CHAPTER 1: A PERSPECTIVE ON ENTREPRENEURSHIP

Entrepreneurship is a very important component of a capitalist economy like the

Philippines. It thrives in economic system that support innovation and hard work. When
entrepreneurs become successful, the nation is immensely benefited.
Whatisentrepreneurshipandhowdoesitaffecttheeconomicwell-beingofmanypeople? What
is the task of the entrepreneur regarding economic development? This chapter attempts to
provide answers to concerns like those statedabove.
Entrepreneurship and Economic Development
Economic Development is a scheme aimed at improving the living standards of the
nation’scitizenry.Toachieveeconomicdevelopmentgoals,propermanagementofthefollowing
elements isnecessary:
1. Human resources (labor supply, education, discipline,motivation);
2. Natural resources (land, mineral, fuel,climate);
3. Capital formation (machines, factories,roads);
4. Technology (science, engineering, management,entrepreneurship).

The effective and efficient utilization of the various resource elements contribute to the
economic growth. This happens when the element of the entrepreneurship is performed well by
theplayers.Theabundanceofnaturalresourceslikefertileland,minerals,fuels,andgoodclimate are
plus factors but are not guarantees for positive economic development. There is a need for
entrepreneurs to perform the function of harnessing the potentials of any or all of the various
elements, determining the right quantity of resources needed, and applying the elements at the
righttime.
Theperformanceoftheentrepreneur,however,willdependmuchonthesupportprovided by
the government. Apart from the obstacles, government restrictions limit the effectiveness of
entrepreneurs.

What is Entrepreneurship?
Entrepreneurship refers to the economic activity of a person who starts, manages, and
assumes the risk of a business enterprise. The person who undertakes entrepreneurial activities
is called an entrepreneur.
The entrepreneur identifies an economic need, considers offering a business solution,
proceeds to assemble the resources required, and assumed the risk of either succeeding or
failing. An example of these activities is properly shown on Table 1.

Table 1. An example of Entrepreneurship Activity

Entrepreneurship’s Problem on Hand
Concern
1. Identifying an 1. High income families are
Economic need not satisfied with the
services provided by
high schools in their
area.
Entrepreneur’s Action
1. Establish a high school
education with higher
standards that the
current high schools are
providing.
 2. Assembling resources 2. Resources must 2. Acquire funds, hire
required be madeavailable. people, construct
buildings, and thelike.

3. Assumingrisk 3. Venture must bemade 3. Prepare project study,

advertisement, maintain
good relationship with
employeesand
customer, among others.

The entrepreneur’s Task

If all the requirements in a capitalist economy are in place, the entrepreneur can assume
his assigned role in the development of the economy. A review of the contributions of
entrepreneurs will reveal that no business, big or small, started without the hand of the
entrepreneur.Evenifmanyofthesebusinessesfailedtosurvive,stillasizablenumberdeveloped and
proceeded to make of capitalist economy a viable concern. This is made possible because the
surviving enterprises are responsible for providing thefollowing:
1. Product and services for customers andproducers;
2. Employment;
3. Taxes;
4. Demand for suppliers’ product and services;and
5. Training facilities for futureentrepreneurs.
An inspection of the array of products offered for sale in a typical supermarket reveals a
widechoiceprovidedtothecustomer.Whenaconsumerismakingadecisiononwhichbrandof soap he
is going to buy, for instance, he will be choosing from as many as 10 different brands. Many
years ago, his choice was limited to one or two brands. Much earlier, soap was not even
available for sale. The customer had to produce his ownrequirement.
Whatbroughtthecustomertothesituationwherehehastheluxuryofchoosingfrommany
options? And this does not refer to soaps alone but the products aswell.
Serviceswhichwerenotpreviouslyavailablearenowatthebeckandcalloftheconsumer. The
fast-food canteen at the corner, parcel delivery, communication through cellphones, cable
television, short-term credit through credit card, money remittance, and be like, are among the
many services made possible byentrepreneurs.
A review of the statistical reports prepared by the government shows that business
organized by entrepreneurs employs millions of people.
Thetaxespaidtothe governmentintheformlicenses,fees,andpermitsapplicabletothe
enterprises, as well as income taxes applicable to the employees and entrepreneurs, easily
amount to billions of pesos. The taxes collected are, in turn, poured into development projects of
thegovernment.
The entrepreneurs also make sure that the suppliers will have a ready market for their
products and services. The retailers, for instance, assure the viability of bog companies like San
Miguel Corporation and Pure foods Company. Hollow block manufacturers utilize the output of
big cement and producers of movies and recorded music.
Lastly,businessenterprisesprovideatraininggroundforfutureentrepreneurs.Anumber of
entrepreneurs were former employees of enterprising persons. Many of them used their
acquired skills in starting new businesses. Some even improved on the entrepreneurial skills
passed on tothem.

