the cultural one because it is the cause of all the significant social,
behavioral and attitudinal dissimilarities. Those distinctions led to not congruous wants and
needs, but gradually the cultural diversity has lost some of its main features and values for the
popular culture (Huntington, 1996; Berger, 2002; Hofstede, 2007). In this regard, some goods
rarely used or wholly free of any tradition have developed far beyond national borders and
established themselves in all facets of life. An item that imposes itself on others and that
stretched to all conduits without an equivalent is the example of the wine insertion and
consumption in China (Dougherty, 1990; Wakolbinger et al., 2013; Muhammad, 2014).
2.4 The case of wine in China
A new industry traditionally belonging to the range of others that had a beneficial impact in
countries where its dissemination was considerably modest and limited is the wine trade.
widely used Asian alcoholic drinks (Lee, 2009). Particularly, the country where wine spread
has achieved remarkable peaks during the past decade is China, in which its consumption has
reached incredible results to the point of decreeing China as the fifth largest wine market
worldwide in 2015 (Vinexpo Hong Kong 2016). This steady growth is chiefly due to four
motives: 1) a transformation in the Chinese culture thanks to an extensive socio-economic
wellbeing of the bourgeois; 2) an always fiercer view shared by many that red wine has
favorable influences over their own bodies and health; 3) a grander inclination to consume
'low alcohol content' related to hard liquor or spirits; 4) the ongoing opening up to foreign
markets after Maoist China through economic and financial changes (Lee, 2009, Xu, 2011;
Somogyi et al., 2011).
Little attention has been paid to the introduction and tradition of wine in the Chinese territory
in the previous literature. Nevertheless, contrary to what the collective imagination might
suggest, wine has a long history in China in fact the first traces of grape wine is dated back to
4,600 years. However, the product was mingled with other grains such as oat and rice so as to
obtain a compound of brewed different alcoholic drink. For this reason, Mainland China is not
only the longest-lasting society of the planet, but it is also the nation where grape wine should
be regarded as the most common beverage. Unfortunately, various factors have led to a very
troubled history, mainly littered with terrible vicissitudes and obstacles, which probably have
impaired its high circulation (Kjellgren, 2004; Rozelle et al., 2006; Hubble, 2013). There have
been some interesting findings, which demonstrate the wide distribution of wine in Bronze
Age China (c. 2000–700 BC) and also during the Han dynasty (206 BC–220 AD). After this
period of prosperity, successive Chinese dynasties restricted the free movement of wine due
to various wars and epidemics that hit the Empire. Indeed, the production and cultivation of
this product have always been seasonal and limited during disaster relief. During Tang
because of this rough technique, the flavor of the result was not particularly pleasant which
led to its widespread failure. Including at the point when the wine had its finest hour because
particularly appreciated by the sovereigns of the Yuan dynasty (1206-1368), the method for
creating the beverage was still quite a long way away from the grape wine known nowadays..
The wine sector does not have a significant impact on its recovery both during the Ming
(1368-1644) and Qing (1616-1911) Dynasties. After a gradual resumption, the wine
manufacturer has been impeded once again with the offensive establishment of the
Communist Party of China that prohibited the item till 1978 when its acquisition and
employment were refurbished. Consequently, the early 1980s were characterized by the
gradual opening up to the Western world in various sectors (Huang, 2000; Kjellgren, 2004;
Demei, 2013; Florcruz, 2015; Wang, 2016).
The reason why grape wine is always being considered and perceived as one of the most
famous Mediterranean delicacies is essentially because the wine known in the modern sense
of the term can only be adequately obtained through the European species “Vitis vinifera”
(This et al., 2006). But unexpectedly, this particular species of grape was introduced in China
in olden times, despite the fact that grape wine kept playing a subordinate role in the drinking
scenario in its entirety (Li et al., 2011). Greek settlers have contributed its dissemination in
China when scouted out some Chinese regions such as Xinjiang in the second millennium
BC. Particularly, the Xinjiang autonomous region is the only Chinese territory in which the
cultivation of Vitis vinifera was pretty standard and, precisely for this reason, this is the only
area where grape wine production remained consistent. In fact, grain beverages have replaced
its production very rarely, contrary to what occurred throughout China over the centuries
(Temple, 2013; Plocher, 2003). Indeed, bunches of grapes are not merely seasonal in nature.
