Small and Medium Enterprises (SMEs): Neglected engines for local re-generation in the Alpine Arc?

Session #6, Polo, 09:00-10:30

alpweek2012, 06.09.12

D. Baumgartner, H. Mayer, M. Pütz[economic geography|uniBe][regional economics|wsl]

2

Introduction

Aim of the session is to… … identify and discuss the various mechanisms of how SMEs

contribute to local development in the Alpine Arc

… identify and discuss the positive and (potentially) negative impacts of SME-activities on local development in the Alpine Arc?

… discuss potential enhancements of existing support policies regarding SMEs

Organization Combination of a short lecture & world-café:

Introductory short lecture by H. Mayer 3 word café-tables (economy, society, environment)

Plenary discussion at the end of the session

3

Schedule

09:00-09:05 Short introduction, organization of the session (D.Baumgartner)

09:05-09:20 Scientific input on the (potential) role of SMEs for local development in the Alpine Arc (H. Mayer)

09:20-09:30 Introduction of the three world-café-tables:

→ SMEs and the (local) economy: H. Mayer

→ SMEs and the (local) society: D.

Baumgartner

→ SMEs and the (local) environment: M. Pütz

09:30-10:00  World-cafés 10:00-10:10 Short break (buffer time)

10:10-10:15 Summary of world-café tables (H.Mayer,

D.Baumgartner, M.Pütz)

10:15-10:30 Final plenary discussion / feedback

4

Schedule

09:00-09:05 Short introduction, organization of the session (D.Baumgartner)

09:05-09:20 Scientific input on the (potential) role of SMEs for local development in the Alpine Arc (H. Mayer)

09:20-09:30 Introduction of the three world-café-tables:

→ SMEs and the (local) economy: H. Mayer

→ SMEs and the (local) society: D.

Baumgartner

→ SMEs and the (local) environment: M. Pütz

09:30-10:00  World-cafés 10:00-10:10 Short break (buffer time)

10:10-10:15 Summary of world-café tables (H.Mayer,

D.Baumgartner, M.Pütz)

10:15-10:30 Final plenary discussion / feedback

5

SMEs and local economic development in the periphery – what’s known from the literature

Scientific input, Prof. Heike Mayer, Institute of Geography, Bern (CH)”

alpweek2012, session #6, 06.09.12

Prof. Heike Mayer[economic geography|uniBe]

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In search for „the periphery“

Topography... ... is not everything:

Source: Van Eupen et al. (2012), A rural typology for strategic European policies, Land Use Policy, 29/3

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Economic characteristics of the peripheryPeriphery not only defined through physical distance to urban centers (Lagendijk und Lorentzen 2007)

Source: Baumgartner et al. 2011, forthcoming (adapted)

Attributes of the “periphery” ImplicationsEconomic environment

• Mostly small (often family-owned) firms;• Large share of firms in primary sector;• Limited export- and R&D/technology-

orientation;• Missing specialization and (vertical)

integration

• Low levels of productivity within the firm;

• High dependence on public sector transfer payments in primary sector;

• Less focus on growthPhysical environment

• Ecosystem goods and services are highly valued;

• intensive use of natural resources as production factors (i.e. land, water, landscape etc.)

• High exposure to natural risks (i.e. climate change);

• Increasing conflicts about use of natural resources

Social environment

• dense networks with mutual social control; fear of social exclusion if projects fail

• Missing “strength of weak ties”;• High risk aversion is common

Human Capital • Low formal qualification (tertiary education);

• High levels of out-migration (brain-drain)

• Low labor productivity and limited innovation potential

• Low labor participation;Settlement structure

• Low residential density;• No or small urban zones (small towns)

• Missing agglomeration economies;

• Limited exchange of creative human capital

Accesibility • Bad connection to basic infrastructure (train, roads, ICT)

• Relatively high costs for information and transportation

Aspatial distance

• Cognitive and organizational distance to sectoral/ market leaders

• High transaction costs in implementation of new products/processes

Different Travellers

Multiple Pathways

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Entrepreneurship in the PeripheryIs a local phenomenon (Copus et al., 2008)

causal direction of relationship is not clarified however

Entre-preneuri

al Processe

s

Local Commu

nity

Baseline Human Resources (Demographics

& Human Capital)

Baseline Physical Infrastructure (Land and

Infrastructure)