Land Labor Capital

 (NaturalResources) (HumanResource) (FinancialResources)

Entrepreneur

Production Process

Finished goods and

Services

Figure 1. The Entrepreneur’s Task

In the attempt to make profits, the entrepreneur performs the following specific functions:
1. To supply the necessarycapital;
2. To organize production by buying and combining inputs like materials andlabor;
3. To decide on the rate of output, in the light of his expectation about demand;and
4. To bear the risk inherent of theventure.
Any business enterprise must offer products or services to the buyers whether these
buyers are consumers or products. The product or services that will be sold to the buyers must
be bought or manufactured. In any case, there will be a need to hire the services of employees,
laborers, and managers. Equipment, furniture, and machine must be acquired. All of these will
need funds which the entrepreneur must produce, in addition to whatever fund reserves are
required.
The next specific function of the entrepreneur is to assemble a production unit complete
with manpower and equipment, the quality and quantity of which have been predetermined by
him.
The entrepreneur will also determine and make decisions on the rate of output the firm
must produce. This will have to be tied up with demand.
Finally, whatever risk is involved in the entrepreneurial activity, he must suffer the
consequence of losses if he fails, but he will enjoy the profits as a reward if he succeeds.

Entrepreneurship and Innovation

The freedom of competition afforded by the capitalist economy serves to drive the
entrepreneur to innovate and get ahead of his competitors lest he is driven out of the market.
Buyers of commodities have a tendency to patronize innovate offerings of any kind and if one
wants patronage, he must remember this motivation.
Innovation may be defined as the introduction of a new method, procedure, custom,
device, among others. Innovation could be any of the following:
1. Newproduct;
2. New process ofproduction;
3. Substitution of a cheaper material in an unalteredproduct;
4. Reorganization of production, internal function, or distribution arrangement leading to
increased efficiency, better support for a given product, or lower cost,or;
5. Improvement in instruments or methods of doing innovation. Innovation may also be
viewed as the last stage in an important process consisting of the following:
a. Invention – which refers to the discovery or devising of new products andprocesses;
b. Development – which refers to the process which the ideas and principles generated
from the stage of invention are embodied in concrete products and techniques;and
c. Innovation – which refers to the actual introduction of a new product orprocess.
Innovation,ifitmustbesuccessful,mustprovidevaluetothebuyersoverandabovethose
offered by competitors. To achieve this, innovation must reduce costs or improve the quality of
products or services offered forsale.

Example of successful innovations are the following:

1. Cordless microphone;
2. Microwaveoven;
3. Cellularphone;
4. Kung fu fight scenes developed by Bruce Lee in themovie;
5. Karaoke musicappliances;
6. Use of laser in the treatment of eye conditions;and
7. Use of computers by engineers and architects in the design ofbuildings.

New Ventures and Long-term Enterprises

A new venture cannot remain as such forever. The entrepreneur must develop it into
asmall business or make it grow into a mature and bigger company if he is to recoup the cost
ofopening a new venture and take advantage of the opportunities presented by a mature
business.
The transition from new venture to a successful long-term enterprise consists of at least
four major stages. The stages are as follows:
1. Prestart-upstage;
2. Start-upstage;
3. Early growth stage;and
4. Late growthstage.
Theprestart-upstagehappenswhentheentrepreneurstartsthequestionthefeasibilityof an
idea, product, or services. He seeks answers to questions regarding potential markets,
production, and financing. This is very important stage that the entrepreneur must consider. If he
errs in his evaluation, he will fail before considerable growth isattained.
In the start-up stage, the following activities are undertaken:
1. Formation of thebusiness;
2. Generation of necessary capital;
3. Purchase of facilities andequipment;
4. Constructing phototype products;and
5. Testing themarket.
No full-scale activity must be undertaken at this stage for the simple reason that feasibility
must be established and verified.
 The early growth stage follows after establishing feasibility. Activities will be on a small
scale, i.e., selling to limited markets with limited resources. If losses occur, it will naturally be
limited also. If the enterprise is successful at this stage, the option to move to the next stage can
be exercised.
The late growth stage is the final stage before the new venture matures into a stable
enterprise. This is when management is structured, long-term financing is established, and
facilities planning are undertaken. This is also the stage where the skills of the entrepreneur are
less needed. Instead, the skilled manager begins to take over.

Rewards for Successful Entrepreneurship

Theuseofanyofthefactorsofproductiondeservetoreceivesomeformofcompensation. The
factors referred to as “things required for making a commodity” consist of land, labor and
capital. To make them work, however, a fourth factor becomes necessary and this is the
entrepreneur.
When land is used in production activities, the owners of land are paid a compensation
called rent. The term “rent” refers specifically to the price paid per unit of time for the services of
a durable good, which, most often, refers to land or buildings.
For the effort of laborers, they are paid wages or salaries. Wages may be determined on
a piece-rate basis, while salary is based on time-rate.
Interest is the compensation paid to owners of invested capital.
When all the factors of production are properly compensated, whatever is left as profits
are regarded as income and they accrue to the account of the entrepreneur.
The rates of compensation provided to the factors of production are limited to a large
extent by either industry norms or market forces. Legislation, however, have modified the rates
like the minimum wage rates and mandated interest rates on capital.
The profits accruing to the entrepreneur, on the other hand, are limited only by his skill
and industry. He may reap huge amounts of profits, but he may also lose large amounts in the
exercises.
As the landowner earns rent for allowing use of his property, the owner of capital earn
interest for allowing use of his capital. The laborer on duty earns wages for his effort, while the
entrepreneur earns profits for deciding how business shall be run. If he succeeds, he is
compensated of his vision, originality, and bold undertaking (Table 2).

