Social Business As An Innovative Solving Tool Of Modern Society Problems

Abstract

The article presents the results of Russian and World social business practice scientific analysis of social entrepreneurship. Social enterprises got the legal form in 2019 when Federal law “On development of small and medium-sized entrepreneurship in the Russian Federation” was amended. Statistics of social enterprises in Russia are being provided, the main activities of the most part are distributed on the additional education, day care services for children, activities in the field of physical training, sports and recovery. In this case it is noted that social business in 29 regions of Russia has not been registered. This means that revealing and study of the best experience of social business, its critical estimation in terms of Russia can serve to the practice distribution of the socially oriented entrepreneurship. The analysis of the best practices of social entrepreneurship, on the one hand, revealed certain national characteristics determined by the level of economic development of countries and the degree of escalation of social problems, on the other hand, identified general characteristics of social entrepreneurship that do not depend upon the country affiliation of social enterprises. It is emphasized that the government plays predominant role in creating favorable environment for the development of social enterprises. In this aspect we should note the leading countries in terms of state support, which simultaneously increases the degree of positive influence of social enterprises on solving society’s problems and the competitiveness of their business model. It is concluded that social entrepreneurship is currently in the global development trend.

Keywords: Businesscorporative social responsibilitynon-governmental organizationssocial entrepreneurshipsocial enterprise

Introduction

In the context of new economic trends, companies are faced with the optimizing business processes and finding additional opportunities for development using innovative approaches. In the field of corporate social policy and business responsibility, it is expedient to consider, along with the traditional ones, new effective mechanisms for influencing the social sphere in the cities and regions, if any. It is required to develop new formats of partnership between big business, authority, and the non-profit sector in solving existing socio-economic and environmental problems for the sustainable development of society. State programs to encourage small and medium-sized business, socially-oriented NGOs (non-governmental organizations) and access them to provide services to citizens in the social sphere create conditions for improving the effectiveness of corporate social programs, as well. In recent years, social entrepreneurship has received a new impulse for development in Russia. This is due to the introduction of amendments to the Federal law of 26.07.2019 N 245-FZ "On amendments to the Federal law" on the development of small and medium-sized businesses in the Russian Federation "in terms of fixing the concepts of "social entrepreneurship", "social enterprise" in 2019, which establishes the concept of social entrepreneurship, defines the content of this type of activity and the criteria for classifying an enterprise as a social one (Federal law of 26.07.2019 N 245-FZ). In arranging and scaling social entrepreneurship in Russia, it is important to rely on the best international experience in this area.

Problem Statement

Over the past few years, a number of large business companies, implementing social programs in the territory of their presence, along with supporting non-profit organizations and budget institutions with targeted donations, have started arranging projects to promote the development of social entrepreneurship. Such assistance, as a rule, consists of conducting awareness-raising activities, arranging training for entrepreneurs and NGOs engaged in business activities in the social sphere, consulting and mentoring, conducting investment sessions, and providing returnable financing. As international and Russian practice shows the transition from regular donations to social organizations to more balanced financing of non-profit and social entrepreneurial projects (with a predominantly refundable mechanism for using funds) brings significant savings per unit of social result (Cheglakova et al., 2018). In the discussion of territories social development problems a widening range of stakeholders is involved in local communities, entrepreneurial initiative increases, new forms of employment and self-employment are appeared, the social sphere is becoming more stable and payback, etc. The relationship between donor enterprises and stakeholders takes on a new form, the role of social enterprises in the life of the community becomes more considerable, and the economic burden on business associated with the content of the social sphere decreases over time in Russia. A number of companies have similar experience, including MMC Norilsk Nickel, metalloinvest, RUSAL, Severstal, SUEK, and ARMZ. Uranium holding. But nevertheless for the development of social entrepreneurship in Russia it is of great importance to study the best world practice and recommend its implementation in domestic realities based on its critical understanding.