Governance and Institutions

World Views and Social Networks

Property Rights and Capital

Management

Boundary Spanning

(Mandates & Oppts/Possibilities

)

Quelle: Hindle (2010: 619), vereinfacht

Str

uct

ura

l Fact

ors

Individ

ual Fa

ctors

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Entrepreneurship & communityIndividual entrepreneurs influence the local community as follows:

the founding of new firms «short run»

social and cultural projects (social entrepreneurship (Certo und Miller

2008)) «medium run»

Contributing to an entrepreneurial culture (Smallbone 2009) «long run»

The local community influences (potential) entrepreneurs as follows

Easier access to local resources, lower transaction costs because of mutual trust

Creation of a sense of belonging (Jack und Andersson 2002)

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Individual factors

locational windows of opportunities (Storper 1997): Successful firms in periphery use specific local resources for innovation (Skuras et al. 2005 a, b)

necessity entrepreneurship is a common phenomenon (Kalantaridis 2004, Meccheri und Pelloni 2006, Vaillant und Lafuente 2007, Ierapetritis et al.,2010)

Entrepeneurs in the periphery seldomly focus on growth (Kalantaridis 2004)

Networking is important for: Access to knowledge, i.e. through regional higher education institutions (Virkkala

2006, Vaz 2006) or suppliers (Karlsen et al. 2011)

Lowering transaction costs, i.e. for marketing (Dinis 2006)

… but networking also represents hurdles: Concentration on small local market and cooperation channels hinders new firm

creation and growth (Courntey et al. 2010, Schulz und Baumgartner 2011, forthcoming

Exogenous attempts to create networks can destroy existing cooperations (Laschewski et al. 2002, Philippson et al. 2006)

Formal qualifications (i.e. tertiary education) does not play an important role: Entrepreneurs with management experience or tertiary education are the exception in the

periphery (Kalantaridis 2004, Kalantaridis & Bika 2006)

Great potential of women, especially when it comes to diversification activities in the primary sector (Bock 2004)

Successful entrepreneurial activities often require in-migration: In-migrants found and lead SMEs, those firms are more successful when compared to

those founded by locals (Bosworth, 2008; Kalantaridis and Bika, 2006)

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Structural factors

Homogenous national legal framework conditions, but sometimes differing and competing regional and sectoral policies regaring entrepreneurship in the periphery (North und Smallbone 2006)

Regional initiatives and public sector programs can make a difference: Regional policy makers can build bridges or act as catalysts of entrepreneurial

activities (Doloreux und Dionne. 2008, Laukkanen und Niittykangas 2003)

Regional policy makers can even undertake entrepreneurial activities themselves and they can improve the conditions (Bjorna and Aarsaether, 2009)

But: Entrepreneurs in the periphery use supporting programs often not so much

(differing values?) (Meccheri und Pelosi, 2006, Crevoisier 2011 et al.)

Regionally «adapted» strategies regarding locational disadvantages in the periphery: Creation of (global) knowledge networks through regional «gatekeepers»

(universities or large firms) (Karlsen et al. 2011)

Investment in (formal & informal) regional networks to create a critical mass to allow for the benefits of agglomeration economies (Johannisson et al. 2002, Doloreux et al. 2008)

Entrepreneurship in the primary sector does not play an important role: Education offerings in «rural entrepreneurship» in Europe (and in Switzerland (Weber

2006)) are not very well disseminated (McElwee 2008, Rudmann 2006)

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Switzerland is not a special case

Analysis of existing data sources (exemplary):

Opportunity-Recognition

Technologyintensity(1)

TechnologyIntensity (2)

Data Source: GEM-survey CH 2005/2007 urban(n=5338)

rural

(n=2216)In den nächsten 6 Mt.werden sich in der Region, in der Sie leben, gute Möglichkeiten für eine Unternehmensgründung ergeben (%ja)

42.7% 35.8%*

Data Source: GEM-survey CH 2005/2007 Entrepreneurs (TEA)urban (n = 337)

Entrepreneurs (TEA)rural

(n = 98)Sind die Technologien für das Produkt oder die Dienstleistung erst seit weniger als einem Jahr erhältlich (% ja)

16.3% 9.2%*Data Source: UDEMO 1999-2006

New firms per 1‘000 residents in technolgy-intensive sectors ( ) in rural (1) and urban(2) regions*

(1)

(2)„urban“=grey, „rural“=green, Source: MRL, ARE 2005* = Differences significant at p> 0.05

Switzerland is not a special case; the data reflects some of the central findings in the literature.

