JURNAL-MKM-VOL-7-2011

Malaysian
JourCnoaol-f
KPDNKK

operative
Studies
Formerly known as Malaysian Journal of Co-operative Management (MJCM)

VOLUME 7 2011 ISSN: 1823-5387

VOLUME 7 2011 Cooperatives as Indicator of Organizational Integrity
Rosmimah Mohd Roslin, Raja Maimon Raja Yusof,
Rahimah Abdul Samad & Hasrin Abu Hassan

Determinants of Cooperatives Members’ Participation in
Input and Output Marketing by Multipurpose Cooperatives -

An Empirical Analysis in Tigray Region, Ethiopia
R. Karunakaran, Brehanu Borji & Ahmedin Sherefa

Attributes and Perceived Success Factors of Performing
Cooperatives in Malaysia

Nurizah Noordin, Sushila Devi Rajaratnam,
Mohd. Shahron Anuar Said, Rafedah Juhan & Farahaini Mohd. Hanif

Indicators of Good Governance Practices in Self Employed
Women’s Saccos Union in Addis Ababa, Ethiopia -
An Exploratory Study
M. Karthikeyan

Cabaran Koperasi Pengguna dalam Aktiviti
Peruncitan di Semenanjung Malaysia

Norazlan Hasbullah, Noranita Mohd Nor, Mohd Faisal Shariff,
Ju Samsuddin Safian & Arfizawati Abd Hadi

Tahap Pengambilan Risiko dalam Gerakan Koperasi di Malaysia
Norwatim Abd Latiff

MALAYSIAN JOURNAL OF CO-OPERATIVE STUDIES
EDITORIAL BOARD

Chief Editor
Norazlan Hasbullah

Editors
Raja Maimon Raja Yusof
Dr. Jamilah Din
Nurizah Noordin

Reviewers
Prof. Dato’ Dr. Ismail Rejab
Prof. Dr. Mohd. Ghazali Mohayidin
Prof. Dr. Rosmimah Mohd Roslin
Assoc. Prof. Dr. Rahmah Abd. Rashid
Assoc. Prof. Dr. Noryati Ahmad
Assoc. Prof. Syed Mohd. Ghazali Wafa Syed Adwam Wafa
Dato’ Dr. Tam Weng Wah
Dr. Ravichandran Moorthy
Dr. Mohd. Rafi Yaacob
Dr. Zakiah Saleh

Editorial Advisory Board Members
Idris Ismail (Co-operative College of Malaysia)
Prof. Dato’ Dr. Ismail Rejab (Universiti Tun Abdul Razak)
Prof. Dr. Mohd. Ghazali Mohayidin (Open University Malaysia)
Prof. Dr. Rosmimah Mohd Roslin (Universiti Teknologi MARA)
Assoc. Prof. Dr. Rahmah Abd. Rashid (Universiti Teknologi MARA)
Assoc. Prof. Dr. Noryati Ahmad (Universiti Teknologi MARA)
Assoc Prof. Syed Mohd. Ghazali Wafa Syed Adwam Wafa (Universiti Kebangsaan Malaysia)
Dato’ Dr. Tam Weng Wah (Jabatan Perdana Menteri)
Dr. Ravichandran Moorthy (Universiti Kebangsaan Malaysia)
Dr. Mohd. Rafi Yaacob (Universiti Malaysia Kelantan)

Managing Editor
Yusnita Othman

Secretariat
Afiza Abdul Karim
Sharepah Nur Azirah Shareh Abd. Rahman



CONTENTS iii
1
Malaysian Journal of Co-operative Studies Editorial Board 15

Co-operatives as Indicator of Organizational Integrity 37
Rosmimah Mohd Roslin, Raja Maimon Raja Yusof,
Rahimah Abdul Samad & Hasrin Abu Hassan 69
87
Determinants of Co-operatives Members’ Participation in Input
and Output Marketing by Multipurpose Co-operatives - An 103
Empirical Analysis in Tigray Region, Ethiopia

R. Karunakaran, Brehanu Borji & Ahmedin Sherefa

Attributes and Perceived Success Factors of Performing
Co-operatives in Malaysia

Nurizah Noordin, Sushila Devi Rajaratnam, Mohd. Shahron
Anuar Said, Rafedah Juhan & Farahaini Mohd. Hanif

Indicators of Good Governance Practices in Self Employed Women’s
Saccos Union in Addis Ababa, Ethiopia – An Exploratory Study

M. Karthikeyan

Cabaran Koperasi Pengguna dalam Aktiviti Peruncitan
di Semenanjung Malaysia

Norazlan Hasbullah, Noranita Mohd Nor, Mohd Faisal Shariff,
Ju Samsuddin Safian & Arfizawati Abd Hadi

Tahap Pengambilan Risiko dalam Gerakan Koperasi di Malaysia
Norwatim Abd Latiff



CO-OPERATIVES AS INDICATOR OF
ORGANIZATIONAL INTEGRITY

Rosmimah Mohd Roslin

Universiti Teknologi MARA, Malaysia

Raja Maimon Raja Yusof
Rahimah Abdul Samad

Hasrin Abu Hassan

Co-operative College of Malaysia

ABSTRACT

This study addresses the question of how retail co-operatives project their stature as
socially responsible co-operatives through their corporate culture and their business
ability. Using integrity as the proxy to such projection, the link between integrity and the
corporate culture and integrity and business abilities are assessed. The findings of this
study confirmed such relationships and further illustrate how integrity is deemed crucial
to the image of the co-operatives. Although this study is just an extension of another
study on retail co-operatives, it nevertheless established how co-operatives view their
positions as socially responsible entities and how important it is for the co-operatives
to constantly display their actions as being efforts that will allow their members and the
public to perceive them positively.

INTRODUCTION
Co-operatives are social enterprises that are formed and owned by a group of
individuals for the purpose of improving their standard of living. The underlying
philosophy of co-operatives is essentially service and the well-being of members
and as such, co-operatives are non profit-oriented and will always put the welfare
of the members as a priority when making key decisions (Tchami, 2007). Most
co-operatives are governed by seven co-operative principles that have been
universally accepted and adopted by the International Co-operative Alliance.
The principles are voluntary and included open membership; democratic member
control; member economic participation; autonomy and independence; education,
training and information; co-operation among co-operatives; and concern for the

Malaysian Journal of Co-operative Studies2

community. It is this underlying philosophy that has guided the movement of
co-operatives in Malaysia.

Today, the integrity of the co-operative movement in preserving its concept and
ideology is being challenged by current trends in the area of information and
communications technology (ICT), impact of globalization and liberalization of trade,
deregulation and changes in national and global policies. The world has become very
competitive for the co-operatives and for those that are operating numerous business
ventures as their main source of revenue, the need to uphold the welfare of the
members have become more challenging. The business world has never incorporated
welfare and autonomic rule as key ingredients to the achievement of high profits.
Indeed, business demands and the core responsibility of the co-operatives are at
extreme ends and this may prove to be a challenge to those co-operatives upholding
the core principles of their existence. Co-operatives also face challenges in improving
their stature as well organized co-operatives and the quality of services and products
to members. At the same time, they face the challenge of competing with the private
sector in a fair and competitive environment.

Challenged by such environmental demands, co-operatives are using their formal
entities as means of displaying their integrity. With the co-operative label, these
organizations are persuading the public that their existences are solely for the welfare
of their members. Although involved in many business undertakings, co-operatives
are facing the dilemma of convincing the public that they are genuinely honest, are of
high integrity and more importantly are carrying out tasks that have the good welfare
of their members at heart. Yet, there are many co-operatives that have been disgraced
because of dishonest dealings and mismanagement of funds. This proposed study
addresses the extent that co-operatives in Malaysia are using their identities as tools of
public relations and to display their image of integrity. Using co-operatives involved
in the retail business as respondents, this study evaluates the extent of ‘believability’
that the co-operatives expressed through their roles as co-operatives. From the findings
an assessment of organizational identities of co-operatives can be derived and this
would assist the co-operatives to understand their roles better.

Corporate Integrity in the Co-operative Environment

Brenkert (2004) asserts that corporations are organizations of humans and those
organizations that are not dysfunctional and execute their functions in accordance
to what they preach can be regarded as exhibiting some form of integrity. Yet,
integrity itself is often subjective and contains many contradictions. This is

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attributed to integrity being associated with the corporate leader or the CEOs and Volume 7 2011
they are increasingly being held accountable for the behaviours of their corporate
citizens (Harshbarger & Stringer, 2003). Being a corporate leader is doing what
is right on several different levels or in several different ways. Being a corporate
leader is about integrity, responsibility, and excellence, and perhaps even honour
(Lennick & Kiel, 2005).

Integrity is also associated with the feeling of trust that one has over an
organization. The way the organization acts, the way it executes its responsibilities
and the way it projects itself are signs of integrity. High levels of corporate
integrity will add significant value to the corporation both by avoiding costs and,
more importantly, by avoiding damaging losses of brand equity, reputation, and
marketplace influence—valuable sources of competitive advantage. In essence,
high integrity is good for business (Harshbarger & Stringer, 2003, p.16).

Based on this premise, co-operatives with their underlying philosophy of working
for the group and upholding the principle of goodliness for all, would want to be
associated with high levels of integrity. It is more pertinent for co-operatives to display
a sense of trust and building a sense of community of practices not only among the
co-operative members but also with customers and other stakeholders. Kakuchi (1995)
observes the Japanese co-operatives and reiterate how co-operatives are essentially
obligated to the society in offering goods of high quality and of reasonable prices.
Thus, co-operatives are social engines that actually worked for the good of the
community and therefore integrity must be observed always.

A sense of integrity linked to trust is expected to be present within the co-operative
work environment as co-operative leaders embark on business ventures aimed
at attaining substantial returns which are to be shared among the members. The
values and principles of co-operatives encourage them to develop a clear ethical
stance and to emphasize meeting people’s needs over maximizing profits for
shareholders. In so doing, co-operatives work within democratic structures,
which provide opportunities for input and involvement for key stakeholders (e.g.,
member-owners, management, employees, community), and which necessitate
emphasis on transparency and accountability (Brown, 2006). Thus, the need
to address issues relating to integrity as reflected by the way the co-operatives
project themselves through their marketing efforts and their corporate culture will
dictate the credibility of the co-operative and its adherence to its core principles
of democracy, voluntarism and community values.

Malaysian Journal of Co-operative Studies4

Corporate Culture and Abilities – Linkage to Integrity

The values adhered by the co-operatives are also linked to the corporate culture they
advocate. Goals, philosophies and principles are deemed to portray the construct of
corporate culture (Melewar & Jenkins, 2002) and these are valid elements present
within the co-operative environment. Corporate culture is the personality or the
shared values of the organization (Koberg & Chusmir, 1987) and in the context of
co-operatives, it is such culture that dictates the behaviour of the members and the
co-operatives’ ‘way of life’. In assessing the corporate culture, one is able to assess
the extent of adherence of the co-operative to the community. As a co-operative,
their culture or the way the members and the leaders behave may reveal their true
character. Thus, the construct of corporate culture is postulated to influence the extent
of integrity especially within the co-operative scenario.

