Introduction: a new development paradigm for Georgia's mountain regions

Georgia, a mountainous country in the South Caucasus, is renowned for its outstanding mountain landscapes, which occupy approximately 73% of its territory (Matchavariani and Nikolaishvili 2015). After the dissolution of the Soviet Union, Georgia's highlands underwent significant transformation in the early 1990s (Gugushvili et al 2017). The country shifted from a centralized to a market-oriented economy, implementing liberalization and market-based reforms (Muskhelishvili 2011). Land reforms from 1992 to 1999 privatized more than 1 million hectares of state-owned agricultural lands, distributing them to rural households at no cost. Villages received up to 1.25 hectares of arable land, and highland cattle breeders were granted up to 5 hectares of pastureland. This resulted in nearly 1 million people becoming landowners, transitioning from collective to private ownership and causing land fragmentation. Notably, privatized agricultural land in Georgia is inheritable and transferable, enabling continued ownership across generations (Salukvadze 2008).

In recent years, Georgia has undergone a transition in its general policy orientation (Hodge and Midmore 2008), shifting the emphasis from agricultural to rural development. Various nonfarming activities have emerged in this context, significantly contributing to mountain settlements' economies and diversifying income sources for locals, thereby transforming household-based economic activities (Paresishvili et al 2017). Mountain areas—because of challenges such as limited access to markets, outmigration, and climate change—have become a focus for national development strategies and are central to promoting innovative approaches in small-scale entrepreneurship (Gugushvili et al 2021).

In 2015, Georgia introduced its first law addressing challenges in high mountain regions, marking the beginning of systematic policy efforts in these areas. Simultaneously, the rural development strategies for 2017–2020 and 2021–2027 were primarily aimed at economic diversification and nonagricultural development (Ministry of Environmental Protection and Agriculture of Georgia 2022). In line with national development priorities, initiatives promoting small-scale entrepreneurship in mountain areas emphasize the fostering of local enterprises and empowerment for community-driven initiatives through support programs and capacity building for niche product development, leveraging unique natural and cultural assets (Khartishvili et al 2019). Financial support mechanisms, such as “Enterprise Georgia” and grants from the Ministry of Agriculture, aim to assist entrepreneurs and small businesses, promoting growth and sustainability. In addition to national funding, international support, especially from the European Union (EU) Local Action Groups (LAGs) organized within the framework of the EU-funded European Neighbourhood Program for Agriculture and Rural Development (ENPARD) project “ENPARD Khulo” (Chitaia et al 2020), implemented by Caritas Czech Republic, plays a vital role in supporting community-led initiatives (Figure 1). These diverse funds have not only boosted local economies but also preserved traditional knowledge and cultural heritage, fostering inclusive development (Kadagishvili 2018). The interplay of innovation and tradition in entrepreneurship is not specific to the Georgian context (Sapiro 2024). Traditional entrepreneurship relies on long-established practices for stability, providing a strong foundation of established knowledge and cultural heritage for entrepreneurs to build on, thereby supporting innovation. Innovative entrepreneurship focuses on new ideas and technology to capture new markets and drive profits (Mamedov et al 2016). However, Stettler and Mayer (2023) demonstrated that innovative entrepreneurship can also prioritize strengthening collaborations and enhancing the resilience of mountain economies without necessarily focusing on new technology or profit-driven growth.

FIGURE 1

Community-based entrepreneurial initiatives financed in Khulo municipality (2017–2021). (Figure by Temur Gugushvili, own draft and data)

In this article, for the first time for Georgia, we explore the area between innovation and tradition to examine how local people in the mountainous municipality of Khulo attempted to fill gaps by introducing previously unavailable but in-demand services or products. We analyze how these “pioneers” acquired different resources and knowledge to become successful in their respective business areas. Since mountain areas beyond Georgia face similar challenges, such as limited access to resources, geographic isolation, and vulnerability to environmental change (see Price 2004), and often also rely on funding schemes for economic development, the Khulo case also offers insights relevant to other contexts.

