1. Introduction
Over the past decade, China has witnessed a burgeoning of social enterprises (SEs) due to the joint effects of several driving forces in the state, market, and non-profit sectors [
1]. Viewing SEs as potential providers of social cohesion, public service delivery, and sustainable development, local governments at the municipal/city levels have successively enacted specific policies to promote the development of SEs in China. In 2015, the first certification scheme for Chinese SEs was launched by the China Charity Fair to help SEs enhance their legitimacy/publicity and obtain support/resources from multiple stakeholders. In 2019, the first national survey report of the SE sector of China was published, which estimated that the total number of SEs in mainland China had reached 1.75 million when a broad definition of SEs was adopted, which included rural cooperatives registered as farmers’ specialized cooperatives (nongmin zhuanye hezuoshe) and non-profit entities registered as civilian-run non-enterprise units (minban fei qiye danwei) [
2].
As typical hybrid organizations, SEs pursue dual objectives and aim to achieve their social missions, scale their social impacts and maintain financial self-sufficiency and sustainability. However, such a simultaneous pursuit of dual objectives involves a “tricky balancing act” [
3], and success is far from guaranteed [
4]. Therefore, practitioners and policy makers have devoted greater attention to SE performance, and there is a growing body of literature exploring how various factors affect SE performance at the individual, organizational and environmental levels.
Organizational capabilities have been widely recognized as one of the most important determinants of SE performance. To become sustainable and viable organizations, SEs need to acquire valuable resources and develop capabilities that will maximize the utility of their resources [
5]. From a resource-based perspective, organizational capabilities refer to the ability of SEs to build, combine, and apply resources efficiently and effectively and the actions through which resources are employed to accomplish the organization’s goals [
5,
6]. Empirical studies have demonstrated that a wide range of organizational capabilities play important roles in ensuring social enterprise success. Among them, two types of organizational capabilities have received significant attention, namely, marketing capabilities [
4,
7,
8,
9] and stakeholder engagement capabilities [
5,
10,
11,
12,
13,
14]. Other forms of organizational capabilities have also been considered performance determinants in existing quantitative studies, including business planning capabilities [
15,
16,
17,
18], human resources management capabilities [
10,
11], performance measurement capabilities [
19], abilities to adapt [
20], and knowledge absorptive capacities [
7,
21].
Although previous research has generated a wealth of insights about the effects of various types of organizational capabilities as predictors of SE performance, there are three major research gaps to bridge. First, despite the proliferation of quantitative empirical studies on this research theme, the overwhelming majority of them use data from industrialized countries, such as the US, UK, Canada, Italy, France, Spain, Australia, and Japan [
4,
5,
6,
8,
9,
10,
11,
15,
18,
19,
21], but rarely collect data from developing or emerging economies, such as South Korea, Jamaica, Malaysia, and Singapore [
12,
13,
14,
16,
20,
22]. Although China has witnessed a noticeable growth in the SE sector over the past decade, almost no attention has been devoted to the issue in the Chinese context, except for Lee and Chandra’s [
7] study on how marketing capabilities mediate the effects of absorptive capacity on the performance of SEs from Hong Kong and Taiwan.
Second, as mentioned above, although previous literature has examined the effect of organizational capabilities on SE performance, most of them focus on a single organizational capability in one managerial and operational dimension or solely shed light on the effect on economic or social performance, while none of them have explored the relationship between organizational capabilities and SE performance through a comprehensive analytical framework embracing all major capability dimensions and performance domains.
Third, despite the diversity of ways to measure the social and economic performance of SEs, almost all of the relevant quantitative empirical studies use scale instruments to measure the “subjective” social and economic performance of SEs, which are frequently based on the perceptions of managers or other internal stakeholders, who are the questionnaire survey respondents. However, prior research has devoted little effort to measuring the “objective” performance of SEs, and only a few studies include objective indictors [
15,
18,
22] or objective–subjective mixed measures [
7]. Noticeably, the limited studies that have used objective indicators rely heavily on secondary databases [
7,
18,
22], which are often incomplete, inaccurate, or outdated [
21,
23]. A subjective measurement may be applicable for the assessment of the social performance of SEs, which is widely considered a process involving “insights and perceptions” of multiple stakeholders [
7,
24,
25,
26]. Conversely, the popularity of subjective measures for economic performance is more similar to a temporary expedient, simply due to the difficulty of obtaining objective data [
8,
13]. Therefore, as numerous SE scholars have suggested [
13,
27,
28], future research on SE performance should incorporate more objective indicators to reveal more of the “actual reality” of organizational performance, not merely the “perceived situation” as a result of the subjective perceptions of respondents.
