Social Enterprises and the Poor: Enhancing Social Entrepreneurship and Stakeholder Theory

Dacanay, Marie Lisa Doctoral Thesis Social Enterprises and the Poor: Enhancing Social Entrepreneurship and Stakeholder Theory PhD Series, No. 30.2012 Provided in Cooperation with: Copenhagen Business School (CBS) Suggested Citation: Dacanay, Marie Lisa (2012) : Social Enterprises and the Poor: Enhancing Social Entrepreneurship and Stakeholder Theory, PhD Series, No. 30.2012, ISBN 9788792842879, Copenhagen Business School (CBS), Frederiksberg, https://hdl.handle.net/10398/8513 This Version is available at: https://hdl.handle.net/10419/208826 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/3.0/ Marie Lisa Dacanay PhD Series 30.2012 PhD Series 30.2012 Social Enterprises and the Poor copenhagen business school handelshøjskolen solbjerg plads 3 dk-2000 frederiksberg danmark www.cbs.dk ISSN 0906-6934 Print ISBN: 978-87-92842-86-2 Online ISBN: 978-87-92842-87-9 Doctoral School of Organisation and Management Studies Social Enterprises and the Poor Enhancing Social Entrepreneurship and Stakeholder Theory SOCIAL ENTERPRISES AND THE POOR: ENHANCING SOCIAL ENTREPRENEURSHIP AND STAKEHOLDER THEORY DISSERTATION Doctoral School of Organization and Management Studies Copenhagen Business School, Denmark Submitted by: Marie Lisa M. Dacanay Associate Professor Kai N. Hockerts Adviser Panelists Associate Professor Soeren Jeppesen (Chair) Copenhagen Business School, Denmark Professor Marthe Nyssens Catholic University of Louvain, CIRTES, Belgium Roger Spear, Professor in Social Entrepreneurship Open University, United Kingdom September 17, 2012 Marie Lisa Dacanay Social Enterprises and the Poor Enhancing Social Entrepreneurship and Stakeholder Theory 1st edition 2012 PhD Series 30.2012 © The Author ISSN 0906-6934 Print ISBN: 978-87-92842-86-2 Online ISBN: 978-87-92842-87-9 The Doctoral School of Organisation and Management Studies (OMS) is an interdisciplinary research environment at Copenhagen Business School for PhD students working on theoretical and empirical themes related to the organisation and management of private, public and voluntary organizations. All rights reserved. No parts of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage or retrieval system, without permission in writing from the publisher. 2 …. to the practitioners and scholars of social entrepreneurship especially in Asia and countries in the South…. 3 Acknowledgements This dissertation is my baptism into social entrepreneurship academic research. Nevertheless, it builds on my more than 20 years of practice, teaching and action research on social entrepreneurship and development management. Before I thank the institutions and people who made a direct contribution to the completion of this thesis, I would like to recognize some key institutions and people who helped shape my personal journey into social entrepreneurship and sustainable development for the past 2 decades: x The Philippine Rural Reconstruction Movement (PRRM) in the late 1980s and 1990s, led by Horacio R. Morales and Isagani R. Serrano, with Helena Z. Benitez as Chair of the Board, provided a nurturing environment for my initial experience in cooperative and social enterprise development among farming, fishing and indigenous communities. PRRM provided my solid grounding on cooperative and social enterprise development as pillars of democratization and sustainable development. x What was then the Asian Institute of Management (AIM) - Asian Center for Entrepreneurship (ACE), under the guidance of Eduardo A. Morato Jr., who inspired the creation of a Social and Development Entrepreneurship (SDE) Program in 2001, and supported my pursuit of pioneering SDE research and education efforts until 2006. I also credit Ed Morato for introducing me to the concept of social entrepreneurship as part of development management when I was a masteral student at AIM in the 1990s. x My colleagues, as well as the members and supporters of what was the Conference of Asian Foundations and Organizations (CAFO) – Social Entrepreneurship Working Group, which provided an initial platform for practitioners and scholars from various countries to undertake networking and action research on social entrepreneurship in the region, culminating in the setting up of the Institute for Social Entrepreneurship in Asia (ISEA) in 2008. The European Union-supported Social Entrepreneurship in Asia and Europe Project (Asia Link) created the opportunity for me to become a PhD Fellow at the Copenhagen Business School (CBS) in July 2007. I would like to extend my deep appreciation for the trust and support given to me by Jens Aaris Thisted who represented CBS at the Asia Link project. I would also like to thank Bala Ramasamy of the China-Europe International Business School in Shanghai for facilitating the support I needed from the project to pursue my first year of PhD studies. I am grateful to Johanna Mair from the IESE (Instituto de Estudios Superiores de la Empresa) Business School at the University of Navarra in Barcelona, Spain, whom I 4 met through the Asia Link project, and Jeffrey Robinson, who was then at New York University, for the opportunity to participate in the 2006 International Social Entrepreneurship Research Conference (ISERC). My participation at the 2006 ISERC paved the way for me to meaningfully participate in the global discourse on social entrepreneurship. I am grateful to my thesis adviser, Kai Hockerts, who walked me through the whole process of conceiving, implementing and writing the results of my research. Throughout my four years of research, he served as coach and constant critic, providing insights from his own experience of doing his dissertation, alerting me about pitfalls and areas for improvement and suggesting ways of moving forward whenever I was in a bind. The Institute for Social Entrepreneurship in Asia (ISEA) and the Ateneo School of Government (ASoG) provided me the institutional base as well as the professional and personal support I needed to complete my research and monograph. I would like to express my appreciation to the members of ISEA for their patience and understanding in putting on hold many of our grand plans for institution-building and Asia-wide initiatives, to allow me to focus on my PhD thesis. I would also like to express my gratitude to ISEA Chair and ASoG Dean Antonio La Vina and ISEA Board Member Ronald Chua, who both went out of their way to provide timely and meaningful support. I am grateful to Rosalinda Roy for her invaluable research support; Sharon Taylor for her editing assistance amidst time and resource constraints; and Dolly Marcial for her untiring administrative support even during weekends. This dissertation wouldn’t have been possible without the rich experience and openness of the six social enterprises I studied. I would like to acknowledge and express my appreciation to the social enterprises who agreed to be my case subjects: the Alter Trade Group (Alter Trade), the Upland Marketing Foundation Inc., (UMFI or Upland Marketing) the National Federation of Cooperatives of Persons with Disability (PWD Fed), Tahanang Walang Hagdanan (TWH or Tahanan), the Lamac Multi-Purpose Cooperative (Lamac MPC) and the Cordova Multi-Purpose Cooperative (Cordova MPC). The dedicated practitioners in these social enterprises, as well as their partners among the poor (or formerly poor as some of them have clearly overcome capability deprivation and income poverty) made this dissertation come to life. I am grateful to those who made time and agreed to be key informants and facilitated my access to organizational data, people and resources. As the key informants are already recognized and listed in the Appendix (Chapter 12), I would like to make special mention of the following people who made time to assist the researcher in various ways: 5 x For the Alter Trade Group: Earl Parreno, Edwin Lopez, Gilda Caduya and Ray Tenefrancia x For Upland Marketing: Mon Derige, Rene Guarin, Ruben Evangelista and Grace Tacuyog x For PWD Fed: Mayta Banday, Lolita Maguigad and Peter Hammerle x For Tahanan: Joy Garcia and Tess Lloren x For Lamac MPC: Ellen Limocon, Ed Pantino and Gary x For Cordova MPC: Aurea De Remayo, Glenn Revalde-Tajanlangit and Nemeth Ompad I would also like to thank the participation of the members of the panel of experts who helped me identify the most appropriate cases for my theoretical sample: Claribel David, Ronald Lagazo and Rommel Agustin for the fair trade cluster; the group from VICTO National namely Mercedes Castillo, Jose Detablan, Dennis Flores, Audie Samson and Jacinto Tilbe who composed the panel for the cooperative cluster; and Flerida Labanaon, Andy Ravelo and Angela Pangan who comprised the panel for the cluster serving persons with disability. I am grateful to the community of scholars and friends who provided inputs and gave critical comments to make my research a meaningful learning experience. There are many of them but I would like to make special mention of the following: x The members of my first and second Work in Progress (WIP) panels namely Rob Austin of the CBS-Institut for Ledelse, Politik og Filosofi (LPF or Department of Management, Politics and Philosophy); Lars Hulgaard of the Center for Social Entrepreneurship, Roskilde University, Denmark and the EMES Research Network; Taco Brandsen of Nijmegen University, Netherlands; and Steen Valentin of CBS-LPF. Their encouragement and critical comments especially on methodology, inclusion of the social economy school of social entrepreneurship, and overcoming a tendency towards static ‘American reductionism’ proved to be critical in improving my thesis; x The members of the academic panel who reviewed my dissertation monograph namely Soren Jeppesen of Copenhagen Business School, Marthe Nyssens of the Catholic University of Louvain, Centre Interdisciplinaire de Recherche Travail, État et Société or Interdisciplinary Research Centre on Work, State and Society (CIRTES) in Belgium and Roger Spear of the Open University in the United Kingdom. Their thoughtful comments and suggestions for refining the literature review, the methodology and theory development sections have significantly helped to enhance the dissertation; x The professors and students of the Second EMES International PhD Summer School at Roskilde University in July 2010 who broadened my horizons about 12 7.7. The Lamac MPC from a Stakeholder Perspective ............................................................. 254 7.7.1. Primary Stakeholders of Lamac MPC ............................................................................ 254 7.7.2. Roles and Role Changes among the Poor ...................................................................... 255 7.7.3. Roots of No Significant Role Change among the Poor .................................................. 256 7.7.4. Impact of Roles and No Significant Role Changes ........................................................ 258 7.7.5. Stakeholder Engagement Strategy over Time ................................................................ 258 7.8. Discussion .................................................................................................................................. 261 CHAPTER 8 – CORDOVA MULTI-PURPOSE COOPERATIVE: OWNER-CLIENTS AS TRANSACTIONAL PARTNERS ....................................................................................................... 263 8.1. Introduction ........................................................................................................................ 263 8.2. Pre-Initiation Stage (1971-1987): Rise and Fall of Cooperatives for the Poor .................. 264 8.3. Initiation Stage (1987- 1993): Revitalization and Consolidation into Cordova MPC ....... 265 8.4. Development Stage (1993-2009): Expansion and Diversification ................................... 266 8.4.1. From Creation of Satellites to Branches ........................................................................ 267 8.4.2. Expansion to Lapu Lapu City ......................................................................................... 267 8.4.3. Core Services and Enterprises ........................................................................................ 268 8.4.4. Accidental Enterprise Ventures ...................................................................................... 269 8.4.5. Governance and Planning Practice ................................................................................. 269 8.4.6. New Product Development ............................................................................................ 270 8.4.7. Dual Character of Members as Owners and Customers................................................. 271 8.4.8. Weak Membership Development Program .................................................................... 272 8.4.9. Perspectives of Members Coming from Poverty Sectors ............................................... 273 8.4.10. Partnerships .................................................................................................................... 274 8.5. Financial and Social Outcomes .......................................................................................... 275 8.5.1. Financial Outcomes ........................................................................................................ 275 8.5.2. Social Outcomes ............................................................................................................. 279 8.6. The Cordova MPC and Social Entrepreneurship ............................................................... 283 8.6.1. Cordova MPC as SEPPS ................................................................................................... 283 8.6.2. SEPPS in a Developing Country Context ................................................................... 284 8.6.3. SEPPS and Social Entrepreneurship ........................................................................... 285 8.7. The Cordova MPC from a Stakeholder Perspective .......................................................... 285 8.7.1. Primary Stakeholders of Cordova MPC ......................................................................... 285 8.7.2. Roles among the Poor .................................................................................................... 285 8.7.3. Roots of No Significant Role Change ............................................................................ 286 8.7.4. Impact on the Poor ......................................................................................................... 287 8.7.5. Stakeholder Engagement Strategy over Time ................................................................ 289 8.8. Discussion .......................................................................................................................... 290 13 PART III -- THEORY BUILDING CHAPTER 9 – CROSS CASE ANALYSIS: SOCIAL ENTERPRISES WITH THE POOR AS PRIMARY STAKEHOLDERS ............................................................................................................................. 294 9.1. Roles and Role Changes among the Poor ........................................................................ 294 9.1.1. From Passive Workers to Self-Assured Workers, Supervisors and Managers ................. 296 9.1.2. Poor as Partners in Social Enterprise and Value Chain Management .............................. 296 9.1.3. Transactional Nature and Transformational Potential of Poor as Owner ......................... 297 9.1.4. Poor as Transactional and Transformational Partners ..................................................... 301 9.1.5. Situating Roles in Regions of Stakeholder Environment ................................................. 302 9.2. Roots and Routes of Role Changes among the Poor ........................................................ 303 9.2.1. Alter Trade and PWD Fed: Dedicated Programs and Delivery Systems for Transformational Services ............................................................................................................ 305 9.2.2. Tahanan: Transformational Services and Changes in Management............................... 307 9.2.3. Mandate of Upland Marketing: Poor as Transactional Partner ........................................ 308 9.2.4. Cordova and Lamac MPC: Transactional Management Orientation and Services .......... 308 9.2.5. Cooperatives as SEPPS: Governance Issues ................................................................... 309 9.2.6. Enabling and Disabling Stakeholders .............................................................................. 310 9.3. Impact of Roles and Role Changes .................................................................................. 316 9.4. Patterns Defining Stakeholder Engagement Strategies Pursued by SEPPS in the Theoretical Sample ..................................................................................................... 318 CHAPTER 10 – PROPOSITIONS AND CONTRIBUTIONS: ENRICHING SOCIAL ENTREPRENEURSHIP AND STAKEHOLDER THEORY .............................................................. 320 10.1. Models of Stakeholder Engagement among Social Enterprises with the Poor as Primary Stakeholders (SEPPS) ................................................ 322 10.2. Applicability of Propositions on SEPPS ................................................................................. 336 10.3. Contribution to Stakeholder Theory ........................................................................................ 338 10.4. Contribution to Social Entrepreneurship Theory ..................................................................... 342 CHAPTER 11 – CONCLUSIONS ..................................................................................................... 345 CHAPTER 12 – APPENDIX ............................................................................................................. 352 12.1. Panel of Experts ....................................................................................................................... 352 12.2. Guidelines for Field Research ................................................................................................. 353 12.3. Sample MOU between Case Subject and Researcher ............................................................. 355 12.4 Development Index For Alter Trade’s Partner People’s Organizations ................................. 357 12.5. Exchange Rates: US Dollars to Philippine Peso (PhP) .......................................................... 362 12.6. Key Informants for Case Research .......................................................................................... 363 12.6.1. Alter Trade Group ............................................................................................................ 363 12.6.2. Upland Marketing Foundation Inc. ................................................................................. 365 12.6.3. National Federation of Cooperatives of Persons with Disability (PWD Fed) ................. 366 12.6.4. Tahanang Walang Hagdanan (Tahanan) ......................................................................... 367 12.6.5. Lamac MPC ..................................................................................................................... 368 12.6.6. Cordova MPC .................................................................................................................. 370 12.7. References .......................................................................................................................... 372 12.8. About the Researcher ............................................................................................................... 424 14 List of Acronyms and Abbreviations ACE Asian Center for Entrepreneurship ADAP Association of Differently Abled Persons ADB Asian Development Bank ADPI Association of Disabled Persons Incorporated AFTF Asia Fair Trade Forum now known as World Fair Trade Organization-Asia AIM Asian Institute of Management AMANO Asosasyon sang Mamumugon sa Nolan AMCHA Atlas Mining Community Handicapped Association APFTI Advocate of Philippine Fair Trade, Inc. APLA Alternative People’s Linkage in Asia APNET Alternative People’s Network for Peace and Life ARB Agrarian Reform Beneficiary ASoG Ateneo School of Government ATC Alter Trade Corporation ATFI Alter Trade Foundation, Inc. ATG or Alter Trade Alter Trade Group ATJ Alter Trade Japan ATM Alternative Trading and Marketing or Automated Teller Machine ATMC Alter Trade Manufacturing Corporation ATO Alternative Trading Organization BARBD Bureau of Agrarian Reform Beneficiaries Development BBMC Bigay Buhay Multi-purpose Cooperative BOCP Bio-Organic Conversion Program BOP Bottom or Base of the Pyramid BCI Basic Capability Index BCM Balangon Cultural Management Bgy Barangay BLOMES Inc. Barangay Lamac Organization and Management Effectiveness Systems Inc. BRP Balangon Renewal Program C-92 Celina-92 CAFO Conference of Asian Foundations and Organizations CARL Comprehensive Agrarian Reform Law CARP Comprehensive Agrarian Reform Program CBE Community-Based Enterprise CBFMA Community-Based Forest Management Assistance 15 CBM Christoffel Blinden Mission CBPC Collective Business Project Committee CBR Community-Based Rehabilitation CBS Copenhagen Business School CBSS Capability Building and Support Services CBU Capital Build-Up CCA Canadian Cooperative Association CCU Capital Credit Union CDA Cooperative Development Authority CDF Countryside Development Fund CEO Chief Executive Officer CICM Congregation of the Immaculate Conception of Mary CIRTES Centre Interdisciplinaire de Recherche Travail, État et Société or Interdisciplinary Research Centre on Work, State and Society CLF Central Loan Fund COO Chief Operations Officer CORDEV Center for Organic Farming and Integrated Rural Development CRASP Credit Access and Savings Program CSR Corporate Social Responsibility CYP Coop Youth Planet DAR Department of Agrarian Reform DAFWARBA Dama Farm Workers Agrarian Reform Beneficiaries Association DepEd Department of Education DENR Department of Environment and Natural Resources DLGCD Department of Local Government and Community Development DOEI Diversified Organic Enterprise, Inc. DOLE Department of Labor and Employment DOST Department of Science and Technology DSWD Department of Social Welfare and Development DTI Department of Trade and Industry EDC Enterprise Development Center EFTA European Fair Trade Association ELEXIES L'entreprise sociale: lutte contre l'exclusion par l'insertion économique et sociale or “The social enterprise - a tool to fight against exclusion” EMES European Research Network EO Executive Order ERDA Educational Research and Development Assistance Foundation EVP Executive Vice President FARAD Father Rafael Desmed FFS Farmers’ Field School 16 FGD Focus Group Discussion FIES Family Income and Expenditure Survey FPSDC Federation of Peoples’ Sustainable Development Cooperative FLO Fairtrade Labeling Organization FTI Foundation for TheseAbled Persons Inc. FTO Fair Trade Organization FTSG Fair Trade Sub-Group GAA General Appropriations Act GDP Gross Domestic Product GEPA Fair Trade Company (Germany) GfK Growth from Knowledge GIN Greening of Industry Network GM General Manager GMP Good Manufacturing Practices Green Coop Green Coop Consumers’ Cooperative Union HACCP Hazard Analysis Critical Control Points HCATRIFWO Hacienda Cahilamunan-Trinio Farm Workers Organization HDI Human Development Index HH House Holds HOE Holistic Organizational Empowerment HR Human Resource HVR Hidden Valley Resort IAP2 International Association for Public Participation IBOB Improved Balangon/Old Balangon ICCO Interchurch Organisation for Development Cooperation ICM Immaculate Conception of Mary ICT Information and Communications Technology IESE Instituto de Estudios Superiores de la Empresa, or "International Graduate School of Management" IFAT International Federation for Alternative Trade now known as World Fair Trade Organization IFOAM International Federation of Organic Agriculture Movements IKL Intercultural Communication and Management IMO Institute for Market Ecology ISEA Institute for Social Entrepreneurship in Asia ISERC International Social Entrepreneurship Research Conference ISSAN Institute for the Development of Non-Profit Organizations IT Information Technology JICA Japan International Cooperation Agency JCNC Japan Committee for Negros Campaign 17 KALIKASAN- Kalipunan ng mga Magsasaka para sa Likas-Kayang Sakahan NE sa Nueva Ecija or “Group of Farmers for Sustainable Agriculture” KEF Kalahan Educational Foundation KOOL-NE Kooperatibang Likas ng Nueva Ecija LANDBANK or LBP Land Bank of the Philippines LBMC Lingkod Banahaw Multi-purpose Cooperative LEISA Low External Input Sustainable Agriculture LGU Local Government Unit LPF Institut for Ledelse, Politik og Filosofi or “Department of Management, Politics and Philosophy” LWUA Local Water Utilities Administration MA Master in Arts MCDC Municipal Cooperative Development Council MDG Millennium Development Goals MEPZ Mactan Export Processing Zone MIARBA Minoro Isabel Agrarian Reform Beneficiaries Association MIGS Member(s) in Good Standing MILF Moro Islamic Liberation Front MISERIOR German Catholic Bishops’ Organisation for Development Cooperation MNC Multi-National Corporation MNIGS Member(s) Not in Good Standing MOU Memorandum of Understanding MPC Multi-Purpose Cooperative NAPFWA Nagkalang-Padilla Farm Workers Association NARB Nagasi Agrarian Reform Beneficiaries NASSA National Secretariat for Social Action NATCCO National Confederation of Cooperatives NB New Balangon NCDA National Council on Disability Affairs NCPD Negros Council for People’s Development NEAPWD Nueva Ecija Association of Persons with Disability NEWS Network of European Workshops NGDO Non-Government Development Organization NGO Non-Government Organization NLAD Northern Luzon Association for the Disabled NNS National Nutrition Survey NOFTA Negros Organic Fair Trade Association NOP National Organic Program NPF National Pharmaceutical Foundation, Inc. 18 NPO Not-for-Profit Organization NRM Natural Resource Management NSCB National Statistical Coordination Board NSO National Statistics Office NTFP Non-Timber Forest Products OB Old Balangon OS3 Organisation Suisse Tiers Monde now known as Claro Fair Trade PACAP Philippines-Australia Community Assistance Program PAFID Philippine Association for Inter-cultural Development PAL Palsystem Consumers’ Cooperative Union PARTNERS Partnership for Rural Transformation and Ecological Renewal Inc. PBSP Philippine Business for Social Progress PCFC People’s Credit and Finance Corporation PCSO Philippine Charity Sweepstakes Office PDAF Philippine Development Assistance Fund PDAP Philippine Development Assistance Program PDCI Pecuaria Development Cooperative, Inc. PFRD Philippine Foundation for the Rehabilitation of the Disabled PFTAC People’s Fair Trade Assistance Center PFTF Philippine Fair Trade Forum now known as World Fair Trade Organization-Philippines PHILCOMDEV Philippine Consortium on Migration and Development PhilDHRRA Philippine Partnership for the Development of Human Resources in Rural Areas PhP Philippine Peso PIBFA Pandanon Integrated Balangon Farmers Association PMES Pre-Membership Education Seminar PO People’s Organization PO-DI People’s Organization Development Index PRRM Philippine Rural Reconstruction Movement PWD Person(s) With Disability PWD Fed or NFCPWD National Federation of Cooperatives of Persons with Disability RAFI Ramon Aboitiz Foundation, Inc. R&D Research and Development SAFRA-ADAP San Francisco Association of Differently Abled Persons SASC Sustainable Agriculture for Sustainable Communities SDE Social and Development Entrepreneurship SE Social Enterprise SEFF Social Enterprise Finance Facility SEPPS Social Enterprise(s) with the Poor as Primary Stakeholders 19 SIKAP Samahang Ikauunlad ng mga may Kapansanan Ating Palawakin or “Organization for the Progress of Persons with Disability” SIPFAWA Sitio Paho Farm Workers Association SLB Sustainable Livelihood Business SM ShoeMart (shopping mall) SME Small and Medium Enterprise SN Samahang Nayon or “Organization in the Countryside” SPADE Sustainable Production and Area Development Enterprises SRI Stanford Research Institute SROI Social Return on Investment STARFA Sta. Rita Farmers’ Association STC-MPC Sta. Cruz Multi-Purpose Cooperative STI Systems Technology Institute TESDA Technical Education and Skills Development Authority TriPARRD Tripartite Partnership for Agrarian Reform and Rural Development TWH or Tahanan Tahanang Walang Hagdanan Inc. UK United Kingdom UNDP United Nations Development Programme UMFI or Upland Upland Marketing Foundation Inc. Marketing UMP Upland Marketing Program UNAC Upland NGOs Assistance Committee UNICEF United Nations Children's Fund US United States USAID United States Agency for International Development USD or US$ U.S. Dollar VICTO Visayan Confederation of Cooperatives now known as VICTO National VQP Volume, Quality and Price WB World Bank WBCSD World Business Council for Sustainable Development WFTO World Fair Trade Organization WHO World Health Organization WIP Work in Progress WISE Work Integration Social Enterprises 20 ABSTRACT SOCIAL ENTERPRISES AND THE POOR: ENRICHING STAKEHOLDER AND SOCIAL ENTREPRENEURSHIP THEORY This thesis develops a framework for understanding how social enterprises engage the poor and address poverty, a pressing global problem of the 21st century. Using casebased theory building, it studies a theoretical sample of three pairs of Philippine-based social enterprises, where the poor were suppliers, workers, and customers. In half of the cases, the poor were also owners. The research studies the roles and role changes of the poor in these social enterprises, how and why these roles changed, or did not change, and the impact of the roles and role changes, if any, on the social enterprises and the poor. Data for the research was gathered mainly from key informant interviews, published and unpublished organizational documents as well as previous studies done by external consultants on the case subjects. Based on a cross case analysis of the data from the theoretical sample, the thesis develops three models of stakeholder engagement among social enterprises with the poor as primary stakeholders or SEPPS, namely: control, collaboration and empowerment. This thesis provides insights and develops propositions about the importance of stakeholder engagement and the power and limitations of these three models in bringing about social inclusion and poverty reduction. These propositions are suggested to be applicable in countries in the South other than the Philippines where systemic poverty and inequality are exacerbated by the failure of state and market institutions to address the needs of the poor. This thesis makes a contribution to social entrepreneurship and stakeholder theory. It does so by sharing a perspective from the South and giving a voice to the poor as stakeholders. The researcher notes that overall, the poor and the South are under-represented in these discourses. On the whole, social entrepreneurship theorizing has been characterized as embryonic as a topic of academic inquiry. Stakeholder engagement is considered an under-theorized area in stakeholder theory. In developing a framework for understanding stakeholder engagement models involving the poor, this thesis makes a first step towards applying and extending stakeholder theory in SEPPS. The thesis likewise enriches social entrepreneurship theory by conceiving of SEPPS as a global social enterprise model that catalyzes South-North cooperation to address poverty and inequality. 21 PART I – RESEARCH FRAMEWORK 28 “Multi-stakeholder refers to an organization in which different interest groups – each one which has different aspirations and hopes related to what it can expect from the organization’s activity – are involved… When…. multi-stakeholder dialogue is consolidated via commitments to be met by the organization because they have been approved by the different stakeholders in the Board, then it can be said that the organization is in a situation of multi-stakeholder governance”. Social economy school scholars as exemplified by Vidal (2010) refer to the following as stakeholder categories in social enterprises: shareholders, directors, workers, volunteers, users and providers; customers in public administration; and future generations (if the organization has an impact on the environment). A framework for understanding governance issues and challenges among social enterprises has been developed by Spear, Cornforth and Aiken (2010, p. 199). These scholars identified four types of social enterprises: mutuals that include cooperatives and credit unions; trading charities; public sector spin-offs; and new-start social enterprises. Common governance issues faced by all types include “finding and developing board members with the necessary business, financial and entrepreneurial skills; managing diverse stakeholder interests in increasingly multi-stakeholder governance systems; balancing business decisions with the social mission of the organizations”. A specific challenge faced by charities is managing a multi-level governance structure required by the setting up of trading subsidiaries. Mutual social enterprises are confronted with the challenge of maintaining an active membership and developing a competent board. In managing the tension between perceived market pressures and their social mission, Hockerts (2010, p. 160) noted two archetypal responses by social enterprises interested in the transformation of a sector: “retreat towards the philanthropic core or a partial abandoning of the social objectives in favor of a business oriented approach”. He notes the possibility of a third way: “A possible third way could be one of continuous innovation whereby social ventures keep innovating their way out of the tension between market and mission”. (Hockerts, 2010, p. 177) Some scholars, notably Huybrechts and Defourny (2008) have studied fair trade organizations as social enterprises. In their empirical study covering four European countries, they noted that fair trade organizations combine in some way economic and social, and sometimes also political goals. The political dimension is an attribute of some social enterprises that distinguishes them even more sharply from traditional businesses (Nyssens, 2006). Distinct from the economic (trade) and social (producer support) dimensions, political goals pertain to education and advocacy initiatives 29 where there is an intent of acting in the wider system in order to change the context in which the social enterprise operates (Martin and Osberg, 2007). Such a political goal is captured by the most widely accepted definition of fair trade used by field actors and academics (Moore, 2004) as cited by Huybrechts and Defourny (2008, p.190): “Fair trade is a trading partnership, based on dialogue transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of marginalized producers and workers - especially in the South. Fair trade organizations (backed by consumers) are engaged actively in supporting producers, awareness raising and in campaigning for changes in the rules and practice of conventional international trade”.3 An interesting theme emerging from scholars studying fair trade as a type of social entrepreneurship is strategic innovation. Hockerts (2006a) discussed the role of entrepreneurial innovation in the success of CaféDirect: seizing the opportunities of direct trade on the producer and consumer through better quality, and introducing a new business model by building its own brand rather than just depending on labeling. In a later comparative study that looked at CafeDirect and the Oxfam Fairtrade Company as part of a larger study on social entrepreneurship, Hockerts (2010) noted how both cases manifested archetypal responses to manage the tension between their social mission and the perceived market requirements in the process of growth. Café Direct chose a partial abandoning of social objectives in favor of a business-oriented approach, while the Oxfam Fairtrade Company retreated towards the philanthropic core. Within the social economy school of social entrepreneurship, a specific type of social enterprise called WISE or work integration social enterprises, has gained prominence. Such prominence may be attributed to increasing unemployment amidst the crisis of welfare states in Europe. WISE have evolved to provide employment opportunities to minority groups, persons with disabilities and other vulnerable sectors who could not find work or have been displaced from the mainstream economy (Nyssens, 2006; Defourny and Nyssens, 2010). A European Commission-supported project study called ELEXIES (L'entreprise sociale: lutte contre l'exclusion par l'insertion économique et sociale or The social enterprise - a tool to fight against exclusion) involving the EMES European Research Network scanned existing WISE models in 12 member states of the European Union (Spear and Bidet, 2005; Davister, et al., 2004). Nearly one-third of the covered WISE 3 This is a definition by FINE, an informal network gathering the four main global Fair Trade umbrella organs: European Fair Trade Association or EFTA, NEWS or Network of European Workshops, Fair Trade Labeling Organization or FLO and International Fair Trade Association or IFAT, now known as WFTO or World Fair Trade Organization. 