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Legitimacy - Implications for New Venture Competitiveness

Johnson, Aaron
University of Idaho
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The overall objective of this project is to identify the specific strategic actions start-up food processors can incorporate to intentionally develop legitimacy for their businesses. Achieving this objective will help small-to-medium-sized agricultural producers develop alternative markets for their products and improve rural economies through new venture creation. The overall objective of this proposal will be achieved by pursuing the following two research objectives:

Research Objective #1: Determine Factors that Characterize Legitimacy in a Start-up Food Business. Working Hypothesis: Specific company attributes are perceived as indicators of the level of legitimacy for a start-up food business. These attributes can be identified and their directional influence on legitimacy understood.

Research Objective #2: Identify Actions that Positively or Negatively Drive Factors of Legitimacy in a Start-up Food Business. Working Hypothesis: Specific actions of a start-up food business will lead to the attributes that influence legitimacy. These actions are identifiable and can deliberately be developed. This research is innovative because, although legitimacy can be recognized as a key element for success in almost any given business enterprise, the factors that dictate legitimacy in rural, start-up food businesses have not, to date, been specifically addressed. This study is expected to yield the following outcomes:

1. It will develop a better understanding of the overall extent to which legitimacy contributes to a successful food processing business in rural economies.

2. It will determine the influence of various factors associated with the development of legitimacy in food startups.

3. It will demonstrate how these influential factors can be intentionally crafted to significantly enhance the success of start-up food processing businesses.

Collectively these outcomes will increase start-up food processors' probability of success, which will, in turn, provide alternative markets for agricultural producers in rural areas and add to rural economies through the creation of jobs and revenue.

More information

Food is an important industry to the US and Idaho economies, and the food industry has dealt with globalization for many years. A global market place increases the intensity of competition and causes fundamental shifts to occur, making these markets even more connected and competitive (Oyewumi, 2007). Other changes occurring in the industry, like food safety and supply chain security concerns (Degeneffe, et al., 2007, Fritz and Schiefer, 2008) and evolving consumer demands (Johnson and Johnson, 2008) result in a louder voice to industry watch groups as well as greater oversight and regulation by government. In an economic environment defined by market globalization and growing government regulations, increased competition and costs of doing business have left many rural communities, especially those supported primarily by agriculture, struggling to develop opportunities for economic growth. Because the small-to-medium-sized agricultural producers in these communities lack the economies of scale to compete in the new global marketplace, they are increasingly turning to alternative niche markets in an attempt to survive economically. Growth in rural economies is largely dependent on the efforts of individuals and groups creating these new ventures. Although there is a well-developed body of knowledge about running a small business, and specifically about running a food business, there is far less literature about the initial key activities required for starting a successful rural food processing enterprise. Additionally, the literature lacks tangible information on how a start-up food processing company develops relationships and other business characteristics to earn "a social judgment of acceptance, appropriateness, and desirability, [enabling them].to access other resources [including customers] needed to survive and grow" (Zimmerman and Zeitz, 2002). This social judgment is termed legitimacy and is considered to be a critical contributor to the success of a start-up company. A better understanding of exactly what new rural-based food processing companies can do to increase their legitimacy early in the start-up process is expected to increase their chances of success, and in turn enhance their rural economy. The long-term goal of this project is to develop start-up strategies that will help assure that new rural-based food processors will meet with success in the least amount of time, while minimizing their exposure to economic risk.