Research Questions

Over the past few years there has been an active discussion on the social responsibility of business and its role in the development of the territories where it operates and the entire national economy. The agenda of these discussions increasingly includes issues of support for social entrepreneurship. In Russia social business is still developing its first experience, acquiring legal forms, and is awaiting measures of support from both the state and the private sector. In this regard it is very relevant:

All this will allow us to evaluate critically the world experience of social entrepreneurship and consider the possibility of adapting it in terms of Russia.

Purpose of the Study

The purpose of the study is to conduct a scientific analysis of the Russian and world practice of social entrepreneurship. Setting this goal made it necessary to solve a number of problems. First, it is necessary to determine the state of social entrepreneurship in Russia after the adoption of the relevant law that established the legal form of a social enterprise. Secondly, for the effective development of social business in Russia, it is necessary to use its best international experience, which makes it necessary to conduct an analytical review of best practices of socially oriented business. Third, it is required to identify General characteristics of social entrepreneurship that do not depend upon country affiliation. Finally, it is necessary to determine the best international experience of state support for social entrepreneurship, which is so necessary for social enterprises in modern conditions of their functioning. The results obtained will form a methodological basis for the construction and development of social enterprises in Russia aimed at solving the problems of society using social and market methods.

Research Methods

The study was conducted using comparative analysis methods which made it possible to analyze national approaches to the arrangement of social entrepreneurship. Inductive-deductive methods allowed the authors to formulate their common features, regardless of the territorial location, by identifying the country characteristics of social enterprises. The statistical method was used to characterize the size of the distribution by type of activity of social enterprises established in Russia. The methods of survey and expert estimations were applied in a study by the Thomson Reuters news Agency to evaluate the comfort of operating conditions for social enterprises in the world’s largest economies (Thomson Reuters Foundation, 2017). The results of this study were used by the applying analytical and synthetic methods to understand the problems of social business development. The method of historical retrospection allowed us to identify the evolution of the phenomenon of social entrepreneurship in a number of countries around the world. Abstraction and formalization allowed the authors to formulate the main conclusions of the study.

Findings

The introduction of amendments to the Federal Law of 26.07.2019 N 245-FZ "On amendments to the Federal law" on the development of small and medium-sized businesses in the Russian Federation "in terms of fixing the concepts of "social entrepreneurship", "social enterprise" in 2019 allowed enterprises engaged in social business to receive a special status - “social enterprise” (Federal law of 26.07.2019 N 245-FZ). As of 10.04.2020, 1, 197 social enterprises were included in the United register of small and medium-sized entrepreneurship, of which 40% are legal entities and 60% are individual entrepreneurs. 90% of social enterprises are classified as microenterprises. Analysis of geographical location of social enterprises shows that the largest number of them is registered in Nizhny Novgorod (139), Tula (80), Moscow (53) and Tomsk (53) regions. At the same time there are no registered social enterprises in 29 regions of the Russian. The main activities of social enterprises are shown in Figure 1 .

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This distribution of activities of social enterprises in Russia confirms the world practice of their focus on solving the most important social problems in society. In each country the functioning of social enterprises acquires unique features, gives social entrepreneurship a specific national flavor, providing entrepreneurs, politicians and investors with the materials necessary for further discussions, research and development of innovative approaches to social business. In order to identify the conditions encouraging or hindering social entrepreneurship in different countries of the world we refer to the latest research of the Thomson Reuters Foundation (a corporate charity of the Thomson Reuters news Agency, the world’s largest information provider) (Thomson Reuters Foundation, 2017). The aim of the study was to estimate the comfort of operating conditions for social enterprises in 45 major economies of the world. The expert survey involved 880 people – politicians (4,4%), investors (10,5%), scientists (13,4%), social entrepreneurs (47,5%), support stuff (24,2%), - involved in social entrepreneurship.

The questionnaire contained 11 questions, including: Are there good conditions for starting and developing a social enterprise? Is there a government policy aimed at supporting social entrepreneurship? How easy is it for entrepreneurs to get an initial grant, attract investors, sell their products to the state and individuals and attract highly qualified employees? Do social entrepreneurs have access to non-financial support (financial and legal advice, technical support, access to markets and networking, access to training and courses)? How much does society accept and support social entrepreneurs? Can social entrepreneurs earn a living from their activities? How fast are social entrepreneurs developing and keeping up with the trend of the time?

