KEY SUCCESS FACTORS FOR ESTABLISHING, GOVERNING AND OPERATING PARTNERSHIPS IN THE TROPICAL TIMBER SUPPLY CHAIN

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1 MSc Thesis Management Studies, Department of Social Sciences KEY SUCCESS FACTORS FOR ESTABLISHING, GOVERNING AND OPERATING PARTNERSHIPS IN THE TROPICAL TIMBER SUPPLY CHAIN ACCELERATING SUSTAINABILITY IN THE TROPICAL TIMBER MARKET THROUGH PARTNERSHIPS IN THE SUPPLY CHAIN Joram Bogers Wageningen, October 2010

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3 KEY SUCCESS FACTORS FOR ESTABLISHING, GOVERNING AND OPERATING PARTNERSHIPS IN THE TROPICAL TIMBER SUPPLY CHAIN ACCELERATING SUSTAINABILITY IN THE TROPICAL TIMBER MARKET THROUGH PARTNERSHIPS IN THE SUPPLY CHAIN Wageningen, December 2010 Student: Joram W. Bogers Student reg. nr: Department: Social Sciences Study program: Management, Economics and Consumer Studies (MME) Specialization: MSc Management Studies Course code: MST WUR 1 st supervisor: Dr. Jos Bijman (jos.bijman@wur.nl) Assistant Professor of Management & Organization WUR 2 nd supervisor: Dr. Geoffrey L.F. Hagelaar (geoffrey.hagelaar@wur.nl) Assistant Professor of Supply (Chain) Management IDH supervisor: Esther Bosgra (bosgra@dutchsustainabletrade.com) Programme Manager Timber & Electronics

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5 Acknowledgement This report is the finalization of my MSc Management Studies at Wageningen University. Over the past few months I have worked on this research with interest and enthusiasm. I sincerely hope my research on supply chain partnerships in the tropical timber industry will contribute to responsible and sustainable use of forest resources. During this research I had the pleasure to meet many new and interesting persons that supported me in the course of writing my MSc thesis report. Thanks to all who have showed interest, participated and made this research possible. I would like to say special thanks to Esther Bosgra, my supervisor at the Dutch Sustainable Trade Initiative (IDH), who I have worked with in close cooperation during this research. I would also like to thank Dr. Jos Bijman and Dr. Geoffrey L. F. Hagelaar from Wageningen University for their supervision over the scientific process. Furthermore, I would like to thank friends, family and loved ones that supported me in the process of writing this report. Joram Bogers Arnhem, December 2010

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7 Summary Unsustainable and illegal logging is one of the contributors to deforestation and forest degradation. Implementing sustainable forest management (SFM) and certification schemes for SFM, such as the Forest Stewardship Council (FSC) certification, could prevent further harm caused by the timber sector. While SFM is widely accepted and applied in developed countries it is still limited applied in developing countries. The use of FSC certified timber indirectly contributes to the preservation of the forests, poverty alleviation and maintenance of biodiversity. In order to accelerate the supply and use of sustainably produced products the Dutch Sustainable Trade Initiative (IDH) has been established by the Dutch government. The aim of IDH is to increase the supply of FSC certified timber to the Dutch and EU market. Its ambition is to establish a programme that supports implementation of FSC certification in the Congo Basin. IDH emphasizes the importance of partnerships in the supply chain and their importance to diffuse and implement FSC certification of tropical forests in producing countries. However, there is relatively little knowledge among IDH, supply chain actors and stakeholders about supply chain partnerships. The objective of this research is to advice supply chain actors about establishing, governing and operating successful supply chain partnerships that contribute direct or indirect to the SFM and FSC certification of tropical forests. To fulfil this objective the following research question has to be answered: Which key success factors (KSF s) for establishing and operating can be identified at supply chain partnerships that directly or indirectly contribute to FSC certification of tropical forests and which key variables for determining the governance form for partnerships can be identified from literature? Four partnerships from the tropical timber supply chain have been analysed using a theoretical framework that includes KSF s for establishing and operating a partnership and key variables to determine its governance form. The theoretical framework is constructed from a literature review of supply chain management; partnership; and cooperative strategy. There are many types of partnerships throughout the supply chain consisting of partners from various stages of the supply chain. However, partnerships at the beginning of the chain have the largest and often direct influence on the implementation of SFM and FSC certification of forest areas. The four selected partnerships operate at the beginning of the supply chain close to the forestry and logging activities.

8 Two of these partnerships are located in the Amazon basin and two in the Congo Basin. The objectives of these partnerships relate to the implementation of SFM and FSC certification. Questionnaires, interviews and document reviews were used to collect data about establishing, governing and operating these partnerships. This triangulation of methods to collect data is used to build a complete picture of these partnerships. The four partnerships are analysed and compared with the theoretical framework. Based on the outcome of the analysis the theoretical framework is adjusted to reflect the characteristics of the partnerships in the tropical timber supply chain. The adjusted framework consists of three stages; a) the decide stage that consists of four KSF s for establishing partnerships; b) the prepare stage consisting of key variables that determine the adoption of a particular governance form; and c) the operate stage that includes six KSF s for operating partnerships. These three states are discussed below. Decide stage Two types of partnerships were distinguished in this research; a) private-private partnerships; b) and private-nonprofit partnership. They address issues of market efficiency and institutional failure respectively. Market efficiency relates to sourcing of raw materials (logs) and access to resources (i.e. knowledge and capital) to support the implementation of SFM and FSC certification. The institutional failure addresses the insufficient forestry governance by public authorities and private actors which results in deforestation, forest degradation, and illegal logging. Four KSF s have been identified for establishing a partnership in the tropical timber supply chain. The first KSF is a) analysing strategic fit to identify common ground to cooperate and the competitive advantage of the partnership brings. The second KSF is and b) analysing cultural fit. Partners need to match on environmental and social issues in order to establish successful partnerships that contribute to SFM and FSC certification. They need to be willing and committed to implement SFM and FSC certification. The third and fourth KSF s are c) determining the joint project, its scope and contribution of each partner and d) agree on governance structure. When these are clear it increases the trust partners have in the partnership and positively influence the decision to cooperate. Prepare stage There are six key variables that can be used to determine the appropriate governance form for a partnership. A governance form provides coordination and control and sets procedures for decision making. The appropriate governance form enables partners to achieve their joint goals most efficiently and effectively. The key variables are; a) coordination of activities; b) complexity of decision making; c) number of participants; d) need for network-level competencies; e) trust; and f) goal consensus. The extent and combination of these variables determine which governance form is most

9 appropriate for a particular partnership. Governance forms range from centralized to decentralized and from formal to informal. Operate stage When the following six KSF s and their underlying variables are present in the operating the partnership, the likeliness for success is increases; a) strategic fit; b) interdependency; c) communication; d) trust; e) commitment; and f) collaboration. The strategic fit, interdependency and communication positively influence trust and commitment. The trust and commitment positively influence the collaboration between partners that leads to the performance and success of the partnership. The KSF s for establishing and operating partnership in the tropical timber supply chain and the key variables to determine the appropriate governance form can be used to support potential partners in creating successful partnership that contribute to SFM and FSC certification.

10 List of abbreviations CAR Central African Republic DRC Democratic Republic of Congo FAO Food and Agriculture Organization FSC Forest Stewardship Council IDH Dutch Sustainable Trade Initiative (Initiatief Duurzame Handel (Dutch)) KSF Key Success Factor NAO Network Administrative Organization NGO Non-Government Organization PEFC Program for the Endorsement of Forest Certification PNP Private-Nonprofit Partnership PPP Public-Private Partnership SFM Sustainable Forest Management TP Tripartite Partnership

11 Table of Contents 1 Introduction Research problem Research Objective Research Framework & Questions Research Strategy Definition of concepts Structure of the report Literature review Introduction supply chain partnerships Partnership evaluation model Decision stage Preparation stage Operational stage Conclusion & Theoretical Framework Methodology Case selection Data collection Data analysis Limitations Validity Case Study Analysis Case Analysis Partnership A Case Analysis Partnership B Case Analysis Partnership C Case Analysis Partnership D Results & Adjusted Framework Conclusion Discussion References APPENDIX 1 Background study of tropical timber supply chain to Dutch and EU market APPENDIX 2 Background Study Congo Basin forestry sector APPENDIX 3 The FSC Principles and Criteria for responsible forest management APPENDIX 4 Research questions that underlying the case studies APPENDIX 5 Questionnaire Supply Chain Partnerships APPENDIX 6 Semi-Structured Interview Supply Chain Partnership APPENDIX 7 Questionnaire results APPENDIX 8 Toolkit

12 1 Introduction This research is assigned by the Dutch Sustainable Trade Initiative (IDH) and studies the establishing, governing and operating of supply chain partnerships in the tropical timber supply chain. IDH is a nonprofit broker organization and their aim is, amongst others, to increase the supply of sustainably produced tropical timber on the Dutch and European market. They try to accomplish this by forging partnerships between supply chain actors, government agencies, trade unions and social organizations. These partnerships should accelerate and contribute to the implementation of sustainable forest management (SFM) and supply of sustainably produced tropical timber to the market. Unsustainable timber production contributes to deforestation and forest degradation. Besides (illegal) unsustainable logging, land clearings for agriculture and cattle breeding are main drivers for deforestation and forest degradation. Between 2000 and 2005 the annual deforestation was 7.3 million ha (FAO, 2009 a ). Deforestation is responsible 20% of global CO 2 emissions and is therefore a major contributor to global warming (IDH, 2010). Besides global warming, the conversion of forests also puts pressure on the forest resources and the livelihoods of those depending on these forests. An estimated 60 million people live in, and heavily depend on, rainforests in Latin America, Southeast Asia and West Africa. Another 350 million people depend on the rainforests as additional source of income (Macqueen, 2006). Besides the livelihoods of those people, deforestation and forest degradation threatens the large pool of biodiversity that the tropical rainforests contain. Sustainable forest management (SFM) is an important tool to preserve forests. SFM makes it possible to subtract products from the forests without jeopardizing its existence or causing great harm to biodiversity and livelihoods of people that depend on these forests. It respects and balances the ecologic, economic and social elements involved in forest management. Colfer (2001) define SFM as: Sustainable forest management aims to meet the needs of the present without compromising the ability of future generations to meet their own needs. Many initiatives and forest certification schemes that support SFM have been launched during the past decades. The Forest Stewardship Council (FSC) and Program for the Endorsement of Forest Certification (PEFC) are two well known and most often used forest certification schemes. The FSC certification is established to enhance SFM in the tropics. Currently, FSC certification has become a common practise in developed countries, i.e. in Europe and North-America. However, its application in tropical developing countries where most of the deforestation is taking place is still limited.

13 Throughout supply chain partnerships IDH aims to accelerate the implementation of SFM and certification schemes for SFM in these tropical developing countries. FSC and PEFC certified timber products originate from sustainably managed forests that are FSC and PEFC certified respectively. Therefore the use of sustainably produced timber, i.e. FSC or PEFC certified, contributes indirectly to the preservation of forests, poverty alleviation and maintenance of biodiversity. FSC certification is the main certification scheme for SFM in the tropics. Therefore IDH primarily focus on the implementation of FSC certification. IDH s aim is to increase the supply of FSC certified tropical timber to the Dutch and European market. The share of FSC certified tropical timber on the Dutch tropical timber market (comprising of sustainably and non-sustainably produced timber) is currently 18%. The goal of IDH and FSC Netherlands (Dutch organization for the promotion of FSC certified timber) is to increase this market share to 33% at 2012 and 50% by IDH tries to achieve these goals by supporting timber programs for FSC certification. The programs consist of three components; a) FSC certification in the South; b) market development for FSC certified products in the North; and c) linking the markets in the North and producers in the South through partnership. At this moment IDH supports two programs; The Amazon Alternative; and The Borneo Initiative. These programs aim to increase the forest area that is FSC certified in the Amazon and Borneo region respectively. The FSC certification of these forests should positively affect the supply of sustainably produced timber from these areas to the Dutch and European market. The objectives of the programs are to obtain FSC certification for 7 million ha by Besides these two timber programs IDH is developing a third program for the Congo Basin in Africa. The precise content of this project is to be discussed and agreed upon in the upcoming months. The aim will be to increase the forest area in the Congo Basin that is sustainably managed and FSC certified. This research seeks to contribute to the development and implementation of this program by focusing on component a) FSC certification in the South through supply chain partnerships. Supply chain partnership can be an effective and efficient strategy to diffuse and accelerate the implementation of SFM and FSC certification. When partners cooperate and join forces they are better able to implement SFM and FSC certification than if they would when working on their own. A partner can for instance rely on the knowledge or resources of the other partner. This makes it easier to implement SFM and FSC certification.

14 This research studies partnerships in the tropical timber supply chain. More specifically, it investigates how these partnerships are established, organized and operated. The research aims to contribute to SFM and FSC certification of tropical forests and positively affect the supply of FSC certified tropical timber to the Dutch and European market. 1.1 Research problem IDH emphasizes the importance of partnerships in the supply chain and their ability to effectively and efficiently diffuse and accelerate SFM and FSC certification in the tropics. However, there is a knowledge gap within IDH, supply chain actors and stakeholders (private, public and civil society organizations) about partnership in the tropical timber supply chain. There is relative little known about how these partnership are established, governed, operate and contribute to SFM and FSC certification of tropical forests. When this knowledge is available it can be used to inform and support supply chain actors in establishing, governing and operating successful partnerships that contribute to implement SFM and FSC certification. This research therefore seeks to close the knowledge gap by studying literature on supply chain partnerships as well as conducting four case studies of partnership from the tropical timber supply chain. The research focuses on supply chain partnerships that contribute directly or indirectly to the FSC certification of forests. Partnerships contribute directly when its outcome is the actual FSC certification of forests. Partnerships contribute indirectly when the outcome is not the actual FSC certification but the stimulation or a step towards FSC certification, i.e. legality certification of forest. Legality certification is an important requirement of FSC certification. Supply chain partnerships can consist of private as well as public and nonprofit organizations. 1.2 Research Objective The objective of this research is to advice IDH, supply chain actors and stakeholders about successful supply chain partnerships that contribute direct or indirect to the SFM and FSC certification of tropical forests. This research contributes to the objective by providing key success factors (KSF s) for establishing and operating supply chain partnerships that are obtained from the case studies. The research also provides the key variables for determining the governance form. They are obtained from literature a review. The combination of KSF s and key variables generate a complete overview of establishing, governing and operating successful supply chain partnerships. When supply chain partnerships contribute to FSC certification they positively affect the supply of FSC certified timber to the market. Therefore the research indirectly contributes to IDH s aim of increasing the supply of FSC certified tropical timber to the Dutch and European market to 33% by 2012 and 50% by 2015.

15 In addition this research seeks to indirectly contribute to the implementation of the timber programme for the Congo Basin which IDH is currently developing. Therefore the research is narrowed down to the Congo Basin region. 1.3 Research Framework & Questions In order to realize the objective of this research the following main research question is formulated. Which key success factors (KSF s) for establishing and operating can be identified at supply chain partnerships that directly or indirectly contribute to FSC certification of tropical forests and which key variables for determining the governance form for partnerships can be identified from literature? The research consists of three successive stages that lead to answering of the main research question. An overview of the three stages is given in Figure 1. Figure 1 Research framework Stage One Literature review & background The first stage consists of reviewing three streams of literature; a) partnerships; b) cooperative strategy; and c) supply chain management. The literature review is presented in chapter two and focuses on characteristics and key success factors (KSF s) of establishing and operating supply chain partnerships and key variables for determining the governance form. From the literature review a

16 theoretical framework is constructed. This framework is used to analyse the partnership cases from the tropical timber supply chain. In addition to the literature review two background studies are conducted; one of the tropical timber supply chain to the Dutch/European market; and one of the Congo Basin forestry industry. These background studies are attached to this report as Appendix 1 and Appendix 2 respectively. The background studies are conducted by the researcher to obtain a profound understanding of the tropical timber market and its supply chain. Based upon the literature review and background studies selection criteria developed. These criteria are used to select four partnership cases that are analysed in this research. The methodology to select the cases, collect data and analyse data is discussed is chapter three. Stage Two Case description In the second stage four case studies of partnerships from the tropical timber supply chain are conducted. Chapter four provides the analysis of the four cases and discusses how and why the partnerships are established, governed and operated. The cases are compared with the theoretical framework to identify the extent in which the partnerships are similar or different to this framework. Data to analyse From the four partnerships, three are best practises and one is not. It is difficult to find best practice cases and therefore one partnership is included that is not a best practice. This less successful partnership is included to in order to compare with the successful partnerships. It is used to reflect and underline the factors that contribute to the success of the best practice partnerships. Stage Three Case analysis and KSF identification In the third stage the results of the case studies are analysed to identify which KSF s from the theoretical framework apply to the best practise cases. Based on the results the theoretical framework is adjusted to better reflect the characteristics and KSF s of the partnerships from the tropical timber supply chain. The results and adjusted framework are presented in chapter four. The conclusion that is based on the results adjusted framework answers the research question and is presented in chapter five. A discussion of the research is provided in chapter six. The adjusted framework is used to construct a tool that is attached to this report in Appendix 8. This tool provides information about establishing, governing and operating partnership. It can be used to support supply chain actors in establishing or strengthening partnerships that contribute to SFM and FSC certification of tropical forests.

17 The tool focuses on potential partners because they will establish, govern and operate the partnerships. A partnership might be initiated by a broker organization such as IDH but it should be able to function independently without interference of a broker organization or NGO. The role of a broker organization is restricted to bringing potential partners together. 1.4 Research Strategy Multiple qualitative case studies are used as research method to identify the KSF s for establishing and operating partnership in the tropical timber supply chain. To identify these KSF s the cases are analysed using a theoretical framework that is constructed from the literature review. The data is collected through document review, semi-structured interviews and questionnaires. This triangulation of methods enhances the internal validity of the research. This research uses qualitative instead of quantitative data to analyse the partnerships and their success. In this research success is reached when the outcome of the partnership meets or succeeds the expectation of the partner. It is difficult to find quantitative variables that can be compared and that reflect the success of a partnership. For instance, evaluation of partnership success based on financial data or area that is FSC certified is not possible. Partners hardly ever contribute to a partnership with explicit financial payments (Race et al., 2009). Financial results are often indirect results of the partnerships. It is also difficult to take the area of forest that is FSC certified as measure of success. Partners might be in the process of obtaining FSC certification or indirectly contribute to FSC certification. Therefore this research determines the success of the partnership by measuring the extent in which the partnership meets the expectations of its partners. Four partnership cases from the tropical timber supply chain are selected based on criteria which are discussed in the methodology chapter, chapter three. The cases are obtained throughout the network of IDH and affiliated civil society organizations and through supply chain actors that are contacted for their input to the background studies. The selected partnerships operate at the beginning of the supply chain near the forest, i.e. logging companies and large timber trading companies. Case selection, data collection and data analysis are discussed in the methodology chapter, chapter three. 1.5 Definition of concepts Congo Basin The Congo Basin consists of six African countries: Republic of Cameroon (Cameroon), the Central African Republic (CAR), the Republic of the Congo (Congo), the Democratic Republic of Congo (DRC), the Republic of Equatorial Guinea (Guinea) and the Republic of Gabon (Gabon).

18 Forest degradation is the reduction of the capacity of a forest to provide goods and services, where capacity includes the maintenance of ecosystem structure and functions. A forest is being degraded when timber, fuelwood and other forest products are extracted in an unsustainable way, and when forest values are being lost or diminished (FAO, 2010). Key Success Factors (KSF) The factors which are an important condition for organization and/or partnerships in order to be successful in a given market. Partnerships A Partnership is a cooperative relationship between partners (individual people, groups or organizations) who agree to share responsibility for achieving a shared goal. Partners engage in such partnerships in the expectation of gaining from combining their power, resources, management capacity, skills and knowledge rather than operating alone (Ros-Tonen et al., 2008). Success/successful In this research success is defined as the outcome of an event that meets the expectation of a partner/stakeholder of a partnership (i.e. a partnership is successful when all partners indicate the partnership meets their expectations). In this research success is not linked to a particular and/or explicit objective. It would be difficult to decide whether partnerships are successful if they are in the process of reaching their explicit objective. Therefore success in this research is a subjective variable which is interpreted by each partner/stakeholder independently. Successful partnership Successful partnership refers to the capacity of a partnership to reconcile multiple interests of all partners involved and their potential to contribute to sustainable forest management (Ros-Tonen et al., 2008). Sustainable production With regard to tropical timber the sustainable production contains the extraction of timber from tropical forests using sustainable forest management (SFM) methods. It ensures the subsistence of the forests and minimized the disturbance and harm to forest and its biodiversity. Besides the environment, sustainable production should also benefit local people in respect to social and economic aspects. Appendix 3 shows the criteria that are the basis of the FSC certification. Supply chain The chain of ownership through which a product passes, e.g from the forest, through timber processor to manufacturer, to importer, to distributor, to retailer. (Bass et al, 2001). 1.6 Structure of the report Following the introduction, research problem, research question and objective in the first chapter, chapter two presents the literature review. Chapter two reviews literature on KSF s for establishing and operating supply chain partnership, and key variables for determining the partnership governance

19 form. From this literature review a theoretical framework is constructed and used to assess the partnership cases form the tropical timber supply chain. In Chapter three the methodology for selecting and analysing the partnership cases is discussed. Chapter four describes the four partnership cases and compares them with the theoretical framework. It also present the results of the research and the adjusted theoretical framework that reflects the characteristics for establishing, governing and operating successful partnerships in the tropical timber supply chain. Chapter five concludes on the research by answering the main research question. Finally chapter six reflects upon the research process and provides suggestions for furthers research.

