Journal of Co-operative Organization and Management 1 (2013) 27–40

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Journal of Co-operative Organization and Management

journal homepage: www.elsevier.com/locate/jcom

Co-operatives as a strategic network of small firms: Case studies from

Australian and French co-operatives
Tim Mazzarol a,*, Elena Mamouni Limnios a, Sophie Reboud b
a
University of Western Australia, 35 Stirling Highway, Crawley, WA 6009, Australia
b
Groupe ESC Dijon Bourgogne, 29 rue Sambin, 21000 Dijon, France

A R T I C L E I N F O A B S T R A C T

Article history: Co-operatives have been likened to a ‘network of contracts’ or ‘coalition’. This is particularly the case for
Received 17 October 2012 ‘producer owned’ co-operatives that have small business operators such as farmers as their members.
Received in revised form 25 May 2013 Although there has been some research into the strategic networking of co-operatives, there has been
Accepted 28 June 2013
little attention given to the network behaviour and benefits to small firms as members of co-operatives,
in particular to the benefits, risks and management issues associated with such networks. This research
Keywords: draws on case study data from Australian and French producer co-operatives to examine how small firms
Co-operative
use co-operatives as a strategic network. It uses a conceptual framework for small firm alliances and
Strategic alliance
networks originally developed by Street and Cameron (2007), and examines three research questions
Network
Small firm proposed in that study along with three interrelated theories (the resource based view, resource
dependency and punctuated equilibrium). The study finds support for the conceptual framework and the
theories as useful research tools. It also provides insights into the way small firms can use co-operatives
to secure access to resources and mitigate environmental risk. However, the sustainability of these co-
operatives is contingent effective network management, adaptability and the maintenance of member
trust and loyalty.
ß 2013 Elsevier Ltd. All rights reserved.

1. Introduction independently owned and managed. They include rural farm

businesses and small firms in other sectors. For simplicity, we will
Co-operative enterprises are built on the idea of an association refer to these firms as small firms. Academic literature in this area
of individuals and/or entities (Jussila, 2012). Thereby, these describes the co-operative enterprise as a ‘‘nexus of contracts’’
enterprises can adopt a range of different forms (Nilsson, 1999). (Sexton, 1983, 1986) or as a ‘‘coalition’’ (Staatz, 1983, 1987a),
A substantial share of co-operatives and mutual businesses reflecting the network alliance nature of the co-operative business
represent what Birchall (2011) refers to as ‘‘producer owned’’. model. The producer owned co-operative is therefore an alliance or
Such co-operatives typically include those owned by primary coalition of small firms, who form its membership (Helmberger &
producers, who are small scale business operators in industries Hoos, 1962). It is noteworthy that while such association refers to
such as farming, fishing and forestry. It can also include retailer becoming united, it does not mean total abandonment of
owned co-operatives in areas such as motor trades, pharmacy, independence. Thereby, as Emelianoff (1942) suggests, it is
hardware stores and supermarkets; as well as shared services co- important to view small firm (producer) co-operatives as a
operatives for self-employed, small firms and professionals. coalition of independent businesses rather than just a unified
In this study, our focus is on those co-operatives with a single organisation. With this in mind, it is important to view co-
membership comprised of small or medium sized firms (SMEs). For operation from the perspective of the small firms and not only from
the purposes of clarification such firms may be defined as the perspective of the co-operative.
businesses with fewer than 250 employees and an annual turnover From the small firm’s perspective, one of the most important
of less than s50 million (OECD, 2004). Such firms are also typically questions is the value that can be gained through such co-
operation. Relatively few studies have examined the benefits to
small firms of co-operative membership (e.g. Dana, 1998; Lee &
Mulford, 1990). In this paper we examine this phenomenon using
* Corresponding author. Tel.: +61 8 6488 3981.
the example of several producer co-operatives from Australia and
E-mail addresses: tim.mazzarol@uwa.edu.au, rousillon.tm@gmail.com
(T. Mazzarol), elena.limnios@uwa.edu.au (E.M. Limnios), France, and apply a conceptual framework originally proposed by
sophie.reboud@escdijon.eu (S. Reboud). Street and Cameron (2007). This conceptual framework was

2213-297X/$ – see front matter ß 2013 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.jcom.2013.06.004
28 T. Mazzarol et al. / Journal of Co-operative Organization and Management 1 (2013) 27–40

developed from the literature relating to small firm networking 1994). There are also benefits from the level of proactivity within
and alliances and comprises the antecedents, processes and these alliances (Sarkar, Echambadi, & Harrison, 2001), and there
outcomes that apply to such networks. Since its publication the are benefits, as well as challenges, for small, entrepreneurial firms
paper has been highly cited, but few papers have specifically that forge alliances with larger companies (Alvarez & Barney,
attempted to make significant use of the conceptual framework or 2001). Cooperation between firms has also been found to produce
address the research questions it proposed. An exception was competitive advantage within technology-based enterprises (Bru-
Lasagni (2012) who applied the framework in a different context, que, Moyano, Vargas, & Hernandez, 2003).
but demonstrated its usefulness as a research tool. Our study According to Hansmann (1996) the formation of a co-
examines three research questions originally proposed by Street operative is usually justified when the cost of contracting with
and Cameron (2007) from the perspective of the co-operative a firm’s suppliers or customers is greater than the cost of these
enterprise as an alliance mechanism for small firms. We adapt same suppliers or customers owning the firm. This provides an
these research questions as follows: immediate value to the small firm as member. In agricultural
markets the presence of a co-operative can have a major impact
1. How do small firms derive value from an external relationship on the prices paid at farm gate, with producers generally
facilitated via a co-operative business model? receiving superior prices to those paid when there are no co-
2. What are the risks involved in engaging in external relationships operatives present (Tennbakk, 2004). Although there has been
facilitated via a co-operative business model? research undertaken in the use of strategic alliances and
3. How do these relationships develop over time? networks by co-operatives to assist in growth and market
competitiveness (see: Juliá-Igual, Meliá-Martı́, & Garcı́a-Marti-
At the time of the publication of Street and Cameron’s (2007) nez, 2012), research into the role played by co-operatives as a
work these three questions represented the ‘‘current state of means of enhancing the competitive position of small firms has
inquiry’’ in small firm alliance and network research. In our view, not been given much attention. While these previous contribu-
these research questions remain important to both the theory and tions are valuable, a comprehensive understanding of the role
practice of co-operative enterprise. Many co-operatives are of the played by co-operatives as strategic alliance networks for small
producer owned type and key factors in their formation and firms is missing. As introduced, this paper attempts to fill this
sustainability are the value that small firm owners as farmers and gap by making use of the Street and Cameron (2007) framework
those in manufacturing, retailing or services derive from mem- and the three theoretical lenses (i.e., RBV, resource dependency,
bership. In their review of small firm alliance and network and punctuated equilibrium) they proposed as valuable in this
literature, Street and Cameron (2007) warned that there is no effort.
‘‘single unifying theory that currently ties all of this literature In more detail, the RBV theory proposes that a firm’s
together’’ (p. 254). However, they identified the ‘resource-based- competitiveness can be attributed to its control over specific
view’ (RBV) of the firm (Barney, 1991), the ‘resource dependency assets or resources (Chamberlin, 1935; Penrose, 1959; Schump-
theory’ (Pfeffer & Salancik, 1978) and the ‘punctuated equilibrium eter, 1934). If such resources are unique, valuable, and difficult to
theory’ (Gersick, 1991; Romanelli & Tushman, 1994) as useful copy or substitute they can potentially provide a source of
theoretical lenses for addressing the research questions outline sustained competitiveness (Barney, 1991). RBV theory has been
above. In this paper we will follow this insight. applied to small entrepreneurial firms in relation to their relative
The paper is organised as follows. We first review extant small lack of resources and the need this creates for them to form
firm collaboration literature in general and co-operative literature strategic alliances and networks (see: Alvarez & Barney, 2004,
in particular by using the above-specified theories as a lens. Next 2005; Alvarez & Busenitz, 2001; Alvarez et al., 2006). While firms
we provide an overview to Street and Cameron’s (2007) conceptual may lack resources they can possess unique capabilities (Amit &
framework that served, in their work, as the basis for proposing the Schoemaker, 1993). This ability to take limited resources and
above research questions. There are three primary units of analysis successfully configure them in unique ways is a key focus of
that relate to the above research questions. First, the antecedents entrepreneurial business model design (George & Bock, 2011).
to external relationships relate to the associated risks to a small Small firms gain benefits from alliances and networks by
firm in entering a strategic alliance (e.g., loss of control or securing access to resources and capabilities such as access to
independence). Their decision to enter such an alliance is markets, technologies and knowledge, as well as a degree of
contingent on their ability to assess the benefits of membership protection from competitive threats (Jarratt, 1998; Lee, Lim, & Tan,
outweigh any potential risks. Second, the processes associated 1999; Lee, Kelley, Lee, & Lee, 2012). Small producers who join co-
with external relationships relate to their development and operatives secure benefits such as greater market access, better
sustainability. Third, the outcomes of external relationships relate pricing and lower input costs (Krivokapic-Skoko, 2002). The
to their value to the members. It is this Street and Cameron’s (2007) pooling of resources and sharing of knowledge that occurs within
framework that provides structure to our empirical work and, co-operatives is also a major benefit to such small firms
consistently, these units that provide the basis for our analysis of (Rickenbach, 2009). They may also see their membership as
the Australian and French cases. In the summary of our findings, contributing to the building up of social and economic capacity
we return to the above three theoretical lenses. Finally, we within their community (Skurnik, 2002).
conclude with recommendations for research and managerial Lee and Mulford (1990) examined the role played by Japanese
practice. kyodokumiai co-operatives formed by small firms. They found such
firms joined co-operatives to secure enhanced access to informa-
2. Small firm alliances and the co-operative business model tion and to strengthen their ‘‘self-concept’’ and company image.
Dana (1998) also examined Japanese small firms and their use of
Before moving on to the co-operative business model, it is inter-firm linkages including the kyodokumiai co-operatives.
worth pointing out that the need for small firms to forge Protected from Japanese anti-trust legislation the kyodokumiai
relationships with other firms has been recognised within the provide their members with enhanced access to purchasing,
academic literature as providing small firm owners and entrepre- transport, insurance and inter-firm knowledge sharing. Another
neurs with enhanced competitiveness via personal networking study by Pache (1996) examined the role played by French co-
(Alvarez, Ireland, & Reuer, 2006; Birley, 1985; Ostgaard & Birley, operatives in enhancing the business prospects of small producers.
 T. Mazzarol et al. / Journal of Co-operative Organization and Management 1 (2013) 27–40 29

