North Rhine- Westphalia GE OB DO DU E

FOSTERING ENTREPRENEURSHIP AND SMALL BUSINESSES IN THE CON- TEXT OF NEIGHBOURHOOD REGENERATION IN OLD INDUSTRIAL RE- GIONS: THE EXAMPLE OF NORTH RHINE – WESTPHALIA / GERMANY

Uwe NEUMANN Lutz TRETTIN Friederike WELTER

Rhine-Westphalian Institute for Rhine-Westphalian Institute for Deputy Head "Entrepreneur- Economic Research Economic Research ship & Enterprise Perform- Hohenzollernstr. 1-3 Hohenzollernstr. 1-3 ance" D-45128 Essen D-45128 Essen Rhine-Westphalian Institute for Economic Research [email protected] [email protected] Hohenzollernstr. 1-3 D-45128 Essen

Visiting Professor Entrepre- neurship Jönköping Interna- tional Business School Sweden and Siegen University Germany

[email protected]

Abstract

The paper aims at introducing a German policy approach to integrate entrepreneurship & SME promotion and neighbourhood renewal in cities located in old industrialized areas. We focus there- by on the “Socially Integrative City” programme conducted since 1993 in the federal state of North Rhine Westphalia (NRW). Based on ongoing case studies in economically underdeveloped quarters of six cities the paper discusses success, obstacles and perspectives of entrepreneurship & SME promotion in old industrialized regions. More specific research questions are: (1) What type of support is needed for the substantial formation of new small businesses and enhancement of business conditions for traditional SME which meet the strengths and needs of the neighbourhood? (2) How can small retail trade be fostered in order to cope with vacancies in peripheral areas and what type of retail trade should be addressed in particular? (3) What are the instruments to foster entrepreneurship as a mean to broaden the local job offer? (4) Are there special means in regard to boosting entrepreneurship amongst ethnic minorities? (5) Which organisational setting and mode of financing prove successful? (6) Which strategic approaches promise longer-term success and why? (7) Which strategies may be transferred to other cities?

Keywords: Entrepreneurship promotion, SME, Local networks, Urban renewal

Colloque – 26 mai1 2005 - Montpellier « Accompagnement des jeunes entreprises : entre darwinisme et assistanat » « Accompanying measures & survival of new firms : between Darwinism and assistance »

FOSTERING ENTREPRENEURSHIP AND SMALL BUSINESSES IN THE CONTEXT OF NEIGHBOURHOOD REGENERATION IN OLD INDUSTRIAL REGIONS: THE EXAMPLE OF NORTH RHINE – WESTPHALIA / GERMANY

1. Introduction

It is a key feature of economic and demographic change that some inner city areas are affected ad- versely by deindustrialisation and suburbanisation of population and industry. Decline in population figures, change of demographic and socioeconomic structures, and deterioration of location factors of certain neighbourhoods are among the effects of current urban dynamics. Since the early 1990s the programme “Socially Integrative City” (SIC) in the German federal state of North Rhine–Westphalia (NRW) has been counteracting these trends through the mobilisation of different actors, i.e. from public authorities, the business sector, social institutions etc.. Their joint activities will be supported in certain fields, such as housing & technical infrastructure, schools, children & youth, integration of ethnic minorities and employment & revitalization of the local economy, for example through entrepreneurship promotion. However, any attempt to support start up companies has to consider the problem of declining income and purchasing power within these neighbourhoods, which are affected by a comparatively high rate of long-term unemployment and recipients of social benefits due to the downturn of traditional industries. Therefore, in regard to entrepreneurship promotion the central question is: What type of new ventures should be predominantly supported in SIC project areas in order to reach the goal of strengthening the local economy? At least two scenarios are thinkable with regard to goals and strategies. (1) Strong effort can be given on the support of neighbourhood oriented ventures. They will con- tribute mainly to the enhancement of the local structure of supply of services. (2) Those entrepreneurs will receive strong promotion, which offer products and services for the whole city. They can generate a growing income which may strengthen sooner or later the purchasing power in the neighbourhood. Against this background the paper aims at describing the progression of the SIC. It is based on case studies in three cities of the federal state NRW, namely in the neighbourhoods Essen-Katernberg, Gelsenkirchen-Bismarck and Wuppertal-Ostersbaum. Further research questions are: (1) Does the SIC approach of entrepreneurship support differ from other recent trends in entrepreneurship promotion in Germany? (2) What are the appropriate instruments used for different purposes? (3) Which organisational setting prove successful? (4) How important is the goal of boosting entrepreneurship in comparison to other measures carried out in the SIC programme? (5) Are there also specific goals with regard to boosting entrepreneurship amongst ethnic minorities? (6) Which ideas may be transferred to other neighbourhoods and cities respectively? 1

The paper is structured as follows. The next part deals with theoretical aspects and a few international experiences. The third part refers briefly to the background of this paper and related methodo- logical aspects. In part four – an excursus - we provide a short overview on recent trends in entrepreneurship and SME support in order to clarify the novelty of the approach in the German context. Part five aims at describing the policy approach of integrated entrepreneurship promotion and urban renewal underlying the SIC programme, the program management and financial aspects. The sixth part aims at briefly describing the socio-economic situation in three selected sample areas and illus- trating the programmes mode of operation as well as arising success, impediments and prospectives for future development by means of three short case studies. Conclusions and an outlook will com- plete the paper.

