Developing Entrepreneurship and Enterprise in ...

European Planning Studies Vol. 14, No. 1, January 2006

Developing Entrepreneurship and Enterprise in Europe’s Peripheral Rural Areas: Some Issues Facing Policy-makers DAVID NORTH & DAVID SMALLBONE Centre for Enterprise & Economic Development Research, Middlesex University Business School, London, UK, Small Business Research Centre, Kingston University, Kingston Hill, Kingston-upon-Thames, Surrey KT2 7LB, UK

[Received June 2004; accepted October 2004]

ABSTRACT This paper is concerned with the various policies which encourage rural entrepreneurship and support for rural enterprise in the 10 case study areas covered by the FERP (The Future of Europe’s Rural Peripheries) project. After introducing a typology of existing policies, the paper addresses some lessons drawn from the experiences of existing policies before discussing the kinds of policies needed to stimulate potential sources of entrepreneurship and overcome the barriers to enterprise development. The paper concludes by arguing for a more strategic and coordinated approach towards building the entrepreneurial capacity of peripheral rural areas, based on a clearer vision of the role that enterprise can play in future rural development.

Introduction Aims of the Paper The paper is based on a recently completed European Union (EU) Framework V research project entitled “The Future of Europe’s Rural Peripheries” (FERP)1 involving five countries and two case study areas in each country: (i) Germany (Nordwestmecklenburg and Waldshut); (ii) Greece (Kilkis and the island of Lesvos); (iii) Poland (Zary and Bialystok); (iv) Portugal (Left Bank of the River Guadiana and the Oeste region); (v) the UK (Cumbria, and Devon and Cornwall). Whilst the overall aim of the project has been to examine the role of rural entrepreneurship in responding to the needs of rural peripheral areas within different national contexts, this paper will be concerned with the

Correspondence Address: David North, Centre for Enterprise & Economic Development Research, Middlesex University Business School, The Burroughs, Hendon, London NW4 4BT, UK. Email: [email protected] ISSN 0965-4313 print=ISSN 1469-5944 online=06=010041–20 DOI: 10.1080=09654310500339125

# 2006 Taylor & Francis

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D. North & D. Smallbone

various policies which, directly or indirectly, are aimed at not only stimulating entrepreneurship and new enterprise creation, but also at strengthening the competitiveness and viability of existing rural enterprises. Using evidence from the case study areas provided by the various national research teams, the paper focuses on two key questions: (i) what lessons can be drawn from the experience of existing policies for rural enterprise?— here we will aim to identify policies that appear to be working well within particular contexts as well as ways in which existing policy is deficient and not working as intended; (ii) what kinds of policies are needed to develop the entrepreneurial capacity of peripheral rural areas?—here we will be concerned with some of the fundamental issues that future policy needs to address in order to stimulate new sources of entrepreneurship as well as the survival and growth of existing enterprises. As will be evident from other papers resulting from the FERP project in this volume, the 10 case study areas include a diverse range of rural areas, although each one has been selected because it is peripheral within a given national context. To a large extent, the differences between the rural areas result from the fact that the five countries have been chosen to reflect different levels of development within Europe i.e. developed economies in northern Europe represented by Germany and the UK; less developed ones in southern Europe represented by Portugal and Greece; and Poland, an emerging market economy in eastern Europe, which during the period covered by the project was preparing to join the EU. As a result, there are some major differences between the 10 case study areas in terms of the level and diversity of existing enterprise activities and the kinds of opportunities and barriers that influence the future development of rural enterprise. These differences in the levels of development are obviously an important consideration when it comes to assessing the effectiveness of policies and their appropriateness to particular situations. However, despite these differences, there are nevertheless some similarities in the issues facing peripheral rural areas in the various countries, indicating that there are likely to be potential benefits gained from the cross fertilization of policy experiences and in identifying policy initiatives which may have wider application in Europe’s peripheral rural areas. Sources of Information Used Information and views about relevant policies were obtained from various sources and assembled by each of the national project teams. The principal sources used were: . Existing documentary sources, including literature relating to a particular policy or project and any evaluative material that has been made available to us. . Interviews carried out with a number of key actors in each case study area, these being people who were involved in the formulation and delivery of policies aimed at encouraging and supporting various forms of entrepreneurship. These interviews provided information on the rationale for the policy, the delivery mechanisms used including the identification and selection of clients, views on the strengths and weaknesses of the policy and how its effectiveness might be improved. . Examples of innovative schemes or projects from the case study areas which, on the basis of the evidence available, appear to be reasonably successful. In some cases

Developing Entrepreneurship and Enterprise in Europe’s Peripheral Rural Areas

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we have interviewed beneficiaries of the scheme, as well as those responsible for its delivery. In addition, we will also refer at various points to the following two surveys which formed the empirical core of the FERP project: (i) a population survey of 4939 individuals living in the 10 case study areas which was concerned with assessing the propensity of the rural population to engage in different forms of entrepreneurship; and (ii) an interview survey of the owner-managers of 996 of the more innovative small and medium-sized enterprises (SMEs) in the 10 case study areas which included information on the background and characteristics of entrepreneurs.

