Creating sustainable international social ventures

International social ventures are now an increasingly common feature of the international business

and social landscape in many countries worldwide. However, despite the increase in the number of

social ventures and widespread interest that has resulted, theoretical development that deals specifi-

cally with international social ventures, or social ventures that operate across borders, has lagged

behind, and there is little to guide potential social entrepreneurs thinking of setting up an interna-

tional social venture. The aim of this article is to show how combining concepts from social exchange

theory with international new venture theory can provide a useful conceptual framework that helps

answer the central questions: What are the conditions for sustainable international social ventures?

What difficulties are likely to arise in establishing such ventures? © 2012 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com)© 2012 Wiley Periodicals, Inc. • DOI: 10.1002/tie.21445

feature artICLe

In t roduct ion

S ocial ventures are often described as businesses that operate with a social purpose to provide a service to disadvantaged individuals or the com-

munity (Darby & Jenkins, 2006). What distinguishes social ventures from private-sector businesses is the use of conventional business practices not just to generate a profit but also to achieve a social purpose or mis-sion such as reducing poverty through job creation, helping impoverished communities produce their own products rather than importing them, creating markets for products produced by impoverished communities, and providing job training to help the chronically

unemployed acquire employable skills (Thompson & Doherty, 2006).

Although social ventures are often incorporated as not-for-profit charities, they are distinct from charities, foundations, and trusts. Charities operate under a social purpose mission to deliver services and are primarily supported by donations, grants, and governmental funding. Foundations and trusts, which exist with the mission to support charitable causes, frequently support causes that offer some social benefit to the community. However, in contrast to social ventures, these types of organizations typically rely on charitable donations rather than on sales of goods and services to support their social purpose mission (Easterly & Miesing, 2009).

By

Stephen Chen

131

Creating Sustainable International Social Ventures

Correspondence to: Stephen Chen, Newcastle Business School, university of Newcastle, Callaghan NSW 2000, australia 612 4921 6680 (phone), 612 4921 6911 (fax), [email protected]

132 feature artICle

thunderbird International Business review Vol. 54, No. 1 January/february 2012 DOI: 10.1002/tie

ory with international new venture theory can highlight the conditions for sustainable international social ven-tures, as well as problems that may arise in such ventures.

Socia l entrepreneurship

The concept of social entrepreneurship or social ventures is still poorly defined. However, three main views can be distinguished (Mair & Marti, 2006). Some researchers define social ventures as not-for-profit initiatives that use alternative funding strategies or management schemes to create social value (Austin, Stevenson, & Wei-Skillern, 2006). A second group of researchers views social en-trepreneurship as socially responsible commercial busi-nesses engaged in cross-sector partnerships (Sagawa & Segal, 2000). A third group views it as a means to alleviate social problems and catalyze social transformation (Al-vord, Brown, & Letts, 2004). These views are not necessar-ily contradictory but do illustrate the range of issues and aims of social ventures.

As previous researchers (Austin et al., 2006; Dees, 1998; Mair & Marti, 2006) have discussed, in defin-ing social entrepreneurship, two questions need to be answered: What makes it social? What makes it entre-preneurship? Mair and Marti (2006) argue that the distinctive social element of social ventures is that they typically combine resources creatively to address some so-cial problem and thereby alter existing social structures. Meanwhile, Dees (1998) defines the entrepreneurial element of social entrepreneurship as including (1) the recognition and “relentless” pursuit of new opportunities to further the mission of creating social value, (2) con-tinuous engagement in innovation and modification, and (3) not accepting existing resource limitations. From this perspective, social ventures thus include aspects that are both social and entrepreneurial in nature and a proper understanding of them should, therefore, address both of these aspects.

While many entrepreneurship scholars now readily accept social ventures as one type of entrepreneurial venture and are attempting to apply concepts from en-trepreneurship research to such ventures (e.g., Austin et al., 2006; Dees, 1998; Mair & Marti, 2006), the social aspect has been less adequately addressed. Theoretical development is still in its infancy, and many aspects of social ventures have not been much studied. One area that appears to have been lacking in research is the cre-ation of international social ventures (i.e., social ventures that involve cross-border operations). This is surprising given that many social ventures are, by their very nature, international. For instance, some ventures have been

In contrast, some social ventures may perform much the same activities as for-profit businesses but are dis-tinguished by their aims of benefiting society rather than generating profit for shareholders. An example is Benetech, a long-standing social venture that has sur-vived over 20 years. Benetech was founded in 1989 out of the pioneering work for Arkenstone, the world leader in reading machines for the blind. Seeing the value in providing affordable tools that greatly empowered the reading disabled, Jim Fruchterman was inspired to found a business that utilized technology to serve social causes. In 2000, the Arkenstone reading machine product line was sold to Freedom Scientific, and the venture’s name was changed to Benetech. Benetech operates much like a start-up company in a venture capital environment. It identifies needs and opportunities where technology could have a tremendous social impact and then con-ducts feasibility studies, market research, and business planning to develop and implement it. The crucial differ-ence is that the primary goal is helping all of humanity, rather than making the maximum financial return.

