Collective business system
Encyclopedia
A collective business system or collective business model is a business organization or association typically composed of relatively large numbers of business
es, tradespersons or professional
s in the same or related fields of endeavor, which pools resources, shares information or provides other benefits for their members. In the past, collective business systems such as the trade association
, the cooperative
and the franchise
were created to allow groups of independently owned businesses with common interests to successfully compete in the marketplace.
and many Europe
an countries has witnessed the consolidation of all types of businesses through mergers, rollup
s or acquisitions
. Typically, by the end of the consolidation process, a particular industry
or profession
becomes dominated by three or four nationally based enterprise
s. Under these circumstances many smaller companies (often serving only local requirements and in private ownership) are often forced out of business or decide to sell to one of the dominant entities because it can no longer compete profitably with them. Typically, locally based businesses are unable to compete because they lack the capital, global marketing
capabilities, purchasing power and expensive technology
necessary to operate efficiently. This trend toward consolidation is expected to continue well into the twenty-first century and is sometimes shortened in developing countries, where the initial business in a market sector may be a single, large enterprise able to compete on the international market.
Presently, and for the foreseeable future, the inherent limitations of traditional collective business systems such as the trade organization, the cooperative and the franchise
render them considerably less effective than they once were in advancing the business interests of their constituents. The following is a brief synopsis of those traditional collective business systems.
s in which the individual members are companies or individuals engaged in a common business pursuit. Competitors join together to create a platform format in which they deal with common problems of their industry. Any applicant meeting the standards of the association must be accepted as a member. Anti-trust law prohibits a member trade association from denying an otherwise qualified applicant's membership based upon a geographical proximity to an existing member. Trade associations commonly offer their members educational programs, the opportunity to come together at meetings to discuss common problems, and marketing materials designed to be imprinted by each member with its relevant information. Trade associations also offer elective group purchasing plans. The trade association bears no credit risk in these transactions but instead, provides chosen vendors with access to a large body of member customers. Because the trade association does not pledge its credit, the vendor must rely upon the credit worthiness of each purchaser.
To sustain its operations, a trade association generally receives an initiation fee and/or a yearly membership fee (collectively "dues
") from its members, and it may collect rebates or commissions from the purchasing plan suppliers.
The trade organization imposes relatively low membership dues on its members. However, because initiation fees and annual membership fees are nominal, the trade organization lacks the ability to engage in offering its members national marketing capability, access to expensive technologies and cost-effective purchasing programs for major purchases due to a lack of capital. Furthermore, being non-profit, trade associations do not have the management mentality necessary to sustain major projects such as national sales and marketing.
While offering potentially valuable services to businesses, few trade associations offer much direct help in the major business areas of purchasing, production or marketing.
is a non-profit organization somewhat similar to a trade association. A significant difference between the cooperative and the trade association, however, is that with a trade association, the members have a non-equity position in the association, whereas in the typical cooperative the members will have an equity interest as all members of the cooperative own a portion of the cooperative.
The cooperative utilizes its volume leverage with suppliers in purchasing products and services for less than the individual member company could obtain outside of the cooperative. The cooperative marks up the purchased products or services in order to cover operating expenses. Any net income achieved by the cooperative is then returned to the cooperative members in the form of a redistribution of profits or dividends.
There are also cooperatives in which the sole function is for marketing and advertising
in a given region. New car dealers and fast food franchisees
typically form marketing and advertising cooperatives.
s and to dress as specified by the franchisor. Franchises can be offered by the franchisor on a territorial basis without violating antitrust laws. Ordinarily, the franchisee owns the non-real estate assets of a franchise. There is generally a substantial fee paid by the franchisee for the privilege of becoming a franchisee.
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
es, tradespersons or professional
Professional
A professional is a person who is paid to undertake a specialised set of tasks and to complete them for a fee. The traditional professions were doctors, lawyers, clergymen, and commissioned military officers. Today, the term is applied to estate agents, surveyors , environmental scientists,...
s in the same or related fields of endeavor, which pools resources, shares information or provides other benefits for their members. In the past, collective business systems such as the trade association
Trade association
A trade association, also known as an industry trade group, business association or sector association, is an organization founded and funded by businesses that operate in a specific industry...
, the cooperative
Cooperative
A cooperative is a business organization owned and operated by a group of individuals for their mutual benefit...
and the franchise
Franchising
Franchising is the practice of using another firm's successful business model. The word 'franchise' is of anglo-French derivation - from franc- meaning free, and is used both as a noun and as a verb....
were created to allow groups of independently owned businesses with common interests to successfully compete in the marketplace.
Overview
Beginning in the middle of the twentieth century, the business world in the United States of AmericaUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
and many Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
an countries has witnessed the consolidation of all types of businesses through mergers, rollup
Rollup
A Rollup is a technique used by investors where multiple small companies in the same market are acquired and merged. The principal aim of a rollup is to reduce costs through economies of scale. Rollups also have the effect of increasing the valuation multiples the business can command as it...
s or acquisitions
Takeover
In business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...
