Table of Contents

Executive Summary................................................................................................................................. 3 1. 2. 3. 4. 5. Introduction - Sri Lankan Economy ................................................................................................. 4 The Floriculture Industry of Sri Lanka ............................................................................................. 8 The World Floriculture Industry .................................................................................................... 12 Challenges, Risks, Barriers in the Domestic Industry .................................................................... 12 Trade Terms of the Floriculture Industry ...................................................................................... 13 5.1. 5.2. 5.3. 6. 7. Payment Period..................................................................................................................... 13 Trade Documents .................................................................................................................. 13 Delivery ................................................................................................................................. 14

Import and Export Policies Implemented by the Sri Lankan Government ................................... 14 Growth Prospects for the Industry in the Foreign Market ........................................................... 16 7.1. 7.2. 7.3. 7.4. 7.5. 7.6. 7.7. Netherlands hosts the largest auction of flowers and plants in the world .......................... 16 Worlds biggest trade fair for floriculture products.............................................................. 17 Technology section ............................................................................................................... 17 Production, supply and trade section ................................................................................... 17 Exceptional distribution networks ........................................................................................ 18 Increase in demand for Sri Lankan ........................................................................................ 18 Additional services provided by importers in Netherlands .................................................. 19

8.

Possible Modes of Entry................................................................................................................ 19 8.1. 8.2. Exporting ............................................................................................................................... 20 Joint Ventures (JV) ................................................................................................................ 20

9. 10.

International Business Strategy .................................................................................................... 21 Challenges, Risks and Barriers in the International Arena ........................................................ 22 Non availability of new varieties for export ...................................................................... 22 Security checks on roads and at airports .......................................................................... 23 Duplication of security documents ................................................................................... 23 Financial barriers ............................................................................................................... 24 Access barriers to research facilities ................................................................................. 24 Risk of nonpayment by the foreign buyer ........................................................................ 24 Issues associated with freight ........................................................................................... 25

10.1. 10.2. 10.3. 10.4. 10.5. 10.6. 10.7. 11. 12.

Recommendations .................................................................................................................... 25 Conclusion ................................................................................................................................. 29 1|Page

13.

References ................................................................................................................................ 30

APPENDIX .............................................................................................................................................. 33

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Executive Summary

This report is a critical analysis on identifying the most suitable industry to enter the International market. The primary contents of this report discusses about the Sri Lankan economy, relating to areas such as total exports, imports and trade balance. In addition to this, this report also emphasises on the international trade the country is engaging in. The selected industry chosen for this assignment was the Floricultural industry which includes products such as Bulbs Tubers Corms Live Plants Cut flowers Foliage Flowers seeds and many others

A comprehensive report is provided on this selected industry, mentioning about the negative aspects in the local market and challenges faced in the international market. This report also identifies the growth prospects available for the industry by catering to both domestic and international markets. In addition to this, we have also suggested and clearly explored the selected modes of entry towards the international market through floriculture. Furthermore, in order to provide more information, we had selected and explained SWOT analysis, Porters 5 forces and Diamond theory based on floricultural industry. On the other hand, we were also able to provide a country analysis on our desired country of export which is the Netherlands. Finally, the report consists of the action plan and implementations by the government of Sri Lanka; and how they would support this industry to improve its quality standards, productivity growth and market expansion.

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1. Introduction - Sri Lankan Economy

Despite the years of civil war, the growth rate in Sri Lanka achieved strong growth rates in the past few years. Taking a look back from year 2007 to 2012, Sri Lankas gross domestic product (GDP) growth rate attained 8.2 percent as the highest GDP at the end of 2011, alongside with a ground breaking lowest GDP growth rate of 3.5 percent in 2009.The Sri Lankan economy is based mainly on tourism, tea export, apparel, tourism, textile and rice production sectors (www.cbsl.gov.lk) Sri Lanka has many resources to be offered to the world market; out of which some of the highly reputed exports according to the Central bank of Sri Lanka 2013 are as follows.

Tea Rubber Coconut Vegetables Coffee Cinnamon Pepper

Beatle leaves and Areca nuts Sesame seeds and other oil seeds Unmanufactured tobacco Mineral exports Precious stones Textiles and garments

On the other hand, apart from these bulky exports, Sri Lanka also participates in various minor exports. These are some of the minor exports being carried out, according to the export development board of Sri Lanka.

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Ayurvedic and herbal products Boat building Electrical and electronics Coconut and coconut based products Fruits and vegetables Giftware and lifestyle products Handloom Floriculture

Organic products Ornamental fish Wooden products Plastic Products Printing and stationary Spices and allied products Toys games and sports Footwear and leather

The above minor categorized exports would generate a very small portion of the total income to the country. But when looking up on the larger scale of exports from Sri Lanka, each product being exported plays a vital role in the overall total income of Sri Lanka. This can be further explained in the graph below.

