Assessing the strategic value of the resources and capabilities of CDI’s Farmer Market Organizations

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Assessing the strategic value of the resources and

capabilities of CDI’s Farmer Market Organizations

By

Q.H.S. Por

University of Groningen Faculty of Economics and Business

Master Thesis Business Administration Small Business & Entrepreneurship

August 30, 2013

Studentnumber: s2217880 First Supervisor: Dr. C.H.M. Lutz

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Abstract

Cooperatives, mentioned here as Farmer Market Organizations (FMOs), are also a common practice in Ethiopia. FMO’s have the overall objective to improve the livelihood of smallholder farmers by promoting market access. Nevertheless, the sector still lacks progression compared to many of its western counterparts. This research will be conducted in order to identify why the Ethiopian FMOs are lagging behind. In addition, we will also try to identify the main strengths of the FMOs and the opportunities for further growth these FMOs possess.

This study analyzed three FMOs (Dolu Kersa, Jalala and Meda Gudina) which are supported by the NGO, Center for Development Initiatives (CDI). This paper will provide a thorough analysis of the resources and capabilities of CDI’s FMOs. The main objective of this research was to identify the key resources and capabilities for CDI’s FMOs and which investments have to be made to further strengthen the position of the affiliated smallholders in the market.

After a thorough investigation, it can be concluded that one Farmer Market Organization (Meda Gudina) has one resource with a high strategic value, namely fertile land. The FMOs have several resources and capabilities, which potentially have strategic value but are not yet exploited. These resources where the investments have to be made are collective action and storage facility. There is also one unique FMO (Jalala) that needs investment in either: animal fattening, shop, community water service, primary school or flour mill.

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Acknowledgement

I would like to thank the following people for assisting me during my research:

My fellow students: Hateren, A. van, Rensink, T.G., Veldhuijzen, M.L.A. and Zonderland, M.

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5 4. Case Introduction ... 40 4.1 General Information... 40 4.2 NGOs in Ethiopia ... 41 4.2.1 FMOs in Ethiopia ... 43 4.2.2 Specific projects ... 45 4.3 CDI ... 48 4.3.1 Research results... 52 4.4 FMOs ... 53 4.4.1 General ... 53 4.4.2 Dolu Kersa ... 55 4.4.3 Jalala ... 59 4.4.4 Meda Gudina ... 65 4.5 Union (Mira) ... 69 4.5.1 Conclusion ... 73

4.6 Project C7 and C5 evaluation ... 74

5. Strategic analysis ... 80

5.1 Strategic Intent ... 80

5.2 Product Market ... 81

5.2.1 Conclusion ... 82

5.3 Strategic Industry Factors ... 83

5.3.1 Macro environment... 85

5.3.2 Summary ... 86

5.4 Alignment between strategic intent and SIFs ... 87

5.4.1 Dolu Kersa ... 87

5.4.2 Jalala ... 88

5.4.3 Meda Gudina ... 89

5.5 Strategic value ... 90

5.5.1 Determining the strategic value ... 90

5.6 Asymmetries ... 93

5.6.1 Dolu Kersa and Meda Gudina ... 93

5.6.2 Jalala Asymmetries ... 94

5.7 Investment advice ... 95

5.7.1 Strategic resource ... 95

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6 5.7.3 Jalala Asymmetries ... 96 5.7.4 Non-strategic resources ... 97 6. Conclusion ... 98 6.1 Discussion ... 98 6.2 Limitations ... 99 References ... 100 Other documents ... 104

Appendix 1: Question list NGO: ... 106

Appendix 2: Question list FMO: ... 110

Appendix 3: Question list Farmers: ... 115

Appendix 4: Question list Union: ... 118

Appendix 5: FMO Trade activity 2012/2013 ... 120

Appendix 6: Identified gaps ... 123

Appendix 7: FMO Diagnosis... 124

Appendix 8: PESTEL Framework ... 143

Appendix 9: Proclamation ... 154

Appendix 10: Co-operative governance ... 165

Appendix 11: FMO Start-up criteria ... 170

Appendix 12: FMO Criteria ... 181

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Abbreviations

ABE Adult Basic Education

ADAA African Development Aid Association BDS Business Development Service provider CDI Center for Development Initiatives COGS Cost Of Goods Sold

CSA Ethiopian Central Statistics Agency ERSHA Ethiopian Rural Self Help Association

ETB Ethiopian Birr

FC Facilitators for Change

FDC Forward Delivery Contract

FMO Farmer Market Organization

GTP Official Ethiopian Growth Transition Plan HUNDEE Oromo Grassroots Development Initiative

ICCO Dutch Abbreviation for: Inter Church Organization for Development Cooperation Kebele A neighbourhood or a localized and delimited group of people

NGO Non-Governmental Organization

OPEX Operational Expenses

OSRA Oromo Self Reliance Association

OVC Orphans and Vulnerable Children

RBV Resource Based View theory

(S)CA (Sustainable) Competitive Advantage

SIF Strategic Industry Factor

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Chapter 1: Introduction

“Not aid but trade” is a well-known dogma in the debate on underdevelopment (Moyo, 2009). China and several Asian countries prove the relevance of this principle. However, practice in Africa shows that it is quite difficult for farmers to reap the benefits of trade. They have to develop strategic resources and dynamic capabilities, related to those resources, in order to make sure that the individual farmer can create a competitive advantage. The crucial question on how the position of producers in value chains can be strengthened remains. A part of the answer is rooted in what

Williamson (2000) called ‘the formal play of the game’, which is based on formal rules and regulations set by governments and market authorities. The proposed research focuses on the play of the game which is determined by negotiations between the FMOs, the traders; processors and the

environment, involved in the supply chain. Strategic Management

In the strategic management literature this query is receiving quite some attention. The Resource Dependence Theory has been one of the first theories addressing the dependence of firms in value chains (Pfeffer and Salancik, 1978). Availability of critical resources explains why some actors may realize high returns, while others may end up with losses. The Resource Based View (RBV) extends this insight and provides an explanation for the fact that some firms are able to protect their returns with strategic resources while others are not able to access the resources needed to produce the highly valued product specificities or related services.

Collective Resources through Marketing Organizations

In the small business literature the importance of collective resources is discussed and ample evidence is provided that these resources may reduce the resource constraints these businesses are facing. Through collaboration, small businesses are able to create access to resources which are generally only available to large firms. The literature on cooperatives further elaborates on this. However, this literature also shows the importance of potential drawbacks of collaboration, in particular the consequences of free-riding and the importance of selection mechanisms (Berrou and Combarnous, 2012).

