This consultancy report is written by Jowita Kalamarz, a MSc student in Creative Industries Management & Enterprise at De Montfort University. UK-China Film Collab was the host institution and case study for her final research project.

The organization in question, UK-China Film Collab is a ‘non-profit organization set to inspire film-related collaboration and debates between the United Kingdom and Greater China.’ Since the organization focuses on providing public goods – creating links and collaborations between the British and Chinese film industries, rather than achieving private benefits, it is considered to be a public sector body. Similarly, to the majority of such enterprises, it is established as a private company limited by a guarantee.

The nonprofit sector is comprised of huge, well-resourced, and formally organized organizations that have ‘accounted for significant numbers of employees and made major contributions to the economy’ (Cornforth, 2002) which contrast with small enterprises that are solely dependent on the voluntary work of their members (Cornforth, 2002). Without any exaggeration, finances are a burning issue particularly in those smaller enterprises as they tend to depend on one source of income such as grants from the local authorities or the government. This is not an ideal situation for the management as it causes an enormous level of stress, particularly in the event of a reorganization of local government. Cornforth (2002) also points out the fact that small, nonprofit organizations tend to have ‘slack in their budget and very few have significant reserves’ (Cornforth, 2002). The lack of having multiple and reliable sources of income results in the organizations not being able to pursue any long-term planning as they need to prioritize their day-to-day operational expenses first. The priority of the board of directors in a public listed company is to maximize the profits generated by the company for the benefit of its shareholders. As there are no shareholders in a voluntary organization, the financial priorities of management in such an organization are different.

The academics suggest that as far as finances are concerned, the board of a nonprofit organization should focus on two factors – accountability and value. The reason for this is that although such organizations do not issue shares, they are accountable to many stakeholders as they benefit from tax concessions and money donations from the public and authorities. Therefore, they need to ‘demonstrate value for money and effectiveness’ (Palmer and Randall, 2002). These two factors are particularly important in the case of the voluntary sector as they show the potential donors that the organization is trustworthy and creates a value that society needs and appreciates. On top of that, the academics highlight the fact that recently, the sector has been under public policy pressure to build their own so-called ‘capacity.’ This term is explained as being ‘the means through which organizations are able to develop, sustain and improve the delivery of a mission. This reflects the idea of capacity as the combined force of individual competencies and organizational capabilities that work synergistically to advance an organization to achieve its major goals’ (Harris et al. 2005).

Why is this issue important in the context of financial management in nonprofit organizations? The answer lies in the fact that it is an indicator of credibility as a provider of public services. It, therefore, helps to attract new donors as well as please the already existing funders. One way of building organizational capacity is to form organizational alliances. Corporate partnerships are a widespread practice in the business world as they bring mutual benefits for both parties. For a nonprofit organization, it gives an opportunity to acquire new resources and funding to expand its mission, meanwhile, the for-profit organization gets an opportunity to improve its image and reputation within the community. It is therefore not a one-sided relationship, as both organizations gain ‘more strength, versatility and creativity by utilizing the natural abilities of each independent organization’ (Yates, 2007). Although the potential to generate a new revenue stream is undoubtedly a huge advantage, the benefits of cross-sector alliances between nonprofit and for-profit organizations are not limited just to that. It has been proved in recent research that such a relationship results in the nonprofit business becoming ‘more capable of organizing and executing commercial practices’ (Ko and Liu, 2021) as such collaboration allows them to develop a variety of new business and management capabilities. Corporate relationships between non-profit and for-profit organizations are classified into three levels, depending on how close the organizations collaborate. These are philanthropic, transactional, and interactive levels (Austin, 2001). At the philanthropic level, the relationship between the enterprises is limited to the one of a charitable donor and recipient. In this type of relationship, it is often the case that the missions of the organizations are unrelated. The transactional relationship is far more complex as it usually involves some activities being undertaken by organizations such as organization of an event sponsorship or paid services agreement. Lastly but not least, relationships at the integrative level involve the integration between the organizations. At this level, ‘the joint ventures are centralized between both entities and both organizations’ cultures are influenced by one another’ (Yates, 2007).