Exports
Exports Linear (Exports) 974.3 1,167.5 1,245.5

Millions of Rupees

583.9

638.2

716.5

845.6

878.4

813.9

2004

2005

2006

2007

2008

2009

2010

2011

2012

Year

(Values are given in millions of Sri Lankan rupees) (Source: Central bank of Sri Lanka 2013) As seen in the above graph, given are the total exports of Sri Lanka from year 2004 to 2012. Exporting products includes- Agricultural exports, tea, rubber, coconut products, industrial exports, textiles and garments, petroleum products, mineral and others.

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If we look at each years total exports; it has increased gradually but in the year of 2009, total exports had declined due to the financial crisis affecting all market activities globally. After the financial crisis in 2009 Sri Lankan exports started to increase its exports back again in 2010 and continuing to grow increasingly, year after year in 2011 and 2012. Furthermore, when concentrating on the imports sector to Sri Lanka, since the year of 2004 till 2012 and at present, the need for the following products have been consistent. In other words, Sri Lanka is highly dependent on the following products, as they do not have sufficient resources, land and the necessary capabilities of growing them. Such products imported are,

Rice Flour Sugar Milk and milk products Fish dried and fish Fuel Motor cars and cycles Fertilizer

Tyres and tubes Medical and Pharmaceutical products Building materials Machinery and equipment Chemical elements and compounds Dyeing, tanning and colouring materials and many other products are also being imported.

This can be illustrated further in the following graph

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Exports, Imports and Trade balance

Exports Imports Trade balance

2004 -227,171 2005 -253,082 2006 -350,110 2007 -404,703 2008 -647,207 2009 -358,707 2010 -545,350 -1,073,900 -1,195,368 -1,500,000 -1,000,000 -500,000 2011 2012 0

583,967 811,138 638,276 891,359 716,579 1,066,689.00 845,683 1,250,389.00 878,499 1,525,705.00

819,911 1,172,618.00 974,387 1,519,737.00 2,241,488.00 2,440,899.00

1,167,588.00 1,245,531.00

500,000

1,000,000 1,500,000 2,000,000 2,500,000 3,000,000

(Values are given in millions of Sri Lankan rupees) Given above are the total values of Sri Lankas exports, imports and trade balance according to the Central bank of Sri Lanka. As shown above, more than the exports sector, more products have been imported to the country. Although the exports sector has been increasing steadily, the imports have also been increasing at the same time. The need and the demand for the product is immense, that Sri Lanka starts to import such products and services. Moreover, spending on imports has increased more than the profits being gained through exports. This causes the trade balance to increase in negative values. A situation where the differentiation between imports values are higher than the exports values. From then on trade balance would start to increase in a negative perspective. In addition to this, in the year of 2009 during the financial crisis; both imports and exports had declined in Sri Lanka, as world markets were severely affected. From year 2010 and beyond, exports started to regenerate and increase its profits meanwhile imports started to increase alongside elevating again to a higher negative trade balance.

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2. The Floriculture Industry of Sri Lanka

Plants are primarily needed for our ecology, living environment and surroundings. The root cause for purchasing floricultural products are due to various different cultures, traditions and beliefs; to express ones feelings to one another or as to a group. Having the best suitable temperature, climate and land, Sri Lanka has the potential in developing the floricultural sector to great extent. Initially, floriculture industry started in the 1970s and ever since then, Sri Lanka has been gradually moving up the ladder to become an exporting industry. Sri Lankas top rated exporting country for floriculture, as at current is Netherlands. At present Sri Lanka is highly reputed as one of the best quality floricultural producing industries in the world. On the other hand, although the reputation seems to be highlighting, it is disappointing that Sri Lankan floricultural production receives much less than 1% of its share in the world market. During the year of 2011, Sri Lanka was able to achieve 14.8 million US $ worth of foreign exchange earnings through floricultural exports. When compared to the year of 2010, Sri Lankan floriculture exports had grown by 9%. (www.srilankabusiness.com) The flower industry covers up to 500 hectares as at present; where most of the lands reside in the Western Province. Out of which; 472 hectares are allocated for foliage plants, 10 hectares for carnations, 3 hectares for roses, 2 hectares for gerberas, 10 hectares for anthuriums and 3 hectares for orchids. The floriculture industry currently employs to more than 5000

employees in total. (www.slcarp.lk) The Sri Lankan floriculture comprises of three sectors for producers or growers, Large commercial ventures for export Middle level growers targeting the local market Village level producers who will produce to the above parties

Large scale commercialised floricultural businesses produce plants together with foreign partners. All the required technologies and methods for production are shared with its partners. These ventures pay less attention in producing cut flowers but focuses on ornamental foliage plants and cut foliage plants.

