Patterns of integration and cooperation by Russian smes in the agricultural sector
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ABSTRACT
АННОТАЦИЯ
INTRODUCTION 1
Motivation and context of the study 1
Problem statement and research gap 2
Research aim and objectives 3
Research questions 4
Theoretical background 5
Scope and limitations of the study 6
Significance of the study 7
I. LITERATURE REVIEW 8
1. INTEGRATION THEORY 8
1.1 VERTICAL INTEGRATION 9
1.2 HORIZONTAL INTEGRATION 15
1.3 AGRICULTURE AND INTEGRATION 18
1.4 COOPERATIVES 30
1.5 SITUATION IN THE RUSSIAN AGRICULTURAL SECTOR 35
2. COOPERATION 43
2.1 NETWORK THEORY 44
2.2 INTERACTION 45
2.3 COOPETITION 46
II. METHODOLOGY 48
Research objectives 49
Research questions 49
Research design and approach 50
Interview design 52
Data collection methods and sources 53
Limitations of the methodology 54
III. ANALYSIS OF RESULTS 55
Data Analysis 59
Research Question 1 59
Research Question II 67
IV. DISCUSSION OF RESULTS 76
RESEARCH QUESTION 1 76
RESEARCH QUESTION 2 78
SUMMARY OF DISCUSSION 81
V. MANAGERIAL IMPLICATIONS 84
CONCLUSION 87
REFERENCES 89
APPENDIX 106
TABLES 106
FIGURES 109
INTERVIEW TRANSCRIPTS: 110
АННОТАЦИЯ
INTRODUCTION 1
Motivation and context of the study 1
Problem statement and research gap 2
Research aim and objectives 3
Research questions 4
Theoretical background 5
Scope and limitations of the study 6
Significance of the study 7
I. LITERATURE REVIEW 8
1. INTEGRATION THEORY 8
1.1 VERTICAL INTEGRATION 9
1.2 HORIZONTAL INTEGRATION 15
1.3 AGRICULTURE AND INTEGRATION 18
1.4 COOPERATIVES 30
1.5 SITUATION IN THE RUSSIAN AGRICULTURAL SECTOR 35
2. COOPERATION 43
2.1 NETWORK THEORY 44
2.2 INTERACTION 45
2.3 COOPETITION 46
II. METHODOLOGY 48
Research objectives 49
Research questions 49
Research design and approach 50
Interview design 52
Data collection methods and sources 53
Limitations of the methodology 54
III. ANALYSIS OF RESULTS 55
Data Analysis 59
Research Question 1 59
Research Question II 67
IV. DISCUSSION OF RESULTS 76
RESEARCH QUESTION 1 76
RESEARCH QUESTION 2 78
SUMMARY OF DISCUSSION 81
V. MANAGERIAL IMPLICATIONS 84
CONCLUSION 87
REFERENCES 89
APPENDIX 106
TABLES 106
FIGURES 109
INTERVIEW TRANSCRIPTS: 110
Motivation and context of the study
Agricultural development 12,000 years ago changed how our ancestors lived and still sustains our lives today. However, like then, food security and prices are still uncertain due to global conflicts, pandemics, and droughts. A strong agricultural base is crucial for all countries, but SMEs and large corporations in Russia competitively rather than cooperatively raise food prices. This is due to the prolonged transition of the Russian economy from planned to marketbased.
The shift to capitalism in Central and Eastern Europe in the 1990s coincided with changes in land ownership and the decline of collective farms. This led to smaller, fragmented farms and a disunited agricultural market vulnerable to monopolization. Transaction costs increased, leading to complications in coordination and product realization (Takacs, 2012). Current issues are related to supply and this study examines the problem from the perspectives of a researcher and Russian consumer. Hence, accessible prices of food products for the Russian consumer and growth of agricultural SMEs leading to improvement of the HDI may be denoted as the ultimate motivator for this research. Motivators’ summaries are the following:
1. Increasing importance of SMEs in agriculture: SMEs are the backbone of the Russian agricultural sector, and their role is becoming increasingly important as they contribute to food security, rural development, and employment. Studying their patterns of integration and cooperation can help us understand how they can optimize resources and be more competitive.
