The competitive advantage in business, capabilities and strategy: What general performance factors are found in the Spanish wine industry?

Ferrer Lorenzo, Juan Ramón; Maza Rubio, María Teresa; Abella Garcés, Silvia Article The competitive advantage in business, capabilities and strategy: What general performance factors are found in the Spanish wine industry? Wine Economics and Policy Provided in Cooperation with: UniCeSV - Centro Universitario di Ricerca per lo Sviluppo Competitivo del Settore Vitivinicolo, University of Florence Suggested Citation: Ferrer Lorenzo, Juan Ramón; Maza Rubio, María Teresa; Abella Garcés, Silvia (2018) : The competitive advantage in business, capabilities and strategy: What general performance factors are found in the Spanish wine industry?, Wine Economics and Policy, ISSN 2212-9774, Elsevier, Amsterdam, Vol. 7, Iss. 2, pp. 94-108, https://doi.org/10.1016/j.wep.2018.04.001 This Version is available at: https://hdl.handle.net/10419/194554 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/4.0/ HOSTED BY Available online at www.sciencedirect.com Wine Economics and Policy 7 (2018) 94–108 The competitive advantage in business, capabilities and strategy. What general performance factors are found in the Spanish wine industry? Juan Ramón Ferrer Lorenzo n , María Teresa Maza Rubio, Silvia Abella Garcés Universidad de Zaragoza, Spain Received 1 November 2017; received in revised form 15 February 2018; accepted 20 April 2018 Available online 27 April 2018 Abstract The wine sector in Europe has undergone a major change of trend in recent years, especially in Spain. On the one hand, the surface area has been reduced, but the production has been maintained by restructurings and improvements made in exploitation techniques. On the other hand, consumption has diminished causing a significant increase in competition. The Spanish wine sector is formed mainly by small and medium-sized firm, which is representative of the size of existing companies in Europe. This article aims to analyze the relationships between the competitive strategy, resources and capabilities of the firms, analyzing their technological and managerial capabilities, with business performance. 339 companies of the wine sector in Spain have been studied, differentiating between individual firms, cooperatives and mercantile companies. The results reveal that resources and capabilities along with strategies define competitive advantage, but their relationship and importance is different for each type of company. &2018 UniCeSV, University of Florence. Production and hosting by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Keywords: Competitive advantage; Resource based view; Strategy; Wine industry 1. Introduction In recent years, the wine sector has had an evolution marked by an increase in market competition. While wine production in the world was 267 million hectoliters (mhl) in 2016, consumption remained at 241 mhl that year (OIV, 2017). A more detailed analysis shows that the difference between production and consumption is especially in countries that traditionally produce. For example, Italy, France and Spain, which together account for 50.0% of the world's wine production, have had a noticeable decline in consumption (OIV, 2017). Production in 2016 in these countries was 50.9, 43.5, and 39.3 mhl, respectively, while their consumption, was 22.5, 27.0 and 9.9 mhl (OIV, 2017). This important difference between production and domestic consumption has changed the market for these countries, which have started to export in order to sell their products in international markets. As a consequence, sales in the international wine market have grown from 60 mhl in 2000 to 104 mhl in 2016 (3.6% in volume per year) and from 12 to 29 billion (bn) euros (5.9% in value per year) (OIV, 2017). Spain, due to its greater differential between production and domestic consumption, has become the country with the largest volume of wine exports (22.9 mhl), although in value it ranks third, with 2.6 bn euros, behind France and Italy, with 8.2 and 5.6 bn euros, respectively (OIV, 2017). In this paper, the focus of analysis is centered on the factors that determine the firm's performance, using a sample of Spanish wineries. Wineries in Spain have undergone an important process of updating and renewal in recent years. It is estimated that since the year 2000, more than 130,000 ha have been reconverted and restructured, with investments of more than 800 million euros (OEMV, 2016a,2016b). There are 4052 wineries in www.elsevier.com/locate/wep https://doi.org/10.1016/j.wep.2018.04.001 2212-9774/&2018 UniCeSV, University of Florence. Production and hosting by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). n Corresponding author. E-mail addresses: [email protected] (J.R.F. Lorenzo), [email protected] (M.T.M. Rubio), [email protected] (S.A. Garcés). Peer review under responsibility of Wine Economics and Policy. Spain, which are mainly small in size and are family owned