20 2 Literature review This chapter reviews literature on supply chain partnerships. From the literature review a theoretical framework is constructed that is used to assess the partnership cases from the tropical timber supply chain. The three streams of literature used for constructing the theoretical framework are; a) partnerships; b) cooperative strategy; and c) supply chain management. The literature review particularly looks at the KSF s for establishing and operating supply chain partnerships and the key variables for determining the governance form of partnerships. The following research questions are addressed in this chapter: Which partners are involved and what is their role? (section 2.3) Which KSF s are identified in establishing partnerships? (section 2.3) How are partnerships organized and governed? (section 2.4) Which KSF s are identified in operating partnerships? (section 2.5) Section 2.6 concludes on these research questions and provides the theoretical framework. 2.1 Introduction supply chain partnerships A Partnership is defined as a cooperative relationship between two or more partners that agree to share responsibility in achieving a common goal. A partnership can consist of individual people, groups or organizations (private, public or nonprofit). They collaborate and combine resources in the expectation of gaining something that could not have been accomplished if they would operate on their own (Ros-Tonen et al., 2008). When partners enter into a partnership, they have to (re)define their strategic priorities and prepare their organizations for collaboration in pursuit of a common goal. Although partners collaborate, they do not give up their strategic autonomy nor their specific interests and objectives. Each partner will try to achieve its own goals (Ouchi, 1980). In the literature several synonyms are used for partnerships, i.e. strategic alliances and networks. Networks are often used for partnerships that consist of three or more partners (Provan and Kenis, 2007). However, they are covered by the definition of partnerships used in this research. Over the past decades partnerships have been studied extensively (Child, 2005; Dussauge and Garrette, 1999; Provan and Kenis, 2007). Research predominately focused on high-tech industries that include intensive R&D programs and sophisticated products, i.e. the automotive, computer and pharmaceutical industry. Organizations from these industries use interfirm-partnerships to learn from each other in temporary alliances across the value chain in relative short periods of time and low costs. Partnerships enable organizations to be flexible and respond to market changes. Learning and flexibility are important features of these industries and affect competitive advantage (Hagendoorn, 2001).

21 There has been less research on supply chain partnership in low-tech industries such as forestry, food and metal industry. The existing research on partnerships in forestry often focus on public-private partnerships and company-community partnerships (Benneker, 2008; WWF, 2010; Scherr et al., 2002). These studies are conducted from a development perspective and not from a supply chain/business perspective (Mayers and Vermeulen, 2002; Race et al., 2009). They point out the added value for development in partnerships between forest firms/governments and small-scale growers. These partnerships enable partners to achieve environmental sustainable, cost-effective and socially beneficial forestry (Race et al., 2009). 2.2 Partnership evaluation model Knoppen and Christiaanse (2007) propose a model to understand the complexity and dynamics of partnership governance (Figure 2) that consists of three stages. Although governance is part of this research it is not the main focus. This research rather uses the three stages of the model to discuss a) the KSF s for establishing the partnership (Decide, section 2.3); b) the key variables that determine the appropriate governance form (Prepare, section 2.4); and c) the KSF s for operating partnerships (Operate, section 2.5). Figure 2 Establishing and operating process of supply chain partnership Source: Knoppen and Christiaanse (2007) In the decision stage two or more organizations decide to cooperate. In this stage potential partners need to assess each other and find common grounds for cooperation (Kolk et al., 2008). Key driver for this stage are appropriation concerns which develop from the potentially uneven distribution of gains that follow from the partnership. The second stage, the preparation stage, is driven by coordination costs. It includes the adoption of a particular governance form. When coordination costs are high, the partnerships tends to be more hierarchical controlled and have formalized governance forms. The third stage, the operational stage, is driven by adaption concerns which are the bilateral realignment of the partnership in order to narrow down the gap of incomplete contracts. This research however, focuses on KSF for operating partnership and not adaption the partnership and its governance. The model in Figure 2 permits for iterative loops between the three stages. A loop from the operational stage to the decision stage occurs when there is a misalignment of the governance structure and core transaction due to a changing environment. In response to this change the partnership adapt its governance form or operational processes. A loop from the operation to the

22 preparation stage occurs when the coordination mechanism needs to be renewed. This research will not go into detail on these loops; it rather focuses on the stages itself. 2.3 Decision stage The first stage of the partnerships model is the decision stage (Figure 3). At this stage partners investigate the potential for establishing a partnership. Figure 3 Decision stage, establishing the partnership Source: Knoppen and Christiaanse (2007) Expansion and growth are basic reasons for partners to enter into partnerships (Dussauge and Garrette, 1999). Many alternative motives relate to these basic reasons such as sharing costs and risks, access to financial resources or access to critical resources (Gulati and Singh, 1998; Child et al., 2005). Cooperation between partners is also driving by changes in market conditions. For instance, the increased public interest and demand for sustainability are drivers for supply chains to implement green initiatives (Mollenkopf, 2009). Partnership compilation Scholars have provided many typologies for partnerships, strategic alliances and networks based on different perspectives. Kolk et al. (2008) provided three types of partnerships based on a development perspective; public-private partnerships, private-nonprofit partnerships, and tripartite partnerships. Supply chain partnerships often consist of only private partners but they can also include public and nonprofit organizations. Table 1 shows the different partnerships types, the main issues they address and their strengths and weaknesses. Partnerships for development often operate in uncertain and complex settings where good governance is lacking. Often forestry governance, law enforcement and political stability is lacking in tropical producing countries, such as in certain regions in the Congo Basin. Therefore this research takes into account these partnerships for development, although this research focuses on supply chain partnership.

23 Table 1 Overview of partnership types Partnership type Main issue addressed Strength Weakness Combined Partners from two different investment/resources gives domains increases complexity Public-private Provision of public goods higher impact compared to decision making and combining partners operating on their own their specific organizational fit Private-nonprofit Tripartite Private-private Social issues resulting from trade-off between market efficiency and equity orientation of civil society Problems of institutional failure due to governmental failure and weak governance structures Business growth, expansion and competitive advantage Combing organizational resources to address social issues. It benefits both partners as well as society. Balanced project that relates to all participating partners interests Partial integration that simplifies trade Firms tend to obtain more benefits than nonprofit partners, while the latter generally bares more costs Partners from different domains increases complexity of decision making and combining their specific organizational fit Different partners increases complexity of decision making and fair distribution of benefits (Table 1 is based upon work of Klijn and Teisman, 2003; Seitanidi and Crane,2009; Kolk et al., 2008; and Dussauge and Garrette, 1999) Public-private partnerships (PPP s) are used when neither the state nor firms invest sufficiently in the provision of public goods, i.e. infrastructure. This under investment in public goods is addressed when public and private partner cooperation. Partners join forces and resources and contribute to investments in public goods. They develop mutual products or services and share the costs, risks and benefits. If partners would operate on their own this would not be possible or take much more effort. The PPP s consist of two different partners that have their own histories, practices and domains they operate in (private or public). They are influenced by decisions made in their domains and choose their own strategies to deal with these influences. This makes the decision making process extremely complex (Klijn and Teisman, 2003). The public domain is task orientated while the private domain is market oriented. A task oriented organization receives an assignment from a principal and is characterized by obedience and loyalty, absence of a profit motive and orientation towards continuity. A market oriented organization does not have a principle but a client. It is characterized by respect for contracts and appreciation of zeal and initiatives (Klijn and Teisman, 2003). Private-nonprofit partnerships (PNP s) are closely related to the core business of the firm. The firm often provides expertise or acts as a donor while the nonprofit organization provides access to specialized knowhow and networks in their domain. PNP s in general address social issues which origin from the trade-off between market efficiency and equity orientation of civil society, i.e. the underdeveloped agricultural sector in development countries. Due to market efficiency farmers have no choice but to produce as cheap as possible. They do not have the means to develop their firms. Cooperation between these firms and nonprofit organizations could overcome this problem.

24 The strength of this partnership is the combination of organizational resources to address social issues. It benefits the partners as well as society (Seitanidi and Crane, 2009). The partnership gives direct support for the cause of the nonprofit organization. The firm benefits because it improves its credibility, legitimacy and brand reputation. This increases awareness and attracts customers and employees. A weakness of these PNP s is that firms tend to obtain more benefits from the partnership than the nonprofit partners, although the latter generally bares more costs (Kolk et al., 2008). PNP s comprises of partners from different domains. It stresses upon the partnerships coordination and decision making complexity. The tripartite partnerships (TP s) comprises of partners from three different domains; private, public and nonprofit. TP s address issues of institutional failure that originate from governmental failure and weak governance structures. TP s are less related to the core business of a firm and more development oriented. Within this type of partnership the private partner provides knowledge and expertise, the public partner supplies funding and the nonprofit partner provides local contacts and supporting activities such as trainings. The strength of TP s is the balanced project that includes the interest of all participating partners. In PPP s and PNP s the projects are often closely related to the core business of the private partner. Therefore TP s reduces the problem of direct state support of firms. A weakness of these TP s is the different domains of the partners (private, public and nonprofit). It increases the complexity of coordination and decision making because each has its own characteristics and is influenced by their own domains. In addition to the three partnership types from a development perspective, Dussauge and Garrette (1999) provide a partnership typology from a supply chain perspective. They distinguish privateprivate partnerships based on competing and non-competing firms. Only partnership of noncompeting firms will be discussed because they often relate to supply chain partnership in both high and low tech sectors. While partnership between competing firms primarily occur in high tech sectors. Non-competing private-private partnerships can be subdivided into three main types; a) international expansion joint venture; b) vertical partnerships; and c) diversification alliances. Reasons for noncompeting firms to engage into a partnership are growth and expansion. Figure 4 shows the growth and expansion options coupled with the non-competing partnerships.

25 Figure 4 Non-competing partnership Source: Dussauge and Garrette (1999) Vertical partnerships consist of firms from two successive stages of the same supply chain. These are often supplier-buyer related partnerships. They offer an alternative to both simple transactions between supplier and buyer and full vertical integration or merger of the two. The strength of privateprivate partnerships is their partially vertical integration that simplifies trade. Buyers do not have to rely on the market for their supply and the suppliers do not have to seek for buyers. Although both partners are from the private domain they need to overcome problems related to decision making, coordination and fair distribution of benefits. International expansion joint ventures and diversification alliances are of lesser relevance to this research. The former is driven by market access and is focused on the end of the supply chain, i.e. seeking new markets. This research however focuses on the beginning of the supply chain, the objective is to implement and increase the amount of SFM and FSC certified forest. Diversification alliances are not relevant for this research because they include partners from different industries. Within this research the focus is on partners from the same supply chain and industry. Establishing partnerships When establishing a partnership, partners select appropriate partners depending on the type of issue that is addressed by the partnership, i.e. social underinvestment, market efficiency or institutional failure. During the process of establishing the partnership the strategy and structure are discussed and agreed upon. The establishing process therefore has a major impact on the survival and performance of the partnership (Child et al., 2005).

26 Before partners agree to cooperate they assess each other and they assess the potential for cooperation. The decision to cooperate in affected by appropriation concerns. Appropriation concerns originate from contracting obstacles combined with behavioural uncertainty (Gulati and Singh, 1998). They relate to the uncertainty of future developments, risks of moral hazard and opportunism, the difficulty of writing complete contracts and capturing a fair share of the rents. When the appropriation concerns are low partners are more likely to agree to cooperate and establish a successful partnership. It is therefore important that partners assess the potential cooperation before establishing a partnership to reduce the risk of unsuccessful cooperation. The decision to cooperate is not solely based on economic considerations but also influenced by social, psychological and emotional aspects (Child et al., 2005; Knoppen and Christiaanse, 2007). Negotiation and interaction between potential partners is therefore crucial for reaching a cooperation agreement and establishing a partnership, even when it is an informal agreement. A negotiation is successful when the outcome enables partners to cooperate without either partner having to accept loss of identity or loss of independence and it reduced appropriation concerns. Six key success factors (KSF s) have been identified in literature for establishing partnerships (Child et al., 2005). 1. Analyse the strategic fit between partners. 2. Analyse the cultural fit between partners. 3. Identify goal congruence. 4. Identify the primary joint project, its scope and contribution of each partner. 5. Agree on termination formula in the case when partners wish to exit the partnership. 6. Agree on governance structure of the partnership. There is logic to the order in which the six KSF s are presented. The establishing process starts with general analyses of strategic and cultural fit. If there is strategic and cultural fit the likeliness that a partnership will be successful is higher. The analysis is followed by a more detailed identification of goal congruence and primary joint project, its scope and contribution of each partner. The identification is needed to align the interests of the partners and distribution of tasks and benefits. The process of establishing the partnership is finalized with detailed agreements on termination formula and governance structure of the partnership. The six KSF s are discussed in more detail below. Analysing the strategic and cultural fit are important KSF s for selecting the right partner and establish a successful partnerships. Figure 5 shows a matrix for the strategic and cultural fit. Partners in Box 2 have a high strategic and cultural fit and are in the best position to develop a successful partnership. Partners in Box 4 on the other hand, have low strategic and cultural fit. They have the least chances for developing a successful partnership.

27 Figure 5 Strategic fit-cultural fit matrix Source: Child et al. (2005) A partnership is more likely to be successful when there is strategic fit between the partners. Strategic fit exists when the partners achieve competitive advantage by combining their complementary assets and capabilities that each partner brings into the partnership. However, partnerships only have a chance of being successful when the complementary assets and capabilities are sufficiently synergistic. Strategic fit without cultural fit is unlikely to be successful. Both cultural and strategic fit are needed for a successful cooperation. Cultural fit is the congruence between values, beliefs, attitudes and behaviour. It does not mean partners have to share similar cultures but they need to recognize difference in culture and overcome these differences. Cultural fit constitute too many levels, such as individual, organizational or national cultures. Culture is about the things that are taken for granted and it contributes to how groups of people respond and behave to issues they face (Johnson et al., 2008). The cultural web in Figure 6 can be a useful tool to become aware and assess each other s culture. Figure 6 Cultural web Source: Johnson et al. (2008)

28 In addition to the items of the cultural web of Johnson et al. (2008), Hofstede et al. (2010) defines five basic dimensions of cultures differences which also can be used as a tool to assess and become aware of each other s culture. 1. Power distance; is the extent to which less powerful members of organizations expect and accept that power is distributed unequally. 2. Uncertainty avoidance; is the extent to which people feel threatened by ambiguous or unknown situations. 3. Collectivism vs. individualism; people are integrated into strong and cohesive in-groups (collectivism) and look after each other. Versus loose ties between individuals (individualism) where everyone is expected to look after him- or herself and his or her immediate family only. 4. Femininity vs. masculinity; society in which emotional gender roles overlap (femininity) and both men and women are supposed to be modest, tender, and concerned with the quality of life. Versus society where emotional gender roles are clearly distinct (masculinity) and men are supposed to be assertive, tough,and focused on material success, while women are more modest, tender, and concerned with the quality of life. 5. Short-term orientation vs. long-term orientation; fostering of virtues related to the past and present (short-term orientation) such as national pride, respect for tradition and fulfilling social obligations. Versus fostering of pragmatic virtues oriented toward future rewards (long-term orientation), Hofstede et al. (2010) argue that international cooperation between partners on a specific project face limited performance risks compared to acquisition, merger or joint venturing. Risk is limited to the project at hand. It requires less cultural integration as the other forms of cooperation. However, partners should be aware of the cultural differences as presented above. Another important KSF in the process of establishing the partnership is identifying goal congruence. Early on in the process partners should identify common goals and interests which forms a basis for cooperation. Besides, each partner should clearly identify between their own objectives and interests as well as those of the partnership. They should not conflict with each other. It is an important condition for successful long term partnerships. Identify the primary joint project, its scope and contribution of each partner is an important KSF in establishing a partnership. Partners need to clearly define the project, boundaries and scope of the partnership. Otherwise the cooperation is little more than a declaration to intent. A Clear project, its boundaries and scope indicate what partners will actually be doing to achieve the partnership goal and what the limits are of their cooperation. In regard to these limits each partners need know its

29 contribution, responsibilities and obligations to the partnership. It avoids misalignment of activities and inefficient cooperation. Most of the partnerships dissolve within the first five years. Therefore partnerships should have a clear formula for termination in case they stop cooperating. It can avoid potentially long lasting disputes after the partnership has dissolved. Therefore agree on termination formula is a KSF. When the partners decide there is a potential for cooperation they need to agree on the governance structure to coordination and control the partnership activities. Often this is left for later but then it can become a problem. Agreement in an early stage provides the partners with clear guidelines how to cooperate, control and make decisions that relate to the partnership. Agreeing on governance structure is a KSF in establishing a partnership. Although governance is part of the establishing process it will be separately discussed in section 2.4, the Preparation stage. Conclusion decision stage The partnership types and KSF s presented above are used to construct the first of three stages of the theoretical framework (Figure 7). Figure 7 First of three stages from the theoretical framework The four partnership types and six KSF s presented in Figure 7 for establishing a partnership are compared with the four selected partnerships cases from the tropical timber supply chain. The extent in which these KSF s are important for these partnerships is measured with a seven-point Likert-scale in a questionnaire (Appendix 5). The results of these questionnaires show if there is a discrepancy between literature and the four partnerships cases on the importance of KSF s in establishing partnership. Based on the results the KSF s for establishing supply chain partnership in the tropical timber sector can be deduced. The analysis of the four partnership cases in chapter four show which partnership types are used in the tropical timber supply chain.

30 2.4 Preparation stage The second stage in establishing a partnership is the preparation stage (Figure 8). At this stage the appropriate governance form is adopted. Figure 8 Preparation stage, governing the partnership Source: Knoppen and Christiaanse (2007) The appropriate governance form is most efficiently and effectively in achieving the partnership and individual goals compared to alternative governance forms. Each type of partnership requires its own type of governance form. To determine the appropriate governance form partners can use six key variables: a) coordination of activities; b) decision making complexity; c) trust; number of participants; d) goal consensus; and e) need for network-level competencies. Key variables to determine governance form Coordination of activities is a key variable in determining the appropriate governance form of a partnership. It is critical for the survival and success of partnerships and is exercised through governance. In regard to coordination of supply chain partnership Knoppen and Christiaanse (2007) refer to mutual monitoring and informal coordination of activities across organizational boundaries to smoothen operations. Tasks of coordination are; planning, rules, programs, and procedures. Governance provides hierarchical control by monitoring activities and fair distribution of benefits that result from the partnership (Gulati and Singh, 1998). According Gulati and Singh (1998) the level of hierarchical control is influenced by the anticipated coordination cost. Anticipated coordination costs originate from the coordination of activities across organizational boundaries. When there is a simple division of labour it requires little coordination costs. On the other hand, complex and overlapping division of labour increases the coordination costs. It requires a high level of hierarchical control because superior task coordination is needed. High levels of hierarchical coordination and control are better capable of providing coordination and information processing than lower levels of hierarchical coordination and control (Gulati and Singh, 1998). A lack of appropriate hierarchical coordination and control raises concerns for opportunism. Opportunism can also be controlled by the interdependency between partners because they need each other to achieve the common goal (Ouchi, 1980). Besides interdependency, opportunism is controlled by trust. Inter-organizational trust results from previous interactions. Partners can develop

31 trust through routines of working together and exchanging information. Trust is an effective mechanism for governing transactions. It lowers the need for control and coordination (Gulati and Singh, 1998). Governance involves the use of institutions, authority and cooperation structures to allocate resources; coordinate and control joint action; and make (strategic) decisions. In situation where organizations try to achieve a common objective collective action is required. Often the decision making is complex but it is critical for the effectiveness of the network or partnership (Provan and Kenis, 2007). Decision making complexity is a key variable for determining the appropriate governance form of a partnership. When decision making is complex than a centralized governance form is appropriate because of its ability to coordinate and facilitate the decision making process. There are many governance forms, ranging from joint venture with high degrees of hierarchical control to non-equity partnerships with low hierarchical control. The latter are considered arm slength market exchanges, they have little or no hierarchical control and have little or no authority or incentive systems. Often such partnerships are based on collaborative and informal agreements between autonomous operating individuals. Provan and Kenis (2007) argue that each type of cooperation, formal or informal, needs some form of governance to ensure that partners carry out collective and mutual supportive actions that are needed to achieving the common goals most effectively and efficiently. Provan and Kenis (2007) developed a model for the relationship between the adaption of a particular network governance form and four key variables; trust; size of the network (number of participants); goal consensus; and the need for network-level competencies (i.e. the nature of the task specificity of partners, interdependency and external communication of the partnership). Table 2 explains which governance form is most effective for a specific combination of the four key characteristics. Shared governance has less coordination and control mechanisms than the lead organization or the network administrative organization (NAO). Table 2 Key predictors of effectiveness of network governance forms Source: Provan and Kenis (2007)