2. Efficiency challenges: Agriculture has traditionally been a fragmented sector in Russia with limited cooperation among farmers, which results in efficiency challenges. SMEs can overcome these challenges by adopting more collaborative practices and understanding their patterns of integration can provide insights on how this can be achieved.
3. Policy implications: The Russian government has been implementing policies to stimulate the development of SMEs in the agricultural sector and understanding the patterns of integration and cooperation can inform policymakers on the types of support and institutions that are needed to enhance SMEs' impact on the sector.
4. International implications: Russia is a major agricultural producer, and its SMEs have the potential to play a crucial role in the global food chain. Studying the patterns of integration and cooperation by Russian SMEs can provide insights on how they can effectively compete in the global market, which is becoming increasingly interconnected and competitive. Especially in context of import substitution and unprecedented sanctions.
5. Increasingly threatened position of SMEs: Small and medium-sized business account for only 20% of Russian GDP. When compared to western countries, this is a very weak indicator. The extended duration of the transition process led to the monopolisation of the agricultural sector (but not exclusively). As SMEs are forced to operate in increasingly competitive conditions, it is necessary to see how these companies can be helped to hold their ground. Competing SMEs are at exponentially growing risk of liquidation or unfriendly takeover by large agro-industrial corporations and holdings. Avoidance of such cannibalisation is another key motivator for research.
Problem statement and research gap
Growth in the agricultural sector is an important goal set and monitored by the government with many national programmes. After the implementation of sanctions in 2014 and a policy of import substitution this sector has seen better growth rates than others, but they could be better. A focal problem is lack of clarity of interrelations between Small and Medium Agricultural Enterprises (later SMEs) and large Agricultural Corporations (later Agri-corps). Whilst integration is often viewed as an imperative from the standpoint of Agri-corps, much less attention is given to topic from the standpoint of SMEs, particularly in Russia. Many Russian owners of small and medium agricultural enterprises see interaction with competition in a negative light. SME business owners are especially cautious to interact with big business because of mistrust and inability to bargain on fair terms due to low bargaining power. However, there is much that SMEs can offer big business and the national economy if efforts are concentrated and means of production integrated consciously. It is thus necessary to explore factors serving as barriers to interaction.
Agribusiness may be defined as the sector entailing farming and its related commercial activities. It follows a long value chain starting from sewing of the fields and resulting with products on the shelves going through a process of production, processing, marketing, and distribution. Agribusiness treats different aspects of raising agricultural products as an integrated system which differentiates it from ordinary agricultural crop and livestock cultivation (Ellsworth, 1924). Parties involved in the sector include publicly traded companies, private companies and corporations, farmers, personal subsidiary farms, cooperatives, and selfemployed persons.
A literature review shows there is not enough elaboration on best practise for SME’s interaction with large business in the agricultural dairy industry that would take into consideration resources critical to attain better bargaining position from a resource-based view before rapprochement with big business. When is it viable to interact? When is it not? How enterprise resource planning can align the value chain, and all this must be suitable for the highly specific Russian market. Absence of such a popularised methodology is one of the factors stunning the industry’s growth. As such it indicates a serious research gap that must be addressed for motives attested in the sub-heading prior.
...
Agricultural development 12,000 years ago changed how our ancestors lived and still sustains our lives today. However, like then, food security and prices are still uncertain due to global conflicts, pandemics, and droughts. A strong agricultural base is crucial for all countries, but SMEs and large corporations in Russia competitively rather than cooperatively raise food prices. This is due to the prolonged transition of the Russian economy from planned to marketbased.
