Paper to be presented at the 25th Celebration Conference 2008

on

ENTREPRENEURSHIP AND INNOVATION - ORGANIZATIONS, INSTITUTIONS, SYSTEMS AND REGIONS

Copenhagen, CBS, Denmark, June 17 - 20, 2008

EXPLORING THE LOGICS OF TRADE ASSOCIATION MEMBERSHIP

Martin Perry Massey University (Wellington) m.perry@massey.ac.nz

Abstract: Trade associations are a form of business network distinguished by third party coordination. Where membership is voluntary, participation has been explained by the logic of collective influence and the logic of service with these logics being seen as closely connected rather than alternative membership motivations. There have been reasons to believe that both logics have an inherent tendency to weaken the capacity of trade associations. This investigation of industry associations in New Zealand, based on an interview survey of the directors of 101 participation-type trade associations, shows that the membership logics can be compatible with associations obtaining high levels of support and having high aspirations for assisting business and industry growth. In the light of this evidence, evaluation should consider the sector as a whole, recognizing the combined impact of many individual associations and the extent of inter-association cooperation, their role as participatory networks and the capacity for change within and between associations.

JEL - codes: M14, L31, Z00

EXPLORING THE LOGICS OF TRADE ASSOCIATION MEMBERSHIP

Abstract Trade associations are a form of business network distinguished by third party coordination. Where membership is voluntary, participation has been explained by the logic of collective influence and the logic of service with these logics being seen as closely connected rather than alternative membership motivations. There have been reasons to believe that both logics have an inherent tendency to weaken the capacity of trade associations. This investigation of industry associations in New Zealand, based on an interview survey of the directors of 101 participation-type trade associations, shows that the membership logics can be compatible with associations obtaining high levels of support and having high aspirations for assisting business and industry growth. In the light of this evidence, evaluation should consider the sector as a whole, recognizing the combined impact of many individual associations and the extent of inter-association cooperation, their role as participatory networks and the capacity for change within and between associations.

Key Words: networks

Industry association New Zealand membership enterprise -

INTRODUCTION

The belief that inter-firm networks and alliances between individual enterprises are critical to the building of competitive advantage in todays economy (see, for example, Dunning 1997) is not matched by a corresponding increase in the research attention given to trade associations (Bennett 2000). Sector-based business associations are a feature of market economies but they have tended to be dismissed as having little significance to business development. One perspective has tended to see them as merely predatory lobbies that exert political pressure to maintain regulatory protection (see Sabel 1994). A tendency not to address matters of immediate significance to enterprise development has been a further reason for dismissing the role of industry associations (Granovetter 1994). These assessments can be linked to the organizational basis of industry associations as networks coordinated by a third party that has limited capacity to control the behaviour of members or prevent the diffusion of benefits to non members (Bennett 1997). An exception occurs in the case of economies with a history of social partnership. In particular, a structure of labour relations involving joint negotiations between business sector associations and trade unions can elevate the status of trade associations (Sayer and Walker 1992: 137, Sabel 1994: 152, Herrigel 1993, Lane and Bachmann 1997).

This paper is concerned with the operation of trade associations in an environment where membership is purely voluntary. The context is New Zealand but its institutional setting for trade associations shares much in common with other Anglo Saxon economies (Castles 1988, Marceau 1992, Mabbett 1995). As in larger

economies such as the US and the UK (Bennett 2000), membership of sector-based business associations is predominantly a choice. Individual business managers interest in and support for associability and the strategies employed by associations to attract members determine membership. Prevailing theories of trade association logics have been developed to explain voluntary motivations for membership and to this extent evidence from New Zealand is potentially of wide significance.

The investigation draws on a sample of 101 trade associations linked to the manufacturing and service sectors. Interviews with the executives of these associations obtained information on association funding, activities, recruitment success and membership profile. These data are used to examine the adequacy and implications of the logic of services and logic of collective activities as explanations for membership motivation. These logics represent the main prevailing theories of business associability in terms of the overall status of associations and are consistent with a low capacity low service outcome (Bennett 2000). A purpose of this investigation is to examine whether the contribution of trade associations has changed and whether this leads to the identification of any new membership logics. To this end, the report continues with a review of the theory of business associability before summarising relevant findings from the association survey. The next section then summarises some of the survey evidence and proposes a new logic for business associability based on the opportunities for member participation and networking.

MEMBERSHIP LOGICS

An industry or trade association (these terms are used interchangeably) has been distinguished from other forms of collective business grouping through their coordination by a third party that is independent of any association member and that has some degree of power to aid, abet, guide and cajole participating businesses (Provan 1983, Sayer and Walker 1992: 136). This makes an association different from other forms of inter-firm network where members of the network manage their joint activity directly. The question then arises as to how much and for what purpose individual members surrender control to a third party. Two membership logics have been identified: the logic of influence and the logic of service (Streeck and Schmitter 1985, Aldrich et al. 1990, Bennett 2000).

