The economic and regulatory context
In the last twenty years the European wine market has been confronted with major changes at the economic and the regulatory levels. The emergence of new producing countries has significantly increased the amount of competition, reinforcing the global dimension of the wine market. This has happened in a context where the overall drop in wine consumption is only partially compensated by commercial access to new markets in the Far East and Africa. Between 2000 and 2006, the level of global wine exports increased by 31% in terms of volume, and 75% in terms of value, which also attests to the improvement in quality of the wine being traded1. The largest exporters globally are Italy, France, Australia and Spain; and, within Europe, Italy, France and Spain, followed by Germany and Portugal2.
The dynamics of international trade evidence the good performance of Italy and, especially, Australia, which in the period 2000-2006 increased its exports by 1.4% and 2.8% respectively in terms of value (by 0.4% and 3.9% in terms of volume). However, it was France that registered the worst performance (a decline of 6.4% in terms of quantity, and 5.4% in terms of value).
The more recent dynamics from 2008 show the slowdown of growth in the export of wine worldwide3. Among the European countries, only Spain and, marginally, Germany increased the amount of wine exported. The United States remains the largest importer of European wine both in terms of quantity and quality4. Other important trends in commercial trade concern the slowdown of growth in wine exported by the New World (Australia, Chile, New Zealand and South Africa), and the increase in the bulk wine traded globally and bottled in the countries in which it is distributed5.
The increased competition has not only put more pressure on traditional producers but they have also been confronted with new competitive dynamics: these are not particularly focused on territorial advantage, but are oriented particularly towards trademarks and brand-based development strategies.
Relationships between production and distribution, and the transformation of channels have changed in the last 10 years also due to the widespread use of online selling. The emergence of specialised distribution companies as well as the increasing role of large distribution chains in food and drinks markets reflect these changes, but also have redesigned the wine value chain requiring profound changes, in particular: a more stringent coordination between production and distribution; reallocating power and value along the chain for the benefit of those enterprises able to control access to the retail markets. This is a global phenomenon, significantly influenced by the increasing concentration of distribution enterprises in Europe and throughout the world.
The recent economic crisis has put additional pressure on competitive dynamics, favouring a reallocation of value in favour of the parts of the wine chain oriented towards medium price demand rather than niche production.
Within this scenario, the recent European reform of the Common Market Organisation of Wine has tried to enhance the competitiveness of the European wine market by searching for an adequate balance among the preservation of territorial competitive advantages,
enhancement of innovation production processes, market transparency and consumer protection6. The European wine industry is still primarily based on denominations of origins, which are self or co-regulated regimes.
The private organizations entrusted with regulatory power concerning compliance with D.O. requirements and other safety requirements constitute large regulatory blocs which influence the formation of networks among firms belonging to the same D.O. The protection of collective reputation requires peer monitoring since when a single producer violates quality requirements it is likely that all the producers within the DO will suffer damage. Furthermore, the success of individual entrepreneurs within a D.O. may generate positive externalities on the other producers increasing both the price of wine and the value of land.
The European wine market also shows high fragmentation in terms of land ownership and the size of enterprises operating in the sector, in particular regarding grape-growers and wine producers. The average size of vineyards in Italy is 1.5 ha, in France is 8.8 ha, in Portugal is 1.2 ha, in Spain 5.9 ha and in Hungary 0.5 ha7.
Family businesses are still the main commercial model, at least at the production level, and grapes production is often a part-time activity for land owners8. At the land ownership level, the European policy on grubbing-up has partially influenced this fragmentation, favouring the reduction of production potential. At least in principle the expiry of this policy in the near future might bring new changes in ownership allocation and size of enterprises.
Reducing effective capacity to access innovation processes, knowledge-based services, trademarks development strategies, and internationalisation patterns, the small size of enterprises does not help them in facing the current global competition. A move towards vertical integration can be observed at some levels, partially directed to expanding control over land, but more intensively directed to expanding control over trademarks and access to markets. These growth strategies are not easily accessible for all the enterprises (and have been pursued mostly by distributors or final producers), and are deeply influenced by the regulatory context at the national level related to land use regulation, mergers and acquisitions, and corporate groups. Some special changes have taken place in Eastern Europe, where, though within legal constraints, some limited concentration of production firms was triggered by foreign penetration, and by the transfer in the control over ex-State-owned enterprises.
A different response to entrepreneurial fragmentation can be seen in inter-firm collaboration This has not occurred so much in the area of market-type relations, as spot relations mostly driven by price dynamics, but more so in the area of intensively collaborative relations, which have mostly been driven by knowledge-based investments, the pooling of complementary strategic resources, and fiduciary ties. The path towards inter-firm collaboration is not without obstacles: these include governance issues concerning the provision of adequate incentives for cooperation in a context in which independent firms might continue to compete at some level, and to cooperate at other levels. However, the opportunity for sharing critical resources, enabling innovation processes which would otherwise be inaccessible, might represent a very
important competitive advantage in the current scenario. This paper explores the conditions and the factors influencing these collaborative dynamics both at the domestic and the European levels.