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ENTERPRISE AND ENTREPRENEURSHIP

MSc MANAGEMENT

Word Count:3237

Submitted by
Candidate Number:40880
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Introduction:

This assignment is divided into two different sections. They are, (1) Definition of Entrepreneur
(2) How Entrepreneurs contribute to the economy and to the society. In the first section, the definition
of an Entrepreneur has been explained taking into consideration of different views, such as, Historians,
Economists, political, anthropology, economic history and psychology. Further, for better
understanding of an Entrepreneur, it has been classified and defined into public sector Entrepreneur
and social Entrepreneur. Various Scholars views of the definition of Entrepreneur have been discussed.
Finally, it has been explained on the basis of two models (a) Utility Maximization Model & (b) The
One Period Model. In the second section, the role of Entrepreneur towards the growth of economy has
been shown by referenced literature and examples by showing the countries such as the USA, Peru and
Japan. Finally it is necessary to look at Schumpters theory and Global Entrepreneurship Model(GEM)
to clarify clearly about the role of Entrepreneur towards the development of the economy and the
society.

1. Definition of Entrepreneur:

Literature of Entrepreneur:
Shefsky (as cited in McKay, 2001, p. 149)
“The Latin roots of the word Entrepreneur are: entre meaning enter; per meaning before;
and neur meaning nerve center. This can be reduced to someone who enters a business in
time to form (or change) meaningfully that business’s nerve center or decision center.”
By this quotation, the word Entrepreneur has been known from many years. The Entrepreneur is an
individual who analyses the changes in business environment and making right decisions prior to
entering into his new venture.

Prior to arguing the meaning of Entrepreneur based on the literature, it is necessary to underline the
different perspectives of perceiving it because of the fact that there is no consensus about its definition
(i.e. Robert F. Hebert & Albert N. Link, 1989; Bygrave, 1989; Gartner , 1990; Shiler, 1994; David A.
Kirby, 2003 ). As Hebert & Link (1989) argue that in terms of Economic theory there is no universally
accepted view of Entrepreneur. Nevertheless in general view, the term Entrepreneur is equated to New
venture creation and small business management.
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Definition of Entrepreneur in different views:

In this section we will see how historians depicted Entrepreneur in negative way, economists’ view of
Entrepreneur and political view of Entrepreneur and other social science contributions such as
Anthropology, Economic history and Psychology. All these views give us a clear picture of what an
Entrepreneur is.

In a historians view, an Entrepreneur was depicted in negative way. At one time in American society the
term 'Entrepreneur' was depicted largely in negative connotations. Historians, such mainly as Gustavus
Myers (1907), Collins & Moore (1970), Maccoby (1976), Vries (1977), Mancuso (1978) (as cited in
Sexton & Bowman, 1985) defined Entrepreneur from Entrepreneur's personality, attitude and values,
rather than economic function they perform. Historians perceive Entrepreneur as “not remarkably and
likeable people”(Collins et al. 1964), “Unwilling and unable to submit to or work with
authority”(Collins & Moore, 1970), and 'Jungel Fighters' (Maccoby, 1976). People who are not able to
work with others, people who are cunning, secretive and more authoritarian tendencies are considered
to be Entrepreneurs.

In an economists’ view, Entrepreneur is viewed as a change agent within economy. Sexton & Bowman
(1985) state that economists, such mainly as Cantillon (1756), Say (1816) and Schumpter (1959)
looked at the functional side of Entrepreneurs towards economy and society growth. Cantillon was the
first person to provide insights into Entrepreneur's role of economic development. He found that
Entrepreneurs gain profits even under the uncertain environmental conditions. Other two economists,
Say (1816) and Schumpter found a 'co-ordination function' and 'innovation function' of Entrepreneurs.
As a consequence, economists state that Entrepreneur is an individual who develops an Enterprise
which is formed by new combinations in various fields (Sexton & Bowman, 1985).

In a Political view, the individual who acts on the political profit opportunities are considered to be
political Entrepreneurs (Holcombe, 2002). Productive and predatory are the two categories of political
profits. Productive profits are the removal of inefficiencies and developing potential opportunities in
restructuring the nature of government to achieve the profit goals. The economical usage of resources
provides productive profits. Predatory is nothing but transferring wealth forcibly from one individual to
another.
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In a anthropology view, Owens (as cited in Kirby, 2003, p.16) state that, Entrepreneur is connected to
relationship between values and values transferability within them. Entrepreneur is about the
'opportunity recognition' and works for the development of basic values of community.

