Yohanes Widi Sono (1006794495) MM FE UI Competitive Strategy Course Case: California Wines Cluster

Assignment: 1. Why has California emerged as one of the leading wine-producing regions in the

world ? 2. How was California able to upgrade from producing low-quality wines to a dominant focus on premium wines over the last two decades? 3. What is California competitive position vs France, Italy & Chile ? 4. How has Australia been able to emerge as a leading wine-exporting nation?
5. What steps are necessary to sustain and upgrade California position? What

should companies do? Collective Organization? The California government? The Federal Government?

Answers: 1. California wine industry began from first vintners who began cultivating grapes for use in sacramental wines in the mid-to-late 1700s. In the 1830s and 1840s the first commercial vineyards were established. In 1860, phylloxera, an insect that fed on vine roots, began ravaging most of Europes vineyards. It was discovered that phylloxera had migrated from the Eastern United States by ship and that only native American grapes had rootstocks that were resistant to it. Desperate to revive their vineyards, Europeans began grafting their grape varietals onto American rootstocks. The phylloxera epidemic crossed the Rockies and reached California in the late 1870s. Grafting helped mute the impact of phylloxera on the European varietals growing in California, allowing the state to surpass Ohio as the countrys leading wine producer by the 1880s. Prohibition (a legal ban on alcoholic drinks), which lasted from 1920 to 1934, nearly wiped out the art of quality winemaking in the United States. levels. As Prohibition came to an end, the Depression hit the U.S. economy. Winemaking did not regain steam until the Second World War when the U.S. was largely cut off from European

sources. Demand for low quality sweet and fortified wines such as Thunderbird fueled California production throughout the 1940s and 1950s. The 1970s saw the development of other industries in California that helped promote wine consumption. The founding of Alice Waters Chez Panisse in Berkeley in 1971 marked the beginning of California Cuisine, a movement based on organically grown foods. Tourism in the states wine country picked up as well with the appearance of hotels, bed-and-breakfasts, and high-end restaurants. Wine tours also began to play an important role in consumer education. The Wine Spectator, established in San Francisco in 1979, would become the countrys leading wine publication and one of the most important promoters of California wine. Its annual lists of the worlds best wines had a major influence on U.S. consumer tastes. 2. Science and technology played a vital role in bridging the quality gap between European and California winemakers. Traditionally, European vintners had relied heavily on feel and time-tested practices. California winemakers of the 1960s and 1970s began using quantitative analysis and new techniques to produce higher quality, more consistent wines. Its began In early 1900s the University of California at Davis shifted its research to fruit growing and renamed its viticulture department to be the Department of Fruit Studies. Innovations flowed rapidly among the states vintners, especially in Napa, where most of the major wineries were located side-by-side along State Highway 29 and its eastern parallel, the Silverado Trail. Though much of the innovation took place at the wineries themselves, U.C. Davis helped introduce several new technologies such as mechanical harvesting, drip irrigation, and field grafting. 3. Californias competitive position versus France is in wine prices and production cost. The competitiveness is varied by region and by quality. Labour costs in France were generally thought to exceed Californias. France had long-established apprenticeship programs at individual vineyards and winemaking establishment. The French had an aversion to what they viewed as the mechanistic and overly scientific methods of Californian production, seeing the discipline much more as an art handed down over the generations. Despite this, the French had a well established research network and base of trained scientists. The National Institute of Agronomic Research was known for its work in both viticulture and ecology. The French government took an active role in the wine industry, which was viewed as a national treasure.

Italian consumption rate for wine is at 15 gallons per person in 1996 behind France. Italian typically consumed lower quality, less expensive wines. Imports had very little impact in the Italian markets, accounted for less than 1% of consumption. The cluster boasted the worlds oldest and largest national organization of winemakers to which 90% of Italys 3,500 winemakers belonged. The Italian wine industry was becoming increasingly polarized between those winemakers adhering to a traditional focus on local markets and those targeting the global arena. The latter group was growing as wine makers such as Antinori of Tuscany brought in experts, including consultants from California, to modernize their facilities and processes to better address the needs of International markets. As in France, the Italian government maintained strict laws governing labelling to ensure origin, quality, and the vintage. The government also provided export promotion assistance of about $6 million per year. Chilean consumers historically preferred inexpensive, highly acidic wines typically packaged in tetra packs or boxes. Though tariffs were low, imports accounted for less than 1% of consumption Chile had a long history in wine-making dating back to the 1500s when Spanish conquistadors planted mission grapes to make bulk wines. When phylloxera struck France and California in the late 1800s, Chilean grape vines proved immune and were the only French varietals still grown on their original root stuck in the 1990s. Roughly half of Chiles total production went to domestic markets and consisted primarily of wines made using lesser quality, high yield grapes. Exports had grown 36% annually from Chile had increased from 14 in 1990 to almost 100 in 1996. Attracted by lower land and labour costs, French, Spanish, U.S., and Australian companies were establishing on through joint venture agreements with Chilean wineries. In 1995, the Chilean government established viticulture zones and stepped up regulation of wine labelling. 4. Australias per capita wine consumption of 4.8 gallons in 1996 placed it among the top 20 countries in the world. Australia was one of the few wine producing countries in which per capita consumption was rising. The first wine grape vine were introduced to Australia in the late 1700s, but it was not until the mid 1800s that significant wine production took place. Australian winemakers and policymakers credited much of the wine industrys success to heavy investment in and reliance on innovations in viticulture and winemaking technology. Scarce water resources stimulated much of this activity. By the 1990s, Australia had established itself as a cost competitive producer of high quality wines, with 3,000 growers and 1,000

wineries. Relative to California, Australia had higher labour costs. However, land prices were generally lower. Australias growth in the world export market had been nothing short of remarkable. The countrys export in value term had grown 36% annually from 1985 to 1997. Australias export value per gallon over much of the same period had exceeded both the U.S. and Chile. The United Kingdom (45%), United States (22%), and New Zealand (6%) accounted for almost 75% of Australias export value. Though it did not provide export subsidies, the Australian government had historically provided funds for export promotion totally $ 4 million per year typically spent on wine tasting in target markets. With government funding scheduled to end, the wine industry supported the creation of an export heavy totalling 0.25% on the first $ 7 million of export sales, 0.15% on the next $ 30 million and 0.05% thereafter to maintain funding. Australia had also established Wine Bureaus in several countries including the United Kingdom, The United States, and Germany to coordinate promotional activities 5. The required step that need to make California sustain and upgrade their wine cluster are: Beside the companies give a high cost to the labours, they need to give an education, training, insurance to be a high quality labours. A collective organization can help the government to growth the wine export production, and give an innovation idea to the California Wine Industry to sales their product on targets, to invest, and to be an independent grower. The government also needed to help the export promotion. The government also can stimulate domestic demand of wines to help domestic wine industry to growth. The companies need to make more innovation in wine production and distribution. With a high technology to upgrade California Wine Industry to be better position. Consistency Wine Making that come from technology implementation become significant trademark of California Wine Industry because of that California Wine Industry should positioning itself as Consistent Wine with Cutting Edge Technology.