How do Dutch Seafood Companies Cope with Uncertainty?

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How do Dutch Seafood Companies

Cope with Uncertainty?

-A Multiple Case

Study-Albert Hoekman

1930044

Faculty of Economics & Business

International Business & Management

Msc Thesis

Word count: total of 13.665 words.

Abstract

This thesis aims to answer the question on how Dutch seafood companies cope with uncertainty. By addressing this question I answer to the call of several scholars research the uncertainty topic in a Dutch seafood setting. First, literature which covers uncertainty, possible strategies and seafood industry related researches are used to set up a theoretical framework. Primary qualitative data was collected through semi-structured face-to-face interviews with senior managers of three Dutch seafood companies. Collected data is analyzed to identify seafood industry related environmental uncertainties and strategies that were used to cope with these uncertainties. The factors size and market were inserted in the research to identify a potential role for these characteristics by similarities or differences among the three cases. Four

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Foreword

I am proud to present to you my Master thesis. It marks the end of a special year where I combined a 10-month traineeship in seafood business with a fulltime International Business Master study.

Now this is said it is no surprise that the end product of my studies resulted in a thesis dedicated to the seafood industry. I enjoyed the challenge of researching in such a complex environment.

Firstly, I want to thank my supervisor mr. Haq, although it was his first time guiding master students during their thesis, he did a great job. Thank you for your guiding, useful insights and dedication.

Secondly, I am grateful to the three companies that opened their doors, visions and strategies to me in order to create exciting cases for this thesis. I am talking about Sea Fresh BV, Sea Frozen BV and Top Fish Seafood BV. I want to thank the management for being honest and transparent while we discussed strategies, pitfalls and daily challenges. In addition, I want to give my boss and colleagues from Sea Fresh BV a big thank you for their flexible attitude during the last year.

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Introduction

“In business, the rearview mirror is always clearer than the windshield.” – Warren Buffet

From the beginning of mankind humans had to deal with environmental uncertainty. Our forefathers had to decide where to settle their villages based on imperfect information. As time progressed technology and science led to solutions to take away elements of uncertainty. In the twenty-first century we are able to predict the weather and to some extent natural disasters. Our forefathers would be stunned. But where humankind aims to take away as much uncertainty as possible, empirical evidence showed that forecasting in the economic and business world is usually not possible (Makridakis et al., 2009). In the previous age, the problem of coping with environmental uncertainty has already been recognized as a key managerial challenge (Thomson, 1967) and identified as a key variable in explaining organizational behavior (March & Simon, 1958). Mascarenhas (1982) stated that if the domestic business environment can be labelled uncertain, the international business environment is double so. Resource dependency theory (Pfeffer and Salancik’s, 1978) suggests that organizations structure their external relationships in response to the uncertainty resulting from dependence on elements of the environment. Ongoing globalization of economic activity and rapid developments in information technology within the last decades catalyzed globalization, which changed the business settings drastically and forced managers to deal with challenges which they never had to face before (Hrynyshyn, 2002). So, not only are managers unable to fully overcome environmental uncertainty, it is also a complex given which changes over time.

The amount of complexity and uncertainty differs per industry; Duncan (1972) identified two dimensions of the environment. The simple-complex dimension can be measured by the numbers of factors that has to be taken into consideration in decision making. The static-dynamic dimension is viewed as the degree to which these factors in the decision unit's environment remain basically the same over time or are in a continual process of change. Results indicated that individuals in decision units with dynamic-complex environments experience the greatest amount of uncertainty in decision making.

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5 varying natural circumstances and unpredictable behavior of fish shoals (Dreyer & Gronhaug; 2012). Researchers refer to this variation in catching as primary uncertainty (Ottesen & Grønhaug, 2003; Dreyer & Grønhaug, 2012) or a form of supply uncertainty (Chaudhuri et al., 2014). Sutcliffe & Zaher (1998) were the first to define primary uncertainty as uncertainty that arises from profound lack of knowledge of the state of nature. Dreyer & Gronhaug (2003; 2012) acknowledge that primary uncertainty is the main source of uncertainty for Norwegian seafood processors and will probably also be for seafood processors located elsewhere in the world.

Because of its uniqueness for this industry, researching primary uncertainty in a seafood industry setting is a great way to develop more knowledge and understanding about this phenomenon. Supply uncertainty aspects haven’t been treated specifically in the food processing management literature, as the focus is mainly on the demand aspects (Chaudhuri et al., 2014; Rong, et al., 2011; Dreyer & Grønhaug, 2012). When analyzing the sources of uncertainty, Prater (2005) states that there are many other distinct sources of uncertainty, like primary uncertainty, which have received insufficient attention throughout the years. Ottesen & Gronhaug (2003) explored how eight processing firms in the Norwegian setting coped with primary uncertainty within their industry. At the end of the research the authors encourage other scholars to address the under-researched question of how processing firms cope with primary uncertainty in other national settings.

The seafood supply chain involves many actors who all pursue their own interests combined with environmental forces which are hard to control (Simangunsong, 2012; Maloni & Brown, 2006; Yanes-Estévez, 2010). A glance at the news timeline regarding global seafood business proves that it is a very complex, dynamic environment. During spring 2014 Dutch fishermen refused to leave the harbor and went on strike due to dissatisfaction about their selling prices. Suddenly, no raw material was landed in the Netherlands and processors got in trouble (NOS, 2014). In the same year FAO reported increasing numbers of imported Pangasius into the EU (FAO, 2014). This fish species is mainly farmed at Vietnam, Indonesia and Thailand. In the last decade traditional European products like Plaice and Sole have found a great competitor in this relatively cheap Asian substitute. Politics also has its effect on the business environment. Recently, Russia has extended its ban on imports of food from the EU and other countries through the end of 2017, with exceptions for meat and vegetables for baby food (UPI, 2016). So, European seafood exporters are currently unable to reach the Russian market which includes 144 million potential consumers.

