University of Mississippi eGrove Honors College (Sally McDonnell Barksdale Honors Theses Honors College) 2010 Hood Imports: Abruzzan Wine Cluster Advancement Through Trans-National Cooperation and Entrepreneurship Stewart Jennings Hood Follow this and additional works at: https://egrove.olemiss.edu/hon_thesis Recommended Citation Hood, Stewart Jennings, "Hood Imports: Abruzzan Wine Cluster Advancement Through Trans-National Cooperation and Entrepreneurship" (2010). Honors Theses. 2029. https://egrove.olemiss.edu/hon_thesis/2029 This Undergraduate Thesis is brought to you for free and open access by the Honors College (Sally McDonnell Barksdale Honors College) at eGrove. It has been accepted for inclusion in Honors Theses by an authorized administrator of eGrove. For more information, please contact [email protected]. ACKNOWLEDGMENTS This success of this thesis could not have been accomplished without the help of countless individuals. 1 would like to thank John Samonds, Debra Young, William D'Alonzo, Angela Tumini, John Juergens, Michael Harvey, Luca and the entire Ciscato, Rossetti and D'Alonzo families, Raimondi Stefano, Maria D'Alessio, Guiseppe Cavaliere, Dirk Robertson, Fausto Emilio Albanesi, Emanuele Altieri, my friends and family, and all of the winemakers in Abruzzo, Italy. 1 would also like to thank Jim Barksdale for his generous contributions and fellowship grant, which made this whole project and travel to Italy possible. Lastly, I would like to give a special thanks to my advisor and mentor, Christian Sellar. Without his expertise and continuous patience and enthusiasm this paper would never have gotten off the ground. 11 ABSTRACT Hood Imports: Abruzzan Wine Cluster Advancement Through Trans-National Cooperation and Entrepreneurship [Under the Direction of Dr. Christian Sellar] The objective of the paper is to investigate the concepts of industrial and business clusters as they relate to globalization, entrepreneurship and value chain governance. It specifically addresses the dilemma that clusters and niche-product cluster firms face in selecting the appropriate global value chain to enter into. The methodology of the paper consists of the assessment of existing literature in the fields of clusters, globalization, entrepreneurship and global value chains, followed by the presentation of empirical research conducted in the summer of 2009, a case study on the wine cluster in Abruzzo, Italy, and the construction of a strategic business plan for a wine importing company - Hood Imports, LLC. The study examines the need for clusters to adapt and enhance competitive advantage through global strategy and insertion into innovative-inducing network-relationship global value chains. Existing literature shows that large buyers can be dangerous for the social and business environments within clusters. Noticing this, the paper argues that small export firms have the potential to play a role that is more respectful of the already established social and business dynamics within a cluster, while effectively enhancing innovation and cluster excellence. Ill TABLE OF CONTENTS Chapter 1: Introduction 1 Chapter 2: Literature Review and Comparative Studies 5 Theoretical Framework of Cluster Literature 5 Globalization, Regionalism, and Clusters 6 Global Value Chains and Cluster Excellence 10 Entrepreneurship, Buyer-Driven Value Chains and Globally Competitive Clusters 15 Chapter 3: The Abruzzan Wine Cluster 23 The Abruzzo Context: A Traditional and Innovative Cluster 23 The Abruzzan Wine Cluster: Industry Evolvement and Linkages 26 Institutional Cooperation, Services and Growth 28 Conclusion: Export Linkages 31 Chapter 4: Hood Imports and Global Value Chain Involvement 34 The Importance of Buyers 34 Small Firm vs. Big Firm Global Value Chain Governance 35 Hood Import's Background and the Abruzzan Wine Cluster 38 Hood Import's Business Practices 39 Conclusion: The Implications for Abruzzo and Individual Firms 42 Chapter 5 45 Hood Imports: Strategic Business Plan 46 Hood Imports: Wine Portfolio 2010 55 External Conditions Affecting Hood Imports, 59 Chapter 6: Conclusion 72 Bibliography 76 IV Chapter 1: Introduction In recent years there has evolved an increasing awareness and study of regional economics, and cluster-economics in particular. These “clusters" can be broadly defined as “naturally occurring, geographically compact agglomerations of firms, generally small and medium sized, cooperating directly or otherwise drawing on common resources in one or several closely related areas of economic activity’ (Sabel, 143-144). Cluster economic theory investigates why linked industries cluster" together in a geographic area and how this “clustering" actually leads to the emergence of competitive industries that are rich in