Entrepreneurship, Philippines, Startups

Can the Philippines be the Silicon Valley of Social Enterprise?

Browse through Vogue and you might notice these colorful clutches.

Thoughtfully-designed and beautifully-handcrafted, they marry form and function. The brand itself has grown a loyal following the past several years. It’s worked with some of the most established designers. And its story has garnered wide appeal across different segments – adored by celebrities, supported by moms, trusted by twenty-somethings, and studied by policymakers. That’s an incredibly hard thing to do in the finicky world of fashion.

This might sound like a label straight out of the fashion houses of Milan or Paris, but these clutches come from a humble social enterprise based out of San Juan in the Philippines.

Rags2Riches-2-MaineManalansan-Vogue-10Jul13-PR_b

 (Photo credit:  R2R and Maine Manalansan)

Rags2Riches is just one of the many social enterprises scaling up all over the country. It’s a great example of what the Philippines can offer the world. The Maia clutch, designed by Rajo Laurel, has been a consistent bestseller and it’s now making waves abroad, thanks to a partnership with the retail chain Anthropologie. Co-founded by Reese Fernandez-Ruiz, R2R works with artisans from poor communities to produce wonderfully designed products and improve their livelihood.

Fashion presents a fascinating opportunity for local social enterprises to reach a global market – we have lots of talented designers, a cluster of manufacturing zones in Manila and Cebu, underserved artisan communities, amazing brand managers, and a growing cohort of e-commerce entrepreneurs. There are thousands of social entrepreneurs like Reese, and now is their time.

Business for the Next Billion

The bigger story is that the Philippines has been incubating social enterprises long before the word became fashionable.

CARD is a pioneer in micro finance. Hapinoy has been creating innovative supply chain solutions to the quintessential feature of Filipino retail – the sari-sari store. Sari has been developing interesting point-of-sale technology for this space too. Gawad Kalinga, a leader in the space, launched the GK Enchanted Farm with an interesting go-to-market model that links producers and consumers of agricultural products. A seminal moment came last year when Jim Ayala became the first social entrepreneur to win the prestigious Ernst & Young Entrepreneur of the Year award for his work to deliver solar powered products to marginalized communities.

These are ventures with the dual objective of addressing a social problem and becoming financial sustainable – not tasteless propaganda-in-the-guise-of-charity we’ve come to expect from most big corporations and local politicians. And the space has now reached a tipping point.

If this generation of entrepreneurs sees social enterprise as a rewarding career path, impact investing scales locally, linkages with international institutions increase, and enlightened leaders get into government,  then there’s no reason the Philippines can’t be known as the Silicon Valley of social enterprise.

We have the raw ingredients: hard-to-solve social problems that require the convergence of skills from the private and public sector, a passionate post-Marcos generation of founders tired of institutional corruption and rent-seeking capitalists, and early pioneers who have proven the model in various sectors, and supporters in government.

What defines Silicon Valley is a hard-to-replicate mix of universities, companies, government support, and maybe even good weather. But what ties the eco-system together is the incredible willingness of people to come together and collaborate. I believe we can create that mix for social enterprises in the Philippines today, and in 10-15 years, see a vibrant industry of social enterprises making as large an impact as huge infrastructure projects to the economy. We need more PEOPLE, diving into well-defined PROBLEMS, and sensible POLICIES from universities and the public sector. And this kind of PPP can arguably make a bigger impact than this administration’s long delayed programs of the same acronym.

There’s value in being recognized as a mecca for social enterprises. It allows the country to attract even more talent from around the world, not only because the Philippines has immense social problems, but because this can be a testing ground for solutions that scale across the developing world. It helps attract the much needed capital to scale up these enterprises. It increases overall career satisfaction and fulfillment, something we’re starting to see becoming a real problem in the high-turnover BPO industry. And as people have seen in the growth of innovation clusters, these effects are self-reinforcing and create a virtuous cycle.

