- Email: [email protected]
Business strategies of rural shops in a peripheral region
Jour~~~lo~~li~al Studies, Vol. 8, No. 2, pp. 185-192, Printed in Great Britain
1992
0743-0167192 $5.00 + 0.00 Pergamon Press Ltd
Business Strategies of Rural Shops in a Peripheral Region Heikki Jussila,* Esko Lotvonent Markku Tykkyl~in~n~
and
“Research Institute of Northern Finland, University of Oulu, SF-90570 Oulu. Finland; “i Provincial Administration of Lapland, SF-96100 Rovaniemi, Finland: $Department of Geography and Regional Planning, University of Joensuu, P.O. Box Ill, SF-80101 Joensuu, Finland
Abstract - Different business strategies for rural shops in Lapland, the northernmost province of Finland, are presented in an effort to analyze the effects of the functional environs and personal choices of a shopkeeper on the operation of his shop. The model observed in the rural periphery consists of choices made by an entrepreneur to adjust his retailing business to gradual changes in demand linked with local socio-economic development. Three business strategies are identified and discussed: expansion, adaptation and diversification.
Introduction The economic development of a region is determined by its past structure and development, policy measures, changes in demand and resources (Tykkylainen, 1988). Rural retail shops react to changes in the basic sectors of the local economy and to developments of the countryside in general. Due to the primary sector decline, rural shops have a declining number of customers, at least in the Nordic countryside. At the same time, increasing mobility, changes in consumer behaviour and the need to increase the incomes of shopkeepers influence retail trading. In order to maintain or increase a shopkeeper’s income, the market should be enlarged (Berry, 1967; Smith, 19X1), but in a market area of decreasing population the implication of this is a decreasing number of shops. A functionalist or ecological approach to competition emphasizes the choices that the individual shopkeeper makes in a dynamic environment in order to survive (Home, 1989; Kivell and Shaw, 1980, pp. 118-120). Due to the dissimilar solutions reached by shopkeepers, however, their reactions to market changes seem to be more diverse than the theory of economic rationale would predict. The decisions made by an entrepreneur consist of numerous behavioural elements which reflect his personal reactions to the prevailing circumstances and a rational profit maximization strategy. The reactions of shopkeepers
in the rural areas of
Finland to the declining numbers of customers and increased demands for efficiency have been described as a defensive adjustment which emphasizes increasing marketing endeavours or a widening of the production and service mix (Home, 1989, p. 338). The maintenance of rural shops has been supported by regional policy, a common pattern of development in the Nordic countries, as much the same developments and reactions are perceived in the Norwegian countryside (Sjoholt, 1984). A conceptual model of behaviour can be outlined for a shopkeeper (Fig. l), comprising a response to socio-economic factors, such as the increase in income levels, urbanization and improved productivity and a response to changes in consumerrelated factors such as consumption patterns, shopping behaviour and mobility. Industry-based factors are also involved in the retail business itself: changes in wage and capital costs, in purchase, transport and inventory technology and marketing, and in competition between shops. Institutional factors in the form of legislation, regulations, regional policy support, public sector contracts etc., create opportunities or restrict business. These factors that create the environment in which a shopkeeper responds to change vary within geographical space. An empirical survey has been carried out in Lapland, a sparsely populated part of northern Finland, to see how the pressures of the factors presented in the above model influence the business
Heikki
186 CONSUMER-RELATED
SOCIO-ECONOMIC
et al.
for 1987, there was only one commune in which the proportion of the labour force engaged in the primary sector was as high as 31%. The average proportion of the service sector now exceeds 50% in both the towns and rural communes of Lapland.
UTIONAL
INDUST
Influence RESPONSE OF AN ENTREPRENEUR personal choices
Figure
Jussila
1. A conceptual
model of a rural behaviour.
shopkeeper’s
behaviour of local shops. in an attempt to demonstrate the business strategies and explain the choices of strategy within this vast peripheral region. The main method used was an analysis of questionnaires sent to shopkeepers, the data from which were combined with a detailed set of sub-area statistics. The material was analyzed by cross-tabulation and correlation analysis. The empirical details were presented earlier by Lotvonen (1990).
The Lapland area
Lapland, with an area of approx. 99,000 km’ accounts for more than one-quarter of the total land area of Finland (29.3%). The region is sparsely populated however. with a total population of about 200,000 in 1989, or 4% of that of Finland as a whole. The average population density per square kilometre is 2.2. whereas the average for the whole country is 16.2 inhabitants per square kilometre. The population of Lapland nowadays live mostly in centres, and 40% (78,000 inhabitants) live in rural areas. There are 22 administrative communes, that is, local authority districts, four of which are towns. These four. Rovaniemi, Kemi, Tornio and Kemijarvi, together contain close to half of the population (94,000 in 1988). Lapland has gone along with the economic modernization which has taken place during the last 30 years, and its general economic development in recent years has favoured activities that promote urbanization. The tourist industry has been the most popular way of stimulating new economic activity in the rural areas, while the role of primary production has declined markedly (Fig. 2). In 1960, for example, two-thirds of the communes had more than 50% of their active labour force working in primary occupations, whereas by the mid-1970s the service sector had surpassed all other activities as the main source of livelihood. According to the census figures
of growth and declining
sectors
Rural economies are in the process of restructuring, and depopulation is cutting down the opportunities for retailing. This trend has been prevailing since the 1960s in the remote peripheral communes in Finland and it is expected to continue. The expected reduction in subsidies for agricultural production, for example, will further reduce the chances of maintaining the level of population, and thus also detract from retailing and services. The proportion of declining sectors is not so high in Lapland as in many other peripheral areas in Finland. Expansion of public sector employment has been an important source of economic stability, and tourism and recreation have proved to provide a fairly permanent base for a local economic upswing, which in turn has had an effect on retailing. The opportunities for new sources of income in Lapland are largely due to the growth in public services and small industries such as tourism. Aho the employment and entre(1987) discusses preneurial programs by which several hundred new small enterprises were created in Lapland in the 1980s. These are anchored in natural resources in most cases, and associated with the natural environment, e.g. winter sports, fishing, timberconstruction, handicrafts, hotels, etc. The process of economic growth and decline influences (or rather makes its impact on) geographical patterns, and Lapland has both stagnation and growth areas. The growth areas are generated mainly by recreation activities and the basic sector in the stagnation areas consist of small units of primary production, especially family farms involved in forestry or reindeer herding. The essential aspect from the local and regional development point of view is that any new industry will at least provide an opportunity for local retailing. In theory, growth in the basic sector is important for drawing a higher level of services to a region (Berry, 1967). Rural shops in Lapland In December
1989 there were 206 privately
operated
Business
)
Agriculture and forestry
Manufacturing
Strategies
11
1
of Rural
1
Shops
187
1
I
1
1
1
/
/
1
and construction
Commerce H
Finland
Total for 1960 = 2.07 million and for 1990 = 2.46
Agriculture and forestry
n year 1960 Manufacturing
and construction Cl year Commerce
1990
Lapland
Finance and insurance
Public services-,,, 0
i 5
10 15 20 25 30 35 40 45 %
Total for 1960 = 85,500 and for 1990 = 98,000
Figure 2. Occupational
structure Lapland
of the active labour
force
in the province
of
in 1960 and 1990.
