Patterns of Innovation in the Okanagan Wine-making Cluster1
By
Caroline Hickton2
Timothy Padmore3
Presented to Innovation Systems Research Network Annual Meeting
Vancouver, Canada, May 13, 2004
Abstract
The astonishing growth of the Okanagan wine industry in the past 10 years owes much to
innovation. However, the industry in its present form is very new. Some features of classic
successful clusters, such as proximity to substantial and sophisticated institutions for advanced
research and training, are not present. The story of this paper is how the industry managed to
innovate successfully and form the kinds of linkages that sustain successful clusters.
Innovation turns out to be essential and pervasive: The fundamental process (centuries old) of
matching technique and product design to extremely particular micro-scale patterns of weather,
soil and topography requires huge amounts of new knowledge. The industry is well networked, a
prime driver of innovation. We also found gaps in the innovation system.
1
This research was performed under the umbrella of the Innovation Systems Research Network, an interdisciplinary
and multi-centre collaboration studying industrial innovation in Canada. The work described here was funded as a
three-year Major Collaborative Research Initiative (MCRI) by the Social Sciences and Humanities Research
Council of Canada. The MCRI supports (at last count) studies of 26 different clusters. Two are wine-making
clusters, in the Niagara peninsula in Ontario and the Okanagan Valley in British Columbia.
2
Masters student, Centre for Policy Research in Science and Technology, Simon Fraser University, Vancouver,
Canada, email cdh@sfu.ca
3
Adjunct professor, Centre for Policy Studies in Higher Education, University of British Columbia, Vancouver,
Canada, email tim.padmore@ubc.ca
1
1
Introduction
This research was performed under the umbrella of the Innovation Systems Research Network
(ISRN) an interdisciplinary and multi-centre research project studying industrial innovation in
Canada. The work described here was funded as a three-year Major Collaborative Research
Initiative by the Social Sciences and Humanities Research Council of Canada. The SSHRC
funding supports (at last count) studies of 27 different clusters. Two are wine-making clusters,
one in the Niagara peninsula in Ontario and one in the Okanagan Valley in British Columbia.
This paper deals with the wine cluster in the Okanagan. It characterizes the patterns of
innovation and relates the patterns to the current and possible future competitiveness of the
industry. Some the work on the Niagara peninsula has already been presented (Mytelka &
Goertzen, 2003a; Mytelka & Goertzen, 2003b), and we draw some comparisons between the
Okanagan and Niagara. The two studies took a somewhat different tack, with the Ontario study
focussing more on technical innovations and the regulatory environment, and the British
Columbia study emphasizing networking and marketing issues. Nevertheless, thanks to the
common framework developed for the ISRN project, there are many points of contact between
the two studies.
1.1
The Setting and the Research question
The setting
The most important fact about the Okanagan is its location and climate – important because
details of soil and weather make the difference between the ordinary and the extraordinary in
wine making.
The region is in the province of British Columbia in Canada. It straddles Okanagan Lake, which
lies in a valley stretching approximately 200 kilometres north from the United States border.
The climate is attractive, with dry and sunny summers and moderately cold winters with
occasional light snowfalls. The sparse “rain-shadow” pine forests in the cooler north give way
to grassland in the central valley, which transforms to a pocket desert at the international border.
Agricultural activity, supported by major irrigation projects, has overlaid a human-created
landscape of orchards and vineyards. The wine industry was concentrated early on in midvalley, but the centre of gravity has moved steadily south, seeking the sun.
The geography of the region has attracted settlers for 150 years. With the construction of a
modern highway system in the 1950s and 1960s, the region became a prime destination for
tourists, as well as for people seeking permanent homes and a better or cheaper life than they
could have in the metropolitan region to the west (the Lower Mainland, centred on the city of
Vancouver). Compared to the rest of the province, the Okanagan has more elderly people and
children, and fewer young adults. The population picture is consistent with a view of the region
as a magnet for retirement and a popular place to raise young families.
The region includes several Indian Reserves. These First Nations communities generally have
economic development strategies, recently including large land developments for grape growing.
2
Kelowna is the commercial heart of the region, the centre for business services and
manufacturing. The city of Vernon in the north and Penticton, Oliver and Osoyoos in the south
are secondary centres threaded on the ribbon of the north-south highway 97. The communities
are closely interrelated, with many people living in one community, working in another and
sometimes shopping in a third. We will see that, the same perception of the valley as a single
community shapes the structure of the wine cluster.
The valley economy is quite diversified with recent growth driven by construction and tourism.
The Okanagan has more manufacturing, business services and wholesale trade than other nonmetropolitan areas in British Columbia. Most firms are small, however, and there are many
home-based “micro-businesses.”
Less than half the labour force is employed full-time throughout the year. The region attracts
both skilled and unskilled labour and very few companies report difficulty recruiting. The high
incidence of part-time work, self-employment and small firms all contribute to reported incomes
that come in below the provincial norm, but close to the average for Canada.4 In short, the
labour force is flexible, available and offers a useful mix of skills.
Agriculture is the most visible industry in the Okanagan. Orchards and road-side tree fruit stands
are the essential visual symbols of the Okanagan for generations of travellers. However, for the
generation born in the 1990s, there will be a competing symbol: vineyards, wineries, wine shops
and wine tasting at dozens of small and large winemakers.
The question and the (brief) answer
The astonishing growth of the wine industry in the past 10 years owes much to innovation,
which is the subject of our study. However, the industry in its present form is very new. Some
features of classic successful clusters, such as proximity to public institutions for advanced
research and training, are incomplete. The story of this paper is how the industry so far has
managed to innovate successfully, for example forming the kinds of linkages that sustain
successful clusters.
Before undertaking the field research, we outlined four hypotheses (Padmore & Hickton, 2003).5
Our exploration of the first of these is the subject of this paper.
Hypothesis I: In the Okanagan wine cluster, innovation is idiosyncratic, individual and
incremental, refining and re-interpreting an ancient industry. There exists an innovation system
in the Okanagan. It is effective and has high connectivity. Some of the traditional “high tech”
drivers for cluster development are weak or missing, and others are present or dominant. The
4
Information in this paragraph is from Central Okanagan Community Profile, 1995, Kelowna Canada Employment
Centre.
5
Hypothesis I: In the Okanagan wine cluster, innovation is idiosyncratic, individual and incremental, refining and
re-interpreting an ancient industry.
Hypothesis II: The stock of human capital is modest but the rate of investment is high. Human capital moves freely.
Hypothesis III: Social capital, especially family linkages, was important to industry development in the 1990s and
currently.
Hypothesis IV: Government policy in the late 1980s and early 1990s had a substantial, positive effect on the
structure and competitive prospects of the cluster, contrasting with the Ontario experience.
3
vigour of the innovation system is one of the compensating elements. The industry, although
innovative, is not yet competitive.
The hypothesis is a statement about the nature of innovation in the Okanagan wine industry. It
was developed using the results of a focus group held about three months before we undertook
the main data collection, which comprised a series of interviews using the basic ISRN
questionnaire, modified somewhat to suit the regional industry. The hypothesis is also an
evaluation of the role of innovation in the competitiveness of the region.
Our data largely support the hypothesis. Innovation turns out to be essential and pervasive: The
fundamental process (centuries old) of matching technique and product design to extremely
particular micro-scale patterns of weather, soil and topography requires huge amounts of new
knowledge. However, we found gaps in the innovation system that may ultimately prove limiting
as this new industry cluster matures. The industry is not yet internationally competitive, but is
doing well in its domestic market. Saturation of the domestic market in the future may be a
“disruptive event” that stimulates a fresh wave of innovation.
1.2
Theoretical frameworks
Most analysis and monitoring of industrial competitiveness have been done at a national level.
This partly reflects the relative abundance of data available at a national scale and the greater
resources available to national governments. However, the emerging appreciation of the role of
regional industrial groupings has increased demand for analysis at the regional level. The ISRN
was established to examine systematically innovation and innovation’s impact on industrial
development at a regional level in Canada, where relatively little work had been done.
We define a cluster as “a concentration of firms that prosper in part because of their interaction,
whether that is through competition or cooperation, or by serving as suppliers or customers in a
value chain.” Our concept of clusters goes back to Marshall (1920), who identified three factors
that tended to concentrate firms in a region: the efficiency of a pooled market for workers with
specialized skills, the availability of material inputs at a low cost, and easier information flows
when firms are physically close together. Michael Porter (1990) established the word cluster in
its current incarnation and the importance of clustering for economic success in a global
environment.
Clustering is a real phenomenon, which occurs beyond what is needed to be near final
consumers or basic inputs (Ellison & Glaeser, 1994; Head et al, 1994). Clustering is related to
the ease and availability of linkages that allow people to form personal relationships of trust,
cooperation, and competition (Lorenz, 1992). Linkages can be either vertical, moving from
supplier to client, or horizontal, among similar firms or between firms and various forms of
economic infrastructure (Hanson, 1994).
The principal framework for analysis used in this paper, the GEM model, was developed to
assess cluster competitiveness in regions. An extension of Porter’s “diamond,” it has been
applied in the UK, principally in a consulting context (Inverness & Nairn Enterprise, 1994), and
in Canada (Western Economic Diversification, 1996). It is described more fully in early work
done under the ISRN banner (de la Mothe & Paquet, 1998). While the method is diagnostic and
can be used for quantitative benchmarking, we will use it in this paper primarily as a descriptive
4
framework that will allow us to see how the factors supporting innovation in the Okanagan
contribute to the overall competitiveness of the wine industry in the region.
Here is a brief summary of the six determinants that make up the GEM.
SUPPLY FACTORS (GROUNDINGS)
The supply determinants are the inputs to the productive process.
1.
Resources: Resources are natural, inherited or developed endowments available within
the region. These include natural resources like forests, mineral deposits and fish stocks
as well as land, a labour supply that is skilled, flexible and reasonably priced, strategic
geographical location, financial capital and, not least, technology.
2.
Infrastructure: Infrastructure consists of physical structures and institutional
arrangements that facilitate access to resources and support other business functions. It
includes physical infrastructure like roads, ports, pipelines and communications as well
as intangible infrastructure like business associations, research laboratories, training
systems, tax and regulatory regime, national monetary policy, financial markets, business
and labour climate, quality of life (housing, crime, etc.).
STRUCTURAL FACTORS (ENTERPRISES)
Structure is how production is organized.
3.
Supplier and related industries: The cluster uses the goods and services of other
enterprises within the region, i.e. suppliers. Success factors include diversity, quality,
cost and proficiency, as well as the quality of the buyer-supplier relationships. The other
issue is related firms that use similar technology, transferable human resources, similar
specialized infrastructure, or that serve common markets. Success factors include the
number and quality of these related firms, and the existence of formal and informal
linkages between them and the cluster firms.
4.
Firm structure, strategies and rivalry: These are the core value-chain firms. How well
are they organized, how secure are they, how confident, how nimble? What are their
competitive and growth strategies?
DEMAND FACTORS (MARKETS)
5.
Local markets: Important are the size of the market, market share, growth and prospects,
extent of local sourcing by purchasers, standards and quality expected, distinctiveness of
local demand, and willingness of buyers to work with the local cluster. Our preference
has been to restrict the notion of “local market” to the region itself. In the case of the
Canadian wine cluster, a more helpful distinction (which we will adopt) is to define
“local” to mean “provincial.” This is largely because of the monolithic provincial
distribution systems, which regulate even direct sales to individual consumers, creating a
provincial market which is quite homogeneous.
5
6.
Access to external markets: In principle, regions face a more or less common set of
external markets. What differentiates among regions therefore is accessibility of external
markets. Issues include closeness of markets, their size and growth rates, global market
share for the cluster, characteristics of end users, existing market relationships, barriers to
entry, trade and export barriers.
The GEM assessment is meant to be exhaustive, a more or less complete inventory of the
determinants of cluster competitiveness, adaptable to clusters of all kinds: traditional resource
industries, manufacturing and service industries, high tech and low tech industries, industries
located either in the private or the public sector. We are focussed on innovation and have
measured only a subset of all the factors that determine competitiveness. The advantage of the
GEM is that it provides a broader context for what we learn and alerts us to non-innovationrelated issues that are also important to cluster success.
Other descriptive and diagnostic schemes have been proposed that take a more targeted
approach, what we could call “key factors” schemes. The idea is look for enablers of cluster
success and to strengthen the enablers through collective actions, both public and private. The
advantage of the key-factor approach is that it involves less measurement and, if the key factors
are well chosen, provides an effective template for public action.
The second theoretical framework is of this latter type. Specifically, we have chosen a list of
“key success ingredients” used by the National Research Council of Canada (NRC) (Smith,
2002). This list was developed for use in technology-intensive clusters like biotech or
telecommunications.
Clearly the context is different from that of a farm-based manufacturing industry using a basic
technology discovered by the Greeks, a product concept originating in Roman times, and an
industry structure established in the mid-1500s (when the “Little Ice Age” shut down wine
making in England and gave birth to thriving export-dependent industry in France and Spain).
The wine industry, at first blush, is quite different from high tech.
On the basis of this history, we wondered how similar, in terms of innovation patterns, the wine
industry in the Okanagan would be to more conventional New Economy, technology-based
clusters. The NRC checklist below is the way we chose to answer.
Key success ingredients for Community Based Technology Clusters
•World class R&D capacity in key technologies
•Access to highly qualified personnel
•Partnership with important R&D players - governments, industry, universities,
international organizations
•Resources to invest in collaborative R&D
•Sources of technology, knowledge and skills
•Industry partnership facilities (incubators) for start-up companies
•Technology outreach services (IRAP, CTN, regional development organizations)
•Linkages to national & global knowledge infrastructure
6
Each of these “success ingredients” is viewed by the NRC as particularly important for
technology-based development. In the language of the GEM, most of the key ingredients are
things found under Groundings, that is, resources and infrastructure.
1.3
Data and Methods
Interviews
Our principal dataset is the record of approximately 30 structured interviews6 with companies,
suppliers, government officials, and persons responsible for various infrastructure organizations,
some of which were public agencies and some industry-sponsored. The interviews were all
conducted on site and in person, in most cases with both authors present and sharing the work of
asking questions and recording results. We did not tape-record the interviews.
The ISRN collaboration developed a common set of interview guides, with the expectation that
Principal Investigators would modify the guides to suit the character of each particular cluster.
