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International Marketing Plan For the Export of "Shirohana Flowers" to Germany

Planning Year: 2011

A Group Assignment by
Name P.J.B.R. Nirmali U.G.A. Gunawardene M.S.M. Perera K.K.P.S.K Kohombakanda MC 55595 55414 55645 57580 55829 CPM 4442 4262 4492 5454 4675

Lecturer: Mr. M.L.C.A. Vincent G.D.

Samarasinghe

The Department of Marketing Management The University of Sri Jayewardenepura

Sri Lanka.

Table of Contents
Executive Summary..........................................................................................................3 1. Introduction...................................................................................................................5 1.1 Introduction to the Company.................................................................................5 1.2 Global Cut Flower Industry.................................................................................12 1.3 Floriculture industry in Sri Lanka.......................................................................16 2. Country Introduction.................................................................................................19 2.1 Geographical Setting.............................................................................................19 2.2 Relevant History....................................................................................................21 2.3 Social Institutions..................................................................................................25 2.4 Cultural Aspects....................................................................................................28 2.5 Living conditions....................................................................................................36 2.6 Languages and Religions.......................................................................................37 2.7 General facts..........................................................................................................38 3. Economic Analysis.......................................................................................................39 3.1 Population...............................................................................................................39 3.2 Economic Statistics & Activity.............................................................................40 3.3 Development in Science & Technology................................................................47 3.4 Channels of Distribution.......................................................................................50 3.5 Media......................................................................................................................54 4. Market Audit and Competitive Market Analysis.....................................................61 4.1 The Product............................................................................................................61 4.1.1 Evaluation of the product's USP...................................................................61 4.1.2 Major problems of product acceptance........................................................64

4.2 The Market.............................................................................................................65 4.2.1 Market size & evolution.................................................................................65 4.2.2 Consumer buying habits.................................................................................66 4.2.3 Existent competitors products......................................................................70 4.2.4 Marketing mix typically used........................................................................75 4.3 Government Intervention in the Market place...................................................84 5. Preliminary Marketing Plan......................................................................................88 5.1 Marketing Plan......................................................................................................88 5.1.1 Marketing Objectives.....................................................................................88 5.1.2 Product Adaptations / Modifications............................................................89 5.1.3 Promotion Mix................................................................................................93 5.1.4 International Distribution..............................................................................96 5.1.5 Local Channel of Distribution.......................................................................98 5.1.6 Price Determination......................................................................................100 5.1.7 Terms of Sale.................................................................................................100 5.1.8 Method of Payment.......................................................................................102 5.2 Pro-Forma Financial Statements & Budget......................................................102 5.2.1 Marketing Budget.........................................................................................102 5.2.2 Pro Forma Annual Profit & Loss Statement..............................................103 5.3 Resource Requirements......................................................................................104 5.3.1 Financial Resources......................................................................................104 5.3.2 Human Resources.........................................................................................105 5.3.3 Production Capacity.....................................................................................105 5.4 Implementation and Control..............................................................................106 6.0 Sources of information............................................................................................107 6.0 Sources of information

Executive Summary
Shirohana is the leader in the cut flower industry in Sri Lanka. The management team at Shirohana is contemplating moving into lucrative export markets. An analysis was carried out to identify potential export destinations, of which Germany was chosen as the proposed export destination out of a list of 20 potential countries. A thorough analysis was carried out on the political and economic situation prevailing in Germany. It was identified that the German economy was recovering from the global economic and financial turmoil in 2009. A review of the cut flower market in Germany revealed that there was a significant trend in giving flowers as gifts for males. Despite this majority of the cut flower purchases are made by females (74%). Mono-bunches account for nearly 50% of the entire cut flower market, with Rosa accounting for 50% of all mono-bunches. It was also found that elderly people generally spend relatively more money on flowers than young people. The most important attributes governing the purchase of cut flowers in order of importance were flower/bloom quality, colour, price, design/arrangement, longevity, availability and fragrance. Florists are the most important retail channels in Germany, holding a market share of more than 50%.

Shirohana flowers initially hopes to grab a 0.5% share of German cut flowers imports of Carnations (Dianthus) and Orchids. A contract is to be entered with Omniflora, an importing wholesaler in Germany, for the sale of cut flowers. In addition, a business partnership is expected to be developed with Real, a hypermarket and several florists via Omniflora. The domestic distribution would be handled by E.B. Creasy (freight forwarder) and the international distribution by the logistics arm of Omniflora, Jet Flowers. The FOB price was determined to 0.16 and 0.09 for orchids and carnations respectively. A range of advertising and promotional activities are planned and the marketing budget for the first year of operation comes to around 6,300. The operation is expected to yield the following results during its first year of operation: Sales revenue: Gross profit: Net profit: 146,016 43,805 1,591

The net profit in domestic currency is expected to be Rs. 250,000 and the net profit margin is 1.1%. The current spare production capacity at Shirohana is 500,000 stems which is 819,375 stems below the total export requirement for 2011. Hence, it is necessary to invest in a new greenhouse to cater for both domestic and international expansion. It was also determined that the initial financial requirement amounts to Rs. 2,500,000 on account of the need to construct a new greenhouse (Rs. 1,500,000), and the material cost to be incurred for the production of the first batch of cut flower exports (Rs. 1,000,000).

The additional human resource cost amounts to Rs. Rs. 5,160,000, which also includes the recruitment of an International Operations Manager who would overlook the entire operation and would be responsible for the implementation of the plan.

1. Introduction
1.1 Introduction to the Company
The Shirohana website unfolds the story of Shirohana as follows. Shirohana was established in Sri Lanka in 1986 in an era when good quality greenhouse grown flowers and stylish flower shops were not in existence. Over the next few years, the Shirohana concept of sensational flower shops situated at exclusive locations in Colombo, using antique and reclaimed objects together with stylish flower arrangements, began to set new trends and changed opinions about flowers in Sri

Lanka. The Shirohana concept had begun and instantaneously, presenting flowers as gifts became immensely popular and accepted. The first Shirohana shop was opened over 20 years ago in Galle Face, the heart of Colombo. Today, its flower shops are located in the most exclusive locations in the City, including Colombo 02, 03, 04, 07, 08 and Negombo, Kandy, and very soon in the historic Fort of Galle. The market for flowers has grown at a tremendous pace and Shirohana has helped to develop this trend by making beautiful bouquets of flowers easily available, thus developing an awakening interest in flowers amongst a generation of retail customers. Constantly challenging boundaries and concepts, Shirohana remains the Leader in the Sri Lanka flower scene. Their highly acclaimed chain of flower shops recognizes the power of flowers to awake a range of emotions. The designs inspire without been fussy, reflecting the natural world while oozing sophistication. Flower production Shirohana is the pioneer in cut flower production in Sri Lanka with over 35 years experience in the growing of cut flowers. It has its own farm located in Nuwara Eliya which employs over 350 skilled workers and is Sri Lankan family owned and operated. The cut flower project is located at an elevation of over 2000m where cool, stable temperature, organically rich soils and 12 hour day lengths supplemented with artificial lighting ensures all year round growth. All flowers are grown in Greenhouses, giving them a long vase life and a superb quality that is appreciated by both wholesale and retail customers.

Principal Locations SHIROHANA ATELIER No. 21/3, Alfred House Gardens, Colombo 03, Sri Lanka SHIROHANA FLOWER ROAD No. 47, Flower Road, Colombo 07, Sri Lanka SHIROHANA PETAL GURU No. 61, Dudley Senanayake Mawatha, Colombo 08, Sri Lanka SHIROHANA GALLE FACE No. 32B, Sir Mohamed Marcan Markar Mawatha, Colombo 03, Sri Lanka SHIROHANA KANDY

Kandy City Centre, LI - 12, Daladha Veediya, Kandy, Sri Lanka SHIROHANA NEGOMBO No. 206 B, Colombo Road, Negombo, Sri Lanka

Proposed new showrooms locations include; SHIROHANA PALAWATTE 474, Palawatte, Battaramulla, Sri Lanka SHIROHANA ROMANTICO 32/01 B, Dickmons Road, Colombo - 04, Sri Lanka SHIROHANA FORT GALLE No.9, Church Cross Street, Fort Galle, Sri Lanka

Product and Service Offerings Shirohana is a full service wedding and party design establishment focused on designing and availing the freshest flowers for any event. Whatever the occasion, whether it be a new product or business launch, fashion show, academic or corporate event, birthdays, graduation, anniversary, holiday celebration or private parties, Shirohana offers its expert floral services. The Shirohana client base is made up of discerning brides, elite socialites, and prominent businesses all over the country and overseas.

As part of its wedding services Shirohana offers;


Wedding flowers include bouquets, corsages,

boutonnieres, and ceremony dcor Bridal flowers brides bouquet, going away, maids bouquet, groom and bestmen and flower girls Reception adorning the reception tables Car dcor Church dcor Floral designing and planning services

Shirohana offers flowers for a variety of other occasions under the following themes. Anniversary Birthday Get well Love you Im sorry New baby Party Thank you Garlands Sympathy

Varieties

The flower varieties offered by Shirohana include the following;

Standard Carnations

Spray Carnations

Alstomeria

Chrysanthemum (standard)

Chrysanthemum (spray)

Lilies

Gerberas

Gypsophila

Iris

Tulips

Heliconias

Roses

Orchids

Lotus

Jasmine

Competitive advantage of Shirohana in Sri Lanka The competitive advantage of Shirohana in Sri Lanka is as follows. Direct dealing with the end consumer fresher flowers that are reasonably priced
Follow international trends and constantly upgrade their flower designs

Cater to all budgets, from a single stem to a large and dazzling arrangement
Possession of one of the leading floricultural farms in South East Asia

Broad product range from bouquets to interior dcor


Personalization arrangements can follow emotions and be as variable as moods or

fashions. Each bouquet is delivered with personalized cards with the customers own individual messages. Decision to go global Shirohana is the market leader in the Sri Lankan flower industry, and as part of its expansion strategy the management has decided to tap potential export markets.

Where to go?
An initial screening was done on 20 identified potential export destinations:

Germany, UK, France, Netherlands, Italy, Belgium, Denmark, Spain, Ireland, Finland, Austria, Sweden, Greece, US, Japan, Switzerland, Canada, Norway, Poland and Czech Republic. Countries were screened based on cost of air freight to destination and share of world imports. Three key potential markets were identified for entry: Germany, UK and Netherlands.
A detailed analysis of the selected 03 economies based on political stability,

economic situation, market situation and potential revealed Germany to be the best export destination.

1.2 Global Cut Flower Industry


Wernett (1998) explain the evolution of the global cut flower industry. Forty years ago, demand for cut flowers by consumers around the world was satisfied by local cut flower production. In Europe, per capita consumption was significant, and consumer culture required a large supply of cut flowers for gifts, occasions, and everyday use. As a result, cut flower production in Europe was sizeable. Gradually as transportation systems developed throughout this region, it became possible to distribute cut flowers grown in southern areas of Europe to northern areas of Europe. Consequently, the European flower industry began to extend its boundaries for cut flower production and along with this expansion grew the influence of the European flower industry. This background history could be considered the beginning of commercial floriculture as we know it today.

When the world energy crisis occurred in 1973, the marketing plan for distributing cut flowers grown in different European countries to Holland for sale through the Dutch flower auction and back to markets throughout Europe became a significant production opportunity for southern European cut flower growers. Increasingly larger quantities of cut flowers were grown in southern Europe to meet the demand for cut flower sales through Holland. Flower growers in the southern regions had a price advantage over growers located in northern regions because cut flower production was more expensive for northern growers during the winter season due to increased energy costs required to obtain quality flowers in controlled temperature greenhouses. Then, competition for southern European cut flower growers intensified when Israeli cut flower growers, who were located further south entered the market with product to be sold through the Dutch flower auction. Israeli growers had the production advantage of being further south where they could produce cut flowers in open fields or plastic tunnels year round, eliminating most of the overhead expenses for greenhouses and heating systems. But in order to develop a potentially lucrative export cut flower industry for themselves, the Israelis needed to address limiting factors to their success. The two main limiting factors were transportation costs to Europe and a water shortage if production were to expand. Solutions to these limiting factors were found for Israeli growers. In the case of transportation costs which offset growers cost advantage in terms of energy compared to growers in southern Europe, the government provided transportation subsidies which have reduced the costs to the growers to ship their cut flower product to Europe, thereby maintaining a competitive cost advantage over European growers. As for the water shortage, research on irrigation systems that would conserve water usage was applied to production systems for cut flowers.