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6 a unique seafood industry uncertainty this thesis chooses to address environmental uncertainty in general. This way there is room to determine if there are any other specific uncertainties which are not common, or which manifest differently, compared to other industries.

Chaudhuri et al. (2014) analyzed the frameworks dealing with uncertainty and realized that the types of uncertainties and uncertainty reduction strategies described may not be entirely relevant for food industry. Sethi (2010) published an interesting article which included a risk management framework for fisheries to cope with uncertainty. This framework presents several strategies which are applicable for companies in the first link of the chain. Think of the raw material suppliers like vessel owners for example. While Sethi (2010) focused on fisheries, this thesis aims to focus on the seafood companies further in the value chain, the processors and the traders, to contribute to scientific literature. At the same time this thesis also responds to the call of the researchers Ottesen & Gronhaug (2003) to examine how processing companies cope with primary uncertainty in non-Norwegian national settings, by focusing this research on Dutch seafood processors. So, by addressing the chosen strategies by to cope with uncertainty, the call of several scholars is answered.

In regard to the call of Ottesen & Gronhaug, the Dutch national setting differs from the Norwegian settings on several points. While the core business of Norwegian seafood industry is commercial salmon farming, which grew to become an industry of major importance in Norway (Norwegian Ministry of Trade and Industries and Fisheries, 2014), the Dutch seafood industry is built on flatfish and imported species which are processed in the Netherlands and exported globally afterwards (Breukers, 2014). In terms of other institutions (North, 1990) there are differences in formal institutions like laws and regulations. Also, Norway is not a member of the European Union in contrast to the Netherlands which has its impact on trade and quality regulations. In terms of informal institutions there are several cultural differences between the two countries according to Hofstede’s (2010) cultural dimensions. The Dutch culture can be labeled as more individualistic and its inhabitants tend to orientate more on the long term compared to the Norwegians. By researching uncertainty in a Dutch setting this thesis will contribute to a broader and deeper understanding of primary uncertainty. By including non-Norwegian institutions comparisons and differences in perceptions and strategies can be identified which will also result in primary uncertainty related conclusions.

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How do Dutch seafood industry companies cope with environmental uncertainty?

First, this thesis develops a framework which gives an overview of which uncertainties are present emphatically within the Dutch seafood industry. Step two is determining which strategies are used by Dutch seafood companies to cope with these uncertainties.

To perform these steps multiple case studies will be conducted. Senior managers of three Dutch seafood businesses will be interviewed about challenges, risks and uncertainty within the seafood industry and how their companies cope and coped with it. We include two company characteristics, market and size, into the research in order to identify similarities or differences among the Dutch seafood companies.

For practical management, this thesis gives seafood business managers a blueprint which leads to a better understanding of which management strategies can lead to success in a Dutch seafood setting. In general, understanding how to cope with environmental uncertainty can be highly beneficial for a manager since uncertainty is considered as one of the determinants which lead to increasing transaction costs for a company (Williamson, 1981). This is especially true for small- and medium-sized businesses, which are most common within the Dutch seafood industry. Businesses of this size are most exposed to the harmful effects of the risks and uncertainty due to limited resources and structural features (Verbano & Venturini, 2013).

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Theory

Uncertainty

Uncertainty will be, and always has been, an interesting topic in business literature because it impacts decision making and planning in organizations (Matthews & Scott, 1995). The well-known economist Keynes was the first to introduce uncertainty as a theory pillar, adding a factor of distrust to economic and business science (Mello, 2011). Also, back in 1967 Thompson stated that uncertainty appeared to be the fundamental problem for complex organizations. There is no consensus among scholars about a pure definition of uncertainty, which is understandable for a construct with that many dimensions and characteristics (Uzkurt et al., 2012). This thesis defines uncertainty as a potential, unpredictable, unmeasurable and uncontrollable outcome (Knight, 2012; Crouhy, 2006). In literature from different disciplines the term uncertainty is often used interchangeably with the term risk but that is not entirely correct: risk is a consequence of action taken in spite of uncertainty (Mun, 2006).

Makridis et al. (2009) suggests that it is useful to distinguish between known knowns, known unknowns, and unknown unknowns. An example of a known unknown is the outcome of a coin toss. In the context of seafood business, we know that there will be fluctuating supply landings in the future, but we do not know when or where. Then there are the unknown unknowns, rare events that are completely unexpected and unimagined. These can be labelled as Black Swans (Taleb, 2007). Black Swans can only be identified after their occurrence. Applied to the seafood industry, international boycotts and diseases which spoil harvests are phenomena that have great impact but are hard to foresee. Once we accept that there are known knowns, known unknowns, and unknown unknowns, we can start thinking about the underlying uncertainty in a more systematic manner by applying supply chain- and strategic management literature.

Uncertainty antecedents

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Figure 1. Antecedents of Uncertainty. Source: Van der Vorst, J. G., & Beulens, A. J. (2002).

Inherent characteristics are “built in” the nature of the supplied product and process, such as perishability of the raw material, seasonal/variable harvest, weather influences, environmental conditions and natural variable sizes. Chain related antecedents refer to the number of suppliers, the distance between supplier and buyer and disease/quality problems. Finally, exogenous antecedents are political and social pressures that cause uncertainty in the supply chain.

Miller (1992) developed a widely used framework for categorizing the uncertainties faced by firms operating internationally and at the same time outlined strategic management responses. His extensive framework will have a central role in this chapter. According to this framework managers may perceive uncertainty as general environmental, industry, and firm-specific, see figure 2.

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Figure 2. Overview kinds of Uncertainty. Source: Miller, K. D. (1992).