By acknowledging these research gaps, this article explores how organizational capabilities at four managerial and operational dimensions affect the economic and social performance of SEs in China by analyzing quantitative data obtained from an online questionnaire survey of 206 Chinese SEs. The results demonstrate that four types of organizational capabilities have divergent effects on SEs’ social and economic performance. Specifically, consistent with prior studies, both stakeholder engagement capabilities, and business planning capabilities contribute positively and significantly to both the economic and social performance of Chinese SEs. Conversely, marketing capabilities have no positive relationship with either economic or social performance, contrasting with current literature. Additionally, human resource management capabilities are positively associated with social performance but not economic performance.
This study addresses the research gaps in current literature regarding the analytical framework and measurement of SE performance and makes several theoretical contributions. First, the contribution of this paper lies in constructing a more comprehensive analytical framework to investigate the effect of organizational capabilities at four major managerial dimensions on SE performance in both economic and social domains. Second, this study, to our knowledge, is the first quantitative empirical study on the contribution of organizational capabilities to SE performance in the Chinese context, which differs from those in Western developed countries and even other Asian developing countries. Finally, this study contributes to the refinement of the measurement of SE performance by employing a more comprehensive and rigorous measurement approach involving both subjective and objective indicators.
In the next section, we first delineate the conceptual background of SE performance and reveal the landscape of organizational capabilities of SEs in the Chinese and Eastern Asian contexts. Then, in the hypothesis development section, we construct our theoretical model to closely examine the effect of organizational capabilities on SE performance. Next, in the methodology section, we provide information on the data, sample, and measures of key variables. Subsequently, in the results section, we test the hypothesis with survey data and present the results obtained. Finally, we summarize the main results, discuss the theoretical contributions and practical implications, acknowledge the study’s limitations and offer suggestions for future research.
4. Results
To evaluate the proposed relationships between the four types of organizational capabilities and the economic and social performance of SEs in China, we conducted Pearson correlation analyses with a two-tailed test of significance and hierarchical linear regression analyses.
Table 3 indicates that the relationship between marketing capabilities and social performance, and economic performance is positive but not significant (r = 0.116 and 0.069,
p = 0.097 and 0.324, respectively). Alternatively, stakeholder engagement capabilities are positively and significantly correlated with both social performance (r = 0.199,
p = 0.004) and economic performance (r = 0.181,
p = 0.009). Similarly, a significant positive correlation is found between business planning capabilities and social performance (r = 0.245,
p = 0.000) and economic performance (r = 0.224,
p = 0.001). Finally, human resource management capabilities are positively and significantly correlated with social performance (r = 0.293,
p = 0.000); however, the relationship between human resource management capabilities and economic performance is positive but not significant (r = 0.103,
p = 0.142). As several pairs of independent variables are moderately correlated (r ranges from 0.366 to 0.482), we assessed the possibility of multicollinearity by calculating the variance inflation factors (VIFs) for the major explanatory variables. The results show that all the VIF values are 1.496 or lower, which are far below the recommended threshold of 5.00, indicating that our model is free of multicollinearity threats.
Table 6 presents the hierarchical linear regression results regarding the effect of organizational capabilities on the economic performance of SEs. The results reveal that two types of organizational capabilities, namely, stakeholder engagement capabilities and business planning capabilities, are positively and significantly related to economic performance (β = 0.212 and 0.166, respectively). Hence, hypotheses H2a and H3a are supported. Additionally, the positive contributions of business planning capabilities are relatively stronger and more stable than those of stakeholder engagement capabilities. Therefore, when human resource management capabilities are entered into the model, the effect of business planning capabilities is constantly positive and significant, while that of stakeholder engagement capabilities becomes insignificant. However, the evidence also shows that marketing capabilities have a positive but not significant relationship with economic performance (β = 0.075,
p = 0.284), while human resource management capabilities have a negative but not significant relationship with economic performance (β = −0.011,
p = 0.891), leading to the rejection of hypotheses H1a and H4a.
Table 7 displays the hierarchical linear regression results regarding the effect of organizational capabilities on the social performance of SEs. The evidence shows that three types of organizational capabilities, namely, stakeholder engagement capabilities, business planning capabilities, and human resource management capabilities, positively and significantly affect social performance (β ranges from 0.180 to 0.258), leading to the acceptance of hypotheses H2b, H3b and H4b. Moreover, a comparison of standardized beta coefficients suggests that human resource management capabilities play a more important role (β = 0.258,
p = 0.002) than the other two organizational capabilities variables in enhancing social performance. Thus, when human resource management capabilities are entered into the model, the effects of stakeholder engagement capabilities and business planning capabilities become insignificant. Nevertheless, the results also indicate that marketing capabilities have a positive but not significant relationship with social performance (β = 0.124,
p = 0.080). Thus, we reject hypothesis H1b.
