Scholarly article on topic 'The ecosystem of social enterprise: Social culture, legal framework, and policy review in Indonesia'

The ecosystem of social enterprise: Social culture, legal framework, and policy review in Indonesia Academic research paper on "Law"

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Abstract of research paper on Law, author of scientific article — Aluisius Pratono, Ari Sutanti

Abstract This article explores the dynamic ecosystem of social enterprise in Indonesia, specifically legal framework and policy regarding social enterprise. The study involves multiple case studies of organisations with pivotal roles in establishing social enterprises in various sectors. The result confirms the role of social culture, legal form, and politics in shaping the evolution of social enterprise in Indonesia.

Academic research paper on topic "The ecosystem of social enterprise: Social culture, legal framework, and policy review in Indonesia"

Pacific Science Review B: Humanities and Social Sciences xxx (2016) 1—7

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ELSEVIER

Pacific Science Review B: Humanities and Social Sciences

journal homepage: www.journals.elsevier.com/pacific-science-review-b-humanities-and-social-sciences/

The ecosystem of social enterprise: Social culture, legal framework, and policy review in Indonesia

Aluisius Pratono a' *, Ari Sutanti b

a Universitas Surabaya, Faculty of Business and Economics, Raya Kalirungkut, Indonesia b British Council Indonesia, Indonesia

ARTICLE INFO

Article history: Received 24 June 2016 Accepted 16 September 2016 Available online xxx

Keywords: Social enterprise Entrepreneurial ecosystem Legal form Organization field

ABSTRACT

This article explores the dynamic ecosystem of social enterprise in Indonesia, specifically legal framework and policy regarding social enterprise. The study involves multiple case studies of organisations with pivotal roles in establishing social enterprises in various sectors. The result confirms the role of social culture, legal form, and politics in shaping the evolution of social enterprise in Indonesia. Copyright © 2016, Far Eastern Federal University, Kangnam University, Dalian University of Technology, Kokushikan University. Production and hosting by Elsevier B.V. This is an open access article under the CC

BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

1. Introduction

The concept of social enterprise has been emerging in Indonesia over the last decades. One effort to identify social enterprise in the local context is the establishment of a movement called the Indonesian Social Enterprise Association (AKSI), in 2009. The organisation intends to build networks for more than 100,000 social enterprises to share knowledge and best practices with sustainable movements. Other initiatives come from ASHOKA, and later from the British Council Indonesia, which started nurturing community-based social enterprise from start-up and semi-established stages across Indonesia, through competition followed by capacity building, networking events and provision of seed funds; these initiatives were run jointly with the Arthur Guinness Foundation (AGF) beginning in 2010. In addition, the British Council initiated a series of workshops to support civil societies and NGOs that aim to become social enterprises and facilitated universities to support the establishment of an entrepreneurial ecosystem by provision of workshops and trainings for universities in embedding social enterprise into teaching, advancing incubation, and community development work.

* Corresponding author. E-mail addresses: hpratono@yahoo.com (A. Pratono), ari.sutanti@britishcouncil. co.id (A. Sutanti).

Peer review under responsibility of Far Eastern Federal University, Kangnam University, Dalian University of Technology, Kokushikan University.

Along with the emerging movement of social enterprise, the rapid adoption of ecosystem terminology in social entrepreneur-ship research and policy calls for investigation. The burgeoning practice races ahead of theoretical and empirical work. Previous studies highlight the macro-level determinants of entrepreneur-ship, including economic opportunities, quality of governance, macro-level resources and abilities, performance-based culture, and socially supportive culture (Thai and Turkina, 2014).

The concept of entrepreneurial ecosystems attempts to explain why firms benefit from clustering that concerns the external environment rather than the firm's internal characteristics and operations (Mason and Brown, 2014). Hence, it is necessary to stress the dynamic nature of ecosystems as an evolutionary rather than a static phenomenon. However, it is difficult to understand the influence of the entrepreneurship process because the theoretical concept of ecosystem remains underdeveloped (Spigel, 2015).