2. Theoretical Aspects and International Experiences

According to our present knowledge the literature on entrepreneurship provides just a few theoretical explanations of the described sort of integrated entrepreneurship promotion at the very local level in old industrialised regions. Therefore, in the initial phase of our research project we follow earlier research works carried out by the regional economist Läpple (2000). Based on studies in Hamburg, he finds that a segment of small craft and service businesses is distinguished by particu- larly strong ties with urban neighbourhoods, e.g. by focusing on local markets and recruiting personal locally, predominantly via informal channels in particular social milieus. These local anchors are a necessary precondition for the existence of many (young) small ventures. But at the same time many of them are linked to regional, national or even global markets and surroundings e.g. through costumer relationships, certain types of business association memberships and related exchange of new business ideas or through the participation in small business/entrepreneur promotion schemes. Therefore, any strategy to promote new ventures under the described circumstances should aim at strengthening simultaneously intra- and inter-local relations (Läpple/Walter 2003: 31-32). On one hand, small business promotion may focus on developing the local infrastructure, i.e. the creation of adequate business space, perhaps with shared facilities in a managed workspace like incubators. On the other hand, entrepreneurs should be helped to select and to couple with appropriate and already existing support schemes at the city, state and national level. This is true in particular for entrepreneurs without an academic background and for members of certain ethnic minorities. In many European countries practical experience could be gathered with regard to an integrated revitalisation of disadvantaged urban areas. But in several countries the focus seems to be mainly on measures which aim at the enhancement of housing facilities and the environment, the improvement

2 of social infrastructure, the implementation of job programmes and on social work with regard to younger people. Examples include France (Dumas 2000, Blanc 2002). However, in other countries like Ireland, the UK, and Italy entrepreneurship promotion seems to play a prominent role. Johnston (2000) reports about the Irish programme. Here the programme operators made a good experience with a comprehensive one-to-one advice service in addition to formal training courses. This is considered to be an important precondition for high survival rates of new ventures. Referring to the example of Scotland Hendry (2000) underlines the importance of a selective support. New ventures should receive comprehensive support, if they possess growth potential due to their outward orientation. Further, the local entrepreneurship agencies should be integrated into the strategies and programmes of economic development at the municipal level. This measure shall ensure a higher efficiency of the agencies’ work. With regard to the revitalisation of closed industrial estates Bracale (2000) reports about two approaches in Italy (Pomigliano). With reference to large industrial estates, located far away from a city centre, the author underlines the importance of making agreements between old owners and local agencies in order to rebuild the estates quickly and to provide sufficient well equipped space for entrepreneurs. With regard to closed industrial estates adjacent to a city centre the author pro- posed a strategy of “bridge building”. The focus of quarter managers and related development agencies shall be on new ventures in the service industry which are matching with the inner city functions. That can be firms for personal or business oriented services as well as media and art firms.

3. Background and Methodology

Since the end of March 2005 the RWI evaluates those parts of the programme “Socially Integrative City NRW” which are focusing on entrepreneurship and SME promotion within the context of an overall attempt to neighbourhood renewal. Hence, the paper is mainly based on the work of a two month-period only. This initial phase was characterized by comprehensive document analyses, selected in-depth interviews at the state and local level and an investigation into the theoretical background of local economic development issues. Therefore, the paper has an explorative and descrip- tive character.

The RWI study comprises an analysis of the strategic background, implementation, (gross) effec- tiveness, efficiency, transferability and long-term applicability of local economic development measures in six project cities/areas (Düsseldorf-Flingern/Oberbilk, Duisburg-Marxloh, Essen- Katernberg, Gelsenkirchen-Bismarck, Oberhausen-Knappenviertel, Wuppertal-Ostersbaum, Figure

1). The research questions of this study (Figure 2) are examined by a multi-method empirical framework comprising in-depth interviews, workshops with local economic development stakeholders, document analysis, surveys among local entrepreneurs and businesses, and econometric analyses based on survey and administrative data.

Figure 1: Selected cities of the Rhine-Ruhr agglomeration in NRW

North Rhine- Westphalia GE OB DO DU E

D W

BN = Bonn, D = Düsseldorf, DO = Dortmund, DU = Duisburg, E = Essen, GE = Gelsenkirchen, K = Köln, OB = Oberhausen, W = Wuppertal

It will be a key topic of the in-depth interviews and group discussions with local stakeholders to find out if such an economic segment with very strong local ties, as described by Läpple (2000), may be identified and supported by local economic development. In particular, assessment will focus on selected fields of action such as (i) fostering entrepreneurship, (ii) overcoming vacancy in local shopping centres, and (iii) local networking and advisory service.

Furthermore, it will be part of the empirical approach to compare economic development of the target areas with that of comparable areas which were not supported by local economic development measures. Comparison between “treated” and “untreated” neighbourhoods will be based partly on expert interviews. Yet, provided that an adequate empirical base can be constructed, an addi-

4 tional part of the assessment will focus on a difference-in-differences (DiD)-estimation, i.e. an econometric analysis which compares change among selected evaluation indicators in treated and untreated areas over a certain period of time. This comparative part of the evaluation study benefits from previous research into the socioeconomic and demographic sub-division of the study region, the Rhine-Ruhr agglomeration (Neumann 2003).

Figure 2: Research focus of the RWI-assessment of initiatives focusing on revitalising the local economy within the “Socially Integrative City” NRW

Policy Analysis Monitoring Assessment 1. What are the programme targets, what 1. What kind of measures are being 1. Are possible improvements of the problems are defined? carried out? What are the resources local business environment and labour involved (finance and manpower)? market attributable to local economic development policy?

2.Is it an explicit aim of the programme 2. Which start-up ideas are put into 2. Has local economic development strategy to attract businesses with strong practice, which are not and why? What succeeded in ugprading the location local economic linkages or to support the is the “survival rate“ of start-ups, how do factors of the programme area? setup of such businesses? they perform? 3. Are the prospective labour market 3. Development of the occupancy of 3. Can differences in the effects of local effects a key criterion for the granting of commercial estate and of entrepreneurial economic development be attributet to support to entrepreneurs? activity the organisation of projects?

4. What kind of internal monitoring is 4. Development of local retail supply 4. Which project measures can be being carried out? since establishment of local economic recommended as„good practices“? development programme

5. What kind of adjustment takes place 5. Development of local labour market 5. Does the focusing of interventions on between the “Socially Integrative City“ since establishment of local economic selected renewal areas prove successful? and other regional and economic policies development programme What development has taken place in of the municipalities, Länder, Federal comparable areas which were not Government and EU? supported by the “Socially Integrative 6. What are the differences in the City“? organisational structure of Local Economic Development Projects?

