Month: August 2012

Sociable Italia…

Before departing for Italy, I was determined to find out more about social co-operatives – a model pioneered in the country in the late 1970s. It has had impressive growth, especially in recent years, with numbers doubling since 2005 to 15,000 businesses. 

So, why are social co-operatives so popular?

The answer lies in the co-operative model being central to Italy’s social services system. It is legally recognised and given preferential treatment in public procurement. It places civil society at the forefront of service reform. Most are worker co-operatives, however the multi-stakeholder model – where workers, beneficiaries & volunteers share control – is also popular. 

Principles of reciprocity, equality and accountability are important in the delivery of humane care and the organisational attributes of co-operatives offer such advantages. Other drivers include dissatisfaction with service quality and a perception that user involvement will ultimately enhance delivery. Also there is an expectation that social co-operatives will deliver at a lower cost and with a commitment by the government to ‘subsidiarity’, services delivered and controlled by organisations closely relate to citizens.

There are two types of social co-operative:

‘A’ Co-ops – account for seventy per cent of social co-operatives. They serve the elderly, children, and disabled people through the provision of health, education and social services. They operate as commercial businesses but have privileged relationships with the municipalities.

‘B’ Co-ops – account for thirty per cent of social co-operatives. They are similar to UK’s ‘social firms’. Their aim is to integrate disadvantaged people – referred by municipalities’ social services departments – into work.  Over thirty per cent of employees must be deemed ‘disadvantaged’. These groups typically undertake cleaning, landscape gardening, parks maintenance, laundry and packing/assembly work.  Disadvantaged employees can be compensated at lower pay rates (recognising a lower productivity) and there is no national insurance paid on wages. 

Social co-operatives, like other co-operatives, have beneficial tax arrangements and access to finance on good terms. This is balanced against restrictions on distribution of profits. The law ties social co-operatives to only serve a given municipality – although wider coverage is often achieved through collaborating in consortia.

During my stay in Emilia Romagna I visited Cadiai – a ‘category A’ social co-operative. It was established in 1974 to provide services to the elderly, handicapped and children, now employing 1,246 staff, primarily working in Bologna. Services include residential care, nursing care, day nurseries and home care. 

I visited one of its nurseries which is operating under a 28 year contract with the Bologna municipality. It is owned by a consortium of two social co-operatives, a construction co-operative (that built the facility) and a catering co-operative (that provides the meals). This enables an interesting financing model as investment can be spread over a long contractual period (enabled by both the contract period and a construction company being part of the consortium).

I was fascinated to see the thought that had gone into the design of the nursery. It was clearly based on a scientific understanding of a child’s development.

It was more client centric than any nursery that I’d visited back at home. The ethos that underlies co-operative ownership was explained as the reason. 

 

Some serious lessons for us here in Scotland. The potential role of mutual models in delivery of public services is currently being explored. Italian social co-operatives demonstrate that such models lead to reduction in costs, improved quality and higher job satisfaction. They also illustrate that legislation – put in place to promote a specific approach – can have far reaching effect.

Until next time…

And remember…think ‘co-operatively’!

Sarah Deas is the chief executive of Co-operative Development Scotland, a Scottish Enterprise subsidiary, established to help companies grow by setting up consortium, employee-owned and community businesses. It works in partnership with Highlands and Islands Enterprise

Collaboration Italian Style!

My recent visit to Emilia Romagna left me excited about the possibilities for co-operatives in Scotland. In this third instalment I share insights in how collaboration is core in this famous European co-operative region.

Before visiting Emilia Romagna I was very much aware that it is the ‘home’ of business consortia and industrial clusters. Robert Putman (Professor at Harvard University) identified culture as a key driver. I was keen to gain a deeper understanding of this and what else was driving this collective approach.

Collaboration is the norm in this region, with companies collaborating while remaining competitors. The form of collaboration varies from relationships centred on a specific contract to fully constituted ventures established to enable on-going business. Firms are highly specialised and exist as part of a co-operative production system and as such, there is a genuine desire to work with others. Success of one firm is intimately connected to success of others – a recipe for success. 

Emilia Romagna is known for leadership in the production of specialised manufacturing machinery – expertise that builds upon its strengths in agriculture, ceramics, textiles and packaging. Collaboration lies at the core – creating vibrant industrial clusters.  Often businesses will be members of more than one consortium or industrial cluster. Similar practices exist within the service sector.

Throughout the world collaboration is well established in agriculture.  In Italy farmers owning vineyards are members of consortium co-operatives which harvest grapes on their behalf and the latter are members of secondary consortia that produce the wine. 

During my stay, I enjoyed a visit to one of the Cervico Group’s plants.

The co-operative was established in 1963 and is now number one producer in boxed wine and number two in packaged wine (bottles/Tetra Pak) in Italy.

 

 

The business is self-financing and has recently undertaken major capital investment. I was fascinated by the pallet storage system’s use of gravity to move the next pallet into position!

 

I was also interested in the finance and services consortia. These are a relatively recent development for the region. Legislation was passed in 1991 to encourage the creation of ‘business clusters’ and ‘inter-firm co-operation’ with three types of consortia emerging; credit guarantee, export and services.

