Chapter 1 Introduction
1.1 Research Background
CHAPTER ONE INTRODUCTION
1.1. Research Background
With the globalization advancing continually, we are living in a bondless world. Every social issue occurs in countries would influence other societies in the world. Such like the phenomenon of the uneven distribution of resource, poverty, agriculture, environment, and so on, they are all increasing continually. However, the conventional sectors of a nation, includes public, private and the third sector cannot deal with these issues as well as before. Because public sector lacks flexibility when confronting social issues, as for the private sector they have efficiency but what they focus is to profit. Finally, due to financial limitation, the 3rd sector they would be not capable to make a long term arrangement for social issues concerned, especially after economic crisis since 2008.
But with the idea of social enterprise emerging, there are some people with entrepreneurship and different value like Yunus who found Grameen Bank in Bangladesh for solving poverty by microcredit. According to Social Enterprise Alliance of the United States (SEA) (2015), they define a "social enterprise" as "an organization or venture that advances its primary social or environmental mission using business methods." Now there are many organizations like this in the world is dedicated to balance profit and their social mission with an innovative business model.
Some social enterprises in Taiwan now can start to profit and fulfill social mission successfully at the same time. Like there is a FamilyMart inside InnoLux, which is considered as a social enterprise type cooperated by InnoLux, FamilyMart, and Taiwan Found for Children
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and Families. The purpose of its setup is to help parents, youth and children in vulnerable family to have opportunity to have a stable live by working there.
With the amount of social enterprise reported is getting more and more, and many cases has been studied and published in the paper and journal. We can find there is a trend which is more and more people are willing to tempt to change current social status by different way.
1.2. Motivation
The motivation for this research is try to study the examples of social enterprise overseas, because of the study regarding this issue in Taiwan is still relatively rare. Social enterprises, considered as a form of organization that differs from traditional for-profit and non-for-profit organizations, has been broadly discussed and systematically encouraged among academic communities and practitioners since the 1990s (Perrini, 2006). With the idea of social enterprise is conveying gradually in Taiwan, there are more social enterprises initiated by entrepreneurs but conventional non-profit organization. But in practice there are many social enterprise entrepreneurs need to overcome obstacles from trying to achieve both social and financial goals without resource. As Boschee and McClurg (2003) mentioned, the social enterprises are different from traditional nonprofit organizations because social enterprises’
earned income strategies are directly tied to their social mission. Some of these enterprises even need to compete with for-profit enterprises.
According to Alter (2006), social enterprises are driven by two forces: “first, the nature of the desired social change often benefits from an innovative, entrepreneurial, or enterprise-based solution. Second, the sustainability of the organization and its services requires diversification of its funding stream, often including the creation of earned income
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opportunities. Besides, the environment where social enterprise being is also matter. Like Kerlin (2006) mentioned, the differences of social enterprises between U.S and Europe Union stem from contrasting forces shaping and reinforcing the movement in each region.
Generally speaking, the social enterprise is still an emerging idea in Taiwan, there are about 200 relevant thesis could be searched in the national digital library of theses and dissertations in Taiwan if used social enterprise as a key word. Most of these studies focus on single and domestic cases. In fact, the related information in Taiwan remains clearly under-researched compared with conventional business, not to mention the cases from different countries.In summary, we can get more experience by studying social enterprise from different areas, and our entrepreneurs could have more opportunities to learn when they would like to initiate one. For emerging social enterprise in Taiwan, it is quite worth to refer to the business model of social enterprise oversea by researching and comparing them.
1.3. Research Objective and Questions
Based on the research motivation mentioned above, the objective of this research is to understand the current development of social enterprise, business model and the obstacles they face in Southeast Asia area. The following research questions will be studied in this paper.
1) Why did these entrepreneurs initiate a social enterprise?
2) What kind of business models do these social enterprises adopt in Southeast Asia?
3) What obstacles did these social enterprises confront in the operation? How to solve these obstacles?
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1.4. Research Procedure
The Research Procedure will follow below steps and it is shown in Figure 1-1. : 1) Setting the research topic that can represent research objectives adequately.
2) Reviewing and selecting the previous literature about social enterprise and business model.