Finally, it should be noted that in Germany, scientific evaluation of urban regeneration in general and local economic development in particular is still in its infancy. The RWI research project is part of the approach of the Federal state of North Rhine-Westphalia to implement systematic monitoring and evaluation instruments in its neighbourhood regeneration strategy.

4. Excursus: New Approaches to Entrepreneurship Promotion in Germany

Basically, the German support system for SMEs is determined by the political structure of the government with a federal, state and local level, plus by a strong role for public and private intermedi- aries (for the following notes see also Welter 2004). The federal government uses a variety of public and private organisations to deliver support to SMEs. One of the examples of federal state in- volvement includes the public bank “Mittelstandsbank”, a recent merger of the Deutsche Aus-

5 gleichsbank (DtA) and the Kreditanstalt für Wiederaufbau (KfW), which administrates financial support programmes, although applications of SMEs have to be handed in at commercial banks. The states (“Länder”) also have different models to institutionalise SME policies. These models range from an uncoordinated approach where a number of ministries and departments are involved and co-ordination often is problematic, to special state banks or investment agencies, which are responsible for administrating (sometimes also for implementing) all state programmes. The idea here is to provide a one-stop-agency which should ideally result in simple procedures and transparent structures for small enterprises. Local governments, i.e., municipalities and districts, are interested in local economic development through fostering investments in their regions. This might include some support for new and existing small firms, but it is not restricted to this group of businesses. Main actors at the local level are business and economic development corporations, (partly) owned by municipalities. They offer a variety of services such as company-related information and consulting services, advice regarding public support programmes or for establishing new ventures, generally acting as an intermediary between local administration and investors. However, although many business development corporations now offer orientation services for new businesses, their main focus is on established firms. A number of new approaches to support new and existing enterprises and entrepreneurship evolved from the mid-1990s onwards. But, several of these initiatives on state level simply bundle previ- ously existing instruments and programmes without developing a coherent or radically new strategy. Most German policies for start-ups concentrate on extending and stabilising the financial base of new ventures whilst consultancy plays a less important role, although more recently there has been a shift towards integrated packages. In concordance with the European Employment Strategy, the German federal and the state governments initiated several projects in order to improve the overall environment for entrepreneurship. These include, for example, reducing red tape for business start-ups, simplifying laws and regulations, introducing tax relief for small enterprises, setting up one-stop-agencies and creating an Internet portal to facilitate succession in established ventures. One of the remarkable examples is the so-called “GO!-Start Up Network” which was launched by the state government NRW in the year 1996 (www.go.nrw.de). Entrepreneurs and small firms can receive basic information through the Internet and a telephone hotline in regard to individual problems, support schemes as well as counselling and networking facilities in the cities and districts of NRW. Likewise the state of NRW runs the initiative “MOVE” for established small businesses. Further, several new instruments on federal and state level alike emphasize education for venture creation by pupils, students or graduates. In this context, Papenheim and Görisch (2001) identified 13 state programmes, which exclusively focus on students. For example, since 1996, North Rhine-

Westphalia finances part-time jobs as university assistants for one or two years, during which time the potential entrepreneurs can get their business started. Additionally, they can apply for so-called ‘marketing’ and ‘general consultancy’ cheques to partly finance external professional consultancy. Senior experts (managers or former entrepreneurs) act as mentors during the start-up period. More- over, there are various networks which programme participants in NRW might join, such as round tables of new entrepreneurs. Another support trend focuses on fostering women entrepreneurship. Most German support programmes for women entrepreneurs take care of their (supposed) support needs in terms of financial or human capital, neglecting the impact of the overall legal and institutional framework. Selected support measures, which are exclusively directed at female entrepreneurs, are mainly to be found at the state level. State governments also frequently introduce specific regulations into mass loan pro- grams, especially where these programmes are jointly financed by federal and state governments, e.g. in a loan programme in North-Rhine Westphalia for female nascent entrepreneurs without previous industry knowledge or in Mecklenburg-Western Pommerania where the state investment bank hands out loans directly to female entrepreneurs. These regulations aim at leveling out the possibly negative effects of the German ‘housebank system’, where commercial banks take on a gatekeeper function, i.e., all applications for financial support programmes are channeled through them. On the federal level, there is an ongoing subtle shift in support policies for women entrepreneurs ( Welter et al. 2004). The underlying support paradigm concentrates more and more on an organisation-based support approach. This is aimed at integrating gender-specific support topics not only into support agencies, but also into organisations such as chambers of commerce and business associations, although support policies are slow(er) to adapt. And finally, micro finance is a recent (and indeed innovative) element in SME and entrepreneurship support in Germany, which transfers a successful support approach from developing to industrialised countries. At the local level, there already were successful initiatives offering micro finance for new ventures, but with a limited, local outreach. Following an initiative of the Interna- tional Labour Organisation (i.e. the ‘Action Research Programme on Micro Credit and Business Creation of Unemployed’), the German government introduced this type of micro-credit programmes on a broad, nationwide level during the late 1990s through the former DtA Bank, now the above mentioned “Mittelstandsbank”. Regarding the modes of entrepreneurship support one can recognize a change in the philosophy, expressed through digressing from the solely promotion of physical infrastructure such as incubators and the pure focus on financial support of start ups. And it will be described below, how the attempts to entrepreneurship promotion in the SIC programme adds to it. At this point one can

7 already note two very distinctive features in comparison to the above mentioned new trends. Firstly, the SIC follows a spatial perspective and considers two aspects:

(1) Scale of operation: The approach focuses on neighbourhoods which cover 3 to 10 % of a cities population (Austermann/Zimmer-Hegmann 2000).

(2) Territorial character: The approach focuses on (a) inner city areas adjacent to closed industrial estates as well as on (b) on housing complexes of the 1960s/1970s inhabited to a large extend by low income families. Our paper deals only with first type of neighbourhood (Bülte/Pesch 1998). Moreover, the SIC approach aims to reach new target groups and turns increasingly to nascent entrepreneurs having no academic background, maybe even a weak schooling (City of Essen 1999, 2004).