We did so. A copy of the modified company questionnaire is in Appendix 1, along with notes on
what changes we made and why. The principal difference is the addition of a question where
principals were asked to physically mark on a map of the Okanagan Valley the linkages to other
firms, infrastructure, suppliers and clients that were most important to the firm’s ability to
innovate.
Our raw data consist of one or two sets of interview notes for each company (depending on
whether one or both of us were present) and the marked-up maps that were produced in response
to the question on most-important linkages. No companies have been re-interviewed, but in a
few cases we have posed follow up questions by phone, email or in person to clarify information
from the primary interviews. We approached all but a few wineries operating in the Okanagan
valley and interviewed every one that agreed to provide time for the interview. The interview
subjects were usually the chief executive or one of the founders of the company, except in the
case of infrastructure organizations, where we spoke to the person most involved with the wine
industry in the Okanagan. Our results would have a distinctly different flavour if we had
targeted our interviews to winemakers. A winemakers is a close equivalents to the chief
technology officer in a high tech firm. In small firms, the winemaker and the CEO are often one
and same. Nevertheless, our emphasis on CEOs brought out aspects of non-technological
innovation and, more importantly in our view, served to tie innovation activities in to the
strategic evolution of the firm. One probable bias of our approach is that it brought marketing
innovations to a more forward position.
As soon as possible after each interview, one of us summarized his or her notes in electronic
form, in some cases adding clarifying material or interpretation based on our memories of the
interviews and review of documents provided by the firm. Each summary was reviewed for
accuracy by the other member of the team. The summary texts are a mixture of verbatim
quotations and paraphrase. No interpretation was attempted at this stage.
We obtained satisfactory and comparable interview data for 18 wineries, distributed evenly on a
geographical basis and representing small, medium and large wineries. We gathered information
6
Mostly in late 2002, some in 2003 and early 2004.
7
on other wineries based on partial interviews and other sources. However, except where
otherwise specified, the sample for aggregate analysis is the N = 18 core group.
Table 1: Distribution of wineries interviewed
Sub-region
Kelowna area
Mt. Boucherie
Summerland to Peachland
Naramata Bench
Okanagan Falls area
The Golden Mile
Black Sage Road
Osoyoos Lake
Total
Interview sample
2
2
1
4
2
4
2
1
18
Universe*
9
4
6
15
6
9
5
3
57
* The total number of wineries in the sub-region as counted by Schreiner, 2003.
The choice of sub-regions follows Schreiner (Schreiner, 2003). While somewhat arbitrary, the
names reflect usage in the region. Schreiner comments that his names are “not intended to
impose an appellation system on British Columbia, since it will take another generation or two to
define appellations . . . (the arrangement is) conveniently arranged for wine touring as much as
for the similarity of the local terroir.”7
Because of confidentiality undertakings required by the ethical approval process at the
University of British Columbia , we do not identify individual wineries by name, except where
the information is in the public domain, or where we have obtained explicit permission. Map
locations are approximate, for the same reason.
Focus group
Prior to conducting the field interviews, and before finalizing the questionnaire, we conducted a
focus group in the Okanagan with industry leaders. We asked them to discuss what innovation
means in their industry, where they get information and expertise, how they see the future of the
industry, whom we might wish to interview and what questions we might ask. It was after the
focus group but before the interviews that we crystallized our hypotheses.
Documentation
We have a modest collection of publications and information related to the wine industry in
British Columbia. These include annual reports of public agencies, consultants’ reports,
corporate information, and magazine and newspaper clippings. One particularly valuable source
is a new book on the history of the wine industry in the Okanagan, written for oenophiles (wine
lovers) by John Schreiner (2003), a British Columbia wine writer. Published in 2003, it profiles
virtually every winery in the province. The profiles do not go into much depth, but provide
some useful material on business connections and family relationships as well as some some
7
Terroir comprises the local conditions of micro-climate, soil, and slope, and how these interact with the many
variables in growing grapes and making wine from them.
8
innovation anecdotes. From our point of view, the merit of this source is its virtual 100 per cent
coverage of Okanagan and BC wineries, which we were not able to achieve.
Methods
The interview responses, as recorded in the summaries, were entered into the ISRN database at
Simon Fraser University (Smith, R., 2002). Because some of our questions are different than in
the model questionnaire, it was necessary to make some arbitrary decisions about where to “file”
the responses. In our view, this process did not significantly degrade the data. In the analysis
that follows, we used liberally the ability of the database to aggregate responses to different
questions.
The map data was transferred from the raw paper maps sketched out by interviewees to Power
Point and Excel files. The visual displays in this paper are built up from the Power Point maps,
and the networking analysis uses the Excel files, which record the linkages among wineries and
between the wineries and research institutes, agencies, suppliers and localized customers. The
methodology used to analyze the numerical data is Social Network Analysis following selected
methods recommended by Wasserman and Faust (1994).
9
2
Industry history and current standing: Okanagan and Niagara
The wine industry in Canada is nearly 200 years old, but for much of that time the industry bore
little resemblance to its form today.
Early settlers tried, and failed, to grow European varieties. They were more successful with
native varieties that were frost-hardy even though they could not match the flavour
characteristics of the European wines.
In the Okanagan, the first wine-making activity is attributed to a French Oblate priest. Father
Charles Pandosy planted a small vineyard to make sacramental wine. Winemaking continued as
a private and personal activity for half a century, a production mode that was given a boost by
Prohibition. British Columbia passed Prohibition legislation in 1917, and repealed the law in
1921.
The first wine made in commercial quantities in British Columbia was made on Vancouver
Island, from loganberries, starting at about this time. The best-established loganberry
winemaker, Growers’ Wine Company, switched to grapes from the Okanagan when they became
available in quantity a few years later.
Okanagan winemakers began producing in commercial quantities in the late 1920s. Calona
Vineyards, with its winery in Kelowna, has been making wine from Okanagan grapes since
1935. Ontario had a more or less parallel history (Mytelka, 2003a).
According to the Canadian Vintners Association (Canadian Vintners Association, n.d., Modern
History Section, para. 3): “Table wines made from these native-based grapes had a peculiar taste,
often described as foxy which, to those more tolerant, tasted like boiled strawberries, and to the
more critical, like a throat-catching pitch.” When fortified into sherry- or port-styled wines, the
CVA continues, the flavours were passable, the products were affordable, and their purchase
accessible. There was even an export market, for a time, which saw large quantities of Ontario
wine shipped to Great Britain.
Some “New World” wine areas8 had better grapes to work with. (The excellent “Vinifera”
varieties9 from Europe that had taken root in California proved invaluable for restocking
European vineyards when a nasty root disease swept through Europe’s vineyards in the late
1800s and early 1900s.) However, throughout the New World, industry structure was adapted to
producing large quantities of low-cost alcohol-rich wines to serve domestic markets. In both
Ontario and British Columbia, a few large firms dominated their regional markets. The structure
was supported by regulation that reflected the political and cultural norms, notably a moral taint
afflicting all forms of beverage alcohol.
8
A term used to describe major non-European wine areas that have mostly developed in the 20th centurty, the most
important being Chile, Australia, New Zealand, California, and South Africa.
9
Vinifera varieties include the now-familiar Chardonnay, Riesling, Sauvignon Blanc, Pinot Gris, Gewurztraminer,
Pinot Noir, Cabernet Sauvignon, Merlot, Cabernet Franc.
10
This was the state of the industry throughout the Americas. The industry continued in this state
until the 1960s, when consumer tastes began to favour less sweet, lower alcohol table wines.
Tastes shifted towards more complex European styles of wines suitable for drinking with food
and for aesthetic enjoyment. The lingering temperance attitudes that had led to Prohibition were
fading, although not altogether gone.
The process of transformation proceeded at different rates in different places. It was easier to
grow the Vinifera varieties in some of the New World areas (California, Chile, Australia) and
early commercial success led to earlier perception of the industry in these regions as worthy of
public support. A critical form of support was to establish major public research centres at
universities and special institutes, which gave these New World competitors an edge against the
established European industry. Research brought better technologies in wine growing and wine
making and increased access to finer grape varieties and disease-resistant clones. This research
transformed the technical base of the industry, increasing the quality/cost ratio and reducing risk.
Large amounts of private investment flowed in to establish new vineyards and new wineries, and
many small and medium-sized operations emerged that were able to compete effectively with the
established players by being nimble, innovative and targeted on a higher range of price and
quality.
The Canadian regions were late-comers by a decade or so, due in part to what were then seen as
marginal growing conditions, but equally to structural issues (smaller market, tighter control of
distribution, restrictive supply-management regimes). This was as true in British Columbia as in
Ontario. However, we can now see the two Canadian clusters recapitulating the transformation
that has occurred in other successful New World wine regions.
In the 1970s, a few businessmen in both Ontario and British Columbia were able to persuade
their provincial governments to open the door – and lay out a welcoming mat – to new smaller
and more creative players. In Ontario, Donald Ziraldo and Karl Kaiser convinced the Liquor
Control Board of Ontario to grant them a licence to produce and sell wine, ending a moratorium
of more than 40 years on new wine-producing licences in Ontario. In the Okanagan, Harry
McWatters and others persuaded the provincial Liquor Licensing Branch to establish a new
category of Estate Winery, requiring a minimum 20-acre investment in vineyards and with a
ceiling on production, but offering a guaranteed place on the shelves of the governmentmonopoly liquor stores and favourable pricing relative to imported wines. McWatters bought
one vineyard and planted another, the latter with 100 per cent Vinifera grapes. Shortly, there
were four Estate Wineries in the Okanagan,10 but relatively little further development occurred
for another decade -- until the North American Free Trade Agreement changed the world for the
Canadian industry.
Attitudes to alcohol vary with time and place, but nowhere is it a commodity like others. As a
recreational drug, it stirs moral passions, and as an agricultural product it is affected by marketThe Canadian Vinters’ Association (n.d. Modern History, 1970s Section, para. 3): “In the late seventies, and early
eighties, pioneer producers in Ontario such as Paul Bosc (Chateau des Charmes), and Len Pennachetti (Cave Spring
Cellars), among others, went against the tide of prevailing opinion that scoffed at the planting of the more tender
Vinifera grapes. In BC, George Heiss (Gray Monk), Robert Shaunessy (Tinhorn Creek) and Robert Combret
(Domaine Combret) did the same by taking calculated risks to prove the naysayers wrong. Today these innovators
have some of the oldest Vinifera vineyards in Canada.”
10
11
management schemes designed to protect farmers from vicissitudes of weather and trade.
Consequently, politics and regulation have an important impact on both the pace and direction of
industry development.
For example, a critical difference between Ontario and British Columbia is the operation of the
supply-management regime for grapes. A precipitating event was the 1988 North American
Free Trade Agreement, together with a ruling under GATT (the General Agreement on Tariffs
and Trade) that meant Canada had to abandon the protection it offered its wine industry. The
changed trade environment put pressure on the industry to lower costs and increase quality to
meet competition from American imports, which became progressively cheaper as lower tariffs
were phased in. A substantial sum of adjustment money, provided by the federal government,
was used to support a changeover to Vinifera varieties and upgrading of growing and
winemaking plant and equipment. In British Columbia, the result was an almost 100 per cent
changeover to new varieties in only a few years, and the collapse of an already weak grape
marketing board. In Ontario, a much stronger marketing board, sustained by tensions between
growers and producers, persists to this day: price fixing persists, inferior grape varieties are
protected, and the industry has not moved as quickly to the new paradigm. (We will present a
fuller discussion of government policy and its consequences in a subsequent paper.)
The paradigm of the 1990s in British Columbia was frantic investment, a profusion of small
wineries, and soaring land prices reflecting belief that making wine in the Okanagan was or soon
would become very profitable. The area planted to vines at first fell, with the pullout program,
and then increased steadily, surpassing the original area in the middle of the decade, and the area
planted to vines continues to grow briskly. The late 1990s saw the beginning of consolidation,
with some of the best properties being bought by eastern Canadian and international companies
such as Vincor.
When premium wines began to appear in British Columbia, they were all white. It was believed
that the summers were too short to ripen the classic red wine varieties, and the winters too cold
for the tender vines. However, Vinifera reds began to appear in considerable numbers in the
early 90s, and by the late 90s, the quality had become more consistent and wineries were
evolving marketable styles of red wine.11
In both BC and Ontario, a certification system (Vintners Quality Alliance, or VQA) was
established. The label certifies that a VQA-labelled wine meets standards for varietal character
and achieves a basic level of quality, i.e. “absence of flaws.”
In terms of quality, Okanagan wines were arguably behind Ontario wines at the beginning of the
1990s, and neither region had any profile internationally. Both regions have advanced. In
recent years the Okanagan has dominated competitions involving the Canadian regions. For
example, Okanagan wineries won 24 categories in the Canadian Wine Awards in 2003,
compared to 13 for Ontario (of which 7 were for fruit wines, where Ontario remains dominant)
(Wine Access, n.d.). Canadian wineries have won gold medals at many international
11
Canadian Vintners Association (n.d. Modern History, 1990s Section, para. 1): “Canadian vintners continued to
demonstrate that fine grape varieties in cooler growing conditions could possess complex flavours, delicate yet
persistent aromas, tightly focused structure and longer aging potential than their counterparts in warmer growing
regions of the world.”
12
competitions,12 but such events are still seen as remarkable and are reported in Canada with a
tone of surprised self-congratulation.
Data in the following table, produced by the British Columbia Wine Institute (BCWI 2002), are
evidence of progress. We do not have a breakdown of the medal totals between the Okanagan
and the rest of the province, but our own check of individual competitions indicates that a very
large majority of the BC medals went to the Okanagan cluster as we define it below (section 4.4
on Firm Structure and Strategy).
Table 2: Medals and awards for British Columbia wines
Year
Gold Silver Bronze Total Gold/Bronze
1994/95
14
37
59
110
24%
1995/96
15
49
86
150
17%
1996/97
23
51
108
182
21%
1997/98
40
97
165
302
24%
1998/99
68
141
205
414
33%
1999/20
91
231
255
577
36%
2000/01 127
266
316
709
40%
2001/02 169
378
403
950
42%
British Columbia Wine Institute
The figures show strong growth in medal totals in the seven years up to the time of our field
work.
