What is external benefit?

Economic activity, e.g. in a business, may affect third parties that in no way are connected with this activity. A third party can be both individuals and organizations. Such external effects may be either positive or negative (e.g. pollution). We are here concerned with the positive effects, meaning the opportunity for the network to produce a benefit for someone outside the network. This is what we call an external benefit.

An example of external benefit may be that the network trains people who later will have jobs outside the network. The competence will then be of use somewhere different from where it was developed. The network may also acquire an asset to the area, which was not there before, and which may be used by third parties. An example of the latter is the development of broadband in Sogn og Fjordane, which happened quite early due to the efforts of IT Forum. Another example may be the effects of the network activities and outcomes on the UN Sustainable development goals.

Sometimes freeloaders are a problem. But for the surrounding society, it is positive that the network produces benefits beyond their own members. This is a sign that the network has achieved something others appreciate.
General example:

  • If you keep your garden well, this increases the value of your house, but it may also increase the price of the houses in your neighborhood.
  • Beekeepers collect honey from beehives, in additions the bees guarantee larger and more even crops of fruit and berries nearby, thanks to the bees’ pollination.
  • R&D can contribute with new technologies that are useful to others in their production.
  • Safety: Measures to prevent flood, deployment of fire-fighting equipment.
  • Health: Vaccination programs are useful also to those who don’t get vaccinated.
  • Environmental protection: Improving the environment is a general benefit to the society/community around this activity.
  • Education and training will increase the quality of human capital and may provide external benefits in several ways (higher productivity and competitiveness, safer workplaces, dissemination of knowledge).

How do we use the tool?

The main task here is to answer the question: To which extent does the network develop knowledge and products that are useful to actors who do not belong to the network? Table 12 can contribute in this respect.

Table 12. Questions to uncover possible external benefit.

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Different areas of external benefit Our network
If we develop new technology, will it be of use to other producers?
Are there specific environmental benefits associated with the project?
Are there specific health benefits associated with the project?
Is training and learning beneficial for those outside the network?
If we build new infrastructure, will it be of use to others?
How will the measure influence the wellbeing in the area/region?
Will the earnings from the measure stay in the region, or will they be pulled out?
In what ways will the reputation of the network be improved?

“Consorzio dei due parchi” (local wood supply chain) network in Italy is quite successful in creating external benefits. The network is initiated and managed by local municipalities. The collective management of a public good is a strength for the relationship among public and private actors. The Consortium, with its activities, positively affects local economy, jobs opportunities, state of the environment and risk reduction (i.e. protection of communities from fire, landslips and floods). From the P-IRIS case description:

There are several external benefits created by the network. In particular, it is possible to identify two types of them: a brand benefit, a partnership and monetary benefit. On the one side, taking care and managing forests positively affects network’s image. Healthy forests improve the image of local landscape, stimulating the tourism attractiveness for the Valley and the whole region.

On the other side, the monetary benefit regards the possibility to create an added value through the management of a public good. From this point of view, managing a public good represents for a public local authority a burden, both in terms of technical effort and financial commitment. Differently, the consortium can manage a public good with a perspective of private body, with improved efficiency and with the capability to create new job positions.

Another example could be the business network in Jostedalen. If the network were to succeed in achieving its objectives, the tourism industry in the region, especially Luster, will benefit from more tourists out of season. …
The business strategy based on revenue deriving from the management of a public good, can have a positive and coordinated impact on all the municipalities involved in terms of economy, jobs opportunities, state of the environment and risk reduction (i.e. protection of communities from fire, landslips and floods).

The collective management of such a strategic service for upland communities is the principal best practice of this network. In particular, in upland areas, action taken by a municipality that is located at a higher altitude, has a direct effect on the other municipalities that are at a lower altitude or at a different location along the river. This concept is particularly true in terms of risk reduction. In this sense, the presence of a single body that has the role to manage the whole forest public estate represents an added value in terms of coordination, optimization of maintenance activities and security.

If Energy Region (ESF) succeeds, this will pave the way for several companies, including those who are not members, and thus contribute to more value creation locally, which is positive for the demographic development and revenue in other industries. ESF was not there in 2014. But the network could potentially create external benefits in the county; other actors could benefit from ESF. Renewable energy efforts impact UN Goal 7 – Affordable and clean energy.

When it comes to external benefit, there are several fetures that are common across networks. In established networks, we see that knowing the other partiipants and their competence and situation will reduce uncertainty and as an exampla the costs of marketing. Analyzing the benefits outside the networks, we see if they contribute to increased value creation in different areas. This is positive both for other actors in the same business area and for the region as a whole. It van contribute to more jobs and a good reputation for the region. This again can contribute to activity in other sectors, such as tourism. An examle, the activities in IT Forum is connected to creation of new government jobs in the county. Other societal benefits of IT Forum is access to broadband infrastruture, thi is a benefit comming as a result of IT Forum’s workgroup on broadband. The knowledge and technology development in the fruit and berries network is useful for producers in other regions as well. Within all areas there are a potential to increase external benefit through increased activity, innovation and value creation.

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