As evidenced by several recent publications, such social ventures are now an increasingly common feature of the business and social landscape in many countries. These include social joint ventures between for-profit and nonprofit organizations (Loza, 2004; Selsky & Parker, 2005) as well as new organizations created by social entre-preneurs that operate across sectors (Bornstein, 2007). However, despite the increase in number and widespread interest in these new organizational forms, theoretical development has lagged behind. In particular, there has been little examination of the internationalization of such social ventures or the creation of “born global” social ventures. The aim of this article is to demonstrate how combining social exchange theory (Bourdieu, 1977; Ekeh, 1974; Emerson, 1981; Mauss, 1967; Molm & Cook, 1995; Sahlins, 1972) with international new venture (INV) theory (Oviatt & McDougall, 1994) can provide a theoretically sound and practically useful framework from which to analyze international social ventures (ISVs) and to answer the central question: What are the condi-tions for sustainable international social ventures? Such a framework will be of use to potential social entrepreneurs thinking of setting up international social ventures.

The structure of the article is as follows. First, we briefly review some of the existing research on social entrepreneurship and international new ventures. Next we introduce social exchange theory as an overarching framework for conceptualizing interactions between ac-tors in society and the economy. We then demonstrate with some examples how combining social exchange the-

Creating Sustainable International Social Ventures 133

DOI: 10.1002/tie thunderbird International Business review Vol. 54, No. 1 January/february 2012

As can be judged from the many articles that cite the article, the INV framework has proven itself to be useful in explaining the success or failure of new international busi-ness ventures. However, some modifications are needed for international social ventures. While ISVs share some char-acteristics in common with INVs, there are some distinct differences (Austin et al., 2006). What is most conspicuously missing from INV theory is consideration of social interac-tions, something that is crucial in ISVs. Table 1 shows how similar questions arise in ISVs as in INVs, but also some subtle differences. These are discussed further below.

Socia l exchange as a Basis for Conceptual iz ing In ternat ional Socia l Ventures

A theoretical perspective that has proved itself useful in other disciplines for examining social interactions as well as economic interactions between individuals and groups is social exchange theory (Bourdieu, 1977; Simmel, 1978). This developed from anthropological studies of social ex-changes that take place in “primitive” societies, often in the absence of monetary exchange (e.g., Mauss, 1967, Sahlins, 1972). However, more recently, social exchange theory has also been applied in the management and organization lit-erature (Cropanzano & Mitchell, 2005). For example, social exchange theory has been applied to examine exchanges in the workplace between superiors and subordinates (Marcus & House, 1973) and within workgroups (Molm & Cook, 1995). Applications in international business have also been suggested by Toyne (1989), who has suggested that interna-tional business can be viewed as social exchanges that take place between two or more actors in different countries and that may be influenced by noncommercial considerations (e.g., political factors) as part of a wider exchange. There-fore, as illustrated by Iyer (2001), the concept of exchange provides a sound basis for analyzing many of the issues that

established with funding from sponsors in developed countries in order to benefit people in less-developed countries or else are global ventures that aim to serve a need that exists in several countries. That said, the field of international entrepreneurship (i.e., the study of in-ternational ventures) is itself relatively new, so it is hardly surprising that there is little theoretical and empirical re-search of ISVs. However, we believe some insights can be drawn from previous research on international for-profit ventures that can be applied to the study of ISVs.

Condi t ions for Susta inable In ternat ional Socia l Ventures

Oviatt and McDougall’s (1994) international new venture (INV) theory was one of the first to establish the theo-retical characteristics of INVs and has proven useful in explaining the success or otherwise of international new ventures. In their theory, Oviatt and McDougall (1994) identified four progressively more restrictive necessary and sufficient elements for creating sustainable INVs:

• Condition 1: “Internalization of Some Transactions” is based on transaction cost theory and seeks to identify those transactions that take place more efficiently (at lower economic cost) within organizations compared to market transactions.

• Condition 2: “Alternative Governance Structures” distinguishes the subset of transactions associated with new ventures from those in established firms.

• Condition 3: “Foreign Location Advantage” distin-guishes the subset of transactions constituting in-ternational new ventures from those that constitute domestic new ventures.

• Condition 4: “Unique Resources” distinguishes the subset of sustainable international new ventures from those likely to be short-lived.

Key ConceptsCritical Questions International New Ventures International Social Ventures

Why is the venture needed? Minimization of transaction costs Minimization of social costs or maximization of social benefit

How should the venture be structured? use of alternative governance structures use of alternative social exchange structuresWhy undertake the venture in a foreign location? foreign location advantage unfulfilled need in foreign location that can be

met with resources in home countryHow can the success of the venture

be sustained?Sustainable advantage relative to competitors Sustainable matching of resources relative

to need

table 1 International New Ventures and International Social Ventures Compared

134 feature artICle


the primary reason for a social venture is not necessarily to minimize economic transactions compared with market transactions but to meet some unfilled social need. In the case of for-profit ventures, the need is indicated by a “miss-ing market” for the good or service (i.e., there is a demand that is not being met and the market is seen as a way to bring together supply and demand).

In the case of ISVs, there is also a need that exists but is not being met. However, the solution is not necessarily a market. Either the market is unable to meet the need or else an ISV is preferred over a market solution. For example, an ISV may be preferred if it maximizes some other benefit such as sustaining a local community and creating social capital and sustaining social relationships.