GRITEX in Trun, GR

Was founded 2005 Former textile factory TRUNS Reusing the old factory Initial idea: Engineer from St. Galler Management: Damian Tomaschett Products: Safety clothing, textiles for

hotels, custom-made clothing Reactivation of old labels Skilled labor from region Designer from St. Gallen Cooperation with «Access» in ZH Employees: 10

14

Quellen für Fakten, Daten und Fotos: www.gritex.ch & SAB Bericht zu KMU im Berggebiet (2010)

Novena in Ulrichen, Wallis

Founded in 1994 Roman Bernegger, ETH

Engineer with experience abroad Niche product: Pasta for

gourmets Customers: Hotels, restaurants,

speciality shops, Coop Hand-made, seasonal, organic Fillings are produced in former

cheesemaking facility Qualified labor locally available Labor: Highly flexible Employees: 15

15Quellen für Fakten, Daten und Fotos: www.novena-pasta.ch & SAB Bericht zu KMU im Berggebiet (2010)

Karlen Swiss in Törbel, Wallis

Founded 1951 as bootmaker-saddlery (by Titus Karlen)

Boots, shoes, bell belts, horse harnesses, belts, military products

80s/90s: Military is no longer customer

1998: acquisition of MAGO Recycling of old military wool blankets Cooperation with designers and

tanneries in the Emmental New Ideas: postal bags, seat

coverings, sun shades of old SBB-train waggons, etc.

Recycling, flexibility, custom products Employees: 12

16Quellen für Fakten, Daten und Fotos: www.karlenswiss.ch & SAB Bericht zu KMU im Berggebiet (2010)

PB Swiss Tools in Wasen, BE

Start as the village blacksmith shop Manufacturing of tools for the Swiss Army Exporting since the 60s Market leader for precision tools Diversification strategy since 2011

17Quellen für Fakten, Daten und Fotos: www.pbswisstools.com

2 locations:Wasen and Sumiswald

Worldwide sales network Networks to MNC Employees: 140

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What do the case studies suggest?Case study firms benefit from classical location factors

Cheaper production factors (labor, premises, resources, etc.)

Yet, there are also some individual and structural aspects that do not fit the traditional framework

Firms are important social actors in shaping the community culture and environment

Case studies illustrate how firms creatively utilize the community`s resources

Firms recognize windows of opportunities and create specialized (niche) products

Yet, some of the firms presented are oriented towards growth Access to new ideas and knowledge from outside the community New developments are brought to the firm by outsiders Firms use specific strategies to adapt to their peripheral locations

(especially regarding labor flexibility) Diligent use of resources and orientation towards protection

Finally, if we consider the role of entrepeneurs and SMEs in peripheral regions, we have to adopt a comprehensive perspective that incorporates not only economic, but also social and environmental considerations!

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Discussion questions

In what ways do local economic actors such as entrepreneurs/SME owners impact local society and vice versa?

In what ways do local economic actors such as

entrepreneurs/SME owners use local

resources and in what ways do they impact local environmental

sustainability?

What is the relationship between the local and

extra-local economy and how do

entrepreneurs/SME owners overcome

limitations originating from their peripheral

location?

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References

Baumgartner, D., Pütz, M., & Seidl, I. (2012, forthcoming). What kind of entrepreneurship drives regional development in European non-core regions? European Planning Studies.

Bjorna, H., & Aarsaether, N. (2009). Local government strategies and entrepreneurship. International Journal of Innovation and Regional Development, 2(1), 50-65.

Bock, B. B. (2004). Fitting in and Multi-tasking : Dutch Farm Women’ s Strategies in Rural Entrepreneurship. Rural Sociology, 44(3), 245-260.

Bosworth, G. (2008). Entrepreneurial in-migrants and economic development in rural England. International Journal of Entrepreneurship and Small Business, 6(3), 355-369.

Certo, S. T., & Miller, T. (2008). Social entrepreneurship: Key issues and concepts. Business Horizons, 51(4), 267-271.

Copus, A., Skuras, D., & Tsegenidi, K. (2008). Innovation and Peripherality: An Empirical Comparative Study of SMEs in Six European Union Member Countries. Economic Geography, 84(1), 51-82.

