Challenges Facing the Development of Social Enterprises in China - Essay Example

Challenges Facing the Development of Social Enterprises in China In the past five decades, China has become thebest destination for the multinational companies that are planning to diversify their operations to different markets across the world. This has been necessitated by the increasing levels of globalization which has mainly been sparked by the liberalization of markets, efficient information flow, and interconnection of the economies across the world. This has led to the entry of the global firms in the Chinese markets, an aspect that has increased the level of competition. These are companies that have a huge financial base to segment the market, attract the loyalty of the customers towards the products and services and position their services and products in the market. This has played a significant role in enabling these firms to reduce the risks and uncertainties that are associated with focusing on few markets. Companies such as Apple Inc have opted to outsource their operations to China due to the existence of cheap labour and raw materials. This has enabled them to maximize their returns through providing their customers with affordable products. However, the social enterprises have not been able to record the same success China. This paper will therefore, analyze the issues that are facing the development of these social enterprises while making reference to specific challenges that face their governance and accountability. According to the British Council on Social Enterprises report, the social enterprise is a new phenomenon that took shape in 2004 (Peverelli & Song 2012). However, one of the major challenges that have faced these enterprises is lack of information on how to improve their operations in the country. The reason is that these are the first enterprises that have been established in the country. Therefore, there are no effective policies that can be used to guide the enterprises towards growth and development. Majority of the enterprises are copying some of the policies that are being used in other countries. However, China has a unique culture and people who believe in local products, services, and policies. This aspect makes it hard for the leaders of the enterprises to introduce new policies that have been borrowed from other areas. Just like the small and medium enterprises and non-governmental organizations in China, Social enterprises face a major problem of accessing sufficient financial resources in order to spearhead growth in the organization. In China, social entrepreneurs are not able to get funding from the banks through loans. This is a problem that also affects small and medium enterprises. Unlike other state owned businesses, banks are mainly reluctant to lend money to small businesses that are privately owned. However, in case they give in to the request of these enterprises, they charge very high interest rates because of the risks associated with these businesses. It is in 2011, when the administration in China started to realize that the level of growth was slowing down and the unemployment rates were threatening the stability of the economy. This is the time when the government intervened and called for better regulations through offering tax references. However, up-to-date, many social enterprises do not have the necessary information to enable them get funding from the relevant institutions (Cheng 2012). Conversely, these enterprises do not have clear strategies to enable them understand the type of funding and the financing opportunities available. In addition, with many of these enterprises being young, the subordinates working in them do not know how to negotiate with the funders in order to get money to improve their operations. On the other hand, investors look for clear business strategies. However, these enterprises do not have clear objectives, strategies, and goals that they are aiming to achieve. Lack of adequate funds makes it hard for these enterprises to put up a qualified team that will govern the rest of the subordinates and ensure that the set goals are achieved. The development of the social enterprises is hindered by the challenges regarding attracting, retaining, and developing talents. With the social enterprise sector being young compared to other countries across the world, they can only achieve growth by ensuring that new ideas are refined in order to create growth opportunities to the enterprises. Many of the multinational organizations have been able to thrive in the markets because they have experienced workforce which is able to guide the rest of the subordinates. However, in China, the social enterprises are young. Therefore, the managers do not have the necessary skills to guide the young generation working in these enterprises on how to nurture their talents in order to make a difference in the organization (Schak & Hudson 2003). Many of the social enterprises are in their early stages of growth. Therefore, they have not been able to put up mechanism that would enable them to account for the money bring used to run the operations of these enterprises. As a result, they are losing a lot of money through fraud and embezzlement by the subordinates. This is derailing the overall growth of the enterprises. Socila enterprises in China lack the general scale. In this country, apart from Canyou and Qiang Embrodery, the rest are not of true scale. In addition, these enterprises are not visible because they are yet to touch the core issues that affect the Chinese people. Nevertheless, whether viewed from the angle of market potential. The social and moral imperatives, education, or even health care are the best areas for developing social enterprises. However, the administrators of these enterprises have not focused on them (Nicholls 2006). On the other hand, the social enterprises are concentrated in the large cities. Therefore, rural and other areas that are under-developed have been left out. This has discouraged the financiers such as donors to abandon these enterprises and instead channel their money to the projects through non-governmental organizations. This has affected the operations of these enterprises. Chinese social enterprises are facing a major challenge of attracting skilled subordinates who have business background. With the increasing levels of competition in the market, multinational organizations are using any means to hold onto the best employees who