International Marketing

Plan
For the Export of
"Shirohana Flowers" to Germany
Planning Year: 2011

A Group Assignment

by
Name MC CPM
P.J.B.R. Nirmali 55595 4442
U.G.A. Gunawardene 55414 4262
M.S.M. Perera 55645 4492
K.K.P.S.K Kohombakanda 57580 5454
M.L.C.A. Vincent 55829 4675

Lecturer: Mr. G.D. Samarasinghe

The Department of Marketing Management

 The University of Sri Jayewardenepura

Sri Lanka.

Table of Contents
Executive Summary ............................................................................................................ 3
1
1. Introduction ..................................................................................................................... 5
1.1 Introduction to the Company..................................................................................... 5
1.2 Global Cut Flower Industry..................................................................................... 13
1.3 Floriculture industry in Sri Lanka ........................................................................... 17
2. Country Introduction .................................................................................................... 19
2.1 Geographical Setting ............................................................................................... 20
2.2 Relevant History...................................................................................................... 22
2.3 Social Institutions .................................................................................................... 26
2.4 Cultural Aspects ...................................................................................................... 29
2.5 Living conditions..................................................................................................... 37
2.6 Languages and Religions ........................................................................................ 38
2.7 General facts ............................................................................................................ 39
3. Economic Analysis ....................................................................................................... 40
3.1 Population................................................................................................................ 40
3.2 Economic Statistics & Activity ............................................................................... 41
3.3 Development in Science & Technology.................................................................. 48
3.4 Channels of Distribution ......................................................................................... 51
3.5 Media....................................................................................................................... 55
4. Market Audit and Competitive Market Analysis .......................................................... 62
4.1 The Product ............................................................................................................. 62
4.1.1 Evaluation of the product's USP ....................................................................... 62
4.1.2 Major problems of product acceptance ............................................................ 66
4.2 The Market .............................................................................................................. 67
4.2.1 Market size & evolution ................................................................................... 67
 4.2.2 Consumer buying habits ................................................................................... 68
4.2.3 Existent competitors’ products ......................................................................... 72
4.2.4 Marketing mix typically used ........................................................................... 77
4.3 Government Intervention in the Market place ........................................................ 86
5. Preliminary Marketing Plan .......................................................................................... 90
5.1 Marketing Plan ........................................................................................................ 90 2

5.1.1 Marketing Objectives ....................................................................................... 90

5.1.2 Product Adaptations / Modifications ................................................................ 92
5.1.3 Promotion Mix .................................................................................................. 95
5.1.4 International Distribution ................................................................................. 99
5.1.5 Local Channel of Distribution ........................................................................ 101
5.1.6 Price Determination ........................................................................................ 103
5.1.7 Terms of Sale .................................................................................................. 103
5.1.8 Method of Payment ........................................................................................ 105
5.2 Pro-Forma Financial Statements & Budget .......................................................... 105
5.2.1 Marketing Budget ........................................................................................... 105
5.2.2 Pro Forma Annual Profit & Loss Statement ................................................... 106
5.3 Resource Requirements ......................................................................................... 107
5.3.1 Financial Resources ........................................................................................ 107
5.3.2 Human Resources ........................................................................................... 108
5.3.3 Production Capacity ....................................................................................... 108
5.4 Implementation and Control ................................................................................. 109
6.0 Sources of information .............................................................................................. 109
Executive Summary
3
Shirohana is the leader in the cut flower industry in Sri Lanka. The management team at
Shirohana is contemplating moving into lucrative export markets. An analysis was carried
out to identify potential export destinations, of which Germany was chosen as the proposed
export destination out of a list of 20 potential countries.

A thorough analysis was carried out on the political and economic situation prevailing in
Germany. It was identified that the German economy was recovering from the global
economic and financial turmoil in 2009.

A review of the cut flower market in Germany revealed that there was a significant trend
in giving flowers as gifts for males. Despite this majority of the cut flower purchases are
made by females (74%). Mono-bunches account for nearly 50% of the entire cut flower
market, with Rosa accounting for 50% of all mono-bunches. It was also found that elderly
people generally spend relatively more money on flowers than young people. The most
important attributes governing the purchase of cut flowers in order of importance were
flower/bloom quality, colour, price, design/arrangement, longevity, availability and
fragrance. Florists are the most important retail channels in Germany, holding a market
share of more than 50%.

Shirohana flowers initially hopes to grab a 0.5% share of German cut flowers imports of
Carnations (Dianthus) and Orchids. A contract is to be entered with Omniflora, an
importing wholesaler in Germany, for the sale of cut flowers. In addition, a business
partnership is expected to be developed with Real, a hypermarket and several florists via
Omniflora. The domestic distribution would be handled by E.B. Creasy (freight forwarder)
and the international distribution by the logistics arm of Omniflora, Jet Flowers. The FOB
price was determined to € 0.16 and € 0.09 for orchids and carnations respectively.

A range of advertising and promotional activities are planned and the marketing budget for
the first year of operation comes to around € 6,300. The operation is expected to yield the
following results during its first year of operation:
4
Sales revenue: € 146,016

Gross profit: € 43,805

Net profit: € 1,591

The net profit in domestic currency is expected to be Rs. 250,000 and the net profit margin
is 1.1%.

The current spare production capacity at Shirohana is 500,000 stems which is 819,375
stems below the total export requirement for 2011. Hence, it is necessary to invest in a new
greenhouse to cater for both domestic and international expansion.

It was also determined that the initial financial requirement amounts to Rs. 2,500,000 on
account of the need to construct a new greenhouse (Rs. 1,500,000), and the material cost
to be incurred for the production of the first batch of cut flower exports (Rs. 1,000,000).

The additional human resource cost amounts to Rs. Rs. 5,160,000, which also includes the
recruitment of an International Operations Manager who would overlook the entire
operation and would be responsible for the implementation of the plan.
1. Introduction

1.1 Introduction to the Company 5

The Shirohana website unfolds the story of

Shirohana as follows. Shirohana was
established in Sri Lanka in 1986 in an era when
good quality greenhouse grown flowers and
stylish flower shops were not in existence. Over
the next few years, the Shirohana concept of
sensational flower shops situated at exclusive
locations in Colombo, using antique and
reclaimed objects together with stylish flower
arrangements, began to set new trends and
changed opinions about flowers in Sri Lanka.
The Shirohana concept had begun and
instantaneously, presenting flowers as gifts
became immensely popular and accepted.

The first Shirohana shop was opened over 20 years ago in Galle Face, the heart of Colombo.
Today, its flower shops are located in the most exclusive locations in the City, including
Colombo 02, 03, 04, 07, 08 and Negombo, Kandy, and very soon in the historic Fort of
Galle.

The market for flowers has grown at a tremendous pace and Shirohana has helped to
develop this trend by making beautiful bouquets of flowers easily available, thus
developing an awakening interest in flowers amongst a generation of retail customers.
Constantly challenging boundaries and concepts, Shirohana remains the Leader in the Sri
Lanka flower scene. Their highly acclaimed chain of flower shops recognizes the power of
flowers to awake a range of emotions. The designs inspire without been fussy, reflecting
the natural world while oozing sophistication.

Flower production
6
Shirohana is the pioneer in cut flower production in Sri Lanka with over 35 years
experience in the growing of cut flowers. It has its own farm located in Nuwara Eliya which
employs over 350 skilled workers and is Sri Lankan family owned and operated.

The cut flower project is located at an elevation of over 2000m where cool, stable
temperature, organically rich soils and 12 hour day lengths supplemented with artificial
lighting ensures all year round growth. All flowers are grown in Greenhouses, giving them
a long vase life and a superb quality that is appreciated by both wholesale and retail
customers.
Principal Locations

SHIROHANA ATELIER

No. 21/3, Alfred House Gardens, Colombo

03, Sri Lanka
7
SHIROHANA FLOWER ROAD

No. 47, Flower Road, Colombo 07, Sri

Lanka

SHIROHANA PETAL GURU

No. 61, Dudley Senanayake Mawatha, Colombo 08, Sri Lanka

SHIROHANA GALLE FACE

No. 32B, Sir Mohamed Marcan Markar Mawatha, Colombo 03, Sri Lanka

SHIROHANA KANDY

Kandy City Centre, LI - 12, Daladha Veediya, Kandy, Sri Lanka

SHIROHANA NEGOMBO

No. 206 B, Colombo Road, Negombo, Sri Lanka

Proposed new showrooms locations include;

SHIROHANA PALAWATTE

474, Palawatte, Battaramulla, Sri Lanka

SHIROHANA ROMANTICO

32/01 B, Dickmons Road, Colombo - 04, Sri Lanka

SHIROHANA FORT GALLE

No.9, Church Cross Street, Fort Galle, Sri Lanka

Product and Service Offerings

8
Shirohana is a full service wedding and party design establishment focused on designing
and availing the freshest flowers for any event. Whatever the occasion, whether it be a new
product or business launch, fashion show, academic or corporate event, birthdays,
graduation, anniversary, holiday celebration or private parties, Shirohana offers its expert
floral services.

The Shirohana client base is made up of discerning brides, elite socialites, and prominent
businesses all over the country and overseas.

As part of its wedding services Shirohana offers;

 Wedding flowers – include bouquets, corsages,

boutonnieres, and ceremony décor
 Bridal flowers – bride’s bouquet, going away, maids
bouquet, groom and bestmen and flower girls
 Reception – adorning the reception tables
 Car décor
 Church décor
 Floral designing and planning services
Shirohana offers flowers for a variety of other occasions under the following themes.

 Anniversary
 Birthday
 Get well
 Love you
9
 I’m sorry
 New baby
 Party
 Thank you
 Garlands
 Sympathy

Varieties

The flower varieties offered by Shirohana include the following;

Standard Carnations Spray Carnations

 10

Alstomeria Chrysanthemum (standard)

Chrysanthemum (spray) Lilies

Gerberas Gypsophila
 11

Iris Tulips

Heliconias Roses

Orchids Lotus
 12

Jasmine

Competitive advantage of Shirohana in Sri Lanka

The competitive advantage of Shirohana in Sri Lanka is as follows.

 Direct dealing with the end consumer – fresher flowers that are reasonably priced
 Follow international trends and constantly upgrade their flower designs
 Cater to all budgets, from a single stem to a large and dazzling arrangement
 Possession of one of the leading floricultural farms in South East Asia
 Broad product range – from bouquets to interior décor
 Personalization – arrangements can follow emotions and be as variable as moods or
fashions. Each bouquet is delivered with personalized cards with the customer’s own
individual messages.

Decision to go global

Shirohana is the market leader in the Sri Lankan flower industry, and as part of its
expansion strategy the management has decided to tap potential export markets.

Where to go?
 An initial screening was done on 20 identified potential export destinations: Germany,
UK, France, Netherlands, Italy, Belgium, Denmark, Spain, Ireland, Finland, Austria,
Sweden, Greece, US, Japan, Switzerland, Canada, Norway, Poland and Czech
Republic. Countries were screened based on cost of air freight to destination and share
of world imports. Three key potential markets were identified for entry: Germany, UK
and Netherlands. 13

 A detailed analysis of the selected 03 economies based on political stability, economic

situation, market situation and potential revealed Germany to be the best export
destination.

1.2 Global Cut Flower Industry

Wernett (1998) explain the evolution of the global cut flower industry. Forty years ago,
demand for cut flowers by consumers around the world was satisfied by local cut flower
production. In Europe, per capita consumption was significant, and consumer culture
required a large supply of cut flowers for gifts, occasions, and everyday use. As a result,
cut flower production in Europe was sizeable. Gradually as transportation systems
developed throughout this region, it became possible to distribute cut flowers grown in
southern areas of Europe to northern areas of Europe. Consequently, the European flower
industry began to extend its boundaries for cut flower production and along with this
expansion grew the influence of the European flower industry. This background history
could be considered the beginning of commercial floriculture as we know it today.

When the world energy crisis occurred in 1973, the marketing plan for distributing cut
flowers grown in different European countries to Holland for sale through the Dutch flower
auction and back to markets throughout Europe became a significant production
opportunity for southern European cut flower growers. Increasingly larger quantities of cut
flowers were grown in southern Europe to meet the demand for cut flower sales through
Holland. Flower growers in the southern regions had a price advantage over growers
located in northern regions because cut flower production was more expensive for northern
growers during the winter season due to increased energy costs required to obtain quality
flowers in controlled temperature greenhouses.

Then, competition for southern European cut flower growers intensified when Israeli cut
flower growers, who were located further south entered the market with product to be sold
14
through the Dutch flower auction. Israeli growers had the production advantage of being
further south where they could produce cut flowers in open fields or plastic tunnels year
round, eliminating most of the overhead expenses for greenhouses and heating systems.
But in order to develop a potentially lucrative export cut flower industry for themselves,
the Israelis needed to address limiting factors to their success. The two main limiting
factors were transportation costs to Europe and a water shortage if production were to
expand.

Solutions to these limiting factors were found for Israeli growers. In the case of
transportation costs which offset growers cost advantage in terms of energy compared to
growers in southern Europe, the government provided transportation subsidies which have
reduced the costs to the growers to ship their cut flower product to Europe, thereby
maintaining a competitive cost advantage over European growers. As for the water
shortage, research on irrigation systems that would conserve water usage was applied to
production systems for cut flowers.

Through the 1970’s, the activities of the European flower industry had begun to influence
cut flower production and sales beyond the borders of Europe. Cut flower sales through
the Dutch flower auctions had gained a share of the United States market. This was
achieved by promotion activities in the USA supported by the Holland Flower Council
which encouraged Americans to purchase more cut flowers for gifts, occasions and
everyday use, similar to consumer habits in Europe. Most of the flowers sold to the USA
through the Dutch flower auctions are shipped to the USA by air through New York.
Simultaneously, Miami, USA, was being developed as a key import distribution base for
cut flowers being grown in Columbia, South America and shipped north. This caused
considerable competition for local cut flower growers in the USA. Manufacturers and
suppliers from the European flower industry were quick to find opportunity in this
situation. Not only were South American cut flower growers purchasing varieties from
Europe but flower growers from the USA were persuaded to invest in production systems 15

and equipment from Europe in hopes of becoming more efficient producers like the Dutch
growers who had once faced competition from southern European growers. As a result, the
United States flower industry owes a significant share of its growth in terms of promotion
and sales and improved production systems to the influence of the European flower
industry.

