VA
Insights

Environmental protection has long been a key topic for NGOs. But recently, we have seen an increasing number of young generation and NGO leaders testing the social enterprise (SE) model. Unlike deep-pocket commercial companies, majority of the SEs are working on simple solutions that can engage the general public (see charts below).

Most SE models in the environment sector that we have observed can be classified into 3 types:

• Solution: by providing solution to certain environmental issues, SEs can generate income at some stages along the value chain or as an integrated service provider. For example, an SE promoting “rooftop garden” concept can charge a fee on design, construction and maintenance services; while a waste management SE can sell recycled materials.
• Awareness: this group of SEs typically design, manufacture and sell products that are made from reusable wastes, with an objective to raise public awareness and encourage recycling activities.
• Product: those SEs develop and sell products that can help protect the environment or support green lifestyle, e.g., sell plants to urban residents to create a greener living environment.

Through evaluation and consulting, VA has worked with a number of SEs in the environment sector in the past year. A general observation is that many of them deal with issues related to daily life, especially in the urban areas; and they make large efforts to influence the general public. Meanwhile, we also noticed that lacking of a viable business model is still the key challenge that SEs are facing:

• Solution: as pioneers, many SEs are piloting innovative solutions in areas either new or neglected by traditional commercial enterprises. While some SEs are expanding into upstream or downstream, we believe it’s more crucial to establish strong competitiveness in one or two core stages along the value chain, in order to outperform potential new comers once the market is proven attractive. For example, for the SE providing “rooftop garden” solution, they need to think how to defend its position once large landscape design companies start to enter the market; for an green-agriculture SE promoting dialogues between small farmers and urban consumers, they need to build a strong brand in trust and strong green-agriculture expertise to ensure sustainability of its model.
• Awareness: many “awareness” type of SEs are still exploring scalable business models. For example, for an SE designing products made from reusable wastes, how to go beyond exhibition and demonstration, and to make it a competitive model even under normal business conditions? SEs need to decide whether NGO-approach focusing on public advocacy fits their aspiration, or they truly want to define a self-sustainable SE model. If the latter, shall they commercialize the products, or develop customized CSR program on environmental issues for corporates?
• Product: “product” type of SEs are relatively scarce in China, but usually they have simple models and scalable business potential. We’ve seen quite a few successful examples in other markets, among which D-Light is the most renowned one. By providing tailor-designed solar lights for underprivileged groups in Africa and South Asia, D-Light has covered 40+ countries and achieved 7 million beneficiaries in 2012. In China, we think there is huge potential for such products, from small innovative devices for urban population to monitor air quality, to energy-efficient stove to be used in rural areas as part of community-based conservation solution. More importantly, SEs need to define their differentiating position versus business competitors in the same sector, be it a focused BOP customer base, or more affordable price.

Today, we’re surrounded by influx of news on pollution and resource scarcity; we hope to see more SEs come up with practical and simple solutions that can be adopted in our daily life.