School of BusinessMaster Thesis EX0110

International Marketing

The Wine Industry of Bulgaria : Taking the Next Step

Tutor: Edlund Charlotta

Authors- group 1523: Anokhina Margaryta 781105 Nel Sanet 790617

Västerås June 7, 2007

Abstract Course: Master Thesis EX0110 Title: The Wine Industry of Bulgaria: Take the Next Step Authors: Anokhina, Margaryta Nel, Sanet Tutor: Edlund, Charlotta Date: June 7, 2007 Introduction: The wine industry accounts for just 0.4 per cent of global

household consumption, and vines cover only 0.5 per cent of the world’s cropland, yet it is one of the most studied and researched industries. There are several key producers on the global scene, and although Bulgaria has a long history of production, it is not as present other producers. In this project we would like to study how the Bulgarian wine industry can be more competitive on the global market and identify the strategic choices it should make in order to reach this goal. The purpose is to recommend strategies that are compatible with the country's and industry's resources and capabilities as identified through the factors of national competitive advantage as well as specific factors of the global wine industry environment and its competitive sources.

Methodology: The methodology section consists of an overview of all the

information we have gathered, data we considered, as well as the decision making processes that occurred in the selection of the relevant theories and conduction of the analysis. We collected secondary as well as primary information in the form of books, web sites, journals and other printed material as well as a telephone interview with a Bulgarian wine producer. All steps carried out in the thesis completion such as topic selection, theory selection, approach to the analysis as well as other relevant information are addressed in this chapter.

Theoretical Framework: The Theoretical Framework is divided into three main sections:

Industry and competitive environment forces, Porter’s Diamond of National Advantage, and Porter’s generic strategies. The theoretical framework has been selected in order to identify factors that may have an influence on the Bulgarian wine industry, whether they are domestic (national advantage factors), or external (industry and competitive environment forces).

Empirical Findings and Analysis: The Empirical Findings section has been adapted into a findings

section as well as a short analysis, and it consists of information gathered about the global wine industry as well as the Bulgarian wine industry. The global wine industry is sub-divided into information about wine production (as well as the history), followed by external factors such as industry-shaping economic features, forces driving industry change, as well as the opportunities and attractiveness of the industry. The Bulgarian wine industry overview consists of all the conditions given as

prerequisites to Porter’s Diamond of National Advantage. The Diamond Model discusses four main factors (firm strategy and structure, factor conditions, demand conditions, and related/supporting industries), as well as two additional ones, such as the role of ‘Chance’ and ‘Government’ in defining the national competitive advantage for the industry

Possible Strategies and Further Analysis & Conclusions: A further analysis was conducted based on the three external

factors present in the global wine industry (as industry-shaping economic features, forces driving industry change, as well as the opportunities and attractiveness of the industry), as well as conclusions in regards to Porter’s Diamond as it can be applied to the Bulgarian wine industry’s measure of competitiveness. Considering information presented under each strategy, it is our conclusion that a focused strategy suits the Bulgaria’s wine industry the best as it allows the use of the small size of the industry as an advantage, to concentrate the efforts on the limited part of the market or specific group of customers.

Recommendations: One of the important recommendation that the Bulgarian wine

industry should take into account is to change their attitudes from passive, and a sense of relying on governmental support to proactive, while studying the global tendencies. Tendencies need to be predicted by using business intelligence methods in order to increase its competitiveness and create a strong market position. By upgrading existing vineyards and wineries, by encouraging vine growing of the best selected grapes, both international and develop the domestic varieties, and by using the technological improvements and knowledge of “flying winemakers”, the industry can combine the best practices available for the best result.

Acknowledgement We would like to thank all of our friends, colleagues and tutors for their continuous support and for always forcing us to dig below the surface. A very special thanks goes to: Charlotta Edlund as our main tutor and constant opponent, as well as Tobias Eltebrandt for his insight and support throughout the course. Zarina Osmonalieva - for understanding the importance of qualitative research and for asking the questions nobody else would. Anton Georgiev- for his tireless efforts in contacting Bulgaria on our behalf. Michael Porter- for making his theories and strategies available for our use. Wine marketers throughout the world who face important struggles, and have invested in doing the research and making it available to other interested parties. We would also like to thank God for creating boundless vines, and for allowing us to enjoy their fruit in the form of wines.

TABLE OF CONTENTS1 INTRODUCTION................................................................................................................................ 1

1.1 PROBLEM STATEMENT...................................................................................................................... 2 1.2 PURPOSE............................................................................................................................................. 2 1.3 INTENDED AUDIENCE ........................................................................................................................ 2

2 METHODOLOGY .............................................................................................................................. 4

2.1 AREA OF THE STUDY.......................................................................................................................... 4 2.2 DEVELOPING THE CONCEPTUAL FRAMEWORK .............................................................................. 6 2.3 RESEARCH METHOD ......................................................................................................................... 9 2.3.1 DATA COLLECTION .......................................................................................................................... 9 2.3.2 DATA ANALYSIS AND PRESENTATION ........................................................................................... 13 2.4 LIMITATIONS AND DELIMITATIONS OF THE RESEARCH................................................................ 16

3 CONCEPTUAL FRAMEWORK..................................................................................................... 18

3.1 INDUSTRY AND COMPETITIVE ENVIRONMENT FORCES ............................................................... 18 3.2 DIAMOND OF NATIONAL COMPETITIVE ADVANTAGE .................................................................. 20 3.3 GENERIC STRATEGIES..................................................................................................................... 23

4 GLOBAL WINE INDUSTRY........................................................................................................... 26

4.1 WHAT IS WINE?............................................................................................................................... 26 4.2 EXTERNAL FACTORS ....................................................................................................................... 27 4.2.1 INDUSTRY STRATEGY-SHAPING ECONOMIC FEATURES ................................................................ 27 4.2.2 FORCES DRIVING INDUSTRY CHANGES ......................................................................................... 40 4.2.3 OPPORTUNITIES AND ATTRACTIVENESS OF INDUSTRY.................................................................. 44 4.2.4 COMPETITIVE FORCES OF THE INDUSTRY ...................................................................................... 50

5 WINE INDUSTRY OF BULGARIA................................................................................................ 55

5.1 WHERE IS BULGARIA? .................................................................................................................... 55 5.2 INTERNAL FACTORS ........................................................................................................................ 57 5.2.1 FACTOR CONDITIONS ..................................................................................................................... 57 5.2.2 DEMAND CONDITIONS.................................................................................................................... 61 5.2.3 RELATED AND SUPPORTING INDUSTRIES ....................................................................................... 66 5.2.4 INDUSTRY STRATEGY, STRUCTURE, AND RIVALRY........................................................................ 68 5.2.5 GOVERNMENT ................................................................................................................................ 74 5.2.6 CHANCE.......................................................................................................................................... 76

6 POSSIBLE STRATEGIES: ANALYSIS AND CONCLUSIONS ................................................. 77

6.1 EXTERNAL FACTORS: GLOBAL WINE INDUSTRY.......................................................................... 77 6.2 INTERNAL FACTORS: COMPETITIVE ADVANTAGE OF THE WINE INDUSTRY OF BULGARIA....... 86 6.3 SELECTED STRATEGY, SUITABLE FOR THE BULGARIAN WINE INDUSTRY .................................. 90

7 RECOMMENDATIONS................................................................................................................... 93

REFERENCE LIST:................................................................................................................................ 96

APPENDIX 1: PRIMARY INFORMATION

LIST OF FIGURES Figure 2.1.: Process of thesis completion.................................................................................................................. 4 Figure 2.2.: Selecting the strategy for the industry .................................................................................................. 7 Figure 2.3.: Thinking strategically to choosing a strategy....................................................................................... 9 Figure 3.1.: Industry and competitive environment forces ................................................................................... 18 Figure 3.2.: Adaptation of Porter's Diamond – Determining the Factors of National Advantage..................... 20 Figure 3.3.: Generic Strategies................................................................................................................................. 23 Figure 4.1.: The world's wine-producing regions................................................................................................... 30 Figure 4.3.: Major Wine Producing Countries, Export Quantity Market Share 2005....................................... 32 Figure 4.4: The Californian Wine Cluster .............................................................................................................. 53 Figure 5.1: Map of wine producing areas in Bulgaria ........................................................................................... 57 Figure 5.2.Imports and Export of Wines (1999 – 2002)......................................................................................... 62 Figure 5.3. Dynamic of import of wine to Bulgaria, litres. ................................................................................... 63 Figure 5.4.Dynamics of exports of wines from Bulgaria........................................................................................ 64 Figure 5.5. Structure of exports of wines from Bulgaria ....................................................................................... 65 Figure 5.6 Distribution of grapes produced in 2004............................................................................................... 70 Figure 5.7 Structure of Bulgarian wine industry in 1990 ...................................................................................... 71 Figure 5.8 Overview of the Bulgarian Wine Industry (2001) ................................................................................ 72 LIST OF TABLES Table 4.1.: Growth in wine production, consumption and export volume and in export value ......................... 27 Table 4.2.: Volume Share of World Wine Exports (%)......................................................................................... 28 Table 4.3.: Principal wine producing countries (in thousands of ha) ................................................................... 31 Table 4.4: Volume Share of World Wine Imports (%).......................................................................................... 33 Table 4.5.: Per Capita Consumption (in hectolitres).............................................................................................. 34 Table 4.5: Volume of wine production and consumption per capita, trade orientation, and price of exports, by

region, 1988-90 and 1999................................................................................................................................. 46 Table 4.6: Wine producing countries’ share of selected markets’ imports.......................................................... 47 Table 4.7: World Wine Production ......................................................................................................................... 48 Table 4.8.: Wine intensity of cropping in 30 largest wine-producing countries, 1999 ....................................... 49 Table 4.9: Comparison of the competitiveness of old wine vs. new wine countries............................................. 51 Table 4.10 Percentage of wine moving through various distribution channels in 2000..................................... 54 Table 5.1: Comparison between Bulgaria and Europe.......................................................................................... 55 Table 5.2. Areas under vines growing in Bulgaria over period 2000-2004 .......................................................... 59 Table 5.3. Imports of wine to Bulgaria, litres. ........................................................................................................ 63 Table 5.4. export of wine from Bulgaria. ............................................................................................................... 65 Table 5.5 Resources for vines restoration and creation of perennials ................................................................. 74

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1 Introduction

Why does the wine industry attract so much attention? According to Anderson (2001, p.5) this industry accounts for just 0.4 per cent of global household consumption, and vines cover only 0.5 per cent of the world’s cropland. Moreover, globally it is not a growth industry in that world wine production and consumption have been declining slightly over the past two decades. But to millions of investors and hundreds of millions of consumers, this industry provides a far more fascinating product than its shares of global expenditure or GDP might suggest.

Since the art of making wine (viticulture) is a scientific process, and many grape varieties can only successfully grow in certain areas of the world, not all countries have the ability to produce wine (Labys & Cohen 2004). On top of the geographical constraints, the technology needed to ferment grapes and create a safe, drinkable substance is very expensive and requires a high level of technical knowledge. Therefore, unlike many other industries where there are no constraints or limits, only countries that have the necessary resources can produce wine. Additional sources relevant to wine production include rainfall, temperature and sunlight during various times of the year (Labys & Cohen 2004).

Viticulture has been the focus of research, and recently many academics have studied it due to the globalization of the wine industry, the increased values and profits of wine, and the intense rise of new competitors on an international level (Campbell, G & Guibert, N 2006). New competitors include countries not previously associated with large market shares in global export such as South Africa or Argentina. Countries such as France, Italy, and Spain have obtained the image of wine producing countries with histories dating back centuries. According to Campbell, G & Guibert, N (2006), the above three countries can be referred to as ‘old-world producers’ due to their long-standing presence on the international scene.

On the other hand, New World producers, although relatively unknown until recently, have a much bigger effect on the world wine market than the production statistics would suggest. In the late 1980’s around 85% of all the wine exported in the world came from just four West European countries: France, Italy, Portugal and Spain. By 1997 that figure had fallen to 72% (Rachman 1999).

European wine makers believe in tradition and regulation. Some New World producers are keener on technology, innovation and conducting consumer research. Despite the advent of a horde of ‘new world producers’, some 70% of the world's wines are still made and consumed in Western Europe. Keeping that in mind, the total consumption of wine in 2005 was 18,9 billion liters and the global wine market generated total revenues of $213.8 billion (Global wine 2006). According to a study conducted by Rabobank’s Global Food & Agriculture Research division, the global wine industry is facing one of its “greatest challenges in recent times” (Heijbroek 2006). Changing market pressures are causing shifts in competitiveness; some old producers are losing ground, while others (‘new world producers’) are gaining remarkable growth. Additional factors such as a shift in export penetration, and the increased sales of premium bottled wines also contribute to the gradual change in the global wine industry outlook (The Wine Industry Transformation Charter 2006).

According to Anderson (2001, p.42) in the year 1999, the 30 wine producing countries were responsible for 95% of total world production, but 60% of the global export belonged to only three countries: France, Spain and Italy. There are many other players in the global wine market, like Portugal, South Africa, Germany, Argentina, Bulgaria, who have different competitive positions with market shares of 4.5, 3.7, 3.4, 1.7 and 1.3 % respectively and they are still know among consumers and present at the global market for many years (compiled from Global Wine 2006, Datamonitor and Global wine-Australian perspective, 2006 )

Labys & Cohen (2004) discuss that Bulgaria, along with other Eastern European producers such as Moldova, Ukraine and Romania are characterized as Old World producers. Old World producers are usually associated with Western Europe’s biggest producers and leaders in the industry. Those Eastern European wine producers are present at the global wine market but never on leading positions.

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The nature of wine as a product is specific and unique (due to its dependency on natural resources and climate limitations to grow the vine grapes only on limited territories), which makes the competitive advantage of this product production unique as well. It makes the global wine industry interesting to study in terms of competitive forces and the ways different participants of the wine industry implement them in their strategies. We would like to study the ability of a wine producing country with a long history and not in a leading position in the global wine industry and suggest an effective strategy in order to improve the country’s competitiveness on the market.

1.1 Problem Statement Joel Ross and Michael Kami (cited by Thompson 2004, p.2) said that without a strategy the organization is like a ship without a rudder. If wine producers of a particular country do not have a focused strategy while competing within the global wine industry, it is unlikely that this country can reach the leading position or fully utilize its resources and capabilities in competition. According to Thompson (2004, p.3), a participant of the market, using its competitive advantage and a proactive approach in strategic choices, have more prospects for winning in the marketplace and realizing above-average profitability.

All industries have their specific unique characteristics that create unique blend of the factors that create the competitive advantage within the specific industries. In order to increase the competitiveness of the whole industry or individual company within specific industry, the factors creating the competitive advantages should be studied.

What factors create the competitive advantage in the wine industry? What Bulgaria’s wine industry can do to become more competitive on the global market and what strategic choices it should make in order to reach this goal?

1.2 Purpose The purpose of our study is to recommend a competitive strategy for the Bulgarian wine industry that is compatible with the country's and industry's resources and capabilities as identified through the factors of national competitive advantage as well as specific factors of the global wine industry environment and its competitive sources.

In order to fulfil the purpose of the project we will reach intermediate goals, which are:

• To analyze the global wine industry environment and its competitive forces in order to understand what competitive advantages are needed in order to compete successfully;

• To determine the competitive advantages that the Bulgarian wine industry have, in order to understand how these advantages can be fully utilized;

• To identify (within limit) successful strategies implemented by other wine-producing countries in order to understand what strategic choices create the competitive advantages within the industry.

1.3 Intended Audience The analysis conducted and conclusions made in the project will be useful for few types of audience as base for clarifying the global wine industry tendencies, issues and patterns, and as study of competitive advantage of one small wine producing country in the global context. Some of them are the following.

Global wine industry branch organizations and governing bodies can benefit from the paper with explanation of competitive forces of global wine industry that can be used as a draft for creating and improving the strategies for countries as well as regions and single companies within the industry.

Individual producers of wine can benefit from the paper by finding out the structure and nature of global wine industry trends and forces in order to elaborate them in their competitive strategy.

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Representatives related to and dependent on wine industry companies and organizations can benefit by understanding the trends within the global wine industry and factors influencing its development in order to enforce their input in cooperation with wine producers and increase their mutual business effectiveness.

Bulgarian wine industry bodies, Ministry of Agriculture and Forestry of Bulgaria and other governmental and commercial organizations, related to the wine industry can benefit from the paper with clarification of what forces are making a player within global wine industry competitive and what trends the industry has, as well as understanding what factors are crucial for increase of competitive position within the industry. Recommendations given in the paper can be used as a base for elaborating the detailed strategy for the Bulgarian wine industry based on analysis given in the paper.

Academic researchers, studying global and local wine industries, competitive forces within them and local implications of global industry trends and issues on example of one of the small producers.

All of the above-mentioned organizations and companies from the target audience are able to use the information presented in this project to use it practically or for further research.

As this paper consists of three parts, according to the research questions of the study (the global wine industry, wine industry of Bulgaria and competitive strategy choice for the Bulgaria’s wine industry), the target group can be divided into three main types of implementation of the results of this study.

The first group of results is the study of competitive factors and conditions, creating the unique environment of the global wine industry and influencing on the strategic choices of the participating actors. This analysis and findings can be used for matching the global industry factors to the possibilities of the individual wine producing countries.

The second group of results is the study of competitive advantage of the Bulgaria’s wine industry. Findings, analysis and conclusions of this part of study can be used in Bulgaria by policy-makers in order to make the strategic directions for increasing the competitiveness of the country’s wine industry.

The third part of this study is the choice of suitable strategy for Bulgaria’s wine industry in the context of the global wine industry.

As this study is focused on the deep analysis of the environment of the global wine industry, this part can be used for wide variety of the wine related organizations and producers. Most of the wine producing countries can find this analysis is useful in order to understand the possibilities to improve their competitive positions.

The implementation of suggested recommendations referring the strategic directions that Bulgaria’s wine industry should take into account in order to increase its competitiveness on the global market is complicated and long-term oriented process, as implementing the strategy for the whole country’s industry needs a lot of coordination and cooperation within the most important multiple participants. But as the reaching the goal of increasing the competitiveness of Bulgaria’s wine industry is hopefully common for all participants, the policy-makers within the industry and branch organizations can benefit strongly, basing the future strategy of the industry on suggested recommendations

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2 Methodology

This chapter describes the way the study was conducted. Starting with choice of the topic and defining the purpose of the study, continuing with description of the process of the developing the conceptual framework in order to fulfil the research goals, continuing with the choice of the relevant theories and their usage, as well as the process of collecting the needed information, processing, analysing and presenting data are describe in this chapter.

Figure 2.1.: Process of thesis completion Source: The Authors (based on their followed research model) The certain steps were followed in order to obtain our desired results throughout the project. Figure 2.1. indicates these individual steps, starting with the identification of the topic area to the conclusions and recommendations

2.1 Area of the study This section describes the choice of the topic, narrowing the research landscape and defining the purpose of the study.

Both members of the group are interested in wine tasting as a leisure activity. We noticed that we often buy wines, relying on our knowledge about wine producing regions and images of the countries as wine producers. Based on our interest we decided to write our master thesis about the global wine industry.

During one of our private discussions about country-of-origin tendencies and effects while buying wine and global wine markets with one Bulgarian student, we were surprised that the wine industry in Bulgaria is one of the most important and prioritized industries within the country and “wine have been a part of Bulgaria since the last Stone Age” (History of Bulgarian wine producing n.d.). and Bulgaria has a tradition of drinking wine (it was confirmed later with comparative high rate of wine sells of wine per citizen, which is at similar level in Bulgaria as in Sweden (CAN 2005).

At this point we had done considerable research about the global wine industry, and although we could identify a few key players, Bulgaria was hardly ever mentioned by sources as one of these key players.

Identify the topic area

Research information

Narrow the landscape

Define relevant theories

Process information

Organize findings

Analyze findings

Conclude & Recommend

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This contradiction raised our curiosity to study Bulgaria’s place in the global wine industry and factors influencing its competitiveness.

Based on this discussion we decided to conduct a study about a relatively unknown wine producing country in the global wine industry. There are several reasons why the development and competitive advantage of Bulgaria’s wine industry is interesting to study, and they are as described below:

1. Political influences such as the collapse of the Soviet Regime, and Bulgaria’s anticipation of joining the European Union in 2007 will create easy access to already established markets (as it is mentioned in introduction, Western Europe consumes 70 percent of all wine).

2. Due to the expansion of global trade (as well as the creation of the World Trade Organization, diminishing trade blocks, and the acceptance of the internet as a commerce medium) there are less boundaries in trade.

3. We assume that Bulgarian wine is already known within the European community due to its geographical closeness to the region and the European mentality of being aware of producers in the region.

4. We believe that Bulgarian wine presence can be improved internationally based on a focused and relevant strategy.

In order to narrow down our broad topic area (the global wine industry), we asked ourselves the following key questions (adapted from Silverman, 2000, p.68):

• Mechanical: how does X work? In other words, how does the global wine industry operate? What organizations are present?

• Development: how and why did X develop? In other words, how did the global wine industry develop? What place does the Bulgarian wine industry have in this development? What is the history of global wine-making? How does the global wine industry influence the competitiveness of the participating countries of the industry?

• Causal: what causes X or what influence does X have on Y? In other words, which external factors have an influence on the Bulgarian wine industry? How can these factors in turn affect the competitiveness of Bulgaria's wine industry?

Once we gathered relevant information pertaining to the above questions, we could create a narrower focus consisting of three main parts: analyzing what strategic issues that the global wine industry is facing and determining the competitive advantages of Bulgaria’s wine industry in order to match those global forces with local opportunities and recommending a strategy for the industry in order to improve its competitiveness.

The purpose of our study is to recommend a competitive strategy for the Bulgarian wine industry that is compatible with the country's and industry's resources and capabilities as identified through the factors of national competitive advantage as well as specific factors of the global wine industry environment and its competitive sources.

A strategy can be defined as a “theory of how to achieve high levels of performance” within a market or an industry (Barney 2007, p.4). Competitive advantage occurs when a firm or industry is able to create more economic value than rival firms or industries (Barney 2007, p.17).

In order to recommend a competitive strategy for the Bulgarian wine industry, we need to fulfil requirements as marketers. We need to identify the factors within the Bulgarian wine industry that can create a competitive advantage, as well as determine the industry's resources and match them to the most important competitive factors within the wine industry.

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The managerial question refers to the creation of a strategy for the Bulgarian wine industry that needs to be implemented to improve the market presence of Bulgarian wine and increase its competitiveness globally, which will be based on and aligned with the current and predicted capacities and abilities of the Bulgarian wine industry and the nature of the competition within the global wine industry.

In order to fulfil our problem statement we divided it into the following areas:

• Determination of the key factors for success in the global wine industry and analysis of competitive forces within the global wine industry and their influence on shaping strategies by the members of the industry;

• The determination of the competitive advantage of Bulgaria's wine industry, an analysis of the competitive forces of the global wine industry's and it’s influences on Bulgaria’s wine industry? ;

• An analysis of the strategic choices the Bulgarian wine industry should consider in order to be more focused and present on international markets. These recommendations will be based on Bulgaria’s wine industry’s competitive advantages and their match to global industry tendencies and issues.

2.2 Developing the Conceptual Framework This section describes the process of creation of the conceptual framework for research in order to reach its goals. It describes the motivation and process of choosing the relevant theories as well as their usage of the theories in the conceptual model of the research.

After determining the project scope, the next task was to identify the theories that describe the competitive advantages and forces within the specific industries and tools to evaluate the competitive advantage of the country within the specific industry, as well as theory that helps to choose the strategies mostly suitable from in order to recommend a strategy for the Bulgarian wine industry to increase its competitiveness.

The choice of the theories that are needed for reaching the research goal of this study was heavily governed by the objectives of the study and was divided into few stages according to the goals of the project. First, the preliminary research was made on models of how the strategies are usually chosen in the industries. It showed that there are plenty of the theories that refer to studying the strategic management issues and discovering and increasing the competitive advantages, but mainly they are concentrating on the issues, concerning the individual companies and in most cases they are not applicable to the industries.

As one of the intermediate goals was defined as describing and analysing the factors within the global industry that are forming the industry’s unique environment and identify the most influential factors that are important for creating the competitive advantage within the industry, the extended research were made in order to find the theories and tools that could help us to fulfil this goal. The most relevant and extended tools for understanding and analysing the factors forming the competitive advantages within the specific industries, was the theory of Industrial forces and competitive environment by Thompson (2004), which was adapted in order to suit our study.

The other intermediate goal was to understand and describe the current competitive position of the Bulgaria’s wine industry as well as determine competitive strengths and weaknesses of the industry. During the literature research and consulting with our tutor, it was decided that the Diamond model of Competitive Advantages of the Nations by Porter is most relevant, as it is used for determining the competitive advantages of the industries and nations, and allows to evaluate the resources and capabilities of the studied industry.

At last, to reach the research goal - to recommend the strategic directions, which are important to take into account for Bulgaria’s wine industry in order to become more competitive on the global market –the literature search was held mainly in the university library as well as in the internet. To be able to compare and match the context of the global wine industry with capabilities and resources of the country and one

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of the industry (Bulgaria’s wine industry), we needed the theory that could offer the choice of different types of strategies according to the conditions of specific industries. The most relevant theory that suited best the research goals was the generic strategies by M. Porter. This model was suggested for reaching the similar goals by most of the books on strategic management we reviewed.

In the end of creation of the conceptual framework for the studied questions, we got very “Michael Porter -friendly” model. It can be counted as advantage and as limitation of the research. The advantage is in the well-known name of the author and his focused and recognized research within the strategic advantages of the nations, as well as in strategic studies in general. This author is considered the classics of the strategic management subject and seems to be respected even by those authors who are criticizing porter’s models and approaches. The choice of “too classical” theories for research may be counted as its limitation, as it could give an impression that limited literature research were conducted and only one point of view is presented by the authors. But as this choice was made consciously in order to perform the quality research and those theories , as we believe, are the most relevant for the goals of the study. The usage of those theories is described in details further in the chapter.

Figure 2.2 shows two main concepts on which we base our study of the global wine Industry and competitiveness of the Bulgarian wine industry.

Figure 2.2.: Selecting the strategy for the industry

Source: The Authors, based on the incorporated framework In the section titled Conceptual Framework, the information which is needed to be gathered in order to fulfil the research goal was divided into the following sections (based on the selected theories):

• External forces that have an influence on the competitiveness within the industry; • Internal factors (Porter's Diamond model) that defines the national competitive advantage for our

studied industry. • Based on the above key factors for increasing competitiveness within the wine industry, we

match it with the Bulgarian wine industry’s potential and its national competitive advantage. • Porter's generic strategies used mainly in the analysis in order to study strategic options for the

wine industry of Bulgaria. These strategy choices will be used for an increase in its (industry’s) competitiveness by matching the most influencing external forces within the global wine industry and utilizing the competitive advantages of Bulgarian wine industry (as identified through the Diamond Model).

Industry Environment and its Competitive Forces Theory

In order to reach the goal of this project and determine what forces influence the wine industry, we are implementing the framework created by Thompson (2004 p.39-76), which describes in details what specific characteristics of a particular industry may influence the creation of a successful strategy in order to compete effectively.

Strategy is based on

Understanding of Industry Environment and Competitive forces

Understanding and utilization of National Competitive Advantage of the Industry

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By collecting information according to this framework, we will be able to identify the industry strategy-shaping factors, what forces drive change within the industry, the opportunities and attractiveness of the wine industry, the key factors for success in the industry and lastly, the structure and nature of competition within the industry.

The following guidelines (Thompson 2004, p.39) will help us to describe the wine industry and to understand it.:

• What are the industry's strategy-shaping economic features? • What kind of competitive forces are industry members facing, and how strong is each force? • What forces are driving changes in the industry, and what impact will these changes have on

competitive intensity and industry profitability. • What market positions do industry rivals occupy – who is strongly positioned and who is not. • What are the key factors for future competitive success?

Answers on those questions will help us to identify the necessary and specific industry factors that are of the most importance for successful strategies within the global wine industry. This will be used in a further analysis.

Porter's Diamond: Determining the Factors of National Advantage

In order to determine the factors that play a role in creating an advantage for Bulgaria's wine industry in an already competitive market, we decided to incorporate Porter's Diamond for an overview of Bulgaria’s wine industry. A detailed description of this model and how it was used can be found in the Theoretical Framework section. However, in order to elaborate on our decision, a short description follows below.

Porter's Diamond is unique in the sense that it can be interpreted in different ways. During our literature search we found studies that pertained to the national advantages of nations as it relates to their industry orientations. We also found several case studies that used Porter's Diamond in a simplified way in which they described the competitive advantage of one specific company in its industry. In this project, we used the model to describe the advantages and determine the disadvantages of certain factors that currently exist within the Bulgarian wine industry, instead of focusing on one specific company. This theory was used as a predecessor to our strategy as it identified key points that create a competitive advantage of the Bulgarian wine industry, and helped us to identify areas that require more attention. In order to encompass more details about the industry, we made a minor adaptation to the model by including ‘Chance’ and ‘Government’. This was done due to the fact that the model is often used as an outline of the advantage of an individual firm in an economy, and rarely as an indicator of the competitiveness of an entire industry. Since political factors (such as trade issues, laws, and general economical stability of the nation) have an effect on this particular industry, we thought it necessary to add the additional factor. Therefore, the framework as set by the Diamond model (together with the ’Political Analysis’) will aid us in creating a competitive strategy for the Bulgarian wine industry.

The Diamond Model discusses four main factors (firm strategy and structure, factor conditions, demand conditions, and related/supporting industries), as well as two additional ones, like role of ‘Chance’ and ‘Government’ in defining the national competitive advantage for the industry. Analysis of those factors in the context of the Bulgarian wine industry and defining its competitive advantage will help us to match those factors with the first theory we are using in order to identify a country's potential to compete and factors to use to compete more effectively on a global market.

Choice of the Strategy, suitable for Bulgarian wine industry is based on Porter's Generic Strategies Theory

According to Heijbroek (2006), a ‘one-size-fits-all’ model does not exist for the wine industry. The wine varieties, distribution methods, consumer demands and preferences, as well as the different qualities create different opportunities and limitations. Therefore, the strategic decisions, increasing the competitive position of Bulgaria’s wine industry are based on certain factors within the Bulgarian wine industry, and will only be relevant to this specific country of study. It includes information from the external and the internal analysis.

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We chose this theory, based on its wide coverage of possible frameworks for creating business strategies. Michael Porter is a classic and often quoted author of strategic thinking. Although his theories are sometimes criticized by other authors, this particular theory is constantly referred to in a majority of the strategic management literature.

This theory was mainly used in the analysis part of the project to study possible strategies that the Bulgarian wine industry can implement in order to reach its maximum competitive effectiveness by matching its resources and potential to compete in the global wine industry environment and driving forces.

2.3 Research Method This section describes the way the needed information was collected, analysed and present during the research.

Figure 2.3 shows the final conceptual model for the research and implementation of the chosen theories in order to collect and analyse the information needed to fulfil the objectives of the study. The figure displays as well the steps of the working process. First, the global wine industry environment analyzed with the help of the theory of the Industry and Competitive Environment Forces. Then the internal environment of the Bulgarian wine industry analyzed by looking at factors of Diamond of National Advantage, while the strategic options will be given based on Porter’s Generic Strategies.