32 Key variable Trust is the willingness to accept a vulnerable position based on the positive expectations about the intentions and behaviour of other s. The distribution of trust is critical and a key predictor for choosing the most effective governance form for achieving the common goal. High density of trust relations between partners requires less coordination and control. In this situation shared governance is sufficient. On the other hand, low density of trust relations requires higher level of coordination and control. In this situation a centralized governance form such as the lead organizations and NAOs is appropriate and most effectively and efficiently to achieve the common goal. Trust reduces the need control and therefore lowers coordination and control costs. Number of participants is a key variable for determining the appropriate governance form. Low numbers of participants (i.e. not more than four) requires less coordination. But as the number rises it becomes more difficult to coordinate the activities. It requires a more centralized governance form, such as a lead organization or NAO. Goal consensus is a key variable that has important implications for governance. It allows networks and partnerships to perform better when there is a goal consensus. When there is high goal consensus a shared governance is sufficient most effective and efficient in order to achieve the common goal. Moderate to low level of goal consensus generally requires a centralized form of governance. The key variable need for network-level competencies includes internal as well as external competencies. Internally the level of governance depends on the interdependency between partners and the need for coordination of actions. High interdependency and need for coordination requires centralized governance form achieve a commons goals. The opposite is true for decentralized governance form. Governance form Provan and Kenis (2007) distinguish three basic governance forms for networks shown in Table 2; a) shared-governed networks; b) lead organization governed networks; and c) network administrative organization (NAO). Networks comprise of three or more legally autonomous organizations that work together to achieve not only their own goal but also a common goal. Networks and partnerships are similar in definition. Both consist of multiple autonomous partners that cooperate to achieve a common goal without giving up their own individual goals. Shared-governed networks are governed by the partners themselves. There is not a unique governance entity and governance is accomplished either formal (i.e. meetings) or informal (through on-going efforts by those who have a stake in the success of the network). Governance depends on the involvement and commitment of all partners. Shared-governed networks are usually present in

33 smaller, multi-firm strategic alliances and partnerships that cannot achieve the common goal on their own. Lead organization governed networks are characterized by centralized governance and often asymmetrical distribution of power. This type of network consists of a single organization that takes the lead in governing the network. It is often seen in vertical (buyer-supplier) relationships. It comprises of one powerful buyer or supplier and multiple weaker and smaller buyers or suppliers. In such networks the activities and key decision are coordinated through a single participating member, often the large and powerful buyer or supplier. Network administrative organization (NAO) is a governance model where a separate administrative entity is set up to govern the network and its activities. The NAO plays a key role in coordinating and sustaining the network. The difference with the lead organization model is that the NAO is not a member of the network itself. Thus, NAO networks are externally governed. Conclusion preparation stage The key variables and examples of governance forms presented above are used to construct the second out of three stages of the theoretical framework (Figure 9). Figure 9 First of three stages from the theoretical framework The extent and combination in which the six key variables in Figure 9 are present at partnerships indicate which kind of governance form is most appropriated, i.e. centralized or decentralized and formal or informal. The key variables can be used in support of adopting the appropriate governance form. They are not prerequisites for creating successful partnerships. In this research the extent in which the key variables are present at the partnership cases is measured using a seven-point Likert-scale in a questionnaire (Appendix 5). The analysed scores are compared with the governance form to identify the fit or discrepancy between the key variables and governance form. The governance form is measured using a seven-point Likert-scale in the questionnaire and discussed in an in-depth interview. The key variables are provided in this research with the intention to build a complete framework for establishing, governing and operating supply chain partnership. They are not provided with the

34 intention to test them and adjust the key variables to better reflect the characteristics of the partnership in the tropical timber supply chain. 2.5 Operational stage The third stage of creating a successful partnership is the operational stage (Figure 10). It includes the key success factors (KSF s) for operating the partnership. Figure 10 Operation stage, operating the partnership Source: Knoppen and Christiaanse (2007) Partnership performance Ryu et al. (2009) provide a model of KSF s that influence the performance of supply chain partnerships (Figure 11). They distinguish between operational and strategic factors. Although these factors are presented in this operation stage, they are not bounded to this particular stage. They overlap with the stages of establishing and governing the partnership. Figure 11 Performance model of partnership Source: Ryu et al. (2009)

35 Figure 11 indicates there are seven KSF s for operating supply chain partnerships. These KSF s are divided over three levels. The strategic level includes KSF s; a) strategic fit; and b) interdependence. The operational level includes KSF s; c) operational compatibility; and d) communication. The KSF s of these two levels influence the KSF s at partnership process level; e) commitment; f) trust; and g) collaboration. Eventually KSF collaboration positively influences the partnership performance. These seven KSF s contributes to a successful operating partnership. Strategic level KSF s Strategic fit between partners is a key factor for the success of a partnership. During the process of establishing the partnership strategic fit was already analysed. However, in the operational stage it needs to be present to create a successful cooperation. Variables that underlie strategic fit are overlap of partners interests in the area of cooperation and goals congruency of the partners. When partners share the same interest and strive to achieve mutual goal(s) it positively influence trust and commitment which benefits collaboration in making the partnership a success. Another underlying variable of strategic fit is cooperative strategy. Partners need clear cooperative strategy to facilitate the cooperation, achieve the mutual goal(s) and avoid conflicts between individual goals and those of the partnership (Child et al., 2005). Finally partners need complementary assets and potential synergy to make the partnership a success. These two variables are both needed for success but insufficient on their own. Interdependence of partners is a KSF for partnership performance. Interdependence is the resource dependency of partners. Partners need each other s specific resources in order to achieve their own goals and those of the partnership. Interdependency is associated with power and control. A partner is more powerful than the other partner when it owns resources that the other partner does not have but needs in order to achieve its goals. These resources can include funding, materials, knowledge, etc. An underlying variable of interdependency is joint partnership management. When both partners are involved in coordination of activities; resource allocation; and monitoring of the partnership it reduces uncertainty about opportunism and problems of bounded rationality. Especially when a partnership consist of a powerful partner and a less powerful partner joint partnership management is effective in reducing the uncertainty. Besides joint partnership management, tacit and explicit rules are important in facilitating activity coordination, resource allocation and monitoring partners. They control for problems of bounded rationality and opportunism (Sodhi and Son, 2009). Joint partnership management in combination with tacit and explicit rules increases partners trust in the partnership and commitment to cooperate.

36 Operational level KSF s Operational compatibility is the similarity in goals; objectives; and operational philosophies and systems between partners. Operational compatibility is a KSF for the partnership performance. When there is insufficient match between members operations it can become obstacles for the cooperation. The underlying variable of operational compatibility is the compatibility of operating systems. It is important for effectiveness of the partnership. Cultural fit is important in operational compatibility. Partners do not have to share the same cultures. Often partnerships consist of members based in different countries or continents. It is much more of importance that partners understand cultural differences and show willingness to compromise in the face of cultural problems. These two underlying variables are important to make a partnership successful. Cultural fit is vital for the effectiveness of the partnership (Child et al., 2005). When partners do not understand cultural differences or are not willing to compromise it creates conditions for misunderstanding and misalignment of operations. Another variable of operational compatibility is partner symmetry. Equal in power (i.e. size or strength), cooperation experience and strategies positively influence partnership performance (Sodhi and Son, 2009). Partner asymmetry can result in termination of the partnership when, i.e. a larger partner takes over a small partner (Child et al., 2005). The operational compatibility positively influences trust and commitment among partners. Communication is a KSF for partnership performance and includes formal as well as informal sharing of information between partners (Sodhi and Son, 2009). A variable that influences communication is the relational embeddedeness, i.e. the quality and depth of a relationship between partners. It creates a common language and mutual knowledge among partners. This relation between partners heavily depends on the human interactions and is therefore an important variable of communication. Other important underlying variables of communication are conflict management and communication strategy. These are alternatives to avoiding and resolve ambiguity, misinterpretation and misunderstanding at the operational stage (Knoppen and Christiaanse, 2007). Communication positively influences trust and commitment and the other way around. Decision making procedure is an underlying variable of communication that can overcome unending partnership negotiations before decisions are made. It enhances the effectiveness and efficiency of partnership. A partnership consists of two or more partners and all have their own interests. Decisions require the agreement of all partners. This is much more difficult compared to decision making in a single chain of command. Multiple partners increase the complexity of decision making and could

37 cripple the flexibility of the partnership (Dussauge and Garrette, 1999). An effective and efficient decision making procedure contributes to the performance of the partnership. Sodhi and Son (2009) suggest that managers of partners need to differentiate between strategic and operational goals of the partnership and focus on both dimensions in order to achieve a successful partnership. KSF s of partnership process A KSF for operating partnerships is trust. Trust is the expectations that a partner will fulfil its duties, behave in a predictable way, and treat their partners fairly even when opportunistic chances present themselves. High levels of trust provide stable relationships and create environments that prohibit opportunistic behaviour. Trust is established through long-term experiences between partners via cooperation and not via a goal-directed approach. Trust lowers the uncertainty of the partner s response to future events and enhances cooperative activities between the partners (Sodhi and Son, 2009). Supply chain partnerships thrive on the reduced uncertainty between buyer and supplier. Commitment is the effort of a partner to maintain the relationship with the other partner. It is a KSF for the performance of the partnership. Commitment stands for stability and sacrifice. Partners commit resources and effort to achieve a partnership objective. A variable that underlie commitment is the fulfilment of partners need by other partner. It relates to the invest effort and sacrifice of resources to help others in achieving the objectives. Commitment and fulfilling the need of partner are not mutually exclusive but interact with each other. They positively influence collaboration and success of the partnership operation. Trust is crucial for the development of commitment and visa versa. Collaboration is the KSF that includes information sharing on a wide range of issues connected to the partnership such as products, production, planning, goals and responsibilities. Information exchange is an underlying variable of collaboration. It is required for efficient supply chain partnership performance (Sodhi and Son, 2009). Both trust and commitment have a positive influence on collaboration between the partners. Collaboration leads to the achievement of the partnership goal. Supply chain performance The model of Ryu et al. (2009) in Figure 11 shows that collaboration directly contributes to the performance. Supply chain performance is the outcome of the cooperation between the supply chain partners and determines the success of a partnership. Success of the supply chain partnership is the capacity to reconcile multiple interests of all partners (Ros-Tonen et al., 2008) and meet or exceed the expectations of the partners.

38 Conclusion operate stage The seven KSF s and their underlying variables presented above are used to construct the third and final stages of the theoretical framework (Figure 12). Figure 12 Third of three stages from the theoretical framework The seven KSF s and their underlying variables from Figure 12 are compared with the four selected partnerships cases from the tropical timber supply chain in chapter four. The extent in which these KSF s are important for to the four partnerships is measured with a seven-point Likert-scale in a questionnaire (Appendix 5). The results of these questionnaires show if there is a discrepancy between literature and the four partnerships on the importance of KSF s in operating the partnership. Based on the results the KSF s for operating supply chain partnership in the tropical timber sector can be deduced. 2.6 Conclusion & Theoretical Framework The three concluding figures from section 2.3 (Figure 7), 2.4 (Figure 9) and 2.5 (Figure 12) are combined to make up the theoretical framework in Figure 13. Following the theoretical framework the research questions stated at the beginning of this chapter are answered. The theoretical framework follows the three stages of the Knoppen and Christiaanse (2009) model; Decide, Prepare and Operate. In the decide stage partners investigate the potential for partnering. In the prepare stage partners adopt the appropriate governance form based on six key variables. Finally, in the operate stage seven KSF s and their underlying variables in positively influence the performance and overall success of the partnership.

39 The theoretical framework includes loops from the operate stage to the prepare and the decide stage. When external or internal influences change the setting of the partnership it should be redefined to cope with these changes. However, these loops are not taken into account in this research. Decide Partners investigate the potential for establish a partnerships Main types of partnership: Private - Public Partnership(Provision of public goods) Private - Nonprofit Partnership(Addressing social issues) Tripartite Partnership (Addressing problems of institutional failure) Private - Private Partnership (Addressing market efficiency issues) KSF s for establishing partnerships Analyse the strategic fit between partners Analyse the cultural fit between partners Identify goal congruence Identify the primary joint project, its scope and contribution of each partner Agree on termination formula in the case when partners wish to exit the partnership Agree on governance structure of the partnership Prepare Key variables influence the adoption of a particular governance form that is most effective for achieving the common goal Key variables coordination of activities decisions making procedure Trust Number of participants Goal consensus need for network-level competencies Governance form Centralized (lead organization / NAO) vs. decentralized (shared governance) Operate Key Success Factors (KSF, in bold) and their underlying variables impact the perforance and success fo the partnership. Strategic fit Cooperative strategy Overlapping interest Complementary assets Goal congruity Potential synergy KSF s for operating supply chain partnerships Interdependency Joint partnership management Tactic and Explicit rules Commitment fulfil needs of partners Operational compatibility Understanding cultural differences Compromise in cultural problems Partner similarity Reduced uncertainty Communication Relational embeddedness Human interactions Operating systems compatibility Communication strategies Trust Conflict management Decision making procedure Collaboration Information exchange Partnership performance Figure 13 Theoretical Framework Source: adapted model from Knoppen and Christiaanse (2007) and Ryu et al. (2009) This theoretical framework is used to analyse the supply chain partnerships from the tropical timber sector. The analysis shows the extent in which the theoretical framework fits the supply chain

40 partnerships from the tropical timber supply chain. Based on the outcome of the analysis the framework can be adopted to better fit the partnership in the timber sector. Using the adapted framework a tool (Appendix 8) is constructed that can be used to informing potential partners on how to establish and strengthen supply chain partnerships in the timber sector. The operationalization of the KSF s and key variables in order to determine the fit of the theoretical framework with the partnership from the tropical timber supply chain are discussed in the next chapter. Decide Which partners are involved and what is their role? Partnerships do not only include private organization but also nonprofit and civil society organizations and public organization. In general partnership that address development issues consist of nonprofit and/or public organization in combination with private organizations. Private partners provide the resources and partly funding of the project that are closely related to core business of the private partner. Nonprofit partners are characterized by their input of their knowhow and network. Public partners provide funding. Private-private partnerships include vertical partnerships between firms from two successive stages of the supply chain. They combine resources to obtain growth, expansion and competitive advantage. When potential partnership partners find opportunities for creating new activities through partnerships they move to the next stage in the process of establishing a partnership. Which KSF s are identified in establishing partnerships? Six KSF s have been identified that increase the likeliness of establishing successful partnerships. Partners look at the a) strategic and b) cultural fit. It is important to recognize and overcome these strategic and cultural differences in order to create successful partnerships. Partners need c) identify the objective of the partnership and define their individual goals. They should not be in conflict. The d) project, its scope and contribution of each partner needs to be defined to avoid misunderstanding. It is crucial that partners e) determine some form of governance structure of the partnership. It provides the mechanisms to coordinate and control partnership activities to operate the partnership effective and efficiently. A partnership that consists of autonomous partners is often an unstable cooperation that fall apart in the course of cooperation. It is therefore important that partners f) agree on a termination formula to avoid any long lasting disputes when the partners dissolve. Prepare How are partnerships organized and governed? If partners decide to establish the partnership they have to adopt the appropriate governance form to ensure effective and efficient cooperation to achieve the partnership goal. Six key variables are used to determine the appropriate governance form; a) coordination of activities; b) complexity of decision

41 making; c) number of participants; d) need for network-level competencies; e) level of trust; and f) goal consensus. The extents to which these variables are applied determine if more or less coordination and control is appropriate. In general partnership that a lot of activities that need to be coordinated; a high level of complex decision making; a need for network-level competencies; many partners; low level of trust; and low level of goal consensus a centralized governance form is appropriate. The opposite is true for decentralized governance forms. A centralized governance form provides superior task coordination and control, i.e. a lead organization governance and network administration organization (NAO) governance. The opposite is true for a decentralized governance form, i.e. shared governance which is characterized by low hierarchical control and coordination. To develop, maintain and operate a centralized governance form takes more effort and costs than the decentralized governance form. It depends on the extent the key variables are present at the partnership which governance form is more appropriate. An appropriate governance form is enables the partnership to achieve its goal most efficiently and effectively. Key variables are a tool to determine the appropriate governance form. They are not prerequisites for an efficient and effective governance form. Operate Which KSF s are identified in operating partnerships? After adoption of the appropriate governance partners will start operating. Seven KSF s contribute to the performance and success of the partnership. Success in this research is qualitative and is measured by the extent to which the partnership meets the expectations of the partners. A partnership is successful when it meets or succeeds the expectations of its partners. The KSF s that are identified for operating the partnerships are; a) strategic fit; b) interdependency; c) operational compatibility; d) communication; e) commitment; f) trust; and e) collaboration. Each KSF is influenced by one or more underlying variable that are shown theoretical framework in Figure 13.

42 3 Methodology This chapter explains how partnership cases from the tropical timber supply chain are selected and studied. The case studies are used to generate a complete picture and to test and refine theory (De Vause, 2001). They are not designed for statistical generalization. This research tests the extent in which the theoretical framework corresponds to the partnerships from the tropical timber supply chain. If a discrepancy between those two is identified, the framework is adjusted to reflect the characteristics of the partnerships that operate in the tropical timber supply chain. The adjusted theoretical framework can be used to develop a toolkit (Appendix 8) that can support potential partners and existing partnership in establishing or strengthening their partnership respectively. 3.1 Case selection Selection criteria are used to select four partnership cases. These criteria are based on the background studies of the tropical timber supply chain (Appendix 1) and the Congo Basin forestry (Appendix 2); and the literature review in Chapter two. The case studies are selected based upon their contribution to SFM and FSC certification and not on the type of partnership, i.e. private-private, private-nonprofit, etc. The background study of the tropical timber supply chain (Appendix 1) shows there are many forms of partnerships throughout the different stages of the supply chain. Each partnership or individual partners has more or less influence on the implementation of SFM and FSC certification. One of the most powerful individual actors is the end-consumer. Its demand for FSC certified timber affects not only the FSC certification of forests but the entire supply chain. If there is a demand, supply will follow. However, the research does not focus on how partnerships can create demand. It rather focuses on how partnerships can create supply of FSC certified timber. The background study of the Congo Basin forestry (Appendix 2) shows that its forestry industry is dominated by large international firms. They often integrate various successive stages of the supply chain, i.e. forest logging, timber processing and trading. These firms have a large influence on the implementation of SFM and FSC certification at large forest areas compared to the little influence that locally owned firms have. Manufacturers of (semi-)finished products and Do-It-Yourself retailers also have little influence on the implementation of SFM and FSC certification and will therefore not be included in the case studies. The selection criteria are: a) Selected cases should include at least one large (international) firm that operates at the beginning of the supply chain and close to the forestry.

43 b) At least one partner has to be a private partner, the other can be a public or nonprofit organizations. c) The partnership has to contribute directly or indirectly to the implementation of SFM, FSC certification. d) The partners need to be willing to engage in the research. e) The respondent that represent a partner of the partnership needs to be able to provide information on; the process of establishing and operating the partnership; how it is governed; and the extent in which the partnership meets the expectation of the partner, i.e. persons at management level actively involved in the partnership formation and execution. f) At least two partnerships have to be successful. In addition less successful partnerships are allowed to be included in order to compare with the successful partnership and to underline the importance of key factors identified at the successful partnerships. Based upon these criteria above four partnership cases have been selected. The original aim was to select only partnerships from the Congo Basin to contribute indirectly to the implementation of IDH s timber programme in this region. However, partnerships in the Congo Basin are still in their infancies and only few are known to exist. Therefore two partnership cases where selected from the Congo Basin and two from the Amazon Basin. The researcher selected four cases due to a restriction in time, limitation in resources and availability of suitable partnerships that match the selection criteria. Three partnership cases are classified as successful and one as not successful. The less successful partnership is selected to compare with the successful partnership. The comparison between the successful and less successful partnerships is used to underline the importance of the KSF s identified at the successful partnerships. Because partnerships in the tropical timber supply chain are in their infancies and generally not openly communicated it is difficult to identify them. The selected partnerships are in different stages of obtaining their objective, i.e. implementation of FSC certification. One partnership obtained its objective and implemented FSC certification. The other three did not yet meet their objectives. One of these three partnership indirectly contribute to FSC certification and aims at legality certification. Legality is often used as an important step towards the implementation of FSC certification. Legality is a requirement of FSC certification. 3.2 Data collection The theoretical framework (Figure 13, section 2.6) is the guideline for data collection. This framework consists of three sections; KSF s for establishing the partnership, key variables to determine the governance form; and KSF s for operating the partnership. A triangulation of methods is used to collect data about the importance KSF s and appliance of key variables at the four selected

44 partnerships. These methods are; questionnaires (Appendix 4); semi-structured interviews (Appendix 5); and document review. Questionnaire (Appendix 4) The questionnaire consists of open and closed questions that correspond to KSF s and key variables of the theoretical framework. The questionnaire consists of four sections; scope and objective; establishing; governing; and operating the partnership. The questionnaire in Appendix 4 is the operationalization of the KSF s, key variables and success. They are discussed here below. The first section includes six open questions about the respondents, their positions in the organization and the scopes and objectives of their partnerships. The second section includes closed questions to identify the importance of the KSF s for establishing their partnerships. The importance is rated on a seven point Likert-scale. The third section includes closed questions about the governance of the partnership. Respondents indicate on a seven point Likert-scale the extent in which key variables for determining the appropriate governance form apply to their own partnerships. To identify the governance forms applied at the partners, the respondents are also asked the extent in which strategic decision that affect the partnership are taken, i.e. centralized or decentralized. The scores from the on the key variables and the governance forms are compared to determine the relation between the two. It is used to identify if there is a discrepancy between the two. The fourth section includes closed questions about the contribution of KSF s and their underlying variables from the theoretical framework for operating partnership. Respondents are asked to rate the contribution of these KSF s and underlying variables to the success of their partnerships on a seven point Likert-scale. The scores are used to identify the fit of the theoretical framework with the partnerships. To identify the success of the partnership the respondents are asked to rate the extent in which the partnerships meet their expectations on a five point Likert-scale. A partnership is successful when a partnership meets or succeeds the expectation of the respondents. The scores on the KSF s and underlying variables are used for comparing the cases with each other and to identify if the theoretical framework corresponds to the partnerships. Semi-structured interview (Appendix 5) A semi-structured interview is used to discuss the partnership in-depth and to give a profound description and analysis of the partnerships. The interview is conducted with the same respondents