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On the other hand, middle and village level producers focus on producing flowers within the local market for a lower price when compared to exports; due to minimal advancement in technologies and following traditional approaches. Majority of the middle and village level producers are the ones who get involved in producing cut flowers to satisfy the local market. Any excessive production of cut flowers occasionally, will be later exported. However, exportation of cut flowers are continuing to increase. The floriculture industry in Sri Lanka has segmented its exports in the following. Such categories are (Based on Harmonised System HS code);

HS Code 0601

Description Bulbs, tubers, corms and other propagated materials

0602

Live plants Cut flowers and flower buds of a kind

0603

suitable for ornamental purposes, fresh, dried, bleached, impregnated or otherwise prepared

Foliage, branches and other parts of plants, 0604 without flowers or flower buds and grasses, mosses and lichens, being goods of a kind suitable for bouquets or ornamental purposes, fresh, dried, bleaches, impregnated or

otherwise prepared Flowers seeds

1209-3

(Samarasekara, 2007) These acquire high management skills, maintenance, suitable facilities and resources. In order to be competitive, either locally or internationally the participation and involvement of the Sri Lankan government is highly essential, as the government can help the floricultural industry to improve its production.
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Sri Lanka apart from its bulky floricultural exports to Netherlands, Sri Lanka also exports to Japan, United Kingdom, Germany, Saudi Arabia etc.

Sri Lanka Export statistics - Floriculture

600000000

500000000

400000000

300000000

200000000

100000000

0 Netherlands Japan 2008 United Kingdom 2009 2010 Germany 2011 2012 Saudi Arabia Others

(Source: Sri Lanka Customs) (Values given in Millions of Sri Lankan Rupees) As shown above in the diagram are from year 2008 to 2012. There are no continuous increments in exports from Sri Lanka to the above stated countries. Each countrys floricultural export either has increased or decreased end of each year; it has not been consistent. This could have occurred due the following reasons. Level of floriculture exports from Sri Lanka may have diminished for that particular period The importing country may have shifted its tastes, demand, products towards another and various other reasons Climate, weather conditions may have affected both the importer and the exporting parties Financial crisis etc.

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On the other hand, Sri Lanka also imports floriculture from Netherlands, India, Thailand, Japan, Egypt etc.

Sri Lanka Floriculture Imports - Cut Flowers and Foliage

2008 60000000 2009 2010 2011 2012

50000000

40000000

30000000

20000000

10000000

0 Netherlands India Thailand Japan Egypt Others

(Source: Sri Lanka Customs) (Values given in Millions of Sri Lankan Rupees) Shown above are the floricultural imports of Sri Lanka from year 2008 to 2012. Sri Lanka widely imports cut flowers and foliage. In the year of 2008, The Netherlands had exported closer to Rupees 50 million worth of goods to Sri Lanka. Compared to Netherlands and other countries imports to Sri Lanka; Thailand, Japan and Egypt have been increasing its imports to Sri Lanka. Whereas, Netherlands, India and rest of the other countries imports have been fluctuating annually. A reason for this could be, Sri Lanka being able to grow and cultivate and export such products or there may have been less demand for such products.

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3. The World Floriculture Industry

As at present floricultural products are exported mainly to the European countries. The global exports has been growing with an annual average of 10.3% which is expected to reach US$ 25 billion by the end of 2012. Developed nations such as America, Europe and Asia accounts for more than 90% of the total floricultural world trade.

Ornamental young plants and cut flowers are highly vitalized exporting products for several developing countries, such as East Africa, South and Central American, and the Middle East. The consumption for floriculture is on the rise, therefore many countries get involved in the world floriculture market. (www.floriculturetoday.in)

The major exporters of floricultural industry based on cut flowers are Netherlands, India, Ethiopia, Kenya etc, and based on decorative foliage are Israel, India, Malaysia, Egypt, Sri Lanka, Ecuador and Philippines. (www.allafrica.com)

The biggest importers for (Product HS code 06) live trees, plants, bulbs, roots cut flowers etc, are Germany, Netherlands, United States of America, United Kingdom, France, Russia, Japan and Italy. In addition to this, the largest countries that import cut flowers are, The United States of America, Germany, United Kingdom, Netherlands, Russia, Japan etc. (www.srilankabusiness.com) (Refer Appendix 01 page i)

4. Challenges, Risks, Barriers in the Domestic Industry

Sri Lanka is gifted with a favorable and different climate conditions which would help in supplementing the floriculture products ranging from tropical to temperate flora. Hence, Sri Lanka is renowned as one of the best quality production centers in the world. The industry has created employment opportunities in rural and sub-urban areas. In addition, it generates high net foreign exchange earnings.