Mustafa and Chen (2010) make the same point about immigrant family businesses, which in many cases serve simi-lar functions to ISVs by supporting extended family and com-munity members, as well as being self-supporting businesses.

flores del SurAn example is Flores del Sur, founded in 2000 to provide employment and job training to female heads of household living in extreme poverty in the VIII region of Chile, one of the poorest regions in the country. The enterprise is dedicated to the production of fresh flowers, primarily high-quality carnations, grown in a distinctive variety of colors. The venture was funded in part by Belgian and Dutch investors who were interested in supporting social programs that were self-sustainable. The climate and land in the surrounding area were well suited for flower cultivation, and a member of the team had previous experience with flowers as a professional

arise in international business, particularly where noneco-nomic exchanges are involved. This is in line with recent thinking in social economics (Granovetter, 2005; Liljen-berg, 2005), which suggests that social structures determine whether economic interactions take place and how effective they are.

There are many variants of social exchange theory. However, all exchange theories share a common set of analytical concepts: actors, resources, structures, and pro-cesses (Molm, 2003). The actors in social exchanges can be individuals, groups, or organizations. Resources include not only resources such as money, goods, services, and informa-tion that are commonly examined by economists, but also capacities to provide socially valued outcomes such as love and status. A key assumption in social exchange theory is that actors seek to obtain more of the resources they value and they do so through the process of social exchange. So-cial exchange rather than economic exchange is more sig-nificant for social ventures, as in most cases they are aimed at improving the well-being of members of society who lack significant resources (in particular, financial resources) and so must rely on other forms of social exchange. This makes it particularly important to consider other types of re-sources, such as those examined in social exchange theories.

a Socioeconomic Perspect ive of In ternat ional Socia l Ventures

In this section, we show how taking an integrated socio-economic perspective can be used to examine the condi-tions for creating sustainable international new social ventures. We begin by taking the conditions identified in Oviatt and McDougall’s (1994) INV theory and then, using examples of contemporary ISVs, show how these need to be modified for ISVs (Figure 1).

Conditions for Sustainable International Social Ventures1

Condition 1: Need for the VentureThe first condition is based on transaction cost economics (Coase, 1937). Transaction cost theory attempts to answer the question of why firms exist in the first place and argues that organizations form in order to minimize transaction costs in the market. According to transaction cost theory, when the transaction costs of constructing and executing a contract and monitoring the performance of the contract-ing parties in market transactions exceed those compared with internal transactions, hierarchical authority (i.e., internal organization) will be the preferred governance mechanism, or more boldly stated, firms exist in order to minimize transaction costs. However, in the case of ISVs,

figure 1 Conditions for Sustainable International Social Ventures

Sustainable ISV



Nations Children’s Fund (UNICEF), the University of Arizona, World Vision, and Yale University. What makes DDD different is its social mission. DDD recruits and trains young Cambodians by providing them with basic IT and English skills over a period of three to eight months. At the conclusion of the program, more than half of suc-cessful trainees are then hired to work full-time at DDD. Once at DDD, staff work half the day and go to school for the rest of the day. DDD also offers matching scholarships to enable them to pursue degrees at local universities.

In this example, the business fulfills the clients’ needs in much the same way as a for-profit venture but it also fulfils social needs to create employment for young Cambodians. Although in principle it is possible to achieve the same ends using a market mechanism, costs of monitoring and enforcing contracts are reduced by social mechanisms such as close social relationships and cultural norms. Managing the operations within an ISV rather than the market ensures that profits are directed to those who most need support.

More generally, this point can be stated as follows:

Proposition 1: International social ventures exist to minimize so-cial costs or else to provide social benefits more effectively than a market solution.

Condition 2: resource leveraging Governance Structures Perhaps the greatest contribution of social exchange theory to ISVs is in highlighting the alternative forms to market exchanges that are possible. Four generic types of social exchange structures, each entailing a distinct joint activity, have been identified in the social exchange literature (Ekeh, 1974; Emerson, 1981; Molm & Cook, 1995) (Figure 2). This includes negotiated exchange, the

agronomist, so it was decided to set up a flower-growing business. From a transaction cost perspective, it is not the optimal solution, as lower transaction costs could have been incurred by outsourcing the production to a local business, and employing these additional workers incurs an additional cost that should be minimized, according to transaction cost theory. However, from a socioeconomic perspective, it generates considerable social benefits, such as creating social capital and a thriving community.

In some cases, the need arises as a result of some social or economic change. For instance, some social ven-tures have recently been set up to cope with the impacts of the recent global financial crisis. In other cases, the need has existed for many years but has been unrecog-nized until a chance encounter reveals it.

Digital Divide

An example is Digital Divide Data (DDD). On a 2001 vacation, the founder Jeremy Hockenstein was struck by the presence of advanced information technology along with extreme poverty in the country. He created DDD to break the cycle of poverty by providing high-quality technology services to the global market. In terms of ser-vice, DDD operates in much the same way as a for-profit enterprise. The company provides services to clients to help convert digital content for greater access, preserva-tion, and analysis. Clients include publishers, libraries, archives, museums, corporations, government, academic institutions, nongovernmental organizations (NGOs), and international development organizations, such as Brown University, Harvard Business School, Kaplan Test Prep, King’s College London, Mobitel, the New York Daily News, the Reader’s Digest Association, the United

figure 2 types of Social exchange Structures

136 feature artICle


Arzu creates paid appren-ticeship programs to provide vocational training that cre-ates local employment oppor-tunities such as apprentice-ships for assistant teachers to help students in the class-room and medical assistants to work at local clinics.

