Sustainability has become a favourite buzzword among development practitioners over the last few decades. ‘Sustainable’ is what communities and society ought to be, runs the mantra. Not only that, the impact of development interventions and the organizations working for a sustainable future should be sustainable too. Can social enterprise help to meet these needs? A new book, Creating a Space in the Market: Social enterprise stories in Asia, suggests that it might.
The book presents the findings of a research project jointly undertaken by the Conference of Asian Foundations and Organizations (CAFO) and the Asian Institute of Management (AIM) on social entrepreneurship. The research studied 13 exemplary social enterprises in the Philippines, Thailand, Indonesia and India.
Wealth creation for development
First, a word about the definition of social entrepreneurship adopted by the research. Social entrepreneurship involves the promotion and building of enterprises or organizations that create wealth, with the intention of benefiting not just a person or family, but a defined constituency, usually society at large or its more marginalized groups. Two things about this definition are especially noticeable. First, it links social entrepreneurship to wealth creation for development ends. This functional definition means that we are dealing with organizations that are operating in the market. It also excludes development initiatives that do not involve wealth creation. Second, it does not include all wealth-creating endeavours, particularly those of business enterprises, whose main reason for being is to generate profits for the enrichment of individuals or their families. Social entrepreneurship’s primary stakeholders are the marginalized sectors of society.
The research also identified three social enterprise development strategies:
Resource mobilization strategies aim to generate surplus income from selling products or services, and to use such surplus income to finance the operations of their respective development programmes or agencies.
Intermediation strategies primarily address the need to provide access to services like product development and marketing.
Empowerment strategies address the issue of ownership and control of social enterprises by the poor.
The following cases from the research illustrate each of these strategies.
In South and South East Asia, traditional sources of funds for CSOs – grants from public and private sources, both local and foreign – have become scarce. The Philippine Educational Theater Association (PETA), which uses theatre as a vehicle for social change and empowerment, was advised by its main donor in the 1980s to identify programmes that could be income-generating. Gradually, PETA explored the commercial market, charging standard fees for its performances. Today, about 40 per cent of its revenues come from income that it derives from its shows and other services.
The concern for the sustainability of development interventions has also pushed civil society actors in Asia to set up intermediary organizations that provide access to services that are otherwise beyond the reach of marginalized groups. These include product development and marketing, financial, technological and other services. In Indonesia, Yayasan Pekerti was set up in the mid-1970s by NGO activists as a not-for-profit organization dedicated to developing community-based economic sectors, with a focus on marginalized artisans. It later set up a commercial arm, PT Pekerti Nusantara, to serve as an intermediary marketing organization for its community partners. Pekerti is part of the Fair Trade movement, which aims to help marginalized producers gain greater access to markets and to become effective partners in international trade.
There is a view that sustainability is a function of economic empowerment. Accordingly, some development actors see the need for marginalized groups to gain control over strategic resources and market processes so they can be self-reliant in developing their own communities. This was what Prayong Ronnarong, a community leader in southern Thailand, sought to accomplish when he organized the Maireang Farmers’ Group to think, produce and trade collectively. This group of rubber farmers was able to successfully undertake consolidation of its members’ latex produce and the processing of it into rubber sheets, thus gearing their production towards more lucrative market channels. In the process, it not only ensured more stable incomes for its members but also acted as a development catalyst in its community.
The strategies combined
The AIM-CAFO study shows that these strategies are not mutually exclusive. In particular, the potential impact of combining empowerment and intermediation strategies is demonstrated by the Basix Group in India. Through a combination of bank and non-bank institutions, Basix provides financial and other services to more than 145,500 subsistence workers, landless poor, small farmers and micro- and small enterprises across six states. They have combined this with efforts at empowerment, devolving ownership and management of one of their non-bank financial companies to 5,000 self-help groups of poor women.
The Basix case shows that empowerment strategies need not entail ownership and management of social enterprises by the poor from the start. A number of successful social enterprises have involved the progressive transfer of ownership and management to the poor following a period of capacity-building.
Intermediation strategies have the potential of creating immediate space in the market for large numbers of the poor. Combining them with devolutionary empowerment strategies would create even greater space for the poor to become more significant players in the market, as owners and managers of social enterprises.
Differences between social enterprises and private or traditional business enterprises
These cases illustrate three key respects in which social enterprises differ from private or traditional enterprises: their primary stakeholders or beneficiaries; their primary objectives and their enterprise philosophy.
Primary stakeholders or beneficiaries
The traditional business enterprise has as primary stakeholders and beneficiaries the proprietors or stockholders who own the capital invested in the enterprise. In contrast, the social enterprise has as primary stakeholders and beneficiaries a group, usually from among the marginalized sectors of society, who may or may not own the enterprise. For example, the primary stakeholders of Yayasan Pekerti and Maireang Farmers’ Group are marginalized artisans and rubber farmers, respectively. The artisans don’t own the social enterprise but the farmers do.
In terms of primary objectives, the traditional business enterprise has a clear bottom line: profit. The social enterprise, in contrast, has a double or triple bottom line. Like its business counterpart, it needs to generate surplus or profit but, depending on the nature of its constituency, the social enterprise may have a second bottom line: to achieve social objectives like the capacity-building or empowerment of marginalized producers, as in the case of the Maireang Farmers’ Group, and/or access to markets to improve the quality of life of artisans, as in the case of Pekerti. A third bottom line, such as environmental sustainability or cultural integrity, may also be part of these primary objectives. PETA has three bottom lines: ensuring the social content of its performances and services, keeping the integrity of artistic exploration, and financial sustainability.
Enterprise philosophy: accumulative vs distributive
The traditional business enterprise is accumulative, while a social enterprise is distributive. The desire to maximize profits and minimize costs of a traditional business means, more often than not, that social and environmental concerns are disregarded.
In contrast, the wealth derived by the social enterprise is distributed to a broader segment of society, instead of just enriching individuals or families. What the business enterprise sees as costs to be minimized – payments for raw materials and labour – the social enteprise regards as benefits to primary stakeholders like the rubber farmers or marginalized artisans. It is in this sense that its enterprise philosophy is distributive. At its best, the social enterprise generates profit or surplus with due regard to social and environmental costs, and makes a proactive contribution to resolving social and environmental problems as part of its reason for being.
A wider view of sustainability
In reality, pursuing the development objectives of a social enterprise, whether social, political, cultural, economic or ecological, are often at odds with the profit motive. But, as we have seen, social enterprises seek financial sustainability not as an end in itself but as a means of pursuing the bigger agenda of a sustainable future for the poor who comprise the greater majority in Asia.
Marie Lisa Dacanay is the Director of the Social and Development Entrepreneurship Program of the Asian Institute of Management (AIM). She was Editor and Project Director of Creating a Space in the Market: Social enterprise stories in Asia. She can be contacted at firstname.lastname@example.org