General Environmental Uncertainty

The general environmental uncertainties correspond to factors that affect the environmental context. This includes political instability, government policy instability, macroeconomic uncertainties, social uncertainties, and natural uncertainties. Political uncertainty reflects the threats and opportunities associated with potential or actual changes in the political system. For Dutch seafood companies, this may appear in countries where they are exporting their products to. But in the Dutch national setting, the political situation in terms of government form is stable. Macroeconomic uncertainty is a broad concept encompassing fluctuations in the level of economic activity and price, for example inflation or interest rate changes. This is common for every industry and not applicable to the seafood industry in a special way. The same goes up for social uncertainty; which follows from conflicts that arise if beliefs, values, and attitudes of the population are not reflected in government policy or business practice.

In the following chapters we will go in-depth with uncertainties that seem to be more heavily present in the Dutch seafood industry; policy uncertainty and natural uncertainty.

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11 just is debatable but it shows that EU policies and the fish industry do not go hand in hand. Policy uncertainty brings effect uncertainty (Milliken, 1987) which is the inability to predict what the nature of the impact of a future state of the environment or environmental change will be on the organization. Seafood companies can feel the inability to predict what the effect of these environmental changes will be on sales of their organization’s product (BNR, 2017; NOS, 2017).

General environmental uncertainty also includes natural phenomena that impact economic output. Milliken (1987) defines this as state uncertainty; when the perceived organizational environment, or a particular component of that environment, is perceived as unpredictable. Ottesen & Gronhaug (2003) speak of primary uncertainty which arises from a profound lack of knowledge of the states of nature. Seafood is a product of nature, which can be caught wild or is farmed by the practice of aquaculture. In either case, nature plays an important role which brings uncontrollable elements. Seafood catches can be seen as natural events with highly uncertain outcomes. Thus, the uncertainty of fish landings or harvests can probably be regarded as the greatest source of instability in the processing sector (Prochaska, 1984).

Graphic 1. Total annual landings of Dutch fleet. Source: Turenhout,(2017)

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Industry Uncertainty

The second kind of uncertainty addressed by Miller (1992) is industry uncertainty.

Again, this kind of uncertainty is divided in three classes: input market uncertainty, product market uncertainty, and competitive uncertainty.

Figure 3.Industry specific Uncertainty. source: Miller, K. D. (1992).

Input market uncertainty refers to the industry-level uncertainties surrounding the acquisition of adequate quantities and qualities of inputs into the production process. Product market uncertainty refers to unexpected changes in the demand due to changes in consumer tastes or the entrance of substitute products. Finally, competitive uncertainty is presumably present heavily in the Dutch seafood setting.

According to Euler Ermes (2016) the Dutch seafood industry can be labelled as highly competitive. The consultancy company also states that supermarkets and retailers are very powerful and have a lot of bargaining power over their seafood suppliers. Gereffi (2005) would call this value chain a captive value chain. In a captive value chain the buyer has a lot of bargaining power over multiple smaller suppliers due to low switching costs and sufficient switching options. In his annual report about the Dutch seafood industry, Beukers (2015) also refers to the industry as a highly competitive market with small margins. High turnovers are needed to establish a positive result at the end of the line.

Firm Uncertainty

The last set of uncertainty is associated with firm-specific factors. Firm-specific uncertainties can be divided in operating, liability, research and development, credit, and behavioral uncertainties.

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13 Liability uncertainties are associated with unanticipated harmful effects due to the production or consumption of a company's product. This uncertainty is sometimes applicable to seafood products. The latest example was Foppen Paling & Zalm, a Dutch seafood processor which had to deal with a major salmonella scandal back in 2012 which costs at least four lives (van Silfhout, 2015). R&D uncertainty refers to the uncertainty that comes with imperfect foresight as to if R&D investments actual pays out.

Credit uncertainty involves problems with collectibles. Default by clients on their debts to a firm can be a direct cause of variation in the firm's income stream (Miller, 1992). Study under Dutch wholesaler’s shows that the payment morale is relatively bad compared to other business-to-business sectors (Graydon, 2013). Also, 68% of the wholesale-interviewees states that the morale is still perceived as declining. It is worth exploring credit uncertainty within the Dutch seafood industry as wholesale covers a big part of the transactions done in this sector.

Strategies to Cope with Uncertainty

So, how do companies cope with these different kinds of uncertainty? Strategy is a high level plan to achieve one or more goals under conditions of uncertainty (Freedman, 2013). This chapter presents several of these plans that can be applied by businesses.

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Figure 5.Overview of coping Strategies. Source: Miller, K. D. (1992).

Avoidance

Avoidance can be defined as the organizational attempt to preclude the necessity of conformity; organizations achieve this by concealing their nonconformity, buffering themselves from institutional pressures, or escaping from institutional rules or expectations (Oliver, 1991). When uncertainties and the associated risks are too high a company can choose not to get involved and to go for more certain markets.

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Control

The control strategy requires action from the company, for example in terms of vertical integration. Vertical integration is very applicable to the seafood industry and sometimes a seafood processor decides to invest and take ownership of fishing vessels in order to secure supply. Although, study has shown that vertical integration for seafood companies is not always that successful (Dreyer & Grønhaug, 2012). Vertical integration can be extremely costly and it does not root out the sources of primary uncertainty like fish migration or weather circumstances.

Cooperation

Cooperation can be distinguished from control responses in that cooperative responses involve multilateral agreements, rather than unilateral control, to reduce uncertainty. Think about contracting, joint ventures, forming alliances and bundling strength in industry interest groups. Cooperation is used to apply the manipulation strategy (Oliver, 1990), a pro-active attitude of a business to bend institutional forces (Engau & Hoffmann, 2011).

