MASTER OF BUSINESS ADMINISTRATION SEMESTER-II ENTREPRENEURSHIP
CHANDIGARH UNIVERSITY Institute of Distance and Online Learning SLM Development Committee Prof. (Dr.) H.B. Raghvendra Vice- Chancellor, Chandigarh University, Gharuan, Punjab:Chairperson Prof. (Dr.) S.S. Sehgal Registrar Prof. (Dr.) B. Priestly Shan Dean of Academic Affairs Dr. Nitya Prakash Director – IDOL Dr. Gurpreet Singh Associate Director –IDOL Advisors& Members of CIQA –IDOL Prof. (Dr.) Bharat Bhushan, Director – IGNOU Prof. (Dr.) Majulika Srivastava, Director – CIQA, IGNOU Editorial Committee Prof. (Dr) Nilesh Arora Dr. Ashita Chadha University School of Business University Institute of Liberal Arts Dr. Inderpreet Kaur Prof. Manish University Institute of Teacher Training & University Institute of Tourism & Hotel Management Research Dr. Manisha Malhotra Dr. Nitin Pathak University Institute of Computing University School of Business © No part of this publication should be reproduced, stored in a retrieval system, or transmitted in any formor by any means, electronic, mechanical, photocopying, recording and/or otherwise without the prior written permission of the authors and the publisher. SLM SPECIALLY PREPARED FOR CU IDOL STUDENTS 2 CU IDOL SELF LEARNING MATERIAL (SLM)
First Published in 2021 All rights reserved. No Part of this book may be reproduced or transmitted, in any form or by any means, without permission in writing from Chandigarh University. Any person who does any unauthorized act in relation to this book may be liable to criminal prosecution and civil claims for damages. This book is meant for educational and learning purpose. The authors of the book has/have taken all reasonable care to ensure that the contents of the book do not violate any existing copyright or other intellectual property rights of any person in any manner whatsoever. In the event the Authors has/ have been unable to track any source and if any copyright has been inadvertently infringed, please notify the publisher in writing for corrective action. 3 CU IDOL SELF LEARNING MATERIAL (SLM)
CONTENT unit - 1: Entrepreneurship Basics ........................................................................................... 5 Unit - 2: Entrepreneurial Process – Part I............................................................................. 17 Unit - 3: Entrepreneurial Process – Part II ........................................................................... 25 Unit - 4: Entrepreneurship And Economy............................................................................ 34 Unit – 5 : Idea Generation – Starting The Venture............................................................... 50 Unit – 6 : Feasibility Study – Starting The Venture – Part-I................................................. 69 Unit – 7 : Feasibility Study – Starting The Venture – Part II................................................ 94 Unit – 8 : Feasibility Study – Starting The Venture – Part III............................................. 118 Unit – 9 : Report – Starting The Venture ........................................................................... 128 Unit – 10 : Designing Organisation Structure – Hr Planning.............................................. 137 Unit – 11 : Designing Organization Structure – Financial Plan - Part - I ........................... 153 Unit – 12 : Designing Organization Structure – Financial Plan – Part - II .......................... 181 Unit – 13 : Designing Organization Structure – Legal Issues – Part- I................................ 194 Unit – 14 : Designing Organization Structure – Legal Issues – Part - II ............................. 215 4 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT - 1: ENTREPRENEURSHIP BASICS STRUCTURE 1.0 Learning Objectives 1.1 Introduction 1.2 Concept of Entrepreneurship 1.3 Types of Entrepreneurs 1.4 Roles of an Entrepreneur 1.5 Functions of an Entrepreneur 1.6 Knowledge & Skills Requirement 1.7 Characteristics of Successful Entrepreneur 1.8 Summary 1.9 Keywords 1.10 Learning Activity 1.11 Unit End Questions 1.12 References 1.0LEARNING OBJECTIVES After studying this unit, you will be able to: Describe the concept of Entrepreneurship Discuss the role of entrepreneur Understand the meaning of entrepreneur and entrepreneurship. Explain the characteristics of entrepreneur and entrepreneurship. Discuss the different types of entrepreneurs. Highlight the entrepreneurial traits 1.1 INTRODUCTION The concept of Entrepreneurship has been around for a very long time. In the last decade it has resurged as if a new discovery has been made. Usually anyone who runs a business is called anentrepreneur. The more precise meaning of Entrepreneur is one who creates his own business i.e., a person who organizes, operates and assumes the risk of a business venture. An entrepreneur is a person who perceives a need and then brings together manpower, material and capital required to meet that need. The concept of Entrepreneurship is an age-old phenomenon that relates to the vision of an entrepreneur as well as its implementation by him. Entrepreneurship is a creative and innovative response to the environment. It is also the process of setting up a new venture by the entrepreneur. Entrepreneurship is a composite skill that is a mixture of many qualities and 5 CU IDOL SELF LEARNING MATERIAL (SLM)
traits such as imagination, risk-taking, and ability to harness factors of production i.e., land, labour, technology and various intangible factors. Entrepreneurship culture implies a set of values, norms and traits that are conducive to the growth of entrepreneurship. It is the organizational culture that focuses on new opportunities and creation of a set-up where these opportunities can be perused earnestly. An entrepreneur seeks the opportunities, looks for ways and means to capitalize on the newer opportunities by organizing the structure and the resources and gaining control on them. As against this, a manager in a non- entrepreneurial culture is primarily concerned with the resources under his control, the relation between the market and the structure of his organization. He is also concerned with matching the opportunities with organizational abilities. The entrepreneurial managers are driven by the perception of opportunities. They seek changes in the political rules, social values, consumer preferences, technology etc. On the other hand, resources like money, manpower and material they control, drive the administrative managers. 1.2CONCEPT OF ENTREPRENEURSHIP The word ‘Entrepreneur’ is derived from French word ‘Entrepreneur’. In early 16th century it was applied to those who were engaged in military expeditions. In 17th century the word ‘entrepreneur’ was used for civil engineering activities such as construction and fortification. It was applied to business for the first time in 18th century, to designate a dealer who buys and sells goods at uncertain prices. Entrepreneurship started catching up in 1980s just as professionalism in management caught up during 1970s. However, confusion still prevails as to what exactly we mean by the term ‘entrepreneur’. An attempt, therefore, has been made here to define entrepreneur. There is generally no accepted definition or model of what the entrepreneur is or does. In the past decade, a number of trends have emerged which distinguish between individual entrepreneurship and corporate entrepreneurship and entrepreneurs and small business owners. The literature abounds with criteria ranging from creativity, innovation, risk taking, high need achievement, etc. to personal traits such as appearance and style. Models of the entrepreneurial leaders are almost as plentiful as the number of authors who write about them. The French economist Cantillon, the first to introduce the term entrepreneur, defined him as an agent who purchased the means of production for combination into marketable products. Furthermore, at the moment of the factor purchases, the entrepreneur was unaware of the eventual price which he would receive for his product. Entrepreneurs perform a vital function in economic development. They have been referred to as the human agents needed to “mobilize capital, to explore natural resources, to create markets and to carry on trade”. It might well be said that the entrepreneurial input spells the difference between prosperity and poverty among nations. 6 CU IDOL SELF LEARNING MATERIAL (SLM)
According to Say, the entrepreneur’s functions to combine the productive factors, to bring them together. Carrying out of new combination of productive factors is called ‘enterprise’ which, in fact, is fundamental phenomenon of economic development. The individual whose function is to carry them out is ‘entrepreneur’. Many theories in economics emphasize the significant role played by individual entrepreneurs as they combine talents, abilities and drive to transform resources into profitable undertakings. Schumpeter, the first major writer to highlight the human agent in the process of economic development believed that the economy was propelled by the activities of persons “who wanted to promote new goods and new methods of production, or to exploit new sources of materials or new market” not merely for profit but also for the purpose of creating. Schumpeter used the word innovation and emphasized innovation as the function. of an entrepreneur. The entrepreneur in Schumpeter’s theory sees the potentiality, profitable opportunities and exploits them. The entrepreneurs’ motivation for profit is based not merely on his desire to raise consumption standard, but also on such non-realistic goals as the desire to find a private dynasty- the will to conquer in the competitive battle and the job of creating, i.e., he tries to maximize his profits by innovations. His unique characteristic is that he gets satisfaction by using his capabilities in attacking problems. The entire change and development to the civilization to a large extent is the result of trade, commerce and industrialization. In this development the human resource in general and entrepreneur in particular plays a pivotal role. McClelland has rightly hypothesized that the need for achievement in individuals, i.e., the entrepreneurial potential is the psychological factor which engenders economic growth and decline. The sense of high need achievement and motivation introduced by entrepreneurs bring about the required necessities in a class of society which transform the perception of the economic thinking, which is necessary to bring about the economic development. The importance of entrepreneurs to progress cannot be more succinctly expressed than Zinkin’s statement, “No entrepreneur, no development”. According to Kilby, the entrepreneur performs following four major tasks: a. Exchange relationship, b. Practical administration, c. Management control, and d. Technology. These four tasks consist of 7 I.Exchange relationship a. Perceiving opportunities in market. CU IDOL SELF LEARNING MATERIAL (SLM)
b. Gaining command over scarce resources. c. Purchasing inputs. d. Marketing of products and responding to competition. II.Practical administration a. Dealing with public bureaucracy. b. Management of human relations within the venture. c. Management of customer and supplier relations. III.Management Control a. Financial Management b. Production Management. IV. Technology a. Acquiring and overseeing assembling of the factory. b. Industrial engineering. c. Upgrading process and product quality. d. Introduction of new production techniques and products. All above fields of activities involve entrepreneur in decision making under conditions of uncertainty. Thus, entrepreneur within Kilby’s proposed framework would have: (i) a determination of the types and degrees of uncertainty confronting the performance of a particular operation, and (ii) the ability to make the appropriate decision necessary for the goal attainment. By nature, an entrepreneur is neither a technician nor a financier, but he is considered an ‘innovator’. Entrepreneurship is neither a profession nor a permanent occupation and, therefore, it cannot formulate a social class like capitalists or wage earners. According to Harbison, an entrepreneur is not an ‘innovator’ but an ‘organisation builder’ or one who has the skill to build an organization and who must be able to harness the new ideas of different innovators to the best of the organization. During early twentieth century, Dewing equated entrepreneur with business promoter and viewed the promoter as one who transformed ideas into a profitable business. In enumerating the characteristics of a successful entrepreneur, Dewing wrote of the qualities of imagination, initiative, judgment and restraint. ILO describes that entrepreneur are people who have the ability to see and evaluate business opportunities; to gather the necessary resources to take advantage of them; and to initiate appropriate action to ensure success. Casson in his work, having considered both functional definition and an indicative definition describes an entrepreneur as ‘someone who specializes in taking judgmental decisions about the co-ordination of scarce resources’. In Danhof’s analysis an entrepreneur “is primarily concerned with changes in the formula of production ... over which he has full control .... He devotes correspondingly little time to the carrying out of a specific formula”. Danhof divides the functions of the entrepreneur into three major roles: 8 CU IDOL SELF LEARNING MATERIAL (SLM)
