FROM CLUSTERS TO INNOVATION SYSTEMS IN THE WINE SECTOR
lynn k. mytelka
Carleton University
unu/intech
ISRN Conference
Renaissance Hotel, Toronto,
5-6 May 2005
TRANSFORMING WINE CLUSTERS INTO
INNOVATION SYSTEMS
SINCE GRAPES WERE TURNED INTO WINE IN ANCIENT SHIRAZ (iRAN) GRAPE GROWERS TRADITIONALLY CLUSTERED IN LOCATIONS NOTED FOR THEIR NATURAL COMPARATIVE ADVANTAGES IN SOILS AND CLIMATE
tERROIR, HOWEVER, IS NO LONGER THE SOLE BASIS FOR SUSTAINED COMPETITIVENESS
KNOWLEDGE GENERATION AND ITS APPLICATION ARE THE FOUNDATIONS FOR INNOVATIVE CHANGES THAT SUSTAIN COMPETITIVENESS
Clone developmentRootstock developmentVirus diagnosticsCanopy managementIrrigation and drainageClimate controls/monitoringVineyard software managementIntegrated pest managementHarvesting methodsVITICULTUREKNOWLEDGE BASES & INNOVATION
Unique cepages & blendsSoft equipmentYeastsTemperature controlsHygieneMacerationBarrel ageingQuality testingVINICULTURE
Appellation and quality standardsTourism and hospitalityWine competitionsWine educationExportsMergers and acquisitionsVertical integrationPremium contracts for grape growersBrand developmentOnline retailingORGANIZATIONAL & MARKETING
Grafico2
2080022559100198
919718229175273
628319040202402
111211025172731
919145339163306
71/80
81/90
91/99
Wine exports from New World producers (tons)
Foglio1
71/8081/9091/99
Argentina20,80022,559100,198
Chile9,19718,229175,273
Australia6,28319,040202,402
South Africa11,12110,25172,731
USA9,19145,339163,306
Foglio1
00
00
00
Argentina
Chile
Differential increase of Argentine and Chilean wine exports (tons)
Foglio2
000
000
000
000
000
000
71/80
81/90
91/99
Wine exports from New World producers (tons)
Foglio3
The SA wine sector in the apartheid eraKWV controlled prices and surpluses through quota systemProduction focussed on maximising yieldsStandardised production methodsKWV sole exporter, marketer, distributorExploitative labour practicesStagnant domestic market
Learning to Change: 1994 - 1999Quota system abolished end 80sSanctions liftedCompetency gaps in marketing revealedKWV converts to a company leaving a voidDramatic increase in exportsLimited industry coordination and strategic planning
The Emergence of a Strategy: 1999 2003Focus on quality and terroirNew regions and new players establishedPlanting change in line with world trendsCo-ops converting to companiesWinetech launches Vision 2020Wosa focused on building Brand South Africa
InnovationProduction terroir focussedLabour intensive viticultureStrong soil science knowledgeWinemakers combine modern technology with tacit knowledgeSignificant investment in cellar upgradesCreate unique South African cultivars: Pinotage across between Pinot Noire and CinsautBrand South AfricaInternational distributionFunding for research and developmentIncreasing skills of labourers and managers
The Chilean ModelForeign Direct Investment Flows1975 - 2001: 118.1 million1990 - 2001: 94.5 million (origin: US, Canada, France, Spain)
Knowledge FlowsForeign Oenologist, French, at the beginningFlying WinemakersHighly skilled national Oenologists
Contradictory performance of the Chilean innovation system Strengths
1. Rising degree of knowledge intensity primarily embodied in capital goods, and partially stimulated by the massive flow of foreign investment. 2. Remarkable capacity of technological absorption and adaptation, based on the presence of dynamic leading firms, skilled human resources, and initial constructive public-private sector interaction.