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Sri Lanka has dropped their share of export market towards the leading importing countries due to many shortfalls in the domestic economy. It is at up most priority to take these factors into account in order to compete in the global market. Challengers, Barriers and Risks were understood through data collections and organizations which are involved in floriculture industry. Lack of market information Cost of production. Availability of skilled labour Lack of coordination between relevant stakeholders Lack of Varieties Transportation of sand

(Refer Appendix 1.5 page ix)

5. Trade Terms of the Floriculture Industry

Trade terms of an industry explain the relationship between the buyer and the seller in regards to discounts, payment periods, delivery, return terms and trade documents.

5.1.

Payment Period

Payments for orders are commonly completed through the means of telegraphic transfers. Telegraphic transfers are Regarded as the hub of floriculture, Netherlands is one of the foremost countries with which stealthy relationships are sustained. Owing to continuous orders, buyers from Netherlands are granted a credit period of 4 weeks in order to fulfil their transactions. Seasonal orders, arriving mainly from countries such as Korea and countries in the Middle East, are required to pay either of two ways. They could either pay upfront, or and 50% of the advance could be made with the rest having to be settled at the end of the transaction.

5.2.

Trade Documents

In order to legally officialise transactions, exporters use a form of consignment note, known as a "Quarantine Regulation", when conducting transactions with trading parties (buyers).

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A formal Quarantine Regulation consist details of the supplier/exporter, the particulars of the consignee, specifics of the goods ordered and the quantity of goods declared, the place of origin and the destination, etc. (refer annexure 03 for a detailed Quarantine Regulation format).

5.3.

Delivery

Delivery is completed by means of sea or air. Goods are either shipped or sent through air freight depending on the type of plant. Shipping acquires a long period of time and plants require to be kept at a certain level of humidity to keep them fresh and healthy. For this reason, plants which can be kept under robust conditions are recommended to go through shipments, while the rest should be transported through air.

6. Import and Export Policies Implemented by the Sri Lankan Government

As per the regulations set by the Sri Lankan government any floriculture product to be export should be sourced from nurseries. This regulation set by the government helps in encouraging growers to increase their range of floriculture products when exporting and to prove that the forests are not disrupted. In order to justify that the exporting products should not have gathered from the wild or from the open nature, exporting organizations should require a clearance certificate from forestry department and therefore it is mandatory. If in any case endangered floriculture species are grown for exporting purposes, the CITES certificate which is to be acquired by the department of Wild Life Conservation should be required. When exporting aquatic plants, a certificate from the National Aquatic Research and Development Agency and the Forest Department are required. When shipping, all floriculture products should come with a phytosanitory certificate issued by the department of agriculture. To go with the certificate issue by the department of agriculture, a clearance certificate is compulsory to state the clearance from the Airport Authorities. In addition, country of origin or GSP certificate should be in hand of the exporting organization.

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Apart from all the certificates and regulations, it is mandatory to all the exporting organizations to register with the Export development board. In addition in regards to exports, The Sri Lankan exporters were forced to pay an import tax of 11 to 12 percent (%) when exporting to European countries. However, with sheer pressure on the government from growers and exporting organizations, they have been able to bring it down to zero percent (0%). The main reason for this pressure on the government was because of the advantage that the Central American countries had over us since they were able export at zero percent (0%) to European countries. The argument that the Central American countries have brought up in order to get this advantage was, ' to encourage floriculture products and discourage OPM or drugs products which are been cultivated in the same geographical area. Sri Lankan exporters have been able to export at zero percent (0%) to European countries till 2004. However, after the GSP+ team was withdrawn at present, the importing countries in Europe has to pay an import tax of 3 percent (%) which a disadvantage for Sri Lankan exporters since even at present Central American countries does not charge any taxes. As per words of director of Omega Green (Pvt) Ltd, one of the many reasons for us to go down on the market share of the global floriculture industry is because of the government implication of the policy on forcing the importing country to pay a 3 percent (%) tax on our exports. In regards to policies on Imports, Sri Lankan government has implemented certain general policies in regards to many industries which is in line with floriculture industry as well. According to 'Imports Standardization and Quality control regulations 2006' import policies are as follows, Category 1: the shipment should go along with a quality standard certificate from an accredited overseas laboratory where the Sri Lanka Standard Institution (SLSI) has signed a memorandum of understanding. Category 2: quality certificate from the national standards body of the exporting country should be accompanied in the shipment. Category 3: consignment accompanied by a quality certificate from the manufacturer which is registered with the Sri Lanka Standards Institution (SLSI).

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Category 4 : national standards of the exporting country should be compatible with the corresponding Sri Lankan standards where the shipment of products carrying the 'Certification Mark'

(www.thaiembassy.org)

If the shipment does not fall under any of the above categories,

''Samples will be drawn from consignments falling under Categories 1 to 4 and subject them for testing either for a random check or if there is a reasonable doubt regarding the quality of the consignment. Any consignment of a designated item, which falls under Category 5 will be sampled at the port. The consignment will not be released from the port until test report is available. If the two standards are fully compatible, a quality certificate need not be submitted. In instances where a particular requirement of the National Standard deviates from the Sri Lanka Standard, a test certificate is required to certify that the particular requirement complies with the Sri Lanka Standard'' (www.thaiembassy.org).