Policies for Rural Entrepreneurship and Enterprise There is a diverse range and complex structure of programmes and policies which, in some way or another, are concerned with stimulating and supporting various kinds of rural enterprise. Some of these are specifically targeted at rural enterprises, whilst others are national programmes that include firms in rural areas alongside their counterparts in the rest of the country. Most obviously, this is a product of the differing origins of enterprise policies in different European countries, reflecting specific cultural and ideological histories relating to the role of private enterprise in the economy and the role of state policy in relation to enterprise. It is also associated with differences in government structures and the degree to which regional and local tiers of government have been involved in economic development. There are various dimensions to thinking about entrepreneurship and enterprise policies that we need to take into account when defining the scope of the policies that this paper is concerned with. In this regard, we may distinguish between on the one hand policies to encourage and support entrepreneurship i.e. entrepreneurship policies which include the promotion of an entrepreneurial culture, entrepreneurship education, and policies to help individuals through the nascent and initial stages of starting a business (Stevenson & Lundstrom, 2002) and on the other hand, more traditional enterprise support policies concerned with the growth, survival and competitiveness of existing SMEs. There are many different factors which can influence the level of entrepreneurship within a rural economy, not least the specificities of the social, cultural and political context including national level policies with regards to, for example, market openness, privatization, and legal and taxation regimes (Glancey & McQuaid, 2001; Morrison, 2000; Reynolds et al., 2002) However, we focus here upon those entrepreneurship policies which are directly concerned with building-up the entrepreneurial capacity of rural regions. These include: (i) policies concerned with building the entrepreneurial capacity of rural regions such as those seeking to influence the attitudes and motivations of individuals towards entrepreneurship and providing opportunities for the acquisition of business and management skills via the education and training process; (ii) policies concerned with targeting potential sources of entrepreneurs, such as those aimed at attracting in-migrants with entrepreneurial skills and ambitions or those initiatives aimed at increasing the proportion of entrepreneurs from “under-represented” groups such as young people or women;

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(iii) policies concerned with supporting the process of starting new business ventures, including pre-start-up advice and appraisal of the “business idea” as well as assistance with the various aspects of setting up a new business. More generally, enterprise support policies are primarily concerned with improving the competitiveness and viability of existing SMEs with a view to increasing their chances of survival and growth. These include: (iv) policies concerned with generic support to rural businesses, such as those concerned with providing advice on different aspects of running a business [e.g. business planning, marketing, exporting, use of information and communication technology (ICT)]; (v) policies aimed at providing specialist support to enterprises in particular sectors, such as those initiatives concerned with helping farmers to diversify their businesses into new “on farm” or “off farm” activities; (vi) policies concerned with providing an infrastructure which is supportive of enterprise formation and development in rural regions, such as the provision of a range of business premises including incubation units, investment in the transport infrastructure which is necessary to improve access to markets, and investment in the ICT infrastructure to encourage the adoption of E-commerce, not least as a way of overcoming some of the disadvantages of peripherality. Having defined the kinds of things that entrepreneurship and enterprise policies are concerned with doing, the other dimensions are concerned with the levels of governance that are concerned with formulating and delivering these policies and the kinds of broader policy programmes that are used to fund rural enterprise policies. The levels of governance dimension distinguishes between the EU, national, regional and local levels. Thus policies to stimulate entrepreneurship and strengthen enterprise in rural regions can originate from any one of these levels. There is of course an increasing interdependence between these various levels of policy-making as the EU has become the dominant source of funding for national and local policy initiatives in several countries. In contrast to the situation in Germany and the UK, in Greece and Portugal there are few policies at the regional and local level other than those funded by EU programmes. The other dimension identifies the various types of policy programmes which typically provide funding for entrepreneurship and enterprise development policies. Most of these are not solely focused on rural enterprise, but are concerned with other aspects of economic and social development as well. Thus territorial (or area based) policies generally adopt a fairly holistic approach to the economic development of designated areas, including investments in both hard and soft infrastructure, but frequently include priorities and measures concerned with new enterprise creation and small business development. These include those programmes which are concerned with the development of rural communities (notably the EU’s Leader programme) and involve support for various community based forms of entrepreneurial action, such as social enterprises. Sector-based policies can be an important stimulus to enterprise activity in rural areas when they are concerned with the restructuring and modernization of traditional land-based sectors or the growth of new sectors. In addition to the enterprise strands within these broad programmes, some countries have dedicated national level policies for stimulating enterprise activities and


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providing support for small businesses. These sometimes provide generic support to all kinds of businesses, but more often consist of policy measures which target particular types of entrepreneur (e.g. women entrepreneurs) and types of business (e.g. new startup businesses). Table 1 presents an attempt to position various examples of rural entrepreneurship and enterprise policies and projects from the 10 case study areas, referred to in the rest of this paper in relation to the levels of governance and types of policy programme dimensions. What Lessons can be Drawn from the Experience of Existing Policies for Rural Enterprise? As indicated earlier, the 10 case study areas included in the project represent a diverse set of regions, with economic development problems that reflect differences in national levels of development, as well as differences in local conditions and in the extent of experience with rural enterprise policies. Despite this diversity, analysis of examples of existing policies reveals a number of lessons for future policy in this field, emerging from alternative practice. Some of these are specific to the rural context, whilst others are particular versions of more general issues with respect to enterprise policy. In a paper of this length, it is neither possible nor appropriate to describe the policies affecting each case study area, although this is done elsewhere (Labrianidis, 2004). Instead, we summarize some of the key lessons emerging from the analysis, which would seem to justify wider dissemination. Two of these refer to the policy process itself and two to specific policy priorities. The Appropriateness of Policies to Local Circumstances In the case of both European and national level policies, a key question that arises is the degree to which the policy tools are appropriate to particular local circumstances. Although this study has identified a number of common features with respect to the surveyed enterprises in the various case study areas, it is also clear that there are some important factors of diversity, especially between enterprises in the northern case study areas (Germany and the UK) on the one hand, and the southern case study areas (Greece and Portugal) on the other.2 Thus rural enterprise policies suited to the needs of the former regions are unlikely to be transferable to the latter regions, at least not without substantial modifications. The two Portuguese case study areas illustrate how the relevance of different programmes to the needs of rural areas can vary within a single country. Territoriallybased programmes (generally Community initiatives such as Leader I and II or INTERREG) have performed a significant role in the municipalities of the Left Bank of the River Guadiana, but have been less often used in the Oeste Region. Differences between the two areas are also apparent in the use of other programmes, with greater use being made of employment, training and social development programmes in the Left Bank region, compared with a greater use of research and innovation support programmes (such as the PRAXIS and EUREKA programmes) in the Oeste region. The Portuguese cases provide good evidence of the need to tune the policy response to local conditions. In one case, the fragile social and economic fabric of the Left Bank municipalities, with social values high on the political agenda, explains the preference for programmes designed for smaller, but socially significant, business initiatives. In contrast,