According to the results of an expert survey the United States is recognized as the leading country in terms of the degree of comfort for social entrepreneurship. Canada and the United Kingdom took the second and third places in the ranking, Singapore and Israel took the fourth and fifth, and Russia took the 31st place. Turkey was recognized as the worst environment for social entrepreneurs – in terms of political, management, economic and cultural factors (Figure 2 ).

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85% of experts stated that the number of enterprises that successfully combine social issues and profit-making is constantly growing, although it is difficult to get accurate data due to the lack of information. 60% of experts have pointed to the existence of three main interrelated problems in the growing sector of social entrepreneurship: society does not know what social entrepreneurs do, which leads to extreme difficulties in raising funds for the development of social business, and complicates the sale of products to the state, as well. According to experts, public misunderstanding is compounded by the lack of a single definition of social entrepreneurship, which is most often understood as the use of business to solve social problems. Possible factors in this problem are the ability of social enterprises to be both non-profit and commercial organizations, as well as the lack in many countries of a clear legal definition of a social enterprise as a business with a special legal and tax regime.

It is obvious that increasing public awareness of how commercially oriented enterprises can improve the social life of society, can contribute to a deeper awareness of the problems and as a result increase the intensity of public pressure on governments and financial institutions to increase support for social enterprises, which so far only in some countries have a special legal status and tax benefits (Šikýř, 2015).

58% of experts have pointed that for social enterprises there are difficulties in receiving investment in the form of grants, loans or other forms of initial capital, since most potential investors seek quick financial returns. Experts from only 10 countries agreed that they have easy access to grants, and only in 4 countries – to investment. At the same time, investors’ interest in social business is growing. Thus, according to the “Annual impact investor survey” (Mudaliar et al., 2016) conducted in 2016 by the Global impact Investing Network (GIIN) and JP, investors focused on impact in addition to financial returns in 2015 invested more than $ 15 billion in businesses related to solving social problems, in 2016 this amount increased to $ 17.7 billion. In 2017, the total global investment in social enterprises reached $ 114 billion. Canada, Singapore and the United States which have a well-developed social entrepreneurship sector were recognized as the countries with the best access to investment. Other countries where social entrepreneurs can easily access investment are India, the Philippines, and South Korea. In this list of countries with the most affordable financing, first of all, we should highlight India which is behind only 4 countries in this indicator – Canada, Singapore, the United States and Belgium. At the same time, local experts note that investments often come from offshore companies. So, 95% of investments in Intellecap – one of the startups in India – came from abroad. However, in spite of the large number of investors looking to finance social enterprises they usually choose sustainable and well-established social enterprises. Finding financing at the early stages of organizing social enterprises remains a significant challenge for most entrepreneurs (Oeij et al., 2019).

It is important to emphasize that in contrast to the skeptical attitude of traditional investors towards social enterprises, there is a strong involvement of women and younger generation aged 18 to 34 years in investment support of social businesses. For example, the Bank of America study found that 85% of young people are interested in the effectiveness of social investment and it was found that women are more interested in the same way then men, as well. The survey of son Reuters Foundation found that 68% of experts believe women are well represented in management in social enterprises, but only 48% considered women received equal pay with men. Women in Asia are more likely to occupy important positions and use market-based solutions to deal with social problems than in other regions. The Philippines is a country where women have achieved better managerial positions in social enterprises and pay equity. The top 10 countries for this criterion also include 5 other Asian countries: Malaysia, China, Hong Kong, Indonesia, and Thailand. In addition to them, the list includes: Russia, Norway, and Canada. The worst country in this regard was Brazil. The United States also did not perform well as women’s pay was lower than men’s.