The Cooperatives’ Role

Cooperatives are business organizations owned and operated by a group of individuals for their mutual benefit (O’Sullivan, 2003) and are usually formed by a community of small firms (Gray, 2011). Cooperative organizations are widely used throughout the entire world and in various sectors; the roots are specifically strong in organizations which are in some way connected to the agricultural industry. These agricultural cooperatives try to unite farmers and to establish economies of scale. In a study on the motives to start agricultural cooperatives, we found the following statement: ‘’Farmers come together, or unify, in a cooperative organization to gain market power and/or gain a service (broadly defined) to enhance farm operations’’ (Gray, 2011). Important examples of such

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9 In this paper we will apply the Resource Based View (RBV) to cooperatives in Ethiopia, by using a framework based on the work of of Rangone (1999). This paper aims at identifying strategic resources and capabilities which Oromian farmers might develop to strengthen their position in the market. Applying the RBV at cooperatives is especially interesting since this type of organization is becoming increasingly popular (Berdegue, 2001; Uphoff, 1993). In fact, this topic is becoming so popular that 2012 was announced to be the ‘year of the cooperative’ in the United Nations (UN). "Cooperatives

are a reminder to the international community that it is possible to pursue both economic viability and social responsibility." (United Nations Secretary-General Ban Ki-moon)

1.1 Applicability in Ethiopia

Cooperatives, mentioned here as Farmer Market Organizations (FMOs), are also a common practice in Ethiopia. The aspect of development seems to be the catalyst for cooperation in Ethiopia. ‘’Many of the world’s poor belong to agriculturally based rural households. In this context, attempts to reduce global poverty must necessarily focus on smallholder agriculture’’ (Markelova & Meinzen-Dick 2006). The authors agree that there can be an important role for FMOs to enhance this development: ‘’There is increasing recognition that the opportunity for smallholders to raise their incomes from agricultural production, natural resource management and related rural enterprises depends on their ability to participate successfully in markets.’’ (Markelova & Meinzen-Dick 2006) Which is also

Contributions of FMO development have been recognized in numerous studies on the role of social capital in growth, poverty reduction, and resource management (Uphoff & Wijayaratna, 2000; Durlauf & Fafchamps, 2004). Village organizations are increasingly considered as essential partners by development agencies which frequently rely on them to implement their programs.

FMO’s have the overall objective to improve the livelihood of smallholder farmers by promoting market access. These cooperatives consist of the farmers within a certain geographical area and within a certain market sector. The FMOs are giving advice; training and create market access to their members. It is important to note that agriculture in Ethiopia shows great prospects in terms of basic resources such as land & climate. Nevertheless, the sector still lacks progression compared to many of its western counterparts. This research will be conducted in order to identify why the Ethiopian FMOs are lagging behind. In addition, we will also try to identify the main strengths of the FMOs and the opportunities for further growth these FMOs possess. This study analyzed three FMOs (Dolu Kersa, Jalala and Meda Gudina) which are supported by the NGO, Center for Development Initiatives (CDI). The NGO helps the FMOs with the daily problems and facilitates the implementation the ICCO projects C5 and C7. Details of these projects will be clarified later on.

In short, the major planned activities of C5 cover the implementation of ICT within the cooperatives. Project C7 includes the design and provision of tailor made capacity building, training, coaching and mentoring of FMOs, supporting the formation and strengthening of unions, linking farmers

organizations with chain actors and chain supporters, introducing of new high value crops, supporting locally initiated rural service providers and capacity building of pro-poor and gender sensitive

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1.2 Relevance

Academic Relevance

This research project is especially relevant because of the application of the RBV on CDI’s FMOs. Generally, the literature regarding the application of RBV placed comparably less emphasis to

cooperatives, and especially not to cooperatives in Africa. As such, the application of RBV theory on a cooperative will enable to identify the strategic value and related strategic options concerning the resources and capabilities of such cooperatives. This is especially important because of the increasing popularity of cooperatives. The relevance of our study is further supported by the following

statement: ‘’It is consequently important to ask how effective FMOs are in African rural development, and what can be done to enhance their performance. Numerous case studies have contributed important understanding to the existence, performance, and benefits for members of village organizations (Tendler, 1983; Thorp, Stewart, & Heyer, 2005).’’

Practical Relevance

The practical relevance of this study lies in its academic problem solving element. We aim to evaluate the collaboration between FMOs and NGOs. The specific intent of this research is to identify

investment options for FMOs in strategic resources and capabilities to strengthen their strategic position.

Following an official document regarding the functioning of FMOs in Ethiopia, we can say that ''the overall goal of the FMO program is to upgrade household living standards of smallholder farmers, by improving production and market access. This will happen by promoting market oriented

autonomous Farmers Organizations that will provide their members and other farmers in their vicinity with greater market access, which will, in turn, enhance their participation in local markets. It specifically aims at increasing annual income'' (Project C7 FED Project proposal 2011-2013).

1.3 Problem Statement & Research Aim

The research aim of this paper is to provide a thorough analysis of the resources and capabilities of CDI’s FMOs. Based on this analysis, we will be able to identify whether the FMOs are able to strengthen the position of individual farmers. In addition, if the FMOs turn out to strengthen their members’ position, we will try to identify the strategic value of the resources and capabilities of these FMOs. As a result, the NGOs and FMOs and related partners should be able to further identify and optimize both strategies and investments to improve the position of these FMOs.

Regarding this aim, we were able to derive the following problem statement:

‘’What are the key resources and capabilities for CDI’s FMOs and which investments may further

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1.4 Research questions

To provide a broad, yet concise answer to this problem statement, we present the results in two chapters. Chapter 4 deals with the two sub-questions and elaborates on the background information of CDI, the FMOs and the Union. It is important to know the role of each actor, in order to understand the relation between the main actors within the value chain and the influence of project C5 and C7. The background information serves as a solid fundament for the use of the framework which is developed later on. The second part of the results focuses on the application of the framework which is developed in Chapter 5. This framework applies RBV insights and results in investment options for the FMOs.

1. What are the activities of CDI, their FMOs and the Union?

The first sub-question analyzes the background and activities by providing a detailed description of each actor, including its mission, vision and main activities. The chapter ends with an explanation of the FMO-NGO relationship and outlines what kind of support is provided to the FMO during each development stage.

2. What is the outcome of project C5 and C7?

The second sub-question elaborates on project C5 and C7. These projects form the backbone of the FMOs funding and are accountable for most of the strategic intentions and goals. This section provides background information and results of these projects and ends with an evaluation of the observed results.

3. What is the strategic intent of the FMO?

This third sub-question tries to identify the strategic focus (so-called strategic intent) of the FMOs by looking at the fit between the vision and resources & capabilities of the cooperative.

4. What are the product markets for these FMOs?

The fourth sub-question aims at the environment of the cooperative, where the most important product markets of the FMOs are explained. We explain which markets have the most influence and where the FMOs can sell their crops. This is important, because it serves as input for the fifth question.

