Challenges for the floriculture industry in a developing country: a South African perspective

Abstract

The increasing numbers of global floriculture producers, and changes in the basis of competition in this international industry, make it important to evaluate the South African floriculture industry's competitive position. The industry employs more than 17 500 people and provides opportunities for rural employment. This article assesses the challenges facing the South African floriculture industry in the competitive global market, using a framework based on global value chain (GVC) and global commodity chain (GCC) analyses. An empirical study showed that the industry is insufficiently competitive and does not participate to its full potential in the global market. It is recommended that floriculture producers shift their focus from the domestic to the international market, as the domestic market is becoming saturated and its turnover is small. However, as enhancing the industry's competitiveness is a complex endeavour, the industry first needs to address the weaknesses identified.

1. INTRODUCTION

The global floriculture industry is constantly changing, largely as a result of globalisation. Before the 1970s, most of the world's floriculture consumption was supplied by domestic production. Countries tended to trade floriculture products with their neighbours. Now technological advances in the form of frequent, reliable air transport and improved receiving, handling and shipping facilities have expanded markets and made it possible for countries to trade these products all over the world (USITC, 2003: 29, 37). This has resulted in a decline in domestic production and an increase in global imports of floriculture products. The effect of the accelerated international trade in these products was that demand exceeded supply in the global markets during the 1970s and 1980s. During these periods, Africa and Latin America shifted their focus from agriculture to higher-value horticultural production and so developed their floriculture production and their export capabilities (De Groot, 1998; USITC, 2003: 29). During the 1990s international floriculture production continued to increase, as more countries entered the international floriculture market. Demand, however, stabilised or increased only marginally in the main consumption markets (e.g. Germany and France) (USITC, 2003: 29, 37). As a result, world production of floriculture products (especially of cut flowers such as roses) surpassed demand and caused a steep decline in prices (De Groot, 1998; Thoen et al., 2000: 5; USITC, 2003: 29). All these factors contribute to an extremely competitive environment in the current floriculture markets (USITC, 2003: 29, 37).

The South African floriculture industry has become competitive in the international market since the country's trade liberalisation in 1994. The value of floriculture exports increased from R77 million in 1995 (Lourens, 2003) to R269 million in 2002 (Lourens, 2004). The South African floriculture industry is estimated to employ more than 17 500 people and provides more specific opportunities for rural employment than any other agricultural sector (The Kaiser Study, 2000). It also has more attractive employment ratios than other agricultural and mining activities (Eckert et al., cited in Van Rooyen & Van Rooyen, 1998). If the South African floriculture industry can succeed in increasing its exports, it will enhance foreign exchange inflows and create employment opportunities.

By evaluating the competitiveness of the South African floriculture industry, this article investigates the challenges it faces in the competitive global market. Section 2 provides an overview of the global floriculture industry and South Africa's position in it. Section 3 discusses the framework for the analysis of competitiveness, which consists of the global value chain (GVC) and global commodity chain (GCC) analyses. Section 4 provides a brief description of the method of research followed, and presents and interprets the data within this framework. Section 5 contains the discussion and Section 6 the conclusion.

2. THE INTERNATIONAL AND LOCAL FLORICULTURE INDUSTRIES

2.1 The international floriculture industry

The global floriculture industry has many active participants on all continents. World exports and imports of floriculture products both exceed US$9 billion. Europe is the largest importer and exporter of floriculture products (Van Liemt, 1999: 7; ITC, 2004; Pathfast Publishing, 2004). Table 1 shows the major floriculture producers and exporters in the world and the value of their exports, and Table 2 shows the value and volume of imports of floriculture products into the European Union.

Table 1: The top ten world floriculture exporters in 2002 ($000)

Country	Total
Netherlands	4 350 353
Colombia	551 218
Italy	546 448
Denmark	527 271
Belgium	353 620
Germany	296 638
Kenya	238 018
USA	236 682
Canada	214 900
France	214 288
Total	9 012 352
Source: Pathfast Publishing (2004).

Table 2: Imports of cut flowers and foliage into the EU, 1999–2001 (euro thousand/tonnes)

	1999		2000		2001
	Value	Volume	Value	Volume	Value	Volume
Intra EU	2 213 837	522 057	2 378 915	476 991	2 295 818	436 823
Extra EU	582 580	178 439	689 555	169 296	713 523	66 797
Developing countries	455 047	138 912	533 254	125 911	574 905	131 612
Total	2 796 417	700 496	3 068 470	646 287	3 009 341	603 620
Source: CBI (2003a).

