Master Thesis

Key Motivational Factors to Locate within an Industry Cluster: The Case of the Dutch Flower Cluster

Authors: MSc. in SOL - Gergina Todorova MSc. in IB Yanina Ilieva

Supervisor: Poul Andersen

Aarhus School of Business Aarhus University

March 2011

Abstract
The industry cluster concept proves to be an important strategy for obtaining successful business results. However, not that much attention has been paid to this field. More precisely, many scholars and researchers have elaborated on the identification and the characteristics of a cluster, but still little attention has been paid to the reasons, which make a cluster a prosperous and attractive place for different companies.

In this paper the focus is based on identifying the key factors that motivate a company to locate within an industry cluster. However, the scope of this study is not a generalized approach but rather a specific case. The Dutch Flower Cluster in the West-Netherlands Region has been chosen, since it has been recognized as one of the best working clusters nowadays. The incentives of foreign-owned companies to locate within the Dutch Flower Cluster are investigated in this research.

The whole framework and analysis of the paper are based on the analytical method Degree of Freedom Analysis, introduced by the noted methodologist and philosopher of science, Donald Campbell (Wilson & Woodside, 1999).

After testing the theory through empirical data, the obtained results indicate to what extent the chosen theory coincides with the reality. Thus, the main factors from the findings could be considered as key motivational factors for foreignowned companies to locate within the Dutch Flower Cluster.

Key words: Environment, Industry cluster, Key Factors, Location

Acknowledgements
Only those who have experienced writing a Master Thesis know that the process is long, difficult and to obtain the best results possible, help is sometimes needed. We are glad that we had people who assisted us and therefore we would like to express our gratitude to them.

First of all, we would like to thank our supervisor, Poul Andersen, Professor at the Aarhus School of Business, for the professional attitude and assistance during the writing process, especially for the motivation and inspiration he gave us in some of the most difficult moments of this research. Special thanks to our good friend Preben Mejer, CEO of Innovation Lab, IT expert and Entrepreneur, who helped us during our research to reach the right people at the right time. We would like to thank also Thomas Larsen, Sales Manager in Gasa Holland, and Henk Rietveld, Sales Manager at FloraHolland, Naaldwijk, for providing us with detailed information and additional data in respect to the research conducted in this study.

Last but not least we want to give special thanks to our friend Antoniya Doneva, recently graduated MSc. in Corporate Communications from Aarhus School of Business, who has agreed to participate in our work (in the role of external judge) and has been patient enough to get familiar with all the data collected, to be trained and to obtain all the necessary knowledge for the purpose of her participation.

Yanina Ilieva & Gergina Todorova

TABLE OF CONTENTS
ABSTRACT........................................................................................................ 2 ACKNOWLEDGEMENTS .................................................................................. 3 1. INTRODUCTION............................................................................................ 6 1.1 Problem Statement..................................................................................... 7 1.2. Structure of the Thesis ............................................................................. 8 2. METHODOLOGY........................................................................................... 9 2.1 Research Strategy: Degrees of Freedom Analysis ............................... 10
2.1.1 Definition....................................................................................................................... 10 2.1.2 Purpose......................................................................................................................... 10

2.2 The research process of Degrees of Freedom Analysis....................... 11 3. GROUNDING STUDY IN THE EXISTING LITERATURE ............................ 12 3.1 The cluster concept.................................................................................. 13
3.1.1 Background and context of a cluster ........................................................................ 13 3.1.2 Defining a cluster ......................................................................................................... 14 3.1.3 Characteristics of a cluster......................................................................................... 16 3.1.4 Elements of a cluster................................................................................................... 20

3.2 General factors of an industry cluster extracted from the theory........ 21 3.3 Relevance of the cluster theory the linkage to Dutch Flower Cluster ......................................................................................................................... 27 3.4 The Dutch Flower Cluster ........................................................................ 28
3.4.1 Defining the Region of the Dutch Flower Cluster..................................................... 29 3.4.2 Development of the Dutch Flower Cluster ................................................................ 30 3.4.3 Structure of the Dutch Flower Cluster ....................................................................... 31 3.4.4 Elements of the Dutch Flower Cluster ....................................................................... 34 3.4.5 Present situation .......................................................................................................... 36

3.5 Specific factors for the Dutch Flower Cluster........................................ 37 4. DEVELOPING THE PREDICTION MATRIX ................................................ 48 4.1 Definition and purpose of the prediction matrix.................................... 48 4.2 Development of statements..................................................................... 49 5. CONDUCTING FIELDWORK ...................................................................... 54

5.1 Sampling strategy .................................................................................... 54 5.2 Units of analysis....................................................................................... 55 5.3 Sample size............................................................................................... 56 5.4 Data collection.......................................................................................... 56 5.5 Data analysis ............................................................................................ 59 5.6 Introduction of the cases......................................................................... 59 6. MATCHING PREDICTIONS TO OBSERVATIONS ..................................... 70 7. ANALYZING THE RESULTS....................................................................... 72 8. CHALLENGES AND POTENTIAL CHANGES............................................ 82 9. LIMITATIONS OF THE RESEARCH ........................................................... 85 10. CONCLUSION ........................................................................................... 87 11. REFFENCES.............................................................................................. 89 12 APPENDIX .................................................................................................. 97

1. Introduction
People dont move to New York, London, Paris, Hong Kong or Tokyo because they are cheap or pleasant places to live. They move because these cities hold great opportunities to do business and work with successful and talented people (p.1) Joel Kurtzman, 2004

In todays globalized world, even though somehow paradoxically, one of the companies most successful strategies still remains to cluster geographically with related businesses and become increasingly interdependent (Rosenfeld, 1997). How is this possible, when so much attention is put on the global world we live in? When transferring of goods, outsourcing, capital flows, etc. are emphasized as tools for integration of national economies into the international one, it is difficult to be accepted that location matters that much. However, it does!

Clusters, defined as regional concentrations of specialized companies and institutions linked through multiple linkages and spill-overs (European Cluster Memorandum (2007, p.1) from European Cluster Observatory, 28.10.2010), turn out to be key factors for attracting investments and thus, engines for regional economic growth. Industry clusters have been of interest to many different authors and researchers during the years. Even though they all have different perspectives about a cluster concept, definition and implication, they all agree that companies do better when they are close to their customers, suppliers, specialized services and competitors.

The fact that a company looks for a place where the rivalry is strong, where the most severe competitors are located, is quite surprising at a first glance. However, the common perception - the fewer competitors around, the better proves to be wrong. Companies thrive better when they are close to each other, interact, and share common knowledge and skills. Clusters and cluster 6

initiatives contribute for the development of a certain location, region, and nation.

However, not the clusters per se, but the factors that the cluster environment provides, bringing a number of advantages for its members, influence companies decision to locate within a specific region. If one wants to experience the real movie spirit, goes to Hollywood, if one wants to taste a real chocolate goes to Switzerland, if one is looking for the best financial services goes to Wall Street (London) and if one needs to get the best flowers in the world goes to the heart of the floral world the Netherlands.

Due to the entrepreneurial activities, the spur of innovation and the highly specialized technology, the country with so unfavorable conditions for cultivating flowers, has become the world leader in flower industry. The Dutch Flower Cluster within the West-Netherlands Region is a place where companies from all over the world are concentrated, interact and benefit from each other.

Which, however, are the main reasons for their location decision and which are the factors that motivate foreign investors to become a part of this cluster are questions that will be answered and further supported with real examples.

1.1 Problem Statement Different regions with high concentration of diversified industries have become more and more attractive for foreign companies. The concentration of foreign companies within the Dutch Flower Cluster has constantly increased over the years. The favorable business environment within the cluster has become a magnet for foreign companies due to the competitive advantage it creates for its inhabitants, once located their business activities there. This indicates the stress on the positive consequences from becoming part of the Dutch Flower Cluster, but little has been concluded about the reasons for the location decision of especially foreign-owned companies.

The main objective of this research is to find out, which are the key motivational factors for foreign-owned companies to locate within an industry cluster the case of the Dutch Flower Cluster. However, to give an answer of the main research question, the authors analyze more thoroughly the concept of an industry cluster and the factors that a cluster environment offers to its current and potential members. Based on the considerations of the findings and the results obtained from the analytical method applied, key motivational factors are introduced, described and summarized.

1.2. Structure of the Thesis The structure of the thesis is constructed in the following way: In the first section an introduction of the topic and the problem statement, are presented. The second one introduces the DFA method and the process that the researchers follow to reach the final conclusions of this study. The third one presents an overview of the relevant theoretical and factual data to give a ground for better understanding of the further research made. It explains the complexity of the cluster concept and introduces the factual data for the specific case the Dutch Flower Cluster. The fourth section includes the development of the prediction matrix, which is a main step of the research process itself and is followed by the fifth one, which explains the process of conducting the fieldwork. The sixth section of the thesis includes the final matching of the theory to the collected empirical data. The seventh section is a critical explanation of the research findings. In section eight the challenges and suggestions for eventual changes are presented, followed by the limitations of the research explained in section nine. In section ten, a conclusion is made.

Figure 1. Structure of the Thesis

1. Introduction 8. Challanges and potential changes 9. Limitationa of the research

2. Methodology

7. Analyzing the results

10. Conclusion 10. Conclusion

3. Grounding study in the existing literature

6. Matching predictions to observations

References

Appendix 4. Developing the prediction matrix 5. Conducting fieldwork

2. Methodology
The European Cluster Observatory (ECO) is an online platform that provides access to information and analysis of clusters and cluster policy in Europe. Additionally, it provides analysis and reports on regional competitiveness conditions, transnational cluster networks etc. The European Cluster

Observatory proved to be very useful for the purpose of this study (European Cluster Observatory, 28.10.2010).

The following study about key factors that influence the location decision of foreign-owned companies is one of the few within the research fields of the ECO. Although many of the existing studies provide valuable information on the theoretical factors and the specific factors for the Dutch Flower Cluster, they do not provide a clear overview of the motivational factors further investigated. The idea of the authors is to test relevant theory combined with factual data through the gathered empirical ones. Thus, in-depth information and understanding of the factors, motivating foreign-owned companies to locate within the Dutch Flower Cluster, is provided. The stress however is on theory testing through the Degrees of Freedom Analysis (DFA) and not on theory developing. The empirical data gathered for the DFA test conducted in this study consist of only a few cases. Therefore, the conclusions from the study cannot be generalized. 9

2.1 Research Strategy: Degrees of Freedom Analysis In the following section Degrees of Freedom Analysis is explained in details. 2.1.1 Definition In the late 1960s Donald Campbell introduced a technique that helped for the analysis of a quantitative framework to gain insight and understanding about qualitative case data by using pattern-matching between theoretical propositions and observation in a set of data, that was called Degrees of Freedom Analysis (Wilson & Woodside 1999, p.216). Although only few applications of this techniques have been presented, the DFA method is unique and useful for a set of data where the patterns of the observed data were matched either to the already existent theory or contribute for developing of a new one (Woodside, 2010). The more patterns matched the more precise and unbiased (reliable) the findings of the research would be (Wilson & Woodside, 1999). Simple statistical test can be used at the end to clarify if the number of observations (the quantitative data) that hit and miss the theory, is larger than that expected by chance and in a way to confirm the theory used (Wilson & Woodside, 1999). However, if the purpose of the research is only testing theory, statistical test is not necessary (Woodside, 2010). Campbell (1975) states that Degrees of freedom used in a formal statistical test is very close to the process of pattern matching (Andersen & Rask, 2003, p.87). Carlsmith et al. (1976) refers to DFA as a critical testing the relative empirical strengths of competing theories (cited in Woodside, 2010, p.243). 2.1.2 Purpose DFA is a very flexible research method: DFA is shown to be very flexible technique that can accommodate case research studies of varying goals (Wilson & Woodside, 1999, p.217). The purpose of the DFA technique is to compare, test or develop theory related to a specific topic (Woodside, 2010). When using DFA, case data is generalized to theory not to the whole population (Yin, 1994). This method uses the qualitative case data to test whether or not the theory is supported, to compare if more than one theory exists and to develop a new one if a certain theory does not exist and thus objectivity and

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validity are reached to a great extent (Woodside, 2010). The theoretical framework that is extracted from the existing theory should lead the researchers in the right direction when studying the subject of interest (Wilson & Woodside, 1999). According to Woodside (2010) the particular use of DFA depends entirely on the researchers decision. Therefore, in this research, DFA is applied with the purpose of theory testing.

2.2 The research process of Degrees of Freedom Analysis Figure 2. The research process

Step 1: Grounding study in existing literature

Step 2: Developing the prediction matrix

Step 3: Conducting fieldwork and preparing case data

Step 4: Matching predictions to observations

Step 5: Evaluating and discussing the results through revision of the theory
Source: Version based on Andersen & Rask (2003, p.88) and Wilson & Woodside (1999, p.224).

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The DFA procedure followed in this study is presented in Figure 2. The test is conducted through the technique of pattern matching, where theoretical propositions are matched to the empirical data gathered. Wilson and Woodside (1999) explain that this pattern matching is based on a prediction matrix, which is constructed from the existing theory in the field and the matrix forms the basis for collecting the data.

At the beginning of the research process an overview of the selected theory is presented. Afterwards the prediction matrix and a set of statements/predictions are developed. Then the empirical data is collected. The process is done by different data collection methods (e-mail and phone questionnaire, secondary data from reliable sources like companies home pages, statistical reports etc.) and afterwards the gathered empirical data is transcribed. According to Wilson & Woodside (1999) the form of collecting and presenting the data should avoid introducing bias into it. Therefore, an independent judge has been asked to check upon the collected data that is going to be used. The external judge has gone through the data and has noted the matches and misses of the predicted assumptions in the matrix. In order to achieve valid results in DFA, it is important that a certain amount of matches must appear and thus a pattern can be established (Wilson & Woodside 1999). Finally, the obtained results are evaluated and critically discussed.

3. Grounding study in the existing literature

The purpose of this section is to give existing theoretical and factual knowledge base about the field of interest in this study. Moreover, the researches try to clarify the complexity of the topic by initially explaining the general cluster concept. Thus, the reader will have the necessary information to follow the logic of this paper. Further, the existing factors within a cluster environment and the factual data for the specific case are presented, aiming to refine the theory needed for the methodology used.

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3.1 The cluster concept 3.1.1 Background and context of a cluster The geographical concentration and the interaction of companies from particular industries have always been part of the worlds economy. Even though under different names, industrial district, agglomeration, and others the concept of industry cluster has existed for many years (Cortright, 2006). s the founder and initiator of the first clear explanation of industry cluster is credited the wellknown economist Alfred Marshall and although not using precisely the term cluster, he identifies three main reasons for companies to co-locate near one another and thus be more productive: labor market pooling, supplier specialization, and knowledge spillovers (Cortright, 2006). Launching the idea of industry clusters, Marshall gives a start to many scholars, researchers, and policy makers to research, use and develop cluster theory (Motoyama, 2008).

Over the last decades the cluster concept has been gaining considerable interest and has today become a well-established and popular term in the business fields. The reason for the increased interest in clusters is not only because they describe the economic reality, but also because they have become important for creating competitive strategy (Ketels, 2004).