The logic of influence (or sometimes referred to as the logic of collective activity) emphasises the provision of collective representation on behalf of all or at least a majority of members. This representation may be to any external party that is deemed to affect or potentially affect the interests of members but government agencies are the most likely target of the lobbying. Public bodies have control over resources and regulations that set the terms for business participation in economic activity in ways that have potential to generate a shared response among industry participants. The effectiveness of the association in protecting a preferred regulatory environment or securing advantageous changes will be influenced by its legitimacy to claim representation of the affected sector or area of interest. This implies that the logic of influence drives associations to seek a high density of membership from its constituency. To achieve this high density, associations tend to fragment around comparatively narrow areas of common concern that impact on a set of enterprises in a uniform way. This is reflected in evidence that businesses are more inclined to use

trade associations than more encompassing pan-industry or peak bodies for representation to government bodies (Grant 1987; 1993 110).

The logic of service indicates that members join to gain access to services supplied by or accessed through the association secretariat. These services may also be a form of membership control (such as a code of practice) or supplied as standardised products available to all members or supplied on request to individual members. Service provision may encompass advice, management tools (such as employment contract or supplier agreement templates) as well as accreditation of a specified level of professional competence. All such services are potentially obtained from sources other than an association. Whereas the logic of influence is based upon the existence of collective interests, the logic of service depends on their being some rationale for obtaining services from an association rather than from independent suppliers of business services. Management structures of an association are likely to involve higher levels of accountability and reporting than in a purely commercial organization, so as to accommodate member involvement, and this potentially challenges the ability to compete with independent business service suppliers.

Two possible sources of association advantage have been identified (Bennett 2000: 39). First, that there is a particular relationship of trust between the association and the member business derived from the members perception that the association works for their interests rather than simply for commercial gain. Second, the services supplied are aligned to the collective activity as through the way that the status and acceptance of an accreditation system may be enhanced through representation to government agencies. Alternatively association advantage may derive from it having a level of

industry insight and expertise above that available to other business service providers. A privileged relationship with industry members, for example, may assist the collection of industry data. Consequently, a high density of membership is important even if orientated to individual service provision.

These logics have been linked to expectations that trade associations are inherently weak forms of business network. The logic of influence can be associated with a large public good component such that benefits flow across all industry participants irrespective of their participation in the association. This has been viewed as of offering an incentive to free ride and an impediment to the recruitment of a high proportion of all potential members (Olson 1971). A reaction is to restrict the scope of collective organization to issues of shared importance among comparatively small groups of enterprises. The logic of collective service exists as an additional basis for membership rather than as an alternative mechanism explaining the existence of associations (Bennett 2000).

Close connection between the collective activity and service membership logics has supported the tendency to expect associations to exist in a low service-low capacity trap. Potential members have little incentive to join where they can free ride on the collective activity and collective activity is potentially neglected if it is merely a byproduct of revenue-generating services (Olson 1971). Associations can manage the risk but in a voluntary system of associations it has been argued that resource constraints arising from the unwillingness to pay for collective goods severely limits service development (Bennett 2000: 39).

Other theories relate to the relative recruitment success of business associations and how industry characteristics affect association membership. Association formation, for example, has been judged to depend on their being a relatively large number of participant organizations (Provan 1983:81). The degree of competition between firms need not be a barrier to the formation of an association as firms may still have common issues to deal with and protocols can be established to manage commercial sensitivities (Grant 1993). Member heterogeneity, on the other hand, is generally viewed as a barrier to business associability as it reduces the extent of shared interest (Grant 1993, Perry 2004). Different types of member are distinguished by their costbenefit sensitivity, willingness to pay and their service or collective activity orientation (Bennett 1998: 246). It has been argued that association membership is most likely to be supported where: Small firms are dominant as large firms have less need of an intermediary organization (Salisbury 1984). The sector is geographically concentrated as this reduces participation costs (Semlinger 1995). Industry ownership is concentrated as this increases informal pressure to join (Mizruchi, 1992). The context is a small economy as this means less likelihood of regional or other affiliations reducing commitment to a national association (Maskell at al. 1998). The sector involves high value-adding activity as this gives resources to support association membership and activity (Lorenz 1993). Government regulation gives a perceived need for a collective response to the intervention (Mizruchi 1992, Streeck and Schmitter 1985).

These potential influences interact with each other as well as the type of association involved. Bennett (1998) identifies seven types of business association. This includes associations joined predominantly by individuals united by attachment to a profession or their status as self employed business owners. The present study is concerned only with sector-based business association where whole business organizations are the unit of membership but even this type of association exists in different forms (Provan 1983): participatory, independent, mandated and federation. New Zealand trade associations are predominantly in the first of these categories.

In a participatory association, affiliates maintain an active role in the association, both in their support of the associations management body and through direct interaction with other members on matters of concern to the association. Participation gives some control to individual members while enabling them to draw on the resources and networks of the associations executive. The formation of such an association, therefore, relies on circumstances where organizations are unable or unwilling to manage the activities of the network themselves but do want to influence its operation.