5. What are the Strategic Industry Factors (SIFs) relevant for FMOs?

The fifth sub-question detects the Strategic Industry Factors (SIFs), which are the set of demands that have become the prime determinant of economic rents for the selected. The SIFs indicate which environmental conditions need to be fulfilled, in order to achieve success.

6. Is there a fit between the SIFs and the strategic intent?

In order to detect the key resources and capabilities, there has to be a fit between the SIFs and the resources and capabilities of the firm. The sixth sub-question determines if there is a fit.

7. Are the resources and capabilities that have a fit, of strategic value?

The seventh sub-question determines if the resources and capabilities that have a fit, have strategic value.

8. What are the asymmetries, providing they exist?

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12 9. What are the most attractive investment options for the FMOs?

Finally, on the basis of the previous sub-questions we should be able to answer our final sub-question concerning the investment options of the FMOs. The value of the resources and capabilities will identify what the investment options are.

To summarize, we will attempt to answer the following sub-questions: Chapter 4: Background information

1: What are the activities of CDI, their FMOs and the Union? 2: What is the outcome of project C5 and C7?

Chapter 5: Application of the framework

3: What is the strategic intent of the FMO? 4: What are the product markets for these FMOs?

5: What are the Strategic Industry Factors (SIFs) relevant for FMOs? 6: Is there a fit between the SIFs and the strategic intent?

7: Are the resources and capabilities that have a fit, of strategic value? 8: What are the asymmetries, providing they exist?

9: What are the most attractive investment options for the FMOs?

1.5 Personal Motivation

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2. Theoretical Background

Cooperatives have distinct features which distinguishes them from other types of organizational structures. While many organizational structures are constructed to serve a common need for individuals or firms, the foremost difference is that cooperatives are owned by their members (Gray, 2011). The cooperative’s members are often committed to the organization due to the common goals they pursue, while other organizations often bind their human capital with contracts. Additionally, while the amount of members in a cooperative widely varies, other alliances such as joint ventures are generally constructed between two firms (Besanko, 2009).

This member based type of organization is highly dependent on the amount of commitment of the members. Thus, cooperatives are to a large extent dependent on social structures. As such,

researchers doubt the efficiency of cooperatives and argue that cooperatives suffer from problems unique to this specific form of governance (Feng & Hendrikse 2012). In addition, the question arises whether a business can be successfully run if its customers or suppliers are strongly involved in the daily operations because there are several conflicting interests (Hansmann, 1996). The tasks of a cooperative’s CEO consist of more dimensions due to the ‘cooperative’s goal of jointly maximizing member and cooperative returns’ (Peterson and Anderson, 1996). Therefore, members are both users but simultaneously owners of the cooperative. As a result, Staatz (1987) identified two sets of concerns: owner concerns and user concerns. Owner concerns revolve around the security and overall profitability of their investments in the cooperative. User concerns include issues of the pricing and quality of product and services, which influence the profitability of their individual farm enterprise (Staatz, 1987).

This concern only, is already a reason to study cooperatives. Membership to a producer organization is a necessary condition to gain access to markets and gain some bargaining power. Stockbridge et al. (2003) states that: ‘there is increasing evidence that farmer organizations offer one way for

smallholders to participate in the market more effectively. Acting collectively, smallholders may be in a better position to reduce transaction costs of accessing inputs and outputs, obtain the necessary market information, secure access to new technologies, and tap into high value markets, allowing them to compete with larger farmers and agribusinesses’’. As such, cooperatives seem to be vital for small organizations in order to be competitive. This has been proven by western agricultural

cooperative producers that have been able to gain attractive prices and economies of scale. In addition, it allowed them to enhance their performance through sharing resources and knowledge. As a result of this success, they provide examples for other regions around the globe that pursue the same interest of maximizing the potential of their key resources.

We aim to apply the RBV framework to Ethiopian FMOs. Thus, we shall investigate whether a

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14 markets (Mesquita & Lazzarini, 2008).

We find that cooperatives are organizational structures which are owned by their members and that the amount of members widely varies amongst cooperatives. The commitment of the members is based on the goals and vision of the cooperative, which makes it a very social structure. Difficulties originating from supplier and buyer involvement in daily operations are common issues. Between the members, owner- and user concerns exist. Still, the characteristics of the cooperative allows more effective participation in the market through the accessibility to new capabilities and resources; they are in a better position to reduce transaction costs, secure access to new technology, obtain market information, enhance market performance, and other experience benefits in their inputs and outputs. These are factors which could allow Ethiopian farmers to compete with larger businesses.

2.1 RBV Overview

The resource-based view is the starting point for the analysis of the relative strengths and weaknesses of firms. According to Kor & Mahoney (2004) the firm's ultimate objective in a resource-based

approach is to achieve sustained, above-normal returns, as compared to rivals. They describe the RBV as a set of resources, which is not equally available to all firms, and their combination into

competences and capabilities, are a precondition for sustained superior returns. Competences and capabilities lead to sustained superior returns, to the extent that they are firm specific (i.e.,

imperfectly mobile), valuable to customers, non-substitutable and difficult to imitate. The heterogeneity itself among firms, in terms of competences and capabilities, can be induced or reinforced (i.e., made endogenous). From a dynamic perspective, innovations, especially in terms of new resource combinations, can substantially contribute to sustainable superior returns.

Penrose (1959) provided the intellectual foundations of the resource-based view (Rugman & Verbeke, 2002). She offers durable principles governing the growth of firms and the rate at which firms can grow efficiently. She also provides a theory of effective management of firm’s resources, productive opportunities, and diversification strategy. She provided an explanatory logic to unravel causal links among resources, capabilities, and competitive advantage, which contributes to a resource-based theory of competitive advantages (Kor & Mahoney, 2004).

Barney introduced the Resource-Based View (RBV) in 1991. The resource-based view considers a firm as a bundle of resources and these resources and the way they are combined characterize the

difference between firms. It is based on heterogeneity in strategic resources and not perfectly mobile resources. For example, Honda builds its strategy around their main strength; building quality petrol based engines. They started their business by creating small clip-on engines for bicycles. Later on they expanded their market to motorcycles, marine engines, generators and cars. Every product competes in a quite different product market, but leverages a common resource in the ability to build quality petrol based engines.

Barney (1991) defines resources quite loosely: “Resources include all assets, capabilities,

organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness.”

Barney considers almost everything internal to the firm as a resource. In order to make a difference between these resources, Barney introduced a checklist where key characteristics for a resource are identified.

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Figure 1: RBV model by Barney (1991)

Valuable: Resources are valuable when they enable a firm to conceive of or implement strategies that

improve its efficiency and effectiveness.

Rare: Rare among current and potential competitors.