rural grocery shops located outside the centres of the 22 communes in Lapland (Fig. 3). The market areas of these were defined on the basis of sub-regions, consisting in most cases of an individual village. In those cases where the market area was indistinct the aid and knowledge of both shopkeepers involved and economic advisor’s office of the local authority were invoked. The market areas of all 206 rural shops in Lapland in 1989 were delimited in this way. The number of rural shops has declined rapidly, for in 1974 there were 433 grocery stores operating outside the commune centres in Lapland (Lotvonen, 1990). Since that time the population of the rural areas has decreased by about 15%, reflecting the general decline in development that has been taking place in the countryside of Finland during the past decades. A similar decline in the number of rural shops has been noted in Sweden (Batten and Wiberg, 1988).
Despite rural restructuring, the employment effect of retailing in the whole of Lapland has been fairly stable, that is, the number of people engaged strictly in retailing in 1990 is almost the same as it was in 1980 or 1970 (Table 1). One reason for this is the increased number of jobs in cities. Thus the decline in rural retailing has not had any substantial effect on employment in retailing in Lapland as a whole, but the closure of a rural shop inevitably reduces the accessibility of retail services (cf. Batten and Wiberg, 1988, p. 33). The average distance from a rural shop in Lapland to the centre of the commune was 38 km in 1989 (min. 4 km, max. 190 km), while the average distance to the next rural shop was 10 km (max. 99 km). In the Lake Region of Finland the average distance to the centre was 12 km (Home, 1989, p. 173). These figures reveal the potent impact of the vast geographical expanse in which these shops are located in
188
Heikki
Jussila
et al.
ssia
0
Figure 3. Location Table 1. Number
Year
Source:
persons
Number of employees in retailing (1000)
1970 1976 1978 1980 1982 1984 1986 1988 1990
Finland,
of employed
200
of rural shops in Lapland
1970-1990 and gross output (1988 monetary values) Number
1970-1986, Helsinki.
Regional
the proportion
in trade
1.1 I .o 0.9 I.1 I.0 1 .o 1.1 1.2 1.1 Accounting;
1988 and 1990, Labour
Lapland. The average age of the rural shopkeepers in Lapland in 1989 was 47 years, almost the same as that reported by Home (1989, p. 197; 45 years). Although
in 1989.
of entrepreneurs in retailing ( 1000)
5.4 6.2 5.8 6.5 6.4 6.3 6.3 6.8 5.9
of elderly
people
in the
km
Statistics.
in Lapland
in 1970-1986
Retailing (total) ( 1000)
Turnover in retailing (mill. FIM)
6.6 7.2 6.7 7.6 7.4 7.3 7.4 8.0 7.0
554.4 779.3 752.6 822.2 783.3 X40.0 950.6 n.a. n.a.
Central
Statistical
Office of
population is not high in Lapland compared with the rest of Finland, the proportion in the rural areas of Lapland is higher than in the towns. The main factor is rural depopulation, and in 54% of the market areas of the shops studied here the number of
Business
Strategies
inhabitants declined between 1980 and 1989. This decline is a threat to the life of the shops, as many of these villages or market areas already have relatively small populations. The market areas vary considerably in their economic base. Although the average proportion of primary production is about Yx, the highest in 1985 was 75%. The service sector accounts for the majority of occupations, from a minimum of only 11% of the active labour force to as high as 93%. Thus the future of rural shops will vary greatly according to developments in the basic economic sectors of the market areas. There is a distinct growth sector in the local economy, in that 75% of the shopkeepers found tourism to be significant to their business and 45% very significant. The rate of commuting is an indicator of the extension of shopping to the centres. The average rate of daily commuting in the market areas was relatively low in 1989, only 16% of the labour force, although the maximum rate was as high as 79%. Some market areas of rural shops in southern Lapland are located close to towns, while for some shops in western Lapland, the region which is suffering most, the decline is also partly due to increasing competition from Sweden. The location of a majority of the market areas in the distant periphery forms an obstacle to the formation of competitive units. Depopulation and economic restructuring, together with increased mobility and commuting, reduce the possibilities of the rural shops to increase their turnover. but tourism and recreation do offer such opportunities. More than half (56%) of the shops investigated reported a decline in turnover in real terms during a period from the beginning of 1986 to the end of 1988. A rapid growth in turnover naturally increases a shopkeeper’s will to continue, as does the emergence of a large number of sidelines. Many general trends in the retail network and market areas in this region are comparable to those observed in the rest of Finland and in Sweden and Norway. Sweden is ahead in terms of rationalization as the network of shops is already much sparser. The rural shops in the sparsely populated area, with its declining population, quite often employed in the primary sector, are now facing restructuring. The employment impact of the public sector in Lapland is considerable, but it affects only a few villages in the rural areas. The increase in the private service sector is mainly due to the growth in tourism and recreation, and it is this that is expected to have the strongest effect on retailing growth in rural Lapland
of Rural
Shops
189
in the future, although a spatially selective one. The shopkeepers’ business strategies described below are influenced by the local economic structure and the social environment in their market areas.
