Down to business

PUBLISHED : Sunday, 27 November, 2011, 12:00am
UPDATED : Sunday, 27 November, 2011, 12:00am


In early 2007, the Hong Kong Single Parents Association (HKSPA) was given HK$900,000 by the government to start a social enterprise. The organisation promised to set up a home-help service for the elderly, within which long-term welfare-dependent single mothers with little education would be trained in home maintenance.

Two years later, only about 40 women - mostly in their late 30s or 40s and from poor districts such as Sham Shui Po and Kowloon City - had received training, the government funding had dried up and clients were complaining about the service. In its final months, the HKSPA poured its own money into the business in a desperate bid to keep it afloat, but to no avail - it was wound up. The government did not recover the grant money and most of the women the scheme targeted found themselves back on state handouts.

This is not a rare case but one that reflects what happened to many of the government-subsidised social enterprises born from an initiative announced by Financial Secretary John Tsang Chun-wah in 2006. He had HK$150 million to hand out. Only non-profit entities with charity status were eligible for the funding, which was limited to two years.

Jessie Yu Sau-chu, chief executive of the HKSPA, says she learned many lessons from the exercise.

'After the project wound up, some of the women found jobs but only a few could stand alone. Most of them had to go back to [Comprehensive Social Security Assistance] but at least they had had the experience,' says the 59-year-old single mother of two, who started the HKSPA in 1991 after having left an abusive relationship.

Yu blames a number of factors for the project's demise.

'At the very beginning, we wrote in our proposal that we needed three staff and a small shop in a commercial building near the MTR, which cost HK$8,000 per month, so people could see the business. But when we were called to see the vetting committee, they said we only needed one staff member and a smaller shop, for HK$6,000 per month. So this is what we got.'

The business was set up in a housing estate.

'It was not near the MTR and not many passers-by came past our shop. This was one of the reasons it failed. Why couldn't [the committee] see that we ... needed these things?'

After 18 months, Yu knew the project was doomed.

'I said I needed more time and asked if they could maybe give us three years, but they said no,' she says. '[The government] said that because we couldn't raise money after two years, we had wasted the funding. But it's such a short period. Even in the private sector, they can't promise they can break even within two years. We are not business people, we are social workers. We need time to learn how to run a business.'

According to a 2010 survey by the Hong Kong General Chamber of Social Enterprises, although most social enterprises struggle to break even, government-funded ones are the least profitable. The chamber's chairman, Dr Alice Yuk Tak-fun, says social enterprises need more than three and up to five years to break even. Yip Hak-kwong, director of Policy 21, which conducted the survey, adds that social enterprises that receive government funding often lack long-term financial and business plans and, as a result, are less likely to succeed.

THE TERM 'SOCIAL ENTERPRISE' first entered Hong Kong's political vernacular in 2006, when the Commission on Poverty decided the concept could be used to help disadvantaged groups lift themselves out of poverty.

'At the time, we thought about self-reliance so, rather than giving fish to the people, we thought it was important to teach them how to fish,' says Professor Stephen Cheung Yan-leung, a former commission member who now heads the government's advisory committee for social-enterprise funding.

The Enhancing Self-Reliance Through District Partnership Programme was given HK$150 million and put under the management of the Home Affairs Department.

'We were thinking about how people on welfare could get back into the job market,' Cheung says. 'We thought, 'Why not let them have a protected environment?' So we created another entity with two bottom lines [one measuring profitability; the other social impact] and decided the best candidates to run these social enterprises would be non-government [non-profit] organisations.'

In 2007, Chief Executive Donald Tsang Yam-kuen made social enterprises a key part of his election platform, saying they would help alleviate poverty in the city, especially in districts beset by unemployment. In March last year, the government established the Social Enterprise Advisory Committee - which advises the government on policy and social enterprises on how to interact with other businesses - and since 2008 has staged the annual Social Enterprise Summit. (This year's summit - titled 'Driving Social Change through Social Business and Impact Investing' - concludes today, at the Convention and Exhibition Centre).

