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ROLE OF TIE STRENGTH IN EMERGING CLUSTERS

Case Study From Emerging Wine Cluster of Coastal Ege Region of Turkey

Nur Yaldız

S 1763385

Nur.yaldz@gmail.com

Yeni Yaşam Sitesi No: 31 35430 Urla/İzmir/Türkiye

+905364333174

First Supervisor: Hendrik Snijders Second Supervisor: Thıjs Broekhuizen

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And if the Wine you drink, the Lip you press, End in the Nothing all Things end in -- Yes -- Then fancy while Thou art, Thou art but what Thou shalt be -- Nothing -- Thou shalt not be less1

Omar Khayyàm, 11th century, Iran

I owe special thank you to many people who helped me and supported me during this hard period of my studies.

First of all, I’d like to thank to my First Supervisor Dr. Hendrik Snijders, and my Second Supervisor Dr. Thijs Broekhuizen. With the help of Dr. Snijders and Dr. Broekhuizen, I got an advantage to investigate an industry which I’m very interested in, and gained theoretical insights about emerging clusters. During the investigation period I gained solid background about the national industry with the help of Dr. Şeyla Ergenekon. I’m very thankful to be considered as a serious student by one of the most important experts of Turkey.

I owe special thanks to my colleague Liset Otten who gave me insights to improve my work further. I would like to thank to the winegrowers who devoted time to answer my questions in detail. I thank to my references, who contacted with wine producers for interview and survey. Last of all, I’d like to dedicate this research to my parents…

August 30, 2011 Groningen

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Abstract

This study investigates roles of weak and strong ties in the development of a cluster. Importance of networks can be summarized as reproduction of the cluster, circulation of knowledge, and novel ideas. Networks work through weak and strong ties among the actors of a cluster. Weak ties help to circulation of novel ideas across a network, and may connect organizations from different industries. Strong ties transfer thick information, and requires frequent interaction. This study focuses on role of tie strength across a social network in an emerging industrial cluster. It is found that, for emerging clusters, strong ties are more important for during the development process. However, strong ties can be more effective when it is combined with weak ties. Strong ties can spread trust, and collective action among the organizations. Weak ties, additionally, act as bridges to connect small locational networks to each other, and can spread innovation across a network.

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TABLE OF CONTENT

1. INTRODUCTION ...6

1.1. Significance of the Study ...6

1.2. Research Questions and Study Objectives ...8

1.3. Unit of Analysis ...8

1.4. Thesis Outline ...8

2. LITERATURE REVIEW ...9

2.1. Clusters & Networks ...9

2.2. Weak and Strong Ties ... 11

2.3. Network Structure... 12 2.3.1. Network Embeddedness ... 13 2.4. Emerging Networks ... 15 2.5. Legitimacy ... 16 2.5.1. Organizational Strategies ... 17 2.5.2. Intraindustry Strategies ... 18 2.5.3. Interindustry Strategies ... 18 2.5.4. Institutional Strategies... 19 3. CONCEPTUAL MODEL... 21

4. DATA & METHODS ... 23

4.1. Research Contex ... 23

4.1.1. PEST Analysis of Turkish Wine Industry ... 26

4.1.1.1. Political Factors ... 26

4.1.1.2. Economic Factors ... 28

4.1.1.3. Socio – Cultural Factors ... 28

4.1.1.4. Technological Factors... 29

5. Methodology ... 30

5.1. Questionnaire & Data Collection... 32

6. FINDINGS ... 34

6.1. General Overview of the Regional Industry ... 34

6.2. Results of the Hypotheses ... 36

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7.1. Solution ... 40

7.1.1. Managerial Implications ... 40

7.1.2. Industrial Implications ... 40

7.2. Research Limitations and Furhter ... 44

8. REFERENCES ... 45

9. APPENDIXES ... 49

9.1. Appendix I: Map of the Coastal Ege Region: ... 49

9.2. Appendix II: Survey Results for the Hypotheses Testing ... 50

9.3. Appendix III: Inter - Organizational Relations ... 51

9.4. Appendix IV: Interviews with the V/Winegrowers ... 54

9.4.1. Algan Tümerk/ December 25, 2010/Urla, İzmir ... 54

9.4.2. Ali Bölükbaşı/Runner of one of the largest vineyards in Urla & Independent Winegrower /December 25, 2010/Urla, izmir ... 54

9.4.3. Hakan Konal/December 25,2010/Urla, İzmir ... 55

9.4.4. Nihat Canbulat/December 30, 2010/Urla, İzmir ... 56

9.4.5. Serhat Akbay/Vineyard Owner/December 30, 2010/Urla, İzmir ... 56

9.5. Appendix V: Interviews with the Producers & Experts ... 57

9.5.1. Teoman İplikçi /Owner of Vourla Limited Şirketi/ 29 Aralık 2010/Hatay, İzmir ... 57

9.5.2. Bilge Bengisu Öğünlü /Owner of Urlice Şarapçılık ve Bağcılık /December 27, 2010/Urla, İzmir……….. ... 58

9.5.3. Mert İşçiler/Onolog (Wine Engineer) of YazganWine /March 29, 2011/Pınarbaşı, İzmir .. 60

9.5.4. Ms. X/ COMPANY Z / April 25, 2011/ Urla, İzmir... 63

9.5.5. Dr.Şeyla Ergenekon/Wine Expert/April 29, 2011/İstinye Park, İstanbul ... 67

9.5.6. Zehra Canan Yazgan/Owner of YAZGAN Şarapçılık /Pınarbaşı, İzmir ... 81

9.6. Appendix VI: Original Version of the Questionnaire ... 86

9.7. Appendix VII: English Version of the Questionnaire ... 91

9.8. Appendix VIII: Actual Questionnaire ... 94

9.8.1. Questionnaire of Yazgan Şarapçlık ... 95

9.8.2. Questionnaire of Olcay Gemici – Alaçatı Şarapçılık (Gemiciwine) ... 96

9.8.3. Questionnaire of URLİCE Bağcılık ve Şarapçılık ... 97

9.8.4. Questionnaire of USCA Bağcılık Şarapçılık Zeytincilik ... 98

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9.8.6. Questionnaire of Küp Şarapçılık ... 100

9.8.7. Questionnaire of Lobiteks Şarapçılık ... 101

9.8.8. Questionnaire of Vourla Şarapçılık ... 102

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1.

