This paper is from a session at the Regional Conference on CSRO Accountability & Sustainability -- Critical Lessons from Best Practices, February 18-20, 2002. Text of this paper was prepared by the Philippine Business for Social Progress. Download printable PDF copy (325K) of the entire conference proceedings.
Given the mix of experiences of civil society's entry into the market, the CSROs faced the challenge of systematizing research, knowledge generation and model development as well as capacity building. It is in this context that social entrepreneurship is being offered as a conceptual framework.
Ms. Dacanay sets the tone of her presentation by sharing the definitions of social enterprise and social entrepreneur of Prof. Eduardo Morato. According to Prof. Eduardo Morato, social entrepreneur is an innovative person or institution who promotes the successful creation and operationalization of enterprises or livelihood endeavors for those in need. Social entrepreneurs assist the poor by enabling them to undertake better livelihood activities or run their enterprises viably. Social enterprise exists for a community of worker-owners who seek to jointly improve their lot through collaborative, cooperative creating and prosperity-sharing mechanism. Unlike business firms, social enterprises seek the economic betterment since the social entrepreneurs are motivated by service to others rather than profit.
In financial management, the topline in a business setting is high to maximize profit but in a social enterprise the topline or sales maybe low to give reasonable price of the service or product to make it more affordable. In a social enterprise, the middle line dealing with cost of goods sold maybe high to generate more employment and give good price for raw materials, while in a business setting the middle line is low and should be very efficient. In a business setting, the bottom line needs to yield high profit but in a social enterprise profit should be break even to become sustainable. Success of a social enterprise is translated to being able to provide service or the benefits to household that were set-out to achieve.
The social entrepreneur tries to manage the product, the relevant world organization, enterprise operations in a manner that its life is prolonged or recreated. At the micro level, social entrepreneurship as a concept adopts business management theory and practice to a development context. It introduces the art and science of managing the inherent conflict present between social goals and enterprise objectives. It deals with an inherent conflict between empowerment of stakeholders and product & market management. Beyond the micro level, social entrepreneurship has started to evolve as a strategy for critical mass of social entrepreneurs and enterprise to influence the market in favor of stakeholders among the community. Influencing the market means:
The market as an arena for change is something that has to be dealt with when referring to social entrepreneurship. The over-arching vision is sustainable development with the over-all strategy of democratization. Social entrepreneurship provides a strategy for democratizing the market so that in advancing sustainable development social entrepreneurship is promoted in the market place in the same way as empowerment.
The presenter shared the framework for working towards the vision as well as a strategy for changing the marketplace of David Korten. He also came up with ten rules in relation to social entrepreneurship. Among the ten rules, rule no. 3 speaks of favoring human-scale firms and stakeholders ownership. From an ecological point of view, the rule deals with ecological sustainability and in terms of economics, it deals with the need to keep the firms small to ensure participatory forms of management. Furthermore, rule no. 3 also ensures that no one firm monopolizes the market and encourages competition as well as innovation. Mr. Korten also advocates stakeholder ownership in a mindful market over absentee ownership.
Linking social entrepreneurship with a vision of mindful markets, we are able to flesh out democratization for sustainable development in the market as an arena with social enterprises as the human scale firms with stakeholder ownership and social entrepreneurs as those who create or lead human-scale firms with stakeholder ownership.
In closing, Ms. Dacanay reiterated the challenge that Peggy Dulany gave towards building a sustainable future. Social enterprises and social entrepreneurs could play the role of bridgers in the market together with business leaders espousing corporate social responsibility; social entrepreneurs could build strategic partnerships with them to create and manage mindful markets. The challenge to CSROs is to build the critical mass of bridgers in working towards mindful markets.
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Mr. Haryadi started his presentation with a brief background on Bina Swadaya (BS). BS is a local NGO founded in 1967 and as of this time, BS has 670 full-time staff.
