finance and logistics
The village of Breezand, in the northern part of Noord-Holland, may possibly be even more renowned abroad than it is in the Netherlands itself. This is definitely also true for the company Bol Business, residing in Breezand. The renown of the village and the company is based on their fine reputation in the field of growing bulbs and bulb export. It’s not just about the world-famous tulips, but also about crocuses, hyacinths, daffodils, and lilies. Dutch bulbs are renowned all over the world for their diversity, quality, and the stunning results they produce when you let them come into bloom.
Bol Business is a relative newcomer in the industry. It was established in 1965 by Rita Schenk, the wife of a potato grower. What started off as a hobby has grown into a medium sized company in the field of growing and exporting bulbs. Rita had already been captivated for years by hyacinths and lilies and she had transformed the large vegetable plot into a bulb garden, which she used to supply the whole family and in-laws with bulbs. Through self-study and practical experience she had gained extensive knowledge on growing and improving bulbs. It turned out she was very successful at it, and her client base grew considerably through word-of-mouth advertising.
Her husband Gerard donated a little piece of his farmland to Rita and she took up the growing business in a more professional manner. Because of this increase in scale, trade had to be approached in a more businesslike manner as well, ultimately resulting in the establishment of Bol Business.
Until approximately 1980 practically only bulbs from her own company were traded. The Schenk family completely stopped growing potatoes within five years, and everything became geared towards the growing of bulbs.
A holiday trip to the United States in 1997 was in fact the start of the first export transaction of hyacinth bulbs. It took, however, approximately a year before the bulbs actually crossed the border. Within two years of this first shipment, exports to the U.S. had grown to such an extent that the company’s production was no longer sufficient to meet all demands. There was also demand for other sorts of bulbs than the ones that Schenk cultivated herself.
Therefore Rita started to buy bulbs from other growers in the neighbourhood and she added them to the export portfolio. Bol Business increasingly became more of a trade company than a nursery. Exports to the U.S. kept growing steadily with ups and downs, but in the second half of the Eighties Rita consciously sought to expand her markets, both in Europe and in Northern America. In 2000 90% of Bol Business’ turnover is exported to almost twenty different countries.
Bol Business in numbers
From the preliminary year report of Bol Business for the year 2000 the following numbers can be derived. Total turnover is approximately €25,000,000, profit before taxes is approximately €2,000,000, net worth is €5,000,000 farmlands excluded, short term loan capital is €1,000,000 and long term loan capital is €3,000,000. In 2000 turnover grew with approximately ten per cent with regard to 1999, but profits have remained about the same as last year’s profits.
Staff has not changed in 2000 and consists of 32 permanent employees, apart from Rita and Gerard. These are supplemented with approximately 50 temporary employees during the high season.
The bulbs traded by Bol Business come from about 150 different growers in the northern part of Noord-Holland. All in all six different types of bulbs are traded and these can be subdivided in 48 different varieties.
The client base consists of almost 400 parties, distributed over twenty countries. Internet customers are not included.
Organisational structure and entry strategy
Bol Business has no real organisational structure. The company is relatively small-sized, and because of their agricultural background they are not really used to these kinds of things. And yet the company does have a good distribution of tasks and responsibilities. Rita is the CEO, she is in charge and heads a small sales team. In sales three employees are active, in addition to Rita, one of them focussing especially on the network of foreign intermediaries. Gerard leads the production company, purchasing and processing. Two other important departments are: accounting and the logistics department. Rita and Gerard are jointly responsible for the operation of these two departments.
The foreign markets are worked through various entry strategies. In the United States five importers are used, in most European countries use is made of agents, and in South Africa the piggyback system is used. At the moment the establishment of a sales office in Germany and discontinuation of the agency there is being considered.
Marketing and sales
The best marketing is worth-of-mouth advertising. This used to be the main promotional instrument of Bol Business in the past as well. As foreign interests became increasingly important within the company, attention to marketing became more important as well. In order to stimulate international growth, Rita deemed it necessary to put substantial effort into marketing activities. Within its branch Bol Business was one of the first companies to use a structured marketing approach and to allocate budget to it. This approach started off with a systematic filling-in of the market development by means of a thorough market research of markets that might yield potential sales possibilities. The choice was also made for a differentiated marketing approach of the various continents. An example is the filling-in of the mix instrument place. For the European market they mostly work with prepack, sold to consumers via retail chains. The South African market is mostly served with bulk packaging delivered to the professional sector. The North American market receives unpackaged products, that are locally packed into prepack by the importers and sold as clearly recognizable Dutch brands.
In the marketing activities that directly support sales, Bol Business has also differentiated per geographical market. This means there are different brochure materials for America, Germany, South Africa, and the Netherlands, suitable for the distribution channel used and the target group to be served. The Southern European market is intensively supported through an active participation in fairs, and in Great Britain extensive use is made of highly specific mailings. It goes without saying that the marketing in each country is organized and executed in close collaboration with the local intermediaries.