It is worthwhile to mention that the Israeli flower industry has become a formidable
competitor of the European flower industry. Israeli cut flower producers ship significant
quantities of product into the USA market via both New York and Miami. This
compensates Israeli producers for the reduction in cut flower sales to the European market
which is increasingly being supplied by flower growers from regions in Africa, especially
Kenya. Also, Israelis have been successful in selling their production equipment and
varieties to flower growers in other countries.

Continuing to advance in the 1980’s, the European flower industry began seeking further
opportunity and expansion in Asia by 1985. Japan’s bubble economy was starting to inflate
and discretionary income spending by the Japanese was rising. European flower imports
made headway into the lucrative market in Japan. Within a few years, as economies in
Korea, Taiwan, and Hong Kong strengthened, the European flower industry moved into
these markets with their cut flower exports as well.

Since the early 1990’s, the European flower industry, as a worldwide leader in commercial
floriculture, has been impacting the rest of Asia with cut flower imports from Holland and
sales of flower varieties, production equipment, and technology for new production
operations in Asia. Israeli cut flower producers, manufacturers, and suppliers have
followed but, one step behind. The main difference between the European flower industry
and the Israeli flower industry is that the European flower industry enters their new markets
by launching aggressive marketing campaigns which call attention to the quality and image
of Dutch flowers. These campaigns stimulate demand by new consumers for their cut
flower products. So far, the Israelis have not particularly created an image for end
consumers of Israeli flowers. This difference is one of the factors which contribute to the 16

European flower industry being the worldwide leader in commercial floriculture.

Initially, commercial floriculture production in Southeast Asia was developed because of

increasing need for low cost flowers by the European cut flower market place. European
flower traders identified commercial floriculture production in Southeast Asian countries
as a source of supply. Ironically, Dutch auctions often served to re-distribute this product
to the Japanese market. By the mid to late 1980’s, Dutch importers/exporters had begun
selling floriculture product in Japan. With economies expanding, the “little tigers”, i.e.
Taiwan, Korea and Hong Kong were the next Asian targets with market needs for
floriculture products from Europe and potentially from other Asian countries which could
produce floriculture products less expensively.

The development of the commercial cut flower industry in Asia has been unlike that of
Israel, African countries, south and Central American countries. In the latter regions, cut
flowers have been a product produced mainly for export with no thought of a potential
domestic market. On the other hand, in Asia, whereas cut flowers were initially produced
for export, the market potential has rapidly changed to include opportunities for supplying
the local market as well. This unique development is on account of the rapid strengthening
of economies in the region, high population densities, and the consumer perception which
has been promoted heavily by the European flower industry that the use of fresh flowers in
one’s everyday life represents an improved, quality lifestyle.
1.3 Floriculture industry in Sri Lanka

The Sri Lanka Export Development Board provides the following information regarding
the floriculture industry in Sri Lanka. The export-oriented floriculture Industry was
established during year 1980/81 period. Since then it has shown a remarkable growth.
Today the industry is comprised of about 40 major export companies, including a few 17
foreign investors. Floriculture sector employees over 5,000 people and more than 10,000
families in the semi urban and rural areas are indirectly involved in exports as out growers
to the existing companies. This is one of the few agriculture based industries that
employees people throughout the year at the rate of 5-7 workers per acre. The net foreign
exchange earning capacity of the sector is around 85%-90%. In year 2008 Sri Lanka has
earned Rs 1,562 Mn (US $ 14.52) worth of foreign exchange by exporting floriculture
products and in year 2010 there was a drop in exports to US$ 11.5 due to the global
recession. The exports have slightly recovered during year 2010.

Strengths

 Climatic variations and diverse topography enabling to cultivate a range of products

from tropical to temperate
 Availability of cultivation technology to finish products according to international
standards
 Skilled labor
 Availability of coco peat as a growing media
 Reputation built up as a supplier of quality products
 Encouragement received from the Government
 Application of Good Agricultural Practices to protect the environment, safeguard
workers and sustainable use of natural resources.

Opportunities
 Expanding new markets
 Opportunities to export value added products
 New developments in sea transportation

Product Assortment 18

 Ornamental Foliage Plants

 Cut decorative leaves
 Cut Flowers
 Aquarium plants
 Landscaping plants
 Tissue cultured plants

Major Production Regions

 Western province-Gampaha, Kaluthara and Colombo Districts

 North Western Province- Kurunegala, Puttalam Districts
 Central Province – Kandy, Kegalle, Matale, N’ Eliya, Bandarawela

Possible Areas for Expansion

 Southern Province
 Sabaragamuwa Province

Share in the world market

 Sri Lankan Exports 2010 – US$ Mn. 11.7

 Growth in Sri Lankan exports (2006-2010) – 3 %
 Sri Lankan Share in the World Market (2010) – 0.1%
 World Ranking (2010) – 52

Sri Lanka Floriculture Exports

Product 2006 2007 2008 2009 2010

19
Live Plants 4,989,546 4,873,013 6,798,738 5,894,094 5,923,955
Cut Flowers 5,597,486 6,323,128 6,568,802 5,117,526 4,701,978
Fresh
661,931 832,232 816,442 435,240 1,116,914
Decorative Leaves
Total 11,248,963 12,028,373 14,183,982 11,446,860 11,742,847
Source: Sri Lanka Export Development Board

The export market

Europe is the major market for Sri Lankan floricultural products and accounted for 62%
(Rs. 820 Mn) of our total floriculture exports in year 2009. The Netherlands is the leading
importer in Europe and continues to be the number one market for Sri Lankan floriculture
products absorbing 36% of our total exports (Rs. 477 Mn) in year 2009. Japan, South Korea
and the Middle East are the other major import markets.

Major Competitors

 Central America – Costa Rica, Guatemala

 Africa – Kenya, Israel, Ethiopia
 Asia – India, Malaysia, Thailand, China

2. Country Introduction

Germany is the largest economy in the in the European Union (EU), and is the world's
fourth largest economy by nominal GDP and the fifth largest by purchasing power parity
(World Bank, 2011). It is also the third largest exporter and importer of goods and services
in the world. As per the Centre for the Promotion of Imports (2008) Germany is the largest
market for cut flowers and foliage in the EU.

2.1 Geographical Setting 20

Germany is in Western and

Central Europe, bordering
Denmark in the north, Poland
and the Czech Republic in the
east, Austria and Switzerland in
the south, France and
Luxembourg in the south-west,
and Belgium and the
Netherlands in the north-west. It
lies mostly between latitudes
47° and 55° N (the tip of Sylt is
just north of 55°), and
longitudes 5° and 16° E. The
territory covers 357,021 km2
(137,847 sq mi), consisting of
349,223 km2 (134,836 sq mi) of
land and 7,798 km2 (3,011 sq
mi) of water. It is the seventh largest country by area in Europe and the 62 nd largest in the
world. (Source: CIA Factbook)

Elevation ranges from the mountains of the Alps in the south to the shores of the North Sea
in the north-west and the Baltic Sea in the north-east. Major rivers such as the Rhine,
Danube and Elbe cut across the German landscape.
Natural resources

21

Source: CIA Factbook

Climate

Most of Germany has a temperate seasonal climate in which humid westerly winds
predominate. Rainfall occurs year-round, especially in the summer. Winters are mild and
summers tend to be cool, though temperatures can exceed 30 °C. The east has a more
continental climate; winters can be very cold and summers very warm with frequent long
dry periods. Central and Southern Germany are transition regions which vary from
moderately oceanic to continental. (Source: German Culture)
2.2 Relevant History

The website “Facts About Germany” provides the following historic milestones of
Germany.

800: Charlemagne
22
The ruler of the Frankish Empire is crowned Roman emperor by Pope Leo III. Later the
Carolingian, who dies 814 in Aachen, is declared the “Father of Europe”.

962: Otto I or Otto the Great

His crowning as emperor marks the start of the “Holy Roman Empire”.

1024–1125/1138–1268: Salier and Staufer

The dynasties of the Salier (builders of Speyer Cathedral, photo) and Staufer families shape
the destiny of Europe.

1179: Hildegard von Bingen

The abbess and healer, one of the most influential women in medieval Germany, dies aged
81 in Bingen on Rhine.

1452–1454: Invention of printing

Johannes Gutenberg (c. 1400–1468), inventor of printing with movable type, produces the
first printed Bible in Mainz – roughly 180 copies.

1493: Rise of the House of Habsburg

The regency of Maximilian I marks the rise of the House of Habsburg. For centuries it was
one of the dominant aristocratic dynasties in Central Europe, supplied the majority of
emperors and kings of the Holy Roman Empire of the German Nation, and from 1504–
1700 the kings of Spain

1517: Religious schism

The Age of the Reformation begins when Martin Luther (1483–1546) publicly declares his
95 Theses against the system of indulgences in the Catholic Church in Wittenberg. 23

1618–1648: Thirty Years’ War

Both a religious war and political conflict, the Thirty Years’ War ends with the Peace of
Westphalia: The Catholic, Lutheran and Reformist faiths are recognized as equal.

1740–1786: Frederick the Great

During the reign of Frederick II, literary scholar and general, Prussia emerges as a
European superpower. His rule is seen as exemplary for the age of “enlightened
absolutism”.

1803: Secularization

The secularization of ecclesiastical rule and the dissolution of Imperial free cities by the
Final Recess herald the end of the “Holy Roman Empire of the German Nation”.

1848/49: March Revolution

The “German Revolution” begins in the Grand Duchy of Baden. Before long it spreads to
the other states of the German Federation and leads to the first German National Assembly,
which convened in the Paulskirche, Frankfurt/Main.

1871: Foundation of the Reich

On January 18 during the Franco-Prussian War Wilhelm I is proclaimed German Emperor

in Versailles. The (second) German Reich is a constitutional monarchy. Shortly before the
foundation of the empire the nation experienced an economic upswing known as the
“Gründerjahre”.

1914–1918: World War I

Emperor Wilhelm II isolates Germany from its neighbors and leads the country into the
catastrophe of the First World War, which costs the lives of almost 15 Mn people. In June 24
1919 the Treaty of Versailles is signed, ending the war.

1918/19: Weimar Republic

On November 9, 1918 Social Democrat Philipp Scheidemann proclaims the Republic;

Emperor Wilhelm II abdicates. On January 19, 1919 elections are held for the National
Assembly.

1933: National Socialism

The NSDAP gains the most votes in the Reichstag elections in 1932; on January 30 1933
Adolf Hitler becomes Chancellor of the Reich. The National Socialist dictatorship begins
with the “Enabling Act”.

1939: Start of the Second World War

Through his invasion of Poland on September 1, 1939 Hitler unleashes the Second World
War, which cost 60 Mn people their lives and devastated large parts of Europe and East
Asia. The Nazi extermination policy results in the murder of six Mn Jews.

1945: The Second World War ends

The capitulation of the German Wehrmacht between May 7th and 9th, 1945 ends the Second
World War in Europe. The four Allies divide the country into four occupation zones and
Berlin into four sectors.

1948: Blockade of Berlin

The introduction of the deutschmark in the Western occupation zones prompts the Soviet 25
Union on June 14, 1948 to cut off access to West-Berlin. The Allies respond with an airlift
dropping supplies to the population in West Berlin until September 1949.

1949: Birth of the Federal Republic of Germany

On May 23, 1949 the Basic Law of the Federal Republic of Germany is proclaimed in
Bonn. The first parliamentary elections are held on August 14. Konrad Adenauer (CDU)
is elected Chancellor. On October 7, 1949 the division between East and West is completed
when the Constitution of the German Democratic Republic comes into force.

1957: Treaties of Rome

The Federal Republic of Germany is one of the six nations to sign the founding treaties of
the European Economic Community.

1961: Building of the Berlin Wall

East Germany cuts itself off on August 13, 1961 by erecting a wall through the middle of
Berlin and the “Death Strip” along the border between the two Germanies.

1963: Elysée Treaty

The Treaty of Friendship between France and Germany is signed by West German
Chancellor Konrad Adenauer and the French President Charles de Gaulle.

1970: Brandt kneels in Warsaw

The gesture by West German Chancellor Willy Brandt (SPD) before the memorial for the
victims of the uprising in the Jewish ghetto in Warsaw became a symbol of the German
plea for reconciliation.

1989: The Fall of the Wall

The peaceful revolution in East Germany leads in November 9 to the Berlin Wall coming 26
down and with it the border between East and West Germany.

1990: German reunification

On October 3, East Germany formally ceases to exist. Germany’s political unity is restored.
The first general elections of the united Germany are held on December 2, 1990. Helmut
Kohl (CDU) becomes the unified nation’s first Chancellor.

2004/2007: EU Expansion

Following the disintegration of the Soviet Union and the fall of Communism, in 2004 eight
Central and East European nations plus Cyprus and Malta joined the EU, followed in 2007
by Bulgaria and Romania.

2005: First Female Chancellor

Angela Merkel became the first female Chancellor of Germany as the leader of a grand
coalition.

2.3 Social Institutions

The CIA Factbook on Germany provides the following information regarding the social
institutions in Germany.

Government
Government type: Federal republic

Constitution

23 May 1949, known as Basic Law; became constitution of the united Germany 3 October
1990
27
Legal system

Civil law system and accepts compulsory ICJ (International Court of Justice) jurisdiction
with reservations; accepts ICCt (International Criminal Court) jurisdiction.

Executive branch

Chief of state: President Christian Wulff (since 30 June 2010)

Head of government: Chancellor Angela Merkel (since 22 November 2005)

Cabinet: Cabinet or Bundesminister (Federal Ministers) appointed by the president on the

recommendation of the chancellor

Legislative branch

Bicameral legislature comprise of 02 groups.

 Federal Council or Bundesrat – 69 votes; state governments sit in the Council; each has
three to six votes in proportion to population and is required to vote as a block.