Figure 2.3.: Thinking strategically to choosing a strategy

Source: Adopted from figure 2.1 (Thompson 2004, p.37)

2.3.1 Data Collection The content of the data needed for fulfilling the research goals is determined by the theories and tools chosen in the conceptual framework. Methods on gathering information relevant to those theories has been discussed in the section dealing with the developing the conceptual framework.

The sources of gathered information vary in depth and quantity, initiating with studies done within the field of wine marketing, and statistical data released about the global wine industry. Due to the fact that there is a plethora of information available about the global wine industry, we had to be very selective in

Analyze external environment

of Bulgarian wine industry with help of Industry and

competitive environment forces theory

Form a strategic vision where the industry needs to head, based on its competitive advantages and wine industry competitive forces

Analyze internal environment

of Bulgarian wine industry with help of Porter's Diamond

of National Competitive Advantage

Identify strategic options for the industry, using Porter's generic strategies theory

Select the best strategy for the industry

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our initial information search. The main focus of collecting the information was two fold: to gather data about the factors within the global wine industry and information about the Bulgarian wine industry.

It was utilized two methods to optimize our information search: primary and secondary information. We believed that a combination of the collection of primary and secondary data was the most relevant in looking at all aspects involved with the Bulgarian wine industry.

To gather information needed for analysis of the global wine industry mostly secondary information was collected from variety of the sources, described below.

To gather information about the Bulgaria’s wine industry it was decided to combine the secondary information collection with primary one, in order to increase reliability and exactness of the study. Unfortunately, we faced numerous problems in contacting the authorities and organizations in Bulgaria, and very little information was collected from primary sources.

In order to find specific information about the wine industry in Bulgaria, we attempted to consult the national association within the country to obtain statistical information relevant to the industry growth, future predictions, and current export/consumption figures. We were also interested in whether they have a present strategy dealing with the issues we would like to discuss (competitiveness). Difficulties during this process will be described in detail later.

But due to the nature of the research goal, the limited amount of the primary information does not diminish the analysis and conclusions made during the research, as conceptual framework allowed us to collect enough relevant secondary information in order to answer the research questions.

2.3.1.1 Primary Information Most of the planned primary information was not obtained during the research due to the unexpected difficulties in communication with organizations and companies in Bulgaria. In this section presented the information that we planned to use in the research in order to compare it to the secondary information that were gathered.

The aim of gathering the primary information about Bulgaria’s wine industry was to get feedback on what participants consider to be the keys to success in the industry, their view on competitive advantages and position of the Bulgarian wine on the global market, as well as current strategy and priority directions within planned strategies for the industry.

The sources for our primary information was identified by the group based on the preliminary secondary information search and were divided into three main categories:

• The marketing department of the Ministry of Agriculture and Forestry; • A representative of local branch organization within the wine industry (National Vine and Wine

Chamber (NVWC) as well as; • Local wine producers.

Marketing Department of the Ministry of Agriculture and Forestry:

The reason for identifying the marketing department of the Ministry of Agriculture and Forestry is due to the fact that they compile a yearly situation and outlook report for the wine industry and are therefore very closely involved with the issues we would like to discuss. We wanted to approach a representative of the Bulgarian wine industry in order to examine whether they have an existing strategy dealing with the competitiveness of their wine industry. If such a strategy exists, we would give suggestions for improvement based on secondary information, and previous studies within the field. If a strategy was not yet in place at the time of the investigation, we would suggest a few main points within the wine industry, specific to the Bulgarian wine industry organization.

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Relevant questions for the first phone interview were created on 7 April, 2007 by the group, and consisted of the following:

• How involved are you (as an organization) within the wine industry? • Are there other organizations like you? • Do you have one strategy for all Bulgarian wine producers? • If so, can you please describe it in detail, or can we get a copy of it? • How would you rate your national supporting industries? Can producers get all the equipment

they need domestically or do they need to import a lot of it?

These questions were viewed as relevant due to the fact that we could not obtain the information through other sources, and the fact that we needed it to create an overview of the wine industry organization involved with Bulgarian wine. Although we had done all the necessary groundwork, we tried to contact the Ministry of Agriculture and Forestry on several occasions during the period of 7 April to 28 May, 2007, but without any success. We could never reach the appropriate person, and quite often the Department could not speak English which blocked access to the key personnel. Even when a native Bulgarian speaker contacted them, no information could be obtained.

It was planned to ask more specific questions to the right contact person, as at that moment a lot of relevant secondary information was collected and analysed.

National Vine and Wine Chamber (NVWC):

During the research a few branch organizations were located within Bulgaria’s wine industry. One of them is - National Vine and Wine Chamber (NVWC) was located on the internet and has chosen to be contacted as the web page of this organization presented the most valuable and relevant information about the wine industry in Bulgaria as well as claimed that it has the most members-producers of wine, and has governmental support in developing the wine industry in Bulgaria.

In order to reach the representatives the following steps have been taken. An introductory email was sent on 12 April, 2007 to the address provided on their web site (www.bulgarianwines.org/) as a means of stating our purpose, and requesting a contact person within their marketing department. At the time of this writing, no response has been received.

Several attempts at phone contact were made since the 20 April, 2007, between group members and the Ministry of Agriculture and Forestry, as well as the NVWC. However, none of the calls were successful due to two reasons: the respondents did not speak English, or they hung up before we could reach someone who could speak English. Not withstanding these barriers, we have continued to try and reach the appropriate person without any result.

Local wine producers:

We also wanted to approach a local producer in order to get an insight into their perceptions of the global strategy (or the lack thereof depending on the previous interview), and to examine whether a level of cooperation exists within the industry. The list of the contacted producers can be found in the appendix.

We were curios about the level of coordination since it was apparent in some of the literature we had already examined, that it is necessary for local wine producers to cooperate amongst themselves, as well as the local industry organization in order to be successful (this relates closely to the Diamond Model’s ’supporting industries’). Please refer to Exhibition A in the Appendix with the detailed questions and answers. Questions were initially prepared in English and then translated to Bulgarian by a native speaker. Translations can also be found in Exhibition A.

Relevant questions for the first phone interview were created on 7 April, 2007 by the group, and consisted of the questions below. Even though several attempts were made at phone contact with other wine

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producers throughout the abovementioned time frame (details available in Exhibition A), information was received on 28 May through the phone interview. The interview was conducted by one native Bulgarian speaker and the interviewee was Mrs. Pavlova, the Director of Marketing at Vinimpex (a Bulgarian producer).

The questions for the interview to the local wine producers were chosen in order to confirm or deny information collected concerning the trends and factors creating the competitive advantages within the global wine industry.

These questions were relevant to our study since a global strategy not only deals with marketing issues, but also overall strategies in the improvement of the local industry. We wanted to get the input of a producer dealing with the issues connected to the global strategy of the Bulgarian wine industry organization. Once we could identify some of the problems, it would be possible for us to create a global strategy encompassing domestic issues.

To substitute the information that was planned to obtain through the primary sources, the expanded information search within the secondary sources were made. Sources were mainly Bulgarian by origin and by content they were newspaper articles, governmental sources and official statistics.

This information was mainly in Bulgarian which created some difficulties with language that were overcame by the fact the we had access to a native Bulgarian speaker who could not only translate web sites for us, but also contact these two actors on our behalf, as well as one of the group members is a native Russian speaker, and since Russian is linguistically very close to Bulgarian, most of the information could be translated.

Information in English was also used in order to evaluate the opinion of Western experts on the situation of the Bulgarian wine industry. Due to the conduction of the study, it was noticed that evaluation of the competitive position of the Bulgaria’s wine industry differed greatly depending on the source of the information: Bulgarian sources use to consider the situation rather positive and relatively strong, while the western experts and statistical facts showed the different picture, when situation should be improved in order to increase competitiveness of the industry. This contradiction confirms the fact that primary information that was planned to obtain would not add a lot of objective point for evaluating the competitiveness of the Bulgaria’s wine industry in global context.

2.3.1.2 Secondary Information Secondary information was gathered from various sources such as: web sites, books, newspapers, journals and online publications. Information was gathered in our quest to answer our research questions and therefore we are claiming that the secondary data gathered by us, is relevant to this study. Most of the secondary information about marketing of wine and strategies of the different countries within the global wine industry was obtained with help of ABI/Inform, and MarketLine databases provided by Malardalen hogskola’s library, as well as specialized magazines, such as International Journal of Wine Marketing

The research strategy consisted of using secondary sources that we found to be reliable and relevant. The reliability of the information collected from the secondary sources was double-checked by using governmental and expert sources (as, United Nations agricultural statistics –FAOSTAT, largest and most important international branch organization of Vine and Wine – OIV, World Bank statistics, and similar reliable sources), cross-checking statistics, and checking who are the authors of the articles we used.

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In order to obtain information related to the global wine industry many different types of secondary sources was use, as specialized research institutes, branch organizations of wine-producing countries, geographical associations of the wine producers, as well as research papers of wien experts, as Anderson, Hijbroek, Clarke and Mora.

Limitations in the secondary information search:

Although a wide and extensive search was conducted by the group on an on-going basis, we often found that some publications reserved the right to only distribute information to paying members. Some publications were available to non-members; however, access to the information was limited and certain findings were omitted. Many previous studies had been done on the wine industry as well as consumer behaviour, but several of these studies were only available by ordering them online and paying a substantial amount of money. At the time of conducting this study, the group members were convinced that enough secondary information was available and that the investment in retrieving these published projects, although helpful, was not necessary within our time and budget limit.

It is necessary to portray a global overview of the wine industry in order to evaluate Bulgaria’s presence as well as other industries and competitive environment forces (as per our framework). Our standpoint is that they could compete better with other wine producing countries, and it is necessary to have this information to sustain our train of thought.

In order to obtain the above types of information, a general search was conducted to identify the strategies used by other wine-producing countries. We gave an overview of the strategies used by other wine producing countries in a historical dimension. This is a necessary step in order to define the key factors utilized in industry strategies, and to visualize the success of implemented strategies.

The determination of which countries’ strategies to focus on, depend on various factors. Since this information is industry specific, and mostly only available to organizations or individuals who are active in the specific industry, selection of the countries was based on the fact that have made the information available to the general public.Mainly the focus was on New World producers (since they are more open in sharing industry information) such as Australia, South Africa, New Zealand, and the United States of America.

Another major limitation to the research presented as secondary information is that statistical information is not consistently organized by year. Certain sources provide current statistics for areas pertaining to our study; however, every source utilizes various years in its findings. In order to limit confusion, only sources dating from the year 2000 and upwards, are used as secondary findings.

In all global wine statistics the figures for Bulgaria in most cases are not present, due to the small size of the country’s statistical figures. In some cases statistics for Bulgaria is combined with figures of other Eastern European wine producers such as Hungary, Moldova, Romania.

2.3.2 Data Analysis and Presentation

The conceptual model we are using to reach the research goal consists in three parts: the global industry analysis, the analysis of Bulgaria’s wine industry national competitive advantage and choice of the strategic direction for Bulgaria’s wine industry.

In order to present the findings and their analysis in structured and logical way, we decided to present the research with help of the following chapters: global wine industry empirical findings and analysis, empirical findings and analysis concerning to the wine industry of Bulgaria, and analysis and conclusions referring to the choice of possible strategies for Bulgaria’s wine industry, based on first two parts.

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Empirical Findings and Intermediate analysis

Empirical findings are divided into two chapters and presented as external and internal factors, influencing the strategy for the wine producing country. External factors are based on the gathered information about the global wine industry environment and competitive forces. Internal factors are based on information, concerned the competitive advantage of the Bulgarian wine industry, its available resources and capabilities. As the structure and nature of the content of those two type of factors are different and based on two different models, the choice to separate those two parts of the findings was made, in order to make clear separation between type of factors (internal and external) and in order to make it easier to compare and match these factors further in the analysis.

We decided to combine the findings and intermediate conclusions in those two chapters. This decision is based on the structure of used theories and tools, which consist of big number of various by nature and importance factors, characterized the wine industry, the global one as well as domestic. The decision to make analysis and some intermediate conclusions nt he empirical findings chapters is based on the fact that those analysis and conclusions are not answering the final goal of the research but only preparing the ground for comparing and matching those factors in further conclusions and recommendations.

To summarize the most important and influential factor within the wine industry, the term of Key Factors for Future Success in the Industry , suggested by Thompson (2004) was used.

An industry's key success factors (KSF) are those competitive factors that most affect industry members' ability to prosper in the marketplace - the particular strategy elements, product attributes, resources, competencies, competitive capabilities, and market achievements that spell the difference between being strong or weak member of industry.

• Technology-related KSFs • Manufacturing-related KSFs • Distribution-related KSFs • Marketing -related KSFs • Skills- and capability-related KSFs.

In order to define the industry's key success factors, the following ideas are incorporated throughout the Findings section (although not in much detail):

• On what basis do buyers of the industry's product choose between the competing sellers? That is, what product attributes are crucial?

• Given the nature of competitive rivalry and competitive forces prevailing in market place, what resources and competitive capabilities does a participant of the industry need to have to be competitively successful?

• What shortcomings are almost certain to put a member of the industry at a significant competitive disadvantage?

Conclusions and analysis:

This structure of the chapter was dictated the wish to present the collected information in logical and structured way. In the sections of this chapter, we decided to combine the analysis and conclusions made previously on separate factors, internal and external, to conclude on most important and influential factors for the strategic choices within the studied context of the global wine industry. Due to the structure of the chosen conceptual framework and type of the tools for reaching the goals of the research, the decision to not separate the analysis and conclusions was made, as , we believe, this structure benefit the easiness of understanding the results of research and follows the logical development through the study.

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This chapter is divided into three parts:

• Analysis of the global wine industry, as part of external factors that are influencing on the choice of the strategy for Bulgaria’s wine industry. This section contains as well conclusions on what factors are in the most influence on the strategies within the global wine industry;

• Analysis and conclusions made based on the findings referring to the competitive advantage of the Bulgaria’s wine industry, the conclusions are also made on the level of competitiveness of the industry and factors, that can be strengths and weaknesses of the wine industry of Bulgaria and their importance in global context were evaluated.

• Selecting the strategy, suitable for Bulgarian wine industry. This section is based on matching of the analysis of the external factors, that describe the conditions and tendencies of the global wine industry and internal factors, that describe competitive advantages and conditions of Bulgarian wine industry to three main types of strategies: cost-based, differentiation, and focused strategies.

An analysis of the information has been conducted based on a comparison of existing theories and practical strategies for the wine industry. The comparison has been done by looking at gathered information within our framework.

Based on questions adapted from Thompson, (2004, p.39-76) we summarize the findings in the following manner.

• We make conclusions on which industry strategy shaping economic features are more influential in the global wine industry and what effect they have on the Bulgarian wine industry.

• We identify which driving forces of the industry changes are most significant in the global wine industry and if the Bulgarian wine industry is able to use them to their advantage.

• We evaluate opportunities and attractiveness within the global wine industry that the Bulgarian wine industry can use as its competitive advantage.

• We evaluate the influence(s) of competitive forces on the strategies of wine producing countries. • We define key factors for the success in the global wine industry and the degree of their

importance.

We use following analysis questions (Thompson, (2004, p.39-76) in order to reach the goal of our analysis. Identifying competitors' strategies and resource strengths and weaknesses is an inevitable part of understanding the competitive structure within the industry and the balance of forces in it. The following questions are beneficial in understanding the above:

• Which competitor appears to have the best strategy? Which competitor appears to have a weaker strategy?

• Which competitors are poised to gain market share and which ones seem destined to lose the ground?

• Who is the industry leader and why? • Which rivals are strong candidates to expand geographically and/or with their product offerings,

or enter new market segments? The analysis is mostly based on matching the global wine industry factors with the potential of the Bulgarian wine industry, its resources and competitive advantage. We are using these matches to analyze strategic opportunities for the studied industry by using Porter’s Generic strategies. This is done for Bulgaria’s effectiveness in a competitive environment.

Conclusions have more descriptive character, stressing on most important factors, influencing the strategic choices within the global wine industry. Recommendations are showing the most vital features of the global wine industry that Bulgaria’s wine industry policy-makers and strategy-developers should take into account in order to make the industry more competitive.

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Recommendations

The main outcome of the research is the recommendations on the type of the strategy that is most suitable for the Bulgaria’s wine industry based on the studied context of the global wine industry. The choice of the strategy is based on the analysis of the most influential factors within the global wine industry, that creating the competitive advantages for the participants and matching those factors to the local context of Bulgaria’s wine industry and its analysed resources and capabilities.

Through a mixture of previously created and implemented global strategies by other wine-producing countries, strategies currently implemented by Bulgarian wine industry, as well as factors that have worked in other wine-producing countries, taking into account capabilities and resources of Bulgarian wine industry to compete, we gave a suggestions on a strategic directions for the Bulgarian wine industry in order to increase its competitiveness on the global market.

Once these factors influencing the global wine industry are identified, we are giving suggestions on how to match them to the competitive advantage of Bulgaria, revealed during the analysis. We also stressing the most important strategic directions that Bulgaria’s wine industry should pay special attention due to the importance for increasing its competitiveness in teh global context. By giving these recommendations based on the conducted analysis, we are answering the research questions and reaching the goal of the study.

Conclusions and analysis made on the global wine industry and its competitive forces can be used for further academic and marketing research within the global wine industry and Bulgaria’s one. The target groups and their benefits from this research are discussed in details in the first chapter of this paper.

The decision about the implementation of the strategy for Bulgaria will be made by marketing executives within the branch organizations and single wine producers. The process of implementation of the recommendations is complicated and demands a lot of time, additional researches and what is most important, coordination and cooperation of the all participating side of the Bulgaria’s wine industry. Unfortunately, during our research we did not notice the signs of this kind of relations within this industry and lack of interest from the side of organizations we contacted, questioning if the policy makers in Bulgaria are able to adapt international researches useful for them and for increasing the competitiveness of the wine industry in the global market.

2.4 Limitations and delimitations of the research In this chapter the scope of the study and delimitations of the research method and general project limitations are discussed.

The chosen method of qualitative research was based on belief that to understand local, it is important to understand the global. That is why the few stages of analysis were needed in order to present the global wine industry findings and to connect them to Bulgaria’s wine industry as an example. This complex analysis reflected on the structure of the paper, which resulted in necessity of combining the analysis and findings and analysis and conclusions in the same chapter.

One of the limitations of this study is the limited amount of the primary information used in the research. The limited amount of information about the Bulgaria’s wine industry in English and in general made it hard to gather the information needed for research. Contacts to the authorities and organizations in Bulgaria are extremely hard not only due to the language issues, but mainly because the lack of the interest from those organizations. Bureaucratic relationships in organizations and ministries in Bulgaria made it hard to contact the officials, even with help of translator.

Starting this research we relied on receiving the enough amount of primary information in order to obtain balanced and complete analysis based on comparison of tendencies within global wine industry to current situation of Bulgaria’s wine industry and its abilities to grow and become more competitive on the global

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market. But due to lack of communication with Bulgaria’s organizations and companies, we were not able not to obtain the all information we planned. During the research, we discovered as well that there are many research papers devoted to strategies and analysis of particular countries and very limited number of researches is devoted to the global wine industry, its characteristics and tendencies. This was the reasons why our research is more focused on the global wine industry.

We believe that most of the analysed and discovered factors influencing on the strategies within the global wine industry could be studied in more details and expanded to the model, which can be useful for any type of actor in the global wine industry, interested in developing the competitive strategy for the individual manufacturers, but mainly to the governmental and commercial policy-makers in any of wine-producing countries.

We believe that this project can be used as a model for understanding the global wine industry and competitive opportunities of the wine-making countries. This model can be developed and formed as universal tool for evaluating the weaknesses and strengths of the wine-producing countries in order to determine their most promising strategic directions in order to increase their competitiveness on the global market according the global industry context and their capability and resources available. This was not made in the current research dues to time limits. This makes the conclusions and recommendations given in the end of study a little bit too general, but if to use this study as the base for further research and study each suggested factor in more depths, the model can be used by interested audience with greater usefulness.

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3 Conceptual Framework

The Conceptual framework has been selected in order to identify factors that may have an influence on the Bulgarian wine industry, whether they are domestic (national advantage factors), or external (industry and competitive environment forces).

3.1 Industry and Competitive Environment Forces This tool is incorporated to understand how the global wine industry currently functions and what competitive environment it has. It is also used to identify the external factors that have the most influence on creating a strategy for the Bulgarian wine industry. The model has been adapted from Thompson (2004, p.39-76). Each separate factor will be discussed in more detail below the Figure 3.1. Figure 3.1.: Industry and competitive environment forces

Source: Adopted from Thompson, 2004, p.39-76 Industry Strategy-Shaping Economic Features Every industry has its specific basic characteristics and structure, which differs significantly from industry to industry. In order to understand what economic features are dominant in a specific industry, the following factors should be considered:

• Market size and growth rate • Position in the industry life cycle • Number of rivals • Buyer need and requirement • Pace of technological changes

• Vertical integration • Product innovation • Degree of product differentiation • Scope of competitive rivalry • Economies of scale • Experience and learning-curve effects.

Industry and Competitive Environment

Forces

Industry Strategy-Shaping Economic Features

Forces Driving Industry Changes

Key Factors for Future Success

in the Industry

Competitive Forces

Opportunities and Attractiveness

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Forces Driving Industry Changes All industries are characterized by trends and new developments that gradually or speedily produce changes important enough to require strategic response from actors participating in the industry's activities. Without understanding the forces driving the industry change and the impacts these forces have on the character of the industry environment, it is hard to create a strategy tightly matched to emerging conditions. The most common of the drivers are the following:

• Growing use of Internet and emerging new Internet technology application

• Increasing globalization of the industry • Changes in the long-term industry growth

rate • Changes in who buys the product and how

they use it • Production innovation • Marketing innovation • Entry or exit of major players • Diffusion of technical know-how across

more companies and more countries

• Changes in cost and efficiency • Growing buyer preferences for differentiated

products instead of commodity product (or for a more standardized product instead of strongly differentiated products)

• Reductions in uncertainty and business risk • Regulatory influences and government

policy changes • Changing social concerns, attitudes, and

lifestyles • Technological change

Opportunities and Attractiveness of Industry

• Industry's growth potential • Power of competitive forces • Industry's profitability • Degree of risks and uncertainty in

industry's future • Member's competitive position

• Member's potential to grow • Existence of severe problems in the

industry: regulatory or environmental issues, stagnating buyer demand, industry overcapacity, mounting competition, etc.

Competitive Forces of the Industry In order to create a sufficient and competitive strategy, it is important to know what kind of competitive forces the industry members are facing, and the strength of each force. These forces could be:

• Rivalry among Competing Sellers -for better market position, increased sales and market share, and competitive advantage.

• Potential new entrants • Substitute products (within the analyzed

industry and other ones)

• Suppliers of raw materials, parts, components and other resource inputs

• Buyers’ bargaining power.

Key Factors for Future Success in the Industry This section consists of the summary of the most important factors influencing the obtaining of more competitive position in the industry, and it can be divided into groups: Technology-related, Manufacturing-related, Distribution-related, Marketing –related, Skills- and capability-related factors.

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Understanding which actors are strongly positioned and which are weakly positioned is an integral part of analyzing an industry's competitive structure. Rivals in the same or nearby strategic groups are close competitors, whereas actors in distant strategic groups usually pose little or no immediate threat.

3.2 Diamond of National Competitive Advantage Professor of Harvard School of Business and founder of the Institute for Strategy and Competitiveness, lecturer and author, Michael Porter, developed a model (further referred to as Porter's Diamond) of the Competitive Advantage of Nations. According to this model, each country will develop its own unique set of variables of the model: factor conditions, home demand conditions, firm strategy, and supporting industries (Porter's Diamond n.d.). The model factors should be seen as a system and are self-reinforcing. Porter's Diamond creates the ability to differentiate why some nations are more competitive than others, and why some industries within nations are more competitive within their markets than other industries in the same nation. It is built on the premise that the home base of the country or industry consists of some basic factors that either hinder or promote the advantages of the organizations in the global arena (Porter's Diamond n.d.). According to Porter, a nation attains a competitive advantage if its firms are competitive. Firms become competitive through innovation. Innovation can include technical improvements to the product or to the production process. Porter believes that competitive advantage resides solely inside a company or its industry and competitive success depends primarily on company choices, though partly competitive advantage (or disadvantage) resides in the locations at which company’s business units are based, (Porter, 2003).

Figure 3.2.: Adaptation of Porter's Diamond – Determining the Factors of National Advantage

Source: http://www.emeraldinsight.com/fig/2840100205001.png

(original Diamond Model); Ghauri & Cateora (2006, p. 124)

Porter's Diamond (figure 3.2) consists of the following main factors: factor conditions, home demand conditions, related and supporting industries, and lastly firm strategy, structure, and rivalry. Two additional factors (Chance and Government) have been added to the model by Porter later, while developing his theory as those factors are closely linked and influence all four of the main factors.

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Each of these four main factors within the Diamond consists of various divided and supplementary guidelines. The following categories will be used when determining the factors of national advantage of Bulgaria's wine industry: Factor conditions This category encompasses any factors that relates to production within the industry. Factor conditions refer to the basic inputs and allow competition to take place (Porter, 1998, p.9). The author argues that those factors are not inherited but created by nations (cited by Ruckman, 1998). Porter states (1998, p.9) that those factors may range from tangible things, as physical infrastructure, natural resources to intangible factors as information, legal system, etc.

The factor conditions for wine industry consist of the following:

• Material resources: natural resources, and space devoted to wineries • Human resources: qualification level within the wine industry, specialized labour force, and the

cost of labour A country may opt to develop these factors in order to create a further advantage, and these factors are not necessarily limited to something that was inherited or nature-made (Porter's Diamond n.d.). Porter states that if those factors that are easy to duplicate by competitors they are not valuable. He also mentions that sometimes the lack of resources often actually helps countries to become competitive (selected factor disadvantage).

Demand conditions Porter states that a sophisticated market is an important element to producing competitiveness. Those firms and industries that face a sophisticated domestic market are likely to sell superior products because market demands high quality and a close proximity to such consumers enables the firms to better understand the needs and desires of the customers. Porter gives an example of the French wine industry with sophisticated wine consumers that help wineries to produce high quality wines (Ruckman, 1998).

This category of factor aims to describe the level of wine demand. Home demand conditions relate to the factor conditions since it influences its development and therefore these two factors are linked in the model. It is inferred that if there is an increase in the home demand conditions, there will be an increase in the pace and direction of innovation within the wine industry, as well as product development. External demand refers to general demand trends in the global wine market. According to Porter, the demand conditions are determined by the following characteristics:

• Domestic demand • External (International) demand.

Porter argues that under normal conditions, a country's home market has the ability to influence an organization's ability to recognize the needs of customers (Porter's Diamond n.d.).

Related and supporting industries According to Porter cited by Ruckman (1998), a set of strong related and supported industries is important for the competitiveness of firms. This includes suppliers and related industries and usually occurs at a regional level.

Porter develops the idea of relate and supporting industries to clustering. According to him (1998) “a cluster is a critical mass of companies in a particular field in a particular location, whether it is a country, region or even city.” And presence of cluster and developed network within the industry increases productivity, as it “improves inputs through access to information, facilitating complementarities among cluster participants and improving incentives” (Porter 1998, p.10).

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Industry strategy, structure, and rivalry The last main factor of Porter's Diamond deals with the conditions within a context within country, company, industry that determines how companies are organized, managed, business environment and policies, and the characteristics of the domestic competition. Porter argues that best management styles vary among industries; some countries have particular style of management (Ruckman, 1998). Porter mentions as well in the theory that intense competition bursts innovation and economies with low productivity are characterized with little rivalry (Porter 1998, p. 11).

The following supplementary conditions will be analyzed for the Bulgarian wine industry:

• Wine industry infrastructure: number of wineries, and how well they are equipped. • Structures of ownerships: are the wineries privately or publicly owned? • Rivalry within the Bulgarian wine industry: does it exist and in which form?

Government Governments play an important role in increasing or decreasing the competitive advantage of specific industries. Porter cited by Ruckman (1998) argues that there are some things that governments do that they shouldn't, and other things that they do not do but should. He says, "government’s proper role is as a catalyst and challenger; it is to encourage - or even push - companies to raise their aspirations and move to higher levels of competitive performance …"

The role of the government should be considered when analyzing global market dynamics (The Porter Diamond: Global competition, n.d.). Country governments can influence the industries through various factors:

• Subsidies to firms, either directly (money) or indirectly (through infrastructure. Control the infrastructure: roads and airports; gas and electricity, telecom infrastructure including cables and wireless; education and healthcare. These in turn help or hinder industries dependent on these infrastructures and utilities for sustenance and growth.)

• Tax codes applicable to corporation, business or property ownership • Create laws and regulations which affect the ability of firms to compete nationally and globally • Educational policies that affect the skill level of workers • Focus on specialized factor creation • Enforce tough standards. (i.e. establish high technical and product standards including

environmental regulations.) (Ruckman, 1998.). Factors considered for this section include:

• Economic stability of Bulgaria • Local regulation within the wine industry • Import/export regulations.

Chance Porter emphasizes the role of chance on competitive advantage of the countries and industries. Random events can either benefit or harm a firm’s competitive position. Some events can nullify the advantages of some competitors or bring a new shift in the global competitive position of the industry. These can be anything like major technological breakthroughs or inventions, acts of war and destruction, or dramatic shifts in exchange rates that may have potential effect on industry in whole and current balance of forces (Ruckman 1998).

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3.3 Generic Strategies Porter is not only the author of the Diamond Model, but also for many other models pertaining to the competitive advantages of firms, industries, or nations, and relevant strategies that can be implemented. The following information has been adapted from strategies presented in tutor2u (n.d.), and will be used to describe the industry’s choice of strategies in more detail. When an industry wants to be more competitive, they have to make certain choices in terms of their generic strategy. The following three strategies are described in more detail below (differentiation of the product, cost leadership, and a focused approach):

COMPETITIVE ADVANTAGE

COMPETITIVESCOPE

Lower Cost Differentiation

BroadTarget

NarrowTarget

1. Cost Leadership 2. Differentiation

3A. Cost Focus 3B. Differentiation Focus

Figure 3.3.: Generic Strategies

Source: Porter 1985, p.12 Cost-based (cost-leadership) Strategy This strategy is focused towards superior profits through lower costs (low cost culture, economies of scale, eliminates unnecessary costs, and enjoys high profits through cost advantage). Competitive advantage is achieved by driving down costs. This strategy is beneficial in markets where customers are price sensitive.