30 cases exclusively focused their work on the integration of persons with disability (PWD) and all the countries covered had at least one type of organisation belonging to this category. The study noted four main modes of integration of PWDs: transitional occupation; creation of self-financed jobs; professional integration with permanent subsidies through sheltered workshops and adapted social enterprises; and socialization through a productive work activity. The study noted a minority of WISE involving the participation of workers or users in the decision making process of the enterprise. They attributed such partly to the nature of employment in a number of WISE as transitional in nature. They also considered that various handicaps or disabilities might make the practice of democratic principles espoused in the social economy as somewhat utopian (Davister et al, 2004). Based on the same study, Spear and Bidet (2005) argued that WISE were particularly suited towards a ‘participation’ approach, drawing on the strengths of their social economy roots. They noted the spread of some effective WISE models in the form of social cooperatives and multistakeholder organizations despite under-resourced and fragmented support structures in the countries studied. In many of these countries, the state provided policy and financial support conducive to the development of WISE. There have also been studies to understand the trends and challenges faced by cooperatives as social enterprises. A major research involving the EMES Network studied cooperatives as social enterprises from 10 developed and transition countries. From these studies, Borzaga and Spear (2004) noted trends towards the revival of the communitarian tradition, cooperative involvement in the provision of social services, a shift from single stakeholder to multi-stakeholder models and the convergence of associative and cooperative forms. Borzaga and Spear (2004) explored the evolutionary dynamics of cooperatives to provide working materials and new research paths to researchers and practitioners interested in studying and promoting the development of social economy organizations. Their study draws from reports presented and discussed by contributors at the International Seminar – From Cooperatives to Social Enterprise, jointly organized by ISSAN (Institute for the Development Non-Profit Organisations) and the EMES Network that took place in December 2003 in Trento, Italy. The country experiences presented at the international seminar covered Canada and 9 European countries. In studying developments among cooperatives in these developed and transition economies, Borzaga and Spear (2004) examined them as social enterprises within the cooperative framework. In general, the country experiences provided evidence that the orientation of the international cooperative movement is moving in the direction of revitalizing the communitarian tradition. The study also noted “Co-operatives’ increasing involvement in the provision of social services is to be noticed in some non European countries, such as the United States, Japan, Canada, Philippines and Latin America” (Borzaga and Spear, 2004, p.30). 31 The study discussed three main changes relative to cooperative models investigated in recent decades: “.... (1) the social orientation has overwhelmed the mutuality orientation in a number of countries; (2) a general evolution towards the production of generalinterest services has become evident; and (3) co-operative attributes towards the provision of general-interest services have been increasingly incorporated into the new co-operative forms.... More specifically, it is the widening of the traditionally homogeneous social structure (single stakeholder model), that is responsible for both the gradual fading of the mutualistic purpose and the enhancing of the selfhelp dimension embracing the community as a whole (multi-stakeholder model). Considering more generally the evolution of organisations pursuing goals other than profit (the so called “third sector”) as a whole, particular emphasis is put on the convergence of the organisational forms, specifically the associative and cooperative. While the associative form has become more productive, the cooperative form has gradually reduced its traditional goal of mutuality”. (Borzaga and Spear, 2004, p. 5) The authors noted the extremely different situations in developed and transition economies. In developed economies, a number of features are covered by new cooperative organisations, such as multi-stakeholder governance and the pursuit of an explicit social aim. Notwithstanding the differences in context, the trend towards communitarianism among cooperatives as social enterprises has many implications for practitioners and researchers. Foremost of these is the need to rethink the concept of democracy towards establishing new modes of stakeholder participation, new ways of harmonizing different interests in the community, and new ways to keep the balance between productive and social aims. As explained by the authors: “The community interest needs to be harnessed into the governance structures. The concept of democracy, as traditionally understood by the co-operative tradition, has to be rethought in consideration of co-operatives’ broadening social commitment. Workable mechanisms of interest harmonization, aimed at motivating the different partners and contributories to work together for the common goal, are required. Moreover, new ways aimed at keeping the difficult balance between productive and social aims have to be specified and new social accounting and reporting tools have to be developed”. (Borzaga and Spear, 2004, pp. 11 – 14) Scholars of the social economy school, notably Laville (2010) are critical of locating social enterprises in the market economy, emphasizing that cooperatives, mutual insurance schemes and social protection by public rules are not governed by market 32 principles. Building on the earlier works of Polanyi (1977) and citing Mauss (1997), Laville advanced the concept of a plural economy where the principles of reciprocity (voluntary collective actions of citizens) and redistribution (state efforts to redress inequalities) co-exist with market principles. The earliest literature on social entrepreneurship in the Asian region appeared in the Philippines in 1994. A group of professors and researchers from the Asian Institute of Management (AIM) authored a book, mainly drawing from case research in the Philippines and India, entitled Social Entrepreneurship and Enterprise Development (Morato, 1994). The book contains readings and cases that showed how business tools might be applied to effectively and efficiently manage social enterprises. Morato (1994) articulated: “The social enterprise exists for a community of worker-owners who seek to jointly improve their lot through collaborative, cooperative and prosperitycreating and prosperity-sharing mechanisms…. Some examples of social enterprises are cooperatives, livelihood associations and corporatives, a term…. to describe corporations that operate like cooperatives”. (Morato, 1994, p. 2) Several years later from 2002-2004 a collaborative research, covering the Philippines, Indonesia, Thailand and India and involving faculty from the Asian Institute of Management (AIM) and practitioners in the Conference of Asian Foundations and Organizations (CAFO), defined social enterprises as wealth-creating organizations that serve the poor and marginalized sectors as primary stakeholders, adhere to at least a double bottom line (social and financial) and have a distributive enterprise philosophy. This definition of social enterprises is linked to social entrepreneurship as a process of creating spaces and transforming markets to serve the goal of poverty reduction and sustainable development. This tradition continues to be pursued by Asian scholars and practitioners, and was the inspiration behind the setting up of the Institute for Social Entrepreneurship in Asia (ISEA) based in the Philippines in 2008 (Dacanay, 2004; 2009b). Some scholars have appreciated this perspective of social enterprise and social entrepreneurship as context-specific to Asia (Robinson, Mair and Hockerts, 2009), a region where poverty and social inequity are stark realities. Robinson, et al., (2009) have noted that context matters in social entrepreneurship research, citing how the phenomenon has unfolded in different ways outside of Europe and the United States, not only in Asia but also in Latin America and the Middle East. Regional and sub-regional conferences and dialogues on social entrepreneurship involving scholars, practitioners, and resource institutions have been held in Asia since 2005. Some of these notable initiatives include the Asian Social Entrepreneurship Forum held in Taiwan (2005), the International Workshop on Social Entrepreneurship in Asia held in the Philippines (2006), the Asian Social 33 Entrepreneurs Summit held in South Korea (2008), the Global Social Venture Research Conference in China (2009) and the International Conference on Social Enterprises in Eastern Asia: Dynamics and Variations held in Taiwan (2010). Overall, these conferences provided arenas for sharing of perspectives and experiences among practitioners and scholars across developed, transition and developing country contexts in Asia. In developed country contexts, the most dominant and visible forms of social enterprises studied have been work integration social enterprises. These were noted in Hong Kong (Chan, 2008; Chan and Sit, 2009; Po-ying & Kitajima, 2010); Taiwan (Kuan and Wang, 2009); South Korea (Bidet, 2009; Work Together Foundation, 2008); Singapore (Teo, 2008) and Japan (Sakurai, 2010). Legislation, government programs and subsidies have driven the growth of work integration social enterprises in Hong Kong, Taiwan and South Korea. In developing countries, notably the Philippines, Thailand, Indonesia and India, four types of strategies were noted among social enterprises that served the poor or marginalized as primary stakeholders: intermediation strategies that provided the poor access to markets, technologies and financial services; empowerment strategies that enabled the poor to reap maximum benefits from owning and controlling the social enterprise; social inclusion strategies that assisted disadvantaged groups with access to employment and/or basic social services; and resource mobilization strategies where non-profit organizations ventured into market-based earned income strategies to support their development programs (Dacanay, 2004; 2009b). In some countries such as Bangladesh and the Philippines, practitioners and scholars have advanced the concept of ‘social business enterprise’. Yunus (2007) drew from his successful experience of developing and scaling up the Grameen Bank in Bangladesh to conceive of such. He defined a social business enterprise, as a new type of business that pursues goals other than making personal profit – a business that is totally dedicated to solving social and environmental problems. A social business has to recover its full costs while achieving its social objective. Sebastian (2010) drew from five Philippine cases to define the challenges faced by social business enterprises: maintaining the enterprise’s social mission as the next generation of entrepreneurs takes over; assessing and measuring social impact; risk management given the vulnerabilities of the poor; and engaging the business sector and government to build meaningful partnerships. In China, Yu and Zhang (2009) identified interrelated forces contributing to the rise of social enterprises. During the market transition, the state’s efforts to privatize public services; the civil society or third sector’s endeavors to overcome their fiscal crisis; and the private sector’s growing interest in corporate social responsibility have interacted with the legacy from the country’s socialist tradition. In this context, they noted that efficiency-centered market competition was aligned with justice-oriented social redistribution and reproduction. However, the regulatory framework and 34 institutional context for social enterprises is not well defined in China. Organizationally, social enterprises are of 3 types – nonprofit organizations with legal status; for profit and non-profit hybrids; and a third category that have no clear status. In terms of operations, there are 4 categories: provision of services for a fee; manufacture and trading of goods; service contracting by the state; and internal profits allocation. The social mission is wide ranging, and includes provision of specialized social services, poverty alleviation and rural development, education and employment promotion. Challenges faced are the lack of an enabling and supportive environment including access to funding, the lack of a democratic governance structure and achievement of financial sustainability. Fan and Tse (2010) characterized social entrepreneurs from various sectors as important actors in undertaking innovative and sustainable solutions to the social and environmental problems in China’s transition. Amidst a weak civil society or third sector, social entrepreneurs are seen as catalysts’ in an emerging movement towards the elimination or mitigation of inequality, as China adopts market principles. Despite having been a topic of academic inquiry for almost 20 years, social entrepreneurship has been characterized as being in an embryonic stage by Short, Moss and Lumpkin (2009). In their review of literature, these scholars found that conceptual articles outnumber empirical studies, and empirical efforts often lacked formal hypotheses and rigorous methods. Scholars studying social entrepreneurship are interested “to move the conversation beyond the discussion of definitions toward a discussion of constructs, concepts, frameworks and theories” (Robinson, Mair and Hockerts, 2009, p. 3). In the process of theory building, one can use existing theory to explain the phenomenon of creating and sustaining social enterprises, or consider how the phenomenon brings to light practices, themes and concepts where existing theories do not explain what we see on the ground (Robinson, 2006). An increasing number of scholars in social entrepreneurship have entered this theory building mode. Robinson, Mair and Hockerts (2009) described notable social entrepreneurship research that utilized existing theory focused on identifying actors and measuring performance and sustainability of social entrepreneurial ventures using social-psychology, institutional theory and sociology (Simms and Robinson, 2009; Nicholls, 2009; Sharir et al., 2009). Beyond applying existing theory, a few scholars have explored the extension of existing theories in their study of social entrepreneurship. Noteworthy examples are Mair and Marti’s (2009) exploration of the concept of institutional voids as an extension of institutional theory; the study of Krueger et al., (2009) on how social dimensions of opportunities could enrich literature on entrepreneurial intentions and entrepreneurship and Haugh’s (2009) exploration into new dimensions offered by social enterprise cases to the resourcebased view of the firm. 35 One way of describing this research project therefore is, as an effort to contribute to theory building in this evolving field of social entrepreneurship. It utilizes what may be relevant and applicable from the three aforementioned schools of thought in social entrepreneurship and builds on the research that has been done on the subject in Asia. Of particular interest is exploring how the experience of social enterprises may be explained by and may enrich stakeholder theory. 1.3. Stakeholder Theory Stakeholder theory has its origins in management literature of the 1960s at the Stanford Research Institute (SRI). ‘Stakeholder’ was defined as ‘those groups without whose support the organization would cease to exist’. The list of stakeholders originally included shareowners, employees, customers, suppliers, lenders, and society. From the 1960s, the stakeholder concept was further evolved in strategy literature by the work of Russell Ackoff, C., West Churchman, and other systems theorists; the literature on corporate social responsibility; and the work of Eric Rhenman and other organization theorists (Freeman, et al., 2010, pp. 30-31). In 1984, Freeman’s landmark book, ‘Strategic Management: A Stakeholder Approach’ defined stakeholders as “any group or individual that can affect or is affected by the achievement of the corporation’s purpose” or more generally “the organization’s objectives” (Freeman, 1984, p. vi and 46). In conceiving a stakeholder approach, Freeman provided a conceptual map for corporations to interpret the changes that had occurred in their external environment so that “… managers can begin to respond in a more effective way to the demands that these changes have wrought”. He specified “… the emergence of the consumer, environmental and other activist groups; an increase in the scope of government; a global marketplace and the resulting strength of foreign competitors; an increasingly hostile media; and a general decline in the level of confidence which members of our society place in the business corporation and its managers” as part of the turbulent environment needing to be strategically managed for corporate survival (Freeman, 1994, p. 246-247). He held the view that enterprise level strategy should answer the question “what do we stand for?”, and involve tradeoffs about the relative importance of stakeholder concerns, values and social issues. Freeman argued that organizations that do not have an appropriate enterprise strategy over time are not socially viable and experience a great deal of internal and external stress. In this context, he defined a typology of enterprise strategy: specific stakeholder strategy; stockholder strategy; utilitarian strategy; Rawlsian strategy; and social harmony strategy (Freeman, 1984, p. 101). Since Freeman, many articles and books on the stakeholder concept have been published. A number of scholars have done reviews of stakeholder literature and have defined various ways of understanding stakeholder theory. Donaldson and Preston 36 (1995) defined three aspects of stakeholder theory: descriptive; instrumental; and normative. The descriptive aspect reflects and explains past, present and future states of affairs of corporations and their stakeholders. The instrumental aspect makes a connection between stakeholder approaches and commonly desired objectives such as profitability. The normative aspect interprets the functions of the corporation, including the identification of moral or philosophical guidelines for the operation and management of corporations. Donaldson and Preston (1995) argued that stakeholder theory is ‘managerial’ and recommends the attitudes, structures and practices that, taken together, constitute a stakeholder management philosophy with its ultimate justification found in its normative base (Donaldson and Preston, 1995). Jones and Wicks (1999) described two divergent approaches to the stakeholder theory – a social science approach and a normative ethics approach, and proposed a convergent approach to stakeholder theory development. These scholars argued for stakeholder theory to have a well-defended normative core and supporting instrumental arguments to demonstrate its practicability. They proposed that the normative core be about morally desirable relationships characterized by mutual trust and cooperation (Jones and Wicks, 1999). Pragmatic philosophy has been offered by Buchholz and Rosenthal (2005) as a way of providing the theoretical basis for a relational understanding of the firm and its stakeholders. They argue that the corporation is not isolatable from its stakeholders but is in fact constituted by the multiple relationships in which it is embedded and which give it its being. The major function of the corporation is therefore the enrichment of these multiple relationships (Buchholz and Rosenthal, 2005). The connection of stakeholder theory with strategic management had been made by many scholars with a number of them providing stakeholder-based strategic management tools. Freeman (1984) introduced a model of strategic management that dealt with an evaluation of stakeholders; managing stakeholders to achieve organizational objectives; and measurement of stakeholder satisfaction with organizational outcomes. This stakeholder approach to strategic management was further developed by Harrison and St. John (1994, 1998). They introduced the stakeholder approach as an overarching framework within which traditional approaches such as industrial organization economics and the resource-based view operated as strategic tools. These scholars divided the stakeholder environment into three regions: the broad environment; the operating environment; and the internal organization. The broad environment (society, technology, economy and political/legal) forms the context in which the firm and its operating environment exist. The operating environment consists of external stakeholders that influence the firm and over which the firm has some influence. The internal organization is made up of stakeholders with formal ties to the firm. This is shown in Figure 1.1. 37 Figure 1.1. The organization and its primary stakeholders. Source: J.S. Harrison and C.H. St. John (1998). Strategic Management of Organizations and Stakeholders: Concepts and Cases. 2nd edn. Cincinnati, OH: Southwestern College Publishing. p. 8. The model of Harrison and St. John considered the resource-based view as a tool to help managers determine how internal stakeholders may be used to create competitive advantage. Porter’s (1985) five forces are integrated into an analysis of external stakeholders, and traditional economic approaches are used to analyze the remote environment (Harrison and St. John, 1994; 1998). Freeman, et al., (2007; 2010) later clarified the basic idea of managing stakeholders as essentially one of creating value for them. Business is understood as a set of relationships among groups that have a stake in the activities that make up the business. They defined “primary or definitional stakeholders” as part of an inner circle composed of financiers, customers, suppliers, employees and communities. They are “those groups without whose support the business would cease to be viable”. Those who affect primary stakeholders, the special interest groups, consumer advocate groups, competitors, government and media, comprise the “secondary or instrumental stakeholders” (Freeman et al., 2010. pp. 25-26). Another group of scholars later defined three broad categories of stakeholders, which were similar to Harrison and St. John’s (1994; 1998) three regions of the stakeholder environment: the resource base; industry structure; and social-political. Each group is characterized as being situated in a set of concentric circles with those belonging to the resource base closest and those belonging to the socio-political the most distant (Post et al., 2002a; 2002b). This is shown in Figure 1.2. Global Economic Forces Global Politics/Legal Forces Sociocultural Forces The Operating Environment Technological Change The Broad Environment Competitors Customers Government agencies and administrators Activist Groups Local Communities Financial Intermediaries Supplier Unions The Organization Owners/board of directors Managers Employees 44 revealed gaps between well-intentioned fair trade policies and the actual experiences of their intended beneficiaries. Jeppesen and Lund-Thomsen (2010. p. 140) studied the “tension that exists between pressures to adopt Western-style CSR initiatives in Africa, Asia and Latin America and the search for locally appropriate solutions to these pressures”. To create greater chances for CSR to deliver impact on its intended beneficiaries in the developing world, they advocate democratizing CSR. For practitioners, this means instituting measures for greater accountability and giving the intended beneficiaries such as local firms, farmers and workers a bigger say in formulating and executing CSR policies affecting their operations and lives. For researchers, they assert the need to take a bottom-up approach by putting local firms, farmers, workers and communities at the center of future analyses of CSR interventions in the developing world (Jeppesen and Lund-Thomsen, 2010). This thesis explores how social enterprises are serving the poor and addressing poverty in the developing world from the perspective of key actors, especially the poor. By giving attention to the voices of the poor as key actors, this thesis hopes to contribute to enriching the evolving BOP discourse and the broader debate on business and poverty reduction. Social enterprises serving the poor as primary stakeholders (SEPPS) that could be shown to have meaningful contribution to poverty reduction may provide new vistas and benchmarks for BOP enterprises. SEPPS may also be seen as local actors that could potentially interface with both local and multinational companies in search of innovative ways of pursuing CSR in the developing world. In this context, this study on SEPPS may be seen as an indirect contribution to the literature on critical perspectives on CSR and BOP enterprises in developing countries. 45 CHAPTER 2 – RESEARCH FRAMEWORK AND METHODOLOGY This thesis develops a framework for understanding how social enterprises serve the poor and address poverty. It sheds light on the effects that social enterprises have on poverty in a developing country context, from the perspective of the poor as stakeholders. 2.1. Theory Building on Social Enterprises Engaging the Poor as Stakeholders From Chapter 1, poverty has been identified as one of the most pressing social problems in the 21st century. Governments and practitioners have recognized the importance of the business sector and civil society (or the third sector) in contributing to poverty eradication (UNDP, 2000; Bissio, 2003). Whether seen from the perspective of being part of the third sector (Spear, et al., 2010), in the intersection of the public, private and civil society sectors (Hulgaard, 2008), or creating new business models involving corporations and civil society (Seelos and Mair, 2005), social enterprises have been recognized as important actors in serving the poor and making an impact on the alleviation of poverty in the poorest countries (Seelos et al., 2006). In this context, the relevance of this research in the real world is in providing policy makers and practitioners a better understanding of the strengths and limitations of the various ways in which social enterprises engage the poor as stakeholders. The researcher has been engaged in action research on this theme in the Philippines and other developing countries in Asia for a number of years (Dacanay, 2004; 2009). In this regard, she saw the thesis as an opportunity to build on the results of her action research and contribute to theory building in the evolving field of social entrepreneurship. The importance of social entrepreneurship theory building in general, and theory building on her area of inquiry (i.e. how social enterprises serve the poor as stakeholders in a developing country context) as a research gap was validated by her review of literature, as discussed in Chapter 1: x Based on a scanning of social entrepreneurship literature in major academic journals, social entrepreneurship as a topic of academic inquiry over the past 20 years has been characterized as being in an embryonic stage, needing more empirical studies with formal hypotheses and rigorous methods (Short, et al., 2009); 46 x Synthesizing their scanning of the state of social entrepreneurship research at the international level, Robinson, Mair and Hockerts (2009, p. 3) have pointed to the need to move social entrepreneurship discourse to a “discussion of constructs, concepts, frameworks and theories”; x Social entrepreneurship discourse is currently dominated by European and American schools of thought emanating from developed country contexts (Dees and Anderson, 2006; Defourny and Nyssens, 2008 and 2010) and could benefit from perspectives from a developing country context; x Major cross country research scanning work integration social enterprises and studying trends and challenges faced by cooperatives as social enterprises have mainly covered experiences in developed and transition country contexts in Europe and Canada (Borzaga and Spear, 2004; Davister et al., 2004, Spear and Bidet, 2005); x As detailed in Chapter 1, there are an increasing number of scholars who have engaged in theory building research. However, social entrepreneurship theory building research dealing with stakeholders is focused on social enterprise governance and multi-stakeholder governance systems (Spear, et al., 2010; Vidal, 2010). While they refer to stakeholder theory, they are not focused on applying or extending stakeholder theory; and x A significant percentage of social entrepreneurship literature in Asia has been on the rise of work integration social enterprises in developed country contexts (Chan, 2008; Chan and Sit, 2009; Po-ying, & Kitajima, 2010; Kuan and Wang, 2009; Bidet, 2009; Teo, 2008; Sakurai, 2010). There is also literature evolving that provides frameworks for understanding the rise of social enterprises in developing (Dacanay, 2004; 2009) and transition countries (Yu and Zhang, 2009). On the whole, however, social entrepreneurship theory building research has not really taken off in Asia. The researcher’s review of social entrepreneurship literature clearly validated the relevance of pursuing theory building research focused on how social enterprises serve the poor as stakeholders in a developing country context. However, it does not adequately provide the basis of whether the way to go is theory building rather than theory testing. Applying what Eisenhardt and Graebner (2007) proposed as a sound basis for justifying theory building, the question the researcher needed to answer was, does existing theory provide feasible answers? Based on the researcher’s review of literature on stakeholder theory discussed in Chapter 1, there are four major reasons why theory building is the more appropriate option: 47 x Much of stakeholder theory is based on corporate experience. Stakeholder literature outside the corporate context, in the non-profit and public sectors, mainly discuss perspectives on the usefulness of stakeholder theory and provide empirical tools for stakeholder analysis, management and engagement (Freeman, et al., 2010); x Stakeholder theory scholars have pointed out that stakeholder engagement is an under-theorized area of research (Greenwood, 2007; Sloan, 2009; Freeman et al., 2010). Stakeholder engagement is broadly defined as the process of involving individuals and groups that affect or are affected by the activities of the firm. Answering how social enterprises serve the poor as stakeholders is within the purview of stakeholder engagement; x In assessing the state of the art of stakeholder theory, Freeman, et al., (2010) have called for a “richer description” of stakeholder engagement strategies or models, a “redescription” of organizations other than corporations in stakeholder terms and “relating descriptions” or contributing to the conception of stakeholder theory for different types of organizations (Freeman, et al., 2010. p. 286). x Social entrepreneurship scholars from the social economy school are engaged in research on social enterprises as multi-stakeholder organizations that foster democracy and participation among various stakeholder groups (Defourny, 2001; Borzaga and Spear, 2004; Spear and Bidet, 2005; Davister et al., 2004; Defourny and Nyssens, 2008; Spear et al., 2010; Vidal, 2010). Such may be broadly appreciated as exploring stakeholder engagement models beyond the corporate context. However, much of their empirical studies have focused on social enterprises in developed and transition countries. These observations from the researcher’s review of literature on stakeholder theory completes the justification for theory building - that there is a strong basis for contributing to the development of a stakeholder theory for social enterprises in general, and to the development of a theory on stakeholder engagement among social enterprises that serve the poor in a Southern country context in particular. Interestingly, Paton and Halme (2007) have also noted that theories on how business address the needs of the poor treat the poor “like movie extras” and would benefit from contributions that shed light on the “effects of the businesses from the perspective of the poor and their unmet needs”. This weakness opens the possibility for this thesis to also contribute, though indirectly, to the discourse on business and poverty. Having explained the basis for a theory building research on how social enterprises serve the poor as stakeholders in a developing country context, the next sections clarify the research questions, the research setting, and the chosen 48 methodology of case-based theory building (Eisenhardt, 1989; Eisenhardt and Graebner, 2007). 2.2. Definition of the Research Question Towards building theory on how social enterprises serve the poor as stakeholders in a developing country context, the researcher pursued the following research question: In those cases where social enterprises serve the poor as stakeholders in a developing country context, how have they engaged the poor, and why have they been effective in terms of their impact? To answer these questions, the researcher tracked the roles and role changes among the poor in the social enterprises studied to serve as indicators of the way the poor were involved or engaged as stakeholders of the social enterprise over time. Studying why and how their roles changed over time gave indications about the elements or dimensions that mattered in bringing about role changes. Studying how these elements or dimensions relate to impact on the poor in turn indicated patterns of effective or ineffective ways that social enterprises engaged the poor and addressed poverty. In terms of process, the general theme of how social enterprises serve the poor as stakeholders was clear from the start but the research questions evolved over time. As the researcher was undertaking field research on the first case, which as would be explained later became the centerpiece case, the research question took the following more operational forms: What roles do the poor play as stakeholders in social enterprises? Do these roles change over time? How and why do they change? What impact do these role changes have on the poor, the social enterprise and poverty? The formulation of the research question was further refined during the theory building and monograph writing phase. This was in response to the need to better align the research question with the theory building goal. 2.3. Overall Methodology The researcher decided to pursue case-based theory building (Eisenhardt, 1989; Eisenhardt and Graebner, 2007) as the methodology. Given that the broad theme was how social enterprises serve the poor as stakeholders in a developing country context, 49 an unexplored area of research – the strategy of building theory from multiple cases was deemed the most suitable. The researcher chose multiple cases rather than a single case to enable comparisons towards yielding a relatively more robust and testable theory (Yin, 1994; Eisenhardt and Graebner, 2007). Multiple cases were to serve as replications, contrasts and extensions of the emerging theory (Yin, 1994). Theoretical sampling, or choosing the cases for theoretical, not statistical reasons (Glaser and Strauss, 1967), was central to the chosen methodology. In designing the theoretical sample, the researcher decided to define theoretical categories (Eisenhardt, 1989) based on the usual roles enacted by the poor in social enterprises: the poor as workers, the poor as clients, the poor as suppliers, and the poor as owners. On application of the categories, it became evident that the poor as owners tended not to be a distinct category but cut across categories. Therefore, three categories (poor as worker, poor as client, and poor as supplier) were chosen for this research with the provision that about 50% of the theoretical sample should also represent the poor as owners. A matched pair for each of the categories of social enterprises (Hockerts, 2006b) was deemed a reasonable number within the timeframe of the thesis. 