The main literature indicates the internal attributes of social enterprise, including social mission statement, services as a model for social change, promotion of collective identity, and multiple purposes with various degrees of value change and mutual-aid (Hasenfeld and Gidron, 2005). As the concept of social enterprise still raises debates as to what social enterprises actually are (Chandra, 2015), there is research in the context of the entrepreneurial ecosystem. The research gap raises a question on how the ecosystem of social enterprise is distinguished from other business models in the context of markets, clusters, industries, value chains, networks, and organisational fields.

http://dx.doi.org/10.1016/j.psrb.2016.09.020

2405-8831/Copyright © 2016, Far Eastern Federal University, Kangnam University, Dalian University of Technology, Kokushikan University. Production and hosting by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

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2 A. Pratono, A. Sutanti / Pacific Science Review B: Humanities and Social Sciences xxx (2016) 1—7

1 This article explores the dynamic ecosystem of social enterprise a main importer of agricultural products, such as grains, horticul- 66

2 in Indonesia, including legal framework and policy review of social ture and livestock. The agricultural sector has become a place 67

3 enterprise. The study also provides observations on three large where poverty is most prevalent, and the poor spend two-thirds of 68

4 organisations in Indonesia, namely Muhammadiyah, Bina Swadaya their income on food, mainly rice (Quincieu, 2015). Food security is 69

5 and PUPUK. As development agents, the organisations play a a challenging issue because of the declining irrigation system and 70

6 Q3 pivotal role in implementing and establishing social enterprises in poor supply chain infrastructure. 71

7 various sectors. The result of this study is expected to support the The country's competitiveness was ranked 34th worldwide in 72

8 emerging concept of the entrepreneurial ecosystem, specifically 2015. That was far below its potential, as the economy relies heavily 73

9 social enterprise in Indonesia. on commodity exports, while most of its labour force works for 74

10 small and medium enterprises (Tabor, 2015). Hence, SMEs play a Q6 75

11 1.1. Literature review pivotal role in Indonesia, the largest country in the region of 76

12 Southeast Asia, as more than 54% of its private enterprises were 77

13 The first conception of the entrepreneurial ecosystem was small-scale businesses that operate in the informal sector (Rahman, 78

14 coined by James More with the aim of understanding the rationally 2015). There is a great opportunity for the Indonesian development 79

15 embedded nature of how firms interact (Hechavarria and Ingram, agency to prioritize small businesses in the agricultural, 80

16 2014). Hence, the entrepreneurial ecosystem theory outlines the manufacturing and service sectors through shifting resources from 81

17 holistic understanding of what specific types of environments low-value foodgrain production to fisheries, lifestock, and tree crop 82

18 support firms to benefit from clustering (Mason and Brown, 2014). production. 83

19 The ecosystem approach highlights both the changes in the Indonesia is the home of more than 200 million Muslims, the 84

20 entrepreneurial system and the policies that address the complex largest Muslim population in the world. The Islamic groups have 85

21 challenges faced by entrepreneurs (Hechavarria and Ingram, 2014). been most directly involved in shaping politics in general, while 86

22 It appears that the active intervention of policy makers in business Indonesia's foreign policy discourse emphasizes that it is a mod- 87

23 affairs departs from an obsolete political system and economic erate Muslim nation. The vote repartition in Indonesia's first gen- 88

24 Q4 model in favour of the formation of an entrepreneurial ecosystem eral election in 1955 showed that the dominant of the four major 89

25 (Soto-Rodríguez, 2014). In addition, a successful entrepreneurial political parties, the Indonesian Nationalist Party, obtained 22.3%; 90

26 system requires some pre-existing economic advantages including the Masjumi (Consultative Council of Indonesian Muslims) ob- 91

27 cultural, social, and material attributes (Spigel, 2015). tained 20.9%, and the Indonesian Communist Party obtained 16.4% 92

28 Kshetri (2014) demonstrates various methods to gain entre- (Pauker, 1967). In the 2009 general election, the Muslim political 93

29 preneurial success. One economy may perform better with high parties seemed to have fewer voters than before. The two largest 94

30 institutional quality, while another economy experiences strong Islamic parties, PKB and PPP, with close ties to the largest Muslim 95

31 entrepreneurship with heavy R&D and aggressive strategy. The organisations, Nahdatul Ulama and Muhamadiyah, obtained 10.6% 96

32 strong relationships among institutions reduce the risk of entre- and 8.1% of the votes, ranking third and fourth, respectively (Jakarta 97

33 preneurial activity, especially when policy makers'approach has no Post, 2012). 98

34 payoff (Soto-Rodríguez, 2014). Hence, the strong financial market 99

35 facilitates entrepreneurship through reducing the costs of external 1.3. Policy review 100

36 finance to firms (Kshetri, 2014). 101

37 Turning to the ecosystem of social enterprise, multiple stake- In its early development, the Indonesian Constitution of 1945 102

38 holders provide greater distinction in conducting entrepreneurship shaped the economic system and mentioned cooperation as a main 103

39 within the social context (Lumpkin et al., 2011). To transform the element. Specifically, Article 38(1) of the Constitution states, 'the 104

40 equilibrium, social entrepreneurs involve new actors in the existing national economy shall be organized on a cooperative basis'. The 105