From Tables 1 and 2 it is clear that developing countries, with the exception of Kenya, are not among the top floriculture producers in the world. Developing countries, especially in sub-Saharan Africa, have been focusing mainly on horticultural products, but the value of their floriculture products imported into the European Union (EU) has been steadily increasing (CBI, 2003a). Growth in floriculture production and exports in these regions is one of the most significant cases of non-traditional export development during the past two decades (Thoen et al., 2000: 2). However, developing countries compete against their developed world counterparts in terms of cost factors. They have, for instance, an abundance of cheap labour and land (De Groot, 1998). Unfortunately, they struggle to compete in terms of non-cost factors such as cultivating new varieties, image and prolonged shelf-life of the floriculture products. They also have to comply with several tariff (e.g. import duties) and non-tariff (e.g. health and safety regulations) barriers set by the various developed countries (CBI, 2003a,b).

Competition in the global floriculture industry can be described as being in a constant state of flux, largely because of market trends. Trends are the result of fashion and are the reason for some floriculture products being more popular than others, resulting in fluctuations in both the demand for certain varieties and the prices (Flower Council of Holland, 2004). In other words, trends determine the segmentation of consumers and their consumption patterns. Current market information on trends forms the link between consumers' demands and the producers' supply (CBI, 2003a,b).

The international trade structure of floriculture products is evolving as new distribution channels emerge. For example, the products are no longer only distributed via one of the auctions but increasingly sold directly to buyers (e.g. supermarkets). These buyers, especially supermarkets, are increasing their market share in the sales of these products (CBI, 2003a). According to Hughes (2000), retailers influence the developing country floriculture exporters that form part of their networks, because retailers can adapt their networks and control the knowledge therein.

2.2 The South African floriculture industry

The local flower industry developed with the establishment of the local flower auction (Multiflora) in 1945 (Multiflora, 2004). A few large producers who supplied only the local market have been dominating the South African floriculture industry ever since. Exports were confined to indigenous products such as the protea. However, since the lifting of economic sanctions against South Africa, new export-oriented growers have emerged (Malter et al., 1999: 44–47). South Africa has many advantages for floriculture, such as infrastructure, climate and inputs. Unfortunately, the industry is also characterised by high labour costs, expensive plant material, lack of market information, a poor knowledge base and secrecy within the industry (Van Rooyen & Van Rooyen, 1998).

South Africa has maintained the 21st position in the index of world floriculture exporters for three years (2000–2002) (Pathfast Publishing, 2004). The value of its floriculture industry has grown from $38 355 million in 1998 to $38 649 million in 2002 (Pathfast Publishing, 2004). However, the value of floriculture exports decreased by 7.3 per cent from 2002 to 2003 (Jappie, cited in Gerber, 2005). South Africa currently exports cut flowers, plants, foliage and bulbs daily across the world by air. Cut flowers account for approximately 60 per cent of floral exports, foliage 20 per cent, bulbs 17 per cent and plants 3 per cent (Nofal, 2001). The major markets for South Africa's floriculture products are Europe (65 per cent), the United States (9 per cent) and Asia (5.2 per cent) (Van Rooyen, 2005).

South Africa's floriculture market share is 0.44 per cent of the total world import market (The Kaiser Study, 2000: 15). However, this is only a fraction of its true potential. One of the main reasons for the low share in world exports is the large domestic market, which discourages some exporters from directing their efforts towards exporting (Malter et al., 1999: 44; De Bruin, cited in Van Zyl, 2002: 41). Other important reasons include problems with delivery capabilities and products supplied to the world market not meeting international quality standards (The Kaiser Study, 2000; De Looze, 2003; Bredenkamp, cited in Van Rooyen, 2005).

The Netherlands is regarded as the centre of the world floriculture trade, and the Dutch Floriculture Wholesale Board, a well-known organisation in this industry, communicated their view of the South African floriculture industry to the authors. They generally consider it to be lagging behind its African counterparts in production capacity. Examples include the primitive set-up of greenhouses, the low levels of investment in the industry and the inappropriate varieties that are being produced. The Board believes that the South African floriculture industry's main problem is its focus, which is on the large domestic market and not the international one. This focus will make things difficult for the industry, as the local market is slowly becoming saturated and its turnover is small compared to the international turnover. For the industry to survive, exports will have to increase (personal communication, Mr J Lanning, Senior Consultant, International Trade Affairs, Dutch Floriculture Wholesale Board, Aalsmeer, the Netherlands, 3 March 2004).

South Africa struggles to compete against its African counterparts (e.g. Kenya and Zimbabwe) in terms of cost factors, as these African countries have advantages in, for example, export volumes and cheap labour (Van Straten-Botha, 1999: 51; Van Zyl, 2002: 41). Kenya's market share of world exports is 2.6 per cent, which is significantly higher than South Africa's share (Van Rooyen, 2005).

South African producers need to develop a competitive advantage by focusing on non-cost factors (e.g. quality) and to compete in innovative value chain aspects (i.e. products, production, packaging, logistics, marketing, sales and markets) (The Kaiser Study, 2000: 10). The South African floriculture industry can add value to its production through commitment to exporting and by being reliable suppliers of consistent quality products. A supporting environment needs to be established, to help exporters supply high quality and innovative products to opportunity markets (The Kaiser Study, 2000: 17). (Although South African floriculture can significantly increase its market share of world exports through addressing some of the issues outlined in this article, this is not to say that the country will easily be able to outperform established competitors such as Kenya and Zimbabwe over the short and medium term.)