A difference of degree separates participatory from independent associations. In an independent association, the central coordinating body functions autonomously from the influence of individual members with a consequence that there is limited direct interaction amongst affiliates on association matters. A large membership may encourage this structure and will certainly help its survival as at any point in time some affiliates may be resistant to its actions. An advantage to members is that the

relative independence of the association from its memberships confers status compared with the participatory association which can be viewed externally as merely a creature of individual member interests. Membership can provide legitimacy to individual enterprises to the extent that the independent association has authority to monitor and discipline member activity. In New Zealand, associations linked to sectors populated by large numbers of small enterprises (such as Master Builders, Master Painters, the Retailers Association and the Motor Trades Association) come closest to being independent associations but they all seek member participation and so deviate from the ideal.

Mandated associations based on compulsory membership are not constrained by the willingness to join. In New Zealand, they exist in some primary sectors but were excluded to concentrate on associations with a contested membership. Pure federations, in which membership comprises other business associations rather than individual business, were also excluded. Some associations in the study have a mix of individual and association membership but this is mainly a mechanism for recognising historic affiliations and supporting subgroups within a large association.

From the perspective of commenting upon existing theory, the focus on one type of trade association has advantages and disadvantages. It may mean that the refinement of existing theory has limited application compared with the broader range of business associations. This needs to be balanced against the focus on a set of similar associations for which the motivations for and outcomes from associability are best observed. A comparatively uniform sample of associations in a single institutional

environment is not suited for analysing differences between association performances but it is the overall membership logics that are of interest to this paper.

SURVEY DESIGN AND CONTEXT

An evaluation completed in early 1990s is the only prior investigation of New Zealands trade associations (Enderwick and Wilson 1992). That study judged association capacity to promote business competitiveness mainly in terms of the resources available to individual associations and their current range of activity. They concluded that it was not easy to define precisely what an industry association was or what it did (Enderwick and Wilson, 1992: 46). Consequently, they claimed that a not inconsiderable gap existed between the current structure and activities of associations and what they would need to be if they were to have any capacity to assist the upgrading of New Zealands competitive advantage. Few associations reveal a strategic orientation, as indicated by the number able to offer a mission statement, for example. There is limited commitment to an end-user orientation, and much communication appears to be one-way, from the association to its membership. This is unlikely to be conducive to the successful creation of industry competitive advantage (Enderwick and Wilson, 1992: 47). The present study was designed to update this assessment as well as to provide a more complete assessment of the organization and role of trade associations. To this end, it is based on face-to-face interviews with the directors of trade associations rather than a postal survey to enable a more in depth and flexible investigation rather then being limited to the responses obtained to pre-set questions. As well, most of the

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associations covered in the study have a website giving access to newsletters, project profiles, details of membership benefits, application procedures, annual reviews of activity and in some cases membership lists and formal annual reports.

The study draws on a sample of 101 associations compared with the 44 associations covered by Enderwick and Wilson and concentrates on associations linked to the manufacturing and service sectors. The existing logics of association membership see membership fragmentation as a confirmation of expected weakness. To test this, the study examines associations drawing on members from a comparatively narrow range of activities and among which it might be thought that opportunity existed to rationalise the number of associations into fewer, better resourced groups than currently exist.

There is no comprehensive listing of trade associations from which to design a sampling strategy. Sector specific directories were utilised as well as the suggestions made by initial respondents. The basic strategy was to contact all associations within the scope of the study until information from 100 associations had been collected. In terms of the number of relevant associations identified during the research, the final sample of 101 associations covers two thirds of the known associations (Perry 2008). The balance is divided between those that were contacted and did not participate and those identified but not contacted prior to the sample being filled. The primarily reasons for not participating were either a lack of time or availability or that the association was inactive. Among the associations not contacted around a quarter are managed by an executive who was interviewed in relation to one or more other associations for which they were responsible. In these situations, the respondent was

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asked to identify the most active associations among those they managed and this again means that the study under represents the least active associations and those with limited resources.

A PROFILE OF TRADE ASSOCIATIONS IN NEW ZEALAND

Few trade associations have any formal legal status beyond typically being established as incorporated societies. Voluntary membership results in a wide diversity of associations and some competition among those associations with overlapping memberships. The review of trade association activity, therefore, commences with a summary of their main roles in terms of the broad purpose engaging them (Table 1). These roles are being performed to varying degrees but collectively they underscore the important contribution trade associations make in supporting business activity.

Insert Table 1 Summary of association roles

The representation, maintenance and strategic purposes overlap with the logics of service and collective influence. Different terminology is used in this study partly to recognize that associations are not purely defensive organizations. The strategic purpose shifts the associations role to the pursuit of industry growth. It involves activity designed to overcome resource constraints on industry expansion, promote investment in industry infrastructure or various forms of collective marketing.