41 ecosystem: customers who shift the power balance and govern- principle of free competition was rejected. The reason for such an 106

42 Q5 ment that alters the economics (Martin and Osberg, 2015). Alliance initiative comes from the Indonesian experience that foreigners 107

43 building and lobbying are acknowledged as main drivers of social controlled much of economy, while the local indigenous people had 108

44 enterprise's impact; however, most organisations have few op- no education or experience in starting firms (Hatta, 1957). During Q7 109

45 portunities to gain allies and little public policy to support suc- the Japanese occupation, the government considered Islam the 110

46 cessful lobbying (Bloom and Smith, 2010). most effective vehicle for ideological penetration through estab- 111

47 lishing the office of religious affairs (Boland, 1982). Hence, the 112

48 1.2. Local context archipelagic country has experienced a changing public policy, 113

49 from dictatorship to democratic governance. 114

50 Indonesia is considered a low middle-income country. The Indonesia and the third sector experienced a dictatorial gov- 115

51 Indonesian economy experienced a dramatic economic evolution ernment for over 50 years, followed by a transition government 116

52 with an annual growth rate of 7% between 1965 and 1997. The Asian towards democracy. During the years of the struggle for indepen- 117

53 financial crisis caused economic growth to drop to just 0.3% in 1999 dence, mass organisations were encouraged to mobilize with a 118

54 (Asian Development Bank, 2015). Since then, the country has wide range of members, including farmers and labourers (Sakai, 119

55 recovered with moderate economic growth of between 4% and 6%. 2002). Under the authoritarian regime, social organisations could 120

56 This has brought a slowdown in poverty reduction, with 15% of the be distinguished by their social mission treating one of three main 121

57 population living under the poverty line at $1.90 per day (Wold issues: community development, awareness raising and advocacy 122

58 Bank, 2015). (Antlov, 2003). The organisations involved in community devel- 123

59 As the largest archipelago in the world, the country's coastal opment worked mainly as contractors or consultants for the gov- 124

60 territory of 580 ha provides 9 million tons of valuable marine ernment, while the second type sought popular mobilization in the 125

61 products, such as tuna, shrimp, seaweed, and pearls. The total land form of raising awareness. 126

62 area of 55 million and 129 million hectares is allocated for agri- The first dictatorship, called Soekarno's Guided Democracy, 127

63 culture and forest, respectively. More than 40 million people or 33% began in 1959, when the elected parliament was suspended. Soe- 128

64 of the labour force works in the agricultural sector. However, karno outlined his vision of Indonesian development, namely the 129

65 agriculture only contributes to 14% of GDP. The country has become Manipol/USDEK (acronym of politic manifestation, the Constitution 130

A. Pratono, A. Sutanti / Pacific Science Review B: Humanities and Social Sciences xxx (2016) 1—7

1 of 1945, Indonesia socialism, lead democracy, lead economy, and

2 Indonesian personality). During that time, all social and political

3 organisations were required to join the Manipol and support Soe-

4 karno to achieve the revolutionary vision (Pohlman, 2011). In the

5 1950s, the local leaders blamed imperialism for the mess of the

6 social economy in the country (Pauker, 1967). Soekarno had three

7 major allies: Nationalists, Muslims, and Communists. With more

8 than three million members, the Communists had a revolutionary

9 programme of mass mobilization (Hefiner, 2000).

10 In the early 1960s, the government allowed the Communist

11 party to arm itself and neutralize the conservative army. However,

12 triple-digit inflation hit the Indonesian economy. Soekarno

13 appointed members of the Communist party to take bureaucratic

14 and political positions, such as mayor and provincial governor. The

15 parties also gained benefits from mass membership, engaging in

16 frequent shows of force in mass rallies and street politics

17 (McGregor, 2013). Suddenly, an unexplained coup was attempted

18 on 30 September 1965.

19 The era of the second dictatorship occurred between 1965 and

20 1998, when Soeharto came into power. The government changed

21 the foreign policy by strengthening ties with Western countries and

22 allowing foreign aid. The government also introduced press

23 censorship and controlled the political parties, the third sector, and

24 other mass organisations. Law No 8/1985 allowed the government

25 to dissolve any third-sector organisation considered unsupportive

26 of the government. In the 1990s, the Ministry of Home Affairs

27 encouraged third-sector organisations to register and establish

28 cooperatives to support the government's development programs,

29 including basic education, health, and microfinance (Hadi, 2014).

