Rural entrepreneurship development and to emerging strategy presents opportunities and challenges

Abstract:

During the past few years, those following rural development trends and strategies have probably heard a lot about the need to encourage entrepreneurial activity in rural communities. Many leading researchers in the rural development field have expressed this need, and as policymakers and rural development practitioners strive to develop strategies to sustain rural economies, increasing entrepreneurship has risen to the top of the list.

Defining entrepreneurship is not an easy task. To some, entrepreneurship means primarily innovation, to others it means risk-taking? to others a market stabilizing force and to others still it means starting, owning and managing a small business. Entrepreneur is 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).

1 Introduction & Concept of Entrepreneurship:

Principles of rural entrepreneurship:

Rural entrepreneurship should not only set up enterprises in rural areas but should be also using rural produce as raw material and employing rural people in their production processes. Rural entrepreneurship is, in essence, that entrepreneurship which ensures value addition to rural resources in rural areas engaging largely rural human resources. In other words, this means that

finished products are produced in rural areas out of resources obtained in rural areas by largely rural people.

The basic principles of entrepreneur which applied tothe rural development are:

• Optimum utilization of local resources in entrepreneurial venture by rural population
• Better distributions of the farm produce resulting in the rural prosperity
• Entrepreneurial occupation rural population to reduce discrimination and providing alternative occupations as against the rural migration.
• To activate such system to provide basic ‘6 m’- manpower, money , material, machinery, management and market to the rural population.

For example, in a speech at the Minnesota Rural Summit in July, 2000, Mark Drabenstott of the Federal Reserve Bank of Kansas City’s Center for the Study of Rural America included energizing entrepreneurs as one of his primary strategies for revitalizing rural economies. The Kauffman Center for Entrepreneurial Leadership (Kauffman Center), a research center housed in the Ewing Marion Kauffman Foundation, has led numerous discussions about rural entrepreneurship across the country.

2. Objectives of the study :

The specific objectives of the study are:

1. To study dynamic perspective of rural entrepreneurship.
2. To suggest practical suggestions for development of rural entrepreneur.
3. To study entrepreneurship development.
4. To study Emerging Strategy
5. To study rural development

3. Research Methodology :

The research paper is conceptual in nature. In order to develop basic insight regarding the concept, the researcher has made use of secondary data. The researcher has referred books, journals, magazines, and newspapers in addition to visits to various websites. The earlier researchers study in the area of rural marketing has led to the conceptualization of this research.

This research paper is supported by case studies mainly highlighting the optimistic picture rural entrepreneurship in India.

4. Significance of Rural Entrepreneurship :

Over 5 decades of independence of India and even after industrialization, the agricultural sector till continue to be the backbone of our economy and our society too. Other core feature of the agricultural workforce is that their share in total workforce of the country is about 70 percent. One of the negative results the agriculture workforce is that this sector is overcrowded as far as employment is concerned. Again the continuous increase in population is definitely obscurity to the rural development. Whereas urban migrations of the farm-workers also have negative impact like unemployment problem and increased numbers of population below poverty line. Entrepreneurship in rural areas is finding a unique blend of resources, either inside or outside of

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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. Moreover 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.

Thus the rural entrepreneurship is a vital for rural economic development. There are several reasons for the increasing interest in entrepreneurship especially in rural regions and communities. ¨  The rural entrepreneurs play important role in driving local and national economies. The structure of rural economies is essentially composed of small enterprises, which are responsible for most of the job growth and the innovation. Moreover, small businesses represent an appropriate scale of activity for most rural economies. ¨Traditional approaches to recruitment and retention are just not working for most places, and states are looking for viable alternatives which mainly include entrepreneurship. Rural entrepreneurs have successfully diversified into or started new businesses in markets as diverse as agri-food, crafts, recycling, leisure and health.

According to researchers, while rural communities need entrepreneurs in order to revitalize their economies, entrepreneurs are dependent on the community for access to capital and other professional services. Entrepreneurs and communities are interdependent; the challenge for both lies in their ability to recognize the other’s unique needs.

This article seeks to answer some basic questions about entrepreneurship in rural America. Why is entrepreneurship an attractive development strategy in rural communities? What do entrepreneurs and communities need from each other? And what are the challenges that entrepreneurs face in rural communities?

