An analysis of the factors impacting the competitive performance of the South African wine industry value chain

Barr, Alison (2019-04)

Thesis (MCom)--Stellenbosch University, 2019.

Thesis

ENGLISH SUMMARY : The purpose of this study was to analyse the competitive performance of the South African wine industry and to compare the findings with the results obtained from similar previous studies in 2006 and 2011. The study followed the comprehensive Vollrath-Porter approach, following a five-step analytical method. Due to the sustained export orientation of the South African wine industry, the trade-based relative trade advantage (RTA) measure (Vollrath) and industry opinions through Porter’s competitive diamond were used to measure competitive performance. This study defined competitiveness as “the ability of the South African wine industry to sustain or grow business through trade for South African wine amidst a changing agricultural, political, social, environmental, governance, and production landscape and an unpredictable exchange rate, while consistently earning at least the opportunity cost of resources employed.” The annual competitive performance of the South African wine industry was calculated using the RTA formula and the International Trade Centre (ITC) and Food and Agriculture Organisation (FAO) datasets. The competitive performance of the industry from 2001 could be divided into two clear phases: Phase 1: Fluctuating and increasing competitive performances (2001-2009); and Phase 2: Fluctuating and decreasing competitive performances (2010-2017) Despite being in a state of declining competitive performance, the South African wine industry remains competitive across the entire global arena. The average RTA for 2001-2017 was 5.83, with a peak of 7.15 in 2009 and a lowest point of 3.75 in 2012. Industry insight and opinions into key influencing factors were collected through a two-stage Delphi process. In stage one, a Wine Executive Survey (WES) involved rating 121 factors as either enhancing or constraining competitive performance, rated on a Likert scale with 1 (constraining) and 5 (enhancing). The purpose of the WES was to establish an opinion benchmark for comparison with the empirical RTA measurement; and also to compare the current situation with the 2005 and 2008 WES results. The 2018 WES results – when analysed at value chain cluster level – revealed a high level of alignment between the clusters, which indicated a well-informed value chain. The survey also obtained opinions from different points in the wine industry value chain, from two clusters viz. agribusiness (including wine grape producers and agri-support services); and wine business (including cellars, intermediaries and wine trade). The baseline results from the Wine Executive Surveys in 2005 and 2008 showed that the competitive space decreased substantially from 2005 to 2008. However, the results from the 2018 WES reveal that this competitive space has expanded again, recovering almost to its position in 2005. The 121 rated factors were grouped into the Porter Competitive Diamond – a six-determinant model which included ‘production factors’, ‘demand factors’, ‘firm structure, strategy and rivalry’, ‘related and supporting industries’, ‘government factors’ and ‘chance factors’. The ‘firm strategy, structure and rivalry’ determinant received the highest overall determinant rating of 3.53/5 or 70.6% as most enhancing while ‘government factors’ received the lowest average rating of 2.19/5 or 43.8% as most constraining. These results were confirmed in a priority rating of the six determinants during the focus group session of the second phase Delphi. The most enhancing factors across all Porter determinants were ‘the competitiveness drive of the South African product market’ – rated at 4.59/5 or 91.8% ̶ followed by the ‘importance of well-developed infrastructure’ (4.52/5 or 90.4%) while the two most constraining factors were ‘government consultation and interactions’ (1.17/5 or 23.4%) and ‘government financial support’ (1.24/5 or 24.8%). From an assessment across the value chain, bulk wine is the most competitive category, followed by bottled wine. The least competitive category was ‘spirits obtained by distilling grape wine or grape marc’, which was rated as uncompetitive. The prevalence of a socio-economic theme was observed in some of the most constraining factors across all the Porter determinants. This resulted in a proposal that the Porter Competitive Diamond be expanded to accommodate a seventh ‘socio-economic’ determinant in order to highlight the impact of socio-economic/political transformation factors on the competitive space in the emerging South African environment. This new determinant, grouped from socio economic/political factors identified in the study, highlighted the overall constraining impact of these factors on competitive performance. The most enhancing factor was ‘obtaining unskilled labour’ and the most constraining was ‘crime perceptions’. The addition of such a new determinant to the Porter Competitive Diamond needs to be explored further but mirrors Michael Porter’s own view that economic objectives need to complement social objectives in a developing country environment (2007). Other aspects that need to be considered through future research include a refined process for identifying relevant factors, as well as linking these factors with the progress reported in existing socio-economic/political transformation interventions. This will improve the application of the Porter-Vollrath approach to improve the analysis of competitiveness in the South African agri-food business environment. The results from this study were drafted into a set of strategic findings and recommendations that propose to address the most prevalent and achievable constraining influences on competitive performance. A key area for consideration by the industry is the negative association with government-related factors. The crux of the recommended approach is to re-engage with government in a collaborative approach to transformation while protecting the impact of factors that enhance competitive performance. Important key strategic areas for enhancing competitive performance include access to water, short-term finance solutions and a branded bulk wine packaging format.