Research design and methodology

A case study was conducted in 2022 and 2023 in the highland community of Khulo municipality (41°37′44.4″N, 42°18′39.6″E) within the Adjara region of the Lesser Caucasus, located in western Georgia (Figure 2). In the Soviet Union era, Khulo was actively involved in various agricultural practices, including viticulture and tobacco cultivation, the latter significantly contributing to the local economy (UNDP 2020). Currently, Khulo maintains an agricultural profile, with residents mainly cultivating crops such as potatoes, corn, beans, and vegetables. Nomadic livestock farming and viticulture traditions persist. Because of limited local employment opportunities, a significant portion of the population actively seeks work in other cities, primarily Batumi, the nearest major city (Putkaradze and Abuselidze 2022).

FIGURE 2

Location of Khulo Municipality in (A) Adjara region and (B) Georgia. (Map by Temur Gugushvili)

Khulo was chosen because of changes in rural development, including the establishment of the EU LEADER program (the acronym standing for the French Liaison Entre Actions de Développement de l'Economie Rurale, which translates as “links between actions for the development of the rural economy) (Hoffmann and Hoffmann 2018), approach-based LAGs, support programs for household-based economic activities, and early signs of tourism development. We decided to employ the sustainable livelihoods concept (Chambers and Conway 1992) as a theoretical foundation that focuses on understanding how households secure their necessities through various means and resources by examining different forms of capital. Based on this, we gained insights into how households utilize their resources to sustain livelihoods, adapt to challenges, and pursue entrepreneurial activities. While the framing and discussion of capital may not be novel in the literature on other countries, it is a new approach for Georgia. We conducted 30 semistructured in-depth interviews (Flick 2022) with local households in several villages, engaging in diverse economic activities. The duration of each interview averaged 40 minutes. The selection process for interviewees for this study involved a combination of criterion sampling and the maximal variation approach to purposive sampling, as guided by Patton (2015). Based on criterion sampling, households were systematically selected as beneficiaries of grant programs such as Enterprise Georgia and LAG funding. The selection was based on predefined criteria, such as geographic location and current engagement in economic activities that aligned with the study's goals (eg tourism, agriculture, small-scale entrepreneurship). Interviews were then conducted with those engaged in these economic activities. Simultaneously, the maximal variation approach ensured a diverse array of perspectives by including participants with varied backgrounds and experiences (see Table 1). Ethnographic research in several villages captured various voices, experiences, and opinions. We analyzed the interview data using a thematic analysis method (Silver and Lewins 2014) and the qualitative data analysis software MAXQDA (Kuckartz and Rädiker 2019). A coding frame was developed based on the capital types researched. The main categories (financial, human, social, physical, and natural capitals; grant acquisition; challenges and needs for growth) and related codes (grant impact on business; capitals used for the business; capitals possessed before and after establishing the business; business challenges and gaps in resources) were predefined in MAXQDA before the coding, while additional codes (services in demand, previous experience, back-migration, grant regulations) were established during the coding phase.

TABLE 1

Respondent profiles by demographic and socioeconomic characteristics.