INTRODUCTION

1.1.

Significance of the Study

The Social Network Model was an argument of Neo – Classical approach about the improvement and existence of organizations (Gordon & McCann, 2000). Marshall (1890) argued that regions were main drivers of the clusters. The main reason behind this argument is that, tacit knowledge can be easily transferred in short distances, and organizations of the cluster further improve their knowledge. In cluster literature, networks take place in the main boundaries of a cluster. Network theory discusses that clustering companies can unequally benefit from a network, and external ties can be as important as internal connections. Later on the model developed within the sociological literature (Ter Wal & Boschma, 2009). Mark Granovetter has started the social network studies in 1974, and established a study about information circulation within a network (Lin, 1999).

Social networks are a form of accumulated social capital. This durable social capital is generated with the combination of past social interactions and current cooperations among the actors (Gordon & McCann, 2000). One of the central arguments about the social network studies is social capital theory which was first introduced by Pierre Bourdieu in 1980. Social capital is defined as “the aggregate of the actual or potential resources which are linked to possession of a durable network of more or less institutionalized relationships of mutual acquaintance or recognition” (p. 3) (Portes, 1998). In addition, Coleman (1988) argued that social capital stands for protecting structure of current relationships, and networks must base on regeneration of existing relationships. On contrary, Burt (2000; 2001), argues that weak ties among the actors are defined as structural holes which are the source of competitive advantage. A structural hole between two different groups means each group is concentrating on their own activity and do not involve in the activity of the other group. These groups around a structural hole take advantage of different knowledge circulation within their own networks. In this way, structural holes serve as broker to transfer information among the different groups. Subsequently, weak ties are distant and infrequent interactions, and source of novel information. Diffusion of ideas, public information, and technical advice often need help of weak ties. Strong ties - more accessible, willing to be helpful and provide important channels for useful knowledge - require closeness and trust among the two participants (Levin & Cross, 2004).

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of networks which serve as a tool for innovation process. (Catells, 2010). In terms of Business and Economy, Baker (1990) made a research on market networks, and Gulati (1999) investigated influence of networks on alliance formation. Business networks (Anderson, Hakansson and Johanson, 1994), and intrafirm networks (Tsai, 2001) also have attention of the scholars. Cross and Cummings, (2004) argued that the performance of individuals is dependent on the position within the network. Similarly, knowledge diffusion is positively affected by network structure (Cowan & Jonard 2004). Rindfleisch and Moorman (2001) investigated new product alliances with drawing from social network theory – focusing on the importance of tie stength among the partner companies. Beside these studies, networks are investigated with regional development perspective (Padmore and Gibson, 1988; Almeida and Kogut, 1999; Cooke, 2001).

There are several cluster – network studies. Cowan, Jonard and Özman (2004) argue that there is a positive relationship between the substantial network structure and long run knowledge growth rates. This positive relationship also the result of innovativeness of an industry. Industries with highly tacit knowledge, and many technological opportunities provide better environment for spatial clustering. Wolfe and Gerter (2004) focused on research network among the industrial clusters in Canada and the role of local and non – local actors for spreading information. Graf (2011) applied social network analysis in East German Regions, and found that successful clusters are determined by gatekeepers. Wine clusters and network relationships have attracted the attention of scholars as well. There are several studies about New World producers that are compared with Old World Producers. These studies mostly investigate how wine cluster is developed in international markets, types of networks within a substantial wine cluster i.e. Italian, or the challenges during the emerging process of a wine cluster (Fensterseifer, 2007; Morrison and Rabellotti, 2009; Giuliani, Morrison, Pietrobelli and Rabellotti, 2010; Cusmano, Morisson, and Rabellotti, 2010; Centonze, 2010).

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1.2.

Research Questions and Study Objectives

The objective of this research is to contribute to the improvement of the theory regarding the role of weak and strong ties in emerging clusters by formulating new propositions about the role of tie strength (Dul & Hak, 2008). In order to meet with the research question the main research question is stated as What are the roles of weak and strong ties in the development of a cluster?

Since the focus of this research is to investigate benefits of weak and strong ties in a developing network, the sub research question is stated as

Which ties are more effective during transfer of innovationin a developing cluster? Weak or strong ties?

1.3.

Unit of Analysis

Coastal Ege Region is chosen as a sample for this case study (9.1. Appendix I: Map of the Coastal Ege Region). The whole Ege Region has 6 wine producing cities, and wineries mostly concentrated in the two biggest cities of Ege; İzmir and Denizli. For geographical reasons coastal region is chosen which includes 5 cities and 46 companies. Additionally, there are 2 companies which don’t appear on web site of Tobacco Products and Alcholic Beverages Market Regulatory Authority (TAPDK) because of non – production and product combination (producing both olive oil and wine) reasons (TAPDK, 2011). In 2006, 70 different licenced wineries appeared on the national market. Today, this number has reached over 100 all around the Turkey (Gümüş & Gümüş, 2008; TAPDK, 2011). This region stands as a good example which helps to show importance of weak and strong ties in an emerging cluster. The case study serves as a good laboratory to use relevant skills which were gained during the study year, and provides answer to the research questions.

