Rekindle or Reinvent?

Culture Bound Decision Quality Model- Dr Renée Ralph | Part 1

by Josh Galvin, Pioneer Member, Operations & Events Coordinator, The Brilliant Foundation

📸 Food and Beverage ~ Josh Galvin

China’s decision to impose tariffs on Australian wine export not only has devastating effects on industry but also highlights the barrier an East-West relationship causes, making political and economic relations difficult at times. Mid 2020 saw China accuse Australia of pricing wine below fair market value, imposing temporary anti-dumping tariffs on Australian wine, pending investigation. The tariffs were further extended in early 2021 set to last for 5 years. The Australian economy is dependent on the Chinese market and is built on primary industry. Australia may need to deal with this dependency due to the unfolding global political tensions with the emerging Asian superpower.

Trade, culture, and globalisation are the heart of the food and beverage sector, and my involvement in the Western Australian sector is what sparked my interest in China’s coercive actions targeting the industry. I was keen to explore this further as it’s a multifaceted issue and extends far beyond what I experience and what I already know.

The Margaret River region has become a part of the West Australian Identity and produces 25% of Australia’s finest wines (Wine Australia, 2021). Having studied international relations, sustainable development, diplomacy, and conflict, I wondered, How can Australia improve the fragile Sino-Australia relationship, in a way that supports industry and allows for sustainable development?

📸 Aravina Estate Vineyard ~ Josh Galvin

To fully understand the somewhat controversial issue of Sino-Australia relations, and the complexities in relation to wine export, I took a trip to WA’s premier wine region, Margaret River. I also had the pleasure to interview The Brilliant Foundation's Co-Founder, Dr Renée Ralph, in relation to her work as an international communications strategist, and her Doctorate of Business Administration (DBA) . Her expertise in cross cultural communications, particularly in Western Australian-Chinese business relationships solidified a direction for this exploration.

📸 Co Founder Dr Renée Ralph and Operations Coordinator Josh Galvin - The Brilliant Foundation

My four days in Margaret River saw me visit wineries across the region; speaking to sommeliers, wine makers and executives at various wineries. I was able to learn about the region’s history, as well as gain an insight on the effects of the anti-dumping tariffs. The most valuable engagements were at Vasse Felix, Goon Tycoons, and at Aravina Estate.

In 2015, the China Australia Free Trade Agreement (CHAFTA) was established to “enhance our competitive position in the Chinese market, boost economic growth and create jobs.” (DFAT, 2021). The agreement created significant opportunities for Australian industry in China, however, the approach partly ignored important Chinese principals and was established on flawed political ground.

Imposition of the 200% markup tariffs in 2020, saw the $1.1billion sector (since CHAFTA) drop to $20million, (Prestipino, 2021) having devastating impacts on the Australian wine industry. There was no evidence to suggest Australia was dumping its wine exports.

Wineries in Margaret River have had to adapt in new ways to cope with this significant loss to their business. ‘Filius’, a range of cheaper premium wines at Vasse Felix is designed for ready drinking and is branded to appeal to a younger demographic with the aim of increasing market share in Western Australia to cope with the strain. The range offers contemporary yet sophisticated takes on classic varieties, including the award winning ‘Filius Chardonnay’.

📸 Vasse Felix Filius Collection ~ Vasse Felix

Although a reduced margin, Vase Felix’s decision to divert grapes away from other collections, destined for export to China, back into the domestic market, ensures money is still being made.

📸 Goon Tycoons Collection ~ Goon Tycoons

Operating in a similar way, Goon Tycoons, a division of the Fogarty Wine group, “is the opportunity to tinker with the Margaret River model and enjoy the opportunity to showcase the smaller vineyards we stumble upon.” (Goon Tycoons, 2022). Buying grapes off other wineries, and sourcing throughout the group has been a mechanism integral in supporting the whole wine economy, and the strategy has allowed them to adapt their purchases to the demand.

Whilst the tariffs have had devastating effects on the industry, the positives from it see more Australian produce on our shelves, however it doesn’t support wineries in the way that a $1.1b industry did (Ralph, 2021). After spending time in Margaret River, I learnt that if wineries do not adapt, they will struggle in the new market, and if the Australian government does not work to support the wine industry and China relations, the five year tariffs could completely wipe out smaller Australian wineries, and large Australian wine makers such as the Fogarty wine group and Treasury Wine Estates will also struggle to survive (Fang, Global Times, 2021) .