30 Between 1965 and 1998, cooperative was the only one type of

31 community-based organisation the government accepted, while

32 Q8 other mass organisations were strictly prohibited. However, even

33 that was highly regulated, and the government mandated co-

34 operatives in rural areas as development agents to promote food

35 self-sufficiency programmes. Hence, the government allocated

36 more resources for a microcredit scheme to farmers, supplying

37 agriculture inputs (fertilizers and rice varieties) and marketing

38 farm commodities. The government also protected the market

39 price. The government granted all the equity capital, and members

40 contributed a very small amount or paid even nothing (Zanden and

41 Marks, 2012). This was against the principle that a cooperative

42 should be based on the joint economic needs of its members.

43 After the Soeharto regime, the coalition of international NGOs,

44 local community-based organisations, and local government pro-

45 actively addressed local needs (Nix-Stevenson, 2013). Natural di-

46 sasters impact social capital, risk, and time preference. The

47 humanitarian response to the Aceh Tsunami demonstrated reci-

48 procity and mutual support at the national and global level.

49 Indonesia was the 36th largest donor recipient, receiving US$51

50 million from international humanitarian assistance organisations

51 in 2012. The most assistance came from Australia with US$27

52 million, followed by Japan and Norway with US$13 million and

53 US$3 million, respectively (Global Humanitarian Assistance, 2013).

54 During the current autonomy regime, civil society organisations

55 are encouraged to get involved in all development planning activ-

56 ities. The Law No 22/1999 and Law No 25/1999 provide authority to

57 local government. This policy allows local-government proliferation

58 practices followed by fragmentation of regional development

59 (Firman, 2009). The policy encouraged local-government pro-liber-

60 Q9 ation practices. Many local religious leaders took positions as mayor

61 and began to establish their own 'kingdom of authority'. However, in

62 memory of the previous dictatorial regime, most government

63 leaders still hesitated to marginalize anyone for fear of being accused

64 of being anti-democratic, while the Islamic militant group sent re-

65 cruits to fight for the Muslim side in any religious conflict.

In 2009, the Indonesian Social Enterprise Association (AKSI) was 66

established with the aim of enhancing networks for more 100,000 67

social enterprises to share knowledge and best practices with 68

sustainable movements. Other initiatives come from ASHOKA, and 69

later from the British Council Indonesia, which started nurturing 70

community-based social enterprise from start-up and semi- 71

established stages across Indonesia, through competition fol- 72

lowed up by capacity building, networking events and provision of 73

seed fund; these initiatives were run jointly with Arthur Guinness 74

Foundation (AGF) beginning in 2010. In addition, the British Council 75

initiated a series of workshops to support civil society and NGOs 76

that aim to become social enterprise and facilitated universities to 77

support the establishment of an entrepreneurial ecosystem by 78

provision of workshops and trainings for universities in embedding 79

social enterprise into teaching, advancing incubation, and com- 80 munity development work. qio 81

This year, following the recognition of social enterprise in the 82

government's Mid-Term Development plan (RPJMN) of2015-2020, 83

the Ministry of Cooperatives intends to promote social enterprise, 84

targeting 1000 young entrepreneurs in 2016. The programme has 85

14 training activities, including entrepreneurship and cooperative 86

training. 87

1.4. Legal form 89

There are three apparent major categories of third-sector or- 91

ganisations in modern countries: cooperatives, mutual societies, 92

and associations, while their legal form varies in different countries 93

(Defourny, 2001). In Indonesia, there are four legal forms that 94

business organisations may register as to comply with the law: 95

limited corporation, cooperative, foundation, and association or 96

societal organisation. Social enterprise has not yet become a legal 97

form. The only legal form in Indonesia that recognizes both busi- 98

ness activities and social activities in one body is the cooperative, 99

which is regulated under cooperative law. However, the dynamic 100

government transition is bringing change to the legal forms. 101

First, the foundation is the most popular model for third-sector 102

organisations. This type of legal form is associated with non-profit 103

organisations because its assets should belong to the community 104

instead of to the management. The Indonesian Law No 16/2001 105

states that the foundation is a legal entity constituted by the 106

founder, who dedicates assets to social activity (act 1). From the 107

administrative perspective, the foundation's legal form requires 108

less capital and has a registration process simpler than that of the 109

limited corporation. However, this is a non-membership organi- 110

sation, which implies a more centralized governance instead of a 111

participation approach. 112

The Law states that the foundation has no members and exists 113

exclusively on legally independent assets. In 2004, a new law was 114

enacted with a new definition of the foundation; it should be a non- 115

membership legal entity and a separate asset-based organisation 116

and have a social-goal orientation. Another article states that pay- 117

ment is allowed to the staff and management. However, the regu- 118

lation was amended for some reasons, including ambiguity on 119

profit versus non-profit orientation. 120

Second, the cooperative refers to a member-based organisation 121

with cooperative and collegiality principle (Indonesian Law No 25/ 122

1992). There are more than 200,000 cooperatives, making it the 123

most popular social enterprise model in this country (MOC, 2014). 124

In 2012, Law No 17 was introduced to redefine the Indonesian 125

cooperative, that it should be a legal form with liability separate 126

from the owners. This regulation not only sets a minimum required 127 amount of assets for cooperatives but also mandates their goal, qii 128

