04 Aug Can someone do my Week 6 discussion 2 Entrepreneur/Intrapreneur?

CHAPTER TEN SOCIAL ENTREPRENEURSHIP IN A GLOBAL CONTEXT

LEARNING OBJECTIVES

Identify the potential economic impact of entrepreneurship.

Assess the promise of global social entrepreneurship and its relevance for achieving social goals.

Describe characteristics of global social entrepreneurs.

Distinguish between different types of entrepreneurial ventures based on their scale and market focus.

It is no surprise that social entrepreneurs and the institutions that support them have focused their attention on making an impact around the world. Entrepreneurship is a powerful engine for economic growth, and social entrepreneurs are using their mission-focused skills to tackle chronic social problems ranging from addressing food insecurity in sub-Saharan Africa to expanding education access in India to addressing racial disparities in the United States. Forbes magazine described both the promise and complexity of this kind of problem-solving, observing that “social entrepreneurs are working in close collaboration with local communities, incubating groundbreaking (and often lifesaving) innovations; modeling synergistic partnerships with governments, companies, and traditional charities; and building business models that deploy technology and enable networking to create wins for investors and clients alike.”1

In this chapter, we take a broad look at both entrepreneurship and social entrepreneurship around the world and examine different models that are enabling mission-driven entrepreneurs to address society’s most pressing problems.

THE ECONOMIC IMPACT OF ENTREPRENEURSHIP

Global Entrepreneurial Impact

Nearly a century ago, influential Austrian economist Joseph Schumpeter theorized that entrepreneurship was a key factor in innovation and technological change. He later asserted that “the doing of new things or the doing of things that are already being done in a new way” stemmed directly from the efforts of entrepreneurs.2 Schumpeter first coined the term “creative destruction,” which describes “the essential fact” of capitalist economies which is the incessant destruction of old ways of doing business as new ones replace them.3 His theory illustrates an essential characteristic of entrepreneurs: their willingness to question the status quo and search for more efficient paths.

Prominent American economic theorist William Baumol is credited with giving the entrepreneur a key role in mainstream economic theory. Among his many contributions (several of which build on work by Schumpeter) is his argument that institutional context influences the nature of entrepreneurship and its impact, contending that the nature and quality of institutions (for example, tax policy and protection) affects whether or not entrepreneurial activity has beneficial outcomes.4

Starting in the 1970s and 1980s, entrepreneurship emerged as an engine for economic growth in developed economies after a centuries-long decline. Scholars cite multiple reasons for this, including that the “growth of the service sector with its smaller scale and lower entry barriers, and increasing differentiation of consumer preferences, declining transactions costs and a trend in occupational preferences towards more autonomy and self-realization.”5 They also note that increased information and communication technologies create new business opportunities and lower costs, enabling small firms to benefit more easily from scale economies.6

In the United States, research using Census Bureau 2013 longitudinal data demonstrated that while start-ups account for only 3% of employment nationwide, they are responsible for almost 20% of national gross job creation. The authors observe a robust up-or-out dynamic of young firms succeeding or failing and observe that the young firms that survive grow more rapidly than their more mature counterparts.7

Entrepreneurship in Emerging and Developing Economies

Perhaps the most comprehensive source of information on global entrepreneurship is the Global Entrepreneurship Monitor (GEM), which has been published annually for over two decades. In their 2019/2020 global report, the authors summarize the results of over 150,000 individual interviews conducted over 50 economies. They examine factors that include attitudes towards entrepreneurship, the motivations of those starting businesses, and the level of entrepreneurial activity in each economy.

