OLI Paradigm
Ownership Advantages:
W&W can develop key experience, knowledge and know-how. Gaining an understanding of what best practice for manufacturing and transporting SA wine will enable the production of a substantially higher yield and amount of wine than they could in the US. Looking forward to creating sustainable supply chains and developing future networks for when W&W wish to expand even more.
Location Advantages:
W&W stand to become more profitable through the current market imperfections of the SA market. SA boasts excellent and plentiful resources, low production costs and current political conditions that are favorable for the wine exporter. As W&W grow, there is an un-tapped work force available, especially under new policy reform to allow SA black population to work in the industry. This could prove to be a competitive advantage that can justify their higher prices through ethical practices.
Internalization Advantages:
A joint venture with a SA wine manufacturer enables a new capacity and grants the opportunity to gain new knowledge in the mass production of wine. W&W will have the option to do this in the short term, develop such competencies and begin to produce on their own. Through an initial joint venture, W&W have the opportunity to increase profit margins, accelerate revenue growth, expand into new markets, gain financial support and develop unique company benefitting skills.
Most Beneficial Role of Factory
A joint venture with a source factory whose primary purpose should still be low-cost production but also with a broader strategic role in comparison with an offshore factory. Utilizing the local knowledge and experience of its SA managers; enabling risk limitation whilst not causing upset or a cultural clash with its employees. By giving an extra part of control to the SA factory; W&W will not have to rely on an educated guess, allowing for an exciting future and the potential to expand from an international strategy, even further to a global wine company.
Part V - Supply Chain Management
The wine industry is exposed to a new set of global demands including the quality of products, services and people by the choice of the international consumer. W&W should look to encompass more than being fast and cost effective, the best supply chains are also agile, adaptable and ensure that all company interests stay aligned. Without these attributes, W&W international future would most likely be bleak, which is why W&W’s choice of suppliers is essential.
Agility – One of the main ways to achieve an agile response lies upstream of the company, in the quality of rationalized supplier relationships, which can be achieved in SA. By reducing complexity and forging strong relationships with suppliers, W&W will be able to become agile. There needs to be an exchange of information on demand and inventory levels along with collaborative working relationships across the entire chain. W&W could incorporate an emergency delivery service via a logistics provider if demand begins to suddenly increase, providing customer satisfaction over the standard cheaper delivery.
Adaptability – Not only a requirement for success but an enabler of profitable growth by shortening the time needed to respond to customer demands. W&W should look to build stocks of finished products in order to help rapidly service the market needs especially being such a distance from the US. These stocks will then be potentially life saving for W&W if there is a bad harvest.
Alignment – The supply chain strategy should represent W&W corporate strategy and drive alignment throughout the supply chain on objectives and aspirations from the grape farmers to senior managers through clear communication. This must be handled sensitively in SA to make sure that everyone involved understands. Must focus to match production with consumption, despite wine production requiring long lead times and weather conditions. There must be a process in place to constantly review and evaluate the entire supply chain, always looking ahead such as reducing carbon-based costs.
W&W twin objectives for supply chain management are that it should be at the lowest possible cost and in a way that best serves the customers needs. A large factor could be reducing costs through efficiency and the smallest reduction can have a profound impact on revenue. If at all possible, W&W should focus on both upstream suppliers and downstream customers in order to become fully adapted.
Production Capabilities – In regards to the above information, we suggest that W&W should aim to produce above demand. As demand is highly likely to fluctuate, W&W do not want to damage their reputation by delaying orders especially due to the distance between SA and the USA.
Through information collected from a series of reports documenting supply chain competitiveness in the SA wine industry shows some clear possibilities for W&W including; becoming internationally competitive requires an enterprising and innovative manner by applying best practices at every link (please see figure overleaf). Growth in export volumes depends on the degree to which W&W image is received, every link should be client driven along with being structured to follow information from the market.
Primary Activities in the Value Chain
What should W&W do?
- Focus on strong, profitable and sustainable links following the best possible practice.
- Guarantee wine quality
- Look towards a market driven business rather than the standard and failing practice of the production driven industry
- High priority to using the best soil
- Push for and promote ethical, socially responsible and sustainable practices of which SA is becoming renowned for
- Focus on said image and do away with cheap bottling and packaging that may harm W&W reputation as a premium wine company, as it what consumers want to see
- Move away from central management to decentralized, information based control.
