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Concept of entrepreneurship (1)


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Concept of entrepreneurship (1)

  1. 1. Concept of Entrepreneurship Submitted to :- Prof. Meenu verma Compiled by:- Karan pal (4571) Gulshanpreet (4573)
  2. 2. Evolution of Entrepreneurship Entrepreneurship is one of the four mainstream economic factors – land , labor , capital, and entrepreneurship. During 14th century references speak about tax contractors – individuals who paid a fixed some of money to a government for the license to collect taxes in their the region known as tax contractors , they used to take risk of collecting taxes if they collected more than the sum paid for their licenses, they made profits and kept the excess. The concept of entrepreneurship was existing in 17th century was a common topic in economic essays for much of the 18th and 19th century . Let us read about how it has evolved as one of the factor of production over a period of time.
  3. 3.  Joseph Aloysius Schumpeter (1934) - An entrepreneur is an innovator. Schumpeter considered economic development as discrete dynamic change.  J.B.Says:- entrepreneur is the most important agent of production . Simply an entrepreneur is one who combine the land of one, the labor of another and the capital of yet another and thus produce a product.  David Ricardo : He didn’t assign any important role to entrepreneurship for economic development of a country . Acc to him ,”profit leads to saving of wealth, which ultimately goes to capital formation and leads to economic development.
  4. 4. Concept of Entrepreneurship Entrepreneurship is the tendency of person to organize the business of his own and to run it profitably , using all the qualities of leadership , decisions making and managerial caliber etc. Entrepreneurship involves not only the process that leads to the setting up of a business entity but also the expansion and development of an on going concern. The study of entrepreneurship is concerned with the entrepreneurial behavior, the dynamics of business set up and expansion and development. The term “entrepreneur” is often used interchangeably with “entrepreneurship” . But conceptually they are different.
  5. 5. Entrepreneurship is a continuous economic process which recognizes the need to change and an Entrepreneur is a key person to initiate any change.  Refers to a person  Creator  Organizer  Decision maker  Initiator  Leader  Motivator  Risk taker  Refers to a process  Creation  Organization  Decision making  Initiative  Leadership  Motivation  Risk taking
  6. 6. Acc. to A.H.Cole, “ entrepreneurship is the purposeful activity of an individual or a group of associated individuals, undertaken to initiate , maintain or organize a profit-oriented business unit for the production or distribution of economic goods and services”. Acc. to H.N Patak, “entrepreneurship involves a wide range of area on which series of decisions are required which can be grouped into three categories :- (i) perception of an opportunity (ii) organizing an industrial unit and (iii) running the industrial unit as a profitable , going and growing concern.”
  7. 7. Importance Entrepreneurship has an important role in the context of a developing nation like India which is confronted with major socio-economic problems.  Entrepreneurship plays a premium mobile role in promoting development of economy.  Entrepreneurship is consistently equated with the establishment and management of small business enterprises .  Is the solution to the baffling problems like overpopulation , poverty , unemployment, underemployment etc.
  8. 8.  Entrepreneurship helps in finding solution to the giant problems like concentration of economic power , regional imbalances , exploitation by monopolists.  The factors which retard the success of entrepreneurship in India are inadequate infrastructural facilities , shortage of capital, technical knowledge, and transport , absence of cheap and good quality raw material and shortage of power etc  Skill of entrepreneurship knows how to turn an ordinary corporation, managed in a routine manner , into a entrepreneurial organization. Hence , it is said that an economy is the effect for which entrepreneurship is the cause .
  9. 9. Features:- Entrepreneurship is a set of activities performed by an entrepreneur . The main features of entrepreneurship are as follow :-  Economic activity:- entrepreneurship is primarily becoming an economic function because it involves creation and operation of an enterprise. It involves conscious decision-making about resource allocations . It also implies seeking the best opportunities for using resources for their highest commercial yields.
  10. 10.  Innovative activity:- innovation is the process of doing new things. Entrepreneurship is innovations where new products , services, ideas and information is produced, new efficient production techniques are introduced by the firm, new market opportunities are indentified and better ways of meeting existing demands are looked into. Whenever a new idea occurs, entrepreneurial efforts are essential to convert the idea into practical application.  A function of high achievement:- people differ not in their ability to do but also in their will to do, or motivation. McClelland identified two features of entrepreneurship (a) doing things in different and better way. (b) decision-making under uncertainty. Thus people having high need for achievement and power are more likely to succeed as entrepreneurs and this is a very critical factor that leads one towards entrepreneurship.
  11. 11.  Creative and Purposeful activity:- creativity is the ability to bring something new into existence.” Entrepreneurship is virtually a creative and a purposeful activity. The entrepreneur passes through the five stages during the process of entrepreneurship viz idea germination, preparation, incubation, illumination and verification. Earning profits is never the sole objective but to introduce something new and creative is the purpose of entrepreneurship.
  12. 12.  A function of risk-bearing: Entrepreneur makes decisions about obtaining and using resources while consequently assuming the risk of enterprise. Acc. to Cantillion, risk- bearing forms an unique constitututive function of entrepreneurship. • An Organizing function. Acc. to J.B. Say, an entrepreneur is one who combines the land of one, the labor of another, and capital of yet another, and thus pro dukes a product. By selling the product in the market, he pays interest on capital, rent on land, wages to laborers and what remains is his profit.