Imitation

A more reactive strategy which has its roots in institutional theory (Dimaggio & Powell, 1983) is the imitation strategy. It is seen as a passive and defensive strategy (Engau & Hoffmann, 2011) and it involves following pricing and product strategies of a dominant player in the market, either conscious or unconscious. Another main feature of the imitation strategy is postponing entering a new market to first evaluate the performance of companies that recently entered the market as a newcomer. Although these strategies seem to be easy, low costs strategies due to low opportunity costs; the imitator needs a certain amount of understanding of the underlying technology or knowledge of the leading firm in order to be able to follow its course (Lippman & Rumelt, 1982).

Flexibility

Last general strategy is flexibility. Flexibility relates to a firm’s capacity to adjust to change and/or exploit opportunities resulting from environmental changes and can be considered a company-specific skill or a resource (Dreyer & Grønhaug, 2004). It is assumed to be one of the most important requirements for firms to survive and prosper in turbulent and unpredictable environments (Lau, 1996). Flexibility is a broad construct, for example, Sethi and Sethi (1990) found more than 50 characteristics related to flexibility limited to the literature on process and production only.

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16 Dreyer & Grønhaug (2004) studied several flexibility capabilities of Norwegian seafood processors and found empirical evidence that seafood companies could develop a competitive advantage by executing several kinds of flexibility. These kinds were volume-, labour-, product- and financial flexibility.

In terms of product diversification, optimizing the product mix as a seafood company is also opted as an effective strategy by other scholars to deal with uncertainty (Chaudhuri et al., 2014). Maintaining a portfolio of suppliers and focusing on specific types of vessels to get the desired catch (Chaudhuri et al., 2014) which can be used to reduce uncertainties of volume and quality, reduce supplier related uncertainty

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Methodology

Qualitative, primary data will be collected by conducting semi-structured interviews with top management interviewees. Qualitative data is extremely varied in nature. It includes virtually any information that can be captured that is not numerical in nature (Trochim & Donnelly, 2001).

Dutch Seafood Industry

Before we get into the justification of the three cases a better understanding of the Dutch seafood industry is needed. This chapter will give an overview of the Dutch seafood setting to give the reader a good understanding of the industry that is researched.

The Dutch seafood supply chain can be roughly illustrated as a three tier structure:

1) Fishing source (Vessels, aquaculture, import) 2) Processing agent (i.e. processor, trading agent) 3) End consumer (i.e. retailer, wholesaler)

To contribute to the current literature in a valuable way, as explained in the Introduction section of the thesis, this thesis chooses to focus on the second tier. This tier consists of processors and traders. A total of 286 Dutch companies are regarded as processor or wholesaler of fish and shellfish. The biggest segments are the round and flatfish companies, importers and wholesalers (Beukers, 2015). The following table gives an overview of the division of segments within the Dutch seafood industry.

Table 1. Division among Dutch seafood processors. source: Beukers, R. (2015)

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18 14% nominally. Total turnover of all the Dutch processing and trading companies was €3.6 billion in 2013. The industry counts for an estimated 7000 jobs for the Dutch population in 2013, which is a growth of 10% compared to 2009. The growth in turnover of the fish processing industry and fish wholesalers has mainly been propelled by the growth in export of fish and shellfish. Fish and shellfish are mainly exported to other EU member states.

Table 2. Turnover overview Dutch processors. Source: Beukers, R. (2015)

Regarding raw material the Dutch seafood industry in general is dependent of two sources: the landings of the Dutch fleet and import. It differs per segment where the raw material is bought. The flatfish- and round fish industry is mostly dependent of the Dutch supply landings. The same counts for North Sea shrimp and pelagic fish processors. The Dutch fleet landed a total of 332.000 tons of raw material during 2013. Striking detail is that this is a volume decrease of 23% compared to 2009 (Beukers, 2015). Once the fish is landed, it is sold through the auction. This means that a maximum price for a given batch and price clock starts to decrease, the bidder is than allowed to stop the clock and buy when the clocks reaches his or her desirable price. This suggests a very fluctuating market, a good subject for the interviews. The other source for raw material is importing it. In 2013, a total volume of 830.000 metric tons was imported. An increase of 3% higher compared to 2009. The total imported volume of fish and fish products varies a lot per year, which indicates a complex, fast moving environment. For example, during 2010 there was a peak in imports which resulted in a staggering total of 940.000 metric tons of imported fish and fish products, which was about 150.000 more than a year earlier. Currently, 54% of the value of the imports was sourced from non-EU countries (Beukers, 2015) which indicates a high dependency of raw material from Asia, Africa, Norway and the United States.

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19 the Plaice will be gutted and chilled immediately. An average whole Plaice usually weighs around 2 kilograms. After the fish is landed, several products can be made out of this whole fish. Sometimes, only the head is removed and the product is so called pan-ready, which is a product of around 500 grams. But usually the bones are completely removed by filleting the fish, which only leaves the fillets of around 150-200 grams. This filleting process can be done by hand or by machine. After this process Plaice products can be sold both fresh but also frozen. Sometimes the products are breaded and pre-baked (Productschap Vis, 2013). When we compare this process to the process chain of Tiger shrimp, which is the most common shrimp, the process looks a lot different. Shrimp is a product of aquaculture which is farmed mainly in Asian countries. The shrimp can grow up to a size of 40 centimeter. After farming, it is immediately cooked in a local factory, where the head is also removed. Sometimes the product gets treated with additives to extend the shelf life or to maintain a certain quality standard. After this treatment the shrimp is frozen and shipped to Europe. You will not find fresh Shrimp from Asia in Europe because of quality issues (Productschap Vis, 2009). The following table gives an overview of the division of processing processes for Dutch seafood companies.