As of 2002, Bina Swadaya's total expenditure is US$5.4 million, 90% is self-finance while 10% is funding aid from donor agencies. For year 2002, total budget of BS is at US$6.9 million.
Bina Swadaya derives income from its development and consultancy units. The development unit consisting of microenterprise development, microfinance development, education and training, which contributes 16% to the income. On the other hand, 17% of the income is contributed by the consultancy unit while 67% is contributed by the social enterprise units which is comprised of 4 rural banks, 5 agribusinesses, Trubus (agricultural magazine), publishing house, printing house and alternative tourism.
Based on several years of working with the NGO and with the private sector, it was noted that the civil society resources are culture philosophy, human rights and social justice, and sustainable economy. In working with business, they are concerned not just with maximizing profit but also in corporate social responsibility, social justice and sustainability. On the other hand, the NGOs, CBOs, CSOs are now concerned with economic responsibility and how to have income generating activities. How is this related with the NGO alternative business initiative.
GreenNet started its business in 1994 focused on ecology and provided consultancy in training and organic farming. At the time, the market was very immature and after the Earth Summit in 1992 NGOs realized that they should promote the green products. GreenNet continued working for 10 years.
The Suan Ngung Meema Company started last year and is composed of three sectors:
The focus of the company was the community products and this was carried out by ensuing fair trade on village products with the producers, publishing books as a medium to express ideas & training, coordinating events, research, advice and consultancy. They also have partnership with the producers just like GreenNet which works closely with one community -- Kud Chun Farmers Corporation in the northeast of Thailand. Suan Ngung Meema Company works closely with the communities who have been affected by the industrialization and development initiatives of the government like the one community where the electric company of Thailand established a huge dam destroying the fisherfolks' means of livelihood. The company also targets the community who aims for cultural preservation. People come to them with some finished products asking for assistance to market their produce.
The company also tries to mediate between the producers and consumers (the herbal and the local people) and finds the following difficulties of the producers:
On the other hand, the consumers:
Aside from these difficulties, the company also found out that they have been very low margins in order to give good price to items such as weaving cloth, high cost of reaching out to the consumers through promotion activities and high cost of supporting the skills development of the producers.
Challenges faced by the company are:
Possible solutions being undertaken:
In view of the challenges faced by the company, a paradigm shift was needed to change the consumers' behavior and be able to expand the green market. The shift from low price to high values shall be promoted. The business strategy to be adopted shall include:
In closing, Ms. Kuntiranont reiterated their vision of providing livelihood for the local producers and developing business skills of the NGOs to create more income generation opportunities.
Q. When you started out did you already have an entrepreneurial vision or did it come at the later part of the development of the organization? And if it came at a later part, what triggered the shift -- was it one individual or was it a need? When it happened that you decided to shift to this very enterprising activity?
R. E. Haryadi: The agriculture magazine, Trubus, initiated in 1967 was originally meant to serve the farmers. However, the magazine was accepted by more people in the middle class & city people and Bina Swadaya got a lot of inquiries on agribusiness very often. This made them realized the demand for agribusiness store and at the moment they have 7 agribusiness store. The economic crisis made middle class people interested on agribusiness and they needed for technical know-how so that magazine was not enough. And so BS did 700 publications on agribusiness and later on decided to have their own publishing company.
Q. How can Bina Swadaya reconcile objectives of public service & development work with the objective of perpetuating the organization?
R. E. Haryadi: There are 2 different units in BS -- consultancy and business units. The business unit does not deal with the vision and mission of the organization and is concentrated on acquiring profits. On the other hand, the development unit deals with the self-help groups and has its own mission and focuses on that. 50% of the profit of business unit goes to reinvestment for and 30% goes to the foundation and 20% goes to the staff as incentives. To make the business unit familiar on the latest with the development unit and vice versa, every 1st Monday of the month there is a Coffee Monday Break. This is also a venue for the two units to discuss conflicts on issues encountered and offer possible solutions.