Although the partnerships between non-profit and for-profit enterprises are beneficial for both parties of the collaboration, it is not an easy task to form one. The voluntary organizations need to be ‘well organized and securely structured to be better suited to align themselves with a successful business’ (Yates, 2007). This statement is confirmed by Wheatley (2005, p.32) who explains that ‘we want organizations to be adaptive, flexible, self-renewing, resilient, learning and adaptive.’ Moreover, corporate partnerships entail a certain type of value. Edersheim (2007, p.189) distinguishes its three general types – generic resource transfer, core competencies exchange and joint value creation. Generic resource transfer is the most basic type of value created by such a collaboration. Its benefits could have been achieved by many other companies; they are not unique to a particular partnership. Generic resource transfer is a basic addition of value, as its benefits could have been provided by many other companies. Core competencies exchange is much more personal to the organizations and relates closely to their competencies. The value created as a result could not be achieved in a partnership with any other organization. Lastly but not least, joint value creation is a ‘culmination of combined efforts’ (Yates, 2007) between the partnering organizations. The value created in the process is solely unique to the partnership and often involves the creation of brand-new services or products.

There are several organizations worth partnering up with for the UK-China Film Collab. This report aims to highlight those collaborations that could potentially produce the most value and demonstrate the organizational capability of the UK-China Film Collab. The Chinese Independent Film Archive (CIFA) which is sponsored by the UK’s Arts and Humanities Research Council organized a project ‘Independent Cinema in China: State, Market and Film Culture.’ It is supported by a multi-national Advisory Board comprised of twelve prominent filmmakers, curators, and scholars of Chinese independent cinema around the world. The main objectives of this project are to ‘conduct a comprehensive research overview of Chinese independent film culture; gather oral histories from independent filmmakers, curators, critics and other stakeholders; build an independent film online database consisting of detailed information on independent films, film festivals and film scholarships.’ Based on this brief introduction, it is evident that the mission of the organization is in line with the one of the UK-China Film Collab. Their collaboration could not only create a lot of value, but it would also expose the activities of the UK-China Film Collab to the donors of the CIFA.

The Institute for International Communication of Chinese Culture is an organization established jointly by Bejing Normal University and International Data Group. Its objective is to ‘introduce and disseminate Chinese culture worldwide…’ What is particularly interesting about this institution is the fact that they introduced a ‘Looking China’ film programme that sponsors international students to spend two weeks in China. This would be a wonderful opportunity allowing the UK-China Film Collab to use its academic expertise and connections for the purposes of creating a successful partnership with the International Communication of Chinese Culture. This could potentially result in further partnerships with both domestic and foreign educational institutions. Since both these institutions operate both in UK and China, it may be a strong indicator to the donors that the UK-China Film Collab is a trustworthy organization with impressive partnerships and connections that allow them to successfully conduct their mission.