Through the 1970s, the activities of the European flower industry had begun to influence cut flower production and sales beyond the borders of Europe. Cut flower sales through the Dutch flower auctions had gained a share of the United States market. This was achieved by promotion activities in the USA supported by the Holland Flower Council which encouraged Americans to purchase more cut flowers for gifts, occasions and everyday use, similar to consumer habits in Europe. Most of the flowers sold to the USA through the Dutch flower auctions are shipped to the USA by air through New York. Simultaneously, Miami, USA, was being developed as a key import distribution base for cut flowers being grown in Columbia, South America and shipped north. This caused considerable competition for local cut flower growers in the USA. Manufacturers and suppliers from the European flower industry were quick to find opportunity in this situation. Not only were South American cut flower growers purchasing varieties from Europe but flower growers from the USA were persuaded to invest in production systems and equipment from Europe in hopes of becoming more efficient producers like the Dutch growers who had once faced competition from southern European growers. As a result, the United States flower industry owes a significant share of its growth in terms of promotion and sales and improved production systems to the influence of the European flower industry. It is worthwhile to mention that the Israeli flower industry has become a formidable competitor of the European flower industry. Israeli cut flower producers ship significant quantities of product into the USA market via both New York and Miami. This compensates Israeli producers for the reduction in cut flower sales to the European market which is increasingly being supplied by flower growers from regions in Africa, especially Kenya. Also, Israelis have been successful in selling their production equipment and varieties to flower growers in other countries.

Continuing to advance in the 1980s, the European flower industry began seeking further opportunity and expansion in Asia by 1985. Japans bubble economy was starting to inflate and discretionary income spending by the Japanese was rising. European flower imports made headway into the lucrative market in Japan. Within a few years, as economies in Korea, Taiwan, and Hong Kong strengthened, the European flower industry moved into these markets with their cut flower exports as well. Since the early 1990s, the European flower industry, as a worldwide leader in commercial floriculture, has been impacting the rest of Asia with cut flower imports from Holland and sales of flower varieties, production equipment, and technology for new production operations in Asia. Israeli cut flower producers, manufacturers, and suppliers have followed but, one step behind. The main difference between the European flower industry and the Israeli flower industry is that the European flower industry enters their new markets by launching aggressive marketing campaigns which call attention to the quality and image of Dutch flowers. These campaigns stimulate demand by new consumers for their cut flower products. So far, the Israelis have not particularly created an image for end consumers of Israeli flowers. This difference is one of the factors which contribute to the European flower industry being the worldwide leader in commercial floriculture. Initially, commercial floriculture production in Southeast Asia was developed because of increasing need for low cost flowers by the European cut flower market place. European flower traders identified commercial floriculture production in Southeast Asian countries as a source of supply. Ironically, Dutch auctions often served to re-distribute this product to the Japanese market. By the mid to late 1980s, Dutch importers/exporters had begun selling floriculture product in Japan. With economies expanding, the little tigers, i.e. Taiwan, Korea and Hong Kong were the next Asian targets with market needs for

floriculture products from Europe and potentially from other Asian countries which could produce floriculture products less expensively. The development of the commercial cut flower industry in Asia has been unlike that of Israel, African countries, south and Central American countries. In the latter regions, cut flowers have been a product produced mainly for export with no thought of a potential domestic market. On the other hand, in Asia, whereas cut flowers were initially produced for export, the market potential has rapidly changed to include opportunities for supplying the local market as well. This unique development is on account of the rapid strengthening of economies in the region, high population densities, and the consumer perception which has been promoted heavily by the European flower industry that the use of fresh flowers in ones everyday life represents an improved, quality lifestyle.

1.3 Floriculture industry in Sri Lanka


The Sri Lanka Export Development Board provides the following information regarding the floriculture industry in Sri Lanka. The export-oriented floriculture Industry was established during year 1980/81 period. Since then it has shown a remarkable growth. Today the industry is comprised of about 40 major export companies, including a few foreign investors. Floriculture sector employees over 5,000 people and more than 10,000 families in the semi urban and rural areas are indirectly involved in exports as out growers to the existing companies. This is one of the few agriculture based industries that employees people throughout the year at the rate of 5-7 workers per acre. The net foreign exchange earning capacity of the sector is around 85%-90%. In year 2008 Sri Lanka has earned Rs 1,562 Mn (US $ 14.52) worth of foreign exchange by exporting floriculture products and in year 2010 there was a drop in exports to US$ 11.5 due to the global recession. The exports have slightly recovered during year 2010.

Strengths
Climatic variations and diverse topography enabling to cultivate a range of products

from tropical to temperate


Availability of cultivation technology to finish products according to international

standards Skilled labor


Availability of coco peat as a growing media Reputation built up as a supplier of quality products Encouragement received from the Government Application of Good Agricultural Practices to protect the environment, safeguard

workers and sustainable use of natural resources.

Opportunities Expanding new markets Opportunities to export value added products New developments in sea transportation

Product Assortment Ornamental Foliage Plants Cut decorative leaves Cut Flowers Aquarium plants

Landscaping plants Tissue cultured plants

Major Production Regions Western province-Gampaha, Kaluthara and Colombo Districts North Western Province- Kurunegala, Puttalam Districts Central Province Kandy, Kegalle, Matale, N Eliya, Bandarawela

Possible Areas for Expansion Southern Province Sabaragamuwa Province Share in the world market
Sri Lankan Exports 2010 US$ Mn. 11.7 Growth in Sri Lankan exports (2006-2010) 3 % Sri Lankan Share in the World Market (2010) 0.1%

World Ranking (2010) 52

Sri Lanka Floriculture Exports Product Live Plants Cut Flowers Fresh 2006 4,989,546 5,597,486 661,931 2007 4,873,013 6,323,128 832,232 2008 6,798,738 6,568,802 816,442 2009 5,894,094 5,117,526 435,240 2010 5,923,955 4,701,978 1,116,914

Decorative Leaves Total 11,248,963 12,028,373 14,183,982 11,446,860 11,742,847 Source: Sri Lanka Export Development Board

The export market Europe is the major market for Sri Lankan floricultural products and accounted for 62% (Rs. 820 Mn) of our total floriculture exports in year 2009. The Netherlands is the leading importer in Europe and continues to be the number one market for Sri Lankan floriculture products absorbing 36% of our total exports (Rs. 477 Mn) in year 2009. Japan, South Korea and the Middle East are the other major import markets.

Major Competitors Central America Costa Rica, Guatemala Africa Kenya, Israel, Ethiopia Asia India, Malaysia, Thailand, China

2. Country Introduction
Germany is the largest economy in the in the European Union (EU), and is the world's fourth largest economy by nominal GDP and the fifth largest by purchasing power parity (World Bank, 2011). It is also the third largest exporter and importer of goods and services in the world. As per the Centre for the Promotion of Imports (2008) Germany is the largest market for cut flowers and foliage in the EU.

2.1 Geographical Setting


Germany is in Western and Central Europe, bordering Denmark in the north, Poland and the Czech Republic in the east, Austria and Switzerland in the and south, Belgium France and and the Luxembourg in the south-west, Netherlands in the north-west. It lies mostly between latitudes 47 and 55 N (the tip of Sylt is just north of 55), and longitudes 5 and 16 E. The territory covers 357,021 km2 (137,847 sq mi), consisting of 349,223 km2 (134,836 sq mi) of land and 7,798 km2 (3,011 sq mi) of water. It is the seventh largest country by area in Europe and the 62nd largest in the world. (Source: CIA Factbook) Elevation ranges from the mountains of the Alps in the south to the shores of the North Sea in the north-west and the Baltic Sea in the north-east. Major rivers such as the Rhine, Danube and Elbe cut across the German landscape.

Natural resources

Source: CIA Factbook

Climate Most of Germany has a temperate seasonal climate in which humid westerly winds predominate. Rainfall occurs year-round, especially in the summer. Winters are mild and summers tend to be cool, though temperatures can exceed 30 C. The east has a more continental climate; winters can be very cold and summers very warm with frequent long dry periods. Central and Southern Germany are transition regions which vary from moderately oceanic to continental. (Source: German Culture)

2.2 Relevant History


The website Facts About Germany provides the following historic milestones of Germany. 800: Charlemagne The ruler of the Frankish Empire is crowned Roman emperor by Pope Leo III. Later the Carolingian, who dies 814 in Aachen, is declared the Father of Europe. 962: Otto I or Otto the Great His crowning as emperor marks the start of the Holy Roman Empire. 10241125/11381268: Salier and Staufer The dynasties of the Salier (builders of Speyer Cathedral, photo) and Staufer families shape the destiny of Europe. 1179: Hildegard von Bingen The abbess and healer, one of the most influential women in medieval Germany, dies aged 81 in Bingen on Rhine. 14521454: Invention of printing Johannes Gutenberg (c. 14001468), inventor of printing with movable type, produces the first printed Bible in Mainz roughly 180 copies.

1493: Rise of the House of Habsburg The regency of Maximilian I marks the rise of the House of Habsburg. For centuries it was one of the dominant aristocratic dynasties in Central Europe, supplied the majority of emperors and kings of the Holy Roman Empire of the German Nation, and from 15041700 the kings of Spain 1517: Religious schism The Age of the Reformation begins when Martin Luther (14831546) publicly declares his 95 Theses against the system of indulgences in the Catholic Church in Wittenberg. 16181648: Thirty Years War Both a religious war and political conflict, the Thirty Years War ends with the Peace of Westphalia: The Catholic, Lutheran and Reformist faiths are recognized as equal. 17401786: Frederick the Great During the reign of Frederick II, literary scholar and general, Prussia emerges as a European superpower. His rule is seen as exemplary for the age of enlightened absolutism. 1803: Secularization The secularization of ecclesiastical rule and the dissolution of Imperial free cities by the Final Recess herald the end of the Holy Roman Empire of the German Nation. 1848/49: March Revolution

The German Revolution begins in the Grand Duchy of Baden. Before long it spreads to the other states of the German Federation and leads to the first German National Assembly, which convened in the Paulskirche, Frankfurt/Main.

1871: Foundation of the Reich On January 18 during the Franco-Prussian War Wilhelm I is proclaimed German Emperor in Versailles. The (second) German Reich is a constitutional monarchy. Shortly before the foundation of the empire the nation experienced an economic upswing known as the Grnderjahre. 19141918: World War I Emperor Wilhelm II isolates Germany from its neighbors and leads the country into the catastrophe of the First World War, which costs the lives of almost 15 Mn people. In June 1919 the Treaty of Versailles is signed, ending the war. 1918/19: Weimar Republic On November 9, 1918 Social Democrat Philipp Scheidemann proclaims the Republic; Emperor Wilhelm II abdicates. On January 19, 1919 elections are held for the National Assembly. 1933: National Socialism The NSDAP gains the most votes in the Reichstag elections in 1932; on January 30 1933 Adolf Hitler becomes Chancellor of the Reich. The National Socialist dictatorship begins with the Enabling Act. 1939: Start of the Second World War

Through his invasion of Poland on September 1, 1939 Hitler unleashes the Second World War, which cost 60 Mn people their lives and devastated large parts of Europe and East Asia. The Nazi extermination policy results in the murder of six Mn Jews.

1945: The Second World War ends The capitulation of the German Wehrmacht between May 7th and 9th, 1945 ends the Second World War in Europe. The four Allies divide the country into four occupation zones and Berlin into four sectors. 1948: Blockade of Berlin The introduction of the deutschmark in the Western occupation zones prompts the Soviet Union on June 14, 1948 to cut off access to West-Berlin. The Allies respond with an airlift dropping supplies to the population in West Berlin until September 1949. 1949: Birth of the Federal Republic of Germany On May 23, 1949 the Basic Law of the Federal Republic of Germany is proclaimed in Bonn. The first parliamentary elections are held on August 14. Konrad Adenauer (CDU) is elected Chancellor. On October 7, 1949 the division between East and West is completed when the Constitution of the German Democratic Republic comes into force. 1957: Treaties of Rome The Federal Republic of Germany is one of the six nations to sign the founding treaties of the European Economic Community.

1961: Building of the Berlin Wall East Germany cuts itself off on August 13, 1961 by erecting a wall through the middle of Berlin and the Death Strip along the border between the two Germanies. 1963: Elyse Treaty The Treaty of Friendship between France and Germany is signed by West German Chancellor Konrad Adenauer and the French President Charles de Gaulle.

1970: Brandt kneels in Warsaw The gesture by West German Chancellor Willy Brandt (SPD) before the memorial for the victims of the uprising in the Jewish ghetto in Warsaw became a symbol of the German plea for reconciliation. 1989: The Fall of the Wall The peaceful revolution in East Germany leads in November 9 to the Berlin Wall coming down and with it the border between East and West Germany. 1990: German reunification On October 3, East Germany formally ceases to exist. Germanys political unity is restored. The first general elections of the united Germany are held on December 2, 1990. Helmut Kohl (CDU) becomes the unified nations first Chancellor. 2004/2007: EU Expansion

Following the disintegration of the Soviet Union and the fall of Communism, in 2004 eight Central and East European nations plus Cyprus and Malta joined the EU, followed in 2007 by Bulgaria and Romania. 2005: First Female Chancellor Angela Merkel became the first female Chancellor of Germany as the leader of a grand coalition.

