Promoting and empowering small and medium sized enterprises in rural areas

Key words: SMEs; empowerment; development policy; rural areas; policy paradigms

1. Introduction     

Rural areas in Northern Europe are quite diverse, and their economies depend on a variety of activities that are to some extent unrelated to natural resources. It can be difficult to develop and expand businesses and job opportunities in rural areas due to issues related to distance, availability of facilities and variation in job competency, among other factors. Studies of rural development demonstrate that economic development is also disadvantaged by a small average business size, which results in a more limited ability to attract investments and market attention (Kalantaridis, 2009; Smallbone et al, 2003; Terluin, 2003). Entrepreneurship is also difficult in rural areas, as resources may be scarce and networks thin (Stathopoulou et al, 2004).

This paper focuses on the challenges of development of small and medium sized enterprises (SMEs) in rural areas and policy measures that address these challenges. In order to grow, innovate, create jobs and contribute to community welfare, SMEs and entrepreneurs must possess a range of internal capacities. Development can be positively affected by policy measures that remove growth-hampering barriers or that encourage businesses to enact change (Andersen et al, 2005). A main line of argumentation in this article is that the term “empowerment” is helpful in developing a concise understanding of the rural SME development process. Another main line of inquiry is concerned with the policy paradigms, or key philosophies, behind policy intervention. This paper argues that it is important for local policy makers to recognize and be explicit about the paradigm that they subscribe to when attempting to empower local SMEs.

Industrial policy aims at providing a favourable economic climate for the development of the private sector in general or in targeted business sectors or industries. Activist industrial policies are government-sponsored economic programs in which the public and private sectors coordinate their efforts to develop the national or regional economy. Such government policy encourages existing or new enterprises to expand their activities or change or modernize their direction of trade. When designing such policy, it is important to envisage policymaking and policy implementation as a multilevel affair that requires a coordinated strategy across geographies.

Most governments change their industrial policy portfolios on occasion, taking into account new circumstances and opportunities related to a new composition of industries, major changes in resources or as an effect of negative or positive policy assessments (Llerena and Matt, 2005). Industrial policy is a competitive issue; countries and regions strive to create favourable private sector conditions to receive positive publicity and attract economic activity. Hence, industrial policy is fluid and adjustable. As part of the process of policy overhaul, officials continually incorporate new policy elements and amend or discard outdated elements.

The aim of this paper is to evaluate economic policy measures in rural areas. Entrepreneurs and small enterprises are the focus of the paper because they are the key intended beneficiaries of these policy measures. A key assumption in this paper is that SMEs are in need of empowerment. Empowerment is defined as an intrinsic form of encouragement that can accelerate business development both in scale and in scope, allowing governmental resources to be redirected to other beneficiaries and purposes. A further assumption is that the local level of government is especially important for creating industrial policy targeted specifically at SMEs. The paper provides a new conceptualization of industrial policy for SMEs in rural areas within five distinctive “paradigms”. The paradigms outline underlying beliefs or philosophies about the nature of SMEs and their position and prospects in rural settings.


2. Methodology

This study is connected to the Vital Rural Area project, which is a transnational, EU-supported Interreg project. The project includes 13 localities in Norway, the UK, Belgium, Denmark, the Netherlands, and Germany. Using an experimental approach, Vital Rural Area activates a wide range of local actors from both the private and public sectors. The partners in Vital Rural Area are responsible for SME policy and have a long experience in the field SMEs and entrepreneurs participate in the project as knowledgeable beneficiaries and best-practice testers. Vital Rural Area provides a wealth of insight into the interlinking of policy with business needs. This insight provides the conceptual backdrop and empirical evidence for this study.

Vital Rural Area has been in operation since 2009, and the project is due to be finalized at the end of 2013. To date, the project partners have organized and attended a number of partner meetings, conferences and study trips. Documentation has been collected in many formats, including web-documents, videos, presentations and case studies. The debates that have taken place at the conferences focus to a large extent on the empowerment of local enterprises and have been well-documented. Entrepreneurs who have been invited to project meetings have had an opportunity to share their opinions on policy matters. All of this material forms the foundation of this study and can also aid in future research.

Further, semi-structured face-to-face or telephone interviews have been conducted with key personnel in the partner organizations. The interviewees were kind enough to supply additional written material as well. The material from cases and interviews has influenced the construction of empowerment model and the policy paradigms, and selection project partner have commented on them. As Vital Rural Area is not a comprehensive project, this paper includes a supplementary literature review that includes an overview of relevant official EU-related policy documents, which helps with consolidating the models.

The Vital Rural Area project is a reference point for the conceptual approach used in this study. However, the scope of the paper is broader; it evaluates SME-related policy measures in general and provides a guiding framework for policy makers.


