Regional Business Support
– Appropriate or Outdated?
Growth Analysis has analysed whether the current state-funded regional business support is appropriately designed. The business support included in the report comprises State-Funded Support for Regional Investments, State-Funded Support for Regional SMEs and State-Funded Support for Research, Development and Innovation. As of 1 May 2015, new regulations have replaced the previous business support regulations Regional Investment Support, Regional Grants for Business Development and State-Funded Support for Research, Development and Innovation (Regional Seedbed Funding).
Growth Analysis sees no clear need to amend the recently revised
business support regulations. On the other hand, there may be reason to follow-up this review in two to three years once the new regulations have had time to be applied practically in the provision of support.
State-funded regional business support constitutes an important tool in regional growth policy. Swedish business support has looked largely the same since at least the beginning of the 1970s. This means it was devised and introduced at a time when trade and industry looked different to today. In the beginning of the 1970s, a great deal of faith was placed in regional development through an expanding manufacturing industry. Today we see a trend where increased employment comes chiefly from expanding service industries while the manufacturing industry continues to rationalize its operations, which leads to increased productivity with fewer employees. Thus the question is whether regional business support is suitably designed to contribute to the goal of a greater number of competitive companies and increased regional growth.
Implementation and results
Growth Analysis carried out the analysis by working with three analytical questions: does the support meet policy goals and focus; does the support meet company needs, and is the support appropriately designed? Material from three different sources was used to find answers to the questions, namely a literature review, company interviews and a survey of regional support administrators.
The literature review comprised research, the existing investigation reports that highlight business experience and the need for state-funded financial support. The review indicates that business support reduces a company's own risk-taking and enables investments that otherwise would not be made. It also indicates that support allows investments to be considered earlier than they otherwise would be, and in some cases also larger than they would be based solely on the company's own resources. In respect of the second conclusion, the empirical evidence is not unequivocal. In general, the literature review indicates a trend over the years wherein the availability of skills is becoming an increasingly important condition for growth. Initiatives that seek to reinforce crucial skills are often also appreciated by companies and act as leverage for company growth.
Interviews were also conducted with around 40 entrepreneurs. The purpose of the interviews was to get a picture based on company perspectives concerning how companies regard current support. The interviews revealed that companies highlight investments in new equipment, premises, buildings and installations as being the most important factors for achieving their growth ambitions. At the same time, they also revealed that the most important factors for company growth in the long term are improved skills, the availability of qualified labour and access to capital.
When companies were asked what support should comprise, they sought above all increased opportunities for support for soft investments. In this respect, concrete initiatives for market development, export credit, customer activities and the development of customer relations are further examples that recur frequently in the business responses. At the same time, it became clear that complementarity between various types of support is also sought, i.e. that an opportunity be provided to link skills and marketing initiatives to investments made in equipment or installations. The combination of different forms of support is interesting in this regard.
Lastly, Growth Analysis carried out a survey aimed at regional business support administrators. Based on the responses from support administrators, we can see that they generally consider the regulations to work well from the standpoint of providing support. The latest revised regulations are also generally perceived to be improvements. Some of the opinions put forward concerned levels of support and the state budget allocation to the regions, and where the demarcation should be when regional investment support is handled at the regional or national level. Many regions and counties need more guidance from the Swedish Agency for Economic and Regional Growth e.g. in respect of how issues concerning competition linked to operations in the local market should be interpreted. In general, no clear proposals were made by the regional support administrators for major changes or alternative forms of support.
Growth Analysis feels there is no reason to change the formulation of the business support regulations. However, there is every reason to observe how the support regulations are applied in the provision of support. In a longer perspective, there is reason to try to widen the scope of support to enable it to contribute to structural transformation and the emergence of new growth industries. In practical terms, this would mean that a larger proportion of business support would be provided to industries other than manufacturing, and that a greater proportion of the support would be invested in soft initiatives with the aim of raising company skills levels.
An earlier evaluation of RIS also revealed that support fills an important function in respect of hard investments, which are largely provided to the manufacturing industry. Accordingly, Growth Analysis considers the matter not to be about discontinuing support to investments of this type, but rather about attempting to direct support to an increasing extent to new growth industries and skills enhancement initiatives in companies.
One picture that emerged during the analysis shows the relatively limited availability of good quality impact evaluations despite the government’s work with selective business support over many years. Consequently, there is a need for further impact evaluations in this area. Despite the great complexity involved in evaluating the impact of business support, it is also important to continue to develop methods – with complementary methodological initiatives – in order allow more accurate conclusions to be drawn concerning the effects of support.
It may also be interesting to collate what we know about the effects of various kinds of regional policy initiatives based on evaluations and experience. For example, what do we know about the effects and cost-effectiveness of more broadly applied business support initiatives compared to selective support? There may be interesting aspects for further study here, e.g. through comparative country studies using different kinds of regional policy tools.