1.4.

Thesis Outline

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2.

LITERATURE REVIEW

2.1.

Clusters & Networks

Clusters are industrial agglomerations. Industrial clusters are located in a certain geographical area, and focuses on particular industry (i.e. California Wine Cluster). These agglomerations are mainly formed with many interconnected companies which compete and cooperate among themselves. Clusters have connections with manufacturers of complementary products, other industry related organizations by skills, technologies or common inputs; government agencies, universities and other institutions such as trade unions. Linkages and complementarities across industries, and competitive institutions define the boundaries of a cluster. Competition and cooperation are the most important factors for a substantial cluster. Cluster advantages base on knowledge circulation among industrial companies, agencies, and personal relationships which generate linkages to spread open communication and reliability (Porter, 1988). Therefore, a cluster is defined as “geographic agglomerations of economic activities that operate in the same or interconnected sectors” (p. 47) (Giuliani & Bell, 2005).

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since the local customers put pressure on companies to develop their products according to the tastes and preferences of the consumers. Related and supporting industries stand for local suppliers, and presence of sub – industries (Porter, 2000).

Figure 1: Sources of Competitive Advantage in Regional Industries: Four Interrelated Forces. Adapted from Porter, 2000

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locations play an important role for informal networks of knowledge about production methods, business conditions and employment practices. These factors support the system to function in a better way, and generally shape the transfer of knowledge through social linkages (Giuliani, 2007).

Networks are very effective for the spread of innovation. Through networks companies have access to knowledge and resources which take longer period of time to obtain, and help to improve learning capabilities of the organizations (Powell, Koput & Smith – Doerr, 1996). In networks, geographical and social proximity lead to circulation of new and novel ideas easily among the actors. Extra cluster networking is important for the development of the knowledge. Weak ties prevent the organizations from being locked into local knowledge circulation (Giuliani & Bell, 2005). Powerful networks have ability to establish a reliable atmosphere which exists without political and legal support. Companies can set rules against monopolies and oligopolies, and spread the support of research and development for an issued industry. Networks have participants from the same background such as companies from the same industry. When variety of participants increase, long term connections and collaborations reduce, formal contracts take place, and transfer of thick information declines. Business associations, consortia and cooperation are formal institutions lead to creation of intra-cluster institutional thickness which stimulates inter – firm networking and the diffusion of knowledge (Powell, 1990).

2.2.

Weak and Strong Ties

Tie strength ranges from weak to strong, and characterizes the closeness and interaction frequency among the parties (Levin & Cross, 2004). There are some aspects which help diffusion of innovation and shape tie strength across a network; amount of time, the emotional intensity, mutual confiding, and characteristics of reciprocal services. Each aspect is highly related with each other. Stronger ties require more time to be generated, more frequently interacting individuals are more sensible about their friendships when they compared with the less interactive ones. Interactions of similar individuals are also being perceived as stronger tie connections. However, diffusion can reach more people and pass through longer path with weak ties rather than strong ties that is; marginal innovators could have more weak ties than the others. Weak ties are capable of connecting the members of different groups (Granovetter, 1973).

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is the main component of strong ties, reduces the risk of uncertainty, and provides better guidance than weak ties (Krackhardt, 1992). Strong ties stimulate support among the network actors by means of commitment, obligation and reliance (Nelson, 1989). Strong ties transfer complex knowledge more easily than weak ties which involve in a dense web of third party connections. Strong ties are more effective for transfer of knowledge among the actors since thick knowledge transfer requires high network density. It is important to match tie strength with the knowledge type. More time and effort are required for the generation of strong ties, and without strong ties transfer of tacit knowledge becomes a difficult process. Therefore, strong ties are more suitable to transfer tacit knowledge, whereas codified knowledge is more efficiently transferred through weak ties (Regans & McEvily, 2003). Despite the benefits, strong ties may generate more closed clusters, and cannot transfer novel information to a network (Granovetter, 1973; 1983; 1985).

Rost (2011) argues that weak and strong ties can be complementary to each other. Strong ties are most advantageous when combined with weak network forms in the creation of innovation. Coleman (1988) argues that strong ties easily transfer tacit knowledge, whereas the main argument of Burt (1992) is sperate networks with several structural holes which provide wide range of nonredundant information sources. Networks with some structural holes, or decentralized positions with not so many peripheral companies are the examples of weak network architecture. Therefore, strong ties and weak network architecture embeddedness provide the most innovative solutions. Similarly, structural holes within a network spread innovation faster. Companies can access new information more quickly which affects the peformance of the organizations positively (Zaheer and Bell, 2005).

2.3.

Network Structure

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with their information necessity. These collaborations can be a starting point of a network. Cooperation between a new and existing company will lead to network growth, and companies generate a network which will shape future collaborations. Network formation is a result of the new relationships among the existing companies or cooperation with the new companies. There are other factors which affect structure of a network such as, dominant technology’s characteristics, social norms, density, tie strength, central vs. peripheral companies and modular institutional aspects which support spread of specific rules (Gulati, Nohira & Zeheer, 2000). Mass production technologies have effects on cooperation decisions of companies. This situation shows itself in collaboration of central vs. peripheral firms. Companies with central position have access to more information, take advantage of higher returns and have better opportunities than peripheral companies (Kogut, 2000). Centrality in network relationships increases the innovativeness of a company (Powell et. al., 1996). In general, high status companies don’t cooperate with low status companies. Consequently, large companies generate strong ties among each other, and generate weaker ties with small companies or new starters. High network density among central companies may lead to oligopoly formation in an industry. This results as generation of small networks of peripheral firms, and ineffective norms. Less frequent collaboration among companies will result as an underdeveloped network and immature industry (Kogut, 2000).

