SEARCHING FOR SUCCESS IN ETHIOPIAN FARMERS MARKET ORGANIZATIONS

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SEARCHING FOR SUCCESS IN ETHIOPIAN

FARMERS MARKET ORGANIZATIONS

A case study to find competitive advantage possibilities using RBV theory

Master Thesis

MSc BA: Small Business & Entrepreneurship

Supervisor: C.H.M Lutz October, 2013

Rensink, T.G. – s1785699

Oude Deldensestraat 21

7622LM Borne, the Netherlands

Phone: (+31) 0629246420

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Abstract

This research project looks at the effectiveness of farmers’ market organization in Ethiopia. The cooperative as an organization is being promoted amongst Ethiopian smallholders with the intention of social and economic progress. The dogma ‘’not aid but trade’’ (Moyo, 2009) is becoming more popular in the field of developing country economics and this study explores the concept of using trade promotion to increase the livelihood of these smallholders. Two specific projects aimed at aiding the FMOs through trade progression are discussed. These projects, aimed at ICT and capacity building respectively, attempt to increase knowledge and available resources within the FMOs. Furthermore, using a theoretical model adapted from resource based view theory by Rangone (1999) the strategic strengths and possibilities for competitive advantage creation within the FMOs are evaluated. Through this model the key resources and capabilities of these FMOs are discovered and tested on their strategic value. The strategic value of these resources and capabilities is then used to generate possibilities for asymmetry development. Lastly, the best options for future investments based on these results are drafted. Through this research it became apparent that the application of an RBV inspired framework amongst agricultural cooperatives can be insightful. It became clear that there are many great intentions in the aid of Ethiopian agricultural practice but these are not all realistic. The evaluated projects had a definite influence within the FMOs, however many goals proved to be too ambitious. The results show that there are awareness, trust and commitment problems within these FMOs. Therefore, the most crucial future investments should be aimed at improving these conditions. That said, the strategic value of the resources and capabilities found in the FMOs shows that there is potential for asymmetry development in the specific context of Ethiopian agriculture.

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Acknowledgements

This entire project would not have been possible without the help, support and love of several people. In the section I want to take the opportunity to thank these people. First and foremost; this paper would not have been possible without the effort and insights of four of my co-students; Mark Zonderland, Albo van Hateren, Quint Por and especially Lodewijk Veldhuijzen with whom I spend the full three months abroad. They have been invaluable in the writing of this thesis. Most of the theory discussions and methodology creation was performed in collaboration with these guys. Furthermore, our supervisor dr. Clemens Lutz has been motivating, helpful and critical in every stage of this project and was an important factor in writing this thesis.

Being a complete stranger to Ethiopia ensured the need of local assistance. In the project there are several people that assisted me in acquiring the information I needed, translating data or getting to the right locations. Misrak Aklila, project manager of Facilitator for Change allowed me to gather information about the NGO, the FMOs and further persons of interest. Furthermore, the field office in Tulu Bolo was the central hub in doing my investigations. My partner from Jimma University, Esuty Tadele proved to be an honest way of contacting the local smallholders and served as my interview translator. Lastly, all the incredible local people that welcomed me into their homes, businesses and families. Without them my stay would not have been so fruitful or enjoyable.

Besides the people directly involved I need to thank several others. Firstly, my parents for their unwavering support in my endeavors. They enabled me to follow this master’s program and gave me nothing but enthusiasm and assistance in undertaking the journey to Africa. Finally, I want to thank my girlfriend Anne-Merel. She was writing her bachelor thesis at the time and the three months apart have not been easy. Thank you so much for your patience and love, and for allowing me to undertake this journey.