Results

Discussion

Entrepreneurship depends on specific capital within rural settings, creating value for both entrepreneurs and the local community (Pato and Teixeira 2018). Shane (2009) criticizes support for entrepreneurship as poor public policy, claiming it often leads to low-value, low-growth ventures. In contrast, our study shows that such entrepreneurship fosters economic independence and, in some cases, encourages back-migration to mountain regions. Our study reveals the fundraising challenges entrepreneurs encounter in the early stages, leading to a dependence on personal savings and family contributions. This parallels the findings of Banki and Ismail (2015) and Cosh et al (2009), highlighting that entrepreneurs commonly resort to personal savings and family support initially because of difficulties in raising funds. In this context, reliance on the inheritance of household land or real estate assets plays a crucial role. Contrary to findings by Figueroa-Domecq et al (2022) that women participate less and are less successful in obtaining grants, our research highlights the significant interest and success of female respondents in grant applications. However, gender-related challenges surfaced, as some grant schemes necessitate property ownership for economic activities. Our findings indicate a prevalent trend of real estate inheritance favoring male family members. In line with the insights of Abban et al (2013), our study affirms the positive association between human and social capital in entrepreneurial business development, serving as a wealth reservoir that enhances overall performance. Echoing the emphasis of Ataei et al (2020) on human capital in entrepreneurship and the call by Gurung et al (2015) for targeted business-oriented education, our study highlights the impact of the absence of skilled individuals on business success, affecting operational efficiency, local economic growth, and employment potential. However, we did not investigate cases where businesses failed, missing an analysis of those who attempted to start a business but were unsuccessful, which might have revealed additional gaps.

Gender-sensitive challenges are also recognized, urging consideration of training for gender equality in entrepreneurship. Contrary to Kudla and Myronov's (2022) emphasis on tourism as the primary driver of nonagricultural entrepreneurship in rural areas, our research unveils a diversified economic landscape. Our findings align with studies recognizing rural entrepreneurship advancement tied to the provision of “new goods and services” (Andersson et al 2009). Yet limitations of the study include the focus on business cases without an examination of their actual performance metrics, such as profits, which limits our understanding of their sustainability.

Conclusion

Khulo municipality experienced an economic transition from predominantly agricultural production during the Soviet era to the current mix of different agricultural practices and a younger, diverse entrepreneurial ecosystem. The lack of certain services in the municipality motivated new entrepreneurs to start businesses that cover these needs. Khulo is an example where economic innovation led to back-migration to the rural area, which strengthens the availability of different capitals needed for the establishment and maintenance of successful businesses. The interplay of capitals is key to establishing sustainable structures for rural economic development. Although a mix of available (international) funding, family inheritances, and loans might, at first glance, seem the main enabler of pioneering entrepreneurial endeavors, the Khulo example shows how experiential and social capital are crucial to the acquisition of grants. For example, experiential capital, derived from personal expertise or family knowledge, can influence the choice of economic activity and contribute to overcoming initial challenges. Moreover, social capital in activating one's network to learn how to apply for grants or acquire local knowledge is deeply entangled with the financial success of a business. This suggests that social and experiential capital can be transformed into financial capital when utilized effectively in the entrepreneurial context.

Although we see a dynamic interplay of capitals in the Khulo case, leading to successful entrepreneurial endeavors, 2 main challenges remain. First, existing funding scheme policies are often discriminatory toward people without property, who are traditionally mostly women. This underscores the need for inclusive policies that aim at dismantling such injustices, empowering women in entrepreneurship, and ensuring equal access to economic opportunities. Second, where human capital is low, grants are less accessible, especially regarding the application process. We see added value in targeted and easily available business-oriented education, if possible within the local network, to combat the local lack of human capital and to ensure more justice in grant programs. Increasing human capital may also mitigate some of the supply chain challenges described by our respondents.

In conclusion, Khulo has witnessed a substantial influx of external grants, leading to a significant transformation in its local economic landscape and creating previously unavailable services. The success of these activities directly impacts multiple households, holding significant importance for them individually by mitigating the necessity for migration to urban areas or other settlements for employment, but also regarding community cohesion or strengthening of local heritage. The study results contribute to understanding rural development by illustrating how mountain communities, such as Khulo, can diversify economic activities, reshape perspectives, and adapt to local demands when they have access to the right forms of capital, including funding. The findings also highlight the existing gaps in accessing financial opportunities for residents. Addressing these gaps is crucial for further enhancing Khulo's rural development. Given the results, these findings could serve as groundwork for further research on how regional policies influence entrepreneurial outcomes and how necessary capital can be strengthened to ensure equal access to rural development opportunities.