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Sustainable production and the performance of South African entrepreneurs in a global supply chain. The case of South African table grape producers

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Sustainable production and the performance of South African entrepreneurs in a global supply chain. The case of South African table grape producers
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  Copyright © 2009 John Wiley & Sons, Ltd and ERP Environment * Correspondence to: Peter J. Ras, Department of Management and Entrepreneurship, Tshwane University of Technology, South Africa.E-mail: raspj@tut.ac.za Sustainable Development Sust. Dev. 17 , 325–340   (2009)Published online in Wiley InterScience(www.interscience.wiley.com) DOI : 10.1002/sd.427 Sustainable Production and the Performance of South African Entrepreneurs in a Global Supply Chain. The Case of South African Table Grape Producers Peter J. Ras 1 * and Walter J. V. Vermeulen 2 1  Department of Management and Entrepreneurship, Tshwane University of Technology, South Africa 2  Copernicus Institute for Sustainable Development and Innovation, Utrecht University, The Netherlands ABSTRACTGlobal trade is strongly growing and becoming connected to the issue of sustainable devel-opment in business practices. In recent years this has resulted in businesses on the demand side formulating sets of requirements for suppliers on their performance on cor-porate social responsibility and sustainable production. In doing this, value systems of the industrialized world are forwarded towards developing countries. It is seen as a way to complement poor sustainability policies on practices in these countries. This relatively new phenomenon of promoting sustainable development through market interactions is quite remarkable. Why would economic actors take up such public interests (abating environ-mental degradation and social injustice)? From the perspective of developing countries on the supply side of global value chains, being able to commit to such business-to-business standards requires developing world producers to possess certain qualities and capacities. This article reflects on this issue, identifying essential capacities, drawn from literature on (sustainable) entrepreneurship. It develops a model explaining business performance with characteristics of entrepreneurship. The model is tested in practice using data on exporters of table grapes in South Africa. Copyright © 2009 John Wiley & Sons, Ltd and ERP Environment. Received 19 November 2008; revised 30 April 2009; accepted 7 May 2009 Key words:  entrepreneurship; sustainability; economic sustainability; global supply chain Introduction S USTAINABLE   BUSINESS   PRACTICES   HAVE   BECOME   A   PREREQUISITE   FOR   SUPPLIERS  ( ENTREPRENEURS ) WITHIN   GLOBAL   supply chains (Seuring, 2004, p. 1629). Various studies have been done on sustainable global supply chain management, identifying various motives ranging from strategic and pragmatic reasons (Hart, 1997; Gereffi et al. , 2005) to forms of ‘enlightened’ entrepreneurship (Runhaar et al. , 2006; Vermeulen and Ras,  326 P. J. Ras and W. J. V. Vermeulen Copyright © 2009 John Wiley & Sons, Ltd and ERP Environment Sust. Dev . 17 , 325–340 (2009) DOI : 10.1002/sd 2006; Muller et al. , 2009). Although the debate on sustainable production initially focused on environmental issues in production and product development (Huisingh and Bailey, 1982; Tibbs, 1991; Socolow, 1994), it has developed to include social, ethical and economic aspects impacting business (Elkington, 1998; Cramer et al. , 2004). Profitability as part of the economic aspect is of extreme importance to entrepreneurship in countries such as South Africa, as whole communities are empowered by income geared through international trade.The South African government has through its Small Business Act indicated that it wants to create long term employment and to level the playing fields between small and large business. This implies moving away from subsistence farming in especially the rural areas to creating small businesses and to growing them into larger businesses, which are able to make a difference locally by creating jobs and prosperity. In this context globalization implies taking up opportunities offered by international trade, which is an important way of generating income (GDP) and securing international investment. To do this supply chain networks, flows of goods and services, and connecting countries are needed.Supply chain management connects various actors from both the demand and supply sides. Within such global supply chains socio-ethical and environmental value systems developed in the industrialized world are forwarded towards the developing world and are seen as a way to complement poor sustainability policies on practices in these countries (Hess and Coe, 