7. Growth Prospects for the Industry in the Foreign Market

(Refer Appendix 2 page xii) 7.1.

Netherlands hosts the largest auction of flowers and plants in the world

The worlds largest auction of flowers and plants which is located in Netherlands is known as Flora Holland and it consists of six sub structures that cater to both the domestic and international market. The main purposes of the auction are to create a link between producer and buyer, concentrate demand and supply and also provide transparency in prices. Dutch flower and plants auction is considered as an efficient and unique economic mechanism. This was the main market place in the past and even now which brings together growers (producers) and buyers of floriculture products not just in Netherlands but also worldwide. A good price and a constant turnover for the producers who take part in the auction are guaranteed. Buyers from all over the world attend this auction as it is a one stop shop and has a wide and varied assortment of products. At these auctions approximately 100,000 transactions are said to be handled daily, where they sell about 17 million stems per day.

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Dutch auctions also handle about 65% of the total international cut flower trade, which therefore goes onto say that it plays one of the key roles in the international trade of flowers and plants. All the above factors clearly state the growth prospects available for Sri Lankan floriculture growers and exporters who take part in such auctions. In just one marketplace they able to reach and link with millions of buyers, thus making our products available and known in foreign markets which in turn will be beneficial.
7.2.

Worlds biggest trade fair for floriculture products

Netherlands hosts an international Horti fair annually in Amsterdam, which is the Worlds biggest trade fair for floriculture products. It has four main segments namely Production, technology, supply and trade.

7.3.

Technology section

New techniques and innovations relating to this industry are introduced here. It showcases tools and equipment, automation, lighting, fertilizers, post harvest techniques, packaging machines and materials, environmentally friendly crop protection, water treatment and so on.

7.4.

Production, supply and trade section

It displays new varieties of flowers and plants, floriculture techniques, technologies, supplies and also services related to the industry. By participating in such fairs Sri Lankan growers and exporters of floriculture products will be able to: 1. Obtain orders and build up new trade contacts 2. Strengthen and consolidate present business links 3. Study the latest technologies in production 4. Identify new product assortments for the Sri Lankan market 5. Source mother plant suppliers 6. Obtain first hand information on importers, preferences of consumers and new trends in the market 7. Make adjustments to cope with international changes

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7.5.

Exceptional distribution networks

A central geographical position is held by Netherlands within Europe. It is surrounded by markets such as Germany, France and the UK as it is in the centre of Western Europe. As a result of this they will be able to access regions like London, Brussels, Paris, Frankfurt, Hamburg and Ruhr valley in Germany which are commercial and industrial centers. This goes on to say that there is a high proximity to a large are of consumption, where they could access about 250 million consumers approximately. Netherlands is considered as a gateway to Europe. The excellent distribution networks and the ability of Netherlands to access millions of customers living in commercial and industrial centers will definitely have a positive impact on the Sri Lankan floriculture exports. Netherlands import certain products of ours, make value additions and redistribute it among those nations especially since they do not have a proper climate to produce. In conclusion greater access to more customers will help them to obtain more orders and thereby increasing the demand for certain floriculture products of ours.

7.6.

Increase in demand for Sri Lankan

(i) Fresh foliage, branches and other parts of plants (ii) Un-rooted cutting and slip in Netherlands
250000000

200000000

150000000

Unrooted cutting and slip Fresh foliage, branches and other parts of plants

100000000

50000000

0 2008 2009 2010 2011 2012 2013

(Source; Sri Lanka Customs)

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When looking at the recent years it is identifiable that un rooted cutting and slip and fresh foliage, branches and other parts of plants have significantly surpassed all the other floriculture products that are exported to Netherlands. Netherlands has demanded more of the aforementioned types of floriculture products compared to other types. The increase of fresh foliage has been quite steady without any falls. Un rooted cutting and slip on the other hand has a few drops but the import values are significantly higher than fresh foliage. These two types of imports have future potential for growth. More attention should be given to these products.

7.7.

Additional services provided by importers in Netherlands

As stated by the managing director Omega Greens (Pvt) Ltd most of the importers in Netherlands place continuous orders. As a result of this they have been able to maintain strong trading relationships with them. These importers especially, mass market retailers who directly purchase from our market have been providing additional services. As an example as managing director Omega Greens (Pvt) Ltd stated the clay/plastic pots that are used to place the potted plants are sent all the way to Sri Lanka free of charge by these mass market retailers.