Since the programme started, in 2006, only HK$110 million of the initial HK$150 million has been handed out. A little over 100 projects have been funded and, according to the Home Affairs Department, 1,800 jobs created. However, Cheung admits the success rate has been disappointing.

'One-third [of the projects] are doing OK, one-third are struggling and one-third are dead,' he says.

After five years of the programme, there is still little understanding of what a social enterprise is, says Howard Ling, senior manager of the Council of Social Service's social enterprise business centre, funded by HSBC. He says that after the funding was announced, more than 300 projects claiming to be social enterprises sprung up, a phenomenon he dubbed 'SSEs' or 'sudden social enterprises'. Traditional businesses changed their hiring policy to include disadvantaged or disabled people, he says, so they could call themselves 'social enterprises'.

'They hired people for the purpose of hiring, which is risky. All of a sudden, you had 330 social enterprises in Hong Kong. It's like giving birth to 300 children all within five years.'

Ling says that although awareness about the aims of social enterprise has improved, the idea is still being confused with corporate social responsibility: 'I'm happy that consumers are more knowledgable but it's a marathon, not a sprint.'

In February, the financial secretary announced that a second tranche of HK$150 million would be allocated, to extend the programme for another five years. Key reforms announced at the time included extending the funding period from two years to three and allowing non-government organisations (NGOs) that weren't registered as charities to apply. Also, funded projects already in operation and wanting to expand could now apply for a one-off grant and those struggling could ask for an extra subsidy to meet operating expenses.

'Maybe the government has heard too many failure stories,' says Yu. 'Three years is better than two but I don't know how much is enough. But it's not just the funding, we need someone to teach us how to run a business.'

Yuk says the model of funding should be more flexible. In South Korea, government subsidies for social enterprises shift to a different focus after the first few years, with grants given for research and development and for the upgrade of equipment, while in Taiwan, in the fourth or fifth year of a project, the government helps with specific issues, such as subsidising wages, she says.

'Social enterprises don't have enough money to conduct R&D but it's necessary for continuous improvement,' Yuk says. 'These overseas models should be discussed and considered. Of course, the government has not done so but I hope it will.'

SOCIAL ENTERPRISE IS still in its infancy in Hong Kong and, as a result, mistakes have been made, according to Raymond Yim Chun-man, 49, who lectures on social entrepreneurship at several Hong Kong universities and established the Social Enterprise Incubation Centre in 2007.

In 2008, Yim submitted a paper to the Central Policy Unit about the programme's problems and he remains highly critical of the government's funding model, going so far as to brand it a 'complete waste'.

He says that by restricting funds to non-profit organisations, the government ignored a key ingredient in making social enterprises work: profit.

'NGOs get government funding for one or two years,' Yim says. 'They can recruit 20 'deprived youths' and employ them for those two years. The NGO has fulfilled its responsibility but, after two years, the young people are back to square one. All government policies are like that. The government has also fulfilled its role but, from a commercial perspective, this can not be sustained, so it's not a successful enterprise.'

Yim believes government funding for social enterprises should be extended to small to medium-sized for-profit enterprises and projects that are in the 'infant stage', between six and nine months old.

'Many people who want to establish a social enterprise have enough heart and the passion to succeed,' Yim says. 'Some are the younger generation, some are middle-aged people. If the government really wants to help people start such enterprises, its funding should not be restricted to NGOs.

'The government should also provide the infrastructure for the development of social enterprises. In the UK, they have community-interest companies, which operate under separate regulations and tax rules. In Hong Kong, you either incorporate as a limited company or as an NGO. There are no separate tax laws or ordinance that regulate social enterprises. I pointed this out in 2007, to the Central Policy Unit, but they said this was difficult and that it would take at least 10 years to change.'

An NGO that claims charity status can apply for government subsidies, receive donations and will not be taxed on profits; a limited company is subject to tax and cannot receive donations or direct government funding.

Cheung says he cannot see a legal framework being established for social enterprises anytime soon: 'Creating another entity in the company ordinance seems to be a very difficult task that involves a lot of government departments.'

