Social enterprises should be viewed as development organizations



1 MASTER THESIS / MASTER S THESIS Title of the Master thesis / Title of the Master s thesis Opportunities and challenges of cooperation between social business and development cooperation organizations. The interaction from the perspective of the actors involved: potential, criticism and practicability. written by / submitted by Svenja Katharina Wiemer, BA aspired academic degree / in partial fulfillment of the requirements for the degree of Master of Arts (MA) Vienna, 2016 / Vienna, 2016 Study key number according to study sheet / A degree program code as it appears on the student record sheet according to the study sheet / degree program as it appears on the student record sheet: Supervised by / Supervisor: Master's degree in international development PD Mag. Ursula Werther-Pietsch

2 Table of Contents List of Figures List of Tables List of Abbreviations Brief Summary Abstract VV VII VIII IX 1 Introduction Problem Definition Objective Course of the Argumentation Basics of Social Entrepreneurship Social Entrepreneurship Social Business Discussion of terms: social enterprise Discussion of terms: social enterprise Social business according to Muhammad Yunus Limitation of the research topic Four business models for social business and their examples Homo Economics and social entrepreneurs Risks in social business Social business at the interface of economy and state Previous points of contact between development cooperation and economy Attempted definition Development and historical derivation of development cooperation .. 18 I

3 3.1 Development Enabling Environment Social Business Abroad: Distance on Many Levels Evaluation of the Concept of Social Business Definition of Social Business in Practice Positive Reception of the Concept Negative Reception of the Concept Evaluation of the Definition of Social Business according to Yunus Evaluation of the Legal Framework for Social Business II

4 7.2 Social business in the event of state and market failure Social business as a solution, CSR or marketing Social business as an expression of criticism Social impact characters in (social) companies Linking social business and development cooperation Basics of cooperation between development cooperation and social business What common interests do the two have? Parties exist? Why should EZA cooperate with social enterprises? Why should social enterprises cooperate with EZA? How do entrepreneurs imagine their involvement in development cooperation? What difficulties and solutions do founders encounter? How do social businesses choose countries for expansion? Links between social business and development cooperation in practice What role should social entrepreneurs play in development cooperation? What can (future) support for social business look like? How can entrepreneurs support EZA? How are previous experiences in the cooperation? What preparations and conditions does the cooperation require? Challenges in cooperation Operational challenges in cooperation Challenges of different basic orientations and structures Challenges of timely and measurable target achievement Opportunities and practical advantages in cooperation Strategic advantages through common interests Operational and economic advantages Good starting point: Existing potential ready for use Functions of the business models of social business evaluation of business models for social business Case study: Social Entrepreneurship Challenge Objective of the Challenge Selection criteria for the Challenge Lessons learned III

5 9 Discussion of results, recommendations for action and conclusions Potentials of linking social business and EZA critical points of linking social business and EZA Model for linking social business and EZA Recommendations for action Answering the research question and conclusion Bibliography 159 Acknowledgments Appendix Interview key questions Transcript 1: Matteo Landi UN Industrial Development Organization (UNIDO) Transcript 2: Frank Hoffmann Discovering Hands (DH) Transcript 3: Stephan Nunner Austrian Development Agency (ADA) Transcript 4: Klaus Candussi Atempo Transcript 5: Martin Hubinger AG Global Responsibility (AGGV) Transcript 6: Gudrun Zimmerl / Christoph Eder ICEP IV

6 List of figures Figure 1: Specification and research share Figure 2: Business models of social business Figure 3: Business partnerships Figure 4: Social impact investment framework Figure 5: Normative and practical level Figure 6: Interview partners and levels of development cooperation 46 Figure 7: Mechanisms of action List of tables Table 1: Details of the interviews Table 2: Development cooperation from the perspective of the actors involved Table 3: Economy and development and its implications for social business 51 Table 4: Social business and the profit and development perspective Table 5: Social enterprise and business vs. Development Enabling Environment 57 Table 6: Engagement of social business abroad Table 7: Evaluation of the concept of social business Table 8: Definition of social business in practice Table 9: Positive reception of the concept Table 10: Negative reception of the concept Table 11: Definition of social business according to Yunus Table 12: Evaluation of the legal framework for social business Table 13: Social business in the event of state and market failure V

7 Table 14: Social business: solution competence, CSR or marketing strategy Table 15: Social business as an expression of criticism Table 16: Social impact Table 17: People in (social) companies and their characters Table 18: Common interests of development cooperation and entrepreneurs Table 19 : Reasons for cooperation between EZA and social enterprises Table 20: Reasons for cooperation between social enterprises and EZA Table 21: Presentation of social entrepreneurs with regard to their commitment. 92 Table 22: Challenges and solutions for start-ups Table 23: Selection of countries for expansion Table 24: Role of Austrian social entrepreneurs in development cooperation Table 25: Support for social entrepreneurs through development cooperation Table 26: Support for development cooperation through social entrepreneurs Table 27: Previous experience in cooperation Table 28: Preparations, steps and conditions for cooperation Table 29: Challenges of cooperation Table 30: Advantages of linking EZA and social business Table 31: Business models for social business Table 32: Case study: Social Entrepreneurship Challenge Table 33: Objectives of the Social Entrepreneurship Challenge Table 34: Selection criteria for the Social Entrepreneurship Challenge VI

8non-profit organization non-governmental organization Official Development Assistance Organization for Economic Co-operation and Development Austrian Development Cooperation Interview partner Public Private Partnership Private Sector Development Sustainable Development Goals Social Impact Investment United Nations United Nations Industrial Development Organization Economy and Development Impact-oriented Investing VII

9 Brief summary Social business has received increasing attention in recent years due to its combination of economic and social components. In this research work, a link to development cooperation (EZA) is established based on a literature research and qualitative interviews and presented in a final model. The structure follows an increasing specification based on the superordinate area of ​​economy and development (S&E) to the concept of social business in order to link social business with development cooperation in the following. There are diverging opinions with regard to development, R & D and the justification of social business, but a convergence of the economic sphere and the social sector can be observed. With the increasing involvement of the private sector in development cooperation, social business can achieve a social impact in satisfying basic needs and solving social problems, especially in developing and emerging countries, and support the fulfillment of global development goals. At the interface between social business and development cooperation, there is further potential such as the creation of innovations, addressing new target groups, focusing on strengths and empowering young people and women, as well as practical advantages. Approaches for criticism can be found in commercialization, which however does not lead to the removal of the underfunding of the social sector, the presentation of serious problems as a business idea and the supplementary function to capitalism or depoliticization. The connection between social business and EZA is very promising and has great potential worldwide. For this, state and economic actors must not be released from their responsibility, the identification of difficult to work on goals must be coordinated and the development goals of the countries of the south brought to the fore. VIII