45 after they have filled in the questionnaires and send them back to the researcher. The interview is also used to clarify answers on the questionnaire. The interview is structured into four topics; scope and objective; establishing; governing; and operating the partnership. It is used to discuss the process and reasons for establishing the partnership and how it is governed and operated. Document review In addition to the questionnaires and semi-structured interviews, information about the partnerships and its partners is gathered by document review of company websites and magazines. It is used to build a profound picture of the partnerships. Document review focuses on general organizational aspects such as organization activities, location, ownership, structure and philosophy. 3.3 Data analysis A case analysis and comparison with the theoretical framework is made from the gathered data. Each case is described individually to obtain a profound understanding of these partnerships. The cases are discussed according to the structure of the theoretical framework, i.e. partnership description, establishment of partnership, governance of partnership and operating the partnership. Following the case descriptions, the collected data from the questionnaires are compared to identify the KSF s for establishing and operating partnerships. The results from the comparison and case analysis are used to identify how well the theoretical framework reflects the characteristics of the four partnership cases. If there is a discrepancy between the framework and the partnerships, the framework is adjusted to reflect the characteristics of the partnership. The case analysis and adjusted framework are used to develop a toolkit that contributes to the research objective; advice IDH, supply chain actors and stakeholders about successful supply chain partnerships that contribute direct or indirect to the SFM and FSC certification of tropical forests. 3.4 Limitations Due to a lack of time and resources the researcher is restricted to conduct the research from the Netherlands. However, the partnerships and respondents are mainly located abroad. Interviews with respondents abroad are conducted by phone/skype instead of face-to-face. Time restriction makes it impossible to include all partners of each partnership in the research. Therefore only one partner of each partnership is included. The partners that are included are part of the network of IDH. This could result in biased social responsible answers because the research is assigned by IDH. The researcher conducts the interviews himself and is only able to do so in Dutch or English. However, the selected partnership cases are situated in French, Portuguese and Spanish language regions. It limits the possibilities to include partners in the research. The respondents need to be able to speak and write in Dutch or English. The difference in culture of partners and the sensibility of the topic

46 discussed also need to be taken into account. Due to a difference in African, South American and European culture, the questionnaire and interview questions might be interpreted different. Supply chain partnership in the tropical timber industry can be a sensitive topic to discuss. Partnerships in the tropical timber supply chain are still in their infancies and they are often not openly communicated to the outside world for various reasons. An important reason for partners not to share this information is because a partnership includes partners that are not yet at the level of SFM or carry out controversial activities. When others organizations such as civil society organizations like Greenpeace takes notice of these partnerships, the partners are at risk of reputational damage. Respondents might give social desirable and biased responses to the questionnaire and interview in order not to jeopardize the cooperation or harm the relationship with their partners. The researcher tries to minimize the chance of social desirable and biased responses by creating trustworthy relationship. The respondents are linked to network of IDH. In some cases the researcher was introduced to the respondents by IDH or an affiliated nonprofit organization. The names of the partners and respondents from the cases are kept confidential to increase the willingness of the partners to cooperate. Some of the partners indicated that their partnership could not be mentioned by name and should be kept confidential. Only three from the four partnership cases have been indicated to be successful. The partnership that is less successful is used to compare with the successful partnerships to underline the importance of key factors identified at the successful partnerships. 3.5 Validity The validity of measures is the ability of the questionnaire and interviews to measure what they are designed for. It reduces the risk that questions have alternative interpretations (De Vaus, 2001). The questionnaire and semi-structured interviews are assessed by the research supervisor from IDH and Wageningen University. They verified the relevance and logic link between questions and the objective of the research and checked for ambiguity. A pilot study has been conducted with a respondent working in the timber sector. External validity is the ability to generalize the results of the research to a wider population. Case studies have been criticized for their lack of generalization (De Vaus, 2001). Because this research involves a limited number of cases it cannot be used to make any generalized statements about a wider population of partnerships.

47 4 Case Study Analysis This chapter describes four partnership cases from the tropical timber supply chain and provide the characteristics of establishing, governing and operating these partnerships. Following the case analyses the results of the research are discussed. Based upon the case analyses and results the theoretical framework is adjusted to reflect the characteristics of partnerships in the tropical timber supply chain. This chapter answers the following question: What adjustments need be made to the theoretical framework to reflect the particular characteristics of partnerships from the tropical timber supply chain? 4.1 Case Analysis Partnership A Partnership A, shown in Figure 14, includes two companies from the Amazon Basin that contribute to FSC certification through sharing of knowledge and experience. Figure 14 Partnership A Company A supplies certified wood-products and non-timber products from its own FSC certified forest concession. However, it does not have its own sawmill or the experience of processing logs into timber. Company A is established a few years ago and its founders have years of experience in SFM and FSC certification. The company is new in the region where its concession is located and they have little knowledge of the local timber species or its local institutions. Company B is an experienced forestry and timber processing company. It has a forest concession located near the concession of Company A which is not FSC certified. However, Company B wants to implement FSC certification with the help of Company A. in return Company B shares its knowledge of local species and institutions and experience in processing with Company A. Partnership description The partnership is based upon a five year contract that includes the processing of logs from Company A at the sawmill of Company B and the support of Company A to Company B with implement SFM and

48 FSC certification. The objectives of the partnership are to learning about processing of tropical timber for Company A and obtain FSC certification for Company B. Through close cooperation Company A learns from the experience of Company B on timber processing and its knowledge of local species and institutions. The experience and knowledge are used to optimize its own operations and organization. Because Company A does not have its own sawmill it rents one from Company B. This reduces the capital need of Company A and delays the investment in building or buying its own sawmill. The delayed the investment provides them with the opportunity to determine the forest and timber quality and its market performance. This information is used to determine the investment needed for its own sawmill and reduces the risk of misalignment between the investment and business performance. Company B benefits from the knowledge and support of Company A on the implementation of SFM and FSC. The close cooperation reduces the time to acquire knowledge about SFM and FSC certification in comparison to learn about it by itself alone. It also reduces the costs of hiring experts. A third benefit for Company B is that it generates income by renting it s sawmill to Company A. Prior to the partnership it was out of operations due to a lack of log supply. The partnership has been established a year ago and recently started to fully operate. Therefore Company A did not score to what extent the partnership meet its expectations. However, it is positively about the partnership reaching its objective and therefore classified as successful. Establishing the partnership Figure 15 shows which of the six KSF s from the theoretical framework are considered important by Company A in establishing the partnership with Company B. Figure 15 Importance of key factors for establishing Partnership A

49 Before Company A and Company B started cooperating they were ware of each other s good reputation, i.e. experience with SFM and FSC certification and processing of logs into timber respectively. This reputation is a basis to develop a trustworthy relationship and positively influence the decision to establish the partnership. Company A took the initiative to establish the partnership. It used explicit procedures to find select a partner in order to influence the likeliness of establishing a successful partnership. In this process it is important to analyse strategic and cultural fit. They are used to assess the ability of the partnership to create competitive advantage and identify the philosophical match between the companies. The philosophical match between Company A and Company B is the believe in responsible and sustainable timber production and the importance of related social and environmental issues. It positively influenced the decision to cooperate. The partnership includes the close cooperation of Company A and Company B at the sawmill. It is therefore important to determine its governance structure and the contribution of each partner to the partnership. Both companies need to know their obligations and liabilities. Close cooperation between personnel and between management of both companies enables effective and efficient exchange of tacit and explicit knowledge. It reduces the problem of bounded rationality and partners are able to make well informed decisions that affect. There are two main reasons why this partnership is based upon a formal contractual instead of an informal or gentlemen agreement. Writing down the agreement allows both partners and their investors know exactly what the partnership encompasses and what their obligations and liabilities are. Secondly, writing down the cooperation agreement in a contract allows the partners to exercise the partnership before actual cooperation. They can identify potential problems and take measures to prevent or reduce the risk of these problems occurring. Although the partnership is initiated by the companies themselves, the national forestry agency influenced the decision to cooperate. The agency is responsible for allocating the concessions. It had the expectation that companies would cooperate to make the concessions into a success in terms of SFM. This expectation influenced the decision of Company A and Company B to cooperate. It would increase their chances for acquiring the concessions. Both companies eventually got the concessions. Partnership governance This partnership has a decentralized and formal governance form. It mainly focused on the operational side rather than the strategic side of the partnership. The partnership governance consists of three layers. The first layer includes two operational managers, one from each company and they work side-by-side to supervise the sawmill activities. The second layer includes two persons

50 from higher management, one of each company. They keep track of market demand and match the forestry and production planning to demand. The third layer consists of top management and includes the CEO s of both companies. They focus on strategic issues of the partnership. Because personnel and management of both companies work side-by-side informal and formal communicate and sharing of information is enhanced. It reduces the problem of bounded rationality, is a basis for developing a trustworthy relationship and controls for opportunistic behaviour. Operating the partnership Figure 16 show to what extent Company A has indicated which of the key factors and underlying variables are considered to be important in operating the partnership and contribute to its success. Figure 16 Importance of key factors and underlying variables for operating Partnership A From Figure 16 it can be indicated that strategic fit, interdependency, commitment, trust and collaboration are considered important in operating the partnership. Communication and operational compatibility are considered to of lesser importance. The commitment and willingness of partners to cooperate is increased by the cooperative strategy to undertake the partnership, the overlapping interests in SFM and complementary assets and knowledge each partner brings into the partnership. Close collaboration of the partners at the operational and management level enhances the informal and formal information exchange and forms a basis to create a trustworthy relationship.

51 Joint management of the partnership and tacit and explicit rules are considered important. They underlie the key factor interdependency and are needed to coordinate the partnership activities and facilitate the close cooperation at operational and management level. Good operational management is considered a key determined for the success of the partnership. It is therefore important to have a clear operational plan. Operational compatibility is not considered to be an important contributor to the success of the partnership. Partners do not have to be similar organizations or compatible in operational and management systems. Also communication is of lesser importance for the success of the partnership. Conclusion The common interest in responsible and sustainable forestry and timber production is positively influenced the decision to establishing this partnership. Company A used specific criteria and selection procedures to find a philosophical matching partner that brings in complementary assets and knowledge. After all, the partnership needs to create competitive advantage. To make the partnership a success, clear operational management and targets are required such as production planning, yield quantities and task division. This needs to be in the partnership agreement. The partnership agreement is written down to exercise the cooperation and identify potential problems. It reduces the risk of these problems occurring. This partnership is about learning and sharing knowledge of timber processing, local institutions and SFM. The close cooperation of personnel and management makes this possible. There is side-by-side cooperation and human interaction which enables efficient and effective sharing of tacit and explicit knowledge. The close cooperation also reduces problems of bounded rationality and provides control for opportunistic behaviour. It increases trust and commitment between partners. 4.2 Case Analysis Partnership B Partnership B, shown in Figure 17, includes three companies that cooperate to supply of FSC certified timber in the near future.

52 Figure 17 Partnership B Company A is a European trading firm that supplies tropical hardwood products, i.e. garden and flooring products, to the EU market. Company A wants to increase and secure a steady supply of FSC certified timber by Company B. Company B is a timber supplier based in the Amazon Basin. It is established a few years ago and has its own forest concession and sawmill. The founders of the Company B and management of Company A know each other for many years and share a trustworthy relationship. Company B is not yet FSC certified but hopes to be in the near future. Company C is a manufacturer of (semi-)finished timber products and located in the Amazon Basin. Company C planes and stores the timber from Company B and sends it to Company A. Company C is co-founder of Company B. Besides these three companies, Company D is also important because it facilitates in communication and logistics between the partners. It is however, not part of the partnership. Company D is experience with timber processing and provides quality control of the timber that is destined for Company A. One of the founders of Company B and now head of sawmilling operations was previously affiliated to Company D. Partnership description The objective of partnership B is to supply FSC certified products from Company B through Company C to Company A. Although supply of FSC certified timber is the objective, it is not part of the cooperation agreement. Neither Company A nor Company C provides direct support to Company B with the implementation of FSC certification requirements. Instead, Company B is supported by a nonprofit organisation which was introduced to them by Company A. In this partnership Company A provides Company B with working capital for its operations. The steady cash flow is used by Company B to develop its business and invest in FSC certification. The working capital is provided annually and settled with the timber purchases of Company A. The risk related to

53 the provided working capital, i.e. noncompliance of repayment, disputes or bankruptcies are reduces by the short periods of time and specified in contracts. In return Company A holds the position of preferred buyer of timber from Company B. It has first pick of the timber that is produced by Company B. Company C Company A wants to focus its business strategy more on FSC certified timber products. With this partnership it has a strategic alliance because it secures the future supply of FSC certified timber. The partnership also allows Company A to influence the production process at Company B and Company C to produce according to its quality standard. The partnership is operating now for a few months and the partners are in the process of achieving the objective. There has not yet been any supply of FSC certified timber to Company A. However, it indicated that the partnership meets it expectation and can therefore be classified as a successful. Establishing the partnership Figure 18 shows which steps from the theoretical framework are considered important by Company A in establishing the partnership with Company B and Company C. Figure 18 Importance of key factors for establishing Partnership B The decision to establish the partnership is mainly influence by the trustworthy relationship that the partners share and the production plan of Company B. The production plan specifies on timber production, expected costs, income, etc. It provided Company A with the information to decision to cooperate with Company B. The production plan explains the importance of identifying the primary project, its scope and contribution of the partners in Figure 18. It enables the partners to identify the competitive advantage the partnership will bring and its success. Besides competitive advantage, it is also

54 important that partners have the common interests in SFM and FSC certification. It is therefore important analyse strategic fit and find common ground for cooperating. However, common interests alone are not enough. Complementary assets are needed to create competitive advantage. The partnership is based upon an informal gentlemen agreement. The production plan of Company B is the basic document upon which this partnership agreement has been made. Trust is an important factor for choosing this agreement form over a formal contract. Later on in the process Company A asked Company C to join the partnership to optimize the product flow. Company C planes and stores the timber from Company B before it is send to Company A. The partnership is mainly focused on the operational aspects and not so much on the strategic aspects. Partnership governance The three partners are from successive stages from the supply chain. It is therefore clear what the task division and contribution of the partners to the partnership is. Partners operate independently and there is little joint cooperation that requires complex decision making. This justifies the decentralized and informal governance form between the partners. The partnership consists of three partners that share a trustworthy relationship. It makes communication and information exchange easier. Partners have frequent communication mainly about operational issues that affects the partnership. If strategic decision occur they are discussed a jointly agreed upon. The frequent communication reduces the problem of bounded rationality which enables partners to make well informed decisions. Due to the trustworthy partners also are able to openly discuss things that affect the partnership such as market and price changes. Based upon the changes and information exchange between the partners a price purchase price is determined that is market conform. It reduces the risk of opportunistic behaviour that could harm the partnership. The language and cultural differences between the EU and two Amazon Based partners is a barrier for communication. To overcome this problem Company D facilitates in the communication and reduces the risk of misunderstanding. Also the large distance between partners is a barrier for company visits and quality checks of timber and processes. Company D performs the quality checks and supervises the activities of the partnership for Company A in the Amazon Basin. Operating the partnership Figure 19 show to what extent Company A has indicated which of the key factors and underlying variables are considered to be important in operating the partnership and contribute to its success.

55 These key factors are strategic fit, interdependency, communication, commitment, trust and collaboration. Operational compatibility has little contribution to the success of the partnership. Figure 19 Importance of key factors and underlying variables for operating Partnership B A clear cooperation strategy (the production plan) and goal congruities (FSC certification) coordinate partnership activities. Besides a clear production plan and goal congruity the partners need to bring in complementary assets into the partnership to create competitive advantage. Partners are from successive stages from the supply chain and possess skills or resources that the other does not have. They create competitive advantage by joining these skills and resources. Communication and its underlying variables of relational embeddedness and human interaction are important to maintain the trustworthy relationship. Through trust and commitment collaboration and information is open and easily exchanged. Although partners operate independently to a great extent some form of joint partnership management is required to facilitate the partnership operations. Therefore partners openly discuss operational and strategic issues that affect the partnership. Those issues are agreed upon jointly to ensure that partnership operations contribute most effectively and efficiently to the partnership objective. Conclusion Within this partnership there are three dominant factors that have contributed to its success; trust; strategic fit; and communication.

56 The trustworthy relationship between partners positively influenced the decision to cooperate. Due to trust the partnership requires little formal mechanism and governance structures to control for opportunism. Trust is enhanced by the frequent communication and human interaction between partners. In combination with information exchange it also reduces the problem of bounded rationality which enables partners to make well informed decisions that benefit the partnership and themselves. The strategic fit refers to both establishing as well as operating the partnership. Initially partners identify their common grounds of SFM and FSC certification. It is a basis for developing a trustworthy relationship and commitment to cooperate. In addition, with the operational plan the competitive advantage of the partnership is identified. The operational plan and trust are the main influencing factors for establishing the partnership. At the same time this plan is the cooperative strategy for operating the partnership. It is for each partner clear what its task is. Another important underlying variable of strategic fit for operational success are the complementary assets that each partners brings into the partnership. Partners need each other s resources and skills to create competitive advantage. In increases the commitment of partners to collaborate and make the partnership into a success. 4.3 Case Analysis Partnership C Partnership C, shown in Figure 20, includes three partners that cooperate to obtain 3 rd party legality verification and certification (legality certification). Company B has no experience with SFM or FSC certification. To implement this is often difficult because it requires a many changes in the organization and activities of the company. Legality certification is considered to be an important step in getting towards SFM and FSC certification. Implement legality certification requires less effort and investments than FSC certification. However, it is an important requirement of FSC certification. Companies that have implemented legality certification are one step away from FSC certification. Figure 20 Partnership A

57 Company A is an international group that includes firms in forestry, production of timber products and trade. It is experienced in SFM, legality certification and various other sustainability certifications such as PEFC and FSC. Company A has firms located in several continents, including Africa where it has forest concessions and production facilities. These African based firms not only source from their own concessions, they also source from local suppliers such as Company B. Company A supplies the EU market and has a reputation of supplying sustainably produce product of high quality. In order to prevent any harm to its reputation, Company A want its suppliers to supply at least legally produced timber. Company B is an African based and locally owned timber supplier of Company A. It has its own concession and sawmill. Company B has no experience in SFM, legality or FSC certification. It is not only a supplier of Company A but also a supplier of the local market. The local market does not demand for legality or sustainably produced timer. It is therefore easier to supply the local market because it requires less investments and effort to comply with requirement for legality certification. However, the local market also pays less than the export market. At this moment Company A and Company B share a buyer-supplier relationship. Organization C is a nonprofit organization that provides technical support and advice to Company B about the implementation of legality certification. Organization C is part of an EU program that covers a majority of the costs for the support of Company B. The remaining costs have to be paid by Company B. Partnership description The objective of this partnership is to implement legality certification at Company B to reduce the risk of supplying illegally produced timber to Company A. In order to achieve this objective Company A requested the assistance of Organization C to support Company B with the implementation legality certification. Besides encouraging and convincing Company B of the necessity of implementing legality certification, there is no direct support of Company A to the implementation activities. Instead it coordinates the partnership activities by facilitating communication between Company B and Organization C. Company A does not want to invest in implementation of legality certification or FSC certification at Company B. The buyer-supplier relationship between them provides is risky because it provides them with too little control over the implementation process. Company A would also not have the ability ensure compliance of Company B with the requirement of legality or FSC certification. It would also be difficult for Company A to earning back on the investment. The market is currently not paying extra for legally produced timber. It is possible to sell FSC certified timber for a premium

58 but it takes a long time to earn back on investment. If Company A has no control over the partnership the risk for opportunistic behaviour is too high. Company B could sell to the buyer that pays highest price. If Company A has to compete with other buyers it cannot earn back the investment. Company A indicated that the risk can be reduces when it takes a financial share in Company B. It allows them to have control over the partnership, compliance with requirement of legality or FSC certification and reduce the risk of opportunistic behaviour. According to Company A the partnership does not meet its expectation. It scored three on a sevenpoint Likert-scale. This partnership is therefore considered unsuccessful. Legality certification has not been implemented yet at Company B. Establishing the partnership Figure 21 shows the extent in which KSF s from the theoretical framework are considered important by Company A in establishing the partnership. This partnership does not consist of a close cooperation or deeply shared common interests that bond the partners. Although partners share a partnership they have little commitment to make the partnership a success in comparison to the partnership cases described in this research. Figure 21 Importance of key factors for establishing Partnership C None of the steps in Figure 21 is scored as important. The partnership developed from the buyersupplier relationship that Company A and Company B shared. They were not brought together for the purpose of this partnership to obtain legality certification. Company A or Company B not specifically selected each other on the basis of making the partnership a success. In the other partnership cases described in this research the partners did not share a business relationship. They selected each other specifically for the purpose of cooperating to achieve a certain objective. For these partners it is important to identify the appropriate partner.

