Academic journal article Advances in Competitiveness Research

Do Late Movers Have Advantages? an Empirical Investigation in the Global Wine Export Industry

Academic journal article Advances in Competitiveness Research

Do Late Movers Have Advantages? an Empirical Investigation in the Global Wine Export Industry

Article excerpt

INTRODUCTION

The global wine industry has for decades faced an intensified competition, as dominant early movers from the Old World (1) are losing market share to the New World (2) late movers. At the same time, the New World players struggle amongst themselves to share the pie, increasing competition that has spurred the export of global wine volume. Now, a shift to worldwide higher quality wine consumption is challenging late movers' low cost strategy of selling cheap wine. Therefore, how late movers gain a competitive advantage is our research topic. Specifically, we want to know whether late movers gain advantages by pursuing a low cost strategy or by employing a differentiation strategy. The former involves producing cheap and low quality wine to draw price-conscious wine drinkers, while the latter approach focuses on upgrading the quality of low-priced wine in order to attract more upscale wine drinkers.

Over the last 25 years, the global wine industry has undergone several structural changes. First, from 1987 to 1997, global wine production fell to 0.8 percent annually, all the while global wine trade activities rose by 4.1 per cent in volume and 6.5 percent in value annually (Anderson, 2001). This indicates that the speed of wine production slowed down, while the velocity of wine trade activities increased. Second, researchers have observed a change in wine consumption patterns, whereby consumption of better quality wine has grown steadily, while poor quality wine consumption has declined (Anderson, 2003). Some investigators observe that consumers have been drinking less but better wine over the last decades (Heien & Martin, 2003). Third, both late movers from the New World and early movers from the Old World increased their wine trade, further contributing to an oversupply of wine. This puts additional pressure on wine price and intensifies competition. Therefore, factors that affect wine exports become an interesting research area to explore (Witter, Berger, & Anderson, 2003).

Trying to identify key success factors for New World late movers yields various responses. In the New Zealand wine industry, for example, Mikic (1998) attributes this country's success to trade liberalization and a change from import substitution to export orientation. Barker et al., (2001) emphasizes that factors such as local conditions, historical background and innovation, have a stronger influence on wine exports. Still others propose that the success of wine exports lies in the governance of the evolution of global commodity chains connecting growers of grapes, producers of wine, marketers and distributors to the final consumers (Gwynne, 2006).

Using data from 16 wine export countries, we examined factors that influence wine export volume. They cover issues of wine quality, R&D investment, comparative advantages in wine production and market power as influencing wine export price. The study makes two contributions to the understanding of the wine export industry. First, instead of assembling different qualitative assessments of wine quality, this study applies a simple classification of bottled vs. bulk. The bulk wine sector reflects low price and low quality, while the bottled wine sector represents high price and high quality. Late movers specifically sought to upgrade low quality and low priced bulk wine into high quality and high priced bottled wine through a shift in strategy from cost leadership to differentiation in order to improve wine quality. Second, in comparison with late movers, early movers have seemingly two advantages. They enjoy comparative advantages in producing bottled wine and also a great degree of market power in charging a higher price for bottled wine in the export market. However, these advantages fail to strengthen the export of bottled wine by early movers, suggesting late movers can indeed break into the bottled wine export market dominated by early movers. …

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