Table of Appendix

1. Floriculture Industry Sri Lanka............................................................................................................ iv

1.1. Statics.......................................................................................................................................... iv

1.2. SWOT Analysis- Sri Lanka.........................................................................................................ix

1.2.1 Strengths............................................................................................................................. ix

1.2.2. Weaknesses......................................................................................................................... ix

1.2.3. Opportunities.......................................................................................................................x

1.2.4. Threats.................................................................................................................................x

1.3. Porter’s 5 Forces- Sri Lanka........................................................................................................xi

1.3.1 Bargaining power of customers – High...............................................................................xi

1.3.2 Bargaining power of suppliers - Low...................................................................................xi

1.3.3 Threat of entry - High..........................................................................................................xi

1.3.4 Rivalry - Low.......................................................................................................................xii

1.3.5 Threat of substitutes - Low.................................................................................................xii

1.4 Diamond Theory- Sri Lanka.......................................................................................................xii

1.4.1 Factor conditions................................................................................................................xii

1.4.2. Demand conditions.............................................................................................................xii

1.4.3. Related and supporting industries.....................................................................................xiii

1.4.4. Firm strategy, structure and rivalry...................................................................................xiii

1.4.5. Other events......................................................................................................................xiii

1.5. Challenges, Risks, Barriers in the Domestic Industry- Sri Lanka..............................................xiv

1.5.1 Lack of market information...............................................................................................xiv

1.5.2 Cost of production.............................................................................................................xiv

1.5.3 Availability of skilled labor..................................................................................................xv

1.5.4 Lack of coordination between relevant stakeholders.........................................................xv

1.5.5 Lack of Varieties.................................................................................................................xv

1.5.6 Transportation of sand......................................................................................................xvi

1.6 Special Characteristics in the Industry- Sri Lanka.....................................................................xvi

2. Country Analysis-Netherlands..........................................................................................................xvii

2.1. History of Dutch economic competitiveness............................................................................xvii

i

2.2. Recent economic performance-Netherlands.............................................................................xvii

2.3. Economic composition-Netherlands........................................................................................xviii

2.4. Key economic drivers-Netherlands...........................................................................................xix

2.4.1. Exports...............................................................................................................................xix

2.4.2. FDI.....................................................................................................................................xix

2.4.3. Labor productivity...............................................................................................................xx

2.4.4. Innovation..........................................................................................................................xx

2.5. Macroeconomic Policy-Netherlands..........................................................................................xx

2.5.1. Monetary policy..................................................................................................................xx

2.5.2. Fiscal Policy........................................................................................................................xxi

2.6. Dutch floriculture cluster analysis.............................................................................................xxi

2.6.1. Cluster context...................................................................................................................xxi

2.6.2. Brief history......................................................................................................................xxii

2.6.3. Performance of the Dutch floriculture cluster...................................................................xxii

2.7. Trends in the Dutch floriculture cluster...................................................................................xxiii

2.8. Cluster structure and value chain-Netherlands.........................................................................xxiv

2.9. Porter’s 5 Forces-Netherlands..................................................................................................xxvi

2.9.1. Bargaining power of customers- High..............................................................................xxvi

2.9.2. Threat of new entrants- High..........................................................................................xxvii

2.9.3. Rivalry-High....................................................................................................................xxviii

2.9.4. Threat of substitutes- Low..............................................................................................xxviii

2.9.5. Bargaining power of suppliers- Low...............................................................................xxviii

2.10. Diamond theory-Netherlands...............................................................................................xxix

2.10.1. Demand conditions..........................................................................................................xxix

2.10.2 Factor conditions..............................................................................................................xxix

2.10.3 Related and supporting industries....................................................................................xxx

2.10.4 Firm strategy, structure and rivalry..................................................................................xxx

2.10.5 Role of the government....................................................................................................xxx

2.11 PESTEL-Netherlands..............................................................................................................xxxi

2.11.1. Social factors....................................................................................................................xxxi

2.11.2. Technological factors.......................................................................................................xxxi

2.11.3. Economic factors..............................................................................................................xxxi

ii

2.11.4. Environmental factors.....................................................................................................xxxii

2.11.5. Political and legal factors................................................................................................xxxii

iii

1. Floriculture Industry Sri Lanka

1.1. Statics

As seen on the above graph on Chrysanthemums, the exports of this had initially started in the

year of 2008. Furthermore, when looking at the graph we can identify that from year 2008

onwards till year 2011 there had been massive exports of Chrysanthemums to the world market.

On the hand, from year 2011 till 2013 the demand for Chrysanthemums had gradually decreased

due to rapid changes in demand.

The highest recorded exports of Carnations were during the year of 2004, which amounted to

74084 kgs followed by a slight decline in year 2005. Furthermore, when stressing on the year of

2006, the prices for spray carnations had reduced. As a result of this, there had been an increase

in demand for Carnations, thereby increasing the quantity of exports. Looking at the above graph

iv

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

chrysanthemums 0 0 0 0 9422 10102 26239 40230 15529 7426 0

2500

7500

12500

17500

22500

27500

32500

37500

42500

Chrysanthemums

Qua

ntity

(Kg)

we could understand that each year’s exports of carnation had been fluctuating as a result of

frequent changes in prices. Starting from year 2009 to 2013 there had been a declining pattern in

the quantities exported. In addition to this, we were able to find out one of the major reasons

which contributed to such impact. The prices of standard carnations had increased by a greater

amount in 2009, which caused a decrease in demand and thereby minimizing the overall export

quantity.