But this is not good enough, says Yim: 'Social workers do not know how to do business. The deprived groups don't know how to do business. Now, we have social workers leading a group of deprived people in running a business. How can it be profitable? If it is profitable, it is a miracle. But the government only trusts the NGOs [rather than for-profit operations] to set up social enterprises. This mindset is completely wrong.

'NGOs are used to asking for money so, if they get the money, it's a success already,' Yim says. 'If you have a beautiful business plan, then they grant you the money but this is wrong because devising a business plan is like inventing a story. If you are a good storyteller, then you will get the money, and this is not fair.'

Cheung acknowledges the issue and the impact it has had on the programme's success rate.

'The business proposals we vet are often optimistic and sometimes unrealistic,' he says. 'We ask very tough questions and we set up a lot of mechanisms to monitor ongoing projects, such as site visits. But, sometimes, the figures don't add up. It can be a bit scary to be honest. We have been very cautious in approving proposals.

'If something goes very wrong after half a year or a year, and the numbers don't match expectations, we ask [the managers] to come back and we grill them with very tough questions. Some people are reduced to tears - these are reliable individuals, they just don't know how to manage the business.

'We have learned that the NGO mindset is hard to change. The partnership was not strictly enforced. In initial interviews, I would be given letters showing support from the business sector, but once we approved the funding, this support would disappear. So, now we ask for concrete proof, which could include asking the business partner to come in for an interview.

'We now put emphasis on that and management. I want people who are committed to a project. They can't change personnel on a month-to-month basis. We are getting tougher.

'We have come a long way ... but we are still learning. It's a long-term process. We have introduced reforms and we hope to attract more partnerships between NGOs and the business sector.'

Yim says one of the key problems in Hong Kong is the lack of a definition of a social enterprise.

'Social enterprises are so new to Hong Kong. If you don't define it in a Hong Kong context, it will be difficult to regulate and now problems are starting to arise. People use a purely business model or a purely NGO model. Is there a middle road?'

Coming up with a definition has proved difficult, says Cheung. The advisory committee discussed a definition for months but, unable to reach a consensus, decided to put it aside, he says.

'I think the status quo may be the best way out at the moment because the social enterprise sector in Hong Kong is quite small,' he says.

Even Tsang, who used to talk at length about his commitment to the sector, appears to have gone cold on the subject. Last month, in his final policy address, he delivered just one sentence on the subject: 'I have devoted great efforts to promote social enterprises.'

Applications for the next phase of funding closed last month and the winning bids will be announced early next year. Cheung, who helps decide where the money goes, remains optimistic.

'Every time when we have meetings, we keep asking ourselves, 'What are the major factors for success and what are the major factors for failures? How can we improve our vetting?' We bear in mind that this is the taxpayers' money and we take it very seriously. But we learn from our own experience. I don't want to use the word 'mistake'. It has been a success in the sense that it has promoted the idea of social enterprises. Some [of the projects] have given up but some are still running.'

Noting that just one in 10 private-sector start-ups succeed in Hong Kong, Cheung says a 30-plus per cent success rate among social enterprises should not be viewed as a bad thing.

'Even with the government's seed money, you are asking people who have little experience of running a business to work with people who would otherwise be unemployed, all the while demanding that they turn a healthy profit. That describes the situation.'

Role model behaviour

Run as a social enterprise by the Hong Kong Women Workers' Association, a mini-store co-operative on the Chinese University of Hong Kong's Sha Tin campus celebrates its 10th anniversary this year, without having received a single dollar from the government.

'We asked for no-interest loans and donations from activists, scholars, students and community groups,' says association co-ordinator Wu Mei-lin (right).

In total, HK$200,000 was raised, which went towards refitting the shop, buying stock and training the women.

Open six days a week, from 7.30am to 11.30pm, every woman who works in the 230 sq ft store is taught how to manage expenses, order stock and run a business.

They are paid HK$33 per hour and work 81/2-hour shifts.