02 May WHY IS IT STILL VERY IMPORTANT FOR BUSINESS THAT EXTENSIVE USE IS MADE OF THE SERVICES OF A SHIPPING AGENT?
The United States
The United States are still one of the main markets for Bol Business, but also one of the hardest. Right from the moment that Rita started her efforts to deliver to that market, she has had to pay a great deal of attention to import regulations. If it werent the phytosanitary requirements, it would be the variety registration, but it could just as well be a condition with regard to packaging, or the liability assurance needed modifications.
And all this in addition to import duties, environmental regulations and local taxes. Because of the complex import conditions the U.S. remains a major challenge, that lets many a competitor cease their efforts prematurely.
Because of the vastness of the country and the major local differences within in, Bol Business has decided to split up the total market into five submarkets. The two main selling areas are the region around the city of New York and the part of California around Los Angeles. Just for climatological reasons alone these areas demand a completely different approach. As an entry strategy Bol Business has consciously chosen importership. This choice still seems to be functioning well, although the turnover might also be a reason to switch to a sales office of their own.
The main marketing instrument in the U.S. is the product. What is special in this respect is that its not about the bulb, but about the brilliant flowers growing from these bulbs. This instrument, paired with the perfect planning of the germination of the bulbs in the foreign sales areas and the fine reputation of the importers that are used in the U.S., provides Bol Business with a perfect USP in that market.
For the market presentation in the U.S. it is important that the Dutch origin is clearly visible and that it is an import product. Should the price as a marketing instrument be used, than one should be looking at a higher pricing than a minimum price. The main competitor for the bulb is its substitute in the form of a flower bouquet.
Finances and risk coverage
The Schenk family has a tradition of managing their finances well. They try to maintain this principle in the export of bulbs. From the start of their exports Rita has maintained a policy of a healthy risk avoidance in their payment agreements. She also used her female intuition in judging customers on their payment morale. In general the export transactions of Bol Business are handled financially through a documentary letter of credit, where the date of departure of the shipment forms the basis for the settlement of the L/C. For long-standing relations in general the switch is made to a somewhat less binding payment system. To be able to limit the risks in those cases, Bol Business uses an NCM policy.
Another financial problem that Rita had to find a solution for, was the sales in various currencies. She preferred to sell as much as possible in Dutch guilders. As the export grew, trading increasingly took place in the local currency of the buyer. From 1995 onwards the policy was adopted of trading only in NLG, USD, DEM, and GBP. Since 2000 the euro was added. Bol Business has also adopted the motto that they should make their living through the bulb trade and not through the currency trade.
Export and import conditions
The international bulb trade has to deal with a great many conditions, both from the exporting country and from the importing country. Since the Netherlands are the main bulb exporters in the world, growers and the government will do anything to maintain that position. Therefore export conditions are maintained that are mainly aimed at the health of the bulbs and at quality guarantees for pure varieties. In order to guard these export conditions well, the ministry of Agriculture and Fishery established an extensive control system with the growers and the exporters.
The main conditions in the international bulb trade stem, however, from the importing countries. They partly overlap with Dutch export conditions, but there are important differences as well. Most import conditions are of a non-tariff nature, and are sometimes also regarded as import restricting conditions. A few of the most common conditions are: the amount of adhering soil, the health conditions of the product and of the country of origin, the local variety registration and the purity of the variety. If these conditions are applied according to WTO regulations, this actually is not half bad for the Dutch bulb export from a competitive point of view.
The buyer and the importing country in general will rigorously oversee a proper compliance to import conditions. Bol Business aims to have inspections taking place as much as possible before the product is loaded for export. This can be done for example by an independent SGS inspector. For larger shipments the company invites a representative of the buyer to come over to the Netherlands for a final inspection. These visits can also be used in a promotional sense.
E-commerce
Until recently Bol Business traded through the proper channels and the developed entry strategies. But a modern export business, like the one of the Schenk family, moves with the times. From 1999 onwards Rita has been preparing sales through the Internet and implementing the required information and communication technology. The product bulbs is exquisitely suited for sale through the Internet on the consumer markets within the European Union.
From the end of 1999 onwards sales have actually been made through the Internet, and in 2000 this sales channel starts to generate a sizeable turnover. At the same time Rita starts to notice that its not as simple as people had led her to believe.
A great deal of problems need to be solved before this distribution channel becomes truly profitable. Just think of payments and logistics, but Bol Business has conquered more difficulties in the past, so they will manage this as well. It is therefore expected that within three years 15% of the turnover will be realized through this new form of international trade.
