Vinodata

Wine industry business and markets

Wine industry business and markets

Ramón A. Rada M.

1.1 The business of wine

In our daily routine, we take it for granted that everybody understands the meanings and implications of words, especially if we use a native and common language to express ourselves. It is easy to conclude that this supposition is probably the cause of most misunderstandings and of many problems. Since ancient times, the world market always had a common language that was accepted for exchange and trade; today that language is English, but in the times of Marco Polo it was Ancient Persian: Farsi. In our world of accelerated globalisation, the meaning of words is far from useless, quite the opposite, it can become enormously relevant. It is important to point out to the reader that this article is the compilation of a variety of opinions, expressed in different languages and origins, with a view to helping the wine business. Therefore, word and meaning will be the pretext we will use to prove this argument and we will ask the reader to make a special effort to look for the meaning behind them.

The Spanish word for business (Negocio) comes from the combination of the ancient Greek concept of leisure, aimed at lucubration, the development of thought and contemplation, excluding the search for practical utility and the Latin denial (negation) of this concept. The denial (negation) of leisure (ocio) ‘negocio’ is the purpose of any entrepreneurial undertaking in the Latin world, and therefore this concept contains customs and uses that are the ethics that underlie its origin. Although it is probable that the wine business was born from the benefits provided by wine, which are more related to the Greek art of leisure, to academic exercise, to medicine and to the pleasure it gives, than to business. However, for Anglo Saxons [descendents of two out of the ten German tribes described by the Roman senator and historian Tacitus in the first century A.D. in De origine et situ Germanorum], business is not the negation of something, it is an affirmation: busy-ness, business, is the condition of being occupied. The words that make up the English concept were imported to the British Isles, one comes from a Medieval term from what today is Southern Germany and from the Dutch language, and the other comes from a lower German word which is a derivative of Norwegian, this means that both words are Nordic and express the customs, culture and way of life of their original people. On the other hand, in France, the motherland of Western wines, the concept of business is expressed by ‘affaire’ which comes from the Old French à faire and means a duty to be fulfilled or something that should be done in the future. In spite of the fact that William the Conqueror (Guillaume le Conquérant or Guillaume le Bâtard, in its own language) invaded England in 1066 A.D. and that French was the official language in the English court for over 200 years, the word was never included in the language with this meaning. It would seem that the English preferred to maintain their German Anglo-Saxon and Viking legacy in this matter. The concepts developed in this publication are related both to business and to its English and French analogues, and are valid for many other businesses, and for this reason wine should be taken as such; a fascinating pretext to explore our way of doing business. The simple semantic difference between the etymologies and the semiotics of the word business in Spanish, English and French, it is already a challenge, by itself, in a world of accelerated globalisation.

In its particular field the Chilean wine industry has the potential to become a world leader, a fact that it is related more to a way of doing business than to the well-known qualities of Chilean wine. From this point of view, it is difficult to find a better investment in terms of image than that provided by Chilean wine. There is no doubt whatsoever that Chilean wine is the best and most important Chilean Ambassador to the world, and consequently it is an imperative for Chileans.

Image and wine

Together with bread and olive oil, wine is among the most ancient products to accompany human beings in their development and culture from the very beginning of mankind (historical records go back to 6,500 B.C.), with wines probably having originated in the valleys of Armenia and Imeretia, irrigated by the rivers originating in the Caucasus, near the place in which the legend tells us that Noah’s Ark ran aground. The people of the nearby country of Georgia claim they are home to an 8.000 year tradition of winemaking and that viticulture has its roots in the country. Within the cross-roads of Eastern Europe and Western Asia, Georgia shows archaeological and biological evidence for that claim, with carbon-dating studies of domestic Georgian grape pips confirming this ancient tradition in addition to the fact that around 500 out of the world’s grape varieties – approximately a quart of the known varieties for winegrowing – are found solely in Georgia.

So far, the Caucasus region appears to be where winemaking was born. Crushed grapes with its skins, pips and stems would be packed inside the Qvevri (large earthenware pot/clay vessel) and sealed and buried underground during which time natural fermentation, filtration and maturation would take place, and these would be sealed and buried underground as a method of Neolithic environmental control. The Qvevri would be allowed to naturally ferment over several months, allowing maturation of the final wine. Such wine-making is unique to Georgia and it has been added to the world heritage list of the UNESCO. On the other hand the EU has accepted to Georgia to use the phrase “Cradle of Wine” on its wine bottles, as an appellation d’origine contrôlée, which it hopes to help promote Georgia as the oldest wine-producing country.

What scientists have called the Fertile Crescent, which ran from ancient Babylon, passed through Mesopotamia until it reached the Bosphorus Straits and which contain, hidden in the mists of history, most of the newly born Western Civilisation’s original plants and agricultural products. Since those remote times, there has been a link between wine, bread and olive oil, and religion, culture, and development. Wine and olive oil are natural products that need no additional ingredients, since the elements involved in their production are contained in nature–grapes and olives.

Baptism by wine, consecrated bread and olive oil used for anointing are the trilogy that has accompanied Christian liturgy for the past 2,000 years. On the one hand, successive associations throughout the history of mankind lead us to claim that it would be difficult to find a product nobler and more strongly linked to culture in the mind of people than wine, at least in Western civilisation. This is also true of wheat, rather than barley, maize or rice.

