Engaging of Social Enterprises in Entrepreneurial Activities to Generate Income - Research Proposal Example

Funding of social enterprise in the UK 0 INTRODUCTION 1 Definition and Background of social enterprises A social enterprise takes the form of an organization applying commercial know how to improve human well being as well as the environment’s (Paton 2009, 56). This is as opposed to many other organizations that use their strategies to maximize profits for shareholders. Cooperatives, social businesses and charity organizations are some of the examples of social enterprises. The concept of social enterprises formulates long history world widely, emerging in different names and tendencies (Ridley-Duff, 2011, 46). Many social enterprises accept support of any kind from the state. However, they seek to be independent of state and private capital in their quest to create a social economy. The inception of social enterprises can be traced back to the England’s Beachwood College in 1978. The term social enterprise was developed by Freer Spreckley. It started through training offered by educators to cooperative workers in an endeavor to develop social auditing. In 1980, Bill Drayton, a member of a US foundation ASHOKA initiated a program supporting the development of social entrepreneurship. Another significant contribution was made by an Italian cooperative worker who lobbied for legislation that sort to cover the interests of cooperatives societies. This legislation protected the interests of cooperative workers who had mental and health related disabilities to attend to duties as they recover from their illnesses. Academically, the first paper that suggested the involvement of worker cooperatives in health and rehabilitation work constituted as a social enterprise was published in 1993 (Ridley-Duff, 2011, 46). The integration and scale of the development of cooperatives in Italy’s “red belt” motivated the researchers of social economy to form EMES networks. They subsequently convinced the UK and Europe through the English publications. The “red belt” comprised of 7000 workers and 8000 social cooperatives (Holmstrom, 2007, 78). In the UK social enterprises are considered as forms of business activities resulting to forms of organizations. These organizations work in cooperation with stakeholders from various sectors of the economy in pursuit of a social cause (Paton 2009, 57). However, in other places such as Scotland, social enterprise undertakes devolved functions and they are part of the Scottish Government remit. The Scottish Social Enterprise Coalition coordinates the social activities as the Social Enterprise Institute provides the intellectual leadership. This study intends to give a general perspective on the currently available UK social enterprise funding avenues. It seeks to take into consideration the government’s role and its endeavors to meet the market needs. 1.2 Statement of the problem Previous researches carried out on social enterprises reveal that limited access to finances is the paralyzing factor to growth of social enterprises (Price, 2009, 89). The findings of a survey conducted by NatWest Small Business Research highlighted framework regulatory and economic climate fluctuations were some of the main problems facing social enterprise. However, in the same findings, limited financial access was classified as a main problem hence qualifying to be a significant barrier to growth. A research conducted by a bank in UK reported that 32% of the social enterprises complained of challenges attributable to access of external financing. 25% reported challenges associated with getting access to grants. These were in response to the growth rate of social enterprises. Recent evaluation of the UK status shows that growth elements are present. This finding gets its course from the adopted legal framework as well as the thriving of the social entrepreneurship in UK. The growth of other affiliated sectors like the publics’ and corporate’ is also noted. However, despite all these measures in place, much still needs to be done to the social enterprises’ capacity building to trigger greater performance (Pearce, 1993, 54). The social investment process needs to be reconstructed and redirected towards achieving better social enterprises funding channels. This study, for this reason, seeks to contribute to the growth of social enterprises, by researching on possible, yet accessible ways of funding them. 1.3 Research objectives This study is purposed to determine the available funding channels of social enterprises and evaluate the benefits associated with them. The objectives are; 1. To determine the effect of the economic climate on social enterprise funding. 2. To establish the challenges associated with financing of social enterprises. 3. To investigate additional channels through which social enterprises can subsidize their capital base 4. To evaluate the contributions of poor management of funds to the interference of social enterprises growth 1.4 Research Questions In an attempt to satisfy the above objectives, the following questions would require answers. The questions related to the problems faced by social enterprises in their funding system. The questions are; 1. How does the general economic climate affect social enterprise funding? 