The transformational and social roles of trade associations may not be captured adequately by the logics of service and collective influence. A transformational role

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arises with associations linked to a sector that is undergoing some form of wide ranging change in its market, technology or industry structure. Activities may include facilitating new areas of industry training, providing industry forum to facilitate engagement between association members and other market participants or helping to identify and agree evolving business practices and standards. This can be viewed as a mix of collective influence and service except that the role relies on a higher degree of activism by the association than when maintaining normal business. Indeed the transformational role is sometimes linked to the division of an established association between groups of enterprises that are placed differently to gain from the change.

The social role responds in varying degrees to the sense of pride participants have in their industry, a wish to interact with and gain recognition among industry peers and share knowledge and experience. It leads to activities such as annual conferences, networking functions (possibly organized by regional branches as well as the national office) and annual awards. As well as at least a part time executive officer all the associations have at least an executive committee comprising representatives from some or all the member companies. Whereas the executive of an association typically comprises CEOs or other senior executives from member companies, in some associations there are multiple committees targeted to specific areas of responsibility that draw in a wider range of representatives.

The social purpose can promote a more open-ended commitment than membership driven by the purchase of a specific business service consumed over a finite time period. Representation to government is the most frequently identified very important influence on membership, confirming traditional perceptions of the main

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role of trade associations (Table 2). Nonetheless, opportunities to engage with other industry participants are a significant motivation for membership. Access to association activities or privileges and the opportunity to learn from other members are two secondary but still important motivations. Association activities include member meetings and conferences that are valued partly for providing the means for members to share market intelligence. This may make the networking motivation of more influence than the data indicate.

Insert Table 2 Association perceptions of membership motivations

Participation in trade associations has the further importance of augmenting association resources. Particularly in the case of associations comprising a few large organizations, the additional resource provided by member organizations can be substantial. For example, one association of 30 members identified 21 committees and subcommittees in which representatives of member organizations participated and valued the staff time given at around NZ$500,000 (US$400,000) annually, equivalent to around a quarter of the associations income. While this was exceptional, most (63) associations have at least one committee in addition to an executive committee and this can expand participation to more organizations and to a wider range of staff from member organizations. Consistent with the dialogue facilitated by committee work, 53 associations are said to be based entirely on two-way communication between the executive and members. A further 32 indicate that communication is more from the executive to members but that significant contact is maintained by members with the executive. Other cases (15) exist where the association is based mainly on the

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dissemination of information by the association executive with little return communication from members or engagement through association committees.

The significance of the participatory network provided by an association is affected by the recruitment success of an association (Table 3). The average membership density achieved is two thirds of the potential but a fifth claim to have recruited at least 90 percent of those they target. The reliability of these estimates does vary. Some associations limit membership to a specific business activity identifiable in official statistics and monitor their recruitment against this known population. In other cases, associations have made a judgement that is based on an incomplete understanding of the potential membership or have focussed on a potential core membership that is their priority for recruitment. Where the data are reliable, the density of membership may not tell the complete picture as it can be alleged that associations fragment representation. With narrow representation boundaries it might be argued that even 100 percent recruitment leads to an incomplete network.

Insert Table 3 Membership density

Association boundaries

Most of New Zealands trade associations are small in terms of membership numbers. The average membership is slightly over 390 but slightly over half (53) have 100 or fewer members, 35 have 50 or fewer members and 7 have 10 or fewer members. Consequently, the average membership reduces to 170 when the nine largest associations that account for 60 percent of the total number of association members

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are excluded. (These membership data relate to full members only: associate members and other subsidiary membership categories augment the membership of 81 associations. In around 10 cases, associate members equal or outnumber full members but generally they are significantly fewer as well as being excluded from association decision making.) Five considerations need to be considered alongside the membership numbers before concluding they are a sign of weakness.

First, the relationship between membership density and membership size is weak (Figure 1). Overall, associations of fewer than 100 members are more likely to have recruited two thirds or more of their potential membership than are associations with a larger membership but the overall relationship between membership numbers and density is weak (correlation coefficient -0.218, Figure 1). Consistent with the expectation that narrowly constituted groups are best able to control free riding and pursue collective interests, no association of 1,000 or more members has a membership density above 70 percent and in 4 cases it is below 50 percent. Equally, the weak overall relationship suggests association boundaries and membership numbers are explained by more than a small-group recruitment advantage. One explanation may be that membership is motivated by more than the pursuit of collective goods.

Insert Figure 1 Association membership numbers and density

Second, only two associations report being constrained by the possible leakage of association benefits to non members although a larger group (22) perceive a potential non-member problem. For the majority, the presence of non members is not perceived

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to influence the activity or effectiveness of the association. The majority lack of concern can be interpreted as an indication that narrow memberships are containing the spill over of benefits to non members. If so, any loss from association fragmentation needs to be balanced against the gain from achieving a high rate of membership from the constituency represented. At the same time, it is important to recognize that associations can minimize the spill over of member benefits in ways other than by restricting membership boundaries. Successful influence over the design of new or existing regulation can sometimes result in privileging association members over non members. Association membership may, for example, be identified as a way of meeting a regulatory requirement or of demonstrating that best practice is followed. Engagement with non members is more an aspect of New Zealands trade associations than a perceived weakening of association activity. Forty associations claim to engage frequently with non members with a similar number indicating it occurs from time to time. This interaction includes offering conferences, professional development or similar events to non members (and in the process at least partly recouping lost membership fees with a differential registration fee). There may also be consultation with non members on industry strategy and public policy submissions. Given the benefit of representing an industry-wide perspective some associations include non members in their dialogue where issues are deemed to be of sufficient importance.

