Edgard Barki, Professor of Social Entrepeneurship and Marketing Strategies at FGV-EAESP, along with Prof Graziella Comini and Dr. Luciana Trindade de Aguiar, illustrate the different perspectives on social businesses brewed in the Brazilian context.
By CoBS Editorialist Afifeh Fakor. Related research: “A three-pronged approach to social business: A Brazilian multi-case analysis social businesses” penned by Edgard Barki, Graziella Comini and Luciana Tridade de Aguiar
A land of opportunities
Brazil is a land of opportunities. The living conditions of low-income population segments in Brazil have undergone major transformation in recent years thanks to thriving social businesses. These social businesses present a new paradigm to capitalism, in which private companies, non-profit organizations and civil society join forces to co-create solutions to social problems. Social enterprises or businesses have managed to bring together two goals which were once seen as mutually exclusive – financial sustainability and social value creation. No longer do we live in a world where the collaborative co-existence of business and civil society is unfathomable. Today, private companies and nonprofit organisations engage in win-win partnerships.
Barki et al analysed three completely different social businesses in Brazil in order to illustrate three popular approaches to social businesses, namely:
- The European perspective which emphasises the role of civil society organisations with public functions
- The American perspective whereby private organisations apply market logic to the resolution of social problems
- The developing country perspective that prioritises market initiatives aimed at poverty reduction and transformation of social conditions for marginalised groups.
Banco Pérola: A European perspective
A social enterprise in Europe may focus on producing goods or services with a social utility, or be driven by the aim to promote social inclusion and employment. Such an entity may even contain an element of social ownership, whereby local government and citizens participate in management of activities. Irrespective of the type, however, the primary purpose of a European social businesses is to achieve social goals rather than to maximise profits. Any profits in such companies are meant to be reinvested for social impact.
Banco Pérola in São Paulo replicates the characteristics of this European perspective rather well. It’s a nonprofit NGO that offers credit to young people at the bottom of pyramid (BoP). There are many 18 to 35-year-olds in the lowest social segments of the Brazilian population who harbour a strong entrepreneurial spirit. It’s a pity that this spirit runs the risk of getting extinguished due to lack of adequate finances. Banco Pérola’s portfolio of products supports these budding entrepreneurs in the creation and expansion of their businesses. Alongside working capital and fixed capital, it also provides technical assistance for credit management. Its entrepreneurial solidarity groups are designed to ensure the socioeconomic sustainability of the different businesses. No wonder Banco Pérola has a default rate of only 0.5%.
Partnerships with other NGOs and a government bank has enabled Banco Pérola to structure its business model and offer an active portfolio. From the private sector, it has the financial support of Citibank to compose its loan portfolio. Perfectly in line with the European perspective, Banco Pérola’s primary purpose is income improvement and the inclusion of youth in the job market.
Coletivo Coca-Cola: A North American outlook
From the North American perspective, a social business is any entrepreneurial market activity that has social impact within its business activities. This approach is distinct from the European one owing to the fact that the achievement of social goals is not the overarching priority here – rather financial returns and social impact are pursued concurrently. It is mostly the MNCs that are expected to catalyse the process of social business. As such, governance is through centralised, corporate decisions, but the idea of co-creation through partnerships is growing. Along with the idea of integrating social and economic value, there is also the emergence of business models that integrate the environment in a real triple bottom line view.
In Brazil, MNCs such as Coca-Cola are beginning to adapt this American view of social business. Coletivo Coca-Cola’s primary objective is to contribute to the improvement of life at the BoP, by offering education to facilitate income generation and skills development. To make the programme relevant for the local communities, Coca-Cola partners with NGOs. But this programme is more than just a CSR initiative. Coca-Cola has the dual aim to provide financial independence to the young generation and enhance its brand equity at the same time. As such, Coca-Cola analyses and evaluates efficiency in terms of sales and distribution in the regions in which it has conducted its initiatives. At the end of the day, Coletivo Coca-Cola leads to circulation of more money in the neighbourhood. But at the same time, Coca-Cola benefits by gaining access to a market that is difficult to reach, thereby increasing its distribution and brand equity.
Multi-purpose internet cafés: An emerging market approach
In emerging countries, inclusive businesses (the more common term for social businesses) exhibit a strong concern for poverty reduction initiatives. An inclusive business may take the form of an NGO or a for-profit private sector organisation or even a business owned by the disadvantaged, but it should be based on the premise of transforming the standards of living of low-income populations. Unlike the traditional BoP proposals, the proponents of this approach believe that the greatest impact emerges when low-income populations join the value chain as suppliers of large corporations, as opposed to serving as consumers only.
Grameen Bank and its microcredit facility – the brainchild of Nobel laureate Prof Muhammad Yunus – serve as an emblematic example of inclusive business. In Brazil, it inspired the foundation of CDI LAN, a social business that was created within an NGO named CDI (Committee for Democracy in Information Technology), a digital inclusion pioneer in Latin America. CDI LAN strives to provide digital inclusion and education to the low-income segments. It began by conducting a study on the usage of LAN houses (the local term for internet cafés) in partnership with the Wharton School of the University of Pennsylvania. The study revealed that LAN houses had the potential to be a place of transformation within the community.
Since then, CDI LAN has engaged in myriad partnerships to bring together 6,200 affiliated LAN houses and improve the income generation of LAN house owners. The LAN houses now serve as online consultation points for aspiring entrepreneurs, study centers for distance training and even one-stop centres for financial services! The partnership with Banco do Brasil, one of CDI LAN’s many partnerships, allows LAN owners to provide banking support to BoP communities who have never before had access to microcredit, bank accounts or savings accounts. On top of it all, CDI LAN also aims to transform affiliated LAN houses into distribution centers for goods and services linked with social media tools to have a higher social impact and gain scale within BoP communities. Imagine all of this stemming from mere internet cafés!
Who is the right catalyst?
Many academics believe that MNCs are better equipped to innovate and generate social impact at a scalable level. But then again, there are some who believe that local companies excel over MNCs when it comes to social causes. They cite three key reasons for this:
- While MNCs and local companies face the same challenges in emerging markets, the local companies are much better adapted to operate under the precarious circumstances.
- As they acquire some measure of success, companies from emerging markets can tap talent and capital in developed countries. For instance, it is much more common for these companies to list themselves in the New York Stock Exchange or NASDAQ and raise money than vice-versa.
- Many multinationals are reluctant to tailor their strategies to the needs of emerging markets, especially for the BoP.
Harmony between financial sustainability and social value
There are multiple perspectives on social businesses. The North-American perspective has a greater emphasis on the market whereas the European perspective has a more social approach, with the standpoint of emerging countries lying somewhere in between the two. But from the Brazilian examples it is clear that social businesses exist to address structural problems of the BoP population: Banco Pérola tackles credit, Coca-Cola Coletivo provides education and CDI LAN facilitates access to information and a host of services through technology.
The crucial ingredient for success in all three cases appears to be the partnerships and networks created around the business. One can look towards the future of social businesses with immense hope now that the two goals previously seen as incompatible – financial sustainability and social value creation – have become inseparable!
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