10 Abstract In recent years, social businesses have received increasing attention due to their unique combination of economic and social components. In this research, a link to development cooperation is created based on a literature review and qualitative interviews and illustrated in a model. The work takes a bottom-up approach to analyzing social business, starting from the economy and development towards the concept of social business before finally addressing the link between social business and development cooperation. Divergent opinions exist concerning development, the connection of economy and development, as well as the right to exist of social businesses; regardless, a convergence of the economic sphere and the social sector is evident. With the increasing involvement of the private sector in development cooperation, social businesses can have a strong social impact and support the accomplishment of global development goals. Like actors in development cooperation, they are satisfying basic needs and address social problems, especially in developing and emerging countries. At the interface of social businesses and development cooperation itself, further potential arises in developing innovations, addressing new target groups, focusing on strengths and the empowerment of young people and women, as well as offering advantages in daily practical work. Critics raise the arguments of increased commercialization which does not solve underfunding of the social sector, the presentation of serious problems as business ideas and the supplementary function to capitalism or rather depoliticization. The combination of social businesses with the development cooperation is promising and has great potential worldwide. Therefore, state and economic actors have to bear responsibility for reaching this potential, the identification of superordinate aims has to be coordinated and development objectives of the Global South have to come to the fore. IX

11 The fact that social entrepreneurs have direct ownership for development outcomes and also the ability to experiment and learn in a local context might point to essential success factors. (Seelos / Mair 2007: 278). This arouses curiosity for a more detailed investigation. We hope you enjoy reading it! X

12 1 Introduction No or only unsatisfactory solutions have so far been found for many of the new, major challenges such as climate change, poverty, refugees and migrants, youth unemployment, but also the safeguarding of social systems (Meichenitsch / Neumayr / Roitner 2013: 3); (Freudenschuß-Reichl / Bayer 2008). With the adoption of the Millennium Development Goals, the Paris World Climate Agreement and the Sustainable Development Goals, the international community is showing possible directions for possible solutions. The private sector has also been subject to ever greater changes, particularly in recent years. The shocks of the financial crisis in 2008, scarcity of resources and blatant wage spreads are only examples to be mentioned as motivators in the search for alternative economic approaches. In companies, this change was reflected in corporate social responsibility, the trend towards sustainability and, due to changed consumer behavior, the sale of fair trade and certified organic products. With social entrepreneurship, there is now a new type of economic activity that promises added social value. In the new types of company, social business, social enterprise or social enterprise, socio-ecological components are linked with economic thought and action patterns (Yunus 2010); (Yunus 2007); (Roitner 2013); (Dees 1998); (Mair / Martí 2006). Social business is given a high level of problem-solving competence, especially in those areas in which state and market forces fail (ibid.); (Seelos / Mair 2007). Furthermore, they can meet needs at different levels, offer innovative solutions that are adapted to the context and can promote social and economic development, especially in countries characterized by poverty (Seelos / Mair 2004: I). 1

13 Introduction Development cooperation pursues similar goals (Freudenschuß-Reichl / Bayer 2008), (Schafer / Haslam / Beaudet 2012). Consequently, this master's thesis brings together social business and development cooperation and explores to what extent a possible cooperation between the various actors can take place. In the course of the introduction, the problem, the objective and the structure of the work are explained in more detail. 1.1 Problem definition Efforts to promote development can already be observed with Muhammad Yunus, who first became known through the system of microcredits and subsequently decisively shaped the concept of social business (Yunus 2007); (Yunus 2010). In the international trend towards greater involvement of the private sector in development cooperation, social business has so far played a subordinate role. When looking at the orientation, objectives, target group and the field of activity of social business, overlaps with development cooperation can be observed. In a possible cooperation of social business with actors in development cooperation, normative as well as practical challenges arise: Does a cooperation make sense in terms of content and practicality and do the actors want this cooperation? The question therefore arises as to how actors basically stand on the subject of economy and development, how they evaluate the concept of social enterprises, what advantages and disadvantages result from cooperation and how this can be structured. 1.2 Objective The aim of this master’s thesis is to contextualize social business within the framework of development cooperation and to embed it in the field of business and development. With the help of a literature research and voices from practice, both potentials and critical points of the cooperation are shown. In this research work, both a basic basis for cooperation should be created and practical approaches should be explained. The possible cooperation is ultimately abstracted in a model. 2

14 Introduction The linking of social business and development cooperation is relatively new in academic discourse as well as in practice and is only just beginning, especially in Austria. This master's thesis is the scientific creation of a common basis with an outlook on the practical implementation. However, the research work does not deal with the details of the specific design of the individual case, but rather paints a holistic picture in which information on practical implementation is sometimes given: The basic idea of ​​social entrepreneurship is based on the statement that profit is a means, not an end. The next step is to figure out the real purpose. (Harbrecht 2010: 99). 1.3 Course of the argumentation The research work is divided into a theoretical part, the explanation of the research design, the empirical interpretation and a concluding compilation of the results, with 10 chapters including the introduction and appendix. For a simplified understanding, the phenomenon of social business will first be explained and characteristic features of this type of company and the founders will be discussed. A conceptual understanding of development and development cooperation is also essential, which is created in Chapter 3 and linked to previous approaches in the field of economy and development. Chapter 4 brings together the thematic blocks from the previous chapters and shows the connection between social business and development cooperation. Figure 1: Relationship of the specification to the research share: An increasing level of detail leads to a larger share of the research work. Source: Own illustration, after the explanation of the research design follows the empirical elaboration, which follows the structure of an ever more extensive specification with increasing evaluation volume: The superordinate area economy and development in chapter 6 forms the framework for then querying the concept of social business in chapter 7 and then to link social business with EZA in Chapter 8. 3

15 2 Basics of social entrepreneurship A conceptual discussion is essential to narrow down the subject of research and its naming, especially since many definitions can be found in this research field (Mair / Martí 2006); (Dees 1998); (Jansen 2012). However, this makes a clear definition more difficult, so that so far different accentuations, lines of discussion and schools have emerged (Gluns 2016: 470ff.).The terms social business and social enterprise are often used interchangeably and with the same meaning (Vandor et al. 2015: V, 6f.). The situation is similar with the terms social enterprise or social enterprise, which are often used in the same context and sometimes congruently in scientific literature as well as in practice (ibid.). This master's thesis mainly works with the terms social business and social enterprise, which require a broader contextualization in the field of social entrepreneurship, classification and delimitation from related organizational forms. 2.1 Social Entrepreneurship Social Entrepreneurship describes the economic activity aimed at solving social problems (Nicholls 2008: 1ff., 12f., 23); (Simon 2014: 208f.). This refers to the added value of an economic as well as of a non-profit nature (Mair / Martí 2006: 1). This can be called the lowest denominator of the numerous, inconsistent definitions (Fueglistaller et al. 2012: 405ff.); (Hackl 2009: 6). The English word social is correctly translated as social in order to cover a wide range of socially relevant topics, especially social and ecological (Hackl 2009: 7). These central issues characterize social entrepreneurship as a special form of entrepreneurship (Mair / Martí 2006: 1). Social entrepreneurship has the potential to accelerate social change and to address needs (Mair / Martí 2006: 1). Social 4