Demand for roses, which was 14,186kg in 2004, has started to drop till the year of 2007 which

has recorded a demand of 4652kg due to a shift in production of roses to vegetables by growers.

After a slight increase in 2008, due to the global economic recession the demand has reduced till

the year of 2011. However, due to increase in demand for roses in 2012 the supply has recorded

a massive 21271kg. In 2013, exports have recorded its lowest which is 321kg due to oversupply

of roses in the previous year. Therefore, due to less demand, suppliers have destroyed rose crops

since it has been cheaper than growing.

v

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

carnations 74084 45583 69392 29376 68621 22555 10049 5337 203 82

5000

15000

25000

35000

45000

55000

65000

75000

Carnations

Qua

ntity

(Kg)

2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

Foliage,branches & other parts of plants-fresh

Foliage,branches & other parts of plants-fresh

vi

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

fresh roses 14186 13714 12187 4652 10774 5421 5341 8337 21271 321

2500

7500

12500

17500

22500

Roses

Qua

ntity

(Kg)

2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Foliage,branches & other parts of plants-other

Foliage,branches & other parts of plants-other

Graphs for foliage, branches and other parts of plants - fresh and other depict a similar trend in

exports. After an increasing trend of demand till 2008, due to global economic recession demand

for floriculture products under these two categories has decreased. However, with rise in

members of middle and high income earners and increase in tourism in the European region

demand for both the floriculture products has increased and has recorded its highest around

450,000kg.

Due to unfavourable weather conditions such as cold winter and cold spring followed by a very

hot summer has resulted in decrease in exports. As a result of unfavourable weather conditions in

2012, domestic supply in the European market has dropped 30% than of the demand. Therefore,

to fill up the shortage, exports to the European markets have increased in the year of 2013.

vii

2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

2000

4000

6000

8000

10000

12000

14000

Anthuriums

Anthuriums

Floriculture product, Anthuriums has drastically dropped from the year 2004 which has recorded

the highest exports ranging from 12,000 to 14,000kg. However, in the year of 2007, 30 percent

(%) of Anthurium productions were affected by a bleaching problem which has resulted in a

resulted in 20 - 60 percent (%) drop in exports.

Although the global economic recession affected the European region, due to favourable

exchange rates of Scandinavian countries against the Euro exports have increased during the

recession period.

By the end of 2011, exports have reduced drastically due to droughts occurred in the high rainfall

areas of Hawaii where Hawaii being the largest exporting country for Anthuriums. The recovery

period was lengthy since Anthuriums requires about 3 to 4 months for plant growth and flower

production.

viii

1.2. SWOT Analysis- Sri Lanka

1.2.1 Strengths

Sri Lanka is a country with different climatic conditions which has facilitated to expand

floricultural products varying from hot to moderate.

Existence of natural substrate (coco-peat) as a growing media, climate appropriate for

farming hot & moderate products and availability of skilled & knowledgeable workforce

(www.srilankabusiness.com).

Sri Lanka is known for the finest quality production and has a reputation as a trustworthy

supplier of an ample range of quality floriculture products.

Climatic disparities and varied landscape which facilitates to grow a range of products.

Physical location of the country makes it easy to deliver products within 24 hrs to

whichever country in the world.

Having the understanding, skills and technological know-how to finish products based on

international standards.

Applying good Agricultural Practices to save the environment from harm, look after

workers and sustainable use of natural resources.

1.2.2. Weaknesses

Shortage and costly air cargo though the national carrier, Sri Lankan Airlines have given

the priority for perishable goods. However the vacant capacity is not adequate.

Lack of facilities for research and development

The floriculture industry needs trained personnel at each level of production, yet trained

personnel are lacking in this industry.

Large initial investment on farms in the process of importing essential items which are

not produced in Sri Lanka.

Lack of information on pesticides since the existing information and their acceptance in

various countries is important.

Insufficient product varieties available in the country.

Lack of research and development to grow new products.

Comparatively small production units in the farms.

ix

Rules and regulations by customs and related authorities in exporting various varieties of

plants.

1.2.3. Opportunities

Necessity to focus on new products and value addition to current products for better

competition.

Ability for Sri Lankan Plant Exporters to directly transact with growers without any

intermediation of a third party.

Long-standing opportunities could be twisted by gaining quality and environmental

certifications to the products.

Polish market will be a forthcoming market in the Eastern Europe

(www.srilankabusiness.com).

Increasing trend in exports point out the growing demand for Sri Lankan products in

international markets in the world.

International Trade Events such as Trade Fairs held in many countries opens many

opportunities for Sri Lanka Floriculture related products exporters to build relationships

and gain recognition in the international market and will also help them to market their

products to the international market.

Export development Board of Sri Lanka do many promotion activities in other countries

on behalf of the exporters and develop the industrial relations among other countries so

that Sri Lankan exporters can export their products with less taxes and tariffs to other

countries.

1.2.4. Threats

Unstable business, political and institutional environment.

Demand fluctuations.

Legislative and economic uncertainties.

Plants business requires big financial investments and bears big material risks due to the

product perish ability and unfavourable conditions for running the business.

x

1.3. Porter’s 5 Forces- Sri Lanka

1.3.1 Bargaining power of customers – High

In the floriculture industry of Sri Lanka bargaining power of the buyers tend to be high in nature

where certain buyer’s purchases are a high proportion of the supplier’s total business. Also

buyers tend to keep a relatively high profit margin and sell it back to their customers. The

consistency in the quality of the plants and flowers purchase is one of the most important factors

under considerations and if that particular quality is not met, buyer has the freedom of rejecting

the orders.