This identified the benefits of co-operative business structures to punctuated equilibrium theory and helps to explain why some
small firms from the perspective of securing supply chain producer co-operatives often change their structure or even
contracts. However, the findings did not indicate that all was demutualise as they seek to adapt to external forces and internal
positive with these small producers despite their supplying to pressures from their members (Brewin, Bielik, & Oleson, 2008).
these co-operatives and it was noted that the future of such small As outlined in the preceding literature review there have been
firms was not guaranteed. studies of how small firms, particularly agricultural producers
The opportunity offered to small firms by a co-operative make use of co-operatives for benefit and some of this research has
business model was further addressed by Gall and Schroder (2006) used the RBV and resource dependency theories. However, this
in their examination of agricultural producer co-operatives as research has not been extensive and even fewer studies could be
strategic alliances. In addition to highlighting the absence of found that specifically applied punctuated equilibrium theory to
research in this area, Gall and Schroder also hypothesised the co-operatives and small firms. As a result of our review of the
application of the RBV theory as well as social network theory and literature we feel that there is a gap in the understanding of how
theories relating to trust and cooperation, as being relevant to small firms as members gain benefit from co-operative enterprises.
understanding strategic alliances in co-operatives. In particular the
ability for farmers to use the co-operative as a network through 3. A conceptual model of small firm alliances and networks
which to enhance their knowledge through reciprocal exchange
within what became a ‘learning network’. However, their analysis As noted above, Street and Cameron (2007) identified three
of two case studies suggested that over time the benefits from this primary units of analysis focusing on the antecedents, processes
exchange may erode as the network enlarges and becomes and outcomes. Fig. 1 illustrates each of these primary elements has
formalised. Jussila, Kotonen, and Tuominen (2007) employed the a set of subordinate units of analysis that emerged from the
RBV theory in their examination of corporate social responsibility research literature.
(CSR) in Finnish co-operatives, as did Roessl (2010) in his study of The antecedents that influence the decision by a small firm to
CSR in credit co-operatives. Grande (2011) also drew on the theory engage within a network are the characteristics of the entrepre-
for a study of new venture creation in the farm sector. However, neur or owner–manager leading the company this can include
none of these studies specifically examined the RBV as it applies to their propensity to collaborate or desire to seek resources or
small firms engaging with a co-operative as a strategic alliance influence their external environment. Also influential are the
process. characteristics of the firm and the partner organisation that they
Resource dependency theory suggests that organisations are might seek to form an alliance with. As noted above the small
dependent on their external environment, which places constraints firm’s lack of resources may be influential in this decision, as will
on their operations. Firms can either seek to change their the firm’s perception that it can trust the network it is joining. Here
environment (e.g. by political lobbying), or form strategic alliances the relationship characteristics play a role with respect to how well
to control or absorb environmental uncertainty (Pfeffer & Salancik, the network partners feel that they know and trust each other and
1978). Small firms that form alliances with larger ones risk the network organisation they are joining. The level of uncertainty
dependency if they lack unique or complementary resources, such or turbulence within the external environment can also play a role
as intellectual property rights or legal contracts (Alvarez & Barney, in motivating the small firm to form alliances and networks. Other
2001; Dickson & Weaver, 1997). A primary motivation for small external environmental factors can include the level of market
producer firms to join co-operatives is the chance this type of competition and government regulation.
collaboration can reduce the impact of external factors on their Key outcomes that small firms such as small producers may
business (Katz & Boland, 2002). This has been demonstrated in obtain from such alliances include the access to resources and
agricultural producer co-operatives with respect to supply chain business development that can enhance their own growth. By
management (Garcia-Perez & Garcia-Martinez, 2007; Giannakas & being part of the alliance or network the small firm also has the
Fulton, 2005). Co-operative enterprise has also enabled small opportunity to secure advantages that it would otherwise not
producers to compete against large investor owned firms (Mora & possess and this can enhance its competitiveness. If such benefits
Menozzi, 2005; Núnez-Nickel & Moyano-Fuentes, 2004). Resource from network membership accrue the firm will enjoy performance
dependency theory has been used to explain the role played by improvements and success not otherwise possible by acting alone.
boards within co-operatives (Cornforth, 2004), and how co- Finally, in terms of keeping the alliance working in a sustainable
operatives and mutual enterprises engage in marketing and supply manner, there must be processes that address the development of
chains (Hanf, 2009; Palmer, 2002). However, these studies have not the alliance’s strategy and how members of the network are
specifically examined the role of small firms within co-operatives. managed. This can involve the rules by which members are
Punctuated equilibrium theory suggests that organisations permitted to enter or exit the alliance, rewards for active
evolve over time with periods of rapid change and growth participation, and the level of trust within the membership and
punctuating longer periods of relative stability and equilibrium how knowledge and information flows across the network. We will
(Gersick, 1991; Miller & Friesen, 1980; Romanelli & Tushman, return to these issues in more detail in the subsequent analysis of
1994). The theory has been used primarily in the strategic the case study data.
management literature to analyse the lifecycles of large firms,
but also in small entrepreneurial ones (Mintzberg & Waters, 1982). 4. Methodology
Co-operatives can take a wide range of network forms (Desrochers
& Fischer, 2005), and the nature of their network structure and This research is part of a study into the sustainability of the co-
governance is subject to evolution (Cook, 1995; Helmberger, 1966; operative business model funded by the Australian Research
LeVay, 1983; Staatz, 1987a, 1987b). Street and Cameron (2007) Council (ARC) and industry partners, Co-operatives WA, Co-
suggest that punctuated equilibrium theory could be used to operative Bulk Handling (CBH Group Ltd), Capricorn Society Ltd
examine not only the way in which small firms join and exit and Ravensdown Fertilizer Co-operative. The French part of the
strategic alliances, but to also enhance understanding of how and study has been funded by the Regional Council of Burgundy
why they do so and the planning, strategy development and (Conseil régional de Bourgogne). The larger research project has
relationship management components of their framework. The co- involved collecting case study data from a range of co-operatives
operative lifecycle theory proposed by Cook (1995) supports the around the world with the purpose of understanding how to
30 T. Mazzarol et al. / Journal of Co-operative Organization and Management 1 (2013) 27–40

