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Application of the Diamond Model to Loss of Market Share: A Commentary of Correlations
Application of the Diamond Model to Loss of Market Share: A Commentary of Correlations
The perils of an international entrepreneurial effort, of the European wine industry as perceived as a company, negotiates a compelling proposition for business and market share considerations. In reference to the Ketchen and Short (2014) article, the hopefully cogent case study herein, will weave elements of understanding worldwide economic activities as they particularly relate to competing in global markets coupled with an underlying comprehension of Porter’s “Diamond Model.” Ketchen and Short (2014) explicitly lay out examples, alongside explanations, of the four Diamond Model elements: (a) home-country conditions demands, (b) factor conditions of inputs, (c) “related and supporting industries within their home country,” and (d) strategy/structure, and rivalry among domestically competing peers (p. 181). The complexity of the discussion further engages aspects of advantages and disadvantage of competing in international markets, such as made apparent in terms of risks and benefits – as well as a focus on the core drivers of success or failure, such as the “Diamond Model” describes.
This case study document also involves a reflective analysis connected to the Denton Marks piece, which urges attentive scrutiny to the idea of the wine industry as a purveyor of so-called “cultural goods.” Key mention of the Australian wine industry example highlights how its late-1990s early success of entrance into the global market, with a formulaic standardization of their exported wine products, later faced a shift in trends wherein according to Marks (2011) consumer expectations responded by an acceleration “into a complex landscape of supply and demand modes” (p. 257). What is the astute business and marketing professional to make of these kinds of shifts as relative to the Diamond Model strategy, structure, and rivalry factors? Five basic questions help to ultimately uncover, and unravel, why some firms compete better than others in their valiant strain to enter the competitive schemes of the global marketplace.
Therefore, constructing a framework for the case study discussion enjoins a need to ask the first question. Did demand conditions change given the introduction and availability of alternatives to locally produced wines? In the case of the European situation, expressly the CEEC, yes demands conditions did change as the numbers reflect. According to Marks (2011) the worldwide production of wine had remained steady over “the last 30 years,” but the European wine share “had fallen from 76.0% in 1988 to 71.2% in 2001 with the largest single drop in production share occurring in the Central and Eastern European Countries (CEEC) and the former Soviet Union where its share fell from 16.5 to 10.9%” (p. 246). Since the demand conditions aspect of the Diamond Model, according to Ketchen and Short (2014), involves the “fussy” tastes of domestic customers that help shape the narrow channels of “high expectations” actually positively prepares firms to successfully compete in the global market the reaction was clear (p. 181). The CEEC’s drop in market share simply reacted to consumer sophistication of an educated audience viewing wine as more of an experience – while yearning for a richness in varieties so offered.
Also, at this juncture and in combination of the demand conditions of the Diamond Model, obviously one must take into account socio-economic and cultural risks when it comes to competing in international markets. As Marks (2011) suggests the CEEC had a shift in political systems in the midst of a revolutionary digitalized format in society, which affected all governments and private industry. And of course, according to the same source, wine ingestion is not a simple matter of agricultural sales – like buying apples or grapes. In the case of Australian wine it is imperative to keep the concept of cultural goods in mind. Lowered costs production in its scale-economy region gave Australian wine producers hoping to compete internationally, a chance to diversify their risks by distinguishing their wines at affordable prices. This was the hope. But as Marks (2011) records its stagnation following a high-level of competency in winning a growth share of global wine sales, dominating UK and US markets – but the mass produced mindset and “Coca-Cola-rization” of the situation basically turned people off (p. 257). Australia learned its lesson that the wine industry has a particular sensitivity to the notion of selling a cultural good. Thus, reflecting a prime example of the demand conditions of the Diamond Model in its role amidst risks in international market competition.
The second question asks, what impact might global warming have on ongoing seasons and wine production in Europe? Common sense dictates that weather and nature affects any type of growth products, whether an orange-freeze in California, or adverse climate in Slovenia. In ‘The impact of climate change on the global wine industry: Challenges & solutions’ Mozell and Thach (2014) note that although grapes grown for wine occurs in myriad, and diverse locations, “premium winegrape production occurs within very narrow climate ranges,” and when you pin it down to particular varieties the scope is even narrower (p. 81). So the effects of global warming in an environment of rising atmospheric greenhouse gases sets off a chain reaction, in sea levels, advancing decay of vegetation, all depending on locale in terms of degree. According to Mozell et al. (2014) Latin America’s wine growing regions may see a shortened growing season, the Italian Tuscany Chianti region would find “grapes ripening far too early,” while Australian areas may completely dry and wither up not allowing for winegrape production at all (p. 84). These are delicate patterns in nature to consider. Marks (2011) comments, for example, “Frankovka wine from Slovakia can be delicious but has not thrived in many other cultures” because certain grapes have associations with certain geographical regions (p. 255). So, there are scientifically driven components which directly translate to the economic situation at hand.
