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Entrepreneurial Origin and the Configuration of Innovation in Rural

Areas: The Case of Cumbria, North West England

Christos Kalantaridis* and Zografia Bika**

Paper submitted to Environment and Planning A

Third Draft

November 2010

* Centre for Enterprise & Innovation Research, University of Salford, Salford,

Greater Manchester, M5 4WT

** Norwich Business School, University of East Anglia (UEA), Norwich, NR4 7TJ

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Entrepreneurial Origin and the Configuration of Innovation in Rural Areas:

The Case of Cumbria, North West England

Abstract

This paper examines the incidence of innovation and the configuration of innovation

systems in rural areas, which are viewed as possessing a weak knowledge generating

subsystem. Drawing on the results of a micro-level study in rural Cumbria, North

West England, the paper shows that entrepreneurs were able to access non-local

knowledge infrastructures. Thus, the emergent actor-constructed regional innovation

system stretched well beyond the confines of Cumbria. This configuration can be

explained – in large part – on account of entrepreneurial origin. New arrivals

(especially immigrants) demonstrated the greatest propensity to innovate using

innovation systems that cut across the regional and national boundaries. Locally-born

and returnee entrepreneurs reported low incidence of innovation. The paper

concludes that a distinction between regional innovation systems (as macro-level

analytical units with a normative dimension) and actor-constructed regional

innovation systems (as micro-level descriptive units) offers scope for the

advancement of research in this field of study.

INTRODUCTION

Since the 1950s the population of rural areas in the US (Berry, 1976), continental

Europe (Panebianco and Kiehl, 2003) and the UK (Agarwal et al, 2004; Champion

and Shepherd, 2006) begun to grow as a result of urban-rural migration. The ability

of rural localities to attract migrants has significant implications on their enterprise,

and consequently economic development trajectories. This is because the new

arrivals are relatively affluent individuals (Shucksmith, 2001) equipped with networks

of contacts formed over many years in different regional, or even national settings.

Resources and information enable migrants to make a disproportionately positive

contribution in the creation of new ventures in rural areas not only in the UK (North

and Smallbone, 2002; Kalantaridis and Bika, 2006b), but also in continental Europe

(Skuras et al, 2005; Stone and Stubbs, 2007) as well as in the US and Canada (Weber,

2007; Siemens, 2006). More importantly however, the contribution of migrants

extends beyond numbers: they are often perceived as conduits that strengthen the

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linkages of rural areas with the global economy (Raley and Moxey, 2000;

Kalantaridis and Bika, 2006a).

Whilst there is a growing body of evidence regarding the impact of new arrivals on

the incidence of entrepreneurship in rural areas, there is precious little research on

their contribution to innovation and the configuration of innovation systems. This is

despite the fact that there is a growing recognition of the importance of access to

innovation inputs and a knowledge infrastructure (or the knowledge generating

subsystem as commonly identified in the literature) in underpinning innovative

activity within regional innovation systems (Cooke et al, 1997), as well as intra-

regional innovation linkages (Howells, 2005). The latter are particularly important for

rural areas, as they are often perceived disadvantaged (in comparison to metropolitan

centres) in terms of their resource endowments and knowledge infrastructure.

Within this context, this paper sets out to explore the impact of migration on the

incidence of innovation, as well as the configuration of innovation systems in rural

areas. In doing so, the paper deploys a micro-level methodology that focuses on

systems as viewed from the point of view of innovative firms: i.e. actor-constructed

regional innovation systems. In exploring the role of new arrivals, a distinction will be

drawn between in-migrants (defined here as those born elsewhere in the UK, moving

to rural areas), immigrants (born abroad, moving to rural areas from elsewhere in the

country or from overseas) and return-migrants (locally born inhabitants who lived and

worked elsewhere but subsequently returned to the area of their origin). Given the

broad conceptualisation of new arrivals, the paper utilises insights from studies

examining international as well as domestic population mobility. Empirically the data

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used here are derived from a survey of 100 innovative entrepreneurs in rural Cumbria

(the term is used to denote the synonymous county excluding the urban centres of

Barrow-in-Furness and Carlisle), in North West England (Figure 1).

Figure 1. The Case Study Area

The paper is organised as follows: the next Section presents the key concepts and

undertakes a purposeful review of the literature that leads to the development of a

number of research questions, whilst a detailed discussion of the methods used to

collect and decipher the data is presented in Section three. Then the paper presents an

overview of the case study area, and innovation in this setting. This is followed by the

analysis of three case studies of innovative entrepreneurs. Lastly, there are some

conclusions of the main findings.

Cumbria

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THE LITERATURE

Key Concepts

Innovation is invariably perceived as one of the means by which firms can enhance

their competitiveness and improve their performance (Akçomak and ter Weel, 2009).

However, its definition is far from clear. In a rather narrow definition Schmookler

(1966) associates innovation with the first enterprise to produce a good or service, or

use a new method or input, whilst all subsequent firms that do the same thing are

deemed as imitators. However, the boundaries between innovation and imitation are

blurred as imitators in their pursuit of the leader may do things differently (in many

instances intentionally so as to gain competitive advantage) from the way they were

done by the first firm (Hall, 1994). In a much broader definition, which is adopted for

the purposes of this paper, Brown-Kamn (1987) identifies innovation with the process

of generating ideas that are new to their source and making decisions about these

ideas that result in something useful. There are two terms worth pointing out in this

definition. The first is process – as opposed to ‘event’. This means that innovation

involves a series of activities (often engaging multiple actors), some of which may be

repeated or skipped. Such a conceptualisation of innovation is also influenced by

Sayer’s critical realist perspective (2000) that many causal interdependencies are not

necessarily generalisable, enduring and replicable. The next key term in the paper’s

definition of innovation is new. The extent to which an idea is new depends on the

view of the person ascribing to it, or it may be widely acknowledged as different.