obtaining relevant information, evaluating the information with regard to profit, and setting the operation in motion. Major emphasis in Danhof’s definition is decision-making, or judgement under alternative choices. Cunningham and Lischerson in their work have described six possible schools of thought on entrepreneurship. The first school of thought, i.e. ‘Great Person School’ says that an entrepreneur is born with an intuitive ability- a sixth sense and this sense helps him in startup stage. The second school of thought, i.e., ‘Psychological characteristics of school’ explains that entrepreneurs have unique value attitudes, and needs which drive them and help them especially in start-up stage. The third school, i.e., ‘Classical School of Thought’ says that central characteristic of entrepreneurial behaviour is innovation. This characteristic helps the entrepreneur much in start-up and early growth. ‘Management School’ is the fourth school of thought and it says entrepreneurs are organizers of economic venture and they organize, own, manage and assume its risk. Such functional orientation helps them in early growth and maturity. The fifth school of thought is the ‘Leadership School’. According to this school entrepreneurs are leaders of people and they have the ability to adopt their style to the needs of people. Such leadership personality suits them most during early growth and maturity situations. ‘Intrapreneurship School’ is the sixth school of thought. Intrapreneurship is the act of developing independent units, to create market and expand services within the organization. Intrapreneurship is needed by an entrepreneur during the situation of maturity and change. Whatever is the definition, across the world entrepreneurs have been considered instrumental in initiating and sustaining socioeconomic development. There are evidence to believe that countries which have proportionately higher percentage of entrepreneurs in their population have developed much faster as compared to countries which have lesser percentage of them in the society. They discover new sources of supply of materials and markets and establish new and more effective forms of organizations. Entrepreneurs perceive new opportunities and seize them with super normal will power and energy, essential to overcome the resistance that social environment offers. 1.3 TYPES OF ENTREPRENEURS Based on their working relationship with the business environment they are functioning in, various types of entrepreneurs can be found. The chief categories are these four types of entrepreneurs, i.e. Innovative entrepreneurs, Imitating Entrepreneurs, Fabian Entrepreneurs, and Drone Entrepreneurs. Let us now discuss each of them in detail. 9 CU IDOL SELF LEARNING MATERIAL (SLM)
Innovative Entrepreneurs: This type of an entrepreneur is more interested in introducing some new ideas into the market, organization or in the nation. They are drawn towards innovations and invest a lot of time and wealth in doing research and development. Imitating Entrepreneurs: These are often disparagingly referred to as copycats ‘. They observe an existing successful system and replicate it in a manner where all the deficiencies of the original business model are addressed, and all its efficiencies are retained. These entrepreneurs help to improve an existing product or production process and can offer suggestions to enhance the use of better technology. Fabian Entrepreneurs: These are entrepreneurs that are very careful in their approaches and cautious in adopting any changes. They are not prone to sudden decisions and try to shy away from any innovations or change that doesn’tfit their narrative. Drone Entrepreneurs: These are entrepreneurs who do not like a change. They are considered as old school ‘. They want to do business in their own traditional or orthodox methods of production and systems. Such people attach pride and tradition to even outdated methods of doing business. 1.4ROLES OF AN ENTREPRENEUR Entrepreneurs fulfill the following three dominant roles: Economic Change Social Change Technological Change These are referred to as behavioral roles. All entrepreneurs have these common characteristics and decide to become an entrepreneur due to the factors or circumstances in their lives which made them think the way they do. To do their work effectively and operate a successful business, these entrepreneurs should perform certain roles. These roles are the same as the basic managerial roles. Entrepreneurial mindset refers to a specific state of mind which orientates human conduct towards entrepreneurial activities and outcomes. Individuals with entrepreneurial mindsets are often drawn to opportunities, innovation and new value creation. The traditional career path is an anachronism. Statistics show 40 to 50 percent of students entering college in 2016 will be self-employed or will freelance at some point in their careers. There is no better way to prepare students for the world of the 21st century, whether they 10 CU IDOL SELF LEARNING MATERIAL (SLM)
aspire to work for a large company, start their own business, go into academia or devote themselves to public service than through cultivating their skills inentrepreneurship. 1.5FUNCTIONS OF AN ENTREPRENEUR An entrepreneur is expected to perform the following functions. Risk Absorption The entrepreneur assumes all possible risks of business. A business risk also involves the risk due to the possibility of changes in the tastes of consumers, techniques of consumers, techniques of production and new inventions. Such risks are not insurable. If they materialize, the entrepreneur has to bear the loss himself. Thus, Risk-bearing or uncertainty-bearing still remains the most function of an entrepreneur. An entrepreneur tries to reduce the uncertainties by his initiative, skill and good judgment. 2. Formulate Strategic Business Decisions The entrepreneur has to decide the nature and type of goods to be produced. He enters the particular industry which offers from the best prospects and produces whatever commodities he thinks will pay him the most employs those methods of production which seem to him the most profitable. He effects suitable changes in the size of the business, its location techniques of production and does everything that is needed for the development of his business. 3. Execute Managerial Functions The entrepreneur performs the managerial functions though the managerial functions are different from entrepreneurial functions. He formulates production plans, arranges finance, purchased, raw material provides, production facilities, organises sales an assumes the task of personnel management. In a large establishment these management functions are delegated to the paid managerial personnel. 4. Adopt Innovation Function An important function of an entrepreneur is ―Innovation‖. He conceives the idea for the improvement in the quality of production line. He considers the economic inability and technological feasibility in bringing about improve quality. The introduction of different kinds of electronic gadgets is an example of such an innovation of new products. Innovation is an ongoing function rather than once for all, or possibly intermittent activity. 1.6 KNOWLDEGE AND SKILLS REQUIREMENT - ENTREPRENEURSHIP An entrepreneur refers to someone who builds or operates their own business. By having an equity stake in the firm, the entrepreneur can enjoy a great deal of profit if things go well; but they also take on a great deal of risk—far more than a regular employee of the business. This 11 CU IDOL SELF LEARNING MATERIAL (SLM)
entrepreneurial risk can take several forms, including financial risk, career risk, emotional risk, or overall business risk. Since there is so much at stake when it comes to starting and growing a successful business, there are very specific skills that an entrepreneur usually needs to be successful. Below, we highlight five such attributes Entrepreneurship can be quite rewarding, but also comes with several unique risks. To mitigate the risk of financial loss or failure, it serves a business owner to have a certain set of skills. A great entrepreneur must be able to effectively communicate, sell, focus, learn, and strategize. An ability to continuously learn is not just a key entrepreneurial skill, but also a very valuable life skill. Growing a business requires a sound strategy based on inherent business sense and skills 1.7 CHARACTERISTICS OF ENTREPRENUR Facilitating Character An entrepreneur must build a team, keep it motivated, and provide an environment for individual growth and career development 1. Self-Confidence Entrepreneurs must have belief in themselves and the ability to achieve their oils. 2. Work with Vision and Mission An entrepreneur must be committed to the project with a time horizon off vie to seven years. No ninety-day wonders are allowed. 3. High Degree of Endurance Success of an entrepreneur demands the ability to work long hours for sustain period of time. 4. Initiative and Enterprising Personality An entrepreneur must have initiative, accepting personal responsibility for a makegood use of resources. 5. Goal Setter An entrepreneur must be able to set challenging but realistic goals. 6. Calculated Risk-Taking Ability An entrepreneur must be a moderate risk-taker and learn from any failures. 12 CU IDOL SELF LEARNING MATERIAL (SLM)
1.8 SUMMARY Entrepreneurship is a creative and innovative response to the environment. It is also the process of setting up a new venture by the entrepreneur. An entrepreneur seeks the opportunities, looks for ways and means to capitalize on the newer opportunities by organizing the structure and the resources and gaining control on them. The word ‘Entrepreneur’ is derived from French word ‘Entrepreneur’. Entrepreneurship started catching up in 1980s just as professionalism in management caught up during 1970s. The French economist Cantillon, the first to introduce the term entrepreneur, defined him as an agent who purchased the means of production for combination into marketable products. Schumpeter, the first major writer to highlight the human agent in the process of economic development believed that the economy was propelled by the activities of persons “who wanted to promote new goods and new methods of production, or to exploit new sources of materials or new market” not merely for profit but also for the purpose of creating. The importance of entrepreneurs to progress cannot be more succinctly expressed than Zinkin’s statement, “No entrepreneur, and no development”. According to Harbison, an entrepreneur is not an ‘innovator’ but an ‘organisation builder’ or one who has the skill to build an organization and who must be able to harness the new ideas of different innovators to the best of the organization. ‘Intrapreneurship School’ is the sixth school of thought. Intrapreneurship is the act of developing independent units, to create market and expand services within the organization. Management School’ is the fourth school of thought and it says entrepreneurs are organizers of economic venture and they organize, own, manage and assume its risk. 1.9 KEYWORDS Entrepreneur: Entrepreneurs are agents of change and growth in a market economy, and they can act to accelerate the generation, dissemination and application of innovate ideas. Entrepreneurship: It refers to a process of action an entrepreneur undertakes to establish his enterprise. Innovative Entrepreneur: Innovative entrepreneurs are entrepreneurs who aggressively pursue innovation in new products through experimentation and search new markets. 13 CU IDOL SELF LEARNING MATERIAL (SLM)
Drone Entrepreneur: Drone entrepreneur is one who follows the traditional methods of production. 1.10 LEARNING ACTIVITIES 1. List out the qualities to become an entrepreneur. ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- 2. “Developing countries need imitative entrepreneurs rather than innovative entrepreneurs”. Do you agree? Give reasons. ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- 1.11 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Define Entrepreneurship? 2. Define Entrepreneur? 3. Define any two types of entrepreneurs? 4. Define Wage employment? 5. Identify the characteristics of successful entrepreneurs. Long Questions 1. Define entrepreneur and explain characteristics of an entrepreneur. 2. What do you mean by entrepreneurship? Discuss its main features. 3. Explain the various types of entrepreneurs giving examples. 4. Explain the role of culture in development of entrepreneurship. 5. Explain the Characteristics and qualities of entrepreneurs. B. Multiple Choice Questions 1. Which of the following shows the process of creating something new? a. Business model b. Modeling c. Creative flexibility d. Innovation 2. Which of the following is used by entrepreneurs to acquire experience in an international market before making a major commitment? 14 CU IDOL SELF LEARNING MATERIAL (SLM)