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Personal Motivation

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List of Tables

Table 1; FC strategic issues ... 65

Table 2; Union purchases and sales ... 69

Table 3; trade activities FMOs ... 78

Table 4; FMO Amount of quintals bought ... 78

Table 5; FMO evaluation results ... 89

Table 6; Feyine results explained ... 90

Table 7; Rimessa results explained ... 91

Table 8; Siba Robe results explained ... 92

Table 9; FMO strengths and difficulties summarized ... 96

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Table 11; Project C5 budget ... 102

Table 12; Equipment received by the Union ... 105

Table 13; Equipment received by the local project office ... 106

Table 14; Practical realizations of set outputs ... 108

Table 15; Project C7 action list analysis ... 112

Table 16; Project C7 budget ... 113

Table 17; Workshops given ... 114

Table 18; Project C7 specific output analysis ... 118

Table 19; FMO resources and capabilities ... 124

Table 20; capability opportunities ... 125

Table 21; Observed SIFs ... 129

Table 22; Key resources ... 130

Table 23; Key Capabilties ... 131

Table 24; Strategic test results resources ... 133

Table 25; Strategic test result capabilities ... 135

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Abbreviation List

ADAA African Development Aid Association

AISN Strategic value test advocated in this paper on: Appropriability; Inimitability; Superior Differentiation; Non-Substitutability

BDS Business Development Service provider (S)CA (Sustainable) Competitive Advantage CDI Center for Development Initiatives

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

CSA Ethiopian Central Statistics Agency CSP Charities and Societies Proclamation C6NGOs Consortium of 6 NGOs

ECX Ethiopian Commodity Exchange

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

NCSE National Conservation Strategy of Ethiopia

QTL Quintal; 100 kg.

OSRA Oromo Self Reliance Association RBV Resource Based View theory SIF Strategic Industry Factor

VAT Value Added Tax

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

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1. Introduction

“Not aid but trade” (Moyo, 2009) is a well-known dogma in the debate on underdevelopment. 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. Thus, they have to develop strategic resources and capabilities in order to ensure that the individual farmer can still 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 Farmer

Market Organizations (FMOs), the traders; processors and the environment, involved in the supply chain.

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. 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.

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.

1.1 The Cooperatives’ Role

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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 cooperatives include FrieslandCampina & Rabobank. These are two initially small cooperatives, who 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 labour and intensive local knowledge’’ (Markelova & Meinzen-Dick 2006).

This research will aim at identifying strategic resources and capabilities that FMOs could develop to strengthen their position in the market. The application of our framework to cooperatives is especially interesting since this type of organizations 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)

1.2 Applicability in Ethiopia

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increasingly considered as essential partners by development agencies which frequently rely on them to implement their programs.

FMO’s have theoverall 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. The Ethiopian sector still lacks the growth of many of its western counterparts. It is important to note that Ethiopia shows great prospects in terms of basic resources such as land & climate. 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 (Feyine, Rimessa and Siba Robe) which are supported by the NGO: Facilitator for Change (FC). 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’’. (C6NGO: Project C7 Plan).

1.3 Relevance

1.3.1 Academic Relevance

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1.3.2 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.’’. (C6NGO: 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.

1.4 Problem Statement & Research Aim

1.4.1 Research Aim

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

1.4.2 Problem Statement

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

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To provide a broad, yet concise answer to this problem statement, we will start our investigation with answering several research questions. Initially, to provide a basis for the identification of the resources and capabilities we need to identify and analyze the background and activities of both the FMOs and the NGOs. As such, the first research question is: What are the activities of, the NGO and the supported FMOs? When this background is established, we will describe what the relationship actually provides to both parties. Especially in terms of the FMOs who seem to rely on the information and support they gain from the NGOs. Therefore the second research question we would like to address is:What is the relation between and what kind of support do the FMOs receive from the NGO?

When this context is described, we focus on the possible strategic issues the FMOs might face. To identify what these FMOs aim to do, we focus on their so-called strategic intent. Thus, the third question we address is: What is the strategic intent of the FMO?The strategic intent is identified through the analysis of the cooperative vision in relationship with the resources and capabilities the cooperative possesses. The fourth and fifth questions aim at the environment of the cooperative. The fourth question aims to detect the FMOs product market: What are the product markets for these FMOs? The fifth question detects the Strategic Industry Factors (SIFs)’, which are the set of resources and capabilities that have become the prime determinant of economic rents for industry participants. 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 FMOs?

