Grape supply relationships in New Zealand: A multi-theoretical view

Abstract

Purpose: Managing the grape grower/winery supply relationship is one of the most critical exchanges in the wine industry. To understand these relationships, Transaction Cost Economics (TCE) is often used as a key theoretical approach that assumes contracts are characterised by bounded rationality and opportunism. To complemented TCE, this paper employs a multi-theoretical approach that is better suited to examine the nuance of these socio-economic exchanges. Thus, we examine the rationale for grape supply arrangements and argue that the effectiveness of the state’s legal system could be the primary explanation for the ubiquitous use of contracts within the wine industry. Design/methodology/approach: Through a mail survey of 116 New Zealand wineries and employing multiple regression, this study investigates why contracts are still widely used to coordinate grape supply relationships. Findings: The study found that New Zealand’s reasonably effective legal system promotes the use of contracts, trust and incentives. We also found moderate support for the legal system in promoting the use of the spot market, while our contention that an effective legal system discourages vertical integration was also supported.