2.3 Social Institutions


The CIA Factbook on Germany provides the following information regarding the social institutions in Germany.

Government Government type: Federal republic Constitution 23 May 1949, known as Basic Law; became constitution of the united Germany 3 October 1990 Legal system Civil law system and accepts compulsory ICJ (International Court of Justice) jurisdiction with reservations; accepts ICCt (International Criminal Court) jurisdiction. Executive branch

Chief of state: President Christian Wulff (since 30 June 2010) Head of government: Chancellor Angela Merkel (since 22 November 2005) Cabinet: Cabinet or Bundesminister (Federal Ministers) appointed by the president on the recommendation of the chancellor Legislative branch Bicameral legislature comprise of 02 groups.
Federal Council or Bundesrat 69 votes; state governments sit in the Council; each

has three to six votes in proportion to population and is required to vote as a block.
Federal Diet or Bundestag 622 seats; members elected by popular vote for a four-

year term under a system of personalized proportional representation. Judicial branch


Federal Constitutional Court or Bundesverfassungsgericht (half the judges are elected

by the Bundestag and half by the Bundesrat) Federal Court of Justice Federal Administrative Court Political parties and leaders
Alliance '90/Greens [Claudia Roth and Cem Ozdemir] Christian Democratic Union or CDU [Angela Merkel] Christian Social Union or CSU [Horst Seehofer]

Free Democratic Party or FDP [Guido Westerwelle] Left Party or Die Linke [Klaus Ernst And Gesine Loetzsch] Social Democratic Party or SPD [Sigmar Gabriel]

Political pressure groups and leaders Business associations and employers' organizations; trade unions; religious, immigrant, expellee, and veterans groups International organization participation ADB (nonregional member), AfDB (nonregional member), Arctic Council (observer), Australia Group, BIS, BSEC (observer), CBSS, CDB, CE, CERN, EAPC, EBRD, EIB, EMU, ESA, EU, FAO, FATF, G-20, G-5, G-7, G-8, G-10, IADB, IAEA, IBRD, ICAO, ICC, ICRM, IDA, IEA, IFAD, IFC, IFRCS, IHO, ILO, IMF, IMO, IMSO, Interpol, IOC, IOM, IPU, ISO, ITSO, ITU, ITUC, MIGA, NATO, NEA, NSG, OAS (observer), OECD, OPCW, OSCE, Paris Club, PCA, Schengen Convention, SECI (observer), SICA (observer), UN, UN Security Council (temporary), UNAMID, UNCTAD, UNESCO, UNHCR, UNIDO, UNIFIL, UNMIL, UNMIS, UNRWA, UNWTO, UPU, WCO, WHO, WIPO, WMO, WTO, ZC

Religious organizations Protestant Evangelical Church (EKD) Roman Catholic Church

2.4 Cultural Aspects


German Etiquette and Customs As cited in kwintessential.com some common etiquette and customs include; Meeting Etiquette Greetings are formal. A quick, firm handshake is the traditional greeting.
Titles are very important and denote respect.

In general, wait for your host or hostess to introduce you to a group. When entering a room, shake hands with everyone individually, including children.

Gift Giving Etiquette If you are invited to a German's house, bring a gift such as chocolates or flowers. Yellow roses or tea roses are always well received. Do not give red roses as they symbolize romantic intentions. Do not give carnations as they symbolize mourning. Do not give lilies or chrysanthemums as they are used at funerals. If you bring wine, it should be imported, French or Italian. Giving German wines is viewed as meaning you do not think the host will serve a good quality wine. Gifts are usually opened when received. Good manners

www.ediplomat.com provides useful information on mannerisms considered as appropriate by Germans. A man or younger person should always walk to the left side of a lady. Traditional good manners call for the man to walk in front of a woman when walking into a public place.
A man should open the door for a woman and allow her to walk into the building.

Don't be offended if someone corrects your behavior (i.e., taking jacket off in restaurant, parking in wrong spot, etc.). Policing each other is seen as a social duty. Compliment carefully and sparingly -- it may embarrass rather than please.
Dont lose your temper publicly. This is viewed as uncouth and a sign of weakness.

Stand when an elder or higher ranked person enters the room. Values German people value honesty, hard work, and order. They connect more easily with people who they consider to be skilled, prompt, and intelligent. At the same time, they tend shy away from strange or foreign ideas. Germans are more formal and punctual than most of the world. They have prescribed roles and seldom step out of line. Time Punctuality is highly valued. Being on time for meetings, appointments, and services is expected. Buses and trains are almost always on time, being even two minutes late is rare.
If invited to a big informal party, being fashionably late is fine provided it is not

more than 15 minutes late.

Festivals in the Germany Germany is a country full of traditions and festivals throughout the year. Month January February March April May June Festival Three Hallowed Kings Carnival Berlins Spandau Spring Festival, Strong Beer weeks FilmFest, International Dance week and Easter Munich Spring festival, the Bodensee Festival, the Dresden Music Festival and the Asparagus Festival Rock am Ring and Rock am Park and the festival of classical music, Sailing July August Rheinkultur Bonn, Schlagermove pop music festival, Zeltfestival and Das fest August is popular for beer festivals like Berlin Beer Festival, wine festivals and theatre festivals September October November December Beethoven Festival, Alstadt Autumn Festival, Berlin Musicfest, Potsdam Jazz Festival, Oktoberfest Oktoberfest Christmas Christmas and New Year

Don'ts in Germany It is impolite to cross your arm over people who are shaking hands, as well as chew gum in public. Talking while your hands are in your pockets is also impolite.
Dont shout or be loud and avoid putting your feet on furniture.

When talking to someone, do not chew gum as it is considered as bad manners in Germany. When eating, do not put your elbows on the table. Only your hands should be on the table. If you are visiting a bar, then make sure you do not get drunk.

Business Customs and Etiquette in Germany As cited in kwintessential.com some common business etiquettes to be followed include;

Relationships & Communications Germans do not need a personal relationship in order to do business. They will be interested in your academic credentials and the amount of time your company has been in business. Germans display great deference to people in authority, so it is imperative that they understand your level relative to their own. Germans do not have an open-door policy. People often work with their office door closed. Knock and wait to be invited in before entering. German communication is formal.

Following the established protocol is critical to building and maintaining business relationships. As a group, Germans are suspicious of hyperbole, promises that sound too good to be true, or displays of emotion. Germans will be direct to the point of bluntness. Expect a great deal of written communication, both to back up decisions and to maintain a record of decisions and discussions.

Business Meeting Etiquette Appointments are mandatory and should be made 1 to 2 weeks in advance. Letters should be addressed to the top person in the functional area, including the person's name as well as their proper business title. If you write to schedule an appointment, the letter should be written in German. Punctuality is taken extremely seriously. If you expect to be delayed, telephone immediately and offer an explanation. It is extremely rude to cancel a meeting at the last minute and it could jeopardize your business relationship. Meetings are generally formal. Initial meetings are used to get to know each other. They allow your German colleagues to determine if you are trustworthy. Meetings adhere to strict agendas, including starting and ending times. Maintain direct eye contact while speaking. Although English may be spoken, it is a good idea to hire an interpreter so as to avoid any misunderstandings. At the end of a meeting, some Germans signal their approval by rapping their knuckles on the tabletop.

There is a strict protocol to follow when entering a room: The eldest or highest ranking person enters the room first. Men enter before women, if their age and status are roughly equivalent.

Business Negotiation Do not sit until invited and told where to sit. There is a rigid protocol to be followed. Meetings adhere to strict agendas, including starting and ending times. Treat the process with the formality that it deserves. Germany is heavily regulated and extremely bureaucratic. Germans prefer to get down to business and only engage in the briefest of small talk. They will be interested in your credentials. Make sure your printed material is available in both English and German. Contracts are strictly followed. You must be patient and not appear ruffled by the strict adherence to protocol. Germans are detail-oriented and want to understand every innuendo before coming to an agreement. Business is hierarchical. Decision-making is held at the top of the company. Final decisions are translated into rigorous, comprehensive action steps that you can expect will be carried out to the letter. Avoid confrontational behaviour or high-pressure tactics. It can be counterproductive. Once a decision is made, it will not be changed.

Dress Etiquette

Business dress is understated, formal and conservative. Men should wear dark coloured, conservative business suits. Women should wear either business suits or conservative dresses. Do not wear ostentatious jewellery or accessories.

Behavior Germans are strongly individualistic. Germans do not like surprises. Sudden changes in business transactions, even if they may improve the outcome, are unwelcome. German citizens do not need or expect to be complimented. In Germany, it is assumed that everything is satisfactory unless the person hears otherwise. When being introduced to a woman, wait to see if she extends her hand. Business is viewed as being very serious, and Germans do not appreciate humor in a business context. People that have worked together for years still shake hands each morning as if it were the first time they met.
Titles are very important to Germans. German men frequently great each other with

Herr 'last name', even when they know each other very well. Germans love to talk on the telephone. While important business decisions are not made over the phone, expect many follow up calls or faxes. Germans guard their private life, so do not phone a German executive at home without permission. In business situations, shake hands at both the beginning and the end of a meeting.

Gestures When gesturing or beckoning for someone to come, you should face your palm downwards and make a scratching motion with the fingers. Waving the hand back and forth with the palm up usually signifies no. The OK sign and thumbs up are understood, but do not tend to be used that often. At the end of a presentation or performance, Germans often signal their approval or thanks by gently rapping their knuckles on the tabletop instead of applauding.

Taboos Making a circular motion using the index finger while pointing to the side of ones head is a rude gesture indicating that someone is crazy or deranged. Forming a circle with the thumb and index finger (meaning "OK" in North America) is usually considered an obscene gesture. An erect middle finger is a very offensive gesture with the meaning of "go screw yourself". Whistling at a performance is usually an expression of contempt or displeasure.
Putting your thumb between your middle and index finger while making a fist is

usually considered an obscene gesture.

Facts About Germany provides the following information about literature and culture. Literature

German writers, composers and philosophers such as Goethe, Schiller, Bach, Beethoven, Kant and Hegel have strongly influenced cultural epochs and are acclaimed figures the world over. Cultural institutions Berlin, as the capital city, is a spectacular case in point, with three opera houses, 120 museums, more than 50 theaters and a lively art community that also attracts many young foreign artists. Cultural facilities 6,200 museums (630 of them art museums), 820 theaters (including musical theaters and opera houses), 130 professional orchestras, 8,800 libraries. UNESCO World Heritage Germany features 33 natural and cultural heritage sites protected under the UNESCO World Heritage program.

2.5 Living conditions

HIV Indicator As at 2009 World ranking

Adult prevalence rate People living with HIV/AIDS Deaths

0.1% 67,000 fewer than 1,000

132 51 73

Drinking water source: 100% of urban and rural population

Sanitation facility access: 100% of urban and rural population

2.6 Languages and Religions


The CIA Factbook reveals the following facts. Religions: Protestant 34%, Roman Catholic 34%, Muslim 3.7%, unaffiliated or other 28.3% Languages: German

2.7 General facts


Capital: Berlin Administrative divisions: 16 states Independence: Federal Republic of Germany (FRG or West Germany) proclaimed on 23 May 1949 German Democratic Republic (GDR or East Germany) proclaimed on 7 October 1949 West Germany and East Germany unified on 3 October 1990 National holiday: Unity Day, 3 October (1990) National anthem: "Lied der Deutschen" (Song of the Germans) Flag description: three equal horizontal bands of black (top), red, and gold; these colors have played an important role in German history and can be traced back to the medieval banner of the Holy Roman Emperor - a black eagle with red claws and beak on a gold field National holidays:

3. Economic Analysis
3.1 Population
The population facts based on the CIA Factbook are as follows. Indicator Population Population growth rate Birth rate Death rate Net migration rate As at July 2011 (est.) 81,471,834 -0.208% 8.3 births/1,000 population 10.92 deaths/1,000 population 0.54 migrant(s)/1,000 population World Ranking 16 212 219 39 62

Age structure: 0-14 years: 13.3% (male 5,569,390/female 5,282,245) 15-64 years: 66.1% (male 27,227,487/female 26,617,915) 65 years and over: 20.6% (male 7,217,163/female 9,557,634) (2011 est.) Median age: total: 44.9 years male: 43.7 years female: 46 years (2011 est.) Urbanization: Urban population: 74% of total population (2010)