59 Company A has an informal gentlemen s agreement with the other partners. It has requested the assistance of Organization C to support Company B. Company A convinced and encourages Company B to implement legality certification. Company B and Organization C share also share their own cooperation agreement, i.e. a Memorandum of Understanding. Both partners sign this agreement but it is not legally binding. It rather underlines the importance and commitment to cooperate. It depends upon Company B whether the partnership is successful and the objective is reached. Organization C is merely a service provider to Company B. Governing the partnership This partnership includes little governance activities because there is little cooperation or joint activities. There is little commitment that bounds Company A to its other partners besides the buyersupplier relationship with Company B. The gentlemen agreement between Company B and Organization C is rather based upon a service provided by Organization C to Company B than a close cooperation with joint action and decision making. Because there is little commitment, joint activities, close cooperation or dependency between the partners there is little risk of opportunistic behaviour. It reduces the need to govern the partnership. Operating the partnership Figure 22 show to what extent Company A has indicated which of the key factors and underlying variables are considered to be important in operating the partnership. However, Company A indicated that the partnership does not meet its expectation and therefore cannot be classified as successful. This is reflected by its scores in Figure 22. Because there is practically no cooperation between Company A and the other partners there is little possibilities to influence the implementation of legality certification. It mainly requires the commitment of the partners themselves to make the partnership a success. Although Company B is willing to obtain legality certification it is also sceptical about having to comply with all the requirements and investments. When it sells to the local market it does not have to comply with these requirements. It is difficult for Company B to comply with the requirements because the means are often not present, i.e. funding, qualified personnel, knowledge, etc. It slows down the implementation process. In order to stimulate implementation, Company A communicates the necessity of implementing legality certification towards Company B. The companies share a closer relationship than Company B and Organization C have. It is often difficult for Organisation C to communicate with Company B due to its scepticism towards certification. It is therefore of importance that Company A has the role of communicator and coordinator.

60 Figure 22 Importance of key factors and underlying variables for operating Partnership C Conclusion In contrast to the other partnerships described, this partnership is indicated to be of little success. Because the partnership developed from a buyer-supplier relationship the partners did not select each other on the basis of common grounds and overlapping interests. It is mainly within the interests of Company A to obtain legality certification for Company B. However, Company B is sceptical about the legality certification. There is mismatch on interests and the partners have little means to motivate each other and commit to a common objective. Partners operate highly independently and share not complementary assets to create competitive advantage. The partnership rather consists of autonomous partners. Partnership activities merely consists of a service provide by the Organization C to Company B. Company A does has little involvement in the partnership other than encouraging and convincing Company B to implement legality certification and coordinate and communicate between Company B and Organization C. Because there is little cooperation, the partnership requires little governance. Partners are not bounded to each other through an agreement and there is low risk for the partners if the partnership does not work out. Therefore the necessity to make it into a success is not high. Key factors that contribute to the progress of this partnership are commitment, human interaction and trust between partners.

61 4.4 Case Analysis Partnership D Partnership D, shown in Figure 23, includes two companies located in Africa. Company B recently became affiliated to Company A under the same holding. The partnership allowed Company B become FSC certified. Full ownership EU based holding Majority share Company A - Afrca based -FSC certified and well experience with SFM -Employs former Company B employers Control of administation and procedures/protocols Company B - Africa based -Recently became affiliated to EU based holding and FSC certified -Employs former Company A employers Figure 23 Partnership D Company A is an African bases firm that has its own FSC certified forest concession and sawmill. Company A is established and fully owned by its European holding. It is experienced with SFM and FSC certification and used it to implement SFM and FSC certification at Company B. Company A now acts as controller Company B s compliance with the requirements of FSC certification. Company B is an African based firm that acquired a large FSC certified concession and sawmill with the help of Company A. Before Company B sold a majority share to the European holding of Company A, it was a locally owned and medium sized logging company of small forest areas. Company B had not experience with SFM, legality certification or FSC certification. Partnership description The objective of the partnership for Company A is to warrant the provisions of timber resources of Company B on the long term. This guarantee and control of the resources is a necessity for Company A to invest in SFM and FSC certification at Company B and make it economically viable. This partnership analysis will go into more details on the why and how this partnership is established. It provides an example of how a supply chain partnership can contribute to SFM and FSC certification. Before current partnership was established, Company A owned a sawmill that required an increased supply of logs to operate efficiently. The sawmill is located near a forest area that would be converted to a public forest concession a few years ago. Company A wanted to use this forest concession to supply its sawmill. However, only locally owned companies, such as Company B at that time, could

62 sign up for the concession. Company B would like to sign up for the concession but it did not have the resources or knowledge to undertake such a large forest concession. Company A and Company B decided to cooperate to achieve both their individual goals. They signed a commercial contract that required Company B to supply the sawmill of Company A. In return, Company A supported Company B to obtain the forest concession and have personnel working at the concession to support forestry activities and implement legality certification. The commercial contract only covered a few years and was therefore insufficient to secure the supply of logs for an extended period of time. When the contract ends Company B could decide not to renew the contract but sell to others for higher prices. If Company A would have to compete with other buyers it would not be able to earn back on the investments and secure the supply of logs. Company A, its European holding and Company B jointly decided that the holding would take a majority share in Company B. The benefits for Company A are the secure supply of logs. Because of the majority share Company A has control over the forest resources and compliance of Company B with legality certification. It also enabled them to invest in SFM and FSC certification at Company B. Company B benefited from the partnership because it secured the continuation of its business. The owner of Company B is an old man that could not find someone to continue the business after he retires. In addition current partnership made it possible to develop the business, exchange knowledge on SFM and FSC certification and access the export market. Company A indicated the partnership meets its expectation and they have achieve their objective of warranting the provisions of the timber resources of Company B for an extended period. Company A scored six on a seven point Likert-scale that measures the extent in which the partnership meets its expectation. This partnership can therefore be classified as a successful. Establishing the partnership Figure 24 shows which KSF s from the theoretical framework are considered important by Company A in establishing the partnership with Company B. It is important to analyse strategic fit to identify the competitive advantage of the partnership. The analysis is also important for checking the history of Company B to be sure it cannot be associated with controversial activities or persons. If that would have been the case than it could harm the reputation of Company A, it s holding and affiliated companies.

63 Figure 24 Importance of key factors for establishing Partnership D It is important that the project, its scope and contribution of partners is determined when establishing a partnership. When it is clear for what is expected of the partners and how the cooperation is organized the partnership is able to operate efficient and effectively. It reduces the risk of misalignment between operations. In present partnership the sawmill of Company A is included in the business operation of Company B. This allows both companies to operate highly independently because each as its own concession and sawmill. There is no need for extensive cooperation and coordination to arrange log supply of Company B to the former sawmill of Company A. Also the employers of Company A that where working in the concession of Company B became employers of Company B. It reduced the complexity of sharing personnel and coordinate joint activities. By creating to independent companies is reduced the complexity in coordination, decision making and control. It explains the importance of determining governance structure when establishing the partnership. Partnership governance Because both companies belong to the same holding and operate independent, a decentralized governance form is justified by the little cooperation and joint activities. There is no need for control of opportunistic behaviour because both companies belong to the same holding and share a trustworthy relationship. However, some control of Company A at Company B is required. Company B it is unfamiliar with FSC certification. Therefore Company A support and regularly checks Company B s compliance with the requirement of FSC certification and the protocols and procedures of the holding. This control is characterized as a service of a third party. Control includes checking up on administration and monitoring of field activities to ensure they are not violating any legal or company regulations.

64 Both companies make operational decision by themselves. When the partnership was established the partners were organized in a way that allowed them to operate independently. When strategic decisions have to be made they are openly discussed and jointly agreed upon. Operating the partnership Figure 25 show to what extent Company A indicated which of the key factors and underlying variables from the theoretical framework are considered to be important in operating the partnership and contribute to its success. These key factors are commitment, trust, and collaboration. Figure 25 Importance of key factors and underlying variables for operating Partnership D The structure of the partnership is designed in such a way that it allows partners to operate independently from each other. Therefore little need for strategic fit, interdependency or operational compatibility is required. Communication, in particular human interaction is scored important. It creates a trustworthy relationship and enables tacit and explicit knowledge exchange about SFM and FSC certification. Collaboration and information exchange is needed to control for compliance of Company B s with the requirement for FSC certification and the policies and procedures of the holding. The regular administrative and forest activities reduces the risk of non-compliance and losing its FSC certification.

65 Commitment is an important factor for operating the partnership and enables the partners to implement SFM and FSC certification more easily. Commitment of the companies to the partnership and each other is enhanced by the human interaction between the two. When the companies became affiliated employees of both companies where exchanged. Employees of Company A became employees of Company B and vice versa. Due to the integration of employees, knowledge and experience was easily exchanged. Conclusion To make the partnership a success in terms of SFM and FSC certification Company A needed to warrant the provision of timber resources of Company B for an extended period of time. Therefore the holding of Company A took a majority share in Company B. It gave Company A the control and security they needed to invest in FSC certification and earn back on investment. It reduces the risks of opportunistic behaviour or non-compliance with the requirement of FSC certification by Company B. The commercial contract that Company A and Company B shared before the partnership was insufficient to cover these risks. The exchange of knowledge and resources of Company A with Company B through cross sharing of personnel is important to the implementation of SFM and FSC certification. Also the simple organization and governance of the partnership is of important to its success. Partners operate independently and there is little cooperation or joint action that complicates decision making or control for opportunistic behaviour. The experienced Company A acts as a controller and regularly checks the inexperienced Company B for compliance of SFM and FSC certification. The trustworthy relationship created by the human interaction between the companies, the commitment to make to partnership a success in terms of SFM and FSC certification and collaboration between of the partners contributed to the success of the partnership. 4.5 Results & Adjusted Framework The results from the case analyses are discussed and compared in this section. They indicate which factors and underlying variables from the theoretical framework are important and contribute to the success of the partnerships. The results are used to adjust the theoretical framework in order to reflect the characteristics of the partnerships from the tropical timber supply chain. In this research four respondents, one from each partnership, have scored the importance of key factors and their underlying variables for establishing and operating their partnerships. Here below the factors and variables that are scores with some variation are presented and discussed. An overview of all the scores on these factors and their variables is provided in Appendix 7.

66 First a brief overview of the four partnerships is provided in Table 3. Following, the research results are presented in the structure of the theoretical framework; a) establishing the partnership; b) partnership governance; and c) operating the partnership. Based on the results the adjusted theoretical framework constructed and presented. Table 3 Overview of partnership cases Partnership characteristics Partners Objectives Activities KSF s for operating the partnership Success of the partnership Partnership A Partnership B Partnership C Partnership D Company A: Amazon based and FSC certified forestry company. Company B: Amazon based forestry and timber processing company. Company A learns about processing of local tree species and institutions. Company B obtain FSC certification. 5 years contract for processing of logs from Company A at the sawmill of Company B. Company A advices Company B in SFM and obtaining FSC certification Strategic fit; interdependency; commitment; trust; collaboration. Company A: European based and FSC certified trading company. Company B: Amazon based forestry and timber processor. Company C: Amazon based timber processing company. Produce and supply of FSC certified timber products. Company A provides working capital and is preferred buyer of Company B. Company C processes and stores timber before sending it to Company A. FSC certification is the objective but not part of the cooperation. It is left to companies themselves Strategic fit; interdependency; communication; commitment; trust; collaboration. Company A: African based and part of European based group. Company B: African based and locally owned in forestry and timber processing. Organization C: support company B with implementing legality certification. 3 rd party legality verification and certification of Company B. Company A facilitates communication and encourages Company B to implement legality certification. Company B cooperates with the Organization C to implementation legality certification. Strategic fit; commitment; interdependency; communication; trust; collaboration. Company A: African based by European owned in forestry and timber processing it is FSC certified. Company B: African based and recently the holding of Company A took a majority share. It recently was FSC certified. Assure the provision of timber resources on long term and to make the certification process economically viable. Company A is controller of Company B to make sure it complies with internal procedures and protocols and complies with requirements of FSC certification. Communication; commitment; collaboration; trust. Successful Successful Unsuccessful Successful Establishing the partnership partnership types Two types of partnership have been identified in the analysis of the four partnership; the privateprivate partnership used by partnerships A, B and D; and the private-nonprofit partnership used by company C.

67 The private-private partnerships are established, governed and operated without the involvement of other organizations such as nonprofit or public organizations. However, these organizations often contribute to the partnership by providing support or influencing the decision to establish the partnership. But they are not part of the partnership itself. The main reason for partners to establish the partnership is to create competitive advantage. They do so by bringing in complementary assets. This often relates to funding of capital and knowledge of SFM and FSC certification by one partner while the other partners supplies the critical resource, the forest or timber. The partnerships are based upon a common interests that relates to SFM and FSC certification. It creates a trustworthy relationship and commitment to the partnership. All three private-private partnership are classified as successful. The private-nonprofit partnership identified at partnership C is initiated by private partners. The aim of the partnership is to create competitive advantage by implementing legality certification at the supplier. This reduces the risk of trading illegally produced timber and harming reputation of the buyer that supplies the markets in the EU. The private partners included a nonprofit organization in the partnership. The aim of this organization is to address the problem of institutional failure. The nonprofit organization is part of an EU program that aims to reduce the trade in illegally produced timber from tropical producing countries to the EU market. Unlike the private-private partnership cases, this private-nonprofit partnership is classified as unsuccessful because it did not meet the expectation of the respondent. Establishing the partnership - KSF s for establishing the partnership The theoretical framework provides six KSF s for establishing partnerships. They are presented in Table 4 together with their related statements. The respondents scored importance of the statements that relate to these six KSF s. The scores are presented in Figure 26. Table 4 KSF s from the theoretical framework KSF s Statement in Figure 26 Analysing strategic fit between partners a and b Analysing cultural fit between partners c Identify goal congruence d and e Identify the primary joint project, its scope and contribution of each partner f and g Agree on termination formula h Agree on governance structure of the partnership i and j

68 Figure 26 Importance of KSF related statements for establishing partnerships Figure 26 shows that private-private partnerships A, B and D score all statements more or less the same. They indicate that the statements are also of more or less importance in establishing their partnerships. The private-nonprofit partnership C deviates from the private-private partnerships. It scored the statements much lower. The KSF s of the theoretical framework for establishing partnerships are of lesser importance to partnership C. The private-private partnerships (A, B and D) have specifically selected appropriate partners and defined their partnerships for the purpose of reaching their objectives. It explains why the respondents of these partnerships have scored the statements in Figure 26 important. The privatenonprofit partnership on the other hand is established between partners who already shared a buyersupplier relationship. They have added the nonprofit partner to establish the partnership. The private partners did not select each other specifically for the purpose achieving the specific partnership objective such as the private-private partnership cases. It explains why the respondent of this partnership scored the statements in Figure 26 as less important. The private-nonprofit Partnership C is classified as not successful and indicated that the establishing process is of little importance. While partnerships A, B and D are successful and indicated that the establishing process is important. Therefore the scores of partnership A, B and D are used to identify the KSF s for establishing and operating the partnership and for adjust the theoretical framework. Respondents of partnership A, B and D have scored the statements d, e and h less important in relation to the other statements (Figure 26). Their related KSF s; identify goal congruence and agree

69 on termination formula are of little importance and removed from the adjusted theoretical framework. Analysing strategic fit (statement a and b) and cultural fit (statement c) are important to identify the competitive advantage the partnership and the common interests that relates to the objective of the partnership, i.e. SFM and FSC certification. Both KSF s positively influence the partners to establish the partnerships. Identify the primary joint project, its scope (statement f) and contribution of each partner (statement g) is important in establishing the partnership. The case studies of the successful partnerships indicate that a detailed production plan is the basis for establishing the partnership and used to specify upon the competitive advantage of partnerships. Although respondents have scored statement g less important, the case analyses shows that determining the partnership activities and contribution of each partner is important. Therefore the KSF primary joint project, its scope and contribution of each partner (statement f and g) is included in the adjusted theoretical framework. Determining the governance structure (statement i and j) is important in establishing a well-organized partnership. It should be clear for each partner what its obligations and responsibilities to avoid misalignment of partnership activities or decisions that are taken. Conclusion establishing the partnership Based upon these results presented above and the case analysis the first stage of the original theoretical framework (Figure 13, section 2.6) is adjusted to better reflect the characteristics of partnerships in the tropical timber supply chain. This adjusted first stage is shown in Figure 27. Figure 27 First stage of the adjusted theoretical framework stages From the original theoretical framework the private-public partnerships and tripartite partnerships have been removed. They have not been identified with the four partnerships in this research. In

70 addition the private-nonprofit partnership that is identified at Partnership C rather addresses problems of institutional failure instead of social issues. Figure 27 shows that the six KSF s for establishing partnerships have be reduced to four. Identify goal congruence and agree on termination formula are removed. They are of little importance in establishing partnerships in the tropical timber supply chain. The remaining four KSF s that are of importance are; analyse strategic fit; analysing cultural fit; identify primary joint project, its scope and contribution of each partner; and agree on governance structure. Partnership governance Table 5 shows the six key variables from the theoretical framework that can be used to support partners in determining the appropriate governance form for their partnerships. The appropriate governance form in this research is one that enables a partnership to achieve its objectives in the most efficient and effective way. Each partnership has its own specific governance from that is most appropriate. They range from centralized to decentralized and from formal to informal. Table 5 Key variables from the theoretical framework Key variables Statement in Figure 28 coordination of activities a decisions making complexity b trust c goal consensus d need for network-level competencies e and f number of participants Not included In general a centralized governance forms, which are often formal, is appropriate if there is a need to coordinate the partnership activities; decision making is complex; there are many participants; there is a need for network-level competencies; and there is a low level of trust and goal consensus among partners. The opposite is true for a decentralized governance forms, they are often informal. Figure 28 shows the extent in which the six key variables are present at the four partnerships. The scores are compared with the governance forms of the partnership cases, shown in Figure 29. The partnership governance forms are indicated by the extent in which strategic decision are taken, i.e. centralized or decentralized measured on a scale of one to five. The scores from Figure 28 and Figure 29 are compared to determine if the governance forms are in line with the extent to which the key variables are present at these partnerships.

71 Figure 28 Extent in which key variables for determining governance form apply to partnership cases Figure 29 Extent which strategic decisions are taken. Figure 29 shows that all partnerships take strategic decisions more or less centralized. However, it is not possible to only take this score as indication for the governance form. The case analyses showed that the partnerships have a more decentralized and informal governance form. The partners jointly discuss and agree upon strategic decisions. The decentralized governance forms are in line with the scores provided in Figure 28. There is a medium to high level of trust between the partners that control for opportunistic behaviour. Partnerships A and D indicate there is little need for partnership coordination. There is high level of goal consensus and partners cooperate to achieve the same goals. Therefore less coordination is needed to control for cooperation of each partner to achieve the partnership objectives. A decentralized governance and informal form is appropriate for the partnerships.

72 Conclusion partnership governance The key variables (Figure 13, section 2.6) are provided in this research with the intention to build a complete framework for establishing, governing and operating supply chain partnerships. They are not provided with the intention to test them and adjust the key variables to better reflect the characteristics of the partnership in the tropical timber supply chain. Therefore the second stage of the adjusted framework (Figure 30) remains unchanged compared to the original theoretical framework (Figure 13, section 2.6) Figure 30 Second stage of the adjusted theoretical framework The key variables can be used to determine the appropriate governance form. An appropriate governance form enables the partnership to achieve its goal most efficiently and effectively. This research has identified that the partnerships studied in this research have decentralized and informal governance forms. Operating the partnership The analysis of the individual partnership in this chapter showed that there is a discrepancy between the KSF s of the theoretical framework and their importance for operating the partnerships. Respondents of the partnerships scored the KSF s and their variables on their contribution to the success of the partnership. Based upon these scores and the case analyses the theoretical framework is adjusted. The KSF s from the original theoretical framework (Figure 13, section 2.6) are; strategic fit; interdependency; operational compatibility; communication; commitment; trust; and collaboration. Each key factor is influenced by one or more underlying variable. Below each KSF is discussed.

73 Strategic fit Figure 31 shows how the respondents have scored the underlying variables of strategic fit. Figure 31 The extent to which underlying variables of KSF strategic fit contribute to the success of the partnership Figure 31 shows a deviation between the scores of underlying variable a and the other underlying variables of strategic fit which have been scored reasonably high. Variable a is scored lower because partners that cooperate do so to reach their own goals as well as the mutual goal. It is therefore not necessary to have overlapping interests in the field of cooperation. In partnership B for instance the interests of Company A is to secure future supply of FSC certified timber. However, the interest of Company B is to secure cash flow for its operations. Bother partners have different interests but cooperate to obtain their goals. Underlying variable a is removed from the adjusted theoretical framework. The other underlying variables are indicated to be important. Therefore strategic fit is considered a key factor that contributes to the success of the partnership. Interdependency The underlying variables of interdependency; joint partnership management and tacit and explicit rules have been scored as important contributors to the success of the partnerships (Figure 44 in Appendix 7). The importances of these underlying variables comply with the observed decentralized governance forms of the partnerships. Partners jointly agree and discuss strategic and operational issues that affect the partnership. Tacit and explicit rules reduce the risks of opportunistic behaviour and increase efficiency and effectively of the partnership in achieving its goals. Interdependency from the theoretical framework is therefore considered to be a key factor that contributes to the success of the partnership.

74 Operational compatibility Figure 32 shows that the respondents have scored the underlying variables of operational compatibility overall as less important contributors to the success of the partnerships. It is therefore removed from the adjusted theoretical framework. Figure 32 The extent to which underlying variables of KSF operational compatibility contribute to the success of the partnership However, Figure 32 and the analysis of the partnership cases indicate that underlying variable d is important in contributing to the success of the partnerships. The partnerships in this research consist of partners from different locations or company cultures. It is therefore important to understand and be aware of cultural differences. It reduces the risk of misunderstanding and misalignment between the cooperating partners. Because KSF of operational compatibility is removed, variable d is added as underlying variables of KSF communication which is discussed below.