3. Tracing the idea of empowerment

3.1. Empowerment and SMEs

Many local development projects and initiatives, such as Vital Rural Area, work from the philosophy that stakeholders at all levels must be active and contribute to the development process themselves in order to obtain beneficial results (Edwards et al, 2001; Scott, 2004). Actions taken from within this framework aim at “stimulating and empowering SMEs in regional areas to widen their raison d'etre and commercial perspectives by expanding the scope (diversification) and quality (improved skills) of their businesses, also in the fields of e-business, e-skills and e-learning”, according to the Vital Rural Area website. Empowerment is defined as “… the process by which people, organizations or groups who are powerless (a) become aware of the power dynamics at work in their life context, (b) develop skills and capacity for gaining some reasonable control over their lives, (c) exercising this control without infringing upon the rights of others and (d) support the empowerment of others in the community” (McWhiter, 1991, cited from Rowlands, 1995, p 103).

“Empowerment” is widely used in Vital Rural Area, and the term is also used in many other community development contexts. We now introduce the term and discuss its use. Empowerment as a concept originates from the development aid world, where the participation of local citizens in development processes is seen a prerequisite for success in the struggle against poverty. Typically, in Third world contexts, empowerment is about providing proactive assistance to the poorest segments of the population in an effective and efficient way. Heightening self-determination, improving intentionality and critical reflection on behaviour and encouraging effective behaviour are thought to maximize goal. However, more radically, empowerment means providing support for constructive self-help in ways that will be sustainable and viable in the longer term. This approach involves the creation of frameworks for equity and open decision making in the community. Accordingly, empowerment is advocated both for its efficacy and for the humanistic and democratic values it is associated with. The empowerment agenda is therefore widely recognized and accepted as a road to development (Craig and Mayo, 1995).

The empowerment principle is also applied in numerous situations in developed countries, often in the context of disadvantaged neighbourhoods or rural areas. In the process of upgrading and improving physical environments, providing people with the opportunity and the right to voice their opinions and to negotiate the fulfilment of their requests is considered essential. Access to relevant, unbiased information isvery important. Notably, and crucially, locals are considered “experts” in their own area and capable of contributing new perspectives and ideas (Herbert-Cheshire, 2000). Institutions and agencies that grow from the bottom up and that are composed of highly committed citizens can produce rapid improvement in such areas. Self-esteem is thought to spread much like a “virus” under optimal circumstances, allowing capacity building to continue with voluntary effort. Positive processes that succeed without notable external assistance are often the ultimate outcome of community empowerment (Clark et al, 2007; Edwards, 1998).

3.2. Levels of empowerment

In a territorial context, four dimensions of empowerment can be identified. In practice, these dimensions are not entirely separable. First, there is self-empowerment through individual action or, in this framework, enterprise action. Local development is based on the self-directed interest of entrepreneurs and their ability to transform ideas into innovation and profit. Single enterprises are often policy beneficiaries, but the policies are designed with the notion that the community as a whole will benefit from the result. Jobs and other economic spill-over effects legitimize the support that is provided to specific entrepreneurs.

The second dimension is interpersonal and interorganisational empowerment, which results from creating connections to form networks of single enterprises in places where it is possible to benefit from productive mutuality and interdependency. Compared with large enterprises, many SMEs will typically be embedded in a more limited spatial environment, which comprises markets, suppliers, knowledge repositories, and labour pools, among others (Kalantaridis, 2009). The empowerment of an individual entrepreneur or business owner may depend not only on his or her autonomous capabilities but also on the simultaneous empowerment of others in the network. If, for example, individual entrepreneurs are better trained or if suppliers employ new technologies, other enterprises may be able to launch products of better quality as well and make higher profits.

A third category of empowerment is community relations, which involves a strong emphasis on the participation of many actors, with equal power, in decision making. Empowerment in community relations normally necessitates the establishment of structures that facilitate collaboration. When these structures are successfully created, power is not a zero-sum game, in which one enterprise’s power naturally diminishes that of another (Rowlands, 1995). Instead, multiple structures and networks in a community are able to create a bridge between the interests of business owners and the more general interests of other categories of organizations and inhabitants. Johannisson and Nilsson (1989) and Johannisson and Wigren (2007) demonstrate in a number of studies on business-related community entrepreneurship that successful formal and informal institution building goes beyond naked economic goals and also involves sports clubs, churches, schools and various public bodies. These structures are sustained by charismatic individuals with specific competencies and profiles.