Newness here is perceived as a matter of degree.

Since the publication of Cantillon’s (1755) pioneering work, research emanating from

a wide array of disciplinary backgrounds such as economics, anthropology, sociology

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and psychology, provided useful insights in understanding the entrepreneur.

However, there is profound divergence of opinion among scholars regarding the

definition of entrepreneurship (Brazeal and Herbert, 1999). Probably the most

restrictive definition was advanced by Schumpeter, who defined the entrepreneur as

the innovator (Schumpeter, 1928). For the purposes of this study a wider definition is

adopted: involving the putting together factors of production, as well as contracts with

other entrepreneurs and other economic actors in a network of production and

distribution. There are two key elements in the conceptualisation of entrepreneurship

advanced here. The first concerns with the co-ordinating function of entrepreneurs,

i.e. their ability to access and combine factors of production in the making of goods

and the provision of services. The proposed definition expands the notion of

combination and co-ordination to include relationships (and the embodied information

and knowledge) as key assets in economic activity. The second key element concerns

with the judgemental nature of entrepreneurial decision-making. This means that all

combinations of factors of production and networks of relationships are developed at

present but are oriented towards the future.

These conceptualisations overcome the challenge posed by the Schumpeterian

tautology, whereby entrepreneurship is synonymous with innovation. At the same

time however, they remain complementary: viewing entrepreneurship as judgemental

decision-making, whilst innovation is understood as a process involving multiple

activities, themselves the result of decisions taken by actors (such as entrepreneurs).

Thus, innovative entrepreneurs constitute a sub-set of the total entrepreneurial

population, defined by judgemental decision-making that result in the creation of new

combinations (i.e. innovations) of factors of production and networks of contacts.

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Regional Innovation Systems

Since the early 1990s, systemic approaches of innovation have dominated the debate

on the interface between innovation studies and regional science (Cooke et al, 1997).

This is partly because of the acknowledgement that innovations are carried out not

within individual firms but a network of actors who are institutionally embedded

(Edquist, 1997), and partly due to the growing realisation of the importance of

proximity (both geographic and relational) for the promotion of innovation (Asheim,

2007). Innovation systems can function at different scales: regional, national and

international ones (Sternberg and Muller, 2005). Within the context of this paper,

particular emphasis is placed on innovation systems at the regional scale.

The importance of the region as a setting for innovation systems is on account of three

reasons. Firstly, innovative activity is not distributed evenly across space, but is

concentrated in certain regions whilst being more or less absent in others (Fritsch and

Stephan, 2005). Secondly, the region constitutes an arena of economic interaction,

that occurs within a specific institutional, political and social context (Storper, 1997).

Lastly, partly due to specificities of context, a set of rules, conventions and norms that

influence behavioural roles may occur within a regional setting. As a result, the

concept of the regional innovation system has emerged as central to the debate.

Cooke at al (1998) define this as a system in which firms and other organisations are

engaged in interactive learning, and these learning processes take place through an

institutional milieu characterized by embeddedness. Therefore, it consists of a

production structure (which comprise of techno-economic elements) and an

institutional infrastructure (involving politico-institutional components) (Asheim and

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Isaksen, 1997). Exponents of this concept view it primarily as an analytical construct

used in order to understand system dynamics and performance. This suggests that ‘the

system in focus does not have to exist in reality as fully fledged’ (Bergek et al, 2008,

p. 408).

This view of regional innovation systems is manifested in the prevalence of top-down

approaches in the operationalisation of the concept. The bulk of this literature draws

upon key informant interviews and secondary data with the aim of capturing

innovation systems as analytical units rather than as arenas of interaction between

actors (MacKinnon et al, 2002; Doloreux and Parto, 2005). Thus, the emphasis is

placed on the configuration of the regional production subsystem and the knowledge

generation subsystem (as defined by Asheim (2007)) rather than actual interaction

between the two. This operationalisation, could offer an accurate description of the

regional innovation system under consideration only in a situation where the system

was closed: i.e. the regional production subsystem tapped exclusively into the

regional knowledge generating subsystem, and the latter was not linked with other

(outside the region) production subsystems. However, it is increasingly acknowledged

in the literature that accessing knowledge from distant sources is of considerable

importance for innovation (Boschma and ter Wal, 2007).

This conceptualisation and operationalisation of the regional innovation system has

led to some confusion regarding the existence (or not) of a normative dimension. In

large parts of the theoretical literature this concept is used to capture an ideal-type

contextual setting for the advancement of innovative activities. Thus, Cooke and

Morgan (1998) argue that a strict reading of the literature shows that only three

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regions are true regional innovation systems: namely the Silicon Valley, Emilia

Romagna and Baden-Wurttemberg. Similarly, Asheim suggests that a regional

innovation system ‘is in place when the following two sub-systems of actors are

systematically engaged in interactive learning … first, the regional production

structure of knowledge exploitation subsystem, which consists mainly of firms …

second, the … knowledge generation subsystem which consists of public and private

research laboratories, universities and colleges, technology transfer agencies and

vocational training organizations’ (Asheim, 2007, p. 229). This, in turn, led to the

emergence of the concept of ‘system failure’ that captures instances when the system

fails to develop or does so in a stunted fashion (Carlsson and Jacobson, 1997). This

can be understood only in comparison to an ideal-type system (Bergek et al, 2008).