Sources of cost leadership are:

• Size - economies of scale; • Greater labour efficiency and effectiveness • Control of overheads • Superior management • Greater operating efficiency and

effectiveness • Low cost production • Low cost labour

• Design for low cost production • Use the latest technology to reduce costs

and or enhance productivity • Relocation to low cost site • Favourable access to low cost sources of

supply • Reduction of waste

Those who have succeeded have the following strengths:

• Access to capital required to make significant investment in fixed assets

• A high level of expertise in manufacturing process engineering

• Design skills for efficient manufacture • Efficient distribution channels

• Not necessarily mean selling by lowest price; it might mean selling at industry average price but enjoying above average profits through low cost production

• Low costs result in high profit margins

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Benefits associated with this strategy:

• Increase market share • Build barriers to the entry of newcomers to

market • Weaken the threat of substitutes • Enter new markets

• Enjoy higher than average profits • Engage in price war • Eliminate rivals • Defend market share

Risks associated with this strategy:

• There might be difficulty in sustaining cost leadership in the long run

• As technology improves, a competitor may be able to leapfrog the product capabilities, thus eliminating competitive advantage

• It could lead to damaging price wars • Vulnerability to even lower cost operators • A firm following a focus strategy might be

able to achieve even lower costs within their segment

Differentiation Strategy If an industry follows this strategy, it will procure higher profits by adding value to the product areas that are of real significance to customers who in turn are willing to pay premium prices. Value can be added through product features, product quality, and distinctive offering (offer something new or different, high costs but charge premium price). The “Differentiation Strategy” calls for the developments of a product that offers attributes that are both unique and are valued by customers. Customers perceive the product to be different than that of rivals and as a result the value added by the uniqueness of the product may allow the firm to charge a premium price for it. Differentiation can be based on product image or durability, after-sales service, quality, and additional features. Differentiation adds costs in order to add value. Customers should be able to recognize and appreciate the difference. Extra costs should be added only in areas that customers perceive to be important.

Sources of differentiation:

• Creation of strong brand • Superior performance • High quality • Additional features offered • Innovation in packaging

• Speed of distribution • Higher service levels • Greater flexibility • Delivery • Quality of materials

Those who succeeded have:

• Access to leading scientific research • Strong creative product development team

• Strong sales team • Reputation for quality and innovation

Risks associated with the Differentiation Strategy:

• Involves higher costs • Risk of creating differences that customers

do not value • Customers might become price sensitive

and choose on price rather then uniqueness • It might involve differentiation on

dimensions that become less important to customers over time

• Customers may no longer need to differentiation factor

• Imitators may narrow the differentiation • Rivals pursing focus strategy may be able

to achieve even greater differentiation in their market segments

• Difficult to sustain differentiation.

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Focused Strategy If an industry uses this approach, it is concentrated on a limited part of the market. This strategy can be subdivided into a focused cost leadership and focused differentiation (niche markets, targeting, limited territory, focus on specific group of customers, either cost leader or differentiation within the segment).

The strategy requires:

• The identification of a suitable target customer group.

• The identification of a specific need of this group.

• Confirmation that the market is sufficiently large to sustain the business.

• An estimate of the extent of competition within the segment.

• Production of products to meet the specific needs of that group.

• A decision on whenever to opt for cost leadership or differentiation.

Benefits associated with this strategy:

• Lower involvement of resources • Firm benefits from specialization • It provides scope for greater knowledge of

a segment of the market

• It makes entry to new markets easier and less costly

• Sometimes higher degree of customer’s loyalty.

Limitations associated with this strategy:

• Risk of imitation • Risk of changes in the target segment • Reputation for specialization inhibits move

into new sectors • Firm could outgrow the market

• Danger to decline in the chose segment or niche

• Limited opportunities to grow • Sacrifice of economies of scale that would

be available from a larger market Porter argues that a firm should make a conscious choice about the competitive advantage it seeks to develop. If it fails to choose one, the risk of being all things to all people ends up with no strategy at all, which leads to low profitability. . .

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4 Global Wine Industry In this chapter the findings and their analysis concerning the global wine industry are presented. The chapter starts with short introduction about winemaking history and of what wine is and then the number of factors, influencing the strategies within the global wine industry are presented.

4.1 What is Wine? The history of winemaking parallels that of civilization: historians believe that wine was being made in the Caucasus and Mesopotamia as early as 6000 BC. References to wine have been found in Egypt and Phoenicia dating as far back as 5000 BC, and by 2000 BC wine were being produced in Greece and Crete. Colonizing by the Romans spread winemaking all around the Mediterranean; by 500 BC wine was being produced in Sicily, Italy, France, Spain, Portugal and in northern Africa. Cultivation of the vine also spread into the Balkan States, and the Romans took it into Germany and other parts of northern Europe, eventually reaching as far as Britain (Pretorius n.d.).

Until the early years of the 17th century wine was considered to be the only wholesome readily storable (to a point) beverage, accounting for the rapid global increase of wine fermentation technology. Today wine is synonymous with culture and a convivial lifestyle around the world, complementing food, entertainment and the arts. Wine plays a major role in the economies of many nations, which produce more than 26 billion liters of wine annually. Modern winemakers supply a wide variety of wines year round independent of location and time of consumption. Fierce competition for market share has led to increased diversity and innovation within the wine industry, much to the benefit of the consumer (Pretorius).

Wine is a complex beverage. It contains so many natural substances that scientists are still discovering new facts about it (including the health benefits of red wine with regard to preventing heart disease, known as the French paradox) According to Wine guide (2004) wine is “an alcoholic drink made by fermenting the juice of fruits or berries. The official European Union definition is more specific: 'The product obtained from the total or partial alcoholic fermentation of fresh grapes, whether or not crushed, or of grape must'” (Wine guide 2004).

Wine is a complex beverage consisting of a variety of components which explains why the wines differ from each other so much. The components of the wine are derived from its raw material –vine grapes and form the wine-making process. The most important components of the wines are: water, alcohol, acids, tannins, sugars, and fruit. The balance among all those components creates this variety of wines in the world (Wine guide 2004).

Alcohol the second main components of the wine after water, is produced when “yeast converts the sugar in the juice of ripe grapes. Carbon dioxide gas (CO²) is produced as a by-product (this is where the bubbles come from in sparkling wine). This conversion process is called alcoholic fermentation. It is represented in this simple equation: yeast + sugar = ethyl alcohol + carbon dioxide” (Wine guide, 2004). Alcohol due to its physical properties carries aromatic components of the wines. According to Wine Guide (2004), acids are essential to the flavour of wine and to its freshness, as well as work as preservers to the colour and the fruit in the wines. Tannins, which play an important role in the structure of the wine, come from the grape skins and are responsible for the bitter, chalky, mouth-puckering sensation. Sugars are important to right fermentation process and converted to alcohol during this process. The grape is a fruit which contains unusual complex mixture of various ingredients, which create the unique ability of this fruit to absorb the smells and flavours of the other fruits, depending on place and conditions it was grown. “In warm climates such as California's Central Valley, a versatile variety such as Chardonnay can evoke smells of pineapple, mango and other exotic aromas. In the much cooler French region of Chablis, the same variety smells steely and austere, rather like wet stones, with flavours ranging from citrus to apple” (Wine Guide, 2004). These unique for each geographical region and climate aromas influence a lot on popularity of the wines.

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According to the Wine Guide (2004), wine is also containing minerals, proteins and vitamins. Minerals such as potassium and calcium are extracted by grape roots from the soils while it grows, proteins are derived from the grapes and vitamins, as B1, B2, and B3 are the result of fermentation and the fruits.

4.2 External factors In this chapter the external factors and tendencies that influence the strategies within the global wine industry are described and analysed. Those external factors consist of economic features that are shaping the strategy in the global wine industry, forces driving the changes in the industry, opportunities and attractiveness, specific for the industry, competitive forces of the industry and key factors for success in the industry.

4.2.1 Industry Strategy-Shaping Economic Features In this part of research the relevant economic features of the global wine industry are presented in order to characterize the stage of development of the industry and dominant components influencing the creation of the successful strategies in the industry.

4.2.1.1 Market size and growth rate According to Global wines 2006 Datamonitor repot the market value of the global wine market grew by 2.6% in 2005 to reach a value of $213.8 billion. In 2010, the market is forecast to have a value of $243.7 billion, an increase of 14% since 2005. In terms of volume, the market volume grew by 1.1% in 2005 to reach a volume of 18.9 billion litres. In 2010, the market is forecast to have a volume of 20.3 billion litres, an increase of 7.3% since 2005.

The table 4.1. shows the dynamics of wine production, consumption and export in percentage for major region from 1988 to 1999. In most of the wine producing regions, both production and consumption negative or without significant changes and in world total both are negative. At the same time export, both in terms of value and volume is positive in all regions (in some changes are significant) and in world total.

Region Export volume

Export value

Production volume

Consumption volume

Western Europe Exporters a) 4,4 5,8 -0,7 -1,6 Other Western Europe 1,4 5,5 -1,1 1,5 Europe's transition economies b) 4,4 6,5 -3,1 0,6 North America 16,8 18,2 2,7 0,4 Latin America 22,7 30,9 -1,4 -2,2 South Africa 32,0 33,8 0,4 2,2 Australia 15,6 19,3 5,3 1,2 New Zealand 15,8 20,3 2,0 2,5 China 12,9 12,7 15,1 16,3 World Total 5,3 7,2 -0,5 -0,1

a France, Italy, Portugal and Spain. b

Central and Eastern Europe and the former Soviet Union.

Table 4.1.: Growth in wine production, consumption and export volume and in export value

(major regions, 1988 to 1999, in %) Source: Anderson and Norman (2001) cited by Anderson (2001).

This tendency is supported by Bretherton (2004, p.38), who says that the wine industry is changing a shift from demand exceeding supply to an excess of supply, which makes competition tougher.

Labys and Cohen (2004) analyze the global wine cycles in their report “Trends or Cycles in Global Wine Export Sales” in depth. Wine exports originating from the traditional Old World producers have declined,

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while exports from the New World producers have increased. Anderson and Norman (cited in Labys & Cohen 2004). Between 1990 and 2001, ‘new world producers’ increased their export market share from 4 % to 18 % in terms of value (Anderson and Norman, cited in Labys & Cohen 2004).

The following table illustrates the shares (in percentages) of world exporting nations:

VOLUME SHARE OF WORLD WINE EXPORTS (%): 1998

2001 2004

1. France 25.4 24.9 18.5 2. Spain 16.8 15.5 18.0 3. Italy 25.1 24.2 17.8 4. Australia 2.9 5.4 8.1 5. Chile 3.3 4.4 6.0 6. U.S.A. 3.6 3.5 5.0 7. Portugal 3.2 2.3 4.5 8. Moldova 1.9 3.8 3.7 9. South Africa 1.7 2.5 3.7 10. Germany 3.5 3.5 3.4 11. Argentina 1.6 1.4 1.7 12. Bulgaria 2.2 1.3 1.3 13. Other Central Eastern Europe 0.7 0.8 1.3 14. Austria 0.4 0.8 1.2 15. Hungary 1.6 1.0 0.7

Table 4.2.: Volume Share of World Wine Exports (%)

Source: Global Wine – Australia in perspective.

Based on table 4.2, it can be seen that two main Old World wine producers France and Italy decline in their percentages in world market shares from the middle twenty percent in 1998, to below twenty percent in 2004. Bulgaria (rated twelfth) had a presence of 2.2 percent in 1998, and experienced a decline of 0.9 % to 1.3 % in 2004.

Export of wine is a highly concentrated area of business. Of the world’s top ten wine exporters, which account for 90 per cent of the value of international wine trade, half are in Western Europe and the other half are New World suppliers. Europe’s economies in transition from socialism account for much of the rest (Anderson et al., 2001).

In terms of volume Bulgaria was ranked as 17th of global wine producing country with volumes close to Chile, Portugal , Greece, and the same as Hungary, Austria, Brazil.(table 4.8 based on Anderson, 2001, p.46).

The size of the wine industry is significant. Only in the EU, according to EU wine reform background report (2006), wine production in 2004 represented 5.4% of total EU agricultural output. Wine production represents around 10% of the value of agricultural production in France, Italy, Austria, Portugal, Luxembourg and Slovenia, and a little less in Spain.

The same report shows another dimension of the market size of the wine industry. In total, vine-growing farms in Europe employ more than 1,500,000 people full time. When the other participants, as traders, exporters, scientists, etc., in the production chain are added, the total employment generated by vine-growing is considerably higher. This figure of 1,5 million people corresponds to roughly 15% of the total Annual Labour Units for agriculture in Europe.

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4.2.1.2 Position in the industry life cycle The global wine industry can be characterized as a mature industry, as common characteristics of this stage of life circle of the industries, according to Barney (2007, p. 94) are: slowing growth in total industry demand, development of experienced repeat customers, slowdown in increase in production capacity, slowdown in introduction of new products, increase level of international competition, and overall reduction in the profitability of the industry. Those characteristics are confirmed further in this chapter by figures of decrease of consumption per capita of wines globally, slow industry growth figures, the fact that most of the customers are acquainted with the product due to long overall history of the industry, as well as figures of decreasing the planting areas worldwide. Opportunities for the companies, operating in this type of industry are refining current products, emphasis on service, and process innovation (Barney 2007, p.94). According to Porter cited by Barney (2007, p.83), who analyzed opportunities available for companies operating in particular types of industries, there are five types of industries: fragmented, emerging, mature, declining and international industries. Using analysis of those authors, the global wine industry can be characterized also as fragmented industry, which is according to Barney (2007, p. 84), the industry in which a large number of small or medium –sized firms operate, and no small set of firms has dominant market share or creates dominant technologies. These characteristics are confirmed with structure of the global wine industry, which is shown in more details later in analysis. There are 30 wine-producing countries that produce more then 95 % of all global production and domestically in every country industry consist of numerous small and medium sized companies, none of which possesses a revolutionary technology (Anderson, 2001, p.11; Thompson, 2004, p.367, Pretorius n.d. ). The main opportunity in fragmented industry is consolidation in order to discover new economies of scale and alter ownership structure (Barney 2007, p.91). An additional type of industry that the global wine industry belongs to is international industry, as most of the companies at least partially are working on export, while all wine producing countries export their products . According to Barney (2007, p. 98-100), there are three main opportunities within international industries, which are: multinational opportunities –to operate simultaneously in several national or regional markets, but operations are independent of each other and free to choose how to respond to the specific needs of each market; transnational opportunity- to treat their global operations as an integral network of distributed and interdependent resources and capabilities; and global opportunity – to optimize production, distribution, and other business functions throughout the world in addressing all the market in which they operate.

4.2.1.3 Number of rivals Ability to grow wine grapes depends strongly on the climate. Climate is the long-term weather pattern of a region and it is the second biggest influence on the flavour of a wine. The main vine-growing regions in the northern and southern hemispheres are situated between 30 and 50 degrees north and south respectively. Beyond these limits, the climate is either too cool to ripen the grapes or too hot to produce quality wine (Factors that Affect the Taste of Wine, 2004).

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Figure 4.1.: The world's wine-producing regions

Source: http://www.waitrose.com/images/special/World_Map.gif The figure 4.1. shows that not all geographical regions and not all the countries are able to grow vine grapes and therefore to produce wine, which limits the number of possible wine producing countries and competitors for wines by origin. According to FAOSTAT there were 68 countries in 2005 which produced wine (according to other source, (Heijbroek, 2006) there are 90 countries that produce wine commercially). According to Anderson (et. al. 2001, p.46) 30 countries are responsible for production of more then 95 per cent of global wines. In terms of country of origin, all those countries that have a suitable wine growing climate are potential competitors to each other. Table 4.3 shows how changes the countries rank and size of territories devoted to grape vines growing of the major world producers. Leading positions during all showed years belong to France, Italy and Spain which have most significant territories of wine fields. Forth place belongs to US. Most of the countries show decreasing or not growing of areas devoted to growing grapes during the time, except China and Australia.

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Year /Rank Country

2002 2001 2000 1999 1998 1996-00 1991-95

1986-90

France 50 000 1 53 389 1 57 541 1 60 535 1 52 671 2 56 271 1 52 886 2 64 641 2

Italy 44 604 2 52 293 2 51 620 2 56 454 2 54 188 1 54 386 2 60 768 1 65 715 1

Spain 36 639 3 30 500 3 41 692 3 33 723 3 31 175 3 34 162 3 26 438 3 33 519 3

United States 20 300 4 19 200 4 21 500 4 19 050 4 20 504 4 20 386 4 17 619 4 18 167 5

Argentina 12 695 5 15 835 5 12 537 5 15 888 5 12 673 5 13 456 5 15 588 5 19 914 4

China 11 200 7 10 800 6 10 500 6 10 261 7 10 645 7 9 581 7 5 140 10 2 734 16

Australia 11 509 6 10 347 7 8 064 8 8 511 8 7 415 9 7 380 9 4 810 11 4 285 12

Germany 9 885 8 8 891 8 9 852 7 12 123 6 10 834 6 9 989 6 10 391 6 10 012 7

Portugal 6 651 10 7 789 9 6 710 10 7 844 10 3 750 14 6 828 10 7 276 8 8 455 8

South Africa 7 189 9 6 471 10 6 949 9 7 968 9 7 703 8 7 837 8 8 228 7 7 742 9

Chile 5 623 11 5 658 11 6 674 11 4 807 12 5 475 10 5 066 12 3 326 16 4 135 14

Hungary 3 564 14 5 514 12 4 299 13 3 339 14 4 334 12 4 126 13 3 823 13 10 974 6

Romania 5 461 12 5 090 13 5 456 12 6 054 11 5 002 11 6 173 11 5 529 9 7 133 10

Greece 3 085 16 3 477 14 3 558 15 3 680 13 3 826 13 3 832 14 3 668 14 4 244 13

Russia 4 060 13 3 430 15 3 050 17 2 560 17 2 169 19 2 512 18 3 348 17

Brazil 3 212 15 2 968 16 3 638 14 3 116 15 2 782 15 2 920 15 3 095 18 2 968 15

Austria 2 599 16 2 531 17 2 338 19 2 803 16 2 703 16 2 351 19 2 485 20 2 733 17

Bulgaria 1 908 20 2 260 18 3 305 16 1 715 19 2 129 20 2 811 16 3 462 15 4 434 11

Yugoslavia (SM) 1 620 21 1 666 21 1 973 20 1 366 20 2 577 17 2 686 17 2 615 19

Croatia 2 095 19 1 951 19 1 891 21 2 094 18 2 277 18 2 096 20 1 954 21

Ukraine 2 430 17 1 780 20 1 290 22 1 250 22 1 260 22 1 414 22 1 741 22

Moldavia 2 277 18 1 224 22 2 500 18 1 332 21 1 511 21 2 151 20 4 008 12

Table 4.3.: Principal wine producing countries (in thousands of ha)

Source: OIV, 2002 .http://news.reseau-concept.net/images/oiv_uk/Client/Stat_2002_def2_EN.pdf According to statistics presented in table 4.3. in terms of size of areas devoted to wine growing, Bulgaria’s rank decreased from 11th to 20th during the analyzed 12 years and areas devoted to wine growing became almost 2 times smaller.

It can be concluded from the above-mentioned statistical data that competition among wine producing countries is limited in terms of volume of wine those countries are able to produce which is in its turn is dependant on the size of vineyards devoted to vine growing.

According to OIV report (2002) the world vineyard decreased in size from 9 961 000 ha in 1975 to 7 876 000 in 2002. According to FAOSTAT n.d., not all the grapes that grow on those territories are used for wine production, as approximately 71% of world grape production is used for wine, 27% as fresh fruit, and 2% as dried fruit.

The global wine industry is made up of two geographically located sets of players: the Old World producers, comprising of the traditional wine production and consumption areas of Europe, and the new world producers, coming from Southern Hemisphere and the USA ( Benson-Rea, 2003).

According to figure 4.2. geographical concentration of the global wine market is fairly high with the top ten wine producing countries being responsible for almost 80 % of global wine production and three countries – for 51 %.

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Figure 4.2.: Wine World Production: the ten largest producers (in million hectolitres) Projection based upon industry current rate of growth Source: Vinexpo-IWSR/GDR 2003 cited by Zamora& Bravo (2005) All of the countries are exporting their wines. Graphical presentation of the shares of wine exports in the global wine market are shown in figure 4.3.The figure shows as well that there are many small players within the global wine industry, that have less then 5% of global export of wine and still stay in the market and are important in the structure and well-known by consumers.

Figure 4.3.: Major Wine Producing Countries, Export Quantity Market Share 2005

Source: USFA, 2006, p.5

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According to Invest Bulgaria Agency report (May, 2007) 1,73 hectolitres of wine was produced in 2006, which is less then 1% of world production. According to Anderson and Norman (2001, p.38) in year 1999, Bulgaria was ranked at 17th place among the wine producing countries in the global wine industry according to volume of production, which was that year about 3 hectolitres .

4.2.1.4 Buyer need and requirement The quantity of consumed wines can be describes in terms of import of wine and its consumption. Overall consumption within the researched markets increased with a compound annual growth rate (CAGR) of 1.2 percent between 2001 and 2005 (Global Wine 2006). The anticipated growth rate for 2005 to 2010 is a CAGR of 2.7 percent.

The sales of still wine were globally (in 2005) the most lucrative of the wine market with revenues equal to 78.1 percent of the overall market value. The European market contributes to 79.3 percent of the global revenue volume in 2006, followed by the Americas (14.4 percent), and the Asia-Pacific market (6.3 percent) (Global Wine 2006).

Heijbroek (2006) pays special attention in his report to the three major wine import markets (the U.S., the U.K., and Germany) where international competition can clearly be observed. Labys & Cohen (2004) mention that half of all imports in 2001 continued to be purchased by the above three nations (U.K. with 19%, U.S. with 16 %, and Germany with 14 %).

Table 4.4. illustrates the volume share (from 1998 – 2004) in percentage of the world’s wine imports, as ranked for the top fifteen countries or geographical areas.

VOLUME SHARE OF WORLD WINE IMPORTS (%) 1998 2001 2004

1. Germany 19.8 19.7 19.2 2. United Kingdom 14.8 18.1 17.6 3. U.S.A. 6.5 8.1 8.7 4. France 9.2 8.3 8.6 5. Russia 4.1 4.6 6.0 6. Netherlands 5.5 6.0 4.5 7. Belgium-Luxembourg 4.7 5.1 3.6 8. Canada 3.0 3.2 3.6 9. Italy 1.4 1.3 3.6 10.Central Eastern Europe 3.1 3.3 3.6 11. Switzerland 2.9 2.7 2.3 12. Japan 5.4 3.0 2.2 13. Sweden 1.7 2.0 2.1 14. Denmark 2.5 2.3 1.8 15. Other Africa 2.1 1.5 1.4 Table 4.4: Volume Share of World Wine Imports (%)

Source: Global Wine – Australia in perspective France as a top producer (refer to figure 4.2., 4.3.), and one of the top consumers (table 4.5.), is placed in the fourth position in terms of world imports. Russia is the world’s fifth largest import market behind Germany, the U.K, the U.S., and France in ranking order.

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The following table illustrates the per capita consumption (in litres) of the top fifteen countries from 1998 to 2004: PER CAPITA CONSUMPTION (1IN HECTOLITRES) 1998

2001 2004

1. France 58.1 56.9 47.6 2. Italy 52.0 50.0 46.5 3. Croatia 47.2 46.1 45.1 4. Portugal 51.0 47.0 40.6 5. Switzerland 43.1 43.1 40.4 6. Hungary 31.0 35.1 38.1 7. Argentina 38.8 36.3 34.6 8. Uruguay 30.5 31.9 34.1 9. Greece 32.0 34.0 33.9 10. Denmark 29.1 31.2 33.6 11. Spain 35.6 28.5 29.4 12. Austria 30.9 28.5 29.4 13. Finland 17.5 21.9 29.4 14. Germany 22.8 24.0 23.6 15. Romania 30.0 25.5 23.0 Table 4.5.: Per Capita Consumption (in hectolitres)

Source: Global Wine – Australia in perspective France, Italy and Croatia were the top three per capita consumers in 2004, followed by Portugal, Switzerland and Hungary.

In the past, Mediterranean Europe has been the main consumers, but overall consumption is undergoing a geographical shift with markets such as the U.S., Japan, the U.K, and China increasing their rates (Bernetti et.al. 2006, p.306).

The act of buying wine is usually motivated by extrinsic factors such as the brand name, grape type, packaging, price and country-of-origin since actual wine tasting is rarely available at the point of sale (Chaney 2002). According to Elliot & Cameron (1994) cited in Chaney (2002), since producers emphasize the country-of-origin on most packaging, the country-of-origin can be an indicator of quality in the absence of any other objective ways of assessing the wine. In other words, where the product originates, is an important factor in the consumer’s decision-making process. Moreover, once the consumer bought a bottle of wine from a certain country, the risk associated with making another purchase is diminished by selecting the same country again.

In a survey conducted by Mintel (consumer, media and market research company) in December of 1997, 9 percent of respondents stated that they always buy wine from a specific country (Chaney 2002). Beverland and Lindgreen, (2002) examined the Wine Institute of New Zeeland (WINZ), and determined that they used the country-of-origin effect as their main strategy in terms of improving their international positioning. New Zeeland had no previous substantial market positioning due to consumers’ low brand awareness, and by creating a “generic country-based promotion”, awareness was raised (Beverland, & Lindgreen 2002, p. 151). The WINZ also recognized that more could be accomplished through the collaboration of all members, and industry leaders. Therefore, producers and exporters infiltrated the international market by doing everything in groups, attending trade fairs, and by doing New Zeeland promotions at retail outlets (Beverland, & Lindgreen 2002, p. 153). Sections of their implemented strategy included assisting exporters, doing research, and maintaining offices in export markets.

The New Zeeland Wine Guild, acting in response to the above strategy, associated its wines with the unspoiled landscape of the country, and uses the slogan “the riches of a clean, green land” (Chaney 2002). Understanding how a country's image can reflect on a consumer's choice to purchase wine, and is a very important factor in incorporating a successful strategy (Chaney 2002).

According to a study conducted by Chaney (2002), the country-of-origin often impacts consumers in their

1 Hectoliter: a metric unit of capacity equal to one hundred liters, used esp. for wine, beer, grain, and other agricultural produce (Thesaurus Dictionary).

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wine selection. In order for wine producers to market their wines, consumers need to be reached on at least two levels: their awareness about tourist activities in the country-of-origin needs to increase, and price promotions need to occur (Chaney 2002). The ability to travel and experience the local food and wine while in a relaxed setting was an important factor for the respondents of the study (Chaney 2002).

The increase in market share of the New World producers also created new wine consumers whose tastes have reshaped the traditional wines (Labys & Cohen 2004). Labys and Cohen (2004) argue that this new group of consumers want ripe-tasting, full-flavoured wines at reasonable prices.

Thach and Olsen conducted a study to determine which factors cause people to “adopt wine on a regular basis” (Thach & Olsen 2004, p. 55). Traditionally marketers have promoted their wines as a lifestyle choice, and mostly to people who have reached a certain level of maturity (older, more affluent consumers). Through in-depth interviews with respondents, Thach and Olsen determined that there are various elements of lifestyle and wine consumption that affect people’s choices. In their analysis, they identified five major themes of lifestyle that were apparent in all consumers, regardless of age and income (Thach & Olsen 2004, p. 47). They are: relaxed lifestyle, dining ambience, fun and entertainment, social aspiration, and travel lifestyle.

Research conducted in the United States indicates that consumers react very positively to new brands. Since wine consumption can be seen as part of pleasure and lifestyle choices for consumers, innovation is key to prickle their interest in something new, safe, and adventurous (Heijbroek 2006). Heijbroek also discusses wine companies that have been successful (based on public information), and narrows their objectives to the following: an overall strengthening in their distribution power, and a focus on innovation.

4.2.1.5 Pace of technological changes Wine has been a part of civilization for thousands of years. There are many legends about how wine was discovered in different cultures. Regardless of the validity of the legends, concerning the origin of the wine, grape growing and wine making were essentially the same at present time as they had become by the time of the Roman empire (220 AD). Selected vines were planted and cared for, grapes harvested and crushed, and grape juice transformed into wine through the process of fermentation and blending, bottling and labelling. Over the centuries, grape growers and winemakers developed small refinements and improvements in the procedure so as to help the natural process along (Thompson, 2004, p.367). According to Pretorius from the very early days during its long history, wine producing were changing its technologies gradually and basic principles of producing wine changed very little during centuries. Only last 150 years scientific researches were made, explaining the nature of the processes of winemaking and it created more opportunities to implement it in winegrowing and producing routines. One of the most significant events in changing the technology of winemaking according to Pretorius (n.d) was the understanding of microbial activities (nature of yeasting) during wine fermentation, for the first time discovered by Lois Pasteur in 1863. This discovery allowed winemakers to control the process of biotransformation of grape sugars into alcohol and carbon dioxide and to destroy unwanted souring bacteria. This lead to that the quality and quantity of wine production being vastly improved all over the world. Wine expert Clarke (1997, p.8) calls this innovation “a dramatic step forward” and “first revolutionary innovation in winemaking”, which allowed the producers to get the best possible taste and character of the grapes. Clarke (1997, p.8) considers the second revolution in wine making happened when wine growers and wine producers started to pay more attention to the properties of soil. Numerous research was made and still are in the progress towards how chemical composition and other properties of the soil influence the quality of the grapes. The main outcome of those researches is (and Clarke states that it known for every capable wine maker), that soil defines the quality of grapes to that extend that one region produces better grapes then the others, and despite the efforts of the wine growers, some of the regions will never born better grapes.

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Some scientists representing the point of view of new world producers, including Pretorius, are not that pessimistic about it and believe in genetic modification of the two main organisms involved, the grape cultivar and wine yeast, which can “make possible exciting new approaches to winemaking in the 21st century”.

4.2.1.6 Vertical integration According to definition of vertical integration by The Economist, each segment of a business requires a different set of skills and capabilities and managing each part of the business separately demands a lot of resources and increase costs of the final product, therefore acquisitions and merges become more widely used tool in order to increase control and profitability in most of the industries worldwide. Wine is the least concentrated of the beverage and tobacco industries (Anderson 2001, p.16). According to Anderson (n.d., p.188) the global wine industry is characterized by strong vertical integration from grape growing through wine production to export and marketing of wines, this pattern is even stronger in the New World. According to Anderson (2001, p.15) there are far more wine grape growers than there are wineries and strong dependency of the grape growers from the wine producers and opposite dependency of the wine quality of the vineyards grape types and soils conditions, creates favourable environment for vertical integration within the industry. “Flying winemakers” -breed of oenologists who work not for a single winery, but as consultants to many, all over the world -(Arvanigian n.d ), have been an instrumental support for this tendency, allowing wine producers and retailers to buy the expertise necessary for wine production. In most wine producing countries vertical integration through industry and regional bodies is significant. At the global level the industry body, the Office International de la Vigne et du Vin (OIV) tends to be dominated by the Old World producers and notably French, according to Benson-Rea (2003, p.11). The New World producers grouping the New World Wine Producer's Forum (NWWP) promotes international trade and market access of its members. In Australia for example, industry associations developed systematically throughout the years, mostly through incentives organized by the government (Marsh & Shaw 2000, p. 33). According to Marsh & Shaw (2000, Executive Summary), the industry managed to completely transform itself away from individual firms purely competing to an industry where there is still fierce competition, but it’s in collaboration with industry organizations, especially when it comes to matters of shared concern. "The industry has raised its level of integration and is developing into a knowledge-driven cluster" (Marsh & Shaw 2000, Executive Summary). It also created an immense synergy through the combination of collaboration and competition. In 2000, nine governing bodies were present in Australia, all with specific roles and functions, sources of income, and forms of governance. Another form of vertical integration within the global wine industry according to Anderson (2001, p.15) is occurring between wine making and wine marketing. An example is e-commerce, which is lowering the cost, especially for smaller wineries, of using email and the internet to market their wines directly. Another example showed by Anderson (2001, p.15) is wineries getting involved in tourism, going beyond standard cellar-door activities to restaurant and entertainment services. Comparing to other world beverage industries, according to Rabobank cited by Anderson et. al. (2001, p.7), the world market share of the three largest firms in the late 1990s was just 6 per cent in the wine industry compared with 35 per cent for beer, 42 per cent for spirits, and 78 per cent for soft drinks. According to studies of Anderson (2001, p.12) and Benson-Rea (2003, p.11) mergers and acquisitions will be growing tendency in the global wine market, both inside countries and cross-borders, and will drive the increasing of the concentration within the global wine industry. On the other hand this tendency is reducing a little the competition among winemakers, including in their purchase of grapes and as Anderson (2001, p.16) believes improving the export performance of the bigger companies within the industry.