8. Possible Modes of Entry

A mode of entry into an international market is the channel which companies use to gain entry to international market. There are many modes of entry to the international market such as Internet, Exporting, Licensing, International Agents, International Distributors, Strategic Alliances, Joint Ventures, Overseas Manufacture, countertrade, green felid investments, acquisitions, International Sales Subsidiaries and etc (www.marketingteacher.com). Organizations should always make the decision of selecting the best mode of entry to the international market after consider the factors such as; which foreign markets to enter, timing of entry, scale of entry, strategic commitments, risks related to finance and marketing and control. Out of all the modes of entry to the international market, it is recognized that there are two main possible modes particularly identified for the floriculture industry. They are Exporting and Joint Ventures.

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8.1.

Exporting

Floriculture related products such as Ornamental Foliage Plants, Cut decorative Foliage, Cut Flowers, Aquarium Plants, Landscaping Plants, Tissue cultured Plants and Flower Seeds are the major products that are used for exports. The demand for these products is very high in the international markets due to its exceptional characteristics such as its quality and availability of varieties that cannot be found in any other country. If the products are exported to countries where the demand for the product is high then a better return can also be anticipated. Also if the producers recognize in which international markets the demand is high when the demand in the domestic market is low, they may perhaps raise the exports of the floriculture related products and sell less for the local market. Europe is one of the top floriculture related product consumers in the world and out of which Netherlands is considered as the hub of Floriculture industry in the world where they import products from many different countries and re-export it to other countries. Also in the Germany and Japan there is a high demand for floriculture related products and Germany is considered as the main consumer of floriculture related products in the whole Europe. Thus exporting to these markets would result in an amplified sales and profits. Selling products to multiple markets allows the producers to expand their business in a large scale and to spread the risks that perhaps brought on them. The producers wont have to be tied to the changes in the demand of the local market or of one specific country. Sometimes the floriculture related products may go through various cycles, such as the introduction, growth, maturity and declining stage which is the end of that product in that market. When the product is more or less reaching its end stage the product can be exported as dry leaves and dry flowers for various purposes.

8.2.

Joint Ventures (JV)

Another mode of entry would be to form joint ventures with the floral companies in Netherlands, Demark, India and Japan can be considered. The floral companies would mainly be interested in obtaining the semi finished cut flowers and pot plants to make the finish products such as flower bouquets, flower decorations, flower arrangements in several places and etc (www.srilankabusiness.com).

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These joint ventures can be formed with Netherlands, Demark, India and Kenyan companies such as: Floral Plant Growers, L L C, Denmark Suera Flowers Ltd, Kenya FloraStand, India Bakker Brothers, Netherlands Ammerlaan flora, Netherlands

Joint ventures entail establishing a firm that is jointly owned by two or more otherwise independent firms and are developed in order to achieve a specific goal. Entering as a joint venture, would help develop a stronger innovative product. The main reasons for choosing Joint Ventures include; ability to gain knowledge in terms of new techniques of planting the crops, packaging systems, business strategies and etc, can enter into agreements to do business for many years, certainty in doing businesses it will enhance the recognition of the company and etc.

9. International Business Strategy

International business strategy includes tactics that direct business dealings taking place among organizations in different countries. The majority businesses of any substantial size transact with at least one international partner at several points in their supply chain, and in nearly all deep-rooted fields rivalry is worldwide. For the reason that ways of doing business differ noticeably in different countries, an understanding of cultural, political and legal systems, and the many complications of international trade is vital to business achievements.

As stated in the above section there are many modes of entry to the international market. Out of them the best suitable ones for the floriculture industry are exporting. Here for this purpose the country that we have chosen is Netherlands and the reasons why it was chosen have been mentioned under the previously discussed topics and the target market which has been selected is the super market chains and also have targeted German market through Netherlands since German market is considered to be the largest consumer of floriculture related products in Europe.

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The advantages of using exports as a mode of entry to the market includes following; ability to generate increased sales and profits, boost domestic competitiveness, expand international Market Shares, lesser Per Unit Costs as the products can be cater to a wider market and enhance new knowledge and experience (www.smallbusinessonlinecommunity.com). As discussed in the country analysis, the risks involved in doing businesses in Netherlands includes the credit periods given by the Sri Lankan exporters to them, the risk of settling the payments on time, delays in shipment that affects the perish ability of the product and occurrence of various economic and environmental uncertainties such as European recession and the weather conditions in especially winter season. The distribution channels will be varied based on the customer requirements. In other words, distribution can be done in both seaways and airways depending on the perish ability of the products. However seaways are more cost beneficial than airways. In terms of the local operations the businesses are backward integrated where the production, packaging, transportation and supplying of raw materials are done by the exporter himself. Organizations use Information systems for the purpose of analyzing the future trend patterns and make the productions accordingly to cater the best demanded products. Businesses connect with customers and other related parties and make relationships and networks through internet, by visiting the international trade fairs and etc and the main reporting parties to the business includes, government, buyers, forwarder and the other interested parties.

10.

