Outsourcing In Yellowtail Countries
1. Outsourcing
Outsourcing (contracting work out) occurs when a producer acquires goods or services from an external supplier rather than producing them internally. The main reason we decided to use a third party in the production of Yellowtail products is because Australia is expected to experience drought in the forthcoming years which would greatly challenge the production of wine in the country, as well as because petroleum costs are expected to further rise which would negatively impact logistics costs for our company by increasing them considerably. All this would diminish our effectiveness, limit production, as well as reduce our revenues and hence profits. Outsourcing would, in addition, bring our company numerous advantages, including reduction of labor costs as wages would be lower in the chosen countries, lower manufacturing costs, speeding up of the production process, gaining access to world class capacities, improving company’s focus, reduced taxation levels, better stock management, utilizing internal resources for other purposes, decreasing in-house investments, and sharing of risks. Although there are also certain disadvantages from outsourcing, such as less efficient communication, inadequate …show more content…
governance, loss of leadership and control, increased external supplier dependency, external supplier increased influence on success or failure of outsourcing, possible cost alternations, end-user resistance to changes, unethical external supplier behavior, increased risks, security issues, loss of jobs and undesirable results, we believe that the advantages that would be gained would greatly outweigh the possible disadvantages. Furthermore, we have decided to adopt certain techniques, which would help us ensure overcoming of the drawbacks of outsourcing such as: contesting for an external partner who provides highest levels of efficiency, security, quality, effectiveness, capabilities, loyalty, trustworthiness, and reputation; using detailed agreements and contracts stating expectations and obligations of both parties; utilization of project collaboration tool ensuring effective communication; creating detailed To-Do and Milestones lists; and assigning a team from our company in the chosen countries to be in control of the work done by the external supplier. The countries we have decided to outsource to are Bulgaria (Eastern Europe) and Argentina (South America).
1.1 Bulgaria
Bulgaria is a country in Eastern Europe that has a long history of wine production and is famous with quality wines. Half of Bulgaria’s territory is suitable for agriculture and its climate, soil and temperature levels create excellent weather conditions for growing superior grapes and wine production. In addition, no drought is expected in the future, as it is in Australia. Commercial success of Bulgarian wines dates back to 1970 and the country produces 200-220 million liters of wine on a yearly basis, depending on the crop. In fact, it is the second largest exporter of bottled wine in the world, right after France.
There are five viticulture regions in Bulgaria, which are described below: * Danubian Plain (North Bulgarian): continental climate; grape varieties: cabernet sauvignon, chardonnay, muscat ottonel, pamid, gamza, and aligote; * Black Sea (East Bulgarian): favourable weather conditions-long and mild autumns; 30% of vineyards in the country; 53% of white wines; grape varieties: muscat ottonel, sauvignon blanc, riesling, traminer, dimyat, gewurztraminer, and ugni blanc; * Rose Valley (Sub-Balkan): grape varieties: riesling, merlot, muscatel, cabernet sauvignon, and rkatsiteli; * Thracian Lowland (South Bulgarian): continental climate; grape varieties: Merlot, Mavrut, Pamid, Muscatel and Cabernet Sauvignon; * Struma River Valley (Southwest Bulgarian): very characteristic climate; grape varieties: merlot, melnik, and cabernet sauvignon;
There are three categories of Bulgarian wines, resulting from the application of wine laws (1978), namely High Quality Wines, Special Wines and Standard Wines.
High Quality Wines are given their own classification system: Controliran (comparative to French wines and rated higher than DGO wines), Country Wines (blended and consumed while young), DGO (Declared Geographical Origin- states the area of production), and Reserve Wines (wines aged in oak barrel). It should be noted that the best wines in Bulgaria are the Merlot and Cabernet Sauvignon varieties, which are very reminiscent of the greatest French
wines.
