Int. J. Business and Globalisation, Vol. X, No. Y, xxxx 1 Internationalisation drivers in the wine business: a RBV perspective Cristina Santini* Università Telematica San Raffaele, Via Val di Cannuta, 247, Rome, Italy E-mail: santini.cristina@gmail.com *Corresponding author Samuel Rabino College of Business Administration, Northeastern University, 360 Huntington Ave., Boston, Massachusetts 02115, USA E-mail: s.rabino@neu.edu Abstract: This paper evaluates the internationalisation process in the wine business in a RBV perspective. By adopting a concept centric approach the aim of this paper is to provide a systematic analysis of the literature review about internationalisation in the wine business. An overview of main theoretical issues on RBV and internationalisation, together with the description of the major changes occurring in the wine industry, will be provided in the first part of the paper. Keywords: RBV; resource-based view; international orientation; wine; resources; drivers; concept centric approach; globalisation; literature review; stage model; internationalisation process; wine industry. Reference to this paper should be made as follows: Santini, C. and Rabino, S. (xxxx) ‘Internationalisation drivers in the wine business: a RBV perspective’, Int. J. Business and Globalisation, Vol. X, No. Y, pp.000–000. Biographical notes: Cristina Santini is a Researcher in Business Management at the Università Telematica San Raffele in Rome. She received her PhD at Florence University in Italy. Her research interests include business strategy, the wine business, entrepreneurship and case study methodology. Samuel Rabino is a Professor of Marketing and International Business. He received his PhD from New York University. His research interests include new product development, diffusion of innovations and export marketing. 1 Introduction Academy has experienced a growing discussion on internationalisation: most of the debate has been fostered, in the last years, by an emerging contraposition between those scholars in favour of the Uppsala model (or stage model), and those who think that new Copyright © 200x Inderscience Enterprises Ltd. 2 C. Santini and S. Rabino models able to respond more effectively to the major changes globally occurring in the world, should be implemented when analysing internationalisation processes. There is no doubt that some models such as Uppsala or the innovation related models have been widely adopted by scholars because of their feasibility and their convenience in describing, through a stage perspective (Andersen, 1993), the firm’s strategic behaviour; nevertheless, many scholars have discussed the stage theoretical framework (Madsen and Servais, 1997). According to some scholars (Forsgren, 1989), the stage theoretical framework fits well in the earliest stages of internationalisation where the lack of knowledge of foreign markets works as a barrier to internationalisation; other scholars, instead, find in the model an excessive determinism (Reid and Rosson, 1987). Since the early ‘90s a new concept has been introduced in the field of internationalisation due to the emerging phenomenon of ‘born global’ companies. Besides the novelty introduced, the born global framework revealed some limitations (Argyrous, 1993, 2000) even because born global companies are considered by some scholars to be a step behind transnational companies (Stonehouse and Campbell, 2004). It can be said that internationalisation is a field of study where theory has to keep up the pace with the changes happening in the real world: academics are asked to update paradigms and theories according to the changes in the competitive settings. In the wine business, companies must respond to the dynamism of competition and to the global changes that are taking place in the industry: the progressive internationalisation of the wine business and the wine industry globalisation process are forcing companies to rethink their strategic positioning and planning. Wine is an interesting research field for internationalisation studies: the wine business is characterised by a considerable degree of complexity and by a strong contraposition between productive orientations, business attitudes and visions. The wine industry also shows different growth paths according to geographic location. This paper examines the internationalisation process in the wine business by adopting a resource-based view (RBV) approach. The choice of this perspective is motivate by several reasons. The first is that wine is a business where internationalisation is often a synonymous of export orientation, which is the very first phase of stage models. Most companies do not make any development in their international orientation and simply remain exporters. This limited ‘evolution’ finds a possible explanation in the features of the network enabling wineries’ export orientation. The features of the business relationship established with distributors and local importers influence wineries’ export orientation and can create barriers for the happening of experiential knowledge, that is the resource able to guarantee knowledge flows and know how creation. Secondly, when you adopt a RBV approach you engage what can be defined as a research challenge: many scholars (Rouse and Daellenbach, 1999) have recognised that RBV has some limitations (most underline a lack of empirical research in RBV), but this framework has been widely implemented in the internationalisation research field (Westhead et al., 2001; Westhead, 1995; O’Farrell et al., 1996; Leonidou, 2004; Boeker and Karichalil, 2002). Thirdly, adopting a perspective-based on resources can help the researcher in focusing the attention on the research problem rather then on what has been highlighted by the academic debate on the theoretical approach to internationalisation: RBV offers a new and different perspective in research. The analytic framework provided by Boter and Holmquist (1996) describes internationalisation as the result of an interaction between three