Another and certainly more obvious way of acquiring new sources of finance is to develop a commercial revenue stream. It will give the management more flexibility and resources to further the organization’s mission should the government grants have been reduced. It is without any doubt that the diversification of the funding base helps to minimize the risk associated with the generation of income. It allows the traditional nonprofit organization to become less dependent on voluntary revenue sources such as the voluntary private donations or grants from the governmental institutions but also ‘drives the tendency to build new organization forms to explore new revenue sources aggressively’ (Ko and Liu, 2021). Capturing commercial revenue entails a transformation of a nonprofit organization into a social enterprise (Ko and Liu, 2021). According to its academic definition, a social enterprise is an organization registered as a social organization that generates commercial income. Hence, it is a form of a nonprofit organization, which in contrast to a traditional nonprofit does not ‘rely on private donations and government funding but focuses on generating income from commercial activities’ (Ko and Liu, 2021). Social enterprise is not a legal form on its own, it adopts legal entities such as incorporated companies as in the case of the UK-China Film Collab. For this reason, the organization does not need to change its legal form or make any amendments to its Articles of Association. However, an additional provision will be required to be included in the organization Governing Statement under the income section. It should state that certain income generated by the organization comes from commercial activities undertaken by the organization. This is a legal requirement that all organizations must be transparent as to how they finance their activities. Such a section does not need to include the maximum amount of money that the organization is allowed to earn through any commercial activities. It should, however, specify what activities can be undertaken. This is due to the reason that commercial activities pursued by the organizations need to relate closely to their missions and practices. Business opportunities and financial benefits need to be results of traditional nonprofit organizations ‘leveraging their knowledge and expertise in providing social products or services.’ (Ko and Liu, 2021).  This way the commercial processes will be incorporated into the organization’s business model and the transformation from the traditional nonprofit enterprise into a social enterprise will be completed. The process of transforming a traditional non-for-profit organization into a social enterprise commences with the development of a commercial revenue strategy. It can include developing a revenue model for offerings of services as well as products. Additionally, finding for-profit organizations to establish business partnerships with will also be helpful in pursuing commercial opportunities.

Ko and Liu (2021) have interviewed 64 institutional entrepreneurs from social enterprises based in the United Kingdom. One of the interviewees when asked about a cross-sector alliance said that:

‘We learn [from other SEs] on how to manage this relationship [the partnership between for-profit and traditional NPOs] and to work in a way that the corporation understands. […]. It is all about communication, getting things done very quickly, being quite flexible, and obviously understanding the cost of our activities and accepting that it is not just the fact that they are giving their staff [employee volunteer] to the project’ (Ko and Liu, 2021).

Therefore, it might be beneficial for the UK-China Film Collab to partner up with institutions such as cinemas, particularly independent ones as they are more eager to show international and non-commercial movies. A certain percentage of the profits from sales of the tickets would then go to the organization. On top of that, membership deals can be offered to those who wish to have earlier access to tickets for such events at a lower price. Membership deals are a fantastic opportunity as they can be paid yearly or monthly, giving the organization a stable source of income. Additionally, proceeds generated through membership subscriptions are tax exempt. One of the largest and most popular cinema chains in the United Kingdom – Odeon also offers a wide variety of movies. As of today 02/12/2021, aside from commercial American or British movies, the public can choose to watch Polish, French, Indian, Korean, Japanese, Hong Kong movies. Despite the rich offering of Asian movies, Odeon does not show any Chinese movies. This could be, therefore, a good opportunity for the UK-China Film Collab to offer its help and expertise in sourcing movies that originate from the country. The organization could request a certain percentage of the profits from sales of the tickets as well as the remuneration for the sourcing of movies. Additionally, a partnership with a huge and successful business such as the Odeon would make a good impression on the potential and current donors. It would clearly demonstrate how professional and serious the UK-China Film Collab is about delivering its mission and making the organization widely known.

Lastly but not least, BFI Southbank cinema is an independent cinema showing both British and international movies. They also organize and host a variety of events and festivals. As an example, from October to December 2021, the BFI Southbank hosted ‘a celebration of the illustrious history of the Japanese cinema.’ Here, the UK-China Film Collab could not only help with the distribution of Chinese movies but also co-host an event or festival promoting Chinese cinematography. The profits from tickets to such an event or festival would be equally divided.

