- Market size
In 2000, the total market of cut flower was up to $7.66 billion while the international trade is characterized by a high degree of concentration by product and sources. Roses, carnations, and chrysanthemums are the main traded products, which make up close to 50% of the world cut flower trade, Germany is the biggest single market for imports, and the Netherlands is the world’s leading exporter.
- Market structure
More specifically, this market can be divided into four types. First of all, those are self-sufficient markets, such as Japan, 95% of its demand is satisfied by local producers. Furthermore, China and India are also two of them, as purchasing power of these two nations is too low for sizeable imports to take place and quality of their domestic products is too low for sizeable exports to develop.
Secondly, there are countries which have sizeable markets satisfied by imports. Germany is the typical example with 70% of total domestic demand supplied by import products.
The third type of countries is opposite of the second. This group of countries includes Kenya and Colombia, which have very small domestic markets and export nearly all of their production abroad. Something needed to be concerned here is that exports of cut flowers in those countries are growing at a very rapid speed.
Last, there is a group of countries with a large home market and a large export share at the simultaneously. Netherlands is the best example here. The annual consumption per capita in Netherlands reaches 150 flowers which is far more than that, 80 flowers, in France.
- Market characteristics
Among international trades, only top-quality flowers are able to be sold abroad. Quality can be discussed into several dimensions. First of all, flowers should be free from plagues and diseases and undamaged. Through visual inspection, this is able to be judged more easily. In addition, when being cut, flowers should be correctly handled since this determines that their vase life and whether or not the buds will open or not. From this point, it’s difficult to make a judgment. Therefore, it makes a lot of sense that reputation of suppliers and producers is the most important factor for buyers to decide whose flowers are worthy to buy.
- Price trends
Due to Netherlands’ overwhelming market share, market prices of cut flowers are basically determined by its auction markets. There are four types of price trend which can be observed.
First, average annual prices have been to some extent declining in the last decade, but impact of profits has been attenuated through growth in productivity. Second, there is an obvious seasonal price pattern existing. Prices go highest in winter and lowest in summer. Third, prices differ considerably by quality, which means vase life and opening of buds. Last, large price gaps exist between new and bulk products. New and special flowers can be priced extremely high. For instance, the price of “Rising Sun” is seven-fold of price of “Royal Dutch”, which are both roses.
- Analysis based on Porter’s diamond theory
- Demand conditions
- Strong domestic demand
As the world leading exporter of cut flowers, Netherlands is also one of the largest single markets in world. The annual consumption per capita in Netherlands reaches 150 flowers which is far more than that, 80 flowers, in France. Though domestic consumers are less demanding, they play a very important role in the consumption of lower quality and surplus production to support the industry.
- Strong and sophisticated demand from other European countries
As a member of EU, Dutch flowers can flow freely without tariffs in most wealthy markets within Europe. German, followed by France and UK, is the largest export market to Netherlands which accounts for 43% of total exports. However, they are the most demanding markets as well since for a long time they have been supplied by high-quality flowers from Netherlands. Thus, the standard is set very highly, and consumers in those markets are spoiled already.
- Environmentally friendly needs from consumers
Due to consumers’ growing concerns about the way flowers and plants were being produced, in 1995 Dutch floricultural sector created the MPS foundation to measure growers’ production procedures. Participating growers are ranked by three environmental levels, A, which is the best, B, and C, on a basis of energy consumption, insecticides and fertilizer usage, and waste disposal.
In addition, a Geneva-based independent organization, C SGS Agrocontrol, checks on a regular basis whether the growers are recording the data as required and make sure the MPS logo is used according to related regulations.
- Related and supporting industries
- Efficient auction houses
The auction houses constitute a critical part of the trading process. There are seven flower auctions, owned by cooperatives of growers, in Netherlands dealing with thousands of buyers and growers everyday, and the two largest are in Aalsmeer and Naaldwijk.
Auction houses not only gather buyers and growers together, but also carry out a well-designed procedure of trading and logistics of flowers. From farms to retailing points, all flowers are stored in uniform carts regulated by auction houses to let transportation easier and faster.
In the auction hall, the famous “Dutch auction” method, which is considered more favorable to growers since prices are started from high to low, is used to efficiently make deals done because Dutch auction method reduces haggling and related problems. An average of a thousand transactions can be made per hour. In addition, auctions are also in charge of mediating and settling all buyer-grower disputes.
Thus, many foreign growers even transport their flowers to Netherlands auctions for sale in order to make presence in front of thousands of buyers and obtain good deals.
In short, auctions in Netherlands are price setters of world cut flowers trade which means they have gained world competitive advantage in this field.
