Making the most of the market in Hong Kong

Hong Kong is not short of social problems. While affluent residents sip pricey gin cocktails in gentrified ping pong halls on Hong Kong Island, almost a million Hong Kongers live below the official poverty line, often squeezed into tiny subdivided apartments in down-at-heel areas like Sham Shui Po.

Cheap electronics stalls, wet markets and small family bakeries mean there is a certain romance in Sham Shui Po. But the district is Hong Kong’s poorest, with one in six of its residents living in poverty.

It’s fitting, then, that the district is home to Social Ventures Hong Kong (SVHK), a venture philanthropy organisation that develops, incubates and invests in social startups dedicated to finding market solutions to the city’s social and environmental challenges.

It’s about using existing business resources to build a new kind of social enterprise

SVHK’s flagship ventures include Light Be, an affordable housing initiative that works with landlords to make empty homes available to low-income families, and Diamond Cab, Hong Kong’s first barrier-free, 24-hour, point-to-point taxi service for wheelchair users.

On a rainy Thursday morning, Pioneers Post sat down in SVHK’s offices with founder Francis Ngai; Liza Green, vice-president for corporate citizenship at Credit Suisse, and Tristan Ace, global partnerships and development lead for the British Council’s social enterprise programme, to discuss the road ahead for Hong Kong’s social entrepreneurs.

Big business to the rescue?

By conventional measures, Hong Kong’s social enterprise sector is still an infant. Conservative estimates suggest that there are around 520 local social enterprises. Most still depend on grants from government, corporates or family foundations. Even investors who do take equity stakes tend to bring a “grant-like mindset”, says Ngai. Demand for debt-based social investment, meanwhile, is close to non-existent.

What’s exciting and unique to Hong Kong, however, is an emerging model of collaborative partnerships between corporates and social startups.

“It’s easy to get corporates interested in what we’re doing,” says Ngai. “As well as incubating traditional NGO-based social enterprises, we are increasingly collaborating with corporates to launch ‘impact businesses’ as joint ventures.”

For example, SVHK recently launched a joint venture with a speech therapy firm to offer affordable speech therapy to low-income people. After receiving positive media coverage, the venture has built up a platform of speech, art and music therapists offering discounted services. Some therapists even came out of retirement to contribute.

“It’s about using existing business resources to build a new kind of social enterprise,” says Ngai. By making use of what’s already there, this model can accelerate social innovation and bring ventures to market more quickly.

“It’s difficult to wait for someone to quit their job and go through the long process of incubating and maturing a social business,” says Ngai.

Corporate partnerships also help social ventures to achieve impact beyond their own four walls.

Take SVHK’s Green Monday social venture, which fights climate change and food insecurity by promoting plant-based diet alternatives. As well as running its own grocery stores in Hong Kong, Green Monday has partnered with schools, restaurants and large firms in over 10 countries to roll out plant-based diet programmes, and even worked with McDonalds to promote vegetarian burgers.

What’s in it for corporates?

According to Credit Suisse’s Green, corporates in Hong Kong are taking more interest in social enterprise due to a wider shift in mindset from traditional philanthropy to a “community investment” approach that aligns community activities with core business strengths.

“More and more corporates are realising that social enterprises should be part of their community investment portfolio,” says Green. Credit Suisse, for example, provides funding and support for a number of SVHK’s ventures, and also partners with the Hong Kong government on a collective impact initiative.

This shift is being driven in part by graduates who want jobs that offer a sense of purpose as well as a good salary. Over half of Credit Suisse’s Hong Kong workforce volunteered for charities or social enterprises last year.

Senior leaders’ expectations are also changing, says Green: “Corporates want to understand the business case and the social return of the community investments they make.”

This can make social enterprises more attractive than traditional non-profits, because they are more likely to know how to build an investment case.

Taking a flexible approach

This collaborative trend is also leading to a diffusion of social business models. Hong Kong lacks a universally accepted definition of social enterprise. Corporate-social joint ventures can take different forms, including for-profit models, depending on capital needs.

“I think it’s positive that the boundaries are blurring,” says Ngai. “We’re at a more mature stage now where the spirit of social enterprise carries beyond the sector itself. I don’t want to see social enterprise become a separate industry, or a silo.”

The government is trying to listen and play an enabling role – shaping markets, not controlling them

This approach cuts with the grain of Hong Kong’s market-friendly, low regulation ethos. Relatedly, all three interviewees agree that Hong Kong’s government deserves praise for supporting social innovation and entrepreneurship in a flexible, non-prescriptive way.

“The market-led approach is very much a defining feature of Hong Kong,” says Ace of the British Council. “There have been cases in Asia where legislation around social enterprise has been introduced too early and has stifled growth by defining parameters too narrowly. In Hong Kong, they are getting the balance right. The government is trying to listen and play an enabling role – shaping markets, not controlling them.”

Government officials including Hong Kong’s new chief executive Carrie Lam are doing a good job of promoting the sector, says Ace – and their support is more than just talk.

In 2013, the Hong Kong government launched a HK$500 million (£50 million) Social Innovation and Entrepreneurship Development Fund (SIE Fund), which has to date invested HK$100m in 59 social ventures, received or incubated 345 ideas and nurtured 1,813 potential social entrepreneurs. Crucially, Ngai believes that government investment is “crowding in” money rather than taking the place of other funding sources.

It’s also notable that both non-profit and for-profit businesses are eligible for funding: indeed, the fund’s first principle is that “social innovation is the focus, not social enterprise per se”.

“The distinction between non-profit and for-profit is less important than what you do with the profits,” says Ace.

A problem of scale?

Despite a promising ecosystem, Hong Kong is still waiting for a breakthrough social enterprise hero. In a city of just 7 million people, it’s perhaps unsurprising that few Hong Kong social enterprises have managed to scale significantly. Ace suggests that Hong Kong would be better off mobilising its strengths to act as a regional social innovation laboratory, developing ideas that can be scaled across more populous countries in Asia. This would benefit Hong Kong both in terms of local impact, job creation and building networks, learning and knowledge – assuming local funders can be persuaded to embrace the model.

Ngai is sanguine about the scale question, preferring to measure success in terms of how far an idea like Green Monday spreads rather than focusing too narrowly on how much an individual business grows.

“By always worrying about scale, we’re in danger of going back to the usual capital game,” he says. “Social entrepreneurs who focus only on scale can miss the bigger dream – kickstarting a new trend, building a new platform and benefiting others.”

His answer reflects the flexibility, generosity and collaborative spirit characteristic of Hong Kong’s approach to social innovation. Whether this approach can deliver the change areas like Sham Shui Po need, remains to be seen.

To find out more about social enterprise in Hong Kong, see http://www.social-enterprises.gov.hk and https://socialenterprise.org.hk

Francis Ngai, Tristan Ace and Angeline Chin of Credit Suisse will discuss social enterprise, social investment and venture philanthropy in Asia at the AVPN Conference 2017 (Bangkok, 7-9 June). The event is sold out but you can visit the conference website for event coverage and the speaker line-up.

AVPN, BMW Foundation, British Council and Credit Suisse will partner with the United Nations ESCAP in delivering the Asia Policy Forum (Bangkok, 5 June), which convenes policy makers and other stakeholders in the region to share practical experience in building an enabling environment for the social economy to flourish. Read this round-up of last year’s Asia Policy Forum.