AFRIKAANSE OPSOMMING : Die doelwit van hierdie studie was om die mededingende prestasie van die Suid-Afrikaanse wynbedryf te analiseer en om die bevindings te vergelyk met die resultate van soortgelyke vorige studies in 2006 en 2011. Die studie het die omvattende Vollrath-Porter benadering gebruik, wat berus op ’n vyf-stap analitiese benadering wat die handelsgebaseerde relatiewe handelsvoordeel (relative trade advantage (RTA)) maatstaf (Vollrath) en bedryfsopinies verkry deur middel van Porter se mededingende diamant ingesluit het. Hierdie studie definieer mededingendheid as “die vermoë van die Suid-Afrikaanse wynbedryf om besigheid te volhou of te laat groei deur handel in Suid-Afrikaanse wyn te midde van ’n veranderende landbou-, politiese, maatskaplike, omgewings-, bestuur en beheer- en produksielandskap en ’n onvoorspelbare wisselkoers, terwyl daar konsekwent ten minste die geleentheidskoste van hulpbronne verbruik, verdien word.” Die jaarlikse mededingende voordeel van die Suid-Afrikaanse wynbedryf is bereken deur gebruik te maak van die RTA-formule en die datastelle van die International Trade Centre (ITC) en die Food and Agriculture Organization (FAO). Die mededingende prestasie van die bedryf sedert 2001 kon in twee duidelike fases verdeel word: Fase 1: Wisselende en toenemende mededingende prestasie (2001-2009); en Fase 2: Wisselende en afnemende mededingende prestasie (2010-2017) Ten spyte daarvan dat dit in ’n toestand van afnemende mededingende prestasie is, bly die Suid-Afrikaanse wynbedryf mededingend regoor die globale arena. Die gemiddelde RTA vir 2001 tot 2017 was 5.83, met ’n piek van 7.15 in 2009 en ’n laagste punt van 3.75 in 2012. Bedryfsinsigte en -opinies oor belangrike invloedryke faktore is in ’n twee-fase Delphi-proses versamel. In die eerste stadium is ’n Wine Executive Survey (WES) gebruik wat behels het dat 121 faktore beoordeel is as óf versterkend óf stremmende van mededingende prestasie, gemeet op ’n Likert-skaal van 1 (stremmend) tot 5 (versterkend). Die doel van die WES was om ’n opinie-maatstaf te bepaal wat met die empiriese RTA-meting vergelyk kon word; en ook om die huidige situasie met die resultate van die 2005 en 2008 WES-uitslae te vergelyk. Toe die 2018 WES-uitslae op die vlak van waardeketting- groepe vergelyk is, het dit ’n hoë vlak van belyning tussen die groepe getoon, wat dui op ’n goed-ingeligte waardeketting. Die opname het ook opinies vanaf verskillende punte in die waardeketting van die wynbedryf vanaf twee groepe bekom, naamlik agribesigheid (insluitend wyndruifprodusente en agri-ondersteuningsdienste); en wynbesigheid (insluitend kelders, tussengangers en die wynhandel). Die basislyn-uitslae van die Wine Executive Surveys in 2005 en 2008 het getoon dat die mededingende ruimte noemenswaardig vanaf 2005 tot 2008 verminder het. Die resultate van die 2018 WES het egter gewys dat hierdie mededingende ruimte weer uitgebrei het en dat dit amper tot sy posisie in 2005 herstel het. Die 121 beoordeelde faktore is verdeel volgens Porter se mededingende diamant – ’n ses-determinant model wat insluit ‘produksiefaktore’, ‘vraagfaktore’, ‘firma-struktuur, -strategie en -wedywering’, ‘verwante en ondersteunende bedrywe’, ‘regeringsfaktore’ en ‘toevallige faktore’. Die ‘firma-struktuur, -strategie en -wedywering’ determinant het die hoogste