Thirdly, did a shift occur in correlated or supporting industries in Europe to affect wine production? This consideration brings one to think about a very important component of the Diamond Model framework of “determinants of national advantage,” which entails related and supporting industries. An interesting aside about this comes from a well-known historical fact involving the California Gold Rush era, back in the day, when it is said that the phenomenon did not wholly make the miners rich – but made most of the suppliers quite wealthy. In other words, selling picks, shovel, pan, weight devices and whatnot proved crucial to economic profitability within the industry. This Diamond Model concept similarly functions. As Ketchen and Short (2011) note, agriculture supports the cattle industry, as steel production supports “one of America’s most lucrative exports” of commercial aircraft (p. 185). The symbolism of wine in terms of culture, tastes, palate, and the whole connection to the concept of a fine-dining experience drives this narrow and highly specialized cultural good. It is impossible to underestimate the life-giving appeal of water as a first choice in beverages, as Marks (2011) observes, but wine follows a close second in beverage choice among people citing its popularity by a comparison of the hordes of wine literature available (over 60,000) on Amazon (p. 254). Certainly then, the peripheral aspects of supporting industries’ suppliers activities and business efforts such as growers, bottlers, labelers, distributorship activities are all quite viable.
Economics has much to do with the shift that did occur among the European supportive periphery of the wine industry, actually most prominently as connected to the political scene of development. As evidenced, the case of Austria which is so geographically and relevantly close within the CEEC hinterland, Austria was able to move forward in what Marks (2011) describes as a “noteworthy wine production” advancement following the late 1980s through early 1990s (p. 249). Proving that socio-economic and political environmental climates influence risks and the ‘Related and Supporting Industries’ idea in the Diamond Model, Austria’s growth showed a quantitatively measurable growth spurt of 150 percent between early 2000 and towards the latter part of the decade. Given their wine industry counterparts in other parts of the CEE region, such as Croatia, Bulgaria, and Hungary – in terms of successfully breaking into the global market – it appears as though tentative political impediments had slowed down desirable progress. Thus further demonstrating that comparisons are inevitable, another point is raised. The United States wine industry growth often associated with vineyards attached to restaurants with professional chefs verifies their understanding of the cultural nature of wine goods, thereby taking advantage of combining its presentation as a regional-dining (and often luxury vacation travel spot) to fine wines as an experience for consumers. As wines are promoted and recommended, in concert with these kinds of dining/travel experiences sales obviously become assisted. What impact has this had on the European wine industry market? For one thing, these value-added activities have boosted the specialized nature of the US wine production to global-market, lifting the cultural desirability of how special North America’s regional wine products are. European wine sales and production may also increase as they utilize economist strategies to connect the wine industry to culture, history, poetry, good living, and wisely using the digital marketing outlets such as social media to get the word out. Having said that, European wine sales will never dramatically or forever lag behind those of American producers, since there always exists a certain flair of Old World culture associated with, say for example, a fine Bordeaux from France so coveted. Everyone dreams of the luxuries of Loire Valley, at some point in life.
Finally, did the growth of capitalism and entrepreneurship following the collapse of communist countries have an impact, in terms of the Diamond Model’s strategy, structure, and rivalry factor? Yes of course, as revealed in the example of Austria versus their regional counterparts in Eastern Europe. However, another key importance of Porter’s Diamond Model of the strategy, structure, and rivalry factor which showed how companies “survived intense rivalry within their home markets are likely to have developed strategies and structures that will facilitate their success” in global competitive market spaces (Ketchen and Short, 2014, p. 188). And that is an appreciation for the cognitive perspective connected to Porter’s theory. Ozgen (2011) views a vision of opportunity for entrepreneurial as a critical part of the Diamond Model, and states that his research applies a “multidisciplinary approach” in its examination (p. 61). Basically, he found that a number of the available literature supported the idea that entrepreneurs cognitively scan the environment when looking for opportunities. Also, further research journal data such as the findings of Cassi et al. (2015) suggest “a gravity model” can suggest “geographical, cultural, commercial, technical,” and other differences amongst Old World and New World players in the global wine industry (p. 205). If you really think about it, in the highly sensitive, and specialized international wine industry, such interaction would be demanded if one realistically anticipates finding success therein.
Cassi, L., Morrison, A., & Rabellotti, R. (2015). Proximity and scientific collaboration: Evidence from the global wine industry. [Abstract]. Journal of Economic & Social Geography (Tijdschrift Voor Economische En Sociale Geografie), 106(2), 205-219. doi:10.1111/tesg.12137
“Dave Ketchen and Jeremy Short. Mastering Strategic Management. Version 1.0 (2014). Washington, D.C. Flat World Knowledge, Inc.”
Marks, D. (2011). Competitiveness and the market for Central and Eastern European wines: A cultural good in the global wine market. Journal of Wine Research, 22(3), 245-263.
Mozell, M.R., & Thach, L. (2014). The impact of climate change on the global wine industry: Challenges & solutions. Wine Economics and Policy, 3, 81-89. doi:10.1016/j.wep.2014.08.001
Ozgen, E. (2011). Porter’s diamond model and opportunity recognition: A cognitive perspective. Academy of Entrepreneurship Journal, 17(2), 61-76.
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