Although the research approach has been planned to directly address the two research objectives, the actual work is planned in three phases: development of scales to measure the four types of legitimacy and four strategies of legitimacy; a pilot test of these scales; and a national survey to test the connection of firm actions, legitimacy strategy, types of legitimacy and firm performance. Each phase and the targeted subjects are detailed below. Phase I - Following Churchill (1979) and Bluedorn, et al. (1999) scales will be developed to measure the eight sub-constructs of strategies of legitimacy and types of legitimacy. The process will begin with researchers generating a minimum of 20 items for each sub-construct. These items will then be reviewed by five to six selected colleagues in agricultural economics and colleges of business across the country that have extensive knowledge of the food industry. The objective of this review is to pare down the list to approximately five items per scale and improve the language of each item. Finally, the shortened item list will be discussed in a focus group format by eight to ten top level management types from the food industry. The objective is to once again further refine the list and assure its relevance to industry participants. Phase II - At the end of the scale development phase, a five item scale for each of the eight sub-constructs will be ready for testing. Before extensive money is spent on a national survey, these items need to be tested in an actual survey setting. Therefore, 50 responses from top food management types will be targeted. These responses will be used to check the validity and reliability of the scales (Netemeyer, et al., 2003). Exploratory factor analysis will be used to determine the factor loadings of these items. If the factor analysis confirms the items relationships, the project can move to the final phase. If it doesn't, addition work will be done to refine the items that prove troublesome. This will include revisiting the results of the work in Phase I, as well as reviewing the items with a few industry experts. Phase III - Once the scales have been developed, tested and proven, a national survey will be administered. The survey will target suppliers and buyers of food processors as well as managers from food processors located in both rural and urban areas. Rural and urban companies are targeted in the sample so that a comparison from the two areas can be made to develop a more thorough understanding of legitimacy for rural food processors. Survey respondents will provide data for the eight legitimacy related scales, relative subjective firm performance, and various control variables like risk aversion, company size, etc. The data will be analyzed using confirmatory factor analysis (Harrington, 2009), cluster analysis (Ketchen Jr, 1996, Norusis, 2008) and structural equation modeling (Bollen, 1989, Kline, 2005). The results will identify the connections between scales and firm performance.

PROGRESS: 2013/01 TO 2013/09

Target Audience: The project had one academic journal and one thesis produced this past year. The target audience that was reached was academics considering the challenges startup firms face. Changes/Problems: The original plan to identify the factors of legitimacy has met with insignificant results. The analysis on the data collected showed, at best, inconclusive results. At the present time, there is not enough time left in the project to collect additional data. In addition, due to being unsuccessful in securing extramural funding, there are not the funds necessary to do so. The plan is to revisit the data and determine if anything can be discovered through alternative analyses. What opportunities for training and professional development has the project provided? Nothing Reported How have the results been disseminated to communities of interest? The results have been published in the journal article. The thesis, however, has only been submitted internally. Additional work is planned to get it in braoder modes of distribution like journal articles and trade press. What do you plan to do during the next reporting period to accomplish the goals? Whereas the project is drawing to a close, the efforts to resolve Research Objective #1 has been minimally successful. I plan to revisit work that has been done on that objective to see if the data we have reveals any discoveries with additional analyses.

PROGRESS: 2012/01/01 TO 2012/12/31

OUTPUTS: The project has no reportable outputs for this reporting period, partially due to the limited available research grant programs in 2012. However, additional thought and structure were given detailed future plans to include the development of two grant proposals to AFRI this coming year. One is looking at the actions of nascent companies in agriculture and identifying their relative success. The other is considering the interaction between rural start-ups and community social capital. PARTICIPANTS: Dr. Rodney Holcomb from Oklahoma State University and Dr. Clay Dibrell at University of Mississippi have collaborated on the legitimacy scale development aspect of this project. We have had numerous interactions on the concepts and constructs of future work to be completed in the coming year. Dr. Phil Watson from the University of Idaho has worked on exploring the foundational work of private-public entity interaction in rural communities. TARGET AUDIENCES: Target audiences for the planned work include rural economic development professionals, entrepreneurs (both rural and urban), and supporting professionals like extension agents and consultants. PROJECT MODIFICATIONS: The project has expanded slightly from focused on how new ventures create legitimacy to include the private-public interaction and how social capital of a community can impact the legitimacy process.

PROGRESS: 2011/01/01 TO 2011/12/31

OUTPUTS: The recent findings of the research were reported in a paper at the 5th International Conference on Business and Sustainability. PARTICIPANTS: Jaemin Kim Ph.D Student in Management School of Business Administration University of Mississippi Clay Dibrell Associate Professor of Business Management School of Business Administration University of Mississippi TARGET AUDIENCES: Faculty working on related topics. PROJECT MODIFICATIONS: Not relevant to this project.

PROGRESS: 2010/01/01 TO 2010/12/31

OUTPUTS: - Survey instrument was completed, tested, and revised - Survey of regional food processors was completed - Survey data was entered - An initial analysis of the data was performed PARTICIPANTS: Clay Dibrell, associate professor at The University of Mississippi, has been involved with the development and proofing of the survey. He is also an integral part of the analysis process that will take place in the next period. TARGET AUDIENCES: Nothing significant to report during this reporting period. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.

Funding Source
Nat'l. Inst. of Food and Agriculture
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Legislation and Regulations
Chemical Contaminants
Heavy Metals
Natural Toxins
Viruses and Prions
Bacterial Pathogens
Food Defense and Integrity