Inimitable: Historical conditions, causally ambiguous (not knowing what is exactly is, or where it is

created), or socially complex (social interactions make it hard to copy).

Non-Substitutable: Resources should not be able to be replaced by any other strategically equivalent

valuable resources.

Sustained competitive advantage: Implementing a value creating strategy not simultaneously being

implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy. Sustained does not imply that it will last forever; unanticipated changes in the economic structure of an industry may make a sustained competitive advantage obsolete.

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2.2 Critiques on the RBV

In this section we will show the most noteworthy critiques for the RBV and what this means for our research. Kraaijenbrink et al. (2010) provide a clear literary overview of the most important critiques. This paper will be used as a guideline to determine what we need to take into consideration for our RBV model that is to be applied in Ethiopia. In this paper, eight major critiques are discussed and solutions are provided. Each of these critiques and their possible implications for our goals will be explored here. Five of these points are debunked by Kraaijenbrink et al. (2010). They argue that three critiques are more dangerous to the RBV theory. A closer look at these three strongest critiques is provided with discussion on possible adaptations. We argue that one of these important critiques, namely the VRIN, being neither necessary nor sufficient for SCA, has already been solved by other researchers. The CIDAS model as proposed by Rangone (1999) is a better predictor of SCA. Firstly, here is an overview of the eight critiques and a short summary of their implications. The final two are those that still need extensive reworking to be viable for research and will be discussed at length later. We have added one critique, namely the applicability of the RBV for entrepreneurship. The relevance of this critique will be explained in the section below.

· 6 critiques that have been mostly solved are:

o (A) RBV has no managerial implications. o (B) RBV implies infinite regress.

o (C) RBV’s applicability is too limited. o (D) SCA is not achievable.

o (E) RBV is not a theory of the firm.

o (F) VRIN/O is neither necessary nor sufficient for SCA

· A: The first critique states that RBV has no managerial implications. They argue that the RBV exaggerates the control management over resources and their future value. RBV is not a theory that provides directions or clear paths; rather it is explanatory in nature and thus must undergo

managerial interpretation to cue useful implications. This said; explanatory theory can provide useful indicative results. Furthermore, theories that provide flawless directions for managerial decisions are impossible to achieve in practice. Therefore we believe this critique, although in need of

consideration, does not render RBV useless in the creation of managerial considerations.

· B: A second critique is that the RBV entails an infinite regress (Collis, 1994; Priem & Butler, 2001). Collings (1994) provides a clear example of this problem stating; “A firm that has the superior

capability to develop structures that better innovate products, will, in due course, surpass the firm that has the best product innovation capability today.” Since a second-order capability (developing

structures that better innovate products) will in due course be more valuable than any first-order capability (product innovation), the RBV suggests firms should strive to obtain such second-order capability Kraaijenbrink et al. (2010). The critique here is that this process can be repeated endlessly and firms can keep searching for the deeper level of processes that can be managed. Even though this is hard to falsify in an abstract sense it holds little value in practice. Adding on infinite layers moves the theory further away from theoretical effectiveness and thus managerial implications. We believe this critique holds true in a purely hypothesized form but is of little relevance to our goal. Searching for second-order capabilities that are strategic, can be useful for our practical outset.

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17 uniqueness can be useful, especially for practical goals. Connor (2002) argues that RBV only applies to large firms with significant market power. He states that the SCA of smaller firms is not a result of static resources and thus not usable within the RBV theory. This critique does not consider intangible capabilities that do exist in small firms. RBV also looks at the entrepreneurs own resources and capabilities and thus explains phenomena even in firms without considerable market power.

· D: SCA is not achievable; this is another critique that RBV scholars face. Fiol (2001) argues; “Both

the skills, resources, and the way organizations use them, must constantly change, leading to the creation of continuously changing temporary advantages.” This picks up on the previous critique and

is the Marshallian equilibrium argument that every SCA must eventually be competed away. Eisenhardt and Martin (2000) and D’Aveni (1994) draw similar conclusions. This critique has merit, but the difference here is that firms are not passive. Competitive advantages can be achieved and

sustained only at the dynamic level through advantageous “dynamic capabilities” or “organizational learning, “enabling the firm to adapt faster than its competition (Kraaijenbrink, 2010). This reaches

back to our previous conclusion that second-order capabilities are important in validating the RBV in a practical manner. We accept that in a dynamic environment firms cannot create a SCA from a static set of resources. However, the RBV’s logic applies as much too dynamic capabilities as to the firm’s resources (Barney, Wright, & Ketchen, 2001). SCA cannot last forever but is a strong force in the short run (Kraaijenbrink, 2010). We believe that criticizing a theory on the fact its results will not last indefinitely is undermining the empirical use of said theory. By focusing on the capabilities that can manage resources a stronger predictor for future certainty emerges. This critique, if accepted, could be attributed to many managerial literature publications.

· E: The RBV is not a theory of the firm. We agree with this statement but do not agree with this statement being a valid point of criticism. Although we agree it is not a theory of the firm, this does not render the RBV problematic as a theory of SCA. Despite the Conner (1991) and Kogut & Zander (1992) articles stating RBV is trying to be a theory of the firm, the RBV’s originators have maintained they had no intention of explaining the existence or boundaries of firms (Barney, 2005; Barney & Clark, 2007; Peteraf & Barney, 2003). Given that transaction cost theory addresses questions about what governs a firm directly, the RBV seems more a complement to TCE (Barney, 1999; Gibbons, 2005), and we agree with Kraaijenbrink (2010) in seeing no reason to require the RBV to meet the criteria for a theory of the firm. We believe RBV can be a useful theory for explaining the strategic decisions firms make when they account for the factors the market implicitly demands from them.

· F: Barney (1994) states that SCA can be achieved if firms enjoy resources and capabilities that are VRIN (O) and when there is an appropriate organization in place. The first critique here is the lack of empirical evidence concerning RBV. Empirical research shows modest support, suggesting the need of further variables to be included to explain SCA (Armstrong & Shimizu, 2007; Newbert, 2007).

Furthermore, it has been shown that the possession of resources is not enough. Being able to deploy these resources is how SCA can be attained (Madadok, 2001; Peteraf & Barney, 2003). This again shows that second-order capabilities might be a stronger focus for the future of this theory. There are also studies suggesting you do not need VRIN to explain SCA. Foss & Knudsen (2003) argue that uncertainty and immobility are the true basic conditions for an SCA to arise. Any other conditions are simply additions to this.

