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Int. J.

Production Economics 60 61 (1999) 271 279

Quality assurance in food and agribusiness supply chains:


Developing successful partnerships
Gerrit Willem Ziggers!,*, Jacques Trienekens"
! Department of Quality and Supply Chain Management, State Institute for Quality Control of Agricultural Products, RIKILT-DLO,
P.O. Box 230, NL-6700 AE Wageningen, Netherlands
" Department of Management Studies, Agricultural University Wageningen, Hollandseweg 1, NL-6700 KN Wageningen, Netherlands

Abstract
Specific market and production characteristics of food supply chains are motives for vertical coordination in order to
gain competitive advantage. Quality assurance systems will only contribute as a facilitating factor. The actual com-
petitiveness of the food supply chain will be determined by the ability to develop successful partnerships. The
implications for food supply chains will be a diversity of partnerships characterized by an enhanced asset specificity and
higher exit and entry barriers. ( 1999 Elsevier Science B.V. All rights reserved.

Keywords: Quality assurance; Vertical coordination; Partnership; Competitiveness

1. Introduction the maturity stage it tends to shift to a buyers


market concentrating on differentiation strategies
In the European Union (EU) its Common Agri- [1]. Other developments affecting food supply
cultural Policy was aimed at increasing agricultural chains are liberalization of trade, changing con-
productivity, price and income stabilization and sumer/customer demands and legislation concern-
security of food supplies. For Dutch agriculture, as ing, e.g. food safety, food quality, animal welfare
for agriculture in other European regions, until and environmental issues. These demands are af-
recently, emphasis has been put on sustained fecting different stages of the food supply chain.
growth and efficiency. Within an expanding market Fresh produce, such as meat, are characterized by
production and efficiency in the food supply chain the direct relation between the internal attributes of
was increased through specialization and concen- the final product and those of the primary product.
tration. However, nowadays markets have become These developments accentuate the degree of inter-
saturated. Referring to the product life cycle a de- dependence among different levels of the supply
veloping market can be considered as a sellers chain. A more closely coordinated system to be
market concentrating on cost competition, while at more responsive and to adjust rapidly to changing
conditions is increasingly important to be competi-
tive. Although the concept of the supply chain is
* Corresponding author. E-mail: g.w.ziggers@rikilt.dlo.nl. not new, there is an increased interest in it because

0925-5273/99/$ - see front matter ( 1999 Elsevier Science B.V. All rights reserved.
PII: S 0 9 2 5 - 5 2 7 3 ( 9 8 ) 0 0 1 3 8 - 8
272 G.W. Ziggers, J. Trienekens / Int. J. Production Economics 60 61 (1999) 271 279 272