Table 2. The Factors of Production and Their Rewards

Factors of Production Economic Reward Limiting Factor for
Rewards Received
Land Rent Supply and demand
Capital Interest Industry rate/government
mandated rates
Labor
Wages/salary Supply and demand
legislation
 Entrepreneur
Profits Skill of entrepreneur

The Entrepreneur’s Predicament

In the race for winning the all-important consumer’s pesos, the business will have tooffer
products or services that have certain advantages over the competition’swares.
Inthecreationofanewventure,theentrepreneurmaybesuccessfulinofferinginnovative
productsorservices.Atthisstage,hewillreaptheprofitsforbeingaheadofthecompetitors.The situation
may be temporary because the competitor may attempt to improve his position by
makingmovestooutpacetheentrepreneurintherace.Thecompetitormayeitherimitateoroffer better
innovations. If the competitor is successful, the profits of the entrepreneur will decline (Table3).
To be ahead again, the entrepreneur will consider offering newer and better innovations.
The cycle continues until one or both find a reason to stop.

Table 3. Innovation and Its Possible Effects on Competing Firms

Entrepreneur 1 Entrepreneur 2 Entrepreneur 3
Year1 introduce Inactive Inactive
Innovate
Product

Year2 reap Introduce Inactive

Moderate Innovate
Profits Product

Year3 maximize Reap Introduce

Profits Moderate Innovative
Profits Product

Year4 Profits Maximize Reap

Decline Profits Moderate
Profits
Year5 introduce
Innovate Profits Maximize
product Decline Profits

Entrepreneurship and Business Size

To many people, entrepreneurship means running a small business. New business
ventures,however,canalsobeundertakenonalargescale.Bothsmallandlargebusinessesare
confronted by problems that are entrepreneurial innature.
To effectively compete, business of whatever size must adapt innovative approaches to
its activities. Example of innovations are the following:
1. Offering business services during Sundays andHolidays;
2. Manufacture and sale of new products;and
3. Selling on a deferred paymentscheme.

Smallbusinesseshavetheadvantageofswitchingtoanotherbusinessconceptwhenever
necessary. Large businesses cannot do the same without spending much. To offset the
disadvantage, however, large businesses have started to engage in “entrepreneurship” wherea
 person with entrepreneurial skills and is employed by the corporation is tasked to launch new
products. This person is responsible for creating innovation of any kind in the organization.

Summary
Entrepreneurship is an activity that assures the viability and growth of the economy.
Though entrepreneurship, goods and services are produces, employment is provided to many
people,taxesarepaidtothegovernment,theproductsandservicesofsuppliersarebought,and future
entrepreneurs are provided with venues fortraining.
The entrepreneur’s task consists of assembling the resources consisting of land, labor,
and capital for the purpose of producing goods and services. The entrepreneur is also bearing
theriskinherenttotheventure.Iftheentrepreneur’staskappearstobegreatburden,theprospect of
profits makes itbearable.
Innovation is an important aspect of entrepreneurship. It is defined as the introduction of
a new method, procedure, custom, device, among others.
New ventures must develop into small business or grow into a mature and bigger
company. This is because the entrepreneur must recover the cost of opening the venture.
The transition from a new venture to a long-term enterprise consists of the prestart-up
stage, start-up stage, early growth stage, and late growth stage.
Thefactorsofproductionandrewardedaccordinglyandiftheentrepreneurissuccessful, he
receivesprofits.
The entrepreneur cannot feel secure of continuous success in his new venture. There are
competitors he must contend with.
Although entrepreneurship is generally regarded as a useful means of running a small
business, it is also conducive in maintaining the growth of large corporations.

CHAPTER 2: THE NATURE OF SMALL BUSINESS

Business size is one factor that does not prevent one from engaging in entrepreneurship.
Since only a small number of people have capital large enough to start a large enterprise, the
bigger number of people with minimal resources are forced to operate on a small-scale basis, if
they decide on becoming entrepreneurs. Figure 2 is an illustration of this relationship.

PeopleandTheir NumberofPersons Possible Engagement

Financialcapacity in Entrepreneurship

Fe
Fe
Those with large
Amount of capital

Those with small amount of capital Fe Many

 Figure 2. Financial Capacity and Size of Business
Sincemostnewventureswillbesmallbusinesses,itisexpectedthatmajorityoftheefforts of those
involved in the propagation of entrepreneurship will focus on small business management.
The premise is that if small businesses are managed properly, their chances of becoming
largeenterprisesareincreased.Sinceitiswell-knownthatlargeenterprisesbringcertainbenefits to the
economy, small business management is an activity worth pursuing. But if many small
businesses will not develop into large businesses, their contribution is still verysignificant.