Outsourcing to Bulgaria would ensure that quality of Yellowtail’s wines is maintained due the experience in wine production and trade and also the climate of the country, as well as would provide many of the general outsourcing benefits we are looking for, such as reduction of total costs by lower transportation costs, production costs and labor costs (current average monthly wage in Bulgaria is BGN 693 i.e. 353.11 EUR). We believe that the optimal choice for Yellowtail is to create a joint venture with one of the major players in the wine industry in Bulgaria, as building a winery, growing vines or buying an existing winery and vineyards would be very time-consuming and would require large investments. Average price of a winery in the country is €10 million and average price of a hectare of vineyards is €20,000. Hence, the best option is to work with a renowned wine producer in Bulgaria, who has been in the industry for many years and has built a good reputation over the years. In addition, we would need a partner who has the capacity to produce large quantities of our wines, alongside with not challenging the production of its own products. When it comes to capacity it is worth noting that in Bulgaria, it is allowed to buy grapes from other producers in the wine regions and producing it in one’s winery in case vineyards are insufficient for producing at full capacity of the winery. However, such decisions would be left to the partner chosen for the joint venture and their costs would be included in the production price per bottle provided to our company. Furthermore, our company is legally allowed to produce our wines in Bulgaria using our trademark, as long as it is stated on the bottle that the product is produced in Bulgaria and not in Australia or elsewhere, which is necessary for protecting consumer rights and complying with consumer rights laws.
The major wine production companies in Bulgaria are Bulgarian Wine Company (Lovech winery, Rupci Winery, Hebros-Septemvri, Dolna-Banya; Silistra; Zlatovruh; Boboshevo), Vinprom Karnobat, Vinprom Pestera and MENADA. The company that we have chosen as our partner is Bulgarian Wine Company, because it the producer with greatest capacity because of its ownership of 7 wineries and wine production factories in the country. It has also build a great reputation both in the domestic and external market, being the largest exporter in the country and exporting to numerous different markets such as Russia, Poland, the USA, the UK, Germany, China, Japan, and others. This also indicates that it is experienced in working with external markets and has good logistics channels. Furthermore, the fact that it has the greatest number of wineries from all the major companies listed above, would be very beneficial to the capability of producing Yellow Tail’s products, as the companies wineries cover all the grape varieties and viticulture regions in the country. The company’s staff is also greatly experienced in producing high quality wines and has developed over 300 assortments over the last 21 years.
In conclusion, we believe that our best choice in terms of outsourcing production in Europe is Bulgaria by creating a joint venture with Bulgarian Wine Company. The country has excellent climate conditions and winemaking dates back to the Thracians. Furthermore, producing there would be very cost efficient for Yellowtail, as transportation, labor and production costs will be sufficiently diminished. Hence, Bulgaria is a reliable choice that would bring higher efficiency and effectiveness to Yellowtail’s operations and would help solve the problem that is the subject of this report.
(Milena)
1.2 Argentina
Outsourcing (contracting work out) occurs when a producer acquires goods or services from an external supplier rather than producing them internally. The main reason we decided to use a third party in the production of Yellowtail products is because Australia is expected to experience drought in the forthcoming years which would greatly challenge the production of wine in the country, as well as because petroleum costs are expected to further rise which would negatively impact logistics costs for our company by increasing them considerably. All this would diminish our effectiveness, limit production, as well as reduce our revenues and hence profits. Outsourcing would, in addition, bring our company numerous advantages, including reduction of labor costs as wages would be lower in the chosen countries, lower manufacturing costs, speeding up of the production process, gaining access to world class capacities, improving company’s focus, reduced taxation levels, better stock management, utilizing internal resources for other purposes, decreasing in-house investments, and sharing of risks. Although there are also certain disadvantages from outsourcing, such as less efficient communication, inadequate …show more content…
governance, loss of leadership and control, increased external supplier dependency, external supplier increased influence on success or failure of outsourcing, possible cost alternations, end-user resistance to changes, unethical external supplier behavior, increased risks, security issues, loss of jobs and undesirable results, we believe that the advantages that would be gained would greatly outweigh the possible disadvantages. Furthermore, we have decided to adopt certain techniques, which would help us ensure overcoming of the drawbacks of outsourcing such as: contesting for an external partner who provides highest levels of efficiency, security, quality, effectiveness, capabilities, loyalty, trustworthiness, and reputation; using detailed agreements and contracts stating expectations and obligations of both parties; utilization of project collaboration tool ensuring effective communication; creating detailed To-Do and Milestones lists; and assigning a team from our company in the chosen countries to be in control of the work done by the external supplier. The countries we have decided to outsource to are Bulgaria (Eastern Europe) and Argentina (South America).
1.1 Bulgaria
Bulgaria is a country in Eastern Europe that has a long history of wine production and is famous with quality wines. Half of Bulgaria’s territory is suitable for agriculture and its climate, soil and temperature levels create excellent weather conditions for growing superior grapes and wine production. In addition, no drought is expected in the future, as it is in Australia. Commercial success of Bulgarian wines dates back to 1970 and the country produces 200-220 million liters of wine on a yearly basis, depending on the crop. In fact, it is the second largest exporter of bottled wine in the world, right after France.
