Netherlands Competitive Analysis - Case Study Example

The Netherlands country analysis Executive Summary This report is the Netherlands country factbook reflecting an in-depth analysis of both its institutional and market conditions that are relevant to the country’s horticulture industry. Thus, the report is aimed at enabling a company to draw on it in making informed investment decisions in the industry. In this regard, the report addresses a number of areas including the country’s macro-economic conditions that may have an impact on such a company’s investment. The factbook then addresses itself to the country’s exports, FDI, labor productivity and innovation. In addition, the report looks at Netherland’s national institutions that may have a bearing on the industry before looking at the country’s government policy including the soundness of the country’s legal framework, financial system and labor systems. In addition, in recognition of the role played by the local culture in the success of any business, the factbook also addresses itself to the netherland’s national culture. Other factors addressed by the fact book include the national geographical location as well as its endowment as these also play an important role in the success of any business. Finally, the factbook analysis the microeconomic conditions using the porter’s diamond model. It is thus hoped that the factbook will go a long way into enabling potential investors make informed investment decisions. Table of Contents Executive Summary 1 Table of Contents 2 Introduction 3 Overview of Netherland’s Horticulture Industry 4 Netherlands’ Country Analysis 5 Dutch economic performance overview 5 Netherlands economic composition 6 Key economic drivers of the Netherlands economy 7 Factor’s driving Dutch’s competitiveness 7 Macroeconomic conditions 8 Microeconomic conditions 9 Microeconomic conditions: Quality of national business environment 11 a) Firm Rivalry and strategy 11 In 2010, the world economic forum ranked Netherlands as having a very sophisticated business environment at number 5, number 8 in overall competitiveness and 3 in technology readiness. Traditionally, Netherlands has been characterized by strong legal and economic institutions that support economic growth and trade (Robert, etal 2014). The country has few barriers to entry while there is conducive environment for technological innovation though competition is limited by permissive legislation on monopolies and cartels. There are also considerable barriers to entry for SMEs where the country is ranked 71 globally by World Bank report for starting a business. According to the report, starting a business requires three times higher fees than the OECD average while it takes longer to obtain construction licenses. 11 Conclusion 13 References: 15 Introduction Netherland’s horticulture sector is a global trendsetter and undisputed international market leader in such products as bulbs, flowers, plants and reproductive material while it is the number three exporter of nutritional horticulture products. Netherlands logistic herbs including the port of Rotterdam and Amsterdam airport Schiphol have close proximity to Europe’s population of 500 million people which explains why the industry has continued to flourish. This is in addition to the development of high quality production methods that have made the sector strong. The strong supply chains created by the Dutch are efficient in that they are able to deliver flowers to the markets as far as New York the same day the flowers are cut in Netherlands. Owing to the entrepreneurial character of the Dutch, the sector has set up nurseries in such countries as Kenya, Ethiopia, France, Portugal and Costarica thus further strengthening the industry (Government.nl, 2015). Another factor that is considered the industry’s strength is the fact that the industry is concentrated in six clusters or greensports where businesses and research institutes closely cooperate on production, R&D, logistics, exports and infrastructure. Due to the significant contribution that the sector makes to the economy, there is numerous government supports where research institutes work hand in hand with the government on innovation projects and programs in the Golden triangle with such innovations as intelligent green houses that float on water, robots, among other innovations. This is an implication that the industry has a lot of potential and any company wanting to invest in the sector would make a lot of returns. This factbook gives an overview of the industry in Netherlands with an aim of detailing its strengths and weakness as well as the company’s competitive analysis detailing out factors that may either make the country attractive or unattractive to potential investors hence helping them make informed judgments and hence investment decisions. Overview of Netherland’s Horticulture Industry As stated above, Netherlands is the world’s leading country in greenhouse horticulture owing to its inventiveness in this sector. It is the number one country in the world where horticulture is produced in such a large scale with 60km2 being on greenhouses which have little impact on the environment. Such greenhouse technologies and green economics