5. The Programme “Socially Integrative City NRW”

5.1. Motives, Goals and Fields of Action

NRW, and in particular the Ruhr area, has been characterized since more than one century by coal mining, steel production and metal processing. Adjacent to the Ruhr area - in regions located northwest and southern - textile industry also played a remarkable role in the past. The structural transformation, initiated by the downturn of the traditional industries since the 1960s and 1970s, has been accomplished quite nowadays providing a remarkable base for the development of knowledge intensive and service industries. Examples include the evolving cluster of logistics in Duisburg, the IT cluster in the surrounding field of the Dortmund University or the revival of high quality furni- ture production in the eastern part of NRW. But not all cities, and therein not all localities, could cope with structural change equally successful. In the 1980s and 1990s especially the neighbourhoods adjacent to the now closed industrial sites and coal mines were characterized by an industrial, commercial and overall urban blight. The SIC programme aims at counteracting against these trends at the local (neighbourhood) level through mobilization of local governments, educational institutions, welfare organisations, local chambers of commerce and business associations, local voluntary organisations and citizen groups of the identified project areas. Their joint activities will be supported in many fields, such as edifi- cial and environmental improvements, improvement of social infrastructure with emphasis on school children and adolescents, expanding local child care facilities, programmes focussing on ethnic minorities, creation of (temporary) employment through public labour programmes and last but not least fostering small businesses and in particular new ventures. The SIC programme in each city aims at combining certain single activities in different fields of action, for example by support-

8 ing entrepreneurs in setting up their businesses and placing orders related to the development of other projects in a programme area. In this way of handling local problems according to the principles of cooperation a contribution is made to the further development of the civil society.

5.2. Locations, Management and Finance

Since the initiation in 1993 the SIC programme has covered 34 quarters (neighbourhoods, programme areas) in 25 cities of NRW. Figure 3 illustrates the extension of the programme in the course of time and the strong focus on the Ruhr area. In order to identify eligible neighbourhoods for the SIC programme many cities conducted statistical analyses of the demographic and socioeconomic development in the 1990s. But the incorporation into the programme took only place if the responsible authorities at the state and at the municipal level mutually agreed on the eligibility of a neighbourhood (www.soziale-stadt.nrw.de). In 1999 the federal government of Germany took up the idea and designed a similar programme in cooperation with other federal states. Since 1999 about 360 quarters in well above 250 cities have been project areas (Haack 2005:56). Figure 3

Participants in the programme "Social Integrative City" – state North-Rhine Westphalia

1992 to 1994 1995 to 1997

1998 to 2002 since 2003

new participant established participant former participant

The SIC programme in NRW is headed by the state ministry in charge of urban development, which coordinates work at the state level through an inter-ministry committee (figure 4). In the municipalities either the department in charge of urban planning or in charge of social affairs acts as coordinator in the administration. The coordinator organizes this type of work with the help of a special programme committee. Further, cities which participate in NRW as well as certain state and national scientific institutes run a so-called “SIC Municipality Network”. It is jointly funded by the partici- pating municipalities and headed by the coordinator for the SIC programme in the city of Essen. The function of the network is to exchange experience and views regarding the course of the programme as well as to approach the state government if crucial changes seem to be required (City of Essen 2004: 105). In each programme area, i.e. the selected neighbourhood, a so-called “quarter manager” coordinates the implementation of the programme at the local level. In some quarters the manager is supported by additional staff and organisations respectively, holding the responsibility for particular key activities such as entrepreneurship promotion. The main function of the “quarter manager” is twofold: (a) to coordinate certain activities in particular fields of action initiated by a wide array of local actors, and (b) to develop new initiatives and to try to form new coalitions of local stakeholders (figure 4). Figure 4 SIC-programme NRW: Three levels of activity and important actors

citizens

neighbourhood level welfar e municipal level organizations administration citizen christian initiatives departments communities

schools quarter retail trade/ manager municipal city council industry / crafts commitee

local project housing commit ees associations SIC

local politicians network of inter-ministry SIC-participants commit ee in NRW

Research Institute for Regional and Urban Development state ministries state level district government

Source: www.soziale-stadt.nrw.de 10

Due to scarce public funds some new modes of financing were developed and implemented in the case of the SIC programme NRW. The key issue is to allocate funds from different state programmes in a coordinated manner for the different local activities. In contrast to normal applicants the applications from the programme areas will be twice-preferred by the state government, namely by (i) favoured handling in the administration and (ii) receiving a surcharge of 10% on regular funding in certain programme fields. In all supported single projects a share of 20 to 40% has to be co- financed by either the municipality or with the help of other public funds, by welfare organisations or through sponsoring. Therefore, funds from the EU, from the federal und municipal governments can and must be added. For example, between 1990 and 2004 the programme area Essen- Katernberg – the pioneer area in NRW and Germany – received a total sum of approx. 52 Mio €. Nearly two third of the sum (34.3 Mio €) could be raised from state funds, namely the ministry of urban development, the ministry of labour and social welfare as well as the ministry of economic affairs. Another 20% (11 Mio €) were raised from EU funds for the conversion of an old industrial estate and for the establishment of a start-up incubator. The federal government contributed 5% (2.7 Mio €) mainly for cultural activities and related business initiatives. And the municipal government provided – together with several sponsors – the remaining 8 % (4 Mio €), mainly in order to support entrepreneurship initiatives and cultural activities. With a (smaller) separate fund the state government provides part of the overall grant for measures supporting local citizens’ engagement. An elected citizen committee decides about its usage for local activities, such as public relations or the work of volunteer citizen groups. For example in Es- sen-Katernberg the fund had a volume of about 3 Mio € between 1994 and 2004. It was powered by the state (94%) and municipal grants (6%).

