Rural enterprise support: evaluation report

2. Rural Business in Scotland

Key Points

This section will provide the policy background for the intervention, discuss micro-enterprise in rural areas and the challenges they face. The broader context is that the Scottish Government is committed to a ‘wellbeing economy’, emphasising that wellbeing and health are as ‘fundamental as GDP’. The Rural Business place-based support pilots were designed with the following issues in mind:

1. Rural areas have a higher proportion of micro-enterprises

2. There may be challenges with the current model of business support

3. It is difficult to measure the impacts of business support

4. Business growth is sometimes determined by the owner’s appetite or available resource

5. Conventionally defined economic growth may not be the best available metric for evaluating the delivery of business support in the context of the rural economy.

2.1 What was the Government trying to achieve?

The Scottish Government is committed to developing the rural economy in Scotland and this has been the subject of recent policy. The overall direction of travel for the Scottish Economy was outlined in ‘Scotland’s Economic Strategy’, a framework published in 2015.^[5] The strategy “…sets out our ambition to create a more cohesive and resilient economy that improves the opportunities, life chances, and wellbeing of every citizen in our country.”^[6] The key economic priorities outlined in the report are as follows:

• Investing in our people, infrastructure and assets
• To foster a culture of innovation
• To promote inclusive growth^[7]
• To enable Scotland to take advantage of international opportunities.

This 2015 strategy was relevant when the pilot was running. Further information in the Economic Action Plan 2019 gives additional focus placed on resilience and recovery from the uncertainty of Brexit.^[8] The primary goals outlined in the strategy are as follows:

• Realising the climate enterprise opportunity
• Transforming our support for business
• Developing the right skills
• Importance of every place in Scotland
• Investing in infrastructure and transport
• Team Scotland
• Tackling child poverty
• Ensuring everybody lives in high quality, sustainable, affordable homes
• Building a global economy
• Scottish National Investment Bank
• Unlocking entrepreneurship

In this context, supporting the economic development of rural Scotland, with its specific dynamics and challenges, has been a priority. In September 2018, the National Council of Rural Advisers published their final recommendations to Scottish Ministers, outlining measures to streamline rural economy priorities.^[9] As Scottish Government’s policy work indicates, rural economic development is a high priority.

It should also be emphasised that conventionally defined Gross Value Added (GVA)^[10] growth may not be the only variable under consideration. The Scottish Government have emphasised, in various forums, the critical role of inclusive, sustainable economic growth and ‘wellbeing’ in the economy, which is regarded ‘as fundamental’ as GDP when measuring growth.^[11] From this perspective, the maintenance and development of a vibrant rural business sector, and its contribution to wellbeing, should be regarded as an important factor.

In 2018 the Economic Action Plan 2019-2020^[12] set out a number of measures specifically designed to support rural businesses and drive positive outcomes for people and communities.^[13] The Scottish Government’s Programme for Scotland 2019-20 observed that between 2015 and 2018, over £119 million has been invested in nearly 1,500 community-based or micro-enterprise projects in the rural economy.^[14] As part of this government programme, Scottish Government also committed to piloting an integrated place based approach to business support:

“This year, we will test a place-based approach to integrated business support for micro-enterprises operating in rural areas, recognising the different challenges they face such as access to markets, connectivity issues and employment patterns. The new approach will deliver flexible support that is tailored to the needs of the business and its geographical location.”^[15]

2.2 Challenges of available business support

Business support in Scotland is largely delivered through a range of providers, including Highlands and Islands Enterprise, Scottish Enterprise, South of Scotland Enterprise (and its predecessor, the South of Scotland Economic Partnership) and Business Gateway, the latter of which is commissioned by local authorities. In October 2018, the Economy, Energy and Fair Work Committee reported on a survey they had undertaken for the Scottish Parliament as part of a Business Support Inquiry.^[16] This observed a range of challenges facing rural businesses, including a lack of outreach to their areas, a lack of focus beyond agriculture and tourism, and a lack of networking opportunities. This resulted in feelings of isolation, and views that it was time consuming and expensive to access the support, particularly for islanders. Key gaps identified included the need for accessible business hubs in rural areas, as well as specific funding for rural small and medium sized enterprises and a lack of recognition of different needs of urban and rural businesses. Key areas of potential improvement included better awareness and signposting of business support, a desire for more ‘practical’ and ‘one-to-one’ support, and specific engagement with rural businesses.