Third, participants believe that membership boundaries define areas of common interest that enable sector-specific matters to be addressed. Around a third of associations (35) identify another trade association that their members may join but rather than being a competitor for members, other associations are viewed as having a

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different purpose or membership focus. In this sense membership boundaries respond to the fragmentation of business interests that sometimes separate sectors or types of enterprise. For example, there are cases where two associations exist in the same sector, one supported predominantly by foreign-owned enterprises and the other supported by locally-owned enterprises. This division also demarcates businesses that develop patented pharmaceutical products from those that make and distribute generic, non patented product. Similarly there are separate associations for the metal ore mining and aggregate quarrying sectors but again this is because closely related sectors are challenged by different regulatory issues. Businesses representatives favour focussed associations to ensure that their specific concerns are addressed. This logic rather than a concern to contain free riding is the primary explanation for separate representation. Indeed umbrella or peak associations are a feature of those sectors with a particularly high density of associations, such as construction, transport and tourism. These provide coordination between associations on common issues, generate economies in administration and add to the resources that can be devoted to industry projects. In addition, associations with overlapping membership may work together on projects of joint interest such as jointly sponsoring data collection or by coordinating submissions on industry regulation.

Four, small groups arise where networking is an important motivation for membership. In a small association it is possible that the representatives of member organizations will be known to each other and that the association is sustained by direct communication between member organizations as well as from the association executive to members. Conversely, in a large association of 1,000 or more members such interaction is not possible and this brings more reliance on communication from

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and to the associations executive staff regional branch meetings, executive committees, annual conferences and association seminars will facilitate small networks within the membership. In effect there are two different types of trade association each of which has its own strengths and weaknesses.

Five, representational boundaries are dynamic. Half the sample (49) have discussed amalgamation with another association in the recent past and in around half the cases this has led to a merger or some commitment to consider merger at a future date (perhaps coinciding with an expected retirement of one of the associations executives). Wholly new associations also arise in significant numbers. A quarter of the associations (25) have been established post 1987 but these account for 5.9 percent of the total membership in the sample. New associations have formed partly in response to government funding made available to collective industry projects in priority areas of the economy such as biotechnology and the creative sector. More frequently, they respond to increased specialization in growing areas of the economy. The network motive for association membership is particularly strong among the newly established associations (Table 4) reflecting the demand for organizational learning and market shaping initiatives in emerging sectors of activity.

Insert Table 4 Member motivations by age of association establishment

Association resources

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The significance of different membership logics will vary according to the dependency of an association on current membership fees. Where the dependency is high, sensitivity to benefit leakage to non members might be expected to be higher than where associations are funded from multiple sources of income. This is the essence of Olsons by-product theory in which collective activity arises through the attraction of members for other purposes. In New Zealand, annual membership fees are the main source of income for most associations but frequently it provides less than two thirds of annual income (Table 5). Trading activity and sponsorship are the two most frequent alternative income sources. Trading activity income comes from three main sources: surplus income from running conferences, seminars and other industry events; commissions on income generated for third party suppliers of goods and services to member businesses; commercial activities such as voucher schemes, merchandise sales and the provision of secretariat services to other associations.

Insert Table 5 Sources of association income

The specific types of additional income are significant in giving most scope for some degree of independence of the association executive from membership restrictions on what they will support through annual subscriptions. Sponsorship, one of the sources of additional income, typically supports specific events organized by an association such as conferences, seminars or trade shows. The interest of sponsors is generally to encourage participation in such events to a wide an audience as possible, including non members. Trading activity can include subsidiary businesses run as fully commercial entities. Special project funding generally comes from government

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funding to deliver a specific programme or to support establishment costs of a new association. This form of additional income can, therefore, add to ability of an association to fund public good activity in ways that lessen concern about non member free riding. As well, special project funding can also arise as a device to retain control over association activity by funding lobbying work on an issue-by-issue basis rather than through general subscription fees. This mode of funding can be seen as a further way of controlling spillover benefits other than through membership boundaries, although it tends to be most characteristic of associations with a small membership of comparatively large organizations. Additional funding is relatively easy to coordinate among a small group each of which is potentially willing to contribute significant resources. Large organizations may see combined advocacy as having influence while being reluctant to fund this entirely through a membership fee to retain control over the issues pursued by the association.