In line with this assumption, the co-operatives’ ability to carry out their responsibilities
diligently and with the highest level of integrity is the core of their existence. The
behaviour of the members and the leaders would therefore project the image that
the co-operative is indeed credible in their execution of responsibilities. Sternberg
(1991) expresses the idea that corporate identity is all about values and these values
direct operations and behaviours of the members. As co-operatives are also business
entities, the ability in carrying out their businesses effectively and their keen sense
of business acumen will indicate their level of social responsibility. It is therefore
pertinent that the co-operatives’ ability be given adequate attention in ensuring that
the integrity of the co-operative is upheld. Thus, the co-operatives’ ability is deemed
as another construct which may well influence the level of integrity projected by
co-operatives. Although there is no common designation and consensus as to how
business performances should be evaluated especially for co-operatives, in this
study, the co-operatives’ business ability is assessed by operationalizing it through
the elements of financial stability, business acumen and the strategic orientation
adopted by the co-operatives in managing their businesses. This is decided based on
the integration of several studies assessing performance and productivity (Jessup et
al., 2004; Dragun, Howard & Reynolds, 2004) to provide a basic idea of how business
abilities could be measured.

THE STUDY

This study is an extraction of a bigger study conducted between two institutions,
Universiti Teknologi MARA and the Co-operative College of Malaysia. The initial
study sets out to assess the extent of involvement co-operatives have in the retail

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business. From this study, delineation was made of those co-operatives already Volume 7 2011
involved in the retail business and an evaluation of the extent of their efforts in
projecting their image as a co-operative of high integrity was carried out. A total of 100
retail co-operatives were identified and the assessment of their activities associated
with their display of integrity and corporate identities were carried out.

The objectives of the study therefore were to:
1. Determine the efforts exerted by the co-operatives in displaying their level

of integrity.
2. Evaluate the correlation between the corporate culture of co-operatives with

the level of integrity displayed.
3. Assess the relationship between the ability of the co-operatives to carry out

their business ventures and the level of integrity projected through their
marketing efforts.

The objectives serve as the basis to determine how co-operatives used their virtues
as co-operatives to relate to the public their identities as highly responsible entities.
The framework for this study is outlined in Figure 1 below.

Corporate culture Integrity of Co-operatives
• Identity • Trustworthiness
• Values • Accountability
• Behaviour
• Commitment

Ability of Co-operatives
• Strategic direction
• Financial stability
• Business acumen

Figure 1: Research Framework

Malaysian Journal of Co-operative Studies6

METHODOLOGY

Using the descriptive method of research, a questionnaire was developed as the
main instrument for data collection. Based on the sampling frame of co-operatives
registered with the Malaysian Co-operative Commission (Suruhanjaya Koperasi
Malaysia) a total of 500 consumer co-operatives were identified. From the 500,
co-operatives that were active and still operating were identified. A stratified
random sampling was then carried out based on geographical zones of main
cities in Malaysia and co-operatives from these zones were randomly selected.
This list was then distributed to enumerators for the distribution of questionnaire.
Enumerators met with any of the key management team of the co-operatives and
they were asked to answer the questionnaire. Generally, the respondents were
represented by any one of the board members, the managers or the secretary of
the co-operatives. In total 100 co-operatives that were actively involved in the
retail business answered the questionnaire.

Quantitative analysis followed after the data were keyed in, cleaned and processed
accordingly. Descriptive analyses including correlation were then executed to answer
the research objectives. The following discussion explains the findings and answers
the research objectives.

FINDINGS AND ANALYSIS

The analysis begins with an assessment of the reliability of the instrument used for
the research. As such, reliability test was carried out to ensure that consistency of
the research items was maintained at all times. Table 1, provides the Cronbach alpha
values of the three main variables in the study. The highest values are noted for the
variable of corporate culture with a Cronbach alpha of .8388 while the alpha value
for integrity is .6480. Sekaran & Bougie (2010) asserts that alpha values of .6 and
above can be considered as acceptable for most social research that is exploratory in
nature. However, in this case, the items on abilities need further assessment as the
consistency is rather low as depicted by the value of .4176.

Table 1: Reliability Analysis No. of Items Alpha values
7 .6480
Variables 6 .8388
Integrity 5 .4176
Corporate culture
Abilities

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The low alpha value for the items on abilities may be attributed to the scarce number Volume 7 2011
of items in assessing this variable. As asserted by Hattie (1985), Cronbach alpha
values may increase with an increment of items. The measure of co-operative abilities
may also be a complex construct where the co-operatives may view their abilities
differently and not necessarily from a business perspective. Despite their involvement
in the retail business, the co-operatives’ abilities may be evaluated also from their
social responsibility angle. As this was not inserted in measuring the variable, there
appear to be some inconsistencies in the views of the respondents. Nevertheless, the
items are still maintained for this exploratory study as it is only meant to gauge the
co-operatives’ initial assessment of their business acumen.

The descriptive analysis that follows is presented in Table 2 where the basic details
of the co-operatives are described to gauge the background of the co-operatives. A
majority (46%) of the co-operatives were experienced ones having been established
before 1990. Such an indication of experience would imply their ability to manage
their co-operatives and to understand the demands of ensuring that the co-operatives
live up to its name. The number of members is also indicative of the co-operatives’
strength. In total 35% of the co-operatives have members of 100 to 300 and 32%
have more than 500 members. The size of the co-operatives is important to imply
their abilities to carry out more demanding activities and therefore their business
ventures are also likely to be more structured to gain adequate profits for dividend
payments to all its members.

Another indicator of size is the amount of capital that the co-operatives possess.
A total of 32% of the co-operatives owned more than RM100 thousand (USD31.3
thousand) of capital and by Malaysian standard, this is relatively large. Although
the assets accumulated are not relatively large (54% reporting less than RM50,000
or USD15,600), this is typical of co-operatives that are not necessarily inclined to
accumulate assets as this would imply fixed investments that may not directly benefit
all the members.

In terms of the income generated by these co-operatives, a majority (69%) are
reporting a relatively low income of less than RM100,000 (USD31,250) in the year
ending 2008. What can be implied here is the tendency of the co-operatives to be
involved in less risky ventures that may not be accumulating large amount of income
for them. Those who are involved in retailing are generally relying on their members
as their target customers. This is the scenario in Malaysia where no significant large
retail co-operatives exist. Those that do report their involvement in the retail business

8

Malaysian Journal of Co-operative Studies are basically targeting their members and these co-operatives are located in specific
rural or suburban areas where there is a dearth of modern retail outlets. This is in
fact a contribution of the co-operatives who feel that they are socially obligated to
provide the retail services to their members.

Table 2: Co-operatives’ Background

Details of Co-operatives %

Year established Before 1990 46.0
1990-1995 20.0
Number of members 1996-2000 8.0
Amount of capital (2008) 2001-2005 16.0
Amount of assets (2008) After 2005 10.0
Net income (2008) Less than 100 19.0
100-300 35.0
301-500 14.0
More than 500 32.0
Less than RM10K 29.0
RM10K-RM50K 20.0
RM51K-RM100K 19.0
More than RM100K 32.0
Less than RM50K 54.0
RM50K-RM100K 12.0
RM101K-RM500K 16.0
More than RM500K 18.0
Less than RM100K 69.0
RM100K-RM500K 15.0
RM501K-RM1Million 10.0
More than RM1 million 6.0

The analysis continues with a descriptive analysis on the efforts relating to the
projection of integrity of the co-operatives. This includes items pertaining to the level
of trustworthiness and accountability of the co-operatives based on their perceptive
assessment. As indicated in Table 3, trustworthiness as displayed through the
experiences of the board of directors, the knowledge of the staff/members who work
in the retail outlets and the confidence that the customers as well as the members have
toward the co-operatives are depicted by a mean of 4.76. On a scale of 1 (extremely

9

unimportant) to 6 (extremely important), a mean of 4.76 implies a relatively Volume 7 2011
strong feelings which the co-operatives perceived as their projection of integrity.
Accountability is another measure of integrity and this is evaluated through statements
relating to the financial aspects of the co-operatives, the supporting element they
provide and that are given to them as well as the acceptance of the members/public
toward the co-operatives in general. With a mean of 4.66, this is again a reflection of
the importance the co-operatives regard the projection of their integrity.

Table 3: Integrity Measure

TRUSTWORTHINESS ACCOUNTABILITY

N Valid 100 100
Missing
Mean 00
Std. Deviation
4.7600 4.6667

.57726 .72474

Scale: 1: Extremely unimportant – 6: Extremely important

Based on the framework developed, the analysis continues with the assessment of
correlations between the variable of integrity and corporate culture as well as integrity
and the ability of the co-operatives. As indicated in Table 4, there is a correlation
between the culture of the co-operatives and their display of integrity as indicated by
the correlation value of .495 for ability and .426 for integrity and corporate personality.
Although the correlation values are rather weak, they do indicate the presence of
relationship between integrity of the co-operative and how they project themselves
through their personality or corporate culture. Their abilities also are indicative of
how their integrity is being projected.

Table 4: Correlations

INTEGRITY CULTURE ABILITY
.426(**) .495(**)
INTEGRITY Pearson Correlation 1 .000
100 .000
Sig. (2-tailed) . 1 100
. .430(**)
N 100 100 .000
.430(**) 100
CULTURE Pearson Correlation .426(**) .000 1
100
Sig. (2-tailed) .000 .
100
N 100

ABILITY Pearson Correlation .495(**)

Sig. (2-tailed) .000

N 100

** Correlation is significant at the 0.01 level (2-tailed).

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Malaysian Journal of Co-operative Studies The findings concur with the assumption that co-operatives view their integrity as an
indicator of who they are and this is reflected through their corporate culture or their
corporate personality. As co-operatives, their responsibility to their members and to
the public in general needs to be visible through the way they behave and through their
ability to carry out their functions well. In this study, co-operatives that are involved
in the retail business are the focus of the research and their abilities to carry out their
business operations effectively are also seen as a key element in ensuring that they
are carrying their functions effectively as responsible co-operatives.

Further inferential analysis is carried out through regression analysis to determine to
what extent the independent variables, corporate culture and abilities influence the
integrity of the co-operatives. Table 5 provides the model summary of the regression
analysis and the ANOVA output.

Table 5: Model Summary(c) and ANOVA

Model R R Square Adjusted R Std. Error of Durbin-Watson
Square the Estimate 2.104
1 .495(a) .245 .237
.287 .48590
2 .549(b) .301 .46993

a Predictors: (Constant), ABILITY
b Predictors: (Constant), ABILITY, CULTURE
c Dependent Variable: INTEGRIT

ANOVA(c)

Model Sum of df Mean F Sig.