businesses. Nevertheless, there are a significant number of agricultural cooperatives, which coexist alongside the large firms with production centers in different areas in order to diversify their supply (OEMV, 2016a,2016b). All of them face the challenge of competitiveness. In this study, authors consider a cooperative an autonomous association of persons united to meet common economic, social, and cultural goals (EC, 2017). In Spain (Ley 13/2013) cooperatives are considered the following firms: cooperative societies, second-tier cooperatives, cooperative groups and agrarian transformation societies. The analysis of the circumstances that allow for a superior performance, and the scope of a dominant position in the competitive environment, has been studied from the point of view of two different approaches. The first one is centered in the characteristics of the sector (Porter, 1980), while the second one takes into account the resources of the firm (resource based view, Barney, 1991). Several studies show that these two approaches are complementary and compatible (Chuang and Lin, 2017;Rosenberg Hansen and Ferlie, 2016; Takata, 2016;Rapp et al., 2010;Rivard et al., 2006;Spanos and Lioukas, 2001). The review of the literature has allowed to find out that the majority of studies undertaken for the wine sector are focused on large companies, due to the fact that it is easier to access information for these firms than for smaller ones, both in terms of objectives and results. The study of competitive advantages becomes difficult when the focus is placed on small and medium-sized enterprises, although they amount for about 99.8% of the companies in the EU-27 and 99.9% in Spain, as shown in Table 1. In this study, size is determined by the number of employees 1 . The main objective of this article is to empirically test how resources, capabilities and strategies modulate the results of companies. For doing so, this study analyzes the technological and managerial capabilities of the firm, its strategic positioning and the business result in the market, as well as the financial result. The main contribution of this article is to analyze the distinct importance of resources and capabilities and strategy in the wine sector and how these vary according to the type of company. This study considers three types of companies depending on ownership: 1) Individual companies, formed by a single person firm; 2) cooperatives, formed by cooperative societies, second-tier cooperatives, cooperative groups and agrarian transformation societies; and 3) mercantile societies, which contemplate limited companies and corporations. The results show that resources capabilities and strategy do not have the same importance in all firms. In individual companies strategy prevails over resources and capabilities. In cooperatives it is primarily technological capabilities that dominate performance. However, the wineries constituted as mercantile companies explain their performance by a combination of strategies, resources and capabilities. The paper is organized as follows: after this introduction, Section 2 presents the theoretical framework. Section 3 offers the theoretical foundation for the proposed hypotheses. In the following section, the methodology used is presented: sample, variables, and the model to test the hypotheses. Section 5 reports the results of the analysis and the theoretical and practical implication. Section 6 shows the conclusions drawn from the results. And finally, Section 7 presents the limitations and applicability of the study. 2. Theoretical framework One of the objectives of this study is to demonstrate that the competitive advantage of the company is explained through two synergistic and compatible issues: the situation in the environment of the company and its internal characteristics (Spanos and Lioukas, 2001). Authors have found literature where the wine sector has been studied from the point of view of two different approaches: strategy and resources and capabilities. But they have been studied separately in the wine sector. So the main contribution of this paper is to study the effect on performance of the two approaches but applied together. In terms of strategy, research has been found about the marketing strategy and performance in the French wine sector (Hammervoll et al., 2014); in the USA wine industry, the studies are centered on the relation between differentiation strategies and performance (Newton et al., 2015). And in Spain, on the strategies, environmental variables, and economic performance (Simon‐ Elorz. et al., 2015) and the explanatory factors of performance (Castillo Valero and Cortijo, 2013) in the wineries from Castilla-La Mancha. With respect to the RBV and its link Table 1 Number of companies according to employee stratum and total percentage of firms, in Spain and the EU27, 2015. Source: INE (2015), DIRCE 2014 and European Commission (2015). Micro (1-9) a Small (10-49) a Medium (50-249) a SME (0-249) a Large (Z250) a Total Spain (Number of firms) 2,984,727 107,784 18,011 3,110,522 3839 3,114,361 Spain (% of firms) 95.8 3.5 0.6 99.9 0.1 100 UE-27 (% of firms) 92.4 6.4 1.0 99.8 0.2 100 a Number of employees. 