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4.2.1.7 Product innovation According to Thompson (2004, p.367) unlike the production of beer or spirits, wine production is primarily an agricultural pursuit and winemakers could really only further improve the quality of the wine by using better-quality grapes. New Zealand’s wine researcher Benson-Rea et. al. (2003, p.9) pinpoints the difference in approaches between New and Old wine producers while stating that most of the wine makers of New World relies on the possibility of improving wine quality with the help of technology. These two points of view shows the different focus and approaches to the product innovation at Old and New World producers. New World producers are conducting massive research in order to improve all possible steps of technological process in order to gain competitive advantage. Labys and Cohen (2004) discuss innovations that occurred recently (in the last few years) which has not only aided the efficiency of production, but also affected wine flavour. Australian producers innovated a concept of mixing oak chips and sawdust into fermenting wine (and filtering it later on in the process) instead of storing the wine in large oak barrels. Producers also started using over-ripe grapes which enhances the sugar and alcohol content (Labys & Cohen 2004). The acid levels of wine can be altered by adding tartaric or citric acid, while the structure of red wines can be increased with the use of powdered tannin (Labys & Cohen 2004). Besides the shift from Old World producers to New World producers, improvements in technology have also made it possible to control the flavour and aroma of wine (Kramer 2003, cited in Labys & Cohen, 2004). Another innovation in the wine industry processing include the temperature-controlled fermentation tank, and field work done in the sensory science in order to understand or alter sensory perception (Labys & Cohen 2004). According to Benson-Rea et. al. (2003, p.9) the Old Wine producers rely on the physical properties of the soil as a main possible origin of improvements of the wine quality and conduct numerous research with agricultural focus in order to improve the quality of wine.

4.2.1.8 Degree of product differentiation According to Huerta et al. (1998) wines differentiate by vine type, by colour (white, rosé, and red ), by certain conventional parameters (pH, titratable acidity, volatile acidity, fixed acidity, dry extract, alcohol content, ash content, ash alkalinity, reducing sugar, SO2), and volatile compounds (major and minor). According to the research of these authors, these variables depend on factors such as wine harvesting, grape maturity, and fermenting conditions. Most of the researches within the wine industry agree that one of ultimate factors that influence quality of wine is quality of grape. The quality of any wine is dependent on the raw materials, as all major differences between wines are due to the grapes themselves and where they are grown (Factors that Affect the Taste of Wine, 2004). It is often said ” that good wine is made in the vineyard because the essence of good wine-making is to grow high-quality healthy fruit and to preserve that quality at all stages in the wine-making process, working hygienically and treating the grapes as gently as possible” (Factors that Affect the Taste of Wine, 2004). The biggest influence on the character of a wine is the grape variety or the blend of varieties that it is made from. There are approximately ten thousand different grape varieties, including wild varieties and those grown for table grapes and raisins. Those best suited to wine production are members of the European vine species Vitis vinifera. Of these, only a remarkably small number are grown internationally and have established a reputation for making good or great wines (Factors that Affect the Taste of Wine, 2004).

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Vitis vinifera is the primary species of wine grapes-derived from the European-Middle Eastern vine from which the most of the world's fine wines are made, including Cabernet Sauvignon, Chardonnay, Riesling, and Pinot Noir, among many others. Vitis vinifera belongs to the family Ampelidaceae to which belongs most of other vine types, as vitis riparia and vitis amurensis from Siberia with strong defense to cold. (Hiort af Ornäs 1993, p.14). According to Anderson (2001, p.19) there are over 10,000 documented varieties within species Vitis vinifera. Of these, on a commercial scale, primarily three are used for raisin production and less than a dozen for table grapes, while about 230 have some prominence in the world of fine wines. Some of the types of vine are easily mutated, which means that vine without external influence changing its genetic composition. They called clones – a vine that is asexually reproduced from cuttings or grafting to retain the same character of the parent vine. Many clones can be developed from a single variety, for adaptation to particular climates or soils. One of the examples is Pino Noir that constantly mutating and creates new vine clones that easily changes its characteristics of it is planted at other place. For wine makers it plays great importance to choose the right clone to cultivate on the wine fields. (Hiort af Ornäs, 1993, p.15) Hybrid is the result of cross - breeding two species of grapes, for example Vitis vinifera and Vitis amurensis with aim to get a new grape type which is suitable for wine growing and has special attributes as tolerance to cold or deceases. (Hiort af Ornäs, 1993, p.16). Similar to a hybrid, a cross is the result of cross-pollination between vines of the same species. Scientist are crossing vine type in order to get rich harvested, frost-resistant grape with high must content and early maturity in order to improve quality and productivity of winegrowing (Hiort af Ornäs 1993, p.16). According to the study of Chilean wine researches Zamora & Bravo (2005), wines can differentiate in two ways: • by brands, also called local blended wines, when the biggest wine producers of the country collect

grapes from various regions and then process and sell them disregard regional denomination system; • and by "Appellation d'origin" system when companies processing grapes aim to sell most of their

wine under viñas own names, so called varietal wines which are made from a single variety of grape. The winemaker aims to showcase the particular characteristics of that grape.

According to Hiort af Ornäs (1993, p.15), one of the most important factors for wine growing is climate. Pretorius (n.d.) states that wine grapes are produced in bands around the planet that correspond to temperate zones between 20° and 50° north and south latitudes. The equatorial side of these zones produces wines characterized by warm climate viticulture; the areas near the poles produce cool climate wines. The unique flavour of each wine is the result of multivariate interactions between the geography, climate, cultivar, vineyard management and oenology. Wine growers have to know the smallest details about the environment of wine and take it into account, according to wine expert Clarke (1997, p.12): drainage abilities of the soil, minerals it contains, angle against the sun, amount of sun and rain at particular place, strength of the wind and the probability of frost. Frenchmen put- climate, soil and location in one term: terroir. Every terroir is unique and decides on how the wine harvest will be and what quality of wine will be obtained in the end. This point of view calls classical and usually supported by Old World producers. Producers of the New World believe that climate of the particular place and microclimate of specific vineyard and less important factors for the quality of wine then technology which is used in the manufacturing (Clarke, 1997, p.13). According to Clarke (1997, p.26) there are so many way to make wine as many winemakers- or as many as vine grape types, or terroir, or markets. There are many small changes and adjustments can be made during the processing of grapes and wine, which influence the quality of the end product. For example, when to pick the grapes, at sunny weather or cold one, how to yeast the grapes from different parts of vineyard: together or separately. Many factors are important but truth is for all the same, despite of the level of quality the winemaker fights for, the quality of the wine can be only as good as quality of wine grape is and not even most proficient winemaker can do more then just reach and keep the grape’s

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quality. That’s why preparatory work- to choose the place and right location to plant grapes- is so important (Clarke 1997, p.26-27).

4.2.1.9 Scope of competitive rivalry For many centuries wine has been very much a European product. It still is in that more than three-quarters of the volume of world wine production, consumption and trade involve Europe, and most of the rest involves just a handful of New World countries settled by Europeans (Anderson 2001, p.9). In the late 1980s, Europe accounted in value terms for all but 4 per cent of wine exports and three-quarters of wine imports globally. Since then, however, the world’s wine markets have been going though a fascinating period of structural change. In particular, California and several southern hemisphere countries (Australia, Argentina, Chile, New Zealand, South Africa, and Uruguay) are beginning to challenge that European dominance in international markets. Between 1988 and 1999, this New World group’s combined share of global wine exports grew from 3 to 16 per cent in value terms (Anderson 2001, p.9-10). Anderson, in his study of globalization of the wine industry (et.al. 2001, p. 9), points out that top exporters are different in their penetration of those and other import markets: the Old World producers have greater dominance in neighbouring countries in continental Europe whereas the New World producers have been much more successful in penetrating the growing markets of the United Kingdom and elsewhere in the world. He concludes that the world wine market as a whole is becoming more internationalized and far more competitive, and most key New World suppliers are expanding their export sales. The geographical scope of competitive rivalry within the global wine industry is not local anymore. Due to structural change of the industry and strengthening the market position of the New World producers for last 20 years, competitive scope becomes much more internationals and global oriented.

4.2.1.10 Economies of scale Global wine industry is characterized with economies of scale both in growing the vine grapes, wine making and export and distribution activities. This confirmed with analysis of previous factors referring to the size of market, production and consumption patterns.

4.2.1.11 Experience and learning-curve effects According to Anderson (2001, p. 18) globalization influences the consumers with increasing affluence and growing demand for product variety (the spice of life), and over time, many of the consumers are looking for superior quality and more-varied wines. They begin to differentiate between grape varieties, between not just countries of origin but regions within them, and with the help of wine critics between brands and the various labels within the brand. Anderson in his research of globalization trends in the wine industry (2001, p.11) states that most influential on wine quality factors are climate and soil type, “beyond that the skills of the vitculturalists and wine makers that matter”. He states that due to globalization, transfer of the knowledge becomes more common and sharing of cutting –edge technologies and flying winemakers contributed to this a lot. Wine Spectator School glossary explains this term as follows: “Since the Northern and Southern hemispheres have opposite seasons, winemakers have the opportunity to work two harvests each year. Given that Australia is in the Southern Hemisphere, its winter takes place during the Northern Hemisphere's summer. In the late 1980s, during France's harvest season, a group of Australian winemakers consulted on the vintages in French wine cooperatives. Since then, the term "flying winemaker" has been used to describe wine consultants who travel outside their own country to make wine. ”

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In the global wine industry experience plays an important role for both the customers and the wine producers. With time consumers become more sophisticated and are able to be more selective and demanding to quality, taste, and varieties of wine.

4.2.2 Forces Driving Industry Changes In this chapter forces that are driving changes in the industries are studied in connection to the global wine industry. The findings and their analysis concerning the influence of Internet on the wine industry, increasing globalization, changes in buyers preferences, production and marketing innovations, possibility of entry or exit of major players tot the industry, diffusion of technical knowledge, changes in cost and efficiency, changes in social concerns, regulatory influences in the industry are presented.

4.2.2.1 Growing use of the Internet and emerging new Internet technology application

According to Thompson (2004, p.60), the internet represent a driving force of historical and revolutionary proportions. The internet is a new distribution channel, allowing manufacturers to access customers directly rather than distribute exclusively through traditional wholesale and retail channels, and also making it easy for companies of all types to extend their geographic reach and vie for sales in new areas.

According the report of Federal Trade Commission about e-commerce in wine sphere (2003, p.12), wine, offered on the internet expends the access of the buyers to the small wineries both local and global. Depending on the price, quantity purchased and the method of delivery, consumers as well as the wineries can save money. Through direct shipment, online sales offer consumers lower prices and greater selection, but on the other hand this type of commerce is hard to control for the government and maybe hard to collect taxes, as well as little control on who buys (i.e. under aged consumers).

One Australian firm even experimented in the year 2000 with selling its entire release by tender over the internet. The exemption of small wineries from the Australian Government’s wine sales tax for own marketed wines has added to the incentive to explore these new options (Anderson 2001, p.17).

4.2.2.2 Increasing globalization of the industry Labys and Cohen (2004) discuss the globalization of the wine industry. The concept of Old World producer and New World producers stems from the origin of production and consumption. “Historically wine production and consumption have been mainly in Western Europe,” (Labys & Cohen 2004) but currently there is a huge increase in wine production and consumption in the ‘new world producers’. Labys and Cohen describe the Old World producers’ as France, Italy, Portugal, and Spain. They also include Greece and Eastern Europe (Bulgaria, Hungary, Moldova, and Romania) as Old World producers due to their longstanding wine-producing tradition (Labys & Cohen 2004). Argentina, Australia, Chile, New Zealand, South Africa, Uruguay, and the United States are labelled as New World producers.

According to the research of Anderson (2001, p.7-9), there are some features of globalization within the wine industry:

• Movement of crucial inputs and know-how from established to new areas of application. • Changing the structure of concentration within global wine market, according to Anderson

(2001, p.8) merges and acquisitions are happening almost daily at present. • Wine companies are becoming multinational in terms of their production and distribution

and/or are forming alliances with foreign companies to reap economies of scope, especially with distributors and retail chains.

• Increasing integration of the industry into international value chains (The Wine Industry Transformation Charter 2006).

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4.2.2.3 Changes in the long-term industry growth rate According to an analysis made by Anderson in his study of globalization of the wine industry (2001, p.11), the rapid growth in wine exports over the past decade is ironic in that it coincides with a slight decline in world wine production and consumption. Over the 1990s global wine production fell at 0.5 per cent per year, and yet global wine trade rose by 5.3 per cent per year in volume terms and 7.2 per cent in nominal US dollar value terms. Traditionally the countries producing wine were also the countries consuming it, with only about one-tenth of global sales being across national borders. The proportion traded rose a little over the 1980s but has since risen much more, so that now about one-quarter of the volume of sales is international. That is, despite per capita wine consumption falling by 1.5 per cent per year over the 1990s globally, wine is becoming much more of an internationally traded product as consumption shrinks in the traditional producing countries (from a high base) and consumption expands in non-producing countries in Europe and East Asia. According to Labys and Cohen (2004), the global wine market has undergone several changes in the last few years. Some of these changes are cyclical in nature (referring to weather patterns, grape production, price fluctuations, or consumption rates) while others related to the structure of the global wine market. There has been a mentionable shift in markets, and new producers such as New Zeeland, Australia, and the U.S. have increased their exporting shares.

4.2.2.4 Changes in who buys the product and how they use it The expansion of the ‘new world producers’ into the global scene has not only changed the wine market structure, but also wine flavours, varieties and national origins (Labys & Cohen 2004). Consumers are now focused on grape varieties, and an emerging preference for cabernet, merlot and chardonnay varieties, have created the shift in production. According to Labys and Cohen (2004), these three main varieties provide something distinctive to the consumer: a flavour and an aroma that is easily identifiable. After the implosion of these three varieties on the market, grape growers started planting other varieties used for the production of wines such as riesling, sauvignon blanc, pinot noir, shiraz, and many others.

Mora (2006) discusses the idea that the global wine market can be segmented into the following sections: wine connoisseurs (25 %), students (51 %), new consumers (10 %), and consumers who drink wine sold in boxes (14 %). However, this is just a general guideline and there will be significant national and cultural variations (Mora 2006). These figures show that significant part of consumers of wine knows a lot about wine types and countries of origin.

According to Mintel survey cited by Chaney(2002), only the 9% of consumers always buy the wines from a particular country, author suggest that the rest 91% of wine-buyers are country-of –origin promiscuous.

4.2.2.5 Production innovation According to Anderson (2001, p.14) nowadays most of the wine growers and producers are seeking to decrease yields and chemical and water application in order to increase wine grapes quality.

4.2.2.6 Marketing innovation E-commerce is the most significant market innovation in the global wine industry. According to report of Federal Trade Commission about e-commerce in wine sphere (2003, p.12), online wine sale s is a small but growing part of the wine market. From 1994 to 1999 it doubled in volumes and reached around $500 million and about 3% of the total wine market. Some wineries in USA are reporting 5-10% of their sales through the e-commerce in 1999.

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4.2.2.7 Entry or exit of major players According to Anderson cited by Benson-Rea (2003, p.9) for the last 15 years new entrants to the global market included: Argentina, Australia, Chile, New Zealand, South Africa and USA. Although theywere presenting on the global market even before, the pace of their expansion and taking the market shares form the traditional wine making countries is fascinating. According to the EU Wine reform report (2006), the four main producers from the New World became a threat when they have seen their exports develop in spectacular fashion: South Africa (+770%), Australia (+500%), Chile (+270%) and the United States (+160%) between 1991/1993 and 2001/2003. According to Barney (2007, p.58) barriers to entry (or high cost of entry) into an industry are: economies of scale, product differentiation, cost advantages independent of scale, contrived deterrence and government regulation of entry.

The Old World European producers have attempted to protect both their own market, through such means as tough new legislation on geographical indications and production standards as well as subsidies to wine producers and their export markets, for example, the EU's attempt in 2001 to introduce the distinction between “industrial wine” (New World) and “agricultural wine” (Old Wine).

New consuming countries have appeared on the global wine market: the Netherlands, Scandinavia, Japan, and the UK, with new emerging consumers in China, and other parts of Asia. Also not totally new, but called emerging for their significant import growth last 20 years.

4.2.2.8 Diffusion of technical know-how across more companies and more countries

According to research published by Anderson (2001, p.7-9), international technology transfer is one of the features of the global wine industry that became increasingly globalized in the last few years. Technological knowledge exchange accelerates not only with the spread of multinational firms but also through individual vitculturalists and winemakers exporting their services through spending time abroad as consultants (Anderson, 2001, p.8). “Those individuals and firms so engaged as consultants and investors abroad may be spreading abroad ideas developed in their home country, but they are also bringing back new ideas to their home country, so producers and consumers both at home and abroad benefit. In the process they are squeezing in an extra vintage each year – and that is more than doubling their experience, because the differences in production and market conditions are far greater across hemispheres than within a country. Mentioned before “flying winemakers”, benefit to the knowledge transfer through the continents and countries.

4.2.2.9 Changes in cost and efficiency According to Barwell, cited by Benson-Rea (2003, p.8) cost structure in the industry depends on few factors, like the:

• Presence or lack of scale economies. • Climatic conditions (for example, cooler climate in the Lower South Island in New Zealand

prevents ability to ripen as much fruit as in the North of the country) • Cost of equipment and inputs, such as bottle (relates to distance in case of New Zealand and lack

of scale costs) and • The cost of the land.

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4.2.2.10 Growing buyer preferences for differentiated products instead of commodity product

Benson-Rea (2003, p.10) based on research made by Price Waterhouse Coopers believes that the global wine industry faces oversupply as an issue, which makes brand rationalization a vital part of the successful strategy. They believe that with the country and particular regions within a country playing such a vital role in branding of wine, major issues occur about how this can be coordinated with individual winemaker's identities and distinctive brand positioning.

Another key trend in the global wine market is the change in consumer profile. Bernetti et.al. (2006, p.306) discuss the idea that consumer preferences have shifted from low quality to high quality wines. “In addition, the average consumer is becoming younger and the percentage of female customers is increasing” (Bernetti et.al. 2006, p. 306).

4.2.2.11 Reductions in uncertainty and business risk Spreading sales across different countries and different product categories creates diversification and reduces business risk. To carefully fill out the wine portfolio with brands ranging from the table category to the luxury category with distribution through the different channels, minimizes business risk because no single product or geographic region is responsible for a majority of the single company’s revenue (Arno 2002).

One of the main uncertainties in the wine industry is the weather that can destroy the whole harvest (Pavlova 2007, pers. comm. 28 May). This factor seems to be uncontrollable for producers and it means that this risk cannot be reduced by the wine-makers.

One of the risk reduction strategy that consumers use, according to Chaney (2002) is buying the wines from those countries of origin , that they already did and enjoyed. So there is a risk, that if experience was negative once, the particular buyer will never buy the wine from the same country again.

4.2.2.12 Regulatory influences and government policy changes Government policies have had profound influences on the globalization of wine markets over the centuries. According to Noev and Swinnen cited by Anderson (2001, p.7) the biggest policy influences on wine’s globalization post-World War II have been the European Union’s Common Agricultural Policy (CAP) and the COMECON arrangements within the communist block. With the break-up of the latter and the imminent expansion eastwards of the EU, it will be the wine policy within the CAP of an enlarged EU that matters most over the next few years. Also important, though, are wine consumption taxes, which in many of the non-producing countries are extremely high (Berger and Anderson 1999).

Bulgaria is joining the European Union (EU) in 2007, and is already a member of NATO (North Atlantic Treaty Organization) according to Invest Bulgaria Agency (2006, p.4). The Customs Division (of the EU) has removed all internal custom duties within the EU, and initiated a uniformed tax system for all consumer goods (Activities of the European Union n.d).

European Market Requirements:

The EU Commission administers various regulations specific to wine imports and exports. 2Commission Regulation NO 1493/1999, 883/2001 and 753/2002 provide the main regulations specific to wine in the EU. Each individual member country, also reserves the right to change legislation in a way that can affect imports (European Market Requirements n.d.). New labelling rules were implemented by the EU in 2003 which includes that labels need to indicate the alcohol content, as well as the consignment number of the bottling company (Ministry of Agriculture and Forestry 2002, p. 20). 2 Go to http://europa.eu/geninfo/query/resultaction.jsp for detailed information on the EU directives associated with wine.

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4.2.2.13 Changing social concerns, attitudes, and lifestyles In November, 1991, the phenomenon that has come to be known as the French Paradox did popular thinking of wine as medicine rather than toxin began to return. Typically, the diet of people in Southern France includes a very high proportion of cheese, butter, eggs, organ meats, and other fatty and cholesterol-laden foods. This diet would seem to promote heart disease, but the rate there was discovered to be much lower than in America; herein lays the paradox (Professional friends of wine, n.d.).

A relaxed lifestyle refers to people with fast-paced lives who like to relax by occasionally drinking wine. People who prefer to have wine with their food, view wine as not only an enhancer of food, but also a creator of ambience (dining ambience lifestyle). People belonging to the ‘fun and entertainment lifestyle’ first tasted wine with family or friends when they went on a wine-tasting tour, or some other special event. People who would like to be seen as knowledgeable about wine as a way to impress others (especially in a career setting), use wine consumption as a method of social aspiration. Travel lifestyle refers to an introduction to wine while traveling abroad and being exposed to wine as part of everyday culture (Thach & Olsen 2004, p. 47 - 53).

The pivotal years in the change of wine consumption occurred in the 1990s when most people bought wine for two reasons: as a status symbol, and due to a health-conscience attitude (Bernetti et.al 2006, p. 307).

4.2.3 Opportunities and Attractiveness of Industry I this chapter the findings and their analysis referring to the major opportunities and attractiveness in the global wine industry are presented. The following factors are reviewed: the growth potential of the industry, its profitability, degree of uncertainty in industry’s future, competitive position of the members, their potential to grow, and existence of severe problems in industry.

4.2.3.1 Industry's growth potential According to Anderson (2001, p.11) there are physical (physiological/climatic, agronomic, water) limits on the future expansion of premium wine grape production in the various regions of the world. The greatest influence on wine quality is the climate for grape growing and types of soils.

According to Heijbroek (2006), the world wine market has been characterized by an oversupply, accompanied by a shift in presence from Old World producers to New World producers. However, it is his assessment that even in markets where there is an oversupply, wine companies can foresee profitable growth if they can offer concepts that are innovative and that can appeal to consumers on all levels (visual, tactile, and on taste). He attributes the success of ‘new world producers’ to a newer, more accessible style of wine, as well as the development of consistent brands (Heijbroek 2006). The Old World producers, on the other hand, responded to this shift by bottling their wines as new varietals, and by blending some of the new varietals with the traditional wines (Labys & Cohen 2004).

Anderson et.al (2001, p.16) believes that overall global economic growth on its own would be enough to lift premium wine prices and boost average wine prices in the world. According to a study conducted and published by Datamonitor (Global Wine 2006), the global wine market showed a compound growth rate of 2.6 percent for the five-year period of 2001 to 2005. Therefore, the competitive forces present on the global scene, can increase the growth potential of the global wine industry.

4.2.3.2 Industry's profitability During the time devoted to research we did not found the figures showing the average profitability in the global wine industry. The fact that industry is profitable is one without doubts, and confirmed by the secondary facts, as overall high competition in the industry, growth of investment into the wine industry, prioritizing the industry by the government of the countries, producing wine, global growth of export value (table 4.1.) and other factors discussed above.

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The maturity stage on which the wine industry currently is in the industry life circle is usually characterized with slowing down of the profitability of the industry and increasing competition level, especially among international competitors.

The global average cost of a bottle of wine is divided roughly into the following: 10% to the grape grower, 30% to the winery, 37% to transporters, wholesalers and retailers, and 23% to tax collectors (Wittwer, Berger and Anderson 2002).

This structure confirms that industry is profitable enough and has potential to grow in terms of profits.

4.2.3.3 Degree of risks and uncertainty in industry's future The global wine industry has reached a point at which the technological advances have been accepted and implemented by most, and an innovation might not create a radical new production method. In general, the level of uncertainty is low due to the standardization of the production process and the technological knowledge which is implemented universally. The degree of risk for a small private producer may be higher than a larger enterprise, but this is a common occurrence in any industry where the larger corporation can absorb costs and losses, while smaller enterprises have to face these pressures alone.

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4.2.3.4 Member's competitive position The position of the geographical regions- the members within the global wine industry, volume of production and consumption, as well as their per cent in global export and import , and index of comparative advantage during studied period are presented in the table 4.5.

a France, Italy, Portugal and Spain.

b

Central and Eastern Europe and the former Soviet Union. c Production exceeds consumption globally because consumption is net of distillation and other industrial uses.

d

The index of comparative advantage is defined as the share of wine in a region's merchandise exports divided by the share of wine in global merchandise exports. Table 4.5: Volume of wine production and consumption per capita, trade orientation, and price of

exports, by region, 1988-90 and 1999. Source: Anderson and Norman (2001).

Most noticeable from this table is that both production and consumption volumes decreased on average worldwide, but export and import figures increased for most regions during the given time frame. Table 4.5 can be an indicator of the global demand levels between 1988 and 1990, as compared to 1999. On average, there was an increase in demand which accounts for the higher import and export figures.

Volume of production per capita (litres pa

Volume of consumption per capita (litres pa

Exports as % of production

Imports as % of consumption

Production as % of consumption

Index of comparative advantage d)

Export unit value (US$/l

Western European Exporters a) 1988-90 1999

98 96

63 52

21 31

7 8

156 164

6,34 5,95

1,88 2,29

Other Western Europe 1988-90 1999

10 7

19 21

20 25

64 72

53 35

0,25 0,23

1,48 2,11

Europe’s Transition Economies b) 1988-90 1999

9 8

8 8

5 20

3

18

108 106

0,36 1,26

0,77 1,01

North America 1988-90 1999

7 8

8 8

3 6

19 27

89 112

0,08 0,21

1,75 2,52

Latin America 1988-90 1999

0 0

0 0

9 5

38 46

96 73

0,02 0,02

0,73 1,46

South Africa 1988-90 1999

15 12

14 9

2 14

1 4

110 137

0,38 2,49

1,13 1,77

Australia 1988-90 1999

27 45

19 20

10 30

3 6

149 228

1,16 5,16

2,17 2,98

New Zealand 1988-90 1999

15 16

14 16

7 28

16 50

102 100

0,39 2,00

2,61 3,99

China 1988-90 1999

0,1 0,4

0,1 0,4

1 1

0 7

101 94

0,02 0,02

1,80 1,27

World Total 1988-90 1999 Growth rate, %

5,4 4,7 -1.0

4,6 4,0 -1,6

15 25 5,9

18 29 5,4

117 c) 117 c)

na

1,00 1,00 na

1,67 2,10 1,8

Memo item: EU-15 1988-90 1999

47 48

38 34

20 30

22 37

130 139

2,08 2,18

1,84 2,19

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The index of comparative advantage measures the share of wine in the country’s or region's exports as a ratio of the share of wine in the value of global merchandise export. This means that global comparative advantage is unity and an index of above one means a comparative advantage and below one a comparative disadvantage. By this measure, Eastern European producers move toward comparative advantage but still have comparative disadvantage.

The last column shows the unit value of exports (the average price of a bottle of wine exported in $US), a crude measure of the quality of exports. By this measure, Western European producers, belong to the lowest exporting price group among all regions and have price half as less then average world total one, even with 25% growth in analyzed period.

Figures in table 4.6 show the main producers, and their presence (%) in the U.K., U.S., German, Japanese and European markets for the period 1990 – 1997.

“-“ indicates that there are no significant sales) Table 4.6: Wine producing countries’ share of selected markets’ imports

Source: DFAT, UN database cited in Marsh and Shaw (2000 p. 56) France, Italy, Spain, and other producers are mentioned in the above table (Table 4.6); however, Bulgaria is not mentioned separately; therefore it is our assumption that it is accounted for under “Other”.

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Based on information released by the Australian wine industry in June 2006, the following countries in Table 4.7 (below) are identified as the top fifteen wine producers in 2004 in terms of millions of litres. It is worthy to note that in 2006, statistics are represented in a slightly different manner, but the top three producers remain Italy with 18.8 %, France with 18.5 %, and Spain with 13.4% (refer to Figure 4.2). Bulgaria is not mentioned in the top 10 global producers that account for 80 % of all production in 2006.

Wine Production in Millions of Litres: 1998

2001 2004

1. France 5427 5538 5850 2. Italy 5714 5229 5300 3. Spain 3022 3094 4000 4. U.S.A. 2050 2300 2430 5. Australia 742 1077 1471 6. Argentina 1267 1584 1410 7. South Africa 783 761 1016 8. Germany 1083 908 989 9. Portugal 358 671 815 10. Chile 548 565 658 11. Romania 507 509 547 12. China 399 437 420 13. Other Central Eastern Europe 643 520 394

14. Greece 454 428 365 Other 3542 3347 3195 World 26 539 26 967 28 860

Table 4.7: World Wine Production

Source: Global Wine – Australia in perspective Similar statistics are visible for 2004, but we can identify China, Romania and Greece as the producers ranked closely to other Central Eastern European producers such as Bulgaria (exclusive of Romania). China produced 1.46 % of world wine, Romania produced 1.90 %, and Greece produced 1.26 % of global wine in 2004.

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4.2.3.5 Member's potential to grow Virtually all wine grapes are the sub-species Vitis vinifera which, ten plus millennia ago, grew wild in much of Europe, North Africa and the Middle East (but not in the Americas or the southern hemisphere). They can be grown successfully only between 30o and 50o north and south of the equator where their distinctive annual cycle can be accommodated. So, it is not surprising that the world's top 30 wine-producing countries are in this temperature zone (Clarke, 1998, p.19).

The table shows the variety of vine intensity of cropping in main wine producing countries.

Rank in global wine production, 1999 Volume of wine

production (mill hl) Area of grape vines (including for non-wine uses) ('000)

Share (%)of total crop area under vines

1.France 60 914 4.7

2. Italy 58 909 8.0

3. Spain 33 1180 6.4

4. United States 21 374 0.2

5. Argentina 16 208 0.8

6. Germany 12 106 0.9

7. Australia 9 123 0.2

8. South Africa 8 115 0.7

9. Portugal 8 262 9.7

10. Romania 7 253 2.6

11. China 5 240 0.2

12. Chile 5 149 6.5

13. Greece 4 129 3.3

14. Hungary 3 127 2.5

15. Austria 3 50 3.4

16. Brazil 3 60 0.1

17. Bulgaria 3 109 2.4

18. Russia 2 77 0.1

19. Croatia 2 59 3.7

20. Moldova 1.9 149 6.8

21. Uzbekistan 1.5 132 2.7

22. Serbia/Mon. 1.4 79 2.0

23. Mexico 1.4 41 0.2

24. Switzerland 1.3 15 3.4

25. Macedonia 1.2 29 4.5

26. Uruguay 1.1 11 0.8

27. Slovenia 0.9 18 5.8

28. Ukraine 0.7 122 0.4

29. New Zealand 0.6 12 0.4

30. Cyprus 0.6 20 13.9

WORLD 280 7864 0.53

Table 4.8.: Wine intensity of cropping in 30 largest wine-producing countries, 1999

(Together, these 30 countries produce more than 95 per cent of global wine production.)