16 Basics of social entrepreneurship Entrepreneurship is to be understood as a process (Loucks 1988: v). Innovative and effective activities that focus strategically on resolving social market failures and creating new opportunities to add social value systemically by using a range of resources and organizational formats to maximize social impact and bring about change. (Nicholls 2008: 1) This definition emphasizes the innovative character of social entrepreneurship and at the same time draws attention to social entrepreneurship as a reaction to the solution to market failure. This underlines the complementary function of social entrepreneurship to the capitalism prevailing in many countries with a simultaneous demand for social change. The terminology of social entrepreneurship has only been used as an object of scientific research since the mid-1990s, although the associated field of activity is already very old (Dees 1998: 1); (Loidl-Keil 2002: 343); (Leitner 2011: 5). As a research field, it opens up new opportunities to question and rethink economics and social change (Mair / Martí 2006: 1). Critics see social entrepreneurship as a misorientation and a false hope of countering the causes of the crisis in the capitalist economic system through this more conscious way of doing business. Social entrepreneurship is a complement to prevailing capitalism; the causes of the crisis, however, are systemic and can therefore only be combated with a new economic system. Only the changed attitude of consciousness is rated positively (Simon 2014: 208f.) 2.2 Social Business Social business as a form of social entrepreneurship aims to pursue a social objective (social) with an entrepreneurial approach, whereby innovations do not necessarily have to be present in social business (Roitner 2013: 8); (Vandor et al. 2015: 6). The following description of social business is used in particular for this master’s thesis. An Austrian meta-study analyzed 110 papers with regard to their definition of social business and identified four definition criteria that characterize a social business. These criteria make it easier to use when deciding whether 5

17 Basics of social entrepreneurship, the company concerned is a social business and is therefore used as a working definition in this master's thesis. The intended positive social objective, treated as priority, as well as the generation of market income in social business represent unconditional characteristics. This is also the reason for the difference to traditional companies. In traditional companies, the positive financial situation is often the goal, while for social business the financial resources are only a necessary basis for achieving the goals (Harbrecht 2010: 92). In addition to these two mandatory criteria, a limited distribution of profits and the participation of central stakeholders represent target criteria. The intended social impact is the most important criterion for differentiating it from conventional companies. In Austria, around 3,000 organizations meet this description of social business (Vandor et al. 2015: vi) Discussion of terms: social enterprises Due to different connotations, it would be shortened to present social enterprises as the German counterpart to social business. The merits of the term “social enterprise” are set out below. Social enterprises develop social innovations for current social problems (Loidl-Keil 2002: 344). This definition shows how the translation into German can cause inconsistencies. In this context, social is equated with social, but the meaning of social has two different expressions. On the one hand, it is defined socially as serving the common good, [...] and protecting the [economically] weaker (Duden 2015). The charitable meaning is emphasized here. In contrast to this, social can also be defined socially as not living individually (Duden 2015); (Leitner 2011: 22). In Austria, the socio-economic enterprises in particular are to be named as a model of social enterprise. As an instrument of labor market policy, socio-economic companies are characterized by the integration of transit workers, long-term unemployed and / or people with further disabilities. Similar to social business, they are shaped by economic objectives, but usually differ from them in their proximity to funding agencies. (Loidl-Keil 2002) 6

18 Basics of social entrepreneurship Discussion of terms: social enterprises Due to the lack of clarity in the term social business in the German language, Leitner suggested the translation of the social enterprise (GU) (Leitner 2011). Leitner goes even further and advocates the introduction of a specially tailored legal form. The term social enterprise is logically consistent in that it eliminates the differences in meaning between social business and social enterprise. Social business and social enterprise are to be used in the same way. This takes account of the main objective of this form of organization, as addressing not only social dimensions but also ecological issues (Vandor et al. 2015: 6). Furthermore, in contrast to social enterprise, the term social enterprise creates a greater distance from the non-profit connotation of social. Social enterprises are to be distinguished from charitable associations, as they operate according to market conditions and actively participate in economic market events (Vandor et al. 2015: 7). Leitner emphasizes another advantage of preferring the term social enterprise to that of the social enterprise: In a negative demarcation the question asks how a non-social enterprise, i.e. an anti-social enterprise, should be defined. Leitner consequently states that companies cannot be anti-social due to their fundamental intention to satisfy the needs of customers in order to generate profits. (Leitner 2011: 23) Leitner sees the proposal of a separate legal form for social enterprises as a step on the way to a socially and ecologically compatible market economy. The already existing social business have disadvantages that a separate legal form could remedy: The self-commitment to an organizational, social or societal goal as well as the distribution and maximization of profits can be lifted at any time (Leitner 2011: 7, 17). Furthermore, social business would be much more visible in the legal form of the social enterprise. Social business according to Muhammad Yunus The concept of social business is inevitably linked to the Nobel Prize winner Muhammad Yunus, who used the term in his 2007 book Creating a World 7

19 introduces the basics of social entrepreneurship without poverty (Yunus 2007); (Leitner 2011: 13). This is the most influential definition of social business worldwide (Vandor et al. 2015: 5). It puts the fight against poverty as the overall objective of social business in the foreground (Vandor et al. 2015: 5). Yunus was best known for setting up the Grameen Bank, which grants microloans to people living in poverty. However, other actors misused this concept, used great leverage and presented microcredits as a panacea for all problems, which among other things led to high suicide rates among borrowers (Klas 2011). Yunus defines social business based on a normative approach, because the aim of this type of company is to solve a social problem through economic action (Yunus 2010: 25). This applies to two types for him, which is why two forms of expression are distinguished: On the one hand, there are economically profitable, no dividend-paying companies that have dedicated themselves to solving a social problem and for this purpose all profits in Reinvest the company to start a social business. However, it can be assumed that Yunus wants to emphasize the financial independence of donors, subsidies and sponsors with the name economically profitable and that the name, organizational form and the character of social business will not change even in economically bad, unprofitable times. If this is his intention, however, this can improve the reputation of social business and Yunu's concept, since only profitable social businesses can call themselves such. On the other hand, companies that generate profits are also referred to as social business as long as they belong to the poor in the form of direct participation or a trust committee and have also set themselves the goal of combating a social problem. (Yunus 2010: 26) The following seven principles serve to simplify the limitation of social business according to Yunus (Yunus 2010: 27): 1. The aim of the company is to overcome poverty or other problems that threaten people. 2. The company will work in a financially and economically sustainable manner. 3. Investors only get back the amount invested. 4. As soon as the investment amount is paid back, profits are reinvested. 8th