1.3.2 Bargaining power of suppliers - Low

In the floriculture industry of Sri Lanka, the direct exporter’s have fewer suppliers to their

business as they tend to supply all the raw materials by themselves. Thus they do not have any

direct suppliers influencing their business activities. They have suppliers to obtain materials such

as card board boxes, plastic packaging items, plastic pots and etc. But such suppliers are trying to

grab the attention of these exporters since their businesses are completive so therefore they tend

to sell goods at a competitive price. Hence the bargaining power of the suppliers in this industry

is relatively low.

1.3.3 Threat of entry - High

According the managing director Omega Greens (Pvt) Ltd, there are lot of threats of entry to the

floriculture industry of Sri Lanka. The main constrain is the capital requirement. In order to start

the business in small scale a potential businessman needs at least an investment of ten million

rupees also the technical knowhow, access to skilled labor and finding a proper location are few

other main concerns that creates a threat to the new entrants. Therefore the floriculture industry

is known to have many threats of entry.

1.3.4 Rivalry - Low

There are less than 30 exporters in the floriculture industry of Sri Lanka. Each of these exporters

export different varieties of plants and flowers in which they are good at. Hence the competition

towards each variety tends to be low in nature. The rate of growth in the floriculture industry has

been decelerated even if there are ample prospects for growth in the industry. According to the

managing director Omega Greens (Pvt) Ltd, even if there was at least low competition exists in

xi

the market the exporters tend to compete in terms of the quality rather than the price of the

product under consideration.

1.3.5 Threat of substitutes - Low

Floriculture is related to the natural products. They do have a threat from the plastic plants and

flowers that are manufactured and sold in the market. However, no matter what, people tend to

place natural floriculture related products far beyond the plastics. Therefore the threat from

plastics related products to this industry is very minimal in nature.

1.4 Diamond Theory- Sri Lanka

1.4.1 Factor conditions

This means availability of raw materials and suitable infrastructure. Access to required factors of

production is relatively high in Sri Lanka as this is tropical country with the availability of

perfect weather conditions for the plantation of floriculture related products. The required raw

materials also can be easily found in Sri Lanka and such raw materials are considered to be

epidemic. Therefore Sri Lanka has the competitive advantage of exporting such plants and

flowers compared to other countries. The infrastructure facilities are also in a good condition

considerably since the present government has taken many steps in order to develop the

infrastructure facilities in the country.

1.4.2. Demand conditions

The products have to be demanded at home country and this starts international success. In Sri

Lanka there is a high demand in the domestic market for the floriculture related products

especially cut flowers and pot plants.

During the recession period in Europe Sri Lankan floriculture revenue had came down

drastically. However since the domestic market was picking up the exporters were able to

recover the losses gained due to recession. The domestic demand is substantial it enables the firm

to obtain the economies of scale and experience the effects it will need to compete globally.

xii

1.4.3. Related and supporting industries

The main related and support industry for the floriculture industry is the plastic industry in Sri

Lanka. This includes plastic packaging covers, plastic pots and etc. This is highly integrated

with the floriculture industry which facilitates the exporters to do the packaging effectively.

1.4.4. Firm strategy, structure and rivalry

If the home market is very competitive, companies are more likely to become world class. Many

companies in the floriculture industry are private, limited liability companies. The market is

relatively competitive in nature. Most exporters in this industry compete in terms of the quality.

This has led the country to export quality products which has in turn resulted to improve the

national competitiveness.

1.4.5. Other events

Role of the government

Exports Development Board of Sri Lanka provides financial and technical advisory services to

the exporters and also the government always motivates the exporters in the floriculture industry

as they are trying to improve the agricultural sector in Sri Lanka. The government follows a Zero

tax policy with regards to the exports all floriculture related products and also has negotiated

with the other countries to reduce the taxes, such as GSP 3%, charged when exporting to their

counties (www.srilankabusiness.com).

Changing events

Recessions and foreign exchange rates fluctuations that take place in other countries have a

major impact on this industry. Also there are lot of international fairs which take place in many

countries yearly that facilitates lot of suppliers and buyers to meet and make relationships and

improve their knowledge and where hundreds of new varieties of flowers and plants are

introduced.

1.5. Challenges, Risks, Barriers in the Domestic Industry- Sri Lanka

1.5.1 Lack of market information

Understanding of growers to change in their cultivation practices is been questioned, since

growers are not been aided with right information on the market of floriculture. Lack of

xiii

information has been one of the main limitations towards up-to-date technology and production

methods. Especially small scale growers are not been informed of the market requirements of

products. Therefore, growers are unaware of the quality and standards of products.

In addition, the number of small scale growers has increased and they are scattered over a wide

area. Where their production is in small quantity which has resulted in setbacks in access for

large buyers. As a result, there is a barricade in passing on the communicated information of

larger buyers to small scale buyers which affects the productivity and quality of products. In the

long run, small scale grower's production will be static since there is a difficulty in achieving

necessary bulk and quality standards for exporting reasons.

Apart from quality and standards of the products, some of the other market information that

should be communicated are, availability of input supplies, new varieties of plants, organic

fertilizers, new products in relation to disease control, nets and construction materials for poly

and shade houses.

1.5.2 Cost of production

Traditionally cultivation has happened in the backyard with minimum equipments. Therefore, it

could be said that the costs in relation to domestic market production is considerably low.