main ‘variables’: industry, people involved and company. Starting from previous researches, this paper Internationalization drivers in the wine business: a RBV perspective 3 investigates the following research questions: what are the forces that determine wineries international orientation? What are the resources that define wineries’ international orientation? This paper is organised as follows: in the first section we will provide a general overview of the major changes (and challenges) occurring in the wine business, secondly we will describe the implications of a RBV approach to internationalisation; thirdly we will examine the main contributions to internationalisation in the wine industry; after having illustrated materials and methods, we will proceed with a description of the major drivers to internationalisation; the last section will contain a description of the forces that shape wineries’ strategies towards internationalisation. 2 Major changes globally occurring in the wine business The wine business is characterised by an overall degree of oversupply. Production is extremely fragmented, especially in the old world where the number of labels and producers on the market is extremely high. Production is concentrated in the hands of a few leading countries. The degree of competition has increased and some environmental forces are shaping wine business towards a progressive globalisation (Hussain et al., 2008). Due to the massive presence of exporting activities, we can say that the wine business has a strong orientation towards export, an orientation that varies according to wineries relationship network characteristics (Beaujanot et al., 2005), and to their location. It has emerged from some specific researches, that a long term relationship between suppliers and wineries positively influences wineries export orientation (Beaujanot et al., 2005). Global wine production in 2009 accounted for 268.7 million of hectolitres; global consumption is decreasing (–3.6%) (OIV). In 2009, there were 86.4 million hectolitres of wine exported (–4% if compared to 2008) globally. Europe has the highest market share in export (67.8%) and Italy has been ranked as the export leading country (21.5%). The wine industry has experienced many changes occurring because of globalisation: first of all the global economic crisis has affected both wine consumption and demand; a progressive consolidation has happened; emerging markets have attracted exporters’ orientation; wine grew by popularity among various market segments and wine knowledge, by being more accessible, has been spread among consumers. Green et al. (2003) have clearly depicted the major changes occurring in the wine industry: new world producers have adopted aggressive supply strategies with the consequence of gaining market share. Large distribution chains have emerged in the wine distribution system, through the successful development of private label strategies that has seriously affected the supply side and the entire wine sector (due to the rising bargaining power of retailers). The wine business has also seen the rise of a contraposition between multinationals and medium/small companies: fewer multinationals control various brand through shares or mergers and acquisitions with the specific intent of diversifying their product portfolio, ensure a widespread diffusion of their presence in the major country markets, and reach different target consumer segments. According to Green et al. (2003) the international wine market has shifted from a Mediterranean productive system towards a more dynamic competitive wine marketing system that follows the Anglo Saxon patterns. 4 3 C. Santini and S. Rabino Materials and methods Literature reviews are usually carried for two main reasons: for providing synthetic descriptions of the main contributions in a wide research field, or for making a first step in a limited research field and suggesting further improvements in research (Webster and Watson, 2002). We have adopted a concept centric approach, as described by Webster and Watson, 2002. The concept centric approach helps in segmenting the existing literature review in categories previously outlined by the emerging of some key concepts, that in our case have been represented by keywords; Webster and Watson (2002) also use tables – usually named as concept matrix – in order to better display the results emerging from the content analysis. Background literature (Swanson and Ramiller, 1993) shows the diffusion of the concept centric approach among academics. We have built a database by selecting specific journals dealing with wine and journals that deal with internationalisation. We then have classified the main findings into the following categories: people, industry, company, as suggested by the framework provided by Boter and Holmquist (1996). We have used the ISI web of knowledge database and Econlit; the combinations of keywords used are represented in Table 1. Table 1 Keywords selected for issues investigated Keywords Issue 1 2 3 4 People Founder Top management/ management Entrepreneur Owner/ ownership Company Capital/ financials Size Degree of control Network Industry Production Competition Market size RBV Resources Capabilities Competence 4 5 Knowledge Dynamic capabilities An RBV approach to internationalisation, a general framework RBV provides an interesting framework for analysing firm’s strategic behaviour by focusing on the set of resources that belong or that have been externally acquired by companies. Resources’ characteristics influence companies’ ability to achieve a superior competitive advantage. Several studies have tried to depict which characteristics should have resources in order to ensure a competitive advantage (Barney, 1991; Grant, 1991; Amit and Shoemaker, 1993; Collis and Montgomery, 1995). Collis (1991) underlines that the originality of the RBV approach comes from the attention paid to the firm’s acquisition process of internal resources and from the conditions for resources acquisition. If