Micro Social Enterprises in Developing Countries: The South African Experience

Micro Social Enterprises in Developing Countries: The South African Experience

Lauren Jankelowitz (University of Pretoria, South Africa) and Kerrin Myres (University of Pretoria, South Africa)
DOI: 10.4018/978-1-5225-6298-6.ch001
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Social enterprises have a strong focus on social mission, whether they have non-profit or commercial roots. In the developing country context, non-profit organizations are adapting to meet scarce funding resources by becoming more entrepreneurial and adopting profit-making behaviors. Concurrently, businesses are engaging more with their clients and the communities within which they work, developing innovative business solutions to address social problems. While the study of social enterprises in the developed world focuses on choice, autonomy, legitimacy, and growth in the transition to social enterprise, very few comprehensive studies have been conducted on social enterprises in the developing country context. It is thus difficult to assess whether developing country contexts are different or not. A recent study to understand who South African social enterprises are and whether their context is relevant, found that these organizations are similar to and different from those operating in the developed world, thus suggesting that context does play a role.
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The social entrepreneurship body of literature has struggled with a lack of clarity with regard to definition and scope for decades (Bacq & Jannsen, 2011; Choi & Majumdar, 2014; Gordon, 2015; Mair, 2010; Nicholls, 2010; Steinman, 2010; Zhang & Swanson, 2013). Key authors suggest that this is because the field encompasses a range of phenomena (Bacq & Jannsen, 2011; Gordon, 2015; Grassl, 2012). More recently, the field has moved away from the struggle for definition, towards exploring and understanding the social enterprise organization (Defourny & Nyssens, 2016; Gordon, 2015; Grassl, 2012).

The social enterprise concept encompasses organizations along a continuum, from purely non-profit through to purely for-profit, all with a social mission of some kind (Defourny & Nyssens, 2016; 2010). The non-profit side of the continuum is interesting for several reasons: non-profit organizations (NPOs) fulfil a critical role in societies where both state support and market forces fail to respond adequately to all citizen needs (Department of Social Development [DSD], 2012; Urban, 2013). In particular, developing countries with large-scale poverty, unemployment and related social issues rely on NPOs to meet numerous social needs (DSD, 2012; Karanda & Toledano, 2012; Urban, 2013).

There is, however, a dearth of literature exploring how NPOs financially sustain themselves in order to fulfil their social mission, beyond relying on government or corporate grants (Battilana, Lee, Walker, & Dorsey, 2012; Zhang & Swanson, 2013). Indeed, the social enterprise literature mostly disregards those organizations that do not have the capacity to generate profit or adopt a more entrepreneurial approach (Young, 2001). In certain developing countries it appears that the pure not-for-profit organization will not be able to achieve financial sustainability in the future, even where social need exists, without transitioning to a more entrepreneurial business model (Karanda & Toledano, 2012). There is consequently no recognized best practice for NPO success, which is defined as acquiring sufficient resources to be able to meet the intended social mission (Salamon, 2010).

Social businesses are a relatively new phenomenon in South Africa, and are poorly described in this context (Milson, 2017), despite these conceptualizations initially being advanced by Yunus (2010), largely within developing country contexts. Yunus (2010) defined the social business as a business developed specifically to solve a social problem, which generates profits that are reinvested into the business, and which is not at all reliant on grants and donations. In South Africa, social businesses tend to address social needs by focusing on bottom-of-the-pyramid (BOP) markets, selling products or services that meet social needs, or responding to South African legislation regarding the triple-bottom-line (financial bottom-line, social investment, and environmental impact) by ensuring community involvement, concern for the environment, and donations of parts of their profits (Claeyé, 2017; Milson, 2017).

Social businesses possess necessary business expertise, but frequently lack an understanding of how to define their social mission in relation to their business, and of how to measure their social impact (Wilson & Post, 2013). In addition, because the social enterprise concept is so broad, there are no recognized business models for these kinds of organizations within a developing country context especially (Mair & Schoen, 2007).

Key Terms in this Chapter

Social Enterprise: A social enterprise is a hybrid.

Micro Social Enterprise: A micro social enterprise is a small hybrid with an annual turnover of up to R300 000. It usually has few staff and up to 100 beneficiaries.

Hybrid: A hybrid organization combines both a social mission and a profit objective into one organization resulting in hybrid systems and structures within the organization.

Business model: A business model is a plan for the organization that assesses beneficiaries, clients, staff, donors, and other stakeholders, together with the service/product being offered and related costs, and the path between organization and end consumer.

Social Entrepreneurship: Social entrepreneurship is an umbrella term regarding the processes and actions involved in running organizations innovatively so as to generate sufficient funding to address social needs.

Micro Enterprise: A micro enterprise is a small profit-making business with an annual turnover of up to R300 000.

Social Entrepreneur: The social entrepreneur is the founder and leader of a social enterprise. The social entrepreneur possesses specific personality traits such as passion, risk-taking, open to new opportunities, and optimism.

Developing Country: A developing country lags behind the First World as far as industrialization is concerned, and usually has a lower-income economy.

Non-profit organization (NPO): A non-profit organization does not distribute profit to stakeholders, and usually has a social mission.

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