Fig. 1. Conceptual model of external relationship influences, management processes, and effects in small business.
Source: Street and Cameron (2007).

develop more sustainable and resilient businesses. One area of then used to revise the case study method. The data collection
research focus is the conceptualization and measurement of process involved reviewing published histories where available,
member benefit from being part of a co-operative and it is in this plus other reports, website content, newspaper and press articles
area that our paper is focused with the aims introduced above. and internal organisational reports, memos and presentations. This
The case study method was chosen for this research because it use of multiple data sources and the subsequent ability to examine
offers a suitable mechanism for exploring in depth, areas that have several cases provided good triangulation (Bryman & Bell, 2003).
little well developed theory and have demonstrated this value in An examination was made during this data collection on the key
the social sciences, in particular in relation to small firms (Chetty, units of analysis relating to the co-operative’s purpose, member-
1996). Cases, especially historical case studies, are also an effective ship, governance and share structure, business operations –
mechanism for the development of theory (Eisenhardt, 1989). The specifically value chain processes – resources and strategic
principal specificity of this methodology is that it enables a better decision making. The interplay between the members, the board
understanding of causal relations where they are complex and a and the executive were examined in order to observe how these
description of a situation within its real life context (Juliá-Igual elements impacted on the successful operation of the co-operative.
et al., 2012; Yin, 1989). Multiple case studies enable comparisons A series of critical incidents were then identified within the time
and can support more robust theory (Eisenhardt & Graebner, line to mark periods of major strategic change or importance. This
2007). Moreover international comparisons serve to: ‘‘highlight critical incident time line was then used to guide in-depth
the interaction between the institutional environment – the ‘‘rules interviews with current and past board members and executives
of the game,’’ such as property rights, the legal system, the political from each co-operative (Flanagan, 1954; Gremler, 2004). These
process, and social norms – and the organizational arrangements interviews typically lasted for around two hours with all
trading partners design to govern their relationship’’ (Ménard & discussions audio recorded for accuracy of subsequent transcrip-
Klein, 2004, p. 750). tion. The final transcript data was substantial, and in both English
Five case studies were selected for this analysis from a larger and French. However, for reasons of brevity we have not included
pool of cases developed within the main study. The process of representative quotations in our paper.
selecting the cases was guided by the desire to maximise diversity Our analysis followed a chronological approach as defined by
in an exploratory approach. In choosing these cases we drew upon Yin (1989) and drew together the available evidence using a
a review of the extant literature relating to the co-operative historical case analysis technique (see: Coldwell, Joosub, &
business and also held discussions with our industry partners to Papageorgiou, 2012; Superfine, 2009). In doing so it focused on
identify suitable organisations to approach. Assistance was then the key constructs from the conceptual framework proposed by
provided in recruiting these firms where required including Street and Cameron (2007) and the three research questions that
support from co-operative associations who hold databases of emerged from it. As these cases were designed to examine matters
co-operatives and who facilitated introductions to key executives of strategic management, in particular the punctuated equilibrium
and board members in these organisations. theory, the approach taken by Mintzberg and Waters (1982) in
The procedure for undertaking the case study development was their case study development was also followed. They recom-
informed by the work of Yin (1989) and involved developing a mended a four-step process to study a firm’s strategic trajectory,
detailed case study protocol that guided all case data collection. As from the systematic collection of data, to the identification of the
recommended, a pilot case was undertaken with CBH that was pattern and periods inside the trajectory, then an analysis of each
 T. Mazzarol et al. / Journal of Co-operative Organization and Management 1 (2013) 27–40 31

Table 1
Co-operatives selected for the case studies.
Cooperative Bulk Handling Group Ltd (CBH Group)
Established in 1933 CBH Group is Australia’s largest co-operative and one of the largest bulk grain handling and storage operations in the world. CBH is also one of
Australia’s major exporters. Headquartered in Perth Western Australia (WA), it has an annual turnover of A$2.63 billion and 4500 members representing the grain
growers of WA. In 2010 the co-operative employed 2500 people and exported 95% of its harvest to more than 20 international markets. It has total storage and handling
capacity for more than 20 m tonnes. Although it is a non-distributing co-operative, CBH Group owns join ventures that include a flour processing business in South East
Asia, a shipping company and a rail fleet company.

Murray Goulburn Co-operative (MGC)

Established in 1950 MGC is headquartered in Melbourne Victoria. It is a dairy co-operative and Australia’s second largest co-operative business with an annual turnover of
A$2.24 billion. MGC is also Australia’s largest producer of milk and the largest exporter of processed food products (e.g. milk, butter and cheese) and holds 30% of the
milk market on the east coast of Australia. It owns successful retail brands and has diversified into hardware and farm supplies. MGC has some 2685 members and
employs over 2200 people with nine processing plants located across Victoria. MGC operates as an unlisted public company wholly owned by the dairy farmer suppliers.
The co-operative is also a major exporter and generates annual export income of over A$1.16 billion from Asia, North America and the Middle East. It owns a transport
fleet and subsidiaries in Asia and Central America.

United Farmer’s Co-operative Company Ltd (UFCC)

UFCC was established in 1992 at Morawa Western Australia and specialised in the supply of fertiliser and chemicals. It was established by WA grain farmers who were
seeking to lower substantially the cost of these critical inputs. With initial start-up capital of $5000, UFCC quickly grew to a membership of 3000 and had an annual
turnover of A$100 million by 2006. At that time UFCC was the third largest fertiliser supplier in WA. In its growth UFCC developed a network of storage terminals and
distribution points. It also diversified into a range of other services but was impacted by drought, rising costs and divisions within the members and the board. By 2008 it
had merged into New Zealand fertilizer co-operative Ravensdown.

Union Auboise (UA)

UA is a federation of co-operatives established in 1967 by 11 wine growers’ co-operatives from the Aube region of France. Its purpose was to create a common processing
and marketing system for Champagne and to regain a more substantial part of the value added for producers. UA currently has 900 members from 12 co-operatives who
are independent and carry out complementary services. It is one of the major agricultural businesses in the region and owns its own brand ‘‘Devaux’’ which has a
prestige reputation, plus other brands that belong to the Alliance Champagne, a federation composed of co-operatives from the Marne and Aisne regions.