What is a Small Business?

Small business may be defined by using any of the two approaches: market share or total
assets.
Under the market share approach, small business may be defined as one whichis
independently owned and operated and which is not dominant is its field of operation. The term
“independentlyowned”meansownershipisbyaprivateindividual,apartnership,oracorporation. The
term “not dominant” indicates that a small business does not control a sizable share of its
market.Whenthetotalsalesofabusinessfirmarelessthanonepercentofthetotaldemandfor its
products, the firm may be considered smallbusiness.
 A small business may be defined under the total assets approach as one having total
assets that fall within a certain bracket. For example, the Magna Carta for Small Enterprise (R.A
6977)indicatesthatthefirmmusthavetotalassetsvaluedatabove1.5millionto15milliontobe
considered small business. The government prefers this approach because it simplifies
formulation and implementation ofpolicy.
One of the disadvantages of the total assets approach is that asset values are affected
by inflation. After so many years, inflation alters the nominal value of business assets and what
may be previously considered small business may no longer be classified as such.
From the point of view of business management, the market share approach in defining
small business is more appropriate. This is so because the target market share is an objective
more basic that other objectives. Figure 3 illustrates the kind of business according to size.

Kinds of business

Public enterprise
Ex. Land bank of the
phil

Macro Cottage
Business Business
SMALL. MEDIUM. LARGE
 Figure 3. Kinds of Business According to Size

Types of Small Business

Small business may be classified into five types: (1) manufacturing, (2) service, (3)
wholesaling, (4) retailing, and (5) general construction firms.

Manufacturing
Amanufacturingbusinessisoneinvolvedintheconversionofrawmaterialsintoproducts
needed by society. Examples of small business engaged in manufacturing are: bakeries, tricycle
sidecar assembly shops, bagoong manufacturers, restaurants, andothers.

Kinds of business
According to size

Private enterprise
Ex. Globe
Services
Services business are those that provide in one way or another. They may be further
classified into the following:
Business services – provide service to other business. Examples are accounting firms,
janitorial service firms, security service firms, collection agencies, and thelike;
Personal services – provide service to the person. Examples are tutoring services, massage
parlors, voice lesson, amongothers;
Repairservices–providerepairservicestoownersofvariousmachineryandappliances. Example
are auto repair shops, watch repair shops, plumbing services, andothers;
Entertainment and recreation – include movie houses, resorts, billiard pool centers, and
thelike;
Hotels and Motels –and
Educationservices–includeMontesorrischoolsforchildren,highschool,correspondence
schools, amongothers.
Wholesaling
Wholesaling refers to the activities of persons or establishments which sell to retailers and
other merchants, and/or to industrial, institutional, and commercial users, but who do not sell in
largeamountstofinalconsumers.Examplesaresoftdrinkswholesalersinlocalareas,dealersof
suppliesandofficeequipment,grainswholesalers,andthelike.Abignumberpfthesewholesale
businesses are owned by small businessoperators.
Retailing
Retailing covers all activities involved in the sale of goods and/or services to the final
consumers.Thebulkofretailingactivitiesareperformedbysmallbusinesses.Examplesareretail
drugstores, fast food shops, appliances stores, andothers.
General Construction Firms
General construction firm are those engaged in the construction of buildings whether for
private individuals or firms, or for the government. Many of them perform subcontracting jobs for
the bigger contractors such as installing electrical facilities and sewerage.
As a whole, general construction firms employ hundreds of thousands of people and they
operate mostly in the countryside.

Characteristics of Small Business

Small businesses have their own distinctive characteristics. They are the following:
Independent management – the owner is also themanager.
Small Capital Requirements – Small business requires only small capital and this can be
supplied by a single or a fewindividuals.
Mostly local; operation – Small business usually operates in a certain locality although there
are cases when the market is not confined to a localarea.

Economic Importance of Small Business

Small businesses play an important role in the development of our economy. Theyassume
the following functions (Figure4):
Providers of economic opportunities for entrepreneurs – people who do not feed comfortable
as employees have the option of engaging in small businessoperation.
Providers of products and services to customer – the production of many products and
servicesisoftentimesnotfeasiblewithbigandmediumbusinessoperation.Theselimited
opportunities are naturally fitted for smallbusinesses.
 Suppliers of products and services of other businesses – some businesses require raw
materials, semi-finished parts, finished components, or even labor, which they cannot
economically produce. The small businesses perform this task forthem.
Distributions of products and services of other businesses – some manufacturers do not
have the ability to distribute their products and services. Many small businesses assume
this role for them.
Supportersofgovernment–smallbusinessessupportthegovernmentwiththetaxesthey pay, as
well as performing otherfunctions.
Providers of employment – a larger proportion of the labor force are employes by small
businesses.