2006; Bek et al. , 2007; Muller et al. , 2009).Previous research on the producer addressing the call for sustainable production has shown that South African entrepreneurs active in global product chains face certain barriers, such as lack of required knowledge and exper-tise on sustainable production, the costs of switching towards sustainable production and a practice in which these costs and the risks of selling products in the European market are put on the shoulders of African suppliers (Dolan and Humphrey, 2004; Ras et al. , 2007). These barriers and uncertainties of global markets illustrate that for pro-ducers to succeed requires a risk taking attitude and an openness to innovation to keep their supply chain running as smoothly as possible, and it demands good management of the available resources. Thus, it is essential that producers exhibit entrepreneurial qualities to succeed in making profits.Acknowledging the differences in the global business to business structure, the question emerges of whether South African business actually possess such indispensable qualities to be able to successfully respond to these market demands. Our key questions are the following.1. To what extent do South African suppliers possess entrepreneurial qualities to enable ‘successful’ response to European market based sustainability requirements?2. How do these entrepreneurial qualities relate to the producers’ environmental and economic performance?To answer these questions a discussion on entrepreneurship and management will be followed by an overview of supply chain management and corporate social responsibility literature, to draft an exploratory model. This model will be tested with the results obtained from empirical work done in the field. This article uses data collected in a study of the SATGI and forms part of a larger study investigating sustainability within global supply chains. Entrepreneurship, Trade and Sustainability By connecting global supply chain management to entrepreneurial qualities on the supply side of the chain, we put the concept of entrepreneurship in the centre. Co (2006) defines an entrepreneur as ‘someone who identifies a need in the market and develops products and services by making decisions about bringing resources together (raw materials, financial and human resources) to satisfy that need. The entrepreneur takes risks in doing this and is rewarded with the profits of the business’. The role of entrepreneurs as the engine of progress has widely been discussed in the literature, by Mill, Schumpeter, Weber and McClelland (Jennings, 1994). The result of entrepre-neurship is, according to more recent theorists, the ‘creation, enhancement, realization, and renewal of value, not just for owners, but for all participants and stakeholders’ (Timmons and Spinelli, 2004), thus also stressing community benefits.Many authors have addressed typical characteristics of entrepreneurs (Cunnigham and Licheron, 1991), in general distinguishing between  psychological traits , as less transferable attitudes or talents or virtues (such as high  South African Entrepreneurs in a Global Supply Chain 327 Copyright © 2009 John Wiley & Sons, Ltd and ERP Environment Sust. Dev . 17 , 325–340 (2009) DOI : 10.1002/sd self-esteem, risk taking attitudes), versus more transferable skills  in the field of management and planning of busi-ness activities and properly controlling the  process  of running an enterprise. Various authors, including Bull and Willard (1993), Jennings (1994), Timmons and Spinelli (2004) and Etemad (2004) have mapped out this history of theory development and elaborated many such crucial elements of entrepreneurship. Some of the skills and process related characteristics are more or less inward    oriented  , aiming at controlling the firm itself, while other outward    oriented   characteristics secure an entrepreneur’s interaction with its surrounding world of physical oppor-tunities, such as markets, costumers and society in which enterprises are imbedded, to which it adds value and prosperity and from which it uses human resources.For this paper we restrict our literature review to summarizing the most commonly suggested elements in Table 1, to serve as a basis for our empirical work in the next sections.In addition to the general debate about (successful) entrepreneurship in the discipline of business management, scholars in the field of sustainable production and corporate social responsibility have suggested comparable fea-tures for ‘eco-entrepreneurs’, ‘socially responsible entrepreneurs’ or ‘sustainable entrepreneurship’ (Cohen and Winn, 2007). In this view, creating vision and direction and satisfying ultimate consumer wishes are explicitly connected to developing innovative solutions for environmental issues and acknowledging the direct impacts of entrepreneurial activities on the distribution of prosperity and the