Section I: Entrepreneurship and supporting institutions: an analytical approach
Entrepreneurship as an economic force in rural development1
Entrepreneurship in the development of a rural area1
Institutions supporting entrepreneurial restructuring of rural areas1
1Keynote paper presented at the Seventh FAO/REU International Rural Development Summer School, Herrsching, Germany, 8-14 September 1994.
T. Petrin
FAO, Regional Office for Europe! Viale delle Terme di Caracalla, 00100 Rome, Italy
Rural development is more than ever before linked to entrepreneurship. Institutions and individuals promoting rural development now see entrepreneurship as a strategic development intervention that could accelerate the rural development process. Furthermore, institutions and individuals seem to agree on the urgent need to promote rural enterprises: development agencies see rural entrepreneurship as an enormous employment potential; politicians see it as the key strategy to prevent rural unrest; farmers see it as an instrument for improving farm earnings; and women see it as an employment possibility near their homes which provides autonomy, independence and a reduced need for social support. To all these groups, however, entrepreneurship stands as a vehicle to improve the quality of life for individuals, families and communities and to sustain a healthy economy and environment.
The entrepreneurial orientation to rural development accepts entrepreneurship as the central force of economic growth and development, without it other factors of development will be wasted or frittered away. However, the acceptance of entrepreneurship as a central development force by itself will not lead to rural development and the advancement of rural enterprises. What is needed in addition is an environment enabling entrepreneurship in rural areas. The existence of such an environment largely depends on policies promoting rural entrepreneurship. The effectiveness of such policies in turn depends on a conceptual framework about entrepreneurship, i.e., what it is and where it comes from.
This paper deals with the following three issues: firstly, it sets out the reasons why promoting entrepreneurship is a force of economic change that must take place if many rural communities are to survive; secondly, it deals with what policies are necessary in order to create an environment in rural areas conducive to entrepreneurship; and thirdly, it considers women and entrepreneurship.
The entrepreneurship concept, what it means and where it comes from, is the foundation for policies promoting entrepreneurship and the key to understanding the role of entrepreneurship in development.
What, who and why?
Defining entrepreneurship is not an easy task. There are almost as many definitions of entrepreneurship as there are scholar books on the subjects (Byrd W.A., 1987, p. 3). To some, entrepreneurship means primarily innovation, to others it means risk-taking? to others a market stabilising force and to others still it means starting, owning and managing a small business. Accordingly, the entrepreneur is then viewed as a person who either creates new combinations of production factors such as new methods of production, new products, new markets, finds new sources of supply and new organizational forms; or as a person who is willing to take risks; or a person who, by exploiting market opportunities, eliminates disequilibrium between aggregate supply and aggregate demand, or as one who owns and operates a business (Tyson, Petrin, Rogers, 1994, p. 2-3).
To choose the definition of entrepreneurship most appropriate for the rural area context, it is important to bear in mind the entrepreneurial skills that will be needed to improve the quality of life for individuals, families and communities and to sustain a healthy economy and environment. Taking this into consideration, we will find that each of the traditional definitions has its own weakness (Tyson, Petrin, Rogers, 1994, p. 4). The first definition leaves little room for innovations that are not on the technological or organizational cutting edge, such as, adaptation of older technologies to a developing-country context, or entering into export markets already tapped by other firms. Defining entrepreneurship as risk-taking neglects other major elements of what we usually think of as entrepreneurship, such as a well-developed ability to recognise unexploited market opportunities. Entrepreneurship as a stabilising force limits entrepreneurship to reading markets disequilibria, while entrepreneurship defined as owning and operating a business, denies the possibility of entrepreneurial behaviour by non-owners, employees and managers who have no equity stake in the business. Therefore, the most appropriate definition of entrepreneurship that would fit into the rural development context, argued here, is the broader one, the one which defines entrepreneurship as: "a force that mobilises other resources to meet unmet market demand", "the ability to create and build something from practically nothing", "the process of creating value by pulling together a unique package of resources to exploit an opportunity"2.
2It combines definitions of entrepreneurship by Jones and Sakong, 1980; Timmons, 1989; Stevenson, et al., 1985.
Entrepreneurship so defined, pertains to any new organization of productive factors and not exclusively to innovations that are on the technological or organizational cutting edge, it pertains to entrepreneurial activities both within and outside the organization. Entrepreneurship need not involve anything new from a global or even national perspective, but rather the adoption of new forms of business organizations, new technologies and new enterprises producing goods not previously available at a location (Petrin, 1991). This is why entrepreneurship is considered to be a prime mover in development and why nations, regions and communities that actively promote entrepreneurship development, demonstrate much higher growth rates and consequently higher levels of development than nations, regions and communities whose institutions, politics and culture hinder entrepreneurship.
An entrepreneurial economy, whether on the national, regional or community level, differs significantly from a non-entrepreneurial economy in many respects, not only by its economic structure and its economic vigorousness, but also by the social vitality and quality of life which it offers with a consequent attractiveness to people. Economic structure is very dynamic and extremely competitive due to the rapid creation of new firms and the exit of 'old' stagnant and declining firms. It is populated with rapidly growing firms, gazelles as they are called in the literature of entrepreneurship. Gazelles are the key to economic development. As described by Twaalfhoven and Indivers (1993, pp. 3-4), they are run by dynamic entrepreneurs, who manage and lead their companies not only to remain in the business but to expand it. Dynamic entrepreneurs look for growth, they do not have only a vision but are also capable of making it happen. They think and act globally, look for expansion, rely on external resources, seek professional advice or they work with professional teams. They challenge competitors instead of avoiding them and take and share risks in a way that leads to success. In this way economic vitality of a country largely depends on the overall level of entrepreneurial capacity, i.e., on its ability to create rapidly growing companies, gazelles. Equally important is the speed by which new small companies are created. These phenomena explain why countries, regions and communities with a similar number of large and small firms show a completely different economic vitality.
Economic vitality of a country is no doubt a necessary condition for social vitality. Without it other important factors that make living attractive in certain areas, such as education, health, social services, housing, transport facilities, flow of information and so on, cannot be developed and sustained in the area in the long run.
As evidence suggests, it is false to assume that socially and economically depressed areas will transform into fast growing areas by injection of external investment funds and external expertise. Without entrepreneurial capabilities which are well developed or potentially available, external funds will be wasted on projects that will not provide long term economic growth. Consequently instead of becoming more and more integrated into other economically and socially rich areas, such areas will become increasingly isolated, depopulated, poorer and therefore less and less capable of attracting people who, given other available resources, would make an impact from a development standpoint.
Entrepreneurial, orientation to rural development, contrary to development based on bringing in human capital and investment from outside, is based on stimulating local entrepreneurial talent and subsequent growth of indigenous companies. This in turn would create jobs and add economic value to a region and community and at the same time keep scarce resources within the community. To accelerate economic development in rural areas, it is necessary to increase the supply of entrepreneurs, thus building up the critical mass of first generation entrepreneurs (Petrin, 1992), who will take risks and engage in the uncertainties of a new venture creation, create something from practically nothing and create values by pulling together a unique package of resources to exploit an opportunity. By their example they will stimulate an autonomous entrepreneurial process, as well as a dynamic entrepreneurship, thereby ensuring continuous rural development.
It is important to stress that rural entrepreneurship in its substance does not differ from entrepreneurship in urban areas. Entrepreneurship in rural areas is finding a unique blend of resources, either inside or outside of agriculture. This can be achieved by widening the base of a farm business to include all the non-agricultural uses that available resources can be put to or through any major changes in land use or level of production other than those related solely to agriculture. Thus, a rural entrepreneur is someone who is prepared to stay in the rural area and contribute to the creation of local wealth. To some degree, however, the economic goals of an entrepreneur and the social goals of rural development are more strongly interlinked than in urban areas. For this reason entrepreneurship in rural areas is usually community based, has strong extended family linkages and a relatively large impact on a rural community.
Sources of entrepreneurship
From the policy viewpoint? the promotion of entrepreneurship, the understanding where entrepreneurship comes from3 is as equally important as understanding the concept of entrepreneurship. It indicates where the governments, national, regional or local, should target their promotional efforts. If entrepreneurial skills, for example, are innate, active promotion policies have a small role to play. If instead, only certain entrepreneurial characteristics are innate, then active promotion policies can contribute to entrepreneurship development in the community in the region and in the nation, since entrepreneurial skills can be acquired through training.
3Empirical research on the sources of entrepreneurship is extensive, particularly within the discipline of psychology and sociology.
