Strategic choice of the economic specialization of the peripheral municipality

In the spatial respect the contemporary economic development is characterized by a growing concentration of economic activity which forms the preconditions for the occurrence of the centers being the sources of economic growth and of the periphery essentially lagging behind in many social and economic indices [1]. In the contemporary conditions the socio-economic differentiation is connected with the structural transformation of the economy which leads to the fact that “the distance between the center as the scientific and technical progress’ generator and the periphery as the executor is kept rather steadily” [2]. These processes are intensified by the growing role of knowledge, of the local communities’ human potential and social capital, and of the non-material territorial assets.

The mentioned circumstances determine the necessity of searching the priority-driven directions of the peripheral municipal economic specialization providing their competitiveness in the developed system of the division of labor (at the regional, the national and the international levels). In practice the necessity of the mentioned choice can be connected with working out the program of the socio-economic development of a municipality.

The considerable experience has been gained in the field of the methodical provisioning of working out the strategic plans and programs of the municipal socio-economic development. However despite of the existence of the wide spectrum of the methods, allowing to work out the strategy of the territorial development, some problems remain debatable both among the scientists and the experts. It is possible to relate the choice of the priority-driven directions of economic municipal specialization to them. The mentioned directions underlie the economic block of the program of the socioeconomic development and, moreover, can determine the substance of the social block.

Within the framework of the existing practice it is possible to mark out three basic approaches. The first approach is based on the fact that the developed and rather successful sectors of the local economy providing population’s employment and budgetary receipts are chosen as the priority ones [3]. Its main advantage is that it relies on the existing resources and interests of the local businessmen. This allows forming the program’s economic block on the basis of the projects which have already been planned by the local businessmen. First of all, it is actual for the mono-profile municipalities which economy depends on the city-forming enterprises’ functioning. The basic disadvantage of such approach is connected with the strengthening of the developed economy’s structure and with the limitation of its modernization’s opportunities.

The second approach is based on the development of the new local economy’s sectors, their structural reorganization, and the attraction of the foreign investors [4]. Its realization is actual with a view of the economy’s diversity or of the searching of the new basic economic development direction providing great competitive advantages. However in this case there can be limitations connected with the absence of the resources necessary for the structural reorganization, including the human potential. For example, among such limitations can become apparent the narrow competence spectrum of the local community and the social embeddedness of the economic activities [5].

The third variant based on overlapping the two mentioned approaches when the structural reorganization doesn’t only represent the occurrence of the new sectors of the local economy, but it also represents the modernization of the existing manufactures is considered to be preferable [6]. It alleviates the social costs of the structural transformation and allows the local community and business to adapt to the new conditions.

Moreover, within the framework of the mentioned variant on the basis of the system approach there can be a combination of the “old” sectors of economy with the “new” ones therefore the unprofitable enterprises acquire new competitive advantages and are guided by more attractive markets. However in practice such combination can be embarrassed by the conflict of the business interests, and by the crisis condition of the local enterprises which are incapable to function as the system-forming ones for the municipal economy. The advantages and disadvantages of the considered above approaches are submitted in table 1 .

Table 1. The main approaches to the choice of the municipal economic specialization, and their characteristics

Approach	Advantages	Possible disadvantages
Orientation to the developed economic structure	Predictability of the local business and the established relations Easiness of planning and forecasting Plans’ self-realization Correspondence of the existing competence of the local community to the business requirements Structural unemployment absence	Low adaptability of the local economy to the outer changes Low competitiveness and crisis condition of the local enterprises High unemployment rate Insufficient taxable base Low level of the population incomes
Formation of the new economic structure	Increase of the local economy’s competitiveness New workplaces’ creation Budgetary receipts’ growth Preconditions for the new institutes’ formation Opportunities for the improvement of the manpower resources’ professional skills Population incomes’ growth	Absence of the necessary production factors Low investment appeal of territories “Social embeddedness” of the economic activities Opportunity of the structural unemployment’s occurrence Opportunity of the interests’ conflict occurrence
The combined approach	Modernization of the “old” economic sectors Evolutionary structural economic transformation Low social costs Synergetic effect	Incompatibility of the “old” and the “new” sectors of economy Manpower resources’ lack Opportunity of the interests’ conflict occurrence

Let's consider the process of choosing strategically priority-driven directions of the territorial economic specialization by the example of the Lahdenpohskaya municipal area of the Karelia Republic. In 2009 the Institute of Economy of the Karelian Scientific Centre of the Russian Academy of Science represented itself as the developer of the Program of the area’s socio-economic development till 2015. One of the development steps of the Program was the strategic analysis and the choice of the priority-driven directions of the area’s economic development.