. Typically, by the end of the consolidation process, a particular industry
Industry
Industry refers to the production of an economic good or service within an economy.-Industrial sectors:There are four key industrial economic sectors: the primary sector, largely raw material extraction industries such as mining and farming; the secondary sector, involving refining, construction,...
or profession
Profession
A profession is a vocation founded upon specialized educational training, the purpose of which is to supply disinterested counsel and service to others, for a direct and definite compensation, wholly apart from expectation of other business gain....
becomes dominated by three or four nationally based enterprise
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
s. Under these circumstances many smaller companies (often serving only local requirements and in private ownership) are often forced out of business or decide to sell to one of the dominant entities because it can no longer compete profitably with them. Typically, locally based businesses are unable to compete because they lack the capital, global marketing
Marketing
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
capabilities, purchasing power and expensive technology
Technology
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...
necessary to operate efficiently. This trend toward consolidation is expected to continue well into the twenty-first century and is sometimes shortened in developing countries, where the initial business in a market sector may be a single, large enterprise able to compete on the international market.
Presently, and for the foreseeable future, the inherent limitations of traditional collective business systems such as the trade organization, the cooperative and the franchise
Franchising
Franchising is the practice of using another firm's successful business model. The word 'franchise' is of anglo-French derivation - from franc- meaning free, and is used both as a noun and as a verb....
render them considerably less effective than they once were in advancing the business interests of their constituents. The following is a brief synopsis of those traditional collective business systems.
Trade association
Trade associations are non-profit organizationNon-profit organization
Nonprofit organization is neither a legal nor technical definition but generally refers to an organization that uses surplus revenues to achieve its goals, rather than distributing them as profit or dividends...
s in which the individual members are companies or individuals engaged in a common business pursuit. Competitors join together to create a platform format in which they deal with common problems of their industry. Any applicant meeting the standards of the association must be accepted as a member. Anti-trust law prohibits a member trade association from denying an otherwise qualified applicant's membership based upon a geographical proximity to an existing member. Trade associations commonly offer their members educational programs, the opportunity to come together at meetings to discuss common problems, and marketing materials designed to be imprinted by each member with its relevant information. Trade associations also offer elective group purchasing plans. The trade association bears no credit risk in these transactions but instead, provides chosen vendors with access to a large body of member customers. Because the trade association does not pledge its credit, the vendor must rely upon the credit worthiness of each purchaser.
To sustain its operations, a trade association generally receives an initiation fee and/or a yearly membership fee (collectively "dues
Union dues
Union dues are a regular payment of money made by members of unions. Dues are the cost of membership; they are used to fund the various activities which the union engages in...
") from its members, and it may collect rebates or commissions from the purchasing plan suppliers.
The trade organization imposes relatively low membership dues on its members. However, because initiation fees and annual membership fees are nominal, the trade organization lacks the ability to engage in offering its members national marketing capability, access to expensive technologies and cost-effective purchasing programs for major purchases due to a lack of capital. Furthermore, being non-profit, trade associations do not have the management mentality necessary to sustain major projects such as national sales and marketing.
While offering potentially valuable services to businesses, few trade associations offer much direct help in the major business areas of purchasing, production or marketing.
Cooperative
A cooperativeCooperative
A cooperative is a business organization owned and operated by a group of individuals for their mutual benefit...
is a non-profit organization somewhat similar to a trade association. A significant difference between the cooperative and the trade association, however, is that with a trade association, the members have a non-equity position in the association, whereas in the typical cooperative the members will have an equity interest as all members of the cooperative own a portion of the cooperative.
The cooperative utilizes its volume leverage with suppliers in purchasing products and services for less than the individual member company could obtain outside of the cooperative. The cooperative marks up the purchased products or services in order to cover operating expenses. Any net income achieved by the cooperative is then returned to the cooperative members in the form of a redistribution of profits or dividends.
There are also cooperatives in which the sole function is for marketing and advertising
Advertising
Advertising is a form of communication used to persuade an audience to take some action with respect to products, ideas, or services. Most commonly, the desired result is to drive consumer behavior with respect to a commercial offering, although political and ideological advertising is also common...
in a given region. New car dealers and fast food franchisees
Fast food
Fast food is the term given to food that can be prepared and served very quickly. While any meal with low preparation time can be considered to be fast food, typically the term refers to food sold in a restaurant or store with preheated or precooked ingredients, and served to the customer in a...
typically form marketing and advertising cooperatives.
Franchise
The employees typically are required to wear uniformUniform
A uniform is a set of standard clothing worn by members of an organization while participating in that organization's activity. Modern uniforms are worn by armed forces and paramilitary organizations such as police, emergency services, security guards, in some workplaces and schools and by inmates...
s and to dress as specified by the franchisor. Franchises can be offered by the franchisor on a territorial basis without violating antitrust laws. Ordinarily, the franchisee owns the non-real estate assets of a franchise. There is generally a substantial fee paid by the franchisee for the privilege of becoming a franchisee.
See also
- CooperativeCooperativeA cooperative is a business organization owned and operated by a group of individuals for their mutual benefit...
- FranchisingFranchisingFranchising is the practice of using another firm's successful business model. The word 'franchise' is of anglo-French derivation - from franc- meaning free, and is used both as a noun and as a verb....
- Multi-level marketingMulti-level marketingMulti-level marketing is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of others they recruit, creating a downline of distributors and a hierarchy of multiple levels of compensation...
- MonopolyMonopolyA monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
- Business allianceBusiness allianceA business alliance is an agreement between businesses, usually motivated by cost reduction and improved service for the customer. Alliances are often bounded by a single agreement with equitable risk and opportunity share for all parties involved and are typically managed by an integrated project...