Rate of urbanization: 0% annual rate of change (2010-15 est.) Major cities (in terms of population): Berlin (capital) 3.438 Mn; Hamburg 1.786 Mn; Munich 1.349 Mn; Cologne 1.001 Mn (2009) Population (ranking in Europe): Second most populous country in Europe after Russia Sex ratio: At birth: 1.055 male(s)/female Under 15 years: 1.05 male(s)/female 15-64 years: 1.04 male(s)/female 65 years and over: 0.72 male(s)/female Total population: 0.97 male(s)/female (2011 est.) Ethnic groups: German 91.5%, Turkish 2.4%, other 6.1% (made up largely of Greek, Italian, Polish, Russian, Serbo-Croatian, Spanish)

3.2 Economic Statistics & Activity


The CIA Factbook provides the following overview of the German economy. It is the fifth largest economy in the world in PPP terms and Europe's largest and is a leading exporter of machinery, vehicles, chemicals, and household equipment and benefits from a highly skilled labor force. Like its western European neighbors, Germany faces significant demographic challenges to sustained long-term growth. Low fertility rates and declining net immigration are increasing pressure on the country's social welfare

system and necessitate structural reforms. The modernization and integration of the eastern German economy - where unemployment can exceed 20% in some municipalities - continues to be a costly long-term process, with annual transfers from west to east amounting in 2008 alone to roughly $12 Bn. Reforms launched by the government of Chancellor Gerhard Schroeder (1998-2005), deemed necessary to address chronically high unemployment and low average growth, contributed to strong growth in 2006 and 2007 and falling unemployment. These advances, as well as a government subsidized, reduced working hour scheme, help explain the relatively modest increase in unemployment during the 2008-09 recession - the deepest since World War II - and its decrease to 7.4% in 2010. GDP contracted 4.7% in 2009 but grew by 3.6% in 2010. In its annual projection for 2011, the Federal Government expects the upswing to continue, with GDP forecast to grow this year at a real rate of 2.3%. The recovery was attributable primarily to rebounding manufacturing orders and exports - increasingly outside the Euro Zone. Domestic demand, however, is becoming more significant driver of Germany's economic expansion. Stimulus and stabilization efforts initiated in 2008 and 2009 and tax cuts introduced in Chancellor Angela Merkel's second term increased Germany's budget deficit to 3.5% in 2010. The Bundesbank expects the deficit to drop to about 2.5% in 2011, below the EU's 3% limit. A constitutional amendment approved in 2009 likewise limits the federal government to structural deficits of no more than 0.35% of GDP per annum as of 2016. Some key economic indicators are shown below (CIA Factbook). GDP GDP (purchasing power parity) 2010 2009 2008 World Ranking 6

$2.94 trillion

$2.841 trillion

$2.98 trillion

GDP (official exchange rate) GDP - real growth rate GDP - per capita (PPP)

$3.316 trillion 3.5% -4.7% 0.7% 111

$35,700

$34,500

$36,200

33

GDP - composition by sector: Agriculture: 0.8%, Industry: 27.9% and Services: 71.3% (2010 est.) Employment Labour force Unemployment rate 2010 43.35 Mn 7.4% 7.5% 2009 World Ranking 14 78

Labor force - by occupation: Agriculture: 2.4%, Industry: 29.7% and Services: 67.8% (2005)

Income Population below poverty line: 15.5% (2010 est.) Household income or consumption by percentage share:

Lowest 10%: 3.6% Highest 10%: 24% (2000) Distribution of family income - Gini index: 27 (2006) 30 (1994) World ranking: 124

Investment (gross fixed): 18% of GDP (2010 est.) World ranking: 112 Banking Indicators Central bank discount rate Commercial bank prime lending rate 4.96% 5.97% 133 World Ranking

2010

2009

2008

2007

1.75%

1.75%

129

Stock of narrow money Stock of broad money Stock of domestic credit Market value of publicly traded shares

$1.627 trillion $4.288 trillion

$1.681 trillion $4.202 trillion $5.2 trillion $1.298 trillion $5.019 trillion $1.108 trillion $2.106 trillion

Budget: Revenues: $1.396 trillion Expenditures: $1.516 trillion (2010 est.)

Public debt: 78.8% of GDP (2010 est.) 72.5% of GDP (2009 est.) World ranking: 20

Inflation rate (consumer prices): 1.1% (2010 est.) 0.4% (2009 est.) World ranking: 24

Agriculture products: Potatoes, Wheat, Barley, Sugar beets, Fruit, Cabbages; Cattle, Pigs, Poultry

Industries: Among the world's largest and most technologically advanced producers of iron, steel, coal, cement, chemicals, machinery, vehicles, machine tools, electronics, food and beverages, shipbuilding, textiles

Industrial production growth rate: 9% (2010 est.) World ranking: 24 Energy Facts 2009 2008 2007 World Ranking

Electricity Production Consumption Exports Imports Oil Production 156,800 bbl per day Consumption Exports 2.437 Mn bbl per day 536,600 bbl per day Imports Proved reserves Natural gas Production Consumption Exports Imports Proved reserves 15.29 Bn cu m 96.26 Bn cu m 12.64 Bn cu m 94.57 Bn cu m 175.6 Bn cu m 34 5 16 2 47 2.862 Mn bbl per day 276 Mn bbl 45 8 61.7 Bn kWh 41.67 Bn kWh 593.4 Bn kWh 547.3 Bn kWh 8 7

28 7

55

Reserves of foreign exchange and gold: $180.8 Bn (31 December 2009 est.) External balance Current account balance Exports Imports External debt 2010 $162.3 Bn $1.337 trillion $1.12 trillion $4.713 trillion 2009 $168.1 Bn $1.145 trillion $956.7 Bn $5.158 trillion World Ranking 3 3 4 4

Exports commodities: Machinery, Vehicles, Chemicals, Metals And Manufactures, Foodstuffs, Textiles Exports partners: France 10.1%, US 6.7%, UK 6.6%, Netherlands 6.6%, Italy 6.3%, Austria 5.7%, Belgium 5.2%, China 4.7%, Switzerland 4.5% (2009) Imports commodities: Machinery, Vehicles, Chemicals, Foodstuffs, Textiles, Metals Imports partners: Netherlands 13%, France 8.2%, Belgium 7.2%, China 6.8%, Italy 5.6%, UK 4.7%, Austria 4.4%, US 4.2%, Switzerland 4.1% (2009)

FDI At home Abroad

2010 $1.057 trillion $1.484 trillion

2009 $1.054 trillion $1.46 trillion

World Ranking 4 4

Exchange rates:

3.3 Development in Science & Technology


Germany is not only the largest economy in Europe and the third largest in the world, but it is also one of the world's most active and diversified markets for science and technology research and development. Over half of Germany's industrial production is accounted for by R&D-intensive industries. Germany has also been the home of some of the most prominent researchers in various scientific disciplines, notably physics, mathematics, chemistry and engineering. Scientific research in the country is supported by industry, by the network of German universities and by scientific state-institutions such as the Max Planck Society and the Deutsche Forschungsgemeinschaft. Germany's technological performance is essential for German companies' success in international technological competition. It is the basis for economic growth and viable jobs in Germany. Technological performance is documented by new, innovative products and processes which can compete on international markets. They depend on the

creativity of German entrepreneurs and on the commercialization of the results of efficient public research. But above all, Germany's technological performance will in future depend on the availability of highly qualified workers. Education and research are therefore a top priority for the Federal Government. (Source: BMBF, i.e. the Federal Ministry of Education and Research in Germany). The key findings by the BMBF on Germany's technological performance are as follows. Germany ranks high in comparison to other countries when it comes to research and knowledge intensities in industry. It produces 277 patents with global market potential per million employed persons whereas the EU and OECD average is 182 and 152 respectively. The share of companies that launched new products or new processes stand at 59 percent. Sectors with technological strength are reporting increasingly higher levels of export trade. German enterprises account for 15.6 percent of global trade in researchintensive goods, ranking second only to the USA. For years now, German exports of research-intensive goods have grown an average of more than eight percent a year. The ability of German companies to compete in international markets has improved noticeably since the mid-1990s. Production and employment in those industries that invest strongly in R&D has grown vigorously. Gross output in these industries grew an average of 4.4 percent a year (other industries: 1.5 percent) between 1995 and 2003. Germany's specialization profile has shifted slightly in favor of cutting-edge technologies. Combined public and private expenditure on R&D as a percentage of Germany's gross domestic product grew from 2.31 percent to 2.55 percent between 1998 and

2003. Research intensity is high in Germany. Research budgets of universities and non-university research facilities grew 3.1 percent a year in real terms in the first years of this decade.

Challenges Emerging threshold countries are expanding their investment in research and development at an extraordinarily fast pace. This group increased its nominal expenditure on R&D by 180 percent during the period from 1995-2003. China alone quadrupled its R&D spending since the mid-1990s. Spending US$ 72 billion on R&D during this period, it catapulted itself to third place on the list of the world's most R&D-rich countries. By comparison, spending on R&D rose by 80 percent in the Nordic countries, by 50 percent in the USA and on average for OECD countries and by 35 percent in Germany. Germany's technological strengths revolve increasingly around the automotive sector. The "knowledge society" needs much more skilled workers with engineering or scientific education than ever before. It is estimated that the German workforce needs approximately 50.000 additional academically trained workers annually.

The Federal Government has taken numerous measures to sustain and to strengthen Germany's technological performance. Investments in education, research, and innovation remain a high funding priority.

The German government demands excellent research in Germany. It has proposed a competition for the development of elite universities. The Excellence Initiative is to be used to expand cutting-edge research at universities and scientific institutions and make it internationally visible. The German government is boosting the ability of small and medium-sized enterprises to produce innovations. The government is responding to the growing need for skilled workers and the international competition for highly qualified workers with a number of measures aimed at strengthening Germany's education system and universities such as the reform of the Federal Training Assistance Act giving financial aid to students. The government has launched the Partners for Innovation initiative to boost momentum at all levels of the German innovation system. This initiative is jointly sponsored by leading representatives from industry, trade unions and the science community.

3.4 Channels of Distribution


With more than 82 million people, the German market is the largest and most important in Europe. It is both very competitive and segmented, with supply-side saturation in many sectors and for many products. Quality and service are of the utmost importance in this market. The main trading areas of the country North Rhine-Westphalia, Baden Wurtenberg, Bavaria, Hamburg, Berlin and Hanover, as well as Leipzig in the former East Germany.

A brief overview of the distribution network in Germany as cited in www.alibaba.com is as follows. The Business to Consumer (B to C) market The structure of German distribution is characterized by: large number of small independent shops low level of concentration in each sector, compared to the main European markets (France, United Kingdom, Belgium) predominance of distribution in city centers and urban areas low number of hypermarkets
predominance of discount stores and the importance of distance selling (mail order,

e-commerce, teleshopping)

German distribution is divided up according to the following distribution channels: Distribution channel Traditional retail trade Specialized superstores Non-food shop chains DIY superstores Discounters Supermarkets (%) 24.8 22 13 11.7 11 7.9

Mail Order Department stores

5.8 3.8

The top three German distribution groups are Metro, Rewe and Edeka/Ava. Discount stores are the leading format for food distribution, registering a growth of approximately 10% and generating 40% of total food sales. The growth in the number of discounters, such as Lidl and Aldihas forced distributors to wage a price war. Thus, insufficient margins risk slowing down the modernization of sales outlets and the development of new distribution concepts. The relationships between the distributors and their suppliers, reputed to be very difficult, have become even more strained. A trend toward consolidation has developed, and groups such as Karstadt-Quelle, Edeka-Tengelmann and discounters such as Wal-Mart have engaged in severe competition, resulting in a lowering of suppliers' margins.

Classification of the top ten German distributors in 2003 Turnover (Million , 2003) 32,232 30,373 29,090

Companies

1. Metro Gruppe 2. Rewe Gruppe 3. Edeka/AVA-Gruppe

4. Aldi-Gruppe 5. Schwarz-Gruppe 6. Karstadt Quelle 7. Tengelmann-Gruppe 8. Spar AG 9. Lekkerland-Tobaccoland 10. Schlecker

24,000 21,500 15,500 13,108 9,000 8,230 5,600

The Business to Business (B to B) market To sell in Germany, it is vital to be represented on a regional level, either by independent regional agents, or by a national organization with regional support. Regional division usually corresponds with the Lnder (states of Germany). Germany is the world's leading country for the organization of trade exhibitions and fairs. These events are vital for a company to make a name for itself, find out who its competition is, find new customers, and develop loyalty among longer-standing ones. One benchmark exhibition is EUROSHOP, the premier worldwide retail distribution exhibition, with almost 1,500 exhibitors. The cities which stage international trade fairs are Cologne, Dsseldorf, Frankfurt, Hanover, Munich, Nuremberg, Berlin, Leipzig, Stuttgart, Hamburg and Essen.

In addition, regional exhibitions are held all over Germany, generally smaller and which are organized by either distributors or agents.

Transportation of goods By road The German road network covers more than 238,000 km of roads of which more than 11,000 km are toll free highways. By rail The railroad network extends over 44.500 km of lines and is capable of transporting over 290 million tons of goods. By sea The main German ports are Hamburg, Rostock, Bremen and Duisburg.