 Federal Diet or Bundestag – 622 seats; members elected by popular vote for a four-
year term under a system of personalized proportional representation.

Judicial branch

 Federal Constitutional Court or Bundesverfassungsgericht (half the judges are elected

by the Bundestag and half by the Bundesrat)

 Federal Court of Justice

 Federal Administrative Court

Political parties and leaders

 Alliance '90/Greens [Claudia Roth and Cem Ozdemir]

 Christian Democratic Union or CDU [Angela Merkel]

28
 Christian Social Union or CSU [Horst Seehofer]

 Free Democratic Party or FDP [Guido Westerwelle]

 Left Party or Die Linke [Klaus Ernst And Gesine Loetzsch]

 Social Democratic Party or SPD [Sigmar Gabriel]

Political pressure groups and leaders

Business associations and employers' organizations; trade unions; religious, immigrant,

expellee, and veterans groups

International organization participation

ADB (nonregional member), AfDB (nonregional member), Arctic Council (observer),

Australia Group, BIS, BSEC (observer), CBSS, CDB, CE, CERN, EAPC, EBRD, EIB,
EMU, ESA, EU, FAO, FATF, G-20, G-5, G-7, G-8, G-10, IADB, IAEA, IBRD, ICAO,
ICC, ICRM, IDA, IEA, IFAD, IFC, IFRCS, IHO, ILO, IMF, IMO, IMSO, Interpol, IOC,
IOM, IPU, ISO, ITSO, ITU, ITUC, MIGA, NATO, NEA, NSG, OAS (observer), OECD,
OPCW, OSCE, Paris Club, PCA, Schengen Convention, SECI (observer), SICA
(observer), UN, UN Security Council (temporary), UNAMID, UNCTAD, UNESCO,
UNHCR, UNIDO, UNIFIL, UNMIL, UNMIS, UNRWA, UNWTO, UPU, WCO, WHO,
WIPO, WMO, WTO, ZC

Religious organizations
 Protestant Evangelical Church (EKD)

 Roman Catholic Church

2.4 Cultural Aspects 29

German Etiquette and Customs

As cited in kwintessential.com some common etiquette and customs include;

Meeting Etiquette

 Greetings are formal.

 A quick, firm handshake is the traditional greeting.
 Titles are very important and denote respect.
 In general, wait for your host or hostess to introduce you to a group.
 When entering a room, shake hands with everyone individually, including children.

Gift Giving Etiquette

 If you are invited to a German's house, bring a gift such as chocolates or flowers.
 Yellow roses or tea roses are always well received.
 Do not give red roses as they symbolize romantic intentions.
 Do not give carnations as they symbolize mourning.
 Do not give lilies or chrysanthemums as they are used at funerals.
 If you bring wine, it should be imported, French or Italian. Giving German wines is
viewed as meaning you do not think the host will serve a good quality wine.
 Gifts are usually opened when received.

Good manners
www.ediplomat.com provides useful information on mannerisms considered as
appropriate by Germans.

 A man or younger person should always walk to the left side of a lady.
 Traditional good manners call for the man to walk in front of a woman when walking
into a public place.
30
 A man should open the door for a woman and allow her to walk into the building.
 Don't be offended if someone corrects your behavior (i.e., taking jacket off in
restaurant, parking in wrong spot, etc.). Policing each other is seen as a social duty.
 Compliment carefully and sparingly -- it may embarrass rather than please.
 Don’t lose your temper publicly. This is viewed as uncouth and a sign of weakness.
 Stand when an elder or higher ranked person enters the room.

Values

 German people value honesty, hard work, and order.

 They connect more easily with people who they consider to be skilled, prompt, and
intelligent.
 At the same time, they tend shy away from strange or foreign ideas.
 Germans are more formal and punctual than most of the world. They have prescribed
roles and seldom step out of line.

Time

 Punctuality is highly valued. Being on time for meetings, appointments, and services
is expected.
 Buses and trains are almost always on time, being even two minutes late is rare.
 If invited to a big informal party, being fashionably late is fine provided it is not more
than 15 minutes late.

Festivals in the Germany

Germany is a country full of traditions and festivals throughout the year.

Month Festival
January Three Hallowed Kings
February Carnival
March Berlin’s Spandau Spring Festival, Strong Beer weeks 31
April FilmFest, International Dance week and Easter
May Munich Spring festival, the Bodensee Festival, the Dresden Music
Festival and the Asparagus Festival
June Rock am Ring and Rock am Park and the festival of classical music,
Sailing
July Rheinkultur Bonn, Schlagermove pop music festival, Zeltfestival and Das
fest
August August is popular for beer festivals like Berlin Beer Festival, wine
festivals and theatre festivals
September Beethoven Festival, Alstadt Autumn Festival, Berlin Musicfest, Potsdam
Jazz Festival, Oktoberfest
October Oktoberfest
November Christmas
December Christmas and New Year

Don'ts in Germany

 It is impolite to cross your arm over people who are shaking hands, as well as chew
gum in public.
 Talking while your hands are in your pockets is also impolite.
 Don’t shout or be loud and avoid putting your feet on furniture.
 When talking to someone, do not chew gum as it is considered as bad manners in
Germany.
 When eating, do not put your elbows on the table. Only your hands should be on the
table.
 If you are visiting a bar, then make sure you do not get drunk.

Business Customs and Etiquette in Germany 32

As cited in kwintessential.com some common business etiquettes to be followed include;

Relationships & Communications

 Germans do not need a personal relationship in order to do business.

 They will be interested in your academic credentials and the amount of time your
company has been in business.
 Germans display great deference to people in authority, so it is imperative that they
understand your level relative to their own.
 Germans do not have an open-door policy. People often work with their office door
closed. Knock and wait to be invited in before entering.
 German communication is formal.
 Following the established protocol is critical to building and maintaining business
relationships.
 As a group, Germans are suspicious of hyperbole, promises that sound too good to be
true, or displays of emotion.
 Germans will be direct to the point of bluntness.
 Expect a great deal of written communication, both to back up decisions and to
maintain a record of decisions and discussions.

Business Meeting Etiquette

 Appointments are mandatory and should be made 1 to 2 weeks in advance.

 Letters should be addressed to the top person in the functional area, including the
person's name as well as their proper business title.
 If you write to schedule an appointment, the letter should be written in German.
 Punctuality is taken extremely seriously. If you expect to be delayed, telephone
immediately and offer an explanation. It is extremely rude to cancel a meeting at the
last minute and it could jeopardize your business relationship. 33

 Meetings are generally formal.

 Initial meetings are used to get to know each other. They allow your German colleagues
to determine if you are trustworthy.
 Meetings adhere to strict agendas, including starting and ending times.
 Maintain direct eye contact while speaking.
 Although English may be spoken, it is a good idea to hire an interpreter so as to avoid
any misunderstandings.
 At the end of a meeting, some Germans signal their approval by rapping their knuckles
on the tabletop.
 There is a strict protocol to follow when entering a room:
o The eldest or highest ranking person enters the room first.
o Men enter before women, if their age and status are roughly equivalent.

Business Negotiation

 Do not sit until invited and told where to sit. There is a rigid protocol to be followed.
 Meetings adhere to strict agendas, including starting and ending times.
 Treat the process with the formality that it deserves.
 Germany is heavily regulated and extremely bureaucratic.
 Germans prefer to get down to business and only engage in the briefest of small talk.
They will be interested in your credentials.
 Make sure your printed material is available in both English and German.
 Contracts are strictly followed.
 You must be patient and not appear ruffled by the strict adherence to protocol. Germans
are detail-oriented and want to understand every innuendo before coming to an
agreement.
 Business is hierarchical. Decision-making is held at the top of the company.
 Final decisions are translated into rigorous, comprehensive action steps that you can
expect will be carried out to the letter. 34

 Avoid confrontational behaviour or high-pressure tactics. It can be counterproductive.

 Once a decision is made, it will not be changed.

Dress Etiquette

 Business dress is understated, formal and conservative.

 Men should wear dark coloured, conservative business suits.
 Women should wear either business suits or conservative dresses.
 Do not wear ostentatious jewellery or accessories.

Behavior

 Germans are strongly individualistic.

 Germans do not like surprises. Sudden changes in business transactions, even if they
may improve the outcome, are unwelcome.
 German citizens do not need or expect to be complimented. In Germany, it is assumed
that everything is satisfactory unless the person hears otherwise.
 When being introduced to a woman, wait to see if she extends her hand.
 Business is viewed as being very serious, and Germans do not appreciate humor in a
business context.
 People that have worked together for years still shake hands each morning as if it were
the first time they met.
 Titles are very important to Germans. German men frequently great each other with
Herr 'last name', even when they know each other very well.
 Germans love to talk on the telephone. While important business decisions are not
made over the phone, expect many follow up calls or faxes.
 Germans guard their private life, so do not phone a German executive at home without
permission. 35

 In business situations, shake hands at both the beginning and the end of a meeting.

Gestures

 When gesturing or beckoning for someone to come, you should face your palm
downwards and make a scratching motion with the fingers.
 Waving the hand back and forth with the palm up usually signifies “no”.
 The OK sign and thumbs up are understood, but do not tend to be used that often.
 At the end of a presentation or performance, Germans often signal their approval or
thanks by gently rapping their knuckles on the tabletop instead of applauding.

Taboos

 Making a circular motion using the index finger while pointing to the side of one’s head
is a rude gesture indicating that someone is crazy or deranged.
 Forming a circle with the thumb and index finger (meaning "OK" in North America) is
usually considered an obscene gesture.
 An erect middle finger is a very offensive gesture with the meaning of "go screw
yourself".
 Whistling at a performance is usually an expression of contempt or displeasure.
 Putting your thumb between your middle and index finger while making a fist is usually
considered an obscene gesture.
“Facts About Germany” provides the following information about literature and culture.

Literature

German writers, composers and philosophers such as Goethe, Schiller, Bach, Beethoven,
36
Kant and Hegel have strongly influenced cultural epochs and are acclaimed figures the
world over.

Cultural institutions

Berlin, as the capital city, is a spectacular case in point, with three opera houses, 120
museums, more than 50 theaters and a lively art community that also attracts many young
foreign artists.

Cultural facilities

6,200 museums (630 of them art museums), 820 theaters (including musical theaters and
opera houses), 130 professional orchestras, 8,800 libraries.

UNESCO World Heritage

Germany features 33 natural and cultural heritage sites protected under the UNESCO
World Heritage program.
2.5 Living conditions

• Male: 3.84 deaths/1,000 live births

• Female: 3.21 deaths/1,000 live births (2011 est.)
Infant mortality • Total: 3.54 deaths/1,000 live births
rate • World ranking: 209
37

• Male: 77.82 years

• Female: 82.44 years
Life expectancy • Total: 80.07 years
at birth • World ranking: 27

• 1.41 children born/woman

Total fertility • World ranking: 198
rate

HIV

Indicator As at 2009 World ranking

Adult prevalence rate 0.1% 132
People living with HIV/AIDS 67,000 51
Deaths fewer than 1,000 73

Drinking water source:

100% of urban and rural population

Sanitation facility access:

100% of urban and rural population

• Male: 99%
• Female: 99%
38
Literacy • Total population: 99%

• Male: 16 years
• Female: 16 years
School life • Total: 16 years
expectancy

• 4.5% of GDP
Education • World ranking: 82
expenditures

2.6 Languages and Religions

The CIA Factbook reveals the following facts.

Religions:

Protestant 34%, Roman Catholic 34%, Muslim 3.7%, unaffiliated or other 28.3%

Languages:

German
2.7 General facts

Capital: Berlin

Administrative divisions: 16 states

Independence:
39
Federal Republic of Germany (FRG or West Germany) proclaimed on 23 May 1949

German Democratic Republic (GDR or East Germany) proclaimed on 7 October 1949

West Germany and East Germany unified on 3 October 1990

National holiday: Unity Day, 3 October (1990)

National anthem: "Lied der Deutschen" (Song of the Germans)

Flag description:

three equal horizontal bands of black (top), red, and gold; these colors have played an
important role in German history and can be traced back to the medieval banner of the Holy
Roman Emperor - a black eagle with red claws and beak on a gold field

National holidays:
3. Economic Analysis

3.1 Population

The population facts based on the CIA Factbook are as follows.

Indicator As at July 2011 (est.) World Ranking 40

Population 81,471,834 16
Population growth rate -0.208% 212
Birth rate 8.3 births/1,000 population 219
Death rate 10.92 deaths/1,000 population 39
Net migration rate 0.54 migrant(s)/1,000 population 62

Age structure:
0-14 years: 13.3% (male 5,569,390/female 5,282,245)
15-64 years: 66.1% (male 27,227,487/female 26,617,915)
65 years and over: 20.6% (male 7,217,163/female 9,557,634) (2011 est.)

Median age:
total: 44.9 years
male: 43.7 years
female: 46 years (2011 est.)

Urbanization:
Urban population: 74% of total population (2010)
Rate of urbanization: 0% annual rate of change (2010-15 est.)

Major cities (in terms of population):

Berlin (capital) 3.438 Mn; Hamburg 1.786 Mn; Munich 1.349 Mn; Cologne 1.001 Mn
(2009)
Population (ranking in Europe):
Second most populous country in Europe after Russia

Sex ratio:
At birth: 1.055 male(s)/female
Under 15 years: 1.05 male(s)/female 41

15-64 years: 1.04 male(s)/female

65 years and over: 0.72 male(s)/female
Total population: 0.97 male(s)/female (2011 est.)