Anyway, the reason grape wine has never been considered as an appealing beverage
notwithstanding having a huge story, it is because it has always been narrowly connected to
the extended and densely populated Mainland China has consistently been subsistence
farming. However, given that the financial and social conditions of the nation have never been
flourishing and rosy, wine manufacturing was always going to depend on the decent
agricultural and environmental status of the crop of wheat to prevent a million folks die of
starvation (Zhengping, 2011). Mainly for antique reasons, wines and spirits consumed by the
Chinese populace are principally manufactured by grain. The living conditions of the greatest
number of Chinese people have improved only during the last twenty years and, for this
reason, despite being clouded and eclipsed by alcohol products of various kinds, grape wine
utilization is experiencing a time of great renaissance and opportunity only now. After the
implementation of structural reforms starting in the 1980s, Chinese trade for the first time
came in contact with other realities, and this has facilitated the gradual opening up to a more
Western taste. This factor contributed significantly to the expansions of local wineries from
the Chinese larger urban centres to other areas less dependent on foreign imports (Rozelle et
al., 2003; Kjellgren, 2004; The Economist, 2013).
China still consists of an undoubtedly massive market whose tremendous assets have yet to be
abundantly exploited by European businesses and, above all, by wine organizations (Curran et
al., 2014). With a population consisting of 109 million citizens with financial resources
between $50,000 and $500,000, China is the state with the largest quantity of moneyed
persons on the planet (Yan, 2015; The Telegraph, 2015). Chinese purchasers are offering
excellent prospects for proactive transnational companies, and now quite a lot of investors are
carefully watching China as the leading market for a long time to come. Because of increasing
adjustment and adaptation of their personal tastes, Chinese are not only sharing many
Occidental traditions, but they are also redesigning common trading patterns with their habits
and heritage establishing new commercial opportunities (Anderlini, 2009). Foremost
Chinese recent turnover has brutally hit various sectors of the Chinese economy, and so also
the wine industry was not spared from the financial crisis. Since 2000, there has been a
significant upturn in wine consumption and this phenomenon saw its economic and
geographical expansion from individual producer nations, chiefly France and Italy, to new
wine passionate, such as China and The USA. In fact, from 2009 to 2013, the purchase of this
product has reached peak rates of 162 million cases a year, making China the global reference
market as regards the selling of red wine (Willsher, 2014; Hennelly, 2015; Ge, 2016; Mercer,
2016). Properly because of the policy of austerity adopted by the current president and the
economic hardship that China experienced, the wine market hit a bump after a decade of
uninterrupted growth. In any case, this unexpected strong deceleration in wine consumption in
late 2013 has in some way influenced the industry in a positive direction. in the early stages of
its expansion, an inadequate and exorbitant speculation about wine prices was practically a
daily occurrence due to the high level of corruption that marked the Chinese system. Today,
thanks to strict public juridical measures, the government has allowed the establishment of a
healthier market and a much more consistent purchase on the part of loyal consumers. In fact,
since the beginning of 2016, the consumption of this product in China has once again
demonstrated its potential given that it has been able to achieve again the results obtained
before the financial crisis (Gao, 2016; Ge, 2016; Vinexpo Hong Kong, 2016). This general
reactivation of the economy with regard to the wine market should encourage talented
European producers in the conception of new opportunities that were hidden because of
unspecified boundaries which distinguished China (Ho, 2015; Joannin, 2015). Indeed, the
local market is still mainly characterized by the acquisition of wine manufactured within the
limits of the Chinese territory and so only 30% of the wine acquired has foreign origins. In
this particular context, European countries should try to exploit segments that remain
untouched, despite the considerable potential showed but still untapped (Butch, 2016;
2.5 Europe vs. China: The AAA & CAGE models
Geographical integration is nowhere near complete and, more than likely, it is going to stay
this way as long as a distant future will face. It is necessary to handle the various
discrepancies amongst marketplaces so as to establish a prominent position on the world
scene. The globalization phenomenon has diminished differentiations between countries,
particularly by ensuring the opportunity to make use of analogies among themselves.
Moreover, it also gave the chance to combine and assimilate the global value chain more
efficiently, assisting in overcoming practical differences that have remained in existence. The
magnetism held by external markets is influenced by the competitive advantage and by the
company assets. Furthermore, the agglomeration of the global economies would allow
companies to share fixed prices and improve technologies. Numerous approaches have been
recently planned to lead firms towards this direction. However, numerous compromises
between global efficiencies and indigenous requirements have not been overrun (Rodrigue,
2006; Ascani et al., 2012; Kluyver, 2012). Ghemawat’s “AAA” global strategy framework
proved to be the correct starting point for dealing with various dissimilarities between
different states in the international integrations adapted by various organizations. In fact, the
CAGE model is more suitable to be used when firms venture into the process of entering or
not entering the foreign market, taking into consideration the cultural, legal, operational and
economic dimensions. When a company has already experienced some overseas businesses,
the AAA theory might give rise to interesting reflections given that it is more focused on how
to preserve a successful business in foreign states distant from the home country (Collins et
al., 1998; Ghemawat, 2001; Ghemawat, 2007; Collins et al., 2012; Campbel, 2014).