In an economic history view, the research center for Entrepreneurial history, which is operated by
Harvard University between 1948 – 1958 found that the development of an Entrepreneur is highly
dependent on the external business environment. According to economic history Entrepreneur is
defined as a person who studies the existing institution, its change and its economic performance and
finds an opportunity to start her/his own business (Chandlers, 1990).

In the view psychology, McClelland (as cited in Kirby, 2003), a psychologist, define Entrepreneur's
from their behavioral perspectives rather than personality. Psychological factors are needed for
achievement, as personal responsibilities and goal settings make an individual to become an
Entrepreneur. McClelland argue that need for achievement is the major psychological trait to be an
Entrepreneur.

Now let us understand more about an Entrepreneurs by classifying them into two types. (a) Public
Sector Entrepreneur, (b) Social Entrepreneur.

a. Public Sector Entrepreneur:

“Entrepreneurship occurs in the public sector where there is an uncertain environment, a
devolution of power, and at the same time re-allocation of resource ownership, to unit
management level”( Boyett, 1997, p. 90).

By this quotation, an Entrepreneur who has an ability to realize, understand and predict the uncertain
environment of market in order to make different changes/challenges in their management level by re-
allocating resource ownership and producing wide range of profits. These Entrepreneurs are always
ready to address any type uncertainty in the business environment.

Boyett (1997) defines public sector Entrepreneurs are the individuals who gain Entrepreneurial profits
that changes the market structure and resource ownership. Their personal characteristics, abilities are
found to match with the Entrepreneurial literature. The public sector Entrepreneur is uniquely
innovative in carrying out the various new combinations of the market resources available. They have
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the ability to predict the change in the market prices, this helps them to easily adapt to the environment.

b. Social Entrepreneur:
Social Entrepreneur is defined by Dees et al. (1998), as an individual who constructs, organizes and
coordinates his social mission in the terms of business discipline. A social Entrepreneur starts a non-
profit organization and plays a role of change agent in the social sector. The central criterion is not
wealth for social Entrepreneur; they work for their objective of social mission. For the business
Entrepreneurs, wealth is central aim to start an organization and they believe wealth creates value for
their business. Social Entrepreneurs engage in the process of continuous innovation, change and
learning. As Schumpter (as cited in Dees et al. 1998) mentioned that the Entrepreneur is an innovator,
they need not invent something new, rather they can be innovative to work on the existing social issues.

Scholars views on the definition of Entrepreneur:

In this section let us look at the definition of Entrepreneur by various scholars, such as Hawkins (1993),
Herbert & Link (1989), Palich & Bagby (1995) and Kirzner (1973).

According to Hawkins (1993), Entrepreneur is defined as a person who makes a new business proposal
and sees the rapid growth in his business even during the uncertain economic conditions and powerful
competitors. Let us understand Hawkins definition of Entrepreneur by looking at the following
example, A Japanese young woman sees her husbands trucking business destroyed during recession and
the rise in fuel prices. Despite the uncertain economy and powerful competitors, the young woman puts
together a plan to use the idle trucks to launch a specialized, high service moving company and creates
a sound marketing and business insights which lead to rapid company growth. Now let us see how
Herbert & Link (1989) expressed their views on Entrepreneur. On the basis of economic theory Herbert
& Link identified twelve themes about an Entrepreneur. They stated Entrepreneur as risk taking
individual during uncertain situations, supplies financial capital, innovator, decision maker, industrial
leader, superintendent, organizer or coordinator, as an owner of enterprise, employer of production,
contractor, and allocator of resources. They even defined that Entrepreneur is a risk taking individual,
She/he starts own business and makes a lot of risk taking decisions in order to run her/his business
successfully. Steve Jobs (Apple Computers) and Donald Burrs (People Express) are typical examples
for risk takers. According to Palich & Bagby (as cited in Forbes, 2005) Entrepreneurs are found to be
open to 'n' number of interpretations, as they choose a highly positive situation in order to get the
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success of their business. And finally according to Kirzner (as cited in Eisenhauer, 1995), Entrepreneur
is not a person who buys or sells the goods. According to him Entrepreneur is the one who takes
opportunities in the market around different places and sells the goods at a higher price.