20 Basics of social entrepreneurship 5. The company will work in an environmentally conscious manner. 6. The employees receive wages and salaries that are customary in the market; the working conditions are above average. 7. Do your job with joy. These seven criteria offer a lot of leeway with regard to the objectives of the company and the way of working. So far, there is no certification process or a separate legal form for social business in place, so that differentiation can be difficult. Yunus also clearly distinguishes itself from social enterprises. In contrast to social entrepreneurs, Yunus understands social entrepreneurship as any activity that addresses social problems, even if the principles for a social business are not fulfilled. Social entrepreneurship can therefore be reflected in the operation of a social business, but there is no automatic mechanism for the opposite case: not every initiative by social entrepreneurs is a social business. (Leitner 2011: 19); (Yunus 2010: 28f.) Relationship between social entrepreneurship and social business Social entrepreneurship describes the activity of a person or organization and therefore mainly describes a process, even if the company is the focus of considerations in social business. The discussions around social innovation are, however, particularly in the area of ​​social entrepreneurship, while this is not the case with social business. Innovations are therefore a characteristic of social entrepreneurship, but not of social business. The novelty of the solution approaches for social problems does not have to be given in social business. However, since both approaches pursue social goals through economic activity, social business can be understood as a specific form of social entrepreneurship. (Vandor et al. 2015: 6). 2.3 Limiting the subject of research: Negative conceptual delimitations The difficulty of the definition demands to distinguish social business from other forms of organization and solutions to social problems. In the following, a conceptual demarcation from the related subject areas of Nonprofit Organization (NPO), Non Governmental Organization (NGO), Commons, Solidarity Economy, 9

21 Basics of Social Entrepreneurship Economy for the Common Good and Corporate Social Responsibility (CSR). Demarcation from Nonprofit Organization (NPO) and Non Governmental Organization (NGO) Nonprofit organizations share with Yunus' definition of social business that there is a ban on profit distribution, but not profit generation (Heitzmann 2000: 14). In any case, entrepreneurial activity distinguishes social business from NGOs and NPOs (Gluns 2016: 471); (Roitner 2013: 8). NPO predominantly offer services, which, in contrast to social business, is not the case; An example is the large yoghurt-producing social business Grameen Danone (Badelt 1999: 3); (Sardana 2013). Further definition criteria for NPOs are their tax status, which allows NPOs to be understood as non-profit companies; their sources of income, according to which more than half of the income is generated through membership fees or donations; the formulation and pursuit of an objective and its social role insofar as they primarily serve the common good (Badelt 1999: 7f.). For social business, these demarcations are still difficult to draw due to the novelty of the concept and the inconsistent appearance. Social business can be organized as an NPO, company or association (Vandor et al. 2015). There are overlapping points in particular with regard to the social role as well as the organizational goal. According to a functional definition, NPOs provide services that serve disadvantaged population groups or minorities, who can lie in the promotion of freedom and empowerment of people and are committed to social change (Heitzmann 2000: 14 quoted from McCarthy et al. 1992 : 3). Furthermore, NPOs are organized, self-administered and characterized by voluntariness. Therefore they differ from the informal sector, from compulsory associations and from sub-organizations that can be assigned to a company, for example (Badelt 1999: 3); (Heitzmann 2000: 16f.). In Austria, the ties of many NPOs to political parties and the Catholic Church can be observed (Heitzmann 2000: 12ff.). Nevertheless, associations, self-help groups and other smaller grassroots organizations can be rated as a living expression of civil society (Heitzmann 2000: 12). The third sector forms a kind of buffer zone between state and society (Badelt 1999: 107 quoted from Douglas 1987). 10

22 Basics of social entrepreneurship Differentiation from the commons The concept of the commons puts the community in the foreground and sees itself as the opposite pole to capitalism. Even if the objectives, such as the reduction of poverty, can show similarities with those of social business and social entrepreneurship, the commons represent a fundamental criticism of the existing economic system rather than a supplement to it. Commons are often [equated] with goods to be managed jointly, but commons are not things, resources or goods, they are rather a set of social structures and processes (Helfrich / Bollier 2015). They represent objects of common interest or common values ​​(Simon 2014: 217ff.). Examples of this are the online encyclopedia Wikipedia as an exemplary knowledge commons, the self-administration of an irrigation system in the Alps or the joint management of forest areas and community workshops, with around 50 types of commons being distinguished (Linksvayer 2012); (Helfrich / Bollier 2015: 13, 18f.). Commons question distribution, power and ownership structures and take up questions of self-organization and resource use. Since social business and social entrepreneurs are usually not ascribed this characteristic, representatives of the Commons also set themselves apart from these concepts (Pühringer / Hammer 2013); (Dimmel / Meichenitsch 2013). The currents from which the concepts of commons and social business or social entrepreneurship originated also differ. Commons and the associated process of commoning was largely shaped by the political scientist Elinor Ostrom, who published Governing the Commons in 1990 (Ostrom 2015).In addition, the constitutional lawyer Lawrence Lessing contributed in particular to the establishment of the Creative Commons license and initiated a broad debate about free access to culture (Lessig 2004). Thus, no economic intention can be assumed. Demarcation from the solidarity economy The solidarity economy can hardly be limited in terms of definition due to the desired diversity, but pursues social, democratic and ecological goals and criticizes the capitalist system. In the solidarity economy, new ways of doing business are tried out, which aim at a supplementary function or also an overcoming of capitalism. The comparison with an island is used, since actors of the solidarity 11