Credit guarantee consortia operate like lending circles, with individual loans guaranteed by other firms in the consortium. Business members pay a fee, which may be supplemented by the government. The resulting ‘guarantee fund’ is deposited in a credit or banking institute, with which a specific agreement has been established. It is used as collateral for credit extended to members. By doing it this way the risk associated with lending is divided between the bank and the credit co-op, or borne completely by the latter.

The advantages to entrepreneurs is that they do not need to provide collateral based on personal assets and are able to access credit at relatively favourable terms. A positive aspect of this model is that the default rate is a fraction of that of a normal bank – due to the credit guarantee consortia’s role in monitoring. In Emilia Romagna the insolvency rate by firms guaranteed by the consortium is less than one per cent compared to a national average of ten per cent.

Export consortia promote members’ goods/services abroad and facilitate their export. The model is now well established with approximately 350 consortia. The high number is the result of the law establishing public funding for export consortia with more than eight members (small & medium sized enterprises). Government will contribute up to forty per cent annually to operating costs (higher level in first five years and for those based in Southern Italy).

Consortia comprise groups of firms that pay a one-off lump sum to underwrite the consortia’s capital and an annual membership fee for operating costs. Services vary and include market information, translation, secretarial, credit guarantees, merchandising, franchising and legal assistance. Consortia may also benefit from tax reductions – the ‘indivisible reserve’ is tax exempt and so too are the services rendered and acquired by the consortia. I was told about a textiles consortium in Prato that worked with its members to produce a new image, developed an export culture and other ventures to improve competiveness.

Services consortia play an important role in providing strategic advice, payroll, marketing, bidding and fundraising guidance to their members. They offer the advantage of access to skills and economies of scale.

So some further lessons for us in Scotland.  It was crystal clear that there is significant benefit to be gained from working with other businesses in order to achieve scale in buying, producing and selling. There is scope for much wider levels of adoption of this model in Scotland – especially for export purposes.

Until next time…

And remember…think ‘co-operatively’!

Sarah Deas is the chief executive of Co-operative Development Scotland, a Scottish Enterprise subsidiary, established to help companies grow by setting up consortium, employee-owned and community businesses. It works in partnership with Highlands and Islands Enterprise.

Italy provides some food for co-operative thought…

Welcome to the second instalment of my blog series on my recent Italian adventure in Emilia Romagna.

So what else did I learn from one of the richest and most developed regions in Europe? One of my early discoveries was how prominent worker co-operatives are in Italy (the term also refers to what we in the UK would call employee ownership).

My host in Emilia Romagna was CMC di Ravenna, a worker co-operative operating in the construction industry. The company was established in 1901 by bricklayers and cement masons.

It operates internationally delivering large projects, such as shopping centres and petro chemical plants.  CMC invited me to speak at its 110th Anniversary celebrations (details of which I will share in a later blog).

 

During my stay, I also visited another long established worker co-operative – Camst – the world’s largest catering co-operative. It is involved in restaurants, schools, hospitals, residences, as well as banqueting and eighty per cent of its 10,000 workers are members.

The company was established after WWII by unemployed waiters who spotted the opportunity to sell meals on railway platforms. It operates as a co-operative controlled group with 20 subsidiaries and employee ‘voice’ is promoted through regional and national assemblies.

A more recent driver of employee ownership has been the Marcora Law, passed in 1985. This legislation provided state backing for two funding streams to support co-operatives; a general fund for the development of all types of co-operatives and a special fund to help companies in a crisis. The latter invests in the share capital of phoenix co-operatives, in proportion to employees’ own investment. The mutual funds are capitalised by the three per cent of annual surplus that co-operatives are required to invest in return for tax advantages.

The Government recognises worker co-operatives as an effective means of rescuing companies going into liquidation. They must be viable businesses (often re-engineered) and operating to an approved plan. Many were established in the economic crisis of the 1980s, although large numbers have also been formed in the last few years. There are currently five requests per week in Emilia Romagna and it has proved a successful model with eighty per cent of worker co-ops created in this way still trading.

I met with a number of phoenix co-operatives. Artlining manufacture textiles for neck ties, boasting leading fashion houses such as Armani as customers. The company fell into difficult times and was restructured, with 19 of the original 22 employees remaining after the transfer.

Similarly, Greslab – a ceramic tiles business – was restructured saving 57 jobs. Ownership of this business is now split between employees (seventy per cent) and investor members (thirty per cent). 

 

Aussametal – a metallurgy business – passionately recounted how they had transformed their business.  In all cases, what was most evident was the enthusiasm and energy of employees to save and transform their business. 

So what were the lessons for Scotland?  Quite a few!

Mutual funds provide a virtuous circle of investment within the co-operative sector. Worker co-operatives (employee owned businesses) unleash entrepreneurial spirit resulting in highly competitive businesses. And, the innovative use of subsidiary structures in order to achieve scale and access capital.

Until next time…

And remember…think ‘co-operatively’!

Sarah Deas is the chief executive of Co-operative Development Scotland, a Scottish Enterprise subsidiary, established to help companies grow by setting up consortium, employee-owned and community businesses. It works in partnership with Highlands and Islands Enterprise.