It is clear that the potential of floriculture producing countries, such as South Africa, can be developed if these countries' industries position themselves in new markets and so become integrated into new and profitable chains.

3. A FRAMEWORK FOR MEASURING GLOBAL COMPETITIVENESS

As globalisation accelerates international trade, producers must be seen in a global context, since taking part in international trade automatically links them with other producers. The participants in international trade also face more challenges brought on by global competition (Kaplinsky & Morris, 2001). Two analytical methods, the global commodity chain (GCC) and global value chain (GVC) analyses, have been used in this study to determine the international dimension of the producers' activities. Although these analyses are similar, their focuses differ: the GCC approach focuses mainly on the governance structures in the chain and the influence of leading producers on the participants in the chain, while the GVC approach focuses more on the relative value aspects of the production processes, distribution and consumption.

These analyses are useful as they identify possibilities for producers to upgrade their activities in the chain or to move into chains that are more profitable. They also identify the role players in the chain and the factors that influence the chain and determine the distribution of income (IDS, 2002: 1–2). This is especially important for producers in developing countries, since they face global competition but usually participate at the lower end of the chain where there are low value-added activities (Dolan et al., 1999; Dolan & Humphrey, 2000).

3.1 Global commodity chain (GCC) analysis

Gereffi (1999a: 38) defines the term ‘global commodity chain’ as the ‘whole range of activities involved in the design, production and marketing’ of the product in both a national and international environment. A GCC can therefore be described as a network with global linkages of transactions that incorporates all aspects of the international and national environments. This network comprises all the facets of production and is continually concerned with adding value to the product. Gereffi (1994) developed the GCC concept to analyse the effect of globalisation through the activities of global industries, which influence both producers and workers (Bair & Gereffi, 2001). Gereffi (1994, 1999b), Raikes et al. (2000), Gibbon (2001) and Porras (2003) identified the four core elements of the GCC approach. The first is input–output structure, which identifies the types of products, processes and actors involved in the production activities. The second is geographical coverage (i.e. the territory covered), which describes the spatial dispersion or concentration of the specific industry, the sizes of the producers and the distribution networks. The third is governance structures, which identifies the authority and power relationships that determine how financial, material and human resources are dispersed and distributed in a chain. The final element is institutional framework. Here the focus is on information and market access. This explains the conditions under which control of market access and information are exercised on a global level; in other words, how small producers, via their buyers, gain indirect access to markets, knowledge and technologies at a lower cost.

The GCC framework identifies two governance structures: a chain can be either producer-driven or buyer-driven. However, these two structures are inadequate for describing certain industries (e.g. the electronics industry). Gereffi et al. (2003) therefore developed five basic types of chain governance, which form part of the GVC approach (see Section 3.2).

Another important aspect of the GCC approach is upgrading, i.e. the ways by which a producer or firm improves its position in the global industry to enhance its competitiveness (Sverrisson, 2004). Upgrading can be conducted on various levels: product, process, intrachain and interchain (Gereffi, 1999b).

3.2 Global value chain (GVC) analysis

GVC analysis has been developed to explain how firms and countries in an international setting are linked and integrated (Kaplinsky & Morris, 2001: 2). Kaplinsky and Morris describe the value chain as ‘the full range of activities that are required to develop a product or service from conception, through the various phases of production, delivery to the final consumers, and final disposal after use’ (2001: 4).

Kaplinsky (2000a,b) and Kaplinsky and Morris (2001) describe the three fundamental elements of the GVC approach. The first is barriers to entry. These determine the distribution of profit. A decrease in barriers to entry leads to an increase in the number of global producers, which causes competition to increase and results in lower profits. Consequently, economic rent (or profit) is lower. Global producers must continually seek new forms of rent in order to gain both a competitive advantage and economic rent. One such method may be to innovate (i.e. add value to their products and operations). Producers need to innovate continually in order to remain competitive. However, a producer needs to innovate faster than its competitors, otherwise the innovation will mean little (Kaplinsky & Morris, 2001: 37).

The second element is governance. This involves the authorities who influence the participants in the chain and are responsible for coordinating and regulating the various activities performed in developing a product, from a product's conception to its consumption. Value chains are governed when parameters are set on products, processes and logistics. Gereffi et al. (2003: 5) have developed five types of governance, as an extension of the producer-driven and buyer-driven chains identified in the GCC approach. These are:

• Markets. Market linkages may persist over time (i.e. they do not have to be short term). This type of chain is characterised by business partners conducting repeat transactions where the costs of moving to new business partners are low for both parties.