The standard perception is that entrepreneurship is a special personal feature, either a person is, or is not an entrepreneur. According to this perception entrepreneurial traits, such as the need to achieve, risk taking propensity4, self-esteem and internal locus of control, creativity and innovative behaviour, the need for independence, occupational primacy, fixation upon goals and dominance, are all inborn. Therefore, policies directed specifically towards promoting the development of entrepreneurship would not help much since chose characteristics cannot be acquired by training.
4Risk talking propensity here is understood as the perceived probability of receiving rewards (personal and financial) as opposed to the perceived probability of incurring a failure (bankruptcy, loss of family ties).
Another perception is that some cultures or some social groups are more conducive to entrepreneurial behaviour than others. According to this view, the factors that contribute to the supply of entrepreneurs are an inheritance of entrepreneurial tradition, family position, social status, educational background and the level of education. Based on research into the origins of business owners, it is believed that persons who come from small business owner families, are more likely to become entrepreneurs than others. Studies of family position of existing entrepreneurs demonstrate that entrepreneurs are often found among elder children, since according to the explanation, they are pressed to take more authority and responsibility at earlier stages than younger members of the family. The outsider group, ethnic minority, or the outsider individual, the marginal person, who are by a combination of different factors rendered outsiders in relation to the social groups with whom they normally interact, are both viewed as a significant source of entrepreneurship. It is claimed that to minorities small business ownership means escape form marginality (Weber's thesis of outsider groups as a source of economic activity? Weber, 1987, reprint). Whether educational background influences potential entrepreneurs or not is a matter of debate. The popular idea of an entrepreneur is that of a totally self-made man, lacking in formal qualifications. This of course is not in conflict with findings that entrepreneurs who are better educated are more successful than the less educated ones. Apparently two things are involved simultaneously: propensity to start an entrepreneurial venture and skills to run the venture successfully.
The research which tries to explain, by personal traits and/or other social aspects, why certain individuals become entrepreneurs, has not yet produced convincing results. Consequently, a widely accepted view is the following: while personal characteristics as well as social aspects clearly play some role, entrepreneurship and entrepreneurs can also be developed through conscious action. Development of entrepreneurs and of entrepreneurship can be stimulated through a set of supporting institutions and through deliberate innovative action which stimulates changes and fully supports capable individuals or groups. It is argued, that controllable variables such as a stable system of property rights and freedom of action in the economic sphere, availability of other inputs in the economy (besides entrepreneurship) as well as education and training, contribute significantly to the development of entrepreneurship. Therefore, policies and programmes designed specifically for entrepreneurship promotion, can greatly affect the supply of entrepreneurs and thus indirectly represent an important source of entrepreneurship.
This view has important implications for entrepreneurship development in rural areas. If currently entrepreneurial activities in a given rural area are not thriving? one should not jump to the conclusion that entrepreneurship is something inherently alien to rural areas. While this feeling could have some legacy due to the slower pace of changes occurring in rural areas compared to urban ones, proper action can make a lot of difference with respect to entrepreneurial behaviour of people living in rural areas. Many examples of successful entrepreneurship confirm this statement and there is no reason why there should not be plenty of them. By bringing together different capabilities and different experiences in entrepreneurship development, everyone could enhance his/her own capabilities, motivation and determination in achieving the goal: attaining a sustainable and healthy rural economy and environment in order to ensure a high quality of life for individuals, families and communities.
Rural entrepreneurship
Many examples of successful rural entrepreneurship can already be found in literature. Diversification into non-agricultural uses of available resources such as catering for tourists, blacksmithing, carpentry, spinning, etc. as well as diversification into activities other than those solely related to agricultural usage, for example, the use of resources other than land such as water, woodlands, buildings, available skills and local features, all fit into rural entrepreneurship. The entrepreneurial combinations of these resources are, for example: tourism, sport and recreation facilities, professional and technical training, retailing and wholesaling, industrial applications (engineering, crafts), servicing (consultancy), value added (products from meat, milk, wood, etc.) and the possibility of off-farm work. Equally entrepreneurial, are new uses of land that enable a reduction in the intensity of agricultural production, for example, organic production.
Dynamic rural entrepreneurs can also be found. They are expanding their activities and markets and they find new markets for their products and services beyond the local boundaries.
To leave general examples of rural entrepreneurship behind, let us look at the real cases. Here only a few will be mentioned, all illustrating entrepreneurial initiatives, individuals and local communities from Great Britain. The names of entrepreneurs I have chosen to present here are not globally known but are no less important because of that. They are very well known to the communities to which they belong and their initiatives are highly appreciated by the community members. One of them is Graham-Probin (Johnstone et al., 1990, p. 9), owner of a 110 acre farm in Malpas, Cheshire, England. By converting a two-storey building into four workshop units, he created employment opportunities within the community. Another one is John Anderson from Kirkwhelpington, who created employment opportunities in the local area by restoring traditional stables into business premises and renting them out to a blacksmith who shoes horses and does light engineering work for farmers (Johnstone et al., 1990, p. 9-10). Another is the McNamara family from Canaston Bridge. They responded to the dairy quotas imposed by the Government by diversification of their land for non-agricultural usage. The family converted 80 acres of land into an adventure and leisure complex. After three years of investment, amounting to £800 000, the adventure and leisure facilities were opened in 1987, boasting a range of attractions entirely unconnected with agriculture, such as: a bobsleigh run, a miniature railway, a pitch and putt golf course, a natural history centre, go-kart tracks, assault courses, a restaurant and various shops (Johnstone et al., 1990, p. 18). This entrepreneurial venture is an example of a straightforward entrepreneurship and not so much an example of on-farm diversification. It is an example of how seeing and seizing the opportunity are vital ingredients of entrepreneurial success.
Let me turn now to illustrations related to social entrepreneurship, to examples of when people have changed things, acting in the interest of their communities while playing the same role as an individual entrepreneur. East Cleveland Training and Enterprise Group from Loftus, Small Industries Groups in Somerset and Antur Teifi from West Wales, are all real examples of social entrepreneurship. The East Cleveland Training and Enterprise Group began as a group of four people in Loftus who were angry and frustrated at the lack of action by statutory bodies to tackle the area's unemployment (Johnstone et al., 1990, p. 107). The Group developed a large programme of activities, such as employment training, youth training, initiating the establishment of a training and enterprise centre, improving environmental and property acquisition to benefit the community. The Small Industries Group Somerset, West Somerset, started with the objective of helping to create local jobs. The founding group consisted of a dairy farmer, a sub-postmaster, an insurance broker, a lecturer, a youth worker and the manager of a field studies centre (Johnstone et al., 1990, p. 109). For ten years the Group greatly fostered the development of the community and contributed to the change of attitudes of farmers as well as local communities, to favour self employment and business expansion. Antur Teifi, from the Teifi Valley, the enterprise agency, was started by a group of local volunteers who were concerned with the high level of unemployment and unbalanced structure of the local population (Johnstone, et al., 1990, p. 109). The group set the objectives as follows: to identify and support community initiatives, to establish new permanent jobs and to initiate activities to prevent the area's economic and cultural decline. The group has more than achieved these objectives.
Among the case studies presented here, there is no woman's name. Too often their names are not specifically mentioned, although the evidence shows that there are many activities in rural areas pursued by female entrepreneurs such as: trade, food processing, handicrafts, production of basic consumer articles, catering, running tourist establishments, and bed and breakfast arrangements. However, compared to male entrepreneurs, female entrepreneurs in rural areas still tend to be limited to what have traditionally been viewed as women's activities. Also the scale of their entrepreneurial operation tends to be smaller when compared with male entrepreneurs.
Although agriculture today still provides income to rural communities, rural development is increasingly linked to enterprise development. Since national economies are more and more globalized and competition is intensifying at an unprecedented pace, affecting not only industry but any economic activity including agriculture, it is not surprising that rural entrepreneurship is gaining in its importance as a force of economic change that must take place if many rural communities are to survive. However, entrepreneurship demands an enabling environment in order to flourish.
Behind each of the success stories of rural entrepreneurship there is usually some sort of institutional support. Besides individual or group entrepreneurial initiative the enabling environment supporting these initiatives is of utmost importance.