of the need to meet customer demands and to gain sive stages where shortages of material will lead
competitiveness. This paper will discuss com- to a waste of expensive facilities [1,10,11].
petitiveness of food supply chains with special refer- f Enhanced ability to innovate and to differenti-
ence to quality assurance and vertical coordinated ate: Forward integration gives a firm better or
partnerships. more timely access to market information allow-
ing a more rapid or specified adjustment of prod-
uct characteristics. Backward integration may
2. Motives for vertical coordination allow a firm to obtain specialized inputs through
which it may improve or at least distinguish its
Food and agribusiness firms, in general, are con- final product [1,9,11].
fronted with rapidly changing markets, new tech- f More efficient exchange of information and organ-
nologies and an almost worldwide competition. As izational structures: Vertical integration may
a consequence, markets have become more dy- cause the firm to require less information and so
namic and more complex. It affects all levels in the reducing costs. Of course, the potential cost ad-
supply chain. A retailer purchasing worldwide per- vantage must be balanced against the disadvan-
ishable foodstuffs needs reliable partners. Also, due tage of the possibility of missing advantageous
to legislation on liability and foodsafety. To devel- external opportunities. Besides, vertical integra-
op and to introduce new produce can only be tion facilitates the introduction of more efficient
effectuated by joint investments and cooperation. and specialized procedures and organizational
New distribution techniques enable large-scale structures to improve production [1,11].
production and frequent deliveries, although it f Improved marketposition: Vertical integration
increases the risk of getting out of stock. In agricul- creates entry and mobility barriers in case of
ture technological developments contributed to significant economies of scale or requirements of
specialization and large-scale production, but also capital to integrate [1,9].
increased the need for and availability of capital. Motives against vertical integration are:
These developments imply the need for durable
partnerships [24]. f Dissipation of resources: In combining various
Moreover, the growing awareness of the import- stages of production or distribution the problem
ance of product quality by agribusiness managers very often is the varying scale of operations that
contrasted to the increasing dissatisfaction with each stage may require to operate efficiently.
product quality amongst consumers may be inter- Either the firm must accept cost disadvantages
preted as an example of a failure of the existing due to inefficient operating scales or it has to
market system [5,6]. Vertical integration is often sell/purchase outputs/inputs at the market.
mentioned as the conventional solution to dissolve Moreover, the firm may foreclose itself from ac-
the destructive results of markets failures [7]. Is it cess to independent suppliers or buyers
an alternative? Motives in favour of vertical integ- [1,10,11].
ration are: f High demand on capital: To make vertical integ-
ration profitable high investments need to be
f Reduction of transaction costs: Transaction costs offset by substantial cost savings or returns
are the costs associated with the process of ex- greater than or at least equal to the firms oppor-
change itself. When transactions recur frequently tunity cost of capital [1,10,11].
and require high transaction specific investments f Reduced flexibility: High investments may cause
and opportunist behaviour is likely and therefore exit barriers and reduce flexibility. Changes in
transaction costs will rise, then vertical integra- technology, product design and market develop-
tion might be more efficient [1,8,9]. ments may cause the produce or technologies to
f Reduction of risk: Internal control and coordina- become more costly, inferior in quality or inap-
tion is often associated with the assurance of propriate compared to those of independent
supplies. This counts especially for capital inten- suppliers or buyers. The integrated firm is then
273 G.W. Ziggers, J. Trienekens / Int. J. Production Economics 60 61 (1999) 271 279 273