The general cluster concept suggests that the competitive advantage is strongly dependent on the location and the degree of interconnection between the business entities (Porter, 1998). The group of interconnected companies,

government and institutions (schools, universities, and public utilities) creates new types of relationship for which trust is crucial. As Rosenfeld (1997) points out, clustering geographically of related businesses and becoming

interdependent are the main reasons for the existing enterprises to perform more efficient. That is why todays economic map of the world is dominated by clusters (Porter, 1998, p.78).

To sum up, globalization proves wrong: instead of diminishing the role of a location, it makes it more important than ever. Specific regions and specific

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locations are becoming more significant for strengthening the competitive advantage. A new way of thinking emerged; clusters are seen as a very important strategy that increases competitiveness in the modern economy (Porter, 1998). 3.1.2 Defining a cluster The more accepted industry clusters are, the more complex cluster definition, composition and boundaries become (Braun et al., 2005, p.3). During the last decades, a lot of literature has been written and a lot of different views have been expressed on geographic proximity, clustering of companies, institutions and industries etc. (Asheim, 2001; Brusco, 1990; Krugman, 1995; Porter, 1990 cited in Braun et al., 2005). Despite the existence of plenty of literature, it appears that there is no evidence on how a specific framework can be applied to define a cluster (vom Hofe and Chen, 2006).

For some of the scholars (Marshall, 1890; Rosenfeld, 1995; Schmitz & Nadvi, 1999; Swan & Prevezer, 1996 cited in vom Hofe & Chen, 2006) cluster concept is all about localization economies (p.8). They define clusters as groups of entities placed within specific geographic boundaries that are part of the same industry sector. Cited in vom Hofe & Chen (2006) other authors (Bergman & Feser 1999, 2000; Czamanski 1974, 1979; OhUallachain 1984; Redman 1994; Roepke et al., 1974) expand the within industry concept to inter-industry relationships (p.10), while third (Hill & Brennan 2000, Porter 1990, 1998; Redman 1994) somehow enlarge the scope of industry cluster concept trying to explain the reasons for different entities to group in close geographic areas including economies of localization and urbanization, internal returns to scale, value chain linkage, and technology innovation (p.9).

Common across all the definitions however is the importance of local networks and interdependences for creating a competitive advantage (McRae-Williams, Lowe, & Taylor, 2005 cited in Braun et al., 2005) and the overall perception that a cluster is a group of businesses and institutions that co-locate geographically

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in a specific region and enjoy economic advantages through this co-location (vom Hofe & Chen, 2006, p.21).

Proximity of customers, suppliers and competitors; existence of specialized resources and technological advances; flow of information, trust and openness among the members of the cluster etc. are some of the key elements for clusters and their regions to prosper. The participants within a cluster, benefit from their geographic proximity and interdependence, and produce synergy (Rosenfeld, 1997). They compete and cooperate at the same time. This is in a way a unique combination that drives the need and desire for improvement (Humphrey & Schmitz, 1996). Furthermore, according to Humphrey & Schmitz (1996) rivalry, although severe within the cluster, does not prevent the companies to work together against common bottlenecks and problems, to develop and upgrade.

Companies in a cluster are more productive and innovative that those in isolation (Ketels, 2004) because clusters provide an environment favorable for innovation (The European Cluster Memorandum (2007) from the European Cluster Observatory, 28.10.2010). They benefit from a number of advantages like shared physical infrastructure, reduced interaction costs, access to specialized labor force etc. (Spencer et al., 2010). Furthermore, a lot of attention has been paid on the product-based technological learning, which is the ability to reinvent, differentiate and improve (Storper, 1992) and the current of knowledge, movement of skilled labour and inter-firm collaboration and networking (Porter, 1998).

There is a general assumption that clusters strengthen and improve the economic performance of the firms and regions in which they are located (Spencer et al., 2010). Based on this belief a lot of scholars perceive clusters as a policy tool for local economic development, but actually, the local economic development is a result from the unique combination of complementary economic activities (Ketels & Memedovic, 2008).

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Different authors and researchers accentuate on different aspects of clustering (Jacobs & De Man, 1996) and thus even though they may agree on the overall idea of the cluster concept, sometimes they disagree on its application to a specific region or industry (Cortright, 2006). Deviations appear also when it comes to the interdependencies among actors in the value chain. This is one of the major differences between clusters and other forms of co-operation and networks clusters participants are linked in a value chain (Roelandt & den Hertog, 1999). Some scholars in their definitions refer to the buyer and seller relationships, or otherwise called vertically integrated clusters, others refer to shared factor input conditions such as a trained labor force, specialized physical or information infrastructure, and/or other similar resources horizontally integrated clusters, while third refer to both (vom Hofe & Chen, 2006). Professor Michael Porter, who is widely credited with popularizing the term cluster (cited in Cortright, 2006, p.3), has presented the most widely accepted model about industrial clusters (Rosenfeld, 1997). His model belongs to this last group and summarizes all of the aspects. In his theory about industry clusters, Porter (1998) does not propose anything new, but by putting it all together, makes it clearer and easier to understand and apply. He defines a cluster as

a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities (p.254)

Porters definition, although general, covers the essential elements and the most important and common features of clusters. Therefore, it will be used as a guide throughout this study. 3.1.3 Characteristics of a cluster Defining the characteristics of a cluster, similar to giving a single, unique and correct definition, is not an exact science (Cortright, 2006). Although different authors emphasize on different characteristics, they do however agree on the main dimensions.

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Figure 3: Main characteristics of a cluster

Typology

Geographical scope

Size

Life cycle

Breadth

CLUSTER
Specialization Relationships between elements Proximity Depth

First and very important is the geographical scope of a cluster. It varies considerably (Jacobs & De Jong, 1992; Motoyama, 2008; Rosenfeld, 2002) and it differs among industries (Cortright, 2006; Jacobs & De Jong, 1992; Porter, 2000). Clusters could spread from a single city, state or region, to a whole nation and even behind national borders (Braun et al., 2005; Enright, 2000; Porter, 1998). Boundaries of a cluster are not exact. They grow continually as new firms, industries and local institutions emerge, develop, change, and decline (Porter, 2000).

Additionally, clusters vary in size, depth and breadth. Some clusters consist of small and medium enterprises, others involve large and small firms, some give birth to research institutions and universities, other create connections to existing universities (Porter, 1998).

Except in different geographic areas clusters occur in any types of industries, in advanced and developing economies, in small and large fields (Porter, 2000) and the state of development of the economy defines to a high degree the depth of a cluster (Ketels & Memedovic, 2008). The depth refers to the range of industries related by vertically relationships (Enright, 2000). Deep clusters

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contain set of industries and complete supply chain, while shallow clusters use mainly inputs, technology, equipment, support services from outside the cluster (Enright, 2000).

Furthermore, a cluster is characterized by its breadth as well. The breath is defined by the range of industries related by horizontally relationships. Clusters could be either broad (contain close related industries and offers a wide range of products) or narrow (contain one or a few industries and their supply chains) (Enright, 2000).

Proximity or geographical co-location of firms is another characteristic of a cluster. Clusters exist, grow and develop because companies and other cluster participants benefit from their concentration, proximity and interdependence, which might not be possible to such extent when they locate outside the cluster or operate independently (Cortright, 2006). Additionally, close positioning of firms within a cluster creates a favorable economic environment of competitiveness and innovation and thus strengthen productivity and economic growth by transferring technology and information (vom Hofe & Chen, 2006, p. 14). This makes clusters key drivers of prosperity and regional economic improvement (Spencer et al., 2010).

Furthermore, industry clusters may be characterized by the relationships between the actors (Rosenfeld, 2002). Both competition and cooperation are necessary in a cluster to reach its full potential (The European Cluster Memorandum (2007) from the European Cluster Observatory, 28.10.2010). To keep its position, a dynamic cluster needs an intense competition (The European Cluster Memorandum (2007) from the European Cluster Observatory, 28.10.2010) which however is not an obstacle for mutual collaboration, trust and ease of communication within the cluster (Rosenfeld, 1997). All the members of a cluster have direct contact with their competitors; invest in related technologies, infrastructure, information, etc. Information flows freely and inimitably and helps them to work together (Porter, 1998). The cluster eventually grows and attracts new members. Not less important is building

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connections with other clusters that provide complementary capabilities, which will help the cluster to grow and develop and innovate (new ideas flow) (Rosenfeld, 1997). This way clusters become more visible and attractive.

An industry clusters is further described by specialization, or putting it more precisely, specialization in a single industry or in a majority of the individual industries comprising the cluster (Spencer et al., 2010).

Common strategy of all companies is to locate in an environment with favourable factor conditions (Porter, 1998). Very often the location of some industries and their concentration in that particular location is driven by natural factors such as climate, raw materials, soil, etc. (Cortright, 2006). However, not always a cluster is a general phenomenon. Sometimes strong cluster is designed and exists not because of natural resources on a specific place but due to acts of entrepreneurship (Porter, 1998). Not a cluster per se, but companies acting within this cluster are the ones turning business environment advantages into a competitive advantage for it (Ketels & Memedovic, 2008).

Some authors (Cortright, 2006; Ketels & Memedovic, 2008; Rosenfeld, 1997, 2002) write about life cycle of a cluster. Rosenfeld (2002) identifies four different stages: embryonic stage, growth stage, maturity and decay while Cortright (2006) refers to clusters as emerging, established or mature and declining. One is however true, clusters do not simply appear or disappear: they develop over time (Ketels & Memedovic, 2008).

Somehow related to life cycle, a cluster typology has been suggested by Enright (2000), which exemplifies completely naturally the true reality. He defines five types of clusters: working, latent, potential, policy driven and wishful thinking. However, Rosenfeld (1997) refers only to the first three of them as being main types of clusters.

Clusters that belong to the first group are among the most dynamic and prosperous ones. Members of those clusters are aware of their

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interdependence; they work together as a system, produce synergy and realize their potential and opportunity to produce more as being one whole. Working clusters according to Enright's terminology are Silicon Valley in California, the ceramic tile industry in Sassuolo, Italy and the flowers in the Netherlands (cited in Rosenfeld, 1997). All these clusters have specialized and expansive support system. New ideas, specialized skills, knowledge creation, learning and innovation are advantages, from which all cluster members benefit (Rosenfeld, 1997). As to the second and third groups something is missing and clusters are not operating with their full potential. Latent clusters have enough opportunities but do not exploit them and synergy is not produced, while potential clusters are those which do not posses all of the necessary conditions or inputs (Rosenfeld, 1997).

To sum up, successful clusters create economic benefits (Ketels & Memedovic, 2008). They increase productivity, making companies work more efficiently in an environment where they can both compete and cooperate. Due to the close interaction, members of a cluster could better learn, innovate and develop. However, in different locations clusters are defined differently because the segment in which the participants in the cluster compete and the strategies they employ are different (Porter, 1998). 3.1.4 Elements of a cluster What really matters for a cluster to be a dynamic and successful are its members. Only they are able to make it function as a system and only they can best identify their needs (Rosenfeld, 1997). The elements of a cluster may differ from one cluster to another: according to its nature, the involved industries, the maturity of the cluster, etc. However, there are key elements and their interconnectedness is crucial for growth, innovation and competitiveness (Motoyama, 2008).

Professor Michael Porter (1998) provides a list of elements that is used as handbook for many scholars and includes:

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companies in industries related by skills, technologies, or common inputs, suppliers of specialized inputs, providers of specialized infrastructure, customers, governmental and other institutionssuch as universities,

standards-setting agencies, think tanks, vocational training providers, and trade associationsthat provide specialized training, education, information,

research, and technical support (p.78)

Sharing common needs and opportunities cluster participants work together to improve cluster conditions and benefit from them without decreasing the intensity of the rivalry (Porter, 2000). All the elements of a cluster operate as a system. As Braun et al. (2005) states learning and knowledge creation among cluster participants can improve cluster efficiency and effectiveness, and may act as a spur to innovation (p.3). The positive effects of the synergy they achieve make clusters strong and successful due to the combination of skills and resources (Kamann & Strijker, 1992).

3.2 General factors of an industry cluster extracted from the theory Most of the factors in the literature about industry clusters are somehow derived from Porters (1998) Competitive Advantage of Nations, which stresses on the power of industry clusters. Porter (1998) highlights the forces/factors in his diamond model to explain the dimensions/drivers of the industry clustering: Factor input conditions, Local demand conditions, Related and supported industries, and Firm structure, strategy and rivalry. In 2002 Rosenfeld moves the focus from the individual firm to the environment within firms operate. Access to innovations and information, widespread diffusion, spin-offs of new enterprises has become crucial for the survival of the companies and the creation of sustainable competitive advantage (Rosenfeld, 2002). Later on many authors define the factors in different ways, but the following factors are the general ones extracted from the chosen theory. However, they are seen through the prism of the researches.

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Entrepreneurship - the formation of start-up firms and the new establishments of existing firms: Entrepreneurial activities are crucial for stimulating innovation and the creation of strong clusters. The high level of new business creation is the result of the existing gaps within the cluster environment (Glaeser & Kerr, 2009). A strong regional cluster provides a better environment for start-up firms (Delgado et al., 2010) and stimulates the formation of new establishments of already existing ones (Enright, 2000; Manning, 2008). The entrepreneurial activities are seen as an important element of the cluster environment for the creation of spin-offs and the attraction of firms from related industries (Agrawal & Cockburn, 2003; Enright, 2000). Strong regional clusters enhance the range and diversity of entrepreneurial start-up opportunities while at the same time reduce the costs of starting a new business (Delgado et al., 2010). The so-called entrepreneurial energy is the fuel of the cluster (Rosenfeld 2002).

The presence of supporting and related industries: Not the industry per se, but the supporting and related industries are another important factor for the creation of the cluster environment (Delgado et al., 2007; Porter, 1998). If a particular location/region is home base for supporting and related industries, this location becomes attractive by increasing the access to inputs and complementary products, reducing the costs for start-ups and increasing the pool for innovation opportunities (Glaeser & Kerr, 2009; Porter, 2000).

Knowledge spillovers: The knowledge acquired from or created together with other firms and institutions is becoming an important factor for the competitiveness of companies (Guinet & Pilat, 1999). The intensive interaction between those producing and those purchasing and using knowledge has become essential for the success of the cluster networks and the innovation processes (Roelandt & den Hertog, 1999). According to Roelandt & den Hertog (1999) companies are becoming more and more dependent on complementary knowledge and know-how-to in companies and institutions other than their own.

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Labour market pooling human resources within the cluster: Rosenfeld (2002) states that in less favored regions specialized human resources are very important for the cluster. This specialization of human resources attracts companies, which need people familiar with their business operations. Thus, the so called internal intelligence (know-how-to through combination of theoretical and practical knowledge within the environment) is build and these skills foster knowledge spillover as people change jobs (Rosenfeld, 2002, p.24).

Local demand: additional driver introduced by (Markusen, 1996; Porter 1990, 2000). Porter states that local demand is the first impression companies can get for their products. Moreover, local demand sets the standards for innovation. Demanding buyers are forcing companies to respond to tough challenges on the local market, which will lead to creative solutions that will lead to a sustainable competitive advantage on the global market (Porter, 1998, p.191).

