Hong Kong is the most competitive region among 61 countries in the 2016 World Competitiveness Yearbook by the International Institute for Management Development, especially in the business efficiency category.
This pursuit of efficiency in Hong Kong also applies to its social enterprise sector which the government started to support in 2001. It chose to grant start-up funding to social enterprises based on the feasibility of their business plans. This approach is in alignment with our local pragmatic culture and also boosts social entrepreneurs' ability to become competitive in the long term rather than rely on wage subsidies or government procurement policies.
This is one of the two critical decisions by the government that have had a major impact on the success of Hong Kong's social enterprise sector. The other decision is to calculate and report the social impacts created.
All social enterprises have to provide quality products and services in order to win business and keep customers. Hence during an application for startup funding, the government will check the business feasibility and potential social impacts.
In 2013, some 63 percent of social enterprises were profitable or at breakeven. This is much higher than the 22 percent success rate of commercial enterprises, according to research.
The advantage of screening funding applicants also spills over into the lifespan of social enterprises. While the average lifespan of small-medium enterprises (SMEs) in Hong Kong is only 3.7 years, the medium lifespan of social enterprises is much longer at 9.3 years. It is because SMEs use their own money to start their business. They do not need to go through any screening. The risk is that non-feasible business plans will be implemented and lead to the venture's failure.
MEASURABLE SOCIAL RETURN
The government’s other critical decision was to calculate the social return on investment (SROI), a unique approach because no other country reports the SROI of its social enterprise sector systematically.
At the 2007 Social Enterprise Summit in Hong Kong, Fullness, the social enterprise I chair, was the first to report its SROI.
In 2013, Fullness calculated the SROI of government-funded social enterprises and found the accumulative SROI was 446% over 9.3 years, the medium lifespan of a social enterprise in Hong Kong, a result that proved government funding for social enterprise startups is money well spent.
The data shows that for every HK$100 granted to start up a social enterprise, the average annual revenue is HK$285. This revenue is used to pay rental, material cost, normal employees’ wage, operating expenses, and to pay a $48 wage to socially disadvantaged employees.
We call this wage workfare, or work as welfare, for those who are uncompetitive in the job market. This is the main social impact used to calculate the SROI. It is the most meaningful, objective, direct and comparable number. Other benefits like improved health or happiness, or other benefits to other stakeholders are excluded from the SROI calculation.
GENERATING MARKET DEMAND
All startup businesses need startup funds, entrepreneurial skills and market demand for their products or services. Apart from funding more than 40 percent of social enterprise start-ups, the government also picks and supporting those who have demonstrated their knowledge and skills through business plans, ensuring the right entrepreneurial skills are in place when a social enterprise starts.
Furthermore, by providing a transparent way to measure a social enterprise's impact, SROI provides an excellent value proposition to generate market demand on two fronts: the consumers and the public discourse.
Since out of HK$285 of revenue, HK$48 will be workfare; it means for every HK$100 purchase of social enterprise products and services, HK$17 will be workfare. It is a significant ratio that helps to encourage ethical consumers who support social enterprise development through their daily consumption.
Finally, the overall success of social enterprises in meeting the double bottom line is attracting attention by the mainstream media to dig out more and more social enterprise stories for their audiences. In the long run, media exposure and follow-up discussions will lead to the integration of social enterprise concepts and values, like ethical consumption, into society.