Role of entrepreneurship in economic development The role of entrepreneurship in economic development involves more than just increasing per capita output and income; it involves initiating and constituting change in the structure of business and society. This change is accompanied by growth and increased output, which allows more wealth to be divided by the various participants. What is an area which facilitates the needed change and development? Economic growth depicts innovation as the key, not only in developing new products (or services) for the market but also in simulating investment interest in the new ventures being created. This new investment works on both the demand and the supply sides of growth equation; the new capital created expands the capacity for growth (supply side) and the resultant new spending utilizes the new capacity and output(Demand side)
In spite of the importance of investment and innovation in the economic development of an area, there is still a lack of understanding of the product-evolution process. This is the process through which innovation develops and commercializes through entrepreneurial activity, which in turn simulates economic growth. Product-evolution process Phase I Recognition of social need Phase II Initiation of technological innovation Phase III Iterative synthesis leading to invention Phase IV Development phase Phase V Industrial phase The critical point in the process is the intersection of knowledge and a recognized social need, which begins the product development ( IV phase in the figure given in the next slide). This point, called iterative synthesis often fails to evolve into marketable innovation and is where the entrepreneur needs to concentrate his efforts. The lack of
<ul><li>expertise in this area – matching the technology with the </li></ul><ul><li>appropriate market and making the needed adjustments- is </li></ul><ul><li>an underlying problem in any technology transfer. </li></ul><ul><li>PRODUCT-EVOLUTION PROCESS </li></ul><ul><li> (Iterative Synthesis) </li></ul><ul><li> PHASE I </li></ul><ul><ul><ul><ul><li>Social need – Gut feeling , Knowledge, Vision </li></ul></ul></ul></ul><ul><ul><ul><li>PHASE II </li></ul></ul></ul><ul><ul><ul><ul><li>Science, Technology </li></ul></ul></ul></ul><ul><ul><ul><li>PHASE III </li></ul></ul></ul><ul><ul><ul><ul><li>Pressing towards Invention </li></ul></ul></ul></ul><ul><ul><ul><li>PHASE IV </li></ul></ul></ul><ul><ul><ul><ul><li>Modeling ( prototype) , Planning, Financing, </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Manufacturing, Marketing </li></ul></ul></ul></ul><ul><ul><ul><li>PHASE V </li></ul></ul></ul><ul><ul><ul><ul><li>Industrial / Commercialization phase (Acid Test) </li></ul></ul></ul></ul>
Most innovations introduced to the market are ordinary innovations , that is, with little uniqueness or technology. There are fewer technological innovations and breakthrough innovations, with the number of actual innovations decreasing as the technology involved increases. Regardless of its level of uniqueness or technology, each innovation (particularly the latter two types) evolves into and develops towards commercialization through one of three mechanisms: 1. The government 2. Intrapreneurship 3. Entrepreneurship Entrepreneurship has assisted in revitalizing rural areas and areas of the inner city. Individuals in inner-city areas can relate to the concept and see it as a possibility for changing their present situation. “ Given its impact on both the overall economy and the employment of an area, entrepreneurship should become a focal point in economic development”
1.Government as an Innovator The government is one conduit for commercializing the results of the synthesis of social needs and technology. This is frequently called technical transfer and has been the focus of a significant amount of research effort. Despite this effort, relatively few inventions resulting from sound scientific government-sponsored research have reached the commercial market. Most of the by-products of this research have little application to any social need. Though the government has the financial resources to successfully transfer the technology to the market place, it lacks the business skills, particularly marketing and distribution, necessary for successful commercialization. In addition, government bureaucracy and red tape often inhibit the business from being formed in a timely manner. In order to help their scientists commercialize their technology and think entrepreneurially, some labs are providing training and are working with such educators.
2. Intrapreneurship Intrapreneurship ( entrepreneurship within an existing business structure) can also bridge the gap between science and the market place. Existing businesses have the financial resources, business skills, and frequently the marketing and distribution systems to commercialize innovation successfully. Yet, too often the bureaucratic structure, and the emphasis on short-term profits, and a highly structured organization inhibit creativity and prevent new products and businesses being developed. Corporates recognizing these inhibiting factors and the need for creativity and innovation have attempted an intrepreneurial spirit in their organizations.In the present era of hypercompetition, the need for new products and intrapreneurial spirit have become so great that more and more companies are developing an intrapreneurial environment, often in the form of Strategic Business Units (SBUs).
3. Entrepreneurship The third method for bridging the gap between science and market place is via entrepreneurship. Many entrepreneurs have a difficult time bridging this gap and creating new ventures. They may lack managerial skills, marketing capability, or financial resources. Their inventions are often unrealistic, requiring significant modification to be marketable. In addition, entrepreneurs often do not know how to interface with all the necessary entities such as banks, suppliers, customers, venture capitalists, distributors and advertising agencies. Yet, in spite of all these difficulties, entrepreneurship is presently the most effective method for the above said gap, creating new enterprises, and bringing new products and services to the market. These entrepreneurial activities significantly affect the economy of an area by building the economic base and providing jobs.