3. Dynamic and increasingly articulated industrial structure
4. Quality Regulatory Body (SAG)
5. Expansion of export markets and increased export price per unit
6. Increase of fine grape plantations
7. Innovation in wine cepages & viniculture: carmeniere
Current weaknesses
1. Low degree of cooperation and interaction among wine producers
2. Lack of institutional support (e.g. Prochile) and of coordination among the different instutional actors (e.g. SAG, associations, universities, etc.)
3. Low Investment in Marketing & Promotion
4. Good quality but low price niche market
5. No endogenous research or technological Development
CLUSTERS
GEOGRAPHICAL AREAS IN WHICH
FIRMS AND RELATED SERVICES
ARE CO-LOCATED
Clusters based on traditional industries
Natural resource based industries:
Fish farming (Norway, Chile)
Horticulture (Netherlands, Colombia)
Wine (Canada, Australia, Chile, South Africa)
Consumer-oriented industries:
Textiles & Clothing (Italy, Hong Kong)
Ceramics (Italy, Spain, Brazil)
Eyeglass Frames (Italy)
Furniture (Denmark)
EMBED Word.Picture.8
_1125146869.doc
FOOD INDUSTRIES
Advanced
materials
for ponds &
enclosures
Complex
design
knowledge
Monitoring
through computer
imaging & pattern
recognition
techniques
Pharmaceutical,
nutritional inputs
for health &
feeding systems
Biotechnology
for
environmental
sustainability
Bacteriology,
microbiology, new
freezing technologies,
for storage &
packaging
FISH FARMING
POTENTIALADVANTAGES OF CLUSTERINGOPPORTUNITIES FOR LINKAGES
COLLECTIVE EFFICIENCIES
POSITIVE EXTERNALITIES
EVEN WHEN THESE POTENTIALS ARE REALIZED THE CLUSTER MAY NOT BECOME A DYNAMIC INNOVATION SYSTEM
INNOVATION SYSTEMS
SETS OF FIRMS AND OTHER ECONOMIC AGENTS, WHO,
TOGETHER WITH THE INSTITUTIONS (habits, practices, norms) AND POLICIES THAT INFLUENCE THEIR INNOVATIVE BEHAVIOR & PERFORMANCE,
BRING NEW PROCESSES, PRODUCTS AND ORGANIZATIONAL FORMS INTO ECONOMIC USE
Clusters based on traditional industries
Natural resource based industries:
Fish farming (Norway, Chile)
Horticulture (Netherlands, Colombia)
Wine (Canada, Australia, Chile, South Africa)
Consumer-oriented industries:
Textiles & Clothing (Italy, Hong Kong)
Ceramics (Italy, Spain, Brazil)
Eyeglass Frames (Italy)
Furniture (Denmark)
EMBED Word.Picture.8
_1125146869.doc
FOOD INDUSTRIES
Advanced
materials
for ponds &
enclosures
Complex
design
knowledge
Monitoring
through computer
imaging & pattern
recognition
techniques
Pharmaceutical,
nutritional inputs
for health &
feeding systems
Biotechnology
for
environmental
sustainability
Bacteriology,
microbiology, new
freezing technologies,
for storage &
packaging
FISH FARMING
innovatiON SYSTEMS
have the capacity to transform
themselves overtime as COmpetitive
conditions change
of critical importance IN THIS PROCESS ARE THE
knowledge FLOWS
LINKAGES
LEARNING
AND POLICIES
THAT STIMULATE A PROCESS OF INNOVATION
Clusters based on traditional industries
Natural resource based industries:
Fish farming (Norway, Chile)
Horticulture (Netherlands, Colombia)
Wine (Canada, Chile, South Africa)
Consumer-oriented industries:
Textiles & Clothing (Italy, Hong Kong)
Ceramics (Italy, Spain, Brazil)
Eyeglass Frames (Italy)
Furniture (Denmark)
EMBED Word.Picture.8
_1125146869.doc
FOOD INDUSTRIES
Advanced
materials
for ponds &
enclosures
Complex
design
knowledge
Monitoring
through computer
imaging & pattern
recognition
techniques
Pharmaceutical,
nutritional inputs
for health &
feeding systems
Biotechnology
for
environmental
sustainability
Bacteriology,
microbiology, new
freezing technologies,
for storage &
packaging
FISH FARMING
ANALYZING INNOVATION SYSTEMS
ACTORSPOLICYLINKAGES
KNOWLEDGELEARNING
Building innovation systems in traditional industries
Natural resource based industries:
Fish farming (Norway, Chile)