Defining Entrepreneur using models:

In this section based on the two different models, definition of Entrepreneur is defined. The models are,
(a) Utility Maximisation Model (b) The One Period Model.

a. Utility Maximisation Model:

Douglas & Shepherd (1999) examines at 'utility maximisation model' and defines whether an individual
chooses to be self-employed or an employee in an existing organization. Baumol (as cited in Douglas
& Shepherd, 1999) with the help of Utility Maximization Model defined Entrepreneur as the one who
starts an organization when she/he believes that environment and economy are supporting to maximize
her/his existing utilities such as wealth, power and prestige. Entrepreneur finds creative ways to add
value for her/his existing power, wealth and prestige.

b. The One Period Model:

Douglas & Shepherd (1999) develops 'The one period Model'. This model describes that an
Entrepreneur anticipates the utility(U), income(Y), work effort(W), Risk(R), independence(I) and other
working conditions(O) in the next period from different jobs(j) (Jobs relates to employee or self-
employed ). The following function helps an individual whether to be self-employed i.e. an
entrepreneur or employee.
“Uj = F(Yj, Wj, Rj, Ij, Oj)” (Douglas & Shepherd, 1999)
Where j= 1,2,...m represents different employee or self-employed jobs in the next period. So, this
models explains that an Entrepreneur is an individual who compares the profits or growth in various
businesses over a period of time and finally makes a choice to start a suitable business.
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2. Contribution of Entrepreneur towards economy and society:

From the above definitions, we can state that Entrepreneur is not restricted to small, large, private and
public sector organisations. It is just a way that Entrepreneur penetrates into a society to a greater or
lesser extent. However, in business perspective, Entrepreneurs’ contribution is associated with profit-
making, innovation, change, new venture creation, increasing number of jobs, regional development
and business growth (Kirby, 2003). Before proceeding to business perspective, it is important to notice
the social perspective as well. Social Entrepreneurs do not look at the wealth creation in their
organisations but they work for the enhancement of life. As Jasen (as cited in Kirby, 2003) states that,
social Entrepreneurs contribute for the 'dream society'.

Now let us look at the way how Entrepreneurs contribute to economic growth. As definition of
Entrepreneur is not constant, in the same way Entrepreneurs’ target at different sectors of their new
venture and develop the economy. For example, some Entrepreneurs’ target is to increase number of
jobs and Some Entrepreneurs target is to increase the profits of their business, this in turn creates an
economic growth. According to Birch (as cited in Birley, 1987), Entrepreneurs increase the growth of
economy by increasing the job opportunities and technological advancement by the help of small
manufacturing firms. For example, In the USA between the period 1984 – 1987 it is found that 5% of
business is contributed by the rapidly growing new firms. However this 5% of business during that
period has produced 87% of the new jobs. As Birch stated above we can see the economic growth in
the USA.

In business perspective lets look at the economic growth in countries like the USA, Peru and Japan. By
considering these countries as an examples let us understand the role of Entrepreneur towards
economic growth. According to Merrifield (1991), In USA, during the period of 10 years (1980 – 1990)
600,000 to 700,000 new business were generated. Moreover 20 million new jobs have been created
during the same period. This contributes to decrease in unemployment issues. This example gives an
idea that the boom of Entrepreneurs has actually started during 1980 – 1990 in the USA. Now we will
see the Peru's economic growth, The native Indians who moved to the Peru had a great problem in
starting the business legally through government. They started new ventures which are considered as
black markets, and they constructed $8.3 billion worth of housing in the period of seven years. They
managed “83% of markets and commercial centers” (Merrifield, 1991, p. 232) which valued $41
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billion and by providing 40,000 employment opportunities. About 95% of public transport got capital
from these black markets, 60% of the food consumed in Lima is provided by these markets. Finally we
will see the role of Entrepreneur towards economic growth from Japan perspective. In Japan small and
medium enterprises (SMEs) play a vital role in the development of economy. The 99% of companies
are SMEs and they employed 80% of the Japanese. (New Business Entrepreneurship in Business
economy, 1993 by Hawkins).So, by the above three examples to a certain extent increasing
employment, developing new markets by the Entrepreneurs contributes to the economic growth.

Contribution of Entrepreneurs towards society:

In this section I put my argument more about social Entrepreneurs, as they contribute to large extent to
the society. As we see the development in society, economic growth automatically develops because
they are interrelated to each other. Venkataramana (1997) states that for Social Entrepreneurs have a
primary objective of social value and he believes that Economic value is a by product of social value.
By looking at three examples we will see how Entrepreneurs can actually contribute to society. First
example, As we know that there are lots of underdeveloped countries in which their citizens may not be
available to get proper food and medicines (Seelos & Mair, 2005). Victoria Hale(as cited in Seelos &
Mair, 2005), a research scientist on food and pharmaceuticals has developed the Entrepreneurial Model
to distribute food and medicines for those most in need in poor countries. This model helped a lot
underdeveloped countries by providing food and pharmaceutical needs (Social Entrepreneurship:
Creating new business models to serve poor, 2005). As we can see here social Entrepreneurs are not
expecting any profit but they work for the enrichment of life. The Second and third examples are
Sekem and Grameena Bank which are taken from the Journal of Social Entrepreneurship: Creating
new business models to serve poor (2005).