depletion of non-renewable resources and eco-systems (Elkington, 1994; Hart, 1995; Elkington, 1998; Larson, 2000). Various types of ‘eco-preneur’ and ‘envi-ronmental leader’ have been distinguished (Isaak, 2002; Schaltegger, 2002; Runhaar, Tigchelaar et al. , 2006). In Psychological traitsa. High need for achievement [1, 10, 11, 16, 18]b. Autonomy and dominance; desire for independence [2, 10, 11]c. Internal locus of control [10, 12, 18]d. Tolerance for ambiguity and uncertainty (risk taking) [3, 10]e. High propensity for risk taking [4, 18]f. Adaptability and flexibility [5, 11]g. High self-esteem, self-confidence, self-assurance [6, 7, 10, 11]h. Creativity, innovativeness [8, 10, 11, 13, 15, 16, 17]i. Opportunity recognition, responsiveness, alertness [9, 10, 11, 13, 15,16, 17]Inward orientedOutward oriented Skills j. Management skills such as planning ahead, organizing, control, experience and leadership [8, 10, 11, 13, 17, 19]k. Operational skills such as administrative, finance, marketing, logistics, human resources [8, 10,11, 13, 17, 19]l. Technical skills [17, 18, 20]m. Good human relation skills, such as communication [13, 10]n. Adjust to sector’s value systems [15] Process o. Create a vision and direction [13]p. Financing the enterprise [13]q. Good organizers; gather resources such as finance, labour [8, 11,13, 18]r. Planning for expansion and growth, addressing market risks [8, 13]s. Planning for competing in the market [8, 13]t. Creating networks; such as business, social and international networks [13] Outcome u. Wealth creation [10,13, 14]v. Business growth [10, 11,14]w. Employment, community welfare [10, 13, 14] Table 1.  Characteristics of entrepreneurship as suggested in international literature[1] McClelland, 1961; [2] Brush, 1992; [3] Schwartz, 1979; [4] Hisrich and Brush, 1987; [5] Buttner and Moore, 1997; [6] Cuba et al. , 1983; [7] Rosa et al. , 1994; [8] Drucker, 1985; [9] Kirzner, 1999; [10] Timmons and Spinelli, 2004; [11] Van Aardt et al. , 2007; [12] Jennings, 1994; [13] Etemad, 2004; [14] Nieman et al. , 2007; [15] Cunnigham and Licheron, 1991; [16] Schumpeter, 1936; [17] Peterson, 1985; [18] Bull and Willard, 1993; [19] Robbins and De Cenzo, 2006; [20] Oakey, 2003.  328 P. J. Ras and W. J. V. Vermeulen Copyright © 2009 John Wiley & Sons, Ltd and ERP Environment Sust. Dev . 17 , 325–340 (2009) DOI : 10.1002/sd this perspective, a good entrepreneur is one who understands that consumers on the European and American market demand environmental and social ethical products for consumption and derives profit from it (Porter, 1985; Lussier, 2006; Quayle, 2006). A company cannot permit itself to be publicly criticized because of poor working conditions, environmental scandals or a violation of human rights (Cramer, 2006).The various characteristics of entrepreneurs are especially relevant in the context of global competition, where business standards concerning sustainability from market actors (e.g. retailers) in Europe are being imposed on producers from developing countries. Producers therefore have to comply with various market based standards in order to enter the European market. Sustainable development as a concept and practice is thus promoted through various mechanisms in the market, sometimes by individual firms, such as Tesco’s Nature’s Choice, and some-times by joint sector activities, such as GlobalGAP (Muller et al. , 2009; Vermeulen, 2008).In Table 1 the connection to sustainability implies that additional skills for addressing environmental and social and ethical issues are required, and in the table’s row on outcomes positive community impacts and reducing environmental impacts of production and consumption are addressed as well.For our study we take the underlying basic assumption in this literature as the point of departure. Despite variations in orientation and details, entrepreneurial theory in general departs from the assumption that possessing the psychological traits, inward and outward oriented skills and process related capacities as identified will lead to more success in achieving socio-economic outcomes in the bottom row of the table. Theorists of eco-entrepreneurship would add the assumption that this will coincide with a positive environmental performance.Summarizing these basic assumptions, we argue that for the subject of our study we can compress the presented variety of characteristics into six main concepts. Stressing the emphasis on creating new opportunities and inno-vation, ‘innovativeness’ is the first concept (connecting to items d, e, h, l and r in Table 1). The outward orientation is summarized in the second concept: ‘responsiveness’ (representing items f, I and o and responses to demands in the field of sustainability). The inward orientation is expressed in ‘adequate management’ (items j, k, p and q). The fourth concept would be ‘business networking’ (covering items m, n and