By air The airport of Frankfurt ensures 70% of the air freight and is ranked 9th in the world. The other main international airports are Munich, Stuttgart and Dusseldorf.

3.5 Media
The media landscape in Germany was outlined by the European Journalism Centre (2010) as follows.

Germany looks back at a long history of mass media. Some of the first newspapers started roughly 400 years ago. Today, the major media production centers are located in the old West. Newspapers of the former East Germany are usually controlled by Western companies and broadcasting is integrated into the Western dual system.

Traditional Media Germany has a "dual system" of both public and commercial broadcasting. The traditional public service broadcaster is set up as an independent and non-commercial organization, financed primarily by license fees. Because of the de-centralized character, there are many media centers in the country, e.g. Hamburg (NDR), Cologne (WDR), Munich (BR), Berlin-Potsdam (rbb). Print Media Independent editorial units Number of newspapers Penetration (1990-2008) Types of newspaper Total circulation - National 135 354 79.1% to 72.4% subscription press and tabloid press 20.2 Mn 1.65 Mn

BILD, Sddeutsche Zeitung (SZ), Frankfurter Allgemeine Zeitung (FAZ), Welt, Frankfurter Rundschau (FR), Tageszeitung (Taz) - Sold on the street 4.47 Mn

- Regional Subscription press Tabloid Press Weekly newspapers Newspaper Publishers - Axel Springer Group

14.1 Mn 14.3 Mn 5.9 Mn (BILD Zeitung 3.3 Mn also best in Europe) Die Zeit (ca. 525,000)

22.1% 8.5% 6% 4.2% 4%

- Verlagsgruppe Stuttgarter Zeitung - WAZ Group - DuMont Schauberg - Ippen Gruppe

The 10 largest publishers of dailies together control 44.8% of the market.

Number of magazines - General - Specialized Weekly news magazines Magazine publishers 906 (total circulation = 117.9 Mn) 1,218 (total circulation = 13.6 Mn) Der Spiegel (ca. 1.07 Mn) Bauer, Springer, Burda, Gruner + Jahr (60% share)

Radio Daily consumption Regional programmes National programmes 176 minutes 06 02

Slightly more than a half comes from public service broadcasters. Commercial radio is licensed in all Lnder-states; therefore it follows mostly a regional pattern. In North Rhine-Westphalia, the largest state, 46 local stations work commercially but with local, non-commercial windows. Non-commercial radio exists but is regulated differently in each state. Some states allow community stations; others prefer public access (also for television), educational stations, campus stations etc.

Television Daily viewing time Television receivers Televisions National channels Commercial television Broadcasters ProSiebenSAT.1Media AG (21.6%) RTL Group S.A. (24.1%) Transmission 219 minutes 46.5 Mn 51.4 Mn Das Erste (ARD) and ZDF

- Cable - Satellite - Terrestrial Public service (43.6%) Broadcasters

18.66 Mn 14.93 Mn 1.4 Mn

ARD (13.4%) ZDF (13.1%) Third channels (13.2%) RTL (11.7%) SAT1 (10.3%) ProSieben (6.6%) Private

Pay TV

Sky (2.4 Mn viewers)

Cinema Film with German origin No of film theaters No of screens No of visits per year 20%-27% 1,793 4,810 1.58

Telecommunications Largest company Internet TV Deutsche Telekom T-Home (IPTV subscribers = 700,000)

Advertising Medium

New Media Online % using online services 67.1% (70% use broadband)

% of users within the age 14-19 % of online users using online video content Successful news websites

97.5% 62% Spiegel-online

Among all Internet users about half of them use the Net for up-to-date information.

Digital media Most terrestrial TV is digitalized (DVB-T). The public broadcasters, based on their huge programme library and time shifting, offer six additional programmes. Digital radio was first introduced in 1999 and the country is covered by a network of DAB transmitters. Deutsche Welle (DW) also offers short wave programming in DRM. The echo to digital radio was minimal, though, and some services have been terminated.

Media organizations News agencies There are eight agencies with Deutsche Presseagentur (DPA), Associated Press (AP), German Reuters and Agence France Presse (AFP) in the top 04.

Film production - Bavaria Atelierbetriebsgesellschaft (Munich)

- Studio Hamburg (Hamburg) - Studio Babelsberg (Berlin/Potsdam) - Magic Media Company (Cologne) Nearly 80 percent of production outlets, which are involved in new feature films, produced only one film in total (Clev, 1995).

Media research Media research is hosted by a vast variety of institutions University-based institutes Media research divisions of both public and commercial broadcasters Independent research institutes (GfK and Nielsen Media Research)

Some other media stats as cited in Nationmaster are as follows. Average cost of local call ($ per 3 0.09 min) Book production Cable TV subscribers Cinema attendance Fax machines 3,718 247 148,996,000 45.55 people per 1,000

Films produced Households with television > % Mobile phones Number of PCs Phone subscribers

121 95 % 71.67 per 100 people 40,000 1,316.52

4. Market Audit and Competitive Market Analysis


4.1 The Product
Cut flowers can be defined as flowers or flower buds (often with some stem and leaf) that have been cut from the plant bearing it (The Flower Expert). It is usually removed from the plant for indoor decorative use. Typical uses are in vase displays, wreaths and garlands. Many gardeners harvest their own cut flowers from domestic gardens, but there is a significant commercial market and supply industry for cut flowers in most countries. The plants cropped vary by climate, culture and the level of wealth locally. Often the plants are raised specifically for the purpose, in field or glasshouse growing conditions. Cut flowers can also be harvested from the wild.

4.1.1 Evaluation of the product's USP

Table 1 overleaf shows a vis--vis comparison of the main cut-flower producing nations. Competitors from Africa choose to focus on cost reduction to win from the competition, whilst the growers in the Netherlands, Colombia and Ecuador focus on quality and services. Due to the low volumes of Sri Lankan cut flower producers it is difficult to achieve cost advantages, and since cut flowers are still an amateur market in Sri Lanka we cannot compete with South American countries. As such it is necessary to look beyond traditional criteria to develop the products USP. The USP of Shirohana flowers will be as follows. Masculinity Symbol of peace Energy saving

Table 1: Main cut-flower producing nations

Reasons behind the choice of USP Masculinity A study on the German market (2008) found that there is considerable potential for marketing flowers to men. The eHow website further states that surveys have shown that men like to receive flowers nearly as much as women do. A survey conducted by the Society of American Florists found that nearly 60% of men would enjoy receiving flowers on Valentine's Day. However, not all of these men are willing to admit this fact in public. Another study by Rutgers University researchers found that men who received flowers were more open socially. Male flower recipients smiled more often, stood closer to subjects, and maintained direct-eye contact more than men who did not receive flowers. The study found that ethnicity, age or background did not matter. There are many types of flowers that come in masculine flowers, such as orchids, tulips and sunflowers. The Society of American Florists found that men preferred vibrant colors such as reds and yellows. Large flowers with sharp lines, such as sunflowers, can be more masculine than dainty flowers such as lilies of the valley.

Symbol of peace Sri Lanka is a role model for any country for bringing peace and eliminating terrorism from its motherland. This would act as a good base to developing the competitive strategy of Shirohana flowers.

Energy saving Vringer and Blok (1998) in their study point out that cut flowers have a significant indirect energy requirement. Like all consumer products cut flowers require fossil energy during their lifecycle. A shift to less energy-intensive flowers can reduce the total energy required for flowers. This can help to bring down the CO2 emissions. Michaelsmas daisy, Carnation, Lilies and Amaryllis are some flowers that were

identified as having lower energy requirements. Due to the positive impact of lessenergy intensive flowers on the environment this was opted as part of the USP.

4.1.2 Major problems of product acceptance

Germany is a member of the EU. As such there are some specific constraints when it comes to the acceptance of cut flowers into the German flower market. Quarantine certification To prevent entering of organisms harmful to animals, plants and plant products.
Buyer specific requirements (additional requirements set by companies)

(a) Environmental requirements (b) Social requirements International sustainable label MPS International consumer label FFP In order to promote florists and specialized shops, BGI (German association of flower wholesalers and import traders) is promoting the trade in high quality and certified products. One such certification is the Fair Flower Fair Plants (FFP) certification. According to the director of BGI, German wholesalers find it extremely hard to find growers with this consumer label. International social label Fair Trade Good Agricultural Practices GLOBALGAP
When it comes to appearance dyed flowers and cheesy gimmicks are considered as

negatives that cheapen the gift when compared to natural looking flowers. One of the critical aspects looked for when purchasing cut flowers is the freshness of the flowers. Cut flowers are usually transported from far off locations, and hence both

suppliers and vendors need to ensure that the freshness is maintained. Failure to maintain the freshness will reduce purchases by consumers, especially because flowers are perishable.
On average, supermarkets must discard 14% of cut flower purchases compared with

6% of fresh produce. Concerned about the high rate of loss, they are looking for instate and local suppliers who can provide flowers with a longer vase life.

4.2 The Market


4.2.1 Market size & evolution

German market for cut flowers Germany is the largest market for cut flowers and foliage in the EU. The Central Market and Price Reporting Agency (ZMP) estimated that around 3.15 billion were spent on cut flowers at retail prices in Germany in 2010. Between 2005 and 2010, the market for flowers and foliage fluctuated. 2010 registered a slight increase of about 1%, probably thanks to the parallel increase of consumer purchasing power. However, the consumption of flowers is still affected by the uncertain economic situation in Germany, combined with fear of unemployment and reduced retirement benefits. The German high VAT tariff has recently been increased from 16% to 19%. Ornamentals, however, still fall under the low 7% tariff. The similarities between developments in the flower market, consumer purchasing power and consumer confidence indicate strong correlation between the 3 variables. The moderate recovery of the German economy in 2009 and 2010 made the future of the flower market look slightly more promising. Nevertheless, the current economic slowdown makes the future growth in demand uncertain. It is expected that the size of the German flower market in 2011 would be approximately 3.20 billion. As per the CBI (2010) per capita consumption of cut flowers in Germany is in line with the EU average, and amounted to 36 in 2010, indicating a small annual decrease since 2007. In 2010, 57% of Germans purchased flowers. The average price paid for a bunch of

flowers increased in 2010. A factor preventing further decrease in per capita consumption and total consumption was the increased purchasing frequency.
4.2.2 Consumer buying habits

The CBI (2010) provides the following information regarding the purchase behaviour of German flower consumers.
Germans associate flowers with beauty, lovely colours, bringing joy, festivities,

nature and as signs of affection and love. It is a way of making the interior of houses more friendly, beautiful and cosy. Negative associations are high prices and short vase life.
As in many other EU countries, Germans mainly purchase cut flowers as a gift (about

half of all purchases). The flower usage amongst Germans can be illustrated as follows.

Figure 1: Flower usage in Germany


Flowers are the number one present in Germany. Candy/chocolates, money, wine and

perfume follow in order of importance. Young people and men in particular relate flowers primarily to the giving of a present. However, young people have also come to associate flowers with a lack of

inspiration and originality by the person giving the flowers, because of their traditional value as a gift. Flowers sales usually peak during the following public holidays. January: 1-Jan 6-Jan February: 14-Feb 23-Feb March: 1-Mar 8-Mar 19-Mar April: 4-Apr 10-Apr 12-Apr 16-Apr May: 1-May 10-May 21-May 21-May 31-May June: 11-Jun July:

New Years Day Feast of the Epiphany St. Valentines Day Rose Monday Grandmothers Day Womens Day International Fathers Day Palm Sunday Good Friday Easter Secretarys Day Labour Day Mothers Day Ascension Day Fathers Day Pentecost Corpus Cristi No Holidays

August: 15-Aug Assumption Day September: No Holidays October: 2-Oct Teacher Appreciation Day 31-Oct Halloween November:

1-Nov 2-Nov December: 6-Dec 8-Dec 25/26 Dec 31-Dec

All Saints Day All Souls Day Saint Nikolas The Immaculate Conception Christmas New Years Eve

Flowers from all types of colours are acceptable for any event with the exception of;

Red Valentines day, All Saints Day and First Sunday of Advent, Christmas Yellow (spring flowers) Easter Yellow (autumn colours) Erntedank Day It was also found that majority of the cut flowers are purchased by women (74%).

Figure 2: Classification of cut flower purchasers


Mono-bunches accounted for nearly 50% of the entire cut flower market, mixed

bouquets (a bunch of mixed flowers and foliage) accounted for 25% and compositions (decorative objects or arrangements made of flowers, foliage and other materials) for the remaining 25%. Rosa was the leading cut flower accounting for 50% of all mono-bunches. Flowers which are becoming more popular are Tulipa, Gerbera, Dianthus and Dendranthema.