The creation of such an environment starts already at the national level with the foundation policies for macro-economic stability and for well-defined property rights as well as international orientation. Protection of the domestic economy hinders instead of fosters entrepreneurship. National agricultural policies such as price subsidies to guarantee minimum farm incomes and the keeping of land in production when over-production already exists are definitely counter-productive to entrepreneurship. The long run solution for sustainable agricultural development is only one, i.e.' competitive agriculture. While prices can set the direction, entrepreneurs who will meet the challenge of increasingly demanding international markets and who will find profitable alternative uses of land, alternative business opportunities and so on are needed. Therefore, policies and programmes targeted more specifically at the development and channelling of entrepreneurial talent, are needed. Policies to increase the supply of entrepreneurs, policies developing the market for other inputs into successful entrepreneurship, policies for increasing the effectiveness of entrepreneurs and policies for increasing demand for entrepreneurship can significantly speed up entrepreneurial activities at national, regional and community levels.
The policies and programmes targeted specifically to the development of entrepreneurship do not differ much with respect to location. From the perspective of the process of entrepreneurship, whether the location is urban, semi-rural or rural, is not important in itself. For example, the needs of a would be entrepreneur or an existing small business do not differ much from those in an urban area. To realise their entrepreneurial ideas or to grow and sustain in business, they all need access to capital, labour, markets and good management skills. What differs is the availability of markets for other inputs.
The inputs into an entrepreneurial process, capital, management, technology, buildings, communications and transportation infrastructure, distribution channels and skilled labour, tend to be easier to find in urban areas. Professional advice is also hard to come by. Consequently, entrepreneurial behaviour, the ability to spot unconventional market opportunities, is most lacking in those rural areas where it is most needed i.e., where the scarcity of 'these other inputs' is the highest.
These are the reasons why rural entrepreneurship is more likely to flourish in those rural areas where the two approaches to rural development, the 'bottom up. and the 'top down', complement each other. Developing entrepreneurs requires a much more complex approach to rural development than is many times the case in practice. It requires not only the development of local entrepreneurial capabilities but also a coherent regional/local strategy. Evidence shows that where this is the case, individual and social entrepreneurship play an important role in rural economic, social and community development. The top down approach gains effectiveness when it is tailored to the local environment that it intends to support. The second prerequisite for its success is that ownership of the initiative remains in the hands of members of the local community. The regional development agencies that fit both criteria can contribute much to rural development through entrepreneurship.
Other institutions that can make a difference to rural development based on entrepreneurship are agricultural extension services. However, to be able to act in this direction, they too must be entrepreneurially minded. They must see agricultural activities as one of many possible activities that contribute to rural development. They must seek new entrepreneurial uses of land and support local initiative in this respect. While tradition is important it is nevertheless dangerous to be over-occupied with the past, otherwise the rural community may turn into a nostalgia-driven society. Networking between different agencies involved in the promotion of rural development through entrepreneurship, by pooling together different sources and skills, by reaching a greater number of would be entrepreneurs and by assisting a greater number of local entrepreneurial initiatives, can have a much more positive effect on rural development than when each agency is working on its own.
Entrepreneurship in rural areas can benefit a lot from the so called strategic development alliances, i.e., partnership among governments or nonprofit seeking organizations, universities and the private sector.
To summarise, policy implications for rural entrepreneurship development are:
· sound national economic policy with respect to agriculture, including recognition of the vital contribution of entrepreneurship to rural economic development;
· policies and special programmes for the development and channelling of entrepreneurial talent;
· entrepreneurial thinking about rural development, not only by farmers but also by everyone and every rural development organization; and
· institutions supporting the development of rural entrepreneurship as well as strategic development alliances.
Women entrepreneurs
Is there still a need to talk specifically about women entrepreneurs. on top of everything that has been already said'? Yes and no. No, because all that has been said about entrepreneurship is directly applicable to women, the concept, characteristics, sources' etc. Women entrepreneurs, as research demonstrates, may do things differently. For example, in comparison to male entrepreneurs, women tend to work more in teams, are less self-centred and personal ego to them is less important than success of the organization or business idea they are pursuing.
However, there is no difference in characteristics such as achievement, autonomy, aggression, independence and benevolence between female and male entrepreneurs (Hisrich and Brush, 1984). Also, no differences were found in risk taking propensity of male and female entrepreneurs. However, we do need to talk explicitly about women entrepreneurs. It should be stressed that rural women can encounter many constraints when trying to take part in the transformation process. Rural areas tend to be more traditional in regard to the gender issue. In rural areas, the gender issue is usually a much stronger hindering factor to potential female entrepreneurs than it is in urban areas, their self-esteem and managerial skills being lower when compared to urban women and access to external financial resources more difficult than in urban areas. Therefore, special programmes of assistance (technical and financial) to overcome these constraints should be developed and designed to meet the needs of rural women in order to be able to take an active part in entrepreneurial restructuring of their communities, to start to develop their own ventures, to expand their already existing businesses, or to function as social entrepreneurs since their number today is still below the potential one. To this end, based on my own experience as well as on the experiences of so many entrepreneurial women I have met across the world in my profession and in business, I very much agree with
Juliana Schwager-Jebbink's comment (1991, p. 37): "Nowadays, reflecting on the phenomenon of the successful female manager read entrepreneur), it is the individuality which must stand out and there are no general recipes to be presented. After my years as President of the Swiss Federation of Business and Professional Women, going all over the country and abroad to speak on development programmes for women, I firmly believe that quotas, positive discrimination and equal opportunity' politics do not help the female manager (read entrepreneur): it is she herself who must do the managing of her life. This is true for all of Europe... "
This belief is the one for which we as trainers are responsible to bring to rural women in addition to trying to put in place all factors crucial for rural women to enter into entrepreneurial activities. Without it, entrepreneurial opportunities will not be seen, they will be lost and then the role of women in rural development will be much below their potential.
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1Keynote paper presented at the Fourth FAO/REU International Rural Development Summer School, Mikkeli, Finland, 16-20 September 1991.
M.D. Johnsrud
US Department of Agriculture, Extension Service, North Dakota, U.S.A.
On 5 August 1991, Soichiro Honda died at the age of 84. At the time of his death, Mr. Honda, who retired from Honda Motor Company in 1973, held the title of Supreme Advisor. In reading his obituary at the time I was beginning to think about what I wanted to discuss in this paper, it struck me that Mr. Honda's life had a lot to say about the real 'entrepreneur'.
Honda was the son of a blacksmith and saw his first car as an 8 year old boy when a Model-T Ford rumbled into his home town in central Japan.
Honda's biography quotes him as saying the following in recalling his first encounter with an automobile:
"It was the first car I saw. What a thrill. Oil dropped when it came to a halt. How nice the smell was. I put down my nose to the ground like a dog and sniffed it. I smeared my hands with the oil and deeply inhaled the smell. It was then I dreamed of manufacturing a car myself some day."
Honda started as a successful mechanic, founded a piston ring manufacturing concern while attending school and then started what later became Honda Motor Company. Originally it attached recycled engines to bicycles, a popular mode of transportation in the years following World War II. His first motorcycle called 'Dream' was introduced in 1949.
Honda is said to have been more at home on the factory floor than in the boardroom, preferring overalls to business suits. He placed great faith in the young technicians of his many factories and laboratories. He often wore wild colours, explaining that unless inventors and artists "have the courage and determination to break with established ideas, they cannot expect to do a good job."
Soichiro Honda was an entrepreneur. Too often we confuse entrepreneurship with business or doing business. The two simply are not the same, as John J. Kao of the Harvard Business School points out in his recent book titled The Entrepreneurial Organization.
He says that entrepreneurship has nothing to do with the setting. Simply stated, entrepreneurship is the process of opportunity recognition and implementation. It often begins with a vision or idea for a product or process coupled with a passion or zeal to make that idea a reality. Yes, entrepreneurship is fundamentally less about technical skills than about people and their passions.
Successful entrepreneurship is hard work carried out in an unpredictable environment. It requires a blend of calculation and luck laced with the ever present possibility of failure. Emerging industries in some ways resemble a casino where a range of bets are placed on different strategies, people and approaches.
Just as Honda placed great faith in his young technicians, successful entrepreneurs understand that the three principles of entrepreneurship are people, people, people. Entrepreneurs find leverage through others to amplify their visions. They manage effectively in dealing with the ambiguity and uncertainty that surround the creation of an idea and the organizational vehicle developed around it. In short, they are risk takers.
While a little later I will briefly discuss some of the approaches we are trying in the U.S.A. to encourage entrepreneurship in rural areas, I will focus most of my remarks on finding and motivating entrepreneurs encouraging risktaking and embracing change.
In finding entrepreneurs and seeking out opportunities for entrepreneurship, we have to take care not to make unfounded assumptions based on conventional wisdom. While I will talk about patterns that tend to distinguish the mind set and behaviour of entrepreneurs from others, much of what runs into an entrepreneurial success is unpredictable.