However, the use of the concept in empirical studies is not value-laden: capturing a

broad range of contexts with profoundly different innovative performance: from

Austria (Gerstlberger, 2004) to China (Li, 2009) as well as cross-border regional

innovation systems (Moodyson et al, 2008).

In response, this paper introduces a distinction between the regional innovation

system (an analytical unit, captured through macro-level methodologies, and

possessing a normative dimension) and a different – and complementary – concept:

the actor-constructed regional innovation system. This divide can not only provide

clarity and eliminate confusion, but can also open new and productive lines of

scholarly inquiry.

The point of departure for the development of the new concept is the pioneering

definition advanced by Lundvall: whereby an innovation system is ‘constituted by

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elements and relationships which interact in the production, diffusion and use of new,

economically useful, knowledge’ (Lundvall, 1992, p. 2). Elements may include

individual actors as well as a host of private and public organisations (which could be

grouped into regional production and knowledge generation sub-systems), whilst

relationships are defined as ‘mutually oriented interaction(s) between two reciprocally

committed parties’ (Håkansson and Snehota 1995, 39). Of course relationships do not

take place in a vacuum but occur within an established institutional context.

Institutions, defined here as the multitude of formal and informal rules that govern the

game, are thus, central to the innovation system. The advantage involved in

innovation systems is that interaction of these elements produces pervasive and

systemic effects that encourage enterprises (operating within the system) to develop

forms of capital, and interactions that enhance their innovative capabilities (Doloreux

and Parto, 2005).

This conceptualisation differs from that prevailing in the literature in three ways.

Firstly, it aims to describe reality rather than provide an abstract analytical unit.

Therefore, tracing actual relationships between actors is a key consideration.

Secondly, in operationalising this concept a different methodological approach (from

that adopted in the regional innovation systems literature) is adopted. This is a

bottom-up approach that can utilise surveys, case studies and ethnographic research in

order to trace existing relationships between actors and map-out the configuration of

the system. Interestingly approaches like that are present in the literature (for example

Belussi et al, 2010). Lastly, partly as a result of the first point, the approach advanced

here does not have a normative dimension. Thus, all regions – irrespective of their

innovative performance – have some kind of innovation system.

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The Implications of Rurality

The conceptualisation of rurality in advanced market economies is increasingly

problematic. This is because, following a long-term process of structural

transformation, agriculture does not constitute the main economic driver of rural areas

(Hodge, 1997; MAFF, 2001). This led to a new way of seeing rurality as a structural,

symbolic, discursive or power terrain with wider socio-economic and ideological

demands of consumption imposed onto it. Rurality has thus been discussed either as a

social representation (Halfacree, 1993), a territorial dimension (rather than

geographical) of the countryside (Marsden et al., 1993), or a multi-functionality

policy imperative (Potter and Burney, 2002). For the purposes of this paper rurality is

defined as a spatial category dominated by large open spaces and, relative to the

national context, small settlements (with population density of less than 150

inhabitants per square kilometre – as defined by the OECD).

This conceptualisation of rurality has significant implications for the knowledge

generation subsystem, and the prevailing innovation system. One outcome of low

population density is an increase in the per unit cost of creating a local knowledge

infrastructure. As a result, rural areas invariably lack higher education provision

locally, as well as sizeable (private or public) R & D provision, creating difficulties

for entrepreneurs that rely exclusively on local innovation inputs (Keeble and

Vaessen, 1994). Moreover, the absolute number of enterprises present in most rural

settlements is small, and often spread across a number of diverse industrial sectors,

limiting the scope for interaction as part of a local innovation system (Kalantaridis

and Bika, 2006a). As far as output markets are concerned, market potential, which

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denotes the volume of goods sold per unit of landmass, is low. Thus, dynamic

ventures may soon outgrow the confines of the local market and may be forced to

expand nationally (Smallbone et al, 1999). This leads to the development of the first

research question of the paper:

RQ1: To what extent does reliance on elements (of an innovation system) that are

rural based act as a constraint in the propensity of entrepreneurs to innovate?

However, the territorial implications of rural space on the knowledge generating

subsystem may or may not impact on the incidence or intensity of innovation. This is

because rural entrepreneurs may be able to adapt to existing resources or broaden the

geographical scope of the innovation system. Within this context, the potential role of

migrants is instrumental.

Population Mobility and Innovation

During the past few years, there has been growing interest on the impact (actual or

potential) of immigration on innovation. There are three reasons that prompted

academics to develop this body of research. Firstly, new arrivals – simply on account

of their numerical significance – generate increased demand for goods and services in

the country of destination. This, in turn, advances economic activity and fuels

innovation. Secondly, immigration changes the human capital stock in the country of

destination, by bringing in new skills, knowledge and ideas. Moreover, significant

numbers of immigrants invest heavily in higher education. Thirdly, there is

widespread acknowledgement of the fact that new arrivals are not randomly selected

samples of the population of the countries of origin, but actually include their most

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dynamic and entrepreneurial elements (Borjas, 2006). Thus, they are more likely to

engage in innovative pursuits and facilitate linkages between innovation systems in

their places of origin and destination. This underpins the second research question of

the paper:

RQ2: Does the configuration of innovation systems differ by entrepreneurial origin?

As a consequence, there has been growth in that body of evidence examining the

relationship between new arrivals and their impact on the incidence of innovation.