The shift to capitalism in Central and Eastern Europe in the 1990s coincided with changes in land ownership and the decline of collective farms. This led to smaller, fragmented farms and a disunited agricultural market vulnerable to monopolization. Transaction costs increased, leading to complications in coordination and product realization (Takacs, 2012). Current issues are related to supply and this study examines the problem from the perspectives of a researcher and Russian consumer. Hence, accessible prices of food products for the Russian consumer and growth of agricultural SMEs leading to improvement of the HDI may be denoted as the ultimate motivator for this research. Motivators’ summaries are the following:
1. Increasing importance of SMEs in agriculture: SMEs are the backbone of the Russian agricultural sector, and their role is becoming increasingly important as they contribute to food security, rural development, and employment. Studying their patterns of integration and cooperation can help us understand how they can optimize resources and be more competitive.
2. Efficiency challenges: Agriculture has traditionally been a fragmented sector in Russia with limited cooperation among farmers, which results in efficiency challenges. SMEs can overcome these challenges by adopting more collaborative practices and understanding their patterns of integration can provide insights on how this can be achieved.
3. Policy implications: The Russian government has been implementing policies to stimulate the development of SMEs in the agricultural sector and understanding the patterns of integration and cooperation can inform policymakers on the types of support and institutions that are needed to enhance SMEs' impact on the sector.
4. International implications: Russia is a major agricultural producer, and its SMEs have the potential to play a crucial role in the global food chain. Studying the patterns of integration and cooperation by Russian SMEs can provide insights on how they can effectively compete in the global market, which is becoming increasingly interconnected and competitive. Especially in context of import substitution and unprecedented sanctions.
5. Increasingly threatened position of SMEs: Small and medium-sized business account for only 20% of Russian GDP. When compared to western countries, this is a very weak indicator. The extended duration of the transition process led to the monopolisation of the agricultural sector (but not exclusively). As SMEs are forced to operate in increasingly competitive conditions, it is necessary to see how these companies can be helped to hold their ground. Competing SMEs are at exponentially growing risk of liquidation or unfriendly takeover by large agro-industrial corporations and holdings. Avoidance of such cannibalisation is another key motivator for research.
Problem statement and research gap
Growth in the agricultural sector is an important goal set and monitored by the government with many national programmes. After the implementation of sanctions in 2014 and a policy of import substitution this sector has seen better growth rates than others, but they could be better. A focal problem is lack of clarity of interrelations between Small and Medium Agricultural Enterprises (later SMEs) and large Agricultural Corporations (later Agri-corps). Whilst integration is often viewed as an imperative from the standpoint of Agri-corps, much less attention is given to topic from the standpoint of SMEs, particularly in Russia. Many Russian owners of small and medium agricultural enterprises see interaction with competition in a negative light. SME business owners are especially cautious to interact with big business because of mistrust and inability to bargain on fair terms due to low bargaining power. However, there is much that SMEs can offer big business and the national economy if efforts are concentrated and means of production integrated consciously. It is thus necessary to explore factors serving as barriers to interaction.
Agribusiness may be defined as the sector entailing farming and its related commercial activities. It follows a long value chain starting from sewing of the fields and resulting with products on the shelves going through a process of production, processing, marketing, and distribution. Agribusiness treats different aspects of raising agricultural products as an integrated system which differentiates it from ordinary agricultural crop and livestock cultivation (Ellsworth, 1924). Parties involved in the sector include publicly traded companies, private companies and corporations, farmers, personal subsidiary farms, cooperatives, and selfemployed persons.
A literature review shows there is not enough elaboration on best practise for SME’s interaction with large business in the agricultural dairy industry that would take into consideration resources critical to attain better bargaining position from a resource-based view before rapprochement with big business. When is it viable to interact? When is it not? How enterprise resource planning can align the value chain, and all this must be suitable for the highly specific Russian market. Absence of such a popularised methodology is one of the factors stunning the industry’s growth. As such it indicates a serious research gap that must be addressed for motives attested in the sub-heading prior.
...
This master's thesis investigated the patterns of integration and cooperation among Russian SMEs in the agricultural sector and their implications for SME performance and behaviour. The research findings indicate limited integration and collaboration practices among these SMEs, with a primary focus on independent activities. However, there is optimism about future collaboration, and the respondents recognize the potential benefits and challenges associated with integration and cooperation.