Specialization: The process of globalization has increased the degree of specialization at different geographical levels (national, regional, local). However, the local specialization is the one important for the cluster formation (Roelandt & den Hertog, 1999). Countries have specialized around their national knowledge. As a consequence, internationalization has contributed to an increase in inter-country specialization. Industry specialization within a location may enhance further opportunities for learning through the creation of specialized centers (Glaeser & Kerr, 2009). Rosenfeld (2002) states that these specialized institutions become part of already existing once or create new once for surveying industry needs (they will be like gateways). The connection goes both ways: the specialized institutions support the industry and the industry invest and is actively involved in the specialized institutions design and development (Rosenfeld, 2002). Local specialization has become important for the processes of networking and innovation within the cluster (Roelandt & den Hertog, 1999).

Concentration: The strength of the created cluster environment is its geographically concentration. It offers a big pool of technologies, skills,

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knowledge, inputs, consumers and institutions across the complementary and related industries (Delgado et al., 2010, p.496). A strong environment enhances growth at the region-industry level and facilitates new business formation, growth of new start-ups, innovative opportunities, rapid business expansion (Cortright, 2006; Delgado et al., 2007; Porter, 1998), The location decisions of companies depends on their portfolio of industries and locations (Delgado et al., 2010, p.501). A strong cluster environment within which companies locate their activities creates a pool of competitive resources available to them (Porter, 1998). Co-operation (greater opportunities for learning productivity improvement) and sharing (shared risks and costs) in clusters has increasingly become a requirement for success, improvement of economic performance, reducing of costs and facilitating flexibility, reducing time-tomarket (Roelandt & den Hertog, 1999).

A region that is home to a critical mass of interdependent companies and that has a social infrastructure as well as a set of intermediaries facilitating associative behavior and specialized support services produces networks with or without government-sponsored network programs. (Rosenfeld 2002, p.8)

Networks: The importance of networking of related industries is introduced by Porters (1998), The Competitive Advantage of Nations. In his view, wide and deep, well-developed and dense network consists not only of inter-firm links within a particular industry, but also with related industries, specialized knowledge centers, education facilities, innovation support agencies and direct links with clients (Porter, 1998). Competitive clusters have the ability to create vertical and horizontal networks. (Rosenfeld, 2002) A network, as used here, is the collaborative structure among different types of enterprises. Clusters can be characterized as economic networks of strongly interdependent firms linked in a value-adding chain and the scope of strong clusters reach even the knowledge infrastructure, such as research institutes, universities, engineering companies and firms of consultants etc. (Roelandt et al., 1999). Somehow the various links created within the cluster environment reduce dependency and increase flexibility. All the activities in all directions of the value chain and between value

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chains of the participants in the cluster allow higher access to new and complementary knowledge and speed up the learning process (Roelandt & den Hertog, 1999). The existence of location-based complementary economic activities create to some extent the competitive cluster environment (Delgado et al., 2010). The co-existence of competition and cooperation at the same time (number of network relations and strategic alliances) give birth to the new level of doing business (Roelandt et al., 1999). Moreover, the creation of networks offers: channels for learning (constant transfer of knowledge in all directions), economies of scale (join and share to reduce costs), heightened flexibility and shared risk (increases firms ability to respond to market requirements). The regional scope of the created networks allows people-to-people networks among firms and between firms and knowledge providers with the support of intermediations - public and private agencies (Roelandt et al., 1999, p.385). Individual firms lack the resources and knowledge of the others to effectively compete on the global market (Rosenfeld, 2002). The value of networking and collaboration has increased with the increase in the complexity, costs and risks in innovation.

Innovation: The innovation process has lost its linearity as a result of a complex and mutually dependent interaction between various actors and institutions. Innovation has become an important part of the survival of the company and driver of growth and employment. It has created a dynamic knowledge-based economies and learning economies within the cluster environment (Roelandt & den Hertog, 1999). The ability to apply new knowledge and technology through innovation has become crucial for a firms competitiveness (DeBresson & Hu, 1999). The engagement of customers, suppliers, subcontractors and competitors has allowed the stream of information among the participants in a cluster (DeBresson and Hu, 1999). Within this environment the interactions between firms and a number of other institutions involved (different types of higher education institutions, private and public research & development centers, specialized service providers and regulatory bodies), have become the heart of the innovation process (Roelandt & den Hertog, 1999). Moreover, according to them, these groups of enterprises tend to

25

be well established, stable and innovating through strong linkages in all directions with suppliers and customers. If a cluster offers an innovative environment, the economic activities (interaction between the different elements) are becoming magnets for new technology, skilled personnel and research investment (Morgan, 1996).

The challenges for companies to be innovative in isolation are bigger than for companies that operate within a cluster (DeBresson & Hu, 1999). Most innovative activates involve multiple actors (Roelandt & den Hertog, 1999). These activities are mostly initiated on company level and further developed from the specialized high education and R&D institutions, which are strongly supported by the government (DeBresson and Hu, 1999). Companies are getting stronger through innovation activities, but what builds a strong cluster is the competition among them (Rosenfeld, 2002).

Competition/Rivalry: Rivalry or increased competition can put pressure to innovate and create greater entrepreneurial opportunities (Delgado et al., 2010). The nature of competition within a cluster shapes the incentives for start-up entry in that particular location (Bresnahan and Reiss, 1991). Local competition is intensified with the increase of established companies within this location (Delgado et al., 2010).

The imperfection that might exist within a cluster increases government awareness and is the basis for the cluster-based policies (used to remove imperfection) (Rosenfeld, 2002).

Government role/policy: Government role and policies are crucial for the existence of the cluster. On one hand clusters are dependent on the government concerning rules, taxes, infrastructure, education etc. On the other hand clusters prove to be very useful for the government to identify strengths, opportunities that need to be stimulated and used and at the same time gaps, weaknesses and needs that should be filled, strengthened and satisfied (Roelandt et al., 1999).

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The so-called cluster reality gives birth to a new role of the government. This role includes the facilitation of the networking process and the creation of supporting policies that favor the cluster formation and maintenance. With the created policy frameworks in areas such as education, finance, competition and regulation, governments can support the development of innovative and dynamic clusters (Guinet & Pilat, 1999). Moreover, facilitating of knowledge exchange, preventing information failures, stimulating competitiveness and strengthening co-operation among firms is of a great importance for the elements of the cluster. Regional and local policies and development programs can also play a role in encouraging cluster formation. All entities and their interactions differ substantially across countries. Thus government policies are mostly country-specific, which is seen as a strong factor for companies to locate at that specific region (Roelandt & den Hertog, 1999).

3.3 Relevance of the cluster theory the linkage to Dutch Flower Cluster Industry clusters have become an essential element of economic development policy. Every regional economy, no matter how diversified the region is, becomes specialized in industries that are more concentrated than in other places (Rosenfeld, 2002). But of course not every nation/region can be good at producing everything. Therefore, successful places develop strengths and focus innovative capacities on certain types of industries, or clusters (Rosenfeld, 2002, p.5).

Among the most striking examples of local clusters in the world economy are computer software in Silicon Valley, film industry in Hollywood, financial services in inner London, Wall Street, chocolate in Switzerland and Belgium, the flowers in the Netherlands, etc. (Ketels et.al, 2008).

The flowers in the Netherlands, or the Dutch Flower Cluster as we refer to it in this study, is an example of how a country, with probably the most unfavorable climate conditions (little sun and unsuitable land), can succeed in flower business and turn out to be the world biggest exporter in the horticulture 27

industry (European Cluster Observatory, 28.10.2010). All this happens due to the specialization in the cluster, supply chain efficiency, investment in physical infrastructure, sophisticated demand and competition, innovation and advanced techniques creating competitive advantage, R&D investments, logistics and last but not least international auctions.

3.4 The Dutch Flower Cluster Over the last decades, the Netherlands has taken the place of a world leader in the production and trade of flowers. Since the 80s, the world market for floricultural products has grown enormously. Nowadays, the country is well known for innovative logistics and international trade. Floricultural products are some of the major Dutch export products, which account for 60% of the global export in this sector. Furthermore, 75% of the cut-flower business in the Western Europe and 65% of the world flower trade belong to the Netherlands (European Cluster Observatory, 28.10.2011).

During the years a large and dynamic economic cluster has evolved, with a high concentration of over ten thousand companies and institutions that reinforce each other in innovation and competitiveness within the floriculture sector. The Dutch Flower Cluster has played a dominant role in the worldwide flower trade ever since (BloominHolland, 15.11.2010).

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3.4.1 Defining the Region of the Dutch Flower Cluster Exhibit 1.West Netherlands Region: The Dutch Flower Cluster
West Netherlands Region: The Dutch Flower Cluster

Source: Wired Destinations, 2011 (modified by the researchers).

This floriculture tradition has developed as a result of the early urbanization of the western part of the country, intelligent infrastructure building and positive clustering effects. Fact is that the Netherlands has never enjoyed an ideal climate for floriculture. However, despite of climate conditions and land scarcity, the industry has developed due to demanding nearby markets (Flower Council Holland, 20.11.2011).

Three regions became the heart of that tradition: northern (near Alkmaar) and southern (around Aalsmeer) parts of Amsterdam, Rotterdam area and The Hague (Westland and Rijnsburg) all defined for the purpose of this study as the West Netherlands Region. Each specialized in different products (vegetables, trees, flower bulbs) (European Cluster Observatory, 28.10.2010). Over the decades however all have switched to flower growing because of the high returns, the limited possibility to expand their growing area, the availability of nearby markets etc. (Flower Council Holland, 20.11.2010).

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3.4.2 Development of the Dutch Flower Cluster The long history of the Dutch Flower Cluster dates back to the 16th century, when the cultivation of the imported Tulips had started. The region was chosen from the very beginning: West Netherlands, known at that time as the Bulb Region (mainly around Haarlem). It began gradually to expand and during the 20th century the area spread even further south and north (Flower Council Holland, 20.11.2010; European Cluster Observatory, 28.10.2010).

Innovation connected to greenhouses (they provide constant, regulated and warm environment that is the answer to the unfavorable conditions in this region) made it possible to cultivate plants and flowers normally found in warmer regions (Innovatienetwerk, 20.11.2010). Improvements in quality and development of new products have become more important over the years. Thus the companies that became part of the cluster have initiated selfgoverned activities to offer high quality products (Nyenrode Business Universiteit - Nyenrode Strategy Center, 20.11.2010).

Some of the most successful establishments within the Dutch Flower Cluster are the auctions, which are the result of strong cooperation activities among firms. In 1887 the first auction opened doors. Shortly after, other auctions have established in the heart of the floral world the area of Aalsmeer (European Cluster Observatory, 28.10.201; BloominHolland, 15.11.2010).

The auctions have developed as the only intermediaries for all traders in the West Netherlands Region. They have become leading flower trade hubs and places where information exchange was a constant. The cooperative environment within the region has put the ground for a fast growing and strong cluster. Over the years it has become sophisticated and specialized enough to enter the international arena (Nyenrode Business Universiteit - Nyenrode Strategy Center, 20.11.2010).

The network established among the elements has become the driver for the continuous growth of the horticulture sector in the West Netherlands and 30

especially the floriculture sector (Nyenrode Business Universiteit - Nyenrode Strategy Center, 20.11.2010). Communication and exchange of specialized knowledge and technology among the elements have created strong relationships within the Dutch Flower Cluster. Open exchange of new insights, innovations and information has started throughout the whole network within the cluster (Flower Council Holland, 20.11.2010). 3.4.3 Structure of the Dutch Flower Cluster The Dutch Flower Cluster has created a strong and sustainable value chain of its element by being highly innovative, dynamic at all levels and internationally oriented (Flower Council Holland, 20.11.2010; (Nyenrode Business Universiteit - Nyenrode Strategy Center, 20.11.2010). All the specialized organizations involved in the value chain activities are summarized in Figure 4, p.32. The description of the members and the graphical representation of their interplay are used for further understanding of the chosen cases and for the analysis of the conclusions.

The Dutch Flower Cluster value chain is characterized by horizontal concentration and vertical cooperation. The created cluster map represents the Dutch Flower Custers elements interplay and connections to each other. Over the years, the expansion of the Dutch Flower Clusters value can be followed (Nyenrode Business Universiteit - Nyenrode Strategy Center, 20.11.2010).

All the elements within the cluster are seen as constituent parts and the impact goes both ways (the members have strong influence on the cluster and the cluster has a strong influence on the members). Exactly the balance between them, the strong linkages of the network and the synergy creates the power of the cluster (Nyenrode Business Universiteit - Nyenrode Strategy Center, 20.11.2010). Moreover, the interaction between the companies at all levels within this cluster creates a highly competitive environment and helps them to become leaders in all-year-round flower industry.

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Figure 4. The Dutch Flower Cluster map

Source: Nyenrode Business Universiteit - Nyenrode 20.11.2010 (modified by the researchers).

Strategy

Center,

Because of that, the natural Dutch Flower Cluster has become very innovation oriented (advanced cultivation techniques) and highly specialized, which helps the cluster to achieve competitive advantage in quality and product variety on the local and global market (Flora industry clustering efforts in the Netherlands (2008, p.3), from European Cluster Observatory, 28.10.2010). This dynamic

32

development and the fast growth of the breeding, propagating and growing industries has become a strong magnet for specialized institutions. The scope of the growing Dutch Flower Cluster has reached even further: started attracting different specialized services that made the cluster stronger and even more sustainable to competition. The development and innovative orientation (infrastructural facilities, service delivery etc.) of the Dutch Flower Clusters value chain has lead to a strong international impact and the leading role of the cluster on the international flower stage (a leader in all European flora markets through its intellectual property, development of the latest innovative technologies) (European Cluster Observatory, 28.10.2010).

The Dutch Flower Cluster central and strategic location in West-Netherlands has secured its long-term sustainability, locally and internationally through the creation of sub-clusters (Nyenrode Business Universiteit - Nyenrode Strategy Center, 20.11.2010). The links between the sub-clusters are in all directions, but all of them are strongly related to the main cluster, as shown in Figure 5. The creation of sub-clusters has removed the seasonality of the products from the equation and has enabled specialized services, from which everybody in the cluster can benefit in one way or another. The infrastructure has been strengthened, the intellectual property has been protected and the technology innovation and development have been shared, through the formations of the sub-cluster within the Dutch Flower Cluster region. Furthermore, access to international customers has been increased, the government policy

strengthened and outsourcing has been made easier throughout the value chain (Flower Council Holland, 20.11.2010).

Figure 5: The sub-clusters within the Dutch Flower Cluster

The Dutch Flower Cluster

Sub-cluster IT

Sub-cluster Marketing

Sub-cluster Insurance

Sub-cluster Finance

Sub-cluster Logistics

Sub-cluster Etc.

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3.4.4 Elements of the Dutch Flower Cluster The elements within the Dutch Flower Cluster are the ones creating its dynamic, innovative and competitive environment. Their role and influence on the Dutch Flower Cluster is discussed below:

Breeders as part of the Dutch Flower Cluster: create highly dynamic industry are highly concentrated (their mutual cooperation and competition help with the improvement of products quality; better and less costly technology, marketing and logistics) have highly specialized skills (know-how-to) put pressure on competition create strong innovation processes (genetic modification: natural clones, revolutionized breeding techniques), protected by the

government policies create diversity of product varieties that make it possible to target specific customer segments Source: Plantum NL, 20.11.2010.