1 According to the UE (2003), large enterprises are those which employ 250 or more employees, medium-sized enterprises (SMEs) are those which employ fewer than 250 employees. Within the SME category, a small enterprise is defined as an enterprise which employs fewer than 50 employees, and a microenterprise is defined as an enterprise which employs fewer than 10 employees. J.R.F. Lorenzo et al. / Wine Economics and Policy 7 (2018) 94–108 95 with better business performance, in the wine sector, authors have found works focused on the internationalization capacity in the Italian wine sector (Galati et al., 2014 and Santini and Rabino, 2012); on the link between intangible efforts and performance in the French wine industry (Amadieu et al., 2013 and Amadieu and Viviani, 2010); in the Brazilian wine industry (Fensterseifer and Rastoin, 2013) research is focused on cluster resources and performance; and in the USA wine sector (Williamson et al., 2012) on business performance and knowledge. In this section, the theoretical framework for the study is presented. Firstly, Porter's frame and secondly, the resource and capabilities theory, are revised as a proposal for the study of the strategy. 2.1. Strategic advantage According to Porter, (1980), the competitive position of an industry or sector, depends on five forces and it is their joint action which determines an industry's potential benefit. These forces are: barriers to entry, supplier power, buyer power, the threat of substitutes, and the intensity of internal rivalry. The objective of a company's strategic plan is to find a position that allows it to better defend itself against these forces or be able to influence them in its favor. After analyzing the forces and how they emerge, the company's strengths and weaknesses can be identified. Next, the company should be positioned to achieve the competitive advantage by building defenses against the competitive forces or looking for positions within the industry where these forces are weaker. The firm can influence the balance of forces through strategic moves. Two generic strategies allow for the pursuit of a competitive advantage position: cost leadership or differentiation. But there is another variable that defines the strategic positioning, and it is the competitive area. The company must decide whether it serves the entire market or focuses on a specific segment. Depending on the decision taken, a third strategic option arises, which consists on using one of the two generic strategies (costs or differentiation) but in a given segment. Intermediate positions should not be adopted, as they lead to a loss of competitiveness (Porter, 1980 and Porter and Strategy, 1985). Although Porter's approach has received some criticism (Banker et al., 2014;Mintzberg et al., 2009;Campbell-Hunt, 2000), it remains a reference in scientific papers and empirical studies (Newton et al., 2015;Brenes et al., 2014;Lechner and Gudmundsson, 2014). Critical comments focus on the overly static nature of Porter's approach, and on the fact that a company's real strategies have evolving components not addressed by the theory (Mintzberg et al., 2009). Others suggest that cost positioning and differentiation are not equally beneficial for the company, considering that differentiation is better than cost strategy (Banker et al., 2014). 2.2. Resources and capabilities Distinctive competencies (Andrews, 1971;Ansoff, 1965; Selznick, 1957), were the conceptual precursor concept to resources and capabilities, which is to say, the elements that belong to or are developed by the company and allow it to generate greater incomes. This approach defines the company as a set of productive resources that can be physical, intangible or organizational (Penrose, 1959). The theory of Resources and Capabilities (Barney, 1991), known as RBV (Resource Based View), focuses on the resources and capabilities controlled by the firm as the elements that confer competitive advantage (Barney, 1991). Resources are the stock of available factors that the company controls. These become final products or services, using a wide range of other assets and mechanisms such as technology, information systems, management systems, incentive systems and mutual trust between managers and employees. The term capabilities refers to the possibility of using resources in combination, implementing organizational processes to create the desired effect of having information, tangible or intangible elements, and specific business processes that have been developed over time, as well as complex interactions among available resources (Amit and Schoemaker, 1993). Resources and capabilities are not strategic and fundamental unless they engender superior performance. Grant (2010) refers to three conditions that can be considered strategic: (1) establishing