Chang Ch’ien, a Minister under the Emperor Wu Ti of the Han dynasty, the first Chinese who penetrated to the extreme regions of the west. About 138 B.C. he was sent on a mission to Bactria, but was taken prisoner by the Hsiung-nu and detained in captivity for over ten years. He managed however to escape, and proceeded to Fergana or Khokand, whence he is said to have brought the walnut, and the cultivated grape to China, and to have taught his countrymen the art of making wine, which he had learnt from the Persians. In the year 128 B.C., Chang Ch’ien took wine to China. However, wine did not find a friendly environment for development, in spite of the degree of civilisation and sophistication of the China of those days. It would appear that the Christian trilogy and its relationship to religion, medicine and culture have been key elements in the development of wine through the ages. In the lands that gave birth to Western Civilisation and in China itself, wine was always associated to nobility and religion, creating a traditional sacred link between man, wine and deity. This sacred link is maintained today in the national subconscious of different peoples. It would be difficult to choose a nobler or more powerful product to associate with the image of Chile. Wine is probably the only product that is taken to the table in its original container, with original labels, and which is a subject of discussion at the table. Moreover, it embodies the soil, climate, culture and image of the producing country, and Chile should take advantage of this.

It could be said that the link between the images of Chile with top quality wines in an environment of accelerated globalisation presents more business opportunities for the country than for its wines. From the above we can infer that in order to be successful and to establish an acceptable country-image relationship, the dissemination of the image of Chile should be carried out via top quality Chilean products [1]. Top quality products, searching for a position within specific market niches are the materialisation of the image of the producer country, in a mutual operation of permanent reinforcement. For this purpose, wine constitutes the best choice. We should add that in subliminal terms, an image is merely a reflection, whereas wine can be felt and savoured, it is a substance. Chilean wines of the last decade of the 20^th century and of the first decades of the 21^st century faced and are facing a situation that is as privileged as it is unrepeatable, and which may not last. This can already be seen from the behaviour of export statistics. We can surely expect that in the medium term there will be a sustained increase in the demand for fine wines in potential markets. This situation has not escaped the attention of large international capital, and it is possible to expect that giant multinational companies will come into the wine business, replacing traditional domestic producers, unless these take some of the few measures available to avoid this, as is evident in those countries that have natural conditions for wine growing. In fact this is already happening in the Southern Hemisphere: in Chile there are some 40 foreign companies operating in the country, half of which have done so with joint ventures, with the others resorting to direct investment.

In effect, European wine producing countries are steadily increasing their costs, subsidies are being eliminated, and strong pressures are emerging for alternative costs of land use. In European wines, costs and sale prices increase while profit margins fall. They also have to face problems related to world climate changes [2], but even then, they are owners of a good portion of the market and are reacting against the influx of wines from the “New World” of wine. When this occurs, the logical reaction is to change production to those venues in which production quality conditions are maintained and to keep up the market thanks to a strong distribution system and marketing. At present, practically all the wine producing countries produces excellent fine wines, and quality is constantly on the increase, as everyone has understood that quality is indispensable; it is the entry condition to be fulfilled by all players. Nonetheless, there are five zones in the world (according to international experts) that present privileged agro climatic conditions for growing excellent stocks of Vitis Vinifera grapes for the production of top quality wines at a lower cost: Argentina, Australia, Chile, New Zealand (only white wines), and South Africa, all of which are located in the Southern Hemisphere.

However, this only complies with the first and basic condition for competing in international markets, which is quality, and one cannot expect that natural advantages are everlasting. Natural advantages are not eternal, and technology tends to show that this is so. One of the advantages of the Chilean wine growing industry is its youth; a relatively new industry, free from a long and stultifying tradition, which will attract adventurous entrepreneurs that are ready to run risks and consequently make the most of their efforts and vision. In the past, the oenologists or winemaker’s reputation, prestige, customs, and a series of other factors protected a product that was difficult to reproduce, and these factors guaranteed that the industry would remain in certain hands, especially in the hands of local investors that had traditionally been connected with the business. In time, the strength of these factors has tended to disappear and there has been an opening to the possibility of creating large conglomerates that no longer search for the production of fine wines but control and company ownership. What nationality are the wines of the French, North American or Spanish companies that produce wine in Chile? Are they French wines produced in Chile? It would seem that this issue is unimportant, but it is enormously important from the point of view of the perception of the consumer market. This is where the strategy of the entire sector and its coordination with the individual strategies of each company starts to become a key element in the development of the industry.

In the past, strategy and tactics, concepts that were historically developed in military terms, were separable; each could be discussed because of the other, but individually. Strategy was responsible for defining final objectives, while tactics was for defining operations in limited fields or sequences for the attainment of these objectives. It was the era of limited communications in terms of range, speed and of ideas of reality based on Newtonian Physics, classical mechanics, and simplification, in which sequential thought was supreme, the theory of relativity had still not penetrated administrative thought, the general theory of systems has not been enounced yet. In biology, structure and function were still separated; as a scientific method analysis predominated over a holistic vision, forgetting the interrelationships existing between parts. Today, structure and function in biology are processes that only differentiate by the speed of their events, like strategy and tactics in today’s military. The consequences of these concepts are relevant, both in terms of long term planning and of the immediate future. The first and most obvious conclusion is that the individual will not be able to survive without links with the sector in which he/she works and with surrounding community, the short term without links with the long term, what is national without links to what is international. Independence is a concept born of politico-ideological strife and has no scientific replication in the natural world, and what is closest to it is autonomy, which is meaningless without interdependence, which abounds in the natural world. The change in the perception and range of these concepts will require the creation of new decision making systems and new forms of action that consider multiple instruments, varied and different tactics in different markets, taking into account local diversity, different cultures and different distribution systems for each case. The winemaking industry will change, turning marketing, logistics and service into a fundamental part of strategy that will define their success or failure.

