[Yojana July 2023 Summary] Strategic diversification of cooperatives and business competitiveness – Explained, pointwise

Introduction

The Indian cooperative movement started in the late 19th century and made significant progress until the 1970s. However, certain challenges such as accountability and governance issues, internal vested interests, lack of coordination, political interference, and limited diversification began to hinder its growth. As a result, policymakers and planners gradually shifted their focus away from cooperation-led socio-economic development. Recognizing the untapped potential of the cooperative sector, the Ministry of Cooperation was established with a renewed focus on promoting cooperative activities at the grassroots level. It is crucial to empower cooperatives to compete on an equal footing with corporate businesses. To ensure their continued relevance and competitiveness, cooperatives at all levels, ranging from community-based to national, must pursue strategic business diversification. 

Why must Cooperatives pursue strategic business diversification?  

Cooperatives are a type of business organization, and like any other business, they need to expand their customer base and explore new markets to remain commercially viable. 

Cooperatives need to diversify to ensure their long-term viability and growth. If a business doesn’t diversify, it can become stagnant, which hinders its future growth. 

Strategic diversification keeps businesses relevant in the market by forcing them to discover unmet customer needs and identify new, untapped markets. This enables businesses to generate long-term profits and wealth. 

By strategically diversifying their operations, cooperatives can expand their customer base, decrease reliance on specific markets, and enhance their ability to meet the needs of their members. 

How should cooperatives formulate diversification strategies? 

In this context, strategy refers to the stated visions and missions of an organization. Strategic decisions are typically aligned with these visions and missions. 

Cooperatives should establish clear vision and mission statements. These statements define the objectives and purposes for which the cooperatives are formed. This information can help develop tactics for diversification of their businesses. 

Following five steps are involved in strategy formulation: 

Firstly, a cooperative need to determine the specific goals it wants to achieve and identify the different purposes behind those goals. This clarity is crucial for outlining and accomplishing the objectives of the cooperative. 

Secondly, it is necessary to acquire a practical understanding of the ground situation. This should be followed by an assessment of the internal and external environment, which involves conducting a Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis. 

Thirdly, formulate a strategy for achievement of goals through reflection, prioritization, and the development of decision-making options. Alternative options should then be assessed to determine the most suitable strategy. 

Fourthly, the individual responsible for its execution should be entrusted with the available and allocated resources, personnel, and the necessary means to achieve the goals of the strategy. Their role is to implement the chosen course of action, mobilize resources, and identify tactics for successful strategy implementation. 

Finally, it is important to monitor the strategy according to the agreed timeline or verification process. This involves conducting mid-term or periodic reviews to evaluate the success of the interventions and taking corrective actions if needed. 

What are different strategic diversification strategies for cooperatives and examples of successful diversification by cooperatives? 

Product Diversification: Cooperatives can diversify their product/service offerings to meet the needs of new markets or due to changes in customer tastes and preferences. For example, Amul – introduced ice creams and other frozen milk confectionaries in 1996, to diversify its businesses. 

Geographic Diversification: Cooperatives expand their range of products to access new markets and cater to the needs of different customers. For instance, the Karnataka Milk Federation’s milk brand called ‘Nandini Goodlife‘ is now available in various states of India through prominent retailers. 

Service Diversification: Cooperatives go beyond their primary products and services to provide new offerings that fulfill the needs of their members and customers. For instance, the Anjarakandi Urban Cooperative Bank in Kerala not only offers banking services but also sells coconut-based products like copra, coconut water, and coconut milk/oil. 

Joint Ventures: Cooperatives have the option to establish Joint Ventures (JVs) by combining resources and expertise. For instance, the Indian Farmers Fertiliser Cooperative Limited (IFFCO), collaborated with Spain’s Con gelados De Navarra to establish a food processing plant in Ludhiana, Punjab.  

Vertical Integration: Cooperatives can vertically integrate their operations by incorporating upstream or downstream activities related to their current operations. For instance, Amreli District Cooperative Milk Producers Union entered into a joint venture with IFFCO Kisan Sanchar to supply high-quality animal feed. 

Horizontal Integration: Cooperatives can horizontally integrate their operations by merging with or acquiring other cooperatives or companies within the same industry. This consolidation can lead to the realization of economies of scale, offering numerous advantages to their customers and stakeholders. For instance, Ceritrum Finance Ltd., a Non-Bank Finance Company (NBFC) based in Mumbai, acquired the Punjab and Maharashtra Cooperative Bank to access the markets served by the bank.  

How can cooperatives multiply profits through business diversification? A Case study.  

Sittilingi Organic Farmers Association (SOFA) was formed as a cooperative society in 2004 in the tribal village of Sittilingi in Dharmapuri district of Tamil Nadu.  

With over 500 members, each having a minimum landholding of 2.5 acres, the cooperative cultivates a variety of millets and cash crops including cotton, turmeric, sugarcane, groundnut, and vegetables. 

SOFA ensures the financial and economic viability of its member farmers by advising them on crop production based on market demand and ensuring crop diversification among members. 

The cooperative has diversified into food processing through the production and marketing of millet-based cookies, health-mixes, roasted powders, papads, and other products.  

In addition, SOFA has expanded into ancillary agri-business activities, such as organic fertilizers, and operates plant nurseries and bio-compost units.  

These endeavors collectively yield an annual turnover of Rs 25 lakh for the cooperative. 

What should be done? 

To achieve a competitive advantage for cooperatives through strategic diversification, the Ministry of Cooperation must undertake a thorough analysis of their strengths, mission, and values. 

Active involvement and support from members must be sought throughout the process of strategic management. 

Cooperatives should capitalize on their distinctive strengths and capabilities and align diversification opportunities with their mission and values to achieve growth and gain a competitive advantage in new markets and product lines.