For example, some thought Albert Einstein was mentally retarded and fit for little, simply because he never combed his hair or wore socks. You cannot tell an entrepreneur by the way he or she dresses.
Colonel Sanders, founder of Kentucky Fried Chicken, was judged to be too old to start a business. Entrepreneurship is possible at any age.
The Wright Brothers knew no one had ever flown before, but they did it anyway. Entrepreneurs frequently make what seems impossible, possible.
Florence Chadwick knew other swimmers had died crossing the English channel. Entrepreneurs may flirt with danger to achieve their visions.
Henry Ford faced a lack of demand for his autos. Entrepreneurs must often create the demand for their products and/or services.
Finally David was considered too young, unskilled and poorly equipped to face Goliath. Entrepreneurship is a lot more about inner drive than outward trappings and appearances.
The point is that entrepreneurship is usually about very determined people, people who make their own circumstances and breaks and succeed.
If entrepreneurship is fundamentally about people and ideas, what is business'? To quote Kao again, he simply stated, a business is an organization that has customers. To stay in business, an entrepreneur has to match that idea or dream with what a customer thinks he or she wants, and again this requires understanding people.
Michael Porter in his book Competitive Strategy states that new or evolving businesses must make a wide range of critical organizational choices that will determine their competitive fate. If they make the right choices, they can create barriers to competitors. Porter says these barriers against competition come less from the need to command massive resources than from:
· the ability to bear risk;
· being creative technologically; and
· making forward-looking decisions to attract people to work.
Peter Drucker once said that "People who do not take risks generally make about two big mistakes a year. People who do take risks generally make about two big mistakes a year''. Sometimes not taking a risk is a risk.
For example, the 1 7th century Dutch were the vigorous economic and social innovators of their time. But within only a hundred years they were overtaken by the English. Why'? Because a risk averse, fearful attitude settled over Holland. Those who had accumulated fortunes in the years of prosperity attended exclusively to keeping them. Politics turned ugly. Public spirit disintegrated. The Dutch became slow to adopt new advances in shipbuilding, weaving, fishing, mapmaking and navigation. They clung to the established order, threatened by new ways of doing things. They refused to risk rearranging the safety of the present and thus missed the chance to have the talents, skills and organizational arrangements on line when they were needed.
No society or business can thrive today without taking risks and adjusting to change. Tom Peters, in Thriving on Chaos states: "Every variable is up for grabs... we are meeting the challenge with inflexible factories, inflexible systems, inflexible front-line people, and worst of all, inflexible managers who still yearn for a bygone era when presiding over the opening of a new plant was the most strenuous chore to be performed. Today, loving change, tumult, even chaos is a prerequisite for survival, let alone successes".
Peters argues that organizations must be structured for change, not stability. That managers must take greater risks, get better at seeing the whole picture, listen, listen, listen, trust people to innovate and insist on absolute integrity.
So what prevents people from taking risks? In short the answer is FEAR. Fear of failure, fear of rejection, fear of conflict, fear of uncertainty, fear of losing control, power or status.
Risk aversion may be one of the most vexing problems you face in attempting to promote rural entrepreneurship. There are strategies that can be used to encourage greater risk taking particularly by addressing people's fears.
Other strategies can also be used to help limit real risk, with franchising pre-eminent among them. In the U.S.A. franchise-format businesses have more than doubled in the past ten years. There are currently more than 2200 franchisers in more than seventy industries. Risks are minimised for franchisee-entrepreneurs with only a 5% discontinuance rate in the first year compared with a 30-50% rate of small business failures in the first year in the U.S.A. Franchising is increasingly viewed as a middle ground for those who want to start a business, but also want the security of attachment to a business already established in the market place and providing detailed operating procedures to follow. In the U.S.A., self-employment has tripled during the past fifteen years with women accounting for most of the growth.
There is an old Chinese curse that says, "May you live in interesting times". Interesting times are the curse and the blessing of an entrepreneurial firm and it is the true entrepreneur who can handle the sources of uncertainty that come with the territory without falling apart.
First, the business opportunity itself is surrounded with uncertainty questions to be answered about market size, pricing, viability of the original idea, customer response and product/service in a reasonable length of time.
He or she must be able to lead, manage, identify, prioritise, execute and most importantly, make decisions.
An entrepreneur must be more like a bamboo plant able to sway in any wind without breaking versus a rigid tree that can easily be toppled by a sudden storm.
There are no magic formulas or tried and true approaches that are guaranteed to work.
Most experts agree that not everyone is suited for the entrepreneurial task, but nearly all successful entrepreneurs:
· cope well or even thrive on uncertainty;
· are creative problem solvers;
· have strong human and organizational skills; and
· understand the relationships between organization, strategies and environment.
Entrepreneurs must also expect to put in long hours more like five to nine, rather than nine to five and be patient with the complex, diverse task at hand.
Determination and discipline to see the job through separate entrepreneurial successes from failures. I mentioned Honda's lifetime dedication to implementing his boyhood dream. It took Noah Webster thirty-six years to develop his dictionary. Cyrus Field endured nearly thirteen years of toil and thity ocean voyages before successfully laying the Atlantic cable. Ray Kroc, founder of McDonald's hamburger chain, had the discipline to automate every step of the preparation process for his burgers and fries.
Making decisions is a criterion for success. In my experience, a person who cannot reach a decision promptly once he has all the necessary information, cannot be depended upon to carry through on decisions made. There is often a linkage between deciding and acting to carry through. Not making a decision can be a bad decision.
Dwight Eisenhower had a difficult time deciding on the best moment for the D Day attack. Finally he is quoted as saying, "No matter what the weather looks like, we have to go ahead now. Waiting any longer could be even more dangerous. So let's move it".
The point here is that people who can judge when a decision needs to be made and make it are far more likely to succeed in entrepreneurial ventures.
The other trick is deciding not on the basis of the past or present, but making the right decision for future, as yet unknown, circumstances.
To recap then, I have tried to review some of the most basic characteristics noted in the lives of successful entrepreneurs:
· they can orchestrate people, strategies and technologies to fit changing environments;
· they are usually creative risk-takers;
· they thrive on change and cope well with uncertainty;
· they are determined and disciplined in implementing their visions and ideas; and
· they enjoy deciding and make forward looking decisions.
In encouraging entrepreneurship in rural areas, seeking leadership with these characteristics is essential. While training can help people improve in some of these areas, we should not be naive about what adult training can or cannot accomplish.
A more long-range but perhaps more promising educational approach is to encourage development of these entrepreneurial characteristics in young people. Putting in place local opportunities, before young people seek 'better' possibilities in cities and towns, could change the future of some of these areas.
When I look at our rural development efforts in the U.S.A., I can be quite critical. I think we have done a lot for general process type community development that has not resulted in a real economic pay-off. There are, of course, national policy and financing barriers that have also played a role. However, I do believe that more targeted and focused programmes directed toward real entrepreneurship could become a more viable possibility today, particularly with new communication technologies.
In the U.S.A., many of our potential rural entrepreneurs leave these areas for a variety of reasons, from greater opportunities elsewhere to more amenities available in cities.
We do know if the situation could be different. Let me use a case example from my home state of North Dakota.
In 1974 David and Michael Ortner opened D & M Computing? Inc., in Fargo, North Dakota. They did a modest business in servicing computers. Today, after bouncing back and forth across the Red River between Fargo' North Dakota and Moorhead, Minnesota, at least twice, D & M Computing is doing pioneering work in robotics and automation. They have customers world-wide and sales of more than US$2 million in 199().
Last year the Greater Minnesota Corporation granted US$99 000 to the twenty-five employee firm to fund development of a new system for analysing data from automated blood particle counters to assist in diagnosing blood diseases; The firm also gets statistical research assistance from Moorhead State University and medical research help from Case Western Reserve University in Cleveland, Ohio.
Ortner, 42 years, got into the robotics business after he bought a robotic arm for an incapacitated friend that did not work properly. He redesigned its electronics. His work so impressed the company that sold the arms that eventually Ortner took over assembly of the firm's robots. When the company went out of business, Ortner stepped in putting together an assembly line in his mother's Fargo home.
Or, take the case of Byron Bowman of Kennedy, Minnesota, a town of about 500 people located in Northwest Minnesota. Bowman industries produces an innovative type of water filter and provides jobs for twelve people. Bowman got into the business, making a rapid transition from farming to manufacturing, after an investor friend of his who holds the patent on the filter decided to bring the manufacturing to Kennedy.
In Wisconsin, the Rural Economy Development Programme is another example of a programme designed to target promising entrepreneurial ventures assisting with loans and grants for feasibility studies, market research and other business services.