eyeglasses and by making them widely available by creat-ing local businesses that sell them. Although VisionSpring does operate a direct sales channel, franchise partners, and wholesale channels like conventional businesses in some countries, such as India and El Salvador, it also op-erates its own network of microfranchises. VisionSpring provides owners with Business in a Bag kits, eye care, and business training and ongoing sales and marketing sup-port. These operate much like other franchises, except that franchise owners do not need to purchase the fran-chise in order to start. This is based on the well-publicized microcredit model of Grameen Bank, which creates access to capital by lending to a community. Unlike conventional franchises, where the franchisee must provide start-up capital for the franchise, VisionSpring loans entrepreneurs all the materials required to start the business, and entrepreneurs repay VisionSpring once they have sold the glasses. Like microcredit, this relies on reciprocal and generalized social exchanges within the local community to ensure debts are repaid.

In other cases, the social venture incorporates a mix of social and economic contracts and relies on indirect exchange.

arzuAn example is Arzu, founded following a visit by the founder Connie Duckworth to Afghanistan. She was shocked by the hardships the women faced, and she came up with the idea of Arzu to provide sustainable income to Afghan women by selling their rugs. Arzu weavers receive basic health care and above-market compensation for their rugs in international markets. What also makes Arzu different from conventional businesses is its social contract with the weavers that requires that all children under the age of 15 attend school. Women in the house-hold must attend Arzu education classes (set up in the village) that cover literacy, basic numeracy, and units on health, hygiene, nutrition, and human rights. In addi-tion to literacy training, Arzu creates paid apprenticeship programs to provide vocational training that creates local employment opportunities such as apprenticeships for assistant teachers to help students in the classroom and medical assistants to work at local clinics.

What makes Arzu unusual is that the ISV pays the beneficiary to do things that are good for them, in much the same way that smokers have been encouraged to quit smoking by paying them (Lichtenstein & Brown, 1980, quoted in Elster, 2000):

The smoker deposits a sum of money (e.g. $100) at the outset and then portions of this money are refunded con-

normal exchange in commercial transactions (exchange based on an explicit agreement or terms of a trade). However, it also includes other types of exchanges such as reciprocal exchange (sequential giving of benefits across time), generalized exchange (providing unilateral ben-efits to one actor or member of a network or group while receiving them from one or more other members), and co-productive exchange (that is, coordinating efforts or combining resources to generate a joint good).

Some social ventures rely on such alternative social exchanges rather than on traditional market exchanges.

VisionSpringAn example is VisionSpring, a social venture that aims to provide affordable eyeglasses to disadvantaged indi-viduals. Eyeglasses are a significant item for many in the third world, because after the age of 40, many people begin to lose the ability to focus at short distances and find that they need glasses for the first time. While this is not generally a problem in developed countries where eyeglasses are readily available and affordable for the majority of the population, this is not the case in many third-world countries, where many people cannot afford glasses and consequently lose the ability to work to sup-port themselves and their family. VisionSpring aims to tackle this problem both by offering for sale affordable



als, and is priced at 5 Taka (about 5 cents) so that it is af-fordable even to the poorest families. The companies that make up Grameen Danone Foods Ltd. have agreed not to take any of the profits out of the company. Instead, these will be reinvested for the creation of new opportunities for the welfare and development of the local community. Gra-meen Danone has planned to set up and launch as many as 50 production plants by 2016. As well as producing yogurt that improves the health of local children, the venture has created several hundred livestock-farming and distribution jobs in the local community as a result of establishment of the first factory. In this case, the negotiated exchange that Danone normally undertakes in its for-profit businesses has been replaced by co-productive exchange that benefits the local community by generating employment as well as improving the health of local children.

The ISV can be viewed as a means of matching re-sources to need across borders through internal organi-zation rather than a market. As in this case, the presence of trust from existing social relationship can make the process much more efficient compared with a market transaction between unknown partners. This accords with recent empirical research on the internationalization of firms that has highlighted the significant role played by social networks (e.g., Zain & Ng, 2006; Zhou, Wu, & Luo, 2007). More generally stated, we argue:

Proposition 3: International social ventures create additional value by transferring or recombining resources across borders using international social networks.

Condition 4: Sustainable resourcesIn the case of for-profit ventures, the fourth condition for sustainable advantage is that it must possess resources that are unique (Barney, 1991). In addition to tangible resources such as financial resources, these include intangible re-sources such as reputation, social capital, and knowledge. This need arises as, in the absence of unique resources, com-petitors can imitate the firm and take over the market. Simi-lar competition for resources can take place between social ventures. However, a major difference is that competition between social ventures more often than not involves coop-eration as well as competition (or what some have termed “co-opetition”; (Brandenburger & Nalebluff, 1996). In for-profit sectors, it has long been recognized that rather than competing, sometimes better outcomes can be achieved by cooperating, for example, to develop a new market or technology. In some cases, it has been shown that it is even beneficial to give away some resources such as proprietary technology in order to build up a market. This is often the case in ISVs, where the aim is not to drive out competitors

tingent upon meeting previously stipulated abstinence goals, often extending into a follow up period. (p. 183)

The crucial point is that ISVs frequently add value by sat-isfying a social need through an innovative governance struc-ture or pattern of social exchange, or stated more generally:

Proposition 2: International social ventures provide an alterna-tive to traditional market and public-sector solutions by using social exchange structures that more effectively leverage avail-able resources.