The Lahdenpohskaya area is located in the South-West of Karelia, it borders on Leningrad region, in the West the administrative border coincides with the Russian-Finnish frontier (fig. 1) .

The size of the area makes 2 210 sq. km, about 15.5 thousand people live there, approximately half of them lives in the administrative centre, in the town of Lahdenpohya. The area’s infrastructure formation and settling system considerably changed at the period when the area belonged to Finland (till 1940).

On the area’s territory there are two simplified check points, they are “Rustilahti – Uuku-niyemi” and “Parikkala – Syuvyaoro”, in the long-term prospect it is planned to create international automobile and railway check points.

The area can be referred to the category of the peripheral ones owing to its geographical remoteness from the regional capital, big settlements’ and town-forming enterprises’ absence in the area, and, accordingly, insufficient taxable base. In the total rating of the area’s municipal formations, carried out by the Ministry of Economic Development of the Karelia Republic, for the first half-year of 2009 the area ranked last in the sphere of socioeconomic development.

Nowadays the area’s economic specialization is connected with the building stone extraction, building materials’ production, logging and woodworking (fig. 2, 3, 4 ). Agricultural production in the area is rather developed as the area has favorable agro-climatic conditions [7]. However the agriculture has been in the crisis condition for a long time, and many agricultural holdings are not used in a proper

Figure 2. The number of employees working in the basic branches of economic activities, persons

Public utilities, social service and others с 62

Hotels and restaurants 17

0   100 200 300 400 500 600 700 800

Figure 3. Distribution of managing subjects in the basic branches of economic activities, units

way. At the same time the new branch, trout rearing, has been dynamically developing, as there are favorable climatic conditions and a lot of suitable reservoirs in Karelia. Besides its geographical position and transport availability the area has one more advantage, such as nearness to the large market in Saint Petersburg.

The considerable part of the employees in the area is concentrated in the social sphere, in educational and medical institutions, state and local government institutions. For example, the greatest quantity of employees (702 persons) work in the educational sphere, 464 people work in the public health services, 330 people

Figure 4. Turnover of the organizations in the basic branches of economic activities, million rubles

work in public administration, military safety, social welfare. The mentioned fact explains the low taxable base of the municipality, and its dependence on the regional and the federal budgets. Despite the fact that the quantity of the wholesale and retail trade enterprises, registered in the area, exceeds the quantity of managing subjects in the basic branches of economic activities, the number of employees in the mentioned sector is small, and the turnover of these enterprises is much lower, than in production. The mentioned process can be caused by the presence of the unregistered employment, and also by businessmen’s incomes kept back from the taxation. The greatest turnover, according to the official statistics, is provided by the processing and forest harvesting enterprises of the area.

Nowadays tourism has been actively developing in the area that is connected with its rich tourist potential and favorable location. Besides, the Lahdenpohskaya area can be defined as a recreational zone of Saint Petersburg. It can be proved by the growing interest of its inhabitants from year to year to this territory as to the rest place, and also by the cost growth for the ground areas. One of the problems in this sector of the local economy is the problem of the tourism incomes’ concentration in the area as nowadays its tourist potential is used by the tour agencies which are not registered on the municipal territory. Therefore the mentioned firms practically do not create workplaces for the local population, do not provide receipts to the local budget, but they conduct the enterprise activity, using local natural resources.

The industrial specialization of the area, first of all connected with the development of the open pits on the rubble extraction, repeatedly has conflicted with the forming recreational specialization of the territory lately that resulted in the occurrence of the conflicts of interests [8]. The area is included into the zone marked out as a perspective and an especially protected territory, the national natural park “Ladoga shhers”.

Taking into account the mentioned facts, the problem of a choice of the priority-driven directions of the area’s economic specialization while working out the program of the socio-economic development became fundamental. With a view of the mentioned choice the strategic analysis of the municipality’s economic development was carried out. The methodical basis of such analysis was the widely used in practice of the strategic planning SWOT-analysis, and also the concept of territorial capitalization, developed at the Institute of Economy of the Karelian Scientific Centre of the Russian Academy of Science [9]. SWOT-analysis of the Lahdenpohskaya area was carried out on the results’ basis at the seminar organized by the area’s administration with the participation of the experts from the local self-management administration, business representatives and population. Both the area’s strong and weak points, and its opportunities and threats are represented in table 2.

As a result of the analysis both of the internal and outer factors it was found out that the most important area’s advantages are:

• 1.    Agricultural holdings’ presence and agricultural production’s traditions. Agricultural development can lead to solution of many socio-economic problems: unemployment, population’s outflow from the small settlements, reduction of taxable base, etc. Besides, agriculture has the function of preservation of the tradi-

• tional way of countrymen’s life, preservation of the settling system, of environment and natural landscapes. However, nowadays this branch is in a crisis condition and its further development will demand considerable investments. At the same time there are opportunities of combination of agriculture and tourism (rural tourism), and also positioning of agricultural production as non-polluting one (foodstuff at sanatorium treatment).