a competitive advantage, (2) sustaining the competitive advantage, and (3) appropriating the returns of the competitive advantage. The advantages achieved by the resources and capabilities, depend not only on a company's ability to establish a competitive advantage, but also on how long the company can sustain that advantage. Durability is conditioned upon the possibility of imitability. Resources and capabilities are imitable if they are both transferable and replicable. Although the RBV has received criticism for insufficiently explaining business performance (Kraaijenbrink et al., 2010; Newbert, 2007), it is indeed a driver of performance as it enables the development of capabilities (Kazadi et al. 2016; Lioukas et al., 2016;Menguc et al., 2014;D'Aveni et al., 2010; Sirmon et al., 2010). 3. Hypotheses 3.1. Technological capabilities It is impossible to deny the importance of technology as an element that improves a company's productivity. In highly competitive environments managers are required to use the optimal technology for their company (Julien, 1995). In order to determine which optimal technology is best, the company must study its production processes. Therefore, introducing the most appropriate technology, it should be able to reduce costs and increase quality (Garsombke and Garsombke, 1989). Through technology, the company creates value (Gambardella and Giarratana, 2013), as well as the capacity for development, specialization, and competitive advantage (Neill et al., 2014). J.R.F. Lorenzo et al. / Wine Economics and Policy 7 (2018) 94–10896 Therefore, technology is a key resource in maintaining the competitive level of a company. Moreover, in the case of small businesses and those linked to the land, as it is in the case of wineries, they do not have the option of changing location easily, as other kinds of firms do, in order to lower unit costs. Therefore, wineries must maintain efficiency by investing in technology and improving operations (Ariss et al., 2000). The importance of technological resources has been linked to business performance and studied by several authors, finding a positive relationship between these variables (Camisón and Villar-López, 2014;Welter et al., 2013; Ortega, 2010;Rubio Bañón and Aragón, 2002,2009; Ambastha and Momaya, 2004;Spanos and Lioukas, 2001). According to these arguments the authors propose the following hypothesis: H1. In the wine sector, the technological capabilities owned by the firm are positively related to the firm's performance. 3.2. Managerial capabilities The importance of managerial capabilities is based on the manager's vision and leadership. The success of the firm will depend on its effectiveness, along with the skills and knowledge of people working in the organization (Pickett, 1998), who establish priorities and belief systems, and guide managers and employees towards the shaping of business resources and competencies (Kor and Mesko, 2013). As part of the management competencies, the definition of organizational structure and corporate strategy are included, both in terms of design and implementation. Management skills allow for the identification of the basic competences, communication to the employees and the employees accepting these basic competences. Managers must provide a high degree of commitment, clear definition of objectives and adequate financial resources (Pickett, 1998). The relationship between management capabilities and competitive advantage is based on the successful guidance of managers implementing cost reduction, product differentiation or a combination of both (Schuler and Jackson, 1987). Other key factors include the strategic vision of the business and the internal communication: strategic management of human resources, which includes recruitment, job analysis, development, training, performance and compensation, and finally in the acquisition, development and use of organizational resources, the conversion of these resources into valuable products and services, and the delivery of value to partners and owners of the company. This set of managerial capabilities can become a generator of appropriable incomes and a source of maintenance of competitive advantage (Lado and Wilson, 1994). It also helps explain the relationship between strategic decisions and business performance (Helfat and Martin, 2015). The study of managerial capabilities and their relation with the firm's performance has been analyzed in many studies, finding a positively correlated link (Welter et al., 2013;Ortega, 2010,and Spanos and Lioukas, 2001). So that according to this, the authors propose the following hypothesis: H2. In the wine sector, the management capabilities owned by the firm are positively related to the firm's performance. 