Challenges, Risks and Barriers in the International Arena

10.1. Non availability of new varieties for export

In order to overcome this situation new varieties have to be imported and propagated to meet the demand for exports. The exporters complain that there are obstacles to this process as they do not have laboratory facilities for themselves for research and development. Therefore they have to be dependent on external service providers. The existing government research facilities such as the Botanical garden, the horticulture research and development institute and departments of floriculture of universities have weak linkages to the exporters. These institutes also do not show much enthusiasm to commercialize new varieties of floriculture products.
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Import restrictions imposed under various government regulations with regard to quarantine etc make the import of new varieties for cultivation nearly impossible.

10.2. Security checks on roads and at airports

These checks are essential to guarantee safety of ports and aircraft. But these checks are often conducted haphazardly causing damage to the product and packaging. It was identified that the security personnel carrying out such checks are not sufficiently sensitized as to how those delicate floriculture products should be handled. The checking procedure also takes a substantially long time and this cause further damage to the product which is sensitive to delays and temperature changes. This is a big issue especially when dealing with fresh products such as plants and cut flowers as it requires cool storage at all times. As stated by Anandatissa (2014), these reasons have caused rejections from the foreign buyers. It not only causes a loss for the exporter but also has great negative impact on the competitiveness of the whole sector.

10.3. Duplication of security documents

The documents required for security clearance are really the duplicates of existing documents produced for export procedure. These unnecessary duplication of documentation result in increased administrative cost to the exporter. And also it creates unnecessary complications with regard to export procedure. Insufficient information about export markets, linkages, market requirements and demand conditions Small growers/exporters especially in rural areas receive insufficient information about market requirements and demand conditions. This includes the quality standards set by foreign buyers such as the EurepGap, quantity requirements of importers, consumer trends and market opportunities in the foreign country and also information about new cultivation methods and technologies that will help them to be competitive enough. The exporters also lack information about the pesticides to be used for their products destined to different markets. Pesticides used for one market may not be acceptable to another market. Therefore the exporter should have clear awareness in this regard.
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Most of the information with regard to the above mentioned factors is available at the export development board and the relevant authorities. However the issue is that there is a great insufficiency in the dissemination of this information. Another problem is the non availability of a regularly updated market research that gives sufficient details of competitors, demand conditions and so on.

10.4. Financial barriers

One of the entry barriers for an entrepreneur to embark on a floriculture project is its exorbitant financial cost. Use of high quality plants, construction of net houses, purchase of special tools, fertilizers, pesticides, training of workers etc for an export oriented floriculture project cost a large sum of money. The banks provide financial assistance to floriculture sector at usual commercial lending rates which are generally high. The high financial cost involved makes the cost of production to escalate and thereby the product being not competitive in the international market. The floriculture sector should be categorized as a priority sector for lending and preferential lending rates applied. If this is done the cost of production could be lowered and our products could be made more competitive in the international markets.

10.5. Access barriers to research facilities

Sri Lanka has a competitive advantage to develop new varieties for export compared to other exporting countries. Although adequate research facilities are available at royal botanical garden, horticulture development institute and at departments of floriculture of universities, these facilities are not accessible to small and medium scale growers. This is mainly due to communication barriers between these institutes and floriculture businesses. It is argued that there is a gap between academic and business world- i.e. research institutes are not being concerned about marketability of newly developed plants.

10.6. Risk of nonpayment by the foreign buyer

During the interviews we had with the exporters it was revealed that there were instances where the foreign importer defaulted payments to the exporter in Sri Lanka. As stated by Anandatissa (2014), he has lost a great deal of money once as one of the importers in Netherlands went bankrupt and he was never able to recover his money.

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As we questioned him we found out that the main reason for this was due to the letter of credit system not being used for the export transactions. It was understood that the payment for exports are still done by telegraphic transfers.

10.7. Issues associated with freight

Although this industry is a foreign exchange earner there are no preferential rates for freight. The air freight cost of this product constitutes 40% of the selling price. This is a huge obstacle for our exporters to be competitive in the international market. Some of the floriculture products are exported by sea freight. Unlike in the case of air freight for sea freight there are no shipping schedules and as a result an exporter would not be able to know the shipment date until it is close at hand. This leaves the exporter with very short period to process his product for export. It also acts as an obstacle for the exporters to plan their tasks effectively.

11.

Recommendations

Local exhibitions, fairs and markets should be organized more often for growers, suppliers of inputs and buyers in the floriculture sector of Sri Lanka. Growers associations in this sector should be encouraged to organize such exhibitions/fairs quarterly or at least twice a year, may be in cooperation with professional business development service providers. These exhibitions/fairs will give all the players in this sector, the opportunity to exchange information and build up new trade contacts and obtain orders.

Marketing efforts of the above mentioned local and national exhibitions should be improved in order to reach target groups located in rural areas. This is a major concern that should be looked into as most of the growers, input suppliers and buyers who reside outside the major districts are not aware of such opportunities of participation. A central organization such as the national floriculture association could gather information on all such local exhibitions/fairs and publish them annually or twice a year in the media.

