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Social Enterprises in the Competitive Era

Social Enterprises in the Competitive Era

This article analyses the international context of social enterprises, the country-specifics in a comparative setting and the strategic options available for the development of sustainable social enterprises

COMMENTARY

Social Enterprises in the Competitive Era enterprises; (2) discussing the countryspecifics in a comparative setting; and (3) examining the strategic options available for development of sustainable social enterprises.
P M Mathew What Is Competitiveness?

This article analyses the international context of social enterprises, the country-specifics in a comparative setting and the strategic options available for the development of sustainable social enterprises.

P M Mathew (ised@md2.vsnl.net.in) is with the Institute of Small Enterprises and Development, Kochi, Kerala.

N
eoclassical economic theory created a divide between the economics and social aspects of development, and thereby brought in a major fallacy, which has adversely affected the practice of development since the mid-20th century. In the real world, economic sense and social relevance are two sides of the same coin. And that must compel us to consider development strategies that are contextual, i e, specific to the context of nation states. The political legitimacy of the nation state arises from the aspirations of the people.

Globalisation and its effects on the performance of small and medium enterprises (SMEs) is an important area of debate. The nation states of the world today open up from above and below. While the two key forces of globalisation and localisation interact, globalisation, undoubtedly, is hegemonic. The “progressive extension, to the entire planet, of exchanges of all kinds, and increasing political power at the local level”, offers challenges and opportunities for the national role in the development process.

Industrial globalisation refers to an evolving pattern of cross-border enterprise activities. The extent of globalisation is conditioned by two things: (1) the political economy of the nation state; and (2) the specifics of public policy. Much of the literature on globalisation revolves around the multi national companies (MNC) which often take a suprastate role in most developing countries. In the home country, their behaviour patterns are different. The state is powerful. But it is not supposed to influence the rules of the game in a competitive market. Hence arise new actors such as the so-called social enterprises and chambers of commerce who often play a mediatory role.

This article has three key tasks: (1) outlining the international context of social Globalisation demands enhanced competitiveness from SMEs. “Competitiveness” is an economic term which is neutral of social dimensions. Discussions on competitiveness are often focused on techno logy and innovation, the hardcore economics, which is often delineated from the social dimensions, such as the role of institutions and development culture.

Michael Porter (1985), defines competitiveness as, “…increasing productivity and standard of living…through creation of high value jobs and high value output…”. In the corporate world, the objective of the firm is to make profit. If the corporation does not make a profit, it does not fulfil its commitment to the shareholders. Corporate social responsibility (CSR), if any, is residual [Friedman 1970].

The four key productivity and competitiveness indicators are: (1) investment;

(2) innovation; (3) skills; and (4) enterprise. Based on these indicators, competitiveness is measured in terms of: (1) its coverage of all sectors; (2) all markets; (3) database; and (4) international comparability.

What Is a Social Enterprise?

Social enterprises are a distinct category, having, at a time, business goals and social goals. Since the social dimension is built into the firm’s objective, it is different from the corporation. The corporation considers a “business case” as central in all its activities, including socially-oriented activities; profit maximisation is the central objective. Social enterprises have profit maximisation as one among the core objectives, though they find a business case from the sustainability angle. Social enterprises are “not for profit”; but they are not “non-profit” entities as well. Social enterprises are dynamic enterprises with a social purpose. They are based on the “triple bottom line” principle, i e, based on economic viability, environmental sustainability and social responsibility. They are not “charities”, but are businesses in the strict sense of the term.

september 20, 2008

EPW
Economic & Political Weekly

COMMENTARY

Dual Task: Enterprises without a social concern, and a social concern without enterprise, are both anti-developmental. The former leads to an inappropriate resource allocation and the depletion of scarce resources; the latter leads to economic stagnation, and thereby harms sustainable development. Combining competitiveness with social responsibility is a difficult task. Meeting these two criteria, at a time, involves a cost. In a developing country, can an average firm afford this? If so, how and why? It cannot be out of altruism. It should have a business case.

Social enterprises are not stand-alone entities. They are part of a value chain, and are in competition with entities of a different organisational form and (horizontal relationship). They are also part of a business ecosystem, where a large number of small and large businesses compete and collaborate (vertical linkages).