At this point, it is crucial to mention that any organization commencing commercial activity needs to be very transparent to their stakeholders as to why such an activity needs to be pursued and how such activities will advance the organization’s social mission. The reason such a strategy must be communicated and legitimated to them lies in the fact that sometimes the stakeholders and donors withdraw their financial support once the organization starts pursuing commercial revenue streams. Herman and Rendina (2001) point out that the reason for such behaviours lies in the fact that often, the stakeholders may think that the undertaken activities are not consistent with the mission of the organization. It is, therefore, crucial to describe the reasons for adopting new financial strategies and their potential effects on the organization prior to engaging in those new activities. One of the people interviewed by Ko and Liu (2021) who sits on the board of a non-profit organization elaborated on this saying:

‘We tell our donors and volunteers [stakeholders] honestly about our situations [lack of funding] and explain to them that we need more funds to support what we are doing in retailing [charity shops] and business partnership [corporate sponsorship]’ (Ko and Liu, 2021).

The last matter this report will touch upon is the alarmingly common issue of unpaid internships in the creative sector. The recent data shows that one in eight recent graduates is unemployed (Shumba, 2021). Bearing in mind that the unemployment rate of creative graduates is higher than the one in other sectors, it should come as no surprise that creative graduates are desperate to secure any kind of work experience. According to the findings of Ball et al (2010a), ‘42% of graduates from the creative sector had undertaken voluntary work since graduating, in the hope of securing a permanent job’ (Ball et al,2010a). Jobs in the UK’s creative sector is incredibly popular, according to NESTA’s research from 2013, UK’s creative sector was the second biggest in the European Union (Davies, 2015). The importance of the creative sector is appreciated by the European Union authorities. In 2010, a Directive was released which stated that Europe was being subject to a shift ‘from traditional manufacturing towards services and innovation. Factory floors are progressively being replaced by creative communities whose raw material is their ability to imagine, create and innovate’ (European Commission, 2010).

Due to financial challenges faced by many organizations, they have been eager to offer unpaid internships. It could not be therefore overlooked by the policymakers. One of the most important papers regarding the issue of unpaid internships in the creative sector is the ‘Internships in the Arts: A Best Practice Guide for Apprenticeships, Internships and Volunteering’ report released by the Arts Council England’s (2011). It sets out the guidelines and rules which must be followed by the organizations who decide to offer internships and when the interns classify as workers. According to this paper, an internship does not need to be paid provided that ‘an internship is a part of a formal programme study and is using the opportunity to help them meet the assessment criteria for this programme.’ Similarly, if an individual is undertaking an internship ‘solely to shadow another member of staff.’ (Arts Council England, 2011) Despite the relevant legislation on this matter, the rules are frequently breached by many organizations. One of the examples is the case Vetta v London Dreams Motion Pictures Ltd (2009) in which the court classed an intern as a ‘worker’. It was ruled that she was entitled to the National Minimum Wage and the accrued holidays.

The UK-China Film Collab offers ‘The Future Talent Programme.’ Students participating in the Programme are not paid, yet they are ‘not expected to contribute to the day-to-day activities of UCFC but are simply encouraged and aided on their personal projects that they have chosen to embark on’ (Hampson, 2021). Therefore, the Future Talent Programme is in line with the current legislation as the participants are classified as voluntary workers (Gov, 2021). The Programme allows participants to independently work on their chosen projects with the help of the organization. It, therefore, differs from all other internships where students need to be constantly supervised so that their work is factually beneficial to the organization.

The Programme launched by the UK-China Film Collab is therefore a fantastic opportunity for students to gain invaluable experience, skills, and most importantly social capital necessary to achieve success in the industry.

In conclusion, this report contextualizes the issues faced by non-profit organizations regarding financial management. It attempts to provide practical solutions for the UK-China Film Collab which might be useful to introduce so that the organization can acquire additional revenue streams. It sets out that corporate partnerships and commercial activities are the most efficient ways of building new sources of revenue. The paper goes on to advise as to what changes need to be made to the Governing Statement of the organization, should they intend to pursue commercial activities or form a corporate partnership. Lastly but not least, it touches on the issue of unpaid internships in the creative sectors. It sets out the challenges faced by the unpaid creative interns and looks at whether the ‘Future Talent Programme’ is in line with the current legislation.