Olde Distillerie Going Global With Term Paper
- Length: 15 pages
- Sources: 12
- Subject: Sports - Drugs
- Type: Term Paper
- Paper: #4950119
Excerpt from Term Paper :
The rules and regulations are designed to level the competition and to disrupt advantages of a country based on price and favored tax status. All of the countries in the union must abide by these tax and trade regulations. In January of 2004, Denmark and Sweden were forced to remove import restrictions on alcohol purchased for personal consumption (EPHA, 2007).
A recent decision by the European Court of Justice (ECJ) determined that the Swedes have attained a monopoly on alcohol. They are attempting to limit the general consumption and limit underage drinking in their country. Alcoholism is considered to be problematic in Sweden and lawmakers see a need to take measures to attempt to curb overall consumption of alcoholic beverages.
The effects of this decision are two-fold, when one considers the impact on expanding Olde Distillerie products to Sweden. The first affect is that this decision supports alcohol as an imbedded cultural construction in Sweden. It means that alcohol has a large market and a large market acceptance. However, this action also means that there is a concerted effort to reduce the size of the market in Sweden. The government is likely to launch a campaign in the next several years that will attempt to limit alcohol consumption among Swedes, promoting the negative impact of alcohol abuse. This will harm alcohol sales in the country by both domestic and foreign and domestic producers. It was determined by the ECJ that these new rules will not discriminate against products from other EU states, but it will effect overall alcohol sales (EPHA, 2007).
Commercial imports of alcohol are restricted by the "alkohollag" which controls all aspects of trade and production of alcohol. This organization allows a retailer monopoly (EPHA, 2007). However, the internet and the ability of individual consumers circumvents these restrictions. Sweden cannot prevent individual consumers from importing alcohol for their own personal use (EPHA, 2007). However, Olde Distillerie products would still have to comply with commercial laws and would be restricted by the Swedish retail monopoly.
Sweden has a total estimated population of 8,878,085 as of July 2003 estimates (CIA, Sweden, 2007). The largest segment of the population is between 15- to 64-year-old at 65% of the population. Seventeen percent are above 65 years of age (CIA, Sweden, 2007). His translates to a population for marketing of approximately 683,000 potential consumers. Male and female populations are relatively evenly distributed in the 15- to 64-year-old age group. The potential for sales is significant. However, the new crackdown on drinking may have a negative impact on the potential target audience.
The tax scenario in Sweden favored domestic companies. However, the EU has forced compliance with rules that prohibit actions such as this. At the current time, custom rates based on the final value of the product are at 25% (FedEx, 2007, "Sweden"). The current sales plan is to market Olde Distillerie whiskys as a premium brand, which means that they will be subject to a higher customs tax than lower priced brands. However, when one factors in the profit potential of higher priced brands, this evens out the effects of the higher taxes. A lower priced brand is subject to the same tax rate, but the taxes consume a higher percentage of the profits than do higher priced brands.
The market potential in Sweden is high at the present time due to the ingrained nature of drinking in their culture. However, it is expected that marketability to alcohol products will be significantly reduced in the future as a result of anti-drinking campaigns that are being undertaken by the government. High customs taxes in Sweden will further compound the ability to attain profits. This eliminates Sweden as the final candidate for expansion.
Italy is proud of their own traditional Italian wines, which predominate the Italian drinking scene. Approximately 66.4% of the 58,147,733 Italians are between 15-64 years of age (CIA, "Italy," 2007). This population is significantly higher than the potential target audience in Sweden. Drinking is a culturally accepted practice that has no limitations due to culture or religion. The median age of the Italian population is 42.5 years old (CIA, "Italy," 2007), which makes them the perfect target for the marketing if premium Scotch whisky.
