Relationships between wine producers

Building on the findings reported by Marsh and Shaw (2000), Lewis (2003) undertook research into the Wine Institute of New Zealand (WINZ) from an associational

governance perspective. Among the study‟s findings, Lewis (2003) concluded that despite the presence of direct competition and opposition between WINZ members, the association was able to nurture a feeling of collective industry ownership and facilitate knowledge sharing among its members. This was achieved through members interacting regularly, sharing their experiences and knowledge, and having a common passion for wine (Lewis, 2003). Although Lewis‟s (2003) work provides insight into the role of wine industry associations, the research did not consider the horizontal relationships among members. Rather, the work focused on the broader relations between an industry and its government.

Around the same time, Benson-Rea (2005) was completing a doctorate study of how New Zealand wine firms understand their business relationships. Using a combination of network and strategic management theory, and the interaction approach, this work looked at how firms value their relationships in business strategy (Benson-Rea, 2005). Although aspects of the study‟s findings are relevant to this thesis, Benson-Rea‟s (2005) focus was

108 on inter-organisational relationships in general, rather than those strictly between wine producers. Overall, this research found that how New Zealand wine firms understood their business relationships was dependent on their personal values and firm level strategy. In particular, whether the firm aimed to control resources and activities internally, or use their relationships to achieve strategic goals was significant (Benson- Rea, 2005). Other researchers (see, for example, Brown & Butler, 1995; Chetty & Wilson, 2003; Simpson & Bretherton, 2004; Taplin, 2010) have adopted a more specific focus on the relationships and networks between wine producers at a horizontal level, with much of this work stemming from other new world wine regions such as New Zealand and California.

Somewhat differently, Chetty and Wilson (2003) explored the role of horizontal network relationships in the internationalisation of New Zealand SMEs. At the core of their research was the finding that horizontal networks were more important to SMEs looking to internationalise, as these relationships provided them with up-to-date information and complementary resources. On the other hand, domestic firms tended to be more reliant on their social or vertical networks for resources. Following their quantitative survey, Chetty and Wilson (2003) introduced single case study evidence from a medium-sized winery in order to explore the role of horizontal networks further. This second stage of research revealed that wineries openly collaborated with each other for the purpose of information sharing, organisational learning, and marketing in both local and export markets (Chetty & Wilson, 2003). The primary purpose of horizontal marketing networks in a wine industry context is to promote the regional or country label ahead of individual wine company labels. As such, representatives from the case study organisation felt that the most competition stemmed from other countries, such as Australia, rather than other New Zealand wine producers (Chetty & Wilson, 2003).

A similar concept was raised by Beverland (2009), who indicated that collaborative relationships between competitors (in this case other wineries) enable exporting wine firms to raise the general awareness of their collective product among business buyers and consumers. Once regional awareness was established, producers could then establish

109 more vertical relationships that would enable them to leverage their individual wine brands into the new market (Beverland, 2009). Although both studies provide evidence of the benefits of horizontal networks for wine producers, two main limitations limit their applicability to the research reported here. Firstly, Chetty and Wilson‟s (2003) findings were based on a single case study of a medium-sized wine firm operating in international markets. Thus, further research is needed to explore whether the same propositions apply in the context of Australian SMEs operating in primarily domestic markets. Secondly, Beverland‟s (2009) findings were based on anecdotal evidence stemming from a separate study of buyer-seller relationships. Hence, further research into why, and how, wine businesses collaborate with their competitors through horizontal networks is needed.

In a quantitative study of fifty-four wineries located in the United States of America, Butler and his colleagues (Brown & Butler, 1995; Butler et al., 1990) were some of the first researchers to investigate horizontal networks between wine producers. A key finding of this research was that a wine producer‟s desire to join horizontal networks was closely related to their stage of business development. For example, during their start up phase, wineries were more likely to belong to social networks, while business networks were perceived as more useful for wineries in the evolution and final stages of business development (Butler et al., 1990). The researchers also examined the nature of networks between competitors, and in particular how competitor networks could be used to overcome the resource constraints faced by small wine producers. An extensive mail survey was used for collecting data relating to this objective. Overall, competitor networks were found to be an important source of industry-specific and technical information. This supports the previous finding that entrepreneurial wine producers are more likely to join social networks when they first enter the wine industry (Brown & Butler, 1995, Butler et al., 1990). In conclusion, Brown and Butler (1995) suggested that more research attention needs to be focused on the intervening effects and circumstances that dictate the use of competitor networks. They also argue that the findings of their research indicate that competitor networks exhibit more complexities more so than once thought (Brown & Butler, 1995; Butler et al., 1990).

110 The importance of organisational learning was raised by Simpson and Bretherton (2004) in their study of cooperative business practices among wineries located in the Matakana region of New Zealand. Using cluster theory, the authors investigated the strengths and weaknesses of collaborative marketing alliances. For the most part, wineries used

collaborative alliances and partnerships to share information about the industry and learn more about the art of producing wine. Instilling a sense of belonging into the wine community was a key strength of collaborative marketing alliances. Some respondents, however, had a negative attitude towards intra-regional collaboration, particularly when it was oriented towards marketing objectives rather than improving production. In addition, the ability of collaborative marketing alliances to instil a sense of community among wineries was disrupted by the presence of strong individual personalities and a clear division between the region‟s hobby wine producers and those that were more

entrepreneurial. Although the context of this study is highly relevant to this thesis, a clear limitation of Simpson and Bretherton‟s (2004) work is their small sample size (only five wineries were studied). In addition, although the research provided some insight into the value of collaborative business practices from a wine producer‟s perspective, the process of collaborative marketing and the factors which enhance this activity were not included in their study.