Squares Square

1 Regression 7.516 1 7.516 31.834 .000(a)
Residual 23.138 98 .236
Total 30.654 99 20.906 .000(b)
9.233 2 4.617
2 Regression 21.421 97 .221
Residual 30.654 99
Total

a Predictors: (Constant), ABILITY
b Predictors: (Constant), ABILITY, CULTURE
c Dependent Variable: INTEGRIT

The predictors of the model are ability and corporate culture or personality and as
seen in Table 4, ability of the co-operatives account for 23.7% of the variation on
integrity of the co-operatives. When both predictors are entered into the model,
this variation increased to 28.7%. The Durbin-Watson value of 2.104 implies that
the assumption of independent errors is tenable as the value is close to 2.0 (Field,

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2009). The ANOVA analysis also reveals that the model enhance the prediction Volume 7 2011
of the outcome variable, meaning that integrity as the outcome of the postulated
model can be predicted by looking at the two predictors.

DISCUSSION

The study sets out to address the efforts exerted by the co-operatives in their initiatives
to project their integrity. As indicated by the descriptive analysis, the co-operatives
view aspects of integrity as important in their stature as co-operatives. This then is
linked or correlated to dimensions of corporate culture and although the correlation
is not distinctively strong (.426), there is still positive relationship. This is also true of
the correlation between integrity and the abilities of the co-operatives in carrying out
their retail ventures and again even though a correlation of .495 is noted, the positive
correlation is enough to indicate that relationship exists among the variables.

The inferential analysis also provides enough evidence to accept the postulation that
the corporate identity of the co-operatives which is proxy through the dimensions of
integrity is linked to their corporate culture and the display of their abilities. To the
co-operatives, integrity is important as this is a reflection of who and what they are.
As co-operative they have a social obligation to uphold their outlook as a responsible
entity not only to their members but to the public as well. The public especially will
generally link the co-operatives with how they carry out their functions and with
retail co-operatives they are often in the public eye. As such, their actions are akin
to their marketing efforts, be it in a positive or negative manner. What this implies
is that as co-operatives their roles and responsibilities are in the public eye and will
be scrutinized by the public and their members. As members, the higher the level of
identification they have with their co-operatives, the more likely that they relate to
the co-operatives (Stoel, 2002). Thus, how a co-operative carries itself is pertinent
to the effectiveness of the co-operatives.

This study is only an exploratory one as it seeks to address how the co-operatives
view their obligations and how these are translated into the activities that they carry
out. With an identity that is reflective of their personality, the co-operatives are
indeed using this as a tool to project their level of trustworthiness and accountability.
Although much needs to be done, this study has established that co-operatives do
carry out distinct efforts to project who and what they are. Indeed co-operatives
exist to serve their members and to ensure that the welfare of the members are a
priority and if what they do is reflective of who and what they are doing, then would
already indicate that they are in the right path to attaining co-operative effectiveness.

Malaysian Journal of Co-operative Studies12

Future studies should address more dimensions that would provide a more rigorous
assessment of the corporate culture of co-operatives, the projection of integrity and
the means that co-operatives used to evaluate their abilities. What has been done in
this study is just a small extension of another study on retail co-operatives and as
such, a lot of pertinent elements may have been omitted. It is hoped that this study
will open more avenues for other studies on co-operatives especially those that are
linked to the marketing efforts of the co-operatives.

REFERENCES

Brenkert, G.G. (2004). The need for corporate integrity in Corporate integrity and
accountability, George G. Brenkert (editor), Thousand Oaks, Sage Publications.

Brown, L. (2006). Innovations in co-operative marketing and communications, Centre for
the Study of Co-operatives, University of Saskatchewan, 1-16.

Dragun, D, Howard, E. & Reynolds, J. (2004). Assessing the productivity of the UK retail
sector, Oxford Institute of Retail Management, Templeton College, University of
Oxford.

Field, A. (2009). Discovering statistics using SPSS (Introducing statistical methods series),
3rd. Edition, London, Sage.

Harshbarger, S. & Stringer, R. (2003). Creating a climate of corporate integrity, The Corporate
Board, May-June, 10-16.

Hattie J. (1985): Methodology review: assessing unidimensionality of tests and items. Applied
Psychology Measure, 9: 139-164.

Jessup, E., Casavant, K., Monson, J. & Duft, K. (2004). Business decisions in a co-operative
environment, Journal of Business and Economic Research, 2(6): 71-75.

Kakuchi, S. (1995). Japan: consumer coops make it big, www.uwcc.wise.edu/icic/today/
consumer/big.html, [accessed 30 May, 2009].

Koberg, C.S. & Chusmir, L.H. (1987). Organizational culture relationships with creativity
and other job-related variables, Journal of Business Research, 15: 397-409.

Lennick, D. & Kiel, F. (2005). Moral intelligence: Enhancing business performance and
leadership success. Upper Saddle River, NJ: Pearson Education Wharton School
Publishing.

Melewar, T.C. & Jenkins, S. (2002). Defining the corporate identity construct, Corporate
Reputation Review, 5(1): 76-90.

Sekaran, U. & Bougie, R. (2010). Research methods for business: A skill building approach,
5th edition, New York, John Wiley & Sons.

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Sternberg, R. (1991). Making up a face to fit, Asian Business (Hong Kong), 27(4): April, Volume 7 2011
55-56.

Stoel, L. (2002). Retail co-operatives: group size, group identification, communication
frequency and relationship effectiveness, International Journal of Retail and
Distribution Management, 30(1): 51-60.

Tchami, G. (2007). Handbook on co-operatives for use of workers’ organizations, Geneva,
International Labour Office.

AUTHORS’ BACKGROUND

Prof. Dr. Rosmimah Mohd Roslin is currently a Professor of Marketing
at the Faculty of Business Management, Universiti Teknologi MARA,
Malaysia and has 23 years experience as a lecturer. Besides teaching, she
has undertaken a number of research studies and written journal articles.
She also provides advisory services and reviewing journal articles for the
International Marketing Review, United Kingdom, International Journal
of Interdisciplinary Social Sciences, International Journal of Internet
and Enterprise Management, Zagreb University and Jurnal Pengurusan,
Universiti Kebangsaan Malaysia. Rosmimah is the Chief Editor for the
Journal of International Business and Entrepreneurship (JIBE), Editorial
Advisory Board of the Asian Academy of Management Journal and Academic
Advisor for the Institute of Marketing Malaysia. In addition she also a
member for the Academy of Marketing, United Kingdom, a member for the
Asian Academy of Management and a member for the Qualitative Research
Association of Malaysia (QRAM).

Raja Maimon Raja Yusof is the Deputy Chief Director (Academic) at the
Co-operative College of Malaysia (CCM). She holds a Masters in Business
Administration from Universiti Kebangsaan Malaysia (1997), Bachelor in
Economics with Honours from Universiti Malaya, Malaysia (1987) and
Diploma in Co-operative Training Methodology from Pune, India (1979). She
joined CCM in 1979 and is an experienced lecturer in business management.
She also provides advisory service to co-operatives, undertaken a number of
research studies and written articles relates to co-operative management.

Malaysian Journal of Co-operative Studies14

Rahimah Abd. Samad is currently the senior lecturer of the Co-operative
Entrepreneurship and Retailing Centre at the Co-operative College of
Malaysia (CCM). She has more than 26 years experience as a lecturer with
CCM and besides teaching, has undertaken a number of research studies and
written related article in the field of co-operative management. She obtained
her Masters in Business Administration (2009) and Bachelor in Business
Administration (Human Resource Management) (1998) from Universiti
Teknologi MARA, Malaysia.

Hasrin Abu Hassan joined the Co-operative College of Malaysia in 2004
as a lecturer. Besides training, he has been involved in research studies and
written related articles. He obtained his Master in Business Administration
(Advanced Operation Management) from Universiti Teknikal Malaysia
(UTeM), Bachelor in Business Administration (Operation Management)
from Universiti Teknologi MARA, Malaysia and Diploma in Technology
Management from Universiti Teknologi Malaysia (UTM).

DETERMINANTS OF CO-OPERATIVES MEMBERS’
PARTICIPATION IN INPUT AND OUTPUT MARKETING
BY MULTIPURPOSE CO-OPERATIVES - AN EMPIRICAL

ANALYSIS IN TIGRAY REGION, ETHIOPIA

R. Karunakaran, Brehanu Borji & Ahmedin Sherefa

Hawassa University, Ethiopia

ABSTRACT

The main aim of this study is to empirically analyze the major factors influencing members’
participation in input and output marketing of agricultural multipurpose co-operatives in
the Southern Zone of Tigray Region of Ethiopia. A multi-stage random sampling procedure
was adopted as to selection of Woredas, co-operative societies, and member respondents.
As such, in the first stage, Tigray Region was purposively selected. In the second stage,
from the five Woredas (Districts) of the Southern Zone of Tigray Region, Alamata and
Ofla Woredas were selected at random for the study. In the third stage, out of 27 primary
multipurpose co-operatives in the selected Woredas, 10 societies were selected based on
the volume of business. In the final stage, a total of 208 sample respondents at the rate of
56 from Alamata and 152 from Ofla Woreda by adopting probability proportionate to size
sampling. Primary data pertaining to the year 2007/08 was collected from the selected
sample respondents by using a structured interview schedule. Of the total respondents,
about 70.2% and 29.8% were participants and non-participants of the co-operatives
agricultural input and output marketing respectively. Probit econometric model was
employed to identify the determinants of participation of co-operative members in the
input and output marketing by co-operatives in the two Woreda. Fifteen explanatory
variables were included in the model of which ten variables were found to be significant.
Of these, six explanatory variables namely own land, shareholding, distance, output
price, membership in other co-operatives and seed price were found to be significantly
and positively related to the participation of co-operative members in the agricultural
input and output marketing by co-operatives.

INTRODUCTION

Currently, there are around 28,000 primary level co-operatives (60 percent are
agricultural co-operatives) 180 secondary co-operatives (unions), two co-operative
federations and a Co-operative Bank with 16 branches operating throughout Ethiopia

Malaysian Journal of Co-operative Studies16

serving more than 5 million members with a total capital of over 1.2 billion Ethiopian
Birr in different sectors of the economy like Agriculture, Banking, Credit and Savings,
Marketing, Processing, Construction, Service, Housing, Irrigation, Agriculture. etc
(Federal Co-operative Agency 2010). It is noteworthy that more than 85 percent
of the total agricultural inputs requirements of the rural community are distributed
through co-operatives. As to market share, co-operatives are responsible for over 25
percent of coffee exports, the major foreign exchange earner of the country. Coffee
unions are exporting high-quality, organic and Fair Trade coffee to the United States,
Europe and Japan, fetching premium prices on behalf of smallholder coffee farmers.
Through co-operative unions, primary co-operatives have unfettered access to inputs
at competitive prices with substantial price reductions) and have attained a strong
bargaining position in marketing their outputs.

