Customer relationships and communication
in agribusiness

An essential part of business is to connect with others: above all customers, but also employees, business partners and competitors, investors and analysts, and public-sector organisations.Building effective relationships and communicating professionally with others are therefore considered key drivers for success in all businesses, including those operating in the agricultural sector.  In essence, effective relationships

• help to reduce environmental uncertainty (e.g., by securing a more   stable or higher inflow of orders),

• contribute to obtain better access to crucial resources (e.g., capital,   specialised skills or knowledge), and/or

• may result in higher business productivity (e.g., by dealing with more   loyal employees).

Business relationships differ from personal relationships because of their formality and supposed independence from individuals.  Nevertheless, strong personal relationships generally contribute to good business relations even if they are not mandatory.  Given their higher degree of objectivity, business relationships can be analysed formally and managed systematically.  Consequently, considerable research effort has already been devoted to better understand and manage business relationships.(For a list of recent business-oriented articles/books click here.)

The focus of the FOODCOMM research is to analyse the role (prevalence, necessity and significance) of economic relations and communication in selected European food chains.  For this, both the commonly used relationship/co-operation types (e.g., markets, contracts, financial participation arrangements or integrated corporate structures) and the overall goodness of relationships and communication between chain actors (i.e., farmers, processors and retailers) has been investigated.

The choice of used relationship types is mostly (on average in 75% of cases) free. It has also been found that the choice of the used relationship types is not systematic but highly chain and chain stage-specific and only to a minor degree influenced by company strategyrelated factors (such as a general long-term orientation or a desire to remain independent).

The findings also have identified key determinants for good chain relationships, among which effective (“good”) communication is the most important one. More generally, it appears that relationship goodness in European agri-food chains is mainly determined by dyadic, relationship-specific factors (such as good chain communication) and that the goodness of chain relationships is independent of a chosen relationship type. These empirical findings confirm the perceptions from the literature and earlier interviewed sector stakeholders that no particular relationship type is superior to another since good, sustainable relationships can be found in all of them.

With the benchmarking option you can obtain an assessment of the goodness of your B2B relationships and communication with your upstream or downstream main customer.  The following charts show the results you can expect to obtain when participating in the survey.  They give you a clear depiction of where you stand with regard to your B2B relationships and communication relative to your competitors.

How to improve agri-food chain relationships: Recommendation 1

Checking the potential for improving communication with the main business partners is very important
Communication quality has proven to be essential for the sustainability of a relationship.  Good communication implies exchanging ‘good’ information with business partners, at the ‘right’ time(s).
Information is of good quality if it is relevant to its recipients, accurate, reliable and consistent.

1. Relevance means that information is useful and significant.  Accuracy stands for a clear and precise formulation and transmission of information.

2. Reliability corresponds to the trustworthiness of the information.

3. Consistency means that if different communication channels are used simultaneously, the transmitted information should be the same, or at least the multiple messages should not contradict each other.

Also, the frequency and timeliness of communicating with the exchange partner is essential.  Purely increasing the amount of information or frequency of information exchange bears the risk of an information overload due to the supply of irrelevant information.  As modern computer and telecommunication devices have eased the continuous exchange of a large amount of information between businesses this danger has increased.  Therefore, it seems essential that businesses provide each other periodically with feedback on the current goodness of communication quality and the efficiency of information exchange, so as to identify areas of improvement.  This also implies checking the suitability and mutual consistency of applied computer and telecommunication devices, with the aim to fully exploit their potential to increase the efficiency of information exchange.

How to improve agri-food chain relationships: Recommendation 2

Economic relationships have a personal dimension that is potentially significant
The development of personal bonds between owners/managers/staff of businesses can help to improve business relationships as it may strengthen mutual trust and commitment.  Trust is often an important precondition for the willingness to exchange information, especially if it is confidential.  Thus, there is also a close link between the existence of personal bonds and communication quality, which was confirmed in the FOODCOMM research.  Personal bonds can be extremely helpful when a conflict arises within a business relationship.  Our results also indicate that the existence of personal bonds is especially relevant in the relationship between farmers and processors.

Face-to-face meetings are seen as an important means for developing personal relationships.  Such encounters prove to be especially beneficial when establishing new business relationships.  However, for already long-term existing partnerships telephone, fax, e-mail and other modern communication devices are sufficient for the day to day business, personal meetings from time to time can be extremely effective not only to solve arising conflicts, but also to develop jointly business strategies for the future.

Given the relevance of personal bonds, a business should be fully prepared when the staff that has dealt with key customers/suppliers leave, or change positions within a company.  The FOODCOMM research has found that especially for Finland and Ireland, the occurrence of key staff leaving has a significant negative impact on agri-food chain customer or supplier relationships.  The problem of key staff leaving might be mitigated by, e.g., securing transition periods which allow for the “handing over” of the relationship to new staff.

How to improve agri-food chain relationships: Recommendation 3

The negative effects of unequal power distribution on relationship goodness might be mitigated by communication
In most business relationships, market power is not equally distributed among partners.  The FOODCOMM research shows that an unequal power distribution between business partners has a negative impact on the relationships in 4 of the 6 countries studied.  An imbalance in the scale and market power between businesses may create a feeling of insecurity among the smaller and thus often more vulnerable partners.  This is often linked to limited confidence in the fairness of their treatment by the more powerful business partners.  As people do not only care about their own material payoff but also about fairness, such a situation lowers trust and commitment and thus is detrimental for the goodness of a relationship.
Larger companies can make their business relationships more sustainable by securing a win-win situation and a fair distribution of rewards.  A potential negative impact of unequal power distribution can, at least to some degree, be offset by improving communication and transparency and/or by developing personal bonds with business partners.  Where large business partners have a superior understanding of market requirements, conditions and developments, sharing of this information with smaller suppliers may lead to benefits for all concerned.

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