Condition 3: foreign location advantage

The location advantage element of the INV framework assumes that firms are international because they find advantage in transferring some moveable resources (e.g., raw material, knowledge, and intermediate products) across a national border to be combined with an im-mobile, or less mobile, resource or opportunity (e.g., raw material or a market) (Dunning, 1988). What social exchange theory highlights are the possible importance of social relationships in this transfer process and the importance of other types of resources. For example, Ellis (2000) and Athanassiou and Nigh (2002) show how social networks can be a significant advantage in entering foreign markets, while Coviello (2006) shows how social networks are a critical feature of international new ven-tures, enabling them to overcome many of the sociocul-tural barriers that face newly internationalizing ventures.

One of the functions of some international social ventures is often to transfer resources from resource-rich developed countries to less-developed countries where they are needed. In some cases, the resources may not be needed by the ISV but by other entities, with the function of the ISV being simply to act as an intermediary to facilitate exchange. An increasingly common way is a joint venture between an NGO and a multinational corporation (MNC) (Seitanidi & Crane, 2009). The MNC has the resources and the NGO has local contacts and expertise in the host country.

Grameen Danone Joint VentureAn example is the joint venture between Grameen Bank and Groupe Danone. This was founded in October 2005, following a meeting between Dr. Muhammad Yunus, the founder of Grameen Bank, and Franck Riboud, CEO of Groupe Danone, the multibillion-dollar French food cor-poration. Through the joint venture, Danone has invested millions into research and development, human resources, and working capital to bring to market affordable, nutri-tious yogurt, aimed at improving the health of poor Ban-gladeshi children. The yogurt, called Shakti Doi, is made from pure cream milk, fortified with vitamins and miner-

138 feature artICle


there is no clear market need. An example given by Let-terman (1996) is that of an organic produce grocery: “The fact that a neighborhood may need quality organic produce is one thing; whether or not community resi-dents can afford to pay for organic produce is another.”

Some ISVs also make the mistake of assuming that customers will buy from them simply in order to support a great cause. However, as verified by many social market-ing research studies of cause-related purchases (Pracejus & Olsen, 2004), the effect of a related cause on consumer purchase depends on the perceived fit between the brand and the cause. Letterman (1996) wrote, “Often, the fact that you are a nonprofit and ‘doing good’ will count against you.”

Less commonly, the social need for the venture disap-pears. Examples are the so-called “friendly societies,” mu-tual associations for insurance, pensions, or savings and loan–like purposes, or cooperative banking, common in the nineteenth century. Before large-scale government and employer health insurance and the development of other financial services, friendly societies played an important part in many people’s lives, paying expenses such as funerals. When a member died, their funeral would be paid for, members of their lodge would attend in ceremonial dress, and any money left over from the fu-neral would be distributed to the family of the deceased. Some friendly societies also had social functions such as organizing leisure activities like dances and sports. Others became involved in political issues that were of interest to their members. The advent of state pensions and health insurance, private insurance, and other organizations for socializing have satisfied these needs through other means and made friendly societies redundant. As a result, few friendly societies remain today.

GovernanceThe second set of problems that ISVs face is meeting the condition of an appropriate governance structure. At one extreme, there are some social ventures that lack commercial acumen and neglect the need for financial resources. At the other extreme, there are many com-panies who claim to be “social” ventures but really their decisions are all profit-driven (lessonsilearned.org, 2009). Achieving the right balance is often problematic.

The first type of problem that can arise with interna-tional social ventures is that different rules of exchange may apply in each sector. For example, in the private sec-tor, the exchange of money for goods and services is the norm, but in the not-for-profit sector, goods and services are usually provided free to the needy without any expec-tation of monetary exchange. The problem then arises

but rather to encourage other organizations to enter the market and help meet the social need.

transfair uSaAn example is TransFair. Paul Rice founded TransFair USA in 1998 “to build a more equitable and sustainable model of international trade that benefits producers, consumers, in-dustry and the earth.” TransFair USA helps small farmers in 58 countries by certifying the products of these cooperatives as fair trade and signing agreements with more than 700 US companies to source fair trade products. Companies pay a license fee to TransFair to display the Fair Trade Certified label on products that meet strict international fair trade standards. License fees make up the majority of TransFair USA’s income, around 65% of the $7.2 million collected in 2007. The company also augments every dollar raised from its fair trade licensees with an additional 43 cents from charitable sources. At the same time, TransFair USA competes and cooperates with other fair trade organizations worldwide. Through its membership in Fairtrade Labeling Organizations (FLO), an international organization head-quartered in Bonn, Germany, the company is also able to track the global chain of custody from the farm to the fin-ished product, thus benefiting all parties.

In this case, the more companies that join the network the better, and TransFair benefits more by cooperating than by competing with other fair trade organizations. The value of TransFair thus lies not so much in any unique resources that it has but in being a key linchpin of a larger network. This is similar to the arguments of social network theorists who have highlighted the power that some actors have resulting from occupying certain positions in the net-work (Brass 1984; Williams, 2005). More generally, this can be stated as follows:

Proposition 4: The sustainability of international social ventures lies not only in developing or possessing unique resources but also in the benefits for the community they create by sharing resources with other organizations in the community and their position in the social network.

