16 Chapter II Literature Review In the previous chapter, the background of the business issue was introduced. The problem centers around the lack of local economic empowerment. This chapter will dive deeper into the business problem using relevant theories and frameworks. Furthermore, this chapter will present the conceptual framework employed to analyze the underlying business and social issues, which are critical to understanding and solving the identified challenges. II.1 Literature Review II.1.1. Corporate Social Responsibility (CSR) In addition to the company's responsibility in ensuring operational aspects and work safety through uniforms that meet Occupational Safety and Health standards, there are also social responsibilities that must be carried out by the company. This social responsibility is reflected in the implementation of Corporate Social Responsibility (CSR), where the company plays an active role in improving the welfare of the surrounding community, so that it can have a sustainable positive impact on the community in its operational area. “(Rudito & Femiola, 2013)” Corporate social responsibility (CSR) is generally defined as an effort to improve the quality of life by enhancing the ability of individuals as members of society to respond to existing social conditions and utilize their environment. As explained by “(Edi Soeharto, 2010)”, CSR focuses not only on improving the company's financial performance, but also on contributing to holistic and sustainable socio-economic development for the surrounding community. 17 Corporate social responsibility (CSR) can be more easily understood by applying the Triple Bottom Line concept introduced by “(Elkington, 1998)”. In his book Cannibals with Forks: The Triple Bottom Line in 21st Century Business (1998), Elkington highlights that successful companies focus not only on generating profit but also prioritize environmental sustainability (planet) and the well-being of society (people). In Indonesia, CSR has a strong legal foundation, particularly through Law No. 40 of 2007 concerning Limited Liability Companies, which mandates that companies in the natural resources sector fulfil social responsibilities. This legal requirement ensures that businesses not only generate profit but also contribute to the welfare of the communities around them. One specific regulation that underscores the implementation of CSR is Decree of Minister of Energy and Mineral Resources No. 1824/2018 on Community Development and Empowerment (PPM) program. This regulation requires companies in the energy and mining sectors to actively contribute to the economic, social, and environmental development of the regions where they operate. The growing awareness of CSR initiatives has transformed CSR into a competitive strategy among businesses, driving them to integrate social responsibility with their core operations. According to “(Chen et al. 2021)”, companies that effectively implement CSR benefit by fostering business sustainability through the responsible management of resources, while simultaneously enhancing their reputation within the community. 18 II.1.2. Creating Shared Value (CSV) The concept of Creating Shared Value (CSV), introduced by “(Porter and Kramer, 2011)”, offers a new approach to the relationship between business and society. CSV suggests that companies do not only operate to pursue financial returns but also have the potential to create value that benefits society. In contrast to traditional Corporate Social Responsibility (CSR) which is often regarded as an additional or peripheral activity of a company's core business, CSV places social goals as an integral part of a company's competitive strategy. CSV proposes that companies achieve economic success by simultaneously addressing social issues, where companies identify social needs that they can fulfil through their products, value chains, or economic development in their neighbourhoods “(Porter & Kramer, 2011)”. At the heart of CSV is the view that companies and society are interdependent. In traditional models, corporate social activities are often separated from core business objectives, but CSV encourages full integration of a company's economic and social objectives. According to “(Porter and Kramer, 2011)”, companies can create shared value by finding ways to address social challenges that impact their profitability and competitive position. Porter and Kramer also emphasize that CSV is not just a concept, but a new paradigm in business management that demands a change in the way profit and social responsibility are viewed “(Porter & Kramer, 2011)”. CSV invites companies to view their relationships with society and the environment as an important aspect of creating long-term competitive advantage. When companies address social issues, they not only gain a more positive image but also contribute to the sustainability of the business itself in a more substantial way than mere philanthropic contributions. CSV positions 19 companies as agents of social change that have great potential to create positive impact while achieving economic benefits, making it a relevant business strategy in the face of modern global challenges. CSR (Corporate Social Responsibility) and CSV (Creating Shared Value) play an important role in generating social value and business value, especially in community empowerment and local economic development. As explained by “(Porter and Kramer, 2011)”, CSV allows companies to combine social and business interests in their strategies, creating mutually beneficial shared value. Through CSR initiatives, companies make social contributions that generate social value, such as creating employment opportunities, empowering women, and improving people's quality of life “(Carroll, 1991)”. In the context of CSV, this social value not only benefits society, but also generates business value, including strengthening the company's image, improving cost efficiency, and strengthening supply chains “(Chandler & Werther, 2013)”. II.1.3. Social and Business Value Social value in CSR and CSV is created when companies try to address community needs as part of their business plans. Unlike traditional corporate philanthropy, which often operates independently from core business functions, social entrepreneurship leverages business resources and innovation to tackle social issues such as poverty, education, and employment “(Austin et al., 2006)”. Through social entrepreneurship, CSR initiatives can go beyond donations and charity by integrating programs that enhance community skills and infrastructure. 20 By aligning with the principles of CSV, these initiatives create shared value, where the social value generated-like job creation and skill development—also strengthens the local economy and enhances community resilience “(Porter & Kramer, 2011)”. Business value, on the other hand, is realized when these socially beneficial activities contribute to a company’s competitive advantage and long-term profitability. Through social entrepreneurship, companies can create business value by optimizing their supply chains, improving product quality, and enhancing brand reputation “(Chandler & Werther, 2013)”. By integrating social goals into core business functions, companies do not only fulfil their social obligations but also create a sustainable business model that aligns with CSV principles. This dual impact of social and business value— improving community welfare while also generating economic returns—illustrates how social entrepreneurship can transform CSR from a cost-center into a strategic advantage “(Dees, 1998)”. This approach, as highlighted by “(Zahra et al., 2009)”, enables companies to simultaneously pursue profit and purpose, thereby achieving a more balanced and resilient model for growth. The synergy between social and business value within social entrepreneurship reinforces the idea that companies can be profitable while making meaningful contributions to society, aligning with global sustainable development goals and long-term corporate success. 21 II.1.4. Social Entrepreneurship as a Business Model Social Entrepreneurship is a way to put the ideas of CSR and CSV into action, turning them into real projects that benefit both society and businesses. By solving social problems through creative business approaches, it helps communities grow while also supporting the company’s success.