Challenges and Progress of Social Enterprises
Challenges and Progress of Social Enterprises
  • Jung-In Bae, Hye-In Kim
  • 승인 2010.10.06 18:10
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What is a Social Enterprise? Social enterprises pursue social objectives, so they work toward that purpose. They are intermediary organizations that exist in between non-profit and for-profit organizations. They make every effort to create jobs by offering social services, and they link corporate social responsibility to the creation of those jobs. Preliminary approval by the Ministry of Employment and Labor is needed before a social enterprise can be formed. If these social enterprises are not certified, they are considered illegal. In order to become a social enterprise specific requirements must be met. These organizations must provide jobs to the socially disadvantaged among lower income groups including the disabled and the elderly. These social enterprises provide social services to these parts of society as well. There are two basic types of social enterprises. One type creates jobs by providing services. In some cases, an enterprise decides their course after deliberation by an expert committee and the Ministry of Employment and Labor. They are also organized to equally distribute decision-making authority among stakeholders who include service recipients, supporters, and workers. The cost of labor for the organization should be more than 30% of the gross revenue. They also require articles of association or rules indicated by 10 enumerated items. Finally, they must also reinvest in themselves to achieve social objectives. How to Support Social Enterprises There are several ways to assist social enterprises. First, as mentioned above, basic support is provided through the certification process. If they are able to gain a foothold, they can become a social enterprise. A second form of support comes from management consultation. They can apply to consulting programs after having discussions with local support organizations. After that, the job center checks on the enterprise, and they can arrange consulting support. If a social enterprise requires specialists, the government will support the cost of labor for the expert help. When social enterprises require expert help, the ministry provides labor costs for three experts for up to three years, and if enterprises require young professionals, the ministry supports the labor costs for two professionals for up to one year. Academic support provided by social enterprises has the goal of fostering social entrepreneurs who have management skills. These programs are divided into two parts which are combination programs and specialized programs. The purpose of the combination programs is to enhance management skills to promote independence. The specialized programs offer social entrepreneurs opportunities to strengthen management skills and to evolve management environments. Above all, the ministry is dedicated to financially supporting these enterprises. Therefore, they support some costs like the cost of labor, working capital, and the cost of equipment. The ministry has operated with the matching fund method between social enterprises and general enterprises since 2010. Tax breaks for social enterprises is also a good benefit. After they obtain certification, the ministry provides a 50% income tax and corporate tax exemption benefit for 4 years. To expand their business, public institutions create protective markets. When public institutions buy goods or services, they are preferential to those provided by social enterprises. The Current Situation of Social Enterprises A total of 319 social enterprises have obtained certification as of June 2010. At first, there were 36 designated social enterprises in October 2007. Since then, the ministry has actively expanded that number, and has provided 38.4 billion won to that end. Their support focuses on the social enterprises in the earliest phase of development. For this reason, the first generation social enterprises that came into existence in October 2007 are in trouble. 32 of them are still operating, and 11 of them had their support end last year. The remaining 21 will also have their support cut off later this year and are preparing to become independent. After two years when government support comes to an end, most enterprises begin restructuring due to financial problems. Since many enterprises provide services to the elderly or the disabled, they are not able to sustain the high costs. The scale of social enterprises is smaller than that of general companies, so it is difficult to find a market on their own. Furthermore, many potential customers may hold prejudices because these enterprises hire the disadvantaged. Social enterprises are weakened by external factors as well as internal factors. They require more time for employee training, so they do not have time and resources for marketing and public relations. For example, WE CAN sells handmade cookies, and hired twenty handicapped people with the support of the ministry. However, WE CAN has had to lay off 11 of the 20 people due to financial difficulties. The prejudice of customers also worries WE CAN. Consumers do not yet fully trust the products offered by WE CAN as they only sell in the online market. Chungram which offers nursing and housework services has laid off half of its workers after government support