3) Build up a research structure, includes how to analyze the acquired information from interviews by previous literature selected.
4) The representative social enterprise will be selected as an interviewed objective by purposive sampling base on their core mission, country and type.
5) For acquiring the experience from social enterprise selected, the people who is actually responsible for the enterprise operation will be inquired for interview. And seeking more understanding about social enterprise selected by contacting interviews and case study will be conducted.
6) Based on the information from interview and case study, the relevant information will be collected and analyzed under the literature structure for offering analysis result and suggestion.
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CHAPTER TWO SOCIAL ENTERPRISE
2.1. Social Enterprise
With more and more people are trying to solve social problem in a way different from previous, nowadays, social enterprise has become an emerging concept. The reasons for it includes an awareness of active citizenship, advancing information technology and rising literacy levels. Some people, however, are still confused with its meaning in practice, especially to differentiate it with nonprofit organization and meaning of corporate social responsibility.
Therefore, the relevant concept of social enterprise will be elaborated in the beginning of this chapter, includes its meaning, origins, types, differences among US, Europe and countries in Asia, and legal structure. Afterward, the theory of business model of social enterprise will be discussed.
2.1.1 Meaning of Social Enterprise
As mentioned above, the mission of social enterprise is tending to more social-change orientation in the process of their dynamic development like nonprofit organization. But the business model social enterprise used or the form of organization is usually overlapped with the existing organizations we already know, like common enterprise. People are easy to be confused with social enterprise and other common organization. With the emergence of such this organization, our society needs to know the risk and opportunity of social enterprise by
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understanding its concept
Before starting to address the meaning of social enterprise, there is one thing needed to understand first, which is there is no certain definition for social enterprise so far because of its characteristics. And the discussion for the notion of social enterprise has been continual no matter in Europe or U.S. According to Bull and Crompton (2006), this is due to the lack of an agreed definition. However, it is convinced that a social enterprise must contain both social and economic goal when it operates. As Alter (2006) described that the relationship between social and economic goals are intertwined like DNA in social enterprises: “The crux of the individual social enterprise lies in the specifics of its dual objectives – depth and breadth of social impact to be realized, and amount of money to be earned. Mission drives social value creation, which is generated through not-for-profit programs. Financial need and market opportunities drive economic values creation, which is delivered through business models. As a result, money and mission are intertwined like DNA in the social enterprise…” (p. 206). Dees (1998) also identified social enterprises are hybrid organizations having characteristics of both nonprofit and for-profit form organizations. While Dees (1998) identified social enterprises are hybrid organizations having characteristics of both nonprofit and for-profit form organizations, other scholars limit their discussions of social enterprise to the field of nonprofit management (Alter, 2004, 2006; Dart, 2004; Young & Salamon, 2002). In summary, based on the characteristics social enterprises present variously in practical terms.
For the practical definition, Social Enterprise UK defined ‘A social enterprise is a business that trades for a social and/or environmental purpose.’ Social Enterprise Alliance in U.S. defines ‘Social enterprises are businesses whose primary purpose is the common good.
They use the methods and disciplines of business and the power of the marketplace to advance their social, environmental and human justice agendas.’ In addition to the above meanings, Organization for Economic Co-operation and Development (OECD, 1998, p. 12) also have
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similar definition for social enterprise, which is “any private activity conducted in the public interest, organized with entrepreneurial strategy, but whose main purpose is not the maximization of profit but the attainment of certain economic and social goals, and which has the capacity for bringing innovative solutions to the problems of social exclusion and unemployment” (OECD, 1998, p. 12). Besides, OECD tried to identify a set of key economic and social elements in the document the social enterprise sector: a conceptual framework of Local Economic and Employment Development Programme (2006).
Economic Criteria:
1) Unlike traditional non-profit organizations, social enterprises are directly engaged in the production and/or sale of goods and services (rather than predominantly advisory or grant-giving functions)
2) Social enterprises are voluntarily created and managed by groups of citizens. As a result, while they may receive grants and donations from public authorities or private companies, social enterprises enjoy a high degree of autonomy and shareholders have the right to participate (‘voice’) and to leave the organization (‘exit’)
3) The financial viability of social enterprises depends on the efforts of their members, who are responsible for ensuring adequate financial resources, unlike most public institutions.