In addition to exploring these questions, the article looks at how rural communities in one state in the Ninth Federal Reserve District-Minnesota-are addressing these challenges. As we focus on a few examples, it is important to remember that rural communities are diverse, and a one-size-fits-all approach to rural entrepreneurship will not work. Each community has to develop its own specific strategies for encouraging entrepreneurial success. This article is an attempt to provide a framework for devising such strategies.

5. Theoretical-baground

5.1 Entrepreneurship development (ED):

It refers to the process of enhancing entrepreneurial skills and knowledge through structured training and institution-building programmes. ED aims to enlarge the base of entrepreneurs in order to hasten the pace at which new ventures are created. This accelerates employment generation and economic development. Entrepreneurship development focuses on the individual who wishes to start or expand a business. Small and medium enterprise (SME) development, on the other hand, focuses on developing the enterprise, whether or not it employs or is led by individuals who can be considered entrepreneurial. Furthermore, entrepreneurship development concentrates more on growth potential and innovation than SME development does. However, many of the lessons learned from experiences in both types of development are similar. This note on entrepreneurship development complements reviews of evaluation-based lessons that appear in two other issues of Essentials: one on small and medium enterprise development (no. 1), the other on microfinance

5.2 Why entrepreneurship?

Simply put, many rural communities are struggling. The changes in rural economies are well documented and will not be discussed at length here. In brief, many rural communities have seen industries such as agriculture, mining and lumber stagnate or decline, and the resulting economic downturns have led to “brain drain.” Talented young residents have left rural areas in search of better economic opportunities, which presents unique challenges to companies that rely on a highly skilled workforce. The result is that in the 1990s, only 4 out of 10 rural counties kept up with the positive national economic trends.

As rural economies change, new strategies for sustaining rural communities, such as encouraging entrepreneurship, must be explored. Entrepreneurship has the potential to boost local economies by tapping local talent and resources and to help keep rural populations from declining even further. Through entrepreneurial growth, rural economies can diversify and become less dependent on the economic pendulum swings affecting agriculture and other rural industries. In short, entrepreneurs can ensure that rural communities will survive.

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.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.

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.

5.3 What is entrepreneurship?

Entrepreneurship has always been an important part of America’s economic tradition. Generally speaking, entrepreneurship refers to the creation or expansion of new businesses and industries, often by individuals who perceive a new market niche or opportunity and assume the risk of the venture.

Entrepreneurship is an attractive community and economic development tool for a host of reasons. According to Jay Kayne, vice president of community and policy for the Kauffman Center, the most important reason is that entrepreneurship creates wealth, not just wages. The wealth created by entrepreneurs stays in the community through reinvestment. Kayne argues that this is different from job creation, which brings wages to rural communities but does not necessarily keep corporate wealth within the boundaries of those communities. 1.

Entrepreneurship not only helps retain wealth in a community; it also retains talent. Entrepreneurs in rural areas are more likely to become community leaders and reinvest through philanthropy and volunteer work. According to the Kauffman Center, “entrepreneurial behavior generates many outcomes including stronger civic leadership, better students, more productive workers, and enterprise creators.” 2.

In addition to the economic benefits of entrepreneurship, there are intangible benefits that can boost a community’s spirit. As rural communities experience economic decline, their sense of security, optimism and community pride may wane. A culture of entrepreneurship has great potential to lift those spirits. According to Raymond W. Smilor of the Kauffman Center, in a paper titled “Entrepreneurship and Community Development,” this is where entrepreneurship has some real community development potential. Smilor argues that entrepreneurs are ultimate optimists and that their optimism is a “remarkably potent resource for building community.”3.

Improving a community’s spirit can lead to other benefits. A community with a strong spirit and an entrepreneurial environment is likely to have the potential to create organizations focused on better health care, childcare and other social services. In fact, the Kauffman Center has introduced the idea of social entrepreneurs, or people who use their entrepreneurial spirit to start organizations that focus on community development.

5.4 What do entrepreneurs need?

Before communities can realize the benefits of entrepreneurship, they must foster an entrepreneur-friendly environment. One of the Kauffman Center’s most important findings is that entrepreneurship cannot succeed without community support. While it is true that entrepreneurship fundamentally relies on individuals to be creative and take risks, community support is a cornerstone for success.

According to Smilor, there are four factors in the entrepreneurial process. At each step of the way, communities can contribute something to help create a supportive culture. The factors identified by Smilor are:

Talent,which belongs to individuals who “recognize market opportunities and then create organizations to take advantage of these opportunities”; opportunity,defined as the ability to fill a need in the community; capital,the financial resources to fill such a need; and know-how,or the opportunity to network in order to gain expertise and technical knowledge. 4.