Table 3.Division of processing Dutch seafood processors. Source: Beukers, R. (2015)

Case

Selection

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Characteristic - Market

The two characteristics that determine the chosen cases are: market and size. Within the general seafood industry, processing processes, handling and complexity differ per product. As explained in the previous chapter

The main difference can be found in the destination of the product: is it destined to be sold as a fresh product or as a frozen product. Fresh seafood products are considered fast moving consumer goods which brings issues like a fast expiring shelf life and fast degrading quality. Limitations in terms of handling and transport are common with these kinds of consumer goods. In comparison, frozen produce can be stocked and therefore transported in big volumes over the whole world. Usually, a company is focused on either fresh or frozen produce. Different contexts for both the fresh and the frozen market will probably result in different uncertainties and challenges. Hence, case one is a medium-sized company that is specialized active on the fresh market and case two is a medium-sized company specialized in the frozen market.

Characteristic - Size

The second characteristic is size. Prior researches have shown that there are several differences between small and larger firms in terms of firm performance, network behavior (Wincent, 2005) and CSR (Lepoutre & Heene, 2006). One of the main reasons that smaller companies use less effective CSR strategies can be found in a lack of financial resources, but also a lack of power, which are needed for these more effective strategies (Lepoutre & Heene, 2006). Ettlie & Rubenstein (1987) discuss that smaller firms are more like to innovate incrementally while larger firms are more rather to introduce radical innovations. In terms of vertical integration, as firms grow in size, they are less likely to worry about staying flexible and instead focus more on leveraging capabilities along the value chain (Díez‐Vial, 2009). These scientific findings suggest that there is a chance that we find differences in strategic behavior between smaller and larger seafood companies. To research this potential moderating role of firm size, a third case which is small-sized, will be analyzed.

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Data Collection

Due to the nature of the research questions and the complex topic being investigated this study will be qualitative in nature. The author will conduct face-to-face semi-structured interviews with senior managers in order to collect in-depth primary data. Beukers (2011) speaks out of experience when he states that face-to-face interviews are the best method to collect qualitative data from the Dutch seafood industry. General managers are interviewed, I am aware of the fact that this could lead to a one-respondent bias but in all three cases the general manager was interviewed. The choice for interviewing the top manager was easy taking in account their in-depth knowledge and experience with environmental uncertainties and the chosen strategies, a factor that was vital for the data gathering. General managers of SME's decide the course of their company and make all major decisions regarding strategy themselves. All three general managers told me about their day-to-day challenges in terms of uncertainty and how they have dealt- and are dealing with it. It is highly doubtful that there was any added value in interviewing other personnel, after the interviews with the general managers.

Interviewing general managers is in line with the upper echelon theory (Hambrick & Mason, 1984) assuming that organizational outcomes are partially predicted by managerial background characteristics. The main questions were communicated by means of an interview guide in advance to the interview, so the respondent was able to prepare (see Appendix 1). The goal was to let the managers play the active role so the interviewer can follow up with probing questions to gain deeper understanding. This procedure gave room to explore underlying issues, such as why certain coping strategies were preferred or had emerged.

Table 5. Overview interviews.

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Data Analysis

Although three cases are chosen they will be compared by applying the paired comparison method, in line with Tarrow (2010). To identify similarities or differences between the characteristics fresh and frozen we compare Sea Fresh BV with Sea Frozen BV. To identify if the characteristic size matters for perceived uncertainties and chosen strategies we compare both Sea Fresh BV and Top Fish Seafood BV which are both active on the fresh market but differ in company size.

Coding Method

For analyzing the collected data the same approach is used as the scholars Corley & Gioia (2004). The analysis started with open coding; identifying initial concepts in the data and grouping them into categories. Conceptual coding used first order (Van Maanen, 1979) codes which means to stick as close to the data as possible by using literal quotes and sentences of the interviewees. The second step was axial coding. In this phase perceived uncertainties of the several companies were combined on an aggregate level which resulted in the definitive classification of four overarching perceived uncertainties. By applying the grounded theory, discussed in the Theory chapter, to the collected data I was able to identify and define these overarching kinds of uncertainty and the chosen strategies. This resulted in an overview of four perceived uncertainties and an overview of the chosen strategies per company. Finally, this overviews were merged into a framework which presents the four perceived uncertainties and the chosen strategies to cope with them, per company. This process can be found in the Appendix.

Coding – Perceived Environmental Uncertainties

The four overarching uncertainties are presented in figure 6. The four main uncertainties that were experienced by all the interviewees are primary, political, competitive and credit uncertainty. The quotes of the managers were translated into the uncertainties as discussed in the literature (Miller, 1992; Ottessen & Gronhaug, 2003). The interview was opened with the following question:

What is the first thing that pops up when I say uncertainty and the seafood industry?

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Figure 6. The four overarching Uncertainties.

The second kind of perceived uncertainty is that of political uncertainty, this reflects the threats and opportunities associated with potential or actual changes in the political system or regulations. When we use the framework of Miller (1992) we can identify two specific forms of political uncertainty which are particularly present in the Dutch seafood industry environment. On the one hand there is policy uncertainty which drastically influences the business environment of Dutch seafood companies. On the other hand there are unforeseen events like Brexit or the Russian boycott.

The third kind of uncertainty that is experienced is competitive uncertainty. This covers uncertainties associated with competitive rivalry, like power of buyers over suppliers and fierce price competition. Data shows that there is an interesting variety in how this uncertainty is experienced among the interviewees. Lastly, there is credit uncertainty which mostly involves default payers and dependency of key accounts.

Coding – Chosen Strategies per Company

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24 defined in literature. For example, the quote: ‘we rather work specialistic than using a broad portfolio of products’ is translated to the specialization strategy as mentioned by Miller (1992). In some cases it was harder to link quotes to strategies already defined in literature. In these cases a straightforward label was chosen. For example, the quote: ‘good long relations are key within our network’ is translated into relational building.

We start with the fresh medium sized company Sea Fresh BV.

Figure 7. Chosen strategies of Sea Fresh BV.

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Figure 8. Chosen strategies of Top Fish Seafood BV.

