Exporting, cooperative contracts, licensing, franchising, joint ventures, wholly

Question

Exporting, cooperative contracts, licensing, franchising, joint ventures, wholly owned affiliates, global new ventures … as a management team wanting to take your business to the next level, you have a smorgasbord of options available to you. But in addition to these traditional options, there is another angle you can take, one that is becoming increasingly popular among start-up companies like yours: social entrepreneurship. Social entrepreneurs use business skills to solve social problems. You and the members of your team, just out of your MBA programs, are excited about the business and want to grow it and make money. But you are also passionate about making a difference when it comes to problems like homelessness in the United States or AIDS in Africa.

As your team discusses how and where to go global, you think about the problems you’d like to address and you look to role models to help you brainstorm and plan. You read about how Pfizer—a pharmaceutical giant, not a start-up—started a program to offer free medicines to recently unemployed Americans. Other companies are doing the same in Africa. Peet’s Coffee & Tea has been working recently to develop the economic well-being of coffee farmers in Kenya, Rwanda, Tanzania, and Uganda by teaching them to grow better-quality coffee that Peet’s can market to its customers in coffee-loving developed economies.

As much as your team wants to help others in need, you also recognize that doing good can’t come at the expense of the bottom line. In fact, Peet’s Coffee’s effort is currently run by a nonprofit and hasn’t started making Peet’s any money yet. You know that the success of such ventures is untested, but your team is also aware that any effort at going global involves some type of risk. Thinking it through, you ask yourselves what’s in it for companies who undertake social entrepreneurship—and what might be in it for you? Pfizer adopted this program to create customer loyalty, exchanging a brick (something it has) for a jade (something even more valuable and harder to come by). Customers who drink Peet’s care about where their coffee comes from and about its quality, so Peet’s establishes relationships with African farmers partly in response to customer demand and to build its brand.

With all of this in mind, it’s your team’s task to figure out how you can balance your interest in doing business on a global scale with your interest in making a difference in the world.

Questions

1.   What are the advantages of social entrepreneurship as a way to approach doing business in developing economies outside the United States? What are the disadvantages?

2.   How might you combine social entrepreneurship with traditional options for going global?

3.   Can establishing a multinational corporation or a joint venture serve the principles of social entrepreneurship? Would some options lend themselves better to social entrepreneurship than others? What might such a business venture look like?

Explanation / Answer

1.

Social entrepreneurship refers to the techniques used by the entrepreneurs to solve the social problems along with doing their business.

Social entrepreneurship might bring the following advantages for a firm willing to expand their business in developing economies:

Social entrepreneurship would create goodwill and reputation of the company among the customers of host country

It would help the developing economies to tackle several issues of the poor people of their country

Goodwill and reputation of the firm would help it to expand its business across world. It would increase their market share as well as revenues.

Despite of gaining the above advantages, a firm would also face several problems due to this approach. For example, the company would not get sufficient profit margins. It might hinder the company from developing. The owners need huge funds to do social entrepreneurship. They cannot do it at the cost of their bottom line employees. Therefore, financial condition of the company needs to be strong in order to adopt social entrepreneurship.

2.

A company can combine social entrepreneurship with traditional options like licensing, franchising, or joint ventures for going global. Combining the two approaches would help the company in gaining a strong position in the market. For example, a company can start joint venture with a company adopting social entrepreneurship approach at the host country. It would enable both the companies to join their skills, technology and competencies to perform effective social work. Besides this, it would also help them to generate significant revenues and increase their market share.

3.

Establishing a multinational corporation or a joint venture would both help to serve the principles of social entrepreneurship. However, some options might help a company to serve better than others. For example, Multinational Corporation that has their facilities or assets in at least one country than home country would face difficulty in adopting social entrepreneurship approach at some third country. In this case, their cost would increase due to increased logistics and transportation costs. Besides this, other country might force the company to adopt the social entrepreneurship approach in their country instead of third country.

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