Social businesses better than traditional development aid

Social businesses can play an important role in reducing poverty and stimulating progress in developing economies. Indeed – such businesses often achieve better results than traditional aid. They face, however, huge challenges.

Kabara is a small village located a few kilometers from the city of Timbuktu. It is a peaceful village, but has always experienced recurrent problems of access to drinking water. Today, thanks to a community project of MINUSMA, the populations have access to the drinking water as well as the animals. Village of Kabara and Tarabangou, Region of Timbuktu in northern Mali, March 2017Women in a village in Malin collecting water. Photo credit: UN Photo/Harandane Dicko

Profit and social problems

In her thesis Business Model Design for Social Goods and Services in Developing Economies Mirella Haldimann investigates business models for social businesses that operate in remote and rural areas of developing countries. The term “social businesses” is used to describe companies whose principal purpose is to solve social problems, while at the same time operating at a profit, just as normal commercial companies.

Mirella Haldimann is an external doctoral student at LiU who during her research education was employed at the Swiss Federal Institute of Aquatic Science and Technology in Switzerland. The thesis is based on the work of WHO for cheap, efficient and local water purification in poor countries.

Mirella Haldimann. Photo credit: Teiksma Buseva

In this case – and in others – social businesses are often significantly more efficient than traditional development aid from wealthy to poor countries.

Graveyard for old pumps

“A traditional project in development aid may finance water pumps for five years. After this, you have a graveyard for old pumps. No one has paid for them and no one uses them any more”, says Mirella Haldimann.

“In this case it’s better to work through social businesses, which have a relationship with the people in the region and may have been active there for 10-20 years. They remain when the organisations funded by development aid disappear. The circulation of money becomes more efficient, and aspects of sustainability are much better.”

More specifically, the thesis investigates the operating methods of companies that successfully commercialise water purification technology within the WHO programmes. Businesses in poor countries generally face huge challenges. One obvious difficulty is poverty and the low demand in itself, while other obstacles can be corruption, poor infrastructure and weak administration. Access to capital is also often very limited.

Four important factors

The companies that are successful despite this are characterised by four main factors: inclusion of people and knowledge, collaboration with other companies and organisations, high flexibility, and an openness to the complexity of the market.

Two examples: A company in the Philippines stopped distributing water by tanker, which created queues and long waiting times. The company instead allowed the people in a region to look after water sales themselves. This increased both availability and sales. Another company stopped building its own stores, which was expensive and slow. It instead installed water-supply facilities in existing stores, which increased both the supply and sales.

Last minute preparations before defending the thesis.

In both cases, the company successfully made major social contributions and were economically successful – at the same time.

Challenging and difficult

“But it is extremely challenging and difficult. We have investigated many programmes and these businesses are, unfortunately, a minority.”

Mirella Haldimann goes on to describe how the successful companies are unceasingly changing their business models, often with the aid of external parties. These company also manage to balance commercial and non-profit aspects of operations, and “embrace the hybridity” of having both social and economic objectives. It is otherwise usual that companies eventually give priority to one of these aspects.

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