The GEM authors observe that “entrepreneurship is a uniquely powerful mechanism for economic and social development, generating incomes and jobs while enabling and enriching individuals and communities.” Benefits include job and income creation, innovation, and individual autonomy, although the extent to which they are realized varies by economy.8

In the emerging BRIC (Brazil, Russia, India, China) economies, significant growth has been driven by entrepreneurship. Entrepreneurs’ ability to access knowledge, markets, and education have all been factors enabling economic expansion.9

In less developed economies, necessity is often a driving force. Economists distinguish between two types of entrepreneurship: opportunity driven and necessity driven. Opportunity entrepreneurs are those who start a venture because they spot an opportunity in the market which they want to pursue. Necessity entrepreneurs are those who start a venture because they do not have another means of generating income. Opportunity-driven entrepreneurship leads to higher levels of economic growth, while necessity-driven entrepreneurship has been shown to be less promising and can even have a negative effect. Scholars have observed a downside to high levels of necessity-driven entrepreneurship. A study of 48 developing countries found a negative relationship between established business ownership rate (the percent of the population who are owner-managers of an established business) and per capita GDP and GNI, questioning whether, among other reasons, a high prevalence of necessity-driven entrepreneurship could be crowding out more productive opportunity-driven entrepreneurship and the formation of high growth ventures.10

The higher value of opportunity-driven entrepreneurship has also been demonstrated in multiple studies. In a 2020 analysis that followed 22 transitional and developed economies in Europe, the authors found a strong correlation between opportunity-driven entrepreneurship and economic growth.11 An analysis of a large sample of female entrepreneurs in Mexico showed that on average, opportunity entrepreneurs had better performance and higher skills than necessity entrepreneurs and the researchers also observed that opportunity entrepreneurs achieved better venture performance and used better management practices.12

The Importance of Institutional and Cultural Context

For entrepreneurship to thrive, the institutional environment matters. Unsurprisingly, countries with stable governments, transparent legal systems, and strong property rights’ protections are more conducive to entrepreneurship; this is also true of those with low regulatory burdens, availability of entrepreneurial education, and strong professional, commercial, and physical infrastructure. The World Bank annually ranks 170 countries on the ease of doing business. In 2020, New Zealand ranked #1, and the Democratic Republic of Sao Tome and Principe, an island country off the western equatorial coast of Central Africa, was #170. The factors the World Bank considered included start-up time and cost, ability to get credit, tax policy, and how effectively jurisdictions enforce contracts and resolve insolvency.13

Social norms are also important. For example, when Linda Rottenberg and Peter Kellner launched Endeavor in five countries in Latin America, they found that the countries they had entered lacked the tradition of celebrating entrepreneurs as community wealth creators that existed in many other countries and also had limited infrastructure to support entrepreneurs. “For Linda, the light bulb moment for Endeavor came in the back of a taxicab in Buenos Aires. She struck up a conversation with the driver and was shocked to learn he had a PhD in Engineering. She asked if he hadn’t considered becoming an entrepreneur instead of driving a taxi. ‘An empresario?’ he said dismissively, using the Spanish word for a big businessperson. It suddenly occurred to her that there was no Spanish word for entrepreneur.”14 Endeavor’s founders made it their mission to celebrate entrepreneurs, while building an infrastructure to support them, and today Endeavor operates in over 30 countries around the world with an impressive track record of facilitating entrepreneurial ventures and catalyzing job creation.

Across the 61 countries surveyed in 2016 by GEM, over two-thirds of the adult population believed that entrepreneurs are well regarded and enjoy high status. The most positive attitudes were reported in Africa, with 77% of respondents believing entrepreneurs are admired and 75% believing entrepreneurship is a good career choice. In contrast, a smaller proportion of adults believed entrepreneurs to be well regarded in Latin America and the Caribbean (63%) and in Europe (58%).15

Entrepreneurial Motivation

Motivations for entrepreneurship vary from country to country. For example, the GEM adult population survey asked entrepreneurs in 50 countries their motivations for becoming an entrepreneur. In 60% of countries, over half of the entrepreneurs surveyed somewhat or strongly agreed that “building great wealth or very high income” was their motivation. But this motivation differed country by country, with fewer than half the countries in Europe and North America reporting this dominance, while most did in the Asian and the Pacific regions as well as in nearly all of the 11 countries in the Middle East and Africa.16

Necessity-driven entrepreneurial formation, the drive “to earn a living because jobs are scarce,” motivated more than half the adults that started new businesses in a large share (70%) of the countries GEM surveyed. There were significant regional and country-by-country differences. Half or more of the entrepreneurs somewhat or strongly agreed with the statement in every Latin American and Middle Eastern and African country surveyed, while entrepreneurs in Europe, North America, and the Asian and Pacific regions were much less likely to be motivated by earning a living. This underscores the concentration of necessity-driven entrepreneurship in less-developed nations.17