There are five viticulture regions in Bulgaria, which are described below: * Danubian Plain (North Bulgarian): continental climate; grape varieties: cabernet sauvignon, chardonnay, muscat ottonel, pamid, gamza, and aligote; * Black Sea (East Bulgarian): favourable weather conditions-long and mild autumns; 30% of vineyards in the country; 53% of white wines; grape varieties: muscat ottonel, sauvignon blanc, riesling, traminer, dimyat, gewurztraminer, and ugni blanc; * Rose Valley (Sub-Balkan): grape varieties: riesling, merlot, muscatel, cabernet sauvignon, and rkatsiteli; * Thracian Lowland (South Bulgarian): continental climate; grape varieties: Merlot, Mavrut, Pamid, Muscatel and Cabernet Sauvignon; * Struma River Valley (Southwest Bulgarian): very characteristic climate; grape varieties: merlot, melnik, and cabernet sauvignon;
There are three categories of Bulgarian wines, resulting from the application of wine laws (1978), namely High Quality Wines, Special Wines and Standard Wines.
High Quality Wines are given their own classification system: Controliran (comparative to French wines and rated higher than DGO wines), Country Wines (blended and consumed while young), DGO (Declared Geographical Origin- states the area of production), and Reserve Wines (wines aged in oak barrel). It should be noted that the best wines in Bulgaria are the Merlot and Cabernet Sauvignon varieties, which are very reminiscent of the greatest French
wines.
Outsourcing to Bulgaria would ensure that quality of Yellowtail’s wines is maintained due the experience in wine production and trade and also the climate of the country, as well as would provide many of the general outsourcing benefits we are looking for, such as reduction of total costs by lower transportation costs, production costs and labor costs (current average monthly wage in Bulgaria is BGN 693 i.e. 353.11 EUR). We believe that the optimal choice for Yellowtail is to create a joint venture with one of the major players in the wine industry in Bulgaria, as building a winery, growing vines or buying an existing winery and vineyards would be very time-consuming and would require large investments. Average price of a winery in the country is €10 million and average price of a hectare of vineyards is €20,000. Hence, the best option is to work with a renowned wine producer in Bulgaria, who has been in the industry for many years and has built a good reputation over the years. In addition, we would need a partner who has the capacity to produce large quantities of our wines, alongside with not challenging the production of its own products. When it comes to capacity it is worth noting that in Bulgaria, it is allowed to buy grapes from other producers in the wine regions and producing it in one’s winery in case vineyards are insufficient for producing at full capacity of the winery. However, such decisions would be left to the partner chosen for the joint venture and their costs would be included in the production price per bottle provided to our company. Furthermore, our company is legally allowed to produce our wines in Bulgaria using our trademark, as long as it is stated on the bottle that the product is produced in Bulgaria and not in Australia or elsewhere, which is necessary for protecting consumer rights and complying with consumer rights laws.
The major wine production companies in Bulgaria are Bulgarian Wine Company (Lovech winery, Rupci Winery, Hebros-Septemvri, Dolna-Banya; Silistra; Zlatovruh; Boboshevo), Vinprom Karnobat, Vinprom Pestera and MENADA. The company that we have chosen as our partner is Bulgarian Wine Company, because it the producer with greatest capacity because of its ownership of 7 wineries and wine production factories in the country. It has also build a great reputation both in the domestic and external market, being the largest exporter in the country and exporting to numerous different markets such as Russia, Poland, the USA, the UK, Germany, China, Japan, and others. This also indicates that it is experienced in working with external markets and has good logistics channels. Furthermore, the fact that it has the greatest number of wineries from all the major companies listed above, would be very beneficial to the capability of producing Yellow Tail’s products, as the companies wineries cover all the grape varieties and viticulture regions in the country. The company’s staff is also greatly experienced in producing high quality wines and has developed over 300 assortments over the last 21 years.
In conclusion, we believe that our best choice in terms of outsourcing production in Europe is Bulgaria by creating a joint venture with Bulgarian Wine Company. The country has excellent climate conditions and winemaking dates back to the Thracians. Furthermore, producing there would be very cost efficient for Yellowtail, as transportation, labor and production costs will be sufficiently diminished. Hence, Bulgaria is a reliable choice that would bring higher efficiency and effectiveness to Yellowtail’s operations and would help solve the problem that is the subject of this report.
(Milena)
1.2 Argentina