However, financially it has proved to be a barrier for growers to up-scale their nurseries in order

to increase the productivity and the quality of products. Initial investment in order to enhance the

quality of the product with standards of exporting products is relatively high because of essential

net house constructions and planting materials.

There is very little support given towards the growers by the government or other financial

institutes in order to invest in more sophisticated equipments and inputs.

The assistance towards the floriculture sector by financial institutes is not favorable since

financial assistance is provided at usual lending rates which are considerably high. The high

financial cost involved would add up to the production cost which would lead to an increase in

production cost.

xiv

1.5.3 Availability of skilled labor

Employment opportunities increase as the scale of production increase. Since the requirement of

workforce for small scale growers is low, there is no problem in finding labors. However,

availability of skilled labor is a problem for medium scale growers who are to expand their

nurseries that has no own training capacity.

According to the director of Omega green (Pvt) Ltd, being one of the leading exporting

companies, the organization has the fear of not being able to recruit employees in the future.

According to him, the demand for employment in the field of floriculture is diminishing.

1.5.4 Lack of coordination between relevant stakeholders

According to research conducted by Export Development Board, it has found out that there is

hardly any coordination between relevant stakeholders which has lead to wastage of resources.

One reason that the floriculture in not competitive in the global market is that the roles and

responsibilities have not clearly defined or communicated between government and private

organizations. Disorganized supporting service adds up to the lack of coordination which has

lead to conflicting interventions.

1.5.5 Lack of Varieties

Although Sri Lanka is capable of growing or develop floriculture products ranging from tropical

to temperate flora, due to government interventions, growers are being restricted in increasing

the range of products. For example, according to the quarantine regulations in Sri Lanka farmers

or growers cannot import plants which belong to the palm family in order to facilitate the local

coconut industry. This is been found out as one of the main obstacles to introduce new varieties

to the market.

1.5.6 Transportation of sand

The regulations which apply to the construction sector are also related to the floriculture sector,

since restrictions imposed on transportation of sand are suppose to prevent soil erosion through

unconsidered sand mining's. Therefore, it is necessary to acquire a flexible permit procedure at a

divisional level.

xv

1.6 Special Characteristics in the Industry- Sri Lanka

Growing of floriculture products undergo a normal procedures, either be for the purpose of

exports or domestic retailing. As for the words of Director of Omega Green (Pvt) Ltd,

agricultural activities in regards to the growing of plants are at usual mannerisms, where it could

differ from plant requirements. For example, certain plants are to be planted right on the soil,

some are to plant on pots and several are to plant beyond the soil. However, there are some

mannerisms they follow in order to enrich the final product,

According to the director of Omega Green (Pvt) Ltd, certain plants should be covered

with a cloth in order for it to grow at the right humidity level. Growing under the right

level of humidity would help in supplementing the quality of the final product, or it

would reach to the standards of customer requirements.

With increase in demand for organic products, a formation of a positive trend has been

observed in the local production of organic manure, which is used as fertilizer when

growing. As an additional benefit, organic manure is less expensive than readymade

fertilizer which gives a competitive advantage.

xvi

2. Country Analysis-Netherlands

2.1. History of Dutch economic competitiveness

Netherlands has become a central trading post for Western Europe as it is well placed with its

451 km coastline and waterways of rivers and canals that are networked. Amsterdam which is

the capital of Netherlands was known to be one of the wealthiest capitals in Western Europe

during its ‘Golden Era’ in the 17th century. Many colonies and trading posts were established by

the Netherlands all over the world– in Asia for the spice trade and in America for sugar and

slaves.

The economic power of Netherlands is said to have grown steadily through innovation and

expansion, despite the competition from other European powers such as Spain and Portugal.

Insurance schemes, pension and other financial services were introduced by Dutch companies in

order to support businesses and merchants. Expansions in the shipping and banking sectors were

facilitated by advancements in technology and finance. The world’s first stock exchange was

developed by Dutch East India Company which is a multinational, to finance various ventures.

Economic innovation and history of trade laid the foundation for a powerful economic

performance. (Philippot et al, 2011)

2.2. Recent economic performance-Netherlands

The Dutch economy being the sixth largest economy in the euro-zone is considered to have an

important role as a European transportation hub and is noted for its moderate levels of

unemployment and inflation, stable industrial relations and a sizable trade surplus. On 1 st January

2002 Netherlands, along with its 11 other European Union partners began circulating the euro

currency. However in 2009 as a result of the global financial crisis the Dutch economy

contracted by 3.5% as it was highly dependent on an international financial sector and

international trade. After 26 years of uninterrupted economic growth, the financial sector of

Netherlands suffered as some Dutch banks were highly exposed to American mortgage-backed

securities.

xvii

In order to prevent further deterioration of vital sectors, the government nationalized two banks

and injected capital worth billions of dollars to other financial institutions in 2008. With the

intention of enhancing the domestic economy the government accelerated infrastructure

programs, offered corporate tax breaks to employers and expanded export credit facilities.

However, in 2010 bank bailouts and stimulus programs caused the government budget to have a

deficit of 5.3% of GDP (Gross domestic product). This highly contrasted with the surplus of

0.7% that was achieved in 2008. In early 2011, the government of Netherlands implemented

several fiscal consolidation measures that facilitated an improvement in the budget deficit during

the same year. (www.cia.gov)

In 2012 a contraction of the economy took place by 1% in comparison to 2011. This was the first

time in the history of the Dutch economy to contract year on year since 2009. During the same

year tax revenues dropped nearly 9% and GDP fell down to US$ 695.8 billion showing a

negative GDP real growth rate of 1.5%. And also consumption and investments were down by

1.4% and 4.6% respectively.

