India is the world’s second most populous country in the world, and the fifth largest economy in terms of GDP when adjusting for international price differences. However, its per capita income in 2011 is only $3,600, placing India 129 out of around 184 countries. Despite this, India’s economy grew at a pace of 7.45% between 2000 to 2011, making it the world’s second-fastest growing major economy, according to, “Indian Social Enterprise Landscape Survey 2010”.
The increasing urgent need to tackle social issues in more effective ways. At present, India’s rapidly growing economy has not managed to alleviate the extreme poverty of nearly half the country’s population that lives below the $1.25 per day poverty line. There are several reasons for this, including non-uniform infrastructure, low quality public good provision by the government (especially in health and education), and resource limitations. Successive governments have dealt with the complex problems at the root of tackling and alleviating the social challenges. Despite several initiatives, social inequalities remain even as we begin 2016 and we are very far from resolving some of our urgent social challenges like homelessness, malnutrition, illiteracy, substance abuse, gender-based violence, etc. The social sector has admirably addressed many of these burning issues but they have also been woefully underfunded, despite the CSR Bill and increasing Philanthropic donations. It is imperative that we look at addressing the social challenges in an innovative manner.
In the traditional bifurcated system, social needs are primarily met through grants, CSR funds, non-repayable contributions, while capital markets are focussed on financial returns and economic growth. In addition, while the industry deals remarkably with economic consequences but more often than not, it largely doesn’t take into account social consequences in its primary business models. In recent times, however, a new sector that is bridging private, public and social sector is emerging.
Emergence of a new converging economy
A rising wave of social entrepreneurship is seeking to make meaningful difference to people’s lives. India’s vibrant social enterprise space is young in terms of years of operation, and nascent in terms of revenue size per enterprise. According to the Beyond Profit 2010 survey, about 68% of SEs have been in existence for five years or less.
The social enterprises have several innovative business models. Enterprises could have a for-profit business models like Udhyogini; include collective ownership structures such as cooperatives and producer companies, like Waste Ventures, which “incubates solid waste management companies owned and operated by waste pickers”, not-for-profit structures, which make up a fifth of all social enterprises, such as Aravind Eye Care Hospitals, or have a business model that can be categorized as hybrid, wherein two or more entities, while not legally bound, work in close synergy with each other, usually because they are both founded by the same individual or individuals, like LifeSpring Hospitals.
By definition, a social enterprise is a means to achieve sustainability through earned income. However, it is important to note the financial objectives differ among organisation. Social enterprises do not need to be profitable to be worthwhile. They can improve efficiency and effectiveness of an organisation by:
- reducing the need for donated funds
- providing a more reliable diversified funding base; or
- enhancing the quality of programmes by increasing market discipline
Globally, there are multiple experiments in this space linking CSR, entrepreneurship and livelihood, including helping existing/traditional community businesses as CSR (e.g. Indian public sectors like Oil and Natural Gas Corporation- ONGC- trying to promote local craft); using/leveraging social innovations/businesses as an extension of the company’s business strategy with tighter alignment (e.g. U.S. company Patagonia using recycled denim for their textile products); and linking social innovation with entrepreneurship, while keeping and treating them distinct from core businesses (e.g. Tata Steel / Usha Martin’s effort to empower local communities through entrepreneurship). Many companies in India are looking to this model for bringing about sustainability to their programmes.
The concept of shared value could lead to large scale social Innovation
The concept of shared value seeks to promote inclusive growth as a key agenda in India’s economic growth story. Corporations are finding new ways to accelerate growth and increase competitive advantage through innovative business models that meet societal needs and help create impact at scale. A well-known shared value example is that of Nestle, that decided to train and assist cocoa smallholder farmers to foster rural development while ensuring a reliable supply of high quality raw materials. This rural development strategy has had a direct impact in furthering the company’s business goals while at the same time ensuring sustainability of critical stakeholders in the supply chain.
Small-scale initiatives of this nature could also be important test-beds for large-scale sustainable solutions. Strategically implementing and networking among small scale initiatives can create an environment that supports large-scale change by connecting relevant stakeholders and groups, such as from the policy or business domain. Many new emerging businesses like solar energy storage and distribution, waste management, etc. were considered as small scale social innovations just a few years ago. But they are considered the sunrise industries of today. The impact investment market is currently worth around $50 billion (£30 billion) globally, but it is estimated to be worth $1 trillion (£600 billion) in the next five years. This is because the lines between investment portfolios and philanthropic objectives are becoming blurred and impact investing could soon be part of everyone’s asset allocation, according to blue and green tomorrow.
This trend is gaining ground in India as well. Mahindra Finance and Marico have partnered with social venture fund Villgro to finance startups by using their corporate social responsibility (CSR) budget. The new Companies Act amendment allows such funding though incubators as CSR contributions, according to economictimes.
Companies can create shared value opportunities in three ways:
- Reconceiving products and markets – Companies can meet social needs while better serving existing markets, accessing new ones, or lowering costs through innovation
- Redefining productivity in the value chain – Companies can improve the quality, quantity, cost, and reliability of inputs and distribution while they simultaneously act as a steward for essential natural resources and drive economic and social development
- Enabling local cluster development – Companies do not operate in isolation from their surroundings. To compete and thrive, they rely on an ecosystem of players, all collaborating to create enhanced value and improved sustainability.
Our future ability to meet growing needs in education, healthcare, energy, climate change, and the inclusion of vulnerable populations such as seniors, people with disabilities, requires an integrated approach to link and unlock economic and social value.
Meena Vaidyanathan, has a double Masters degree in biotechnology and business management and a certificate holder in Social Entrepreneurship from INSEAD, has worked with Monsanto, Honeywell and HCL Technologies. She founded niiti consulting Pvt. Ltd. in 2010, with the aim of supporting and enabling programmes and organisations that create large scale social impact. Meena has led many projects with educational and healthcare institutions, NGOs, corporates and social enterprises alike. niiti also conducts training workshops on topics of social relevance for professionals like sexual harassment at work place, monitoring and evaluating social impact, CSR reporting, leveraging social media for community mobilization, etc. through its programme called Doer’s Labs.