A third motivation, and the one most relevant to social entrepreneurs, is “to make a difference in the world.” On this dimension, we counted countries where half of the entrepreneurs somewhat or strongly agreed with this statement; the percentage of countries by region was as follows:

Latin America and the Caribbean—63%

Middle East and Africa—45%

Asia and the Pacific—38%

Europe and North America—22%

The countries with the highest proportion of entrepreneurs expressing their agreement about the importance of making a difference were India, South Africa, Guatemala, and Panama (all with over 75% of entrepreneurs agreeing) closely followed by Canada, Poland, and the United States.18

THE PROMISE OF GLOBAL SOCIAL ENTREPRENEURSHIP

In the section above, we discussed why entrepreneurship has positive economic outcomes. Now, we’ll turn our focus to social entrepreneurship as an engine for positive social change. Around the globe, examples of innovative solutions created by social entrepreneurs creating sustainable social change abound. Prominent examples include the following:

BRAC, headquartered in Bangladesh, improves livelihoods by founding a series of social enterprises. Some of these enterprises, which include self-sustaining ventures in dairy production, fisheries, agriculture and seeds, silk production, and cattle insemination, among others, help give microentrepreneurs, farmers, and producers the tools, resources, and market access they need to raise their incomes. The results have been astonishing. BRAC reaches millions of the world’s poorest people in Africa, India, and Asia, and its commercial ventures are largely self-supporting.

Aravind Eye Hospital in Maduria, India, leveraged the profits from performing cataract surgery in a for-profit hospital to provide free services for the poorest of India’s blind population. Today, the Aravind Eye Care System has treated more than 65.5 million patients and performed 7.8 million surgeries. Using a model of high volume and intense specialization, Aravind can perform cataract surgeries 98% cheaper than in the United States, with outcomes that are as good as or better than those realized in the United States and Europe.19 Aravind is also self-supporting.

The One Acre Fund was started in Kenya in 2006 by Andrew Youn with a simple observation: most families in rural Africa farm at a subsistence level, but a few low-cost improvements can dramatically increase yields. Youn was motivated to start One Acre when he visited rural Kenya during “hunger season,” a time when staple food had run out and families were barely surviving. But he also saw that some farmers achieved dramatically higher yields by using hybrid seeds, fertilizer, and crop spacing. “Smallholder farmers comprise 75% of the world’ poorest citizens, including 50 million households in Africa, (most of whom) live in remote areas of the world and do not have access to basic agricultural tools and training.”20 The One Acre Fund provides a bundle of services to small groups of farmers, including seed and fertilizer access, credit, training on farming techniques, and postharvest and market support.21 Today, One Acre works with over 1 million farmers in six countries in Africa—Kenya, Rwanda, Burundi, Tanzania, Uganda, and Malawi. One Acre also employs 6,000 field agents in over 4,500 rural locations who are responsible for enrolling farmers, providing input, and collecting payments.

Sanergy was founded by a global team of young social entrepreneurs in 2010 (Sanergy’s evolution is discussed in a case at the end of this book) as a hybrid for-profit and nonprofit enterprise that operates a network of franchised pay toilets in informal settlements in Nairobi, Kenya. Sanergy collects and processes the human waste that is produced to create high-quality fertilizers and animal feed byproducts. In doing so, it solves one of the most important problems in the slums by improving sanitation and reducing harmful pollution. Sanergy has “grown in” in Nairobi, increasing the number of pay toilets by expanding the use of its original franchise model as well as partnering with property owners and community institutions to make sanitation even more accessible. It currently serves nearly 140,000 urban residents daily with its network of 3,500 active toilets, removing 2,800 million metric tonnes of waste from Nairobi’s slums in 2020.22

What can we learn from these examples? They use different approaches and operate in a range of developing nations. Some have urban operations; others operate in rural areas. Their focuses span sanitation, agriculture, and health care. But they also have common elements. Each addresses a social goal and, at the same time, creates economic opportunity for individuals and communities. Each has scaled their concept to foster significant social benefit. Each uses innovation as a foundation. This ranges from One Acre’s experimentation with unique crop yield technologies to Sanergy’s use of a systems approach, to bring together different elements to solve a persistent problem in a financially sustainable way, to Aravind’s use of a cross-subsidized pricing model to make eye surgery affordable to very low-income individuals. And each started with the vision of a single person or small team with a commitment to make a difference in the world.