a. Merger b. Minority Interest c. Joint venture d. Majority interest 3. What is the process by which individuals pursue opportunities without regard to resources they currently control? a. Start-up management b. Entrepreneurship c. financial analysis d. Feasibility planning 4. Which of the following shows the process of creating something new?? a. Business model b. Modeling c. Creative flexibility d. Innovation 5. Which of the following factors is the most important in forcing U.S companies to focus on new product development and increased productivity? a. Entrepreneurship b. Hyper competition c. Governmental laws d. Organizational culture Answers 1-a, 2-c, 3-a. 4-c, 5-a 1.12REFERENCES Textbooks T1 Gupta, R.K. &Lipika, K.L. 2115. Fundamentals of entrepreneurship development & project management, Himalaya Publishing House. ISBN: 978-9351426844. T2 Ivaturi, V.K., Ganesh, M., Mittal, A., Subramanya, S. 2117. The Manual for Indian Start-ups: Tools to Start and Scale-up Your New Venture, Penguin Random House India. ISBN: 978-0143428527. Reference Books 15 CU IDOL SELF LEARNING MATERIAL (SLM)
R1 Gordan, E. and Natrajan, K. 2117. Entrerpreneurship Development, 6th Edition, Himalaya Publishing House, ISBN: 978-9352125404. R2 Radjou, N., Prabhu, J., Ahuja, S. 2112. Jugaad Innovation: A Frugal and Flexible Approach to Innovation for the 21st Century, Publisher: RHI. ISBN: 978- 8184002158. R3 Bansal, R. 2112. Stay Hungry Stay Foolish, Fourth Edition, Westland Limited. ISBN: 978-9381626719 16 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT - 2: ENTREPRENEURIAL PROCESS – PART I STRUCTURE 2.0 Learning Objectives 2.1 Introduction 2.2 Stages in the Entrepreneurship Process 2.3 Skills Required in the Entrepreneurship Process 2.4 Distinction between Entrepreneur and Manager 2.5 Summary 2.6 Keywords 2.7 Learning Activity 2.8 Unit End Questions 2.9 References 2.0 LEARNING OBJECTIVES After studying this unit, you will be able to: Describe the stages of the entrepreneurship process Explain the skills requirement of entrepreneurship process. Differentiate the role of entrepreneur and manager. 2.1 INTRODUCTION Entrepreneurship is an elusive concept. The concept of entrepreneurship has been a subject of much debate and is defined differently by different authors. Some of them view it as ‘risk- bearing’; others call it as ‘innovations’, yet others consider it as ‘thrill-seeking’. In a conference of entrepreneurship held in USA, it is defined, as “Entrepreneurship is the attempt to create value through recognition of business opportunity, the management of risk taking appropriate to the opportunity and through the communicative and management skills to mobilize human, financial and material resources necessary to bring a project to fruition”. A.H. Cole has defined entrepreneurship as “the purposeful activity of an individual or group of associated individuals, undertaken to initiate, maintain or earn profit by production and distribution of economic goods and services”. According to Heggins “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 and selecting top managers of day-to-day operations. According to Joseph A Schumpeter entrepreneurship is essentially a creative activity. It consists of doing such things as are not generally done in ordinary course of business. An entrepreneur is one who innovates i.e., carries out new business. According to Mc Clelland, there are two 17 CU IDOL SELF LEARNING MATERIAL (SLM)
characteristics of entrepreneur: first is doing a thing in a new and better way, second is decision making under uncertainty. The various definitions of entrepreneurship identify two basic elements of entrepreneurship namely innovation and risk bearing. Innovation: Innovation is doing something new or something different. Entrepreneurs constantly look out to do something different and unique to meet the changing requirements of the customers. Entrepreneurs need not be inventors of new products or new methods of production or service but may possess the ability of making use of the inventions for their enterprises. For example, in order to satisfy the changing needs of the customers, now-a-days fruit juice (mango, fruits etc.) in being served in tins, instead of bottles so that customers can carry it and throw away the containers after drinking the juice. Ratan Tata did not invent automobile. Foreseeing the people’s desire to have small cars at lower price, he applied new methods of mass manufacturing, made use of new, lights and relatively cheaper materials. Hence entrepreneurship needs to apply inventions on a continuous basis to meet customers changing demands for products. Risk bearing:Giving birth to a new enterprise involves risk. Doing something new and different is also risky. The enterprise may earn profit or incur loss, which depends on various factors like changing customer preferences, increased competition, shortage or raw materials etc. An entrepreneur needs to be bold enough to assume the risk involved and hence an entrepreneur is a risk-bearer not risk-avoider. This risk-bearing ability keeps him to try on and on which ultimately makes him to succeed. The Japanese proverb “Fall seven times, stand up eight” appliesto entrepreneur. 2.2STAGES IN THE ENTREPRENEURSHIP PROCESS Entrepreneurship is a process that comprising several distinct stages. The first stage in the entrepreneurial process is some change in the real world. For example, a war may destroy country’s manufacturing facilities but spare its trained work force that has happened in West Germany during Second World War. Such a change leads to changes in every aspect of life in the country. It creates needs for new goods and services. The distraction of Japan’s industry during the Second World War allowed the country to rebuild its industry from scratch. The second stage in the entrepreneurial development is the ‘idea’. For example, microprocessor, the brain of personnel computer had been in the American market since the early 1970s. A company called ‘Altair’ had put out a computer that was so personal that one had to put it together oneself. But it was Apple Computer, which perceived that computer market was potentially very big. One may become an entrepreneur in various ways. He may start a new enterprise. Alternatively, he may acquire a franchise. Franchising is an entrepreneurial system whereby 18 CU IDOL SELF LEARNING MATERIAL (SLM)
an individual runs a business based on the right to make a product or service granted by a manufacturer or other organization. Intrapreneuring is another strategy. It is the process of extending the firms domain of competence by exploiting new opportunities through new combinations of its existing resources. Barriers to Entrepreneurship: A large number of entrepreneurs particularly in the small enterprises fail due to several problems and barriers. The greatest barrier to entrepreneurship is the failure of success. Karl. H. Vesper has identified the following entrepreneurship barriers: 1. Lack of a viable concept 2. Lack of market knowledge 3. Lack of technical skills 4. Lack of seed capital 5. Lack of business know how 6. Complacency—lack of motivation 7. Social stigma 8. Time presence and distractions 9. Legal constraints and regulations 10. Monopoly and protectionism 11. Inhibitions due to patents 2.3SKILLS REQUIRED IN THE ENTREPRENEURSHIP PROCESS Once the selection of potential entrepreneurs is over, they have to be equipped with managerial and technical skills to start the enterprise. In an entrepreneurial development programme, there are candidates with a variety of backgrounds and qualities. Therefore, a package of training inputs is provided during the programme which is usually of six weeks’ duration. The main training inputs are as follows: Technical Knowledge and Skills: Once the entrepreneur selects a particular enterprise in depth knowledge about the technical aspects of the trade is essential. The entrepreneur has to be well-conversant with the process of manufacture and trading for which a practical training based on sound theory is essential. He needs to also know the economic aspects of the technology including costs and benefits. Field trips to a few industrial units and in-plant training can be very helpful. Achievement Motivation Training (AMT): In order to develop human resources, development of achievement motive is essential. The purpose of AMT is to develop the need to achieve, risk-taking, initiative and other such behavioural or psychological traits. Amotivation development programme creates self-awareness and self-confidence among the participants and enables them to think positively and realistically. Without achievement,motivation, training, an Entrepreneurial Development Program becomes an 19 CU IDOL SELF LEARNING MATERIAL (SLM)
ordinary executive development programme. Motivation training initiates people to business activity or helps them to expand their business ventures. They learn to strive for excellence, to take calculated risk, to use feedback for improvement, sense of efficacy, etc. Traditionally, laboratories for entrepreneurial motivations were conducted to stimulatepeople’s interest in setting up their own enterprise and to groom them into enterprise builders. These laboratories also aim to developing inclinations which ensure continuous self- appraisal and organizational revival. The “who am I’ exercise and other exercises like “ring to M,” “tower building”, “product manufacture” etc. and writing and analysing fantasies are utilized in such training programmes. 3. Support Systems and Procedures: The participants have to be exposed to agencies like the local banks and other financial institutions, industrial service corporations and other institutions dealing with supply of raw materials, equipment, etc. The session on support systems needs to also include the procedures for approaching them, applying and obtaining assistance from them and availing of the services provided by them. A linkage between the training institute and the support system agencies can be established by participation of these agencies in sponsoring and financing the EDP. 4. Market Survey: The participants should be given opportunity to actually conduct market surveys for their chosen projects. This would help expose the candidate to the marketing avenues available and could be followed by sessions on methods of dealing in the markets. 5. Managerial Skill: Once a participant is able to start the enterprise, he requires managerial skills. A list of the agencies along with details of the formalities to be completed, specimen forms to be filled in would greatly facilitate the entrepreneurs. It should include all aspects of financial management. Managerial skills are particularly essential for a small-scale entrepreneur who cannot afford to employ specialists in different areas of management The aim should be to enable the participant to look at an enterprise in its totality and to develop overall managerial understanding. 6. Project Preparation: A lot of time needs to be devoted to the actual preparation of projects. Their active involvement in this task would provide them necessary understanding and also ensure their personal commitment. 7. During the course of training various guidance sessions are helpful for enabling the trainees to identify appropriate business opportunities. Information and counselling on various feasible business opportunities is provided through the team of experts and by spot surveys. Necessary experience is provided in market surveys, project preparation, sources of finance, etc. Undue emphasis on any dimension in entrepreneurial development should be avoided as it may lead to distortion in both process and content of the programme. 20 CU IDOL SELF LEARNING MATERIAL (SLM)
2.4MANAGERIAL VS. ENTREPRENEURIAL APPROACH Sometimes a manager and an entrepreneur are considered as same. Managerial strategic orientation depends on controlled resources. The entrepreneur’s strategic orientation depends on his or her observation of the opportunity. This orientation is most significant when other opportunities have diminishing returns accompanied by rapid changes in technology, consumer economies, social values, or political rules. Entrepreneurial Approach: Definition: An entrepreneur is a person who creates something new and assumes the risks and rewards associated with that innovation. Strategic Orientation: The entrepreneur’s strategic orientation depends on his or her perception of the opportunity. Motive: The main motive of an entrepreneur is to start a venture by setting up an enterprise Status: An entrepreneur is the owner of the enterprise. Risk-bearing: An entrepreneur assumes all risks and uncertainty involved in running the enterprise. Rewards: An entrepreneur gets profit as his reward for bearing risks. Innovation: An entrepreneur is an innovator. Qualifications needed: High achievement motive, creativity, foresight, risk-bearing ability and so on. Managerial Approach: Definition: A manager is an employee of the entrepreneur who performs all managerial functions for the entrepreneur’s enterprise. Strategic Orientation: When the use of planning systems is the strategic orientation, the administrative domain is operant. Motive: The main motive of an entrepreneur is to render his service in an enterprise already set up by someone else. Status: A manager is a servant in the enterprise owned by the entrepreneur. Risk-bearing: A manager does not bear any risk involved in the enterprise. Rewards: A manager gets a salary as his reward for rendering his service. Innovation: A manager converts the entrepreneur’s ideas into practice. Qualifications needed: Sound knowledge in management theory and practice. 2.5 SUMMARY Entrepreneurship is the attempt to create value through recognition of business opportunity, the management of risk taking appropriate to the opportunity and through 21 CU IDOL SELF LEARNING MATERIAL (SLM)
