Managing Internationalisation Tensions in Producer Cooperatives

Introduction

Recent global crises have sparked debates about “alternative ways of organizing capitalism in a more humane way” (Cruz, Alves, & Delbridge, 2017: 322). Accordingly, cooperatives, a form of organizing that adheres to the principle of shared ownership in which members have control over the use and benefits of the means of production, have recently attracted renewed scholarly attention for their significant role in the global economy (Ajates, 2020) and as a viable organizational form for addressing several socio-economic, environmental, and developmental challenges (Muñoz, Kimmitt, & Dimov, 2020; Slade Shantz, Kistruck, Pacheco, & Webb, 2020) – areas where MNCs have been criticised (Stringer & Michailova, 2018). Furthermore, producer cooperatives, prevalent in the agricultural sector, provide a viable mechanism for SMEs to enter foreign markets (Ajates, 2020), helping to overcome liabilities of distance and smallness. This is particularly relevant in small, open economies, such as New Zealand, where the small home market pushes SMEs to internationalise (Benito, Larimo, Narula, & Pedersen, 2002).

However, internationalisation introduces multiple, new tensions. To compete in foreign markets, management and governance functions traditionally performed by cooperative members often require professional staff who might not share cooperative values (Bijman, Hendrikse, & van Oijen, 2013), while the establishment of foreign subsidiaries can lead cooperatives to degenerate into “coopitalist” hybrids consisting of a cooperative core at home and capitalist subsidiaries overseas (Bretos & Errasti, 2017). Thus, internationalising cooperatives must contend with multiple institutional logics; while strategic and structural changes are required to make them internationally competitive, consistency with the principles of the cooperative model is also needed or they risk “degenerating into a business-as-usual” (Pansera & Rizzi, 2020: 21).

Research suggests that the degeneration might be a transitory stage; cooperatives may be able to regenerate by transferring cooperative principles to overseas operations (Bretos, Errasti, & Marcuello, 2020). Yet our understanding of how these tensions can be managed remains limited, as seminal theoretical frameworks describing internationalisation focus on traditional, investor-owned MNEs (e.g., Buckley & Casson, 1976; Johanson & Vahlne, 1977). Despite their prominence and potential to address important societal issues, cooperatives remain under-researched in the field of IB. We thus ask: How can producer cooperatives manage the strategic tensions that arise during internationalisation?

Based on a case study of Zespri,^[1] we show that, over time, Zespri incrementally transferred cooperative principles to their foreign subsidiaries, dynamically adjusting these activities according to local cultural and physical conditions, in a process of degeneration and regeneration. These insights may help other internationalising cooperatives to achieve scale without degenerating.

Producer Cooperatives in Oceania

Cooperatives are not new^[2] and are “present to a much greater extent in market economies than has been suggested in the literature” (Novkovic, 2008: 2169). In Oceania, Australia’s cooperatives generated nearly AU$100bn in 2019 – a 6% increase in a slowing economy – while the top 30 New Zealand cooperatives account for 17.5% of GDP. Australian and New Zealand cooperatives directly employ 81,000 and 48,500, respectively,^[3] and are recognised as important for the economies’ resilience and providing market access to SMEs.^[4] Yet, despite their sizable contribution, the New Zealand Productivity Commission (2020) argued that cooperative ownership and structures inhibit growth by constraining investment and leading to commodity-focused strategies. They note the exception of Zespri – “a cooperative that is large and fast-growing” and “acts as an anchor firm” (p. 47). As Zespri has recently embarked on a ‘regeneration’ strategy, we seek to understand how they balance the tensions between internationalisation and cooperative principles.

The Zespri Case

Established in 1992, Zespri was organised as a single marketing and distribution entity responsible for the export of New Zealand–grown kiwifruit. While the export strategy initially focused on avoiding the commodity trap and led to the adoption of a global premium brand strategy, this later required significant internationalisation of operations. Implementation of the strategy introduced multiple tensions and managerial responses, summarised in Table 1.

From Domestic Focus to Export: Dual Logics

Zespri undertook market research and commissioned scientific research to develop specific fruit parameters (e.g., size, texture, taste), aimed at delivering desired product features for each market. To align production with the brand promise, and ensure members’ willingness and ability to engage with the strategy, Zespri relied on enabling horizontal and vertical knowledge sharing across the cooperative, and upgrading members’ technical and managerial competency, as members often found the marketing messages incompatible with their logic that centred on growing for volume.

Payment schemes were aligned with market signals while, following cooperative principles, strategic decisions, performance data, and payment rates were made increasingly transparent (Smith, Callagher, Crewe-Brown, & Siedlok, 2018), becoming a hallmark of goal alignment and the cooperative’s increased productivity. Concurrently, Zespri introduced proprietary kiwifruit cultivars, which required members to modify growing techniques and pay licence fees to Zespri and allowed non-producer members to buy shares.

These initiatives simultaneously led to partial degeneration and a greater alignment of goals and enhanced performance of most members. To respond to the demands resulting from competitive pressures and cooperative values, Zespri developed a compromise that conformed to these divergent requirements. However, establishing a global brand required a year-long supply, which necessitated offshore production.

