The economic environment has a significant impact on the rate of entrepreneurial activity. Favorable economic environment also enables inflow of foreign investments which capital should further positively affect domestic investments and domestic economic flows.

Legal indicators provide insight into countries legal environment as a pre-condition for development of social businesses.

Subdimension: Definition

This sub-dimension refers to the approach and scope to defining social enterprises and is important for the recognition, understanding and development of the area. Currently, there is a lack of agreement for a definition for social entrepreneurship which has been viewed by some as a challenge for the development of the field. The variety of definitions in the literature across different continents, focused on different aspects, has contributed to the growth pace of social entrepreneurship.

Definition Indicator

The absence of understanding of the concept and the diversity of definitions, forms and models has elevated issues affecting its promotion and growth. Defining the concept of social entrepreneurship has become almost an impossible task since there is a diversity of discourses pertaining different aspects of social entrepreneurship depending on which actor from the eco-system is providing the definition.

Subdimension: Legal Identity of Social Enterprises

Legal identity is needed to provide standards, criteria and the opportunity for flexibility and movement across sectors without the need to register more than one legal entity. Ensuring legal identity enables social enterprises to develop concrete tailored policies for the development and promotion of social entrepreneurship , protects various stakeholders, prevents the creation of “fake” social enterprises and sets boundaries between social entrepreneurship, enterprises and other concepts.

Legal Identity of Social Enterprises Indicators

The way social enterprises are recognized in the legal world is a key element in attracting support and investment, partners, donors and other resources that will accelerate the development of social enterprises and the field in general.

In practice, social enterprises can be found in a wide range of legal forms. In some countries, new legal forms have been created to accommodate these innovative organizational entities. 

This indicator is important for creating a legal framework for the development of social entrepreneurship. Even more important when creating legislation is the inclusiveness of the process itself, ie the involvement of as many stakeholders as possible in the process in order to reach a more sustainable solution.

This indicator is important for the effectiveness of the overall business climate not only in the field of social entrepreneurship. IT measures whether administrative procedures specific to social enterprises are accessible and clear.

Subdimension: Regulation

There are several indicators that facilitate development and growth of social entrepreneurship. Regulations can raise or lower the costs of doing business, revenues, and consequently hinder the entrance for entrepreneurs into the market. Compulsory administrative processes for business registration force the firms to spend time and resources on bureaucracy instead of investing that capital into more productive practice. High tax rate reduces the profits and dishearten entrepreneurs and their activities. On contrary, tax relief, micro crediting, lower minimum wage, subsidies and other incentive facilitate business activities.

Regulation Indicators

The ease of starting a business has a positive impact on the creation of companies. The effect of starting a business is driven by financial costs. Basically, the approach and the way of starting a business is a system of tied vessels from the overall business climate, starting from the regulators, the access to resources and their cost, the infrastructure for starting and running a business and other.

One of the key elements for the development of the sector is the financial regulation in order to avoid liquidity, and then problems with the solvency of companies. However, when that happens the procedures can be quite a burden for social entrepreneurs.

The subjective attitude of regulators creates negative expectations among other entities (social enterprises) and negatively affects the overall climate for social entrepreneurship in the economy and reduces the entrepreneurial spirit. 

This phenomenon has a negative and destructive impact on the ecosystem of social entrepreneurship and on entrepreneurial behavior in general. This phenomenon has negative effects on the entrepreneurial motive and can affect the reduction of the number of social enterprises and the number of employees in them.

Regulatory policy basically has a key impact on competitiveness. Unstable regulatory environment is one of the reasons why people refrain from starting their own business. In this context, it is also important the level to which economic activities should be regulated in order not to generate additional costs and engage additional resources in enterprises.

Subdimension: Judiciary

Law enforcement efforts can also hinder entrepreneurial activities and discourage public confidence in officials. Well-functioning legal framework is crucial for provision of security and protection of citizens’ rights. Fair and efficient judicial systems are required for proper judicial effectiveness in order to ensure that laws are respected and proper actions are taken against violations, including governments and powerful parties. Countries or cities with weaker legal institutions are less attractive to businesses.

Judiciary Indicators

The legal effectiveness in enforcement of contracts affects the decision- making process of entrepreneurs. Judicial slowness is one of the key features that impact the entrepreneurial decisions and affect entrepreneurship as a process. 

The importance of impartial and independent judiciary is crucial. If the judiciary can withstand all external pressures, entrepreneurs who appear before them and the wider public can have confidence that their cases will be decided fairly and in accordance with the law.

Subdimension: Financial and Technological Resources

This sub-dimension is important for the development of social enterprises, considering capital as one of the factors of production. A sound economic model, benefitting from a mixed stream of financial revenue, coupled with vision and dynamism, has shown itself to be a key ingredient of a striking development.

Technological resources are crucial for the technological development of enterprises. Technology resources, especially the digitalization of enterprises and e-commerce, contribute to greater productivity and greater competitiveness.

Financial and Technological Resources Indicators

Many elements have an impact on the financial sustainability of social enterprises. Some of them are social enterprises’ entrepreneurial characteristics (employee training, business planning, etc.) and financial support in the form of grants and subsidies.

The technological development of social enterprises is important for raising their productivity.