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Factors Contributing To the Success of Cooperatives

* Dr. Bishwa Mohan Acharya

Cooperatives have been promoted in many developing countries including Nepal to build harmonious societies
addressing issues such as unemployment, rural development and as a means of creating income generating
activities, especially to augment the social and economic condition of the poor community. It is designed to be an
easy method of development in these countries. However, in majority of cases these efforts resulted in failure.
Cooperative movement was designed to create harmonious societies by involving and empowering communities,
that is, the spirit of cooperation.

There are many factors that help make a successful operation of the cooperatives. However, in some cases specific
factors are more dominant than that of general factors. Specific factors can be drawn from the success cases of
Amul India, Mondragon Spain, MilkVita Bangladesh and many more. This article is based on the published and
unpublished literatures and based on desk review with an objective to know about the factors that are highly
malleable to all kinds of cooperatives based on local needs and condition.

Key words: employment, rural development, income generating activities, common and specific success factors

A cooperative is an association of people who aim to attain social and economic gains through
mutual benefits while conforming to the Rochdale Principles (Bonner, 1961:296). A cooperative
can be described as a business organisation owned and democratically controlled by its
customers, or producers or the employees (Briscoe, 1991:1). The International Cooperative
Alliance’s definition of cooperatives is an autonomous association of people united voluntarily to
meet their common social, economic and cultural needs and aspirations through a democratically
controlled and jointly owned enterprise. A cooperative is therefore defined as an enterprise
directed by users applying democracy to serve both the members and the community needs
(Lambert, 1963:231).
Cooperative institutions are people's organizations which are formed by the members
(voluntarily), owned by them (by purchasing shares and on payment of prescribed admission
fees), and run by them (democratically and in accordance with the Principles of Cooperation), to
satisfy their social and economic needs (through active participation and mutual help).
Cooperative institutions have not only met the economic needs of their members but have also
played a significant part in the social development of their members and the human community
in general (Prakash, 1994: 1).

Cooperatives have been promoted in many developing countries including Nepal to address
issues such as unemployment, rural development and as a means of creating income generating
activities, especially to augment the social and economic condition of the poor community.
Cooperative movement was designed to create harmonious societies by involving and
empowering communities, that is, the spirit of cooperation.
Factors associated with the success of cooperatives
Banaszak (2008), identified four key factors that contributed to cooperatives success, such as
leadership strength, group size, business relationship amongst members and a member selection
process during the group’s formation.
The internal factors that would have an effect on a cooperative’s success are the ones that arise
internally and these include members’ commitment, members’ participation, structural and
communication and managerial factors.
The external factors, considered essential in the success of cooperative, include assistance that
act as motivation for members in a cooperative, external assistance, government policies,
regulatory frameworks and market factors. These factors can affect the competitiveness of
cooperatives, especially in developing countries, where cooperatives are still underdeveloped.
The most common factors are:
An enabling legal environment that creates economic conditions favorable to profitability, and a
regulatory system favorable to business success. Legal provisions must protect democratic
member control, autonomy and independence, voluntary membership, and economic
participation in cooperatives and provide a level playing field for cooperatives to compete with
other enterprises (e.g. there should be no pricing limitations on cooperatives). Cooperatives need
capable management and governance and the ability to adapt to prevailing business conditions.
Cooperatives must develop professional management, be democratic, inclusive, fair, transparent
and have strong leadership.
Autonomy and freedom from government control is positively associated with success. While
government support can be helpful, governments should avoid overregulation.
Successful cooperatives have purposely increased collaboration with other cooperatives.
Cooperative networks can help cooperatives to rapidly gain scale and can support better
governance and training. A number of development agencies adopt a network and systems
approach which aims to foster consensual networks among cooperatives.
While successful performance measures may vary among cooperatives and indeed among
individual members. These measures may include but are not limited to such measures as net
margin, member commodity prices, return on equity, and sales growth (LeVay, 1983; Schrader,
et al., 1985; Heinemann and Pelsue Jr., 1986; Parliament, Lerman and Fulton, 1990; Fulton and
King, 1993; King, Trechter and Cobia, 1997; Pritchett and Hine, 2007).