Courtney, P., Lépicier, D., & Schmitt, B. (2008). Spatial Patterns of Production Linkages in the Context of Europe’s Small Towns: How Are Rural Firms Linked to the Local Economy? Regional Studies, 42(3), 355-374.

Crevoisier, O., Jeannerat, H., Scherer, R., & Zumbusch, K. (2011). Neue Regionalpolitik und privatwirtschaftliche Initiative. Bern: Staatssekretariat für Wirtschaft SECO.

Dinis, A. (2006). Marketing and Innovation: Useful Tools for Competitivness in Rural and Peripheral Areas. European Planning Studies, 14(1), 9-22.

Doloreux, D., & Dionne, S. (2008). Is regional innovation system development possible in peripheral regions? Some evidence from the case of La Pocatière, Canada. Entrepreneurship & Regional Development, 20(3), 259-283.

Hindle, K. (2010). How community context affects entrepreneurial process: A diagnostic framework. Entrepreneurship & Regional Development, 22(7-8), 599-647.

Ierapetritis, D. G., Lagos, D., & Balomenou, C. K. (2010). Outlining the determinants of youth entrepreneurship in the Greek periphery. International Journal of Entrepreneurship and Small Business, 11(2), 205.

Jack, S. L., & Anderson, A. R. (2002). The effects of embeddedness on the entrepreneurial process. Journal of Business Venturing, 17(5), 467-487.

Kalantaridis, C. (2004). Entrepreneurial Behaviour in Rural Contexts. In L. Labrianidis (Ed.), The Future of Europe’s Rural Peripheries (pp. 62-86). Aldershot: Ashgate.

Kalantaridis, C., & Bika, Z. (2006). Local embeddedness and rural entrepreneurship: case-study evidence from Cumbria, England. Environment and Planning A, 38(8), 1561-1579.

Karlsen, J., Isaksen, A., & Spilling, O. R. (2011). The challenge of constructing regional advantages in peripheral areas: The case of marine biotechnology in Tromsø, Norway. Entrepreneurship & Regional Development, 23(3-4), 235-257.

Lagendijk, A., & Lorentzen, A. (2007). Proximity, Knowledge and Innovation in Peripheral Regions. On the Intersection between Geographical and Organizational Proximity. European Planning Studies, 15(4), 457-466.

Laschewski, L., Phillipson, J., & Gorton, M. (2002). The facilitation and formalisation of small business networks: evidence from the North East of England. Environment and Planning C: Government and Policy, 20(3), 375-391.

Laukkanen, M., & Niittykangas, H. (2003). Local developers as virtual entrepreneurs - do difficult surroundings need initiating interventions? Entrepreneurship & Regional Development, 15(4), 309-331.

McElwee, G. (2008). Rural Entrepreneurship: Editorial. Int. J. Entrepreneurship and Small Business, 6(3), 55-56.

Meccheri, N., & Pelloni, G. (2006). Rural entrepreneurs and institutional assistance: an empirical study from mountainous Italy. Entrepreneurship & Regional Development, 18(5), 371-392.

Phillipson, J., Gorton, M., & Laschewski, L. (2006). Local business co-operation and the dilemmas of collective action: Rural micro-business networks in the north of England. Sociologia Ruralis, 46(1), 40-60.

Rudmann, C. (2006). (ed) Entrepreneurial Skills and their Role in Enhancing the Relative Independence of Farmers. Frick: European Commission.

Schulz, T., & Baumgartner, D. (2011). Volunteer Organizations: Odds or Obstacle for Small Business Formation in Rural Areas? Evidence from Swiss Municipalities. Regional Studies, (online first). doi:10.1080/00343404.2011.587799

Skuras, D., Meccheri, N., Moreira, M. B., Rosell, J., & Stathopoulou, S. (2005). Entrepreneurial human capital accumulation and the growth of rural businesses: a four-country survey in mountainous and lagging areas of the European Union. Journal of Rural Studies, 21(1), 67-79.

Smallbone, D. (2009). Rural Entrepreneurship. In J. P. A. Hofer (Ed.), Strengthening Entrepreneurship and Economic Development in East Germany: Lessons from Local Approaches. Paris: Organisation for Economic Co-operation and Development (OECD).

Vaillant, Y., & Lafuente, E. (2007). Do different institutional frameworks condition the influence of local fear of failure and entrepreneurial examples over entrepreneurial activity? Entrepreneurship & Regional Development, 19(4), 313-337.