A report of Tigray Co-operative Promotion and Input Marketing Division
(2008) indicates that there are 1309 different types of primary and 21 secondary
co-operative societies in the region, of which 582 (44.5%) are agricultural
multipurpose co-operatives which deal with the input and output marketing of
their members. The remaining 727 (55.5%) co-operatives comprise of saving
and credit, construction, irrigation and other type of co-operative societies. The
co-operative societies in the region have a total membership of 361,242 which
includes 275,696 (76.3%) male and 85, 546 (23.7%) female members with a total
capital of Birr 71,462,247 (Gebru Desta, 2007).

The marketing of agricultural products begin at the farm when the farmer plans his
production to meet specific demands and markets prospects. Marketing enables the
agricultural producer to step out of a subsistence straight jacket and grow produce
for sale. Correspondingly, it permits a large proportion of a country’s population to
live in cities and buy their food nearby. Agricultural marketing provides an incentive
to farmers to grow produce for export. In this way, it gives farmers more income and
earns foreign exchange to pay for imports. Agricultural marketing is complicated by
the diverse nature of the products to be handled, and their perishability. A further
complication is the scattered nature of agricultural production and, in most tropical
countries (like Ethiopia), the very large number of separate production units. For these
reasons, agricultural marketing calls for considerable initiative, decision making and
skill (Kraenzle, 1989).

Co-operative Marketing is an extension of the principles of co-operatives in the field
of marketing. It is a process of marketing through a co-operative association formed
voluntarily by its members to perform one or more marketing functions in respect
of their produce.

17

Agricultural inputs can be categorized into two types, consumable and capital inputs. Volume 7 2011
The former includes manures and fertilizers, seeds, insecticides/pesticides, diesel
oil and electricity, etc, on the other hand, capital inputs include tractors and trailers,
harvesters and threshers, pump sets, and other implements. Most of the agricultural
input markets are seen at the level of grain market towns and large villages or
co-operative institutions. There are some general aspects of the rural market like
underdeveloped markets, illiterate buyers, lack of communication facilities, many
languages, and vast spread of the market, storage, transport problems, seasonality
and demand which are applicable to agricultural input markets as well. However,
agricultural input markets differ from other product markets in many ways due to the
nature of their products, the nature and location of users and the overall environment
in which products are being bought and used (Oxford Policy Management, 2003).

Under the current institutional arrangement, the Ministry of Agriculture and
Rural Development (MoARD) is responsible to design, implement and monitor
agricultural marketing policies through the different divisions organized under the
department of agricultural marketing and inputs of the Ministry. Other organizations
like co-operatives, unions, traders associations, exporters’ associations etc also play
an important role in improving the marketing skill, bargaining power and also in
the process of policy formulation (Dawit, 2005).

Statement of the Problem

The weak performance of the agricultural markets (both input and output markets)
in Ethiopia has been portrayed in various studies as a major impediment to growth
in the agricultural sector and the overall economy (Dawit, 2005). With an inefficient
marketing system, the surplus resulting from increased production benefits neither
the farmers nor the country (Hind, 1994). This is particularly important as the country
is following a policy of agriculture led-industrialization and economic development
where the agricultural sector is expected to produce surplus that can move to the
other sectors of the economy.

The agricultural markets in Ethiopia are highly influenced by the production system
itself. Most of the agricultural production is undertaken by small scale producers
scattered all over the country, engaged in different agricultural enterprises without
specialization, and with limited marketable surplus. It was estimated that only 28
percent of total farm output in 1996 was marketed. Therefore, the scattered produce
in small quantity needs to be collected and assembled, graded, and transported from
one market level to another. Thus, the marketing system is characterized with a long
chain with many intermediaries. An intervention is required to shorten the marketing

Malaysian Journal of Co-operative Studies18

channel in order to reduce the marketing costs incurred at each level of marketing
channel so that the benefits will go to the farmers (Gebremeskel, 1998).

The cause of success and failures of co-operatives corresponds in a building up and
breaking down of co-operative identities through the process by which members
and employees grow to hold the identity as their own vision. Although co-operatives
are considered as an appropriate tool of rural development they are facing critical
problems, which retain them from their positive role. Some of the constraints of
co-operatives are: low institutional capacity, inadequate qualified personnel, low
entrepreneurship skill, lack of financial resources, lack of market information, poor
members’ participation in the different activities such as financing the co-operative,
patronizing the business activities of the co-operatives, control and supports it.
Moreover, the prices of agricultural inputs are increasing from year to year and
farmers are complaining on it. These multifaceted problems make very difficult the
over all activities of the co-operatives in general and the agricultural input and output
marketing in particular. Among the problems discussed above, members’ participation
assumes greater significance since members’ participation is being considered as a
prime factor which influences greatly on the input and output marketing system of
marketing co-operatives. Thus the present study is an attempt to bring forth the factors
influencing members’ participation in input and output marketing by co-operatives
in Southern Zone of Tigray.

LITERATURE REVIEW

Participation of members in the agricultural input and output marketing
by co-operatives: For the effective functioning of the co-operative movement,
members’ participation is the pole of the co-operative. These are members
who are aware of the importance of the co-operative societies socially and
economically. These members will make themselves aware of the problems and
have the willingness to contribute to the progress of the co-operatives. Such
membership ensures member participation in the business and managerial affairs of
the co-operatives. Vigilant members prevent financial irregularities and the emergence
of vested interest in co-operatives. Thus the health of co-operatives improves. As
against the participant members, ignorant, sleepy, inactive, non-participative and
indifferent members become a problem in themselves. They are prone to exploitation
by the convert (change) elements in the society. So the members in the society must
be highly participative in all aspects of the co-operative affairs.

19

Democracy is the basic value of co-operatives. In a democratic organization like Volume 7 2011
co-operatives, the general body is supreme organ of the organization and the
management committee is elected by them to look after the day to day affairs. In
this study, the concept of participation lays the involvement of member patrons
in patronizing the agricultural input and output marketing made by co-operatives.
A few studies pertaining to members’ perception, attitude and participation in
co-operatives have been reviewed hereunder.

Mitchell A. Seligson (1987) in his report analyzed the Attitude and Perception of
Co-operative Members and Nonmembers on the advantages and disadvantages of
co-operatives. The study concluded that members of co-operatives have better positive
attitude and perception towards the management and administration of co-operatives
because of their active participation in both management and business affairs. Further
non members too have some knowledge about co-operatives.

Tretcher (1996) used a logit regression analysis to analyze the factors associated
with diversification on agricultural co-operatives in Wisconsin. It was found that the
impact of diversification upon measures of co-operative performance (profitability,
patronage refund and equity redemption) was relatively minor i.e. diversification on
agricultural co-operatives was not statistically associated with profitability, increases
in patronage dividends or increases in equity devolvement. The result also showed that
diversification on agricultural co-operatives was an important factor in determining
membership size i.e. diversified co-operatives enjoyed larger membership.

Haileselassie (2003) found that most of the co-operative members appreciated
the involvement of co-operatives in input marketing. As a result members in the
Saeisietsaeda Emba Woreda in Tigray Region have built a sense of ownership and
confidence. The study further indicated that above all members were satisfied for
the reason that it removed the need for members moving along distances to collect
fertilizer, and reduced time and finance spent on the way.

Kebede (2006) used the logit model to analyze the farmers’ perception and
determinants of land management practices in Ofla Woreda, southern Tigray, Ethiopia.
The findings of the study showed that Age, Sex, Distance to Woreda market, perceived
water logging problem, perceived gully and degradation status, Investment in soil
and water conservation practices, slope category were found to determine the farmers
perception of land management practice.

Malaysian Journal of Co-operative Studies20

Daniel (2006) used the tobit model to assess the performance of primary agricultural
co-operatives and determinants of members’ decision to use as marketing agent in
Adaa Liben and Lume Districts. The findings of the study showed that among these
significant variables, co-operative price for teff, position in the co-operative, farm size,
yield of teff, patronage refund and distance of the district market from the farmer’s
house were found to be significantly and positively related to the farmers’ marketing
of teff through the co-operatives.

Gebru Desta (2007) in his study Competitive Advantage of Agricultural Co-operatives’
Services in Rural Areas of Tigray observed that agricultural co-operatives are legitimate
institutions which belong to farmers. Their main activities are to render variety of
services and access the market for input supply particularly to the rural community.
The result of the survey further states that the trend of agricultural inputs supply in the
study area is highly decreased in quantity of fertilizer, improved seeds and increased
unit price almost from year to year.

Amini and Ramezani (2008) investigated the factors involved in the success of
poultry growers’ co-operatives in the selected provinces of Iran. The results indicate
that the co-operatives studied have generally failed to achieve the objectives
mandated in their constitutions which include their members’ satisfaction. The
results from path analysis showed that the following factors, in descending order
of importance, had the greatest effects on co-operative success: managers’ technical
skills, number of training programmes attended, quality of training programmes
offered, members’ participation in co-operatives’ administrative affairs and
managers’ interpersonal human skills.

The studies reviewed so far have not analyzed the role of co-operatives in input and
output marketing in the study area in particular and Ethiopia in general and hence
the present study.

Research Questions

The research work is an attempt to find answers to the following questions.
1. Do members actively participate in the input and output marketing of

multipurpose co-operatives?
2. Are there significant differences between the socio economic characteristics of

participant and non participant members?
3. What are the factors determining members’ participation in the input and output

marketing by multipurpose co-operatives?

21

Objectives of the Study Volume 7 2011

In compliance with the research questions, the study has the following specific
objectives:
1. To analyze the socio-economic characteristics of the co-operatives members.
2. To assess the nature and extent of participation of co-operative members in

agricultural input and output marketing activities.
3. To identify the major factors influencing participation of co-operative members

in agricultural input and output marketing activities.

Hypothesis of the Study

In line with the objectives, the following hypotheses have been framed by the
researchers.
1. The participation of members of multipurpose co-operatives in input and output

marketing is influenced by the shares held by the member household heads.
2. The participation of members of multipurpose co-operatives in input and output

marketing is influenced by the distance to the co-operative office from the house
of member household heads.
3. Educated members are evincing active participation in the input and output
marketing of the co-operatives.
4. Fertilizer prices have positive influence on members’ participation in the input
and output marketing by co-operatives.

METHODOLOGY

The study is based on empirical analysis. Hence field survey method was adopted.