the communicative and management skills to mobilize human, financial and material resources necessary to bring a project to fruition. According to Heggins “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 and selecting top managers of day-to-day operations. According to Joseph A Schumpeter entrepreneurship is essentially a creative activity. It consists of doing such things as are not generally done in ordinary course of business. According to Mc Clelland, there are two characteristics of entrepreneur: first is doing a thing in a new and better way, second is decision making under uncertainty. The first stage in the entrepreneurial process is some change in the real world. The second stage in the entrepreneurial development is the ‘idea’. The purpose of AMT is to develop the need to achieve, risk-taking, initiative and other such behavioural or psychological traits. 2.6 KEYWORDS Innovation: Innovation is doing something new or something different. Risk bearing:Giving birth to a new enterprise involves risk. Doing something new and different is also risky. AMT: Achievement Motivation Training Managerial Skill: Once a participant is able to start the enterprise, he requires managerial skills Entrepreneur : An entrepreneur is a person who creates something new and assumes the risks and rewards associated with that innovation Manager: A manager is an employee of the entrepreneur who performs all managerial functions for the entrepreneur’s enterprise. Motive: The main motive of an entrepreneur is to render his service in an enterprise already set up by someone else 2.7 LEARNING ACTIVITIES 1. Discuss the dark side of Entrepreneurship. ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- 2. Discuss the Differences between entrepreneurship and wage employment career options. ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- 22 CU IDOL SELF LEARNING MATERIAL (SLM)
2.8 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Define the concept of Intrapreneur? 2. Write a note on sources and methods of Idea Generation 3. Write the characteristics of successful entrepreneur 4. What is innovation 5. What do you mean by business risk? Long Questions 1. “Determination of cost is an important function of an entrepreneur”? Explain? 2. “Entrepreneurs are made or born.” Give your views 3. Explain the concept, meaning and definition of entrepreneur and entrepreneurship 4. Explain the factors influencing entrepreneurial development 5. Write a note on sources and methods of Idea Generation. B. Multiple Choice Questions 1. Which of the following shows the process of creating something new? a. Business model b. Modeling c. Creative flexibility d. Innovation 2. The entrepreneur was distinguished from capital provider in a. Middle Ages b. 17th century c. 18th century d. 19th and 20th century 3. A corporate manager who starts a new initiative for their company which entails setting up a new distinct business unit and board of directors can be regarded as? a. Ecopreneur b. Technopreneur c. Intrapreneur d. Social Entrepreneur 4. Family business always interested to handover the change of his business to 23 a. Indian Administration Officers b. Professional Managers CU IDOL SELF LEARNING MATERIAL (SLM)
c. Next generation d. None of these 5. EDP (Entrepreneurship Development Programmes) is required to help a. Existing entrepreneurs b. First generation entrepreneurs c. Future generation entrepreneurs d. None of these Answers 1-d, 2-c, 3-c, 4-c, 5-b 2.9REFERENCES Textbooks T1 Gupta, R.K. &Lipika, K.L. 2115. Fundamentals of entrepreneurship development & project management, Himalaya Publishing House. ISBN: 978-9351426844. T2 Ivaturi, V.K., Ganesh, M., Mittal, A., Subramanya, S. 2117. The Manual for Indian Start-ups: Tools to Start and Scale-up Your New Venture, Penguin Random House India. ISBN: 978-0143428527. Reference Books Dr. G.K. Varshney • Fundamentals of Entrepreneurship 24 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT - 3: ENTREPRENEURIAL PROCESS – PART II STRUCTURE 3.0 Learning Objectives 3.1 Introduction 3.2 Factors affecting the emergence of entrepreneurial approach 3.3 Social Factors 3.4 Summary 3.5 Keywords 3.6 Learning Activity 3.7 Unit End Questions 3.8 References 3.0 LEARNING OBJECTIVES After studying this unit, you will be able to: Describe the nature of entrepreneur. List the factors affecting the emergence of entrepreneurial approach Outline the characteristics of entrepreneur. List out the process of entrepreneurship management. 3.1 INTRODUCTION Entrepreneurship is influenced by four distinct factors: economic development, culture, technological development and education. In areas where these factors are present, you can expect to see strong and consistent entrepreneurial growth. These conditions may have both positive and negative influences on the emergence of entrepreneurship. Positive influences constitute facilitative and conducive conditions for the emergence of entrepreneurship, whereas negative influences create inhibiting milieu to the emergence of entrepreneurship. When we look at the most successful entrepreneurs, there’s a wide diversity of schooling, backgrounds, and upbringings among them. However, there are some common traits and skills that many of these successful entrepreneurs have demonstrated or developed prior to their success. The remaining question is: how can we help foster these skills and characteristics in our own kids and help prepare them to become the next generation of successful entrepreneurs? In many cases, economic, social, and psychological factors can shape or contribute to the development of these traits or skills in young future entrepreneurs, so it’s important to consider the environment and factors in your child’s upbringing if you’re hoping to prepare them for an entrepreneurial path. 25 CU IDOL SELF LEARNING MATERIAL (SLM)
3.2 FACTORS AFFECTING THE EMERGENCE OF ENTREPRENEURIAL APPROACH Economic Factors Economic environment exercises the most direct and immediate influence on entrepreneurship. This is likely because people become entrepreneurs due to necessity when there are no other jobs or because of opportunity. The economic factors that affect the growth of entrepreneurship are the following: Capital Capital is one of the most important factors of production for the establishment of an enterprise. Increase in capital investment in viable projects results in increase in profits which help in accelerating the process of capital formation. Entrepreneurship activity too gets a boost with the easy availability of funds for investment. Availability of capital facilitates for the entrepreneur to bring together the land of one, machine of another and raw material of yet another to combine them to produce goods. Capital is therefore, regarded as lubricant to the process of production. France and Russia exemplify how the lack of capital for industrial pursuits impeded the process of entrepreneurship and an adequate supply of capital promoted it. Labor Easy availability of right type of workers also effects entrepreneurship. The quality rather than quantity of labor influences the emergence and growth of entrepreneurship. The problem of labor immobility can be solved by providing infrastructural facilities including efficient transportation. The quality rather quantity of labor is another factor which influences the emergence of entrepreneurship. Most less developed countries are labor rich nations owing to a dense and even increasing population. But entrepreneurship is encouraged if there is a mobile and flexible labor force. And the potential advantages of low-cost labor are regulated by the deleterious effects of labor immobility. The considerations of economic and emotional security inhibit labor mobility. Entrepreneurs, therefore, often find difficulty to secure sufficient labor. Raw Materials The necessity of raw materials hardly needs any emphasis for establishing any industrial activity and its influence in the emergence of entrepreneurship. In the absence of raw materials, neither any enterprise can be established, nor can an entrepreneur be emerged. It is one of the basic ingredients required for production. Shortage of raw material can adversely affect entrepreneurial environment. Without adequate supply of raw materials, no industry 26 CU IDOL SELF LEARNING MATERIAL (SLM)
can function properly and emergence of entrepreneurship to is adversely affected.In fact, the supply of raw materials is not influenced by themselves but becomes influential depending upon other opportunity conditions. The more favorable these conditions are, the more likely is the raw material to have its influence of entrepreneurial emergence. Market The role and importance of market and marketing is very important for the growth of entrepreneurship. In modern competitive world no entrepreneur can think of surviving in the absence of latest knowledge about market and various marketing techniques. The fact remains that the potential of the market constitutes the major determinant of probable rewards from entrepreneurial function. Frankly speaking, if the proof of pudding lies in eating, the proof of all production lies in consumption, i.e., marketing. The size and composition of market both influence entrepreneurship in their own ways. Practically, monopoly in a particular product in a market becomes more influential for entrepreneurship than a competitive market. However, the disadvantage of a competitive market can be cancelled to some extent by improvement in transportation system facilitating the movement of raw material and finished goods, and increasing the demand for producer goods. Infrastructure Expansion of entrepreneurship presupposes properly developed communication and transportation facilities. It not only helps to enlarge the market, but expand the horizons of business too. Take for instance, the establishment of post and telegraph system and construction of roads and highways in India. It helped considerable entrepreneurial activities which took place in the 1850s. Apart from the above factors, institutions like trade/ business associations, business schools, libraries, etc. also make valuable contribution towards promoting and sustaining entrepreneurship’ in the economy. You can gather all the information you want from these bodies. They also act as a forum for communication and joint action. 3.3 SOCIAL FACTORS Social factors can go a long way in encouraging entrepreneurship. In fact, it was the highly helpful society that made the industrial revolution a glorious success in Europe. Strongly affect the entrepreneurial behavior, which contribute to entrepreneurial growth. The social setting in which the people grow, shapes their basic beliefs, values and norms. The main components of social environment are as follows: Caste Factor:There are certain cultural practices and values in every society which influence the’ actions of individuals. These practices and value have evolved over hundreds of years. For instance, consider the caste system (the Varna system) among the Hindus in India. It has 27 CU IDOL SELF LEARNING MATERIAL (SLM)
divided the population on the basis of caste into four division. The Brahmana (priest), the Kshatriya (warrior), the Vaishya (trade) and the Shudra (artisan): It has also defined limits to the social mobility of individuals. By social mobility’ we mean the freedom to move from one caste to another. The caste system does not permit an individual who is born a Shudra to move to a higher caste. Thus, commercial activities were the monopoly of the Vaishyas. Members of the three others Hindu Varnas did not become interested in trade and commerce, even when India had extensive commercial inter-relations with many foreign countries. Dominance of certain ethnical groups in entrepreneurship is a global phenomenon Family Background:This factor includes size of family, type of family and economic status of family. In a study by Hadimani, it has been revealed that Zamindar family helped to gain access to political power and exhibit higher level of entrepreneurship. Background of a family in manufacturing provided a source of industrial entrepreneurship. Occupational and social status of the family influenced mobility. There are certain circumstances where very few people would have to be venturesome. For example, in a society where the joint family system is in vogue, those members of joint family who gain wealth by their hard work denied the opportunity to enjoy the fruits of their labor because they have to share their wealth with the other members of the family. Education: Education enables one to understand the outside world and equips him with the basic knowledge and skills to deal with day-to-day problems. In any society, the system of education has a significant role to play in inculcating entrepreneurial values. In India, the system of education prior to the 20th century was based on religion. In this rigid system, critical and questioning attitudes towards society were discouraged. The caste system and the resultant occupational structure were reinforced by such education. It promoted the idea that business is not a respectable occupation. Later, when the British came to our country, they introduced an education system, just to produce clerks and accountants for the East India Company, the base of such a system, as you can well see, is very anti- entrepreneurial.Our educational methods have not changed much even today. The emphasis is till on preparing students for standard jobs, rather than marking them capable enough to stand on their feet. Attitude of the Society: A related aspect to these is the attitude of the society towards entrepreneurship. Certain societies encourage innovations and novelties, and thus approve entrepreneurs’ actions and rewards like profits. Certain others do not tolerate changes and in such circumstances, entrepreneurship cannot take root and grow. Similarly, some societies have an inherent dislike for any money-making activity. It is said, that in Russia, in the nineteenth century, the upper classes did not like entrepreneurs. For them, cultivating the land meant a good life. They believed that rand belongs to God and the produce of the land was nothing but god’s blessing. Russian folk-tales, proverbs and songs during this period carried the message that making wealth through business was not right. 28 CU IDOL SELF LEARNING MATERIAL (SLM)
