Applying the RBV in Ethiopian Farmer Market Organizations

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Applying the RBV in Ethiopian

Farmer Market Organizations

FINDING STRATEGIC RESOURCES THAT LEAD TO-, OR AREAS FOR-, COMPETITIVE ADVANTAGE DEVELOPMENT WITHIN ETHIOPIAN FARMER MARKET ORGANIZATIONS TO ENHANCE THEIR STRENGTHS AND IDENTIFY FURTHER AREAS FOR INVESTMENT

University of Groningen

Faculty of Economics and Business

by

Mark Zonderland

1871161

Plavuizenweg 1, 8219PA Lelystad

Tel: 06 50822185

m.zonderland.1@student.rug.nl

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Abstract

The foundation on which this research is based lies in the theoretical concepts of the Resource Based View (RBV). This case study is part of an evaluation of a project of Non Governmental Organizations (NGOs) and Farmer Market Organizations (FMOs) in Oromia, and aims at identifying strategic resources and capabilities that Oromian farmers could develop to strengthen their position in the market.

To this end, three case studies have been conducted at FMOs which are part of the Non-Governmental Organization HUNDEE, in order to gain insight in whether these cooperatives pose strategic resources or whether there are asymmetries. Several NGO staff members, both union leaders, FMO committee members, farmers and non-members have been interviewed to get a clear view of the situation. The results from literature as well as the conducted case research indicate that the benefits from cooperation can be substantial.

The strategic position of the farmers and cooperatives is quite limited at the moment. It is clear that FMOs lack most resources and capabilities necessary to develop a competitive advantage. These organizations simply buy, store and sell the crops produced by its members. The primary producers and cooperatives are price takers and lack bargaining power within the value chain. Unfortunately, it will take many years before the current level of resources (which allows the FMOs to purchase enough crops and invest in other projects) has risen to a sufficient level. Due to the lack of access to external finance, FMOs are forced to focus on opportunities which are less capital intensive. Reinforcement of the operational structure, the sharing of knowledge and the improvement of the network should become key points of investment. The FMOs should work on their transparency, as it is not clear how much value they add and how the invested money of the farmers is being used. Additionally, they should develop a better training structure and demand more input and effort from the members who are not active in a committee. Knowledge does not trickle down in the cooperative, because the committee members do not learn how to educate others.

I discovered the existence of three asymmetries within the FMOs, namely: access to finance, access to knowledge and collective action. By properly nurturing these asymmetries, they might become a strategic advantage in the future. Before this will happen, however, members have to increase their level of input and commitment; otherwise, FMOs will never be able to capture a strong position in the value chain.

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Acknowledgements

The author would like to thank all the managers of HUNDEE, which were always available. They were so kind to facilitate my transport and provided me with all the necessary data. Furthermore I wish to thank the interviewees of Goda Racha, Suki Wagayo and Kituma, who sometimes had to wait for several hours before their interview could start. During the fieldwork, Tsega More from the University of Jimma offered his guidance and expertise in the data gathering process; I would like to thank him for his time and patience.

I also want to thank my supervisor Dr. C.H.M. Lutz, who supported and guided me throughout the whole process. He taught me how to conduct a field study and his feedback helped me to become a more critical consumer of academic knowledge. In addition, I would like to thank Mr. Siebenga, as he helped me envision my end goal during my year as a master student. He helped me to stay optimistic and step out of my comfort zone. I quoted his most helpful pronunciation below and I hope that this wisdom helps others in future to make the right decisions.

Last but not least, I want to thank my research buddies, my family and especially my girlfriend Mandy. You supported me during the hard times in Ethiopia. The first weeks were really difficult for me, but thanks to you, I was able to accomplish this job. Thanks to you all,

De optimist die snel beslist maar zich ook wel eens vergist, brengt meer geld in de kist dan de perfectionist die alles zeker wist,

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Content

Abstract ... 2 Acknowledgements ... 3 Abbreviation List ... 7 Chapter 1: Introduction ... 8 1.1. Applicability in Ethiopia ... 9 1.2.Relevance ... 10

