Emerging markets' sustainable growth through social innovation

The past decade saw the emergence of a new entrepreneurial class, i.e. social entrepreneurs. This new development, relative to the conventional business practice motivated by rents, is evolving alongside the debates about the redefinition of capitalism as it were. The basis or rather a call for such a redefinition is spawned by the rising need of corporations and organisations alike to respond to societal needs and environment within which they operate. It has been a subject of economic, business and political debate for the past 40-50 years which culminated into what we know today as Corporate Social Responsibility (CSR). Economically, it has been a growing theoretical debates among academics, from business it has been the subject of lawsuits by environmental activists and NGOs to corporates and politically it has been a subject of political debate with its prominence in the Kyoto Protocol since 1997.

CSR, as a concept, has grown both theoretically and in practice from regulations to reporting. Some global companies have been practicing this nascent yet significant concept for the past two decades. The big question is: are companies embedded in the conventional business model in the capitalist market have a place to compete in the new third economy? Hart (1997) distinguished between three types of overlapping economies. The first economy is the market economy, a familiar world of commerce comprising both developed nations and emerging economies. The second economy is the survival economy, the traditional, villaged based way of life found in the rural parts of most developing countries. The third economy is a nature's economy, which consists of the natural systems and resources that support the market and the survival economies. Going back to the big question posed earlier, a follow up question could further be asked as to whether these companies will survive in the nature's economy? While many corporations are attempting to reinvent themselves against the call for a responsible capitalism, which is inevitable, new and innovative companies from the nature's economy are emerging to directly compete with encumbents in the market economy.

The conventional business models, given the sunk costs, are difficult, but not impossible, to adjust and flexibility in their operations is viewed too cumbersome to switfly take opportunities in the survival economy. Fundamentally, business strategies in the market economy define markets as "viable" segments pagging the survival economy on the margins outright. The market players in the nature's economy are the ones that stand to gain competitive advantage through social innovativeness. These type of entrepreneurs are not defining their markets as "viable", they define their markets as the positive social and environmental impact that sustain the livelihoods of societies in which they operate. Interestingly, this social entrepreneurs are largely not driven by profit motives but by the sustainability of their businesses, the environment and the societies in which they operate. While they may not be motivated by rents, to a large extent, empirical evidence has shown that these entrepreneurs do make good profits. There are a number of examples cited in the media and literature about the success of such entrepreneurs. Their source of business growth is nothing else but social innovation,  which is embedded in their business strategies. Surprisingly, these businesses are Non-Government Organisations (NGOs). This attest to the narrowing gab between for-profit and not-for-profit entities.

As the market players in the market economy adjust and convergence between the private sector, environmental activits, NGOs and society at large looms, capitalism in its narrow sense dissipates and a broader view inevitably emerges. It is evident through this developments that the most innovative economic entities will emerge from the not-for-profit sector for a foreseable future due to focus on generating new ideas on how to consume products and services sustainably as nations. Emerging economies cannot afford to repeat the mistakes of Western developments. Achieving sustainability will require stabilising or reducing the environmental burden. Simply: Pollution = Innovation. An irony of the century, at least in my opinion, supporting Hart's view, is this: to some extent the greening of the developed world following Western industrialisation has been at the expense of the environments in the emerging markets. Because industrialisation has focused initially on commodities and heavy manufacturing, cities in many emerging economies suffer from oppresive levels of pollution. The pursuance of this simple but yet powerful sustainable function is the impetus of growth for emerging market economies. Entrepreneurship opportunities resurfaces across the entire businesses' value chains.

Let the sleeping dogs lie: a case of Saudi Arabia

The 21st century is to be marked with a turn of socio-political and economic events that could spawn unprecedented economic revolution into the 22nd century with enormity and speed as twice as those seen during the Industrial Revolution. The rise of the developing countries like the grouping of the BRICS nations is just the end of the beginning and the tip of the economic revolution ice berg. Unlike in the late 19th and the early 20th century when only a few countries hurdled themselves out of the quagmire following cold wars, world wars, oil shocks and other calamities, the 21st century is breeding vast economies into a wealth of nations.

I depict this viewpoint from an inspiring piece of article i picked from the European edition of Financial Times today. Essentially, this article hoisted my nerve wracked with a little sense of jelousy when i think back that why is my country, South Africa, not moving with the same political will as this country. Notwithstanding, i was filled with a sense of pride that other countries are doing the best for their citizens and that instilled hope in me. The article by Michael Peel, reports that Saudi Arabia is investing $6bn to train professional elite. This investment was spent in a single fiscal year, 2011, on foreign study scholarships for almost 250,000 students and family members. The scholarship covers, not just tuition fees but also other items such as living allowances, medical insurance, and flights to and from home. The spend average about $25,000 a person this year. This is part of a huge public spending programme being rolled out amid turmoil in the wider Middle East. I draw inspiration from the Saudi's minister when he expressed that this education investment could help transform Saudi society by giving a needed boost to its cadres of engineers, lawyers, doctors and IT specialists. That is a socio-economic investment with depth. Coincidentally, just over a week ago, one of the global Italian industrial and enginnering company, Tenaris, presented to us, as part of my MBA Programme, the challenges it faced in setting up its business (manufacturing plant) in Saudi Arabia. Part of their challenge was the cultural "shock" of the Saudi Arabians when it comes to employment. And this is as recent as 2010. The first shock, apart from the challenge in language, which is Arabic, almost the entire workforce in Saudi Arabia is foreign and expats and secondly, no woman is working, that is the culture. There is a shockingly high level of skills shortage that Tenaris has to bring its own worforce across the globe.  Due to its strategic innovativeness and global competitiveness as a business, Tenaris, pioneered a few changes in the manner in which Saudi Arabia looks at itself in the context of globalisation, particualrly from business perspective. Tenaris was the first company in Saudi Arabia to higher a woman in its executive and the first to higherl local Saudi Arabians as a private entity in 2010.  

The most striking factor, that thrilled me was the expression by the finance minister, Ibrahim al-Assaf, that the wealth in Saudi Arabia, has been spread over the population on housing, welfare, free education, free health, scholarships outside for all citizens. He says the scholarship programme is aimed at correcting a past failure to focus "on the right skills and the right education". Some observers say the scholarship programme could influence the country's political direction when the students come back home. Indeed, economic theory suggests the the rise of economic growth and increment of political stability is attributable to the growth of the middle class and the welfare of the entire population. The programme runs alongside large investments in infrastructure and social benefits. Unemployment benefit payments of $533 a month are due to be implemented after the Islamic new year this week, and public sector workers have received a bonus equal to two months' salary.

While the reforms points to the promising nation, the case of Saudi Arabia is one that has been the subject of economists for centuries. The economy is state led and it faces other drains on its finances, such as its notoriously heavy domestic energy consumption. Subsidies keep petrol so cheap that residents can fill a small car for as little as $10. Saudi Arabia should pursue economic reforms that are sustainable and globally aligned to infuse flexible economic measures resilient to intermittent financial and economic shocks. Economists' analysis may have the essence of truth, by my personal verdict is out: the investment in education will sustain that nation!!!