Quarterly Journal on Management
From the publishers of THE HINDU BUSINESS LINE
Vol. 2 :: No. 2 :: August 1998
Thomas J. Christoffel
Businesses begin small and local. Someone has an idea for a product or service, something new or better than what is available. The entrepreneur just wants to get started. The business plan will identify a consumer or industry market. Market potential might encompass the locality, the state, country, continent or, for the very ambitious, the whole planet.
How can a small firm implement a large market vision? Use regions! That's how large organisations divide their world to manage it. What about the overhead costs of having a regional structure? That can be minimized by using existing regions. In many countries, there are governmentally supported regional networks whose job it is to help develop the economy. By aligning with this structure, businesses can get important market information and pick the best regions for their product.
In the U.S., Sam Walton of Wal-Mart used a regional strategy to build high volume stores in rural markets too small for the big chains. In fact, one of his motivating thoughts was that people in rural areas should have a choice of products at competitive prices. In the 1960's, discount stores, where high volume sales allowed retailers to have a low markups on goods, only existed in metropolitan areas. Rural markets were just too small.
Wal-Mart looked for regional center communities in which to locate its stores. It might be a city of only 20,000, but if it was the county seat, the location for a hospital, professional services, and other businesses, it drew traffic from the surrounding counties. By putting a destination store there - a place with low prices and a large selection so that people would be willing to travel 30 to 40 miles for the products, a market region of over 100,000 was brought to light. Strategic regional placements can focus such markets and bring them to life.
To use a regional approach, business people must recognize the region as a tool, learn to see regions, and then use them to deal with constantly changing markets. Understand that for most people, their first loyalty is to their local community. Local is at once for people, their city, their state and their country. I am a resident of the Town of Front Royal. It is in the Commonwealth of Virginia, one state of the United States of America. I resisted going to the Wal-Mart store in Winchester, or regional center, but the prices were good and I go to that city - 20 miles away - often. The region works for me as a customer.
What should be noted here is that the term "local" is scalable to the geography type, though each has specific legal boundaries. Regional, likewise, is scalable. It can be two or more locals of any type and based on characteristics which are not affected by political boundaries. For the purposes of business, governmental regions can be exceedingly valuable as a means of defining and serving markets.
Why Governmental Regions Were Created
In the United States, the original states were divided into counties, each having its own elected officials and court system. Rural areas grew in population as settlers began farming. Mechanisation of agriculture reduced the need for farm workers and migration to industrial cities meant many rural areas peaked in population in the 1900's. Cities, municipal corporations that provided the infrastructure of public water and sewer service, roads and transportation, schools, police and fire protection, grew with an educated workforce.
Regional transportation in metropolitan areas with trains, trollies, buses, subways and private cars, let people live in one community and commute to another. This increased in the 1950's with the Interstate highway system. To promote rural revitalisation in the 1960's, Federal programs and state governments began to form statewide networks of regional councils. This brought together small, sparsely populated counties to fora a regional market which might develop a single industrial park to attract new industry.
The goal was to create an economy of scale - many small jurisdictions of 5,000 to 20,000 population did not represent the market of a city of 100,000.
In metro areas, the growth of cities and suburbs caused conflict in transportation and other infrastructure demands. Federal concerns over duplication of facilities led to an intergovernmental grant A-95 review process. This shift created commuters and housing and labor markets became regional, that is people could live in one political area and work, shop or recreate in another. No papers or passports were required, so trade and commerce moved freely.
Using Governmental Regions to Benefit Small Business
A small businesses has the immediate problem of defining markets. If the local governmental region is taken as a default, there is a base of analysis and planning that will help identify market potential. This is true for customers and suppliers. Looking close to home in your local region will uncover resources and markets that were unknown. It will necessitate the crossing of political boundaries and sometimes cultural boundaries. This is often difficult for political officials, but a rational, "Let's make a deal," business person will not be put off by local boundaries within the region.
Those that do perhaps want special favors so they may get local business without competition on price and quality. If I must buy what you make, regardless of the quality, then the market is undermined. Yet, using the regional markets to strengthen the region, if pursued with bench marking against external standards, will benefit growth.
Three Step Model - How to think regional
A three step scale - local, regional, global - can be used to classify issues and select among options. What is local? A geography encircled by a single boundary. Your city or political subdivision gives that basic boundary, if there is free travel and no limitations within the boundaries.
There can be subareas - unique local neighborhoods that and have different market potential. When you cross a local boundary, particularly if it is a political boundary to deliver a product or customers cross the local boundary to purchase a product, you have shifted to the regional scale. I that's the case, then nearly everything is regional you might say. And that is the case. Markets are regional. That calls for the third scale - global - which is either the entire reach of the planer, or your highest level of reach.
As we've discovered, few transactions are limited to the purely local. We tend to think of local business from the political point of view with the intention that taxes and profits stay within the local jurisdiction for income and tax purposes. This just isn't true even for the small business.
Can this insight be of benefit to the businessperson?
Wherever you are now selling is your region. Are there differences within the area that suggest a different organisation would be more effective - one that follows political jurisdictions or natural features which subdivide the geography? Comparing your regions from your own sales data, correlated with public statistics as from a national census, will give you feedback to help characterize the people there and how you can expand your services.
Benchmarks can be established
Keep the regional boundaries stable, otherwise there will be no way to compare growth and change over time. That's why you might begin with a regional map of your State or Nation, as that may be the first path of expansion. Using governmental regions which have statistical data collected makes this a beneficial approach.
You can use your own analysis, but there are likely to be larger governmental statistical data sets from census counts that can give you insight into your markets. Grouping them for similarity along governmental region lines allows significant synergy.
Most local organisations, like Chambers of Commerce, service clubs like Rotary - follow local boundaries and are districted based on geography.
Local governments are likewise organized into regions for service areas, such as water and sewer district, highway districts, etc. These general reflect the regional systems of roadways, watersheds, communication and security infrastructure. In some cases you will find a regional or metro Chamber of Commerce. This can be a good membership organisation to meet and network with business people in the region. They may have regional economic data, but the emphasis might be on members. Getting the State economic development data can best come from a regional council or commission.
These organisations have a wealth of information for business people and the public data used in planning. They can also provide for you a viable regional market structure for metropolitan and rural regions. The key is the knowledge among local officials and contacts to the existing business community. In my region of Virginia, Planning District 7, Lord Fairfax - many businesses and industries use our data resources. A business oriented newspaper and charter bus line researched the region and decide to startup and shift their operations to the Northern Shenandoah Valley. Federal and state statistics help, since local governments produce little data.
While regional structure exist which can benefit small businesses, they are unknown as is the regional approach itself. When markets are correlated with regional data from governmental statistics, businesses have a ready made structure to help them plan and manage their expansion while limited the overhead costs of a company based regional network.
The author is a US-based Planner and Futurist.