Helsinki 070205 workshop B growth sectors
Workshop B: Growth sectors & business models
Facilitated by: Per-Erik Andersson and Gordon Hahn (AGDOR, Örebro), Toby Johnson (AEIDL, Brussels)
See also: Helsinki growth sectors background paper
Motivation: Whilst in theory social enterprises can operate in any economic activity, in practice there tend to be clusters in specific sectors. These tend to be sectors where there is a value base that is consistent with the spirit of social enterprise, and provides the motivation for the founders and leaders.
Growth sectors: In 1995 the European Commission carried out a research exercise to investigate where the ‘new sources of jobs’ might lie. It identified 19 areas, falling under the headings of everyday services, improving the quality of life, culture & leisure, and the environment.
Finance: It is in some cases possible, by combining revenue from different services, to reduce or dispense with the need for subsidy. For instance an enterprise that recycles furniture can combine revenue streams from four sources: from the collection of bulky waste; from the reduction in landfill; from the vocation integration of disadvantaged people; and from the sale of renovated furniture. In Flanders this model of multiple financing for multiple activities is called the ‘cloverleaf model: neighbourhood services can be financed from a combination of user charges, wage subsidies, anti-poverty and community development policies, and other sources such as childcare, mobility or tourism budgets.
Replication: Mechanisms are needed through which business ideas that have served well to realise social objectives can be replicated – copied – in new places or with different target groups.
B.2 Good practice cases
The cases presented all have in common the need for networking and co-operation with the private and public sectors (social capital).
Austria’s RepaNet (Repair Network) is not just creating jobs that are sustainable in resource terms, but is also building attitudes and practices that are vital for the long-term development of the local economy. It is a training ground where consumers can learn to reuse waste, businesses can learn to co-operate and politicians can learn to think in terms of balanced growth. Important success factors for RepaNet are that they tap into societal and ecological concerns and manage political support. But more importantly, they have built a strong network and found a good model of public-private-social partnership and co-operation with competitors. The RepaNet model has spread to five other regions in Austria. Altogether, the five enterprises employ 90 people and repair 4,000 items of equipment a year.
Sunderland Home Care Associates (SHCA) was founded in 1994 and is now the biggest home care provider in the city of Sunderland in northeast England. It serves 500 clients and employs some 175 people, who deliver around 3,700 hours of care each week – in other words they work on average about half time. An important success factor for CASA is that their employee ownership system raises employee commitment and service quality. Another interesting aspect of CASA is the successful model of replicating their business through social franchising. The franchisor and franchisees are linked through reciprocal shareholdings, making the franchise a relationship of liberation not of control.
The common reason for the success stories mentioned above is the three-way partnership they have created initially at the local level. We find similarities with the aims of AGDOR where the initiative meets the need of individuals (through inclusion), the public sector (by providing services) and the private sector (workforce). It is a win-win-win situation where the social enterprise competes in the market at the same time as the public sector benefits from lower welfare expenditure.
All cases show that it is important to fully recognise the social capital and the benefit of co-operating across sectors.
B.3 Important progress factors
Finance and capital: Access to finance seems harder for social enterprises. It all comes down to the shortage of social investors, that is individuals, organisations, enterprises or the public who recognise the added social value as an investment prospect.
Training and education: The problem of training and education is two-sided, partly internal education and partly overall education. Social enterprises are on one hand a fairly unknown concept, and on the other hand social entrepreneurs also lack knowledge on how to run businesses.
Awareness and culture: The social enterprise sector has an urgent shortage of support structures, organised bodies that can provide management support, business services and sales and marketing support. There is also a lack of knowledge of support needed or given within the social enterprises.
Regulation and competition: Social enterprises suffer unfair competition partly as a result of lack of recognition of their legal status. The regulatory system is designed to deal with private for profit enterprises and imposes bureaucratic obstacles.
At macroeconomic level, most experts agree that there is in principle no objection to the granting of public subsidies to certain types of social enterprises, under defined circumstances. These are that the grant should be used to establish fair competition for social enterprises that are carrying out an integration function. In other words if businesses are incurring additional costs by giving work to people who are less productive than the norm, they should legitimately be compensated for these extra costs. In this way, the task of integration can be made financially sustainable in the long term. This conclusion already formed part of the conclusions of the EU’s Third Sector and Employment pilot action in 1999, but still arouses politically motivated debate.
Although the workshop identified financing and access to capital as the most important progress factor, the recommendations were mostly directed towards regulation. There was a call for governmental strategies in all EU countries for social enterprises and for legislation clearly defining social enterprise. Better solutions are needed to permit welfare benefit recipients to continue receive benefits whilst building up a social enterprise. There is also need to account for the whole value (not only the monetary part) in public budgeting as well as in procurement. Legal incentives for social aims in businesses should be promoted, and social economy should be adapted to the local authority context in order to find models for closer co-operation between the private, public and social economy sectors. 8 Support structures
Internally the social enterprise sector needs to find and share a common work methodology as well as establish competence centres that can train potential social entrepreneurs. Financial support is needed for business development, growth and good practice transfer. Mainstream business support agencies need to strengthen their connection to social enterprises.
Training and education
The social enterprise sector is in need of investment in know-how and training. Management training is needed both in order to understand the balance between the social and business missions and to understand the public service provision that social enterprises to a large extent rely upon. Training in business development and replication is also important to support.
Finance and markets
Adaptable financing instruments combining grants, micro-loans and credit guarantees as well as easier access to start-up funds has to be supported by all sectors of society. It is even more important to assure the continuation and creation of public-private partnership co-operation as well as to create a positive ethos where the social enterprise is regarded as a “normal” way of running business.