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Table 1. Typology of policies for rural enterprise [examples of policies and projects from the case study areas (CSAs) are shown in parenthesis]

Policy programme types Territorial/area based

Sectoral

EU

National

Structural Funds (Objective 1 & 2 areas þ previous 5b) (e.g. farm diversification Devon and Cornwall CSA)

England’s Rural Development Programme

Leader programme (e.g. social enterprises Left Bank CSA) (e.g. food processing Lesvos CSA)

Greece’s Regional Incentives Law (e.g. technology-based firms Lesvos)

Interreg programme (e.g. Cross-border cooperation Left Bank CSA)

Germany’s Joint Initiative for the Improvement of Regional Economic Structures Poland’s Agricultural Strategy (incl. privatization of state farms)

PRAXIS (e.g. research and innovation in Oeste CSA)

Portugal’s Operational Programme for Agriculture & Rural Development England’s Farm Business Advisory Service (e.g. farm diversification Devon and Cornwall CSA)

Regional

Local


Policy levels

German Federal State’s Development Programme for Rural Areas (e.g. innovative projects in Waldshut CSA) England’s Regional Economic Development Strategies Community Initiative in support of SMEs

Business support

Leader II Programme (e.g. investment grants in Waldshut and Mecklenburg CSAs) European Social Fund

Employment/labour market

ADAPT programme EQUAL (e.g. education/business liaison Left Bank CSA)

England’s Small Business Service (Business Links) (e.g. Cumbria and Devon and Cornwall CSAs) Portugal’s Incentives to Micro-enterprises European Recovery Programme Start-up Programme in Germany German Federal Labour Office funding for unemployment to start a new business Portugal’s Operational Programme for Employment, Occupational Training & Social Development

Municipal economic development initiatives in Germany Local Government economic development initiatives in England (e.g. Digital Peninsula in Devon and Cornwall CSA) Local Government business support in England (e.g. local product promotion, Cumbria CSA)


Economic development

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the greater degree of market orientation in the Oeste region municipalities has enabled businesses to apply successfully for more competitive and innovation orientated programmes. This difference in the types of intervention used reflect underlying differences in economic, social and institutional conditions, which policy-makers need to take into account, if policy is to be effective. A more negative experience in this regard can be taken from the Greek case study areas where there is evidence that “top-down” programmes formulated at the European and national levels can be insensitive to local circumstances, being based on assumptions about the nature and motivations of small business owners which can be out of step with the reality in particular rural contexts. The broad characteristics of enterprises operating in Greek rural areas can be summarized as being their small size, traditional specializations, the adoption of labour-intensive techniques and low profitability, which collectively contribute to their low economic development potential. However, two highly neglected interrelated factors, the conservative management style of rural entrepreneurs, as well as the lack of cooperation among rural firms, seem to be crucial in understanding the behaviour of rural enterprises. Logically, the combination of the small size of enterprises with their peripheral location might lead to an expectation that entrepreneurs would welcome initiatives designed to reduce their costs and increase their competitiveness, through projects such as the common procurement of raw materials, common marketing of finished products, or common access to information. However, the success of those State Programmes in Greece targeted at increasing cooperation between enterprises, such as through the formation of associations and partnerships has been very poor, because of the lack of any tradition or interest in cooperative arrangements. The failure of such initiatives can be ascribed to the strong feeling of self-sufficiency and reliance shown by local entrepreneurs. Whilst there are close ties and relations of support within the members of the same family, this is not the case between entrepreneurs who are not connected by family ties where suspicion and lack of trust are more likely to be found than any interest in collaboration and support. These kinds of attitudes are deeply entrenched and difficult to change. Thus those policies which aim to assist the formation of networks of firms and promote common actions between local firms are unlikely to be successful in Greek rural areas because they fail to take account of the local social and cultural context affecting entrepreneurial behaviour. This point has wider application, since to be effective any policy intervention involving small firms should be sensitive to the needs and behavioural traits of its target group(s), both in conception and delivery (Huggins, 2000). In addition, policy interventions intended to promote and support networking between enterprises are among the most difficult to deliver effectively. Greece is not exceptional in this regard, although more “bottom-up” approaches to policy are likely to be more effective. One successful example in recent years has been the “Clyde Valley Tomato Growers” group in Scotland, assisted by the Robert Owen Foundation, where a growers’ collective was formed in order to launch a new, higher value added, branded product into the large supermarket chains in the UK (Smallbone et al., 2003). Available evidence tends to indicate that the European and national policies that work best are those which allow for a high level of local involvement with regards to project formulation and implementation. One EU programme that is adaptable to local circumstances is the Leader programme, where the broad overall programme objectives are