1.3.Problem Statement & Research Aim ... 11

1.4.Research questions ... 12

1.5.Structure of Paper ... 14

Chapter 2: Theoretic Background ... 15

2. 1.Theoretic Background ... 15

2.2. RBV Overview ... 17

2.2.1.Critique on the RBV ... 19

2.2.2. New notion of value, Solving the tautology ... 22

2.3. Resources & Capabilities redefined ... 25

2.3.1.Applicability to Entrepreneurs ... 27

2.4. Strategic Intent ... 28

2.5. Strategic Industry Factors ... 31

2.6. Asymmetries ... 34

2.7. Conceptual Framework... 35

Chapter 3: Methodology ... 38

3.1. Research design ... 38

3.2. Sample selection ... 39

3.3. Research method and data gathering ... 40

3.4. Operationalization of the Concepts ... 42

3.4.1. Background information ... 43

3.4.2. Resources & Capabilities ... 44

3.4.3.Strategic Intent ... 45

3.4.4. Product Market ... 45

3.4.5. Strategic industry factors ... 46

3.4.6. Strategic resources ... 46 3.4.7. Assymetries... 47 3.4.8. Investment options ... 48 Chapter 4 Findings ... 50 4.1. National overview ... 50 4.2. Consortium overview ... 51 4.3. NGO description ... 53

4.3.1. Mission and vision ... 53

4.3.2 Operational Philosophy and Intervention Approach ... 54

4.3.4 Organizational Core Programs ... 54

Table 1: Main projects ... 56

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4.4. The union ... 57

4.4.1. Purchase process of the unions ... 58

4.4.2. Level of performance ... 59

4.5. FMO level ... 60

4.5.1.FMO description ... 61

4.5.2. Relation between HUNDEE and the FMOs ... 63

4.5.3. FMO structure ... 65

4.5.4. Entry procedure and personal investment in the cooperative ... 70

4.5.5. Selection of active members ... 71

4.5.6. Training ... 71

4.5.7. Size and growth ... 73

4.5.8. Rules and obligations of being a member ... 73

4.5.9. Partners ... 73

4.5.10. Benefits of being a member ... 74

4.6. Project C5&C7 ... 74

4.6.1. The ICT support project C5 ... 75

4.6.2. Level of outcome ... 76

4.6.3. The value chain support project C7 ... 77

4.6.4. Level of outcome ... 79

Chapter 5: Application of the framework ... 82

5.1. Strategic intent ... 82

5.1.1. Vision ... 82

5.1.2. Resources and capabilities ... 84

5.1.3. Strategic intent of the FMOs... 89

5.2. Product Markets ... 91

5.2.1. Wheat market ... 91

5.2.2. Wheat market supply and demand analysis ... 92

5.2.3. Barley market... 92

5.2.4. Barley market supply and demand analysis ... 93

5.3. Strategic Industry Factors (SIFs) of the wheat and barley market ... 94

5.3.1. Union requirements ... 96

5.3.2. Trader requirements ... 96

5.3.3. Factory requirements ... 97

5.3.4. Member requirements ... 97

5.3.5. Conclusion ... 98

5.4. Fit between the SIFs and the strategic intent ... 99

5.4.1. Fits concerning production ... 99

5.4.2. Fits concerning market management ... 100

5.5. AISS test ... 102

5.5.1. Analysis of the fits concerning production quantity ... 102

5.5.2. Fits concerning market management ... 106

5.5.3. Conclusion of the AISS test ... 107

5.6. What are the asymmetries, providing they exist? ... 108

5.6.1. Field results ... 108

5.6.2: Critical side note ... 109

5.7 Investment options ... 110

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Chapter 6: Discussion ... 114

6.1. Applicability of the RBV in Ethiopia ... 114

6.2. Relation between the NGO, FMO and farmers ... 115

6.3. Critical comments on the daily practice of the FMO ... 116

Chapter 7: Conclusion... 119

7.1. Limitations ... 119

7.2. Future research ... 120

Bibliography ... 121

Abbreviation List

ADAA African Development Aid Association

AIS(S) Strategic value test advocated in this paper on: Appropriability; Inimitability; Superior

Differentiation; (Substitutability)

BDS Business Development Service provider

CDI Center for Development Initiatives

CIDAS Strategic value test by Rangone (1999) on: Competitive Superiority; Inimitability;

Duration; Appropriability; Substitutability

CSA Ethiopian Central Statistics Agency

ERSHA Ethiopian Rural Self Help Association

ETB Ethiopian Birr

FC Facilitators for Change

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

NGO Non-Governmental Organization

OSRA Oromo Self Reliance Association

RBV Resource Based View theory

SIF Strategic Industry Factor

(S)CA (Sustainable) Competitive Advantage

SD Superior Differentiation

VCA Value Chain Approach

VRIN Strategic value test by Barney (1991) on : Value; Rarity; Imperfect Imitability;

