Entrepreneurship (1-3)

1 [HARAMAYA INSTITUTE OF TECHNOLOGY] [2021]
CHAPTER ONE
THE ENTREPRENEUR AND THE ENTREPRENEURIAL VENTURE
Main objectives of the chapter
 To define what entrepreneur and its characteristics.
 To define entrepreneurship and its main features.
 To distinguish between entrepreneur and entrepreneurship.
 To identify the conceptual framework/model of entrepreneurship and its contribution to the

economy.
1.1 INTRODUCTION:
The term ‘entrepreneur’ is derived from the French word ‘Entrepredre’ meaning ‘to undertake’ or
“go-between”. In the 16th century, the Frenchmen who undertook military expeditions were referred
to as ‘Entrepreneurs.’ It was extended to cover construction and other civil engineering activities in
17th century. But the 21th century scholars define entrepreneurs as follows:
Richard Cantillon defines the term ‘Entrepreneur’ as risk taking function of establishing a new
venture. The term ‘entrepreneur’ is very much related to the term ‘entrepreneurship.’ Both these
terms are often used interchangeably. But, they are conceptually different.
1.2 Entrepreneurs and entrepreneurship
Entrepreneur:
Definitions:
 Entrepreneur refers to a person who establishes his own business or industrial undertaking
with a view to making profit. An entrepreneur is considered to be an originator of a business
venture. He takes the role of an organizer in the process of production.
 An entrepreneur is one of the important segments of economic growth. Basically an
entrepreneur is a person who has the initiative, skill for innovation and who looks for high
achievements. He/she is a catalytic agent of change and works for the good of people.
 Entrepreneurs are people who have the ability to see and evaluate business opportunities,
the ability to gather the necessary resources to take advantage of them; and the ability to
initiate appropriate action to ensure success.
Mechanical Engineering Department By-Yared W.

 Entrepreneurs are action-oriented, highly motivated individuals who take risks to achieve
goals.
 Economists may view entrepreneurs as those who bring resources together in unusual
combinations to generate profits.
 Psychologists tend to view entrepreneurs in behavioral terms as those achievement-
oriented individuals driven to seek challenges and new accomplishments.
 Peter Drucker states, as “Entrepreneur is someone who always searches for change
responds to it, and exploits it as an opportunity.”
 The entrepreneur is a combination of the thinker and the doer. The entrepreneur sees an
opportunity for a new product or service, a new approach, a new policy, or a new way of
solving a historic problem. The entrepreneur also does something about what is seen. The
entrepreneur seeks to have an impact on the system with his/her idea, product, or service.
It is this thinking doing combination that gives entrepreneurial efforts their special appears.
 Entrepreneurs take the risks necessary in producing goods & services. In this way, they act
as the energizers of the business system.
 Entrepreneurs are instruments of change.
Kinds of Entrepreneurs:
There are various ways by which entrepreneurs have been classified. According Clarence Danhof’s
classification, there are four kinds of entrepreneurs.
1.3 Innovative Vs Adaptive Entrepreneur

Innovating entrepreneurs
 Characterized by aggressive assemblage of information and the analysis of results derived
from sound combination of factors.
 An innovating entrepreneur is one who introduces new goods, inaugurates new method of
production, discovers new market and reorganizes the enterprise.
 It is important to note that such entrepreneurs can work only when a certain level of
development is already achieved, and people look forward to change and improvement.
Generally, they are typical of developed countries.
Imitative entrepreneurs
 These are characterized by readiness to adopt successful innovations inaugurated by
successful innovating entrepreneurs. They lap up innovations originated by innovating
entrepreneurs.

