AAWE, Economics Dept, New York University, 19 W 4th St, 6Fl., New York NY 10012aawe@wine-economics.org

AAWE Working Paper No. 218 – Business

Use of Knowledge Intensive Services in the Chilean Wine Industry

Fulvia Farinelli, Karina Fernandez-Stark, Javier Meneses, Soledad Meneses, Nanno Mulder & Karim Reuse

Introduction

Since the early 1990s, there has been a remarkable export boom of natural resource- based products from Chile, including wine, farmed salmon, forestry and wood products. This phenomenon is surprising, considering the monopolistic role played by advanced countries in these industries (e.g. Italy, France and Spain in the wine industry; Norway, Scotland and Canada in the salmon industry). It also raises questions on whether the conditions under which it is taking place are any different from those that in the past led to the repeated failures of a development model based mostly on the exports of natural resources. From a traditional sector totally oriented to the domestic market and in deep crisis due to political and economic instability, the Chilean wine industry has gained international recognition since the early 1990s. It has become a large export-oriented industry -over 60 percent of the production is currently exported- together with other non-traditional industries such as salmon. Chile has been gradually identified by international consumers as an ideal country for producing modern varietal (fresh and fruity), good-value-for-money wines, and it has won worldwide recognition in the wine community faster than any other country in modern history (Phillips, 2000). This is a striking achievement, considering that until the 1970s Chilean wines were confined to the niche of decent-but-not-great wines, based on few varieties cultivated and the relative homo- geneity of their taste. This paper analyses whether and how, under the globalizing trends that began in the last quarter of the twentieth century, Chile was able to transform some of its primary commodities such as wine into high-quality, diversified, processed goods, with increasing value-added content and export price per unit, thus becoming a platform for development. In particular, as a complement to previous studies, this paper looks specifically at the role of knowledge intensive services in the Chilean wine sector. It is based on the hypothesis is that these services have allowed Chilean wineries to add value to their wine exports and constantly improve their operations along the different stages of the value chain. This paper is structured as follows. Section 2 describes Chile’s remarkable wine export performance and reviews previous studies regarding the main factors that explain this expansion. Section 3 provides a description of the five main segments of the wine value chain and the multiple service inputs within each one of them. The motivations to produce these services in-house or subcontract are discussed in section 4. The results of a survey, carried out in the context of this study, to assess which services are produced in-house or outsourced are discussed in section 5. The last section concludes and provides suggestions for future research.

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