The Corks Industry

Introduction

This case study talks about the use of corks as wine bottle closures that has been a 400 year old industry unaffected by technological changes until recently in the 1990s where synthetic closures were being used by some wine manufacturers. The wine industry was experiencing a change whereby new producers from Australia, California and Chile had different requirements of their closures. The cork industry being a supplier to their wine manufacturers failed to see the important changes taking place in the industry which led to fierce competition from other producers and caused to face an environmental and economic downfall. This was mainly caused because of the rise in large grocery chains and wine manufacturers to change from natural cork to modern synthetic closures due to the change in buying behaviors and the industry itself to cause an increase in the demand for modern closures. The Portuguese cork industry failed to diversify their core competencies in managing their resources and how they could have exploited them (Nelson, 1991). With not much competition faced in the past, they did not see any threats for the future in terms of customer value, competitor differentiation, and extendibility (Hamel and Prahalad, 1994).

The rationale of this report is to identify the problems faced by the cork industry which is their complacency and lack of innovation of natural cork, wine quality over costs, level of research and development investment to help the industry diversify its raw materials, technology forecasting, identifying buying trends of wine consumers, not knowing their strengths and weaknesses of natural cork closures and their competitors strengths. Identifying all these key issues would help to overcome the problem faced which will be further analyzed in this report.

Some of the relevant theories that can be put into this case to recognize importance in long-term growth, sustainability and profits would be dynamic competence-based theory of the firm, where it sees the company's ability to compete in the future is very much dependent on its past activities. Absorptive capacity (Cohen and Levinthal, 1990) developed that the organization's capability to evaluate and utilize external knowledge is related to its prior knowledge and expertise, in return driven by prior research and development investment.

The Cork Industry's Guilt of Complacency and Lack of Innovation

The cork industry is very much guilty of complacency and lack of innovation because they failed to recognize the changes in the wine industry after being so content and unaffected by technological changes for the past 400 years. Due to this issue, the cork industry is facing an environmental and economic downfall by more modern closures such as plastic and rubber. Although cork is used to make other products, wine corks are most visible and most profitable which accounts for two-thirds of cork revenues (corkindustry.com, 2006).

Their lack of innovation had led to fierce competition by other closure producers such as Zork, a combination or cork and screwcap, which does not require a corkscrew to open, no crumbling, absence of cork taint and competitively priced.

Cork Customers Not Getting What They Want from Producers

Although consumers love natural corks, producers are not producing what their customers want because of the modern retailing environment where the branded or modern wine from new producers from Australia, California and Chile are breaking in the market and opting to use modern wine closures with the excuse of the absence of cork taint. These wines are typically made from bought-in grapes and marketed heavily. The traditionalists argue that these branded wines are merely exploiting profits in short term by producing large volumes of homogenized wine.

Also the harvesting process of natural corks is very time consuming and the condition that favors commercial use is fairly narrow. For example, virgin cork is not removed from saplings until the 25th year and reproduction cork may not be extracted for another 9 to 12 years. Investment of natural corks plantation takes up to 40 years and the continuous enhancement in technology causes the investment to lose its value.

The Drive for Producers Switching to Synthetic – Quality or Cost

The drive that made producers to switch to synthetic closure is slight of wine quality and mostly cost. Because natural corks use the soaking process using TCA, a chemical from cork-borne fungus, chlorine and plant phenols, also known as 2-4-6 trichloranisole. Although it is harmless if consumed by humans, it imparts