on one hand RBV perspective has received many critics because of its shortcoming in providing empirical and general findings and for its implementation in narrow research field (Rouse and Daellenbach, 1999), on the other hand, because of its inner flexibility, RBV still provides interesting insights of analysis and the debate about this research field is still vivid. The ongoing academic debate on Internationalisation, has contributed to renew the interest on RBV and to create new space for this research field. Internationalization drivers in the wine business: a RBV perspective 5 Anderson (2004) offers a clear description of the main contributions to the research field of internationalisation: from the analysis provided it emerges that RBV plays a key role in explaining the internationalisation process as an entrepreneurial activity. Internationalisation has been analysed by adopting a RBV approach by many scholars. Ahokangas (1998) provides a theoretical framework for assessing international behaviours in small firms: firms adjust or develop their key resources (weather internal or external to the firm) according to the environment they are settled in. Such a development process can take place internally to the firm, or externally to the firm and, more specifically inside the network where the firm operates. As well as for other studies (Andersen and Keham, 1998) the model proposed by Ahokangas (1998) relies on the dynamics of experimental learning in the knowledge acquisition process: by following Penrose’s (1959) original inputs, authors confirm that market knowledge happens through experimental knowledge and implies personal experience. 5 Literature review: external and internal drivers towards internationalisation We define internationalisation as a firms’ strategic response to internal and external drivers; there is no doubt that strategic behaviour, however it is assumed (Covin and Slevin, 1989), happens because shaped by internal or external inputs. Also internationalisation happens because of internal and external drivers. Figure 1 represents the major forces, internal and external to the firm, that shape firms’ international orientation. Figure 1 Internal and external forces shaping firm’s international orientation External Internal Characteristics of Competitive Environment HR characteristics TM, Ownership and Entrepreneur’s orientation towards internationalization Personal skills and competences … Climax Degree of competition Availability of resources Market Conditions… Demand Characteristics Consumer’s bargaining power... International orientation Firm’s Set of Resources Assets Intangible resources… Policies and Institutions Product Features Market Exchanges favorable policies Trade Barriers Characteristic of the product Production process organization The availability and the accessibility of resources determine firm’s ability to develop an international strategy. 6 C. Santini and S. Rabino 5.1 Industry drivers Industry’s characteristics shape firms’ international orientation. The concept of industry is extremely wide, as it covers issues related to competition and to what Porter (1986) has defined as the industry underlying structure. In exploiting the issue of industry we will focus on the degree of competition in local environment and on the technical characteristics of the product. It must be also underlined that background literature provides some excellent examples of studies carried out in order to outline the relationships between industry characteristics and firms international orientation (Boter and Holmquist, 1996): such a kind of studies has the merit to bridging together two levels of analysis, the company analysis and the specific sector to which company belongs. From the literature it emerges that going internationally can be an answer to a situation of conflict that companies live locally: a hostile local environment, generally encourages companies to look abroad for opportunities (Hall, 1980). As well as a hostility perceived locally by firms, also the overall degree of competition is a force that drives firms internationally (Vaessen and Keeble, 1995). When an industry is characterised by a scarcity of local resources, entrepreneurs tend to organise their production by turning internationally (O’Farrell et al., 1996); this process is, anyway, conditioned by the characteristics of the product and of production process (i.e., typical vs. mass product). 5.2 People Internal variables are those related to the ones that we have called ‘people’ and ‘firm’. Background research has outlined the relevance of the variable we have named ‘people’ in the internationalisation process: it is extremely complex, but at the same time fascinating, investigating the relationships between personal traits of people involved within the organisation and the international orientation of a company. Entrepreneur’s personal characteristics, as well as his/her competences and capabilities play a key role in determining firms’ international orientation. Entrepreneurial orientation has been recognised having a positive impact on internationalisation, especially in multinational corporations (Williams and Lee, 2009). Entrepreneurs who have had previous experience in foreign businesses are more likely to grow internationally (Oviatt and MacDugall, 1995). There is no doubt that personal entrepreneurial characteristics, such as age, education, professional experience, and language knowledge can influence entrepreneurial orientation towards internationalisation, and, consequently the international diversification of a certain business (Fernandez-Ortiz and Lombardo, 2009). We should underline, anyway, that it is extremely difficult getting unambiguous and unequivocal research findings susceptible to be widely generalised: let’s take as an example the variable ‘age’ that in some cases results positively correlated to international orientation, whilst in other cases it is negatively correlated. Adequate personal skills are required both to managers and entrepreneurs