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A Country-Level Analysis of Competitive Advantage in the Wine Industry

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Author Info

  • Richard Castaldi

    (San Francisco State University)

  • Susan Cholette

    ()
    (San Francisco State University)

  • Mahmood Hussain

    (San Francisco State University)

Registered author(s):

    Abstract

    The purposes of this paper are (1) to examine driving forces and key success factors related to the increasing globalization of the wine industry, and (2) to analyze the current competitive advantage positions of four Old and five New World wine producing countries. Each country will be profiled using key industry data and analyzed regarding their national capabilities to address five key success factors that contribute to their national competitive advantage position. The countries fall into three groups with respect to their national comparative competitive advantage position. The group with the strongest competitive position includes United States, Australia, and Chile. Australia and Chile both have small populations that provide for a tiny domestic market with little potential for growth. However they are very well positioned to produce and export wine with their adaptive, large-scale producers and their great lure for foreign investments, providing them with a position of a strong competitive advantage. With respect to production, cost structures suggest Australia and Chile may be better positioned that the US. However, economies of scale and economies of scope in marketing offer an advantage to the US because it is a populous and affluent nation. While the US wine market is already significantly larger than Australia and Chile, it has even more potential to expand. The group of countries with moderate competitive advantages includes Italy, Spain, Argentina and South Africa. Lingering economic concerns and disadvantages of scale prevent Argentina from being ranked as competitively as neighboring Chile. Likewise, South Africa has strong marketing economies of scale and moderate production economies of scale, but currently domestic unrest has diminished its attraction for foreign investment and ability to expand its home market. In the Old World, Spain and Italy are hampered by decreased consumption rates and weak economies of scale in production. However, on the positive side, they have shown promise in their ability to adapt to an increasingly internationalized marketplace and to attract foreign investment. The countries with the weakest competitive advantage positions in the global wine industry are two traditional strongholds of wine production in the Old World: France and Germany. While they have large domestic markets, there is little opportunity for further growth. The concentration of production into small wineries, scarce land and labor, complex labeling practices and inability to leverage new production, and marketing techniques does not bode well for effective competition in a global market place. Nor does either country hold much potential for attracting foreign investment, save for some traditionally undervalued areas of France, like Languedoc. In conclusion, it is clear that the New World countries are currently positioned better to capitalize on the opportunities created through industry globalization and other current driving forces. Italy and Spain emerge as the best positioned Old World nations. This competitive advantage scenario should be a wake-up call to many wine producing countries. Indeed, some Old World countries have begun efforts to better adapt to industry-wide improvements in production and marketing practices. However, it is clear that many nations need to increase support that will encourage production and marketing innovations to improve their competitive advantage position to help local wineries succeed in the changing and increasingly competitive wine marketplace.

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    File URL: http://ageconsearch.umn.edu/bitstream/14859/1/wp060002.pdf
    File Function: WP version, May 2006
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    Bibliographic Info

    Paper provided by Alma Mater Studiorum University of Bologna, Department of Agricultural Economics and Engineering in its series DEIAgra Working Papers with number 6002.

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    Length: 13 pages
    Date of creation: May 2006
    Date of revision: Jul 2006
    Publication status: Published in Agecon Search
    Handle: RePEc:bag:deiawp:6002

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    Related research

    Keywords: Wineries; Globalization; Competitive Advantage; Exports; Markets;

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    Cited by:
    1. Cusmano, Lucia & Morrison, Andrea & Rabellotti, Roberta, 2010. "Catching up Trajectories in the Wine Sector: A Comparative Study of Chile, Italy, and South Africa," World Development, Elsevier, vol. 38(11), pages 1588-1602, November.

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