Meaning of Social Enterprise - Social Enterprise

Chapter 2 Literature Review

2.1 Social Enterprise

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

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

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.

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

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).

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

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

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).

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 organization

3) 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.

For the classification from Kuan (2013), social enterprise was classified to 5 types as following by the purpose of setting up social enterprise.

Figure 2-1 Alter’s Spectrum

1) Work Cooperative: The social enterprise from this type operates by business model, but

the source of fund is still need to be supported by government and donation from the public.

2) Urban Community Development: NPO for community development.

3) Offering Products and Service: The service or products must be associated with the

mission of social enterprise.

4) Venture Philanthropy: Distribute profit to multiple NPOs.

5) Social Corporation: Encourage the stakeholder inside the social enterprise to participate

organization faire.

2.1.4 Business Model of Social Enterprise

For survival, every organization develops a set of activities for particular environment, which is called business model. Hamel (2000) thinks business model is the way which enterprise creates value, comprising core strategy, strategy resource, customer and value chain.

Besides, business model is also can be considered as the value position of industry, value creating and the way to obtain surviving resource. So it will be helpful if people understand social enterprise through their business model. However, the difficult part is every enterprise has its own goal and different enterprise tend to adopt the most suitable way they think to operate. Not mention for social enterprise, it has both social and economic goal. These characteristics make the business model of social enterprise different from common enterprise or nonprofit organization.

Business Model Canvas is a familiar analytical framework for business model. This idea was proposed by Osterwalder (2005) and his team, explains how an enterprise to profit by

organizing below factors systematically:

1. Infrastructure

(a) Key Activities: The most important activities in executing a company's value proposition.

(b) Key Resources: The resources necessary to create value for the customer.

They are considered an asset to a company, which are needed in order to sustain and support the business. These resources could be human, financial, physical and intellectual.

(c) Partner Network: In order to optimize operations and reduce risks of a business model, organization usually cultivate buyer-supplier relationships so they can focus on their core activity.

2. Offering

(a) Value Propositions: The collection of products and services which a business offers to meet the needs of its customers. According to Osterwalder (2005), a company's value proposition is what distinguishes itself from its competitors.

3. Customers

(a) Customer Segments: To build an effective business model, a company must identify which customers it tries to serve. Various sets of customers can be segmented based on the different needs and attributes to ensure appropriate implementation of corporate strategy meets the characteristics of selected group of clients. The different types of customer segments include:

(b) Channels: A company can deliver its value proposition to its targeted customers through different channels. Effective channels will distribute a company’s value proposition in ways that are fast, efficient and cost effective.

companies must identify the type of relationship they want to create with their customer segments.

4. Finances

(a) Cost Structure: This describes the most important monetary consequences while operating under different business models.

(b) Revenue Streams: The way a company makes income from each customer segment.

As mentioned above, the business model of social enterprise is usually different from other common organizations accordance with its mission. So there are some scholars have proposed different framework for analysis. Domestic researcher Yang (2009) proposed a theory model of social enterprise different from the classification of western scholar’s theory after studying and analysis domestic corporation enterprise, which includes 6 sectors.

1) Value claim: The value claim of social enterprise shall comprise social mission, value

transmit.

2) Business strategy: Business strategy means the direction and position of social enterprise

in the future.

3) Revenue organism: Social enterprise shall combine the value of social and economic and

turn them to competence. It is necessary to conduct market segment, define target market and predict consumer demand.

4) Deploy resource: Social enterprise cannot distribute surplus wantonly, so it needs to

combine different resource more to implement its strategy.

5) Value chain: Value chain means the organism that to create value for customer and the

partners in this organism. Organization plays an important role for value creation.

Therefore, organization needs to coordinate with suppliers and customers.

6) Sustainability: Weerawardena and Mort (2006) proposed the sustainability is a core value

of an organization and efforts on the ability for innovation and risk management.

2.1.5 Legal d Development of Social Enterprise

After economic crisis and with the emerging of social enterprise, many governments start to realize that there may be a different way to solve social issues no matter they are conventional or emerging one, especially when governments are in financial difficulty. At the same time, when governments try to place hopes on social enterprise to solve the problems such like education, poverty, unemployment and so on. They found it would be better to regulate it based on its hybrid organization type, functions or relative weakness.

In accordance with Teng (2014), the current legislation condition or the process to regulate social enterprise can be classified 3 ways.

1) Regulated in a specialized law: In this case, countries passed the specialized law for

social enterprise. For examples, based on employment promotion Korea government passed social enterprise promotion act in 2006. And in this act, social enterprise is clearly defined and government has obligation to promote social enterprise.

2) Regulated in different laws: For United Kingdom, in 2004 government passed the

Companies (Audit, Investigations and Community Enterprise) Act 2004. In this act, a new company was formed which named Community Interest Company. This type was designed for social enterprises to use their profits and assets for the public good. Besides, on 19 March 2014, the U.K. government announced the introduction of the Social Investment Tax Relief to encourage financial investment in social enterprises. Effective 6 April 2014, this provides 30 percent tax relief to those who qualify. The tax relief is specifically targeted at regulated social enterprises namely:

(a) Community interest company

(b) Community benefits society that is not a charity (c) Charity

(d) Any other body prescribed, or of a description prescribed, by an order made by the U.K. Treasury.

Like United Kingdom, the promotion for social enterprise in United States is basically adopt tax-relief way and is included in General Internal Revenue Code, which is a federal statutory tax law. And it defines social enterprise and grant tax relief if organization qualified.

In addition, some states in U.S even started to create a new legal form named low-profit limited liability Company, for solving the problem positioning social enterprise.

3) Setting up an official mission but legislation: According to Teng (2014), unlike the

countries mentioned above, Singapore government adopted a different approach to develop social enterprise. They set up Ministry of Social and Family Development (MSF) for handling all issues related with social enterprise. And built up Social Enterprise association for assist new-established social enterprise with knowledge, fund, or advisory.

Unlike Korea government, presently there is no specific law for social enterprise in Taiwan, and the related terms were based on other laws, such like civil law, tax law or laws which regulate NPO. Besides, a lot of relevant administrations also have not been integrated in different government departments in Taiwan. But the amount of registered corporation with the name of social enterprise now is about 47. According to the statistics from Fu Jen University, there are 200~1000 enterprises take social problem-solving as their main purpose or one of

在文檔中社會企業之商業模式分析: 以東南亞個案為例 (頁 13-0)