Strategic Choices at Entry and Relative Survival Advantage of Cooperatives versus Corporations in the US Bio‐Ethanol Industry, 1978‐2015

• DOI: http://doi.org/10.1111/joms.12168
• Author: Serden Özcan,Christophe Boone
• Date: 01 November 2016
• Published date: 01 November 2016

Strategic Choices at Entry and Relative Survival

Advantage of Cooperatives versus Corporations

in the US Bio-Ethanol Industry, 1978-2015

Christophe Boone and Serden €

Ozcan

University of Antwerp; WHU – Otto Beisheim School of Management

ABSTRACT The sustainability of cooperatives versus corporations is hotly contested. We

propose that strategic choices at entry can help to explain the endurance of these two

governance modes. We hypothesize that cooperatives have a survival advantage if their major

drawback – high coordination costs – is curbed by high levels of member engagement at

founding. Our analysis of survival rates in the US bio-ethanol industry shows that

cooperatives outlive corporations (1) if investment size at founding is large (strong financial

engagement), (2) if they enter de novo instead of de alio (strong product-market engagement) and

(3) if the cooperative venture has been carefully planned from the start (greenfield entry)

instead of built upon the acquisition of an existing plant (strong venture-building engagement).

These findings caution against the view that a particular mode of governance is superior or

inferior to another in all circumstances.

Keywords: bio-ethanol, cooperatives, governance mode, strategic entry choices, survival

INTRODUCTION

In the slipstream of the global economic crisis the cooperative form, in which ownership

and authority are democratically shared by the organization’s members, is again being

heralded as an alternative to capitalism (Barton, 2011; Boone and €

Ozcan, 2014;

Schneiberg, 2013). The General Assembly of the United Nations declared 2012 the

International Year of Cooperatives to raise awareness of their contribution to social and

economic development and to promote their diffusion worldwide. Advocates believe

that cooperatives facilitate sustainable development in local communities, curb unem-

ployment (Staber, 1993), increase the market and institutional power of people who are

capable of achieving little or nothing on their own (Ingram and Simons, 2000), energize

Address for reprints: Christophe Boone, University of Antwerp, Faculty of Applied Economic Sciences,

Department of Management, Prinsstraat 13, 2000 Antwerp, Belgium (christophe.boone@uantwerpen.be).

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C2015 John Wiley & Sons Ltd and Society for the Advancement of Management Studies

Journal of Management Studies 53:7 November 2016

doi: 10.1111/joms.12168

community members for various entrepreneurial pursuits, and spur social integration

and participation (Bonin et al., 1993; Zeuli and Radel, 2005). The recent revival of

cooperatives is seen not only in the agricultural sector in developing countries but also

in industries in developed countries that have been dominated by corporations for deca-

des such as electricity production in Germany (Liu and Wezel, 2015), and bio-ethanol

in the USA (Boone and €

Ozcan, 2014).

It is well documented in the literature that cooperatives come and go in waves

(Schneiberg, 2013; Schneiberg et al., 2008). Historically there have been peaks of coop-

erative formation such as the one at the turn of the 19

th

century in the USA when social

movements spurred the founding of cooperatives to defend the values of autonomy and

craftsmanship against the rise of mass-market ideology (Schneiberg et al., 2008). Ideo-

logical incentives often strongly contribute to the (re-) emergence of cooperatives in

many settings. For instance, Boone and €

Ozcan (2014) provide evidence that US bio-

ethanol cooperatives are generally founded by necessity when markets fail unless the

presence of strong local anti-corporate sentiments spurs contestation between opposi-

tional identities, fueling affectively laden ‘hot cognition’ (DiMaggio, 2002).

[1]

Under

such conditions, anti-corporate sentiments provide forceful ideological motives that gal-

vanize local collective action to establish cooperatives in response to the dominance of

corporations (Boone and €

Ozcan, 2014).

It remains, however, an open question whether the affective motives that drive the

formation of cooperatives are a sufficiently solid foundation to enable these ventures to

become a viable alternative to capitalism. In order to do so cooperatives need to be able

to compete with other organizational forms that are established to do the same activities

with their own specific advantages and disadvantages (Hansmann, 1996; Staber, 1993).

Without the capacity to survive cut-throat rivalry cooperatives would be ‘scarcely inter-

esting for purposes of organizing economic activity in society at large’ (Williamson,

1980, p. 33). Because cooperative founders are often guided by emotions and less by

economic rationale they tend to overlook that the cooperative is costly to organize and

manage (relative to corporations) (Boone and €

Ozcan, 2014; Williamson, 1985). In this

respect, economic theories are highly skeptical about the sustainability of cooperatives

and some economists even regard producer cooperatives in particular as ‘impossible

organizations’ (Estrin and Jones, 1992, p. 328), cautioning policymakers against using

public resources to promote such inefficient forms of organizing production (Porter and

Scully, 1987).

A complete understanding of the dynamics of the cooperative form, therefore,

requires a focus on the processes of both cooperative founding and survival. To be sure,

the debate about the viability of cooperatives has already stimulated much empirical

research about the impact of governance modes on organizational efficiency and, to a

much lesser extent, longevity (e.g., Barnett and Carroll, 1987; Moore and Kraatz, 2011;

Nu~nez-Nickel and Moyano-Fuentes, 2004). However, the state of the art of the empiri-

cal results about whether and when the cooperative form has a performance advantage

over commercial firms is ambiguous and often even contradictory (for a review, see

Soboh et al., 2014). To shed light on this confusion we argue that the implicit assump-

tion that a particular mode of governance can be superior or inferior to another in all

circumstances should be abandoned. The organizational capabilities associated with a

1114 C. Boone and S. €

Ozcan

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