Direct and Indirect Export Channel Decisions:
Product and Firm Characteristics in the
U.S. Wine Industry

Kenneth E. Marino, (, San Diego State University
Richard Castaldi, (, San Francisco State University
Sanjit Sengupta, (, San Francisco State University
Murray Silverman, (, San Francisco State University


International Applied Business Research Conference, "Proceedings"
March, 2001




Survey data were collected from 133 wineries in California and the Pacific Northwest that have engaged in export activities. The decision to rely on indirect export channels, predominantly U.S. based agents, versus direct export channels is expected to be influenced by a host of product and firm characteristics. Product characteristics found to favor the indirect approach include the uniqueness of varietals, and distinctive packaging and labeling. Firm characteristics such age and size of the winery, export experience, were not significantly different between indirect and direct exporters. However direct exporters serve more country markets and export a larger proportion of their production. Management satisfaction with sales growth, strategic positioning and the overall export program is significantly higher among the direct exporters.


Exporting is a common approach to the foreign market entry decision faced by management teams in a variety of industries. This is particularly true of the wine industry where other entry modes for physical goods, such as contractual or investment options, are not practical. In recent years we have witnessed tremendous export success among Australian and Chilean wineries in their penetration of the North American and Western European markets. To a lesser degree, we have also witnessed export success among some wineries in South Africa, New Zealand, and Argentina (Aulakh, Kotabe & Teegen, 2000).

The United States wine industry, concentrated in Northern California, has also experienced explosive growth in exports over recent years. The value of U.S. exports of wine has grown $98 million in 1989 to $548 million a decade later (Goldman, 2000; Wine Institute, 2000). California wines can now be found on retail shelves in 164 countries around the world. While the United Kingdom, Canada, and Japan remain our strongest export markets, growth in selected Asian markets (South Korea, China, Thailand) and European markets (Netherlands, Denmark) have been substantial in the last two years. In light of these global trends, the importance of export programs for U.S. wineries is expected to increase.

In this study, the characteristics of U.S. wine exporters that have chosen to enter foreign markets through agent representatives are compared to other exporting wineries that have elected to deal directly with foreign wholesalers and retailers.

Export Entry Modes

Exporting to international markets can take a variety of forms and involve a number of different types of intermediaries.

Exporting through domestic intermediaries or a foreign agent is defined as indirect exporting. It is regarded as a good mode of entry for the novice exporter. It does not require knowledge of the target country trade infrastructure, nor does allow much control over the positioning or merchandising of the wine products. Direct export channels, on the other hand, do require the winery to establish a linkage, with or without intermediaries, to the final foreign consumer. This direct export channels involves direct contact with a wholesaler or retailer in the host country. With the emergence of e-commerce applications, we may expect direct shipments to consumers as an additional direct export option. Direct exporting does offer advantages in that more control of marketing activities can be achieved, intellectual property can be better protected, and feedback from the foreign market is likely to be timelier. These advantages must be balanced against the higher startup costs and the necessity of learning about export documentation, shipping procedures and international payments.

Factors Influencing the Indirect Versus Direct Exporting Decision

We hypothesize two sets of characteristics that influence the decision to pursue direct or indirect export channels: product characteristics and characteristics of the winery firm itself. The model guiding this research is depicted in Figure 2.

Product Characteristics

Product characteristics are expected to influence the export channel decision by dictating the need for control of the marketing and merchandising program in the host country. The competitive strategy most frequently pursued in the wine industry is differentiation; this is particularly true among export products. To the extent that the physical product characteristics offer some bases of differentiation, the less the winery must rely on the marketing program to achieve a differentiated position in the eyes of the foreign consumer. If a particular product enjoys a differentiated position in the foreign market due to tangible, physical characteristics such as brand reputation, unique varietals, distinctive appellations, attractive packaging, or awards earned at recognized competitions, the less the need for the winery to control the marketing activities in the host country. In a sense, we expect that the product will “sell itself”. Under these conditions, the winery may rely on the indirect channels with little concern for the intermediary’s efforts. In the absence of these characteristics, considerable control over marketing, merchandising, and distribution must be exercised, and we would expect a reliance on direct channels to achieve this control.

