Social Enterprises in Hong Kong

The Bauhinia Foundation Research Centre (The Centre) today (17 October) released its study ‘Social Enterprises in Hong Kong’, which reviews the business operation of social enterprises (SEs) in Hong Kong and the challenges facing them, with a view to making recommendations to foster sustainable development of SEs.

The  study,  commissioned  by  the  Centre  and  conducted  by  K  &  M  Consultancy  Co.  Ltd., found no universal definition of SEs, and that the concept of SEs has been evolving over time. In  general,  SEs  refers  to  business  operations  seeking  to  serve  community  interests  while deriving income from business transactions to sustain their operations. SEs will reinvest the majority of profits in fulfilling their social missions.

“The study findings are quite positive. We are pleased to note that local SEs are providing diversified products and services, which indicates the sound foundation of SEs development and growth in Hong Kong. Meanwhile, SEs have provided job / training opportunities and enhanced a sense of dignity for the disadvantaged. This is worthy of the community’s support and  active  involvement.  However,  local  SEs  are  facing  various  challenges  and  require  the assistance  of  the  Government  and  other  stakeholders.  Given  SEs  overseas  have  developed over  a  longer  period  of  time,  the  Centre  suggests  local  SEs  to  make  reference  to  overseas experiences when dealing with their problems,” the Centre’s Chairman Dr Donald Li said.

Dr Li added, “The Centre put forth six recommendations under three directions, i.e. change of mindset,  integration  of  resources  and  commercial  operation,  in  the  hope  of  gathering assistance and support for SEs from a wider group of people through new mindset and mode. This will also help to make more effective use of public and social resources.”

The  study  revealed  that  quite  a  number  of  local  SEs  are  weak  in  business  operation,  lack knowledge and experience on human resources, management skills, information technology and  law,  which  hinder  their  business  development.  Moreover,  they  have  difficulties  in becoming  self-financing  as  a  result  of  over-relying  on  the  funding  support  from  the Government and their affiliated organisations.

The  Centre’s  Vice-chairman  and  the  study’s  convener  Lau  Ming-wai  said,  “Balanced economic development  is  imperative  for upholding the long-term competitiveness of Hong Kong. In the long run, operating SEs under the mindset of poverty alleviation or in the form of social welfare would suppress motivation for innovation by SEs, which will slow down SEs  development  and  restrict  their  socio-economic  contribution.  As  always,  the  Centre encourages joint efforts by the Government, civil society and business sector to focus on the disadvantaged in a move to build up a better society.”

“Looking around, you can see that a lot of enthusiastic people with financial capability and creativity  are  willing  to  assist  SEs  development.  In  line  with  our  earlier  research  on businesses’ role in poverty alleviation, we hope our present recommendation will assist SEs to win public recognition and support through new mindset and modes, as well as making more effective use of public and social resources. The development of SEs should meet the best interest  of  the  society  at  large.  In  the  long  run,  SEs  should  equip  themselves  with comprehensive business strategies and financial planning, rather than endlessly relying on the funding support by the Government or affiliated organisations,” Lau Ming-wai added.  

In  a  bid  to  promote  SEs’  sustainability  under  the  principle  of  self-financing  operation,  the Centre puts forth six recommendations in the following three directions, including change of mindset, integration of resources and commercial operation.  

I.  Change of Mindset  
Although SEs need to fulfill their social missions (such as creating job opportunities for the disadvantaged  and  providing  products  or  services  needed  by  the  community  but  with unattractive profit yield), they should move away from the welfare system to pursue projects that  are  beneficial  to  the  society  instead  of  projects  that  merely  help  relieve  poverty.  The Centre therefore suggests:

1). Introducing an SE accreditation scheme
To enhance public recognition and investors’ confidence, it is recommended to introduce an accreditation scheme to provide qualified SEs with financial and other assistance.
 
2). Strengthening the social awareness of business practitioners 
Strengthening  the  social  awareness  of  business  practitioners  helps  encourage  the  business sector  treating  SEs  as  fair  competitors  and  engage  more  socially-minded  business practitioners  to  provide  professional/business  advice  and  training,  concessionary  rent  or outsourced contracts. In the long run, the business sector is encouraged to integrate the SE spirit into their business practice.  

II.  Integration of Resources
To achieve sustainable development, SEs have to adopt proactive measures to improve their weaknesses.  The  Government  should  play  a  bigger  role  in  coordinating  and  allocating resources from different sectors. The Centre suggests:

3).  The  Government  should  expand  the  role  of  the  existing  SE  Support  Unit  to  provide one-stop  dedicated  oversight,  regulation  and  promotion  of  SE  development.  Such  one-stop service helps avoid duplication of support and services and centralise volunteers’ coordination. It could also help SEs prepare business plans and provide ongoing professional advice to SEs. A  comprehensive  and  systematic  platform  for  information, experience and  training  sharing helps facilitate public debate and participation.  

III.  Commercial Operation
One way to facilitate SEs to achieve self-financing instead of relying on funding support by the Government and affiliated organisations is using business model for SEs operation, where sufficient funding sources and appropriate market strategies are two key elements for success. The Centre recommends:

4). Exploring alternative financing channels
The  Government  is  suggested  to  provide  SEs  with  low  interest/interest-free  loans  and  tax incentives for profits and to allow SEs to distribute a reasonable return to shareholders (e.g. up to 30% of the profits), which should be taxable.  

Over  time,  investment  and  finance  intermediaries  are  encouraged  to  develop  financial products that meet the needs of SEs, when the development of SEs is more established. In the longer run, the Government could set up a financing platform to provide a capital market and match SEs with social investors.

5). Enhancing publicity efforts on promoting SEs
Although there are some media columns for social enterprises, the publicity is still insufficient to spread SEs’ spirit and mission widely. The Government is encouraged to take the lead in holding an annual bazaar for SEs to publicise their businesses and products/services to the community, to explore market potentials and to build up consumer confidence.  

6). Promoting social franchising  
Successful  SEs  can  extend  their  business  experiences  and  social  impact  through  granting franchises to new SEs which have limited business expertise. With a proven business model and  the  franchiser’s  all-round  support  in  the  form  of  business  resources,  knowledge, experience, best practices and branding, business start-up for the franchisees will be easier and  their  risks  of  failure  will  be  reduced.  Meanwhile,  SEs  may  enjoy  the  benefits  of collaborative  buying,  producing,  selling  and  learning.  In  the  long  run,  franchising  could become a way forward for SEs.