However, in 2012 the budget deficit further deteriorated and the rate of unemployment remained

relatively low at 5.3%. And substantial growth was realised in exports which increased by about

3% (Statistical Yearbook, 2013).

2.3. Economic composition-Netherlands

The Dutch economic composition shows that it is a highly service oriented economy with 72.6%

in the service sector, 24.9% in the industry sector and 2.5% in agriculture (www.cia.gov). Even

though there has been a slow down in the growth of financial services and logistics, such sectors

remain foundational to the services sector.

Processing of imported raw materials such as petroleum and chemicals has become a major

activity in the industrial sector. The Netherlands ‘oil and gas products’ cluster contributes greatly

to its GDP and is the second biggest export cluster within the country. Petroleum processing is

the biggest sub-cluster within the country and is also the fourth largest from the entire world.

xviii

Production technology that builds on processing and production competencies has taken the spot

of the top growth cluster. The fact that Netherlands has become one of the top five exporters of

specialized process machinery clearly indicates that they are advancing into other sub-clusters as

well.

An important contributor to the Dutch economy is their historically important agricultural sector

which is the largest export cluster in the country. The key products in this sector are floriculture,

livestock and meat and dairy products. This sector is considered as one of the most productive as

it has a long history of technological innovation (Philippot et al, 2011).

2.4. Key economic drivers-Netherlands

2.4.1. Exports

Based on a research conducted by the Netherlands Bureau for economic policy, 30% of

Netherlands income is derived from the export of goods and services. The value of its exports

was 86.7% of GDP in year 2012 (www.cpb.nl).

After the US the second largest exports of agricultural products goes from Netherlands, where

horticulture segment is the most important in that sector. Other significant export products of

Netherlands include chemical products, machinery, vehicles, high quality aerospace components

and systems, ships, yachts, busses and car parts.

Almost 79% of Dutch exports remain within Europe itself, especially Western Europe. The most

significant trading partner of Netherlands is Germany, followed by Belgium, UK and France

(Philippot et al, 2011).

2.4.2. FDI

Based on the statistics provided by the Netherlands Foreign investment Agency, around 6300

foreign companies have been given the opportunity to establish nearly 10,000 operations within

the country. Such foreign companies include Cisco systems, Nike, Microsoft, Sabic and so on. In

2012 the direct investments made by foreign companies amounted to $589 billion and has

provided 15% of total Dutch employment. This positions Netherlands as the world’s tenth largest

recipient of foreign direct investments (www.hollandtrade.com).

xix

2.4.3. Labor productivity

With regard to labour productivity Netherlands is one of the most productive countries in

comparison to OECD countries. The rate of its labour productivity is US$35 of GDP per hour

worked. Whereas the average OECD rate of labour productivity is of US$25 (Philippot et al,

2011).

2.4.4. Innovation

The major sectors in the Dutch economy that holds a strong global position are Agri-Food,

Horticulture, High-Tech, Energy, Logistics, Creative industries, Life Sciences & Health and

Chemicals. 1.5 billion Euros were allocated by the Dutch government for further development of

these sectors. As a part of the Netherlands knowledge institutes’ research programmes,

innovation contracts were drawn up in 2012. A number of globally relevant and competitive

technological top institutes and programs in innovation and R&D were created by the Dutch

economy during the same year.

In addition, Holland's R&D infrastructure comprises several independent research giants. Among

these are the Energy Research Centre of the Netherlands, Philips Research (one of the world’s

major private research organizations) and TNO (the country's largest independent applied

research institute) (www.hollandtrade.com).

2.5. Macroeconomic Policy-Netherlands

2.5.1. Monetary policy

Monetary policy of Netherlands came under the control of the central bank of Europe since its

adoption of the euro in 1999. This monetary policy sternly focuses on inflation-targeting. Since

the commencement of the circulation of the euro the rate of inflation has generally remained

below 3% (www.inflation.eu).

xx

2.5.2. Fiscal Policy

Dutch fiscal policy is in line with the EU framework of a balanced budget, which seeks to reduce

public spending and lower tax and social security contributions. The low borrowing costs of

Netherlands in international markets and its role as a safe haven is said to be as a result of its

long standing track record of sound fiscal policies and its robust institutional framework. This

strength derives from strong credibility with regard to the fiscal policy and also due to the focus

on medium-term objectives that are in line with sustainable public debt dynamics.

2.6. Dutch floriculture cluster analysis

2.6.1. Cluster context

The floriculture industry of Netherlands involves in the production of bedding plants, bulbs,

shrubbery, flower seeds and sod. It also includes the cultivation of flowering plants and

ornamental plants both outdoors and in greenhouses. The Dutch flora growers dominate the

global cut flower business and hold a strong position in the world flower trade despite the

absence of favourable climatic conditions and soil certainty to grow flowers and plants.

The Dutch floriculture cluster has become so powerful mainly due to the country’s important

logistical hubs, development of high quality and high tech production methods, proximity to

Europe’s 500 million beyond consumers, creation of efficient supply chains and so on.