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established centrally (after consultation between the EU institutions, national governments and other interested parties) but local appraisals, plans and projects are devised, implemented and delivered locally through Local Action Groups (Midmore, 1998). Leader II (1994 – 1999) and Leader þ (2000 –2006) programmes are concerned with encouraging rural development in local communities via local action groups, providing funding for a wide range of projects which involve community based forms of entrepreneurial action. More specifically, the programme contributes to the diversification of rural economies, helps to add value to rural products, and facilitates local capacity building. There is also an emphasis on innovation and the transfer of knowledge and good practice between areas. The extent to which the Leader II programme has given rise to innovative entrepreneurial projects which address the needs of different areas can be illustrated with reference to the two German case study areas. The emphasis of the Leader programme has been on extending the markets and improving the distribution channels for agricultural products of local farmers, and encouraging ecologically compatible forms of tourism. Examples of the kinds of projects to support enterprise activities in Waldshut and Nordwestmecklenburg include: investment grants enabling the expansion of small enterprises in the food processing and timber industries; support for the development of farmers’ markets; and the establishment of a communal forum aimed at promoting a municipality externally as well as achieving closer social integration. Similarly, in the Devon and Cornwall case study area, examples were found of Leader II funded projects that had achieved higher levels of cooperation between existing farm enterprises, such as a cooperative formed by 25 Cornish farmers and concerned with the electronic identification and traceability of cattle to improve farm efficiency and obtain marketing advantages. These examples illustrate the importance of policy formulation being sensitive to the needs of, and conditions in, local rural economies, as well as being implemented in ways which involve local communities at all stages. The Need to Improve the Internal and External Coherence of Policies Turning to an issue concerning the implementation of enterprise support policies, there is evidence from several of the case study areas that the effectiveness of policies suffers from tensions within and between policies. Problems have arisen in several of the case study areas as a result of either the lack of internal coherence within a programme, or the lack of external coherence resulting from tensions between different policies. In the case of the Greek island of Lesvos, there has been a lack of internal coherence in the way the Leader II programme has been implemented. The existence of any kind of linkages between the different projects tends to be the exception rather than the rule, which inevitably limits their overall impact. Although several agro-tourist resorts, as well as a number of traditional food processing firms have been financed under the programme, there has been little attempt to integrate them in anyway. For example, although food processing firms face a serious problem of market access, they have not reached any kind of agreement with agro-tourist cooperatives to place their products in agro-tourist resorts and/or retail outlets. As an example of the difficulties of achieving external coherence, the Leader II programme in the German Waldshut case study area illustrates the problems that have been encountered in matching Leader’s funding criteria with those of possible matched

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funding programmes. All projects and initiatives that are supported by the Leader programme have to be supported by national or regional support programmes with the same amount of money. In Baden-Wu¨rttemberg (the region in which Waldshut is situated), the Federal States programme for the development of rural regions is a favoured co-financing programme. However, this has given rise to a number of specific problems, associated with a lack of coherence between federal and EU programmes: (i) Projects that would fulfil the conditions requested by the Leader programme (which have to show innovative features) often do not suit the rules and regulations of the national and regional support programmes (most of which are rather conservatively oriented). Since the Leader programme has to be co-financed, some highly innovative projects or initiatives lose out because they do not qualify for support from national or regional programmes. (ii) Due to the complex co-financing guidelines, it is very difficult for the Leader coordinators to explain the functionality of the Leader programme regarding the procedure of approval and financing to particular groups of applicants. (iii) When municipalities want to take part in inter-municipal initiatives or projects of their own and they apply for Leader support, there are special problems for those municipalities which are weakly endowed with financial resources. Consequently, they cannot provide the full amount of match funding required and thus are not able to realize the projects totally, even though they have significant innovative elements. These two examples demonstrate how a lack of coherence between policies is limiting their impact. More fundamentally, they reveal a lack of a strategic approach to tackling rural development problems, which is likely to contribute to specific programmes and interventions underachieving and having a more marginal impact than a more integrated approach is likely to produce. Encouraging the Diversification of the Farming and Land Based Sectors Although the nature of agriculture varies enormously between the case study regions, which is reflected in large differences in its contribution to employment, farms remain an important element in the business stock in all of them. Even in peripheral rural areas in more developed economies, such as Devon and Cornwall, agricultural businesses still account for about one quarter of all businesses. Reductions in agricultural support within the EU, combined with changing market trends, have increased the pressures on farmers to diversify their activities in recent years in order to survive and make a living, which in countries like the UK has become more urgent in the aftermath of the BSE (bovine spongiform encephalopathy) and foot and mouth crises. These events emphasized the vulnerability of entire rural economies to sharp external shocks, since many rural businesses were indirectly affected by these crises, as impacts were filtered along the supply chain and the numbers of visitors to the countryside were reduced (Phillipson & Raley, 2002). In this context, farms need to be viewed as enterprises and farmers are increasingly needing to become more entrepreneurial, by diversifying into other agricultural activities (e.g. unconventional livestock production, woodland and organic farming), becoming


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involved in the formation of non-farm enterprises (e.g. farm-based tourism, adding value through direct marketing or food processing, and craft/light industries), and renting out farmland and buildings to non-farm businesses (Ilbery, 1991; Carter, 1998). The EU’s Objective 5b programme in Devon and Cornwall over the 1994 –1999 period gave special emphasis to promoting the diversification of agricultural enterprises, as part of its broader aim of assisting diversification within declining sectors of rural economies. The assistance to farmers came in the form of pre-investment support of up to 50% of the costs of feasibility studies and business plans; capital grants of between 30% and 50% of the total cost of the project; and post investment support to help businesses to survive and grow. Beneficiaries of the scheme included farms diversifying into food processing, retailing, other services and property development (i.e. the conversion of farm properties for tourism and office space). The main demand for Objective 5b assistance has come from farmers looking for secondary or tertiary income streams, and reducing their dependence on a single market. Finally, one of the main advantages of the Objective 5b farm diversification programme has been that, being a territorial rather than sector based programme, it was possible to link the support given to farmers with other policy initiatives as part of an integrated programme of rural economic development. Whilst the experience of farm diversification policies has been mainly in the more developed economies, the need for farm diversification is now becoming more apparent in the underdeveloped regions as well. In Greece for example, farmers have been shielded and subsidized by the state and the EU, but the removal of trade restrictions by the World Trade Organization (WTO), Common Agricultural Policy (CAP) reform, and EU enlargement will reduce the number of farms that are viable and increase the need for diversification into non-farm activities. Farm diversification and modernization is also being prioritized in the new accession countries, as the example of Poland shows. In the case of the two Polish case study areas, the link between policies to stimulate entrepreneurship and agricultural restructuring and modernization policies is particularly important, given that over 40% of the working population are still employed in agriculture and that the level of non-agricultural entrepreneurial activity among rural inhabitants is very low. The changes in the Polish agricultural system required to lead to a successful transition to a market system are based to a large extent upon developing entrepreneurship within these agricultural communities. Yet this is not proving easy when, as in the case of the Zary case study area, a large proportion of the local population previously worked on state-owned farms, have no tradition of entrepreneurship, are now experiencing unemployment, and have low educational levels.

