Title: Scale, Scope
1Scale, Scope Specialization Effects on
Retailers Procurement Strategies Evidence
from the Fresh Produce Markets of São Paulo Brazil
- Denise Mainville (Virginia Tech)
- Thomas Reardon (Michigan State)
- Elizabeth Farina (USP)
2Introduction
- Emergence of large retailers in agrifood markets
worldwide has introduced new competitive norms - How have smaller retailers adjusted?
- In many cases marginalized
- In Brazil, smaller retailers, both chains and
independents, have seen variation but largely
held their own in recent years
3- Research has tended to either focus on large
firms as drivers of change, or sought to
determine how smaller firms have emulated large
firms strategies - Lack of research into how underlying
characteristics of firm affect strategies - Paper addresses question focusing on how scale,
scope specialization affect retailers fresh
produce procurement strategies
4Empirical Context
- Sao Paulo
- City of 18 million residents
- Most produce grown in green belt surrounding city
- Retailers reflect diversity of characteristics
- Large supermarket chains
- Small medium supermarkets
- Discount green grocers
- Open-air fair vendors
- Tomato lettuce focus
- Account for different nature of product and
supply chain
5(No Transcript)
6Conceptual Model
- Retailer must choose a procurement strategy that
minimizes cost of acquiring vector of quality
attributes (given merchandising decisions) - Procurement costs are sum of
- Purchase costs for intermediate input
- Transaction costs
- Transformation costs
- Different strategies involve
- Tradeoffs among costs, both wrt total costs and
fixed vs. variable costs
7Conceptual Model
- Procurement strategy includes choice of
- Organization of procurement
- centralized
- decentralized
- Sources
- wholesale market
- growing region
- Governance of transactionrelationship quality
standards - informal
- formal
8- Three variables hypothesized to influence
procurement strategy - Scale
- Total throughput volume of fresh produce measured
by total floor area to produce - Scope
- Number of different produce items
- Specialization
- revenue from produce
9Methods Data
- Data from survey of 33 retailers in Sao Paulo
Brazil, focused on procurement strategies for
lettuce tomato - Two methods of analysis
- Cluster analysis to identify patterns of
procurement strategies used by retailers - Analysis of individual components of procurement
strategy (organization, source, governance) wrt
hypothesized variables - Descriptive statistics with tests for
significance
10Hypotheses
11Procurement Strategy Patterns
- Two procurement strategy patterns dominant for
tomato - Centralized, grower, formal (21)
- Decentralized, wholesale, informal (79)
- Scale and scope both positively correlated with
reliance on centralized strategy - Two strategies dominant for lettuce, but only
source different - Both decentralized, informal
- Grower (59), Wholesale (41)
- Larger scale retailers purchased from grower
- Less specialized retailers purchased from grower
12Results Procurement Strategy Components
- Tomato
- As in pattern, scale and scope positively
correlated with centralization grower purchases - Specialization only significantly related to
governancehighly specialized firms heavily
reliant on informal governance
13Results Procurement Strategy Components
- Lettuce
- Scale positively correlated with purchases from
growers and formal governance, but no significant
effect on organization - Scope only significantly correlated with reliance
on formal governance - Increased specialization correlated with reliance
on wholesale and informal governance
14Discussion
- Specialization hypothesized to be positively
correlated w/decision to source from growing
areas - By theory, would suppose retailers are behaving
sub-optimally - Alternative explanation is that sunk investments
in fixed capital e.g. social capital makes this
option more efficient
15Discussion
- Scope expected to be negatively correlated
w/reliance on formal governance, but found to be
positively correlated for both tomato and lettuce - Difficult to explain, but can be b/c co-linear
w/scale (which is positively correlated), so
cant treat separately?
16Discussion
- No a priori expectation, but specialization
negatively correlated with governance for both
tomato and lettuce - Perhaps highly specialized firms have large
investments in social capital, so that informal
governance is effective
17Conclusion
- Significance of scale, scope specialization in
procurement strategies indicates that smaller
retailers divergence from large firms
strategies can be argued to exist on efficiency
grounds - Significance differs, as expected, given nature
of product and supply chain
18Conclusion
- Role for further research to
- Examine performance differences by procurement
strategy, holding scale, scope specialization
constant - Model and estimate interaction among variables
19Scale, Scope Specialization Effects on
Retailers Procurement Strategies Evidence
from the Fresh Produce Markets of São Paulo Brazil
- Denise Mainville (Virginia Tech)
- Thomas Reardon (Michigan State)
- Elizabeth Farina (USP)
20(No Transcript)
21Scale, scope and specialization effects on
procurement strategy for tomato
22Scale, scope and specialization effects on
procurement strategy for lettuce
23Tomato
24Lettuce
25Conclusion
- Hypothesis testing for effects of scale, scope
specialization found to be mixed - Suggests that other factors, perhaps related to
other capital holdings (e.g. social capital) may
be significant - Need for analysis that can hold different
variables constant (econometric) for more formal
testing and to shed light on ambiguous results