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An Emerging Trend of Social Enterprises in China

rejeansDue to the poor performance of some social enterprises in China, the term “social enterprise” has frequently been associated with low efficiency, low capacity, and low returns. Nevertheless, many social enterprises in China are thriving in an ever increasingly competitive market, not only because of their successful marketing strategy, but also thanks to their unique work culture. Many social enterprises in China generate social value by recruiting staff from disadvantaged groups such as laborers, victims of domestic violence, women with little education, and retired farmers. By offering higher wages, insurance and promotion opportunities for their employees, these social enterprises have inspired them to see their jobs as opportunities to create value for society rather than merely as a means for supporting themselves. For instance, Fast Fish is a clothing line that employs rural girls who have dropped out of school as designers, artists and factory workers. It offers its workers opportunities for promotion, high wages, and strong networks in the industry. The spirit of community this fosters among its employees has lead it to high revenues despite fierce competition. Societal recognition of concepts like “social innovation” and “social enterprise” in China is not yet widespread, but an increasing number of social enterprises in China already operate under these guises.

On Thursday, July 2, a youth philanthropy showcase organized by Social Venture Partners drew a considerable crowd in Beijing. Five youth social enterprises – amongst them Philanthropy in Motion – gathered to share their causes, ideas, business models, challenges, and prediction of outlooks for youth philanthropy in China. From agriculture to migrant workers’ re-employment, from environment to youth empowerment, these young social entrepreneurs have demonstrated diverse interests and innovative models of addressing these problems and maximizing social value.

But what are social enterprises, and what exactly is social innovation? Social enterprises are firms (whether profit or non-profit) that see solving social issues and creating social value— rather than maximizing profit—as their top priority. Social entrepreneurship applies the methods and organization of the private sector to philanthropy. Compared with the traditional, more passive model of receiving donations, social enterprises take the initiative and actively create opportunities for revenue. Zhu Xiaobin, secretary-general of the China Social Enterprise and Social Investment Forum, believes that social enterprises can be understood as enterprises where consumers, producers and society at large coexist in a sustainable framework. For example, one of the five social enterprises is Ava Zhu’s ReJean – a project that mobilizes migrant workers to manufacture handbags, crafts and clothes from recycled denim wear. By recycling worn jeans, providing skills training for migrant workers, and inviting young designers to contribute to the product design, ReJean establishes a sustainable framework in which migrant workers are equipped with skills to find higher-paying jobs, fabric waste is reduced, and young designers are provided with a channel in which they hone their skills as artists.

Social innovation, on the other hand, refers to solving social issues through innovative business incentives. Socially innovative businesses have tackled issues across a wide range of public and private sectors, such as poverty, industrialization, waste management, housing, public transport, education opportunities, and social justice. An example would be the Bill & Melinda Gates Foundation, which strives to promote worldwide equality in healthcare and education through funding innovative business initiatives. As Bill Gates explains at the 2014 Boao Forum for Asia, the Gates Foundation aims to carry out philanthropy in the most cost-effective way possible, by introducing business models to philanthropy. Most social entrepreneurship initiatives in China are still in an infant state.

According to a survey by the Social Enterprise Research Center (SERC), in 2013 there were fewer than ten social enterprises in Shanghai that could sustain themselves. Most of these operate on a small scale and few have annual revenues above one billion RMB. Social enterprises in both rural and urban China suffer from a severe lack of funding, resources and experience; most of them are still struggling to find sustainable profit-making models. Professor Zi Zhongyun, of the Chinese Academy of Social Sciences, points out that most Chinese social enterprises have yet to go beyond the initial pilot phase.

Social innovation initiatives also encounter significant issues when implemented. Of all possible challenges, the most pressing is financial – many Chinese social enterprises have yet to discover a business model that maximizes social values but also generates enough revenue to sustain their daily operations. For instance, Ava Zhu shares that ReJean faces the challenge of low revenue from online sales; to pay migrant workers an adequate wage and cover other costs, the ReJean team is compelled to sell their products at a higher price, which makes it almost impossible for them to compete with other sellers of cheap products on online malls like Taobao. Seed Space, an agricultural social innovation initiative presenting at the showcase, also experienced similar financial concerns when trying to develop a sustainable floating bed for fish-keeping villagers in rural Beijing; fortunately, it was able to develop a floating bed out of PVC, which decreased the cost by a third. Seed Space was then able to persuade more villagers to join its program and create a sustainable development model.

Another issue that some social enterprises experience is a lack of adequate support from local governmental institutions. Seed Space was able to receive professional support from the local government when promoting its environmental-friendly floating bed; however, many other social enterprises have not had access to such resources. While the Chinese government plays a key role in facilitating operations and collaborations for social enterprises, and has generally been supportive of local philanthropic initiatives, its efforts are far from adequate in comparison with those of some other countries. Although the Chinese government has implemented laws and policies protecting charity organizations in China, there are very few policies that specifically address the need of the growing social enterprise sector in China. On the other hand, the French government encourages all investors to set aside 5% to 10% of their funds for social enterprises, in exchange for a reduced tax rate from the government. Hopefully, as more social enterprises emerge across China, local and central government will set more concrete rules and regulations to endorse these initiatives.

However, the outlook for China’s social enterprises is far from grim. Faced with the emergence of the internet and growing individualization, Zhu Xiaobin predicts that “in the next five to ten years, we will witness a reinvention of the relation between society and business. Just as the internet has revolutionized business and society, social innovation will also revolutionize all aspects of business and society.” Professor Zi sees the emerging trend of social enterprises as “unstoppable”. She explains that, for Chinese social enterprises to succeed, they must be able to quickly adjust their business strategy to suit market needs. SERC estimates that if social entrepreneurship in Shanghai develops at its current rate, in the next ten years, there will be a few dozens more social enterprises established in Shanghai with annual revenue exceeding ten billion RMB. Roland Berger Strategy Consultants estimates that by the end of 2012, there were roughly 2000 social enterprises in China; by 2018, the number of social enterprises in China will have exceeded 5000.

Large international venture firms such as Credit Suisse, LGT Group and IDG Ventures are also looking into social enterprises in China for investment opportunities. Bankers have realized that the majority of their clients are socially-aware young people who, apart from focusing on their asset returns, also place significant consideration on the social value of their investments. For instance, in 2007 LGT Group established its first venture philanthropy group to improve the standard of living of disadvantaged groups in developing countries. Meanwhile, large Chinese companies such as Alibaba and SF Express have also recently begun to consider making investments in Chinese social enterprises to achieve a win-win in both finance and benefit for society.

In a word, an increasing number of people in China no longer see creating social values and making money as contradictory to each other, social entrepreneurship and social innovation are indisputably expanding and flourishing in China.

Web-site: http://pimchina.org/jul-3/

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