Bol Business pays much attention to controlling the process of physical distribution. The organisation of delivering the bulbs to the customers is also influenced by the current seasons of the customers. A bulb has a biological rhythm, meaning that it will start to grow after a certain cold period. When it arrives at the customer, it should therefore be planted within a reasonable period of time for it to start blooming. To avoid erroneous storage of the bulbs, causing them not to develop in the right way, Bol Business needs to organise its shipments in such a fashion that the shipments arrive at their destinations at the right moment.
A special logistic complication with bulbs is caused by phytosanitary requirements. Every country that imports bulbs, has its own requirements regarding plant diseases. Within the European Union a rather large degree of uniformity has fortunately arisen. These special requirements mean that on the grower’s land it is already partly determined for which destinations the pertaining bulbs can be used, and therefore how the storage and shipping should be organised including the required customs formalities.
For handling the transports Bol Business makes quite extensive use of the services of a major forwarding office with an international network, but all preparatory work is handled by their own forwarding department. Most transactions are delivered on a CIF basis, but in particular to South Africa delivery is usually EXW. The size of a shipment is rarely over 100 tons and the quality of the transport is more important than its speed.
The United States
The United States are still one of the main markets for Bol Business, but also one of the hardest. Right from the moment that Rita started her efforts to deliver to that market, she has had to pay a great deal of attention to import regulations. If it weren’t the phytosanitary requirements, it would be the variety registration, but it could just as well be a condition with regard to packaging, or the liability assurance needed modifications.
And all this in addition to import duties, environmental regulations and local taxes. Because of the complex import conditions the U.S. remains a major challenge, that lets many a competitor cease their efforts prematurely.
Because of the vastness of the country and the major local differences within in, Bol Business has decided to split up the total market into five submarkets. The two main selling areas are the region around the city of New York and the part of California around Los Angeles. Just for climatological reasons alone these areas demand a completely different approach. As an entry strategy Bol Business has consciously chosen importership. This choice still seems to be functioning well, although the turnover might also be a reason to switch to a sales office of their own.
The main marketing instrument in the U.S. is the product. What is special in this respect is that it’s not about the bulb, but about the brilliant flowers growing from these bulbs. This instrument, paired with the perfect planning of the germination of the bulbs in the foreign sales areas and the fine reputation of the importers that are used in the U.S., provides Bol Business with a perfect USP in that market.
For the market presentation in the U.S. it is important that the Dutch origin is clearly visible and that it is an import product. Should the price as a marketing instrument be used, than one should be looking at a higher pricing than a minimum price. The main competitor for the bulb is its substitute in the form of a flower bouquet.
Finances and risk coverage
The Schenk family has a tradition of managing their finances well. They try to maintain this principle in the export of bulbs. From the start of their exports Rita has maintained a policy of a healthy risk avoidance in their payment agreements. She also used her female intuition in judging customers on their payment morale. In general the export transactions of Bol Business are handled financially through a documentary letter of credit, where the date of departure of the shipment forms the basis for the settlement of the L/C. For long-standing relations in general the switch is made to a somewhat less binding payment system. To be able to limit the risks in those cases, Bol Business uses an NCM policy.
Another financial problem that Rita had to find a solution for, was the sales in various currencies. She preferred to sell as much as possible in Dutch guilders. As the export grew, trading increasingly took place in the local currency of the buyer. From 1995 onwards the policy was adopted of trading only in NLG, USD, DEM, and GBP. Since 2000 the euro was added. Bol Business has also adopted the motto that they should make their living through the bulb trade and not through the currency trade.
Export and import conditions
The international bulb trade has to deal with a great many conditions, both from the exporting country and from the importing country. Since the Netherlands are the main bulb exporters in the world, growers and the government will do anything to maintain that position. Therefore export conditions are maintained that are mainly aimed at the health of the bulbs and at quality guarantees for pure varieties. In order to guard these export conditions well, the ministry of Agriculture and Fishery established an extensive control system with the growers and the exporters.
The main conditions in the international bulb trade stem, however, from the importing countries. They partly overlap with Dutch export conditions, but there are important differences as well. Most import conditions are of a non-tariff nature, and are sometimes also regarded as import restricting conditions. A few of the most common conditions are: the amount of adhering soil, the health conditions of the product and of the country of origin, the local variety registration and the purity of the variety. If these conditions are applied according to WTO regulations, this actually is not half bad for the Dutch bulb export from a competitive point of view.
The buyer and the importing country in general will rigorously oversee a proper compliance to import conditions. Bol Business aims to have inspections taking place as much as possible before the product is loaded for export. This can be done for example by an independent SGS inspector. For larger shipments the company invites a representative of the buyer to come over to the Netherlands for a final inspection. These visits can also be used in a promotional sense.
Until recently Bol Business traded through the proper channels and the developed entry strategies. But a modern export business, like the one of the Schenk family, moves with the times. From 1999 onwards Rita has been preparing sales through the Internet and implementing the required information and communication technology. The product bulbs is exquisitely suited for sale through the Internet on the consumer markets within the European Union.