Some of the recent awards went to rural businesses offering recycling services and containers; marketing compressed alfalfa products; selling cut flowers; manufacturing organic yoghurt; restoring native plants; distributing wholesale pizza products; maintaining and repairing micro-electronic equipment; producing neon signs and display items for retail and service industries; growing and marketing shiitake and oyster mushrooms; and manufacturing a new type of energy-efficient horticultural lighting developed jointly with the University of Wisconsin.
In Kansas, the Co-operative Extension staff are working to bring venture capital investments to rural areas in manufacturing, wholesaling and distribution operations.
Within the U.S. Department of Agriculture (USDA), we are implementing a Presidential initiative in rural development and co-operating in the establishment of a new Rural Development Administration. It is too early to know the full scope of funding and operations. We anticipate, however, that the Co-operative Extension System will continue to have a major role in providing information and education to rural entrepreneurs and that our staff may play a broker role in assisting rural-based businesses to link with appropriate public and private sources of financing and strategic planning.
We also have a national initiative in U.S.A. International Marketing that is assisting rural communities to better understand the global market place and begin to use computer intelligence from the U.S.A. and other countries to start businesses and market products from rural areas.
For a number of years USDA has supported Rural Development Centres in various locations in the U.S.A. In July, at the request of our Users Advisory Board, we undertook a full scale review of the activities and accomplishments of these centres. The review panel recommended that each of these centres needed a strategic plan and that they should broaden their vision but sharpen their focus. The panel recommended improved scanning of the regional environment to accomplish the broader vision and improve the priority setting mechanisms to assure that resources are targeted to the points most likely to make a difference.
The panel also said that the centres needed a broader base, more links to their constituencies, the universities and other Federal Government entities. They encouraged expanding the governing boards to get closer to the customer, the stakeholders and the formation of new alliances and partnerships with organizations such as community colleges.
Finally, we think that the entire Co-operative Extension System can strengthen its entrepreneurial efforts in rural areas by linking with others. We are forming a new strategic relationship with the National Association of Counties in the area of Aging Population and Aging Infrastructure. We will be using satellite communication technology, as well as traditional educational delivery methods, to engage local planning groups in coping with these two important areas.
In conclusion, let me just say that finding, encouraging and motivating entrepreneurs in rural areas is not an easy proposition. However, to the real entrepreneur looking on the dark side of the situation is fatal. Optimism is the heart and soul of the entrepreneur. While strategic planning, feasibility and market studies and analysis are necessary parts of new business start-ups, very few real entrepreneurs, the famous and not so famous, waited for a printout to see whether they should launch their new idea. I know that we in the U.S. Co-operative Extension System are going to have to change some of the ways we currently do business to be really useful to rural-based entrepreneurship. We are going to have to be more entrepreneurial ourselves.
I have been asking our rural development staff some tough questions about what we are doing, because I think the environment has changed and we must change with it. We cannot be like the frog. You can put a frog in a pot of hot water and that frog will not notice the temperature rise. I think we must all guard against this tendency, we cannot ignore the changes occurring in our environment. If we do, we shall wake up and find out that we have been boiled.
Let me end with a story of a rural entrepreneur from another part of the world, Victor Chumak. In a little more than two years, Chumak, described as a bull-like man whose flair for work is surpassed only by his remarkable command of Russian profanity, has pulled together a virtual agricultural empire. He has 1600 acres, 1 00 head of cattle, twelve tractors, two harvesters and three trucks. He has taken on four young families as partners and built a house for each of them.
His achievement and maniacal dedication shatter the stereotype of Soviet passivity. This is a man who made eighty trips to Moscow to beg, plead and badger government ministries for equipment. Just three years ago there were fewer than 1000 private farmers in the USSR. Now there are more than 50 000.
Let me end with a quotation from Chumak: "I have this dream and I want to see it come true. And I will not give up. To achieve a goal you have got to be a gambler, you have got to be certain you can do it. As soon as you start hesitating, doubting yourself, you'd better just give up. I am always sure of myself and people. I am sure we'll make if".
These are the words of entrepreneurship, dreams, determination, willingness to take risks. Those of us in the business of identifying and 'developing' entrepreneurs in rural areas must build our programmes upon these human traits associated with successful change.
1Paper presented at the Fifth Session of the FAO/ECA Working Party on Women and the Agricultural Family m Rural Development, Prague, Czechoslovakia, 2-5 October 1990.
G. Löhmöller
Verein Land-Bildung In der Wehrhecke 1 D-53125 Bonn, Germany
Due to the predominance of existing concepts of entrepreneurial thinking during the last 45 years, the active shaping of the future has been neglected. It is time to substitute the antiquated concepts for new ones so that the basis of active future-shaping will be conserved.
The oldest and most important concept of entrepreneurial thinking in the agricultural sector is 'production', since it always has been a problem to provide sufficient food supplies for the population.
This concept meets its limits if markets are saturated. Considering the economy as a whole, such a concept cannot be the main pillar of entrepreneurial thinking if markets are saturated.
Figure 1 - The production concept
This does not mean that production techniques and the command of productive processes are no longer important. The law of diminishing rate of returns teaches us that 'close to the limit' things get harder instead of easier.
Producing close to the limit means rationalising the production processes to meet higher quality standards and to cope with falling prices. It also means to be subject to the laws of mass production.
Once things have come to that point, only specialists can manage the situation; as we said before, things are not becoming easier.
Nevertheless, the conclusion remains true that the concept 'production' can no longer be number one in entrepreneurial thinking.
The concept 'production' was expanded in the industrialised nations during the 1950s and 1960s by the subject 'prices'. Development of prices became the central point of agricultural policies.
This contributed very much to a positive development of income in the agricultural sector.
However, since the individual farmer had little influence on the development of prices at the political level, the farmers' activities were necessarily restricted to observing, arguing and gathering information.
This has not been of any advantage for the development of a greater sense of responsibility for their own situation.
However, this concept has also been exhausted. Nobody talks about rising prices any more. The question now is how to avoid prices falling too much.
Figure 2 - The production and price concept
Also here, as an aspect of entrepreneurial thinking, this does not mean that price policy within agricultural policies is no longer important.
It only means that price policy can no longer be taken as the basic concept. The law of diminishing rate of returns is again true: price policy has become mole complicated, but this does not at all make it redundant, as everywhere in the field of entrepreneurial thinking, we can say: when one concept comes to an end the next one is needed.
The next concept and subject, 'optimising the cost structures within the enterprise', had to be put into practice by the individual farmer or entrepreneur. The farmers who immediately adopted this new way of thinking are still fairly well off in relation to the rest, but there are considerable differences to be noted.
It is from this third post-war concept that management thinking which is directed towards rationalising and growth, has derived its actual predominance, a fact which also has its drawbacks, as everyone knows.
In other economic areas, the assertion exists that the concentration of entrepreneurial thinking on rationalising, making profit and on growth, is not enough to guarantee the survival of the enterprise.
Figure 3 - The cost structure concept (a)
Figure 4 - The cost structure concept (b)
The question is: what does the concept as the basis for the future look like if 'rationalising' is no longer enough?
The new concept, the real challenge to the future entrepreneur, no matter whether he is a farmer or not, is: creativity and flexibility.
There are three reasons for this which will be explained after a short 'excursion'.
Figure 5 - The new concept - creativity and flexibility
In the following we want to demonstrate the basic differences between the American and the Japanese way of thinking (compare 'Die Zeit' Nr. 37, 6 September 1991).
American enterprises have to report their business results every three months. That is why they are oriented towards quick profit when doing business. Investments have to pay almost without delay. Quite different are the Japanese: they do not have to make these quarterly reports. So other things can be given priority.
If profit increase is put first, the decision between two investment possibilities is easy if, for example, the first one yields a profit of 70 ()00, and the other one a profit of 20 000. Every child knows that 70 000 is more than 20 000.
If other questions are in the foreground such as:
· Do I invest in an expanding or recessionary market?
· Am I going to make new experiments?
· Am I going to learn new techniques?
· Do I get new insights into trends and developments?
· Will my market shares improve?
· What would be the chances of development in one or the other case after ten or twenty years?
· Etc.
The judgement of the advantages of each investment might be quite different. The question then would be, whether, referring to the above example, the difference of 50 000 would be acceptable in exchange for the long term survival guarantee of the enterprise.
For many decades, the Japanese acted more according to the second procedure and nowadays, the rest of the world stands in fear of them.
The three reasons why the predominant concept in the future will be 'creativity and flexibility' are the following:
· the complexity of systems and the fact that, as a rule, it is not possible to predict changes in systems;
· the 'cost-trap'; and
· the constant devaluation of expert knowledge.