These four factors apply to entrepreneurship in a general sense. The question to consider here is, do these factors transfer to rural communities? In the late 1990s, after scanning the entrepreneurial landscape and finding that there was very little research and information about entrepreneurship in rural communities, the Kauffman Center sought to answer this question.

In order to learn more, the Kauffman Center developed the Rural Entrepreneurship Initiative (REI), a research project to evaluate entrepreneurship in rural America. REI identified four Discovery States: Maine, Minnesota, Missouri and West Virginia. Leaders from rural communities in these four states gathered to discuss challenges and opportunities for entrepreneurs in their communities. These conversations have helped to increase understanding of how communities can achieve entrepreneurial economies.

An important outcome from the Discovery State discussions is a list of the challenges that entrepreneurs face in rural communities. The challenges, stated by Kayne, include:

A culture that does not support entrepreneurship. A supportive culture is vital for encouraging entrepreneurs. Without an environment that values innovation, entrepreneurs will become discouraged. Rural communities do value hard work and individualism, but can be skeptical of the changes and risks that entrepreneurs introduce into their communities.

Distance to market and services. Rural communities are isolated geographically from hubs that harbor large populations and provide services necessary to run a successful business. Technology is making it easier to meet this challenge, but it is still an obstacle for many entrepreneurs.

Gap in capital availability. Most of the capital available for small businesses and entrepreneurs is located in metropolitan areas. Not only are entrepreneurs geographically distant from sources of capital, but the distance to market and services may make investing in their ideas seem unattractive to outside investors.

Threshold of demand to justify location of support services. This challenge is similar to the second and third challenges listed above in that the smaller populations in rural areas make it difficult to access the services entrepreneurs need in order to succeed. For example, high-speed Internet access may not be available in a small town of 500 because the population is not large enough to support the service.

Absence of other entrepreneurs. One of the most important aspects of entrepreneurship is learning from others who are encountering similar obstacles. The importance of networking cannot be stressed enough. From a technical standpoint, networking may lead entrepreneurs to resources they did not know were available. Networking can also offer entrepreneurs encouragement to continue their work, encouragement that may be especially important in a culture that does not value entrepreneurial activity.

Absence of industry clusters. Industry clusters provide a source of competition and support. While these two elements seem to oppose one another, they both bolster the efficiency of businesses. Businesses clustered in the same region and industry compete, which fosters creativity and innovation. At the same time, the companies create opportunities for networking and resource sharing. Rural communities rarely encompass industry clusters and therefore cannot benefit from the resources they provide.

Returning to the four entrepreneurial factors that Smilor outlined, it appears that at each step in the entrepreneurial process, individuals in rural communities encounter many challenges. Talent may not be encouraged, isolation and distance to markets may limit viable business opportunities, capital may be scarce and opportunities to build business know-how may be insufficient or difficult to pursue.

5.5 The Minnesota experience

The Minnesota Rural Partners Academy

Minnesota is the only state in the Ninth Federal Reserve District to serve as an initial Discovery State for the REI. Minnesota Rural Partners (MRP), the state’s rural development council, coordinated Minnesota’s involvement with the REI. MRP organized the development of the Minnesota Rural Partners Academy (the Academy), made up of entrepreneurs, venture capitalists, government officials and economic development professionals. MRP facilitated the Academy’s discussions, and each sector represented in the group brought a unique perspective to the process.

After examining REI’s list of the challenges facing rural entrepreneurs, the Academy developed possible solutions in four key areas: technical assistance, physical infrastructure, culture and education, and capital. The proposed solutions, listed below, were designed to serve as a starting point for communities that wish to attract entrepreneurs.

Technical Assistance. The Academy recommends that technical assistance be provided at the community and the individual level in order to expand entrepreneurship in rural Minnesota. Communities need to assess and plan to strategically encourage entrepreneurship, and individual technical assistance is needed to help entrepreneurs network with one another and access other critical resources.

A number of curricula and programs are available to teach entrepreneurial skills such as business planning. The Academy suggests making these programs widely available in rural Minnesota, targeting them to a variety of age groups and tapping the potential of the new immigrants that have moved to many rural communities in the state.