The Netherlands floriculture industry is concentrated in six clusters, known as the Greenports. In

each of these clusters, research institutes and businesses work in concert on production, logistics,

research and development, infrastructure and exports. A significant contribution is made by this

sector to the prosperity of the country, through high quality production, considerable

volumes/quantity and technological innovations. Netherlands have undertaken a unique approach

to innovation and R&D. In simpler terms it means that its government, research institutes and

businesses work together closely on innovation projects and programmes

(www.hollandtrade.com).

xxi

2.6.2. Brief history

The floriculture industry of Netherlands is said to have originated from the cultivation of

imported tulips. This industry has a long history that dates back to the 16 th century. Despite the

unfavourable weather conditions and limitations in land area, the industry has developed as a

result of nearby demanding markets. The establishment of the Dutch flora industry was

facilitated by three regions in the country namely, Rotterdam area, northern and southern parts of

Amsterdam and Hague. These regions were mainly specialised in the production of trees, flower

bulbs and vegetable seeds.

With the intention of protecting vegetable growers against wholesalers the very first auction of

plants, flowers and vegetables was conducted in Netherlands in 1887 at Broek op Langedijk.

Emergence of other auctions took place soon after the first one in Westlands and around

Aalsmeer. Since then the industry has experienced continuous expansions.

An exceptional growth was demonstrated in this sector specifically after the World War II as it

was supported by public investments in physical infrastructure such as roads, waterways and

rails (www.euc2c.com).

2.6.3. Performance of the Dutch floriculture cluster

The amount of floriculture products exported by Netherlands in year 2013 has minimized by 2%

when compared to 2012. On the other hand year 2012 reported an increase in the exports by

2.8% when compared to 2011.

There was an increase in exports to countries like UK, Russia, Belgium, and Sweden and so on.

But there was a decrease in exports to countries such as Germany, France, Italy, Austria and

USA. There was a remarkable decrease in the amount exported to Russia and a remarkable

increase in exports was reported to the Scandinavian countries as a result of the exchange rate of

the Scandinavian currency vs. the Euro being favorable.

Based on the information stated in the Export performance report, Netherlands takes the leading

position in the world’s major markets for floriculture products in year 2012. This also states that

it has surpassed major countries such as United Kingdom, Japan, Germany, Saudi Arabia and so

on (www.srilankabusiness.com).

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2.7. Trends in the Dutch floriculture cluster

A new trend that can be seen is the share of supermarkets scaling up and creating a

dominating position in the trade. European mass market retailers such as Sainsbury,

Tesco and Marks Spencer have obtained the control in especially the cut flower value

chain. The purchasing power of wholesalers and the Dutch auction systems are gradually

taken away by these dominating retailers.

In today’s context retailers (supermarkets) are moving on to long term contracts to buy

large quantities of cut flowers directly from producers. This goes on to say that the

typical floriculture value chain will be shortened and thereby eliminating the role of

certain intermediaries. The main objectives of those retailers are to reduce cost, reduce

delays and gain more control over their suppliers

At the expense of existing producers and exporters of floriculture products new exporters

in developing countries are said to be gaining more market share in Netherlands. As

stated by experts this is due to the traditional growers moving their production focus to

countries with favourable climatic conditions, lower production and labour cost and also

where abundant labour and land could be found. The Dutch flora industry has already

moved their attention to flower trading from flower production. Netherlands have already

selected countries such as Ecuador, Ethiopia, Kenya, Colombia and India as their new

production centres.

Another trend that we identified was with regard to the progress that has taken place in

vertical integration and consolidation. This can be proved by the merger of Flora Holland

and Bloemenveiling Aalsmeer (the two largest cooperative flower auctions in

Netherlands) which has paved the way for the creation of the world’s largest flower

market place known as Flora Holland. And also as a result of retailers going in to long

term contracts with growers to facilitate direct sales, producers also have integrated.

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A strong trend has been identified towards products that are organic and also products

that are provided by suppliers who guarantee the compliance of ethical standards and fair

treatment of workers. Now a day’s consumers are conscious about the social and

environmental impacts and are better informed. As a result of this they demand/expect

high levels corporate social responsibility, service guarantees and codes of conduct to be

followed by suppliers. All these factors are now becoming a prominent part of the Dutch

floriculture sector as they already have implemented the Dutch milieu programme

sierteelt (MPS), Flower Labelling Programme (FLP), Fair Flower and Fair Plants label

(FFP), etc

In order to reduce the environmental issues, consumers expect suppliers to use more

biological pesticides and adopt environmentally sound production practices.

(www.floriculturetoday.in)

2.8. Cluster structure and value chain-Netherlands

(Source: Anandatissa, 2014)

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BUSINESS SERVICES

GOVERNMENT INSTITUIONS

UNIVERSITIES

WHOLESALE TRADE

IMPORTER

AUCTION GROWER

EXPORTER RETAILER CONSUMER

LOGISTICSTECHINICAL SUPPLIERS

The elements of the value chain of the Dutch floriculture industry are performed by certain

groups who are specialised in carrying them out. The Dutch flower industry has become so

powerful due to the fact that the above mentioned groups working closely together. Such form of

‘strategic coupling’ has generated networks that possess immense capabilities to compete in the

international arena.

Starting point of the value chain involves growers who are highly specialized in what they do. As

an example Boskoop which is one of the clusters of the Netherlands Greenport have 400-500

growers concentrated, who are highly specialized in producing ornamental plants and flowers.

Mostly every grower specialises for several decades in producing a single or several cultures that

have made their production values and volumes more efficient. Long term learning and powerful

knowledge infrastructure that is embedded in various research and market institutions have

facilitated such specialization. All these factors have supported the growers to develop and

produce a wide assortment as a whole which helps them to be competitive domestically as well

as internationally.