Société Coopérative Agricole de céréales Bio Bourgogne (COCEBI)

The COCEBI was created in 1983 in Burgundy and today is the leading French organic cereals cooperative. It now counts 171 members, 106 of whom supply grains. The rest
is made up of breeders, wine makers and truck farmers for their food supplies or organic enrichment. Members respect one of the cooperative status principles; total
financing COCEBI only collects organic products. Collection for 2009/2010 was 10,410 certified organic tonnes and reached across the Burgundy zone and its border
departments. The cooperative has 10 employees and it has a s5.2 M turnover. Its certified organic planting activity represents a significant part of the turnover.

period and finally the building of the theory. Once the raw data was Goulburn Co-operative (MGC) and United Farmers’ Co-operative
collected a descriptive and largely historical case summary was Company (UFCC) from Australia, and the COCEBI and the Union
developed. This was then sent back to the representatives from the Auboise (AU) from France.1 The co-operative is conceptualised as
co-operatives who were interviewed and any errors, omissions or an alliance of small to medium size businesses (in this paper
misunderstandings were corrected. referred to simply as small businesses), therefore the elements of
The data analysis process was ongoing throughout the research the Street and Cameron (2007) framework, namely: (i) external
and involved both within case and cross-case analysis as suggested relationship influences; (ii) management processes and (iii) the
by Strauss and Corbin (1998). The cross-case analysis was effects in small firms will be explored in relation to co-operative
undertaken with reference to the work of Stake (1995), which member’s businesses, rather than the larger member-owned co-
brought together the findings with the literature and employed the operative organisation.
use of word tables and pattern matching suggested by Miles and While the co-operative member firm is the unit of analysis, we
Huberman (1984, 1994). Coding was undertaken with an initial set will refer to both levels of analysis (the co-operative member and
of categories as developed from the literature and relevant units of the co-operative organisation), as appropriate. Each co-operative
data were attached to these categories using Nvivo and tables with member develops external relationships with other members and
a process of iteration as patterns and themes were examined the co-operative. Furthermore member management practices
(Saunders, Lewis, & Thornhill, 2003). The use of a predefined impact and are impacted upon by co-operative management
analytical framework such as that of Street and Cameron (2007) in practices. Lastly, effects in co-operative member business are an
case study analysis has been recognised as helpful to the outcome of their relationship with other members and the co-
maintenance of structure and consistency when large amounts operative.
of data are to be examined (Coffey & Atkinson, 1996; Creswell,
2007). Emerging from this analysis was a series of narratives and 5.1. Antecedents to the external relationship process
themes that were mapped to the original conceptual foundations
contained in the case study protocol (Mazzarol, Simmons, Street and Cameron (2007) refer to the importance of individual
Mamouni Limnios, 2011). However, the application of the Street characteristics of the entrepreneur and manager, as well as
and Cameron (2007) conceptual framework also emerged as a organisational characteristics of the small firms and partner. We
worthwhile mechanism for understanding the role co-operatives find that indeed co-operatives are formed by individual member-
could play in enhancing small firms as members of producer co- owners and member-businesses that operate in the same industry
operatives. To this end it was decided to explore the phenomena of and geographical locality, facing the same challenges and
small firm network and alliance behaviour via co-operatives opportunities. They commonly come together in this business
through this framework and with reference to the three alliance to provide a service in the form of self-help that is not
‘‘theoretical lenses’’ described within the literature review. provided by private industry or the government (CBH, COCEBI and
MGC cases, refer to Table 2), or use the collective bargaining power
5. Case study analysis of member businesses to achieve a better price for member

The five producer case studies that were selected for this study 1
Those two cases have been collected by Corinne Tanguy and Michel Martin,
are outlined in Table 1 and comprise the CBH Group (CBH), Murray from the CESAER Research Center in Dijon, France.
32 T. Mazzarol et al. / Journal of Co-operative Organization and Management 1 (2013) 27–40

Table 2
Antecedents.
Individual characteristics  Common locality, ethnicity, collective values
 Common business challenge/market failure
 Strong member involvement, trust and sense of self-interest/self-help

CBH By 1929 the Great Depression hit Australia hard due to its dependence on agricultural exports. The price of wheat fell dramatically
and the labour intensive and expensive grain handling system (bagged wheat) became a matter of political debate. Co-operative Bulk
Handling (CBH) was established in 1933 as a result of an ongoing effort and debate over the benefits of bulk grain handling that had
taken place for more than a decade prior to its formation.
MGC In 1949 Soldier settlers in Cobram are coming into milk production, bringing an additional 8000 cows in the district within 2 years.
The Shepparton co-operative was unwilling to build a factory in Cobram. 1950 the Murray Valley Co-Operative Dairy Produce and
Trading Company is formed by the Murray Valley Soldier Settlers to satisfy the farmers’ needs.
UFCC In 1991 rural Western Australia was in crisis. Successive poor seasons, high interest rates and an international price of wheat below
the cost of production drove wheat farmers to protest on the streets. United Farmers’ Cooperative Company was formed in 1992 as a
progression of the political Rural Action Movement (RAM). UFCC’s purpose was to provide farmers with lower cost fertilisers and
chemicals, breaking the market duopoly that enjoyed high profit margins in the range of 200% at the time.
COCEBI Back in the 1980s, seven passionate farmers decided to set up a cooperative in order to organise both the offer and the marketing of
their organic products with the objective to sell them. This cereal cooperative that was a pioneer in developing organic cereals was
made up of militants, who base their work on a certain ecological ideology. This militancy partly explains the way in which they
decided to develop their company; it is considered as alternative and is coherent with the essential purpose of their project.
UA The interdependence between the two industries, the wine makers and the wine dealers, is at the origin of the Champagne Region
balance. These sets of contracts have, until recently, guaranteed that the added value is fairly shared between them.

Organisational characteristics  Lack of necessary infrastructure and resources at member business level
 Lack of technological expertise and advanced management practices at member level at time of co-operative formation
CBH Co-operative members were farmers’ businesses of similar size and age, without the available technology and resources to safely
store and transport their product to port.
MGC Co-operative member businesses were milk producers which did not have access to resource intensive milk processing facilities in
their locale.
UFCC Co-operative member businesses were small farmers that did not have the volume to strike individual deals with the fertiliser
importers and thus paid high prices for what is the most expensive input in the farming business.
COCEBI In the 1980s the cereal business and operators (conventional collection cooperatives, mills, etc.) were hostile to the idea of organic
production. Creating an organic cooperative was thus an indispensable organisational innovation for the first organic farmers in order
to sell their harvests.
UA The contracts’ role has always been to regulate the market and balance between the different players in the Champagne region.

Relationship characteristics  Democratic governance

 Supply/demand relationships with the co-operative
 Horizontal member networks with representation at co-operative level
 Increased member diversity as co-operatives grow
CBH Member diversity grew increasing the difficulties associated with managing the co-operative. Value adding through marketing and
primarily flour processing ventures.
MGC Value-adding relationship as the co-operative is committed to ‘‘grow with its members’’, enabling them to produce and deliver as
much milk as they wish (whereas private processors charge less for excess milk in good years).
UFCC Member and UFCC goals diverged and relationship management failures led to loss of trust and eventually the merger with
Ravensdown.
COCEBI At the beginning there was no organisation for organic products in France. The relationship with regular producers was not very good.
UA The growing power of the wine dealers enabled them to capture the value created mainly by the wine growers. Wine makers regarded
this pressure as a means for Champagne houses to protect themselves from the crises at the expense of wine growers which questions
the established partnership.

Environmental characteristics  Agricultural markets are highly uncertain due to natural environment factors, currency fluctuations and international demand and
supply changes
 Governments have a strong influence through market regulation and privatisation initiatives
CBH Deregulation of the Australian agricultural industry throughout the late 1980s, 1990s and 2000s greatly impacted on the viability of
CBH. A visionary management team enabled the merger with a grain marketer and established a flour processing operations in Asia,
which today add to the bottom line of the co-operative entity.
MGC Deregulation in the dairy industry increases competition but also opens international markets. Following an unprecedented growth
via mergers and acquisitions, MGC embarked in a series of rationalizations in the 1960s and 1970s and another cost cutting
restructure in the early 1980s, gradually positioning themselves as a major export-oriented player. Specialising in various customised
dairy based products, MGC and their members aim to reduce their dependence on the fluctuation of the milk price and value add to
their product.
UFCC UFCC succeeded to change the duopolistic structure of the market that was profiteering against their members. However, when the
market corrected they lost their point of differentiation. They transitioned from a focus cost leadership strategy to a differentiation
strategy, but lacked the financial and marketing resources to successfully implement it. Lacking a clear member value proposition
they lost member trust and support.
COCEBI The evolution of customers’ preferences towards more organic food made the lack of industrial organisation for organic food became
problematic.
UA The Champagne business had been suffering from the economic crisis with even higher falls in sales in 2009. The evolution of
customers’ preferences towards more organic food also impacted on the wine sector.

