| The Retention and Expansion of Existing Businesses |
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George W. Morse University of Minnesota DEFINITION OF RETENTION AND EXPANSION The term retention and expansion has been used in a variety of narrow contexts. Two major definitions of R&E will be discussed here. First, R&E efforts, which often focus initially on the manufacturing sector rather than on the service sector, are interpreted as economic development strategies intended to regenerate the types of economic systems that existed twenty or thirty years ago, not only to assist a vital element in the local economy, but also to help community leaders understand the structural changes that have occurred and continue to occur in their region. Manufacturing is still the leading employer in many communities despite significant restructuring in the past several years. Moreover, most manufacturers are export oriented; that is, they attract outside money to the community, which stimulates the local economy. Also, manufacturers tend to offer higher wages and employ more highly skilled employees than service businesses do. R&E programs also try to help communities better understand the structural changes within manufacturing because a well-informed community is better able to stimulate growth. Although manufacturing is declining, it is not disappearing; communities strongly tied to manufacturing need to adapt positively to its changing structure. Second, R&E efforts, which often emphasize the importance of competitiveness to economic vitality, are viewed simply as economic development strategies intended to increase firm efficiency. Communities become much more receptive to the program if R&E is promoted as a means to increase their firms' "competitiveness" by reducing costs. Although these two definitions are partially correct, they fail to convey the numerous objectives of an R&E program and the variety of ways such a program can be effective in stimulating economic development. R&E programs are all local development efforts designed to assist and encourage existing local businesses to grow. These efforts include:
Increasing Firm Efficiency Local leaders implementing an R&E program cannot directly increase a firm's efficiency (competitiveness); they can only encourage a firm to become more efficient. They do so by first identifying the firm's obstacles to greater efficiency and then by suggesting appropriate state programs or agencies or by establishing seminars that might help to remove those obstacles. Improving Public Relations Public relations is one of the most obvious and important means by which an R&E program can help stimulate business growth. Businesses want to be appreciated and respected by the community. If a community supports its business, that alone can be significant non-economic reason for a business not to relocate or close. A community, via an R&E program, helps to establish a healthy business climate by expressing its appreciation for the economic contributions made by its businesses and by maintaining open communication between businesses and local government. Improving the Community's Quality of Life There is considerable evidence that many businesses locate and remain in communities for non-economic factors. These reasons include the quality of education, recreational opportunities, housing availability, and other quality-of-life measures. An R&E program can help improve the quality of life in communities by identifying those features that are most attractive and those that need to be improved. Offering Subsidies Subsidies offered to retain or expand firms are not appealing to many local leaders and taxpayers. In some instances, however, subsidies may be a valuable development tool. From the local government and taxpayer perspective, a subsidy would be rational as long as the revenue forgone was less than the revenue gained owing to the subsidy. Retaining and Expanding State and Federal Facilities The retention and expansion of the defense industry, military bases, state prisons, and other state and federal installations is frequently a high priority in R&E programs. Developing an Early Warning Systems Developing an early warning system of plant closings, contractions, or relocations is vital to a community because it provides an opportunity for the community to prevent, or at least reduce, the negative impact of such actions. Designing Long-Term Strategy Major decisions on the directions economic development efforts should take can be facilitated by a carefully implemented strategic planning effort. The R&E program provides a means of developing a strategic plan for economic development.
An R&E visitation program is an action-oriented, strategic planning process for identifying the concerns of existing local firms, for understanding the economic outlook of the community, for setting priorities among competing local economic development programs, and for developing the potential support needed to implement these goals. The ultimate goals of the R&E business visitation program are:
Of the four, of course, retention and expansion have the greatest priority. If these goals are not met, however, the third goal gains first priority. The fourth goal may seem somewhat out of place since R&E programs focus on existing businesses. Nonetheless, the data collected and the pro-business attitude demonstrated during the program can help a community market itself to attract new industry. Click here for the CONCEPTUAL MODEL
OF THE R&E BUSINESS VISITATION PROGRAM For additional information: The Northeast
Regional Center for Rural Development "Is
It for our Community"? Business Retention and Expansion International George W. Morse is Professor Community Economics in the Department of Agricultural and Applied Economics, University of Minnesota. |
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