2.4. Research Setting The research setting was the Philippines, providing the developing country context that was required to answer the research question. Like other developing countries in Asia, the Philippines manifests the phenomenon of worsening poverty despite economic growth. Data from the National Statistics Office (NSO) and the National Statistical Coordination Board (NSCB) show that from a baseline of 45.3% (28.1 million people) in 1991, poverty incidence in the country, measured in terms of income poverty, stopped declining at 30% in 2003 and from that point on proceeded to rise steadily up to 32.9% (27.6 million people) in 2006. Considering the impacts of the global crisis in 2008-2009 and the natural disasters of 2009, the poverty situation could only have gotten worse (Serrano, 2010). When the Philippines registered worsening poverty in 2006, Forbes magazine listed 3 Filipinos in its annual list of billionaires with their net worth ranging from US$ 2.3-2.6 billion each (Kroll, 2006). The 2008 National Nutrition Survey (NNS) revealed that 3 out of 10 children were undernourished, with the percentage of underweight children less than 5 years of age comparable to the United Nations Children Fund’s (UNICEF’s) 2006 estimates for Sub-Saharan Africa. Between 1980 and 2010, the Philippines’ Human Development Index (HDI) rose by 0.7% annually from 0.523 to 0.638, which gives the country a rank of 97 out of 169 countries with comparable data. This places the country in the medium human development category. The HDI of East Asia and the Pacific as a region increased 50 from 0.391 in 1980 to 0.650 in 2010, placing the Philippines below the regional average. Not only has the Philippines been lagging behind its neighbors in terms of human development, it may just mean there have been more countries that have been worse off. While its GDP per capita was US$ 3,600 in 2010, Philippine indicators for education and health were not encouraging. Public health spending was placed at 1.3% of GDP, which was very low compared to the 5% World Health Organization recommendation. On average, there were 32 children who died before age 5 per 1,000 live births. Public spending on education was 2.6% of GDP. About 80% of the population has had some form of schooling. The average number of years of adult enrollment was 8.7 in contrast to 11 years of expected schooling. Only 62 per 1,000 people had access to the Internet (UNDP, 2010).8 In terms of the Basic Capability Index (BCI), the Philippines scored 77 out of a perfect score of 100, belonging to the group of countries with a very low BCI category. These countries were characterized as having a very low level of achievement in terms of meeting the basic needs and facing very significant obstacles in achieving the well being of their population (Social Watch, 2008). Despite the trend towards urbanization, poverty in the Philippines is still largely a rural phenomenon. In 2006, 75% of the poor were still found in the rural areas, up from 71% in 1991 (Balisacan et al., 2008). The poor are the landless, homeless, jobless, underemployed, uneducated, sick, malnourished, discriminated Filipinos. Many of them are women, Muslims, Indigenous Peoples, and tribal Filipinos (Serrano, 2010). A 2005 study commissioned by the Asian Development Bank on Poverty in the Philippines: Income, Assets and Access detailed how poverty in the country was a deprivation of and lack of access to essential assets falling under the categories of human capital, physical capital, natural capital, financial capital, and social capital. The same study identified seven factors that were seen to be direct causes of poverty (Schelzig, 2005): x Macroeconomic policies that have resulted to economic growth but have not reduced poverty; x Unemployment and underemployment especially in agriculture, forestry and fishery; x Unchecked population growth; x Structural issues in the agricultural sector including a problematic agrarian reform program and ineffective policy and service support to small farmers; x Governance concerns including corruption and an ineffective state that is unable to deliver basic services; 8See http://hdr.undp.org/en/statistics/data/ for details on the 2010 Human Development Report 51 x Armed conflict especially in the poorest areas of Muslim Mindanao; and x Disability caused by malnutrition, unsanitary living conditions, accidents and injuries, with most persons with disabilities living in poverty. A fundamental cause of rural poverty in the Philippines is the distribution of land (World Bank, 1988; Balisacan and Pernia, 2002). Land reform, the main asset reform program of government, remains a major bottleneck with a large amount of land (1.4 million hectares) left that still needed to be distributed by the end of the government’s Comprehensive Agrarian Reform Program (CARP) in 2008. Despite CARP being adopted by various Philippine administrations, not much has been achieved. Bello et al., (2004) have assailed CARP as having failed to change the feudal landscape and to address the roots of land concentration in the hands of a few rural and urban elites. CARP has suffered from problems such as lack of funds, opposition from a landlorddominated Congress, lackluster performance by the Department of Agrarian Reform (DAR), intense resistance from landlords, and legal hurdles (Schelzig, 2005). The Philippine state’s failure to address poverty has created a robust civil society sector engaged in development work and advocacy over the years (Serrano, 2010). Within the business sector, most corporations and small and medium enterprises continue to do business as usual even as a growing number have started to practice various forms of corporate social responsibility. However, the dominant orientation of corporate social responsibility practice in the Philippines, especially among business firms in the agricultural sector, remains at the level of charity and public relations, rather than the integration of social objectives into company philosophy and strategy (Dacanay and Roy, 2007). In this context, social enterprises that have been set up to serve the poor have become important actors in poverty reduction and sustainable development. 2.5. Defining SEPPS as Target Population The following working definition of social enterprises with the poor as primary stakeholders or SEPPS was used by this research in the beginning: ‘SEPPS are social mission driven wealth creating organizations that have at least a double bottom line (social and financial), explicitly have as principal objective poverty reduction/ alleviation or improving the quality of life of specific segments of the poor, and have a distributive enterprise philosophy’. This definition was adapted from the results of the author’s earlier action research on social enterprises in Asia (Dacanay, 2004; 2009). Defining this specific type of social enterprise (SEPPS) as population is a refinement from the researcher’s earlier 52 research, where social enterprises in general was deemed the population (Dacanay, 2004; 2009). Conceiving of SEPPS as a specific type of social enterprise to serve as target population for this study overcomes the difficulty of unintentionally excluding within the social entrepreneurship (SE) domain, social enterprises that may not necessarily serve the poor as primary stakeholders. For example, some scholars, notably Hockerts (2006) have pointed to the importance of including initiatives in the realm of sustainability and ecological entrepreneurship as topics within the SE domain. More importantly, conceiving of SEPPS as a specific type of social enterprise serving as population for this research better clarifies the domain of the findings (Eisenhardt, 1989). There are three aspects to the working definition of SEPPS as target population: Firstly, SEPPS are social mission driven organizations explicitly pursuing poverty reduction/alleviation or improving the quality of life of specific segments of the poor as primary objective. This social dimension is a tradition that SEPPS shares with third sector or civil society organizations. They are engaged not only as workers, clients or suppliers, but more importantly as partners in their own poverty reduction. In the thesis, this dimension was demonstrated to mean engaging the poor as transactional and transformational partners: as transactional partners, they are engaged to participate in social enterprise and value chain management; as transformational partners, they are engaged to effectively participate in social enterprise governance and to enact roles as change agents in their community, sector or society as a whole. Secondly, SEPPS are wealth-creating organizations that have at least a double bottom line (social and financial). Just like business or private enterprises, and unlike the traditional non-profit organizations that are dependent on grants or public subsidies - or wealth created somewhere else - SEPPS are engaged in the production/provision and sale of goods and services. However, unlike business or private enterprises that principally produce/provide and sell goods and services to create profit for shareholders, SEPPS do so with the objective of financial sustainability. They create wealth to partially or fully cover their operations and to invest in other activities related to their social mission. Their financial bottom line plays a supportive role to their social bottom line of poverty reduction/alleviation or improving the quality of life of specific segments of the poor. Thirdly, SEPPS have a distributive enterprise philosophy. Unlike in a business or private enterprise where payments or wages made to the poor are considered as financial costs to be minimized, these are considered as social benefits for primary stakeholders that need to be optimized. Moreover, the distributive philosophy is expressed in the surplus or profits accruing to the poor as dividends as well as being reinvested back to the enterprise to sustain the fulfillment of its social mission or in activities that benefit and assist the poor in overcoming poverty or improving their 53 quality of life. In the thesis, this dimension was elaborated to mean the provision by the social enterprise of transactional and transformational services for the poor to overcome poverty and capability deprivation. This is directly related to the first element in the definition, as it is the combination of transactional and transformational services provided by SEPPS that enable the poor to participate in social enterprise management, governance as well as community, sectoral and societal change. The aforementioned definition of SEPPS adopted by this research may be considered a ‘strong’ definition relative to what may be considered a ‘weak’ definition from the perspective of Freeman et al., (2007; 2010). Using Donaldson and Preston’s (1995) aspects of stakeholder theory, the ‘weak’ definition of SEPPS considers the poor as primary stakeholders from a descriptive and instrumental perspective. As primary stakeholders, they are part of an inner circle of “groups without whose support the business would cease to be viable” (Freeman et al., 2010. pp. 25-26). This perspective is shared by many other scholars of stakeholder theory (Carrol, 1993; Clarkson, 1998; Gibson, 2000). The strong definition adopted by this research on the other hand has a normative perspective (Donaldson and Preston, 1995) of the poor as primary stakeholders in an enterprise principally governed by its social bottom line and distributive philosophy. This research enhanced this strong definition and normative perspective by clarifying that SEPPS are responses to pervasive state and market failures to serve the needs of the poor in developing country contexts. As such, SEPPS provide a combination of services (transactional and transformational) aimed at assisting the poor overcome capability deprivation to enact both transactional and transformational roles. On one hand, the poor are assisted to enact transactional roles as workers, suppliers and clients, as well as partners in social enterprise or value chain management. On the other hand, the poor are assisted to enact transformational roles as full fledged owners of social enterprises and as organized partners practicing democracy not only in social enterprise governance but also in the pursuit of community, sectoral, and societal transformation. These enhancements in appreciating the context and elements that define SEPPS are the subject of discussion in the cross case analysis, propositions and conclusions (Chapters 9-11) of the thesis. 2.6. Rapid Appraisal of Significant Segments of SEPPS in the Philippines The target population is Philippine social enterprises with the poor as primary stakeholders or SEPPS. These social enterprises should have existed for at least 5 years, preferably longer, to allow studying possible changes in the way these social 60 The relationship between organizational complexity and the nature of stakeholder engagement among the poor was explored during the analysis phase and became the subject of one of the propositions (Proposition 6) and conclusions. 2.10. Methods of Data Collection and Analysis After the matched pairs of SEPPS were chosen, the researcher designed a set of guidelines for field research defining the guide questions for field interviews and documents to be requested from the case subjects. This 2-page document entitled Guidelines for Field Research is attached in Appendix 12.2. A formal letter introducing the research, containing the aforementioned guidelines and a Memorandum of Understanding between the Case Subject and Researcher (attached as Appendix 12.3.) was then sent to the Chief Executive Officer (CEO) of each of the case subjects. Field research dates were set based on the mutual availability of the case subjects and the researcher. Follow-up research activities were undertaken as needed. As required, multiple data collection methods were used. Key informant interviews and focus group discussions (FGDs) together with a study of internal organizational documents and a review of previous studies on the case subjects was undertaken to gather data. Key informant interviews with a minimum of 10 to a maximum of 30 people were conducted for each of the cases. For all cases, these key informants included: x Top management (current and past); x Middle managers or senior staff; x Chair or representative from the Board of Directors or Trustees; x Representatives of key program and/or funding partners; x Purposively selected partners among poverty sectors served; and x Experts from the concerned subsector, sector or industry. A list of the key informants per case subject is contained in Appendix 12.6. Triangulation of perspectives among key informants and data sources was used to establish the reliability and validity of case study results (Yin, 2003). Case study notes were in the form of hand-written field notes, tape recorded interviews, and narratives written by the researcher on various aspects of the research. Case study drafts were written and submitted to the case subjects for data validation. A dialogue ensued between the case subjects and the researcher leading to the finalization of the case studies. In four of the cases, substantive dialogue ensued with some key informants based on their comments on the case study drafts. The dialogue, 61 taking off from the comments of some of the key informants, generally improved the quality of data contained in the final case study. In two of the cases, the changes introduced substantively altered the researcher’s analysis. However, in the other two, the changes introduced did not. This may be because the researcher had done research and consultancies with the latter two case subjects in the past and her familiarity with their external and internal environment facilitated a more accurate interpretation of the data. With the last two cases, no substantive dialogue ensued after the case study drafts were submitted to them for data validation. This may have been due in part to the unexpected departure of staff that had played key roles in facilitating the case research. The researcher notes this as a limitation that may or may not have affected the quality of the data on these cases. Notwithstanding such, the researcher believes the minimum data required for their inclusion in the thesis was met, and they still have valid contributions to the overall analysis. Within the theoretical sample, the first pair that was identified and studied was Alter Trade Group and Upland Marketing Foundation Inc. The panel of experts was interviewed in February 2008 and the field research for Alter Trade Group started shortly after. Field research for the Alter Trade Group was completed in January 2010, although follow-up interviews and email exchanges continued up to the time that the case study was finalized in May 2011. It was through studying the Alter Trade Group that the research question evolved from one that explored enterprise strategy content and strategy formation processes among social enterprises to finally focusing on stakeholder engagement strategies. It was for this reason that the level of case research done on Alter Trade Group was the most intensive. Alter Trade Group proved to be a very rich case as well in terms of content. This is because it is a story of distinct but interrelated cases on stakeholder engagement with two segments of the poor: one in relation to their experience with organic sugar farmers and the other in relation to their experience with Balangon banana growers. Given these reasons, the Alter Trade Group has been considered by the researcher as a centerpiece case for the thesis. As such, the chapter on Alter Trade has been deliberately given double the usual number of pages allotted for a case. The panels of experts for the other two pairs were convened and interviewed in July 2009 (for the cluster of social enterprises serving persons with disability or PWD SE cluster) and August 2009 (for the cooperatives in the VICTO National network). By then, refinements on the research questions had already been made, facilitating the conduct of more focused research activities. Field research was conducted for these two pairs of cases from November 2009-February 2010, although some follow up interviews were conducted after. In one of the cases, a research associate assisted the conduct of follow up interviews. From the database generated for each of the social enterprises in the theoretical sample, case descriptions were made with the aid of chronologies of the most 62 important events. Patterns and relationships were established with the help of tables and diagrams. The focus was to establish patterns and relationships about roles and changes in the roles enacted by the poor as primary stakeholders of the social enterprise, how and why these changed, and the impact of these role changes on the poor, poverty and the social enterprise. Using the inductive method, within-case and cross-case data analysis (Eisenhardt, 1989; Eisenhardt and Graebner, 2007) between each of the three pairs and across all six case subjects was done towards contributing to building a framework for understanding how social enterprises engage the poor and address poverty. 2.11. Mintzberg’s Theory of Strategy Formation as Major Analytical Tool To establish patterns within and between the social enterprise cases in terms of how they engaged the poor over time (what was later called primary stakeholder engagement strategies), Mintzberg’s (1978, 2007) theory of strategy formation was used by the author as a major analytical tool. Mintzberg (2007) defined strategy simply as ‘patterns in actions’ or consistency in behavior over time. He conceived of realized strategy as an interplay of deliberate and emergent, intended and unrealized strategies across the three organizational stages of initiation, development, and renewal. The initiation stage refers to the establishment years when vision is defined, learned or imported by the founders; the development stage refers to the period when the organization grows, experiments or pursues its vision programmatically; and the renewal stage refers to a period of change, oftentimes following a crisis. Deliberate strategies are planned strategies that are actually implemented while emergent strategies are not planned but arise spontaneously during the implementation phase. Intended strategies are planned strategies but during the implementation phase, they may or may not be implemented, in part or in full (Mintzberg, 2007). The interplay of deliberate, emergent, intended and unrealized stakeholder engagement strategies (illustrated in Figure 2.1.) across the organizational stages of initiation, development and renewal did not only prove useful in establishing patterns on how the social enterprises involved or engaged the poor over time, they also helped in exploring rival explanations (Yin, 2003) to answer how and why changes in stakeholder engagement strategies among the poor happened or did not happen. 63 Deliberate Stakeholder Engagement Strategy Process Unrealized Stakeholder Engagement Strategy Emergent Stakeholder Engagement Strategy Process Figure 2.1. Stakeholder Engagement Strategy Formation Process (Adapted by the author from Mintzberg, 2007) 2.12. Research Scope, Limitations and Ethical Considerations The researcher intends to make a contribution to developing a theory on social enterprises with the poor as primary stakeholders or SEPPS. She locates her theory building research within the realms of social entrepreneurship and stakeholder theory. In particular, she develops a framework for understanding stakeholder engagement strategies vis-à-vis the poor among SEPPS. The researcher notes that a future study exploring theories relevant to poverty reduction, development, empowerment and participation, would further ground the theory building presented here. The research is clearly focused on SEPPS and their stakeholder engagement strategies vis-à-vis the poor. In this context, she would only study the roles enacted by other stakeholders in so far as they help explain the hows and whys of the primary stakeholder engagement strategy. The researcher refers to the primary stakeholder engagement strategy as stakeholder engagement strategy because of the nature of SEPPS: they are social enterprises that engage the poor as primary stakeholders from a normative perspective (Donaldson and Preston, 1995). As was earlier discussed, the researcher does not intend to make a direct contribution to the discourse on business and poverty reduction in this thesis. The indirect contribution is alluded to given the expressed limitation of business theories in terms of their impact on the poor (Paton and Halme, 2007). The indirect contribution is also in reference to the potential for the thesis to provide perspectives on the interface between social entrepreneurship and corporate social responsibility. Such is explored in relation to the case of Upland Marketing Foundation, Inc. The researcher however notes the potential for her to do collaborative research with business and society scholars to pursue some of the themes relevant to business and poverty reduction generated by this research. Intended Stakeholder. Engagement .Strategy Realized Stakeholder Engagement Strategy 64 The researcher endeavored to keep to the rigour required by multiple case study research and case-based theory building given limitations of time and resources. She made a conscious decision to delimit her research on Upland Marketing, even as going in the direction of pursuing a case on the network of NGOs that set up Upland Marketing became an interesting option. She also made a conscious decision to delimit her comparative analysis of the qualitative impact of Alter Trade’s intervention within Negros Island, rather than including Alter Trade-banana’s impact outside of Negros Island. These were calculated decisions to manage the limitations of time and resources in completing the field research in both cases. These conscious delimitations were fully considered in the analytical section of the cases and in considering what the two cases could offer during the process of cross case analysis. The researcher endeavored to effectively manage the process of actively engaging the case subjects to provide as complete a set of data and perspectives as possible for the research. In managing the process, the researcher also endeavored to take full consideration of the ethical issues pertinent to undertaking a PhD dissertation. Many of these ethical issues arise from managing sensitive data gathered from organizations and respondents who may be vulnerable and unduly exposed to risks. The researcher took special note of not divulging data that were requested to be kept confidential. She endeavored to respect such without affecting the integrity of the within case and cross case analysis. Where the data was critical to the integrity of the case study, due care was made to protect the identity of the respondents. The case subjects were given an opportunity to review and give clearance to the case drafts for inclusion in the dissertation and publication. The case subjects were also made aware of the option of not using their real identity in the final case study chapter, if deemed necessary. All these were fully discussed and introduced in a Memorandum of Understanding (MOU) during the start of the research process. The MOU was meant to address these issues and to develop a mutual understanding of the requirements of what it meant to be a case subject. A sample of this MOU is contained in Appendix 12.3. The researcher established rapport by presenting the mutually beneficial objective of the research in contributing to the evolving body of knowledge on social entrepreneurship useful for education and training programs on social entrepreneurship and social enterprises. The Memorandum of Understanding also committed the researcher to do the following: x Give due care in handling internal data and reports that the case subject shares, and commit to respect the confidentiality of sensitive information and documents identified as such; x Get the clearance of the designated officer for all research outputs emanating from the research on the case subject to be included in the dissertation report and other publications; 65 x Allow the case subject use of any research findings and outputs for its internal and organizational purposes; x Give the case subject and key informants the option to be anonymous, or their identities confidential as may be agreed upon; and x Utilize the findings of the case research only for education, publication and other purposes consistent with the objectives of the research. The researcher endeavored to observe these commitments during the 4-year research process. In this sense, the research outputs are a negotiated outcome of the dialogue between the researcher and the case subjects, subject to these provisions. Even as she had a written, formal endorsement of the leadership of the social enterprises studied, the researcher was still dependent on the actual willingness and capacity of the key officers among the case subjects to prioritize accommodating her requests for follow-up interviews and additional data, given the other demands on their time. In this regard, the researcher points to the possibility that the richness of the analysis she generated on two of the cooperative cases (Lamac MPC and Cordova MPC) may have been affected by her inability to gather additional data and substantive feedback on the case study drafts she presented to them for validation. Notwithstanding this limitation, she still believes that the cases as written and analyzed present a partial but adequate reality of the experience of Lamac MPC and Cordova MPC, to merit inclusion in the thesis. The researcher has obtained clearances for inclusion in the thesis and the publication of outputs from designated representatives of the six case subjects. 2.13. Presentation of Research Results The results of this thesis are presented in the next two parts of this monograph. Part II, composed of Chapters 3-8 present the empirical cases in the following order: x Chapter 3 – Alter Trade Group: Enabling Suppliers as Transactional and Transformational Partners x Chapter 4 – Upland Marketing Foundation Inc: Suppliers as Transactional Partners in Value Chain Management x Chapter 5 – National Federation of Cooperatives of Persons with Disability: Enabling Owner-Workers as Transformational Partners x Chapter 6 – Tahanang Walang Hagdanan: Workers as Transactional Partners in Social Enterprise Management 66 x Chapter 7 – Lamac Multi Purpose Cooperative: Owner-Clients as Transactional Partners x Chapter 8 – Cordova Multi Purpose Cooperative: Owner-Clients as Transactional Partners Part III, composed of Chapters 9-11 contain the chapters on theory building and cover the following: x Chapter 9 – Cross Case Analysis: Social Enterprises with the Poor as Primary Stakeholders x Chapter 10 – Propositions and Contributions to Social Entrepreneurship and Stakeholder Theory x Chapter 11 – Conclusions 67 PART II – EMPIRICAL CASES 68 CHAPTER 3 – ALTER TRADE GROUP: ENABLING SUPPLIERS AS TRANSACTIONAL AND TRANSFORMATIONAL PARTNERS This chapter discusses how the Alter Trade Group, as SEPPS, pursued two different ways of engaging the poor, with dramatically different outcomes. On one hand, the case demonstrates a stakeholder engagement strategy of empowerment: the Alter Trade Group engaged assetless and powerless sugar plantation workers cum beneficiaries of the state’s land redistribution program, as transformational partners not only in the organic muscovado sugar value chain but in the broader social-political stakeholder environment. On the other hand, the case demonstrates a stakeholder engagement strategy of collaboration: the Alter Trade Group engaged upland farmers mainly as transactional partners within the Balangon banana value chain. The case shows that the qualitative difference in impact on the poverty situation of their partner producers could be attributed in a major way to their realized stakeholder engagement strategies. Through its organizational stages of initiation, development and renewal, enabling stakeholders and solidarity markets in Europe and Japan had provided comprehensive support, serving as countervailing forces to the failures of state and market institutions in the Alter Trade Group’s operating and broader social-political stakeholder environment. As a SEPPS entering its renewal stage, the Alter Trade Group is poised to bring the empowerment of their sugar partners to a higher level in partnership with the Negros Organic Fair Trade Association (NOFTA), an independent federation of these producers. NOFTA was serving not only as a vehicle for representing the voice and vote of the poor in Alter Trade’s multiorganizational social enterprise system, it also served as the poor’s vehicle for self-governance and empowerment beyond their primary cooperatives and associations. This narrative of the Alter Trade Group presents a case for developing a stakeholder theory for social enterprises with the poor as primary stakeholders or SEPPS. Current constructs from stakeholder theory, especially in the undertheorized area of stakeholder engagement emanating mainly from for profit literature could not adequately explain how the Alter Trade Group is engaging the poor and addressing poverty. This narrative also provides a Southern perspective to literature on social enterprises as multi-stakeholder organizations, where the poor are not only given a voice and vote, but are enabled to overcome their capability deprivation towards becoming empowered stakeholders in their own poverty reduction process and in contributing to community and societal transformation. 69 3.1. Introduction The Alter Trade Group (Alter Trade) began as an initiative between Filipino and Japanese social activists in the 1980s. It grew out of a ‘Trade not Aid’ or people-to- people trade concept amidst a sugar crisis that hit the Island of Negros in the central Philippines in the mid-1980s. Alter Trade’s main products were organic muscovado or unrefined brown sugar, and naturally grown native bananas of the Balangon variety. For the most part of their existence, they had exported these products to partners mainly in Japan and Europe. Alter Trade’s primary stakeholders were backyard producers of naturally grown Balangon bananas among indigenous and upland communities in various parts of the country, and former landless sugar plantation workers in Negros Occidental province. The latter were beneficiaries of the government’s land reform program and were assisted by Alter Trade to become farmer-partners producing organic sugar cane. Before Alter Trade’s intervention, muscovado sugar was no longer being produced in large quantities in the province, and Balangon bananas did not have commercial value in Negros Island or elsewhere in the country. In 1993, Alter Trade became a member of the International Federation of Alternative Trade (IFAT), now the World Fair Trade Organization (WFTO). These fair trade organizations (FTOs) provided marginalized producers sustained access to global markets. These FTOs also enabled the marginalized producers to be part of their own development. FTOs in the Philippines adhered to international Fair Trade Standards that had been codified into 76 indicators adapted to Philippine conditions (Advocate of Philippine Fair Trade, Inc. (APFTI), 2005). The standards included the provision of fair prices to producers, fair wages to workers, production pre-financing, prompt payment of deliveries, and an assurance of a long term relationship (Gomez, 2004). Among the 20 major fair trade organizations (FTOs) in the Philippines, Alter Trade Group was recognized by leaders of the Philippine fair trade movement as the biggest in terms of sales (reaching PhP 200.7 million in 2008) and outreach among poverty sectors served (820 sugar farmers and 3,493 banana growers as of end 2007). It was one of two Philippine FTOs carrying Fair Trade Labeling Organizations International (FLO)15 certification (Agustin, 2008; Lagazo, 2008; David, 2008). Alter Trade was also considered by the big players within the sugar industry as “the market leader in terms of volume and quality of product in the muscovado subsector” (Bennet, 2008). Department of Trade and Industry officials affirmed this: 15Fairtrade Labeling Organizations (FLO) International is a non-profit, multi-stakeholder association with 23 member organizations (Labeling Initiatives and Producer Networks), traders, and external experts. FLO develops and reviews fair trade standards and supports fair trade-certified producers by assisting them in gaining and maintaining fair trade certification and capitalizing on market opportunities. 76 The first four shipments of Balangon to Japan were a disaster as a majority of the fruits were already black when they reached the port of entry. Japan’s Quarantine Act required that bananas reaching Japanese ports were green. Ripe bananas were seen as carriers of harmful insects. It became obvious to Alter Trade and its Japanese partners that a complex system of cultivating, harvesting, washing, packing and shipping by a very capable and dedicated organization, needed to be put in place. Alter Trade and its Japanese partners made a commitment to develop a system to address these needs in cooperation with local grower communities. 3.2.1.3. Alter Trade Japan as Intermediary Organization In 1989, Alter Trade Japan (ATJ) was established to serve as the marketing arm of the people’s products from Negros in Japan, with Masahiko Hotta as President. Since then, the Balangon bananas and Mascobado from the Alter Trade Corporation that reached the Japanese cooperatives and consumers had all been coursed through ATJ. ATJ was also a shareholder of Alter Trade Corporation. 3.2.2. Fair Trade of Mascobado with Europe While muscovado did not have much appeal in the Japanese market, the European market proved promising. In 1987, OS3 was the first European company to import Mascobado from Negros, using it to manufacture “Mascao Chocolate”, a mixture with fair trade cocoa from Bolivia. Later in 1989, the European Fair Trade Association (EFTA), GEPA (a fair trade company in Germany), and OS3 (now Claro Fair Trade) formally introduced the idea of Fair Trade to Alter Trade during their visits to Negros. With the growing demand for Mascobado, Alter Trade Manufacturing Corporation (ATMC) was set up in 1992 and a modern muscovado plant capable of crushing 30 tons of sugar cane per day with juice extraction at about 70%19 was constructed. With this, Mascobado production reached 500 tons per year. The ATMC mill provided a market for the cane of the sugar workers who already owned their lands as agrarian reform beneficiaries. 19 Traditional mills have a crushing capacity of less than one ton of cane per day and an extraction rate of less than 50%. 77 3.3. Development Stage: Visioning, Learning and Planning with Solidarity Markets (1993-2008) 3.3.1. Clarifying Alter Trade’s Vision Alter Trade conducted what it considered as its 1st strategic planning workshop in 1994-95. Alter Trade came out with a mission statement founded on its commitment to people’s empowerment at the grassroots, and the development of Alternative Trading and Marketing. An Alternative Economic System that was just and friendly to Mother Earth was envisioned. With the concept of “Save the Land, Save the Production with Agriculture as Core”, it advanced a framework for agrarian reform and rural development for the whole Negros Island. To Alter Trade, Alternative Trading and Marketing involved an integrated system of enterprises – from production, procurement, selling, distribution, promotion, research and development, banking and financing, and transportation. This system of enterprises was to address the demands for goods and services of basic sectors, organized into grassroots and people’s organizations, interlinked and interdependent as producers and consumers. 3.3.2. Shift to Organic Mascobado with Assistance of German Partners In 1993, prompted by the growing demand for organic agricultural products in the European market, the German fair trade company GEPA encouraged Alter Trade to produce organic muscovado sugar. That year, Alter Trade started to conduct experiments and trials on organic sugarcane production. With support from Bread for the World, a Protestant church-based development agency from Germany, Alter Trade started its Bio-Organic Conversion Program in 1994. It was in this year that the first certified organic Mascobado sugar was sold to GEPA. 3.3.3. Certification and Membership in International Organic and Fair Trade Bodies In 1993, the same year that it decided to shift to organic muscovado, Alter Trade also joined the International Fair Trade Association (IFAT) to widen its network among European fair trade organizations. In 1994-1995, with its Bio-Organic Conversion Program in place, it became a member of the International Federation of 78 Organic Agriculture Movements (IFOAM). Its membership in both international bodies enhanced its standing in the fair trade and organic niche markets, translating into increased revenues and support in the years that followed. Under the Bio-Organic Conversion Program (1995-2000), Alter Trade was further assisted to open its farms, milling and packing facilities to annual inspection and control procedures from the Institute for Market Ecology (IMO), based in Switzerland. Its Mascobado was certified organic by the European Economic Community, Naturland and Bio Suisse standards and by 2002, the United States Department of Agriculture standards. 