Current strategies
of rural shopkeeping
According to Home (1989), defensive adjustment can be carried out either by increasing sales promotion or widening the product and service mix. Based on the questionnaire material (Lotvonen, 1990), the following reactions of the shopkeepers can be outlined. A shopkeeper who continues retailing in a recessive environment has two possibilities, either to adapt to prevailing market conditions without essential structural changes or to develop additional business functions. The first choice may mean focusing on the profitable aspects of retailing, but under the conditions described above a very probable action would seem to be to give up making investments and prepare for closure. The second response typical of very remote shops is to continue business by combining retailing and other personal services, thus achieving synergetic advantages (Jussila and Tykkyhiinen, 1990). These multi-service shops have been seen in recent years as a solution to the difficulties of maintaining services in remote villages in Finland, and similar but earlier trends have prevailed in Norway (Sjoholt, 1984) and Sweden (Batten and Wiberg, 1988). The third business strategy is expansion strategy, most instances of which are to be found in the tourist centres. Of all the 206 rural shops studied in Lapland, about 40 can be classified as carrying out an expansion strategy. These showed a real turnover increase of more than 10% in 1986-1988, which exceeds the average increase in retail trade volume in Finland. Eighty shops carried out an adaptation strategy by which they reduced their retailing in response to the diminishing demand situation. This group of stores can be characterized as representing a concentration of retailing and location in the competitive sphere of nearby commune centres (Lotvonen, 1990). The remaining 90 stores were running their business according to a diversification strategy, sheltered from competition by distance (Table 2).
Diversification
strategy
Some of the rural shops have been gradually expanding their business from supplying foodstuffs and convenience goods to other activities. though usually commercial ones. Some shopkeepers have
190
Heikki
Jussila
Table 2. Strategies for rural shops, outlines Strategy
Typical region
et al. for the future and policy measures
Outlines
for the future
Expansion
Tourist
centre
Number Modern
Adaptation
Transitional, traditional small villages
Reducing
Diversification
Rural region,
New activities Multi-service shops
remote
been doing this for decades, and sidelines have been added and dropped out in the course of time. The selling of building materials, fuel. agricultural equipment and fertilizers and the buying of berries and other natural products have a long tradition in rural areas. Many traditional sidelines have not necessarily been able to keep the business profitable enough, however, and services such as the state lottery. taxi or postal services, dispensing of medicaments, sales of fishing permits, or a coffee shop or kiosk have emerged as additional possibilities. The newest of these services are the dispensing of medicaments and working as a postal agent, and home delivery services are organized by some retailers. The empirical material contains references to a total of 14 sidelines (Fig. 4). The diversification schema found in Lapland follows the pattern described by Sjiiholt (1984).
of customers retailing
Policy measures
increasing
activity
Infrastructural
Cost reductions Support Retraining Retirement Reorganization services Deregulation
decrease in the future, tations for new sidelines
while the highest expecare in the transfer of some
A correlation analysis between the number of sidelines and various factors related to the environment of the shops showed the closest associations to exist with variables describing the structure of the local economy, competition, population and location. The highest correlations were with the proportions of persons engaged in primary production (+0.46) and in the service sector (-0.38),
Taxi service Post office BankRegular home deliverySale of fishing licencesSmall pharmacyState lotteryKiosk Cafe or small restaurant Mobile shop Trade in berries and natural prcductsFuel salesConstruction materialAgricultural supplies0
20
40
60
80
loo
120 140 160
Number of shops
of various
of public
public services to the local retail shop. The postal service has now started this transfer operation. The maximum number of sidelines in one shop was 10 (Fig. .5), and shops with 4 sideline activities were the most common. The combining of activities improves opportunities for the operation of retail shops (Sjoholt, 1984). The density of shops is much lower in Sweden than in Finland. however, and if developments in Sweden are followed in Lapland, the network of shops will decrease and diversification will not provide sufficient impetus to continue (cf. Batten and Wiberg, 1988; Persson and Wiberg, 1988).
Fuel sales is the most common sideline added and it has a long tradition in the countryside. Trading with berries and other natural products is a feature peculiar to Lapland. Trade in the products demanded or supplied by the farms is predicted to
Figure 4. Frequency
investments
sidelines
in 206 rural shops in Lapland
in 1989.
Business
Strategies
45
35 30 25 20 15 IO 5 0 1
2
3
4
5
6
7
0
9
10
Number of activities
Figure 5. Numbers of sideline activities in the rural shops in Lapland
in 1989.
the distance from the centre of the commune (+ 0.33) and the number of inhabitants in the market area (-0.28) together with percentage changes in this in 1980-1986 (-0.31). The correlations with the commuting rate (-0.26) and traffic density on connecting roads (-0.18) were significant at the 1% risk level. The main conclusion to be drawn from the correlation analysis is that market areas with a high proportion of agriculture and forestry and a remote location have shops with a more diversified business composition. Shops in market areas of low population have a higher propensity to include sidelines than shops in more populous areas. The correlations, especially with number of inhabitants and changes in it, indicate that a diversification strategy may be employed to counteract the decreasing number of customers in remote areas, but it is environmental factors that make this strategy feasible in the last resort.