Offshore Operations: Dual Organisational Form

Instituting offshore production was based on establishing partnerships with local producers or their intermediaries. The foreign producers were not members of the cooperative, creating a dual structure where the cooperative principles upheld in New Zealand were decoupled from the offshore operational structures. This affected the ability to share technical and market knowledge transparently, thus jeopardising fruit quality marketed by Zespri and overall productivity in two ways. First, New Zealand growers were wary of sharing technical knowledge with offshore growers, whom they initially perceived as potential competitors. Second, as offshore growers supplied via local packhouses, commercial information related to prices, performance, and rebates with offshore growers were often blocked or filtered by the local partners acting as gatekeepers.

In response, Zespri introduced new communication activities, including visits between New Zealand and offshore producers, and increased the presence of Zespri’s technical staff in offshore regions. Although these initiatives increased technical knowledge sharing, strategic information sharing remained limited.

The dual structure created a second tension related to fruit availability and overlapping growing seasons. To achieve price premiums, Zespri prioritises fruit that meets the market demands, which can mean selling offshore fruit ahead of New Zealand-grown product. While profitable for the cooperative, this disadvantages New Zealand growers. Managing the interests of members, non-member producers, and customers became increasingly challenging for Zespri.

Export of Cooperative Business Model: Challenging ‘Liability of Cooperativeness’

With demand outstripping supply, Zespri recognises its dependence on increasing offshore productivity and the need to align the interests of offshore growers with Zespri’s goals. The challenge is that regions have different institutional arrangements and powerful local intermediaries who restrict direct control over fruit quality and payment systems. Thus, Zespri increasingly refers to offshore producers as part of the ‘Zespri family’, and management openly expresses the desire to extend the ‘Zespri model’^[5] to offshore partners. Recently, there have been attempts to provide offshore growers with performance information that New Zealand producers regularly receive.

Furthermore, in New Zealand, Zespri launched a sell-back scheme requiring shareholders who do not sell fruit through Zespri to relinquish their shares, in a bid to strengthen alignment between the producers and cooperative goals. Taken together, these initiatives are part of Zespri’s ongoing attempt at regenerating cooperative values by attempting to combine the activities needed for successful foreign operations with the cooperative principles.

Conclusion

Cooperatives offer a prosocial option to innovation and growth (Muñoz et al., 2020). Such growth often requires internationalisation, which, paradoxically, may lead to degeneration and the weakening of cooperatives’ traditional values. Yet our understanding of how producer cooperatives manage tensions related to internationalisation is limited and has not received much attention from IB scholars.

The Zespri example shows that cooperatives can, over time, successfully manage the tensions arising from internationalisation and transfer cooperative values. This process is, however, incremental and responding to stakeholders and market pressures creates cycles of degeneration and regeneration of cooperative principles. We find that the cycles are underpinned by an active managerial agency that attempts to manage these tensions by compromising between, decoupling, and combining logics. In that sense, degeneration can be understood as an agentic managerial process to balance competing demands, rather than an inevitable outcome for internationalising cooperatives (c.f. Bretos et al., 2020).

While this bears some similarity to the internationalisation of traditional MNEs (e.g., Vahlne & Johanson, 2017), the uniqueness of cooperatives’ internationalisation process stems from the fact that they must contend with competing institutional logics (e.g., market and cooperative), which provide different prescriptions of what appropriate goals and legitimate strategies for achieving them (Thornton & Ocasio, 2008). Resolving these tensions involves learning and experimenting through a process of selecting, retaining, and discarding certain capitalist and cooperative structures and activities at different stages of the internationalisation process.

While we attempted to shed light on cooperatives’ internationalisation to provide tentative answers to how they manage the tensions in their internationalisation journey with policymakers and practitioners in mind, we also strive to draw the IB community’s attention to these understudied firms. This resonates with Strange’s (2018) call for IB researchers to develop a better understanding of how firms with alternative governance and ownership structures exhibit different behaviour in their international operations.

Acknowledgements

We would like to thank Zespri’s management team and growers for their generosity in providing access, time and support.

About the Authors

Frank Siedlok is a Senior Lecturer in the Department of Management and International Business at the University of Auckland Business School. His research is focused on collaborative practice and skills in the area of strategic innovation and knowledge development – and how these can lead to collective action. Frank has undertaken research projects in the contexts of interdisciplinary research collaborations; industrial clusters and ecosystems; managing innovation in engineering project firms and in producer cooperatives.

Ziad Elsahn is a Senior Lecturer in International Business at the Entrepreneurship, innovation, and Strategy department at Northumbria University, Newcastle Business School. His research interests lie at the intersection of International Business, Organisation theory, and Strategy. Specifically, his research focuses on internationalisation, knowledge coordination and integration within and between firms, and strategy process in multinational enterprises.

Lisa Callagher is a Senior Lecturer at The University of Auckland Business School in Auckland, New Zealand. Lisa’s research addresses the organization and management of innovation and is published in Management Learning, R&D Management, Journal of Management Inquiry, Journal of Innovation Management, and M@n@ngement. Also, she is interested in innovative curriculum designs that involve case teaching, which is published in the Journal of Management and Organization and the International Journal of Technology Transfer and Commercialisation.