Ethnic groups:
German 91.5%, Turkish 2.4%, other 6.1% (made up largely of Greek, Italian, Polish,
Russian, Serbo-Croatian, Spanish)

3.2 Economic Statistics & Activity

The CIA Factbook provides the following overview of the German economy. It is the fifth
largest economy in the world in PPP terms and Europe's largest and is a leading exporter
of machinery, vehicles, chemicals, and household equipment and benefits from a highly
skilled labor force. Like its western European neighbors, Germany faces significant
demographic challenges to sustained long-term growth. Low fertility rates and declining
net immigration are increasing pressure on the country's social welfare system and
necessitate structural reforms. The modernization and integration of the eastern German
economy - where unemployment can exceed 20% in some municipalities - continues to be
a costly long-term process, with annual transfers from west to east amounting in 2008 alone
to roughly $12 Bn. Reforms launched by the government of Chancellor Gerhard Schroeder
(1998-2005), deemed necessary to address chronically high unemployment and low
average growth, contributed to strong growth in 2006 and 2007 and falling unemployment.
These advances, as well as a government subsidized, reduced working hour scheme, help
explain the relatively modest increase in unemployment during the 2008-09 recession - the
deepest since World War II - and its decrease to 7.4% in 2010. GDP contracted 4.7% in
2009 but grew by 3.6% in 2010. In its annual projection for 2011, the Federal Government
expects the upswing to continue, with GDP forecast to grow this year at a real rate of 2.3%.
The recovery was attributable primarily to rebounding manufacturing orders and exports -
increasingly outside the Euro Zone. Domestic demand, however, is becoming more 42

significant driver of Germany's economic expansion. Stimulus and stabilization efforts

initiated in 2008 and 2009 and tax cuts introduced in Chancellor Angela Merkel's second
term increased Germany's budget deficit to 3.5% in 2010. The Bundesbank expects the
deficit to drop to about 2.5% in 2011, below the EU's 3% limit. A constitutional amendment
approved in 2009 likewise limits the federal government to structural deficits of no more
than 0.35% of GDP per annum as of 2016.

Some key economic indicators are shown below (CIA Factbook).

World
GDP 2010 2009 2008
Ranking
GDP (purchasing
$2.94 trillion $2.841 trillion $2.98 trillion 6
power parity)
GDP (official
$3.316 trillion
exchange rate)
GDP - real
3.5% -4.7% 0.7% 111
growth rate
GDP - per capita
$35,700 $34,500 $36,200 33
(PPP)

GDP - composition by sector:

Agriculture: 0.8%, Industry: 27.9% and Services: 71.3% (2010 est.)

 Employment 2010 2009 World Ranking

Labour force 43.35 Mn 14

Unemployment rate 7.4% 7.5% 78

Labor force - by occupation: 43

Agriculture: 2.4%, Industry: 29.7% and Services: 67.8% (2005)

Income

Population below poverty line:

15.5% (2010 est.)

Household income or consumption by percentage share:

Lowest 10%: 3.6%

Highest 10%: 24% (2000)

Distribution of family income - Gini index:

27 (2006)

30 (1994)

World ranking: 124

Investment (gross fixed):

18% of GDP (2010 est.)

World ranking: 112

 Banking World
2010 2009 2008 2007
Indicators Ranking

Central bank
1.75% 1.75% 129
discount rate 44

Commercial
bank prime 4.96% 5.97% 133
lending rate

Stock of narrow $1.627 $1.681

6
money trillion trillion

Stock of broad $4.288 $4.202

6
money trillion trillion

Stock of $5.2 $5.019

5
domestic credit trillion trillion

Market value of
$1.298 $1.108 $2.106
publicly traded 9
trillion trillion trillion
shares

Budget:

Revenues: $1.396 trillion

Expenditures: $1.516 trillion (2010 est.)

Public debt:

78.8% of GDP (2010 est.)

72.5% of GDP (2009 est.)

World ranking: 20
45

Inflation rate (consumer prices):

1.1% (2010 est.)

0.4% (2009 est.)

World ranking: 24

Agriculture products:

Potatoes, Wheat, Barley, Sugar beets, Fruit, Cabbages; Cattle, Pigs, Poultry

Industries:

Among the world's largest and most technologically advanced producers of iron, steel,
coal, cement, chemicals, machinery, vehicles, machine tools, electronics, food and
beverages, shipbuilding, textiles

Industrial production growth rate:

9% (2010 est.)

World ranking: 24
 World
Energy Facts 2009 2008 2007
Ranking
Electricity
Production 593.4 Bn kWh 8
Consumption 547.3 Bn kWh 7
Exports 61.7 Bn kWh 46

Imports 41.67 Bn kWh

Oil
Production 156,800 bbl per
45
day
Consumption 2.437 Mn bbl
8
per day
Exports 536,600 bbl per
28
day
Imports 2.862 Mn bbl
7
per day
Proved
276 Mn bbl 55
reserves
Natural gas
Production 15.29 Bn cu m 34
Consumption 96.26 Bn cu m 5
Exports 12.64 Bn cu m 16
Imports 94.57 Bn cu m 2
Proved
175.6 Bn cu m 47
reserves

Reserves of foreign exchange and gold:

$180.8 Bn (31 December 2009 est.)

 External balance 2010 2009 World Ranking

Current account balance $162.3 Bn $168.1 Bn 3

Exports $1.337 trillion $1.145 trillion 3
Imports $1.12 trillion $956.7 Bn 4
External debt $4.713 trillion $5.158 trillion 4 47

Exports commodities:

Machinery, Vehicles, Chemicals, Metals And Manufactures, Foodstuffs, Textiles

Exports partners:

France 10.1%, US 6.7%, UK 6.6%, Netherlands 6.6%, Italy 6.3%, Austria 5.7%, Belgium
5.2%, China 4.7%, Switzerland 4.5% (2009)

Imports commodities:

Machinery, Vehicles, Chemicals, Foodstuffs, Textiles, Metals

Imports partners:

Netherlands 13%, France 8.2%, Belgium 7.2%, China 6.8%, Italy 5.6%, UK 4.7%, Austria
4.4%, US 4.2%, Switzerland 4.1% (2009)

FDI 2010 2009 World Ranking

At home $1.057 trillion $1.054 trillion 4

Abroad $1.484 trillion $1.46 trillion 4
Exchange rates:

Exchange rate
0.82
0.8
Euros (EUR) per US dollar

0.78 48
0.76
0.74
0.72
0.7
0.68
0.66
0.64
0.62
2006 2007 2008 2009 2010

3.3 Development in Science & Technology

Germany is not only the largest economy in Europe and the third largest in the world, but
it is also one of the world's most active and diversified markets for science and technology
research and development. Over half of Germany's industrial production is accounted for
by R&D-intensive industries.

Germany has also been the home of some of the most prominent researchers in various
scientific disciplines, notably physics, mathematics, chemistry and engineering. Scientific
research in the country is supported by industry, by the network of German universities
and by scientific state-institutions such as the Max Planck Society and the Deutsche
Forschungsgemeinschaft.

Germany's technological performance is essential for German companies' success in

international technological competition. It is the basis for economic growth and viable jobs
in Germany. Technological performance is documented by new, innovative products and
processes which can compete on international markets. They depend on the creativity of
German entrepreneurs and on the commercialization of the results of efficient public
research. But above all, Germany's technological performance will in future depend on the
availability of highly qualified workers. Education and research are therefore a top priority
for the Federal Government. (Source: BMBF, i.e. the Federal Ministry of Education and
Research in Germany). 49

The key findings by the BMBF on Germany's technological performance are as follows.

Germany ranks high in comparison to other countries when it comes to research and
knowledge intensities in industry. It produces 277 patents with global market potential
per million employed persons whereas the EU and OECD average is 182 and 152
respectively.

The share of companies that launched new products or new processes stand at 59
percent.

Sectors with technological strength are reporting increasingly higher levels of export
trade. German enterprises account for 15.6 percent of global trade in research-intensive
goods, ranking second only to the USA. For years now, German exports of research-
intensive goods have grown an average of more than eight percent a year. The ability
of German companies to compete in international markets has improved noticeably
since the mid-1990s.

Production and employment in those industries that invest strongly in R&D has grown
vigorously. Gross output in these industries grew an average of 4.4 percent a year (other
industries: 1.5 percent) between 1995 and 2003. Germany's specialization profile has
shifted slightly in favor of cutting-edge technologies.

Combined public and private expenditure on R&D as a percentage of Germany's gross

domestic product grew from 2.31 percent to 2.55 percent between 1998 and 2003.
Research intensity is high in Germany. Research budgets of universities and non-
 university research facilities grew 3.1 percent a year in real terms in the first years of
this decade.

Challenges
50
Emerging threshold countries are expanding their investment in research and
development at an extraordinarily fast pace. This group increased its nominal
expenditure on R&D by 180 percent during the period from 1995-2003. China alone
quadrupled its R&D spending since the mid-1990s. Spending US$ 72 billion on R&D
during this period, it catapulted itself to third place on the list of the world's most R&D-
rich countries. By comparison, spending on R&D rose by 80 percent in the Nordic
countries, by 50 percent in the USA and on average for OECD countries and by 35
percent in Germany.

Germany's technological strengths revolve increasingly around the automotive sector.

The "knowledge society" needs much more skilled workers with engineering or
scientific education than ever before. It is estimated that the German workforce needs
approximately 50.000 additional academically trained workers annually.

The Federal Government has taken numerous measures to sustain and to strengthen
Germany's technological performance.

Investments in education, research, and innovation remain a high funding priority.

The German government demands excellent research in Germany. It has proposed a

competition for the development of elite universities. The Excellence Initiative is to be
used to expand cutting-edge research at universities and scientific institutions and make
it internationally visible.
 The German government is boosting the ability of small and medium-sized enterprises
to produce innovations.

The government is responding to the growing need for skilled workers and the
international competition for highly qualified workers with a number of measures
aimed at strengthening Germany's education system and universities such as the reform
51
of the Federal Training Assistance Act giving financial aid to students.

The government has launched the Partners for Innovation initiative to boost momentum
at all levels of the German innovation system. This initiative is jointly sponsored by
leading representatives from industry, trade unions and the science community.

3.4 Channels of Distribution

With more than 82 million people, the German market is the largest and most important in
Europe. It is both very competitive and segmented, with supply-side saturation in many
sectors and for many products. Quality and service are of the utmost importance in this
market. The main trading areas of the country North Rhine-Westphalia, Baden
Wurtenberg, Bavaria, Hamburg, Berlin and Hanover, as well as Leipzig in the former East
Germany.

A brief overview of the distribution network in Germany as cited in www.alibaba.com is

as follows.

The Business to Consumer (B to C) market

The structure of German distribution is characterized by:

 large number of small independent shops

 low level of concentration in each sector, compared to the main European markets
(France, United Kingdom, Belgium)
 predominance of distribution in city centers and urban areas
 low number of hypermarkets
 predominance of discount stores and the importance of distance selling (mail order, e-
commerce, teleshopping)

German distribution is divided up according to the following distribution channels: 52

Distribution channel (%)

Traditional retail trade 24.8

Specialized superstores 22

Non-food shop chains 13

DIY superstores 11.7

Discounters 11

Supermarkets 7.9

Mail Order 5.8

Department stores 3.8

The top three German distribution groups are Metro, Rewe and Edeka/Ava. Discount stores
are the leading format for food distribution, registering a growth of approximately 10%
and generating 40% of total food sales. The growth in the number of discounters, such as
Lidl and Aldihas forced distributors to wage a price war. Thus, insufficient margins risk
slowing down the modernization of sales outlets and the development of new distribution
concepts. The relationships between the distributors and their suppliers, reputed to be very
difficult, have become even more strained. A trend toward consolidation has developed,
and groups such as Karstadt-Quelle, Edeka-Tengelmann and discounters such as Wal-Mart
have engaged in severe competition, resulting in a lowering of suppliers' margins.

Classification of the top ten German distributors in 2003 53

Turnover
Companies (Million €,
2003)

1. Metro Gruppe 32,232

2. Rewe Gruppe 30,373

3. Edeka/AVA-Gruppe 29,090

4. Aldi-Gruppe 24,000

5. Schwarz-Gruppe 21,500

6. Karstadt Quelle 15,500

7. Tengelmann-Gruppe 13,108

8. Spar AG 9,000

9. Lekkerland-Tobaccoland 8,230

10. Schlecker 5,600

The Business to Business (B to B) market

To sell in Germany, it is vital to be represented on a regional level, either by independent
regional agents, or by a national organization with regional support. Regional division
usually corresponds with the Länder (states of Germany).

Germany is the world's leading country for the organization of trade exhibitions and fairs.
These events are vital for a company to make a name for itself, find out who its competition
54
is, find new customers, and develop loyalty among longer-standing ones. One benchmark
exhibition is EUROSHOP, the premier worldwide retail distribution exhibition, with
almost 1,500 exhibitors. The cities which stage international trade fairs are Cologne,
Düsseldorf, Frankfurt, Hanover, Munich, Nuremberg, Berlin, Leipzig, Stuttgart, Hamburg
and Essen.

In addition, regional exhibitions are held all over Germany, generally smaller and which
are organized by either distributors or agents.

Transportation of goods

By road

The German road network covers more than 238,000 km of roads of which more than
11,000 km are toll free highways.

By rail

The railroad network extends over 44.500 km of lines and is capable of transporting over
290 million tons of goods.

By sea

The main German ports are Hamburg, Rostock, Bremen and Duisburg.

By air
The airport of Frankfurt ensures 70% of the air freight and is ranked 9th in the world. The
other main international airports are Munich, Stuttgart and Dusseldorf.

3.5 Media
55
The media landscape in Germany was outlined by the European Journalism Centre (2010)
as follows.

Germany looks back at a long history of mass media. Some of the first newspapers started
roughly 400 years ago. Today, the major media production centers are located in the “old”
West. Newspapers of the former East Germany are usually controlled by Western
companies and broadcasting is integrated into the Western dual system.

Traditional Media

Germany has a "dual system" of both public and commercial broadcasting. The traditional
public service broadcaster is set up as an independent and non-commercial organization,
financed primarily by license fees. Because of the de-centralized character, there are many
media centers in the country, e.g. Hamburg (NDR), Cologne (WDR), Munich (BR), Berlin-
Potsdam (rbb).