Evaluation
Shops
first-mentioned case gradual preparation is often substituted for the efficiency implemented in manufacturing.
Number of shops
0
of Rural
of strategies
The strategies of adaptation and diversification can be compared with those of firms in declining manufacturing industries (Hambrick and Schecter, 1983), one solution for which is to concentrate on reducing production costs (efficiency strategy) and another to pay more attention to product development and to attempt to increase their share of the market by other means (entrepreneurial strategy). In the case of diversification, the shops have adopted a new combination of activities, the role of a generalist (Zammuto and Cameron, 1985). In the
191 for closure strategy as
The future existence of a shop as an operational unit will vary according to the particular location, local economic development and the strategy followed. A favourable environment is a source of growth for a shop applying an expansion strategy. Shops that have chosen an adaptation strategy are in fact those that have not been able to find any other solution. In the case of closure, the exact time will depend on the living conditions and stage in life of the shopkeeper, although perhaps equally important are the regional and structural changes that affect the operating potential of the shop in question. Those with a diversification strategy have gained a position as service centres and many of them seem to be economically viable as a whole, even though the retailing side of the business is not always alone profitable enough to ensure survival. Concerning different areas and their future prospects, the regional policy measures needed to promote development vary. In the case of tourist centres and growth areas, the infrastructural premises needed for the expansion of business should be provided. In the areas near the commune centres, where shop closures are more probable, increasing mobility compensates the local people somewhat for the drawbacks attached to closures. In sparsely populated areas diversification does not always work and thus measures taken by the authorities and changes both in rules and in attitudes are required in order to bring about new combinations for the distribution of services. The need for policy measures of different types for rural shops is evident (Table 2). Shops with an expansion strategy need only some infrastructural investments for their activities. Meeting this need is a requirement for the local authorities. When a shopkeeper chooses the adaptation strategy and the shop is facing closure there is a need to provide individual solutions for these owners within the field of economic and social measures, for example, retraining or retirement. The Swedish case points to a rapid decline in rural shops (Batten and Wiberg, 1988), and one can expect the same to happen in Finland. The use of diversification has halted the declining process in the Norwegian situation, and one can expect that this may be the case in Finland too. One must stress, however, that diversification seems to be a viable alternative for a relatively small number of remotely located stores in the longer run. This situation has also been verified by recent Norwegian trends.
Heikki
192
Jussila
mental experiences
Conclusions Three strategies adopted by retail traders in response to a changing environment are discussed here: expansion, adaptation and diversification. Those are all spatially bound to the local circumstances and have different patterns of implementation. The vast space of Lapland has led retail shops to favour diversification more clearly than in the Lake Region of Finland. Distance protects them against competition. Implementation of these strategies is dependent not only on changes in environmental factors, but also on the personal choice of the shopkeeper. The characteristics of development as a whole in a particular market area influence his/her personal choices when choosing the appropriate strategy. The strategy adopted can be supported by financial aid or by promoting a reorganization of activities, and in some cases by early retirement. Nevertheless, the prevailing trends in the factors described in the model (Fig. 1) allow limited opportunities for creating a prosperous retail business for a great number of rural shops. The strategies presented here aim at creating more efficient solutions to the problem of retailing in rural peripheries. Pressure from the changing environment has established a necessity for finding different solutions and new level of stability for the spatial economy. A shopkeeper is a responsive actor, but still a dependent one in a changing environment, and the geography of rural retailing is a combination of the development of environmental factors and individual actions.
References Aho, S. (lY87) Local employment
et al.
initiatives
and develop-
in Finnish Lapland - the case of Ranua and Sodankyla. An Area Report for OECDiILE Working Group. Research Institute of Northern Finland, University of Oulu, Working Papers No. 42. Batten, D. and Wiberg, U. (198X) Disparities in the provision of services between urban and rural areas: current situation and trends. Working papers from CERUM, 1988: 22. Berry, B.J.L. (1067) Geography of Market Cenfres and Retail Disfrihution. Prentice Hall, Englewood Cliffe, New Jersey. Hambrick. D.C. and Schecter, S.M. (1983) Turnaround strategies for mature industrial-product business units. Academy of Management Journal 26, 231-248. Home, N. (1989) Kylakaupan kuolema ja eloonjaiminen (Summary: death and survival of rural stores). Actu Academia Oeconomicae Helsingiensis A:63. Jussila, H. and Tykkylainen, M. (lY90) Periferins framtid, nya vagar behovs de? In Niitverk i Norden, Lundqvist. L. and Persson, L.O. (eds), pp. 237-258. IndustriDepartement serie 1990: 78. departementet. Stockholm. Kivell, P.T. and Shaw, G. (1980) The study of retail location. In Retail Geography. Dawson, J.A. (ed.), pp. 95-155. Croom Helm, London. Lotvonen, E. (1990) Lapin kylakauppojen toimintaympariston muutokset, toimintamallit ja tulevaisuudenmanagement nakymat (Environmental changes, strategies, and visions for the future of rural stores in Lapland). University of Oulu. Research Institute of Northern Finland, Research Reports 1990: 103. Persson, L.O. and Wiberg, U. (1988) Politik och planering for den urbaniserade glesbygden. NordREFO 1988: 2, pp. s-43. Sjoholt. P. (1984) Butikken i Grenda (The local community shop). Geografiska Annaler 66B, 49-S. Smith, D.M. (1981) Industrial Location, an Economic Geographical Anulysis (2nd Edn). John Wiley & Sons. New York. Tykkylainen, M. (19X8) Periphery syndrome - a reinterpretation of regional development theory in a resource periphery. Fennia 166, 295-411. Vasquez-Barquero, A. (1990) Conceptualizing regional dynamics in recently industrialized countries. Environment and Planning A 22. 477-491. Zammuto, R.F. and Cameron, K.S. (1985) Environmental decline and organizational response. Research in Organizational Behaviour 7, 223-262.