relationships, innovation. and cooperation. The perceived success of clusters, like the Silicon Valley model and fashion shoe industries in northern Italy, have led to a surge in interest from economists and attempts from regions throughout the developed world to replicate these clusters that have proven to be rich in productivity and innovation. In today's economic society, companies have the ability to efficiently source goods, information, and technology from anywhere in the world, but this does not automatically imply that global markets and faster transportation have diminished the role of location in competition. Harvard Business Professor, Michael E. Porter, points out that competition in today's economy is no longer driven heavily by input costs or locations with some important endowment. “Paradoxically, the enduring competitive advantage in a global economy lie increasingly in local things - knowledge, relationships, and motivation that distant rivals cannot match (77). 1 Whether one considers the entertainment clusters of Hollywood or automotive cluster of northern Italy, it is apparent that the environment outside of companies - the location in which business units are placed - plays a vital role. While early cluster literature has stressed the importance of proximity and local sources of competitiveness, certain aspects of global distribution and the need for upgrading the governance and organization of distribution channels have been largely ignored. Many scholars and policy makers question the most effective means by which clusters and individual cluster firms should enter global value chains, and whether insertion into these chains actually leads to overall enhancement of the cluster itself. Gereffi (1994], Schmitz(1999], Humphrey (2000], and others have drawn attention to clusters and the governance of global distribution channels, but much of their studies have focused on broad upgrading strategies of non-commodity goods in hierarchical type chains. While clusters are often times comprised of skill-intensive commodity-producing firms, a key challenge to those interested in applying the concept of clusters to global competition is how these individual cluster firms should enter global markets. Noticing the dilemma that clusters and cluster firms face in selecting the appropriate global value chain to enter, this paper seeks to investigate which type of chain favors the overall enhancement of clusters that produce commodity goods. It is apparent that clusters are under pressure to improve their performance and increase competitiveness in intensifying global markets. This being the case, insertion into what kind of global value chain will allow a commodity-producing cluster firm to be competitive globally, while maintaining its characteristics of 2 differentiation and skill-intensive production? In particular, what kind of global value chain will give these niche-market firms space and ability to specialize, while offering intensive feedback, coordination of marketing networks, and informational linkages of production and marketing techniques to sustain competitive advantage in outside markets? To provide answers to these questions, this paper reports on the findings of comparative cluster studies. It assesses the existing literature on clusters, globalization, entrepreneurship and global value chains. The paper also draws on empirical research conducted in the summer of 2009: using a case study method on the wine cluster in Abruzzo, Italy, it proposes an in-depth analysis of the Abruzzan wine sector, identifying the industry as a natural occurring and innovative cluster. yet with the need to improve international trade. In response to the Abruzzo analysis and applying the concept of clusters to global competition, the paper concludes with a proposition of a strategic business plan for an export-import firm of boutique wines. The research progressed from an initial analysis of the Abruzzan wine cluster and hypothetical business plan/strategy, to a functioning export- import company - Hood Imports, LLC. Abruzzo was chosen as the topic of the case study because, while possessing a deep historical tradition of winemaking and an immense annual production- quantity of wine, the region continues to have a minimal presence in the southeastern United States wine market. The research in Abruzzo consisted of thirty-two, semi-structured, interviews with winery owners, winemakers, bottlers, agro-tourist providers, government officials, support organizations, and various 3 individuals involved in the food and wine sector in Italy. The interviewees were chosen as a cross-section of the Abruzzan wine cluster, representing the immediate wine producers, infrastructural organizations, and interrelated industries in the