confronted with higher switching costs than in f degradating intrinsical quality due to the fact
case of contracting independent partners [1,11]. that the intrinsical quality of raw materials is the
f Rigidity of organizational structures: Managing highest quality attainable for fresh produce;
various stages may require distinctly different f availability of capital.
managerial approaches. Moreover, tightly lin-
ked, captive and assured linkages between the The perishability of many produce puts great
stages within an integrated firm may cause dull- demands on duration and conditions of storage,
ed incentives. In general, markets promote high- processing and transportation at all stages of the
powered incentives and restrain bureaucratic supply chain. Therefore, the existence of assured
distortions more effectively than compared to markets is very important to suppliers of perishable
internal organization [1,7,11]. produce. As mentioned earlier, capital intensive pro-
cessing facilities put high demands on a continuous
Potential benefits and costs and potential risks of
flow of supplied inputs to buyers. Differences in lead
vertical integration as compared to market ex-
time between stages requires efforts to match these
change may be great. However, many of the ad-
to one and other. For example, pigs need time to
vantages of vertical integration can be gained
grow, to reach optimal productivity and cannot be
without incurring all of its costs and risks through
stored alive. Meat production is a process that will
the use of some kind of vertical coordination [1].
inherently lead to a wide range of final produce.
Theoretically, in the case of market exchange, con-
Complementarity of produce makes it impossible
trol is fully located at the separate stages and co-
to produce in isolation exactly what is required.
ordination is arranged solely by market prices.
Hams cannot be produced without pork chops.
With vertical integration, control is completely
Vertical coordination is also believed to offer
shared or transferred to central management leav-
comparable advantages with respect to product
ing the different stages without separate control.
differentiation and flexibility. Regarding the (ex-
Vertical coordination lies in between this con-
pected) shortening of product lifecycles this is of
tinuum of open markets and vertical integration. It
great relevance. With respect to the latter different
allows firms to focus on core business and to out-
forces can be distinguished. A consumer demand
source other functions
force concerning demands on animal welfare, food
The big scale differences between the various
safety, food quality and environment. Other forces
stages in food supply chains is one of the reasons
are driven by efficiency and supply considerations.
for making complete vertical integration less com-
Being closer linked to (a smaller number of ) sup-
mon than vertical coordination. Specific market
pliers product differentiation might enable food
and production characteristics of food supply
producers to realize higher efficiencies [12]. A sup-
chains are additional motives for vertical coordina-
ply force such as biotechnology enables a closer
tion. They include:
match of food produce with specific attributes de-
f perishability of produce; sired by certain discriminating markets, e.g. cloned
f variability of quality and quantity of supplies of animals producing lean meat produce. Information
farm-based inputs due to biological variation, technology (IT) enables to information about
seasonality, random factors connected with a wide range of product attributes and is an effec-
weather, diseases or other biological hazards; tive and important mean to coordinate activities in
f differences in lead time between successive the supply chain. With respect to the latter, one can
stages; refer to electronic data interchange (EDI), such as
f complementarity of agricultural inputs, meaning EDI-pigs and EDI-flowers in the Netherlands [13].
that they are available in joint packages only; Other ongoing developments are the development
f stabilization of consumption of many food pro- of identification and recording (I&R) systems of
duce; produce and the implementation of (certified) qual-
f increased consumer attention concerning both ity assurance systems to assure quality of produce
product and method of production; and by doing so to improve competitiveness.
274 G.W. Ziggers, J. Trienekens / Int. J. Production Economics 60 61 (1999) 271 279 274

3. Quality assurance and competitiveness the same concepts and theories as organizations
[17]. With regard to IQA this means agreements
There is no doubt that food and agribusiness about specifications, exchange of information, co-
firms have increasingly to deal with competitive ordination and control or even redesigning the
markets in which market directedness of produce supply chain to realize superior customer value at
and services and the efficiency and reliability of minimal costs at the interorganizational level. This
their delivery become decisive aspects for com- means, to be successful, firms have to cooperate.
petitiveness. With regard to these developments, Therefore, the main challenge will be to develop
firms are implementing quality assurance systems, partnerships and to use each others competencies
such as good manufacturing practice (GAP)-codes, in order to increase the performance of the supply
hazard analysis critical control point (HACCP), chain. The actual competitiveness of the supply
International Standard Organization 9000 (ISO) chain will not be determined by its (certificated)
and Total Quality Management. IQA-system, which will only be a facilitating factor,
To establish quality assurance in agri- and food- but by the cooperating ability of firms in the supply
business it is important to consider the specific chain.
characteristics of raw materials, produce and struc-
ture of this line of business as mentioned before. It
advocates for an integrated chain approach of qual- 4. Partnerships as a result of mutual
ity assurance: integrated quality assurance (IQA). interdependencies and forces
The surplus value of IQA can be related to the
individual firm, the supply chain and competing The different stages of the supply chain may be
supply chains [14]. The surplus value for a firm interdependent and should cooperate with each
lays in a more effective and efficient conduct of other, however, the question is how to develop
business. The second advantage for an individual partnerships? The main idea is to build-up com-
firm to participate in an IQA-programme is as- petitiveness in cooperation with others. This is also
sured sales. The surplus value for the entire chain of supported by Lagnevik [18] ... high networking
IQA concerns an increased profitability. Both by capability creates competitive power... and Moss-
producing produce of high-quality standards and Kanter [19] ...co-operation with suppliers and cus-
by improving production throughout the entire tomers are important tools in upgrading com-
supply chain. High-quality produce generating petitiveness.... Partnerships provide firms with the
more value, optimizing production reducing costs. opportunity to improve their conduct of business
This way IQA enables an increase in the com- by means of cooperation. It allows firms to focus on
petitiveness with regard to competing supply core business and to out-source other functions.
chains, which might be of national importance. A partnership in food and agribusiness can be de-
In general, quality control or assurance is about fined as a set of interdependent firms that work
management or can be considered as a peculiariz- closely together to manage the flow of produce and
ation of management. Management conceived as services along the supply chain, in order to realize
initiating, directing and controlling objective-di- superior customer value at minimal costs [13]. In
rected activities [15,16] aimed to improve produce principle, the partnership is temporary and partial.
and production, to meet customer demands, to Its organization and structure is a result of joint
optimize utilization of resources and reflecting the activities and the exchange of information, people
policy of the firm, both adjusted to the business and resources [4].
environment in which a firm operates. Quality as- Partnerships can be put in a transactional and
surance at the firm level reflects this interrelation. a cooperative action perspective. Within a transac-
Implementing IQA is more or less the same. Firms tional perspective a partnership can be character-
and groups of firms show only gradual differences ized as a regulatory system in order to establish an
along the dimensions that measure the degree of efficient and reliable flow of transactions. Actors
organization and therefore can be analysed with are interdependent, but primarily directed towards
275 G.W. Ziggers, J. Trienekens / Int. J. Production Economics 60 61 (1999) 271 279 275