ended. Other enterprises use the money accumulated from receiving government aid after support gets cut off. The ministry has many plans for social enterprises, but they often do not deal with the real problems. In brief, the ministry only focuses on offering jobs to the vulnerable and not on the fundamentals of the social enterprises. That's why many social enterprises have problems with independence and growth. To solve this problem, when the ministry selects social enterprises, they should consider creativity, social changes, and innovation. Social enterprisers also need an entrepreneurial spirit to avoid government-dependent tendencies. In order not to be overly dependent on the government, the private fields have to expand. Social enterprises have to establish networks themselves, and they have to share data. In terms of customers, they must overcome prejudice. To achieve this, the ministry has to play a leading role in the diffusion of positive awareness. Specialists should share their knowledge voluntarily with social enterprises. Financial issues are the biggest problem. Therefore, the ministry must not only focus on the establishment of social enterprises but also their growth. The ministry needs to increase indirect support, in order not to cut down on the level of labor support. The next support scale should be formulated as a result of evaluation. In order to protect against sudden restructuring, the ministry must apply more differential tax rates to social enterprises. Far-sighted planning is necessary when certifying social enterprises because some enterprises will not be able to make a profit immediately. The ministry has to apply support differently according to the type of business. The consulting program needs to have more practical proposals regarding marketing and public relations. In order to become independent, the most important thing is to have a revolutionary idea because there is still little demand for social enterprises. A new sector must be created. For instance, the YMCA bicycle production factory makes art bikes and bicycles for election campaigns. It earned nearly four times more profit than it would have from just recycling bicycles. Social enterprises also need an entrepreneurial spirit if they are to remain independent. It is not right for social enterprises to be given unconditional support. Most start up enterprises think only about certification requirements and the period of government support, so they are ill-prepared for their future. Social enterprises are operated by CEOs, so there seems to be a difference in values between CEOs and workers who aim to maintain a living. Furthermore, the scale of social enterprises is generally smaller than private enterprises, but they have to establish networks among the same businesses. It can create a synergy effect. The past three years have been an incubating phase that focused on starting up more social enterprises. It's only logical that the ministry dedicates itself to support the enterprises in their early stages, but the ministry needs to provide different kinds of assistance as time passes. It is difficult to measure the success of the enterprises at this stage. However, the ministry and social enterprises must understand their respective roles. As a way of vitalizing social enterprises, the government held a conference to promote examples of successful social enterprises. On June 28th, 2010, this conference took place at the Bongsan Cultural Center in Daegu. The Minister of Employment and Labor, the Mayor of Daegu and the Governor of Gyeongsangbuk-do took part in this conference. This conference first started in Daegu because it is a leading city in terms of social enterprises, and it was followed by Seoul on July 7th. Supposedly they will be expanded all over the country. The former Minister of Employment and Labor, Tae-Hee Lim stated at the conference that social enterprises should be rooted in local communities and the initiative should be taken by local governments as well as supported by the central government. Moreover, in order to make social enterprises sustainable, general enterprises have to intervene actively to produce and consume the goods and services provided by social enterprises, in order to stabilize employment and income. Social enterprises are also promoted every year through social venture contests and a national symposium. Social Enterprises in Daegu Among 32 social enterprises that have been newly certified by the ministry in May, 2010, six of them are in Daegu. Daegu ranks second among 16 cities and provinces for total number of certified social enterprises. A total of 15 social enterprises currently exist in Daegu including 3 corporations and 12 nonprofit organizations. There are also 30 social enterprises seeking certification, and 120 planned to be established by 2012. In 2009, social enterprises accounted for 428 million won in sales and 316 million won in assets. By the end of 2009, sales had increased 1.5 times from 2008. Social enterprises primarily employ the socially disadvantaged. These classes of people comprise 70% of the total unemployed population. We can see the possibility of sustainable growth of social enterprises through the reduced barriers to getting a job and high levels of activity.Examples of Social Enterprises in Daegu Doo-doo is a social enterprise that sells bean products, specifically bean sprouts and tofu. At its inception, the