The relevance of social entrepreneurially initiated global value chains for the multi-actor, multi-level model of local economic development

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Author: Student number: University: Faculty: Specialization: Date: City: Address: Supervisor: Referent:

Hendrik Niklas Thelken 2834324

University of Groningen

Faculty of Economics and Business International Business and Management January 2016

Groningen

Van Brakelplein 27a, 9726HD Groningen Dr. B.J.W. Pennink

Dr. M.M. Wilhelm

The relevance of social entrepreneurially initiated global value

chains for the multi-actor, multi-level model of local economic

development

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Abstract

This research contributes to the understanding of the role of social entrepreneurially initiated global value chains as (outside) actors and intermediaries in the process of economic development. Both roles have been neglected by previous literature. The purpose is to create a model that describes the role of social enterprises in the process of integrating and governing actors on different stages in such global value chains. The business model of these social enterprises underlies the new business model logic. On a practical level, this research generates insights for the global value chain set-up of the social entrepreneurial Happy Seal Project in the Netherlands, which is aiming to recycle marine debris in the Wadden Sea area. A grounded theory approach has been chosen to analyse semi-structured in-depth interviews to derive concepts and theories that can be translated into the emerging model. The interview partners have been chosen based on their experience, single industry activity in marine debris recycling and outside actor role in the communities respectively regions they are operating in. In contrast to existing value chain theory, social entrepreneurially coordinated global value chains use value network structures to govern for spatial and cultural distance. They are characterized by a high degree of equality, openness and horizontal co-creation going beyond previously described relational governance. The social enterprise is operating within a core-group network that is tied together by bonding social capital. Bridging social capital is used to obtain resources and cultural knowledge from related networks. Rather than managerial control, linking social capital is used to connect different order actors in the economic development process. In contrast to conventional private sector enterprises, the social enterprises use a multi-stakeholder dialogue and triple-bottom-line values to move beyond economic rationality and achieve multi-value creation in the sense of new business model theory.

An impetus is given for further research with a focus on differences to traditional outside actors and intermediaries, a concrete business model for the Happy Seal Project and distinctive types of social entrepreneurially initiated global value chains.

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Acknowledgements

At this point I would like to express my deepest gratitude to everyone who helped along the research process.

Special appreciation goes to dr. B.J.W. Pennink, who has been exceptionally supportive and an enabling supervisor. With his inspiring and motivational supervision dr. B.J.W. Pennink has given valuable insights, impetuses, new perspectives and feedback in every meeting and correspondence. His involvement was vital for the completion of this work.

I would like to thank all the participants willing to be interviewed. I am deeply thankful for their time and their valuable insights into business processes and models. Without their knowledge and dedication this research would not have been possible. The same holds true for the employees and volunteers of the Seal Research and Recreation Centre in Pieterburen, the Netherlands. Their idealistic motivation has been very inspiring throughout the research project and given me a sense of doing the right thing.

And of course I would like to thank my friends, family and girlfriend. Without their unconditional emotional support and expertise this research would not have been realized. Every suggestion, idea and critique has been highly appreciated and made the difference. I would like to conclude with a quote from a research participant that I believe expresses the way society should understand entrepreneurship and social responsibility. I dearly hope that in the nearest future it will come true:

“I think there is going to be a time when they technically stop calling it social entrepreneurship, because you are either doing good in the world from having a

business or you are not having a business.” – Expert E

Hendrik Thelken

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List of tables

Tab. 1: Differences in social value creation

Tab. 2: Validation of findings through questionnaire

List of figures

Fig. 1: A framework for regional endogenous development (Stimson et al., 2009) Fig. 2: Multi-stakeholder dialogue dimensions (Bardy et al., 2015)

Fig. 3: Preliminary model based on previous literature Fig. 4: Value chain of marine debris recycling

Fig. 5: Conceptual model of value chain integration through social entrepreneurship Fig. 6: Classification of business models based on Nicholls (2006) and Jonker (2012) Fig. 7: A model of value co-creation based on Jonker (2012)

Fig. 8: Action process towards local economic development

List of acronyms

BOP Bottom of the pyramid

CSR Corporate social responsibility

GVC Global value chain

HSP Happy Seal Project

LED Local economic development

MNC Multinational corporation

NGO Non-governmental organization

RED Regional economic development

ROI Return on investment

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1. Introduction

Previous scholars have argued that social entrepreneurs can find innovative solutions to societies most pressing problems (Johnson, 2000; Ashoka, 2012). The marine debris recycling setting of this research can be considered as such a pressing problem (Ribic et al., 2010; Coe & Rogers, 2012). Local communities as well as societies on a larger scale (Ribic et al., 2010) are affected by marine debris, which enters the food chain and leads to losses in fishing output and bio-diversity (Derraik, 2002; Thompson et al., 2009). The consequence is a required collective effort to solve the problem through collection and recycling of what has already been discarded in the world’s aquatic systems (McKinley & Fletcher, 2010). One has to bear in mind that tackling the marine debris problem requires a collective effort. The process has to be paired with education respectively awareness programmes to prevent and intercept potential new marine debris (Nollkaemper, 1994). Social entrepreneurs as community respectively society leaders have been identified to take over responsibilities in tackling such social problems out of motivations that go beyond economic rationality (Johnson, 2000; Bornstein, 2007). Increasing public awareness and the possibility to recycle marine debris in a cradle-to-cradle approach consequently lead to the possibility of turning marine debris into a resource. This requires the emergence of global value chains (GVC) that connect the collection process of marine debris on a local as well as a regional level with the recyclers and manufacturers on a national level (Thompson et al., 2009). The results are social entrepreneurs founding social enterprises, which build up GVCs to collect marine debris in communities around the world in order to turn the debris into a value product. These value-adding activities can be beneficial for economic development on local community level (Basu, 2012) as well as a broader public scale (Bjerke & Karlsson, 2013), because they turn material previously considered as debris into a source of income for the actors involved.

1.1 Theoretical contribution – the research gap

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products. Consequently, a GVC would emerge to organize the value adding activities. The question remains how these GVCs should be coordinated and how the knowledge of other actors in the chain can be used to benefit local economic development (LED) (Pennink, 2014). Gereffi, Humphrey and Kaplinsky (2001: 1) argue ‘the growing importance of export-oriented industrialisation has made integration into the global economy virtually synonymous with development’. Accordingly, the integration is the antecedent for selling, producing or supplying products on an international level (Gereffi et al., 2001).