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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 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

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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 cooperatives include FrieslandCampina & Rabobank. These are two initially small cooperatives, which have turned out to be important world-market players. In line with small business literature we note that not all cooperatives strive for growth. Many target survival or a stable business environment: ‘’Despite growing market opportunities, there is a danger that smallholder farmers will be squeezed out, even though they possess some competitive advantages over larger producers, especially in their low costs in accessing family labor and intensive local knowledge’’ (Markelova & Meinzen-Dick 2006).

In this paper we will apply the (Resource Based View) RBV theory and concepts to cooperatives in Ethiopia, by using a framework based on the work of Rangone (1999) This paper is part of an evaluation of a project of NGO’s and FMO’s in Oromia, and aims at identifying strategic resources and capabilities which Omorian 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

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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 (Goda Racha, Suikui Wagayo and Kituma) which are supported by the NGO HUNDEE. 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 agro-businesses. (Appendix D: Project C7 Plan).

1.2.Relevance

Academic Relevance: This research project is especially relevant because of the application of the RBV

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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 Plan)

Furthermore this paper will provide interesting material for those interested in the Ethiopian Agricultural markets and those involved in Aid programs concerning farmers in developing countries. Additionally it should also be interesting to those who are interested in the functioning and optimization of cooperative resources and capabilities in general.

1.3.Problem Statement & Research Aim

On the basis of the previous established gaps the literature provides; the applicability to this specific case; and the practical use it can have for Ethiopian NGOs (who advise the FMOs) within the Oromia Region, we came to the following research aim; problem statement and subsequent research questions.

Research Aim

The research aim of this paper is to provide a thorough analysis of the resources and capabilities of Ethiopian 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.

Problem Statement

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

‘’What are the key resources and capabilities for Ethiopian FMOs and what are the most important

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1.4.Research questions

To provide a broad, yet concise answer to this problem statement, we divided the results in two sections. The first section consist of two sub questions and elaborates on the background information of the FMOs. It is important to know the role of each actor, 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 first sub question analyzes the background and activities of the NGOs, the union and the FMOs. This chapter gives a detailed description of each actor, its mission, vision, organizational structure 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. As such, the first sub-question is: What

is the background behind, and are the activities of the NGO, unions and the supported FMOs? 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 project and ends with an evaluation of the observed results. The second sub question is: What is the of outcome of project C5 and C7?

The second part of the results focuses on the application of the framework which is developed in the next chapter. This framework applies RBV insights and results in investment options for the FMOs. This first step of the framework 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. Thus, the third sub-question we will try to address is: What is the strategic intent of the FMO?

The fourth and fifth sub-questions aim at the environment of the cooperative. First, the most important product markets of the FMOs are explained during the fourth sub question. 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. The fourth question is: What are the product markets for these FMOs? The fifth 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 industries of the previous sub question. The SIFs indicate which environmental conditions need to be fulfilled, in order to achieve success. Thus we want to answer the question: What are the Strategic Industry Factors relevant for

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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 which has to be answered is: Is there a fit

between the SIFs and the strategic intent? The seventh sub-question determines if the resources and

capabilities that have a fit have strategic value. An AISS test will be conducted in order to determine which resources and capabilities have a strategic value. This results in the following sub question: Are the

resources and capabilities that have a fit of strategic value?

Resources and capabilities which have no strategic value might be developed and become a competitive advantage in the future. Miller (2003) found that to attain a sustainable competitive advantage a firm should focus on the development of its asymmetries; which were originally defined as the “skills, processes, talents, assets or outputs an organization possesses Thus, to find the asymmetries, we focus on those resources and capabilities that, according to the strategic value test, do not allow for appropriation, but do have strategic value on inimitability; superior differentiation and substitutability. The eighth sub-question aims at identifying asymmetries, which are an additional source for competitive advantage when developed and invested in properly. As such, the sub-question is stated as following: What are the asymmetries, providing they exist? This is done by evaluating the different resources and capabilities among several preconditions, which will be explained in our theoretical framework.

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. Our final, conclusive, sub-question: What are the most attractive

investment options for the FMOs?