Cultural Value: Motives impel men to action. Entrepreneurial growth requires proper motives like profit-making, acquisition of prestige and attainment of social status. Ambitious and talented men would take risks and innovate if these motives are strong. The strength of these motives depends upon the culture of the society. If the culture is economically or monetarily oriented, entrepreneurship would be applauded and praised; wealth accumulation as a way of life would be appreciated. In the less developed countries, people are not economically motivated. Monetary incentives have relatively less attraction. People have ample opportunities of attaining social distinction by non-economic pursuits. Men with organizational abilities are, therefore, not dragged into business. They use their talents for non-economic end. Psychological Factors Many entrepreneurial theorists have propounded theories of entrepreneurship that concentrate especially upon psychological factors. These are as follows: Need Achievement: The most important psychological theories of entrepreneurship were put forward in the early) 960s by David McClelland. According to McClelland ‘need achievement’ is social motive to excel that tends to characterize successful entrepreneurs, especially when reinforced by cultural factors. He found that certain kinds of people, especially those who became entrepreneurs, had this characteristic. Moreover, some societies tend to reproduce a larger percentage of people with high ‘need achievement’ than other societies. McClelland attributed this to sociological factors. Differences among societies and individuals accounted for ‘need achievement’ being greater in some societies and less in certain others. The theory states that people with high need-achievement are distinctive in several ways. They like to take risks and these risks stimulate them to greater effort. The theory identifies the factors that produce such people. Initially McClelland attributed the role of parents, especially the mother, in mustering her son or daughter to be masterful and self-reliant. Later he put less emphasis on the parent-child relationship and gave more importance to social and cultural factors. He concluded that the ‘need achievement’ is conditioned more by social and cultural reinforcement rather than by parental influence and such related factors. Withdrawal of Status Respect: There are several other researchers who have tried to understand the psychological roots of entrepreneurship. One such individual is Everett Hagen who stresses the-psychological consequences of social change. Hagen says, at some point many social groups experience a radical loss of status. Hagen attributed the withdrawal of status respect of a group to the genesis of entrepreneurship. Hage believes that the initial condition leading to eventual entrepreneurial behavior is the loss of status by a group. He postulates that four types of events can produce status withdrawal: 29 CU IDOL SELF LEARNING MATERIAL (SLM)
a. The group may be displaced by force. b. It may have its valued symbols denigrated. c. It may drift into a situation of status inconsistency; and d. It may not be accepted the expected status on migration in a new society. Motives: Other psychological theories of entrepreneurship stress the motives or goals of the entrepreneur. Cole is of the opinion that besides wealth, entrepreneurs seek power, prestige, security and service to society. Stepanek points particularly to non-monetary aspects such as independence, persons’ self-esteem, power and regard of the society.On the same subject, Evans distinguishes motive by three kinds of entrepreneursmanaging entrepreneurs whose chief motive is security.Innovating entrepreneurs, who are interested only in excitement. Controlling entrepreneurs, who above all otter motives want power and authority.Finally, Rostow has examined inter gradational changes in the families of entrepreneurs. He believes that the first generation seeks wealth, the second prestige and the third art and beauty. Others: Thomas Begley and David P. Boyd studied in detail the psychological roots of entrepreneurship in the mid-1980s. They came to the conclusion that entrepreneurial attitudes based on psychological considerations have five dimensions: First came ‘need-achievement’ as described by McClelland. In all studies of successful entrepreneurs, a high achievement orientation is invariably present. The second dimension that Begley and Boyd call ‘locus of control’ This means that the entrepreneur follows the idea that he can control his own life and is not influenced by factors like luck, fate and so on. Need-achievement logically implies that people can control their own lives and are not influenced by external forces. The third dimension is the willingness to take risks. These two researchers have come to the conclusion that entrepreneurs who take moderate risks earn higher returns on their assets than those who take no risks at all or who take extravagant risks. Tolerance is the next dimension of this study. Very few decisions are made with complete information. So, all business executives must, have a certain amount of tolerance for ambiguity. Finally, here is what psychologists call ‘Type A’ behavior. This is nothing but “a chronic, incessant struggle to achieve more and more in less and less of time” Entrepreneurs are characterizing by the presence of ‘Type A’ behavior in all their endeavors. 30 CU IDOL SELF LEARNING MATERIAL (SLM)
3.4 SUMMARY Entrepreneurship is influenced by four distinct factors: economic development, culture, technological development and education. Capital is one of the most important factors of production for the establishment of an enterprise. The role and importance of market and marketing is very important for the growth of entrepreneurship. Expansion of entrepreneurship presupposes properly developed communication and transportation facilities According to McClelland ‘need achievement’ is social motive to excel that tends to characterize successful entrepreneurs, especially when reinforced by cultural factors. Entrepreneurship mainly depends on values, norms and traits that are consistent to the growth of an economy. Caste Factor:There are certain cultural practices and values in every society which influence the’ actions of individuals. These practices and value have evolved over hundreds of years. 3.5 KEYWORDS Innovation: Innovation is the commercialization of an invention. Uncertainty: Non-insurable risks are the possibility of changes in the tastes and preferences of the consumer, techniques of production and so on. These non-insurable risks are called uncertainties. Risk: The risk is the condition of not knowing the outcome of an activity or decision. Economic Factors:Economic environment exercises the most direct and immediate influence on entrepreneurship. Labor:Easy availability of right type of workers also effects entrepreneurship. The quality rather than quantity of labor influences the emergence and growth of entrepreneurship. Raw Materials : The necessity of raw materials hardly needs any emphasis for establishing any industrial activity and its influence in the emergence of entrepreneurship 3.6LEARNING ACTIVITY 1. Visit industrial estate of your city/district, survey the industries and classify them. ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- 31 CU IDOL SELF LEARNING MATERIAL (SLM)
2. With respect to industries surveyed for previous activity find out whether technology used is an imported one or indigenous. Describe the reasons for the use of imported /indigenous technology. ----------------------------------------------------------------------------------------- ----------------------- ---------------------------------------------------------------------------------------------------------------- 3.7 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What are the rewards and penalties for entrepreneurs?? 2. Write a note on intrapreneur? 3. Write a note on EDP Programme? 4. Write a note on barriers of entrepreneurship? 5. Give various definitions of entrepreneur? Long Questions 1. What is the contribution of social environment in entrepreneurial development? Explain? 2. What is contribution of economic environment in entrepreneurial development? 3. Describe the role and significance of economic environment in the development of entrepreneurship. 4. Describe in brief the legal requirements for establishment of a new unit 5. Describe the significance of social environment in the development of entrepreneurship B. Multiple Choice Questions 1. An individual who initiates, creates and manages a new business can be called -----? a. A leader b. A manager c. An entrepreneur d. A professional 2. …………….. actions by an entrepreneur most likely to contribute to creative destruction a. Development of a new product b. Take-over of a competitor c. Issuing shares d. Development of an organization 32 CU IDOL SELF LEARNING MATERIAL (SLM)
3. Which could provide an individual with the motivation to start a new business venture a. The financial rewards. b. A desire to be independent. c. Risk-taking d. All of these 4. From the following which one is not classification of entrepreneurs according to the types of business? a. Wholesale trade b. Retail trade. c. Exporter. d. Rural entrepreneur 5. Which industrial sector tends to naturally promote small-scale businesses and Entrepreneurship, and generally has lower barriers to market entry? a. Service b. Manufacturing. c. Distribution. d. Agriculture Answers 1-c, 2-a, 3-d, 4-d, 5-a 3.8 REFERENCES Textbooks T1 Gupta, R.K. &Lipika, K.L. 2115. Fundamentals of entrepreneurship development & project management, Himalaya Publishing House. ISBN: 978-9351426844. T2 Ivaturi, V.K., Ganesh, M., Mittal, A., Subramanya, S. 2117. The Manual for Indian Start-ups: Tools to Start and Scale-up Your New Venture, Penguin Random House India. ISBN: 978-0143428527. Reference books • Entrepreneurship development , MONICA LOSS, F.L. BASCUNAN 33 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT - 4: ENTREPRENEURSHIP AND ECONOMY STRUCTURE 4.0 Learning Objectives 4.1 Introduction 4.2 Functions of Entrepreneur 4.3 Characteristics of Entrepreneur 4.4 Importance of Entrepreneur in Economic Development. 4.5 Summary 4.6 Keywords 4.7 Learning Activity 4.8 Unit End Questions 4.9 References 4.0 LEARNING OBJECTIVES After studying this unit, you will be able to: Describe the nature of entrepreneur. Describe the functions of Entrepreneur. Outline the importance of entrepreneur in economic development 4.1 INTRODUCTION Every country tries to achieve maximum economic development. The economic development of a country to a large extent depends on human resources. But human resources alone will not produce economic development - there must be dynamic entrepreneurs. A country may be rich in natural resources but if it lacks entrepreneurship, it may not be able to utilize the resources and it may lag behind in economic development. This is true of many developing countries. Many developing countries have realized the importance of entrepreneurs and earnest attempts are now being made to motivate industrial entrepreneurs. Entrepreneurs are action-oriented, highly motivated individual who take risks to achieve goals. An entrepreneur is one who looks for opportunities, identifies opportunities and seizes opportunities mainly for economic gain (profit). Economic development of a country depends primarily on its entrepreneurs. Entrepreneurs seizing opportunities set-up business undertakings and industries, thereby bring economic transformation. They are therefore aptly called agents of change. By their actions, people have a better standard of living, get improved products and comforts and the wide disparity in income levels is gradually reduced. Besides, an economically advanced country will have more power and a confident self- image. 34 CU IDOL SELF LEARNING MATERIAL (SLM)