Dif f icu l t ies in In ternat ional Socia l Ventures

The ISV framework described here also provides insights into some of the possible problems that can occur in ISVs when one or more of the four conditions are not satisfied.

NeedAs stated earlier, ISVs have to satisfy both market and social need. Quite often, some ISVs fail simply because



The most common problem as-sociated with the use of inter-mediaries is the problem of op-portunism by the middleman.

Reeda, and McAlpine (2006) highlight the importance of participatory processes involving the local community on the success or failure of environmental management projects. An example is a venture established by a major oil company in India to promote sustainability in the local community. For many years, despite much effort and ex-penditure of resources by the MNC, the project stalled and was only able to progress when the MNC partnered with a local NGO that had contacts in the local community (per-sonal communication from an ex-employee of the MNC).

Sustainable resourcesIn many cases, the venture has failed because of the lack of managerial foresight in ensuring a steady supply of resources for the venture. In analyzing the failure of SVP, a well-known social venture, Shoemaker (2007) noted that “international nonprofit networks more often fail when they are too loosely directed in their early years. New, small nonprofits like SVP affiliates have resource constraints and need to focus as much energy as possible on strategy and value-adding activities. If we left defining too much of the model up to local affiliates, their limited resources would be even further stretched.”

In other cases, ISVs have failed because destructive competition between organizations has led to a short-age of resources for all participants. Rather than seeking to build a coalition to achieve the social goal, political infighting has led to a cycle of destructive competition, which has set back the efforts of all participants in the sector. A recent example from Australia is the provision of child care services where community-run child care providers have complained that they are being driven out of the market by large corporate child care chains supported by government grants (National Association of Community Based Children’s Services, 2004).

how these conflicting rules can be reconciled in one or-ganization (MacDonald, McDonald, & Norman, 2002).

One solution in some organizations is to clearly separate the resources used for profit and nonprofit ac-tivities. As one CEO of a social venture described, “One problem for us in the beginning was making sure that the resources for each entity stayed separate. We would have employees on the for-profit use some non-profit resources which could cause very serious issues with the IRS, so we quickly developed smart systems for that so it doesn’t hap-pen” (Social Edge, 2005).

Difficulties can also arise from the structure of the exchange. By omitting a key intermediary, direct ex-change may reduce transaction costs but, on the other hand, lose any advantages the intermediary might bring, such as superior knowledge and experience of handling such transactions, and it can also compromise the inde-pendence of the social venture. For example, there have been criticisms of the increasingly close direct relation-ship of some fair trade organizations with multinational coffee manufacturers, which some argue is selling out to the companies that created the problems in the first place (Gralton, 2008).

By the same token, indirect exchanges across for-profit and nonprofit sectors can also create some problems. The most common problem associated with the use of interme-diaries is the problem of opportunism by the middleman. For instance, in the case of business models that aim to provide a service to the disadvantaged through an interme-diary, a principal-agent problem may arise, when the agent and principal have different financial objectives. So, for example, one of the conflicts described by Becchetti and Huy brechts (2008) in their study of the fair trade market is the need to satisfy at the same time the needs of retailers selling fair trade products, importers, and labeling organiza-tions. Retailers of fair trade products generate income for the charity but at the same time compete with private-sector importers with whom they partner. Labeling organizations also face a dilemma between supporting fair trade organiza-tions and certifying certain products of multinational food companies and large distribution chains that earn addi-tional income.

foreign location advantageProblems can also arise in meeting the condition of a foreign location advantage. As described earlier, where resources are being supplied by a foreign venture partner, a key condition for success is that these resources are ef-fectively integrated into the local community. Some ISVs set up by well-meaning MNCs fail because they fail to in-tegrate into the local network. Frasera, Dougilla, Mabeeb,

140 feature artICle


from such activities. It therefore cannot be assumed that ISVs can be used for all types of transactions.

On the other hand, some studies of social exchange also show that these spheres are not always immutable and can be changed. Barth (1967) showed how the Fur of Sudan had two spheres of exchange: one embracing many material goods and featuring the use of money and the other the exchange of beer for labor in millet cultivation and house construction (Barth, 1967, p. 165). Barth showed how an enterprising Arab businessman was able to arbitrate between the two spheres by acting as a middleman, selling house construction for money and paying construction workers in beer. As an outsider, he was not subject to the prevailing local customs and so was able to institute a new form of exchange. New forms of social exchange in ISVs are, therefore, possible, but exist-ing cultural assumptions may need to be challenged.

Conclusions

In conclusion, we believe that integrating social exchange theory with international new venture theory provides a conceptual framework that is of both practical and research value in identifying the conditions for creating sustainable international social ventures. One of the key contributions of an integrated perspective is highlighting the importance of social exchange structures and socially embedded re-sources in the success of ISVs. This suggests a need to move beyond studies of economic exchanges to studies that con-sider the social as well as economic relationships between actors and resources. More importantly, it provides a way to distinguish between different types of social and economic interactions and to determine (1) when cross-border and cross-sector interactions will be beneficial and (2) which types of exchange structures would be best suited in a par-ticular case. The framework can therefore be of practical value to managers in setting up ISVs, as well as in helping them identify possible problems that may arise.