5.3. Integration of Efforts to Strengthen the Local Economy

In the manifold range of projects adding up to the SIC initiative, small business and entrepreneurship promotion is not always a central field of action. Regarding local economic development, re- viewers of the German SIC programme noticed a considerable gap between expectations in the initial phase of the SIC programme and the results at the end of the year 2004 (IfS 2004: 168-175). Their main points are the

- total absence of relevant activities in this field of action in certain programme areas, even where such measures were supposed to be implemented,

- shortcomings in incorporation of the municipal departments of business promotion, chambers of crafts and commerce, business associations and alike during the process of develop-

ing the initial integrated action plans, including goals, strategies and instruments for the pur- pose of strengthening the local economy,

- partly very limited knowledge of quarter managers regarding principles, common strategies and present schemes of small business and start-up promotion,

- overall very limited number of promoted start-ups and the small number of newly created jobs in new ventures.

These shortcomings with regard to business promotion can be attributed to a number of reasons:

- According to the principles of SIC the actors at the neighbourhood and municipal level will decide what kind of problems ought to be tackled first and in which way. Under the guid- ance of the quarter managers these actors develop an integrated action plan, in which local economic development may be one field of action. Yet, local stakeholders may decide that the emphasis in this area should be mainly on other projects, e.g. housing. Based on this plan, a first set of single projects will be suggested, budgeted and implemented.

- In many programme areas citizens, local activists and actors at the municipal level tried to tackle the problem of combined blight phenomena by a set of projects aiming at enhancement of technical, local and housing infrastructure through publicly funded construction projects. Here a comparatively large number of unemployed persons found a medium-term oc- cupation.

- After the first set of projects was finished, the temporarily engaged workers were again re- leased from the publicly funded labour schemes. Thus, the overall unemployment rate had obviously not declined in a sustainable manner. Now entrepreneurship promotion came into focus in many project quarters. Hence, even in established programme areas entrepreneurship promotion may be a comparatively new field of action.

- Last but not least it must be noted that many programme areas face a scarcity of appropriate working space for any kind of small and service-oriented businesses. This is in particular true for pure residential areas, i.e. the housing complexes of the 1960s/1970s but also for many areas adjacent to (former) heavy industry plants. However, after about ten years it can be summarized that the topic of entrepreneurship promotion has found a place on the SIC agenda. Furthermore, due to the necessity to consider local circumstances some new trends indeed were nudged in a number of programme areas. Such innovations usually incorporate the combination of some of the above-noted new approaches to entrepreneurship and SME support, such as

- improving the general business environment through enhanced transparency in regard to public SME promotion and administrations work,

- turning increasingly to nascent entrepreneurs having no academic background, maybe even a weak schooling, and providing counselling and coaching,

- creating local firm networks to foster mutual support, exchange of ideas and cooperation,

- creating networks between municipal and regional programme promoters in order to exchange views on the implementation of the project, in particular activities and prospective.

6. Entrepreneurship and Small Business in Three Sample Areas

6.1. The starting position

This chapter deals with the attempts to promote start-ups and existing small ventures in the three programme areas of Essen-Katernberg, Gelsenkirchen-Bismarck and Wuppertal-Ostersbaum. The two neighbourhoods in Essen and Gelsenkirchen are quite similar with regard to their geo- graphical location within the city, their economic history and the present socioeconomic structure. Both places are located in a distance of around 5 km from the city centres. For around 150 years the two areas were dominated by coal mines and adjacent residential quarters. The southern edge of the Gelsenkirchen quarter was occupied by steel and metal plants. The coal mines in Essen were closed step by step between 1986 and 1993. The coal mine in Gelsenkirchen-Bismarck closed down in 1995. As a result around 4.000 to 5.000 persons lost their jobs in each place. Up to the 1990s a large number of migrants entered into the areas in search for jobs and housing facilities at reasonable rates or as refugees. In general these areas were characterized by uncomfort- able housing and environmental conditions. In the course of industrial downturn the environmental situation improved, but the socioeconomic conditions became worse. The rates of unemployment and recipients of social benefits were well above the cities’ respective averages (Table 1). More- over, in the 1970s a selective out-migration process set in and the less educated persons and poorer families became dominant groups in the areas. The situation in the Wuppertal-Ostersbaum neighbourhood is different to some extent. This quarter is adjacent to one of the two commercial centres of the city of Wuppertal. It flourished in the advent of the textile industry in the first half of the 19th century. The downturn of the textile industry started soon after the end of World War II. Due to the extension of the shopping facilities in the nearby city centre, the quarter lost also a lot of retail shops. Hence, the vacant estates and shops, unfavourable housing conditions and a steadily growing unemployment reinforced a selective migration process similar to Essen-Katernberg and Gelsenkirchen-Bismarck. The migrants rate is about 29 % (Table 1). 13

Table 1: Socioeconomic characteristics of three programme areas in NRW in the early/mid- programme phase of the SIC-initiative

Place Inhabitants Share of re- Unemployment Share of unemployed Share of mi- cipients of rate persons on the total grants social benefits population in % (age group 18 to 64 years) Essen-Katernberg 23,387 12.0 % n.a. 10.3 % 17.8 % (1998) (1997) (1998) (1998) Essen 603,335 7.6 % 13.2 % 8.4 % 9.5 % (1998) (1998) (1998) (1998) (1998) Gelsenkirchen-Bismarck 18,700 ~ 7.5 % ~ 20 % 20.5 % (1999) (1999) (1999) (1999) Gelsenkirchen 283,000 6.4% ~ 18 % 13.6 % (1999) (1999) (1999) (1999) Wuppertal-Ostersbaum 11,855 13.3 % n.a. 7.3 % 29.2 % (1998) (1998) (1998) (1998) Wuppertal 375,378 7.1 % 11.8 % 4.9 % 14.1 % (1998) (1998) (1999) (1998) (1998) State NRW ~ 17,976,000 3.8 % 11.7 % 11.1% (1998) (1998) (1998) (1998) FR Germany ~ 82,037,000 3.5 % 12.3 % 9.1 % (1998) (1998) (1998) (1998) Sources: Austermann/Zimmer-Hegmann 2000. Federal Statistical Office 2003a,b. Statistical Office NRW 2000. The figures in brackets show the reference year.

