Korea’s third-largest conglomerate SK Group launches the nation’s largest social enterprise which will be officially certified by the Labor Ministry in six months. MRO Korea, SK Group’s office supplies provider, is being turned by the company into a separate social enterprise renamed Happynarae Co.
MRO Korea operates in the maintenance, repair, and operations sector and generates annual sales of over 100 billion won. It was established as a joint venture between SK Group’s subsidiary SK Networks and U.S.-based Grainger in July 2000 to supply SK subsidiaries with cheap office materials such as toner cartridges, paper, and pens. They are usually guaranteed to be profitable as they deal with subsidiaries of conglomerates and earn over 60% of their sales through SK Group and its subsidiaries.
In July 2011, the growing controversy of Korea’s conglomerate-friendly environment came to the attention of SK Group Chairman Chey Tae-won. MRO businesses owned by the nation’s top conglomerates became the target of the government’s co-prosperity policy between large and small businesses as they were criticized for never sharing the fruit of growth will small- and medium-sized firms failing to survive. The government ordered conglomerates to withdraw from the MRO market to address economic polarization and protect the sector.
Chairman Chey, who spoke about the necessity of Corporate Social Responsibility at the B20 Business Summit held in Cannes, France in November 2011, suggested converting MRO businesses into social enterprises to return the profit to society. Steps were taken to transform MRO Korea into a social enterprise since last August.
“While many people overseas envy Korea’s development, it is true that society has many problems such as economic polarization and a low birthrate. Though social enterprises can’t be a cure-all, they can be an effective alternative,” Chey said in a meeting with MRO Korea executives and employees.
“SK is turning MRO business into a social enterprise with the determination to lead efforts to solve social problems.”
In Korea, the Social Enterprise Promotion Act was established in 2007. It defines social enterprise as an organization engaged in commercial activity and pursuing a social mission by “providing social services and creating jobs for the disadvantaged”. The country has suffered setbacks from the 1997 Asian financial crisis and the global recession a decade later. The government has come to see social enterprises as a means to create jobs and provide social services to strengthen the economy.
There were 501 social enterprises recorded in 2010 and the government aims to double that number by 2012. It has allocated 176 billion won in the proposed budget this year to promote, support, and raise the competitiveness of social enterprises. They observe that social enterprises tend to be less able to create profits than general enterprises because of their relatively weak business foundations, yet see the importance of building an ecosystem which enables social enterprises to become sustainable. The government subsidizes the labor costs of prospective or certified social enterprises for up to five years so that they can create new jobs.
Happynarae is not the first social enterprise of SK Group. According to the Korea Social Enterprise Promotion Agency, they lead Korean conglomerates with 23 social enterprises created. Of this number, 21 of them have been created under their subsidiary SK Telecom including Happy Lunchbox, which delivers packed lunches to and employs elderly people and malnourished children from low-income families.
The steps to create Happynarae involved Grainger divesting its 49 percent stake in MRO Korea to the affiliates of SK Networks for $12 million, resulting in a net gain of approximately $5 million.
Happynarae will purchase supplies from firms that hire socially vulnerable people with plans to add 30 social enterprise partners. With this new social enterprise ecosystem, SK hopes it will help the company procure quality MRO products by discovering and supporting social enterprises. Happynarae currently employs 10 senior citizens, single parents, and migrant women as regular staff and plans to expand employment of the socially vulnerable.
“Happynarae will be a social enterprise that helps social enterprises and contributes toward creating social jobs and resolving other social problems,” said Happynarae chief executive Kang Dae-sung at a press conference at SK headquarters on Tuesday.
Photo from The Korea Times.
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