Global Wine War 2009: New World versus Old 1. How were the French able to dominate the worldwide wine trade for centuries? What sources of competitive advantage did they develop to support their exports? The wine production of France goes all the way back to being part of the first niche market for premium wine. Factor conditions of France, such as land and climate, were well suited for wine-production compared to other European countries.
Since the early 19th century cross-border shipping was very expensive, France was able to cluster the related and supporting industries of wine production within their domestic borders. As a result, France increased its competitive advantage throughout other sources without much impact from other countries. As the industry became France’s second largest export, side by side with a culture of rich food, the demand conditions got affected, as consumers were expecting a certain quality.
The French government provided the classification systems, which increased the rivalry and domestic competitiveness and raised the entry barriers so that entry of foreign competition was kept at a minimum. 2. Given the longstanding dominance of Old World wine producers, how were the New World producers, such as the Australians, able to expand their market share so rapidly in the 1990s?
As postwar increased demand for wine rapidly, factor conditions of the New World producers, such as widely available suitable land and it being less expensive, made it possible to meet the new demand and boosted the New World industry. The new demand conditions demanded higher quality wines and as new generations were born, the consumers got more price-conscious and convenient oriented. New World producers met these changes in demands by introducing a completely new firm strategy, structure, and rivalry compared to the Old World producers, who were constrained by tradition.
Innovation was the key word in the New World strategy; suddenly, mechanical technology reduced labor cost and pushed down prices, packaging innovations made distribution easier and provided convenience to the consumers, and technology ensured vintage-to-vintage consistency etc. As well, branding and marketing skills were performed on the basis of vintage-to-vintage consistency, which gave the consumers further preferences and strengthened the position of the New World producers globally. This made them capable at expanding even more rapidly.
The New World producers changed the traditional patterns of related and supporting industries, which used to being long value-chains, as the big producers now controlled the full value chain, able to extract margins and control quality at every level. The size now gave them bargaining power – a power, which made them have a strong grip on the importing countries. The New World producers had created a strong innovative company culture; a culture that could easily adapt to the changes of consumer culture and government regulations.
New generations were born and so was the rise of fashion in a completely different culture of lighter consumption. The New World producers responded to the swings of fashion by taking advantage of the factor conditions: much capacity and regulatory freedom. This was the complete opposite to what the Old World producers were able to do – still constrained by the long history of wine-making tradition and lack of innovation. By that, the New World producers were always a few steps ahead of the Old World producers when the global patterns changed.