It is necessary to note that social enterprises are currently under active development all over the world. Berlin, London, Hong Kong, Santiago and Nairobi were recognized as cities with rapidly developing social entrepreneurship (Mejia, 2018). But at the same time according to the recognition of social entrepreneurs, the concept of social entrepreneurship and purposeful business has not yet fully used public support and state assistance. 60% of respondents to the survey consider that the growth of their businesses is being held back due to a poor understanding of the specifics of the sector. Unlike ordinary businesses and traditional charitable organizations, social enterprises have to maneuver within the existing boundaries and vague concepts of implemented state policies and solve the problems that arise in this regard. Corporate legal forms often do not recognize dual-use business models. For example, tax systems rarely distinguish between companies that benefit society and the environment and companies that harm them. Overcoming such difficulties encumbrance is vital for social entrepreneurship to more beyond the business reputation of individuals and present social entrepreneurship as a sector. Such an increase in status simply cannot occur without the catalytic effect of state support (Spitsin et al., 2018).

We should repeat that there is no doubt that the government plays a key role in creating favorable environment for the development of social enterprises. The pioneer in this area was the United Kingdom where there is a fairly broad definition of a social enterprise as a business with social goals. The government initially provided substantial support to social entrepreneurship, and in the last 20 years the UK social entrepreneurship sector has grown at an extremely rapid pace starting with the magazine “The Big Issue” which is sold by the homeless, ending with the involvement of ecotourists by the Eden Project company (Eden Project International, 2020) and the emergence of Divine Chocolate, со-owned by farmers from Ghana (Fougère et al., 2017).

The UK launched its social entrepreneurship program in 2002, then in 2010 issued a “Social impact Bond” (SIB) which led to tax relief, and in 2013 a law was passed that call on the public sector to prioritize the social good in its activities. In the UK, as elsewhere in the world, public funds have come under increasing pressure as economic growth has slowed. Such financial encumbrance contribute to the fact that governments have become more aware of the potential of social enterprises in promoting the development of a more just and sustainable society. For example, the UK government has data on 70 000 social enterprises that employ about a million people.

However, the economic impact of the decision to leave the EU is a challenge for social entrepreneurship, both financial and operational, as it can lead to delays in contracts from the public sector which are a financial source for large enterprises, it will also become more difficult for social enterprises to borrow funds in conditions of financial uncertainty. It is fair to note that in spite of the leadership on the issue of government support, the UK is currently only 27^th in this indicator, leading positions in Canada and the United States. But at the same time, the British model of state support for social entrepreneurship is still attracting the attention of other governments that have realized the benefits of using business to solve social problems (Wang et al., 2015).

One of the best practices of state support for social entrepreneurship is demonstrated by the government of Hong Kong which is recognized as the most competitive in the list of 61 countries analyzed in the world Competitiveness Yearbook 2016 (IMD, 2016). Hong Kong entered the top three world countries for ease of doing business. The feature is especially evident in the area of business performance including social entrepreneurship. Since the 2000-s the Hong Kong government has started investing in startups recognizing the viability of their business plans. This approach corresponds to a pragmatic local culture and ensures the long-term competitiveness of social enterprises freeing the state from permanent subsidies or public procurement. This is one of two solutions that have had a significant impact on social entrepreneurship in Hong Kong and contributed to the success of entrepreneurship. The second solution is concerned with the calculation of the social impact achieved as a result of the activities of a social enterprise.

All social enterprises are forced to provide high-quality products and services in order to attract customers. Therefore, at the stage of applying for funding the government checks the ability of an entrepreneur, both in providing a positive social impact and the competitiveness of his business model. In 2013, 63% of Hong Kong’s social enterprises were profitable or self-sufficient. This figure is much higher than that of ordinary businesses which have 22% share (Herrera, 2016).

One of the social enterprise screening advantage is an increase in the life expectancy of a social enterprise. While the life expectancy of a small and medium-sized enterprises in Hong Kong is 3.7 years, the average life expectancy of a social enterprise is considerably longer reaching 9,3 years. The difference is that ordinary businesspeople use their own money to set up a business and do not get screened. This increases the likelihood of using an ill-conceived, low quality strategy that will lead to business failure (Khoroshavina et al., 2018).