Sekem(Located desert land North of Cairo)

Sekem is an organization developed by a single individual named Ibrahim Abouleish (1977). Now this
organisation is a multi-business firm, not only does it help in the development of economy but also
Egypt society. Schools, adult education centers and medical centers are funded by the profits of Sekem.
In 2004 it also planned to start a university, especially providing holistic education. It serves people, to
escape from the poverty trap and helps to gain control on their lives.
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Grameen Bank (Bangladesh)

The social Entrepreneur and economic professor named Muhammad Yunus believes that the poor have
skills, but they have lack supports from monetary aspects. Most of the existing institutions` policies fail
to give support to the poor. So, Yunus started Grameen Bank in 1976 to support the poor by giving
them credit to run their farms or for their lively hood. Today Grameen bank serves 3 million poor
people by setting up 1191 branches across 43,459 villages.

Finally I would like to mention about the role of Entrepreneur towards economy and society with the
help of Schumpters theory and Global Entrepreneurship Model (GEM).

Schumpters Theory: (Small Business Economics, 2005 ; pp 335 - 350)

Schumpter (as cited in wong et. Al, 2005) defined “Entrepreneur as Innovator”. The “Destruction
process” (Schumpter 1942) is created by innovative activities of different Entrepreneurs, this in turn
creates a constant changes or disturbances on the economic system. In order to adjust these
disturbances other innovative or creative new Entrepreneurs enter the economic system. This is the
Schumpters theory, which states how the economic growth is increased by increasing in number of
Entrepreneurs. Technology can be considered as a very good example to understand Schumpters theory.
As new technology arrives in the market, we will find new set of Entrepreneurs moving into that
technology and if any disturbance or change is found in the existing technology we will notice another
set of new Entrepreneurs arriving to the amended technology.

Global Entrepreneurship Model(GEM) Conceptual Model

According to Reynolds Hay, Bygrave, Camp and Autio (as cited in Lal & Clement, 2005) Increase in
economic growth is highly dependent on the successful Entrepreneurial activities. Their research was
absorbed under 'Global Entrepreneurship Monitor' GEM. The GEM conceptual model (Figure1) shows
a clear picture how Entrepreneurs help in the growth of once nations economy.
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Figure 1. GEM Conceptual Model

source : Asia-Pacific development Journal, Vol. 12, No 2, December 2005 by Anil K. Lal and Ronald W.
Clement, Pg. 92
This model looks at the 3 perspectives of an Entrepreneur, they are social, political and cultural. This
model explains that an Entrepreneur contributes to economic growth when he looks at Entrepreneurial
conditions such as financing, supportive government policies, education and training, cultural and
social norms, internet market openness, physical structure and commercial & legal infrastructure before
starting a new venture. Entrepreneur even needs to consider if there are any opportunities existing in
the present market for the venture he wants to start.

Conclusion:
Entrepreneur is a person who has ownership of a new endeavor, venture or idea and adopts significant
answerability for the built in jeopardy and the final result. A person who starts a business or looks after
an existing business, becomes successful by noticing and adapting the new technologies, grabbing the
relevant opportunities, maintaining standards and by having a great vision towards her/his goal. This
person is considered to be an Entrepreneur. They concentrate highly for the growth of their business
outcome, for this they always stay close to their business details.

Entrepreneurs contribute to economy by increasing job opportunities, creating new organisations and
by innovating new technology. To a certain extent growth of society is directly connected to economy.
Some entrepreneurs contribute to society by starting businesses which aims towards social mission. As
we have seen various examples in this article my understanding about role of Entrepreneur towards
economy and society are highly dependent on the support of government.
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I think, despite the vast research by Entrepreneurs, little is known the concept of entrepreneur in the
contemporary era, especially how Entrepreneur can be conceptualized in new world structure, and
specifically how Entrepreneur can be influenced by and influence to globalization and/or glocalisation.
Although, this assignment give me a chance to look closely at Entrepreneurs, I am still willing to know
more about it.

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