which should fulfil economic, social and cultural value. However, 129

the Constitutional Court amended this law in May 2014. 130

4 A. Pratono, A. Sutanti / Pacific Science Review B: Humanities and Social Sciences xxx (2016) 1—7

1 Third, limited corporation is a legal form of for-profit organisa- organisation held the 47th congress in Makasar to elect new 66

2 tions. Law No 40 2007 states that this legal form requires at least leaders. Along with other Muslim organisations, Muhammadiyah 67

3 two parties to hold shares and at least one director and one plays a pivotal role in presenting the Indonesian moderate Islam 68

4 commissioner to be appointed by these shareholders. Firms with through enhancing international networks and engaging in many 69

5 the limited corporation legal form are allowed to exercise public interfaith dialogues (Sukma, 2015). In political practices, the 70

6 offering for shares in accordance with the provisions and legislation Muhammadiyah meeting forum declared neutrality during the last 71

7 in the capital market. However, no foreigner is allowed to own a presidential election. However, the organisation allows its mem- 72

8 corporation with such legal form. Foreign firms should register as bers to be involved in politics. For example, the young members of 73

9 foreign owned company at the Investment Bureau (BKPM). the organisation joined the Surya Madani to support one of the 74

10 Last is the association, which refers to a membership-based presidential candidates (Sudibyo, 2014). 75

11 organisation. This legal form represents fraction interest, which 76

12 determines the decision-making process. Law No 13/2013 requires 1.6. Case study 2: Bina Swadaya 77

13 that all societal organisations should maintain the value of religion 78

14 and believe in Almighty God. All social organisations need to reg- Bina Swadaya is an NGO that shifted towards a strategy of social 79

15 ister at the Home Affair Ministry. This regulation raises a concern entrepreneurship to address the challenge of sustainability. Since 80

16 for international organisations with different religious values or 1967, the organisation has emerged as a self-sustaining group 81

17 secularism (Council on Foundation, 2014). serving over 100,000 farmers. Bina Swadaya manages 17 subsidiary 82

18 companies engaged in eco-tourism, agriculture, printing, and 83

19 1.5. Case study 1: Muhammadiyah publishing. Employing approximately 1500 people and providing 84

20 sustainable livelihoods for many others, these social enterprises 85

21 The organisation was formally established in 1914. According to generate profits of over USD5 million annually, which is used to Q16 86

22 Q12 the Government Letter on August 22, 1914, the Dutch Colonial finance 95% of Bina Swadaya's budget for development work 87

23 Government in Indonesia acknowledged the Muhammadiyah among the poor. Trubus Magazine is the most popular business of 88

24 United as a legal form. On September 7, 1971, the Government of the subsidiary companies. The business organisation sells over 89

25 Indonesia acknowledged Muhammadiyah Islamic United as a social 70,000 copies per month (Dacanay, 2005). 90

26 organisation in a letter of the Social Ministry. In the letter of the Mr. Bambang Ismawan established the organisation in 1967. 91

27 Ministry of Home Affairs No 14/DDA/1972, the Government of During the Soeharto government, the organisation partnered with 92

28 Indonesia acknowledged Mohammadiyah as a legal form with the government to promote community-based income generating 93

29 rights to own and manage its own assets. activities in wide areas, such as agribusiness, microfinance, envi- 94

30 In 1997, the Government of Indonesia stated that the Muham- ronment and tourism (Bina Swadaya, 2014). Many of these pro- 95

31 Q13 madiyah works in education. In 1987, the Government of Indonesia, grammes were in line with the ruling government's development 96

32 through a letter of the Ministry of Law, stated that the Muham- programme agendas. Accordingly, the institution established closer 97

33 madiyah works in health services. In 2004, the Ministry of Law and interaction with the state and the community, rather than with the 98

34 Human Rights highlighted that the legal form of the Muhamma- private sector. However, the form of interaction with the private 99

35 diyah is united and should follow Law No 8/1985. In 2010, the sector has evolved gradually as the institution has shifted its 100

36 Ministry of Law and Human Rights stated that the Muhammadiyah strategy. 101

37 works in social activities and da'wah (preaching of Islam), educa- Agriculture is the main business of Bina Swadaya. The organi- 102