The AAA triangle model, in which the three As indicate Adaptation, Aggregation, and
Arbitrage, suggests three broad methods to worldwide value-added. The Adaptation approach
incentives for a firm to adopt local customs and practices in the entrance into a brand new
market. This method makes it possible to increase considerably the future cash flow, to spread
out the market share and to build in new clientele in the nascent market environment by fitting
some local predilections and necessities. Moreover, it enables firms to fit comfortably with
the requirements of the state considered, and it encourages a local approach given that the
CAGE model refers to the world not entirely globalized yet. Implementation of the CAGE
framework allows managers to recognise and evaluate the effect of distance on numerous
businesses. Distances still matters in globalization because the more two nations are different
in their nature in accordance to 4 specific dimensions, the more dangerous the target foreign
market. The values of the above dimensions vary between populations and countries given
that they refer to the cultural, administrative, geographic, and economic distance model.
Culture has frequently an imperceptible but permanent impact on individuals` beliefs and
attitudes. Administrative dimension reproduces the past and contemporary political and
bureaucratic relations amongst commercial partners. Geographic distance refers to the
physical discrepancies between two states. Lastly, economic distance defines essential
distinctions in relation to finance, income, and the purchasing power of a geographic market.
The Aggregation approach takes a rather different view from the one previously explained
because it does not adapt to dissimilarities but it rather focuses its attention on exploiting
similarities and creating synergies among distant countries. This method attempts to
accomplish economies of scale and economies of scope by generating superior involvement
and effectiveness in the manufacture and development procedure, through the use of
standardization. Given that this strategy is more focused on the regional level, the distance
should not be restricted solely to the geographical dimension because also the economic, legal
or cultural ones are well placed to deal with the aggregation tactic. The Arbitrage approach
takes greater care to the evaluation of the general situation concerning the globalization of an
countries where the business is operating. So, leveraging economies of scale and scope results
essential for the survival of commercial transactions. In fact, this approach is concerned with
the creation of a global value by making use of the degree of differences in the independent
supply chain’s portions in distinct countries. Specifically, if a company is struggling to
achieve positive outcomes in a single country but it excels in another one as regards
production processes, it is possible to transfer the competitive advantage and the
competencies from one country to another thanks to economies of scale. Besides, The CAGE
model is still to be taken into consideration to exploit differences in the most efficient way
(Ghemawat, 2001; Ghemawat, 2007; Gupta, 2015). Either way, firms can implement from a
minimum of one to a maximum of two of these strategies because, otherwise, the complexity
may damage the effectiveness of the AAA Triangle model. With these purposes in mind, managers should understand which features and components will meet their businesses’
necessities and prioritize correspondingly.
Companies adopt several stratagems to upsurge the odds of efficacious accomplishment
depending on the market surroundings. The distance has always been perceived as a negative
force on international investments, but there are also examples of positive effects on the
global business value creation. Multinational enterprises can overcome the distance thanks to
firm-specific advantages because some benefits could be accomplished only towards an
international expansion. Still, the delineation of the distances is not something well defined or
codified in the transnational showground, and for this reason, it is beneficial to rely on the
CAGE distance framework. The model helps to identify and evaluate the differences between
countries, considering four types of forces given that the gap between nations is a
multidimensional concept (Ghemawat, 2001; Buch, 2004; Rugman et al., 2008; Biggs, 2013;
Table 1. Cultural differences between Southern Europe and China
CULTURE Southern Europe People's Republic of China
Languages The dominating factor that connects in
some way those countries is the ancient use of Latin language in most of the regions. However, given that every country has got its cultural identity and that the European Union establishment is relatively young, the heterogeneity is undeniable. In any case, English is the language of business and political communication (Phillipson, 2003).
Ethnically and linguistically, Mainland China is more homogeneous compared to Europe because there are only two official languages: Cantonese and Mandarin. Conversely, local dialects are very widespread (Liang, 2014).