Social enterprises therefore involve a significant level of economic risk
4) Activities carried out by social enterprises require a minimum number of paid workers, even if they may combine voluntary and paid workers.
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Social criteria:
1) Social enterprises are the result of an initiative by citizens involving people belonging to a community or to a group that shares a certain need or aim. They must maintain this dimension in one form or another
2) Decision making rights are shared by stakeholders, generally through the principle of ‘one member, one vote’. Although capital owners in social enterprises play an important role, decision-making power is not based on capital ownership;
3) Social enterprises are participatory in nature, insofar as those affected by the activities (the users of social enterprises’ services) are represented and participate in the management of activities. In many cases one of the objectives is to strengthen democracy at local level through economic activity.
4) Social enterprises include organizations that totally prohibit the distribution of profits and organizations such as co-operatives, which may distribute their profit only to a limited degree. Social enterprises therefore avoid profit maximizing behavior, as they involve a limited distribution of profit.
5) Social enterprises pursue an explicit aim to benefit the community or a specific group of people. By doing so, they directly and indirectly promote a sense of social responsibility at local level.
2.1.2 Origins and History of Social Enterprise
Since the 1980s both the United States and Europe have experienced a simultaneous expansion in social enterprise. As a result, the emergence of social enterprises has reflected the
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two increased desire for social change from the public, as well the need for non-profits to diversify financially. So there are lots of researches regarding the development of U.S and Europe. Due to social issues, background, structure and so on various, the social enterprise in the sides of the Atlantic also has different origins (Doherty et al., 2009).
In general, the social enterprise in Europe can be traced its origins back to medieval guilds. As for the modern trends, Kerlin (2006) pointed out, “In Western Europe the modern trend towards social enterprise emerged somewhat later than in the United States and was focused on the simultaneous development of services and diversification of revenue generation in the third sector. With a fall in economic growth and increased unemployment that began at the end of the 1970s and continued into the 1990s, many European welfare states came into crisis.”
It is the Rochdale Pioneers, founded in 1844 in U.K, who are normally seen as a symbol of the start of the growth in social enterprises (Pearce, 2003). It has been 171 years since the Rochdale Society founded in December 1844 in the United Kingdom. So U.K is generally recognized that one of the countries with first successful social enterprises. Rochdale Society is a co-operative society, its members worked together to help each other to meet their financial needs and aspirations. Using a set of seven guiding rules known as the ‘Rochdale Principles’, the society supplied good quality products such as butter, candles, soap, flour and blankets to its members cheaply, and then re-distributed the profits back tom the members. The Rochdale principles include open membership, democratic control, political neutrality, and are credited with providing the basis for the development and growth of the modern co-operative movement.
In the U.S, the term social enterprise remains a very broad concept, referring mainly to market-focused economic activities serving a social goal (Defourney & Nyssens, 2006). And in some cases social enterprises are seen as an innovative response to the funding problems of non-profitmaking organizations (Dees, 1998).
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For the origins of social enterprise in the United States, it can be taking root at around 1889, Jane Addams and Ellen Starr started running a center for higher civic and social life called Hull House in Chicago, which instituted and maintained educational and philanthropic enterprises as part of its mandate. But the term social enterprise was first developed in the 1970s to define business activities nonprofits were starting as a way to create job opportunities for disadvantaged groups (Alter, 2002).
Furthermore, it is believed that the emergence of social enterprises in the United States is rooted in six historical forces (Boschee, 2006):
1) Depleted reserves caused by the recession in the late 1970s;
2) Diminished support from the public sector.
3) Reduced giving by individuals and corporations.
4) Increased competition for grants and contributions.
5) Increased people in need.
6) A dangerously frayed reputation of the nonprofit sector.
Following is the comparative table based on these differences in the origins and development of social enterprise in U.S and in Europe.