After the production of the floriculture products, the growers have the option of delivering them

to an auction. If they do so the following procedure will take place. At the auction trade takes

place early in the morning where fresh products located in cool storages are brought out, tightly

packed on trolleys or on a running belt. Then the pictures and information of such plants such as

the origin, quality, start price stated by the auctioneer etc are displayed on the auction screens.

Once the auction starts the price will drop until the buyer stops it and decides on the actual price.

But every product has a minimum price under which they cannot be sold. Products that are

bought at the auction will be directed to specialized storages on the belt where they will be

packed and prepared for delivery. At the auction the wholesalers and exporters buy floriculture

products in order to cater to their retailers and thereby fulfil the needs of the end consumers.

Products that are not traded through auctions will be directly sold by the grower to another

wholesale market or an exporting company. In the past direct trade of products between growers

and retailers was a rare case. This is mainly due to the fact that the growers catered to large scale

buyers with a single or handful of product assortments but retailers usually required small

quantities of wide assortments.

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But considering today’s context this direct trade between the above mentioned parties are taking

place and is expected to develop further as the power of retailers (supermarkets) in the chain is

scaling up. However, still majority of the plants passes through the particular structure of

mediation.

Exporting companies are a major part of the value chain as it performs the function of connecting

domestic and international retailers and end consumers to the value chain. The main functions

carried out by them are assortment, packaging, paperwork, quality control and many more. Most

of the exporters in Netherlands locate themselves in close proximity to auctions or growers so

that they could engage in providing sophisticated assortment and have them packed and

delivered in no time.

Other important groups in this value chain are private and public institutions that promote the

industry and carries out R&D activities and quality standard regulations. Sale of Dutch

floriculture production is promoted domestically and internationally by Flower council of

Holland where as ornamental products commodity board in Netherlands conduct R&D activities.

Another institution that supports the promotion and joint marketing of Dutch plants is Plant

Publicity Holland. Knowledge infrastructure is provided by universities such as Wageningen that

researches on plant breeding, post harvesting and greenhouse techniques, economics, marketing

and so on.

(Martsynovska, 2014)

2.9. Porter’s 5 Forces-Netherlands

2.9.1. Bargaining power of customers- High

When considering the floriculture industry of Netherlands we could state that there is an increase

in the bargaining power of buyers. This is mainly with regard to the changing nature of the main

distributional channels in the industry value chain. Mass market retailers such as supermarkets

have gained a dominating position and have preferred set of suppliers from whom they purchase

large volumes of products. This has made them gain more control over the whole supply chain

management.

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When considering the foreign buyers of Netherlands still we could state that the bargaining

power is high as countries such as Germany, UK and France account for a very high proportion

of the Netherlands total exports. If they are not in line with the expected quality with regard to

the products, the buyers have the power to always reject them.

This fact is greatly proven in the case of auctions. The buyer gets to bargain and determine any

price between the price stated by the auctioneer and the minimum price under which they cannot

be sold.

2.9.2. Threat of new entrants- High

The Netherlands floriculture industry is said to be highly competitive and posses a nature with

low barriers to entry. This is because the industry has given various opportunities to obtain

production skills, have access to organized logistics and marketing systems and also access to

efficient distribution systems that provide an ease to reach the final consumer. Another important

fact is that there are many active institutions in this industry that provide training, financial

services, R&D facilities and technological knowhow that supports potential entrants.

There is also a threat from new entrants residing in other countries. The Dutch flora companies

should find more innovative ways to be competitive as there is a high potential threat coming

from Dubai. This is because the government of Dubai financed and opened the ‘Dubai Flower

Centre’ recently that has the capacity to handle 180,000 tons of perishable goods annually and

has a high potential to attract international wholesalers and shippers. This centre also focuses on

reducing shipping charges to and from Dubai and to expand trading activities in many countries

(www.euc2c.com).

And also the fact that any domestic/foreign buyer could take part in their auctions has given

more opportunities for new competitors to enter their market.

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2.9.3. Rivalry-High

The number of firms that grow flowers and pot plants amounted to 4125 and the number of

wholesalers and exporters amounted to 1082 firms (Martsynovska, 2014) this goes on to say that

the rivalry between existing competitors in the market is very fierce. But the fact that these

growers specialize in one or few product assortments reduces the fierce competition towards a

particular variety. These actors in the industry compete for quality, freshness and variety. The

most efficient and competitive are considered to be those who provide supply chain management

starting ‘from the seed to the end consumer’.

In comparison to international competitors, in today’s context Netherlands is facing competition

from export clusters such as China, Kenya, Ecuador and Colombia and also from upcoming

export clusters such as Ethiopia and Zimbabwe. The Netherlands being one of the leading

clusters still faces competition from the above mentioned countries mainly because of its

unfavorable climatic conditions, extremely high labor cost, increased regulation and

environmental concerns.

2.9.4. Threat of substitutes- Low

Importance of artificial flowers and plants are on the rise. This is a threat to the floriculture

industry as it could be substituted easily. Now a day’s the quality of the artificial flowers and

plants have improved so much that they are becoming more and more realistic. And also unlike

fresh flowers and plants they are not perishable. Nevertheless, customers are still attracted to and

prefer fresh flowers and plants which show that this threat is minimal in nature.

2.9.5. Bargaining power of suppliers- Low

Most of the countries that supply floriculture products to Netherlands are developing countries.

Such developing countries have a low bargaining power as majority of their business depends on

the imports of a country like Netherlands. The Dutch industry determines the exact quantity, type

and the quality they need.