  13. 13. Here is an example of a farmer. The farmer pays out contractual income which are “certain” to the landlords and laborers and sells at prices that are “uncertain”. It is illustrated as follows :- Enter. Buys farm enter. repacks enter. Sells farm product at certain and transports product at Prices. farm products uncertain to the market in the city . investment Transformatio n Profit or loss
  14. 14. Invention and innovation:- Invention implies creating something new not merely any new product but new technological processes , new designs, new technical knowledge, etc. for example , Edison’s invention of bulb illustrates the point. Innovation , is the mean by which the entrepreneur either creates new wealth – producing resources or endows existing resources or endows existing resources with enhanced potential for creating wealth. Invention is conceiving new ideas while innovation means to put these ideas into action.
  15. 15. Innovation is process requiring analytical ability to work out the details in order to carry on the project. An entrepreneur has to obtain , material , select site, arrange staff, acquire manufacturing abilities and then establish his organization in order exploit the idea commercially. Invention can open up huge markets but the secret lies in spotting the application. Thus we can say that in order to be inventive, one has to be creative and in order to become an innovator , one has to be entrepreneurial. However just to be innovative is not enough unless that innovation is carried into production to benefit consumers. invention Creating something new Resulting in new knowledge innovation Transforming an idea into application Resulting in new products, services or processes
  16. 16. Entrepreneurship and enterprise:- Entrepreneurship :  It is more than mere creation of business  Entrepreneurship is a process of innovation and new venture creation through four major dimensions – individual, organizational, environmental and process.  Entrepreneurship is a process involving various action to be undertaken to set up an enterprise .  Acc. to J.B. an entrepreneur is one who combines the land of one , labor of another and capital of yet another to set up an enterprise to produce a product.
  17. 17. Joseph Schumpeter's contribution to entrepreneurship:-  Joseph A Schumpeter (1883-1950) is the main figure in the literature of entrepreneurship as it was gave a well rounded picture of the theory of an entrepreneur.  Acc to Schumpeter ,” entrepreneurship is essentially a creative activity or it is an innovation function . The process of innovation may be in the form of a) introduction of new product b) use of new methods of production opening of new market c) opening of a new market d) the conquest of new source of supplying raw material e) a new form of organization.
  18. 18. Theories of Entrepreneurship Economic Theory Sociological Theory Psychological Theory Anthropological Theory
  19. 19. Economic theory • Entrepreneurship and economic growth take place when the economic conditions are favorable. • Economic incentives are the main motivators for entrepreneurial activities. • Economic incentives include taxation policy, industrial policy, sources of finance and raw material, infrastructure availability, investment and marketing opportunities, access to information about market conditions, technology etc. • Lack of incentives, unattractive economic policies and unfavorable market conditions tend to reduce the vigor of entrepreneurship
  20. 20. a) Schumpeter’s Theory of innovation  Development implies carrying one of new combinations of entrepreneurship. ‘Entrepreneur’. is an innovator – who carry new combination of:  New goods/ services.  New method of production.  New market.  New source of supply of raw materials.  New organization.
  21. 21. b) HBS ( Harvard Business School) consider entrepreneurship is the outcome of the combination of internal and external Forces. Internal forces – Individual’s traits and qualities via :  Intelligence  Skill  Knowledge  Intuition  Exposure & Experience External forces – Surrounding’s conditions via :  Economic  Political  Social & Cultural  Legal frame-work  Stable Govt. External security, law & order and legal process are the influencing factors.
  22. 22. Sociological theory  Entrepreneurship is likely to get a boost in a particular social culture  Society’s values, religious beliefs, customs, taboos influence the behavior of individuals in a society  The entrepreneur is a role performer according to the role expectations by the society
  23. 23. a) Max Weber’s Theory Salient features of his theory are -  Spirit of Capitalism is highlighted  Adventurous spirit facilitate taking risk  Protestant ethic embodying rebellion is conducive  Inducement of profit is the criterion b) E.E. Hagen’s Theory  Reveals general model of the social- interrelationship among physical environment, social structure, personality and culture.  Thinks economic theories are inadequate  Political & social change – catalyst for entrepreneurs.  Rejects follower’s syndrome imitating western technology. Technology is an integral part of socio- cultural complex .  Historic shift as a factor initiates change
  24. 24. Psychological Theory Psychological theory of entrepreneurship has fairly high status among social scientists who study entrepreneurship because it is very difficult to single out one or several psychological traits as typical for the entrepreneurial personality. However , •Entrepreneurship gets a boost when society has sufficient supply of individuals with necessary psychological characteristics. •The psychological characteristics include need for high achievement, a vision or foresight, ability to face opposition. •These characteristics are formed during the individual’s upbringing which stress on standards of excellence, self reliance and low father dominance.
  25. 25. J.Schumpeter ,supports the psychological theory and not the economic theory. He asserts that what matters is the behaviour , and not the actor.