1.2 Paradigmatic change

The awareness that consumers have regarding their growing power and observing the markets into which they grouped themselves has generated a new way of conceiving marketing, services and logistics. Similarly, the omnipresence of new information technologies and their convergence has placed all industries, and particularly the food and beverage industry – in a position similar to that of the wine industry, in a situation of unprecedented visibility and transparency. The most important change in the world winemaking industry has been the result of a major evolutionary step; a modification in world mentality, a paradigmatic change with strong ethical roots that has been in gestation since the middle of the second part of the 20th century and becoming strongly manifest over the last few decades. The winemaking industry of today moves in an environment of “relevant paradigmatic changes”, which should be especially welcomed by the countries of the New World of wine, since this is precisely what, has given them access to a traditional, closed and protected market. This change has affected the tastes and demands of the consumer, modifying the demand for wines. Firstly, from the point of view of quantity, a fall in the purchase of ordinary or table wines, and an increase in the purchase of fine wines, with a tendency to recover historical levels. Secondly, changes in structural demand, modifying the supply chain, and influencing all the links up to the origin of the products, and therefore an increased interest in:

• diversity of offer;
• the distribution chain;
• identification and differentiation among wines;
• the marketing focus;
• product availability;
• related services.

At present, the association with a brand of traditional prestige does not satisfy the wine consumer; he/she also requires knowledge of all aspects involved in the production of the wine offered, and its association with ethical values that change with every market. This has led to improved market studies, rekindling concepts like one to one marketing which had been thought to disappear with medieval artisans, and which can be applied on a mass basis thanks to the potentiality of new technologies. These technologies are a plus and not a minus and contribute to the rescue of the traditions of ancestral products such as wine. On the other hand, consumers acquire a growing knowledge of wine, have access to information that was considered privileged in the past, and express their preferences with greater freedom owing to the increasing offer on the market. The immediate consequence of this is a definite change from a market traditionally dominated by suppliers to a market dominated by the demand: the consumers.

Key success factors

In this environment of “relevant paradigmatic change” five key factors have been identified in the development of the world winemaking industry;

A. Changing demand, more demanding and better informed consumers.

B. Increasing power of retail sale, brand wines require larger scale distribution systems.

C. Increasing importance of logistics, distribution chains require a greater variety of brand products,

D. Creation of brand value, non-differentiated products lose competitiveness and

E. Increasing Competition, association with subjective ethical values.

A consumer market

The change from a market led by offers and dominated by suppliers to a market driven by demand and dominated by consumers, has turned logistics into an element of extreme relevance. The purpose of logistics is to ensure a smooth flow of product supply. In other words, the purpose of logistics is to ensure product availability when it is required at the sales point. In the case of indirect purchases or mail orders or in the case of electronic purchases in general, logistics should ensure the fulfilment of the promises made by the marketing department and production services to satisfy sales commitments. In addition, logistics should create and supply different distribution channels that will generate easy access to the consumers, and obtain feedback from consumers. Feedback obtained from logistics systems provides two basic reactions: correction or adjustment of customer loyalty programs, or an adaptation to the changes generated by the environment. The information supplied by logistics by the administration of distribution channels provide data, which when organised can become knowledge that contributes to increase the efficiency of the system. On the other hand, an adequate selection of distribution channels, determined by knowledge of the client, could determine distribution scale in order to reduce overall costs in the chain.

Very good marketing complemented with excellence in services can be easily destroyed by an inadequate concept of logistics, and thus turn corporate marketing into the best instrument for the competition. When logistics is inadequate, marketing and associated services turn into the principal means to ensure the transfer of own clients to the competition, and what is even worse, this transfer is financed by the company to the benefit of its competitors. Old-style wine producers have not perfected distribution with a logistical focus, and in most cases not even integrated into the wine chain. The new actors in the industry have the advantage of regarding existing options without commitment, evaluating them with care. They tend to look for the most efficient distribution systems, depending on the distance of the markets and making use of the experience of traditional companies that opened inroads and paid the costs of being pioneers. On the other hand, an in accordance with renewed administration concepts, they understand that the problem is defined in terms of availability and not of physical distance: distance with the consumer is measured in access times. This fact, in conjunction with a smaller but adequate operations scale, enables them to place their wine much more efficiently in the consumer market.

Logistics provides organised data that generate knowledge that is important in innovation and adaptation to changing consumer requirements. Old-style winegrowers have a rich history and culture in wine production, of which they have not made proper use. They have created specific organisations to support the industry, both where market information and the incorporation of new technologies are concerned. However, these incorporated new technologies have been in order to improve processes and products, but still do not take into account the satisfaction of client tastes and demands. On the other hand, traditional organisation is fundamentally hierarchical and centralised, which makes it difficult to make full use of information technologies. The winemaking industry is generally traditional and new ideas not easily embraced. This slows the decision making process and winemakers’ response to competition. This same reason leads them to rarely assess past errors in order to grasp their potential opportunities.