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18 explain achieved SCA. The point here is that to create SCA a firm needs both a bundle of resources and the managerial capabilities to recognize and exploit the productive opportunities implicit in them. Even when strong resources are found, the need for strong management of these resources into bundles might be a problem. We believe that Kraaijenbrink (2010) did not dig deep enough and forgot to include other theory such as the CIDAS framework as proposed by Rangone (1999). We will later show, in our conceptual framework, that the adapted version of CIDAS in combination with dynamic capabilities is an answer to this critique. We agree that the original VRIN test by Barney (1991) is not useful to explain SCA, but we argue that there are already better alternatives available in empirical literature.

· 3 Critiques that need further theorizing and will be explored in depth here are:

o Tautology: Value of a resource is too indeterminate to be of use for theory. o The definition of resources is unworkable.

o RBV’s applicability for entrepreneurship

2.2.1 New notion of value, solving the tautology

One of the most limiting critiques on the early RBV research is stating that the theory is tautological in nature. Barney (1991) gives an example of this tautological nature in stating; ‘’ Resources are valuable

when they enable a firm to conceive or implement strategies that improve its efficiency or

effectiveness (Barney, 1991).’’ The main cause of the tautology problem in RBV lies in the indefinite

notion of value (Priem & Butler, 2001). In order to remove the tautological nature of the RBV the notion of value needs to be redefined and how this should be done is researched by Priem & Butler (2001). In creating distance between the notions of value of a resource and that of a SCA one or both of these concepts need to be adjusted.

In an attempt to clarify the RBV notion of value, Bowman and Ambrosini (2000) suggest three concepts of value: perceived use value (the perception of value by a customer), total monetary value (the amount of money a customer is prepared to pay), and exchange value (what is actually paid). Kraaijenbrink (2010) suggest distinguishing value creation, value capturing, and value assessment. To some extent, these distinctions have clarified the notion of value as offered in the initial RBV

publications. These examples show that the second part of the solution to the tautology is the need to assess value exogenously. However, they have not resolved the RBV’s tendency to tautological explanations completely, because the value of a resource and the SCA it generates is defined in identical terms. The explanans and the explanandum of the RBV remains the same (Kraaijenbrink, 2010). In order to see and use RBV as a theory, there needs to be a way to explain value differently to move away from the tautology issue.

Priem & Butler (2001) argue that value can be determined exogenously by the market. They state several reasons that ensure value cannot be created by firms internally. Value is created in a firm, but is determined by the market. An example of this reasoning is the fact that two firms, one a

price-leader and one a differentiator in the same market can create the same returns and thus no competitive advantage. These firms employ different resources in different ways but do not generate a competitive advantage. This shows that firms that consistently reach a competitive advantage will have certain strategic resources and employ these dynamically. However, firms with strategic resources will not create competitive advantages per definition, because value is determined exogenously, by the market. Barney (2001) actually agrees with this statement explicitly. The classic RBV theory does not provide means to determine this exogenously generated value (Priem & Butler, 2001). The objective now is to find a way to determine this exogenous value within the framework of RBV to create stronger predictions about sustainable value and thus, sustainable competitive

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19 Kraaijenbrink (2010) argues that it is hard to create objective bases for resource value and states that incorporating a more subjective and firm specific notion of value might better address the value critique. We believe this to be false, as we established that value is created in the firm, but value is determined outside of the firm. A firm specific notion of value counters the exogenous determination of value and undermines the goal of establishing the internal value a firm has on the market

demands. Lastly, Kraaijenbrink (2010) argues the following: ‘’ RBV literature does not sufficiently

address the observation that firms can generate an SCA from apparently valueless or even

burdensome resources. The RBV’s defining assumption is that value is a characteristic of one or more of the firm’s resources.’’ We believe this critique becomes irrelevant when we explain the value as

being determined by the interplay between internal capabilities and external forces. We agree that even valueless resources can be bundled to become valuable capabilities through management and that this is not a weakness in the RBV.

To solve issues surrounding the RBV the different concepts need to be operationalized and empirically tested. Although, this has been attempted in several empirical studies, there has been only moderate support for the RBV (Armstrong and Shimizu, 2007). Peteraf and Barney (2003) argue that introducing other levels of analysis (e.g. industry analysis) would only lead to a muddier RBV. However, to solve the value problem, an external analysis (exogenously) is necessary to explain the real resource value. Moreover, a consideration within the RBV is that the theory explains differences between firms in the same market and/or industry, requiring some sort of tool or method to compare the firms.

Besanko (2012) shows us a duality perspective within firm performance. Both internal and external forces shape individual firm performance and both are important in explaining value created inside the firm. Market economics (Porter’s ‘’five forces’’) is an example of influences outside the firm. The internal influence consists, as made apparent throughout this paper, of the resources and capabilities possessed and operationalized. As described above, performance of a firm can be influenced by factors outside the firm (Newbert, 2007). Every firm in this study will be considered in the context of these external influences. If all firms are under the same (international) forces, the reactions to these forces will be able to shape competitive advantages. A positive view towards negative (external) forces can differentiate one competitor from the next and this is what will create value for the first competitor through the interplay of the internal capability to exploit or benefit from the external forces. Within this reasoning the tautology problem is solved as the definitions of value of the resource and the resulting CA have been split. The value of a resource or bundle of resources

becomes apparent when the resources are operationalized correctly with a regard of external market forces. This way the value is determined by the firms who operationalize their resources best; in relation to the market. This duality of internal and external factors removes the tautology of value as we discard the notion that value is determined by the firm alone.

Besanko et al. (2012) provides a strong definition of competitive advantage in line with the literature we have already discussed: ‘’When the firm earns a higher rate of economic profit than the average

rate of economic profit of firms within the same market’’.

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2.2.2 Resources & Capabilities redefined

As shown in the section above, a consensus has evolved in the branch of strategic management literature that a firm’s competitive advantage depends on the fit between the opportunities or forces in the market and its strategic resources (Amit and Schoemaker, 1993; Makadok, 2001). Similarly, Rangone (1999) argues that a firm may create value if its resources are strategic and fit with the key success factors in the market in which the firm operates. Rangone (1999) argues that the application of the resource-based approach to small firms has to take into account small-firm characteristics. His adaptations to the RBV consist of both adaptations to the strategy process and the strategy content. He developed a model for competitive advantage of SMEs based upon three basic capabilities (Innovation capability, production capability and market management capability) but provides little explanation for these choices. He makes a distinction between resources and capabilities but does not give a clear explanation about the distinction and stays vague about the way how he

operationalized them.

An important critique on the RBV is the definition of resources, Barney (1991, 2002) state that firm resources include all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness. Priem & Butler (2001) argue that this definition is clearly over-inclusive. This all-inclusive definition of resources is problematic for two reasons. First, they do not sufficiently acknowledge the distinction between those resources that are inputs to the firm and the capabilities that enable the firm to select, deploy, and organize such inputs. A second problem is that the RBV does not address fundamental differences in how different types of resources may contribute in a different manner to a firm's sustained competitive advantage.

