«PROACTIVE ENVIRONMENTAL STRATEGIES IN SMALL BUSINESSES: RESOURCES, INSTITUTIONS AND DYNAMIC CAPABILITIES Jan Lepoutre Promotor: Prof. Dr. Aimé Heene ...»
We’ve got a customer, well we lost him now, our largest customer, that had been acquiring a couple other of our customers of the years (…) and they made one large tender, saying, (…) “that is the required price”. So they tell us what the price needs to be and that price is 20% less than last year’s price. 20%! While we have margins that are far from 20%! (K9) Second, at the same time markets are pushing firms to grow and capitalize on scale advantages, Belgian firms face increasing difficulty in getting access to the critical resources to make this possible: financial resources and space. With the growing financial recourses in a competitive and unpredictable ornamental horticulture industry with decreasing margins, banks have become hesitant to provide financial resources. Furthermore, expansion and growth of the firm requires physical space. Over the last years, however, local spatial planning policies have tended to oppose the building of new glasshouses in new or existing firms out of fear of destroying valuable landscapes (Verspecht et al., 2003; EROV, 2004), but also because many spatial planning specialists lack the specific knowledge to assess the specific needs of the ornamental horticulture industry. This places the Belgian ornamental horticulture industry in a disadvantageous position compared to the Dutch industry, where spatial planning was designed in way that fostered larger scale and new glasshouse infrastructures.
A third factor decreasing the munificence of ornamental horticulture is that its too small as a market to influence public policies in their favour, or to interest the chemical industry to invest in products that satisfy their specific requirements (Daughtrey & Benson, 2005):
“owing to the small worldwide market size for greenhouse and nursery fungicides and the high costs of product introduction, new chemical control products are usually developed for agricultural uses and then trickle down to ornamental uses” (Daughtrey & Benson, 2005: 158).
Ornamental horticulture firms thus benefit from the R&D investments that are done for the entire agricultural sector, yet lack the clout to push the chemical industry for research and product development for their own specific needs.
A final factor inducing low munificence is the bad reputation and morale the ornamental horticulture sector has acquired. The traditional and old-fashioned reputation, together with the earlier mentioned high financial risks, hamper the access to human and financial resources for innovation and firm expansion and function as a high entry barrier for starters. In the longer term, this is described as a one of the main threats for the future. A critical mass of growers is needed to sustain the attractiveness of the sector towards customers
and suppliers and the current state of the sector does not give hopeful signals that this critical mass can be maintained in the future. Furthermore, increasing regulatory requirements and the diminishing returns have made many owner-managers pessimistic about the future. These complaints further discourage incumbents, as well as potential new entrants to invest in the
future of ornamental horticulture:
“I have a problem with the eternal complaining of many colleagues. Those that inform themselves in a positive way and approach the sector in a flexible way, keep their heads above the water. What our sector lacks is a healthy dose of optimism.” (grower) In sum, the ornamental horticulture industry shows many of the characteristics of a declining industry (Grant, 2008): excess capacity, a declining number of competitors, a high average age of both physical and human resources and an aggressive price competition.
Complexity Complexity is determined by the number and variety of factors that influence the general business environment (Smart & Vertinsky, 1984). As a result, the more factors ownermanagers have to deal with in order to manage the success of their organization, the more complex the environment. The complexity of ornamental horticulture can best be described by highlighting the most important factors that were mentioned in the interviews: operational factors, market and management factors and regulatory factors.
First, in purely operational terms, ornamental horticulture growers have to deal with a number of factors that determine the success of their operations and which are very hard to predict. Plant growth and quality depend on natural conditions, such as weather conditions (temperature, precipitation, nutrients, sunlight, etc) and the presence of diseases. It is often said that growing plants requires a “green thumb”: the specific skill to keep plants healthy and grow well. Acquiring such a skill entails learning-by-doing, which is a time consuming process given the slow growth of plants. Recently, however, the operational difficulties have been increasing. Imported base material and plants in general have brought new pests that require new techniques and solutions from growers. At the same time, however, several of the most effective, yet also most toxic, pesticides have been taken off the market. Whereas production was easily controlled by “broad spectrum” pesticides (killing several diseases at the same time), growers now have to be more aware of disease specificities and search for appropriate solutions. As a result, the technical complexity has increased substantially. In recent decades, however, a number of technologies have allowed to better control each of these factors. Within the confined setting of a greenhouse, for example, almost all of the
mentioned factors can be managed through computer-controlled heating, CO2 provision, and monitoring-based plant control. In addition, many, although certainly not all, growers now hire independent consultants that help them in following up on these new products and technologies.
