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Competitiveness and Internationalization Strategies of Portuguese Wine Industry

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Competitiveness and Internationalization Strategies of Portuguese Wine Industry Competitiveness and Internationalization Strategies of Portuguese Wine Industry The Case Study of Sogrape Vinhos João Nuno Avó de Almeida Department of Engineering and Management, Instituto Superior Técnico Abstract The Portuguese wine sector always had an important role in the country’s economy as well as in its history and culture. Despite being a small country, Portugal figures among the main worldwide wine producers by developing products and processes that effectively provide added value in obtaining a competitive advantage over the rest of the countries. Despite Portugal being one of the oldest wine producers, with few exceptions, most of the domestic companies pay short attention to the management area, which results in a very weak promotion of their products and consequently a very weak presence of their wines in the international market. Using the case of Sogrape Vinhos, a company with a size above the average of other Portuguese wine companies, the topic of internationalization strategies will be explored, in terms of foreign country choice, as well as in terms of entry and marketing strategy of Portuguese wines in foreign markets. This study discusses the competitiveness and internationalization strategies of the Portuguese wine sector, being supported by a relevant literature review about the topic. Keywords: Internationalization Strategies; International Competitiveness; Wine Sector; Sogrape Vinhos 1. Introduction The wine sector has always played a very In the last few years Portugal has been important role for the Portuguese economy, recovering from a negative trade balance of with exports of the sector accounting for goods and services. In 2012, according to around 737 million euros. Despite this strong data from the Portuguese Agency for representation at a national level, it is easy Investment and Foreign Trade (AICEP), this to perceive all the potential evolution that indicator reached a positive value for the still exists in the country, as well as the first time in twenty years. possibility of conquering new foreign markets. With some sectors stronger than others, Portugal can create conditions for obtaining Portugal, having already made a long road a competitive advantage. In 1992, after with positive results for the country over analyzing the different sectors in Portugal, time, still needs to evolve in its management Michael Porter selected six clusters based capacity at international level so that this on their relative importance and the sector reaches the competitive level of the potentiality of the initiatives to add value. other producing countries. Despite being a One of these six clusters was the wine, the small country, which limits the sector in wine industry. several aspects, it also has several 1 competitive advantages that differentiate it in Considering the present study, it will be international markets. Thus, in order to emphasized the export strategies that compete with these countries, Portugal has consist of the continuation of the base to well define its choices of entry in foreign production at national level, exporting its markets. products to foreign markets. Reid (1981) With the objective of exploring, within the states that the process of developing an strategies of internationalization followed in export strategy can be divided into five the Portuguese wine sector, the export hierarchical steps, and it is quite possible component through the analysis of a case that certain steps can occur simultaneously: study was based on the study of the case of (i) export awareness, (ii) export intent, (iii) the company Sogrape, in order to carry out export trial, (iv) export evaluation and (v) an evaluation Competitiveness and export acceptance. internationalization strategies of the 2.3. Internationalization Models Portuguese wine sector. To explain the behavior of a company, With the objective of exploring the export several theoretical models were proposed, component through the analysis of a case differing in the determinants that are study within the internationalization considered to explain the actions of strategies followed in the Portuguese wine companies at an international level. sector, the case of the company Sogrape was chosen in order to carry out an Porter (1990) presents a theory (Porter's evaluation of competitiveness and Diamond) that holds that the internationalization strategies of the competitiveness of a nation depends on the Portuguese wine sector. upgradeability and innovative capacity of its industries. This model is represented by the relationship between four determinants: 2. Literature Review 1. Factor Conditions. The nation’s position 2.1. Internationalization in factors of production necessary to Internationalization is, according to Ruzzier compete in a given industry; et al. (2006), the geographical expansion of 2. Demand Conditions. The nature of home- a company's economic activities across the market demand; border of a country. There are, for Okpara 3. Related and Support Industries. The and Koumbiadis (2011), five reasons why a Supplier and related industries; company decides to enter foreign markets: (i) gain access to new customers, (ii) gain 4. Firm Strategy, Structure, and Rivalry. access to lower costs through economies of The conditions for nation governance, in scale, (iii) exploit their core competencies, which the companies are created, (iv) gain access to resources and organized and managed and the nature capabilities located in foreign markets, and of domestic rivalry. (v) distribute their business risk by a wider Two other determinants are also added that market. punctually influence the first four: the According to Johanson and Vahlne (1977), a Government, through public policies that company usually begins by exporting affect each of the referred determinants; and through an agent, using a sales subsidiary in chance, which refers to events occurring the country of destination at a later stage outside the control of companies and usually and, if it makes sense to it, it begins to out of government control. produce in that country. According to Cho, Moon and Kim (2009), 2.2. Entry Modes Dunning (1993), Hodgetts (1993), Rugman and D'Cruz (1993) and Cartwright (1993), When deciding to expand its domestic the Porter’s Diamond Model has some activity to international markets, the flaws. New models have been developed company will have to consider the most with the aim of increasing the applicability of beneficial strategy to execute it, according to the study to a greater diversity of Thompson et al. (2012), there are six main economies. options to accomplish this: i) export strategies, ii) licensing strategies, iii) Rugman and D'Cruz (1993) developed a franchising strategies Iv) acquisition model that adds multinational activities to strategies, v) greenfield venture strategies, Porter's Diamond (Cho, Moon and Kim, and vi) alliance and joint venture strategies. 2009). In this model, The Double Diamond Model, a new diamond is added in cases 2 where the country concerned has a close 92,090 km2 according to Abrunhosa et al. link with a second country. (2003)) and has been producing its wine for Cho (1994) states that the Porter’s Diamond many years. At the consumption level, this Model is a limited model when applied to country can be classified in two different less developed or developing countries and ways: it is the 12th country that consumes proposes a modification of the Porter model, the most wine in total volume, around The Nine-factor Model. In this new model, 4.8 MHL in 2015 according to the OIV the sources of international competitiveness (2015), and the 7th country in what are divided into two categories: physical consumption per capita is concerned, factors and human factors, and there is the consuming about 42 liters per capita external random factor that represents according to the Wine Institute (2015). events that occur outside the control of any Regarding the trade balance of this sector, identity. Balcarová (2014) argues that this this has been positive in the last 5 years, model is more suited than the Porter’s having exported around 2800 kHl and Diamond when applied to less developed imported only 2206 kHl (OIV 2016). countries and that it is necessary to take into 3.2. Portuguese Wine Cluster´s account the choice of variables selected In 1992, Michael Porter led the Project because they have a significant influence on Building Competitive Advantages of results. Portugal, later on known as the "Porter According to Cho, Moon and Kim (2009), in Project". In this project, Porter followed the order to have an understanding of the theory developed in his book "The national competitiveness of a country with Competitive Advantage of Nations", using several characteristics, it is necessary to the diamond and clusters theory. This model integrate in a single model the focuses on the optimization of the diamond aforementioned models, explicitly applied to the regionally concentrated considering human factors at international clusters sector, in which the country has level. In this way, they present The Dual competitive advantages. Then, the clusters Double Diamond Model that integrates the that would represent advantages for the four dimensions of national competitiveness country were defined and located, one of into a single dimension, analyzing the these the wine cluster. physical factors of competitiveness and With regard to the wine clusters, five were human factors of competitiveness, both scattered throughout the country:
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