Contracts
Commercially speaking Bol Business is doing well. Yet Rita Schenk does worry somewhat, since she has little coverage from solid legal contracts for the various activities the company is engaging in. Every time new agreements are being made, they mean to draw up a contract, but because of the daily hassle, this does not happen. Fortunately very little has gone wrong until now, but it is the intention to settle these contract matters in the spring of 2001, so everything will be ready before the new harvest arrives.
Another important legal component in the bulb growing business is the right of varieties. In the Netherlands this is regulated quite well, but in some other places in the world this right of varieties is not acknowledged or not being adhered to. Until now Bol Business has not done business with countries where there are issues with breeders licences. In the Internet trade, however, much attention will have to be given to this issue.
Cultural influences
In the Netherlands almost everyone has bought a bouquet of tulips, put a hyacinth in a pot on the table, or planted some crocuses in the garden. The casualness with which we do this, is by no means the same in the rest of the world. In America there are only very little bulb products in the garden, and the market for flowers is much more familiar than that for bulbs. The American is mainly interested in the flower, and he wants to have it with as little work as possible. The bulb is mainly for the amateur. In South Africa the
bulbs are used by florists that let them grow into flowers in nurseries, to be sold to the more affluent layers of the populace. The flowers are often a gift for the hostess one is visiting. In most Southern European countries the bulbs are planted in pots, that are placed both inside and outside the home. In addition to this private use, quite a large number of bulbs is planted in parks and public gardens.
The use of the bulb is quite often a derivate of the use of the flower originating from it. In the one country flowers are considered to be part of life, in another country it is a form lf luxury, and in yet another country it has an emotional value. In order to market the bulbs in the right way, Bol Business needs to take these differences per country well into account. Just think of the difference in colour of the flowers and the effects it has on the selling opportunities.
Growth strategy
Bol Business grew more or less automatically, in any case it did not happen based on a certain plan, only marketing was dealt with in a planned fashion. In order to avoid the occurrence of proliferation, Rita en Gerard went to work to let the future development of their company take place in a more structured fashion. The result from their work indicated that Bol Business needs to have doubled its turnover in five hears, that the number of market countries need not grow, that there are opportunities for the export of flowers, and that the company needs to show its face abroad. With an eye to this, the decision is made to hire a new, experienced export manager in the short term to take on these plans and to make the growth strategy a success.
QUESTIONS:
1 Bol Business is doing business with countries belonging to different economic collaboration. The most important ones in this respect are the European Union, the NAFTA, and the ASEAN. Please explain the main differences between these three collaborations. Does the existence of economic collaboration have an impact on the business dealings of Bol Business with countries participating in such a collaboration. If yes, in what way?
2 Bol Business uses various entry strategies. Please give a short explanation
of three of these strategies. What are the most important criteria for a business when choosing a good entry strategy? Do you think that Bol Business made a right choice with regard to their entry strategies? Please clarify your answer.
3 By accident Rita Schenk finds out that there seems to be a market for bulbs in Russia. With an eye to the companys strategy, how should Bol Business respond to this information in your opinion? Would your reaction be different if it were Mexico instead of Russia? Please clarify your answer.
4 From 1995 onwards Bol Business has used a limited number of currencies in which the transactions are concluded. Which risks of depreciation is Bol Business still running, and in what way can these risks be contained? Please give a short description of one of the methods for containing the risk of depreciation you mentioned.
5 The logistics department of Bol Business fulfils an important role in handling the shipments. Why is it still very important for Business that extensive use is made of the services of a shipping agent?
6 In order to make bulb export possible, Bol Business has to deal with a great many regulations checked by customs. With bulbs these conditions are mainly of a non-tariff nature and the regulations of the WTO are complied to pretty well. Should the policy with regard to customs matters of Bol Business be filled in on a strategic or on an operational level? Please substantiate your answer.
7 You receive the assignment from Rita Schenk to ensure that Bol Business will have a package of legal contracts/agreements that is customary for exporting businesses, before the summer of 2001. Which contracts/agreements should Bol Business have at the very least? State of one of the contracts/agreements you mentioned the subjects it should contain.
8 Let us say that you are an American buyer of lot of hyacinth bulbs from Bol Business. You need to open an L/C for this purpose. Please state briefly the instructions you will give to the bank for opening this L/C (in other words: what should be incorporated in the L/C?). Take the conditions of the exporter and the import conditions into account.
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