Resources can be purchased or traded freely, however it is generally argued that to achieve strategic advantage from a resource it needs to be developed internally. Dierickx & Cool (1989) state that: “the deployment of such tradable assets does not entail a sustainable competitive advantage, because they are freely tradable”.Resources may be heterogeneous and difficult for competitors to replicate, and therefore, important differences in cost or benefit advantages arise from these firm-specific resources. Mahoney and Pandian (1992) provides two reasons for this difficulty. Firstly, the characteristics of some of the resources, principally the intangible ones, make them difficult to transfer between firms. Secondly, the high acquisition costs involved mean that firms cannot easily change their resource base. This is especially true for small and medium-sized enterprises and smallholders because of their constrained access to financial resources and their specific knowledge base.

Amit and Schoemaker (1993) define the firm’s resources as stocks of available factors that are owned or controlled by the firm, and are converted into final products or services by using a wide range of the other firm’s assets and mechanisms. This could be technology, management information systems, incentive systems or trust between management and the labor force. They define the firm’s

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21 1993). As a result, capabilities are a firm’s distinct combination of resources. Since capabilities are firm specific they have a higher chance at being strategic. However, in a limited amount of cases, resources can be so valuable or distinct that they are hardly tradable. In this case they can be of strategic value. This builds upon Barney (1991) who looks upon resources to be of strategic value. The RBV breaks down in turbulent markets, where the strategic challenge is maintaining a

competitive advantage when the duration of that advantage is unpredictable, where time is an essential aspect of strategy. The rationale is that the RBV as proposed by Barney (1991) is essentially static; it assumes that the acquisition and operationalization of strategic resources leads to SCA. It does not account for a changing environment that can influence the value of these resources (see section above). This means that the RBV does not adequately explain how and why ﬁrms have a competitive advantage in situations of rapid and unpredictable change (Eisenhardt & Martin, 2000). Especially in markets where the competitive landscape is changing, the dynamic capabilities by which managers “integrate, build, and reconfigure internal and external competencies to address rapidly changing environments” (Teece et al., 1997) become the source of sustained competitive advantage. Currently the market in Ethiopia is quite stable; which is making the RBV applicable tool for our research.

Dynamic capabilities are specific strategic and organizational processes like product development, alliancing, and strategic decision making that create value for ﬁrms within dynamic markets by manipulating resources into new value-creating strategies. The patterns of dynamic capabilities vary with market dynamism; they are complicated, detailed and analytical processes that rely

comprehensively on existing knowledge and linear execution to produce predictable outcomes. They are simple, experiential, unstable processes that rely on quickly created new knowledge and iterative execution to produce adaptive, but unpredictable outcomes. The dynamic capabilities are a necessary condition for sustainable competitive advantage. Their value lies in the ability to alter the resource base: create, integrate, recombine, and release resources (Eisenhardt & Martin, 2000).

In summary, the firm’s resources are considered the heterogeneous assets that are freely tradable within a market. Capabilities are defined as the firm’s capacity to deploy a unique combination of resources, that are information-based, tangible or intangible firm-specific processes developed over time through complex interactions among the firm's resources (Besanko et al., 2010). Dynamic capabilities are the organizational and strategic routines by which ﬁrms achieve new resource configurations as markets emerge, collide, split, evolve, and die (Eisenhardt & Martin, 2000).

2.2.3 Applicability to Entrepreneurs

There are still some difficulties revolving the RBV which have to be discussed. When we look at the applicability for entrepreneurs, our attention is brought to the RBV’s much debated perspective that it is the individual resource which is important, rather than the ability of the entrepreneur to manage these resources.

This critique voices that the RBV limits the attributes of entrepreneurs and managers to having “entrepreneurial alertness” and superior information on the future value of resources (Kraaijenbrink et al., 2010). “Entrepreneurial alertness” refers to that entrepreneurs “...can discover and exploit situations in which they are able to sell for high prices that which they can buy for low prices”

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22 explanation for SCA. We shall now address these issues concerning the importance of management involvement and capability development.

The relationship between managerial capabilities and firm performance has long been established and also recently empirically tested (Sirmon & Hitt, 2007; Kraaijenbrink et al., 2010). With the importance of managerial capabilities confirmed, we find that a firm not only needs a bundle of resources, but also the managerial capabilities to recognize and exploit the productive opportunities implicit in them (Teece, 2007; Kraaijenbrink et al., 2010). Lastly, Kraaijenbrink et al. (2010) makes us ponder on “whether such knowledge (managerial capability to allocate resources) can be legitimately

or usefully treated as a resource of the same type as those in the bundle”. By creating a distinction

and by recognizing the importance of managerial capabilities we are moving beyond “entrepreneurial alertness” and superior information.

To answer the question proposed by Kraaijenbrink (2010); we find that as early as 1996, Miller argued the RBV could use further development by creating some basic distinctions among the types of organizational resources that can generate unusual economic returns. He created the distinction between property-based resources and knowledge-based resources. Examining knowledge-based resources, we find that Miller (1996) states the following: “Knowledge-based resources allow organizations to succeed not by market control or by precluding competition, but by giving firms the skills to adapt their products to market needs and to deal with competitive challenges.” To acquire SCA, knowledge-based resources have to be continuously developed (Miller, 1996). This continuous development is also known as ‘second-order capability’ or ‘dynamic capability’ in recent literature (Zahra, 2006; Teece, 2007). The recently developed argument is that not resources, but dynamic capabilities are necessary for SCA; through the dynamic capabilities, managers influence the firm’s SCA. The firm’s dynamic capability has been found to be rooted in the manager’s human capital. Also, Zahra (2006) emphasizes the effect of the “managerial choice” to start developing dynamic resources.

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2.3 Strategic Intent

Hamel and Phrahalad (1989) define strategic intent as ambitious and compelling; a dream that energizes; and an emotional and intellectual compass to the future. If strategic architecture (a high-level blueprint for the deployment of new functionalities, the acquisition of new competencies or the migration of existing competencies, and the reconfiguration of the interface with customers) is the brain, strategic intent is the heart. It should convey a sense of stretch, because current resources and capabilities are not sufficient for the task. It begins with a goal that exceeds the company's present grasp and existing resources: Then the organization rushes to close the gap by setting challenges that focus employees' efforts in the near to medium term objectives (Hamel & Phrahalad, 1989). Strategic intent should not be overlooked when looking at a firm’s manner of employing its resources and capabilities (Hamel & Phrahalad, 1989). It is the fundamental focus of a firm’s strategy to commit well beyond its current resource profile. In other words: strategic intent is the intention of the firm to commit to their goals and to push themselves onwards constantly. Due to strategic intent, the firm allocates its resources and capabilities in line to strive for success (Besanko et al., 2010). In application to organizational strategy, strategic intent refers to strategic or competitive priorities, objectives and future direction (Campbell and Yeung, 1991). Furthermore it deals with the question: “What business are we in and what strategic position do we seek?’” Millman and Wilson (1996) use the definition of strategic intent somewhat different, and closer to the concept of a “mission” as preferred by Campbell and Yeung (1991). It encompasses the strategic and operational fit between companies, which include goal congruence, mutuality and commitment (Frankwick et al., 2001; McDonald and Woodburn, 2007; Richards and Jones, 2009). Thus, strategic intent could be understood to be a mutual mission that relates to the level of relationship closeness between the supplier and the customer, and it is used in this way in Hitt et al. (1995) to refer to inter organizational partnerships. This is applicable for the FMO concept in Ethiopia, because these organizations function as a broker between small farmers and the market.

