ENTREPRENEURSHIP

ENTREPRENEURSHIP                                                                                                  Chapter-2

 

The term "entrepreneurship" often used synonymously with the "entrepreneur". Though they are the two sides of the same coin, conceptually they are different. The entrepreneur is essentially a business leader and the function performed by him is entrepreneurship. It is the primary trait of an entrepreneur. According to Arther H. Cole, "entrepreneurship is the purposeful activity of an individual or a group of associated individuals undertaken to initiate, maintain and aggrandize profit by production or distribution of economic goods and services".

Entrepreneurship is an important factor of industrial development of a country. The degree and quality of entrepreneurship differ from entrepreneur to entrepreneur. However, there are some important determinants, which influence the growth of entrepreneurship.

Definition of Entrepreneurship

Higgins B. defines "entrepreneurship is meant the function of seeking investment and production opportunity, organizing an enterprise to undertake a new production process, raising capital, .hiring labour, arranging the supply of raw materials, finding site, introducing a new technique, discovering new sources of raw-materials and selecting top managers for day to day operations of the enterprise." This definition highlights risk taking, innovating and resource organizing aspects of entrepreneurship.

Jaffrey A. Timmons has defined entrepreneurship as "the ability to create and build something from practically nothing".

The basis of these definitions, we can say that Entrepreneurship is a process of innovation that reallocates resources to new opportunities, often creating new-opportunities through unusual combinations of resources and the skills of risk taking entrepreneurs.

Characteristics of Entrepreneurship

The main characteristics of entrepreneurship are as follows:

1) Dynamic process: Entreprene4 January 2008urship is a dynamic function. Entrepreneur is the person who recognizes the need for change and directs it. This, flexibility is the hallmark of a successful entrepreneur.

2) Innovation: Entrepreneurship is an innovative function as it involves doing things in a new and better way. According to Schumpeter, innovation may occur in the following forms.

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3) Risk taking:               Risk is an inherent and inseparable element of entrepreneurship. An entrepreneur guarantees rent to the proprietor, wages to employees and interest to the investors in the hope of earning more than the expenses. He assumes the uncertainty of future. In the pursuit of profits, there is every possibility of loss.

4) Decision Making:                To be entrepreneurial; a person shou-1015ld be creative, especially when it comes to decision-making. The decision-making ability is the distinguishing mark of an entrepreneur.

5) Organization building function:               Entrepreneurship implies the skill to build an organization. An entrepreneur brings together various factors of production. He coordinates and controls the efforts of all the persons engaged in his organization. Therefore, an entrepreneur is an organization builder. .

6) Economic activity: Entrepreneurship is primarily an economic function because it involves the       creation and operation of an enterprise. It is concerned with the production and distribution of goods and services.

7) Gap filling function: The most important characteristic of entrepreneurship is gap filling. An entrepreneur identifies the gap between human needs and the available products and services and takes necessary steps to fill the gap.

8) A function of high achievement: Mc Clelland identified the need for achievement as an important characteristic of entrepreneurship. People having high need for achievement are more likely to succeed as entrepreneurs.

9) Accepting Challenges: Entrepreneurial persons are quick to see and seize opportunities. They show an innovative turn of mind and convert challenges in to opportunities. However, they are realistic too. They plan and anticipate carefully how to achieve their goals in realising an opportunity.

10) Skillful Management: Skillful management refers to effective and viable Management of resources of the firm.

2.4. Role of Entrepreneurship in Economic Development

Economic development essentially means a process of upward change Where by the real per capital income of a country increases over a period. Entrepreneurship has an important role to play in the economic development of a country. It is one of the most important inputs in the economic development: The number and competence of entrepreneurs affect the economic growth of a region.

The economic history of the presently advanced countries like USA, Russia and Japan supports the fact that economic development is an outcome for which entrepreneurship is an inevitable cause. It is now a widely accepted fact that active and enthusiastic entrepreneurs only can explore the potentialities of the countries available resources such as labour, technology and capital

The role of entrepreneurship is not identical in the various economies. Depending on the material resources, industrial climate and responsiveness of the political system, it varies from economy to economy. The contributions of entrepreneurs may be more in favorable opportunity conditions than in the economies with relatively less favorable opportunity conditions.