Sampling Procedure

A multi-stage random sampling procedure was adopted for the selection of region,
study area and the sample farmers from the co-operatives in the two Woredas. In
the first stage, Tigray region was selected purposively on the justification that the
region is beset with large number of agricultural co-operatives which are dealing
with input and output marketing. As a second stage, out of five Woredas (Districts)
in South Tigray Zone, two Woredas (Alamata and Ofla) were randomly selected for
the purpose of the study.

Malaysian Journal of Co-operative Studies22

In the third stage, considering the total number of 27 multipurpose primary co-operatives
(11 in Alamata Woreda and 16 in Ofla Woreda) as well as financial and time limitations,
10 primary multipurpose co-operatives were randomly selected from the two study
woredas (four from Alamata Woreda and six from Ofla Woreda).

In the final stage, given the available resource and time at the disposal, a total of
208 farmer members (56 farmers from Alamata Woreda and 152 farmers from
Ofla Woreda) were selected randomly using probability proportional to sample
size (PPS).

Tools for Data Collection

Primary data was collected on age of respondents, marital status, sex of the household
head, educational level, family size, family income, size of land holding, livestock
ownership, duration of membership, awareness about co-operatives, contact with
the co-operative leaders, participation in co-operative management, dividend
payment, availability of credit, exposure to mass media, price of agricultural inputs,
opinion on price of agricultural outputs, timely delivery of inputs, regular marketing
service of co-operatives, distance of the house of the household head from primary
multipurpose co-operative society, expenditure and other relevant variables from the
sample respondents who are members of the primary multipurpose co-operatives
selected for the study.

A structured interview schedule was developed to collect the needed primary data
which comprised of both open ended and closed ended questions. The structured
interview schedule was prepared for the purpose of conducting face-to-face interview
with the respondents to elicit as much information as possible in pursuit of fulfilling
the objectives of the study. The interview questions were developed by the researchers
at their own by taking into account the nature of the business dealings (input and
output marketing) held by the members with their co-operative society. The interview
schedule was first prepared in English and translated into Tigrigna for practical field
work. The interview schedule was pre-tested with 10 co-operative members before
its actual administration.

Data Analysis

Descriptive statistics are important to have clear picture of the characteristics of
sample units. By applying descriptive statistics one can compare and contrast
different categories of sample units (farm households) with respect to the desired
characteristics. In this study, descriptive statistics such as mean, standard deviation,

23

percentages and frequency of occurrence were used along the econometric model, Volume 7 2011
to analyze the collected primary data.

Probit Model Specification

To identify the factors influencing the participation of co-operative members in the
agricultural input and output marketing business, binary Probit model was employed
for this study. Therefore, the determinants of participation in the agricultural input
and output marketing activity were estimated using binary Probit regression model.
According to Maddala (2002) Probit model is specified as:

Ii* = α +δ Xi+ε

Where

I = 1 if I i* >1, the members participate in the agricultural input and output
marketing by co-operatives.

I = 0 if I* i ≤ 0, otherwise
X i are exogenous variables where i = 1, 2 …, 15.
X1 = Age of household head
X2 = Educational level of the household head
X3 = Family size of the household head
X4 = Land owned by the household head
X5 = Number of oxen owned by the household head
X6 = Livestock holding of the household head
X7 = Share holding of the household head
X8 = Non farm income of the household head
X9 = Expenditure in agricultural inputs by the household head
X10 = Distance to the co-operative office from the home of the household
X11 = Perception of household head on price of agricultural output
X 12 = Perception of the household head on change of standard of living due to

joining to co-operatives
X13 = Membership of the household head in other co-operatives
X14 = Perception of the household head on Fertilizer price
X15 = Perception of the household head on improved seed price
δ is vector of parameters to be estimated;
α is the intercept term;
ε1i are the disturbance term

The Variance Inflation Factor (VIF) was used to test for the existence of multi-collinearity
between continuous explanatory variables. VIF shows how the variance of an

24

Malaysian Journal of Co-operative Studies estimator “R” is inflated by the presence of multi-collinearity (Gujarati, 2004). If

R2 is the adjusted square of the multiple correlation coefficients that results when

the explanatory variable (Xi) is regressed against all the other explanatory variables,

VIF is computed as VIF(X) = (1-R) 1-2
i

As the adjusted R2 approaches 1, the VIF approaches infinity. That is as the extent
of collinearity increases, the variance of the estimator increases, and in the limit it
can become infinity. If there is no collinearity between independent variables, the
values of VIF will approach 1. As a Rule of Thumb, values of VIF greater than 10 are
often taken as a signal for the existence of multi- collinearity problem in the model
(Gujarati, 2004).

Contingency coefficients were also calculated to see the degree of association
between the dummy variables. They were calculated for each pair of dummy variables
using contingency coefficient procedure available in Statistical Packages for Social
Sciences. Contingency coefficient is a chi-square based measure of association. A
value of 0.75 or more indicates a stronger relationship.

RESULTS AND DISCUSSION

Socio-economic Characteristics of the Respondents

The average age of the sample farmers was about 43.2 years. The corresponding
figure for the participant and non-participant farmers was about 42.4 and 45.0 years
respectively. An independent sample t-test was conducted to compare the difference in
mean age between participant and non participant sample respondents are statistically
significant at 10% probability level of significance (t = 1.84) (Table 1). This indicates
that more aged members do not participate in the input and output marketing activities
of the co-operatives as compared with the less aged farmer members.

The average educational level of the sample households was 3.2 years of schooling.
While the respective participant and non participant sample farmers average schooling
is 3.5 and 2.7 years. According to the independent sample t-test, the difference mean
t-test was compared between the participant and non-participant co-operative members
with respect to educational level of the household head is found to be statistically
significant at 10% probability level (t = -1.8) and the hypothesis has been accepted.
This implies relatively educated member farmer members participate in the input

25Volume 7 2011

and output marketing activities of the co-operatives. This can be due to the fact that
educated farmer members have more exposure to timely information and understand
about the co-operative marketing activities as compared to less educated members.

The mean family size of the sample household in the study was found to be 6.0.
The respective average family size for participant and non participant household is
6.0 and 5.9 respectively Nonetheless, the analysis shows that, the mean difference
between participants and non-participants of the agricultural input and output
marketing by co-operatives with respect to family size is found to be statistically
non significant (t = -0.834).

The average land ownership of the sample respondents were 0.67 hectare. Moreover,
the corresponding figures for the participant and non-participant sample respondents’
amounts 0.7 and 0.5 hectare respectively. According to the independent sample
t- test conducted in this study, the difference in mean land ownership between the
participant and non participant household heads is found to be significant at 10%
probability level (t = -2.48). Therefore, from this we can conclude that the majority of
the sample farmers own more than half a hectare of land which is above the Woreda
average (i.e. 0.5 hectare).

The average livestock holding for the sample households as a whole is 5.62 Tropical
Livestock Unit (TLU) (Table 1). The average livestock holding of participants is
relatively higher (6.0) than that of non-participants (4.6). An independent sample t- test
was conducted to compare the mean difference in TLU owned between participants
and non-participants of the agricultural input and output marketing by co-operatives.
The result shows that there is statistical significant difference between the participant
and non-participant households at 5% probability level (t = -2.38).

More importantly the average shareholding of the whole sample farmers, participant
and nonparticipant farmer members amounts 2.2, 2.3 and 1.9 respectively. An
independent sample t test was analyzed to compare the mean difference between
the participant and non-participant households in the agricultural input and output
marketing by co-operatives and the result shows statistically significance at 1%
probability level (t = -2.99). This indicates, majority of the sample respondents 146
(70.2%) were participating in financing their co-operative societies through investing
in the form of additional share capital.

26

Malaysian Journal of Co-operative Studies Table 1:Mean, STD, T-values Continues variables for Non-Participant and Participant
Groups (N = 208)

Explanatory Non- Participant Participant Total Sig. t
Variables ( N = 62) ( N = 146) ( N = 208) values
Mean Mean Mean Mean 0.066*
Age of HH Mean Mean STD STD STD STD 0.063* 1.84
Level of Education STD STD 42.47 9.13 43.23 9.15 -1.87
of the HH 45.02 9.00 3.53 2.85 3.29 2.85
Family size of HH 2.73 2.79 -0.834
Land owned by the 6.02 1.931 -2.48
HH 5.987 1.987 0.72 0.44 6.003 1.959 0.405
Number of oxen 0.57 0.37 0.67 0.43 0.014** -2.58
owned by the HH 1.72 1.34
TLU 1.23 1.047 1.57 1.27 0.010** -2.38
Nonfarm income 6.06 4.31 1.68
of the HH 4.59 3.47 2087 2106 5.622 4.12 0.018**
Expenditure on 3147 4776 2403.3 3172.7 0.098* -1.85
input 323 284
Number of share 247 229 300.45 270.6 0.066* -2.99
holding by the HH 2.36 1.1
Distance from the 1.89 0.93 2.22 1.07 0.003*** 0.06
Co-operative office 4.43 3.71
3.52 3.10 4.16 3.56 0.090*

* Significant at 10% level of significance ** Significant at 5% level of significance
*** Significant at 1% level of significance

Factors Determining the Participation of Members in the Agricultural
Input and Output Marketing by Co-operatives

The estimates of parameters of the variables expected to influence the participation
of farmer members in the agricultural input and output marketing by co-operatives
are displayed on Table 2. Fifteen explanatory variables of which five are dummy
variables and the remaining 10 are continuous explanatory variables were taken for
the analysis. The result of the probit model analysis showed that 10 variables were
found to be significant. The impact of these explanatory variables on the dependent
variable is discussed below. Before running the model, it is useful to look into the
problem of multicollinearity among the continuous variables and verify the degree of
association among the hypothesized qualitative explanatory variables. To this effect,
the 10 continuous explanatory variables were checked for multicollinearity using
Variance Inflation Factors (VIF) while Contingency Coefficients were used to detect

27

the degree of association among five qualitative (discrete) explanatory variables. Volume 7 2011
According to the results, no significant problems of multicollinearity and very high
degree of association were observed. Therefore, all the 15 hypothesized continuous
and discrete explanatory variables were included in the model.

To start with, endogeneity was suspected in the case of perception of output price,
perception of change in standard of living due to joining to the co-operatives,
perception of fertilizer price and perception of improved seed price with the dependent
variable participation of the household head in the agricultural input and output
marketing by co-operatives as there is an increase in participation by the members in
the input and output marketing due to those independent explanatory variables. On the
other hand, households’ decision of participation depends on the price of output, price
of fertilizer, improved seeds and change on the standard of living of the household
head due to the participation in the input and output marketing by co-operatives.

Age of household head (AGEHH): Analysis of binary probit model as given in Table
2 reveals that the demographic explanatory variable namely age, has negative and
significance effect at 10% probability level on the participation of members in the
agricultural input and output marketing by co-operatives in the two study woredas
between all categories of members (participant and non-participant). This result is
in contrary to the finding of Subburaj and Karunakaran on the peoples’ perception
on the social benefits of cooperation (Frank, 2003). This is an important finding that
young co-operative members are more active participants in the agricultural input
and output marketing by co-operatives. The probable reason for this could be young
members might have more awareness about the benefit of co-operatives as compared
to aged members.