Most of these studies examine the impact of the immigrant human capital (i.e. the

second reason identified in the preceding paragraph). More specifically, Peri (2007)

shows that skilled migration increases patenting in the US. More recently, and in the

same national context, Hunt (2008) shows that skilled immigrants innovate more than

their native counterparts. This is particularly the case if the new arrivals are scientists

or engineers. She goes on to seek an explanation of these findings in the higher

education of immigrants within skill categories, and/or positive selection of

immigrants in terms of their ability to innovate. In a European Union context,

Nijkamp (2009) concludes that there is a positive relationship between the number of

immigrants and innovation (measured in terms of patent applications). However, he

goes on to suggest that it is particular groups of new arrivals (such as Americans, and

other Europeans) that impact positively on innovation. Moreover, Niebhur (2006)

shows that German regions with more diverse worker nationalities report a greater

incidence of patenting.

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Rather unexpectedly, there is precious little research on the ability of new arrivals to

alter the incidence of innovation through the creation of entrepreneurial ventures

(Sternberg and Muller, 2005). A study of rural entrepreneurs in Cornwall (Williams et

al., 1989) reported a high incidence of in-migrants starting-up lifestyle and only partly

commodified tourism businesses that predominantly satisfied their desire to consume

the same product that they produce with little consideration for improving

competitiveness and therefore, engaging in innovation. Another study in rural Wales

found “little evidence of a significant in-migration of leading-edge industries” but

rather identified an influx of low-income newcomers that paradoxically reproduces “a

significant minority of households (25%)living in, or on the margins of poverty”

(Goodwin et al., 1995, p. 1258, p. 1256). Offerring an alternative perspective to that

adopted in these previous studies, it is argued here that the subset of entrepreneurial

migrants that, indeed, are demonstrating innovation tendencies may be of particular

importance to regional innovation systems for two reasons. Firstly, they are more

likely to take decisions about the introduction of innovations (as defined earlier),

rather than merely engage in the process of invention (Sternberg and Muller, 2005).

Secondly, they may influence the innovation system in their place of destination by

virtue of their already existing networks of contacts – a point that has been of

particular importance in the rural studies literature (Kalantaridis and Bika, 2006b).

This leads to the formation of research question three below:

RQ3: Are in-coming entrepreneurs more or less innovative than their locally-born

counterparts?

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There is also some evidence suggesting that return-migration may influence positively

the configuration of innovation systems (Stenberg and Muller, 2005). This draws

from the experience of international return-migration, but may also provide

suggestive lines of inquiry for rural areas and returnees from metropolitan centres.

This literature suggests that return migrants may contribute significantly in the

configuration of innovation systems in their place of origin, as they bring back

knowledge and contacts when they return. This contributes in keeping the innovation

system open to new knowledge and reduces technological lock-ins.

This section brings together a broad body of knowledge that provides the theoretical

context that underpins the paper and defines key concepts (such as innovation,

entrepreneurship, and regional innovation system). It also refines the paper’s aim (of

exploring the impact of migration on the incidence of innovation, as well as the

configuration of innovation systems in rural areas) through the development of three

research questions. These will be examined, using findings generated through

extensive empirical research (described in the Section below) within the context of

actor constructed regional innovation systems.

THE METHOD IN CONTEXT

The Study Area

Rural Cumbria was identified as the study area for the purposes of an EU funded

project that provided the data for this paper (having met the criteria for rurality – e.g.

regarding innovative inputs and output markets) rather than on account of

representativeness of rural areas (if such a typical locale actually exists). Moreover,

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the study area experienced relative advancement in terms of population change on

account of counter-urbanisation.

Rural Cumbria benefited from inward migration. Between 1981 and 1998 the

population increased by 3.2%, despite a negative rate of natural increase of the

population (-2.8%) (ONS, 1991-2001). In-migration meant that the increase of the

rural population was combined with change in the age composition of the population

and an increase in the number of individuals beyond pensionable age. However, this

change was modest when compared with elsewhere. Specifically, 28% of new arrivals

in Cumbria were of pensionable age, in comparison with 52% of those in East

Cleveland (Kalantaridis, 2010). The new arrivals, by virtue of their numbers,

increased the level of effective demand, however, this remained well below that

registered in urban agglomerations. As a consequence, the scope for expansion of

local market focused entrepreneurial ventures was limited.

The knowledge generation subsystem of Cumbria was shaped by the defining

characteristics of rurality. Thus, higher educational provision was limited. Cumbria

was – at the time that the study was conducted – one of a handful of counties in

England without a local higher educational institution. Existing provision was

delivered by Northumbria University in Carlisle and the Penrith Campus of the

University of Central Lancashire, though with relatively little research activity There

was only one other public R & D facility: the West Lakes Science and Technology

Park, whilst the only sizeable private R & D investor in Cumbria is British Nuclear

Fuels, which also located its Bio-analytical and Cytogenetics laboratories at the Park.

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Data Collection

The adoption of a micro-level view in order to decipher the actor-constructed regional

innovation system of rural Cumbria was central in determining the choice of method.

Thus, a survey of innovative entrepreneurs provided the primary source of data used

for the purposes of this paper. A number of screening questions were used (during a

small initial telephone interview), operationalising the concepts of innovation and

entrepreneurship (described in the previous Section), in order to establish the

eligibility of interviewees. Innovation was captured through questions regarding the

introduction of products/services or processes that were innovative in comparison to

those prevailing in the regional context. When this eligibility criterion was

established, the individual entrepreneur interviewed was selected on the basis of

his/her involvement in strategic decision-making – a concept used to capture the

element of judgment regarding combinations of factors of production and contracts

with other actors. A single stratification criterion was used in the selection of the

sample: sector. Thus, the innovative entrepreneurs surveyed are broadly

representative of the population (in terms of sector) in the study area (Table 1).