The fourth level of empowerment isbridging structures that formally distribute power and influence in more or less decentralized decision models. In other words, outsiders may have a significant influence on community empowerment. This dimension is important because policy making is often a hierarchical construct in which power is distributed according to a well-conceived and negotiated pattern. Research  concerning the empowerment of rural communities in Europe often points to the importance of establishing institutions that can address existing problems, guide the development process (Clark et al, 2007; Herbert-Cheshire, 2000) and define who will be in charge of directing the empowerment process in a top-down manner. The EU-initiated LEADER program is one example of a program that supports bottom-up mechanisms that specifically aim at encouraging people and local enterprises to become aware of their power to influence their own life situations and giving them the means to change their situations according to their own reconciled will and direction (Dargan and Shucksmith, 2008; Thuesen and Nielsen, 2011; Varley and Curtin, 2006). As in all bottom-up approaches, cross-border learning and best-practice dissemination is a distinct purpose in LEADER, and it is pursued through national and transnational umbrella initiatives. For example, the LEADER+ Observatory was established as an intermediary of experience across geographies for the program of 2000-2006, and the European Network for Rural Development (ENRD) was established for the current program period of 2007-2013. Most Interreg-projects, such as Vital Rural Area, aim to achieve a similar cross-border transfer of best practices in what Varley and Curtin (2006) call “inter-state populism” or what Ray (2000) calls a “postmodern form of intervention”.

3.3. Processes of empowering and empowerment in partnerships

This section of the paper addresses SME empowerment. It is therefore essential to deconstruct the process of empowerment to understand potentially effective points of entry for policy measures.

The process of empowerment can be seen as entirely embedded with the individual or, in the case of SMEs, with the patron. Rowlands (1995) refers to Freire’s concept of conscientisation, which highlights the process of individuals becoming “subjects” in their own lives by developing a critical consciousness that helps them to better understand their circumstances and social environments better. Conscientisation is a process of raising self-esteem and resisting participation in asymmetric relationships (Roninger, 2004). Designers of policies may choose to support SMEs and thereby seek to empower disadvantaged enterprises individually. In fact, European rural and agricultural policies mainly benefit single farmers and enterprises, which means that the policies target enterprises in a very uniform way.

As suggested by numerous scholars of community development, the empowering process requires learning and unlearning, both individually and collectively. Learning and developing the advancement capacity is likely to be enriched and enhanced through groups and communities (Chambers, 1994; Rowlands, 1995). A deliberate empowerment process may be performed through participatory appraisals, in which people learn that certain technologies are obsolete and come to appreciate the need for new approaches. Chambers (1994) explains that locals often possess unexpected analytical skills, and he lists a variety of techniques that can be employed in participatory rural appraisal (PRA). While the ideas of participatory learning processes were originally mainly used in third world communities, the techniques, which embrace a range of visual and mental tools, have been introduced more widely, sometime under other labels (Herbert-Cheshire and Higgins, 2004; Leeuwis, 2000). Participatory learning processes sometimes utilize modern technologies, such as social media, to broaden the scope of idea creation and communication (Mason and Rennie, 2007). Empowering knowledge practices produce maps, diagrams and transects and contribute to the stock of applicable knowledge. These methods have also been useful when radical innovations are needed to transform mainly agricultural business systems for use in more diversified economies (Tovey et al 2009). Recently, ICT and GPS technology moved in to activate tacit local knowledge (Parker 2006; Perkins 2007).

Bosworth (2009) questions the possibility of achieving a collective conscientisation without some assistance from outside. Knowledge and inspiration are not necessarily locally embedded. Bosworth’s research findings suggest that some communities are to some extent deprived of resources and that unlearning and re-learning requires additional resources, perhaps from better-educated incoming entrepreneurs and employees. Herbert-Cheshire and Higgins (2004) also point to the need for external expertise, even when development is distinctively community-led. Outside experts may be able to point out obstacles, including obstructive attitudes and assumptions and conventional wisdom that hinders community members from launching and elaborating prospective initiatives. Experts can also help local actors through transformations and reinterpretations and facilitate the joint learning process.

Drawing from the literature on developing countries, institutional capacity building emphasizes community empowerment. Institution building in this context mainly involves partnerships of committed local actors (Horlings, 2010; Scott, 2004). However, institution building can also involve a variety of government-supported agencies that work on behalf of local stakeholders and support them with a variety of development services (Edwards, 1998). Empowerment comes from the establishment of relationships in which governmental agencies boost the empowering forces that are already  present in only a rudimentary sense, an obvious example being the local action groups (LAGs) established by to the LEADER program and the collaborative projects established and/or supported by those LAGs. With the right incentives, professional agencies can accelerate actions in time, scope and scale.