Overall, there is no clear relationship between funding diversity and membership size. The dependence on subscription income reduces as the number of members increases but the correlation coefficient is weak (-0.286). A stronger relationship exists between the reliance on annual fee income and the number of staff employed by the association (-0.371), indicating that more staff are employed as income diversity increases. Of course, additional income streams bring their own administrative and organizational demands but equally they may relieve some of the need to invest in membership recruitment and retention. Interviews with association executives suggest a range of impacts from a reduced reliance on subscription income. In the case of the association with the highest proportionate and absolute trading activity income, it resulted in a prolonged freeze on membership fees and enhancement of services

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available to members. In other cases it encouraged investment in more industry good projects than would have been possible had the association been limited to subscription income. Indeed, some association executives are critical of associations becoming independent of membership fees seeing this as threat to the maintenance of a strict member service orientation. This outlook is encountered in some of the associations linked to the non traded sector of the economy that view industry good initiatives as outside the legitimate role of associations. Such a view may be explained by the perception that industry performance depends on the state of the economy rather than conditions that an association might influence.

Aspirations and performance

Finally it is important to recognise that trade associations vary in their current aspirations and in their attainment of their aspirations (Table 6). This information is significant when evaluating claims that associations are trapped in a low capacity, low service bind. Judgements on such claims need to accommodate differences in the capacity required to provide the services sought from the association and that some associations judge that they are achieving significant outcomes. This suggests that it is not general organizational features of associations that may restrict the service delivered but rather specific weaknesses in lesser performing associations.

Insert Table 6 Assessment of performance in attaining association aspirations

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Two widely held aspirations are to build good relations with government departments and to encourage a united industry voice. The overwhelming majority of associations believe that they are at least performing well in meeting these aspirations. Other aspirations are less shared among associations. Almost 80 percent aspire to facilitate conditions conducive to industry growth but it is perhaps unexpected that this is not a key target of all associations. Those without the aspiration include associations linked to personal service industries where industry growth is seen to be constrained mainly by the overall state of the economy. Similarly, saving individual company investment through the development of collective resources is a frequent but not uniform ambition. Associations dominated by large enterprises are typically those without this ambition as well resourced organizations tend to be least motivated by a collective supplied resource whereas services such as legal advice can motivate membership from small businesses. As well, it is mainly associations with a large proportion of small enterprise members that aspire to putting non members at a competitive disadvantage.

The average share of members that are small enterprises is 62.5 percent for those who seek to place non members at a disadvantage (and similar for those indicating it as a partial objective) compared with 38 percent for those that do not. Associations linked to the building trades, accommodation and vehicle repair sectors among others seek to become a form of quality club based on adherence to a code of practice. This goal arises where industry entry barriers are low and where poor business practice is a risk to the reputation of all business participants. Such industry self regulation can also be designed to achieve other objectives as when adherence helps segment market demand. The impact of the membership profile is similar with regard to the extent to

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which associations seek influence over members although the link is weaker than for the pursuit of competitive advantage. Those that seek this influence have an average 55 percent share of small enterprise members while those without this ambition have 47.6 percent (with the share around 50 percent for those indicating it as a partial objective). An association potentially has more chance of influencing small enterprise members to the extent that they have a greater reliance on their association membership for gaining access to advice and resources than do large enterprises.

Decision making processes within associations are another source of diversity that bears on the capacity sought and attained. In associations with a small number of members, leading industry players tend to retain control of the aims and objectives of the association. A division exists between those associations that address issues only on the basis of a membership consensus and those that pursue a more fragmented agenda. Related to this, associations are significantly differentiated between those where key members give their support selectively to association viewpoints, retaining the prerogative to voice their perspective independently and those where the association is assured that individual members will align with the association. Associations assured of member unanimity are not always more powerful as it can simply mean that the association does not address issues on which there are different perspectives. On the other hand, where the association has little control over the instigation of lobbying by individual members it does tend to weaken the status of the association. Being seen as the sector representative is critical to the status of an association and while most can make this claim a few are weakened by the tendency for dominant industry players to make selective use of association advocacy. Trade

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associations benefit where industry members doubt the value of or at least lack the resources for independent representations.

EVALUATING MEMBERSHIP LOGICS

The issues raised by the New Zealand evidence have a number of implications for established views of trade association membership and significance. First, there is a need to consider the sector as a whole as well as the state of individual associations. A focus on the strength of individual associations can overlook the extent of cooperation and shared resources within the sector as a whole. Few groups perceive that they are in competition for membership with other associations and this enables a generally high level of cooperation on matters of mutual concern. At the simplest level this involves two or more associations working jointly on specific projects that can vary from submissions on public policy issues to ongoing industry data collection. The capacity for flexibly combining resources adds strengths to the trade association sector in ways that may not be apparent when studying individual associations. Small, specialized groups provide a vehicle for addressing specific issues with their relatively committed and motivated members. Broader concerns are addressed by a mix of permanent, semi permanent and ad hoc groupings of associations.

Second, the significance of individual associations needs to be judged over time as well as from a cross section of the current organization and activity of associations. Limited resources constrain the range of activity carried out over any period of time but over the longer term the main activities of an association can vary substantially.