In the three areas industrial blight and selective migration caused a decline in local purchasing power. As a result firms in retail trade and household oriented services closed down. But the growing lack of shopping and service facilities even reinforces emigration from these zones.

6.2. Essen-Katernberg: From the Mining Area to the “Memorial Area”?

Immediately after the closure of the “Zollverein”coal mine in 1985/86, several organisations started initiatives to counteract the blight phenomena in Essen–Katernberg (Figure 5). Examples include the municipal planning department and the municipal agency of business development, the faculty of social work of Essen University, as well as a group of local business people. A university based group of activists from the social work faculty had been active in the area since the early1980s. They were focusing on the enhancement of the social infrastructure (ILS 1995). However, the Katernberg neighbourhood was selected as a pilot area for the SIC programme NRW in the year 1993. And in contradiction to many other SIC areas the issue of fostering entrepreneurship played an important role from the beginning of the programme activities. The following examples shall illustrate this process. Three projects were moderated by the quarter management but organized by independent organisations. (1) An incubator for start-ups was established in 1994 on a side estate of the former “Zollver- ein” coal mine. The name is Triple Z and stands for “ZukunftsZentrumZollverein”. Around 9 Mio €

14 were invested between 1994 and 2004 to reconstruct the estate and to create different types of work space. After negotiations in the beginning of the 1990s the former owner handed over the estate to the so-called “Triple Z Management Company”. The Company is backed by many important institutions of the city of Essen, e.g. the municipality with different departments, the public Essen De- velopment Corporation, the local labour office, the trade unions, local banks, the chamber of commerce and crafts (Triple Z 1999, City of Essen 2004). The main goals of the incubator are (i) provision of appropriate work space for new ventures from very different branches, (ii) with sharing facilities like security and office service, (iii) at comparatively reasonable prices, and (iv) with an advisory service offered by the Triple Z management for the tenants but also for other small firms of the neighbourhood (ILS 1997a: 37 – 39). The perform- ance of the incubator can be considered as successful. After four years of reconstruction the first firms and organizations entered in 1998. Until the end of the first year 22 tenants were established and provided jobs for 40 persons altogether. In addition, 15 persons work for the Triple Z management company. In the year 2004 more than 50 ventures started their activities. They offer 300 jobs altogether. The present group of firms includes consulting firms of engineers (mining equipment, metalwork), metal workshops, whole-sellers, IT and media firms, advertisement and design agencies, tax and business consultants. Not all entrepreneurs are originating from Essen-Katernberg, but some of them shifted the locality. Many labourers and trainees are living in the neighbourhood. Since the year 2003 the incubator management cooperates with a municipal organisation for women entrepreneurs (“Die Spinnen”). Triple Z provides office space free for cost for a six month-training course. Afterwards, women entrepreneurs get the chance to remain in the incubator, set up their business and to receive a so-called “Triple Z – Scholarship” for another few months. The Triple Z Management Company is organised as a public company which offers 41,000 shares, out of which 8,600 belong to the citizens of Essen and the Katernberg neighbourhood in particular. The other 32,400 shares are owned by some of the above-noted semi-public institutions. In this way the incubator and its tenants are linked financially to the neighbourhood as well as to the city. The basic capital of the company is about 60,000 €. The running costs of the incubator are well-covered by the tenants. Triple Z spents a part of its profit for funding cultural and social activities in the neighbourhood, e.g. establishing ateliers (Triple Z 2004, City of Essen 2004). (2) In the year 2002, the main estate of the coal mine “Zollverein” got listed by the UNESCO as a world heritage. It was due to the unique industrial architecture (Figure 5). Hence, in addition to the above-mentioned 52 mio € for the SIC activities another 193 mio € were provided by public sources since 1989 for the conservation and reconstruction of the heritage areas. Today, the area hosts a number of museums, a design centre, a conferences centre, restaurants, a cinema and a thea-

15 tre. This site plays an important role in the regional tourism concept “Route of Industrial Culture”. Therefore, the circumstances became very favourable for the establishment of small businesses in the locally underdeveloped field of hotel and catering trade.

Figure 5 Projects on entrepreneurship & neighbourhood regeneration in Essen-Katernberg

1985 1986 to 1993

after 1993 coal mine & attached estates residential quarters (mining workers) startup retail trade / small business

closed coal mine/estates

UNESCO vacant shops World Heritage business park (SME) museum ateliers restaurant/hotel

bed&breakfast facility

0123 km

A local association was founded in the year 1997 with the aim to promote tourism. The SIC quarter management moderated this process in the beginning. The now established local tourism association offers cycle and walking tours on the topic of the coal miner’s life. For two years around 30 landladies – affiliates of the tourism association – have been offering altogether 80 bed & breakfast facilities adjacent to the world heritage area (Figure 5). In the first year 2003, approx. 1,000 over- night stays were booked. In the first half of 2004 alone nearly 900 over night stays could be arranged. The group of “young entrepreneurs” consists mainly of elderly ladies, often housewives without an academic background. With the help of the SIC programme they were able to join Eng- lish language courses. As a result they can now also receive international guests. Moreover, the landladies gain from a cooperation with the start-up incubator Triple Z. In the case of conferences and seminars the new bed & breakfast facilities in Essen-Katernberg will be used by the organizers (VIKZ 2005).

The initial costs for the tourism module of the SIC programme added up between 1998 and 2004 to around 0.12 Mio €, such as for feasibility studies, for the initial PR campaign, language courses, grants for the reconstruction of guest houses and so on. In the meanwhile the association operates profitable and started a catering service (City of Essen 2004: 9).

(3) The company „Ethno Art Ruhr” (EAR) was established in the year 1998 by a team of ten artists and business men. The goal was to establish a kind of art business incubator beside the Triple Z. The new ventures under the roof of EAR should provide job facilities for talented young persons belonging to the ethnic minorities of the neighbourhood (music production, cultural events, catering service). However, after four years the insolvency of the project had to be stated. This was caused by an overestimation regarding demand and related earnings, and certain changes of the concept (City of Essen 2004: 9). However, a further usage of the buildings is being considered and an integration into the Triple Z start-up incubator seems to be one considerable option.