3.3. Competitive strategies and business performance Porter, 1980 and Porter and Strategy (1985) argues that the strategic choice of the firm is the one that will determine its performance, avoiding intermediate positions, a feeling of "stuck in the middle", that would lead to a loss of competitive advantage. Cost leadership focuses mainly on the production of low-cost products to satisfy price-sensitive customers (Soltanizadeh et al., 2016), specialization in certain products and services, investment in reducing costs with technology and equipment and use of distribution channels to reduce their costs (Brenes et al., 2014). Differentiation focuses more on offering different and unique products and services in the industry but to a wide range of relatively price-insensitive customers (Soltanizadeh et al., 2016), having quality products, broad product lines, consumer service and an efficient distribution system (Brenes et al., 2014). This analysis leads authors to propose the following hypotheses: H3.1. In the wine sector, the companies that use a differentiation strategy will achieve a superior performance. H3.2. In the wine sector, the companies with a cost-leadership strategy will achieve a superior performance. 4. Methodology 4.1. Sample The definition of the sample universe is done through the combination of the following databases: Spain's existing public records in different protected designations of origin (DOP) and the information available in the database Iberian Balance Sheet Analysis System (SABI), registered in year 2015 with CNAE (National Classification of Economic Activities) code 11.02 “Winery Companies”. The number of independent entities resulting from these databases was 3286. Following Spanos and Lioukas (2001), the authors dropped from the sampling frame firms with missing data, and the datum that resulted from a duplicate company with different location or brands without a formal structure. The total sample was then reduced to 2413 independent entities. The questionnaire was conducted after an extensive review of the literature, and scales validated in previous studies were used. It focuses on the resources and capabilities that have been collected by theoretical studies and on the analysis of the competitive environment, business strategy and business performance. The questionnaire was also tested by previously J.R.F. Lorenzo et al. / Wine Economics and Policy 7 (2018) 94–108 97 sending it to various entities linked to the wine sector in Spain, associations, experts, as well as managers of wineries. The pretest was carried out in two phases. First a pre-validation was made with four winery managers and four sector experts, and then, a second validation phase took place with nine managers and three sector experts. As a result, some issues were modified in the questionnaire and the explanation of the different sections was expanded. The objective was to ensure that the questionnaire was understandable and that it reflected the peculiarities of the industry. The process for collecting the data started in December 2015 and finished in May 2016. After sending the questionnaire via email to the manager of the different firms (Ortega, 2010; Spanos and Lioukas, 2001), the authors allowed for one month to receive an answer and if during that period it was not provided, a phone reminder was made. The final sample was made up of 339 valid responses, which meant a 14.0% response rate, similar to the amount reported by Baruch and Holtom (2008), for the industrial sector, so that we considered it appropriate for our study. The sample characteristics are given in Tables 2 and 3. Table 2 reports the distribution of the response percentages among the firm's type of ownership. With regard to the number of employees, its distribution percentages and the comparison with the mean of the sector is shown in Table 3. Therefore, non-response bias does not seem to be a major concern because of the data similarity between responses and sector. The sampling error has been determined from the standard error of the mean, calculating the error committed for the case of finite populations resulting in a confidence level of 95% and p¼q¼0.5 is 4.9%. So this error is acceptable, considering the results from other studies, such as Camisón and VillarLopez (2014) who obtain an error of 7.6%; or Ortega (2010), with an error of 5.7%. 4.2. Variables Variables have been grouped into the following categories, 1) independent: technology, management capabilities, business strategy, and control variables, 2) dependent: performance. In the realm of resources and capabilities, both technological and managerial capabilities have been analyzed and realized following the criterion that focuses on both the importance of competitive advantage and its sustainability (Li and Liu, 2014; Teece, 2014). In the research process, multi-item five-point Likert scales have been used for resources and capabilities, strategy and performance (Prajogo, 2016;Ambulkar et al., 2015;Camisón and Villar-López, 2014;Ortega, 2010;Brush et al., 2002; Spanos and Lioukas, 2001). To measure resources and capabilities, the scale used is adapted from Ortega (2010) and Spanos and Lioukas (2001). Technological capabilities are evaluated with