According to Joseph Schumpeter, the rate of economic progress of a nation depends upon its rate of innovation, which in turn depends upon the distribution of entrepreneurial talent in the population.

Entrepreneurship helps the process of economic development in the following ways.

1. Employment generation: Growing unemployment particularly educated unemployment is an acute problem of the nation. The available employment opportunities can cater to only 5 to 10 percent of the unemployed. Entrepreneurs generate employment both directly and indirectly. Directly, self-employment as an entrepreneur and indirectly by starting many industrial units they offer jobs to millions. Thus, entrepreneurship is the best way to fight the evil of unemployment

2. National Income: National income consists of goods and services produced in the country and imported. The goods and services produced are for consumption within the country as well as to meet the demand of exports. The domestic demand increases with ever-increasing population and standard of living. The export demand also increases to meet the needs of growing import due to various reasons. Thus, entrepreneurship increases the national income

3. Balanced regional development: The growth of industry and business leads to large number of public benefits like transport faculties, health, education, entertainment etc. When the industries are concentrated in selected cities, the development gets limited to these cities. A rapid development of entrepreneurship ensures a balanced regional development. When the new entrepreneur grows at a faster rate, in view of the increasing competition in and around the cities, they are forced to set up their enterprises in the smaller towns away from big cities. This helps in the development of backward regions.

4. Dispersal of economic power: Industrial development normally may lead to concentration of economic power in few hands. This concentration of power in few hands has its own evils in the form of monopolies. Developing a large number of entrepreneurs helps in dispersing the economic Power amongst the population. Thus, it helps in weakening the harmful effects of monopoly.

5. Better Standard of Living:   Entrepreneurs play vital role in achieving, a higher rate of economic growth. Entrepreneurs are able to produce Goods at a lower cost and supply quality goods at a lower price to the community according to their requirements. In this way, they can provide an increased standard of living to the people.

6.  Capital formation:       Entrepreneurs mobilise the idle savings of the public and this promotes capital formation. Thus, an entrepreneur is the creator of wealth. .

7. Backward and forward linkages:  Setting up of an enterprise has several backward and forward linkages and stimulates the process of economic development in the country.

8. Creating innovation: An entrepreneur is one who always looks for changes. Apart from combining the factors of production, he also introduces new ideas and new combinations of factors. He always tries to introduce newer and newer technique of .production of goods and services. According to Schumpeter, an entrepreneur brings economic development through innovation.

9. Increasing productivity: The entrepreneur ensures optimum utilisation of scarce resources and thereby, tries to increase the productivity of factors of production.

In short, the development of entrepreneurship is inevitable in the economic development of a country. The role played by entrepreneurship in the process of economic development can be expressed in the following words:

"Economic development is the effect for which entrepreneurship is the cause”

Barriers to Entrepreneurship

Entrepreneurship development is greatly hindered in some countries due to the presence of several barriers. Though these barriers are present in almost all the countries, they hardly have any strength in the developed countries. In the developed countries, the environment is ideal for entrepreneurship. Unfortunately, in most of the less developed nations the role of entrepreneurship in the economic development has not been fully realised. The result is the presence of a large number of barriers to entrepreneurship. These barriers can be economic or non-economic.

Economic barriers to entrepreneurship

There are primarily three economic factors whose inadequacy is the main reason for the lack of entrepreneurship in certain regions. These barriers include:

(I) Capital: Capital is the most important pre-requisite for setting up the new enterprise. The resource helps to mobilise other resources like men, materials and machines. Entrepreneurship in any society increases with the increase in the capital formation. Thus, lack of availability of capital in a country acts as a serious barrier to entrepreneurship.

(ii) Labour: It is the poor quality of labour rather than inadequate quality of labour force that act as a real barrier to entrepreneurship. The availability of cheap labour in a developing country may appear to be strength in promoting entrepreneurship, but the reality is that such labour may be unproductive or have a low level of productivity. This unskilled and low productive labour acts as a barrier to entrepreneurship.