Source: Anderson and Norman (2001) based on FAO Production Yearbook, Rome.

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At one extreme are the traditional producing countries of France, Italy, Spain and Portugal with 5, 6, 8 and 10 per cent of their cropped area under vines, respectively. Nearly as extreme are the Balkan states of Southeastern Europe and also the Caucasus. Having had the opportunity there to cultivate grapes for more than two millennia, and given the financial supports provided by the EU in recent decades, it is likely that virtually all suitable land in Western Europe is already under vines. Hence their only hope for growth is in terms of quality improvement, which is, expanding premium wine grapes at the expense of non-premium.

At the other extreme are the New World wine producers, with the United States and Australia each having only 0.2 per cent of their crop area under vines – barely above the ratio for China. Argentina, Uruguay and South Africa also have vines accounting for less than 1 per cent of their crop area. Hence in those countries, which have ample land with suitable climates for expansion, the main influence on vineyard area is the expected long-term profitability of grapes relative to that of alternative uses for the land.

4.2.3.6 Existence of severe problems in the industry: Theory that we are using for the sturdy suggest that some severe problems within the industry in its historical context can exist, as regulatory or environmental issues, stagnating buyer demand, industry overcapacity, mounting competition, etc.

During studies of the global wine industry and its history, we have not found any evidence of severe problems in the industry that could dramatically change the situation in it.

4.2.4 Competitive Forces of the Industry In this chapter competitive forces of the industry are discussed. As degree of rivalry among competitors, existence of substitute products, threat of potential new entrants, importance of suppliers of raw materials, buyers bargaining power, importance of distribution channels.

4.2.4.1 Rivalry among Competitors The degree of rivalry among of competitors within the global wine industry can be considered fierce according to the previously analysed factors, showing the number of rivals on the market. Due to increasing globalization of the wine industry the strength of rivalry increases, especially for stronger market position and distinctive image among the competitors.

According to the theory used for research the rivalry among competitions is usually occurs for better market position, increased sale, market share and competitive advantage and different countries strive for increasing their competitive advantage with different means.

New Zealand is planning to expand its production area from 13,200 hectares in 2002 to 18,000 hectares in 2006 in order to increase wine production in the longer terms. They are also planning to increase the quality of produced wine with 160 per cent during this period, based on growth of their processing facilities and marketing and promotional efforts (Benson-Rea 2003, p.7).

Labys & Cohen (2004) mention that European and American wine producers often associate quality with localized areas, while other New World producers control wines to create uniformed brands that characterize their whole production.

Due to a lack of economies of scale and high cost structure, the New Zealand wine industry is focusing more on high quality/high price market niches, with associated requirement for very high standards in wine making and brand management (Benson-Rea 2003, p.9)

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Concerning the pricing strategy, the New Zealand wine industry, according to research made by Benson-Rea (2003, p.10), decides that producing wine “to a price” for supermarkets can only damage the focused differentiation strategy pursued by much of the industry. They decided to concentrate on ultra/super premium brand positioning that caters only this segment of the market. New Zealand Winegrowers decided to develop a generic promotional programme with important implications for quality positioning of New Zealand's wines in order to build awareness of the so called “umbrella brand” of “New Zealand wine” with the logo of “the riches of the green land”. The industry strategic vision is “new Zealand to be internationally recognized as the leading producer and marketer for premium quality wines” (Benson-Rea 2003, p.11).

Australia's wine industry has experienced a noticeable change since the mid 1980's when they exported only 2 % of all wine, and was a net importer (Marsh, I & Shaw, B 2000). According to Marsh & Shaw (2000, p.1), wine exports totalled 32 % of the total production in the year 2000, which is higher than other major producers such as Italy and France (17 % of total production).

Certain factors can distinctly be identified as the causes for this dramatic change in world presence (Marsh, I & Shaw, B 2000): changes in the industry ownership and structures, changes in the industry's overall business outlook, a move towards international markets, and a commitment to innovation within the industry.

According to Anderson (2001, p.8), in the EU countries the dominant form of industrial organization is the producer cooperative, most of which are very small and yet they produce the majority of the total output.

Although there are several large markets in the world, the United Kingdom is unique since it is quite often quoted as the most dynamic one. Mora (2006, p.143) mentions that “global competition seems to have pinpointed this one national space”, referring to the United Kingdom. The United States, New Zealand, Australia, Chile and South Africa have all increased their presence on the national market between 2002 and 2004 (Mora 2006, p. 143). In 2005, Australia accounted for five of the top ten brands of wine in the U.K. and the U.S.A. accounted for two (Mora 2006, p.144).

Table 4.9: Comparison of the competitiveness of old wine vs. new wine countries Source: The World Wine Business, Rabobank International (1999) cited in Marsh and Shaw (2000 p. 57)

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Table 4.9 classifies certain factors that attribute to a country’s competitiveness within the wine industry. They are classified according to natural endowments (geography, climate and land), assets created by humans (labour, infrastructure, etc.), and lastly the physical environment (domestic market, economy and government).

According to the table 4.9. competitive advantages of the different wine producing countries are different. Not all of them have the same geographical and climate advantage, as well as not all are strong on their domestic markets and have strong network. Only few countries have the strong support of the government that increases the competitive advantage, though all governments of wine producing countries prioritize the industry. These countries that have strong governmental support (Australia, New Zealand, and Chile) seem to get stronger competitive positions in the global market.

4.2.4.2 Potential new entrants Geographical concentration of the global wine market is fairly high with the top ten wine exporting countries being responsible for more than 90 % of the global wine trade in 2004 (Labys & Cohen , 2004).

Labys and Cohen (2004) mention that quality wines are produced on six continents, which include developed and developing nations. The increase in production areas is a result of higher incomes, the availability of financing, and a gradual increase in gourmet culture in areas previously labelled as culturally or wine-restrictive areas (Labys & Cohen 2004).

4.2.4.3 Substitute products According to Parminter, cited by Benson-Rea (2003, p.7) the world wine markets are undergoing major changes due to the shifts in consumer tastes. Demand has also been falling during the 1990s, especially in traditional wine consuming countries. This can be explained by health concerns and increased competition from other beverages, both alcoholic and non-alcoholic. When we discuss substitute products, our focus is turned towards other alcoholic and non-alcoholic beverages and their impact on wine consumption in the recent past.

4.2.4.4 Suppliers of raw materials, parts, components and other resource inputs According to the report The Wine Industry Transformation Charter 2006 (p.7), the wine industry encompasses of an entire supply chain, which consists of a number of processes:

• Enterprises that support the growing of the grapes, including suppliers of the vines, the pesticides, insecticides and fertilizer, the machines and the fuel and maintenance they need, as well as advisors and other suppliers of support services to wine grape farmers;

• Enterprises whose function is the growing of grapes; • Enterprises involved in processing of grapes into wine; • Enterprises that support the making of wine, including providers of chemicals, maintenance

services, etc.; • Enterprises involved in adding value to the wine, including those involved in the provision of

bottles and other containers and of packaging materials, distributors, retailers, service suppliers such as financial institutions, marketers, exporters, etc.;

• Enterprises involved in ancillary activities such as wine tourism. An example of a well-structured supporting industry according to Porter as cited in Marsh & Shaw (2000, p. 23-25), is the Californian wine cluster. It has an extensive complementary system between the supporting industries of wine-making and vine-growing. Their success is also closely linked to their ties with the tourism cluster in the Napa Valley, and their involvement at the viticulture and oenology program at the University of California, Davis. Figure 4.4 indicates the inner workings of the California wine cluster.

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Figure 4.4: The Californian Wine Cluster Source: Based on research by Harvard MBA students. Illustration from Porter, M in On Competition, p.201 cited in Marsh & Shaw (2000, p. 24)

4.2.4.5 Buyers’ bargaining power The UK does produce a very small quantity of mostly white wine. UK consumers are buying more wine, often at the expense of beer. This trend is expected to grow with consumers learning more about wine and “trading up” to more expensive wines. The largest consumer group for wine consists of those 35-49 years of age in the middle and upper-middle class. Red wine is showing the most growth, boosted by continued news reports of health benefits.

Per capita consumption for lighter alcoholic drinks continues to increase and red wine is said to be the most popular style. The Dutch meals frequently feature meat (or cheese and sausage) and this combined with the cold climate support consumer preferences for a more hearty wine type. Younger wine drinkers are more willing to experiment with different beverages, particularly new world wines. However, the general perception is that new world wines may be inferior to wines from France, Italy, Spain, or Germany. One new world wine producer, South Africa, has a unique advantage when marketing wines. South African wines often have Dutch names, which helps the Dutch consumer to identify with the product.

California wine promotions are said to have done a very good job associating wine with “sun and success.”

There is optimism that wine will become more appealing to the younger generations as the spirits beverage sector loses market share. The Japanese are showing an inclination towards drinking beverages that are lower in alcohol content due to greater awareness of health issues. Beer continues to be the most consumed alcoholic beverage. Due to the fact that per capita wine consumption (in Japan) is well below that of Europe or the United States, substantial growth potential exists in the wine sector.

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The new EU wine regime, initiated during the 2000/2001 marketing year seeks the enhancement of quality, a greater market orientation, and the renewal of old vineyards. The new EU Budget for the wine sector is being increased by 3.3 percent, from 1.292 billion euros in 2001 to 1.335 billion euros ($1.178 billion) by 2003 (World Horticultural Trade & US Export opportunities2002, p.1). .

4.2.4.6 Use of distribution channels According to Chaney (2002), small producers find it difficult to compete without a generic voice, which in turn makes them reliant on members in their distribution chain to promote their message. It is implicated that exporters have very little control over their communication process, and that the power of retailers often precedes the abilities of the small producers. A viable alternative is to divert the power of promotion to associations which act as generic bodies, and who can poll their resources to create a powerful approach (Chaney 2002). Mudill et. Al (2003) as cited in Mora (2006, p.142-143) highlighted the correct distribution channel as one of the key factors in the wine industry.

Based on information relating to the global study conducted by Datamonitor, “On-trade” is the most significant channel of distribution for global wine sales (36.5 percent), while sales through supermarkets account for 27.5 percent of the wine market, and specialist traders accounts for 12.3 percent (Global Wine 2006). Bernetti, I & Casini, L & Marinelli, N (2006) discuss the idea that globally, retail channels make up for 70 % of all commercialized wines sold. Hotels, restaurants, bars and catering events attribute for the most widely used channels of distribution in Western Europe (Bernetti, I & Casini, L & Marinelli, N 2006, p.308).

According to an article published on www.winebusiness.com (Historic changes set for wine distribution 2006), Inertia Beverage Group developed an integrated internet ordering system applicable to the United States. This system combines the needs of distributors, restaurants, and wineries. Wine normally unavailable to certain clients, can now be ordered online (shipped directly from the winery) while the distributor does not have to invest in expensive wine inventories.

HORECA* Supermarkets Specialists Other ** Western Europe Austria 26% 41% 4% 30% Belgium 44 39 7 10 France 28 38 19 14 Greece 30 36 20 14 Germany 20 43 7 30 Italy 14 34 8 44 Netherlands 12 62 21 5 Portugal 10 81 5 6 Spain 57 33 7 4 United kingdom 20 59 18 2 Americas Argentina 15 10 2 75 Canada 24 5 65 6 Chile 45 26 14 14 United States 22 41 23 14 Other South Africa 34 28 34 3 Australia 57 15 19 9 Japan 61 7 17 15

*HORECA=hotels, restaurants, and cafes. **other includes direct sales, mail orders, corner and food shops.

Table 4.10 Percentage of wine moving through various distribution channels in 2000

Source: Euromonitor, cited by Thompson, 2004, p.370.

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5 Wine Industry of Bulgaria

In this chapter internal factors that are influencing on the choice of strategy for the wine industry of Bulgaria are described and analysed. The chapter starts with general information about Bulgaria as a country and continues with findings, gathered according the Porter’s Diamond of Competitive Advantage of the Nations with focus on the wine industry are presented.

5.1 Where Is Bulgaria? Bulgaria is a country located on the European continent with a land area of110 910 km, of which 81.4 % is rural. Their population reaches 7 300 000, with 43.6 % living in rural areas. Bulgaria is heavily dependent on their domestic agriculture. Agriculture, forestry and fisheries represent 18.7 % of their GDP, 25.6 % of total employment, and there is a positive balance of trade in agricultural products (273.6 million euros in 1997 (SAPARD 2000, p.1)). Bulgaria is strategically located near the Turkish Straits, and they control key land routes from Europe to the Middle East and Asia (CIA, 2007). Bulgaria is divided by the Balkan Mountains which stretch from the east to the west of the country. The areas north of the mountains experience cooler weather, while the areas south of the mountains get a little more heat (Bulgarian wine – the next big thing? 2006). This diverse climate is ideal for vine-growing and wine-producing activities.

According to annual report of Ministry of Agriculture and Forestry of Bulgaria-further MAF (2005, p.1), the economy of Bulgaria is characterized by stability and high growth and it resulted in positive development of macro economic indicators last few years. GDP growth in 2004 was 5,6% and in 2005 60,5 %, which were the highest growth form the beginning of the transitional period. GDP per capita increased in three times for last 3 years and in 2006 was10 400 USD (CIA; 2007).

According to Invest Bulgaria Agency report (2007) competitive advantages of the Bulgaria within food and beverage sector are:

• 55% of territory is agricultural land. • Favourable climate and natural conditions. • Highly fertile soil. • Established local manufactures, and strong traditions. • High quality organic products. • Strong marketing channels in former Eastern block. • Skilled and qualified labour force at competitive cost. • EU Food legislation integrated in the Bulgarian law.

Table 5.1. indicates the Gross Domestic Product (GDP) figures, tax rates, and labour costs for Bulgaria compared to other countries in Europe.

Table 5.1: Comparison between Bulgaria and Europe

Source: Economist Intelligence Unit & Eurostat cited in Invest Bulgaria Agency 2006, p.4

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Table 5.1 indicates that Bulgaria’s estimated labour costs for 2005 was 1.1 USD per hour compared with Italy (21.4 USD) or the top fifteen countries in the EU (2 8.3 USD). However, although the average increase in labour costs is 2.33 % in Bulgaria compared with Italy (0.65 %) or the EU (0.9%), it is still lower than the 5.7 % increase in Russia.

According to an article on www.winebusiness.com (Bulgarian wine – the next big thing? 2006), winemaking in Bulgaria can be traced back to almost 2,500 years when grapes were first cultivated by locals. These grapes arrived from Georgia, and can predominantly be found in five producing areas (the Danube River plains, the eastern coastal region, the Tracian Valley, the Struma Valley, and the valley of Roses in central Bulgaria).

An Invest Bulgaria Agency report (2007), which cites statistics released by the Ministry of Agriculture and Forestry states that 100% of the Bulgarian wine industry is private since 2000. The following figures relate to the wine industry (Invest Bulgaria Agency 2007):

• About 50 cellars produce bottled and bulk red, white and sparkling wines. • 65% of production goes to export, of which 41,6% goes to Russia. • 72 million litres goes to Russia, 19 milion litres to Poland, 3,9 million litres to Germany, 2,9

million litres to the UK and 2,3 million litres to Sweden. • Bulgaria’s wine export in 2006 was 1, 122, 427 hectolitres. • Boyar International (UK )invested 44.2 million USD in wine production in 2006.

Archaeology, folklore, and literature provide ample examples that vines and wine have been a part of Bulgaria since the last Stone Age (History of Bulgarian wine producing n.d.). Although wine has been produced and consumed in Bulgaria for a very long time, their wine industry is not often referred to as a prominent internationally-known producer. Instead Bulgaria was forced to adopt new techniques invented by other producers at a very fast pace (Frederic 2001). The Australian Government released a statistical report in June 2006 in which it indicates that the top three world producers for 2004 are: France with 5,850 million liters of wine per year, Italy with 5,300 million litres, and Spain with 4,000 million liters (Global wine – Australia in perspective 2006). Bulgaria, combined with all other Eastern European producers, lies in thirteenth position with a total production capacity of 394 million litres per year.

According to Sims (2003, p.120, translated from Swedish to English by the authors), Bulgaria exports 90 per cent of its wine, therefore rectifying its problems with land ownership which decreased the export volumes after the communism regime collapse in 1989. Sims, in overview of world wine regions and wines, considers Bulgarian wines cheap and ‘easy-drinking’ and names Cabernet Sauvignon as the most associated Bulgarian wine type. Frederic (2001) notes that among all of the former Soviet Union countries, Bulgaria enjoys the highest amount of attention from wine authors, and buyers.

There are different types of wines in terms of quality: rural wines correspond French vin de pays, variety wines with defined origin correspond with VDQS, special and reserve wines are those which are aged at least two years if they are white, and three years if they are red. The best wines, controlled, are Bulgaria’s response to French appellation controlee, i.e. wines made from specific wine grape type and originated from specific vineyard.

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5.2 Internal Factors In this section empirical findings related to the internal factors that Bulgaria’s wine industry has and their potential influence on its competitiveness and the choice of the strategy are presented, as well as analysis of those factors according to Porter’s model of Competitive Advantage of the Nations are presented.

5.2.1 Factor conditions This section is a description of the natural and man-made factors that considered as resources according to Porter’s Diamond Model. Resources include material resources human resources (cost of labour, level of education), as well as the infrastructure of Bulgaria’s wine industry.

5.2.1.1 Material resources: Natural resources: Bulgaria possesses great diversity in its natural landscapes, climate, and wine production areas. According to Vine & Wine Bulgaria (n.d), mountain ridges encompass plains and valleys. Lush rivers and hills that gradually slope down to the coastal areas create perfect vine-growing areas.

Bulgaria has a very moderate climate consisting of a warm summer and a winter that can be relatively cold (Vine & Wine Bulgaria n.d.). On average, the mean annual precipitation varies between 450 millimetres in the northeast of the country to 1175 millimetres in the higher mountainous areas.

The soil structure is very diverse between various regions. Bulgaria has acidic soils, grey forest soils, rich carbonate soils, fertile black-earth, mountain soils, shallow sandy soils, and various others (Vine & Wine Bulgaria n.d.). According to Vine & Wine Bulgaria (n.d.) all these soils are extremely favourable for vine-growing which can create the appropriate level of grape ripening needed to produce quality both red and white wines.

There are five major producing areas and each region has specific unique attributes. Refer to figure 5.1. (Map of wine producing areas in Bulgaria).

Figure 5.1: Map of wine producing areas in Bulgaria Source: http://www.bulgarianwines.org/img/news/mapenew_1.jpg Figure 5.1. indicates the geographical layout of the producing regions, which are the following:

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The Danubian River plain:

This area is located in the northern part of Bulgaria and is characterized by a moderate climate consisting of hot summers and many sunny days (Vine & Wine Bulgaria n.d.). Many varieties of vines are planted in this area, and the end product is dry white wines, sparkling white wines (made from a traditional technique), and red wines. The Danube River plains account for 30 percent of the overall production, with the Gamza variety and dry Muscats as the most prevalent (Bulgarian wine – the next best thing? 2006).

The Trachian region spreads over Southern Bulgarian, and much like the Dunubian plain it has a moderate climate with the exception of a favourable distribution of precipitation “throughout the growth period of the vines” (Vine & Wine Bulgaria n.d.). Many of the red varieties are planted here, since the climatic conditions combined with the shelter it receives from strong northerly winds, are conducive to it. The Trachian Valley produces the Mavrud variety from which the grapes display the same character as the grapes used in Cabernet or Merlot wines (Bulgarian wine – the next best thing? 2006).

The Black Sea region (Eastern coastal region):

This region can be divided into three main areas where the autumns are long and warm. Contrary to the Trachian region where red wines are favourable, the Black Sea region’s climatic conditions stimulate the accumulation of sugars in the grapes which is needed to produce semi-dry white wines (Vine & Wine Bulgaria n.d.). The eastern coastal region produces many various varieties, and is responsible for another 30 percent of all production (Bulgarian wine – the next best thing? 2006).

The Struma region is located in the south-eastern part of Bulgaria, and although not a large area, it has specific climatic conditions needed for the production of Cabernet Sauvignon, and Merlot. It has a climate very similar to the Mediterranean (Vine & Wine Bulgaria n.d.).

The Rose Valley region can be divided into two sun-regions: the Eastern and Western regions. It is located to the south of the Balkan mountain range. Although many varieties are produced here, its main product is primarily dry and semi-dry white wines. Wine from a local variety called ‘Red Misket’ is rated as one of the best white wines produced in the country (Vine & Wine Bulgaria n.d.). Vine Grape Varieties:

According to the Pleven Institute cited in Frederic (2001), more than 200 varieties of grapes used for wine was cultivated in Bulgaria in 2001. These include domestic (local) varieties as well as international varieties.

According the other source, Bulgarian wine fields are dominated with international grapes as Cabernet Sauvignon and Merlot, Pinot Noir, but if to count on also those grapes that are grew for producing cheap domestic wines, it is cultivated more white grapes then red ones (Sims 2003, p.120). This information contradicts with statistics of Ministry of Agriculture and Forestry of Bulgaria, which states that in 2004 the red wine varieties keep their dominant role in the structure of the harvested vine plantations with a relative share of 62.8% followed by the white wine varieties – 30.6% and the dessert varieties – 6.6% (MAF, 2005, p.110).

Wine expert Clarke (1997, p.226) states that grape that is usually associated with Bulgaria, as well as most planted there, is Cabernet Sauvignon. The taste of Bulgarian wines made of this grape is fully corresponds to the wines from Australia and California made of this most popular blue grape. He names as best in the country wines from Cabernet Sauvignon from Suhidol, Merlot wines form Gamza (Ungerns Kadarka). The author states that local grapes, like Sjiroka Melnisjka Losa, s.c. Melnik, Dimiat, Misket are much better then classical grapes and has more personality.

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Among green grapes the most planted is Rkatsiteli, and the others as Chardonnay, Ugni Blanc, Sauvignon Blanc, Riesling, Muscat Ottonel and Aligote are planted as well. This expert thinks that red wines of Bulgaria is much better then white wines, which were disappointing experience for him. Clarke (1997, p.227) believes that Bulgarian producers didn’t know how to get best from the white grapes until Australian expert Kym Milne in 1993 arrived to Lyaskovets. He believes that due to knowledge transfer the future of quality white wines are light in Bulgaria, especially in such regions as Khan Krum and Varna.

The red vine grapes were developed according the French methods, while white wine- according to German tradition. The experiments are in the process to discover new vine grapes, mostly of Melnik, which is most promising local grape. (Clarke, 1997, p.228)

The general manager of one of Bulgarian wine producing company, Alexandr Kanev CEO of Bessa Valley (Econ. Bg. 2007) states that quality of the wine depends 80% on the quality of the grapes that is why the company pays a lot of attention and resources into selection of the grapes. He also mentions that many companies rely much on old grapes they have from soviet times.

Geogriev (2001) in his analysis of the Bulgarian wine industry problems mentions that industry has a shortage of materials needed for vine planting, but the author does not elaborate in further detail. According to MAF (2005, p.93) last years the import of the planting material (vines) considerably increased in order to improve the quality of varieties of grapes in Bulgaria.

According to Pavlova (2007, personal interview), head of Marketing of Vinimpex (former monopolists) to improve the quality of planting material they import it from France, which increases the quality dramatically.

Space Devoted to Vines and its Structure:

The areas with agricultural purpose1 in 2004 was 5 786 thousand ha in Bulgaria and covered 51.1% of the territory of the country (MAF, 2005, p.11). Among those territories the areas under vines were 129 580 ha, including 34 029 ha of non-maintained vines outside the farms. (MAF , 2005, p.110). Over the period 2001 – 2004 the trend was towards decrease of the areas under wine varieties of vines. This tendency is present in all wine producing countries and size of the global vineyards is decreasing every year last 20 year (World Wine Overview, 2005, p.1). Refer to the table 5.2 for the figures of this tendency in Bulgaria.

Table 5.2. Areas under vines growing in Bulgaria over period 2000-2004 Source: MAF, Agrostatistics (MAF, 2005, p.110)

Year Acreage under vines in the farms (ha)

Non-maintained vines outside the farms (ha)

Total acreage under v(ha)

2000 г. 153 200 7 271 160 471

2001 г. 146 995 4 190 151 185

2002 г. 129 998 15 200 145 198

2003 г. 103 019 28 050 131 069

2004 г. 95 551 34 029 129 580

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In 2004, the harvested areas were a total of 95 551 hectares with the actual area planted with vines being at 129 580 hectares (MAF 2005, p. 110). In 2004 continued the practice for abandonment of vine plantations. The areas of non maintained vines outside the farms are increasing and reached 34 029 ha. This is due mainly to the change of ownership and use of vine plantations, fragmentation of the large farms, as well as of the age structure of the vines. Young vines which are not fruit-bearing are around 511.4 ha. They were created mainly with funds from SAPARD Program and SFA. (MAF, 2005, p.110) It was found by Ministry of Agriculture and Forestry of Bulgaria that a big percentage of the wine vine varieties were with worsened age structure and was in poor agrotechnical and phytosanitary condition. More than 65% are over the age of 20 years (MAF, 2005, p.110). Similar information was presented in 2001 by Frederic who determined that 70 % of Bulgaria’s vineyards were older than 25 years. The rate of replacement was too slow compared to what is needed under normal circumstances (Frederic 2001). According to analysis of experts of Ministry of Agriculture and forestry of Bulgaria the major problems related to the application of agrotechnical measures are as follows:

• Undersized areas within a massif which leads to the application of different technologies and untimely performing of plant protection measures.

• Insufficient and low quality cultivations of the soil; • Insufficient plant protection. This resulted into a big percentage of vine plantations affected by

viruses, fungi diseases and weeding, especially in the private vines, under varieties of low purchasing price. (MAF, 2005, p.110)

The interest of the producers in creating new vine plantations increased in the last years thanks to the financing provided by SFA and SAPARD (Special Accession programme for Agriculture and Rural Development of EU government) Program.(MAF, 2005, p.110) Bulgarian Government prioritizes the wine industry within agricultural sector and with help of EU’s subsides devotes more then half of the total subsides into renewing Bulgarian vineyards and recreation of plantations with wine varieties vines (MAF, 2005, p.80). According to Common Agricultural politic of EU, the total acreage of the registered farms will be 153 500 ha; for 2005 their acreage should be 68 960 ha and for 2006 – 66 180 ha. In 2004 vine-growing farms covering 18 752 ha of the lands. (MAF, 2005, p.116).

The expert monitoring made by SAPARD program representatives shows that the vines planted with international varieties with a higher purchasing price (Chardonnay, Muscat Otonel, Cabernet Sauvignon, and Merlot) are managed well. The necessary cares are not taken for the plantations under domestic varieties (Pamid, Dimyat, Red Misket, Shevka, etc) as they are less known and are of low interest by the wineries (MAF, 2005, p.116).

According to Pavlova (2007, personal interview), head of Marketing of Vinimpex (former monopolists) in order to improve the quality of the vine grape and consequently the wine, they hire specialist –agronomist, which make soil analysis to suit it better to the grape type before planting.

5.2.1.2 Human resources: Education levels in Bulgaria are amongst the top 5 % of all European countries, and 70 % of all students study the English language (Invest Bulgaria Agency 2006, p.4), the literacy rate in Bulgaria was estimated as 98.6% (CIA, 2007) compared i.e. the literacy rate among adult farm workers in South Africa was estimated as 20% according to Wine Industry Transformation Charter 2006 (p.27).

The cost of the labour in Bulgaria comparatively to the other European countries is low (table 5.1.)

According to Invest Bulgaria Agency report (2007) one of the competitive advantages of the Bulgaria within food and beverage sector is “skilled and qualified labour force at competitive cost”.

There is a Bachelor and Master program in Sofia’s University Of Food Technologies with focus on Beverage Technology with a specialization in wine, beer, spirits and soft drinks. The other specialized

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education is given in Higher Institute of Food Industry in Plovdiv, with a Bachelor's Degree in Winemaking and Spirits Production.

Frederic (2001, p.5) noted that Bulgaria’s researchers, teachers and wine makers did not gain sufficient knowledge since the collapse of the Soviet Regime.

Nowadays Bulgarian governments prioritize the modernization of the agricultural education and training is based on the updating of the legal basis according to which the national and the sectorial system of vocational training and education operate. The National strategy for continuous professional education over the period 2005-2010 focused on ensuring suitable education and professional education for improving the fitness for employment of the working force in Bulgaria (MAF, 2005, p.103).

According to annual report of Ministry of Agriculture and Forestry of Bulgaria (2005, p.101) n the school 2004/2005 year in the vocational schools under MAF, 98 in total, were educated 32 776 students. The vocational high schools are grouped as follows: agriculture – 72 schools, forestry and woodworking – 14 schools, food, wine and tobacco technologies – 12 schools. Most of the subjects are focused on economic and demographic specificity of the region, needs of the labour market and desire of the students.

According to New Zealand’s researcher in the field of wine business Bretherton (2004, p.42) the type of knowledge is required for the wine industry is highly specific and in many cases is not available locally, both oenological and managerial. This author states that in wine industry it is important to exchange information and create international programs to educate world class specialist in this sphere.

Some Bulgarian producers realize the need to improve education quality of the winemakers and its management, using international experience. Some of top managers and quality mangers within Bulgarian wine industry prefer to study abroad in specialized oenological universities, for example CEO of wine company Bessa Valley, Alexandr Canev got his Bachelor degree in Oenology in Swiss University Changins (Econ. Bg. 2007).

According to Pavlova (2007, personal interview), head of Marketing of Vinimpex (former monopolists) skilled human resources is the second most important factor (after quality grape varieties and good harvest) that creates the company’s competitive advantage and allow s it to improve the quality. Company carefully selects the specialist to hire.

5.2.2 Demand conditions This chapter describes the domestic and international demand for Bulgaria’s wine.

Domestic demand

The nature and scope of the demand within a domestic market can have a great influence on the strength of an industry (Heijbroek 2007). According to Porter (1998, p.10) if industry faces domestic customer demand for high quality, it is more likely that the quality within those industries will be high as well.

The structure of export-import in Bulgaria’s wine industry presented at figure 5.2. The quantity of export from Bulgaria is much more then import in term of volume. According to research made by Geogriev (2001, p.4) the domestic wine market of Bulgaria is small and it is estimated between 10 and 20% of domestic production.

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Figure 5.2.Imports and Export of Wines (1999 – 2002) Source: Ministry of Agriculture and Forestry 2002 According to SFB (2003), producers sold 276 870 hectoliters of wine on the domestic market in 2002 (representing a figure of 23 % of total production). This shows an increase of 48 % from the previous year’s figure of 200 130 (SFB 2003). According to an article published in the Bulgarian Post (Bulgarian Wine to Prosper into 2007, 2007), domestic sales of wine had been shadowed by black market wines available in outdoor markets and independent stores. Estimates by the Ministry of Agriculture in 2000, indicate that 200 million litres of unregulated wine was consumed by Bulgarians during that year. This estimate declined by more than 80 million litres the following year (Bulgarian Wine to Prosper into 2007, 2007). The article also states that there is a definite growth in the demand of Bulgarian wine, both domestically and internationally. The increased success of Bulgarian wine on an international level is also viewed as a key factor for the rejuvenation of the domestic demand (Bulgarian Wine to Prosper into 2007, 2007). Bulgaria imports small volumes of wine, chiefly special wines. However there is a great increase in the import in 2005. Compared to 2004 the increase is 28 000 hectoliters or 31 times. (SFB, 2005) In 2004, a total of 7 564 hectolitres of wine worth EUR 1 321 000 were imported, which represents only 0.01 per cent of the country’s total import. The value of imports all through the review period is higher compared with 2001. (SFB 2004).

