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Ecsad Icco Position Partnerships In Global Commodity Chains


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ECSAD-ICCO. SWOT Analysis on Partnerships in Global Commodity Chains.Posted by Youmanitas Energy Farms Foundation.

ECSAD-ICCO. SWOT Analysis on Partnerships in Global Commodity Chains.Posted by Youmanitas Energy Farms Foundation.

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  • 1. PARTNERSHIPS, POWER AND EQUITY IN GLOBAL COMMODITY CHAINS: POSITION PAPER ON COOPERATION BETWEEN COMPANIES AND NGOS IN STIMULATING SUSTAINABLE DEVELOPMENT Written by Prof. dr. Rob van Tulder*, Dr. Alan Muller* and drs. Diederik de Boer** *SCOPE Expert Centre, Rotterdam School of Management **Maastricht School of Management of the Expert Centre for Sustainable Business and Development Cooperation (ECSAD), In cooperation with the Interchurch Organization for Development Cooperation (ICCO) December 2004
  • 2. TABLE OF CONTENTS ACRONYMS AND ABBREVIATIONS .........................................................................................................V EXECUTIVE SUMMARY ..............................................................................................................................VII 1 INTRODUCTION: A DYNAMIC BARGAINING SOCIETY .......................................................1 1.1 STAKEHOLDER RELATIONS IN A BARGAINING SOCIETY..................................................................1 1.2 PARTNERSHIPS AS A STRUCTURAL FORM OF STRATEGIC STAKEHOLDER DIALOGUE..................2 1.3 THE POTENTIAL FOR PARTNERSHIPS FROM A COMMODITY CHAIN PERSPECTIVE........................2 1.4 STRUCTURE OF THE PAPER..................................................................................................................3 2 THE STRATEGIC STAKEHOLDER DIALOGUE: COMPANIES AND NGOS ...................4 2.1 COMPANY POSITIONING AS A STRATEGIC STAKEHOLDER..............................................................4 2.2 NGO POSITIONING AS A ST RATEGIC STAKEHOLDER.......................................................................7 2.3 THE CHALLENGE OF BALANCING MULTIPLE ROLES.......................................................................12 2.4 DUTCH CFO POSITIONING BASED ON SELF-PERCEPTION..............................................................13 2.5 NGO POSITIONING WITH RESPECT TO OTHER NGOS....................................................................16 2.6. CONCLUSIONS.....................................................................................................................................17 3 THE BUSINESS-NGO PARTNERSHIP REVEALED.................................................................. 19 3.1 THE CONCEPT AND MAIN THEMES OF PARTNERSHIPS...................................................................19 3.2 NGO AND COMPANY MOTIVATIONS FOR PARTNERSHIP S.............................................................21 3.3 TOWARDS A MODEL TO DISTINGUISH PARTNERSHIPS...................................................................23 3.4 AN INITIAL ASSESSMENT OF PARTNERSHIPS OF DUTCH CFOS....................................................25 3.5 RISKS OF PARTNERSHIPS...................................................................................................................28 3.6 CONCLUSION.......................................................................................................................................30 4 PARTNERSHIP POTENTIAL IN COMMODITY CHAINS...................................................... 33 4.1 THE ‘GLOBAL COMMODITY CHAIN’ APPROACH............................................................................33 4.2 CHAIN TYPES AND CHARACTERISTICS.............................................................................................34 4.3 COORDINATION, ‘CORE’ COMPANY POSITIONING AND CHAIN RELATIONS.................................35 4.4 THE POSSIBILITIES FOR INTERVENTION IN COMMODITY CHAINS.................................................38 4.5 RENT DISTRIBUTION, BARRIERS TO ENTRY AND FORWARD INTEGRATION.................................40 4.6 CONCLUSIONS: TOWARDS THE DEVELOP MENT OF SUSTAINABLE CHAINS.................................43 5 PARTNERSHIPS IN GLOBAL COMMODITY CHAINS: MISSING LINKS ..................... 45 APPENDIX: EXAMPLES OF EXIS TING PARTNERSHIP INITIATIVES .................................... 49 APPENDIX: POTENTIAL PARTNERS AND RELEVANT RESEARCH ORGANIZATIONS 52 REFERENCES ..................................................................................................................................................... 57 iii
  • 3. ACRONYMS AND ABBREVIATIONS African Growth and Opportunity Act AGOA Business-Interested NGO BINGO Bilateral Investment Treaty BIT Business Oriented NGO BONGO Broker Oriented NGO BRONGO Common Agricultural Policy CAP Co-Financing Organization CFO Corporate Financial Performance CFR Corporate Social Responsibility CSR Direct Action oriented NGO DANGO Discussion Oriented NGO DONGO Degree of Vertical Integration DVI Everything But Arms agreement EBA European Commission EC Export-Led Growth ELG Export Processing Zone EPZ European Union EU Fair Economic Development FED Foreign Direct Investment FDI Free Trade Area FTA General Agreement on Tariffs and Trade GATT Global Commodity Chain GCC Generalized System of Preferences GSP Import Substitution Industrialization ISI Less Developed Country LDC Most Favored Nation MFN Multinational Enterprise MNE Non-Governmental Organization NGO Non-Tariff Barriers NTBs Own Brand Manufacturer OBM Official Development Aid ODA Own Design Manufacturer ODM Organization for Economic Cooperation and Development OECD Original Equipment Manufacturer OEM Papua New Guinea PNG Partnership Oriented NGO PONGO Purchasing Power Parity PPP Research and Development R&D Regional Integration Agreement RIA Southern African Development Community SADC Shareholding NGO SHANGO Strategic Stakeholder Oriented NGO STRANGO Supervisory NGO SUNGO United Nations Conference on Trade and Development UNCTAD Voluntary Export Restriction VER World Food Program WFP Watchdog Oriented NGO WONGO World Trade Organization WTO World Wildlife Fund WWF v
  • 4. vi
  • 5. EXECUTIVE SUMMARY This research report is the initial outcome of cooperation between the Inter-Church Organization for Development (ICCO) and the Expert Center for Sustainable Business and Development (ECSAD). The research involves linking a ‘partnership’ approach to analysis of ‘global commodity chains’ in order to identify the opportunities for an NGO such as ICCO to capitalize on the increasing acceptance of partnerships as a mechanism for development. The project’s origins can be found in the early efforts of ICCO to apply a mult- stakeholder approach and a value chain perspective to Fair Economic Development. By helping small-scale producers access international markets, they came into contact with several companies in the cotton, tropical fruit and forest product sector and through trial and error, developed a number of partnerships between NGOs, companies and producer organisations. This led to a realization that changes were needed in their way of thinking and working, redefining their roles in order to make it succesful. The aim of this research project with ECSAD is to gain insight in mechanisms for partnerships in which actors of the private-, non-profit- and sometimes public sector cooperate in the development of sustainable international commodity chains. This insight will be obtained by analyzing the currently used mechanisms for co-operation with a focus on actors in developing countries. In doing so the research aims to draw lessons on how partnerships can contribute to direct (economic) poverty alleviation. For ICCO, the research will allow lessons learned to ‘gel’ as well as provide a process evaluation from a neutral outsider, while at the same time helping ECSAD develop their knowledge and insight on partnerships as a vehicle for sustainable development. The increasing importance of partnerships It has become increasingly accepted that ‘partnerships’ between NGOs and companies can be a powerful tool for stimulating sustainable development. Partnerships are emerging in the context of changing relations in (inter)national stakeholder environments, between governments , businesses and civil society. Dynamics in this ‘triangle’ of relationships are currently subject to tremendous change. Foremost is the retreat of the state as the regulator of economic activity and markets, coupled with the encouragement of self-regulation among business as ‘the market’ is given more and more room as a managing force in shaping economic and social outcomes. At the same time we are witnessing the coming of age of civil society as an increasingly internationally organized stakeholder body trying to fill the void between government regulation and self-regulation, particularly in issues that span multiple regulatory environments. Momentum is therefore being created to explore structural cooperation between different kinds of stakeholders. Thus far experience has been gained on the interface between gove rnment and civil society, such as universities and hospitals; and in cooperation between business and government, such as public -private partnerships (PPPs) in e.g. infrastructure. More recently, the call for improved corporate social responsibility (CSR) among companies is inducing businesses to explore their social orientations, while the increased significance of market forces is driving civil society organizations like NGOs to reconsider their attitudes towards the market. Now, partnerships are receivin g new attention on the interface of business and civil society (profit and non-profit), precipitated by the growing complexity of increasingly internationally defined issues, changing stakeholder dynamics and recognition of convergent interests. Structural forms of strategic stakeholder dialogue are needed to channel that momentum towards the development of sustainable economies and societies. Strategic stakeholder dialogue between companies and NGOs means a shift from antagonistic relations (confrontation) to a more constructive approach involving e.g. structural commitment in the form of partnerships. The outcome matches efficiency considerations (‘doing things right’) with ethical ones (‘doing the right things’) in the form of ‘doing the right things right’. vii
  • 6. The challenge of (strategic) partnerships for NGOs In principle, companies and NGOs can adopt a range of different positions in their relationship, and these positions will affect the chances afforded by partnerships. Companies, depending on their own CSR attitudes, may be proactive in their engagement of civil society and addressing relevant issues. Other firms, however, may be more reactive in their CSR strategies and as a result more difficult partners. At the same time, some firms may be interactively oriented, and thus geared towards constructive dialogue. For NGOs, the choice for a partnership-oriented strategy involves not only issues of positioning towards companies, but also positioning towards other NGOs and society. Is the partnership strategy attractive for a broader public and can this be translated into funding opportunities? Is a partnership strategy the best choice or are there more viable alternatives to reach the same goal? Moreover, a critical analysis of the NGO’s own capabilities is required, such as whether partnerships ‘fit’ the NGO’s strategic vision. Matching the company’s attitude towards societal issues with the NGO’s positioning defines the potential for structural cooperation. This study distinguishes between ten distinct roles that NGOs can adopt that vary in the level of (inter)dependence and whether the NGO’s attitude is confrontational or cooperative with regard to companies. One of these is the Partnership Oriented NGO (PONGO). Research has shown that the perception Dutch Co- Financing Organisations (CFOs), as an NGO subgroup, have of their own relative positioning is fairly similar. Distinctions remain in terms of e.g. focus or philosophy, but in terms of their attitudes towards dialogue with companies, Dutch CFOs are fairly monotone. Therefore the development of a sustainable partnership strategy requires a thorough evaluation of an NGO’s strategic orientation, and how an organization’s vision, knowledge and competences can create a fruitful basis for sustainable positioning. At the same time, matching the NGO’s positioning with the company’s attitude towards societal issues defines the potential for structural cooperation. Both conflicting and converging interests play an important role in the partnership debate. Although in an ideal world, converging interests are more important than conflicting interest, in practice both are equally important and thus the term ‘ critical cooperation’ is introduced. In addition to accounting for the multiplicity of roles and interests, the literature emphasizes that partnerships can be win-win if both parties demonstrate sufficient commitment, where communication lines are open, where linkages and synergies are exploited, where the relationship is given a formal status with a clear divisio n of responsibilities, and where both partners behave towards each other with integrity. The search from both sides is for the building blocks of cooperation and the strengths which will enable the NGO to be an equal partner in a market-driven environment. Partnerships can vary in intensity, or the level of cooperation, ranging from philanthropic to transactional to strategically integrated. Partnerships can also vary in scope , including a potentially larger number of stakeholders in both developed and developing countries. Additionally, a ‘PONGO’ can be divided into four sub-categories: the donor, the mediator, the capacity builder, and the technical expert. In practice, a PONGO can fulfill a combination of the above as well. If the best role for CFOs is one of a donor and mediation/ broker role and less one of a technical expert needs to be analysed further. Making partnerships strategic: the link to development and global commodity chains Little research has been done, however, on partnerships in the developing country context. Partnerships not only for mutual gain, but also for societal gain in the form of sustainable development, are new and subject to a whole slew of additional problems and risks. Analysis of the potential for and risks of partnerships in the developing country context can be analyzed from a commodity (value) chain perspective. The value chain perspective segments the production and delivery of goods to market into stages of added value and identifies the actors that play the key role at each stage. This perspective is not only useful for identifying growth perspectives in individual goods and commodities, but also for determining the potential for partnerships. viii
  • 7. Relevant is for example mapping the number of stages in the production process and how geographically dispersed the value chain is. The more segmented and dispersed the chain, the more difficulties will be encountered trying to positively impact the chain. Another issue is identifying power concentrations in the value chain; i.e., which processes are controlled by the ‘core’ actors in the chain. Improving market access and creating potential for increased local value added for producers in developing countries will be difficult without involving highly internationalized core actors in global markets, particularly for a nationally organized NGO. Additionally, institutional issues and obstacles to growth can be identified such as declining world prices and terms of trade developments. Additionally, there is the challenge of defining and measuring ‘equity’ with respect to the distribution of wealth in the chain, necessary for setting the conditions and terms of partnerships for sustainable development. On that basis the potential for partnerships can be analyzed by engaging core actors in strategic stakeholder dialogues to assess dilemmas, establish interests and critical success factors, and to begin managing expectations on both sides. This will lead to a framework of analysis that integrates both the value chain and the partnership issues specific to actors at given stages in the chain, and links them to the potential role NGOs can play. Such a framework can then be compared to the capabilities of an NGO such as ICCO to identify the ‘strategic fit’ of such a partnership. ix
  • 8. x
  • 9. 1 INTRODUCTION: A DYNAMIC BARGAINING SOCIETY The challenge of solving economic, social and environmental problems in developing countries is tremendous. In addressing these problems, the relationships and interactions, interfaces and conflicts of various actors come into play. Within this dynamic and fluid environment, actors of all colors can be seen as stakeholders. At the level of (inter)national societies, stakeholder relationships are traditionally cast in the form of a triangle: market, state and civil society. The interactions between stakeholders from these ‘spheres’ shape the institutional environment and define the ‘rules of the game’. This refers in large part to the distribution of gains and costs in societies and economies. In a time when sustainability has emerged as one of the major issues facing societies and the world in general, the question of how this should be achieved remains highly debated. The path that is chosen will largely determine the outcome, and that path is determined by the exchanges and interactions between business- and societal stakeholders. In the not too distant past, those interactions were dominated by conflict, but recently proponents of a ‘dialogue’ between stakeholders have started to gain ground. The ‘stakeholder dialogue’ is a mechanism for mapping and linking potentially divergent interests, identifying opportunities and reducing risk. For the combination of sound business and socially responsible business to be sustainable in the long run, the dialogue must be strategic as well. Formulating strategy entails defining stakes and positions, and if these are perceived as sufficiently harmonious, dialogue becomes more firmly embedded, and can progress to the form of partnerships. 1.1 Stakeholder relations in a bargaining society In a bargaining society, stakeholders maintain a precarious balance. Some categories of stakeholder may be relatively strong or weak, and the balance established often has the flavor of a particular ‘industrialization’ model. The state in many Asian countries, for instance, is considered a relatively strong bargaining partner, while civil society remains less developed. In the US, receding government (until recently) meant that market and societal actors were relatively strong, and in Europe the three corners of the triangle have traditionally been in balance. Some of the tension between stakeholders exists on the basis of their different drivers (e.g. profit, non-profit, general welfare) and their reliance on different coordination mechanisms (regulation, competition, norms and values). Societies are becoming increasingly complex. Organizations can more and more often be identified as ‘hybrids’, whereby boundaries, drivers and coordination become blurred and even potentially conflicting. Much of this is related to the rise to prominence of the market, which refers to the increasing influence of market actors (companies) on government and society. It also refers, however, to the fact that governments and civil society actors such as NGOs are trying more to participate in productive economic activity, through public/private or profit/non-profit partnerships. This participation can both be aimed at sharing in the wealth generated by economic activity, but also as a means to exercise a control function on firms through participation. This can be the case with e.g. (partially) state-owned enterprises like the Dutch Railway (NS), which are subject to both profit considerations as well as the expectation that public transport is a public good (non-profit). Stakeholders, which could in the past be classified with relative ease as being either primary – involved directly in the value chain of productive economic activity, or secondary – such as governments or NGOs, are increasingly observing a convergence of interests and activities. This does not mean tensions are necessarily being erased. Conflicts continue to arise along the interfaces between these spheres. In our increasingly interconnected world, this not only raises the stakes, but also makes it more difficult to map out those conflicts, define positions and engage stakeholders in constructive dialogue. Partnerships offer a perspective for dealing with this new complexity on a structural basis. 1
  • 10. 1.2 Partnerships as a structural form of strategic stakeholder dialogue This search for balance among stakeholder preferences is not only related to goal formulating - behaviour of individuals, it also relates to the process of goal seeking. There is an increasing - recognition that sustainable economic development and sustainable societies more generally are only attainable through the combined efforts of different stakeholders, as opposed to the zero-sum game of keeping one another in check. It seems that sustainable societies and sustainable economies can only be achieved through constructive long-term dialogue, known as strategic stakeholder dialogue (Cf. Van Tulder et al, 2004). The notion of ‘partnerships’ can in fact be seen as one form of strategic stakeholder dialogue, in which partners commit to long-term, structural interaction based on a shared vision of sustainability and the role of all partners in its achievement. Partnerships can exist in different forms: between public and private stakeholders, such as collaborative efforts between companies and governments to invest in infrastructure, but more and more often they are being formed between profit and non-profit organizations. This position paper focuses on the latter form of partnerships. There is, however, also a lack of clarity as to what exactly constitutes a partnership that distinguishes the relationship from other forms of stakeholder dialogue. Since the phenomenon of partnerships between profit and non-profit is relatively new and uncharted territory, organizations that engage in them embark on steep learning curves. One of the objectives of this position paper is to identify lessons learned in the literature and to map out some of the critical success factors, prerequisites, pitfalls and evaluation mechanisms as they are identified in the literature. 1.3 The potential for partnerships from a commodity chain perspective This research on partnerships is complemented with research on commodity chains, by which the same ‘globalizing’ forces that necessitate dialogue (and thus partnerships) are analyzed in terms of their impact on wealth creation and distribution, particularly for developing countries. Commodity chains and partnerships can also be linked through the stakeholder concept. While partnerships can be seen as a form (and as the result) of practical stakeholder dialogue between actors within societies, commodity chain analysis involves the relationships between stakeholders not so much within societies, but within value chains of productive activity. More often than not, these commodity chains also span multiple socie ties, reaching from the poorest countries in the world to the richest. As such the (international) commodity chain analysis adds context to the discussion on partnerships. Moreover, the traditional distinction between primary stakeholders (suppliers, customers, unions, financiers) and secondary stakeholders (governments, NGOs) is blurred as secondary stakeholders pursue the path of partnerships with commodity chain actors. If strategic stakeholder dialogue is likely to function as the path to sustainable business and sustainable societies, it also provides the path to sustainable development. Development theory these days still involves a perception that development must occur from the ground up; i.e., that it must be embedded in local structures, customs and institutions. At the same time, economic theory holds that specialization along lines of comparative advantage, accompanied by an institutional setting of free trade – the rising tide of which is expected to ‘lift all boats’ – is the key to growth and development. For developing countries, this continues to mean specialization in commodities and other relatively low value-added goods, and the continual struggle to increase value added and income levels in order to fuel growth. Yet the global economy is not a level playing field, and the issue of dependency and inequity is especially salient in relations between stakeholders in developed countries and stakeholders in less developed countries. Although these imbalances can apply to stakeholders both inside and outside commodity chains, it applies in particular to the relationships between developing country suppliers and developed country customers. International commodity chains tend to be ‘buyer-driven’ as opposed to ‘seller driven’ (Gereffi, 1994), indicating that bargaining power rests with developed country customers, by and large Western multinationals (MNEs). Partnerships between companies and NGOs in the developing country context are faced with issues of equity and power imbalances. This research project involves linking the partnership 2