Print Media

Independent editorial units 135

Number of newspapers 354

Penetration (1990-2008) 79.1% to 72.4%

Types of newspaper subscription press and tabloid press

Total circulation 20.2 Mn

- National 1.65 Mn

BILD, Süddeutsche Zeitung (SZ), Frankfurter Allgemeine Zeitung (FAZ), Welt,

Frankfurter Rundschau (FR), Tageszeitung (Taz)

- Sold on the street 4.47 Mn

56
- Regional 14.1 Mn

Subscription press 14.3 Mn

Tabloid Press 5.9 Mn (BILD Zeitung – 3.3 Mn – also best in Europe)

Weekly newspapers Die Zeit (ca. 525,000)

Newspaper Publishers

- Axel Springer Group 22.1%

- Verlagsgruppe Stuttgarter Zeitung 8.5%

- WAZ Group 6%

- DuMont Schauberg 4.2%

- Ippen Gruppe 4%

The 10 largest publishers of dailies together control 44.8% of the market.

Number of magazines

- General 906 (total circulation = 117.9 Mn)

- Specialized 1,218 (total circulation = 13.6 Mn)

Weekly news magazines Der Spiegel (ca. 1.07 Mn)

Magazine publishers Bauer, Springer, Burda, Gruner + Jahr (60% share)

Radio

Daily consumption 176 minutes

57
Regional programmes 06

National programmes 02

Slightly more than a half comes from public service broadcasters. Commercial radio is
licensed in all Länder-states; therefore it follows mostly a regional pattern. In North Rhine-
Westphalia, the largest state, 46 local stations work commercially but with local, non-
commercial windows. Non-commercial radio exists but is regulated differently in each
state. Some states allow community stations; others prefer public access (also for
television), educational stations, campus stations etc.

Television

Daily viewing time 219 minutes

Television receivers 46.5 Mn

Televisions 51.4 Mn

National channels Das Erste (ARD) and ZDF

Commercial television

Broadcasters ProSiebenSAT.1Media AG (21.6%)

RTL Group S.A. (24.1%)

Transmission
- Cable 18.66 Mn

- Satellite 14.93 Mn

- Terrestrial 1.4 Mn

Public service (43.6%)

58
Broadcasters ARD (13.4%)

ZDF (13.1%)

Third channels (13.2%)

RTL (11.7%)

SAT1 (10.3%) Private

ProSieben (6.6%)

Pay TV Sky (2.4 Mn viewers)

Cinema

Film with German origin 20%-27%

No of film theaters 1,793

No of screens 4,810

No of visits per year 1.58

Telecommunications
Largest company Deutsche Telekom

Internet TV T-Home (IPTV subscribers = 700,000)

Advertising Medium
59

New Media

Online

% using online services 67.1% (70% use broadband)

% of users within the age 14-19 97.5%

% of online users using online video content 62%

Successful news websites Spiegel-online

Among all Internet users about half of them use the Net for up-to-date information.
Digital media

Most terrestrial TV is digitalized (DVB-T). The public broadcasters, based on their huge
programme library and time shifting, offer six additional programmes.
60
Digital radio was first introduced in 1999 and the country is covered by a network of DAB
transmitters. Deutsche Welle (DW) also offers short wave programming in DRM. The echo
to digital radio was minimal, though, and some services have been terminated.

Media organizations

News agencies

There are eight agencies with Deutsche Presseagentur (DPA), Associated Press (AP),
German Reuters and Agence France Presse (AFP) in the top 04.

Film production

- Bavaria Atelierbetriebsgesellschaft (Munich)

- Studio Hamburg (Hamburg)

- Studio Babelsberg (Berlin/Potsdam)

- Magic Media Company (Cologne)

Nearly 80 percent of production outlets, which are involved in new feature films, produced
only one film in total (Clevé, 1995).

Media research
Media research is hosted by a vast variety of institutions

University-based institutes

Media research divisions of both public and commercial broadcasters

Independent research institutes (GfK and Nielsen Media Research)

61

Some other media stats as cited in Nationmaster are as follows.

Average cost of local call ($ per 3 min) 0.09

Book production 3,718

Cable TV subscribers 247

Cinema attendance 148,996,000

Fax machines 45.55 per 1,000

people

Films produced 121

Households with television > % 95 %

Mobile phones 71.67 per 100 people

Number of PCs 40,000

Phone subscribers 1,316.52

 62

4. Market Audit and Competitive Market Analysis

4.1 The Product

Cut flowers can be defined as flowers or flower buds (often with some stem and leaf) that
have been cut from the plant bearing it (The Flower Expert). It is usually removed from
the plant for indoor decorative use. Typical uses are in vase displays, wreaths and garlands.
Many gardeners harvest their own cut flowers from domestic gardens, but there is a
significant commercial market and supply industry for cut flowers in most countries. The
plants cropped vary by climate, culture and the level of wealth locally. Often the plants are
raised specifically for the purpose, in field or glasshouse growing conditions. Cut flowers
can also be harvested from the wild.

4.1.1 Evaluation of the product's USP

Table 1 overleaf shows a vis-à-vis comparison of the main cut-flower producing nations.
Competitors from Africa choose to focus on cost reduction to win from the competition,
whilst the growers in the Netherlands, Colombia and Ecuador focus on quality and services.
Due to the low volumes of Sri Lankan cut flower producers it is difficult to achieve cost
advantages, and since cut flowers are still an amateur market in Sri Lanka we cannot
compete with South American countries. As such it is necessary to look beyond traditional
criteria to develop the product’s USP.

The USP of Shirohana flowers will be as follows.

 Masculinity
 Symbol of peace
 Energy saving

63
64
Reasons behind the choice of USP

 Masculinity

A study on the German market (2008) found that there is considerable potential for
marketing flowers to men. The eHow website further states that surveys have shown
that men like to receive flowers nearly as much as women do. A survey conducted by 65
the Society of American Florists found that nearly 60% of men would enjoy receiving
flowers on Valentine's Day. However, not all of these men are willing to admit this fact
in public. Another study by Rutgers University researchers found that men who
received flowers were more open socially. Male flower recipients smiled more often,
stood closer to subjects, and maintained direct-eye contact more than men who did not
receive flowers. The study found that ethnicity, age or background did not matter.

There are many types of flowers that come in masculine flowers, such as orchids, tulips
and sunflowers. The Society of American Florists found that men preferred vibrant
colors such as reds and yellows. Large flowers with sharp lines, such as sunflowers,
can be more masculine than dainty flowers such as lilies of the valley.

 Symbol of peace

Sri Lanka is a role model for any country for bringing peace and eliminating terrorism
from its motherland. This would act as a good base to developing the competitive
strategy of Shirohana flowers.

 Energy saving

Vringer and Blok (1998) in their study point out that cut flowers have a significant
indirect energy requirement. Like all consumer products cut flowers require fossil
energy during their lifecycle. A shift to less energy-intensive flowers can reduce the
total energy required for flowers. This can help to bring down the CO2 emissions.
Michaelsmas daisy, Carnation, Lilies and Amaryllis are some flowers that were
 identified as having lower energy requirements. Due to the positive impact of less-
energy intensive flowers on the environment this was opted as part of the USP.

4.1.2 Major problems of product acceptance

66
Germany is a member of the EU. As such there are some specific constraints when it comes
to the acceptance of cut flowers into the German flower market.

 Quarantine certification – To prevent entering of organisms harmful to animals, plants

and plant products.

 Buyer specific requirements (additional requirements set by companies)

(a) Environmental requirements

(b) Social requirements

International sustainable label – MPS

International consumer label – FFP

In order to promote florists and specialized shops, BGI (German association of

flower wholesalers and import traders) is promoting the trade in high quality
and certified products. One such certification is the ‘Fair Flower Fair Plants’
(FFP) certification. According to the director of BGI, German wholesalers find
it extremely hard to find growers with this consumer label.

International social label – Fair Trade

Good Agricultural Practices –GLOBALGAP

 When it comes to appearance dyed flowers and cheesy gimmicks are considered as
negatives that cheapen the gift when compared to natural looking flowers.
 One of the critical aspects looked for when purchasing cut flowers is the freshness of
the flowers. Cut flowers are usually transported from far off locations, and hence both
suppliers and vendors need to ensure that the freshness is maintained. Failure to
maintain the freshness will reduce purchases by consumers, especially because flowers
are perishable.
67
 On average, supermarkets must discard 14% of cut flower purchases compared with
6% of fresh produce. Concerned about the high rate of loss, they are looking for in-
state and local suppliers who can provide flowers with a longer vase life.

4.2 The Market

4.2.1 Market size & evolution

German market for cut flowers

Germany is the largest market for cut flowers and foliage in the EU. The Central Market
and Price Reporting Agency (ZMP) estimated that around € 3.15 billion were spent on cut
flowers at retail prices in Germany in 2010. Between 2005 and 2010, the market for flowers
and foliage fluctuated. 2010 registered a slight increase of about 1%, probably thanks to
the parallel increase of consumer purchasing power. However, the consumption of flowers
is still affected by the uncertain economic situation in Germany, combined with fear of
unemployment and reduced retirement benefits. The German high VAT tariff has recently
been increased from 16% to 19%. Ornamentals, however, still fall under the low 7% tariff.
The similarities between developments in the flower market, consumer purchasing power
and consumer confidence indicate strong correlation between the 3 variables. The moderate
recovery of the German economy in 2009 and 2010 made the future of the flower market
look slightly more promising. Nevertheless, the current economic slowdown makes the
future growth in demand uncertain. It is expected that the size of the German flower market
in 2011 would be approximately € 3.20 billion.
As per the CBI (2010) per capita consumption of cut flowers in Germany is in line with
the EU average, and amounted to € 36 in 2010, indicating a small annual decrease since
2007. In 2010, 57% of Germans purchased flowers. The average price paid for a bunch of
flowers increased in 2010. A factor preventing further decrease in per capita consumption
and total consumption was the increased purchasing frequency.
68
4.2.2 Consumer buying habits

The CBI (2010) provides the following information regarding the purchase behaviour of
German flower consumers.

 Germans associate flowers with beauty, lovely colours, bringing joy, festivities, nature
and as signs of affection and love. It is a way of making the interior of houses more
friendly, beautiful and cosy.

 Negative associations are high prices and short vase life.

 As in many other EU countries, Germans mainly purchase cut flowers as a gift (about
half of all purchases). The flower usage amongst Germans can be illustrated as follows.

Figure 1: Flower usage in Germany

 Flowers are the number one present in Germany. Candy/chocolates, money, wine and
perfume follow in order of importance.
 Young people and men in particular relate flowers primarily to the giving of a present.
However, young people have also come to associate flowers with a lack of inspiration
and originality by the person giving the flowers, because of their traditional value as a
gift.

 Flowers sales usually peak during the following public holidays.

69

January:
1-Jan New Year’s Day
6-Jan Feast of the Epiphany
February:
14-Feb St. Valentine’s Day
23-Feb Rose Monday
March:
1-Mar Grandmother’s Day
8-Mar Women’s Day International
19-Mar Father’s Day
April:
4-Apr Palm Sunday
10-Apr Good Friday
12-Apr Easter
16-Apr Secretary’s Day
May:
1-May Labour Day
10-May Mother’s Day
21-May Ascension Day
21-May Father’s Day
31-May Pentecost
June:
11-Jun Corpus Cristi
July:
No Holidays
August:
15-Aug Assumption Day
September:
No Holidays
October:
 2-Oct Teacher Appreciation Day
31-Oct Halloween
November:
1-Nov All Saints’ Day
2-Nov All Soul’s Day
December:
6-Dec Saint Nikolas 70
8-Dec The Immaculate Conception
25/26 Dec Christmas
31-Dec New Years’ Eve

 Flowers from all types of colours are acceptable for any event with the exception of;
 Red – Valentine’s day, All Saints’ Day and First Sunday of Advent, Christmas
 Yellow (spring flowers) – Easter
 Yellow (autumn colours) – Erntedank Day

 It was also found that majority of the cut flowers are purchased by women (74%).

Figure 2: Classification of cut flower purchasers

 Mono-bunches accounted for nearly 50% of the entire cut flower market, mixed
bouquets (a bunch of mixed flowers and foliage) accounted for 25% and compositions
(decorative objects or arrangements made of flowers, foliage and other materials) for
the remaining 25%.

 Rosa was the leading cut flower accounting for 50% of all mono-bunches.
 Flowers which are becoming more popular are Tulipa, Gerbera, Dianthus and
Dendranthema.

 Rosa and Dendranthema are the most popular flowers for funeral purposes and graves.

 The main types of flowers sold in Germany are shown in the table below.
71
Type of flower 2008 2009 2010
Rosa 36.0 36.0 36.0
Tulipa 8.7 10.3 9.5
Gerbera 9.0 9.8 9.5
Dendranthema 4.9 4.9 4.6
Lilium 1.7 2.1 2.5
Gypsophila 1.5 2.1 2.1
Solidago 1.3 1.4 1.4
Dianthus 1.2 1.3 1.3

 The favorite type of flower by age group is as follows.

Flower Young Middle Old

Rose 27.0% 28.0% 21.3%
Tulip 8.7% 10.0% 6.7%
Gerbera daisy 6.1% 4.0% 3.7%
Daisy 5.2% 7.0% 5.5%
Orchid 4.0% 5.5%
Lilies 5.2% 6.0%
Carnation 7.3%
Peonies 5.2%
Lilac 5.2%
Iris 3.7%

 Roses are the most popular flower across all age groups.
 Lilies are more popular amongst the young and middle age groups whilst Orchids
are more popular amongst the middle and old age groups.
 Peonies and Lilac are popular amongst youngsters.
 Carnations and Iris are popular amongst the old age group.
 In Germany, approximately a quarter of the population is over 60 years old. Elderly
people generally spend relatively more money on flowers than young people.
Consequently, elderly people contribute consistently to flower sales in Germany.
Moreover, considering that the population is aging, this share is expected to gradually
72
increase in the coming years.

 Sales of lower-priced flowers in supermarkets have stimulated the purchases of flowers

for own use.

 One in two German companies regularly purchases flowers as a gift for their personnel.

 The institutional market for flowers is significant in Germany.

 The share of people purchasing flowers was significantly higher in (former) East
Germany than it was in West Germany.

