Social Entrepreneurship in Developing Countries

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Literature Review

This chapter aims to provide a comprehensive theory-based research framework to deepen the understanding of the topics related to our purpose. To set the scene, we first dive deep into the phenomena of social entrepreneurship by critically analysing some of the most influential work in the research field. Secondly, we introduce the social entrepreneurship concept in the context of developing countries. Thirdly, we introduce the concept of entrepreneurial ecosystems before critically analysing it in relation to social entrepreneurship. Finally, the current state of social entrepreneurship literature in the context of Philippines is presented. Here, we decided not only to limit ourselves to theoretical work as we found substantially important work outside the scope of academic literature.

Social Entrepreneurship

The concept of Social Entrepreneurship is said to have its roots in the early 1990s when Bill Drayton popularised the idea after establishing the social entrepreneurship organisations ASHOKA (Light, 2006). Despite its growth during the same decade, it did not become a scholarly phenomenon until the late 1990s. Since then, many notable scholars have adopted a keen interest in the field (Short, Moss & Lumpkin 2009). Nonetheless, the research field of social entrepreneurship is still a novel and underexplored area. Although the volume of research produced has increased significantly, much of the published literature has been conceptual work trying to define the concept (Short et al. 2006). As a result, different opinions from different scholars have emerged, and the establishment of a unified definition of social entrepreneurship is still lacking (Mair & Martí, 2006; Short et al. 2009; Dacin, Dacin & Matear, 2010). Even though opinions on how to define the phenomenon are widespread, there seems to be an agreement that social entrepreneurship differs enough from commercial entrepreneurship regarding motivation and mission to deserve its deserves its existence in the literature (Austin et al. 2006, Weerwandena & Mort, 2006; Santos, 2012).
In contrast to traditional entrepreneurship, many scholars argue that it is the motivation and commitment to provide social over economic value that makes social entrepreneurship unique (Dees, 1998; Mair & Marti 2006; Peredo & McLean, 2006; Zahra et al., 2009). For example, Peredo and Mclean (2006) argue that social entrepreneurship is different because it involves sacrificing profits to achieve a social mission. Further, economic value creation should only work as a by-product (Mair & Marti, 2006) to ensure that a venture can sustain its social mission (Dees, 1998; Dacin, Dacin & Tracey, 2011). Weerawardena and Mort (2006) argue that because of its mission, social enterprises face different types of obstacles in contrast to the ones faced by commercial enterprises. Additionally, Austin, Stevenson and Wei-Skillern (2006) highlight that opportunities exist for both social and commercial entrepreneurship, but due to the large volume of social problems in society the opportunities for social entrepreneurship are much greater than the capacity of social ventures. Further, social entrepreneurship also lacks an infrastructure for access to capital, especially during the development stages (Sharir & Lerner, 2006). Despite these differences, some researchers believe that there is no need to distinguish social entrepreneurship from conventional entrepreneurship (Chell, 2007; Dacin et al. 2010). For instance, Chell (2007) argues that both social and commercial entrepreneurs recognise and pursue opportunities regardless of the resources available to them. Similarly, Dacin et al. (2010) state that social entrepreneurship is indistinguishable from commercial entrepreneurship as it also involves profit making by innovatively pursuing a mission.
After reviewing some of the most cited articles on the topic, it is easy to confirm the lack of a unified definition. In an attempt to review the literature Dacin et al. (2010) identified over 40 different articles trying to define the concept. They suggest that definitions holding the most promise focus on either the mission of the social enterprise or the processes and resources utilised.
As mentioned in the beginning, many scholars have defined social entrepreneurship based on its primary mission to provide social value (Dees, 1998; Mair & Marti 2006; Peredo & McLean, 2006; Zahra et al., 2009). Dees (1998) states that it is the mission of the enterprise that determines whether it is a philanthropic activity or a commercial business. Thus, in the pursuit of a social mission, some authors have disregarded the economic activity in their definitions (Weerawardena & Mort, 2006), whereas some authors include it although it is not the primary mission (Mair & Marti 2006; Zahra, 2009). For instance, Zahra et al. (2009) state that social entrepreneurship « encompasses the activities and processes undertaken to discover, define, and exploit opportunities to enhance social wealth by creating new ventures or innovatively managing existing organisations » (Zahra et al., 2009: 522). This definition embraces the fact that enterprises have distinctive ways of attending to social problems whilst ensuring the creation of both social and financial wealth. Santos (2012) challenges the mainstream view that social entrepreneurship should address social problems by pursuing a social mission. He argues that a “rigorous definition of social entrepreneurship should avoid using the word social” (Santos, 2012: 336). Instead of addressing so-called ‘social problems’, social entrepreneurship should focus on addressing neglected problems that the market and government have failed to address. He defines social entrepreneurship as “addressing neglected problems with positive externalities” (Santos, 2012: 337). Externalities refer to the spillover effect that is created because of economic activity (Rangan et al., 2006). Instead of creating products or services that may have negative externalities such as over-consumption or increased wealth gap, a social enterprise ensures positive externalities (Santos, 2012). Although social enterprises can play a crucial role in a country’s economic development while solving neglected problems, these enterprises are much more likely to face challenges when acquiring resources needed for growth (Santos, 2010).
The processes utilised by entrepreneurs are interlinked with the organisation’s capability to manage resources to address a specific social problem (Dees, 1998; Mair & Mair, 2006; Peredo & McLean, 2006; Chell, 2006; Sharir & Lerner, 2006; Dacin et al., 2010). Due to the difficulty of acquiring right resources, some authors describe social entrepreneurship as the ability to take action without being limited to resources currently at hand (Dees, 1998; Sharir & Lerner, 2006). Further, Mair and Marti (2006) state that it involves the innovative use and combination of resources. The process of social entrepreneurship involves the distinction of whether social entrepreneurship should focus on economic value creation or social value creation (Mair & Marti, 2012). Some authors place social entrepreneurship as social mission driven organisations within the non-profit sector, purely focusing on solving a problem (Weerawardena & Mort, 2006). Other authors do not distinguish the “mission” of creating social value over different sectors. Instead, it can occur across government, business or the non-profit sector (Austin et al., 2006; Dacin et al., 2011). Moreover, Zahra et al. (2009) argue that social enterprises aim to create ‘total wealth’, which is the sum of social and economic wealth created, where the social wealth is the dominator. Similarly, Santos (2012) highlights that social enterprises engage in both activities but emphasise value-creation (mission) over value-capturing (economic return). Even though many authors agree that defining the concept based on its primary mission accompanied by the processes and resources utilised is promising, few authors outline the contextual factors that influence social entrepreneurship.
Similar to commercial entrepreneurship contextual factors will affect the nature and outcome of any social initiative. These contextual factors may include the macro economy, regulatory framework including taxes and the socio-political environment. Austin et al. (2006) argue that if social enterprises are more aware of the contextual factors they are much more likely to have a successful outcome. Depending on the geographic location, contextual factors are likely to affect social enterprises in different ways. For instance, Dacin et al. (2010) stated that contexts with strong institutional resources, which include political and legal aspects, could enhance the organisational development. However, these contexts are present in developed countries where social problems are minimal in comparison to many developing countries where social problems are at large (Mair & Marti, 2009). After reviewing the social entrepreneurship phenomenon, it is evident that a majority of the most influential articles published on the topic look at the concept in the context of developed countries. Thus, there is a geographical bias in the current state of the literature (Doherty et al., 2014).