  • 11. approach to commodity chain analysis in order to identify the opportunities for an NGO such as ICCO to capitalize on the increasing acceptance of partnerships as a mechanism for development given their developing country focus. The aim of the research is to get insight in mechanisms for partnerships in which actors of the private-, non-profit- and sometimes public sector co-operate in the development of sustainable international commodity chains. This insight will be obtained by analysing the currently used mechanisms for co-operation with a focus on actors in developing countries. The perspective for this research is to draw lessons on how partnerships can contribute to direct (economic) poverty alleviation. 1.4 Structure of the paper The paper structure reflects the three topics introduced above in 1.1 through 1.3. The next chapter highlights the positioning strategies of both companies and NGOs under which partnerships can emerge and the motivations of both stakeholders to engage in partnerships. Chapter Three explores more directly the lessons learned from the literature, both theoretical and empirical, on the arguments for and against partnerships, the critical success factors and the potential pitfalls along the way for both NGOs and companies. Chapter Four introduces the global commodity chain perspective, highlighting the added value of a segmented yet holistic approach to commodity production and marketing in developing countries. At the same time a number of practical aspects are covered on how to quantify structural dependencies and inequality, how external stakeholders like NGOs can perform governance functions and how they can intervene in processes at individual stages in the chain. The final chapter (Five) brings the partnership literature and that on global commodity chains together to identify the lessons learned, complementary and conflicting aspects, and offers a suggestion as to the type of analytical framework that could be used to analyze partnership potentia l from a commodity chain perspective. 3
  • 12. 2 THE STRATEGIC STAKEHOLDER DIALOGUE: COMPANIES AND NGOS Changing stakeholder relations means that issues of positioning and attitudes towards other stakeholders return to the fore. In this chapter insight will be given into the positioning possibilities for companies and NGOs in a way that defines the potential for strategic stakeholder dialogue and ultimately the chance of successful partnerships. Section 2.1 addresses the development of CSR and the positions companies can adopt towards societally relevant issues and societal actors. Section 2.2 explores the range of different roles NGOs can assume in their interaction with companies, and section 2.3 briefly discusses the complexity of fulfulling multiple roles. The next section (2.4) reviews recent research on the positioning strategies of a number of Dutch NGOs and in particular CFOs (co-financing organizations). Moving from the comparative backdrop of section 2.4, section 2.5 provides a tool for analyzing an NGO’s strategic positioning relative to that of other NGOs. Finally, in section 2.6 some conclusions are drawn regarding the potential for partnerships from a positioning point of view. 2.1 Company positioning as a strategic stakeholder Milton Friedman once said ‘the business of business is business’ (Friedman, 1962). In his view, a firm’s sole responsibility is to use its resources to generate sufficient profits while operating honestly and under free competition, and the firm is to be held accountable only by its shareholders. Although familiar, this neo-classical view actually runs counter to older perspectives in which firms took an active role in social issues. In the 19th century, large firms (as well as churches) began to provide certain goods to society that had a public and social function instead of simply a consumption function. Ford is an internationally recognized example of a firm that tried to provide its employees with all the services they needed (in part motivated by a desire to keep them maximally productive and to minimize labor unrest). In the Netherlands, for instance, companies like Philips and RDM engaged in social housing and Gist-Brocades built an entire neighborhood for its employees (Wennekes, 1993). In the 1990s corporate responsibility was given new meaning subsequent to the UN-initiated Bruntland Commision’s report on the environment and development (Bruntland, 1987). The Bruntland Commission defined sustainable business as that which would serve current generations without jeopardizing future generations’ chances to serve its own needs. Still ‘CSR’ represents a multi-faceted concept. CSR rests on two fundamental principles: the charity principle, and the steward principle. The charity principle is rooted in the notion that the priviledged in society should look out for the underpriveledged, while the steward principle is based on the trust and confidence that managers are given in society to take societal and stakeholder needs into consideration when business decisions are made (Frederic k et al., 1993: 35). Thus companies should not be concerned solely with profit; but with people and the planet as a whole as well. This then formed the basis for the concept of the ‘Triple P’ (profit, people and planet) (Kaptein and Wempe, 2002). As expectations placed on companies with regard to social and ecological policies increase, companies are put under pressure to develop initiatives of their own in this respect. Since the range of social and ecological issues of potential importance is so vast, companies are forced to develop overarching strategic visions of how to deal with such issues. But where does this responsibility end? At the borders of the firm, or are there firms with vital positions in the economy and in value chains, of whom some kind of ‘chain responsibility’ can be demanded? These ‘core’ economic actors ultimately bear the brunt of societal criticism for developments in the chain as a whole (e.g. Nike and the issue of child labor amongst its suppliers). These leading firms are therefore expected to manage these issues, and in so doing, deal with potential reputation problems. This can be seen in the ‘issues life cycle’ (Wartick and Wood, 1998; Van Tulder and Van der Zwart, 2003), which reflects the different stages an issue goes through and the way firms with a CSR strategy will deal with that issue (Figure 2.1). In the ‘birth’ stage, an issue arises, 4
  • 13. usually at the instigation of some societal group based on doubts or concerns about e.g. genetically modified foods. If a firm is able to anticipate an issue’s birth, it can be classified as highly proactive. As public attention intensifies in the ‘growth’ phase, the issue crystallises into a clearly defined set of arguments and is often triggered by a certain event, such as a protest or other manifestations that attract public attention. If the company waits to engage in this stage, it can be called ‘active’. Figure 2.1: Issue life cycle and CSR (a) (b) Public attention (c) Birth Growth Develop- Maturity Post- ment maturity Proactive Active Re-active Defensive: Firm crisis strategy management Source: Van Tulder and Van der Zwart, 2003 The controversy enters the development phase when prominent stakeholders begin to clamor for change in the company’s policies or strategy. An expectational gap has emerged where societal actors view of the problem and its solution begins to diverge fundamentally from the strategy thus far pursued by the company. Companies that wait until this moment to address the issue are following a ‘re-active’ CSR strategy. In the following period, ‘maturity’, public attention grows explosively and unrest among the general populace is noticeable. Companies that do not engage until an issue has reached the maturity stage will consider the issue to be a crisis and always approach it from a defensive point of view. At that point an issue can follow three different paths: an issue can ‘reincarnate’ (‘a’ in Figure 2.1) because its solution is instable or because new expectational gaps emerge; an issue can be in balance (‘b’) if the solution or policy changes are considered acceptable but not far-reaching; or (c) an issue can disappear, either through e.g. a loss of momentum, government regulation, or company self- regulation. Thus companies can be classified as following one of four strategies with respect to CSR based on the way they manage important issues (Figure 2.2). The inactive strategy reflects Friedman’s (1962) classic idea that profit is the sole priority of a firm. CSR in this view is the abbreviation of ‘corporate self responsibility’. This inside-in perspective emphasizes only ‘doing things right’ (efficiency) and avoids any fundamental ethical questions about what is being done. A related strategy is ‘reactive’, by which the firm’s focus is more outside-in and based on not making mistakes. CSR in this view is the abbreviation of ‘corporate social responsiveness’. An active strategy is perhaps the most ethical orientation and the purest form of responsible business. It involves ethically inspired entrepreneurs with a vision, with a strong inside-out orientation aimed at precipitating change. However, this strategy of ‘doing the right things’ (ethics) also has potential weakness, because it may go at the expense of doing them right. CSR in this view represents ‘corporate social responsibility’. A proactive – or even interactive – strategy, on the other hand, is based on the idea that efficiency and ethical behavior can be pursued jointly, and some argue will even lead to a win-win outcome (see Porter and Van der Linde, 1995). CSR in this view represents ‘corporate societal responsibility’. It requires a systematic involvement of stakeholders not only in the formulation of objectives but also in their implementation. Efficiency and ethics in 5
  • 14. this view do not always go hand in hand smoothly and pursuit of this joint objective (e.g. through partnerships, see next chapter) continues to lead to fundamental tensions in strategy. ‘CSR’ in this perspective is not the ‘do-gooding’ to which so many business voices object; it is a broad, integrated, strategic view of business’s vital roles and responsibilities in every society and in the global environment’ (Wartick and Wood, 1999). CSR should be aimed at creating added social and ecological value for firms and society. It is to this fourth angle at CSR that this position paper in particular refers. But it is important to note that this perspective is not always accepted by business partners. In general Anglo- Saxon (core) firms are aimed at a more re-active stance towards CSR, European (core) firms tend to take a more interactive stance, whereas Asian (core) firms tend to adopt a more in- active stance towards CSR. The latter seems to apply also to many developing country firms: they actually tend to adopt a largely ‘in-active’ or ‘re-active’ stance towards CSR. None of the ‘showcase’ firms in CSR (defined as Corporate Social Responsibility and identified by the International Chambers of Commerce) is from a developing country. 1 ‘Good corporate citizenship’ for each of these categories of firms thus means something different. NGOs wanting to engage in partnerships with firms should therefore take into consideration the different ‘CSR cultures’ from which firms originate – even if they operate in the same global commodity chain. Figure 2.2: Four CSR strategies IN-ACTIVE RE-ACTIVE ACTIVE PRO/INTER-ACTIVE “Corporate Self “Corporate Social “Corporate Social “Corporate Societal Responsibility” Responsiveness” Responsibility Responsibility” Inside-in Outside-in Inside-out In/outside-in/out “doing things right” “don’t do things wrong’ ‘doing the right things’ “doing the right things right’ ‘just do it’ ‘just don’t do it’ ‘do it just’ ‘just do it just’ Efficiency Equity/Ethics Effectiveness ‘public relations’ ‘public affairs’; ‘corporate ‘strategic corporate ‘business of business is ‘community/investor/ communication’ ‘business communication’ business’ government relations’ ethics’ ‘strategic issues ‘entrepreneurship’ ‘issues management’ ‘philantropy’ management’ ‘corporate reputation’ ‘Corporate citizenship’ ‘strategic philantropy’ ‘responsible ‘strategic management’ entrepreneurship’ ‘leadership’ No organised interaction Stakeholder Debate Societal dialogue (Strategic) stakeholder other than via markets dialogue Profit maximisation Quarterly profits and Values (long-term Medium-term profitability market capitalisation profitability) and sustainability Source: Van Tulder and Van der Zwart, 2003; Van Tulder and Van der Zwart, forthcoming How firms deal with CSR is crucial for how they are seen by other stakeholders. The sum of the images that relevant stakeholders perceive and associate with the firm is defined as reputation (Van Riel, 1999). The foundations of reputation are honesty, credibility, reliability and responsibility (Fombrun and Gardberg, 2000). Reputation is the binding factor in relationships between firms and stakeholders that provides a basis for continuity and a reservoir of goodwill. It is not only a factor from an ethical, or a value-based point of view; a solid reputation is also e.g. a positive aspect of marketing or allows the firm to borrow money at lower rates. 1 The ICC Company Showcase in 2003 listed eighteen companies that are recognized as ‘cutting edge’ in the field of environmental and sustainable development: ABB, Fiat, Outokumpu, Tepco, Shell, Rio Tinto, Fortum, BP, Kesko, Corus (formerly Hoogovens), GlaxoSmithKline (formerly GlaxoWellcome), Unilever, UPM-Kymmene, Silja Line, Volkswagen, Akzo Nobel and DSM. Most of these firms come from Europe, only one from the US and Japan, none from developing countries. The change that NGOs can collaborate with ‘leading-edge’ companies as regards pro-active CSR therefore is biggest in Europe. It also contains the least ‘partnership’ dilemmas due to more ‘inducive’ CSR cultures in Europe as opposed to other regions and institutional contexts. 6
  • 15. Reputation damage through poor CSR strategies can be high or low, depending on the nature of the issue and the course of the issue life cycle. This can be measured in terms of e.g. product boycots (e.g. calls not to buy gas at Shell), a decline in job applicants or a change in credit rating (Figure 2.3). The question is to what extent the firm engages in some level of self-regulation to correct for the damage done and rectify the situation. In cases where the stakes are low (low reputation damage) and the firm makes little attempt to noticeably close the expectation gap, the firm’s strategy is clearly one of inaction. As the stakes go higher, the firm may become more active, but primarily in a reactive (defensive) mode. At the opposite extreme is a firm proactively engaged in self-regulation. This situation has two variants, depending on the stakes: if reputation damage is low, the firm is likely to engage proactively in stakeholder dialogue. If the stakes are so high that the risk of compromising can undermine the company’s independence, the company may choose to follow its own course in order to maintain some level of control over the damage. In that case, interaction with other stakeholders (e.g. NGOs) may be one of conflict instead. Figure 2.3: Reputation management and Corporate Social Responsibility Reputation damage Low High Weak Inactive Reactive / Defensive Self-regulation Active Dialog Conflict Proactive / Interactive Strong Source: Van Tulder and Van der Zwart, 2003 Together these elements form an analytical framework for positioning the behavior and strategies of firms in their interactions with other stakeholders. These framework elements, however, only reflect the firm perspective: NGOs have their own ‘strategic repertoire’ when it comes to engaging other stakeholders, and companies in particular. 2.2 NGO positioning as a strategic stakeholder NGOs have shown in numerous cases that they can force companies to action through the power that NGOs wield over public opinion. But NGOs are not only the critical ‘watchdogs’ that often make the headlines. NGOs have stakes and weaknesses of their own, such as reputation issues and the dependency on external financing through private donors or governments, as is the case with co-financing organizations (CFOs) in the Netherlands. The function of NGOs is first and foremost to organise society and to create ‘club goods’, i.e., goods from which some members of society can be excluded (in contrast to public goods, which are by definition for all). Next to that, they operate at two interfaces: (a) between the state and civil society and (b) between the market and civil society. The first interface is the most traditional, reflecting the financial relationship between government and NGOs, which in such cases appeal to governments to obtain additional fundin g for projects they carry out on behalf of civil society. It is however especially the second interface (b) that is undergoing change. Since the early nineties, with the advent of the bargaining society, NGOs have been calling companies to account for their social responsibilities in a variety of ways. Many NGOs believe that companies, more so than government, are/should be able to address certain issues. According to Elkington and Fennell (1998), NGOs can assume four roles in this regard: (1) Sharks , (2) Orcas, (3) Sea Lions and (4) Dolphins. Sharks and Orcas are inclined towards polarisation and confrontation. They act more (Sharks) or less (Orcas) instinctively, strategically and in 7
  • 16. groups. By contrast, Sea lions and Dolphins are more inclined towards co-operation. Sea lions will accept sponsoring from companies (and tend not to criticise the hand that feeds them too much), while dolphins realize that companies can create important preconditions to achieve desired change but prefer to retain their independence in the process. Both confrontation and co-operation can be adequate strategies. Many NGOs start out as sharks: with direct action, debate and as much independence from companies as possible. According to a recent report by SustainAbility and the United Nations (2003), the categories of Orcas and Dolphins have gained in importance and appeal. Five strategies can be distinguished by means of which NGOs intervene in companies and markets so as to make their influence felt (see Box). Anti-business campaigns: effective in raising public consciousness around an issue and q catalysing pressure on companies. Tend to be only effective against well-known branded companies on black-and-white issues. Market intelligence: still largely focussing on individual companies, a growing trend q involves building market intelligence on companies and facilitating pressure from employees, customers, suppliers, investors, boards etc. for improvements in performance on key issues. Business engagement: engaging businesses in partnerships aimed at collaboratively q addressing key issues. Intelligent markets: Potentially the most powerful way to intervene in markets is to try q and do so at the level of the market – rather than with individual or groups of businesses. A small number of NGOs are attempting to do this by actively working to ‘reframe’ markets to reward positive behaviour and penalise negative behaviour. Market disruptions: come in the form of regulatory interventions or shifting liability q regimes, which trigger upward shifts in markets towards higher levels of sustainability. One can identify the development of a shift towards NGO partnerships with companies (the ‘business engagement’ role). Also notable is that a parallel exists between the emerging trend towards partnerships and the fact that national and international NGOs are increasingly confronted with demands of accountability and transparency. NGOs are being called upon to adopt codes of conduct. To meet these new demands, NGOs need to be managed in an increasingly professional manner. There is, however, a richer palette of NGO strategies than the inventory above suggests. A broad range of new roles are currently unfolding, especially in the area of multi and strategic stakeholder dialogues and project partnerships that move beyond a form of ‘business engagement’. Roles such as broker, mediator and/or supervisor are appearing (see also Elkington and Fenell, 2000) which up until now have hardly been discussed in academic literature. Moreover, it is often assumed that NGOs can fulfill only one role and/or that they migrate from one role to another. In practice, the situation seems much more nuanced. NGOs adopt multiple roles, both consecutively in a single process as well as simultaneously in different settings through which at one moment they seek to start a debate and the other they seek to start a dialogue. The following ten roles can be distinguished at the interface between companies (market) and NGOs (civil society) 2 : 1. DANGOS (Direct Action oriented NGOs): hard-core action groups, such as the Animal Liberation Front, the former Rote Armee Fraction or even al-Qaeda, employ anonymous cells to carry out (illegal) campaigns. They are oriented towards direct action without 2 With the exception of Bingos and Bongos, the acronyms for the respective NGO roles have been invented by one of us. Inspired by the proliferation of NGO acronyms we could not resist the temptation to put our acronym oar in. Eveline van Mil is gratefully aknowledged for her input on fine- tuning this model. 8
