Collective business system

Last updated

A collective business system or collective business model is a business organization or association typically composed of relatively large numbers of businesses, tradespersons or professionals 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.

Contents

Overview

During the twentieth century, the business world in the United States of America and many European countries has witnessed the consolidation of all types of businesses through mergers, rollups or acquisitions. Typically, by the end of the consolidation process, a particular industry or profession becomes dominated by three or four nationally based enterprises. 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.

Trade association

Trade associations are non-profit organizations 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.

Cooperative

A cooperative 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.

Franchise

The employees typically are required to wear uniforms 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

Related Research Articles

<span class="mw-page-title-main">Franchising</span> Practice of the right to use a firms business model and brand for a prescribed period of time

Franchising is based on a marketing concept which can be adopted by an organization as a strategy for business expansion. Where implemented, a franchisor licenses some or all of its know-how, procedures, intellectual property, use of its business model, brand, and rights to sell its branded products and services to a franchisee. In return, the franchisee pays certain fees and agrees to comply with certain obligations, typically set out in a franchise agreement.

Business is the practice of making one's living or making money by producing or buying and selling products. It is also "any activity or enterprise entered into for profit."

<span class="mw-page-title-main">Cooperative</span> Autonomous association of persons or organizations

A cooperative is "an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically-controlled enterprise". Cooperatives are democratically controlled by their members, with each member having one vote in electing the board of directors. Cooperatives may include:

<span class="mw-page-title-main">Revenue</span> Total amount of income generated by the sale of goods or services

In accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business. Commercial revenue may also be referred to as sales or as turnover. Some companies receive revenue from interest, royalties, or other fees. "Revenue" may refer to income in general, or it may refer to the amount, in a monetary unit, earned during a period of time, as in "Last year, Company X had revenue of $42 million". Profits or net income generally imply total revenue minus total expenses in a given period. In accounting, in the balance statement, revenue is a subsection of the Equity section and revenue increases equity, it is often referred to as the "top line" due to its position on the income statement at the very top. This is to be contrasted with the "bottom line" which denotes net income.

A pre-entry closed shop is a form of union security agreement under which the employer agrees to hire union members only, and employees must remain members of the union at all times to remain employed. This is different from a post-entry closed shop, which is an agreement requiring all employees to join the union if they are not already members. In a union shop, the union must accept as a member any person hired by the employer. By comparison, an open shop does not require union membership of potential and current employees.

<span class="mw-page-title-main">Housing cooperative</span> Type of housing development that emphasizes self-governance and quasi-communal living

A housing cooperative, or housing co-op, is a legal entity, usually a cooperative or a corporation, which owns real estate, consisting of one or more residential buildings; it is one type of housing tenure. Housing cooperatives are a distinctive form of home ownership that have many characteristics that differ from other residential arrangements such as single family home ownership, condominiums and renting.

A franchise agreement is a legal, binding contract between a franchisor and franchisee. In the United States franchise agreements are enforced at the State level.

A union security agreement is a contractual agreement, usually part of a union collective bargaining agreement, in which an employer and a trade or labor union agree on the extent to which the union may compel employees to join the union, and/or whether the employer will collect dues, fees, and assessments on behalf of the union.

A mutual organization, or mutual society is an organization based on the principle of mutuality and governed by private law. Unlike a true cooperative, members usually do not contribute to the capital of the company by direct investment, but derive their right to profits and votes through their customer relationship. A mutual organization or society is often simply referred to as a mutual.

In the United States, a group purchasing organization (GPO) is an entity that is created to leverage the purchasing power of a group of businesses to obtain discounts from vendors based on the collective buying power of the GPO members.

A 501(c) organization is a nonprofit organization in the federal law of the United States according to Internal Revenue Code and is one of over 29 types of nonprofit organizations exempt from some federal income taxes. Sections 503 through 505 set out the requirements for obtaining such exemptions. Many states refer to Section 501(c) for definitions of organizations exempt from state taxation as well. 501(c) organizations can receive unlimited contributions from individuals, corporations, and unions.

<span class="mw-page-title-main">Market data</span>

For market data as used in marketing, see marketing information system

A franchise disclosure document (FDD) is a legal document which is presented to prospective buyers of franchises in the pre-sale disclosure process in the United States. It was originally known as the Uniform Franchise Offering Circular (UFOC), prior to revisions made by the Federal Trade Commission in July 2007. Franchisors were given until July 1, 2008 to comply with the changes.

A food cooperative or food co-op is a food distribution outlet organized as a cooperative, rather than a private or public company. Food cooperatives are usually consumer cooperatives, where the decisions regarding the production and distribution of its food are chosen by its members. Like all cooperatives, food cooperatives are often based on the 7 Rochdale Principles, and they typically offer natural foods. Since decisions about how to run a cooperative are not made by outside shareholders, cooperatives often exhibit a higher degree of social responsibility than their corporate analogues.

<span class="mw-page-title-main">United States Professional Poolplayers Association</span>

The United States Professional Poolplayers Association (UPA) is the governing body for the sport of men's professional pool in the United States, as well as the organizer of a major national amateur league, and a variety of pro and amateur tournaments. The organization, now based in Manhattan, was founded in January 2002 in Arizona by professional players, to replace several competing and dysfunctional men's professional pool organizations which had suffered years of problems such as inability to pay out winnings or to keep a stable schedule of competitions. UPA was formerly named the United States Pool Players Association, and has also frequently been unofficially referred to as USPPA or USPA, especially in reference to its professional side versus its amateur UPA League operations. The UPA Tour series of pro tournaments cover multiple pool disciplines, including eight-ball, nine-ball, ten-ball, and straight pool; the amateur UPA National Championships are team eight- and nine-ball events. The organization also offers instructional programs, and event promotion/production for pool tournaments and trade shows.

The Marketing Research Association (MRA) was a 501(c)(6) non-profit, membership trade association, incorporated in New York state. Members were companies that specialized in, or had departments that specialized in, market research, consumer opinion and related marketing intelligence. Individuals who were marketing research practitioners could also become members.

<span class="mw-page-title-main">Stage Directors and Choreographers Society</span>

The Stage Directors and Choreographers Society (SDC), formerly known as Society of Stage Directors and Choreographers (SDC), is an independent national labor union established in 1959, representing theatrical directors and choreographers working on Broadway, National Tours, Off-Broadway, and in various resident, regional, and stock theatres throughout the United States.

The Independent Filmmaker's Coalition (IFC) is a Kansas City-based non-profit organization dedicated to promoting independent film, video, and media production. The IFC meets at the Alamo Drafthouse in Kansas City, Missouri.

<span class="mw-page-title-main">Fair trade certification</span>

A fair trade certification is a product certification within the market-based movement fair trade. The most widely used fair trade certification is FLO International's, the International Fairtrade Certification Mark, used in Europe, Africa, Asia, Australia and New Zealand. Fair Trade Certified Mark is the North American equivalent of the International Fairtrade Certification Mark. As of January 2011, there were more than 1,000 companies certified by FLO International's certification and a further 1,000 or so certified by other ethical and fairtrade certification schemes around the world.

Franchise fraud is defined by the United States Federal Bureau of Investigation as a pyramid scheme.

References