Land owned by the HH (LANDOWN): As it was expected, landholding has positively
influenced the agricultural input and output marketing activity of co-operatives
which is significant at five percent probability level. Each additional hectare of land
increases the probability of purchasing agricultural input from the co-operative and
selling of its agricultural outputs to their co-operative. Therefore, land ownership is
an important variable in the input and output marketing participation of the household
head. The result of this study was similar with to the findings of Daniel, 2006, as the
farm size increases, the co-operative members patronize their co-operative society
by purchasing and selling agricultural input and output respectively.

Share holding of HH (SHARHOL): The variable share holding had influenced the
participation of farmer members in the agricultural input and output marketing by

Malaysian Journal of Co-operative Studies28

co-operatives positively and significant at five percent probability level as it was
expected and hence the hypothesis is accepted. This implies that as the number of share
holding of farmer members increases the level of participation in the co-operative
affairs such as input and output marketing increases. The larger the share holding
the greater will be the sense of ownership by the co-operative members which leads
for more participation.

Non-farm income of the HH (NONFARNI): As expected the economic variable
non-farm income has influenced the participation of agricultural input and output
marketing by co-operatives negatively and significant at one percent probability
level. Field survey result shows that, farmers earning high non-farm income are non
participants in the agricultural input and output marketing by co-operatives because
they don’t involve in the farming activity since they don’t have the land.

Distance of the co-operative office from the HH house (DCOFFH): This variable
has influenced the participation in the agricultural input and output marketing by
co-operatives positively and found to be significant at one percent probability level
and hence the hypothesis has been accepted. It was expected that farmers, who are
relatively nearer to the co-operative office, have the chance to participate more in the
marketing activities of the co-operative. However, the model result shows that farmers
who live far-away from the co-operative office have also increased their probability to
participate in the agricultural input and output marketing co-operatives. This implies
farmer members at relatively distant location have less alternative marketing agents
as compared to those who live near the co-operative which are influenced by other
private marketing agents. This result is in contrary with finding of Daniel, 2006.

Perception of the HH on the price agricultural output (OUTPP): This variable had
influenced the agricultural input and output marketing of the co-operatives positively
and significant at one percent probability level. These shows as the co-operative
offers better price to its members agricultural produce the participation of members
in selling their farm output to the co-operative increase. The result was in conformity
with the finding of Daniel, 2006.

Perception of the HH on the change in standard of living due to joining a co-operative
(CHSTDUCO): The variable change in standard of living due to joining a co-operative
(becomes a co-operative membership) has negative and significant at five percent
probability level. Therefore, the variable change in standard of living has negative
contribution to the input and output marketing by co-operatives.

29

Membership in other co-operatives (MOTHCOOP): Membership in other Volume 7 2011
co-operatives i.e. other than the multipurpose co-operatives has positive and
significance influence at 10 percent probability level in the agricultural input and
output marketing by co-operatives. This implies that co-operative members who
have a membership in other co-operatives have better understanding in participating
in the co-operative affairs including in patronizing the co-operative business (such
as input and output marketing business).

Perception of the HH on fertilizer price (FERPRICE): The variable fertilizer price
influenced the participation of co-operative members in the agricultural input and
output marketing by co-operatives negatively and significant at 10 percent probability
level and hence the hypothesis has been rejected. This implies as the price of fertilizer
increases the participation of the household head in purchasing fertilizer from the
co-operative decreases.

Perception of the HH on improved seeds price (SEEDPRIC): The price of improved
seed has influenced the dependent variable participation of co-operative members
in the input and output marketing by co-operatives positively and significantly at 10
percent probability level which is contrary with what was expected. This implies
farmer members in the two woredas participate more actively in the purchase of
improved seeds as compared to other types of inputs regardless the price.

In general, the participation of farmer members in the agricultural input and
output marketing by co-operatives was significantly influenced by age, own land,
shareholding, non-farm income, distance of the co-operative office from the household
house, output price, change in standard of living due to joining co-operative,
membership in other co-operatives, price of inorganic fertilizer and price of improved
seed. However, out of the 10 significant explanatory variables six of them (own land,
shareholding, distance, output price, membership in other co-operatives and seed
price) were influenced the participation of co-operative members in the agricultural
input and output marketing by co-operatives positively and significantly at 10%
probability level.

In Table 2 the last column, marginal effects of the explanatory variables on the
probability of member’s participation in the agricultural input and output marketing
by co-operatives are also presented. As we can see from the table, a unit change in the
variables household age, non-farm income, change in standard of living and price of
inorganic fertilizer decreased the probability of participation of farmer members in

30

Malaysian Journal of Co-operative Studies Table 2: Probit Regression Estimates of Determinants of Participation in Agricultural Input
and Output Marketing by Co-operatives (N = 208)

Variables Coefficient Marginal Effect
Age of HH in years -0.0403* -0.0121*
(0.0150) (0.0045)
Educational level of the HH in years of schooling 0.0398 0.0120
(0.0437) (0.0131)
Family size of the HH in number -0.0369 -0.0111
(0.685) (0.0206)
Land owned by the HH in hectares 0.8618** 0.2603**
(0.3385) (0.1013)
Number of oxen owned by HH in number 0.0401 -0.0121
(0.1558) (0.0471)
Livestock holding of the HH in tropical livestock 0.0349 0.0105
unit (0.0496) (0.0149)
Share holding of the HH in number of shares 0.3052** 0.0922**
(0.1235) (0.0367)
Non farm income of the HH in birr -0.0001*** -0.00003***
(0.0000) (0.0000)
Expenditure in agricultural inputs by the HH -0.0005 -0.0002
in birr (0.0004) (0.00013)
Distance to the co-operative office from the home 0.0632** 0.0191**
of the HH kms (0.0323) (0.0098)
Perception of the HH on price of agricultural 0.6539*** 0.1883***
output dummy (0.2454) (0.0660)
Perception of the HH on change of standard of -0.5405** -0.1702**
living due to joining to co-operatives dummy (0.2349) (0.0758)
Membership of the HH in other co-operatives 0.4155* 0.1251*
dummy (0.2211) (0.0660)
Perception of HH on fertilizer price dummy -0.5658* -0.1809*
(0.2912) (0.0962)
Perception of HH on improved seed price dummy 0.6310** 0.1906**
(0.2759) (0.0813)
Constant 0.9031
(0.6451)
Pseudo-R2 0.2524
LRX 2 (15) 63.98
Prob >X2 0.000

***, **, and * indicates statistically significant at 1 percent, 5 percent and 1 percent probability level respectively.
Figures in parentheses are standard errors

31

the agricultural input and output marketing by co-operatives by 0.0121, 0.000035, Volume 7 2011
0.1702 and 0.1809 respectively. More importantly, one hectare of extra land owned
by the household head increased the probability of participation of the household
head in the agricultural input output marketing by co-operatives by 0.2603 units.
Similarly, a unit change in the share holding of the household head increased
the probability of participation in the agricultural input and output marketing by
co-operatives by 0.0922. As clearly shown in Table 2, a one km change in the
distance of the co-operative office from the house of the household head also
shows an increased probability of participation in the input and output marketing
by the co-operatives, which is in contrary with the findings of Daniel (2006).The
plausible reasons for this is no matter with the distance farmer members prefer to do
business with their co-operative society. One birr change in the price of agricultural
produces marketed to the co-operative society by its members results an increase
of the probability of participation in the agricultural input and output marketing by
co-operatives by 0.1883 units. Similarly one birr change (lower) in the improved
seed price increased the probability of participation of the co-operative members
in the agricultural input and output marketing by co-operatives by 0.1906 unit and
a unit change in the membership in other co-operatives increased the probability
of the household head in the participation of in the input and output marketing by
co-operatives by 0.1251 units.

As it has clearly shown in Table 2, the overall fit of the model has also quite well
with LR chi square value of 63.98 and Prob > chi square = 0.00. The model explains
25.2% of the variations in the participation of agricultural input and output marketing
by co-operatives.

CONCLUSION

From the foregoing analysis, it may be concluded that there are significant differences
between the participant and non participant members in respect of age, land, tropical
livestock unit, shareholding, non-farm income, expenditure in agricultural input,
distance of the co-operative office from the household house, membership in other
co-operatives and price of improved seed. The probit model results revealed that
out of 15 explanatory variables included in probit model, six continuous and four
discrete explanatory variables were found to be significant at less than or equal to
10% probability level. More specifically, these variables include age, own land,
shareholding, non-farm income, distance of the co-operative office from the household
house, perception of the household head on output price, perception of the household
head on change in standard of living due to joining co-operative, membership in other

Malaysian Journal of Co-operative Studies32

co-operatives, perception of the household head on price of inorganic fertilizer and
price of improved seed were found to be significantly related to the participation of
farmer members in the agricultural input and output marketing by co-operatives.
Further, among these significant variables own land, shareholding, distance, output
price, membership in other co-operatives and seed price were found to be significantly
and positively related to the participation of co-operative members in the agricultural
input and output marketing by co-operatives.

Policy Implications

From the outcome of the analysis of the research work, a few suggestions have been
put forth to enhance the participation of members in input and output marketing:

1. Most of the participant members feel that active participation and interest of the
members is a sine-qua-non of any co-operative society. It is normal that some
members will not show much interest in the affairs of their co-operatives apart
from contributing their share capital, but there is a general consensus that unless
members are active, co-operatives cannot prosper. There is, therefore, a clamor
for throwing out the inactive members.

2. People generally feel that co-operative as a movement will succeed only if there
is better knowledge and understanding of co-operatives. To that end, co-operative
education needs to be improved. The education component of the activities of
the Regional Co-operative Promotion Agency needs to be strengthened.

3. The need for autonomy in the management of co-operatives is emphasized.
The elected board of management is expected to maintain political neutrality.
Participatory management decision making in co-operatives is advocated.
Members of co-operatives insist on enforcing management accountability by
board of management including the executive heads. With a view to establish
effective and efficient board of management in co-operatives, selective voting
right to members is suggested.

4. There is a growing realization that many co-operative societies fail to live up to
their expectations in fulfilling their core objectives. Provision of services that
are needed by majority of members of co-operatives is emphasized during the
field survey. There is a demand for avoidance of delay and delivery of prompt
services. Adoption of simple and flexible procedures in availing the services of
co-operatives is suggested.

33Volume 7 2011

REFERENCES

Amini, A.M. & Ramezani, M. (2008). Investigating the success factors of Poultry Growers’
Co-operatives in Iran’s Western Provinces, World Applied Sciences Journal, 5(1):
81-87.