Additional evidence shows a combination of challenges facing rural businesses, which include but are not limited to a lack of advice. In 2018/19 the Rural Business Survey (RBS)^[17] – funded by Scottish Government and carried out by Scotland’s Rural College – surveyed 1,203 businesses in Aberdeenshire, Dumfries & Galloway, the Scottish Borders and Tayside. This pointed to a range of issues facing rural businesses: for 45% of businesses, poor digital infrastructure and connectivity were keys issues,^[18] with 21% defining it as a major concern (and 24% identifying it as minor). Staff recruitment comes second – with 43% seeing it as a concern, with cash-flow the third most pressing concern.

Concerning the need for advice specifically, while only 5% of respondents to the RBS regarded a lack of access to business advice as a major problem, a further 20% reported it as a minor concern.^[19] While it was the lowest ranked constraint, this is nonetheless substantial, and 36% of the respondents thought that business specific advice, delivered one to one, would be helpful, with comparable percentages regarding other forms of advice as potentially helpful. Use of advice was measured in the Small Business Survey, 2019, produced by Scottish Government.^[20] According to this data, 30% of rural businesses have sought advice in the last twelve months (compared to 25% of urban businesses). Of these, 21% had sought advice from a business consultant.

2.3 The role of micro-businesses in rural Scotland

A micro-business can be defined as a business employing between zero and nine employees. In 2020, counting only registered businesses, there are 179,460 businesses in Scotland, of which 156,180 are micro-enterprises (or 87% of the total). In rural areas, micro-enterprises represent a larger percentage of the business base than in urban areas: while 13% of those employed in the rest of Scotland work for employers with 0-9 employees, this is the case for 29% of people in accessible rural areas and 36% of people in remote rural areas (see Figure 1).^[21] Remote rural and accessible rural areas also have higher levels of self-employment. In 2019, 23% and 17% people in remote and accessible rural areas respectively are self-employed, as opposed to 11% people of non-rural areas.

Source: Rural Scotland Key Facts 2021

There is little research on rural enterprises and micro-enterprises generally. A systematic literature review,^[22] published in 2016, analysed 59 pieces of literature to demonstrate the key distinguishing factors between micro businesses and typical small enterprises (10-49 employees). The report observes that only approximately 22-25% of micro businesses were growth oriented, with only a small fraction intending to increase in time. To quote from this paper directly:

“The studies highlight that the majority of micro-businesses tend to be lifestyle businesses, very few OMEs [owner-manager entrepreneurs] having the ambition to grow the business beyond a personal target income level.”^[23]

As the existing business support landscape appears to be more geared towards supporting businesses which prioritise growth, the evidence that micro-enterprises may be less growth orientated matters. As current assumptions underpinning the purpose of business support around jobs or growth, may be inappropriate when the goal of the business is not growth,^[24] and evaluating those businesses on growth may underestimate the important role these business play.

2.4 How should support be evaluated?

Evaluating business support initiatives is challenging and evidence on the effectiveness of business support is mixed.^[25] In a review of business advice The What Works Centre for Local Economic Growth found 23 suitable evaluations, of which 14 found positive programme impacts on a least one business outcome, while five found advice didn’t work and the remaining studies reported mixed findings on different outcomes. In general, they note that advice programmes tend to show better results for sales, compared to employment and productivity, but results are mixed. Overall, it was observed that “…it is difficult to reach any strong conclusions on the link between specific programme features and better firm outcomes.”^[26] More broadly, Nesta, the innovation foundation, have characterised the literature on entrepreneurial support as challenging, given the complexity involved in undertaking this evaluation and the variety of factors/time-lags involved. They further found that many recent policy developments in this area have not been evaluated.^[27]

2.5 Conclusion

This section has outlined the following points:

• The Scottish Government has prioritised piloting an integrated, place based approach to business support for rural areas. Rural businesses confront a range of challenges including digital infrastructure, although advice needs remain prominent.
• Business statistics indicate that rural areas are characterised by high levels of micro-enterprises and comparatively high rates of self-employment. Academic research cited above indicates that growth may not be their primary priority. Nonetheless, support which contributes to their founding and continued development is likely to have a range of benefits to rural areas.
• Policy related research, cited above, indicates that measuring the impact of business support is challenging, and developing mechanisms for evaluating these forms of support will be an important priority going forward.