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The International business Cluster is a business philosophy or concept for the organization to enter the International Business market. In Cluster many companies from same industry comes together and collaborate with each other to gain competitive advantage though they are competitors. This Study will evaluate the International Cluster Model, competitive advantage through Cluster and the challenges faced by the Cluster Company in recent days.
In addition, this study will also evaluate the International Supply Chain Management through drivers of supply chain management, structure of the supply chain management, factors affecting international supply chain management and the supply chain risk management. Also, this paper will evaluate the International Corporate Governance through Principles of Corporate Governance, Practice of good Corporate Governance and the Challenges in International Corporate Governance.
Therefore, the target Organization for this study is Floreac Nederland B.V. which is the part of the Netherland Flower Cluster. The previous name of the Floreac was 'Flore' and it was established in 1954 in Belgium. However, internationalization started in 2008, when it started to collaborate with the Dutch plant export organization 'Horticept' and after that in 2009 they have moved their office in Holland Flower Auction site in Naaldwijk. The main product is flower plant and they only sell wholes (http://www.floreac.com).
Part A: International Business Cluster
2. International Business Cluster:
Cluster is an economic and business fact that occurs in a competitive circumstance in which many business organization concurrently compete and work together to achieve various economic advantage. According to Porter (1998) Cluster is geographic concentration of interconnected companies and institution in a specific field. The geographic field of cluster may vary from a city to a country as well neighbouring countries (Porte, 2000). Krugman (1991) argue that cluster is not a fixed flow of products or goods but rather it is a dynamic arrangements based on increasing returns and innovation in a board sense and creation of knowledge.
However, the idea of business cluster has survived for many years but in different names such as agglomeration as well as industrial district (Cortright, 2006). Alfred Marshall a well known business economist state three main reason to create business cluster. They are labour market polling, supply specialization as well as sharing knowledge but he never used the terms 'Cluster' (Cortright, 2006). Morosini (2004) defines that Business cluster is a important socioeconomic unit in a particular area considered by social community for economic cause and restricted to a close proximity.
Therefore, from above discussion we can describe International Cluster is a economic function among companies from various countries, it is restricted to only particular industry and it can be both horizontal as well as vertical. All companies related to cluster add value to develop the cluster though they compete with each other for their own business success.
2.1. Model of International Business Cluster:
The main elements of a business cluster are the member companies of the cluster but there are many other elements which are important for a Business cluster. The factors of a cluster can vary from cluster to cluster but a perfect links among the all elements is very important and necessary to achieve competitive advantage (Motoyama, 2008).
Porter (1990) in his "The Competitive advantage of Nation" has given a cluster model called 'Porter's Diamond Model'. He light out four impotent factors in that model. They are describing below in terms of Floreac Nederland B.V. (Dutch Flower Cluster). Figure 1, shows the Porter's Diamond Model.
Figure 1: Porter's Diamond model. Source: (Porter, 1990).
An external factor of the Cluster means that the primary resources of the cluster area, present economic environment of that area both are very important to start a new business and entrepreneurial culture of the particular area. However, Strategy and completion in the business environment persuade their assessment as they are needed to give specialized products as well as service, higher quality and cooperation to satisfy higher demand. Also, market condition of the cluster represents the require demand for existing service as well as products. It influences the cluster development but they are interconnected with other factors of the Porter's diamond (Porter, 1990).
In addition, related and supportive industry of the porter's diamond describe the factors that permit cluster companies to evolve and keep their competitive advantage such as in terms of innovation the main important factors are research centre as well as universities which provide new technology for production process or operation the business (Porter, 1990).
Figure 2: Cluster Factors model. Source: (Solvell 2008)
Figure 2 illustrate another cluster model of factors that are interconnected to the cluster. There are six elements which are connected to cluster such as, education and research, media, business environment, government and public structure, financial system and organization for promotion and collaboration. All of these factors has important role for a successful international cluster to develop
(Solvell, 2008). However, knowledge, competition, innovation and entrepreneurship skills are also important part of a business cluster (Roelandt et. al., 1999).
