POWER OF COLLABORATION AND COOPERATIVES

Author: Sebenzile Dlamini – Founder and Executive Director, WITAD

The financial success and longevity of small businesses are negatively affected by the low
production capacity, high costs, barriers to market access, and weak capital of most small
producers in Eswatini. Small business owners can acquire technical production skills and
business know-how through capacity building but still fail to grow their enterprises if the
other constraints persist. One of the easiest approaches to use to reduce these constraints is by
forming cooperatives. Eswatini’s most common types of cooperatives are the agricultural or
multipurpose and savings and credit cooperatives.

There is a general fear of cooperatives among some of Emaswati. It stems from the failure of
some well-known national and community-based cooperatives. These include the collapse of
the Central Cooperative Union (CCU), the incomplete building project of the Swaziland Association
of Savings and Credit Cooperatives (SASCCO) and the failure of Asikhutulisane’s Sentra
Supermarket, among others (Hlatshwako C, 2010). The other source of fear is ignorance about
business systems and how markets and financiers operate. Such ignorance causes some Emaswati to
assume that they will succeed when they run businesses individually amidst well-known constraints in
their communities and sometimes at the national level.

Strategic Advantages of Cooperatives

a. Human Capital
Some small businesses fail because they cannot afford to hire enough people to perform
different roles. A lonely and under-resourced entrepreneur engages in multi-tasking and
‘firefighting’ most of the time which leads to sub-optimal financial and operational results.
Through a cooperative, entrepreneurs can quickly assemble human capital instead of waiting
until the business has enough capital to hire people for the different roles. This can allow a
team to organise and execute key business processes and control waste while increasing
quality, customer service, and revenue in a short time.

b. Market Power
Small producers are price takers. Yet entrepreneurs must adapt to structural changes in
market organisation outside their businesses. They must also adapt to policy and political
changes that affect their businesses. Therefore, entrepreneurs can increase their market power
by establishing the terms of exchange between the cooperative and sellers on one hand and
buyers on the other. With buyer market power or countervailing power, a cooperative can
reduce prices paid to sellers of inputs, access credit terms, and/or easily switch between
alternative suppliers. A cooperative can also increase the selling price for its products and
take charge of its margins instead of being at the mercy of retailers, distributors and agents.

c. Access to Finance
Growing a business requires an entrepreneur to raise funding for infrastructure, equipment
and operations. A cooperative can demonstrate scalability within a short time, hence, enticing
financiers to award it with loan funding. Cooperatives can also access grant funding from
government development programs (in most countries) and international development
partners.

d. Intellectual property protection

Intellectual property (IP) which could be a patent, trademark, or copyright can contribute to a
cooperative’s longevity. Cooperatives can finance IP protection faster than a small business
going it alone.

Structural Disadvantages

a. Free Rider Problem

When under-resourced people establish a cooperative with financial assistance from a
sponsor donor or government, a free rider problem can manifest. The problem occurs when
some members of a community fail to contribute their fair share to the costs of a shared
resource. Their failure to contribute makes the resource economically infeasible to produce.
To manage this risk, it is important to define the conditions that must be fulfilled by
shareholders to remain direct beneficiaries of the cooperative. The rules for indirect
beneficiaries must be documented and used as a soft landing for members who do not fulfil
the shareholders’ requirements.

b. Inconsistent Leadership
A cooperative can change its leadership based on its by-laws. These changes can disrupt the
implementation of a business strategy and affect operations in some cases. This could be
overcome by documenting business processes and standard operating procedures for the
management and leadership structures to maintain stability even in the face of elections of a
new leadership team.

Conclusion

WITAD strongly encourages women and the youth to be a part of cooperatives to increase
their success rate and longevity in business. Most of the challenges that affect collaborative
business strategies stem from a non-entrepreneurial mindset that characterises a majority of
Emaswati. But, capacity building helps to change mindsets over time, even though this time
can be long.

Contacts
sebenzile@witad.org.sz
www.witad.org.sz