Rosa and Dendranthema are the most popular flowers for funeral purposes and

graves. The main types of flowers sold in Germany are shown in the table below. Type of flower Rosa Tulipa Gerbera Dendranthema Lilium Gypsophila Solidago Dianthus 2008 36.0 8.7 9.0 4.9 1.7 1.5 1.3 1.2 2009 36.0 10.3 9.8 4.9 2.1 2.1 1.4 1.3 2010 36.0 9.5 9.5 4.6 2.5 2.1 1.4 1.3

The favorite type of flower by age group is as follows. Flower Rose Tulip Gerbera daisy Daisy Orchid Lilies Carnation Peonies Lilac Iris 5.2% 5.2% 3.7% 5.2% Young 27.0% 8.7% 6.1% 5.2% Middle 28.0% 10.0% 4.0% 7.0% 4.0% 6.0% 7.3% Old 21.3% 6.7% 3.7% 5.5% 5.5%

Roses are the most popular flower across all age groups. Lilies are more popular amongst the young and middle age groups whilst Orchids are more popular amongst the middle and old age groups.
Peonies and Lilac are popular amongst youngsters.

Carnations and Iris are popular amongst the old age group.

In Germany, approximately a quarter of the population is over 60 years old. Elderly

people generally spend relatively more money on flowers than young people. Consequently, elderly people contribute consistently to flower sales in Germany. Moreover, considering that the population is aging, this share is expected to gradually increase in the coming years.
Sales of lower-priced flowers in supermarkets have stimulated the purchases of

flowers for own use.


One in two German companies regularly purchases flowers as a gift for their

personnel. The institutional market for flowers is significant in Germany.


The share of people purchasing flowers was significantly higher in (former) East

Germany than it was in West Germany.

4.2.3 Existent competitors products

It is vital to identify the main competitors and understand their strengths and weaknesses as well as possible strategic moves that would be made by them. The first step in carrying out a competitor analysis is to determine who the competitors are. Porters 5 Forces model would be employed for this purpose. Porter offers five market forces which determine the competitive intensity and, therefore, the attractiveness of a market.

Figure 3: Porters 05 forces

The CBI (2010) provides an analysis of the competitive landscape as follows. 1. Competitive rivalry Established competitors are the principal determinant for competition for most cut flower categories. Industry growth The market share of some developing countries has increased significantly. Kenya has surpassed Israel as an exporting country. The higher market share has been reached with a low number of varieties. However nonmembers of UPOV (International Union for the Protection of New Varieties of Plants), except Uganda, perform poorly in production growth. At growers level, the industry growth in the Netherlands and the USA has stabilized, which means more competition to acquire a larger market share. The key competitors for the main types of cut flowers imported to Germany as identified by the CBI (2010) are as follows.

Rosa Dianthus Orchids Gladiolus Dendranthema Other fresh cut flowers

The Netherlands (84), Israel (0.1), Kenya (7), Ecuador (4), Ethiopia (2), South Africa (1), Colombia (1), Tanzania (1), Zimbabwe (1) The Netherlands (67), Italy (5), Spain (0.4), Austria (0.3), Israel (0.4), Colombia (23), Turkey (2), Ecuador (1), Palestinian Territories (0.6%) The Netherlands (85), Italy (1), Denmark (0.3), Thailand (12), China (0.4), Malaysia (0.3) The Netherlands (99), Italy (0.2), Belgium (0.2) The Netherlands (100), Italy (0.2), Austria (0.1) The Netherlands (93), Italy (2), Poland (1), Spain (0.8), Belgium (0.5), Denmark (0.1), Israel (1), Ecuador (0.2), South Africa (0.2), Kenya (0.1), Colombia (0.1)

As such it can be seen that Netherlands is the dominant player in the cut flower market contributing to 87% of the cut flower import volume of Germany. The remaining 13% is highly fragmented amongst African and Asian nations where there is a high level of competition.
1. Substitute products The competitive environment is also determined by the

possibilities for substitution of flowers. As cut flowers are mainly used as a gift item there are several substitutes which the consumer can select from. The potential customer may opt for candy/chocolates, money, wine/imported liquor, cosmetics/perfume, quality pens, books, gift vouchers, crockery, clothes and tasteful office items, rather than buy a bouquet of flowers.

Certain consumers may opt for artificial/imitation flowers rather than natural flowers for decorative purposes. Art decorations such as sculptures and paintings can replace a bouquet of flowers when it comes to interior dcor. Use of indoor plants indoor plants have a longer lifetime than cut flowers. On average all cut flowers in a household can be replaced by one indoor plant.

1. New entrants to the market Establishing a new flower farm is difficult in the strongly competitive cut flower market. The key entry barriers include; Capital requirements the capital required for setting up an export-oriented flower farm are high. Economies of scale small flower farms usually cannot compete. They cannot benefit from economies of scale. These economies of scale are particularly important in bulk flower production where margins are small and continuously shrinking. Certification The major European and African exporters comply with MPS certification standards. In South America, local standards are more common. Exporting countries with no code of conduct have a rather low level of export growth. Accesses to distribution This deals with the ease with which the final consumer can be reached. The logistics is one issue; the other is access to retailers. The third element is trade barriers due to phytosanitary regulations and requirements. Cost disadvantages such as;

a) Proprietary product technology For flowers this means having breeders in the country or having unique varieties.
b) Access to inputs Even though labour is cheap in most developing countries,

they face the lack of proper supplying and related industries.


c) Experience curve The skills and education of labourers in the field of cut

flower growing is low in most developing countries.

2. Bargaining power of customers concerns the ability of your customers to put your company under pressure, as well as their sensitivity to price changes. The bargaining power of EU wholesalers versus small suppliers is increasing as a result of consolidation in EU trade. Many small wholesalers can no longer compete with the leading wholesalers. The latter purchase large quantities of flowers. Their suppliers are strongly dependent on them, because it is costly to find other buyers for such large quantities. Similarly, the wholesalers depend heavily on their leading suppliers, because it is costly to find other suppliers of such large quantities. However, they become less dependent on smaller suppliers, as they can easily purchase small quantities from other suppliers. This is particularly relevant in the trade in bulk flowers. In general, the bargaining power of an existing customer is lower than the bargaining power of potential customers. Existing customers have invested in their relations with your company. Bargaining too hard may put the relationship, and thus the investment, at risk. Buyer standards wholesalers will set production parameters (such as codes of conduct and quality levels), partially forced by retailers or consumer groups. Ability to command a price premium innovative flowers (colour, shape and variety) gets a price premium. The Dutch and Israeli growers have an advantage due to the proximity of breeders.

1. Bargaining power of suppliers means that your suppliers can have power over your company when there are few substitutes. Suppliers which have a large impact on costs and margins include airlines, suppliers of young plant material, plastic material for greenhouse maintenance, chemical suppliers (fertilizers, pesticides, etc.) and packaging materials. Next to this, labour probably also plays a very large role in determining costs of production. Air transport costs account for an extensive part of total costs for exporters in developing countries. For example, air transport of Rosa from Ethiopia to The Netherlands accounts for approximately half of the total costs for the grower. In several developing countries, only a few airlines offer air transport for flowers. The bargaining power of these airlines is strong.

4.2.4 Marketing mix typically used

This section explains the importance of the various marketing mix elements in the marketing of cut flowers. Product The Flower Expert explains what consumers expect from a good cut flower. Appearance and beauty Germans associate flowers with beauty, lovely colours, bringing joy, festivities, nature and as signs of affection and love. It is a way of making the interior of houses more friendly, beautiful and cosy. Sweet fragrance

This is an essential feature of any type of flower. Flowers should give off a sweet scent which is appealing to the human mind. A strong scent can actually bring the recipient to a good and cheerful mood.
Long stem

The stem should be long enough and sturdy enough to hold the flower in an arrangement.

Extended vase life

Most Germans want flowers to look good and last for several days. By increasing longevity, receivers are reminded of the gift giver for an extended period of time and are able to enjoy their gift longer resulting in greater appreciation for the gift and giver.

The results from a study by Yue et al. (2009) on the relative importance of attributes in the purchase of cut flowers were as follows.

Figure 3: Important attributes of flowers The most important attributes in order of importance were flower/bloom quality, colour, price, design/arrangement, longevity, availability and fragrance.

Prices Price can be a big deterrent. If it is too high the customer either leaves the store without purchasing, chooses a less expensive gift s/he is not satisfied with, or purchases the expensive gift but is unsatisfied and does not return.

Prices depend on the quality, selling point, assortment, and size amongst other things. After a decrease in price between 2006 and 2008, prices are increasing again and are now above the level of 2006. The average prices of flowers (in Euros) sold at the Landgard during the period 2008-2010 is as follows. Flower Rosa Tulipa Gerbera Dendranthema Lilium Gypsophila Solidago Dianthus 2008 0.19 0.13 0.19 0.22 0.27 0.16 0.13 0.1 2009 0.2 0.14 0.19 0.2 0.29 0.18 0.14 0.1 2010 0.2 0.14 0.14 0.23 0.28 0.17 0.15 0.12

Most flowers have remained substantially stable in terms of price. The slight increase in the average price has been due to the purchase of more mixed-bouquets instead of monobouquets. The florists, which are a relatively expensive retail channels, also increased their market shares. The average price of mono-bunches in 2009 amounted to 4.28, which was 5% higher than in 2008. The price of mixed bouquets amounted to 8.86 on average in 2009, almost 1% higher than in 2008. Different prices and margins apply throughout the various trade channels. The price structure depends on the type of distribution channel and the role of the individual players. The margin of wholesalers can vary from about 25% to 50%. The margin of retailers can even vary more, from 50% to 150%. Supermarkets tend to apply lower margins than florists, particularly the discount supermarkets like Aldi and Lidl. It should be noted that margins in Germany are generally bigger than in The Netherlands, but equal to or smaller than in most other EU countries.

Place This section provides a detailed analysis of the distribution structure of cut flowers in Germany as cited in CBI (2010).

Figure 4: Cut flower distribution in Germany (CBI, 2010) Domestic production Nearly half of German production is directly supplied to wholesalers and large retailers. The Association of German Flower Wholesale Markets (Verband Deutscher Blumengrossmrkte) consists of 14 wholesale markets. Products sold by growers and wholesalers in these markets mainly aim at regional florists.

Imports The major volume of imported cut flowers and foliage is distributed either by German wholesalers or by Netherlands export wholesalers to the retail trade. The major German import wholesalers are large enterprises and are mostly situated near Frankfurt, due to the importance of its airport in the physical distribution of flowers. The airport of Frankfurt has a centre for perishables, where the cut flowers and foliage are held until further transport. In contrast to the increasing scales recognized in other European countries, the average size of German importers has decreased significantly since 2000. In 2008, only 17 of 715 companies importing from The Netherlands had a turnover of over 1 million. Many large importers have gone bankrupt. At the same time, a number of smaller importers started up new businesses.

Wholesale channel The German wholesalers are partly located at traditional wholesale markets, which are spread out amongst almost all the main cities (Hamburg, Berlin, Dsseldorf and Cologne). There are about 1,500 wholesale channels in the flower and plant market, of which 800 are specialized in cut flowers. The predominance of approximately 400 wholesalers in Germany, trading cut flowers and foliage, is noteworthy. They are well organized and well informed and they are mainly focused on imports. Moreover, they are increasingly expanding their services, in cooperation with branch organizations, to include marketing concepts and training for retailers. Consolidation in the German wholesale market is most apparent among these 400 major wholesalers. According to the director of BGI (German association of flower wholesalers and trade importers), approximately 300 large wholesalers will manage around 60% of the trade in the coming years.

When targeting the German market, exporters should seek long-term business relationships with serious and qualified German importer wholesalers. Major wholesalers/importers in Germany are: Florimex Omniflora Landgard Flower Bouquet Services HBI Total wholesale in flowers is worth about 2.1 billion annually. Wholesalers mostly buy from the auction in The Netherlands and from German wholesalers at the wholesale market. The main buyers of flowers from wholesalers are approximately 17,000 florists. Other buyers are grocery shops, supermarkets, street vendors and markets and garden centers. Compared to The Netherlands, only a small percentage of cut flowers produced in Germany are sold via the auction. Nevertheless, because of its increasing role as an auction where international produce is traded, the German auction organization deserves special attention. Landgard, previously NBV-UGA, had a total turnover of flowers and plants of 912 million in 2010 ( 845 million in 2009 and 821 in 2008), of which cut flowers accounted for about 40%. Flower sales increased by 7.5% compared to the previous year. Landgard consists of various auctions spread out over Germany. Cut flowers, however, are mainly sold via Landgards Herongen Flower Auction. More than 800 producers in Germany, The Netherlands and other countries from around the world market their products through Landgards Herongen Flower Auction. Landgards Herongen Flower Auction has its own Import department, which takes care of all customs formalities; it also prepares the products for the auction and for direct marketing. Not only the goods, but also the auction customers are international. Most of them are located in Germany and The Netherlands, but the goods also go to many other European countries, including those in Scandinavia and Eastern Europe.