Entrepreneurship and the UN Sustainable Development Goals

The distribution of income and resources across the globe is uneven. One in ten people in developing regions lives on less than the international poverty line of US $1.90 a day. While global poverty rates have been reduced by more than half since 2000, the rate of decline has slowed. And while progress has been made in many countries within Eastern and Southeastern Asia, up to 42% of the population in sub-Saharan Africa continues to live below the poverty line. Poverty means more than just limited income—it also means lack of access to food, education, and basic services. Ten percent of the world’s population is living in extreme poverty and struggling to fulfill their most basic needs. There are also gender and age dimensions to poverty, with women and children much more likely than men to live in extreme poverty.23

Entrepreneurship has the power to help reduce poverty by providing job opportunities and economic growth. Social entrepreneurship, in addition to creating jobs, can improve living conditions by increasing access to food, water, energy, education, and other resources.

The UN Sustainable Development Goals (also known as the SDGs or Global Goals) are 17 interlinked goals intended to be a “blueprint to achieve a better and more sustainable future for all.”24 The SDGs were established in 2015 by the United Nations General Assembly and intended to be achieved between 2020 and 2030.25

Description

Figure 10.1 UN Sustainable Development Goals

The social ventures described above have all worked towards reaching these goals; some have addressed multiple goals. For example, Aravind Eye Hospital focuses on a single objective, Goal #3 (good health and well-being). The One Acre Fund is making progress on Goals #1 and #2 (zero poverty and no hunger). Sanergy is meaningfully addressing Goal #6 (clean water and sanitation). But along the way, it is also addressing Goal #3 (good health and well-being) and Goal #11 (sustainable cities and communities). Its impact does not stop there. By using waste products to generate its own electricity, it is contributing towards Goal #7 (affordable and clean energy) and its operations and franchise model both contribute to achieving Goals #5 and #8 (decent work and economic growth, and gender equality). Similarly, BRAC, with its multifaceted operations, helps contribute to progress on over half the goals.

Achieving the SDGs requires collaboration across sectors and social enterprises have a special role to play because they can scale rapidly and, in many cases, use financially self-sustaining models. That said, social entrepreneurship is not the only solution. Given the magnitude of the goals, social ventures are only part of an effort that requires focused and concerted efforts by individuals, companies, NGOs, governments, philanthropies, and individuals. As part of their 2020 Impact Report, the Schwab Foundation for Social Entrepreneurship (a foundation that for two decades has supported social entrepreneurs globally) surveyed 133 late-stage social entrepreneurs to, among other things, understand how their ventures addressed the SDGs. They found that 90% of the social entrepreneurs surveyed reported that their strategies are somewhat or significantly influenced by the SDGs. The focus of respondents (many of whom reported targeting multiple goals) was on the following:

Goal 1—No poverty (51%)

Goal 2—Good health and well-being (51%)

Goal 4—Quality education (50%)

Goal 5—Gender equality (50%)

Goal 8—Decent work and economic growth (50%)

Goal 10—Reduced inequalities (36%)26

The SDGs have been highly effective at catalyzing innovation and political commitment. However, progress towards the goals is not currently on track, according to the UN’s September 2019 High Level Political Forum. Moreover, significant and widespread economic and social hardship caused by the worldwide COVID-19 pandemic will likely further erode progress.

Factors Supporting the Growth of Global Social Entrepreneurship

Similar to commercial entrepreneurship, there are numerous trends that have supported the growth of social entrepreneurship. A major tailwind has been technology. The availability of simple and widespread infrastructure for communicating and processing information has reduced the cost of starting ventures and the cost to reach and serve recipients and customers. Regulatory reforms that simplify trading across borders and the increased ability to enforce contracts are just a few elements that have made it easier to create new ventures.