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For example, a major new piece of industry regulation can be a focus of association initiatives for several years subsequently followed by a period of business development and industry promotion. Thus while all the respondents were able to provide a profile of their activity over the previous year a caveat was frequently added that a different answer would have been given if an earlier time period had been examined or if the future pattern was examined. The extent of prioritization needed may be viewed as a sign of resources holding back activity but it equally can be seen to match the capacity and willingness of business to engage in industry projects of long term significance or otherwise not of immediate business importance. As well, over time there is evidence of associations addressing and resolving internal differences. Two thirds (69) of associations have been faced by an issue in the recent past that initially divided their members and on which they have since negotiated an agreed outlook. With this agreement the association is progressing activity on the matter in question. Around half (38) are faced by another issue on which agreement has not been reached and the matter has been left in abeyance. In comparison, there are six associations unable to resolve an issue on which their association members are divided and that have no recent experience of resolving a membership division. The scale and centrality of these issues varies but they are generally indicative of associations that have an engaged membership and that have some degree of capacity to modify the outlook if not activities of members.

Third, fragmentation can be a precursor to activity rather than a sign of member unwillingness to empower an association. Fragmentation responds to real divisions in business interests that give rise to different priorities for associations to address. Lobbying is conducted on comparatively narrow agendas because this level is

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important not because it is the only level on which business is prepared to support activity that has industry good outcomes. From a business perspective, the alternative of operating within larger, encompassing groups to address industry specific matters is unattractive. It implies a need for continuously monitoring and prompting the larger association to ensure issues of concern are being recognised and addressed. Rather than being a control on free-riding, fragmented representation may be explained by the demand for industry specific agendas to be progressed.

The networking motivation for association membership can change the evaluation of associations. Trade associations have been distinguished by the presence of a third party coordinator but this does not necessarily mean that the association is limited to communication through the coordinating executive. Participatory associations have importance beyond the formal activities and services supplied as they are potentially the arenas in which much informal interaction also occurs. The demand for this is indicated by the proportion of associations indicating how the opportunity to learn from other members is an important motivation for membership. Another is the emphasis on activities that provide forums for member interaction such as conferences, workshops and training events. Moreover, many associations do not restrict their involvement to members so that associations are playing some role in integrating a broader range of activity then just their fee paying members. One of the strengths of trade associations as a business network is the combination of ongoing formal activity combined with the possibility of informal interaction.

This discussion implies that trade associations merit more attention as significant forms of business network than has been given in the past. Changes in the external

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and internal environment of associations are potentially strengthening the capacity of individual groups and may help to explain the difference between this studys findings and those reporting an evaluation completed in the early 1990s that was largely negative about the capacity of trade associations to contribute to business development (Enderwick and Wilson 1992).

Externally, the depressed economic conditions of the late 1980s and early 1990s contrast with the sustained economic growth prior to 2007. Economic buoyancy can increase business entry, reduce barriers to inter-firm networking, create or at least expand new areas of business activity, increase labour and other resource shortages and more openness to new forms of competition all have potential to increase demand for association membership. An expanding agenda of public concerns such as advertising and obesity, other public health concerns, environment and consumer protection bring threats of regulatory change that again tend to bolster support for associations.

The internal environment of associations has been affected by changes in the structure of corporate New Zealand. During the 1980s, a small number of corporate groups grew to dominate key parts of the economy (Le Heron and Pawson 1996). Rivalry between the groups and capacity to address industry issues individually tended to constrain the role of trade associations. Particularly in the building products and wood processing areas, new association have emerged and established ones have grown in membership in the wake of the break up of former dominant corporate entities. With a membership now more inclusive of their sector and comprising enterprises of more equal scale, the basis for collaboration and perceived value of an association has

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grown. At the same time, other associations have gained in strength from an increase in industry concentration and from technological convergence that reduces the fragmentation of industry interests. This arises where the shift is from many small enterprises with individual specialisations to more medium-sized enterprises with overlapping markets. Of a different nature, the efficiency of association information gathering and dissemination has been enhanced through the growth of electronic communications since the 1980s.

Environmental change has not always been positive for trade associations but the combination of these influences gives reason to believe that the support for association membership has been growing. It also underlines the importance of reconsidering the role of trade associations in the light of changes in the business environment.

CONCLUSION

This evaluation is based on evidence from a comparatively large sample of industrial and service sector trade associations. The essential membership logics of influence and service are found to continue to provide a useful framework for evaluating membership but some refinements have been offered. An alternative fivefold classification of the roles performed by associations has been given representation, maintenance, strategic, transformational and social. These roles can be viewed as an elaboration of the influence and service roles except that they recognize the proactive role that associations can play in industry development and they highlight the scope

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for member participation within association activities. A further outcome of the study is to raise questions about how far the membership logics necessarily constrain the importance of associations. Narrow membership boundaries respond to the fragmentation of business interests rather than concerns to manage free riding outsiders. Few associations have attained 100 percent membership from the group they seek to represent but generally concerns with non member outsiders are low. At the same time comparatively narrowly constituted groups bring advantages of high levels of membership and the ability to focus on matters of shared importance while allowing business-wide issues to be addressed through cooperation between individual associations and other collective business associations. Various mechanisms for controlling free rider problems other than membership boundaries have been identified. The study has also raised questions about the ability to judge the service capacity of associations based on the need to accommodate differences in the capacity sought and that might realistically be expected.