Figure 9. Chosen strategies of Top Fish Seafood BV.

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26 strategies per company. To compare the pairs of companies, the complete overview is separated into two pairing overviews in the following chapter.

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Analysis & Discussion

To identify patterns of similarities and differences in a visual way, colors were used to highlight differences or similarities. Green means a similarity pattern, yellow stands for slight differences in the pattern while red labels major differences in the perceived uncertainties and chosen strategies.

Market characteristic: Fresh versus Frozen

We start our analysis by looking at the similarities and difference pattern between the medium-sized companies Sea Fresh and Sea Frozen. The first is active on the fresh market while the latter is active on the frozen market. Figure 9 gives an overview of the similarities and differences between the two companies. To keep the thesis structured the main focus of this chapter will be on the difference patterns.

Table 7. Overview strategies & uncertainties - market.

Primary Uncertainty and chosen strategies

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28 companies still is processing and selling flatfish. This category of fish is always caught in the wild and landed by fishing vessels. We see a slight difference pattern in how this uncertainty is perceived by the companies in the fresh and frozen market. Both managers highlight the uncertainty of fluctuating prices, but the management of Sea Fresh adds a quality dimension. He refers to the fact that vessels can be at sea for four days but can also choose to stay at sea for ten days. The time that a vessel spends at sea does not have a positive effect on the quality of the fish as it is stored below the deck. Sea frozen did not talk about this point. The reason for this can probably be found by analyzing the chosen strategies.

There is a big difference pattern between the chosen strategies to cope with primary uncertainty for both Sea Fresh and Sea Frozen. Both companies confirm that is hard to influence the forces that lead to primary uncertainty. So the main thing that the managers can do is collecting as much market information as possible. In practice, this means the following for Sea Fresh:

(Jan Ras, Sea Fresh): “We try to make accurate estimates of the landings both national and international by gathering as much market information as possible. So we have tight lines with the international auctions and clients which keep us posted about the expected circumstances and landings. We build up these relations over time.”

The differences in strategies can be linked to the difference in the fresh and frozen market; the distinction between a fresh product and a frozen product. Fresh products are bound by shelf life and a fast degrading quality while frozen fish can be stocked for years without issues. This opens windows for Sea Frozen that is not available for the fresh market companies, like making long-term contracts with vessels.

(Jan Kramer, Sea Frozen): “The main thought is that I want to buy raw material when the prices are good. Because I work with frozen products it gives me the opportunity to build up stock. Knowing when the prices are good or will be good is at the one hand market knowledge that you build up during your career. You know the seasons, the impact of holidays and all the other mechanisms. On the other hand you have your own entrepreneurial instinct and vision, which makes you do exciting things.”

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29 good predictions and choices. It also includes visiting the Dutch auction at the break of dawn to inspect the landed products before the auction starts. For the international auctions it means having good contacts to stay informed correctly.

Both companies also use market analysis as a tool to stay informed about the situation at the supply side. During the interviews it appeared that this is done by rational ways like communicating with suppliers and clients about the situation. But both managers also seem to use ways that Oliver (1990) labels as the habit tactic. This refers to unconscious or blind adherence to preconscious or taken-for-granted rules or values. Especially in the case of Sea Fresh BV the general manager legitimized some of his strategic choices as ‘the way I learned it from my predecessor, my father’.

Competitive Uncertainty and chosen strategies

The second major difference pattern concerns competitive uncertainty. Sea Frozen perceives competitive uncertainty as a lack of level playing field. A level playing field is a concept about fairness, not that each player has an equal chance to succeed, but that all companies play by the same set of rules. The absence is also mentioned in the report of Beukers (2015) where we can find the following comment: Non-EU member states are facing fewer regulations, and are therefore more competitive compared to fish processors and fish wholesalers in the Netherlands and the rest of the EU. Manager Jan Kramer of Sea Frozen gave an example that even among EU members there is a lack of level playing field:

(Jan Kramer, Sea Frozen): “In this matter I see an important role for governments and especially the European Union, we still see a lot of differences in regulations regarding labelling of the seafood. It is considered fraud in the Netherlands to put a label of Plaice on your non-Plaice product. But in Italy, this is no problem.”

When talking about competitive uncertainty, Jan Ras of Sea Fresh emphasizes the weight increasing processing techniques that are used by competitors that can have a disturbing effect on the market:

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30 Whether using additives in the food industry is ethical or not, fact is that it happens (Barceloux, 2008). In the seafood industry it is mainly used to gain volume advantages by injecting fish with a mix of water and salt, to increase the weight. It is more common to apply these practices with products that are destined for the fresh market, although it also seems to happen for the frozen market (Velzeboer, 2015). Prices are usually higher for fresh product which may explain the fact that volume increasing practices become attractive for seafood processors. The fact that it is more common in the fresh market explains the fact that Sea Fresh associates competitive uncertainty to these practices and Sea Frozen rather talks about a lack of level playing field.

When we analyze the chosen strategies to cope with competitive uncertainty we see a slight difference pattern. For Sea Frozen it is hard to deal with the lack of level playing field, this uncertainty is a direct consequence of policy uncertainty and thus hard to influence. Jan Kramer of Sea Frozen deals with this lack of level playing field by adjusting the angle of their salestalk, when confronted with ‘fraud’.

(Jan Kramer, Sea Frozen): “I frame my product as an A+ product that is not processed in countries like China. I present it as a pure European product. This works with clients that care for quality and not only for price.”

But the main strategy to stand out towards competitors for Sea Frozen is to work specialistic and to apply a broader set of product categories. For Sea Frozen this means that next to the basic flatfish category they decided to specialize in Cod, a roundfish species.

(an Kramer, Sea Frozen): “So we learned that we needed 'another leg under our table' (another product category). So we decided to focus on roundfish and mainly Cod.[…] We want to work specialistic, a network is easy to copy but working with a specialistic product is a lot harder.”