“For impoverished and neglected communities, community empowerment cannot be achieved in a single step, but requires a sequence of accomplishments” (Reid, 1999, p 11). It is a process of consistent and targeted collaboration. The empowerment staircase includes the following steps:

  • Building hope that a different, better future is possible
  • Creating a vision of a better future and a strategy for achieving it
  • Turning the strategy into a concrete work plan with measurable objectives
  • Finding resources to implement parts of the work plan
  • Achieving initial successes that build confidence and relieve the most pressing needs
  • Refocusing actions to achieve long-term, sustainable goals
  • Revising the strategic plan to reflect changed conditions and experience from past project
  • Leveraging additional funding for new sources
  • Building community capacity to plan, manage projects, and evaluate outcomes.

The practical literature of local development includes many similar empowerment procedures, characterized by a will to create consensus and collaboration in the service of well-defined goals (Leeuwis, 2000).

Box 1: Empowerment tools in Vital Rural Area

Establishing strategies and work plans are part of the pilot projects in the Vital Rural Area. Resources are provided so that communities can develop selected projects and acquire expertise to ensure a feasible plan for the implementation. To this end, standardized project management tools, for example a business plan template and an adapted SWOT-scheme, are made available. The tools are not sophisticated, but they are nevertheless a useful reference for all 52 pilot projects in the program. They are developed by the participants during the implementation, and there is a cross-country exchange of experiences at partner meetings concerning the development of the empowerment tools.

3.4. From empowerment to policy

The concept of empowerment is, as observed above, explicitly or implicitly prevalent in the rural development literature. However, from the point of view of policy makers, the progress of single enterprises or business partnerships does not necessarily emerge rapidly and effectively without some external motivation or pressure. How to create policies that maintain the dignity and self-help imperative of the local players is a persistent issue in policy strategy and implementation. In the following section, these policy measures will be discussed in concrete terms.


4. Policy paradigms and empowerment

4.1. Introduction to five paradigms

There are many types of interventions that governmental and regional actors can put into operation to support business growth and development in rural areas (Anderson et al, 2005). However, the organization of the interventions depends on the way that the problems and opportunities of SME development are conceptualized. Policy design may be viewed through different lenses. It is important to be aware of the fact that rural areas are no longer dominated by agricultural activities and farming-related production and services, but are rather a mosaic of economic activity that increasingly mirrors urban areas. The rural policy agenda integrates forms of industrial development policy adapted to the rural situation, but it is also a matter of gradually embracing policy movements borrowed from other types of communities (OECD, 2006; Vaz et al, 2005).

This study finds that SME-related policies fall into five distinguishable categories, each of which relies on distinct beliefs about how rural economies and businesses are empowered. Below, the paradigms are outlined with examples of associated policy measures. The paradigms are as follows:

  • The entrepreneurial paradigm
  • The resource-based paradigm
  • The cluster paradigm
  • The enclave paradigm
  • The inclusion paradigm

4.2. The entrepreneurial paradigm

According to this paradigm, the individual business owner or entrepreneur is the fundamental key to economic and job growth. Competition will ensure a natural selection of viable economic activities. However, rural SME policies assist the companies in acquiring the best possible access to skills, capital and labour so that they can achieve their potential and create development for themselves. Policy measures also compensate for growth barriers and market failures resulting from long distances and low population density in rural areas. In this way, the policies strive to create equality for the firms in the countryside relative to those located in more densely populated areas.

The paradigm essentially rests  on the neo-liberal assumption that private enterprises are the main drivers of sustainable growth, ground-breaking innovations and continuing modernization (North and Cameron, 2003). Interventions build capacity in a way that complies with free will and utilises market forces as much as possible. Governments should create favourable conditions without giving a particular priority to any specific economic activity or sub-sector. Production decisions are left to individual enterprises. Forming adequate conditions for private initiatives include interventions from the following five categories:

  • Establishing flexible business advisory services, either at a single village location (“one-stop shops”) (Lowe and Talbot, 2000) or delivered directly to the premises of the enterprises. Many companies would welcome advice from competent consultants in fields such as marketing, finance, employment matters, and legal issues, among others, but are too busy to pursue such advice (Hergesell et al, 2008; Liburd, 2007; Smallbone et al, 2003). There is some indication that small- and medium-sized enterprises do try to find long-term and trustful relations with consultants and other advisory services.
  • Raising capital for businesses in rural areas, for example attracting venture capital to business projects and expansions. SMEs tend to be more financially constrained than larger firms because of the lack of access to external financing, possibly also as a consequence of differences in risk evaluations loan-granting banks. This category of measures also includes alternative financing opportunities, for example micro-credit, although this is most often used in developing countries.
  • Increasing focus on business-related projects in LAGs (Local Action Groups) and other supporting mechanisms under EU rural policies and programs. Backing projects with job creation potential and possible spin-offs in other economic sectors in rural areas are particularly recommended as a form of public support (Hubbard and Gorton, 2011).
  • Providing business start-up training in rural areas, including courses, counselling, and mentor programs, among others. Due to long distances, start-up activities may be delivered in the forms of e-learning, e-mentoring and blended learning and may include consultation with public authorities through e-citizenship and e-government structures (Tzikopoulos et al, 2012).
  • Developing job and business-related qualifications by providing, for example, targeted training for employees and managers. Competency programs may include the unemployed who through new qualifications may become employable in local businesses. Again, training may be delivered in outreach facilities or in the form of e-learning, adapted to the situation of the local SMEs and the particular circumstances in the rural districts.
  • Providing guidance, matching and development activities related situations in which new generations need to take over a business. A successful succession may be necessary to motivate rural businesses to remain located in rural areas and to continue to deliver necessary supplies to the local population, in the form of  retail, construction and other services.
  • Designing land use planning and zoning that accommodate the needs of SMEs and create attractive space for development. Selected zones may be supplied with subsidized rent or other privileges put in place to promote rapid development. Planning also requires regulating the repurposing of agricultural buildings and other properties for which a change of use is needed. Further, governance measures dictate proper management of environmental standards and of infrastructure accessibility, and they take a proactive stance on the solution to any potential neighbour and land use disputes.


Box 2: Qualifying innovation

The Norfolk Knowledge Innovation Panel has set up two practical workshops that help to stimulate economic development in Norfolk’s SMEs. The full-day and half-day sessions have been designed to help people take their rough ideas for an enterprise through formal business planning, to strengthen their business case and to improve the chance of success. The case shows that the SMEs benefit particularly from face-to-face contact with advisors and colleagues. Businesses and individuals have been helped through targeted mentoring, as they found it difficult to move from idea to plan.


4.3. The resource-based paradigm

The resource-based paradigm focuses on places and place-bound resources rather than on industry sectors, and part of the goal is to generate an attractive and distinctive image of the region and its products and services. The resource-based view of the firm hypothesizes that the exploitation of valuable, rare resources and capabilities add to a firm's competitive advantage, which in turn contributes to its performance. This idea also applies to rural SMEs. In terms of policy, the assumption is that rural enterprises have commercial potential that is substantially different from that possessed by enterprises in urban areas due to the resources that they have access to (Patterson and Anderson, 2003) and that an intelligent use of these immobile resources and capabilities can provide crucial competitive advantages for rural businesses (Marsden, 2010; Terluin, 2003). Economic prosperity may arise from a forward-thinking valuing of cultural patrimony. At best, the progressive ideas can result in a different type of economic activity that generates jobs for categories of employees who are particularly needed in rural areas. This approach revolves around local products, and agro-diversity schemes are therefore part of the resource-based paradigm (Smallbone et al, 2003). Supportive policy measures focus on rediscovering and reinterpreting resources and on the creation of investor and entrepreneur attentiveness in exploiting them.

The resource-based paradigm depends on nature-based resources, the ecosystem and agricultural history and background and, in a deeper respect, social and cultural capital (Terluin, 2003). There is an advocacy for new forms of multifunctionality with a broader variety of ecological goods and services (Kitchen and Marsden, 2011; Marsden, 2010; Wilson, 2008). A unity between nature and culture united is essential for the development of recreation and tourism. Examples of policy initiatives in the paradigm include the following:

  • Encouraging food development activities and directing financial or knowledge support measures toward new food product development, new agricultural practices, new production methods, and improved marketing, among others. Policy interventions reward innovation in agriculture and the creation of niche manufacturing companies—for example revitalized factories, slaughterhouses, breweries and bakeries—in new formats and with modernized concepts. Another goal is supporting local economies by providing advanced communications and marketing support for local products.
  • Adapting agri-environment strategies. This means, for instance, support for energy crops, wind power systems, solar farms, wave energy, and biogas, among others. Such policies prioritize symbiosis projects, in which waste from one production process serves as a resource for other categories of production, ensuring consistency between agricultural production, energy production and environmental sustainability. Energy research can help determine how to fund and develop energy plants to suit the village scale (Tovey et al, 2009).
  • Advancing rural tourism development and supporting the development of tourism infrastructures, such as trails, facilities for sports, beaches and boating facilities. This approach includes the development of "agritainment" and events in villages and rural areas and the preservation, creation and development of cultural institutions and amenities, including monuments, churches, museums, village and nature attractions, among others. Courses and other learning activities with rural themes are also encouraged, as well as the renovation and development of mills, stables, and former agricultural infrastructures for tourism purposes. (Hjalager 1996; Nielsen et al 2010)
  • Supporting national and park development, including economic extensions such as a customized food supply, shopping opportunities, events, and guided tours, among others.
  • Assisting entrepreneurs in health farms and green care. This approach encourages support for the development of services in health, such as horseback riding rehabilitation, therapeutic gardens and landscapes, wellness centres, and health trails, among others. It also includes the dissemination and promotion of the landscape as a health resource, as well as cooperation with public health stakeholders with the purpose of integrating rural resources in medical treatment standards (Mettepenningen et al, 2010).