• Modular value chains. This type of chain is characterised by consumers demanding products from suppliers to satisfy their specific needs. These specifications may be either simple or complex.

• Relational value chains. In this type of chain, buyers and sellers are dependent on each other in their business transactions, as the transactions are complex. The parties in the chain tend to invest in the operations to ensure that the transactions are completed.

• Captive value chains. In this type of chain, there is a high level of dependency by small suppliers on large buyers. These suppliers do not often change business partners, as they incur high costs when doing so. The leading firm (or buyers) usually exert a high degree of monitoring and control over the suppliers.

• Hierarchy. The hierarchy chain is one in which firms are vertically integrated into each other. Usually there is a leading firm (or headquarters) that controls the operations and whose decisions are executed by the subsidiaries.

The third element is systemic efficiency, which involves the ability of a governing party in a value chain to improve its competitiveness by improving the efficiency of individual links in the chain. However, this has become difficult as the links in value chains have become much more numerous. It is here that systemic integration plays a role. This means that the governing link in a chain ensures that there is close cooperation and trust between the other links in the chain and helps those in developing countries to upgrade. Since these are now global chains, governing links have a greater degree of responsibility. The ultimate objective is to increase the efficiency of the chain.

Intertwined with these elements is the continuous process of upgrading. By increasing value-added activities, countries become more successfully integrated into the global arena, which leads to an increase in the country's economic activities, higher levels of exports and the attraction of foreign direct investment. Ultimately, the country's competitive position improves, as its enterprises are a country's only source of value creation (Garelli, 2003: 702).

4. EMPIRICAL RESEARCH

4.1 Background and method of research

The GCC and GVC analyses have been used in numerous studies. In each case, they were applied to specific sectors, such as the global tourism industry (Clancy, 1998), the garment industry in Singapore (Van Grunsven & Smakman, 2001, 2002), the global food and agro-industries (Hamann, 2001) and the African horticulture industry in Kenya and Zimbabwe (Dolan et al., 1999; Dolan & Humphrey, 2000). Several studies have been conducted on South African industries, for example the wooden furniture industry (Kaplinsky et al., 2003) and the clothing sector (Gibbon, 2002). However, no such study has been conducted on the South African floriculture export industry.

The aim of the empirical research for this study was to develop a profile of the South African floriculture producers' international competitiveness. This research differs from the studies mentioned above, as the aim was to evaluate the data collected on the position of South Africa's floriculture industry in terms of each of the elements of both the GCC and GVC analyses. This was to identify the variables in these chains which influence the ultimate competitiveness of the exporters.

To collect data, 56 mail-based questionnaires were sent out to exporters in the industry, whose business and contact details had been obtained from the 2002 South African Flower Export Council membership list. Owing to several problems with producers who no longer produced, or incorrect addresses on the list, the sample was reduced to 49 and of these 29 were returned, representing a 59 per cent response rate, which can be considered high for a mail-based questionnaire. The questions in the questionnaire each represented one or more of the elements of the GCC and GVC analyses. There were five sections: firm profile and production (geographical and demographical aspects), markets (export activities), distribution (distribution channel structures), innovation (positions on competitiveness) and governance (governance structures). Two sections of the questionnaire, each containing related questions, were tested with the Cronbach alpha coefficient (SAS Institute Inc., 2002–2003). The larger the overall alpha coefficient, the more likely those items were to contribute to a reliable scale. Nannally (cited in the SAS manual, SAS Institute Inc., 1999) suggests 0.70 as an acceptable reliability coefficient. Smaller reliability coefficients are regarded as inadequate (SAS Institute Inc., 1999). The Cronbach alpha coefficient for the sections was 0.83 and 0.67, respectively. This indicates that the respondents understood the questions correctly.

4.2 Findings

The questionnaire asked for information about the respondents' international experience, as it is important to understand their current position in the international market. More than a quarter of the respondents are new to the international scene, as 38 per cent have been exporting for less than five years. The majority of the respondents (62 per cent) export less than 25 per cent of their total sales. Most of the respondents (55 per cent) export on an occasional basis and not throughout the year.

The following section discusses the empirical data and interprets it in terms of the elements of the GCC and GVC analyses, as explained in Sections 3.1 and 3.2.

