6.1.1 Supply Chain Management in the Mexican avocado industry: the role of the packer Chapter 2 focuses on the relevant supply chain practices (SCPs) introduced in the Mexican avocado industry, to answer the following research question:
RQ1: What are the technical and organizational solutions that packers in the Mexican avocado industry have introduced in dealing with the main supply chain challenges?
Based on an exploratory case study, we found that three SCPs have been introduced in the Mexican avocado industry to deal with the main supply chain challenges. The practices product standardization, supplier partnership and information exchange have been a solution to obtain reliable supply, enhance product quality, and improve planning of packing and distribution processes.
Product standardization has been obtained by entering into multilateral partnerships, while reliable supply and higher quality has been obtained by entering into bilateral contractual relationships.
Producers and packers in the state of Michoacan have established the Avocado Producers and Export Packers Association of Michoacan (APEAM), the most important association in the Mexican avocado industry. The member companies have congruent interests in maintaining a
reliable supply for the US market and therefore have joint interests in supporting the public certification program.
In bilateral partnerships, producers and packers not only collaborate to obtain a reliable supply, but also to enhance quality. Two types of bilateral partnerships have been identified. First, packers have established contractual relationships with producers of specialty products that comply with US and European standards on food safety, good agricultural practice and organic produce standards. Thus, given the higher uncertainty (or higher information requirements) and the asset specificity in these specialty product supply chains, the packers have chosen for a contractual relationship to assure the supply of high quality produce. Second, some producers are financially participating in a packaging house. We found that under this type of partnership the packing house puts much effort in providing technical assistance to its owners-suppliers in order for them to comply with current and future product and process quality requirements such as US-GAP and Global-GAP.
Regarding downstream information exchange to improve coordination, packers have followed two strategies. On the one hand, transnational packers have integrated with trading companies. These trading companies have direct access to foreign customers and thereby obtain information on retail demand, product quality and required quantity, available stocks, etc. On the other hand, some of the national packers have created an intensive relationship with their buyers to get information about retail demand and promotions, and precise information that facilitates joint planning activities.
We conclude that both product standardization and coordination have been used in the Mexican avocado industry to guarantee export quality. Whereas product standardization has been adopted by producers to obtain reliable supply and improve quality, information exchange as part of coordination has been used by packers to improve the management of demand. Partnership between producers and packers and between packers and buyers has played a relevant role to facilitate adoption of these practices.
6.1.2 Contractual arrangements and food quality standards in the Mexican avocado industry Chapter 3 addresses the governance structure choices for different quality standards that are adopted by Mexican avocado producers, to answer the following research question:
RQ2: What types of contractual arrangements do producers use to adopt particular quality standards in the Mexican avocado industry?
The findings in the present study indicate that the type of contractual arrangement is important in the adoption of a specific type of quality standard. Safeguarding specific assets is found as primary driver of governance structure choice and Mexican avocado producers have followed two strategies. First, regarding relational contractual arrangements, information exchange and expectation of continuity are used to safeguarding asset specificity. As a result, high quality standards such as Organic, US-GAP or Global-GAP standards are adopted. Second, under simple contractual arrangements, a high support of the institutional environment (e.g. a public-private partnership of local producers and federal authorities) reduces the need for safeguarding specific investments. The reason is that the public-private partnerships of local producers and federal authorities provide information, inputs, and technical assistance to producers. In addition, simple contractual arrangements, associated
with a low level of asset specificity and a high level of price uncertainty, are related to adoption of public quality standards.
6.1.3 Relationship characteristics and performance in the Mexican avocado industry
In Chapter 4, we examine the impact of relationship characteristics on performance in business transactions. Distinguishing between relationship characteristics that have a direct influence on coordination and thereby affecting performance, and those characteristics that affect transaction costs associated to behavioural uncertainty and thereby indirectly affect performance, the following research question is posed:
RQ3: How do the characteristics of the producer-packer relationship affect producer performance?
Our study showed that relationship characteristics influence performance through different paths. Whereas expectation of continuity affects payment uncertainty and thereby indirectly affects performance measures such as yield and product quality, information exchange directly affects the same performance measures as well as the relative measures of price and product quality increases. In contrast, we found that buyer commitment does not significantly affect behavioural uncertainty.
When we compare the influence of the relationship characteristics that have an impact on performance through reduction of behavioural uncertainty, we can affirm that expectation of future benefits is more important than commitment to explain the cooperative behaviour of Mexican avocado producers and buyers.
6.1.4 Inter-firm coordination in the Mexican avocado industry: the packer – buyer relationship
Chapter 5 studies the influence of transaction characteristics on inter-firm coordination. We measure inter-firm coordination using two variables, information exchange and duration of the arrangement with the buyer. The following research question is posed:
RQ4: What are the conditions that determine inter-firm coordination between packers and buyers?
Our empirical results indicate that inter-firm coordination based on information exchange and continuity of the arrangement is an important governance mechanism to facilitate the alignment of actions and the safeguarding of specific assets between sellers and buyers when substantial environmental uncertainty is present.
We found that the level of information exchange is contingent on the level of asset specificity. However, we also obtained that the level of information exchange is positively associated with the duration of the arrangement. Thus, the duration of the arrangement turns out to be a relevant variable in enhancing information exchange.
We also found that the duration of the arrangement is explained by the level of asset specificity. In other words, the presence of specialized assets not only creates more interdependence between the partners, and therefore, vulnerability to exploitation, it also provides strong incentives to the partners to continue the relationship.
In addition, we found that inter-firm coordination has a significant positive impact on performance. Whereas a high level of duration of the arrangement reduces the seller stock outs, information exchange improves seller’s performance compared to competitors.
In summary, individual analysis of the two inter-firm coordination variables allowed a comprehensive understanding about their role in the exchange relationship and their influence on the packer’s performance.
6.1.5 Summary of testing the hypotheses
Appendix D provides an overview of the outcomes of the empirical tests of the hypotheses of the studies presented in Chapters 3 to 5. The study in Chapter 2 had an explorative character, and no hypotheses were used.