Table 1: Sample Characteristics: Gender, Age and Sector

Gender and Age Breakdown of the

Population Survey and the Study Area

Sectoral Breakdown of Entrepreneur

Survey and the Study Area

Gender Age % of total

population

(ONS*)

% of

completed

interviews

Sector % of total

in the

Study area

(ONS**)

% of those

surveyed

Male 18-34 25.4 23.2 Agriculture 13 11

35-49 28.4 28.8 Manufacture 27 33

50-64 25.6 25.3 Construction 6 6

65+ 20.6 22.7 Transport 8 8

Total 100.0 100.0 Hotels &

Restaurants

12 11

Female 18-34 22.5 21.0

35-49 26.3 28.1 Other 34 31

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Services

50-64 24.1 25.1 Total 100 100

65+ 27.1 25.8

Total 100.0 100.0

* ONS (2001) Mid-Year Population Estimates.

** ONS (2001) Annual Business Inquiry.

At the time of the entrepreneurs’ survey, the population of VAT registered businesses

located in the five relevant local authority districts (namely Allerdale, Carlisle,

Copeland, Eden and South Lakeland) businesses stood at 14,980 (ONS, 2001).

However, this included enterprises located in urban localities (Kendal) that were

excluded from the survey. Using commercial directories enterprises located in rural

Cumbria were randomly contacted in order to complete 100 eligible interviews. A

total of 320 companies were contacted, corresponding to a response rate of nearly

31%, a figure twice than that reported in previous postal surveys of rural

entrepreneurs (Keeble et al, 1992; Mason and Harrison, 1993; Westhead et al, 2000),

and modestly above that of previous face-to-face surveys (Smallbone et al, 1999). The

interviews were conducted between February and September 2001, and each lasted

between one and three hours.

For the purposes of the survey a questionnaire that combined closed (mainly) and

open-ended (to a lesser degree) questions was used. The questionnaire included

sections on the enterprise, the start-up process, product/service innovation, market

change, technological change, information sources, and the entrepreneur. There was a

total of 208 questions included, resulting in a dataset comprising of some 709

variables. This was complemented by thirty one qualitative variables.

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Three case studies were also selected out of the 100 innovative entrepreneurs

surveyed using three criteria: i) some typicality of the configuration of innovation

system recorded by entrepreneurial origin, ii) the richness of the data, and iii) variety

and opportunity to learn. In constructing the selected cases data from the interviews

were used alongside documentary evidence collected by the researchers involved in

this study. The case studies complemented the available survey material and thus

accomplished significant triangulation benefits.

A secondary source of data was a population survey. Based on the findings of desk-

top research a sampling framework (representative of age/gender) of the population

aged 18 years or older was identified. There were 312,593 people belonging in these

age groups in the five relevant local authority districts, though this number includes

the towns of Carlisle and Kendal (with a total population of some 130,000

inhabitants) that were excluded from the study (ONS, 2001). Using the telephone

directory, which covers more than 95% of the population, 500 interviews that fitted

the sampling framework (Table 1) were completed. In order to complete these

interviews a total of some 2,000 inhabitants were conducted, corresponding to a

response rate of 25% - which was deemed satisfactory given the means employed

(telephone) and the national context. The survey was completed between January and

March 2001. For the purpose of the survey a structured questionnaire was devised

that included Sections on the personal details of the respondent, educational and work

experience, general perceptions and incidence of entrepreneurship.

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Data Analysis

Capturing the geographical origin of resources and sources of information through a

large-scale survey is problematic. The nature of the difficulty is how can resources

and information that are relevant to entrepreneurs differentiated from what is readily

available in a specific locational and sectoral context (Romanelli and Bird

Schoonhoven, 2001). In order to overcome this obstacle interviewees were asked to

focus upon resources and information that were used in the process of product/service

or process innovation. This prompted respondents to draw upon real events, and

limited the scope for misinterpretation.

A number of variables were used in order to examine the origin of resources used by

innovative enterprises in the study area. These revolved around the supply of labour,

capital and other inputs, output destination, as well as the geographical origin of

information. As far as the former variable is concerned, this was captured in terms of

the percentage of the total workforce coming from outside the region (a term used

hereafter to denote Cumbria). A dichotomous variable was developed in order to

capture whether there was any capital investment from outside the region. In addition

to those variables (labour, capital), commonly used in the literature, the importance of

the region as a source of inputs other than labour and capital (again as a percentage of

the total), such as raw materials and equipment, was also examined. In order to

measure the importance of local markets a variable recording the percentage of total

sales destined to the regional setting was used. Capturing the importance of the

existing knowledge infrastructure was more than usually problematic. Therefore, a

variable capturing the propensity of rural entrepreneurs to exploit localised/non-

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localised knowledge was deployed. Lastly, the geographical origin of sources of

market information was captured.

Limitations

Before proceeding with the presentation of the findings it is important to identify

some limitations of this study. Firstly, rural Cumbria is by no means typical – if such

a type exists – of rural areas in the UK and beyond. This means that the results cannot

be readily generalised, however, it provides an interesting case, in the diverse rural

space. Another limitation derives from the method used for this study: a structured

survey conducted in one point in time. It comprises of only innovative entrepreneurs

that survived and does not capture change through time. Lastly, this paper does not

capture current trends in the study area – as the fieldwork conducted nearly a decade

ago. However, like other recent studies (Eom and Lee, 2010; Fairchild, 2010) it uses

robust empirical data to respond to key issues identified in the literature.