75 Communication Figure 33 shows some underlying variables of KSF communication are important but some are also considered to be unimportant. Figure 33 The extent to which underlying variables of KSF communication contribute to the success of the partnership The scores on variables d and e indicate they do not contribute to the success of the partnerships analysed in this research. The partnerships consist of two or three partners and have simple operational schemes where partner operate independently. In combination with the trustworthy relationships between partners it enables partners to communication easily. It reduces the need for reduces a communication strategy plan (statement d) or a conflict management plan (statement e). These variables are removed from the adjusted theoretical framework. Underlying variables a, b, c and f are indicated to be important. These variables are not mutually exclusive but interact and affect each other. The trustworthy relationship (statement b) is important and strengthened by human interactions (statement c). It enhances sharing of formal and informal information (statement a) which leads to better decision making and reduces (statement f) the problems of bounded rationality and opportunistic. KSF communication is therefore considered to be an important contributor to the success of the partnerships. Commitment, Trust and Collaboration The respondents have indicates that the KSF s commitment, trust and collaboration and their underlying variables; fulfilling partner s need; reduced uncertainty; and information exchange respectively are important contributors to the success of the partnerships (Figure 47, Figure 48 and Figure 49 in Appendix 7). Therefore these KSF s and their underlying variables are added to the adjusted theoretical framework.

76 The partnerships operate in an open market of basic commodities where prices are known to everyone. It is relatively easy for partners to identify other buyers and suppliers outside the partnership that can offer better deals. It is therefore important that partnership partners are committed to make the partnership a success and not act opportunistically. The same holds for KSF trust. Trust between partners enables them to cooperate and communicate easily and reduces the risks of opportunistic behaviour. Trust and commitment positively influence the collaboration and information exchanged to make which are needed for making the partnership into a success. The three successful partnership cases A, B and D that have been described in this research have a trustworthy relationship and partners are committed of making the partnership a success. There is frequent communication and human interaction that supports and strengthens the trustworthy relationships. Through collaboration and information exchange the partners are able to make well informed decisions that contribute to the success of the partnership. On the contrary, the unsuccessful partnership C consists of partners that have a less trustworthy relationship. They operate highly independent and there is little collaboration and commitment. Commitment is the scarifies of resources and effort in order to achieve the partnership objective. However, the partners have little intention to sacrifices resources or take risks in order to fulfil each other s need and achieve the partnership objective, i.e. provide findings or put effort in exchanging knowledge or support to enable the implementation of legality certification. Conclusion operating the partnership Based upon the results of this research the theoretical framework is adjusted to better reflect key factors that influence the successful operation of partnership in the tropical timber supply chain. Figure 34 shows the third and final stage of the adjusted theoretical framework. Figure 34 Third stage of the adjusted theoretical framework

77 The adjusted third stage of the theoretical framework shows that the KSF operational compatibility and its underlying variables have been removed, except for understanding cultural differences. This KSF and underlying variables are of little importance for operating successful partnership. The underlying variable understanding cultural differences is important because many partnership consist of partners from different regions with different backgrounds. Therefore this underlying variable is moved to the KSF communication. It replaces the underlying variables communication strategies and conflict management that are removed. The remaining KSF s and their underlying variables are of importance in operating partnerships in the tropical timber supply chain. These KSF s are strategic fit, interdependency and communication. They positively influence KSF s commitment and trust. Commitment and trust positively influence KSF collaboration that eventually positively influences partnership performance and success in terms of meeting the expectations of the partners. Adjusted theoretical framework The three adjusted stages from the theoretical framework that are presented above (Figure 27, 30 and 34) are combined to answer the research question posed at the beginning of this chapter: What adjustments need be made to the theoretical framework to reflect the particular characteristics of partnerships from the tropical timber supply chain? The adjusted theoretical framework is shown in Figure 35. The initial theoretical framework (Figure 13, section 2.6) is constructed from a literature review. In literature, the research is mainly based upon supply chain partnership from high-tech sectors such as the automotive and pharmaceutical sector. In these industries learning and flexibility are important features to create competitive advantage (Hagendoorn, 2001). The analysis of the partnerships studied in this research show there is a discrepancy between the theoretical framework and the partnerships form the tropical timber supply chain. Based on the results and case analyses the theoretical framework is adjusted. The adjusted framework reflects the characteristics of the partnerships in the tropical timber supply chain that contributed to SFM, legality and FSC certification.

78 Figure 35 Adjusted theoretical framework. Decide Two types of partnership have been identified in this research; private-private and private-nonprofit partnership. They address issues of market efficiency and institutional failure respectively. The market efficiency relates to sourcing of raw material and access to resources to support implementation of SFM, legality and FSC certification. The institutional failure includes the insufficient forestry governance by public authorities and private actors and results in deforestation, forest degradation and illegal logging.

79 In comparison to the original theoretical framework the KSF s to establish a partnership have been reduce from six to four KSF s. They reflect the characteristics of the partnership cases from the research. The remaining KSF s are; a) analysing strategic fit; b) analysing cultural fit; c) identifying the primary project, it scope and contribution of the partners; and d) determining the governance structure. The two KSF s that are removed because they have little or no appliance to the partnership are; setting a termination formula; and identifying goal congruence. Prepare The prepare stage of this adjusted theoretical framework is not adapted. The six key variables that determine the appropriate governance form are not specific to a particular sector. They are applicable to all types of partnerships. They can be used in determining the appropriate governance form that enables partners to achieve their goals most efficiently and effectively. The six key variables are; a) coordination of activities; b) complexity of decision making; c) number of participants; d) need for network-level competencies; e) trust; and f) goal consensus. Governance forms range from centralized to decentralized and from formal to informal. The predominant governance form of the partnerships analysed in this research are decentralized and informal. The main factors that determine this governance form is the trustworthy relationships between partners and the limited amount of partners that participate in the partnership. Operate The case analysis and research results show a discrepancy between the KSF s and underlying variables of the original theoretical framework (Figure 13, section 2.6) and those of the partnerships analysed in this research. In order to reflect the characteristics of partnerships from the tropical timber supply chain the KSF operational compatibility and its underlying variables are removed. They have contribution to the success of the partnerships. Also some underlying variables of the KSF s strategic fit and communication have been removed. The remaining KSF s that are applicable to the partnership are; a) strategic fit; b) interdependency; c) communication; d) commitment; e) trust; and f) collaboration.

80 5 Conclusion The objective of this research is to advice supply chain actors on establishing, governing and operating successful supply chain partnerships that contribute direct or indirect to the SFM and FSC certification of tropical forests. To fulfil this objective a theoretical framework is constructed from literature. This framework includes KSF s for establishing and operating and key variables for governing supply chain partnerships. The theoretical framework is used to analyse four partnership cases from the tropical timber supply chain. Based upon the case analysis and research results the theoretical framework is adjusted to reflect the characteristics of the partnerships in the tropical timbers supply chain. The adjusted framework can be used to support and advice potential partners and existing partnership on establishing, governing and operating successful partnerships. Success is achieved when the outcome of the partnership meets the expectations of its partners. The central question of this research is: Which key success factors (KSF s) for establishing and operating can be identified at supply chain partnerships that directly or indirectly contribute to FSC certification of tropical forests and which key variables for determining the governance form for partnerships can be identified from literature? The research has shown that supply chain partnerships can be a powerful tool to diffuse and implement SFM and FSC certification in the tropical timber sector. When partners cooperate they benefit from each other s resources and capabilities and make it easier to implement SFM and FSC certification. In order to create such successful partnerships several KSF s for establishing and operating partnerships and key variables for its governing form are identified in this research. These KSF s and key variables are discussed here below. Establishing a partnership From the case studies of the partnerships four KSF s have been identified for establishing a partnership in the tropical timber supply chain. These four KSF s are; a) analyse strategic fit; b) analyse cultural fit; c) identify the primary joint project, its scope and contribution of the partners; and d) determine the governance structure. Analysing strategic fit is a KSF for establishing the partnership and relates to competitive advantage. Partners to analyse each other in order to identify if there is a potential for competitive advantage when they join forces and resources. Partners from partnership in the tropical timber supply chain create competitive advantage by bringing in complementary assets. Often these complementary assets relate to capital and knowledge of SFM and FSC certification that is provided by the larger

81 (international) partner. While the other (local) partner provides access to critical raw materials, i.e. (FSC certified) timber and logs. Besides competitive advantage, the analysis of the strategic fit also relates to the background check of potential partners. Partners cannot be associated with controversial activities or persons. Otherwise it could damage the reputation to the other partners of the partnership. Especially for companies exporting to developing countries a reputational damage negatively affects business. When the analysis of strategic fit shown there is a potential to achieve competitive advantage it positively influence the decision to establish a partnership. Analysing cultural fit is a KSF for establishing a partnership in the tropical timber supply chain. It relates to the congruence between values, beliefs, attitudes and behaviour. The research shows that partners that share interests in SFM and responsible timber production are more likely to establish successful partnerships that contribute to the implementation of SFM and FSC certification. Cultural fit positively influence the decision to establish a partnership. It creates a basis for cooperation and positively influences trust and commitment between partners to achieve SFM and FSC certification. After strategic and cultural fit are analysed and partners identified a basis for cooperation the next, partner identify the primary joint project, its scope and contribution of each partner. This is a KSF for establishing partnerships in the tropical timber supply chain. It relates to a detailed operational or production plan. This plan enables partners to identify the specific responsibilities and benefits that follow from partnerships. A detailed plan reduces the uncertainty about the outcome of the cooperation and increase the trust in creating a successful partnership. The KSF of identifying the primary joint project, its scope and contribution of each partners positively influence the decision to establish a partnership. Determining the governance structure is identified as a KSF for establishing partnership in the tropical timber supply chain. A governance structure enables the partnerships to effectively and efficiently obtain objectives. It increases the trust partners have in partnership and the likeliness of creating successful partnerships. The governance structure makes it clear for each partner what its obligations and responsibilities of are of each partner. It avoids misalignment of partnership activities or decisions that are taken. This is important because partners often work highly independently from each other. Even if the partnership has a simple operational scheme and the partners share a trustworthy relationship, there is some level of coordination and control required to facilitate the cooperation. Governing the partnership As mentioned above it is important that partners determine the appropriate governance structure. An appropriate governance structure is one that enables the partnership to achieve its goals most

82 effectively and efficiently. Six key variables have been identified from literature that can be used to determine the appropriate governance form; a) coordination of activities; b) complexity of decision making; c) number of participants; d) need for network-level competencies; e) trust and; f) goal consensus. The appropriate governance form depends on the extent and combination in which these key variables are present. Each type of partnership has its own appropriate governance form which ranges from centralized to decentralized and from formal to informal. The partnerships analysed in this research have adopted decentralized and informal governance forms. These partnerships consist of only two or three partners that share a trustworthy relationship. It reduces the need for centralized governance from. Because the partnerships have simple operational schemes and operate highly independently there is simple decision making process and or little need for network-level competencies. This reduces the need for a centralized governance form to coordinate the partnership activities. The trustworthy relationship between the partners reduces the risk of opportunistic behaviour and therefore less formal control and centralized governance forms are required.. Operating the partnership This research has identified six KSF s and their underlying variables for operating partnership in the tropical timber supply chain. These KSF s are; a) strategic fit; b) interdependency; c) communication; d) trust; e) commitment; and f) collaboration. The KSF s; strategic fit, interdependency and communication positively influence trust and commitment. Trust and commitment positively influence the collaboration between partners and collaboration positively influences the performance and success of the partnership (Ryu et al., 2009). KSF s of establishing and operating partnerships closely relate to each other, such as strategic fit. The KSF s strategic fit from both stages are not mutually exclusive but interact and overlap each other. When the partnership is established it is important to analyse strategic fit and identify the potential for a successful cooperation. However, when partners have established the partnership and start to cooperate, the KSF strategic fit needs to be present. Variables that underlie the KSF s strategic fit for operating the partnership are; a) cooperative strategy; b) complementary assets; c) goal congruity; d) synergy. These variables enhances trust and between partners and commitment to the partnership. Partnerships that cooperate in the field of SFM and FSC certification are supported by a cooperative strategy, i.e. the production or operational plan. The likeliness of creating successful cooperation is increased. The dependency of the partners created by the complementary assets increases the necessity to cooperate and reduce the risk of opportunistic behaviour. The complementary assets

83 often relate to supply of capital and knowledge about SFM and FSC certification from one partner to the other and in return critical raw material (FSC certified timber) is supplied. The KSF Interdependency of partnerships in the tropical timber supply chain relates to how they are operated. Its underlying variables are; a) joint management and decision making; and b) tacit and explicit rules. The research shows that the partnerships have simple operational schemes and operate highly independently with little joint activities and no complex decision making processes. However, it is important for partners to have some degree of clear joint partnership management and decision making procedures for operational and strategic issues. It positively influences trust and commitment to the partnership. The tacit and explicit rules facilitate the partnership cooperation. It reduces the problem of bounded rationality en enhances trust between partners. Communication is a KSF for operating partnerships. Its underlying variables are; a) relational embeddedness; b) human interaction; c) decision making procedure; and d) understanding cultural differences. They are important for partnerships that operate in the tropical timber supply chain because they are organized as decentralized partnerships and partners operate highly independently. Communication and its underlying variables are important for maintaining a close relationship between partners that facilitate cooperation. Human interaction and relational embeddedness, i.e. quality and depth of relationship, enhances communication and decision making. It is important for coordinating the partnership activities. Communication therefore reduces the problem of bounded rationality and enhances trust between partners. When partners are aware of cultural differences it enables them to respond to these differences and avoid misunderstanding or misalignment of interests. Trust is the single most important KSF for operating partnerships in the tropical timber supply chain. The partnerships operate in an open commodity market were prices are determined by the global market. Within this market it is relatively easy to switch to buyers or suppliers that have the best offers. Trust between partners reduces the risk of partners acting opportunistically. A trustworthy relationship between partners enhances their commitment to collaborate and make the partnership into a success. The underlying variable of trust is reduced uncertainty about the partner s behaviour to future events. Commitment is a KSF that positively influences the collaboration between partners and contributes to a successful partnership. The underlying variable of commitment is fulfilling each other s need. This often relates to the need for capital or knowledge to support implementation of SFM and FSC certification. Partners that are committed to achieving the partnerships objective and put effort in supporting their partner create a trustworthy relationship. They are willing to bear some degree of

84 risk for making the partnership a success. The risk is mitigated by the trust that partners share and contracts that cover partnership agreements and resource exchange. Commitment and trust positively influence the collaboration between partners. Collaboration is a KSF for operating partnerships. It relates to the underlying variable of information exchange. Information exchange is needed to make well informed decision that affect the partnership. Within the partnerships from the tropical timber supply chain information exchange is vital for the cooperation. Because the partnerships often have decentralized and informal governance structures there are less clear coordination mechanisms that facilitate information exchange. Collaboration and information exchange reduces problems of bounded rationality and enables partners to cooperate in such a way that they are most effectively and efficiently in achieving the partnership objectives. The KSF s and key variables discussed above can be used to support potential partners and current partnerships in establishing or strengthening their partnerships respectively and contribute to SFM and FSC certification.

85 6 Discussion This research investigated the extent in which the theoretical framework reflects the characteristics of partnerships in the tropical timbers supply chain. The framework focuses on the three specific stages of establishing, governing and operating the partnerships. Within this research each stage has been elaborated on their fit to the partnerships is verified with the respondents in a questionnaire. According to some respondents the questionnaire was too elaborate. The amount of questions could be reduced and the level of detail increased when only one stages of the framework would be investigated. However, this reduces the applicability for informing the supply chain actors because all three stages are important in creating successful partnerships. Some questions in the questionnaire include two variables that should have been asked as two separated questions. It was not possible to distinguish between the two variables. For example the respondents were asked to rate the contribution of formal and informal exchange of information to the success of the partnership. It is not possible to distinguish between the two types of information exchange and determine their importance to the success of the partnership. The partnerships analysed in this research are linked the network of IDH. This organization supports and finances market initiatives that contribute to the implementation of SFM and FSC certification. The advantage of this network is that the researcher could contact the respondents relatively easy and in some cases the researcher was introduced. However, it could also influence the respondents to provide social desirable and biased answers. This research studied four partnerships by sending questionnaires and conducting interviews with one respondent of each partnership. Three of them are situated outside the Netherlands from which the research is conducted. This made it difficult to conduct the interviews. It is one of the reasons why the research was delayed. It also limited the ability to also take into account the other partners of the partnership. Including only one partner of each partnership limited the ability of the researcher to investigate success of the entire partnership. A partnership consists of more than one partner and it can only be a successful partnership when it meets the expectation of all the partners. Within this research only one respondent of each partnership is asked in what extent the partnership met its expectation. If the partnership met the expectation of the respondent the partnership is classified as successful. However, it could be possible that the other partner is not satisfied with the partnership. Therefore it is important that both are taken into account in future research on supply chain partnerships.

86 The research focused the successful of the partners on how well it meets the expectation of the partners. It does not take into account what its current status is in achieving the partnership goals. The partnerships studied in this research are in different stages achieving their partnerships goal, i.e. establishing, governing or operating. However, this research did not specifically discuss the influence of these stages on the success of the partnership of or discussing it in the results in chapter four. The limitations discussed above effect the research. Therefore the conclusions need to be interpreted with caution. In spite of these limitations, the research provided valuable information about partnership in the tropical timbers supply chain. The research identified the important factors that contribute to the success of the partnership. The knowledge can be used to support potential partners in establishing, operating and governing partnerships that contribute to the implementation of SFM and FSC certification. It therefore indirectly contributes to the preservation of the tropical forests, safeguarding the livelihoods of the people depending on these forests and the biodiversity

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93 APPENDIX 1 Background study of tropical timber supply chain to the Dutch and EU market This Appendix describes the timber supply chain, in particular the from the Congo Basin, to the EU/Netherlands. It discusses its characteristics, sourcing, consumers, market environment and supply chain actors. Trade overview Tropical timber products are applied in products that demand high durability, strength and resistance against natural decay. Because of the mechanic characteristics that fulfil these demands and the natural appearance it is often used in construction (housing, marine works, civil engineering), shipbuilding, furniture, flooring (home and industrial) and garden (furniture, decking, fencing) (Oldenburger 2009 b ). The share of tropical timber products used in the EU is 3.1%. of total timber products used in the EU. In the Netherlands this share is nearly 16% of total timber products used in the Netherlands. It makes the Netherlands is one of the largest consumers of tropical timber products in Europe (CBI, 2009 a ). The Dutch and EU construction sectors consume about 70% and 75% of all timber products (tropical and non-tropical) respectively (CBI, 2009; Probos 2010). The Dutch construction sector consumes nearly half of the tropical timber products. The other half if used in furniture, packaging, flooring, gardening and retail trade (kitchens, DIY, etc.) (Probos, 2009). The main suppliers of tropical timber products to the Dutch market are Brazil, Malaysia and Indonesia, they supply 74%. The Congo Basin countries supply 16% of the tropical timber used on the Dutch market. Although there are alternatives for using tropical timber such as modified softwood, i.e. spruce and pine, it is not yet used widely as replacement of tropical timber. The latter is still preferred over softwood in construction because of its strength, durability and appearance. Over the last decennium the share of tropical hardwood in the Dutch construction market increased with 18% (Probos 2009 b ). A significant share of the Dutch construction sector are public-contracts and include the procurement of timber (Probos 2010). In general the public procurement for timber products account for 15% to 30% (ITTO 2008 a ). The exact amount of tropical timber procurement by the Dutch public is unknown. Prior to the economic crisis there was a growing demand for certified tropical timber in Europe. However, use was restricted by supply because tropical producing counties find it difficult to meet the requirements of EU importing countries. Therefore some African export trade has shifted from Europe to Asia, more particularly to China (ITTO, 2008) because it does not have these requirement such as the EU importing countries that demand legality or sustainably produced timber. Due to the economic crisis demand has dropped and there is a supply surplus.

94 Timber Consumption The EU is the largest consumer of timber products worldwide, including non-tropical and tropical sawnwood, veneer and plywood (Table 6). It consumed 26.7% of global timber in For the supply of tropical timber the EU is completely dependent on import from tropical producing countries. It consumes 6.3% of all tropical timber produced globally and is only a small part of EU s total timber consumption, respectively 3.1% in 2007 (CBI 2009 a ). Table 6 Global and EU timber consumption (all timber vs. tropical timber) in 2007, 1,000 m 3 All timber (non-tropical and % tropical timber of Tropical timber tropical) all timber Products Global EU % Global EU % Global EU Sawnwood 380, , % 38,060 2, % 10.0% 2.1% Veneer 9,842 2, % 3, % 32.4% 15.2% Plywood 69,187 7, % 18,361 1, % 26.5% 14.0% Total 459, , % 59,611 3, % 13.0% 3.1% Source: CBI (2009 a ) Although the Netherlands accounts for only 2.9% of EU s timber consumption in 2007 (Table 7), its demand for tropical timber products account for nearly 15% of total tropical timber products demand in the EU in 2007 (CBI, 2009 b ). France (18%) was the largest consumer of tropical hardwoods in the EU followed by Spain (16%), Italy (15%) and the Netherlands (15%)(CBI 2009 a ). Table 7 EU and the Netherlands (NL) timber consumption (all timber products vs. tropical timber products) in 2007, 1, 000 m 3 All timber (non-tropical % tropical timber of Tropical timber and tropical) all timber Product EU NL % EU NL % EU NL Sawnwood 112, % 2, % 2.1% 13.1% Veneer 2, % % 15.2% 48.0% Plywood 7, % 1, % 14.0% 29.6% Total 122, % 3, % 3.1% 15.9% Source: CBI (2009 a ), CBI (2009 b ) Consumption of tropical timber products in the Netherlands accounted for nearly 16% of total timber consumption in The share all the tropical timber that was FSC-certified was 24% in 2009 (VVNH, 2010). The main suppliers of FSC certified tropical timber are Brazil (42%) and Cameroon (14%)(Figure 36).