Researchers have also studied the role of networks and collaboration for facilitating information and knowledge sharing among wine producers, and between wine producers and tourism operators. In one of the most recent examples of this work, Taplin (2010) examined how knowledge sharing between incumbent and new wine producers affected the creation of high status wine regions, such as California‟s Napa Valley. Most of the cooperative relationships Taplin (2010) examined were embedded in networks, although as the region matured, there was a gradual decline of cooperative behaviour, and a competitive edge to inter-winery relationships emerged. Many of the comments made by this study‟s respondents led to the proposition that as the number of firms in a wine region increases, firms feel more pressure to differentiate, which in turn, introduces an element of competition (Taplin, 2010). Taplin (2010) also argued that critical mass may cause a shift towards wine producer interaction occurring within more formal settings,

111 where the flow of information is more structured and less reliant on the presence of reciprocity.

Overall, Taplin‟s (2010) research demonstrates that feelings of collaboration among competitors are likely to change over time. In particular, as a wine region becomes more consolidated, members are less reliant on horizontal networks than when the industry was „still climbing the quality ladder‟ (Taplin, 2010: 20). This finding has particular relevance to the research reported here, as the Tasmanian wine industry is considered a high-end wine region, and is slowly reaching a point of consolidation for a state of its size.

A recent conference paper by Callahan, Ballantyne and Thyne (2010) also examined the role of knowledge sharing in the formation of high-end wine regions. While Taplin (2010) focused on transformation and change within wine regions, Callahan et al. (2010)

examined how knowledge sharing between horizontally integrated wine firms in the Central Otago region of New Zealand contributed to the reputation of the region as a whole, and the reputation of the individual wine labels. Using a case study method, the authors found networks provided an effective platform for wineries to exchange both explicit and tacit knowledge. Furthermore, unlike in the Napa Valley, there was little competition between the Central Otago wineries, which was found to contribute to their ability to maintain a point of differentiation whilst still sharing information and ideas (Callahan et al., 2010).

In an Australian context, the nature of knowledge creation in networks of SME firms was studied by Braun, McRae-Williams and Lowe (2005). Using cluster theory as a basis, the authors found that there was a range of issues surrounding knowledge transfer among clusters of tourism and wine SMEs in three Australian regions. Although the paper only briefly highlights three regional Australian clustering studies, the authors did note that wine firms were more inclined to engage in networking and knowledge exchange with each other, rather than with tourism operators. Findings published by McRae-Williams (2004) a year earlier supported this observation, by suggesting that clusters were on the

112 rise within the wine industry, and that many had displayed complex levels of cooperation and joint activity.

Aylward (2004a; 2004b; 2005) has performed extensive work into the presence of innovation and export activity within Australian wine clusters. Although the focus on innovation and export activity is not directly relevant to this Tasmanian study, Aylward (2004a) has alluded to a „cultural‟ or geographic divide between some Australian wine clusters, which suggests wine producers may perceive collaborative activity differently depending on which state or region they are located. SMEs are more likely to respond to global wine industry pressures through forming clusters in their region (Aylward & Zanko, 2006). Importantly, these clusters, particularly those in South Australia, have been found to enhance the marketing, distribution and export strategies of small-to-medium sized wine firms (Aylward, 2004a; 2004b).

Along similar lines, Giuliani (2007) studied the extent to which the geographic proximity of wine firms within Italian and Chilean regions, affected their organisational learning and innovation capabilities. Overall, the results of Giuliani‟s (2007) analysis revealed that in spite of firms‟ geographic proximity, innovation related knowledge was diffused within clusters in a highly selective and uneven way, and the extent to which this knowledge was shared varied according to the strength of social relationships between wine firms.

Work by Farinelli (2007) also analysed the key drivers of innovation within Argentine wine clusters. In this work, analysis of various examples of interaction between firms and between firms and the government revealed that many of the region‟s smaller wine producers collaborated in the form of informal wine tasting and benchmarking.

Importantly, this type of collaborative activity had become a valuable source of learning and innovation. In another innovation-oriented study, Garcia and Atkin (2005)

investigated how cooperation among competing wine producers had affected the diffusion of the screw cap for wine bottles. After examining the diffusion of this innovation in the wine industries of Australia, New Zealand, and the United States,

113 Garcia and Atkin (2005) concluded that the difference in diffusion rates could be partly attributed to the variation in collaboration within the different wine industries. In particular, the new initiative had been widely adopted by wine producers who could overcome issues of competition and unite for the purposes of a joint promotional campaign (Garcia & Atkin, 2005). Interestingly, Australian and New Zealand wine producers were found to be the most conducive to cooperation.

Using the resource-based view as a theoretical framework, de Oliveira Wilk and Fensterseifer (2003) also examined the link between collaboration and competitive advantage, this time in a southern Brazil wine cluster. In particular, a wine region‟s competitive advantage was grounded in the strategic resources and capabilities of the cluster, which were underpinned by the cluster‟s structure and geographic location. Correia et al. (2004) have also studied the development and performance of wine clusters. Using the Bairrada Wine Route in Portugal as a single case study, the authors used in- depth interviews and observation to gather data relating to the perspectives and future of the wine route. Although their work was exploratory, the authors confirmed that

collaborative networks were valuable for advancing wine tourism in this „old world‟ wine region. However, in the case of Portuguese wine producers and their associated

businesses, a lack of coordination and organisational leadership were constraining the development of collaborative activity. In light of this observation, Correia et al (2004) concluded that newly-developing wine networks should acquire organisational leadership and a clear structure from the start. Importantly, both these conditions were linked with the attainment of support and commitment from wine route members.