Hybrid Legitimacy-Seeking Strategies of Social Enterprises in Developing Countries: A Comparative Case Study of Two Microfinance Institutions

Social enterprises (SEs) play a pivotal role in addressing the shortcomings of government, business, and the third sector. However, SEs operating in developing countries face a different environment than their counterparts in developed societies due to immature institutional environments. This necessitates the examination of alternative pathways to organizational legitimacy. Through a comparative analysis of two Chinese microfinance social enterprises (MSEs), this article examines how these organizations navigate the complexities of legitimacy within their operating environments. Drawing on the stakeholder perspective and the legitimacy literature, this article proposes that the survival and expansion of SEs in developing countries depend on achieving a hybrid legitimacy encompassing institutional, industry, and market dimensions. The proactive strategies adopted by the two MSEs, such as forging strategic alliances with local authorities, engaging in industry-recognized reputational activities, and cultivating markets through philanthropic efforts, are instrumental in securing key stakeholders' support and resources. These legitimacy-building efforts are critical to the survival of SEs and essential to achieving their dual mandate of financial sustainability and social impact. This article adds to the existing body of knowledge by delineating the multiple sources of legitimacy that are relevant to SEs in developing countries, using China as an example. It also highlights the different outcomes of institutionalist versus strategic approaches to legitimacy-seeking, enriching both academic and practical understandings of SE resilience and growth.