The Landgard organization has also developed 32 so-called Abholmrkte (cash-andcarry) in Germany, as well as one in Vienna (Austria) and another one in Prague (Czech Republic). This number is expected to increase further. To complement its assortment, Landgard also imports cut flowers and foliage from the main non-European supplying countries. Landgard has set up its own Bouquet Service Division to specifically meet the needs of supermarket chains. The Flower Bouquet Service Division of Landgard sources its products directly from Landgard growers, German and Dutch auctions or direct imports from all over the world. The choice for supplying the German market through Landgard or through Dutch export wholesalers buying at the Dutch auctions should be made using figures from both auctions. The price offered for a specific flower species might be more attractive at Landgard or at one of the Dutch auctions, depending on the composition of the assortment at the auctions.

Retail channels Florists are the most important retail channels in Germany, holding a market share of more than 50%. After a period of pressure on their market share, the share currently seems to slightly be increasing again. The share of supermarkets is increasing only slowly. Other retail channels experienced some decrease in market share. There are some 14,500 florists in Germany. They are the main source of flowers and bouquets which are purchased to give away as presents. The leading organizations in which many florists are organized are Fleurop and Fachverband Deutsche Floristen (FDF). FDF mainly organizes training courses and helps to develop trends in flower arrangements. The role of retail chains (supermarkets, garden centre chains, Do-It-Yourself chains) in the German cut flower market is still relatively modest, representing a market share of about 20%. The leading supermarket chains are Aldi and Edeka. Tengelmann, Lidl, Rewe and Metro also have a significant share in flower sales. The major role of the

supermarkets also relates to the relatively high demand for short stems. Supermarkets often sell small bouquets, with short stems. The German association of flower wholesalers and import traders (BGI) is strongly attempting to support florists as the main distribution channel. German supermarkets have specialized for many years in the sale of low quality mono-bouquets. BGI fears that if supermarkets increase their market share, the general image of flowers in Germany could be damaged in the long term.

Promotion In general, good care should be taken of existing contacts, by using prompt, constant and reliable communication. Letters of inquiry should always be replied to. An essential tool used in sales is a detailed and up-to date customer database. Visiting and/or participating in a trade fair can be an efficient tool for communicating with prospective customers or even trading. The main trade fair of interest for flower and foliage exporters is the IPM in Essen. It can also be an important source of information on market developments, production techniques and interesting varieties. Assistance with market entry can also be sought through local business support organizations, import promotion organizations such as CBI and branch organizations focusing on the horticultural sector. Some of the main trade associations in Germany are as follows. BGI Association of the German Flower Wholesale and Import Trade Fachverband Deutscher Blumisten (FDB) German florists association The main trade fairs in Germany are:

IPM International Plant Show which is held every January or February in Essen, Germany. The show features plants, but also cut flowers and horticultural equipment and is the largest show of its kind in the world. IGW (International Green Week) International exhibition for the food, agricultural, and horticultural industries. IFLO Trade fair for florists Some relevant trade magazines that are used for promotion of cut flower products are as follows. TASPO magazine for production, services and trade in horticulture Deutscher Gartenbau (DEGA) Grner Markt CAMPOS Florist ZVG Gartenbau Report Floristik International

4.3 Government Intervention in the Market place


Legislative requirements Phytosanitary certificate All producers and exporters of plants and plant products (including fruit and vegetables and wood products) and looking for EU market opportunities, have to make sure that the products comply with the EUs phytosanitary (plant health) requirements. Products that do not comply with the phytosanitary requirements will be rejected. The main requirements relate to import restrictions to ensure that certain harmful organisms (pests) will not enter EU territory. Furthermore, cut flowers such as Dianthus, Gypsophila and

Orchidae have to be accompanied by a phytosanitary certificate when placed on the EU market. Plant passport If all is in order, the consignment will be approved and the phytosanitary certificate can be replaced by a plant passport or plant health movement document (PHMD). A PHMD allows the consignment to enter and move through the particular EU Member State. If a plant passport is acquired, the consignment can be moved to another EU Member Sate. Import licenses All plants; live plants, cuttings and including seeds for same are restricted commodities and need approval licenses for entry into Germany (CBI, 2010). International Contracts The German Business Portal states that where contracts of sale are concerned, the contracting parties may agree on the application of the CISG (United Nations Convention on Contracts for the International Sale of Goods) in order to avoid having to make a choice of law. Competition and Antitrust Law As per the German Business Portal business life in Germany is based on the principle of competition, and is monitored by the Federal Cartel Office. The Act Against Unfair Competition prohibits explicitly misleading advertising and governs comparative advertising as well as direct marketing activities.

Export documents The FedEx website outlines that the following documents need to be provided by exporters of cut flowers into Germany. (a) Bills of Lading No special regulations

(b) Certificate of Origin:

For exports to benefit from a preferential tariff, qualifying products need to be accompanied by a "certificate of origin". The certificate of origin is a document certifying the country in which the product was manufactured, and in certain cases may include such information as the local material and labor contents of the product.
(c) Commercial Invoices:

Invoices are required for all dutiable shipments regarding transaction between companies or companies and individuals, regardless of the value. Commercial Invoices should show freight, insurance and similar charges as separate items when applicable, regardless of the INCOTERM used on the transaction. It must be in English or German.
(d) Customs export declaration:

Exporters must declare the export to the customs authorities and be able to produce appropriate customs documents during the transport.
(e) Consular Invoices None (f) Packing list:

It commonly includes an itemized detail of the package contents and does not include customer pricing. It serves to inform all parties, including transport agencies, government authorities, and customers, about the contents of the package.

Tax and Duty VAT The general VAT rate in Germany is 19% but flowers and plants are subject to a lower VAT rate of 7%.

Preferential tariffs Three distinct categories of countries can benefit under the GSP scheme. GSP Developing countries/territories enjoy preferential access to EU markets. Cut flowers are considered as sensitive products and hence countries which fall under this category are subject to a reduced tariff of 3.5 percentage points below the MFN tariff (17%). Flower exporters which enjoy the benefits of this scheme include Kenya, South Africa, China, India, Zimbabwe, Thailand, Malaysia, Iran, Philippines and Brazil. GSP+ (special incentive arrangement for sustainable development and good governance) Countries applying for GSP+ and meeting the necessary criteria get duty-free (zero tariffs) access to the EU market for all 6,400 products covered by the general scheme. When it comes to the main cut flower exporters to Germany; Colombia and Ecuador benefit from the GSP+ scheme. Everything But Arms (EBA) Least developed countries (LDCs) benefit from duty-free and quota-free (DFQF) access to EU markets for all products, except arms and ammunition. Ethiopia and Tanzania are the major cut flower exporters that fall under this category. Note: The GSP+ concession was repealed from Sri Lanka in 2010.

5. Preliminary Marketing Plan


5.1 Marketing Plan
5.1.1 Marketing Objectives

The marketing objectives for planning year 2011 would be as follows.


To grab a 0.5% share of German imports for orchids and carnations

To develop awareness of how consumers can contribute to the environment by using less energy intensive flowers such as carnations.
To popularize the practice of giving flowers as gifts for males. To ensure a reliable and continuous supply of cut flowers, with a delivery lead time of

one week.
Develop strong relationship with importing wholesaler and online retailers such as

Interflora.

Sales forecast for 2011 According to the International Trade Centre the imports of cut flowers by Germany during the period 2006-2010 were as follows. 2006 Volume (tonnes) Value 867,267.98 ( 000s) Table 2: Imports of cut flowers by Germany It is projected that the total German imports of cut flowers in 2011 would be 177,108 tonnes by volume and 901 Mn by value. Out of the total imports Orchids account for 1.1% and Carnations 3% (CBI, 2010). Hence the sales forecast for Shirohana flowers for 2011 can be outlined as follows. Products Orchids Carnations Imports for 2011 1,948 5,313 Expected share 0.5% 0.5% Sales forecast 2011 (tonnes) 9.740 26.565 804,121.17 811,941.17 747,546.60 819,145.62 186,475 2007 168,657 2008 183,680 2009 164,868 2010 170,296

Orchids are usually sold during Spring, Autumn and Winter seasons. Carnations (also known as Dianthus) are usually sold during Summer, Autumn and Winter seasons. It is expected that 90% of the sales will occur during the season and off-season sales would be around 10%.

5.1.2 Product Adaptations / Modifications

Colours Carnations Carnations will be provided in a broad range of colours, each signifying a different meaning. Some of these meanings are listed below.
Pink Carnations: Light red Carnations: Dark red Carnations: White Carnations: Striped Carnations: Green Carnations: Purple Carnations: Yellow Carnations:

Mother's Love Admiration Deep Love and Woman's Affection Pure Love and Good Luck Regret, Refusal St. Patrick's Day Capriciousness Disappointment, Dejection

Orchids Madam Pompadour (Pink and White), and Rena Vapahoo (Pink and White) hybrids of Dendrobium orchids are some of the popular hybrids in the market. Oncidium orchids come in yellow, brown, white, red, pink and a combination of these colors.

Sizes Carnations Carnations are available in three different sizes.


Large flowered Carnations one large flower per stem Spray Carnations (Mini Carnations) with lots of smaller flowers

Dwarf flowered Carnations several small flowers on one stem

Orchids Orchids are available in a variety of sizes with Oncidiums growing to about 3-5 cm.

Certification Clearance certificate by the Forest Department this is mandatory and guarantees that the flowers were nursery grown and not sourced from a wild gathering.
CITES certificate by the Department of Wild Life Conservation stating that the

plant is not an endangered species.


Phytosanitary

certificate all floriculture shipments should accompany a

phytosanitary certificate issued by the Department of Agriculture. Quality and consistency Activities in the production and the post-harvest phase would be constantly scrutinized and improved. Implementation of a proper sorting and grading process for cut flowers.

Packaging The Procona packaging system would be used for the transport of cut flowers. The Procona system consists of a plastic container, a sturdy cardboard collar and a lid with multiple ventilation holes. The flowers are put in water, in the container. The cardboard collar is inserted into the edge of the container and the lid is placed on to the collar. The ventilation holes in the lid ensure a constant supply of fresh cold air to the heads of the flowers during transportation, keeping them fresh and in perfect condition.

The advantages of the Procona packaging system would be as follows.


The quality of the cut flowers is ensured with good, chilled transport (good

ventilation, no condensation on the flowers, in water). One packaging unit can go right through the entire chain (right into the shop). The flowers stand in water no need for further watering or trimming (cost savings) Procona has a higher load factor than all other packing formulas for cut flowers in water (number of stems per pallet or per measure of volume).

Labeling There is no general requirement for labels to indicate the country of origin. However, labeling packages can assist wholesalers and retailers in using proper practices. Hence, the following information would be provided via the shipping label. Common name of the product Net weight Brand name
Name and address of shipper

Country of origin Recommended storage temperature Special handling instructions

Marking There are no special marking requirements. However, according to sound shipping practice, packages should bear the consignees mark, including port made and they should be numbered to identify the contents of the package.

Technology Carnations Carnations are produced entirely from imported planting materials and are graded according to internationally accepted specifications for export. Both American and Mediterranean carnation cultivars are used. Carnations are grown in poly tunnels, covering more than 10 hectares, under fully protected environments.

Orchids Tropical Orchids are grown under warm humid conditions up to 500 metres above sea level. Almost all cultivations are under shade netting and the majority of growers have developed mist irrigation techniques.
5.1.3 Promotion Mix

The main objectives of the proposed promotional campaign are as follows. Create a social trend of providing flowers as gifts for males. Develop awareness amongst German flower consumers of the positive impact on the environment from the use of less energy intensive flowers. Create a unique identity for Sri Lankan cut flowers.
Differentiate Shirohana flowers from other cut flower suppliers.

Increase the off-take of the product in the German market.

The following promotional mix elements are planned in order to achieve the above stated objectives. 1. Trade fairs
(a) Participation at the International Plant Show (IPM) can develop an initial

awareness about Shirohana flowers and its value proposition. Since this is the

largest plant show in the world, it is the ideal place to communicate to a wider audience. (b) Also the IFLO, trade fair for florists, is an ideal opportunity to get to know about and develop relationship with florists in Germany.
2. Trade magazines this is the ideal medium to directly communicate to the target

audience. A brief background on Shirohana flowers would be provided.