Medal counts are an unreliable indicator of quality; the purpose of wine competitions is
marketing rather than science. Some of the increase is undoubtedly due to the increasing total
number of medals awarded in the world, and some may also be due to increased effort by
Okanagan wineries. Participation in wine competitions is viewed as a strategic marketing
activity and medals are often profiled as a selling point for individual wines and sometimes to
support marketing efforts for other products made by the same winery.
To try to extract a more reliable measure of relative quality, we calculate a “quality ratio,” ratio
of gold to bronze medals, which indeed shows a strong trend of improvement.
12
For example, the 2004 Chardonnay du Monde competition in Burgundy, France, produced 15 medals for Canada
(8 Okanagan, 7 Niagara) including three gold medals (2 Okanagan, 1 Niagara), out of 369 total medals and 68 gold
medals awarded. http://www.chardonnay-du-monde.com/
13
3
Innovation in the Okanagan: a sampling
As expected, the innovations identified in our interviews by industry actors were mostly
incremental rather than radical. None were revolutionary. One winemaker began by saying he
did nothing that was innovative, that the technology was hundreds of years old, but he conceded
that wine-making has changed in the last 20 years. He cited numerous techniques for handling
grapes more gently using bladders, screws and gravity flow, and proudly described how he has
installed state-of-the art systems in his small winery.
The business models are similar to those developed over the last 30 to 40 years in other New
World wine/tourism regions, especially California. Both Canadian regions enjoy tourist traffic
independent of the wine trade, and both piggy-back on this traffic by offering tourist-type
experiences, including winery tours, captive restaurants to showcase product, and sometimes bed
and breakfast accommodation.
Opportunities for bottle tasting are universal in the Okanagan and the details of these tastings are
often reported as innovations. For example, one Okanagan winery offers paid as well as free
tastings. Charging for what is essentially a sales pitch is innovative and might be, at first glance,
counterproductive but the program is said to work well: clients get a more elaborate and
personal introduction to the products and appear to value it the more for having paid a modest
sum for the experience.
In our interviews, we asked respondents to identify product or process innovation in the last three
years, and to indicate whether these innovations were firsts for the firm, for the region, or for
Canada. Unless asked (and we rarely were) we allowed respondents to define themselves what
was meant by the word innovation.13 We did not verify the three-year time frame, although we
dropped a (very) few nominations because they clearly fell well outside the three-year time
frame.
Our questions typically elicited more than one innovation. Analyzing the responses14, we
counted 50 reasonably separate innovations among the 18 firms. Firms often could not say what
was their most important innovation; those who saw innovation as important most commonly
said the important thing was that they “innovate continually.”
We were able to classify the innovations in four categories:
Growing (that is, related to the propagation, growing, cultivation and harvesting of
grapes, what is usually referred to as viticulture);
Making (that is, related to the manufacture of wine, including crushing, fermentation,
finishing and packaging)
13
The Oslo manual definition (OECD, 1996) is restrictive for a wine cluster, as it excludes subjective and stylistic
improvements, which are central to what actors in the industry see as innovative.
14
A table summarizing the innovations and their degree of originality by winery (coded names) is included as
Appendix 2.
14
Marketing – product design (that is, referring to that aspect of marketing where firms
attempt to discover consumer needs and desires and design products to fit)
Marketing – selling (activities including distribution, wholesale and retail sales,
advertising and promotion, and public education)
The innovations were almost equally divided amongst the four categories. The Growing and
Making innovations were mostly technical, technological or scientific in nature. The marketing
innovations were more heavily on the product design side, indicating an effort to expand the
horizontal reach of the product. No innovative business processes were cited. In a few cases, a
respondent mentioned a business activity that the respondent had not named as an innovation.
We would say: “That sounds like an innovation to us.” If, on reflection, the respondent agreed,
we added the innovation to our list.
Table 3: Distribution of Innovations by Type and Degree of Originality
Category
Growing
Making
Marketing – product design
Marketing – selling
Total
Firm first
8
5
3
2
18
Region first
3
7
4
3
17
Canada first
4
1
2
3
10
World first*
0
2
3
0
5
Total
15
15
12
8
50
*The
category “world first” was not proposed in the interview guideline, but was proudly offered by the interviewee in
a few cases.
The “degree of originality” information was not top-of-mind information for most respondents,
many of whom struggled to rank their innovations. Innovating was not seen as giving them a
competitive edge on other wineries in the region, but rather as bringing them up to speed with
external competition, namely imported wines from outside Canada. This is a logical business
perspective as long as the industry’s penetration of the domestic market remains low.
The wine industry in the Okanagan valley, in its present form, is barely 20 years old and most of
the firms are less than 10 years old, dating from the post-NAFTA development spurt. In this
situation, we would expect a high rate catchup technology adoption. We thus expect more firstfor-the-firm and first-in-the-region innovation and less industry-first innovations. This is what
we see. Seventy per cent of reported innovations are either first for the firm only or first for
region.
Viticulture innovations were very common (30 per cent of the total reported). Most Okanagan
wineries are vertically integrated to some extent, that is, they grow at least some of their own
grapes. It is a regional mantra that “good wine is made in the vineyard.”
There were clear differences between the large wineries and the smaller players. The large
wineries and winery-groups routinely use technology-intensive methods and equipment,
supported by their capacity to invest heavily in new operations. What they reported as
innovative, however, was more often market innovation than technical innovation. We interpret
15
this as reflecting a greater concern among large players with competition for market share, and
greater exposure to a mass market with less-educated tastes.15
Comparison with Niagara
Our results are qualitatively similar to those of Mytelka, 2003b for the Niagara region. She
finds a similar widespread adoption of marketing innovations, with a notable emphasis,
compared to the Okanagan, on collaborative marketing initiatives (Winery to Home marketing
group, Icewine Niagara online sales, Wineries on the Lake tourism marketing group). In the
Okanagan, only one innovation was cited with respect to distribution channels, a small program
of Internet sales. Nevertheless, both regions have similar channels available: negotiated shelf
space in government liquor stores, industry wine stores, direct sales to restaurants and agents,
and direct sales to end users.
The Okanagan wineries reported important innovations in on-site retail sales, which are the
highest margin channel and, for many smaller wineries, the largest volume channel as well, in
apparent contrast to the Niagara region where farmgate retailing innovations were not as
frequently reported.
Mytelka’s list of technical innovations is very similar to those encountered in our interviews, We
noticed one exception: ecologically sound growing techniques were widely cited as innovations
in Ontario (five wineries), but proposed as innovative by only one Okanagan winery.
15
This is not to say that there are not sophisticated tastes in Canada, but relatively few urban shoppers have done
even the limited comparative evaluations offered by the tasting room of a winery shop. Opportunities for critical
tastings are rare enough that they remain an “experience,” a concept that is, after all, the foundation of wine tourism.
16
4
Cluster characterization
Our first task was to decide the geographical scope of the cluster. We did this both to
circumscribe the data-gathering and also set the frame for description and analysis. The GEM
distinguishes internal and external actors; what is ‘external to the region’ depends on the
definition of the region.
What defines the size of a cluster is the density of linkages among its members (Padmore &
Gibson, 1998). Without linkages, there is no cluster. Should we count as part of the Okanagan
wine cluster the 22 wineries on Vancouver Island (Schreiner, 2003), three hundred kilometres to
the west and across the Strait of Georgia? What about the Lower Fraser Valley, or the
Similkameen Valley, which is only about 20 kilometres as the crow flies from the Okanagan
Valley? There are links between these regions. Many of the wineries buy grapes from the
Okanagan, some of the owners and workers once lived in the Okanagan, and the body of
knowledge they draw on was partly developed in the Okanagan . . . not to mention Niagara.
Preliminary advice from a long-time industry observer was that Vancouver Island and Lower
Mainland wineries are not strongly connected with the Okanagan. To confirm this we reviewed
the narratives in British Columbia Wine Country (Schreiner, 2003), which support the advice.
Moreover, we decided on the basis of this review to shrink the clustery boundaries even further,
and eliminated the northern part of the Okanagan Valley (from Vernon north). There are few
wineries in this area, they do not report many connections to the Okanagan networks and they
describe themselves as “off the beaten path.”(Schreiner, 2003, p.62) Finally, in our interviews,
we encountered few outward linkages to BC wineries outside the cluster as defined. Our final
identification of the cluster is the Okanagan Valley from Winfield, a community 30 kilometres
north of Kelowna, to Osoyoos, on the USA border. The sub-regions involved are identified in
Table 1.
In the rest of this section, we will look at several dimensions of the innovation system in the
Okanagan wine cluster and, more broadly, at the determinants of cluster competitiveness. We
will use two evaluation frameworks: a global methodology that in principle scopes the array of
internal and external resources, infrastructure, organization and markets that have been found to
determine the competitiveness (profitability, market share) (Padmore & Gibson, 1998b) of
various clusters; and, a key-factors framework developed by the National Research Council
(Smith, 2002). (See section 1.2.)
4.1
Resources
“If we could grow grapes in Alberta, we’d go there,” –Okanagan winemaker
The land
The principal and essential resource for a wine-producing cluster is a source of high quality
grapes. In principle, the source of grapes could be outside the region. However, for economic,
technical and social reasons, this is very rare. We would say that all important wine clusters, and
especially the most innovative clusters, have grown up geographically coincident with a strong
grape-growing region.
17
So to get the basic resource we need to back up a step: to the land. Topography, soils and
climate (none of which can yet be much influenced by capital, labour or technology) are the
basic endowment, without which achievement will be limited. We identified five particular
factors which have made the Okanagan cluster possible and, potentially, provide a decisive
advantage. Roughly in order of importance:
Arid climate: significant reduction in grapevine diseases
Consistent warm summer weather moderated by large lakes the valley
Well-drained soils with appropriate mineralization.
Benchlands, which rise 50 to 100 metres above the lake shore, so that cold air drains off
the bench vineyards, extending the safe growing season.
Scenic values, attracting customers to the valley as tourists.
The Okanagan land resource is not, however, perfect. Winters are hard. Routinely cold winters
are a constraint on the styles of wine that can be produced, but with modern techniques and
technologies (such as waters sprays to protect plants from frost) a large variety of red and white
wines can be produced economically.
In the past, particularly harsh winters have devastated vineyards. The last decade has not seen
such a winter and some of our interviewees worried out loud that some of the newly established
wineries are not prepared, technologically or financially, should one occur. Global warming
may bless the Okanagan cluster by turning 10-year events into 100-year ones. Or it may not.
Hard frosts convey a small business advantage by routinely enabling production of ice wine. The
first minus-eight-degree-Celsius night will do the trick, if there are grapes left on the vines.
Human resources
The Okanagan Valley is in transition. Twenty years ago, it did not have a stock of people with
the winemaking, grape growing and business experience to make product that would compete on
the world market -- neither at the bottom of the market nor at the top. Twenty years from now, it
might. Certain specialized human resources are plentiful in the valley today; wineries can often
find vinyard and winery workers with experience in the Valley. The poaching of winemakers is
increasingly common. We noted several winemakers who had spun off to set up their own
business. However, the trade in winemakers will run a substantial deficit for some time.
We heard of a few experienced winemakers who have recently moved from the valley to other
New World wine regions, which we read as a sign of depth of talent in the region. By far the
biggest cross-border flow continues to be inward: graduates of the great wine schools in other
countries, experienced wine makers from well known regions, business expertise from Canadian
economic centres. In this flow, the key enabler is again land. Because of the attractive
climate, scenery, and recreational opportunities, top-grade human resources can be “mined”
worldwide for a reasonable price. But there is no substitute indigenous expertise. Imported
human capital cannot operate at full potential until it has been in place for some time.
18
However, low-skilled labour in the valley, while plentiful, is relatively expensive by world
standards, which contributes to the relatively high cost-to-quality ratio of Okanagan wines on the
world market.
Investment capital
Statistically, people in the Okanagan do not have money burning a hole in their pockets. The
high incidence of part-time work, self-employment and small firms contribute to reported
incomes that come in below the provincial norm, although close to the average for Canada.16 By
far the most common source of start-up and venture capital reported to us is own-capital, family
and friends, and occasional angel investors. Development capital comes from operations, debt
and (more recently) direct investment by parent companies.
In practice, we did not see much evidence of a shortage of capital. The industry has grown
rapidly and is on track to absorb most of the suitable land in the valley over the next decade.
Land prices are high – in the best spots, close to $100,000 an acre, which is comparable to prices
in the Napa Valley in California – reflecting expectations of handsome returns.
Knowledge, technology:
Making good wine is knowledge intensive. In the past and for the present, the most important
knowledge for making fine wine is knowledge of the “terroir”, the very particular local
conditions of micro-climate, soil, and slope, and how these interact with the many variables in
winemaking. Research, training and technology create new ways to exploit terroir. Research,
training and technology can speed up the learning of terroir, and the technology can be spread as
codified knowledge. Nevertheless, terrroir knowledge must be learned anew in each location
and painstakingly accumulated. Long-established wine regions have a leg up because they have
a stock of terroir knowledge to draw on. The Okanagan is not long established, is in fact very
new in its orientation to making fine wine.
While there is a only a beginning knowledge of fine-grape terroir, there is a base of general
agricultural knowledge and experience, for example frost protection and irrigation technology.
Points of comparison with Niagara
The Okanagan and the Niagara peninsula are very similar in respect to the basic land resource
and their status as cool-climate growing regions. Niagara recently suffered an exceptionally cold
winter that killed many vines. The Niagara area is flatter, offering fewer variations of sun angle
and air drainage, which can increase the impact of an adverse event. It is not as dry as the
southern Okanagan, an overall disadvantage. As in the Okanagan, cold-protection technology,
first developed by the tree-fruit industry, is available to shelter budding and fruiting plants from
harmful frosts.
Proximity to Canada’s financial centre, and generally higher incomes, mean investment capital is
more available in Niagara. There are more large firms, including the parents of some of the
Okanagan firms.
16
Information in this paragraph is from Central Okanagan Community Profile, 1995, Kelowna Canada Employment
Centre.
19
4.2
Infrastructure
“Big wineries were not interested in VQA until the VQA proved itself. Now they are very
interested.” -- wine making consultant
Physical systems
Infrastructure facilitates access to resources. A critical piece of infrastructure in the Okanagan is
an extensive water management system involving reservoirs, canals, aqueducts, pumping and
distribution. Access to water makes possible the use of otherwise prime land, especially in the
near-desert south of the valley.17 A water management system and major portions of the
infrastructure were put in place a century ago: an early provincial mega-project using a
combination of private and public investment to open up the south Okanagan for the booming
orchard business (Wilson, 1996).