Propagators (Cutting, Preserving, Packaging) as part of the Dutch Flower Cluster: have labor-intensive processes (only few tasks can be mechanized) are highly dependent on government policies (certifying) Source: NakTuinbouw, 20.11.2010.

Growers as part of the Dutch Flower Cluster: have horizontal concentration (high number of companies entering this industry/sub-cluster) use greenhouses for cultivation (achieve better products quality) are highly dependent on the local government policies (environmental certification, strict disease control etc.) have undertaken Certification programs that have later on become International certification standards 34

create innovation techniques (energy/costs saving techniques) have initiated mutual organizations and cooperative bank seen as major players in the industry Source: LTO Nederland, 20.11.2010; Innovatienetwerk, 20.11. 2010; European Cluster Observatory, 28.10.2010.

Auctions as part of the Dutch Flower Cluster: play a crucial role within the cluster create very effective system protect the interests of the growers bring together supply and demand are involved logistics and certification processes improve the overall competitiveness of the cluster (logistics, exchange of knowledge, cooperation, communication, marketing etc.) incorporate new technologies (electronic commerce facilities) Source: VBN, 20.11.2010; Flower Council Holland, 20.11.2010; European Cluster Observatory, 28.10.2010.

Wholesalers as part of the Dutch Flower Cluster: have created associations that take care of all the activities (logistics, market information and communication technology, quality control, negotiations with government on different issues Source: VGB, 20.11.2010; HBAG, 20.11.2010.

Retailers as part of the Dutch Flower Cluster: put pressure on demand for high volume put pressure on demand for diversity of product varieties Source: HBAG, 20.11.2010; European Cluster Observatory, 28.10.2010.

Specilized Institutions as part of the Dutch Flower Cluster: facilitate learning and innovation contribute to the position and the reputation of the cluster Source: Floriade, 20.11.2010; Plant Research International, 20.11.2010.

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Government as part of the Dutch Flower Cluster: play a crucial role in the cluster (support of growing international trade and exports etc.) initiate policies that affect the cluster (urban planning, sustainable production etc.) Source: Flower Council Holland, 20.11.2010. 3.4.5 Present situation Nowadays, the Dutch Flower Cluster plays the role of the world flower hub, where not only local but also foreign companies participate, invest and contribute for its successful development. The favorable business climate that the cluster offers, providing 12% in the total world area and 42% share in the world production of flowers (Flora industry clustering efforts in the Netherlands (2008, p.8), from European Cluster Observatory, 28.10.2010) makes it a very attractive place for investments. This is further stimulated from the international environment of the cluster, the openness to foreign investments and businesslike attitude (NFIA, 15.12.2011).

A small survey conducted by the NGO AmCham in the Netherlands about the foreign companies preferences to locate their business activities within the Netherlands is presented in Figure 6. If the percentages for the West Netherlands constituent regions are summed up, the result is over 50 %, which can be seen as the attractiveness of the region - representing the Dutch Flower Cluster Region.

Figure 6. Foreign companies preferences for regional location of their businesses Amsterdam Rotterdam Utrecht Den Hague Eindhoven Breda 32% 13% 7% 7% 3% 2% 36

Groningen Den Bosh Cant say

1% 1% 35%

Source: NGO AmCham- research center in the Netherlands, 23.12.2010.

3.5 Specific factors for the Dutch Flower Cluster In this section the authors will try to deepen the general (theoretical) understandings of the topic, presenting the factors, derived from the factual data about the Dutch Flower Cluster, that are to be found within the environment of the researched cluster. The data is based on literature review as well as relevant Internet sources only for the case of the Dutch Flower Cluster.

Auctions Flower auctions play a key role in the Netherlands leadership of flower industry (van Heck & Ribbers, 1997). Being intermediaries and knowledge centers at the same time (FloraHolland, 05.01.2011), flower auctions provide one of the greatest competitive advantages for the companies within the Dutch Flower Cluster (European Cluster Observatory, 28.10.2010). With the efficient transactions of flowers between buyers and sellers (van Heck & Ribbers, 1997), they turn out to be the place where supply and demand come together (FloraHolland, 05.01.2011).

The auctions clock transactions are what the Dutch flower industry is famous for. The whole idea of the auction clock is that, contrary to the common perception, it starts at a high price determined by the auctioneer and drops until a buyer stops the clock. Meanwhile the buyer has all the information provided by the computerized auction clock: information on producer, product, unit of currency, quality and minimum purchase quantity (van Heck & Ribbers, 1997, p.30).

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Being able to handle a transaction every four seconds (van Heck & Ribbers, 1997), the auction mechanism turn the flower auctions into a powerful and vital tool for companies providing accuracy, quickness and efficiency.

Almost all of the flower production is supplied to the auctions, and then products are classified and sold extremely fast (Kamann & Strejker, 1992). Most of the growers are incorporated in one of the auctions and do not actually sell their products directly; the production sold directly to the traders consists of a very small percentage from the overall flower production (European Cluster Observatory, 28.10.2010).

The role of the auctions is being an intermediary. Providing transparency in pricing, creating links between growers and retailers and concentrating supply and demand (Flora industry clustering efforts in the Netherlands (2008, p.15), from European Cluster Observatory, 28.10.2010) are the main purposes of the auctions. These, in fact, appear to be the biggest advantage for the Dutch Flower Cluster, providing all the companies, both local and foreign, with the best conditions for doing business. The auctions are a key factor that attracts new entrants into the cluster. Furthermore, they are the key element that establishes the connection and creates the synergy among the networks within the cluster.

As already mentioned the history of the auctions goes back to 1887 when the first auction has started and then other auctions began to appear mainly around Aalsmeer and in the Westland (European Cluster Observatory, 28.10.2010).

Today, FloraHolland (the company formed after the merger of the two biggest auctions in the country FloraHolland and Aalsmeer) is the worlds largest auction organization. It has six national and international marketplaces where companies from all over the world taka place. Four of them Aalsmeer, Naaldwijk, Rijnsburg, and Bleiswijk are located in the West Netherlands region. Each of them has its special characteristics. However, being located within the Dutch Flower Cluster is a strategic decision for the auctions to be close to the

38

growers and to cover the important commercial and logistic points in the FloraHolland network (FloraHolland, 05.01.2011).

Aalsmeer center Aalsmeer auction center has the largest trading house in the world where it provides a huge variety of flowers. With its modern and sophisticated facilities, the center provides a perfect business atmosphere, quickness and efficiency. Being an export auction and known for its specialized logistical services, it attracts local and foreign companies dealing with export, trade and processing of flowers (FloraHolland, 05.01.2011).

Naaldwijk center Like Aalsmeer, Naaldwijk center is also an export auction. With its perfect logistical network, processing facilities and the opportunity for having own processing space in the Trade Park Westland, the Naaldwijk center includes and attracts not only export companies, but also firms that provide buyers with products from other auctions. The center has opened doors for foreign companies as well (FloraHolland, 05.01.2011).

Bleiswijk center A regional auction center, providing all kinds of cut flowers, house and garden plants, Bleiswijk auction center attracts mainly retailers working on the Dutch market (supermarkets, garden centers, florist shop, etc.) (FloraHolland, 05.01.2011).

Rijnsburg center Another export auction famous with its huge variety of flowers, extremely fast delivery and sophisticate logistics, the Rijnsburg center is the best place for medium-sized companies that supply foreign retailers, but also small buyers because of its cash and carry service (FloraHolland, 05.01.2011).

The main role of the auctions within the cluster is to bring together supply and demand. However, not only the concentration of buyers and sellers is what

39

contributes for the efficiency within the Dutch Flower Cluster but also the concentration of all the participants within a certain location is a very important factor.

Concentration The concentration of companies in a certain location offers them the opportunity to benefit from one another and from the whole environment that the cluster creates. The proximity of companies and institutions in one location and the repeated exchanges among them foster better coordination and trust (Porter, 1998, p.80), increases knowledge flows and spillover, facilitates interactions and thus innovation processes. Both present and new firms, related in one way or another to the flower business, develop much better when they are located close to already established companies, investors, educational institutions and research centers (European Cluster Observatory, 28.10.2010). Due to colocation they can benefit from economies of scale and can increase their efficiency.

Companies from different sub-clusters locate within the Dutch Flower Cluster, to a great extent due to the concentration of supply and demand (European Cluster Observatory, 28.10.2010). When producers (breeders, growers, etc) and buyers (retailers, wholesalers, export companies) are located within the same geographic area, other companies dealing with complementary economic activities are easily attracted. The concentration of companies gives them the possibility to exchange experience and knowledge, and access to important information (Claro et al., 2006).

Thus, due to the geographical co-location and the constant interrelation among the elements of the cluster, strong networks have been established.

Networks Several big and not so big networks within the cluster contribute for its long sustainability. Among the most valuable ones is the network of grower cooperatives (in the face of the auctions already explained above). Even though

40

they are direct competitors, growers have common interests and work for the common welfare. Since most of them are members of different associations that have taken on even marketing and research functions, being part of a whole network allows growers to benefit from immediate (firsthand) access to novelties, information, knowledge, etc. (European Cluster Observatory, 28.10.2010). Furthermore, the success of the Dutch Flower Cluster would have been impossible without the land and air logistics networks (European Cluster Observatory, 28.10.2010). R&D centers and leading universities form another important network within the cluster. Thus, through mutual efforts and cooperation, best results are obtained and they are shared further (to the breeders, growers, etc.) throughout the whole chain established in the West Netherlands Region. IT and software companies create another significant network within the cluster, without which the auctions would never reach this high level of professionalism and efficiency.

The created dynamism and interdependence within the cluster environment make companies more competitive, which motivates newcomers to locate within the cluster.

Collaboration Collaboration is the constant interaction among businesses when working together in order to achieve mutual goals (Anderson & Narus, 1990; Morgan & Hunt, 1994 cited in Claro et al., 2006). Without the constant and efficient collaboration between the companies and institutions in the cluster, the synergy they produce could not be achieved. Furthermore, the increased level of collaboration between government, business and universities offers favourable business conditions in terms of competitions, quality of legislation and infrastructure (Flora industry clustering efforts in the Netherlands (2008, p.6), from European Cluster Observatory, 28.10.2010) both for local and foreign businesses.

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Knowledge sharing Knowledge is shared among all the members of the cluster. Based on mutual trust and relationships firms are willing to inform others about their knowledge (European Cluster Observatory, 28.10.2010).

Growers within the Dutch Flower Cluster used to be colleagues rather than competitors and knowledge about products and production turned out to be an accessible good that producers from all parts of the world benefit from (van Oosten, 1998). However, the closer companies are, the bigger their benefits from the openness and free exchange of information, knowledge sharing, new insights and innovation become (van Oosten, 1998). This mutual learning is further stimulated by the so called study-club of horticultural farmers, organized and supported by the auctions and governmental or semi-state services (Kamann & Strejker, 1992).

During the years the flower industry in the West Netherlands Region has developed and continued to prosper because of the constant implementation of highly specialized technologies, fostering of innovation processes, development of specialized skills, etc. The continuous change in production techniques to remain up to date (Kamann & Strejker, 1992) and the specialized tacit knowledge developed in the R&D centers, academies and universities, contribute for the leading position that the cluster has obtained.

Specialized education and R&D institutions The clustering efforts within the West Netherlands Region have switched to the field of science and technology, and thus business capabilities have been strengthen by increased investments in R&D (European Cluster Observatory, 28.10.2010).

Leading Dutch universities and their strong research laboratories in agriculture contribute to a high extent for the development of the Dutch Flower Cluster. Van Hall Larenstein, University of Applied Science is the largest green University of Applied Sciences of Holland. It provides training and consultancy of innovative

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knowledge and management skills for rural and environmental development, the agri-chain-business and professional education (University of Applied Science Van Hall Larenstein, 15.12.2010). The Flower Academy is another educational institution that provides knowledge and competences in the field of flowers and plants (Flower Academy, 15.12.2010). Plant Research International at the University of Wageningen is a research institute specialized in strategic and applied research, serving the entire agro-production chain with scientific products (Plant Research International, 20.11. 2010).

Therefore, companies in the Dutch Flower Cluster involved in R&D have the chance to enjoy an environment where world-class universities, supportive government authorities and dynamic business society provide excellent conditions for successful R&D (NFIA, 15.12.2010). On the other hand, due to the extremely developed Dutch academic research centers, other companies in the cluster benefit from the constant improvements and solutions provided.

As a whole, all the R&D activities lead to the innovative nature the Dutch Flower Cluster is known for.

Innovation Clusters conventional comparative disadvantage (lack of abundant land and nice weather), turned out to be its strongest advantage: because of it the cluster has been forced to innovate at all levels of the value chain (European Cluster Observatory, 28.10.2010). One of the recent innovations is the development in energy saving technologies. Innovation in products, marketing mix and cultivation techniques has increased resource productivity and created efficient technologies, which are crucial for the cluster to sustain its competitive advantage in quality and products variety (European Cluster Observatory, 28.10. 2010).

As a whole, the strong interactions between academic research institutions and dynamic business community (entrepreneurship and the availability of risk capital), foster and influence positively the innovation process (European

43

Commission, 16.11.2010). Thus, the increasing complexity of innovation (which makes companies interaction more necessary and more important), makes it a key driver for firms to locate within the Dutch Flower Cluster (European Cluster Observatory, 28.10.2010).

Skilled labor force A well-known fact is that to obtain a success in any field of work, motivation and skills are necessary. Main reason for the high performance of the Dutch Flower Cluster is the highly educated, flexible and motivated workforce. The professionalism, skills and knowledge that they possess contribute for the development and the prosperity of individual companies and therefore of the whole cluster (NFIA, 15.12.2010)

Specialized skills and specialized tacit knowledge are resources that could be obtained only if companies are located within the cluster, because the environment of the cluster (access to different educational institutions, interaction and collaboration with others, free flow of information, proximity and close relationships) is what contributes mostly for it.

Logistics The success of the Dutch Flower Cluster depends to a great extent to its specialized and efficient logistics. The organization of the processing and transportation of the flowers, after being sold at the auction, is extremely important. Therefore, good logistical resources (boxes, trays, containers) must be available (VBN, 20.11.2010).

However, for the immediate transportation, a key role plays the strategic geographic position that the region holds within Europe: its location in the center of Western European markets provides an easy access to many industrial centers. This gives another advantage for the companies within Dutch Flower Cluster proximity to a market of approximately 250 million consumers within a radius of 500 km (European Cluster Observatory, 28.10.2010).

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Furthermore, the West Netherlands Region covers the Port of Rotterdam (the largest in Europe) and the Airport of Amsterdam (known as the best business airport in Europe), which provide peerless connection by road, rail and water. These excellent logistics opportunities allow companies to conduct their businesses fast, convenient and fruitfully (NFIA, 15.12.2010).

One of the main reasons for the well-developed logistics is also the transportation infrastructure. A complex network of highways, secondary roads and railroad system provide full accessibility to international roads (NFIA, 15.12. 2010).

Strong presences within the West Netherlands Region have not only local but also foreign companies (form the USA, Japan and Australia), which prove the huge impact of the logistics infrastructure on the cluster environment (European Cluster Observatory, 28.10.2010). However, the modern technology

infrastructure developed within the cluster is an important factor for both local and foreign investors as well.