4.2.1 GCC analysis

4.2.1.1 Input–output structure

It was found that most of the respondents (69 per cent) use greenhouses, while 52 per cent use open fields and 38 per cent shaded fields. According to the Kaiser Study (2000), greenhouses require more capital expenditure and infrastructure than the other production methods. This implies that the South African floriculture producers incur large production costs, which may detract from their price competitiveness. However, greenhouses enable a higher turnover rate in cultivation and harvesting than any other production method (The Kaiser Study, 2000). The empirical data showed that the majority of the respondents (83 per cent) produce cut flowers, which represent the greatest volume demand worldwide (The Kaiser Study, 2000). However, the demand for cut flowers is volatile as consumers' demands change frequently, which might make certain varieties uncompetitive, and other African countries are able to produce them more cost-effectively than South Africa. The Kaiser Study (2000) suggests that the South African producers need to focus more on indigenous products such as fynbos and foliage. [Floriculture products include foliage and flowers. Fynbos is a type of floriculture product that resembles foliage. Fynbos is a term covering plants indigenous to the Western Cape and consisting of bushes similar to heaths with hard leaves (Encarta Dictionary, 2006).] Fynbos is, however, grown only in the Cape. De Bruin (cited in Poggiolini, 2001) suggests that research and development is needed to find varieties of fynbos that will grow in the other provinces. This will ultimately enhance the industry's competitiveness. Another problem is that most of the respondents do not produce foliage (only 24 per cent do) and this lowers their competitiveness.

4.2.1.2 Geographical coverage

The empirical data showed that of the 29 who responded to the questionnaire, 19 (66 per cent) are located in Gauteng, four (14 per cent) in Mpumalanga, two (6 per cent) in Limpopo, two (6 per cent) in the Western Cape, one (3 per cent) in the Eastern Cape and three (10 per cent) in the North West Province (one of the respondents has floriculture farms in three provinces). No responses were received from producers in the Free State, KwaZulu-Natal or the Northern Cape.

The large number located in Gauteng enhances the industry's competitiveness, because these producers are close to the largest international airport in South Africa and are therefore able to export their perishable products quickly and deliver them in good condition. Being located near the airport also saves storage and cooling costs. The empirical data also provided the size distribution of the floriculture farms in South Africa. The sizes of the exporters' farms vary, but almost half the respondents (41 per cent) said their farms are between five and 25 ha. This indicates that the volumes of floriculture production are not nearly sufficient compared with those of other developing countries. For example, a typical producer in Kenya has 60 ha of land under cultivation and, as a result, the production volume is sufficient to fill a partition of airfreight space twice a week (De Bruin, cited in Poggiolini, 2001; Van Zyl, 2002).

4.2.1.3 Governance structures

One such regulating agency in the global floriculture market consists of the various international (mainly European) bodies that implement programmes that encourage, for example, quality, protection of the environment, and the health and safety of the employees on the farms (Van Liemt, 1999; CBI, 2003a,b). In the Kaiser Study (2000), South African floriculture producers are urged to participate in such programmes, as failure to attend to these matters is becoming a significant trade barrier. The present study revealed that the majority of the respondents, 21 (72 per cent), do not participate in any such programmes. This reduces their competitiveness, since participating in these programmes may serve as a competitive advantage. Many buyers prefer to buy from producers registered with such programmes, as the demand for environmentally sound products is increasing (CBI, 2003b).

Other parties that influence the floriculture producers are the buyers in their distribution networks. They influence them through their requirements: 17 of the respondents (59 per cent) say they are excluded from their distribution network if their products are inferior. This indicates that they are aware that their products sometimes do not meet international quality standards (Nofal, 2001; De Looze, 2003). It seems, however, that they are improving their competitive positions by ensuring that their quality measures up to these standards.

4.2.1.4 Institutional framework

Understanding the information practices of the South African floriculture industry can contribute to improving its competitiveness profile. Current market information is vital for any floriculture exporter, as it provides insight into the products and varieties in demand, consumption patterns, prices and marketing strategies. In other words, it conveys the continually changing wants and needs of the consumers (i.e. the trends). The industry has been experiencing problems in this area (Van Rooyen, 1998). The majority of respondents (71 per cent) view current market information as essential for their competitiveness. The respondents rarely use only one method for obtaining market information; 21 of them (72 per cent) use electronic databases as one of their methods. According to Van Rooyen (1998), South African floriculture exporters receive inadequate market information and do not ascertain consumer preferences. However, 15 of the respondents (52 per cent) use their information proactively by adjusting their production to market trends, which keeps them in line with their competitors. Examples of this include following fashionable colours and supplying the varieties that are in demand, changing the mixture of colours grown, cultivating more resilient varieties, catering for St Valentine's Day, producing a wide selection of varieties and colours and changing the colour, bud size and length of the products.

The institutional framework element also gave insight into the ways by which the exporters gain access to international markets. Fourteen of the respondents (48 per cent) gain access to their export destinations through personal visits. This is beneficial for their competitiveness, as they gain first-hand experience of the conditions in their markets.

4.2.1.5 Upgrading

Because there are many competitors in the floriculture industry, competition is based on non-price factors such as quality and innovation and not on direct production factors (e.g. costs), as already discussed in Section 2. Floriculture producers therefore need to differentiate themselves from other producers to gain a competitive advantage and achieve a sustainable income, and upgrading is one way they can do this. The way they differentiate themselves from the fierce competition will determine whether they will be able to compete successfully. Table 3 shows the respondents' perceptions of where their competitive advantages lie. Some of the respondents feel that they have a competitive advantage in more than one area (i.e. in their production processes, products, organisational functions or in their distribution channel). Seventeen respondents feel that their competitive advantage is manifested in the products they supply.

