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Uk Whisky Industry Analysis

Essay by   •  April 19, 2011  •  Case Study  •  7,703 Words (31 Pages)  •  3,829 Views

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From my analysis of the UK external business environment I have identified the important issues relevant to the UK whisky industry. The UK whisky industry has been developing for over 500 years (SWA 2008j) and is essentially exclusive to Scotland. This fact shifts the analysis in terms of location wholly to the far north of the British Isles.

The PESTEL and LoNGPEST frameworks (Capon 2004) set out a structured basis upon which to identify and draw together pertinent issues from an organisations' external environment. Every organisation must acknowledge and seek to understand the composition of the local, national and global operational environments and how the business milieu works. A PESTEL analysis examines the political, economic, sociocultural, technological, environmental and legal facets of these three levels. My PESTEL analysis in Appendix 1 does not examine in any detail the global environment.

A historic and mature industry like Scotch Whisky is deeply rooted in the external environment particularly from the legal, environmental and social perspectives. To retain its unique position it must constantly monitor and reflect on the issues it identifies in the dynamic and complex surroundings within which its organisations operate. The three most important of all the issues I have identified are the legal protection of Scotch Whisky, the sustainability of its operations and the social responsibility incumbent on the industry. I will examine each issue in depth, from differing perspectives, to further understand and suggest how the industry may need to respond to them in the future.

The industry is a huge exporter of finished products, totalling 1,135.2 million bottles, with exports earnings of £2.8 billion accounting for 90 per cent of Scotch Whisky sales (SWA 2008k). The UK market only accounts for 10 per cent of Scotch Whisky sales volume. There are five different classification of Scotch Whisky, each with its own unique characteristics and production process. There are few common traits, however under the Scotch Whisky Act (Great Britain 1988) each type must be produced from natural ingredients and must be matured in oak casks in Scotland for a minimum of 3 years. It is at this point that the commonality ceases and the premiumisation of some classifications begins.

The first major issue facing the industry, with its 118 distilleries large and small (SWA 2008b), is legal protection of Scotch Whisky in terms of geographic indication and ultimately recognition under the World Trade Organisation's (WTO) Trade Related Intellectual Property Rights (TRIPS) Agreement. Moving toward this status is absolutely crucial if all distillers in the Scotch Whisky industry are to be protected in global markets from "imitation and counterfeiting." (Great Britain, DEFRA 2007e)

The UK Governments vision of greater protection in UK law (Great Britain, DEFRA 2007a), which enhances the recently adopted EU Spirit Drinks Regulation, is a vision shared with industry's trade association the Scotch Whisky Association (SWA) (Great Britain, DEFRA 2007e). If the status quo were to remain, it is argued (Great Britain, DEFRA, 2007e) that despite the fairly comprehensive EU legislation, there would still be a lack of clarity in the definition and classification of Scotch Whisky.

The proposed Scotch Whisky Regulations 2008 (Great Britain, DEFRA 2007a) deal with this issue in respect to eight key areas of current ambiguity: definition of maturation; prohibition on bulk exports in wooden casks; bottling regulation; definitions and labeling; protection of regional names; prohibition of the use of the term 'Pure Malt'; distillery and distillers' names usage controls; and distillation year and age. The thrust of the proposal is in dealing with these points, which all centre around the unique characteristics, production methods and heritage of Scotch Whisky, With appropriate legislation passed in UK law finally the Scotch Whisky industry will have a rock solid foundation upon which to grow their emerging economies' export business and close all the loopholes preventing launching a legal challenge against imitations.

The monetised costs to the industry, in terms of labeling changes and specific production requirements, are one-off and estimated at being in the region of £1m. The financial benefits, values of which are speculative, could annually average £100m. (Great Britain, DEFRA, 2007e, p.2) If these figures are even 80 per cent accurate the cost/benefit ratio for the industry is considerable.

It is for these reasons I consider this to be one of three main issues to resolve in the very near future. Achieving unmitigated legal protection on a global basis clears the way for a further 500 years of sustainable growth in the Scotch Whisky industry, which does not only benefit the industry but the Scottish and UK economies as well.

The second issue is one of sustainability in the Scotch Whisky industry. For the industry the term encompasses environmental, economic and social responsibilities in symbiosis. The distilleries have been for hundreds of year's part of the landscape of some Scottish regions. Even before 'big business' became involved in the industry and climate change a well-discussed topic, the distillers were key players in managing the local environment.

Protecting the environment from that the industry's raw materials originate is key to its environmental sustainability.

The Scotch Whisky industry is mainly a rural industry and as such is vital to the local community in providing jobs and a cohesive force upon which to build its own sustainability. In the region of 7,000 jobs across rural Scotland rely on whisky production, 1 in 50 Scottish jobs it is reported rely on the industry (SWA 2008j) and nearly all regions of Scotland also have a connection with the industry.

Figure 1.1 UK Employment in Whisky Industry by region, September 2006

A Scotch Whisky distillery is essentially a manufacturing facility that requires a steady stream of inputs through the gates and water pipes to succeed in producing the highly prized 'green' product at the end of the process. The production process can be as short as three years. The product shelf life can be as long as the connoisseurs can refrain from opening the bottles, which can fetch over a £1000 when sold.

Water and a great deal of it is essential in making whisky. 90 per cent of the water however is not added to the whisky it is used for cooling. This means it is open to the potential contamination, which the industry is constantly monitoring for and investing

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