(a) Florist is one of the leading magazines for florists in Germany, and is published

monthly. It is expected to communicate about the contribution that consumers can make toward the environment by the use of less energy intensive flowers.
(b) Articles in Womens lifestyle magazines such as;

Emotion (only woman's magazine that looks at the areas of partnership, family, career and personality from a psychological point of view) Brigitte (readers are mainly women between 20 and 49 years, and has accompanied German women through their lives for more than 50 years)

These womens magazines would be used to develop a perception amongst women that flowers are a gift which they can give to males, and what are the types of flowers they can give as gifts.
1. Web/Online use of new age advertising (a) Bloom central is a florists and flower shops web directory in Germany. It is

planned to develop a pop-up banner ad on this website. The advertisement will be on Shirohana flowers, and anyone who clicks on it would be directed to the Shirohana flowers website.
2. Press and PR would be released to correspond with fathers day (21 st May),

friendship day (first Sunday in August) and world environment day (5th June).

3. Seminars a series of seminars would be planned in collaboration with the Sri Lanka

Embassy in Germany to promote positive environmental effects of less energy intensive flowers. 4. Sales promotions
(a) Real a hypermarket operator, and is a member of the German trade and retail

giant Metro AG. Run a trade and consumer promotion where the consumer is qualified for a raffle draw and the retailer is entitled to a 10% discount on sales.
(b) Shirohana flowers online promo all German consumers who purchase flowers

online from the company website would get a 15% discount for mixed bouquets (consumers can select the flowers they want for the bouquet) and a 7.5% discount on mono-bunches.

Promotion Plan for 2011

Jan Trade fairs - IPM - IFLO Trade magazines - Florist - Emotion - Brigitte Web/Online Press and PR Seminars Sales promotions - Shirohana flowers website - Real

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

5.1.4 International Distribution

International distribution explains the movement of goods once they reach Germany, and until they reach the final consumer.

Florists Airline

Freight forwarder

Importing wholesaler Supermarkets

Consumer

It was decided to choose a direct distribution channel rather than go through the auction network due to the following reasons. More personal relationship enables joint product and services development.
Enables focused marketing efforts.

Fixed (month or semi-annual) or more regular prices. Expectation of better prices. Small volumes (specialty products) can be combined to create larger batches. Potential for quality improvement by improving logistics (closing the cold chain) in cooperation with customer.

Freight forwarder The freight forwarding within Germany will be handled by Jet Flowers, the logistics arm of Omniflora. Jet Flowers is a specialist freight forwarder dedicated to the handling of perishable shipments. Jet Flowers Ltd. is the first forwarding agent to be Fairtrade certified by the Fair Trade Labeling Organization. It will be responsible for clearing the goods from the customs.

Once the cut flowers are landed, they are immediately off loaded on to a temperature controlled truck and transported directly to Omniflora. When transporting they have a small soil composition at the bottom of the container in order to maintain moisture.

Importing wholesaler Omniflora is the selected importing wholesaler. Its core business is based on the supply of straight line and mixed bouquets to the wholesale market, bouquet makers and to the major retail multiples in Germany, Austria, Scandinavia, Switzerland and other European countries. Omniflora has developed the fastest and most direct supply chains working with world class partners in production, handling and logistics using modern handling and transportation techniques. Their direct involvement in each step of the process gives them the appropriate balance between control and flexibility in order to meet the wishes of the customers. As Omniflora deals with both florists and supermarket chains it would be appropriate for Shirohana flowers to enter into a 3-year contract, renewable every year. This would help Shirohana flowers to develop a long term relationship and a secure channel for development of its brand and product portfolio.

Florists Shirohana flowers also hopes to develop relationships with some German florists by participating at the IFLO (trade fair for florists) in August. Initially, florists would be catered via Omniflora.

Supermarkets The main strength of supermarkets is the convenience they offer. As a result, supermarkets also tend to concentrate on the impulse and private-use segment. Shirohana

flowers have also negotiated with Omniflora to display its cut flowers at the hypermarket, Real.

Margin structure Trade channel Wholesaler Retailer Activities Quality control, grading, sorting, re- cutting, sleeving, re-packing, transport Sales promotion, customer service Margin 10-30% 85-95% on average

5.1.5 Local Channel of Distribution

Shirohana flowers has its own cut flower nurseries located in the Nuwara Eliya district. The state of the art cut flower project is located at an elevation of over 2000m in the picturesque hill resort of Nuwara Eliya in Sri Lanka where cool, stable temperature, organically rich soils and 12 hour day lengths supplemented with artificial lighting ensures all year round growth. All flowers are grown in Greenhouses, giving the flowers a long vase life and a superb quality that is appreciated by both our wholesale and retail customers. In normal practice flowers are not kept in storage once they are plucked for export and they are immediately loaded onto a temperature controlled lorry and transported directly to the airport. Normal general cargo such as garments, need to be handed over 10 hours prior to flight departure but for perishable such as flowers, the airline will accept the cargo 3 hours prior to take off. So everything happens in a rush and under a very specific time table. Once in the air craft, the flowers will go into a pressurized cabin in the cargo hole, so that the temperature is controlled in the total duration of the flight time in order to keep the flowers fresh.

Freight forwarder The chosen freight forwarder for the transport of cut flowers from Sri Lanka to Germany is E.B. Creasy Logistics Limited and the services it offers are as follows. Pre Move survey and estimating
Providing necessary packing materials and packing for full export standard Listing and numbering all packages and preparing detailed inventories

Pick up of goods from residence


Loading into containers, liftvans and airvans Removal of debris from residence, when resulting from packing Completion of export clearance Delivery upto exit terminal Port/Airport

E.B. Creasy is responsible for the collection of cut flowers from the Shirohana greenhouse in Nuwara Eliya, distribution to the Bandaranaike International Airport in Sri Lanka, and upto the exit terminal at the Frankfurt airport in Germany where the goods would be cleared by Jet Flowers. E.B. Creasy (freight forwarder) Bandaranaike International Airport Sri Lankan Airlines Jet Flowers (freight forwarder)
5.1.6 Price Determination

Shirohana greenhouse

Frankfurt Airport

The brand will adopt a competitive pricing strategy in order to match competitors prices whilst differentiating through marketing-mix incentives.

Price negotiations with Omniflora would be based on Landgard auction prices. The top down export pricing model would be employed for the pricing of cut flowers. The price estimation of cut flower exports by Shirohana are as follows.

Costing Schedule
Price elements Market price Deduct VAT @ 7% Consumer Price per stem Excluding VAT Deduct retail margin of 90% Retailers Buying Price per stem Importers Buy Price per stem (Deduct Importers margin of 30% + Clearance & Warehouse Allowance of 3% + Advertising & Promotion Allowance of 5% = total of 38%) Deduct Duty (12% of CIF ) CIF per stem Deduct Freight Deduct Insurance FOB per stem () Convert to SLR (1 = Rs. 158.185816) *Note: All figures are based on per stem Carnations 2.20 0.14 2.06 1.85 0.21 0.15 0.02 0.13 0.03 0.01 0.09 14.72 Orchids 3.25 0.21 3.04 2.73 0.30 0.22 0.02 0.20 0.03 0.01 0.16 25.23

There are 40 stems per kg of Orchids and 35 stems per kg of Carnations.

5.1.7 Terms of Sale

When selling directly via European importers, the use of written contracts is not a widespread practice. Particularly in established trade relationships, importers prefer to work with open accounts on a trust base without written contracts, arguing that it is not efficient to put a contract together each time a deal is made. However, in the case of a conflict with the importer, communication via e-mail, fax or even by telephone, would function as a contract.

The terms of sale between Shirohana flowers and Omniflora would be Free On Board (FOB). The responsibilities of Shirohana and Omniflora during the export of cut flowers would be as follows. Activities Warehouse Storage Warehouse Labor Export Packing Loading Charges Inland Freight Terminal Charges Forwarders Fees Loading On Vessel Air Freight Charges On Arrival At Destination Duty, Taxes & Customs Clearance Delivery To Destination Responsibility Shirohana Shirohana Shirohana Shirohana Shirohana Shirohana Omniflora Shirohana Omniflora Omniflora Omniflora Omniflora

FOB (Bandaranaike International Airport) means that the price quoted for Omniflora includes all expenses that have to be incurred by the company from its greenhouse upto the placement of goods at the airport. In this situation Shirohana will have to bear the risk for any damage to the goods until the goods are placed on the plane. Once the goods are loaded the risk for any damage to the goods would be borne by Omniflora. In particular, the expenses to be borne by Omniflora include; Insurance charges Air freight charges
Import duty duty is based on the cost of insurance and freight value (the third

country duty on cut flowers is 12% in Germany)


VAT is payable on the sum of the cost, insurance, freight value plus the duty

amount payable (cut flowers are subject to a reduced rate of 7% in Germany)

5.1.8 Method of Payment

Because of the possible complications and costs, letters of credit (L/C) are often avoided in the cut flower trade. When using L/C, risks are divided between buyer and supplier. The supplier only receives payment after goods are consigned to a carrier and the buyer only receives the goods after payment. The commonly used methods of payment in the cut flower industry are Cash in Advance and Open Account. Shirohana will initially transact with Omniflora on a cash in advance basis when the initial export volumes are low in order to avoid possible liquidity concerns. A wire transfer is commonly used and has the advantage of being almost immediate. As export volumes increase and the relationship with the buyer improves Omniflora will offer its products on an open account basis. With an open account, the exporter simply bills the customer, who is expected to pay under agreed terms at a future date. It is expected to provide 30 days credit for any shipment of cut flowers on an open account basis.

5.2 Pro-Forma Financial Statements & Budget


5.2.1 Marketing Budget

The marketing budget comprises of 3 key elements. Advertising Promotions New age media Promotional element Advertising - Trade magazines - Lifestyle magazines 100 1,700 Budget ()

- Press

150

Promotions - Trade fairs - Seminars - Sales promotions Promotional material Posters Screen Printed Material Tinplates, Stand Boards, Racks Danglers New year calendars Promotional fee to Omniflora (to be passed onto florists and supermarkets) 20 30 50 10 40 3,650 50 100

New age media - Website promotions 400

Total Media Cost

6,300

5.2.2 Pro Forma Annual Profit & Loss Statement

The expected profit and loss from the international operation would be as follows. Profit and Loss Statement for the year ended 31st December 2011 Products Orchids Carnations (in s) Total

Sales volume (kgs) No. of stems per kg Total sale of stems FOB price per stem Sales revenue Cost of Sales Gross profit Salaries and administration Finance charges Distribution and Logistics cost Depreciation Marketing expenses Profit before tax Taxation @ 30% Net profit

9,740 40 389,600 0.16 62,336

26,565 35 929,775 0.09 83,680 146,016 102,211 43,805 33,420 438 584 790 6,300 2,273 682 1,591

The initial net profit expected during the first year of operation is 1,591 (or approximately Rs. 250,000).

5.3 Resource Requirements


5.3.1 Financial Resources

The company needs to incur a cost of Rs. 1,500,000 on the construction of the greenhouse. Shirohana also needs to purchase raw materials for the first batch of cut flowers. It is estimated that the initial working capital cost would be as follows:

Material cost: 100,000 stems*Rs. 10 per stem = Rs. 1,000,000 It is proposed that Shirohana opts for an overdraft facility of Rs. 2,500,000 for this purpose.

5.3.2 Human Resources

The Shirohana farm in Nuwara Eliya currently employs 350 workers. The commencing of the international operation would give rise to the following human resource requirements. Grade Production employees International Operations Manager Production supervisor Quality controller Marketing Assistants No. 20 1 1 1 3 Average monthly salary Rs. 10,000 Rs. 75,000 Rs. 35,000 Rs. 45,000 Rs. 25,000 Labour cost Rs. 2,400,000 Rs. 900,000 Rs. 420,000 Rs. 540,000 Rs. 900,000

Note: Part of the existing workforce can be re-assigned to the new greenhouse Therefore, the total additional human resource cost amounts to Rs. 5,160,000.

5.3.3 Production Capacity

Current annual production = 500,000 stems (including 50,000 stems in orchids and 120,000 stems in carnations) Maximum production capacity = 1,000,000 stems Additional production capacity required for export: Product Expected No of stems Expected

sale (kgs) Orchids Carnations 9,740 26,565

per kg 40 35

sale in stems 389,600 929,775

Shortfall in production capacity = (389,600 + 929,775) (1,000,000 500,000) = 819,375 Thus, there is a shortfall in production capacity of 819,375 stems. Shirohana will need to set up a new greenhouse to cater to this shortfall. This new greenhouse will enable it to cater to the flower demand created by its expansion both domestically and locally. Additional investment required for new greenhouse = Rs. 1,500,000

5.4 Implementation and Control


The responsibility for the implementation of the plan would lie with the International Operations Manager. He is expected to develop a monthly presentation on performance to the Managing Director. In addition, a quarterly performance review will be held to look into target achievement, identify constraints and other matters concerning the operation. Reasons for deviations from targeted performance will be thoroughly discussed and remedial actions taken immediately. Further, the International Operations Manager is responsible for reviewing the business relationship maintained with Omniflora.

6.0 Sources of information


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