1992
0743-0167192 $5.00 + 0.00 Pergamon Press Ltd
Business Strategies of Rural Shops in a Peripheral Region Heikki Jussila,* Esko Lotvonent Markku Tykkyl~in~n~
and
“Research Institute of Northern Finland, University of Oulu, SF-90570 Oulu. Finland; “i Provincial Administration of Lapland, SF-96100 Rovaniemi, Finland: $Department of Geography and Regional Planning, University of Joensuu, P.O. Box Ill, SF-80101 Joensuu, Finland
Abstract - Different business strategies for rural shops in Lapland, the northernmost province of Finland, are presented in an effort to analyze the effects of the functional environs and personal choices of a shopkeeper on the operation of his shop. The model observed in the rural periphery consists of choices made by an entrepreneur to adjust his retailing business to gradual changes in demand linked with local socio-economic development. Three business strategies are identified and discussed: expansion, adaptation and diversification.
Introduction The economic development of a region is determined by its past structure and development, policy measures, changes in demand and resources (Tykkylainen, 1988). Rural retail shops react to changes in the basic sectors of the local economy and to developments of the countryside in general. Due to the primary sector decline, rural shops have a declining number of customers, at least in the Nordic countryside. At the same time, increasing mobility, changes in consumer behaviour and the need to increase the incomes of shopkeepers influence retail trading. In order to maintain or increase a shopkeeper’s income, the market should be enlarged (Berry, 1967; Smith, 19X1), but in a market area of decreasing population the implication of this is a decreasing number of shops. A functionalist or ecological approach to competition emphasizes the choices that the individual shopkeeper makes in a dynamic environment in order to survive (Home, 1989; Kivell and Shaw, 1980, pp. 118-120). Due to the dissimilar solutions reached by shopkeepers, however, their reactions to market changes seem to be more diverse than the theory of economic rationale would predict. The decisions made by an entrepreneur consist of numerous behavioural elements which reflect his personal reactions to the prevailing circumstances and a rational profit maximization strategy. The reactions of shopkeepers
in the rural areas of
Finland to the declining numbers of customers and increased demands for efficiency have been described as a defensive adjustment which emphasizes increasing marketing endeavours or a widening of the production and service mix (Home, 1989, p. 338). The maintenance of rural shops has been supported by regional policy, a common pattern of development in the Nordic countries, as much the same developments and reactions are perceived in the Norwegian countryside (Sjoholt, 1984). A conceptual model of behaviour can be outlined for a shopkeeper (Fig. l), comprising a response to socio-economic factors, such as the increase in income levels, urbanization and improved productivity and a response to changes in consumerrelated factors such as consumption patterns, shopping behaviour and mobility. Industry-based factors are also involved in the retail business itself: changes in wage and capital costs, in purchase, transport and inventory technology and marketing, and in competition between shops. Institutional factors in the form of legislation, regulations, regional policy support, public sector contracts etc., create opportunities or restrict business. These factors that create the environment in which a shopkeeper responds to change vary within geographical space. An empirical survey has been carried out in Lapland, a sparsely populated part of northern Finland, to see how the pressures of the factors presented in the above model influence the business
Heikki
186 CONSUMER-RELATED
SOCIO-ECONOMIC
et al.
for 1987, there was only one commune in which the proportion of the labour force engaged in the primary sector was as high as 31%. The average proportion of the service sector now exceeds 50% in both the towns and rural communes of Lapland.
UTIONAL
INDUST
Influence RESPONSE OF AN ENTREPRENEUR personal choices
Figure
Jussila
1. A conceptual
model of a rural behaviour.
shopkeeper’s
behaviour of local shops. in an attempt to demonstrate the business strategies and explain the choices of strategy within this vast peripheral region. The main method used was an analysis of questionnaires sent to shopkeepers, the data from which were combined with a detailed set of sub-area statistics. The material was analyzed by cross-tabulation and correlation analysis. The empirical details were presented earlier by Lotvonen (1990).
The Lapland area
Lapland, with an area of approx. 99,000 km’ accounts for more than one-quarter of the total land area of Finland (29.3%). The region is sparsely populated however. with a total population of about 200,000 in 1989, or 4% of that of Finland as a whole. The average population density per square kilometre is 2.2. whereas the average for the whole country is 16.2 inhabitants per square kilometre. The population of Lapland nowadays live mostly in centres, and 40% (78,000 inhabitants) live in rural areas. There are 22 administrative communes, that is, local authority districts, four of which are towns. These four. Rovaniemi, Kemi, Tornio and Kemijarvi, together contain close to half of the population (94,000 in 1988). Lapland has gone along with the economic modernization which has taken place during the last 30 years, and its general economic development in recent years has favoured activities that promote urbanization. The tourist industry has been the most popular way of stimulating new economic activity in the rural areas, while the role of primary production has declined markedly (Fig. 2). In 1960, for example, two-thirds of the communes had more than 50% of their active labour force working in primary occupations, whereas by the mid-1970s the service sector had surpassed all other activities as the main source of livelihood. According to the census figures
of growth and declining
sectors
Rural economies are in the process of restructuring, and depopulation is cutting down the opportunities for retailing. This trend has been prevailing since the 1960s in the remote peripheral communes in Finland and it is expected to continue. The expected reduction in subsidies for agricultural production, for example, will further reduce the chances of maintaining the level of population, and thus also detract from retailing and services. The proportion of declining sectors is not so high in Lapland as in many other peripheral areas in Finland. Expansion of public sector employment has been an important source of economic stability, and tourism and recreation have proved to provide a fairly permanent base for a local economic upswing, which in turn has had an effect on retailing. The opportunities for new sources of income in Lapland are largely due to the growth in public services and small industries such as tourism. Aho the employment and entre(1987) discusses preneurial programs by which several hundred new small enterprises were created in Lapland in the 1980s. These are anchored in natural resources in most cases, and associated with the natural environment, e.g. winter sports, fishing, timberconstruction, handicrafts, hotels, etc. The process of economic growth and decline influences (or rather makes its impact on) geographical patterns, and Lapland has both stagnation and growth areas. The growth areas are generated mainly by recreation activities and the basic sector in the stagnation areas consist of small units of primary production, especially family farms involved in forestry or reindeer herding. The essential aspect from the local and regional development point of view is that any new industry will at least provide an opportunity for local retailing. In theory, growth in the basic sector is important for drawing a higher level of services to a region (Berry, 1967). Rural shops in Lapland In December
1989 there were 206 privately
operated
Business
)
Agriculture and forestry
Manufacturing
Strategies
11
1
of Rural
1
Shops
187
1
I
1
1
1
/
/
1
and construction
Commerce H
Finland
Total for 1960 = 2.07 million and for 1990 = 2.46
Agriculture and forestry
n year 1960 Manufacturing
and construction Cl year Commerce
1990
Lapland
Finance and insurance
Public services-,,, 0
i 5
10 15 20 25 30 35 40 45 %
Total for 1960 = 85,500 and for 1990 = 98,000
Figure 2. Occupational
structure Lapland
of the active labour
force
in the province
of
in 1960 and 1990.