Technology infrastructure Being part of the largest Internet hub in Europe, the West Netherlands Region is a place where huge investments in most advanced communication systems are made and fast adopted (NFIA, 15.12.2010). This could be noticed from the up to date technology infrastructure, mainly supporting the extremely professional and high quality operations of the Flower Auctions, located within the cluster. The strong presence of local and foreign IT companies creates an important sub-cluster within the region, which contributes to the perfect technology organization.

Complementary economic activities The concentration of demand and supply within the Dutch Flower Cluster has attracted many companies from different industries like marketing, IT, insurance, finance etc. They all contribute for the fruitful operation of the cluster and create a win-win situation. The cluster would not be able to function in the

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same way if only growers, breeders and buyers were located within. Collaboration and assistance among all supporting industries are needed. The more concentrated producers and buyers become, the bigger the need for companies with complementary economic activities is (Nyenrode Business Universiteit - Nyenrode Strategy Center, 20.11.2010).

Special IT firms, for example, provide software for the auctions as being their biggest client. Different financial institutes have special agreements with auctions, other producers, etc. Marketing companies, when for instance thinking of product innovation, are the ones introducing the new variety and initiating big marketing campaigns (Kamann & Strejker, 1992).

Again - a network of interactions, interdependences and mutual benefits is established. Therefore, since all complementary economic activities create an environment with favorable conditions for all the parties, they turn out to be an important factor for firms to locate within the cluster.

Except the complementary economic activities, the long history and government policies within the flower industry in the Netherlands contribute for the favorable business climate within.

Long history The Dutch flower industry has a history starting many years ago when the tulip was imported from Turkey. Known as the heart of the flower industry, Dutch Flower Cluster has kept through all the years an excellent reputation all over the world (European Cluster Observatory, 28.10.2010). Its long history proves that it is a strong and sustainable cluster, which has survived through all the changes, crises and trends on the market. It has become a place where local firms (which often just continue the family business) and foreign firms work together and enjoy secure and sustainable business environment.

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Government policy The Dutch government cluster policies are set of specific government policy interventions with the idea of strengthening and facilitating the cluster per se. These policies have different forms: specific cluster policies that define specific measures and responsibilities allocate funds and set specific rules (The concept of clusters and cluster policies and their role for competitiveness and innovation: Main statistical results and lessons learned (2008, p.33) from European Commission, 16.11.2010).

The initiated cluster approach is driven by the idea of stimulating growth, supporting innovation and creating of competitive advantage within the Dutch Flower Cluster. From the very beginning government policies have had a very strong influence and played a crucial role within the cluster. Government policies have contributed to it by encouraging that authorities, private enterprise and knowledge institutes co-operate and exchange knowledge and information (van Oosten, 1998, p.10).

All the major changes (globalization, economic liberalization etc.) around the globe have made the national governments to follow the change in their own ways. Deregulation, encouraging, stressing on responsibility are one of the main characteristics of the government role/activities within the Dutch Flower Cluster to ensure the right speed of changing and following the modern trends on the market. As a result the structure and the relations within the cluster have been changing noticeably as well (Flower Council Holland, 20.11.2010; European Cluster Observatory, 28.10.2010).

The Dutch government has its role at all level of the value chain and especially when referring to norms and standards. Through the specific and strict norms and standards, it creates safe, secure and highly competitive environment and it helps the Dutch Flower Cluster to claim international/global top-level positioning (van Oosten, 1998, p.10). Additionally the government has integrated all of the public institutes to help single units and through that the whole cluster. During the last years the government policies within the Dutch

47

Flower Cluster has increased and intensified. The stress on innovation, sustainability, competitiveness and cooperation has been the main forces behind them: innovation supported by cooperation between companies and public centers (R&D institutes, universities, centers of excellence etc.) and funding (facilitate technological cooperation etc.); sustainability supported by norms and certificates policies; competitiveness and cooperation at the same time through the facilitation of the dynamics, the networks etc. on the market (Roelandt et at., 1999).

In general the Dutch government uses policies to crate favorable framework conditions and reduce market imperfection (deregulations, information barriers, spillovers etc.), since they hide the synergies between the elements of the cluster (Roelandt et at., 1999). However, with the policies created by the government to fill the gaps and correct the imperfection, the elements of the Dutch Flower Cluster are able to keep the leading role and respond to the changing environment and market needs. Direct examples of the Cluster policy in the Netherlands can be found in Table 1 in Appendix 2.

To sum up, all of the enumerated factors above are factors, offered by the environment of the Dutch Flower Cluster, which play a key role for all the actors that participate within.

4. Developing the prediction matrix

In this section, step 2 of the research process is implemented. It includes the development of the statements (based on the previously presented theoretical and factual data) and the prediction matrix. The predictions, made by the researchers, aim to show their expectations: whether or not the theoretical data are supported by the empirical ones. 4.1 Definition and purpose of the prediction matrix The heart of DFA is the prediction matrix (Woodside, 2010, p.243). Based on the overall understanding from the literature study and the factual data, the 48

prediction matrix is developed in Table 1. The purpose of the prediction matrix is to create the pattern based on theory to be either confirmed or disconfirmed by the case data (Wilson and Woodside, 1999, p.217).

In the prediction matrix the statements (which are further explained in details) are presented. In this case the statements represent the summarized factors derived from the theoretical understanding. The statements are seen as groups of indicators which clarify them and are further used in the development of the questionnaire.

The statements are the independent variables in the prediction matrix and the dependent varriable is the geographical location and namely the West Netherlands region (the Dutch Flower Cluster). The role of the prediction matrix is to clarify the relations between the dependent and independent variables (Andersen & Rask, 2003). Therefore, predictions usually in the form of Yes or No are made. However, in this study, answer Yes is suggested in all of the predictions since the geographical location (independent variable) is what creates or offers the factors (dependent variables).

As a whole, the prediction matrix gives an overview of the statements, exploring their theoretical validity (Andersen & Rask, 2003), concerning the geographical location of the Dutch Flower Cluster.

4.2 Development of statements For the development of the statements and their indicators, the theory chosen for this study (the general theory for factors offered from an industry cluster) is combined with the particular factual data available for the Dutch Flower Cluster. These statements are going to be the matching patterns to the collected empirical data. The combination of theory with already existing facts is undertaken with the idea to increase the validity and the relevance of the chosen factors to be tested.

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The methodology used: the Degrees of Freedom Analysis is allowing the theory to be part of the analytical framework (Andersen & Rask, 2003). Through conducting this method, the authors intention is to verify, if the factors offered by the Dutch Flower Cluster environment (supported by the theory as well) can be seen as factors attracting and motivating foreign companies to locate within the cluster the West Netherlands Region. The statements will be further explained, so the logic behind the researchers choice can be clearer seen.

Table 7. Prediction matrix Statements: Key factors ID Indicators: Key sub-factors Location: WestNetherlan ds Region 1.The Business Environment within the West-Netherlands Region - the Dutch Flower Cluster 1c 1a 1b Sophisticated local demand The government cluster policies that influence the elements of the Dutch Flower Cluster (taxation, certification, subsidiaries, regulations etc.) Entrepreneurship (entrepreneurial activities that fill the gaps or correct imperfection) 1d The presence of complementary economic activities within the Dutch Flower Cluster 1e Long history (referred to the sustainability of the cluster) 2.The Infrastructure within the WestNetherlands Region the Dutch Flower Cluster 3.The Proximity within 3a Auctions YES 50 2a 2b Technology infrastructure Logistics infrastructure YES YES YES YES YES YES YES

the West-Netherlands Region - the Dutch Flower Cluster

3b 3c 3d 3e 3e

Collaboration Competition Networks between the elements Knowledge spillover (sharing) Concentration Innovation Specialized education and R&D institutions

YES YES YES YES YES YES YES

4. The Specialization within the WestNetherlands region the Dutch Flower Cluster

4a 4b

4c

Skilled labour force

YES

Source: Researchers conclusions based on the theoretical and factual data from Sections 3.2 (General factors of an industry cluster extracted from the theory) and 3.5 (Specific factors for the Dutch Flower Cluster), (modified by Andersen & Rask, 2003).

Statement 1: The Business Environment within the West-Netherlands Region the Dutch Flower Cluster: The business environment within the Dutch Flower Cluster - West-Netherlands region is chosen as the first motivational factor to be tested. It consists of five sub-factors/indicators: The sophisticated local demand gives the first and most important picture that the foreign owned companies can see when looking for place to re-locate or invest. Thus, it might be a very important incentive for companies location decision.

The government policies that influence the elements of the Dutch Flower Cluster like taxation, certification, subsidiaries, regulations etc. are seen as an inevitable part of the created business environment and as a factor helping for the sustainability within the Dutch Flower Cluster.

The entrepreneurial activities are another sub-factor of the business environment that might contribute to the attractiveness of the clusters 51

environment. They are seen as gaps filling activities and also as imperfection correctors within the environment.

Complementary economic activities (in the sense of related and supporting industries such as financial, marketing, IT, logistics), offered by the elements of the Dutch Flower Cluster, are proof for the sustainability and the security of the cluster environment. The business environment, offering complementary economic activities, is more attractive for new comers.

This brings us to the idea of the long history, the last indicator of this group, as a representative of the sustainability of the cluster over time and the ability to sustain changes, crises and trends.

Statement 2: The Infrastructure within the West-Netherlands Region - the Dutch Flower Cluster: The infrastructure within the West-Netherlands Region - the Dutch Flower Cluster is chosen as the second motivational factor to be tested. It consists of two sub-factors/indicators: the technology infrastructure and the logistic infrastructure. Having a strong, well-organized and well-developed infrastructure makes it easier and more efficient for the activities at all levels of the supply chain.

Statement 3: The Proximity within the West-Netherlands Region - the Dutch Flower Cluster: The proximity within the West-Netherlands Region - the Dutch Flower Cluster is chosen as the third motivational factor to be tested. It consists of six subfactors/indicators.

The auctions, seen as the place where supply and demand come together, are an important sub-factor. Working as a local and international hub, they make it easier for local and foreign companies to become part of the business world within the cluster and benefit from it. Auctions are what make the heart of the Dutch Flower Cluster keep beating.

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Within this region, as paradoxical as it sounds, all the companies have a strong collaboration and work together for solutions that will help them be one step ahead and keep their competitive advantage on the global market. However, they compete at the very same time for market share and reputation. These companies create very dynamic and very complex networks that provide them access to all the needed specialized knowledge. The idea is that knowledge is not wasted; it is just transferred within the cluster. The result of all these activities is the high concentration of different kinds of supporting industries with many local and foreign representatives that work as one for all and all for one.

Statement 4: The Specialization within the West-Netherlands Region - the Dutch Flower Cluster: The specialization within the West-Netherlands Region - the Dutch Flower Cluster is chosen as the fourth motivational factor to be tested. It consists of three sub-factors/indicators.

The cluster offers many and different innovation activities that increase efficiency, reduce production costs, reduce externalities etc., which is seen as a strong motivator for local and especially foreign companies to locate within the region. Specialized R&D institutions are the support system for the innovation activities and the database for storing all the information. The developed specialized educational system gives a strong backbone (skilled labour force) for the newcomers, since the knowledge is imported/shared through the big and specialized labour force pool. Having already trained people to deal with the business reality makes it easier, less costly and more efficient from the very beginning.

Since all the extracted statements and indicators are key factors, offered by the Dutch Flower Cluster (and therefore the location in which it has been developed - West Netherlands Region), based on the theory and the factual examples, the researchers suppose that they are key motivational factors for companies location decision. However, further analysis tries to test if their predictions are

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right and if all the existing and offered factors are seen as motivational according to the foreign-owned companies.

It is quite important also to be mentioned that defining the indicators as sub factors, the authors do not intend to diminish their importance. The idea is just to group them according to some commonalities, so that they can be easily understood and described. Afterwards, further conclusions will be made, referring to the statements they belong to.

5. Conducting fieldwork
In this section, step 3 of the research process is implemented. The purpose of this section is to show the reader how the data is chosen, collected and prepared for the further analysis. The included explanations (description of the companies profiles of the companies and the tables, summarizing the answers about the factors received from the questionnaire) are made to ease the overview of the data and the conclusions from the analysis of the external judges. 5.1 Sampling strategy The selection of the sample in this research is guided by the choice of using an analytical research method (DFA), where data is generalized to theory (Wilson & Woodside 1999).

For determination of the exact sample, approached in this research, Orbis database, the database for company information across the globe has been used. It has helped to define the scope of the population, from which the sample has been extracted. In order to be relevant for this study, the target population should include companies that have located their business activities within the West-Netherlands Region. For this purpose, in the used Orbis database, a constrained about the location has been applied, namely: West-Netherlands Region (Zuid Holland and Noord Holland). Thus, a result of 1, 304, 023

54

(searched on 27.11.2010) companies the population aimed in this study, has been obtained. Furthermore, a purposive sampling strategy has been used, where the target group is only foreign-owned companies operating within the West Netherlands region, whose main activities are related in one way or another to the flower business. To obtain this result, certain steps in Orbis have been followed: - a constraint specifying the industry has been chosen, further clarified by the sub option textual search, where the word flowers has been typed; - afterwards, another constraint has been added to the first two steps (location and industry), namely the criterion ownership data companies owned by a shareholder foreign shareholder (both ultimate owner and foreign shareholder owning a direct or total participation greater than 51% in the company) have been selected.

Thus, combining the three constraints in the Boolean search, final result of 78 companies has been obtained. Due to the fact that this is a relatively small sample size, extra data has been found through contacting special organizations (which the authors know from the research process) like: Flower Council Holland; FloraHolland auction; Bloomin Holland center and

Netherlands Foreign Investment Agency. Formal e-mails have been exchanged and due to the assistance provided (inside information for potentially suitable companies), a new sample of 150 foreign companies has been obtained. This however is the sample of firms that the researchers have contacted. The very final sample used in the conduction of the DFA is further explained in the section sample size.

5.2 Units of analysis The units of analysis in this research are companies, categorized as foreignowned companies located within the Dutch Flower Cluster. There are two main criteria that companies should fulfill: to be related to the flower business and their main shareholder (having more than 51% share) to be a foreign company. There are no other additional requirements by which the companies have been 55

selected. In all of the cases the companies have already taken the decision to locate within the West Netherlands Region and are currently operating within it. There is one company, which does not fulfill completely the main criteria mentioned above because it is not a foreign-owned company anymore. However, since its name has been obtained from the results in Orbis database; it used to be a foreign-owned company until very soon; and what is more important it was a foreign company at the moment it has decided to locate within the West-Netherlands Region, the authors have decided to include it in the survey. Further information about the respective company is provided when all of the cases are introduced.

Therefore the researchers will refer to the units of analysis as to fifteen foreignowned companies since at the time when the location decision has been taken; all of them have been foreign companies.

5.3 Sample size Because of the research method (DFA) that has been chosen for the purpose of this study, a relatively small sample is necessary. A sample of fifteen foreignowned companies has been chosen at the end. Four of them are the only companies that have answered to the questionnaire. The rest eleven of them are companies that have answered the questionnaire after being contacted by phone. They have been randomly chosen from the previously explained sample of 150 foreign-owned companies and the first eleven that have been collaborative enough to respond the questions have been selected and used in this study.