3.3.4. Setting Up of Organic Fertilizer Plant and Expansion of Sugar Mill In 1997, the Diversified Organic Enterprise Inc. (DOEI) was established to respond to the farmers’ need for organic fertilizer. The DOEI organic fertilizer plant was later expanded to double its annual fertilizer output in 2004. Also, in 2004, in response to the growing market for Mascobado, largely in the European fair trade market, a new Mascobado mill was built. The new mill had the capacity to produce up to 2,000 metric tons of muscovado per year. 3.3.5. Partnership with Balangon Growing Communities Beyond Negros As the demand for naturally grown Balangon bananas grew among Japanese consumers, production in Negros fell short of demand, and prompted Alter Trade to establish partnerships with small grower communities outside of the island. It expanded to the province of Bohol in 1993, to Panay Island in 1994, and to the Northern Luzon region in 1997. Subsequently, Alter Trade helped to establish the People’s Fair Trade Assistance Center or PFTAC in Bohol in 1995, the Center for Organic Farming and Integrated Rural Development or CORDEV in Northern Luzon in 1999, and the Partnership for Rural Transformation and Ecological Renewal Inc. or PARTNERS in Panay in 2003. These organizations had since become Alter Trade’s partners in Balangon trading, managing the value chains in their respective areas of operation. 79 3.3.6. Establishment of a Foundation Dedicated to Marginalized Producers Alter Trade Foundation Inc., (ATFI) was created in 1997 to invest the proceeds of the people-to-people and fair trade initiatives into programs for marginalized producers. At the same time, the Alter Trade Corporation started to have a positive net income. Alter Trade staff recalled that in the beginning, there were expectations that the Negros Council for People’s Development, a local NGO engaged in agrarian reform advocacy and community development, would serve as an institutional partner in providing comprehensive development services to partner communities. Alter Trade decided to set up its own foundation after this expected partnership arrangement did not materialize. ATFI Executive Director Edwin Lopez explained the beginnings of Alter Trade’s social development program for its partner producers: “Alter Trade started in 1989-90 providing credit for sugarcane production. The Bio-Organic Conversion Program in 1993 paved the way for conversion to organic farming in addition to credit. This developed the capability of members of what used to be sugar worker unions fighting for land, to make their lands productive in a sustainable way, as agrarian reform beneficiaries. The foundation was set up in 1997 as the programs and services of the corporation for partner producers became more complex and the need for Alter Trade to undertake comprehensive development intervention among them was felt”. (Lopez, 2010) 1997-2001 was a period of needs assessment and program development for capacity building. Around 1999-2000, some efforts at management capacity building were initiated. Around 2000, a study was made on the state and needs of partner agrarian reform beneficiaries (ARBs). These efforts paved the way for evolving a Sustainable Agriculture for Sustainable Community (SASC) program framework. The Sustainable Agriculture for Sustainable Communities (SASC) framework became an input to Alter Trade’s strategic planning in 2001-2002 and the basis for evolving integrated programs for partners. Under SASC, Alter Trade was to set up or enhance existing organizations of farmers with service programs on credit and savings, bioorganic conversion, sustainable farming technologies, gender mainstreaming, rural enterprise development, and sustainable management systems for farmers’ organizations (details can be found in Box 3.2.; 3.3.; and Section 3.3.12.). These programs were integrated in individual Community Development Plans, which represented their partner producer organizations’ own road maps towards empowerment and sustainability. It was in 2002 after the strategic planning process of 80 2000-2001 that the foundation, as Alter Trade’s development arm, pursued a comprehensive process of capacity development using the SASC program framework (Lopez, 2010). At the time of this 2nd strategic planning process, there were already four entities of Alter Trade: the corporation or ATC, tasked with product development and marketing; the foundation or ATFI, tasked with development of producers’ groups and communities; the manufacturing company for procuring sugar cane and processing Mascobado or ATMC; and the organic fertilizer company or DOEI. 3.3.7. 10-Year Strategic Plan and Strategy Adjustments Alter Trade had a ten-year strategic plan that was a product of what the group considered their second strategic planning exercise held in 2000-2001 and completed in 2002. Unlike the first plan that was facilitated internally, this second exercise was assisted by their partner German development agency, Bread for the World with the help of external facilitators. The strategic plan articulated the following vision: “We envision our organization as a professional, innovative, and socially responsible business organization in partnership with self-reliant and selfdetermining communities responding to the demands of customers in the Philippines and the world for quality produce from sustainable agriculture, operating in a viable, socially-just economic system that is in harmony with the environment and the society”. (Alter Trade Corporation, 2002) The strategic plan for 2003-2013 articulated the principles of Fair Trade and Sustainable Agriculture/Organic Farming as foundations for the interventions of Alter Trade. It also adopted the core values of Fairness, Integrity, Teamwork, Pro- Environment, Excellence, Competence, and Commitment to People’s Development. Unlike the previous plan that was mostly just descriptive of the vision and general direction that Alter Trade was committed to, the 2003-2013 strategic plan articulated a set of goals, key result areas, performance indicators and strategies. The plan developed in 2000-2002 was hinged on a diversification strategy of working with Alter Trade sugar farmer partners. The centerpiece of the diversification strategy was to set up Balangon plantations in selected areas of sugar farmer partners20. The plan also included the commercialization of other organic crops (herbs and spices, coffee, rice, and corn) to be sold to the domestic and export markets. Mango and pineapple trading (which could be non-organic in the beginning) were 20 In 1998, Alter Trade Corporation faced its first crisis with armed rebel groups burning their trucks for trading Balangon. This partly explains why they were trying to shift their efforts from the uplands, the natural habitat of Balangon, to the lowlands. 81 identified to support efforts towards achieving financial stability. By-products of Balangon (e.g. chips, catsup) and muscovado (e.g. syrup, wine, and masco blocks) were defined as new products for introduction. However, Alter Trade realized during the implementation stage that the diversification strategy as defined was based on flawed assumptions. Among these flawed assumptions were the non-suitability of lowland sugar areas for Balangon; insufficient preparedness and capacity of Alter Trade and its partners to scale up production of non-sugar crops for trading; and lack of market demand for mango and pineapple. In the years that followed, Alter Trade shifted to increasing organic muscovado production with sugar producing partners in Negros Occidental with sustained producer development processes in Alter Trade sugar areas only. Alter Trade through Alter Trade Corporation started organizing its banana growers in Negros Island only in 2006, although it had assisted the formation of banana growers and their support institutions outside of Negros Island since 1993. Alter Trade also expanded its Balangon trading partnerships with indigenous and upland communities outside of the province, mainly in Panay and Mindanao (Alter Trade Group FGD, 2008). 3.3.8. Learning the Hard Way: Failed Balangon Plantation Experiments In August 2000, Alter Trade, ATJ, JCNC, CORDEV and other partners, jointly launched a Balangon Renewal Program. This was intended to develop the production of Balangon in new areas outside its natural upland habitat. Alter Trade conceived this in 1999 in response to various concerns – the bunchy top virus that was starting to infest Balangon producing areas, the threat of armed rebel groups in the uplands, the need to improve access to production sites, and the need to lower the reject rates. The idea was to cultivate Balangon in plantations; this was especially attractive as a diversification strategy involving Alter Trade’s partners who were already engaged in organic sugar production. With PhP 10 million from the Japanese cooperatives, 100 hectares were committed for this experiment in Negros, and another 100 hectares in Northern Luzon. Unfortunately, the experiment failed in 95% of the areas. Alter Trade learned the hard way that lowland areas, which were open with no windbreaks and had clay rather than sandy loam soil, were not suitable for Balangon. In addition, as plantation technologies were introduced, there was a tendency for the kuko or sweet sour taste of Balangon, so important to the Japanese palate, to get diluted. 82 3.3.9. Growers’ Development to Manage Threats in Balangon Trading Alter Trade learned from this costly mistake. Realizing that the natural habitat of Balangon could not be replicated just anywhere, they developed the concept of Balangon Cultural Management (BCM) for introduction in both old sites (called Old Balangon) and new sites (called Improved Balangon). BCM promoted what were observed as effective cultural practices involving entire communities and local government units, not just immediate Alter Trade partner growers, in preventing and controlling the spread of plant diseases. Alter Trade also realized how critical it was for the growers to own and manage the community enterprises that handled the post harvest facilities and processes for Balangon trading. It was seen that this would not only strengthen BCM but would also improve the quality of Balangon products for trading, as the growers and their communities were assisted to have greater stakes in Alter Trade. At the same time, with the growers owning and managing the community enterprises it would effectively neutralize the threat of armed rebel groups who were active in the same upland areas as the natural habitat of Balangon. Emerging from the failed Balangon experiment, Alter Trade Corporation initiated the Growers’ Development Program in 2003 for the individual Balangon producers. That year, it also introduced Good Manufacturing Practices (GMP) and Hazard Analysis Critical Control Points (HACCP) principles in the packing centers.21 3.3.10. Organizing Balangon Growers in Negros Island as a Crisis Response While the Balangon Renewal Program (BRP) was supposed to include organizing growers, the failure of the program created tensions between, and confusion in the roles played by Alter Trade Corporation and Alter Trade Foundation. Under the BRP, from 2000-2002, all Balangon areas and their growers were to be assisted by the foundation in terms of application of Balangon technology. On the other hand, the corporation was tasked with research and training of agriculturists on the technology of growing Balangon. When the delineation of roles did not materialize according to plan (resulting in confusion on both sides), along with the failure of the program and subsequent non-payment of loans by participating farmers, the corporation and foundation decided to segregate their areas of assignment altogether, with the corporation tasked with partner development for Balangon. However, the pressure to produce the volume, quality and price (VQP) requirements for Balangon trading 21 GMP and HACCP were also implemented in Alter Trade’s sugar mill. 83 became the preoccupation of the corporation in the years that followed. The corporation was unable to give attention to growers’ development in a broader sense until a truck burning incident that served as its wake-up call in 2006. In 2006, an armed rebel group burned a delivery truck owned by Alter Trade after the latter did not pay a ‘revolutionary tax’ on demand. Alter Trade Corporation transformed the truck-burning crisis into an opportunity to strengthen their relationship with the Balangon growers who wanted to ensure that their trading activities with Alter Trade continued. The corporation started to organize the Balangon growers into cooperatives or associations. To sustain efforts at organizing partner banana growers, one staff from Alter Trade Corporation was assigned to focus on this task in 2007. Alter Trade also facilitated the transfer of ownership and management of the delivery truck business to partners. At that time, Balangon growers’ organizations were deemed unprepared to immediately own and manage group enterprises. Thus, the sugar farmers’ organizations, which were evaluated to be in a better position, were given the opportunity. Alter Trade Corporation issued soft loans to enable the farmers’ organizations to purchase the trucks, and then rented the trucks from them.22 No truck burning incident had happened since then. 3.3.11. Japanese Second Party Audit for Quality Assurance and Learning In 2005, the first Second Party Audit by Japanese consumers of Alter Trade’s Balangon operations, initiated by the PAL System Consumers’ Cooperative Union of Japan, was conducted. This helped resolve issues on the integrity and traceability of Alter Trade’s Balangon banana exports. Earlier, questions on whether or not bananas being exported were all indeed naturally grown by small grower partners of Alter Trade had been raised. At one time, Alter Trade failed to promptly report one of its areas of expansion, before shipments that included bananas were made from this area. The issue reached crisis proportions when a label of a commercial company that grew and exported chemically grown plantation bananas was found in one of the shipments of Balangon by a Japanese cooperative. Alter Trade vouched for their shipments and pointed to the possibility that the label may have accidentally entered the shipment during the long shipping phase from Negros to Manila, then to Japan. Issues of integrity and traceability of shipments persisted. To resolve these issues, the two parties conceived and implemented a second party audit by Japanese consumers. Another Second Party Audit by PAL System transpired in 2007. As shown by the results of the 2005 and 2007 Second Party Audits, they were not only important as a quality assurance measure for the Balangon bananas being traded, they also provided 22 As of 2008, 6 partners owned 8 trucks - all of them partner sugar farmers’ organizations. 84 a much-appreciated venue for mutual learning among Japanese consumers, Alter Trade and Balangon growers about people-to-people trade. Box 3.2. Sustainable Agriculture for Sustainable Community Program Components (supported by Bread for the World, Germany) Source: ATFI (2003-2009). Annual Reports for 2002-2008. x Sustainable Production and Area Development Enterprises (SPADE): bio-organic conversion; sustainable agriculture and organic farming technology development; crop, livestock and income diversification; and capability building in marketing and enterprise development; x Capability Building and Support Services (CBSS)/Credit Access and Savings Program (CRASP): savings and capital build-up; credit extension for production and diversification; and capacity building in project proposal making, finance management and loan repayment; and x Holistic Organizational Empowerment (HOE): capacity building in community development planning; land resource and development planning; organizational, project and enterprise management including participatory monitoring and assessment processes; leadership development, gender mainstreaming; and producer partners’ conferences to share experiences and knowledge Enhancing Projects x Land Tenure Recovery Project: redemption of ARBs who were about to lose their lands to leaseholders or financiers, 2005-2008 (ATFI-financed); x Farm Equipment Services/Integrated Rural Enterprise Development Program: provision of tractor, irrigation and postharvest truck services, 2004-present (supported by Oikocredit International, the Netherlands since 2005); x Enhancing Productivity and Women Participation: farmers’ and rural women’s needs for farm equipment, crop diversification, livestock and poultry raising and community service facilities, 2006-present (supported by APNET or Alternative People’s Network for Peace and Life; and Dure Producers and Consumers’ Cooperative, South Korea); and x Nurturing Learning Communities on Organic Agriculture for Exports to European Markets: establishment of facilities and resource centers for multi-media instructional materials on organic farming and fair trade; 12 Farmers’ Field Schools (FFS) for sugarcane, rice and Balangon; Lakbay Aral or study tours to organic and diversified farms in 18 sites nationwide; production and showing of documentary film on the Alter Trade story; local weekly radio program featuring organic farming, FFS sites and Lakbay Aral results, 2006 (supported by European Commission Small Projects Facility) 85 3.3.12. SASC I and II: Program for Transforming Sugar Farmer Partners ATFI Executive Director Edwin Lopez characterized how SASC went beyond transactional services or making their sugar farmer partners’ effective suppliers of organic sugar cane for Mascobado trading: “SASC I and II provided management capacity building services in addition to credit and sustainable technology. We assisted the partners to develop their capacity to manage themselves and their organizations to achieve food security and community development”. (Lopez, 2010) SASC I, covering 2002-2004, centered on the strengthening of local partner communities on basic sustainable agriculture and organic farming technologies and management of their production, credit and finance, and community resources. The evaluation results of SASC I can be found in Box 3.3. SASC II, covering 2005-2007, centered on boosting capacities of local communities on sustainable agriculture, fair trading practices, management and development of own resources and strengthening inter-community cooperation through cluster organizations. The main funding partner of Alter Trade for SASC I and II was Bread for the World, a German development agency, providing close to 50% of their program budget since 2002. Box 3.3. SASC External Evaluation Results, 2004 Source: Ibus and Basilio (2004), Sustainable Agriculture for Sustainable Communities: An Impact Evaluation “The Bio-Organic Conversion Program (BOCP) and Sustainable Agriculture for Sustainable Communities (SASC) projects provided the much-needed interventions to the agrarian reform beneficiaries (ARBs) at the most critical time – upon installation by the Department of Agrarian Reform. Without the loan, technology, market, and organizational capacity building assistance, many ARBs would have run back to the land owners or to local financiers”. “…. ATFI has carved a niche in the development community in Negros Occidental. Over the past 5 years, it has developed a credibility of delivering affordable credit, assured market, appropriate technology and processes for sustainable agricultural production and organizational capacity building of farmer organizations. The combination of these services makes ATFI program effective and unique in the development sector in the province. Many development organizations are not able to assure their parties of a market for their key products. ATFI has done it for sugarcane, bananas and lately on a trial basis, for rice…” 92 to financiers at 1% service charge right there at the mill gates. The FTSG-CBPC decided to replace the role of the financiers by engaging in this post-harvest financial service to small farmers, so the service charge would not be lost to private financiers, and instead would be accumulated to generate capital to be reinvested in farm production and enterprises of agrarian reform beneficiaries (Cervantes, 2010). The CBPC had deposited the amount of PhP 669,545.00 at the Bank of Commerce branch in Bacolod City. They chose this bank, as it is was the same bank of the La Carlota Central that issued the check payments to their target farmer-clients. Imelda Cervantes herself negotiated with the bank manager to accept second-endorsed checks. The CBPC was intending to operate every Friday during the annual milling season of eight months from September-April. The Collective Business Project Committee of the FTSG was transformed into the Business Development Committee of NOFTA when it was founded later in the year. 3.4.4. NOFTA: Birth of Independent Federation of Producers In 2009, the setting up of an all producers organization distinct from Alter Trade was discussed at the PO Conference, following a recommendation from the FLO inspector the year before, and to implement a decision of the ATFI General Assembly in August 2009 to spin off the Fairtrade Subgroup into a full blown organization composed of primary producer organizations of Alter Trade26. It was during what the PO leaders considered to be their 5th PO conference that the Negros Organic Fair Trade Organization or NOFTA was established. The Negros Organic Fair Trade Organization or NOFTA (refer to Box 3.4. for details) was established during a Founding General Assembly on December 14-15, 2009, attended by 109 voting delegates from 16 primary producer organizations of Alter Trade, at the Congregation of the Immaculate Conception of Mary (CICM) Retreat House in Talisay City, Negros Occidental. The following were decisions highlighted in the minutes27 of the NOFTA Founding General Assembly: x The Chairperson of the Assembly was Imelda Cervantes from MIARBA who was the Chairperson of the ATFI Fairtrade Subgroup (FTSG); x The drafters of the organizational documents who met earlier on December 5, and the people who took turns explaining the vision, mission and goals of NOFTA during the Assembly, came from the FTSG and were all PO leaders, namely Imelda Cervantes (MIARBA), Romy Noble (AMANO), Lito Estama 26 With this decision came the reorganization of ATFI into an organization of individual advocates, intellectuals and selected PO leaders 27 The original was in the local language but an English translation was made available to partners. The researcher used the English translation 93 (NARB-MPC), Ramir Rivera (Sitio Paho Farm Workers Association or SIPFAWA) and Torino Tomaro (STARFA); x Changes on the draft constitution and by-laws were made after a spirited discussion, many times dividing the house, with the majority position being carried. These changes included the following: o For membership to include not only agrarian reform beneficiaries but also small producers, as long as they subscribed to sustainable agriculture-organic farming and fair trade; o For membership to include small producers’ organizations in the whole of Negros Island, and not just from Negros Occidental, opening the possibility of recruiting those not present in the Assembly from the neighboring province of Negros Oriental; and o The inclusion of non-government organizations (NGOs) and private institutions as potential partners, not just government agencies. x It was agreed that NOFTA would “develop a successful inter-PO production and trading system that will open new and rewarding opportunities for the next generation”; x The discussion on how they were to elect their first set of officers was spirited, with a majority opting for the appointment by each PO of 2 representatives to a Council of Leaders, direct election by the General Assembly of the officers of NOFTA (versus a proposal for the Council of Leaders to elect them), and a decision to vote by secret balloting; x With the exception of the position of treasurer where only Imelda Cervantes of MIARBA was nominated and unanimously elected, and the 2 cluster-based positions each of Public Information Officers and Environmental Officers that were also filled unanimously, the election process was lively with 6 nominations for President, 6 for Vice President, 4 for Secretary General and 4 for Auditor; x The body unanimously approved and accepted the plans for the post-harvest financial service initiated by the CBPC, and agreed to transform the CBPC into NOFTA’s Business Development Committee. With ATFI as proponent and guarantor, NOFTA also endorsed a PhP 2 million loan proposal to the Alternative Fund for Mutual Benefit28 as additional capital for this project. Terms of the loan included a 5% interest per annum with payments of PhP 28 This is a solidarity fund set up by the Alternative People’s Linkage in Asia (APLA), established on May 17, 2008 as the successor organization of the Japan Committee for Negros Campaign (JCNC). APLA is a mechanism to link up and work together to advance community building based on sustainable agriculture and fishery and to build face to face solidarity and mutual trust to fight against globalization that is causing inequity, poverty and conflicts among ordinary people. 94 200,000 per year starting the second to the fourth year, and would be fully paid with PhP 1.4 million on the fifth year. Project net income in 5 years was expected to amount to PhP 3,736,000; and x The body agreed to conduct participatory workshops involving each producer organization on Fairtrade orientation and standards, Usage of the Fairtrade Premium, Fairtrade Policies especially for Small Producer Organizations, Internal Control System on Fairtrade and the Environment, and an assessment of compliance to standards. The participating leaders synchronized schedules per PO from February 24-April 26, 2010, and agreed that each PO together with NOFTA would shoulder the food expenses while ATFI would share with transport expenses and facilities. The officers of each PO designated an Environment Officer. PO leaders present during a focus group discussion were unanimous in expressing: “The leaders we voted for in NOFTA are those who have had a good experience in leading their local organizations.” (Alter Trade Partner PO FGD, 2010) Romualdo Noble, Chairman of AMANO and elected Vice President of NOFTA during the Assembly, noted: “There was 100% participation in decision making among all the leaders of POs present during the General Assembly. We elected our officers and made decisions about our 5-year business plan. In addition to organic sugar, we will be trading organic rice, vegetables and livestock. We need to ensure clean food to protect our health and we also need to make sure that the price of organic food remains reasonable. Alter Trade will help us develop a local market in Negros for these products”. (Noble, 2010) 95 Box 3.4. Negros Organic and Fair Trade Association (NOFTA) Source: Negros Organic and Fair Trade Association Inc., translated into English by Alter Trade Foundation Inc as annex to a report to partners in 2010 VISION: We dream that our group will be known as producers who produce and sell organic and fair trade harvests from the land we own. We will ensure food security, and establish our financial capability by setting up our own funds, capital and implements of productions. We are for the protection of the environment as we are dependent on its bounty and both women and men equally work for its preservation. We will establish a bond with consumers to establish a guaranteed market both locally and abroad. We will responsively address the needs and convince small producers and the community to take part in the organic and fair trade movement. We will do this to ensure a more prosperous future for our succeeding generation. MISSION: We are committed in the propagation of organic farming and fair trade principles and practice by organizing agrarian reform beneficiaries (ARBs) and small producers to progressively own and develop resources to make them productive, comprehensively own the land, ensure food for all, link up and establish a fruitful cooperation among producers and consumers here and abroad. GOALS: In five years we intend to: o Organize and strengthen organizations who propagate organic farming and fair trade; o Build up resources and financial institutions that are supported by sectors who trust and have faith in organic farming and fair trade movement; o Join in the effort to protect the environment and engage in solid waste management systems; o Women and men are in the forefront in setting up programs, projects and policies; o Establish links with the Government, NGOs and other institutions locally and abroad who assist organic farming and fair trade movements; o Train the youth as successor of the sustainable agriculture practice and who will continue and improve the projects and work started using organic farming-fair trade practice; and o Ensure the education of the youth to further enhance and improve the projects started and help in securing the sources of revenue of every family. 96 3.5. Financial and Social Outcomes 3.5.1. Financial Outcomes From an initial capital of PhP 55.0 thousand in 1988, Alter Trade Corporation’s assets had consistently grown, reaching PhP 25.456 million in 1997 and PhP 135.347 million in 2008. Its sales, mainly from its export markets, had grown through the years, reaching PhP 64.930 million on 1997 and PhP 200.723 million in 2008. Asset turnover (sales over assets) averaged 1.94 over the ten-year period from 1999 to 2008, ranging from a high of 2.45 in 2007, but dipping to 1.48 in 2008, the lowest level in the ten-year period. Figure 3.1. shows gross sales and assets from 1997-2008, in millions of pesos.29 Figure 3.1. Alter Trade Corporation, Gross Sales and Assets, 1997, 2002, 2004, 2006 and 2008 Sources: Audited Financial Statements, 1997, 2002, 2004, 2006, 2008 The crisis that Alter Trade experienced with its Balangon banana production and trading resulting from disease infestation and the failed experiment of growing them outside their natural habitat from 2000-2004 adversely affected their sales, leading to slow growth until the mid-2000s. However, the negative impact on their revenues was 29 Financial statements before 1997 were not audited, and it was relatively difficult to reconstruct and validate figures from various data sources. The financial statements for 1998 were not available. 0 50 100 150 200 250 PhP (in Millions) Year Gross Sales Assets 97 cushioned by the significant increase in Mascobado production and trading with European partners and a favorable foreign exchange climate. Alter Trade Japan also assisted Alter Trade in managing their losses and expanding the sources of naturally grown Balangon bananas beyond Negros Island. ATC’s net income had not grown much, although it had managed to stay in the black over the years, earning PhP 92.437 thousand in 1997 and PhP 1.128 million by 2008 (ATC Audited Financial Statements, 1997-2008). Figure 3.2. shows ATCs’ net income during the 1997-2008 period, in thousands of pesos: Figure 3.2. Alter Trade Corporation, Net Income, 1997, 1999 - 2008 Sources: Audited Financial Statements, 1997, 1999 to 2008 Alter Trade had operated slightly above break-even over the years. Net income as a percentage of sales was at a mere 1% all throughout the 1999 to 2008 period. Return on assets (net income over average total assets) was at 1 to 2% over the same period. Contributing to the low percentage of income over sales were high levels of variable costs, particularly for direct materials and direct labor. Over the past few years, Alter Trade had tried to negotiate for higher prices with its main buyers to cover these costs, as it did not want to depress buying prices at the farm gate level. Alter Trade had also looked at its overhead and operating expenses and had had some success in managing these expenses. On the whole, Alter Trade management believed that they could also have done better financially from better and more strategic investment decisions, earlier efforts to negotiate and implement price adjustments for their products, and more efficient operations. (Alter Trade Group FGD, 2008) 0 200 400 600 800 1000 1200 1400 1600 PhP (in Thousands) Year Net Income 98 Within the Alter Trade Group, it was the Alter Trade Foundation Inc. that received grants from partner agencies mainly to finance the development programs for its partner producers (detailed in Section 3.3.14.). During the period 1999-2008, ATFI generated a total of PhP 77.98 million worth of grants from Bread for the World, Germany and other partner development agencies to cover the Sustainable Agriculture for Sustainable Community Programs and other projects detailed in Box 3.2. This included a grant in 2006 of PhP 10.576 million from the European Commission Small Projects Facility for its Nurturing Learning Communities on Organic Agriculture for Exports to European Markets. (Ibus and Basilio, 2004; ATFI Annual Reports, 2004-2008) 3.5.2. Social Outcomes This section draws heavily from the results of an evaluative study conducted by the researcher that was commissioned by Alter Trade Corporation covering the period 2002-2007. The study was part of a consultancy project to undertake internal and external assessment in preparation for Alter Trade Corporation’s Strategic Planning Workshop in 2008-2009. The results of the evaluation were contained in a document written by the researcher entitled ‘Alter Trade Corporation: External and Internal Assessment’ (Dacanay, 2008). The study utilized a stratified random survey involving 99 respondents each among the partner sugar farmers and banana growers of Alter Trade as well as key informant interviews and focus group discussions involving key stakeholders.30 3.5.2.1. Outreach among Sugar Farmers and Banana Growers The outreach of Alter Trade operations among sugar farmers and banana growers is shown in Table 3.3. Table 3.3. Alter Trade Outreach among Sugar Farmers and Banana Growers (2002-2007). Total number of sugar farmers reached 820 in 18 people’s organizations (POs) in Negros Occidental (589 in 2002) Total number of banana growers reached: x Negros Island x Northern Mindanao x Other areas 3,493 1,052 in 33 POs (783 in 2002) 404 2,037 Source: Dacanay, M. L. (2008). Alter Trade Corporation, External and Internal Assessment Report. 30 The study was done with the assistance of Rosalinda Roy and Rosario Espino and submitted to Alter Trade Corporation on October 5, 2008. 99 The number of sugar farmers reached by 2007 had increased by 39% relative to 2002. The 820 sugar farmers were mainly agrarian reform beneficiaries (ARBs), representing about 1% of the 78,470 ARBs in Negros Occidental (Provincial Government of Negros Occidental, 2007). Outreach among banana grower partners in Negros Island (i.e. Negros Occidental and the adjacent province of Negros Oriental) had increased by 34% within the same period of 2002-2007. By 2008, partners in Negros Island accounted for 30.1% of the total banana grower partners. ATC also dealt directly, through a satellite office, with partner growers in Northern Mindanao, who accounted for 11.6% of total. Partner growers in all other areas, who were engaged with through local marketing intermediation NGOs (most of which Alter Trade had helped to establish), accounted for 58.3% of total. 