Daniel Belay. (2006). Performance of Primary Agricultural Co-operatives and Determinants
of Members’ Decision to use as Marketing Agent in Adaa Liben and Lume Districts,
Unpublished M.Sc. Thesis in Agricultural Economics, Alemaya University,
Ethiopia.

Dawit Alemu. (2005). The Status and Challenges of Agricultural Marketing in Ethiopia,
Melkassa Agricultural Research Center, EARO Paper presented at a panel discussion
organized by the Ethiopian Association of Agricultural Professionals (EAAP), Addis
Ababa, Ethiopia.

Federal Co-operative Agency (FCA). 2010. Annual Report for the year 2009/2010.
Unpublished Document, Addis Ababa, Ethiopia.

Frank Ratna Kumar, Savarimuthu, A. & Ravichandran, K. (2003). A New World through
Co-operatives, Rainbow Publications, India.

Gebremeskel Dessalegn, T.S. Jayne, & J.D. Shaffer. (1998). Market Structure, Conduct
and Performance: Constraints on Performance of Ethiopian Grain Markets, Working
Paper 8: Grain Market Research Project, Ministry of Economic Development and
Cooperation, Addis Ababa, Ethiopia.

Gebru Desta. (2007). ‘Competitive Advantage of Agricultural Co-operatives’ Services in Rural
Areas of Tigray, Ethiopia. Unpublished M.Sc.Thesis, Department of Food Business
and Development, National University of Ireland, Cork.

Gujarati. (2004). Basic Econometrics, Fourth Edition, Tata McGraw Hill Companies Inc.
New York.

Haileselaqssie Girmay. (2003). The Benefits of Co-operative Membership: A Co-operative
Study in Saesie Tsaeda Emba District, Tigray Region, Ethiopia. Unpublished M.Sc.
Thesis, Department of Food Business and Development, National University of
Ireland, Cork.

Hind, A.M. (1994). Co-operatives: Underperformers by Nature-Explanatory Analysis of Co-
operatives and Non-co-operative Companies in the Agribusiness Sector, Journal of
Agricultural Economics. 45(2): 213-219.

Malaysian Journal of Co-operative Studies34

Kebede Manjur. (2006). Farmers’ Perception and Determinants of Land Management
Practices in Ofla Woreda, Southern Tigray, Ethiopia, Unpublished M.Sc. Thesis in
Agricultural Extension, Alemaya University, Ethiopia.

Kimberly A. Zeuli & Robert Cropp. (2004). Co-operatives: Principles and Practices in the
21st Century. Co-operative Extension Publishing, University of Wisconsin, Madison,
USA.

Kraenzle, C.A. (1989). Farmer Co-operative: Members and Use. Agricultural Co-operative
Society Research Report 77. USDA, Washington, D.C., U.S.A.

Maddala. (2002). Introduction to Econometrics, Third Edition, J. Wiley and Sons Ltd,
England

Mitchell A. Seligson. (1987). Coffee Producers in Ecuador: A Comparison of Co-operative
Members and Nonmembers, United States Agency for International Development,
Quito, Ecuador.

Oxford Policy Management. (2003). Towards a Strategy for Support to Make Agricultural
Markets Work Better for the Poor: The Grain Marketing System in Ethiopia, UK.

Tretcher, D.D. (1999). Impact of Diversification on Agricultural Co-operatives in Wisconsin,
Agribusiness, USA.

AUTHORS’ BACKGROUND

Dr. R. Karunakaran (1966) is currently Assistant Professor in the
Department of Co-operatives, Hawassa University Ethiopia. He has 18
years of experience in teaching, research, training, extension and industry
in the fields of Cooperation and Co-operative Management. He has
carried out number of research studies and written related articles. He has
published more than 26 research and conceptual based papers in reputed
Indian and International journals. He has published research papers in the
edited books viz., Small Scale Industries-Problems, New World through

35

Co-operatives and Information Technology – Its Application in Small Volume 7 2011
Scale Industries. He is co-author of two books entitled, “Gender Issues
in Co-operatives” and “Training and Development” and sole author of
a book entitled, “Socio-Economic Impacts of Co-operative Movement
in Rural Areas”. His current areas of research are Impact Assessment
of Co-operatives, Functional Areas of Co-operative Management, and
Co-operative Marketing.

Dr. Brehanu Borji (1959) is currently Assistant Professor in the Department
of Management and Accounting, Hawassa University Ethiopia. He has 12
years of experience in teaching, research, training, extension and industry in
the fields of Management and Marketing Management. He has carried out
number of research studies and written related articles. He has published more
than 2 research and conceptual based papers in reputed Indian and International
journals. He has published research papers in the edited books viz., the Impact
of liberalization on Ethiopian Cotton Textile Industry. He is a sole author of
a book entitled, “Mathematics for Management. His current area of research
is Impact of Liberalization on Ethiopian Leather Industry.

Mr. Ahmedin Sherefa (1972) is currently Lecturer and Head, Department
of Co-operatives, Hawassa University. He has 4 years of experience in the
fields of teaching, research, extension and training. Prior to his teaching
assignment, he served as administrator/head in several government
organizations for about 15 years. He did his M.Sc. in Co-operative Marketing
in Mekkele University, Ethiopia. He had undergone short term training on
Development management and Thematic PRA in reputed Indian Institutions.
He has completed so far two micro research projects funded by the Research
and Development Directorate of Hawassa University. His current area of
research is Co-operative Marketing.



ATTRIBUTES AND PERCEIVED SUCCESS FACTORS
OF PERFORMING CO-OPERATIVES IN MALAYSIA

Nurizah Noordin
Sushila Devi Rajaratnam
Mohd. Shahron Anuar Said

Rafedah Juhan
Farahaini Mohd. Hanif

Co-operative College of Malaysia

ABSTRACT

This paper analyses the attributes of selected performing co-operatives and explored
the perception on the factors that have influenced the success of these co-operatives.
For identification of the success factor, the survey method is adopted and a total of 567
questionnaires were collected from individual respondents (Board Members) representing
89 selected performing co-operatives. Responses were then analysed using the exploratory
factor analysis. A total of three (3) factors were extracted using the principal component
method with a varimax rotation. The three factor rotated explained a total of 54.38 percent
of the variance and all the factors had acceptable reliability. The three factors identified
were managerial competency, effective leadership and support. Group mean scores
were then calculated for the three factors to determine their importance in determining
the success of the performing co-operatives. Subsequently, effective leadership was
perceived as the most important factor with the highest group mean score, followed by
the factor, managerial competency. The factor, support was perceived to be the third
most important factor.

Key words: co-operatives, management, success factor

INTRODUCTION

Co-operative was introduced in Malaysia in the early 1990s by the colonial
government in response to credit and indebtedness problems of peasants, farmers and
the civil servants (Frederics, 1973). Since the registration of the first thrift and loan
co-operative in July 1922, the co-operatives sector, placed under the authority of the
Malaysian Co-operative Societies Commission (MCSC) has become an important
part of the economy and made major impact on the lives of millions of Malaysians.
From only 11 co-operatives in 1922, as of 31 December 2009, the movement has

Malaysian Journal of Co-operative Studies38

registered 7,215 societies with a membership of 6.78 million people and total assets
worth RM64.9 million (Table 1). These co-operatives have evolved from credit,
agricultural and consumer function into a wide range of business activities covering
banking, credit and finance, agriculture, housing, industrial, consumer, construction,
transport and services.

Although the achievement in terms of numbers, membership size and asset
accumulation portrayed that co-operatives have gained huge support and recognition,
the co-operative movement currently contributes only slightly more than 1.4 percent
to the Gross Domestic Product (GDP) of Malaysia. As such, while providing the
best services to their members, co-operatives need to also strengthen their role
within the context of national development. In view of this aspiration, the 2011-2020
National Co-operative Policy (NCP) have underlined strategies that will increase the
participation of co-operatives in viable and high end economic activities to boost the
contribution of co-operatives to achieve the targeted 5 per cent contribution to GDP
by 2015 and 10 per cent by 2020.

In order for co-operatives to succeed economically and provide benefits to its members
effectively, they would have to be influenced by certain critical factors. Whether
driven by the management competency, leadership style or the activities undertaken,
it would thus be enriching to discover the attributes of successful co-operatives and
identify the important factors which are perceived to have contributed to their success.
Identification of these factor could be used to establish a baseline of practices and
guidelines for co-operatives to develop and to enhance their performance. It would
also assist co-operative to focus their efforts on building the necessary capacity and
competency in order to be successful. Correspondingly, identification of the success
factors could provide guidance to the related agencies to which appropriate factors
and actions they need to focus to stimulate co-operatives to be more successful.

REVIEW OF LITERATURE

In the context of co-operative, a combination of traditional financial measure
and non-financial or subjective indicators would appear to be the best measure to
reflect the performance of co-operative as a socio-economic entity (Parsley, 1992;
Hind, 1997). While the combined measures of performance are deemed to be
more appropriate, there are however, arguments that accounting based measures of
financial performance are a sufficient predictor of performance (Brief and Lawson,
1992; Peasnell, 1996). For instance Kakani et al. (2001) have utilized accounting
based measures for evaluating the performance of firms in India, using the return on

39

Table 1: Number of Co-operative Societies in Malaysia (According to Sectors, as at 31 Volume 7 2011
December 2009)

Function No. of Members Capital Assets Turnover Profit/Loss
Coop. (individuals)
Banking 2,289,504,293 51,251,535,708 4,338,062,555 1,577,844,058
Credit/ 2 838,932 4,170,086,940 7,180,092,477 1,367,606,347 348,108,617
Finance
Agriculture 575 1,963,054 244,317,272 1,256,095,986 613,878,566 123,113,737
Housing 133,356,559 406,619,034 36,442,571 164,698,774
Industrial 1,362 289,484 5,238,548 56,620,186 33,127,694 3,339,385
Consumer: 107 89,182 279,481,976 1,127,480,418 791,900,262 56,451,623
(Adult) 117 17,634
Consumer: 1,681 670,908 17,264,427 177,673,323 195,120,375 25,508,868
(School)
Construction 2,115 2,106,130 14,365,358 56,784,381 64,188,685 2,593,031
Transport 58,654,263 250,163,546 512,207,073 19,914,402
Services 117 62,171 1,753,250,727 3,236,209,436 966,475,435 341,347,245
346 148,196 8,965,520,363 64,999,274,495 8,919,009,563 2,662,919,740
Total 793 598,084
7,215 6,783,775

(Source: Malaysia Co-operative Societies Commission)

asset (ROA), the net profit margin (NPM), the return on capital employed (ROCE),
cash flow measure (CFM) and compounded annual asset growth rate (CAGR).