Table 3: The respondents' perception of their competitive advantages

Competitive advantage in terms of:	No. and %
Production processes	4	14%
Products	17	59%
Organisational functions	10	34%
Distribution channel	6	21%
Note: 29 respondents, approximate percentages (some of the respondents chose more than one option).

It was also found that 16 of the respondents (55 per cent) do not upgrade their products (i.e. differentiate or add value to them). Those who do improve their brand name or quality. However, some 15 respondents (52 per cent) add value to their processes or activities. For example, they pack their products according to their customers' requirements and develop their own patented packaging methods. Unfortunately, South African floriculture exporters are still far behind their developing-country counterparts in terms of competitiveness (Poggiolini, 2001). Upgrading all products and processes needs to be both a priority and a continuing process.

4.2.2 GVC analysis

4.2.2.1 Barriers to entry

Innovation is an important way a producer can differentiate itself and become profitable in a market such as the global floriculture industry, which has numerous participants producing similar products and where countries that gain the edge through rapid innovations are the most effective competitors (De Groot, 1998). South African producers can improve their competitive positions by being more innovative. In recent years, the emphasis has fallen on innovation in this industry, as several trends have developed in the demand for and marketing of floriculture products, especially cut flowers. According to Thoen et al. (2000: 5), one such trend is product diversification within the market in response to consumer demand for greater variety. Consumers demand a wider range of flower varieties, scents and colours, so new varieties are added to the market every year and receive a higher price than those that have been traded commercially for some time. For example, in 1996 a new rose variety ‘Black Beauty’ fetched a price ten times higher than ‘Garnette’, which had been traded on the market for a long time (Van Liemt, 1999: 18).

De Groot (1998) found that African floriculture-producing countries do not innovate (create new products). The empirical data of this study shows that 20 of the respondents (69 per cent) regard innovation as a crucial aspect of their industry's competitiveness. Only 12 (41 per cent) are of the opinion that they are innovative in their operations. Innovation is crucial to being competitive and can be achieved through proactive research and development. The Compact Oxford English Dictionary (2005) defines research and development as ‘work directed towards innovation in and improvement of products and processes’. If the South African floriculture industry is to enhance its competitiveness in the export market, it needs to engage in research and development activities on an ongoing basis. The empirical data suggest that the respondents believe research and development is important for their industry. Nearly half the respondents (41 per cent) undertake research and development activities to some extent in their own firms, and more than half (52 per cent) conduct research into their competitors' operations and products (i.e. they gain some form of competitive intelligence). This information may help them in their research and development operations.

4.2.2.2 Governance

This is an important aspect of competitiveness, as the governing party influences all the exporters' activities, from production to final sales, helping them gain access to markets and acquire production capabilities, and providing technical assistance. Two methods were used in this study to determine what type of governance exists in South African floriculture and whether it is effective.

The first method was based on the work of Kaplinsky and Morris (2001). These authors state that value chains are governed when parameters are set for types of products, production processes and logistics. Questions were asked to determine who governs these parameters in the floriculture market: the market, the parties involved in the distribution channel, or the respondents themselves. The questions and the responses were as follows. The first question asked who or what determines the type of products that the respondents produce. Here 48 per cent said they were determined by the market, 45 per cent said they were determined by the respondents themselves and only 14 per cent said they were determined by the distribution channel. The second question asked who or what determines the type of processes that the respondents use in production. Here most (79 per cent) said processes were determined by the respondents themselves, while 28 per cent said they were determined by the parties in their distribution channel, and only 7 per cent said they were determined by the market. The third question asked who or what determines the logistical arrangements (e.g. how much and when to export), and here 41 per cent said they were determined by the market, 45 per cent said they were determined by the parties in the respondents' distribution channels and 34 per cent said they were determined by the respondents themselves.

These results are shown in Table 4. They suggest that there is no clear indication of who or what the governing party may be. The market does have a large influence on the exporters' product and logistical arrangements, which indicates that the respondents are coordinated with the market. The respondents' logistical arrangements are coordinated with the parties in their distribution channel, which ensures that their products are delivered on time. However, the respondents are fairly independent in their decision-making. This may hamper their competitiveness, as their products and processes may be out of line with the requirements of the market and the parties in their distribution channels.

Table 4: Governance parameters

Parameters	Market		Parties involved in your distribution channel		You determine it yourself
Who or what determines the type of products that you produce?	14	48%	4	14%	13	45%
Who or what determines the type of processes that you use in production?	2	7%	8	28%	23	79%
Who or what determines the logistical arrangements (how much and when to export)?	12	41%	13	45%	10	34%
Note: 29 respondents, approximate percentages (some of the respondents chose more than one option).