United States Europe
Emphasis Revenue Generation Social Benefit
Common Organizational Type Nonprofit Association/Cooperative Focus All Nonprofit Activities Human Services
Types of Social Enterprise Many Few
Recipient Involvement Limited Common
Strategic Development Foundations Government/EU University Research Business and Social Science Social Science
Context Market Economy Social Economy
Legal Framework Lacking Underdeveloped but Improving
Source: Kerlin, 2006
Table 2-1 Comparative Overview of Social Enterprise in the United States and Europe
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Based on different context or focus on different interest, many sectors in Asia started to move their eyes on the promotion of social enterprise. One of the best well-known Asian social enterprises is the Grameen Bank, a microfinance institution started by Professor Muhammad Yunus in Bangladesh in 1983. The Bank makes small loans to the poor to enable them to build their businesses and pull themselves out of poverty. In just 20 years, the Grameen Bank has expanded its reach to over 2,500 branches across Bangladesh. In 2006, Professor Yunus and the Bank were jointly awarded the Nobel Peace Prize.
For the other countries in Asia, Korea government issued Social Enterprises Development Law in 2007 and set up the Social Enterprises Support Committee under the Ministry of Labor to coordinate the promotion and support of social enterprise. From this positioning, the main purpose of social enterprises in South Korea is more focus on creating jobs. Thailand government also established the Social Enterprises Promotion Committee under the Prime Minister's Office since 2009, the Thai Social Enterprises Office directly undertakes research and development of social enterprises policy from 2010. A development strategy, social enterprises ordinance was issued in 2010-2011, and at present, a new legal document is being drafted. As for Singapore government established a social enterprises Office located in the Community Development, Youth and Sports from 2006, also emphasized the role of social enterprises in helping government to create jobs for disadvantaged community groups.
As for the development of social enterprises in Taiwan, according to Kuan (2007), nonprofit organization with a commercial approach or for-profit business units began to emerge as early as at the beginning of the 1990s, with examples like the bakery-restaurant of Children Are Us Foundation, Wheelchair business of Eden Social Welfare Foundation, Car wash centers and gas stations of the Sunshine Social Welfare Foundation, or the sale of books, cards and eco-tours of the Society of Wilderness. Also, from end of the 1990s till now, Taiwan’s public sector, in an effort to alleviate the social impacts of rising unemployment rates, began to roll
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out relevant policies like the Social Welfare Industrialization Policy, the Multi-channel Employment Service Program launched by the Council of Labor Affairs, and the Industrialization of Care Services jointly launched by the Council for Economic Development, Health Department and Social Affair authority. As a result, many nonprofit organizations started to incorporate for-profit, commercial activities into their regular operating plans. This approach in essential is similar to the Social Economy and Social Enterprise policies launched in continental Europe.
2.1.3 Types of Social Enterprise
In view of the existing discussion, although social enterprise does not exist in any certain type and it makes people confused, people now could start to understand the concept of social enterprise as hybrid organizations or a spectrum which proposed by Alter (2006). He developed the hybrid spectrum to identify social enterprises. His hybrid spectrum clearly identifies social enterprises as a form of non-for-profit organizations that differ from the nonprofits that engage in income generating activity. On the spectrum, hybrid organizations are organized by degree of activity as it relates to: motive, accountability, and use of income. This enables the spectrum to be organized into four categories of hybrid organizations:
1) Nonprofits with income-generating activities.
2) Social enterprises.
3) Socially responsible businesses.
4) Corporations practicing social responsibility (see Figure 2-1).
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And based on the hybrid organization spectrum proposed by Alter, Haughton (2008) classified social enterprise to 3 modes by operation model of as below.
1) The leveraged non-profit venture: Because the public wealth government provides is
not sufficient for the need of society. The NPO is re-invested with return.2) The hybrid non-profit venture: This type of organization tends to create lots of
innovative idea, and because of trying not to in favor of profit or non-profit organization3) The social business venture: That enterprise adapts this kind of operation model prefers
to think of profit, but still hopes to differentiate from main stream business and to achieve particular goal.
In addition to the types mentioned above, accordance with Taiwan scholar Cheng (2003), who classify social enterprise to the following 4 types by operation model:
1) The corporation invested by NPO.
2) Organization affiliated by NPO, charge as market.
3) Cooperative organization.
4) Micro enterprise in Europe.
4) Micro enterprise in Europe.