Study On The Development Of Agri-Enterprise And Its Sustainability

Two case studies were conducted from 2002-2004 in Hebei Province. The case study aims to answer three main questions on how agri-enterprise developed and become sustainable in China, how household enterprise evolved after the legalization of private economy in 2000 during China's deepening macro-adjustment period and on how changing institutions impact the development and sustainability of agri-enterprise in China after WTO accession. There are three interrelated basic issues where the study is founded such as the issue of system structure/ownership, the issue of China's ongoing and deepening transition, the issue of changing institutions. The study adopts a contextual approach in viewing entrepreneurship and enterprise sustainability in analyzes of findings. As well as the study recognizes a need for multi-perspectives views in theorizing the context of enterprise development and sustainability in China during the transitory phase. Development theories, modern management theories, contingency theory, agency theory, institutions-based theories, resource based-theories theories, conventional and contemporary entrepreneurship concepts, and theories of corporate social responsibility are some tools used for analyzes. The paper is organized into three main discussion points such as: on development of leading enterprise and its sustainability, on how leading enterprise plays a substantial role in rural economic development through promoting micro-enterprises linked to it and on the institutional factors providing enabling environment in the creation and sustaining both enterprises - the leading and the micro.Leading enterprise in this study is the manufacturing enterprises, Shijiazhuang Sanlu Dairy Group (SDG) and China Great Wall in Shacheng (CGW). The micro-enterprises are the smallholder farms linked to manufacturing enterprises in its supply-chain. There are four reasons for the selection of these two enterprises as subjects of study. First reason is the enterprise development basis that is based on agriculture and households. Second reason is the enterprise management which has its own characteristics. Third, both enterprises are successful during various economic periods from planned to early transition to deepening of macro-adjustment towards market system. SDG has successfully developed from planned to early transition to deepening of macro-adjustment towards market system while CGW from early transition to deepening of macro-adjustment towards market system. And fourth, the two enterprises represent two different ownerships one is a collective and the other is state-owned and both are undergoing reform and restructuring.SDG was formerly a cooperative enterprise established in 1956 and grows into itspresent shareholding corporation with 19 sub-companies in its group management and an increasing number of brand-users in its brand management. CGW was a Sino-foreign JV established in 1983 was merged with other companies in 2003 and becomes a strategic business unit (SBU) under COFCO wine business portfolio. Management restructuring is still ongoing for both enterprises as they align themselves to become more competitive in the global market as Chinese market integrates more to the global economy. Both enterprises developed vigorously especially during the time when China is rapidly developing economically. Technology played a significant role in the development of enterprise. Human factor is one of the key ingredients too. Government played an important role in restructuring and provided an enabling environment for such structural changes.Agri-enterprise in the form of leading enterprise provides an initiating role for starting household farm business by way of 'relational contracting' with participatory support from local government and administrative units especially at the initial stage of project. Leading enterprise is an organ of the state to balance its two objectives: marketization of economy and social reform and enterprise has a mission inclined towards the masses embedded in the enterprise culture inherited from the long collective history of the country. More importantly, it is the leading enterprise key strategy to outsource its supply from farm households since it is the best way to achieve scale of economy without managing its own farm and it has become the low-cost growth model for both enterprises. Privatization of household farm business occurs under the umbrella of state enterprise or 'cooperative enterprise' (both are leading enterprises) where household farms linked their farm production to market by way of supplying raw materials for manufacturing enterprises. Manufacturing enterprises mandated or entrusted by government or with inherent socialist values has a social responsibility to the masses- backwardly integrate towards farms by outsourcing their resource supply to farm/households. The synergy of agri-business in China was caused by such commensal relationship between the manufacturing enterprise and the household farm businesses. Commensal means one is necessary for the other. In this manner rural employment is manifested by engaging farmer/households in farm activities that contribute to the total GNP of the country making them self-employed in their own small farm business providing earnings for their labor and management of their own small agri-business.Changing institutions that affect operations of agri-enterprise in China can be grouped into three categories: The Chinese government through its policies and how are they interpreted in the lower strata of regional and local governments, the structure of industry and firm, and the business intermediate support systems which include financial and legal systems, organs created to support the emerging sector. The remaining institutions embedded in China's rural