2007 John Wiley & Sons Australia, Ltd

Chapter 1

Entrepreneurship: definition and evolution

Chapter outline
Defining entrepreneurship The role of entrepreneurship in economic growth and development Common features of entrepreneurship in the Pacific Rim region

Learning objectives
Provide a definition of entrepreneurship State the key elements of entrepreneurship Explain the process of new venture creation

Learning objectives
Explain the role of entrepreneurship in economic growth Discuss the common features of entrepreneurship in the Pacific Rim region

Defining entrepreneurship
Entrepreneurship as a term was first used during the Industrial Revolution. It described the new phenomenon of the individual who formulated a venture idea, developed it, assembled resources and created a new business venture.

Defining entrepreneurship
The entrepreneur has thus emerged as a pivotal figure who operates within a market.

Towards a definition of entrepreneurship

Entrepreneurship: The process brought about by individuals of identifying new opportunities and converting them into marketable products or services.

The key elements of entrepreneurship

There are five generally agreed conditions that are necessary for entrepreneurship to occur: 1) an individual (the entrepreneur) 2) a market opportunity 3) adequate resources 4) a business organisation 5) a favourable environment

The key elements of entrepreneurship

The entrepreneur is responsible for bringing these contingencies together to create new value

The key elements of entrepreneurship

The key elements of entrepreneurship

Entrepreneurial opportunities: Those situations in which new products, services and processes can be introduced and sold at greater than their cost of production.

The process of new venture creation

Not all individuals have the potential to launch a business venture ... And of those of do, not all will attempt a founding ...

The process of new venture creation

Of those who attempt, not all will succeed in founding ... Finally, among the newly established business ventures, only a small proportion will survive

Model of new venture creation

The role of entrepreneurship in economic growth and development

At a macro level, entrepreneurship is a process of creative destruction (Schumpeter). This means the simultaneously destructive and constructive consequences of entrepreneurship.

Values, politics & economic institutions

Values: A readiness for change is essential if a society is to get richer. Politics: Provide a framework for entrepreneurship.

Values, politics and economic institutions

Economic institutions: Institutions like property rights, stock exchanges and banks allow different types of economic enterprises to flourish.

A model of entrepreneurial and economic growth

At a macro-level entrepreneurship is the process of creative destruction. Creative destruction is the process of simultaneous emergence and disappearance of technologies, products and firms in the marketplace as result of innovation.

A model of entrepreneurial process and economic growth

Entrepreneurs are central to this process of destruction.

A model of entrepreneurship process and economic growth

Source: Adapted from P. D. Reynolds, S. M. Camp, W. D. Bygrave, E. Autio & M. Hay, Global Entrepreneurship Monitor, 2001 Executive Report, Kauffman Center for Entrepreneurial Leadership, 2001, p. 53.

Measuring entrepreneurial activity

The level of entrepreneurial activity is a function of the degree to which people recognise the opportunities available and that they have the capacity to exploit. At a broader level, there is a relationship between national conditions and the performance of established firms.

Measuring entrepreneurial activity

Common features of entrepreneurship in the Pacific Rim region

Key role played by the state in the development of entrepreneurship Presence of ethnic entrepreneurs such as ethnic Chinese and ethnic Indians

Sociocultural features of ethnic Chinese

The rules for vertical relationships are taught via Confucian concepts, often leadership with a paternalistic flavour is developed. The rules for horizontal order have similar conditions, however, different types of relationships do apply.

Sociocultural features of ethnic Chinese

Hardship of migration cultivated values for economic survival, such as pragmatism or work ethic.

Ethnic Indians
A vast majority adhere to some form of the caste system and Hindu mythology. They are highly skilled and educated professionals and entrepreneurs due to an exceptional education system.

Ethnic Indians
They created social and professional networks to mobilise information, skill, know-how and capital to start technology firms.

The role of the state

Dual influence on entrepreneurship: Strong promoter (e.g. SME Master Plan in Singapore) and entrepreneur itself (state entrepreneurship, deregulation) Establishment of restrictive practices (ethnic and foreign entrepreneurs)

Emerging trends
Deregulation and privatisation Adoption of Western ideas Emergence of rule-based systems Increased disclosure and employment of outsiders

Summary
Entrepreneurship is the process brought about by individuals of identifying new opportunities and converting them into marketable products or services. There are many possible outcomes to the entrepreneurial process, e.g. independent start-ups, corporate ventures, franchises and business acquisitions.

Summary
At a macro-level, entrepreneurs create new business ventures, jobs and wealth, but they also force out of the marketplace the enterprises which failed to innovate.