rural grocery shops located outside the centres of the 22 communes in Lapland (Fig. 3). The market areas of these were defined on the basis of sub-regions, consisting in most cases of an individual village. In those cases where the market area was indistinct the aid and knowledge of both shopkeepers involved and economic advisor’s office of the local authority were invoked. The market areas of all 206 rural shops in Lapland in 1989 were delimited in this way. The number of rural shops has declined rapidly, for in 1974 there were 433 grocery stores operating outside the commune centres in Lapland (Lotvonen, 1990). Since that time the population of the rural areas has decreased by about 15%, reflecting the general decline in development that has been taking place in the countryside of Finland during the past decades. A similar decline in the number of rural shops has been noted in Sweden (Batten and Wiberg, 1988).
Despite rural restructuring, the employment effect of retailing in the whole of Lapland has been fairly stable, that is, the number of people engaged strictly in retailing in 1990 is almost the same as it was in 1980 or 1970 (Table 1). One reason for this is the increased number of jobs in cities. Thus the decline in rural retailing has not had any substantial effect on employment in retailing in Lapland as a whole, but the closure of a rural shop inevitably reduces the accessibility of retail services (cf. Batten and Wiberg, 1988, p. 33). The average distance from a rural shop in Lapland to the centre of the commune was 38 km in 1989 (min. 4 km, max. 190 km), while the average distance to the next rural shop was 10 km (max. 99 km). In the Lake Region of Finland the average distance to the centre was 12 km (Home, 1989, p. 173). These figures reveal the potent impact of the vast geographical expanse in which these shops are located in
188
Heikki
Jussila
et al.
ssia
0
Figure 3. Location Table 1. Number
Year
Source:
persons
Number of employees in retailing (1000)
1970 1976 1978 1980 1982 1984 1986 1988 1990
Finland,
of employed
200
of rural shops in Lapland
1970-1990 and gross output (1988 monetary values) Number
1970-1986, Helsinki.
Regional
the proportion
in trade
1.1 I .o 0.9 I.1 I.0 1 .o 1.1 1.2 1.1 Accounting;
1988 and 1990, Labour
Lapland. The average age of the rural shopkeepers in Lapland in 1989 was 47 years, almost the same as that reported by Home (1989, p. 197; 45 years). Although
in 1989.
of entrepreneurs in retailing ( 1000)
5.4 6.2 5.8 6.5 6.4 6.3 6.3 6.8 5.9
of elderly
people
in the
km
Statistics.
in Lapland
in 1970-1986
Retailing (total) ( 1000)
Turnover in retailing (mill. FIM)
6.6 7.2 6.7 7.6 7.4 7.3 7.4 8.0 7.0
554.4 779.3 752.6 822.2 783.3 X40.0 950.6 n.a. n.a.
Central
Statistical
Office of
population is not high in Lapland compared with the rest of Finland, the proportion in the rural areas of Lapland is higher than in the towns. The main factor is rural depopulation, and in 54% of the market areas of the shops studied here the number of
Business
Strategies
inhabitants declined between 1980 and 1989. This decline is a threat to the life of the shops, as many of these villages or market areas already have relatively small populations. The market areas vary considerably in their economic base. Although the average proportion of primary production is about Yx, the highest in 1985 was 75%. The service sector accounts for the majority of occupations, from a minimum of only 11% of the active labour force to as high as 93%. Thus the future of rural shops will vary greatly according to developments in the basic economic sectors of the market areas. There is a distinct growth sector in the local economy, in that 75% of the shopkeepers found tourism to be significant to their business and 45% very significant. The rate of commuting is an indicator of the extension of shopping to the centres. The average rate of daily commuting in the market areas was relatively low in 1989, only 16% of the labour force, although the maximum rate was as high as 79%. Some market areas of rural shops in southern Lapland are located close to towns, while for some shops in western Lapland, the region which is suffering most, the decline is also partly due to increasing competition from Sweden. The location of a majority of the market areas in the distant periphery forms an obstacle to the formation of competitive units. Depopulation and economic restructuring, together with increased mobility and commuting, reduce the possibilities of the rural shops to increase their turnover. but tourism and recreation do offer such opportunities. More than half (56%) of the shops investigated reported a decline in turnover in real terms during a period from the beginning of 1986 to the end of 1988. A rapid growth in turnover naturally increases a shopkeeper’s will to continue, as does the emergence of a large number of sidelines. Many general trends in the retail network and market areas in this region are comparable to those observed in the rest of Finland and in Sweden and Norway. Sweden is ahead in terms of rationalization as the network of shops is already much sparser. The rural shops in the sparsely populated area, with its declining population, quite often employed in the primary sector, are now facing restructuring. The employment impact of the public sector in Lapland is considerable, but it affects only a few villages in the rural areas. The increase in the private service sector is mainly due to the growth in tourism and recreation, and it is this that is expected to have the strongest effect on retailing growth in rural Lapland
of Rural
Shops
189
in the future, although a spatially selective one. The shopkeepers’ business strategies described below are influenced by the local economic structure and the social environment in their market areas.