Ghauri (2007) describes the aforementioned influence of globalization and MNCs on LED. However, not only MNCs are integrating actors into GVCs. Seelos and Mair (2005) describe newly emerging social enterprises. These social enterprises are integrating local and regional actors into value chains out of social motivations. Aiming for multiple value creation, these social enterprises are defined as enterprises that create value added beyond economic rationality of common MNCs and result from social entrepreneurial efforts to solve social problems (Nicholls, 2006). These social enterprises take over social responsibilities as social entrepreneurs external to organization (SEETO). Following Basu (2012) a SEETO is defined as a social entrepreneur, who is not native to the local community or region he/she is operating in. The author argues that SEETO can stimulate social capital within local communities, which can lead to commercial entrepreneurship and LED. However, the author is focusing on highly educated and experienced outside actors that can educate and stimulate local communities by means of training and supportive leadership to achieve LED. Social enterprises show that new types of SEETO are emerging. They go beyond single actors and have the potential to bridge the community and international level of the LED model of Pennink (2014) through their social entrepreneurially initiated GVCs.

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movement (Bjerke & Karlsson, 2013). Therefore, differences to the work of Ghauri (2007) can be expected. By using the methodological approach of grounded theory this research tries to find an answer to this theoretical problem and contributes to the existing string of literature by extending the work of Stimson et al. (2009), Basu (2012) and Pennink (2014).

1.2 Practical contribution – the Happy Seal Project

The second layer of this research is the Happy Seal Project (HSP) of the Seal Research and Recreation Centre Pieterburen (SRRCP) in the Northern Part of the Netherlands. As one of the described new social entrepreneurial initiatives, the project can be used to apply the generated insights in a practical context. With social entrepreneurial initiative the effort towards a social entrepreneurial outcome that is not yet a full-grown social enterprise is meant. The main goal of this social entrepreneurial initiative is to tackle the environmental problem of marine debris by intercepting fishing gear and collecting ghost nets in corporation with local actors. Hence, in the following the focus will be specifically laid on fishing gear recycling to bridge the theoretical and practical aspect of this research. The project aims to sustainably recycle the collected nets by supplying them to international recyclers, which produce high quality materials such as textiles that enter the international consumption market. The approach can be described as cradle-to-cradle, where formerly discarded fibres are remodelled into a usable product. The project qualifies itself as social entrepreneurial as they search for ‘innovative solutions to societies most pressing social problems’ (Ashoka, 2012).

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endangers coral reefs and marine mammals such as the seal. However, many questions remain unanswered. How can such a value chain be successfully and sustainably organized? What is the role of a social entrepreneurial initiative such as the HSP in that value chain? What should be the governance structure in the sense of Gereffi, Humphrey & Sturgeon (2005)? Therefore, this research has a second, more practical contribution. Using grounded theory, this research will focus on the role of social enterprises in the GVC integration of actors following the multi-actor, multi-level model of LED (Pennink, 2014). Furthermore, it aims to assist the SRRCP in gaining valuable insights on how to set up a value chain for the HSP and find a sustainable business model that is able to create multiple values. Combining the practical and theoretical contribution, the main research question as been formulated as follows:

What is the role of social enterprises in the GVC integration of the multi-level, multi-actor model of LED and how can these implications be beneficial for the Happy Seal Project?

1.3 Disposition

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2. Literature Review

The literature review gives an extensive overview on the relevant social entrepreneurship, GVC, stakeholder dialogue and new business model scholarship. Propositions are derived based on previous findings and are subsequently used to refine the main research question and develop a conceptual model. Considering the qualitative character of this work, the propositions highlight the sensitizing concepts embedded in literature (Bowen, 2008).

2.1 The role of social entrepreneurship in local economic development

Social Entrepreneurship

LED has long been the responsibility of central governments spreading funds between regions in their areas of influence (Helmsing, 2003). However, governments are withdrawing in a process of privatization (Bjerke & Karlsson, 2013). The decrease in governmental regulation and control has opened up a market for local actors, who are empowering, innovating and organising in order to generate economic development. Consequently, Scherer and Palazzo (2011) argue that the classical division of businesses as economic actors and governments as political actors is vanishing. These new emerging actors are stimulating and empowering local actors in order to engage in economic activities subsequently increasing the future per capita income (Bintara, Najmudin & Istiqomah, 2013). The described self-empowerment should ideally lead to social entrepreneurial activity in a form of ‘self-help’ (Aaronovitch, 1996). In these circumstances social entrepreneurship emerged to assist in solving social problems (Mair, Robinson & Huckerts, 2006; Nicholls, 2006). The social entrepreneurial approach can be characterised as finding innovative solutions to these social problems (Johnson, 2000; Basu, 2012). Social entrepreneurial activity is largely dependent on the social entrepreneur (Bornstein, 2007). This is considered to hold true for social enterprises as well.2 The motivations of social entrepreneurs can be various. Prabhu (1999) argues that the social entrepreneur is unsatisfied with the status quo and feels the need to be socially responsible. Thompson et al. (2000) categorise the motivations of social entrepreneurs in either vision-oriented or crisis-vision-oriented. The linking stance is the social mission that drives the social entrepreneur (Basu, 2012).

However, previous scholars acknowledge that there are different kinds of social entrepreneurs (Johannisson & Olaison, 2007; Mawson, 2007). Fowler (2000) defines three categories of

2_{As the social entrepreneur is at the heart of the social enterprise, implications from theory will be assumed to}

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social entrepreneurship. The first is ‘integrated social entrepreneurship’ that redefines economic activities to create social benefits. The second is ‘re-interpretation’ of not-for-profit organisations that are able to diversify and create social income. Thirdly, ‘complementary social entrepreneurship’ uses for-profit activities to subsidise not-for-profit areas. The business approach to social entrepreneurship is characterized by the usage of a commercial enterprise to create social values and describes the research setting of social enterprises (Alter, 2001). The literature assumes highly knowledgeable actors that apply their entrepreneurial business skills to create a social impact beyond commercial values (Emerson & Twersky, 1996; Basu, 2012). In contrast, Dees (1998) identifies the mission-oriented approach to social entrepreneurship that emphasises the social value creation independently from an economic market value. As the social value is highly subjective, its interpretation depends on personal experience (Nicholls, 2006; Basu, 2012). Social entrepreneurship can significantly contribute to the reduction of poverty (Basu, 2012). To achieve poverty reduction one has to enhance productivity, wellbeing and empowerment (Chambers, 1997). An emphasis is laid on empowerment that is defined as ‘degree of control over one’s own circumstances and destiny of individuals, their families and communities’ (Basu, 2012: 45). Thus, one can assume that a reduction in poverty leads to economic development (Chambers, 1997).

