Toby Johnson
20 January 2015

Background and hints for growth and development

Issues in growth and development

1. Social clauses in procurement

The argument needs to be made for the widespread use of social clauses to bring the weight of public purchasing to bear on social problems. The ESF could support work on this, and the EU presidency could put social value and the social economy on the EU agenda.

Training is needed so that commissioners in the public sector know how to use public procurement to benefit local communities. The use of social clauses is not about protectionism, but rather about commissioners using the freedom they have to choose the right market processes to achieve the best results for the populations they serve. Innovation is called for, and although good examples and guidelines exist there is no standard model.

In private business, there is also a trend to embed sustainability as a core business value instead of an afterthought added for marketing purposes. Private companies must be made aware of the win-win possibilities of cooperating with social enterprises. The ESF can be helpful in getting the message out, educating and informing people.

2. Tender readiness

To put social enterprises in a position to compete with private companies in public procurement, procurement officials should ensure that social clauses in tenders are clear and transparent.

For their part, social enterprises need to make the social value they bring part of their communication strategies, and be ready to demonstrate this when they bid. They can benefit from training in tender readiness, which can include meetings between procurement officials and social enterprises to discuss the impacts the commissioners wish to achieve, the new solutions that might be possible, and the sort of tenders that might be appropriate.

As a next step, social enterprises can be supported to come together to form consortia – the ESF can play a role in helping them to learn from good practice.

3. Consortia

If relatively small enterprises are to win large contracts, they must collaborate, and consortia are a way to structure collaboration and to avoid competition. Consortia generally have a positive impact on the business model of social enterprises and co-operatives, by organising the workload which their member co-operatives deliver, and by helping them reach sufficient critical mass to access larger contracts and wider markets. By joining forces to share the different tasks within a major contract, they increase their productivity. There are good examples of this from several countries, such as Scotland (collaboration in networks) and the UK and Sweden where groups of social enterprises get together to reduce costs. Beside this ‘cost-reducing’ function, in the Italian experience consortia have developed a much wider role which has made them true general contractors for their members. This role has proven to be a key to social enterprise growth in Italy. However it should be borne in mind that the process of consortium building in Italy has taken a long time and was not without conflict. An important part of reducing the risk of conflict is to give consortia clear mandate to act on behalf of their members.

4. Replication

Replicating a successful existing business is less risky than starting a new business from scratch, and social franchising applies this widely-practiced business method to solving social problems. It is essentially a matter of transferring knowledge and methods. Social franchising also reduces the cost and time of starting a business. It can be done in many ways and financed by several support systems, amongst them the ESF. There are experiences of replication from other countries to use and develop, thus bringing innovation.

In social enterprises, the know-how transfer process need to include not only the business processes, but the values that underlie them. It should therefore be delivered by people and organisations that have the right competences for this, rather than necessarily by the founders of the original enterprise.

5. A sectoral approach to new markets

The main markets in which social enterprises operate, such as retailing and health and social care, are quite similar on the international scale. But there are opportunities in different countries into which social enterprise could expand. Examples are tourism in Spain, culture and agriculture in Italy, services rather than products in Hungary, health and elderly care in Scotland, tourism and attractiveness in Sweden. Acting as a sector, social enterprise could achieve higher visibility and thus viability. There may also be opportunities in sectors which private companies reject or do not find profitable.

6. Growth or quality?

The quest for growth often focuses on finding new markets, but for social enterprises with an established business, it may be more rewarding to strive to innovate so as to improve quality, and thus deepen the existing market.

Hints on implementation in 2014-20

To enable growth for a sustainable development of social economy sector, the Structural Funds can play a supportive role in different ways, keeping in mind that their role is to create an enabling environment for the growth of social economy enterprises that should be sustainable and economically viable in the long term.

Promoting social value: The European Social Fund can be helpful in promoting social value in public procurement through capacity building and “education for action”.

Social franchising and consortia: The ESF can make long-term funding of social franchising models possible, to strengthen development and growth processes. As always, the financing of the development phase is crucial. The ESF could finance the development phase by giving successful social enterprises financial support to take initial steps in the replication process. Normally, the initial phase takes place more on the local or regional level rather than the national and European level. Here pilot projects on business start-ups on a national scale are a possible operation. Methods of training should involve commissioners, local authorities and social enterprises with the aim of reaching joint solutions and understanding. Like social franchising, the consortium model can be financed in order to share good practices and learn from good examples. The consortia can be scaled up.

Research partnerships: The European Regional Development Fund (ERDF) offers several possibilities to finance the creation of partnerships between research institutions, regional public actors and the third sector. Training and expansion strategies can be financed. An obstacle can be the definition of enterprise regarding number of employees, turnover etc.

CLLD: The establishment of community-led local development (CLLD) can help to develop the social economy and local communities.

Capacity building: The ESF should support efforts to enhance demand, supply and financing for capacity building to strengthen the development of social enterprises. It should take into account that the stages mentioned are interlinked and that capacity building is a long-term process. Regardless of the method, cooperation between social economy actors and with other sectors should be promoted and financed. Capacity building without cooperation cannot lead to sustainable support infrastructure.

Financial models: The ESF should learn about appropriate models for financing from different countries, to use them in a more effective way. It should finance the translation of materials and network building.

Market studies: Funding from ESF or ERDF could support mapping of different market opportunities and trends such as recycling, the green sector etc, especially the so-called green restructuring that is one of the main priorities of the Europe 2020 strategy.