Box 3: Renewable energy resources

Two projects work with energy – the German Wirtschaftsakademi with earth heating and the Dutch Friese Poort – and are both vocational training institutions. They are in close contact with businesses such as plumbers and suppliers of materials for heating systems. These pilot projects are ambitious in the sense that they seek to raise the awareness of sometimes conservative enterprises about opportunities in renewable energy and give them technical and business skills to exploit these opportunities better in their regions. The idea is also to ensure challenging apprenticeships for students at schools and training institutions.


4.4. The cluster paradigm

Clusters are defined as geographic concentrations of interconnected firms from different sectors and branches and a variety of supporting or coordinating organizations. Cluster research mostly affirms that strong interrelationships and proximity-based mutual trust foster innovation, as there is an uncomplicated real-world knowledge flow (Asheim et al, 2008). Proximity in space and culture strengthens entrepreneurship and start-up survival (Delgado et al, 2010), and a denser environment enhances productivity, income-levels and employment growth in industries. As an result, there is likely to be a positive influence on regional economic performance. The closer is the cooperation between enterprises and other actors in a locality, the more likely it is that innovation and value creation will occur; collaboration is a cornerstone in endogenous advancement (Stathopoulou et al, 2004; Terluin, 2003). Collaborations can be formal or informal and may include both products and knowledge. A cluster can be based on a particular strand of production or a natural resource. Clusters include not only businesses but also strategically important public actors and trade associations. Universities and other knowledge institutions are normally regarded as essential contributors to a cluster. Policy measures are mainly intended to motivate and create constructive collaboration in a way that enhances knowledge creation, transfer mechanisms, trade and trust (Holley, 2009).

Clustering is a way of exploiting economies of agglomeration, perhaps not in scale, but in scope (Porter 2000). Clusters are often developed from a natural resource—for example mining or agriculture and related crafts and skills—but may also be based on “new” knowledge-related activities in creative industries, for example (Harvey et al, 2012).

There has been intense discussion about whether clusters can be created, or whether it is only possible to support and enhance collaborative forces that are already present. Many policy measures aim at building an institutional capacity that can, eventually, develop into a cluster. In a rural context, policy measures might consist of the following:

  • Village incubators, such as the establishment of start-up environments for specific categories of new businesses. Measures aim at supplying the incubators with relevant laboratories, advisory services, and ICT-facilities, among others, as well as working with integrative and collaborative development tools. The embedding of knowledge facilities, for example, relocated units from universities or other educational institutions (Atherton and Hannon, 2006), constitutes an additional aim.
  • Innovation networks, such as setting up and facilitating work in combined horizontal and vertical networks of professional actors who wish to develop innovations based on a local area's advantages and combined resources. Innovation networks may lead to an exchange of ideas across industry sectors and across public-private structures. Innovation networks can be augmented with supplementary knowledge from local or external institutions (Murdoch, 2000).
  • Bringing in competencies from outside. Strengthening and reorienting professional organizations and networks, including e-mentoring and mediation. Universities and other educational institutions may be linked efficiently with rural projects and activities.
  • Extending the outreach of LAGs. The Leader program directly encourages partnership building (Thuesen and Nielsen, 2011), which encourages and funds the strengthening of networking and cooperation across sectors. Overall, many categories of projects are funded, some with the clear goal of creating denser and less farm-centred ties between small-scale producers and service providers, for example in the fields of food and tourism (Hubbard and Gorton, 2011).
  • Strategic public procurement and collaboration with innovative groups of suppliers. Public-led strategies that aim at the enhancement of local clusters can emerge in various fields, including energy resources, national park development, health services, and educational proficiency, among others. Specific rural areas with prior business capacities may be included in the development of advanced public services with further commercial spin-off potential (Cooke and Laurentis, 2011).


Box 4: Innovation House Vejen, Denmark

The objective of the Innovation House Vejen is to stimulate enterprises to grow and create new jobs and to do so in collaboration with others in the Innovation House and beyond the community and the region. The target group are enterprises in the house, but enterprises outside are welcome to use the services supplied as well. Enterprises in the house should have a distinct sense of communality and be willing to establish bonds with each other. With a positive atmosphere in the house and with substantial support and inspiration from the staff, the Innovation House wants to pave the road for high-profile job creation activities in a rural area.