The complexity of systems
We live in systems. Systems are complex. There is no effect without a side-effect. There is always a network of inter-dependencies. The causal thinking (the liner thinking of cause/effect) does not meet reality. More decisive is the aspect that systems change and these changes cannot be foreseen. How difficult it is to foresee such changes was to be observed not long ago in the Eastern European countries.
Systems are e.g. soil, climate, political systems, economic systems, enterprises and above all, markets.
The ability to adjust to new and generally not foreseeable situations is the real challenge to the future entrepreneurs/managers. This ability is called flexibility and it needs a lot of creativity.
The cost-trap
Raw material markets and markets for mass products are characterised by growing quality demands and falling prices. What is really necessary for an efficient manager is to produce according to these conditions. That means rationalisation. Rationalisation means to optimise the production process taking into account the existing technical equipment and if that is no longer possible, to start the next investment. This always results in rising fixed costs, larger production quantities and falling variable costs. Reduction of variable costs always includes cutting staff expenses: employees can be dismissed or one employee can manage larger quantities (e.g. when changing from stables where the cows are tied up to boxes which are technically well-equipped).
The problem arising from rationalisation is the increased quantities which lead to falling prices if markets are full. That sweeps all those from the market who have not cut their variable costs in time. Those who were able to do it have no problem for the time being but they will push others out of the market. The process of rationalising brings about an automatism which in principle leads to the elimination of those offering at less competitive prices. The more successful the rationalising process proves to be, the more it is sped up. This shows quite clearly that the exclusive concentration of entrepreneurial thinking on rationalising, profit making and expanding does not guarantee the survival of the enterprise.
As long as this is the main concept there is no way of escaping the trap. The rationalising, process is necessary for survival and at the same time it is the cause for dismissals.
There is only one way of escaping this trap: creativity and flexibility. The way out is to find new solutions to the problems and new products. All the marketing concepts known from business, starting with brand names, were forerunners. The trend is developing towards smaller markets, more individual target groups and new ways of solving problems.
Figure 6 - Marketing concepts: the way of escaping the rationalization trap
Growth - one way or the other?
There is no doubt that economic growth is necessary. The inverse ratio of price and cost development simply demands it.
In the case of low-price mass-production, growth means doubling, trebling, quadrupling the output, etc. until it is no longer possible to produce profitably.
Figure 7 - Product lifecycle
As a consequence of the decline in prices, the quantities produced become less 'profitable'. Therefore, it is necessary to constantly produce increasing quantities in order to obtain a determined profit.
If business growth is to be achieved by introducing new products, another entrepreneurial quality is required. New product ideas have to occur to you. The real achievement of the entrepreneur is, therefore, creativity. As soon as possibilities for new products have been found, techniques of production, cost structures and prices become significant again, but the real achievement is creativity.
The necessary growth can also be reached through additional products. The actual task of the entrepreneur is, together with his everyday work, to already develop new products during a profitable phase in the product lifecycle. This shows that the real achievement is creativity.
Figure 8 - Growth by introducing new products
The constant devaluation of expert knowledge
Knowledge in any one field becomes obsolete fast. The practical man, however, must become a specialist and for that he needs specialised knowledge. Therefore, he has to update his knowledge at short intervals. He has to know methods which make it possible and easier for him to constantly acquire new knowledge, which gives the necessary flexibility and develops creativity. In these fast changing times, a specialist cannot afford to be just a specialist. Unfortunately specialised knowledge is far too often a trap for creativity.
In creating the model for development and education, it is important to keep in mind the demands which the entrepreneurs will have to meet in the future. The following model considers these issues and at the same time, it is a model for the development of rural areas.
The Enterprise (E) is in the centre and includes the sectors Production (P), Marketing (M) and Development (D).
Figure 9 - Model for the development of rural areas
From the production sector, products have to develop. The products, goods and services, have to be sold. Decisive for this are prices and quality. In this development model, quality is given priority. In order to make that clear there are three different grades for quality development (Q1, Q2, Q3). Grade 1 (Q1) is the brand quality which excels when compared to mass produced goods.
The next grade follows with new product qualities (Q2). That means new products. New products widen the basis thus strengthening independence and helping the enterprise to survive. Development of new products is an investment in the future.
The third quality grade means new quality standards (Q3). By introducing standards the entrepreneur frees himself from standards set by authorities and administration which are, as a rule, restrictive. He thus creates his own basis for a different kind of product development.
The enterprise has to develop from marketing. The basis has to be quality development. In order to emphasise this aspect of development and to make clear that development does not automatically and only mean increased production (doubling and trebling of quantities etc.), three steps of development are introduced for the development of the enterprise. The basis for the development is marketing of the produced goods. Through the sale of the product, the enterprise has to stabilise financially to such an extent that a basis for future development will be built up.
The first step of development aims at a positive development of personal capital (R1). The enterprise has to stabilise in order to create a basis for further future-oriented development.
As long as new products do not yet exist for this process, higher prices could be obtained by introducing brand quality articles. This offers a possibility to distinguish oneself from others and to consolidate the enterprise.
The next step (R2) shall guarantee the long-term survival of the enterprise. It is important to expand into new and developing markets. The basis for this can be, above all, improved quality and new products. It is important that there are new products, since brand name goods offer advantages and a leading position only as long as other enterprises have not yet caught up.
For the third step (R3) new forms of enterprise have to be considered.
Figure 10 - The production, marketing and development sectors
A different form of enterprise might be of advantage for some future investment possibilities or future developments. There are sometimes compelling circumstances that are not to be foreseen. The more the development is oriented towards the future, the more the surrounding elements will have to be shaped. This means protection from being taken by surprise and it prevents the entrepreneur from sticking to obsolete structures.
The development of enterprises results in challenges and chances for the service institutions that accompany the development process.
With the movement from (B1) to (B3) we want to make clear that together with the development of the enterprise, development always means change, also the services offered win have to change.
It will soon be seen who and what best meets the changing requirements.
Such services might be offered by associations, institutes for adult education as well as official and private consulting firms.
Step (B1 ) is oriented towards the production of brand name goods and the improvement of personal capital development.
Step (B2) aims at new products and an increase in the chances of survival for the enterprises. If you wish to introduce new products it is more important to have a partner who can contribute to creative thinking than one who facilitates specialised knowledge.
The consultant has to become more and more a partner of conversation who is able to grasp and to understand the thinking process of his customer. Only then will he be able to further these processes.
Step (B3) deals with the shaping of the basic structural conditions for future entrepreneurial activities. The entrepreneur's partner for these tasks is the local politician who is open to innovative ideas.
Figure 11 - Advisory services
P1-PN: Traditional seminars aiming at optimising production processes, creating proprietary goods and stabilising the enterprise by 'positive changes in the situation of the personal capital.
U1-U20: Training courses for farmers and entrepreneurs in order to offer a wider basis of knowledge for more creativity and flexibility having in mind product development, market development and enterprise development in order to guarantee the survival in the future.
E1-E10: Development management courses for comprehension and further development of structures for new fields of activity, new investment possibilities and the setting of political goals.
These types of seminars for farmers and entrepreneurs U1-U20 (fig. 11) show methods and techniques which help to acquire a broad variably organized and easily accessible basis of knowledge. A profound and professional knowledge which can be used in a flexible way is a prerequisite for creativity. Decisive for creativity is the quantity and quality of knowledge at the disposal of the entrepreneur and his ability to make use of it in a flexible and unconventional way, as well as his readiness to look with great endeavour for appropriate opportunities for creative problem solving.
1This contribution combines issues from the following two papers:
a. T. Petrin, 'The Potential of Entreprenership to Create Income and New lobs for Rural Women and Families', paper presented at the Fifth Session of the FAO/ECA Working Party on Women and the Agricultural Family m Rural Development, Prague, Czechoslovakia, 2-5 October 1990.
b. T. Petrin, 'Partnership and Institution Building as a Factor m Rural Development', paper presented at the Sixth Session of the FAO/ECA Working Party on Women and the Agricultural Family in Rural Development, Innsbruck Austria, 13-16 October 1992.
T. Petrin
FAO, Regional Office for Europe, Viale delle Terme di Caracalla, 00100 Rome, Italy
The traditional approach to rural development was 'top-down' meaning that central development authorities designed programmes which brought in infrastructure, human capital and investment from outside the rural community. While the investment in infrastructure and extension services was clearly beneficial in attracting basic commercial activities and increasing the quality of life in rural areas, it did not necessarily provide a long term growing economic base. Many rural areas were not beneficiaries of such schemes, since many projects were too expensive to implement in all rural areas. Rural areas throughout Europe are still facing problems such as: lack of job opportunities, concentration of low-income families, inadequate public infrastructure (health, transportation, schools) and the negative effects of depopulation.