One of the lessons from studies of social systems is that in order for the system to be self-sustaining, exchanges must be eventually reciprocated, directly or indirectly; otherwise, the resources will be depleted and the system declines (Kranton, 1996). This requires a perspective to creating international social ventures that is more systemic, including social and environmental considerations, com-pared with international ventures that are purely for-profit.

limi ts to Socia l Ventures

Although we have focused on the potential for interna-tional social ventures to make a difference in the world, it is also worth pointing out some limits to ISVs. One of the lessons from social exchange in many societies around the world is that different types of exchanges may be used depending on the types of items being exchanged and the culture. Some types of exchange that are com-monly accepted in some cultures are not accepted in others. A classic anthropological study by Bohannan (1955) described how the Tiv people of Nigeria in the 1950s divided exchangeable items into three “spheres of exchange” within which they were exchangeable for one another but between which they were usually not exchangeable. The lowest-ranking sphere consisted of subsistence products (food, pots, mortars, agricultural tools, and so on). Exchanges of items within this sphere were morally neutral, but exchanges between spheres were considered immoral. For example, it was acceptable to exchange food for pots or to exchange food but not to exchange cows for women.

Roth (2007), although an economist by training, suggests that distinct spheres of exchange exist because social “repugnance” of certain transactions places limits on what can be traded in a market. For example, the trading of human body parts such as kidneys, although increasingly common in some countries, is frowned upon in some cultures where it is considered immoral to profit

Stephen Chen is is professor of international business at the university of Newcastle, australia. He obtained his MBa from Cranfield School of Management and his PhD in management from Imperial College, London, and previously has taught at City university (Cass Business School), Manchester Business School, uCLa, Henley Management College, the australian National university and Macquarie university. Before becoming an academic, he also worked as a research scientist, an entrepreneur, and a management consultant, including advising on local enterprise development. His current research interests are in the general areas of strategic management and international business, including internationalization strategies of SMes and internationalization of firms from and to developing countries, corporate social responsibility in multinational firms, and social entrepreneurship.



Frasera, E. D. G., Dougilla, A. J., Mabeeb, W. E., Reeda, M., & McAlpine, P. (2006). Bottom up and top down: Analysis of participatory processes for sustainability indicator identification as a pathway to community empowerment and sustainable environmental management. Journal of Environmental Management 78, 114–127.

Gralton, A. (2008). The pros and cons of fair trade. Retrieved from http://www.altglobe.com/blog/pros-and-cons-fair-trade

Granovetter, M. (2005). The impact of social structure on economic outcomes. Journal of Economic Perspectives, 19(1), 33–50.

Iyer, G. R. (2001). International exchanges as the basis for conceptualiz-ing ethics in international business. Journal of Business Ethics, 31, 3–24.

Kranton, R. (1996). Reciprocal exchange: A self-sustaining system. American Economic Review, 86, 830–851.

Lessonsilearned.org. (2009, December 29). Dear social entrepre-neurship thought leaders. Retrieved from http://lessonsilearned .org/2009/12/dear-social-entrepreneurship-thought-leaders/

Letterman, J. (1996). Famous last words of failed social entrepreneurs. Roberts Foundation. Retrieved from http://www.tgci.com

Lichtenstein, E., & Brown, R. A. (1980). Smoking cessation methods: Review and recommendations. In W. R. Miller (Ed.), The addictive behaviors (pp. 169–209). Oxford, UK: Pergamon Press.

Liljenberg, A. (2005). A socio-dynamic understanding of markets. American Journal of Economics and Sociology, 64, 999–1023.

Loza, J. (2004). Business-community partnerships: The case for com-munity organization capacity building. Journal of Business Ethics, 53, 207–311.

MacDonald, C., McDonald, M., & Norman, W. (2002). Charitable con-flicts of interest. Journal of Business Ethics, 39, 67–74.

Mair, J., & Marti, I. (2006). Social entrepreneurship research: A source of explanation, prediction, and delight. Journal of World Business 41(1), 36–44.

Marcus, P. M., & House, J. S. (1973). Exchange between superiors and subordinates in large organizations. Administrative Science Quarterly, 18, 209–222.

Mauss, M. (1967). The gift. New York: Norton.

Molm, L. (2003). Theoretical comparisons of forms of exchange. Socio-logical Theory, 21(1), 1–17.

Molm, L., & Cook, K. (1995). Social exchange and exchange networks. In K. S. Cook, G. A. Fine, & J. S. House (Eds.), Sociological perspectives on social psychology (pp. 209–235). Boston: Allyn & Bacon.

Mustafa, M., & Chen, S. (2010). The strength of family networks in transnational immigrant entrepreneurship. Thunderbird International Business Review, 52, 97–106.

National Association of Community Based Children’s Services (2004). Children – Too precious for profit, a national policy for Australia – 2004 and beyond. Retrieved from http://www.cccinc.org.au/childrenfirst/pdf/policy_papers/NACBCS%20-%20NATIONAL%20POLICY.pdf

Oviatt, B., & McDougall, P. (1994). Toward a theory of international new ventures. Journal of International Business Studies, 25, 45–64.

Pracejus, J. W., & Olsen, G. D. (2004). The role of brand/cause fit in the effectiveness of cause-related marketing campaigns. Journal of Business Research, 57, 635–640.

Roth, A. E. (2007). Repugnance as a constraint on markets. Journal of Economic Perspectives, 21(3), 37–58.

Sagawa, S., & Segal, E. (2000). Common interest, common good: Cre-ating value through business and social sector partnership. California Management Review, 42(2), 105–122.