2.2. Competitive advantage of International Cluster:
International Business cluster has become very important part of economic development procedure in the world. In recent days, local or regional organization become concentrate or specialize in specific sector which are they more capable to become successful (Rosenfield, 2002). The most common and successful cluster in the world economy is in is in Silicon Valley for computer software, Hollywood for film industry, London for financial service, and Holland for cut flower business (Ketels et, al. 2008). Member of a Cluster has got much competitive advantage over the companies which are not in the cluster. Below are the description how Floreac Nederland B.V. (Dutch Flower Cluster) gain the competitive advantage.
Porter (1998c) stated that three way business cluster create competitive advantage for the companies. The first one is by growing productivity of the companies in the cluster, the second one is, by pouring the way and pace of innovation to the companies, which strengthen future productivity and growth and finally, by replicating the establish of new business, which disbursed and strengths the business cluster, forming a worthy circle as well as creating positive feedback system (Porter, 1998c).
However, Knowledge sharing among the cluster companies is another competitive advantage. Companies in the cluster share all types of knowledge between themselves. By this they have got very important competitive advantage. According to, Oosten, (1998) firms in the Dutch Cluster share knowledge about product and service as like as colleague rather than opponents. In addition, Skilled Workforce in cluster are most of the employees are skilled and professional. There are many companies in cluster so companies can get skilled employees for their business easily.
Also, Innovation in cluster is the source of competitive advantage. It is the most important of the cluster competitive advantage. Cluster always try to invent new of business for production and service for its members (Rugman & Hodgetts, 2006). For example, in Holland Flower Cluster their main disadvantage is lack of abundant soil as well as perfect weather for flower plant but it has become one of the most important competitive advantages for them. Recent innovation for this problem is to develop of energy saving technology, innovation of cultivation (Oosten, 1998). Networking of interdependence companies in the cluster is the source of competitive advantage. The companies gain competitive advantage in the cluster through innovation, synergies, and strategy over time (Bapista & Swann 1999).
Technology Infrastructure in the cluster area provide competitive advantage because generally in the cluster area see huge investment for technological development, which allow company make and adapt new technology faster than that are not in cluster (Rugman & Hodgetts, 2006).
Companies in the business cluster also get competitive advantage through perfect supply chain or logistic management. Without a perfect logistic support it is impossible to success in the business sector (Bell & Evans, 2007).
Swann's (1998) has provided positive feedback model in which he identifies how Business Cluster provides competitive advantage to the member companies. The companies in the Cluster grow faster than alone because of collaboration with other companies in the cluster, Companies in the cluster are more innovative and they are stronger in sub-sector.
2.3. Challenges of International Cluster:
Participant in the cluster may not always help the organization to success because of new organizational culture and new circumstances. Sometimes there are many factors that can obstruct the Floreac Nederland B.V. to adapt new idea for success and reinforce the old idea, generate inflexibility which put off adoption of improvements. In addition, cluster might not support essential innovation, which is likely, invalidate the current information, infrastructure, suppliers as well as pools of talent in the companies. In this situation companies may face difficulty to change in the organization (Porter, 2004).
However, every business Cluster has a life cycle which is related to the technology development life cycle. That means that growth of a cluster does not only depend on the technology life cycle but it also depend on the life cycle of the business cluster. Generally, every business industry includes various technology but once new technology introduce to the business the old one become outdated that time major change is needed in the industry (McCulloch et. al., 2006). Therefore, if new technology for the industry excluded from the cluster because of change than it can have vital inference for the business culture's success and competitiveness (Swann & Prevezer, 1998).
In addition, another major challenge in Floreac Nederland B.V. (Dutch Flower Cluster) is dynamic and continuous change of market demand for the products and service so because of increase of market demand a new innovation way of production procedure is needed to satisfy the market demand. Also, low-cost production countries are more dynamic than before in example, Auction facility is the most important and heart of Dutch flower Cluster but the threat is now coming from Dubai Flower Centre. Possible solution for cluster is to make sub sector in low-cost countries in order to compete cost effective way.