3.5.2.2. Impact / Outcome on Sugar Farmers The 2008 survey, led by the researcher, among 99 of Alter Trade’s sugar grower-partners in Negros Occidental revealed that credit, marketing support, training/coaching, and animal/input dispersal were the top four forms of assistance from Alter Trade used by sugar grower-partners, with levels of use ranging from 72% to 89% as shown in Table 3.3. Among those who used the service, the average rating they gave ATC in terms of quality of service ranged from 89 to 96%, as also shown in the table. Table 3.3. Level of Use and Quality Rating for Different Forms of Assistance among Sugar Farmers (2002-2007). Form of Assistance Level of Use Quality of Service Rating Credit 89% 70 to 100% (Ave. 96%) Marketing support 86% 50 to 100% (Ave. 93%) Training/coaching 83% 69 to 100% (Ave. 93%) Animal/input dispersal 72% 50 to 100% (Ave. 89%) Source: Dacanay, M. L. (2008). Alter Trade Corporation, External and Internal Assessment Report. Around half of the respondents gave ATC the maximum rating of 100 percent in terms of quality of service. In terms of impact on household income, the income of sugar farmers typically came from a variety of sources. Income streams that could be attributed mainly to Alter Trade interventions include those from sugar farming, both individually-farmed and under group management (due to improved cultivation and farm management practices, plus marketing support in the case of group-managed farms); income from other farming activities (crop diversification); and income from group farming and other group enterprise activities that were reflected in increases in capital build-up 100 (CBU), and payment/allocation for land tax and land amortization. Figures from the survey on these items are shown in Table 3.4. Table 3.4. Average Annual Income Increase of Individual Sugar Farmers (PhP) Directly Linked to Alter Trade Interventions (2002-2007). Average Income (2002) Average Annual Income (2003-2007) Average Incremental Income Per Year (2003- 2007 vs. 2002) % Average Income Increase Sugar Farming 16,364 32,016 15,652 96% Farming Other Crops 2,690 9,498 6,808 253% Provision for Capital Build-Up, Land Tax and Land Amortization 1,209 4,754 3,545 293% Total 20,263 46,268 26,005 128% Source: Dacanay, M. L. (2008). Alter Trade Corporation, External and Internal Assessment Report. In terms of average annual income from sugar, the sugar growers started with PhP 16,364 in 2002. For the period 2003-2007, the average annual income had doubled to PhP 32,016 with an average incremental increase of PhP 15,652 over the base average income in 2002. Farming other crops accounted for an average of only PhP 2,690 in 2002, but grew to PhP 6,808 per year on the average within the 2003-2007 period. Lastly, each farmer’s provision for capital build-up, land tax and land amortization (directly deducted and credited to each farmer) almost quadrupled from a mere PhP 1,209 in 2002 to an annual average of PhP 4,754 within the 2003 – 2007 period. All of these made for an average increase in annual income of PhP 26,005 per farmer that could be directly attributed to Alter Trade’s intervention. It is noteworthy that 26% of the income increase – i.e. for farming of other crops – was not directly linked to the value chain for Mascobado, the main marketable product for the Alter Trade enterprise. In the meantime, average income from other sources like employment also increased. From a base of PhP 8,638 in 2002, income from other sources accounted for PhP 26,341 per year during the 2003-2007 period. Hence, from an average total income of PhP 28,901 from all sources in 2002, there was a hefty increase of PhP 43,707 (151%) to an average total income per farmer of PhP 72,608 per year for the period from 2003-2007. If we compare these figures to the average annual income of ARBs in Negros Occidental amounting to PhP 18,285.23, based on a provincial governmentcommissioned study in December 2007, the sugar farmer-partners of Alter Trade were already much better off even in 2002 and were clearly far better off by 2007. The average annual income achieved by Alter Trade’s sugar farmers amounting to PhP 72, 608 came close to the annual national poverty threshold for a family of 5, based on 101 the 2006 Family Income and Expenditure Survey, which was pegged at PhP 75,288. In addition, it is worth noting that 64% of the average incomes of the sugar farmers during the period resulted directly from their relationship with Alter Trade. A study commissioned by Bread for the World indicated that Alter Trade’s intervention had directly moved 32% of their sugar partners above the poverty threshold from a baseline of 93.5% below the threshold before their partnership with Alter Trade. Thirteen per cent (13%) were now at the poverty threshold while the rest – 55% – had moved from deep poverty to food sufficiency (Panganiban, 2008). A social return on investment (SROI) study, commissioned by Oikocredit, also indicated significant average increases in income of about PhP 52,450/year for participating sugar farmers and gains in many other non-income indicators of empowerment such as improved self-image, increased self-esteem, and group level capacities for self-management with a blended value of PhP 13 for every PhP 1 invested (Roy, 2009). In determining the level of development attained by the partner PO sugar growers towards becoming self-reliant and self determining producer groups, a tool called the Partner PO Development Index, which was developed for the Alter Trade Group under an Oikocredit-sponsored research project supervised by the researcher, can be used as a tool for measurement. The Development Index used three levels in classifying the level of development attained by a partner PO: Level 1 (Self-Help Groups), Level 2 (Entrepreneurial Farmers’ Organization), and Level 3 (Organization Practicing Social Entrepreneurship). The results of the Oikocredit-sponsored study indicated that, using these classifications, 12 of the 18 partner POs were in Level 1, four were in Level 2, while two were in Level 3 (Table 3.5.). Table 3.5. Level of Development of Sugar Farmer Partner Organizations (POs) Using Partner PO Development Index (2008). Level of Development Level 1 Level 2 Level 3 Total No. of POs No. of members (proxy for Households or HHs) No. of POs No. of members (proxy for HHs) No. of POs No. of members (proxy for HHs) No. of POs No. of members (proxy for HHs) 18 820 12 515 4 147 2 158 Source: Dacanay, M. L. (2008). Alter Trade Corporation, External and Internal Assessment Report. The Index had five basic elements by which a partner PO’s level of development was measured/evaluated, i.e. Organizational Cohesion and Development, Capacity to Engage the Market, Income Diversification Among Members, Contribution to 108 rejects were frozen puree, banana chips, fresh or banana powder for cake making (Balangon was reputed to be a variety that was most suited for banana cake) and banana wine. Mr. Lasigan pointed out that one of their partner cooperatives, the Ambaguio Fruits and Vegetables Multipurpose Cooperative, had an existing tie up with a bakery for the production of banana cake. Other potential products included Arabica coffee and mango. The need for diversification was a recurring theme among the partners. Other services extended by ATC mentioned by the respondents as having significant impact on them were training, technology transfer, financial support, assistance in establishing packing centers, and installation of operating systems. The impact of the trading relationship with ATC included increased incomes, provision of livelihood and employment, formation/sustenance of PO or NGO services in the community, enhancement of image and recognition as development players by the local government unit or LGU, and even peace and community building. The latter was manifested by the inclusion of MILF33 members as Balangon growers and workers in Tupi, South Cotabato. Palo Siete Village was formed in Upper Allah Valley as a direct result of Balangon trading operations. Also cited, as a significant impact, was the achievement of family and community cohesion since Balangon growing proved to be a viable alternative to migrant labor. Qualitative impact was felt the most among indigenous people’s communities in Mindanao (among the Ubo and T’boli communities) and the Cordillera region. 3.6. Alter Trade and Social Entrepreneurship 3.6.1. Alter Trade as SEPPS The Alter Trade story validates the definition of SEPPS in Section 2.5. Firstly, Alter Trade was a social mission driven group of organizations that for over 20 years explicitly pursued poverty reduction/alleviation and improving the quality of life of two segments of the poor as primary objective: x Landless sugar plantation workers turned sugar farmer-agrarian reform beneficiaries, who were organized into and/or assisted as partner producer cooperatives or associations, in Negros Occidental province; and x Backyard producers of naturally grown Balangon bananas in indigenous and upland communities in various parts of the country, who were initially partners as individual growers and later organized into cooperatives or associations. 33 MILF stands for Moro Islamic Liberation Front, an armed group fighting for the self determination of the Moro people in southern Philippines 109 As shown in Section 3.5.2 Alter Trade had demonstrated positive impact in empowering and improving the quality of life of these poor stakeholders. Secondly, Alter Trade was a wealth-creating group of organizations that pursued a triple bottom line (social, financial and environmental) in the provision and production of goods and services. Alter Trade created wealth by producing and trading organic muscovado sugar and naturally grown Balangon bananas mainly to solidarity markets in Japan and Europe. By engaging the poor as partner producers using the principles of fair trade and sustainable agriculture, its wealth creation activities and the achievement of its financial bottom line was framed as supportive to its social and environmental bottom lines. Thirdly, Alter Trade had a distributive enterprise philosophy. By engaging the sugar farmers and banana growers as partner producers using the principles of fair trade and sustainable agriculture, Alter Trade served not as a mechanism for accumulating profit for share holders, but as a mechanism for distributing wealth to partner producers. The buying price of the organic sugar cane from the farmers were negotiated and governed by fair trade principles, usually higher than the prevailing market price of sugar cane. The partner producers also received fair trade premiums, the uses of which were subject to their decision. Alter Trade also served as mechanism to direct surplus wealth created to finance investments or activities related to their social mission. As shown in Section 3.5.1, the wealth that Alter Trade created was just adequate (i.e. slightly above breakeven) to cover its operations for the past years. As discussed in Section 3.3.14, the wealth created by Alter Trade also consistently provided the core funding, representing 17-20%, of the requirements for its transformational program for producers. A legitimate question to ask is, how can this be ensured in the future in the event that Alter Trade Corporation starts to become more profitable? Given that Alter Trade Foundation Inc had been made the mother company and owner of the three subsidiary enterprises (Alter Trade Corporation, Alter Trade Manufacturing Corporation and Diversified Organic Enterprise Inc.) during its reorganization in 2010, the organizational and governance system in place seemed to have problematized and resolved this concern. 3.6.2. SEPPS in a Developing Country Context While the Alter Trade story validates the definition of SEPPS in Section 2.5, it is important to explore how the developing country context of the Philippines relates to or interacts with the concept of SEPPS. An emerging theme dramatized by the Alter Trade story is the conception of SEPPS as a response to the failure of market and state institutions to serve the needs of the poor in the Philippines. 110 The entire conception of Alter Trade emerged as a response to the sugar crisis that hit Negros in the 1980s. The sugar crisis resulted from the abandonment by landlords of sugar lands as a reaction to the lowering by the US of the Philippine sugar import quota. With the local economy being almost completely dependent on sugar with the US as the main market, this led to the collapse of the local economy, particularly the sugar industry, which in turn led to a hunger crisis among sugar workers in Negros Occidental. The agrarian reform program opened up opportunities for the landless sugar workers to own and manage their land. However, the government failed to provide sufficient financial, technical and other support services to 97% of Negros Occidental’s agrarian reform beneficiaries (ARBs), the majority of them former sugar workers, to make the lands awarded to them productive. The implementation of the agrarian reform law has also been characterized by prolonged, unresolved land cases in agrarian courts and inability of ARBs to pay amortizations. The experiences of Alter Trade’s partners’ bear this out. The Philippine government had played a minor and passive role in the Alter Trade story. Given the reality of land occupations by sugar workers that had already become widespread in the mid-80s, it was still critical that they enacted and implemented agrarian reform to provide the legal basis for transforming the landless sugar workers to become small owner cultivators of land. In the process of transforming the poor, key stakeholders who may be characterized as having played enabling and supportive roles were solidarity markets in Japan (such as Green Consumers Cooperative Union and PAL System Consumers’ Cooperative Union) and Europe (such as GEPA and OS3) and international development-oriented organizations (such as Bread for the World, Alter Trade Japan and Oikocredit). These solidarity markets and enabling institutions played four critical roles: x They served as intermediary marketing organizations for people-to-people and fair trade consumers in Japan and Europe; x They provided critical financial and technical resources to develop Alter Trade’s capability to effectively deliver quality products; x They provided critical financial and technical resources to transform partner producers into owners, decision-makers and managers of their own community enterprises; and x They pro-actively participated in strategy formation: from venturing into organic muscovado and naturally grown Balangon bananas; to providing expertise and resources for strategic planning, evaluation and audit; to bearing the financial costs of piloting and learning from failed experiments; and to ensuring the continuing organizational development of partner producers. 111 An important reason for such a big role played by these stakeholders in Alter Trade’s development, including their pro-active participation in strategy formation, was their shared vision, values, and bias for small producers and social transformation. This included their belief that countries in the North had a direct responsibility in exploiting the South, and that fair trade or people-to-people trade was an expression of international solidarity action to address poverty. Ayado Yoshida, Chairperson of Green Coop Consumers’ Cooperative Union expressed: “We are greatly encouraged to learn that the people’s trade we have been engaged in for the past twenty years has definitely promoted the Green Coop principles: living together between nature and human beings, between south and north, between women and men, and between peoples.... In 1987 when a group of Green Coop members embraced small children suffering hunger in Negros Island, they were determined to take action to save them. They realized that our daily life in Japan in the North is supported by exploitation of people in the South that caused the hunger…. At the trial import, we had to see the blackened banana at the port in Japan. Although we were disappointed, someone said, “It was a great success. Next time we will receive banana that we can eat!” When the Negros banana suffered from disease, we learned that “the weevil is also suffering”, unless nature and mankind live together…. We are deeply grateful for ATC who have shared difficulty and joy with us, and strengthened international solidarity together”. (Yoshida, 2008) Masahiko Hotta, President of Alter Trade Japan, articulated his personal appreciation of the shared vision and values: “We started 20 years ago with a unique effort to support landless farmers in Negros. We had a vision to organize a people’s economy in cooperation with Japanese consumers’ cooperatives. The problem was the farmers had no land, no money, and no power. Our theory (sic) model was to organize them to have power and independent resources through alternative people-to-people trade. Japanese consumers’ cooperatives would assure markets for chemical free and natural products, make voluntary contributions and provide working capital, with Alter Trade Corporation and Alter Trade Japan serving as intermediaries. Unlike the context of capitalism, the support from Japanese consumers is a goodwill gift in exchange for the chemical free and natural products of small farmers against multi-national plantation bananas”. (Hotta, 2008) 112 This shared bias for small producers and the pro-active relationship was validated by GEPA Fair Trade Company’s Claudia Grozinger: “As GEPA – the Fair Trade Company, we are cooperating with ATC since 1988. In the early nineties, we came to the conclusion that only organic Mascobado will have a chance on the European market in the future…. We discussed this together in GEPA’s office and in ATC office in Bacolod and finally agreed on it. We at GEPA knew that we asked a lot from your side. And that it is not easy at all to convince small farmers to start with it, knowing the situation in Negros. And besides that, you had to invest into a new sugar mill too, in order to guarantee a higher quality product. But we reached that goal together in 1996!... In the meantime, we do not only offer organic Mascobado in consumer packs, but also lovely organic chocolates, organic biscuits and organic syrup for coffee – all with your organic Mascobado. And GEPA customers just love it.... Afterwards, I visited ATC a couple of times and could see, how fair trade grows and how the situations of the small producers have changed dramatically. And when small farmers cooperating with ATC tell me that they are able to send their children to high school or even college and have dreams for the future…. what more can you expect…. I am personally very proud of the organic Mascobado, the result of our joint efforts, but even more of the changes for the people of Negros through ATC and GEPA’s Fair Trade!” (Grozinger, 2008) 3.6.3. SEPPS and Social Entrepreneurship Among the various schools of thought in social entrepreneurship, the Alter Trade Group story resonates with the social economy school (Defourny and Nyssens, 2008; Laville, 2010), with some particularities arising from the context of failed state and market institutions in underdeveloped economies. This resonance is particularly strong in relation to SEPPS as multi-stakeholder organizations, the importance given to the role of the state and the evolving role of third sector organizations in promoting a plural economy governed not only by market principles but also the principles of redistribution and reciprocity (Defourny, 2001; Vidal, 2010; Laville, 2010). x Alter Trade may be characterized as a multi-stakeholder organization that has evolved over time into a multi-organizational system where the poor were empowered partners. Such evolved not only to more effectively serve the poor and their markets, but also to give the poor a voice and vote. Beyond organizing the producers as a supplier base, Alter Trade assisted the sugar farmers to have a voice (through NOFTA) and vote (through their elected representatives in Alter Trade Foundation Inc.) in their governance system. Table 3.7.a. details the participation of Alter Trade’s primary stakeholders in 113 the governance and management of Alter Trade as a multi-organizational multistakeholder SEPPS; x The main stakeholders, including the main market channels for its products, are civil society or third sector players in the North and South, who share a vision of empowerment of the poor through people-to-people and fair trade and transforming the global trading system as a whole; x The Alter Trade Group story shows the development of an alternative system of trade involving organized producers and consumers in the North and South, that is governed by non-capitalist principles of reciprocity and redistribution, characteristic of a social economy; and x Government played a redistributive role in the whole story, in a minimal but critical way, in the sense that the transformation of the landless sugar workers as partner producers of organic sugar cane and as owners, decision-makers and managers of their own community enterprises would not have been possible without the enactment and implementation of the agrarian reform law that legitimized their claim over the lands they occupied. The social economy school of social entrepreneurship in Europe has been characterized by scholars as embedded or contextualized in the crisis of welfare states that gave birth to autonomous initiatives within the third sector to provide for social services and employment among marginalized sectors. State support in the form of legal frameworks, public subsidies, fiscal exemptions and the like has been instrumental to their scaling up and institutionalization (Defourny and Nyssens, 2010; Hoogendoorn, 2009). This context, that gave rise to the social economy school of social entrepreneurship in Europe, is very different from the Philippine context of under-development and poverty as explained in Section 2.4, and what the case of Alter Trade exemplifies in terms of state and market failures as explained in 3.6.2. As discussed in Section 2.4 and validated by the Alter Trade case, structural poverty and under-development in the Philippines, exacerbated by state and market failures, provides the context and has fueled the rise of social enterprises with the poor as primary stakeholders (SEPPS). The case of Alter Trade as SEPPS demonstrates the central role assumed by third sector actors in the North and South sharing a mission to transform the poor, to overcome market and state failures, and in the process pushing government to play a legitimizing, though minor role. 114 3.7. Alter Trade from a Stakeholder Perspective 3.7.1. The Poor as Alter Trade’s Primary Stakeholders Based on the articulation of its mission in 1994 up to the time of the research in 2010, and its 20-year practice of sustainable agriculture and fair trade, Alter Trade’s primary stakeholders were the poor. Alter Trade considers the poor as primary stakeholders using a normative approach (Donaldson and Preston, 1995). To reiterate what was explained in Section 3.6.1, Alter Trade as a social enterprise with the poor as primary stakeholders (SEPPS) adheres to a distributive enterprise philosophy and pursues poverty reduction as principal goal. Since initiation, the specific poverty groups that Alter Trade had served as primary stakeholders were: x Landless sugar plantation workers turned sugar farmer-agrarian reform beneficiaries in one province, Negros Occidental; and x Backyard producers of naturally grown Balangon bananas in indigenous and upland communities in various parts of the country 3.7.2. Roles and Role Changes: Transactional and Transformational Roles Using Mintzberg’s (2007) organizational stages of initiation, development and renewal, tracking the roles and role changes enacted by Alter Trade’s primary stakeholders showed contrasting stories. Common to both sugar farmers and banana growers was their enactment of the role of supplier-partners of Alter Trade from the initiation to renewal stages. However, the sugar farmers manifested dramatic role changes as self-determining producers’ organizations in their communities during the development stage and as a federation of producers’ groups at the provincial level during the renewal stage. As shown in Table 3.5. the 18 farmer organizations were at various stages of development as self-help groups, entrepreneurial farmers’ organizations and as organizations practicing social entrepreneurship, using as measure the People’s Organization Development Index (PO-DI). As shown in Appendix 12.4, the PO-DI considered organizational cohesion and development, capacity to engage the market, income diversification among members, contribution to community and/or sector development, and financial growth and sustainability, as demonstrated by the 132- member Minoro Isabel Agrarian Reform Beneficiaries Association (MIARBA) which had become a partner organization practicing social entrepreneurship. As such, not 115 only was MIARBA initiating income diversification efforts to increase farmer members’ incomes beyond their participation as suppliers of organic sugar cane to Alter Trade, they were likewise leading efforts in water systems development, reforestation and health services delivery in their community. By the renewal stage, MIARBA and the other sugar farmer groups had federated themselves into the Negros Organic and Fair Trade Association. With NOFTA, the partner sugar farmers had collectively become an independent and co-equal partner of Alter Trade in the local and global organic and fair trade movement. In its first year of existence, NOFTA set up a post-harvest financial service for sugar farmers and was planning a local production and trading system for organic rice, vegetables and livestock, to provide healthy food for their communities and beyond. The roles that the sugar farmer partners of Alter Trade enacted at the development and renewal stages as self-determining producer organizations and as an independent federation engaged in the practice and advocacy of organic agriculture and fair trade are clearly of a different nature. They may be characterized as transformational roles in the sense that the sugar farmers had collectively become conscious agents of change to move themselves out of poverty, in the process also participating in improving the quality of life of their community, sector and society at large. These dramatic role changes did not happen among the banana grower partners of Alter Trade in the province. By the end of the development stage, the banana grower partners had just been organized into cooperatives and associations, manifesting capacities as self-help supplier groups. By the renewal stage, the associations were just starting to make and implement their first 5-year community development plans. For example, one of the banana grower associations, PIBFA was starting to implement their first enterprise project of capitalizing and managing a banana packing center in their town that would be linked to Alter Trade’s Balangon banana trading. Some leaders of two of the banana growers’ associations became observers during the founding conference of NOFTA but felt they were not yet in a position to become members. The roles enacted by both the sugar farmers and banana growers of Alter Trade as supplier partners from initiation to renewal may be characterized as transactional in nature. As suppliers of organic sugar cane and naturally grown Balangon bananas, their relationship involved the exchange of a volume of agricultural produce of acceptable quality, delivered at specified times, for money. Even as the price was transparently negotiated between the supplier (sugar farmers and banana growers) and buyer (Alter Trade), the monetary exchange involved defined the transactional role enacted by the former. 116 Table 3.7. traces the evolution of roles of the sugar farmers and banana growers across Mintzberg’s (2007) organizational stages of initiation, development and renewal of Alter Trade. 3.7.3. Roots and Routes of Role Changes: Understanding Transactional and Transformational Services While the intention of Alter Trade in engaging both the sugar farmers and banana growers was, to use Alter Trade’s own words, to ‘empower’ them, what unfolded was different for the two primary stakeholders. As has been expounded in Section 3.7.2., the sugar farmers manifested dramatic role changes consistent with Alter Trade’s intent of empowerment while the banana growers did not, at least by the time of the research. The why’s (the roots) and the how’s (the routes) of these contrasting phenomena within the same time frame and organizational context are interesting to pursue. One explanation provided by Alter Trade management (Lopez, 2011; Parreno, 2011), and supported by data presented in Section 3.3., point to the different start-up conditions of the stakeholder groups: the sugar farmers had already been organized as sugar worker union members engaged in a struggle for land reform while the banana growers had no prior experience of being organized. However, the differentiated experience of Philippine rural development agencies working with communities that have been organized may prove such explanation to be inadequate. Isagani Serrano, President of the Philippine Rural Reconstruction Movement (PRRM), explains that in social enterprise and development programs, assisting the empowerment of groups that have in the past been organized for advocacy and political mobilization may sometimes prove more difficult relative to working with unorganized communities: “It cuts both ways – organized groups have to grapple with hard-to-break mindsets and habits and need to do some unlearning which could be more difficult than a fresh start”. (Serrano, 2011) What may also be a possible explanation from an analysis of the data presented in Section 3.3.8. was that Alter Trade faced setbacks in organizing Balangon growers as they encountered problems of disease infestation and a failed experiment, in their pioneering effort to commercialize and export Balangon bananas. Following this line of argument, disease infestation and the failed Balangon experiment would have prevented or discouraged the sustained participation of Balangon growers as supplierpartners of Alter Trade, thus making organizing and capacity development among them more difficult. However, Alter Trade’s own realization of the need to organize the Balangon growers as vehicles for undertaking the more effective community-based approaches 117 for managing disease infestation provides a counter argument: that the threat of disease infestation could have been an opportunity rather than a dis-incentive for organizing the banana growers at that time. At the same time, the failed Balangon experiment also involved the sugar farmer partners. It was actually an effort to assist their crop and income diversification. In this sense, the failed Balangon experiment should have negatively affected the process of empowerment of the sugar farmers, which it did not. Section 3.3.13. provides perspectives from sugar farmer leaders looking at their participation in the failed Balangon experiment and other diversification efforts as part of their learning and development process (Hilarbo, 2010; Tamaro, 2010). Without discounting that the aforementioned explanations may be borne out by specific examples, they are inadequate explanations for the pattern of significant and no essential role change among Alter Trade’s primary stakeholders. So, what may be an alternative explanation for the significant role changes among the sugar farmers on one hand, and no essential role change among the banana growers on the other? A closer analysis of the data shows that it may have been the differentiated nature of programs and services provided by Alter Trade to its primary stakeholders that made the big difference. Both stakeholder groups participated in programs and received services to make them better supplier-partners in the fair trade of organic muscovado sugar and the people-to-people trade of Balangon bananas. Among others, the Bio-Organic Conversion Program services aimed at shifting sugar farms from conventional to organic farming and the training and technical assistance involving Balangon Cultural Management that built the capability of banana growers to manage disease infestation were part of these services. These may be considered transactional services that Alter Trade provided its primary stakeholders. They were geared towards meeting the volume, quality and price specifications of their respective markets in Europe and Japan. However, as was expounded in Sections 3.3.6. and 3.3.12, it was only the sugar farmer partners who participated in the Sustainable Agriculture for Sustainable Community (SASC) Program during the development up to the initial years of the renewal stage. SASC had a Holistic Organizational Empowerment (HOE) component. There was no equivalent program that provided systematic organizing and capacity development services to the Balangon banana growers. SASC provided not only knowledge and skills on sustainable agriculture and fair trade, but included community visioning and value formation, upgrading capabilities in organizational, project and enterprise management as well as leadership development. SASC also assisted the sugar farmer groups plan and implement crop and income diversification efforts involving their members. It was the services provided under the SASC program framework that systematically developed the producer organizations as vehicles for change, not only for themselves, but 124 Initiation (1987 – 1996) Development (1997 – 2007) Renewal (2008 – onwards) Balangon Growers Roles x Suppliers of Balangon bananas x Partners in people-to- people trade with Japanese cooperatives x Suppliers of Balangon bananas x Partners in people-to-people trade, organized as growers’ associations exhibiting capabilities as self help groups x Organized growers associations undergoing capacity development to participate in value chain management x Partners in people-to-people trade and assisted to plan and implement development strategies Transactional Services from Alter Trade x Provision of market for Balangon x Technical assistance on cultivation, harvesting and handling to ensure product quality x Outside Negros Island: assistance in organizing People’s Fair Trade Assistance Center in Bohol to serve as marketing intermediation and growers development NGO in the area x Outside Negros Island: assistance in organizing CORDEV in Northern Luzon and PARTNERS in Panay x Balangon renewal program aimed at developing Balangon production outside of its natural habitat (failed) x Training and technical assistance on Balangon Cultural Management (BCM) for both old sites (called Old Balangon) and new sites (called Improved Balangon) x Growers development program x Credit x Provision of market for Balangon x Organizing of Balangon growers in Negros to improve production x Growers development; Training and technical assistance x Credit x Provision of market for Balangon x Organizing of Balangon growers in Negros Transformational Services from Alter Trade x Assistance in organizational development of Balangon grower POs including PO participation in community development 125 Table 3.7.a. Participation of the Poor in Governance and Management of Core and Allied Organizations of Alter Trade Group Initiation Stage Development Stage Renewal Stage Sugar Farmers Participation in core organization(s) Participation in allied organization (s) None Members of General Assembly, Board members and managers of primary cooperatives or associations serving as suppliers to the core organization (ATC) Cooperatives or associations as members of the General Assembly of Alter Trade Foundation Inc. (ATFI) Representatives of primary cooperatives or associations elected as members of the ATFI Board Members of General Assembly; Board members and managers of primary cooperatives or associations serving as suppliers and partners to the core organizations in Alter Trade Group Leaders of primary cooperatives or associations as individual members of the General Assembly of ATFI; Leaders of primary cooperatives or associations elected as members of the ATFI Board Members of General Assembly, Board members and managers of primary cooperatives or associations serving as suppliers and partners to the core organizations in ATG Members of General Assembly and Officers of federation of producer cooperatives (NOFTA) Balangon Growers Participation in core organization(s) Participation in allied organization(s) None None Members of General Assembly; Board members and managers of primary cooperatives or associations serving as suppliers to the core organization None Members of General Assembly; Board members and managers of primary cooperatives or associations serving as suppliers to the core organization 126 As a case on fair trade, it contributes to the literature that critically analyzes the participation of the poor as well as the economic and social benefits derived by the poor in fair trade systems. At face value, the Alter Trade case may be likened to the studies made by Macdonald (2007) on the Starbucks fair trade system; by Blowfield and Dolan (2010) on Kenyan Fair Trade Tea; and by Benzecon (2011) who made a comparative study of mainstream and alternative models of fair trade. However, the Alter Trade case goes beyond these studies in two ways. First, the sugar farmers in the Alter Trade case had reached a level of capacity and participation in value chain governance and socio-economic development that was much further than those covered in the previous studies. Second, the Alter Trade case analyzes and draws relationships between the nature and combination of services provided to the poor, the evolution of transactional and transformational roles that the poor enact in and out of the system, and the corresponding depth and breadth of impact of such services and roles on the poor and poverty. The differentiated impact of Alter Trade among sugar farmers whom they engaged as transformational partners in multiple development arenas, and among banana growers, whom they engaged mainly as transactional partners within an economic value chain provides a powerful narrative about how fair trade organizations as social enterprises with the poor as primary stakeholders or SEPPS may or may not empower producers in the South. The dimensions of empowerment, highlighted in the Alter Trade case, are consistent with Sen’s (1999; 2009) capability approach. Poverty reduction is demonstrated as a process of enabling the sugar farmers to develop their individual and collective capabilities to improve their quality of life, as well as to contribute to improving the life of their respective communities and the sector of small producers that they see themselves to be a part of. The Alter Trade case also resonates with empowerment as a fundamental element of fair trade identified by Moore (2004). The case makes an important contribution to fair trade literature from