  • 17. consultation, where animal liberation actions, sabotage and wreaking economic damage represent the primary components of their campaign repertoire. 2. WONGOS (Watchdog Oriented NGOs): NGOs that operate as ‘agitator’ or ‘conscience’ include organisations such as ATAC, Greenpeace, McSpotlight, Friends of the Earth, Clean Clothes Campaign and Amnesty International. They intend to remain as independent as possible and actually seek confrontation and debate in order to draw attention to issues in as stark manner as possible. They are strongly media oriented and make use of ‘blaming and shaming’ campaigns to highlight corporate responsibilities and inconsistencies. 3. BRONGOS (Broker Oriented NGOs). New NGOs are increasingly being founded that can meet companies’ demand for a ‘mediator’ or ‘broker’ in the face of societal conflicts. The degree of independence of this NGO role is generally less than that of the supervisor (Sungos). Generally, it is not a permanent organisation either. For each conflict, a new organisational form or ‘arbitrator’ can take shape. The parties to the conflict can delegate a representative to the institution that is to be formed. Usually, the parties agree beforehand that they would accept the ruling of the mediator. Sometimes this role is started up by the government so as to create a more permanent forum – a ‘third party’. The Environment Council (EC) is an example. All relevant sectors, NGOs, governments authorities and civil society are represented in the ‘council’. The EC describes its role as that of ‘honest broker’, ‘consensus builder’ and an ‘unbiased’, ‘unprejudiced third party’. Contributions of members in the form of donations, memberships and such are accepted on the condition that the donor accepts the independence of the EC. As the role of broker/mediator becomes more permanent and members represent the primary stakeholders, one can increasingly speak of a strategic stakeholder dialogue. 4. DONGOS (Discussion and Dialogue Oriented NGOs). NGOs that enter into discussion and dialogue with companies do not only focus on the moral superiority of their position, they also take an interest in the opinion and position of companies. In their interaction with companies they try to understand the position of companies and vice versa. It is a question of mutual enlightenment without direct focus on resolving specific issues. The organisations remain relatively independent of each other. This applies to Co-financing and voluntary organisations across the world. The Dutch Medecins sans Frontières and French Terre des Hommes have their own responsibilities – essentially not (yet) focused on co-operating with companies – but reject conflict and confrontation with companies as means to draw attention to an issue. 5. SUNGOS (Supervisory NGOs). Companies, societal groupings and governments are increasingly seeking to identify organisations that can oversee compliance with codes of conduct, reporting requirements and/or quality labels that have been agreed on. As the role of civil society representatives (amongst others) in these initiatives becomes more prominent, the likelihood increases that supervision on compliance is placed in the hands of Foundations or Independent/Autonomous Governing Bodies which are financed by the participating organisations or government. Examples are the Global Reporting Initiative, various quality label organisations, but also the National Contact Points, which are a professional institute in all OECD countries that is intended to oversee compliance with the OECD Guidelines for Multinational Companies. 6. STRANGOS (Strategic Stakeholder Oriented NGOs). As the interaction between NGOs and companies has more and more bearing upon strategic issues – the exact outcome of which cannot be predicted – mutual dependence in realising shared objectives also increases. The participants acknowledge a shared responsibility for the end result and work towards it in alliance with companies. The Forest Stewardship Council seems to be one of the first initiatives towards genuine strategic stakeholder dialogue. The covenants, 9
  • 18. quality labels and other regulations that are agreed to in the Marine Stewardship council have the objective of creating a common ‘public good’ (sustainable fisheries). The objectives will most likely have to be adjusted continuously and in close consultation with a large number of strategic stakeholders (Strangos). 7. SHANGOS (Shareholding NGOs). NGOs that manage investment portfolios aim to secure good shareholder value for their supporters, i.e. relatively small individual investors. As such, they can largely be described as single-issue NGOs. An important part of their strategy is the coordination and representation at shareholders’ meetings of large groups of small shareholders. An increasing number of NGOs are springing up whose focus is especially on smaller shareholders interested in making sustainable investments. Since the mid nineties, NGOs such as Greenpeace have also tried to exert influence on company policies through the acquisition of shares. Since the block of shares is never big enough to buy real influence via voting rights, these NGOs attend shareholders’ meetings in the capacity of ‘agitator’. As such, the role of the Shango is similar to that of the Wongo. This form of campaigning requires that NGOs buy shares, which puts them at risk of becoming dependent on stock market sentiments. For this reason, NGOs such as Greenpeace usually dispose of their ‘right to vote’ after the shareholders’ meeting which means that one is not paid out dividends. The role of ‘agitator’, after all, does not sit well with gaining financi lly from the company whose operating procedures one has a denounced. 8. BINGOS (Business Interested NGOs). An increasing number of, not profit- but social accountability oriented, NGOs seek to present themselves as alternative to companies on their own market. In this way, the Fair Trade organization (integrated into the European Fair Trade Association) supplies products to many European countries while an organisation such as Max Havelaar manages the quality labels and marketing. Automobilist associations are also active in this area. Dutch, German and English NGOs sometimes try to compete in their own markets by setting up their own filling stations and online travel agencies. Automobilist NGOs are united in an international organisation for tourist and automobilist associations. The USA has an automobilist federation which provides the same services in each state it is represented. Trade unions across the world are moving in the direction of ’service’ organisations. They offer services to members such as insurance and training which is direct competition for private insurance companies, pension funds and such. These NGOs aim to raise company awareness of their responsibilities, but they also try – by modifying market conditions – to offer consumers a socially responsible or more favourable alternative. The dilemma these NGOs face, however, is that the effectiveness of their strategy depends on the market- related success their products. 9. PONGOS (Partnership Oriented NGOs) often focus on one specific project which in practice is realised in collaboration with companies. The World Wildlife Fund financed a number of its conservation projects with the assistance of companies. To a certain extent this amounts to a form of corporate sponsoring of NGO projects. ‘Business-community involvement’ projects are also characterised by different forms of partnership between local communities and participating companies (see also Chapter 3). In the past, such initiatives were largely viewed as a form of philanthropy, but companies are increasingly adopting a strategic approach to these types of activities. At the very least then, one can speak of ‘strategic philanthropy’, but increasingly also of partnership. By starting a specific project with a company, however, an NGO does adopt a position of relative dependence in relation to the company, but that applies both ways. The partnership approach is more results-oriented and focuses on concrete (partial) solutions. Consequently, partnerships are often more viable if relatively simple and practical single - issues are at stake which may very well form a part of more complex, multidimensional issues. 10
  • 19. 10. BONGOS (Business Oriented NGOs). Companies have helped to found a number of NGOs whose sole purpose is to represent their interests. That is not to say that these organisations also fulfil the function of one-sided representatives. In practice, many Bongos provide a discussion platform for several societal groupings. The studies that are conducted – sometimes by independent researchers - can serve as input for all sorts of other forms of dialogue and debate. The principal problem of Bongos, however, remains their credibility. Bongos that represent the interests of a given sector are at risk of representing the ‘lowest common denominator’, just like official trade organisations and chambers of commerce. This was precisely the reason why some (large) companies elected to create new NGOs which could elevate the debate on a given issue to a higher plane. An example is the World Business Council for Sustainable Development (WBCSD) and some of its satellite organisations like the Foundation for Business and Society (that has come up with a global corporate governance benchmark). Another is the European Roundtable of industrialists (ERT) which played an important role in the formation of the European Union – an important public good for all Europeans – but which at the same time constantly calls suspicion on itself due to the fact that it only represents the interests of a limited number of industrial firms. The ten NGO roles discussed above signify an increasing degree of NGO interdependence with companies. Table 2.1 maps this. As NGOs operate more independently, their campaigns become less predictable for companies. Such campaigns are also almost always geared towards protest, debate and polarisation. In such campaigns, NGOs chiefly adopt a single - issue approach and focus almost exclusively on exposing the problems. If NGOs are more solution and product oriented, and seek to operate as company representative (Bongo) or endeavour to carry out a joint project with companies (Pongo), there is a great likelihood that they will focus on relatively simple (single) issues. Along with this, their dependence on and predictability for companies will also increase. It is only when NGOs seek a ‘mutually’ dependent relation with companies that it is possible to carry out a more multi-dimensional approach in practice, by means of which problems and solutions can be linked with each other. Table 2.1: A range of NGO positioning towards companies STRANGO BRONGO SHANGO WONGO DO NGO B I NGO BONGO DANGO PONGO SUNGO Role intensity among Dutch NGOs: n.a. 54% 88% 23% 13% 13% 9% 7% 38% 2% Independent Mutually interdependent Dependent “Sharks” “Orcas” “Dolphins” “Sea Lions” Protest oriented; polarization Process oriented; integration Product oriented; realization Single-issue approach; focus on Multi-dimensional approach; focus Single-issue approach; focus problems on problems and solutions particularly on (partial) solutions Unpredictable Interactive Predictable Risks: oversimplification / Risks: weak compromise; co- Risks: complicity; excuse for exaggeration of the issue; optation; vision too long term; seeking structural solutions; ‘iconification’; backlash; shirking groupthink; lowest common window dressing responsibility denominator / multiplier 11
  • 20. Table 2.1 also depicts the results of own research conducted on the ‘intensity’ of specific roles (van Tulder et al, 2004). In a study of 60 large internationally oriented Dutch NGOs conducted in 2003, we investigated the role(s) these NGOs were occupying at the time. One fifth of the NGOs assume just a single role. More than 40% assume more than two roles. Among the roles assumed, the centre o gravity clearly lies with the more protest oriented f roles (Wongos and Dongos). The partnership NGO (Pongo), however, is on the rise. The relative importance of Dangos as non-governmental organisational form is more difficult to establish due to the illic it nature of these groups’ activities. These campaigns, however, have increased in significance – specifically in the form of terrorist attacks, but less so in the form of animal liberation actions. 2.3 The challenge of balancing multiple roles Covey and Brown (2001) emphasize that both conflicting and converging interests are a factor in partnerships. In the ideal world, the converging interest is more important than the conflicting interest, but in practice both are equally significant. In this case Covey and Brown introduce the term ‘critical cooperation’, by which multiple roles are assumed and balanced in such a way that partnerships can be developed further. NGOs are increasingly struggling with question of the degree to which their current roles are effective in achieving the objectives from which they derive their right to exist. NGOs that prefer direct action roles (Dangos), for example, run the risk of launching arbitrary campaigns lacking in strategy, where idealism degenerates into anarchy and viole nce and companies’ reactions harden to such an extent that the NGO loses the sympathy of the broader public. The ‘agitator’ (Wongos) strategy often leads to oversimplification and exaggeration of the issue. In this approach, only the large companies are confronted, sometimes with the opposite effect in the event that these companies are in fact leaders in their attempt to conduct business in a socially responsible manner. As such, they are ‘punished’ for their transparency and good intentions because the NGOs in question lack more subtle and/or sophisticated instruments to influence and interact with companies. In the case of NGOs as ‘discussion partner’ (Dongos) – the mild form of dialogue – the risk arises of simplification on the part of NGOs, and of a ‘divide and rule’ policy on the part of companies. At the other extreme of the scale (especially in regard to Pongos and Bongos), it is not entirely inconceivable for NGOs who collaborate with companies to serve as some sort of excuse for these companies not to make a sufficient effort to find strategic and truly structural solutions for the problem at hand. The function that the co-operation between the parties acquires then becomes one of mere window dressing. At the centre of the strategic spectrum of NGO roles, the mutual dependencies with their greater potential for a process oriented multidimensional approach, also carry the necessary risks. The NGO that operates as competitor on a market (Bingos) makes the effectiveness of its activities dependent on the success of the market. Not only is there the risk of market failure, but particularly in an oligopolistic market the scope of such an NGO is strongly influenced by precisely those other market players that the NGO attempts to influence by entering the market. A comparable problem presents itself when an NGO acquires shares in a company in order to influence it (Shangos). While participation can be bought, it often transpires that the shareholders’ meeting is not necessarily the place where participation actually has an impact. An adverse by-product is that one becomes partly responsible for company policy – even if one votes against it – and that part of the NGO’s capital becomes dependent on stock market sentiments. Moreover, in practice it appears that N GOs who exercise their influence on stock markets to prevent large investors – such as pension funds – from investing in certain ‘dubious’ companies, can achieve exactly the opposite effect. When critical shareholders carry out the threat to sell their shares, they can be replaced by less critical/exclusively profit oriented shareholders. NGOs that position themselves as supervisor or ‘mediator’ (Bongo) run the risk of losing the ability to advance their own ideas and interests as a result of exclusive preoccupation with mediating others’ interests. Accordingly, NGOs fulfill a broad range of roles that can be effective, but also involve significant risks. In practice, a balancing of different (complementary) roles among among 12
  • 21. different NGOs appears to be most effective in creating minimum conditions for stakeholder dialogue. Thus organisations like the World Wildlife Fund can more readily forge partnerships with companies given that the more radical alternative, Greenpeace, holds less appeal for companies. Due to a lack of financial means and professionalism many NGOs in the past have elected to assume a single role. This is currently undergoing change. NGOs are reconsidering the effectiveness of their actions and a move towards adopting of a multitude of roles can be discerned. This, however, generates internal management and co-ordination difficulties as well as external identity and legitimacy problems. Members and donors are not always able to identify with the different roles NGOs assume. Companies also sometimes have problems appreciating that an NGO can be a discussion partner and simultaneously approach the media to publicly criticize the company in connection with a different, or the even the same issue that’s being discussed. 2.4 Dutch CFO positioning based on self-perception Tables 2.2 and 2.3 use the same framework of ten NGO roles to identify the various roles actually taken in by leading Dutch Co-financing organisations. The data collection is based on semi-structured interviews with the representative persons of each organisation in the November-December 2003 period. Ten organisations were approached and analyzed: Oikos, Wemos, Plan Nederland, Simavi, Terre des Homes, Hivos, Icco, Novib, Solidaridad and Cordaid. These organisations arguably represent the leading Dutch organisations in the present and future field of development cooperation. The interviews were aimed at establishing the self-acclaimed (perceived) roles of these NGOs at the moment (Table 2.2) and their anticipated roles five to seven years from now (Table 2.3). The results generate a number of observations: • None of the organisations can be positioned at the extremes of the scale: neither only protest oriented nor only business interests oriented. • All five of the main CFOs (Hivos, Icco, Novib, Cordaid, Solidaridad) opt at present for a variety of roles at two sides of the continuum. First, they combine watchdog and discussion partner roles (Dongo, Wongo) in their ambition to critically follow companies in their involvement in development. Second, all have recently developed a ‘partnership’ (Pongo) ambition. Some NGOs perceive this as a role that could be positioned relatively close to their other more traditional roles, but Table 2.1 shows that this ambition really represents a considerable ‘leap’ from past practices. The dilemmas and role conflicts associated to the partnership roles seem to be ill understood. • Some organisations are aware that it can be difficult to combine for instance a ‘watchdog’ role with that of a ‘partnership’ role in practice. Only Hivos, Icco and Solidaridad aim at various ‘bridging’ roles that might overcome the inherent role conflicts related to combining extremist positions along the continuum. Hivos aims at a supervisory role towards companies (Sungo), whereas Icco sees a role for itself as broker (Brongo). Brokers and supervisors are distinctive roles, but not in the perception of the people interviewed. Solidaridad tries to use its position as shareholder to influence company strategies. • The smallest organisations (Wemos and Oikos) have chosen for a specialisation strategy aimed at one role towards companies. But rather than a distant watchdog role they opt for a more discussion orientation (Dongo). None of the smaller organisations (Oikos and Wemos, Plan, Simavi, Terre des Hommes) have adopted more than two roles, which are also aimed at partnerships towards firms: either only as discussion partner (primarily the two smallest organisations) or also as a project partner. 13
  • 22. 14 Table 2.2: Present (perceived) roles of co-financing Organizations vis-à-vis companies
  • 23. Table 2.3: Anticipated Future Roles (2009) of leading Dutch Co-Financing Organisations 15
  • 24. The future looks remarkably stable for the Dutch co-financing organisations (Table 2.3). All organisations intend to continue and deepen their present roles, without adding really new roles to their repertoire. The noticeable exception is Novib which intends to expand its roles into the ‘interdependent’ area of brokership and strategic stakeholder dialogues (Brongos and Strangos) with companies. Novib, therefore, will face the greatest challenge of internal role conflicts in its relationships with companies, which might explain why it has been the first to adopt a (rather defensive) code of conduct for dealing with companies. ICCO, Novib and Solidaridad therefore are faced with the biggest challenges of competing roles: all three have chosen to position themselves not only at the extremes of the continuum, but also in between. On the other hand all three organisation thus can learn from their activities, because the activities in the middle of the continuum provide important ‘learning’ experience for the partnerships with varying intensities at the other extremes of the continuum. Following this continuum the co-financing NGOs with ‘unique selling points’ (USP) in comparison to their peer organisations in the nearby future are Hivos (Supervisor), Novib (strategic stakeholder) and Solidaridad (Shareholder). Whether this represents a ‘strength’ or a ‘weakness’ depends on a number of contingent factors such as the attitude of firms and the government towards these roles, and the ability of these organisations to use the input from these activities in their other activities; otherwise, USPs are ‘stand-alone’ operations, with no bearing on the overall effectiveness of the organisation. 2.5 NGO positioning with respect to other NGOs As Tables 2.2 and 2.3 suggest, NGO positioning strategies also entail a certain degree of competition with other NGOs. This can be understood as competition for limited resources (donations, subsidies, grants) but also the ‘brand recognition’ that comes with a level of dominance in a high-profile niche. Traditionally, NGOs have not been thought of as organizations that need to be competitively oriented. Unlike for-profit businesses, many nonprofit organizations operate in a non-market, or grants, economy - one in which services may not be commercially viable. At the same time, many NGOs are sole providers of their (niche) good, and so there is neither a choice for the ‘client’, nor for the donor. Consequently, nonprofit organizations have not necessarily had an incentive to question the status quo, to assess whether client needs were being met, or to examine the cost-effectiveness or quality of available services. The ‘competitive environment’ has changed, however. Funders and clients are beginning to demand more accountability, sole -sourced nonprofits are finding that their very success is encouraging others to enter the field and compete for grants, and grant money and contributions are getting harder to come by, even as need and demand increase. This last trend - increasing demand for a smaller pool of resources, requires NGOs to rethink how they do business, to compete where appropriate, to avoid duplicating existing comparable services, and to increase collaboration, when possible. Often positioning strategies with respect to other NGOs are analyzed using the MacMillan Matrix (Arsenault, 1998). The MacMillan Matrix is a valuable tool that was specifically designed to help nonprofits assess their programs in that light. The matrix is based on the assumption that duplication of existing comparable services (unnecessary competition) among nonprofit organizations can fragment the limited resources available, leaving all providers too weak to increase the quality and cost-effectiveness of client services. The matrix also assumes that trying to be all things to all people can result in mediocre or low-quality service; instead, nonprofits should focus on delivering higher-quality service in a more focused (and perhaps limited) way. The matrix is based on four concepts: alignment with the mission statement, competitive position, program attractiveness and alternative coverage. First of all, activities should be aligned with the NGO’s Mission Statement. This can be seen as e.g. congruence with the purpose and mission of the organization, ability to draw on existing skills in the organization and ability to share resources and coordinate activities with programs. Services or programs that are not in alignment with the organizational mission, unable to draw on existing organizational skills or knowledge, unable to share resources, and/or unable to coordinate 16