38 tion and health services (Muhammadiyah, 2013). sation promotes agriculture intensification, post-harvest manage- 103

39 As the government was unable to provide education to all levels ment, human resource and research development, and advocacy to Q17 104

40 of society, the organisation needed to fill this gap. The organisation farmer communities. To spread information, the organisation 105

41 used to be focused on urban and middle-class societies, and its published an agriculture magazine, TRUBUS, in 1969. The magazine 106

42 members were more likely to be professionals, bureaucrats and experienced many difficulties at the early stage of its development. 107

43 teachers than farmers or fishermen (Bush, 2014). The organisation It aimed to provide information about agriculture to its constitu- 108

44 also chose the strategy of partnership with the ruling governments ents (i.e., farmers); however, many of them were illiterate. As a 109

45 Q14 to withstand the period of colonialization until the Suharto result, it was difficult to find appropriate readers as well as con- 110

46 government. tributors who were able to provide high-quality articles for uned- 111

47 Now, Muhammadiyah is the largest civil society organisation in ucated farmers. From a financial perspective, the magazine 112

48 Indonesia. With more than IDR 20 trillion in assets, the organisation struggled to generate sufficient income to cover its operational 113

49 is not only involved in education and health care services but also costs. 114

50 the trading and financial sectors (Sadewo, 2014). The members of Print advertising revenue was low because of lack of commercial 115

51 Muhammadiyah come from the middle class and include traders interest in the magazine, while the cost of distribution was high. 116

52 and entrepreneurs across Indonesia. They play a pivotal role in the Hence, the organisation changed its targeted customers from 117

53 economy, while followers provide great contributions, especially in farmers to wealthier customers with hobby farms. As the business 118

54 assisting in the growth of the populist economy. The organisation is emerged and became profitable, the organisation established a 119

55 managing more than 350 microfinance institutions, more than limited corporation in 1980, namely PT Penebar Swadaya. The 120

56 14,000 schools, 192 universities, and 400 hospitals. The ability to institution considered that legal institutional separation between 121

57 develop this number of schools, universities, hospitals and micro- the foundation and the limited cooperation (PT) was appropriate to 122

58 finance institutions partly comes from reinvestment of the orga- accommodate the growing magazine business. Since 1999, the 123

59 nisations' profits to build more facilities and infrastructure, instead organisation has considered entrepreneurship as the vehicle to 124

60 Q15 their distribution for the founders and stakeholders. For social enhance a self-supporting community empowerment programme. 125

61 purposes, the organisation has also established more than 200 or- In 2005, the corporation began to publish some other magazines, 126

62 phanages and homes for senior citizens (Syamsuddin, 2015). i.e., Penebar Plus, Griya Kreasi, and Cif. In 2006, another company, 127

63 Muhammadiyah has a strategic vision until the year 2025. Every PT Trubus Media Swadaya, was established to handle the distri- 128

64 five years, the organisation manages a national congress to align bution. In 2012, the company managed 668 agencies in 32 prov- 129

65 periodic programmes with the 2025 vision. In August 2015, the inces (Oriza, 2014). 130

A. Pratono, A. Sutanti / Pacific Science Review B: Humanities and Social Sciences xxx (2016) 1 —7

1 The magazine is not the only business the foundation runs. To

2 respond to the hobby farming community, the organisation

3 established a farm shop company, namely, PT Trubus Mitra Swa-

4 daya. The shops provide a variety of small crops and fruits to hobby

5 farmers, called Toko Trubus. With the legal form of a limited cor-

6 poration, the first shop was established in Central Jakarta. In 2012,

7 there were more than 15 farm shops in Jakarta, Bogor, Bandung,

8 Semarang, Yogyakarta, and Surabaya. In addition, the organisation

9 manages 15 other limited corporations with various businesses,

10 including microfinance, agribusiness, tourism, and community

11 development. Overall, the organisation handles more than Rp20

12 billion (USD2 million) per annum with more than 1000 workers

13 (Adi, 2011). Today, Bina Swadaya is financially self-sustained and

14 relies on its own income generating businesses.