products, services or supplies (UFCC, UA cases, refer to Table 2). Member businesses are initially homogeneous in terms of size,
Member trust and involvement are key individual characteristics products and available processes and therefore face similar
that are strengthened by pre-existing personal and political challenges that motivate them into forming the co-operative. An
networks, as well as common ethnicity, values and business example of member support and involvement can be sourced from
challenges faced due to the common nature of member businesses the history of United Farmers, where the two founding directors
(like the shared passion about organic food in the COCEBI case). had to prioritise the co-operative over their own business: ‘‘In the
 T. Mazzarol et al. / Journal of Co-operative Organization and Management 1 (2013) 27–40 33

first year of United Farmers I spent 100 days off my farm, 100 days’’ Smaller private competitors can have an advantage in low years
(source: 2011 interviews). The directors’ farms were worked by and may be able to offer better prices further damaging the co-
their neighbour farmers who all took turns to assist throughout the operative that can be trapped in a downward spiral. Furthermore,
difficult first year of the life of the co-operative. government policy can play a great role on market characteristics
The co-operative network is commonly structured horizontally and co-operative viability (Gentzoglanis, 2007; Tennbakk, 2004).
based on democratic governance principles, all members having For example, the increasing interest towards the protection of the
equal voice (one-member-one-vote principle adopted in some natural environment in France saw the introduction of new laws
countries; in others voting is proportional to the amount of trade known as ‘‘Grenelle de l’Environnement’’. These laws in turn led
with the co-operative) (Torgerson, 1977). The co-operative is more conventional farmers to become interested in the develop-
positioned centrally in the network, having a supply or demand (or ment of organic foods and so the movement towards the
sometimes both) relationship with co-operative members. As the establishment of the COCEBI group took place.
co-operative is owned by its members there is a process by which In Australia agricultural co-operatives operated in less compet-
member representatives are elected to serve on the co-operative itive environments until the 1970s and 1980s when national and
board. Best practice internationally suggests that non-member international deregulation resulted in a gradual opening of
directors improve the governance of the co-operative (Cornforth, markets and increase of competition. That was coupled with
2004; Hart & Moore, 1996), providing an external perspective. This government authorities recognizing opportunities for efficiencies,
opinion is shared by the largest co-operatives in Australia. It should mergers and capital accumulation in newly deregulated markets,
be noted that a co-operative is a network that is more formal than a changing the ownership of government institutions and providing
strategic alliance, but less formal than a franchise network. incentives for privatizations under the new regulatory environ-
Whereas a minimum level of trade with the co-operative is ment (Brewin et al., 2008; Dong, Marsh, & Stiegert, 2005). Finally,
commonly required, co-operative members are free to transact currency fluctuations, and international demand and supply
with the co-operative and/or its competitors. Free-riding behav- impact on export-oriented producer co-operatives that market
iour occurs as less loyal members commonly enter or exit the co- and sell their produce internationally, like they do on any other
operative year after year, while the existence of the co-operative in form of business engaged in such activities. It should be noted that
the market keeps prices low. co-operative members are thus directly affected by these forces;
Tensions among co-operative members or between members however they rely on the skills of the co-operative’s leadership to
and the co-operative have been observed to grow as co-operatives best manage associated risks and protect member interests.
increase in age and size and diversity of member businesses. This is
commonly attributed to poorly defined ownership rights, a lack of 5.2. External relationship process
appreciation in the value of co-operative shares and a lack of
transferability of these shares (Cook & Iliopoulos, 1999). As the co- Street and Cameron (2007) stress the importance of strategy
operative grows, organisational needs associated with investment development and planning at the alliance level, as well as the
and decision-making necessary to ensure co-operative success can relationship management process. A key feature of producer co-
differ from member needs that may not extend beyond the horizon operatives is their role as the coordinators of supply chain
of the member’s own business (Karantininis, Nilsson, & Fahlbeck, networks (Goddard, Boxall, & Lerohl, 2002). In comparison to
2007). As members’ investment in the co-operative is commonly conventional business networks, co-operatives have been found to
nominal in value and is therefore unrelated to the end value of the forge stronger supply-chain linkages that help to draw the
co-operative, bridging co-operative and member-business inter- suppliers (as members) into the ownership structure of the
ests becomes challenging. network (Núnez-Nickel & Moyano-Fuentes, 2004). Supply chains
For example, CBH has faced the threat of privatisation, which can derive significant benefits from a closer engagement of
was discussed for more than a decade as members were trying to members within the network willing to share information up and
find a way to extract value from the business as they were down the chain (Collins, Dunne, & O’Keeffe, 2002). Key elements
approaching retirement. A successful relationship management that must be addressed for effective co-operative supply chain
process was critical in enabling members to see the value that CBH networks are the way they are structured, and the mechanisms
adds to their member-business when run as a co-operative. CBH that the co-operative puts into place to coordinate the network, as
has recently confirmed their member decision to remain a non- well as internal and external influences such as environmental
distributing co-operative. United Farmers on the other hand uncertainty (Garcia-Perez & Garcia-Martinez, 2007). In compari-
identified the need to diversify their purpose to ‘‘drought-proof’’ son with conventional business networks managed by investor
their business, however failed to successfully communicate this owned firms, the co-operative tends to adopt a ‘‘member welfare
need and materialise the forecasted value of their strategy, maximising strategy’’ that serves to help reduce the price of
eventually losing member trust and support. The retention of agricultural inputs, boost innovation and enhance the farm gate
member trust is critical to the co-operative’s ability to achieve price for producers (Giannakas & Fulton, 2002).
cohesion and implement strategic change (Hansen, Morrow, & Evidence from the case studies suggests that co-operative
Batista, 2002). success is dependent upon the development of a sustainable
Co-operative members’ ability to successfully form and business model that has a strategy in place to deliver a member
compete in a co-operative form is highly dependent upon value proposition through the configuration of the profit formula,
environmental characteristics (Torgerson, 1977). Uncertainty is co-operative processes and resources (Mazzarol, Mamouni Lim-
introduced by the natural environment, which has historically nios, & Reboud, 2011). Co-operatives may initially be established to
increased farmers’ and producer co-operatives’ stress (Galdeano- correct a market failure or provide a new or not available service.
Gomez, Cespedes-Lorente, & Rodriguez-Rodriquez, 2006). UFCC’s However upon their successful establishment and market correc-
operations were impacted by drought which prevented a tion they commonly play the role of a ‘‘pacemaker’’ in the industry
reorganisation effort in its later years from succeeding. Even large (LeVay, 1983). For example, MGC with its strong market share on
co-operatives such as CBH and MGC recognise the negative impact the Australian east coast effectively sets the farm gate benchmark
of drought on operational costs and member loyalty. This is a price for milk within that market.
common challenge for processing co-operatives, which require The near monopoly position of CBH within the WA grains
member loyalty in low years to maintain low costs per unit. industry has been questioned by some producers over the years.
34 T. Mazzarol et al. / Journal of Co-operative Organization and Management 1 (2013) 27–40