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31 Political- and Credit uncertainty and chosen strategies

Regarding political uncertainty we immediately identify that it is perceived the same for both of the seafood companies. Both of the interviewees referred to the geopolitical event Brexit as a major current uncertainty which will probably have a great impact on the Dutch seafood industry in the near future. It is like coconut uncertainty (Makridis et al., 2009), a rare event with unknown consequences, which is hard to see coming. Also, governmental regulations like quotas and sustainability standards were discussed as a source of uncertainty. Miller (1992) refers to this as policy uncertainty.

In regard to the chosen strategies to cope with the political uncertainty we see a slight difference pattern. In able to be lobby with governments and NGO’s both Sea Fresh and Sea Frozen have joined several associations which represent the interests of the Dutch seafood industry. Besides this collaboration strategy, Sea Frozen also applies the strategy of geographic diversification.

(Jan Kramer, Sea Frozen): “It is hard to cope or influence global issues like Brexit, the only thing that a global trader can do is spread your markets and risks over several continents. You don’t want to be too dependent of the EU continent for example. You can say that you have to apply a market portfolio.”

Spreading risk is a rational thought and a well-known strategy in business literature (Miller, 1992). The argument used by Jan Kramer corresponds with Mascarenhas (1982), who refers to spreading risk as flexibility which can be used to reduce the impact of political uncertainty. It seems like a pretty straightforward strategy, so why does Sea Fresh not also apply this strategy? Again, it has to do with the origins of the products that are processed at both companies. Sea Fresh is regionally bound because of the state of their products and the fast degrading quality of fresh produce in general. The frozen state of Sea Frozen’s products makes it possible to build up stock and transport containers all over the world.

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32 needs all the help it can get to overcome them. NGO collaboration to try improving the living conditions of your personnel on the Maldives seems like a logical step.

Finally, we have credit uncertainty which for both companies is perceived as the uncertainty that is brought to them by default payments. Remarkable is that both managers illustrated this uncertainty by telling an anecdote where the default payer came from Southern-Europe. Both managers confirmed that when payment problems occur, usually a Spanish or Italian company is involved.

So, how do the two companies deal with credit uncertainty? We see a pretty similar pattern in terms of perceived credit uncertainty and the chosen strategies. What was remarkable in all three interviews was the attitude towards Southern-European companies of all managers. It is a hard market and a lot of scammers are harassing the market, especially in Italy and Spain.

(Jan Ras, Sea Fresh): “But after a couple of weeks it was the other way around and this client had a debt of 50.000 euro's with me. So I flew to Madrid and the company was gone.”

Nowadays, both companies are insured for default payment which is a pretty common strategy for businesses in general. Also, both companies make use of facturing. This refers to a service of a third party that immediately pays out the moneys involved with a transaction while charging a premium.

(Jan Kramer, Sea Frozen): “The insurance company screens our clients and prospects and we deliver when the screening is positive.”

Jan Ras from Sea Fresh adds another uncertainty to credit uncertainty: the uncertainty of the chance that key accounts go broke, with all the negative consequences for the suppliers.

(Jan Ras, Sea Fresh): “And then suddenly V&D went broke. Luckily, it was not a client of us but it got me thinking: we never expected that these kind of great warehouses were able to go broke, just like we think that retailers like Albert Heijn can never go broke. But if there is one thing that we learned from 2008 is that everyone can go broke.”

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34

Size characteristic: Small versus Medium sized

This chapter will analyze the similarities and differences between the medium-sized company Sea Fresh and small-sized company Top Fish Seafood. Figure 9 gives an overview of the similarities and differences between the two companies. The rest of the chapter will be mainly focused on the similarity patterns.

Table 8. Overview strategies & uncertainties - size.

Primary Uncertainty and chosen strategies

We start off with the primary uncertainty which is perceived pretty equal. Top Fish Seafood did not mention the quality uncertainty. This could be an indicator that smaller seafood companies tend to be more easily satisfied in terms of quality than bigger companies. In terms of dealing with primary uncertainty we see a similar pattern between the companies. Staying informed as best as possible by analyzing the market is a key strategy for both Sea Fresh and Top Fish Seafood. This similarity can probably be linked to the very dynamic fresh fish environment in which both of the companies operate. Fresh seafood companies probably do not have a lot of options to cope with primary uncertainty due to the daily trade and the restricted features of their products.

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(Peter Gnodde, Top Fish Seafood): “The governments are of our back for the moment […] But in the last 20 years there were a lot of moments where I thought: where are these rules coming from and what is the idea behind it? Especially regarding quotas. […] The only thing that we can do is bundle our forces by uniting in an association”

But larger companies can chose to do more to cope with political uncertainty. Sea Fresh decided to seek cooperation with the World Wildlife Fund in order to upgrade the value chain of Tuna to meet the sustainability standards of the European retail market. This path required a lot of dedication and capital investment from Sea Fresh’s side. Especially for the availability of this capital, size will presumably play a role in this difference between the chosen strategies of both companies. This is in line with the findings of Lepoutre & Heene (2006). The manager of Sea Fresh described that over time Sea Fresh grew to a point where they were able to play a more acting role instead of reacting towards these regulation issues.

Credit Uncertainty and chosen strategies

Lastly, credit uncertainty is perceived in an equal way, with a slight difference for Sea Fresh which has to do with their client base of supermarkets, which is probably also a result of their bigger size compared to Top Fish Seafood. What was again remarkable, following the other two managers, also Peter Gnodde came with an anecdote of default payment from an Italian buyer.

(Peter Gnodde, Top Fish Seafood): “He left us with a gap of 78.000 euro's after a short period. Since then I am completely done with doing business with Italians.”