Part B: International Supply Chain Management
3. International Supply Chain Management:
Supply Chain Management (SCM) is the present version of logistics as well as operation management in the business. But Supply Chain Management (SCM) is the border than logistics management or operational management. Logistics management only worked inside the companies but Supply Chain Management worked with the different companies which work together to deliver the products and service to the market or end user (Branch, 2008). Lambert et. al., (1998) defines Supply Chain Management is the links among the companies which collaborate for bringing the service and product to the market for the end user.
However, Burch (2007) describe the Supply Chain Management as flow of water in the river 'upstream' includes companies nearer to the product or service and 'downstream' includes the end user of the service or the products. So, the International Supply Chain management is the activities of the network companies in which they purchase raw materials for production purpose, manufacture the original products and distribute them to customer outside the countries (Mangan et. al., 2008).
Therefore, the system of supply chain management performs as connection the core competencies and the market of the product. The ability of managing international supply chain management is very important strategic action to achieve the organizational goal. So, the capacity of strategic thinking can divide in two ways; firstly, the major role of strategy in supply chain management and finally, realizes advantage from SCM (Supply Chain Management) (Basu & Wright, 2007).
So from above discussion we can say that International Supply Chain Management is the activities of supervision the full flow of products and services from manufacture to consumer or end user between two or various countries. Also is the management of production procedure transportation the product, managing the inventory to reduce the cost of inventory and satisfy the market demand accurately to achieve the organizational goal (Bevan, 2007).
3.1. Drivers of International Supply Chain Management:
Strategy of managing supply chain is very important and vital for business success. Perfect strategy for managing supply chin help companies to achieve companies goal by increasing capability of long term operation of the organization. Supply Chain Management performance is connected to every stakeholders of the company (Slack et. al., 2004).
However, the focus area of supply chain management varies from companies to companies depending on their business. The most important part of the supply chain management (SCM) is the decision making process. Hugos (2011) identified five major drivers of the supply chain management which affects the supply chain. Figure 3 presents the five major supply chain drivers for Floreac Nederland B.V.
Figure 3: The five major drivers of supply chain. Source (Hugos 2011).
The main drivers of the supply chain management are the decision about the production. The management have to take decision about what, how, and when to produce. The production plan is created in terms of the company's plant capacity, workforce available, quality control and equipment maintenance (Lambert, 2008).
Decision about inventory is very important for supply chain management. Management has to decide about what inventory, how much inventory should be stoked in every stage of the supply chain. The main purpose of the inventory stock is to cushion against the uncertainty of the supply chain system. Keeping too much inventory is costly for the company so management of the supply chain has to identify the minimum level of inventory that is cost effective (Hugos, 2011).
The supply chain manager has to decide where production plant and inventory storage will be situated for better communication between the all markets and storage as well as cost efficient. In terms of change in demand and technology they also has to decide whether new one will be adapted or current one retained. After carefully selection of the location management decide the perfect and cost effective way to deliver the product to the final consumer (Hugos, 2011).
Supply chain management has to decide how the product should be transported from one place to another place. They have to decide cost effective but reliable transportation path for the product. Generally, Air freight as well as truck delivery is faster and reliable way of transportation but they cost much higher than shipping by sea or rail. Air freight and truck delivery is quicker than that of sea and rail road. Delivery by sea road and rail road involve more uncertainty than air and truck road. So, supply chain manger has to carefully study all aspects of the transport before finalize the transportation way (Lambert, 2008).
Supply Chain Management has to decide how much data need and how much dada can be shared with others before taking any decision. Perfect and accurate data or information help better decision making process. By perfect and timely information from market supply chain management can decide how much product is needed for the particular time of the year or particular market (Hugos, 2011).
However, the summation of above decision will identify the ability and usefulness of a organization's Supply Chain. According to Hugos (2011) that if the company wants to serve mass market and wants to compete based on the price than that company must have Supply Chain optimized for low the cost strategy. O the other hand if the company wants to compete in the market based on quality customer service, the company must have its Supply Chain optimized for responsiveness.
3.2. Structure of International Supply Chain:
Supply Chain is consists of different companies. Generally, simple supply chain structure consist of three basic participants such as a company who produce the product their raw material supplier and the end consumer of the product. But extended supply chain includes three more types of participants such as ultimate supplier, ultimate customer and service provider. Figure 4 illustrate the supply chain structure in two ways, one is simple supply chain and another one is extended supply chain system for the Floreac Nederland B.V. (Hugos, 2011).