  • 25. activities across programs should be divested. Competitive position addresses the degree to which the organization has a stronger capability and potential to fund the program and serve the client base than the competitive agencies. This can be based on e.g.: good location and logistical delivery system; large reservoir of client, community, or support group loyalty; past success securing funding; superior track record (or image) of service delivery; large existing market share; rapid growth; superior skill at advocacy; superior technical skills; superior organizational skills; and superior local contacts. Program attractiveness is the complexity associated with managing a program. Programs that have low client resistance, a growing client base, volunteer appeal, easy exit barriers, and stable financial resources are considered simple or ‘easy to administer’. Alternative coverage is the number of other organizations attempting to deliver or succeeding in delivering a similar program in the same region to similar constituents. The MacMillan Matrix combines these four dimensions into ten cells in which to place overall strategy or individual campaigns. Each cell is assigned a strategy that directs the future of the program (s) listed in the cell (Figure 2.4). After each program is assessed in relation to the above four criteria, each is placed in the MacMillan matrix, as follows. For example, a program that is a good fit, is deemed attractive and strong competitively, but for which there is a high alternative coverage would be assigned to Cell No. 1, Aggressive Competition. At the other end if a program is difficult to fund and the NGO is the only supplier – the clients’ ‘last, best hope’ – this situation is called ‘soul of the Agency’. Management must find ways to use the programs in other cells to develop, piggyback, subsidize, leverage, promote, or otherwise support the programs in this category. For NGOs wishing to pursue partnership strategies, it is important to analyze that approach in the context of these ten cells. It should also be noted that there is a relationship between the issues raised by the MacMillan Matrix and partnerships, particularly in terms of the NGO’s bargaining power in dealing with potential partners. Figure 2.4: The MacMillan Matrix High program attractiveness (easy to Low program attractiveness (hard to attract resources for support) attract resources for support) Alternate coverage Alternate coverage High Low High Low Strong 1. Aggressive 2. Aggressive 5. Reinforce best 6. ‘Soul of the competitive competition growth competitor or agency’ position find partner GOOD FIT with mission statement Weak 3. Aggressive 4. Invest, find 7. Find partner or 8. Find partner or competitive divestment partner or divest divest divest position POOR FIT 9. Aggressive divestment 10. Orderly divestment with mission statement Source: Arsenault, 1998 2.6. Conclusions This chapter gave an expose on the stakeholder dialogue analysed from a business and NGO perspective. For companies, CSR is a way of addressing social issues in society and in developing countries. NGOs are addressing social issues more from a development point of view and are therefore in principle focusing on a broader spectrum. In partnerships focusing 17
  • 26. on business development the two views are converging. However, it remains difficult to get the two ‘worlds’ together. NGOs specialized in business partnerships then clearly have an advantage, as they understand better the ‘language’ of the business. In Section 2.3, it became apparent that NGOs fulfill more than the traditional watchdog function. The most important role fulfilled by a NGO for this paper is the Partnerships Oriented NGO (PONGO). NGOs adopting this role are focusing on collaboration with a business on one specific project. The focus of a PONGO may vary and will be analysed further in chapter 3. If we analyse the NGO-business partnership roles of the CFO’s at the moment based on the Mac-Millan Matrix it is i portant to note that if NGOs will be engaged in business-NGO m partnership their mission statement and strategy need to be adjusted accordingly. Which of the CFO’s have done this successfully is difficult to say, however. Taking the case of ICCO, whose competitive position might be strong in the Netherlands, it is probably difficult to attract financing for these kind of programs. Analysing this further, the quest for finding partners (such as product groups) in order to become more successful is very realistic, and could be pursued further. An important question remains what is the dominant role and focus of a partnership NGO at the moment, and what should it ideally be at the future? Are other stakeholders, such as product groups, governments and branch organizations or other businesses, more natural partners in business partnerships and are NGOs, and especially Northern CFOs, nothing more and nothing less then facilitators in this process? Chapter 3 will provide a first overview of business-NGO partnerships and the roles NGOs play within these partnerships. 18
  • 27. 3 THE BUSINESS-NGO PARTNERSHIP REVEALED Chapter two discussed the Business-NGO partnership as a type of strategic stakeholder dialogue that brings views of businesses with a proactive CSR strategy and the Partnership NGO together. Forms of Business-NGO partnerships differ in many ways, depending on the inputs of companies and NGOs. Companies are often bringing in money, technology, organizational skills and the skill to work towards short-term goals. Typical examples of NGO inputs are focusing on: issues, flexibility, the capacity for “mobilization” and the credibility with respect to sustainability. They often have different objectives as well. Companies usually strive for an increase in efficiency and profitability; NGOs generally protect a public interest (Kanter, 1999). In this section we will explain the different roles companies and Partnership NGOs (PONGOs) can play in a Business-NGO partnership. Based on these inputs a model will be developed which distinguishes between different forms of partnerships. Furthermore we will give an initial assessment of partnerships of Dutch CFOs and discuss some risks inherent to partnerships in general. The chapter begins with two paragraphs that explain the concept and main themes of partnerships and discuss what motivates companies and NGOs to establish them. 3.1 The concept and main themes of partnerships One of the main reasons for the rising popularity of partnerships is the expansion of the market and concentration of the state, which resulted in an enormous increase in the number of NGOs. Both the increasing influence of the market, which started during the eras of Thatcher and Reagan, and the subsequent increase of the number of NGOs makes cooperation in partnerships more likely (Wadell, 1997). A number of factors also helped to link market and societal stakeholders closer together, such as technology (Sagawa and Segal, 2000), increasing interdependence, stakeholder emancipation and expertise, and increased complexity of the problems addressed (Van Tulder et al., 2004). Although the more confrontational forms of relationship between NGOs and companies are still much in evidence, there has been a shift towards more collaborative types of stakeholder relationships. As a result of the increasing intervention of NGOs in market relationships, companies have moved from “a trust me” to “a show me”, to “a join me” stage (see figure 3.1). In the shifting balance between companies and NGOs, the relationship in the 1970s-80s was one of ‘trust me’, by which companies expected society and government to have faith in a company’s ability to self-regulate. In the 1990s, the balance of power shifted towards civil society, which challenged companies to ‘show me’ their societal involvement. In recent years, that conflict has gravitated towards an equilibrium, with stakeholders of both types inviting the other to ‘join me’ in a communal push towards sustainability (Van Tulder et al., 2004). Thus relations between NGOs and companies approach a degree of equilibrium and a higher level of trust. In the past, companies engaging NGOs tried primarily to do so through philanthropy, although there was great uncertainty as to the proper mode (Porter and Kramer, 2002). A new line of thinking emerged by which companies would not merely donate money, but rather attempt to ‘create value’ (Porter and Kramer, 1999). The creation of value, however, is an ambiguous term; moreover, it does not address the distribution of the rents that accumulate from that value. In order to address partnerships more, the term partnership itself needs to be analysed further. A partnership is (broadening the definition taken from the Canadian Council for Public - Private Partnerships) defined as “a cooperative venture between organizations representing business, government and civil society, built on the expertise of each partner, that best meets clearly defined societal needs through the appropriate allocation of resources, risks and rewards”. Partnerships in the context of CSR and the projects that emerge as a result are becoming indispensable in addition to traditional development aid and private sector 19
  • 28. investment. They provide an alternative route toward sustainable growth on both a macro and micro level. As will become apparent below, however, partnerships addressed in the literature focus by far primarily only partnerships between business and NGOs and exclude partnerships including government actors, product-groups or other stakeholders. From a holistic, multi-stakeholder point of view, additional stakeholders will be relevant and thus require further study and the development of expanded analytical frameworks. Figure 3.1: Shifting relationships between NGOs and companies Initiative to NGOs ‘Trust me’ ‘Join me’ Trust Dependency equilibrium equilibrium ‘Show me’ Initiative to companies companies Openness Source: Van Tulder et al., 2004 In general businesses are getting involved through CSR in development issues, while development NGOs are working traditionally in this sector often bottom-up. Just through the CSR approach of businesses and the partnership approach of NGOs the two sides are focusing then both on development issues. But what are the main themes of Business - NGO partnerships? According to Waddell (1997), four topics in business - NGO partnerships with respect to development cooperation can be provided: • Development of the (local) economy (for example the ICCO- Reef Partnership program in Cameroon); • Protection of the environment (for example Care and Weyerhaeuser Company focusing on sustainable forest-management programs) • Protection and improvement of human rights and labour laws (for example most CFO business development programs must adhere to universal human rights and labour laws) • Development of education, health and other public services (For example the sponsoring by Starbucks of an education project of Care in Burundi) Sustainability is a good summary of the four themes, which represent the areas in which the CFOs in The Netherlands are focusing at. Bullet four used to get the main share of the funds. However, business – NGO partnerships are focusing on bullet one: development of the local economy. Also bullet 2 and 3 are of importance for business – NGO partnerships. All business partnerships should pay attention to basic environmental laws, human rights, labour laws and standards. It remains to be seen, if in line with a shift in theme attention, also a shift in fund allocation towards local economic development becomes common amongst the NGO community. However, the establishment of NGO – business partnerships helps clearly in giving gradually more priority to local economic development. But, what are the motivations for business – NGO partnerships? This will be the focus of the next paragraph. 20
  • 29. 3.2 NGO and company motivations for partnerships According to Elkington and Fenell (2000), the motivations for NGO engagement with business are the following and are applied and explained via the ICCO case below: • Growing interest in markets • Disenchantment with government as provider of solutions • Need for more resources • Credibility of business with the government • Cross-fertilization of thinking • Access to supply chains • Greater leverage. But why have we not seen a growing interest of the NGOs in looking for alleys to be engaged in NGO-Business partnerships? The differences in organisational cultures probably form the biggest obstacle and as such also the biggest challenge. If the list of Elkington and Fenell were applied to ICCO, the main driver for ICCO would be the “greater leverage”. This would be derived from ICCO’s mission statement, ICCO’s structure, strategy and activities. According to ICCO, their main focus as a development NGO is on poverty alleviation and on civil society building in developing countries. In order to assist the vulnerable population in developing countries three themes have been selected: • Democratisation and peace building • Fair Economic Development FED • Access to basic services In line with the second theme: Fair Economic Development, ICCO recognises four important trends: • Globalisation • Supply Chain Responsibility and CSR • Market-oriented thinking in the development sector • More economic development attention in the ‘south’ In order to alleviate poverty and to generate income for producers and labourers all four trends above could be of importance. Globalisation, because in or der to create a leverage and develop sustainable economic development, regional markets and ‘global’ issues such as quality restrictions have a direct impact on developing countries and as such need support. Supply chain analyses can be used to identify and understand the various supply chains and in this way more effective and efficient FED projects can be developed. The trend towards sustainable entrepreneurship strengthens the possible interventions even more. The Market- oriented thinking in developing countries is dealing with the fact that till recently market thinking was hardly tackled by the NGO sector in the South. In line with this, economic development in the South becomes an important element of focus for the Northern NGOs. The next step to establish partnerships with businesses is then a natural and logical step. Partnerships can form a mechanism by which the income of producers and workers can be increased. As such, the intrinsic motivation for ICCO stems then from the extra leverage this will afford the NGO to help increase income for the poor. The other ‘drivers’ of Elkington and Fennell are important but not as relevant; for example ‘access to more resources’ does not play a role within ICCO yet. According to Wheeler and Sillanpaa, (1997) stakeholder management is increasingly a key factor for improving business performance and maximizing stakeholder loyalty. In order to understand the motivation of the corporations better the next list for business engagement with NGOs of Elkinton and Fennell (2000) give a more expanded overview: • Consumer expectations • NGO credibility with public • Need for an external challenge 21
  • 30. • Cross-fertilization of thinking • Greater efficiency in resource allocation • Desire to head off negative public confrontation and protect image • Desire to engage stakeholder Explaining the first bullet above it can be said that more and more consumers of today are expecting that businesses are responsible, i.e. social, environmental, financial and societal friendly businesses. All commercial banks in the Netherlands offer responsible investment products, i.e. investment in businesses who are having a positive attitude towards responsible entrepreneurship and/ or are not involved in negative social, environmental or societal issues such as violation of human rights pollution, investment in the defence industry, etc. Being engaged in a partnership with an NGO, the second point of Elkinton and Fennell, gives credibility with the public and has a positive effect on the image of the business involved as well. In certain cases it can also be used to head off negative public confrontation and to address the attention to a positive issue, such as the partnership with an NGO. Such a partnership brings in different views from NGO contact persons that can be of interest for the business. NGOs are a stakeholder and as such it is always interesting and valuable to understand the way of thinking of such a stakeholder. A partnership provides then a clear institutional way to establish this. In addition, NGOs could provide valuable information, being one of the stakeholders, on how to allocate resources. NGOs might point earlier at weak points which need more resources than was planned and other areas could be covered by the NGO such as for example the understanding of the regional partners and stakeholders. A last important issue of the list above is the desire for an external challenge. To be engaged in a partnership with a NGO is for many businesses something completely new and breaks the day-to-day routine. In addition, many employees from multinationals are more and more expecting that their employers focus not only on “making money” but also on being ‘responsible entrepreneurs’. A partnership with an NGO fits seamless in this picture. To be still attractive for young employees this could be another motivation for businesses to be involved in partnerships with NGOs (see also the list of benefits of Kanter below). International firms in developing countries are more and more convinced that it is in their own interest to contribute positively to the environment in which they are located, although there are differences according to firms’ home region. This contributes to the sustainable development of people and the region, which reduces the chance of conflicts and opens potential new markets for the company itself. But firms do not have the knowledge of what local people in the region drive, need and think about the firm being there as an actor. So they enter into partnerships with NGOs, who have a great expertise on this area (Bais, 2004). To make the picture complete, if a partnership is finally established the business can benefit in the following ways, which is in line with the motivations explained above (Kanter, 1999; Drucker, 1989; Porter, 2000): • The know-how it generates; • The intrinsic motivation of its workers • Better PR for the business • Economic profitability (expert centre, 2004) • Mission driven: Making decisions based on mission rather than money; • Stakeholder approach: To be responsive to stakeholders: employees, board members, clients and communities; • Contribution to sustainable development of the region in developing countries, which prevents conflicts and opens new potential markets (K. Bais, 2004). The benefits for a corporation to become engaged in a partnership with NGOs are overwhelming. However, the actual number of business development partnerships remains still limited. The above-mentioned issues can provide direction and support also for NGOs in developing future partnerships. By understanding the agenda of the partner future business – 22
  • 31. NGO partnerships can be assisted better. What steps should be taken by a NGO to establish a partnership with a business? Triple P magazine, 2004 distinguishes the following actions: • Look for companies that want to be sustainable, but accept a sub-par result • Accept profit as goal of a company • Stimulate engagement within the business partner’s organisation • Organise fixed contacts with the media • Share good practices with affiliate organisations • Do not hesitate to credit the company for a good co-operation If a business – NGO partnership finally is established the literature deals with lessons learned for NGOs. David Osborne and Red Gaebler (2000) are summarizing these lessons accurate in the following way: • Competition: How to create incentives for higher performances • Customer driven: How to meet the needs of clients, not the bureaucracy • Results oriented: How to focus on outcomes and not on inputs • Enterprising: How to generate revenues and not just spending • Market oriented: How to create leverage for change rather than controlling it The literature shows that the lessons learned relates to the need for a more business oriented approach. Although most NGOs have become more business oriented, still many issues can be improved. For example, also NGOs these days need to look more at outputs and results and less at inputs. However, not all the work of NGOs can be quantified that easy as benefits for the local population in developing countries is still difficult to measure. The nature of NGOs remains different from corporations but important lessons can be learned. 3.3 Towards a model to distinguish partnerships Business-NGO partnerships differ in many ways, depending on the inputs of companies and PONGOs. In this paragraph w will develop a model that distinguish different forms of e partnerships combining these different roles of firms and PONGOs. The PONGO role can be divided into four sub-roles, providing a picture of the present situation in which NGOs in the north are involved in business-NGO partnerships in the south. The PONGO can perform as: • A broker between business partners in the North and business partners in the South. In this case the Southern/Northern NGO is bringing potential business partners together. Financing is not part of this form of partnership. • As a donor / financier of business development partnership projects. The local partner NGO in collaboration with the business partner(s) is implementing partnership projects financed by the Northern NGO. The intervention of the Northern NGO focuses mainly on auditing (and project cycle management activities) of the provided finances (see as an example the ICCO – Bo-Weevil case at the end of this paragraph). • As a technical assistant in capacity building of potential business partners or sub- contractors such as cooperatives and or corporations. • As a technical experts in the field of local economic development. In this instance the NGO provides knowledge in terms of the local environment and of possible stakeholders such as potential partners/ competitors, communities, etc. It could be the NGO’s role to map the supply chain of a possible product, which has export market potential (either in the region or further abroad). Activities might include feasibility and mapping studies of potential marketable products. In addition, the technical expertise role can be used for specific training in commodity related activities, for example in increasing the quality of the farmer’s products. An analysis of companies’ roles in Business-NGO partnerships can be based on the classifications of Austin (2000). Although his model is meant to distinguish different forms 23
  • 32. of partnerships, it is based mainly on the input of companies. From that, three roles of the company can be identified: 1.Philanthropy. This type of role relates to the “trust me” relationships between NGOs and companies. According to Waddell (1997) and Meijs (2003) we can identify two kinds of partnerships in this one-way approach: a. Gifts; the company gives money, for example Adidas transfers money as a gift to a river blindness program of Plan b. Sponsorship; in exchange of donations for a developmental project a corporation gets its name heard 2.Transactional. The transactional role relates to the core business of a partner corporation and operational business of NGOs/ International Organisations (IO) and as such can be defined as a ”show me” relationship between companies and partners. It focuses on the delivery of capacity building assistance/ expertise from the corporation for the NGO/IO. This kind of partnership is more structural of nature but does not focus on the establishment of new businesses. TNT supporting the logistical know-how of WFP is a good example. Porter (2000) uses the term ‘context-focused philanthropy’ for these kinds of partnerships. According to him both the corporation and the NGO/IO reap important benefits from the partnership. NGOs/IOs would see an increased and a more predictable flow of corporate resources in the non-profit sector. Although companies would be more confident about the value of their activities and would be more committed to it many distance their philanthropy from their business, believing this leads to greater goodwill in society. 3. Business development. Austin names it Integration. The partnerships mentioned here are partnerships in the business sense of joint programs with the objective to establish or develop further sustainable business in other parts of the world. This partnership group refers to the “join me” relationships between companies and NGOs. When the different roles of companies and NGOs are combined we can distinguish sixteen different types of partnerships as described in the following 4x4 matrix based on the level of involvement: Table 3.1: A matrix of partnership involvement Level of involvement (0 -1) Philanthropy Philanthropy Transactional Business ROLE BUSINESS gifts sponsor Development ROLE PONGO (a) (b) (c) (d) Level of involvement (1-0) 1. Broker 1a 1b 1c 1d 2. Donor 2a 2b 2c 2d 3.T. Assistance/ capacity building 3a 3b 3c 3d 4. T. Expertise/ 4a 4b 4c 4d implementer The table results in sixteen different outcomes of partnerships. For the moment we illustrate them with three examples. A first possibility could be that a northern company gives money to a Southern institute and the NGO takes care of the money delivering to a third party (1b). A second illustration may be that a company gives logistical services to a NGO involved in 24