four items. Managerial capabilities are analysed using seven indicators. Both variables are measured with a 5-point Likert scale, where companies evaluate their position with respect to their competitors and where the values of the scale are classified from 1 “much weaker than the competitor" to 5 "much stronger than the competitor". Authors adopted indicators used in other similar studies, not specific to the wine industry, in order to facilitate the comparison between sectors, they were previously validated by wine industry experts. In strategy, one of the models that has been used to try to capture the typology of the competitive strategy, is the model developed by Robinson and Pearce (1988), and it has been used in different studies (Ortega 2010;Camisón et al. 2007; Simón and Marqués, 2005;Ibrahim et al., 2001;Spanos and Lioukas 2001). This model was developed based on previous studies by Dess and Davis (1984), and aims to expand the generic strategies of Porter, 1980 facilitating their characterization in empirical business studies. This business strategy model consists of 22 indicators assessed with a 5-point Likert scale, where companies evaluate themselves with respect to different business development efforts, from 1 “is not utilized”to 5 “is primary, constantly utilized”. Following Ortega (2010) and Spanos and Lioukas (2001), the authors have evaluated business performance with seven indicators grouped into two dimensions: market position and profitability, in the last three years. The first dimension shows the external performance of the company, evaluated by its behavior in the market through four items. The second dimension reflects the internal performance of the company, the income generated in its economic activity (Spanos and Lioukas, 2001), through three items. All the items use a 5-point Likert scale, where companies evaluate their position with respect to their competitors, and where the values of the scale are rated from 1 “is much weaker than the competitor”to 5“is much stronger than the competitor”. Subjective scales are used instead of objective scales, due to two reasons. First, the literature has demonstrated the validity of subjective scales to determine business performance and Table 2 Response percentages in reference to the type of ownership of the winery. Source: Our elaboration. Type of ownership Individual companies Cooperatives Mercantile societies Percentage 14.7% 17,2% 68,1% Table 3 Response percentages in reference to the number of employees of the winery and comparison with the mean of the Spanish wine sector. Source: Our elaboration based on the data from SABI (December 2015). Micro (1-9 employees) Small (10-49 employees) Medium-sized (50-249 employees) Large ( 250 and more employees) Responses 79.3% 18.0% 2.7% 0% Sector 83.1% 14.4% 2.3% 0.2% J.R.F. Lorenzo et al. / Wine Economics and Policy 7 (2018) 94–10898 their convergent validity with objective scales (Santos and Brito, 2012;Richard et al., 2009;Wall et al., 2004,Homburg et al., 1999;Dess and Robinson, 1984,). Second, accounting data could be subject to annual variability and may include extraordinary results and movements outside the main activity of the company (Richard et al., 2009). Thus, several studies have used subjective instead of objective scales to analyze business performance (Ferrer-Lorenzo et al., 2018;Prajogo, 2016,Camisón and Villar-López, 2014;Ortega, 2010;Spanos and Lioukas, 2001;Calantone et al., 2002). 4.3. Model In order to determine the relationships between the firm's resources and capabilities, the strategy used, and its performance, this study uses the hierarchical regression method (Lioukas et al., 2016;Prajogo, 2016;Li and Liu, 2014;Ortega, 2010;Rubio Bañón and Aragón, 2009). In order to adapt the study to the different types of entrepreneurial property that exist in the wine industry in Spain (OEMV, 2016a,2016b;Langreo et al., 2014), this study makes three different analyses for the three types of ownership considered: individual companies, cooperatives and mercantile societies. Table 4 reports the distribution of the sample according to the classification made and the wine produced by the companies that answer this question in the questionnaire. 4.3.1. Dependent variable In this paper model the dependent variable is the business performance. This study works under the hypothesis that performance is determined by technological and managerial capabilities, and strategic positioning. The authors have studied the business performance from two approaches, market and finance. Tables 5 and 6show the answers to the different questions and their frequency. In order to get a nicely compact representation of the dataset, instead of the original with many variables, this study develops a principal component analysis (PCA), and then the Table 4 Distribution of the different types of ownership studied and the total amount of wine produced by them. Source: Our elaboration. Type of winery Question: Wine production of the company in