Figure 4: Structure of Supply Chain Management (Hugos 2011).
Manufacturer or the producer of the product is a business organization which makes the product for the consumer. The producer includes both raw materials and finished goods producer. Producer can create tangible or intangible products for the customer such as mine for minerals and music for entertainment (Hugos, 2011).
Distributor also called the middleman in the business who buys the bulk of goods or products from the producer to deliver them to customer. They connect producer with the customer. Actually they sell products to other business like retailer; usually distributor sells large quantity of products. Also, distributor of the finished products usually delivery the product and service in the market place, where consumer wants them. (Lambert, 2008).
Retailer is the part of supply chain. They usually stock inventory to sell them to the end user by small quantities. According to Lambert (2008) they usually provide wide range of selection of product to the customer and good level of customer service.
Customer is the end user of the product they purchase the product or service for consumption or incorporate that product to another product to sell to another customer (Hugos, 2011).
5. Service Provider:
Service provider includes different types of organization who provides service to the producers, customers, retailers and distributors. Service provider has especial expertise which is needed by the supply chain. The most common and important service provider is transportation, warehouse service provider. Also there is financial service provider who provides all types of financial help in supply chain such as loan by the bank and credit rating companies. Other service provider includes designer, legal service provider, and management advice service provider (Hugos, 2011).
3.3. Factor Affecting International Supply Chain Management:
Perfect Supply Chain Management provides companies competitive advantage through cost efficiency in inventory management and satisfies market demand effective and perfect way. Company's management need to examine the other countries business environment or function in which they operate in order to have perfect supply chain for the companies. There are many factors which can affect the Floreac Nederland B.V. supply chain.
Prasad & Sounderpandian (2003) has state that country factors such as culture of the country; Government Incentives as well polices influence the performance of the international supply chain. Also an industrial factor of the other country affects the supply chain such as available employees, raw materials availability. In addition, Available infrastructures and Market condition of the foreign country also affects the supply chain performance such as competitor in the market, transportation system, technology and availability of financial service (Manggan, et. el., 2008).
3.4. Aligning Supply Chain with Business Strategy:
In present days Supply Chain is the part of the overall business strategy. The main purpose of the supply chain management is to deliver companies product to the consumer. However, Supply Chain acts towards the demand of the market as the way strategy of the company support. So, the aligning of the supply chain with business strategy is very important to achieve the organizational goal (Hugos, 2000).
Therefore, Aligning Supply Chain is very important for success in the International Business so Floreac Nederland B.V. must align their supply chain with business strategy. Hugos (20011) has stated three steps to align supply chain with the business strategy. They are describing step by step in below:
Steps 1: Understand the Current Market of the Company
Company must know about the present market they serve briefly. Company have to understand what type of consumer are served and by which type of supply chain, the above knowledge will give the management answer about which section of the current supply chain need to modify or emphasize (Hugos, 2011).
Step 2: Define the Core Competencies of the Company
The second steps are identifying the core competences of the organization. Company must know their current supply chain, and what core competence of the supply chain and what roles organizations wants to play in the supply chain system. This will give management view about what type of supply chain is needed for the company to become success. In terms of different market company server, management need to leverage the core competence (Hugos, 2011).
Step 3: Develop Required Supply Chain Capabilities
The third and the final stage of aligning supply to the business strategy. After knowing the current market, supply chain and role company wants to play in supply chain, company can develop supply chain as needed (Hugos, 2011).
3.5. Risk Management Strategy of supply Chain:
The widely accepted definition of the Risk is; possible retune of a expected occurrence is unpredicted (Baird & Thoms, 1990). Kiser & Cantrell (2006) has stated that risk management strategy consist many components. There is risk involved in the entire product life cycle, they argue that company must have ability to forecast the risk financially which cause for the disruption for supply chain management. After forecast the risk involved than the organization must identify some strategy which can reduce the risk involved with supply chain. The key strategy for risk management must be focus on the definite impacts as well as holistic performance (March and Shapira, 1987).