15 To reach its vision and to carry out its missions, Bina Swadaya

16 diverts its activities into seven business groups. The following are

17 some business units of Bina Swadaya:

19 Q18 • Bina Swadaya Consultant: Community Empowerment. In the

20 form of regional development activities, Public Health, Sanita-

21 tion, Environment, Farming, and Labour by way of: research,

22 training, consultation, and facilitation (Educational and Training

23 Centre, Centre of Studies, Consultancy and Branch Office).

24 • The Cooperative of Bina Swadaya Nusantara: Microfinance

25 Development. Microfinance Services are carried out through

26 Banking Financial Institutions and Non-Banking institutions,

27 reaching the poor and the marginalized (Bina Arta Swadaya,

28 Rural Banks, Microfinance Institution).

29 • Trubus Mitra Swadaya: Agribusiness Development. By way of

30 product marketing activities and farm production facilities,

31 developing farm shop towards franchise system (Trubus Mitra

32 Swadaya).

33 • Trubus Swadaya: Development Communication. Supplying in-

34 formation to different fields of development through publishing

35 magazines, books, and VCDs and holding radio and TV pro-

36 grammes (Trubus Swadaya, Penebar Swadaya, Puspa Swara,

37 Trubus Media Swadaya and Niaga Swadaya).

38 • Bina Swadaya Tours: Alternative Tourism Development. Orga-

39 nizing Tour Programmes orientated towards education, envi-

40 ronment, culture and development (Bina Swadaya Tours).

41 • Penebar Swadaya Printing House: Printing Service. Managing

42 printing industry to support development communication ac-

43 tivities and increase institutional income (Penebar Swadaya

44 Printing House).

45 • Wisma Hijau Training Centre. Provide facilities for meetings,

46 trainings, workshops and seminars (Wisma Hijau — Kampus

47 Diklat Bina Swadaya).

49 1.7. Case study 3: PUPUK

51 PUPUK stands for Association for Promoting Small Enterprises

52 (Perkumpulan Untuk Pengembangan Usaha Kecil). The organisa-

53 tion was established in Bandung and recently gained representa-

54 tive offices in Surabaya, Yogyakarta, Makasar and Tegal. The

55 organisation was declared lawful in the Charther of Association by

56 the Justice Minister of the Indonesian Republic on Registration

57 Number C2-765.HT01.03.TH88. The annual financial report was

58 audited by the registered public accountant, AF Rachman and

59 Soetjipto WS.

60 It was established in 1979 by the Germany Stiftung, the Bandung

61 Chamber of Commerce, and some local leaders. PUPUK focused on

62 training activities for small medium enterprises. In addition, the

63 Friedrich-Ebert-Stiftung was established in Indonesia in 1968 with

64 various activities to support the process of democratisation and

65 social economic development (Friedrich Ebert Stiftung, 2015). In

these early years, the Stiftung provided financial support for 66

PUPUK's activities. 67

In 1988, the organisation was formalized by the Ministry of Law. 68

This allows the organisation to do business with the government. For 69

example, the organisation partnered with the Treasury Minister to 70

encourage the stated owned companies to allocate their profit to 71

promote small and medium enterprises. In 1991, PUPUK was awar- 72

ded Jasa Kepeloporan' from the President of Indonesia for its pioneer 73

efforts to promote small and medium businesses. This includes 74

technical support for SMEs, research, SME programme development, 75

seminars, workshops, model business units, and other direct activ- 76

ities with SMEs (e.g., training, consultancy, assistance). 77

In the 1990s, PUPUK established branches in Jakarta, Surabaya, 78

and Madura, as it was not efficient to keep the organisation focused 79

in Bandung. In Yogyakarta, PUPUK worked with Sahid Group to 80

encourage the local artists' brand. Recently, there has come to be no 81

more traditional grabah. They have developed many niche 82

products. 83

In the 2000s, PUPUK changed its strategy from micro level to 84

meso-level, from conducting technical assistance to promoting 85

community-based organisations, such as SME forums and the 86

Indonesian BDS association. PUPUK also gets involved at the macro 87

level through advocating policy. Sources of funding have also 88

expanded. Previously, the activities relied on international funding 89

and hence gained support from government and private sector. 90 After 2010, PUPUK worked with many groups of small busi- Q19 91

nesses, including seaweed farmers in Palopo; soybean industries in 92

Jabodetabek, West Java and Central Java; cocoa and rattan in- 93

dustries in Palu, cassava industries in Trenggalek and Sampang; 94

tofu and tempe industries in Jabodetabek, and many other in- 95

dustries. The organisation also works for various international 96

funding agencies, including the Ford Foundation, Japan Interna- 97

tional Cooperation Agency, Chevron Geothermal Indonesia, PT 98

Kaltim Prima Coal, AusAID, USAID, and British Petroleum. 99

2. Discussion 101

The study shows the dynamic nature of entrepreneurship eco- 103

systems in Indonesia, from the Dutch colonization and authori- 104

tarian regimes to the decentralization approach. 105

Proposition 1. The social and economic context is relevant to the

entrepreneurial ecosystem as an organisational field. In Indonesia's 108

context, agricultural workers, small businesses and Muslims form 109

the majority of the population and give the observed organisations ^

market opportunities to conduct social enterprise. 111

It appears that the three observed organisations conduct their 112 business in agriculture, small business and a majority of societies. Q20 113