23 Basics of social entrepreneurship in the economy act within the existing system, but seek solutions outside of it (Simon 2014:). Social business, on the other hand, does not turn away from capitalism with this vehemence, but rather tries to find solutions to social problems with market forces. The two approaches thus to a certain extent pursue an opposing mode of action. Differentiation from the economy of the common good In the economy of the common good, the main focus of the economy is not on financial gain, but on the pursuit of common good (Felber 2012: 13f., 15). With this concept, Christian Felber founded an international movement that strives for the implementation of the economy for the common good. In this concept, the conventional balance takes a back seat, while the common good matrix becomes the most important balance sheet of every company: Based on the contribution to the common good, taxes are calculated, customers are given purchase recommendations and sanctions are issued (Felber 2012: 39-59). This economic system is accompanied by restructuring in the positioning of the banks, school teaching, property rights and the political system, so that ultimately a new social and economic model emerges. This is where it differs significantly from social entrepreneurship, which does not demand a new social system with such emphasis. The creation of awareness is highly valued in the economy of the common good - this is also a topic of conversation again and again for social business. On the other hand, there are clear differences in the form of organization. The economy for the common good shows features of a social movement that claims to determine its own orientation in democratic voting processes (Simon 2014:). Differentiation from Corporate Social Responsibility (CSR) The perception of social responsibility by classic, profit-oriented companies is part of the considerations of corporate ethics and is subsumed under the catchphrase Corporate Social Responsibility (Thommen / Achleitner 2009: 117). The idea of ​​voluntary assumption of social responsibility by companies follows the triple bottom line, i.e. by taking into account economic, ecological and social objectives (Müller 2015: 212f.). (Quandt 2013) This form of corporate responsibility is mostly used as a communication measure in the 12th

24 Basics of social entrepreneurship, it can also be found at the management level in the area of ​​corporate strategy (Etter / Fieseler 2011: 273). Corporate social responsibility measures can, on the one hand, serve the common good and cannot be directly attributed to the company, or, on the other hand, meet specific formal goals of the company, such as image enhancement, loyalty or a goodwill buffer, which gives companies a broader scope for action in crises (Thommen / Achleitner 2009 : 117); (Hansen 2014: 9 quoted from Hansen / Schrader 2012: 160). The aim of CSR measures is often to compensate for external effects that arise from business activities (Thommen / Achleitner 2009: 117). The Sustainability Reporting Guidelines of the Global Reporting Initiative have established themselves as a standard instrument in sustainability reporting (Müller 2015: 216). The intention to make a profit as the primary goal distinguishes companies that practice CSR from social business, whose primary goal is to solve social problems. Furthermore, the emergence of externalities, as is the case with traditional companies, is unlikely due to the different corporate objectives in social business. This makes CSR activities obsolete in social business. 2.4 Four business models for social business and their examples Vandor et al. distinguish between four different types of social business: (i) Integrated social business: The social impact lies with the employees of the social business while (ii) the social impact is aimed at the customers of the social business. In the (iii) differentiated social business, on the other hand, there is cross-financing: For example, an NGO owns a profit-oriented subsidiary, from whose profits the social impact of the NGO is financed. (iv) Sustainable Business do not align their social impact with a target group, but rather address society and the environment in general. (Vandor et al. 2015: 21-26). Yunus also goes into the possibilities of cross-financing (Yunus 2010:). In general, however, a stronger focus on solving a direct social problem can be observed at Yunus than is the case with the broad-based Sustainable Business (Yunus 2010: see for example 91f., 181). 13th

25 Basics of social entrepreneurship An example of an integrated social business (i) is the magdas Hotel of Caritas Services GmbH, in which mostly refugees are employed (but see also Dialogue in the Dark, in which small groups of blind people are guided through a completely darkened exhibition (see Category (ii) of integrated social business is particularly interesting for development cooperation organizations, as this form of organization wants to support the customer group. Thus, a large number of social businesses in this category provide products or services for residents in developing countries One example is Helioz GesmbH, which provides an innovative instrument for water disinfection (see and (Vandor et al. 2015: 23f.)). As an example of cross-financing a social business (iii), Yunus cites in Bengali Ges Inconvenience the sale of two operations to wealthy patients, while a needy, third patient has to pay little or nothing (Yunus 2010: 145). Vandor et al. Calls as an example the association Footprint, which offers sports courses for women, some of whom were victims of human trafficking. Affected women pay less, while the other women even partially finance other club activities in this way (see and (Vandor et al. 2015: 24f.)). The eco-fair fashion label Göttin des Glücks is to be classified as Sustainable Business (iv): In addition to fair and organically produced materials, the company focuses on reasonable wages and is committed to raising awareness of sustainability (see also the bicycle delivery service Rita brings s for organic food is an example for this category (see and (Vandor et al. 2015: 25f.)). 2.5 Homo Oeconomicus and social entrepreneurs The dominant model of Homo Oeconomicus depicts people as rationally acting individuals striving to maximize profits (Brazda et al. 2006 Milton Friedman's famous saying that the only social responsibility of business is to increase its profits (Friedman 1970: 32) is part of this tradition

26 Basics of social entrepreneurship Figure 2: Four business models of social business. Source: (Vandor et al. 2015: 22) Own illustration. However, people responding to such a simple behavior pattern is not tenable in reality and more complex needs also emerge in economic life (Brazda et al. 2006: 15-36); (Yunus 2010: 11ff.). Yunus even sees this as the basis for the existence of social business, since in this form of organization both selfish and selfless character traits of people are served (Yunus 2010). The economic activity is no longer questioned extensively, since a solidarity-based departure can only show weighty results if it can also satisfy the homo economicus in the cooperating, i.e. more than just ideal support is achieved. Finally, it must be kept in mind that economic activity that sees itself as social is now subject to modern performance and efficiency criteria. (Brazda et al. 2006: 6f.) Thus, no far-reaching change in the economic system is required, but in addition to the Homo Oeconomicus there are other behavioral models such as the homo sociologicus or homo cooperativus (Brazda et al. 2006: 15-36). These diverse needs are also sometimes met by conventional companies such as The Body 15

27 Basics of social entrepreneurship that position themselves as do-gooders and observe ethical principles with regard to human rights, animal testing and sales structures (Nolan 2013). 2.6 Risks in social business The positioning of social business at the interface between the third sector and the market economy means that competition is increasing in both areas: Since social business can also receive allocations of public funds, they compete with charities, which are struggling with declining donations to have. The less reliable measurement of the social impact of social business as well as the preference for a market-based solution for social problems should be considered. At the same time, social business can serve as a role model for other companies in terms of social responsibility. In the literature, under the heading of creaming or crowding-out, a phenomenon is known in which only those target groups are served that appear financially attractive, less profitable activities are then neglected and the organizational goal is changed as a result (Vandor et al. 2015: 11). Sometimes target groups cannot be integrated into a business model. Sometimes there can also be a discrepancy between the actual needs of the target group and the needs of the target group perceived and served by the company. Since social business is not controlled by the state or in any other form and is not subject to any democratically legitimized mandate, a mismatch can arise, as an inappropriate offer of services may not lead to a societal solution to the problem, there are overlaps and access does not is correct or the postulated solution is not in the interests of the target group. (Vandor et al. 2015: 11) Vandor et al. summarize, therefore, that the state must ensure that social business can develop into an important complementary and source of ideas for the state, the economy and the third sector, but not as a substitute for the performance of certain social tasks by the state or other actors in civil society. (Vandor et al. 2015: 11) 16