for managing the complexity arising from an international business environment (Cavusgil and Nevin, 1981). Also top management has been investigated in exploring the determinants of international orientation: several authors have underlined how managerial characteristics influence firm’s international orientation (Boeker and Karichalil, 2002; Carlock and Ward, 2001; Flamholtz and Randle, 2000; Levinson, 1971; Dyer, 1989; Hoy and Verser, 1994). Generally speaking, the overall ‘quality’ of management plays the main role in Internationalization drivers in the wine business: a RBV perspective 7 firms’ export success (Bilkey, 1978). Managers’ personal characteristics such as, level of education, professional experience, and foreign language proficiency are strongly associated with successful international expansion (Leonidou et al., 1998), as well as previous experience in foreign markets (Westhead et al., 2001). Managers who want to undertake an international strategy are also required to acquire new competences as the complexity of their role arises (King et al., 2001). Bilkey (1978) has underlined how the overall quality of management is the main determinant of firm’s export success: latterly Leonidou et al. (1998) have elicited this observation by determining a positive association between the presence of a mix of adequate level of education, professional experience and foreign language proficiency and a successful international expansion. Also the role of founders has been investigated by scholars (Filatotchev et al., 2009): in particular it has emerged that founders with limited information networks are more likely to operate on local scale market, rather than going internationally (Westhead et al., 2001). 5.3 Firms Many researches have been carried out in order to investigate how the structural characteristics of each company can influence firm’s international orientation. Generally speaking the overall set of resources belonging to the firm determines firm’s growth and its international expansion (Andersen and Kheam, 1998). Companies are asked to improve their dynamic capabilities (Knudsen and Madsen, 2002): an international expansion requires companies to acquire new resources (Ruzzier et al., 2006) and firms should develop a strong capability in terms of critical resource acquisition. For what concerns the set of existing resources, SMEs should be able to adjust it according to the requirements set by the international environment (Ahokangas, 1998). Firms should also implement their management control system (Carlock and Ward, 2001) and the information processing system (Reuber and Fischer, 1997). Firms that rely on international networks and strategic alliances are more likely to engage an internationalisation process (Bell, 1995; Bonaccorsi, 1992; Coviello and Munro, 1997; Gomes-Casseres, 1997; Kaufmann, 1995). Some companies have some characteristics that facilitate them in implementing international strategies: it is the case depicted by Almor and Hashai (2004), who describe the case of knowledge intensive and small and medium sized multinational companies. 6 Driving forces in the wine industry The issue of internationalisation in the wine industry has been exploited by several authors. With the exception of some works that examine global wine data in order to understand the evolutionary paths of the wine industry and how the challenge of globalisation is faced by companies (Anderson, 2004), most of the literature focuses on selected companies or regions. Besides the difficulties in generalising findings, background research provides useful insights for depicting a general framework of the internationalisation process in wine. Most research has focused on the end of the market, analysing the progressive changes in consumption patterns defined as one of the main drivers of globalisation. A very few have been done to investigate the internationalisation 8 C. Santini and S. Rabino process in wine by adopting a RBV perspective: Maurel (2009) provides an interesting insight on the determinants of export performance of French wine SMEs. Other studies have adopted a RBV approach to investigate the relationship between the role of intangible resources in SMEs performance (Amadieu and Viviani, 2010) or to describe the growth dynamics of wine clusters (de Oliveira Wilk and Fensterseifer, 2003). In some cases the local industry structure plays a key role in determining a successful internationalisation strategy: Visser and de Langen (2006) find that the key factor of success of the outstanding exporting performance of Chilean wine relies in the clustered organisation of local wine industry and on the way the network is managed. As well as for other industries, in wine internationalisation is heterogeneous: differences depend both on firms’ characteristics and location. It is the case of Australia that has seen a very rapid internationalisation and where there is a remarkable presence of born global wineries (Wickramasekera and Bamberry, 2003). From the Australian case it emerges that the phenomenon of born global wineries happens first of all because of favourable market conditions in terms of demand for wine overseas (Wickramasekera and Bamberry, 2003). Being internationally oriented could represent a safe shelter from the arising difficulties in domestic markets happening because of several reasons, such as high taxation (Wickramasekera and Bamberry, 2003). Sometimes international orientation is a must: firms have no choices and must go internationally because of a drastic falling in domestic consumption (Campbell and Guibert, 2006). Location has its pros and cons: if on one hand can be a valuable signal of product differentiation [see i.e., Josling (2006)], on the other hand it can work as a deterrent for the implementation of selected strategies. Bartlett and Goshal (2000) depict how the Italian and France appellation systems reduce companies’ flexibility and consequently their ability to reach some markets. A key resource is the ability of network