Multi-level economic development

A stream of scholars has modelled the process and prerequisites for economic development on a local respectively regional level.3 As can be seen in figure 1, Stimson et al. (2009) propose that regional endogenous development (RED) is dependent on the resources, endowments and market conditions in a region. Concerning the endowments, the authors refer to Blakely’s (1994: 144) 5M, namely materials, manpower, management, markets and money. Market conditions refer to competitive advantages of a region found in functionalities such as location, trade and industry specialization (see as well: Johansson & Karlsson, 2001). Institutions and leadership, both fostering entrepreneurship, determine how successful a region is vis-à-vis to others. These are in dynamic interrelationship. The authors define leadership in the context of RED as ‘the tendency of the community to collaborate across sectors in a sustained, purposeful manner to enhance the economic performance or economic environment of its region’ (Stimson et al., 2009: 32-33). As key characteristics of leadership the authors see ‘collaboration, trust, shared power, flexibility and entrepreneurialism’

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(Stimson et al., 2009: 41-42). Furthermore, one has to add that the authors understand these actions on a collective level instead of an individual one. As an outcome, a region becomes sustainably competitive and entrepreneurial (Stimson et al., 2009).

Fig. 1: A framework for regional endogenous development (Stimson et al., 2009)

Building up on the work of the aforementioned scholars Vredegoor and Pennink (2013) developed a model for the local level of economic development. Using quality of the local institutions, the authors adapt the model of Stimson et al. (2009) to the local level. In line with the aforementioned authors leadership, entrepreneurial activity and institutions work in interplay to stimulate economic activities. However, the authors acknowledge the fact that empowerment is of utmost importance to create value. Here the authors introduce the concept of social capital as a measure for empowerment, which has been neglected by Stimson et al., (2009). Stakeholders on the local level have to be cohesively aligned and can successfully contribute to the local development through entrepreneurial groups. On a local level not only the return on investment of the entrepreneurial activities, but also the quality of life for the local people is important (Vredegoor & Pennink, 2013). In further research Pennink (2014) introduces the national level with the established triple helix model of economic development consisting of government, universities and businesses/industry (Etzkowitz & Leydesdorff, 1995; Pennink, 2014). A local level, namely local institutions, universities and social entrepreneurs, has extended the triple helix model. The reasoning is that national

Resource Endowments and Market Conditions

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The dynamic interrelationship that act to create the catalysis for regional

development (I) Institutions (L) Leadership (E) Entrepreneurship OUTCOME A Region that is Competitive Entrepreneurial Sustainable (RED)

Measure and evaluation change over time. Benchmark performance

(e.g. regional shirt component in shift-share

analysis)

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governmental actors have to consider local actors. They can achieve fragmented economic development on a lower regional and municipal level resulting in ‘interplay’ between the various actors (Pennink, 2014). These factors shape LED as found by previous scholars (Huismann & Pennink, 2012; Schoot Uiterkamp & Pennink, 2012).

Social entrepreneurship as a connector

Social entrepreneurship can possibly touch all these levels. As Basu (2012) argues, social entrepreneurship leads to social capital creation fostering in turn commercial entrepreneurship. In this research social capital is defined as ‘the aggregate of the actual or potential resources which are linked to possession of a durable network of more or less institutionalized relationships of mutual acquaintance or recognition’ (Bourdieu, 1985: 248). Basu (2012) acknowledges that the social entrepreneur can either be indigenous or an outside actor. The indigenous view is in line with Stimson et al. (2009) that only control for indigenous factors. Pennink (2014) argues that local social entrepreneurs are the link between the local and national level. According to Jonker (2012) there are new business models emerging that incorporate the social mission of social entrepreneurship with a commercial business opportunity and entrepreneurship. These companies are creating multiple values in the sphere of social entrepreneurship and can be labelled social enterprises. As aforementioned they are new outside actors in the field of LED. Hence, social enterprises have the possibility to reduce poverty through opening up an international market for local actors by integrating actors on different levels into a GVC (Chambers, 1997; Pennink, 2014). Social entrepreneurs are embedded in the network society (Kelly, 1998). Therefore, these networks are important ‘entrepreneurial tools’ to improve and operate in the society (Karlsson & Bjerke, 2013). Humphrey and Schmitz (2001) argue that network types of governance foster innovation. Previous scholars have pointed out the importance of innovation for the stimulation of entrepreneurship (see e.g. Bessant & Tidd, 2007; Drucker, 2014). In network relationships it can be assumed to be easier to fulfil this task as the built up of social capital and the flow of resources and information is more sophisticated. The richer network flow should lead to a better value chain integration of actors along the chain, which has a beneficial influence on economic development (Humphrey & Schmitz, 2000).

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2.2 The integration of local actors in the GVC

Social Capital

Social Entrepreneurship is a concept that has been broadly discussed in the literature (King & Roberts, 1987; Leadbeater, 1997; Cornwall, 1998; Thompson, 2002). A linking stance between these scholars is a proactive and innovative mind-set of social entrepreneurs. Therefore, it is proposed that a social entrepreneurial initiative such as the HSP has an active role and is able to influence the GVC integration through the built up of social capital (Basu, 2012).

Based on the previous literature one can assume that the integration of a local actor is influenced by the amount of social capital the actor is able to build up. The foundation lies in the embeddedness theory, which proposes that local actors are embedded in social networks that are exploited in order to maximize the personal utility function (Granovetter, 1985). It has been argued that initiatives working towards building social capital define social entrepreneurial actions (Weerawardena & Mort, 2006). Other authors have argued that actors can leverage their potential within social networks and create potential spillovers (Portes, 1998; Sturgeon, van Biesebroeck & Gereffi, 2008; Contreras, Corillo & Alonso, 2012). Zak and Knack (2001) argue that social capital increases trust, which consequently reduces transaction costs and moral hazards between the involved stakeholders, which subsequently leads to higher investment motivation and economic development.