Horticulture (Netherlands, Colombia)
Wine ( Australia, Chile, South Africa)
Consumer-oriented industries:
Textiles & Clothing (Italy, Hong Kong)
Ceramics (Italy, Spain, Brazil)
Eyeglass Frames (Italy, Brazil)
Furniture (Denmark, Egypt, Indonesia)
EMBED Word.Picture.8
_1125146869.doc
FOOD INDUSTRIES
Advanced
materials
for ponds &
enclosures
Complex
design
knowledge
Monitoring
through computer
imaging & pattern
recognition
techniques
Pharmaceutical,
nutritional inputs
for health &
feeding systems
Biotechnology
for
environmental
sustainability
Bacteriology,
microbiology, new
freezing technologies,
for storage &
packaging
FISH FARMING
TRANSFORMING CLUSTERS based on NATURAL RESOURCE BASED industries INTO
INNOVATION SYSTEMS
tHE nIAGARA wINE cLUSTER IN cANADA
wINE cLUSTERS IN sOUTH aFRICA
wINE CLUSTERS IN cHILE
OVERVIEW OF THE NIAGARA WINE CLUSTER
1927-1975
Liquor Control Board of Ontario (LCBO)created in 1927 to regulate the production and consumption of wine in the Province of Ontario
No new winery licenses granted until 1975
Number of wineries fell from 61 to 6
Ontario Grape Growers Marketing Board (OGG) established in 1947 to balance the power of many small grape growers against the small number of large wineries.
1975 2002
Building an Innovative Cluster
New small wineries with a new vision: to produce wine from European vinifera grapes
Trigger for Innnovation: Negotiation of the Free Trade Agreement with the United States
New Policies risk the risks of conversion from Labrusca to vinifera grapes
Structure of the Cluster Thickens: Creation of Research and Training Organisations ( CCOVI, Niagara College); Professional Associations (WCO)
High Quality Canadian (Ontario) wines win gold medals in European competitions
Innovation in new wines meritage; new organic grape growing technologies
Surplus of Vinifera grapes appears despite the marketing board
Small firms do not grow
lynn k. mytelka
unu-intech
5-2-2004
maastricht, the netherlands
SIDA-SAREC PRESENTATION
The Paradox
Number of wineries increases to over 80
But small wineries do not grow
A surplus of vinifera grapes appears despite the marketing board
Wine output grows from 645,000 litres in 1991 to over 3.9 million litres in 2002 Value of VQA wines sales increased from $5.6 million dollars to $50 million dollars between 1991 and 2002
But Ontario wines lose market share in the domestic marketExports do not grow
Factors supporting a continuous process of innovation
in the Nigara Wine Cluster
Boundaries of the knowledge system are reconfigured by establishing linkages to a wider set of knowledge inputs creation of CCOVI, for example
Products and Markets are reconceptualized development of wines based on vinifera grapes, development of Vidal Ice Wine , moving upscale in table wines
Marketing innovations and linkages to broader regional development initiatives direct mailing domestically, tourism
Factors still to be resolved in supporting a continuous process of innovation in the Nigara Wine Cluster
Old institutions and organizations are not yet transformed through the learning and unlearning of earlier habits and practices LCBO for example needs to work more closely with smaller wineries and with export related organizations
Closer linkages between knowledge producers and users is needed movement here is underway in new research initiatives
Channels for information flows and dialogue between large and smaller firms need further development (many smaller firms are not members of the Wine Council of Ontario.
Ideal natural conditions and timingNo phylloxera No plagues and fungi (low humidity)Sunshine and high luminosityLow labour costsRising external demand for quality winesIncreasing number of new entrants, despite the hegemony of old world producersConsumer sympathy for new world wines