creation with suppliers, agents and distributors in foreign markets (Wickramasekera and Bamberry, 2003). The ability to build networks and relationships, or in other words, to cooperate with wineries settled in a certain area, can improve the overall performance of a wine on international markets, as it is shown by the case of the cooperative cellar in the Veneto Region in Italy (Rizzo and Bonuzzi, 2008). The success of an international approach also depends on the managerial capabilities that firms demonstrate and on the effectiveness and pertinence of the strategic decisions taken by top management and entrepreneurs: Edwards and Spawton (1990) examine the role of pricing strategy in assessing the overall performance of Australian wines internationally. The importance of an effective management of marketing levers, such as package (Santini et al., 2007) or sales channels selection (Campbell and Guibert, 2006), has been also exploited by other works. Also firm’s characteristics influence international orientation, as well as the specificities of the product and the process. When thinking about wine, we should remember that we are talking about an agricultural product with a strong linkage with the country of origin (Verlegh, 2007). Furthermore, in the wine business, firm’s ability to perform a basic functional activity as it is production (Collis, 1991), can be strongly determined by the characteristics of inputs and by the institutional norms that regulate productive standards. Wine is a product whose features can be deeply influenced by the territory where it is produced; this deep relationship is defined as terroir (Josling, 2006). Terroir can be a resource that can concur to the creation of a competitive advantage and that can be also perceived by companies as inhibitor for strategic development. Some authors (Bartlett and Goshal, 2000) have found in the absence of a strict set of norms that preserves terroir, firms show a flexibility that opens the way for a heavy internationalisation. Internationalization drivers in the wine business: a RBV perspective 7 9 Conclusions The wine industry has been often described as a mature industry (Harrigan, 1988) where old world is characterised by an export oriented approach to internationalisation, while new world wineries are much more open to other forms of internationalisation. What emerges is a picture where small wineries must export a considerable percentage of their production hoping not to encounter a market crisis or an unexpected event that could undermine their corporate image overseas (Cavicchi et al., 2010). Such a perspective focuses on the results of the internationalisation process, rather than on the reasons why internationalisation happens; due of its heterogeneity, internationalisation should be investigated by analysing its determinants. Background research shows that most studies focusing on successful cases of internationalisation in the wine industry deal with new world multinational companies. Industry environment and location play a key role in shaping wineries’ international orientation: we have described how the presence of favourable market conditions is a requirement for achieving success. We have also noticed that in some cases, internationalisation can be considered as an escape route for surviving to problematic and highly competitive domestic markets. Companies can be influenced by local regulations and policies in pursuing internationalisation. There is no doubt that wineries show differences in the overall degree of internationalisation according to their location (Wickramasekera, 2006) and to the set of resources defined in the literature as ‘physical’ (Wernerfelt, 1984). Nevertheless, it should be considered the primary role played by entrepreneurial initiatives in developing an international path: managers embrace inputs external and internal to the firm and design strategies for going internationally. Most of the literature dealing with the wine business focuses primarily on external drivers for internationalisation (such as market conditions or industry trends) and underlines the relationship between company’s structure and its international strategy; very few studies focus on the role played by individuals in pursuing an internationalisation process. It also emerges that flexibility is a key factor of success in the internationalisation process; the importance of dynamism in defining the set of resources and competences that are required to face a challenging competitive environment is strongly supported by a relevant body of the research in the field of strategic management. In some studies, the issue of flexibility particularly emerges (Bartlett and Goshal, 2000) and it is perceived as a variable that is strictly related to the presence of barriers within a certain location; given a set of resources, the degree of flexibility of a firm, depends not only on the way companies deal with external barriers, but also on the way resources are managed in order to answer to internal or external stimuli. The RBV perspective provides further insights about internationalisation process in the wine business. Firstly, internationalisation is a process that should be consciously adopted by companies rather than being a process that companies must go through for avoiding the problems they have in domestic markets. Secondly the issue of managing internationalisation arises: the main problem is how to effectively manage an expansion with a set of limited resources. Thirdly, it emerges that adopting an internationalisation strategy requires an adequate set of resource; the key questions for wineries should be “can we manage the international strategy we have planned? Our set of resource is adequate with the aims of the strategy?” This means that manager should critically take inventory of firm’s internal resources. 10 C. Santini and S. Rabino The aim of this work was to provide a new perspective for analysing these issues, rather than answers. 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