Bridging, bonding and linking social capital in the network society

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and more diverse resources. Therefore, one can argue that the consequence of value chain integration is that resource poor actors can only obtain resources if their network is connected to resource rich ones. Basu (2012) argues that social entrepreneurs use social capital bridging to close this gap.

Linking social capital describes the ties that link actors of lower order respectively authority to higher order actors (Woolcock & Narayan, 2001; Alridge et al., 2002). Therefore, one can assume that not only the capital richness of the social entrepreneur, but also the linking social capital endowment of the local actors is relevant for value chain integration. Sturgeon et al. (2008) point out that socially embedded local actors can better fulfil the operational requirements of the GVC and simultaneously upgrade their position in the value chain if they leverage the existing knowledge of their social network. Building up on the previous literature and considering the social entrepreneurial context, it is therefore proposed that social capital is crucial for the integration of local actors in a GVC as it reduces transaction costs between chain actors, bridges resource intensive and poor networks and can additionally increase the position of the local actor in relation to other stakeholders through linking social capital.

Proposition 2a = Social capital benefits the value chain integration as it offers opportunities to bridge between networks and to obtain additional resources.

Proposition 2b = Linking social capital is used to connect lower authority local actors with higher authority social entrepreneurs in the process of value chain integration.

Value chain governance

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Humphrey & Schmitz, 2004). Upgrading relates to the innovative capacities of an actor to increase the value added in its processes and products (Giuliani, Petrobelli & Rabellotti, 2005). Therefore, it is proposed that the governance structure, in particular the degree of power asymmetry within the GVC, plays a vital role for the successful integration of actors in the value chain. It has an important influence on the communication and coordination between the respective actors within the chain. In the long run not only the integration of local actors but also the upgrading of the same can be considered important (Coe et al., 2004).

Power asymmetry

One has to bear in mind what determines the upgrading process of local actors in relation to the governance structure of the GVC. The more hierarchically organized the GVC, the more the stakeholders are vertically integrated and the higher the power asymmetry between the stakeholders. Considering hierarchies managerial control, defined as higher order actor control over lower order actors, is the most important mean of governance mechanism, which consequently leads to inequality (Gereffi et al., 2005). In contrast, equality is necessary to share resources and knowledge along the chain to profit LED (Pennink, 2014). Therefore, one could argue that the more hierarchically organized the GVC, the more difficult it gets for the local actor to upgrade into strategically important functions and develop sustainable structures that determine the quality of the local situation (Stimson et al., 2005). Gereffi et al. (2005) argue that in relationally governed value chains, resources and knowledge are shared in a close relationship due to the high dependency and complexity of transactions between the actors.

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Bjerke and Karlsson (2013) support this line of reasoning. The authors argue that in our network society the economic unit can be defined as a network. Governance mechanisms are important to coordinate exchanges in these networks. Trust is determined to foster the quality of the resource and information flows in the network – an antecedent for the successful integration of a social entrepreneurial initiative in the value chain (Bjerke & Karlsson, 2013). One can argue that relational governance mechanisms as described by Gereffi et al. (2005) foster the built up of trust between the actors in the chain through close ties and social capital bridging. This type of chain governance facilitates the necessary flow of information and resources. Therefore, one can make more specific propositions on the integration into relational value chains:

Proposition 3a = Social entrepreneurial initiatives use relational governance structures to manage the high dependency of the actors in the value chain and provide the resources needed considering the high transaction complexity.

Proposition 3b = Trust and bridging social capital, used to govern the spatial distance within the relationally governed value chain, foster value chain integration.

2.3 The multi-stakeholder dialogue as a tool of sustainable development

Frequency of interaction

A social entrepreneurial GVC requires a multi-stakeholder dialogue to align interests with stakeholder groups within the social entrepreneurial network and the relationally governed value chain (Bjerke & Karlsson, 2013). In this context, the frequency of communication is important. Becerra and Gupta (2003) found that with an increasing frequency the predetermined attitude between trustor and trustee becomes less relevant, which in turn fosters the built up of trust. Trust determines the way actors are integrated in the GVC in the sense that it determines the governance form of the same (Gereffi et al., 2005). Additionally, network theory argues that trust reduces opportunistic behaviour and fosters the integration into networks (Thorelli, 1986; Jarillo, 1988; Powell, 1990; Lorenz, 1988).

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Furthermore, a higher number of interactions lead to a higher amount of social capital, which in turn reduces transaction costs within the networks (Dosi, 1988; Putnam et al., 1993). GVCs can be considered as such kind of networks. Hence, it is argued that the frequency of communication, measured in number of interactions between the stakeholders, positively influences the integration of a local actor into a GVC. Thus follows:

Proposition 4 = A high number of interactions within a multi-stakeholder dialogue leads to the built up of trust and social capital, which is beneficial for the integration into relational value chains.

Variety of interactions

As mentioned before, social enterprises create values beyond economic rationality. Previous scholars have linked this multiple value creation to sustainable development, which requires alignment of new actors such as NGOs, private sector organizations and social entrepreneurs (Seelos & Mair, 2005). Furthermore, sustainable development has been elaborated in chapter 2.1 leading to proposition 1. Sustainable development shall therefore be applied as a second outcome variable besides value chain integration (Wackernagel & Rees, 1997; Hopwood, Mellor & O’Brien, 2005). Bardy, Rubens and Massaro (2015) argue that four perspectives are relevant to successfully achieve sustainable development – an economic, ecological, institutional and social perspective, which are depicted in figure 2. This interrelated perspective dates back to the Brundtland report that introduced a causal link between society, environment and economy (World Commission on Environment and Development, 1987).