Overcoming Barriers to the Adoption of New Technologies A recurrent feature of policies designed to assist enterprises in overcoming some of the disadvantages associated with their peripheral rural locations focuses on increasing access to ICT, which, in theory at least, holds a key to them overcoming the disadvantages of their location with respect to markets and access to business services. However, a more critical perspective on the contribution of ICT to economic development within peripheral rural areas of Europe is provided by Grimes (2000, 2003), who criticizes the technological deterministic assumptions which have underpinned many public funded projects, i.e. that the provision of the computer equipment and telecommunications infrastructure will

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automatically lead to economic development and considers that this technical “quick fix” approach has been encouraged by projects which provide subsidized equipment. Although there is evidence to indicate that Internet usage is associated with superior growth performance in rural small firms (OECD, 2000), evidence from remote rural locations in England shows that SMEs have been lagging behind their counterparts in more accessible rural locations in terms of Internet usage (North et al., 1997; Talbot, 1997). At the same time, more recent survey evidence from Cumbria, and Devon and Cornwall as part of the FERP project shows the use of Email and Websites in innovative SMEs to be more extensive. Thus whilst there is a universal business support need for help with investing in and making effective use of ICT, available evidence suggests that this need is most acute in peripheral rural locations. Yet, at the same time, these are the areas which are often being discriminated against by investments in the telecommunications infrastructure because of the relatively low and dispersed nature of the demand, although there are some notable exceptions, such as the Highlands and Islands Telecommunications Initiative in Scotland which was concerned with ensuring that this peripheral rural region was at the forefront of ISDN (integrated services digital network) developments (Grimes, 2003). As shown by Ilbery et al. (1995) in an EU programme of research on the use of telematics by rural small businesses in four countries, there are many barriers to the adoption of telematics services, not least user-resistance because of “techno-phobia” and lack of training. Similarly an evaluation of European telematics projects highlights the need for enhancing the human dimension in ICT policies, not least the provision of appropriate training and skills development in rural areas; “technology cannot substitute for entrepreneurship, nor for well thought out strategies for development” (Grimes, 2000). It also demonstrates the need to develop applications which are better adapted to the needs of rural small businesses, as well as the characteristics and competencies of those running them (Ilbery et al., 1995). Freshwater (2000) has suggested that many of the changes in the new information based economy are not likely to benefit rural areas in practice because the labour force lacks many of the basic skills necessary to take advantage of them. As we would expect, the difficulties of achieving technogical advancement are most acute in the most peripheral rural regions, as the following example from the Greek island of Lesvos illustrates. Although during the 1980s and the early 1990s strong financial incentives encouraged a number of technology-intensive firms to establish themselves on the island, there is little evidence of technology intensive firms locating on Lesvos more recently. There are a number of interrelated factors which result in the low incidence of technology-based enterprises and the trend towards more labour-intensive activities. These include the massive inflow of economic immigrants during the 1990s from exSocialist countries, willing to work in low paid jobs. Immigrants are now the main workforce in many primary sector enterprises and this has resulted in a lack of investment in more automated methods in these enterprises threatening their long-term competitiveness. Another factor is the lack of workers skilled in the use of ICT equipment. This is not solely a supply problem since there are numerous young domestic graduates willing to stay on the island and to work for local enterprises, but unable to find suitable employment. The problem arises mainly because the majority of local firms do not have sufficient capacity to employ full-time graduates and thereby upgrade their ICT competencies. Finally, the remote location of the island, combined with the poor transport infrastructure, is also a major obstacle to the technological modernization of firms resulting


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from the problems of gathering information on new machinery and processes as well as the difficulties of maintaining and repairing sophisticated machinery. In addition, it is not always easy for an entrepreneur located in a peripheral rural area to attend promotion events for new technology, which tend to be held in Athens or Thessaloniki. The experience of Lesvos illustrates the dilemmas facing policies aimed at increasing the adoption of new technologies in peripheral rural areas. Despite the alleged distance shrinking advantages of new technology, it shows that one effect of the adoption of ICT technologies in remote rural areas can be to increase the area’s dependence on enterprises and skilled labour located in urban conurbations. The example also serves to emphasize once again the importance of human capital investments if the potential advantages of new technology are to be realized. What Kinds of Policies are Needed to Develop the Entrepreneurial Capacity of Remote Rural Regions? Having identified a number of issues relating to existing policies in the case study areas, we now consider a number of ways in which policy interventions can contribute to encouraging entrepreneurship and enterprise development in peripheral rural regions. Given the wide range of rural areas throughout Europe, as evidenced by our case study areas, a recurrent theme of this paper is that policies need to be tuned to particular local circumstances. In other words, there are distinctive issues, found in particular rural contexts, which require policy tools which are sensitive and appropriate to those particular circumstances. At the same time, there are other issues which are shared between different rural contexts and can be tackled by more generic policies. In what follows, we shall endeavour to identify these common issues, as well as those which are more specific to particular rural contexts. Referring to the typology of rural policies described in an earlier section, most rural policy interventions are concerned with improving the competitiveness of existing rural enterprise, rather than with policies aimed at raising the entrepreneurial capacity of rural regions. This is not altogether surprising since few countries have explicit policies for entrepreneurship at a national level, an SME focus being more common. In view of the lack of dynamic and innovative enterprises observed in many of the rural case study areas studied, it may be questioned whether the current policy emphasis is the most appropriate one. We therefore start by looking at potential sources of entrepreneurship in peripheral rural areas. Potential Sources of Entrepreneurship Young people There is a clear need in most peripheral rural areas to find ways of developing entrepreneurial awareness and ambitions amongst young people if endogenous business development is to occur. This is most likely to happen in those areas where there is a tradition of self-employment and small business ownership, especially in areas where farmers have owned and managed their own agricultural holdings such as the Waldshut study area in Germany or the Devon and Cornwall study area in England. It has been shown that there is a strong inter-generational component in the transmission of entrepreneurship such that young people whose parents have been entrepreneurs have a higher propensity

