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Case Study- Harvard Business Review

Evaluate the structure of the global wine industry. How is it that the structure is changing?

Historical perspective of wine production starts in around 6,000 BC when Mesopotamians initially began to produce wine. Wine has been important part of ancient lifestyle; Egyptians use to bury it in pharaohs for the comfortable living in life after. Greeks consider Dionysus as the god of wine. Wine production and consumption expanded throughout Europe through Roman Empire. From Europe the techniques and innovation in the wine production expanded to America, Australia and South Africa. The global wine industry during 21st century was estimated to be $130 billion and to $120 billion in terms of retail sales.

Global consumption of wine was increasing with compounded rate. Demand for premium wine was increasing; however the consumption for inexpensive, lower quality wine has decreased. Industry specialist are expecting the demand for high-quality and expensive wine to increase more in the coming years. These changing patterns in consumption within markets have created excess capacity in Europe. These patterns have also increased the cultivation of wine yards of high quality wines. Global market pattern of wine production shows the majority of the wine consumed in the European markets is produced at home through family owned wine yards, whereas all the consumption of American, Australian and South African markets are bought externally. The increasing demand and advancement of the wine market have also improved the quality and quantity of raw material production. High quality of grapes were produced and supplied to the market so that excess demand can be met.

The demand for wine around the globe has now increased tremendously. This has called for many of the domestic producers, small wineries and big industrialist to make their valued contribution in the market. As the industry expanded, regulations were added and owners / producers were imposed with law relating to planting, irrigation, classification and labeling which they have to abide with. Thus, the expansion of market internationally makes the industry exposed to legal and regulatory framework of the respective regions in which it operates. As the wine industry grew strategic management process of the industry started its adaptation. French have started categorizing the wine within different brands and classified the most valued one as "champagne." This has evolved the culture of branding and labeling in the wine industry. The Strategic management process is dynamic and continuous. Since the process required interrelated activities therefore a change in any one component can necessitate change in another or all of the other components. The setbacks in strategic management model that requires alteration in other components can take up the following form: economical change that required long-term objectives to be reshaped; failure to accomplish annual objectives can enforce a policy change and external factors like competitor move can force the mission to be changed.

Thus strategic management process never ends its continuous and constantly undergoes changes. It allows global wine industry to be proactive rather than reactive in structuring their future strategic plan. The process of strategic management is not limited to the organizations ability to respond to the activities but it focuses on taking initiatives, making influence and having control over its own destiny. The strategic wine making process was classified in the following stages which has evolved the industry globally as a well structured and competitive wine making process. This also includes the supply chain management process of the wine industry which starts with the production and ends on with marketing and distribution. Various members within the chain are making their contributions...

Through this the wine industry has been strategically fragmented into various units yet interrelated with each other.
The operations strategy defines how the firm competes in the high competitive marketplace and how it is evolved. The learning objectives from the operation strategy are: it introduces the new concepts of operations strategy to the business and displays how its various components relate to the overall business strategy. The concept of operation strategy shows value creation for the customer. How it is achieved and sustained for longer period. It also identifies different ways in which operation strategy can provide an organization with competitive advantage. It explains how firms are integrating management and services to provide overall benefits to their customers. Wine business operation strategy was divided into the following units either in-house built or outsourced.

Procurement Strategy: This is the raw material management phase of the supply chain process. Land is chosen by the wineries and grapes are been grown. The cost of goods sold is set during this phase. Winemaking was a capital-intensive business, due to the sizeable investments in working capital and the cost of acquiring land. Winemaker also needs to consider an important decision concerning the number of vines to plant per acre. The climate affect this selection, because rainfall levels determine the space required for a vine to access a sufficient supply of water. Production strategy was applied here focusing on the cost-effective production based on the land used and raw material i.e. grapes used in the production.

Packaging Strategy: When the aging gets done, wine are then bottled for distribution, The seal of premium wine is done through a cork while wine packaged in jugs are covered with metallic cover.

Marketing and Distribution Strategy: the distribution of wine is typically done through whole sellers who then sell it to retailers from where it enters the market. The major changes that have taken in the wine distribution are that consolidation is taking place on the retail level also. Some of the leading retailers collectively are controlling the market.

Why are large alcoholic beverage firms such as Diageo, Foster;s and Aliied Domecq entering the premium wine business?

The firm's competitiveness in the strategic management is measured through its consistency between the performance and customer expectations. Therefore the sustainability of Operational strategies in the competitive business environment depends on the consistency between 'Customer expectation' and 'Operation Management performance'. Finding the relationship of consistency between these two important parameters of strategic operation management is actually the concept of creating a strategic fit for the firm. The two main elements that develop the strategic fit are: the customer's expectation, it is considered as the foundation stone of the firm's competitive strategy and the operational performance which is associated with the responses to establish competitive strategy.

Michael Porter has developed five forces that describes the firms competitive strategy, these are: Bargaining power of buyers; threat of new entrants; bargaining power of supplier; threats of substitute products or services and rivalry among existing competitors

The competitive advantage of the firm is achieved through the 'value chain'. This value chain was then developed into value-delivery chain the initial version of supply chain. The competitive structure of supply chain foundation is from the company's "value chain." Value Chain recognizes nine strategically relevant functions responsible for creating value and cost benefit to the business. These nine value-chain functions consist of five primary activities and four support activities. The primary activities include sequence of: bringing materials into the business i.e. inbound logistics, converting them into finished goods through operations; shipping out final products covers outbound logistics, product marketing through marketing and sales and servicing them through service delivery.

The large alcoholic beverage firms such as Diageo, Foster's and Aliied Domecq entering the premium wine business because the wine industry was going under major transformation of the corporate climate. For creating value in the wine business, many of the firms were going under corporate associations through mergers and joint ventures for entering into the new markets and taking the advantage of distribution and production of the raw material in the cost effective areas. The strategic decision was build to have cost synergies making company globally competitive and leading in their respective…