Hamel and Prahalad discuss the development of strategic intent as a two-step process through which a desired leadership position is conceived and benchmarks are established to chart the organization's progress. Managers must take several actions in that process, such as (1) communicating the rewards to be gained from attainment of the goal, (2) empowerment of both individuals and groups within the organization, and (3) maintaining an awareness of the strategic intent in resource allocation decisions. When properly designed and developed, these combined actions will produce a synergistic reaction between firm capabilities and organization members that will lead to a strong and enduring strategic intent (Hamilton, 1989). The framework of Hamel and Prahalad is applicable in a broad range of organizations. In our case, managers of the FMOs need to apply the three attributes of strategic intent to properly guide their organization. Which consist of: Sense of direction, sense of discovery and sense of destiny (Hamel & Phrahalad, 1989).

1: Sense of Direction: Strategic intent implies a particular point of view about the long term market or competitive position that a firm hopes to build over the coming decade or so’’ It should be a view of the future- conveying a unifying and personalizing sense of direction.

2: Sense of Discovery: A strategic intent is differentiated; it implies a competitively unique point of view about the future. It holds out to employees the promise of exploring new competitive territory. 3: Sense of Destiny: Strategic intent has an emotional edge to it, it is a goal that employees, perceive as inherently worthwhile.

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2.4 Strategic Industry Factors

The alignment of the intent in relation to the resources and capabilities within a certain organization is, in itself, insufficient to lead to a (sustainable) competitive advantage. As argued previously, an SCA is derived from the external value of the organizations’ resources and capabilities. Thus to create this advantage, the strategic intent should match the industry’s market demand. Amit & Schoemaker (1993) provide a clear explanation of outside-in industry factors in their Strategic Industry Factors (SIFs). They state that: ‘’Strategic Industry Factors are determined at the market level through

complex interactions among the firm's competitors, customers, regulators, innovators external to the industry, and other stakeholders.’’ SIFs are the set of resources and capabilities that have become the

prime determinant of economic rents for industry participants. Rent is the appropriation of resources and capabilities by an organization (Amit & Schoemaker, 1993). The strategic resources and

capabilities are a firm level construct, referring to the set of firm specific resources and capabilities developed by management as the basis for creating and protecting their firm's competitive

advantage. The rent producing capacity of these resources and capabilities depend on their own unique characteristics as well as on the extent to which they overlap with the industry-determined SIFs. As such, these SIFs represent the demands or norms the industry poses on the cooperative. In order to be successful, an organization should live up to these demands. Therefore, if the

organizations’ strategic intent would not match with the SIFs, they would not create value, since they do not comply with the market demands (Amit & Schoemaker, 1993; Rangone, 1999).

As such, following our previous section on the value issues within RBV, we can say that value can be measured through the alignment of an organizations strategic intent with the SIFs. This is further supported by an empirical research conducted by DeVasconcellos and Hambrick (1989) who show that performance is improved when the firm’s resources and capabilities are aligned with the demands of the market. Thus, in this study we will examine the fit between SIFs, the cooperatives’ intent, and available resources and capabilities. However the exact way to determine these SIFs is still disputable.

Amit & Schoemaker (1993) state that SIFS find their origin in six factors: Suppliers, Rivals, Entrants, Substitutes, Customers and Environmental factors.

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26 By analyzing these six factors we can identify that the first five factors as described by Amit &

Schoemaker, are similar to those described in Porter’s (1979) five forces model. As such, we can analyze these five factors using Porter’s line of reasoning. The environmental factor, however, remains ambiguous, since the environment encompasses a variety of different forces. According to Porter (2008) these environmental forces are already present within his five forces model. We agree only to a certain extent with this statement. We argue that the environment can pose both an indirect effect, thus through factors such as suppliers, but in addition, the environment can also pose direct

influences on the SIFs e.g. by legislation. As a result we consider it useful to examine this environmental factor and its direct influence as well.

To determine the environmental factor we chose to select the PESTEL framework, which comprises the most relevant environmental forces. This framework is constructed on the basis of the work of Aguilar (1967) and Brown (1984), which encompasses the Political, Environmental, Social,

Technological, Economical & Legal environmental pressures by which a market and thus a firm is influenced.

To make a clear overview of the identified factors, a distinction will be made between order qualifiers and order winners. Order qualifiers are the standards by which a firm’s products are passed as fit for possible purchase by customers. Order winners on the other hand are the standards that differentiate the products or services of one firm from another.

To summarize, the theory on the direct factors on SIFs and their indirect pressures is represented in the following graphical representation in which the PESTEL framework serves as an overarching influence on the SIFs both directly through the environmental factor as described by Amit &

Schoemaker (1993) and indirectly through the other five factors influencing SIFs as put forth by Porter (1979; 2008).

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2.5 Asymmetries

However, we should consider the option that the cooperatives in the environment analyzed will have few strategic resources and capabilities, or even none. When one takes a look at the standards set for a resource or capability to classify as strategic, one could argue that attaining these strategic

resources and capabilities is out of reach for many organizations as they are now. In practice, many organizations have yet to attain a competitive advantage; let alone try to sustain one. We recognize this issue and provide a solution as developed by Miller (2003).

It speaks for itself that when a new venture is born, the strategic resources and capabilities do not appear out of the blue; a firm has to attain them. Miller (2003) found that to attain a sustainable competitive advantage a firm should focus on the development of its asymmetries; these are defined as the “skills, processes, talents, assets or outputs an organization possesses or produces that its competitors do not and cannot copy at a cost that affords economic rents. They are rare, inimitable, and non-substitutable” (Miller, 2003). Examples of these asymmetries could be innovative processes or even subtle skills which are too complex to imitate or cannot be imitated at a cost which allows for economic returns (Miller, 2003). The argument for developing the firm’s asymmetries is that imitable resources can be copied and therefore competed away when they show clear potential for abnormal economic rents. Thus, resources and capabilities which are attainable are not sustainable; others will simply replicate as they see fit. This is the ‘sustainability-attainability dilemma’ (Miller, 2003). The question remains then how some firms can create and sustain inimitable resources and capabilities while other firms cannot? We propose a path towards both sustaining and attaining resources and capabilities through a method based on the theory developed by Miller (2003).

