Why small, struggling cooperatives should merge

By David Kipkorir

Mergers, consolidations, acquisitions and federations are not new to cooperatives.

Over the years, numerous cooperative leaders, management consultants, bankers and university researchers have urged cooperatives in Kenya to consider extensive reorganization and consolidation.

Yet to many, such actions remain feared and misunderstood. Some view such  acts as last resorts for the survival of cooperatives  while others fear the  expanded market that results from successful combination.                                                                                                         

Regardless of how you view cooperative mergers, the sector is still characterized by such actual or contemplated actions.

It is not uncommon for cooperative managers to use the word “merger” as a very broad term referencing several alternative forms of cooperative combinations.

 For purposes of convenience, I shall also use the term in its broadest possible sense. Let’s take a look at the following terms:

  • Merger: Involves the absorption of one firm by another, with only the acquiring firm retaining its identity.
  • Consolidation: Refers to an amalgamation. It is used to describe a situation where two or more previously independent concerns combine in such a fashion that each loses its prior identity and a new organization is formed.
  • Acquisition: Refers to the outright purchase of all or part of one firm by another.
  • Federation: A cooperative combination whereby two or more firms join as co-owners and members of a (third) single company while retaining their separate cooperative identity and individual ownership structure.

Despite the differences above, one principle is common to all alternative forms of cooperative combinations; i.e. instead of growing or expanding by adding to its own business volume and/or facilities by building new capacity and/or securing new customers, a firm increases its size by acquiring, joining or otherwise gaining some control over the sales of other firms.

One of the fundamental duties of cooperative management (including directors) in Kenya is to always remain alert to all business situations, which indicates that a merge with one or more other cooperatives may be desirable or necessary.

Cooperatives may always benefit from mergers yet the prospects for and process of merging are complex and must be accompanied by an in-depth analysis of all the associated attributes and detriments.

Mergers often offer cooperatives an opportunity to reduce operating costs, expand services, improve quality and strengthen their financial base through the realization of some economies of scale.

Cooperatives have a key role to play in transforming sustainable and resilient societies in the aftermath of the COVID-19 pandemic. Therefore, it is my clarion call to small and struggling cooperative societies to merge, in order to ensure they remain competitive, efficient and stable whilst lowering operational costs.

For in the absence of such consolidation and amalgamation initiatives, a time will come in the long term when the market share of these cooperatives will be wiped out, thereby rendering them financially unviable.

The author is a regular commentator on Co-operative Movement issues

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