Religion The leading faith in Southern Europe is the
Christian religion, even if Greek Orthodox and Roman Catholic are common in some areas (Davie, 2006).
Chinese folk religion is the fastest-growing religion in the PRC. The rest of the population is atheist or Buddhist (Fan et al., 2015)
Social norms Body language, the perception of time,
family-focused, individual networks, exposing themselves and traditions are relevant, “meridionalism” (Tassinari, 2014).
Confucianism, collectivism, guanxi, gift giving, the importance of “face,” non-verbal communication (Commisceo, 2015)
Social networks Facebook, WhatsApp, Tumblr, YouTube,
Twitter, Instagram, LinkedIn and Snapchat are the most popular social networks in the Western world (Statista, 2016).
The social networks segment in China is very spotty, local and fast changing. The most common are We Chat (go-to platform and P2P transfer), Taobao or Alibaba(e-commerce) (Flemming, 2016).
Food & beverages This sector is extremely heterogeneous
because every single state has its traditions and recipes. Moreover, every region within the same nation has its specific features. Oil, steak, wheat flour bread and dairy products are preferred. The primary factor that links all the European countries is the historical tradition for wine; indeed “Vitis vinifera” owes its public thanks to Christian rituals in the Mediterranean area (Fuller, 1999).
Like other areas of Chinese daily life, the cuisine is deeply affected by geographic range and cultural variety. Rice, pork, tofu, soy, and tofu are the primary food source (Zimmermann, 2015). As regards beverages, tea, rice wine, beer, and Baijiu are the most common (Huang, 2000).
Traditionalism Sport, capitalism, science development,
painting and sculptures, pop culture, cinematography, capitals of culture, westernization, fashion, Christmas (Inglehart et al., 2000)
Kung Fu; liturgical stories; Spring Festival; Spiritual Buddha's statues; fireworks; dragons; paper lanterns (Zimmermann, 2015).
Diaspora It is not possible to define a diaspora
correctly from European citizens to China, but according to the last untraceable data, expatriates prefer to live in Shanghai, Beijing, and Shenzhen. About 10% of the overall 600,000 expats living in China are French, Germans, Italians and Spaniards (Scout Real Estate, 2015).
In the last few years Europe faced a great wave of immigration by Chinese immigrants, and now Southern European countries (Italy, France and Spain) seem to have become the most popular destinations (Latham et al., 2013).
Table 1 shows the cultural dissimilarities that make Southern Europe and China unique and
distinct. Given that the internal distinctions for Europe as a whole are clearly obvious to
everyone, the analysis has sought to highlight the characteristics that unite the countries
manufacturing wine. Cultural differences tend to make investments and the commercial
exchange between separate countries more difficult. In the last two decades, the wine business
improved unbelievably in China thanks to the noticeable intensification of a more demanding,
flourishing and refined middle class that led up to a kind of transformation of palates and
customs to the conventional Chinese culture. Over the past decade, the domestic wine was
capable of fulfilling the overwhelming majority of the demand. Indeed, European traders in
the Chinese internal market exported only about 5 percent of wine acquired. European wine
makers have never contemplated the idea of changing their recognized homegrown goods for
the advantage of a roughly more oriented outcome relating to bigger targeted Chinese tastes.
But in spite of that, higher incomes and an improved highlighting on the standard of living are
generating unexpected prospects for wine. Especially in the last few years, the percentage of
acquired or distributed wine deriving from international trade has perceived an increase of
30%, and it is foreseeable that imports are bound to grow as long as around 800 million liters
by 2018. This improvement in consumption resulted from a westernized elite located in the
biggest Chinese metropolises that gradually recognized the formidable promising future of
grape wine thanks to its tremendous wasted potential and their innate highly brand-conscious.
This delayed predisposition has contributed to the strengthening of high-level and polished
merchandises thanks to this reasonably limited group of Chinese people. For this reason, a
slow but steady habit of consuming Western products in fancy hotels, boutique, nightclubs,
and restaurants rose to unprecedented levels of popularity in any city located on the territory
of China (Rozelle et al., 2006; Anderlini, 2009; Florcruz, 2015; Kumar, 2015; Butch, 2016).