algehele beoordeling gekry, van 3.53/5 of 70.6% – as die mees versterkend, terwyl ‘regeringsfaktore’ die laagste algehele beoordeling gekry het, van 2.19/5 of 43.8% – as die mees stremmend. Hierdie resultate is by wyse van ’n prioriteitsbeoordeling van die ses determinante tydens die fokusgroepsessie in die tweede fase van die Delphi bevestig. Die mees versterkende faktore oor al die Porter-determinante heen was ‘die mededingende dryfkrag van die Suid-Afrikaanse produkmark’ – gereken teen 4.59/5 of 91.8%, gevolg deur die ‘belangrikheid van goed ontwikkelde infrastruktuur’ (4.52/5 of 90.4%), terwyl die twee mees stremmende faktore ‘regeringskonsultasie en -interaksie’ (1.17/5 of 23.4%) en ‘finansiële ondersteuning van die regering’ (1.24/5 of 24.8%) was. Vanuit ’n assessering van oor die waardeketting heen is grootmaat wyn die mees mededingende kategorie, gevolg deur gebotteleerde wyn. Die mins mededingende kategorie was ‘spiritus verkry deur druif wyn of druiwedoppe’, wat gereken is om nie mededingend te wees nie. Die voorkoms van ’n sosio-ekonomiese tema is in sommige van die mees stremmende faktore oor al die determinante van die Porter-diamant waargeneem. Dit het gelei tot die voorstel dat Porter se mededingende diamant uitgebrei moet word om ’n sewende, ‘sosio-ekonomiese’ determinant in te sluit om die impak van sosio-ekonomiese/politiese transformasiefaktore op die mededingende ruimte in die opkomende Suid-Afrikaanse omgewing uit te lig. Hierdie nuwe determinant, wat bestaan uit sosio-ekonomiese/politiese faktore wat in die studie geïdentifiseer is, werp lig op die algehele stremmende impak van hierdie faktore op mededingende prestasie. Die mees versterkende faktor was ‘verkryging van ongeskoolde arbeid’ en die mees stremmende was ‘persepsies van misdaad’. Die byvoeding van só ’n nuwe determinant by Porter se mededingende diamant moet verder ondersoek word, maar weerspieël Michael Porter (2007) se persoonlike siening dat ekonomiese doelwitte sosiale doelwitte in ’n ontwikkelende land moet komplementeer. Ander aspekte wat ook in toekomstige navorsing oorweeg moet word, is ’n verfynde proses vir die identifisering van relevante faktore, sowel as die koppeling van hierdie faktore aan die vooruitgang wat in bestaande sosio-ekonomiese/politiese transformasie-ingrypings gerapporteer word. Dít sal die toepassing van die Porter-Vollrath benadering verbeter om die analise van mededingendheid in die Suid-Afrikaans agri-voedsel besigheidsomgewing te verbeter. Die resultate van hierdie studie is saamgestel in ’n stel strategiese bevindinge en aanbevelings wat poog om die mees algemene en haalbare stremmende invloede op mededingende prestasie aan te spreek. ’n Sleutelgebied vir oorweging deur die bedryf is die negatiewe assosiasie met regeringsverwante faktore. Die kern van die voorgestelde benadering is om weer betrekkinge met die regering aan te gaan in ’n samewerkende benadering tot transformasie terwyl die impak van faktore wat mededingende prestasie verhoog, beskerm word. Belangrike kern strategiese gebiede vir die verhoging van mededingende prestasie sluit in toegang tot water, korttermyn finansiële oplossings en ’n verpakkingsformaat vir grootmaat wyn wat ’n handelsmerk het.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/105864
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