There is a buzz around companies that are deliberately set up to offer products or services that aim to do good for society. This model not only benefits the needy but entrepreneurs can also make a proper business out of it.

What is a social enterprise?

Such organizations are often referred to as social enterprises i.e. businesses that have core values of improving and finding solutions to social issues. These enterprises generate revenue with effective business models that can sustain themselves. Social enterprises are distinct from NGOs (non-governmental organizations) as the latter tend to depend on government funds to carry out their work whereas on the other hand social enterprises charge for their services or products directly to the users. In some cases, social enterprises may be subsidized by the government. The following examples show the types of business models.

  • A trading firm sources village goods and sells them in high-end luxury retail shops as ethnic products. It ensures that the villagers get a fair price for their products, at the same time makes a profit itself.
  • A bank provides micro-finance loans to rural villagers at low interest rates but on sufficient scale to make enough so that the model is sustainable. The villagers come back to the bank as their businesses grow.
  • A company develops a product for rural water purification. It sells it to the government who in turn sells it to the villagers at an affordable subsidized price.

How does social innovation fit with this?

Social innovation, much like technical innovation, involves creative ideas and problem solving skills with the aim of improving social conditions. Thus, social innovators are individuals who have come up with product or service solutions for a specific social problem. For instance, a person who has developed an app for translating an aboriginal dialect into English to improve communication between indigenous tribes and health workers could be considered to be a social innovator. Another example could be an engineer who has invented a way of low cost construction for housing the homeless. In these cases, the innovator may or may not be seeking a profit out of his or her work. But commonly social innovators would want to see some commercial return on their ideas but not necessarily as a business.

Government sometimes comes up with social innovations e.g. providing free or subsidized bicycles for school children whilst making the school zones car-free to avoid traffic jams around schools. Some NGOs too have provided social innovations such as using cookery as a means for the mentally disabled to express themselves.

Opportunities for SMEs

Putting these concepts together means that there are opportunities for small medium enterprises (SMEs). SMEs have a number of attributes:

  • They are agile and can adapt quickly
  • Their small size often means that ideas can be translated into actions without having to go through many bureaucratic layers
  • They are used to taking risks on new products or services
  • They can make decisions very quickly
  • They often attract investment because of the rapid pace at which new markets develop and the ability of SMEs to respond accordingly

Using Ansoff’s matrix, there are pathways for SMEs in social innovation and becoming social entrepreneurs:

 

Screen Shot 2016-08-17 at 5.34.39 PM

 

  1. Where are we now? SMEs should assess what the current business model is, who their customers are, what their key products and services are and what the opportunities are.
  2. Product Innovation – If the current customers that SMEs serve have identified a new need, say for their employees’ families, then SMEs can offer new products or services built around their core business e.g. writing a software programme to link the families with providers to meet their requirements like childcare or medical doctors.
  3. Market Entry – Many SMEs have core skills like education and training. An SME may identify an opportunity in using these skills to service a social need elsewhere and break into new markets. These may sometimes be outside of their home country.
  4. Diversifying – Lastly if the product or service is a social innovation that takes the SME into new markets and new customers then it is time to diversify. But diversification does not mean abandoning certain core values or core skills.

SMEs in Malaysia

In Malaysia, SMEs currently account for roughly 36% of the nation’s GDP. Although this is respectable, SME sectors in other OECD countries have achieved over 50% contribution to GDP. The shortfall can be explained by the fact that more than half of the country’s SMEs are engaged in the lower end of the service market e.g. car workshops, F&B or retail. By comparison, other regions, the EU for instance, report that this category comprises less than 30% of the SME sector and others like professional, scientific and technical activities, real estate and hospitality account for 18%, 8% and 6% respectively. The challenge for SMEs in Malaysia is how to move up the value chain.

In 2015, Malaysia’s reported GDP was just under USD 300 billion. SMEs therefore contributed about USD 108 billion. Assuming that the economy improves and GDP increases to say USD 350 billion (4-5% yoy growth) by 2020, this means that SMEs will have to find a further USD 70 billion to make, say, a 40% GDP contribution target. Is this feasible? A massive investment in ICT and professional upskilling may help resolve this issue, something which the government is doing, but other pockets of innovation such as social innovation and social enterprises could also contribute. Based on the 11th Malaysia Plan, the government has set aside sums of up to RM 56 billion (USD 14 billion) and RM 23 billion (USD 5.6 billion) for education and healthcare respectively. Assuming 80% of this amount is for infrastructure such as new schools and hospitals, the remainder is for services and products – a total of RM 16 billion. This would mean ample business opportunities for SMEs.

The challenge of sustainability

In 2015, the Sustainable Development Goals (SDGs) were launched. These comprise 17 goals ranging from tackling poverty and education to providing infrastructure and employment. Converting these aspirations into action is everyone’s responsibility if we are to build a sustainable society. With the impending global problems caused by urbanization, ageing populations and climate change (to name a few), we face real challenges for sustainability and sustainable development as a human race.

 

Screen Shot 2016-08-17 at 5.34.33 PM

 

For SMEs, this represents both a threat and an opportunity. Business as usual may mean no business in the future if we do not take care of issues affecting the planet and society.

ICSMEE – the way forward

So for ICSMEE in moving forward to take advantage of this opportunity, some ideas are presented below:

  • Step 1. Confirm market opportunity size – do some research on social innovation to find out who is doing what and where are the gaps?
  • Step 2. Identify government support – there is funding for social innovation start-ups as well as business support, mentoring and training services available
  • Step 3. Tap into new markets – many large companies have established corporate social responsibility (CSR) practices and they are now exploring the concept of ‘shared value’ whereby they are investing in social enterprises to develop new business opportunities. SMEs can benefit from this.
  • Step 4. Align yourself with the SDGs – this helps your brand and also gives you guidance on what types of services and products are needed
  • Step 5. Do it together – to get into this market, SMEs have to have credibility. ICSMEE has a powerful network that members can leverage. Establishing a social innovation and sustainability professionals’ network would be a start; followed by a form of approved recognition like a social innovation certificate.

We can make a difference not just for current ICSMEE members and our community but also for future ones. As the old African proverb states, ‘the earth is not our gift to future generations, we are merely loaning the planet from them.’

This paper was presented at the International Council of SMEs and Entrepreneurship Talk on 6 August 2016 by Dr. Thomas Tang of the Kuala Lumpur Centre for Sustainable Innovation.

References

1. What is a social enterprise?

2. The Facts on U.S. Social Enterprises

3. Defining Social Innovation

4. Social Innovation and Workplace Innovation in Germany

5. Ansoff’s Matrix 

6. Sectoral analysis of the enterprise population and employment in SMEs, non-financial business economy, EU-28, 2012

7. SME contribution to GDP to hit 41%

8. Malaysia GDP

9. 11th Malaysia Plan

10. The Sustainable Development Goals