hectoliters Responses Total hectoliters Individual Companies 44 44,365 Cooperatives 52 4,629,623 Mercantile Societies 205 1,882,687 Total 301 6,556,675 Spanish wine production in 2015 (OIV, 2016) 37,300,000 Percentage of wine produced by the companies included in the survey over total Spanish wine production 17.6% Table 5 Firm’s performance relative to competitor in the last 3 years. Market. Source: our elaboration Market Much Below Below Average Above Far above Total Sales volume €. n 40 83 129 71 10 333 % 12.0 24.9 38.7 21.3 3.0 100.0 Growth in sales volume €. n 26 58 131 103 15 333 % 7.8 17.4 39.3 30.9 4.5 100.0 Market share, % over sales €. n 41 75 142 67 8 333 % 12.3 22.5 42.6 20.1 2.4 100.0 Growth in market share, over sales €. n 24 59 152 83 13 331 % 7.3 17.8 45.9 25.1 3.9 100.0 Table 6 Firm’s performance relative to competitor in the last 3 years. Financial. Source: Our elaboration Financial Much Below Below Average Above Far above Total Profit margin. n 18 90 147 68 11 334 % 5.4 26.9 44.0 20.4 3.3 100.0 Return on own capital. n 28 85 147 62 10 332 % 8.4 25.6 44.3 18.7 3.0 100.0 Net profits. n 23 103 130 67 10 333 % 6.9 30.9 39.0 20.1 3.0 100.0 Table 7 Principal component analysis: business performance. Source: Our elaboration Variables Alpha without item Component Communality Profitability. Net profits .902 .836 .698 Market position. Sales volume € .903 .828 .686 Market position. Market share % .904 .820 .672 Market position. Growth in market share .903 .820 .672 Market position. Growth in sales volume € .905 .813 .661 Profitability. Profit margin .906 .807 .652 Profitability. Return on own capital .908 .796 .634 Cronbach alpha of the whole scale .917 % Total explained variance 66.783 K.M.O. .840 Barlett Test: x 2 2020.509 gl 21 sig 0.000 J.R.F. Lorenzo et al. / Wine Economics and Policy 7 (2018) 94–108 99 study uses the new component to develop a hierarchical regression (Bro and Smilde, 2014). The principal component analysis is made with the selection of one component, that determines the concept of performance in the firm. The extracted factor explains 66.78% variance, with a KMO ¼0.84, Cronbach's alpha ¼0.917 (Table 7). 4.3.2. Independent variables Technological capabilities, management capabilities, and competitive strategies are set as independent variables. 4.3.2.1. Technological capabilities. The four indicators used for technological capabilities, their distribution and values are shown in Table 8. In order to introduce the variable in the linear regression model and to avoid multicollinearity, this paper performed the technique of principal component analysis. One extracted factor explains 57.9% of variance, KMO ¼0.71, and Cronbach's alpha ¼0.751 (Table 9). The component has been called "technological capability". 4.3.2.2. Managerial capabilities. The seven indicators used for managerial capabilities, their distribution and values are shown in Table 10. The seven indicators have been reduced following the principal component analysis. Then the new component has been used to develop a hierarchical regression. Resulting one factor that explains 61.6% of the variance with KMO ¼0.87, and Cronbach's alpha ¼0.895 (Table 11). The component is called "managerial capability”. Table 8 Responses and frequency: technological capabilities. Source: Our elaboration Much weaker Weaker Equal Stronger Much stronger Total Technological capabilities and equipment n 44 75 128 73 17 337 % 13.1 22.3 38.0 21.7 5.0 100.0 Efficient and effective production department n 18 72 139 91 16 336 % 5.4 21.4 41.4 27.1 4.8 100.0 Economies of scale n 59 105 100 59 12 335 % 17.6 31.3 29.9 17.6 3.6 100.0 Technical experience n 12 43 127 122 32 336 % 3.6 12.8 37.8 36.3 9.5 100.0 Table 9 Principal component analysis: technological capabilities. Source: Our elaboration Variables Alpha without item Component Communality Efficient and effective production department. .613 .864 .746 Technological capabilities and equipment. .709 .741 .549 Economies of scales. .715 .725 .525 Technical experience. .728 .704 .496 Cronbach alpha of the whole scale .751 % Total explained variance 57.914 K.M.O. .713 Barlett Test: x 2 339.887 gl 6 sig .000 Table 10 Responses and frequency: managerial capabilities. Source: Our elaboration Much weaker Weaker Equal Stronger Much stronger Total Managerial competencies. n 11 48 188 73 16 336 % 3.3 14.3 56.0 21.7 4.8 100.0 Knowledge and skills of employees. n 6 23 172 108 24 333 % 1.8 6.9 51.7 32.4 7.2 100.0 Work climate. n 6 9 133 142 41 331 % 1.8 2.7 40.2 42.9 12.4 100.0 Efficient organizational structure. n 9 30 177 95 21 332 % 2.7 9.0 53.3 28.6 6.3 100.0 Coordination. n 9 31 167 106 19 332 Table 11 Principal component analysis: managerial capabilities. Source: Our elaboration Variables Alpha without item Component Communality Strategic planning .873 .832 .692 Efficient organizational structure. .875 .824 .678 Coordination. .876 .818 .669 Ability to attract creative employees. .883 .773 .597 Work climate. .883 .766 .586 Knowledge and skills of