The new approach which emerged over the past decade is the development 'from below'. It stressed the importance of community development based on local entrepreneurial initiatives, with the explicit goal to ensure balanced technological development of rural areas which would offer adequate employment opportunities and a quality of life comparable to urban areas. This approach assumes that the development of rural areas is based on stimulating local entrepreneurial talent and subsequent growth of indigenous companies. Specifically, to accelerate economic development in a rural area, it is necessary to increase the supply of entrepreneurs that is to build up the critical mass of first generation entrepreneurs who will take risks and accept the uncertainties of new venture creation and who will by their example stimulate an autonomous entrepreneurial process thereby ensuring continuous rural development. To support such development, the community must develop links among key institutions, a vibrant entrepreneurial spirit and a commitment and dedication to risk taking and risk sharing.
The aim of this paper is to present partnership and institutions supporting entrepreneurial rural development.
The first part of the paper presents essential public-private institutions and partnership for successful local community development. The second part presents selected examples of successful creation and development of public-private institutions and partnership relationships.
One of the principal challenges of economic development of rural areas is the development of a socio-economic environment that would be attractive to people.
To meet this challenge, all available and hidden development potential of the local community must be mobilised. This in turn requires an environment favourable to entrepreneurship which a community basically can create in two ways. First, the community should utilise all the available incentives provided by the government to stimulate the development of economically depressed areas. These incentives usually include favourable investment conditions, low interest rates, tax concessions, guarantees, export subsidies, employment provisions, subsidies on public utility charges and the like.
Second, the community should create and foster the development of institutions and a variety of partnerships to support local development. As experience shows, personal and organizational networks are very effective in achieving broad and fast growing regional economic development.
Today we are witnessing many examples of institutional developments that are fostering businesses and community collaborative efforts-while nurturing positive government/academic/business relationships in promoting economic growth. Such institutions and their collaborative efforts should play a significant role in rural communities/regions where the development strategy of the rural community places entrepreneurship in the centre of economic development. Among the most important are: institutions of education and training; inter-firm institutions and financial institutions.
Institutions of education
The role of institutions of education in rural development is of crucial importance. They help to create a capable labour force and to maintain a skilled work force in the community. In rural areas they can act as agents of change, such as:
· redesigning curricula to teach students high level skills and those skills that would help to up-grade businesses;
· developing technical training programmes to provide people with basic skills for jobs required by local businesses;
· developing and implementing programmes to improve the competitiveness of local firms and their ability to expand into new markets; and
· developing links with other higher educational institutions, especially with universities outside the rural region in order to bring into the region technical expertise available outside the region and which could be beneficial to the existing businesses in the region, to new community enterprises, or to stimulate new entrepreneurship in the community.
Inter-firm institutions
Efforts to support and enhance existing businesses within a community and to promote new enterprises in a community can be most successfully earned out through different inter-firm institutions. Among different inter-firm institutions, business incubators, industrials parks, different non-profit seeking organizations facilitating networking and business support centres are one of the most successful ones promoting the growth of new and existing enterprises. These institutions can significantly contribute to rural development because of the following:
Business incubators
Business incubators are a facility designed to assist the development of new enterprises (Smilor, R.W., 1987). They help entrepreneurs by providing them with services which support and compliment their own talents and abilities.
Their support system usually includes secretarial, administrative and business expertise and facilities which are available to entrepreneurs below or at market rates. The entrepreneurs receive not only help regarding the management of their enterprises but also other services such as provision of financial assistance and training. They organize conferences, business luncheons and different types of activities for the purpose of networking. They create a good business climate inside the incubator and ensure a constant inflow of moral and financial support. As such, they thus seek to give form and substance, structure and credibility to emerging ventures.
The business incubator presents a rather unique approach to economic development. Unique in the sense that it is an independent enterprise whose business is the process of 'incubating' enterprises. The business incubator has emerged as a solution to the high failure rates among new firms. Many new firms fail, not because they are not innovative enough but because in their early stage they have difficulty in competing. Therefore, the basic concept of the incubator is to nurture entrepreneurial activities so as to provide start-ups with the necessary services and support until they mature and are ready to enter successfully into the competitive business environment.
The business incubator industry was one of the fastest growing industries in the late eighties in the U.S.A. Nearly every regional development programme includes the development of the incubator network, especially in those regions which had experienced economic decline and severe job losses due to the closing down of industries. Initially, practically all incubators in the U.S.A. were publicly supported by communities or states and public funds covered practically all investment and start-up costs.
Business incubators are making great headway in other market economies too, for example, Great Britain Japan, (where they are known as Managing Workspaces), Canada, Prance, Germany, Italy and Sweden, (where they go under the name of Industrial Parks). In Central and Eastern Europe, where entrepreneurial activity has traditionally been very low, incubators are sought to play an important role in initiating entrepreneurial activities.
Incubators in a rural area can be designed for a number of purposes to:
· encourage skilled and professional people who have left the community to come back to the region to start new companies;
· attract to the area, laid-off skilled labour from nearby town;
· promote specific types of businesses;
· nurture a pool of potential growth enterprises through equity investments;
· meet particular local employment needs;
· help develop flexible manufacturing networks of co-operatives and other manufacturing businesses;
· develop and produce a particular product that none of the firms could manufacture alone;
· foster greater access to capital for start-up firms;
· intensify training programmes to build the vocational skills of its members;
· provide job opportunities for high-tech graduates; and
· develop ways by which technical engineering and management expertise from outside the enterprise can help start-ups to develop, diversify product lines and markets and expand.
Business incubators are usually established by private initiative with the financial assistance from the federal, state and local governments and private sector contributions.
Industrial parks
As an unemployment-reducing effort and/or for revitilizing the community economic base, communities could establish industrial parks by purchasing marginal agricultural property at the market price and converting it to industrial purposes in order to accelerate entrepreneurial restructuring of rural communities. Communities could increase the attractiveness of industrial parks to potential entrepreneurs by delivering conventional common infrastructural services, by customisable layouts that could be rearranged over time to meet user needs in a flexible way and by the final price which should be much lower than the price of equivalent buildings in other, especially urban, areas.
Networking among firms in the industrial park is a common outcome. The firms in the industrial park benefit in several ways through networking. The benefits could be grouped into those resulting from reducing the problems of isolation in the process of starting-up, those resulting from economies of scale as overhead functions among firms in the network are shared and those due to the aggregation of production of small firms with the same or compatible production and due to large scale purchases of equipment and raw material.
Institutions facilitating networking
These are non-profit seeking associations, registered or non-registered which facilitate networking between small firms located in the same region2. They usually perform the following tasks:
2Successful examples of networking between small firms are to be found, for example, in: Smaland, Sweden, Jutland, Denmark; Baden Würtemberg, Germany; Emilia-Romagna, North
Italy; Haloze and Skofja loka, Slovenia
· promote co-operation between small firms in the network, thus promoting their competitive efficiency;
· provide different services in the areas of finance, marketing, research and development; and
· provide common services of daily matters in production and administration in order to reduce transaction costs.
Networking among small firms permits aggregation of production, large scale purchases, enables specialised firms jointly to manufacture finished products, facilitates shifts from product to product and market to market and leads to important economies of scale as overhead functions are shared (Hatch, 1989, p.6).
Business support centres
Business support centres can be established to meet the needs of start-ups, emerging or established businesses. They provide different types of services according to the needs of the three different clients (Small Business Administration, p. 19):
· Assistance to start-ups: business planning and finance.
· Assistance to emerging and established businesses: management skills in the areas of finance, sales, marketing and administration.
· Assistance to business partnership: sub-contracting of local firms with larger enterprises outside the community; attracting spin-offs from fast growing firms or firms who are rationalising, production by spinning off auxiliary production units; identifying franchising opportunities to the potential local entrepreneurs.
Business support centres can be part of the local government or semi private institutions or for non-profit private organizations. They can also be established at the community colleges or at the university to help small business owners learn necessary business skills at low cost.