(iii) Raw Material: for the absence of raw material, no enterprise may be established and entrepreneurship does not emerge. Thus, lack of raw materials is normally the greatest economic barrier for growth of entrepreneurship.

 

Non-economic barriers

A large number of factors act as non-economic barriers to entrepreneurship. Many countries having skilled labour and natural raw­ material remained as entrepreneurially backward because of such factors. These factors can be classified into environmental and personal barriers:

(i) Environmental barriers to entrepreneurship

These barriers are rooted deep in the society and are also known as social barriers. In some societies such barriers are stronger than in others. Some of the important environmental barriers are as follows:

a) Cultural barriers: People are bound by their cultural values. Every society lays down some unwritten norms of acceptable behaviour. Such cultural blocks prevent persons from setting up their own ventures in non-entrepreneurial societies.

b) Respect for entrepreneurs: The social status of the entrepreneur in a society is an important factor that has a direct bearing on the emergence of entrepreneurs.

c) Tradition binding: Some cultures place a great deal of emphasis on the preservation of traditional ways of life at the expense of innovation and development. Such societies resist the introduction of any change.

d) Regulatory barriers: Generally, government regulates entry to markets, defines registration requirement, reporting and disclosure norms and ensuring tax compliance. These regulations act as barriers to entrepreneurship. .

e) Defective tax structure: High level of taxes tend to distort economic activity and reduces profit margin to entrepreneurs~

f) Defective administrative and compliance system: Government generally favours entrepreneur by granting them tax subsidies and incentives. But the administrative system known for its redtapism creates many problems in its execution.

(ii) Personal barriers to entrepreneurship

The important personal barriers to entrepreneurship are as follows:

a) Lack of sustained motivation: The entrepreneurship requires a sustained level of motivation and commitment. It is often very difficult to sustain this motivation against the initial hurdles. Those who cross this hurdle have a more difficult task of maintaining this motivation while facing different obstacles in setting up the new enterprise.

b) Impatience in solving problems: The entrepreneur has to find more creative, imaginative and sustainable solutions to problems of the enterprise. Thus, setting up an enterprise needs a lot of patience. The need for finding quick solutions to problems prevents people from setting­ up the enterprise and act as a barrier to entrepreneurship.

c) Inability to dream and use subconscious: The entrepreneur needs to use both part of his intellect, the subconscious for incubation of ideas and conscious for resolution of problems. Entrepreneurs are day dreamers and a few in our society have ability to day dream and use their subconscious intellect.

Factors affecting entrepreneurial growth

Being a non-spontaneous phenomenon, the emergence and subsequent development of entrepreneurship depends on economic, social, political and psychological factors, which are often regarded as supporting conditions to entrepreneurship development. Economic factors

Economically speaking, the same factors which 'promote economic development, also account for the emergence of entrepreneurship. Such factors are discussed below:­

1. Capital: Capital is the most needed prerequisite to the establishment of an enterprise. Capital enables the entrepreneur to bring together the essential production inputs, such 'as land, machine and raw-material. He combines them to produce goods. It is an accepted fact that with an increase in capital investment, capital - output ratio also increases simultaneously. As a result of this increase, profit also increase

2. Labour: The quality of labour available is another important factor that influences the emergence of entrepreneurship. Adam Smith considered that division of labour is also an important element which influences entrepreneurship emergence and development. According to his view, division of labour which depends upon market size leads to improvement in the productivity of labour due to increase in the dexterity of labour:

3. Raw-materials: The need of raw materials for establishing any industrial activity has been an accepted fact. So, the importance of raw materials in influencing the emergence of entrepreneurship needs no emphasis. In the absence of this vital input no industrial activity shall take place and no entrepreneur shall emerge.

4., Market: The size and composition of the market influence entrepreneurship in their own ways. For instance, monopoly of a particular product in a market becomes a more influential factor for entrepreneurship than a product which suffers hectic competition. However the disadvantages of competition can be lessened to some extent, by the improvement in transportation system facilitating the speedy movement of raw materials and finished goods and enhancing the demand for producer goods.

