While establishing partnerships to have a greater social impact, social enterprises also face challenges.
One of the challenges that many social enterprises face is being able to compete on prices while at the same time having enough money to make a social impact. At the ‘Social enterprise in development’ expert meeting hosted by Social Enterprise NL and Cordaid in Amsterdam on 19 June, Mark Hillen said that having a social impact must be the most important aim for social entrepreneurs. Making a profit is not unacceptable, but it has to be reasonable. The enterprise must be independent and therefore, financially self-sustaining. In addition, it is logical that the social enterprise itself acts socially in its operations.
To ensure significant social impact and some form of financial security, social enterprises establish partnerships with NGOs, private companies and/or governments. This certainly has benefits. Mayke Harding of BoP Inc. listed a number of them: upscaling is easier, and a social enterprise can make use of the skills of the other parties and gain easier access to informal networks and new markets. And, importantly, the NGOs in the partnership can provide a ‘license to operate’, as they have local connections in developing countries and have most likely acquired legitimacy among the local population and institutions. For new or small social enterprises alone, it can take some time to build such a local network.
Nevertheless, social entrepreneurs do face challenges when establishing partnerships. While achieving a social impact is the most important determinant of a social business, providing evidence for it is difficult. For example, in tendering procedures issued by government or NGOs, as Simon Postma of Hospitainer explained: “Competing enterprises may say they are cheaper, at least in the short run, and may therefore be awarded the subsidy. But their products may also last for a shorter time and have less social impact.”
Another challenge that social entrepreneurs face in partnerships, according to Lisa Harteveld of Text to Change, is that the roles and responsibilities of partners are not always clearly determined, and they do not always fulfil them. Several participants emphasized the importance of partners seeing the advantage of cooperating with a social enterprise before they enter into a partnership. This can be especially difficult when cooperating with large companies. Social enterprises have to anticipate this by also seeing the partnership from the perspective of the company, and trying to find links between the goals and method of the partnership and the mission of the company.
In addition, Mayke Harding said that partnerships can do a better job at managing mutual expectations by adhering to a few principles: “formally assigning a skilled, business-minded leader within the partnership, investing in connecting with the right partners, building in flexibility along bottom of the pyramid business development phases, and mobilizing internal resources are key”.
During the meeting, the phenomenon of partnerships itself also evoked critical questions. One participant asked whether we can speak of a partnership when all parties receive subsidies, and are therefore not financially self-sustainable. Another question related to the choice of partners: does the kind of partnership you choose determine what kind of social enterprise you are? In Harding’s view, this depends on the social values and actions of the large company you want to partner with. Another participant asked whether it is acceptable to partner with a large company that reaches many people if you want to have widespread impact, even if the company engages in harmful activities.
From the perspective of a large company, Maarten van Herpen of the Philips Africa Innovation Hub said that if you make profits, like companies do, your impact may be larger, because you can provide more products by selling them than by giving them away for free, as social enterprises may do since profit-making is not their explicit aim.
The Philips Africa Innovation Hub is, in Van Herpen’s words, a “corporate social enterprise within the company”. As a large and internationally operating company, it may indeed reach many people with products that are adapted to local circumstances. The question remains, though, whether this social enterprise within a profit-driven company will survive if it starts to make a loss?