communities are land use system and the denserural populations. These original institutions in China's villages continue to provide conditions for the way agribusiness in China are done thus it determine the characteristics of agri-enterprise, influence enterprise problems and challenges as well as its management strategies and structures including its business interrelations and finally its over-all performance. The forming new market institutions and the prevailing institutions in China's vast rural areas seem to interlock with each other to provide conditions for smallholder farms but at the same time limiting factor for further area expansion of individual farms. The commensal relationships between the manufacturing enterprise and the farm households further shapes the business environment and determine the structure of the industry and the firm manifest in the nature of China's agribusiness which is characterized by company+ resource base + farmers.After China's accession to WTO (2002-2004) the problem that stands out facing agri-enterprise in milk and wine industries is how to ensure the stability of resource which instead of owning their own farms, 90% of raw materials for manufacturing are outsourced to households farms or sub-contracted to agri-preneurs. The case study revealed that strategies of both enterprises have become more proactive to market situation. Cooperative strategies by both enterprises in order to answer the problem over resource stability are alliance with farmers, cooperating with local administrative units, JV with local companies. It is now about time for both SDG and CGW management to reflect on the question whether the current 'relational contracting' is still working or is it about time to find a better system to cooperate with individual farms like long term marketing contract. With many new entrants in the industry, overcrowding and excessive competition may occur challenging the existing resource base of both enterprises.Enterprise sustainability comes mostly from its strategies however in this study it is reflected that enterprise strategies are affected by its external environment. For an enterprise to become successful it must therefore adjust its strategies and structures according to its business environment. For the case of Chinese enterprises their behavior, characteristics, management strategies and structures observed in the case study is reflective of how they adjust to the deepening process of marketization constrained by the changing institutions. So that the relationships that exist between the leading enterprise and smallholder farms is reflective of the current institutions in China's business environment.In conclusion the commensal relationship between manufacturing enterprise and household farms is a result of firm's strategy for growth and sustainability.There are four implications from the study.First, the successful development of both enterprises in the case study reflects three-fold factors such as: the development of both the dairy and wine industries in thecountry, the economic development of the nation and the deepening of the marketization process in China.Second, for enterprise to become sustainable it must be able to perceive opportunity by turning its problems and challenges into an opportunity and adapt its strategies to its general environment.Third, a business management concept is generated from the study which shows that business activities/operations can be integrated into the community manifests of the commensal relationships between farm enterprises and manufacturing enterprises. It was conceptualized out that the combination of a leading enterprise and small farms is the best way to sustain smallholder production and marketing in China and a cheaper way for leading enterprise to expand its resource requirement and has important implication in its sustainability.Fourth, the paper upholds the extension-economic principle of utilizing the surplus or redundant rural labor resources by creating small farm business or self-employment in one's own farm, in the context of rural entrepreneurship. Based on foregoing principle a conceptualization of a development strategy of revaluing the greatest assets of China's rural communities 'people' - in developing rural employment cycle to break poverty was offered. Integrating agri-business and leading enterprise into the nation's economic system a development framework for rural development is put forward. This strategy has an implication to push forward China's total economic development.The contributions of the present study to contemporary management theory and institutional economics are:The first one is a contemporary concept of corporate social responsibility (CSR). Where business can integrate itself into community instead of firm managing its own farms it could backwardly integrate towards household farms linking supply chain to farm production that contributes to the income of farmers and contributes to the nation's development. It is a strategy for sustainability of a profit maximizing firm- while the firm is achieving its own goal at the same time embracing a corporate culture that integrates itself into the community.The second one is a trend in rural entrepreneurship is developing in the sector of agriculture. Agri-preneurship by household farms linking farm production to market through the supply chain of manufacturing enterprise is a form of rural entrepreneurship that has implication for rural development in China during the deepening of structural macro-adjustment.The third one is on strategic management. Larger manufacturing enterprises integrated household farms into its corporate management structure and introduced innovative systems management to obtain scale of economy needed for manufacturing. Individual farms are managed by households but they are integrated by the resource...