In addition, Risk in the Supply Chain Management can be divided by in two ways; internal and external risk. The main cause of internal risk is management change, change in manufacturing procedure, lack or insufficient planning and mitigation. On the other hand external risk is driven by change of market demand of the product, environmental risk, physical (location), and business (financial).
However, managing risk in supply chain management is very important for the companies. Kiser & Cantrell (2006) has stated six steps to manage risk in the supply chain management which is given below and recommended for the Floreac Nederland B.V. for its supply chain risk managenet.
Step 1: Identify the proper raw materials supplier.
Step 2: Assess the supply chain weakness.
Step 3: Appraise the supply chain operation.
Step 4: Identify the mitigation or improvement as well as take action if needed.
Step 5: Analysis the benefit as well as cost of mitigation.
Step 6: Implement and assess the result or outcomes as well as take action.
Part C: International Corporate Governance
4. International Corporate Governance:
Corporate Governance is a procedure by which organization are operated, directed as well as controlled by the Board of Director. Board of Director is the main responsible for the general function and operation of the corporation but they are selected by the Shareholder of the company. There are many position in the Corporate Governance structure such as Board of Director, Auditor, executive and non-executive management (Bavic, 2001).
However, in recent days Corporate Governance is developing. Corporate Governance is a system which combines many process as well as structure in which daily activities carry out by the Board of Director. So, the International Corporate Governance is the process of directing, managing, controlling and monitoring the International Corporation (Carati & Tourani, 2000).
Every country has their own exclusive system of Corporate Governance imitating the various economic, legal and cultural circumstances. The effectiveness and efficiency of Corporate Governance on a numerous factors and cannot easily be assessed by growth rate as well as profitability of the company. However, sound and good Corporate Governance help the organization strengthen the market condition as well as generate financial stability in the company (Clarke, 2007).
Therefore, Corporate Governance is important and help the county in economic development by creating perfect business corporation, helping to allocate capital as well as attract international investment in the country (Babic & Janosevic, 2001b).
4.1. Principles of Good Corporate Governance:
The main three principles of the good Corporate Governance are transparency, accountability and probity with concept of equality stated by Cadbury Report (1992). Different organization has provided Principles of good Corporate Governance such as UK Independent Commission for Good Governance in public service as well as OECD (Organization for Economic Cooperation and Development) is an organization known for benchmarking sound and good Corporate Governance. Floreac Nederland B.V. must follow the following Principles given by OCED:
1. Ensure the foundation for an efficient corporate governance structure. The corporate governance framework must encourage transparent effective market, obey the law articles of the foundation as well as articulate by the various enforcement and regularity authority.
2. The Corporate Governance structure must exercise and obey the shareholder rights in the corporation.
3. The framework of the corporate governance must treat all shareholders equally in terms of foreign shareholder and minority shareholder.
4. The corporate governance framework must recognize the rights of all stakeholders set up the law or mutual agreement and work together to create jobs and financial sustainability in the organization.
5. Corporate Governance framework must ensure accurate as well as timely disclosure of all matters related to the organization such as, financial situation of the company, change of ownership as well as governance of the corporation.
6. The responsibility of the Board in corporate governance is strategic guidance, which includes monitoring the all management in the organization as well as the accountability or responsibility of the board of directors to the company's shareholder.
4.2 Practice of International Corporate Governance:
Corporate Governance strategy is the internal part of the organization. Best corporate governance practice is not only about fight between isolated, disloyal shareholders, and avaricious directors but also about the philosophy and culture of the corporation to achieve the organizations goals (Clarke & Jones, 2006). Carati &Tourani (2000) has identified five golden rules for Corporate Governance practice in the organization. Floreac Nederland B.V. management should practice the five golden rules for Good Corporate Governance Success.
Rules 1: Ethical Approaches of Business Practice
Ethical approaches are very important in recent globalization business environment. There are four main major factors which point out the necessity of business ethics in the organization; first one is ethical Long-term development of the organization. Organization must work towards long-term growth. Long-term growth is always better than short-term profit which is higher risk. Second major factor is cost and risk; companies with proper ethics require spending less to protect them from external and internal behavioural risk because of sound corporate governance system. The third factors are anti-capitalist sentiment and final one is limited factors (Clarke, 2007).