4.2.3 Existent competitors’ products

It is vital to identify the main competitors and understand their strengths and weaknesses
as well as possible strategic moves that would be made by them. The first step in carrying
out a competitor analysis is to determine who the competitors are. Porter’s 5 Forces model
would be employed for this purpose. Porter offers five market forces which determine the
competitive intensity and, therefore, the attractiveness of a market.
 73

Figure 3: Porter’s 05 forces

The CBI (2010) provides an analysis of the competitive landscape as follows.

1. Competitive rivalry – Established competitors are the principal determinant for

competition for most cut flower categories.

Industry growth – The market share of some developing countries has increased
significantly. Kenya has surpassed Israel as an exporting country. The higher
market share has been reached with a low number of varieties. However non-
members of UPOV (International Union for the Protection of New Varieties of
Plants), except Uganda, perform poorly in production growth. At growers’ level,
the industry growth in the Netherlands and the USA has stabilized, which means
more competition to acquire a larger market share.

The key competitors for the main types of cut flowers imported to Germany as
identified by the CBI (2010) are as follows.

The Netherlands (84), Israel (0.1), Kenya (7), Ecuador (4),

Rosa Ethiopia (2), South Africa (1), Colombia (1), Tanzania (1),
Zimbabwe (1)
 The Netherlands (67), Italy (5), Spain (0.4), Austria (0.3),
Dianthus Israel (0.4), Colombia (23), Turkey (2), Ecuador (1),
Palestinian Territories (0.6%)
The Netherlands (85), Italy (1), Denmark (0.3), Thailand (12),
Orchids
China (0.4), Malaysia (0.3)
Gladiolus The Netherlands (99), Italy (0.2), Belgium (0.2)
Dendranthema The Netherlands (100), Italy (0.2), Austria (0.1)
The Netherlands (93), Italy (2), Poland (1), Spain (0.8), 74
Other fresh cut
Belgium (0.5), Denmark (0.1), Israel (1), Ecuador (0.2), South
flowers
Africa (0.2), Kenya (0.1), Colombia (0.1)

As such it can be seen that Netherlands is the dominant player in the cut flower
market contributing to 87% of the cut flower import volume of Germany. The
remaining 13% is highly fragmented amongst African and Asian nations where
there is a high level of competition.

2. Substitute products – The competitive environment is also determined by the

possibilities for substitution of flowers.

As cut flowers are mainly used as a gift item there are several substitutes which the
consumer can select from. The potential customer may opt for candy/chocolates,
money, wine/imported liquor, cosmetics/perfume, quality pens, books, gift
vouchers, crockery, clothes and tasteful office items, rather than buy a bouquet of
flowers.

Certain consumers may opt for artificial/imitation flowers rather than natural
flowers for decorative purposes.
 Art decorations such as sculptures and paintings can replace a bouquet of flowers
when it comes to interior décor.

Use of indoor plants – indoor plants have a longer lifetime than cut flowers. On
average all cut flowers in a household can be replaced by one indoor plant.

75

3. New entrants to the market

Establishing a new flower farm is difficult in the strongly competitive cut flower
market. The key entry barriers include;

Capital requirements – the capital required for setting up an export-oriented flower

farm are high.

Economies of scale – small flower farms usually cannot compete. They cannot
benefit from economies of scale. These economies of scale are particularly
important in bulk flower production where margins are small and continuously
shrinking.

Certification – The major European and African exporters comply with MPS
certification standards. In South America, local standards are more common.
Exporting countries with no code of conduct have a rather low level of export
growth.

Accesses to distribution – This deals with the ease with which the final consumer
can be reached. The logistics is one issue; the other is access to retailers. The third
element is trade barriers due to phytosanitary regulations and requirements.

Cost disadvantages – such as;

a) Proprietary product technology – For flowers this means having breeders in the
country or having unique varieties.
 b) Access to inputs – Even though labour is cheap in most developing countries,
they face the lack of proper supplying and related industries.

c) Experience curve – The skills and education of labourers in the field of cut
flower growing is low in most developing countries.

76

4. Bargaining power of customers – concerns the ability of your customers to put your
company under pressure, as well as their sensitivity to price changes.

The bargaining power of EU wholesalers versus small suppliers is increasing as a

result of consolidation in EU trade. Many small wholesalers can no longer compete
with the leading wholesalers. The latter purchase large quantities of flowers. Their
suppliers are strongly dependent on them, because it is costly to find other buyers
for such large quantities. Similarly, the wholesalers depend heavily on their leading
suppliers, because it is costly to find other suppliers of such large quantities.
However, they become less dependent on smaller suppliers, as they can easily
purchase small quantities from other suppliers. This is particularly relevant in the
trade in bulk flowers.

In general, the bargaining power of an existing customer is lower than the

bargaining power of potential customers. Existing customers have invested in their
relations with your company. Bargaining too hard may put the relationship, and
thus the investment, at risk.

Buyer standards – wholesalers will set production parameters (such as codes of

conduct and quality levels), partially forced by retailers or consumer groups.

Ability to command a price premium – innovative flowers (colour, shape and

variety) gets a price premium. The Dutch and Israeli growers have an advantage
due to the proximity of breeders.
5. Bargaining power of suppliers means that your suppliers can have power over your
company when there are few substitutes. Suppliers which have a large impact on costs
and margins include airlines, suppliers of young plant material, plastic material for
greenhouse maintenance, chemical suppliers (fertilizers, pesticides, etc.) and packaging
materials. Next to this, labour probably also plays a very large role in determining costs
of production. 77

Air transport costs account for an extensive part of total costs for exporters in
developing countries. For example, air transport of Rosa from Ethiopia to The
Netherlands accounts for approximately half of the total costs for the grower. In
several developing countries, only a few airlines offer air transport for flowers. The
bargaining power of these airlines is strong.

4.2.4 Marketing mix typically used

This section explains the importance of the various marketing mix elements in the
marketing of cut flowers.

Product

“The Flower Expert” explains what consumers expect from a good cut flower.

 Appearance and beauty

Germans associate flowers with beauty, lovely colours, bringing joy, festivities, nature
and as signs of affection and love. It is a way of making the interior of houses more
friendly, beautiful and cosy.

 Sweet fragrance

This is an essential feature of any type of flower. Flowers should give off a sweet scent
which is appealing to the human mind. A strong scent can actually bring the recipient
to a good and cheerful mood.
 Long stem

The stem should be long enough and sturdy enough to hold the flower in an
arrangement.

78
 Extended vase life

Most Germans want flowers to look good and last for several days. By increasing
longevity, receivers are reminded of the gift giver for an extended period of time and
are able to enjoy their gift longer resulting in greater appreciation for the gift and giver.
The results from a study by Yue et al. (2009) on the relative importance of attributes in the
purchase of cut flowers were as follows.

79

Figure 3: Important attributes of flowers

The most important attributes in order of importance were flower/bloom quality, colour,
price, design/arrangement, longevity, availability and fragrance.

Prices

Price can be a big deterrent. If it is too high the customer either leaves the store without
purchasing, chooses a less expensive gift s/he is not satisfied with, or purchases the
expensive gift but is unsatisfied and does not return.
Prices depend on the quality, selling point, assortment, and size amongst other things. After
a decrease in price between 2006 and 2008, prices are increasing again and are now above
the level of 2006. The average prices of flowers (in Euros) sold at the Landgard during the
period 2008-2010 is as follows.

Flower 2008 2009 2010

80
Rosa 0.19 0.2 0.2
Tulipa 0.13 0.14 0.14
Gerbera 0.19 0.19 0.14
Dendranthema 0.22 0.2 0.23
Lilium 0.27 0.29 0.28
Gypsophila 0.16 0.18 0.17
Solidago 0.13 0.14 0.15
Dianthus 0.1 0.1 0.12

Most flowers have remained substantially stable in terms of price. The slight increase in
the average price has been due to the purchase of more mixed-bouquets instead of mono-
bouquets. The florists, which are a relatively expensive retail channels, also increased their
market shares. The average price of mono-bunches in 2009 amounted to € 4.28, which was
5% higher than in 2008. The price of mixed bouquets amounted to € 8.86 on average in
2009, almost 1% higher than in 2008.

Different prices and margins apply throughout the various trade channels. The price
structure depends on the type of distribution channel and the role of the individual players.
The margin of wholesalers can vary from about 25% to 50%. The margin of retailers can
even vary more, from 50% to 150%. Supermarkets tend to apply lower margins than
florists, particularly the discount supermarkets like Aldi and Lidl. It should be noted that
margins in Germany are generally bigger than in The Netherlands, but equal to or smaller
than in most other EU countries.

Place
This section provides a detailed analysis of the distribution structure of cut flowers in
Germany as cited in CBI (2010).

81

Figure 4: Cut flower distribution in Germany (CBI, 2010)

Domestic production

Nearly half of German production is directly supplied to wholesalers and large retailers.

The Association of German Flower Wholesale Markets (Verband Deutscher

Blumengrossmärkte) consists of 14 wholesale markets. Products sold by growers and
wholesalers in these markets mainly aim at regional florists.

Imports
The major volume of imported cut flowers and foliage is distributed either by German
wholesalers or by Netherlands export wholesalers to the retail trade.

The major German import wholesalers are large enterprises and are mostly situated near
Frankfurt, due to the importance of its airport in the physical distribution of flowers. The
airport of Frankfurt has a centre for perishables, where the cut flowers and foliage are held
82
until further transport.

In contrast to the increasing scales recognized in other European countries, the average size
of German importers has decreased significantly since 2000. In 2008, only 17 of 715
companies importing from The Netherlands had a turnover of over € 1 million. Many large
importers have gone bankrupt. At the same time, a number of smaller importers started up
new businesses.

Wholesale channel

The German wholesalers are partly located at traditional wholesale markets, which are
spread out amongst almost all the main cities (Hamburg, Berlin, Düsseldorf and Cologne).

There are about 1,500 wholesale channels in the flower and plant market, of which 800 are
specialized in cut flowers. The predominance of approximately 400 wholesalers in
Germany, trading cut flowers and foliage, is noteworthy. They are well organized and well
informed and they are mainly focused on imports. Moreover, they are increasingly
expanding their services, in cooperation with branch organizations, to include marketing
concepts and training for retailers.

Consolidation in the German wholesale market is most apparent among these 400 major
wholesalers. According to the director of BGI (German association of flower wholesalers
and trade importers), approximately 300 large wholesalers will manage around 60% of the
trade in the coming years.
When targeting the German market, exporters should seek long-term business relationships
with serious and qualified German importer wholesalers.

Major wholesalers/importers in Germany are:

Florimex
Omniflora 83
Landgard Flower Bouquet Services
HBI

Total wholesale in flowers is worth about € 2.1 billion annually. Wholesalers mostly buy
from the auction in The Netherlands and from German wholesalers at the wholesale
market. The main buyers of flowers from wholesalers are approximately 17,000 florists.
Other buyers are grocery shops, supermarkets, street vendors and markets and garden
centers.

Compared to The Netherlands, only a small percentage of cut flowers produced in

Germany are sold via the auction. Nevertheless, because of its increasing role as an auction
where international produce is traded, the German auction organization deserves special
attention. Landgard, previously NBV-UGA, had a total turnover of flowers and plants of €
912 million in 2010 (€ 845 million in 2009 and 821 in 2008), of which cut flowers
accounted for about 40%. Flower sales increased by 7.5% compared to the previous year.
Landgard consists of various auctions spread out over Germany. Cut flowers, however, are
mainly sold via Landgard’s Herongen Flower Auction. More than 800 producers in
Germany, The Netherlands and other countries from around the world market their
products through Landgard’s Herongen Flower Auction.

Landgard’s Herongen Flower Auction has its own Import department, which takes care of
all customs formalities; it also prepares the products for the auction and for direct
marketing. Not only the goods, but also the auction customers are international. Most of
them are located in Germany and The Netherlands, but the goods also go to many other
European countries, including those in Scandinavia and Eastern Europe.
The Landgard organization has also developed 32 so-called ‘Abholmärkte’ (cash-and-
carry) in Germany, as well as one in Vienna (Austria) and another one in Prague (Czech
Republic). This number is expected to increase further. To complement its assortment,
Landgard also imports cut flowers and foliage from the main non-European supplying
countries. Landgard has set up its own Bouquet Service Division to specifically meet the
needs of supermarket chains. The Flower Bouquet Service Division of Landgard sources 84

its products directly from Landgard growers, German and Dutch auctions or direct imports
from all over the world.

The choice for supplying the German market through Landgard or through Dutch export
wholesalers buying at the Dutch auctions should be made using figures from both auctions.
The price offered for a specific flower species might be more attractive at Landgard or at
one of the Dutch auctions, depending on the composition of the assortment at the auctions.

Retail channels

Florists are the most important retail channels in Germany, holding a market share of more
than 50%. After a period of pressure on their market share, the share currently seems to
slightly be increasing again. The share of supermarkets is increasing only slowly. Other
retail channels experienced some decrease in market share.

There are some 14,500 florists in Germany. They are the main source of flowers and
bouquets which are purchased to give away as presents. The leading organizations in which
many florists are organized are Fleurop and Fachverband Deutsche Floristen (FDF). FDF
mainly organizes training courses and helps to develop trends in flower arrangements.

The role of retail chains (supermarkets, garden centre chains, Do-It-Yourself chains) in the
German cut flower market is still relatively modest, representing a market share of about
20%. The leading supermarket chains are Aldi and Edeka. Tengelmann, Lidl, Rewe and
Metro also have a significant share in flower sales. The major role of the supermarkets also
relates to the relatively high demand for short stems. Supermarkets often sell small
bouquets, with short stems.

The German association of flower wholesalers and import traders (BGI) is strongly
attempting to support florists as the main distribution channel. German supermarkets have
specialized for many years in the sale of low quality mono-bouquets. BGI fears that if
85
supermarkets increase their market share, the general image of flowers in Germany could
be damaged in the long term.

Promotion

In general, good care should be taken of existing contacts, by using prompt, constant and
reliable communication. Letters of inquiry should always be replied to. An essential tool
used in sales is a detailed and up-to date customer database.