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to become entrepreneurs themselves than where there is no family tradition of entrepreneurship and business management (Reynolds et al., 2001). Indeed, the results of the FERP population survey showed that in nine out of the 10 case study areas, parental involvement in business enterprise was more widely reported amongst entrepreneurs than the rest of the population. The children of existing entrepreneurs are therefore likely to be an important source of future entrepreneurs in a rural area, although creating the conditions which will encourage young people to stay and operate their enterprises within such regions may be the greatest challenge. In the past, there has been a tendency for the better educated and more skilled young people, including those more willing to take risks and to display initiative, to move away to urban areas, yet rural areas cannot afford to lose such people. To be successful, such a strategy would also require business support agencies to make some adjustments, to reflect the distinctive support needs of young entrepreneurs, typically associated with their lack of resources and limited business experience. At the same time, agencies may also need to review the way in which they promote themselves and their services, ensuring that the achievements of any successful young entrepreneurs are actively promoted and that more attention is paid to the image portrayed by agencies that are usually staffed by older people. Obviously, encouraging young people to become entrepreneurs is going to be most difficult in those rural areas where there is no tradition of becoming self-employed or setting up businesses. The west Cumbria case study area illustrates this, since the incidence of entrepreneurship in the population is very low, especially amongst men, largely as a result of the historic dependence of the population upon working for large industrial employers. Despite the decline in this type of employment, it is proving difficult to break away from this “employee culture”, even in the thinking of young people. The lack of an entrepreneurial tradition is also evident in the Left Bank of the River Guadiana region of Portugal, stemming from the historical predominance of the large farm, which turned most of the labour force into wage-earners. Here, the social inequalities associated with the large farm property contributed to perpetuating the idea that the employer is synonymous with social exploitation. Changing these perceptions and encouraging a positive social image of the entrepreneur is fundamental to stimulating local entrepreneurship in these areas. This is likely to require campaigns aimed at promoting the social status of the entrepreneur, involving local councils, schools and business associations. The attribution and wide publicity of awards to local cases of entrepreneurship may help to raise the profile of entrepreneurs and act as role models for others. Steps are already being taken via the EU’s EQUAL programme to give school children the opportunity to be in close contact with business reality with a view to encouraging a disposition towards entrepreneurship, although the coverage and impact of such initiatives would seem to be limited at present. Role of in-migrants The FERP population survey showed that in-migrants are an important source of entrepreneurs in some peripheral rural areas, particularly those that are perceived as being environmentally attractive such as Devon and Cornwall and east Cumbria (i.e. the Lake District) in the UK and Nordwestmecklenburg in Germany. A significant proportion of the more innovative enterprises in these areas have been set-up by people moving in from other regions and in some instances relocating an existing business in the process. Other people have set


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up more “lifestyle” types of businesses with the motive of earning a reasonable living rather than developing a growing business. In addition, in-migrants of retirement age (and especially those that have taken early retirement) often bring with them entrepreneurial and management experience which can be of value to younger people setting up businesses. These examples from the more advanced European economies show the contribution that in-migrants can make to developing the entrepreneurial capacity of peripheral rural areas. Moreover, initiatives to encourage the in-migration of people with entrepreneurial experience and skills could make an important contribution to the development of those rural areas lacking endogenous sources of entrepreneurship. This has recently been recognized in the UK by the Countryside Agency, in recommending the introduction of a new inward investment programme to support households who migrate from urban areas to start new enterprises and invest in rural economies (Countryside Agency, 2003). An example from Devon and Cornwall illustrates the contribution that in-migrants have been making to the organic development of a new cluster of ICT businesses, assisted by various sources of public funding including local government assistance. Largely as a result of an initiative taken by one individual in 1999, a few self-employed people and owners of micro businesses in the ICT field (including several in-migrants) started meeting to see how they could help each other’s businesses, the aim being to see if “digital professionals” and knowledge workers in SMEs in Cornwall could offer one another help, support and advice. A key aspect has been to promote the activities of its members which cover a wide range of ICT sectors including business services, communications and networks, film and television, graphics and multimedia, publishing, and web design. By 2002, the membership of what became known as the Digital Peninsula Network had grown to 185 members, many of whom were self-employed individuals working from their own homes. These businesses typically work on a project basis, building up “alliances” to serve a particular market and to work on a particular project. The digital and creative industries sector is particularly conducive to the formation of networks and the transfer of knowledge between businesses. The Digital Peninsula cluster demonstrates how in-migrants can contribute to the development of more entrepreneurial rural economies, with possibly some potential for transfer into other rural areas. At the same time, the potential contribution of in-migrants with business experience into rural areas goes beyond the creation of new enterprises. Creative rural entrepreneurship policy could include incentives to encourage such people to take on a mentoring role for younger entrepreneurs and new businesses, which in some cases might involve investment as a business angel.