The second method of determining governance was based on the work of Gereffi et al. (2003), who developed five types of governance chains (see Section 3.1). A series of questions about types of governance provided the empirical data (see Table 5). Each question asked about a type of governance. Question 1, related to market governance, asked whether respondents export to the same party repeatedly. Most said they do, i.e. all of the time (40 per cent) and most of the time (40 per cent). Question 2, also related to market governance, asked whether the cost to switch trade partners is low. The answers varied considerably, but it can be concluded that most respondents do find it low. Question 3, measuring modular governance, asked whether respondents supply their products according to their customers' specifications, and most replied that they do, all of the time (70 per cent). Question 4, measuring captive governance, asked whether the importers or buyers monitor and control the respondents' production and most replied that they do not, i.e. never (44 per cent) and hardly ever (11 per cent), but some (34 per cent) said they do. Question 5, measuring relational governance, asked whether the respondents and their trade partners are dependent on each other, and most replied ‘never’ (30 per cent). Question 6, measuring captive governance, asked whether respondents are dependent on large buyers, and there was a wide variety of responses, i.e. some of the time (4 per cent), hardly ever (27 per cent) and never (27 per cent). Question 7, measuring hierarchy governance, asked whether respondents are vertically integrated into a chain (i.e. form part of a multinational organisation – MNO), and most (70 per cent) said they are not.

Table 5: Governance structures

Question	Type of structure	All the time		Most of the time		A large part of the time		Some of the time		Hardly ever		Never
1. Do you export to the same party repeatedly?	Market	10	40%	10	40%	4	16%	1	4%	0	0%	0	0%
2. Is the cost to switch trade partners low?	Market	5	25%	5	25%	2	10%	5	25%	3	15%	0	0%
3. Do you supply your products according to the customers' specifications?	Modular	18	70%	7	27%	1	4%	0	0%	0	0%	0	0%
4. Do importers/buyers monitor and control your production?	Captive	9	34%	3	11%	0	0%	0	0%	3	11%	12	44%
5. Are you and your trade partner dependent on each other?	Relational	4	15%	5	19%	3	11%	5	19%	2	7%	8	30%
6. Are you dependent on large buyers?	Captive	2	8%	7	27%	2	8%	1	4%	7	27%	7	27%
7. Are you vertically integrated into a chain (part of an MNO)?	Hierarchy	1	4%	2	9%	1	4%	1	4%	2	9%	16	70%
Note: The numbers do not add up to 29, the total number of respondents, as not all respondents answered all the questions on the questionnaire. The results subsequently reported are therefore only applicable to those who did; percentages are approximate.

The answers listed in Table 5 indicate that there are two forms of governance structure in the South African floriculture export industry for the majority of producers operating in this industry. These are market value chains and modular value chains. The majority of respondents export to the same party repeatedly and find that the costs involved in switching trade partners are low. Hence, there is a definitive form of market governance in the South African floriculture chains, implying that:

• there is a low degree of explicit coordination and power asymmetry

• the transactions are not complex

• similar knowledge and information can be transmitted effectively to all suppliers

• the suppliers are capable of producing the products required for the transaction. (Gereffi et al., 2003: 11)

Most respondents supply their products to their customers' specifications. In other words, a form of modular governance exists in the South African floriculture chains, implying that:

• there is a larger degree of explicit coordination and power asymmetry than in market governance

• the transactions are complex

• similar knowledge and information can be transmitted effectively to all suppliers

• the suppliers are capable of producing the products required for the transaction. (Gereffi et al., 2003: 11)

The majority of the respondents' production is not monitored and controlled by buyers and importers, nor are they dependent on large buyers. Therefore, the South African floriculture chains indicated no form of captive governance. There is relatively low dependence between the respondents and their trade partners, which indicates that the floriculture chains are not relational value chains. Finally, most of them are not vertically integrated into a chain, i.e. they are not part of an organisation where managerial control flows from headquarters to subsidiaries. Hence, there is no form of hierarchy governance. In the light of these findings, the market appears to be predominantly the governing party in the South African floriculture chains.

4.2.2.3 Systemic efficiency

Systemic integration, the result of systemic efficiency, is relevant to competitiveness in the sense that a competitive exporter has a strong degree of trust and cooperation in his chain of activities (i.e. distribution chain) (Kaplinsky, 2000a,b). The empirical data showed that nearly half the respondents (48 per cent) experience a strong degree of trust and cooperation in their distribution chains. This advances their competitiveness, as they have a strong support base. It can also be concluded that trust and cooperation are two fundamental aspects of the international trade of floriculture products.

5. DISCUSSION

The empirical findings in Section 4 enabled an analysis of the South African floriculture export industry's competitive position.

