The Effects of Network Centrality on Performances of Social Enterprises: Government Certified Social Enterprises in Seoul, South Korea

Background/Purpose: In South Korea, the government introduced the concept of social enterprise to alleviate the high unemployment that the country had been facing since the financial crisis in 1997. In 2017, there are about 1,710 certified social enterprises in Korea. The Korean government has stressed the importance of networking between social enterprises. This is because, in general, social enterprises lack sufficient capital and thus have difficulty obtaining economic and social outcomes. Therefore, to achieve their social and economic goals, it is more efficient for social enterprises to create social capital and exploit it through networking with other organizations, rather than achieving performance through competing with other groups. However, few empirical studies examined the effect of networking on the performances of social enterprises. The aim of this study is to explore whether network centrality increases the social and economic performances of social enterprises.

Methods: A survey based on conventional network questions to measure organizational relationships and communications was administered to the CEOs or managers of social enterprises in Seoul (n = 148). The self-administered questionnaire was distributed and collected from December 2012 to March 2013 through e-mail. Each respondent indicated an organizational relationship with all other social enterprises in response to this question: With whom did you have regular meetings, such as monthly meetings or seminars, during the last six months? In addition, each organization answered social and economic performances and organizational factors including a number of employees, total sales, net profit, post-certification period, purpose type, legal form, and business type. The response rate was 53% (n = 78). For data analysis, the degree of centrality of each social enterprise was analyzed using the social network analysis software Cyram Netminer 4.0. Multivariate linear regression examined the effect of network centrality on social and economic performances of social enterprises.

Results: The social enterprises who had regular meetings with more social enterprises were more likely to achieve higher social performance (B = .198, p < .05) after controlling for other factors. Additionally, social enterprises whose purpose type was to help the vulnerable population (B = 1.815, p < .05) and social enterprises offered social services (B = 2.121, p < .01) achieved significantly higher social performance than other social enterprises. Also, social enterprises which had regular meetings with more social enterprises had significantly higher economic performance (B = .218, p < .05) when controlling for other factors. Total sales (B= .861, p < .01) and post-certification period (B = -.077, p < .01) were associated with the economic performance.

Conclusions and Implications: This study verifies within social network theory that the traits of a network have significant effects on the social and economic performances of the organization.  Furthermore, the research findings may provide the empirical and political foundation for improving networking systems of social enterprises.