Another important decision of the state was the intention to calculate the positive social impact of enterprises (SROI). This is a unique feature of the Hong Kong model because no other country reports on the SROI of its social enterprise sector systematically. SROI reporting was first provided at the social entrepreneurship summit by the Fullness Social Enterprises Society in Hong Kong in 2007. In 2013 the Fullness Social Enterprises Society counted the SROI of social enterprises that received funding from the state (Fullness Social Enterprises Society, 2015). The total SROI was 446% and the duration of business activity was more than 9.3 years. These results proved that public money spent on social entrepreneurship was spent correctly.

Predicting new epicenters of the best entrepreneurship practices it is necessary to note that India can play a key role in the process of accelerating development, both in its own region and in other regions with similar problems (for example, Africa), where proven business ideas can be applied to solve social problems. Over the past 10 years thousands of Indian startups have developed innovative and previously untested approaches to solving problems, including those related to providing services to people such as cleanliness, water, education, improving health and housing, training, etc. Due to this growth of the sector experts believe that the issue of finding financing is simplified as more and more venture funds, angel investors, individuals and corporations decide to invest in this sector. At the same time, against this background , the problem that distinguishes India from other countries that try to encourage startups is practically acute – the lack of official recognition of social enterprises in India which leads to the fact that social enterprises are deprived of preferences in the form of tax holidays. However, according to experts, one sector in India still manages to attract capital easily which leads to its rapid growth – microfinance. So, in 2015 the microfinance sector grew by 82%, reaching 32 million customers and a volume of $ 8 billion (Van der Have & Rubalcaba, 2016), and by the end of 2019, 128 microfinance organizations operated in India with 12408 branches throughout the country. The number of employees in the microfinance sector is more than 1 million, serving more than 336 million customers (25.1% of the population).

State support for social entrepreneurship in Chile proved to be extremely effective – recognition of this fact allowed the country to enter the top three world countries in terms of state support, passing only 2 countries – South Korea and Singapore. Conditions favorable to social entrepreneurship in Chile and in Santiago, in particular, should be considered: the availability of public funding, the high role of universities in training, an educated population, a steady media interest in social business issues, and a good Internet connection. TECHO, a Chilean non-profit company that has struggled with poverty and slum life since its founding in 1997, has played a key role in raising awareness about creating positive social impact through business. And now, as the largest non-governmental organization in Latin America with its wide network of volunteers, it has become a platform for further development of social enterprises and entrepreneurs, initiating the annual international festival of social innovation in Santiago (Van de Ven, 2017).

Creating favorable environment for social entrepreneurship is, according to the authors, a reflection of the government General policy of the respective countries to promote entrepreneurship. The annual “Best countries” rating is based on the estimation of 10 attributes – connection with the rest of the world, education of the population, entrepreneurial, innovative, easy to capital, skilled labor, technological experience, transparency, business practices, developed infrastructure and a developed legal framework based on the results of 2018. These results showed that Germany, Japan, the United States, Great Britain, Switzerland, Sweden, Canada, Singapore, the Netherlands, and Norway hold confidently the leading position (Mejia, 2018). It is noted that most of these countries hold the top position in the global competitiveness ranking every year, as well (IMD, 2020).

So, summarizing the world practice of arranging social entrepreneurship we should highlight the General features inherent in this phenomenon, regardless of economic, country, cultural and other factors:

- entrepreneurial approach – the ability to see and predict market failures, find new opportunities for a social enterprise, accumulate the necessary resources, generate new ideas and offer new solutions with the aim of long-term positive effects on society.

Conclusion

Despite the difficulties social entrepreneurship is now a trend. All over the world, social entrepreneurs are finding ways to grow and develop. The demand for social entrepreneurship is explained by its role in effectively solving social problems based on a combination of social and market methods. This is of great importance as social entrepreneurs can make a considerable contribution to solving the most significant problems that modern society faces, including climate change, lack of education, poverty, poor health, etc. The consolidated efforts of governments, citizens and corporations can give a new impulse to the movement of social entrepreneurship through solving existing problems, through innovative solutions, benchmarking technologies, cooperation and mutual assistance. We need to work together to raise people’s awareness of the essence of social entrepreneurship and its benefits, both at the level of individual countries and at the global level. In this case, social enterprises will become the mainstream of the modern global society.

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