COURSE: COMPARATIVE COUNTRY STUDIES

TUTOR: A. ERUMBAN

INDIVIDUAL ASSIGNMENT:
INVESTMENT IN THE SPANISH WINE
INDUSTRY

WORD COUNT:

Georgiana Enache
S2911906
Group 8.3
I. Introduction
On behalf of the Dutch Chamber of Commerce, we aim to outline the main opportunities and
benefits that the Spanish wine industry presents, in order to demonstrate why it would be
recommended to invest in this country. This report will also describe the potential threats and
disadvantages and consequently, ways of overcoming them.

As a good investment decision regarding both the country and the market is essential for
ones profitability, it has to be a balanced, wise and well-thought one, taking into account
various factors, such as costs, competitiveness, ease of doing business in the chosen country,
financial and institutional environment, and market conditions. Another important
consideration is the level of risk that the respective industry and country face, and
consequently, methods of lowering or diversifying it.

II. Industry: brief description and history

Winemaking has a long and rich history, dating back to 4300 BC. Ever since Ancient times,
countries began to increasingly export wine, which became an important product in their
economy. (vinepair.com) Throughout the centuries, wine production has developed
considerably, from the mere fermentation of grapes to complex, more efficient and hygienic
technological processes. These changes have also led to an increase in variety, consumers
nowadays having the possibility of choosing between a wide range of types of wine, with
different flavours and alcohol percentages, meant to appeal to different tastes. (winepros.org)

Even currently, wine remains a highly traded product, being a commodity rather than a luxury
good, even if it is not among the largest industries in the world. Consumption worldwide in
2016 reached approximately 242 million hectolitres, out of the 267 million hectoliters
produced.(OIV). Around the world, people show a preference for wine either as an addition
making their meals more enjoyable, or based on cultural aspects, wine having a long tradition
in their country and/ or religion. Either way, it provides consumers with a sensory
experience (Bisson, 2002), rather than just being a mere drink. Additional explanations for
its popularity are associated with the discoveries made in relation to the benefits of wine for
health, as long as it is consumed with moderation. These include the antibacterial effect of
ethyl alcohol, increased longevity and decreased risk of heart disease (O Keefe, 2014).

Considering the above-mentioned advantages and recent trends towards better anticipating
customer demand and more efficient, sustainable methods of production, there is general
optimism about the future of the wine industry. However, the risks associated with it are by
no means negligible and need to be thoroughly considered by potential investors and
companies in the sector. Regarding the production itself, common threats could be pollution,
natural disasters such as floods or earthquakes, climate change (which may lead to
unfavourable weather conditions) and the lack or scarcity of necessary resources, such as
water or power (EPIC Insurance Brokers & Consultants)
III. Country Information
The well-developed infrastructure, open economy, incentives for business development and
competitiveness are factors encouraging investment in the Spanish market. (Invest In Spain,
2017) Beisdes, the diverse, yet favourable climate for viticulture enables the production of
high-quality wines. (Jancis Robinson) The economic indicators, institutional background,
FDI, labour and market conditions will be elaborated on below.

1.Economy

The main relevant indicators, as displayed by OEC (2015) and Trading Economics (2016),
are summarized in the table below:

GDP 1.13 trillion euros

GDP per capita 32.75 trillion euros

Economic complexity 0.84

Unemployment rate 18.63%

Inflation 2.3%

Consumer Price 100

Index(measured in Index
Points)

Consumer Confidence 99.7

Despite the effects of the financial crisis undergone between 2008 and
2016 and its still high unemployment, Spain is still the 5th largest
economy in Europe and the 14th in the world, based on GDP. Furthermore,
the stability of the political system and the strength of recently
implemented reforms in several areas, such as finance and the labour
market gradually lead to considerable improvement and recovery. (Rabo
Research)

Another positive sign is the fall in inflation by 0.7% in March 2017

compared to the previous month, as it might promote economic growth
and purchasing power. In terms of economic complexity, Spain ranks 31st
out of a total of 184 countries. Hausmann and Hidalgo (2007) argue that
economic complexity, linked to the productive knowledge of a country,
is a stronger predictor of economic growth, as it implies stronger
connections between people from different firms and markets and
facilitates knowledge sharing.
Additionally, Spain scores high on the Consumer Confidence Index, which
means that Spanish consumers generally feel very confident about the
national economic situation. It is important to consider as it is usually
associated with changes in their buying and spending behaviour, the
index causing the tendency to spend more when it has a high value and
less when it has a low one. (Jain, 2014)

2.Institutional Environment
2.1. Differences between Dutch and Spanish
Institutions
An important determinant when considering doing business abroad is the
institutional framework of the host country and in which ways it differs
from the one of host country. The Gower Dissimilarity Matrix shows a
value of 0.37 for the institutional distance between The Netherlands and
Spain, which cannot be characterized as low or high. However, it implies
some notable differences between the institutions (normative, cognitive
and regulatory) of the two countries. (Kostova, 1996) According to Wiit
(2013), the Netherlands falls under the cluster of Coordinated Market
Economies (CMEs), while Spain is a European Peripheral Economy. Based
on this classification, the features of the two countries will be presented in
the following table.