Entrepreneurial abilities, international orientation, ability to cooperate, alliances and cultural management are factors that are relevant in the creation of an environment that promotes innovation while respecting traditional values. One of the key aspects in the determination of competitiveness is entrepreneurial culture, which additionally receive strong influence from several other factors. State of the art logistics is difficult to be accepted by traditional entrepreneurial cultures, which do not seem to understand that a wine that is unavailable is not competing, does not exist. History shows that success by no means is a guarantee for the future, especially in those cases in which the market is undergoing such accelerated and permanent changes. Quite the opposite, a success story can prevent change, and blind those involved. Diverse companies, some of which considered traditional, have shown that the entrepreneurial spirit can change, permitting success and growth. Logistics, in association with marketing and excellence, are the eyes and ears of a company that enable it to anticipate these changes in order to properly adapt.

Market segments

Although there is a relative consensus or stability in wine market segmentation, there is no clear association between quality and price, and economic segments are often confused with classification according to quality. Some companies, more often than acceptable, label their wines as premium or ultra premium for obvious commercial reasons, applying a market ethic belonging to the 19^th and early 20^th centuries, which consumers will reject in view of the new ethic that is taking over firmly in the 21^st century. Another very different thing is to find coincidences between the classification of wines in terms of quality and market segmentation. In fact, it is normal that there should be a certain correlation between prices and the segments among which the wine is offered, although this relationship is not bi-univocal and it is dangerous to substitute the consumer’s judgement by means of a marketing message. Today’s consumer does not approve of a company that overrides his rights by making use of repeated publicity or a simple commercial message to deprive him of something that belongs to him and that is a sacred right. There is a relative universal acceptance of the fact that the traditional economic segments of the market are (without necessarily referring to wine quality).

The wines in the highest market segment offer the highest quality and reach the genuine connoisseur. Although, in comparison with the overall industry, these wines have a very small participation in the market, they have a very high status and prices. This is especially true in the ultra premium segment, a segment that is increasingly fragmented and that plays a referential role in other consumer segments.

Quite often, the commercial aim of maintaining these types of wine on the market is to ensure the performance of other wines or of associated wines in lower market segments. The habitual middle segment consumer occasionally drinks ultra premium wines, thus reinforcing, his fidelity to the brand. Aware of the influence of upper segment wines, some brands originating from middle segments try to place themselves nearer to the upper border of the segment in an attempt to get nearer to it.

General market segments:

The formula for the successful placement of a product still lies in adequate segmentation and the subsequent fragmentation of the segment into smaller discrete units. Marketing has evolved with incredible speed with the use of the media and technological development to place a brand on the objective market through technological loyalty programs tools. In spite of this, the key to sell a product is still based on a classic principle: the ability to identify the potential client and his precise needs and making him aware of the fact that his satisfaction is the primordial objective of the company that is promoting the product. Successful companies have understood why their consumers perceive the fact that they are better than the competition. Clients do not have an exact image of each product before deciding to purchase it; they tend to let other features like size and shape of the package, quality, brand, cost, and how publicity, and especially the cultural aspect associated to the product, affect their perception of the product. Today’s consumer is much more demanding, and is no longer easily surprised, nor tricked. The amount of information he/she has and the varieties of products he/she can access have changed the rules of current marketing.

Labels and brands

The consensus is that a clear and recognisable labelling of wines and the focus on the middle segment –which is the most promising– are key factors in the success of a brand. Development opportunities lie in the middle segment with premium and super premium wines. But, the successful introduction of a brand and the development of brand awareness also depend on constant quality and easy availability. The development of awareness and image are also essential. This requires much more than innovation of labels, each brand must work hard on its development and support.

The larger companies can go into brand creation because they have the scale and the financial resources required to produce volume. Additionally, they can offer a significant line of wines within a unique brand. The danger for these companies is the price discrepancy between their own wines, which can displace consumption of lower priced wines, in accordance with the placement of the brand. Some lower quality wines obtain association benefits with those of higher quality, but in general, all the lower priced wines tend to reduce the image of higher quality wines, which leads to confusion in the consumer and to a dissolution of the image, which is the exact antithesis of the objective of placing a brand.

Brands have created an orientating difference in a logistically complex situation and have facilitated the access of new consumers. At the same time, the importance of brands will force companies oriented on product and on small scale operations to follow the trend, which will lead to mergers and alliances that will become increasingly common in order to generate lower costs or obtain the capital required to develop brands and innovations. Those companies that follow a differentiation strategy in the segments of higher quality will be able to resist the eventual alliances or takeovers. Companies that are brand-differentiated will be able to operate successfully and resist restrictive periods.