The role of animators The findings of the population and enterprise surveys have drawn attention to the leading role played by a small number of key entrepreneurs who are invariably involved in several different business ventures. This was particularly evident in the study areas of some of the more developed economies. Thus in Devon and Cornwall, the enterprise survey highlighted the importance of a small minority of portfolio or serial entrepreneurs who were typically the owners of the larger and dynamic enterprises. Businesses owned by portfolio entrepreneurs were more likely to have products and services judged to be innovative by national and global market standards than firms owned by entrepreneurs with single business interests and more likely to be developing new markets.

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One of the main problems in developing the entrepreneurial capacity of the more underdeveloped rural regions is the absence of such people. In the study areas of Greece, for example, local entrepreneurs are typically very conservative and risk averse. Moreover, they are often not well educated, usually older than the average population, and have life experiences limited by their rural environment. It is unlikely in these situations, therefore, that the required animators will emerge from within the indigenous population. This is where the establishment of Local Action Groups, such as those supported by the Leader initiative, can play an important role in promoting the development of rural areas with weak social and entrepreneurial structures. Such a role might also be played by exvillagers who “weekend” in the village and bring with them their urban experiences, or by in-migrants. It might also involve developing schemes to encourage experienced inmigrants, or those with holiday homes in the locality, to contribute time to assisting the development of social and community enterprises. Apart from offering potentially valuable knowledge and support to enterprises whose aims include wider community benefits, it may also help to bridge the gap between locals and “outsiders”, which is not uncommon in rural communities. Developing the Infrastructure to Support Entrepreneurship Policy has a clear role to play in developing those regional infrastructures which are needed to underpin and support entrepreneurial activities in peripheral rural areas, although the nature and extent of this role is influenced by the extent to which private sector business services are developed that are capable of meeting the needs of rural businesses and nascent entrepreneurs. Education and training First and foremost, especially in the case of the least developed of the rural areas, is the need to invest in the education and training system. This is most obvious in the study areas of Poland where the limitations of the current education system are proving to be one of the main barriers to entrepreneurship development. The relatively low skill and education levels of the rural workforce and potential entrepreneurs have an adverse effect on the supply of entrepreneurs, the form and scale of enterprise development, especially in technology and knowledge-based sectors, and on influencing the quality and chances of success of new enterprises. This requires education investments aimed at increasing the number of people receiving both secondary and tertiary level education, and investments in the training provision for business owners to raise marketing skills, the ability to prepare business plans, financial management and the quality of innovation management. In a transition, or emerging market economy specifically, it may also require a review of teaching methods in secondary, further and higher education, as well as of curriculum content (Gibb, 1993). Although much of this training could be provided by private sector organizations, public intervention has an important catalytic role in stimulating and supporting the services provided (e.g. through subsidizing the costs of training). The creation of an appropriate education and training infrastructure to help develop an entrepreneurship culture is also seen as a priority in Portugal. This needs to comprise the widespread introduction of modules of entrepreneurship in professional training courses; a greater supply of training specifically orientated for entrepreneurship promotion in areas of low population density and weak entrepreneurial culture; greater flexibility in the


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eligibility criteria for training programmes orientated towards self employment; and the development of regional and sub-regional coordination mechanisms of training supply to prevent duplication on the one hand or gaps in provision on the other hand. Physical and social infrastructure The development of the entrepreneurial capacity of peripheral rural areas is also unlikely to be successful unless improvements occur to the physical and social infrastructure. This applies in varying degrees to all the peripheral rural areas covered by the FERP study, although it applies most urgently to the most backward areas. Thus in Poland, the diversification of rural economies through stimulating non-farming entrepreneurship requires investment in the physical, technical and social structure of rural areas to provide a milieu which will be conducive to enterprise formation and multi-functional development. This requires special attention being given to education and training provision, market institutions, banking systems, and the introduction of new technologies. It is also argued that such developments need to go hand in hand with greater local self-governance in order to encourage innovation by local authorities and communities (Piasecki & Rogut, 2004). In the case of Greece, one of the main reasons for the depopulation of peripheral rural areas is the poor physical and social infrastructure of rural settlements, with even parents advising their children to leave farming and seek employment in the main urban centres. Yet a precondition of rural economic development is the retention of the younger generation. It seems that securing them an income is a necessary but not sufficient condition as they must have good living conditions along with employment prospects and social status. It follows that the creation of medium size urban centres with the necessary physical and social infrastructure (roads, schools, provision of health facilities, etc.) is likely to be a requirement of holding onto the kind of young people who are most likely to contribute to developing the entrepreneurial capacity of these peripheral rural regions, especially in the countries of southern Europe. Overcoming the Barriers to Innovation and Enterprise Development Finally, we consider some of the needs of existing enterprises in peripheral rural areas which business support policy should address. The FERP enterprise survey has shown that rural enterprises face barriers to making innovations which their owner-managers frequently attribute to various characteristics of their rural business environment. For example, 46% of enterprises in the Cumbria case study area identified their rural location as a barrier to making product innovations, as did 37% of firms to the making of market innovations. The limited size of the local market was identified as the main constraint on product and service innovation, while remoteness and transportation costs were stressed in the case of new market development. These results are similar to those found in other case study regions; for example, the smallness of local markets together with the poor business environment proved to be the main barriers to innovation in the case of enterprises in Nordwestmecklenburg. Policies aimed at improving the innovativeness of rural enterprises therefore need to focus on finding ways of overcoming these constraints. Initiatives which help firms enter non-local markets are likely to be very important here, such as external assistance with market development, exporting, and the adoption of new marketing techniques. In many instances, this is likely to require direct practical assistance in the form of regional