their own objectives. Within a cooperative action culture in the Netherlands during the 1960s and
perspective a partnership can be characterized as 1970s.
a coordinating system in order to effectuate com-
Very often the decision to cooperate is inspired
mon objectives. Actors are interdependent in their
by the existence of mutual interdependencies. Sev-
common objectives as well as in their complement-
eral interdependencies are at issue e.g. technical,
ary contributions. This does not mean that transac-
knowledge, continuity, social and capital interde-
tions and cooperative action are mutually
pendencies [21]. Therefore the organizational
exclusive. Cooperative action might encompass
structure and the derived transactioncosts are not
contracting between actors and might therefore
purely a matter of asset specificity, transaction fre-
serve as a part and precondition of a transaction.
quency and uncertainty [8], but are affected by
In reverse, transactions often do not involve
forces which affect relations within partnerships.
cooperative action. Bilateral and multilateral
Hakansson [22] mentions four forces:
contracts can specify both procedural and actual
aspects of transactions without referring to f functional interrelations; actors, activities and
coordinated action [20]. Especially, the develop- resources are a system of interrelated supply and
ment of partnerships in the perspective of demand issues,
cooperative action seems to be relevant for food f power; actors found their power on controlling
and agribusiness as a result of the specific charac- the activities and/or resources,
teristics of this line of business. Nevertheless, the f knowledge; the development of activities as well
performance of partnerships will always be a com- as the use of resources is related to the knowl-
promising one. One has to bear in mind that objec- edge possessed by partners,
tives of partnerships depend to a large extent on the f time; partnerships are the result of contacts,
objectives and strategies of the participating actors knowledge and experiences from the past.
and the nature of their interdependence. In cases Changes within the partnership have to be ac-
where it has competitive elements the gains of one cepted at least by a part of the participants
party are to some extent the losses of others. otherwise changes will be marginal.
Firms are part of a certain context which put
These forces proceed from the latent relations
restrictions to the development of any given partner-
which are related to the manifest relations. Activ-
ship. Within the context [21] distinguishes four di-
ities of actors are linked within a partnership and
mensions which influences competitiveness of firms
are aimed to be continued in the scope of efficiency,
and by that the suitability of potential partners:
but through that interdependencies will develop
and/or will be strengthened. The structure and or-
f The geographical dimension. This concerns fac-
ganization of a partnership will act as a control
tors which determine if a certain area has eco-
mechanism, which makes some changes easier and
nomic potential, e.g. infrastructure, land prizes,
others more difficult [23]. Besides the mutual inter-
subsidies and legislation.
dependencies, the success of a partnership is also
f The economical dimension. Firms operate in an
affected by:
area with large and small firms. It will affect the
choice of a product-market channel, but also the f Bounded rationality of actors: Firms are re-
nature of relations with suppliers and buyers. stricted in getting and processing all available
f The social-cultural dimension. Each firm and information [24].
society has its own culture with its specific life- f Opportunist behaviour of actors: Firms may take
style. This makes some firms more suitable to advantage of their position and impose on others
cooperate with than others. by providing incomplete or incorrect informa-
f The time dimension. If one combines the geo- tion deliberately, also affected by uncertainty
graphical and time dimension, then, e.g. some and complexity of the business environment and
characteristics of agriculture in Eastern Europe degree of market concentration with exit-and-
nowadays appears to be comparable with agri- entry barriers [4,24].
276 G.W. Ziggers, J. Trienekens / Int. J. Production Economics 60 61 (1999) 271 279 276

