Hannover B5 new markets

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Hannover policy forum background paper

Workshop B5 - BREAKING INTO NEW MARKETS

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Contents

Workshop objectives

  • To present three prime examples of good practice in the way social enterprises can maximise their growth and spread into new markets.
  • To examine which business activities are the most appropriate for a sectoral approach, and which tools – such as social franchising – can be used.
  • To discuss strong and weak points and conditions for success.

What is the challenge?

Work integration [[social enterprises[[ (WISEs – ‘social firms’ in British usage) are businesses that trade in the market – however they produce two things. On the one hand they trade in the market to sell goods and services. On the other hand they produce inclusion – a certain number of their employees are disadvantaged people, for whom their job is a crucial part of countering exclusion. They usually receive a grant from government to recompense them for the costs of this second task.

Cost-benefit studies show that work integration enterprises produce a generous profit for society as a whole – the savings they generate in reduced benefits claims and other costs such as health and policing costs far outweigh the grants they receive. Nevertheless starting a new business is risky, and advising new businesses is time-consuming. Therefore anything that can be done to reduce the risks and costs is welcome.

Taking a trade-sector approach to developing integration enterprises can spread development costs over a larger number of enterprises, and at the same time reduce the uncertainty each new business faces.

Social franchising

A cluster of EQUAL partnerships in several countries are achieving success in replicating – essentially copying with due regard for local circumstances – a proven business idea. Some of these have adopted the term ‘social franchising’, but this should not be taken to imply strong centralised and top-down control. On the contrary, the aim is to make unused local resources productive, by building a critical mass in the market place and through mutual aid. It is thus a process of local capacity building. There are two business models, the ‘open source’, where the know-how is available at no cost, and the ‘patented’, where the intellectual property is subject to a licence fee. A franchise fee enables the inventor of a model to recoup some of their costs from people who subsequently pick up the idea and benefit from it. It is a way of establishing a liquid market for intellectual property.

What kind of solutions are being tested?

Supermarkets

CAP Märkte (‘CAP markets’, from ‘handicap’) is a chain of 40 small neighbourhood supermarkets that have taken over premises made redundant by the growth of hypermarkets. They typically have a sales area of 500 m², stock 7,000 lines and employ 8-12 people apiece, two-thirds of whom are handicapped. They provide jobs for handicapped people, aiding their integration through direct contact with customers; bring about local regeneration (by providing accessible facilities for people without cars); and counter exclusion by offering services such as home delivery of meals or postal services.

The first CAP-Markt opened in Sindelfingen, near Stuttgart, in 1999. The chain benefits from joint purchasing discounts from the SPAR-EDEKA retailers’ co-operative, and an integrated point-of-sale bar code system. It is run by GDW Süd (Genossenschaft der Werkstatten eG), a co-operative of sheltered workshops (the CAP markets themselves are not members). Very many local authorities and communities are keen to see a CAP-Markt open in their neighbourhood, and the chain has to reject four-fifths of proposals for new shops.

Recycling

An EU-wide movement has arisen to take advantage of the market opportunity brought into being by the passing of the Waste Electrical and Electronic Equipment (WEEE) directive in 1995. This has seen 1,000 recycling centres started up, employing 40,000 people, many of whom are disadvantaged. The centres provide training in new vocations as well as offering services to public and private customers. They rely on the creation of three-way partnerships: networks with public authorities create growth opportunities, manufacturers sign contracts to recycle their products, while liaison with local chambers of commerce avoids any accusations of unfair competition. Multiple sources of finance are tapped to support multiple activities. Underlying this is a strategic approach based on gaining intelligence of impending legislation, and acting to safeguard the interests of social enterprises. A European network (RREUSE) carries out large-scale lobbying and SerraNet EEIG has been established to promote the social enterprise approach.

Halfway houses for recovering addicts

Vägen ut! (Way out!) – a consortium of eight co-operatives employing 26 recovering addicts and ex-prisoners in Göteborg – is franchising its model for a halfway house to a number of other Swedish towns. Its initial model was Villa Solberg, set up in 2003 as a halfway house for male ex-prisoners who work in the greenhouse or workshop or in jobs outside, typically staying for 3-6 months. This was followed by Villa Karin for women. The next two houses to open will be in Örebro and Sundsvall, and five further municipalities have shown an active interest in the idea. Each house comprises a maximum of eight people and is an independent social enterprise, which pays its way by renting places to the prison and probation department and the municipality. It pays a fixed monthly fee for the franchise, and the whole system is projected to break even when the tenth house is established.

Hotels

The Le Mat Association is promoting a model for hotels and hostels run as social co-operatives by people recovering from mental illness. The model is the Hotel Tritone in Trieste, which was founded in 1986. It has carried out training courses for groups interested in the idea, and prepared a detailed manual, which has been translated into three languages. The preferred specification for a Le Mat hotel is a 3-star establishment with 30-60 rooms near the centre of a major town, in an area where hotel occupancy rates are high. Risk should be minimised by balancing out custom from three market segments: individuals, corporate clients and travel agency groups.

Neighbourhood services

The Werk.Waardig project has piloted a system of neighbourhood service provision in several towns in southwest Flanders. The services to be offered are decided after market research, and are designed to improve the quality of life and activate long-term unemployed people. Typical services are short-term childcare and after-school clubs, which enable single parents to hold down jobs outside the home. Locating different services in the same premises – for instance a computer in the neighbourhood canteen breaks down isolation and encourages people to try new things. A prime example is Buurtinitiativen Kuurne (BIK), which has created 68 jobs in a housing estate of some 500 people, many of whom had been out of work for over five years. The system makes good use of service vouchers to target demand.

Home care

Sunderland Home Care Associates (SHCA) is an employee-owned company providing domiciliary care that has grown to employ nearly 200 people. Its success stems from the motivation and commitment of its member-employees. Care & Share Associates (CASA) has been set up to replicate the same model in other towns such as North Tyneside, Newcastle and Manchester – work which has so far created 400 new jobs. The group’s coherence will be maintained by CASA holding shares in each new franchisee, while they also hold shares in CASA.

Questions for discussion

  • What technical tools are best for spreading inclusive and social enterprises? – trade sector approaches / replication in general / social franchising in particular
  • What relationships need to be built to support their use? – public/private sectors / political / commercial relationships
  • In what ways can enterprises in a sectoral cluster support each other? – joint buying / branding / marketing / training / quality standards / research / specialisation …
  • One particularly successful approach seems to be franchising, as a way of building financial as well as ethical solidarity between enterprises, and rewarding innovators. How can this be made to work to its best potential? – target sectors / sustaining the franchisor till break-even / ownership by franchisees / sources of specialist advice

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