5. Discussion
Our research findings show that four types of organizational capabilities result in divergent social and economic performance in the context of China. Some of the findings are consistent with the previous empirical literature. First, our research presents strong evidence that stakeholder engagement capabilities play an important role in ensuring SEs’ success in economic and social domains, corroborating the existing understanding of the issue regarding SEs from the US [
5,
10], Australia, and Scotland [
6], Italy [
11], and South Korea [
12,
14]. Second, our results also reveal that SEs with higher levels of business planning capabilities achieve better economic performance and social performance, in line with the findings of prior studies on SEs in Spain [
18], Australia [
15], Malaysia, and Singapore [
16].
However, our research finds no statistically significant evidence of the positive relationship between marketing capabilities and economic performance and social performance of Chinese SEs, contrasting with most current literature that has identified marketing capabilities as a primary driver of improved performance in the UK [
4,
8], Japan [
8], Spain [
9], Hong Kong and Taiwan [
7]. To explain the exclusion of marketing capabilities among the significant predictors of performance for Chinese SEs, we need to examine specific features of the socioeconomic context of China. Prior studies have documented that the success of marketing strategies for SEs depends on the rise of ethical consumerism as a social contingency and hinges on the consumer advocacy initiatives launched to raise consumers’ awareness of SEs’ social value [
88,
89]. However, Chinese SEs were found to be operating in an environment where most Chinese consumers have no strong commitment to ethical consumerism, and the mainstream media and the general public fail to recognize the existence and salience of SEs [
2]. Therefore, the immature situation of ethical consumerism and public recognition of SEs might be a possible interpretation for the insignificance of marketing capabilities as performance predictors in China.
Finally, human resource management capabilities have positive contributions to the social performance of Chinese SEs, in accordance with previous studies that have demonstrated a significant positive relationship between staffing and scaling of social impact in the US [
10] and Italy [
11]. In contrast, we found no evidence to support the hypothesis that human resource management capabilities are predictors of the economic performance of Chinese SEs. To our knowledge, there is no empirical work focusing on this topic for SEs in other countries. However, previous studies have identified a variety of factors related to SEs’ human resources as predictors of their economic performance, such as resource availability [
51,
90], resource access/acquisition [
6], resource adequacy [
20], and resource competitiveness [
28]. It is likely that human resource management capabilities might interplay with these factors, jointly affecting the economic performance of SEs, probably through the effect of mediation, moderation, or other more complicated forms of interaction. Specifically, the effect of human resource management capabilities might take resource availability as a precondition, on the one hand, and might affect resource access/acquisition, resource adequacy, and resource competitiveness, on the other hand. However, the relative importance of human resource management capabilities as one performance determinant, compared with other factors, might vary among different countries. In countries where SEs face the scarcity of appropriate human resources, resource availability might become a more important performance predictor; thus, the effect of human resource management capabilities becomes marginalized. For instance, López-Arceiz et al. [
51] found that the economic performance of Spanish SEs depends directly and exclusively on the volume of financial, human, and material resources available. Similarly, Bojica et al. [
84] stated that for Mexican SEs, the effect of bricolage on organizational growth is contingent on the availability of resources, the degree of autonomy in using these resources, and the diversity of the top management team in organizational tenure. In mainland China, the insufficiency and unavailability of human resources (as employees and volunteers) have been identified as the major challenges encountered by SEs [
2]. Thus, the dominance of resource availability as a determinant of economic performance might be a reason for the marginalization and insignificance of the effect of human resource management capabilities in China.
6. Conclusions
SEs generally face resource constraints, especially when they operate in less favorable environments where resources are scarce and expensive; thus, it becomes increasingly important for SEs to strengthen their organizational capabilities to improve organizational performance [
24]. Previous studies have provided rich evidence regarding the effects of organizational capabilities on SE performance. However, the majority of current works have examined the issue in the context of industrialized and Western countries, while very few have provided evidence in the Chinese context [
7], and none have focused on SEs from mainland China. Therefore, this study explores the impact of organizational capabilities at four major managerial dimensions on economic and social performance through a quantitative analysis of the questionnaire survey data of SEs from mainland China. The research findings show that stakeholder engagement capabilities and business planning capabilities make positive contributions to SE performance in economic and social domains, while human resource management capabilities have positive effects on social performance but not economic performance, and there is no statistically positive relationship between marketing capabilities and SE performance in economic and social domains.
6.1. Theoretical Contributions
This study offers several contributions to the literature on SE performance. First, previous literature has demonstrated that various types of organizational capabilities might contribute to SE performance, such as marketing capabilities [
4,
7,
8,
9], stakeholder engagement capabilities [
5,
10,
11,
12,
13,
14], business planning capabilities [
15,
16,
17,
18], and human resources management capabilities [
10,
11]. However, none of them has approached the issue from a holistic perspective to explain how different types of organizational capabilities have varying effects on economic and social performance. The originality of this paper lies in its construction of a more comprehensive analytical framework to analyze the effect of organizational capabilities at four major managerial dimensions on SE performance in both economic and social domains.