Visiting and/or participating in a trade fair can be an efficient tool for communicating with
prospective customers or even trading. The main trade fair of interest for flower and foliage
exporters is the IPM in Essen. It can also be an important source of information on market
developments, production techniques and interesting varieties.

Assistance with market entry can also be sought through local business support
organizations, import promotion organizations such as CBI and branch organizations
focusing on the horticultural sector.

Some of the main trade associations in Germany are as follows.

BGI – Association of the German Flower Wholesale and Import Trade

Fachverband Deutscher Blumisten (FDB) – German florists association

The main trade fairs in Germany are:

 IPM – International Plant Show which is held every January or February in Essen,
Germany. The show features plants, but also cut flowers and horticultural equipment
and is the largest show of its kind in the world.

IGW (International Green Week) – International exhibition for the food, agricultural,
and horticultural industries.
86
IFLO – Trade fair for florists

Some relevant trade magazines that are used for promotion of cut flower products are as
follows.

TASPO – magazine for production, services and trade in horticulture

Deutscher Gartenbau (DEGA)
Grüner Markt
CAMPOS
Florist
ZVG Gartenbau Report
Floristik International

4.3 Government Intervention in the Market place

Legislative requirements

Phytosanitary certificate

All producers and exporters of plants and plant products (including fruit and vegetables
and wood products) and looking for EU market opportunities, have to make sure that the
products comply with the EU’s phytosanitary (plant health) requirements. Products that do
not comply with the phytosanitary requirements will be rejected. The main requirements
relate to import restrictions to ensure that certain harmful organisms (pests) will not enter
EU territory. Furthermore, cut flowers such as Dianthus, Gypsophila and Orchidae have to
be accompanied by a phytosanitary certificate when placed on the EU market.

Plant passport

If all is in order, the consignment will be approved and the phytosanitary certificate can be
replaced by a plant passport or plant health movement document (PHMD). A PHMD 87
allows the consignment to enter and move through the particular EU Member State. If a
plant passport is acquired, the consignment can be moved to another EU Member Sate.

Import licenses

All plants; live plants, cuttings and including seeds for same are restricted commodities
and need approval licenses for entry into Germany (CBI, 2010).

International Contracts

The German Business Portal states that where contracts of sale are concerned, the
contracting parties may agree on the application of the CISG (United Nations Convention
on Contracts for the International Sale of Goods) in order to avoid having to make a choice
of law.

Competition and Antitrust Law

As per the German Business Portal business life in Germany is based on the principle of
competition, and is monitored by the Federal Cartel Office. The Act Against Unfair
Competition prohibits explicitly misleading advertising and governs comparative
advertising as well as direct marketing activities.

Export documents

The FedEx website outlines that the following documents need to be provided by exporters
of cut flowers into Germany.
(a) Bills of Lading – No special regulations

(b) Certificate of Origin:

For exports to benefit from a preferential tariff, qualifying products need to be

accompanied by a "certificate of origin". The certificate of origin is a document
certifying the country in which the product was manufactured, and in certain cases may 88
include such information as the local material and labor contents of the product.

(c) Commercial Invoices:

Invoices are required for all dutiable shipments regarding transaction between
companies or companies and individuals, regardless of the value. Commercial Invoices
should show freight, insurance and similar charges as separate items when applicable,
regardless of the INCOTERM used on the transaction. It must be in English or German.

(d) Customs export declaration:

Exporters must declare the export to the customs authorities and be able to produce
appropriate customs documents during the transport.

(e) Consular Invoices – None

(f) Packing list:

It commonly includes an itemized detail of the package contents and does not include
customer pricing. It serves to inform all parties, including transport agencies,
government authorities, and customers, about the contents of the package.

Tax and Duty

VAT
The general VAT rate in Germany is 19% but flowers and plants are subject to a lower
VAT rate of 7%.

Preferential tariffs

Three distinct categories of countries can benefit under the GSP scheme.
89
GSP – Developing countries/territories enjoy preferential access to EU markets. Cut
flowers are considered as sensitive products and hence countries which fall under this
category are subject to a reduced tariff of 3.5 percentage points below the MFN tariff
(17%). Flower exporters which enjoy the benefits of this scheme include Kenya, South
Africa, China, India, Zimbabwe, Thailand, Malaysia, Iran, Philippines and Brazil.

GSP+ (special incentive arrangement for sustainable development and good

governance) – Countries applying for GSP+ and meeting the necessary criteria get
duty-free (zero tariffs) access to the EU market for all 6,400 products covered by the
general scheme. When it comes to the main cut flower exporters to Germany;
Colombia and Ecuador benefit from the GSP+ scheme.
Everything But Arms’ (EBA) – Least developed countries (LDCs) benefit from duty-
free and quota-free (DFQF) access to EU markets for all products, except arms and
ammunition. Ethiopia and Tanzania are the major cut flower exporters that fall under
this category.

Note: The GSP+ concession was repealed from Sri Lanka in 2010.
 90

5. Preliminary Marketing Plan

5.1 Marketing Plan

5.1.1 Marketing Objectives

The marketing objectives for planning year 2011 would be as follows.

 To grab a 0.5% share of German imports for orchids and carnations

 To develop awareness of how consumers can contribute to the environment by using
less energy intensive flowers such as carnations.
 To popularize the practice of giving flowers as gifts for males.
 To ensure a reliable and continuous supply of cut flowers, with a delivery lead time of
one week.
 Develop strong relationship with importing wholesaler and online retailers such as
Interflora.

Sales forecast for 2011

According to the International Trade Centre the imports of cut flowers by Germany during 91
the period 2006-2010 were as follows.

2006 2007 2008 2009 2010

Volume
186,475 168,657 183,680 164,868 170,296
(tonnes)
Value
867,267.98 804,121.17 811,941.17 747,546.60 819,145.62
(€ ‘000s)

Table 2: Imports of cut flowers by Germany

It is projected that the total German imports of cut flowers in 2011 would be 177,108 tonnes
by volume and € 901 Mn by value.

Out of the total imports Orchids account for 1.1% and Carnations 3% (CBI, 2010). Hence
the sales forecast for Shirohana flowers for 2011 can be outlined as follows.

Imports Expected Sales forecast

Products
for 2011 share 2011 (tonnes)
Orchids 1,948 0.5% 9.740
Carnations 5,313 0.5% 26.565

Orchids are usually sold during Spring, Autumn and Winter seasons. Carnations (also
known as Dianthus) are usually sold during Summer, Autumn and Winter seasons.

It is expected that 90% of the sales will occur during the season and off-season sales would
be around 10%.
5.1.2 Product Adaptations / Modifications

Colours

Carnations

Carnations will be provided in a broad range of colours, each signifying a different

92
meaning. Some of these meanings are listed below.

 Pink Carnations: Mother's Love

 Light red Carnations:
 Dark red Carnations:
 White Carnations:
 Striped Carnations:
 Green Carnations:
 Purple Carnations:
 Yellow Carnations:
Admiration
Deep Love and Woman's Affection
Pure Love and Good Luck
Regret, Refusal
St. Patrick's Day
Capriciousness
Disappointment, Dejection

Orchids

Madam Pompadour’ (Pink and White), and ‘Rena Vapahoo’ (Pink and White) hybrids of
Dendrobium orchids are some of the popular hybrids in the market.

Oncidium orchids come in yellow, brown, white, red, pink and a combination of these
colors.

Sizes

Carnations

Carnations are available in three different sizes.

 Large flowered Carnations – one large flower per stem

 Spray Carnations (Mini Carnations) – with lots of smaller flowers
 Dwarf flowered Carnations – several small flowers on one stem

Orchids

Orchids are available in a variety of sizes with Oncidiums growing to about 3-5 cm. 93

Certification

 Clearance certificate by the Forest Department – this is mandatory and guarantees that
the flowers were nursery grown and not sourced from a wild gathering.

 CITES certificate by the Department of Wild Life Conservation – stating that the plant
is not an endangered species.

 Phytosanitary certificate – all floriculture shipments should accompany a phytosanitary

certificate issued by the Department of Agriculture.

Quality and consistency

 Activities in the production and the post-harvest phase would be constantly scrutinized
and improved.

 Implementation of a proper sorting and grading process for cut flowers.

Packaging

The Procona packaging system would be used for the transport of cut flowers. The Procona
system consists of a plastic container, a sturdy cardboard collar and a lid with multiple
ventilation holes. The flowers are put in water, in the container. The cardboard collar is
inserted into the edge of the container and the lid is placed on to the collar. The ventilation
holes in the lid ensure a constant supply of fresh cold air to the heads of the flowers during
transportation, keeping them fresh and in perfect condition.

The advantages of the Procona packaging system would be as follows.

 The quality of the cut flowers is ensured with good, chilled transport (good ventilation,
no condensation on the flowers, in water). 94
 One packaging unit can go right through the entire chain (right into the shop).
 The flowers stand in water – no need for further watering or trimming (cost savings)
 Procona has a higher load factor than all other packing formulas for cut flowers in water
(number of stems per pallet or per measure of volume).

Labeling

There is no general requirement for labels to indicate the country of origin. However,
labeling packages can assist wholesalers and retailers in using proper practices. Hence, the
following information would be provided via the shipping label.

 Common name of the product

 Net weight
 Brand name
 Name and address of shipper
 Country of origin
 Recommended storage temperature
 Special handling instructions

Marking
There are no special marking requirements. However, according to sound shipping
practice, packages should bear the consignee’s mark, including port made and they should
be numbered to identify the contents of the package.

Technology 95

Carnations

Carnations are produced entirely from imported planting materials and are graded
according to internationally accepted specifications for export. Both American and
Mediterranean carnation cultivars are used. Carnations are grown in poly tunnels, covering
more than 10 hectares, under fully protected environments.

Orchids

Tropical Orchids are grown under warm humid conditions up to 500 metres above sea
level. Almost all cultivations are under shade netting and the majority of growers have
developed mist irrigation techniques.

5.1.3 Promotion Mix

The main objectives of the proposed promotional campaign are as follows.

 Create a social trend of providing flowers as gifts for males.

 Develop awareness amongst German flower consumers of the positive impact on the
environment from the use of less energy intensive flowers.
 Create a unique identity for Sri Lankan cut flowers.
 Differentiate “Shirohana flowers” from other cut flower suppliers.
 Increase the off-take of the product in the German market.
The following promotional mix elements are planned in order to achieve the above stated
objectives.

1. Trade fairs
(a) Participation at the International Plant Show (IPM) can develop an initial
awareness about Shirohana flowers and its value proposition. Since this is the
96
largest plant show in the world, it is the ideal place to communicate to a wider
audience.
(b) Also the IFLO, trade fair for florists, is an ideal opportunity to get to know about
and develop relationship with florists in Germany.

2. Trade magazines – this is the ideal medium to directly communicate to the target
audience. A brief background on Shirohana flowers would be provided.
(a) ‘Florist’ is one of the leading magazines for florists in Germany, and is published
monthly. It is expected to communicate about the contribution that consumers can
make toward the environment by the use of less energy intensive flowers.
(b) Articles in Women’s lifestyle magazines such as;
- Emotion (only woman's magazine that looks at the areas of partnership, family,
career and personality from a psychological point of view)
- Brigitte (readers are mainly women between 20 and 49 years, and has
accompanied German women through their lives for more than 50 years)

These women’s magazines would be used to develop a perception amongst women

that flowers are a gift which they can give to males, and what are the types of
flowers they can give as gifts.

3. Web/Online – use of new age advertising

(a) Bloom central – is a florists and flower shops web directory in Germany. It is
planned to develop a pop-up banner ad on this website. The advertisement will be
 on Shirohana flowers, and anyone who clicks on it would be directed to the
Shirohana flowers website.

4. Press and PR – would be released to correspond with father’s day (21st May), friendship
day (first Sunday in August) and world environment day (5th June).
97

5. Seminars – a series of seminars would be planned in collaboration with the Sri Lanka
Embassy in Germany to promote positive environmental effects of less energy
intensive flowers.

6. Sales promotions
(a) Real – a hypermarket operator, and is a member of the German trade and retail
giant Metro AG. Run a trade and consumer promotion where the consumer is
qualified for a raffle draw and the retailer is entitled to a 10% discount on sales.
(b) Shirohana flowers online promo – all German consumers who purchase flowers
online from the company website would get a 15% discount for mixed bouquets
(consumers can select the flowers they want for the bouquet) and a 7.5% discount
on mono-bunches.
Promotion Plan for 2011

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Trade fairs 98
- IPM
- IFLO
Trade magazines
- Florist
- Emotion
- Brigitte
Web/Online
Press and PR
Seminars
Sales promotions
- Shirohana flowers website
- Real
5.1.4 International Distribution

International distribution explains the movement of goods once they reach Germany, and
until they reach the final consumer.

Florists 99

Airline
Freight Importing Consumer
forwarder wholesaler

Supermarkets

It was decided to choose a direct distribution channel rather than go through the auction
network due to the following reasons.

 More personal relationship enables joint product and services development.

 Enables focused marketing efforts.
 Fixed (month or semi-annual) or more regular prices. Expectation of better prices.
 Small volumes (specialty products) can be combined to create larger batches.
 Potential for quality improvement by improving logistics (closing the cold chain) in
cooperation with customer.

Freight forwarder

The freight forwarding within Germany will be handled by Jet Flowers, the logistics arm
of Omniflora. Jet Flowers is a specialist freight forwarder dedicated to the handling of
perishable shipments. Jet Flowers Ltd. is the first forwarding agent to be Fairtrade certified
by the Fair Trade Labeling Organization. It will be responsible for clearing the goods from
the customs.
Once the cut flowers are landed, they are immediately off loaded on to a temperature
controlled truck and transported directly to Omniflora. When transporting they have a small
soil composition at the bottom of the container in order to maintain moisture.

Importing wholesaler
100
Omniflora is the selected importing wholesaler. Its core business is based on the supply of
straight line and mixed bouquets to the wholesale market, bouquet makers and to the major
retail multiples in Germany, Austria, Scandinavia, Switzerland and other European
countries. Omniflora has developed the fastest and most direct supply chains working with
world class partners in production, handling and logistics using modern handling and
transportation techniques. Their direct involvement in each step of the process gives them
the appropriate balance between control and flexibility in order to meet the wishes of the
customers.