Advantages of Operating a Small Business

An individual has various options to improve his economic lot. They are the following:
Be an employee;
Be a professional;and
Be a small business operator(SBO).
An employee enjoys a fixed working schedule like 8:00 A.M to 5:00 P.M. the pay he
receives,however,islimitedanddependenttoalargerextentonindustrynormsandthefinancial
capabilityofthecompany.Insomefirms,theemployee’spaydependsonthewhimsoftheowner.

Small

Provider
Provider
Provider Economic opportunities for entrepreneurs
- Products and services to consumer
- Funds to the government in the form of taxes
- Employment to the labor force
- Product and services to other business
- Products and services produces by
-

Figure 4. Small Business and its importance to the economy

A professional may generate higher income through the effective practice of his
profession. A physician, for example, may set his clinic in a certain area and proceed to treat
patientsforafee.Hisincome,however,islimitedbythenumberofpatientsheattendstoeveryday
ashecannotdelegatehisskilltoothers.Inadditional,althoughheisusefultothecommunity,his desire to
provide employment to more people is severely limited by the nature of his work. At most, he
can employ four persons asassistants.
The first two options, however, can only be considered depending on certain conditions.
Finding a job is not an easy task. The rate of rejection for job applicants, especially in the
Philippines is just too high. In reality, there are too many people who cannot exercise this option.
 Enteringacertainprofessionisalsonotaneasytask.First,onemustundergolongyears of study,
and second, one must pass a rigorous entrance requirement like passing the board examination.
There are also too many people who cannot exercise theoption.
The last option is small business operation. Although entrance requirements are not as
difficult as the first two options, it does not mean this option is easier to put into practice. A small
business operator keeps long working hours and absorbs whatever damages that happen as a
result of his faulty decision-making. However, he is afforded the following benefits.
Opportunity to gain control over his owndestiny,
Opportunity to reach his fullpotential,
Opportunity to reap unlimited profits,and
Opportunity to make a contribution to society and receive recognition for hisefforts.

Opportunity to Gain Control Over His Own Destiny

The prospective small business owner can choose from several business opportunities
that he would like to take advantage of. If, after a few years, he thinks that the business is not
worth operating anymore, then he can dissolve it and open a new one. This option is not made
available to plain employees and professionals.

Opportunity to Reach Full Potential

The employee will do his work based on prescribed targets which may only require less
thanhisfullpotential.Thisisnotsowiththesmallbusinessoperator.Hisfreedomtoactislimited only by
his potential and he can revise or amend his targets within shortnotice.
Opportunity to Reap Unlimited Profits
If the small business succeeds, all profits, big or small, accrue to the owner. If he is not
satisfied, he may exert more efforts to increase his profits. This opportunity is not afforded to the
plain employee.

Opportunity to Make a Contribution to Society and Receive Recognition of His Efforts

Entrepreneurs who make innovative products available to the public are recognized
properly by society. Some of them, like Henry Ford, became billionaires. Others, like Walter
Disney, merited listings in books of eminent personalities.

Disadvantage of Operating a Small Business

Although certain advantage accrues to the small business operator, there are certain
disadvantages that must be considered. These are the following:
Uncertainly of income;
Risk of losing your entire capitalinvestment;
Lower quality of life until the business getsestablished;
Completeresponsibility;
Having to serve undesirablecustomers;
Paperwork and other chores;and
Long hours and demanding workcondition.

Operating a small business does not provide the assurance of an income, unlike getting
employment which offers fixed monthly salaries.
Completeindependenceinmakingdecisionsexposesthesmallbusinessoperatortothe
consequencesoferrorsofjudgmentwhichinsomecasecouldwipeouthisinvestment.Thehigh rate of
small business failures proves thepoint.
 As the small business operator assembles the needed resources, starts actual
production, and makes moves to attract customers, income and profit are held in abeyance, i.e.,
if they will ever be realized at all. Until then, the owner an experience a lower quality of life.
The owner-operator will take full responsibility for whatever happens to the business. If
the firm is sued for selling unsafe products, for instance, then he suffers and carries whatever
burden or penalty is imposed by authorities. He cannot pass the blame to anybody else.
Even if the small business operator has freedom in his actions, he is not completely free.
He cannot choose his customers. Even if he dislikes a particular customer, he cannot just send
him away or even ignore him. He is bound to give his customers satisfactory service even if they
are rude.
A big company can hire several persons to attend to specific tasks related to paperwork
like book keeping or other unpleasant tasks. The small business operator is forced to do these
tasks himself.
Itisawell-knownfactthatasmallbusinessmustmaintainlonghoursofworktokeepthe business
going. If it cannot acquire sales volume within a short time frame every day, it must stretch its
business hours to accommodate more customers. The limited volume of production
andsaleslimitsthenumberofactivitiesthatcanbeeconomicallyservedbyhiredpersonnel.The residual
functions, even if they must be done under harsh working conditions, must be borne by
thesmallbusinessoperator.Seecomparisonofemploymentandsmallbusinessoperation(Table 4)

