Is 'embeddedness' always good for economic development? The case of the South African wine industry

A great deal of the 'embeddedness' literature is based on the premise that increased 'local' embeddedness is inherently beneficial for a firm, industry or a whole region. Put differently, it is often assumed that the level of 'embeddedness' is proportional to how successful a commodity or value chain is. A study of the South African wine industry shows that this is not always the case. In fact, even a cursory reading of the history of the industry before the early 1990s clearly demonstrates that the opposite can be the case, i.e. that 'deep' local embeddedness can result in 'path dependency', 'lock- in' and very little innovation. Although the Cape wine industry expanded throughout the 20th century, and became increasingly embedded into the local political system, regulation had the effect that most of what the industry produced over the next seven decades was low quality wine, barely able to compete in international markets. It was only when the industry was deregulated and exposed to the force of international markets, that the creative synergy embedded in the Cape cluster could come to the fore and play its beneficial part, resulting in improved quality and competitiveness.