ENTREPRENEURSHIP, INNOVATION AND THE CONFIGURATION OF

INNOVATION SYSTEMS

The results of the population survey show that the incidence of entrepreneurship

varied profoundly by entrepreneurial origin. Returnees recorded the lowest incidence

of entrepreneurial activity – just four entrepreneurs out of 48 respondents in the

population survey (or 8.3%) – followed closely by locally-born individuals – twenty

seven entrepreneurs out of 238 respondents (11%). This is well below the figure

reported by in-migrants – thirty-four entrepreneurs out of 205 respondents (16%) -

and immigrants – three entrepreneurs out of nine respondents (33%). However, the

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incidence of entrepreneurship among immigrants needs to be treated with caution on

account of the small number of respondents in the population survey.

The data used throughout the rest of the paper, exploring innovation and the

configuration of innovation systems, are drawn from the entrepreneurs survey. As

shown in Table 1, one third of the entrepreneurs surveyed worked in manufacturing,

whilst a similar percentage (31%) ran firms falling in the category of other services

(including business services). The great majority – some 95% - of the enterprises

surveyed were SMEs (using the conventional EU definition that combines

independence and employment up to 250 persons). In terms of age, some 42% of the

entrepreneurs surveyed led well established firms (i.e. those more than 20 years old)

whilst only 11% had created new ventures (less than three years old at the time of the

survey.

This survey focused on entrepreneurs that led innovative firms either in terms of

products/services, processes, markets or the age of the firm (start-up) (as discussed in

the third Section of the paper). Therefore, a greater than average incidence of

innovation was anticipated. Moreover, given the multitude of sectoral contexts

involved the manifestation of innovation varied considerably. This ranged from the

design of innovative diving equipment in manufacturing, to the creation of bed &

breakfast accommodation that offered the traveller the experience of the Victorian era

in the hotel industry, and the introduction of alpaca breeding in agriculture. The

findings (Table 2) suggest that locally-born individuals who never moved outside the

area were the least innovative group. Returnees performed modestly better. In

contrast, in-migrants and immigrants were the most innovative groups.

23

Table 2. Innovativeness by Entrepreneurial Origin, Entrepreneurs Survey

Locally-born Returnees In-migrants Immigrants

Some product/service innovation:

Number and Percentage

20 (77%) 10 (90%) 53 (91%) 4 (100%)

Some process innovation: Number

and Percentage

13 (50%) 8 (72%) 53 (91%) 3 (67%)

Source: Entrepreneurs’ Survey

Figure 2 below captures the geographical origin of innovative inputs (six variables

described in the third Section of this paper) by entrepreneurial origin. The data are

presented in terms of the percentage of innovative inputs that comes from outside

rural Cumbria. This is primarily for ease of description: as a position towards the

centre of the Figure indicates use of local resources, whilst a position at the edges of

the Figure indicates utilisation of distant resources. The Figure shows a similarity of

approach regarding one variable and profound disparities regarding the remaining

five. More specifically, innovative entrepreneurs, irrespective of their origin, drew the

bulk of their labour inputs from within Cumbria – non-local labour is restricted to

between zero and 2% of the total. This was not particularly unexpected as Cumbria is

a large geographical area surrounded by rural counties. Distance from large urban

conurbations prevented commuting and underpinned a process of adaptation of labour

needs to the conditions of supply. The most profound disparities concerned inputs

other than labour and capital: returnees sourced just 18% from outside Cumbria, in

comparison to 72% for immigrants.

24

Figure 2. The Configuration of Innovation Systems by Entrepreneurial Origin

The evidence presented in Figure 2 indicates two emerging patterns regarding the

configuration of innovation systems by entrepreneurial origin. One pattern comprises

locally-born and returnee entrepreneurs, whilst the other in-migrant and immigrant

entrepreneurs. The former pattern is defined by heavy reliance on Cumbria as a source

of inputs and information and the main destination of outputs. Indeed, less than one

in ten received capital from outside the area, whereas non local inputs (other than

labour) accounted for 30% of the total among locally-born entrepreneurs and just 18%

for returnees. Dependence on the locality was also apparent regarding know-how and

market information. The latter is linked to the fact that both locally-born and returnee

entrepreneurs direct the bulk of their outputs within Cumbria, despite the relatively

modest size of the local markets. Interestingly, returnee entrepreneurs appear to rely

even more on the locality than their locally-born counterparts, for non-labour inputs,

0

20

40

60

80Labour

Capital

Other Inputs

Outputs

Know-how

Market InformationLocally-

born

Returnees

In-

migrants

Immigrant

s

25

market information, and output markets. This shows that they were able to acquire

precious few networks of contacts during their migratory move.

In contrast, in-migrants and immigrant entrepreneurs developed innovation systems

that were oriented more towards the national and international markets. More

specifically, they drew twice as much capital from non-Cumbrian sources than their

locally-born counterparts and the returnees, whilst they sourced more than 60% of

other (than labour and capital) inputs from elsewhere. Distant markets absorbed 59%

of sales generated by firms ran by in-migrants and more than three quarters of those

led by immigrants. Thus, reliance on non-local know-how and sources of information

for both types of entrepreneurial origin stood at around 60%.

The two patterns described above can be explained in large part on account of the

disparities in the types of enterprises created by entrepreneurs of different origin.

