Netherlands and Floriculture In 2009, Netherlands was the 22 nd largest economy in this world with the ninth highest GDP per capita which is much above the EU average The logistic network in Netherlands is very extensive and the govt. invests heavily towards it Floriculture contributes to 35% of their agriculture exports and formed a $ 16.7 billion sales revenue. This industry focussed on delivering variety, colour, quality, texture and longevity for the flowers they grow Special process were involved in the harvesting, grading, packing and transportation of these flowers The temperature control was an integral part of the postharvest supply chain Transportation overseas ranged from 60-90% of the total cost to produce the flower Germany, UK, USA and France formed the major importers of flowers Evolution of Dutch Flower Cluster 1900-1920: The first flower trade organization, the Dutch Horticulture Council was established 1923-1960: Bulb inspection service (BKD) was gradually established to inspect the flowers 1960: Large number of auction houses opened up 1970: Mergers of auction houses 2009: Only two auction houses left - Plantation and Flora Holland Porters Diamond of National Advantage (1) Factor Conditions Geographic location & climate Loamy soil, temperate climate, huge natural gas reservoir, waterways to big cities High labour productivity of $53 per employee per hour with low unemployment percentage (3.7%) Extensive logistics network with heavy investment on transport systems (6% of GDP) No significant trade or investment barriers Demand Conditions Netherlands had strong impulse purchases of cut flower 50% flowers are bought from florist Prices are determined by rarity, quality and season Third highest per capita consumption of cut flowers in the world ( Porter says that nation will build competitive advantage if it has high demand in the domestic market) Porters Diamond of National Advantage (2) Related and Supporting Industries Netherlands was the world leader in the development and supply of floriculture propagation material It is home to world class plant breeding organisation that helped in continued marketing of new varieties Twenty Dutch companies were specialised builders of greenhouse with total revenue of 350 million Development of capital intensive harvesting technologies in The Netherlands Place to auction the cut flowers selling 44.8 million flowers daily Firm Strategy, Structure and Rivalry Strict regulation of environmental impact Competitive auction process with four major auction houses sharing the complete pie of auction, which later consolidated into two- Plantion & FloraHolland Sustaining International Leadership Flower Cluster Value Chain:- 3770 growers (2007) competing on variety, product quality, price
Use of Greenhouses to counter marked seasonality
Increasing focus on value addition-marketing, sales.
Members of Dutch Floral Council
LTO run programs for skill development, MPS certifications
Government pressure to reduce environmental impact World Leader in development & supply of floriculture propagation material, new breed seeds
Support infrastructure CPVO, Rabobank, AgroEnergy
20 specialized greenhouse builders with 80% of world market share
Govt. aid, innovations in energy efficiency conserve surplus heat, use of biofuels
Energy costs ~ 30% of final cost Plantion & FloraHolland traded 20,000 varieties- 44.8 mn flowers sold
Roses, Chrysanthemums, Tulips & Lilacs - popular
80% of Dutch trade & 60% of international trade
Use of Automated processes random quality checks for QA
Concept of the auction Clock that ensured higher sales price
Sales tracking with ICT & EDI, Flower Access Largest share of mark up- 50% of final price
Florists, Retailers, Supermarkets
Export companies- logistics
Alternate means of transport- refrigerated trucks; trains & ships, air transport
Strict inspection & Regulation standards
2009- unwillingness to carry inventory, Demand for JIT, fall in order sizes
SUPPLIERS GROWERS AUCTIONS RETAILERS Effect of Innovations on Porters Diamond Firm Structure & Strategy Demand Conditions Related & Supporting Industries Factor Conditions As a global supplier Logistics Network Skills & Technology Reason for Internationalization: Netherlands Competitiveness Ranking In Favour: Indicator Ranking Logistical Infrastructure 8 Communication Infrastructure 3 Quality of Scientific Research 9 Indicator Ranking Pay and Productivity 82 Strength of Investor Protection 86 Flexibility of Employment 84 Against: The points against Netherlands made it to internationalize the production Profit Analysis Netherlands Kenya Ecuador Colombia Revenue 25.6 29.9 36.3 33.7 Cost 24.1 23.8 28.9 31.3 Profit 1.5 6.1 7.4 2.4 Carnations: Roses: Netherlands Kenya Ecuador Colombia Revenue 134.9 127.5 168.6 188.6 Cost 127.8 104 156.2 168.3 Profit 7.1 23.5 12.4 20.3 0 5 10 15 20 25 30 35 Netherlands Kenya Colombia Ecuador Seed Transport Labour Energy 0 20 40 60 80 100 120 140 160 180 Netherlands Kenya Colombia Ecuador Seed Transport Labour Energy South America Colombia: Dutch companies have local subsidiary Provide irrigation, cutting equipment, seeds, etc Heavily involved in logistics FloraHolland had created a company FH Services Colombia Ltd.
Ecuador: Four of the largest farms are dutch owned Dutch subsidiary provide small plants, seeds, etc FloraHolland opened an office in Quito Provide information, trade facilitation and logistics support Africa & Asia Kenya: Flow of FDIs from Dutch investors 70% of cut flower production owned by Dutch growers Dutch company Van Putten established cooling facilities Local office of FloraHolland provide exporting, logistics and other support China: Dutch company Van den Berg Roses developed infrastructure Also provided fertilization, energy, heating, and software skills Dutch companies in joint ventures with Chinese companies FloraHolland have 5% share in flower auction process in China China: Opportunity or Threat Opportunity Favorable climatic conditions Largest cultivated area for cut flowers Good presence of Dutch companies providing technological support Dependency on Netherlands for plant stock Japan is a major export destination Threats No proper mechanisms for quality control High levels of piracy of plant varieties With dependency on Netherlands and large presence of Dutch Companies, China is an opportunity for Netherlands FloraHollands Dilemma Focus on high value services Vs local production
Continue production of Tulip and Anthurium to maintain its dominance (Constitute 100% of worldwide export volume)
According to theory of relative advantage, Netherlands can reduce production of roses while maintaining tulip dominance
Can reduce production of Carnation as Colombia has ideal growing conditions producing
Exploit the extra-ordinary network of logistics it has developed in other countries, as knowledge & collective learning are the clusters key advantages