Table 4. Employment and Small Business Operation Compared

Factor Small Business Operation Employment
Income Uncertain Certain

Capital Risk of losing None required

Investment Lower until business gets Consistent at a certain
established level

Quality oflife Complete/all encompassing Restricted to one’s job

Responsibility
Gain controlover his Present Absent
owndestiny
Reach his full Present Absent
potential
Reapunlimited
profits Present Absent
Makea
contribution to
society and Present Limited
receive
recognition of his
efforts
Summary
Businesses, especially small enterprises, are important segments of our society.
A small business is one which is independently owned and which is not dominant in its
field of operation.
Small business may be classified as manufacturing, services, wholesaling, retailing, and
general construction firms.
 Small businesses are characterized by the following: independent management, small
capital requirements, and mostly local operation.
Smallbusinessesplayanimportantroleinthedevelopmentofoureconomy.Theyprovide
economic opportunities for entrepreneurs, products and services to consumers and industrial
users,servicestootherfirmsbywayofdistributingtheirproductsandservices,paymentoftaxes to the
government, andemployment.

Every now and then, newspapers file reports on corruption, deception, and illegality committed
by various personalities including entrepreneurs. A very common topic of conversation is the
involvement of contractors and suppliers in anomalous transactions with government personnel.
There are indications that the practice has a tendency to become more intense and destructive.
This should not be tolerated for it will ruin the society that provides everyone with the sense of
security in an environment of peaceful coexistence. Yet, the said practice is only one of the
many that are committed in the quest for improving one’s lot, financially or otherwise.
The concern for society’s survival brought into the fore the need to adapt ethical standards and
socially responsible actions. The role of the entrepreneur in propagating ethics and social
responsibility in business cannot be overemphasized.
What is Business Ethics
Ethics is the study of moral obligation involving the distinction between the right and wrong. As a
consequence, the study of ethics paved the way for the adaption of the general rules of conduct
in society.
The rules about how entrepreneurs ought to behave are referred to as business ethics. The
ethical behavior required of entrepreneurs is determined by the following.
thepublic;
interest groups like the Society of Prevention of Cruelty toAnimals;
business organizations;and
the individual’s personal morals and values.
Adherence to ethical standards contributes to the smooth flow of business exchanges. It
establishes trust between buyers and sellers and between lenders and borrowers. Figure 5 on
the next page illustrates on the effect of adherence to ethical standards.
Factors Influencing Ethical Behavior
Ethical behavior, whether by a person or a business entity, influenced by any or a
combination of the following:
situation
rewardsystem;
individual differences;and
other factors
Circumstancesvary,andthereactionsofthefirmorindividualsalsovary.Forinstance, a firm that
behaves ethically during prosperous times may act unethically in times of financialhardships.
 Adherent to Establishment
Ethical standards Of trust

byEntrepreneurships - between buyers andsellers

- between lenders and borrowers

Smooth flow of
Business
exchange

Example: selling is faster

Figure 5. The Effect of Adherence to Ethical Standards
The expectation of high rewards for committing unethical behavior motivates a person to do it.
However, when he knows that there is a possibility that he would be censured, the motivation is
diminished. For instance, a person who is considering adulterating his products to increase
profits will be more inclined to do it especially if the community does not strongly condemn such
acts. Another example is photocopying original works of others
People are different from one another and that includes differences in reacting to specific
situations. For instance, a trader may think selling food products which had already expired is
not bad. Another person would think differently and would not want to engage in suchactivity.
When a person is in competition with others, and he wants to be sure of winning, he is more
inclined to adapt unethical behavior. An example is the trader who spreads rumors to discredit
competitors.