28 Basics of social entrepreneurship 2.7 Social business at the interface of economy and state The discussion about the mostly dichotomous juxtaposition of economy and state with the frequent debate about the respective competencies and rights is also relevant for the concept of social business and requires a positioning. The boundaries between the three segments economy, society and the third sector have recently been weakened again and again; on the one hand, because the traditional division was shaken by financial and economic crises, on the other hand, because technology allows new organizational possibilities (Müller 2015: 95); (see section 2.3). These forms of organization include, for example, the sharing economy, crowdsourcing and funding. The legislature is still struggling with the adequate handling of these new forms. Examples of this are the (impending) legal disputes with a Waldviertel shoe manufacturer regarding corporate financing from small loans and the lack of a license in Germany to transport passengers for drivers of an American transport service broker (Steindorfer 2015); (Anonymous 2015). Social companies are to be positioned at the interface between the market and the third sector (Vandor et al. 2015: 1). This gives them the potential to dissolve the economy-state dualism to a certain extent in order to solve semi-public tasks or areas of activity of the third sector with an economic approach. This is also where the attractiveness of social enterprises lies: The positively connoted solution of social problems with economic discipline (Dees 1998: 1). If problems such as hunger, lack of co-determination, homelessness or climate catastrophes are solved economically, the social, ecological, but also economic parameters for this activity must be taken into account. The positioning of social business has the highest relevance for developing and emerging countries: In many poor countries, neither governments nor markets cater to even the most basic needs of their citizens. (Seelos / Mair 2007: 271). This represents fundamental barriers to development and prosperity. In this vacuum, social businesses have the opportunity to step into the gap, to satisfy basic needs and to promote development. 17th

29 3 Previous points of contact between development cooperation and business A closer examination of the amalgamation of development cooperation and social business requires a thorough understanding of both areas. Since social business can also be understood as economic actors due to their economic activity, an explanation of the previous interface between economy and development is inevitable. The most important overlaps between the fields of action are therefore explained below. 3.1 Attempt to define development and historical derivation of development cooperation The concept and definition of development has changed over the years and has always been part of controversial discussions. So it is not surprising that there is currently no generally applicable definition (Gad 2014: 32). The striving to improve living conditions on which development is based is, however, as old as humanity itself (Currie-Alder et al. 2014: 3). The association of development with economic growth and modernity that emerged after the Second World War is still dominant today (Schafer / Haslam / Beaudet 2012: 17). Critics, on the other hand, see the development discourse as a pretext for the expansion of capitalism, a continuation of colonialism and the formation of a power hierarchy in favor of the global North (Schafer / Haslam / Beaudet 2012: 17). In this master's thesis, however, according to Nuscheler, development is viewed as an active process that is free from relationships of dependency. Here development is understood as the development of one's own potential and does not mean being developed passively (e.g. through development aid), but rather actively developing oneself (Nuscheler 1996: 179); (Messner 2002). This description follows the tradition of Amartya Sen's idea of ​​freedom, who describes development as a process in which people expand the freedoms they enjoy (Harriss 2014: 36); (Sen 18

30 previous points of contact between development cooperation and business in 2008); (Sen 2009: 231); (Messner 2002). Gad rightly points out that reality is still far from this (Gad 2014: 34f.). With that paradigm shift that began in the 1990s, the concept of development aid was successively replaced by development cooperation in order to demonstrate the participation of all, but the merely conceptual change does not automatically determine a partnership on equal terms in practice (Gad 2014: 75). Historical derivation of development cooperation The idea of ​​development and development cooperation requires a brief historical explanation. The emergence of a development paradigm can be divided into two discourses, the first of which arose in the eighteenth and nineteenth centuries, particularly at universities, when economists investigated questions of the distribution of wealth, economic growth and basic behavioral patterns. (Currie-Alder et al. 2014: 3). The second phase with the discursive idea of ​​development or, vice versa, underdevelopment is mostly traced back to the former US President Harry Truman, who in his inaugural address describes the poor living conditions in underdeveloped areas while at the same time emphasizing his own industrial and scientific achievements (Truman 1949: 5). Against the background of the East-West conflict, this speech can be interpreted as a justification for development policy interventions and pursues security policy agendas (Schafer / Haslam / Beaudet 2012: 5ff.); (Williams 2014: 22f.). At the same time, the dichotomy of development and underdevelopment implies the measurement of the level of development on the basis of a scale, which indicates assumptions of modernization theory (Schäfer / haslam / beaudet 2012: 5f.). The concept of the Third World, which originally emerged as a counterweight to the two great powers USA and Soviet Union and their respective military blocs, gives the same impression (Schafer / Haslam / Beaudet 2012: 5f.). This unfortunate terminology implies a hierarchy, which was mostly also poured into numbers through the gross domestic product (GDP).The advantage of GDP per capita as a simple indicator of prosperity is offset by major weaknesses in the mapping of social and ecological dimensions, 19

31 Previous points of contact between development cooperation and business so that the Human Development Index (HDI) was developed (Sachs 2015: 17); (Schafer / Haslam / Beaudet 2012: 14f.). When the capital-based model, with its reliance on economic growth, did not achieve the desired effects, it gave way in the 1970s to a strategy aimed at securing basic needs (Taylor 2012: 164); (Desai 2012); (Morrison 2012: 240f.). The large debt rates triggered, among other things, by the oil price crises led to social, political and economic crises, which the IMF and the World Bank tried to overcome through structural adjustment programs as part of the Washington Consensus (Taylor 2012: 165ff.); (Morrison 2012: 241). The publication of the Brundtland report Our Common Future by the United Nations World Commission on Environment and Development in 1987 paved the way for a sustainable understanding of development and the idea of ​​sustainable development also shaped the adoption of the Millennium Development Goals in 2000 and those of the Sustainable Development Goals in 2015 (Sick 2012: 317f.); (Morrison 2012: 242ff.); (UN General Assembly 2015). Focus on Austria In Austria, the Development Aid Act was passed in 1974, which was replaced by the EZA Act in 2003 (Obrovsky / Raza 2012: 15); (Heitzmann 2000: 137). As early as 1985, however, the competencies were shifted from the Federal Chancellery to the Federal Ministry for Foreign Affairs (BMaA today: BMeiA), which also corresponds to a shift in the priorities of the Federal Government (Obrovsky / Raza 2012: 15). Against the background of the Millennium Development Goals, the Austrian Development Agency was founded in 2004 as an agency owned by the Federal Ministry for European and International Affairs (BMeiA) to improve implementation and professionalization (Obrovsky / Raza 2012: 17). In view of the strong fragmentation and underfunding of Austrian development cooperation, it is sometimes questioned whether the existing structures are sufficient (Obrovsky / Raza 2012: 16). The targeted provision of 0.7% of GNI for development cooperation has not been achieved for a long time and Austria is well below the EU average; In 2014, EUR 863 million or 0.26% of the GNI of public money was made available for development cooperation (Obrovsky / Raza 2012: 16); (Raza 2013: 12); (Obrovsky 2015: 12). The Austrian Development Cooperation (ADC) does not include, like the term 20