Non-economic factors

Sociologists and psychologists hold the view that the influence of economic factors on the emergence of entrepreneurship largely depends on the existence of certain non-economic factors like, social and psychological factors in the society

 Social factors

1. Legitimacy of entrepreneurship: The advocates of non-economic factors attribute emphasis to the relevance of a system of norms and values with in a socio-cultural setting for the emergence of entrepreneurship. Such a system can be referred to. as a 'legitimacy of Entrepreneurship.

2. Social mobility: 'Social mobility' is a term which involves the degree of both social and geographical mobility and the nature of mobility channels with in a system. It is also evident that the degree and nature of social mobility alone is not likely to influence entrepreneurship, but its influence is largely determined by other non-economic factors.

3. Marginality: According to a group of scholars 'social marginality' also promotes entrepreneurship. They say that individuals or individual groups on the perimeter of a social system or between two social systems provide the personnel to take up entrepreneurial roles. These personnel my be drawn from religious, cultural, ethnic or migrant minority groups

   4. Security: Entrepreneurial security has been considered by several scholars as an important factor which influences entrepreneurship. Yet, scholars are not definite about the amount of security needed. A.H. Cole suggests "minimal security" while Mc Clelland recommends "moderate security." R.A. Peterson and D. G. Berger maintain that entrepreneurship is likely to emerge under turbulent conditions than under conditions of equilibrium and peace

Psychological factors

         The psychological factors mentioned here under, undoubtedly influence Entrepreneurial growth.

1. Need achievement: According to David Mc. Clelland a constellation of personality characteristics which are indicative of high need achievement greatly influence entrepreneurial growth and development.

2. Withdrawal of status respect: According to E.E. Hagen, the withdrawal of status respect contributes heavily to the emergence of entrepreneurship.

Government actions

          The government, through its actions, can influence both economic factors and non-economic factors for entrepreneurship development. A Government which is interested in the economic development of the country can assist and promote entrepreneurship through its well formulated industrial policy. It can do this by creating basic facilities, utilities and services and also by providing encouraging incentives and concessions to entrepreneurs. Thus, the supportive actions of the Government appear as the most conducive setting for entrepreneurial development. .

Entrepreneurial Mobility

                        Entrepreneurial mobility means the drive and initiative to move to other places in search of better opportunities. For example, Marwaris and Sindhis have moved to almost every corner of India to carryon business activities. Entrepreneurial mobility helps to attain balanced regional development.

The important factors influencing the entrepreneurial mobility are as follows:

1. Resources: Larger the resources at the entrepreneur's command, the greater the degree of mobility. Large resources enable the entrepreneur to set up the plant at a distance, to assume greater risks and collect better information.

2. Experience: An experienced entrepreneur is more mobile than the new entrant. He has better perception of opportunities, greater access to sources of information and better analytical tools to judge the efficacy of an enterprise at a distant place.

3. Education: An educated entrepreneur tends to be more mobile than an uneducated one. He can better appraise the opportunities existing outside his area.

4. Nature of enterprise: The nature of enterprise is such that when the new unit cannot be started near the existing are there will be entrepreneurial mobility on the other hand, .if the enterprise involves only expansion of the existing plant, the entrepreneur is likely to acquire additional land in the vicinity of the existing plant and never move out.

5. Availability of facilities: Entrepreneurs move from the areas with no or less facilities to the areas with more and better facilities. The reason lies in the fact that these areas have proximity to various agencies, facilities like transport, communication, power, water, market etc.

6. Culture: The entrepreneurs uprooted from their traditional native places are more mobile than those who have not been, like a displaced person or a foreigner. They develop a more cosmopolitan outlook as they adjust themselves in new cultures and are free from the sanctions and boundages of their own culture.

7. Size of enterprise: Large business houses are found more mobile than smaller ones. The Indian business houses like Tata, Birla, Dalmia etc, represent such examples. In addition to the above mentioned factors language, practical conditions, government policy are other influencing contributory factors the entrepreneurial mobility. Again, the factors considered above are interrelated and influence simultaneously.