• 2.    Favorable geographical location. Nearness to the Saint Petersburg area and to Finland positively influences local economy’s development and can cause investments’ attraction to practically all its sectors (tourism, transport,

Table 2. Strong and weak points, opportunities and threats

Strong points

• 1.    Historical and cultural heritage of the territory.

• 2.    Natural-resource potential.

• 3.    Presence of the agricultural holdings and farming industry.

• 4.    Favorable geographical location.

• 5.    Unique natural landscape.

• 6.    Presence of the conditions for sanatoria creation (favorable microclimate).

• 7.    Presence of the deep gulf and nearness to the Balaam island.

• 8.    Conditions for the small-scale water-power engineering development.

Weak points

• 1.    Lack of the qualified personnel at a high rate of unemployment

• 2.    Complicated demographic situation.

• 3.    Low level of the social infrastructure’s development.

• 4.    Insufficient development of the power, the municipal and the transport infrastructure.

• 5.    Area’s insufficient taxable base.

• 6.    Absence of the large-scale enterprises providing employment. Opportunities

• 1.    International projects’ realization and frontier cooperation.

• 2.    Investments’ attraction into the construction of farming industry’s objects.

• 3.    Health centers’ creation.

• 4.    Use of the modern technologies of the small-scale power.

• 5.    Improvement of the area’s transport availability.

• 6.    Opening of the branch line to Finland.

• 7.    Federal and regional support of the small-scale business.

• 8.    Means’ attraction for the port’s construction (reconstruction) in the town of Lahdenpohya.

• 9.    Individual construction’s development.

Threats

• 1.    Reduction of the investment activity and reduction of the taxable base.

• 2.    Continuation and increasing of the outflow of the population (first of all youth) from the area.

• 3.    Occurrence of the conflict of interests while realizing industrial projects.

• 4.    Shadow angle increase in the tourist business.

• 5.    Uncalled local staff while realizing investment projects.

• 6.    Degradation of the rural settling system.

• 7.    Growth of the quantity of the speculative land transactions.

• 3.    Presence of the conditions for sanatoria creation (favorable microclimate). The mentioned conditions allow speaking about large-scale investment projects’ perspectives in this sphere that give opportunities for the complex development of tourism, and also will allow to reduce the shadow angle share in the economy and to increase local population’s employment. This variant of tourism development is the most attractive since it is focused on the most effective use of the area’s tourist potential, ecological risks’ reduction, integrated approach of the tourist sector’s development.

• 4.    International projects’ realization and the experience exchange with the Finnish partners. International projects, allowing to adopt successful experience, to communicate and to exchange technologies (including the organizational ones) can become the serious factor of the area’s modernization and moreover, the Lahdenpohskaya area can further become the compiler of the successful experience in various spheres (business, local self-management, social sphere, etc.) for other municipalities of the republic. Transboundary projects’ and organizations’ creation can lead to the area’s economic inclusion into international industrial and trading network.

• 5.    Improvement of the area’s transport availability. The use of the area’s favorable geographical location can only become possible in the conditions of its transport availability’s increase, road network’s modernization, and corresponding infrastructure’s development.

• 6.    Opening of the international automobile check point and of the branch line to Finland. The mentioned project will allow raising the area’s tourist appeal, to develop its transit function and accordingly will lead to the business development and to the local population’s employment.

• 7.    Individual construction’s development. Further demographic situation’s improvement in the area, solution of the problem of the highly skilled staff’s outflow can only be possible under the condition of the housing problem’s solution; individual construction’s development is an optimal and attractive variant of this problem’s solution.

agriculture, etc.), at their balanced and complex development. Nowadays the investors are interested both in the mining complex’ projects and in the projects in the sphere of tourism and agriculture.

To the external opportunities which can seriously influence the change of the situation in the area, the following ones can be referred:

The following most significant external threats have been revealed:

• 1.    Investment activity’s decrease and taxable base’s reduction. In this case the area’s financial opportunities on the problems’ solution will be reduced at the increase of dependence on the regional budget.

• 2.    Continuation and increasing of the population’s outflow (first of all youth) from the area. The mentioned problem can become one of the most important ones in the sphere of investments’ attraction, both private and state ones.

• 3.    Uncalled local staff while realizing investment projects. Growing requirements to the employees’ qualification in all areas can make local population uncalled even at the area’s economic development. It results in contradiction; the high rate of unemployment is observed at the qualified personnel’s deficiency.