5.4 Data collection After specifying the sample that is to be used in this study, the researchers have faced the challenge of choosing the right way to approach the units of analysis. As a result the methods used were self-administrated E-mail and administrated 56

phone

questionnaire,

included

in

Appendix

1.

When

answering

the

questionnaire the respondents have been asked to mainly concentrate on the existent factors and evaluate the importance of every single one, for simplicity by Yes, No or Do not know. All 150 foreign-owned companies have received an E-mail questionnaire at the beginning. Questionnaire has been chosen, due to the fact that the geographical area is difficult to be approached personally by the researches. The questionnaire has been further modified after the first round of its release when the respondent rate turned out to be close to none. In the second round the questionnaire has been reduced to only a few questions that were supposed to ease the respondents by concentrating their attention only on the main points of the research. However, the response rate was again relatively low. A third round has been sent again and 4 e-mail questionnaire answers have been obtained.

After 3 months and 3 times forwarding the questionnaire, though the high costs included, the researchers have initiated a phone questionnaire for randomly chosen companies from the sample. The questionnaire has been read to the respondents and more explanations have been provided when needed. This method has helped the researchers to collect the needed data. At the end the segment has been defined as relatively difficult one, with low respondent rate. However, the authors ended up having the needed primary data. Thus, secondary data is used only for the introduction and background of the units of analysis and the further conclusions made.

The researchers have not chosen personally the respondents. They have been transferred to them as being the most appropriate representatives of the company and having enough knowledge to answer the survey.

Questionnaire: The questionnaire is constructed starting with a short introduction, so the respondents can get an overview of the topic and the purpose of the research. Further the questions are divided into sections in order to make it easier to follow the logic of the questionnaire. At the end there is a possibility for further comments and contact information, to ensure that all the

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aspects have been covered and it is possible to get back to the respective respondent if needed. The questions are asked in an everyday language, to make it easier for the respondents when some of the English terms are not familiar, so misinterpretation can be avoided (Czaja and Blair, 2005, pp. 94101).

Some of the questions are asked as close ended and some as open ended. Close ended questions are used to collect the main data needed in an easy to use and interpret way for the further research. Moreover, closed questions are more appropriate in this study since the already existant theory is only tested. If the main questions are open ended, the interpreter might have the risk of misunderstanding and it will increase the biasedness of the data. Open ended ones are used to clarify the answers of some of the respondents and in some questions the researchers have given them the possibility to add further comments. Although the companies within the sample of interest have been defined as relevant for the research, at the end of the first part in the questionnaire, a question, regarding the awareness of the companies that they are part of the Dutch Flower Cluster, has been asked. This has been done in case they are aware of the advantages that the region offers (and therefore they have located there), but not that they are part of an industry cluster. For this purpose, a separate part (Part 3 of the questionnaire attached in Appendix 1) has been developed. The questions asked in this part aim to confirm that the companies are either elements of the cluster or not. The problems with interpreting objectively the open-ended questions are solved through the external judge, chosen to analyze the data. The examination of the data from external judges increases the reliability and validity of the data (Wilson & Woodside 1999).

Primary data: all the data are collected through the questioning of the respondents in written (mail questionnaire) and verbal (phone questionnaire) way. The mail questionnaire has generated lower costs, but the respondent rate was very low (it was very difficult to obtain cooperation) and has taken a long period of time. After switching to the phone interviews the low respondent

58

rate has been explained to some extent. It was due to the fact that more than the given explanations were needed. The data collected was sufficient enough for the further research.

Secondary data: has been used for the collection of background information about the units of analysis. It has been obtained from Internet sources, business news, and interactions with specialists within the field. The limitations however are to be expected since the secondary data collected is from reliable sources, but still difficult to be verified.

5.5 Data analysis The data collected will be analyzed though a valuable, although little used, case data analysis technique: Degrees of Freedom Analysis (Wilson & Woodside, 1999, p.1). Since the method does not have a big pool of examples, its application in this study might have some limitations. The DFA has been detailed described already in Section 2 (Methodology). In this section data for each of the cases is presented separately, to give brief overview of the fifteen foreign-owned companies used for this research. An independent, specially trained judge is included in the research since the data from the questionnaire contains closed and open questions and if interpreted only by the researches, it can be seen as bias (subjective). To reduce the possible of data biasness, the external judge has access to all the data collected and is asked to reach individual conclusions, which later on are used for the final version of the conclusions (this should increase the objectivity and the verifiability of the collected data).

5.6 Introduction of the cases In this section a brief overview of the companies used for the purpose of this research is presented. A short history of the companies will make the reader familiar with their background, origin, type of industry they operate in, etc. This

59

data is further used for the conclusions of the results obtained from the applied DFA method.

However, in order to be easier for the reader to follow the respondents answers of the main questions from the questionnaire (regarding the factors that contribute for the companys location decision), a transcript in the form of tables is provided after every five cases respectively.

Case 1: GASA Holland B.V. GASA Holland is a member of GASA Group and its representative in the Netherlands. GASA Group is a modern international trading company specialized in plants and flowers export. Their history starts back in 1929 with the establishments of GASA Odense and GASA Aarhus (Denmark). At the beginning, they have been working independently for quite a lot of time until they have decided to combine together and form the huge family of GASA Group.

GASA Holland B.V. is a Plant Trading Company that exports to all around Europe and is focused mainly on Wholesale, Retail, Garden Centers and Young Plants. It is located in the area of Aalsmeer and has been on the market for around 20 years already (Gasa Group, 10.02.2011).

The company has been contacted per e-mail and questioned for the main factors that have influenced its location decision.

Case 2: Jiffy Products Nederland B.V. The company is a Sales subsidiary established in the Netherlands in 1968 under the name of Jiffy Pot Nederland N.V., and changed into Jiffy Products Nederland B.V. in 1972. It belongs to Jiffy Group whose history dates back in the early 1950s in Oslo, Norway. Jiffy Products Nederland B.V. is located in Moerdijk, the area of Rotterdam and is a leading supplier of plant propagation systems (Jiffy Group, 10.02.2011).

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The company has been contacted by phone and questioned for the main factors that have influenced its location decision.

Case 3: Gimall Plants NL B.V. Gimall Plants is a Belgian exporter of ornamental plants. The company was officially established in 1990 in Wetteren, Belgium. However, due to the steady purchase growth on the Dutch market, in 2008 a new company - Gimall Plants NL B.V. was established in the area of Flora Holland Naaldwijk (Gimall Plants, 10.02.2011).

The company has been contacted by phone and questioned for the main factors that have influenced its location decision.

Case 4: Takii Europe B.V. Takii & Company Ltd is a Japanese company located in Kyoto, Japan, whose history starts back in the 1835. More than 175 years, the company builds its strong reputation within the horticulture business breeding, producing and selling a huge variety of flowers and vegetables. During the years it has established a global network due to its constantly adaptation to the actual market demand. Thus, in 1990, a European division of Takii & Company Ltd was found in De Kwakel, the Netherlands where all the commercial and logistics activities are centralized (Takii Seed, 10.02.2011).

The company has been contacted by phone and questioned for the main factors that have influenced its location decision.

Case 5: Florimex International B.V. Florimex Internation is originally a German company, founded in 1925 by a German family. The main business activities of the company are importing and exporting flowers, plants, bouquets and cut-greens, and the company delivers mainly to the international wholesale and retailers. Being internationally oriented company, in 1970 its first subsidiary was found in Aalsmeer, the Netherlands. At the very beginning the company has exported pot plants and cut flowers only to

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its parent company. However, due to the strong business climate, the region provides, in 2002 Florimex moved their headquarters from Germany to the Netherlands. The company has five branches located in different auctions, however the main one is located in Aalsmeer (Florimex International, 10.02.2011).

Florimex International is a bit different from the other companies in the sample since presently it is owned by a Dutch private equity company. However, it is not the purpose of this research to investigate the companys decision to be sold to a local company, but rather to find out the incentives of the previous foreign owners to locate and later on move their headquarters exactly in this region.

The company has been contacted by phone and a person familiar with the whole background of Florimex International has been questioned for the main factors that have influenced the decision of the German owners to locate within the West-Netherlands Region.

Table 8. Transcript of the answers of the first five cases Case 1 Sophisticated local demand The government N Y Y Y N Y Case 2 Y Case 3 Y Case 4 Y Case 5 Y

cluster policies Entrepreneurship The presence of complementary economic activities Long history Technology infrastructure Logistics Y Y Y Y Y 62 Y Y N Y N Y N N Y Y X N Y N Y Y X N N Y

infrastructure Auctions Collaboration Competition Networks between the elements Knowledge spillover (sharing) Concentration Innovation Specialized education and Y Y N Y Y Y Y Y Y Y Y Y Y Y Y Y N Y Y Y Y N Y Y N Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y

R&D institutions Skilled force labour Y N N Y Y

Case 6: Van Speijbroeck Van Speijbroeck is one of the newest members of the Dutch Flower Cluster. It is originally a Belgian company, dating back from the 1898 and has just located (in February, 2011) a representative in the west part of Netherlands, the flower auction in Honselersdijk. The company is dealing with exports of ornamental plant products to wholesalers, retailers and garden centers.

The company has been reached via intermediary (both as a translator and inside correspondent) and answers, about the main factors that have influenced its location decision, have been given by a representative of Van Speijbroeck company. At the end, the e-mail questionnaire has been sent back to the researchers.

Case 7: Floreac Nederland B.V. Floreac, previously called Flore, is a three generation family business, founded in Lochristi, Belgium in the 1954. In 2008 however it has started collaborations

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with a Dutch plant export company Horticept and shortly after, in July 2009, they have located at the FloraHolland auction site in Naaldwijk. Both Floreac Belgium and Floreac Nederland are dealing with marketing and distribution of ornamental plant products, however, Floreac Nederland is mainly concentrated on wholesalers (Floreac, 10.02.2011).

The company in Belgium has been contacted by phone and questioned for the main factors that have influenced its decision to locate within the Netherlands. . Case 8: Syngenta Seeds B.V. Syngenta Seed B.V. has a long history that starts in 1813 when founded by a Dutch grower. The company has suffered a lot of changes during the years and since 1980 is a Swiss-owned company. Syngenta Seeds B.V. deals with high quality seeds for professional growers and plays a key role in plant protection (Syngenta Seeds Nederland, 10.02.2011).

Even though originally located in the Netherlands, the company has been of a great interest to the researchers since what they aim to investigate is the incentives of the current foreign (Swiss) shareholders to choose a company located in this region for their investments

The company has been contacted by phone and a person familiar with the whole background of Syngenta Seed B.V. has been questioned for the main factors that have influenced the decision of the Swiss owners to take the company over.

Case 9: Van Dongen Transport B.V. Van Dongen Transport B.V. is a company specialized in transport of fresh products. It was established in 1902 and similarly to the previous case, Van Dongen Transport B.V. was initially based in the Netherlands. However, in 2005 Van Dongen Transport Group (during the years it has acquired other transport companies) has been taken over by the English company Gist Limited (Van Dongen Transport, 10.02.2011).

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The company has been contacted by phone and the Finance Director, who has the necessary knowledge to answer the survey, has been reached. He has been questioned for the main factors that have influenced the decision of the English owners to take over exactly a company, located in the WestNetherlands Region.

Case 10: AdaFresh B.V. Ada Fresh Ltd is an Israel company for exports of vegetables, herbs and flowers. It has based its European subsidiary in the year 2005 in the WestNetherlands Region, namely: Maasdijk, Netherlands (AdaFresh, 10.02.2011).

The company has been contacted by phone and questioned for the main factors that have influenced its location decision.

Table 9. Transcript of the answers of the second five cases Case 6 Sophisticated local demand The government cluster policies Entrepreneurs hip The presence of complementar y economic Y Y Y Y N X N Y Y Y N N Y Y N Y Case 7 Y Case 8 Y Case 9 Y Case 10 Y

activities Long history Technology infrastructure Logistics infrastructure 65 Y Y N Y Y X N N Y Y N Y Y N Y

Auctions Collaboration Competition Networks between elements Knowledge spillover (sharing) Concentration Innovation Specialized education and R&D institutions Skilled force labour the

Y Y Y Y

Y N Y Y

N N N N

Y Y Y Y

N Y Y Y

Y Y N

Y N N

N Y Y

Y Y N

Y N N

Case 11: JZ Flowers International LTD JZ Flowers International was a joint decision for a company dealing with packing and distribution of flowers founded in Hull, East Yorkshire. Based in the heart of the English and Holland floriculture since the year 2000 the company has built strong and successful trade channels between England and Holland. The decision of the creation of the company included major English investments. Operating mainly on the English markets did not influence the decision of the company to have strong representatives in Honselersdijk, in the Netherlands (JZ Flowers International, 2011).

The company has been contacted per e-mail and questioned for the main factors that have influenced its location decision. Additionally, the company has been contacted by phone for some clarification about the JZ Flowers International. Case 12: Ciccolella Group 66

Ciccolella was established in 1971 in Italy. During the years it has become a group leader in Europe in the fields of production and marketing of cut flowers and potted plants. In 2006 the company has begun the process of internalization of Ciccolella Group. It has entered first the Dutch Flower Industry by 2 acquisiotions, the first one in 2006 of Dutch Zurel Group B.V. and the second ones Leliveld Group and FPP in 2007. These acqusitions made Ciccolella Group one of the leading international organizations in the flower and plant business and one of the first floriculture integrated European operators, able to manage the control of the whole supply chain. Cicollela is nowadays located in Rome and Milano in Italy and has strong presence in Aalsmeer (Ciccolella Group, 10.02.2011).

The company has been contacted by phone and questioned for the main factors that have influenced its location decision.

Case 13: Univeg Group Univeg Group was founded in Belgium in 1987. In the period of 1990-2005 the internationalization of the Univeg Group has began and it has started to set up various subsidiaries all over the globe. In 2006 by the merger with Bocchi Group, Univeg has acquired strategic and strong presence in a very important market in Europe. The UNIVEG group offers a unique international network for delivery and distribution of fresh products, flowers and plants and convenience products. It also provides full spectrum of fruit and vegetables and related services to a broad European customer market. Univerg is based in Honselersdijk, in the Netherlands and is represented by Bocchi Flower Trade Netherlands, Greenex and Triangle Flowers, all companies for flower & plants (Univeg Group, 10.02.2011).

A phone contact has been made with only one of them - Bocchi Flower Trade, since the call has been transferred directly to the Univeg Groups represntative who could answer these questions.

Case 14: Fleura Group

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Fleura Group offers the quickest way between grower and florist. Fleura started in 1970 with fixed routes based on telephone sales. The opening of the first H.B.I. wholesales company in Hannover, Germany in 1978 has been a crucial step. This wholesaler has worked according to the Cash & Carry concept. The crucial success factor turned out to be the fact that buying, export and the final sale were united in one location. Fleura later has expanded the Cash & Carry concept to the Netherlands by opening its own branches as well as through take-overs. In 2004 it has moved its Headquarter to Aalsmeer, the Netehrlands. It has become a market leader in Germany and the Netherlands. Since 2009, part Fleura has formed the Fleura-Metz Group, which has made its presence on the Dutch market even stronger (Fleura Group, 10.02.2011).