In summary, we attempt to answer the following sub-questions: Part 1: Background information

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Part 2: 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.Structure of Paper

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Chapter 2: Theoretic Background

2. 1.Theoretic 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 because of the common goal which they pursue, while other organizations often bind their human capital via 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).

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farmers and agribusinesses’’. As such, cooperatives seem to be vital to 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 (S)CA is achievable through resources and capabilities which originate from the cooperation between Ethiopian farmers in their cooperatives. Dyer & Singh (1998) stated that it is possible for a set of firms or a network to attain SCA through the development of its relationship; therefore, possibilities exist for resource and capability development which firms would be incapable of performing if they were functioning isolated from each other. Proof of this matter is found in Tanzania; a major obstacle facing smallholder-led agricultural growth in Tanzania is lack of market access (Barham & ChitemiI, 2009) and institutions of collective action, such as farmer groups, were found as an efficient mechanism for enhancing marketing performance (Kariuki and Place, 2005). Also, in Argentine, relationships with local peer firms promote collective sourcing of resources and superior innovation rates. Likewise, the relational governance with local suppliers enables higher manufacturing productivity. Such efficiencies, in turn, associate with SMEs’ improved access to global markets (Mesquita & Lazzarini, 2008).

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2.2. RBV Overview

The resource-based view is the starting point for the analysis of the relative strengths and weaknesses of firms. The prescriptive building block in most of the post- 1980 academic work on the resource-based approach to strategic management shares, at least implicitly, the following characteristics (Kor & Mahoney, 2004): The firm's ultimate objective in a resource-based approach is to achieve sustained, above-normal returns, as compared to rivals. A set of resources, 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

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From 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

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2.2.1.Critique 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 (2012) provide a good literary overview of the 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. (2012). 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 add one critique, namely the applicability of the RBV for entrepreneurship and explain its relevance 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

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· 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.” The RBV argues firms should strive for these second-order

capabilities (developing systems that better innovation products/productions) as these are better in creating differences and potential advantages than first order (product innovation). 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.

· C: The third critique states that the applicability of RBV is too limited and comes in several forms. Gibbert (2006) states; the focus on uniqueness of resources creates a theory that is not useful in a broad sense by definition. One cannot generalize about uniqueness. This is again a highly academic critique that holds little value in practice. A theory that explains differentiating situations of 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, 2012). This reaches back to our previous

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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, 2012). 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 (2012) 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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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 (2012) 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

2.2.2. 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 of 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.

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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 remain the same (Kraaijenbrink, 2012). 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 (2001a) 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 differentiation. 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. This shows that 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, 2001a). 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 advantages.

Kraaijenbrink (2012) argues that it is hard to create objective bases for resource value and argue that incorporating a more subjective and firm specific notion of value might better address this critique of value. 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 (2012) 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.

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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.

Further exploration of the book written by 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 affection of negative 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) provide a strong definition of competitive advantage in line with the literature we 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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2.3. Resources & Capabilities redefined

As shown in the section above, a consensus has evolved in this 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

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Amit and Schoemaker (1993) explain that resources and capabilities are 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. Besanko et al. (2010) states that capabilities refer to a firm's capacity to properly deploy resources. They are information-based, tangible or intangible firm-specific processes which are developed over time through complex interactions among the firm's resources. As a result, capabilities are the firm’s unique combination of resources. The big difference between resources and capabilities is that resources are tradable, while capabilities are firm specific and not tradable (Amit & Schoemaker, 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 on 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 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., 1997:516) become the source of sustained competitive advantage. Since the market in Ethiopia is quite stable, the RBV is applicable in this situation.

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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 as the heterogeneous assets that are freely tradable within a market. Capabilities are defined as the firm’s capacity to deploy an unique combination of resources. They are information-based, tangible or intangible firm-specific processes which are 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).

2.3.1.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., 2012). “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” (Kirzner, 1973). As such, the RBV would not sufficiently recognize the role of the individual judgments or mental models of entrepreneurs and managers (Foss et al., 2008; Mahoney, 1995). We agree that the influence of the entrepreneur on the resources is overly simplified and vastly underestimated when reduced to this. Additionally, the same critique voices the concern that managerial capability and capability development are overlooked in RBV, therefore failing to provide a complete 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., 2012). 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., 2012). Lastly, Kraaijenbrink et al. (2012) makes us ponder on “whether such

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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 (2012); 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 continuously develop (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 that it is not resources, but dynamic capabilities that 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.