help the country achieve very high yields that is both sustainable and safe. The country is also a leader globally on trees and shrubs in terms of variety. The country is also the leader in developing and propagating material, tissue culture as well as the production and trade of young plants and seeds. Owing to the above efforts, the horticulture industry is one of the biggest industries in Netherlands. For instance, the country’s total horticultural production was 8.6 billion euros with exports and re-exports amounting to €16.2 billion. The sector accounts for 39% of the country’s agricultural production while it contributes about 5% of the country’s exports or 34% of agricultural exports. The country’s share of the world’s trade in horticultural products is 24% while it contributes 50% of the world’s floriculture trade and 80% of trade in bulbs. For the last five years, Netherlands had been the world’s leading exporter of fresh vegetables in terms of value while it is also the top world producer of onions (Ministry of economic affairs, agriculture and innovation, 2015). The country is also the world’s top producer and exporter of seeds with annual growth being around 1.8 billion euros with 5% annual growth. It is also worth noting that the world’s largest suction company for cut flowers and plants is Dutch. As such, potential investors would have no problems with marketing their products. Netherlands’ Country Analysis Netherlands is among the best economies in the world that is considered a high income country that has had strong economic and social performance. This is despite small geographic size of 41,534 km2 as well as a small population of 16.8 million people. The country has been a dominant trade and commercial player not only in Europe but also globally. The 2015 index of economic freedom ranks the country as the 17th largest economy in the world with a GDP of $700.5 billion and $41,711 per capita. However, just like its Western Europe pears, the country’s competitiveness has declined recently owing to a number of challenges it faces. Dutch economic performance overview The country’s geographic position places it centrally in Europe as an economic hub. The country boasts of a 451km coastline as well as a network of waterways consisting of rivers and canals. As stated above, the recent index of economic freedom ranks the country as the 17th largest economy in the world with a GDP of $700.5 billion and $41,711 per capita. The country is also the 17th freest economy in the world with a freedom score of 73.7. However, it should be noted that the country’s economy has achieved a compound annual growth of -0.7% for the last five years. This is explained by the decline in the country’s freedom score by 0.5 last year owing to decline in business freedom and freedom from corruption. These are areas that need to be addressed in a bid to make the economy even more competitive. Netherlands economic composition The Netherland’s economy is mainly service-based with services contributing 72% , industry contributes 25% while agriculture contributes 3% to the GDP. Financial services including financial services and logistics (partly due to geographic positioning) are key drivers of the country’s service sector despite of slowing growth recently. In the industrial sector, the growth is mainly driven by processing of imported raw materials including chemicals and petroleum products. Oil and gas have been key drivers of the country’s GDP since the discovery of natural gas in 1959 with the country’s petroleum processing sub cluster being the fourth largest globally with the country’s Royal Dutch Shell company being the its largest petroleum processing company with operations in over 99 countries in the world. Agriculture has historically remained a vital contributor to the country’s economy since it is the country’s largest export cluster. In this regard, horticulture contributes 35% of total sector exports. Livestock sector contributes 26% while daily product contributes 20% of total sector exports. Traditionally, the country’s agricultural sector in which the horticulture industry falls has been characterized by technological innovation and has hence been among the most productive in the world with Netherlands commanding 8% of the global market share in agriculture and it only comes second to the US. Key economic drivers of the Netherlands economy The key economic drivers for the Netherland’s economy are analyzed below. a) Exports - for sometimes now, Netherlands has been the fifth largest exporter of goods globally with exports forming 70% of the country’s economy. It should be noted that the exports are mainly dependent on Europe where 80% of the country’s exports are sold. b) Foreign Direct Investments (FDI) – the country ranks number 8 globally in attracting foreign investments. For instance, the country hosts more than 8000 foreign companies. By the year 2010, foreign companies had made direct investments worth $597 billion which provided 15% of all employment in the economy. In 2015, the country attracted FDI worth $24.4 billion. c) Labor productivity – the country is rated among the most productive countries globally and within the OECD with a labor productivity index of 105.83 in 