Increasing competition

The world wine industry contains a huge number of companies. In spite of this, a reduced number of large companies tend to dominate the market both from the point of view of generation offer and placing their products. The trend would seem to be to reduce the number of actors by means of mergers. It would seem that, as a reaction to this, the wine industry will lose its traditional national status and become a renewed global industry. On the other hand, large international financial corporations have discovered this new niche (the winemaking industry), especially those in the Southern Hemisphere, where they can recycle available financial capital and search for new opportunities. These new companies, with managements that are prepared for global change, are enormously active in all aspects of the market supply chain, ranging from winemaking to production and distribution. In some cases, they even access the retail market, using new technologies to satisfy concepts like one to one marketing. This comprehensive chain contributes to a greater control over the marketing of end-products. While the traditional industry often shares the philosophy that costs are incompatible with quality, emergent corporations share the perception that cost and quality are complementary and not opposing objectives. So much so, that to the extent that there is an increase in the quality of processes better products are achieved and costs fall. Minimum cost objective is taken into account in at least three categories within the market segments in which they aim to participate: low cost, competitive cost and high cost.

In the environment of low cost the objective can only relate to low costs, and competition is based on prices. In an environment in which companies wish to obtain competitive costs, the aim is not necessarily to find the cheapest or the minimum cost per unit produced, but to compete with the rivals in the chosen market segment. In a high cost atmosphere, it is obvious that what is aimed at is gaining a place in a specific market. In other words, we could say that if new companies are to succeed, they will replace the minimum cost objectives of traditional companies with the cost required to obtain a portion of the objective market segment. Quality is far more important today and costs are complementary to compete in the chosen market and in the chosen price range; today this is a sine qua non condition for courting success in the world wine market. On the other hand, the traditional organisation of the market supply chain does not consider the new demands, separating the end consumer from the decision making process and preventing his adaptation to new demands. This weakens traditional companies in comparison with the new emerging companies, whose mentality and more reduced size give them the advantage of adaptability. An approximation based on the product and on confidence in an image based on history and tradition, such as size, is slower to react to the new market trends. This stance of traditional companies weakens their position with supermarkets and retail chains, especially in the basic segment, where price is a key factor, and very few of the larger companies can fulfil the requirements of retail traders. In the premium and super premium segments, where quality is the key factor, wine producers have to trust distribution agents that normally distribute a wide variety of brands, reducing the importance and dedication of the distribution agent to a specific brand. Fragmentation and lack of brands leave little space for traditional wine companies to negotiate with large-scale retail traders, who can easily find another supplier.

Integration is obviously the answer to this, as it creates a shorter and more efficient supply chain. Backward integration or coordination on the part of producers and traders so as to ensure grape or wine supplies creates a more reliable product, while the quality and quantity of the product supplied can be better controlled. Forward integration widens distribution power and shortens distances for retail traders and consumers. In this case, the distance is measured in adequate response times, or in other words by logistics orientated towards the satisfaction of the end client. Proper reaction and contact velocity are key factors, as those who respond first will have a better chance to keep the end consumer. There is clearly a need for consolidation in the area of winemaking and in different sales stages. It would seem that the industry does not yet require consolidation where small-scale grape production is concerned, and winemakers have control over the variety and quality of the grapes grown. The purchasing power of wine companies enables grape production to be spread out among numerous small-scale farmers, enabling them to transfer part of the costs that retail dealers have transferred to winemakers, and who then transfer them on to the origin of the chain; grape growers.

In this way, wine companies put pressure on grape growers to lower their prices, taking them to levels of economic risk. Grape growers, protected by state subsidies or price bands, are able to resist the pressure and survive. But, in those instances where there is no subsidised grape production, it is likely that grape production and farms will pass on to the purchasers: the wine companies, thereby, collaborating in the integration of the supply chain. A less fragmented industry will enable retail dealers and competitors to manage the pressure of the wine supply chain. A more integrated supply chain will position itself close to retailers and to customers. This will help in the transition from a product driven industry to an industry driven by demand. Marketing power and distribution strength are key elements to enter a market. The main features of a required supply chain are market orientation and commercial strategies based on brand development. The concept is that of a proactive chain that anticipates market changes. Continual product innovation is mostly aimed at specific market segments, as is the case of brand creation and ample product portfolios which are typical features of a market orientation. When brands enter new markets, they allow for the introduction of recognisable products, thus facilitating the election of products that consumers appreciate and are familiar with.

Competition in the international wine market will become harsher and more combative when traditional wine supply chain concepts start to compete with the new logistical concepts based on information technology and telecommunications. The speed of supply will change as will its scale, and it will be ruled by new concepts that are already applied in other areas, such as just in time supply. Traditional companies will most probably react as is their wont; they will modify prices and increase their scale, which might protect them at a basic market segment level, but which will be useless in the middle segment. This will promote mergers, alliances and purchase of winemaking companies.

Demand for wine is increasing, and that is a well-known fact. But, recent demand will not bring back the peace that has been lost. The market has changed, owing to a change of mentality that has affected all areas, in addition to the wine growing sector, and for this reason competition and change will remain as concepts that are embedded into the behaviour of the industry and which are controlled by the end consumer. The first consequence of this is already visible and shows that demand for quality wines (premium, super premium and ultra premium) wines is increasing quickly, while demand for table wines is falling.