Second, a recent, yet substantial source of complexity relates to marketing and managerial factors. Several interviewees mentioned that, until the late 1980’s, operational problems were the only worries owner-managers had. The same plants were grown every year and no particular efforts had to be made to sell the plants. From the beginning of the 1990’s, however, the typical craftsman suddenly had to have management and marketing skills as well. Having a successful business now required him to follow up and anticipate new market demands, new technologies, new product requirements, internet retailing, managing personnel
and the like:
“Everything has become too big now, large scale, depending on too many indicators and then you become vulnerable. (…) It’s very difficult for these guys [growers], also for those that are making a good living. Why is it difficult? They constantly have to watch out, constantly look after their business, weekdays, Sundays, always, constantly calculating everything. Your greenhouse may become your prison at some point.“ (K4) The complexity is further increased by shifts in consumer preferences and especially the changing requirements in the new market channels. Traders now have specific requirements related to size, packaging, presentation and delivery speed, which were completely absent in the past. Since it is becoming almost impossible for owner-managers to combine all these responsibilities, they also have to hire more employees. Yet planning, dealing with personnel and delegating responsibilities is an additional complexity that many owner-managers find hard to handle.
“The biggest problem is that these firms are used to work hard and that they find it difficult to take into account that new personnel still needs to learn. They are slower and they become nervous because of this” (K1) Finally, owner-managers also increasingly have to deal with several regulatory requirements. The complexity not only results from the existence of these requirements, but also that they stem from different policy levels. For example, although regulatory requirements with regards to pesticides are decided at European Union level, differences may nevertheless exist between countries. Similar differences also exist with regards to the regulatory requirements for exporting plants. Whatever the country differences, however, the general trend is that firms need to take these regulatory requirements into account in their
production and marketing practices. For many owner-managers, these regulatory requirements are a problem, since they do not always know where to find the right information about them.
Uncertainty The uncertainty is determined by perception of the owner-manager of the predictability of the future of the business environment in general, its impact on the firm, and the predictability of the outcomes of a firm’s decisions (Milliken, 1987). Although this perception will differ between growers, the interviews and especially the roundtable discussions revealed that there are nevertheless some general conclusions to be drawn, First, the two most important uncertainties that came out of a scenario-planning analysis were (1) the speed of consolidation of the downstream market, and (2) the “goodwill” from society to allow expansion and development possibilities in the market. If the consolidation speed would be too fast, and if public policies would not be willing to grant expansion possibilities to the firm, then the sector fears that only very few firms will be able to survive. Only firms with specific niche markets or firms that already have a sufficient scale in the market will be able to survive. However, it is feared that if the number of firms goes below a certain threshold level, there will no longer be enough to justify the research centres, independent consultants, traders and transport companies that currently still provide the low levels of munificence needed for the survival and growth of the existing firms. As such, the general business environment of the ornamental horticulture sector was considered very uncertain (EROV, 2004).
Second, most people in the ornamental horticulture industry are convinced that there will always be a demand for plants, Yet, determining which plants will be popular and/or profitable is an increasingly difficult task. Whereas particular flower colours can be very popular in one year, they can be almost impossible to sell in another. However, since the production cycles can sometimes take up several years (in the case of arboriculture, for example), this makes production decisions almost a gamble.
Thirdly, the requirements for environmentally friendly production remain uncertain to date. Whereas it has been suggested for the last ten years that environmental labels would become a necessity in the market, or would become a regulatory requirement through compulsory registration, such requirements still do not exist.
Taken together, the current business environment is characterized with low munificence, increasing complexity and high uncertainty. Given that high levels of Chapter 5 munificence, and low levels of complexity and uncertainty are associated with higher probabilities of finding proactive environmental strategies among firms (Aragon-Correa & Sharma, 2003), it is no surprise that only a small amount of firms have become member of VMS. In order to have a complete picture of all the contextual factors that could impact the adoption of proactive environmental strategies in the ornamental horticulture, the next section is dedicated to describing the external institutional environment.