History provides ample evidence to entrepreneurs’ ability and innovations. Many of the th scientific inventions and technological developments that took place in England in the 18 century and in other countries produced economic goods useful to man because of the efforts of entrepreneurs. In their absence, many scientific discoveries would have remained as they were. It should be remembered that innovation is key to entrepreneurship. Entrepreneurs have contributed many innovations in developing new products and in the existing products and services. All these have resulted in economic development by providing more employment, more income, export of products and services, and making available better products and services to the people. It is very often said that “India is a rich country inhabited by the poor”. India is endowed with plenty of natural resources and good climate. But the country has not made much economic progress as it should have been. Natural resources themselves will not produce economic development. There must be people with vision, initiative and drive to make use of the natural resources. In India, what we require is “entrepreneurship” in an individual to productively integrate resources and enhance economic growth. Many people around the world are calling for a ―entrepreneurial revolution to fix social and economic problems. This call naively assumes that more entrepreneurs are needed to address these issues. Increasing the number of entrepreneurs, however, is not as critical as persuading entrepreneurs to improve their societies through growth, innovation and social transformation. The revolution should be one of transforming contemporary entrepreneurial culture to make it more socially minded. Entrepreneurs are known for creating new ventures that creatively solve problems. This basic definition, ithas to be expanded to conceive of entrepreneurs as powerful agents of cultural change capable of transforming their societies. This does not mean taking time after work to address social issues. It means consciously incorporating social goals into entrepreneurs ‘strategic thinking as a means to maximize personal and collective benefits. It demands getting rid of the paradigm that only governments and established companies are capable of addressing social needs. Entrepreneurs, who operate closer to the people, are in a perfect position to identify and to tackle critical problems, such as poverty and the lack of access to health and education. Contemporary societies are demanding more efficient and socially interconnected ways to satisfy their necessities. To make this happen, entrepreneurs must understand that, by establishing new ventures that aim both to create economic prosperity and to spur social development, they are ensuring their long-term sustainability. More developed nations translate into platforms for larger growth and even internationalization. 4.2 FUNCTIONS OF THE ENTREPRENEUR An entrepreneur is expected to perform the following functions. 35 Risk Absorption: CU IDOL SELF LEARNING MATERIAL (SLM)
The entrepreneur assumes all possible risks of business. A business risk also involves the risk due to the possibility of changes in the tastes of consumers, techniques of consumers, techniques of production and new inventions. Such risks are not insurable. If they materialize, the entrepreneur has to bear the loss himself. Thus, Risk-bearing or uncertainty-bearing still remains the most function of an entrepreneur. An entrepreneur tries to reduce the uncertainties by his initiative, skill and good judgment. Formulate Strategic Business Decisions: The entrepreneur has to decide the nature and type of goods to be produced. He enters the particular industry which offers from the best prospects and produces whatever commodities he thinks will pay him the most employs those methods of production which seem to him the most profitable. He effects suitable changes in the size of the business, its location techniques of production and does everything that is needed for the development of his business. Execute Managerial Functions: The entrepreneur performs the managerial functions though the managerial functions are different from entrepreneurial functions. He formulates production plans, arranges finance, purchased, raw material provides, production facilities, organises sales an assumes the task of personnel management. In a large establishment these management functions are delegated to the paid managerial personnel. Adopt Innovation Function: An important function of an entrepreneur is ―Innovation‖. He conceives the idea for the improvement in the quality of production line. He considers the economic inability and technological feasibility in bringing about improve quality. The introduction of different kinds of electronic gadgets is an example of such an innovation of new products. Innovation is an ongoing function rather than once for all, or possibly intermittent activity 4.3 CHARACTERISTICS OF THE ENTREPRENEUR Self-Confidence Entrepreneurs must have belief in themselves and the ability to achieve their oils. Work with Vision and Mission: An entrepreneur must be committed to the project with a time horizon off vie to seven years. No ninety-day wonders are allowed. 1. High Degree of Endurance Success of an entrepreneur demands the ability to work long hours for sustain period of time. 2. Trouble Shooting Nature 36 CU IDOL SELF LEARNING MATERIAL (SLM)
An entrepreneur must have an intense desire to complete task or solve a problem. Creativity is an essential ingredient 3. Initiative and Enterprising Personality An entrepreneur must have initiative, accepting personal responsibility for a makegood use of resources. 4. Goal Setter An entrepreneur must be able to set challenging but realistic goals. 5. Calculated Risk-Taking Ability An entrepreneur must be a moderate risk-taker and learn from any failures 6. Facilitating Character An entrepreneur must build a team, keep it motivated, and provide an environment for individual growth and career development 4.4 IMPORTANCEROLE OF ENTREPRENEUR IN ECONOMIC DEVELOPMENT Entrepreneurs perform vital functions in economic development. They have been referred to as the human agents needed to “mobilize capital, to exploit natural resources, to create markets and to carry on trade”. It might well be said that the entrepreneurial input spells the difference between prosperity and poverty among nations. Japan is a place where entrepreneurs have achieved success by hard works as well as imagination and ability. The economic progress of the USA and Western Europe also highlight the significance of entrepreneurship. In the newly industrializing countries, small enterprises became the focus of various approaches to entrepreneurial development since they function as “seed beds of entrepreneurial and managerial talent”. The inadequacy of entrepreneurship is an inhibiting factor to accelerate the process of industrialization. In general, contemporary economists agree that entrepreneur is a business leader who has a pivotal role in fostering economic growth and development. Entrepreneurship is one of the most important inputs in the economic development of a country or a region. The number and competence of entrepreneurs affect the economic growth of a region. It is not wrong to consider entrepreneurship as a panacea of the economic evils in a developing country. In fact, entrepreneurship is the dynamic need of a developing nation and sustains the process of economic development in the following ways: Employment Generation: 37 CU IDOL SELF LEARNING MATERIAL (SLM)
Growing unemployment particularly educated unemployment is an acute problem of the nation. The available employment opportunities can cater to only 5 to 10 per cent of the unemployed. As discussed, wage employment is a self-saturating. When government creates, say a hundred jobs in various departments, 100 persons get employed and the vacancies are filled for thirty years or so, till these people retire and the vacancies re-emerge. If a hundred persons become entrepreneurs, they not only create a hundred jobs for themselves but also provide employment to many more. As the time passes these enterprise grow providing direct and indirect employment to many more. Thus, entrepreneurship is the best way to fight the evil of unemployment. National Income: National Income consists of goods and services produced in the country and those 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. An increasing number of entrepreneurs are required to meet this increasing demand for goods and services. Thus, entrepreneurship increases the national income. Dispersal of Economic Power: The world affairs have been dominated by power. There have always been two types of power i.e., muscle power and economic power. In the modem age, the muscle power has lost its relevance and the world is ruled by the economic power Economic power is the natural outcome of industrial and business activity. Industrial development normally can 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. This in turn causes hindrance to the growth of monopolies, which exist partly because of lack of sufficient number of entrepreneurs. Setting up of a large number of enterprises for the goods helps in weakening the harmful effects of monopoly. When a society produces a small number of entrepreneurs, the enterprises due to lack of competition grow into a few big business houses. This results in concentration of wealth in a few families. This can have a serious social and national implication. When the number of enterprises increases, a large amount of national wealth is also shared by a large number of entrepreneurs, thus, dispersing wealth. This dispersal of wealth promotes the real socialism and makes the economy healthy. Balanced Regional Development: The growth of industry and business leads to a large number of public benefits like road transport, health, education, entertainment etc. When the industries are concentrated in 38 CU IDOL SELF LEARNING MATERIAL (SLM)
selected cities, the development gets limited to these cities. Till late sixties, 50 per cent of industrial enterprises were located in only six cities of India. A rapid development of entrepreneurship ensures a balanced regional development. When the new entrepreneurs grow at a faster pace, 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 the backward regions. If a region does not throw up a sufficient number of entrepreneurs, the needs of the local population for the goods and services remain unsatisfied. The entrepreneurs from other places step in and set up enterprises to fulfil the pent-up demand of the local people. These alien entrepreneurs do not invest the major part of the profits in the areas in which the unit is located. Usually, the profit is invested at a place where the entrepreneurs come from. Such entrepreneurs invest their profits in constructing their houses etc., at the place of their origin. Thus, the backward areas do not get benefits of business or industrial profits. This drainage of wealth results in further deterioration of the area. The practice of siphoning the profits earned through entrepreneurial activities based on local resources by alien entrepreneurs has been compared with the blood sucking process practised by leeches, and termed as ‘leech effect’ by Dr. M.M.P. Akhori. Harnessing Locally Available Resources and Entrepreneurship: India is considered to be very rich in natural resources. In spite of more than four decades of planned development a large number of states have remained economically quite backward. A few large-scale industries started by entrepreneurs from outside the state in economically backward areas may help as models of pioneering efforts, but ultimately the real strength of industrialization in backward areas depends upon the involvement of local entrepreneurship in such activities. Increased activities of local entrepreneurs will also result in making use of abundantly available local resources. Reducing Unrest and Social Tension amongst youth: Many problems associated with youth unrest and social tension are rightly considered to be due to youth not being engaged in productive work. In the changing environment where we are faced with the problem of recession in wage employment opportunities, alternative to wage career is the only viable option. The country is required to divert the youth with latent entrepreneurial traits from wage career to self-employment career. Such alternate path through entrepreneurship could help the country in defusing social tension and unrest amongst youth. Innovations in Enterprises: Business enterprises need to be innovative for their survival and better performance. It is believed that smaller firms have relatively higher necessity and capability to innovate. The smaller firms do not face the constraints imposed by large investment in existing technology 39 CU IDOL SELF LEARNING MATERIAL (SLM)