2.3.1. Network Embeddedness

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A company’s position in the network structure, availability of social capital, and the type of interfirm ties which are involved, provide access to potential opportunities (Walker, et. al., 1997). In other words, network embeddedness have several advantages. Firstly, embeddedness helps companies to meet with the consumer prefences. Secondly, embeddedness leads to collective action which results as cooperation among companies for problem solving, and higher quality production. Thirdly, embeddedness strengthen the focus of actors on reproduction of the network. Fourthly, embedded ties help to transfer thicker information, production know – how and profit margins, and spreads learning and integrated production (Uzzi, 1996).

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behavior through the spread of information among the organizations. Trust, information transfer and collaborative problem solving are three main aspects of embedded relationships. Unlike weak ties, trust has benefits to spread exchange of resources, which increase competitiveness, across a network. Network density increases with the level of embedded ties within a network. For example, high density of weak ties generate low level of network embeddedness (Uzzi, 1996).

Figure 2: High & Low Network Embeddedness. The first figure shows densely connected network. The companies have strong interactions among each other. The second figure shows the low network density. There is no strong connection among the partners. Adapted from Echols & Tsai, 2004

2.4.

Emerging Networks

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advantageous in highly competitive industries. In order to avoid opportunism, the companies must implement social governance mechanism by means of norms and sactions. Strong trust among the clustering organizatons may take place of the norms and values after a certain period of time.

Figure 3: Role of weak and strong ties in emerging clusters

2.5.

Legitimacy

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Figure 4: Categories of Legitimacy

2.5.1. Organizational Strategies

The company level trust is very important for the generation of legitimacy. Employees must know the relevance of the strategies for the development of an organization.

Cognitive Legitimacy: In emerging industries, influencing employees and stakeholders about the costs and benefits of the industry is a hard process for the producers. The founders do not have specific guidelines for emerging industries to establish targets or to take action. When there is lack of organizational trust about the company level strategies and plans, founders must promote targets and strategies through symbolic language and behaviors. Organizational leaders must motivate employees about hitting the target, and establishing strategies. To establish a trustworthy atmosphere across a company, the founders must explain the new strategies in detail, and must provide information beyond the knowledge of the organizational members.

Figure 5: Organizational Legitimacy

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Sociopolitical Legitimacy: The founders must build an accepted knowledge base by the all stakeholders. This knowledge base influence organizational stakeholders’ about the validity of the arguments. Validation can be established through consistent stories about the new activity. The organizational leaders must explicitly explain the risk/reward tradeoff of the action, and the benefits that it may bring to the organization. Last of all, organizational members, must share the sprit that the company is a unique organization, which has comparative advantage, across the industry.

2.5.2. Intraindustry Strategies

In an emerging industry, new companies face with difficulties which blocks the diffusion of knowledge and spread of the new product. When the organizational trust is generated, the companies must establish clear guidelines about the way of interaction with the other industrial companies.

Cognitive Legitimacy: Lack of convergence – no reliability among the organizations – in emerging industries may create problems about the type of standards which must be followed. In networks, cooperation among the organizations first begins informally. Employees from different companies interact with each other by involving in similar social circles i.e. attending the same conferences, seminars. These small connections can be the base of institutional collaboration. With the help of these relationships companies can establish formal strategic alliances, consortia, and trade associations. Sociopolitical Legitimacy: Collective action among the actors is important for the sociopolitical approval. In emerging industries establishing common standards is a very hard process. There can be strong competition for the establishment of the common design. This process can slow down the growth rate of the starters. Disagreement and diversity among the organizations can damage the success of companies which have potential to promote the whole sector.

2.5.3. Interindustry Strategies

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Cognitive Legitimacy: In established industries new organization’s reputation can be damaged with inaccurate information. Legitimacy must be built as a reality, that is; it must be “taken for granted”. A new style must be drawn through new vocabulary, new labels, and new beliefs must be spreaded. Organizational culture and the behaviors of the employees generate reputation in the eye of suppliers and sub industrial organizations. The producers can have powerful reputation through interfirm associations, industrial magazines, trade fairs, and promotion campaigns. Trade associations play an important role for the spread of cognitive legitimacy. These associations help to establish common industry standards, and represent the sector to the government.

Sociopolitical Legitimacy: The development of an emerging industry is related with the actions of the established industries which may restrict the growth of the new industry. There can be objections about compatibility of the new industry’s action with the social norms and values. Similarly, incumbent industries may block the existing sources for the new industry’s use. Reliable relationships must be established with the existing industries. After the establishment of cognitive legitimacy, tacit approval can probably be received in the form of economic transactions. If the new industry has cooperation problems with incumbents, then trade associations can help the new entrant to gain some strength. However, new companies may face with paradox of individual vs. collective benefits. The cooperative relations between the new and existing companies may establish a business environment which provides lower costs for the second followers, and drive the pioneers out of the industry.

2.5.4. Institutional Strategies

At institutional level, companies benefit from legitimacy through collective action i.e. alliances, trade associations.

Cognitive Legitimacy: Emerge of the new industry may have problems about finding available work force. Educational institutions can meet with the work force demand. However, the companies must make sure that the candidates have education according to the new industry’s requirements.

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In order to answer the research questions, two hypotheses are generated according to the literature review about the emerging industries.

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3.

CONCEPTUAL MODEL

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4.

DATA & METHODS

4.1.

Research Contex

Until the end of the 1980’s “Old World” countries such as France and Italy dominated the global wine market. From the beginning of the 1990s, new international competitors started to take place in the industry. These new players have great performance in terms of both exported volumes and values. The “New World” countries include developed countries such as US and Australia and less developed but rapidly growing countries such as Chile, Argentina, and South

Figure 7: Global Grape Production (Azabaoğlu, Akyol & Özay, 2006)

Africa. Besides the new players, international wine industry faced with a research driven industry transformation. Changes in wine making techniques, grape cultivation and production technology have expanded, and “New World” countries have started to take part in global competition.

