1. MAKE AN EXECUTIVE JUDGMENT: A CASE STUDY ON A WINE AND RELATED BUSINESS IN HONG KONG Kevin K Tang A presentation for E-business strategy in Entrepreneurship by SME Creativity Centre, August 2013

2. ABOUT SPEAKER ; , WSET Founder of a wine group, 2 restaurants, and Buyer for a start-up chain of 13 shops, Kevin K Tang is now Regional Representative for selected merchants and producers. A columnist for 2 wine magazines, Kevin has been teaching wine studies at the Polytechnic University of Hong Kong since 2006 and also work as an Assessor for WSET UK since 2002.

3. CONTENTS 1. Background on the business environment Background to SME, pre and post 2008 market, the portfolio of a Hong Kong Wine Importer, projections by TDC, China market charts, Hong Kong Wine I/E figures(TDC source). 2. Description of the wine business 3. Identification of key problems 4. Some executive judgments made 5. Assessment 6. Discussion: How would you like to make your judgment on Executive Judgment?

4. SME BACKGROUND 1 Wine SME still in service Founded in 1996, initially with 4 staff Stable and exponential growth from 1996 to 2009: integrated sales business 1996 HK$3M to 2009 HK$28M; GP % on average 32 to 35 %; NP% from 5 to 8%; staffing in 2008, with 22 full-timers and 6 part-timers. From 2010 to 2013: integrated Sales dropped from HK30M to HK$18M; staffing in 2012: 12 full-timers, 1 part-timers.

5. SME BACKGROUND 2 Key events: founded 1996; 2004 development of a wine school; 2006 purchase of 2 western restaurants; 2008 founding of a wine investment company Key facts: wine teaching revenue 30% of the integrated business; restaurants not contributing in revenue; investment stock value kept stale after 2010. Long product portfolio, over 2000 styles and 30 brands All staff WSET qualified, since 1996.

6. MARKET BACKGROUND 1 1997 to 2008 The players with classic channels: importer/exporter; distributor; retailer(physical shop) Number of Key players below 35; stable, oligopolistic competition Key stoppers to market growth Market size, product nature, People, Distribution Tax and cash requirement; cash flow; government policy Wine knowledge and dissemination: mentor and mentee Crisis 1997, 2000, 2003, 2008

7. MARKET BACKGROUND 2 2008 to now Relieve all government administrative costs: no tax(varied between 40 to 90% on declaration), no certificates of origins, no health certificates Everyone bring in every wine. Importer/Distributor and retailers are often one person(close to retail price) Even for standard IE-distributor-retail frame, more retail are e-shops, in high rise E-commerce still infancy: people reluctant to wait; all listed prices are fake for not angering some other customers who may wish to undercut; payment is very slow.

8. MARKET BACKGROUND 3 World Setting: Wine Futures, Wine Funds, Wine Auctions, RP and other, Wine competitions, counterfeits. E-tools: Livrex, Wine Searcher Bloggers: trend setters Facebook companies Ordinances: against fax, against emails, against false claims

9. MARKET BACKGROUND 4: UK AND INTERNATIONAL MERCHANTS Most of the leading UK companies are in Hong Kong Some 60,000 Frenchmen are living in Hong Kong. US Auctions houses have regional offices in Hong Kong China companies carry their representation to sell outside their territories to the Hong Kong market.

10. PORTFOLIO OF A HONG KONG WINE IMPORTER 2013 Estimates from insider 100 to 3000 300 to 350; 342 mixed, 52 only wine, according to Debra Meiberg MW, et al 2012 Compared to New York City with only 110! Sales team size 1 to 2 persons; less than 10 brands; a game more than a brand management; a hobby business; China factor(D Meiberg et al 2012) China Importer: 30,000(Jenny Cho Lee MW and Yang et al 2013)

11. WINE IMPORTS FROM 2000 TO 2007

12. PROJECTIONS FROM 2002 TO 2017 ASIA

13. THE PROJECTIONS BY TDCACTRIUM SOLUTIONS

14. THE PROJECTIONS BY TDCACTRIUM SOLUTIONS

15. WINE TRADE VALUE TERMS 2011-2013

16. WINE EXPORTS BY MARKETS 2011-2013

17. WINE IMPORTS BY ORIGIN 2011-2013

18. WINE TRADE IN VOLUME TERMS 2011-2013

19. PROBLEMS IDENTIFICATION Pre 2008: cash requirement, professional staff, diversification, profit, growth Post 2008: risk, growth, profit, zero entry barrier, depreciating stock, proliferation of brands, CDP and how to keep staff, cash flow, exponential growth What is the best for the future of Company?

20. DESCRIPTION OF THE WINE BUSINESS From Oligopolistic competition to perfect competition

21. SOME KEY EXECUTIVE JUDGMENT Sustain Quality and Value as key attributes product strategy; embrace market change as company culture; to serve our wine community as mission. Pre 2008, education, investment, diversification, industry leadership, team expansion and identification of staff Post 2008, trading and consulting, stock investing, e-tools, full integration with logistics, new staff(outside wines) and new thinking, team consolidation, intensify training, downsizing and increasing output. Post 2012: the best way to compete in the new global environment

22. ASSESSING JUDGMENTS The weakness: did not wholeheartedly embrace China as a market. Good for immediate or short term profit goals, not so good for long term. Wise, but not safe. Investing in restaurants paves for good BD in Food and Beverage sectors, but drains cash and manpower. Involving in direct investment creates company net worth is good for the long term, but drains cash in the short and medium term Developing education with Universities gives excellent professional image, but drains manpower and dilutes vision. Remaining Hong Kong paves for regional development of business.

23. DISCUSSION How would you make your Executive Judgment? Thank you.