drive the growth of these enterprises. On the other hand, despite the increasing socially conscious talent pool, these enterprises are not attractive to the employees compared to global firms or companies that are state-owned. Furthermore, subordinates who work in these enterprises are likely to lose social and economic benefits that are provided by the multinational organizations. Furthermore, the size of the financial muscles of these firms makes it hard for them to provide the employees with a serene working environment. This has made it hard for the enterprises to attract highly qualified personnel who can bring growth and development in these organizations. The reason is that their compensation is low and the employees who shifts from non-governmental organizations have a different set of skills and expertise which fails to excel in business-like environment. Therefore, a survey that was conducted in China revealed that 70% of the respondents stated that staff recruitment is one of the major challenges that face the social enterprises. Therefore, they are unable to develop the appropriate business model and come up with a long term strategy that will bring social impact in these enterprises (Lieberthal, Li, & Yu 2014). The social enterprises in China face a major challenge of legal uncertainty. Although there are various legal forms in the Chinese constitution that can be adopted by the social enterprises, the country lacks legal forms that are specific to social enterprises. These include the B-Corp in US or Community Investment Company in the United Kingdom. The government of China is very controlling. As a result, may enterprises fear that once they expand in size, they might attract some regulations from the government. This is because there is no legal framework to protect them from constant interference from the administration. On the other hand, most of these enterprises are mainly registered as commercial firms. As a result, they are not exempted from taxation irrespective of their social missions. This curtails their operations in the country. Poor training and education of the social entrepreneurs has made it hard for the enterprises to develop in China. Highly-rated schools in other parts of the world such as Europe and United States have been offering courses on social enterprises. For instance, Oxford University has already made it mandatory for all students to ensure that they take a course that is related to social entrepreneurship. Nevertheless, in China, such courses are yet to be integrated into the curriculum. The reason is that institutions of higher learning in this country lack a faculty that is conversant with social enterprises (Bian 2005). This aspect has been affecting the governance of the social enterprises. The reason is that those holding top-level positions do not have the necessary skills and experience to steer growth in these enterprises. Social enterprise is a course that focuses heavily on practical. However, majority of the university professors from China are have a research background. As a result, they lack the necessary knowledge on the course materials that will develop social entrepreneurs. Therefore, majority of the managers and the rest of the workforce have very little skills or none on how to handle a social enterprise (Weiyan 2013). The legislations in China together with constant intervention by the government represent one of the most critical challenges that are faced by the social institutions. In other parts of the world, social enterprise work independently without any form of government intervention. However, in China, these enterprises are supposed to engage the government at all levels, i.e. local, provincial, or even national. Despite the tremendous economic growth in China which has mainly been accelerated by globalization, the past three decades has seen the country become more polarized. Therefore, it is being faced with a society that is divided, an aspect that has forced the government to put up measures to salvage the social welfare systems. Rising levels of unemployment especially among the young graduates from the universities and worsening environmental conditions are some of the challenges facing the government. However, although the politicians are starting to recognize the important roles being played by the civil society especially in providing the society with the necessary services that will mitigate the negative impact of the challenges facing the society, they are yet to support the social institutions due to their fear that they might plan to oust the current administration. This aspect has affected the governance of the enterprise because the leaders are constantly summoned to explain the operations of these enterprises to the government (Khanna 2007). This threatens the lives of these people. As a result, people who have high skills in governance opt to stay away from these enterprises in order not to risk their lives. The concept of social enterprise in China is not clear and it’s only few people who understand it. In Europe and United States where the concept is well developed, these enterprises have the necessary guidance to enable independent bodies to conduct their auditing activities. This helps in understanding areas that requires some changes in order to achieve better results. Furthermore, these countries have the mechanism of monitoring the performance of the subordinates and the funds across the board. This has played a significant role in addressing the issue of accountability. However, in China, there exist only few or no mechanisms on how to hold the top-level management accountable in case the enterprises move away from its main objectives. As a result, majority of them have found themselves addressing irrelevant issues that are of no great interest to the people of China. In the meantime, many of these enterprises are limited to the charity sector. Many of the people confuse the term social enterprise with corporate social responsibility (Stegemann & Lunds universitet 2012). Therefore, lack of support by the members of the public which emanates from lack of the necessary awareness affects the market share and their ability to expand their moral influence to different parts of China. Low numbers of people involved in these enterprises fails to convince investors and even the government that they can be drivers of change in the society and the country at large. There is lack of a clear structure of governance in the social