How Ethical Behavior is Encouraged

If the entrepreneur believes that business success requires good ethical behavior, next concern
would be to encourage his people to adapt good ethical behavior.
There are certain ways of encouraging ethical behavior among employees. These are the
following:
Adaption of a codeethics;
Institution of rewards and punishments concerning ethicalbehavior;
Adaption of internal programs for resolvingconflicts;
Creation of ethics reviewcommittees;
Provision of training in ethics for employees;and
Top managementsupport.
Code of Ethics
Thecodeofethicsisaformaldocumentindicatingtheentrepreneurship’sadapted principles of
appropriate behavior. A code of ethics is very useful to the firm espousing ethical behavior. It
serves as a basic reference for employees who make big or small decisions. For example, an
employee is confronted with a job offer from a rival company and he thinks he is not yet ready to
respond correctly to this type of situation. Although this does not happen often, few persons are
equipped with sufficient skills to deal with it. If, on the other hand, the company has a code of
ethics, the affected employee will have some basis for hisactions.
A code of ethics can be made effective if the following requirements are met:
it should refer to specific unethical practices like receiving gifts, avoiding warranty
claims, bid-rigging, making fictitious claims, among others;and
it must be supported by the top management. Support comes in various forms
suchasprovidingsufficientfundsforitsimplementationandassigningspecificemployees to
handle ethical infractions of other employees, and thelike.
Ethicalbehaviorofpersonneloccursonlywhentheentrepreneurdevelopsacode of ethics and
successfully implementsit.
Rewards and Punishments Concerning Ethical Behavior
A code of ethics is sufficient for some people if ethical behavior is required. For many people,
however, this may not be enough to motivate them to act ethically. If the entrepreneurship wants
to have some measure of control over the behavior of its personnel, a system of reward and
punishment must be instituted.
Punishment could take the form of dismissal, demotion, suspension, or reprimand.
Rewards may be given in the form of cash gifts, promotion, or citation.
Internal Programs for Resolving Conflicts
Conflictsarise,evenwhenethicalconductofpersonnelisconcerned.Forexample, a subordinate may
think his superior is acting unethically regarding promotions. The subordinate may harbor ill
feelings toward his superior if the subordinate is not provided with the means to ventilate
hisgrievance.
It is important for entrepreneurs to adapt a program of resolving conflicts. For instance,
subordinate may appeal a superior’s decision without exposing him to the concerned superior.
Later, meeting between management and subordinate is arranged.
Ethics Review Committees
To encourage ethical behavior, the entrepreneurship may create an ethics review committee.
This committee is usually composed of the company employees as well as some who are not
employed by the company. These persons have undergone special training in ethics. The
committee provides advice to the entrepreneur and his staff concerning sensitive ethical issues.
Ethics review committees are not yet popular in
Philippine entrepreneurship, but it is slowly adapted by the government corporations like state
colleges and universities. This is not a bad option if the entrepreneur wants ethical conduct from
his employees.
Provision of Training in Ethics for Employees
Company personnel who are exposed to activities that are ethically charged must be provided
with sufficient training in ethics. Such training should make them sufficiently prepared to deal
with various ethical issues they would encounter in their respective workplaces.
Ethics training is more appropriate for persons occupying sensitive positions in purchasing,
waste disposal, personnel, research and development, sales, and manufacturing.
Top Management Support
As mentioned earlier, it is very difficult for any program or activity to succeed
withoutsufficientsupportfromtopmanagement.Forinstance,whenunethicalconductis
committedandnosanctionisimposedbytopmanagement,itcanbeexpectedthatmore violations of
good ethics will bemade.

