First triangle: The target group of local economic
development: companies
Economic development is based on the efforts of companies – some of
them government-owned, but most of the private. The main target group of
local economic development (LED) are thus companies, in particular the
private sector. Further target groups include the workers and the public
sector; we will come to them when we discuss locational factors.
What kind of companies are the main target group? In many cases, LED
efforts are mainly directed at external companies. The main goal of
traditional LED efforts (i.e. in industrialized countries: from the
1960s to the 1980s) was to attract new investors. It would be much too
narrow, however, to leave it at that. Basically, there are three types
of firms which can be the target of LED:
- External investors
- Local companies
- Start-up companies
It depends on the features of a given location which of these three
types is the priority target. External investors are particularly
relevant for locations with a weak local company base and little
entrepreneurial dynamism. In locations with a strong local economic
base, promoting the competitiveness of existing companies is often much
more relevant than attracting firms.
Yet the main message is: Do not conceptualize the three target groups
in an either/or manner. Instead, try to realize the synergies between
them. The following figure tries to visualize the potential synergies.
![](../image/Grafiken/hexagon-triangle1-2.gif)
Let us have a look at the two arrows linking "strengthening
local firms" with the other two activities.
1. When trying to attract external investors, try to attract any kind
of firm is one option. But it is not necessarily a promising option. If
there already is a local economic base, say in the food processing
industry, why would an electronics manufacturer find this location
attractive? If there is little if any economic base, why would any
external investor find such a place attractive? External investors tend
to cluster. So if your location has a profile, like in food processing,
you would be well advised to try to attract complementary investors.
How can you do that? The most promising approach is to consult with
local firms. They are the experts on their industry, they know the
players in the industry, and therefore they are in a privileged position
when it comes to identifying potential investors. The main objective is
to identify firms which may strengthen the local profile, in particular
in terms of providing specialized inputs, services, and capital goods.
You will also find that you can "sell" your location much
easier to an external investor who finds a strong local demand for his
products or services.
2. Regarding promotion of start-ups, it is important to note that
this can be closely linked with the existing economic base. Existing
firms may want to outsource certain activities, but cannot find adequate
subcontractors. Training new entrepreneurs or underperforming
businesspeople is a possible approach to improve the conditions for
local subcontracting, thus at the same time increasing the
competitiveness of lead firms and creating opportunities for new
businesses. Another approach is the support for spin-offs. Professionals
in existing firms may consider to set up their own shops to produce
specific inputs or provide services to their current employer, but
hesitate to actually do so since they feel insufficiently prepared.
Again, targeted training courses may be an option.
On the following pages, we will have a look at specific instruments
related to this triangle:
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