Winery Characteristics

Characteristics of the winery firms are also expected to influence the export channel decision. Indirect exporting is generally regarded as the first stage in an export development program. As the age and experience of the winery in exporting increases, we would expect a shift to direct export channels. As the volume of exports increases, we would also expect the costs associated with direct channels could be more economically absorbed. Management’s strong commitment to the export program would also tend to demand the control of the direct export channels ( Stump, Athaied & Axinn, 1998). In the absence of a serious commitment on the part of the winery management, we would expect a preference for indirect channels in that they require far less effort in managing transactions and seeking market knowledge. Backward integration in the ownership of vineyards is a characteristic of the winery that supports the ability to differentiate the product. In that regard we expect it to influence the channel decision in the same way the product characteristics do.

Export Program Satisfaction

Either export channel approach, direct or indirect, subjects the winery firm to different costs, commitments to country markets, and opportunities for control of downstream activities and intermediaries (Johnson & Raven, 1996; Axinn, Noordewier & Sinkula, 1996). Once implemented, export program performance may differ in profitability, sales volume, global share, competitive positioning, strategic positioning, and speed of sales growth. Although we have no particular expectations regarding which channel approach leads to the greatest satisfaction in this industry, we felt it appropriate to evaluate management’s perceptions of various performance dimensions. This component of the research should be viewed as exploratory.


Subject Firms and Data Collection

Data were collected via a mailed survey instrument. The instrument was mailed to 983 wineries in Northern California, Washington, Oregon, and Idaho that are listed in the Wines and Vines Directory. The instrument was addressed to the export manager if such a title was listed in the directory. If no such title was listed, the questionnaire was addressed to the most senior executive title, generally the Chief Executive Officer, or to the owner.

A total of 236 questionnaires were returned (24% response rate). Of the 236 responding wineries, a total of 133 had engaged in export activities; those exporters are the subjects in this analysis. The exporters were asked to identify their primary export channels. Twenty-three of the responding wineries employed multiple channels and could not be classified as direct or indirect; they were dropped from this analysis. The remaining 110 wineries were split almost evenly between those that choose indirect export channels, primarily domestic agents, and those wineries that elected to pursue direct export channels, primarily wholesalers, with a limited number selling direct to retailers in export markets.

Analytical Approach

Two types of variables were analyzed in this study: interval and ratio. Ratio variables include winery age, export volume, years of export experience and others. They have been analyzed by the traditional comparison of means between indirect and direct exporters. The interval variables were measured on 5-point Likert scales assessing the strength of agreement on management’s commitment to the export program and perceptions regarding the success of the export activities. They have been analyzed by the chi-square test for independence to determine if the interval distributions between direct and indirect exporters are significantly different. The interval means are reported in order to assess the direction of any differences.


Table 1 presents the results on the product characteristics. The respondents were asked to assess the extent that certain characteristics made their export products attractive to intermediaries. These characteristics serve to differentiate the wine and reduce the need for control and coordination of the marketing activities in the host country. Our expectations were supported when the product offered unique varietals and distinctive packaging and labeling. In the other product characteristics such as awards, appellations, and brand reputation, the distributions of indirect and direct exporters are not significantly different.


What Makes Your Exports Attractive to Intermediaries?
(Likert scales: 1= Very Small Extent; 5= Very Large Extent)
X2 P
Awards Won by Export Wines 2.8 3.1 3.5 ns
Appellations 3.8 3.7 2.5 ns
Price/ Value Relationship 4.1 3.9 4.6 ns
Popularity of Varietals Exported 4.0 3.6 4.4 ns
Uniqueness of Varietals Exported 3.4 3.1 8.0 .09
Brand Reputation 3.9 4.1 4.4 ns
Packaging and Labeling 3.6 3.4 9.7 .04


Table 2 presents the comparison of winery characteristics. Our expectations that the age, size, and degree of backward integration of the wineries would influence the direct versus indirect channel decision are not supported by these data. Both direct and indirect exporters own slightly more than half their vineyards and are about 22 years old. The indirect exporters are slightly larger, averaging sales of 1.2 million cases, but that difference is not significant. In terms of their export programs, there are some significant differences. The proportion of export sales as a percentage of total sales is significantly higher among direct exporters. On average the direct exporters sell about 84,000 cases per year overseas while the indirect exporters average 66,000 cases. The direct exporters also served significantly more export markets, almost twice as many on average, than do the indirect exporters. Our expectation that indirect exporting is an initial step in an export development program, and therefore, indirect exporters will have less years of export experience is not supported in this industry. Both types of exporters have been exporting wine for the past decade.