Current strategies
of rural shopkeeping
According to Home (1989), defensive adjustment can be carried out either by increasing sales promotion or widening the product and service mix. Based on the questionnaire material (Lotvonen, 1990), the following reactions of the shopkeepers can be outlined. A shopkeeper who continues retailing in a recessive environment has two possibilities, either to adapt to prevailing market conditions without essential structural changes or to develop additional business functions. The first choice may mean focusing on the profitable aspects of retailing, but under the conditions described above a very probable action would seem to be to give up making investments and prepare for closure. The second response typical of very remote shops is to continue business by combining retailing and other personal services, thus achieving synergetic advantages (Jussila and Tykkyhiinen, 1990). These multi-service shops have been seen in recent years as a solution to the difficulties of maintaining services in remote villages in Finland, and similar but earlier trends have prevailed in Norway (Sjoholt, 1984) and Sweden (Batten and Wiberg, 1988). The third business strategy is expansion strategy, most instances of which are to be found in the tourist centres. Of all the 206 rural shops studied in Lapland, about 40 can be classified as carrying out an expansion strategy. These showed a real turnover increase of more than 10% in 1986-1988, which exceeds the average increase in retail trade volume in Finland. Eighty shops carried out an adaptation strategy by which they reduced their retailing in response to the diminishing demand situation. This group of stores can be characterized as representing a concentration of retailing and location in the competitive sphere of nearby commune centres (Lotvonen, 1990). The remaining 90 stores were running their business according to a diversification strategy, sheltered from competition by distance (Table 2).
Diversification
strategy
Some of the rural shops have been gradually expanding their business from supplying foodstuffs and convenience goods to other activities. though usually commercial ones. Some shopkeepers have
190
Heikki
Jussila
Table 2. Strategies for rural shops, outlines Strategy
Typical region
et al. for the future and policy measures
Outlines
for the future
Expansion
Tourist
centre
Number Modern
Adaptation
Transitional, traditional small villages
Reducing
Diversification
Rural region,
New activities Multi-service shops
remote
been doing this for decades, and sidelines have been added and dropped out in the course of time. The selling of building materials, fuel. agricultural equipment and fertilizers and the buying of berries and other natural products have a long tradition in rural areas. Many traditional sidelines have not necessarily been able to keep the business profitable enough, however, and services such as the state lottery. taxi or postal services, dispensing of medicaments, sales of fishing permits, or a coffee shop or kiosk have emerged as additional possibilities. The newest of these services are the dispensing of medicaments and working as a postal agent, and home delivery services are organized by some retailers. The empirical material contains references to a total of 14 sidelines (Fig. 4). The diversification schema found in Lapland follows the pattern described by Sjiiholt (1984).
of customers retailing
Policy measures
increasing
activity
Infrastructural
Cost reductions Support Retraining Retirement Reorganization services Deregulation
decrease in the future, tations for new sidelines
while the highest expecare in the transfer of some
A correlation analysis between the number of sidelines and various factors related to the environment of the shops showed the closest associations to exist with variables describing the structure of the local economy, competition, population and location. The highest correlations were with the proportions of persons engaged in primary production (+0.46) and in the service sector (-0.38),
Taxi service Post office BankRegular home deliverySale of fishing licencesSmall pharmacyState lotteryKiosk Cafe or small restaurant Mobile shop Trade in berries and natural prcductsFuel salesConstruction materialAgricultural supplies0
20
40
60
80
loo
120 140 160
Number of shops
of various
of public
public services to the local retail shop. The postal service has now started this transfer operation. The maximum number of sidelines in one shop was 10 (Fig. .5), and shops with 4 sideline activities were the most common. The combining of activities improves opportunities for the operation of retail shops (Sjoholt, 1984). The density of shops is much lower in Sweden than in Finland. however, and if developments in Sweden are followed in Lapland, the network of shops will decrease and diversification will not provide sufficient impetus to continue (cf. Batten and Wiberg, 1988; Persson and Wiberg, 1988).
Fuel sales is the most common sideline added and it has a long tradition in the countryside. Trading with berries and other natural products is a feature peculiar to Lapland. Trade in the products demanded or supplied by the farms is predicted to
Figure 4. Frequency
investments
sidelines
in 206 rural shops in Lapland
in 1989.
Business
Strategies
45
35 30 25 20 15 IO 5 0 1
2
3
4
5
6
7
0
9
10
Number of activities
Figure 5. Numbers of sideline activities in the rural shops in Lapland
in 1989.
the distance from the centre of the commune (+ 0.33) and the number of inhabitants in the market area (-0.28) together with percentage changes in this in 1980-1986 (-0.31). The correlations with the commuting rate (-0.26) and traffic density on connecting roads (-0.18) were significant at the 1% risk level. The main conclusion to be drawn from the correlation analysis is that market areas with a high proportion of agriculture and forestry and a remote location have shops with a more diversified business composition. Shops in market areas of low population have a higher propensity to include sidelines than shops in more populous areas. The correlations, especially with number of inhabitants and changes in it, indicate that a diversification strategy may be employed to counteract the decreasing number of customers in remote areas, but it is environmental factors that make this strategy feasible in the last resort.
