A Co-operative Future? A brief look at why cooperative business is good business

Cooperatives are seen as a ray of hope for the smaller players in the industry amongst the big names in the market. The cooperative movement has its roots in Europe but it was in Kenya where, its true potential has been explored. In this country more than 63% of the population earns through cooperative business.

All the other countries are following the practice of strengthening their cooperative business for a greater economic strength.

Understanding the cooperative business

A cooperative business is a business which is owned and managed by the members. Instead of shareholders or investors holding the reigns of the business, it is the members themselves, farmers, food producers, employees who are also the business owners and they share the profit amongst themselves.

The members elect their representative as director to make key decisions, set policies, and take responsibility for key aspects of the business.  All members have the right to influence these decisions through a system of voting.

Another key aspect of this business is that, it has a “one vote policy” which implies that if a member has a greater share (for example greater supply of milk/crop etc) in the business as compared to other members, he or she still gets an equal vote as the other members and thus every member has equal control over the business decisions.

In our traditionally prevalent business systems, labour is hired through capital i.e. people are just like any other ‘input resource’ and the sole purpose of the business becomes is the generation of return on investment on this resource like any other.

In contrast to this model, in a co-operative, the workers hire capital (plough in own capital or small loans) and here capital is merely another resource and the aim of the business goes much beyond profits and these organizations gravitate towards producing excellent goods and services, providing good terms and conditions for employees, to support local communities. The return on investments is not the sole criteria of success.

History of a unique business proposition

Britain and France were the countries where the initial concept of cooperative business took birth. One of the earliest and largest cooperative businesses was “The Shore Porters Society”. It was established to counter the effects of Industrial revolution that was stealing the livelihood of many workers.

The first documented cooperative business was Fenwick Weavers’ Society where the weavers worked on oatmeal. Since then many cooperatives have been formed, some were successful while some were not. Robert Owen, the father of the cooperative movement, worked as a cotton trader. His idea was further used to create many successful cotton mills in Scotland.

India has also had an exemplary tradition of cooperatives. We owned one of the biggest cooperative organization in the world, the Indian Coffee Houses. The Indian Coffee Houses were started by 1940s by the Coffee Board. When the board closed the Coffee Houses in 1950’s as a result of change in policy, the workers opened the branches.

Another example in India comes from Kerala, Dinesh Beedi, which was started by beedi rollers. Other known names that operate on a cooperative business model in India are Amul, Indian Farmers Fertiliser Cooperative Limited, Karnataka Milk Federation (KMF), Indian Farmers Fertiliser Cooperative (IFFCO) and many more.

Competitive advantage of Cooperatives

Cooperatives serve to replace larger financial institutions providing capital for businesses and then controlling them. They also serve to replace shaky workplaces with an uncertain future for the vast majority of workers to a workplace that is part owned by them and hence provides them security and social welfare.

The core value at the heart of the cooperatives are collaboration and democracy; values that are often championed by new age corporates for growth and competitiveness. In today’s day and age when a lot of onus is being put on transparency and consumers are becoming more aware and interested in the source of their food, cooperatives have an added competitive advantage by virtue of the fact that the products can be traced back to individual producers.

Cooperatives are organizations whose foundations are envisaged to be sustainability, individualism and local production. These are again principles that are being championed as ethical business principles in the current century.

As per certain estimates, the size of worldwide cooperative sector makes it the world’s ninth-largest economy and employs roughly 10% more people than all the multinationals put together. As per a 2014 Global Census on Cooperatives there are close to 2.6 million cooperatives operating worldwide and they generate close to $3 trillion in annual revenue. These figures are good enough to prove that cooperative business is sound business in today’s environment.

Cooperatives enjoy an enabling legislative and fiscal environment. They are often charged less taxes due to non-taxable surplus earnings and the government also encourages the cooperatives and sponsors many grant programs to help them start a cooperative business.

The cooperatives also obtain good discounts on the supplies and other materials and hence they are able to offer low cost product and services. Since often they themselves are the customers too, they produce better products and services.

Another important aspect of cooperatives’ success is that its workers often being themselves the owners are committed and invested in the long-term success of the organization. Studies have also shown that the work environment of collaboration and democracy as upheld by cooperatives affect worker productivity positively.

Since the cooperatives have their roots in their local communities hence they can boast of ideal community relations. A vast majority of their customer base is also within these communities and the positive community relations mean less marketing efforts.

The co-operative model is an alternative business model responding to the needs of all stakeholders. It champions all good business principles that we talk about.

It has been showcased that the triple bottom line approach to business is the one which will garner long-term success and while normal businesses are only slowly beginning to adopt this, cooperatives have for years worked with this approach and are thus on the right path to success.