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In summary, we attempt to answer the following research questions:

Part I

1: What are the main activities of the observed NGO and the supported FMOs?

2: What is the relation between and what kind of support do the FMOs receive from the NGO? Part II

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

5: What are the Strategic Industry Factors (SIFs) relevant for the observed FMOs? 6: Is there a fit between the SIFs and the strategic intent resulting in key resources? 7: Do these key resources possess strategic value?

8: What are the asymmetry development opportunities within the FMO, providing they exist? 9: What are the most attractive investment options for the FMOs?

1.6 Structure of Paper

This paper consists of 8 chapters. Following this introduction into our report, the paper continues in chapter two with the main theoretical foundations on which this research is based. After this theoretical background and the derived conceptual framework have been explained we will describe the methodology used during the process of constructing this report. Afterward the specific case for this research will be explained. When the unique context of this research is explained, the focus turns towards our conceptual framework. We will provide the results that were derived on the basis of this conceptual framework. Subsequently the focus will turn towards the conclusions and recommendations that can be taken from these results. Finally these outcomes will be discussed and the limitations of this research will be addressed.

2. Theoretical Background

2.1 Characteristics of Cooperatives

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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 2 firms (Besanko, 2009).

This member based type of organization (cooperative) 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).

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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 & Chitemi, 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).

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 can experience other benefits in their inputs and outputs. These are factors which could allow Ethiopian farmers to compete with larger businesses.

2.2 The Resource-Based View

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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 a 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.

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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 doesn’t imply that it will last forever; unanticipated changes in the economic structure of an industry may make a sustained competitive advantage obsolete.

When strategic resources are evenly distributed across all competing firms and are highly mobile, firms cannot obtain sustained competitive advantages. The search for sources of sustained competitive advantage must focus on firm resource heterogeneity and immobility. Eventually, the resources that measure up to the checklist are considered strategic resources.

2.2.1 Critiques on the RBV

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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 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: A. RBV has no managerial implications. B. RBV implies infinite regress.

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

E. RBV is not a theory of the firm.

F. VRIN/O is neither necessary nor sufficient for SCA

· A: The first critique states that RBV has no managerial implications. They argue that RBV exaggerates the control management has 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.

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creating differences and potential advantages than first-order capabilities (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.

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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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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

2.2.2 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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explanandum of the RBV remain 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 (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 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. 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 (2010) 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 (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.

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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 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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2.2.3 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.

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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) explain that resources 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, as proposed in 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. Since the market in Ethiopia is quite stable, the RBV is applicable in this situation.

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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 as 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. 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).

2.2.4 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.

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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 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.

2.3 Strategic Intent

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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 & Prahalad, 1989). Strategic intent should not be overlooked when looking at a firm’s manner of employing its resources and capabilities (Hamel & Prahalad, 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 functions as a broker between small farmers and the market.

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organizations. In our case, managers of the FMOs need to apply the three attributes of strategic intent to properly guide their organization. This consists of; sense of direction, sense of discovery and sense of destiny (Hamel & Prahalad, 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.

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 (Hamel & Prahalad, 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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ideas coming from all the organization. However, there is a problem with relationship classifications based on strategic intent or fit, which is that some researchers have suggested that mutual strategic intent may be the exception, rather than the norm. This would lead to “asymmetric” relationships in which the strategic intent of one party was greater than that of the counterparty. Still worse, Pardo (1997) and Toulan et al. (2007) argue that such asymmetric relationships may persist over time. The danger in an asymmetric relationship is that the supplier organization may delude itself about the closeness of the relationship and therefore allocate inappropriate levels of resources (McDonald, 2000). To avoid this danger, suppliers are advised to match their strategic intent with that of the customer (McDonald, 2000). As long as the goal is identical and beneficial, there is no problem (Olsen, 1995).