32 Previous points of contact between development cooperation and industry suggests all activities of Austrian organizations in development cooperation, but refers to that part of the BMeiA budget that is intended for ADA development projects (Obrovsky 2013a: 100f.). For 2013, ADC amounted to 82 million euros including basic compensation for administration and disaster funds, in 2012 the same and in 2011 89.4 million euros were budgeted, which corresponds to a recent decline (Obrovsky 2013a: 100f.). However, this ADA budget represents only a small part of Austria's total financial contributions to developing countries; this amounted to million euros in the year. In addition to the services classified as ODA, this also includes other public services such as export credits and debt relief measures, as well as private services at customary market conditions, such as e.g. Direct investments and export credit guarantees, and grants from private aid organizations, such as those represented by funds from NGOs (Obrovsky 2013d); (Obrovsky 2013b); (Obrovsky 2013c); (Hüpfl / Obrovsky 2013) Explanation of the terms developing and emerging countries The naming and description of phenomena, people, things, places and processes reflect predominant paradigms, especially in development research, and the use of the terms developing country and emerging country is also controversial (Schafer / Haslam / Beaudet 2012 : 5). Designations give the named object the appearance of legitimacy and in this way can influence political decision-making. The terms developing country and emerging country give the impression of a sequence of development stages or a comparability of the countries on the basis of a simplified, universal scale. (Schafer / Haslam / Beaudet 2012) The term `` countries of the global south '' appears more appropriate due to the emphasis on geographical features. The simplistic subsumption on the locality does not take into account the existence of donor states in the southern hemisphere or recipient states in the northern hemisphere and does not allow any further historically or socially connoted constructs. Furthermore, the global south is known as an independent concept, especially among practitioners of development cooperation and development researchers. However, the focus of this master's thesis goes beyond that and is also intended to appeal to people outside the EZA community. In the interests of easier communication and the equally common equivalent in English, the term developing and emerging countries is mostly given preference, but this terminology should not be taken to imply 21

33 Previous points of contact between development cooperation and business that these [countries] are making progress towards development or that those that do not fall into the two groups have already achieved development. (Schafer / Haslam / Beaudet 2012: 7). (Schafer / Haslam / Beaudet 2012) Theoretical approaches to economy and development The commitment to development was accompanied by changing scientific theories (Williams 2014: 26f.). In addition to the Keynesian economic theory, which was represented by Lewis and partly by Rosenstein-Rodan, the modernization theory followed in the tradition of Weberian and Parson theory with representatives such as Rostow and later Inkeles (Desai 2012: 53ff.); (Lewis 1954); (Rostov 1959); (Rosenstein-Rodan 1943). With the establishment of the dependency theory, Prebisch and Frank showed a contrast to this in that they made dependency and exploitation relationships responsible for unequal development; this can also be found in Wallerstein's world system theory as well as in Marxist approaches (Desai 2012: 53, 56-59); (Prebisch 2010); (Frank 2010); (Wallerstein 2010). This contradicts the neoliberal theories, which were also popular in the 1970s, which called for the deregulation of the markets without state intervention and which were widely known through Bauer and Lal, among others (Desai 2012: 53, 59-62); (Bauer 2010); (Lal 2010). The concept of developmental states can function as a solution to the conflict, with representatives such as Amsden calling for a reconciliation between the state and the market (Amsden 1994); (Desai 2012: 53, 62f.). Since the 1980s, Escobar and Hall in particular have pursued a complete rejection of the idea of ​​development on the basis of Eurocentric, Western world views, which are part of the tradition of a colonial discourse, in their post-development approach (Escobar 1995); (Escobar 2010); (Sahle 2012); (Hall 2004); (Gad 2014: 34ff.). Interestingly, projects of solidarity agriculture (also: community-supported agriculture) are cited as examples of both post-development and commons (Sahle 2012: 80); (Knecht 2013: 67) Explanation of the terms cooperation and cooperation The terms cooperation and cooperation are used very broadly in this work and used congruently. A narrow definition can be ruled out, especially since social enterprises can have a wide variety of legal forms and are organized differently. In the literature on business administration and development research, different degrees are known, with the intensity ranging from informal agreements to 22

34 The previous points of contact between development cooperation and economic participation at company law level can extend (Thommen / Achleitner 2009: 319); (Eichhorn / Pleuser 2011: 1140). A wide variety of bonding intensities in cooperation are thus covered. 3.2 Economy and development in ADC: focus on economic partnerships Austrian public development cooperation defines economy and development as an area of ​​work which, by promoting private sector development in partner countries, is intended to contribute to the goals of ADC (BMeiA 2010: 4). The goals are based on the three pillars of poverty reduction, peacekeeping and preservation of the environment. Economic growth is explicitly mentioned as a necessity for sustainable development in the guidelines of Austrian development cooperation. However, this is immediately put into perspective, since the characteristics of the recipients of the additional income are decisive. (BMeiA 2010: 5) The so-called business partnerships are an ADC program and are carried out by the Business and Development Department of the Austrian Development Agency. As of April 21, 2016, business partnerships have been concluded, 51 of which are currently maintained, around 30 million euros in funding and, according to the company's own statements, more than people have benefited locally since 2012, with more than 3000 jobs created (ADA 2016c: 13); (Line 1271). Projects of Austrian companies are funded with up to EUR or a maximum of 50 percent of the project costs with a maximum duration of three years and through technical support, provided they are characterized by developmental and entrepreneurial benefits (ADA 2016b); (BMeiA 2010: 14). The developmental benefit is described here as a social benefit that goes beyond the investment, at the end of which, for example, improvement of the living situation [.], Public institutions strengthened, new technologies introduced, know-how conveyed, additional private funds mobilized for development-relevant measures The development effects of private economic relationships and investments are optimized (BMeiA 2010: 15). This is relevant insofar as these economic partnerships could provide a programmatic framework for cooperation with social business. 23