The total result of the strategic analysis is formulated as follows:

The existing preconditions and opportunities of the socio-economic development of the Lah-denpohskaya municipal area can only be realized at the complex local economy’s development based on the favorable geographical location, focused on the local community’s resources, on the population’s interests and ecological risks .

The analysis of the strategic alternatives connected with the priority-driven directions of economic specialization on the basis of the territories’ capitalization concept showed that (fig. 5) :

• 1.    Tourism does not provide immediate development of the territory; however investments’ attraction into the basic and subsidiary infrastructure is required for the mentioned branch to generate incomes and to create workplaces.

• 2.    Nonmetallic minerals’ extraction and rubble production allows to receive incomes and to provide the growth of workplaces’ quantity. However, this specialization’s direction is characterized by high ecological risks and can result in worsening of the local population’s habitation conditions and in reduction of the tourist potential of the territory.

Figure 5. Classification of the alternatives of the area’s specialization according to the positions of the short-term efficiency and the long-term growth

Probability of the long-term economic growth

High

Low

з:	•    Trout rearing •    Extraction and processing of the local energy raw stuff (peat, waste wood) •    Transit	•    Extraction and processing of non-metallics (mineral construction raw stuff) •    Logging
с> **|	•    Tourism and recreation •    Woodworking •    Gathering and processing nonwooden and food forest resources	• Agriculture: cattle breeding and crop production

Specialization, which has both the shortterm effect and the high probability of the development in the long-term prospect, is strategically attractive. In the Lahdenpohskaya area it is possible to refer to such directions trout rearing; and also extraction, processing and use of the local energy raw stuff. The first direction allows receiving immediate effect by virtue of the high competitiveness of the mentioned production (70% of the Russian trout are reared in Karelia) and has more potential of the prospect development. The second direction allows receiving short-term effect at orientation to the internal area’s needs in energy raw stuff, and long-term effect in joining foreign markets.

To the priority-driven directions with the high potential of development in the long-term prospect, but demanding great capital investments at the initial stages, we can also refer tourism and recreation, woodworking, use of non-wooden resources and processing of food forest resources. Extraction and processing of the mineral building raw stuff, alongside with logging, are attractive for the area’s economic as the priority-driven directions of specialization only in the short-term period. Thus the mentioned directions of specialization are included into the contradiction with the tourism development and the territory’s recreational functions.

Nowadays the area’s agriculture by virtue of the objective reasons is not an attractive sphere for business, its long-term prospects are not clear. However the mentioned direction can function as a subsidiary one while realizing area’s recreational functions (rural tourism and pollution-free production). Such variant is supported, especially by the local farmers, whom the realization of the combined approach would provide the additional income source, would allow to diverse business, to make it more profitable, and to join the level of the non-price competition at production distribution.

Thus, the choice of the priority-driven directions of the municipality’s economic development is based on the following basic criteria:

• 1.    Economic and geographical position : while representing the open socio-economic system, the municipality is in the constant interaction with other systems, and also with the systems of a more high level (country, region); accordingly the character and the intensity of the mentioned interaction in many respects depend on the municipality’s economic and geographical position which can become its competitive advantage.

• 2.    Presence of the necessary resources, including labor ones : nowadays the mentioned criterion is one of the most important since the absence or the lack of the staff with the necessary skill level can become a serious obstacle on the way of investments’ attraction and local economy’s development. In the modern economy not the lack of the financial resources but the quality of the labor resources becomes practically an absolute obstacle on the way of occurrence of the new directions of the territory’s economic specialization.

• 3.    Ecological safety and residing comfort : guaranteeing this criterion is the priority condition of the strategic choice since the population’s quality of life and ecological safety provide reproduction of the socio-economic system itself, the economic development in this case is not the purpose but the means for the local community’s development.

• 4.    Short-term efficiency and the opportunity of the long-term economic growth: the mentioned criterion allows to estimate strategic alternatives from the point of view of both the solutions of the problems existing nowadays (for example

• 5.    Opportunity of combination of various specialization’s directions with a view of synergetic effect’s achievement : considering this criterion require the system approach to the solution of the socio-economic problems which allows to raise the total profitability of the investment projects and, accordingly, the municipality’s competitiveness as a whole on the basis of overlapping various directions of economic specialization.

unemployment or insufficient taxable base), and the position of the long-term positive effects for the territory.

In conclusion it is necessary to note, that the success of realizing the chosen directions of the municipality’s economic development in a greater extent will depend on the institutional sphere, and also on the local community’s consolidation in the decision of the socio-economic problems, in its attempt to participate in helping shape the future. As practice shows, the presence of the municipality’s resource and recreational potential is just a precondition, but not a sufficient condition of the successful development of the local economy which, in turn, depends on the local community.