  • 33. food-distribution, and the NGO in the north gives money to this NGO for this food- distribution project 2c). Finally, a company in the north could focus on an agricultural company in the south, which produces the same type of goods in cooperation with a farmer’s cooperation. The NGO in this case could provide capacity building advice to this cooperation involved (3d). The roles of PONGOs should be seen as cumulative, in that a NGO that offers technical expertise in the field of local economic development also performs the role of a donor, broker and technical assistant. A company that enters in business development acts transactional and philanthropically too. It seems that the involvement of NGOs and companies in the partnership increases the more roles they perform. The analytical framework is only indicative and needs to be developed further. Please note that the partnerships mentioned above focus only on business – NGO partnerships. Partnerships with government actors, product-groups or other stakeholders are falling outside the scope of this chapter. However, it looks like they are be coming more important, but his needs to be studied more. The number of participants in partnerships differs too. If it contains of two partners we name this a bilateral partnership. In this case mostly a Northern NGO is financing a Southern NGO or micro-credit institution. Often the financing of a micro-credit institution is the most common example of this kind of partnerships. Partnerships of three actors are called tripartite. In this case there is only one business partner in the south and no business partner in the north or visa versa, in addition to the Northern and Southern NGOs (see the text box on the ICCO – Reef partnership case below). The third form is a quadruple partnership. The partnerships in this sense consist of four parties: a business partner in the North and the South, a Northern NGO and a Southern partner NGO. Most business-NGO partnerships are focusing on the support of micro-credit institutions, which are often supported by Dutch CFOs in cooperation with a Northern bank (Triodos, Rabobank, SNS bank, etc) and a Southern (potential) micro-credit organisation often a “transformed” Southern NGO. However, the number of business development partnerships focusing on business partnerships other than micro-credit institutions is still limited, but is gradually developing. It is premature to say something about the success of partnership projects. Whether a component needs to be financed through a credit or a grant remains subject for discussion. However, grants are often used as start-up subsidy. Reliable figures on the number of collaborations between NGOs/IOs and businesses are not available, however, case studies of Bendell (2000) and Murphy and Bendell (1997) show that the number of partnerships in this respect has increased. 3.4 An initial assessment of partnerships of Dutch CFOs Based on this indicative framework, however, it is possible to give an indication of the types of partnerships pursued by different Dutch CFOs (see 3.4 below). Although information can be found on the business roles (gifs/transactional etc) in these partnerships the data on the inputs of the CFOs (broker/donor etc.) is less available. If the CFO roles are taken all together, it is possible to give an indication of a selective number of existing business-NGO partnerships in The Netherlands and abroad. In order to classify existing business – NGO partnerships, the main CFO’s in the Netherlands and some of the largest NGOs and IOs in the world are listed. The overview gives just an indication and is by no means complete. The different forms of companies’ inputs identified in paragraph 3.1 categorize the partnerships in table 3.2 and 3.3: philanthropical, transactional and integrational. Table 3.4 indicates the sub-roles of the NGOs/CFOs in partnerships where the role of the firm can be seen as business development. In these tables: - 0 stands for zero partnerships - 1 stands for “a few” meaning up to three partnerships - 2 means up to 10 partnerships - 3 means more than 15 partnerships 25
  • 34. *1 Table 3.2: Form of Partnerships of Dutch CFOs on a scale of 0-3 Cordaid Hivos Icco Novib Plan Terre des Hommes Philanthropy (gifts) 3 3 3 3 3 3 Philanthropy (Sponsor 2 1 1 2 3 2 (business related) Transactional 1 0 1 1 2 1 Business Development 2 1 2 2 1 0 *2 Table 3.3: Form of Partnerships of International organizations and NGOs on a scale of 0-3 Oxfam Care WFP Unicef Philanthropy (gifts & 3 3 3 3 sponsoring) Transactional 1 2 1 2 Business Development 1 2 0 0 *3 Table 3.4: Dutch CFO functions in partnerships on a scale of 0-3 Cordaid Hivos Icco Novib Plan TdH Broker 2 2 2 2 1 0 Donor 2 2 2 2 0 0 Technical 2 2 2 1 0 0 Assistant (capacity building) Technical Expert 2 2 2 1 0 0 If we observe the Dutch CFO sector in relation to the various forms of company roles in a partnership (table 3.2), it can be observed that “gifts” are a kind of one-way partnership which form is common amongst all CFOs. Partnerships in the form of sponsorship from companies is already less common. The reason of this might be that Dutch CFOs were always reluctant to become too much involved with the corporate sector, as corporations were long time seen as ordinary money makers. However, in the Anglo-Saxon world (see table 3.3.) sponsorship is much more accepted as a legitimate form of partnership. But, sponsorship as such is also gaining ground in the Netherlands, although potential partnership companies are scrutinized carefully by the NGOs, as they should adhere to the various CSR standards in the world (for example according to the Cordaid business partnership policy). Transactional partnerships focus on capacity building within the NGO. For example, an accountancy firm provides free of charge accounting services to an NGO. Again, foreign NGOs and IOs have more partnership engagement at this stage than the Dutch CFOs as this probably again reflects the Dutch CFO reluctances to be seen too close with corporations. A typical example in this case is TPG who wanted initially to work with MSF, but after a denial from Medecine Sans Frontieres, they work now fruitfully together with WFP. Interesting enough it is at the level of business development partnerships that the Dutch CFO’s are taking the lead in the world debate and are initiating most of the pilot projects in *1 The data in this table is based on Internet desk-research and a selective number of interviews. The data is not complete and provides a first direction on the number and kind of partnerships. *2 Idem as footnote 1. *3 Idem as footnote 1. 26
  • 35. this direction. 3 Maybe, it has to do with the Dutch covenant polder approach which started in the 1980s and has developed extensively ever since, and involves business and government in jointly setting up for example environmental and social agreements which are based on consensus and consultation between government and industry bodies for the benefit of all. ICCO but also Novib and Cordaid are taking the lead in this type of partnership projects. Hivos is more involved in the accreditation and streamlining of CSR standards in the world. Overall the sector in which business partnerships are mostly developed as mentioned before, is in the micro-credit sector. All CFO’s and most international NGOs have partnerships with micro credit institutions. In this respect it is interesting to mention the recently established platform for financial institutions, which will focus greatly on micro-credit partnerships in which all large banks in the Netherlands are participating including FMO. A potential business partnership project other than the development of a micro-credit institution develops often as follows* : a CFO fulfils in first instance a technical expert role in mapping a commodity chain in a certain country or region. In addition, this CFO identifies potential (business) partners. Potential business partnership projects for credit financing or grant payment are identified. Based on this information the CFO fulfils a broker’s function in bringing “on board” interested corporate actors from both the developed country as well as from the developing country in a stakeholders dialogue after which potential partnership projects are developed. The Northern CFO has then the choice to finance the identified partnership p rojects through credit financing, grant financing or a mixture. Based on the type of financing the NGO becomes more or less involved in a partnership project. Either as a financier of credit, often in collaboration with a development oriented bank or /and as a grant provider of capacity building related activities such as the strengthening of a farmer co-operation or a processing unit. The CFO can also fulfil a technical expert role providing training to farmers or producers in order to increase the quality of their products. An example for this theoretical case is the ICCO-Reef partnership case below. From this provisional analysis, it appears that philanthropy-sponsoring partnerships are common between CFOs and businesses. According to CFOs business development partnerships seems to be a better and purer way to contribute to sustainable development, especially when they (the CFO) perform as a broker. In this situation the CFO keeps its independency of the company. Further research is necessary to draw definitive conclusions. 3 David Rosenberg, Director Utz Kapeh * According to an interview with H. uit de Bosch and a Cordaid representative on 20/07/2004 27
  • 36. ICCO’s partnership with REEF, a Dutch logging firm in Cameroon ICCO’s relationship with Reef has existed for the past six years, with initiative coming from both parties. Reef came under increasing pressure from its customers (the national government and municipalities in the Netherlands) to deliver only wood certified in accordance with the Forest Stewardship Council (FSC). Furthermore, logging rights are granted in the form of government issued concessions (for which logging companies also pay a hefty fee) that are also contingent upon submission of a sustainable forest management plan. Reef was thus looking for knowledge of the local market and government practices through local partner organizations of ICCO, while ICCO was engaged in activities to improve the standard of living for poor local forest dwellers. The government of Cameroon, meanwhile, has two major priorities of its own: limiting the export of uncut logs and the introduction of a certification system in accordance with the FSC. The costs of implementing such a certification scheme are enormous and continue to be preemptive, and illegal and uncertified wood is a major share of all wood produced and exported. There are about twelve major players in Cameroon; firms from Europe, the Middle East and Asia. Reef is a medium - sized player (of which there are about 20). Not all support the certification efforts arguing for example that certification (which carries a premium of 4 percent relative to uncertified wood) will drive the -8 price of tropical wood as a building material right out of the market. The World Bank, the World Wildlife Fund and the EU were instrumental in getting the government to take measures against a number of large loggers for their continued use of illegal wood. Reef also has a past in illegal logging, but from ICCO’s perspective, it is more important that the companies remain active (such that the local population remains employed) than that the wood is legal or certified. Reef has for instance recently purchased and made operational a local sawmill, which allows for more local added value and income and apparently manages to run profitably. For ICCO, this was in itself an indication that Reef’s intentions were good despite being hindered by government corruption and obstinance. In other words, illegal logging was a necessity in the face of government reluctance to issue new concessions. ICCO describes Reef as a ‘pioneer’ in partnerships, in contrast to opportunistic firms eager for the positive image and brand spin-offs of partnerships but without any real intention of giving the partnership any body. Although the ICCO-Reef partnership involves no contract or any direct financial transfers (which would otherwise constitute a subsidy and therefore anti-competitive behavior), ICCO does fund non-commercial activities such as the forest management plan required for logging concessions or e.g. AIDS prevention training of REEF employees. The forest management plan involves a three way contract between the government, the logging firm and the local employees. In it, taxes are established as well as the redistribution across federal and local governments. ICCO’s local partners play a role in ensuring that the local population recognizes it has a right to claim local government tax revenue for local infrastructure and socio-economic improvement. ICCO has no say in the determination of local employee salaries, but ‘tries to ensure that people earn enough to shape their own existence’. ICCO’s role is to improve their bargaining power – their income improvement remains the ultimate high priority. - based on interview with Margot Klute, June 30, 2004 3.5 Risks of partnerships Several authors have suggested limitations to business-NGO collaboration in general. The drawbacks include: 1. The main danger in NGO-business partnerships is the fact that NGOs might be co-opted by business and losing some of its independence towards the public and private sector (Zadek, 2001). 2. The existence of unequal power relationships within the partnership (Covey and Brown, 2001). One should expect that corporations would dominate the partnership. However, according to Arts (2002), this perspective tends to overlook the important power that NGO yield in terms of specific knowledge, communication expertise, and public credibility. 28
  • 37. 3. Difficulties of managing relations between cultural diverse organisations. Crane mentions in this respect a culture clash in which the different values and goals of the companies and the NGOs can develop into a conflict (Crane, 1998). 4. Mismanagement of its own stakeholders as well as the mutual stakeholders of the partnership. Whilst stakeholder collaboration may partially redress problems of corporate accountability, it may also threaten the accountability of NGOs that embrace business interests too closely. They could be challenged by their members or the general public (Bendell 2000) 5. Impact on community. When looking at the distribution of the benefits of partnerships by examining ten cases of collaboration in Brazil, India and South Africa, Ashman (2001) reveals that although both business and NGO tend to reap benefits in terms of 1) improved images, 2) better external relations and 3) gains in resources and organisational capacity building, the development impact on community beneficiaries was less predictable and less pronounced. 6. Who takes the initiative? Different partners could take a lead in a partnership. This depends on the case itself, on the government/ NGO/ corporate partner in terms of their knowledge on CSR, partnership issues and their power to be innovative. However, at present the most important initiative taker seems to be public sector bodies including Northern NGOs and not from the private sector (Min. van Ardenne, speech debate november 2002, The Hague). 7. A possible pitfall, according to the WB (CSR roles 2002) concerns the fact that partnership initiatives spearheaded by public sector bodies or NGOs are often resource intensive. Many of the non-OECD initiatives are associated and dependent on donor assistance and can therefore not always develop at its own pace but remain dependent from donors. 8. Another constraint lies with the fact that partnership calls for significant input from Southern NGOs. Southern NGOs are often a key driver for government action and success. However, in many middle and low-income countries, civil society voices are weak and are therefore a barrier in organization of workers. Capacity building of NGOs is then of crucial importance (WB, CSR roles 2002). Van der Voort & Bom (2004) and Kanter (1994) are more specific in what pitfalls can emerge in daily practise and relate these drawbacks to the initial/initiation, execution and closing phase of a partnership: Initial phase: • Exclude parties that can influence success • Giving change to competition between different initiatives • Formulating a difficult goal • Working together with an unprofessional partner • Working with an organisation that already has many (more than five) partnerships • Lack of self-analysis • Lack of chemistry • Lack of compatibility Execution phase: • Let frontrunners lose contact with own organisation • Too much talk about ideals instead of practical solutions • Exclude critics from the project Closing phase: • Trying to draw more credits than other organisations • Evaluate partnerships over to short time spans • Blaming others for not reaching the goals 29
  • 38. • Passing sensible information to outsiders In line herewith ICCO* identifies the following pitfalls in the different stages of partnerships, derived from its own business partnerships: Initial phase: • The process can go too fast (for the target group involved) • Wrong perceptions and expectations from both sides • Too much publicity involvement • Not understanding the partner’s organisational culture Execution phase: • Don’t do as a NGO too much for a corporation. Working together is better. To deal with above-mentioned pitfalls Kanter (1999) comes up with a list of characteristics of successful public -private partnerships focusing on social investment/ innovation projects. The critical success-factors are: 1. A clear business agenda. A corporation “has a better chance of making a difference” in a partnership if it knows in advance how its business agenda relates to the NGO needs; 2. Strong partners committed to change; It helps if the project works with leaders already committed to change; 3. Investment by both parties; 4. Rootedness in the user community. It helps if there is rootedness from both sides in the communities addressed; 5. Links to other organisations if required; 6. A long term commitment Warner and Sullivan (2004) argue that all parties in a partnership should invest time and effort in the best designs for the partnership, understanding the motivations of their potential partners and, once the partnership has been established, continuing to actively support the partnership and ensure its ongoing viability. Partnerships that engage the strengths of companies, government and civil society can under the right conditions yield better (and more sustainable) results for communities and for business than traditional approaches to development. 3.6 Conclusion Business-NGO partnerships approach a degree of equilibrium and a higher level of trust between the parties involved. Businesses and NGOs have their own motivations to engage in partnerships, their roles in it differ too. NGOs can perform as a broker, donor, technical assistant or technical expert. Companies can act philanthropically (by gifts or sponsoring), transactional or as business developer. When these roles are combined sixteen various types of dialogues can be distinguished. The model needs to be developed further. For this moment we conclude that being a broker in a business development partnership might be the best role to perform for an NGO. ICCO itself should think about what kind of role it wants to play in partnerships. Based on an initial assessment of partnerships of Dutch CFOs it can be concluded that ‘gifts’ are a kind of one-way partnership which form is very common. Contrary to foreign NGOs and IOs Dutch CFOs have been reluctant to become too much involved with the corporate sector. The same is true for partnerships that focus on capacity building (transactional partnerships). Interesting enough it is at the level of partnerships related to business development that the Dutch CFO’s are taking the lead in the world debate and are initiating most of the pilot projects in this direction. * Interview with Herman uit de Bosch , ICCO, 30/06/2004 30
  • 39. Looking at pitfalls for business development partnerships it can be concluded that it seems to be important that the respective roles in the partnership are clearly defined and the different roles and organizational cultures of the partners are mutually respected. A more complete list based on more practical cases on pitfalls needs to be developed. Partnerships as discussed in this chapter are not a mean in itself. It is an instrument for CSR to reach a more balanced approach in social, economical and environmental performance in the world, i.e. sustainable development. Especially business development partnerships can be an important vehicle for CSR to reach sustainability by working via the Global Commodity Chain (GCC). For PONGOs it is of importance to understand how the global commodity chain of a particular commodity operates and more important which actors within the chain influences local economic development most. This will be the purpose of the next chapter. 31