In the 1980s U.S. and Australia started to invest in “wine system of innovation” and cooperate with research institutes and universities. This trend is also observed in South Africa and Chile. Affluent New World players were the pioneers of this transformation, and then emerging economies

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adopted the new business model. In the same way, New World players are watching wine consumption habits across the world. To meet with the demand, the new competitors have scientific approaches and institutional building efforts with their branding and marketing strategies (Cusmano et. al., 2010; Giuliani et. al., 2010).

Turkey is the 4th biggest grape growing country and geographically one of the most suitable countries for wine grape production in the world2. There are 516000 hectares of vineyards which occupies 2% of the agricultural land. Grape production has 30% share from the total harvested fruit and 3% of the grapes are used for wine production (Gümüş & Gümüş, 2008). 20% of the wine production is held in Ege region which have 30.6% vineyards of Turkey and raise 41.2% of the grapes (Tosun, 2005). In Ege there are several organizations which focuses on wine, grape and wine grape production. Manisa makes raisin production in large amounts, and wine producers are mainly located in İzmir and Denizli. Besides, Mürefte (Marmara), Kapadokya (Inner Anatolia) and Southeast Anatolia are the other regions which focus on winegrowing.

Wine production has very old history which dates back to 3500 BC. Anatolia has been accepted as cradle of wine, and old Anatolian civilizations such as Hittites and Phrygians played important role in spread of wine. Greek colonists, which held wine trade, had met with wine through the Phrygians. Wine reached France and Italy by the 6th century BC. In Turkish history, before accepting Islam as a religon, wine consumption was very common among the Turkish Tribes. Islam brought secrecy to wine, and has increased popularity of other alcoholic beverages3. With specific regulations, consumption of wine had tried to be restricted during the time of the Ottoman Empire. Until the establishment of the Turkish Republic, wine production was held by non – Muslim citizens, and wine was mostly consumed by them. Winegrowing had the biggest damage during the “1923 Population Exchange” between Greece and Turkey which resulted as migration of highly experienced winegrowers to Greece (Georgeon, 2002;

2

There are no consumption and production statistics available about the recent years.

3

Turkish people believe that wine is the only restricted alcoholic drink, therefore, Turks don’t bother to drink other beverages such as beer and rakı.

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4.1.1. PEST Analysis of Turkish Wine Industry

To provide a better overview about the industry, PEST Analysis is provided. In PEST Analysis there are four forces which helps to define relevant conditions of an industry. Political Forces are related with regulations, taxes and government policies. Input costs and conditions about economic environment are issues of Economic Forces, wheres socio cultural forces help to investigate cultural and sociological base of an industry. Lastly, technological forces stand for R&D activities, and effects of current technologies on a sector (MindTools, 2011).

Political Forces Socio – Cultural Forces

- High taxes.

- Unfair competition.

Special agreements among the large scale producers and restaurants.

- No regulations and legislation about technical issues.

- Low subsidies.

- No cooperation among the government agencies.

- Expensive product and sale permissions.

- Misleading image of wine. - Conservative trends and policies. - Lack of wine culture.

- Low quality wine for tourism. - Popularity of Rakı

Economic Forces Technological Forces

- High input prices.

High wages for viniculture workers - Lack of qualified labour supply.

- No Appellation Origin Control system. - No research about consumers’ tastes

and preferences.

- Lack of high tech machines or well qualified experts.

- Wine grape cultivation must be separated as a speacial viniculture brach.

4.1.1.1. Political Factors

National industry is dominated by large scale producers, and small wineries face difficulties in finding partner restaurants and hotels to sell their wines in nation wide places (9.5. Appendix V: Interviews with the Producers & Experts). Previously the government implemented under 24 age restriction for alcohol consumption (between Jan – May 2011), and ban on internet sales (between Feb – May 2011). However, both regulations are abolished by national Law Bureau (VATAN, 2011). Still, the government tries to restirct wine tasting events and promotions. Although some producers think that regulations

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protect the sector and control unregistered production, most of the producers argue that there is no government support for the sector. National government agencies such as Tax Bureau, and Tobacco and Alcohol Market Regulatory Authority (TAPDK) have many strict controls over the wineries. These institutions do not have wine experts, and instead of controlling the quality and production techniques inspectors just focus on financial consequences and taxes. Governments attitude about the sector damage viniculture. Vinegrowers abolish their vineyards which reduce chances of wine producers to find suitable grapes for wine production. High tax rates on import wines have negative effect on local competition and quality. Similarly, the profits have dramatically declined, and financial problems and unregistered alcoholic drink production have increased. Before collecting revenue from the retailers, the producers have to pay high amount of taxes to the government. This situation generates extra financial burden on the wineries. For a 75cc bottle wineries pay 1 EUR tax which extremely increases wine prices. High quality foreign wines enter Turkey with 220% tax ratio. Since there are no foreign companies which involve in national competition, domestic organizations can keep the quality low and can create oligopolies. Large scale producers have special agreements4 with restaurants. Restaurants agree to sell just the wines of that producer for a year by receiving specific amount of money such as 50.000$ from the wine company. In this way, small scale producers are excluded from the national competition (9.5. Appendix V: Interviews with the Producers & Experts). There are no regulation and legislation about technical issues on vineyards and wineries. Subsidies for winegrowers are not even sufficient to offset the cost of the vinery plant for per acre. The sector includes highly unregistered production and unfair trade. Small scale producers are not able to extend their production because of the substantial dominance of the large companies. Moreover, there is no cooperation among the government agencies which are the Ministry of Finance, TAPDK, and Ministry of Agriculture and Rural Affairs. Producers have to obtain several costly production and sale permissions which allow to sell to wholesale, retailsale, distribution, and on premises liquor licences. Lastly, Özkan Şarapçılık made arguments about strict controls on home made wine. Individuals are not allowed to keep 900 litres wine in their homes for self consumption (Tosun 2005; İTO 2006; Gümüş & Gümüş, 2009; 9.8. Appendix VIII: Actual Questionnaire: 9.8.9. Questionnaire of Özkan Şarapçılık ).