- Look to increase efficiency and eliminate waste
SA has the suitable natural resources, an outstanding wine ecology, good wine makers, R&D programs developing to allow W&W to firmly establish itself as an international wine-producing company – If, integrity, co-operation and confidence is at every link of the value chain.
Be warned that globalizing a supply chain equals increased risk and increased complexity and W&W must consider transportation costs, inventory costs, cultural differences, infrastructural support, local supplier availability, exchange rate, de or centratralizing of decisions.
Summary of SA
SA has had a large increase in focus from the US wine industry. Supply networks have been realized and new exports have been growing rapidly and consistently since 1992. SA has high expansion opportunities, developing infrastructure and a competitive economy. SA has been seen as globally cost-competitive at the higher end of the spectrum, as achieving economies of scale with cheaper wine does not provide enough value creation for W&W.
They suffer the obvious disadvantage of shipping costs, being approximately 9,000 miles away from the US. In order for W&W to compete in this operation, they must focus highly on quality, differentiation and ethically sourced produce and services in order to validate their end product price. In terms of expansion however, W&W would need look no further than SA as it has a remarkably diverse varietal range of grapes and many consumers are still in a ‘discovery’ mode. They have heard positive words and equal experiences but the retail and restaurant access for quality SA wine needs to be improved, opening a clear gap for W&W
Severe fluctuations are increasing the costs of doing business with European producers and making South American wines more attractive. The Rand has become increasingly more attractive and stable since to financial crisis and the successful execution of the World Cup. SA is more than capable to weather the exchange.
Country Analysis
In order for W&W to gain a general overview on all three countries, this is the best place to start. Therefore we have provided relevant and up to date information that W&W should be concerned with when making their final decision. However, it must be taken in to consideration that this is simply a guideline.
GDP and Infrastructure
Production Capabilities
Trade Agreements
Summary of Findings – From this selected statistical point of view, the data suggests that the USA would be the best country to expand into. However, these figures do not represent W&W’s objectives and does not take into account market saturation, competitors or gaps in the market. These results are a simple overview and we cannot generate a prediction from these alone. Chile’s results are noteworthy; due to a high GDP growth rate, low corruption, knowhow of how to export and positive ties with the US wine industry and population. SA cannot be discounted at this stage either.
Recommend - Chile
South Africa References
Competitors
Wines of South Africa (WOSA) 2011 [Online]
Available at
[Accessed October 16th 2011]
Climate
South African Wine Industry Trust (SAWIT) 2011 [Online]
Available at
[Accessed October 25th 2011]
International Operations Strategy
Hill (2011). International Business Competing in the Global Marketplace. New York: Mcgraw-Hill/Irwin.
Sustainable Wine South Africa (SWSA) 2011 [Online]
Available at
[Accessed October 20th 2011]
The SA wine industry insights survey 2011 PWC [Online]
Available at
[Accessed November 3rd 2011]
Wine Industry M&A Outlook 2011 [Online]
Available at
[Accessed November 4th 2011]
Supply Chain Management
Collinson, C. (2001). he Business Costs of Ethical Supply Chain Management: South African Wine Industry Case Study. Available at
[Accessed January 12th 2012]
GS1 Corpoeration. (2008). Wine Supply Chain Traceability. Available at:
[Accessed January 12th 2012
Meissenheimer, J. (2000). Sources of Transaction costs in the South African Wine Supply Chain: Implications for enhancing chain competitiveness. Available:
[Accessed January 13th 2012]
Country Analysis
Doing Business 2011 [Online]
Available at
[Accessed November 23rd 2011]
South African Wine Industry Information & Systems 2011 [Online]
Available at
[Accessed November 4th 2011]
The Global Competitiveness Report 2011-2012 World Economic Forum [Online]
Available at
[Accessed December 14th 2011]
Transparency International (2010). Corruption Perceptions Index 2010 [Online]
Available at:
[Accessed October 18th 2011]
PESTLE
Emporiki Bank Country Trading profiles 2011 [Online]
Available at
[Accessed October 15th 2011]
Globserver: South Africa Economic Foresees 2011 and Recent Developments [Online]
Available at
[Accessed October 16th 2011]
Strategies to promote competitiveness and equity in South African agribusiness: the case of black economic empowerment in the South African wine industry 2007 [Online]
Available at
[Accessed October 14th 2011]
The South African Wine Cluster 2009 by Neil Davidson[Online]
Available at
[Accessed October 14th 2011]