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Figure 5.3. Dynamic of import of wine to Bulgaria, litres. Source: MAF 2005, p.181.

According to the data of Customs Agency (MAF, 2005, p.182), in 2004 it was imported 756 348 l of wine. This is approximately by 40% lower as compared to 2003, and it was marked an increase for sparkling and bottled wines and significant decline for broached wines. The largest quantity of broached wine was imported from France - 173 180 l. Other importing countries were: Chile (48 000 l), Australia (25 890 l ), Spain (25 833 l). The imports from France and Spain increased significantly as compared to 2003 which could explain the lower import prices.

Countries 2003 2004 I-VI. 2005

Poland 89 696 91 275 9 450 France 38 828 43 758 21 697 Germany 43 594 16 706 14 005 Italy 36 989 45 508 26 201 Spain 7 574 52 270 2 479 Netherlands 6 163 11 469 5 099 Grece 10 575 1 885 764 Portugal 2 700 990 254 Belguim 2 381 4 - Macedonia 923 - 3 911 Slovenia 1 232 68 932 Mexico 1 095 120 - Ukraine - 30 971 11 Sweden - 15 012 - Slovak Republic - - 23 040 Latvia 16 020 Turkey 9 3 750 Others 2 845 38 424 14 224 Total 244 595 348 460 141 837

Table 5.3. Imports of wine to Bulgaria, litres.

Source: MAF, 2005, p.181.

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According to the data of Customs Agency, cited in annual rapport of Ministry of Agriculture and Forestry of Bulgaria (2005, p. 181) in 2004 there were imported 348 460 litres of bottled wines, which was 42% higher as compared to the preceding year. The largest quantities of bottled wines were imported from Poland (91 275 l), Spain (52 270 l), Italy (45 508 l) and France (43 758 l). There were also imports from countries, from which during 2003 there was any imports (Ukraine and Sweden). The average import price was 2.57 USD/l and it is close to this one of the preceding year. In 2002, approximately 80 percent (80 %) of all wine produced in Bulgaria, was destined for export, mainly to the European Union (Bozhinova 2002). Figure 5.4 shows the comparison between the imports and exports of wines into and out of Bulgaria during the period of 1999 to mid-2002. Figures in the first column represent the imports while figures in the second column represent the exports of domestic wine. From 1999 to 2002, a large majority of Bulgaria’s wine was exported.

External (International) demand

The Ministry of Agriculture and Forestry present detailed figures in their annual report of relevant exports and imports into Bulgaria. They categorize the imports into two main categories: the imports of grapes used for wine production, and the import of wines used to create a mixture of Bulgarian and the imported wine to be sold in international markets. Exports are divided into the exports of grapes (i.e. used by other countries to produce wine), and the exports of various types of wines produced in Bulgaria (Ministry of Agriculture and Forestry 2002).

Figure 5.4.Dynamics of exports of wines from Bulgaria

Source: MAF, 2005, p. 179

Statistic for previous years (MAF, 2003) 47 % of the total exports of 3bottled wines in 2001 was destined for the European Union market. Of the EU market, the United Kingdom represented the largest share of 42 %, while Germany accounted for 34 % of the EU exports. Other key markets for 2001 included Poland, the Czech Republic, and Russia (which accounted for 10 % of all exports) ((Ministry of Agriculture and Forestry 2002, p. 13).

In 2003, the biggest wine export share shifted towards Russia and the Commonwealth of Independent States (42 %) followed by the traditional European Union markets as mentioned above (SFB 2003). 3 Bottled refers to wine that is fermenting in bottles, as well as wine that fermented first and was then bottled.

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2003 2004 І-VІ. 2005 Countries

Quantity in litres Russia 20 882 078 30 893 978 23 989 302 Poland 13 647 360 17 953 336 9 725 559 Great Britain 6 362 468 4 731 088 1 319 177 Germany 4 625 894 3 624 280 682 862 Latvia 2 854 059 1 961 211 823 224 Lithuania 2 473 187 1 920 439 699 221 Czech Republic 1 760 831 2 101 932 850 721 Sweden 1 023 259 1 225 281 724 189 Netherlands 1 008 824 652 446 224 645 Estonia 795 828 749 571 350 568 Bielorussia 519 311 679 846 90 300 Canada 546 685 414 396 202 625 Mongolia 403 511 531 869 128 229 Israel 444 083 450 657 49 250 Belgium 370 598 560 508 291 209 Turkmenistan 267 850 331 800 100 800 Moldova 259 210 3 41 Slovak Republic 224 047 407 594 263 288 Others* 1 352 633 1 499 101 728 477 Total 59 821 716 70 689 336 41 243 687

Table 5.4. export of wine from Bulgaria. Source: MAF, 2005, p.160

According to the data of Customs Agency (MAF, 2005, p.160) in 2004 there were exported 90 278 920 l of wine; by18% more as compared to the previous year. The average export price was 0.88 USD/l and it is near to this one registered in 2003 The value of exported wine quantity figured out at 79 902 888 USD.

During the last several years it was observed a trend to increase of bottled wines exports. In 2004 there were registered exports of 70 689 336 l of bottled wines; by 18% higher as compared to 2003. The increase was due mainly to the growth of exports to Russia and Poland, that are traditional importers of this commodity. 58% from the exports of bottled wines in 2004 were intended for these countries.

Others important partners were: Great Britain (6 675 385 l), Germany (4 741 799 l) and Sweden (4 741 799 l). The exports to these countries decreased because of unstable quality of Bulgarian wines. The average export price figured out at 0.95 USD/l and it is close to 2003 price.

In 2004 there were exported 5 548 762 l of special wines (wines, with alcoholic contents from15 to 22%) which is by 36% more as compared to 2003. About 92% from their total exports was intended for the markets of Russia and Poland.

Figure 5.5. Structure of exports of wines from Bulgaria

Source: Information Services cited in Ministry of Agriculture and Forestry 2005, p. 16

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According to Frederic (2001, p.7) one of the weaknesses of Bulgarian wine industry is lack of understanding the new types and qualities of marketable wines. The author mentions that even on traditional export market - Russian, the demand for lower quality wines is sharply decreasing and competitions became much stronger then before.

The Chairman of National Vine and Wine Chamber (Nikola Nikolov) was cited in Bulgarian Wine to Prosper into 2007 (2007) as saying that the export market for Bulgarian wine will continue to grow in 2007 based on the increased demand in Eastern Europe and Asia. This "follows a shift in demand for the country's wine producers as growing economies in Russia and Eastern Europe replace more established markets like France and Britain" (Bulgarian Wine to Prosper into 2007, 2007). Despite the decline of exports to France and Britain, overall export figures released for 2005, show an increase of 25 % which can be attributed to the increased sales in Russia, the Czech Republic, and Asia (Bulgarian Wine to Prosper into 2007, 2007). Porter argues that under normal conditions, a country's home market has the ability to influence an organization's ability to recognize the needs of customers (Porter's Diamond n.d.).

5.2.3 Related and supporting industries Growers of vine grapes and wine makers are dependent on each other, as well as other types of businesses are involved in growing grapes and making wine. According to definition of related and supported industries, given by Porter (1998, p.10) and his example of wine cluster in California (refer to table ) related to wine industries refer to the industries that supply the materials needed to wine producing: grapes, agrichemicals, harvesting and irrigation equipment, winemaking equipment, bottles, labels, etc. Most of those industries would not exist without wine industry and are not creating significant sustainable competitive advantage, though create possibilities to improve the operational activities (Porter, 1996, p.62). The most important industry within related to wine producing industry is agricultural part of vine growing.

The director of Domain Boyar, Bulgaria’s leading wine exporter in 2003, was quoted as saying "The inconsistent supply of raw material has idled 80 % of our production capacity” (Winery deal probed 2003.). It is speculated by the author of the article that due to the lack of support from related industries, Domain Boyar experienced financial difficulties and were attempting to sell some of their production plants (Winery deal probed 2003).

Frederic (2001, p.10) mention that relationships between wine producers and grape growers in Bulgaria is characterized with lack of communication, based on suspicion and jealousy, as well as conflicting. The author pinpoints that this problem is urgent and should to be solved as it influence the effectiveness of the whole industry. According to research of Bulgarian wine industry made by Frederic (2001, p.10) the lack of communication between wine producers and state representatives is also significant, this situation “even worsened by unfriendly business relations among wine producers and strong opposition between the market leaders and small companies”. This author explains the reasons of the situation are sometimes conflicting interests of the participants in the industry and bureaucratic and inefficiency image of the state entries. One of the solution that author suggests is creating the organisation which will be able to unite representatives of related to wine industries in order to reach their common goal.

One of those organizations that can play a significant role in creating national cooperation between all related organizations within Bulgaria’s wine industry is The National Vine and Wine Chamber (referred to as NVWC henceforth) which was established in February 2000, by new legislation for wine industry of the country, and comprises of professionals in Bulgaria involved in vine growing, and wine making processes (National Vine and Wine Chamber n.d.). It is a non-governmental association with a mission to "defend and promote the professional interests of its members as well as to guarantee and promote the quality, authenticity, and origin of wines" (National Vine and Wine Chamber n.d.). According to their web site, the NVWC has six regional units operating under the same instructions: to increase the development and competitiveness of the Bulgarian vine and wine industry. The NVWC together with its associated community aim to "restore the reputation of Bulgarian wine by ensuring its competitiveness" (National Vine and Wine Chamber n.d.).

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The NVWC claims that it is the first time in Bulgaria's history that the government divided some of its power into the non-governmental sector of the wine industry (National Vine and Wine Chamber n.d.). The duties of the NVWC include the following aspects:

• Keep accurate records of vine growers and quality wine producers. • Issue a certificate authenticating the origin of quality wines. • Issue a certificate authenticating the quality of the grape varieties. • Carry out mandatory tasting sessions. • Define the strategies needed for the development of vine growing and wine making. • Implement the policies relevant to the wine industry.

These strategies are reviewed by the Minister of Agriculture and Forestry, and the Minister of Economy (of Bulgaria) before approval is granted and the NVWC can implement them (National Vine and Wine Chamber n.d.)

According to Pavlova (2007, pers. comm, 28 May), head of Marketing of Vinimpex (former monopolists) there are few organizations in Bulgaria that try to unify the producers and all related to the wine industry, but no any of organizations had succeeded enough at the moment. She mentions that as one of the most serious obstacles – the lack of the unity of producers- to be more successful as industry on the global marketplace.

Governmental organizations still play an important role in the wine industry of Bulgaria. One of their functions is the Research Activities and financing the research institutes within the wine industry on national level.

Ministry of Agriculture MAF, further referred as MAF, (annual report 2005, p.100) focusing lately more on scientific and research and applied activities and created two basic documents – Strategy for Development of the Science in the Agrarian Sector and the Program for Development of the National Centre adopted by the National. There are some important for wine industry focuses for research directions that developed by Centre for Agrarian Science (NCAS) and approved by MAF. They are:

• Collection, research, storage and management of the plant genetic resources in the country; • Improvement of the varieties of the key for the country agricultural crops concerning yields,

ecological plasticity and quality of the production; • Production and control of quality pre-basic and basic seeds and planting material; • Complex environmental and economic assessment of the soil resources and new technologies for

increasing the soil productivity; • Evaluation of the agro ecological potential of the agricultural regions and diversification of the

agricultural production (MAF, 2005, p.100-101).

There are 12 vocational high schools for food, wine and tobacco technologies, as well as 72 with agricultural focus in Bulgaria (MAF, 2005, p.101).

According to many authors, studying the global wine industry, one of the most important supporting industries creating additional value and increasing productivity within wine industry is wine tourism (Porter, 1998, Marsh & Shaw, 2000, Bretherton, 2004, Perovic, 2006).

According to Ministry of Economy and Energy of Republic of Bulgaria (2007), tourism industry is the top priority sector contributing up to 12,5 % of GDP. The main advantage of the Bulgarian tourist industry is the diversity of the nature. Its concentration over a small territory allows the combination of different kinds of tourism.

Though in our research we could not find any evidence of presence of the wine tourism in Bulgaria supported by governmental bodies of the country. Biggest producers and some small local travel organization (i.e. http://www.bulgariancoast.com/infotips/wine.asp and

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http://www.visittobulgaria.com/visit/Dir.asp?d=0-4-Wine_in_Bulgaria ) are organizing tours and wine tasting to their wineries, though information about those activities available only locally and there is no specific efforts made to market this part of the business internationally.

As Bulgarian government gives priority to the tourist industry and creating the infrastructure for the industry, some additional attention can be paid to wine tourism in the country. Wine producing regions are spread around the country and have significant diversity, which as it was mentioned considered the main advantage of the tourist industry in Bulgaria. Creating this additional branch within the tourist industry with cooperation with representatives of wine (and eventually food) industry, will benefit to the all participant industries as well as regions.

Cluster development within the industry will benefit its profitability. According to Bretherton (2004, p.43) different wine regions may be considered as clusters as they are working co-operatively, as every area has its unique characteristics and its unique features that produce wine distinctions, “all regions are different and they are good in their own”. The author suggest to develop the regional differences and cooperate between regions to the extend of shared by them interests.

5.2.4 Industry strategy, structure, and rivalry In this chapter presented the finding referring to the strategies used within the Bulgaria’s wine industry in historical context, the structure of ownership of the industry, as well as degree of rivalry init.

5.2.4.1 Industry historical context The importance of the wine and wine industry has its roots in 1879 when the first Wine Law was enacted, and the first Bulgarian Constitution was not yet in effect (after the country’s liberation) (History of Bulgarian wine producing n.d.). This first Wine Law played an important role in creating and industry with worldwide authority. As an effect, Bulgaria was ranked fourth in wine producing in the world (History of Bulgarian wine producing n.d.). Wine production has been a tradition in the rich and varied land of Bulgaria′s countryside for centuries. Traditionally the vast bulk of wine produced in Bulgaria was sold as table wine, supplying (among others) the huge market of the USSR in return for raw materials (Bainbridge & Roe, 1994).

A new “Wine and Spirits Act” came into effect in 1999 in Bulgaria. This act was specifically designed to promote the development of vine-growing and wine-making, as well as the industry within the country (History of Bulgarian wine producing n.d). It was designed to use a system of economic, social and legal measures to the benefit of the wine industry. According to the History of Bulgarian wine producing (n.d), this Act specifically targets the production of quality wines through the use of the country’s resources, as well as advanced technology. It also established the duties of the National Vine and Wine Chamber (NVWC) as a representative for the processing companies, producers and traders (Frederic, J 2001).

According to Clarke (1997, p.226), one of the main competitors of Bulgaria are Hungary and Romania. Hungary easily adopted approach of the New World embedded new technologies of wine making without forgetting its own old wine history.

Clarke (1997, p.226) states that the history of winemaking of Bulgaria stretches not that far, only to the times after the Second World War. This author states that even vines were planting in Bulgaria even before, but it was decision of Soviet Union to make Bulgaria its wine supplier which resulted in planting significant quantities of vine fields and growth of many vineyards.

The other significant event in the history of Bulgaria’s wine industry was barter agreement with management of American Coca-Cola plant in Bulgaria, which gave the country access to vast international grape types on which Bulgaria later built its stable export position (Clarke 1997, p.226).

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According to Pavlova (2007, pers. comm., May 28, head of Marketing of Vinimpex (former monopolists), historical background and tradition gives the additional competitive advantages to the countries which has it, as for example Bulgaria.

5.2.4.2 Wine industry structure: Market conditions refer to the stability of the industry, and the structure of the Bulgarian wine industry. In 2001, a few (4-6) companies dominated the Bulgarian wine industry by doing more than 80 % of the business (Frederic 2001). In 2002, there were around thirty (30) large wine companies, and around one hundred and twenty (120) cellars in Bulgaria (Bozhinova 2002). During the same year, approximately 5000 grape producers had been registered with the National Vine and Wine Chamber (Ministry of Agriculture and Forestry 2002, p. 4)

In May 2006, there were more than seventy (70) wineries in Bulgaria, and good quality wine “is constantly emerging” (Bulgarian wine – the next big thing? 2006).

Market analyst, Euromonitor, revealed in its 2006 report on the Bulgarian alcohol industry that the wine sector had grown in sales with approximately 4 % from the previous year (2005) (Bulgarian Wine to Prosper into 2007, 2007). Compared to other alcoholic spirits in Bulgaria, wine was the fastest growing industry in 2006 (Euromonitor cited in Bulgarian Wine to Prosper into 2007, 2007).Euromonitor (cited in Bulgarian Wine to Prosper into 2007 (2007)) estimates that the Bulgarian wine industry will enjoy a very healthy growth period for the time frame 2005 to 2010.

According to Frederic (2001, p.4) exports of wine represent more then 2% share of Bulgarian exports in terms of value. Frederic (2001) identified two main difficulties for the Bulgarian wine industry in 2001: the labelling system, and the direct competition between some Bulgarian wines and New World Wines. Nonetheless, wine vines produced 332 597 tons of grapes in 2004. These grapes were dispersed among fresh consumption, and wine or other products.

The management of the soil resources by insuring multifunctional usage of the existing information for the soul cover and land use by the owners and the users of land, the specialized agricultural structures and the management bodies at different levels is the main purpose of the Executive Agency on Soil Resources under MAF. (2005, p.14)

In 2004 the number of the registered agricultural producers was 66 772 – physical and legal bodies in Bulgaria (MAF 2005, p.9.). Among them 3 685 are registered vine-growing farms covering 18 752 ha of the lands (MAF 2005, p.116).

In 2004 the average grapes yield was lower compared to the previous year by around 7%. This was due to the unfavourable climatic conditions in some regions of the country. The average yield for the red wine varieties in the country was 4150 kg/ha and for the white vine varieties - 3610 kg/ha. The average yield of vine-arbours in 2004 was 12 kg per vine-arbour (MAF 2005, p.113).

Grapes production from vines in 2004 was 332 597 tons, including wine grapes – 95.1% and dessert grapes – 4.9%. 18 871 tons grapes from vine-arbours were produced in 2004 which is 30% less compared to the previous year. (MAF 2005, p.116). The wines produced in 2004 were 1 417 467 hl, which was by 115 856 hl less compared to 2003 or 7.6 %. Table wines production increased by 75 820 hl or 8.7%. Production of sparkling and special wines was increased by 3 389 hl (MAF 2005, p.115). Production of regional wines decreased by 52 905 hl or 16.9%. The decreased production of quality wines was by 142 160 hl or 40.7 %.(MAF 2005, p.115).

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Figure 5.6 below gives and overview of the dispersal of grapes produced in Bulgaria during 2004.

Figure 5.6 Distribution of grapes produced in 2004 Source: A Situation of Agrarian Sector 2005, p. 111

The percentage ratio of the table, regional and quality wines of the total production was as follows: • 43 338 hl of table wines or 66.6%; • 260 845 hl of regional wines or 18.4%; • 206 949 hl of quality wines or 14.6% (MAF 2005, p.113). The South-East region is known as the main producer. The wines produced in the region were 450 748 hl which is 32% of the total quality for the country. The total quality of the produced quality wines in the region was 90 196 hl or 44% of the total produced quality wines.

According to the Wine Law, wines in Bulgaria fall into the following category of origin (Bulgarian Coast n.d.).:

1. Wine without declared origin, but of declared variety or registered brand name. They constitute 5%

of the total production of the quality wines. 2. Regional Wines, also called Country Wines. These wines possess the original properties of the

grape varieties they are made from Two varietal names can be mentioned on the label. They correspond to the category VIN DE PAYS (France) and LAND WEINE (Germany). These wines constitute 18% of the total production of quality wines.

3. Wines of Declared Geographical Origin (D.G.O.) These are wines made from selected grapes originating from a particular geographical region. Origin is declared by the producer. This category constitutes 70% of the quality wines.

4. Wines Of Controlled Appellations of Origin (A.O.C) These wines are made from grapes, originating from strictly defined and controlled micro-regional vineyards with a limited maximum yield of grapes per hectare and defined minimum sugar contents. These wines constitute about 2% of the total production of quality wines.

5. "Reserve" Category This is a special category of wines aged in small oak casks with the purpose of extracting phenolic compounds from the wood, and then in larger oak casks. Reserve wines can be either of declared geographical origin, or of controlled appellation of origin.

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5.2.4.3 Structures of ownerships: According to Bainbridge & Roe (1994) under communist time, the Bulgarian wine industry was a state-controlled monopoly for 46 years. Vinprom, the state organization, supplied national demand and, via its export arm, Vinimpex, handled the industries exports. The planting of the grapes was strictly controlled by the state Even after fall of the communist regime, Vinprom still controlled 80 per cent of wine production in Bulgaria in 1991. According to a case study conducted by Bainbridge & Roe (1994), Bulgarian wine made a very dramatic entry into the United Kingdom's wine market during the 1980's. At this time, the wine industry was fully controlled by the State which both supported and hindered the overall growth. The State did not favour a market-oriented approach in terms of production, pricing, and exporting (Bainbridge & Roe 1994). The wine industry was controlled by the state until the fall of the Iron Curtain in 1990 (Bulgarian wine – the next big thing? 2006). According to Pavlova (2007, pers..comm., 28 May), the privatization process added to lowering the image of Bulgaria on the global market, as at this period many new producers did not follow the technology and exported wines of inconsistent quality, this has changed now and most of the producers realize the importance of quality, but image was damaged significantly and it is the miracle, on her opinion, that Bulgarian wines still has some market share.

Figure 5.7 Structure of Bulgarian wine industry in 1990 Source: Bainbridge & Roe (1994).

According to Bozhinova (2002), the Bulgarian wine industry is a "traditional and strategic branch of the economy". During the period of 1995-1999, the Bulgarian wine industry moved towards privatization, and today all wine companies fall under the above category. According to Bozhinova (2002), three kinds of investments were made during the process of denationalization:

• Mass privatization (through funds and wealthy individuals). • Cash privatization (employees and managers of companies used their entitlement to free stock to

advance the process). • Cash privatization indirectly through the use of privatization funds (Bulgarian companies who

showed interest in the wine industry). The investment climate in Bulgaria is very suitable due to a budget surplus, low inflation, and a currency that is pegged to the Euro (Invest Bulgaria Agency 2006, p.4).

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Figure 5.8 illustrates how the Bulgarian wine industry operates compared to other international producers.

Figure 5.8 Overview of the Bulgarian Wine Industry (2001)

Source: Frederic 2001

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5.2.4.4 Rivalry within the Bulgarian wine industry: Frederic (2001) discusses the idea that there is a lack of communication within the wine cluster of Bulgaria. Several reasons are given for this lack of communication, and they are: a sense of jealousy and suspicion that exist between producers, the inefficiency of the State to control the image of wine, as well as a conflict between the grape growers and wine producers. Since grape growers had not been rewarded in the past for increasing their quality yields, and producers were reforming towards higher quality wines, their interests did not match (Frederic 2001).

According to an article published in the Bulgarian Post (Bulgarian Wine to Prosper into 2007, 2007), domestic sales of wine had been shadowed by black market wines available in outdoor markets and independent stores. Estimates by the Ministry of Agriculture in 2000, indicate that 200 million litres of unregulated wine was consumed by Bulgarians during that year. This estimate declined by more than 80 million litres the following year (Bulgarian Wine to Prosper into 2007, 2007). The article also states that there is a definite growth in the demand of Bulgarian wine, both domestically and internationally. The increased success of Bulgarian wine on an international level, is also viewed as a key factor for the rejuvenation of the domestic demand (Bulgarian Wine to Prosper into 2007, 2007).

According to Pavlova (2007, personal interview), head of Marketing of Vinimpex (former monopolists) international competition is much tougher then domestic.

5.2.4.5 Industry context and conditions Lapsley and Moulton (2001) as cited in Mora (2006) re-iterated how crucial it is for wine producers to create their own identity in their book “Successful wine marketing”. Two of the most prominent wine producers in Bulgaria, Domain Boyar JSC and Vinprom – Svishtov Plc., are responsible for the creation of a variety of brands (Geogriev, B. n.d.). Geogriev discusses the idea that during the beginning of the year 2000, a lot of investments were made in producing plants and high tech equipment.

However, according to Zaharieva, E & Gorton, M & Lingard, J (2004), the wine industry has been unable to deliver consistent and high quality grapes which lead to a decline in the perceptions of "brand Bulgaria", and an overall fall in their shares in international markets. Their study also revealed that most Bulgarian exporters compete in the low-price category which limits their resources for differentiation (Zaharieva, E & Gorton, M & Lingard, J 2004). According to Perovic (2006, p.10) the focus on low prices didn’t leave a sustainable margin for investments in vineyards and it was the reason why wine production is continuing to decline.

The Bulgarian wine industry during communistic regime were oriented on export and due to subsides, which allowed to have low export prices

According to the article Bulgarian wine – the next big thing? (2006), the image of Bulgarian wine has suffered in the past decade due to a few factors:

• Pepsi Cola started producing cheap, bulk wines that were of a low quality. Pepsi Cola exchanged Bulgarian wine for Pepsi concentrate and in the process, neglected to maintain or improve the original quality before releasing their red and white varieties (Trakia and Sofia).

• Before the fall of the Iron Curtain, Russia would bulk buy all Bulgarian wine; transport, and sell it within Russia.

Since the political climate changed in the 1990’s (Bulgarian wine – the next big thing? 2006), premium wines have made their way out of the local market and into the world market. Although Bulgaria produces many varieties of wine, the Mavrud is the highest quality wine with characteristics which facilitate “long-term aging” (Bulgarian wine – the next big thing? 2006).

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According to Pavlova 2007, pers. comm., 28 May), head of Marketing of Vinimpex, former monopolists, Bulgaria produces wines of good quality but not special ones, this is direction the producers should work together to prove themselves on the global market.

According to Pavlova 2007, pers. comm., 28 May) the image of Bulgaria’s wine suffered a lot because of privatization process, lack of unity of producers and marketing mistake made before.

An additional case study conducted in 2004 by Zaharieva et.al. indicates that the Bulgarian wine industry still predominantly has a product orientation instead of a market focus. The case study reveals that a market orientation has not fully been implemented due to several factors: internal inertia within the industry, ignorance, ownership structures that are still ambitious, and a failure to procure grape. However, a minority of wineries has become more focused on a market-oriented approach (Zaharieva et.al 2004).

5.2.5 Government Subsidies: According to MAF (2005, p.80) capital subsidies for creation of perennials from vines, roses, orchards are 529 thousand BGN in 2004. The long-term financial investments in form of crediting from State Fund of Agriculture for creating perennials, restoration of vines determined as one of priority direction of investments (MAF 2005 p.78-79). Table 5.5 (below) shows that the Ministry of Agriculture and Forestry of Bulgaria devotes a lot of resources into improving performance of the wine industry. The biggest part of all agricultural subsidies belongs to restoration and creation of perennials of vines in order to create better quality grape resources and improve quality of wine and make the vineyards younger.

2002 2003 2004 Number

of projects

ha Amount in BGN

Number of

projects

ha Amount in BGN

Number of

projects

ha Amount in BGN

Vine 10 279,3 5 005 313 21 511,5 10 336 241 15 304,1 6 245 949 total 37 8 012 282 123 15 502 416 119 14 510 808

Table 5.5 Resources for vines restoration and creation of perennials

Source: MAF annual report, 2005.p.80 Over the period 2007-2009 around 1.8-2 billion Euro in the form of direct financing will be received in the country. 1.5 of them under different forms of subsidies will directly reach the Bulgarian producers. Every agricultural producer will receive around 1000 Euro as annual support. This money is for the so called semi-subsistent farms - small farms which produce for their own consumption and for the market. (MAF, 2005, p.10) Governmental supported research focus: One of main activity of the Perennials Department of MAF of Bulgaria (MAF, 2005, p.105) is was “the support to the agricultural producers for restoration of old and creation of new orchards and wines. With the direct support of the experts from the RAAS 1524 ha of orchards and vines were restored”, mainly in South region. Special attention was paid to the training of the agricultural producers in the sector on issues related to the obligatory soil analysis before the planting, use of quality and certified planting material, application of appropriate agrotechnics and plant diagnostics. Advice and consultations were provided on the terms and conditions of planting of new vines, as well as for re-planting, engrafting and rooting of the existing vine massifs. Expert assistance was provided for the application of appropriate agricultural practices -selection of suitable varieties, rootstocks and planting schemes, applying of balance fertilisation and appropriated agrotechnics. (MAF, 2005, p.105).

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Together with the International Potassium Institute 4 workshops were held on balanced fertilisation of orchards and vines in the districts of Blagoevgrad, Veliko Tarnovo, Sliven and Bourgas where around 200 agricultural producers participated in them. 3260 soil samples were analysed in the laboratory mainly for creation of new perennials. The analysed area was two times bigger than in 2003. Diagnostics of the leaves was also performed of fruit-bearing orchards and vines from 26 farms and advice was provided on appropriate feeding with macro and micro elements and restoration of their optimal ratio in the plants. (MAF, 2005, p.105). Organic agriculture Organic agriculture continues to be a priority matter for National Agricultural Advisory Service (NAAS). Numerous events that were held over the year were directed towards acquainting the farmers with the requirements for organic production, with the procedure for certification of the organic production as well as with the options for maintenance of the soil fertility and perseverance of the natural balance in the ecosystem by applying appropriate organic fertilisers, etc. The analytical Laboratory analysed soils for contents of nutritious elements and heavy metals and an assessment was made for the suitability of the areas for that type of production.(MAF, 2005 p.108) Focus of governmental subsides within wine industry seems to be very relevant towards priorities within wine industry. International regulations: Preparations for entering the EU started long in advance in Bulgaria and most of the laws and regulation were prepared to harmonize. According to annual report of MAF (2005, p. 106) in 2004 the activity of the National Agricultural Advisory Service (NAAS) was directed to the preparation of the sector for the EU requirements related to the organization of the agricultural production and to the agricultural production market, the implementation of appropriate agricultural practices and the environment protection, production of quality and safe production, the need of establishing producer groups, etc., as well as to providing of specific advice, consultations and services to the agricultural producers. The Common Agricultural Policy of the EU and the organization of the market after 2007 are the main topics on which NAAS is training its experts and works actively with the agricultural producers in 2004. The purpose is to strengthen the capacity of NAAS for the successful implementation of the EU standards and mechanisms in agriculture. In 2004 the advisory activity of NAAS corresponded to the priorities of the country in the agriculture and aimed at the preparation of the sector for fulfilling and implementing the commitments under Chapter Agriculture which was closed in 2004. Cooperation with international organizations According to annual report of situation in agrarian sector of Bulgaria (MAF, 2005, p.9) there are some important events in terms of international cooperation were undertaken:

• It was prepared the participation of Bulgarian official delegation in the 24th European conference of the UN Food and Agriculture Organization (FAO).