a Southern perspective by responding to a key issue identified by Moore (2004) of effectively monitoring the impact of fair trade, including the degree of empowerment of producer organizations. The case provides an example (see Appendix 12.4) of an evolving practitioner-oriented tool for measuring the level of empowerment of the partner producers of an alternative trading organization. In the field of social entrepreneurship, the Alter Trade case complements casebased fair trade studies by scholars such as Hockerts (2003; 2006; 2010) that focus on strategic innovation in developing models, growing markets, managing resources as well managing tensions between social mission, and perceived market requirements. More broadly, as a case on social entrepreneurship, the Alter Trade study contributes to exploring the application of stakeholder theory (Freeman, et al., 2010) among social enterprises with the poor as primary stakeholders (SEPPS). The case builds on the earlier research of the author on social enterprises in Asia. In particular, the Alter 127 Trade case refines what were conceived as social enterprise strategies in general and the empowerment strategy in particular (Dacanay, 2004; Dacanay, 2009). The case notes the relevance and initiates the exploration of the social economy school of social entrepreneurship (Defourny and Nyssens, 2010; Hulgaard, 2008; Vidal, 2010; Laville, 2010) in a country context characterized by structural poverty, underdevelopment and the failure of state and market institutions to serve the needs of the majority who are poor. Such context is very different from Europe where the social economy school originated. The researcher noted the inadequacy of existing models of stakeholder engagement based on corporate experience (Sloan, 2009) in explaining Alter Trade’s intended and realized stakeholder engagement strategies. Non-profit stakeholder literature provides some starting points with their emphasis on engagement and dialogue with stakeholders towards larger normative goals (Grimble and Wellard, 1997; Mikalsen and Jentoft, 2001; Beutler, 2005; Freeman et al., 2010). However, these are not framed in an enterprise setting. Given such inadequacy, the case has started exploring elements that may define two models of stakeholder engagement among SEPPS: collaboration (where the poor are engaged as transactional partners) and empowerment (where the poor are engaged as transformational partners). This is particularly important given that stakeholder engagement is considered an undertheorized area of research. (Greenwood, 2007; Sloan, 2009; Freeman, et al., 2010). However, the researcher noted that social economy literature as well as the concept and definition of social enterprises as multistakeholder organizations by scholars of the social economy school of social entrepreneurship (Defourny, 2001; Spear et al., 2010; Defourny and Nyssens, 2008 and 2010; Vidal, 2010) may feature elements of the collaboration and empowerment models being explored. Overall, the Alter Trade case study validates the potential for this thesis to make a significant contribution to social entrepreneurship and stakeholder literature. The Alter Trade-sugar story showed that the producers’ cooperatives did not just become a vehicle for transforming assetless, powerless sugar workers who had just acquired small plots of land from government’s land reform program into an organized supplier base for organic sugar. Alter Trade enabled these sugar farmers to enact transactional and transformational roles in what Harrison and St. John (1998) and Post, et al., (2002a; 2002b) call the three regions of their stakeholder environment. Alter Trade enabled the sugar farmers to govern themselves in cooperatives that initiated crop and income diversification efforts to achieve food security and overcome income poverty; that served as vehicles for community development planning and implementation; and that co-created an independent federation of small producers to strengthen their participation in issues and concerns in the broad social-political stakeholder environment. This, together with the Alter Trade-banana story of transactional partnership in the Balangon value chain, point to 128 some critical insights for SEPPS to effectively realize a stakeholder engagement strategy of empowerment. First, the delivery of transactional services to meet the quality and volume requirements of markets needs to be complemented by transformational services to organize and capacitate the poor to enact transformational roles. Second, process-oriented, group-directed transformational services are best provided through a distinct delivery system (exemplified by the Alter Trade Foundation’s SASC program) parallel to market-oriented enterprise operations (exemplified by Alter Trade Corporation and its 2 other subsidiaries). Third, a distinct delivery system for transformational services needs to be complemented with the setting up of self-governed structures for the poor to enact transformational roles (exemplified by the producers’ cooperatives or associations at the grassroots, and NOFTA, the federation of small producers initiated by the sugar partners). Alter Trade is now in a renewal phase where it is poised to engage its sugar farmer partners to reach an even higher level of empowerment while closing the gap between its intended strategy of empowerment and its realized strategy of collaboration among its banana growers. In the years to come, it would be interesting to make a follow-up case study to explore what Spear, et al., (2010) have identified as major challenges of governance among social enterprises especially in managing the tension between social and enterprise objectives. In this regard, Alter Trade would be an interesting case study to test what Hockerts (2010) proposed to be the two types of archetypal responses by social entrepreneurship initiatives engaged in sector transformation: a retreat to its philanthropic core or a partial abandoning of its social objectives. The researcher sees an opportunity for Alter Trade and its solidarity partners in Europe and Japan to undertake a creative multi-stakeholder initiative of going beyond these archetypal responses. This was alluded to by Hockerts (2010, p. 18) as “A possible third way.... of continuous innovation whereby social ventures keep innovating their way out of the tension between market and mission”. Such would be a fitting response to the daunting challenge of not only pursuing a positioning that Fichtl (2007) described as being both in and against the market, but more appropriately what Walton (2010) characterized as part of the emerging conception of fair trade to establish interim global market justice in a non-ideal world. Beyond transforming global markets, Alter Trade’s unfolding story may be explored as contributing to what scholars in the social economy school of social entrepreneurship call a plural economy, governed not only by market principles but by the principles of reciprocity and redistribution (Laville, 2010). 129 CHAPTER 4 – UPLAND MARKETING FOUNDATION INC: FROM SUPPLIERS TO TRANSACTIONAL PARTNERS IN VALUE CHAIN MANAGEMENT This chapter demonstrates how the Upland Marketing Foundation, Inc. (Upland Marketing or UMFI), as SEPPS pursued an intended stakeholder engagement strategy of collaboration as a mandate from Upland NGOs Assistance Committee (UNAC), a network needing a marketing arm for its comprehensive development agenda. Its intended strategy of collaboration was realized by providing small producers of food a combination of fee-based and non-fee based transactional services to deliver the quantity and quality of products required by local mainstream markets. The case showed that a regular flow of income for a significant number of small producers in multiple sites was achieved by engaging them as transactional partners in value chain management for champion products with growing markets. However, as demonstrated by Upland Marketing’s producers of organic rice, one of their two champion products, it was the diversified sources of income from practicing sustainable agriculture, not just the trading of organic rice, that moved them out of income poverty. The farmers’ practice of sustainable agriculture was also a product of years of comprehensive partnership with other non-government organizations (NGOs). Such partnerships between these farmers and NGOs had created self-governing farmers’ cooperatives that later became the organized supplier-partners of Upland Marketing. In this sense, Upland Marketing’s provision of transactional services to small producers was deliberately complemented by the provision of transformational services by these NGOs. Upland Marketing’s viability as SEPPS has been undermined by practices of ‘unfair trade’ by supermarket chains serving as their distribution channels. As a major market intermediation initiative pursuing fair trade and exploring engagements with mainstream markets to serve the goal of poverty reduction, Upland Marketing’s crisis may be positively characterized as the precursor to a renewal stage. In this context, fair trade as corporate social responsibility (CSR), may be a way forward as a complementary stakeholder engagement strategy vis-à-vis the supermarket chains. If successfully pursued, it may become a case in the South for the interface of social entrepreneurship and CSR. 130 4.1. Introduction Upland Marketing Foundation Inc. (Upland Marketing or UMFI) had its roots in the Upland Marketing Program of the Upland NGOs Assistance Committee (UNAC), composed of eight agencies from civil society, academe and the business sector, all of whom were concerned with the development of poor upland communities in the Philippines.36 About three quarters of the poor in the country live in rural areas (Balisacan, et al., 2008). It was generally recognized that illiteracy, unemployment and the incidence of poverty was gravest in upland and indigenous communities (Guarin, 2004; Serrano, 2010). Upland Marketing was set up to provide financial, technological and market access to marginalized community-based producers. They acted as an intermediary organization between these community-based enterprises and local mainstream markets, using large supermarket chains as distribution channels. They were initially concerned with assisting upland producers but decided to extend their services to lowland and coastal communities to make their operations more sustainable. While they distributed a range of processed and semi-processed food items from community-based enterprises, what had become dominant as ‘champion products’ by virtue of volume and level of sales were muscovado sugar and organic rice. The founders of Upland Marketing had been explicit that the social objective of the enterprise was its primary reason for being. Ramon Derige, Chairperson of UNAC and founding President of Upland marketing explained: “We believe our existence is really based on social objectives. For sustainability, we have to earn profits”. (Derige, 2010) While they were committed to practice fair trade with partner producers, Upland Marketing was faced with the challenge of dealing with mainstream market practices. Because of their dominant position, supermarkets could exact terms and conditions that generally lowered their procurement prices, prolonged payment terms and put the burden of shouldering potential losses to their suppliers. The core and partner organizations of the Upland Marketing Foundation Inc. that were covered by this case study are listed in Table 4.1. 36 The 8 organizations were the Institute for Philippine Culture, Ateneo de Manila University, Institute of Agroforestry, University of the Philippines in Los Banos, Kalahan Educational Foundation (KEF), Philippine Association for Intercultural Development (PAFID), Philippine Business for Social Progress (PBSP), Philippine Partnership for the Development of Human Resources in Rural Areas (PhilDHRRA), Social Development Resource Center, La Salle University and Tanggol Kalikasan. 131 Table 4.1. Core and Partner Organizations of the Upland Marketing Foundation Inc. Name Role Upland NGO Assistance Committee (UNAC) Network that founded UMFI to provide market access to marginalized community-based producers Upland Marketing Foundation Inc (UMFI) Core organization serving as intermediary marketing organization to partner communitybased enterprises (CBEs) Community-Based Enterprises (CBEs) Cooperatives or associations serving as partner suppliers of UMFI. In the organic rice value chain, these included: Kooperatibang Likas ng Nueva Ecija (KOOL-NE) Pecuaria Development Cooperative Inc. (PDCI ) Samahang Likas Kayang Pagsaka Coop Sto. Nino 4.2. Pre-Inception (1992-2000): Experimenting as Intermediary of the Poor with Mainstream Markets 4.2.1. Upland Marketing Program Initiative37 The need for an upland marketing initiative first came from a National Consultative Conference of Non-Government and People’s Organizations in Upland Development in the 1980s. This idea was pursued with development agencies from the North, particularly the United States and Europe, serving as pro-active partners. Derige recalled the setting up of UNAC and the Upland Marketing Program and the critical role of development agencies in the North: “Ford Foundation pushed and funded the setting up of UNAC as a national network that would work with the Department of Environment and Natural Resources to pursue a social forestry approach. They funded the Upland Marketing Program for upland communities to gain economic benefits. It was the savings of PhP 800,000 from the Ford Foundation – funded program of UNAC that served as a start-up fund to spin off the Upland Marketing Program into the Upland Marketing Foundation Inc.” (Derige, 2010) 37 This section was based mainly on the documentation and recollection of UMFI’s history and experience by the Founding Executive Director of UMFI (Guarin, 2004; 2009) and validated by interviews made by Marie Lisa Dacanay with UMFI’s former Deputy Executive Director (Tacuyog, 2010) and the Founding Chair of the Board (Derige, 2010). 132 The Upland Marketing Program (UMP) that ran from 1992-2000 was part of UNAC’s concerted efforts towards community-based resource management and upland development. It was part of a three-pronged approach featuring land tenure acquisition; increasing area productivity through agro-forestry and reforestation; and opening access to markets to sell the surplus production of communities. 4.2.2. Experience with ‘Heartless Traders’ Community-based enterprises (CBEs) were organized and assisted with market information, training, and then linked to mainstream traders. Neither the CBEs nor the traders were happy with the results. For example, in the trading of vegetables, the CBEs were not able to keep up with the volume, quality and delivery requirements of the buyers. The CBEs also expected the buyers to understand and forgive their difficulties, and give them a price that would enable them to recover their costs and earn a profit. The buyers, on the other hand, could not relate to what the CBEs wanted and refused to give them consideration. The CBEs felt the traders were heartless and were only concerned with profit. Both parties refused to transact with each other for a second time. 4.2.3. Unsustainability of Commodity Trading This failure surfaced the need for an intermediary entity that would mediate expectations and serve as a buffer between the CBEs and the market. The Upland Marketing Program was then conceived of as being that intermediary. They started trading rattan, but the CBEs faced a dilemma in trying to keep up with the growing demand for rattan and they felt they were being forced to harvest more rattan than the forest could sustainably support. This experience made UMP realize the dangers and inappropriateness of commodity trading. Commodity trading did not only have the tendency to over extract valuable forest resources but also in most cases did not provide fair economic returns for the communities or households engaged in the activity. The low market value of the products, the distance to the markets, and the bad infrastructure made trading costs expensive, thus eroding further whatever margins might be earned. In their effort to increase income, the communities resorted to increasing volumes, resulting in over-extraction. This negated the very essence of UMP’s reason for being – to assist upland communities market their products while ensuring sustainable forest use. 133 4.2.4. Processed Food Products: Better Prospects UMP’s experience in providing marketing assistance to groups dealing with forest-based processed food products proved to be more beneficial to CBEs. Economic returns were better and the pressure on the forest resource was not as great. A smaller volume was needed to engage in viable production. This was demonstrated by the Mountain Fresh jams and jellies of the Kalahan Educational Foundation (KEF), a member of UNAC working with the Kalahan people in the uplands of Nueva Vizcaya. As a rule, KEF only used 10% of harvestable fruits in the forest to ensure that they did not over-extract. By processing the fruits into jams and jellies, they could generate more income even as they kept their harvests at sustainable levels. For example, a kilo of raw guava fruit could be sold for PhP 25/kilo. But when converted to jams and jellies, a kilo of guava fruit made 5 bottles and could be sold at PhP 35 each for a total gross income that is 700% more than selling the fresh fruit. This and other similar experiences made UMP conclude that processing and marketing edible forest products was a better intervention compared to raw material trading. However, this also had its challenges. As shown by the experience of KEF in trying to market their products, even with relatively low volumes, the local market was either too small to absorb the communities’ production or was not the appropriate market for the product. The more stable markets were found in the urban centers and Metro Manila remained the main market. This mode of engaging the market posed new challenges. This was characterized by Rene Guarin, founding Executive Director of UMFI: “The new situation shifted the problem from poor economic returns to affordability of market access for the communities. Because access to the market required establishing frequent transactions with the retailers and supermarket chains were located in urban centers, marketing became expensive for communities that were located far from these urban centers”. (Guarin, 2004) Aside from the distance, the communities also had problems specific to the transport and transportation facilities in their areas. The small volume they traded could not cover the cost of marketing even if the margins were high. Aside from the costs, the skills and orientation or attitude needed to effectively manage the retail chains proved very hard to find or instill in the communities’ representatives. Selling through the retail stores entailed waiting in line with other sellers before being entertained by the buyer. Deliveries of products, pick-up of returns, or bad stocks needed to follow specific schedules. Products delivered must be displayed properly, and cleaned regularly. Collections of payments were done on specific days and time schedules only. There was also the need to maintain good rapport with the buyers. Finally, there 140 UMFI. Still, timely financing remained a major concern towards meeting the delivery and price requirements of the market. Value chain development was a major strategy for the champion products – organic rice and muscovado sugar – and was expected to be a concern for coco sugar as well. Aside from interventions illustrated in the Kooperatibang Likas ng Nueva Ecija (KOOL – NE) and Pecuaria Development Cooperative cases (please see Box 4.2. and 4.3. respectively), UMFI was involved in a collective effort to develop the value chains for muscovado sugar and organic rice in the Philippines. This effort was spearheaded by the Interchurch Organisation for Development Cooperation (ICCO), whose Value Chain Development Program Coordinator was Rene Guarin, former Executive Director of UMFI. The organic rice group for Luzon, for instance, was awaiting the results of a research that could possibly provide insights for growing the market for organic rice in the country. UMFI also provided services to development organizations, both nongovernmental and governmental, in product development, distribution and marketing. One major partner was the Department of Agrarian Reform – Bureau of Agrarian Reform Beneficiaries Development (DAR – BARBD), which it assisted in the development of agrarian reform communities. 4.4.4. Upland Marketing’s Role and Development Model Upland Marketing was conceived to play a specific, rather than a comprehensive role in promoting development in the uplands and other rural poor communities. Upland Marketing worked with intermediary organizations, many of them UNAC members who had established programs that were directly organizing and capacitating target groups within the framework of sustainable area development. The partnership engagement called for Upland Marketing’s input to improve production-marketing linkages mainly through technology/production enhancement and market access. This partnership was formalized through a memorandum of agreement where UMFI’s role to improve market access was defined (Canlas, et al., 2007). Upland Marketing’s conception of its role was best captured by what it considered to be its development model. This development model aimed at “bridging the market divide” (Upland Marketing Foundation Inc., 2010). The model proceeded from an analysis of what community-based enterprises (CBEs) faced as primary barriers for entry to mainstream markets. These barriers included the following: 141 x In relation to CBE capacity, difficulties in: determining and meeting quality standards for product marketability, supply capacity, product pricing, and permits/ licenses/taxes; x In terms of distribution infrastructure, logistics support: lack of access to affordable product transport, product warehousing/redistribution/tracking, and trade maintenance; and x In relation to the market: trade policies, practices and perception: terms and conditions (payments, delivery, pull-outs), market entry costs and fees, and inability to meet quality and supply regularity requirements. At the initiation stage, Upland Marketing conceived of a development model whereby community-based enterprises (CBEs) were assisted in terms of technology development (product development, business/management systems), financial services (for working capital and equipment/facilities upgrade), and market services (market information, distribution of products). This model was refined at the start of the development stage, clarifying that the assistance to CBEs was directed at their becoming vehicles for local economic development. During the latter part of the development stage, this was further refined to focus resources not only in assisting individual CBEs but assisting clusters of CBEs in selected economic subsectors with growth potential. This would entail assistance to facilitate the participation of these clusters of CBEs in value chain management. Assistance in value chain management would include relevant aspects of research and development; input sourcing, production, distribution, and sales and marketing inclusive of access to customer service/market feedback. Community-based enterprises or CBEs took a variety of organizational forms. CBEs at their early stage of development were usually self-help or producers’ groups that later evolved to become associations or cooperatives as they matured. The stories of KOOL-NE and the Pecuaria Development Cooperative contained in Boxes 4.2., and 4.3., respectively, illustrate UMFI’s partnership with CBEs in the organic rice subsector. Both of these stories underscore the roles of other development organizations in comprehensively assisting UMFI partner CBEs, specifically in organizational development and the practice of organic farming or sustainable agriculture. The Philippine Rural Reconstruction Movement (PRRM), and the Philippine Partnership for the Development of Human Resources in Rural Areas (PhilDHRRA), both non-government development organizations, were responsible for organizing and enabling the development of KOOL-NE and Pecuaria, respectively, while UMFI mainly provided the CBEs access to markets. The various services they delivered to CBEs were geared towards ensuring market access. 142 Box 4.1: UMFI Partners During Development Stage Sources: Guarin, 2009; Derige, 2010; www.umfi.org x Interchurch Organisation for Development Cooperation (ICCO): one of the six Dutch co-financing organizations with funds from the Dutch government and the European Union organizations; funding partner of UMFI; also spearheaded value chain development for organic rice and muscovado sugar. x OIKO Credit: a pioneer in the field of development financing with a network of Regional Offices globally including in Asia; supported organizations that promote fair trade, sustainable agriculture and community development; provided working capital loan for UMFI marketing activities and the SEFF. x DOEN Foundation: Netherlands-based foundation which provided capital fund for the Social Enterprise Finance Facility or SEFF; the link was made through the Non-Timber Forest Products (NTFP) Exchange Programme. x Federation of Peoples’ Sustainable Development Cooperative: used to be the Central Loan Fund (CLF) under the Philippine Development Assistance Program (PDAP), which grew to a network of PDAP’s affiliate organizations providing financial and non-financial services to marginalized sectors; acted as a major source of financing for UMFI’s partner CBEs. x Peace and Equity Foundation: Philippine-based funder of development programs; provided funds for program support. 143 Box 4.2. KOOL – NE Sources: PRRM, 2011; PHILCOMDEV, 2009; Palomo, 2011; UMFI, 2011 The Kooperatibang Likas ng Nueva Ecija (KOOL-NE) is a cooperative established in 2002 as a joint venture of the Kalipunan ng mga Magsasaka para sa Likas-Kayang Sakahan sa Nueva Ecija (KALIKASAN-NE), and the Philippine Rural Reconstruction Movement (PRRM) to support sustainable rice production and marketing. KOOL-NE, and KALIKASAN-NE had grown within PRRM’s community development work with small farmers in Nueva Ecija since the late 1980s. PRRM, a non-government development organization, had implemented the Sustainable Rural District Development Program, which encompassed community organizing, livelihood and enterprise development, community-based natural resource management, basic social services systems development, and local development advocacy. Work with the farmers had started with organizing and the introduction of low external input sustainable agriculture (LEISA). As the farmers’ organizations grew stronger, they decided to organize the KALIKASAN-NE, a provincial federation of sustainable agriculture practitioners and advocates. LEISA eventually progressed to organic farming, and in later years, the adoption of diversified and integrated farming systems. Marlon Palomo, chair of KOOL – NE, estimated that the farmer’s gain from the shift from conventional to organic farming alone was around PhP 6,000 to 8,000 per hectare. KALIKASAN–NE eventually decided that it needed an enterprise arm, which led to the birth of KOOL–NE. It grew to 130 members, and has been recognized as one of the outstanding cooperatives of Nueva Ecija. KOOL-NE offered micro-finance services to both members and non-members alike, and provided support services to its farmer members. These included alternative trading and marketing, specifically the procurement and trading of organically grown rice. KOOL–NE had been a partner of UMFI since 2003. According to Marlon Palomo, chair of KOOL-NE, UMFI had assisted the former in various aspects, as follows: x Facilitation of capital both for agricultural loans and for the trading and milling operations (either from UMFI or, in later years, from UMFI’s partner, the Federation of Peoples’ Sustainable Development Cooperative or FPSDC); x Assistance in organic certification of farms; x Oversight in the milling process to ensure product quality; x Repacking of rice for retail; and x Marketing to the retail chains, as part of the “Healthy Rice” line under the “Farms and Cottages” brand. There was a tripartite financing agreement among KOOL-NE, UMFI and FPSDC. FPSDC released advances to KOOL-NE in the form of loans. KOOL-NE then provided organic rice to UMFI valued at agreed-on prices. Payments to FPSDC for the amount owed by KOOL-NE were made by UMFI. There were times when UMFI’s payments to FPSDC would be delayed, creating complications down the line. (Palomo, 2011) UMFI, KOOL-NE and other social enterprises and social enterprise resource institutions were involved in an effort to develop the organic rice value chain in Luzon, led by the Interchurch Organisation for Development Cooperation (ICCO), whose Value Chain Development Program Coordinator was Rene Guarin, former Executive Director of UMFI. 144 Box 4.3: Pecuaria Development Cooperative, Inc. Sources: PDAP, 2010; UMFI, 2010, 2011; Canlas et. al., 2007 The Pecuaria Development Cooperative, Inc. (PDCI), UMFI’s largest single supplier for organic rice, was based in the province of Camarines Sur. The farmer members of PDCI were agrarian reform beneficiaries who had been awarded 817 hectares of what used to be an estate in 1991. As vividly described in an article on the website of the Philippine Development Assistance Programme (or PDAP – a consortium of NGOs promoting rural enterprise development for poverty reduction), PDCI’s development from its inception to the stable organization that it eventually became, was “touch and go” and “trial and error”. Along the way, PDCI was able to obtain assistance from several development organizations. The farmers were organized by an NGO, PhilDHRRA (Philippine Partnership for the Development of Human Resources in Rural Areas) under its TriPARRD (Tripartite Partnership for Agrarian Reform and Rural Development) Program. This opened the doors for government agricultural support, so much so that “the farmers found themselves at the receiving end of projects that they did not have a clue about then; a loan for a rice enterprise and warehouse in 1993; a loan for cattle raising in 1995 that got restructured into a reforestation scheme and is now due for writeoff; a bamboo project; and a nursery site” (PDAP, 2010). Most of the projects did not prosper. As assessed by the farmers, they lacked experience and careful study on these projects, plus some projects were not appropriate (e.g. the cattle raising project where it turned out that the cows from Australia could not adapt to the environment at the site). In 1994, the farmers ventured into organic rice farming with the assistance of MASIPAG, an NGO promoting organic rice technology, and KOSOG, another NGO that provided training to an initial group of seven farmer-leaders. These groups were instrumental in facilitating PDAP’s support through Magsaka-Ka, a farmers’ federation. To upscale MASIPAG, 86 farmers who were on various levels of shifting to organic farming were provided with credit assistance worth PhP 10,000 per hectare. From 1998 to 1999, PDAP provided financial support for the procurement of facilities and equipment, coursed technical assistance for the production of bio-organic fertilizer, and extended a PhP 2 million grant to help PDCI establish its Agri-Credit scheme which provided a revolving loan fund for farmers’ organic rice production. These boosted the PDCI farmers’ capacity to increase the coverage of organic rice. The demonstration of benefits from organic farming in turn encouraged other farmers to adopt the technology. PDAP also provided assistance to facilitate research, training and technical assistance to the farmers. Agriculturists were hired as staff members and soon, PDCI developed its own white and ‘sampaguita red’ organic rice varieties called ‘Pecuaria selections’. PDAP then linked PDCI to UMFI, which facilitated PDCI’s identification and development of the primary products, and its positioning as a player in the industry. Exposure to trade fairs helped improve the products’ packaging, and allowed the farmers to know the buying and eating preferences of the clientele, which they put into what they later dubbed as ‘value-added marketing’. By the late 2000s, PDCI was delivering 80% of its rice stock to UMFI, with the balance of 20% sold in the local area. In 2009, UMFI purchased PhP 8.5 million worth of rice from PDCI. From 2003 to 2009, purchases from PDCI had totaled PhP 46.75 million. By 2010, PDCI had a total membership of 766 farmers. By the end of December 2009, it had an asset base of PhP 34.2 million. 145 4.5. Financial and Social Outcomes 4.5.1. Financial Outcomes Starting with annual sales of PhP 1.8 million in 2001, UMFI had experienced sustained growth, reaching PhP 37 million in 2009. However, gross income from sales had only been at 17 to 20% of sales from 200445 until 2008. In 2008, the cost of sales was brought down to 75% (hence gross income was 25%) when UMFI was able to institute higher selling prices at the height of the rice crisis. The year 2008 was also the first year that a positive income (amounting to PhP 189,000) was registered for business operations (UMFI, 2008; 2010). The gross margin percentage was sustained for 2009, and UMFI had managed to keep expenses at around 25% of sales since 2006. However, interest, general and administrative expenses rose significantly, leading to a net loss in business operations of PhP 1.8 million for the year (based on UMFI data, 2008, 2010). An evaluation report in 2010 noted that other factors for the loss were damages to stocks due to a strong typhoon, as well as the “docking system of some supermarkets impacted negatively on UMFI operations46” (External Evaluation Report, 2010). Figure 4.1. shows UMFI’s sales and gross income for 2004-2009. Figure 4.2. shows UMFI’s total revenues and net income for the same period. Total revenues were mainly from sales with some interest income and income from miscellaneous sources such as consultancy services. UMFI, up to the time of the research, was financially unstable, and except for 2008, had a negative net income from 2001-2009. While it had generally sustained growth in sales, it had not grown optimally because of not having enough capital to finance purchases of products from partners. This was to a large extent a function of the payment terms dictated by the supermarkets. Despite their setting up an Enterprise Financing Facility in 2007, and having contracted a substantial volume of loans, they had not generated enough social investments to fully finance their purchases from partner CBEs to ensure no stock-outs and to meet the growing demand especially of muscovado and organic rice. For the past few years, UMFI had in fact paid penalties, as they could not make deliveries to supermarkets due to financial difficulties. While UMFI could have done more in terms of achieving more efficient operations, the negative impact of what was considered as normal industry practice of 45 Details of financial statements for the business operations are only available for 2004 to 2009. Complete audited financial statements are only available for 2006 to 2009. 46 The ‘docking system’ referred to the delivery and internal distribution system of the supermarket. This problem referred specifically to SM. UMFI had previously been able to deliver goods directly to the SM branches. SM changed its system such that deliveries had to be made to a central site, i.e. a ‘dock’, with SM itself taking care of the delivery to its branches. UMFI observed that returns increased during this period. To address this problem, UMFI had deployed merchandisers in the branches who would ensure that the branches were receiving adequate supplies (Fonollera, 2011) 146 supermarkets - paying their suppliers late while penalizing them for lack of deliveries, were major issues from a stakeholder management perspective. As stakeholders, supermarkets recognized UMFI as a reliable supplier of organic and healthy products. However, supermarkets, as distribution channels in the mainstream market, treated UMFI no differently from the way they treated their other suppliers. Figure 4.1. UMFI, Sales and Gross Income, 2004 – 2009. Sources: UMFI Audited Financial Statements, 2007, 2009; UMFI unpublished documents: financial statement worksheets, 2004 – 2006; 2007 Evaluation Report; 2010 Evaluation Report. As a development institution, UMFI also generated funds from grants and other support funds, and used such funds for various program support activities including product development, market development, CBE, and value chain development. Grant funds also supported institutional management and some administrative costs of the business operations, especially during the inception and early development stages. From 2006 to 2009, UMFI had access to grant funds averaging approximately PhP 5.4 million per year (consisting of both restricted and unrestricted funds) (UMFI, 2008, 2010). - 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 2004 2005 2006 2007 2008 2009 Year PhP (in Millions) Sales Gross Income from Sales 147 Figure 4.2. UMFI, Total Revenues and Net Income, 2004 – 2009. Sources: UMFI Audited Financial Statements, 2009, 2007; UMFI unpublished documents: financial statement worksheets, 2004 – 2006; 2007 Evaluation Report; 2010 Evaluation Report. In terms of the market, UMFI’s Healthy Rice had been recognized as a leading brand in supermarkets, although it had experienced intense competition from other social and commercial enterprises in recent years. However, it still had to optimize its extensive distribution system (involving 300 outlets at the time of the research) in major supermarkets nationwide to ensure that it reached financial sustainability. 