More specifically, locally-born and returnee entrepreneurs engaged overwhelmingly

in agriculture (some 30% of those falling in these two categories). In contrast,

entrepreneurs who were not born locally were over-represented in manufacturing:

some 40% in comparison to just over 20% among those who were born locally.

Sectoral differences may explain – particularly – disparities regarding inputs other

than labour and capital, and know-how. These could be fulfilled from within Cumbria

in the case of agriculture, but not in manufacturing. There were also significant

disparities in the mean size of the firm: just twelve employees in the case of locally-

born and returnees in comparison to nearly 43 for in-migrants and immigrants.

Differences in size may be particularly important in explaining the necessity (or not)

of moving beyond the confines of the small Cumbrian output markets.

26

THE CASE STUDIES

The two emerging patterns, regarding the configuration of innovation systems,

described in the previous Section can be illustrated in more detail using case study

data. Thus, this Section presents three cases (of individuals that have different origin)

in order to further explore the complexities of the innovation system in Cumbria.

The Case of a Returnee Entrepreneur

Stuart was born and brought up in the same place where the company operated. After

his university education he worked outside the locality teaching metalwork (1970-73).

Subsequently he worked as a candle maker and after that as a blacksmith in order to

avoid the “convention of getting old in the same job” and “working for someone

else”. He returned to his hometown with the aim of creating a new business, linked to

the local heritage of large scale steel manufacturing.

His small firm (17 employees) produced innovative, high quality, bespoke metal-

works of all types that were characterised by their sophistication and quality. The

metalwork produced was always a “one-off for a particular customer requirement”

and resulted in offering more a “service rather than a product”. In search of

cooperation and funding, Stuart joined forces with regional accountants six years prior

to the conduct of the survey: they became shareholders/directors (30%) in the firm.

27

Stuart’s main preoccupation was to secure work for his business through his contacts

with architects elsewhere in the UK. These contacts were initiated via trade and cold

calling but were preserved with monthly face-to-face business meetings. Word of

mouth was of importance for promoting the innovative metalwork of such a business

venture that is firmly founded on a completely local workforce (100% from the same

settlement). The company mostly addressed national markets outside the region

(85%) as part of a general effort to “consolidate the UK market”, whilst some work is

also done within the region (10%) (Figure 3). The firm received half of its inputs from

within the region.

The Case of an In-migrant Entrepreneur

Tracey was born in an urban agglomeration elsewhere in the UK to an entrepreneurial

family. After completing her postgraduate studies (in Printing Textile Design) she

worked as a freelance designer of printed textiles, and also taught art design in a

business studies department. Her move to rural Cumbria was a lifestyle choice driven

by the quality of the natural environment.

She ran (since 1990), together with her husband, a small (20 employees) firm that

produced hand-made cards. Whilst the firm started “like a hobby at the beginning …

afterwards we decided to do some printing”. Having spotted a gap in the wedding

stationery market first-hand while planning her own wedding, Tracey launched in

1996 a collection of design-led but also affordable wedding stationery. Hand finished

work alongside the use of unusual materials (e.g. plastic), and competitive pricing

defined her products. No external finance was ever obtained by Tracey to support the

28

development of a product innovation, though one quarter of her business was owned

by stakeholders living in Halifax. They were primarily involved in the design side of

the business.

Tracey’s small-sized business venture relied heavily (98%) “on the quality of local

manual labour … so we … develop a good relationship with them”. This was an

international business that sold almost one-third of its products to foreign markets

(30%) and the remaining two-thirds to the national market (65%) (Figure 3). Other

than labour, all the inputs that the company used in its production process came from

elsewhere in the country. Tracey was “not really in touch with other local businesses,

only through people that we know” and did not feel the need to become a member of

a non-compulsory association. Even her accountant, a contact that was also

recommended to her, was located away in Manchester.

The Case of an Immigrant Entrepreneur

Paul was born abroad. After graduating from University, he moved to Cumbria, on

account of a job offer, to work, in a pencil company. He worked in the company for

twenty years and rose, through the ranks, to the position of managing director of the

company.

This medium-sized company (95 employees) manufactured innovative fine art pencils

that were predominantly characterised by their quality and sophistication. Indeed, the

company built on a tradition of local know-how and skills that went back to the 19th

century, when cottage-industry pencil making grew due to the availability of local raw

material (graphite). Subsequent product innovation in the company was part of a

29

formal strategy. No external finance was ever obtained to support any product or

process innovation, however, a controlling stake in the company was held by a US

parent organisation.

This firm relied on the unique skills of local craftspeople to perfect the art of pencil

making, albeit with automating the manufacturing process being a managerial priority

as well. Otherwise, the firm maintained weak attachments to the region as around

three quarters of its inputs (80%) and sales (70%) were coming from abroad, whilst

the remaining was national market focused (Figure 3). The pencil company sold to 73

countries, whilst its subcontractors were also located abroad. Paul chose to stay away

from joining any non-compulsory associations.

DISCUSSION AND CONCLUSIONS

Rural Cumbria was successful in attracting new arrivals, most of them below

retirement age, as part of a wider counter-urbanisation trend. Their move reversed a

negative trend (in terms of natural change) and resulted in modest population growth.

However, both new arrivals and locals were confronted with a set of constraints

linked with the defining characteristics of rurality. Particularly important, in relation

to innovation, was the weak knowledge generating subsystem of the region. However,

resources and networks of contacts allowed them to overcome these constraints.

