Global Wine Wars-New World Challenges Old: Resource-Based And Institution-Based Strategies

Resource-based view of strategy

Discuss about the Global Wine Wars-New World Challenges Old.

In the early 1990s, the global wine market experienced significant changes with the entry of New World wine producing countries. The new industry players include countries such as Australia, the United States, South Africa and Chile. On the other hand, the old wine countries are France, Germany, Italy, and Spain among others. It worth pointing out that the New World Companies took advantage of the existing institutional constraints, embedded traditions, restrictive industry regulations and complex European Community legislations that faced their Old Wine competitors to gain an upper hand in the production of wine. Consequently, over the years through the use of resource-based as well as institution-based strategies, the New Wine countries have gained international respect and a global market share in the wine industry.

The resource based view strategy is a concept that suggests that the possession of strategic resources by a n organization provides it with an opportunity to develop a competitive advantage over its rivals (Jurevicious, 2013). To a large extent, New World producers possessed capabilities and resources that permitted them to benefit from the changes in the global wine market (Brown, 2007). Consequently, this proved disadvantageous to the Old World producers.

Although the consumption of wine in the New World countries was very low at the beginning, changing consumption patterns opened up new markets over time. For instance, Australia had a predominant preference to beer due to its dominant British heritage and the hot climate. Thus, wine was mostly consumed by immigrants from Old World countries. However, with time, consumer preferences began to change, and people began to consume more wine (“Global Wine Wars,” 2015). Likewise, in the USA pre-World War II era, wine was only sold in to European immigrants. However, after the war, demand for wine started to rise dramatically in the USA and Australia.   In turn, this opened up new markets, allowing them to expand their production. Although the Old World nations already had a demand for their wine, the growth in total consumption in the world led to a growth in the demand for higher-quality wines (Saylor, n.d.). It is this boom in the quality and quantity of wine that posed a challenge to traditional wine producing nations while offering a great opportunity to the New World countries.

New World countries had a wide access to readily available, suitable and fertile land to grow their vineyards. In turn, this allowed them to grow significantly extensive vineyards compared to their Old World Counterparts. Outstandingly, the average holding for vineyards in the New World countries was approximately 158 hectares (“Global Wine Wars,” 2015). On the other hand, the Old Wine vineyards were less than a hectare. As a result, the traditional wine producers were constrained by their small sizes, something that significantly affected their production capacity (Wernerfelt, 1984). On the other hand, the availability of arable land to cultivate provided more opportunities for the New World producers to thrive.

Opening of New Markets

The New World producers were also not shy on experimenting with new technologies in both wine making and grape growing. For instance, Australia utilized drip irrigation, a technique that reduced vintage variability and encouraged expansion into new growing territories (“Global Wine Wars”, 2015). Furthermore, the new producers used specialized equipment in their production. Specifically, they used mechanical pruners and harvesters. In addition, they adopted the night harvesting technique to ensure the retention of grape sugars and flavor. Australia also started experimenting with fertilizers and pruning methods to boost their yields. All these improvements helped the new wine nations to improve their crop yield as well as the flavor. On the other hand, Old World producers faced strict regulations that forbade the use of technology in wine production. As a result, they could not adopt the new techniques to improve their grape yield and flavor. In this regard, while the new technology provided an opportunity for the new world, It created a significant threat to Old World wine producers such as France and Italy.

The new world countries enjoyed sunny climates that allowed them to produce consistent yields from one season to another. As such, their climate and soil allowed vineyards to flourish (“Global Wine Wars”, 2015). In contrast, Old World countries experienced rainy maritime climates in the late autumn making it difficult for traditional wine producers in the Bordeaux to produce consistent year-to-year yields (Considine et al., 2009). Moreover, the hostile climate created the risk of vintage variations in production from one-year to another (“Global Wine Wars”, 2015). Therefore, the favorable climate in a majority of New World countries provided an opportunity for their production to thrive, whereas the climate in the Old wine countries was a threat to their production.

It is important to highlight the fact that the New World experimentation did not end in farming and pruning, but extended also to wine making.  The new producers were more enthusiastic to break industry traditions by conducting on-site tests to improve the concentration of their grape juice and ensure a deeper-color and richer taste for their wine. They also developed new wine making processes that are computer-controlled in large stainless steel tanks. In order to ensure the presence of oak flavor in their wine, they added oak chips. Markedly, this was a significant improvement from the traditional small oak barrens used by Old World countries (“Global Wine Wars”, 2015). Given that such modifications were forbidden in the Old Wine system, traditional producers stuck to their production methods, thereby missing out on a huge opportunity to not only improve their wine production process but also the chance enrich their wine with better flavors.

Availability of land

The institution-based view strategy focuses on the dynamic interaction between organizations and considers how strategic choices driven by industry conditions and firm capabilities as well as formal and informal constraints affect the competitiveness of a producer. In the wine industry, the varying industry conditions offered opportunities to the new producers while creating significant threats to the incumbents. Especially, the formal and informal institutional environment between the two wine production countries provided great opportunities for the New World while constricting the Old World producers.

In the traditional wine countries, tight government policies and fragmented producers created a long multi-level value chain. Particularly, the processes of growing, wine making, distribution, and marketing were performed by different entities. As an effect, they lacked the expertise and scale to function efficiently (“Global Wine Wars”, 2015). Conversely, the large wine companies in the New World had total control of their value chain. Consequently, they were able to extract margins at every level while maintaining their bargaining power. Moreover, the fact that they handled all operations ensured a high quality final product unlike in the Old World where the intermediate handlers had little concern for the quality of the end product. In this case the methods adopted by New World producers gave them an upper hand in the market over their Old World counterparts who were constrained by institutional factors (Peng et al., 2008).

The wine testing competition in 1976 raised the public awareness on the quality of wines from New World producers and, as a result, undermined the views of those who undermined the innovative approaches to improving wine quality. Most importantly, it boosted the confidence of these new producers to compete against the best global producers (“Global Wine Wars”, 2015).  Indeed, as New World wine became more recognized, it posed a fierce competition on the Old World wines. In this regard, the event was a great opportunity for the new wine producers but a significant threat to the incumbents.

The global wine market also experienced significant changes in the demand of wine. Precisely, there was a rising demand for high quality wines. Consumers were shifting from the basic wine to premium and super-premium quality. Moreover, a new trend in wine fashion arose, with preferences between white and red wine fluctuating from time to time (Bartlett, 2009).  Thus, as these changes occurred, the rankings of the top global wine companies underwent significant changes. Nonetheless, New World countries were able to thrive in these fluctuations with their wine companies taking nine out of twenty slots in the world market.  Contrariwise, Old World producers were unable to keep up with the trend, thereby losing some slots in the global market. In this regard, the shift in the demand preferences of consumers posed an opportunity for New World sources while constraining the prospects of Old World producers (Garrido et al., 2014).

Conclusion

All in all, the New World producers of wine had a greater advantage in their operation as compared to their Old World rivals. Mainly, this is because they were more fluid in experimenting new methods of production. They possessed significant resources and technological capabilities that were largely unavailable to the incumbents. Also, they experienced less formal and informal institutional barriers in their operations.

References

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