A common phenomenon in the agro industry is that normally, production of the basic product (wine grapes) increases more quickly that the demand for the end product (wine), which has a higher added value. This contributes to maintain the basic product as a commodity, with the corresponding price behaviour. Grape growers will react by producing more grapes and certifying them, in the hopes of better profits. This will not suffice to prevent them from being taken over by winemaking companies in search of vertical growth, and market behaviour under the rule of deregulated policies will make the consolidation of large winemaking conglomerates easier and less expensive. But, small and medium-scale wine grape growers have been subjected to excessive pressures which have led them to important decisions. This might generate the logical reaction that has been seen in other areas, which is to change the market in order to protect investment. This means changing from the wine grape market to the wine market, starting with the bulk wines and then moving on to the more lucrative area of bottled wines. Today it is easier and less costly to change from a commodities market to a market with higher added value, there is an abundant offer of services available for anyone wanting to grange from wine grape growing to winemaking. Additionally, an increasingly diverse and demanding demand presents attractive niches for new products.

Internet can help in this kind of industrial changes, by rendering the market more transparent and collaborating in making the world wine offer more ubiquitous both at a local and international level, and will consequently impact traditional logistical and distribution structures. Existing retail dealers can turn into successful electronic merchants, firstly on the domestic front, owing to the ease with which they will manage a restricted logistics that will provide them with the experience they require to reach more distant markets. In this way, they will be able to provide their clients with a complete range of products which, at the same time, will include detailed information on the product. Currently, the market segments that first operate with the Internet will generate a relationship with their suppliers that can only be compared to the Medieval relationship of the craftsman with his client. We should not forget that Internet is an extremely new phenomenon, which has only been in operation for the past 20 years, and is also a generational phenomenon that will give the winemaking industry greater strength when those who were born with Internet become active wine drinkers.

New distribution channels, based on the opportunities offered by e-business, will emerge, in conjunction with home deliveries. This medium is particularly interesting to high and medium market sectors. Fragmented and frequent supply, offers opportunities to provide additional product-related information, while home delivery costs fall and become less and less difficult for those consumers who purchase quality wines. The increasing power of retail dealers is both a threat and an opportunity. It is a threat to traditional suppliers, whose products lack the distinction, brand prestige or differentiation of quality wines. Retail dealers offer enormous opportunities to brand wines, and to suppliers of differentiated wines.

The wine industry has made enormous efforts to increase the quality of wine production on a world-wide basis, and more and better wines are being produced the world over. Each segment will tend to equalise quality or to produce wines of a very similar quality, as has been the case in other areas of industry. Differentiation will no longer be relevant in the product, although it is always desirable. Differentiation will be possible in marketing, logistics and services. In a competitive global market, these efforts will only bear fruit if they are supported by an in depth knowledge of the end consumer, his habits and preferences, in other words by top quality, specific market research, that will contribute to make supply fit demand. It is true that adequate marketing campaigns can conquer markets, although the challenge is to seduce markets.

1.3 Turning the future into history

Understanding change

The history of management has recorded numerous events that have generated profound changes in the way that businesses have been managed over the ages, leading those who have been unable to understand this change to failure, and making a success of those who have been able to adapt to change or who have contributed to its development. Each period in history has had a predominant specific style of administration, and a given ethics corresponding to the times. There is a great difference in the management styles (and their sustaining ethics) in vogue when slave labour was the equivalent to capital, and in the ethics applied to the wage earners of the Industrial Revolution who contributed to build the British Empire. The ethics used with the people involved in a NASA space shuttle launch are also different. Administration over networks and nets of networks requires a new kind of management and a consequent ethics that goes with it. The major change we live today, without a doubt, has a profound root in an ethic change, grounded, seismic and universal, which may be difficult to perceive. What we know as paradigmatic changes, which change the fundamentals of current thought, are especially dramatic when they include environmental change. Concepts such as globalisation, the convergence of telecommunications with computing systems and a new glossary of terms are all commonplace and distract us from identifying the essence of change. Change is essentially as ancient as human development and its effects have simply become a little easier to detect, although many manage to ignore them with no difficulty at all. Habitual security disappears, and in times of change, the general trend is to hang on to the few apparent false securities that remain. Many tend to walk with their backs to the future, while they cast nostalgic glances at the certainties that have disappeared.

The inability to understand change, new technologies and their effects on management and social systems contribute to increase uncertainty and fear of the future. Nothing seems stable and nothing can be taken for granted. This is the kind of change we live today, for some it is cause for uncertainty, while others consider that it is a unique opportunity that cannot be allowed to pass by. Our daily routine has changed in a matter of years; the most identifiable shocks have been telecommunications, computing and the ways of representing knowledge. We are changing from a textual to a multimedia culture. Those who were educated in the culture of text and reading cast surprised and occasionally worried looks at the fact that the new generations are focused on the spoken word and on the proliferation and administration of images. On the other hand, many accept, but do not understand, that we are living times of change, in which the only security is the lack of security and the omnipresence of change is a factor of stability. This affects everybody. It was not so long ago that we passed from telegraph to telex, telex to fax, and fax to email and increasingly speedy transmission times. We travelled from the hierarchy of networks to networking networks. But, networks have existed since time immemorial; what has changed is the speed with which information travels and the technology that allows that speed, and the ethics that evolves with history and facilitates change. The information that was once the privilege of a chosen few who could treasure it is currently an omnipresent and ubiquitous common property. What is it that makes us unique and enables us to generate something of value for the society in which we live if everybody has relatively easy access to information? What is it that permits us to generate something that can be valuable?