  • 40. 4 PARTNERSHIP POTENTIAL IN COMMODITY CHAINS Considering stakeholder relations, conflict and the potential for dialogue in the developing country context requires more than just evaluating the literature on partnerships (see preceding chapter). This literature is very much focused on philanthropic relationships in the Western world, while the challenge of structural integration between business and NGOs in the developing world requires an entirely new level of sophistication, analysis and strategy development. To do so, this position paper explores the insights from the literature on ‘Global Commodity Chains’, which deals specifically with the relationships between actors, or stakeholders, in international value chains involving the processing and transport of primary products from developed countries to developed ones. 4.1 The ‘Global Commodity Chain’ approach The commodity chain approach has been developed by world-systems theorists as a way to analyze the structure of the world economy (Gereffi and Korzeniwicz, 1994). A commodity chain is defined as ‘a network of labor and production processes whose result is a finished commodity’ (Hopkins and Wallerstein, 1986). The value chain analysis is an important analytical model to understand the nature of ties between local firms and global markets and to analyze links in global trade and production. Value chain analysis is important for understanding the way producers are connected to final markets, which also influences their ability to gain from participating in the global economy (Kaplinsky and M orris, 2001). The central issue is how producers in developing countries should participate, because getting in ‘the wrong way’ can lead to a ‘race to the bottom’. Value chains emphasize value creation at each point in the chain from turning raw goods into final goods for consumption (Gereffi 1999, Sturgeon 2001, Kaplinsky 2001). By focusing on the governance of chain responsibility, the model provides a basis for analyzing power, and the analyzing of the prospects for upgrading by local firms within global chains (Humphrey and Schmitz 2000). For these reasons the model has been widely used in the analyzing of garments (Palpaceur, 2000, Bair, 2001). By linking the stages in the chain (Talbot, 2002; also known as ‘nodes’; Gereffi, 1994; ‘roles’ or ‘niches’; Gereffi, 1999; ‘boxes’; Hopkins and Wallerstein, 1986 and 1994) to specific actors or stakeholders, it is possible to highlight the fact that commodities are moving through different stages, and different actors controlling and influencing the commodity chain. An alternative approach, called ‘filière’ (‘thread’), adopts more of a meso-level of analysis. The ‘filiere’ approach looks mainly at local structures, local production systems and consumption. Much research has been done on local production systems and on how these are affected by public institutions (Raikes, et al. 2000), while issues such as international trade and processing were largely overlooked. The main focus recently has been on the transaction cost approach (Griffon, 1989) as a theoretical grounding for a continued approach to Francophone Africa’s primary commodities. Part of the strength of the empirical tradition is the clear focus on structures and relations around commodities, including relations of power, but this is not generalized or systemized (Raikes, 2000). Gereffi identifies four dimensions in the Global Commodity Chain research: (i) input-output structure, (ii) the territory covered, (iii) the governance structure, and (iv) the institutional context. The first three dimensions address the vertical relations of production, processing and selling in the network structure of the ‘chain’. Crucial aspects are power, key agents (actors) and the distribution of rents (profits) among actors in the chain. The fourth dimension is more horizontal and focuses more on contextual issues that have an effect on the various GCC- agents such as FDI, Governmental policies and CSR standards and policies in relation to the impact they have on the agents and their role in local development. Local development can be analyzed in terms of: (conflict over) number of jobs, turn-over, contracts, tax contribution, policies/ rules and regulations, transfer of technology/ innovation. 33
  • 41. The commodity chain can either focus on the sequence of processes which starts at t e h production or extraction stage, goes to the processing stage, on to production and finally the sales stage. It can also be viewed as a series of transactions, which may take place on a free market; or completely removed from the market (business transaction between a vertically integrated TNC), or they may be structured by oligopsonistic buyers. The added value to the commodity at each stage is determined by the rules governing these transactions. Important is that the GCC chain analysis shifts away from the normal country and sector analysis in which these are linked to global market. In the GCC analysis the commodity chain itself is researched in terms of how it is linked to the global market. More precise: the unit of analysis is not the nation-state but the commodity chain. Individual countries can then be researched based upon the actual stages of the commodity chain present in individual countries. It is then interesting to discuss how the different actors relate to each other, the profits are distributed and the governing rules are set. Based on the value chain approach as outlined here, four items emerge that require discussion: first, types and characteristics of value chains, including the international dimension; second, coordination, control and relationships within value chains; third, inequity and the distribution of rents within value chains; and fourth, issues of the institutional environment that affect the dynamics and relationships within value chains. These four topics will be discussed in the remainder of the chapter before coming to some initial conclusions. 4.2 Chain types and characteristics The commodity chain perspective involves looking at economic organization as a chain along which value is added. More generally, this is the concept of the ‘value’ chain. The value chain approach is distinct from e.g. the network or the cluster approach to economic organization in that it focuses on vertical relationships based on product inputs, throughputs and outputs (Table 4.1). It is implicitly technology led, based on the existing method of production and the way this is organized and is thus supposed to be ‘exogenous’ to the firm. As will be argued in the following section, however, this is misleading because firms with a major coordinating function in the chain (‘core’ firms or ‘rule -setting’ firms) have some degree of latitude in which elements they in-source and out-source. Table 4.1: Value chains compared to networks, clusters Network Value Chain Cluster Relationships Horizontal; vertical Vertical Horizontal; vertical; lateral Linking factor Knowledge; market; Product Proximity; nature of product product and production; knowledge Configuration Developed by firm Determined primarily by Determined by location production and trade Source: De Langen and Nijdam, 2003 In its most basic form, the value chain consists of four stages: design; production; marketing and distribution / after-sales; and finally consumption and recycling (which feeds back into the process and thereby to some extent ‘closes the loop’. The extended value chain is considerably more complex (Figure 4.1, drawn from Kaplinsky and Morris, 2001). In the case of the furniture industry, for example, this involves the provision of seed inputs, chemicals, equipment and water for the forestry sector. Cut logs are moved to the sawmill, which in turn requires inputs in the form of machinery. Sawn timber is then passed on to the furniture manufacturers who, in turn, obtain inputs from the machinery, adhesives and paint industries and source design and marketing skills. The furniture then passes through various channels to reach the consumer who, after use, consigns the furniture for recycling (Kaplinsky and Morris, 2001). 34
  • 42. Figure 4.1: The extended value chain, forestry, timber and furniture Source: Kaplinsky and Morris, 2001 Even the extended value chain does not necessarily correctly depict the position of a certain party as intermediary producers in a particular value chain may feed into a number of different value chains. The sawmill depicted in the figure above is a supplier to furniture manufacturers, but can also supply to other ‘chains’ such as building and construction, domestic stockholders, the ‘do it yourself’ sector and foreign stockholders. 4.3 Coordination, ‘core’ company positioning and chain relations The second dimension of analysis from the commodity chain perspective is that of coordination and governance. Coordination and governance have to do with the locus or loci of power in the chain: who exerts control over the chain overall, and which are the core actors at each individual link in the chain? In the literature three types of overall governance structures have been identified: (i) producer driven commodity chains ; (ii) buyer driven commodity chains ; and (iii) international trader driven chains . Producer-driven chain s are usually capital and technology-intensive industries like automobiles, computers and electrical machinery. In these chains, manufacturers or other large integrated industrial enterprises play the central role of controlling the production 35
  • 43. system through a vast network of suppliers, subsidiaries and sub-contractors (Gereffi, 1994). Gereffi (1999) has pointed out that producer-driven chains are more likely to be characterized by foreign direct investment than are buyer-driven chains. Buyer-driven chains are usually found in labor intensive consumer good industries such as garments, footwear, and consumer electronics. Here the leading firms in the chains are the retailers and marketers which typically procure the goods from producers in less developed countries. These independent manufacturers receive specifications from the buyers and branded companies that design the goods (Gereffi, 1994). Buyer-driven value chains are not necessarily found in manufacturing only; the trade in fresh fruit and vegetables has many of the characteristics of a buyer-driven global commodity chain as retailers play the key role in governing the chain of activities that links widely dispersed producers to consumers in developed countries (Dolan, Humphrey & Harris-Pascal, 1999). Gibbon (2001) identified the international trader-driven chain which is characteristic for many primary commodity chains. The lead firms in this chain are the trading houses that trade in multiple commodities. Products from all over the world are obtained i order to be traded n to other firms that process them into final end products for sale to consumers. They exercise a loose and indirect form of governance over their suppliers, based mainly on price, volume and reliability. Profits are made on the huge volumes. They specialize in logistics, including knowledge on where to find supplies of different commodities as well as financing and insurance. An example is the trade in cotton, where international traders have a key position between the ginning companies and spinning mills. The geographical segmentation means that cotton producers are dispersed, making it costly for both producers and consumer to oversee the entire market. Traders form the link between global supply and demand (Gillson et al., 2004). Several characteristics of the different chain types are presented in Table 4.2. Table 4.2: Three archetypal commodity chains Producer-Driven Buyer-Driven International Trader-Driven Drivers of Global Industrial Capital Commercial Capital Private Capital Commodity Chains Core Competencies R&D; Production Design; Marketing Coordination; Risk hedging Barriers to Entry Economies of Scale Economies of Scope High levels of working capital; accumulated market knowledge; reputation Economic Sectors Consumer Durables Consumer Non-durables Primary Commodities Intermediate Goods Capital Goods Typical Industries Automobiles; Apparel; Footwear; Toys Cotton; Fruits; Wood; Computers; Aircraft Ownership of Transnational Firms Local Firms, Small holder farmers Manufacturing Firms predominantly in developing countries Main Network Links Investment-based Trade-based Trade-based Predominant Vertical Horizontal Horizontal / Vertical Network Structure Position in value Multiple links in a Either at the resource Diversified, encompassing chain(s) limited number of end (producer) or at the individual links across multiple chains retail end (buyer) value chains Source: Kaplinsky and Morris, 2001; International trader info is author’s interpretation based on Gibbon, 2001 The role of the coordinating company in the chain described above is similar to the ‘core company’ approach (Van Tulder et al., 2001). The concept of ‘coreness’ is rooted in (a combination of) a number of firm characteristics from which firms can leverage bargaining power and thus control the chains in which they operate. Characteristics in this vein can be: the company’s size; its ability to exploit intangible assets such as trademarks, brands and licenses; its political vision and access to policymakers; an explicit vision of how relations 36
  • 44. with e.g. suppliers and customers should be organized; and its relative independence from these other stakeholders. These l rge firms remain undeniably the hubs of power in value a chains in general and often also in those more specific to commodities. The market-strategic dimension to being (or becoming) a core company requires both vertical and horizontal positioning decisions. Vertical positioning describes the part of the value chain a core company controls directly through in-house production or distribution. This refers to the degree of vertical integration (DVI) of a firm, the amount of outsourcing or the share of the total value-added which a given core company supplies. While vertical integration, diversification and differentiation basically represent the strategic dimensions already identified by Michael Porter in 1985, horizontal positioning defines the share of economic activity which flows through a core company, regardless of the value added. Horizontal positioning can be measured by the number of branches a core company operates in, and thus the degree of diversification over a small or a large number of branches or sectors (although within sectors, the aim could be more or less differentiation in particular product ranges). Large retailers, for instance, may add relatively little value, but since they manage links between supply and demand on an extremely broad scale, their power can be quite extensive. Core companies in this way can exert distinct influence over chains and sectors by virtue of their positioning. Within the context of the positioning of key agents, or ‘core companies’, variation exists in the type of control that a core company exerts on other actors in the chain. At one extreme, relationships can be governed solely by market forces (‘hierarchy), with no ownership control or structural bargaining power that distorts market forces such as price-setting or supply and demand relationships. At the other extreme are relationships governed through ownership, such that previously external markets are ‘internalized’ by the firm. This occurs when e.g. suppliers and/or distributors are acquired by a firm. To these two extremes, Gereffi (2003) adds a modular, relational and captive type of value chain governance. In modular chains, suppliers make products to a customer’s specifications, which creates a limited form of dependency. Relational value chains are characterized by complex interactions between buyers and sellers which creates mutual dependencies. In captive value chains small suppliers are dependent on much larger buyers (similar to the ‘quasi-hierarchical’ relationships identified by Humphrey and Schmit z (2000)). The governance typology is determined by three characteristics inherent to the value chain. First, the complexity of the transactions can affect the coordination mechanisms in the chain. As a transaction become more complex, transaction costs on the market increase to the point that it is cheaper to internalize the transaction. Second, the ability to codify transactions is important. When specifications are difficult to communicate, an incentive arises for explicit coordination through internalized markets or at least captive relationships. Third, the supplier’s capabilities are key. When the supplier’s capabilities are high, products can be procured from the market; when the capabilities are low, supplies can be sourced more cheaply from the intra-company network. How the combination of these characteristics influences the governance type and thereby the degree of explicit coordination and power asymmetry is depicted in Table 4.3, together with the relative dependency of the non-core partners on the core company. Table 4.3: Key Determinants of Global Value Chain Governance Governance Complexity Ability to Capabilities in Position of non- Degree of explicit Type of codify the supply- core companies coordination and transactions transactions base power asymmetry Low Market Low High High Independent Modular High High High Relational High Low High Interdependent Captive High High Low Hierarchy High Low Low Dependent High Source: Gereffi, 2003; Ruigrok and Van Tulder, 1995 37
  • 45. Note also that positioning strategies also have spatial implications in that the various stages of productive activity and added value, as well as final markets, are not one-dimensio nal. The type of positioning has clear ramifications for a company’s bargaining environment since different horizontal and vertical positioning denote different configurations of stakeholders. For example, key bargaining relations for a core company in a vertically integrated chain may be with a small number of distributors, while firms with a retail-based horizontal position will likely interact primarily with a wide range of suppliers. Kaplinsky and Morris (2001) point out that control is not only a matter of forcing other parties to take particular actions, but also involves the ‘capacity to be deaf’ to the demands of other actors. This type of power is often seen among firms involved in multiple value chains and may result in cross-cutting power between them. Similar arguments were put forth by Van Tulder et al. (2001) in their identification of horizontal retailer’s potential ‘choke hold’ on the distribution (i.e. their ‘flow impact’ on the economy). Kaplinsky and Morris (2001) have also reviewed a number of methods at a practical level for identifying control or governance in value chains. The quantification of control can be seen in indicators such as the distribution of chain sales among the various links in the chain, value added, profit levels, and buying power. Van Tulder et al. (2001) have operationalized the dimensions of horizontal and vertical positioning explored above as a more firm-specific approach. These measures are listed in Table 4.4 along with some of the considerations relevant for their use. Table 4.4: Indicators and measures of control in value chains Indicators Definition / source Strengths and weaknesses Share of chain sales Balance sheets Not a strong indicator as it may only be a reseller of bought- in materials and may lack influence Share of chain Firm-level interviews A better indicator for measuring size since it reflects the value added share of the chain’s activities Degree of vertical Annual reports (Sales Alternate calculation of value added. Only refers to activities integration minus cost of inputs) relative to suppliers; data not available for all firms Share of chain Balance sheets, but hard May be a good reflection of chain power, but may also arise profits to find for private from monopoly control over scarce raw materials (e.g. companies platinum) and may have little influence over downstream processing Rate of profit Balance sheets, but hard A poor indicator since minor players in the chain may be to find for private relatively profitable but have little influence companies Share of chain Firm-level interviews A good indicator of power, particularly if there are buying power asymmetries (if dependenceon suppliers is less than suppliers’ dependence on lead firm (captive relationship) Control over core Firm-level interviews A good indicator in producer-driven chains like autos, since technology this defines the distinctive competence of a chain Holder of chain’s Firm-level interviews; May be critical in markets where brand name is important, ‘market identity’ studies of market share of such as apparel (e.g. brand name) brands in final markets Degree of Number of SIC codes Gives general idea of breadth of activities but assumes SICs horizontal (branches); absolute or are equidistant and ignores ‘vertical’ relationship between diversification entropy index many SICs Source: Kaplinsky and Morris (2001) and Van Tulder et al. (2001) 4.4 The possibilities for intervention in commodity chains These relationships find expression in the way in which parties agree to do business. Much of that agreement is ‘imposed’ by the core (rule -setting) firm. The level of mutual commitment and how long-term the relationship is will be crucial in determining the relationship’s sustainability. The dependencies described above can be translated to a more detailed level in which issues like the length of the trading relationship, the ordering procedure, price determination and terms of payment (Table 4.5). Table 4.5 shows that relationships where the purchaser is not actively engaged in controlling the supplier, commitment levels are high, 38
  • 46. trust levels are high, and contracting and price determination occurs in an open relationship. Note that many of these and other related items were also mentioned in Chapter 4 as critical success factors for successful partnerships. Each of these technical aspects of power asymmetries in commodity chain relationships offers a point of entry for intervention on moderating those relationships, i.e. through partnership strategies. Table 4.5: Technical aspects of buyer-seller relationships and dependence (Inter)Dependence Low High Indicators Length of trading q q Short Long relationship q q Open bidding for Bidding may not take orders with prices place (or likely winner Ordering procedure negotated and agreed is known in advance); before order prices settled after commission contract is awarded q Supplier more flexible q Supplier only starts Contractual about instructions and production on receipt relationship will start production of written order without written order q Inspection upon q Inspection Little or no inspection delivery q Expertise rarely q Extensive unilateral or Technical pooled and assistance bilateral technology assistance is only given when transfer over time paid for q q Infrequent and Multi-channeled, through formal including engineers, channels; narrowly personnel department Communication focused on and top management; purchasing frequent and often department informal q q Adversarial, with Non-adversarial (open Price determination hiding of information books) q Easy access to letters of q Punitive or no credit Credit extended credit, longer payback extended period, easy terms q Long delays inpaying q Outsourcing Payment on receipt of agents and informal payment terms finished goods economy producers Source: Adapted from Kaplinsky and Morris (2001) Issues that contribute to a long-term trust-based relationship also involve harmonization of priorities. Buyers may, depending on the characteristics of the product and the value chain, be concerned with e.g. certain levels of quality, price levels, reliable supply, specification conformance, packaging capabilities, the level of specificity of the product, a supplier’s flexibility/responsiveness, and supplier innovativeness. For instance an investigation of clothing in South Africa showed that price, quality, delivery and responsiveness were the critical success factors for market access (Industrial Restructuring Project 2000, cited in Kaplinsky and Morris, 2001). Similar critical success factors apply to the fresh fruit and vegetable chains. In fresh fruit chains, retailers are introducing supply chain management practices which necessitate long term contracts with dedicated suppliers to whom the retailers assign responsibility for procurement specifications, such as quantity, quality and food safety (Rabobank, 2002). In a study of the impact of the UK market on the African fresh vegetable industry Dolan, Humphrey and Harris-Pascal (1999: 1) found that the size and market power of UK retailers enable them to define what is produced, how and by whom, noting that ‘the requirements [the retailers] specify for cost, quality, delivery, product variety, innovation food safety and 39