The company has been contacted by phone and questioned for the main factors that have influenced its location decision.

Case 15: Logi Flora B.V. Logi Flora B.V. is a company located physically in Netherlands since 2009. The company was established in 1998 as Internet market place that provides software and green solutions for the flower and plants industry consistent of many foreign and one local representatives. The companys decision to physically locate in Aalsmeer, the Netherlands was due to the fact that its biggest clients are located in this region (www.logiplaza.nl is the place where the clients can be checked) (LogiFlora, 10.02.2011).

The company has been contacted per e-mail and questioned for the main factors that have influenced its location decision.

Table 10. Transcript of the answers of the third five cases Case 11 Sophisticated local demand The government Y N N Y Y 68 Y Case 12 Y Case 13 Y Case 14 Y Case 15 Y

cluster policies Entrepreneurship The presence of complementary economic activities Long history Technology infrastructure Logistics infrastructure Auctions Collaboration Competition Networks between the elements Knowledge spillover (sharing) Concentration Innovation Specialized education and Y Y Y Y Y Y Y Y N Y Y Y Y Y N Y Y Y Y Y N Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y N Y Y X Y N Y N X X Y Y Y X Y Y Y Y X Y X

R&D institutions Skilled force labour X Y N Y N

The cases introduced cover a wide range of different industries representatives and the tabular representation of the primary data helps the researchers to transfer it easier to the next section for testing the misses and matches to the theory and additionally offers the reader a clear overview of the obtained data and easy check if needed.

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6. Matching predictions to observations

In this section step 4 of the research process is presented. The purpose of this section is to illustrate the matches hits and misses of the empirical data to the predictions based on the theoretical data. Thus, an overview of the findings presented in a table, will give a visual perception to both the researchers and the reader, based on which the further conclusions will be made.

DFA handles the data as quantitative, because of the degree of hits and misses to the theoretical statements. The confirmation of the theory is tested through a table that matches predictions to observations and further a simple statistical test might be used to verify if the results hits and misses are greater than the expected by chance or in simple words, to test the statistical significance of the results. However, if the DFA is used only for a confirmation of an existent basic theoretical knowledge, as it is in this case, the confirmed predictions can be used and further statistical analysis is not necessary (Woodside, 2010).

As mention before, a major advantage of the DFA is its flexibility when conducting it and especially when evaluating the results. The research phenomenon is very complex and case methodology is needed to confirm the companies behavior when locating within the Dutch Flower Cluster the WestNetherlands Region. In this case only one judge is used to evaluate the data and record the misses and hits to the theory used/tested. The judge has been provided with all the data collected including the secondary data obtained and contact details were given as well, if needed to be used. The results from the judge evaluations are presented in Table 11. The final feedback has been that most of the data was easy to check and evaluate and the results are further used to critically analyze the findings from this research.

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Statement 1 1a GASA Holland B.V. Jiffy Products Nederland B.V. Gimall Plants NL B.V. Takii Europe B.V. Florimex International B.V. Van Speijbroeck Floreac Nederland B.V. Syngenta Seeds B.V. Van Dongen Transport B.V. AdaFresh B.V. JZ Flowers International Ciccolella Group Univeg Group Fleura Group Logi Flora B.V. Hit Rate (%) + + + + + 1b + + + 1c N/A + + N/A 1d + + 1e + +

Statement 2 2a + + + + 2b + + + + +

Statement 3 3a + + + + 3b + + + + 3c + + + + + 3d + + + + + 3e + + + + 3f + + + + +

Statement 4 4a + + + + + 4b + + + + 4c + + +

Hit Rate (%)

73 69 88 80 88

+ + + + + + + + + + 100

+ + + + + 53

N/A + + + + N/A + + + 82

+ + + + + + + N/A N/A 69

N/A + + + N/A N/A 42

+ + + + + + N/A + 79

+ + + + + + + + _ 87

+ + + + + + + 73

+ + + + + + + + 80

+ + + + + + + + + 93

+ + + + + + + + + 93

+ + + + + + + + + 87

+ + + + + + + + + 93

+ + + + + + + + 87

+ + + + 53

+ + N/A + + 50

71 50 56 94 56 93 93 75 93 79

Table 11. An overview of the matches 71

7. Analyzing the results

In this section Step 5 of the research process is presented. The purpose of it is to evaluate and discuss the results from Table 11. The analysis will help the reader to understand the findings about factors that influence foreign companies decision to locate within the Dutch Flower Cluster The WestNetherlands Region.

With the introduction of the literature in Section 3, the researches aimed to show the theoretical factors about an industry cluster that have been extracted as general from different cluster studies. To better fit the theory to this study, the authors have further introduced the specific case of the Dutch Flower Cluster (the factors that already exist within its environment). The theoretical factors have been combined with the existent ones and the final version of the proposed key motivational factors that influence the decision of the fifteenth used foreign companies is analyzed. As the results from Table 11 indicate, the findings have confirmed to a great extent the theory used for this study.

Statement 1: The Business Environment within the West-Netherlands Region the Dutch Flower Cluster has five indicators. From the results it can be notice that only four out five suggested for this group are strong indicators. Sophisticated local demand (1a) is seen from all fifteen companies as a strong motivational factor to locate within this region. Although the companies have different backgrounds and different fields of business activities, the Hit rate for 1a is 100%. As expected, the researchers can confirm that this is a strong motivational factor for many different businesses located within the Dutch Flower Cluster. As stated by Porter (1998), local demand is the first impression companies can get for their products. For this particular data set it can be seen that theory is confirmed. Moreover, local demand is seen as the first field of research when looking for a strategically and advantageous country/region to locate. As in the case of Ciccolella, when the process of internationalization has begun, its first choice was acquisitions exactly in this region of the Netherlands. It started with one of the first five European operators in trading of flowers and

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plants - Dutch Zurel Group B.V., and shortly after the acquisitions of Leliveld Group and FPP (two leaders respectively in supplies to large retails and in cash & carry). These decisions have helped the companys dream to come true. Thus, it has become one of the leading international organizations in the flower and plant business and one of the first floriculture integrated European operators, able to manage the control of the whole supply chain (Ciccolella, 10.02.2011).

The next highest Hit rate is 82% for Entrepreneurship (1c) (entrepreneurial activities that fill the gaps or correct imperfection). It is seen as a strong motivational factor from the perspective of the security that the entrepreneurial activities offer by filling the gaps or correcting the imperfection within the environment. They make the whole business environment stronger and more reliable, which increases the attractiveness of the location for newcomers. As stated in the theory by Glaeser & Kerr (2009), entrepreneurial activities are crucial for the creation of a strong cluster through high level of new business activities that fill the gaps in the environment. Furthermore, strong regional cluster stimulate the formation of new establishments of already existing companies (Enright, 2000; Manning, 2008). In this case, entrepreneurial activities attract companies from different, but related industries within an industry cluster, as stated by Agrawal & Cockburn (2003) and Enright (2000). The so-called entrepreneurial energy is the fuel of the cluster (Rosenfeld 2002). Therefore, after finding the right place to locate, the fuel that makes it run is what comes as an important factor. For four of the companies it was difficult to categorize this factor as important or not even for their own companies. Two of the companies Florimex International B.V. and Floreac Nederland B.V. have given a negative response to this factor. Floreac Nederland is dealing with marketing and distribution of ornamental plant products and Florimex International B.V. is a company, importing and exporting flowers, plants, bouquets and cut greens. Considering the strong presence of the companies on the flower market, their experience and created sustainability, the

entrepreneurial activities within the West-Netherlands Region have not been of a great importance for their location decision.

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The next strong indicator of the Business environment, with 69% Hit rate is The presence of complementary economic activities (1d) within the Dutch Flower Cluster. Not the industry per se, but the supporting and related industries are an important factor for the creation of an attractive cluster environment (Delgado et al., 2007). Two of the companies have not given any evaluation of this factor. Four other have stated that this factor was not important for them, when they have taken the decision to locate within this region (GASA Holland B.V., Jiffy Products Nederland B.V., Takii Europe B.V., AdaFresh B.V.). GASA Holland B.V. and AdaFresh Ltd are trade and exports companies. Jiffy Products Nederland B.V. is a leading supplier of plant propagation systems and Takii Europe B.V. is breeding, producing and selling company. At the moment of locating, the complementary economic activities as the financial institutions, IT, marketing and other companies did not play an important role for the firms decision. However, it might have become crucial for their further development within the cluster.

The rest of the companies have considered this factor when locating within the region, because of the win-win situation. This is how some of them describe the existence of complementary economic activities. The more concentrated producers and buyers become the bigger the need for companies with complementary economic activities is (Nyenrode Business Universiteit Nyenrode Strategy Center, 20.11.2010). Since all complementary economic activities create an environment with favorable conditions for all the parties, they turn out to be an important factor for foreign firms to locate within the cluster.

Indicator 1b: The government cluster policies that influence the elements of the Dutch Flower Cluster (taxation, certification, subsidiaries, regulations etc.), has a Hit rate of 53%. Seven out of fifteen companies have answered that the government cluster policies were not seen as an attractive factor at the point of the location decision. These companies are dealing with export & import and marketing and distribution of flowers. Even more, they have considered this factor as a potential increase in their costs. The rest of the companies have answered positively about the local cluster regulations because it has been

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perceived as a driver that stimulates growth, supports innovation and creates or protects competitive advantage for the members of the Dutch Flower Cluster.

The last indicator 1e: Long history (referred to the sustainability of the cluster) of the first statement has a Hit rate lower than 50%, which is interpreted as a less attractive factor when locating within the cluster. Although some of them have stated that reputation of the cluster has attracted their attention, they have not considered it as a motivational factor. For the rest of the participators it is an indicator of sustainable business environment that has survived through all these years.

The overall conclusion from the first statement is that four out of five indicators are supporting the Business environment as a strong motivational factor (with a Hit rate of over 50%). It has attracted their attention by offering them favorable conditions including high local demand, fast correcting imperfections, complementary activities just one hand away and government policies that have helped for the growth, development and the sustainability of the Dutch Flower Cluster. The Long history, though not very likely to motivate the foreign companies, is still a factor that at least attracts attention and is worth considering. So theory has been confirmed and expectations are with more than 50% met.

Statement 2: The Infrastructure within the West-Netherlands Region - the Dutch Flower Cluster. It has only two indicators. From the results it can be noticed that both of them are very strong indicators for supporting the second statement.

2b: Logistics Infrastructure has a Hit rate of 87% with only two companies stating that it was not an important factor for their location decision, namely Syngenta Seeds B.V. and Logi Flora B.V. Syngenta Seeds B.V. used to be a Dutch company, currently acquired by a Swiss one and therefore the stress in this case is put on the Swiss companys location decision. However, since it is a company dealing with high quality seeds for professional growers, the logistics

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infrastructure within the region is an indirect factor influencing it. As to Logi Flora B.V. software solutions provider, logistics is not of a main concern for its core business activities. For the other thirteen companies it is a very important motivational factor to locate there. The factor (the logistics) is seen as very efficient, highly specialized and with many innovative solutions in the area of transportation. Some of the companies have even stressed the importance of the Port of Rotterdam (the largest in Europe) and the Airport of Amsterdam (known as the best business airport in Europe) as crucial for their business activities and thus significant for the value of the factor.

2a: Technology infrastructure has a Hit rate of 79% with one company that did not comment on this factor (Fleura Group) and three that have considered it as non important (Takii Europe B.V., Van Speijbroeck, Syngenta Seeds). Nowadays, the technology contributes to a great extent for the fast communication, better interaction and more efficiency. However, these companies have not focused that much their attention on the technology infrastructure as a very important factor at the time of the location decision. The rest eleven companies have confirmed it as a motivational to locate within the region, since the technology within the Dutch Flower Cluster is up-to date and provides highly professional and innovative solutions. Moreover, it is one of the first creators of the most advanced communication systems that support every single process within an industry and among industries. The technological infrastructure in this region is at a level where solutions travel faster than problems (Logi Flora, 10.02.2011).

In all, the Infrastructure is a very strong motivator for companies location decision and especially for export, import and distribution companies.

Statement 3: The Proximity within the West-Netherlands Region - the Dutch Flower Cluster. This statement has six indicators. The results indicate a Hit rate of over 70%, which makes proximity as a factor, very attractive and decision determinant for foreign companies.

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3c: Competition, 3d: Networks between the elements, and 3f: Concentration have the same Hit rate of 93%, with only one company that has said no to these three factors as motivational for its decision, namely - Syngenta Seeds. This is due to the fact that the most important reasons for the Swiss to take over this company and thus become part of the Dutch Flower Cluster have been the long history, sustainability and experience of the company itself and not the concentration, competition and networks with other companies. The rest of the companies have determined the three elements as important when considering the location for a first time. Competition is what keeps businesses struggle and makes them forget tomorrows best and create todays better. Local competition is intensified with the increase of established companies within this location (Delgado et al., 2010). Furthermore, the idea about the importance of the networks is supported by Rosenfeld (2002) when concluding in the theory, that competitive clusters have the ability to create vertical and horizontal networks; and are further characterized by Roelandt & den Hertog (1999) as economic networks of strongly interdependent firms linked in a value-adding chain. Netowrks are important because they create flexibility and reduce costs and risks (Ciccolella Group, 10.02.2011). Concentration offers a big pool of technologies, skills, knowledge, inputs, consumers and institutions across the complementary and related industries (Delgado et al., 2010, p.496). The location decisions of companies will depend on their portfolio of industries and locations (Delgado et al., 2010, p.501). A strong cluster environment, within which companies locate their activities, will create a pool of competitive resources available to them (Porter, 1998). The concentration of companiescompetitors in a given industry creates benefits for the companies in another industry that have them as customers (Gimall Plants, 10.02.2011). On the other hand the concentration of companies in any industry gives them the possibility to exchange experience and knowledge, and access to important information (Claro et al., 2006).

3a: The auctions, as a whole, are very special factor created within the cluster that has attracted many foreign trade companies to locate within the area. It has a Hit rate of 73%. Four companies have pointed it out as non attractive

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factor (Jiffy Products Nederland B.V., Syngenta Seeds B.V., AdaFresh B.V., JZ Flowers International). Being companies that do not have a direct business with the auctions, is the reason not to consider this factor as an important one. The rest have defined the auctions as a very important and attractive factor for the location of their business activities. The Auctions are seen by those companies as a center giving them the opportunity to be one step ahead of their competitors by its efficiency, quickness and accuracy. It is a place where supply and demand come together and there is a strong connection between buyers and sellers (van Heck & Ribbers, 1997). It provides all the companies, both local and foreign with the best conditions for doing business. The connections that the Auctions create are difficult to be reached individually (Florimex, 10.02.2011).

3b: Collaboration has a hit rate of 80% with three companies not considering it as an important factor when they have located their activities within this region (Gasa Holland B.V., Van Dongen Transport B.V. (taken over by Gist Limited), Floreac Nederland B.V.), since for them collaboration comes on a later point of time and it is important for the further development. The rest of the companies have strongly supported this factor. Collaboration is the constant interaction among businesses when working together in order to achieve mutual goals (Anderson & Narus, 1990; Morgan & Hunt, 1994 cited in Claro et al., 2006). Collaboration at all levels is what makes things move forward. Collaboration is good and gives strong back up when needed (JZ Flowers International, 10.02.2011).