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4.1.1.2. Economic Factors

Prices of cork, bottle and barrel; technological machines; floating exhange rates; and high labour prices impose high production costs to the producers. Especially small scale producers argue that labour prices very high because companies don’t use machines for viniculture extensively like in France. Use of machines in viniculture reduces labour prices dramatically. When compared with France, labour prices in Turkey are higher (9.5 Appendix V: Interviews with the Producers & Experts: 9.5.2 Bilge Bengisu Öğünlü). Additionally, there are not enough qualified staff for wine production. Because of high production costs, Turkish wines are introduced with very high market prices which prevent Turkish wines to compete in global markets (Tosun 2005; İTO, 2006; 9.5. Appendix V: Interviews with the Producers & Experts).

4.1.1.3. Socio – Cultural Factors

Wine was highly consumed all along the Turkish history. After becoming Muslim the tradition had not changed. In the 11th century while Ömer Hayyam5 was writing his poems while wine was popular drink, and during the Ottoman Empire there was wine culture instead of Rakı culture. Today, wine has an image of exclusive drink which has special drinking ritual and food culture. Spread of conservative living style and political reasons are the main obstacles against the spread of wine. Most of the wine producers argue that, although Turkey is highly Muslim populated country, and Islam restricts wine consumption, religion is not an effective obstacle for the sector. Current political trend has negatively affected wine consumption levels. Since the last decade, Yazgan Winery has been experiencing decline in the production levels, and in 2010 the company had the lowest production level. Turkish people don’t prefer to consume wine because wine has expensive and exclusive drink image which is consumed by high society. This is also the reason of uneffective and insufficient promotions. Most of the individuals consume wine to get drunk. Other consumers prefer wine because they just like to drink it, or because of the positive effects on human health (9.5. Appendix V: Interviews with the Producers & Experts: 9.5.4. Ms. X). Individuals, who have knowledge about wine portray about 0.1% or 0.01% of the society (9.5.Appendix V: Interviews with the Producers & Experts: 9.5.5. Dr. Şeyla Ergenekon). There are wine tasting seminars, competitions and fairs, but these activities are not sufficient to spread wine consumption. Beside these consumer groups, wine is generally consumed by tourists during the summers. However, all inclusive hotels serve very low quality cheap table wines which may damage the image of the product. HORECA (Hotels – Restaurants – Catering) sector has problems with low quality

5

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wines in touristic places. In fact HORECA sector is the main reason of the problem. All – Inclusive Hotels prefer to serve very cheap and very low quality Turkish wines to their guests. As such, Turkey generates the impression of a low quality wine producing country (Aktaş 2002; Tosun, 2005; İTO 2006; Gümüş & Gümüş, 2008; 9.5 Appendix V: Interviews with the Producers & Experts).

4.1.1.4. Technological Factors

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5.

Methodology

For this research data gathered from the semi – structured interviews from the well known experts of the national industry; winery owners and wine growers from the İzmir city. Besides, a survey among the regional wineries is held to gather secondary data. To explain the roles of weak and strong ties in an emerging cluster, the focus is just kept on the companies and their region wide internal and external interactions. This study is the first research about the cluster. The national wine industry has one of the most suitable environments to expand the production. Companies do not have a common attitude to implement strategic plans for the development of the regional sector (9.3. Appendix III: Survey Results for the Hypotheses Testing; 9.7. Appendix VII: English Version of the Questionnaire).

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Interviewee Role Length of the Interview Large or Small

Algan Tümerk Winegrower

Vineyard owner

30 minutes Ali Bölükbaşı Vineyard runner

Winegrower

An hour 200 acres vineyard

Hakan Konal Vineyard owner Winegrower

30 minutes Nihat Canbulat Winegrower

Restaurant Owner

30 minutes

Serhat Akbay Vineyard Owner An hour 6 acres vineyard

Teoman İplikçi Owner of Vourla An hour 8 acres vineyard

Bilge Bengisu Öğünlü Owner of Urlice An hour 40 acres vineyard Mert İşçiler Onolog (Wine Engineer)

of Yazgan Şarapçılık

An hour ----

Ms. X. Marketıng Manager of

Winery X

An hour ----

Dr. Şeyla Ergenekon Wine Expert Two Hours ----

Zehra Canan Yazgan Owner of Yazgan 30 Minutes ----

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5.1. Questionnaire & Data Collection

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Name of the Company Date of the Survey Production Capacity (Litre/Year)

Location

YAZGAN ŞARAPÇILIK PAZ VE LTD ŞTİ.

21.06.2011 6.813.046 Pınarbaşı/İZMİR

OLCAY GEMİCİ – ALAÇATI ŞARAPÇILIK (Gemiciwine) 30.06.2011 5000 Alaçatı/İZMİR URLİCE Bağcılık ve Şarapçılık 08.07.2011 30.000 Urla/İZMİR USCA BAĞCILIK ŞARAPÇILIK ZEYTİNCİLİK TARIM VE GIDA SAN.TİC.LTD.ŞTİ. 26.07.2011 20.000 Urla/İZMİR ERDOĞAN NAKLİYE ŞARAPÇILIK VE SİRKE İMALAT PAZ. SAN. VE TİC. LTD. ŞTİ.