📸 Aravina Estate Cellar ~ Josh Galvin

In retaliation to an Anti-China rhetoric in the previous Australian government, banning of Huawei in the Australian 5G network, and accusations of interference in Australian domestic politics; China has used economic coercion to punish Australia for actions deemed harmful to Chinese national interest. Above all, with Australia heavily siding with the United States (US) about China relations, and the inquiry into the origins of the COVID-19 pandemic, led to the imposition of heavy tariffs on 13 Australian exports, including wine (Glaser, 2021). China has not placed tariffs on Australian exports deemed essential to Chinese economic growth, however, is actively looking for other markets.

In response to restrictions lasting seven years, Norway conceded to Chinese coercion, releasing a joint statement, stating that “[The] Norwegian Government reiterates its commitment to the one-China policy… respects China’s sovereignty and territorial integrity… [and] China’s core interests and major concerns, will not support actions that undermine them, and will do its best to avoid any future damage to the bilateral relations.” (Glaser, 2021). Australia needs to be able to stand its ground, however, must work to improve the Sino relationship and support Australian industry.

📸 China and Australia

Although there is a general acceptance and understanding of Chinese culture in Australia, many important Chinese cultural principals are not drawn on in political and economic relations, a factor contingent on the success of a Sino relationship. Affirmed by Dr. Ralph throughout our interview,

“Guanxi is a cultural etiquette common to China which is part of conducting daily business life.”

(Ralph, 2020)

At its heart, guanxi is about establishing a multifaceted relationship to better understand the other party. Guanxi has been a part of China’s approach to building political relationships and understanding the west.

In practice, guanxi looks like Chinese nationals living in the affluent suburbs of Western Australia, sending their children to leading independent schools. This auxiliary relationship sets a standard for future relationships to grow upon, but also satisfies guanxi and China national interest. Ignoring an important aspect of Chinese culture and relations, how can the Australian government expect their Chinese counterparts to only operate on our western terms?

📸 Guanxi in Practice ~ Dr Renée Ralph

Considering guanxi, Fortescue Metals Group, a Western Australian MNC in the resources sector was able to satisfy China national interest but also maximise shareholder value by establishing auxiliary relationships and strong formal business ties. Having Australian and Chinese involvement at every level of the company facilitates a stable relationship, with their biggest trading partner.

📈 Culture Bound Decision Quality Model - Dr Renée Ralph

At a governmental level, Australia needs to approach diplomacy with China in a different way, if we want successful and sustainable growth together. The Culture Bound Decision Quality Model (Ralph, 2020), outlines how an understanding of ideology and governance, economic legal and social policies in both China and Australia is a framework to pursue an objective; however, bilateral cultural intelligence is what leads to a decision quality outcome; a win-win situation for both parties.

Applying this to Government, having a three-dimensional approach to diplomacy and relations which respects and acknowledges differences, is what will allow the political and economic relationship to grow and strengthen while being built on “professionalism, trust and respect” (Ralph, 2020) rather than self-interest.

Regardless of the leadership and political affiliation in Australia, it is in national interest that Australia has a strong relationship with China. Former Prime Minister Paul Keating deepened Australia’s economic and cultural ties with the Asian market (DFAT, 2021). Since being succeeded in 1996, as agreed with by Dr Ralph, the Department of Foreign Affairs and Trade (AUS) stated that there was severe a deterioration in the Sino relationship. The tensions were reduced that year, however, it indicated that the underling sensitivities within Australia to Sino relations would remain a problem.

Under the Howard government 1996-2006 (AUS) actions led China to believe it was changing its policy to be pro-US and anti-China (DFAT, 2021). Once again, under the previous Morrison government, the same anti-China pro-US rhetoric resurfaced, and China has retaliated in the form of tariffs to our industries. Australia needs strategic planning and leadership to balance our global policy objectives. Since the 2022 Australian Federal Election, the new government has made an attempt to appease the tensions.

📸 Australia China Meeting ~ The Australian

With China looking to other markets for wine, iron ore, beef, and other Australian major exports, what’s keeping this relationship afloat is China's desire for legitimacy. An open endorsement from Australia will provide China with further grounds for globalisation. China wants to be recognised in the global community as a proper partner (Ralph 2021). Recognising that an endorsement is only likely to come from Australia, for China, the Australian rhetoric is not worth a complete cease of the relationship, and therefore, has used economic coercion as a tactic to achieve that goal.

There is push for a global response to China's economic coercion, however, for Australia it makes sense to better the relationship ourselves (Glaser, 2021). It will likely be seen as further harm to China national interest, and the support from Australia in a global push will only further worsen the relationship, and potentially harm industry further (Ralph 2021).

Not only did CHAFTA provide the wine industry with significant economic growth, but it also allowed wineries and vineyard in Margaret River to be inventive and diversify their products. As I learnt at Aravina Estate and Vasse Felix, there is a strong preference to red varieties of wine in China, due to the cultural symbolism of the colour red: prosperity, celebration, and good luck.