2015. This was an improvement from the 2014’s fourth quarter index of 100.85 points. d) Innovation - The country has been accused of spending too little on R&D at 1.7% of GDP compared to 2% in US and 3% in Japan. This is attributed to the large size of its commercial services sector that historically have low research intensity. In addition, the country has few high tech companies that would call for high R&D expenditures. It should however be noted that R&D is high in the horticulture sector with many innovations as stated above. Factor’s driving Dutch’s competitiveness a) Geographic location and natural resources The country competitiveness is boosted by its networked waterways as well as its strategic location that has wealthy and innovative neighbors and producers as well as its access to global markets. The country is also well endowed with natural resources which include petroleum, peat, limestone, salt, sand and gravel. The country is the third largest producer of natural gas in Europe with its natural gas endowment being 1.4T ft3 natural gas reserves worth over $166 Billion in 2006. As far as horticulture is concerned, the country has 22% of its land area being arable and hence it is a top global agricultural producer. Macroeconomic conditions The country prides in its macroeconomic stability though the recent global economic crisis had reduced global demand for its exports hence straining the economy to record a growth of -3.9%. However, with the end of the crisis, the economy is in its recovery path. This is an implication of the country’s strong economic stability as well as its resilience owing to its ability to absorb and resolve macroeconomic shocks though the economy is also vulnerable owing to its dependence on export led economy. The following macroeconomic factors shape the netherland’s economy. i) Monetary policy – the country has consistently applied anti-inflation targeting policy since 1999 when it adopted the euro with its monetary policy being under the control of the European Central Bank. The current rate of inflation stands at 2.6%. ii) Fiscal policy –the country’s fiscal policy is in line with the EU framework of a balanced budget seeking to reduce public spending while lowering tax as well as social security contributions. The government has also been stimulating the domestic economy through acceleration of infrastructure programs, expanding export credit facilities and issuing corporate tax breaks for employers in a bid to retain employees. It should however be noted that such stimulus programs as well as bank bailouts have however led to increasing budget deficits which the government addresses through cuts in public spending in health and social security. There are labor markets reforms aimed at increasing retirement age to 66 years in a bid to address rising healthcare costs. The government also seeks to divest from equity investment in major banks in a bid to lower involvement in financial sector. iii) Rule of law and limited government –Netherlands has very low corruption levels owing to effective corruption measures that ensure government integrity (Heritage.org, 2015). The individual income tax rates are high at 52% while corporate tax rate stands at 25% with the overall tax revenue equaling 38.6% of domestic income and government expenditure equaling 50.4 % of domestic output and public debt being equal to 74% of GDP. Microeconomic conditions a) State of cluster development The country has a diversified cluster mix that ranges from agricultural products to industry to financial services. Owing to high levels of innovation and technology advancement, success is seen in all these sectors with such success being evidenced by emergence of processed food cluster and value add processing for the agriculture cluster. The success in the country’s cluster development is attributed to the collaborative nature of the private sector where for instance the horticulture industry has the Dutch Horticulture association, first trade association for cut flowers as organizations aimed at fostering growth. Such organizations help in pulling together of resources for financing research, sharing of best practices and establishing common standards hence increasing all factors productivity within clusters which increase global competitiveness. b) Government support Dutch government provides supportive environment for innovation research and development. The government also helps in trade promotion and attracting FDI. The government also offers financial resources and implementation guidance for supporting cluster strategy. c) Sophistication of company operations Netherlands has many multinationals spanning a range of industries. The country has more than ten multinationals that are ranked among the global 500 highest grossing companies including Royal Dutch Shell, Akzo Nobel, Heinekn, KPN, Philips among others. By the year 2009, Netherlands was the fifth largest foreign investor globally with more than $851 billion foreign investments. It should however be noted that 99.7% of Netherlands businesses are ranked as SMEs which contribute 67.3% of employment and 61.3% of value added economic output. This creates opportunity for innovation and competition. Microeconomic