• In relation to the preparation of Bulgaria's accession to the EU and Euro-Atlantic structures, in 2004 MAF representatives took participation in the meetings of Planning Committee in the field of foods and agriculture (FAPC) within the NATO High Committee on civil planning in emergency situations

• MAF representatives prepared Bulgarian participation in the General Assembly of the International Vine and Wine Organization.

With help of international agreements, Bulgaria got some additional export opportunities in terms of reduced customer rates and increased quotas for exporting wines. In 2004, Bulgaria has this kind of agreements with EU, Serbia & Montenegro with 0% of custom rates, with Turkey and Macedonia – with 50% reduced export rate.

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The aim of SAPARD (Special Accession programme for Agriculture and Rural Development) is to help the 10 beneficiary countries of Central and Eastern Europe deal with the problems of the structural adjustment in their agricultural sectors and rural areas, as well as in the implementation of the acquis communautaire concerning the CAP (Common Agricultural Policy) and related legislation. It is designed to address priorities identified in the Accession Partnerships. SAPARD was established by the Council Regulation 1268/1999 in June 1999, on the basis of a Commission proposal as part of the Agenda 2000 programme for increased pre-accession assistance in the period 2000 - 2006. The main features of SAPARD are:

They only finance agricultural and rural development measures. They had a budget of € 225.2 million for Bulgaria and Romania in 2004.

(Until 2003 the overall annual budget for the 10 countries of Central and Eastern Europe was € 560 million.) (SAPARD, n.d.)

Pavlova (2007, pers. comm., 28 May), head of Marketing of Vinimpex (former monopolists) considers the support of the government not enough. But mentions that accession to EU relieved the export regime for Bulgarian wiens.

5.2.6 Chance Looking back to the history of wine making and vines growing in Bulgaria and worldwide, there was any significant event with “chance” features that significantly has changed the competitive advantage of one of the producers or power balance in general in the industry.

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6 Possible Strategies: Analysis and Conclusions

In this chapter external and internal factors, influencing the choice and content of strategy are summarized.

6.1 External Factors: Global Wine Industry

Industry Strategy-Shaping Economic Features Findings concerning dynamics of the global wine industry market size and its growth rate show that this industry is a big and has significant size of the market both in terms of volume and value, and the industry slowly grows.

The global production and consumption are decreasing, though export grows. The global wine industry is highly concentrated with many players, where few of them are responsible for the most of the production and consumption. The global wine industry is characterized with growing competition. Although the industry grows only approximately 2 per cent per year, this industry creates a significant value for countries wine producers and employees significant part of the labour force in those countries. Structure of the competitors within the industry is changing: New World producers are gaining the bigger shares and the Old World producers –losing them.

For some countries this industry is a significant part of countries gains and important part of the countries both image and national competitive advantage (i.e. France and New Zealand). This industry is employing a lot of people as well, which makes its important in the structure of national wellness and its macro- and microeconomic stability.

Finding revealed also that both world production and consumption are decreasing in their dynamics in all regions as well as world in total. Though export both in volume and value is increasing at the same time. These tendencies allow to make a conclusion that even it is grown less vine grapes and less wine is produced; more then before is sold both in quantity and by price. It may mean that effectiveness of the industry has increased, for example yield form the one hectare has increased or industry is able now to grow more quality grapes on smaller areas and produce wines of increased quality. This tendency may also mean that wine is sold for higher prices then before.

We believe that the global wine industry is a big and attractive enough to keep attention of already existing players and to increase their attempts to strengthening their positions as well as attract the new players (mainly already presenting countries on the market but having not significant its part).

We believe that it is not a question if this industry will continue to develop and grow in the future due to few reasons, main of them are: wine was part of human culture during centuries; many people like wine and will continue to consume it regularly. In most countries that have wine industry it is one which usually given a priority due to its uniqueness, as not every country can have it (for example, Scandinavic countries are significant consumers of the wine but are not able to have its own wine industry). Even in Bulgaria that never had market share more then 2,5 % of the world market, this industry was prioritized and subsides by state during at least last century.

The structure of the global wine industry changes and New World takes over the market shares, the Old World looses their position which leads to fierce competition between all countries participating in the global wine industry. But all wine producing countries stay in the market and even market shares of some are decreasing, as market size is growing, we can assume that on this market there is a place for every wine producing country, and its position depends on its efforts and consistent strategy.

Findings concerning position of the global wine industry in the industry’s life circle showed that this industry can be characterized as mature, fragmented and international one. Though the findings it was

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revealed the possible opportunities and actions that can be taken into account in order to reach better competitive positions by participants of these kinds of industries, which are the following:

• For mature industries it is: refining current products, emphasis on service, process innovation. Applicable to the global wine industry it may explain current tendencies in the industry, as emphasizing the efforts of most leading wine producing counties on t he quality of the wine, made with two different approaches: through technology and agricultural improvements; as well as more wide informing the public of wine varieties and regions available, as well as positive effects wine has on health, as well as connoisseur services become more available to the customers then before.

• For fragmented industries it is consolidation in order to discover new economies of scale. This explains, the tendency within the global wine industry concerning acquisitions and merges and growing importance of the vertical integration within the industry.

• For international industries opportunities are: operate on multinational, transnational and global levels. Those opportunities depends on the strategies that country chooses; market leaders within the global industry (France, Italy, Spain) are operating globally, exporting the their wines all over the world, smaller producers (i.e. Ukraine or Georgia) operate mainly on multinational level, exporting their products mainly to limited number of national or regional markets, often to the neighbouring countries only.

Findings of number of rivals within the global wine industry revealed that the competition is fierce on the market, as none of the competitors disappear totally from the global market. Competition in this industry is limited by climate and geographical position of the country, that determine the possibility to grow wine grapes or not. A suitable climate for wine growing exists in at least 68 (on other source - 90) counties, which are all potential competitors. But 30 of those countries produce 95% of totally produces wine, top ten countries -80%, top 3 -51%, which points on high concentration of the industry in terms of countries producers: industry is fragmented into many small countries-producers, but dominated by few biggest.

Competition within the global wine industry can be described as fierce. All world wine-producing regions compete with each other to some extent. All countries, producing and exporting wine, and Bulgaria is one of them, are virtually competing all with each other and with the biggest wine producers such as Italy, France, Spain. But most likely the most tough competition occurs within groups of wine producers: biggest producers – leaders in the market (top three-five) compete most of all with each other, middle sized producing countries (up to 20 countries) - compete with each other, and the rest of the small wine producing countries are competing for small shares of 1% and less of world market.

Within the world wine producing regions countries are limited with areas devoted to growing vines as well. And as industry is characterized with economies of scale, most of the wine producing countries are not able compete with biggest producers in terms of quantity, therefore in most cases competition occurs in terms of quality and image.

Findings referring to buyer’s preferences revealed the origin and the structure of wine buying countries. Most of the wine producing countries import it in significant quantities as well. Consumption per capita of wine is high in traditional wine producing countries.

Based on the presented finding, it can be seen that most of the countries, producing and exporting wine are at the same time active importers and consumers of it as well. This confirms Porter’s (1998, p.12) theory about influence of sophisticated consumers on developing of their domestic products and making them more competitive. An example of this is France, where wine consumers are considered one of the most demanding in the world and wine industry in the country is well-developed and is one of the three top producers in the world.

A lot of researches within wine marketing pinpoint the importance of the county-of-origin effect, which plays significant role when consumers buy wines. Some countries develop their strategies referring to

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generic image of the country in order to create consistent demand for wines from specific country. The other factors influencing choice of the wines are brand names, grape types, packaging and price. Wine is considered a lifestyle product and can be promoted according it to different groups of customers. As part of the lifestyles, it was noticed that food and wine and tourism and wine can be connected and mutually enforcing each other as activities.

Findings revealed also that consumers choose the wine often based on knowledge about country of origin, other factors as brand name, packaging and price play also an important role in decision making process. Consumers often rely on their own experience and country overall image in buying wine, which confirms that competition in most cases within global wine industry occurs between countries-producers, not single companies. Which is important fact for the wine producers to realize: that without unity within the country, the image of it on the global market will be blurred and may become a reason for customers not to choose the wine from the counties “without image”.

Wine is considered a lifestyle product and according to it there are different categories of the customers who have their specific patterns of buying and consuming wine (relaxed lifestyle, dining ambience, fun and entertainment, social aspiration, and travel lifestyle). The most image-shaping factor in this case is the combination of wine with food and travelling: while exploring new countries, people are trying new food and wines as well, creating by that their own images of the countries of origin. This tendency makes it is important to create wine attractiveness in the countries of origin: wine routes, wine tasting in the wineries, cooperate with restaurants in order to make information and services concerning wines more available for all interested in it.

Profile of the wine consumers has change lately, consumers become more mature and sophisticated in terms of knowledge about wine, but they are younger and there more women then before, and they are positive about innovations and eager to try new wines.

Findings’ referring to pace of technological changes within the global wine industry show that wine making is an ancient art and the main principles of technology of winemaking have not changed much since that time. Though there are two points of view: Old Wold wine producers consider that agricultural researches make most of the innovations within the industry possible, while New World producers rely more on technological changes.

None of those approaches discovered any revolutionary change, that changed the balance of the forces in the industry, though some significant discovers were made, at least twice: first time –understanding the nature of pasteurization, the second one- studying the influences of soils on wine properties. Overall the pace of technological change in the global wine industry is slow, and most of innovations are agricultural.

During the centuries of wine making only few revolutionary technological changes occurred, it can be concluded that pace of the technological changes is slow in wine industry and makes wine producers less dependent on technological characteristics of the wine making then on physical attributes of the soils.

Slow pace of technological changes in the global wine industry does not mean that innovations and scientific researches are unnecessary; it shows that their outcomes will be always limited by the characteristics of the climate and soil (‘terroir’) of particular wine region.

As industry is fragmented, pace is slow and most of the participants are not having significant technological advantage, it should be beneficial for the companies to develop cooperation in terms of technology.

Findings concerning the role of vertical integration in the global wine industry revealed the presence of strong vertical integration through industry associations and regional bodies, especially in New World producers. Vertical integration is widely used there as a tool for increasing productivity of participants through information exchange, creating generic strategies, easing of managing the businesses. Government plays an important role in vertical integration, as well as integration of wine industry into other related and supported industries, as tourism, suppliers, e-commerce, and research activities.

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To increase concentration in terms of companies, merges and acquisitions can improve performance in the industry as bigger companies are able control easier the image and the quality.

It was revealed few branch organizations and governmental bodies in the Bulgaria’s wine industry though their effectiveness is questionable. As industry came over recently total restructuring and changed its ownership form the mainly state owned to completely private.

To increase effectiveness of the industry many steps should be taken toward identifying the boarders of possible cooperation for the companies within national wine industry, it will help to unite the efforts and combine the resource in best way in order to deliver consistent image while exporting the wine.

Based on the above-mentioned information, it can be concluded that vertical integration plays a significant role in the global wine industry and is used as a tool of increasing industry effectiveness widely.

Product innovation plays not very significant role in the global wine industry, as never was discovers a revolutionary innovation that significantly changed the balance of the power within the global industry and gave the priority to one of the sides in terms of quality. For the Old World wine is mainly pursuit and major search of innovations is concentrated within looking for better quality grapes and soil, and their combination. The new World producers believe more in technological base of innovation and think that even small innovations of technological process are improvements, that make a difference. In wine industry impossible expect to get revolutionary next-generation products, but general efforts of the new world producers and their tremendous growth for last 10 years. Wine industry is not characterized with rapid product innovations and short product life cycle. But it does not mean that innovations are not possible or not important within the industry. Lately R&D plays more and more significant role in competitiveness of the companies and the countries.

Above-mentioned facts make possible to conclude that both approaches result in vast scientific research with different focuses, but they are aimed at improving the quality of the wine. There are many small improvements that are discovered every year with use of both approaches but none of them was revolutionary or significant enough to change the balance of the forces dramatically.

Degree of product differentiation within the world wine industry is broad, as wines differentiates with types of climate, soil, location –terroir- they were grown, as well as by type of the vine grape, which are hundreds, and due to extended agricultural researches they become more and more. The other factors that create the differences between the wines are geography, climate, cultivar, vineyard managements and oenology. That’s why most of the wines from different wineries and countries differ from each other significantly and are in some sense unique.

Wine as a product differentiates with the grapes type and region of origin. Bulgaria’s wine industry grows all important internationals grapes and has some unique local varieties, which gives it good base to create its diversity and sustainable competitive advantage.

As one of the choices buyer made are based on the grape type and it is the main source of differentiation in the industry, we found its necessary to develop wide product line for the Bulgarian wine industry and present to the world market all possible diversity of wines.

It can be concluded that every bottle of wine from different vineyards reflects the unique climate and terroir characteristics, and chemical composition of the soil as well as history, culture and traditions of wine making of particular region. Although there are many varieties of wine grapes in the world, only some of them considered suitable for producing table wines and have noticeable for consumers differences. Wines differ from each other with grape sort, year of production, brands and place of origin and virtually all wines are different but from customer prospective, in many cases only specialists or chemical analysis can reveal the country of origin and sometimes even grape type.

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Finding within the scope of competitive rivalry within global wine industry revealed that before wine was mostly European product, both in terms of production and consumption. The structural change brought by New World producer along with new wines with new approaches. It resulted in increased internationalization and globalization of the world wine industry, as well as increased degree of competition.

The global wine industry is characterized with economies of scale both for market leaders and for countries with small market share in global terms. Even single companies have economies of scales in the purchasing or growing vine grapes, processing it, bottling, and labelling, marketing, and exporting wines. This means that just having economies of scale does not add value to any of the players. It also means that industry leaders having the largest-scale operations having other competitive advantages playing more important role competition.

Finding concerning the influence of experience and learning-curve effects revealed that it has influence on both consumers and producers. Consumers with experience become more sophisticated and demanding to the products, they differ better the variety of the grapes, regions of origins, and even brands. The more consumers learn, the more they are looking for superior quality. For wine producers, the influence of learning by doing had also significant importance in the global wine industry, as learning the behaviour of specific soils with combination with particular variety of grape is possible only with real trials not during researches. Therefore, long history and tradition in winemaking is considered a competitive advantage, especially among Old Wine Producers.

Wine making is characterized by a strong learning-curve and experience (“learning by doing”), by making more tests and mixtures of varieties of grape, wine producers are able to create new varieties and improve the quality. Tradition also plays important role, especially in the Old World.

To summarize the most influencing factors to the strategies of the participants within the global wine industry are: the maturity and fragmented type of industry, high number of rivals, country of origin effect, influencing strongly on buyer decisions, slow pace of technological changes in the industry, strong influence of vertical integration, high degree of product differentiation, strong effect of experience in the industry as well as economies of scale.

Forces Driving Industry Changes Findings concerning the growing use of Internet and emerging new Internet technology application show that the internet can be viewed as not only a channel of distribution, but also an information channel. Increased sales are being completed over direct online ordering systems which in turn decreases the cost for producers and consumers. The internet can also be used for information searches about wineries, wines, or anything related to the industry. It is definitely the key to the future for producers, and country wine industries, and incentives such as tax breaks incorporated for the direct sale of wine over the internet, need to be implemented by more countries. As it can be seen, the internet allows customers not only to learn about wines, producers and to get other information concerning wine industry, but it can also be a significant part of the profit for the industry, representing a new distribution channel.

Globalization is one of the main driving forces in the global wine industry. Very few producers can survive by only producing and supplying wine locally. The overall globalization occurred due to the increase in presence of ‘new world producers’ which lessened the psychic distances between consumers, who had in the past mainly been exposed to ‘old world producers’. Due to the increase in globalization, production demands have increased globally in order for producers to be competitive. Wine industry structures are also constantly changing with regular mergers and acquisitions, a concept not regularly implemented before globalization.

Changes in the long-term industry growth rate show that several changes exist and they can be described as being ironic. Although consumption and production patterns have mostly decreased, import and export figures (international trade) have increased. This can be due to a change in production patterns and the increased presence of ‘new world producers’ combined with the overall globalization of the industry.

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Due to the globalization, and the increased competitiveness, producers had to create new tastes derived from different grapes and cultivated under unique circumstances. The emergence of the ‘new world producers’ brought an onslaught of new tastes which brought changes in consumer patterns. Consumers tend to be younger than in the past.

Several innovations were key in the overall wine industry history, but none can be pinpointed as key innovations for the recent history at this time. One of the production trends is to decrease the chemical application, and increase grape and wine quality.

The internet and related e-commerce is one of the most prominent marketing innovations in the wine industry. It allows the removal of middlemen, reduces the costs, and increases control over the marketing of the product.

Several new key players have evolved in the last fifteen years (producers such as Argentina, Australia, the U.S., South Africa and Chile). None of the existing ‘old world producers’ exited the industry. New consumers such as the Netherlands, the U.K. Scandinavia, and Japan emerged on the scene. Although there are several barriers to entry, they can often be overcome due to the specificity of the wine industry (as discussed before).

Much like the innovation of the internet, and specifically e-commerce, and due to globalization, knowledge can consistently be transferred internationally. Since it is such a global market place, agreements and training constantly occur between top producers.

The changes in cost and efficiency depend on various factors such as the global economic conditions, labour regulations, as well as international regulations and restrictions. The analysis of this concept is limited within the context of this thesis.

Due to a global oversupply, and consumers being faced with lots of choices, brand image becomes increasingly important in the global wine industry. Shifts have also occurred in consumer preferences from cheap wine to more expensive wine and low quality to higher quality wines. Younger target markets, as well as an increasing female market can be seen.

One of the ways to efficiently reduce uncertainty and business risk, is to diversify your products and strategies. This diversification can be in price ranges, or quality ranges.

Although regulations will often change on the global scene, the European Union regulations need to be considered when analyzing Bulgaria. Since Bulgaria will join the E.U., all of its standards and procedures are in line with the European requirements.

In the past, wine consumption was seen as a status symbol, and although that association has changed over the years, it can still be seen as a form of social aspiration. Attitudes of consumers have diversified into recreational users, formal users, occasional and regular users. Certain users only consume wine when they travel and visit exotic wine destinations or experience an international culture.

The most influential forcers, that driving changes within the global wine industry are: growing importance of internet, increasing globalization in the industry, diffusion of technical knowledge across countries, as well as changes in social concerns and attitudes.

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Opportunities and Attractiveness of the Industry Grape production is very specified which means that there is a limit to the potential growth within the global industry. Only certain areas of the world can produce wine-making grapes and therefore only certain producers will remain active on the global scene. However, within the limits of the industry’s potential growth, each producer might face it’s own limits in terms of production, and the demand may vary in the near future.

Due to the presence of these competitive forces amongst all wine producers created by the speciality of the industry, and the competition amongst large producers targeting relatively small numbers of consumers, constant innovation might occur. The need to obtain the competitive edge might serve as a very powerful force.

It is shown in findings that every bottle of wine that is produced is divided into several smaller percentages which in turn decreases the profitability for the individual producer. As is the case within many industries, the industry’s profitability will increase through the sale in economies of scale.

The wine industry is characterized by relatively low uncertainty, especially in the case of large producers supported by years of experience, and large financial budgets. However, as is the case with all industries in which individuals need to compete, it might be difficult for a small producer to bear the increased risks and uncertainty associated with being involved in the wine industry, especially when they are not supported by larger corporations. Findings also suggest that the degree of uncertainty is relatively low since it has been identified that grapes used in wine production can only grow in certain areas of the world, and the technological advances available to producers have reached a very high level of dependency and accuracy. Therefore producers can be relatively certain that the degree of risks is minimal.

When we look at the 2006 figures for the top 10 global wine producers, Bulgaria is not mentioned. However, Italy, France and Spain remain steady in the top three positions in terms of overall production (litres), as they have been for the past decade. Based on the most recent and reliable information which includes Bulgaria (2004, in Table 4.7), Bulgaria’s main competitors in terms of volume is China, Romania, and Greece. All three these countries vary between one and two percent of world wine production based on volume. In that sense, Bulgaria competes with these three countries, but one must keep in mind that figures can be misleading and that Bulgaria most probably has other competitors for various market positions in various countries, and that it might not be these abovementioned three countries.

Since wine production is such a specialized art form, and it can only be done by countries that fulfill certain geographical and climatic conditions, it is highly unlikely that a new producer who is not already on the global scene will make a dramatic impact in the near future. Therefore the potential to grow exists but only within the already established global markets, or within newly discovered and explored markets. Therefore it is up to each producing country to create a marketing strategy for the future which will encompass existing as well as new target markets.

Competitive Forces of the Industry Findings concerning the degree of the rivalry among competitors show that when rivalry exists between sellers in an industry, it is highly likely that sellers will always try to increase their market position, increase their sales and be overall more competitive. New Zeeland has dealt with the pressure of competitive forces within the global wine industry by implementing a high quality/high price niche on their products. By doing this, they control their brand image as well as their target markets. Findings suggest that some other producers/countries try to control the brand names, but are not as focused on niche markets as such. Australia has experienced a change in image from a large importer in the 1990’s to one of the fastest growing exporters with a large market share in the 2000’s. This can be attributed to rivalry amongst producers, and amongst other producing countries. Competitiveness also relates to the natural resources, human resources, market conditions, and governmental support of the wine industry.

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Rivalry among competitors in the global wine industry can be described as fierce. Increasing globalization in the wine industry increases the degree of the competition as well. Competing countries are striving for the better market position and stronger competitive advantage with various means. Some of them expand the size of winegrowing territories; some invest heavily in research in technological process improvements, but all of the competitors are fighting for getting increased sales and market share within the global market.

The most influencing factor for creating a strong competitive advantage within the global wine industry are: geographical and climate advantage, the presence of fertile soils and raw materials, especially variety of the vine grapes, capital investments into development of the industry, strong infrastructure and industrial network of organizations and companies, allowing the industry to perform in the most effective way. The other important factors are strong knowledge infrastructure with well-educated labour force within the industry. The strong support of government enforces a lot competitive advantages of the countries, as any single company are not able to be strong enough on the global market. To pay attention to the all of these factors can be a way to create a balanced, strong and long-term competitive advantage for wine producing countries.

Findings concerning the possibility of entering the new competitors to the market suggest that due to the geographical and climatic constraints, wine production can only successfully be implemented in certain areas of the world. At this time, wine is being produced on six continents, and the saturation of the possible production areas have been reached. However, there may still be room for individual producers within already established producing countries as long as they follow the correct strategy and have a unique product.

The threat of entering the new competitors into the global wine industry is quite low, as this industry is limited by the geographical and climate factors. That is why most of the countries that are able to grow grapes are already doing it. Though this fact does not decrease the degree of rivalry within the industry, where competition is already historically very strong

As a producing country, there might be certain barriers such as economies of scale that need to be overcome in order to enter the global market. As potential new entrants cannot develop revolutionary production technology (as is shown in the history of wine producing) and it is hard to differentiate the product due to limited number of grape sorts which are well-known for a long time tomost of the wine producers. The images of the wine-producing countries are playing the role of product differentiation, and customers tend to buy the wines, originating from countries customers know.

From the company prospective, there is always an opportunity for new wine producing companies to enter both the domestic and global wine industries. It can depend on changing the ownership structure in the local industries, as well as growing investments in the industry.

Due to the nature of the product, its uniqueness depends on geographical region and specific climate conditions suitable for growing wine bearing grapes. Additionally, the maturity of the global wine industry makes it difficult for new entrants. All countries which are able to produce wine are already known due to their long histories and traditions of reaching volume potentials in grape growing. However, the structure of export is constantly changing and some country-producers which are not noticeable now as an important player, can become more visible due to the expansion of international markets.

Due to the facts of unique nature of the wine as a beverage, the long history of wine making and wine being the inevitable part of many cultures, the threat of the substitute products is not very high. Of course, most of the people consume different types of the beverages during the different occasions but most of the wine lovers choose wine as their main alcohol beverage, and they are not likely to switch to other types of the drinks. Though finding concerning the overall growth of consumption and export of wine globally show that wine is consumed in high volumes in many markets. The long history of wine making confirms as well that wines are the part of many cultures and it is very unlikely that interest to this product can decrease greatly. That is why the threat of the wine to be substituted by other alcohol beverages is quite low.

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When looking at substitute products/alternative products to wine, it is found that there are alcoholic as well as non-alcoholic products that can be consumed. This area of description is quite large and it is difficult to pinpoint exact global trends as each market and product is different. During the 1990’s there was an increase in beer consumption, but the continuous circulation of positive reports on wine and health is a benefit to the wine industry and wine consumption increased. The most noticeable trend is that wine consumption is decreasing per capita globally. Exporters focus more on non-producing countries and on Eastern countries. While the volumes of production and consumption decrease, individual export and import as well as the price per unit grow.

This fact confirms the previous findings according to the importance of the creating the strong industrial network within the global wine industry in order to increase its competitiveness. The well-develop cluster within the industry enforces the competitive advantage and benefit to the regional development and increase of effectiveness of all involved industries.

Several processes have to be completed, and several sections are utilized before a finished product reaches the end consumer. A great example of how all sections (from production, to marketing and distribution) can cooperate within a cluster, exists in California. The vine growers, wine producers, and travel agencies have created a unified image of the NAPA valley as a wine destination and through the cooperation of the suppliers, and the combination of the producers’ resources, the presence of wines originating from the NAPA valley has increased both domestically and internationally. An important concept in this success is the utilization of wine tourism as an attraction.

Due to the facts of unique nature of the wine as a beverage, the long history of wine making and wine being the inevitable part of many cultures, the threat of the substitute products is not very high. Of course, most of the people consume different types of the beverages during the different occasions but most of the wine lovers choose wine as their main alcohol beverage, and they are not likely to switch to other types of the drinks.

Creating the cluster of supporting industries within the global wine industry has proven economical effect as well as increase of the competitiveness of the industry as well as region, which created this strong industrial network.

When analyzing the U.K. market, findings suggest that the buying power exists mostly within the middle and upper class. However, each market and each variety of wine is unique, and this might not be the case in another market. The overall trend implemented by most wine producers is to appeal more to the younger audience and to do so by creating new wines, and attracting more interest.

Exporters often rely on intricate distribution channels, but as the channels of distribution increases, they lose control over the relayed message. Findings suggest that producers need a generic voice and that the use of the correct channel is absolutely key in the wine industry. It is easy for promoters (whether it is an individual, a company, or a retailer) to portray their own message instead of the desired message of the producer.

The distribution channels country use while promoting wines is one of the important factors for gaining the strong market position among competitors and its structure should be carefully considered and planned for every market where the wines are promoted.

Most strong competitive forces in the global wine industry dictated by the fierce rivalry among competitions are: the right choice of distribution channel and creation the effective business network within the industry.

The use of the right distributing channels seems to be one of the most important marketing activities influencing the competitive advantage of the wine producing countries. The structure of various channels countries differ from country to country and should be considered when promoting wine on different markets.

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To summarize the most influential competitive forces within the global wine industry, the following factors should be mentioned. The threat of the new entrants to the industry is quite low as well as threat of the wine to be substituted by the other beverages. The role of the suppliers of raw materials and business networks within the global wine industry are important and allow the countries that put their resources into developing of the clusters within the industry to gain the stronger competitive position. The right choice of distribution channel plays as well an important role in the industry.

Key Factors for Success in the Industry By using the theoretical framework as a guideline, we utilize the understanding of which actors are strongly positioned and which are weakly positioned as an integral part of analyzing an industry's competitive structure. The competitive structure should be analyzed by looking at the level of technology, the manufacturing capabilities, distribution capabilities and practices, marketing practices, and skill-related information. It is noted in Findings that Bulgaria is not as technologically advanced as their counterparts, but that efforts are being made to increase the technical expertise of professionals through training. When we look at the manufacturing capabilities of the Bulgarian industry, we find that although it is producing a large percentage aimed at international markets, it is still not recognized as one of the top ten producers in the world. However, due to the specificity of the industry, Bulgaria is one of only a few producers with the capability to compete which in itself is a key factor for success.

Based on analysed information, it can be concluded that to reach the strong competitive advantage and to succeed in fierce rivalry in current situation in the global wine industry, the wine producing country should have favourable geographical and climate advantage, with sufficient raw materials an fertile lands, relevant amount of capital should be devoted to the developing of the industry, as well as labour force should be competent and well-educated, the knowledge infrastructure should well-developed through the all levels of the industry, the network within the industry should be developed as well as country should be competitive on domestic market and have strong governmental support. The right balance of these factors is likely to create a strong competitive advantage for countries to success in the global wine industry.

6.2 Internal factors: Competitive advantage of the Wine Industry of Bulgaria

As discussed in the Theoretical Framework section, Porter’s Diamond of National Advantage consists of six separate conditions that need to be evaluated within an industry, or a country in order to determine its competitive advantage. Although information has been presented as a discussion of all factors of the Diamond Model, it is necessary to draw conclusions focusing on the main aspects of the national advantages (and how it may relate to future strategic choices by the Bulgarian wine industry).

Findings referring to the factor conditions discovered that geographical position of Bulgaria and its proximity to the both European and Asian countries, as well as countries of former Soviet Union, creates the competitive advantage for products originating from Bulgaria in terms of moderate costs for logistics to the big variety of wine consuming regions, comparing to the costs for the New World wine producing countries, as Australia, South Africa and New Zealand.

Bulgaria is agricultural country with favourable climate and natural conditions. The economy of Bulgaria is characterized with stability and noticeable growth last years.

Natural resources: diversity of climate areas and landscapes, as well as fertile diverse soils – create possibility to grow various types of the vine grapes, which is inevitable for having competitive advantage in the wine industry.

Focus of the government in supporting the growth of organic products, which with right strategy can be a strongest competitive advantage of the wine industry of the country.

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Any factors that relate to production capacity as well as the process, whether it is man-made or natural, can be viewed as a competitive advantage within this concept. When we look at the man-made factors that can create a competitive advantage, we can include the economic stability of the country combined with their long history in wine making, and their devotion to increasing knowledge as an asset. Natural factors that can create a competitive advantage relate to their geographical location, and favourable vine growing and wine producing climate.

To conclude on the availability and quality of natural resources that Bulgaria’s wine industry has in its disposal, following factors should be mentioned.

One of the most important factors for availability of vine-growing and its success (according to analysis made for global wine industry in previous chapter) are natural resources, as quality and variable soils and warm climate. Based on above-given information, Bulgaria’s wine industry has a great variety of regions which are suitable for growing high quality vine grapes and making wines with unique regional attributes.

The other crucial factor for making quality wines are availability of quality vine grapes. Bulgaria’s wine industry seems to have a lot of varieties both for white and red wines, grapes of both international quality and domestic varieties which can be used for creating unique compositions and mixtures, making the Bulgarian wines varied for international competition. Though, there are some problems in wine industry that should be solved in order to Bulgaria’s wine industry to become more competitive.

One of them is to increase the size of the area to plant vine grapes and improve its structure, paying attention both to international wine varieties and developing the quality of domestic grape types. The other two problems that should be solved in order to improve the quality of the vines are the quality of cultivation of the soils, which should become more effective and plant protection, that should be increased in order to increase harvest volumes and quality.

The Bulgarian economy is stable and shows constant signs of improved growth. The economy is highly agricultural with a large focus on vine growing, and wine producing. Bulgaria, as a country, proves to be a relatively safe investment which in turn, may attract more private investors in the wine industry which is already fully privatized.

Based on previously stated information, we find that the Bulgarian wine industry is relatively small compared to other major producers, yet the industry is strategically located close to possible markets. The wine industry is also capable of controlling land routes between the Middle East and the rest of Europe, and it is geographically located in proximity of a large consumer market such as Russia.