Kyriakopoulos, Meulenberg and Nilsson (2004) in their study of the impact of
co-operative structure, firm culture and market orientation on performance
also adopted the multidimensional construct of profit margin, market share,
relative market growth while Mishra, Tegegne and Sandretto (2004) uses the
modified net income per dollar of assets and operator‘s labor and management
income as a performance measure. Ward and McKillop (2005) on their study
of the linkage between the UK Credit Unions characteristics, location and
their success on the other hand uses two financial indicators; the payout
ratio (dividend and rebate percentage) and efficiency ratio (cost to income
percentage) as a measure of success.

Correspondingly, highlighting the attributes and perceived important factors
influencing the performing co-operatives would provide a better understanding of the
link to their success. Although there are a variety of possible factors that influenced
success, previous research categorized the factors as either organizational (internal)
or economic (external) in nature (Hansen and Wernerfelt 1989). They cited that
these two effects are independent, with organizational factors explaining twice as

Malaysian Journal of Co-operative Studies40

much variance in profit rates, suggesting that organizational factors influence firm
performance to a greater extent than economic factors.

Powell (1966) suggest that research on identification of success factors should focus
on the firm specific qualities such as culture, relationships, leadership and capabilities.
Likewise, Lynch and Giorgis (1997) posit that the characteristics of small business
managers, such as age, education background, experience and management skills
are important to the success of these organizations. In Ward and McKillop (2005),
size, location and affiliation to the league are found out to be contributory factors to
the success of a credit union.

As member based organisations, members’ involvement in their co-operatives
is of paramount importance to the survival and success of co-operatives. In fact
Amini and Ramezani, 2008; Lluch, Gomis and Jimenez, 2006 have dentified
active member participation in the administration of co-operatives as a key factor
influencing the successful performance of co-operatives. For co-operatives to
succeed, it is also imperative that they are managed effectively by visionary and
competent leaders who are capable of planning strategically for the continued
survival of the co-operative. Prior studies (Carr, Kariyawasam and Casil, 2008;
Carlberg, Ward and Holcomb, 2006; Henehan and Pelsue, Jr., 1986; Pathak and
Kumar, 2008) has found that having strategic or long term plans was positively
associated with successful co-operatives. Bruynis, Goldsmith, Hahn and Taylor
(2001), identified the following variables; securing sufficient equity before start
up, maintaining adequate business volume, keeping and distributing accurate
financial records, previous co-operative experience and continued management
training for both the board and manager as important to the success of agricultural
marketing co-operatives in America. The importance of training is also highlighted
by Pathak and Kumar (2008) which identified that lack of training in financial
management and lack of understanding of co-operative concepts were among the
main reasons for the failure of many co-operatives in Fiji.

A study by Amini and Ramezani, 2008 investigating the success factors of poultry
growers’ co-operatives in Iran found that the following factors, in a descending order
of importance, had the greatest effects on co-operative success: managers’ technical
skills, number of training programmes received by managers and members, quality
of the training programmes offered, members’ participation in the co-operative’s
administrative affairs and managers’ interpersonal human skills. Henehan and Pelsue
(1986) similarly found that two factors, management experience and adoption of

41

multi-year plans had the most significant influence on co-operative success, measured Volume 7 2011
by sales growth. Meanwhile result of the study by Carlberg et al. (2006) which sought
to determine success factors for New Generation Co-operatives (NGC) suggest that
“planning and development” factor (strong local leader, steering committee and
feasibility study) and financing and costs (low operating costs and member capital
base) factor are considered to be critically important by NGC managers.

Thus, the framework adopted for this exploratory study, structured based on the
literature reviews and related researches are as in Figure 1 below. The conceptual
framework defines the measures of performance employed and the attributes of the
performing co-operatives that the study proposed to identify.

Figure 1: The Conceptual Framework

METHODOLOGY

The performance or success of co-operatives is assessed by using the three
performance measures; the market measures (ROE), the accounting measures
(NPM) and financial measures (ROA). This decision is also aligned with Rahman,
2001 which cited that a combined measure using revenue, profit and other variables
would be appropriate to assess performance. All three (3) ratios are calculated
for each 3,487 active co-operatives with complete 2008 audited financial data
obtained from the MCSC. Each ratio was then given a score of 1 to 5 according to
the 20% percentile. The performance of each co-operatives were then calculated
and ranked based on the sum of these scores being the highest score 15 and the
lowest score 3.

Malaysian Journal of Co-operative Studies42

Overall performance score of between 11 – 15 was taken as the range to reflect
good performance. The cut off point of 11 was also used to ensure that a sufficient
number of co-operatives of different sizes (large, medium, small and micro) could
be identified for the purpose of conducting in depth analysis. 270 co-operatives
(excluding co-operative with annual turnover below RM100,000) from different
cluster undertaking various functions or activities were finally identified as the
performing or successful co-operatives. For the purpose of conducting in depth
analysis, 100 co-operatives were selected according to their ranking and as close
as possible to the proportion of the number of performing co-operatives. (Sampling
size as prescribed by Bartlett Kotrilk, Higgins, 2001) However, after screening for
completeness and validity of data, the research finally managed to obtained usable
data for 89 co-operatives.

As past research highlighted that the attributes of performing co-operatives would
provide a better understanding of their link to success, the research thus intends to
study the following characteristics; financial, membership, management practices and
the profile of the people who have brought the co-operatives to success.

For the purposes of analysis on the attributes of the selected performing co-operative
and the perceived success factor, survey using structured questionnaires were
conducted with the Board Members and the management personnel/manager of
the co-operatives. Three to six Board Members and managers who have served the
co-operatives for more than one (1) year are selected as respondents. Evidentiary
documents mainly from annual reports furnished by the co-operatives and MCSS
were also used for the study.

Primary data for this study is collected in two stages:

i. At the preliminary stage, a set of questionnaire is used to explore responses
from respondents related to the movement (board members, management staff
and members of co-operatives as well as government officers supervising
co-operatives) regarding factors that they perceived will influence the success
of co-operatives. The preliminary set of questionnaire listed a number of
perceived success factors mainly focusing on the internal environment, namely
the management and the organizational characteristics. External factors, such
as macroeconomic environment and market factors are not taken into account.
A total of 203 responses were received and usable for analysis. Based on the
feedback obtained from this preliminary study, the questionnaire for the final
phase were drawn up.

43

ii. At the final phase, two (2) sets of questionnaires were used to collect information Volume 7 2011
from the co-operative, the Board Members and the managers of the selected
performing co-operatives. Set 1 is structured to gather the background information
of the respondents (Board Members) and their experience. Another section is
designed to assess the perception of the respondents as to the important factors
they perceived to influence the success or performance of their respective
co-operative. This section requires the respondents to indicate their level of
agreement for the 21 statements, using a 5 point Likert rating scale of 1 to 5,
with 1 being for ‘not important’ and 5 for ‘very important’

Meanwhile set 2 is intended to obtain the background of the co-operatives,
the participation of members in co-operative activities and assistance obtained
from various agencies. This set is to be answered by the Secretary or Manager
of the co-operatives.

A team of researchers were employed to personally meet the respondents at their
respective co-operatives. The questionnaire for the study was then distributed, briefed,
checked for completion and collected on the same day.

SCOPE OF STUDY

This paper is an exploratory study that is confined to only performing co-operatives
throughout Malaysia of different sizes and activities. The performing co-operatives
is selected from the 2009 database provided by the MCSC. School co-operatives and
two banking co-operatives that is Bank Kerjasama Rakyat and Bank Persatuan were
excluded from the study, Dormant and inactive (co-operatives which has not held
their Annual General Meeting for two consecutive years) as identified by the MCCS
and co-operatives which incurred net loss for the financial year were also removed
from the basic databases.

FINDINGS AND DISCUSSION

Attributes of the Performing Co-operatives

On the whole a total of 30 large co-operatives (11.1%), 66 medium sized co-operatives
(24.4%), 116 small sized (43.0%) and 58 micro sized co-operatives (21.5%) were
rated as performing co-operatives (Table 1).

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Malaysian Journal of Co-operative Studies Table 2: Performing Co-operatives, According to Overall Performance Score (OPS) and Size

Size of No. of co-operatives with Overall Performance Total % of
Co-operatives Score 11-15 Total
Score
Large 15 14 13 12 11 30 11.1
Medium 2 3 5 11 9 66 24.4
Small 2 6 10 24 24 116 43.0
Micro 3 6 32 43 32 58 21.5
3 8 16 12 19 270 100
Total 10 23 62 89 86

A majority of these 270 performing co-operatives are those registered under the
consumer function (34.4%), credit function (20.4%) and service function (13.7).
However in comparison to the total number of co-operatives under the respective
function, co-operatives registered under transportation (10.1%) and credit (9.6%)
has the most number being selected as performing co-operatives. On the other hand,
although the number of consumer and agriculture co-operatives are large, only a small
percentage were selected as performing co-operatives (Table 2).

Table 3: Performing Co-operatives, According to Function

Function Performing Co-operatives Sector

Credit Number Percentage Percentage to Number of
Agriculture (%) Sector Co-op.
Housing 55 20.4 9.6 575
Industrial 33 12.2 2.4 1,362
Consumer 6 2.2 5.6 107
Construction 4 1.5 3.4 117
Transportation 93 34.4 5.5 1,681
Services 7 2.6 6.0 117
35 13.0 10.1 346
Total 37 13.7 4.7 793
270 100 5098

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A more detailed analysis on the attributes of a selected sample of 89 performing Volume 7 2011
co-operative, of which 17 (19.1%) are large, 26 (29.2%)are medium size, 29 (32.6%)
small and 17 (19.1%) micro sized co-operatives are as follows:

(a) Size and Function

A majority of the selected performing co-operatives carried out agriculture function
(20), followed by credit (19) consumer function (19) and services (16). Nine (9)
of the selected co-operatives are involved in transportation. Two (2) out of the 89
co-operatives surveyed undertook the construction function while another four (4)
co-operatives is in the housing function.

Table 4: Selected Performing Co-operative by Size and Function

Function No. of Sizes of Co-operatives
Coop
Credit Large Medium Small Micro
Agriculture 19 7 1
Housing 20 5 47 2
Consumer 4 2 1
Construction 19 1 85 5
Transportation 2 0 0
Services 9 1 10 2
16 1 6
Total 89 17 58 17

(19%) 11 (19%)

42

36

26 29

(29%) (33%)

Most of the large size co-operatives selected for the analysis is involved in credit
function while a majority of the medium size co-operative are involved in agriculture
function. The smaller size co-operative selected are primarily involved in consumer
and credit function, whilst most of the selected micro size co-operative is involved
in the services and consumer function.

(b) Age (Longevity)

As reflected in Table 5, a total of 10 co-operatives (11.2%) were registered some
31-40 years ago while another 13 (15.7%) has been in operations for 41-50 years.
Overall, 56.1% of the co-operatives surveyed has been in operations for more
than 20 years.