“Innovation and reinvestment of profits - key to solving society’s problems” reports the Global Entrepreneurship Monitor

By Kaushik Srinivasan|23rd Jun 2016
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This millennium has been the first for a lot of things. We, human beings, have embarked on a plethora of endeavours ranging from launching initiatives to fighting poverty to sending rockets to Mars. A large part of this success can be attributed to advancements in technology and unearthing of innovative solutions. While these moves seem promising, our society’s pressing issues like poverty, public health, unemployment are increasing considerably on a day-to-day basis, blaring a red sign. While the government might have enough funds to address all these problems, they lack manpower and are devoid of novel ideas. This is where social entrepreneurs come in!

Global Entrepreneurship Monitor (GEM), a fraternity of entrepreneurship enthusiasts, conducted the world’s comparative study of social entrepreneurship for the year 2015. Sprawling across 58 economies, about over 150,000 entrepreneurs were interviewed to compile the whole data. While GEM has extensively collected data on some basis, they have also relaxed the constraints on certain grounds. Two modes of data collection were adopted ‑ broad measure and narrow measure. The broad measure included all individuals heading an organisation, working to influence the environment or a social issue in a positive way. In the narrow measure mode, companies that prioritised its social impact over its financial returns were taken into count.

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Some of the insights gained from its report are enlisted as follows:

Upcoming of nascent and operational entrepreneurs

According to the report, the average prevalence rate of broad social entrepreneurship activity among entrepreneurs, who’re just starting up, is 3.2 percent across the 58 economies. However, the prevalence rate varies from a meagre 0.3 percent in South Korea to a healthy 10.1 percent in Peru. The rate in India stands at 3.8 percent.

Of late, India has been enjoying a lot of upcoming social entrepreneurship-centric enterprises. By making use of vital technology, these organisations are putting up a bold stand against society’s problems.

Among companies in the post-startup phase, on an average, 3.7 percent of the companies are involved in a social entrepreneurship activity. This ranges from 0.4 percent in Iran to 14.0 percent in Senegal. In India, about 5.8percent of the operational companies are aiming to create a social impact. 

On social mission, value creation and value capture

Often social entrepreneurs are left in a dilemma on whether to chase value creation or value capture. While entrepreneurs do not always make a trade-off, for instance, short-term financial returns may be needed to create long-term social impact, many give precedence to financial impact to the organisation (value creation) than the social or environmental impact created (value capture).

However, as long as the vision of the company, to affect the society in a positive manner, isn’t compromised, entrepreneurs can give equal importance to value creation as well.

In India, more than 80 percent of the companies give importance to value capture than value creation, reports GEM.

Use of innovation

Innovation has been one of the cornerstones of solving societal problems. Mainstream approaches have gone outdated and entrepreneurs are looking for innovative solutions to efficiently solve an issue. GEM reports an average rate of innovation of 1.6 percent across the 58 economies. Iran and Bulgaria view a mere 0.1 percent of innovation, whereas Philippines and Israel boast of 4.0 percent of innovation.

On reinvestment of profits

Nobel Laureate Muhammad Yunus argues that

“In a social enterprise, no dividends should be paid to the owners and the profits should be reinvested into achieving the goals set by the entrepreneur.”

However, GEM reports that only 52 percent of the social entrepreneurs across the globe reinvest all the profits back into the social enterprise. Luxembourg and Australia are the countries with the highest reinvesting rate, while the reinvesting rate in Israel and Peru is the lowest.

Demographic analysis of social entrepreneurs

The reports also exhibit several other trends. While analysed between genders, in several countries, male social entrepreneurs outnumber the female ones, by as much as two to one. Such a condition is found to be more pronounced in the European countries, where women entrepreneurs account for only 36 percent of the total. However, a trend observed is that in the public sector, a very marginal amount of gender gap is found. In regions like South Asia, an appreciable number of women take part in social entrepreneurship activities. In Australia and the US, men and women entrepreneurs are equal in number.

However, the scenario in India is a healthy one with women taking an active role in working for social causes and environmental impact. Some noteworthy mentions are Aditi Gupta, who owns a site that acts as a friendly guide to women clearing misconceptions about menstrual cycle, and Priya Naik, who is the Founder of Samhita Social Ventures, an organisation which connects doors, philanthropists and NGOs together to synergise their goals and create a social impact on a large scale.

When surveyed across different age groups, a predominant number of social entrepreneurs were aged between 18 and 34 years. In regions like Middle East, Western Europe, North Africa, South Asia there are more number of social entrepreneurs than commercial entrepreneurs, according to the report. These figures support the fact that the younger generation is motivated to create positive changes in the society.

Another interesting feature found in the report is regarding the education levels of social entrepreneurs. On a global scale, operational social entrepreneurs with a higher education level are found to be 1.7 times the number of commercial entrepreneurs and adult population. Regions like the USA and Australia exhibit 62 percent of social entrepreneurs with high-level education, whereas regions like North Africa, Eastern Europe and South Asia enjoy a rate of 50 percent.

With increasing use of technology and gadgetry in solving environmental problems, the society requires smart people with out-of-the-box solutions. Knowing that well-educated people are putting their knowledge to good use by solving global problems, is a reassuring news that all’s not lost.

While the initiatives taken up by social entrepreneurs to make the world better seem interesting, their organisations hit a roadblock at “finance”. GEM reports that out of 10 social entrepreneurs, across the globe, nine requires some funds to start their enterprise . In regions like Western Europe, Australia and the US, it is estimated to be the lowest, thanks to the surplus amounts of funds there. However, in North Africa, Southern and Eastern Asia the share of social entrepreneurs investing their money is high.

While we’re making progress on a global scale, a lot of credibility associated with these numbers goes to social entrepreneurs present in well-developed countries like Western Europe, Australia, and the US. In these economies, as much as one out of 10 individuals is a social entrepreneur. Moreover, these economies also exhibit the highest conversion rate of a nascent social entrepreneur into an operational social entrepreneur. A possible reason could be the institutional support mechanisms prevalent there. In economies like North Africa, Southern and Eastern Asia the returns are low. In some of these countries, most of the entrepreneurial activity viewed is either small-scaled or necessity-driven.

With reference to India, major strides of development are currently going on in the social entrepreneurship sector. Women are partaking in social activities and well-educated people are harnessing their knowledge to pay dividends out of it. While it’s not easy to solve all of society’s problems overnight, we are still making progress. After all, to make the world cleaner, you have to get your hands dirty.

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