Local and vertical networking as drivers of innovativeness and growth in rural businesses

Abstract

Rural businesses tend to rely on ‘collaborative strategies’ to cope with their adverse locational effects. They are known to sustain strong local ties, and some rural businesses also have ‘pipelines’ to faraway places. While, in general, the effects of ‘networking,’ especially for small rural businesses, have been intensively studied, there still remain important gaps in the literature, which we seek to address: first, ‘networks’ are often conceptualized rather broadly; second, different types of networks have been looked at in isolation; and third, the outcomes of networking remain unclear. Based on a survey of rural microbusinesses in Germany (n = 166), we shed light on the various collaborative strategies that these businesses sustain. We simultaneously estimate the effects of horizontal, vertical and private networks on business growth and innovativeness in a structural equation mode (SEM). This is important because overwhelmingly, rural development programs focus on the establishment of localized business networks alone, neglecting the important knowledge inflows along the vertical business chain. Indeed, our results show that vertical networks and horizontal networks are both strongly associated with innovativeness and subsequently growth. This calls for a balanced strategy to support rural entrepreneurs, combining regional cooperation and integration in extra-regional value chains.