4.5. The enclave paradigm

This paradigm assumes that work values ​​and lifestyles in rural areas differ fundamentally from those in urban areas. Companies in the countryside often operate and develop according to different standards, for example, from the desire to create a meaningful balance between family, leisure and work. Business activities may include the creative combination of businesses and micro enterprises in which the local ambiance is significant and in which interaction with other small business owners in the same position are prerequisites for success (Wilson, 2008). Lower property costs may make rural areas ideal for such enterprises, where profits are a sub-priority. However, as Lafuente et al (2010) suggest, rural lifestyle entrepreneurs are not necessarily low-skilled, low-tech or low-profit.

Further, incoming entrepreneurs from outside the rural or local place are often found to be of great importance as they bring new skills, energy and contacts, and they often become indispensable change agents, even if they initially seem to be “disturbing” elements (Akgun et al, 2010).

SME policy measures may embrace coordination of the prospects of businesses and social entrepreneurship in new ways and simultaneously create alternative and particularly attractive physical environments for businesses, their owner, their employees and their families, as follows:

  • Creation of business combination opportunities, for example, joint activities with public services. Experimental co-location and joint operation of retailing, health activities, public authorities, social work, and elderly services, among others.
  • Development of targeted advisory services with special emphasis on lifestyle companies and a respect for the values that they subscribe to. Outreach to business addresses or to other locations in rural areas to meet special needs and create necessary proximity.
  • Village janitors. Coordination of employment policies and activation of the villages’ needs for physical upkeep, including public building maintenance, landscaping, and environmental upgrades, among others.
  • Innovation in volunteering and social enterprising. Guidance and process support in volunteering. Enhancement of perspectives in terms of the creation of commercial spin-offs, for example, in connection with sporting activities, festivals and other events.
  • Development of settlement qualities for incoming lifestyle companies. Such settlement campaigns must include broader quality of life measures for the entrepreneur and his/her family and employees. The measures, which go beyond the logic of traditional industrial policy, could produce opportunities in the field of landscaping, building restoration and proper maintenance, village beautification, afforestation, and removal of derelict properties, among others.


Box 5: The Norfolk growth initiative

Norfolk is a rural area with many small lifestyle enterprises. Some of them have distinct potentials for growth. The initiative consists of workshops for enterprises where they learn business skills and learn about outsourcing and licensing and other alternative growth models, for example, which may not affect the lifestyle dimension so important to them.


4.6. The inclusion paradigm

This paradigm is based on the recognition that businesses both in the countryside and in cites are increasingly becoming part of an international world and that development drivers are to some extent exogenous (Terluin, 2003). Geographical differences become blurred, and businesses benefit from economic relations in a global arena. Policy measures are therefore meant to ensure that rural enterprises are effectively interlinked with the surrounding world, so as to avoid “overembeddedness” (Kalantaridis, 2009). Furthermore, rural areas have a dynamic labour market with high mobility, making them able to  accommodate the seasonal fluctuations that characterize some regions. Policies in this paradigm include the development of digital infrastructures and cross-border and bridging networks (Labrianidis, 2004). The LEADER program is designed to be local, but also inter-local and transnational (Ray, 2000).

In a more specific sense, the inclusion paradigm gives rise to the following policy initiatives:

  • Digital high-speed connections. Distribution of broadband networks or other digital communication opportunities to all parts of the country, and the establishment of attractive subscription and equipment services for rural enterprises (Galloway, 2007).
  • Digitalization of business services. Advancing the business related e-learning and counselling shops so as to match the core activities in agriculture, tourism, health, leisure, and environment-related businesses, among others. Emerging villages as "showcases" and "first movers" in cooperation with international ICT and equipment suppliers for the provision of advanced digital solutions (LaRose et al 2011; Demos 2005; Stathopoulou et al, 2004).
  • The villages on global platforms and in social media: Representation and promotion of the villages and their business enterprises on social media and alternative digital platforms. Creation of village alliances, market places, branding, communities of interest, export opportunities, sourcing and investment opportunities across geographies.
  • Support and subsidies to access export markets. Actively promoting rural and urban products and services in major cities and abroad. Establishing “embassies” from rural areas in selected cities.
  • Artists’ coops and temporary work space for professionals, typically in abandoned and left-over agricultural buildings or (near) manor houses. Embedding groups of business people from other areas in co-production and master classes, interlinked events with media-related or tourist promotion (Philips, 2004).
  • A more traditional, but still important approach - the improvement of road infrastructure and public transport with the purpose of reducing travel time for employees and ensuring better accessibility to raw materials and finished products. Flexible public transport schemes, including a carpooling infrastructure. New logistics solutions.