We were told the current system does not have much spare capacity but it is seen as adequate for
the immediate future, and there is ample scope for conservation measures.
The VQA system
The VQA system was launched in 1988, in Ontario, where the trademark is owned. BC adopted
similar standards under the same name in 1990. Discussions continue about formalizing a
national program.
There is some controversy over whether VQA (Vintners Quality Alliance) should do more (or
less) but there is no question it has given consumers additional confidence in the labelled
product. The label certifies that a VQA-labelled wine meets standards for varietal character and
achieves a basic level of quality, i.e. “absence of flaws. At the heart of the standard are expert
tasting panels, who do blind tastings of wines submitted by individual wineries. The
measurement remains a qualitative one, although efforts continue to improve consistency and
eliminate bias.
Only a small minority of wine produced in Canada was VQA-labelled at the beginning of the
decade, but the market share of VQA wine has grown rapidly and consistently. We estimate that
VQA wine accounts for more than half of all wine produced from BC grapes. VQA wine
17
The Bordeaux-born proprietor of Domaine Combret describes (www.combretwine.com) his search for a location
for a wine operation. What he needed was “desertic, very dry. . . . Under such conditions, most grape diseases are
avoided. But, in order for grapes to survive in a desert, access to irrigation water is required [emphasis added],
which narrowed down possibilities to essentially two regions in the world: Chile and the Columbia River basin
shared between the interior of Washington State and the southern interior of British Columbia where the Sonoran
desert ends, i.e. the South Okanagan. I finally selected the South Okanagan. This area enjoys very dry climatic
conditions with annual precipitations of around 13 inches and relative humidity between 5% to 30% from April to
October. The South Okanagan is Canada's only desert.”
20
production is about a quarter of production of all “BC wine,” 18 which counts the importcomponent of blended wines (KPMG, 2001), and VQA sales are about 15 per cent of provincial
wine sales, which counts imported bottled wine (BCWI, 2002).19
Institutional infrastructure
There is considerable institutional infrastructure related to the regional innovation system. We
list here the institutions where we interviewed and which, we believe, are the most important to
the industry.
Association of British Columbia Winegrowers (ABCW). A networking and marketing
group based in Naramata, comprising mostly small wineries. The association has at
times taken an advocacy role and has sometimes found itself at odds with the BCWI, for
example over the VQA system, which some ABCW members dislike. (Association of
British Columbia Wine Growers, n.d.)
BC Wine Information Centre in Penticton. The centre is a storefront drop-in operation
that has wine reference material and staff who offer visitors and locals information on
valley wineries and advice on wine touring. It shares space with a VQA retail store
operated by the BCWI.
British Columbia Wine Institute (BCWI), headquartered in Kelowna, an industry
association directed at marketing, advocacy and sectoral research initiatives, funded by
membership fees. It sponsors the VQA system in British Columbia. Most Okanagan
wineries are members. (British Columbia Wine Institute, n.d.)
Ministry of Agriculture, Food and Fisheries. At the time of our interviews, there was
one person stationed in Kelowna, whose job was to monitor the wine industry for the
government and, secondarily, to provide some liaison with government agencies for the
industry. There were no provincial funding programs specifically for the wine industry
at the time. The Kelowna functions have subsequently been taken over by a ministry
department in Victoria.
Okanagan University College, Kelowna campus.20 The college offers technical training
for winery and vineyard workers. It does not have an oenology program. It has one
research scientist, a chemist, working on aroma precursors, aiming to help growers know
when to harvest grapes to achieve particular flavour characteristics.
Okanagan Wine Festivals Society. The Festivals Society is industry-supported. It
organizes four wine festivals in spring, summer, fall and winter (ice wine focus). The
society has close links with the Thompson-Okanagan Tourism Association, a tourism
industry group. (Okanagan Wine Festivals Society, n.d.)
18
A large but undocumented portion of non-VQA wine produced from BC grapes is blended with imported wine to
make what the British Columbia Liquor Distribution Branch classifies as “other BC wine.”
19
Sales and production are not the same as some wine is held for aging. In an environment of increasing output,
production will run ahead of sales.
20
Firms also mentioned the Penticton and Oliver campuses as training/technical sources.
21
Pacific Agri-Food Research Centre. One of 18 research centres that comprise the
Research Branch of Agriculture and Agri-Food Canada. PARC, has two facilities, one at
Summerland and one at Agassiz. The Summerland facility has a wine and grape growing
specialty, greatly strengthened in the past five years. PARC gets support from the BCWI
for research and to operate the VQA tasting panels. Original research includes a detailed
mapping of soils, microclimate, vineyards, varieties and the linking of patterns to wine
medals and other quality indicators. (Pacific Agri-Food Research Centre, n.d.)
University of British Columbia Wine Research Centre. Located on the UBC campus
in Vancouver, the centre is relatively new. It is closely linked to the biosciences
disciplines at the university, includes industry development in its mandate and has
research projects involving several Okanagan wineries. Original research includes
enzymes to degrade cancer-linked chemicals in wine, and a yeast that doesn’t make the
red-wine chemicals that give many people headaches. Services include chemical testing
and a wine library (comprehensive wine cellar) for BC Wines. (Wine Research Centre at
University of British Columbia, n.d.)
Interviewees were asked to identify the organizations with which they had had “the most
important and fruitful exchanges of ideas, knowledge and know-how that have helped you
innovate.” Most of the organizations listed were other firms, but every company identified at
least one infrastructure organization. We also asked firms to identify linkages that were
particularly important to their ability to innovate. Only four of the linkages to infrastructure
organizations were deemed “particularly important.”
Table 4: Linkages from Firms to Infrastructure Organizations
Reports of fruitful
innovation linkages
Importance of links*
PARC
BCWI
14
15
11
12
Wine
Festival
6
7
OUC
ABCW
4
5
5
5
UBC
Wine
Wine
Info
3
3
MAFF
1
1
An importance score of ‘1’ was assigned for each organization mentioned by a firm, and importance of ‘2’ was
assigned to links that the firm identified as particularly important. The tabulated number is the total importance for
the 18 firms for which we have data.
*
One industry organization and one public research institute dominated in both number and
importance. The BC Wine Institute touches the industry in two ways that are critical to
innovation: marketing and research. Members pay a “research levy” to the BCWI so they have
a very immediate interest in the quality and usefulness of the research projects that the institute
support. The VQA program, established by BCWI, is generally seen as a successful marketing
initiative, and because it also binds on the wineries when their products are unsuccessful, its
activities are closely watched.
PARC appears to be a remarkable success story. Until 1994, there was a single scientist at the
centre responsible for projects in viticulture (wine-grape growing). The tone of the specific
research activities was academic, rather than industry-oriented. Then, in a corporate
retrenchment, the ministry eliminated the scientist position, and the scientist moved to Ontario.
The Okanagan industry was stirred to action. They protested the cut and proposed new
22
0
0
directions for research and promised money. From the ashes, there is now a new scientist, a
graduate of the famous wine school at the University of California at Davis, supported by four to
six technicians and students. The research projects involve many of the local wineries, which
appear to have considerable input into the choice and conduct of research. The BCWI is heavily
involved as most of the industry funding is channelled through it. An industry-led research
committee oversees the process.
A major gap in the Okanagan cluster is the absence of a university-level training/research
institution. The Okanagan University College (OUC) capability is small and low-level. The
University of British Columbia wine centre in Vancouver is more ambitious, better founded and
funded, and headed by an internationally respected researcher; but, it is hundreds of kilometres
away and, unlike the international wine schools at Davis, Geisenheim, or Bordeaux, it does not
train winemakers. It is also very new. It has a chance to assume an important position and will
be helped by the access it provides to sophisticated testing facilities, and by the prestige that will
accrue to successful fundamental research on the chemistry of wine. We note that, in March
2004, the provincial government announced that OUC would become a campus of the University
of British Columbia, which will lead to a more substantial research presence in the valley, with
viticulture and oenology being an obvious opportunity.
The importance of directed research was proven in the Okanagan with the so-called Becker
project in the late 1970s, which demonstrated that if Vinifera were cropped at lower-thanstandard levels, high quality wines could be made in the region. Most of the successes were
obtained with white wines from northern Europe, setting a pattern for development which
continued until the 1990s era of experimentation with more southern varieties, both white and
red.
Regulation and government programs
There are currently no government funding programs specifically targeted at the wine industry in
British Columbia.21 Some public money has flowed through research facilities, for example to
create the wine library at UBC. Federal adjustment funds to adapt to NAFTA in the early 90s
were very important.
Regulation continues important. Since the 1980s, there has been a gradual liberalization of
regulations governing production and distribution. Today, there are a half dozen distinct
channels for distributing wine: retail sales at the winery, sales from industry-operated wine
stores, sales from stores associated with pubs or hotels,22 sales from several types of government
liquor store, and sales to restaurants and other businesses that serve liquor by the glass. The
industry is well adapted to the existing regime, but many of our interview subjects remarked the
complexity and cost of compliance.
There is no supply management system in British Columbia. A grape marketing board existed
formally until the late 1990s, but had little influence on the industry. Since free trade, most
grapes prices have been freely negotiated between growers and wineries.
A modest “quality enhancement program” to reduce the cost VQA wines was ending at the time of our interviews
(2002-2004).
22
Under recent changes to the regulations, so-called cold beer and wine stores no longer need to be associated with
pubs and hotels, but still need official approval to operate.
21
23
Points of comparison with Niagara
In 1997, the Cool Climate Oenology and Viticulture Institute (Cool Climate Oenology and
Viticulture Institute at Broch University, n.d.) became the first research centre in the world
dedicated to growing grapes and making wine in cool climates. CCOVI offers a Bachelor of
Science degree in oenology and viticulture and has a two-year certificate program for returning
professionals. Although young, it is the kind of research facility associated with major wine
growing regions. The UBC Wine Research Centre is much more specialized23 and is unlikely to
develop in the same fashion. We have heard it suggested in both regions that CCOVI could
serve as a core high-level training institution for the entire Canadian industry. The Okanagan
industry and public policy makers will have to decide if the economies compensate for the
distance from “intellectual ferment” that is best enjoyed with the nose close to the wine glass.
Like British Columbia, Ontario has a complex regulatory system designed to balance industry
interests, consumer interests and the presumed public interest in limiting the social and health
impacts of alcohol consumption. Mytelka and Goertzen, 2003a, detect strains within the
Ontario system due to historic tensions between grape growers and wine makers, aggravated by a
supply management regime that has been unable to balance the interests of growers, grower
vintners, VQA producers and non-VQA producers.
4.3
Related and Supplier Firms
“All this paled compared to the knowledge we got from the consultant working hands-on in our
winery.” -- winemaker
Tourism
The most important related industry in the Okanagan is tourism. The region is a tourism
destination independent of the wine business. In fact, tourism sales in the valley dwarf those of
the wine industry. In the past, it has been the sunshine, the lakes and the orchards that attracted
tourists. They still do. Roadside sale of in-season tree fruit was a traditional attraction. It still is.
Now, however, farmgate wine sales may be a more seductive attraction (Thompson Okanagan
Tourist Association, n.d).24 Wine itself has a much higher percentage of value added compared
to fruit. Tourism spending by wine tourists (visitors seeking a farm and/or wine tourism
experience) was estimated as $72 million in 2000. Many other tourists admire the vineyards,
soak up the wine imagery, and buy Okanagan wine at a liquor store during their stay or drink it
in local hotels and restaurants. According to an industry survey, farmgate sales25 totalled $22
million in 1999, almost half of all sales of VQA product (KPMG 2001). There is a synergy
between tourism and wine. In Australia, 10 per cent of all visitors visited wineries in 1996; in
23
It could even be said to be a kind of spinoff as its founder was recruited from CCOVI, where he was a senior
scientist.
24
As a measure of the forward importance on wine to the tourism industry, see the web page for the Thompson
Okanagan Tourist Association, where the lead category on the home page is now “Wine and Culture,” and the lead
photo image is of vineyards overlooking an Okanagan lake.
25
Including sales to locals.
24
British Columbia, the proportion was estimated at 2 per cent, suggesting growth potential. (All
these tourism figures are from KPMG 2001).
From the perspective of the wine industry, the tourism sector is not ideally constructed. Based as
it has been on family tourism in search of bargain fruit and free sunshine, the tourism
infrastructure is not of high quality overall. In the 1990s, motel and campground spaces greatly
outnumbered quality hotel or bed and breakfast accommodation.26 Opportunities offered by
wine tourism to reach a high-end market of more affluent vacationers have brought new
investment in food and accommodation services. Wineries have established gourmet restaurant
and B & B services on their own premises, partly because of the dearth of such facilities nearby.
However, it will take years to renew and upgrade food services and perhaps decades to renew or
substantially replace the existing stock of accommodation.
Comparison with Ontario
Because of the proximity of the international border and tourist attractions around Niagara Falls,
general tourism on theNiagara peninsula stands in the same dominant relation wine tourism in
the Okanagan Valley
Grapes
The critical input to wine is grapes. As outlined in previous sections, the supply of grapes is
good and likely to remain so for the foreseeable future as the amount of land planted to grapes –
good quality grapes – has expanded rapidly, and will continue to expand rapidly for several more
years. Grape prices are set on the open market, providing appropriate incentives to growers.
Grapes and juice are imported from the USA and Chile. They cannot be used in VQA wine, but
are important to the economics of non-VQA BC wine. Through most of the 90s, consumers
could not tell how many if any BC grapes were in a bottle of wine labelled “product of Canada.”
The problem was generally recognized and the industry more or less voluntarily changed the
labelling to say “cellared in Canada,” a process that was largely complete at the time of our
research. Some labels go even further, specifying countries of origin, e.g. “blend of British
Columbia and Chilean grapes.” This change will help domestic growers and should not unduly
crimp the blending wineries.
In the Okanagan, despite an apparently well-functioning market for grapes, there is much vertical
integration. We did not encounter a winery that does not grow at least some of its own grapes.
Owning the grapevines provides intimate control over vineyard strategy and tactics: what is
planted, how it’s managed, what testing and experimentation is done. In 1999, there were three
times as many independent growers as wineries, but 60 per cent of the acreage planted to vines
was owned by wineries, and that percentage has almost certainly increased due to large
developments in the south of the valley (KPMG 2001).