As Omniflora deals with both florists and supermarket chains it would be appropriate for
Shirohana flowers to enter into a 3-year contract, renewable every year. This would help
Shirohana flowers to develop a long term relationship and a secure channel for
development of its brand and product portfolio.

Florists

Shirohana flowers also hopes to develop relationships with some German florists by
participating at the IFLO (trade fair for florists) in August. Initially, florists would be
catered via Omniflora.

Supermarkets
The main strength of supermarkets is the convenience they offer. As a result, supermarkets
also tend to concentrate on the impulse and private-use segment. Shirohana flowers have
also negotiated with Omniflora to display its cut flowers at the hypermarket, ‘Real’.

Margin structure 101

Trade channel Activities Margin

Wholesaler Quality control, grading, sorting, re- cutting, 10-30%
sleeving, re-packing, transport
85-95% on
Retailer Sales promotion, customer service
average

5.1.5 Local Channel of Distribution

“Shirohana flowers” has its own cut flower nurseries located in the Nuwara Eliya district.
The ‘state of the art’ cut flower project is located at an elevation of over 2000m in the
picturesque hill resort of Nuwara Eliya in Sri Lanka where cool, stable temperature,
organically rich soils and 12 hour day lengths supplemented with artificial lighting ensures
all year round growth. All flowers are grown in Greenhouses, giving the flowers a long
vase life and a superb quality that is appreciated by both our wholesale and retail customers.

In normal practice flowers are not kept in storage once they are plucked for export and they
are immediately loaded onto a temperature controlled lorry and transported directly to the
airport. Normal general cargo such as garments, need to be handed over 10 hours prior to
flight departure but for perishable such as flowers, the airline will accept the cargo 3 hours
prior to take off. So everything happens in a rush and under a very specific time table.

Once in the air craft, the flowers will go into a pressurized cabin in the cargo hole, so that
the temperature is controlled in the total duration of the flight time in order to keep the
flowers fresh.
Freight forwarder

The chosen freight forwarder for the transport of cut flowers from Sri Lanka to Germany
is E.B. Creasy Logistics Limited and the services it offers are as follows.

 Pre Move survey and estimating 102

 Providing necessary packing materials and packing for full export standard
 Listing and numbering all packages and preparing detailed inventories
 Pick up of goods from residence
 Loading into containers, liftvans and airvans
 Removal of debris from residence, when resulting from packing
 Completion of export clearance
 Delivery upto exit terminal Port/Airport

E.B. Creasy is responsible for the collection of cut flowers from the Shirohana greenhouse
in Nuwara Eliya, distribution to the Bandaranaike International Airport in Sri Lanka, and
upto the exit terminal at the Frankfurt airport in Germany where the goods would be cleared
by Jet Flowers.

E.B. Creasy Bandaranaike

Shirohana
(freight International
greenhouse
forwarder) Airport

Sri Lankan Airlines

Jet Flowers Frankfurt

(freight Airport
forwarder)
5.1.6 Price Determination

The brand will adopt a competitive pricing strategy in order to match competitor’s prices
whilst differentiating through marketing-mix incentives.

Price negotiations with Omniflora would be based on Landgard auction prices. The top
down export pricing model would be employed for the pricing of cut flowers. 103

The price estimation of cut flower exports by Shirohana are as follows.

Costing Schedule
Price elements Carnations Orchids
Market price 2.20 3.25
Deduct VAT @ 7% 0.14 0.21
Consumer Price per stem Excluding VAT 2.06 3.04
Deduct retail margin of 90% 1.85 2.73
Retailers Buying Price per stem 0.21 0.30
Importers Buy Price per stem (Deduct Importers margin of
30% + Clearance & Warehouse Allowance of 3% + 0.15 0.22
Advertising & Promotion Allowance of 5% = total of 38%)
Deduct Duty (12% of CIF ) 0.02 0.02
CIF per stem 0.13 0.20
Deduct Freight 0.03 0.03
Deduct Insurance 0.01 0.01
FOB per stem (€) 0.09 0.16
Convert to SLR (€1 = Rs. 158.185816) 14.72 25.23
*Note: All figures are based on € per stem

There are 40 stems per kg of Orchids and 35 stems per kg of Carnations.

5.1.7 Terms of Sale

When selling directly via European importers, the use of written contracts is not a
widespread practice. Particularly in established trade relationships, importers prefer to
work with open accounts on a trust base without written contracts, arguing that it is not
efficient to put a contract together each time a deal is made. However, in the case of a
conflict with the importer, communication via e-mail, fax or even by telephone, would
function as a contract.

The terms of sale between Shirohana flowers and Omniflora would be Free On Board
(FOB). The responsibilities of Shirohana and Omniflora during the export of cut flowers
would be as follows.
104

Activities Responsibility
Warehouse Storage Shirohana
Warehouse Labor Shirohana
Export Packing Shirohana
Loading Charges Shirohana
Inland Freight Shirohana
Terminal Charges Shirohana
Forwarder’s Fees Omniflora
Loading On Vessel Shirohana
Air Freight Omniflora
Charges On Arrival At Destination Omniflora
Duty, Taxes & Customs Clearance Omniflora
Delivery To Destination Omniflora

FOB (Bandaranaike International Airport) means that the price quoted for Omniflora
includes all expenses that have to be incurred by the company from its greenhouse upto the
placement of goods at the airport. In this situation Shirohana will have to bear the risk for
any damage to the goods until the goods are placed on the plane. Once the goods are loaded
the risk for any damage to the goods would be borne by Omniflora.

In particular, the expenses to be borne by Omniflora include;

 Insurance charges
 Air freight charges
 Import duty – duty is based on the cost of insurance and freight value (the third country
duty on cut flowers is 12% in Germany)
 VAT – is payable on the sum of the cost, insurance, freight value plus the duty amount
payable (cut flowers are subject to a reduced rate of 7% in Germany)

5.1.8 Method of Payment

105
Because of the possible complications and costs, letters of credit (L/C) are often avoided
in the cut flower trade. When using L/C, risks are divided between buyer and supplier. The
supplier only receives payment after goods are consigned to a carrier and the buyer only
receives the goods after payment.

The commonly used methods of payment in the cut flower industry are “Cash in Advance”
and “Open Account”. Shirohana will initially transact with Omniflora on a ‘cash in
advance’ basis when the initial export volumes are low in order to avoid possible liquidity
concerns. A wire transfer is commonly used and has the advantage of being almost
immediate. As export volumes increase and the relationship with the buyer improves
Omniflora will offer its products on an “open account” basis. With an open account, the
exporter simply bills the customer, who is expected to pay under agreed terms at a future
date. It is expected to provide 30 days credit for any shipment of cut flowers on an open
account basis.

5.2 Pro-Forma Financial Statements & Budget

5.2.1 Marketing Budget

The marketing budget comprises of 3 key elements.

 Advertising
 Promotions
 New age media
 Promotional element Budget (€)
Advertising
- Trade magazines 100
- Lifestyle magazines 1,700
- Press 150
106

Promotions
- Trade fairs 50
- Seminars 100
- Sales promotions
Promotional material
Posters 20
Screen Printed Material 30
Tinplates, Stand Boards, Racks 50
Danglers 10
New year calendars 40
Promotional fee to Omniflora (to be passed 3,650
onto florists and supermarkets)

New age media

- Website promotions 400

Total Media Cost 6,300

5.2.2 Pro Forma Annual Profit & Loss Statement

The expected profit and loss from the international operation would be as follows.
 Profit and Loss Statement for the year Products (in €’s)
ended 31st December 2011 Orchids Carnations Total
Sales volume (kgs) 9,740 26,565
No. of stems per kg 40 35
Total sale of stems 389,600 929,775
107
FOB price per stem 0.16 0.09
Sales revenue 62,336 83,680 146,016
Cost of Sales 102,211
Gross profit 43,805
Salaries and administration 33,420
Finance charges 438
Distribution and Logistics cost 584
Depreciation 790
Marketing expenses 6,300
Profit before tax 2,273
Taxation @ 30% 682
Net profit 1,591

The initial net profit expected during the first year of operation is € 1,591 (or approximately
Rs. 250,000).

5.3 Resource Requirements

5.3.1 Financial Resources

The company needs to incur a cost of Rs. 1,500,000 on the construction of the greenhouse.

Shirohana also needs to purchase raw materials for the first batch of cut flowers. It is
estimated that the initial working capital cost would be as follows:
Material cost: 100,000 stems*Rs. 10 per stem = Rs. 1,000,000

It is proposed that Shirohana opts for an overdraft facility of Rs. 2,500,000 for this purpose.

5.3.2 Human Resources

108
The Shirohana farm in Nuwara Eliya currently employs 350 workers. The commencing of
the international operation would give rise to the following human resource requirements.

Average
Grade No. Labour cost
monthly salary
Production employees 20 Rs. 10,000 Rs. 2,400,000
International Operations Manager 1 Rs. 75,000 Rs. 900,000
Production supervisor 1 Rs. 35,000 Rs. 420,000
Quality controller 1 Rs. 45,000 Rs. 540,000
Marketing Assistants 3 Rs. 25,000 Rs. 900,000
Note: Part of the existing workforce can be re-assigned to the new greenhouse

Therefore, the total additional human resource cost amounts to Rs. 5,160,000.

5.3.3 Production Capacity

Current annual production = 500,000 stems (including 50,000 stems in orchids and 120,000
stems in carnations)

Maximum production capacity = 1,000,000 stems

Additional production capacity required for export:

Expected No of stems Expected

Product
sale (kgs) per kg sale in stems
Orchids 9,740 40 389,600
 Carnations 26,565 35 929,775

Shortfall in production capacity = (389,600 + 929,775) – (1,000,000 – 500,000)

= 819,375

Thus, there is a shortfall in production capacity of 819,375 stems. Shirohana will need to 109
set up a new greenhouse to cater to this shortfall. This new greenhouse will enable it to
cater to the flower demand created by its expansion both domestically and locally.

Additional investment required for new greenhouse = Rs. 1,500,000

5.4 Implementation and Control

The responsibility for the implementation of the plan would lie with the International
Operations Manager. He is expected to develop a monthly presentation on performance to
the Managing Director.

In addition, a quarterly performance review will be held to look into target achievement,
identify constraints and other matters concerning the operation. Reasons for deviations
from targeted performance will be thoroughly discussed and remedial actions taken
immediately.

Further, the International Operations Manager is responsible for reviewing the business
relationship maintained with Omniflora.

6.0 Sources of information

A study of The German Flower Market. (2008). Rural Industries Research & Development
Cooperation.

Alibaba. www.alibaba.com. Germany – Market Access. Accessed on 2nd August 2011.

BMBF. http://www.bmbf.de/en/1869.php. Accessed on 2nd August 2011.

CBI (Centre for the Promotion of Imports from developing countries).

http://www.cbi.eu/marketinfo/cbi/?action=findDocuments&product=8&market=19.
Accessed on 3rd August 2011.

Centre for the Promotion of Imports. 2008. CBI Market Survey: The Cut Flowers and 110
Foliage Market in Germany. CBI.

Central Market and Price Reporting Agency. http://www.zmp.de/. Accessed on 3rd August
2011.

CIA Factbook (Germany). https://www.cia.gov/library/publications/the-world-

factbook/geos/gm.html. Accessed on 1st August 2011.

Clevé, B. (1995). Der Filmbetrieb in Deutschland. In: Handbuch Kultur und Medien.

Dunkel, T., Seibt, C. and Nascimento, L. F. (1996). Technology Policy and Sustainable
Development in Germany and Brazil: Shaping National Systems of Innovation towards a
sustainable future.

eDiplomat. http://www.ediplomat.com/np/cultural_etiquette/ce_de.htm. Accessed on 1st

August 2011.

European Journalism Centre. http://www.ejc.net/media_landscape/article/germany/.

Accessed on 2nd August 2011.

Facts about Germany (Culture). http://www.tatsachen-ueber-deutschland.de/en/content-

home/facts-and-figures/culture.html. Accessed on 1st August 2011.

Facts about Germany (History). http://www.tatsachen-ueber-

deutschland.de/en/history.html. Accessed on 1st August 2011.

FedEx. http://fedex.com/us/international/irc/profiles/irc_de_profile.html?gtmcc=us.
Accessed on 3rd August 2011.
German Business Portal. www.german-business-portal. Accessed on 3rd August 2011.

German Culture (Climate).

http://www.germanculture.com.ua/library/facts/bl_climate.htm. Accessed on 1st August
2011.

Germany – Language, Culture, Customs and Business Etiquette. 111

http://www.kwintessential.co.uk/resources/global-etiquette/germany-country-
profile.html. Accessed on 1st August 2011.

International Trade Centre.

http://www.trademap.org/tradestat/Country_SelProductCountry_TS.aspx. Accessed on
4th August 2011.

Nationmaster. http://www.nationmaster.com/country/gm-germany/med-media. Accessed

on 2nd August 2011.

Shirohana website: http://shirohanaflowers.com/about_us.php. Accessed on 1st August

2011.

Sri Lanka Export Development Board.

http://www.srilankabusiness.com/trade_info/srilankaproduct/foliage.htm. Accessed on
1st August 2011.

The Flower Expert. http://www.theflowerexpert.com. Accessed on 2nd August 2011.

Vringer, K. and Blok, K. (1998). The energy requirements of cut flowers and consumer
options to reduce it. Department of Science, Technology and Society, Netherlands.

Wernett, H. C. (1998). Potential of Commercial Floriculture in Asia: Opportunities for Cut

Flower Development. Cut Flower Production in Asia. FAO Corporate Document
Repository.

World Bank. 2011. World Development Indicators Report. The World Bank.
Yue, C., Rihn, A., Behe, B. and Hall, C. (2009). Consumer Preference for Flowers as Gifts:
Age Segments, Substitutes, and Perceived Risk. Floral Marketing Research Fund.

112