The major success stories are the Gujarat based Anand, Co-Optex in Tamil Nadu and the Sarawati
Cooperative Bank of Maharashtra. These organizations have followed their corporate
governance, hence been successful. Cooperatives have been hugely successful in India and can
emerge as an instrument of development process in developing countries that are converting
their economies with low subsidies (Iqbal, 2004:1). Based on the oldest social development
model called "Thiru Onam", a world peace experiment as a social work programme started in
Kerala, India in 1981. Social work in Kerala had enshrined the values of life such as Neethi
(justice), Nyayam (righteousness), Daya (patience), Danam (philanthrophy), sincerity,
truthfulness, brotherhood, cooperation, equality, harmony, self-help, mutual aid, unity and love.
The interventions at Kerala were multidimensional involving a large deployment of human
service information technologists with socio- cultural complexes. Similarly, in Thailand, a
Buddhist Utopia called Asoke community has been set up (Sangsehanat, 2004:3). The most
important aspect of this is setting up of a peaceful community called Sila, which incorporates a
system of life that is harmonious with nature, without exploitation. Hence, utopian ideals are
vital to create sustained and better society (Brenner and Haakan, 2000:333). Owen also believed
that to achieve social reform, economic and educational improvement was essential for
improving social standards (Ward and McKillop, 1997:9)
In a study of Indian and British cooperatives (Harper, 1992:14) it was found that individual
leadership and broader social and community objectives were found to lead to successful
cooperatives. Harper also concluded that membership with similar background, having strict
rules and procedures, avoiding political interference and starting with one activity without
subsidy also led to success. Cooperatives have been promoted extensively in many countries
(Harper, 1992:14). In a number of developed countries such as United Kingdom, United States of
America, Iceland, Norway, Sweden, Denmark, Finland, Spain, Israel and Canada cooperatives
have been extremely successful (Ostberg, 1985:29). Some examples of successful cooperatives
are Mondragon in Spain and Kibbutz in Israel. In Canada, they are in every sector of the economy,
that is, people can be born in a Hospital Cooperative and be buried by a Funeral Cooperative.
They can live in a Housing Cooperative, work in a Worker's Cooperative and buy their groceries,
clothing and other items from Consumer Cooperatives. They can send their children to a Child
Care Cooperative, do their banking at a Credit Union and purchase their insurance from an
Insurance Cooperative. In fact, in Nordic countries, Consumer Cooperatives have captured 25-
30% of retail trade.
In some developing countries such as India, China, Colombia and Bangladesh cooperatives have
been flourishing as well. Cooperatives are widespread in China in rural areas. Most rural credit
cooperatives are small but together they control almost 12% of the financial system's deposits.
In 2003, China's central bank announced that the city planned to integrate over 230 rural credit
cooperatives and established Shanghai Cooperative Bank, the third local commercial bank in
Shanghai (Garnevska et al., 2011).

However, in parts of Africa and India, cooperatives developed into forms of extortion where
groups of inexperienced people tried to form cooperatives which, they thought would solve all
their problems (Harper, 1994:141).
The increased size of the cooperative will support the cooperative growth. This will help the
cooperative to produce more and increased market power, which will lead to increasing the
members’ income. The importance of market power and scale is consistent with Brunyis et al.
2001 found that adequate business volume and adequate marketing agreements were critical
success factors for cooperatives. But the increased number of cooperative members has the
potential to cause conflict amongst the members - and the members and management.
Furthermore, conflicts could exist between formal members and associate members. These
conflicts have the potential to influence the effectiveness of the cooperative’s operation.
However, this change is likely to affect the cooperative’s future development in both positive and
negative ways.
There is quite a big school that subscribes to the proposition that charismatic leaders play a very
important role in bringing people together and organizing them around a common goal, or
concern. Success stories of cooperatives, whose emergence and success are attributed mainly to
their charismatic leaders, abound in the literature.
Mancur Olson (1971), in the Appendix to his book named "The Logic of Collective Action: Public
Goods and the Theory of Groups”, also discusses the possible role of the political entrepreneur
in promoting cooperative action. A political entrepreneur is an individual with a combination of
such traits as leadership, the trust of the community or its fear, the ability to discern the
motivation of others, and the desire to organize the group for collective action. Olson suggests
that the success of the political entrepreneur will be related to his ability to utilize selective
incentives to motivate participation in collective action. Another role of the political
entrepreneur/cooperative leader is also to provide the much needed assurance to the members
of the cooperative that the expected benefits from cooperation would, in fact, accrue to them
and that the benefits would be equitably distributed among them.
The people interested in forming cooperatives must have the awareness and knowledge of the
cooperative concepts, business and management principles, and commitment from people.
Appropriate education and training of cooperators was considered a high priority for having
successful cooperatives, this to be followed up with further training in their respective area. The
board members, members and staff have to undergo intensive training on cooperative principles,
management skills and practices of the operation of business.
Prior to registering any particular cooperative the Department of Cooperatives must ensure that
the cooperative has adequate working capital. This would confirm their commitment which is
vitally important for the success of the venture and would assist cooperatives avoid liquidation.
The staff members advising board members of cooperatives need to have skills and knowledge
of business enterprise because the management of cooperatives relied heavily on their expertise.
This advice must not interfere with the day to day operations of the cooperatives. The
cooperatives have to be free of any political interference and have a common bond in order to
maintain harmonious relationships.
There are more than 31000 primary cooperatives in Nepal. However, inadequate planning, lack
of training in financial management and lack of understanding of cooperative concepts are the
major problems in the cooperatives. The cooperative idea was thrust upon the cooperators
without preparing them adequately with what the cooperative concepts meant and how to
implement the principles and ideas of cooperatives. In order to maintain harmonious societies it
is essential for cooperators to practice democracy, follow financial management and cooperative
principles meticulously and provide real benefits to their members and the community at large.
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About the Author
Dr. Acharya holds PhD in Agricultural Cooperatives from the Faculty of Management, Tribhuvan University, Nepal.
Presently he is serving as Director at National Cooperative Development Board of Nepal. He has more than 26
years’ experience in the cooperative sector. He has also served as Expert (Cooperatives and Poverty) at Ministry
of Cooperatives and Poverty Alleviation, GoN. He can be reached at;