New arrivals made a significant positive contribution to the incidence of

entrepreneurship. More specifically, in-migrants and immigrants recorded rates of

entrepreneurial activity well above those of locally-born individuals. This combined

30

with the relatively greater employment generating abilities of their firms underline the

economic development contribution of in-migrant and immigrant entrepreneurship.

Returnees however, were the least entrepreneurial grouping (by origin). Moreover,

the in-migrants and immigrants were also more successful in introducing innovative

activities than both locally-born and returnee entrepreneurs.

Both the survey data (Figure 2) and the case study evidence show that new arrivals

were able to tap into innovative inputs from relatively distant geographical areas.

This was particularly the case regarding capital, other inputs, outputs as well as know-

how and information, for in-migrants and immigrants. Survey data show that

disparities in the configuration of actor-constructed regional innovation systems, were

also linked to the types of enterprises created by entrepreneurs of different origin.

Greater involvement in manufacturing and the establishment of significantly larger

ventures distinguished in-migrants and immigrants from returnees and locally-born

entrepreneurs. However, the case data indicate that new arrivals have also been able

to benefit from some locational advantages of rural Cumbria: revolving primarily

around labour e.g. skills possessed by local workers were viewed as important in

attaining success for in-migrant and immigrant entrepreneurs.

The evidence presented here regarding RQ1 shows that the defining characteristics of

rural Cumbria imposed only some constraints on the innovative activities of

entrepreneurs. However, this finding needs to be further qualified as the study draws

exclusively from entrepreneurs who were able to survive in rural Cumbria. It may be

the case that failure to adapt to the context may be common among enterprises that

31

fail. This line of future research may be particularly important in shaping debates

around innovation and development in rural areas.

The implications of rurality bring to the fore the issue of how can rural entrepreneurs

adapt to the specificities of such contexts. Entrepreneurs – irrespective of origin – are

able to exploit the local resource advantages, such as labour. However, locally-born

and returnee entrepreneurs create enterprises that can survive and innovate within the

confines of the regional innovation system, build on rural-based resources and

embrace an inside-out view of their business venture. In-migrants and immigrants

develop regional innovation systems that stretch beyond Cumbria and focus on an

outside-in view of their entrepreneurial activities that revolve around extracting value

from carefully selected elements of the rural environment. These systems both help

establish and are established on account of the characteristics of the enterprises

created by such individuals. Thus, the evidence presented here, illustrates

considerable diversity in the configuration of innovation systems by entrepreneurial

origin (RQ2). These findings however, advance a new and potentially useful research

question. To what extend does the creation of actor-constructed regional innovation

systems that go well beyond the confines of the locality, impact on the ability of the

regional research infrastructure to develop: i.e. does the ease of tapping into distant

resources reduce the demand for developing these locally? Research in this context

may identify and analyse potential tensions between the actions needed in order to

achieve enterprise success and those leading to the development of places.

32

Another argument advanced in this paper shows that the incidence of innovation is

higher for entrepreneurs who have spent at least part of their life elsewhere if

compared with the locally-born ones (RQ3). To this extent, the impact of migration

on rural innovation in terms of human capital is a positive one and incoming

entrepreneurs are more likely to introduce something new and commercially useful.

This may be on account of pre-existing (i.e. before the migratory move) social capital

that helps them establish relations with distant sources of innovative inputs and

markets. However, in this paper the emphasis was placed squarely on the incidence of

innovation. More detailed research into the type of innovation (distinguishing

between local, incremental and radical) may provide further insights into the impact

of entrepreneurial origin on innovation.

Finally, the paper also advances a conceptual distinction between regional innovation

systems (defined in the literature as an analytical unit, captured through macro-level

methodologies, and possessing a normative dimension) and actor-constructed regional

innovation systems (predominantly descriptive of real linkages between actors,

captured through micro-level methods, and without a normative dimension). This

divide is particularly relevant in the case of rural Cumbria that possesses a weak

knowledge generating subsystem, whilst its production subsystem demonstrates

considerable reliance on manufacturing and agriculture. As a result, it does not

conform with widely held views regarding regional innovation systems. However,

innovative activities can be understood within the context of an actor-constructed

regional innovation system that goes beyond the geographical confines of the locality.

This allows access to a stronger knowledge generating system than that existing in

rural Cumbria. The creation of this actor-constructed regional innovation system can

33

be explained on account of the impact of new arrivals (both in-migrants and

immigrants), engaged in entrepreneurial pursuits. Whilst this concept was developed

in the context of a rural area, its relevance for urban settings could also be explored.

This could focus on the exploration of the ‘fit’ between the prevailing regional

innovation system and the actor-constructed regional innovation.

This divide between a regional innovation system and an actor-constructed regional

innovation system, raises a number of interesting questions for researchers in the

field. In instances (like rural Cumbria) where reality appears to exceed normative

expectations it posses the issue of how can entrepreneurial agents overcome the

constraints imposed by the regional knowledge subsystem. However, this divide can

also be used to decipher instances where reality falls behind normative expectations.

This could include regional setting with strong knowledge generating subsystems that

fail to impact on the incidence of innovation in production subsystems. What are the

factors that restrict the ability of the latter to utilise the former, and how can these

obstacles be overcome? These issues turn the focus of inquiry on the interface

between the organisation and its context, maintaining a strong territorial dimension

but also offering scope for openness and centred around innovative actors.

Acknowledgements

The authors acknowledge support from an FP5 grant for the project “The Future of

Europe’s Rural Periphery: The Role of Entrepreneurship in Responding to

Employment Problems and Social Marginalisation” (HPSE-CT-00013).

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