As consumers become more concerned about the power of major organisations and the problems associated with profitability and investor enterprises, there has risen a greater interest in cooperatives and the opportunities they bring to share the wealth in a fairer manner. Cooperatives are interesting because they provide the opportunity for people to own and run and provide finance to companies that serve particular needs, such as local supermarkets and utilities. That’s no different from regular companies. What makes the real difference with cooperatives is that those running the business are cooperative owner members. These individuals make business decisions together and all benefit from any profits that are achieved.
As Jan Schiettecatte (2014) writing for the Stanford Social Innovation Review reveals, cooperatives worldwide make up a network of in excess of one million businesses of all different shapes and sizes that compete in all industry sectors. Indeed, Schiettecatte reports that:
“The top 300 cooperatives and mutual in the world have a collective turnover of $3 trillion – about equivalent to the world’s ninth largest economy.”
That may be surprising for some and it will be impressive for most to consider. According to Schiettecatte cooperatives include the US National Rural Electric Co-operative Association, the National Cooperative Bank, Brazil’s hospital network Unimed and agriculture organisations like Sunkist Growers Incorporated. They span all different areas of business.
The concept behind cooperatives is generally that the focus is on meeting a need ahead of making a profit, argues Schiettecatte. This means that while investor corporations will seek to maximise revenues, cooperatives will be more likely to consider how they can recoup costs and also make sure that consumers are being treated in a fair way. Schiettecatte goes as far as to say that:
“Cooperative businesses improve economic diversity and resilience in times of crisis, effectively meet the needs of many consumers and offer a promising solution to improving infrastructure.”
In this regard, Schiettecatte argues that cooperatives have a better chance today than at any time up until now because they are fairer, more inclusive, sustainable and resilient. However, some question whether or not they are able to compete in a competitive business environment. Andrew Bibby (2014) of The Guardian poses this difficult question, which he claims is in fact rarely asked. One of the conclusions that Bibby arrives at is that cooperatives already are competing. For example, he cites that cooperatives comprise 32% of agriculture and farming, 25% of insurance and 18% market share of wholesale and retail trading.
Another important question regarding whether cooperatives can compete is that of customer retention (Bibby, 2014). It is explained that while cooperatives take a view of trying to deliver customer satisfaction, investor enterprise is much less good at this. For example, it is cited that commercial motor insurers lose 40% of their customer base every single year. That is because they are focused on profits ahead of customer satisfaction. Meanwhile because cooperatives place heavy emphasis on what customers want, and it is one of their most important priorities, it becomes much easier for cooperatives to achieve customer loyalty.
One claim that is made sometimes about cooperatives is that their management is inefficient or that it can be quite self-serving. However, this too is rejected by Bibby. The concept of sharing pooled risk means that people are less likely to be inefficient, in fact. However, one challenge that is faced is making sure that these organisations are not “penalised by regulatory requirements drawn up with investor-owned institutions in mind.” Two such regulatory requirements are Basel III and Solvency II. It is outlined by Bibby that while cooperatives are small in Europe they are not hit by these burdens. However, if they were to grow larger they would be subject to “expensive regulatory requirements” and that this would simply make them uncompetitive if they are relatively small. However, Bibby’s view on this is that legislators and regulators need to change what they are doing to better understand the cooperative business model. At the same time though, it is also explained that cooperatives need to be able to promote what they are doing more effectively so that people, especially regulators and legislators really understand it. Overall though, it can be seen that cooperatives are a sustainable way forward and can largely be competitive, at least with other similar sized small companies.
Paula Newton is a business writer, editor and management consultant with extensive experience writing and consulting for both start-ups and long established companies. She has ten years management and leadership experience gained at BSkyB in London and Viva Travel Guides in Quito, Ecuador, giving her a depth of insight into innovation in international business. With an MBA from the University of Hull and many years of experience running her own business consultancy, Paula’s background allows her to connect with a diverse range of clients, including cutting edge technology and web-based start-ups but also multinationals in need of assistance. Paula has played a defining role in shaping organizational strategy for a wide range of different organizations, including for-profit, NGOs and charities. Paula has also served on the Board of Directors for the South American Explorers Club in Quito, Ecuador.