1
f Rigidity of organizational structures: Within where is the performance of partnership, X the
2
partnerships routine structures may develop context in which partnerships operates, X the in-
3
which impede organizational learning. Firms terde
may withhold or manipulate information to re- Basically, there are four key factors, which deter-
tain gained positions [25]. mine successful partnerships [2]:
f Balance of power between actors: Relations can
f clear benefits for all participants;
vary from symmetric to asymmetric. A relation is
f a good strategic fit of partners;
asymmetric if control is unbalanced. These types
f the involvement of all management levels;
of relations can be found in a dual production
f (organizational) flexibility.
system, where a dominant firm ties a group of
dependent firms [35]. As a consequence, new This implies that firms have to consider the activ-
partnership may develop to create countervail- ities on which they want to cooperate (core ,
ing power. sideline or supporting business activities) and the
f Appropriability of actors: The inability to ac- consequences of it on the conduct of business and
count costs and benefits to each of the actors the need for coordination. An important issue in
may hamper the development or duration of this context is the question of the core competencies
partnerships [8,23,24,26]. of a firm: the bundle of skills and technologies
a firm is really good at [27]. The choice of partners
The success or performance of a partnership is
to deal with (buyers, suppliers) and the decision to
a result of the context in which the partnership
operates, the interdependencies which exist among build a partnership should depend on the core
actors and the behaviour of actors (Fig. 1), which competence of the firm. The firmness of the
can be expressed as the following relationship will be determined to the extent of
which partners come to an agreement about objec-
tives, strategies, resources, coordination, facts and
1 1 2 2 3 3

Fig. 1. The concept of partnerships: context, dependencies and behaviour that work upon the performance of the partnership.
277 G.W. Ziggers, J. Trienekens / Int. J. Production Economics 60 61 (1999) 271 279 277