As firms cannot attain strategic resources and capabilities by copying from others, they have to look inside. Miller (2003) explains that “asymmetries go unnoticed because they are buried within a system and are therefore subtle and causally ambiguous—even to managers of the firms that possess them”.

Asymmetries do not immediately assure the appropriation of rent. Often, the asymmetries are not connected to engines of value creation and are as apt to be liabilities as assets (Miller, 2003). By identifying the asymmetries, managers are able to turn asymmetries into value creating capabilities by strategically embedding them within an organizational design configuration that exploits them and sustains their development (Miller, 2003). Also, asymmetries can start out with a negative “value”. Miller (2003) uses the examples of unproductive teams, disastrous divisions, burdensome contracts and troublesome long-term clients to demonstrate how asymmetries with an initial negative value can lead to sustainable competitive advantage if these asymmetries are properly developed. With this notion of starting out with a negative value, Miller (2003) allocates the generation of a competitive advantage to inimitability and rarity, not value. Value is created by leveraging the asymmetries amongst the opportunities in the market. All firms must satisfy a demand in order to obtain revenue. In order for it to be sustainable, this demand must correspond to the firm’s unique capabilities or rivals will simply appropriate most of the profits (Miller, 2003).

We conclude that Miller (2003) suggests that a firm interested in attaining SCA should develop their asymmetries. We propose two steps to extract economic rents from an asymmetry; step one discovery and step two development & market matching. These steps are further explained in chapter 3 section 2.7. This is based on Miller (2003), whom created this model because she

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3. Conceptual Framework

On the basis of this literature review we are able to present a framework to identify key capabilities and resources and, subsequently, to assess the strategic value of these capabilities and resources. In this study, an adapted version of Rangone’s (1999) five step method will be used to firstly identify the cooperatives’ intent and the SIFs. Then determine the resulting key resources and whether or not these can be considered strategic. To further determine the possibility of viable investments, we investigate the presence of asymmetries. Finally, on the basis of the previous steps, we will then be able to identify the investment options for the Ethiopian FMOs.

1 Define the FMOs strategic intent.

The intent is located through identifying the resources and capabilities of the cooperative. According to Hamel & Phrahalad (1989), strategic intent is: “on the one hand a desired leadership position and establishes the criterion the organization will use to chart its

progress” and “at the same time, strategic intent is more than simply unfettered ambition, it also encompasses an active management process that includes focusing the organization's attention on the essence of winning, motivating people by communicating the value of the target, leaving room for individual and team contributions, sustaining enthusiasm by

providing new operational definitions as circumstances change, and using intent consistently to guide resource allocations.’’

2 Identify the main product market(s)

The product market is the specific market on which the FMOs sell their products. These markets can both vary in characteristics and will as such pose different SIFs on the FMOs. 3 Identify the FMOs strategic industry factors (SIFs).

The product market, or industry, in which a cooperative operates, determines the resources and capabilities a firm needs, to ensure successful value creation. In this step we look at what this specific market needs and what resources and capabilities are in place to make sure that these SIFs are attainable. According to Amit & Schoemaker (1993) there are six factors which create SIFs: Suppliers, Rivals, Entrants, Substitutes, Customers and Environmental factors. These factors are mostly determined by carefully crafted interviews in qualitative research (Rangone, 1999).

4 Assess the alignment between the FMO’s strategic intent and the SIFs.

If we combine the intent of the cooperative with the resources and capabilities governed by the industry, we can determine the cooperatives' key resources and capabilities. These key resources and capabilities should be further tested on their strategic value.

5 Assess the strategic value of the FMOs key resources and capabilities,

By first determining the cooperative's key resources and capabilities, we now have the opportunity to test for strategic value. A variety of tests to determine this strategic value exist within RBV literature. In this paper we will develop a test, focusing on the Appropriability; Inimitability; Superior Differentiation and Non-Substitutability.

6 Identify the asymmetries

Miller (2003) found that to attain a competitive advantage a firm should focus on the

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29 a cost that affords economic rents. They are rare, inimitable, and non-substitutable” (Miller, 2003). Two steps are being followed to extract economic rents from a (possibly initially negatively valued) asymmetry; step one discovery and step two development & market matching.

7 Formulate a concise investment advice

On the basis of the fifth and sixth step, we formulate a concise investment advice towards the selected organization. Those resources and capabilities with the highest strategic value have to be maintained or even further optimized. The discovered asymmetries should receive much attention and investment. Those resources and capabilities which have no strategic value and do not create any value should not receive attention anymore.

We derive the following graphical representation of our framework on testing RBV theory in practice:

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3.1 Methodology

This chapter presents the methods of research used in order to collect the relevant data we need for our model. The research design is outlined in the first part. We explain why a case study is relevant for this study and discuss the quality standards, including validity and reliability. In the second part, we elaborate on how we have selected the sample and which procedures have been used. Finally we operationalize the measures mentioned in our conceptual model. The steps are similar to Rangone’s (1999) model, but some alterations have been made in line with the arguments in the literature section.

3.1.1 Research design

This research centers on the entire marketing structure involving FMOs, thus the aligned members and the Union are included. Several baseline studies and annual reports conducted by ICCO are being used. These studies are annually conducted and provide a global overview of the farmer market situation of Ethiopia. We expand this knowledge by using internal documents of the NGOs and Unions. To gain a multiple perspective view, semi-structured interviews are conducted with staff members of NGOs, representatives of FMOs and farmers. We elaborate on the resources, capabilities, strategic intent and the SIFs of the Ethiopian FMOs. These insights make it possible to appoint the strategic resources and capabilities within these organizations. In addition, asymmetries are examined, which eventually lead to the most appropriate future investment options for the FMOs. This paper can be qualified as academic problem solving, since academic RBV insights and

cooperative literature are used to provide solutions for real time problems (Myers, 2009). Action research aims to contribute both to the practical concerns of people in an immediate problematic situation and to the goals of social science by joint collaboration within a mutually acceptable ethical framework (Rapoport, 1970). Due to the nature of the RBV and the specific characteristics of the cooperatives, this research is conducted through qualitative research (Rangone, 1999). The main reason for using qualitative research is due to the limited available data on RBV variables within rural Ethiopia. Furthermore, language and cultural barriers ensure that a qualitative, in depth approach yields the results we need by gathering information through personal contact.

Assessing the strategic value of the resources and capabilities of CDI’s Farmer Market Organizations