Vaz, M. T., Cesário, M., Fernandes, S. S., & De Noronha Vaz, M. T. (2006). Interaction between innovation in small firms and their environments: An exploratory study. European Planning Studies, 14(1), 95-117.

Virkkalaa, S. (2007). Innovation and Networking in Peripheral Areas - a Case Study of Emergence and Change in Rural Manufacturing. European Planning Studies, 15(4), 511-529.

Weber, R. (2006). Vielversprechende Pilotprojekte. Geomatik Schweiz, 2006(7), 376-381.

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22

Schedule

09:00-09:05 Short introduction, organization of the session (D.Baumgartner)

09:05-09:20 Scientific input on the (potential) role of SMEs for local development in the Alpine Arc (H. Mayer)

09:20-09:30 Introduction of the three world-café-tables:

→ SMEs and the (local) economy: H. Mayer

→ SMEs and the (local) society: D.

Baumgartner

→ SMEs and the (local) environment: M. Pütz

09:30-10:00  World-cafés 10:00-10:10 Short break (buffer time)

10:10-10:15 Summary of world-café tables (H.Mayer,

D.Baumgartner, M.Pütz)

10:15-10:30 Final plenary discussion / feedback

23

World-cafés

1

2

3

SMEs and the (local) economyH. Mayer

SMEs and the (local) societyD. Baumgartner

SMEs and the (local) environmentM. Pütz

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World-café: SMEs and the economy

1 Guiding questions are…

How do SMEs influence the local economy?

What are the firm strategies (market access, innovation, human resources, etc.) SMEs in Alpine regions use?

How do SMEs utilize local and extra-local resources to overcome their location disadvantage? How to they create regional and global pipelines to access new knowledge and innovation?

How do Alpine regions foster an entrepreneurial culture and the successful adaption of SMEs?

what are promising policy instruments for stimulating new firm creation in Alpine regions?

25

World-café: SMEs and the society2

Guiding questions are…

how do SMEs profit from the local society? What kind of resources do ‘Alpine societies’ provide for SMEs?

how do communities (civic organizations, public institutions a.s.o.) directly and indirectly profit from locally active SMEs? Are there any ‘Alpine-specific’ benefits?

are there ‘negative’ impacts of ‘Alpine societies’ on SME activities (such as, e.g., dense social networks of mutual control)?

what are promising policy instruments for fostering a fruitful co-operation between locally active SMEs and ‘Alpine societies’?

26

World-café: SMEs and environment

3

Guiding questions are…

What are key environmental issues for SMEs in the Alpine space (e.g. natural hazards, energy supply, water availability)?

What are key sectors for eco-companies, green businesses and technologies in the Alpine space today (e.g. building, energy efficiency, renewables, food, waste & recycling)?

What are future green business opportunities in the Alpine space (e.g. biodiversity, climate adaptation, resource efficiency, smart grid)?

Who are green business leaders in the Alpine space and what can we learn from them?

How to support green business and technologies in the Alpine space?

27

28

Schedule

09:00-09:05 Short introduction, organization of the session (D.Baumgartner)

09:05-09:20 Scientific input on the (potential) role of SMEs for local development in the Alpine Arc (H. Mayer)

09:20-09:30 Introduction of the three world-café-tables:

→ SMEs and the (local) economy: H. Mayer

→ SMEs and the (local) society: D.

Baumgartner

→ SMEs and the (local) environment: M. Pütz

09:30-10:00  World-cafés 10:00-10:10 Short break (buffer time)

10:10-10:15 Summary of world-café tables (H.Mayer,

D.Baumgartner, M.Pütz)

10:15-10:30 Final plenary discussion / feedback

29

Schedule

09:00-09:05 Short introduction, organization of the session (D.Baumgartner)

09:05-09:20 Scientific input on the (potential) role of SMEs for local development in the Alpine Arc (H. Mayer)

09:20-09:30 Introduction of the three world-café-tables:

→ SMEs and the (local) economy: H. Mayer

→ SMEs and the (local) society: D.

Baumgartner

→ SMEs and the (local) environment: M. Pütz

09:30-10:00  World-cafés 10:00-10:10 Short break (buffer time)

10:10-10:15 Summary of world-café tables (H.Mayer,

D.Baumgartner, M.Pütz)

10:15-10:30 Final plenary discussion / feedback

30