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product-marketing initiatives and help with exhibiting products at trade shows in other regions and abroad. Ilbery and Kneafsey (1998) argue that lagging regions can benefit from various societal changes including increased demands for recreation and locally produced, niche products, particularly when they can be tied to a regional image or speciality. Thus in some areas initiatives have been taken to promote local products, such as a “Made in Cumbria” initiative, started by the county’s economic development officer over 10 years ago, which aims to promote and sell local food and craft products made by small enterprises in the county. These kinds of initiative may be one of the few options available in the short-term in the case of some of the poorest rural areas such as in Greece where most enterprises are concerned with agricultural products of one kind or another. Also needed are policy initiatives aimed at encouraging rural entrepreneurs to participate in information and knowledge networks as another key influence in encouraging entrepreneurship and innovation is the strength of contacts which entrepreneurs have “with the outside world”. There is growing evidence that entrepreneurs who engage in networks with other entrepreneurs outperform those who do not (OECD, 2003). This was found to be particularly important in those rural areas, such as in Portugal, that did not have a strong entrepreneurial tradition and had a poorly qualified entrepreneurial culture. The analysis of the life narratives of the owners of the most innovative firms confirmed the importance of developing ties with other entrepreneurs and seemed to apply irrespective of the level of educational attainment. This finding therefore emphasizes the importance of encouraging rural entrepreneurs to enter into non-local networks of entrepreneurs and organizations within their sector if they are going to benefit from the exchange of knowledge, ideas, new market opportunities, and best practice. The creation of some form of “knowledge exchange” organization within rural areas may be one way of raising the awareness of local entrepreneurs as to appropriate external networks and sources of information. Conclusions It is clear from this review that there are marked differences between the five countries in the FERP project in terms of the degree to which they have developed policies for encouraging entrepreneurship and enterprise in peripheral rural areas and the extent to which such policies are successfully contributing to rural development. Overall, it would appear that the majority of the examples of successful policy initiatives come from the more developed “northern” countries, as it is here that there is a longer history of public intervention to support enterprise development and that experience has been gained of alternative policy tools and effective ways of delivering them. Although much of the funding has come from EU or national programmes, policy initiatives have been either formulated or modified by regional and local level institutions, thereby helping to achieve a good fit with local needs and circumstances. This differs from much of the policy experience in “southern countries” where existing enterprise policies tend to be insufficiently tuned to local circumstances, resulting in policies “missing their targets” because they are based on a poor understanding of the specificities of the local entrepreneurial culture. This can happen in situations where policy-makers are simply applying “top-down” policies which are formulated on the experiences of other member countries. Moreover, forms of policy delivery were often inadequate, whether because of excessive bureaucracy, political clientelism, or weak local government in rural areas. And in the case of Poland, as a country undergoing transition from a socialist to a


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market economy, there are as yet hardly any policies for encouraging entrepreneurship and enterprise in peripheral rural areas, although the need for such policies is increasingly accepted. In those countries where rural enterprise policies do exist, the emphasis is towards strengthening the viability and competitiveness of existing SMEs rather than focusing on what is arguably the greater challenge of developing the entrepreneurial capacity of peripheral rural areas. In other words, entrepreneurship policy (as opposed to small business policy) is relatively weakly developed in all the case study areas, including those in the “northern” countries. Few policy initiatives of any significance have been found which are primarily concerned with fostering a positive attitude towards entrepreneurship amongst young people and women, attracting in-migrants with entrepreneurial experiences and aspirations, and encouraging inspirational leaders capable of playing a catalytic role in entrepreneurial developments. Yet it is difficult to see how the entrepreneurial capacity of peripheral rural areas can be strengthened without policies targeted at such new sources of entrepreneurship. It is also difficult to see what can be achieved without policies to develop the infrastructure to support entrepreneurship in peripheral rural areas. This is particularly the case in those areas suffering from depopulation, especially the exodus of young and working age people. Thus policies to encourage entrepreneurship need to be closely tied to improvements in the physical and social infrastructure that will make these areas more attractive places to live and work. On the basis of the findings of this review, we would argue that there is a need for a more strategic and coordinated approach towards building the entrepreneurial capacity of peripheral rural areas, based on a clear vision of the role that entrepreneurship can play in future rural development and agreement about the actions which are required to achieve it. Given the structural and global processes affecting the traditional economic activities of these areas, the case for producing rural entrepreneurship and enterprise strategies for peripheral rural regions has been given added urgency. Whilst this applies in varying degrees to all the national contexts covered in the FERP project, it is obviously most urgent in the case of the least developed rural areas in southern and eastern Europe where the majority of existing economic activity is associated with agriculture and other land based industries. The experience of existing policies also suggests that an approach which actively involves rural communities, enterprises, and economic development agencies is most likely to work best. At the same time, however, regional level economic development organizations are probably in the best position to coordinate rural entrepreneurship and enterprise policies in order to achieve a high level of policy integration and synergy with other aspects of rural development.

Notes 1. Labrianidis et al. (2003) The Future of Europe’s Rural Peripheries, Final Report to the European Commission, 5th Framework Programme for Research, Technology, and Development Activities. 2. The findings of the enterprise survey showed that across the 10 case study areas rural enterprises were predominantly micro (i.e. less than 10 employees) or small (i.e. 10–49 employees) businesses, owned and managed by men rather than by women and by entrepreneurs who were mostly born locally. They also tended to have a strong dependence upon local and regional rather than national or international markets. However, the entrepreneurs within the German and English case study areas had received a higher level of education than their Greek and Portuguese counterparts and their enterprises showed higher levels of innovation and ICT usage.

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