The Value of Trading Relationships Between Buyers and Sellers of Wine Grapes in Australia
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Muresk Institute The Value of Trading Relationships between Buyers and Sellers of Wine Grapes in Australia Lynlee Hobley This thesis is presented for the Degree of Doctor of Philosophy of Curtin University of Technology Bentley WA December 2007 Declaration This thesis contains no material that has been accepted for the award of any other degree or diploma at any university. To the best of my knowledge and belief, this thesis contains no material previously published by any other person except where due acknowledgement has been made. Signature: ______________________________________ Date: ___________________________________ ii Abstract The following dissertation uses an exploratory and confirmatory approach to explain relationship value within the grape and wine industry in Australia. Specifically, the research develops and empirically captures and compares buyers’ and sellers’ perceptions pertaining to relationship value. A three phase model was developed from a comprehensive literature review and further enriched through a qualitative field study involving sixteen in-depth interviews with wineries and their grape suppliers in Western Australia. The hypothesised structural equation models were tested using data gathered from a comprehensive survey of 175 wineries and 400 wine grape suppliers located in South Australia, Victoria, New South Wales and Western Australia. Research findings highlight the similarities and differences in relationship value antecedents and outcomes for wineries and grape suppliers. In Phase One, it was evident from the working relationships studied that partner attributes included in the model – conflict resolution, communication, performance satisfaction, trust and cooperation - all made an important contribution towards the realisation of relationship value for both parties. A restrained use of power was found to be critical to avoid a reduction in the ability to resolve conflict, the level of performance satisfaction and trust in the relationship. In Phase Two, profitability benefits were shown to be the strongest predictors of relationship value, whilst the realisation of market and scout benefits strongly assisted firms to innovate. Perceptions of relationship costs were comparatively low for both customers and suppliers. The results of the Phase Three model provide rare empirical evidence which showed that while both parties share these same key relational antecedents and value outcomes (profitability benefits, innovation and market/scout benefits and relationship costs), the means by which relationship value is conferred was significantly different. For customers, satisfaction with a supplier’s performance enhanced perceptions of the value of that relationship due to the potential to increase profitability. Also, customer perceptions of relationship value increased through trust and cooperation. In contrast, suppliers in a trusting and cooperative relationship with a customer have the opportunity to increase the value of their relationships to the extent that they are willing to innovate to build strategic position, reduce costs and improve quality to increase profitability. Cluster analysis revealed there were those firms with a high relational orientation and others with a low relational orientation within both winery and grape supplier groups. Specifically, those wineries and grape suppliers with higher levels of conflict resolution, communication, performance satisfaction, trust and cooperation had corresponding higher levels of relationship value. iii Acknowledgements With the completion of this third research degree with my supervisor, Associate Professor Peter Batt it is difficult to overstate my gratitude for his contribution towards my graduate studies. With his knowledge, enthusiasm and endless patience he has helped me through some challenging times to make this research an extremely rewarding experience. I am deeply indebted to Dr Doina Olaru, at the University of Western Australia for her willingness to share her knowledge and expertise in statistical modelling. Her proficient guidance with the multivariate analysis of the data was instrumental to the structural equation modelling outcomes achieved in this thesis. I express my grateful appreciation to my second reader, Dr. Christine Storer at the Muresk Institute, Curtin University of Technology for her valuable editorial comment and Associate Professor Mark Gibberd, Chair in Viticulture and Oenology at the Muresk Institute in Margaret River for his assistance in obtaining and managing funding for the research. For financial support during my three and a half years of research, I would like to thank Curtin University of Technology for the Divisional Postgraduate Scholarship and also the Grape and Wine Research Development Corporation for funding my project expenses. Special thanks go to Curtin University of Technology staff members, Mrs Jenny Lalor at the Centre for Educational Advancement for her advice on statistical procedures and Ms Kerri Rouix at Muresk Institute for her support with administrative and finance matters throughout the project. My thanks also to Mrs Rhonda Bracey for the extensive work involved in formatting and editing the thesis. I would particularly like to thank those people who agreed to participate in personal interviews in my preliminary research in the Western Australian grape and wine industry. For confidentiality reasons they cannot be individually named though their comments were fundamental to the development of the two main national survey instruments for wineries and grape suppliers. For the representative survey sample of national wine grape suppliers much is owed to the support of three major regional bodies: Murray Valley Winegrape Growers Association, Riverland Winegrowers Association and Griffith Winegrapes Marketing Board. Also thanks to the Australian Wine Research Institute, the Phylloxera and Grape Industry Board in South Australia and those many smaller regional grape and wine industry groups and people who contributed time and effort to muster responses from grape suppliers in their region. Finally, I am grateful to my family for their understanding when it was most required. I am especially appreciative of the encouragement and support from my wonderful husband, Adrian. iv Contents Declaration ...................................................................................................................... ii Abstract...........................................................................................................................iii Acknowledgements ........................................................................................................ iv Contents ........................................................................................................................... v List of tables ..................................................................................................................vii List of figures................................................................................................................... x 1. Introduction......................................................................................................... 1 1.1. Chapter outline ................................................................................................................1 1.2. Introduction .....................................................................................................................1 1.3. Research problem and objectives ....................................................................................3 1.4. Development of the research approach ...........................................................................3 1.5. Significance of the study .................................................................................................7 1.6. Justification for choosing the grape and wine industry ...................................................8 1.7. Outline of the thesis.......................................................................................................10 2. An overview of the Australian grape and wine industry .............................. 12 2.1. Chapter outline ..............................................................................................................12 2.2. Global grape and wine industry.....................................................................................12 2.3. Australian grape and wine industry...............................................................................20 2.4. Consolidation in routes to market..................................................................................35 2.5. Conclusion.....................................................................................................................40 3. Industrial purchasing and marketing............................................................. 42 3.1. Chapter outline ..............................................................................................................42 3.2. Industrial markets ..........................................................................................................42 3.3. Purchasing and marketing in industrial markets............................................................45 3.4. Customer–supplier relationships ...................................................................................54 3.5. Relationship management .............................................................................................59