📸 Red Symbolism- CNY~ Josh Galvin

Wine has been a way for the affluent Chinese to fit in with and understand the West; further highlighting the importance of guanxi in China. The complete juxtaposition to preferences in Australia provided the balance between the ever popular Sauvignon Blanc and allowed vineyards to diversify product for both the Australian and international market. With wine only becoming part of Chinese life recently, most Chinese citizens will not have the same understanding Australians do when it comes to varieties and regions of wine. The symbolism and significance is what has made the commodity so successful. Granted that, the direct impact of the tariffs on Australian wine are negligible in China.

📸 Leeuwin Estate Vineyard ~ Leeuwin Estate

The next five years provides the opportunity to reinvent and diversify the Australian economy. Choosing the easy way out, Australia has relied on primary industry and trade with China for the last 50 years. Knowing that China has the power to and will revoke a contract or partnership at any time, Australia must have a strategic plan to protect industries if the Sino relationship were not to improve. Thus, investing in secondary and tertiary sectors is what will propel Australia to be economically independent but still contribute to the global market in the future.

The Australian Government needs to recognise the importance of mending the relationship and rekindling. With China’s growing global status, its within Australian and Chinese national interest that the two states work together to achieve positive globalisation. The Australia China relationship can be the bridge between the east and west, and a model for bilateral successful development.

-END-

Composed 2021, Josh Galvin. Revised 2022, Josh Galvin

Works Cited

Australian Government, Department of Foreign Affairs (DFAT). (2021). China–Australia Free Trade Agreement. Retrieved from Department of Foreign Affairs and Trade: https://www.dfat.gov.au/trade/agreements/in-force/chafta/Pages/australia-china-fta Australian Government, Department of Foreign Affairs and Trade (DFAT). (2021). China. Retrieved from Department of Foreign Affairs and Trade: https://www.dfat.gov.au/geo/china/china-country-brief Australian Grape and Wine. (2021). CHINA ANTI-DUMPING INVESTIGATION ON WINES FROM AUSTRALIA. Retrieved from Australian Grape and Wine: https://www.agw.org.au/policy-and-issues/trade-and- market-access/china-anti-dumping-investigation/ Choudhury, S. R. (2021, June). ASIA ECONOMY Australia weighs taking China to the WTO again — this time for a dispute over wine. Retrieved from CNBC: https://www.cnbc.com/2021/06/02/australia- china-wine-trade-dispute-canberra-considers-involving-wto.html D.B A. Ralph, R. (2020). Perceptions of Decision-Making in Western Australian Iron Ore Companies Dealing with Chinese Companies. Perth. D.B.A Ralph, R. (2021, July). Sino- Australia Relations and Guanxi. (J. Galvin, Interviewer) Dr Waldron, S., Dr Zhang, J., & Associates, F. (2021). Chinese Tariffs on Australian Wine in 2020: The Domestic Drivers of International Coercion. Nedelands, Western Australia: Future Directions International Pty Ltd. Fang. (2021, March). Guangzhou and Australia, Wine Trade. (G. S. Reporters, Interviewer) Glaser, B. S. (2021, January). Time for Collective Pushback against China’s Economic Coercion. Retrieved from Center for Strategic and International Studies: https://www.csis.org/analysis/time-collective- pushback-against-chinas-economic-coercion GT Staff Reporters. (2021, March). China to impose up to 218% five-year anti-dumping duties on Australian wines, effective Sunday. Retrieved from Global Times: https://www.globaltimes.cn/page/202103/1219535.shtml Mao, F. (2020, December). How a blow to Australian wine shows tensions with China. Retrieved from BBC: https://www.bbc.com/news/world-australia-55167882 Middleton, A. (2020, December). Goon Tycoons: How Julian Langworthy's Margaret River winery is breaking rules. Retrieved from Perth Now: https://www.perthnow.com.au/community- news/western-suburbs-weekly/goon-tycoons-julian-langworthys-margaret-river-winery-is- breaking-rules-and-bucking-the-trend-c-1767295 Prestipino, D. (2021, June). The West Australian wine China forgot - and how you can find it. Retrieved from WA Today: https://www.watoday.com.au/national/western-australia/the-west-australian- wine-china-forgot-and-how-you-can-find-it-20210623-p583k0.html SATCHELL, E. (2018, July). ChAFTA and Australian Wine. Retrieved from ACYA.org: https://www.acya.org.au/2018/07/chafta-and-australian-wine/ Wine Australia. (2021). China Anti-dumping and Countervailing Duties. Retrieved from Wine Australia: https://www.wineaustralia.com/china-anti-dumping-and-countervailing-duties

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