[ Summary ]
Analysing an area’s economic competitiveness
Human resources and vocational skills on the one hand, and financial
resources on the other, constitute the two key factors of economic
How are such resources transformed into businesses (in the broad
sense, i.e. self-employed craftsmen and micro-businesses, large
enterprises and farms, etc.)? What is the creation and failure rate
of such businesses?
Businesses that are well established in the area and are actually
controlled by local players are central to an area’s economic
competitiveness. To what extent, therefore, do players from outside
the area with interests other than local development control such
businesses? Have there been any sudden, unforeseen departures, which
represent considerable losses for the area and are likely to cause
destabilisation (unemployment, loss of key skills, etc.)?
How is it possible to find out more about the area’s businesses and
to gauge their performance in order to ensure long-term economic
competitiveness? This requires answers to a number of questions:
- How are such businesses distributed in terms of size,
geographic situation, etc.?
- How do they operate?
- How can one evaluate their support structures and the
institutional and legal environment in which they are evolving?
- What are the values underpinning the behaviour of local
entrepreneurs towards the area?
a) Existing assets
How can the businesses operating in the area be characterised? How
is it possible to gauge the density of the business fabric, the
relative importance of the different sectors, the number of small
businesses compared with large enterprises, etc.?
Statistical data provide an initial source of key information and
certain indicators can provide a number of avenues to guide the
analysis. For instance:
- the business creation and failure rate indicates the degree of
business stability. The aim will therefore be to identify, in line
with the age of businesses, which are the sectors with stable
businesses that are controlled by local players;
- the distribution of businesses according to size (not only in
terms of the number of workers, but also their capital, turnover,
etc.) is also a key indicator;
- the area can be characterised by comparing the number of
businesses with the number of employees: ratio between large
enterprises and SMEs, density of the business fabric, etc.;
- the breakdown of employees by sector is a good indicator of
the relative importance of each sector. What, for instance, is the
relative importance of farms and agri-food processing firms compared
with craft, industrial and service firms? Such a breakdown could be
compared with the distribution of gross product or turnover between
sectors, if such data is available;
- a breakdown by the sex, age and origin of entrepreneurs is
also an important variable that should be taken into account. Have
any businesses been developed by women? In which sectors? What
proportion are young entrepreneurs? Have any businesses been created
by people returning to their home area after having moved away? The
age of entrepreneurs (how many are aged 55 and over?) and their
succession problems are also a key indicator of the probable future
development of local businesses in terms of their continuity or
It is well worth cross-tabulating these various indicators in order
to ascertain which are the most dynamic sectors in terms of business
creation and stability, what the distribution is by size in each
This allows the area to be generally characterised in economic terms
and then compared with the typology presented at the start of this
publication. In order to position the area more accurately, this
initial “spadework” can be supplemented by more detailed statistical
analyses or a few well-targeted surveys. For example, in the
agricultural sector, the number of workers compared with the surface
area under cultivation may provide a good indicator as to how
intensive or extensive local farming is.
What is the level of specialisation or diversification in the local
economy? What is (are) the sector(s) that are likely to foster
economic competitiveness in the future? Is a revival being seen in
these sectors, in technology, quality or product presentation terms?
Is any process of restructuring under way? What are the
characteristics of new entrepreneurs (especially young people) and
what are their needs in terms of training, advisory services, etc.?
Lastly, further considerations about the location of businesses make
it possible to analyse the territorial distribution of businesses
and see whether they are concentrated in clearly defined areas. Do
the level of facilities, the siting of infrastructure and the means
of communication have an impact on business location? What other
factors help to explain any differences between the different sites
in the area in terms of business creation rates?
b) How businesses operate
The way businesses operate is eminently complex and brings into play
a large number of factors. Analysing an area’s economic
competitiveness can be limited to a few key aspects, some relating
to the external operation of businesses or between businesses
(flows, links) and others to their internal operation (internal
capabilities, internal policies).
Flows include flows of raw materials, services, end products, etc.
between the businesses in an area. This type of analysis makes it
possible to identify forms of sub-contracting and trading, which
businesses are linked directly to the market and which ones are
situated further upstream. It also makes it possible to identify
forms of dependency and the balance of power. For example, it is
often the largest enterprises that control the markets and sub-
contract part of their production to small businesses or even to
individual self-employed workers.