Q. In relation to the preceding discussion of Em Haryadi, the definition of social entrepreneurship earlier presented implies that profit is minimized but in the case of Bina Swadaya they maximize profits and it goes back to the social businesses which have positive impact or into the foundation or the benefit of employees. Was the definition really meant at minimizing profits?
R. L. Dacanay: The art and science of managing social objectives and enterprise goals does not always mean profit is minimized because it depends on the specific objectives at a certain period of time. There is a point in the social enterprise life cycle when issues on benefiting more the stakeholders have to be dealt with. For example, you want to have enterprise growth to reach out to bigger clientele. A decision has to be made in terms of delaying the gratification of the stakeholders, which they should be able to understand. There is an inherent contradiction should be manage and be conscious of the trade-offs.
Q. The book Built to Last, is a study of 50 corporations. The authors studied the core values and corporate culture of the corporations and they found out that the values of the corporations are the same values espoused by the non-profit organizations. Based on this, are we not putting an artificial difference when in fact core values of human beings at the very center are the same and that we are simply coming from different traditions & exposures. The awareness that the differences are artificial is a humbling realization. How do we reconcile this?
R. L. Dacanay: In reconciling the issue, its important to look at the baseline, what we have at the real world. We have in the real world, companies saying that they are socially responsible but they are actually oppressing communities and devastating environments. The phenomenon of corporate social responsibility which is beyond just corporate philanthropy and corporate or community relations as a framework are changing. But majority of the corporations are still from the old frame. Its not so much that we are dichotomizing for purposes of putting something artificial, it is important to recognize that most of the corporations are still in the old frame so that its important to build bridges with those who are already espousing corporate social responsibility in order for us to work towards a democratize or a mindful market. Many in the civil society and NGO community are skeptical about the market because many corporations are still acting the same old ways even if there is a growing number of those who are already socially responsible there's still a minority. This small minority must become a strategic partner in changing the rules of the market.
F. Soledad: Some organizations in the Philippines that PCNC evaluated experienced conflict as they go into social enterprise. Keeping it within the organization causes the encounter within their own circle, among their own beneficiaries, who are confused with their role. When they begin to talk business, even the beneficiaries begin to question what their role is because they have been used to NGOs as grant-makers. One organization in this kind of dilemma had to spin off the unit into a profit enterprise since there was no choice but to settle the issue.
V. Manalo: The presentations are very similar. From the start, they planned on running the foundation in a very businesslike manner because they are aware that funding from the donors will not last forever. For revenue generation, they have income generation activities i.e., publications and doing research. They operate on the principle that if you give for free the services to help the people and the community, they will not value it so much because there's no sacrifice. All the activities that they do are for a fee depending in the capability of the community.
G. Velasco: There has been a tendency to regard NGOs as the spokesperson of civil society when the reality is that NGOs are also actors in the market, government and civil society. In fact, we have different roles in each sector. In the market we are not just consumers but innovators of new business practices. Being in the intermediary position allows us to be more effective and explore new mechanisms. Some would be comfortable being a bridger to the market, or bridging with the government, or working with communities but being clear with what our bent would best help solve issues.
P. Dulany: We need to have a mechanism to help corporate people with good intent and want to go into the market but don't know how to cross the gap in a way that does not violate community norms or empowerment. This could be by way of consultancy firm with matchmaking and educational functions for both the corporate and NGOs or cooperatives, etc. The corporate need to know how not to step on everybody's toes while the NGOs, cooperatives, etc., need to begin to learn the language of the market in order to be able to interact effectively.
L. Enrile: In reaction to Peggy, there have been some effective intermediaries in the Philippines. An example of which are the corporate foundations. Some have made gains although short term and is because the corporate foundations speak the language of both the community and business. The search for long-term mechanism is still underway but there have been successes though short-term in using the corporate foundations as intermediaries.
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