Social Entrepreneurship in Developing Countries

Noting the importance of context when reviewing the phenomenon of social entrepreneurship, we chose to narrow the search by focusing social entrepreneurship in a “developing country”. 32 articles were deemed relevant. Clearly, this is still a very broad context, as developing countries can possess vastly different characteristics. However, we concluded social enterprises would address somewhat similar problems in such settings, regardless of geographical location. We observed that a majority of those studies that explicitly state where the study was performed come from India, Bangladesh as well as various African countries.
Many scholars argue that one of the major reasons why the definitional debate lingers within social entrepreneurship research is because the concept is inherently dependent on contextual factors (Chen, Saarenketo, Puumalainen, 2016; Sengupta & Sahay, 2017; Zhao & Lounsbury, 2016). In their literature review, Sengupta and Sahay (2017) call for more qualitative research on how different contextual factors influence social enterprises from achieving their financial goals and social missions. In one qualitative study conducted in Egypt, Ghalwash, Tolba and Ismail (2017) emphasise the importance of understanding the socio-cultural and economic context to fully grasp the phenomenon of social entrepreneurship. Similarly, in a quantitative study by Zhao and Lounsbury (2016), an institutional logic approach is used to highlight the influences of economic and cultural forces that the social venture is locally embedded in. It has further been noted that social enterprises are perceived to address different issues depending on the context. In a comparative study between India and Australia, it was observed that social enterprises in a developing country focused primarily on raising living standards for the poor at the bottom of the pyramid. In contrast, in a developed country setting, social enterprises address matters such as the environment and healthy eating (Haski-Leventhal & Mehra, 2016).
To further examine social entrepreneurship in a developing country context, we note that the literature broadly looks at this phenomenon through four different lenses; namely institutional voids, hybridity, social capital and local embeddedness, and the support environment.