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2.10. Diamond theory-Netherlands

2.10.1. Demand conditions

The Dutch domestic consumer market is considered as historically the most important market for

cut flower and plant sales. The Dutch consumers account for three quarters of expenditure in this

sector. The most important purchasing criteria for these consumers are the quality and perish

ability. The demanding nature of the domestic market has been responsible for sustaining the

quality of the products that they produce.

The Netherlands domestic market for floriculture products is relatively big. Approximately 700

million Euros are being spent by Dutch consumers each year on cut flowers itself. Once in every

four months 61% of families in Netherlands buy flowers and pot plants. There is also a high local

demand for new products/varieties in this sector (Splinter et al, 2011).

2.10.2 Factor conditions

Geography

Geographic placement of Netherlands has become an advantage as it is in close proximity to

important markets. Netherlands have a major trading partnership with Germany and UK as they

are two of its neighbouring countries. Due to its close proximity to important European markets

the transportation costs are relatively low.

Climate

Climate in Netherlands is not favourable for cultivation of flowers and plants. This is because the

winters are often too cold and the summers are usually too hot. This is why they use a lot of

greenhouses which are heated by burning fossil fuels to produce flowers and plants under

protected conditions.

Infrastructure

Good connections with important markets are facilitated by the Netherlands effective logistic

networks. Proper infrastructure is set to transport products either by road, sea or air. Netherlands

prominent position as a transit hub is supported by the presence of the Schiphol airport as

transportation of floriculture products of Kenya, Ethiopia and Ecuador passes through this.

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Human resources

In 2008 32,000 people were employed in the ornamental horticulture sector. The number of

people working in this sector was reduced by 25% from year 1998-2008 as a result of increasing

mechanization. In today’s context more temporary and seasonal labour is in demand in this

sector (Splinter et al, 2011).

2.10.3 Related and supporting industries

Since most plants and flowers are grown in greenhouses, greenhouse suppliers are a major

supporting industry. High competition between such suppliers has motivated them to come up

with innovative developments and that in turn has helped them to be major players in proving

horticulture solutions. On the other hand there are also suppliers of plant material such as

fertilizer, seeds, pesticides and also the plastic and clay industry that provides pots and material

for packaging.

2.10.4 Firm strategy, structure and rivalry

The Dutch local floriculture market has fierce competition that has made them highly

competitive. But there is a greater degree of rivalry as there are large numbers of growers,

wholesalers, exporters and so on. They use a differentiation strategy and their technological

knowhow to compete domestically and internationally. Differentiation strategy is in terms of

always coming up with new varieties or new ways of production which helps them to be unique.

Their technological knowhow is used to produce high quality products.

2.10.5 Role of the government

Knowledge development, research and education, new innovative projects and subsidy schemes

are funded by the government to develop this sector and make it competitive. Funds such as the

Economic Structure Enhancing Fund were introduced to facilitate the development of Greenport.

Apart from that a Sustainable Greenhouse Horticulture Areas Stimulus Plan was established for

the development of new horticultural areas. Government has also set out energy and

environmental performance based targets for this sector.

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2.11 PESTEL-Netherlands

2.11.1. Social factors

There is a very high demand for responsibly produced floriculture products. As a result of this

several CSR programmes have been implemented. The first is MPS, which is the floriculture

quality and environmental sustainability certification programme that attempts to encourage CSR

and sustainable production. Other programmes include GlobalGAP, Fair trade and other

certification programme, EPHEA code of practice, Florverde and so on.

During special occasions such as mother’s day and Valentine’s Day there is very high demand

for certain range of flowers and prices usually escalate during these peaks.

2.11.2. Technological factors

Marketing process of the Dutch auction is being replaced by ICT systems. Purchases made by

buyers are based on a digital product image. This has replaced the traditional form of how things

are done at the auction. This has also caused a disconnection of physical supply logistics from

the actual place of trading.

In today’s context various types of traceability solutions and tools such as barcodes are used to

integrate information from the producer and buyer. Indicators such as time of delivery,

temperature and place could be tracked using these tools. The product could also be monitored

throughout the supply chain.

2.11.3. Economic factors

Since the time of the recession the Dutch economy has been contracting. But in the upcoming

years it is expected to move on to a slow economic growth. But this ongoing condition in the

market will not support them to acquire new or additional market share.

Retailer concentration is taking place as supermarkets are acquiring a high proportion of market

share in this sector. As a result of this they have gained more buying power and more control

over the supply chain.

Apart from the increasing scale of retailing a growing demand was identified towards niche

products in this sector. This will help growers to distinguish themselves and also provide unique

products to their customers.

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2.11.4. Environmental factors

All actors in the floriculture value chain are taking necessary precautions to protect the

environment from negative impacts resulting from business practices. Many discussions are

ongoing regarding the minimization of using chemicals and pesticides that are bad for the

environment. They are also focusing on minimizing the emission of greenhouse gasses during

production and transport.

Through the use of labels many growers, exporters and retailers demonstrate that they comply

with standards relating to environmentally friendly business practices. Various private

certification schemes and industry codes with regard to this issue has been developed.

2.11.5. Political and legal factors

Strict phytosanitary controls are being implemented in order to check if any hazardous organisms

are present in imports that are brought into the country. Advanced techniques are also being

used to identify the pesticide and chemical application at the border of the country.

Standards have been set with regard to enforcement of breeders’ rights. This gives exclusive

control to inventors of new plant variety over its propagation and commercial use.

Economic partnership agreements were made with several countries which gave them

preferential access to their markets. Such countries were given duty free or quota free access.

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