4.5.2. Social Outcomes An External Review commissioned by ICCO in May-June 2007 confirmed that UMFI’s target groups for its development interventions consisted of various segments of the poor such as small farmers (mostly agrarian reform beneficiaries), indigenous peoples and fishers. These target groups were organized into community-based enterprises usually taking the form of cooperatives (Canlas, et al., 2007). As of June 2010, there were 23 community-based enterprises (CBEs) that regularly supplied organic rice, muscovado sugar and other products to UMFI for distribution to the mainstream supermarket outlets. In addition, there were 21 CBEs that supplied products to local markets through UMFI’s Enterprise Development Centers in Oriental Mindoro and Nueva Vizcaya. The combined total of 44 CBEs involved 2020 individual members, with an additional 890 households working in partnership with UMFI, and using local markets for their products (UMFI External Evaluation Report, 2010). -6.00 -4.00 -2.00 0.00 2.00 4.00 6.00 8.00 10.00 12.00 2004 2005 2006 2007 2008 2009 Year Total Revenues Net income (loss) PhP (in Millions) 148 UMFI did not monitor their impact at the household level mainly because of the assumption that the primary development organizations, i.e. the community-based enterprises, working at the target group level were already doing that (Canlas, et al., 2007). The former Deputy Executive Director in 2010, who was in charge of the financing facility and capacity development programs for CBEs at the time, estimated their impact on household incomes: “Among our partner producers and suppliers, about 1/3 have experienced substantive increases in incomes through their participation in their respective CBEs. The incomes derived by the other 2/3 from their respective CBEs have not been regularized”. (Tacuyog, 2010) The sectors who had experienced substantive increases in incomes were mainly partners in the organic rice and muscovado value chains. Interviews with UMFI partners in the organic rice subsector provide an indication of the extent and sources of such income increases: x Angel Albo of the Samahang Likas Kayang Pagsaka, in Calapan Oriental Mindoro, used to make PhP 10,000/season before partnership with UMFI but now made PhP 25,000/season. This was in addition to what he set aside for food from his harvest and the additional income he got from their sari-sari store, poultry raising, vegetable production and fish pond culture. (Albo, 2010) x Jethel Kapunan of the Coop Sto Nino in South Cotabato used to make PhP 10,000 - PhP 12,000/hectare from conventional farming but now made PhP 60,000/hectare from organic farming (Capunan, 2010) x Miller Bicaldo of Pecuaria Development Cooperative used to make PhP 30,000/cropping from organic farming but with UMFI support, now made PhP 50,000/cropping in addition to the 15 bags he regularly set aside for the family. He also made PhP 65,000/harvest 3X a year from his poultry in addition to making PhP 97,500 from chicken dung (Bicaldo, 2010). Much of the impact attributed to UMFI related to increased access to technology and markets leading to increased incomes. This was because UMFI’s role, in the overall strategy of development among UNAC members, was in the area of market access. Within UNAC, different members were supposed to play different roles. UMFI was envisioned to focus on the marketing intermediation aspect of intervention in the context of advancing a holistic development strategy for partner communities. 149 4.6. Upland Marketing and Social Entrepreneurship 4.6.1. Upland Marketing as SEPPS Upland Marketing manifests the characteristics of a SEPPS as defined in Section 2.5, using a Donaldson and Preston’s (1995) normative approach. Firstly, Upland Marketing’s primary stakeholders are poor producers from upland, lowland and coastal communities. Its main mandate is to assist these marginalized producers develop their products and provide them access to markets. Secondly, Upland Marketing generates wealth from the sale of the products of its partner communitybased enterprise (CBE) suppliers. Much of the wealth generated is from the sale of what it calls its champion products - organic rice and muscovado sugar. The wealth it generates from selling organic rice and muscovado sugar seeks to make its product development and marketing service to its marginalized producer partners financially viable. As the President of Upland Marketing articulated, “We believe our existence is really based on social objectives. For sustainability, we have to earn profits” (Derige, 2010). Thirdly, a significant part of the wealth Upland Marketing generates is distributed to its producer partners through the payment of a fair price transparently negotiated between them. As a non-stock, non-profit organization, it is bound by law to use all its income from operations for the fulfillment of its social mission. It also generates other resources in the form of grants and loans to provide its supplier partners’ technical and financial services. Supermarkets as mainstream market channels impose many unfavorable industry practices that have had a grave impact on Upland Marketing’s financial viability. So at most, Upland Marketing has just managed to partially cover its costs, while relying on grants to finance its value chain services to its partner CBEs. Upland Marketing’s problem dramatizes a major issue faced by SEPPS serving mainstream markets in the Philippines. 4.6.2. SEPPS in a Developing Country Context How does the developing country context of the Philippines affect or shape Upland Marketing as SEPPS? The theme of SEPPS as a response to the failure of market and state institutions to serve the needs of the poor in the Philippines is echoed by the story of Upland Marketing. Tracing the history of Upland Marketing as discussed in Sections 4.2 to 4.4, it has been the failure of the mainstream market and state institutions to provide market access and sustainable livelihoods to poor producers that have been the driving force for Upland Marketing’s existence. The failure of state institutions could be seen in the policy-action gap in social forestry and agrarian reform related to building sustainable 252 Thirdly, it pursues its mission in a cooperative set-up, where any surplus from its operations is distributed as dividends to members or utilized in furthering its organizational mission. 7.6.2. SEPPS in a Developing Country Context As with the other SEPPS covered in this research, the Lamac MPC may be characterized as a response to the failure of state and market institutions in serving the needs of the poor and of poor communities. During the initiation stage, Lamac MPC played a key role in mobilizing community resources and in engaging government agencies to provide a neglected and poor community infrastructural resources that facilitated access of households to potable water, electricity and transportation. The support services that the cooperative made available to farmers particularly in Lamac also reflected market infirmities as well as the failure of state institutions to provide sustained support to small farmer-based agricultural development. An indication of the failure of market institutions during the development stage was the lack of access by the poor – farmers, contractual workers, entrepreneurial poor – to non-usurious financial services. As shown by the members interviewed, these were mainly used as livelihood capital and to finance basic needs like the education of their children and health care. On a broader basis, the popularity of the Lamac MPC’s social protection services reflected the failure of government to provide such, and to ensure access by the poor to basic social services. These aspects of the Lamac MPC experience echo Encarnacion-Tadem’s (2010) finding that the rise of cooperatives in the Philippines has been partly a response to the government’s inefficiency in delivery of basic needs. She posits that NGOs, people’s organizations and cooperative federations have helped fill the vacuum the state has left in the following aspects: access to capital, technical and infrastructural resources, marketing of products and self management. Interestingly, Lamac MPC had successfully engaged government in accessing financial and technical resources for its development and growth. Not only did Lamac MPC become a major partner of the state-owned Land Bank of the Philippines, it became a multi-awarded model partner cooperative, and served as a major conduit for government microfinance programs in the Visayan region. There were of course also other supportive civil society actors such as cooperative federations in the Philippines and other countries, notably Canada, and other nongovernment organizations. In his narrative of the Philippine cooperative movement, Sibal (2002) recognizes the continuing problems of poverty and income inequality in the country, with inequality existing among classes and among regions. He avers that people 253 empowerment is the correct approach in solving these twin problems, and locates cooperatives as among the major pillars of the people empowerment movement in the Philippines. Given its articulated vision and mission, Lamac MPC seems to locate itself in this realm of people empowerment. 7.6.3. SEPPS and Social Entrepreneurship As a cooperative, the Lamac MPC resonates with the social economy school of social entrepreneurship (Defourny and Nyssens, 2008; Hulgaard, 2008) discussed in Chapter 1. In particular, Lamac MPC may be seen as typifying what Spear, et al., (2010) consider as a mutual social enterprise with a member-based governance structure. In their study on governance challenges among social enterprises in the United Kingdom, these scholars found that mutual social enterprises are faced by the challenges of maintaining an active membership and developing a competent board. With the farmers successfully bringing into the revitalized cooperative the skills and experience of local professionals, Lamac MPC may be said to have found a way forward in ensuring a competent board. They have also set up Coop Youth Planet as a training ground for future cooperative leaders. This may be considered a formation strategy deemed important by past studies on governance of cooperatives for training and qualifying potential candidates to the cooperative’s Board of Directors (Cornforth, 2004; Vidal, 2010). The case of Lamac MPC adds to the body of literature that studies the trends and challenges for social enterprises within the cooperative framework. Probably the most extensive study on this subject was that of Borzaga and Spear (2004) covering country experiences in Canada and 9 European countries, considered as developed and transition economies. This case on Lamac MPC provides a perspective on this subject from the context of a developing country. While coming from a different country context, the trend of the international cooperative movement towards the direction of revitalizing the communitarian tradition is validated by the case. This could be seen in the reorganization of the farmer-based Samahang Nayon (single stakeholder model), towards establishing a partnership between the farmers and the professionals in the Lamac Multi Purpose Cooperative, that embraced the community as a whole (multi-stakeholder model). Eighteen years after establishment, other segments of the poor, notably the entrepreneurial poor have become a majority segment. As a cooperative that now counts among its members various segments of the poor, such as farmers (at least in Lamac), workers and the entrepreneurial poor, there may be room to consider and institutionalize what Cheney (2001) discussed as a combination of direct and representative democracy that was utilized by the Mondragon Worker Cooperatives in Spain. Direct democracy, manifested in the one 254 person, one vote principle already practiced by Lamac MPC, may be enriched by representative democracy in ensuring that significant segments of members coming from various segments of the poor are fairly represented. This may be particularly important for a cooperative like Lamac MPC, whose mission is ‘to strongly respond (to) the holistic empowerment needs of the vulnerable sectors’ (Lamac MPC, 2009) in a social context of massive poverty and inequality. Trends indicated by the past and current composition of the Lamac MPC Board, and the attitude of members among the ranks of the poor to delegate governance functions to professionals demonstrate the importance of these complementary mechanisms for representative democracy. What Lamac MPC is facing may be characterized as an expression of what Borzaga and Spear (2004) articulated as the challenge of finding more effective mechanisms for multi-stakeholder governance given the international trend towards communitarianism among cooperatives as social enterprises. Thorp et al., (2003) argue that the chronically poor are disadvantaged in group formations, both in forming groups and in making them work. This is consistent with Sen’s (1999; 2009) perspective of poverty as capability deprivation. As SEPPS in a developing country context therefore, the biggest challenge that Lamac MPC faces is evolving mechanisms and undertaking programs that would build the capability of key segments of the poor in its membership to articulate and work for their specific interests and to effectively represent themselves in governing bodies. Table 7.1.a. depicts the ‘Participation of the Poor in Governance and Management of Core and Allied Organizations of Lamac MPC’. 7.7. The Lamac MPC from a Stakeholder Perspective 7.7.1. Primary Stakeholders of Lamac MPC The Lamac MPC mission of focusing on ‘vulnerable sectors’ and vision towards ‘empowered communities’, and their 18-years of practice show that the poor were a major target for the cooperative’s membership recruitment and services. As detailed in Section 7.5.2, the segments of the poor they have recruited as members and provided services to include the entrepreneurial poor, micro-entrepreneurs, farmers including livestock raisers, and construction, domestic and migrant workers. They comprise 90% of their membership. As a SEPPS, these various segments of the poor are Lamac MPC’s primary stakeholders from what Donaldson and Preston (1995) consider as a normative approach. 255 7.7.2. Roles and Role Changes among the Poor The main roles enacted by the poor in Lamac MPC were as clients or customers and as owners. They had put in their stake as owners via their initial capital contributions, and with their capital built-up over time mainly as they availed of the services. At the start of their membership, a sense of ownership was instilled through their participation in a Pre-Membership Education Seminar (PMES). Their being owners was also exercised mainly through their participation in periodic ownership meetings and annual General Assemblies. The relationship between the cooperative and its client-owners among the poor could be viewed as largely transactional in nature. As clients, the poor availed themselves of the cooperative’s services for a fee. As client-owners, in exchange for their patronage of the cooperative’s services and their capital contributions, they received dividends and patronage refunds. Through their entitlement to vote and be voted upon, they theoretically had the power to make decisions and to govern their enterprise. However, the power to vote and be voted upon in General Assemblies was limited to members in good standing (MIGS). Apart from the attendance of the PMES, a member would remain a MIGS, assuming they already met the initial minimum amount of share capital and savings deposit, if they had regular monthly capital build-up and savings, as well as paid loans on time. As described in Section 7.4.2., members were further subdivided into categories based on their capital build-up, savings practice, and loan repayment. Only the Gold and Diamond members were eligible to run as Board of Chapter leaders, and only Diamond members were eligible to run as members of the Board of Directors. All these indicate a largely transactional relationship between the cooperative and its client-owners, especially among the poor. Although around 60 to 80% of the MIGS participated in General Assemblies, and there were quarterly Ownership Meetings, substantive planning and decision-making was also done by the leadership. Plans were usually discussed at the level of the management committee and the board, and ratified during General Assemblies. As described in Sections 7.4 and 7.5, the members from poverty sectors who were interviewed saw their leaders as the ones responsible for decision-making. The substantial but minority representation of the farmers (3 out of 7) in the Lamac MPC Board during the initiation stage had declined over time, with only one farmer leader remaining. From his explanation in Section 7.4.3, the remaining farmer-leader would most probably be replaced by a professional in the future, like his two other colleagues who were replaced by professionals when they died. This may be understandable given the reality that since the cooperative had expanded outside of Lamac, the farming segment in the membership had not increased. This may be a function of the decision to expand through microfinance, a service known 256 to target more the entrepreneurial segment of the poor. However, at the time of the research, there were also no indications that the entrepreneurial poor, who already by then comprised a majority of Lamac MPC’s members, were being elected to Board positions. As shown by the results of the interviews, the poor saw their membership more as a means to have social protection and access to financial services. Compared to the PWD Fed, Lamac MPC’s transactional nature of the role enacted by the poor as owner over time shows a different face of the cooperative approach. It indicates that the role of the poor as owner in a social enterprise may have a dual character exhibiting both a transactional and a transformational side. 7.7.3. Roots of No Significant Role Change among the Poor Two important questions that need to be further explored on the Lamac MPC experience regarding the roles enacted by the poor are: (1) Why did the poor experience no significant role change over time? and (2) Why did the role of the poor as owners remain at the transactional level despite a cooperative approach? One may argue that the professionals in the Lamac MPC Board, who had been asked to revitalize a failed farmers’ organization, and comprised the majority from the beginning, viewed the poor as transactional partners. They also looked at the cooperative mainly as a mechanism they needed to govern and manage effectively for the efficient delivery of services. Following this line of argument, they saw their role as governing and managing a cooperative to deliver what they understood were services needed by the community and members from ‘vulnerable sectors’. However, as discussed in Sections 7.1 and 7.6, the intention of the governing bodies of the Lamac MPC seemed to go beyond engaging the poor as transactional partners. If we are to use as gauge their statement of vision towards ‘empowered communities’ and mission ‘to strongly respond to the holistic empowerment needs of the vulnerable sectors’, one may need to probe further. The discussion in Section 7.7.2 regarding Lamac MPC’s history of shifting from what Borzaga and Spear (2004) characterized as a single stakeholder organization (the Lamac Samahang Nayon as a self help group of farmers) to a multi-stakeholder social enterprise (the Lamac MPC as initially a partnership between professionals and farmers, and later included other segments of the poor) may be a good starting point. In a multi-stakeholder cooperative set-up of one person one vote, the poor’s capability deprivation (Sen, 1999; 2009) would work to their disadvantage unless affirmative action was taken to assist them overcome such. This is consistent with the findings of Thorp et al., (2003) that the chronically poor are disadvantaged in group formation, and this may form a significant part of the vicious cycle and dynamics of chronic poverty, unless adequately addressed. 257 In the case of PWD Fed, the capability deprivation of the poor was overcome by transformational services such as education, training and experiential learning opportunities directed at leadership formation and organizational development. These were on top of the services to effectively enact their transactional role, in their case as workers in the school chair project. In the case of Lamac MPC, its services are dominantly transactional in nature: they are delivered to members, including the poor, for a fee. While there is some effort to provide education and training for leadership formation, these seem to be directed at Board of Chapter leaders or staff, who would most probably be coming from the ranks of the professionals. The most significant transformational service directed at the poor noted by the researcher is scholarships for selected recipients among children of the poor to finish their formal education. As in the case of Tahanan, these services are individually directed. An indication of what may result from such transformational service would be what had happened to Digna Tanodra’s son, Eric as discussed in Box 7.3. Eric became an account officer after going through college with the help of a scholarship from Lamac MPC. Eric and others like him may be in a position to contribute to the improvement of the socio-economic status of their families. However, such would not adequately respond to the need for the various segments of the poor in Lamac MPC to be assisted to effectively participate in the governance structures of the cooperative. The transformational services geared towards leadership formation and organizational development directed at the various poverty segments of Lamac MPC’s membership seem to be the crucial missing element and raises further questions: Why despite a cooperative approach, had no significant role change happened among the poor? Why had the poor as owners remained so at the transactional level? Why did the transformational potential of the poor as owners not materialize? The delivery of these transformational services may be worth considering as a potential focus of the planned Lamac MPC Foundation, or as a special agenda for its membership development program. The importance of the effective participation of various segments of the poor in the governance of the cooperative may be better appreciated if one were to consider decisions related to overall direction and thrust. For example, if the farmers, who comprised the majority of the Lamac MPC members in 1998 were to have been provided transformational services to allow them to decide the cooperative’s future direction or thrusts then, would they have voted for an expansion strategy through microfinance? Consider that in 1992, the needs the farmers articulated during ownership meetings included “financial services to increase their production, in addition to farm inputs, pre- and postharvest facilities and irrigation” (Limocon, 2009). In 1998, wouldn’t the farmers have raised the need for a more comprehensive and integrated set of services as direction? 258 The point of emphasizing this concern is not to suggest a reassessment of Lamac MPC’s strategy of expansion through microfinance. It is to underscore the specific challenges faced by cooperatives as multi-stakeholder social enterprises with the poor as primary stakeholders in the context of massive poverty and inequality. In Section 7.6, the importance of combining mechanisms for direct and representative democracy (Cheney, 2001) was suggested as a starting point. The need for transformational services geared towards leadership formation and organizational development among concerned segments of the poor may be another crucial element. Overall, what these suggest is the lack of role change among the poor in Lamac MPC despite the cooperative set-up and a desire for empowerment by the management, may be attributed to the lack of transformational services and the absence of complementary mechanisms for representative democracy. These reflect specific challenges faced by cooperatives as SEPPS or as multi-stakeholder or mutual social enterprises in the context of massive poverty and inequality. Table 7.1. details the particularities of the roles enacted and services provided by the Lamac MPC among the poor as primary stakeholders. 7.7.4. Impact of Roles and No Significant Role Changes By 2010, the Lamac MPC had provided loans and other services to more than 37,000 poor or vulnerable people. As described in Section 7.5.2. the benefits derived or generated may be classified into economic gains from access to livelihood loans; employment generated by the cooperative and micro-entrepreneurs assisted by the cooperative; savings and capital build-up among members; improved access to education; and improved access to health, housing and social protection. In addition, the cooperative had been a major engine for the overall development of the barangay of Lamac, facilitating the access of households to potable water, electricity, transportation and spiritual services. Lamac MPC’s overall impact may be characterized as facilitating social inclusion and social protection among a significant number of the poor. In relative terms, the number of poor people reached estimated at 37,000 has been the most dramatic among all the cases studied. 7.7.5. Stakeholder Engagement Strategy over Time Applying Mintzberg’s (2007) theory of strategy formation, Lamac MPC’s intended stakeholder engagement strategy among the poor during its stages of initiation and development, may be characterized as one of empowerment. However, 259 its realized stakeholder engagement strategy among the poor may be characterized as one of collaboration. Its intended stakeholder engagement strategy of empowerment is evidenced by its vision, mission and choice of the cooperative as organizational form as discussed in Section 7.6. The lack of transformational services for leadership formation and organizational development and complementary mechanisms to adequately represent significant segments of the poor in Lamac MPC’s governance bodies were identified as reasons why what was intended was not realized. Its realized stakeholder engagement strategy of collaboration may be likened to that of Upland Marketing, Alter Trade (among banana growers), and Tahanan except for the particularities related to the nature of transactional roles enacted and services provided. Lamac MPC’s realized stakeholder engagement strategy of collaboration may be characterized as exhibiting the following features: x Managerial orientation towards the poor: poor as transactional partners; even in engaging the poor as owners, what was dominant was the transactional aspect of providing dividends in exchange for their capital investment; x Key engagement processes: collaborating, partnering, dialoguing, learning; collaboration and partnership were expressed mainly in transactional terms through capital and savings build-up and paying loans on time which also gave the poor the right to vote; regular venues for dialogue and learning between its board composed mainly of professionals and the poor included ownership meetings and general assemblies; x Nature of roles among the poor: mainly transactional as clients and owners; x Nature of programs and services: mainly transactional in the form of fee-based provision of financial and social services including social protection schemes; and x Impact on the poor: access to financial and social services by a large number of poor leading to social inclusion and social protection. As in the earlier cases, Sloan’s (2009) conception of models of stakeholder engagement based on a study of European corporations, is inadequate in explaining how Lamac MPC engages the poor as primary stakeholders. Again, this strengthens the need for evolving a framework for understanding stakeholder engagement strategies appropriate for social enterprises serving the poor as primary stakeholders (SEPPS). 260 Table 7.1. Lamac MPC: Evolution of Roles and Services among Primary Stakeholders Pre-Inception to Inception Stages: From Self Help Group of Farmers to Community Cooperative (1973 – 1992; 1992 – 1998) Development Stage: Spreading its Wings through Microfinance (1998 – 2009) Key Organizational Developments x Birth, operation and decline of the Lamac Samahang Nayon (SN), a self-help group composed of poor farmers in Bgy. Lamac; x Rehabilitation of Lamac SN by BLOMES, Inc., a group of local professionals; x 1992: Transformation of Lamac SN to Lamac MPC; registration and opening of membership to members of Lamac community; x Operation as community cooperative; and x Mobilization of resources and engagement with government to provide community access to potable water, electricity, transportation and spiritual services. x Expansion to other geographical areas with microfinance as entry point o Town-wide (1998); o District-wide (2001); o Province-wide (2004); and o Region-wide (2009) x Expansion of line of financial services; x Establishment of scholarships and program for children and youth; x Coop Youth Planet as training ground for future cooperative leaders; and x Establishment of Hidden Valley Resort and many other enterprises. Roles of the Poor: upland farmers, workers ( from Lamac), entrepreneurial poor x Clients; and x Owners with formal voting powers as members when in good standing; with minority representation in Board; and management delegated to professionals. x Clients; and x Owners with formal voting powers as members when in good standing; governance and management delegated to professionals. Services x Financial services including lending for farm production; x Rental of hauling truck, hand tractor and thresher; and x Milling services for rice and corn. x Financial services: o Loan products: livelihood loans, micro-enterprise loans, assetbased lending for larger enterprises, providential loans; and o Savings and capital build-up program; x Social protection services: mortuary, hospital, retirement, insurance, pension services; and x Within Lamac: agriculture-related services, community and consumer services; resort and training facilities 261 Table 7.1.a. Participation of the Poor in Governance and Management of Core and Allied Organizations of Lamac MPC Initiation Stage Development Stage Participation in Core Organization Members of the General Assembly Minority Members of Board Members of the General Assembly Progressively declining membership in the Board 7.8. Discussion Much of the literature on the Philippine cooperative sector has looked at factors influencing the survival or demise of cooperatives in the country (Sibal, 2002; Deriada, 2005). Sibal (2002) cites more than 80 studies that had assessed the growth and development of cooperatives in the Philippines. The fluctuations in government support for cooperative-like organizations that Sibal (2002) details in his narrative of the 100-year history of Philippine cooperatives validate that the failure of the Lamac Samahang Nayon, the precursor of Lamac MPC was not an isolated case. However, as a success story, Lamac MPC seems to have surmounted the factors identified by these studies as reasons for the failure of many cooperatives. This case adds value to the literature on Philippine cooperatives by its exploration of the Lamac MPC experience from the perspective of social entrepreneurship and stakeholder theory. In particular, the case explores Lamac MPC as a social enterprise with the poor as primary stakeholders (SEPPS). As discussed in Section 7.6, there have been studies by scholars identified with the social economy school of social entrepreneurship, on the trends and challenges faced by cooperatives as social enterprises (Borzaga and Spear, 2004) but mainly covering developed and transition economies such as Canada and 9 European countries. Cooperatives as social enterprises have also been studied in the United Kingdom (Spear, et al., 2010) and Spain (Vidal, 2010) in exploring issues of governance in social enterprises, and the challenges faced by cooperatives as multistakeholder organizations. Borzaga and Spear highlighted “Cooperative increasing involvement in the provision of social services is to be noticed in some non-European countries such as the United States, Japan, Canada, Philippines and Latin America” (Borzaga and Spear, 2004, p. 30). They also noted the extremely different conditions faced by cooperatives as social enterprises in the advanced and transition economies they studied. In this context, the contribution of the Lamac MPC case to this growing body of literature is exploring the challenges and issues faced by cooperatives as social enterprises in a developing country context. The Lamac MPC case substantiates the relevance of cooperatives as social enterprises with the poor as primary stakeholders (SEPPS) in responding to the 268 Lapu-Lapu. These members had actively expressed and suggested the need to establish an office there during informal consultations. The General Manager presented this for approval to the Board of Directors explaining that the population in Lapu-Lapu was 5-6 times more than Cordova. The General Assembly later ratified the decision. In November 2006, the Lapu-Lapu Branch Manager (who was the COO at the time of the research) Glenn Revalde–Tajanlangit, had proposed to open the cooperative’s membership to Mactan Export Processing Zone (MEPZ) workers who were getting their regular salary through Automated Teller Machines (ATMs). From talking with them, Tajanlangit had found out that workers were pawning their ATM cards to loan sharks at 5-13% interest per month. The workers did so because they were often ‘cash-strapped’ to meet their family’s basic needs. Tajanlangit had the idea that the cooperative could help these workers end their bondage with the loan sharks. As cooperative members, they could borrow from the cooperative at lower interest rates, and their payments could be automatically collected from their (or their spouses’) ATM accounts. To some Board members, this went against the spirit and policy of voluntary payment by salaried workers that the cooperative instituted during its revival period. Members of the Board were hesitant when this was first presented as they emphasized values such as trust that were important to the cooperative. It was after 2 Board meetings that this was finally approved and an additional branch (Basak) in Lapu-Lapu City was opened. In 6 months time, the branch income rose from PhP 150,000/month to PhP 210,000/month and members grew from 50 to 1000. By the end of 2009, about 50% of the more than 3,000 members of the cooperative in Lapu-Lapu were salaried workers from the MEPZ. In less than two years, the branch also reached an asset level of about PhP 20 million. 8.4.3. Core Services and Enterprises Core financial services included express loans (PhP 500-10,000 at 3-5% interest/month for 6 months), microenterprise loans (3% interest per month for 6 months) and regular loans (1.67% interest per month for 12 months) in addition to savings and time deposits (with 5-10% interest per annum). Social services included health care for poor members without health insurance (with a premium of PhP 500/year entitling the member to a cash benefit of PhP 5,000 per hospitalization up to three times per year), ‘Damayan’ (with a premium of PhP 700 per year carrying a death benefit of PhP 30,000, with coverage including the member’s spouse, and 2 children), pension savings and ‘kiddie savings’ for children in public schools. The Cordova MPC also owned a school that provided scholarships to poor but deserving children of members. 269 At the end of 2009, the cooperative owned a school, a lumber/hardware store, a consumer store, a pharmacy, a gasoline station, and a banking system with ATM services. These collectively comprised the cooperative’s business enterprises. With these, Cordova MPC offered consumer products in addition to social and financial services. 8.4.4. Accidental Enterprise Ventures An example of an ‘accidental’ enterprise was the cooperative’s lumber/hardware store. It used to be owned by a member who thought it was being mismanaged. The member offered to sell it to the cooperative in 2001. The General Manager saw a business opportunity for the cooperative and agreed to buy it at PhP 2 million, equivalent to the unpaid accounts of customers, with a down payment of PhP 600,000, and the rest to be paid in installment. The Board initially thought that it was not a good investment so the General Manager offered to sell it for PhP 3 million. After 2 months of operation, an offer was made to the cooperative for the purchase of the lumber/hardware for PhP 3.5 million.95 In the end, the Board decided not to sell the business as they saw that it was thriving. After this, the cooperative entered into joint ventures with members having problematic businesses – with the intention of getting them back on track then selling them back to the member-owner. Two such businesses were a printing press and a carrageenan trading enterprise. The carrageenan trading enterprise, at the time of the field research was already exporting 1/3 of its seaweeds from a situation where it was totally dependent on importations. 