  26. 26. Anthropological Theory Fredrick Barth made his first attempt to develop an anthropological theory of entrepreneurship. Acc. To him, entrepreneurship has essentially to do with connecting two spheres in the society, between which there exists a difference in value. Barth, one of the leading anthropologists of the world, states that entrepreneurial behaviour means to connect two different spheres in the society , between which there is a huge discrepancy in value.
  27. 27.  Each of these theories are incomplete and none of them is right or wrong. Theories of entrepreneurship are inter- disciplinary and are influenced by a multitude of factors. It is the integration of external environment, achievement motivation, ability and ambition which largely determines whether an individual become an entrepreneur or not.
  28. 28. Problems in growth of entrepreneurship :- Undoubtedly , entrepreneurship growth in India is slow as compared to other countries. As far as development of entrepreneurship is concerned , the factors responsible for its slow growth are:  Incompetence and poor management  Low level of commitment  Restriction imposed by custom and tradition  Involvement of high risk  socio- cultural rigidities  Lack of motivation  Lack of infrastructural facilities
  29. 29.  Low quality products  Law package of salaries to employees  Market imperfections  Non – availability of power and raw material  Legal formalities involved to set up a unit.  Low status of businessmen.  Problem of getting the loan sanctioned  Lack of technical know -how  Insufficient infrastructural facilities.
  30. 30. Pros and cons To everything in life there are advantages and disadvantages; entrepreneurship is no exception. As a matter of fact, entrepreneurship involves a lot of risk taking. Yet, it can pay off very nicely as well, with rewards such as profits and the opportunity to be your own boss and make your own decisions. Here are some pros and cons to consider: Pros • Excitement: Due to its high capacity for risk, there is a lot of adventure. • Rules and regulations: Work in a current job is difficult to do because of all the "red tape" and consistent administration approval needed. • Originality: Some people feel that they can offer a new service/product that no one else has offered before.
  31. 31. • Competition: Employees feel they can offer their current company's product/service at a lesser expense to the public. • Independence: Some people wish to be their own boss and make all the important decisions him/herself. • Salary potential: Generally, people want to be paid for the amount of work they do in full; they do not want to be "short-changed.“ • Flexibility: Entrepreneurs can schedule their work hours to spend quality time with family or any other reason. • Rational salary: They are not being paid what they're worth and would rather work on their own and earn the money they should be earning for their efforts. • Freedom: Entrepreneurs can work whenever they want, wherever they want, and however they want.
  32. 32. : Entrepreneurs are exposed to different types of risk in their pursuit of setting up an enterprise. Risk has got direct relationship with profits. In the event of of failure of their venture entrepreneurs are left with almost nothing to depend upon. • Salary: Starting your own business means that you must be willing to give up the security of a regular paycheck. • Benefits: There will undoubtedly be fewer benefits, especially when considering that your business will be just starting off. • Work schedule: The work schedule of an entrepreneur is never predictable; an emergency can come up in a matter of a second and late hours will have to be put in Cons:
  33. 33. • Administration: All the decisions of the business must be made on your own; there is no one ranked higher than you on the chain of command in YOUR business. • Incompetent staff: Often times, you will find yourself working with an employee who "doesn't know the ropes" as well as you do due to lack of experience. • Procedures: Many times during your entrepreneurial life, you will find that many policies do not make sense, nor will they ever make sense
  34. 34. Intrapreneurship Employees of an organisation who have entrepreneurial talent and are motivated to use their abilities and initiative and do something on their own, but who may not want to start their own business are known as entrepreneurs. Thus, intrapreneurship is the term given to the establishment and fostering of entrepreneurial activity in large organizations which either improve the existing products and services or brand new products. Intrapreneurship implies that entrepreneurial activities are explicitly supported within established organizations, provided with organizational resources, and accomplished by company employees. Pinchot describes the intrapreneur , also termed as corporate entrepreneur , as who violates policy, ignores the chain of command, defies established procedures , and , perhaps, comes up with a new product for the company in which he is employed.
  35. 35. Essentials for Intrapreneurship  The strategic and structural environment within the organization should be ‘right’. Inhibitive internal ‘chimneys’ must be pulled down so that employees can interact freely with each other and share ideas.  An appropriate work force of enterprising people should be built in which scientific recruitment is made.  They should be motivated and rewarded from time to time.  Support system, team working, information sharing and learning are essentials for invoking the dormant talents of employees.
  36. 36. Difficulties It is not so easy to achieve effective intrapreneurship due to the following factors:  Efficient implementation of facilities and controls, are difficult to implement without conflicts.  Fair remuneration and reward system is difficult to establish to ensure justice.  Employees may feel disappointed if they face failure while trying their new ideas. In spite of all odds, businesses have to take risks and allow and encourage to take up intrapreneurship.
  37. 37. Conclusion :- So one can safely conclude that entrepreneurship implies a commitment to expand and grow which is also one of the major determinants of industrial development. James opines that “ some think of entrepreneurs primarily as innovators , some as bearers of risks and others place major emphasis on their function as mobilizes and allocators of the capital . The suitable definition of an entrepreneur is a person or a group of persons who are responsible for the existence of a new business enterprise.