Table of Appendix

1. Floriculture Industry Sri Lanka ............................................................................................................. iv 1.1. 1.2. Statics ........................................................................................................................................... iv SWOT Analysis- Sri Lanka ......................................................................................................... ix Strengths .............................................................................................................................. ix Weaknesses .......................................................................................................................... ix Opportunities ........................................................................................................................ x Threats ................................................................................................................................. xi

1.2.1 1.2.2. 1.2.3. 1.2.4. 1.3.

Porters 5 Forces- Sri Lanka ........................................................................................................ xi Bargaining power of customers High ................................................................................ xi Bargaining power of suppliers - Low .................................................................................... xi Threat of entry - High ........................................................................................................... xi Rivalry - Low ........................................................................................................................ xii Threat of substitutes - Low.................................................................................................. xii

1.3.1 1.3.2 1.3.3 1.3.4 1.3.5 1.4

Diamond Theory- Sri Lanka ....................................................................................................... xii Factor conditions ................................................................................................................. xii Demand conditions ............................................................................................................. xii Related and supporting industries ......................................................................................xiii Firm strategy, structure and rivalry ....................................................................................xiii Other events ........................................................................................................................xiii

1.4.1 1.4.2. 1.4.3. 1.4.4. 1.4.5. 1.5.

Challenges, Risks, Barriers in the Domestic Industry- Sri Lanka ...............................................xiv Lack of market information.................................................................................................xiv Cost of production ...............................................................................................................xiv Availability of skilled labor .................................................................................................. xv Lack of coordination between relevant stakeholders ......................................................... xv Lack of Varieties .................................................................................................................. xv Transportation of sand........................................................................................................xvi

1.5.1 1.5.2 1.5.3 1.5.4 1.5.5 1.5.6 1.6 2.

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

Country Analysis-Netherlands ........................................................................................................... xvii 2.1. History of Dutch economic competitiveness ............................................................................. xvii i

2.2. 2.3. 2.4.

Recent economic performance-Netherlands .............................................................................. xvii Economic composition-Netherlands ......................................................................................... xviii Key economic drivers-Netherlands ............................................................................................. xix Exports................................................................................................................................. xix FDI ....................................................................................................................................... xix Labor productivity ................................................................................................................xx Innovation ............................................................................................................................xx

2.4.1. 2.4.2. 2.4.3. 2.4.4. 2.5.

Macroeconomic Policy-Netherlands ............................................................................................xx Monetary policy ...................................................................................................................xx Fiscal Policy ......................................................................................................................... xxi

2.5.1. 2.5.2. 2.6.

Dutch floriculture cluster analysis .............................................................................................. xxi Cluster context .................................................................................................................... xxi Brief history ........................................................................................................................ xxii Performance of the Dutch floriculture cluster.................................................................... xxii

2.6.1. 2.6.2. 2.6.3. 2.7. 2.8. 2.9.

Trends in the Dutch floriculture cluster .................................................................................... xxiii Cluster structure and value chain-Netherlands ......................................................................... xxiv Porters 5 Forces-Netherlands ................................................................................................... xxvi Bargaining power of customers- High .............................................................................. xxvi Threat of new entrants- High ........................................................................................... xxvii Rivalry-High ..................................................................................................................... xxviii Threat of substitutes- Low .............................................................................................. xxviii Bargaining power of suppliers- Low................................................................................ xxviii Diamond theory-Netherlands ................................................................................................ xxix Demand conditions ........................................................................................................... xxix Factor conditions ............................................................................................................... xxix Related and supporting industries ..................................................................................... xxx Firm strategy, structure and rivalry ................................................................................... xxx Role of the government...................................................................................................... xxx

2.9.1. 2.9.2. 2.9.3. 2.9.4. 2.9.5. 2.10. 2.10.1. 2.10.2 2.10.3 2.10.4 2.10.5 2.11

PESTEL-Netherlands ................................................................................................................ xxxi Social factors ..................................................................................................................... xxxi Technological factors ........................................................................................................ xxxi Economic factors ............................................................................................................... xxxi ii

2.11.1. 2.11.2. 2.11.3.

2.11.4. 2.11.5.

Environmental factors ...................................................................................................... xxxii Political and legal factors ................................................................................................. xxxii

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1. Floriculture Industry Sri Lanka

1.1. Statics

Chrysanthemums
45000 40000 35000 30000 Quantity (Kg) 25000 20000 15000 10000 5000 0 chrysanthemums

2004 0

2005 0

2006 0

2007 0

2008 9422

2009 10102

2010 26239

2011 40230

2012 15529

2013 7426

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.

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Carnations
80000 70000 60000 Quantity (Kg) 50000 40000 30000 20000 10000 0 carnations 2004 74084 2005 45583 2006 69392 2007 29376 2008 68621 2009 22555 2010 10049 2011 5337 2012 203 2013 82

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 we could understand that each years 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.

Roses
25000

20000

Quantity (Kg)

15000

10000

5000

0 fresh roses

2004 14186

2005 13714

2006 12187

2007 4652

2008 10774

2009 5421

2010 5341

2011 8337

2012 21271

2013 321

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.

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Foliage,branches & other parts of plants-fresh

1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Foliage,branches & other parts of plants-fresh

Foliage,branches & other parts of plants-other

500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 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
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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.

Anthuriums
14000 12000 10000 8000 6000 4000 2000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 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.

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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.

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.

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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. 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.

1.3. Porters 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 buyers purchases are a high proportion of the suppliers 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 exporters 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

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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 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.
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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. 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.

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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 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.

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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. 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.

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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.

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.

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2.
2.1.

Country Analysis-Netherlands
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 worlds 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 1st 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.

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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.

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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 worlds tenth largest recipient of foreign direct investments (www.hollandtrade.com).
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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 worlds 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).

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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 countrys important logistical hubs, development of high quality and high tech production methods, proximity to Europes 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).

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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 16th 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 worlds 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 todays 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 worlds 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 days 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

TECHINICAL SUPPLIERS

LOGISTICS

GROWER AUCTION

WHOLESALE TRADE

EXPORTER

RETAILER

CONSUMER

IMPORTER

UNIVERSITIES

GOVERNMENT INSTITUIONS

BUSINESS SERVICES

(Source: Anandatissa, 2014)

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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 todays 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.

Porters 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 todays 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 days 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 todays 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 mothers day and Valentines 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 todays 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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