 Institutional Voids

A significant difference compared to developed countries is the level of institutional support, which is argued to influence the development of social enterprises (Ault, 2016). It has been identified numerous times in the literature that developing countries are frequently characterised by so called ´institutional voids´, where market institutions are either absent, weak or fail to accomplish their role (Roy & Karna, 2015; Ghalwash et al., 2017; Mair & Marti, 2009;). Perhaps most relevant from an entrepreneurial perspective are formal and informal commercial institutions that support business activity. Those include, but are not limited to capital markets, banking regulations, legal systems, educational systems, and labour markets (Dutt, Hawn, Vidal, Chatterji, Mcgahan, & Mitchell, 2016). Institutional voids are said to hamper market access, development and functioning, resulting in operating challenges for entrepreneurial actors (Mair & Marti, 2009; Chen et al., 2016). As identified by Dutt et al. (2016), when gaps are left by commercial institutions, problems related to regulation compliance, financing and corruption take hold – ultimately protecting established, often politically connected, companies. Additionally, it can also negatively influence behavioural patterns and hinder progress on a larger scale, as “dysfunctional institutions imprison societies in webs of self-fulfilling expectations that not only create but also reinforce the cycles of poverty” (Khavul & Bruton, 2012: 288).
However, it has also been noted that institutional voids can in fact promote and encourage social entrepreneurship. In such an environment, characterised by inefficient governments and the absence of influential NGOs, the result is unsatisfied social needs and hence, the emergence of more social entrepreneurial opportunities (Chen et al., 2016). Put differently, Diochon and Ghore (2016) agree that perceived barriers do not necessarily have to be a constraining factor, but can rather stimulate social entrepreneurs to act on an opportunity. Consequentially, entrepreneurial ventures are more likely to be socially oriented in developing countries due to failures from state and market to address such issues (Chen et al., 2016). Through innovation, social entrepreneurship presents a viable method to reduce institutional inefficiencies and develop new capabilities (Rao-Nicholson, Vorley & Khan, 2017). Because of their prosocial motivation, social entrepreneurs act where others would not, to introduce solutions that remove barriers and hence facilitate access to markets for others (McMullen & Bergman, 2017). To summarise, it appears that the negative effects on social entrepreneurship activity, due to dysfunctional or absent institutions, coexist with the positive effect on social entrepreneurship activity such an environment brings (Chen et al., 2016).
Much of the literature seems to agree that social entrepreneurship has the potential to bridge the gaps left by inefficient markets and institutions. While acknowledging this, Hacket (2016) warns that one must also appreciate the limitations to alter deeply entrenched political and economic realities that characterise developing countries. This was concluded after a study on a well-established social enterprise, Grameen Shakti in Bangladesh, which further highlights the difficulties. Zhao and Lounsbury (2016) dwell even further into the challenges involved. While recognising the need to develop a strong market logic, with free market solutions to create a favourable business climate and encourage capital flows, they proceed to stating that fertile markets for social enterprises are not just determined by political and economic policy, but also elements such as culture and religion. They claim that markets are social institutions in themselves, are intertwined with other social institutions, and need to be understood on a fundamental level.
This inevitably leads to the question posed by Mair and Marti (2009): How do entrepreneurial actors overcome such institutional challenges and impairments for market access and participation? Roy and Karna (2015) also recognise this challenge and propose that social entrepreneurs need to leverage the institutional environment as well as resources to enhance effectiveness of the business model and increase their impact on society. Correspondingly, Mair and Marti (2009), in an attempt to answer their own question, noted that entrepreneurs apply strategies of bricolage to create something out of what is at hand, while refusing to accept the current situation as unchangeable. Further, the subsequent sections below discusses other ways for social enterprises to deal with contextual as well as other challenges.