35 Previous points of contact between development cooperation and the economy Entrepreneurial interest Economic partnership Social interest Figure 3: Economic partnerships. Source: (ADA 2016c: 6). Own representation. The economic partnerships want to combine entrepreneurial and social interests, similar to what is conceivable for social business in developing and emerging countries. However, it is important to ensure that there is a balanced relationship between interests. For the instrument of economic partnerships, the economic interest is clearly recognizable; This is reflected, for example, in the geographical proximity to the domestic Austrian market: 43% of business partnerships are carried out in Southeastern and Eastern Europe (ADA 2016c: 11). If, on the other hand, social and developmental interest is measured on the basis of need, then less interest can be assumed in the countries of these regions, since none of these countries is counted among the so-called Least Developed Countries, for example (UN Committee for Development Policy 2016). Cooperation between social business and EZA organizations will ultimately also prove themselves in this area of ​​tension and will have to combine both entrepreneurial and social interests. Although the ADA makes its development policy knowledge available, the economic partnerships are primarily a funding instrument and do not provide for close cooperation between the organizations involved. For social business, the organizational goal of which is just as much social impact as entrepreneurial activity, an expansion of the degree of cooperation could be considered. 3.3 Economic consideration of development In the 1950s and 1960s in particular, development was often equated with economic growth and the level of development was measured on the basis of gross domestic product (GDP) per capita. Comparing countries by GDP can provide important information

36 Previous points of contact between development cooperation and the economy give conclusions about the development and, if the growth rates are included, statements can be made about the performance of an economy. (Schafer / Haslam / Beaudet 2012: 9); (Sachs 2015: 16) As the only indicator of development, GDP shows numerous shortcomings. As an average, GDP per capita does not allow any conclusions to be drawn about the number of people living in poverty in a country. Even high growth rates can only be attributed to the rich elites of a country, without a leakage effect to the poor taking place. (Schafer / Haslam / Beaudet 2012: 10ff.); (Atkinson 1999: 137) The example of GDP already shows various problems that make a successful national economy unsustainable as the only instrument for promoting development. Particularly when looking at income inequality, which widen the gap between rich and poor, especially in developing countries, injustices become obvious. It is the unequal distribution of national income itself that often fizzles out development programs to reduce poverty. The incentives for the elites in these countries to implement reforms and ensure income equity are likely to be low in view of their profit from the status quo (Schafer / Haslam / Beaudet 2012: 12). However, large income inequality also appears to be damaging to the economy itself, as broad income diversification can stimulate demand. The concentration of income and wealth among individual elites, on the other hand, promotes excess liquidity and weak demand. From economic considerations, one could therefore argue distributive justice (Müller 2015: 139f.). Ultimately, productivity increases are the cause of prosperity gains, Müller postulates and continues that the effects of people's lack of participation in productivity increases or raw material gains in developing countries can be studied, which means that he equates prosperity with development (Müller 2015: 140). The possibility of the economy making a contribution to development will also be measured by the extent to which the goods and services produced in developing countries can also be sold. Access to the market as well as trading play a decisive role here. Problematic here are unequal power relations, as well as the fact that ent- 25

37 Previous points of contact between development cooperation and economic development countries usually offer few interchangeable goods or goods of the same type without further processing steps. There are therefore initiatives like those of the OECD, which pursues the strategy of pro-poor growth in its Aid for Trade Initiative, which relies on structures and speed for the participation of the poor, combats several dimensions of poverty and wants to promote the empowerment of the poor. (OECD 2011: 46-48) Large, long-term income inequality also has social implications that change social relationships and make it more difficult to reduce poverty. Social capital as an expression of general trust within a society is seen as fundamental for building a lively, democratic civil society and culture. (Schafer / Haslam / Beaudet 2012: 12) Excluded from the seepage effect are mostly the already particularly poor and most exposed groups, who are disadvantaged because of their ethnicity, language or culture, for example. Schafer cites the Latin American example of disadvantaged people of indigenous or African descent. (Schafer / Haslam / Beaudet 2012: 11) These unsatisfactory findings were received by various actors and researchers and led to the current discourse on inclusive and sustainable economic growth, which in a succinct summary follows the scheme to make ecologically compatible cakes bigger a more equitable distribution of the pieces of cake. (Schafer / Haslam / Beaudet 2012: 12); (Sustainable Development Knowledge Platform 2016) In practice, the question arises as to how this can be achieved. Social businesses could make a contribution here, as they are neither concerned about profit distribution like traditional companies, nor that they lose proximity to the economy. Innovation in developing countries and social business So far, the various stakeholder groups have not yet come up with how innovation is understood and conceptualized in developing countries shall be. Therefore, there is no uniform concept either, due to the large number of local factors it will not be possible how innovation processes and policies are to be designed in the global south, 26

38 Previous points of contact between development cooperation and business, how innovation processes are to be set up and who will ultimately benefit from them. (Chaminade et al. 2009). The importance of innovations in the so-called developing countries, however, seems undisputed: First of all, innovation is important for economic development, since innovation appears essential for growth, competition and therefore also for catching up with economic development. Innovation can also be defined as the absorption of new ideas instead of a new to the world philosophy being applied here new to the firm (Chaminade et al. 2009: 362).Schmookler illustrated the economic dimension of innovation by comparing it with a pair of scissors: On the one hand, an innovation is preceded by the perception of a need or market niche, on the other hand, a new technical understanding is applied, which is based on experiments and research (Freeman / Soete 1997: 200 quoted from Schmookler 1966: os). Furthermore, innovations can address specific problems in developing countries. Here, the three clusters can address social problems such as hunger and poor health care, disadvantageous economic conditions such as e.g. the regulated access of the poor to credit, as well as problems in the area of ​​economic activities such as e.g. agriculture, can be identified (Chaminade et al. 2009: 362). The first cluster is particularly unattractive to use for large corporations, as solving social problems does not generate high returns or is less prestigious than other sectors (for example, high-tech centers were built in China and India) (Chaminade et al. 2009: 362f .). Nevertheless, the solution of social problems and thus the implementation of innovations in this area is inevitable: So, broadly defined, innovation is crucial for a socially inclusive catching-up process and developing novel knowledge in specific areas; as a consequence, innovation policy becomes a cornerstone of development strategies (not just science and technology policies [...]) (Chaminade et al. 2009: 363) Innovation systems Innovative work also means intervening in the national innovation system. These systems define the interaction between the various institutions, which through their actions influence the innovative strength of national companies (Lundvall et al. 2009: 4). Therefore, national innovation systems can be defined as follows: 27