Economic sustainability is enshrined in the Hicks-Lindahl concept of maximum income

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Fig. 2: Multi-stakeholder dialogue dimensions (Bardy et al., 2015)

Ecological sustainability aims at preserving as well as regenerating bio-diversity and

ecological systems (Common & Perrings, 1992). Considering the research setting of the SRRCP, compassionate conservation is introduced. Traditional conservation mainly involves trading off individuals of different species against each other. This predominantly involves killing individuals of one species to regenerate another one. The prerequisite for this view of sustainability is that one sees animals in terms of species and populations (Cornwall, 2014). However, this approach has gained an increasing number of critiques arguing that the first presumption should be to do no harm to any living individual (Bekhoff, 2015). Therefore, compassionate conservation tries to solve conflicting situations, either between two species or with human involvement, without the trade-off and killing of individuals. In this study the applicability of compassionate conservation will be tested for the case of the SRRCP.

Social sustainability is defined as ‘the interface between development and the social norms

that prevail in the respective stakeholder groups. It seeks to maintain the stability of social systems, to reduce their vulnerability and maintain their resilience’ (Bardy et al., 2015: 27). An important concept in this context is the aforementioned social capital. Social networks and ties between local entrepreneurs can foster beneficial and stable local economic conditions (Jacobs, 1961; Putnam, 2000). These networks preserve critical assets, are linked to

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institutional features and can only be actively pursued if they are combined with practices and capabilities (Lehtonen, 2004; Bardy et al., 2015).

Finally, the institutional perspective describes an extension of the classical sustainability triple-helix, as described in the Brundtland report, consisting of social, economic and ecological factors to a quadruple helix. The reasoning is that any change in the former three perspectives can only be successfully implemented if the corresponding governmental institution is backing up, fostering and monitoring the change (Bardy et al., 2015). These institutions bridge the group interests and resources on regional, national and local levels. Burchell and Cook (2008) argue that trust, changing relationships and organisational learning are determinants of an effective stakeholder dialogue on sustainability. Furthermore, previous scholars state that a successful achievement of sustainable development can only be possible through a multi-stakeholder dialogue instead of aiming for a separate maximization process of all four perspectives (Bardy et al., 2015). An interrelation process of the four perspectives has to be achieved. Additionally, Burchell and Cook (2008) argue that the stakeholders engaging in a successful dialogue have to understand the implications of engaging in such a dialogue and have a long-term commitment view. Taking into account the previous findings on stakeholder dialogues one can argue that not only the aforementioned number of interactions is relevant but also the variety of the same. Consequently, variety of interactions is defined in terms of the four distinctive dimensions introduced by Bardy et al. (2015). Thus follows:

Proposition 5 = Sustainable development requires a diverse multi-stakeholder dialogue in terms of actors that represent social, ecological, economical and institutional perspectives.

2.4 New ways of looking at business models

New Business Models according to Jonker (2012)

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that results in new ways of doing business and consequently in a new, different type of business model. Value co-creation is defined in this paper as collaborative initiative of value chains and/or networks linking new partners and creating a sustainable value on multiple levels that is shared across the network (Osterwalder & Pigneur, 2009; Jonker, 2012).

According to Jonker (2012) many of the new business models are embedded in the blue respectively circular economy. This approach moves away from the linear economical model of production, consumption and disposal to a restorative economy that circularly recycles the disposed products in a closed-loop process (Yuan, Bi & Moriguichi, 2006). One example of a circular business model is the cradle-to-cradle fishing gear recycling of the HSP. Therefore, it is proposed that the business activities of the HSP are clearly embedded in the new business model theory with the aim of value co-creation (Jonker, 2012). Previous scholars argue that organizations have to open up their boundaries and rethink the term of ownership with a shift from firms to networks. The sustainable outcome has to be organized between NGOs, other companies and further stakeholders. Additionally, governmental institutions receive a special focus, as many have not yet adopted the new notion and strategy of sustainable development in a way of value co-creation. However, the governmental agents have a clear stimulus purpose and should be aligned (Jonker, 2012). This is clearly in line with the multi-level sustainability discussed in chapter 2.3. New business model theory argues that value chains should be upgraded to value networks relying on close ties between the various stakeholders and that these networks should be deeply anchored in the local society (Jonker, 2012). This is directly linked to the value chain theory elaborated in chapter 2.2. As previously argued in propositions 2a and 2b, social capital is highly relevant for the integration of a local actor into networks and determining its upgrading possibilities. Based on the literature one can argue that this relevance holds for the business model of social enterprises as well.

Relevance for the Happy Seal Project

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such initiatives need a high capability of bridging interests between diverse stakeholders and a long-term commitment to the cause (Alvord et al., 2002).

As previous scholars have shown, entrepreneurship is exceptionally important for economic development in a local and regional setting (Stimson et al., 2009; Vredegoor & Pennink, 2013; Pennink, 2014). Therefore, one has to define what is local in the context of the HSP. The project is embedded in the region of the Dutch Wadden Sea, which it aims to clean and preserve equally for the seal and human. As an UNESCO World Heritage the region is a unique asset for the Northern part of the Netherlands (Wadden Sea World Heritage, 2015). However, the Northern part is one of the most economically and structurally weak in the Netherlands and strongly affected by demographic and economic changes (Organization for Economic Co-Operation and Development, 2013). Economic development in a sustainable way is needed to preserve the Wadden Sea as a world heritage for future generations of visitors. Social entrepreneurial initiatives, such as the HSP, are important for the sustainable development of a region as they take over responsibilities as governmental institutions are withdrawing from public spaces (Bjerke & Karlsson, 2013). The authors define public places as ‘physical, virtual, discursive and/or emotional arenas which, in principle, all citizens have the right to participate in and which all citizens should feel responsibility for’ (Bjerke & Karlsson, 2013: 58). The conservation of the Wadden Sea can be considered as such a public place. Bjerke and Karlsson (2013) argue that social entrepreneurs should not only fill this gap but also create citizenry. In other words they should create awareness among the inhabitants within the devoted region in order to create a social movement.

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2.5 Theoretical model

Refining the main research question

The literature review and proposition development allow refinement of the main research question. Sub-questions 1.1 and 1.2 follow the GVC theory logic of Gereffi et al. (2005) elaborated in chapter 2.2: What are the governance mechanisms in a social entrepreneurially

initiated value chain? Are the actors coordinating over the whole chain or only in parts?