However, the co-operative has focused strongly on delivery of personal networks that are sub-groups of the larger network,
member value. As CBH is a non-distributing co-operative it must relationship management processes need to prioritise transparen-
strive to reinvest continuously into processes and resources that cy and information sharing, identify and manage member clusters
offer enhanced service or lower handling charges to growers. The accordingly and develop opportunities for participation and
demutualisation of the South Australian equivalent of CBH, ABB networking at local levels, as well as at the overall level. In both
Grain Ltd and its subsequent takeover by Canada’s Viterra in 2009 French cases, members of the two co-operatives acknowledged
has been used by CBH as an example of why remaining a co- that sharing information between them had helped them to
operative is to the benefit of producers. WA growers have learned respond quickly and in a uniform manner in order to adapt to the
from the SA experience that demutualisation can introduce risks of competition. For COCEBI this was through the creation of the
takeover, loss of control and possibly loss of service quality that can organic food value chain, and in the case of UA the quality labelling
directly impact their member-business. There are also concerns system for Champagne.
over higher handling charges. Managing network relationships becomes increasingly difficult
Co-operatives suffer from the separation of co-operative as co-operatives expand geographically. Cases where the member
ownership and control, which leads to what is termed in agency network is internationalised are few (with the example of the
theories agency or control problems (Cornforth, 2004). As co- Australian, New Zealand and African co-operative Capricorn and
operatives grow and professional managers are introduced, the New Zealand and Australian co-operative Ravensdown), with
management interests can diverge from member interests, the most co-operatives choosing to operate as corporations abroad
former being driven by organisational profits and growth. The co- (e.g. the New Zealand dairy co-operative Fonterra, CBH and MGC
operative can become management driven and growth oriented, investments overseas via joint venture, or the co-operative bank
effectively prioritising co-operative business growth over member Rabobank operating as a corporate outside the Netherlands).
interests (Siversten, 1996). Such cases can lead to low member Canada’s Agropur co-operative established operations in the United
satisfaction and either co-operative failure or demutualisation. For States during the 1990s, but did so via acquisition (Doyon, 2002).
a co-operative alliance to remain successful it is of utmost However, an exception has been Spain’s Mondragon Corpracion
importance to align member interests and co-operative interests, Cooperativa (MCC), which created a dual system of ownership to
recognizing that members can simultaneously act as patrons, allow for its international subsidiaries to be engaged as members
owners, investors and community members. Co-operative strate- under a system known as ‘‘neo-cooperativism’’ (Errasti, Heras,
gies and communication processes need to be in place to address Bakaikoa, & Elgoibar, 2003). This an area where further research is
the multiple member needs, build social capital and long-lasting required to gain better insights into the relationship management
member loyalty and commitment (Stoel & Sternquist, 2004). When process of the co-operative’s that internationalise their operations
CBH moved to establish its international joint venture ‘‘Interflour’’ (Table 3).
it was necessary for the co-operative management and board to
keep the negotiations confidential. This created some concerns 5.3. Small business outcomes
amongst members who could not see the ‘big picture’ associated
with the substantial investment that it involved. It was a strategic The involvement of small firms in alliances and networks
move designed to ‘‘drought proof’’ the co-operative, and today, a outlined in Street and Cameron’s (2007) conceptual framework
decade after its implementation, this investment has proven to add results in the development of the business organisation through
significant value to the bottom line of the co-operative and its access to resources, services, knowledge and enhanced social
members. capital. Under appropriate conditions it also leads to the
The dual characteristic of co-operative members as patrons and individual firm securing a potential competitive advantage
owners alters the nature of their relationship with the co- through collaboration that assists in lowering costs, maintaining
operative. The members have commonly easy access to the control market share or strengthening bargaining power. This is likely to
and governance structure of the co-operative, which can take the result in improved performances and enhanced success. As noted
form of direct access to the CEO and board members. The majority above, there is evidence that a small farmer producer’s engage-
of board members are also co-operative members elected by their ment in a co-operative results in similar outcomes (Krivokapic-
fellow-members. This introduces an organisational political Skoko, 2002).
character to the co-operative board and challenges associated As outlined in Table 4 the evidence from the five case studies
with a potentially higher degree of personal conflict, as well as the suggests that small farmer producers secured these same out-
need to represent member interests as well as the interests of the comes via their participation as members of the co-operatives. The
co-operative. strategy of these co-operatives has been to provide members with
For example, in the case of CBH the role of the Chairman has been secure markets for their produce, and access to lower cost inputs
highly influential. During the 1960s, the Chairman Mick Gayfer via bulk purchase. New services and value adding via innovation
travelled throughout the state advocating the need for change in have also been features of these co-operatives that have offered
relation to the rationalisation of receival points. Many farmers benefits to members (Olson, Kibe, & Goreham, 1998). Members
resisted this change (Ayris, 1999). Later, when the ‘‘Interflour’’ also enjoy business development benefits through the ability to
offshore joint venture project was in play, CBH Chairman Robert add value to their farm product through co-operative investments
Sewell worked closely with the CEO Imre Mencshelyi to argue the and services (Livingston, Cook, Reynolds, & Trechter, 1998), and
case for the strategy, often in the face of vocal opposition from enjoy access to better priced farm inputs, new technology and a
members who saw it as a move towards ‘‘corporatization’’ of the co- greater pool of knowledge and resources (Harris & Fulton, 2000a,
operative (Interviews, 2011). This key role of the Chairman of the co- 2000b, 2000c; McLaughlin, 1996; Olson et al., 1998). The above
operative has also been highlighted in French co-operatives where contribute to increased farm income and productivity (Olson et al.,
those who had been groomed from within the membership 1998).
(‘‘mountain climbers’’) were more likely to embrace collective For example, CBH has mitigated the grain storage risks and
democracy than those brought in from outside (‘‘helicopters’’ and transportation costs for its member businesses through its
‘‘parachutists’’) (Bataille-Chedotel & Huntzinger, 2004). continuous investment in the state of art storage and handling
Due to these unique challenges and the tight nature of the co- facilities, even in remote locations. MGC, on the other hand,
operative network, as members are also part of pre-existing provided dairy producers with access to a reliable purchaser for
 T. Mazzarol et al. / Journal of Co-operative Organization and Management 1 (2013) 27–40 35

Table 3
Processes.
Strategy development  Build a sustainable co-operative business model that can deliver the member value proposition
and planning  Pacemaker co-operatives need to be efficient, strategic and focused on value adding to remain successful
 Member businesses face opportunity cost and risk associated with co-operative failure in the market

CBH MGC CBH and MGC were formed by member need for infrastructure, however as the competitive environment changed they both
transitioned to a value adding strategy, became export oriented, diversified into manufacturing and focused on building product
brands, thus capturing value down the product chain. Member businesses cannot extract the value that is generated within the co-
operative business as a private investor in an IOF would. They recognise however that the co-operative failure or demutualisation
could introduce opportunity costs and increase the vulnerability of their business.
UFCC UFCC developed a diversification strategy which was not implemented successfully. In the process of implementation costs increased
and the member value proposition was not delivered. Members could not see a strategic or operational benefit for remaining with the
co-operative as the market had corrected itself and they could get the product and services of similar quality at the same or better
price from UFCC competitors.
COCEBI The Cocebi cooperative innovated on an organisational level in order to promote an agricultural and rural eco-development project
that did not follow the agricultural productivist model. To implement the project the cooperative relies on a cooperative ideal
organisation that distinguishes it from other cooperative organisations.
UA One of the Union Auboise’s strategies was to find a differentiation advantage to emphasise its brand policy. The objective of the
Quality Vineyard Approach is to improve qualitative and environmentally friendly methods and is has been implemented in the
volunteer vineyards for the past 10 years

Relationship management  Align member and co-operative interests

 Build member loyalty and commitment
 Members can act as patrons, owners, investors and community members
 Communication practices between the co-operative and its members are more informal than in investor-owned firms and co-
operative executives and board members are commonly easily accessible.
 Invest in social capital
CBH The executive invests in trust and relationship building between co-operative members and the co-operative. Co-operative members
have direct access to board members and the CEO. Transparency and knowledge transfer are prioritised and a number of less and
more formal events are organised to network with members throughout the year. The co-operative invests in local member
communities and encourages members and their families to actively participate, get informed, provide feedback and contribute to
their co-operative. The co-operative has established a scorecard that measures and communicates member value creation that
constitutes best practice.
MGC MGC uses the farmer as the central point of any communication and advertising materials, invests in relationship building and the
development of services that add value to members. The success of MGC is partly attributed to Jack McGuire who was appointed
manager in 1952 and drove the expansion, mergers and acquisitions until 1979, establishing MGC as a leader in the industry. He was a
unique historical figure in the Australian dairy industry, a strong leader that had the farmers’ devoted trust and support. In 1981 he
was asked to return and save the co-operative from imminent failure. Within three years ‘‘Jack the knife’’ took drastic measures to cut
costs and re-motivate member-suppliers.
UFCC In contrast to the CBH and MGC cases where diversification was effectively communicated and supported by members, UFCC board
and management failed to bring members along in their strategic transition. Members did not understand the need for strategic
change. Poor implementation of the new strategy led to rising costs and loss of member trust and support. In 2006/07 the co-
operative tried to re-establish a member focused approach, but it was too late. Poor member loyalty failed to support the restructure
which was negatively impacted by the 2007 drought, leading to the merger with Ravensdown in 2008 which was effectively an exit
strategy for UFCC.
COCEBI There is a strong link between the cooperative and its members; the farmers manage a part of the stockpiling and the transformation
in return for financial help
UA The objective was to become an ineluctable partner and to anticipate supply changes at the Champagne houses that buy half of the
federation’s cooperatives’ production. The Union Auboise set up different strategies to create member loyalty. Its development
department is responsible for maintaining and increasing membership in the different cooperatives. The technical department offers
help to members regarding regulatory, environmental and quality methods of the vineyards. Members accept this help, called Quality
Vineyard Approach (DQV) on a voluntary basis. The respect of the environment as well as regulatory changes that also occur (Plan
Ecophyto 2018, directives Nitrates, etc.) oblige the Champagne industry’s players to adapt to and develop new practices. Studies
show, however, that this effort to adapt and to implement new organisational methods has not yet happened and that several years
will be necessary to learn to do so.