Finally, one can conclude that two out of three SIC projects to strengthen the local economy via entrepreneurship promotion can be considered successful. Further research work will concentrate on a more in-depth assessment of the effects of the activities connected with the start-up incubators and the local tourism association on the local “business environment.

6.3. Gelsenkirchen-Bismarck: Business Development without a New Magnet

Gelsenkirchen-Bismarck does not have a magnet like the world heritage area of “Zollverein” in Essen. Instead of this, a lot of vacant land characterises the area after the closure of the mining and the industrial estates. Therefore, the SIC programme started in 1995 with the main emphasis on the enhancement of existing and the creation of new housing facilities (based on the use of solar en- ergy), the extension of social and cultural infrastructure (new school and theatre), the creation of green space as well as the improvement of daily shopping facilities through the settlement of a big supermarket (Figure 6; ILS 1997b, City of Gelsenkirchen 2002).

Figure 6 Urban renewal in the neighbourhood in Gelsenkirchen-Bismarck

before 1993 1993 to 1997

coal mine & attached estates after 1997 steel plant

vacant land

residential quarters solar houses retail trade / small business school T S closed coal mine/estates closed steel plant vacant shops T theater S supermarket

0123 km

Against this background the activities in favour of the local economy could not play such an important part as in Essen-Katernberg. Between 1995 und 2002, 79 Mio € altogether were spent for all SIC activities, thereof only 2.3 mio € for activities related to the development of the local economy and the transport infrastructure (approx. 3%; Austermann et al. 2002). With regard to small business support the SIC management group in Gelsenkirchen decided for a strategy with three modules, namely (1) the establishment of an one stop advisory service for nascent entrepreneurs, (2) the initiation of two business networks (nascent/young entrepreneurs, established firms) and (3) the arrangement of formal teaching programmes in cooperation with external partners (nascent/young entrepreneurs). Therefore, financial resources were allocated mainly for project staff (ILS 1997). An interesting point is the structure of the quarter management. Two local agencies work under the roof of a head office in the field of (i) social development and (ii) economic development. The construction activities and other projects on urban development are coordinated by the central manager (Figure 7, Austermann et al. 2002: 52-53). However, considering this organisational structure one

18 can conclude that in terms of manpower and decision-making power the field of strengthening the local economy has a remarkable importance. The outcome will be sketched in the following notes, but only with reference to the part of entrepreneurship promotion.

Figure 7

Integration of enterpreneurship promotion within the SIC-programme – Gelsenkirchen-Bismarck

Office quarter manager (urban development

5 persons Local agency for Local agency for economic development social development

2 persons 2 persons

programme Support networking management running citizen of established & youth clubs local SME public relations social/cultural entrepreneurs joint fund raising activities councelling centre wit h special focus on entrepreneurs children & youth regular table construction/ reconstruction activities to enhance the locations image tenements

school

citizen clubs

cultural centre etc.

Between 30 and 60 people used the individual counselling service of each of the local agencies (module 1). The agency acts mainly as a pilot and leads the interested persons to the right experts of the municipal authorities. Moreover the agency managers provide advice with regard to the different promotion schemes for nascent entrepreneurs. Until the year 2002, around 30 people started their business with the help of the local agency and created 10 additional jobs.

Since the year 1999 the agency responsible for economic development arranged a so-called “regular’s table” (module 2). Around 10 to 15 persons followed the monthly invitation to this meetings. Altogether 170 nascent entrepreneurs joint the opportunities for networking between 1999 and 2004

(City of Gelsenkirchen 2004a). In connection with the entrepreneurs’ regular’s table the local agency arranged several seminars, e.g. on accountancy, taxes, the structure of business promotion in NRW (module 3). These measures of entrepreneurial education were arranged in cooperation with the local chamber of commerce, private business consultants, the municipal agency of economic development and the regional agency for entrepreneurship promotion (see the notes on the GO! Initiative NRW in Part 4). A questionnaire amongst the entrepreneurs and young firms on the effec- tiveness of the agency’s work is planned by the authors for autumn 2005.

6.4. Wuppertal – Ostersbaum: Handling Vacant Space in the Inner City

In Wuppertal-Ostersbaum the SIC activities started in 1997. Within the first two years a study on the economic problems and potentials was carried out by the SIC quarter management in cooperation with an external consulting agency and a group of interested local businessmen. Basically two main problems affect the local economic problem in this area: (i) vacant industrial sites due to the downturn of the textile industry, and (ii) vacant retail shops as a result of the competition with the shopping centres being close to the city centre (Figure 8; ILS 2000b).

As a result of the investigation three activities have been initiated and coordinated by the quarter manager since 1999:

1. Reuse of vacant space in one of the industrial estates,

2. Management and ultimately re-use of vacant retail shops in the central parts the programme area,

3. Establishing an advisory service for the retail shops owned by members of ethnic minorities.

(1) All activities are carried out in a public-private-partnership. For example, the quarter management and interested young entrepreneurs negotiated with the old owner of a closed industrial plant. As a result, an association of young ventures – the Start Punkt e.V. – was formed in 1999 and rented the available industrial space. At present the reconstruction of the industrial site is going on. The reconstructed parts were rented out to young firms. They all become a member of the Start Punkt e.V. Whenever required the quarter managers assist these firms. The target group of the project are graduates from the faculty of architecture, arts & design of Wuppertal University. In this way the former textile factory shall be converted into a start-up incubator called “culture factory”. However, it will take some more time until the estate is fully reconstructed and filled with new firms.

Figure 8 Efforts to re-vitalize an old industrialized inner city area – Wuppertal-Osterbaum

before 1980 1980 to 1997

city centre city centre shopping centre shopping centre

after 1997 textile factory small retail shop CF ? retail shop (ethnic minorities) closed textile factory vacant shop

CF culture factory

? project under consideration revitalized shop project agency (vacant shop) supermarket city centre shopping centre 0 200 400 600 m

(2) With regard to the management of vacant shops the quarter management of Wuppertal- Ostersbaum gave an assignment to a business consultant to run an agency for the reuse of vacant retail shops (AVS). In a first step the vacant shops were mapped and classified. Secondly, negotiations took place with owners of shops which are easy to repair. In the case of an agreement these shops were renovated by trainees, i.e. school leavers who participated in another SIC project funded partly by the European Social Fund. Out of 30 vacant shops around one third have already been renovated. A few shops could be rented out.