Competitiveness in a developing country has two dimensions: internal and external. Internal competitiveness is the capabilities that ensure a firm remains sustainable in the short run, in the internal market, thereby ensuring the basis for growth. The determents of internal competitiveness are: (a) the size of the market, (b) the tempo of innovation, and (c) public policy. External orientation depends on the attitude towards exports. If internal market is sizeably large, there will not often be an inducement to export. If external orientation is low, chances of innovation also are likely to be low. Firms try to find a larger space within the given market. In the process, they look for more of government protection. If external orientation is high, SMEs do not often look for patronage. This provides the ground for enhanced initiatives for innovation.

A ground for the development of social enterprises emerge best, where the quality of life is a significant focus of public policy. For example, for a government which focuses on the quality of life of its people, there is likely to be a significant focus on environment. Consider, for example, the problem of garbage management. The search for a solution ends up in renewable energy solutions. This can best be done through a social enterprise model. Similarly, economic emancipation of women is a key concern. The entrepreneurship route is often perceived to be a solution [Mathew 2007]. In cases where labour and farmers are subject to oppression, cooperatives are considered to be a solution.

Country Studies

Based on the stage of development of each country, one can identify three categories of policy, as identified by the India Micro, Small and Medium Enterprises Report 2007:

  • (1) Highly protectionist, with employment and poverty reduction thrust (for example, Bangladesh, Sri Lanka);
  • (2) MNC-dominant, with very weak local private sector; and (3) countries with high regulatory role of government (for example, India).
  • An analysis of the country position, in a relative sense, should be the ideal starting point for learning from each other, and for international cooperation.

    In most of the developing countries, however, the solutions remain almost the same as one or more of the following: (1) productivity enhancement; (2) skill training; and (3) microfinance. This approach, however, has not proved to be successful. Productivity enhancement often leads to social inequities. Skills often do not get translated into capabilities. Microfinance and self-help groups (SHGs), in many cases, do not lead to entrepreneurship.

    Alternative Approach

    An alternative policy approach should focus on the following:

  • (1) Macroeconomic policy and SME advocacy (for example, involvement of SME associations, clout of the SME ministry).
  • (2) Concrete local economic development (LED) approach with powers to the local government (integrating politics and economics of decentralisation). (3) Promotion of entrepreneurial atomism (grooming start-up entrepreneurs). (4) Linking micro-initiatives and macro-policies (for example, attitude of the central bank towards SME policy, role of planning).
  • But, no alternative strategies can work meaningfully unless they get onto the public policy platform. Public policy simply means, what the government does, and what it does not. To influence public policy is not easy; it needs consistent and sustained effort aided by showcases of best practices.

    It is in this context that, Mathew et al (2006) offered an alternative model in India. This model, called entrepreneurial village, offers a synergy of the micro and macro of economic development. It focuses on the latent potential of the

    DEVELOPMENT CONVENTION

    CALL FOR PAPERS

    The Southern Regional Centre, Council for Social Development, Hyderabad will be organizing the Development Convention of the ICSSR funded Southern Institutes in January/February 2009. The Theme of the Convention is ‘The Road Map for Optimal Inclusive Growth’. Recent developments in social issues – both theoretical and empirical – are included here. Papers on the following broad sub-themes are invited: (i) Social and Economic Dimensions of Reforms, (ii) The Challenge of Inclusive Growth, (iii) Social Sector Development – In Retrospect and Prospect, (iv) Dimensions of Regional Disparity in India, (v) India’s Development Experience in the Globalised era, (vi) Decentralized Governance and Development

    – India’s Experience and Lessons, (vii) Human Development, and (viii) Poverty and Inequality. Last date of submission of abstracts (about 250 words) is October 20, 2008 to the Regional Director, Southern Regional Centre, Council for Social Development, 5-6-151, Rajendranagar, Hyderabad – 500 030 by post or E-mail at devconvention2009@gmail.com. Authors of selected papers will be intimated by October 30, 2008. Full papers will have to be submitted by December 15, 2008. For further details contact: Regional Director or Dr. Nihar/Dr. Pratyusna at devconvention2009@gmail.com. Exact date of the Convention will be intimated by December 15, 2008.

