Analytical Essay on Seven Sisters: Organizational Resources and Competitive Strategies

Introduction

Expanding market of small businesses in foreign countries seems to be a big challenge for firms to enter especially in such a highly competitive industry as wine.

Wine is a high-value segment in alcohol market under beer and spirit which accounts for around 17% or £114 Billon of total worldwide revenue share in 2017 and its sale volume is forecasted to slightly increase every year. Australia and France invested in wine the most followed by Switzerland, Portugal, Argentina, Italy, Canada, Denmark, United Kingdom, and Sweden, respectively (Statista, 2018). From those top 10 countries, Canada is an interesting market for wine exporters because Canada market is growing in the same direction as the worldwide market where sale volume has increased by 4% from 2016, and saw a slight growth every year (Passport, 2018). What’s more is consumers are highly demanding in this particular market all around the world. Products from traditional producers such as France and Italy are the most popular whereas new wines from Australia, New Zealand, and USA have also become preferable among wine drinkers (The Minister of Agriculture and Agri-Food, 2013).

One of the middle-sized businesses who is seeking to extend to an international wine market, Canada to be precise, is Seven Sister—a South African’s wine brand. Seven Sister is owned by an African business woman named Vivian Kleynhans. Seven Sister wineries are located near the Cape West Coast, Stellenbosch in the heart of winelands—a suitable location for planting grapevines. At the time, business is running efficiently as they sell products both domestically- South Africa-and-internationally-USA. Specifically, products have been sold in major national markets in South Africa, and 42 states across the USA. However, Seven Sisters winery has a dilemma growing its reputation in the wine community because it is difficult for a newcomer to win the loyalty among consumers who prefer existed brands (Mabaya et.al., 2014). Thus, establishing competitive advantage by building resource capability is the major factor to win over consumers’ heart.

The purpose of this report is to identify the organizational resources and competitive advantage for Seven Sister to develop a competitive strategy in order to settle down and set themselves as a well-known wine brand in Canada.

Organization Resource and Competitive Advantage

How resources create impact on competitive advantage

Gaining competitive advantage means performing a service, manufacturing a product, or offering a bundle of benefits that differentiates from competitors (Porter 1996). Small and medium-sized businesses are supposed to understand and analyze internal resources and external environmental as their competitive advantage(Galati, et. al., 2017). Supported by Barney (1991), the researcher suggested “firms obtained competitive advantages by implementing strategy to exploit their internal strengths, through responding to environment opportunities, while naturalizing external threats and avoiding internal weakness”. Together with the finding of Madhani (2010) who explained that to gain and sustain competitive advantage, one should be focus on resource-based view or RBV. Resource-based view is laid down as the theory which examines and clarifies the internal resource of organization, emphasizing on the capability in formulating strategy to approach sustainable competitive advantage. RBV divides categories of resources in two types which are tangible and intangible (Kamasak, 2017).

Tangible assets are physical objects that firms own or buy from suppliers; for example, land, machinery, equipment, and capital. Meanwhile, intangible assets are untouchable elements that firms particularly owned such as brand image, brand reputation, brand story, and trademark. Not only are tangible and intangible assets crucial in labelling each brand as distinctive, but also are heterogeneous and immobile resources vital to setting apart one’s competitive advantage. The concept of heterogeneous means diverse capabilities and other resources of firm which are uniqueness distinct from competitors such as Toyota who nominated themselves as expertise in car technology. They endorse the high technology by utilizing and deploying resources and capability into product model to competing with luxury cars. In fact, Toyota is able to charge the product in the higher price, but they insist to sell products at a lower price which is considered as a price advantage (Ukessays, 2016). Comparatively, immobile refers to resources that are dispossessed by other competitors (Brown, 2007). This group of resources is hard to obtain since the cost of developing, owning, and operating resource is high such as brand image, reputation, knowledge, and intellectual property. Regarding to Toyota, consumer perceive them as high-quality car brand sold in affordable price (Ukessays, 2016).