These achievements strengthened by an increased susceptibility to foreign goods have
differences that characterize consumers in Asia. An aspect that should not be underestimated
in the process of European and Chinese taste rapprochement is the striking amount of
travellers that every year reaches far away coastlines to bargain luxury commodities in the
native nation of their desired brands. This aspect is helping managers to understand better the
Chinese users because Europe continues to symbolize the ideal destination for most Chinese
tourists outside Asia. Besides, Chinese’s passion for high-end products does not seem faded
given the fact that they wholly acquired 46 percent of all luxury goods such as fashion, food
and beverages and technology available on a global scale in 2015. One of the most common
items to take back to their homeland is wine (Martin, 2016; Daily, 2016). Wine lovers in the
People's Republic of China have a distinctive perception of this product. Indeed, it could be
seen as a status symbol, as a pain reliever, as a healthy product or as a good that embeds a
brand spanking new lifestyle. Chinese used up around 135 million boxes of red wine in 2015,
and the success of red wine is mainly due to the color of the product that is largely
emblematic in China given that it symbolizes happiness and good luck. The red color evokes
the popular traditional storytelling of Ancient China in which a legendary monster called Nian
was terrorizing the whole China with the approach of each Chinese New Year. So, to prevent
the frightening assaults of this beast, the only solution was the usage of some vermilion
liquids as a safeguard (Kumar, 2015; Rehberger, 2016; Chinese Chamber of Commerce in
The Netherlands, 2016). This general situation of prosperity cannot be associated with white
wine because it could be chalked up to negative connotations such as death or sadness. During
tasting tests consumers like the flavor but in the purchasing process, Chinese perceive white
wine as something unhealthy, very acidic, or girlish. Moreover, it might be misunderstood
because it reminds the Oriental rice wine or Baijiu – a beverage containing high alcohol
volume and with a not very pleased savor (Marketing China, 2012; One World Nations
Online, 2015; Boyce, 2015). Taking into consideration the main distinguishing characteristics
factors that had led to the intensification of wine such as a regular purchase by wealthy
consumers or Chinese travellers around Europe, the following sub-question was made. Its
main goal is to investigate the difficulties that managers have to face in the introduction of
this product, despite the numerous cultural dissimilarities that differentiate the two societies.
Sub-question (SQ) 1: “How do European managers identify the cultural differences which
Table 2. Administrative differences between Europe and China
ADMINISTRATIVE Europe People's Republic of China
Colonial ties The colonialism event has a historical
connection to Europe because it involved predominantly European countries that undertook several trips abroad to securing new areas of influence in various regions of the World from the 16th century to half of the 20th century (Stuchtey, 2011). China did not engage in proper colonialism because the Emperor was always veering towards tributary networks rather than European style colonization. Moreover, the Chinese tributary organization did not cease until the Opium Wars, without which the opening of its market would not happen (Eisenman, 2007).
During the First and Second Opium Wars, China was defeated, and so it was forced to grant some concessions to the European winners. Hong Kong was passed on to the British Empire, more than ten port cities were opened to European traders and foreigners were entitled to travel in Central China. Nevertheless, this phenomenon could be labeled as semi-colonialism because the UK and the United States' link with China brought in the influence and control of its economy and commerce rather than a real invasion (Allingham, 2013; Volz et al., 2010).
Currency Euro, EUR, €. Renminbi, CNY, ¥. The Chinese Yuan
increased in value just shy of 20% against Euro in the last few years (Chen et al., 2015).
Trade agreements Recently, China is the EU's 2nd
negotiating partner just behind the US, and it also matured in one of the EU's fastest rising export markets. (European Commission, 2016).
a. “Horizon 2020” is a pact that stimulates long-term joint R&D partnerships between the two countries (EUbusiness, 2016).
b. “The Joint Communication on elements for a new EU strategy on China” was held in June 2016 to promote long-term advantages for both populations (EUbusiness, 2016).
c. “Investment Plan for Europe,” and the "One Belt, One Road" initiative, discussed at the 17th EU-China Summit (Bendini et al., 2015).
The admission of China into the WTO in December 2001 led to a dramatic increment of commercial exchange between UE and China. The WTO solidified the EU as China’s major trading partner for the past ten years, in fact, the turnover shared exceed €1 billion per day (European Commission, 2016).
Some trade agreements:
a. “The EU-China 2020 Agenda for Cooperation” is the highest-level joint document in EU-China relations (EUbusiness, 2016).
b. In the current years, there has been a rich debate on “EU-China FTA”: Chinese government started contemplating free trade agreements with the belt and road countries (Ministry of Commerce of China, 2016). c. The EU-China Connectivity Platform in 2015 (EUbusiness, 2016).
Political hostility The above-mentioned “EU-China 2020
Strategic Agenda for Cooperation” resulted in uncertainties because it testifies the increasingly dominant influence of the Chinese political impositions on the world (European Commission, 2016.) China remains displeased with the EU’s failure to grant the state “market economy” position, and it genuinely believes that this situation could restrict the Chinese open up to the Single Market (Bendini et al., 2015).