Moreover, this study enriches the quantitative empirical studies on organizational capabilities as determents of SE performance by providing evidence on the issue in the context of China. To our knowledge, although the country has witnessed significant growth in the SE sector over the past decade, no survey-based empirical studies focus on this issue for SEs from China.
Furthermore, the majority of current quantitative empirical studies on SE performance rely mainly on “subjective” scales to measure performance and use few “objective” indicators, which may more precisely reflect the “actual reality” of SE performance. This study contributes to the refinement of the measurement of SE performance by employing a more rigorous measurement approach involving both subjective and objective indicators.
6.2. Practical Implications
Our study has several important practical implications for SE managers. First, our findings show that four types of organizational capabilities have divergent contributions to the social and economic performance of SEs in China. This implies that SE managers need to prioritize strengthening particular types of organizational capabilities, such as stakeholder engagement capabilities and business planning capabilities, which are found to have positive contributions to the improvement of SE performance in both economic and social domains. In contrast, SE managers should be cautious about choosing to use marketing capabilities as a promoter of performance, as our findings show that marketing capability has no positive impact on either economic or social performance in the current context of China. Additionally, the results reveal that human resource management capabilities are positively associated with social performance but not with economic performance, suggesting that SE managers should make appropriate decisions regarding the applicability of human resource management capabilities with regard to their organizational objectives.
The findings of this study also have implications for other practitioners and policy-makers engaging in promoting the development of social entrepreneurship and impact investment in China. As we mentioned above, numerous capacity-building programs have been launched by SE intermediary organizations and Chinese government agencies to strengthen the organizational capabilities of SEs operating in China. However, failing to appropriately adjust the strategic focus and specific content according to the particular context of China, these training programs can hardly actualize the roles of organizational capabilities as enhancers of SE performance. Therefore, we recommend that, in the future, capacity building programs should focus more on stakeholder engagement capabilities, business planning capabilities, and human resource management capabilities, which are found to be positive performance predictors, but less on marketing capabilities, which are found to have no positive contribution to performance. Additionally, we found in this study that the immature situation of ethical consumerism and public recognition of SEs might impose restrictions on the role of marketing capabilities as a performance enhancer in China. Thus, we suggest that practitioners and policy-makers make more efforts to increase the visibility and publicity of SEs and launch more advocacy initiatives to cultivate ethical consumerism among Chinese consumers to create preconditions for marketing capabilities to work as performance enhancers in the future.
6.3. Limitations and Future Research
We also recognize a set of theoretical and methodological limitations for this study that also reveal promising areas for future research. First, current studies show there are mediation or interaction effects between marketing capabilities and other SE performance predictors [
4,
7,
9] or between business planning capabilities and other performance determinants [
16,
17]. However, our study merely focuses on the direct effects of organizational capabilities on SE performance while providing no information on how and why such effects occur. Instead, future studies can further investigate the processes and reasons by examining the possible mediation and/or moderation effects between organizational capabilities and other performance determinants. Moreover, exploring the relationships among the different types of organizational capabilities is another promising avenue for future research.
Second, this study gives priority to improving the measurement of SE performance by constructing both SPI and EPI as a composite indicator, which involves ten indicators selected by three assessment criteria (namely, effectiveness, efficiency, and scaling up), respectively. However, our preliminary effort in index development has certain limitations in terms of the potential bias in the selection of indicators and the imperfection of the weighting scheme. Therefore, future studies should follow the suggested procedure of index development more comprehensively and conduct uncertainty and sensitivity analyses to ensure the robustness of the performance index. Meanwhile, the measurement of the four types of organizational capabilities is relatively simple, involving only subjective indicators. In order to construct more valid and reliable measures for organizational capabilities, future studies should more strictly adhere to the paradigms for measures development, such as developing a more comprehensive conceptual framework, increasing the number of items on the scale, and employing both subjective and objective measures.
Third, as the data for this study are drawn from SEs of China, the generalizability of the findings may be constrained to the Chinese context. In future studies, it would be interesting to replicate the study in other contexts. Specifically, collecting cross-country data will make it possible to comparatively investigate the relationship between organizational capabilities and SE performance under alternative circumstances across developed/developing or Western/Eastern countries.
Lastly, the sample size for this study is relatively small (206 SEs), and future studies can benefit from the samples on a larger scale. Additionally, future research can use longitudinal samples and closely examine how the effects of organizational capabilities may change over time, using lagged time to test the causal relationships between variables and to rule out any reverse causality effects.