These questions have probably been repeated throughout the history of management since ancient times. There still exist products that are made just as they were centuries ago and which share their place in society with the products of today, which are new and would have been unimaginable in the past. What is the similarity and difference between a Persian rug and an electronic chip? What is the similarity and difference between a Persian rug and an electronic chip? What is the difference between a Venetian spice importer of the 15^th century and a computer importer of the beginning of the 21^st century? What is the difference between a 21^st century fruit exporter and a saffron exporter of the 16^th century? How was business run in the past and how should it be managed today? What are the similarities and differences between the four Bordeaux grand cru: Haut-Brion, Laffite, Latour and Margaux, successfully imported to Elizabethan England, and which are still some of the most prestigious wines in the world?

Undoubtedly, one of the many differences is the greater speed of information transmission, larger volumes of information, associated complexity and its globalisation, but essentially the possibility of success is ruled by the ability to turn information into useful information, that is, knowledge. Knowledge in itself is not enough, knowledge changes; it can become obsolete or it can be updated. The capacity to turn information into knowledge makes the difference. And in order to maintain that difference it is essential to have the ability to generate new knowledge permanently. Survival is defined as being in harmony with a changing environment that is influenced by, and has influence on, a permanent dynamic balance. The company that survives does so because it finds that dynamic balance, it provides what its environment requires and receives what the company requires, and although this is not the only objective, all the others are subordinated to survival.

Human history

Human history is the history of adaptation to a changing environment. And the history of business is the history of the way in which the human being has communicated with his/her environment. It is the history of language, and of communication; and language is knowledge (information for adaptation), our diverse sciences are the language, and communication is applied science, through diverse technologies. Technology as applied science is the language by means of which we influence our permanently changing environment and are influenced by it. In this way, human language (including the language of images, of semiotics and body language) is the way in which we interact with other human beings in order to transfer information. Technology is the language with which we interact with other things and other beings that are not alive. Technology is the way in which we generate conditional reflexes in animals (interaction with animals), technology is also a crop (interaction with plants) while metallurgy is interaction with inanimate beings. At the same time, each new technology is a new application of science (language) and also a new form of communication that enables a new influence and receives a new response from the environment in return.

This new response has lain hidden in the environment waiting to be discovered by this new form of communication. We could say that the discovery and application of new technology allows change to strengthen the deepest harmony between business and the changing environment. It is this harmony between changing environment and business that ensures survival (life). Without this harmony, it is impossible to generate the surpluses that are required to finance the development of business. The surpluses required for this development are generated by a greater efficiency applied to internal processes that are always related to the attainment of our own objectives and their relationship with the objectives of others who share our environment and who are the motive of our business. The balance between our own objectives and those of others will determine the generation of surpluses. Balance of objectives is the defining part of harmony with the environment and of the permanence in time of a company that generates surpluses.

The generation of knowledge

It is important to clarify the reason that visionaries have claimed that the kind of society we will begin to experience will be a society based on knowledge (consequently business is also knowledge) is the fact that paradigmatic thought has changed. The changes we are experiencing today have been caused by paradigmatic change. The world has always changed, and it would appear that there are times when changes have been small in comparison with those we are experiencing today. It would appear that once in a while the world thinks, looks into itself, questions itself and changes occur that lead us to redesign everything.

Before the Industrial Revolution of the 18^th and 19^th centuries, value lay in landed property, and then value lay in industrial property during the revolution itself. This led thinkers to believe that power lay in the ownership of means of production, and this incomplete appreciation remained as a fundamental truth well into the 20^th century, during which the predominant idea was that capital accumulation generated power and ability to create wealth, and that bank ownership was the most adequate way to create wealth. At the end of the 20^th century, the idea that creativity and innovation were the means to generate surpluses took hold, and knowledge became fundamental. This does not mean that the old ways of creating wealth have stopped doing so; it means that the old methods are less profitable than the new. A clear example of this change in the winemaking industry is the existence and success of companies that have no vineyards, no land, no crops, no winemaking facilities, and that do not make wine. In spite of this their management style enables them to sell wines on the international market, without even owning the brand they sell. This is an example of change, and shows that the society of knowledge is more than a respectable theoretical tenet. These companies subsist and develop parallel to traditional companies. The scientific discoveries in physics, chemistry and biology of the 20^th century have generated these changes in human thought, as the human being gains self knowledge and changes his way of thinking. What the human being thinks of himself is what he/she thinks of his/her peers, and this tends to change his/her thought processes, his/her way of relating, of working, etc; everything changes when a human being changes his/her way of thinking about himself or herself. A fact is not information, organised facts are information. Information is not knowledge, knowledge is information with a useful purpose and knowledge does not necessarily guarantee successful generation of surpluses. Knowledge stems from the past and does not necessarily generate innovation unless it is associated with creativity in order to generate new ideas. Knowledge takes on many shapes and represented in a variety of ways.