2. What are the challenges encountered in financing social enterprises? 3. How can social enterprises subsidize their capital base? 4. What effect does poor management of funds have on the growth of social enterprises? 2.0 LITERATURE REVIEW 2.1 Existing Research on the Social Enterprises Financing The question of social enterprises has attracted many researchers and publishers in UK and other parts of the world (Price, 2009, 89). Many of these previous studies indicated social enterprise financing as one of the main challenges facing social enterprises. In the recent years, a number of mapping practices endeavored to develop activity profile in the interest of improving the sector both locally and regionally (Gidron & Hasenfeld, 2012, 124). In conducting this study, the validity of the findings submitted by other theoretical bodies such as NatWest Small Business Research Trust (NWSBRT), is put to the test. For example, NWSBRT, in their study found that the regulatory framework, large volume of paper work and the economic climate are the key challenges faced by social enterprises. Access to finance came as a difficult challenge attributed to social enterprise growth constraint. However, access to finance in itself poses difficulties to social enterprises as it may affect the willingness of social enterprises acquire appropriate forms of finance. 2.2 Social Enterprises Financing. Social enterprises are players in the economy. This means that they offer goods and services and participate in the market or industrial activities. Through these options, they are capable of bankrolling a significant number of their operations with the revenue they have received from their trading (Gidron & Hasenfeld, 2012, 124).. However, there is an exemption to those social enterprises that do not engage in business activities. Such receives their funding from grants from governments and other well wishers. Most of the social enterprises need grants at their inception. Researchers from University of Durham indicated that out of a total of 80 social enterprises, 32 received grants from Europe, 24 from regional and central government and another 24 from the local authority (Smallbone et al, 2001, 18). This funding is usually used to finance capital expenditure. In Bristol, social enterprises reported that over half their current expenditure was financed from earned income (Kerlin, 2009, 17). The two main sources of capital expenditure funding were found to be ‘other statutory agency funding’ that included, grants from Arts or Sports Councils and local authority funding. Research reveals that some of the social enterprises use non-grant finances. More than half the organizations investigated in the research had secured soft loans for investment in their initial stages, and several had obtained the loans from banks (Spear, 2001, 68). Out of the organizations studied in Bristol, slightly below half of the social enterprises studied, used non-grant finance. This was not only from CDFIs and banks but also from private individuals and members. There is also some evidence to suggest that demand for loan finance by social enterprises is increasing. 2.3 Difference between Loans and Grants Loans and grants are known to be common in one perspective; they are both a source of finance. However, their difference takes the form of sources and repayment (Spear, 2001, 69). Loans are advanced by banks or individual persons. Loans are payable in a specified period of time with a given rate of interest. On the other hand, grants are given freely by the government and are not repayable, unlike loans. More often than not, grants are given to organizations with associated benefits to their area of operation; be it socially or economically. 2.4 Problems faced by social enterprises Social enterprises and traditional business are not any different in the problems they face as they experience growth (Pearce, 1993, 54). Social entrepreneurs do face considerable challenges in their deliverance of social value, returns and impact of the enterprise supplement to the commercial value. Some of the problems faced by social enterprises are: 2.4.1 Funding Social enterprises can operate as a profit or a non-profit organization putting them in between a traditional corporation and purely charitable organization (Spreckley, 2011, 258). Some of these organizations are capable of earning revenue from the sale of goods and services that are socially beneficial. However, many are not. Approaching investors on the question of social enterprise is not anything easy (Prahalad, 2009, 96). Moreover, most of the investors do not trust social enterprises that run for profit because of the fear that they can focus enormously on wealth generation and forget about social value 2.4.2 Value objectivity communication Commercial advancement is not the only value of a social enterprise. The passion for social entrepreneurship is ignited by social value addition (Spreckley, 2011, 258). For this reason, supplemented by the fact that it is hard to measure social value, makes it hard to communicate to investors, donors and the community about the bottom line of the organization. 