their milk. Unlike some of the competing investor-owned dairies, conditions of market failure or imperfect markets (Cook, 1995;
MGC is committed to taking all the milk that a producer wishes to Knutson, 1966; Schrader, 1989). Effectively a co-operative
supply. This allows the dairy producer to grow their business and strengthens farmer’s bargaining position, increases access to
ensure that they can always get a fair price for every litre of milk. value-adding markets (Bhuyan, 2000; Olson et al., 1998), can
By comparison the investor owned dairy processors only take what establish local and international markets (Livingston et al., 1998)
milk they want and will raise or lower prices above or below the and reduces marketing risk (Bhuyan, 2000; Olson et al., 1998)
price set by MGC to secure the quantity of milk they need. through the creation and management of commodity pools.
Similarly, in the case of COCEBI, the strategy of the farmer For example, the farmers who joined the UFCC secured
members was to provide organic food producers with all the significant cost savings on their fertilizer and chemicals. They
elements they needed to efficiently grow, store, handle and market also collectively helped to drive a longer term change to the way
organic produce at a time when this type of supply chain system the fertilizer market in WA was operating. By introducing a third
did not exist. competitor into the market they strengthened their bargaining
Benefits of competition and competitive advantage (Street & power as buyers and affected change from the major incumbents.
Cameron, 2007) are both one of the key incentives for the MGC has ensured that its members are able to improve their
formation of co-operatives and the key outcomes as co-operatives market access and secure long term demand for their products.
have been proved to acquire and exploit market power overcoming This is achieved by adding value through the development of their
the weak bargaining position of individual farmers (Farrell & Tozer, Devondale brand for milk and cheeses, and export market
1996; Gasson, 1977; Schrader, 1989), as well as overcoming development. CBH has produced similar outcomes for its members
36 T. Mazzarol et al. / Journal of Co-operative Organization and Management 1 (2013) 27–40

Table 4
Outcomes.
Organisational development  Access to resources
 Access to services not provided by private industry or government
 Investment in local communities and creation of social capital
 Member business development through education

CBH Access to quality service (grain handling) and a grain transportation network that was built by the co-operative. For remote farmers
transportation costs would have been prohibiting without the CBH rail network. Access to competitive marketing services.
Member business further development through co-operative innovation, knowledge creation and transfer.
Social support and financial support in bad seasons as co-operative carries and spreads the cost amongst regions.

MGC Access to milk processing services and value creation through marketing and investments in multiple retail brands and farm supplies.
Ability to grow members’ business with the assurance that all milk produced will be bought by the co-operative at the same price.
UFCC UFCC reduced the cost of the most significant farm input by 60% within the first year of operation, a saving that was maintained for the
years to come.
COCEBI Cooperatives are striving to structure an organic cereal industry by entering into long term contracts and planning part of its
production in order to avoid the risks of market destruction. Long term contracts for specific volumes came with a price range that
ensured a fair and stable income for the producer.

AU Consequently, cooperative status for both Champagne and Burgundy cooperatives has implied developing marketing capabilities and
has enabled quick information sharing among members as well as membership that facilitates a collective strategy
The result is for the Champagne industry, a better appropriation by the growers of the value created.

Competition and  Aggregate member’s bargaining power to gain competitive advantage and stronger market position
competitive advantage  Direct financial (dividend or patronage reward) and indirect benefit (lower transaction cost) for member businesses through co-
operative core operations and/or diversified investments
 Allow to stay small but act/benefit big
 Marketing and other service benefits

CBH Low transaction costs for grain storage and handling, reducing the risk of grain handling on-site.
Members can stay small and benefit by their co-operatives skillset, strategies, investments and value creation.

MGC Dividend and patronage rewards

Members can stay small and benefit by their co-operatives skillset, strategies, investments and value creation.
The co-operative sets the floor price for milk and is export-oriented, thus protecting member-farmers against price-wars that can be
initiated by private processors and retail outlets.
UFCC Despite its short history, UFCC has had a lasting impact on the structure of the fertiliser market in WA, which is now highly
competitive. Farmer businesses (members and non-members) have benefited over the last two decades and possibly for generations
to come.
COCEBI There are two steps: they have innovated through a network that they have built and thanks to organisational innovations they build
the necessary environment to achieve their projects. In a second phase, the step which is legitimised by the socio-political
environment, the partners with the biggest organisations grow and the example is now emphasised since it has been legitimised
UA This approach is able to bring a competitive advantage to the Union Auboise provided that this quality is perceived and valued by its
consumers. Indeed, consumer requirements in terms of product and sanitary quality, respect of the environment as well as regulatory
changes that also occur

Performance/success  (Unlimited) support for sales and profitability growth

 Adding value to products and services
 Lower transaction costs and environmental risks managed by the co-operative
 Educational benefits
 Being part of the co-operative community
 Creating value for/protecting future generations
 Sense of achievement and pride
CBH Increased member profitability through lower transaction costs and the ability to collectively respond and mitigate environmental
risks. Social benefits of being a member of the co-operative community, member sense of pride as owners of a successful co-operative,
a legacy that they can pass on to their successors.
MGC The ability to grow member business without being limited by the milk intake that private processors determine on an annual basis.
In that sense the co-operative offers unlimited support for member profitability growth. Pride associated with co-operative brands
being successful locally and internationally. Success at maintaining an alliance that can protect farmers’ business interests and
deliver community and educational benefits.
UFCC UFCC increased member profitability in the early years witch led to its early success. The ability to add to the members’ bottom line or
deliver better value was not maintained, leading to the demise of UFCC.
COCEBI Cooperatives bring an active solution to creating other organic cooperatives in the regions. These actions help to develop an essential
organisation for the development of organic cereals industries. Creating Cocebi has helped promote its members’ organic cereals by
organising markets at the time when conventional operators did not consider organic farming as economically viable.
UA Diffusion towards the Burgundy region: There is worldwide recognition of Champagne’s sparkling wine sparkling wine expertise and
Burgundy wine makers refer to the technological expertise of the people from the Champagne region. It is important to remember
that Crémant de Bourgogne comes from Champagne makers who relocated their knowledge and know how.