95 Figure 36 Supplying countries of FSC-certified tropical sawn hardwood in 2008 Source: (Probos 2010) Main suppliers of tropical hardwood are Malaysia, Brazil and Indonesia. The Congo Basin supplies 16% of the Dutch tropical hardwood (Figure 37). Figure 37 Supplying countries of tropical hardwoods Source: Oldenburger and Van den Briel (2009) Drivers for certificated timber demand Reputation and market pressure seem to be one of the key drivers for SFM and demand of certified timber (Roberts, 2003). Many Firms, organizations and public authorities anticipate to this change and adopted their corporate social responsibility (CSR) policies and public timber procurement policies (TPPs), focusing on the use of sustainably produced timber. Other reasons for firms to switch from conventional timber to certified timber are risks of bad publicity and reputation damage. Firms that are expected of trading and/or using illegally harvested timber are accused by environmental organizations such as Greenpeace. Firms encounter this

96 environmental criticism and avoid bad publicity by switching to sustainably produced timber (ITTO, 2008). Firm that trade and process certified timber are required to stock and process certified timber separately from non-certified timber and creates extra costs. If firms would only trade and process the certified timber they reduce the stocking and handling costs (ITTO, 2008). This can be a reason for firms to switch entirely to certified timber. Besides, firms are more aware that they need to switch to timber from sustainably managed forests in order to secure future supply. Over exploitation will ultimately lead to loss of forest and supply of timber. National timber procurement policies (TPP s) and EU policy on procurement of timber are drivers for demand of certified timber (ITTO, 2008). In the Netherlands the TPP came into effect from the 1 st of January According to the Dutch TPP public authorities have to procure sustainably produced timber when possible, i.e. in public contracts for construction, procurement of office furniture and other timber products. However this policy is not mandatory yet (CBI 2010). Certified timber can only be supplied by organizations which are certified. The TPP therefore pushes companies to get certified because suppliers of certified timber are preferred over suppliers of noncertified timber when public contracts are assigned. Another driver for demand of FSC certified timber are the so called FSC Covenants between organizations and FSC Netherlands. FSC Covenants are agreement of organizations to use FSC certified timber and when possible they set a specific target (Houtblad, 2010). It is not a contract but rather an letter of intention. Up to 250 Dutch companies, municipalities and other organizations have signed these FSC Covenant (FSC, 2010) FSC price premiums Demand for certified timber is more prevalent among large industrial users and public authorities. It is rarely required by small-scale enterprises (ITTO, 2008). Price premiums for FSC certified tropical sawnwood are often paid in high profile public-sector contracts. In the private-sector price premiums are low or there is none at all (UNECE & FAO, 2009). It constraints for the lift off for FSC certification of forests. Price premiums cover the extra cost of certification. Most FSC-certified timber is sold without label or reference to certification due to a lack of demand (UNECE, 2009). FSC-certified sawnwood from Africa delivered to the importers yard can have price premiums ranging from 20% to 50% on top of the prices for conventional sawnwood (UNECE, 2009). In practice, supply chain actors end up absorbing the addition costs associated with certification and few costs are passed on to the consumer (Chen et al. 2010). Retailers are particularly unwilling to absorb extra costs

97 (Bass et al. 2001). For them it is difficult to sell FSC-certified timber products with price premiums because consumers are not willing to pay for it. Retailers are forced to sell certified products at conventional prices, resulting in lower margins (CBI, 2009) Importers, manufacturers and retailers often implement green procurement policies. They switch the emphasis away from FSC certified products in favour of less expensive legally verified products. This also holds for Dutch firms where FSC has traditionally been a very strong brand (UNECE 2009). Supply chain The supply chain of tropical timber products to the EU/Dutch market includes several key stages. Each stage consists of a particular process and involves several actors and stakeholders. The supply chain displayed in Figure 38 is a simplified schematic overview of the tropical timber product flow. The supply chain from the Congo Basin is generally more integrated because large international firms from this integrate several supply chain stages. They exploit the forests (logging), process the logs, and import/trade the products (Karsenty, 2007). Throughout the supply chain, timber products are transported between stages and middlemen can be active in between the stages. Figure 38 Supply chain tropical timber from Congo Basin to Dutch and EU market

98 Forest Exploitation The formal forestry sector in the Congo Basin is dominated by European firms. Recently also Asian (China and Malaysian) firms entered the Congo Basin forestry sector. The majority of concession holders/logging firms are powerful international firms, i.e. the Wijma Douala and TRC (Reef Hout), ALPI and CEB. Over the past few years some of these firms have certified their forest operations with FSC certification (Karsenty, 2007). Locals and communities that have acquired concession rights generally have limited knowhow and resources to undertake any large scale and profitable logging activities. They outsource the exploitation to the European and Asian firms. Locals mainly act on the informal forestry sector and produce for the domestic market in small quantities. None of them have FSC-certified concessions. There are only a few cases in which nationally owned firms exploit the forest such as Cameroon owned STBK and MMG. Processing The industrial processing of logs in the Congo Basin in the formal sectors focuses on primary processing (sawing, peeling, slicing). Gabon and Cameroon have the highest amount of processing plants, they account for 60% of the region. Table 8 gives an impression of the amount of processing plants in the Congo Basin. However, some operate at halve speed or even not at all. Also artisanal sawmills in the informal sector are not taken into account in Table 8 (OFAC, 2009). Table 8 Distribution of industrial processing plants in the Congo Basin in 2007 Source: OFAC (2008) Processing plants displayed in Table 8 mainly produce for the export market and operated by large international firms which are also responsible for logging the forests. There are hardly any Asian sawmills in the Congo Basin. Asian firms prefer to process the logs in their home countries. When processing mills do not have sufficient logs from their own concessions to produce efficiently, extra logs are purchased from other logging firms/traders. Importing/Trading The main destination of timber exports from the Congo Basin is the EU. However, the importance of Asia is rapidly increasing (OFAC 2009). Importers are often part of the same organizations that perform the logging and processing activities. On the EU market the timber is supplied to other

99 wholesalers, manufacturers or contractors and large building companies. Distribution channels in the South and Eastern European countries are less transparent and comprise of many agents. In the North-Western European countries the timber supply chain is characterized by high level of integration (CIB, 2009). For instance, Dutch companies Reef and Wijma control the entire timber supply chain, from forest exploitation up to manufacturing of finished products for construction (water locks, bridges, cladding, etc.). Manufacturing Secondary processing of timber includes the production for the professional as well as the consumer market. I.e. window frames, staircases and cladding for the construction market and garden furniture and flooring for the consumer market. Wood-based panels (veneer sheets, plywood and particle board) from tropical hardwoods are hardly produced within the EU. It is cheaper to produce them in China. In 2007, 81% of the Cameroon processed products (sawn wood, veneer and plywood) were imported by the EU. On the other hand 77% of the logs exported went to countries other than the EU, mainly China (OFAC, 2009). Manufacturers are often small and medium enterprises (SME s) and have little market power in the supply chain. Interest of the public on sustainability usually focuses on the primary producers and the retailers rather than on manufactures (Roberts, 2003). Wholesaling Wholesalers supply the construction market. Unlike many importers, which often integrated several stages of the supply chain, wholesalers often only act in one stage of the chain. They source their timber form importers, traders and manufacturers and supply them to the construction market. Wholesalers typically host a wide range of products. Their added value is their service which is different from importers and manufacturers that ad value by processing the timber. The Dutch wholesale market that supply the construction market is dominated by three firms; Jongeneel, PontMeijer and Stiho (CBI, 2009 b ). Retailing Retailing includes DIY s, home centres, flooring firms and such alike and sell to end consumers. Because they are close to the consumers the retailers, especially Do-It-Yourself (DIY) sector initially turned to certification to avoid bad publicity. They have relative large market power to force their supply network into FSC certification (Roberts, 2003). Large retail chains have been created by consolidation in the retail sector. They have regional and international market reach and created a lots of market power that forces distributers, furniture manufacturers and other suppliers to keep their prices low and costs low.

100 Construction The construction market includes both large and SME s construction firms. Timber used by these firms is sourced directly from the importers/traders or manufacturers (Oldenburger and Van den Briel, 2009) and wholesalers. By July 2010 there were 250 Dutch contractors FSC certified compared to 70 in This number is expected to increase to 400 by the end of 2010 (Houtblad, 2010). Although this number represents less than 1% of Dutch construction firms (CBS, 2010), the increase indicates the awareness among construction firms that they need to obtain FSC certification. Among these FSC certified contractors there are some of the largest building companies in the Netherlands such as BAM. The construction sector is characterized by its strongly preference for traditional hardwoods such as Okumé, Azobé and Meranti. Architects and contractors have little experience with lesser known species (LKS) and demand traditional species instead of LKS which are difficult to market (Probos, 2009 b ). In an effort to create this market, importers, traders, manufacturers and wholesalers inform their customers (construction companies/architects/water boards) about the use of LKS. Increase the share of LKS is important because it reduces the use and pressure on the traditional species which are often overexploited. Using both traditional and LKS will increase the amount of certified timber on the market (Probos, 2009). Consumers Consumers could be the most powerful actors in the supply chain when it comes to FSC certification. Although the public interest in SFM and supply of sustainably produced timber is high, only 13% of the consumers are willing to pay a premium of 10% (CBI, 2009). Therefore the demand they create is only limited for now. Besides the household consumers, also organizations and authorities procure certified timber. Dutch public authorities have the ambition to procure only sustainably produced timber. In addition, Dutch water boards, organizations and firms are important users of certified timber. Many of them have the intention to contribute to making this world more sustainable. They do so by using sustainably produced and certified timber products, such as packaging materials and paper products made from FSC certified timber. For instance, Tetra Pak has the goal of supplying at least 90% of the 3 billion packages it sells in France before Transport / Middlemen Throughout the supply chain timber products are transported between the different stages. High fuel prices in combination with the low value of timber makes transport an important factor that contributes to the cost price. Besides transport there can also all kinds of middlemen in between the different stages.

101 Factors affecting the timber market There are three main categories that influence the timber market and FSC-certification; political, social and economic. They influence demand and developments of SFM and certified timber. Political The policies and international cooperation of public authorities are important in promoting SFM, fight illegal logging and deforestation. Political agenda s influence the legal frameworks and institutions that govern forestry and promote SFM. Often these frameworks and institutions in tropical producing countries are weak or lacking. It creates environments where illegal logging and trade is possible. In an effort to ban trade in illegal logged timber and support tropical producing countries in tackling this problem, the EU started the Forest Law, Enforcement and Governance Trade Action Plan (FLEGT) in The FLEGT program focus on both the trade policies of the EU members and developing legal frameworks for governing forestry in tropical producing countries (EFI, 2008). The EU sets guidelines for its member states to procure only legal timber products. On the other hand the EU tackles trade in illegal timber by making agreements with individual producing countries and are called Voluntary Partnership Agreements (VPA s). It is a bilateral and voluntary agreement. However, once signed it becomes a legally binding commitment between the EU and producing country to trade only legal timber. VPA s include agreements on developing good forest governance systems and legal frameworks. The process of reaching such VPA s can take up several years (EFI, 2009). Table 9 gives an overview of the Congo Basin countries and their VPA status. Table 9 VPA status in participating in five Congo Basin countries Country VPA status (2009) Republic of Congo Cameroon Gabon Central African Republic Democratic Republic of Congo Source: EFI (2009 b ) Have concluded and initialled VPAs and first licensed timber is expected in2011. Has concluded negotiations and is waiting to be initialled. Have started the pre-negotiation phase where roadmaps have been prepared. Requested mid-2007 to start formal discussion. The prenegotiation phase has started now. Has expressed interest in VPA In July 2010 the EU approved a law that prohibits import of illegal timber to the EU market. Companies themselves are responsible of verifying the legality of the timber through a due diligence system. It enables them to track timber products throughout the supply chain. Legality refers to

102 compliance with the laws of the producing country. It does not necessarily include sustainable forestry. This law also does not cover paper products. In addition to the this law the EU set procurement guidelines for its members. Legality is the core (minimum) criterion of the procurement guideline. Up to now six EU member states have implemented national TPP s; Belgium, Denmark, France, Germany, the UK, and the Netherlands. Others have addressed the issue or are at the planning stage. TPPs are relatively new governmental instruments which need to prove themselves yet. TPPs apply only for public authorities and not for private organizations (ITTO, 2009). The Dutch TPP requires public authorities to procure sustainably produced timber as much as possible. However, it is not mandatory yet. Several timber certification systems have been recognized to guarantee sustainably produce timber, among which the FSC certification, some PEFC national systems and pending on approval is the MTCS system (TPAC, 2010). Another initiative that encourages the trade in sustainably produced timber is the aim of the Royal Dutch Timber Trade Association (VVNH). Its goal is to have 50% of its (tropical) hardwood imported by its members is sustainably produced by 2015 (VVNH, 2010). At a regional level the Congo Basin countries are cooperating in an effort to change forest governance and policies in favour of SFM and to meet international standards of forests governance. The COMIFAC is the regional initiative of the Congo Basin countries that supports, develops and harmonize forest policies across its members. Social Over the past couple of decades the public interest in environmental issues such as deforestation and forest degradation has increased considerably. These concerns have resulted in demand of political actors, civil society organizations, firms and consumers for SFM and sustainably produced products. They influence changes on the timber market and underlie the emerge of SFM development of timber certification (ITTO, 2010). Civil society organizations, such as Greenpeace and WWF, put pressure firms and public authorities to take their responsibility in using sustainably produced timber. Out of concerns for bad publicity firms are shifting towards green procurement policies and CSR polices directing towards sustainability. Besides avoidance of bad publicity another reason is the awareness of firms that they need to take their responsibility in sustainably production in order to safeguard the continuity of the forests and their business. Besides pressuring firms and public authorities the civil society organizations participate in development of SFM in the Congo Basin countries. Many of the initiatives and research on SFM development are coordinated and funded by large international operating civil society

103 organizations. Civil society organizations active in the Congo Basin are ICCO, SCNIC, SNV, IIED, GTZ and WWF. They promote SFM, often in combination with developing the livelihoods of locals or nature preservation. Economical The overall economic crisis has a negative impact on the tropical timber demand (UNECE & FAO, 2009). Activities in the construction sector dropped and caused a decrease in demand and price of tropical timber. It has made the timber market more competitive as firms try to survive the economic downturn. Especially firms that have kept large stocks such as importers, traders and wholesalers are facing stock keeping problems. Due to the drop in price their stocks are devaluated and are selling timber with losses (ABN Amro, 2010). Firms are selling their stocks and purchase less timber to cut back on stocks. It inevitably affects the demand for FSC certified timber. The demand dropped and companies are selling their FSC certified timber for conventional prices. An obstacle for firms to actually obtain FSC certification are the associated investments and additional costs. The production costs will be higher compared to firms which do not have FSC certification. Sales prices of certified timber should be 10% to 30% higher than conventional timber to make up for the extra costs (CBI, 2009). Although public authorities generally pay this premium, the consumers are not willing to do so. Besides making up for the extra costs of certification, the access to capital is also a constraint for companies to invest in SFM and certification. The lack of forest integration into capital markets severely limits the access to mainstream private capital to fund SFM. Often the funding for SFM and certification comes from traditional foreign aid and development project. However they are usually relative short funding periods that do not fit the long term forestry characteristics (Stevens et al., 2009). The characteristics of the long term investments, capital availability and priority to sustainable environmental goals make institutional investors (pension funds, life insurance) potentially important contributors to SFM. They generally have long term investment perspectives and strong commitment to socially responsible investments. Supply chain partnering The timber supply chain is characterized by rivalry. Firms deal with commodities, the prices are set by the world market and the profit margins are low. Securing supply of raw materials, transport and processing of timber to increase efficiency and lower costs are key drivers for achieving competitive advantage (Andrés Villazón M., 2009; FAO, 2009). Partnerships are relatively uncommon among supply chain actors in the tropical timber sector. There is little cooperation between actors that try to achieve a common goal such as FSC certification and

104 secure supply of FSC-certified timber. Instead, the tropical timber sector consists of strong buyersupplier relationships. Reliable and trustworthy suppliers/buyers are important because production and supply of timber can take up an extended period of time. Depending on the availability and processing circumstances, supply of timber products can range from a few weeks up to a few months. In such length of time the market can be subject to all kind of changes. For instance price increase/decrease, a shortage of supply due to rainfall, a change in legal framework of the exporting/importing country, etc. Reliable buyers-suppliers relationships are crucial for securing supply of timber. Although partnerships are uncommon in the timber sector there are some cases where actors from the tropical timber sector cooperate. Besides supply chain actors it can also include partners such as civil society organizations, public authorities and communities. Supply chain initiatives that enhance supply of certified timber Partnerships which directly influence the amount of FSC-certification of forests and supply of FSCcertified timber are at the beginning of the supply chain. There are three kinds of cooperation each includes a large international company that cooperates with either another large firm, a local small grower/community or a civil society organization. There is little communication between large companies operating in the Congo Basin forestry. They interact with each other on the market where they buy and supply logs and timber. But cooperation between these companies is an exception and includes the securing of raw materials. For example the partnerships between ALPI and STBK, and international operating company and a Cameroon owned logging company. ALPI provides technical and certification support and STBK supplies logs to ALPI. Another initiative is the direct support that firms operating in forestry receive from civil society organizations in their effort to obtain certification for their operations. For example, forestry operating firm ALPI received support from the Tropical Forest Trust (TFT) in their effort to obtain FSC certification. A third type of cooperation is that between large forestry operating firms/importers and local small growers or communities. In the Congo Basin communities or locals with concession generally do not have the capabilities to exploit the forest or the means to obtain FSC certification. They rent their concessions to large European and Asian companies to exploit the forest. There is little participation of the community or local owner in the forest exploitation itself. In the Amazon Basin and Asia there is more participation of local companies/communities. They work closely with large companies.

105 Race et al. (2009) studied commercial partnerships in forestry and timber trade in Asian and Australian. They observed that timber processing companies with inadequate limited access to forests resources seek to secure additional suppliers to meet the demand for wood products. Large processors form partnerships to obtain access to land or forests suited for commercial forestry and secure future timber supplies. These partnership provides the opportunity to strengthen relationships between the large companies and the local people and sharing the benefits of commercial forestry. Reasons for smallholders to engage in partnerships with larger processors are securing sales (market access) and the technical and financial support. Secured agreements of a long term contractual partnerships should ideally be beneficial and fair and meet the expectation of all partners. However, this is difficult in the forestry sector. It is difficult to identifying the real market prices of timber because of variations in processes such as harvesting, transporting and the confidential nature of timber sales. In an extended period of time the costs of these processes can vary. In addition partners have unequal capacity to negotiate terms of contacts. The large companies are much more powerful than the local companies/communities. Supply chain initiatives to enhance demand of certified timber At the end of the supply chain, actors take initiatives to increase the demand of FSC-certified timber and create a market. These supply chain actors inform and educate their (potential) customers about certification and use of certified timber. For instance, wholesalers which encourage their customers (constructors) to get FSC certified and organize meetings to inform and link them with certifiers. Besides customers they encourage suppliers to which to get certified. An second example of initiatives to increase demand is timber importers/traders and wholesalers that inform contractors and architects about the use of certified lesser known species (LKS). The construction sector is hesitated to use LKS because they do not know how it performs over time. Finally there are also civil society organizations such as the FSC Netherlands that encourage supply chain actors and consumers to get FSC certified or use FSC-certified timber products respectively. They sign FSC covenants and express the intention to use FSC-certified timber products. But these initiatives cannot be characterized as partnerships. They merely consist of interactions between the wholesalers and importers/traders and their customers and suppliers without any engagements. They are not cooperating to achieve a common goal.