- Glasshouse industry
Agriculture in Netherlands is characterized by intensive glasshouse systems, and glass houses in Netherlands are characterized by intensive industrial facilities. The long term development of glasshouse technology has been continuously improved since the end of World War I. Many highly automatic facilities, such as irrigation, heating, and lighting, are all integrated into glasshouse production to reduce labor costs, which account for 35% of total flower production costs in Netherlands. Through glasshouses, those industrial technologies successfully endow with Netherlands agriculture merits of economy of scales.
There are numerous companies offering different technologies used in glasshouses in Netherlands. More specifically, around 7 to 8 glasshouse construction companies have international exporting ability to serve foreign customers, especially those in developing countries. So far, Netherlands companies have 80% of total commercial glasshouse market. Also, the glasshouse area they build in Netherlands is up to 1.1 billion square meters, which account for one fourth of total glasshouse area in world.
The array of logistics service providers in Netherlands is very widespread, ranging from small operators to giant organizations offering a number of different specialties. For example, TNT offers overnight airfreight service worldwide. This is extremely important to cut flower industry because floricultural products need to be delivered to sales point as soon as possible. In addition, warehousing, pick and pack, transportation, and other major logistics enterprises can provide many other value added services, such as tax handling, re-labeling, invoicing and repairs, and the most crucial service to flowers, a cold storage on board.
- Research institutes
Basically, basic science is critical to keep plant genetics and biotechnology innovative. In Netherlands, basic research is concentrated in two types of organizations. First of all, there are a number of top research universities with education, training and research projects, such as Wageningen University, University of Nijmegen, and University of Utrecht. Secondly, there are also some top strategic and applied research being performed at some institutes, such as Wageningen UR and TNO. Those public institutes and schools integrate tremendous resources from government and private companies to work on agro industry field and accumulate incredible research results.
- Breeding industry
A number of industrial research groups are working on the Plant Biotechnology. Some breeding companies are domestic, and others have their foreign parent companies. Therefore, they are not only serving local demand but also foreign customers. The main operations of a breeding company here may be breeding plants, trading breeds internationally, and developing new varieties.
However, the ability to commercialize those research results is the most crucial competitiveness of further developments in this innovative and dynamic research field. It can be illustrated that the commercialization of research results has been rapidly revolving. First the application of patents in the plant biotechnology in Netherlands has increased rapidly and many universities and institutes are expert at patent applications and have produced a number of high quality patents. Therefore, that the key reason why many foreign companies operate a subsidiary company here because they recognize, consider and use Dutch plant genetic and biotechnological groups as attractive research partners, either through IJVs or direct contract cooperation. Besides these big companies, many incubated start-up companies from universities, institutes are considered more and more as an attractive way to stimulate innovative commercial activities.
This will result in the creation of wealth, high quality jobs and innovations for the entire industry in general. For example, the world’s largest breeding company, Cebeco Inc., is located in Netherlands and exports its breeds to more than 100 countries over world.
- Financial industry
The vigorous financial industry in Netherlands plays a vital role in supporting agriculture by offering abundant loans. Due to limited lands available in Netherlands, Netherlanders employ as many modern technologies as possible to make up what they lack. In this way, farmers have to invest in much more capital than traditional farmers in other countries do.
Not only that, some banks have excellent connections with related and supporting companies for farmers, such as glasshouse construction companies and breeding companies, and offer relevant consulting services to farmers.
- Petroleum industry
There are three giant petroleum companies, Shell, Azko, and DSM, offering inexpensive natural gas in Netherlands for growers to heat their glasshouses. Especially the long winter in Netherlands requires much heating costs to support her all season production, the most inexpensive energy costs in EU brought by those giant petroleum companies also play a very vital role.
- Factor conditions
Due to limited lands in Netherlands, growers are forced to develop their know-how of intensively making use of existing lands. Surprisingly, one third of lands in Netherlands are “produced” by reclaiming from the sea. Various means of increasing harvests are carried out, so in terms of area under cultivation, however, china and India are the leading countries, which have 60,000 and 34,000 hectares respectively. With only 8,000 hectares under cultivation though, Netherlands generates incredible values and production by extremely high yield per hectare.
In general, the climate in Netherlands is moderate. Summer in is between June and August, and the average temperature is from 21℃ to 26℃. When winter comes, below freezing point duration is quite long. Though the rainfall is sufficient, sunshine, about 1,600 hours per year, is not enough for all season plant growing. Such climate characteristics enforce farmers to adopt glasshouses to make sure they are able to grow and supply flowers at every season.
Located right next to the North Sea, Netherlands is close to the wealthy Western Europe. The two of the largest single markets in EU, France and German, are her neighboring countries. About 1,700 million population lives in 500 km radius of Netherlands which account for around half of total European population.