t). The outward orientation also includes two essential concepts for working in the highly competitive international food market: ‘market timing’, being essential for competing in the dynamics of harvesting schedules and demand fluctuations on the global market (item s), and ‘reducing market risks’ by planning for supplying multiple crops to multiple markets (item r).These main concepts are taken in our study as the most relevant competing variables explaining in theory the level of profitability of suppliers in the global supply chain as shown in Figure 1. In all cases positive correlations are expected, both with profitability and with environmental performance, as suggested by sustainable entrepre-neurship scholars. Research Methodology To test this model we have taken the South African table grape producers as examples of global supply chain participants in industrialized and developing world supply chains.The empirical data used in this study consists of questionnaire responses from these table grape producers. The questionnaire consisted of three sections: the first addressing the entrepreneur’s attitudes and strategies, the second section covering the modes of production and environmental measures. The third section addressed the social issues such as the social benefits provided by the producers to the employees.The questions were based on our previous research (Ras et al. , 2007) and the literature discussed above. All concepts in Figure 1 have been translated as far as possible into interval scale variables, using seven point Likert-type scales or answers in the form of percentages that had to be filled in. Other questions produced nominal results (such as 1 =  yes, 2 =  no) and were transformed into summed indexes.We developed two profitability variables (past profit and expected future profit) as an ordinal variable ranging in seven steps from ‘I made losses’ and ‘no profit’ to ‘I made more than 12% profit’. We have chosen this more qualitative approach because profit is a very sensitive issue amongst producers and exact figures would otherwise not be obtained.  South African Entrepreneurs in a Global Supply Chain 329 Copyright © 2009 John Wiley & Sons, Ltd and ERP Environment Sust. Dev . 17 , 325–340 (2009) DOI : 10.1002/sd For the independent variables in Figure 1 we used the next approach. To determine the first three concepts (innovativeness, responsiveness and adequate management) we formulated 12 statements, covering the various relevant items given in Table 1. Answers were collected using a seven point Likert scale. Market risk spreading   was addressed with questions about the  geographical distribution  of the markets accessed by farmers and about the diversification of type of products grown  on the farms. These two issues are considered to be the main strategies for risk spreading for producers.The environmental practices of producers were tested with a set of questions about the self-reported improve-ments in production practices, based on a comparable study done by Silverman in California (USA) (Silverman et al. , 2005), also applying seven point Likert scales. In the interviews we applied a structured questionnaire, including closed questions and using Likert scales, but during these face to face interviews we also verified per-ceptions and gathered additional information with open ended questions. Data Collection and Sampling Characteristics Empirical findings address a total population of 478 table grape producers, farming in five different geographical areas covering South Africa. The sample frame is presented by data provided by the SATGI.The research team formed part of a full sector census project undertaken by this industry body that allowed them access to farms. An additional questionnaire was added to producers visited, endorsed and supported by the industry body. We intended to present this additional questionnaire to half of the farmers. For this we applied a convenience sample (Cooper and Schindler, 2006) suitable for working in the South African context. Farmers’ participation in the study was affected by different harvesting schedules, lack of physical resources, such as special-ized vehicles, lack of time and the need to overcome trust issues with participants. Systematic bias was avoided by a representative response from all geographic regions. In such way n   =  242 producers were visited. Another limitation relates to the fact that only exporting table grape farmers were included in the study. Sustainability practices at locally supplying producers might be different. ProfitabilityInnovativenessResponsiveness Adequate MgtEnvironmental PerformanceReducing Market RiskMarketTimingBusiness Networking +++++++++++++ Figure 1.  Conceptual model on the relations between main concepts of entrepreneurship and profitability and environmental performance
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