 Imitative entrepreneurs do not innovate the changes themselves, they only imitate
techniques and technology innovated by others.
 Such type of entrepreneurs are practically suitable for the developing countries for bringing
a mushroom drive of imitation of new combinations of factors of production already
available in developed regions.
 Imitative entrepreneurs face lesser risks and uncertainty than innovative entrepreneurs.
Characteristics of Entrepreneurs:
A common stereotype of the entrepreneur emphasizes such characteristics:
1. Need for achievement:
 Harvard psychologist McClelland discovered a positive correlation between the

need for achievement and entrepreneurial activity. According to him, those who
become entrepreneurs have, on average, a higher need for achievement than do
members of the general population.
 Entrepreneurs are driven by a need to achieve. What they need to achieve varies, but
it is often recognition rather than money.
 They set themselves goals and targets, are self motivated and take pleasure in
achieving these goals.
2. Willingness to Take risks
 The risks that entrepreneurs take in starting and/or operating their own business are
varied. By investing their own money, they assume a financial risk. If they leave
secured jobs, they risk their careers.
 The stress and time required in starting and running a business may also place their
families at risk. And entrepreneurs who identify closely with particular business
venture assume psychic risk as they face the possibility of business failure.
 Running your own firm is risky. All too many may go out of business quickly. To
succeed you need to take measured risks. Often the successful entrepreneur exhibits
an incremental approach to risk taking, at each stage exposing himself to only a
limited, measured amount of personal risk moving from one stage to another as each
decision is proved.

3. Self Confidence:
 Individuals who posses self-confidence feel they can meet the challenges that
confront them. They have a sense of mastery over the types of problems they might
encounter.
 Studies shows that successful entrepreneurs tend to be self-reliant individuals who
see the problem in launching a new venture but believe in their own ability to
overcome these problems.
4. Innovation:
 Innovation activity is a hallmark of entrepreneurship, but not necessarily of the

owner manager. According to many commentators innovative behavior is key to
the entrepreneurial personality.
5. Total commitment:
 hard work, energy, and single mindedness are all essential elements in the
entrepreneurial profile, such as running your own business in a 24 hours a day, 7
days a week commitment.
6. All rounder's:
 At least in the early stages of the business, entrepreneurs need to be able to ‘make the
product, market it and count money’.
The entrepreneurs initiate and sustain the process of economic development in the following ways:
1. Capital formation:
2. Improvement in per capital income:
3. Generation of employment:
4. Balanced regional development:
5. Improvement in living standards:
6. Economic independency:
7. Backward and forward linkage:
8. Agent role:
9. Role of innovation:
10. Imitating role

Success Factors of Entrepreneurs
Several success factors are apparent from research on innovation and entrepreneurship.
1. The Entrepreneurial Team: more often entrepreneurs do not start business by themselves;
they have teams, partners, close associates, or intensive networks of advisors.
2. Venture product or service: nearly all successful ventures start small and grow
incrementally; few “gear up” with substantial organizations for a big bang start. Incremental
expansion of products and services also tend to say with the bounds of positive cash flow.
Products tend to have strong profit potential with high initial margins rather than small
margins that require a substantial volume of sales to meet profit objectives.
3. Market and Timing: successful entrepreneurs tend to have a clear vision of both existing
and potential customers. A crucial aspect of planning is to have a well-documented forecast
of sales based on sensible projection at each stage of incremental growth.
4. Business Ideology: from an entrepreneur’s perspective, every venture has an ideology or

rationale for existing. Business ideology is defined as a system of beliefs about how one
conducts an enterprise. These beliefs include a commitment to providing customers with
value, the ability to take calculated risks, the determination to grow and to control the fate
of the business, and the propensity to elicit cooperation among team members, and
perspective of creating wealth realistically.
The Concept of Entrepreneurship:
 The term ‘entrepreneur’ and ‘entrepreneurship’ the two sides of the same coin, conceptually
they are different. While ‘entrepreneur’ refers to a person, ‘entrepreneurship’ refers to the
function. Basically entrepreneur is a business leader and the functions performed by him in
relation to that business is entrepreneurship.
 “Entrepreneurship is the process of creating something new with value by devoting the
necessary time and effort, assuming the accompanying financial, psychic, and social risks,
and receiving the resulting rewards of monetary and personal satisfaction of
independence.”… Robert Hisrich
 Entrepreneurship is the process of creating and building something of value from practically
nothing. This is, entrepreneurship is the process of creating or seizing an opportunity and
pursuing it regardless of the resources currently controlled.