Rules 2: Towards Common Goals
The second rules for the good corporate governance practice in the organization. Corporation must align its all business goals towards common goals. If the company cannot align its business goals towards a common goal it will face two major problems. The first one is Lack of clear goal as well as strategic direction, this leads to the business failure due to decision making process become difficult and the second problem is dissent among the stakeholder due to lack of common goals between the boards and the shareholder (Carati &Tourani, 2000).
Rule 3: Strategic Management System
Strategic management system in the corporate governance is very important. In strategic management system, manager set a goal which is agreed by the all related parties, manage plan a feasible strategy to attain that goal, establish a structure in the organization for achieving that goal and manager set up a control and reporting system in which management monitor the activities regarding achieving the goals and adjust or modify require event in the strategy (Carati &Tourani, 2000)
Rule 4: Effectiveness of the corporation for good corporate governance:
For achieving the company's goals by strategic management process, needs a perfect and efficient organization. Before making any change in the corporation to improvement, management must identify first where are they now and where they want to reach. There are two main important elements for designing the organizational structure for corporate governance. First one is Shape of the structure; there are five basic types of organizational structure in generally such as simple structure, functional organizational structure, multi-divisional organizational structure as well as matrix structure of the organization (Clarke. 2007).
In addition, another important element of the organization structure is style of the management. There are basic three types of management style in the organization such as strategic planning style, financial control style and strategic control management style (Clarke, 2007).
Figure 5: Structure of Corporate Governance
Rule 5: Effective Communication System
Effective communication system is very important in the good Corporate Governance practice. All previous rules success depends on the effective communication system in the organization. Communication is required from bottom to top as well as top to bottom level management for successful business organization. Communication is needed to monitor, evaluate and modify the ongoing activities in the organization. So, a effective communication plan must be the part of a business strategic plan for perfect corporate governance (Carati &Tourani, 2000).
However the regulatory approach of corporate governance regards the balance between all interested parties in the organization. The best corporate governance strategy is regarding the attaining the stakeholders goals. The main fundamental nature of business success depends on following factors (Hahjiemmanuil & Norton, 2006):
To have a clear and attainable business goal.
To have a realistic strategy to achieve the goal.
To create a perfect corporation to deliver the activities require.
To have a perfect communication system to guide the developments.
4.3. Challenges in International Corporate Governance:
International Corporate Governance has faced various challenges the First challenges Corporate Governance face is challenge of existing practice, the second one is implement of the change needed and the thirds and final one is s obstacle arising because of the industry nature (Hadjiemmanuil & Norton, 2006). The following are the example of the challenges that Floreac Nederland B.V. Corporate Governance can face:
Board of Director can fail to understand the risk corporation is taking
Conflicts between the Board of Directors and Senior executive
Weak operational or internal control
Organizational structure is not perfect for company.
Short-term thinking by the management and ignore the long term prospects.
Feeling by the management that current system is working perfect so no presser for implement new change.
Lack of commitment to change from leadership, Board and executive.
Conflict between commercial and non-commercial objectives.
Lack of independence of the Board of Directors.
Lack of monitoring from shareholders.
Culture and legal issue in foreign countries.
Government rules and policy within or foreign country.
All above challenges can be overcome by perfect approach, policy as well as implementation them successfully. Strategic planning with perfect vision and goal, strategic management system in the organization as well as a perfect communication system can overcome all the above challenges. Also organization must distinguish foreign culture, legal system and government policy in the countries where they operate.
International Cluster is very challenging and dynamic in nature. Cluster can bring much competitive advantage for the companies such as skilled labour, innovation, and high growth in the industry. However, the main purpose for joining International Cluster is to engage in International Business. Actually International Cluster helps small organization to engage in International Business in this globalization days.
However, to success in International Business company needs a perfect Supply Chain Management system in the organization and good Corporate Governance in place. Supply chain management help companies to fulfil the market demand of the company's products in cost effective way such as reduce inventory cost, selecting appropriate way of transportation the goods and forecasting demand of the products and services. On the other hand Good Corporate Governance helps the organization to achieve its goal perfectly by smooth operation. A sound Corporate Governance is the key for business success.