Figure 10.2 shows how these important trends have resulted in lower business formation costs. Each year, the World Bank tracks the cost of starting new business in 190 economies. In high-income economies, the cost of starting a business (as a percentage of income per capita) declined threefold, from an average of 12% in 2004 to only 4% in 2020. The decline in low- and middle-income economies has been even more dramatic—from an average of 142% in 2004 to 25% in 2020. This means that the 2020 cost was only 17% of the cost in 2004

Description

Figure 10.2 Cost of Starting a Business as a Percentage of Income per Capita

Constraints to Global Social Entrepreneurship

Despite this progress, social entrepreneurs continue to face impediments. One that we see in Figure 10.2 is that the cost of starting ventures remains significantly higher as a percentage of per capita income in low- and middle-income countries than in high-income countries. Another impediment is that in some countries, regulatory barriers to starting a business are persistent and, in some cases, increasing. In many countries, gender inequities make it harder for women to start new ventures. A lack of capital or credit can also be a significant barrier. And finally, in some countries, social norms, class structure, attitude towards risk taking, and a lack of positive role models constrain the formation of new mission-driven ventures. For example, the World Economic Forum’s Global Competitiveness Index surveyed individuals in 139 countries in 2019 asking on a 1–7 scale, “In your country, to what extent do people have an appetite for entrepreneurial risk?” Results varied from lows scores of 2.40 in Mauritania and 2.77 in Haiti to high scores of 5.55 in the United States and 5.96 in Israel. Higher risk appetite had a moderately strong correlation to income per capita.28

Resources Supporting Mission-Driven Ventures

Mission-driven founders use a patchwork of funding sources including personal funds, friends, colleagues, and private investors (including philanthropic investors and government funds). The GEM’s 2015 Report on Social Entrepreneurship found that most start-up social entrepreneurs invest personal funds, and this ranges from a high 80% of founders in Southeast Asia to a low of 64% in Western Europe. More than a third of the world’s social entrepreneurial ventures rely on government funding. This source is particularly important for entrepreneurs in the United States and Australia, where, as Table 10.1 shows, 55% of entrepreneurs utilize these funds. Private investments or venture capital is used by over a quarter of entrepreneurs in the United States and Australia, Western Europe, and Sub-Saharan Africa. Founders in Southeast Asia and Sub-Saharan Africa are more likely than those in other regions to rely on family, friends, and neighbors. Relying on volunteers is another important resource, and GEM found that in all regions except for Western Europe, over half of those working for social ventures were volunteers.29

CHARACTERISTICS OF GLOBAL SOCIAL ENTREPRENEURS

When we consider social entrepreneurship around the world, it quickly becomes clear that there are significant differences between countries, regions, and types of economies. These differences affect who becomes a social entrepreneur, what their motivations are, and how they access the resources that they need to support their ventures.

In the 50 countries assessed by GEM and using a broad definition of social entrepreneurship (including both social and value creation goals), 3% of the adult population in these countries work in a nascent (start-up phase) social venture. The proportion varies from 0.3% in South Korea to 10.1% in Peru. The highest proportions can be found in factor-driven (developing) economies. An additional 3.7% is involved in operational (post start-up) social entrepreneurship. As a point of comparison, the rate of start-up for commercial entrepreneurship averages 7.6% in the world, ranging from a low of nearly 1.4% in Vietnam to a high of over 22% in Peru.30

Table 10.1 Sources of External Funding for Social Entrepreneurs by Region

Southeast Asia (%) MENA (%) Sub-Saharan Africa (%) Eastern Europe (%) Western Europe (%) Latin America/Caribbean (%) United States/Australia (%)

Family 68 51 67 49 38 36 37

Friends and Neighbors 47 9 39 18 14 23 18

Employer or Work Colleagues 28 12 27 23 18 18 30

Bank/Financial Institution 37 19 42 19 25 24 27

Private Investor/Venture Capital 11 9 27 19 25 15 27

Government 25 28 38 42 43 41 55

Crowdfunding 11 11 0 14 9 7 18

Numbers add to more than 100% in each region because multiple sources of financing are used. Based on use of funding reported by social entrepreneurs (broad definition).