conditions: Quality of national business environment a) Firm Rivalry and strategy In 2010, the world economic forum ranked Netherlands as having a very sophisticated business environment at number 5, number 8 in overall competitiveness and 3 in technology readiness. Traditionally, Netherlands has been characterized by strong legal and economic institutions that support economic growth and trade (Robert, etal 2014). The country has few barriers to entry while there is conducive environment for technological innovation though competition is limited by permissive legislation on monopolies and cartels. There are also considerable barriers to entry for SMEs where the country is ranked 71 globally by World Bank report for starting a business. According to the report, starting a business requires three times higher fees than the OECD average while it takes longer to obtain construction licenses. b) Factor conditions The country’s literacy rate is 99% with a third having acquired advanced degree while most are multilingual. Two of the Dutch universities are ranked top 100 globally. The country’s labor productivity is higher than that of its OECD pears. However, the labor cost is relatively high thus offsetting the high labor productivity competitive advantage. The country’s access to sea, rich neighbors and strong transport and logistics render it an important European economic player. For instance, the Rotterdam port is a major center for crude oil imports, refining, trading and petrochemical production in the world. The port has an annual throughput of 430 million tons and is one of the busiest in the world while Schiphol Airport (Amsterdam) is among the largest freight and passenger ports globally. c) Demand conditions Netherlands demand conditions are favorable with highly educated, multilingual and well-travelled population and hence is considered a sophisticated consumer base for high-end, high-quality, environmentally –friendly and innovative products. For instance, its organic market and hence horticultural sector is one of the most developed globally. Flowers for instance find strong local demand. It should however be noted that its small population size has limited its local demand. d) Related sectors and industries Netherlands has a highly interconnected and mutually supportive cluster mix. The country’s advanced logistics, transportation, financial services and technological advanced industries have been critical to trade and development of Dutch industries and enterprises (rabobank.com, 2014). Being part of EU makes Dutch companies access sophisticated supplier base and technologies from its neighborhood. The table below summarizes the aspects of Netherlands business environment; Conclusion As stated above, the Horticultural sector in Netherlands has been growing rapidly and is considered as the most successful horticultural sector globally. The success is attributed to a large extent by a good competitive and entrepreneurial environment that characterizes Netherlands. The government support for the sector can also not be taken lightly. Other factors that have led to the success of the sector include the mild sea climate of Netherlands. The availability of a big market from the EU zone. In other words, the competitive analysis above has portrayed Netherlands as a relatively good investment country for horticultural business whether one is doing it as a producer or an exporter/trader. However, there are some few areas that need to be addressed if the sector is going to remain competitive. There is need for more investment in capacity for innovation while encouraging greater private sector investments. The country also needs to expand its markets to include fast growing frontiers that have high demand but which are less cyclically correlated to the EU markets. The social tensions related to immigration must be addressed especially bearing in mind that the sector is highly reliant on immigrant employment and hence productivity. As stated above, the government needs to address the cost of doing establishing and doing business especially for SMEs as this will be critical to investment in the horticultural sector. However, it should be noted that the sector remains one of the best in the world and hence is very attractive to potential investors. References: Government.nl, 2015, Agriculture and horticulture, Retrieved on 7th June 2015, from; http://www.government.nl/issues/agriculture-and-livestock/agriculture-and-horticulture Ministry of economic affairs, agriculture and innovation, 2015, Dutch horticulture, Retrieved on 7th June 2015, from; http://www.dnhk.org/fileadmin/ahk_niederlande/Bilder/Veranstaltungen/Praesentationen/ Ministry_of_Economic_Affairs__Agriculture_and_Innovation__Andr_e_Nieuwenhuijse. pdf Heritage.org, 2015, 2015 Index of Economic Freedom, Retrieved on 7th June 2015, from; http://www.heritage.org/index/country/netherlands Robert, T, Jaap, W&, Nils, C2014, Sustainable governance indicators, Retrieved on 7th June 2015, from; http://www.sgi-network.org/docs/2014/country/SGI2014_Netherlands.pdf rabobank.com, 2014, Country Report Netherlands, Retrieved on 7th June 2015, from; https://economics.rabobank.com/publications/2014/april/country-report-netherlands/ Read More