Chapter 2.2 points out that the governance type can be assumed to influence the knowledge and resource transfer along the chain (Gereffi et al., 2005). This raises sub-question 1.3: To

what extent are resources and knowledge shared along the chain and what is the influence thereof in relation to the multi-actor, multi-level model? The HSP still has to position itself in

relation to other stakeholders in the GVC and determine a strategy. As a consequence a rather practical sub-question 2 follows: How is the value chain built up? Subsequently a sustainable business model as described by Jonker (2012) has to be determined. Sub-question 2: What are

the prerequisites of a business model for the Happy Seal Project in order to exploit the opportunities of the emerging value chain? Lastly, it becomes interesting if and how the

integration into the GVC has an effect on the sustainable development of the region the social entrepreneurial initiative is operating in.

Conceptual model

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3. Research Methodology

In its very nature the research question of this paper describes a qualitative phenomenon, because it explores the not yet researched antecedents and process of actor integration into social entrepreneurially initiated GVCs and it’s influence on LED. Eisenhardt and Graebner (2007) argue that such questions describe previously not sufficiently explored areas (Edmondson & McManus, 2007). Consequently, the main research method is a grounded theory approach using in-depth interviews. The reason is that rich data about the emerging field of social entrepreneurially initiated GVCs within the multi-level model of LED is not readily available. The grounded theory approach is exceptionally useful when determining new theoretical approaches (Hennink, Hutter & Bailey, 2011). However, many scholars traditionally assume that theory-building approaches are less precise, objective and therefore reliable and valid compared to a larger scale hypothesis testing (Eisenhardt & Graebner, 2007). This stems from a positivist view on research, arguing that only objective, observable data is relevant. This view on research limits the role of the researcher to data collection and subsequent objective analysis of the same (Thomas, 2004). Positivist researchers argue that reliability and representativeness are endangered as the researcher acknowledges and uses own interpretations of subjective data. To counter this common belief the study should be rich in information from interviews, archival data, survey data, ethnographies and observations (Eisenhardt, 1989; Eisenhardt & Graebner, 2007). Previous scholars state that at least three of these sources should be used in a triangulation approach (Golafshani, 2003; Thomas, 2004; Yin, 2014).

‘Inductive analysis means that the patterns, themes, and categories of analysis come from the data; they emerge out of the data rather than being imposed on them prior to data collection and analysis’ (Patton, 1980: 306). Bowen (2008) describes the sensitizing concepts as guiding principles as well as starting points for inductive research. Sensitizing concepts from the social entrepreneurship, value chain and new business model theory have been used throughout the research process, which have been elaborated in the literature overview.

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3.1 Data collection method

In order to obtain rich data for theory building, a semi-structured in-depth interview approach has been chosen. The semi-structured, in-depth interview is appropriate in the sense that it offers a guideline of inquiry as well as a higher degree of freedom to dive more deeply into specific topics (Yin, 2014). It allows adapting the questions to the situation and setting of the interview (Thomas, 2004; Yin, 2014). The questions in the interview guide have been derived from the sensitizing concepts found in the previous literature and are closely related to the propositions and developed conceptual model, which increases the internal validity of the research (Thomas, 2004). Probes have been used to further delve into specific issues, in case the participant raised them. A complete overview of the questions is disclosed in appendix 2. The questions have been used to assess the propositions derived from the theory on accuracy and to refine them where necessary. For the sake of validity and transparency, the participants have been informed about the questions and concepts before the interview (Whetten, 1989). One has to bear in mind various biases that occur during interviews and decrease the reliability of the research (Guba, 1981; Shenton, 2004). The interviewer bias can be considered offset by the additional value of the possibility to enrich the information via non-scheduled, more deeply questioning. The possibility of biased data through retrospective sensemaking and impression making of the participants is countered with ‘highly knowledgeable informants who view the focal phenomena from diverse perspectives’ (Eisenhardt & Graebner, 2007: 28). The interviewees have been chosen based on purposeful sampling. They are ‘chosen because they are particularly suitable for illuminating and extending relationships and logic among constructs’ (Einsenhardt & Graebner, 2007: 27). Therefore, the data sample has been drawn from knowledgeable respondents from social enterprises engaging in the collection and recycling of marine debris to clearly link the data to the HSP. Another criterion is the outside actor role in the communities respectively regions they are operating in. The selection of such highly knowledgeable informants in a very specialized industry has led to a total number of five in-depth interviews, which have been conducted in November 2015. For every interview 60 minutes were scheduled.

Expert A is the director of a social enterprise with the ultimate aim to create a fishing gear

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GVCs and possible obstacles in the process of doing so. The social enterprise collects fishing gear on many coasts in Europe and Turkey and has integrated local actors such as the fishermen and fishing gear producers from many countries in their supply chain. Furthermore, it is coordinating the recycling process with partners in various European countries. As a member of one of the longest operating organizations in the fairly new process of fishing gear recycling, Expert A has gained idiosyncratic knowledge that is valuable for the research process.

Expert B is the innovation director of a unique project empowering local, artisanal fishermen

in Asia and Africa. The social entrepreneurial initiative is a partnership of a European for-profit organization and a NGO. Therefore, the initiative can be described as an outside actor in the local communities, working together with local actors such as local leaders and local NGOs. The collected fishing nets are sold to an international recycler and the profits are re-directed into the local community in form of a community bank. Through the community banking approach the initiative empowers the local community with the access to finance, funding and the know-how of net-collection and prices for the same. Micro-loans and insurances are offered and local community members have the possibility to save a part of their income. The community banking approach gives them autonomy on their financial decisions and the ability to plan more securely strategically ahead. The initiative brings together different commercial, public, environmental and social interests in a multi-stakeholder initiative that works in a social entrepreneurial context to solve the marine litter problem in combination with local poverty reduction.

Expert C has been chosen being a member of two organizations deemed important for the

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Expert D is the CEO of a Northern American company integrating artisanal fishermen as well

as industrial fishing syndicates in Latin America in their supply chain of producing products from recycled fishing gear. In a social enterprise is cooperating with NGOs, local leaders and communities by offering them an additional source of income and a waste management system for their fishing nets. The waste management system is lacking due to privatization of public spaces. Therefore, the company is creating values on multiple social, environmental and economical levels through holistically incorporating the four system conditions of a sustainable society along their business cycle (The Natural Step, 2015). Interesting for the research process is the outside actor role of the social enterprise being founded by Northern American citizens in the local Latin American context.