Box 6: Virtual learning for SMEs with a cross-national element

The Innovation House in Vejen, Denmark is a partner in collaboration with actors in Denmark and Germany about e-learning for rural entrepreneurs. There is a possibility to learn at any location, and the students can determine their own learning time in the online courses. There is support from experienced mentors at the face-to-face-seminars and during the online learning. Courses are available.


5. Vital Rural Area and the re-invention of policy measures

This review of the literature and the examples illustrate the broad scope of potentially advantageous policy measures for the empowerment of SMEs in rural settings. The review of concepts clarify that empowerment may take place in individual enterprises or can be a result of a collaborative community procedure. Community empowerment entails the initiation of a process in which rural actors can raise their voices and achieve benefits without hampering others in achieving their goals. Empowerment in rural communities is not a zero-sum game because empowerment is more a principle or set of guidelines than a limited resource, and it mobilizes actors who will make a difference not only for themselves but also for others. However, as noted by Herbert-Cheshire (2000), the effects are not indisputable, and the rhetoric is sometimes more a question of smoothing “governing through the communities” than creating real independence of action. As a matter of fact, many of the SME policy measures mentioned in this paper could never be implemented without legislative, funding and legitimizing power from national or supra-national levels of government.

As a common standard for public-private partnership, Vital Rural Area develops, implements and tests aco-operative agreement approach (CAA). As suggested above, CAA is cross-sectoral, top-down and bottom-up at the same time. In this approach the stakeholders—e.g. ,municipalities, knowledge institutions and private companies—draw up agreements with targets and conditions about how to work together to reach jointly formulated goals within an agreed-upon period of time, using the knowledge, experience and expertise of inhabitants ( With the intention of applying a co-operative agreement approach, Vital Rural Area is the essence of empowerment, although with a pragmatic approach.

This paper shows that even within the CAA, there is a broad range of potential policy goals and measures for the empowerment of rural SMEs. The “creativity pool” is massive, and re-invention has a solid foundation. However, the promotion of rural businesses is not uniform across communities and not a simple matter of replication. Within specific communities, there is a need to initiate decision making processes that can aid in local adaptation without a loss of transparency and participation.

The policy measures outlined above may be transferred across countries and cultures, although possibly with considerable amendment and further development. Transborder collaboration in the Interreg program aims at facilitating an exchange of ideas and best practice, and Vital Rural Area is part of a long tradition of cross-border cooperation (Klatt and Hermann, 2011). A mere copy of measures is not the goal of exchanging best policy practices. Rather, meeting the neighbours is about finding inspiration that may lead to a re-invention of projects and policies.

In any local community, there is a potential for the re-invention of policies because economies are matters of continual change. The present portfolio of policy initiatives for the empowerment of rural SMEs may be coloured by what is already in place, existing structures, policy content and traditions. Accordingly, re-invention where best-practice and experience is transferred across communities is not only a practical process but also a challenge. Neither policy paradigms nor empowerment constitutions are stable. Policy re-invention can be broken down into a number of elements.

First, throughcontextualization,the local community scrutinizes a policy measure in its own economic framework, for example, through the lens of previous policy success and failures. The economic structure, the financial preconditions or the nature of the labour market can affect the way that polices are transferred from one area to another

Second, the transfer of best practice depends on culturalisation, which implies taking into account the human dimension and the traditions of communication. New policy measures must fit the historical trajectory of intervention and the narratives about them.

Third, re-invention has to be seen as a legitimizationprocess, in which actors are working with rigidities and resistance along with a determination to change. Modernisation will require new ideas to be legitimized and embedded in existing institutions or in new institutions that have the potential of gaining a favourable reputation and acceptance. For better or worse, there may be built-in brakes, such as acquired privileges, that modify the policy content and the speed of re-invention.

Forth, re-invented policies may go against long-lived community values and require a naturalisation. Community values might be tacit, and they have to be rememorized and made explicit. The embedding of new discourses involves a naturalization, in which the acceptance of new values is encouraged (Edwards, 1998).

Fifth, the outcome of re-invention can be a restructuring of conventional alliances and groupings. New partnerships may emerge, and new leaders and followers materialize. Institutionalization, for example in the form of support programs, will normally require the creation of new constellations of people and the formalization of new standards, incentives and procedures.

Sixth, the re-invention of policy measures can affect place imaging. Buildings, landscapes and infrastructures may need to change as a consequence, which can raise crucial questions about planning, ownership and initiative.

A main perception of Vital Rural Area is that best-practices should under some conditions be transferable across communities and national borders. This paper shows that in theory, best practices are widely available in the field of SME empowerment and economic stimulation. However, transferability and transfer possesses are issues that need further attention in research and in practice. During its implementation, Vital Rural Area will collect additional evidence about how transfer mechanisms can be further developed to help rural communities.



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