Evaluation
Shops
first-mentioned case gradual preparation is often substituted for the efficiency implemented in manufacturing.
Number of shops
0
of Rural
of strategies
The strategies of adaptation and diversification can be compared with those of firms in declining manufacturing industries (Hambrick and Schecter, 1983), one solution for which is to concentrate on reducing production costs (efficiency strategy) and another to pay more attention to product development and to attempt to increase their share of the market by other means (entrepreneurial strategy). In the case of diversification, the shops have adopted a new combination of activities, the role of a generalist (Zammuto and Cameron, 1985). In the
191 for closure strategy as
The future existence of a shop as an operational unit will vary according to the particular location, local economic development and the strategy followed. A favourable environment is a source of growth for a shop applying an expansion strategy. Shops that have chosen an adaptation strategy are in fact those that have not been able to find any other solution. In the case of closure, the exact time will depend on the living conditions and stage in life of the shopkeeper, although perhaps equally important are the regional and structural changes that affect the operating potential of the shop in question. Those with a diversification strategy have gained a position as service centres and many of them seem to be economically viable as a whole, even though the retailing side of the business is not always alone profitable enough to ensure survival. Concerning different areas and their future prospects, the regional policy measures needed to promote development vary. In the case of tourist centres and growth areas, the infrastructural premises needed for the expansion of business should be provided. In the areas near the commune centres, where shop closures are more probable, increasing mobility compensates the local people somewhat for the drawbacks attached to closures. In sparsely populated areas diversification does not always work and thus measures taken by the authorities and changes both in rules and in attitudes are required in order to bring about new combinations for the distribution of services. The need for policy measures of different types for rural shops is evident (Table 2). Shops with an expansion strategy need only some infrastructural investments for their activities. Meeting this need is a requirement for the local authorities. When a shopkeeper chooses the adaptation strategy and the shop is facing closure there is a need to provide individual solutions for these owners within the field of economic and social measures, for example, retraining or retirement. The Swedish case points to a rapid decline in rural shops (Batten and Wiberg, 1988), and one can expect the same to happen in Finland. The use of diversification has halted the declining process in the Norwegian situation, and one can expect that this may be the case in Finland too. One must stress, however, that diversification seems to be a viable alternative for a relatively small number of remotely located stores in the longer run. This situation has also been verified by recent Norwegian trends.
Heikki
192
Jussila
mental experiences
Conclusions Three strategies adopted by retail traders in response to a changing environment are discussed here: expansion, adaptation and diversification. Those are all spatially bound to the local circumstances and have different patterns of implementation. The vast space of Lapland has led retail shops to favour diversification more clearly than in the Lake Region of Finland. Distance protects them against competition. Implementation of these strategies is dependent not only on changes in environmental factors, but also on the personal choice of the shopkeeper. The characteristics of development as a whole in a particular market area influence his/her personal choices when choosing the appropriate strategy. The strategy adopted can be supported by financial aid or by promoting a reorganization of activities, and in some cases by early retirement. Nevertheless, the prevailing trends in the factors described in the model (Fig. 1) allow limited opportunities for creating a prosperous retail business for a great number of rural shops. The strategies presented here aim at creating more efficient solutions to the problem of retailing in rural peripheries. Pressure from the changing environment has established a necessity for finding different solutions and new level of stability for the spatial economy. A shopkeeper is a responsive actor, but still a dependent one in a changing environment, and the geography of rural retailing is a combination of the development of environmental factors and individual actions.
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et al.
initiatives
and develop-
in Finnish Lapland - the case of Ranua and Sodankyla. An Area Report for OECDiILE Working Group. Research Institute of Northern Finland, University of Oulu, Working Papers No. 42. Batten, D. and Wiberg, U. (198X) Disparities in the provision of services between urban and rural areas: current situation and trends. Working papers from CERUM, 1988: 22. Berry, B.J.L. (1067) Geography of Market Cenfres and Retail Disfrihution. Prentice Hall, Englewood Cliffe, New Jersey. Hambrick. D.C. and Schecter, S.M. (1983) Turnaround strategies for mature industrial-product business units. Academy of Management Journal 26, 231-248. Home, N. (1989) Kylakaupan kuolema ja eloonjaiminen (Summary: death and survival of rural stores). Actu Academia Oeconomicae Helsingiensis A:63. Jussila, H. and Tykkylainen, M. (lY90) Periferins framtid, nya vagar behovs de? In Niitverk i Norden, Lundqvist. L. and Persson, L.O. (eds), pp. 237-258. IndustriDepartement serie 1990: 78. departementet. Stockholm. Kivell, P.T. and Shaw, G. (1980) The study of retail location. In Retail Geography. Dawson, J.A. (ed.), pp. 95-155. Croom Helm, London. Lotvonen, E. (1990) Lapin kylakauppojen toimintaympariston muutokset, toimintamallit ja tulevaisuudenmanagement nakymat (Environmental changes, strategies, and visions for the future of rural stores in Lapland). University of Oulu. Research Institute of Northern Finland, Research Reports 1990: 103. Persson, L.O. and Wiberg, U. (1988) Politik och planering for den urbaniserade glesbygden. NordREFO 1988: 2, pp. s-43. Sjoholt. P. (1984) Butikken i Grenda (The local community shop). Geografiska Annaler 66B, 49-S. Smith, D.M. (1981) Industrial Location, an Economic Geographical Anulysis (2nd Edn). John Wiley & Sons. New York. Tykkylainen, M. (19X8) Periphery syndrome - a reinterpretation of regional development theory in a resource periphery. Fennia 166, 295-411. Vasquez-Barquero, A. (1990) Conceptualizing regional dynamics in recently industrialized countries. Environment and Planning A 22. 477-491. Zammuto, R.F. and Cameron, K.S. (1985) Environmental decline and organizational response. Research in Organizational Behaviour 7, 223-262.