company was left in charge of the business by the Ministry of Health and Welfare. It was started to create jobs for the elderly as a private small-scale business. On December 30th, 2008, it was officially certified as a social enterprise by the ministry. Because they raise all of the foods themselves, it can be helpful to keep citizens healthy. They operate a membership system within Suseong-gu and create jobs by employing the elderly in the region. They have tried to expand their business by providing foods for schools and other public institutions in order to take advantage of stabilized markets. There are limits though. It is difficult to distribute products that have passed their expiration dates with restricted manpower, so they do not deliver them. They also deal with local food. They lease unused space free of charge and cultivate organic vegetables. Through local community markets, they are able to deal with consumers directly. They grow approximately 10 species of organic products including snap beans. Doo-doo consists of 18 members; 10 economically disadvantaged employees have been designated by the ministry. There are also 2 specialists in marketing and managing shopping malls, and 6 original members. The socially disadvantaged who are employed through these organizations get paid 859 thousand won for a 40 hour work week. Daegu City Government and the Suseong District Office also provide assistance to social enterprises. The significance of this business is found in its goals. By offering healthy food, they promote the local food movement. More importantly, they create jobs for the elderly. Doo-doo is the first social enterprise created for senior citizens which has been strongly based in the local community. Therefore, Doo-doo may appeal to local citizens and become one social enterprise success story. The YMCA bicycle production factory is working in various realms from producing bicycles to art performance. One of their main businesses involves collecting discarded bicycles and fixing them so that they can supply recycled bicycles. Recycled bicycles are sold for 60 thousand won. They are practically new because 70%~80% of the parts are substituted with new ones. About 2 thousand bicycles were reportedly sold last year, with annual revenue of 120 million won, and their target sales goal this year is 200 million won. They also make art bikes. The YMCA demonstrates a perfect fusion of bicycles and art, and art bikes are the first of their projects to be commercialized. They have also developed new fields including three-wheel electric bicycles, which took one year to research and develop. The tour bike has been used for taking sight-seeing trips especially for foreigners. It has the potential to appeal to tourists as a tourist attraction. Moreover, the YMCA leased bicycles which were made for promoting candidates during the election period. 62 bicycles were nationally used for the past local government elections. They have also tried to make bicycles for cleaning, solar powered bicycles and bicycles for blind people. In addition, they are trying to improve city design by installing bicycle racks. Bicycles made by the YMCA have even been used at local festivals. Through these efforts, their business has been extended to include art and culture. Bike theater performance teams have been created to hold art bike parades and street performances. The members of the team are youngsters who used to be street dancers. The YMCA works in the area of education as well. They educate children about bicycle licenses, and they established maintenance bicycle schools for adults. They are planning to expand their new businesses in every sphere with anything related to bicycles. The YMCA is composed of 48 people. The recycled bicycles business consists of two people who collect unused bicycles and 20 people who refurbish the bicycles. All of them are mainly middle aged to elderly. The art bike team consists of 10 designers and 6 planning and production staff. Most of them have art backgrounds and specialties. The bike theater has 8 staff members and only two of them handle management and marketing. They have ties with the Daegu City Gas Corporation, so the YMCA receives a subsidy from them. Their aim is to realize an eco-friendly city by invigorating the use of bicycles. They also provide financially disadvantaged people with social services and creative jobs. Social enterprises have the characteristics of both for profit businesses and charities. Therefore, if the strong points of both are well combined, they can be successful. If not, they may fail. Currently, most social enterprises in Korea have the goal of creating jobs. However, if they continue to focus solely on this point, they may be directed toward other missions that are different from their original purpose. This is because these organizations currently emphasize the realization of social values as well as creating jobs. If social enterprises enter into competition with general enterprises, it can be helpful for them to be financially independent. However, the existence of these kinds of social enterprises leaves room for doubt. Accordingly, expanding business toward creative fields, which have more opportunities to create higher value-added, is necessary. They have infinite potential to develop if they are business savvy and find appropriate markets.

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