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Hybridity

To successfully scale their social mission and, simultaneously, reach financial sustainability, social enterprises must adapt their structure, processes and business models in both areas (Battilana & Lee, 2014). Consequently, they often apply a multiple stakeholder structure in which they navigate through different contexts and take on different organisational forms and identities (Easter & Dato-On, 2015). The multitude of coexisting objectives and institutional logics are said to be characteristics of a hybrid organisation (Pache & Santos 2013; Huybrechts, Nicholls, & Edinger, 2017). Thus, it has been suggested that social enterprises are naturally associated with issues of hybridity given their mix of organisational objectives and activities that traditionally either belong in a business setting or the world of non-profits (Battilana & Lee, 2014; Holt & Littlewood, 2015). It has further been suggested that ‘hybrid organisation’ is a broader term than ‘social enterprise’, as it embraces a wider heterogenic spectra of various legal forms, missions, contexts and business models (Holt & Littlewood, 2015). ‘Social franchising’ is one example of such a business model appearing in the literature (Bradley et al, 2012; McKague, Wong & Siddiquee, 2017). In a case study from Bangladesh, the franchisor provided market coordination and support systems to small enterprises in rural areas, which allowed them to widen their social impact while simultaneously, build entrepreneurial capacity in previously neglected areas (McKague et al., 2017).
It appears in the literature that hybridity is particularly well suited, and often essential, in a developing country context. A case study in sub-Saharan Africa found hybridity that was deployed to deal with the complexity of multi-sector partnerships. Building relationships with various partners were needed to overcome the numerous gaps in resources, skills and knowledge (Holt, & Littlewood, 2015). In another study by Kistruck, Beamish, Qureshi and Stutter (2017), focusing on fair trade oriented social enterprises; the authors investigated their willingness to cooperate with commercial actors. Some, labelled as “sector solidarity”, exclusively chose to deal with likeminded, socially focused organisations. On the contrary, those labelled as “active appropriation”, embraced hybridity and were open to also build relationships with purely commercial actors. Although unethical practices occurred within those mainstream businesses, the advantages were judged to outweigh the negative aspects as awareness and visibility of fair trade grew, as well as sales – which ultimately benefited their producers and contributed to their social mission. However, a potential risk with this approach is the so-called “mission drift”, where social enterprises over time lose focus of their social mission in exchange for a more profit-driven business model (Ault, 2016). The same author claims that this is more likely to happen in for-profit social enterprises. Also, the relatively higher cost of serving the poor in nations with weaker institutions make mission drift more likely to happen in developing countries (Ault, 2016).
One type of partnership social enterprises need to develop is the one with local communities. Here, Manning et al. (2017) emphasise the importance of context and introduce a concept they call ‘community based hybrids”, where organisations rely on resources from local communities in which they are deeply embedded in. While benefiting those communities they also serve clients locally, regionally and potentially internationally. However, the authors also highlight the importance of community organisations, often filling the roles of intermediaries, to facilitate the extraction of resources the hybrid firm needs. Navigating such a varied landscape described in this section is challenging for the social enterprise, with risks of losing reputation, legitimacy, and “license to operate” if doing it wrong (Holt & Littlewood, 2015). Much of the literature concerning hybridity highlighted the importance of building relationships with a variety of actors to fulfil its mission. As a way to accomplish this, the next section will proceed to build on the aspects of social capital and local embeddedness.