Due to the unique climatic conditions favourable to grape growing of all varieties, wines that can compete on domestic and international level can be produced. Since 90 % of its wine is being exported, Bulgaria has the capacity to deal with international demands, and quality standards can be adhered to. Not only can Bulgaria produce varieties that are internationally known, but it also has domestic varieties that are unique in taste. Although it is mentioned that the vines used for wine making are too old, investments are made in the acquisition of newer vines from France.

It has been stated by several sources that there is a general lack of knowledge and technical know-how amongst Bulgarian producers. However, efforts have been initiated to improve the knowledge through higher education and training programs. Due to the relatively low cost of labour (compared to other European countries), wine producers can afford to compete on an international level without increasing their costs dramatically.

It seems that the Ministry of Agriculture and forestry of Bulgaria realized the importance of increasing the quality of agricultural education in general and wine technologies in particular. The focus on studying the specificity of the regions may result in more focused researches and increased opportunities in creating clusters within the wine industry.

Findings referring to the demand conditions discovered that Bulgaria’s wine industry is strongly oriented on export (about 80-90% of the total production goes to export, which very high figures, comparing to

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other wine producing countries, as Australia or France and Italy, exporting 32, 17, 17 % respectively) and is one of the prioritized industries by government.

Demand conditions refer to external (international) as well as internal (domestic) demand. Based on information presented in the global findings, the international demand for wine is slowly decreasing while more prominent producers are gaining ground in an already capacitated global market. Bulgaria has the potential to compete in more diverse international markets (other than Russia or the United Kingdom) if they can differentiate their product from other competitors. Insufficient studies have been done on the demand conditions within Bulgaria. During the information search and presentation, it was often found that available annual information was presented in a non-sequential manner and that statistical information was often limited. One of the research areas that is not developed to its fullest potential, is the domestic demand factor. We can conclude that since Bulgaria is importing from other countries, a domestic market does exist. However, on the other hand, approximately 90 percent of its wine is exported which makes it difficult to estimate the domestic demand. The question that needs to be answered in order to determine of the demand conditions can be viewed as a competitive advantage, relates to the sophistication of the domestic market. At this time, it is difficult to estimate the overall sophistication without knowing the demand statistics, and the involvement of the domestic consumers in the development of wineries and their product.

The low volumes of imported wines may have different reasons, i.e. Bulgarian market is not interested in imported wines because of high price or lack of knowledge of consumers, or exporters may not be interested in Bulgarian market, because of low buying power or low interest to the wines in general. Bulgarian wine industry was oriented on export most of its history, as it was believed more profitable to sell abroad rather then domestically. This approach resulted in low interest of local consumers in wine consumption.

Russia is historically biggest market for Bulgarian wine which does not contribute to improving the image of Bulgarian wine there, even if the quality improves significantly. It happens because of few reasons. Russian market is price-sensitive and the image of Bulgaria’s wines historically has been as low-price and product was perceived as from low to moderate quality product. It means that people who really value the wine on this market are likely not to buy the wine from Bulgaria because of its old image (and lack of new one). They would prefer the wines, produces by more known countries with distinctive and strong image, as i.e. French. Consumption per capita of wine in Russia is respectively low; it is not even in the 20-th most consuming countries in the world.

As size of Bulgarian wine industry is small, it may be a mistake to use the old marketing channels and sell wine to the countries, like Russia, which experienced the low quality products in the past and consider the wines from Bulgaria as low priced only. It is difficult and expensive to reposition the image of the wine industry there. Maybe a better solution would be to concentrate marketing efforts on other countries, which never experienced the low quality of Bulgarian wines before, and positive image can be created from the scratch. Consumption of the wine per capita should be high, which means that consumers there are sophisticated and able to estimate the quality of new Bulgarian wine.

Porter argues that if a developed network exists between the related and supporting industries, it can be viewed as a competitive advantage. This network is often referred to as a cluster which relates to the inner workings of firms, companies, and suppliers within an industry in a manner that is beneficial to all parties involved. It has been stated that throughout the years, the supporting and related industries experienced intense rivalry and competition which lead to a cut-throat situation in which only the largest and wealthiest producers could survive. In fact, there is no information available on the existence of wine clusters within the Bulgarian wine industry, and if they do exist, their activities need to be developed more prominently. However, Bulgaria has a long history of wine making and through recent efforts to unite all supporting industries within the wine industry; this combined knowledge and cooperation may lead to constant development and growth.

There is limited evidence of cluster presence in wine industry of Bulgaria due to recent ownership transition, dominant role of the government, lack of financial resources, inconsistent business relations within the industry (Frederic 2001, Perovic 2006). Creating cluster and developed network, based on

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stable and consistent business relations and understanding the common goals, within the Bulgarian wine industry will benefit all the related and supported industries, as well as vine growers and wine producers in Bulgaria in terms of increasing profitability and effectiveness as well as according to Porter (1998, p.10) in increasing the competitive advantage of the country.

By founding the National Vine and Wine Chamber (NVWC), Bulgaria created the first non-profit organization responsible for the well-being of their producers and growers. In the past, all decisions were made by the government, but due to the privatization of the industry, the focus shifted towards non-governmental organizations such as the NVWC. At present, the industry is privatized, but a few entities control the largest percentage of production and exports. Due to the restructuring of the wine industry towards privatization, combined with producers being used to competing against one another without a governing body overseeing their actions, intense rivalry exists for the domestic as well as the international market. Findings suggest that there is an intense feeling of jealousy amongst producers and a spirit of cooperation does not yet exist. However, if Bulgaria’s wine industry wants to be successful and create a “brand Bulgaria”, it will be necessary for a transformation charter focusing on mutual cooperation and gain between producers, suppliers, and middlemen.

Due to the fact that measures had been taken in advance to ensure that the European Union regulations are followed, Bulgaria can easily join the EU without large transformations in the wine industry. Information is presented which indicates that the government is acting as a catalyst in the growth of the industry through their support, and by labelling the wine industry as one of its main agricultural assets. Very little preventative measures have been taken by vine growers and plant protection against illness is low. The vines are also too old, and the rate of replenishing is not fast enough according to exports’ studies. However, despite all the negative weaknesses associated with the wine industry, the government is supporting it in the form of large subsidies and direct financing which will be implemented between 2007 and 2009. Through the financial help of the government, and their constant support and guidance, the Bulgarian wine industry will have a competitive advantage another country without the help of its government will not have.

Radical events that can be responsible for a change in an industry, are classified under Chance. The shortage of new vines and materials needed to cultivate new vines has been the point of discussion by several analysts. These old vineyards (pre-Communism and post-Communism) need to be uprooted and younger, newer vines need to be planted. Although we do not have concrete information about any radical events in the wine industry history, one can argue that the change in government and the shift towards post-communism had a large enough impact on the level of competition and technological know-how producers had to suddenly portray. Due to the fragmentation of large farms, the changes in ownership, and several other factors, a large percentage of farms are underutilized and un-maintained.

To summarize the factors influencing to the competitive advantage of Bulgaria’s wine industry, it is necessary to mention that the industry posses the needed favourable geographical position and climate conditions necessary for growing vine grapes. Bulgaria has few regions suitable and historically used for wine growing which supports the possibility of creation the image of the wine-producing country with various and unique features wines. Except natural conditions, making possible the vine growing, Bulgaria has unique vine grape sorts, growing only there, which can be used as base for unique differentiation from other producers with right application of agricultural and technological knowledge into the selecting and developing these unique sorts. Space devoted to the vineyards can also be considered as advantage of the industry as they are vast and situated in different regions with different climate, which results in making wines with various tastes.

The other important factor strengthening the competitive advantage of the Bulgaria’s wine industry is human resources and prioritized direction of the government towards education within agricultural area.

The wine industry of Bulgaria recently had experienced the total restructuring of the ownership, which changed from total state monopoly tot the totally private industry. This transition will result in increasing of effectiveness of the industry with time, though now it seems that companies, as well as government are trying to find effective ways of cooperation with each other and have not succeeded yet in the context of new ownership conditions.

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There are also factors that weaken the competitive position of the Bulgaria’s wine industry. They are lack of high quality planting material in the industry, which may result in a long term with decreasing the quality of the wines, though producers realize this problem and solving it on their own. It would be better for the whole industry if the government would help the producers with research within selection and growing their own high quality planting materials instead of importing it form other wine producing countries, which reduces differentiation of vine grapes.

The other negative factor that weaken the competitive position of the Bulgaria’s’ wine industry is great focus of the industry on export as well as exploring the old image of low price and low quality wine while exporting to the Bulgaria’s traditional markets. There are three directions that are important in order to change the current situation: to search new markets, to improve the image, even create the new one, and develop the domestic market.

One of the strongest weaknesses of the wine industry of Bulgaria is the lack of communication within the participating sides in the industry, lack of strong branch organization, lack of vertical integration on the all levels, starting with vine growers and end to the government that seems to support the industry mainly with words instead of active actions. Improving the situation in this area, as well as creation the strong and efficient network of supporting and related industries are inevitable in order to increase the competitiveness of the Bulgaria’s wine industry.

6.3 Selected strategy, suitable for the Bulgarian Wine Industry

This chapter is an analysis of the how applicable generic strategies (by Porter, as presented in the Theoretical Framework section) can be applied to Bulgaria’s wine industry in terms of a global wine industry context.

Cost leadership strategy

Bulgaria’s wine industry does not have resources to become the market leader. Even though it has the long history and tradition in wine making, which often is mentioned as their competitive advantage, it is morally old, both in technology, the attitudes of wine makers and grape varieties.

Even the global wine industry is characterized with economies of scale and all wine producers has it both in production, marketing, and the purchasing of raw materials. Market leaders already reached that size of economies of scale that is quite unlikely the Bulgaria’s wine industry can reach. Even if grapes are planted on all suitable territories, it is not possible to reach the same size. Most likely it can be reached by some of the countries of the ‘new world producers’, which possess much bigger territories suitable for wine growing climate, as in Australia and U.S.A.

As the grape quality is one of the main factors, influencing the quality of wine, and the wine industry of Bulgaria does not have enough quality grapes to make only quality wines, it should become the most important focus for research and investments for the future.

Financially, the wine industry of Bulgaria, before was mainly based on state subsides, which allowed it to keep lower export prices and compete on the global market with the price advantage. Now the situation has changed, and the industry is not anymore owned by the state. Since 2000 it is completely private, but seems that some of the wineries still acting according to the tradition, relying too much on governmental support without making the necessary improvements. Most of them believe that if they have enough financial support they will become the market leaders automatically.

During the transition period of changing the industry ownership, the image of Bulgarian wines was heavily damaged by inconsistent quality of small inexperienced new producers exported wines using the old image of Bulgaria and its distribution channels. Now those Bulgarian wine companies who produce wines of good and high quality and want to export them have to struggle for better image of Bulgarian wines much more then before.

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Lack of latest technologies is the other disadvantage of Bulgaria’s wine industry which makes hard to become a cost-based leader in the industry.

Small companies, especially newly created in connection with privatization in the wine industry of Bulgaria, are not able to create operating efficiency and effectiveness to that extent that they will reach cost-advantage on the national level. This approach suits more bigger companies or an association of the small producers, which is absent in Bulgaria due to low concentrated structure of the wine industry (This is a general tendency for the global wine industry which is likely to be overcome in the nearest future with merges and acquisitions in order to increase effectiveness of the industry in general). This feature of the wine industry identifies the necessity of the unity of producers on national level in order to deliver a generic message with Bulgarian wines to the global market based on consistent strategy that all participants have agreed on.

One of the features that support the possibility of Bulgaria to compete as a cost-leader is low cost of labour in Bulgaria, but tendency in Europe shows that courtiers that join the EU may experience significant growth of the labour costs, therefore this advantage is currently limited. The wine industry is not as dependant on labour costs as other producing industries, and it depends more on the skilled professionals both in agricultural, technological and managerial spheres. Bulgaria’s wine industry seems not to have enough educated world-class specialists in oenology, soil management, wine management, and other professionals needed for creating competitive advantage, and reducing the costs.

To conclude this, we find that cost-leadership strategy does not suit the Bulgarian wine industry due to a few factors:

• One of the global wine industry tendencies is increasing demand for higher quality wines, which contradicts the idea to give up quality for reducing the costs;

• Lack of efficient technologies and high quality planting materials make impossible to reach operating efficiency and effectiveness comparing to the market leaders;

• Lack of superior management and absence of well-structured, designed for low cost production questioning the possibility to reach the cost-leadership position un nearest future;

• Limited access to capital and latest researches, • Size of the wine industry of Bulgaria and territories, devoted to the vines growing in the country,

even with maximum use and highest yield is not enough to create that size of economies of scales to compete as cost-leader in the industry.

Producing mass wine with average quality using all capabilities of wine industry of Bulgaria is not the best solution for this country (though of course, possible), as building the image of wine industry which is not building its image on quality does not suit to the picture of the future of the global wine industry.

We are not concluding that this type of strategy is impossible to use within the global wine industry for any participant. Based on conducted analysis of factors shaping the global wine industry (fierce competition, buyer requirement for high quality wines and their low prise sensitiveness, high degree of product differentiation), we think that cost-leadership approach to the strategy cannot lead any wine producing country to long-term leading position. Although we are not underestimating the importance of lowering the costs and eliminating unnecessary ones in wine making, as cost advantage is always consolidate the competitive position. What we are emphasizing is that lowering costs is not enough to create and sustain the strong competitive advantage in the global wine industry. Differentiation strategy

The nature of the wine as a product is based much on the uniqueness of the taste. This uniqueness is possible as the same grape variety gives different tastes and smells to the wines if it was grown on different soils and with different climate. These differences in wines and its origins dictate the wine producers and marketers, especially in conditions of fierce competitions, to use differentiation as a strategic approach. As it was revealed in findings, many consumers chose the wines by country of origin and those, who are more sophisticated, even on region of origins.

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It was mentioned before that the quality is one of the strongest basis for competitive advantages in the global wine industry. In conditions of the fierce competition most of the wine producers putting huge efforts in order to improve it. Producers of the New World rely more on technological changes, the ones of the Old World – more on agricultural improvements. First ones believe that quality of wines increases with even minor changes in the production process, the second ones rely more on grape variety selection and soil management, both based on scientific researches.

The differentiation is already embedded in the wine producing countries as they differ significantly not only with each other, even between the wine producing regions within the same country which gives the unique opportunity to formulate those differences in words and start to promote it as unique regional and country brands. To succeed in creation of the strong brand the team of marketing professionals able to act on country level, supported by teams on regional levels is needed.

The brand should be supported by additional value of the product, as reputation for the quality or innovation, advanced scientific researches or unique natural resources, as for example New Zealand emphasizing the image of wine producer with advanced technological improvements combining it to natural resources of the country, promoting image of “riches of the green land”.

Bulgaria’s wine industry can benefit greatly and increase its competitiveness if it succeeds in creating and delivering the strong image. Bulgaria as a wine producing country belongs to ‘old wold’, having long tradition and relying on agricultural research. But if the country will combine the benefits by using both approaches to innovations, increasing quality by both technological and agricultural improvement, it may bring significant benefits both in quality and image support. Diversity of wine producing regions is allowing to create multidimensional image of the country, as France and Italy have, where each separate region has its own specific and unique features and characteristics, and known by consumers. Focused strategy

A focused strategy suits the Bulgaria’s wine industry even better as they allow using the small size of the industry as an advantage, to concentrate the efforts on the limited part of the market or specific group of customers.

Focused differentiation can be built on unique grape varieties, regional differences and brands. One of the current capabilities of Bulgaria is to create a unique focus on is based on favourable natural resources, such as climate, locations and ecological situation. Bulgaria’s wine industry can differentiate it from the others by producing ecological or organic wine with chemical-free technologies using only natural methods. This focus can be supported by a majority of the wine producers in the country and if a generic message about the country of production as “only ecological wine” can be portrayed, it will be a strong competitive advantage.

Focused strategy can also be applied to concentrate on specific markets. It is profitable to concentrate on high margin markets, and slightly different strategies can be delivered to the different regions. Both traditional and new ones markets should be explored in order to define what markets are most suitable for future Bulgaria’s wine industry strategy. In economic terms the industry can focus its market efforts on most importing and consuming markets (mainly with most sophisticated customers), as well as on new markets with inexperienced consumers.

Opportunities are many for narrow focused strategies; the choice is after those who want to create the better image of Bulgarian wines on the global wine market.

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7 Recommendations

While most of the wine producing countries realized that they need to differentiate themselves from the other producers in order to survive in current conditions with fierce rivalry, Bulgaria’s wine industry still seems to have a product orientation. It just wants to produce wine of a quality that does not demand a lot of effort and improvements and sell it all to its traditional trade partners, at the low price. All these transactions seem to be based on tradition, and what has worked in the past compared to what might work in the future. The wine industry in Bulgaria just restructured itself and privatization was implemented which have not added a lot to the quality and crucial strategic changes yet.

One of the important recommendation that the Bulgarian wine industry should take into account is to change their attitudes from passive, and a sense of relying on governmental support to proactive, while studying the global tendencies. Tendencies need to be predicted by using business intelligence methods in order to increase its competitiveness and create a strong market position.

Maturity of the industry not only makes competition tougher, but also dictates some solutions that wine-makers should adapt to remain competitive. One of them is refining the current products by concentrating on producing the most unique and probably expensive wines (it is demanded by the small size of the wine industry of Bulgaria, which cannot achieve the big enough economy of scales to compete with other bigger wine-countries). The other possible unique features should be added to the country’s wines, as emphasis on mainly ecological ways of producing them. Most of the biggest wine-producing countries have companies and parts of the regions, producing ecological wines, but any country, and not even any individual region, is not producing only ecological wines. Due to the size of the wine industry of Bulgaria, it is possible to focus the efforts and create the first country among wine producing ones, making ecological wines only.

Maturity of the industry dictates also the focusing of the strategies on the services accompanying the wines. This can be fulfilled with emphasis on informing the wine-interested consumers with unique features of Bulgarian wines with help of recognized experts, specialized magazines and specialized fairs. One of the most powerful tools nowadays is internet, so structured and cooperative efforts of the policy-makers in Bulgaria should be taken into developing the wine industry focused web-portal, containing information about wine types, producers, regions, grapes, etc. oriented on the customers. This portal should be made on few most common languages, oriented on the world-wide wine-interested people, as well as most consuming wine regions. In general, during this research we noticed the very limited information about the wine industry of Bulgaria in the internet, even not all wine producers have web-pages and some of those who has, do not have translation of information to English. In most cases information is very poor and much product oriented. The general web-portal in English, created with marketing approach with customer orientation would benefit a lot the positive image of the Bulgaria’s wine industry.

The last factor that should be taken into account with respect to the maturity of the wine industry is that process innovation can help the wine producers to improve the quality of the wine using technology. One of the opportunities that Bulgaria’s wine industry can use to improve every step of technologies used is to use the knowledge of so called flying winemakers. By hiring the most competent of them, the best world practices can be brought to Bulgaria and quality of the wine can be greatly improved.

Opportunity that may help the Bulgaria’s wine industry to overcome the negative effects of fragmentation within the industry, that can give the opportunity of the small individual producers to be heard and to give them the opportunity to deliver to the customers the consistent and unique image of wine-producing country, is reasonable consolidation within the industry. It can be reached with creating the working and really influential (but not nominal, as most of the organizations that were discovered through research) in the industry. Sense of common goals – improving the image and competitiveness of Bulgarian wines –should be developed for all participating actors, as well as understanding that none of the individual producers is able to reach this goal on its own.

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As not all countries are able to grow grapes, there are a limited number of countries of origin that can compete with each other. Though, the number of wine producing countries is still big to confuse the consumers if country does not have the strong image or unique competitive advantage to differentiate itself from the other countries, producing wines.

As the global wine industry is characterized with the economies of scale, the competitive position of the country is dependent on the size of the territories devoted to the vineyards, which in their turn dependant on the size of the country. For example, countries as Australia and South Africa, having huge unexplored territories, part of which definitely suitable for vine growing, have higher potential to grow in terms of volume, comparing to small wine producing countries as Bulgaria. It means that Bulgaria’s wine industry should use its vineyards maximally effective in order to become more competitive. Though in terms of volume, it will never be possible to compete with largest wine producing countries. That is why differentiation focus should be concentrated on flexibility of the small industry, making the small size of the industry a competitive advantage. The appropriate research of the images of the other countries with similar small size of the wine industry should be conducted in order to create the unique one for Bulgaria.

Structure of wine consuming countries is changing with time, if before most of the wine was consumed in the Europe, nowadays new wine consuming regions, as USA, Japan, and China appeared. This makes possible to focus the marketing of the small wine industries, as Bulgarian one, for example on limited geographically or culturally markets, adjusting the image to the values and culture of specific region.

As country-of –origin effect is one of the most important in decision making process of the wine consumers, the image of the Bulgarian wines should be strong, consistent and easily-recognized and differentiates from the others wine producing countries, by unique features. To create the

The findings of this research revealed that the role of the government cannot be overestimated in gaining the strong competitive advantage for the wine producing countries. Those countries that have this support are gaining the better market positions (i.e. Australia, Chile, new Zealand). Although the Bulgaria’s government states that it gives the priority to the wine industry, it seems that this support is not enough. The role of the government should be more effective rather then nominal, as it appears to be at the present time.

Creating the strong knowledge infrastructure will benefit the Bulgaria’s wine industry in gaining the stronger market position by education labour force, involved in the industry with the latest technologies and marketing knowledge, investing into research related to the industry development, studying the most effective means used by the competitors in order to increase the quality of the grapes and wines.

Creating the strong industrial network with effective vertical integration within it will benefit the increasing competitiveness of the wine industry of Bulgaria, as this factors play very strong and influential role in the global wine industry.

Even wine industry of Bulgaria belongs to Old World wine producers, characterized with the traditional agricultural approach to the vine growing and putting the technology on the second place, it is likely that Bulgaria’s wine industry can benefit with adopting the best features of the both approaches: of New and the Old World strategies. The right combination of agricultural and technological approach can create the strong competitive advantage by creating high quality wines.

Bulgarian wine industry should concentrate on searching the new markets, avoiding those that have experienced the low quality in the past. It rather should be small countries with sophisticated consumers, then ones with low interest in wine and too price-sensitive ones.

Regional variety should be developed and consumers should be informed about not only distinctive image of Bulgarian wine but as well as various wine regions and their specific wines.

Global wine industry patterns show clearly changes in price and quality. Customers became more sophisticated (or more sophisticated customers appears in the market then before) and are ready to pay for quality wines. Of course, there are always customers who buy the cheapest wine, despite the quality and

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origin, but if the country wants to create a strong image and compete on the global market, the image of “lowest price wines” producer, may not be the best.

Our second recommendation is to concentrate on maximum improvements in quality using both approaches of the new and old world producers. By upgrading existing vineyards and wineries, by encouraging vine growing of the best selected grapes, both international and develop the domestic varieties, and by using the technological improvements and knowledge of “flying winemakers”, the industry can combine the best practices available for the best result.

The global wine industry analysis shows that most of the wine producing countries are using the differentiation strategy, which is based on uniqueness of the wine as a product, which even with the same grape gives different taste when grown in different regions with different weather conditions.

The next recommendation is to determine the goals that the Bulgarian wine industry wants to achieve and concentrate on sustaining uniqueness of Bulgaria’s wine industry. A clear message needs to be formulated and a new image of Bulgaria on the world market of wine needs to be created.

As we mentioned before, the vertical integration plays an increasingly important role in the global wine industry; those who found out how to cooperate on national and international levels, are able to reach better positions. Two important directions should be developed within the Bulgarian wine industry: creating branch organizations, which is not controlled by the government but cooperate with it, one that will be able to both lobby the interests and create the opportunities (probably this organization should be commercial and represent the interests of national producers corresponding the size of their operations, as bigger companies are more eager to invest in development). The second direction is creating and developing the cluster of supporting and related industries within the wine industry of Bulgaria. One of the main focuses within the cluster should be the combination of the wine industry and tourism, as those industries are both prioritized in the country and both can benefit from cooperation.

Wine is not only agriculture; it is also technology and business. To create and sustain a significant competitive advantage all parts of the triangle should be supported by skilled professionals.

In conclusion we would like to mention that there is no constant strategy which, once created, can be kept until the end of the days. In order to succeed in any type of business, it is inevitable to scan the industry’s events and monitor trends. Strategy should always be responsive to the competitive environment, so we came back to the first recommendation again: be proactive.

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Appendix 1: Primary Information

Interview with Valva Pavlova, Director of Marketing at Vinimpex (producer)

Date: 28 May, 2007

Mode of Interview: Telephone

Казвам се Антон Георгиев. Обаждам се от Швеция. Мелардаленският университет ме помолиха да им помогна за едно маркетингово проучване на винената промишленост в България. Бихте ли ме свързали с Маркетинговия Ви отдел или с друг, който може да отговори на няколко общи маркетингови въпроси? Търговски практики, износ, имидж и качество Казвам се Антон Георгиев. Обаждам се от Швеция. Катедрата по Международен маркетинг на Мелардаленският университет ме помолиха да им помогна за едно академично изследване на винената промишленост в България. Провеждаме кратки телефонни интервюта с производителите и специално износителите на вино. Бихте ли могли да отговорите на няколко общи маркетингови въпроси от вашата практика на производител? Просто с няколко думи каквото Ви идва на ума в момента. Бихте ли искали да получите копие от доклада на иъследването. Questions to wine producer: !!!(Names, positions, tel.#)!!! Valya Pavlova, head of Marketing of Vinimpex, +359 2 9819737 ВИНИМПЕКС ЕАД гр. София,1000 ул. „Лавеле” 19 тел.: +359 2 9819737 факс: +359 2 9811299 vinimpex@vinimpex.bg

• How much you export of total production? And to which country/ies? Why there? • How long your company on the market and what is your main product (type of wine sweet ,

sparkling or dry red or white in procentage)? • 1969, initially state monopolist later bought by Belvedere

• What markets are you looking at as potential ones? • What distribution channel you use when exporting? • Как бихте оцинили качеството на произвжданото от Вас вино в световен план / в

сравнение с вината по света (напр френско, австралийско, по сортове и т.н.)? How you would evaluate the quality of wine you make compared to other world (producers)?

• Good and very good • Even some wine types have been given mark “excellent” • (как дефинирате качество) how they define quality and if they compare somehow with

other wines • • like our -BG wine is the same quality as french or not worse then australian from the

same grape...smth like this

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• What wine producing country you consider your competitor? Why? • Как бихте описали имиджа на България на фона на световната винена промишленост? How

you would describe the image of BG in global wine industry? • Not at all good, because last decades, in the process of privatization the producers and

suppliers were broken down and in the struggle for competition we all made the mistake to ruin the image of BG wine on world market. Therefore now a new marketing strategy needs to be built supported by strong budget in order (Bulgaria) to find its place. We are years back due to privatization and political changes. Markets such as UK and Denmark were lost. Time to prove ourselves again. From 5-6 place on the UK market, now other new world suppliers have pushed us away, some of them have 2 harvests per year

• We had good market share, good wines but mass wines – not especially qualitative

• Как бихте описали конкуренцията в национален план (колко е силна тя?) How you would describe domestic competition (in terms of how tough it is)?

• International – strong, miracle that some (this firm’s) market positions are still maintained

• In BG – one of leaders both on national market and on export, not afraid of BG competition, we see it more as gradivna (positively building) competition

• Сътрудничите ли с други БГ винопроизводители? Обменяте ли информация или

технологии? Are you cooperating with other wine producers? Share information, technologies? • Yes, absolutely, we (our firm) do that. We try to cooperate too.

• Смятате ли, че има търговско сдружение или камара, която задоволително обединява винопроизводителите в страната и адекватно представлява интересите на промишлеността? (Is there any organization that unites wine producers in the country and represents its interests?)

• Satisfactory representation, but more is needed, not all producers are united there yet

• Как се отразява на вашата фирма присъединяването към ЕС? How accession to the EU has influenced your company?

• Positive only, relieved trade regime for all BG producers

• Какво е Вашето преимущество пред конкуренцията? What is your competitive advantage? • Year-long-year tradition, preserved image from the past to some extent, we work with

new young technologists. We are constantly innovating, perhaps the innovations most important as we create new wines. Also marketing and design, quality of our wine.

• Каква е главната пречка за вашият растеж в износ, обем на производство и общ успех?

What is the main obstacle to growth and export, produce more, be more successful? • Lack of unity of wine producers, the marketing budget that should be behind any

company

• Кои са най-важните фактори за производство на висококачествени вина? (качество на гроздето, технология, умения и квалификация на персонала и т.н.) / What are the most important factors to produce high quality wines? (grape quality, technology, skills and knowledge, etc.)

• All these factors together • E.g. Good grape sort, good harvest, good selection, good personnel skills, all is

important

• (Would you estimate that your company has enough specialist-educated staff? Enough technological knowledge?))

• Yes

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• Additional – we have new vineyards and are planting anew. New technologies are developed. Including sorts of grapes are additionally imported from France, scientific researches is made on vine sorts. Special selection is carried out - agriculturists (agronomi) analyse matching soils and grape varieties, etc.

• What role plays government in bg wine industry and how it influence them? Additional attempts made, but without success due to unwillingness to answer questions: гр. София 1407 ул. "Златен рог" № 20-22 Тел.: +359 2 96 97 980 Факс: +359 2 96 97 981 e-mail: office@domaineboyar.com гр. София 1164, ул."Арх. Йордан Миланов"№ 10 1164 Контакти: Тел./Tel.: 359 2 9630067 Факс/Fax: 359 2 9630066 e-mail: office@domaineboyar.com http:// www.lvk-vinprom.com ЛВК "Винпром Търговище" АД Изпълнителен директор Петко Матеев, 7700 Търговище, бул. "29 януари" №8, тел. 0601/6-47 51, факс 6-42-06, e-mail: manager@lvk-vinprom.com "Винекс - Славянци" АД Изпълнителен директор Жеко Жеков, 8460 Славянци, 05571/25-00, 23-48, 24-88, факс 22-17, 0559/21 31, e-mail: popov@vinexbg.com; office@vinexbg.com бул. България 75 4230 Асеновград България тел: +359 331 69151 116 факс: +359 331 68053 e-mail: office@mavrud.com vinzavod@mavrud.com Ловико Сухиндол Ловико Сухиндол е приемник на най - старата лозаро- винарска кооперация в България, основана през 1909 година. Днес производството на Изба Ловико Сухиндол надвишава 6 милиона литра качествени вина и ракии годишно, като 80% от продукцията е предназначена за износ за Русия, Латвия, Естония, Литва, Англия, Норвегия, Полша, САЩ, Канада. URL: http://www.lovico.net MAGURA JSC Headquarters София, Кв. ДЪРВЕНИЦА, бл. 40, вх. Б, ап.52 Contact София,1407 ул. Кораб планина № 27 Тел. 681 400; 686 161; 962 52 26 Факс: 962 52 56

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Е-mail: ita_hold@spnet.net Web: www.magurawine.com БЕЛВЕДЕРЕ ДИСТРИБУЦИЯ ЕООД Head office гр. София, 1715 ж.к. Младост 4, Бизнес Парк София сгр. 12 А, ет. 1, оф. 102 тел.: +359 2 489 94 50 +359 2 489 94 51 +359 2 489 94 52 факс: +359 2 489 94 53 belvedere@belvedere.bg