Expert E is the Co-Founder of a social enterprise that tries to solve the social entrepreneurial

problem of poverty reduction in some the poorest countries in the world. The approach is to turn plastic bottles into a currency offering local communities a new source of additional income and financial security. Acting as an outside social entrepreneurial broker, the social enterprise stimulates entrepreneurial activity on the local level by providing the communities with the necessary technology and know-how, setting up regional collection hubs and organizing the recycling process. Using long-term involvement and local actor cooperation, the SEETO is able to build up durable structures to increase the economical resilience of the community and offer a long-term perspective. Using a replicable model the social enterprise will soon set out to include multiple communities on different continents. Expert E is a social entrepreneur not involved in fishing gear recycling, but related plastic recycling business. This is an opportunity to cross-validate findings in a related social enterprise.

3.2 Data analysis4

The in-depth interviews are recorded to increase transparency, reliability and feasibility. Verbatim transcripts of the interviews built the basis of analysis. All identifiers that could relate to the participant have been excluded to ensure anonymity. Hennink et al. (2011) argue that verbatim transcripts are exceptionally useful for achieving an emic perspective on the data. The verbatim transcripts are analytically read line-by-line, using annotation to get a first overview of patterns and preliminary codes (Strauss & Corbin, 1998). In order to refine these

4 _{To increase transparency the coding and memoing process, including the verbatim transcripts and codebook,}

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preliminary codes, different coding techniques are applied. The advantage is that the range of raised issues and their attached meanings can be understood alongside with ‘topical-markers’ that make the locating of data easy (Hennink et al., 2011). In a first step, open coding is used to determine overarching codes apparent in the data in relation to the concepts derived from the literature review (Berg, 1989; Burnard, 1991). These codes are noted in a codebook to increase transparency and feasibility (Hennink et al., 2011). Following Hennink et al. (2011), only 3 out of 5 interviews have been used to generate codes. Additional codes have been added to the codebook, if they came up in applying the codes for interview 4 and 5. In a second step axial coding is used to determine categories. The idea is to compare and bring back together the codes generated through the open coding process (Strauss & Corbin, 1998; Kendall, 1999). The aim is to make new connections between the derived codes, derive categories and get a first picture of possible relationships between the categories. Subsequently, selective coding will be used to derive central concepts to adapt the conceptual model. After each coding step a code tree has been developed to structure the process, gain the big picture and increase transparency (Boeije, 2002). The participants have been given the opportunity to evaluate the findings with means of a questionnaire in order to increase reliability and achieve triangulation. The questionnaire is disclosed in appendix 22.

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4. Results

After initial coding and analytical reading in the open coding process, the in-depth interviews have been analyzed using a technique from Strauss and Corbin (1998) that focuses on the context/conditions, actions/strategies and consequences that each participant described. These categories are used to analyze why and how the social enterprises have integrated local actors into their supply chain. A special focus has been laid on the GVC and the governance of the same, which values are included and the characteristics of the interactions of the actors. The first part encompasses the context/conditions and actions/strategies. In the second part, the findings of the distinctive interviews are compared to refine the propositions derived from the literature review. In the final part the abstraction of the data is achieved. The outcome is an adjusted conceptual model that refines the existing theory and describes the process of actor integration into the GVC using social entrepreneurship.

4.1 Description

In a first step the context and conditions are explored to determine the motivations and external influences triggering the set-up of social enterprises. In a second step the actions and strategies are explored that determine the way local actors are integrated and how the value chain is used and governed to achieve a social entrepreneurial business outcome.

4.1.1 Context and conditions

The trigger for setting up a social enterprise is twofold. On the financial and classical entrepreneurial side it becomes apparent that there is a business opportunity that results from a need due to an inefficient status quo. To determine if a status quo is inefficient, the social entrepreneur has to be aware of the external environment that determines the success of the venture. Important are privatization processes that result from withdraws of governments from public spaces (Helmsing, 2003; Bjerke &

Karlsson, 2013). In the case of marine debris, and fishing gear in particular, there is either a non-existing waste management system or a very inefficient one that does not pay attention to the handling and recycling obstacles of the material. The outcome includes the second side - the environmental one. Whereas the existing system is financially

inefficient for the involved actors, it is inefficient for the environment as well. Looking at

“So what started from a very wild idea of how can we involve the fishing community of the maritime industry in solving part of the issues from bringing what is out there back on land turned out to be a product.” -

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developing countries, marine debris becomes more and more a problem that affects the quality of life of local communities and their artisanal fishery. Here it becomes even more apparent that the privatization process of former government responsibilities has led to an inefficient outcome that offers a possibility for social entrepreneurs to seize a business opportunity that can create value for the local communities as well by meeting their need of a waste management system (Expert D), financial security (Expert B) or empowerment (Expert E).

To fill such a void the social entrepreneur has to have a certain mindset that allows risk taking and a long-term vision. Most importantly, the participants stress that operating in a former void means creating from scratch, which involves

innovation along the whole business process. In

terms of material, focal points are collection and handling processes. As Expert A stresses in the quote, new partners for transportation and recycling had to be found. Due to the fact that there is no benchmarking technology in recycling, fishing gear technology has to be developed in-house. The innovation process encompasses the value chain as well. Building up a value chain from scratch involves bringing together actors that have not been connected before. The participants stress the importance of the network in this process. Therefore, the network has to be strengthened, new ties have to be made and actor interests aligned.

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4.1.2 Actions and strategies

Addressing the value chain, a clear difference becomes apparent if one examines the recycling process in a developed country in contrast to a developing country. As can be seen in figure 4, the most evident difference is the number of actors involved in the upstream activities. In the first chain a local collector is responsible for the local level and transports the material to a regional collector that in turn transports it to a national recycler. This chain describes the developing country context of Experts B, D and E. In the second chain a regional collector directly picks up the material and

transports it to an international supplier. In both chains the fishing gear is dismantled through pre-sorting, washing, cutting and extruding the raw material. In the end pallets are produced that are sent to international manufacturers in different kinds of

industries. In the second chain a clear focus is laid on circularity - where possible, the gear is recycled into new fishing gear and re-used. The differences indicate different drivers in the upstream processes. Experts A and C stress capital intensity, cost efficiency and economics of scale, which result in fewer actors in the upstream part of chain two. The other three participants clearly point out the necessity of social values such as financial security, quality of life and employment. Experts B and D indicate that there is a friction between the upstream and downstream parts. In chain one the social entrepreneur strives for cost efficiency as well, but the intrinsic motivation is to give back as much value as possible to the local communities.

