The dominant thinking is that for entrepreneurship to thrive, a large population is useful as it allows not only a diverse population to bat ideas back and forth between each other, but provides a good-sized local market with which to sell to.
As a new paper from INSEAD highlights, there are also crucial infrastructure differences for urban and rural entrepreneurs. The research explores how platforms, which ostensibly equalize the playing field for urban and rural entrepreneurs, nonetheless produce very different outcomes.
Access to information
The key to the discrepancy is the access to information across both forms of entrepreneur, with urban entrepreneurs seemingly having access to offline sources of information that give them a clear and lasting advantage.
The authors highlight how many entrepreneurs begin life on digital platforms either selling excess stock from local factories or making their own products. This is particularly common on platforms in Southeast Asia. Alas, some of the major platforms have been encouraging entrepreneurs to specialize in a single product category, with sellers becoming experts in their particular field. Algorithms were modified to favor sellers who operated in this way.
This change resulted in rural entrepreneurs gradually falling behind their urban peers by a significant 24% margin. Even when they eventually cottoned on to the preferences of the platform, they still lagged behind.
What’s more, even among the urban entrepreneurs, the best performers were those located closest to the headquarters of the platform itself. They were quickly able to absorb the relevant information not only from the platform but from the entrepreneurs in their vicinity.
Leveling the playing field
Suffice to say, rural entrepreneurs are not somehow inferior to their urban peers, but information asymmetry creates a divergence in outcomes. Various initiatives exist to try and resolve first-order inequalities between urban and rural communities, with a particular focus on internet access.
Despite platforms ostensibly removing geography as a factor in entrepreneurial success, however, the study is a timely reminder that geography still matters. This is especially so as while there has been a significant shift towards urban living in recent decades, there are still 3.4 billion rural dwellers around the world, which represents a significant entrepreneurial talent pool.
A new initiative has been launched in Europe to help support rural entrepreneurs. ReInA (Rural European Innovation Area) aims to provide resources, attract investment, support startups, and ultimately create employment in rural communities.
The organizers argue that rural communities were particularly hit by the financial crisis, with the technology that has underpinned the general economic recovery often leaving rural communities behind. This, coupled with a decline in rural entrepreneurship is creating an innovation gap between urban and rural areas.
“Strong innovation ecosystems that bring together smart villages, startup villages, Local Action Groups, and public and private players are the only opportunity to allow the rural communities to thrive again. Innovation ecosystems can provide highly skilled jobs in technology areas and a new future for the rural communities,” they say. “The development of rural innovation ecosystems will allow rural communities to benefit from the third wave (IT and biotech startups) and fourth wave (deep-tech startups) of innovation creating high quality jobs in rural areas.”
The initiative, which was launched by the European Commissioner for Innovation, Research, Culture, Education and Youth, Ms. Mariya Gabriel and Startup OLÉ, aims to bring relevant actors from the innovation and entrepreneurship ecosystem, such as investment funds, corporations, public institutions, local governments, county councils and universities, together with startups, innovative SMEs, local action groups and all kinds of rural platforms.
The ultimate goal is to generate a greater number of projects and synergies that generate wealth in rural areas in order to promote job creation, reverse depopulation, ensuring a better quality of life and services for the inhabitants of these areas.
