HK's social enterprises exhibit new entrepreneurial flair

Updated: 2013-08-07 07:18

By Li Kui-wai(HK Edition)

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HK's social enterprises exhibit new entrepreneurial flair

Hong Kong has always been a dynamic city but does not have an agricultural sector to fall back on. The Hong Kong economy has no choice but to move ahead, even in recessionary times. Formerly known as "positive non-intervention", the "big market, small government" policy is still the key to solving economic ills through the market system. There is the Chinese saying that "crisis brings opportunity", meaning that though there is much complaint, businesses and people in Hong Kong do not rely too much on the government. Instead, they look for new opportunities, a constant rejuvenating factor in the economy. Hence, the difficulty of a recession gradually pushes people and businesses to look for new opportunities to survive, increase employment and make profits using their ingenuity, knowledge and cooperation.

It is against such an economic background that a growing number of "social enterprises" have been set up in the city since mid-2000. They have a number of common economic features. One is that it has a social content, meaning that it does have a "welfare" element in the business, and that the existence of the social enterprises does serve certain "social inadequacy" in the market economy. Simply put, a normal profit-making business may not be interested in establishing a social enterprise. Thus, a social enterprise is basically a quasi-welfare institution that aims to fulfill some welfare assistance in the market system.

Since a social enterprise is non profit-making, its economics work on the "average cost equals average revenue" principle. As such, the social enterprise will have no profit as its total cost is covered by total revenue, and there is no surplus in theory. However, because of this "zero-profit" equation, a social enterprise could make an economic loss, even though it provides a social service. The question then becomes how much a social enterprise can go into the red before a crisis of its own will emerge, and who will come to its rescue financially? Of course, a social enterprise can also make a surplus over a "business cycle" in order to balance its books.

On the contrary, it is equally possible that a social enterprise can be profitable. Like any other business, it may not have too much competition at the outset. Even though it is not profit driven, it could be somewhat "monopolistic" in the market at an initial stage. As such, social enterprises will end up like any private business and face the economic outcome in the market.

Another feature of social enterprises is that their businesses tend to be small, minor and may not be attractive to profit-maximizing businesses. Various repairing businesses, personal service to the elderly, food banks for those on low income, collection of renewable materials, are examples. Even though they are established as social enterprises, these are actually new areas of business in Hong Kong.

Because of the economic recession and little opportunity in mainstream businesses, certain social entrepreneurs found that social enterprises would give them a handsome start as the cost of running the business was low, and the welfare image of the business could be attractive as it meant providing "care" to the less privileged groups in the recession economy. There is thus the psychological advantage in setting up social enterprises.

Social enterprises are a new form of business in Hong Kong. They may appear not to be profit-maximizing, but they nonetheless involve costs paid and revenue received. As such, they are no different from any normal business enterprise. They may serve as pioneers in new businesses, which is good as it shows people or businesses in Hong Kong have looked to new channels of business which can help widen and diversify the city's economy.

The popularity and growth of social enterprises have expanded businesses that otherwise would not be provided by mainstream businesses. Their services do create new jobs, especially among the low-skilled workers and serve to alleviate the economic hardship of some needy people. This is their major credit.

The author is associate professor of the Department of Economics and Finance at City University of Hong Kong.

(HK Edition 08/07/2013 page1)