The size and structure of individual industries influences the form of trade association, as do the challenges and opportunities encountered in different sectors. Some of the most impressive associations judged by their contribution to business growth are linked to sectors that are growing strongly and undergoing changes in their market structure. In this context it becomes hard to promote a model of what a trade association should aspire to be or to benchmark performance between associations. Guidance and evaluation might be better directed to the individual components of potential association activity governance, membership involvement,

communications, strategic planning and so on rather than the association as a whole.

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Variation in the reliance on annual membership fees as a share of annual income is another source of diversity. This variation may be indicating the emergence of a new logic for trade association membership. A significant proportion of New Zealands trade associations that aspire to promoting business growth have developed independent sources of income. This may be contributing to reduced sensitivity to the spillover of collective good outcomes than anticipated by previous discussions of membership logics. Many of New Zealands trade associations appear to combine elements of service and collective influence and incorporate strategies designed to push their industry to higher levels of performance.

Underlying the findings is the suggestion that the environment shaping the support for trade associations has been changing. Externally there are reasons to believe that the demand for association membership has been increasing and that internally membership profiles and association capacities have enhanced the appeal of association membership. Aspects of this environmental change may be peculiar to New Zealand, as in the weakening of some corporate groups that has allowed associations to become more inclusive of their industry sectors than associations sometimes were. Partly for this reason it would be of value to determine whether this review of association activity is mirrored in the experience of other economies with a strong presence of voluntary trade associations. Meanwhile a fresh assessment of the contribution of trade associations to business development appears to be needed. Compared with the interest shown in other forms of business network, national industry associations have been neglected by researchers. This may partly be explained by the acceptance of past judgements that have tended to be dominated by the perception of industry associations as protectionist lobbies without capacity to

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contribute to industrial development strategy. The New Zealand evidence shows that national associations appear to have grown in significance and are now an effective form of collective association.

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Table 1 Summary of association roles Purpose of activity Representation Illustrative activity Assisting regulatory compliance, representation to government and maintaining industry relationships with public agencies and other industry associations Promoting professional standards and maintaining industry self regulation Supporting industry growth through the promotion of industry infrastructure, addressing resource constraints and collective marketing Assisting business adaptation to new market environments Recognising, motivating and informing industry participants

Maintenance Strategic purpose

Transformational Social

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Table 2 Association perceptions of membership motivations Number of associations (n = 101) Very Some Unsure imp. Imp. 34 50 2 27 54 3 52 42 1 69 25 1 33 35 13 55 34 2 37 46 2 6 3 0

NA 15 17 6 6 20 10 16 92

Motivation for membership Demonstrate status in the market Loyalty to the industry Opportunity to learn from other members Have representation to government Support an industry strategy Access to association activities/privileges Access to individual advice Other

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Table 3 Membership density

Number of associations Share (%) of all association members

Less than 33 13 24.1

Membership penetration (%) 33-66 67-89 90-99 32 29.5 39 40.69 14 5.59

100 3 0.09

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Table 4 Member motivations by age of association establishment

Three most frequent very important member motivations Associations established Associations established Associations established post 1986 (N = 25) from 1890 to 1936 (N = from 1971 to 1986 (N = 25) 25) Opportunity to Access to Have learn from other association representation to members (18) activities/privileges government (21) (18) Access to Access to association association Have activities/privileges representation to activities/privileges (16) government (14) (10) Have representation to government (13) Opportunity to learn from other members (13) Opportunity to learn from other members (10)

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Table 5 Sources of association income

Source of annual income (number of associations) Share Membership Fee for Trading Special Sponsorship Other (%) of subscription service activity project total funding income 100 15 0 0 0 0 0 66-99 39 0 5 3 0 1 33-65 33 3 12 3 5 4 1-32 14 9 34 15 32 34 Nil 0 89 50 80 64 60

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Table 6 Assessment of performance in attaining association aspirations

Performance against associations): Very Neither Association aspirations well or well nor well poor Building cooperation between member businesses 57 9 Facilitating conditions conducive to industry growth 53 19 Good relations with government agencies 82 14 A united industry voice 79 12 Providing resources or activities that save individual 49 9 company investment Placing non members at a significant competitive 17 7 disadvantage Attaining influence over members to obtain support 26 11 for association strategies

aspiration (number of Poor or Not an very aspiration poor 2 32 7 22 0 5 2 8 6 37 9 0 68 64

N = 101 except for Building cooperation between member businesses where one respondent indicated that they were not able to judge the associations performance.

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Figure 1 Association membership numbers and density

Share (%) of potential membership recruited

100 80 60 40 20 0 0 100 200 300 400 500

Number of members

N = 92, associations with 500 plus members not shown and membership of one association not recorded.

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