106 APPENDIX 2 Background Study Congo Basin forestry sector This Appendix gives an overview of the current situation of the Congo Basin forestry sector. Knowledge of the environmental setting and nature the forestry sector are important for understanding the circumstances in which the supply chain partnerships to operate in. Congo Basin forest The Congo Basin contains the second largest continuous rainforest after the Amazon Basin (FAC, 2008). It accommodates an estimated 400 mammal species, 1,000 bird species and 10,000 plant species. However, the subsistence of the forest and wildlife are threatened by unsustainable (illegal) logging and rapid demographic growth (WWF, 2010). The deforestation rates of the Congo Basin counties, shown in table 10, vary between zero and one. Although, these rates might seem relatively low there is a strong indication it can increase dramatically in the near future due to demographic growth in the Congo Basin. With current demographic growth its population will double from 100 million to 200 million in 25 years time (FAO 2009 a ) and increase the pressure on the forest resources. Table 10 Congo Basin forest area and area change Source: Adapted from FAO (2009 a ). Many people in the Congo Basin region rely on subsistence farming and use of forest products (i.e. fuel wood, non-timber forest products) for survival. Farming is primarily carried out through traditional techniques such as slash-and-burn cropping. This type of farming is the largest contributor to deforestation. Another contributor to deforestation and degradation, but less significant, is unsustainable (illegal) logging. It also indirectly leads to forest loss because forest roads for logging open up the forest and increase the accessibility to the forest for poaching and slash-and-burn farming (OFAC, 2009). Besides the richness of plants, animals and CO 2 storage, the forests are also important for the economic development of the Congo Basin. The formal (industrial logging and processing) and

107 informal (i.e. fuelwood collection, non-timber forest products and furniture) forestry sector contribute to the economic development of the Congo Basin (Table 11). Table 11 Forest area and concessions in Congo Basin Source: Karsenty (2007) The formal forestry sector contributes to 52,000 jobs in the Congo Basin. Indirect employment (i.e. labour in the furniture industry and harbours) is estimated at ten times the size of the formal sector and the actual impact is even larger because one permanent job in sustains the livelihood of an estimated relatives (Karsenty 2007). Forest policies and governance The Congo Basin governments have recognized the importance of SFM but implementation is still limited. The governments have adapted their laws and regulations in support of SFM. However they often fail to put them into practice because of institutional difficulties and lack the resources and capabilities (FAO 2009 a ). Due to poor intersectoral linkages of some countries, high-priority sectors such as agriculture, mining, industrial development and energy have a greater impact on forests than the forestry policies themselves. African counties experience inconsistencies in laws governing the environment and uncertainties of land tenure due to weak legal frameworks. It constrains investments in forestry and development of SFM. In addition, the capacity of public forestry agencies, including research, education and training is declining (FAO 2009 a ). It magnifies the poor governance of the forests. The lack of compliance with existing forest laws are key constraint for implementing SFM in the Congo Basin. It results in deforestation, forest resource degradation and loss of state revenues. Lack of compliance with laws and regulations is experienced at all levels of society (ITTO/FAO, 2010). There is

108 little coordination between the executive, legislative and judicial branches which makes it difficult to enforcement rules and regulations that supposed to support SFM. In addition, the political commitment and the capacity of institutions are low which makes it harder to enforce forest policies and legislation. The constraints discussed above are rather general. The level of development and enforcement of forest governance vary considerable among countries in the Congo Basin. Cameroon, Congo and Gabon are more advance in implementation of SFM, while DRC, Central African Republic and Equatorial Guinea are at the early stages of developing and implementing SFM. Table 12 gives an overview of the challenges perceived by the countries themselves in carrying out the forest law and regulations. Table 12 challenges for carrying out forest laws and regulations Source: ITTO/FAO (2010) Over the past two decades Congo Basin countries have adapted or installed new forest policies and legal frameworks that aim at preservation of their forest recourses. Although these reforms may have been made with the best intentions, due to financial and human capacity constraints and weak institutions they are difficult to implement/enforce. Table 13 give some basic characteristics of the policies and their implications for logging companies.

109 Table 13 Overview forest policy Congo Basin member states Legislative and institutional aspects Cameroon 1994 Equatorial Guinea Central African Republic (CAR) Date of forest law Congo 2000 Gabon 2001 Democratic Republic of Congo (DRC) 2002 General forest policy Restructure forestry framework and convert the forest sector into a crucial sector for poverty reduction and a source for industrialization and export Forest Act requires SFM practices. Nature conservation arrangements are carried out ad-hoc Provisions sets requirements of logging of concessions to make it more formalized and controlled Maintain productivity and the many benefits it draws from the forests. Preserve biodiversity and require SFM for logging operations SFM through effective adjustment of facilities. Stimulating local processing by banning export of logs Balance between social and ecological aspects and participation of local people in forest management Source: (CBFP 2006; OFAC 2009) Duration of concessions Allocation of concessions 15 years Tender Renewable rotation (15 years) Renewable rotation (years not specified) 15 to 25 years Renewable rotation (generally 30 years) 25 years Mutual agreement Tender Tender Tender/ mutual agreement Tender/mutu al agreement Management plan Yes, within 3 years of provisional concession allocation Required, instead can also pay reforestation tax Yes, has to comply with national norms. Yes, applied in the north but lacking in the south Yes, within 3 years of provisional concession allocation Yes, in addition logging guidelines for companies Community forestry legislation Yes, widely applied and frontrunner in Congo Basin Yes, but no community forestry yet No No, but community forestry need to be included in forest management plan Yes, but no community forestry yet Yes, granted upon request but no community forestry yet Policy implications on forest certification In comparison to certified temperate and boreal forests in developed countries, the area of certified tropical forests in developing countries is very low. In developing counties firms in general need to make a lot of effort and investments to meet the standards of certification. The opposite is true for firms in developed countries. Developed countries generally have high legal and institutional

110 standards for forest governance and they are based on SFM. Firms in developed countries also have access to relative stable and secure markets that generates stable cash flows. These firms have ability to access to the capital market for funding. The compliance with high standard forest governance and access to capital makes is relative easy to obtain SFM/FSC certification. The opposite is true for firms in developing countries. The ones operating in developing countries that do have obtained FSC certification are the large European firms. Table 14 gives an overview of the FSC certification for forests in the Congo Basin. Table 14 FSC certified area per country and company Country Name of company Area FSC certified (m 3 ) Cameroon CAFECO (Wijma Douala) Pallisco and partners Société Forestière et Industrielle de la Lokoundjé S.A. TRC (Reef) Wijma Douala Total Congo IFO (Danzer) CIB Total Gabon Rougier-Gabon / CIHFO CEB (Precious Woods) CBG Total Total Congo Basin Source: FSC (2010) Overall, FSC and PEFC are becoming the dominant certification schemes worldwide. They include an acceptable proof of sustainable forest management and legality. However, FSC is the primary certification system for SFM applied in the Congo Basin. Gabon is the only country in the Congo Basin that has a national certification scheme that has been approved by PEFC. The only way for independent national certification schemes of tropical countries to obtain broad acceptance is through PEFC endorsement (Simula, 2009). Concession holders In the Congo Basin concessions are generally allocated by the government. Concessionaires either have to comply with the national rules and regulations on forestry or with the specific provisions that are agreed upon in individual cases. These provisions are derived from negotiation agreements between public and private partners. Both rules and regulations and the specific provisions generally include issues of technical, economic, social, fiscal and environmental provisions (Karsenty, 2008). However, due to weak forest institutions, lack of enforcement and corruptions these rules and requirements do not have the effect as they should have. There still is illegal logging activities and unsustainable forest exploitation going on.

111 The formal forest industry is dominated by large foreign companies as shown in table 16. The number of local companies in Congo Basin s formal forestry sector that exploit concessions are close to non. The formal forestry sector is dominated by foreign owned firms that produce for the export market (ITTO, 2004). Over the past few years also companies from Asia (Malaysia and China) entered the Congo Basin forestry market. Local companies/communities that exploit concessions do not have the resources and knowhow to exploit the forest and produce for the export market. Instead they supply the local market. Table 15 provides an overview of the characteristics for companies that produce for the local market versus companies that produce for the export market. Table 15 Forest area, concession area and concession size Cameroon Congo Gabon Equatorial Guinea DRC CAR TOTAL Forest area 1000 ha a Area under concession c ha b Production industrial roundwood /sawnwood 1000 m 3 c Size of / / / 235 Medium + Very Large Very Large Large concessions 1000 ha d Main Denmark, France, Nationality Italy, France, Germany, Italy, of larger China, France, Malaysia Malaysia, concession Netherlands China, holders d China Portugal Source: a FAO (2009); b ITTO (2010); c FAO (2009) d Karsenty (2007) 700 / / / 69 Very Large Germany, Swiss, Lebanon, Belgium Large China, Lebanon, France / Table 16 Key characteristics of concessions according to their market orientation Local market Export market Origin of capital National Foreign Size of concession Small to medium Large to very large Management plan None In progress/ready % of concession logged per year High Low Productivity (volume per ha) Low High Productivity (volume per worker) Low High Source: ITTO (2004) Community forestry and its contribution to poverty are widely discussed (Maqcueen, 2010; De Blas et al., 2008; Scherr et al., 2002). Although the Congo Basin countries have included regulations that makes community forestry possible, in reality they hardly exists. Developing the forestry sector with participation of locals is difficult because of a lack in clear role-assignment between the public and private sector, ambiguous relations with the local populations regarding property rights and common

112 interests, inadequate tree tenure and land laws and weak administration in the control of concessions (Karsenty, 2007). Cameroon is an exception when it comes to community forestry. In 2008 there were 177 community forests in Cameroon covering 632,330 ha. If all these community forests would be active in timber production they could produce about 177,000 m 3 per year and contribute to 27,000 jobs producing for the local market. However, it is nearly impossible for communities to become producers for the international market because of the high costs of legality verification and certification (Eba a Atyi, 2010). Initiatives to enhance SFM The Congo Basin members acknowledged the importance of sustainable forest governance to sustain the economic, social and ecological values of the forest resources. (OFAC 2009). This believe in SFM started a couple of decades ago and has become more important ever since. Several organizations and initiatives have been established to facilitate and support the Congo Basin countries to implement or/and accelerate SFM. They act on policy level as well as business level. Some of the major institutions and initiatives will be presented hereafter. In 1992 after the World Summit in Rio all the Congo Basin countries adopted or installed new forests laws that aim to: 1. manage production forests based on (sustainable) management plans; 2. create greater anticipation of local people in forest resource management plans; 3. specify conservation objectives that needs to be achieved across national territory; and 4. reduce negative impact of resource extraction on forest ecosystems through a series of regulations and guidelines. In addition they established the Commission for the Forest of Central Africa (COMIFAC) in The COMIFAC is the primary authority for decision-making and coordination of sub-regional actions and initiatives pertaining to the conservation and sustainable management of the Congo Basin forests. The COMIFAC is made up of the forestry ministers of the participating countries and is under head of a secretariat. The objective is to preserve forest resources and livelihoods of people that depend on the forest. The COMIFAC aims to harmonize forest policy that is based on SFM (COMIFAC, 2004 and CARPE, 2010). Other international initiatives and institutions that support the SFM and development of the Congo Basin forests are the Congo Basin Forest Partnership (CBFP), Congo Basin Forest Fund (CBFF), Agence Fraincaise de Développement (AFD), Forest Governance and Trade Programme, Timber Trade Action

113 Plan (TTAP), Racewood, Interafrican Forest Industries Association (IFIA) and Association Technique Internationale des Bois Tropicaux (ATIBT).

114 APPENDIX 3 The FSC Principles and Criteria for responsible forest management The FSC Principles and Criteria describe how the forests have to be managed to meet the social, economic, ecological, cultural and spiritual needs of present and future generations. They include managerial aspects as well as environmental and social requirements. In fact, FSC rules are the strictest and FSC s social and environmental requirements the highest. These 10 principles and 56 criteria form the basis for all FSC forest management standards. Based on these 10 principles, the FSC has developed further rules (called policies or standards) that further define and explain certain requirements stipulated in the 10 principles. Here is a summary of some of the points the FSC Principles and Criteria require. Many of the points listed below will appear almost basic but in many places even these basic requirements are not fulfilled. This is where FSC can have the biggest positive impact. Prohibit conversion of forests or any other natural habitat Respect of international workers rights Respect of Human Rights with particular attention to indigenous peoples Prohibit the use of hazardous chemicals No corruption follow all applicable laws Identification and appropriate management of areas that need special protection (e.g. cultural or sacred sites, habitat of endangered animals or plants) FSC Principles: Principle 1. Compliance with all applicable laws and international treaties Principle 2. Demonstrated and uncontested, clearly defined, long term land tenure and use rights Principle 3. Recognition and respect of indigenous peoples' rights Principle 4. Maintenance or enhancement of long-term social and economic well-being of forest workers and local communities and respect of worker s rights in compliance with International Labour Organisation (ILO) conventions Principle 5. Equitable use and sharing of benefits derived from the forest Principle 6. Reduction of environmental impact of logging activities and maintenance of the ecological functions and integrity of the forest

115 Principle 7. Appropriate and continuously updated management plan Principle 8. Appropriate monitoring and assessment activities to assess the condition of the forest, management activities and their social and environmental impacts Principle 9. Maintenance of High Conservation Value Forests (HCVFs) defined as environmental and social values that are considered to be of outstanding significance or critical importance Principle 10. In addition to compliance with all of the above, plantations must contribute to reduce the pressures on and promote the restoration and conservation of natural forests. Source: FSC, < viewed April 26, 2010

116 APPENDIX 4 Research questions that underlying the case studies The research questions that underlie the case studies and are used in constructing the semistructured interview and questionnaire are: To what extent does the partnership contribute to SFM and supply to the Dutch and European market? Which partners and other stakeholders are involved and what is their role? Which steps where undertaken in the process of forming the partnership and what was the role of each stakeholder? What is the objective of the partnership as a whole? What is the goal of the partnership for each stakeholder? How do the members of the partnership evaluate the partnership in terms of success? What are the key factors that determine the success/failure of the partnership? How is the partnership coordinated? Is the partnership initiated with the interference of a broker such as IDH or an NGO?

117 Dear Sir/Madam, APPENDIX 5 Questionnaire Supply Chain Partnerships Thank you for agreeing to participate in this research on supply chain partnerships. This thesis research is part of my MSc Management Studies at Wageningen University in the Netherlands, and is carried out in assignment of the Dutch Sustainable Trade Initiative (IDH). IDH aims to improve sustainability of international supply chains by cooperating with supply chain stakeholders. One of IDH programs is The Amazon Alternative (TAA) that focus on improving sustainability of the tropical timber supply chains in the Amazon region. For more information about IDH please visit: This questionnaire is part of a research on supply chain partnerships within the tropical timber industry. It is used to identify important steps for establishing supply chain partnerships and the key success factors in operating them. The outcome of this research can be used to inform supply chain actors about establishing and organizing successful partnerships that enhance sustainable forest management (SFM) and the supply of sustainably produced timber to the market. Supply chain partnerships Supply chain partnerships are characterized by two or more cooperating partners. Their aim is to achieve a mutual goal which could not be achieved when operating individually. Supply chain partnerships can include commercial organizations from the supply chain but as well as public partners (i.e. state agencies) and nonprofit partners (civil society organization/ngos). Instructions This questionnaire includes a mixture of open and closed questions and consists of four parts: 1. scope and objectives of partnership; 2. establishing the partnership; 3. partnership governance; and 4. operating the partnerships. Please answer the closed questions by highlighting ( agree ) the answer. For example: disagree Finding the highlight function ( easy. ) is If the question is not applicable to your partnership please indicate with NA behind the question. For example: agree disagree Finding the highlight function ( easy. NA ) is The data obtained from the questionnaire will be kept confidential and not shared with others.

118 If you have any questions concerning the questionnaire or the study please contact me through or phone: +31 (0) Please send the filled-in forms back within a few days to: joram.bogers@wur.nl

119 1. Scope and objective of partnership This section includes questions on general characteristics of the partnerships What is your position at the company? 1.2. What is the objective of the partnership? 1.3. What benefits will the partnership bring your organization? 1.4. Who are the partners of the partnership? 1.5. Which other organizations are important for the partnership? 1.6. Why are these organizations important?

120 2. Establishing the partnership This section includes questions about the formation process of your partnership To what extent have the following actions been important in the formation of the partnership? Actions Not Highly Neutral important important Collect general information about partner (i.e. strategy, business activities, resources) Identify the (competitive) advantage the partnership brings your organization Collect information about your partners culture (values, beliefs, attitudes and behaviour at organizational and national level) Identify overlapping goals between your organization and the partnership Identify conflicting goals between your organization and the partnership Set the boundaries (i.e. scope) of the partnership project Determine the contribution of each partner to the partnership Agree on termination formula in case the partners decide to stop during cooperating Determine the decision making structures for strategic decisions of the partnership Determine the decision making structure for operational decisions of the partnership Which other activities are important to the formation of the partnership?

121 2.3. Please rank the activities of partnership formation process in order of importance. With 1 = most important, 10 = least important. Each number can only be used once. Activities Collect general information about partner (i.e. strategy, business activities, resources). Identifying the (competitive) advantage the partnership brings your organization. Collect information about your partners culture. Identify overlapping goals between your organization and the partnership. Identify conflicting goals between your organization and the partnership. Set the boundaries (i.e. scope) of the partnership project. Determine the contribution of each partner to the partnership. Agree on termination formula. Determine decision making structure for strategic decisions in the partnership. Determine decision making structure of operational decisions in the partnership. Order of importance (1-10) 3. Partnership governance The governance of a partnership (i.e. coordination, hierarchy, decision making) is determined by several variables Please indicate to what extent the following statements apply to your partnership. Statement Not Fully Neutral Applicable Applicable The partnership requires little coordination of activities Making strategic decisions is complex in this partnership There is a high level of trust between partners There is a high level of consensus between the goals of the individual partners Partners are highly dependent on each other to achieve the partnership goal Partners are highly dependent on each other to achiever their individual goals How are strategic decision taken? (centralized = decision taken in consensus with all parties and decentralized = each partner makes decision on its own) Completely centralized Completely decentralized

122 3.3. Which other variables are important that determine governance form of the partnership? 4. Operating the partnership This section includes factors that contribute to operating a successful partnership. A successful partnership is able to meet your expectation and achieves or seems to achieve your own as well as the partnership goal Please indicate to what extent the factors of strategic fit contribute to the success of your partnership. Factor No contributio n Neutral Highly contributes Partners have overlapping interests in the field of cooperation Goal congruence between you and your partner A cooperation strategy that facilitates cooperation between the partners Partners bring complementary assets into the partnership Synergy between partners Please indicate to what extent the factors of coordination contribute to the success of your partnership. Factor No Highly Neutral contribution contributes Joint partnership management to coordinate and control activities Tacit and explicit rules to coordinate and control partnership activities

123 4.3. Please indicate to what extent the following factors contribute to the success of your partnership. Factor No Neutral Highly contribution contributes Similarity in partners goals, objectives Similarity in organizational culture between partners Compatible operating systems Understanding each other s cultural differences Willingness to compromise in the face of cultural differences Partner similarity in size and power and partnership experience Please indicate to what extent the factors of communication contribute to the success of your partnership. Factor No High Neutral contribution contribution Formal and Informal sharing of information In-depth and trustworthy relationship between partners Human interactions between partners Use of a communication strategy plan Availability of conflict management plan Clear decision making procedure Please indicate to what extent the factors of trust contribute to the success of your partnership. Factor No contribution Neutral High contribution Trust between partners Reduced uncertainty about partners behaviour to future events Please indicate to what extent the factors of commitment contribute to the success of your partnership. Factor No contribution Neutral High contribution Commitment of partners to the partnership Partners fulfilling each other s need

124 4.7. Please indicate to what extent the factors of collaboration contribute to the success of your partnership. Factor No contribution Neutral High contribution Collaboration between partners Information exchange to facilitate collaboration Does the partnership meet your expectations? Not at all Neutral Very much Which other factors are important in operating a successful partnership? Thank you for your time and cooperation. Joram Bogers Student MSc Management Studies, Wageningen Universiteit

125 APPENDIX 6 Semi-Structured Interview Supply Chain Partnership 1. Scope and objectives of partnership 1.1. What was your motive to enter into the partnership? 1.2. Did the partnership achieve its goals/objectives or does it looks like it will achieve it? 1.3. And how are the goals agreed upon (gentlemen s agreement vs. contract)? Discuss/clarify answers from part 1. Scope and objective of partnership from the questionnaire. 2. Establishing the partnership 2.1. Did you know your partner before the partnership? 2.4. Who took the initiative to form the partnership? 2.3. Was there an explicit procedure in selecting the partner(s)? If yes, what was the procedure? 2.4. What kind of agreement form is used to ratify the partnership (i.e. contract vs. gentlemen agreement)? And why this particular agreement form? Discuss/clarify answers from part 2. Establishing the partnership from the questionnaire. 3. Partnership governance 3.1. What is the organizational structure of the partnership? 3.2. How are strategic decisions made and by who? (Who is deciding what?) 3.3. How are operational decision made and by who? (Who is deciding what?) 3.4. What was the level of trust between you and your partner before entering into the partnership? How has it developed during the partnership? 3.5. In what way are you dependent on your partner? And to what extent? Discuss/clarify answers from part 3. Partnership governance from the questionnaire. 4. Operating the partnerships 4.1. What is your contribution to the partnership in terms of activities and resources? 4.2. Which key factors have contributed to the success of the partnership? Discuss/clarify answers from part 4. Operating the partnership from the questionnaire.

126 APPENDIX 7 Questionnaire results During this research respondents from one partner of each partnership case filled in the questionnaire (Appendix 5). Four partnership cases have been studied. This Appendix shows the results of the questions in the questionnaire that are answered by scoring them on a scale Likert-scale (questions 2.1; 3.1; 3.2; 4.1; 4.2; 4.3; 4.4; 4.5; 4.6; 4.7; 4.8 shown in the questionnaire Appendix 5). Figure 39 Answers to question 2.1

127 The first two variables are part of step 1; Analyse the strategic fit between partners. The third variable is part of step 2; Analyse the strategic fit between partners. The fourth and fifth variables are part of step 3; Identify goal congruence. The sixth and seventh variable are part of step 4: Identify the primary joint project, its scope and contribution of each partner. The eight variable is part of step 5; Agree on termination formula in the case when partners wish to exit the partnership. The ninth and tenth variable are part of step 6; Agree on governance structure of the partnership. Figure 40 answers to question 2.3 In figure 40 Partnership C is not include because it did not filled in question 2.3 the respondent of partnership C indicated that the order of importance is the same as its scores in question 2.1 shown in Figure 39.

128 Figure 41 Answer to question 3.1 Figure 42 Answers to question 3.2

129 Figure 43 Answers to question 4.1. KEY SUCCESS FACTORS OF PARTNERSHIPS IN THE TROPICAL TIMBER SUPPLY CHAIN

130 Figure 44 Answer to question 4.2 Figure 45 Answers to question 4.3

131 Figure 46 Answers to question 4.4 Figure 47 Answers to question 4.5 In Figure 47 Partnership Case B did has not indicate to what extent reduced uncertainty about partners behaviour to future events contribute to the success of the partnership.

132 Figure 48 Answers to question 4.6 Figure 49 Answers to question 4.7