What kind of business is a social enterprise?

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What kind of business is a social enterprise?

With economic growth not necessarily providing enough employment of late, interest in so-called social enterprises is growing in Korea.

Under the law, social enterprises are defined as “companies that provide the poor with social services and jobs in order to improve people’s quality of life. At the same time, they pursue the normal business activities of producing and selling goods and services.”

There are currently 154 Labor Ministry-certified social enterprises in Korea. After selecting the promotion of social enterprises as one of 100 items on the national agenda, the government has been very supportive of such ventures.

In order to introduce to the public the concept of these businesses and what they can achieve, the Ministry of Labor and the Korea Social Enterprise Association sponsored an event at Cheonggye Plaza in central Seoul recently. Visitors were provided with an opportunity to try goods produced by social enterprises.

These organizations are created to tackle social problems - such as poverty, disease and pollution - through business activities. Social missions are the driving force behind these firms. Rather than maximizing shareholder value, their main aim behind generating profit is to advance their social and environmental goals.

“We do not employ workers to sell bread. We sell bread to work with you,” is the motto of Rubicon Programs and Enterprises, one of the best-known social enterprises in the United States. But to really get a good understanding of these businesses, it’s important to have a grasp of the concept of social economy.

Social economy is the third sector of economies that falls between the private and public sectors. Nonprofit and volunteer organizations would be slotted into this category. Unlike in the private sector, businesses in the social economy pursue the public interest rather than profits.

Social enterprises do not share profits with investors, but reinvest any money that they make in causes that benefit the community. They are considered a fourth sector of the overall economy, lying somewhere between businesses and nongovernmental organizations.

Social enterprises are different from nongovernmental organizations, as they can generate profit. In fact, they must be able to make a profit in order to sustain themselves. As a rule, they need to be even more innovative than regular companies, because they need to provide something the public and private sectors don’t offer.

The unemployment rate rose sharply due to the financial crisis in 1997, and the government started up public projects as a means to supply more jobs. However, these jobs were not necessarily stable.

Then, at the turn of the century, the government began trying to create better jobs for the less privileged. In July 2007, laws to promote social enterprises came into effect.

In October last year, 54 social enterprises were authorized by the Labor Ministry. Those chosen are entitled to tax breaks and management consulting services.

Lovingline (www.lovingline.org) is a good example of a successful social enterprise. People started selling used clothes at flea markets in Nowon District and used the proceeds to help neighbors, and eventually these activities gave birth to Lovingline stores.

Other examples include Lunchboxes of Happiness, which helps those battling hunger; Noridan, a musical group that performs with instruments made of recycled materials; and We Can, a cookie company that employs the handicapped. Dream of Bari produces fermented soybeans with beans produced by ethnic Koreans in Russia, and Ijang is a social enterprise established by Seoul National University. Fifty four enterprises cover diverse fields such as education, culture, welfare, environment and medicine. They employ an average of 40 workers.

There are also social enterprise-related clubs at universities. Students In Free Enterprise (SIFE) now has 400 students from 16 local universities working as volunteers. The SNU CSR Network, established in 2006 by students attending Seoul National University, studies the level of social responsibility displayed by businesses. Put together by SNU students in 2007, WISH provides management consulting to social enterprises. Nexters and YeSS have dozens of members and pursue sustainable development through entrepreneurship.

Social enterprises were born in Europe in the 1970s, when nonprofit organizations started providing services that the government could not offer to communities.

The most famous social entrepreneur is Nobel Peace Prize laureate Mohammad Yunus, the founder of Grameen Bank. The microcredit organization, established in 1976, provides small loans to millions of people who need money but don’t have the collateral required by regular lenders. It lent a total of $6.1 billion through 2007. Grameen-Danone Foods, a joint venture with France’s Groupe Danone, offers jobs and low-cost yogurt to the poor in Bangladesh. It was designed to provide poor children in Bangladesh with key nutrients missing from their diet.

The late American actor Paul Newman also founded a social enterprise, Newman’s Own, which produces environmentally friendly salad dressing and donates its profits to charity organizations.

Celebrity chef Jamie Oliver opened Fifteen restaurant in London to give disadvantaged youngsters a chance to gain professional culinary training. Pioneer Human Services in the United States provided 11,000 people with lodging, employment and job training last year alone. The Big Issue is a British company founded in 1991 by John Bird, which helps the homeless support themselves by selling magazines. It now has 1 million readers in 28 countries around the world.

There are 2 million social enterprises in the United States, 200,000 in Canada, 20,000 in Bangladesh and 2,000 in Indonesia.

But it is difficult for social enterprises to simultaneously make profits and help people. They often lack the professional management skills needed to make it in business.

So how can we improve their competitiveness? In order for these community-centered ventures to survive, it is important to attract the interest of local governments and nurture potential social entrepreneurs. Also vital are customers who will buy the goods and services such businesses provide, clients who consider not just price and quality but also social, environmental and human rights aspects when making purchases.

Social enterprises grow competitive through good people. Awareness and understanding about how they work is essential for them to flourish.

By Park Hyun-young JoongAng Ilbo/ Lim Jae-un Staff Reporter [jbiz91@joongang.co.kr]

Workers make cookies at the We Can Center, a welfare foundation that was founded by a Roman Catholic group as a rehabilitation facility for the disabled in Goyang, Gyeonggi. By Shin Dong-yeun

Performers play percussion instruments made of recycled materials at a festival to promote social enterprises on Oct. 26 at Cheonggye Plaza in Seoul.By Kim Sang-seon

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