Italy has recently experienced an event that indicates market readiness of the population. Campari has recently purchased the Morayshire Distillery in Scotland (McKean, 2006). This is the distillery that produces Glen Grant, a popular Brand on the global market. This move indicates that Scotch whisky has a significant enough place to make this purchase feasible based on market. Olde Distillerie whiskys are priced significantly higher than Glen Grant. However, this also represents an untapped market for premium brands. This coupled with the fact that Italy ranked as the fifth largest consumer of Scotch whisky in 2004 (Ludo, 2006), makes Italy a potential candidate as far as market-readiness is concerned.
The European Union allows for movement of goods between Italy and the United Kingdom. Under the General Preferential Tariff (GPT) agreement, duty-free is allowed for direct importation of goods from other member states (FedEx, "Italy," 2007). The Value Added Tax (VAT) rate in Italy is 20% (FedEx, "Italy," 2007), which is considerably below that of Sweden. However, this may be offset by a countervailing tax meant to prevent foreign competition from taking sales from Italian companies. Like Sweden, Italy uses the final sales value of the product to determine the tax rate. This may force the Olde Distillery to lower wholesale prices in order to account for the tax. However, this makes it an attractive proposition to entice retailers to stock their brands. This translates into higher profits for retailers, particularly for premium products, which makes Italy an attractive candidate as a first expansion.
Further research needs to be undertaken to determine the exact countervailing tax rate that would apply to Olde Distillerie whisky. It is not suspected that the countervailing tax will be excessively high in this case, as there are currently no domestic distilleries in Italy. By comparison, one could expect the countervailing tax to be higher for wines because they offer direct competition with Italian vineyards. There is no standard countervailing tax rate and it is based on each individual situation. This tax rate may impact the final disposition of Italy as a potential first expansion candidate.
The Czech Republic is considered an emerging market due to its recent revolution that resulted in the dissolution of the old Soviet government. The dissolution of Czechoslovakia into the Czech Republic and Slovakia has created the working of a fledgling capitalist market. As such, the market is subject to considerable instability (CIA, "Czech Republic," 2007). The country is much more stable than it was prior to the "Velvet Revolution," but it still offers a less stable market environment than established capital markets.
Due to this country's status as an emerging market, the EU is allowing them certain exceptions to tariff rules. These rules are primarily to help them establish their own economy and allow domestic companies the chance to attain status. They must still follow the rules according to TARIC Integrated Tariff of the European Community) (FedEx, "Czech Republic," 2007).
The population of the Czech Republic is 10,228,744 as of July 2007 (CIA, "Czech Republic," 2007). Approximately 71.2% of the population is between 15-64 years old. An additional 14.7% are over the age of 65 (CIA, "Czech Republic," 2007). The average age is 39.5 years of age (CIA, "Czech Republic," 2007). This translates into a potential market size of approximately 80 thousand people within the country.
One of the limiting factors in exporting to the Czech Republic is that at the current time the country is racked by economic turmoil. The unemployment rate is 8.4%, while the average income of the majority tends to be on the low end (CIA, "Czech Republic," 2007). These economic factors will make it difficult to market a premium, and expensive, product to this population.
The economic and political situation in the Czech Republic makes it an unattractive prospect for product expansion. In addition, the Czech Republic has strict customs procedures, often confiscating materials that do not meet the specifications (FedEx, "Czech Republic," 2007). This practice creates a considerable risk of loss. The Czech Republic has established several Free Trade zones where semi-finished products are exempted. However, these exemptions would not apply to Olde Distillerie products (FedEx, "Czech Republic," 2007).
Alcohol is subject to an excise tax based on type and volume of the product (FedEx, "Czech Republic," 2007). This would apply to wholesale export quantities and could potentially drive the price upwards. The VAT for the Czech Republic is 22% for most products, except food and pharmaceuticals (FedEx, "Czech Republic," 2007). The Czech Republic can institute a countervailing tax to prevent competition with domestic companies.
This tax "atmosphere" makes the expense of expanding to the Czech Republic difficult. Export rules and regulations as strict and heavily enforced on foreign goods. The taxation scenario in the Czech Republic combined…