and thus they are both free and compelled to innovate. The National Science Foundation, an organization in USA found that small companies produce four time more innovations per research dollar than do bigger companies. Entrepreneurship development programmes are aimed at accelerating the pace of small firms’ growth in India. Increased number of small firms is expected to result in more innovations and make the Indian industry compete in international market. Improvement in Living Standards: Entrepreneurs set up industries which remove scarcity of essential commodities and introduce new products. Production of goods on mass scale and manufacture of handicrafts, etc., in the small-scale sector help to improve the standard of life of a common man. These offer goods at lower costs and increase variety in consumption. Economic Independence” Entrepreneurship is essential for national self-reliance. Industrialists help to manufacture indigenous substitutes of hitherto imported products, thereby reducing dependence on foreign countries. Businessman also exports goods and services on a large scale and thereby earns the scarce foreign exchange for the country. Such import substitution and export promotion help to ensure the economic independence of the country without which political independence has little meaning. The role of entrepreneurs is not identical in the various economies. Depending on the material resources, industry climate and responsiveness of the political system, it varies from economy to economy. The contribution of entrepreneurs may be more in favourable opportunity conditions than in economies with relatively less favourable opportunity conditions. Adam Smith, the foremost classical economist, assigned no significance to entrepreneurial role in economic development in his monumental work‟ An Enquiry into the Nature and Causes of the Wealth of Nations‟, published in 1776. Smith extolled the rate of capital formation as an important determinant of economic development. The problem of economic development was ergo largely the ability of the people to save more and invest more in any country. According to him, ability to save is governed by improvement in productivity to the increase in the dexterity of every worker due to division of labour. Smith regarded every person as the best judge of his own interest who should be left to pursue his own advantage. According to him, each individual is led by an „invisible hand‟ in pursuing his/her interest. He always advocated the policy of laissez-faire in economic affairs. In his theory of economic development, David Ricardo identified only three factors of production, namely, machinery, capital and labour, among whom the entire produce is distributed as rent, profit and wages respectively. Ricardo appreciated the virtues of profit in capital accumulation. According to him, profit leads to saving of wealth which ultimately goes to capital formation. 40 CU IDOL SELF LEARNING MATERIAL (SLM)
Thus, in both the classical theories of economic development, there is no room for entrepreneurship. And economic development seems to be automatic and self-regulated. Thus, the attitude of classical economists was very cold towards the role of entrepreneurship in economic development. They took the attitude: “the firm is shadowy entity and entrepreneur even shadowed or at least is shady when he is not shadowy.” The economic history of the presently developed countries, for example, America, Russia and Japan tends to support the fact that the economy is an effect for which entrepreneurship is the cause. The crucial role played by the entrepreneurs in the development of the Western countries has made the people of underdeveloped countries too much conscious of the significance of entrepreneurship for economic development. Now, people have begun to realize that for achieving the goal of economic development, it is necessary to increase entrepreneurship both qualitatively and quantitatively in the country. It is only active and enthusiastic entrepreneurs who fully explore the potentialities of the country’s available resources – labour, technology and capital. Schumpeter (1934) visualised the entrepreneur as the key figure in economic development because of his role in introducing innovations. Parson and Smelser (1956) described entrepreneurship as one of the two necessary conditions for economic development, the other being the increased output of capital. Harbison (1965) includes entrepreneurs among the prime movers of innovations, and Sayigh (1962) simply describes entrepreneurship as a necessary dynamic force. It is also opined that development does not occur spontaneously as a natural consequence when economic conditions are in some sense „right‟: a catalyst or agent is always needed, and this requires an entrepreneurial ability. It is this ability that he perceives opportunities which either others do not see or care about. Essentially, the entrepreneur searches for change, sees need and then brings together the manpower, material and capital required to respond the opportunity what he sees. Akio Morita, the President of Sony who adopted the company’s products to create Walkman Personal Stereo and India’s Gulshan Kumar of T-Series who skimmed the audio-cassette starved vast Indian market are the clearest examples of such able entrepreneurs. The role of entrepreneurship in economic development varies from economy to economy depending upon its material resources, industrial climate and the responsiveness of the political system to the entrepreneurial function. The entrepreneurs contribute more in favourable opportunity conditions than in the economies with relatively less favourable opportunity conditions. Viewed from the opportunity conditions point of view, the underdeveloped regions, due to the paucity of funds, lack of skilled labour and nonexistence of minimum social and economic overheads, are less conducive to the emergence particularly of innovative entrepreneurs. In such regions, entrepreneurship does not emerge out of industrial background with well-developed institutions to support and encourage it. Therefore, entrepreneurs in such regions may not be an “innovator” but an “imitator” who 41 CU IDOL SELF LEARNING MATERIAL (SLM)
would copy the innovations introduced by the “innovative” entrepreneurs of the developed regions (Brozen 1954-55). In these areas, according to McClelland’s (1961) concept of personality aspect of entrepreneurship, some people with high achievement motivation come forward to behave in an entrepreneurial way to change the stationary inertia, as they would not be satisfied with the present status that they have in the society. Under the conditions of paucity of funds and the problem of imperfect market in underdeveloped regions, the entrepreneurs are bound to launch their enterprises on a small-scale. As imitation requires lesser funds than innovation, it is realized that such regions should have more imitative entrepreneurs. And it is also felt that imitation of innovations introduced in developed regions on a massive scale can bring about rapid economic development in underdeveloped regions also. But it does not mean that such imitation requires in any way lesser ability on the part of entrepreneurs. In this regard, Berna opines: “It involves often what has aptly been called „subjective innovation‟, that is, the ability to do things which have not been done before by the particular industrialists, even though unknown to him, the problem may have been solved in the same way by the others.” These imitative entrepreneurs constitute the main spring of development of underdeveloped region Further, India which itself is an underdeveloped country aims at decentralized industrial structure to militate the regional imbalances in levels of economic development, small-scale entrepreneurship in such industrial structure plays an important role to achieve balanced regional development. It is unequivocally believed that small-scale industries provide immediate large- scale employment, ensure a more equitable distribution of national income and also facilitate an effective resource mobilization of capital and skill which might otherwise remain unutilized. The establishment of Entrepreneurship Development Institutes and alike by the Indian Government during the last decades is a good testimony to her strong realization about the premium mobile role of entrepreneurship plays in economic development of the country. The important role that entrepreneurship plays in the economic development of an economy can now be put in a more systematic and orderly manner as follows: Promotes Capital Formation: - Entrepreneurs promote capital formation by mobilizing the idle savings of public They employ their own as well as borrowed resources for setting up their enterprises. Such type of entrepreneurial activities leads to value addition and creation of wealth, which is very essential for the industrial and economic development of the country. Creates Large-Scale Employment Opportunities: -Entrepreneurs provide immediate large- scale employment to the unemployed which is a chronic problem of underdeveloped nations. With the setting up. Of more and more units by entrepreneurs, both on small and largescale numerous job opportunities are created for others. As time passes, these enterprises grow, providing direct and indirect employment opportunities to many more. In this way, entrepreneurs play an effective role in reducing the problem of unemployment in the country 42 CU IDOL SELF LEARNING MATERIAL (SLM)
which in turn clears the path towards economic development of the nation. Growing unemployment particularly educated unemployment is the problem of the nation. The available employment opportunities can cater only 5 to 10 % 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. Promotes Balanced Regional Development: - Entrepreneurs help to remove regional disparities through setting up of industries in less developed and backward areas. The growth of industries and business in these areas lead to a large number of public benefits like road transport, health, education, entertainment, etc. Setting up of more industries lead to more development of backward regions and thereby promotes balanced regional development. When the new entrepreneurs grow at a faster rate, in view of increasing competition in and around 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. Reduces Concentration of Economic Power: -Economic power is the natural outcome of industrial and business activity. Industrial development normally lead to concentration of economic power in the hands of a few individuals which results in the growth of monopolies. In order to redress this problem a large number of entrepreneurs need to be developed, which will help reduce the concentration of economic power amongst the population. Wealth Creation and Distribution: -It stimulates equitable redistribution of wealth and income in the interest of the country to more people and geographic areas, thus giving benefit to larger sections of the society. Entrepreneurial activities also generate more activities and give a multiplier effect in the economy. Increasing Gross National Product and Per Capita Income: -Entrepreneurs are always on the lookout for opportunities. They explore and exploit opportunities, encourage effective resource mobilization of capital and skill, bring in new products and services and develops markets for growth of the economy. In this way, they help increasing gross national product as well as per capita income of the people in a country. Increase in gross national product and per capita income of the people in a country, is a sign of economic growth. An increasing number of entrepreneurs are required to meet this increasing demand for goods and services. Thus, entrepreneurship increases the national income. Improvement in the Standard of Living: -Increase in the standard of living of the people is a characteristic feature of economic development of the country. Entrepreneurs play a key role in increasing the standard of living of the people by adopting latest innovations in the production of wide variety of goods and services in large scale that too at a lower cost. This enables the people to avail better quality goods at lower prices which results in the improvement of their standard of living. 43 CU IDOL SELF LEARNING MATERIAL (SLM)