enterprise which results to conflicts of interest between top-level managers. Multinational companies have been able to thrive in a dynamic market despite facing stiff competition. The reason is that they have developed effective structures that make it easy for the top-level managers to delegate authority and responsibility. This has given the young people to learn how to handle challenging duties even when they are under intense pressure. However, social enterprises in China are yet to improve their governance structures, an aspect that has made it hard for the young generation that is joining from campuses to learn from experienced workforce (Mok & Lau 2014). This has lowered the level of continuity in these enterprises. The cultural environment in China poses one of the great challenges to the social enterprises. To be specific, the strong self-interested profit-driven culture by the local population has made it hard for the enterprises to thrive. There has been little emphasis on social contribution, weak culture of philanthropy, and limited linkages between various social enterprises in the country. Although majority of the top-level managers in these social enterprises are the Chinese who have returned from Diaspora, their contribution towards the improvement of the Chinese society has been minimal. This is because they have been faced with an obstacle of a static culture. In addition, they are trained in a different curriculum which does not take into consideration different cultural elements that affects the governance of the Chinese enterprises. In comparison to other countries, China has a weak culture of philanthropy due to lack of religious, historical, or even social precedence on philanthropy in the country. The charitable donations by individual people or institutions only account for 0.05% of the country’s GDP (Heberer 2003). The culture has made it very hard for the social enterprises to secure enough funds to run their operations. Social enterprises are facing a major challenge of unfavourable institutional environment. In contrast to other countries across the world such as China, the institutional environment that would otherwise support the operations of the enterprises is highly undeveloped. The reason is that there are only few social enterprise incubators, research firms, financing sources, and firms that can be consulted on matters of governance in China. Therefore, poor management of talents makes it hard for the enterprises to grow and develop. On the other hand, many organizations in China have dysfunctional corporate cultures which lack a board of directors whose mandate is to set the goals and evaluate the progress of various projects. Therefore, the workforce lacks a framework that can enable them learn and improve their skills. Furthermore, while countries such as United States have a consulting system, whereby, social enterprises networks offer the necessary support to the social entrepreneurs, in China, this aspect is lacking (Halkias & Thurman 2012). As a result, the young people together with those in top positions lack the necessary leadership skills to enable them to spearhead growth and development in the enterprise. Therefore, many of these enterprises are poorly managed. The political environment is one of the major limiting factors towards the growth of the social enterprises in the country. This mainly results from the strong presence of the state machinery, especially on social issues in the country. Although the administration has withdrawn itself from the economic and business sphere in order to liberalize the markets, it is yet to follow suit when it comes to the social enterprises. It is through legislative requirements such as licensing that the government controls this sector. This has been brought in by the concerns that too much freedom to these enterprises might undermine the political legitimacy of the country. This is through allowing other players to address issues that affect the society, an aspect that might reduce the people’s support towards the government (Gunn & Durkin 2010). Therefore, the constant hurdles towards the development of the social enterprises have made it hard for the administrators of these firms to make any progress. Lack of effective framework to govern the operations of the social enterprises affects their growth. In China, there is a well outlined framework that protects the businesses from being exploited by external forces. This provides them with a serene working environment, an aspect that enables them to compete effectively in the local and global market. However, having been started in 2004 and due to constant interference from the government, there has been no much attention to put up checks and balances to ensure that the management of these social enterprises are held responsible in case they divert the attention of the enterprises to other areas for their own benefit (Poon 2011). Therefore, these enterprises have been losing a lot of money through fraud and poor management. This has lowered the confidence of the investors towards them. Therefore, majority of these investors prefer to invest in institutions that have well outlined mechanism to reduce the risk and uncertainties that might arise in the future. The complexity of registering a social enterprise has made it hard for them to expand to other areas, an aspect that would enable them to increase the number of beneficiaries. Many of these enterprises are located in urban areas. With lack of support from the government and many registration hurdles, the enterprises have been unable to open up various subsidiaries in the rural areas in order to help more people (Zhao 2012). In addition, constant internal wrangles regarding the best places to establish these branches have been affecting the progress of these institutions in China. The reason is that there are no effective internal mechanisms to solve these issues. Therefore, they derail the making of critical decisions that would dictate the future of these enterprises. In conclusion, social enterprises have been facing numerous challenges associated with internal management and external interference. However, lack of effective policies to provide guidance on how to deal with these challenges has affected the progress of these noble enterprises. Therefore, these social enterprises must go through an evolutionary stage in order to reach higher levels. References Bian, M. L. (2005). 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