“I am pretty sure that if we have the stable market there is a return on investment for everyone to make, but we have to work on cutting down the logistic cost.” - Expert C

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Fig. 4: Value chain of marine debris recycling

Local level Local level Regional level National level International

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The value chain governance can be described as a network. The social enterprise is plugged into different kinds of networks that interact. In four out of five cases, the social enterprise is a joint effort of partners that share the ownership of the social enterprise (Experts A, B, C and E). These partnerships can be described as the core group network bound by a friendship-like relationship. It can be differentiated between the core group with very strong ties and a wider circle of outside actors that are integrated through weaker ties. The participants stress the relevance of the size of such networks. Stronger ties

with fewer actors are considered to be more effective, or as Expert B puts it, its ‘walk versus talk’. These networks can be described as very open with a strong affinity to include outside actors. Especially within the core group it is a very dense network, with strong ties and a very close

collaboration (Aldrich & Whetten, 1981; Rogers & Kincaid, 1981). The function of the core group network is crucial in the value chain built up. Operating in a developing industry the core group offers knowledge on processes and recycling technology, such as induction technology (Expert C) or technology for bailing (Expert B) or dismantling fishing gear (Expert A). Additionally, it provides contacts to members in the wider network that are needed to approach customers and suppliers. In case of Experts B, D and E they offer local, cultural knowledge in developing countries and in the case of Experts A and C access to umbrella organizations of local actors, such as fishermen. Lastly, the core group network is an important source of funding to cover the extensive costs for setting up the business process. The collaborative relationship between the actors within the core group is transferred to the

whole chain. The central key for the coordination in the chain is cooperation and knowledge respectively resource sharing. These characteristics are comparable to a relational value chain described by Gereffi et al. (2005). The chain is characterised through the aforementioned networks that create very complex and intertwined connections with high asset specificity in terms of technology (e.g. net bailing and recycling) and relationships, as the social enterprise is the only buyer of material from local actors. This dependency is governed through trust that results from a long-term commitment and transparency of the social

“We are always looking outside to connect. But the one thing I would say is I would rather connect with three people really well and actually collaborate and share information than struggling connections with fifty people.” - Expert B

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entrepreneur. However, reputation and trust are not built up through ethnic ties or geographical proximity, as Gereffi et al. (2005) suggest, but within a value network that represents the basic logic that drives the chain (Jonker, 2012). The participants stress that complying with these values is of utmost importance to be integrated into the chain. The central point is to create a sustainable business model with values on a triple-bottom-line level – social, economic and environmental values. Expert C argues that a triple-bottom-line can only be achieved if there is a high equality between the actors in the chain and a mutual benefit for all involved, with the social enterprise coordinating and connecting. Therefore, one can argue that the value chain can rather be described

as a value network, where there is a shared value creation and responsibility between the actors and stakeholders. In the end it comes down to what Expert C calls a ‘multi-stakeholder horizontal co-creation’, where interests and benefits of actors and stakeholders are aligned on a sustainable triple-bottom-line level.

However, it becomes apparent that the emphasis on the three categories of values is different for each value network researched. Economic sustainability in terms of business continuity is at the core of all five models and ensures a long-term value generation within the network. Expert E stresses that without profit there is no possibility to grow and extending the business model to create triple-bottom-line values that are redirected into the value network. On the environmental side, the common ground is on conserving marine life and reducing the carbon footprint. The difference, however, lies in the social value side. The social enterprises of Experts A and C are mainly producing social values for the public, by offering a solution for the marine litter problem of fishing gear on a large scale. This is achieved by striving for cost efficient numbers in terms of quantity, actor involvement and public education to collect as much material as possible. A process Bjerke and Karlsson (2013) call public entrepreneurship. On the contrary, the social entrepreneurial efforts of Experts B, D and E tackle the same problem of marine litter, but approach the problem with small-scale solutions within local communities. Subsequently, this business model is geographically scaled with means of a replicable model. This replicable model involves a blue-print on how to contact local communities, which actors to involve and how to scale and scope, gain trust and embed. The ultimate goal is a replicable model working independently from culture and community.

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Horizontal co-creation consequently implies diverse multi-actor engagement on multiple

levels to achieve a mutual benefit for the actors involved. The participants mention three fields of engagement. The first is the governmental side. Despite the business opportunity arising due to privatization processes and governmental withdraw, the public authorities set the level field of playing for the social enterprise. Turning a material that has previously been considered as waste into a value product leads to conflicting regulations and laws within and between the different countries of the supply chain. Experts A and C stress the need for lobbying, especially on a supranational level, to obtain permissions. However, the government also acts as an enabler by providing funds in the start-up phase of the social enterprise. The only exemption is Expert E that stresses no governmental involvement to increase autonomy, flexibility and

effectiveness of making decisions. However, Expert E represents a classical Northern American view on social entrepreneurship (Bjerke & Karlsson, 2013).

The downstream part of the value chain has to be engaged to create a demand for the product. All social enterprises are using the

triple-bottom-line story to connect with the customer. The intrinsic value of such a connection is seen as boosting sales and considered higher than the actual value of recycling nets. In order to create a demand, the social enterprise has to genuinely connect with the customer. The more values are offered, the more possibilities of emotional connections are given. To co-create the customers are offered platforms to express their views. The ultimate goal is to create a ‘movement’ (Expert E), where actors are actively approaching and demanding the product to create a market for the recycled material.

The local actor engagement can be described as twofold. One has to differentiate between the described community and public level engagement. Similar on both sides is the usage of the existing value network contacts to approach umbrella organizations or

“[…] people like more to join a movement than they like to, you know, to help a company out. So the more you can genuinely connect with what the people care about is when you get people going out of their way to introduce you to the right people, which is again typical for the social enterprise. Like when you have a triple-bottom-line end solution and hitting those things people care about.”- Expert E