Promotes Country's Export Trade: - Entrepreneurs help in promoting a country's export- trade, which is an important ingredient of economic development. They produce goods and services in large scale for the purpose earning huge amount of foreign exchange from export in order to combat the import dues requirement. Hence import substitution and export promotion ensure economic independence and development. Induces Backward and Forward Linkages: -Entrepreneurs like to work in an environment of change and try to maximize profits by innovation. When an enterprise is established in accordance with the changing technology, it induces backward and forward linkages which stimulate the process of economic development in the country. Facilitates Overall Development: - Entrepreneurs act as catalytic agent for change which results in chain reaction. Once an enterprise is established, the process of industrialization is set in motion. This unit will generate demand for various types of units required by it and there will be so many other units which require the output of this unit. This leads to overall development of an area due to increase in demand and setting up of more and more units. In this way, the entrepreneurs multiply their entrepreneurial activities, thus creating an environment of enthusiasm and conveying an impetus for overall development of the area. Creating innovation: -An entrepreneur is a person who always looks for changes. Apart from combining the factors of production, he also introduces new ideas and new combination of factors. He always tries to introduce newer and newer technique of production of goods and services. An entrepreneur brings economic development through innovation. Entrepreneurs Create New Businesses: - Path breaking offerings by entrepreneurs, in the form of new goods & services, result in new employment, which can produce a cascading effect or virtuous circle in the economy. The stimulation of related businesses or sectors that support the new venture add to further economic development.For example, a few IT companies founded the Indian IT industry in the 1990s as a backend programmers' hub. Soon the industry gathered pace in its own programmers‟ domain. But more importantly, millions from other sectors benefited from it.Businesses in associated industries, like call center operations, network maintenance companies and hardware providers, flourished. Education and training institutes nurtured a new class of IT workers offering better, high-paying jobs. Infrastructure development organizations and even real estate companies capitalized on this growth as workers migrated to employment hubs seeking new improved lives. Similarly, future development efforts in underdeveloped countries will require robust logistics support, capital investment from buildings to paper clips and a qualified workforce. From the highly qualified programmer to the construction worker, the entrepreneur enables benefits across a broad spectrum of the economy. Entrepreneurs Also Create Social Change: -Through their unique offerings of new goods and services, entrepreneurs break away from tradition and indirectly support freedom by reducing dependence on obsolete systems and technologies. Overall, this results in an improved quality 44 CU IDOL SELF LEARNING MATERIAL (SLM)
of life, greater morale and economic freedom. For example, the water supply in a waterscarce region will, at times, force people to stop working to collect water. This will impact their business, productivity and income. Imagine an innovative, automatic, low-cost, flow-based pump that can fill in people's home water containers automatically. Such an installation will ensure people are able to focus on their core jobs without worrying about a basic necessity like carrying water. More time to devote to work means economic growth. For a more contemporary example, smart phones and their smart apps have revolutionized work and play across the globe. Smart phones are not exclusive to rich countries or rich people either. As the growth of China's smart phone market and its smartphone industry show, technological entrepreneurship will have profound, long lasting impacts on the entire human race. Moreover, the globalization of tech means entrepreneurs in lesser-developed countries have access to the same tools as their counterparts in richer countries. They also have the advantage of a lower cost of living, so a young individual entrepreneur from an underdeveloped country can take on the might of the multi-million-dollar existing product from a developed country. Personal Growth: -Entrepreneurship has created millions of good jobs. In a startup workplace, jobs often call for creativity and collaboration, leading to personal development. Those exposed to entrepreneurship have higher confidence and greater independence. Not bound by the hierarchy and restrictions of large corporations, young entrepreneurs can take on greater responsibility, work flexible schedules and use creative solutions to problem solve. The freedom associated with entrepreneurship comes with certain challenges. Entrepreneurs often work long hours and risk their personal assets in developing their business. Entrepreneurship puts new business ideas into practice. -In doing so, it creates jobs that facilitate personal development. With their innovative and disruptive ideas, entrepreneurs can tackle social problems too. It’s a worthy pursuit to consider, but if it’s not for you, see how to pass down its principles to the next generation and enroll in How to Encourage and Teach Our Children Thus, it is clear that entrepreneurship serves as a catalyst of economic development. On the whole, the role of entrepreneurship in economic development of a country can best be put as “an economy is the effect for which entrepreneurship is the cause”. 4.5 SUMMARY Entrepreneurship mainly depends on values, norms and traits that are consistent to the growth of an economy. An entrepreneur always seeks the opportunities, looks for ways and means to capitalize on the newer opportunities by organising the resources. The entrepreneur is one of the most important inputs in the economic development of a country or of regions within the country. The need for a broad-based entrepreneurial class in India arises form the need to speed up the process of activating the factors of production, leading to a higher rate of economic growth, dispersal of economic activities, and development of backward areas. A good entrepreneur is one who is 45 CU IDOL SELF LEARNING MATERIAL (SLM)
capable of inspiring confidence in people and has the ability to motivate them to work with him in fulfilling the economic goals set by him. Entrepreneurs boost economic growth by introducing innovative technologies, products, and services. Increased competition from entrepreneurs challenges existing firms to become more competitive. ... Entrepreneurial activity raises the productivity of firms and economies. Economic development essentially means a process of upward change whereby the real per capita income of a country increases over a period of time. Entrepreneur plays a vital role in economic development. Entrepreneurs serve as the catalysts in the process of industrialization and economic growth. The simple translation is that when you become an entrepreneur, there is one less job seeker in the economy, and then you provide employment for multiple other job seekers. This kind of job creation by new and existing businesses is again one of the basic goals of economic development. A business risk also involves the risk due to the possibility of changes in the tastes of consumers, techniques of consumers, techniques of production and new inventions. The entrepreneur performs the managerial functions though the managerial functions are different from entrepreneurial functions. Entrepreneurs perform vital functions in economic development. They have been referred to as the human agents needed to “mobilize capital, to exploit natural resources, to create markets and to carry on trade”. National Income consists of goods and services produced in the country and those imported. The goods and services produced are for consumption within the country as well as to meet the demand of exports. Entrepreneurship is essential for national self-reliance. Industrialists help to manufacture indigenous substitutes of hitherto imported products, thereby reducing dependence on foreign countries. The role of entrepreneurs is not identical in the various economies. Depending on the material resources, industry climate and responsiveness of the political system, it varies from economy to economy. According to McClelland’s (1961) concept of personality aspect of entrepreneurship, some people with high achievement motivation come forward to behave in an entrepreneurial way to change the stationary inertia, as they would not be satisfied with the present status that they have in the society. 4.6 KEYWORDS Creating innovation: -An entrepreneur is a person who always looks for changes. Apart from combining the factors of production, he also introduces new ideas and new combination of factors. 46 CU IDOL SELF LEARNING MATERIAL (SLM)
Induces Backward and Forward Linkages: -Entrepreneurs like to work in an environment of change and try to maximize profits by innovation. Wealth Creation and Distribution: -It stimulates equitable redistribution of wealth and income in the interest of the country to more people and geographic areas, thus giving benefit to larger sections of the society. Self-Confidence: Entrepreneurs must have belief in themselves and the ability to achieve their oils. Trouble Shooting Nature: An entrepreneur must have an intense desire to complete task or solve a problem. Creativity is an essential ingredient. Goal Setter: An entrepreneur must be able to set challenging but realistic goals. 4.7 LEARNING ACTIVITIES 1.“An entrepreneur has to perform a number of functions as a vital factor of production”. Discuss. ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- 2. In the Indian context, explain the role that entrepreneurship has fulfilled in the economic development of the country. ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- 4.8 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What are the rewards and penalties for entrepreneurs?? 2. Write the characteristics of successful entrepreneur 3. What do you mean by business risk? Explain its causes? 4. Describe factors stimulating in Entrepreneurship? 5. Define entrepreneur and explain the essentials of a successful entrepreneur Long Questions 1. “Self-employment is the best method of solving the problem of growing unemployment in the country” Do you agree? Suggest a suitable strategy for the identification and development of entrepreneurs. 2. Explain the Characteristics and qualities of entrepreneurs? 3. Explain the factors influencing entrepreneurial development? 4. What is the need and significance of entrepreneurship? 47 CU IDOL SELF LEARNING MATERIAL (SLM)
5. “Determination of cost is an important function of an entrepreneur”? Explain B. Multiple Choice Questions 1. Which one of the following actions by an entrepreneur is most likely to contribute to creative destruction? a. Development of a new product b. Take-over of a competitor c. Issuing shares d. Reducing prices 2. An advantage of the small firm in the innovation process? a. Ability to carry out R&D b. Ability to raise finance c. Ability of the entrepreneur to carry out multiple tasks d. Ability of the entrepreneur to act on new ideas or product development. 3. A corporate manager who starts a new initiative for their company which entails setting up a new distinct business unit and board of directors can be regarded as: a. Ecopreneur b. Technopreneur c. Intrapreneur d. Social Entrepreneur 4. Why should an entrepreneur do a feasibility study for starting a new venture: a. To identify possible sources of funds b. To see if there are possible barriers to success c. To estimate the expected sales d. To explore potential customers 5. Innovative small firms are more likely in: a. Knowledge-based sectors b. Biotechnology c. Automobile manufacture d. Aerospace manufacture Answers 1-d,2-c, 3-c, 4-b, 5-d 48 CU IDOL SELF LEARNING MATERIAL (SLM)
4.9 REFERENCES Textbooks T1 Gupta, R.K. &Lipika, K.L. 2115. Fundamentals of entrepreneurship development & project management, Himalaya Publishing House. ISBN: 978-9351426844. T2 Ivaturi, V.K., Ganesh, M., Mittal, A., Subramanya, S. 2117. The Manual for Indian Start-ups: Tools to Start and Scale-up Your New Venture, Penguin Random House India. ISBN: 978-0143428527. Reference Books • Entrepreneurship development and business ethics 2019 edition by abhik mukherjee , oxford 49 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT – 5: IDEA GENERATION – STARTING THE VENTURE STRUCTURE 5.0 Learning Objectives 5.1 Introduction 5.2 Steps for setting up business enterprise 5.3 Generation of business idea 5.4 Feasibility Study 5.5 Preparation of a business plan 5.6 Launching the enterprise and managing the business 5.7 Problems in setting up of a business 5.8 Environmental Scanning 5.9 Summary 5.10 Keywords 5.11 Learning Activity 5.12 Unit End Questions 5.13 References 5.0 LEARNING OBJECTIVES After studying this unit, you will be able to: Explain the steps for setting up the business enterprises Describe the business idea generation process Describe the feasibility study of enterprises Outline the preparation of business plan Explain the process of launching the enterprise and managing the business Describe the problems in setting up a business Explain the Environmental scanning of the organisation. 5.1 INTRODUCTION Venture Capital Sector: The Venture capital sector is the most vibrant industry in the financial market today. Venture capitalists are professional investors who specialize in funding and building young, innovative enterprises. Venture capitalists are long-term investors who take a hands-on approach with all of their investments and actively work with entrepreneurial management teams in order to build great companies which will have the potential to develop into significant economic contributors. Venture capital is an important source of equity for start- 50 CU IDOL SELF LEARNING MATERIAL (SLM)
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