Based on Seven Sister tangible assets, they own a vineyard in South Africa where it is the best location to grow grapevines such as Chardonnay, Sauvignon Blanc, Merlot, Cabernet Sauvignon Blanc, and Pinotage/Shiraz. According to vineyard’s location, the climate and soil of Stellenbosch suits for the condition of planting Chardonnay which is widely accepted among wine drinkers (Atkin, 2017). Moreover, their winery is capable of producing wines by themselves. In other words, company’s facilities are ready to prepare for producing lots number of products to be sold in market (Sevensister, 2018).

In spite of tangible assets, Seven Sister has a touching story about brand’s founder, this remarkable origin thus became remarkable among consumers. In a way, the story has created a sense of authenticity which positively bolsters brand’s image and builds a warming perception towards consumers as a result. Additionally, the firm have good relationship with stakeholders and retailer with support to distribute product over the sea. Heritage Link Brands, the largest company in North America, is supporting Seven Sister to distribute product.

In term of brand heterogeneous and immobility, the owner combines resources and knowledge together for making signature wine’s taste (Mabaya et.al., 2014). The result of product, taste of tropical fruity flavour is unique from competitor. Also, the country of product origin as authentic South Africa’s wine does not mention for unique selling point by any competitors in Canada’s wine market.

How to sustain competitive advantage

Only the RVB concept is too board to establish competitive advantage. As explained in the argument from Jurevicius (2013), recognizing only the heterogenous and immobile resource in achieving competitive advantage are not enough for sustenance. As seen in Figure 1, this image illustrates VRIO resources which is vita criteria to find the competitive advantage. This argument is also supported by Ismail et.al. (2012) and Madhani (2010) that Valuable(V) – valuable resource which enhance strategic value to the firm, Rare(R) – resource which is difficult to find among the existing and potential competitors, Imperfectly Imitability(I) – resource or capability which difficult to imitate by other firms and significant cost advantage to firm to obtain, and Organization(O) – firms able to exploit the resource or capability. Those elements are essential measurements determining competitive advantage and sustainable performance.

Figure one. A resources bases view model (Jurevicius, 2013)

Comparing with the situation of Seven Sister, the value is the flavour of rich fruit with balancing between blueberry and vanilla. They provide various types of wine to consumers (Johnson, 2018). The taste of product is also rare resource; according to location of vineyards, summer fruits are collected to be ingredient of producing wine process which different from other brands. This capability of producing is imperfectly imitability which others cannot copy. As organizational exploited, the firm constantly express themselves as South African brand through the wine flavour.

The VRIO framework encourages firms to exploit resource and capture the value of brands (B2U, 2016). Another theory from Collis and Montgomery (1997) also supported that uniqueness of the resource and organization are offering to customer essential for creating a sustainable competitive advantage (Figure two).

Figure two. Advantage Creating Resource (Collis and Montgomery, 1997)

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Competitive Strategy

Based on RVB, VRIO, and Advantage Creating Resource concepts, internal resources are important for brand to understand themselves of how to utilize unique resources and capabilities as a tool to cement a strong brand. Besides internal resources, competitive strategy supports the brand’s direction which basically used for winning competitors. Referring to the theory from Porter (1985), he encouraged brands to combine sustainable competitive advantage with the scope of activity that firms want to achieve. It leads to generic strategy below that firm would focus on the cost of product or brand differentiation. Overall decision depends on external factors which are target and market of firm’s interest.

Figure three. Competitive advantage (Proter, 1985)

After analyzing the scope of activities for achieving, brand must set the strategy to confront with competitors. Kotler and Singh (1981) developed five confrontation strategies as illustrated in figure four which are Frontal attack – direct attack to the strength of competitor, Flanking attack – attack the competitor weakness, Encirclement attack – cut off the competitor’s resource, Bypass Strategy – avoid competing with the competitor’s strength and Guerilla Tactic – weaken the competitor with unconventional attack. Those five confrontation strategies are used within firms that want to expand their market and aim to compete with local brands in market.