The master thesis followed an inductive qualitative research approach through a single-method multiple case study thematic analysis. The analysis revealed that different types of integration and cooperation have varying effects on SME performance and behavior. It was found that Russian SMEs are more likely to integrate and cooperate horizontally with other SMEs, while vertical integration with large businesses is less common. The power dynamics, resource accessibility, and market conditions play a significant role in shaping the success and strategies of SMEs in their collaborations with larger counterparts.
The application of the Resource-Based View (RBV) and Network theories helped explain the observed patterns of interaction and cooperation among Russian agricultural SMEs. The analysis highlighted the importance of various resources and capabilities, such as human capital, expertise, specialization, relationships, and unique products, in facilitating collaboration and enhancing competitiveness. Factors such as meeting customer demand, the value of SME networks, trust and reputation, and government support were identified as influential in shaping these patterns.
The research propositions aligned well with the data analysis, as none of the propositions were rejected. However, it is important to note that further research is needed to explore specific types of integration and collaboration, their benefits and drawbacks, and their effects on SME performance and behaviour. Additionally, a more comprehensive quantitative review of the impacts, benefits, and drawbacks specific to the agricultural sector is required, along with the identification of patterns of best practice for interaction and cooperation based on RBV and network theories as this research objective was partially met.
The conclusions of this thesis emphasize the importance of careful evaluation and a strategic approach to integration and cooperation among Russian agricultural SMEs.
Overcoming barriers such as trust issues, the dominance of large companies, legal complexities, and practical challenges will require addressing trust issues, implementing supportive legislation, and improving access to resources. By facilitating collaboration among agricultural SMEs, the agricultural sector in Russia can become more competitive and sustainable.
The findings and recommendations of this study provide insights for policymakers, managers, and other stakeholders on how to enhance the effectiveness and sustainability of SME collaboration efforts in the agricultural sector. Government support and favourable policies, including tailored support for SMEs and fewer restrictions on collaboration, are crucial for fostering integration and cooperation. Intermediary agencies between small and large businesses would also be beneficial for this purpose.
The master thesis followed an inductive qualitative research approach through a single-method multiple case study thematic analysis. The analysis revealed that different types of integration and cooperation have varying effects on SME performance and behavior. It was found that Russian SMEs are more likely to integrate and cooperate horizontally with other SMEs, while vertical integration with large businesses is less common. The power dynamics, resource accessibility, and market conditions play a significant role in shaping the success and strategies of SMEs in their collaborations with larger counterparts.
The application of the Resource-Based View (RBV) and Network theories helped explain the observed patterns of interaction and cooperation among Russian agricultural SMEs. The analysis highlighted the importance of various resources and capabilities, such as human capital, expertise, specialization, relationships, and unique products, in facilitating collaboration and enhancing competitiveness. Factors such as meeting customer demand, the value of SME networks, trust and reputation, and government support were identified as influential in shaping these patterns.
The research propositions aligned well with the data analysis, as none of the propositions were rejected. However, it is important to note that further research is needed to explore specific types of integration and collaboration, their benefits and drawbacks, and their effects on SME performance and behaviour. Additionally, a more comprehensive quantitative review of the impacts, benefits, and drawbacks specific to the agricultural sector is required, along with the identification of patterns of best practice for interaction and cooperation based on RBV and network theories as this research objective was partially met.
The conclusions of this thesis emphasize the importance of careful evaluation and a strategic approach to integration and cooperation among Russian agricultural SMEs.
Overcoming barriers such as trust issues, the dominance of large companies, legal complexities, and practical challenges will require addressing trust issues, implementing supportive legislation, and improving access to resources. By facilitating collaboration among agricultural SMEs, the agricultural sector in Russia can become more competitive and sustainable.
The findings and recommendations of this study provide insights for policymakers, managers, and other stakeholders on how to enhance the effectiveness and sustainability of SME collaboration efforts in the agricultural sector. Government support and favourable policies, including tailored support for SMEs and fewer restrictions on collaboration, are crucial for fostering integration and cooperation. Intermediary agencies between small and large businesses would also be beneficial for this purpose.