28.07.2011 2.100.000 Bekili/DENİZLİ

Küp Şarapçılık Ltd.Şti. 30.07.2011 3.400.000 Bekill/DENİZLİ

LOBİTEKS TEKSTİL SAN. VE TİC. LTD. ŞTİ.

03.08.2011 444.555 Çal/DENİZLİ

Vourla Şarapçılık Limited Şirketi

25.07.2011 - Urla/İzmir

Özkan Şarapçılık 5.08.2011 2.500.000 İsabey /Çal/Denizli

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6.

FINDINGS

6.1.

General Overview of the Regional Industry

To provide a clear explanation about the proximity of the organizations, the map is generated. Blue figures represent participant wineries in İzmir and Denizli. Transportation companies in İstanbul, İzmir and Denizli are marked with yellow. Location of Supermarkets & Kiosks are showed with red figures. Green color represents cork & bottle suppliers. Purple figures are placed for Advertisement & Design companies. Finally, tourism & HORECA are marked with orange figures.

There are no sub industries available for cork, bottle, and barrel production. The respondents indicate that the existence of sub industries would reduce production costs dramatically. Currently, the companies import these inputs with high costs. The companies have external ties with different sectors. For inputs – cork and bottle – the companies cooperate with producers from European countries. It is also learnt that the cork and bottle companies have distributors in İzmir and İstanbul. For barrels, the companies generally cooperate with French producers since French oak barrels are symbols of high quality production (9.5. Appendix V: Interviews with the Producers & Experts). Most of the companies do not cooperate with transportation firms. For label design most of the companies have partners in İstanbul, and for advertisement, companies collaborate with agencies in İzmir or Denizli. In general, wineries do not sell their wines to supermarkets and kiosks. There is no strong collaboration with universities for high quality production. Özkan Winery explicitly stated that the universities do not have wine experts who are capable to help wineries. For this reason, the cooperation has a reverse process; universities tend to collaborate with wineries for information. All of the wine producers collaborate with local vinegorvers for high quality grape cultivation, and take advantage of local workers during the harvest period. Most of the wineries have partners from tourism and HORECA sectors (9.3. Appendix III: Inter – organizational Relations; 9.4. Appendix IV: Interviews with the V/Winegrowers; 9.5. Appendix V: Interviews with the Producers & Experts).

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Figure 12: There is no (strong) collaboration among the regional companies. Since there is no evidence about the regional cooperation, interrelations among the vicinities are not shown.

6.2.

Results of the Hypotheses

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new entrants, the companies agree that incumbents support the new companies in the region. In general producers of Denizli argue that there is mostly cooperation between the new companies and substantial firms. Most of the companies disagree with the statement that large scale producers cooperate each other by excluding small scale producers. Most of the wine producers stated that there is no vicinity or city level cooperation. However, Lobiteks, Gemici and Özkan highly disagrees with the situation. Especailly, Lobiteks and Özkan wineries stated that there is no region wide cooperation, most of the wineries just cooperate on local level. For example, producers from Çal (Denizli) just cooperate among themselves. The same situation is also described for Urla (İzmir) during the interviews, and for İzmir as well. All of the producers agree that being established in coastal Ege increase the companies’ reputation. Most of the companies agree that the region attracts new winery investments. Wine production is a very costly process, and being in Ege Region does not provide any financial benefits. Most of the wineries try to provide technical and scientific knowledge with their own financial sources. Imported input prices’ increase production costs twice (9.2. Appendix II: Survey Results for the Hypotheses Testing; 9.5. Appendix V: Interviews with the Producers & Experts) .

These findings show that companies do not have strategies or targets to spread legitimacy on organizational level. Until today, Turkish wine industry has not implemented effecitive strategies to capture consumers from the different levels of the society. In general, the industry has generated wine image which focuses on exclusive customers. Consequently, wine has become a symbol of high standard living. Wine has introduced with complicated drinking rituals, and foreign cusines. As a result of this strategy, the wine consumption levels has always stayed low, and wine has not diffused among the society (9.5. Appendix V: Interviews with the Producers & Experts: 9.5.5. Dr. Şeyla Ergenekon). There is one good example which combines Corporate Social Responsibility with wine. Urlice Vinyards is one of the supporters of the international Slow Food Movement6. The company generated a local association from the local people who are vinegrowers, farmers, teachers, bakers, etc. In this way, Urlice combines wine with slow food policy, increase the company’s reputation all accross the region, and shows that wine can be drinkable by everyone (9.5. Appendix V: Interviews with the Producers & Experts: 9.5.2 Bilge Bengisu Öğünlü). In general, the wineries have egoistic and not cooperative strategies to spread wine across the sociey. Instead of increasing regional wine consumption, most of the companies aim to increase quality to be best in the sector by making new vineyard investments, technical infrastructure improvement, increasing the technical background of the technical staff, investing more on laboratory

6

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infrastructure, and establishing informative magazines about wine. On sociopolitical level, European wine experts such as Tim Atkin and Jancis Robinson agree that Turkey has the ability to produce high quality wine (Aldrich and Foil, 1994; 9.5. Appendix V: Interviews with the Producers & Experts).

The organizations do not establish cognitive legitimacy through generating common standards about the production, and do not take collective action on industrial level to establish sociopolitical legitimacy. There is no active association of regional wine producers or strong cooperation among the companies. Currently, large scale producers of Turkey has established an association to promote Turkish wines accross the overseas. However, most of these large scale producers are also the suppliers of very low quality table wines at touristic hotels, and do not willing to invest in tourism by promoting high quality wines. In general, Turkish wine sector clashes in itself. There is one winery, Özkan, which focuses on promotion campaigns in touristic places to increase wine consumption. The survey participant from Özkan Winery argues that attendance of Turkish wineries to domestic and national fairs extremely necessary for the introduction of Turkish wines (Aldrich and Foil, 1994; 9.8. Appendix VIII: Actual Questionnaire).