From the end of 1999 onwards sales have actually been made through the Internet, and in 2000 this sales channel starts to generate a sizeable turnover. At the same time Rita starts to notice that it’s not as simple as people had led her to believe.
A great deal of problems need to be solved before this distribution channel becomes truly profitable. Just think of payments and logistics, but Bol Business has conquered more difficulties in the past, so they will manage this as well. It is therefore expected that within three years 15% of the turnover will be realized through this new form of international trade.
Commercially speaking Bol Business is doing well. Yet Rita Schenk does worry somewhat, since she has little coverage from solid legal contracts for the various activities the company is engaging in. Every time new agreements are being made, they mean to draw up a contract, but because of the daily hassle, this does not happen. Fortunately very little has gone wrong until now, but it is the intention to settle these contract matters in the spring of 2001, so everything will be ready before the new harvest arrives.
Another important legal component in the bulb growing business is the right of varieties. In the Netherlands this is regulated quite well, but in some other places in the world this right of varieties is not acknowledged or not being adhered to. Until now Bol Business has not done business with countries where there are issues with breeder’s licences. In the Internet trade, however, much attention will have to be given to this issue.
In the Netherlands almost everyone has bought a bouquet of tulips, put a hyacinth in a pot on the table, or planted some crocuses in the garden. The casualness with which we do this, is by no means the same in the rest of the world. In America there are only very little bulb products in the garden, and the market for flowers is much more familiar than that for bulbs. The American is mainly interested in the flower, and he wants to have it with as little work as possible. The bulb is mainly for the amateur. In South Africa the
bulbs are used by florists that let them grow into flowers in nurseries, to be sold to the more affluent layers of the populace. The flowers are often a gift for the hostess one is visiting. In most Southern European countries the bulbs are planted in pots, that are placed both inside and outside the home. In addition to this private use, quite a large number of bulbs is planted in parks and public gardens.
The use of the bulb is quite often a derivate of the use of the flower originating from it. In the one country flowers are considered to be part of life, in another country it is a form lf luxury, and in yet another country it has an emotional value. In order to market the bulbs in the right way, Bol Business needs to take these differences per country well into account. Just think of the difference in colour of the flowers and the effects it has on the selling opportunities.
Bol Business grew more or less automatically, in any case it did not happen based on a certain plan, only marketing was dealt with in a planned fashion. In order to avoid the occurrence of proliferation, Rita en Gerard went to work to let the future development of their company take place in a more structured fashion. The result from their work indicated that Bol Business needs to have doubled its turnover in five hears, that the number of market countries need not grow, that there are opportunities for the export of flowers, and that the company needs to show its face abroad. With an eye to this, the decision is made to hire a new, experienced export manager in the short term to take on these plans and to make the growth strategy a success.
1 Bol Business is doing business with countries belonging to different economic collaboration. The most important ones in this respect are the European Union, the NAFTA, and the ASEAN. Please explain the main differences between these three collaborations. Does the existence of economic collaboration have an impact on the business dealings of Bol Business with countries participating in such a collaboration. If yes, in what way?
2 Bol Business uses various entry strategies. Please give a short explanation
of three of these strategies. What are the most important criteria for a business when choosing a good entry strategy? Do you think that Bol Business made a right choice with regard to their entry strategies? Please clarify your answer.
3 By accident Rita Schenk finds out that there seems to be a market for bulbs in Russia. With an eye to the company’s strategy, how should Bol Business respond to this information in your opinion? Would your reaction be different if it were Mexico instead of Russia? Please clarify your answer.
4 From 1995 onwards Bol Business has used a limited number of currencies in which the transactions are concluded. Which risks of depreciation is Bol Business still running, and in what way can these risks be contained? Please give a short description of one of the methods for containing the risk of depreciation you mentioned.
5 The logistics department of Bol Business fulfils an important role in handling the shipments. Why is it still very important for Bol Business that extensive use is made of the services of a shipping agent?
6 In order to make bulb export possible, Bol Business has to deal with a great many regulations checked by customs. With bulbs these conditions are mainly of a non-tariff nature and the regulations of the WTO are complied to pretty well. Should the policy with regard to customs matters of Bol Business be filled in on a strategic or on an operational level? Please substantiate your answer.
7 You receive the assignment from Rita Schenk to ensure that Bol Business will have a package of legal contracts/agreements that is customary for exporting businesses, before the summer of 2001. Which contracts/agreements should Bol Business have at the very least? State of one of the contracts/agreements you mentioned the subjects it should contain.
8 Let us say that you are an American buyer of lot of hyacinth bulbs from Bol Business. You need to open an L/C for this purpose. Please state briefly the instructions you will give to the bank for opening this L/C (in other words: what should be incorporated in the L/C?). Take the conditions of the exporter and the import conditions into account.