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Chapter 2

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Chapter 2

  1. 1. Chapter 2Theories of Entrepreneur
  2. 2. Introduction• Theory: a conceptual framework for organizing knowledge and providing a blueprint for action.• Different theories regarding development of entrepreneurship have been introduced in different times. All of which have emphasized the importance of entrepreneurship development. These theories also tried to keep pace with the emergence of new entrepreneurs and made the readers think how important entrepreneurs are fir the social and economical development of a country.
  3. 3. Psychological or Personal Theory• The essence of this theory is the difference in individuals’ attitude. All eminent psychologists viewed that the attitude of one individual differs from another. According to this theory, the difference in attitude, i.e., the internal attitude and ability to judge and forecast the situation lead a man to become a successful entrepreneur. Another group of famous psychologists based on their studies stated that Some special types of attitude, personality and conceptual ability create entrepreneur and entrepreneurship.
  4. 4. Achievement Motivation Theory• The analysis of the economical advancement of different nations shows that the nations, which possess a great extent of achievement motivation, made a significant economic progress. It is the inner drive of individuals that propels them to work more and to achieve something for their own interest. Such peoples show a tendency to take personal risk for social establishment. They like to take moderate risks.
  5. 5. Characteristics of Achievement Motivation Theory• Take personal responsibility• Moderate risk• Seek feedback• Sacrifice small interest for the sake of big one
  6. 6. Power Motivation Theory• Power generally refers to the authority to do a certain task properly. Power is an inherent right of people. Numerous scholars defined power in many ways. DavidC. Mc Clelland explained that the desire of one to have control over others is power. He also added that power influences people and that influence makes a man powerful. Power can be of two types:• Personal power: related to self interest• Social Power: related to social interest.The collective interest are considered as power in this case. Entrepreneurs usually seek personal power. Leadership Power is democratic while the power of entrepreneurs is always autocratic in nature.
  7. 7. Risk Taking Theory• Richard Cantillon and John Stuart Mill, introduced risk-taking theory which was later ewctified by Economist Alfred Marshal in 1890. The essence of this theory is that the entrepreneurs should have the inclination to take moderate risk and the ability to bear that risk. Every society possess some people who are willing to take risks and challenges. Some of them tend to take a high extent of risk and some prefer moderate ones. Again some stand totally against taking any risk.
  8. 8. Risk Taking Theory• People taking a very big risk also have a great responsibility. They bear some similarities with entpreneurs. So people who have the tendency to take risks can be dubbed as entrepreneurs.• Some economists viewed that the most important task an entrepreneur perform is taking risk and challenging work. But psychologists disagreed with this view. They describe that risk taking is the main characteristics of entrepreneurs. Economists explained that the entrepreneurs must have the ability to take risk.
  9. 9. Risk Taking Theory• On the other hand, psychologists viewed that entrepreneurs should bear the mentality to take risk. The first one is denoted as the results of being an entrepreneur and the second one is termed as the cause. Economist do not find any boundary of taking risk while psychologists thought that there should be a limit within which the entrepreneurs would take risk.
  10. 10. Internal External Locus of Control• Prof. J. D Rotter of Ohio University is the theory. Locus of control is or two types:1. Internal2. External Human being is the product of the society, and social situation determines whether a person will be externally or internally oriented of not
  11. 11. Internal Locus of Control• Internal locus of control could be define as self confidence, extreme belief over one’s ability and power. For example, if a person invests money in a business undertaking believing and thinking that he/s will bne able to yield an expected return, we can call him/ her an internal locus of control oriented person.
  12. 12. External Locus of Control• If an individual thinks that everything is out of his/her control, then the person’s locus of control is external. Values, beliefs, traditions fall under external locus of control.• Internal external locus of control theory highlights the self confidence of a person, the dependency on fortune and external environment. Entrepreneurs who have a high quality of self-confidence want to be controlled by himself/herself. But various studies showed that most of the entrepreneurs emphasized on their activities and their luck equally for the success and the failure.
  13. 13. Creativity or Innovation Theory• Creativity is concerned with the origin of new and fundamental ideas or views. Creative individuals use their talents, thinking ability etc., to create something new and with the help of various techniques they bring new ideas into practice. The physical performance is the determinant to evaluate whether an individuals is creative or not. A person who has creativity an innovation capacity must do something new which is meaningful not only for him/her but for the society as well.
  14. 14. Creativity or Innovation Theory• Creativity may be of two types;I. Creating something new which was never done invented by others.II. Presenting an old idea in a new form. That is, to invent some new use of an old thing or idea.
  15. 15. Sociology- Anthropology- Cultural Theory• Sociological theory is concerned with social condition, while anthropology theory is concerned with culture. Anthropology deals with the culture of people. The socio-cultural factors have a substantial influence in creating entrepreneurs as well as entrepreneurship. Many psychologists disagree as they view that only intention and mentality act in creating entrepreneurs. But the influence of socio-cultural factors cannot be totally discarded.
  16. 16. Sociology- Anthropology- Cultural Theory• Because the are instances where people have become entrepreneurs due to social reasons. Generally, society creates comparatively more entrepreneurs where the opportunity to do anythings, other than deal in trade and commerce, is to some extent restricted.
  17. 17. Sociology- Anthropology- Cultural Theory• There are some socio-cultural motives or factors that act in creating entrepreneurs. These factors or variables are described below: – Traditional values and modern Values – Religious values
  18. 18. Background Factors Theory• Studies show that personal traits or background factors determine entrepreneurs. These factors are: – Age – Education – Family background – Community – Peer group relations – Honesty – Birth order – Child rearing practice – Work experience