The companies try to establish cognitive legitimacy on interindustrial level. Some of the wineries fous on spreading wine consumption through wine tasting events, giving technical knowledge support to the local home – made wine makers, and wine factory visits. Some wineries aim to take place in several international wine tasting events to be evaluated in international standards. Tourism sector has the largest share on alcoholic beverage consumption. Companies offset the damage of low domestic sales with tourism. In all inclusive hotels low quality 20 lts bag in box wines are sold, or served to the tourists for free. The organizations’ main aim is to make profit as much as they can do with high priced low quality table wines (Aldrich and Foil, 1994; 9.5. Appendix V: Interviews with the Producers & Experts; 9.8. Appendix VIII: Actual Questionnaire).

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7.

Discussion and Conclusions

This research shows that weak ties among the companies of an emerging cluster may not lead to further development. Today, the situation of the emerging wine cluster of Coastal Ege does not show a booming trend because of both; the government policies and the atittudes of the companies. Therefore, the suggestion of the researcher is giving importance to strong ties during the development process. For a strong cluster weak ties may serve as a source of innovation, but for an emerging cluster strong ties have to be established first.

7.1.

Solution

In this part, some suggestions for the emerging clusters are generated. In the first section, managerial implications are introfuced fort he organizations. In the second section, industrial implactions are established through legitimacy (Aldrich & Foil, 1994).

7.1.1. Managerial Implications

To establish organizational cognitive legitimacy, the regional organizations must introduce wine to the all segments of the society. It is important to create wine awareness in the first place. Currently, the society does not pay attention to wine. Therefore, the people do not care about the quality of a drink which is not consumed frequently. Because of the exclusive drink image, wine producers have mainly focused on wealthy elder people, however, Turkey is a highly young populated and developing country. Young adults can be the new target customer group of the producers. There are some producers who can successfully establish organizaitional sociopolitcal legitimacy by taking advantage of CSR Projects. As an illustration, each small vicinity, city or region have some problems such as environmental pollution, cultivation of high quality seeds, tourism, etc. Therefore, wineries may establish local associations regarding these problems. In this way wine can be spreaded in each segment of the society (9.4. Appendix IV: Interviews with the V/Winegrowers; 9.5. Appendix V: Interviews with the Producers & Experts).

7.1.2. Industrial Implications

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of the region as well. New investments can take place, and the development of sub industries become faster (Aldrich & Foil, 1994).

Turkish wineries can establish intraindustry level cognitive legitimacy through generating a Turkish Wine Identity. Turkish wineries do not pay attention to Turkish culture. It is important to be society oriented, and being aware of the cultural aspects of the society. An extensive research can be done for the compatibility of wine with Turkish food culture. There is just one book about wine and Turkish cheese (Swan, 2004). It is not rational to expect from individuals in a developing country to change their living style according to high society living standards i.e. going to very expensive Gourmet restaurants (9.5. Appendix V: Interviews with the Producers & Experts).

On institutional level, establishment of socipolitical legitimacy is a very hard process. The regional industry does not have governmental support (9.5. Appendix V: Interviews with the Producers & Experts). In this case, first the regional companies must build a strongly collaborative regional industry. Then, the government will provide support for the sector. It is extremely important to show a common attitude. Without strong base, the cluster won’t take place within the plans of the government (Porter, 1996).

The regional industry collaborates with tourism industry. To establish sociopolitical interindustrial legitimacy, the regional wine producers must avoid the supply of low quality wine in touristic places. Local companies must define the quality of wine that they supply to HORECA sector and all inclusive hotels. However, because of the industry level competiton and attitude of the big local producers, this solution probably won’t work during a short period of time. The wineries don’t meet with the customer satisfaction. Their main customer group is tourists however; the organizations do not have any plans to improve the quality of wine for tourism.

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Organizations probably have strong interactions with the companies which are geographically closer. Companies may stuck into local networks and don’t look for external partners. Several strong ties may involve in local networks, but these ties became less important for generation of novel ideas over time. This situation is also applicable to the companies with simiar sizes which have strong interaction among each other. Small scale producers tend to cooperate among each other, and big companies generate strong ties among each other (McPherson et. al., 2001). In contrast, Von Friedrichs Grängsjö (2003) argues that decentralization is important for a network because of multi organizational atmosphere, and establisment of trust, and mutual commitment of the actors. This situation is especially effective when there are many small firms.

Establishment of a cooperative organization for each vicinity level network may help producers to share their experiences and knowledge. Each small network can interact with each other through these cooperations. In this perspective, it is important to cooperate according to geographical proximity. For example, producers in Urla/İzmir vicinity generate one association, and producers in Çal/Denizli establish an association for the local producers as well. Through their representatives, these producers can interact with each other and share information about the recent developments. As a result, the

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companies do not have to trust each other strongly, and take advantage of weak ties by means of inter – city interaction. However, it is important to generate strong ties as interactions become substantial, and generate new ties with wine clusters in other national regions, or foreign wine companies and clusters. With strong tie generation, local associations gather around one big regional association. In conclusion, the cluster development can be provided with the combination of weak and strong ties. The organizations can establish strong sub networks in each three cities, and these small networks can connect to each other through weak ties (Burt, 2000; Rost, 2011).

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7.2.

Research Limitations and Furhter

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9.

APPENDIXES

9.1.

Appendix I: Map of the Coastal Ege Region

7

:

The boarder of the geographical region is determined with red dashed line.

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9.2.

Appendix II: Survey Results for the Hypotheses Testing

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9.3.

Appendix III: Inter - Organizational Relations

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