  • 47. quality systems help to determine what types of producers and processors are able to gain access to the fresh vegetables chain and the activities they must carry out’. These requirements act as an effective barrier to participation in the chain by small exporters and, to some extent, small producers. At the same time, intervention can be institutionalized in governance structures. Through governance, parameters such as product, process and logistic qualification are set (Table 4.6). Three governance functions can be identified: the legislature (making of the laws), the executive (implementing the laws) and the judiciary (monitoring the conformance to laws) (Kaplinsky and Morris, 2001). Table 4.6: Three types of governance in value chains Exercised by parties internal to chain Exercised by parties external to chain Legislative Setting standards for suppliers in relation to Environmental standards; governance on-time deliveries, frequency of deliveries and Child labor standards; quality Forest and lumber certification programs Monitoring the performance of suppliers in Monitoring of labor standards by NGOs Judicial meeting these standards Specialized firms monitoring conformance to governance ISO standards Supply chain management assisting suppliers Specialized service providers; to meet these standards; Government industrial policy support; Executive Producer clusters/clubs assisting members to Producer business associations assisting governance meet these standards; members to meet these standards Representative agents assisting members to meet these standards Source: Kaplinsky and Morris, 2001 Depending on the characteristics of the value chain the main governance functions internal to the chain will be with the producer, the buyer or the international trader. Governance internal to the chain (from the perspective of the core company or other key actors at various stages) can be complemented by governance from parties external to the chain, such as NGOs. This complementary governance structure thus affords NGOs an opportunity to structurally impact the value chain, particularly through a partnership construction. Ideally, influence on coordination and control through interventions in specific mechanisms, institutionalized or not, will influence the distribution of economic rent between parties. 4.5 Rent distribution, barriers to entry and forward integration Coordination mechanisms, and the role of ‘rule setters’, or core companies at e.g. the buying end or the selling end, are related to issues of rent distribution. At each step in the chain, value is added, which is then rewarded in the form of returns to the value adding party. As the steps differ, so do the income levels across the various steps. The primary returns accrue to those parties that possess scarce attributes and who are able to protect themselves from competition by establishing barriers to entry, this is the concept of economic rent. A small holder farmer has few scarce attributes and thus holds few competitive advantages. Furthermore competition is intense as other farmers can easily enter into similar production, returns will therefore be low. Contrary to the farmer, a tropical fruit processor who has invented a capital intensive process that allows for high quality fresh processed fruits holds competitive advantages and has erected entry barriers ensuring higher returns than those accruing to the smallholder farmer. Economic rent arises when productivity factors (including entrepreneurship) differ and when these competitive advantages can be sustained because of entry barriers. The competitive advantages that give rise to economic rent come in various forms: technological capabilities, organizational capabilities, skills and marketing capabilities. Economic rents can also arise from purposeful activities taking place between groups of firms, for instance cartel forming increases returns to the cartel parties. Economic rents can also accrue to parties that have lobbied others to erect artificial entry barriers such as trade distorting measures. The rise in 40
  • 48. technological intensity and growth of differentiated products has made economic rents increasingly important. Economic rents are dynamic and can be eroded by competition which can transfer the surplus to the consumer in the form of lower prices and / or higher quality (Kaplinsky and Morris, 2001). The prospects for less developed countries with production stage advantages are under pressure as more and more countries have developed their capabilities in industrial activities, which have reduced the entry barriers. Therefore primary economic rents in the value chain can often be found in areas outside of production, such as design, branding and marketing (Kaplinsky and Morris, 2001). These are activities which are currently primarily conducted by developed country MNEs. Table 4.4 in the preceding section listed a number of measures of rents that can be compared across multiple actors at varying stages in a value chain to gain a sense of distribution across value chain actors. An obvious point of analysis is the profits made by each party as the expectation is that greater competitive advantages and barriers to entry result in higher profits. Profits alone do not always provide meaningful information about the distributional outcomes of global production systems. ‘The distributional outcome in global value chains is to be seen in the incomes arising to capital (for its entrepreneurship, risk-taking and ownership of technology), labour (for its effort), and to the owners of natural resources (for their command over inputs which arise as gifts of nature) in each of the links in the value chain’ (Kaplinsky and Morris, 2001: 42). An analysis of the equality of income distribution should take into account these aspects. In practice rent distribution in value chain analysis focuses on value added. In their analysis of the canned peach value chain in South Africa, for instance, Kaplan and Kaplinsky (1998) found that peach production itself accounted for only 12 percent of the value of the final canned product on export markets. Processing and canning added an additional 30 percent, with the remainder falling under shipping, duties and insurance charges, and importer and supermarket margins. Similar value added shares have been found for fresh vegetable exports to the UK; the vegetable producers received 12 percent of the value of the final product. The exporter, packager, and air transporter accounted for 30 percent of the total value and the supermarket was responsible for 45 percent of the price charged to the end customer (Dolan, Humphrey and Harris-Pascal, 1999). Exemplary for fresh fruits is the difference in price of a pineapple which is sold on G hana’s local market for €0,25 (the price for the farmer will probably be lower) whereas a whole pineapple in the Netherlands will cost about €2,00 4 (indicating at least an eight fold increase). The percentage of the final price received by the farmer decreases even further when the pineapple is sold freshly cut. Fresh cut pineapple pieces will fetch a premium of approximately five times the price of a whole pineapple bought in the Netherlands, whereas the price received by the farmer in Ghana is not materially different than when the pineapple is not processed further. Even lower shares have been found for cotton farmers in developing countries: farmers in Malawi add 5 to 37 percent, traders (10 – 40 percent), farmers’ association (4 percent), ginners (-35 – 360 percent), and spinners (133 – 147 percent) (RATES, 2003). In Uganda farmers added six percent, the ginners added nearly 500 percent, and spinners added 60 percent (Olupot, 2003). Despite an increased consumption of many tropical commodities in developed countries which are primarily produced in less developed countries, most farmers have not benefited of the increased demand. The benefits for the farmers are smaller than expected as the increased demand has been coupled with an even greater decrease in prices of tropical commodities (Singer, 2003). The scale of the decline of many tropical commodity prices is daunting. The price of coffee in 2002 was just 14 percent of the price paid in 1980, in 2002 cotton farmers received 80 percent less for a tonne than in 1980 (Table 4.7) It has been shown for many traded goods that deteriorating terms of trade, particularly in primary commodities, have hurt developing country incomes over recent decades (USTIC, 2004; Oxfam, 2003; UNCTAD, 1999). One of the major issues linked to terms of trade deterioration is the level of oversupply present in many markets, which has severely reduced 4 Price paid at AH counter in June 2004 41
  • 49. the prices received by producers (Singer, 2003). Oversupply has developed through a number of causes, but one of the main issues are the low barriers to entry. As is evident from a value chain perspective, low entry barriers in production force down profits for producers (note that this need not necessarily have an adverse impact on core company profits). Although entry barriers can be created through e.g. skill levels, R&D investments, productivity increases, government incentives and protection (Porter, 1980), commodity chain analysis argues that for commodity producers forward integration, or increasing the level of value added in the producing country, is the only way to maintain producers’ profit levels through raising entry barriers. Table 4.7: Commodity price changes since 1980, taking inflation into account (US$/tonne) 1980 prices adjusted 2002 prices 2002 as % of adjusted for inflation 1980 Jute 804 400 49.7 Tea 4,061 1,920 47.3 Groundnuts 2,060 650 37.5 Pepper 4,303 1,550 36.0 Coconut oil 1,439 420 29.2 Copra 904 260 28.8 Palm oil 1,345 312 23.8 Sugar 553 126 22.8 Cotton 3,656 793 21.1 Rubber 3,117 650 20.9 Cocoa 6,174 1,190 19.2 Coffee 8,696 1,234 14.2 Source: Singer, 2003: 9 Talbot (2002) researched the forward integration strategies and the international inequality of three tropical commodity chains coffee, cocoa and tea. He concludes that the environment and the processing requirements play an important role in determining the structure of a given commodity chain. The structure in turn influences the chances for success of a forward integration strategy. He identifies two important aspects: the presence or absence of economies of scale at the initial processing stage and at what point along the chain the initial product becomes first storable and transportable. These are determents on when the control in the chain shifts form state and actor in the producing regions to core-based TNCs. In addition, they also determine how far these states and actors have to move along the chain to reach the most lucrative stages: the manufacturing and sale of the finished products. The shorter the chain the easier it becomes to forward integrate: Tea would have the least difficulties in forward integration and cocoa, with a long chain and the process of blending cocoa beans from various locations would be the most difficult. In certain countries the attempt for forward integration was more successful then in others because local control needed to be combined with local management capacity. The aggressiveness of the state in getting local control was helping in this respect, but needed to rely on well-trained management and a capitalist sector which they could assist and push in a “forward” direction by creating incentives and a sound environment for forward integration. The absence of such a class makes it very difficult. Another factor what is of importance in determining success is the size of the domestic market for the final processed product. It enables local firms to learn how to perform the processing and manufacturing activities located further along the chain, including the sale of finished products. It should also be noted that currency and exchange rates are a major factor in analyzing distributive issues within international value chains, and one which is only increasing as portfolio and speculative capital flows around the world increase (Kaplinsky and Morris, 2001). This le ads to serious problems when comparing the costs of factors and the returns to resources invested in production. Also, some effort needs to be exercised to take into account differences in purchasing power. The two main methods to account for cross-country 42
  • 50. differences in costs and incomes are the real exchange rate and the purchasing power- adjusted exchange rate . The real exchange rate is calculated by multiplying the nominal exchange rate by an index of world prices, and then dividing by an index of domestic prices Nominal exchange rate * World Price index Real exchange rate = Domestic Price Index The problem with real exchange rate calculations lies in the calculation of the various indices. Domestic prices can be found in the IMF Yearbook, or in the form of producer price indices, wholesale price indices or the GDP deflator. A technically accurate calculation of the world price index, which would involve weighting with price indices of all major trading partners in proportion to their shares of trade with the ‘domestic’ market, is often too time consuming and therefore purchase power parity (PPP) exchange rates are often used to reflect the real purchasing power currencies. PPPs relate more directly to consumptive power and are therefore a good indicator of rent distribution across countries. This is helpful for the analysis particularly if production stages are split across distinct countries. It should also be noted that PPPs have their own problems (such as defining the basket of goods used to calculate them), but that they appear to be the best available measure for income distribution analysis (Kaplinsky and Morris, 2001). 4.6 Conclusions: towards the development of sustainable chains The preceding sections have outlined a number of issues that are relevant for value chain analysis, with the ultimate normative goal of generating sustainable development in developing countries. Positive and negative factors in developing sustainable long term relationships in value chains. Issues that must be taken into account are: The degree of product segmentation (# of sub-chains). This has bearing on the level of q fragmentation in a product category and a producer’s ability to diversify into similar or related products. The number of stages in a production process, particularly its cross-border component. q An advanced division of labor means that smaller actors have less power and less room to increase their relative bargaining power. Moreover, the more internationalized that value chain is, the less control small scale producers in developing countries will be able to develop over the chain. Buyer concentration and firm size. Similarly, the concentration in the chain at the level of q core firms. Barriers to entry / rent potential. The level of value added in the producing country and q the ability of other suppliers or countries to enter the market, as well as the risk of immerising growth. Terms of the transaction / relationship: Contracting, Advance pricing agreements, spot q markets. Interests for each party: quality, price, reliable supply, specification conformance, q packaging, specificity, flexibility/responsiveness, innovativeness, financial and income stability, risk minimization. Additional macro/institutional aspects: cultural similarity, geographic proximity, low q levels of risk, institutional environment (BITs, RIAs, CAP, GSP, EBA, AGOA) Paradoxically, if sustainability is the objective, it becomes more and more the responsibility of the core firm to ensure that a chain is organized sustainably and equitably. Kaplinsky and Morris (2001) describe this as a shift from point efficiency to systemic efficiency. Point efficiency’s potential to impact production is limited by ever increasing division of labor and value chain disarticulation. In doing so, governance must be o rganized at an even more abstract level and take into account a greater diversity in needs and priorities. Since fragmentation at this level means that direct control is not an option, a more ‘benign’ form of 43
  • 51. governance must be established in consultation with other key stakeholders, through strategic stakeholder dialogue. Commodities are important to most developing countries, but also largely controlled by producers in developed countries. This offers both opportunities and forms threats to developing country producers. Furthermore, there are important institutional issues such as subsidies and attempts at certification that influence trade patterns and it is worth noting that price and terms of trade developments have been largely negative for all three chains. In terms of production, many chains such as e.g. cotton and tropical fruit are in the hands of smallholder farmers, whereas logging in tropical forests is generally run by large companies (although forestry products such as nuts constitute an exception to this). Cotton is dominated by international traders and can thus be termed an international trader driven value chain. International traders also play a key role in tropical fruit but ultimately it may be the buyers that drive the chain, as is the case for tropical wood. Major players in all cases are primarily Western companies, although Asian companies are important in logging – as a result, companies from different regions are likely to have diverging attitudes towards CSR and partnerships in tropical wood will be more difficult to achieve than in cotton or fruit. Moreover, core companies in general are undertaking efforts to increase their role in the chain by e.g. moving from trading into farming as well, which also increases the difficulty in developing partnerships, but increases the likelihood that, once achieved, they will make a difference. This creates possibilities for NGO-core company partnerships at crucial stages in the value chain, and means that companies can be challenged more directly in terms of their ‘chain responsibilities’. Although dealing with large core players can be daunting, this is clearly the path towards making a real difference in development. 44
  • 52. 5 PARTNERSHIPS IN GLOBAL COMMODITY CHAINS: MISSING LINKS Changes to the international bargaining arena (hybridization and subsequent increased market participation by non-market actors) are facilitating the emergence of partnerships. But partnerships do not emerge in a vacuum; there are power and dependency issues in the uneven playing field of the development context. From this point of view, it is likely that certain success factors, certain positioning strategies, and pitfalls will emerge as being particularly relevant for the development context. The focus of this paper is two-pronged: an elaboration of the dynamics of international comomodity chains, and an assessment of the evidence in the literature on partnerships between companies and NGOs. The literature on commodity chains emphasizes the role of ‘rule-setting’ or ‘core’ companies as being the main economic players, and focuses more on the efforts of weaker parties, usually commodity suppliers, to ‘integrate forward’ and thus evade the trap of immerising growth. Commodity chain analysis offers some tools for analysing the distribution of rents and power along the value chain and adjusting for purchasing power, but has no clear normative framework. The literature on CSR explores issues of sustainability and chain responsibility, but also does not do so in a measurable fashion. As a result practice is limited to ad hoc solutions based on ‘gut feelings’. The literature on CSR and NGO positioning shows that the time is ripe for partnerships, but also that there remains a great deal to be learned. Currently existing partnerships exhibit fairly low levels of strategic integration. Actors on both sides are often unsure of each other’s motivations and struggle with issues of cultural diversity, consistency and commitment. Many NGOs worry that firms are only interested in the positive brand spin-offs, and companies worry that NGOs are too focused on ‘doing the right things’ and know too little of ‘doing things right’. Yet the literature emphasizes that partnerships can be win-win, if both partners share a strategic vision and are willing to accept each others views (profits and values). Partnerships are possible where both parties have a clear contribution, where the strategic fit is apparent, where both parties invest assets and know-how (thus demonstrating their commitment), where communication lines are open, where linkages and synergies are exploited, where the relationship is given a formal status with a clear division of responsibilities, and where both partners behave towards each other with integrity. Partnerships between companies and NGOs aimed at sustainable economic development in the form of a strategic stakeholder dialogue entail longer-term commitment and shared vision. It also means that the NGO ceases to be an outsider, such as a WONGO, but becomes a primary stakeholder in the value chain. A chain approach applies many of the same criteria for successful long-term, sustainable relationships as are found in the literature on partnerships. The commodity chain approach provides some of the technical aspects of how partnerships should be established, focusing on trust and interdependency as opposed to low- trust environments and one-sided power relationships. The notion of a systemic approach to competitiveness in commodity chain analysis overlaps with many of the concepts of ‘strategic integration’ partnerships. Thus there are lessons to be learned in both directions. Figure 5.1 shows how the two approaches overlap and complement one another. The partnership literature and the value chain approach both take a distinct stakeholder perspective, highlighting issues of power, dependency, equity and balance – in other words, issues of strategic stakeholder dialogues. The partnership approach is more idealist and normative, assuming more explicitly the potential for a common goal and shared vision. But it tends to have a developed-world focus and lacks the ‘realism’ of developing country bargaining power asymmetries. Moreover, despite the nomer of ‘partnerships’, the literature overemphasizes some of the less structural types of relationship such as (strategic) philanthropy. It is also preoccupied with only one possible role that can be adopted in the interaction between firms and NGOs. Effective partnerships never develop in isolation, so the whole repertoire of NGO roles should be added to assess the various possibilities of partnerships. 45
  • 53. Figure 5.1: The synthesis of a partnership approach with a value chain approach The value chain approach, on the other hand, emphasizes the power asymmetries specific to the developing country context, but also is more somber in its assumption of conflict and, perhaps more importantly, is focused on the distribution of added value in the chain, not on market access as a mechanism for development. This is in large part a result of the focus on the risk of overcapacity-induced ‘immerising growth’, by which declining returns to a given economic activity outweigh any increase in that economic activity overall. The lesson of the value chain approach in this regard is that there is only benefit to be found in the case of upgrading, forward or backward and ultimately a move into non-commodity, higher barrier to entry products. The value chain approach is broader because it involves an effort to create systemic competitiveness that goes beyond the scope of a single partnership or even an single country. Moreover, it adds to the concept of chain responsibilty by advocating efforts to ‘close the loop’ (through e.g. recycling) and make value chains more sustainable. Integrating both approaches requires an ‘extended’ partnership approach, that is introduced in Figure 5.1 as the ‘stakeholder’ perspective and which builds on the insights gained in the new school of thought related to the international business-society management approach (See Van Tulder and Van der Zwart, 2003). The first step is analyzing the stakeholders within a specific value chain itself. This involves mapping the stages in the chain, the level of vertical integration in the chain and identifying the core actors. Additionally, institutional issues and obstacles to growth can be identified such as declining world prices and terms of trade developments. On that basis the potential for partnerships can be analyzed by engaging core actors in strategic stakeholder dialogues to assess dilemmas, establish interests and critical success factors, and to begin managing expectations on both sides. Explicit attention will need to be paid to the meaning and operationalization of effectiveness, fairness and sustainability. This will lead to a framework of analysis that integrates both the value chain and the partnership issues specific to actors at given stages in the chain, and links them to the potential role NGOs can play (Table 5.1). Such a framework can then be compared to the capabilities of ICCO to identify the ‘strategic fit’ of such a partnership. Both the framework and the ICCO-relevant aspects will need further elaboration in phase 2 of the project. 46