The Netherlands Spain

-long-term job contracts and high -long-term job contracts

job security (Hall & Soskice, 2001)

-relatively high decentralization -centralization, with average task

delegation

-effective state -relatively effective state

-credit/bank-based, less emphasis -finance based on banks, involving

on relationship criteria (Griffiths, a mix between market and
n.d.) relationship criteria for the
allocation of credit

2.2. Regulations concerning wine production and

commercialization
3.Attractiveness for FDI
Spain is on the 5th place in the European Union for FDI stocks, according
to UNCTAD (2016). The stock had a value of 500,592 million euros in
2015, representing 44.5% of the countrys GDP. (Santander Trade Portal,
2017). The main investors are included in appendix A.

Another significant driver of foreign investment is the fact that Spain is a

member of the European Union (EU), which offers free movement of
goods, labour and capital, as well as EU funds and development programs.
(europa.eu). In fact, between 2014-2018, Spain is entitled to the sum of 1
billion euros, meant to fund a National Support programme for wine,
including promotion of the Spanish wine industry abroad, restructuring the
vineyards, decreasing production costs and switching to different vine
varieties in order to meet the current demands of customers. (European
Commission, n. d.)

Apart from the EU membership, Spain has a strong position in the Latin
American market, having a low cultural distance to countries there. This
provides access to a greater number of customers, as well as increased
opportunities for exports, compared to other European countries. (Study
Country, n.d.)

Additional factors encouraging investment in Spain are the flourishing

tourism, the increasing reliance on renewable energy sourcing, supporting
approximately 13% of production facilities, and the highly reliable
infrastructure. The latter facilitates the transportation of bulk wine, as well
as offering well-developed ICT, supported by the Malaga Valley project.
((Study Country, n.d.) Although research and innovation do not play an
equally important role in the wine industry as in other industries, good
information technology is essential, as in any other business, as it
improves market research, as well as enabling access to new, more
efficient production technologies.

4.Labour
Several important figures concerning the labour market in Spain are
presented in the table below. Productivity and labour costs are measured
in Index Points.

Corporate Tax Rate 25 %

Social Security Tax Contribution (as 29.9%

% of the employees wage)

Monthly Minimum Wage 826 EUR

Labour Costs 104

Productivity 110

In 2012, Spain passed a Labour Market Reform, which has been positively
commented on by the OECD, as it has helped increase the flexibility of the
economy, and it is highly likely to contribute to an increase in permanent
job contracts and dynamism of the labour market. (Buck, 2013)

As far as labour in the Spanish wine sector in is concerned, a recent study

by Gil and Mataveli (2017) shows that group learning and a higher level
of education positively influence job satisfaction. The firm size also
contributes to this relation, since researchers have found that in smaller
companies in the field, there was less emphasis on group learning
processes, also partly due to less sophisticated technology. This is
especially important to take into account, since they also argue that job
satisfaction has a positive impact on performance, therefore leading to
better productivity and high-quality outputs.

5.Market

Domestic demand
Exports
1.Germany 14%

2.UK 12%

3.US 11%

4.France 8.8%

5.Switzerland 4.7%
6. Comparison with other countries
IV.Overview of Risks and opportunities

V. Recommendations

References
https://vinepair.com/wine-colonized-world-wine-
history/#10
http://www.winepros.org/wine101/history.htm
http://www.bkwine.com/news/worlds-biggest-
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Bisson,
2002http://www.nature.com/nature/journal/v418/
n6898/full/nature01018.html
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http://www.oiv.int/en/oiv-life/press-
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 http://www.epicbrokers.com/wp-
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s
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Chapter 1: An Introduction to Varieties of
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http://unctad.org/en/PublicationsLibrary/wir2016_
en.pdf

https://en.portal.santandertrade.com/establish-
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http://www.studycountry.com/guide/ES-
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https://www.ft.com/content/12b0e3a6-67e8-11e3-
8ada-00144feabdc0
Alfonso J. Gil, Mara Mataveli, (2017) "Learning
processes and job satisfaction in the Spanish
wine sector: The moderating effect of
organizational size and employees educational
level", Personnel Review, Vol. 46 Issue: 3,
pp.624-643.