Source: Global Entrepreneurship Monitor. Report on Social Entrepreneurship 2015/16. Used with permission.

If a narrower definition is used, where ventures have a market orientation and social value creation is the primary driver, the average prevalence of social entrepreneurs overall is 2.3% of adults with 1.1% in the start-up phase and 1.2% in the operating phase.31

Of the world’s social entrepreneurs, an estimated 55% are male and 45% are female, a much smaller gap than for commercial entrepreneurship where male founders outnumber female founders by approximately 2:1.32 Education levels differ across regions: 62% of US and Australian entrepreneurs have a postsecondary education, compared to half of those in the Middle East and North Africa, Eastern Europe, and Western Europe. In every region, social entrepreneurs are more likely to have postsecondary education than their commercial entrepreneur counterparts.33

Both commercial and social entrepreneurs are often young. In the Middle East, North Africa, and sub-Saharan Africa, over 50% of social entrepreneurs are in the 18–34 age range and in most other regions, over a third are in this range. The exception is the United States and Australia where 28% of start-up entrepreneurs and 18% of operating social entrepreneurs are young. In every region, the percentage of young operating phase social entrepreneurs exceeded that of commercial entrepreneurs, perhaps reflecting the idealism of young adults everywhere.34

In nearly all locations, both start-up and operating social entrepreneurs tend to be likely to have higher incomes than the adult population average. The exception is sub-Saharan Africa, where operating social entrepreneurs are more likely to have higher incomes than the overall population, but start-up entrepreneurs are not.35

The Schwab Foundation for Social Entrepreneurship’s 2019/20 survey of their 133 late-stage social entrepreneurs demonstrates the diversity of issues addressed by social entrepreneurs. The top issues that they reported addressing were education (35%), economic opportunity and development (26%), entrepreneurship and enterprise development (26%), and health and health care (23%).36 This is unsurprising based on both the high impact potential of ventures in these areas, and the existence of self-sustaining business models launched by social entrepreneurs in these spaces discussed earlier in this book (for example, India’s Ekal Vidyalaya in education, Bangladesh’s BRAC in economic opportunity, global player Endeavor in entrepreneurship development, and Israel-based Genesis in health care).

The same survey also identified the ten countries in which late-stage Schwab entrepreneurs are most active. The locations spanned the globe. Outside of the United States (30%), all of the ten top countries where efforts were focused were low- to middle-income economies, and the entrepreneurs were most active in India (36%), Kenya (26%), and Brazil (22%).37

Profile: Michael Sly at Wilding and Co.—Leveraging a Global Market to Meet Local Goals

Michael Sly credits his mother—a single parent and entrepreneur—with helping to spark his own entrepreneurial initiative. During his formative years, he watched his mother convert a small grape-growing business in Arrowtown, New Zealand, into a local wine producer, which inspired his interest in creating and growing new ventures.

Sly studied industrial design at Victoria University of Wellington and used the skills he acquired there to found several entrepreneurial ventures. First, he started a website design company called Chrometoaster. Later, inspired by his interest in textiles, he created a process to convert New Zealand flax (harakeke), a locally grown spear grass, into a new textile product. He became intrigued by this idea while he was building a client website, which focused on using new technology to extract products from plants. This led him to start working with an indigenous Maori group (Ngai Tahu) to help them restart the lost art of creating fragrances from native plant extracts. These diverse experiences, combined with his deep interest in environmental sustainability, created the foundation for Wilding and Co., a for-profit venture that removes invasive trees in New Zealand, and uses them to produce pine-scented essential oils. Essential oils are plant extracts obtained through distillation or pressing.

On New Zealand’s South Island, the problems created by wilding pines are well documented. Over ten species of nonnative conifers were originally introduced to the area in the late 1800s to shelter homes, protect livestock, and provide timber. But the fast-growing pines proved to be prolific producers of seeds and spread rapidly, crowding out native trees and other plants, as well as the birds and insects that rely on them. The New Zealand Department of Conservation estimates that without rapid action, 20% of