employees. .882 .765 .585 Managerial competencies. .889 .717 .514 Cronbach alpha of the whole scale .895 % Total explained variance 61.650 K.M.O. .870 Barlett Test: x 2 1243.602 gl 21 sig .000 J.R.F. Lorenzo et al. / Wine Economics and Policy 7 (2018) 94–108100 4.3.2.3. Business strategy. In order to manage the main indicators of the firm's strategy, principal component analysis has been used (Ortega 2010;Ibrahim et al., 2001;Dess and Davis 1984). In Table 12 the components obtained from the analysis can be seen. In this case, five components have been extracted, 1) Efficiency, 2) Marketing, 3) Innovation, 4) Low Price, and 5) Small Market and Product. The set explains 60.66% of the variance. The results of the different statistical reliability have values within the limits of acceptability, Cronbach's alpha ¼ 0.875 and KMO ¼0.862. Efficiency strategy: Nine issues out of the twenty defined by Robinson and Pearce (1988), are part of this first extracted component, accounting for 30.8% of the variance. Efficiency Strategy contains concepts that lead the company to the extreme care of the products offered to the customer and ensure the realization of an efficient process including: strict quality control, trained and experienced staff, encourage available raw materials, improve cost per unit, high level of inventory, customer service, promote reputation in the industry, brand identification and development of existing products. It is important to state that in this sector, the high level of inventory is relevant, as the development of aged products through aging and reserves generate higher added value. Marketing strategy: In this second component five questions explain 10.3% of the variance. They are: advertising spending above sector average, investment in R&D oriented to efficiency process, innovations in marketing, strong influence over distribution and innovation in productive process. In this area business managers are concerned about trends and about controlling their various marketing techniques as a strategy to achieving their success. Innovation strategy: The variance explained by the extracted component is 8.1% and its four questions are: development of new products, wide range of products, emphasis on special products and high-price segment. In innovation strategy what prevails is the obtaining of new items and the ability to offer the market a new and special range of products with a certain orientation towards a greater perceived benefit by customers. Low price strategy: Two variables characterize this factor and explain 6.4% of the variance they point in a clear direction for offering products with less perceived benefit, a price below competitors and focusing on the low price products segment. Table 12 Principal component analysis: strategy of the firm. Source: Our elaboration Variables Alpha without item Comp. 1 Comp. 2 Comp. 3 Comp. 4 Comp. 5 Communality Extremely strict product quality control procedures. .870 .704 .059 .100 -.243 .136 .587 Specific efforts to insure a pool of highly trained, experienced personnel. .866 .665 .278 .207 -.023 -.005 .562 Continuing, overriding concern for lowest cost per unit. .871 .649 .062 .132 .323 -.048 .549 Major effort to ensure availability of raw materials. .870 .643 .254 -.071 .113 .025 .496 Extensive customer service capabilities. .871 .565 .015 .368 -.149 -.043 .479 Maintaining high inventory levels (disregard the derivative of the aging of the product). .870 .535 .189 .007 .250 .260 .452 Concerted effort to build reputation within industry. .865 .518 .240 .384 -.269 .293 .632 Building brand identification. .867 .489 .400 .236 -.233 .106 .521 Developing and refining existing products. .867 .474 .207 .322 -.210 .306 .510 Promotion/advertising expenditures above the industry average. .869 -.012 .826 .148 .158 .043 .732 Major expenditure on production process oriented R&D. .865 .281 .766 .063 .092 .130 .695 Innovation in marketing techniques and methods. .866 .204 .742 .226 -.058 .015 .647 Strong influence over distribution channels. .865 .299 .659 .223 .129 .057 .593 Innovation in manufacturing process. .864 .385 .443 .341 .005 .253 .525 New product development. .868 .164 .241 .790 .127 -.093 .733 Broad product range. .870 .207 .240 .727 .262 -.273 .772 Emphasis on the manufacturing of speciality products. .869 .139 .200 .680 -.209 .247 .627 Products in higher priced market segments. .872 .143 .196 .471 -.438 .404 .635 Pricing below competitors. .882 -.075 .105 .060 .796 .129 .670 Products in lower priced market segments. .879 .072 .125 -.023 .786 .086 .647 Small limited range of products. .879 .203 .027 -.249 .056 .773 .705 Only serve specific geographic markets. .876 -.009 .106 .158 .177 .715 .579 Eigen value 6.767 2.275 1.783 1.419 1.103 % Explained variance 30.758 10.339 8.107 6.448 5.013 Cronbach's alpha of whole scale: .875 % Total explained variance 60.663 Average K.M.O. .862 Bartlett Test x 2 2557.814 gl 231 Significance 0.000 J.R.F. 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