- Transportation Infrastructure
According to a survey conducted by KPMG, the average freight cost in Netherlands is the most inexpensive in world. Netherlands has an excellent access to other European countries. 50% of total European import and export via inland water and 27% of total European land transportation must pass through Netherlands. Flights leave from the Schiphol airport in Amsterdam to 240 different destinations over the world. Rotterdam seaport is ranked as top 3 busiest seaports in world.
- Abundant natural gas
The total production of natural gas in Netherlands is twice the consumption of domestic demand. Besides the condition that supply exceeds demand, government intentionally controls the natural gas price in order to maintain competitiveness of some industries. Therefore, the average heating cost for glasshouses is very inexpensive in Netherlands.
- Skilled labor
Netherlands government budgets 800 million guilders per year for agriculture education. 51% of the budget is used on elementary level education in order to develop modern farmers who are capable of running farms in a modern way.
The official language in Netherlands is Dutch, but 80% of total population is able to speak English. As Netherlands has played an active role in international trade for hundreds of years, Netherlanders understand to advantage of using a more popular language to enhance their ability to do businesses. Therefore, English education is extensively available in Netherlands at all levels.
- Strategy, structure and rivalry
- Productivity oriented production
In flower industry, farmers grow flowers and plants by a lot of fertilizers, insecticides, and automatic facilities. Such a half natural and half artificial way to produce is reflected by Netherlands’ small size in lands and population.
As Netherlands is small in size of lands and population, Netherlanders keep seeking and developing all kinds of production ways that can increase productivity. As yet, the industrial way to produce natural crops is incredibly successful under monitoring of MPS project, which mandates growers to adopt a very productive but environmentally friendly way at the same time.
- Cooperation organization
Based on the fact that Netherlands cannot gain competitive advantage by her population, her people, especially the relatively few farmers, tend to cooperate with each other. The cooperatives are important for farmers to exchange information, make loans, and reconcile supply. For example, the auction houses in Netherlands are owned by numerous member growers. Those member growers are obliged to transport their products to auctions for sale. Therefore, the price setting process of flowers is extremely public and open, avoiding speculations.
- Globalization goals
Since the Great Discovery in 15th century, Netherlands have understood the benefits brought by international trade. As one of the very beginning members of EU, the International Court of Justice is also located in Hague. Speaking of which, Netherlanders has a great outlook of world and is highly engaged in international affairs. As a result, the way they operate a business is always trying to make a presence in world from their global viewpoint.
- One-product focus
Although the breeds of flowers under cultivation in Netherlands are numerous, most growers only grow a single one to gain scale of economies and lower down the learning curve in order to produce large quantity but high quality flowers.
However, through modern automatic production facilities, growers still has great flexibility to respond market trends. As long as the favor of consumers changes, they are able to change the product they are growing very soon.
- Family business
The majority of growers in Netherlands are operating their own family businesses, most of which have long-standing history. There are around 11,000 such kind family farms in Netherlands. Driven by the preceding generation, growers not only inherit the knowledge from them, but also keep it continuously improving.
The numerous growers operating private farms in Netherlands compete with not only local competitors but also foreign growers. In the recent years, some developing countries, such as Kenya, also ship some of their production to Dutch auctions for sale and making presence to international buyers. Although the quality of products is not as good as Dutch and the flexibility of responding market demand is not fast, the price of their products is very attractive. In UK, France, and German some supermarkets with strong purchasing power are unable to pass the auctions system to place their orders directly to growers, but now, they start to purchase from Kenya, which is a possible great threat in future.
- Culture and Business Practices
- General description of country culture
Located in Western Europe, Netherlands is a constitutional monarchy country which carries out a parliamentary democracy. There are 16.3 million inhabitants populating in this 16,000 square-mile plain. Unusually, one fourth of their land is below the sea level, and therefore such a hardship also develops their idea of overcoming nature. As a result, Netherlanders have finished many excellent hydraulic projects to improve their homeland and used natural power to enhance production, such as often seen windmills and waterwheels.
Netherlands is also a country where different cultures have lived together for centuries. 95% of her population is Dutch, the other 5% is Indonesians, Moroccans, etc. Netherlands is renowned not only for its accomplishments in the arts and sciences, such as Van Gogh and Philips, but also for its dairy farming and flower industry.
In short, though small in size, Netherlands is big in economic performance. According to the “Global Competitiveness Report 2001-2002” conducted by WEF (World Economic Forum), the current competitiveness of Netherlands is ranked as the third over the world.