We learned that wineries often sell grapes from their own vineyards to other wineries in the
Okanagan on a regular or occasional basis. The trade appears to be part of the generally
collaborative nature of the cluster in its present form. The ready exchange of grapes allows
wineries to experiment with new varieties and techniques.
26
Visitors survey conducted by the Kelowna Visitors and Convention Bureau, 1996
25
The graphic (Figure 1) shows the innovation linkages related to grape suppliers. (We have
omitted links to suppliers outside the region, principally in the USA and Chile.) Recall that the
arrows count linkages, not grapes. They represent flows of knowledge important to innovation,
not tons of fruit. Whereas grapes are concentrated in the south, and tend to flow north, the
search for innovation is more democratic. New wineries in the south can expect to have
something to learn from established growers and grower-wineries in the north. Northerly
wineries have been eager to establish supplies in the south, even to make investments in the
newly developing vineyards,27 where there is much to learn together of the new terroirs. (The
graphic is geographically to scale, although the precise locations of suppliers and buyers have
been blurred.)
Figure 1: Geographical Display of “Most Fruitful” Linkages to Grape Suppliers
“It was a huge, huge gamble,” when a Summerland winery decided to plant 115 acres on Black Sage Road.
(Richard Cleave, in Schreiner, 2003).
27
26
In examining the grape supplier linkages,28 it is possible to pick out the same mini-clusters that
show up more clearly with the peer-to-peer linkages (see section 4.4 below). In part, this reflects
the fact that wineries are also growers and few wineries use all the grapes they grow exclusively
for themselves. A typical innovation strategy is that a winery thinking of a new product, say a
gewürztraminer wine benefiting from more careful canopy management, will not wait until they
have producing gewürztraminer vines but will experiment with grapes from a trusted grower, or
a peer winery with whom they have a good working relationship. They may use an outside
supplier to begin penetrating a market niche. They may maintain the supplier relationship
indefinitely, amending it from time to time.
Points of comparison with Niagara
In Ontario, wineries are compelled by the provincial Wine Content Act to include a minimum of
75% Canadian grape content in wines in order to use the Product of Canada label and a
minimum 30% Canadian grape content for a Cellared in Canada label. Mytelka and Goertzen
note that this has not settled the issue with growers, who “regard the large wineries with derision
due to the Wine Content Act.” The sun is slowly setting: no wineries licensed after 1993 are
allowed to import blending material. (Mytelka 2003a).
In Ontario, there is less vertical integration. Three quarters of the grapes made into wine are
purchased from a second party, while in BC the figure is only about 40 per cent (Mytelka, 2003a;
KPMG, 2001).29 It is not clear why this should be, except for historical inertia, as vertical
integration would seem to offer a way around the constraints of the grape market controls.
Consultants
Consultants play a special role in the Okanagan system of innovation. As discussed under
Resources (section 4.1) and Infrastructure (section 4.2), the region entered the 1990s without a
corps of experienced and well-trained winemakers and viticulturists, nor with the means to
quickly train more. Moreover, the uniqueness of climate, microclimate, soils and topography
(terroir) in the region means that the full value of a new hire with outside expertise cannot be
quickly achieved. Non only that, the cost of a full-time winemaker or viticulturist is beyond the
means of many start-ups and equally impractical for deliberately small-scale operations (some
founders choose for personal reasons to keep their operation relatively small).
There is, therefore, a market for the wine gun-for-hire and there are five to 10 active consultants
in the valley30 with excellent credentials and substantial local experience in general agriculture,
grape growing, food processing and oenology. We interviewed three of them to understand
better their role, but we already knew from company interviews that their services are often very
important to establishing new products and improving existing ones.
28
For clarity in this illustration, we have not shown linkages that go outside the Okanagan cluster. Most of the
larger wineries also buy grapes from the USA and Chile.
29
We used Table 4 (Mytelka, 2003a) to calculate the percent of grapes grown for own use. The BC figures are
derived from KPMG (2001), and refer to vinyard acreage, and so are not exactly comparable.
30
Consultants are sometimes imported from outside British Columbia, but we do not consider them part of the
regional innovation system, and they do not appear to have the same impact on the commercial success of the
cluster.
27
A chief reason the consultants are important in a developing innovation system is that they are
conduits for information flow. Relationships with clients are typically quite informal and not
inhibited by confidentiality agreements. Such agreements would not be of much use since each
winemaker is dealing with differing grapes grown in differing circumstances and with varying
objectives, so the methods of handling the crop, fermentation and aging will also vary. “We
advise based on the collective experience we have from similar areas. It is very difficult to
exclude information from your thinking so it is all thrown into the mix,” said one.
So the consultants, in effect, function as extra links, and if a consultant is linked to one winery,
he or she in effect links that winery to the consultant’s other active clients. In the next section,
we look in some detail at the “most fruitful” linkages among wineries themselves. One of the
indexes we calculate is the number of other wineries to which each winery is connected resulting
in an inward flow of information, the so-called “in-degree” in actor-network terminology. The
average number of links for our sample of 18 wineries is 2.72.
We did not invite companies specifically to nominate consultants when we asked the “most
fruitful” question. Two consulting firms were named, nonetheless. To incorporate and estimate
the networking effect of links with consultants (as opposed to peer firms) we calculated all the
secondary linkages induced by the consultant contacts – that is, we counted all the two-step
linkages mediated by the named consultants.31 Counting only the interactions of these two
consultants (for whom we identified a total of 10 clients) the mean number of two-step linkages
increased by 0.9 per winery (this is the number of linkages that would not exist in the absence of
the consultants), from 6.8 to 7.7.
We argue that this measure understates the impact, because two-step linkages involving a third
winery as intermediary are not as effective as consultant-mediated linkages. Consultants have a
mandate, training and experience in intermediating! If the two-step consultant contacts are
combined on a equal footing with one-step winery-to-winery contacts, the 2.72 average increases
to 4.1. This is very important indeed. On the other hand, if the consultants are no more effective
than a peer winemaker, the correct comparison is the 0.9 increase in two-step contacts from 6.8
to 7.7, which is modestly useful but not striking. The truth, we suspect, is in between.
Other suppliers
The Okanagan lacks a web of supporting firms. Equipment, bottles, labels, instruments,
rootstock, chemicals and other staples of the industry are usually imported from the USA or
Europe. There are some exceptions. One winemaker bought bottles, caps and labels locally but
also remarked he “could buy cheaper elsewhere.” A bottle maker in Vernon was used by some.
Companies often noted the high cost of buying and shipping specialized equipment from
overseas. Business services were generally available in Kelowna, with some professionals
(accountants, lawyers) who regularly work with the local industry.
The only strong local reference was to a stainless steel fabricator in Summerland, who was
mentioned by a half dozen wineries as a supplier of tanks and who was cited three times in
answer to the question about “most fruitful” linkages in support of innovation. The result
underlines the importance to a cluster of local suppliers of complex or custom items.
31
This can be done efficiently by a straightforward matrix multiplication as per the methods in Wasserman and
Faust (1994).
28
4.4
Firm Structure and Strategy
“The Okanagan region has mostly new people in the industry and as a result must learn through
experience and rely on other people in the industry as teachers.” – note from the focus group
record
It is necessary to distinguish two kinds of production in British Columbia, conveniently
distinguished as VQA wine and Other wine. Most Other wine is produced in large quantities,
often with imported wine as a component, and is mostly sold by large operators at relatively low
price points to compete with low-priced imported table wine.
In 2001/2002, VQA wines had 14 per cent of the British Columbia market, up from 10 per cent
the year before and zero per cent at the beginning of the decade, with sales of $70 million.
(BCWI 2002). Imported bottled wine has about 50 per cent of the market, with the difference
accounted for by a shrinking but important share of Other.
Our focus in this paper is on VQA wine, since the innovation content is generally higher than for
Other wine. However, the interaction between the two categories is important, as they compete
not only for customers but for grape supply and investment capital. So far, VQA seems to be
winning.
Firm structure, ownership and capital investment
Wine companies in the Okanagan span a range from very small up to medium large, by global
standards.32 There are a good many “mom and pop” wineries and growers where the proprietors
supply most of the capital, skills and labour. In 1999 there were a dozen wineries and almost
100 growers with fewer than 5 acres of vines.33 There are no wineries of the scale of industry
giants such as Gallo in California. There are some wineries that are subsidiaries of large parents
and a few partnerships involving large established European makers. The company
demographics are typical of a new, rapidly developing region.
For some small operations, the strategy is to remain small. In some cases, the operation is
driven by lifestyle rather than business goals. In others, it is preference for a particular business
model: local and hands-on and emphasizing the pleasure of the product.
Typical also is a recent pattern of consolidation, with weaker operations being bought out or
bought up to join a family of wineries owned by a common parent. Profitability remains elusive
for many smaller wineries. An industry survey in 1999 found 9 of 12 large and medium wineries
that claimed to profitable, compared to only 3 of 10 small wineries. About half the independent
growers said they were profitable. (KPMG, 2001)
32
Until 1998, there were three categories of wineries distinguished in part by size: farm wineries producing up to
5,000 cases a year, estate wineries producing up to 20,000 cases, and unrestricted major wineries. New regulations
define a single category of licence, providing only that production is at least 4,500 litres annually, a very modest
hurdle. Nevertheless, the old categories serve as a reasonable definition of “small”, “medium” and “large” in British
Columbia. http://www.qp.gov.bc.ca/statreg/reg/L/LiquorControl/244_2002.htm#part3_division4
33
KPMG (2001) cites the following sources; BC Wine Grapes Acreage Survey, British Columbia Wine Institute,
1999, and Regulation Impact Report, Prepared for British Columbia Grape Marketing Board by Coletta Consultants,
August 31, 1998.
29
Outside ownership was regarded with apprehension when the first takeovers occurred. To date,
however, it appears that the outside owners have had a hands-off approach to what might be
termed “creative direction” while offering stable financing and in-house technology. There are
hints, however, that this form of consolidation may weaken some of the networking effects
analyzed in the following section (two large wineries that are aggressively pursuing higher end
wine products were described by a consultant as “very protective” of their information.)
Capital investment in the valley was heavy in the 1990s with many “greenfields” developments.
The KPMG study (KPMG, 2001) estimates that between 1993 and 2000, four large wineries
invested $155 million and 67 small and medium wineries invested $109 million.
Notable is the rumoured $50 million spent by Mission Hill on a spectacular hilltop winery with a
12-storey bell tower, graceful arcades and vast cellar. The expenditure was not in expectation of
a handsome return on investment from wine shop sales, but rather to create a marketing image
and an “experience” that would infect the imagination of visitors and that they could pass on. It
was also to make a personal and social statement in the community. The value of the
monumental architectural statement for the image of the whole Okanagan wine cluster is readily
acknowledged by Mission Hill’s competitors.
Points of comparison with Ontario
Ontario’s industry remains larger than British Columbia’s, and with readier access to capital.
Ontario firms have made a number of important investments in the Okanagan, in Ontario, in the
USA and Australia. Vincor directly owns three wineries in BC and is involved in two joint
ventures: It is developing the Osoyoos Larose wines in partnership with Groupe Taillan, of
Bordeaux, France; Nk'Mip Cellars in partnership with the Osoyoos Indian Band -- the first
Aboriginally owned winery in Canada. Inniskillen, a Vincor subsidiary, and Peller Estates are
also involved in BC.
Industry “champions” have been important in both regions. Harry McWatters, founder of Sumac
Ridge, was by far the most often mentioned34 industry leader. Don Ziraldo, founder of
Inniskillen, played a similar role in Ontario. Both are well-known national figures, and each
have influenced events in both Canadian regions.
Networking
The focus of this section will be not be not so much on the organization of the firms, but on the
organization of the cluster, specifically the extent and nature of networking. The innovation
literature has consistently found that networks have a high marginal impact on innovation and
that the most innovative firms have the most variety of linkages to other parts of the innovation
system, in particular to other firms (Amar, Landry & Ouimet, 2003; Feldman, 1999, p. 5-25). We
found a high degree of networking and information sharing in this cluster. The fact was one that
people seemed generally proud of. Also it was a situation regarded by some as ephemeral,
reflecting auspicious factors that may not be present in future.
Answers to: “Are there any key business, community, or government leaders who played an important role in the
development of your local industry or cluster? If yes, explain.” (Appendix 1, question 23.)
34
30
Our first step in the analysis was to make Power Point pictures of the data, using swooping
arrows to point to information sources “most important and fruitful for innovation” for each of
the wineries where we interviewed. The maps were done with an underlaid map of the
Okanagan with approximate locations of the subject wineries, peer wineries that they cited, and
important infrastructure and supplier organizations. We suppressed the map and individual
identifiers to simplify the presentation and increase confidentiality. The pictures remain to-scale
geographically, extending from the Kelowna area in the north to the Osoyoos-USA border area
in the south. The pictures therefore convey important geographic information, as well as
relationship data.
Here is a composite diagram that shows all the peer linkages (i.e. linkages to other winemakers).
Each arrow indicates a “go-to” relationship, with information flowing back to the tail of the
arrow. (It was clear from the interviews, however, that most relationships involve two-way
flows.)
Some of the arrows are more heavily drawn, indicating a relationship that the subject viewed as
unusually important or even critical to the winery’s ability to innovate.
31
Figure 2: Geographical Display of Peer to Peer “Most Fruitful” Linkages
Several geographical realities are immediately evident. The whole cluster is tied together with
important innovation links. There are also many important innovation links that extend outside
the Okanagan region. Within the Okanagan cluster, there appear to be three mini-clusters with a
increased communication of innovation information within the mini-clusters. There are robust
North-South connection bundles, many extending the long diameter of the cluster, about 100
kilometres. The pattern of peer linkages recollects the community structure of the valley (section
1.1) and pattern of everyday life.
The bulk of the external linkages are of two kinds: arrows going east to Ontario and the Niagara
cluster, where parent companies reside, and arrows going west to Vancouver. Most of the latter
are to Vancouver offices (head offices, marketing departments) of large Okanagan firms. A very
few arrows are to other British Columbia wineries, supporting our conclusion that the Okanagan
cluster defines itself as we described at the beginning of the GEM discussion above. In
particular there are no northward arrows emerging from the top of the cluster, toward the handful
of wineries at the northern end of the valley, or to the neighbouring Similkameen Valley to the
south and west. That is not to say that there are no links of any kind to these areas, but simply
that none were raised in our interviews as “most fruitful and productive for innovation.”