An analysis of the relationship of interdependency between
businesses (internal product flows: raw materials, semi-finished
products and services) makes it possible to ascertain the importance
of the links between businesses within the area itself and to
identify, for example, the local leaders in a sector, any
complementarities between large enterprises and SMEs, etc.
This will determine the choice of strategic support, as demonstrated
by the following example.
The production of traditional cakes (“polvorones”, “alfajores”,
etc.) is the chief processing business in the Sierra Sur de Sevilla
LEADER area (Andalusia, Spain). The largest firm in the sector
produces around 40% to 50% of the total volume and has a growth-
generating effect on all the area’s other producers. What is the
best course of action in this case: should support be given to the
large enterprise (e.g. for the introduction of digital controls
throughout the production chain) or, on the contrary, should support
be given to the gradual technological revitalisation of the small
firms? Under LEADER I, the LAG preferred to concentrate a large
proportion of its support on the large enterprise, so as to create a
stronger emulation impact on the sector as a whole, rather than
“scattering” its support among the smaller businesses.
Flows are themselves the expression of the various links that
entrepreneurs have developed over time: links with other businesses,
sources of information, suppliers, institutions, marketing channels,
etc. A key role is played by the links with universities and
research centres or design offices. Are there any laboratories, test
centres, quality control centres, etc., either in the area or near
at hand? To what extent do they work with local businesses? What is
the relationship between them?
In general business creators are aware how important such networks
are to the success of their initiative and seek to associate with a
number of key players. It is common, for example, for rural
businesses to include among their associates a “well-known” person,
who is based in a city or even abroad, and serves as an anchor point
for obtaining certain types of information, prospecting,
representing the firm to certain customers, etc. This local ability
to create links is an essential factor that must be taken into
account. On what is it based? What networks of acquaintances and
contacts exist? What are the limitations?
Links and flows give businesses certain special abilities, such as:
- The ability to adapt and to integrate standards, regulations
and other external requirements into their activities. What
capability do local businesses have to adapt to quality standards?
Do they find it difficult, for example, to develop traditional
products under current regulations?
- The ability to introduce and disseminate innovation and links
with technological support and research structures. How much
informal exchanging of information takes place between local
businesses? What are the formal means of cooperation between
entrepreneurs? Are there, for example, any associations of
entrepreneurs to collectively purchase and use new technologies?
Relations between businesses (sub-contracting between small local
businesses and large enterprises, for example) facilitate the
transfer of know-how and technological innovation.
Finally, in addition to this ability of businesses to link up with
one another, it is also necessary to consider the internal policies
of businesses. Do certain firms have a commercial policy of
constantly renewing their product range, for example? If so, how is
this supported locally? Are campaigns organised to promote new
products? Are there any local rewards for innovation (prizes, etc.)?
Do local entrepreneurs use services (consulting, technology
services, etc.) to update their expertise?
c) Business support
There are many different business support mechanisms, ranging from
business incubators to information or technical support structures,
innovation centres, etc. 
What business support systems are there? Are there any forms of
collective support? What deficits are there in this respect?
How is quality control carried out?
What institutional mechanisms are used to circulate information
about credit facilities, technical assistance and other forms of
support for rural businesses? How can the suitability and quality of
the services provided be evaluated?
Are there any business service organisations (public, private,
mixed) capable of stepping in?
It is impossible to determine how businesses operate, their dynamism
(or, on the contrary, a degree of latent inertia) or how much room
there is for manoeuvre in this respect, without taking into account
the values that underpin the actions of entrepreneurs and local
players in general.
The first question we might ask, for example, is what value is
accorded to business in the local area? Is business creation a
recognised value that is shared by local players? In certain rural
areas, everyone in work ultimately plans to set up their own
business after working for a few years as an employee, which can
lead to excessive fragmentation of local businesses. On the
contrary, in other areas the majority of the population is comprised
of manual workers with no tradition of business creation; such areas
generally suffer from a dearth of project promoters.
Further questions relate to traditions of cooperation, common
references regarding human resource management, labour/management
The industrial clusters of northern Italy provide a good example of
close collaboration between businesses, as well as of special social
relations within businesses themselves. However, northern Italy’s
industrial clusters have emerged from a specific cultural context
inherited from the past, which is difficult to transfer wholesale
 In 1997, the LEADER European Observatory
published a methodological guide entitled “Support
for activities in rural areas“ which describes many
different forms of possible business support.