2.4.3 Loyalty to the Mission Good social enterprise strategic planning contributes in the mitigation of a possible mission creep. It is possible for an organization to veer from its long term goals as it fight fires. This results in undesirable change in the social value, as provided. The change of the mission of the enterprise might tantamount to confusion and dilution of the impact created by the enterprise (Spreckley, 2011, 258). 2.4.4 Strategy and Long term focus In any business, the identification of long term strategy, goal definition and sustainable growth drive, are important (Prahalad, 2009, 96). Social enterprise experiences hardships in that their organizational purpose is to create social benefits. These social benefits can manifest themselves into many different goals; all of which needs cost provision evaluation for the true creation of value. A good strategy will offer a clear definition on what to do and what not to. Social enterprise activities should be coordinated properly as well as reinforce each other. 2.5 Context for dissertation A significant number of considerable literature on social enterprise has been published has been published by a number of theorists such as Karl Max, Paulo Freire, and Robert Owen. Successful breakthroughs in the formulation of theories of social enterprises will soon be published. It is a hope that this study will contribute significantly in improving the commercial and social obligations of social enterprises 3.0 RESEARCH METHODOLOGY 3.1 Research philosophy Currently, no firm foundations of philosophy are in existence in social enterprise as a field of study (Pearce, 1993, 54). This is attributed to the fact that social enterprise is not exclusively covered in the academic and research arena or even in the business schools. Much of it also attribute to the fact that social enterprises are concentrated on health and public service delivery. Karl Max, Proudhon and Robert Owen are some of the great contributors to social enterprise. 3.2 Data collection Two forms of data collection methods will be employed. These include interviews and questionnaires. Cost effective methods of interview such as face to face and Computer Assisted Personal Interviewing will be used. Both paper-pencil and web-based questionnaires will be used in order to reach a wider sample of respondents. 3.3 Data analysis The facts collected will be evaluated using the Statistical package for social sciences (SPSS) and Cost Benefit Analysis will be carried out. Graphs and charts will be used to classify data respectively. 3.4 Ethical issues Social enterprises engage in entrepreneurial activities to generate income. They operate in a free market just as Business Corporations. However, it is an ethical requirement that they meet ethical standard that are set (Prahalad, 2009, 96). They should create a distinction between their financial goal and social goals so as to uphold social objectives. They should also be transparent in their operations by maintaining proper books of account and submitting their financial statements in time. Therefore, it would be proper for the social enterprises to understand the ethical dimension in the commercial world. They should put their mission and values first in any of their undertakings. CONCEPTUAL FRAMEWORK Bibliography RIDLEY-DUFF, R. J. AND BULL, M. (2011) Understanding Social Enterprise: Theory and Practice, London: Sage Publications. KERLIN, J. (2009) Social Enterprise: A Global Comparison, University Press of New England. RIDLEY-DUFF, R. J. AND SOUTHCOMBE, C. (2011). The Mark of Social Enterprise: a critical review of its conceptual dimensions. GORDON, A. BRAIDFORD, P. HOUSTON, M. ROBINSON, F. & STONE, I. "Social Enterprises bussiness surport: “Longitudinal Study Findings". Business, Innovation and Skills (BIS) Department”. http://www.bis.gov.uk/assets/biscore/enterprise/docs/b/12-566-business-supportfor-social-enterprises-longitudinal.pdf. Retrieved 22 March 2013. MUTUO. (2009). Mutuals Yearbook 2009, published by Kellogg College, Oxford University. SOCIAL ENTERPRISE MARK. (2010). Social enterprise; trading for people and planet. PATON, R. (2003). Managing and measuring social enterprises. London, Sage. PRICE, M. (2009). Social enterprise: what it is and why it matters. Fflan. GIDRON, B., & HASENFELD, Y. (2012). Social enterprises: an organizational perspective. Houndmills, Basingstoke, Hampshire, Palgrave Macmillan. HOLMSTRÖM, R., 2007. Funding story: Social enterprises. Third Sector, (491), pp. 21-21. FUNDING SCHEME FOR SOCIAL ENTERPRISES. 2009, Jul 27. Liverpool Echo, 18. UK GOVERNMENT: DEPARTMENT OF HEALTH (National) Social enterprise schemes discover funding allocations. 2007, Apr 04. M2 Presswire, 1 AIKEN, M. (2010) Taking A View: Conceptualising the UK challenges in the social and welfare fields third sector organisations . Baden-Baden: Nomos Publishing. BORZAGA, C. AND DEFOURNEY, J. (2001). The Emergence of Social Enterprise. London: Routledge. KEVIN LYNCH, JULIUS WALLS, (2009) Mission, Inc.: The Practitioners Guide to Social Enterprise PEARCE, J. (1993). At the Heart of the Community Economy. 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