The EU is getting on with fully opening trading affairs with China more and more. However, Europe demands that China trade honestly, is more transparent in all operations, respect intellectual property rights, and reduce government interference in the economy. The EU is encouraging China to play a significant involvement in the WTO and other multilateral and plurilateral negotiation works. Also, Europe no longer tolerates the corruption issue in China (European Commission, 2016; EUbusiness, 2016).
Trade in goods and services
Trade in goods from China represented €350 billion in 2015. The EU trade deficit in goods with China is around €180 then (EUbusiness, 2016). Trade in services from China accounted for €25.7 billion in 2015 (Eurostat, 2016).
Trade in goods from the 28 EU Member States is estimated at €170 billion in 2015 (EUbusiness, 2016).
Trade in services from EU to China is € 25.7 billion in 2015. The EU-28 noticed surplus in trade in services with China is €10.3 billion (Eurostat, 2016).
Delicate Issues The EU perceived many prospects to
channel China's growing dynamic contribution to international governance, safety and defense issues in zones of mutual relevance (EU-China cooperation in Africa) (EUbusiness, 2016).
The EU has undertaken to promote the global human rights ‘protection and requires that China introduces the same thorough rules (EU-China Human Rights Dialogue held in 2015). Through the “EU-China Legal Affairs Dialogue” held in 2016, the two states nations have established a political link composed of a better comprehension of their distinct legal system ((EUbusiness, 2016).
Corruption Northern Europe is the least corrupted
geographical area all over the world but, nevertheless, Eastern European countries are still the long distance from the EU standards. The estimation of total loss brought on by corrupted European countries led to a loss of £782 billion in 2015. Those negative results are above eight times compared to the previous estimates (Owen, 2016).
China's President Xi Jinping planned to fight dishonesty towards anti-corruption campaigns, but this strategy is sowing terror and vastly damaged the Chinese economy for more than $100 million in 2014. Also, censorship in China is still incredibly high because of the “Not Free” press status of the country, and the level of corruption has reached record levels within the two-year period 2014-2015 (Hewitt, 2016; Freedom House, 2016; Transparency International, 2016).
Source: Author
From an administrative point of view, table 2 demonstrates that the two countries are quite far
removed from one another in connection with differences in laws, policies, and institutions.
The Chinese government can influence without great difficulties the consumption of wine in
the country through the medium of strict regulations, import taxes, fees and customs
detention. The decrease in wine purchase provoked by the anti-corruption program instigated
in 2012 has eroded the market share of the industry. In fact, it has resulted in the dramatic
reduction in the level of dinners, banquets and additional events wherein imported wine
would be widely consumed, or given as a gift to state officials (Bellamy, 2012; Donovan,
2014). These kinds of restrictions have been implemented because of the elevated level of
corruption previously legally residing within the government. Indeed, Chinese administrators
own personal gain by use of public funds. By the time the austerity program was adopted and
put into effect by the Chinese governor, some people were making massive bets that these
measures would fail or that it would have been relatively short-lived. For this reason,
European managers were not concerned with the strict policies taken suddenly by the
competent authority. So, the impact on sales has been traumatic because very limited
precautions were taken in time. But anyway, reducing luxurious articles spending by
administrators, also as regards high-priced wine bottles, has made it possible to quicken the
initiation of a business concentrated on customer needs. In fact, whereas the anti-corruption
laws have affected the upper range of the marketplace considerably, non-local wines for a
reasonable price are progressively purchased and appreciated by a younger and excellent
Chinese customer base (Timms, 2014; Boyce, 2016; Wu, 2016). The group of people that are
gradually bringing a breath of fresh air to the traditional system is the wealthy and literate
young Chinese people. They are not only in the position to pay a premium price for an
imported bottle of wine, but they are also willing to try something new from their culture.
(Gao, 2016; Chinese Chamber of Commerce in The Netherlands, 2016; Verot, 2016).
Contemplating the central individual features of China and Europe examined in table 2, and
furthermore the rigid regulation adopted by the government in order to limit the entrance of
some foreign goods and to reduce the corruption at the highest levels of the bureaucratic
structure, the subsequent sub-question was prepared. Its objective is to deal with the legal
complications that firms and managers have to deal with the wine placement on the Chinese
market.
Sub-question (SQ) 2: “How do European managers identify the complex legal systems within