8.4.5. Governance and Planning Practice Cordova MPC was governed by a Board of Directors, which were elected during the annual meetings of the General Assembly. Ownership Meetings happened once or twice a year. Ownership Meetings and General Assemblies served to ratify decisions made by the Board of Directors. A pro-active management team played a big role in making proposals to the Board of Directors. Among the Board of Directors of Cordova MPC as of the time of the research, only one was not a professional - Mario Jumao-as, a barangay council member and poultry raiser. The rest were doctors (3), teachers (3), information technology (IT) professionals (2), a human resource (HR) officer of a company, and the treasurer of the Cordova municipality. This trend of professionals occupying leadership positions began with the cooperative’s revival in the 1990s. Since then, the Board had been 95 At the time of the research in end 2009, the cooperative was getting offers to buy the lumber/hardware business at PhP 5 million. 270 dominated by professionals with at most 1 from the poverty sectors and sometimes none at all. This trend was true even in Board Committees (Ompad, 2009). In relative terms, Cordova MPC management staff saw other cooperatives, notably Lamac MPC, as more successful in terms of membership and asset growth. Key management staff attributed this phenomenon to more deliberate strategic and operations planning. Chief Operations Officer Glenn Revalde-Tajanlangit explained: “Asset and membership growth has been slow because we have not really been into serious planning for a long time. Informal processes have been the rule in Cordova MPC for 38 years. In the past, we made strategic plans to comply with Land Bank of the Philippines requirements for Cordova MPC’s credit line approval. There has been no clear relationship between our strategic and operations plans. Our operations plans, usually made by our General Manager, become the basis for the plans of our branches. In the past, the Board and the General Assembly had no strategic planning process – both just dealt with what members put forward as their concerns, which were then translated into plans by management”. (Revalde-Tajanlangit, 2009) This planning practice of the cooperative was changing at the time of the research. In September 2009, a head office of the cooperative was set up to oversee Cordova MPC’s overall operations and planning. This was to march in step with the reality of already having multiple branches and areas of operation. The COO further explained: “Since the setting up of the head office, we have focused on improving member services which we hope to incorporate in a strategic plan that we are formulating for 2010-2012. We developed this initial 3-year plan during a Cooperative Strategic Planning Seminar sponsored by the Land Bank of the Philippines, which we hope to present in the next Board of Directors meeting”. (Revalde-Tajanlangit, 2009) 8.4.6. New Product Development Ownership meetings were the venues for making decisions, after proposals had been approved by the Board, upon the recommendation of frontline staff. The new venture of Cordova MPC called the ‘Coop on Wheels’, which brought the cooperative to members’ doorsteps in Olango Island in October 2008, went through this process. Olango became the fourth branch of Cordova MPC, with the ‘Coop on Wheels’ as part of its delivery system. This entailed investments for a second hand vehicle, a sound system, and an ATM system. The Olango branch mainly served micro-entrepreneurs and the enterprising poor with microfinance services. 271 Another new venture that had gone through this process was the Coop Purchase Order Loan. This entailed the member’s making a loan in kind by purchasing goods from one of the cooperative’s enterprises in the form of lumber materials, consumer goods or generic medicines. The staff proposed this as they believed it would improve sales. At the time of the research, the Board had already approved the venture for implementation by January 2010. 8.4.7. Dual Character of Members as Owners and Customers The Pre-Membership Education Seminar that all members were required to take to become regular members specified that members were both owners and customers. Box 8.1 details the rights and duties of members as owners of the cooperative on one hand, and the privileges and obligations they had as customers on the other. To become a member, the PMES Module listed 6 requirements (Cordova MPC, 2009): o One must be 18-60 years old; o One must attend the PMES within 1 year; o One must put up a share capital (minimum of PhP 1,000); o One must put up a savings deposit (minimum of PhP 200); o Health care fee of PhP 500/year; and o Damayan fee of PhP 400/year. 272 8.4.8. Weak Membership Development Program In comparison to 2006, membership almost doubled, from 4,043 in December 2006 to 7,225 by end 2008. Total assets grew from PhP 114.3 million at the end of 2006 to PhP 163 M by end 2008, a record increase of 30% in two years time. As regular membership doubled, non-regular membership grew as well, reaching 9,000 by 2009 composed of 7000 associate members and 2,000 children savers (Aflatoun kiddie savers). Associate members were users of the cooperative’s products and services but had not gone through the required Pre-Membership Education Seminar. Even as they took a pro-active stance in developing their products and services, Cordova MPC’s COO, Glenn Revalde-Tajanlangit shared that they lacked a membership development program, a weakness they identified during their 2009 strategic planning session (Revalde-Tajanlangit, 2009; Cordova MPC, 2009c). The Education Committee Report in 2008 during the 37th General Assembly validated this: it contained numbers of members, cooperative celebration activities, and 3 Box 8.1. Cordova MPC Members as Owners and Customers. Source: Cordova MPC Pre-Membership Education Seminar Module, 2009. Members as Owners Rights as Owner: o To vote; o To be voted upon; and o To receive interest on capital contribution. Duties as Owner: o To contribute to the capital of the cooperative; o To deposit regularly; o To serve when elected; and o To participate in decision-making through the General Assembly and other membership meetings. Members as Customers Privileges as Customer o To receive quality services; o To be provided with efficient services; o To be treated well by the people handling the business; and o To receive patronage refund. Obligations as Customer o To settle obligations, for example, to pay loans on time; o To suggest improvements; and o To patronize the coop business. 273 seminars conducted by Landbank and the Bureau of Internal Revenue attended by officers and staff, with no clear education activities for members. Cordova MPC’s structure and staffing by the end of 2009 had a head office with a CEO, a COO plus staff in charge of human resources/finance, a 3 staff credit and collections team, managers and staff dedicated to the 4 credit and savings branches, and managers and staff of the 4 business enterprises owned by the cooperative (printing press, health plus, lumber and consumer) (Revalde-Tajanlangit, 2009). This staffing pattern of the cooperative was not equipped to sufficiently handle a development program for a membership base that was growing rapidly. 8.4.9. Perspectives of Members Coming from Poverty Sectors Members coming from poverty sectors were interviewed about how they viewed themselves, their level of participation and the role they played in the cooperative. Fe Gloria Sentillas articulated a sentiment that was typical in this manner: “I see my membership as providing me ready and easy access to financial services with very reasonable interest rates. I usually attend ownership meetings and General Assemblies but I usually don’t speak directly about my questions. I feel shy with many people around and I don’t speak English like others do. I didn’t finish any formal schooling so I don’t see myself as qualified to run for office. I usually vote in General Assemblies for people I personally know and trust, especially my friends. One time I did vote for someone who didn’t have a college education. However, I think it’s better that cooperative leaders are educated because they have to deal with problems and relate to NATCCO96 in solving them. They need to be able to communicate in English and Tagalog. It is hard for people without any education to lead or run an organization”. (Sentilas, 2009) Rosalia Baguio added another typical response: “I listen to reports during General Assemblies and owners’ meetings. Whenever I have a question, I ask my sister in law to ask it for me. I feel too shy to do it myself. I vote for people I trust to be cooperative leaders, and from experience, I end up voting for relatives and friends”. (Baguio, 2009) When successful micro-entrepreneur Miriam Fuentes was asked about her role in the cooperative, her response was informative especially when seen in the context of her 96 The National Confederation of Cooperatives, of which the Cordova MPC was a member. 274 being identified by Cordova MPC management as typifying a member manifesting a high level of social impact: “I see my membership as giving me the right to vote during General Assemblies for leaders who are responsible and approachable. I am usually on the sidelines during ownership meetings except when I have questions like when the cooperative took over ownership of the lumber enterprise. With a CBU of PhP 112,000 and savings of PhP 62,000, I see myself more as a client of the cooperative rather than an owner. My loan of PhP 4 million is way above my CBU and savings. Maybe when I no longer have a big loan and my CBU/savings is able to provide loans for others, I may start to feel like an owner and think about being elected as a Board member. For now, that’s the farthest from my mind”. When asked why she had not gone to the bank for her loan requirements, she explained “One of the banks I tried to loan from has an interest of only 9% per annum as opposed to 38% per annum with the cooperative, but my lot is not titled so I cannot use it as collateral. With the cooperative, my tax declaration is adequate”. (Fuentes, 2009) Even as all members of the cooperative had the right to vote and be voted upon, and to participate in decision making processes, these members seemed to feel inadequate in fully exercising these rights and duties as owners of Cordova MPC. 8.4.10. Partnerships Several institutions assisted the development of the Cordova MPC since its revival and consolidation in 1993. The Land Bank of the Philippines (LBP), a government bank mandated to undertake countryside development by partnering with agricultural cooperatives, was a major partner for capacity-building and financing. In addition to supporting its strategic planning process, trainings conducted by the LBP covered topics like credit investigation, credit management, and microfinance technology for cooperatives. In 1996, the Cordova MPC was a Regional Gawad Pitak awardee of the LBP. The annual award was given to outstanding cooperative partners of LBP. Another partner in the government sector that also provided technical assistance as well as recognition was the Department of Trade and Industry, which recognized the Cordova MPC as the Most Outstanding NGO in Cebu in 1994. Cordova MPC was a member and got support from VICTO National97 and the National Confederation of Cooperatives (NATCCO). From NATCCO and VICTO, 97 Until 2007, VICTO was the regional office for the Visayas of the National Confederation of Cooperatives or NATCCO, but has since spun off to an independent national network of cooperatives. 275 the Cordova MPC was able to access trainings on cooperative management, leadership development, financial analysis, and exposures to best practices of cooperatives like Lamac MPC. Cordova MPC also had relations with other development organizations like the National Pharmaceutical Foundation, Inc. (NPF). NPF introduced to Cordova MPC the Health Plus, a social franchising system for the distribution of generic pharmaceuticals, mainly catering to poor households in the rural areas. The cooperative started this social enterprise in 2009 as the provincial pharmaceutical franchisee for Cebu. 8.5. Financial and Social Outcomes 8.5.1. Financial Outcomes At the end of 2008, the Cordova MPC had total assets of PhP 159.953 million, net loan receivables of PhP 111.785 million, deposit liabilities of PhP 93.309 million, share capital amounting to PhP 40.113 million, and members’ equity of PhP 52.627 million. Assets had steadily climbed since the early 1990s, as shown in Figure 8.1. Assets stood at PhP 3.6 million in 1991, and had grown by around 150% to PhP 8.9 million in 1993, its year of “rebirth”. Only one slight decrease was experienced during 2002, and by 2008, the asset base had reached PhP 159.953 million, a 1,697% increase from the 1993 figure. (Please see Figure 8.1.). By 2009, Cordova MPC’s assets stood at PhP 173 million. Its asset growth had generally matched its membership growth, with the greatest increase registered during the period of 2006-2008. For the 2002 to 200898 period alone, assets more than doubled from PhP 77.8 million to almost PhP 160 million. Within this period, Cordova MPC was able to maintain a debt-equity ratio within the range of 1:4 to 2:1. Total liabilities grew from PhP 45 million in 2002 to PhP 107.2 million in 2008, while members’ equity grew from PhP 32.6 million to PhP 52.6 million. (Please see Figure 8.2.). Share capital of members within the period 1991 to 2005 hovered around 30 to 35% of total assets, but declined to 25% of total assets by 2008 at PhP 40 million. With respect to members’ equity, share capital held steady at 76 to 79 per cent over the 2004 to 2008 period (Please see Figure 8.3.). 98 Period for which complete audited financial statements were made available, except for the years 2004 and 2007. 276 Figure 8.1. Cordova MPC Assets, 1991-2008. Sources: Reports to General Assembly, Cordova MPC, 1991-2008.99 99 Report for 2007 not available. 0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 160.00 180.00 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year Total Assets PhP (in Millions) 277 Figure 8.2. Cordova MPC Assets, Liabilities and Members’ Equity, 2002-2008. Sources: Audited Financial Statements and Reports to General Assembly, Cordova MPC, 2002-8 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 180.0 2002 2003 2005 2006 2008 Year Total Assets Total Liabilities Members Equity PhP (in Millions) 284 poor - fishers, handicraft makers, micro-entrepreneurs, and workers in the formal and informal sectors. Secondly, it creates wealth in the pursuit of a double bottom line: it provides financial and social protection services to its members while charging fees to ensure ‘sustainable programs and services’ (Cordova MPC, 2009). Thirdly, its distributive enterprise philosophy is manifested in the pursuit of its mission and programs through a cooperative set-up, where any surplus income generated goes back to the fulfillment of its objectives or is distributed as dividends to its members, majority of whom are poor. 8.6.2. SEPPS in a Developing Country Context Similar to the origins of the Lamac MPC, Cordova MPC developed from selfhelp initiatives in response to unfavorable market conditions and the failure of the state to ensure access to basic social and economic services among the poor. The MPC’s precursor, the Cordova Credit Union, was conceived at a time when the town of Cordova was among the poorest in the country. The credit union’s savings and credit program was seen as an alternative to informal money lenders charging exorbitant interest rates among the poor. Subsequent services by the credit union and the cooperative were aimed at filling in gaps or weaknesses in the poor’s access to financial and social protection services. As SEPPS, the Cordova MPC served various segments of the poor in different ways. Among the entrepreneurial poor, Cordova MPC served as an intermediary financial service provider to sustain their means of livelihood, or grow their microenterprises to employ others. Among the unemployed and underemployed, the cooperative served as a mechanism that facilitated social inclusion. The poor were either provided employment by the enterprises of members and/or were assisted to have access to social services such as education for children and pensions for the elderly. The poor who were able to send their children to college with the help of the cooperative, had overcome poverty as their children became professionals and were employed locally or abroad. Cordova MPC has a similar experience with Lamac MPC of successfully engaging government agencies to provide technical and financial support to make services accessible to the poor. In this sense, Cordova MPC as well as Lamac MPC, may be said to have directly assisted the performance of what social economy scholars (Laville, 2010) consider to be the state’s function of redistribution. 285 8.6.3. SEPPS and Social Entrepreneurship In the context of an ineffective state that is unable to deliver basic services and provide policy and service support to small producers (Schelzig, 2005), the cases of Lamac and Cordova MPC suggest a potentially bigger redistributive role of cooperatives as SEPPS, relative to their counterparts in developed economies in the North. As SEPPS, the Cordova MPC resonates with the social economy school of social entrepreneurship (Defourny and Nyssens, 2008; Hulgaard, 2008) discussed in Chapter 1. Interestingly, its experience validates many of the issues and concerns faced by Lamac MPC as a SEPPS in a developing country. Foremost of these is the important challenge of developing more effective mechanisms of multi-stakeholder governance to harness the participation of the majority of its members in seeking solutions to problems confronting various segments of the poor. Together with the case on PWD Fed, which is a cooperative federation, the three provide the basis for developing propositions about cooperatives as social enterprises with the poor as primary stakeholders or SEPPS. Initial insights on this are contained in Section 8.8 but discussed more thoroughly in Chapters 9-11. 8.7. The Cordova MPC from a Stakeholder Perspective 8.7.1. Primary Stakeholders of Cordova MPC As SEPPS, Cordova MPC engages the poor as primary stakeholders from a normative perspective (Donaldson and Preston, 1995). The poor comprise the majority of Cordova MPC’s members. They include fishers including shell pickers, handicraft makers, the entrepreneurial poor, micro-entrepreneurs, and workers in the formal and informal sectors. 8.7.2. Roles among the Poor The Cordova MPC case closely resembled the Lamac MPC experience. Within a cooperative structure, the poor mainly enacted transactional roles as owners and as clients. Since initiation, no significant role change can be discerned. As clients, they availed themselves of the financial and social protection services of the cooperative for a fee. In exchange for their capital contribution and patronage of services, the poor received dividends, and patronage refunds. Historically, as shown in Section 8.4.5, the Board of Cordova MPC, including its Board Committees, 286 had been dominated by professionals, despite the reality of the poor sectors comprising the majority of the membership. As detailed in Box 8.1, the cooperative system, as explicitly explained during their Pre-Membership Education Seminars (PMES), formally provided for all members as having the right and duty to vote, be voted upon and to serve when elected. However, as detailed in Section 8.4.9, the members among the poor saw themselves more as clients and only nominally as owners. This included Miriam Fuentes who had clearly overcome income poverty, and Fe Arguilles who was a Member in Good Standing. 8.7.3. Roots of No Significant Role Change The pattern of no distinct role change among the poor in Cordova MPC seems to have similar roots to what were identified in the case of Lamac MPC. Both cooperatives shared a common experience of originating from efforts to revitalize failed cooperative/pre-cooperative formations of poverty sectors. Professionals who were invited or were received warmly by the members of these failed formations led these rehabilitation efforts. Since then, the leadership of both cooperatives have remained in the hands of the professionals who were entrusted with the rehabilitation of their pre-cursor formations. No major changes in leadership and management had happened since initiation. Cordova MPC had been focused on providing financial services, consumer and social services on a transactional basis to a majority of their members. Cordova MPC did recognize that it had a weak membership development program. As described in Section 8.4.8, this weakness had been identified in the cooperative’s 2009 strategic planning session. At the time of the research in 2009, there were no clear programs to deliver transformational services to enable members from poverty sectors to take on leadership positions. By 2009, the only active transformational service being delivered was the provision of scholarships that were selectively and individually directed towards a limited number of children among poor members. Again as in the case of Lamac MPC, such translated at most to allowing some management staff like the COO to come from the ranks of the poor and in helping some poor families improve their socio-economic standing. Again as was discussed in Chapter 7, what seemed to be missing were transformational services directed at leadership formation and developing mechanisms for representative democracy work for the poor given the nature of Cordova MPC as a democratic member-based social enterprise. One may hypothesize that the inadequacy of transformational services may be a function of the orientation of the local professionals in engaging the poor as transactional partners. However, there was a period in Cordova MPC’s history that it 287 implemented transformational services towards leadership formation and organizational development among the poor. At the beginning of its development stage, Cordova MPC established a strategy of satellite formation. As explained in Section 8.4.1, this was to allow the decentralization of management of services, encourage the regular and active participation of members in cooperative affairs, pursue total human development of members, and ensure that the interest of sectors and communities were given adequate attention. As discussed in Section 8.4.1, satellite cooperatives among fishers and some poor communities were organized during this period, with Cordova MPC Board members actively involved. Although this was pursued between 1993-1998, there were no clear indications of their status by the time of the research in 2009. This overshadowing of the strategy of building satellites needs due consideration. The vision statement of Cordova MPC to be a ‘globally competitive vehicle for socio-economic empowerment’ (Cordova MPC, 2009) still reflects an intention not just to partner but to empower members. If one were to assume this statement of intent, maybe the phenomenon of no role change may be better related to the capability of Cordova MPC to manage the tension between social and business goals, which has been identified as a common governance issue among social enterprises (Spear, et al., 2010). To illustrate, the current strategy of branch formation, which facilitated the quick expansion of transactional services that seems to have taken over, may be responding better to the need for enterprise growth but not to empowerment. Details on the evolution of roles and services provided to the poor by Cordova MPC during the stages of pre-initiation, initiation and development are contained in Table 8.1. 8.7.4. Impact on the Poor As clients and owners, or as transactional partners, the poor that comprise the majority in Cordova MPC’s membership of 8,000 have benefitted mainly in terms of access to financial and social services leading to social inclusion and social protection. Cordova MPC also assisted in sustaining livelihoods, creating employment opportunities, and to a limited extent, moving people out of income poverty. The details of these were already discussed in Section 8.5.2, with examples contained in Boxes 8.2 and 8.3. In comparison to PWD Fed that engaged the poor as transactional and transformational partners, the Cordova MPC shows a relatively large number of poor reached through transactional services. The depth of impact on the poor is comparable to Lamac MPC. 288 Table 8.1. Cordova MPC: Evolution of Roles and Services among Primary Stakeholders Pre-Inception to Inception Stage (1971 – 1993) Development Stage (1993 – 2009) Key Organizational Developments x Setting up of Cordova Credit Union Inc., in 1971; establishment of savings and credit program; pooling of members’ dividends and patronage refunds to set up consumers’ cooperative in 1972; x Development and decline of both cooperatives (1971-1986); x Rehabilitation with intervention of professionals (1987-1990); and x Revitalization leading to consolidation of two cooperatives as MPC (1993). x Expansion and diversification; x Sub-phase 1: 1993 – 2006 o Establishment of satellite cooperatives (1993-1998); o Expansion within Cordova; 1st Branch in Lapu-Lapu City; and o Membership growth: 1,200 to over 4,000. x Sub-phase 2: 2007 – 2009 o Opening of another branch (Basak) in Lapu Lapu City and a branch in Sta. Rosa in Olango Island; o New product development: Coop on Wheels, Coop Purchase Order Loan; o Membership growth to about 8,000 by 2009; and o Enterprises by end-2009: school, lumber/hardware, consumer store, pharmacy, gasoline station, banking system with ATM services. Roles of the Poor : Artisanal fishers, workers, entrepreneurial poor x Client-owners with formal voting powers in General Assembly with little or no re presentation in Board and with management delegated to professionals x Client-owners with formal voting powers in General Assembly, with little or no representation in Board and with management delegated to professionals; and x Some members: leaders and members of satellite cooperatives (1993-98). Services from Cordova MPC x Credit services; and x Access to consumer products. x Financial services: express loans, microenterprise loans, regular loans, savings products; x Social services: health benefit, death benefit, scholarships for poor but deserving children of members; and x Access to consumer products. 289 Table 8.1.a. Participation of the Poor in Governance and Management of the Core and Allied Organizations of Cordova MPC Initiation Stage Development Stage Participation in Core Organization Members of the General Assembly Rarely elected as members of the Board Members of the General Assembly Rarely elected as members of the Board 8.7.5. Stakeholder Engagement Strategy over Time Using Mintzberg’s (2007) theory of strategy formation, Cordova MPC may be said to have had an intended primary stakeholder engagement strategy of empowerment. As discussed in Section 8.7.2 and 8.7.3, the Cordova MPC had the explicit vision of becoming a globally competitive vehicle for socio-economic empowerment. As a cooperative, it oriented its members, the majority of whom were poor, on how they could exercise their rights and duties as fully fledged owners as well as privileges and obligations as customers. However, Cordova MPC’s realized primary stakeholder engagement strategy may be characterized as one of collaboration. From the stages of initiation to development, their dominant mode of engagement with the poor was as transactional partners. One may argue that there was a brief period where they may have engaged a limited number of poor as transformational partners through their organization of satellite cooperatives. However, this was not sustained and did not clearly translate to providing the poor a systematic mechanism for the representation and pursuit of their interests in the cooperative’s governance bodies. As explained in Section 8.7.3, the gap between the intention to empower the poor and the reality of engaging them mainly as transactional partners may be attributed to two factors: the unsustained delivery of transformational services towards the poor and the limitations in their overall capability to manage the tension between empowerment and enterprise growth objectives. 290 Cordova MPC’s primary stakeholder engagement strategy of collaboration echoes the same features as that of Lamac MPC discussed in Chapter 7. These features are discussed below: x Managerial orientation towards the poor: poor as transactional partners even as owners as dominant orientation; poor as transformational partners exhibited to a limited extent in 1993-98 but was not sustained; x Key engagement processes: collaborating, partnering, dialoguing, learning; collaboration and partnership were expressed mainly in transactional terms through capital and savings build-up and paying loans on time which also gave poor right to vote; regular venues for dialogue and learning between its board composed mainly of professionals and the poor included ownership meetings and general assemblies; x Nature of roles among the poor: mainly transactional as clients and owners; x Nature of programs and services: mainly transactional in the form of fee-based provision of financial and social services including social protection schemes; and x Impact on the poor: access to financial and social services by a large number of poor leading to social inclusion, social protection and social mobility; sustaining livelihoods, creating employment opportunities, and moving a limited number of people out of income poverty. As in the earlier cases, Sloan’s (2009) conception of models of stakeholder engagement based on a study of European corporations, is inadequate in explaining how Cordova MPC engages the poor as primary stakeholders. Again, this strengthens the need for evolving a framework for understanding stakeholder engagement strategies appropriate for social enterprises serving the poor as primary stakeholders (SEPPS). 8.8. Discussion The role of cooperatives as SEPPS in the context of an ineffective state and amidst market failures in developing countries like the Philippines is an important area of exploration in the social economy school of social entrepreneurship. The potentially bigger redistributive role of cooperatives as SEPPS discussed in Section 8.6 underscores the importance for practitioners, policy makers, and scholars, to better understand the challenges they face and how they could work more effectively in favor of the poor. Robinson, et al., (2009) have recognized that context matters in developing frameworks for understanding social entrepreneurship in different social milieus. The 291 major differences in the context faced by SEPPS vis-à-vis their counterparts in the North are the combined realities of pervasive market failures, massive poverty and inequality, as well as the state’s ineffectiveness in redressing inequalities. This case, together with the cases of Lamac MPC and PWD Fed, builds on the work of past scholars, notably Borzaga and Spear (2004) in understanding cooperatives as social enterprises in developed and transition economies. These three cases provide insights on the challenges that cooperatives are facing in a developing country context, as social enterprises with the poor as primary stakeholders (SEPPS). As shown by these three cases, how the poor are engaged in cooperatives as SEPPS could yield very different results. In the case of PWD Fed, the poor were engaged both as transactional and transformational partners. The case showed the power of combining transactional and transformational services to empower the PWDs to govern themselves in a cooperative context. As a cooperative, the PWD Fed exhibited the characteristics of what Borzaga and Spear, (2004) consider as a single stakeholder cooperative, with the PWDs as the only members. However, PWD Fed’s efforts to co-create the Foundation for TheaseAbled Persons Inc., as a multi-stakeholder organization where empowered PWDs could work with supporters and advocates for a broad and sustained effort of engaging government and other stakeholders towards inclusive development indicates the importance of complementary mechanisms of selfgovernance and multi-stakeholder governance in confronting poverty as a social problem. The Cordova MPC, like the Lamac MPC reflects the trend towards the communitarian tradition observed in the international cooperative movement (Borzaga and Spear, 2004). As such, Cordova MPC’s membership has grown to include various sectors in the community and has taken on the challenge of helping to address issues confronting the poor. The particular condition that the poor as members, are starting from a position of capability deprivation (Sen, 1999; 2009) and are disadvantaged in forming groups and making them work (Thorp et al., 2003) merits due consideration. As shown by both the cases of Cordova and Lamac MPC, the poor who have become the majority of their members, have tended to opt out from exercising their role in the governing bodies of the cooperatives. In the process, they have ‘delegated’ such function to the professionals whom they perceive to be more capable. In this sense, the cooperative’s governing bodies have tended to reflect the hierarchy and inequality in the broader society, making the democratic memberbased governance system in the cooperative less meaningful. Both the Cordova and Lamac MPC experiences seem to show that a cooperative that engages the poor mainly as transactional partners may fill the gap of the government’s and market’s failure to make social and economic services accessible to the poor. However, the governance structures of these cooperatives have so far 292 tended to mirror the capability deprivation of the poor and inequality characterizing the society at large. This may indicate the importance of complementing transactional with transformational services directed towards leadership formation and organizational development to make the democratic member-based governance system of the cooperative, as SEPPS, to work for the poor. While Cordova MPC already recognized the need for them to overcome their weak membership development program, the insights from this case show how critical it is for such program to be directed towards enabling significant sectors of the poor among their current and potential members to effectively participate in the cooperative’s governance system. The case on Lamac MPC, particularly Sections 7.6., 7.7., and 7.8., already discussed the importance of transformational services geared towards leadership formation and organizational development coupled with putting in place mechanisms for complementing direct democracy with representative democracy. In addition to validating the relevance of this emerging proposition for cooperatives as SEPPS, the Cordova MPC case also points to how this may be pursued. In particular, Cordova MPC’s thrust of building what were called satellite cooperatives during the early part of its development stage provides one way on how these program elements could be operationalized. An assessment and strengthening of this strategy, of developing dynamic satellite cooperatives among the most significant sectors of the poor in its constituency could very well become the vehicles for leadership formation and organizational development, as well as the springboards for representative democracy if integrated into Cordova MPC’s governance structures. 293 PART III – THEORY BUILDING 300 Tahanan: Unemployed persons with disability (PWD) Selected PWDs from poor families of school age Worker-partners in sheltered workshop for wheelchair production Beneficiaries of rehabilitation, scholarships and special education programs Passive worker beneficiaries in sheltered workshops serving export market (Dominant) Worker-partners in sheltered workshop for wheelchair production (Small) Beneficiaries of rehabilitation, scholarships and special education programs showing potential start to be appointed to management, supervisory and staff positions Worker-partners exhibiting various levels of development x Passive to self assured workers x Pro-active workers and supervisors x Empowered managers and directors Social Enterprise and Poor Served Roles Played at Different Stages Initiation (6 years) Development (11-16 years or more) Renewal Lamac MPC: Upland farmers, workers, entrepreneurial poor Client-owners with formal voting powers in General Assembly With minority but substantive representation in board Management delegated to professionals Client-owners with formal voting powers in General Assembly Board almost totally composed of professionals x 1 of 3 surviving farmer leaders in original board still a member x No mechanism for poverty sectors to be represented Management delegated to professionals Poor see membership as means to have social protection and access to financial services (Note: Lamac MPC had not reached renewal stage) Cordova MPC: Artisanal fishers, workers, entrepreneurial poor Client-owners with formal voting powers in General Assembly Little or no representation in board Management delegated to professionals Client-owners with formal voting powers in General Assembly Little or no representation in Board Management delegated to professionals Poor see membership as means to have social protection and access to financial services (Note: Cordova MPC had not reached renewal stage) [Document text truncated for crawler view.]