 Fundamentally, entrepreneurship is a human creative act. It involves finding personal energy

by initiating and building an enterprise or organization, rather than by just watching,
analyzing, or describing one. Entrepreneurship usually requires a vision and the passion,
commitment and motivation to transmit this vision to other stakeholders.
 Entrepreneurship involves building a team of people with complementary skills and talents:
of sensing an opportunity where others see chaos, contradiction, and confusion; and of
finding, marshaling, and controlling resources (often owned by others) to pursue the
opportunity.
 Entrepreneurship is the process of identifying opportunities in the market place, marshalling
the resources required to pursue there opportunities and investing the resources to exploit
the opportunities for long term gains. It involves creating wealth by bringing together
resources in new ways to start and operate an enterprise.
 Entrepreneurship is the set of activities performed by an entrepreneur.
Nature and Characteristics of entrepreneurship:
The distinctive features of entrepreneurship are summarized as below:
1. Innovative functions: Entrepreneurship is an innovative function as it involves doing things

in a new and better way.
2. Function of risk bearing: Risk is an inherent and inseparable element of entrepreneurship.

An entrepreneur guarantees rent to the landlord, wages to employees, and interest to
investors in the hope of earning more than the expenses. He assumes the uncertainty of
future. In the pursuit of profit there is every possible of loss.
3. A function of high achievement
4. Economic activity: Entrepreneurship is primarily an economic function because it involves

the creation and operation of an enterprise. It is basically concerned with the production of
goods and services.
5. Purposeful activity: The entrepreneur who creates and operates an enterprise seeks to earn
profit through satisfaction and of needs of customers. Therefore, entrepreneurship is a goal
oriented activity.

6. An organizing function: An entrepreneur brings together various factors of production. He

coordinates and controls the efforts of all the persons engaged in his enterprise. He harnesses
land, labor, capital and other resources for the benefit of mankind. Therefore, an
entrepreneur is an organization builder.
7. Gap filling function: The gap between human needs and the available products and services
gives rise to entrepreneurship. An entrepreneur identifies this gap and takes necessary steps
to fill the gap. He introduces new products and services, new methods of production or
distribution, new resource of inputs and new markets for this purpose.
8. Dynamic process: Entrepreneurship is a dynamic function. Entrepreneurs thrive on changes
in the environment, which bring useful opportunities for business. Flexibility is the hallmark
of a successful entrepreneur.
Role of Entrepreneurship in Society and Economic Development:
 Every country is very keen in promoting its economic development. Economic development
essentially means the process of upward change whereby the real per capital income of a
country increases over a period of time.
 Entrepreneurship plays a vital role in economic development. Entrepreneurs serve as the

catalysts in the process of industrialization and economic growth. According to Joseph
Schumpeter, the rate of economic progress of a nation depends upon its rate of innovation,
which return depends upon the distribution of entrepreneurial talent in the population.
 The entrepreneur is the key to the creation of new enterprises that recognize the economy
and rejuvenate the established enterprises that makeup the economic structure.
 Entrepreneurs play a key role in business and the private sector where in Most of the wealth
in a society or nation is created.
 Products and Services- Business entrepreneurs fulfill the role both to discover consumer
demands and to do whatever is required to satisfy them
 Employment- Business ventures are the major providers of “real” jobs – i.e. decent work for
people who need and want to work.
 Investment in Productive Assets- A business needs capital investments to create productive

capacity: innovative technology, modernization, and the expansion of its productive assets.

 National Well-being- Most of the capital goods, commercial and social services as well as
technological know-how required to satisfy our needs come from business activity and
economic development of privately owned resources.
 Environmental Sustainability- All business activity uses natural resources and impacts their
present and future availability. Sustainable enterprises do not only maximize their personal
profit in the short term but ensure the long term availability of natural goods and services
Deadly Mistakes of Entrepreneurship:
1. Management mistakes
2. Lack of experience
3. Poor financial control
4. Weak marketing efforts
5. Failure to develop a strategic plan
6. Poor location
7. Improper inventory control
8. Incorrect pricing
9. Inability to make the “entrepreneurial transition”
1.2 The entrepreneur as an Individual, Creativity and Innovation
“An invention is an idea, a sketch or a model for a new or improved device, product, process or
system (...). An innovation in the economic sense is accomplished only with the first commercial
transaction” (Freeman, 1974: 22).
Innovation = Invention + Commercialization
The innovation process
“Management of the process is crucial “