32
The possibility of mini-clusters is interesting and worthy of further investigation. Reflecting the
tentative nature of our identification, we denote the three candidate structures as the Top, Middle
and Bottom clusters. They can be described in terms of wine author John Schreiner’s wine areas
as follows:
33
Table 5: Mini-clusters suggested by
Mini-clusters
Top Cluster
Middle Cluster
Bottom Cluster
Local names*
Kelowna area Vinyards,
Mt. Boucherie
Summerland and Peachland,
Naramata Bench
Golden Mile,
Black Sage Road
Weakly involved Okanagan Falls,
Osoyoos Lake Bench
*
From Schreiner 2003.
The Top Cluster includes the oldest established wineries, and three of the four pioneers in use of
Vinifera grapes – the original Estate Wineries – not to mention Father Pandosy’s primordial
monastery vineyard. Kelowna was the commercial centre of the valley, providing a ready
market and access to larger ones. The Top Cluster includes two of the largest wineries. It
reaches out to affiliates in the south of the valley, and also reaches outside the region to
marketing offices and other parts of the corporate family. The large wineries also have
relatively more links to international suppliers and research institutes, although these do not
show on the graphic, which exhibits only peer linkages.
The Middle Cluster comprises two parts, a large number of new, small wineries that are clustered
on a bench of land 35 around the town of Naramata, which looks across lake Okanagan to the
main tourist highway. Soil and microclimate have turned out to be highly suitable for Vinifera
grapes, and the bench now sports some of the highest land prices in the valley. To the west of
the lake, on the main north-south highway, are several older wineries, including the first estate
winery, established in a legislative window that the proprietor had lobbied for in the 1970s.
While the bustle of information-sharing on the Naramata bench is evident, there are clear links
across the lake to businesses that, we learned, had played the role of mentor and champion for
new wineries seeking to make high quality wine.
The Bottom Cluster is distributed on benches on either side of the Valley. The Golden Mile is
named for gold mines that flourished briefly 100 years ago, Black Sage Road for the sage brush
that characterizes this near-desert area. The Golden Milers to the west sing praise for the welldrained clay and glacial gravel of their bench.36 Black Sage is an ancient beach, “three hundred
feet of sand” in the words of the first big investor, but with water and fertilizer it can grow
almost any kind of grape. As a result, the Black Sage area is still searching for a wine identity.
In our interviews, we noticed that contacts are frequent and mostly informal: for example, during
two interviews, winemakers from other wineries came by borrowing or returning equipment, and
35
A raised, vaguely level ridge paralleling the lake, remnant of an ancient river bank. These benches, which offer
excellent air drainage and good sun exposures are found in many places paralleling the long, narrow lakes that
characterize the valley, and the streams and canals that connect them.
One winemaker chose his spot, even down to the sunrise: “It is always advantageous to be exposed to the sunrise
side rather than to the sunset. In many varieties, this produces more flavours.” (Schreiner, 2003.)
36
34
swapping news for a few minutes. One of our interviews took place in a coffee shop that is a
local haunt for winemakers and growers.
Actor-Network Analysis
The numerical analysis in this section was inspired by recent work by Elisa Giuliani (2004) that
used actor-network theory to examine the structure of wine clusters in Chile and Italy. Because
our data are not as detailed and structured as Giuliani’s, the points of contact are limited, but we
are able to make some general comparisons. We also examine more critically the idea of
clusters-within-clusters.
For data, we again rely on the map question about “most fruitful” interactions. Unlike Giuliani,
we did not offer firms a roster of all other firms in the cluster. We were specifically asking for
the most productive contacts rather than all contacts, and we did not prompt as to what these
might be.37 Because of the restrictive nature of our question, we presume that the contacts
identified by Okanagan firms are at least as highly valued as in the Italian and Chilean examples.
We tabulated the results in a matrix, coding a link to winery as a 1 and its absence as a 0. We
could have attributed values 1, 2, 3 , etc. . . to the links, similar to what we did in the spatial
networking diagrams where thicker arrow shafts indicate “strong” and “critical” relationships.
In this case, we did not. With valued relationships, the actor-network measures become more
complicated and difficult to interpret. There were, in the event, few cases of especially strong
links, and only one critical link. The data are not, we think, robust enough to add another level
of complexity to the analysis. Because of the way we asked the mapping question, we believe
that the “normal” links reliably capture significant information flows in the regional innovation
system.
We filled in a 39-by-39 square matrix, with all the interviewed wineries, and all the peers that
were named as contacts (the core set of 18 plus 10 non-interviewed wineries), the eight
infrastructure organizations (all interviewed), two consultants (one of whom we interviewed) and
one supplier (not interviewed). By manipulating parts of the matrix, we derived a number of
standard measures (Wasserman 1994) illuminating the network structure. Note that in this
network analysis, all physical distances are suppressed: all that is recorded and all that matters
are the social connections and the social distances (number of degrees of separation).
One measure of the role of firms is “in-degree centrality,” which in this context (and similar to
Giuliani) is the number of “most fruitful” links by which information flows “in” to a winemaker.
Peer in-degrees in our sample range from 0 to 8, with a mean of 2.72 and a standard deviation of
2.1. That is, our core wineries had had “most fruitful” innovation contacts with, on average, 2.72
other members of the core group of wineries that were interviewed. Note that the handful of
firms with zero in-degree centrality are not completely isolated. These firms all reported fruitful
peer links that reach outside the Okanagan cluster. These firms still receive useful innovation
knowledge, just not much from their Okanagan peers. From the interviews, there were two
37
This difference biases our sample in different ways, on balance serving our needs. A roster will tend to elicit all
contacts. We obtained “top of mind” responses, which helps ensure that the contacts were in fact important to the
firms. On the other hand, some subjects were more garrulous than others, and we expect that the garrulous subjects
may have identified relatively more of their actual contacts. Garrulity is related to social intelligence which is
related to networking success, so we are content to accept this bias too.
35
reasons: personal style and history, and corporate structure, viz. large and with an international
orientation. There remains the possibility that these outward looking firms may function as
technological gatekeepers, which feed knowledge into the cluster. More on this in a moment.
The degree of connectedness in the Okanagan cluster seems to be as high or higher than in the
small Chilean and Italian clusters examined by Giuliani, although we have to allow for the
different way the question was asked. They found more isolated nodes (their sample size was
32 in each case) and their more thorough search for linkages did not turn up many more than in
the Okanagan.38 The network density39 is 0.151 in the Okanagan cluster, considering only the
18 firms interviewed. In Chile, with N = 32, the network density was 0.098, which seems
comparable to the Okanagan, allowing for the differences in methodology, and in the Italian
cluster it was 0.036, which is distinctly lower.
We examined the question of subclusters by calculating the ratio of the average number of
linkages within the subgroup (normalized to the number of possible linkages) to the average
number of linkages from subgroup members to outsiders (normalized once more to the number
of possible such linkages). A ratio greater than 1 flags a denser web of relationships within the
sub-cluster. The results were as follows:
Top cluster (N=4)
Middle cluster (N=5)
Bottom cluster (N=8)
1.69
1.58
0.99
We also calculated weighted averages, attributing values of 1, 2 or 3 to the reported interaction
strength. The results hardly changed. The numbers support the existence of the Top and Middle
clusters, but not the Bottom cluster. These numerical results are not especially robust. For
example, dropping the most-linked winery from the Middle cluster reduces the ratio to 1.1. Our
qualitative impression, based on the interviews, was slightly different: the hypothesis of Middle
and Bottom clusters seemed better supported than for the Top cluster; the relatively larger
wineries of the Top group presented themselves as reaching throughout the valley, and beyond.
When we come to consider pairs of wineries with more than one-degree of separation, the cluster
appears even more connected. We calculated who was connected to whom by fruitful links
through an intermediary: another of our interview subjects, or one of the 10 other wineries they
mentioned as sources, or one of the two consultants that were mentioned as sources. When twostep links are added in, the mean number of connections rises from 2.72 to 13.2, with a standard
deviation of 5.1. We are not sure how much information flows through two-step links,40
certainly less than through a direct link, but it is evident from the numbers and from the
interviews that there is a strong sense of community, which is strongest in the mini-clusters and
still palpable for the whole Okanagan cluster. Also, see the previous section for more on the role
of consultants.
38
One region had mean out-degree centrality of 1.0 and the other of 2.9. Both samples were N = 32, compared to
our N = 18.
39
Average number of links as a fraction of the maximum possible number of links.
40
We explored the extent to which consultants are effective intermediaries (they are – see the section on “suppliers”)
but did not specifically ask firms about their role in relaying information.
36
The notion of a gatekeeper role for firms that are mostly outward looking is partly answered by
comparing the in-degree and out-degree centralities. Two of three detached firms were
mentioned two to three times each as sources of “most fruitful” information by peers. However,
to qualify as gatekeepers they need both a high level of “go-to” interactions and also that they
have special access to external sources of knowledge (Giuliani 2004). In fact, the rest of the
population appeared to make similar use of research organizations, infrastructure organizations,
trade shows and conferences.
More generally, we calculated a measure of “prestige” for each firm, namely the difference
between the out-degree centrality (O) and in-degree centrality (I).
P= O–I
The distribution of values for P suggests a democratic society: For about half the firms, the
absolute value of P was 0 or 1; the extremes were 3 and –3. We calculated group-in-degree
centrality (Wasserman 1994), a measure that reflects the collective asymmetry of the linkages,
that is, the degree to which one or a few firms dominate the network. The calculated number,
0.329, is rather small.
And what of the impacts on innovation? Our data allow only a suggestive analysis. Our
questions on innovations elicited a large number of specific examples from individual firms.
These are summarized in Appendix 2. We did our best to count how many distinct innovations
were mentioned by each firm. The number of innovations per firm is a rather flawed41 but still
interesting proxy for innovation success. Define a measure of firm connectedness,
C = O + I (sum of inward and outward linkages)
Then calculate the correlation of our crude measure of innovation success, i.e. number of
innovations, with prestige, P, and with connectedness, C:
Table 6: Does Networking Support Innovation in the Okanagan?
Prestige Connectedness
Correlation of innovation with . . . - 0.131 0.585
R-squared of the relationship . . . 0.017
0.342
The result is a clear enough signal that it pays to both give and receive. With respect to our
crude measures, the arithmetic says that connectedness explains a substantial part of innovation
performance while salience as a go-to centre, as measured by our prestige variable, matters not at
all. 42
Aside from the arbitrariness of deciding what constitutes a “distinct” innovation, the number of innovations cited
is also likely to be a function the ego and eagerness of the interview subject and other confounding variables arising
from an interview format. Moreover, we made no attempt to adjust for the importance of the cited innovation, e.g.
by weighting according to whether the innovation was a first for the firm, for the region, or for Canada. Although
these data were available, we did not think the idea a very robust analytic decoration.
42
A recent article by Flynn in the Academy of Management Journal says the same pattern holds inside
organizations: helping others makes people popular, but productivity is highest when people both give and receive.
See http://www.columbia.edu/~ff144/exchange.pdf for a web-accessible version.
41
37
The numerical analysis supports the qualitative impression that the cluster is well networked.
Almost all firms have numerous fruitful interactions with other firms in the valley. There are no
dominant players in this process (gatekeepers), which is in contrast to what Giuliani found in the
two small wine clusters she studied in Chile and Italy. Firms seem eager to share, and they view
sharing as a normal way of doing business. Interactions take place frequently, through a visit to
a neighbour’s premises, coffee at Tim Horton’s, a breakfast meeting held by a supplier of
agricultural chemicals, participation in an industry organization, or contact at a wine festival
The model seems a natural one in the context of a rapidly growing industry with frequent family
ownership and a rural setting. Whether this structure is permanent, of course, is another
question. A metaphor used by one focus group participant was that the industry will evolve like
competitive sports: in the early days, relations are friendly and help is offered directly, but with
time and as performance and rewards are pushed to higher levels, relations become more
competitive and less collegial, and helping relationships such as occur become more formal and
institutionalized.
Points of comparison with Niagara
The structure of the Niagara and Okanagan clusters is broadly similar. A few large wineries
more or less monopolized the industry until the late 1970s. Then a few startups, the Estate
Wineries, got their foot in the door by similar processes of political lobbying. A combination of
social change and industry pressure kept the door open until free trade came along, with impact
comparable to a “disruptive technology.”
A common federal adjustment program provided a common response, which resulted in much
planting and replanting and the entry of many new smaller players and a parallel upgrading of
the product by both large and small wineries. The differences, such as they are, are in the details.
The industry in British Columbia was less dependent on supply management when the disruption
occurred, and made a collective and conscious decision to focus the federal funds on replanting,
while in Ontario the funds were spread more evenly over a variety of capital requirements (plant,
equipment, etc). More effort was made to protect producers relying on the old varieties. The
result is what Mytelka characterizes as “two-track” development: those who “grow wine in the
vineyard” and those that make and market wine in the cellar and do not disdain wine and grapes
from any source where the price is right. Both exist in British Columbia, but the tensions
between the two camps appear much stronger in Ontario.
Today, the two clusters are a mix of small, technologically innovative firms focussed on higher
quality wines, and larger market-innovative multi-product firms. The large Ontario firms are
dominant in Canada, and they are major investors in British Columbia, but the reverse has not
occurred.
While anecdotes show that there is effective networking among smaller firms in Ontario, the
Niagara does not seem to have as much networking ferment as the Okanagan. Both Ontario and
British Columbia industries have split over aspects of government and industry policy, but the
Ontario policies are more interventionist and, perhaps as a result, the splits seem deeper in
Ontario.
4.5
Domestic Markets
38
“It’s important to be close to the natural flow of traffic,” small Okanagan winery
For purposes of the GEM analysis, “domestic markets” means markets within British Columbia.
Direct retail
The most attractive outlet in the domestic market is retail sales at wineries. The outlet is
important because wineries obtain the maximum unit profit from sales from their own premises,
and they have complete control of shelf space and other promotional decisions such as tasting
sequences.
According to an industry survey (KPMG, 2001) retail sales at wineries totalled $22 million in
2000, of which a remarkable $6 million was at the smallest wineries. The $22 million was
almost half of total VQA sales in the province. The amount of sales is growing rapidly and the
growth may well outlast the growth in grape production (seen to level off around 2010) because
farmgate sales have an additional driver in the growth of wine tourism. This is an attractive
possibility for the small, regionally oriented wineries, most of whom struggle for profitability.