Infrastructure. Good transport systems and telecommunications are essential to the operations of any business. The Academy recommends strengthening rural infrastructure to make rural communities more business-friendly and more attractive to entrepreneurs. Entrepreneurs are more likely to stay in their rural community to start their business if they feel that their business will have access to the appropriate technology. Suitable infrastructure stretches beyond their business sense to other issues: will their children have good schools to attend? And is there affordable housing available to them and to their workers?

Capital. As it is nationwide, the capital flow in Minnesota is primarily in urban centers. Rural Minnesotans do not have the same access to venture capital and seed money as their metropolitan counterparts. In order to open the capital pipeline to rural Minnesota, the Academy suggests expanding capital opportunities along each “rung” of a firm’s capital “ladder.” According to the Academy, a company is on its first rung when it is starting out, and seed capital is critical. On the second rung of the ladder, businesses may need assistance with operating expenses. The third rung on the ladder is venture capital. At this point, companies may require millions of dollars in investment.

As an outcome of the Academy, leaders at MRP developed the Virtual Entrepreneur Network (VEN). This program aims to provide technical assistance to entrepreneurs in rural Minnesota. The VEN will help link entrepreneurs with financial and technical assistance in their region and connect them with other entrepreneurs. A second goal of the project is to build demand for telecommunications infrastructure in rural areas.

5.6 The Northeast Entrepreneur Fund

Northeast Minnesota has had little entrepreneurial history. Its residents traditionally worked for the mining industry, which is in decline. The Northeast Entrepreneur Fund, Inc., (NEF) was founded in 1989 in order to revitalize the local economy and teach residents of the community how to realize their dreams of entrepreneurship.

The mission of NEF is to develop the potential of the people who already reside in Northeast Minnesota. Since its founding, NEF has helped 550 businesses to start, stabilize or expand, creating 1,100 jobs in the area. NEF provides entrepreneurs with training, technical assistance and loans as small as $100 and as large as $100,000. According to NEF President Mary Mathews, the organization’s customers include newspapers, childcare facilities, small crafts manufacturers, restaurants and graphic design companies. The people who access the fund are typically unemployed or underemployed residents.

5.7 Lakes Venture Group

Centrally located in Alexandria, Minnesota, Lakes Venture Group (LVG) provides equity capital to companies located in rural Minnesota. It is a limited partnership consisting of 17 individuals. LVG focuses on start-up or early development companies and provides not only the necessary capital for these firms, but also management expertise. This angel network helps to fill the venture capital void in rural Minnesota and provides a networking tool to help entrepreneurs feel less isolated through the support of other entrepreneurs’ expertise. LVG also partners with nonprofit organizations such as Minnesota Investment Network Corporation, or MIN-Corp, an equity investor in the firm. LVG has helped seven companies during its first four years of operation.

5.8 A foundation for the future

The organizations profiled above have chosen different approaches for increasing entrepreneurship in their communities. The Academy has chosen to encourage entrepreneurs by discussing entrepreneurship needs in rural Minnesota and identifying possible solutions that are specific to the state. One outgrowth of the Academy, the VEN, will act as a coordinator, connecting entrepreneurs with assistance and advice. For NEF and LVG, a hands-on approach is preferred. The two organizations work directly with entrepreneurs to provide technical assistance, training and capital.

Although their focus is limited to Minnesota and their approaches differ, these organizations can serve as sources of information for individuals who wish to develop programs to help rural entrepreneurs in other communities. In a similar way, the research discussed in this article can serve as a foundation for individuals who may be considering entrepreneurship’s potential to transform rural communities. In light of the economic changes in rural America, understanding entrepreneurship, with all of its benefits and challenges, may be a first step in securing a bright future for the nation’s rural communities.

6. Dynamic perspectives of rural entrepreneurship :

Case Studies:

The project Shakti started in 2005 widened its scope to 45,000 entrepreneurs coving 3 million homes in 1,00,000 villages in 15 states in India. It is women’s self help groups which have direct-to-consumer sales distributors for Hindustan Lever’s soaps and shampoo. The company provides training in selling; commercial knowledge and bookkeeping to help them become micro- entrepreneurs with monthly net profit 700-1000 rupees per person per month. Actual it is a story of Rojamma from Andhra Pradesh. MDM combines financial products, business development services and the formation of new social networks to help rural women entrepreneurs succeed. It has enabled more than 62,0000 women to build assets, own property, forge market linkages and emerge as key devel