International competitive advantage and the Australian wine industry

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By Grant Hall.  Founder of League Cultural Diplomacy

This post is part of the Going Global segment of where words fail

I don’t mind a glass of wine or three – in fact I’m enjoying a McLaren Vale Shiraz as I sit here on a balmy Vietnamese evening, writing this post.  When I’m in Adelaide I usually stay close to the McLaren Vale wine region and in 2006 I was privileged enough to coordinate the wonderful Fleurieu Peninsula Biennale and Art Prize which is held in the region.  The Biennale was founded and funded by the local wine companies, meaning that I got to enjoy a regular glass of wine or three that year.  The event is a great example of how businesses can use cultural activities to build relationships and get corporate messages heard.  Through this job I got to know many of the wine producers, so now, when I’m abroad I’ll often buy a McLaren Vale wine if I see one, knowing not only that the income is going back to people from my ‘hood, but that I’ll enjoy the drop. In the year I coordinated the festival some 30,000 people came along, the majority of whom would have gone home, like me, with a heightened knowledge and affinity for the region and it’s wines.

As you probably know, the French were the dominant competitor in the global wine industry for centuries for a combination of reasons, some of which mirror those behind the more recent success of Australian wines.  For instance, when wine was first brought to France by Greek colonisers the French were active in finding new technologies like pruning to build the industry.  The French also had the right combination of terrain, climate and geographical centrality to export locations that could be accessed by land and sea. Old vines in the right locations make for superior wines and French vines were already hundreds of years old before the first McLaren Vale vines were planted in the 1830’s.

The French clearly had some competitive advantages over the new Australian producers.  Old vines and experience produced superior wine and by the mid-eighteenth century wine was France’s second largest export. ‘Not surprisingly, the industry’s cultural and economic importance attracted a great deal of political attention and over the years laws, regulations, and policies increasingly controlled almost every aspect of winemaking’[1].  French wine was highly regarded and this regulation was largely put in place to protect its good reputation from the production of inferior goods.  In the late eighteen hundreds and early nineteen hundreds France had strong distribution systems and new innovations, namely the mass-production of glass bottles, the cork stopper and pasteurization that ‘not only allowed distribution to more distant markets’ but also ‘allowed bottling’s of the best vintages to age to maturity, greatly enhancing their quality’[2]. All of which were sources of competitive advantage that helped the French to dominate the market.

Despite these advantages the French wine industry was vulnerable to replication. Suitable terrain, climate and a capacity to innovate weren’t unique to France and as exploration and colonisation opened up the world to international trade, vines were planted in the new world which over the course of time began producing wines of a quality to match the French.  The new world wine producers suffered from ‘decades of being dismissed and even ridiculed for their attempts to compete with exports from traditional wine countries’[3], but they had some competitive advantages of their own.  The new world didn’t have the ‘embedded traditions and practices, restrictive industry regulations’ that had become a burden on the old world makers, particularly in regards to innovation, in which the new world flourished while the old world floundered.

When your business decides it wants to expand overseas it needs to find attractive markets.  International business academic superhero Michael Porter provides a tool to help you access a market’s ‘attractiveness’ and guide strategy thereafter.  His Five Forces analysis framework asks its users, when assessing a potential new market, to consider the existing intensity of industry rivalry in that market, the bargaining power of both suppliers and buyers in that market, and the threats of new entrants or substitutes coming into that market.Despite these advantages the French wine industry was vulnerable to replication. Suitable terrain, climate and a capacity to innovate weren’t unique to France and as exploration and colonisation opened up the world to international trade, vines were planted in the new world which over the course of time began producing wines of a quality to match the French.  The new world wine producers suffered from ‘decades of being dismissed and even ridiculed for their attempts to compete with exports from traditional wine countries’[3], but they had some competitive advantages of their own.  The new world didn’t have the ‘embedded traditions and practices, restrictive industry regulations’ that had become a burden on the old world makers, particularly in regards to innovation, in which the new world flourished while the old world floundered.

Had the old world wine makers made considerations such as those built into Porter’s Five Forces tool they would have foreseen how the threats of new entrants and substitute products from the new world would diminish their market share in the international wine export industry.  With such clarity they would have both prepared for the impact of new entrants and substitutes and strategised to ensure their own business models kept them a step ahead of their new world rivals.

Thankfully, for me at least, McLaren Vale wines are available in Vietnam due to the Australian wine industry having the cultural savvy and the strategic ability to bring their wines to new markets – and for that I say cheers!

Here’s a couple of videos highlighting the McLaren Vale wine region – add a visit to this place to your bucket list!

Enjoy:

Endnotes and sources are listed on the next page.

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