Sahlins, M. (1972). Stone age economics. Chicago, IL: Aldine Atherton.

Seitanidi, M. M., & Crane, A. (2009). Implementing CSR through part-nerships: Understanding the selection, design and internationalisation of nonprofit-business partnerships. Journal of Business Ethics, 85, 413–429.

Selsky, J. W., & Parker, B. (2005). Cross-sector partnerships to address social issues: Challenges to theory and practice. Journal of Management, 31(6), 1–25.

Shoemaker, P. (2007). Profiting from failure: What nonprofits and donors can learn from the closing of a venture philanthropy firm. Stan-

Note

1. The framework was developed by taking Oviatt and McDougall’s (1994) framework as a starting point and, following Eisenhardt’s (1989) suggestions for inductive-deductive theory development, it was refined by testing against multiple cases of international social ventures to iden-tify gaps and areas where it needed to be adapted.

references

Alvord, S. H., Brown, L. D., & Letts, C. W. (2004). Social entrepreneurship and societal transformation. Journal of Applied Behavioral Science, 40, 260–282.

Athanassiou, N., & Nigh, D. (2002). The impact of the top management team’s international experience on the firm’s internationalization: So-cial networks at work. Management International Review, 42, 157–181.

Austin, J., Stevenson, H., & Wei-Skillern, J. (2006). Social and com-mercial entrepreneurship: Same, different, or both? Entrepreneurship Theory and Practice, 30(1), 1–22.

Barney, J. B. (1991). Firm resources and sustained competitive advan-tage. Journal of Management, 17, 99–120.

Barth, F. (1967). Economic spheres in Darfur. In R. Firth (Ed.), Themes in economic anthropology (pp. 699–721). London: Tavistock.

Becchetti, L., & Huybrechts, B. (2008). The dynamics of fair trade. Jour-nal of Business Ethics, 81, 733–750.

Bohannan, P. (1955). Some principles of exchange and investment among the Tiv. American Anthropologist, 57, 60–70.

Bornstein, D. (2007). How to change the world. New York: Oxford University Press.

Bourdieu, P. (1977). Outline of a theory of practice. Cambridge, UK: Cambridge University Press.

Brandenburger, A., & Nalebluff, B. (1996). Co-opetition: A revolution-ary mindset that combines competition and cooperation. New York: Currency Doubleday.

Brass, D. J. (1984). Being in the right place: A structural analysis of indi-vidual influence in an organization. Administrative Science Quarterly, 29, 518–539.

Coase, R. H. (1937). The nature of the firm. Economica, 4, 386–405.

Coviello, N. (2006). The network dynamics of international new ven-tures. Journal of International Business Studies, 37, 713–731.

Cropanzano, R., & Mitchell, M. S. (2005). Social exchange theory: An interdisciplinary review. Journal of Management, 31, 874–900.

Darby, L., & Jenkins, H. (2006). Applying sustainability indicators to the social venture business model. International Journal of Social Econom-ics, 33, 411–431.

Dees, G. (1998). The meaning of social entrepreneurship. Retrieved from http://www.fuqua.duke.edu/centers/case/documents/dees _SE.pdf

Dunning, J. H. (1988). The eclectic paradigm of international produc-tion: A restatement and some possible extensions. Journal of Interna-tional Business Studies, 19, 1–31.

Easterly, L., & Miesing, P. (2009). NGOs, social venturing, and commu-nity citizenship behavior. Business & Society, 48, 538–565.

Eisenhardt, K. (1989). Building theories from case study research. Acad-emy of Management Review, 14, 532–550.

Ekeh, P. P. (1974). Social exchange theory: The two traditions. Boston: Harvard University Press.

Ellis, P. (2000). Social ties and foreign market entry. Journal of Interna-tional Business Studies, 31, 443–469.

Elster, J. (2000). Ulysses unbound: Studies in rationality, precommit-ment, and constraints. Cambridge, UK: Cambridge University Press.

Emerson, R. (1981). Social exchange theory. In M. Rosenberg & R. H. Turner (Eds.), Social psychological perspectives (pp. 30–65). New York: Basic Books.

142 feature artICle


building in international business. Journal of International Business Studies, 20, 1–18.

Williams, T. (2005). Cooperation by design: Structure and cooperation in interorganizational networks. Journal of Business Research, 58, 223–231.

Zain, M., & Ng, S. I. (2006).The impacts of network relationships on SMEs’ internationalization process. Thunderbird International Business Review, 48, 183–205.

Zhou, L., Wu, W., & Luo, X. (2007). Internationalization and the per-formance of born-global SMEs: The mediating role of social networks. Journal of International Business Studies, 38, 673–690.

ford Social Innovation Review. Retrieved from http://www.ssireview.org /articles/entry/profiting_from_failure/

Simmel, G. (1978). The philosophy of money. London: Routledge.

Social Edge. (2005). Creating a hybrid for-profit/non-profit social enterprise structure. Retrieved from http://www.socialedge.org /discussions/business-models/creating-a-hybrid-for-profit-non-profit-social-enterprise-structure

Thompson, J., & Doherty, B. (2006). The diverse world of social enter-prise. International Journal of Social Economics, 33, 361–375.

Toyne, B. (1989). International exchange: A foundation for theory

Documents

Creating sustainable international social ventures