From Traditional Firm and Producer Company to Sustainable Community Enterprise

IAJBS 15th World ForumXLRI, Jamshedpur

June 8, 2009

Amar KJR Nayak, Ph.D.Associate Professor, Strategic Management

Xavier Institute of Management, Bhubaneswar, Indiaamar@ximb.ac.in

1

FIRM?

2

Profit Growth

The theory of Growth of Firm

Resource Base Technology driven D.C.

3

Basis of Firm Growth

Economies of Scale

Capital Intensive

Technology Intensive

Ownership

Management Control

Firm Efficiency

“Competitive Advantage”/Strategy” 4

Inclusive Capitalism

Welfare State

Mechanism Government Firm Marginal Producer

Firm Marginal Producer

MarketMechanism

5

Inclusive Capitalism & Firm Strategy

Strategic CSR

Private Micro Financing

Contract Farming

Fortune at the bottom of the pyramid

Producer Company Agri-Business Model6

Firm / Market Based Approach

FIR

M

(Driv

en

by

Pro

fit &

Gro

wth

)

Rural Sector

Fortune at Bottom of

the Pyramid

DevelopmentSector

SHG

CIG

PC,(Fab India,

CCD)

MFIContract Farming

Knowledge/Awareness

Govt/NGO/Radio Programme

RRBs-NABARDMicro Finance Agencies

Agricultural InputsAgri Technology

(Dept of Agriculture)

TRIFED/Market info(Swami Nathan Foundation)/

E-Coupal

Processing/ Cold storage(Dept. of Horticulture)

Intervention Examples

Production Capacity

Value Addition

Marketing

Finance

EconomiesOf scale

CapitalIntensity

TechnologyIntensity

Mgmt.Control

OwnershipF. Efficiency

Structure of Intervention from a Traditional Firm Perspective

7

How sustainable is the Structure?

Internal Contradictions b/w

Traditional Firm & Marginal Farmer

Asymmetries b/w the two

8

Asymmetries

Large Scale Small

Firm Parameters Marginal Producer

Monocrop Scope Season based Multiple cropping

Large Capital Small

Profit & Growth PurposeSustainableLivelihood

High

Asset Ownership

Low

High

Technology

Low

High Control Mechanism Low

Basis of Sustainability?

Firm or Family 9

Is there an alternative that is practical and workable?

PC is a Sustainable ApproachICBEED – Poor/Marginal Producers

PC developed around agri-business is exploitative to the weak and hence unsustainable

Huge Asymmetries in structural design & purpose b/w the traditional Firm & Marginal Farmers logically leads to exploitation

PC as a agri-business model is no different from the Outsourcing practices of Nike, Bata, Toyota, GM, Ford, and Global IT companies

Before we create another exploitative structure, we need to revisit the PC to make it work for the weak, the marginal producers

11

Community Based Approach

Household

Village

SHG / CIG

Block

District

Knowledge/Awareness

Production

Marketing

Planning & Execution M

anag

ed b

y P

rofe

ssio

nal

s Efficiency?

Economies of scale?

Capital Intensity?

TechnologyIntensity?

ManagementControl

Ownership Control

Mar

ketin

g- N

atio

nal /

Glo

bal

Present Structure of Intervention from a Community Perspective

Value Addition

‘Pro

du

cer

Co

mp

any’

(D

PIP

-MP

, M

AD

P-F

AO

, C

om

mu

ne

s-B

AIF

)

12

Questions for Research

What are the appropriate

Scale Scope

TechnologyCapital

ManagementOwnership

For sustainability of stakeholders in Agriculture & allied industries?

What are the implications to Management Education & Management Models for such sectors?

Illustrations of Action ResearchFor demonstrating a Sustainable

Community Enterprise

Nuagada, Orissa

(Personal-XIMB-Govt. of Orissa, Nabard)

Five Sites in India & Bhutan

(FAO & IFAD)

Individual

Family

Village

Community (GP)

Ecology

Community/ Capacity Based Approach

Man

ag

ed b

y P

rofe

ssio

nal

s em

plo

yed

b

y th

e P

rod

uce

rs

Knowledge/ Awareness

Production

Marketing

Value Addition

Planning & Execution

Economies Of scope

Optimal Scale

AppropriateTechnology

Minimal PrivateFinancing

CommunityEfficiency

Producer owned & managed through professional

Com

mun

ity E

nter

pris

e

Lo

cal /

Urb

an M

arke

ts

Structure of Intervention from a Sustainable & Stable Community Perspective

Foundation of CBPOPME

15

Nature of InterventionAction Research

Working Capital

Basic Infrastructure

Professional Managers

Social Communication & Organization

16

Different Scenarios of Monthly Income for Producer-Members andTurnover of PC at Farm Gate Price

Number of Members in the PC

Monthly income of PC Member as contribution of produce (in Rupees)*

Monthly Turnover – PC (in Rupees)**

Annual Turnover - PC (in Rupees)***

1000 500 5,00,000 60,00,000

1000 1000 10,00,000 120,00,000

2000 500 10,00,000 120,00,000

2000 1000 20,00,000 240,00,000

2500 1000 25,00,000 300,00,000

2500 2000 50,00,000 600,00,000

* In addition to getting the value of his/her produce, the Producer-Member would have additional quarterly income from the profits made by the PC.

** The Government should make a provision of this amount towards the working capital of the Producer Company

*** Managerial & Administrative expenses can be easily covered with increase in Annual Turnover of the PC

17

Context & Problem of Rural Communities

• Food Shortage• Livelihood of people living in the margins• Problems of Migration• Sustainability of the economy & community

• Efforts towards Development and Outcomes• Institutional Issues in Development Approach• Basic issues - participation, ownership & sustenance of

programs

• Implications of Rural Communities changing to Free Markets with out the conditions of free market in place

Year Agriculture & Allied

Rural Development Panchayati Raj

1987-88 2955 317

1995-96 10867 5645

1999-00 18865 5139

2000-01 22255 4305

2001-02 28294 6189

2002-03 31101 11737

2003-04 32911 12174

2004-05 36366 9478 8.45

2005-06 37622 15660 48.70

2006-07 48376 32642 1999.48

2007-08 45014 37682 3688.16

Source: Report of the CAG on Union Government Accounts 2006-07 & Annual Report, 2007-08, Ministry of Panchayati Raj, Government of India.

Expenditure of a few Ministries, Government of India

Amount in Rupees crores

19

Gram Panchayat

NREGA

Infrastructure Development

SGRY

Action Research & Studies

NFFWP

Backward Region Grant Fund

Training & Capacity Building

SGSY

Rural Business Hub

IAY

Govt. Schemes for a Gram Panchayat (G.P.), Orissa, India

Source: Annual Report, 2005 -06 Panchayati Raj Department, Govt. of Orissa and Annual Report, 2007–08, Ministry of Panchayati Raj, Government of India. 20

Questions for Research

What are the appropriate

Scale Scope

TechnologyCapital

ManagementOwnership

For sustainability of stakeholders in Agriculture & allied industries?

What are the implications to Management Education & Management Models for such sectors?