Mary Smith, a CFA candidate, was recently hired for an analyst position at the Bank of Ireland. Her first assignment is to examine the competitive strategies employed by various French wineries.

Smiths report identifies four wineries that are the major players in the French wine industry. Key characteristics of each are cited in the table below. In the body of Smiths report, she notes that over the past five years, the French wine industry has not responded to changing consumer tastes. Profit margins have declined steadily, and the number of firms representing the industry has decreased from 10 to 4. It appears that participants in the French wine industry must consolidate to survive.

Characteristics of Four Major French Wineries

	South Winery	North Winery	East Winery	West Winery
Founding date	1750	1903	1812	1947
Generic competitive strategy	?	Cost leadership	Cost leadership	Cost leadership
Major customer market (more than 80% concentration)	France	France	England	U.S.
Production site	France	France	France	France

Smiths report notes that French consumers have strong bargaining power over the industry. She supports this conclusion with the following five points:

Many consumers are drinking more beer than wine with meals and at social occasions.

Increasing sales over the Internet have allowed consumers to better research the wines, read opinions from other customers, and identify which producers have the best prices.

The French wine industry is consolidating and consists of only 4 wineries today compared to 10 wineries five years ago.

More than 65% of the business for the French wine industry consists of purchases from restaurants. Restaurants typically make purchases in bulk, buying four to five cases of wine at a time.

Land where the soil is fertile enough to grow grapes necessary for the wine production process is scarce in France.

Smith takes her report to her boss, Ron VanDriesen, to review and tells him, In my report I have classified the South Winery as a stuck-in-the-middle firm. It tries to be a cost leader by selling its wine at a price that is slightly below the other firms, but it also tries to differentiate itself from its competitors by producing wine in bottles with curved necks, which increases its cost structure. The end result is that the South Winerys profit margin gets squeezed from both sides. VanDriesen replies, I believe that the South Winery could succeed at following both a cost leadership and a differentiation strategy if its operations were separated into distinct operating units, with each unit pursuing a different competitive strategy. Smith makes a note to do more research on generic competitive strategies to verify VanDriesens assertions before publishing the final draft of her report.

Required:

If the French home currency were to greatly appreciate in value compared to the English currency, what is the likely impact on the competitive position of the East Winery?

multiple choice

No impact, because the major market for East Winery is England, not France.

Make the firm less competitive in the English market.

Make the firm more competitive in the English market.