So how can we the scale social enterprise sector? I have four suggestions, most of which will be admittedly hard to pull off:

Teach Business History. It’s a shameful tragedy that our business and economic history is not a widely shared narrative among students. I took up business in university, and not a single class tackled in detail how the Coco Levy Fund single-handedly raped a whole industry, how the Binondo Central Bank prospered, or how government-protected concessions given to cronies and relatives suppressed competition in the guise of economic nationalism (allow Walmart and Amazon to compete in the Philippines, and I can guarantee SM will be obliterated). After World War 2, there were generally only two ways to create vast amounts of wealth for one’s self: collude with the government or avoid it. Collude in order to get a government-protected extractive monopoly, or go underground to avoid taxes and state appropriation.

If the story of Philippine business is widely told, what won’t be remembered are stories of entrepreneurship-against-all-odds (though there are many), but how the wealth of a few was generated from monopolistic rent-seeking companies that extracted from the many.  Business history affect us until today – and the numbers show it. The top 40 families control up to 76% of GDP.  When I read the about the story of Philippine capitalism, I can’t help but feel anger and a profound sense of social injustice. And I guarantee that when more people read about these stories, the less attractive that nice-sounding job in Large Company Inc. will sound and the more compelling social entrepreneurship will be.

English: Manuel V. Pangilinan Center at the At...

Wanted: An Ambeth Ocampo for Philippine Business History. Enemies from Local Elite Guaranteed. (Photo credit: Wikipedia)

Include Social Enterprises in the Investment Priorities Plan. The DTI each year lists priority sectors that can qualify for a cocktail of government benefits in order to boost investments. Though traditional industries such as housing and agriculture are included, it’s perhaps time to recognize the social enterprise sector by explicitly extending benefits such as tax breaks and investment grants. Of course, any business can stake a claim to be working for the social good, so a measurement & verification mechanism will be needed in the same way impact investors use various metrics to measure the impact of a social enterprise.

Redo our Social Contract. Has there been a single Filipino tycoon who’s signed the Giving Pledge, the effort led by Bill Gates and Warren Buffet that encourages the world’s billionaires to commit half their wealth to charity? I honestly can’t think of any. So correct me if I’m wrong. I really wish I’m wrong. Because if I’m not, it would be really sad.

The country’s top richest 50 families have a combined wealth of $66 billion. That’s more than a fourth of GDP. Imagine half of this wealth donated to various charitable trusts, endowments, social venture funds, and the like. That’s $33 billion in resources. If you assume that 3% can be drawn down each year, that’s close to $1 billion that can be reinvested back into the economy. For this happen, we need to celebrate real giving and not the superficial ones. The local press seems to joyfully celebrate the donation of $7 million for a school building, but that really is a drop in the bucket and will barely make a dent in the pocket. It also means making it comfortable for tycoons to spread their wealth without fear of appropriation. Most importantly, it takes believing Warren Buffett’s philosophy of rejecting intergenerational wealth – a truly hard thing to do in this country.

Make it Less Risky to Be a Social Entrepreneur. If we can design programs that help social entrepreneurs forget about the downside so they can focus on the upside, then we’ve come a long way.  For instance, policymakers can offer state-sponsored schemes that provide healthcare and education plans to social entrepreneurs. Companies can create secondment programs for executives who want to try out a social enterprise for a year. Education helps aspiring founders to be prepared. The good news is that there is a wealth of accessible knowledge on social enterprises from all over the world.  And I hate to rant about Ateneo again, but if it can channel as much resources to a large-scale fund similar to the University of Michigan’s Social Venture Fund, then we won’t be just winning basketball games, but also the war against poverty.

Today on the Stanford Social Innovation Review...

Stanford is a pioneer in social innovation. How much did we spend on the Blue Eagles again? (Photo credit: techsoupglobal)

Our ASEAN neighbors have come a long way in establishing great brand names for themselves. Singapore is the region’s finance and entertainment hub. Thailand is known for its tourism. Vietnam and Indonesia are fast-growing manufacturing countries. If our generation of entrepreneurs can build this country as the Silicon Valley of social enterprise, then we would have made a great leap forward from the sordid past of Philippine business.

What else can we do? I’ll be happy to hear your thoughts.

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