Social Capital and Local Embeddedness

The concept of social capital has been described as the potential and actual benefits that can derive from a person’s social connections (Maas, Seferiadis, Bunders, & Zweekhorst, 2014). It can be accessed within the organisation but also through external links to other individuals, organisations and communities – often referred to as bridging social capital (Easter & Dato-On, 2015). It has been pointed out that in environments with scarce resources the importance of social capital increases (Bhatt & Altinay, 2013; Maas et al., 2014). Building on that notion, the same authors suggest that social entrepreneurs in a developing country context are dependent on social capital to a higher degree than their developed country counterparts. Khavul and Bruton (2012) provide an explanation stating that in environments where institutions are absent or not providing enough support, the importance of the local network increases as reciprocity among individuals provide a sense of safety and trust. For instance, in a qualitative case study in India, it was observed that social capital was leveraged by social entrepreneurs to mobilise resources and overcome limited access to finance (Bhatt & Altinay, 2013). Further, in a longitudinal case study in Bangladesh, necessary resources such as capital, labour and ideas appeared to be readily available in the local environment, but networking was a key ingredient to ultimately stimulate entrepreneurial activity. Thus, it is suggested that entrepreneurial opportunities are not merely found, but rather embedded and created (Maas et al., 2014).
We note that a significant portion of the literature tends to focus on a social enterprise’s ability to build social capital with those who would potentially benefit from the social mission. Communities in developing countries are often characterised as “tight-knitted” and are subject to social norms, which determines daily life to a higher degree than in western countries (McMullen & Bergman, 2017). Therefore, it is vital for the social enterprise to understand the environment in which the target group is embedded in (Khavul & Bruton, 2012). Operational models in such a setting need to “reflect, be adapted for, and address the opportunities created by specific local environmental conditions” (Holt & Littlewood, 2015: 121). If local context and local networks are ignored it becomes difficult for social entrepreneurs to make an impact even if the initial intention was good (Khavul & Bruton, 2012). Expanding on this idea, it is suggested that a more profound engagement of beneficiaries – those who benefit from the activities of social enterprises – through stages of implementation, development, and scaling, increases the chances of a successful social innovation (Bhat & Altanay, 2013). Similarly, it is argued that social enterprises addressing poverty cannot only connect to individual consumers, but also need to involve families and the surrounding communities to make a sustained impact (Khavul & Bruton, 2012). To succeed as a social enterprise, Roy and Karna (2015) propose that a previous, personal, affiliation to the underlying cause of the problem is crucial. Only by doing this, awareness and expertise about the subtleties of culture and social dynamics can be developed. Manning et al. (2017) agree by stating that origin does play a role, as locally grown firms can more effectively use resources through their established community ties.

1 INTRODUCTION
1.1 Background
1.2 The Context of the Philippines
1.2.1 Current Environment of Social Enterprises in the Philippines
1.2.2 Identified Challenges and Opportunities
1.3 Problem statement
1.4 Purpose
1.5 Perspective
2 LITERATURE REVIEW
2.1 Social Entrepreneurship
2.2 Social Entrepreneurship in Developing Countries
2.2.1 Institutional Voids
2.2.2 Hybridity
2.2.3 Social Capital and Local Embeddedness
2.2.4 External Support Environment
2.3 Entrepreneurial Ecosystem
2.3.1 Social Entrepreneurial Ecosystem
2.4 Social Entrepreneurship Research in the Philippines
2.4.1 The Support Environment in the Philippines
2.4.2 Policy Environment
2.5 Summary Literature Review
3 METHODOLOGY / EMPIRICAL RESEARCH
3.1 Research Philosophy
3.2 Research Design
3.2.1 Research Approach
3.4 Literature Review
3.5 Primary Data Collection
3.5.1 Qualitative Interviews
3.5.2 Observations
3.5 Data Analysis
3.6 Ethics
3.6.1 Broader Ethical Concerns for Society
3.7 Research Quality
4 EMPIRICAL FINDINGS
4.1 Identified Categories
4.2 Enabling Factors
4.2.1 Entrepreneurs
4.2.2 Ecosystem Actors
4.2.3 Summary of Enabling Factors
4.3 Challenges
4.3.1 Entrepreneurs
4.3.2 Ecosystem Actors
4.3.3 Summary of Challenges
4.4 Opportunities/Overcoming Challenges
4.4.1 Entrepreneurs
4.4.2 Ecosystem Actors
4.4.3 Summary
4.5 Additional Contextual Influences
4.5.1 Government
4.5.2 Collaboration
4.5.3 Culture
4.5.4 Summary of Contextual Influences
4.6 Summary Findings
5 ANALYSIS
5.1 Enabling factors
5.1.1 Intersections as a gateway
5.1.2 Network as a facilitator
5.2 Growth Vacuum
5.2.1 Resource and Expertise as Constraints
5.2.2 Government and Cultural Constraints
5.3 Opportunities
5.3.1 Collaboration
5.3.2 How to Foster Collaboration through Intersections
6 DISCUSSION
6.1 The Growth Challenge
6.2 Managing Multiple Partnerships
6.3 Diversifying the Ecosystem
7 CONCLUSIONS & IMPLICATIONS
7.1 Practical and Theoretical Contributions
7.2 Limitations and Future Research
LIST OF REFERENCES
APPENDICES
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