The strengths of the South African floriculture export industry can be summarised as follows. It produces traditional greenhouse products, which are in demand worldwide. Greenhouses are, however, the most labour-intensive and expensive method of floriculture production. The distribution channels for floriculture products are effective and efficient. The exporters regard research and current market information as their link with market trends (i.e. consumers' changing demands) and use these to innovate and keep up to date with trends. They differentiate themselves from other producers by adding value to their activities. The industry's overall competitive advantage is in its products and, to a lesser extent, in the exporters' organisational functions. Both the market and the exporters themselves on the whole determine the types of products that they produce, consequently they mostly produce the products that are in demand. The logistical arrangements for exporting floriculture products are made both by the market and by the parties in the exporters' distribution channels, which means that their production is coordinated with these parties.

The South African export floriculture industry's weaknesses can be summarised as follows. The majority of exporters have been exporting for less than five years, which implies that they have not yet gained adequate experience. A substantial number of them (55 per cent) said they do not export on a regular basis, and 62 per cent said that when they do they export less than 25 per cent of their total sales. These are indications that they are not committed to exporting – the largest percentage of their sales goes to the domestic market. There is little participation in international floriculture programmes, which reduces the industry's competitiveness and may be problematic when these programmes become compulsory. The exporters do not add sufficient value, nor differentiate their products to enhance their competitive positions in the global industry (e.g. produce new varieties) in the medium and long term. The exporters themselves determine the types of production processes used for cultivation, which may not be in line with the quality requirements of the international markets.

From the empirical findings it was possible to construct a profile of the more competitive floriculture exporters. For the purposes of this study, the more successful exporters are those that export more than 50 per cent of their total sales. According to the literature, they are described as ‘committed’ exporters (Johanson & Vahlne, 1977). These exporters are mainly in Gauteng and have comparatively large farms (i.e. 26–100 hectares). Their production methods are mainly open fields, where they produce cut flowers.

Although these exporters are committed to exporting and export on a continuous basis throughout the year, they have been exporting for less than five years. They have gained market access mostly through personal visits to the import market overseas. However, more than 50 per cent of them do not participate in an international floriculture programme. They enter the foreign market via international agents and domestic export agents, who form the immediate link in their distribution channel. These agents have been part of their distribution channels for less than five years and all the respondents are satisfied with the manner in which their products are distributed. Most of them distribute their products via several distribution channels, in which they experience a high degree of trust and cooperation. The largest perceived obstacle for the exporters is achieving international standards of quality.

The exporters see innovation, research and development as high priorities both for the South African floriculture industry and for their companies. Current market information is important and is obtained mostly through the parties in the exporters' distribution channels and through electronic databases and the internet. However, they do not make great efforts to incorporate the information, as they do not adjust their production according to market trends. Most of them conduct research on their competitors' operations and some feel that they have a competitive advantage – mainly through their products, but also through their organisational functions.

There is a large market influence in the successful South African floriculture exporters' operations. The market influences the types of products they produce and, together with the parties in their distribution channels, the logistical arrangements (i.e. the volumes and time of exports). The exporters themselves determine the types of production processes used for cultivation.

6. CONCLUSION

This article assessed the challenges faced by the South African floriculture industry in the competitive environment of the international market. The method of research was to use the elements of the GCC and GVC analyses as a framework for the assessment. A mail-based questionnaire conducted in 2004 among South African Flower Export Council members made it possible to identify the shortcomings of the South African floriculture exporters: the lack of commitment to exporting (they export only a small percentage of their total sales and do not export on an ongoing basis), little participation in international floriculture programmes, and failing to differentiate or add value to their products. All these factors may be the result of the general inward-orientation of the South African floriculture producers. They need to shift their focus from the domestic market and become more export-oriented, as the domestic market is slowly becoming saturated and its turnover is small compared with that of the global market. In conclusion, the South African floriculture export industry does not participate to its full potential in the global market, and lacks competitiveness.

South African floriculture exporters need to become further integrated into the global market by increasing the volume and improving the value of their exports and by participating in international floriculture programmes. To do this they need to move into better and more competitive global chains (i.e. export more directly), which will enhance their competitiveness. The industry's competitive position could also be improved if the government provided financial and managerial assistance to the many domestic floriculture suppliers that do not export, or that export only a small percentage of their total sales. To help the South African floriculture producers add value or differentiate their products, investment in the industry is needed.

While the South African floriculture industry has the potential to become a more significant role player in the international markets, it is still hampered by its relative lack of internationalisation. It needs to react by addressing the challenges that lie ahead, in order to overcome its weaknesses and strengthen its competitive position.

Additional information

Notes on contributors

Wilma Viviers

Respectively, Lecturer, School of Economics, Risk Management and International Trade; Director, Workwell Research Unit; and Director, School of Economics, Risk Management and International Trade, North-West University, Potchefstroom Campus, Potchefstroom, South Africa. The comments and suggestions of two anonymous referees are gratefully acknowledged. The usual disclaimer applies.