Penetration of the regional market is not particularly high, as consumer tastes still run to beer
rather than fine wine. The main urban centre in the Okanagan is Kelowna, population 148,000.
Table 7 shows the distribution of sales (by litre) at liquor stores in Kelowna, compared with the
main provincial liquor store in Vancouver. The consumption of all types of wine is half that of
Kelowna’s presumably more sophisticated urban rival, and more similar to the 10 to 15 per cent
typical of small-town liquor stores elsewhere in the province.
Table 7: Mix of Beverage Types in Two Urban Centres (How Cool is Kelowna?)
Beverage type
Flagship Vancouver store
Average Kelowna store
Spirits
11%
12%
Wine
33%
16%
Beer
51%
62%
Cider/coolers
6%
10%
BC Liquor Distribution Branch annual report 2002-2003
However, personal experience incidental to this study has convinced the authors that VQA
penetration of the wine lists of decent restaurants in the Okanagan is quite high, and clearly
higher than in Vancouver, which turns a more international face to the world. In the long term,
the “demanding customers” valued by Porter’s cluster model (Porter 1990) are being created, but
do not currently exist in large numbers.
The rest of BC
Outside the Okanagan, the major mode of distribution is the provincial liquor stores, followed by
sales to licensee establishments.
The official liquor stores give disproportionate shelf space and good placement to British
Columbia wines. NAFTA price adjustments are now in place, eliminating most of the price
advantage for Okanagan wines against US wines (transportation and transaction costs remain
higher for imported wine) but wines from other countries face higher duties and taxes as well.
39
The LDB provides very little shelf space to Ontario wines, relative to their share of the Canadian
market.
Restaurant wine lists invariably include British Columbia wines, at relatively attractive price
points, and some lists are specialize in the domestic product as a conscious marketing tactic.
Overall BC wine is nibbling market share from bottled imports at about 1 percentage point a year
(BCWI 2002) with most of the benefit falling to VQA wine. The absolute share of wine
consumption for BC Wine (including a component of imported blending wine) is approaching 50
per cent. VQA sales are about 15 per cent of provincial wine sales. There is a huge, but unquantified domestic market in the form of customer-brewed wine (U-Vin) for which there are no
reliable figures but which is probably about the same volume as sales of bottled imports. U-Vin
grapes are sourced inside British Columbia and internationally. Therefore the potential
domestic market is very large. As a result, the strategy of most producers is to improve
penetration of the domestic market.
The BC Wine Institute notes that the five-year sales growth rate of 100 per cent BC wines is
about 14 per cent. If the industry were simply to maintain this rate, sales would reach
approximately 9 million litres in five years. That, the institute calculates, would still be below
the predicted 2006 production levels by five million litres (BCWI 2002). One industry observer
told us that there will be enough supply to serve 40 per cent of the British Columbia market,
almost three times the share at the time of our study, but he said that will only happen if
consumers can be persuaded to pay a premium for the home product.
Pressure to absorb growing amounts of higher quality wine will put pressure on the industry to
find new products and new outlets for them. The pressure will be greatest on wineries with large
outputs. Many small wineries with niche products and a loyal clientele sell out early each year
and with careful marketing, they should continue to do so.
Points of comparison to Niagara
The two regions are very similar in the nature (tourism-driven) and importance (high margins) of
the direct retail market, and in the preferences offered to domestic wines.
4.6
Access to External Markets
“It’s been a honeymoon here to not have to look beyond the BC market at the world
market.” – Okanagan winemaker
Outside British Columbia, there are many barriers to access.
The rest of the World starts with the rest of Canada. Non-VQA Okanagan wine appears in
products sold throughout Canada, often blended with imported wine. The higher quality VQA
wine has hardly penetrated the Canadian market. VQA sales to the rest of Canada were 440,000
litres in 2002/2002, about 12 per cent of VQA production, amounting to less than 1 per cent of
consumption in the rest of Canada. Some wineries, however, have been successful in marketing
to other provinces: percentage sales to Alberta were 20 to 50 per cent for some wineries; one
40
medium-sized winery targeting the central Canada market said their sales to Ontario will soon
exceed those to Alberta.
There are no institutional barriers, in principle, as provinces have subscribed to an interprovincial free trade agreement. But there are practical ones: trusted contacts need to be
developed, customer recognition fostered, and political foot-dragging countered.
About 4 per cent of VQA sales are exported outside of Canada. Most of this (and by far the
largest amount by value) is icewine. Canada has been successful in promoting the icewine
franchise worldwide. (It is, after all, easy for foreigners to associate ‘Canada’ with ‘ice’.) It has
been harder to penetrate the table-wine market, despite reasonable success in international
competitions.
To date, international buyers judge that the quality available is not worth the price, and that it is
difficult to promote unknown Canadian wines. In some ways, the Okanagan is a high-cost
region (need to amortize high land costs, lack of domestic equipment suppliers, relatively high
wages). However, these factors are equally true of the California wine regions, which export
successfully. Experience and recognition probably count for more.
Patient (and innovative) market development will be required.
Points of comparison with Ontario.
The official provincial distribution system gives very little prominence to British Columbia
wines, not very different from the way British Columbia stores discriminate against Ontario
wines. Restaurant wine lists show a similar, but not so consistent bias against the other Canadian
region.
The Canadian Vintners Association sees strong growth for wine in Canada as a whole, and
suggests that the VQA part of the industry “can expect to grow by 10 percent annually until 2010
or so,” as new vineyards come into production. Compare that to the BCWI estimate of 20 per
cent annually until 2006 for British Columbia.
How to mop up the extra capacity (in the face of worldwide capacity growth) is a preoccupation
of both regions. From Mytelka (Mytelka 2003b) and at a workshop she organized in Niagara on
the Lake on the two cluster studies, we heard quite often that one strategy would be to develop
and market a “Canadian” style (or styles). We did not hear this idea much in the Okanagan,
where the focus was more on developing a series of regional styles based on local terroir, e.g.
“Black Sage Road reds.”
5
Key-factor analysis
This section will be much briefer than the previous one. Here, there is no attempt at a
comprehensive analysis. We simply review, and subjectively rate, the Okanagan’s situation with
respect to the National Research Council’s key success Ingredients for community-based
Technology Clusters. The result: a poor fit, which belies the sustained growth and good
reputation of today’s product.
41
5.1
World class R and D capacity in key technologies. Rating: weak but improving
There are two research institutes. One (the UBC center in Vancouver) only began operation at
the time of our study, and therefore had had no impact on the region. The other, a unit of the
Pacific Agri-Food Research Centre, had been effective only since the mid-90s, and remains a
modest operation although with a strong strategic awareness of industry needs at this point in the
industry’s development.
Many of the wineries do their own R and D, but it is small scale.
5.2
Access to highly qualified personnel. Rating: fair/good
As elaborated in the “resources” and “infrastructure” sections, the region finds it relatively easy
to attract highly qualified technical personnel, and is building a modest stock of these human
resources that wineries can bid for. As the reputation of the region grows among experts (which
will precede recognition by consumers) recruiting will be easier. Highly qualified personnel
with marketing and management skills are not so easily attracted to the Okanagan, which does
not offer many opportunities for top-level people in these areas.
5.3
Partnership with important R and D players – governments, industry, universities,
international organizations. Rating: weak
There are very few of these partnerships. We note the joint ventures with some of the new
wineries in the south, and the potential for research partnerships with the UBC center. Most
firms do not have the capacity to finance significant research partnerships.
5.4
Resources to invest in collaborative R and D. Rating: weak
Collaborative R and D is not a traditional model in this industry.
The industry contributes modestly to collective research through research levies to the BC Wine
Institute. Government does not. The industry is cash-flow short. There is the potential but no
precedent for the related industry, tourism, to contribute: a very long shot.
5.5
Sources of technology, knowledge and skills. Rating: fair but improving
There are many innovative firms. Larger players now moving in have captive technology
capability but no great willingness to share it. Tacit knowledge is thin, because the industry and
its understanding of the “terroir” is so new. There is CCOVI in Ontario, which is useful because
of its cold-climate specialization, but distant.
5.6
Industry partnership facilities (incubators) for start-up companies. Rating: not
applicable
No. It is hard to see incubators as a useful model for this industry.
42
5.7
Technology outreach services (IRAP, CTN, regional development organizations).
Rating: medium/good
This is the strength of PARC. The community is currently engaged in a formal cluster building
exercise, including the wine cluster, from which a number of outreach initiatives are likely to
emerge (Okanagan Partnership Collaborating for Sustainable Prosperity, n.d.). IRAP is present
and has been involved with the industry for many years.
5.8
Linkages to national and global knowledge infrastructure. Rating: fair
At present, most of the winemakers have international experience and roots. Growers mostly do
not. We noted many “off-the-map” connections for both large and small firms. There were
fewer connections to Niagara (other than cross-ownership) than we would have expected. The
region remains off the beaten path from both the artistic (wine critics) and the technical
(industry pilgrims) points of view.
6
Conclusion
The Okanagan wine cluster – at least, the part of the industry producing VQA and other wines of
comparable quality and interest – boasts 10-year growth and innovation rates that most high tech
sectors would be quite satisfied with. Yet, the cluster is a poor fit with the NRC key factor
indicators, and it presents with some important holes in the GEM competitiveness framework.
The key-factor list was developed with a view to understanding high technology economic
development in the context of the New Economy. The fit will likely improve with time,
especially as to technology development, but it is entirely possible that the dynamics of this
cluster – ultimately based on a primary resource, the land – will never fully mirror that of New
Economy/High Technology firms. Certain elements will apply: collegial relations in the early
stages, development of deep tacit knowledge, willingness to compete at the highest quality
levels. Others may not. The industry is small and too distant from big centres to support major
collaborative initiatives. The advanced research/training competence is already established in
Ontario and is likely to stay there.
The GEM model gave us a broader picture. The picture that emerges from the GEM analysis is
of an industry that is structurally weak with a shortage of capital and a surplus of energy,
excellent fundamental resources, limited R and D capability, and a fringe market position. The
cluster is well networked. Collaboration appears to have spurred innovation and allowed the
industry to improve its products and the marketing of them at a rapid rate. There are threats on
the horizon, the most important being the need to deal with incipient over-capacity
Because of the (relatively) large Canadian market in which this relatively small wine region is
embedded, the future looks reasonably positive. Saturation of the domestic market in the future,
however, may be a “disruptive event” that stimulates a fresh wave of innovation. It is not
possible to say that the cluster is yet competitive on a world level -- and it is only marginally
competitive in a Canadian context. Just as the disruptive nature of the Free Trade Agreement
stimulated effective policy responses by both government and industry, the next disruptive event
may trigger further fundamental changes in the regional innovation system and business strategy.
43
We hope that our and other researchers’ attempts to understand how the Canadian clusters got to
where they are today, and the experiences of other wine regions that have made a similar
transition, will illuminate the path.
44
Appendix 1
The Company Questionnaire
We made a number of modifications in the model questionnaires provided by ISRN. The
company questionnaire that we developed is displayed below, along with some notes in italics on
how and why it deviates from the ISRN model. We incorporated, sequentially, some changes
made by Mytelka for the Ontario questionnaire, insights from our pre-interview focus group, our
understanding of important and unimportant issues for the wine industry, and our experience in
the first few interviews.
We did not modify the other questionnaires (research institutes, community agencies) but found
considerable difference in which questions turned out to be most relevant, depending on the
institution involved.
Part A: Company Background
1. What events stimulated the founding of this company? Who were the individuals and
organizations inside and outside the company who played a key role in its
development?
2. Are there any other companies in this region and/or province that your company is
associated with, such as a strategic partnership?
Have you spun-off any companies from your firm?
This question refers to common ownership, now or in the past; a group of exemployees; or significant IP or product relationships.
3. Why is your company located in this region and this specific location? Would you
ever consider relocating, and why?
One question, asking about the relation to a possible corporate parent, was dropped, as we
always obtained this information in the answer to question 1.
Two questions dealing with location were combined in question 3. Location was not revisited, as
wine making is not very mobile.
Part B: Research Strategy and Innovation
4. During the last three years, did your company offer new or significantly improved
products (goods or services) to your clients, or introduce new or significantly improved
production/manufacturing processes? Please provide a brief description of your most
important new or significantly improved product or production manufacturing process
during the last three years.
5. Was this most important innovation
"
"
"
a world first?
a first in Canada?
a first for your firm?
45
ISRN Company Interview Guide
Page 46
6. I’m going to read a list of possible sources of innovative ideas for your product,
service and process development. Briefly, on a scale of 1 to 5, where 5 is very
important and 1 is not important, indicate a score for each one.
R&D unit (in-house)
Production engineering staff
Marketing department
Management
Suppliers
Customers
Competitors’ products
University researchers
Fed or Prov. Agencies or research institutes Consultants (academic or professional)
Venture capitalists or other financial services

7. Which of these sources are local?
These two questions replaced two more detailed questions that requested ratings of local and
non-local sources, separately, on a five point scale. In practice, many respondents were
reluctant to provide even one set of ratings at this level of detail.
8. Where did you learn viticulture techniques? Winemaking?
9. How would you describe your winemaking style. If necessary, probe: French, Italian,
Australian, Canadian or other?
Questions 9 and 10 are two new questions, added in the Ontario study, which we adopted.
10. Do you consider yourself innovative mainly in technical processes or mainly in
business processes (marketing, financing, training, distribution, etc)? Explain. We need
to make sure we are picking up non technical innovation.
A new question to evaluate the importance of non-technical innovation.
11. Please indicate on the photocopied map of the valley the other organizations
(wineries, other businesses, institutions) with which you have the most important and
fruitful exchanges of ideas, knowledge and know-how that have helped you innovate.
A new question to obtain directly geographic and topological information about the innovation
network.
Part C: Relationships, Suppliers and Customers
12. Where are your key customers located – locally (within 100 km), in the rest of the
country, North America or the world? How important is it for you to be located close to
them?
A supplementary question on possible relocation was dropped as this is almost never an issue in
this industry. A question on differences between local and non-local customer relationships was
46
ISRN Company Interview Guide
Page 47
dropped, as there is no basis for comparison of local customers (tourists) and non-local ones
(firms and agencies).