Ethical Issues Facing Entrepreneurships

Entrepreneurship face ethical questions on a daily basis. These spring from the following
relationships.
Between the company and thecustomers;
Between the company and its personnel andemployee
Between the company and its business associates;and
Between the company and the investors and the financialcommunity.
Relations with Customers
When ethical abuses are committed, the most probable victims are customers. This is expected
because of the high frequency of transactions between the company and the customers.
The types of abuses vary and they come in forms as varied as the transactions. An example is
the practice of sending unsolicited message to the customers through the cellphone.
Entrepreneursareexpectedbysocietytotreattheircustomersfairlyandnottoact in ways that will be
harmful to them. Entrepreneurs should provide support for consumer rights which are asfollows:
the right to besafe;
the right to beinformed;
the right to choose;and
the right to beheard.
TheRighttoBeSafe.Consumersexpectthattheproductsandservicesthatthey
buywilldothemnoharm.Theyalsoexpecttobefreefrombodilyharmwhentheyare
insidetheentrepreneur’sbusinesspremises.Thisconcernbroughtaboutthepassageof laws intended
to protect the consumer. For example, manufactured drugs intended for
saletothegeneralpublicmustfirstpassthestandardrequirementsoftheFoodandDrugs
Administration. The purpose is to provide some guarantee to the public that drugs are safe
touse.
The Right to Be Informed. Consumers make purchasing decisions often. The quality of the
decisions, however, will depend on whether or not they are properly informed. Advertisements
and information printed on labels are some of the ways of
providinginformationtoconsumersabouttheproductsandservices.Therequirementfor indicating
dates of manufacture and expiry on labels is a result of legislation intended to inform
theconsumer.
TheRighttoChoose.Firmsthatareintendedtoadheretobusinessethicsshould strive to protect
consumer’s right to choose, what products and services they need and intend to purchase.
However, some traders would violate this right to make hugeprofits.
An example is the trader who cornered the year’s supply of a certain brand of cigarettes.
Nobody could buy that brand except from him and he was able to make huge profits by selling
at a high price.
Another “hot issue” in the Philippines is the question on the right of consumers to choose
between branded and generic drugs.
TheRighttoBeHeard.Customershavetherighttocommunicatetheirconcerns
toentrepreneurshiptheypatronize.Thisrightmaybeusedtoexpressappreciationabout what the
company is doing, or to provide information about the defects in the products the
customerbought.
To support the customer’s right to be heard, some companies install system of receiving
and processing complaints. An example is the information printed on the product’s label
indicating contact numbers where complaints may be relayed.
Relations with Personnel and Employees
There is always the possibility that business firms, including Entrepreneurships, will commit
unethical acts toward their employees. Since entrepreneurs and their staff make decisions on
various business activities like hiring, promotion, transfer, compensation, and dismissal, it is not
uncommon for ethical lapses happen every now and then. An example is the ethical question
faced by a manager in deciding whether or not to give hiring preference to a relative of his
superior.
Good ethical conduct requires entrepreneurs to be aware of their responsibilities to employees.
These are the following:
Workplacesafety;
Quality of lifeissues;
Avoiding discrimination;and
Preventing sexualharassment.
Workplace Safety. The ethical entrepreneur is one who make sure that the workplace is safe for
employees. He sees to it that the adequate measures are adapted
to prevent accidents from happening in the factory and in the office. Sufficient ventilation mist be
maintained. Fire exist must be provided. Machines and chemicals must be handled by properly
trained personnel.
Quality of Life Issues. Many employees are burdened by problems about
maintainingagoodbalancebetweenworkandfamily.Caringforchildrenandtheelderly are two of the
most common responsibilities that make life difficult for any employee. It
becomesmoredifficultiftheemployeeisasingleparent.Manyyearsago,suchconcerns are taken for
granted because most Filipinos have extended families and there is
someonewhowouldtakecareofthechildrenandtheelderly.However,thesituationhas changed
sincethen.
As a remedy to above concern, progressive companies provide day-care facilities for the
children of employees. Housing is provided near the work sites. If measures like those are not
feasible, Entrepreneurships can still provide assistance in locating or facilitating arrangements
with private day-care and housing facilities.
Entrepreneurshipscangofurtherinhelpingitsworkersimprovetheirqualityoflife
byofferingflexibleworkarrangements.Forexample,thehusbandmaybegivenanoption
toworkathoursdifferentfromhiswifesotherewillbeanadultintheirhouseatanygiven time. The
company may also redesign jobs, whenever applicable, so employees may be allowed at work
at home or work part-time, or work with shortened worksweeks.
AvoidingDiscrimination.Everyonehastherighttoworktoworkinaplacewhere discrimination is not
practiced. Factors like age,sex, race, religion, political beliefs, and
thelikemustnotallowedtoaffectanypersonschanceofgettingemployedorpromoted.
PreventingSexualHarassment.Sexualharassmentreferstounwelcomesexual advances,
requests for sexual favors, and other verbal or physical contract of a sexual nature.
Entrepreneurs have the moral responsibility of keeping the workplace free from sexual
harassment and where everybody is treatedfairly.
In preventing sexual harassment, the entrepreneur needs to do the following:
Issue a specific policy statement prohibiting sexualharassment;
Develop a complaint procedure for employees tofollow;
Create a work environment that encourages sexually harassed employees to report
theirexperiences;
Establish a committee to investigate sexual harassed employees to report their
experiences
Take disciplinary actions againstharasser.
Relations with Business Associates
Entrepreneurships operate in conjunction with the efforts of supplier, agents, and various
types of middlemen. In the course of business transaction between the players mentioned and
firms, some ethical questions may come into fore. A supplier who badly needs a contract, fir
instance, may attempt to bribe the company’s purchasing officer.
Anotherexamplewouldbethecompany’ssalesmanagerextendingfavorstoatraderby giving priority
to delivery orders, in exchange for personalfavors.
The practices like those stated above are ethical and must not be allowed to happen in the
company that upholds good ethicalconduct.
Relations with Investors and the FinancialCommunity
The country’s financial system survives partly because investors and the other players have
placed certain degree of trust in firms they deal with. The degree of trust is
maintainedatahighleveliftheinvestorsandthefinancialCommunityfeelthatbusiness
firmspracticegoodbusinessethics,especiallyiftheythinkthattheirinvestmentsarewell protected. If
that is so, the desired level of investment ismaintained.
Trust and confidence, however, eroded by wrongdoings of some firms. The investment scams
perpetrated by some scheming persons do not provide good example of ethical firms. It is to the
best interest of companies including Entrepreneurships to continue to be blessed with stable
financial system. This will be possible if companies behave ethically. Misrepresentation
concerning the financial health of firms, land swindles, embezzlement and misleading reports
about non-existent as sets are only some of the ethical and illegal practices that undermine our
country’s financial stability.
Summary
The survival of society is expected to be the highest priority concern of everybody
including business firms. This can only happen it the quest for profits, business firms do
notjeopardizethewelfareofthesociety.Awayofpursuingthisobjectiveistheadherence to the rules of
conduct which is generally referred as “businessethics”.
The ethical behavior required of the entrepreneurs is determined by the public, interest
groups, business organizations, and the individual’s personal morals and values
Certain factors influence the ethical behavior of firms and individuals and these are the
situation, the reward system, the individual differences, and other factors.
The ethical behavior of employees may be encouraged through adaption of a code
ofethics,institutionofrewardsandthepunishmentconcerningethicalbehavior,adaption
ofinternalprogramsforresolvingconflicts,creationofethicsreviewcommittees,provision of training in
ethics among employees, and top managementsupport.
Ethicalissuesconfrontingentrepreneurshipsarisefromtheirrelationshipswiththe customers,
their personnel and employees, their business associates, and the investors and
financialcommunity.