In the early days of humanity, transference of knowledge to adapt and survive was through the spoken word or oral tradition and was in the hands of the most educated individuals of each society, those who were capable of transmitting knowledge. The invention of writing led to the memory of conversation and this memory could materialise on written paper, and that piece of written paper was the means of storage and the memory of the conversation. Knowledge was accumulated on paper and was represented as the written word, drawings, paintings, maps etc. When Henne Gänsfleisch zur Laden commonly known as Johannes Guttemberg invented in 1454, movable types, the printing press and applied the italics to the printing process of the first massive book, the Holy Bible (180 issues), triggered a changing process which drove western society to the information age in which we live today. Johannes Guttemberg’s technological innovation meant that large, voluminous and heavy books, that had originated the word library, and which were stored in fixed places, became portable elements. Therefore, the knowledge treasured in determined places was now able to travel and be transmitted via a text. The portable nature of books was far more important than the development of the printing press and movable type. Johannes Guttemberg made knowledge portable.

Subsequently many inventions have added to this human effort over the centuries, and have led to the accumulation of knowledge independently from the human being himself and to render knowledge transmissible and transferable. The objective of this secular effort is to contribute to the human being’s ability to adapt, survive, and grow. Currently, as a result of this immemorial process, knowledge is represented in innumerable guises; text, drawings, symbols, shapes, printed circuits, recording tapes, compact discs, the Internet, etc. Today, knowledge is found in people, in technology (which we know is communication by humans with inanimate beings, things and non-human living creatures), in organisations and processes, among others. Knowledge is found and accumulated in education, training, textual and multimedia documents, data bases, computers, hardware, in formal and informal organisation, in policies, in proceedings, in measurements, etc. Today, in addition to being portable, knowledge is also ubiquitous: when it is on the Internet, it is available to thousands of users who can be consulting simultaneously from any place on earth. Knowledge has travelled from the portability it gained with the textbook to omnipresence, towards the ubiquity it has been given by the Internet. Knowledge is no longer a scarce resource that is difficult to access, quite the opposite, it can be profusely distributed without deteriorating. Knowledge has definitely and clearly defeated one of the basic principles of the classic economic theory of the 18th century, which is still erroneously accepted, an error that states that all resources are scarce and to be used alternatively. Knowledge is by no means scarce and its profuse use has contributed to the creation of mega companies such as Microsoft, or General Electric. The latter, for example, was able to move on from the old economy based on classical economic theory to a new emerging economy, whose explicative theory has yet to be formulated. Scientific development has also questioned other theories such as Abraham Maslow’s belief that people have multiple needs that can be priories according to hierarchy. The human needs hierarchy presented by Abraham Maslow is an ordered classification of human needs in a scale, when a person satisfies a need the next one becomes dominant. The first two needs levels are considered primary or of inferior order, and the following three were considered secondary or of superior level, because they did not have importance unless the individual was in condition to aspire to internal satisfaction of physiological nature. Even in theories like the Maslow’s one, we are travelling from sequential hierarchies to networks and to network of networks, to a network system. This theory is seriously questioned by new biology that considers needs as an open system in which priorities are expressed only in extreme situations and needs are organised within a systemic network. The new biology has also shown that the traditional theory of human behaviour formulated by the classical economic theory does not give a clear explanation of human behaviour and that a new consumer theory should be formulated because the human being does not act in accordance with the principle of rationality. The new economy needs a new theory of human behaviour.

The paradigmatic thoughts formulated in the 18^th century and perfected during the 19^th century and part of the 20^th, have been completely destroyed, giving way to a new economy, new politics, new technologies; society as a whole has changed and will change even more. The majority of academics has continue to comfortably teach old and obsolete concepts, without understanding the depth of change and have remained within the realm of the old economy. Companies nonetheless have adapted with greater ease, although this process is still developing and many entrepreneurs make mistakes because they perceive change without understanding it and respond to it inadequately. Companies normally start and maintain change before theories have been formulated, and business is practically always ahead of academe. This is natural owing to the structural biological condition of human beings, whose vital experience leads him/her to perceive knowledge, while that knowledge and academia formulate ex post explanations based on history, which is nothing but organised knowledge.

Curiously enough, academia as we know it, contributes to educate under the false premises that the future will be a lineal extrapolation of the past, which makes it impossible for most learners to generate renewed visions. Those who explore and experiment, defying traditions, generate the changes that remain in history, those who dare to set aside their routines, who change their habits and adapt to change. Technology is the most evident was to express change, but technology is the language of change, it is not change; technologies are the expression of buried movements that often remain hidden and unperceived. Those who understand these movements in changing times have a temporary advantage. Throughout human history, changes have always been the outcome of a previous change, a basic change, a change in how man looks at himself, and when this occurs, it triggers change in every field. However, knowledge is not eternal, it also changes, it is in a permanent process of completion, so that the behaviour required for permanent adaptation is learning to learn. Learning to learn, and to do so persistently, requires a change in ethics. A change in ethics is required to administer knowledge, or to operate in a network organisation or within a network of networks. This implies the need to fully accept the fact that every member of the network has the same value and can potentially provide as much as his/her peers. What for? Therefore, as to adapt and create business systems that generates surpluses for our clients, to enable them to survive and generate surpluses. Knowledge is not enough, but it is essential to apply it intelligently in order to create business systems. Today, business is the system and the system is business. Without systems generated by knowledge, there is no business, without business, there are no surpluses, and without surpluses, there is no survival. Today’s successful business operations are harmonic with themselves and with their environment, they are a virtual value added community, a “live” force that builds, creates, innovates permanently.