through its forward integration into overseas markets via the joint Tuominen, 2012a). These benefits from economies of scale,
venture ‘‘Interflour’’. Finally, in the case of UA the collective action of capturing profits from another level (e.g., the export strategies
the wine-makers through the co-operative helps to strengthen their of CBH and MGC), services that otherwise would not be available
bargaining power with the wine dealers. Then as the Champagne (e.g., bulk grain storage and handling), assurance of suppliers and
labelling system was applied they were able to secure more value markets, and risk reduction (Schrader, 1989). A well-run co-
from this quality trademark and secure premium pricing. operative achieves lower operating and marketing costs for its
Finally, in terms of performance and success co-operative members and reduces their transaction costs (Misra, Carley, &
members enjoy financial benefits that may contribute to their Fletcher, 1993; Staatz, 1987a, 1987b), achieving higher prices for
utilitarian commitment to the external relations (Jussila, Goel, & equal or better quality service (Misra et al., 1993). In addition to
 T. Mazzarol et al. / Journal of Co-operative Organization and Management 1 (2013) 27–40 37

that, co-operative members indirectly contribute to the develop- The formation of such co-operatives should be driven by a
ment of grades and standards in agricultural production that bottom-up member motivation and not as a result of a top-down
benefit the entire industry (Reynolds, 2000). initiative by government or other external forces (Golovina &
Nilsson, 2011). The member firms should feel that their
5.4. Summary of the findings engagement in the co-operative will not risk their independence
and there should be a sense of common purpose with the other
The findings from these cases suggest that it is useful to apply firms in the network as well as a sense of mutual trust (BarNir &
the conceptual framework outlined by (Street & Cameron, 2007) to Smith, 2002; Roessl, 2005; Volery & Mensik, 1998). Also of
co-operative enterprises. Of importance are the common ante- importance were their willingness to learn, to trust others and
cedents of the small farmer producers who formed these five co- their self-interest and motivation to forge alliances (Beecham &
operatives. As agricultural producers they were united by a need Cordey-Hayes, 1998). Fig. 2 illustrates the interrelationships
for common user infrastructure such as grain storage and handling, between the three primary elements in the Street and Cameron
milk processing and coordinate marketing and distribution (2007) conceptual framework but adapted to the small firm’s
systems. A lack of government or private sector provision of these engagement with a co-operative.
resources led the pioneering founders of these co-operatives to In keeping with the RBV theory the motivation for these small
self-organise. The co-operative business model offered a strong producers to participate in the co-operatives was to secure access
and democratic framework around which to organise their to resources that they could not acquire or control alone. This
network and the corporate structure of the co-operative enter- included the need to build infrastructure, processing plant and
prises enabled them to better coordinate their activities and equipment, lower operating costs through collective buying
negotiate within national and international markets. In all cases power, as well as the need to enhance their market access and
the changing political, economic, social and natural environments farm gate prices. The creation of these collectively owned assets
were forcing change in the market and posing both threats and demonstrates the ability of these small producers to seek to control
opportunities to these small producers. Through the collective the uncertainty within their external market environment as
organisation of the co-operatives they were able to better meet predicted by the resource dependency theory (Katz & Boland,
these challenges. This common sense of purpose and willingness to 2002). However, their ownership of the co-operative mitigated the
collaborate is consistent with the theories of community-based risk of these small firms becoming dominated by the larger entity.
enterprise (Peredo & Chrisman, 2006) and social-cooperation’’ Yet the cases also demonstrate the punctuated equilibrium theory
(Birchall & Simmons, 2004), and social exchange in co-operation as each co-operative evolved through its lifecycle. Growth and
(Jussila et al., 2012a), which suggests such collaborative enter- development followed the pattern of relatively long periods of
prises rely upon the willingness of members to work together stability interspersed with shorter periods of rapid change
before they can form. triggered by external or internal forces.

Fig. 2. Conceptual model of small firms network engagement with co-operatives.

Source: Adapted from Street and Cameron (2007) and Lasagni (2012).
38 T. Mazzarol et al. / Journal of Co-operative Organization and Management 1 (2013) 27–40

With respect to the first of our research questions (How do will risk the loss of their independence or theft of valuable
small firms derive value from an external relationship facilitated intellectual property (Dean, Holmes, & Smith, 1997). Many
via a co-operative business model?) the findings suggest that strategic networks fail due to the focal firm (typically a large
membership of a co-operative can result in small firm operators investor owned firm) seeking to secure excessive control over all
gaining access to resources that will enhance their organisational key resources, and/or attempting to dominate the way the network
development. Through their access to infrastructure, secure is managed. Other times the problem is due to excessive
markets, better farm gate pricing, lower input costs and better specialisation by network members, lack of ownership and control
knowledge and information, these producers were able to secure a over key network assets, unbalanced relationships between
competitive advantage. The pattern of performance and success members, and excessive protection of core competencies by
varied from case to case, yet overall these small producers were members (Miles & Snow, 1992). However, these risks do not seem
better off as members of the co-operative. to be as prevalent in co-operatives due to their democratic
In relation to the second research question (What are the risks governance and mutual ownership. Nevertheless, the ability to
involved in engaging in external relationships facilitated via a co- maintain the unity and stability of the network requires the
operative business model?) the findings suggest that rather than fostering of a common sense of purpose and the commitment of
increasing risk, the participation by small producers in these co- the co-operative to focus on delivering value to member (Fulton &
operatives was a substantial opportunity to reduce the level of risk Giannakas, 2001; Jussila, Goel, & Tuominen, 2012b). Without trust,
and uncertainty. Consistent with the theory of resource depen- and the members seeing value in their membership, it will be
dency, membership of these co-operatives offered these small difficult to sustain cohesion (McCain, 2008; Nowak & Sigmund,
firms an opportunity to deal with external environmental 2000; Ole Borgen, 2001). It is therefore important for co-operative
challenges such as market deregulation, increased competition boards and executive teams to encourage a strong sense of
or the impact of the natural environment. Where risks emerged community identity within the co-operative based on trust and a
were in the ability of the co-operatives to retain the common sense of common purpose (Morrow, Hansen, & Pearson, 2004).
purpose and loyalty of their members as they evolved and took Successful co-operatives have managed to secure these outcomes
strategic decisions that were not always fully understood by all while less successful organisations have failed due their inability to
members who had different horizon and portfolio perspectives in unite the membership into a common purpose (Birchall, 2011;
relation to their businesses. This emerged within the co-operatives Fulton, 1999). There must also be trust between members and the
as they grew and their membership based expanded and became co-operative leadership (e.g., board and management) (Stoel &
more diverse. Key factors in mitigating this risk were the Sternquist, 2004).
relationship characteristics taking place within the co-operatives. While a co-operative business structure may not suit all small
The study also addresses the third research question (How do (or medium) firms seeking to forge strategic alliances, the
these relationships develop over time?). Here the findings suggest principles of democratic governance, tolerance of diversity and
that these co-operatives’ ability to grow and remain stable over the fostering of social capital via the building of trust and mutual
time was contingent on the relationship characteristics taking reciprocity within the network are useful touchstones. This study
place within these networks. This included their governance has some limitations. The experience of producer co-operatives
structures, board and managerial leadership capabilities, supply may not apply to all kinds of small firms across all industries.
chain configuration and ability to retain member trust and loyalty Further, the data was collected from discussions with managers
(Brunetto & Farr-Wharton, 2007). A key finding here was the need and board members of these co-operatives and while the latter, as
for the co-operatives to adapt their business models to accommo- members, provided an insight into the perspectives of the
date enhanced diversity and sophistication amongst their mem- membership, future research should undertake case studies of
bership. In addition there was a need to remain responsive to the small firms as members not just the co-operative as a network
member needs and work towards fostering a common sense of of such firms. Future research should examine the individual
purpose and the delivery of value to membership. The original member level through both case study and quantitative analysis
market failures that led to the formation of these co-operatives the linkages and performance outcomes of these firms. In
changed over time and it became necessary for these organisations particular this should include the collection of longitudinal data
to adapt to technological, environmental, market and regulatory from the small firm members so as to track their accumulation of
forces in order to remain relevant to their membership. economic and social capital accruing from their membership.

6. Conclusions and implications Acknowledgements

Producer co-operatives whose membership is comprised of We acknowledge the support of our industry partners Co-
small firms need to be viewed more as coalitions or networks than operatives WA, Co-operative Bulk Handling (CBH) Group, Capri-
single corporate entities. There has been relatively little research corn Society Ltd and Ravensdown Co-operative Ltd, as well as the
published on the producer co-operative from the perspective of the Australian Research Council.
small firm. This study has sought to fill a gap in the current
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operatives. Journal of Co-operative Studies, 43(1), 23–37.
Mines de Paris prior to working in management and strategy. Her research is in
Romanelli, E., & Tushman, M. L. (1994). Organizational transformation as punctuated
strategic management of innovation and technology; the food sector and low tech
equilibrium: An empirical test. Academy of Management Journal, 37(5), 1141–1166.
industries; intellectual property and strategy in small firms, and co-operative
Sarkar, M. B., Echambadi, R. A. J., & Harrison, J. S. (2001). Alliance entrepreneurship and
enterprises.
firm market performance. Strategic Management Journal, 22(6–7), 701–711.