Muhammadiyah runs a business providing for basic needs, 114

including education, health sector and cooperative. Bina Swadaya 115

works in agriculture with various types of farmers. PUPUK works 116

with small business enterprises to establish social enterprises, 117

including cooperative, village enterprises, and formal private 118

enterprises. 119

The observed organisations have the ability to carry out a set of 120

activities to deliver products and services to the market. They also 121

create value for their customers. As the government fails to provide 122 education to all levels of society, Muhammadiyah found the ne- Q21 123

cessity and opportunity to fill this gap. Similarly, Bina Swadaya 124

provides information to farmers, as they had no access to infor- 125

mation on agriculture. PUPUK is quite different. The organisation 126

does not get involved directly in the business but rather provides 127

support to the small business communities, so they can establish 128

cooperatives or access the main distributor with fair trade 129

principles. 130

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Proposition 2. The way government acknowledges the business model of social enterprise as a legal form is an essential element of the ecosystem of social enterprises.

Many states in developing countries do not prioritize identifying their citizens (Sud and VanSandt, 2015). The legal framework of the social business model is a key mechanism for achieving mission control. The process of institutionalization, including the decision to choose, allows interaction among various organisational forms and levels (Cooney, 2012). From a Q22 macro perspective, the third sector is an intermediate sector with three main stakeholders: the state, the private sector and the community.

In the Indonesian context, the informal sector is not only associated with poor farmers and small enterprises but also activities in the third sector, including social enterprises. The government of Indonesia has not yet recognized social enterprise as a legal form of business activities. Organisations that emphasise a social mission may prefer the foundation as a legal form, while business organisations may consider the limited corporation. Cooperative may become the best option for member-based organisations with a profit orientation. In fact, many social and business activities in the third sector join the informal sector.

Institutions, social norms, and patterns of behaviour enable accumulation of capital and knowledge to enhance innovation and develop good policy (Wydick, 2008). Without recognition from the state, the organisation finds it difficult to develop the business model, while some small-scale organisations may have difficulty getting involved in the formal economy and owning property. If the definition merely focuses on the social mission statement, it appears that those involved in the private sector also intend to help their family, neighbours, and local economy through generating income and providing job opportunities.

Proposition 3. Social enterprise may emerge when government failure or market failure or even community failure occurs. The business model combines the advantages of the three players that may provide the best model to overcome the social and economic problems.

The third sector emerges from the interaction among the three main stakeholders, i.e., market, government and civil society. It appears that the shift to a new non-market base as a self-regulating market does not prevail over market failures (Polanyi, 1944). Under stiff market competition, companies can survive if they can produce with certain level of efficiency. However, the mechanism does not work when market failure occurs, such as monopoly, asymmetric Q23 information and negative externalities. Unethical behaviour also becomes a phenomenon in market competition. This calls for government intervention.

Unfortunately, there has been a lack of trust in government and NGO institutions. Despite the new president's best efforts, the administration finds difficulty addressing regulatory clarity. In a survey of 1150 respondents from general population and 200 from the middle class, Edelman (2016) indicated a drop in trust in the institutions of government, media and NGOs in Indonesia, while trust in business remains stable. The problem of unethical behaviour is manifested when the effort of individuals to pursue their own interests ignores general interests (Stiglitz, 2003).

Proposition 4. Social enterprises with strong social network resources may gain advantage from developing their marketing capability. Social networks allow organisations to enhance their marketing capability and expand their services through adopting social enterprises or encouraging their target groups to adopt the social enterprise model.

Transforming social works to business activities raises a challenging tension. Unless the social organisations have strong cohesion in networks with various stakeholders, including customers and business partners, the transformation process faces a high possibility of failure. Social enterprises may benefit from the clustering of social networks that development agents provide. Hence, start-up social enterprises may emerge as agents of development, and non-profit organisations may enhance the government's ability to access communities with various community development programmes.

3. Conclusion

The entrepreneurial ecosystem in the context of social enterprise differs from for-profit institutions. This may involve different markets, clusters, industries, value chains, networks, and organisational fields. Public policy also plays a pivotal role in the entrepreneurial ecosystem in social enterprise. The ease of doing business for social enterprise in Indonesia is very important for such enterprises to grow in scale, following their innovation. Formalizing the model allows social enterprises to define a customized set of strategies, policies, and procedures. This involves not only their unique identity but also the way the organisation addresses the business environment, especially policy turbulence. The institutionalization process of social activities with a business approach may raise a potential conflict of interest that springs from the changing direction, from social to economic goals.

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