SERVICE INNOVATION IN THE BULGARIAN QUALITY WINE EXPORT NETWORKS: NETWORK MIGRATION AT A MACRO-LEVEL TONY KINDER University of Edinburgh MILANKA SLAVOVA University of National and World Economy, Bulgaria Summary Using a network tool specifically designed for use in analysing agri-food supply chains, the paper presents an original case study of the Bulgarian wine industry, from which it draws public policy and business suggestions and conclusions. It tracks how of how viniculture, vinification and wine sales operate as a network and how networks migrate from producer and national goals and governances towards a market and international orientation. Key words: agri-food, Bulgaria, wine, network 1. Introduction It is fitting that one of Bulgaria’s ancient treasures, the 7th century goblet of Kubrat; Khan of Great Bolgary is vessel for drinking wine. Since the early Bronze Age, Bulgarians made the wine in Thrace that Homer praises in the Iliad. Bulgaria’s long association with wine making is evi- denced in a second-century law protecting vineyards, a ninth century prohibition law and its early medieval monastic wine cellars (e.g. Pliska, Perusal and Turnoff). Vinology prospered even dur- ing Ottoman period (Stavrianos 2000), especially sweet whites. This paper follows many tracks. At one level recent vicissitudes in Bulgarian wine making is iconic of represents the determination of a whole people/country to engage in modernisation proc- esses. This is also the story of transition from Soviet planned economy to globalised market econ- omy participation; shifting from quantity to quality and from closed to open markets. At an iconic level, it is the story of national product repositioning from cheap and cheerful to premium and boutique. In the story heroic actors and determined people feature alongside EU-quotas, tariffs, quality standards and branding campaigns. In short, the success story of Bulgarian wine making is multidimensional. This paper analyses these changes using an institutional perspective – network theory. One important dimension is the understanding of how viniculture, vinification and wine sales operate as a network and how networks migrate from producer and national goals and governances towards a market and international orientation. Network here is a purposively interconnected group of businesses and their partners enjoying untraded interdependencies in the form of network externalities (Häkansson 1989). Supply networks presume a value upon relationships (including knowledge flows and costs) that exceeds the transaction costs of network participation (Lamming 1993; Kinder 2002). This paper references Fisher’s (1997) classification of traditional (functional) and innovative supply networks as a key concept to analyse changes in the Bulgarian wine indus- 72 POLSKIE STOWARZYSZENIE ZARZ <DZANIA WIEDZ < Seria: Studia i Materiały, nr 12, 2007 try. As Spekman, Kamauff and Myhr’s (1988) point out, increasingly competition is between sets of networks: this is clearly visible in wine sales. Industrial clusters are a particular type of network (Kinder and Molina 1999) characterised by a shared paradigm guiding searches for solutions (technological or social); are composed of or- ganisations open to learning (especially from each other); enjoy institutional thickness – support- ing capacity and competences (Storper 1997 and Amin and Thrift 1992); and often benefit from being spatially proximate, forming territorial production systems (Stöhr 1987). Bulgaria’s wine industry is not a cluster – though clustering occurs in localised settings, led by major companies. Bulgarian viniculture, vinification and associated logistics do not share a technological paradigm (some firms are highly mechanised others labour intensive). Firms vary greatly in their prepared- ness to cooperatively diffuse learning amongst other Bulgarian wine industry firms (some are secretive and non-cooperating). These firms are dispersed throughout the country and in impor- tant regards lack institutional thickness: especially in access to marketing expertise, risk capital and export services. This paper, therefore does not use the clustering framework of analysis, rather it conceptualises the wine sector in Bulgaria as a loose industrial network: loose in the sense that whilst there are shared interests (EU quotas, fiscal policy), such is the differentiation between innovative and traditional firms and sub-sectors (wine quality, type, target market or price) that the network has been and remains loose. There is little academic research on recent change in the Bulgarian wine sector. Whilst refer- encing the sector, Zaharieva, Gorton and Lingard (2003) focus on privatisation processes rather than business