3e: Knowledge spillover (sharing) has a Hit rate of 87%, with two companies that have said no to it (Jiffy Products Nederland B.V., Floreac Nederland B.V.). Knowledge sharing has not been considered as a significant factor for these foreign companies, since at the time of location the needed knowledge was already accessible for them from other locations.The rest of the companies have confirmed the researchers expectations. The knowledge acquired from or created together with other firms and institutions is becoming an important factor for the competitiveness of companies (Guinet & Pilat, 1999). The

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intensive interaction between those creating and those using knowledge has become essential for the success of the cluster networks and the innovation processes (Roelandt & den Hertog, 1999). Knowledge is shared among all the members of the cluster. Based on mutual trust and relationships firms are willing to inform others about their knowledge (European Cluster Observatory, 28.10.2010). The specific knowledge can be accessed easily from the foreign newcomers and it provides benefits from the very beginning.

To sum up, the Proximity within the Dutch Flower Cluster is a very strong motivational factor, for foreign-owned companies from different industries to locate within, through re-locating, acquisitions etc. Being competitors is easy, but being able to work together as competitors is very challenging and the Dutch Flower Cluster has managed it significantly well.

Statement 4: The Specialization within the West-Netherlands Region the Dutch Flower Cluster. This statement has three indicators, all of them with a Hit rate of over 50%. This makes Specialization as a factor, very attractive and decision determinant when foreign companies are locating within the Dutch Flower Cluster.

The indicator Innovation activities (4a) has a Hit rate of 87%, with only two companies that have not considered it at the point of location within this region. (Floreac Nederland B.V., AdaFresh B.V.). Having the possibility to relate the innovation activities to a higher cost could be the reason not to consider the innovation as a direct and motivating factor for location. However, the factor has been supported as a motivational one by the rest of the companies. The ability to apply new knowledge and technology through innovation has become crucial for a firms competitiveness (DeBresson & Hu, 1999). If a cluster offers an innovative environment, the economic activities (interaction between the different elements) are becoming magnets for new technology, skilled personnel and research investment (Morgan, 1996). Its very costly and challenging to try to be innovative (NFIA, 15.12.2010). Thus, the increasing complexity of innovation (which makes companies interaction more necessary and more

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important), makes it a key driver for firms to locate within the Dutch Flower Cluster (European Cluster Observatory, 28.10.2010).

4b: Specialized education and R&D institutions is a factor with not that high percentage of Hit rate. The companies that have said no (seven out of fifteen comapnies), are export/import companies (Gasa Holland B.V.,Van Speijbroeck, Floreac Nederalnd B.V., Van Dongen Transport B.V., AdaFresh B.V., Univeg Group) and one software company (Logi Flora B.V.).This factor is more important for companies dependent on development and innovation of new techniques and varieties of products (breeders, growers, propagators etc.) and as proved, not important for the export/import and software companies. The other eight companies have been motivated by this factor when locating. Rosenfeld (2002) states that these specialized institutions become part of already existing once or create new once for surveying industry needs (they are like gateways). The connection goes both ways: the specialized institutions support the industry and the industry invests and is actively involved in the specialized institutions design and development (Rosenfeld, 2002). Specialized education and R&D institutions create benefits for the foreign newcomers and give them the chance to enjoy an environment where world-class universities, supportive government authorities and dynamic business society provide excellent conditions for constant improvements and successful solutions (NFIA, 15.12. 2010).

4c: Skilled labour force has a Hit rate of 50%, with JZ Flowers International that did not coment on this factor and seven out of fifteen companies manily in the import, export, distribution and software business have not considered it as an important factor to locate within the Dutch Flower Cluster. From the answers obtained, it can be concluded that skilled labor force is not important for all the newcomers but rather for companies that are closely related to the production of the specialized products/goods the flowers, that the region is famous for. However, for the companies operating in the other industries, as the examples above, tacit knowledge and thus specialized skills is not a factor, directly influencing their location decision. The existence of a big pool of labor force that

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has the needed knowledge and skills, has been of a priority for the other companies location decision. In less favored regions specialized human resources are very important for the cluster (Rosenfeld, 2002). The specialization of human resources attracts companies, which need people familiar with their business operations. Thus, the so- called internal intelligence (know-how-to through combination of theoretical and practical knowledge within the environment) is build and these skills foster knowledge spillover as people change jobs (Rosenfeld, 2002, p.24). Knowledge is shared among all the members of the cluster. Based on mutual trust and relationships firms are willing to inform others about their knowledge (European Cluster Observatory, 28.10.2010).

In all, the Specialization within the Dutch Flower Cluster is seen as a very strong motivational factor for the foreign-owned companies that choose this region to locate within. During the years the Flower industry in the WestNetherlands Region has developed and continued to prosper because of the constant implementation of highly specialized technologies, fostering innovation processes, development of specialized skills, etc.

Furthermore, Table 11 presented in section 6, illustrates not only the hits and misses for the particular factors but it also indicates how many percentages, from the expected 100% by the researchers (based on the prediction matrix), have been obtained. Or otherwise said, it shows to what extent the expectations made in the prediction matrix, based on the theoretical and factual understandings are supported by the case findings. The final results show that the findings from the research meet to a great extent the initial expectations. All of the companies have a Hit rate of at least 50%. Moreover, only for three of the all fifteen companies, the number of the hits confirming the factors as being motivational for their location decision is less than 60%. Thus, the test conducted through the DFA analytical method, has confirmed the validity of the presented theory and namely, that the extracted factors from the theoretical and factual data for industry clusters, and especially for the Dutch Flower Cluster,

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are really perceived as being key motivational factors for foreign-owned companies when locating within the West-Netherlands Region.

These are the factors that have motivated the companies, but will they be the factors that keep them within the cluster? It could be the case that the reasons to locate and the incentives to remain within a specific region, which is the West-Netherlands Region in this study, are different. However, this could be of an interest for a further research and in this study only a suggestion has been made with slightly initiating the new topic, namely the last questions in the questionnaire (Part 4, see Appendix 1). The questions have been asked with the idea to get at least a hint, if the decision to locate within the Dutch Flower Cluster has been the right one, and if the factors that have contributed to the location of the companies within this region are still as valuable for them as they were at the beginning. The responses as expected have been Yes.

However, one of the contacted companies, when asked about its representative in the Netherlands, has unexpectedly answered that the division there has been closed. The company in question is the Danish company Bg Madsen A/S. Since it has attracted researchers attention, the company has been further questioned about the reasons for this decision. They were mainly the high costs, the expenses and thus the low turnover - lots of losses for the company as a whole (more information can be found in Appendix 1, Case 16). This case proves that even for a successful working cluster as the Dutch Flower Cluster, negative sides do always exist.

The next section presents some of the main challenges for the researched cluster and the eventual changes needed for them to be overcome.

8. Challenges and potential changes

Being number one in a given field has its challenges and requires constant changes. Although the researched cluster is still a very successful and a strong one, in the recent years a lot of changes have taken place, mainly 82

relocation activities have been initiated. These initiatives and the increasing international impact have pushed the cluster to focus on constant improvements through innovation. However, the intensive growth of the Cluster is creating more and more challenges (European Cluster Observatory, 28.10.2010).

Dynamics: The idea of the dynamics is connected to the rapid change in the demand patterns (faster delivery, longer durability etc.) and the size of the market (more and more countries are starting to operate within the Dutch Flower Cluster). For instance, especially the new EU member countries have changed and increased the demand patterns. New innovative solutions are needed (the innovative technology in the greenhouses) and innovative products and services as a strategic approach against the changing market demands are suggested (Flower Council Holland, 20.11.2010; NFIA, 15.12.2010).

Logistics: The demand for more finished products (bouquets, flower baskets etc.) has increased over the last years. Therefore changes in the transportation technologies have become crucial. Logistics, seen as one of the main advantages of the cluster, proved to be one of the most demanding ones. The stress for the future development is on more efficient logistics systems and better networking through the value chain. For instance, the supermarkets are gaining more and more share from the purchasing power of the Dutch Flower auctions, which in its turn will give them more power to change (standards, quality, efficiency, desire toward traceability etc.) However, some cost efficient solutions (sea transport) seemed to threaten the created profitability, and as a future prediction even to reduce the location advantage of the region. A strategic approach is to improve the logistic system (capabilities and create more international logistic hubs). Investments in constant improvement techniques of the whole logistics system and infrastructure are needed. The new techniques could be oriented toward cost efficiency and should be more environmental friendly and more service efficient worldwide (European Cluster Observatory, 28.10.2010).

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International competitors: The crucial role of the action for the sustainability of the cluster environment has been threatened by the increasing trend toward direct purchasing. Countries with lower production costs have become increasingly attractive. Newly established auctions that have copied the Netherlands auction system have proven to be more and more attractive for buyers and growers. For instance, the Dubai Flower Centre that seems to be a threat concerning the attraction of international suppliers and wholesalers. The possible solution to the rising problem could be the already initiated strategy of increasing the access for the foreign companies into the Clusters auction centers and the development of sub-clusters in countries where the costs of operating are lower. Furthermore, the auctions within the Cluster could reduce transaction costs by increasing sales volumes, so they can become cost efficient (to prevent losing market share, which is measured to be 95% of the European flower trade thanks to the auctions) (FloraHolland, 05.01.2011).

Regulations (environmental problems): the concerns in connection to the negative effects on the environment are part of the countries agenda already and they create pressure for regulations. For instance, the use of pesticides and fertilizers has pushed the industry for new solutions like the closed-loop systems for flower cultivation (one solution with many consequences: lowering the use of the chemicals, the production cost and creating higher product quality). A strategic solution is to invest even more in innovation and be always one step ahead of expectations (Flower Council Holland, 20.11.2010; NFIA, 15.12.2010). Government regluations can as well fail and therefore the cluster should be a result of market-induced intiatives not

grovernmen-driven effort: no overdoing when subsiding or limiting rivalry in the market, should focus on all cluster formations, effective clsuter policy that will benefit not only a single element but the whole cluster (Roeland et.al,1999, p.328).

Changes because of challenges, trends, and crises are inevitable, if the Dutch Flower Cluster wants to keep its current leading position on the flower market.

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Being a major hub for local and international traders has helped the foreign members to gain more and more power in the Netherlands. Government regulations hand by hand with the R&D institutions have developed strong and still achievable certification standards within the Dutch Flower Cluster, which lead to higher satisfaction of consumer preferences and needs (Nyenrode Business Universiteit - Nyenrode Strategy Center, 20.11.2010).

All these changes have lead to the idea of the above-mentioned division into sub-clusters working as a whole within the same cluster. By dividing their competencies the Dutch Flower Cluster managed to create a better, stronger and more competitive environment at all levels of the value chain. However, the dependence of the created sub-clusters within the researched cluster is still high, and constant change could keep it that way. Even though the sustainability of the Dutch Flower Cluster has been proven throughout the years, the world is changing in so many aspects (growing uncertainty and high rate of change) and security (long term success, strong presence around the world), as paradoxical as it sounds, is needed in this highly dynamic and competitive environment (Flower Council Holland, 20.11.2010).

9. Limitations of the research

Conducting a research has never been an easy task not only because of the complexity of the process itself but also because the researchers are always dependent on their collaboration with the ones being surveyed. It is usually a difficult and time consuming process and thus limitations are always possible to exist. In the presented study, conducted through the DFA technique, several limitations need to be mentioned and explained.

First of all, limitations in the theory used could be found. Due to the limited time provided, it is not possible to cover all the existing literature for the field of interest. Thus, the authors have selected only the relevant one from their point of view. Therefore, the presented main findings about the theoretical and factual data (the factors described in section 3) could be not the only correct ones. 85

Deviations from the researchers and readers perception of the most important factors could occur.

Going further with the research process, the segment approached turned out to be very difficult to reach at the very beginning and the level of cooperation has been not as high as expected. Thus, the companies chosen are the first fifteen from which the researchers have obtained answers that can be used in the research. No special strategy or even criteria for selecting the units of analysis (companies) have been applied. The sample however has been helpful enough since the survey has been concentrated only on the foreign companies and their incentives for locating within the Dutch Flower Cluster the West Netherlands Region. Some of the companies from the final sample are not foreign anymore, but this is not accepted as a constraint since important for this study is that they have been foreign companies when first located within the cluster.

Further confusion might appear, when the reader is going through the profiles of the companies and the transcripts of their answers (questionnaire attached in Appendix 1). It is important to be mentioned that the names of the companies used are the ones from which the authors have obtained the primary data. These are the factual companies located in the West-Netherlands Region and executing the role of divisions/subsidiaries/local representatives, etc. There are two companies that have been taken over by foreign companies and therefore they are also included in the survey, where the reasons of the foreign owners to locate within the cluster through the respective companies, have been investigated. One company however has been reached at its home base

(Belgium) but the questions asked were regarding its representative in the Netherlands and the name used in the paper is the name of the Dutch division.

Limitations can be probably found in the questionnaire as well, but considering the consequences of the initial testing (a trial version with only open ended question has been sent to randomly chosen companies located within the West Netherlands Region), it was made shorter and only concentrated on the most

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important information for this research. Both phone and e-mail questionnaires have been used as primary data and web pages and documents analysis as secondary ones. However, the transcripts of the data consist of only the relevant answers the researchers have obtained. The additional e-mails and calls for some clarifications have not been included, since they have been just minor details.

Limitations can be found in the collected data as well, since though the researches have tried to reduce the biasness of the data through combining primary and secondary, discrepancies were to be noticed. Therefore more stress has been put on the primary data.

The researchers choice for the judge is based on her background and knowledge in the field of corporate communications and research experience. However, since she is not a real expert (just trained for the case), the conclusions made could have some limitations.

10. Conclusion
he focus of the thesis has been to understand what is the theoretical perception of the most important factors within an industry cluster. This has been further reached by implementing the context of the Dutch Flower Cluster, described as one of the best working clusters nowadays. Thus, the aim of this study, to illustrate which are the key motivational factors for foreign-owned companies to locate within the Dutch Flower Cluster, has been fulfilled. Testing the theory through empirical data using the DFA method has helped the researchers to reach findings that could contribute to the potential companies decision for relocating their business activities.

Furthermore,

as

significant

contribution

could

be

considered

the

usage/application of the analytical method itself (The Degree of Freedom Analysis). It illustrates the theory testing technique and since not that many

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examples of this method exist, this study could serve as a pattern for its implementation.

Based on their experience after deciding on the topic of this research, the personal opinion of the authors is that little attention is based on the phenomenon in interest and many people are not aware of its existence as part of countries economic policies and even of its meaning. Too little attention is paid on the cluster concept itself and especially on the key factors that motivate companies to locate within an industry cluster. Thus, with providing different definitions of an industry cluster and detailed explanations of the factors that a cluster environment provides, the researchers hope that more attention will be attracted into this field. The factual data and the empirical cases provided in the paper foster the importance of clusters existence.

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12 Appendix
APPENDIX 1 TRANSCRIPTS OF THE QUESTIONNAIRE APPENDIX 2 ADDITIONAL INFORMATION

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