    Economic & Political Weekly

    EPW
    september 20, 2008

    COMMENTARY

    “bottom of the pyramid”. This critique of that, left alone, the individual is the best resource base. Naturally, enterprises and
    the conventional social capital theory judge of his economic (entrepreneurial) activities by individuals or groups are
    demands new strategies, apart from the behaviour. The role of promotional promoted through programmes, to be
    beaten track type. agencies is to help them take appropriate found in turn, that there are piled up
    In India, the business of micro small decisions. It is a bottom-up approach, stocks. For the true entrepreneur, the
    and medium enterprise (MSME) develop where capabilities are the thrust, not market is an opportunity and not a
    ment itself is a locomotive driven by the input supplies. problem. In order to tap this opportunity,
    government and public promotional Entrepreneurial resources in a defined a synergy of a, b and c, as above, is need
    agencies. Even when there is much talk area (we may call it a village) make the ed. In order to make the market an op
    about public-private partnership as the business ecosystem of that area. The portunity and not a device for exclusion,
    emerging strategy, the culture which components of a business ecosystem are the thrust of promotion should be on in
    dominates any development intervention different types of firms and different vestment in entrepreneurial resources.
    is not significantly market-friendly; entre linkages. Such typologies can be specified To borrow from Amartya Sen “know
    preneurship at the grassroot level is often in terms of knowledge base (education), why” along with know-how, help release
    “directed”, rather than initiated. A public resource base (processing facilities), and people’s capabilities. Such investment
    promotional agency or a public sector skill base (training). A change in the would help identify, the “entrepreneurial
    bank entrusts the task of developing ecosystem, though not a sufficient condifew” from the majority; and policy
    entrepreneurship to another public agency. tion, leads to a change in the well-being of becomes more focused.
    The poor are often the takers of such the people. The policy can also try to
    programmes. This paradigm does not influence that ecosystem. References
    help release the entrepreneurial potential of the poor; rather, it only helps to The application of knowledge, as manifested in areas such as entrepreneurship Friedman, M (1970): ‘The Social Responsibility of Business Is to Increase its Profits’, New York Times, September 19.
    breed “dependent entrepreneurship”. The poor women holding weekly meet and innovation, research and development, software and design, and in people’s Mathew, P M (2002): ‘Small Industry Policy in the 1990s: A Study of India and the United Kingdom’, ISED/Birla Foundation, Cochin/New Delhi.
    ings and mobilising their savings, etc, are signals in the right direction. But education and skill levels, is now recognised to be one of the key sources of – (2007): ‘Social Enterprises under Neoliberal Economic Policies: A Study on the UK Experience’, Centre for Corporate Social Responsibility/ISED,
    what is more important is their emancipation from all entrepreneurial shackles, growth in the global economy. The success of countries such as Korea, China Nottingham/Cochin. Mathew, P M, Malcolm Harper and P P Pillai (2006): ‘Finance for the Poor: From an Ideal to Economic
    not only from the gender-related ones. This is what is lacking in many parts and Malaysia demonstrates this. Most of the present-day intervention Sense’, paper presented at the National Conference on Financial Inclusion and Beyond, Cochin, September 19.
    of India, where political decentralisation is successful, but has not led to any programmes focus on skill base, without due regard for the knowledge base and Michael, E Porter (1985): ‘Competitive Advantage: Creating and Sustaining Superior Performance’, Croom Helm, New York.
    meaningful impact on strengthening the
    local economy.
    It is in this context that the need for
    institutional initiatives arises. But it
    demands a paradigm shift from what we
    are used to. SHGs and microfinance are
    virtually a bandwagon now. While the
    basic human instinct of helping each
    other for a common benefit is something
    which need to be promoted, there is still Himal 9 x 2
    the “invisible hand” of the government or
    the donor! From the point of view of better
    implementation of social programmes,
    more careful steps are required.
    A positive attitude to self-help need not
    necessarily mean basic entrepreneurial
    capabilities. Hence, working with an alter
    native conceptual model is crucial. The
    concept of an “entrepreneurial village”
    can be a more logical and scientific para
    digm for the financial institutions and
    promotional agencies to work on.
    The concept of an entrepreneurial
    village is based on the basic premises
    24

    september 20, 2008

    EPW
    Economic & Political Weekly

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