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The value chain of the Sri Lankan floriculture sector consists of some exporters, domestic buyers and collectors who purchase floriculture items from growers. A major issue faced by such players is the collection of those items, especially from small growers. A good option for this issue would be to establish a regional trade centre. This necessarily does not have to be a real market that requires a large amount of resources, instead could be conducted by a broker where he could gather information about the available products of small growers and disseminate it to potential buyers when required.

The services carried out by the Export development board should be marketed and advertised more widely. Even though EDB provides various services and sources of information such as the exporters directory and many published books relating to this industry, some stakeholders are not aware of them. Hence EDB should develop an effective information distribution strategy.

A better price control has to be facilitated between growers/collectors and exporters. This is because growers complain about the fact that exporters are paying them low prices and on the other hand exporters have strict quality requirements. But what has to be identified is that without real incentives (good price) quality and the quantity will not be improved by growers. Therefore the following could be recommended.

I.

Collective selling of floriculture products should be encouraged through associations, regional trade centers and exhibitions/fairs.

II.

Through forward agreements a pricing system could be established between exporters and growers in relation to different grades of quality.

A separate database of growers and collectors should be developed. This could be similar to the directory of exporters maintained by the EDB. The database could include profiles and contact information of growers and collectors that could be disseminated between relevant stakeholders. It will also link these players into wider markets.

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Awareness on market requirements and demand conditions in both the domestic and international market should be increased. Relevant authorities/associations could compile a booklet that gives the required information about market trends and requirements. And also details on market prices should be published regularly. Apart from this they could also:

a. Introduce standards such as EurepGap and other quality certifications to small growers/exporters. An authorized body such as the Sri Lanka Standards Institution (SLSI) could be appointed to carry out training programs.

b. Distribute existing manuals or develop new manuals for growers/exporters which mainly focus on growing different varieties of floriculture products that will help them to be competitive. A directory of input suppliers should be compiled that will consist of all the information on supplied products and their contact details. Other than that even information on additional services provided by certain input suppliers such as training, provision of free manuals and finance options could be clearly explained.

Business development organizations could develop and conduct training programs that is mainly focused on teaching how a nursery should be managed and conducted as an enterprise.

Encouraging exporting businesses that purchase certain varieties of floriculture products from small growers to adopt Buy-back systems. This system is where the exporting business and the small grower come into an agreement by which the exporting business provides the inputs required by the grower such as cuttings, fertilizer. Afterwards the grower will cultivate the products and sell it back to the exporter.

Capacity of growers associations should be improved and strengthened towards providing a better service to its members.

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In order to fulfill this purpose, training programs can be carried out for growers associations so they could be educated about the specific roles they need to carry out and also about the benefits of a strong association.

Several recommendations could be provided to solve the issues faced in security checks and with regard to the duplication of security documents at airports. They are; a. Security personnel should be educated on the proper handling of delicate floriculture products to avoid damages. b. An efficient checking procedure should be implemented to avoid delays and temperature changes in the products c. Security authorities should consider using the existing documents and certifications rather than insisting on new documents if the existing documents already have the details they require.

The communication gap between the institutes that carry out research and development and the floriculture businesses/exporters could be enhanced by

a. Publishing research findings of new varieties of plants b. Undertaking more field visits by the institutes and c. Conducting training camps for growers

The risk of default can be covered by obtaining an insurance policy from Sri Lanka Export Credit Insurance Corporation (SLECIC). More than that the exporters should be encouraged to use the letter of credit system as it ensures the reduction of risk of nonpayment. The risk is reduced as the buyers bank promises the seller a guarantee to pay, in case the buyer defaults.

The exporters association and relevant authorities should take up the issue of high freight charges and negotiate with the relative authorities for subsidized freight rates in view of the employment generation and foreign exchange earning capacities of the industry.

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12.

Conclusion

In conclusion, it could be described as there is an increasing need in both local and international aspects of floriculture. But due to various preferences and demand by the local and foreign parties the production of floriculture is unbalanced. In addition to this, due to various barriers and restrictions implemented by the local government, some of the potential flowers and plants are being restricted as they could have an effect to the environment. For instance when speaking to the chairman of Omega Green, Mr. Ananda stated that, some of the elements that are used on specifically highly potential flowers and plants may have an effect on the environment; more over by using such particles it will be directly affecting the coconut tree atmosphere. So as a result of that, the Sri Lankan government has been severe and also prohibiting any imports of such elements to the country. On the other hand, when stressing on exporting floricultural products there are restrictions and limitation implemented by the importing country due to various reasons such as spreading of bugs from plans and flowers, lack of demand and preference towards such varieties, country to country lack of understanding etc.

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13.

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APPENDIX

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