change and organisation within the sector. Davidova, Tangermann and Tosheva (1994) is an informative piece on governance shifts in the sector, illustrated by procurement. Their analysis uses a transactional, firm-to-firm approach, which though commenting upon the wider strategic and organisational issues facing the sector, does not focus upon them. Bainbridge and Roe (1994) and Bainbridge (1999) draw upon a dated data set and though incisive cannot inform current business strategy making. Our paper draws freely from the detailed exposition in Noev and Swinnen (2002) and Noev (2006). The strength of Noev’s papers is meticulously rigor- ous research; they are not however as strong in presenting an analytical framework, giving causal relationships suitable for prediction and strategy-making. Taking an institutional perspective entails using network analysis to examine causal connec- tions that feed into practical business strategy-making and to a lesser extent public policy making. Significant changes in technological processes have occurred in Bulgarian wines since 1989; the network approach captures these and organisational change (especially changes service and rela- tionship models), locating them within an evolving set of institutional arrangements (law, finance, labour markets, regulatory regime), each of which features in our analysis. Figure 1 indicates the basic structure of our network analysis. We are looking for evolving network boundaries and deepening of relationships with the Bulgarian wine network. As complex a story as that of the Bulgarian wine network is one in which numerous moments or events might be seen to characterise new phases. The time-framing of our analysis is dictated by the use to which the analysis is put: to comment on the future strategy of the network. In figure 2 we give a general overview of events and changes affecting the network. Our analysis, however, is structured in three phases: the period prior to 2003, the period after 2003 and the future. The year 2003 is chosen as a significant business disjuncture, since as we shall show, at this point pre- vious decisions began to crystallise results and market opportunities altered. It is also sufficiently close to the present to be relevant to current business strategy. Tony Kinder, Milanka Slavova 73 SERVICE INNOVATION IN THE BULGARIAN QUALITY WINE EXPORT NETWORKS: NETWORK MIGRATION AT A MACRO-LEVEL The paper’s overall intention is to illustrate the relevance of network analysis to an under- standing of network migration and to contribute towards strategy making. In particular we hope to show why and how the Bulgarian wine network evolved since 1989; the extent to which is has become an innovative rather than traditional network and to suggest what this may mean for its future strategy. Parameters Network organisation characteristics Control/ownership Possibly shared ownership and assets with the network? Governance Interdependency of systems and process with network in- cluding cross-institutional arrangements e.g. public-private? Purpose and goals Explicit, shared and collective goals? Hierarchy Structures: flat, facilitating discourse and unmediated com- munications? Leadership Led by specialists with the knowledge and ability to envi- sion, communicate and operationalise change Functional integra- Functionally integrated and user-orientated, avoiding verti- tion cal integration and uses commitment-based human rela- tions? Products Project rather than programme focus creating customised outcomes, targeting emerging markets and stakeholders? Ecology Inter-relationships between communities of practice? Trust Long-term trusting relationships based upon mutual advan- tage and including knowledge flows? Risk Risk syndication via networks encouraging and supporting high risk taking Figure 1: Characteristics of the networked organisation Source: Kinder 2007 74 POLSKIE STOWARZYSZENIE ZARZ <DZANIA WIEDZ < Seria: Studia i Materiały, nr 12, 2007 ! " # $# " %$&$ '( ) $* ( ! ! +, - $ . ./0 1 Figure 2: basic timeline of recent Bulgarian wine network Section two of the paper sets out our method. In section three we present a case study of the Bulgarian wine network, which we analyse in section four and from which we draw con- clusions. 3. Development prior to 2003 - quantity Most regions of Bulgaria, which measures eleven million hectares (42,823 square miles), enjoy favourable conditions for viniculture. The north, bounded by the Danube, Dobrudzha Valley and Serbia/Montenegro grows both red and white grape; the local Gamza along with Cabernet Sauvignon and Merlot; Chardonnay, Riesling and Sauvignon Blanc. Eastwards to- wards the Black Sea coast mainly white grapes are cultivated including the