When looking at the chosen strategies we see a similar pattern of facturing and insuring the transactions and accounts. Probably again, the options to cope with default payment are limited for both large and small companies within this business. Which is not that surprising because the core business of the companies is the same; trading fresh seafood products on a daily basis.

Competitive Uncertainty and chosen strategies

In terms of competitive uncertainty the smallest company, Top Fish Seafood, perceives competitive uncertainty in the following way:

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36

raw material prices are higher than expected and we are losing money, it stays quiet at the other side of the line […]We are bearing all the risks"

The position of Top Fish Seafood within the value chain can be labelled as one of many small suppliers. It can be compared to what Gereffi et al. (2005) calls a captive value chain. In these networks, small suppliers are transactionally dependent on much larger buyers. Sea Fresh perceives competitive uncertainty in a different way, more focused at weight increasing practices, as illustrated in the previous chapter.

So, there is a difference in perception of competitive uncertainty between the two fresh seafood companies, but the strategies that were chosen to deal with this competitive uncertainty are generally the same. While the core of the company for both companies is the same: processing and selling flatfish, both managers chose to specialize in a certain product in able distinguish from competitors. Sea Fresh chose to include a complete different fish category in their assortment and specialized in fresh Tuna. This popular seafood product is flown in fresh from the Maldives. Including a whole different category to your assortment can be labelled as product diversification (Miller, 1992). The smaller sized company Top Fish Seafood is known for its expertise on Lemon Sole, which is a fish species within the flatfish category, and very popular in Switzerland and Germany. While specialization led to product diversification at Sea Fresh (multiple fish categories) it led to niche specialization for Top Fish Seafood (niche within a fish category). Furthermore, both companies also emphasized the importance of good maintenance of the buyer-supplier relations.

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37

Conclusion

The question under research in this thesis is: how do Dutch seafood companies cope with environmental uncertainty? The role of company size and the role of the operating market of the company were linked to the perceived uncertainties and the chosen strategies. Three key managers were interviewed in able to find an answer to this question. The results of the interviews were coded and graphically presented in a table. The results were used to identify patterns of similarities and differences among Dutch seafood companies. Firstly, this thesis identified four overarching uncertainties that play an important role within the Dutch seafood industry. The four overarching uncertainties that are present emphatically in the Dutch seafood industry setting are: primary-, political-, competitive- and credit uncertainty. Secondly, strategies to cope with these four uncertainties are discussed and identified with experienced general managers from three respected Dutch seafood companies.

By applying a research regarding uncertainty and strategy in the Dutch seafood industry setting we are able to draw up the following conclusions: primary uncertainty can be labelled as the number one uncertainty for Dutch seafood companies, no matter the size or the operating market. It appears that this is the number one uncertainty for the global seafood industry as the same is concluded for Norway (Dreyer & Grønhaug, 2012; Chaudhuri, 2014) and Iceland (Hameri & Pálsson, 2003).

There is a clear difference in how the problem of primary uncertainty is approached in both Norway and the Netherlands. Norwegian processors apply an attitude of vertical integration towards this uncertainty (Ottesen & Gronhaug, 2003) while Dutch processors are not really interested in integrating vessels into their business chain. But, Jan Kramer from Sea Frozen did say that in the future vertical integration will be inevitable within the Dutch seafood industry. For the Icelandic industry, Hameri & Pálsson (2003) suggested to integrate more fish farming as a good way to balance the mismatch between demand and natural catch. None of the Dutch respondents were making suggestions in this direction.

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38 This thesis has shown that, in light of recent events, researching political uncertainty in seafood industry settings proves to be an exciting field of study. Political uncertainty is perceived in a similar way, no matter size or market. During the interviews it showed that political uncertainty has a big impact on the seafood industry in general and companies are struggling to cope with it. Company size and market do determine the strategic options to cope with political uncertainty. Small-sized companies will not have many options to cope with it than to join an association. The medium sized companies were able to start partnerships with NGO’s or other third parties. This way the medium sized companies are aiming to apply the tactic of influencing (Oliver, 1990) the political institutions which effect their business environment. Due to advantages in product characteristics, the companies that are focused on the frozen market are able to spread their risk by applying geographic diversification because they are not as regionally bound as their fresh focused colleagues.

Competitive uncertainty in the Dutch seafood setting is perceived in different forms, which is dependent on company size and market. Despite a difference in perception, the strategic choices to cope with this uncertainty do not differ very much. A successful strategy for Dutch seafood companies is specializing in a specific product, next to their core activity of processing flatfish. The last perceived uncertainty is credit uncertainty which all companies experience in a similar matter, despite size or market. All three companies had problems with default payments from the south of Europe. All companies coped with it in a similar fashion by using facturing and insurance. We may conclude that credit uncertainty is not perceived in any different way or coped with by seafood companies compared to other industries.

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Limitations & Future Research

This thesis focused on uncertainty linked to managerial perception and the effects of firm characteristics on this relationship. But we should bear in mind that although managerial perceptions of the uncertainty of each factor can indeed vary with firm characteristics, individual managerial characteristics also play a role (Yasai-Ardekani, 1986; Hambrick & Mason, 1984). This study is based on a limited number of firms, conducted in a single-country setting. This indicates that the validity of the findings and conclusions are limited to companies in the same or similar country settings.

I hope this research will make scholars do more research into the exciting and dynamic seafood industry environment. To start broad, the interviews gave much food for thought and hands out several research gaps for scholars at an interdisciplinary level. Actual themes like Brexit and EU regulations were discussed during all three interviews which makes the seafood industry an interesting topic for public administration scholars. It also became clear that there is much room for innovative development in the seafood value chain as a whole, especially at the supply side. This should be an interesting field of study for business scholars. Think about the issues with the auction system, fishing methods and the lack of level playing field which were all mentioned in the interviews (see Appendix 1).

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How do Dutch Seafood Companies Cope with Uncertainty?