Financial institutions
Communities should support the development of a strong venture capital base and risk capital networks specialising in funding new entrepreneurial activities. Seed financing could be an important bottleneck for new enterprise creation. For this reason, special attention must be given to the creation of institutions that provide seed financing and start-ups targeted venture capital and are engaged in equity financing. If it would be difficult for such institutions to be attractive to a rural community, the community leadership must encourage existing institutions to link new start-ups or potential entrepreneurs with such institutions outside the community. They should also be responsible for screening all financial schemes existing in the country for the development of new enterprises and for the growth of existing ones. Potential entrepreneurs must have access to information such as: which are the state financial agencies, banks that provide guarantees, issue tax free bonds, direct loans to smaller enterprises or to Consortia of enterprises? What type and how many economic development funds are available? Who provides favourable investment financing for the equipment and working capital? Which development corporations finance new and expanding businesses'? What state funds are available for small and medium sized enterprise development, etc.'?
Public-private partnership
The impact of institutions discussed earlier on rural economic development will increase if the individual efforts of those institutions are combined into a co-ordinated action. Therefore, the task of community leadership is to encourage close co-operation among different institutions supporting rural development, both public and private, in order to develop programmes that would address the key barriers to community development: human and financial capital drain, inefficient use of natural and productive resources, inability to meet the local business needs, inability to create effective community infrastructure, inability to encourage new enterprise formation, inability to increase local economic opportunities, etc.
The key to the evolution of economic development based on a partnership approach is the leadership that could come either from the local government or from already existing successful private companies, local development private or public agencies, community civic organizations, educational institutions and the like. What is crucial is the development of personal and organizational networks which combine otherwise individual efforts into a comprehensive approach to regional development of rural areas. Therefore, it is important to identify or to establish the principal community civic agency, the lead organization responsible for designing and carrying out the development strategy based upon identification of an area's major problems (lack of job opportunities, substandard housing, deteriorated social infrastructure, etc.). This organization should act as a planning and brokering organization, bringing together public and private initiative to attain common community goals. It should support the creation of new agencies if ongoing implementation of a development strategy so requires. Personnel should also include representatives of the major enterprises in the region, universities and research and development institutions. It should focus on broad community concerns and co-ordination of separate efforts in the region.
Many examples of successful institution building and public-private partnership as a vehicle of regional economic development exist today. From the viewpoint of rural development the Northern Tier area project aiming to promote the development of small industries in the State of Massachusetts, the case of 'Third Italy' as well as rural development efforts of Nov'na Studio for Rural Development, the private agency in Slovenia, will be presented here.
The Northern Tier project was designed to initiate partnership between business, industry and educational resources that would allow the development or recovery of small and large industries in Western Massachusetts (Union-News, 1987). Several programmes were initiated, for example the US$50 000 programme that combined efforts of technical and marketing programmes for business and which created a fifthy-acre furniture-related industrial park in the city Gardner.
Pilot programmes to the value of US$35 000, were developed with the aim to improve engineering capabilities of small machine tool industries which do not have in-house engineering capacity. Last but not least, an agricultural industrial park to house a food processing centre was established, where new businesses could get started with the help of central facilities like a kitchen and packaging and storage space (Daily Hampshire Gazette, 1989).
The Western Massachusetts Food Industry Association was established in 1989, which has an office at the University of Massachusetts in Amherst. Its main function is as a resource referral network. It aims to promote the interests of food producers and processors by providing business, engineering, scientific and marketing assistance to member businesses in the four Western Massachusetts counties. The Association has sixthy-five members, businesses making speciality products such as maple candy, cheese, bean sprouts, jams, jellies, mustard, pickles, natural bread and pasta, trout, herbal and fruit vinegars and other good things coming from the garden and the kitchen. The Association is an umbrella organization linking producers as well as promoting 'niche' or alternative agriculture. One of the Association's greatest assets is its close relationship with the University of Massachusetts.
The members of the Association have high opinions about its worthiness, the Association helps small firms spread out. By this the Association helps small firms to overcome the lack of skills that expansion requires, small firms spend the bulk of their time producing a product and therefore need assistance in marketing, business management and development of new products.
Another example of successful partnership between entrepreneurs, state government and the university in support of Western Massachusetts' small food growers, is the establishment of an apple barn and a commercial kitchen at Ireland Street Orchards. The partnership allowed the owner of the apple orchard to expand, to process and retail local speciality foods and it thus contributed to the continued health of the agricultural economy of Western Massachusetts (Union-News, 1988).
The State of Massachusetts promoted public-private partnership through grants for technical training programmes in order to provide basic skills required for jobs in manufacturing small firms in the region or to improve the skills of workers in order to be able to better cope with the increased competition. Such training was established to upgrade the skills required for jobs in the plastics and metal working local machine shops. It is an example of how state money and local businesses can utilise effectively the technology available in the university engineering departments.
The 'Third Italy' (the Emilia-Romagna region), has become a famous example of how a region, based on small firms, could be propelled to the top of the international income per caput regions. "Towns like Prato in Toscana, famous for textiles, Sassuolo in Emilia Romagna, specialising in ceramic tiles, Montegranaro in the Marche, known for shoes, Cento in Emilia Romagna, specializing in mechanical engineering and Nogara in Veneto, specialising in wooden furniture, are recognized as single sector industrial districts organized on a small firm network" (Pyke, 1991, p. 1). The Region that is now known as 'Third Italy' was in the mid-1950s an agricultural region with problems of high unemployment. The municipality, in order to reduce unemployment, established its first industrial park by purchasing an area of land on the periphery of Modena, thereby laying down its own path to economic development of the Region based on small firms, linked to local industrial networks through sectoral Consortia that provided targeted business services to the firms in the network. The success of the Region which today is based on the export oriented small firms, illustrates the entrepreneurial role that government can play in institution building for the provision of services within an industrial district, network, provided by different non-profit seeking organizations (Consortia). The key to the success of the industrial districts of Emilia Romagna is the development of a business concept on a sector level or on the level of a group of firms by combining business ideas, production facilities and management.
The rural development agency, Nov'na Studio for Rural Development, in Slovenia, is successfully initiating different types of networks. The best known is the network of independent small producers of dried fruit and wooden baskets (Mesl, 1989). The purpose of the network is to develop and market a single product by aggregating small production of these two types of products. Another example of successful networking initiated by the same agency is the development and marketing of wine in specially designated bottles (amphorae), again by aggregating small production of independent farm producers. The latest initiative of the same Agency is the development of the network of furniture producers in the rural region in Western Slovenia. The goal is to establish a development consortium for developing and vitalising core skills of firms in the network, promoting research, innovation, design, technical co-operation and process rationalisation.
Economic development in general requires more than just a proper macro economic environment. In addition it demands institutional framework conducive to economic development, practical mechanisms for risk taking and risk sharing in the early and most uncertain stages of entrepreneurial ventures and an organizational system conducive to growing new and existing businesses. It takes cross-institutional networking. The role of public policy is therefore to continually find ways to implement critical success factors of economic development. Economic development of rural areas cannot be an exception in this respect.
The experiences in partnership and institution building presented in this paper lead to the following policy recommendation:
Community leadership, in order to accelerate rural development, must continuously seek new innovative approaches to economic development and must promote proper institution building and partnership in view of those mechanisms that communities could use to leverage resources in order to help potential entrepreneurs and existing companies to grow, as well as to create more choices for entrepreneurs.
Daily Hampshire Gazette. (1989). Saturday, 4 February.
Hatch, C.R (1988). 'Building Manufacturing Networks in the Northeast', Council of North-eastern Governors annual Conference, Pittsburgh.
Mesl, M. (1989). Zasnova in uresnicevanje razvojnega programa za zgornjo Mezisko doling, mimeo, RAZOR Ravne na Koroskem.
Petrin, T. (1990). 'The Potential of Entrepreneurship to Create Income and New Jobs for Rural Women and Families', paper presented at the fifth Session of the FAO/ECA Working Party on Women and the Agricultural Family in Rural Development, Prague, Czechoslovakia, 2-5 October.
Petrin, T. (1992). 'Partnership and Institution Building as a Factor in Rural Development', paper presented at the Sixth Session of the FAO/ECA Working Party on Women and the Agricultural Family in Rural Development, Innsbruck, Austria, 13-16 October.
Pyke, F. (1991). 'Small Firm Development and Industrial Districts: Lessons from the Italian Experience', mimeo, ILO, Geneva.
Small Business Administration, Business Opportunities Casebook, U.S. Small Business Administration (the year of publishing is not listed).
Smilor, R.W. (1987). 'Incubator: a Method for Growing New Businesses', in G. Kozmetsky, R.W. Smilor, A. Chamberlain (ed.) Creating the Economic Development Alliances, IC Institute, The University of Texas at Austin.
Union-News. (1987). Tuesday, 3 November.
Union-News. (1988). Friday, 28 October.