- Business protocol and communications
Netherlands economic system is based on consensus, and problems are dealt at their roots to promote economic stability. The relationship between employees and employers is very stable as Netherlands has an old tradition of negotiation, which is often-seen in close and regular contacts between trade unions, employers’ organizations, and government. For example, due to strong euro and growing labor costs, competitiveness of Netherlands has been under strain in recent years. As a result, employers and employees have agreed to limit pay increases over the next few years in order to compete on world markets. Thus, strikes in Netherlands are very uncommon. In addition, Employers and employees also have regular bilateral contacts. Government tries to interfere as little as possible.
While Netherlanders have understood the benefits brought by international trades, around 80% of total Netherlanders can speak English. Foreign firms can easily communicate with local employees without language barriers. Besides, the existing telephone system of multi-conductor cables is gradually being replaced by fiber-optic cables. Also, the density of cell phone traffic is rapidly increasing which a GSM system is adopted.
- Cultural do’s and don’ts
- Do be on time. Punctuality is put first priority when the Dutch deals businesses with people.
- Do be honest. Honesty and straightforwardness is respected by the Dutch.
- Do give books, art objects, wine, and liquor as a gift. Don’t give a knife.
- Do keep hands out of pockets while talking to someone or shaking hands.
- Don’t criticize the Dutch Royal Family, but enquiring about them is okay.
- At the dinner table, don’t rest hands in your laps. Always keep both wrists resting above the table.
- Don’t show off how much income or how many possessions you make or have.
- When entering a small store, it is considered polite that you say “Good Day” to customers and employees present.
- Culture specific business practices
- Planning, regulating, and organizing are prevailing values in Netherlands because efficient use of time is highly emphasized. Punctuality is extremely important.
- Insisting on asap is perceived by the Dutch as an indication that you have not prepared properly. Their asap usually means: at your earliest convenience.
- Formality prevails in Dutch business culture. When strangers meet first time, you should shake hands with someone and say your last name instead of “hello”. As you leave, shake hands with everyone present again.
- All social events in Netherlands need to be carefully scheduled and planned. The Dutch do not appreciate last minute invitation. Outdoor activities are mostly arranged with good friends.
- If knowing in advance that child will attend the event, you’d better have something for them, such as candies or small toys.
- Negotiating style and tactics
- Generally, the Dutch do not spend much time socializing before a meeting or other business discussion. Often, as soon as the necessary introductions are made, they will proceed with the business at hand.
- When evaluating the pros and cons of a proposal or making a final decision, very few opinions should be given based on your subjective feelings, unless these are considered critical to consumers as well.
- Use empirical or objective data to support your idea or products. The Dutch is not interested in inflated and long presentation. A simple and direct one is appreciated.
- Since decisions are typically made by a group, it’s a smart to learn more about the company’s structure first and identify those who will be making the decisions. In addition, it is as important as enquiring about the status of this decision-making group, as there might be a quite influential participant who can even in major decisions.
- Compare on various dimensions to American culture
- In Netherlands, the decision-making process is longer and more involved than that in North America.
- Casual wear is basically the same as in the North American. However, shorts are acceptable only when jogging or hiking.
- Business dress in Netherlands is quite conservative, but it depends on the profession. For instance, in financial industry, most business men wear in dark suits, muted ties, and white shirts; women typically dress in dark suits and white blouses.
- In some industries, it may be surprised to find that the higher a person’s rank, the more informally he or she is permitted to dress. For example, sales clerks in suits and boss in jeans.
- Moving index finger around ears means you have a telephone call in Netherlands instead of “you’re crazy” in US. The crazy sign in Netherlands is to tap the center of your forehead with index finger. This gesture is considered extremely rude.
However, the flower industry in Netherlands is changing as silent as flowers are growing. Some significant trends are influencing this industry. First of all, the role of Netherlands in global cut flower industry is changing. Though Netherlands is the home of the world’s most efficient and most innovative producers, they are supported by a wide range of services in research and development, and extension services. Of those related industries, the highly efficient distribution system and auction houses are changing the role Netherlands plays in this industry. Because the value added by distribution industry and auction houses seems going higher and higher in this value chain, relatively speaking, growers are not as important as before. In short, in the foreseeable future Netherlands will still dominate flower market, but the vital role may be played by distribution industry and auction houses.
Secondly, the purchasing power from supermarket is influential. Supermarkets in Netherlands’ biggest flower export markets, German, France, and UK, have been trying to reduce their purchasing costs for a long time. Since growers in Netherlands are obliged to sell their production through auction houses, supermarkets with strong purchasing power still cannot negotiate prices with growers directly. Recently, this condition is changing, too. They’ve found new growers in Kenya, Colombia, Ecuador, etc, and make stable long-term contracts with them. Dutch market share in low price flowers is gradually eroded by those countries with low labor costs. Strategically speaking, they are grasping a niche market to accumulate their capital of future mechanical production.
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