13. What are the most important inputs to your company (resources, raw materials,
components, services)? Are your key suppliers (e.g. of grapes, crushers, presses,
corks) located locally (within 100 km) or non-locally? How important is it for you to be
located close to them? Specialized service providers?
This question was asked only when adequate data were not obtained from question 11 (the map
question). Another question on local and non-local supplier relationships was dropped, as firms
have limited choice in the matter.
14. Who are your primary competitors and where are they located? What is their
comparative size and market share? Is it important for you to be located close to them
as well?
15. How does your company keep track of competitive products, services or process
innovations?
Part D: Locational and Human Resource Factors
16. What are the most important factors in the local/regional economy that contribute to
the growth of your firm? What factors inhibit your firm’s growth?
(The list below is for interviewer’s reference, let the interviewee come up with their own
answers).









Co-location with other firms in the same industry
supply of workers with particular skills
physical, transportation or communications infrastructures
availability of financing
specialized research institutions and universities
specialized training or educational institutions
presence of key suppliers and/or customers
government policies or programs OR industry programs
other
This open-ended question combines two questions, one asking for the factors and the other for
the most important factors.
17. Where do you get your employees and what type of training and experience do they
have? Which employees got their specialized training outside the region?
This is a simplified form of the model question, which asked for a matrix of sources and
employee types.
47
ISRN Company Interview Guide
Page 48
18. Tell us about employees who have left your company within the last three years;
how many have been employed by other firms within your region/locality? (Prompt:
competitors, partners, other firms within your industry sector). If your key employees
were to quit, how easily could you replace them from within your local region?
A question on the existence of unique knowledge and skills in the local labour force was dropped
as not appropriate to the structure of the labour market in a rural area.
Part E: Role of Research Institutes/Technology Transfer Centres
19. How frequently do you or others in your company interact with public research
institutes or technology transfer centres (local or non/local), including federal or
provincial government institutes, universities and colleges to gain access to new
sources of knowledge? Try to make sure these get on the map.
20. What types of knowledge exchange are you (or others in your company) involved
with?
(The list below is for interviewer’s reference, let the interviewee come up with their own
answers).







formal collaborative research projects
university faculty working in, or consulting with the company
participation in research consortia
licensing or patenting of public research inventions
development or adoption of new technology
development of specialized training program with a college or university
company personnel working with a college or university
21. What primary benefits do you derive from these relationships?
(The list below is for interviewer’s reference, let the interviewee come up with their own
answers).
leveraging R&D expenditures
access to technical expertise
source of new product ideas
information about the knowledge frontier
improvement of in-house R&D procedures
connection to larger research community
lower overhead costs on research
access to equipment and material
problem solving
market credibility
hiring and retention of employees
These two questions, being open-ended, serve to replace five questions that asked for specific
elaborations.
48
ISRN Company Interview Guide
Page 49
Part F: Local Cluster Characteristics/Social Capital
22. Do you consider your company to be part of a network of interacting and
related firms in your region/locality, i.e. a cluster? Explain. Check that the map
adequately represents the network.
23. What associations to you belong to? How important are they? Are there any
“informal” groups? We should look for some VQA discussion here if we haven’t already
covered the issue.
23. Are there any key business, community, or government leaders who played
an important role in the development of your local industry or cluster? If yes,
explain.
27. Did conferences, trade fairs, festivals etc lead to any of your present
relationships with suppliers, customers, collaborators, or research institutes?
This section was considerably shortened (in the model questionnaire, it comprises 11
questions), taking advantage of the large amount of networking information gathered in
the mapping question (question 11).
Information on government programs invariably came out in the questions on history
inhibiting/helping factors. Financing issues were covered in the history question
(question 1).
Part G: Future
28. What are the key trends (challenges or opportunities) that will most influence
the success of your business in the next five years? How do you define
success?
The question on “most important challenges” was dropped as interviewees mostly had
already answered it.
29. What can government to do support the industry in the future? What can the
industry do collectively to help itself?
This is a more specific policy question than the ones asked in this model questions.
30. Of the linkages that you identified on the map, are there any that you would
say have been or will be critical to the success of your firm? Explain.
This question is here for a technical reason. It provides for a nice conclusion to the
interview, and also is a way for the interviewee to briefly rethink their answers to the
important map question (question 11) in the light of the intervening discussion.
49
Appendix 2
Summary of Recent Innovations in the Okanagan
Innovation
7
Total
Canopy management (hedging,
pruning). Experiments with
pruning and hedging. Root stocks
and clones for unique location
Daily moisture monitoring
technology
Sustainable farming practices
Matching terroir to variety, yield
management
Irrigation sensors (technology
from Ontario parent company)
Starving the vines of water to
increase quality.
Moisture probes to adjust
watering cycle
Mechanical harvesting and “smart
work” practices
Old grapes (26 years) are rare in
the valley, therefore an
“innovation”
Bluebird nesting houses
(discourages starlings)
Crop yield management using
new Okanagan GPS atlas.
50
3
Growing
Canada W107
1
Growing
Canada W115
1
2
Growing
Growing
Firm
Firm
W102
W103
1
Growing
Firm
W109
1
Growing
Firm
W113
1
Growing
Firm
W117
2
Growing
Firm
W118
1
Growing
Region
W108
1
Growing
Region
W109
1
Growing
Region
W115
Mobile bottling plant serving
several wineries
Pressing whole bunches, in-tank
crushing, underground tanks,
building designed after best
practice Oregon benchmarks
New technology to produce
“Okanagan style” reds demanded
by market
Fermentation using naturally
occurring yeasts
Holding white wines to let them
age
1
Making
Canada W117
4
Making
Firm
W103
1
Making
Firm
W111
1
Making
Region
W102
1
Making
Region
W105
Crush platforms, floating tank
2
Making
Region
W109
Number
50
8
Type
First
in
Winery
fermenters.
Conveyor belt for culling
individual grapes (European
design, locally made)
Floating-top tanks, pioneer cold
fermentation
Developed new equipment to
make fruit wine, used new
enzymes
Introduced Pinotage wines (South
African varietal)
1
Making
Region
W110
2
Making
Region
W117
2
Making
World
W106
1
Marketing –
product
design
Marketing –
product
design
Marketing –
product
design
Canada W112
Firm
W108
Marketing –
product
design
Marketing –
product
design
Marketing –
product
design
Marketing –
product
design
Marketing –
product
design
Marketing –
product
design
Firm
W118
Region
W101
Region
W103
Region
W111
Region
W117
World
W106
1
Marketing -selling
Canada W113
1
Marketing –
selling
Marketing –
selling
Marketing –
Canada W109
Vinsanto, an Italian-style dessert
wine, served with biscotti
1
Odyssey reserve line (2002)
including sparkling wine.
Latitude 50 in 1990 is biggest
selling VQA wine.
2004 release of upper end merlot
2
Single, blended wine product:
the approach France has taken for
hundreds of years
Spectrum of all-Bordeaux-style
wines
1
Introduced zinfandel wines
(California varietal)
1
First bottle-fermented sparkling
wine
1
High-end fruit wines, each one is
something that hasn’t been done
anywhere. Cherry port wine, Fuji
ice wine.
Monumental castle-on-the-hill
winery: “winery as an
experience” (Mondavi model)
Paid testing room
3
“Adopt-a-row” customer loyalty
program (European model)
Yearly competition to design a
1
1
1
1
51
Canada W116
Canada W116
Firm
W104
new label
Reserve tier of wines (2002)
called “Qwan Qwmt,” which
means“to achieve excellence” in
the Okanagan language.
Mini disc to promote the winery,
internet sales
Enhanced self guided tour with
information on the growing
region (Ontario model)
selling
Marketing –
selling
1
Marketing –
selling
Marketing –
selling
2
1
52
Firm
W114
Region
W105
Region
W118
References
Amar, N., Landry, R. & Ouimet, M. (2004, forthcoming). Local vs Global Links: What is
the Trade Off???. Paper prepared for the 2004 Druid conference, Copenhagen. R. Landry
presented at Innovations Systems Research Network annual meeting, May 2004. From
http://www.utoronto.ca/isrn/working_papers.htm
Association of British Columbia Wine Growers. (n.d.) Retrieved April 2004
www.winegrowers.bc.ca/index.php
British Columbia Wine Institute. (2002). Annual report of the British Columbia Wine
Institute.
British Columbia Wine Institute. Retrieved (n.d.) April 2004 www.winebc.com
Canadian Vintners Association. (n.d.) Retrieved April 2004 www.canadianvintners.com
Cool Climate Oenology and Viticulture Institute at Broch University. (n.d.)Retrieved
April 2004 www.brocku.ca/ccovi
de la Mothe, J. & G. Paquet, Eds. (1998). Local and Regional Systems of Innovation,
Kluwer, Amsterdam.
Domaine Combret. (n.d.) Retrieved April 2004 www.combretwine.com
Ellison, Glenn & Glaeser, Edward L. (1994). Geographic concentration in U.S.
Manufacturing Industries: A dartboard approach, NBER Working Paper WP4840.
Feldman, M. P. (1999) “The New Economics of Innovation, Spillovers and
Agglomeration: A Review of Empirical Studies.” Economics of Innovation and new
Technology, 8, 5-25.
Flynn, F. J. (2001). "The Relative Impact of Perceived Imbalance and Frequency on
Favor Exchange among Employees: Tradeoffs between Status and Productivity."
Academy of Management Journal, forthcoming. From
www.columbia.edu/~ff144/exchange.pdf
Government of British Columbia Liquor Control and Licensing Regulation. (n.d.)
Retrieved April 2004
http://www.qp.gov.bc.ca/statreg/reg/L/LiquorControl/244_2002.htm#part3_division4
Giuliani, E. (2003). Cluster Absorptive Capacity: a comparative study between Chile and
Italy paper presented at a conference in honour of Keith Pavitt: ‘What Do We Know
About Innovation?’ Freeman Centre, University of Sussex, 13-15 November 2003.
53
Giuliani, E. & Bell, M. (2004). When micro shapes the meso: Learning networks in a
Chilean wine cluster SPRU Electronic Working Paper No. 115.
Hanson, Gordon H. (1994) Localization economies, vertical integration and trade, NBER
Working Paper 4744.
Head, C. K., Ries, John & Swenson, Deborah (1994a). Agglomeration Benefits and
location choice: Evidence from Japanese manufacturing investment in the U.S., NBER
Working Paper 4767.
Head, C. K., Ries, John, & Swenson, Deborah. (1994b). The attraction of foreign
manufacturing investments: investment promotion and agglomeration economies, NBER
Working Paper 4978.
Inverness and Nairn Enterprise. (1994). Picking Runners: Opportunity Industries for
Inverness and Nairn. Inverness: Inverness and Nairn Enterprise.
KPMG. (2001). Challenges and Opportunities: British Columbia Wine Industry Review,
report prepared for the British Columbia Wine Institute.
Lorenz, Edward H. (1992). Trust, Community, and Cooperation: Toward a theory of
industrial districts, in Michael Storper and Allen J. Scott, Eds. Pathways to
Industrialization and Regional Development (pp. 195-204). London and New York:
Routledge.
Marshall, A. (1920). Principles of economics. London: Macmillan.
Mytelka, L. & Goertzen, H. (2003a). Learning, Innovation and Cluster Growth: A study
of two inherited organizations in the Niagara Peninsula Wine Cluster. Paper presented at
International Workshop: Innovation and Technological Upgrading in the Wine Industry,
United Nations University Institute for New Technologies, Maastricht, 23-24 June 2003.
Mytelka, L. & Goertzen, H. (2003b). Vision, Innovation and Identity: The Emergence of
a Wine Cluster in the Niagara Peninsula. Paper presented to conference on Innovation
and Competitiveness in the New World of Wine, Niagara on the Lake, November, 2003.
From http://www.utoronto.ca/onris/Wine%20seminar%201103.pdf
Okanagan Wine Festival Society (n.d.) Retrieved April 2004 www.owfs.com
Okanagan Partnership Collaborating for Sustainable Prosperity (n.d.) Retrieved April
2004 www.okanaganpartnership.ca
OECD. (1996) Oslo manual, 2nd Edition. Organization for Economic Co-operation and
Development, Paris.
54
Pacific Agri-Food Research Centre. (n.d.) Retrieved April 2004 res2.agr.ca/parccrapac/index_e.htm
Padmore, T. & Gibson, H. (1998a). Modelling Systems of Innovation II: A Framework
for Industrial Cluster Analysis in Regions, Research Policy, 22:6.
Padmore, T. & Gibson, H. (1998b). Modeling Regional Innovation and Competitiveness.
In John de la Mothe and Gilles Paquet (Eds.), Local and Regional Systems of Innovation
(pp. 45-79). Kluwer, Boston.
Padmore, T. & Hickton, C. (2003). The Okanagan Valley Wine Cluster. Presented at
conference on Innovation and Competitiveness in the New World of Wine, Niagara on
the Lake, November, 2003. From
http://www.utoronto.ca/onris/Niagara%20Nov03%20presentation.ppt
Porter, M.E. (1990). The Competitive Advantage of Nations. Free Press: New York.
Schreiner, J. (2003). British Columbia Wine Countr., Whitecap: North Vancouver.
Smith, J. (2002). Creating Knowledge Networks & Community Based Technology
Clusters for Future Growth. Office of Technology Foresight, Power Point presentation.
National Research Council of Canada: Ottawa.
Smith, R. (2002). Personal Communication. T. Padmore & C. Hickton. Vancouver, B.C.
Contact: smith@sfu.ca.
Thompson Okanagan Tourist Association. (n.d.) Retrieved April 2004
www.thompsonokanagan.com
Wine Research Centre at University of British Columbia. (n.d.) Retrieved April 2004
www.agsci.ubc.ca/wine
Wasserman, S. & Faust, K. (1994). Social Network Analysis. Cambridge: Cambridge
University Press.
Western Economic Diversification Canada. (1996). Building Technology Bridges:
Cluster-based Economic Development for Western Canada. Ottawa: National Research
Council.
Wilson, K.W. (1996). Irrigating the Okanagan. Living Landscapes. From
http://royal.okanagan.bc.ca/cthomson/living_landscapes/articles/wilhom.html
Wine Access. (n.d.) Retrieved April 2004 www.wineaccess.ca/wine-awards.htm
55