At present the agency AVS, the quarter management and the Start Punkt e.V. (“cultural factory”) are developing a long-term strategy for the reuse of the remaining vacant shops. In the long run the cultural factory is supposed to operate as a local “magnet” for young firms in the fields of art, music, design, media and advertisement. And certain vacant shops shall be used as “outlets” of the cultural factory project. New tenants may become members of the Start Punkt–network and enjoy all facilities such as start-up advisory services. In this way a larger part of the SIC area will be man- tled by network of new small businesses originating in the cultural factory incubator.

(3) The third project deals with the situation of retail shops at the western edge of the SIC programme area. The main goal is to provide advise and support with regard to shops outfit and infrastructure. Since the shops are owned by members of ethnic minorities a very sensitive proceeding is required. Hence, the work of developing contacts and conversation is still going on. In a second step the need for assistance should be investigated.

For now, only this initial outline of the approach to handle vacant business space in the inner city of Wuppertal can be given. In the coming months a series of workshops and in-depth interviews with the local actors of business promotion will investigate the outcomes of this strategy and its transferability to other neighbourhoods, in more detail.

7. Conclusions and Outlook

At the end of the initial phase of our assessment study we can draw the following conclusions with reference to goals and strategies, instruments, management and to the importance of entrepreneurship and small business promotion within the SIC programme.

Goals and strategies of entrepreneurship and small business promotion differ between the programme areas due to very different local circumstances and problems. Further, the SIC neighbourhoods stand in different stages of programme execution. However, with regard to the central question (What type of new venture should be predominantly supported in SIC programmes?) the present results suggest the following.

1. There is – in accordance with the above-noted Scottish and Italian experience and with Läp- ple/Walter (2003) - a tendency to promote entrepreneurs, which offer products and services for the whole city and beyond it, i.e. who will not focus their business strategy solely on local demand within the project areas. With respect to branches the local SIC promoters aim at designing a com- position of firms which matches with the economic structure of the city.

2. The quarter management and affiliated development agencies in the three sample areas try to strengthen the links of local firms to their location. Entrepreneurs are invited to bring in ideas for other SIC activities through the local committees and working groups.

3. Local entrepreneurs’ organisations try to encourage their members to show social responsibility in favour of other activities (e.g. providing training facilities for school leavers, promoting artists by offering working space, sponsoring cultural events such as in Essen).

The SIC approach to entrepreneurship support adds to other recent trends in entrepreneurship promotion in Germany in three points.

1. Entrepreneurship promotion is arranged with a focus on particular spatial circumstances. The combination of activities with regard to urban, social and economic development, including entrepreneurship promotion, seems to be unique.

2. There are some new target groups in the focus of the SIC activities, i.e. nascent entrepreneurs having no academic background, maybe even a weak schooling. In this context the promotion of women entrepreneurs plays an important role in some areas.

3. The quarter managers and associated agencies try to provide easy access for local nascent entrepreneurs to the promotion facilities at the municipal, regional and state level. The quarter management and affiliated local agencies operate as links (“bridges”) to the established support structures. This is also a contribution to the efficiency of the existing promotion schemes.

The usefulness of instruments and organisational settings will be subject to our research in the next phase of the SIC assessment. A number of points may be drawn from our first observations.

1. A very important instrument to support entrepreneurial activities seems to be the creation of appropriate workspace for different kinds of small firms (Essen, Wuppertal). The quarter management and associated local initiatives tried to enter into public-private partnerships for the establishment of start-up incubators.

2. The quarter managers in Gelsenkirchen combined the instruments of a one-stop advice service with formal training courses. This is also partly true with regard to female entrepreneurs in Essen (tourism; accompanied female entrepreneurs in the incubator).

3. The third instrument to support entrepreneurs is to initiate networks of local entrepreneurs and established businesses. Examples include the regular’s table of young entrepreneurs (Gel- senkirchen), the Start Punkt e.V. (Wuppertal) and the local tourism association (Essen).

4. Another important feature is the engagement of specialists with regard to entrepreneurship promotion. The promotor can be integrated into the structure of the quarter management (Gel- senkirchen). But the experts can also work in an legally independent organisation, like the start-up incubator of Essen-Katernberg.

5. Often the quarter manager acts as moderator and coordinates the activities with regard to local economic development. In this way many projects are conducted in public-private-partnership.

The importance of local economic development within the SIC programme is very difficult to asses, since the quarter managers are simultaneously active in a number of fields. And a clear dis- tinction between economically focussed and other measures is often not possible, since the ar-

23 rangement of social and cultural activities is closely linked to the activities of the business commu- nity in the neighbourhood.

There are also specific activities aiming at the integration of ethnic minorities in the field of local economic development (Wuppertal, Essen). It has been noted that entrepreneurship promotion in this fields requires a very sensitive proceeding by the quarter management and associated development agencies. Further research in places like Duisburg and Düsseldorf will enlarge the empirical base and permit a more detailed analysis.

According to our initial investigation there are several ideas which may well be worth being trans- fered and applied in the context of other SIC quarters with similar circumstances. Examples include (i) the establishment of a start-up incubator (Essen), (ii) a separate agency for business and entrepreneurship promotion under the roof of the central quarter management (Gelsenkirchen), (iii) a separate agency to handle vacant shops in a public-private-partnership (Wuppertal), (iv) the accom- paniment of emerging local entrepreneurs and SME networks and (v) the cooperation with already existing entrepreneur networks (Essen).

Further research on the effects of selected local economic development initiatives, e.g. by compar- ing change in project areas with that taking place in similar “untreated” zones, will base our assessment on empirical evidence.

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