1 Social Enterprises Prof. Stephen Y L Cheung Department of Economics and Finance City University of Hong Kong

2 1.Challenges of globalization 2.Social enterprise in Hong Kong 3.Partnership –Government –Business sector –NGOs

3 Globalization “Since 2001 the pay of the typical worker in the United States has been stuck, with real wages growing less than half as fast as productivity.….. If you look back 20 years, the total pay of the typical top American manager has increased from roughly 40 times the average--the level for four decades--to 110 times the average now.… In China each person now produces four times as much as in the early 1990s. Having joined the global labour force, hundreds of millions of people in developing countries have won the chance to escape poverty. Hundreds of millions more stand to join them.… But in the rich world labour's share of GDP has fallen to historic lows, while profits are soaring.” (Economist, 2007)

4 Globalization Increase competition –Encourage specialization –Consumers gain from lower prices and greater variety Increase in trade and investments

5 World Trade Source: 2005 Annual Report, Federal Reserve Bank of Dallas

6 Assets Aboard Source: 2005 Annual Report, Federal Reserve Bank of Dallas

7 Globalization Price stability –Lower inflation –Seven largest developed nations: U.S., U.K., Canada, Italy, Germany, France and Japan –Average annual inflation 10.2% (During ) 1.8% (Since 1995)

8 GDP per Capita Source: IMF, Morgan Stanley Research

9 Shares of National Income: G7+ Economies Source: National Sources, Morgan Stanley Research

10 Participation in the Global Economy - Importance of Partnership The Government –Competitive and flexible workforce –Redistribution –Education and Retraining Industrial Corporations –Technical and managerial skills –Aspects of international best practices

11 Participation in the Global Economy - Importance of Partnership Civil Society Organizations –Ensure proper investments Research Institute –Provide technical training and diagnostic studies Multinational Organizations –Policy advocacy –Watchdog

12 What is Social Enterprises? No common definitions –Social Enterprises are businesses with social objectives –“A business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximize profit for shareholders and owners.” (Social Enterprise – A strategy for success, U.K. Department of Trade and Industry, 2002:7) –Social Enterprises have developed in that sector of the economy that lies between the market and the State. Theses enterprises seek to reconcile market and non-market forces within a plural economy (OECD,1996)

13 Social Enterprises in HK As at the end of January 2006, 43 NGOs assist/ engage in 172 social enterprise projects The projects involve 37 kinds of businesses Source: Social Enterprises Resource Center

14 Social Enterprises in HK Services provided by social enterprises in HK Production and sales Domestic services General cleaning services Catering services Personal care services Other products and services Source: Social Enterprises Resource Center

15 Social Enterprises in HK Social enterprises in HK are mainly: Operated by charities and non-profit organizations Run by some for-profit business organizations as a subsidiaries Projects supported by Government seed funding. Source: Social Enterprises Resource Center

16 Challenges of Social Enterprises Lack of personnel in NGO with professional business experience Financing –Double ‘bottom line’ –Limited understanding –Restriction on private benefits –Familiarity –Type of entrepreneur

17 Success Factors of Social Enterprises Entrepreneur spirits Expectation for participants Recognition and support from the general public Government policy –Administrative barriers? –Promoting the concepts of social enterprises

18 Potential Benefits of Social Enterprises Create job opportunities, especially for the underprivileged groups Increase employability of participants → Enhance integration into labor market → Become self-reliant Innovation → Meet new needs Increasing density of community network and cross-sector partnerships → Promote community inclusion

19 Fostering of Entrepreneurship in Social Enterprises Role of university –Training, executive education, and research support Role of business sectors –Expertise, funding support, and mentorship Role of the government –Legislation tax advantages, and seed money

20 Social Enterprises Business Sectors Government NGO “You can’t fly with one wing.”

21 What is Corporate Social Responsibility (CSR)? Old ideas of doing business –Profit maximization –Concern on shareholders interest Today’s new standard –Innovation –Comply with international standard –Sustainable development –Consider interest of all stakeholders and are expected to take greater responsibilities in running a business –Corporate social responsibilities (CSR)

22 What is Corporate Social Responsibility (CSR)? Major trends in international business in recent years Business’s contribution to sustainable development Related to basic business activities Impacts on stakeholders: –Social; –Economic; and –Environmental Create additional value and strategic advantage

23 How to Measure? Four possible indicators –Dow Jones Sustainability Index (DJSI) –Global Reporting initiative (GRI) –Carbon Disclosure Project (CDP) –ISO Certifications

24 CSR in Hong Kong Corporate Governance Scorecard project –Survey results based on publicly available information –HIS, HSHKCI, and HSCEI constituent stocks –2002: 168 companies are covered –2005: 174companies are covered Section / Year 2005 Mean 2002 Mean Role of Stakeholders in Corporate Governance

25 Drivers for Organizations Enhance image and reputation Increase shareholders value Reduce business risk Legislative requirements Customer loyalty Employee loyalty Improve business operation Control of legal risks

26 Obstacles in Running Socially Responsible Businesses Management practice Increasing cost? Monitoring and enforcement Sustainable development

27 Role of Government in Promoting CSR Enforcement strategies and legal and regulatory risk management Tax initiatives Contribution to compliance expertise Moral suasion

28 Incentives CSR index –Brand name CSR investment fund –Investment communities Education → 發財立品

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