  • 54. Table 5.1: Indicative framework: an example based on a buyer-driven chain (in e.g. food products) Stages of Primary Control CSR challenges Partnership Intevention Additional chain stake- mechanism of function roles holder core company per stage Inputs Seed Long-term Concentration of Broker; Supporting Watchdog? producers contracts; power; Donor long-term Supervisor? dependency hybridisation relationships for seed input (wrong without and genetic technology dependency diversity trajectories) Growers Coops Buying power Small entities Technical Administrative, Supervisor? or selling lack capacity to expert; organizational power, develop CSR; Donor depending on Oversupply; type of chain Working circumstances Local Small Local market Power Mediator; Credit, Broker? distri- firms presence and concentration Technical organizational butors price-setting adviser behavior ‘Spot Branders, Buying power Power Technical Contractual Watchdog? market’ int’l or selling concentration; adviser; relationship; traders power, ‘Fair’ prices mediator inspection depending on type of chain Retail Buyer Collusion; Technical Communication Strategic (Big consumer expert; ; price stakeholder? CORE retailers) information; mediator determination COMPANY labelling Recycling Aid Dumping; Environmental Donor; Assisting in Strategic organiza- waste usage impact; price Technical reduction of stakeholder? tions? effects adviser; transaction Technical costs; reducing expert; negative impact Mediator on producers / prices A number of steps need to be taken to understand potential for partnerships and maximize chance of success: q Evaluation of ICCO’s strategic vision (‘strategic fit’ of partnership strategy) q Negotiate (re)positioning relative to other Dutch CFOs q Make choices for specific commodity chains q Analyze those chains with frameworks in Chapter 4 q Assess attractiveness of various points of potential intervention based on that analaysis q Identify potential partners (primary as well as secondary) q Identify best form of relationship (from ICCO perspective) and the optimal form of company involvement In order to execute these steps adequately, a more thorough evaluation of ICCO’s partnership strategy is necessary as well as reflective evaluation of the steps ICCO and other partnership- oriented NGOs have taken taken in existing partnerships. This evaluation and the link to a definitive framework will be the focus of Phase II. 47
  • 55. APPENDIX: EXAMPLES OF EXISTING PARTNERSHIP INITIATIVES List of NGO/IO – Business Partnerships ** (as of late 2004) A. The MFO-Business Partnerships in the Netherlands *** 1. Cordaid (all listed partnerships below are business development partnerships, sometimes it is a quadruple partnership but often it is a tripartite partnership) • BO-weevil • Tanzania Coffee • Various projects with the Rabobank and micro credit organisations in the South 2. Hivos (all partnerships are tripartite development partnerships). • Hivos and the Triodosbank with corporations in the South • Hivos and Fair Trade with corporations in the South • Hivos and the “Wereldwinkels” with corporations in the South • Hivos and KICI (organisation that collects second hand clothing and textile) 3. ICCO (most of the partnerships are business development quadruple partnerships) • ICCO and Vlisco • ICCO and Bo Weevil • ICCO and Oro Blanco and Kuyuchi • ICCO and Agrofair • ICCO and Passina-novo Amafrutas • ICCO-Reef (see text box) • ICCO-AHOLD-ACDEP • ICCO-Glabal Trading Anfani • ICCO and Oikocredit 4. Novib (most partnerships are business development tripartite partnerships). • Novib/ Oxfam and Nuon: Delivering of solar-energy for twelve villages in Mali; • Novib and ASN 5. Plan Holland (all philanthropical or sponsor type of partnerships) • PLAN International and Energy direct (funding for 3600 children in developing countries) • PLAN and Flair –magazine (focus on Guatemala, idem) • PLAN and Alamo rent a car (focus on El-Salvador, idem) • PLAN and Nashuatec (project sponsoring) • PLAN and DE (focus on coffee-farmers in Uganda and Nicaragua) • PLAN and Akzo (sponsoring of numerous projects) 6. Terre des Hommes • No structural partnerships observed. ** Sources are derived from the various websites from the organizations mentioned and in a few cases from interviews with responsible officers. *** This list is by no means complete and gives just a first impression; it is purely indicative of the fact that NGOs are widely engaged in projects involving partnership strategies. 49
  • 56. B. A selected number of International NGOs/ International Organisations - Business Partnership list 1. Oxfam UK Oxfam has partnerships with the following selection of corporations, which are often sponsors or capacity builders: • American Express • Ben & Jerry's • Reed • The Times • Elle • United Utilities • Virgin Atlantic • Global Care • Wessex Water • Xerox • Yahoo! • National Power 2. CARE USA (often sponsoring or capacity building) Care works with key Partners* : • Cisco (capacity building): Through its Cisco Fellows, Cisco Systems has helped CARE increase our understanding of and capacity to use technology. • Credit Suisse First Boston (sponsoring): Credit Suisse First Boston is supporting the CARE Women's Initiative Group of New York to raise funds for girls' education projects. • Delta (sponsor and capacity building): Delta sponsors for thousands of dollars worth of airline tickets. • Deutsche Post World Net USA (sponsoring): Deutsche Post World Net USA was the premier sponsor of CARE's 56th Anniversary Celebration. • Rockport (sponsoring and capacity building): Through a two-year marketing alliance, Rockport is raising awareness of CARE via creative promotions at the company's shoe stores, through Rockport retailers, such as Nordstrom and Dillard's department stores, and via • Starbucks Coffee Co (sponsoring of coffee oriented development projects). In addition to providing significant financial support, Starbucks works with CARE in support of important relief and development projects in developing countries, helping people in coffee growing areas. Starbucks is one of the largest corporate sponsors of CARE. • The Timberland Company (philanthropy and projects): Timberland is supporting CARE projects in Vietnam and Bangladesh that improve the lives of its vendors' factory workers through life skills training, financial planning and savings programs, occupational health and safety improvements, and reproductive health education - including HIV/AIDS prevention. • W.P. Carey & Co.: W.P. Carey & Co provided the seed funding for CARE to begin an education project in Gujarat, India, helping improve the quality and accessibility of education, especially for girls. • Weyerhaeuser Company: CARE's 2003 Annua l Report is supported by a grant from the Weyhaeuser Company. The Weyerhauser Company Foundation and CARE are * CARE’s partnerships are described best (most elaborate) of all international NGO’s and IO’s analysed. Therefore they are described more extensively and give a nice view of what is happening internationally in this field. 50
  • 57. working together in developing countries to help build stable livelihoods through sustainable forest management. 3. World Food Program (WFP) (most partnerships are transactional) • WFP and TPG (provides free logistical support) • WFP and Benneton (free marketing) • The Boston Consultancy Group (free consulting) • Archer Daniels Midland (U.S) (sponsoring) 4. Unicef (most partnerships are sponsorships) • Euroflorist • KLM and Air France • Viteau Watercoolers • Leiden University • Djoser • Starwood Hotels 51
  • 58. APPENDIX: POTENTIAL PARTNERS AND RELEVANT RESEARCH ORGANIZATIONS Agiterra: Netherlands, World-wide, Consultancy Internationale samenwerking van boer tot boer.... Agriterra is een agri-agency, dat wil zeggen een organisatie voor internationale samenwerking die gedragen wordt door de maatschappelijke organisaties van het platteland en het landbouwbedrijfsleven. Agriterra stimuleert, ondersteunt en financiert internatio nale samenwerking tussen boerenorganisaties en coöperaties wereldwijd. Uitgangspunt is dat de leden profiteren van de activiteiten die hun organisatie ontwikkelt. Elke organisatie heeft ervaringen waarvan anderen gebruik kunnen maken. Agriterra mobiliseert de kennis binnen de landbouworganisaties in Nederland voor versterkingsprocessen in ontwikkelingslanden. Agri Chain Competence center: Netherlands, World-wide, Intermediary Because worldwide attention for agri chain development is increasing... The mission of the Agri Chain Competence center (ACC) is 'Strengthening and vitalization of agri supply chains at international level in order to improve the supply of safe and high quality food to the consumer'. To fulfill this mission, ACC: •intermediates between public and private parties to enable and support cross-border supply chain development in public -private partnerships •establishes an international supply chain and network knowledge infrastructure. The knowledge infrastructure facilitates chain and network development and supports programs and projects with instruments such as seminars, trainings, guidelines, best practices and a toolkit. The activities bring together the business community (e.g., retailers, food processors, and farmers), the knowledge sector (e.g., universities and research institutes), and the public sector (e.g., related ministries and agricultural counsellors). Agro Eco: Netherlands, World-wide, Consultancy Agro Eco is an independent private consultancy company, specialised in organic agriculture. Agro Eco's consultants provide a package of services for primary production, processing and marketing, world-wide. To Agro Eco, developing organic agriculture means stimulating an environment friendly and economically sound agricultural system that produces healthy food and pays better prices to producers. Agro Eco stimulates the integration of organic production and fair trade. Agromisa: Netherlands, World-wide, Research Institute Agromisa was established in 1934, and is linked to Wagenin gen University and Research Centre. Our aim is to exchange knowledge information on small-scale sustainable agriculture and related topics. Our target group is the underprivileged population in rural areas. Agromisa's main objective is to strengthen the self-reliance of the target group and to improve their livelihood by sharing experience and knowledge. Agromisa's role in this is a supportive one, which implies that we are not a donor organisation, nor do we finance projects directly. It is Agromisa's belief that the gap between formal (scientific) knowledge and informal (farmers') knowledge should be bridged. To achieve this, Agromisa wants to collaborate with intermediary organisations. 52
  • 59. CBI, Netherlands: World-wide, Trade promotion agency The CBI's mission is to contribute to the economic development of developing countries by strengthening the competitiveness of companies from those countries on the EU market. CBI considers social values and compliance with the most relevant environmental requirements to be an integral part of its policy and activities. Centre for Information on Low External Input and Sustainable Agriculture: Netherlands, World-wide, Information Center ILEIA is a Centre for Information on Low External Input and Sustainable Agriculture. ILEIA started in 1984 in response to a concern that mainstream agricultural development was bypassing farmers in the South. ILEIA started to identify promising technologies involving no or only marginal external inputs, but building on local knowledge and traditional technologies and the involvement of the farmers themselves in development. Information about these technologies was exchanged mainly through the ILEIA Newsletter. Read more. LEISA is the abbreviation of 'Low External Input Sustainable Agriculture'. LEISA enables the creation of viable small scale farming, which is a major part of rural livelihoods and thus contributes significantly to developing economies. LEISA is about finding technical and social options open to farmers who seek to improve productivity and income in an ecologically sound way. LEISA is about optimal use of local resources and natural processes and, if necessary, safe and efficient use of external inputs. Read more. CIDIN: Netherlands, World-wide, Research Institute Centre for International Development Issues Nijmegen; linked to national research school CERES (University of Wageningen, University of Utrecht, ISS, University of Nijmegen, Free University Amsterdam, University of Amsterdam) ECDPM: Netherlands, Africa, Caribbean and Pacific, Intermediary The European Centre for Development Policy Management, based in Maastricht, The Netherlands, has been working with EU- ACP relations since 1986. With its wealth of knowledge, learning approach and diversity of staff, the Centre adapts to the changing environment. FMO: Netherlands, World-wide, Financing organization Sustainable development and returns The Netherlands Development Finance Company (FMO) supports the private sector in developing countries and emerging markets in Asia, Africa, Latin America and Central and Eastern Europe. We do this with loans, participations, guarantees and other investment promotion activities. The goal is to contribute to the structural and sustainable economic growth in these countries and, together with the private sector, obtain healthy returns. These returns make FMO a valuable risk partner. Global Value Chains Initiative: UK, World-wide, Research Institute The Global Value Chains Initiative is an industry-centric view of economic globalisation that highlights the linkages between economic actors and across geographic space. The Initiative is supported by the Rockefeller Foundation. The Initiative seeks to consolidate and foster the global value chains (GVC) perspective. It is a multi-year effort to test and develop the GVC framework with the aims of creating greater analytical precision, intellectual impact and policy relevance. Our efforts include a research agenda, a publishing thrust, the development and dissemination of industrial upgrading handbooks for practitioners, and a series of intensive workshops convened to test and broaden the framework through interactions with our network partners and with the broader academic, policy-making and activist communities. 53
  • 60. Institute of Social Studies, Netherlands: World-wide, Research Institute The ISS is an international institute of higher education on social and economic change with a focus on development processes. It was founded 50 years ago by the Dutch universities to assist in the training and further education of professionals, especially from developing countries. The Institutes academic staff represents an exceptional range of experience and theoretical interests. Over 8,500 students from more than 160 countries have studied at the Institute. International Institute for Environment and Development: UK, World-wide, Research Institute IIED is an independent, non-profit organization promoting sustainable patterns of world development through collaborative research, policy studies, networking and knowledge dissemination. We work to address global issues, for example; mining, the paper industry and food systems. NCDO: Netherlands, World-wide, Development Organization Nationale Commissie voor internationale samenwerking Netherlands International Partnership for Sustainability (Koninklijk Instituut for de Tropen): Netherlands, World-Wide, Research Institute NIPS - the Netherlands International Partnership for Sustainability - coordinates the execution of the Sustainable Development Agreements in the Netherlands and considers the treaty principles of reciprocity, equality and participation as an incentive to explore new frontiers. If we, through our way of looking at North-South relations, deviate from existing norms, we are doing so from the ambition to contribute to the realisation of a new standard. We stimulate worldwide sustainable development from the recognition of mutual dependence and responsibilities: the necessity to share, also in consideration of future generations, and the ability to learn from people and organisations. The Netherlands International Partnership for Sustainability is responsible to the Directorate- General for International Cooperation (DGIS) of the Ministry of Foreign Affaires and the Ministry of Housing, Spatial planning and the Environment (VROM), the second signatory ministry in The Netherlands. The National mechanism is jointly responsible for: Facilitate of the policy dialogue between the SDA countries. Reinforce national processes for the promotion of the sustainable development by fostering the participation of different segments of the society. Guide the implementation of reciprocal projects by support lending to the formulation of project proposals, monitoring their execution and managing the SDA project fund North-South Centre of Wageningen University and Research Centre: Netherlands, World-wide, Research Institute The North-South Centre of Wageningen University and Research Centre is organising an international conference and stakeholder workshops under the title ‘Agro-Food Chains and Networks for Development’ on 6 and 7 September 2004. To strengthen the international role of Wageningen UR in the field of development-related research and education and to capitalise on the opportunities offered by the changing global environment, new strategies and concern-wide actions are needed. The establishment of the North-South Centre is an answer of Wageningen UR to these challenges. The North-South Centre will act as catalyst and facilitator for development-oriented research for Wageningen UR at large and supports the Expertise Groups of Wageningen UR in exploring opportunities 54
  • 61. for research and education project with partners in the south through active partner networks and concerted acquisition efforts. Organic Exchange: USA, World-Wide, Business Organization The Organic Exchange is a non-profit business organization focused on facilitating the growth of a global organic cotton industry. Our goal is simple: to make organic cotton 10% of the world’s cotton demand and supply within the next 10 years. Many major companies (Nike, Marks & Spencers, H&M) are involved Profor: USA, World-wide, Intermediary PROFOR is a multi-donor partnership formed to pursue a shared goal of enhancing forests' contribution to poverty reduction, sustainable development and protection of environmental services. Through improved knowledge and approaches for sustainable forest management (SFM), PROFOR seeks to encourage the transition to a more socially and environmentally sustainable forest sector supported by sound policies and institutions that take a holistic approach to forest conservation and management. SouthAsia Enterprise Development Facility: Bangladesh, South Asia, Development Agency The SouthAsia Enterprise Development Facility (SEDF) is a multi-donor funded facility promoted and managed by the International Finance Corporation, IFC, (private sector arm of the World Bank Group. SEDF is currently mandated to cover Bangladesh, Nepal, Bhutan, and Northeast India. The objective of SEDF is to contribute to the reduction of poverty in the target regions by increasing competitiveness, performance, and growth of the SME sector, which in turn is expected to contribute to growth and improvement in economic and social conditions. Stichting Maatschappij en Onderneming: Netherlands, Netherlands, Advocacy The Stichting Maatschappij en Onderneming (SMO) (“Foundation on Society and Enterprise”) is a research center that plays an active rol in the dialogue between business, government and society. Stichting Onderzoek Multinationale Ondernemingen: Netherlands, World-wide, Advocacy SOMO is a research and consultancy body that has been conducting research on the impact of Multinational Enterprise (MNE) activity and internationaliztion on developing countries since 1973. Sunsia: Netherlands, Africa, Consultancy Sunsia (Support Unit for Sustainable Investments in Africa) is an agency for consultancy, mediation and match making in the field of Sustainable economic partnership between Africa and Europe. It's a long way to prosperous economic co-operation between Europe and Africa. Pioneering parties stumble across different impediments. As a specialised services provider Sunsia helps to remove these barriers. Customers of Sunsia are companies and non-governmental or governmental organisations from the Netherlands as well as Africa. Sunsia's logo depicts two people joining hands willing to cooperate. Doing so they combine forces, ideas and know-how to build a bridge between Africa and Europa. The general director of Sunsia is drs. M. Kaboré. He comes from Burkina Faso, worked for Shell and Hewlett Packard as a researcher and is a former projectmanager of the Africa projects organised by the Business and Society Foundation (SMO). 55
  • 62. Sustainable Agriculture Initiative: Switzerland, World-wide, Business Organization SAI Platform is a platform created by the food industry to actively support the development of and to communicate worldwide about sustainable agriculture involving the different stakeholders of the food chain. SAI Platform supports agricultural practices and agricultural production systems that preserve the future availability of current resources and enhance their efficiency. This increases agriculture's contribution to the optimal satisfaction of society's environmental, economic and social requirements Founded by Group Danone, Nestle and Unilever. Members are large food companies such as Campina, Kraft, McDonald’s, Dole and SaraLee The International Agricultural Centre (IAC) (Wageningen): Netherlands, World-wide, Research Institute The IAC builds capacity for sustainable development in the agriculture, food, rural development and natural resources management sectors. IAC’s Thematic Areas: • Livelihoods and market access • Agricultural systems and chain management • Food and nutrit ion security • Integrated land water and biodiversity management • Innovations systems • Central and Eastern Europe Through its support to organisations and professionals in business, government and civil society the IAC aims to improve the livelihoods of rural people, enhance farming systems, develop sound agri-business opportunities, ensure access to safe and healthy food and establish forms of land and water management that support the maintenance of healthy ecosystems. To meet clients' needs, the IAC takes an integrated approach to capacity development. Advisory services, training, seminars, action learning projects, network development and knowledge management are combined to optimise organisational and individual learning. The RATES Center: Kenya, Africa, Trade Promotion Agency Regional Agriculture Trade Expansion Support (RATES) program, a 5-year program funded by USAID’s regional office (REDSO) based in Nairobi. The RATES program is designed to increase value/volume of agricultural trade within the East and Southern Africa region and between the region and the rest of the world. RATES focuses on developing commodity- specific regional trade initiatives through innovative private sector/public sector alliances and partnerships and works primarily through regional trade flow leaders such as regional trade associations, national level trade organizations, private companies and individual - entrepreneurs. RATES is currently supporting activities in specialty coffee, maize and pulses, cotton/textiles, livestock and dairy sectors. UNCTAD: Switzerland, World-wide, Development Agency Market Development Section, Division of Product and Market Development, International Trade Centre, UNCTAD/WTO. 56
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