Figure four. Confrontation Strategy (Kotler and Singh, 1980)

Seven Sister’s Competitive Advantage and Competitive Strategy

Selected Seven Sister’s Resources for Establishing Competitive Advantage

As mentioned earlier of Seven Sister’s internal resource, they own lots of valuable resource which are miles apart from local competitors in Canada wine market. From figure five, the graph illustrates brand shares of wine market, most of them are brands from Canada, France, Australia, and, Italy. The top ten brands in the market claim the location of vineyards and brand equity as uniqueness for competitive advantage (Passport, 2017).

Figure five. Brand shares of Wine in Canada Market (Passport, 2017)

From the finding above, Seven Sister owns valuable resources and assets which able to enhance and gain competitive advantage. Due to combination of RVB, VRIO, and Advantage Creation Resource concept which encourages firms to identify internal resource to create competitive advantage and sustainable, Seven Sister’s resources can be identified as below.

Seven Sister utilize the capability of wine making into wine ingredients to create new taste. Seven Sisters adapt local ingredients which is topical fruits marinated with grapevine. The result is consumer will taste the topical flavor and wonderful depth (Johnson, 2015). Furthermore, Chardonnay grapevine is originated in many countries, but growing Chardonnay in Stellenbosch is claimed to possess the highest quality comparing with other places. Thus, the rareness of product ingredients and capability of producing wine’s skill are the competitive advantage.

Not only internal resource but also the external factor is the element to be considered as Barney (1991) statement. Target consumer in Canada who are possibility to be consumer in the future chooses product from quality and taste (Winebusiness, n.d.). Regarding to Canadian’s consumers preference on figure Five, image seeker, engagement newcomer, and enthusiast are the potential consumer for the brand. They are highly knowledge group; hence, they make decision base on information, knowledge, and review. The functional benefit tends to be the factor for them for deciding rather than emotional (Winebusiness, n.d.).

Figure six. Consumer Segment (Winebusiness, n.d.).

To sum up, the emotional of the sisterhood should be reducing for bring up as the competitive advantage the authentic wine from Stellenbosch in South Africa with tropical fruity taste must be rise as competitive advantage. Brand’s country of origin can certainly play a major role in distinguishing themselves from other brands as well. According to the statistics of wine market in Canada, no brands from South America have been listed in the ranking. This paves a tremendous opportunity for Seven Sister to gain such a lead over competitors. In other words, the country of origin and product itself will be used for sustaining competitive advantage and developing competitive strategies.

Creating Competitive Strategy

Related to the Competitive Model for Porter, broad target is suitable the competitive scope because Seven Sister’s is appropriate with every wine drinker. The difference of competitive advantage are acceptable for Seven Sister because this is from South Africa which different from other players in market. Competing against other wine brands by engaging in a price war might be a smart choice for Seven Sister nonetheless as there is an undeniable limitation in the production cost.

As a result of all factors’ combination, Bypass Strategy is the most suitable strategy to confront with other competitors in Canada’s wine market. Avoiding competing in a strong competitive arena would be more beneficial for the brand than going against others directly mainly because Seven Sister is a newcomer in the wine. Its reputation is unheard of the respective market. Resorting to the uniqueness of the brand and position themselves in the new area is an adequate direction for this brand.

Both competitive advantage and strategy lead to new marketing strategy which is 'Authentic fermentation from South Africa'

Conclusion

Being distinctive from competitors is the best way to stand out over the crowd. Based on the resource-based view, VRIO, and advantage-creating resource theories, internal resources compounded with external environment opportunity are important factors for the firm to identify and recognize its uniqueness which is exceptionally useful in gaining competitive advantage. Furthermore, sustaining the competitive advantage is necessary for the firm to maintain their value, uniqueness and identity. Setting a competitive scope and thriving for competitive advantage are the direction for the brand to evolve itself in the right way. Most importantly, to be in the right position, choosing the right competitive strategy is an integral part of the brand to move forward.