Age, Size, & Integration

Winery Age: years

21.7 21.8 0.0 ns

Volume: cases sold last year

1.2mm 1.0mm 0.4 ns

Vineyard Ownership:
% sales from company vineyards

56% 52% 0.3 ns
Export Programs

Export Volume: % total sales

5.5% 8.4% 4.3 .04

Served Export Markets: number

7.7 13.7 3.0 .08

Export Experience: years

9.9 9.1 0.5 ns
Management Commitment
(Likert scales: 1=strongly agree; 5=strongly disagree)
X2 P

Management not interested in exporting

2.2 1.8 7.5 .11

Export business not a high priority

3.1 2.7 7.3 .12
Immediate Export Plans
(Likert scales: 1=very likely; 5=very unlikely)

In the next 12 months we plan to:


Enter new export markets

3.1 3.2 0.4 ns

Increase sales to current markets

3.4 3.2 6.3 ns

Increase % export to total sales

2.8 2.9 2.1 ns


In the questionnaire, we attempted to assess management’s commitment to the export program based on the plans for the immediate future and their interest and priorities in exporting. We expected the management teams that are strongly committed to exports would seek to develop direct export channels where control and market knowledge would be maximized. While there are some marginally significant differences in the perceptions of management commitment and the priority given the export business, they are in the opposite direction of what we expected. The immediate plans for the export program are not significantly different between the two types of exporters. Both indirect and direct exporters are equally likely to enter new markets next year, increase sales to current export markets, and increase the export business as a proportion of total sales.

Table 3 presents the perceptions of the export program performance. Here there are several sharp contrasts between the indirect and direct exporters. The direct exporters clearly are more satisfied with their export programs than are the indirect exporters. The direct exporters are significantly stronger in their belief that the export program has achieved rapid growth, improved their strategic position, fully met their expectations, and overall has been very successful.

Export Program Performance

Performance Aspects of the Export Program
(Likert Scales: 1= Strongly Disagree; 5= Strongly Agree)
X2 P
Our Export Program has:

Been very profitable

2.9 3.3 5.9 ns

Generated high sale volumes

2.2 2.6 5.6 ns

Achieved rapid growth

2.4 2.9 8.8 .06

Improved our global competitiveness

2.3 2.8 7.1 .13

Strengthened our strategic position

2.5 3.3 10.7 .03

Increased our global market share

2.2 2.6 5.3 ns

Been very successful

2.8 3.5 16.0 >.01

Fully meet expectations

2.8 3.4 13.1 .01



Management teams generally have a range of options available for entry into international markets. Contractual modes of entry such as licensing and franchising, and investment modes involving joint ventures or wholly owned subsidiaries, are feasible in most industries. In the wine industry, due to the nature of the product, production process, and raw materials, managers are restricted to export modes of entry.

Indirect exporters have, in a sense, outsourced their export management program. The outsource firm can take on a variety of intermediary forms, the most common of which in the wine industry is a domestic or foreign based agent. Even the foreign-based agents in this industry usually maintain a U.S. office. The agents tend to insulate the winery from the demand and competitive conditions in the host country. Hence it is not surprising that the managers may have difficulty judging the strategic position of their products, and assessing the overall success of the export program. The indirect channel in many industries is considered indicative of a weak management commitment to export markets, a low risk approach to the disposition of excess production. This does not appear to be the case in the wine industry. Management commitment is as strong, if not stronger, to exports among the indirect channel users. Although their market coverage is less and their export volume is less than the direct channel users, they have been at it just as long as the direct firms and have similar export plans regarding new markets, sales penetration, and the role of exports in the total sales mix. Therefore, the view that indirect channels are a “testing the water” approach to developing an export business may not hold in this industry. If a product can be differentiated at the processing and manufacturing stage through unique ingredients or packaging, the indirect channels may constitute a long-term solution to the foreign market entry problem of wine producers.


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