As early as 1996, Miller built on the RBV by integrating managerial capability and its development as a resource. Managerial capability has since existed within the RBV as a resource. The acknowledgement of dynamic capabilities as the source of SCA makes the RBV an applicable theory for entrepreneurs once again; their influence and ability are now acknowledged as an important factor in gaining SCA.

2.4. Strategic Intent

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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 functions as a broker between small farmers and the market.

Prahalad and Hamel 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 Prahalad and Hamel 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. This consist sense of direction, sense of discovery and sense of destiny (Prahalad & Hamel, 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.

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3: Sense of Destiny: Strategic intent has an emotional edge to it, it is a goal that employees, perceive as inherently worthwhile.

When these attributes are clearly defined, management needs to find appropriate challenges and communicate the strategic intent to the entire workforce, or in our case; FMO managers need to communicate these goals to the smallholders and create agreement. These challenges are means to operationalize the strategic intent. For example: the strategic intent of Canon is: ‘beat Xerox’. A strategic challenge could be: Come up with a photocopier at the target price of $1000. When the goals are set, the last step considers empowering the strategic intent (Prahalad & Hamel, 1989). This is the umbrella which includes strategic and operational fit (Richards and Jones, 2009), goal congruence (Frankwick et al,. 2001) mutuality and commitment (McDonald and Wooburn, 2007). Practitioner applications of such frameworks include the commitment of resources (Capon and Senn, 2010), and the development of account plans and objectives (e.g. McDonald and Woodburn, 2007). Hamel and Prahalad’s work suggests that the most powerful component of mutual strategic intent is the payoff. Galbreath (2002) argues that strategic intent and mutuality both play an important role and that the greater the level of strategic intent, the greater the financial benefits from the relationship. Certainly, the promise of financial benefits seems to be a substantial inducement for Ethiopian farmers to enter into a relationship with a FMO.

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2.5. 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.’’ SIF’s 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 depends on their own unique characteristics as well as on the extent to which they overlap with the industry-determined SIF. 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 its 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

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Amit & Schoemaker (1993) state that SIFS find their origin in 6 factors: Suppliers, Rivals, Entrants, Substitutes, Customers and Environmental factors.

Figure 1: Internal and external environment (Amit & Schoemaker 1993)

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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), and encompasses the Political, Environmental, Social, Technological, Economical & Legal environmental pressures by which a market and thus a firm is influenced.

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 via the environmental factor as described by Amit & Schoemaker (1993) and indirectly via the other 5 factors influencing SIFs as put forth by Porter (1979; 2008).

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2.6. 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 firms already possess asymmetries, but that they often go unnoticed. An explanation for this is 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”. Therefore, step one is to initiate an internal investigation in order to identify the asymmetries the firm and then continue the path to appropriation of rent. This first step is called discovery.

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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). This is the second step, called development & market-matching.

We conclude that Miller (2003) suggests that a firm interested in attaining SCA should develop their asymmetries. We propose two phases to extract economic rents from a (possibly initially negatively valued) asymmetry; 1) discovery, 2) development & market matching. This is based on Miller (2003), whom created this model because she recognized that firms are often on the road towards sustainable competitive advantage, not already at the destination. She considered the prime catalyst for SCA to be inimitability; imitable resources and capabilities will have their advantage competed away in due time.

2.7. Conceptual Framework

On the basis of this literature review we are able 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 industries SIF’s. 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 Pralahad & Hamel (1989), strategic intent is: ‘’on the one hand… a desired

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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 6 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' most important, or 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

This means their ability to create and sustain a long term competitive advantage. 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 Sustainability.

6 Identify the asymmetries

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7 Formulate a concise investment advice

On the basis of the 4th and 5th step, formulate a concise investment advice towards the selected organization. Those resources and capabilities with the highest strategic value should be at least maintained or even further optimized. Discovered asymmetries should be nurtured. Those resources and capabilities which have no strategic value and do not create any value should receive little investment. Finally those resources and capabilities which do provide value, but do not have strategic value should ideally be transformed into strategic ones. If this is not possible, they should be maintained at a low cost.

Following this seven step model; the research questions introduced in the beginning and the subsequent literature section, we are able to derive the following graphical representation of our framework on testing RBV theory in practice: