Despite their victories in recent years, one persistent idea about cooperatives is that they struggle to grow profitably, being forced to make a choice between maintaining local value commitments and the pursuit of international development. It is possible that this choice could either lead to the detriment of a cooperative’s competitiveness, or a move away from the very qualities that separate it from its private enterprise counterparts — however, the reality is that no such trade-off need exist.
A false dichotomy
The principle of the cooperative is based on the idea of bringing together local actors, around an identical activity, or very complementary activities, to pool resources and ideas. Traditionally, this has led to a perceived dependency on their locality, which might be seen to resist the market requirements of globalism. And yet, it is simply not true that cooperatives are unable to square the circle of maintaining their roots and expanding internationally. In terms of market growth, cooperatives perform, essentially, just as well as private companies; and in doing so, their local ecosystems share in the winnings.
To understand this a more detailed analysis of the three main drivers of growth is needed. According to McKinsey & Company these drivers are market share, portfolio momentum — e.g. revenue growth that a company experiences through specific underlying market growth — and merger and acquisition activity.
Cooperatives have big advantages when it comes to market share, as they are able to generate high levels of trust within their ecosystems thanks to their strong value underpinnings; this is one of the gains coming with a social agenda that invests within communities. While they underperform private enterprises for portfolio momentum — likely due to slower moving democratized governance structures that at times prevent them from making investments with comparable agility — their gains through M&A are highly comparable to private businesses. Of course, these come predominantly through mergers, but the effect on market gains is the same.
The net result is that cooperatives grow at around the same pace as their private counterparts, albeit with some variations by industry or geography. Despite variations on regulatory requirements in different countries, cooperatives can generally develop just as effectively internationally.
While growth is not the same as profit, the long-term perspective from which cooperatives rationalise their investment of resources, means that they see far more stable financial performances than the erratic ups-and-downs of private companies. They enjoy less profound highs, and suffer milder lows, observes Monique F. Leroux, who was president and CEO of Desjardins Group between 2008 and 2016.
While it is true that cooperatives have specific structural challenges which do not affect private companies, these are far from insurmountable; furthermore, their competitive advantages carry significant weight. Let’s look at some examples of cooperatives that have succeeded in reconciling global ambition with solid, sustainable strategies, for the benefit of their countries and for Europe more broadly.
No inspection of the successes of European cooperatives would be fit without looking at Mondragon Corporation, the largest cooperative in the world. Founded in 1956 by graduates of a technical college, it has grown from a small Basque region cooperative to one of Spain’s most successful players. It comprises almost 100 cooperatives which operate together within a federation structure, alongside another 160 or so private businesses.
Despite the group’s size, some 81,500 employees, it continues to democratise its governance across the business, not least of which through a general council of cooperative delegates. It remains firmly rooted in its local base, located in the Basque region and wider Spain, but with 17 percent, 13,500 workers, operating sites abroad.
Mondragon is successful as a large business as a result of, and not in spite of, being owned by its employees. By building a vast and effective social enterprise ecosystem upon which to grow its operations, Mondragon demonstrates that international business expansion and solidarity are far from mutually exclusive.
The group’s financial results show that sales exceeded €6 billion for the first time ever in 2019, with €4.2 billion, or 70 percent of this revenue, coming from international sales — a testament to the strategy’s success.
France’s Tereos is the second largest sugar producer in the world. Its beginnings were as a small collective of sugar-beet producers who came together to create a sugar distillery in 1932. These days it has grown to span the globe, with operations all across Europe and Brazil, as well as a presence in China, Indonesia, and Singapore, covering sugar beets, sugar cane, corn, wheat, and ethanol production. Today it touches markets in food and drink, animal feed, pharmaceuticals, energy, and even personal care. This diversity is the group’s strength.
Extremely challenging circumstances in the European sugar sector have pervaded since the end of quotas exposed the market to volatility and foreign competition. Despite these sectoral difficulties, Tereos has managed to expand in all areas of its business, as its 2019 financial report testifies, and it has done this while maintaining commitments to farmer members in France.
strategy for its successes: anticipating market changes; seizing new international opportunities; cultivating excellence throughout the whole supply chain; and innovating to answer new needs. This strategy has seen Tereos expand into biofuels markets, plant proteins markets, and seizing quick sustainable wins through overseas projects.
The result is that innovation, know-how, and added revenue is being reinvested back into the cooperative’s heartland in France and Europe, creating a virtuous cycle and supporting European jobs and prosperity. A good example of this in action is the factory 4.0 model tested in Brazil, which uses cutting-edge sensors and IoT technology to monitor and optimize factory processes and predict machinery failure ahead of time, ensuring higher efficiency and sustainability. Tereos aims to roll these capabilities out across its European operations, bringing improved profitability to sugar beet processing.
These kinds of investments and improvements within the group have seen Tereos sugar beet farmers signing back up to more than 99.5% of the volume commitments expiring in the 2019/20, renewing them for another five years. Another sign of confidence, the area committed in Europe by Tereos farmers for 2020/21 sugar beet crops covers approximately 250,000 hectares, a 3% year-on-year increase, one that sharply contrasts the estimated 3% decrease in European sugar beet surface area.
The Netherlands’s Rabobank is another example of a cooperative that has succeeded both domestically, with its original base and members, and internationally, finding and focusing on a socially conscious niche. The bank has a two-pillared strategy: “Banking for the Netherlands”, and “Banking for Food”.
Domestically, Rabobank has developed excellent market share, having gained the trust of its customers through great services propelled by happy, well-looked after staff — staff encouraged to develop their skills and experiences within the group.
On top of this winning approach, the Dutch economy has traditionally been highly stable, with banks there benefitting from operating in a wealthy developed country. This strong local foundation makes the international mission of the bank possible.
Internationally, Rabobank’s “Banking for Food” takes over. The cooperative pursues roles in financing crucial food and agriculture projects around the world, taking its social mission to the fight against global hunger. Of the bank’s international private sector lending in 2016 (some €113.6 billion), €52.2 billion was in food and agriculture. While this brings a positive force to the world, it also diversifies Rabobank’s portfolios, improving the risk profile of the bank itself. While the nature of Rabobank’s overseas business is asymmetrical to its domestic operations, there is no doubt that the two share the underlying principle of the cooperative, to bring good to
communities; and, indeed, around 30 percent of the bank’s lending occurs outside of The Netherlands. Given that these are but three cooperatives among many with successful stories of international expansion, it is not a question of if it is possible for cooperatives to do so, but which strategy they wish to employ in making it a reality.