2.4 Strategic Industry Factors

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their market environment. Thus, in this study we will examine the fit between SIF’s, 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 6 factors: suppliers, rivals, entrants, substitutes, customers and environmental factors.

Figure 2; SIFs as introduced by Amit & Schoemaker 1993

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environment encompasses a variety of different forces. According to Porter (2008) these environmental forces are already present within his 5 forces model. We agree only to a certain extent with this statement. We argue that the environment can pose both an indirect effect, thus via 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 pressures. 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 pressures by which a market and thus a firm is influenced.

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Figure 3; SIF Framework

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).

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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 may 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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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. 6 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 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 Hamel and Prahalad (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)

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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 required 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 Non-substitutability.

6. Identify the asymmetries development opportunities

As mentioned, Miller (2003) suggests that a firm aiming for a CA should develop their asymmetries. We distinguish 2 steps to appropriate economic rents from a possibly initially negatively valued asymmetry; 1) discovery, and 2) development & market-matching. Following Miller (2003), these asymmetries are resources or capabilities, which have strategic potential, but have not been discovered or developed and thus do not allow for the appropriation of value yet.

7. Provide investment advice

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

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3. 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 selected the sample and which procedures are used. Finally we operationalize the measures mentioned in our conceptual model. The researches steps are similar to Rangone’s (1999) model, but based upon the arguments in the literature section changes have been made.

3.1 Research design

This study uses several baseline studies and annual reports which are conducted by ICCO. These provide a general overview of the farmer market situation of Ethiopia. We expand this knowledge by using semi-structured interviews. Staff members of NGOs, representatives of FMOs and farmers are interviewed to gain a multiple perspective view. 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 research centers on the entire marketing structure involving FMOs, thus including the aligned members and the Union. As such, investment options will regard the resources and capabilities that the FMO has access to, or can benefit from. This paper can be qualified as academic problem solving. 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). Because of the nature of RBV and the specific characteristics of the cooperatives, the research is conducted through qualitative research (Rangone, 1999). The main reason qualitative research is used is because there is limited data available 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 contacts.

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sections of this paper were constructed collectively by five researchers under the supervision of a team comprising two other researchers. During this process, it was reviewed weekly to ensure the upkeep of quality. In addition, the research is based on theoretical concepts which have been extensively debated among other researchers for the past 20 to 30 years. Furthermore, insights of annual reports and baseline studies are used to validate our assumptions. As such, support for the validity of the assumptions; framework and definitions can be widely discovered in other literature. However, two important warnings regarding the reliability have to be made; the first being the language barriers and the second the differences in education between researchers and cooperative parties in Ethiopia. Most of the FMO member participants will only speak a local Ethiopianlanguage; most likely Amharic. This is a language the researchers will not be able to comprehend. As such local experts will assist to provide the local knowledge which is required. In this translation process, the original data is subject to the interpretation of the translator. For this reason it is important that we, as researchers, try to gain answers which are as specific as they can possibly be. Furthermore we will have to be aware of potential biases by the translator. An additional noteworthy mention is the difference in specific RBV knowledge. It has to be understood that the interviewees, being the FMO members, will not have any understanding of the RBV concepts. As such, since explaining the underlying theories of this paper would require education and too much time, the actual questions have to be simplified so that the concepts become comprehensible for the FMO members.

3.2 Sample selection

Ethiopia is the perfect place to investigate cooperatives. The project entitled “The Promotion of Farmers’ Marketing Organizations Competitiveness on Agricultural Commodity Value Chains" has founded 115 FMOs between 2008 and 2011. These cooperatives have been completely operational for several years now and provide their members and other farmers in their vicinity with greater market access. This enhances their participation in local markets (C6NGOs Project C7 Plan).

SEARCHING FOR SUCCESS IN ETHIOPIAN FARMERS MARKET ORGANIZATIONS