remaining questions [4,28]. It implies also that proach the entire market or to focus on specific
a partnership cannot be considered as a collective, segments [3,11]. One can be successful and profit-
but that one has to consider the individual position able with any of the above strategies. For example,
of firms as well. Therefore, the actual performance it is not always necessary to differentiate oneself by
of partnerships might depend more on power and a strong (consumer) brand. If one does not have the
mutual interdependence of actors than on efficiency competence or the financial means to establish such
[4,20]. For research on competitiveness in the sup- a brand, it may be wise to build a partnership with
ply chain this implies that both the supply chain a retailer and, through an outstanding logistic per-
and the individual firm should be the unit of analy- formance become a reliable, low cost, supplier.
sis. This can be illustrated by research of Kuiper Partnerships will only last if they are able to meet
and Meulenberg [29] on the impact of modest the key factors of successful partnerships. Changes
price changes (10%) in a specific stage of the Dutch occur especially during economical recession in or-
pork chain on prices of other companies in the der to maintain continuity and control of gained
supply chain. Results indicated that: positions, next to it functional, strategic and politi-
cal issues are also involved [30]. If common objec-
f Changes of retail prices bring about changes in
tives are going to be different and coordinating
prices of all companies in the channel: slaughter-
actors are losing their influence, then the partner-
houses, fatteners and breeders. It took about 10
ship might decline. Examples in Dutch food and
months before all prices approached their new
agribusiness are the development of the VTN
equilibrium by less than 1%.
Food Horticulture Holland (food horticulture), the
f Changes of slaughterhouse prices influence pork
Greenhouse (ornamental flowers) and DUMECO
pig and feeder prices substantially, but affected
(meat production, a merger of the meat processing
retail prices to a minor extent.
firms Coveco, ENCB (both cooperative) and
f Changes of feeder prices generated short-term
Gupa). These new organizations meant new and
changes in pork pig prices (and the other way
different positions for and relations between
around), but did not bring about price changes of
growers, auction, the central Board of Horticul-
slaughterhouse and retail companies.
ture-auctions and customers, respectively, coopera-
These results suggested that: tive pig farmers and meat processors.
f Price coordination from retailer to feeder farm
did not indicate structural bottlenecks. This re-
sult was considered as in line with the popular 5. Concluding remarks
view that retailers have a strong power in the
Dutch pork supply chain. Developing partnerships are aimed at improving
f Price coordination from feeder farm to retailer efficiency and effectiveness in supply chains. Com-
did indicate, in the short run, a bottleneck be- plete vertical integration may have several disad-
tween the multiplier and finisher, on one hand, vantages, such as dulled incentives and reduced
flexibility. In addition, due to the typical big differ-
and the slaughterhouse and retailer on the other
hand. This bottleneck, however, did not persist ences in scale between successive farm and nonfarm
stages, it may be concluded that vertical coordina-
in the long run.
tion seems to be more appropriate in food supply
Competitiveness is about the relative effec- chains than vertical integration [1,5]. Improved
tiveness of competing partnerships and no longer control over product quality, and quantity, in gen-
about individual competing firms. The challenge of eral and the focus on product differentiation to
partnerships is to adopt a particular strategy and to supply to increasingly discriminating (niche) mar-
implement it. One has to decide whether to acquire kets in particular, may be considered as primary
competitive advantage by producing at low costs or motives for vertical coordination modes in food
by offering premium, distinctive produce to the and agrisupply chains [1,5,12]. Product and
market. Also, one has to decide whether to ap- market innovations are necessary to maintain
278 G.W. Ziggers, J. Trienekens / Int. J. Production Economics 60 61 (1999) 271 279 278

continuity in terms of marketshare and turnover. not only for improving chain efficiency, but also for
Its success depends to a large extent on the distri- exposing the technical and economic consequences
bution of power, agreements about common objec- of product development and differentiation [1,11].
tives and agreements about the sharing of costs and Conceptual as well as empirical work is needed.
benefits. Developing partnerships in the perspective Conceptual models that relate the attributes of
of cooperative action seem to be relevant for food partnerships, in combination with characteristics of
supply chains. Motives for this are, e.g. develop- its competitive environment and to its success in
ment of competitive power, need for quality, safety the business environment. Attributes such as
and sustainability of food produce and flexibility to strength of linkages, opportunist behaviour, flexib-
react fast on changing markets. Several forms of ility and competitive strategy adopted. Empirical
risk can be reduced this way, risk of fluctuating work to quantify and to test the conceptual models
prices, risk of quantity/quality features (e.g. trans- in order to find the critical success factors of part-
port of pork, scheduling of pork finishing capacity nerships under different conditions. The extensive
with slaughterhouse an meat products processing work in the area of networks between industrial
capacity), risk of food safety and hygiene. More- organizations may provide inspiration and help for
over, ongoing developments in EDI, I&R systems developing these models [3134].
and quality assurance systems may be considered
as facilitating factors.
The trend will be towards greater interdepen-
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