ENTREPRENEURIAL COMPETENCIES
 taking the initiative
 being highly competitive
 exploiting change
 dealing with uncertainties
 seeking opportunities
The surrounding environment will affect how the entrepreneurial competencies are combined to
implement a social or business enterprise. The following are also main factors for entrepreneur
competency:
 Knowledge consists of a set or body of information stored, which may be recalled at an

appropriate time.
Consists of knowledge about a business opportunity, the market, customers, competitors,
production process, technical matters, business management, sources of assistance
 Skill is the ability to apply knowledge. Technical and managerial skills (leadership,
planning, organizing etc.)
 Traits are the total of peculiar characteristics that constitutes personal individuality.
- Hard Working - Goal-Oriented
- Self-Confident - Persistent
- Builds for the Future - Copes with Failure
- Profit-Oriented - Responds to Feedback

Inventor Vs Entrepreneur
 An inventor creates something new.
 An entrepreneur puts together all the resources needed—the money, the people,
the strategy, and the risk-bearing ability to transform the invention into a viable
business.
Costs and rewards being an entrepreneur
Rewards for Being an Entrepreneur:
 Create your own destiny
 Make a difference
 Reap impressive profits
 Self-actualization/personal fulfilment
 Feeling of freedom and independence
 Providing jobs and benefits to others (investors, suppliers, bankers,

subcontractors, work force, customers)
 Creating economic value (product/service, incomes for workers, profits for
shareholders/partners) Costs of Being an Entrepreneur:
 Works long Class Sessions
 Always concerned about the business
 Needs high energy
 Sacrifices other important aspects of life
 Limited social life
 Not much time with family and friends
 Risk of losing your entire investment
 Lower quality of life until the business gets established

CHAPTER 2 CREATION OF
NEW VENTURES
2.1 Developing the Entrepreneurial Plan:
Entrepreneurs discover an entrepreneurial opportunity when they find a compelling solution to

an unsolved problem or unsatisfied need. The first step in an entrepreneurial venture is to
identify a real opportunity. Second step is to create a plan to address that opportunity. Third step
is to execute that plan.
Business Planning:
Business planning is the process of setting goals, explaining the objectives and then mapping
out a document to achieve these goals and objectives. Effective business planning is critical to
long-term success and the ability to raise capital and grow successfully. Effective business
planning requires a considerable amount of time.
Types of Business Planning:
Effective entrepreneurial planning consists of:
Strategic Business planning
Strategy is the determination of the basic long term objectives and goals of an enterprise and of
the formulation of plans and the acquisitions, allocation and utilization of resources necessary to
accomplish these goals. Strategic planning is the road map of strategies on “what” the business
intends to do to meet the goals and objectives. Strategic planning defines, or outlines, the desired
goals and why you should go about achieving them. It involves business thinkers (namely– the
small business owner) determining why, and in a global sense what, you will achieve in your
stated goals. When doing strategic planning, you need to determine, specifically, what outcome
you want to achieve (These are your Objectives) and how you will measure the results.

Tactical Business planning
Tactical planning contains the details of executing the strategies. Describe “how” you plan to
meet the objectives. Tactical planning requires the understanding and deciphering of the strategic
goals; then identifying the courses of action needed to achieve those strategic objectives. It is
developed by those who deal with getting the work done, day by day. The main question for
them is: “How can the strategic goals be accomplished within the designated limits of resources
and authority?” Tactical planning is actions taken day-to-day, whose results will move the
company forward to achieve the objectives in the strategic plan.
Business Plan:
A business is a proposal that describes a new business. It is presented to potential investors and
lenders. A well-written Business Plan lays out the best growth path & strategy, as well as the
rationale for the selection of the strategy over other alternatives.
A Business Plan is the explanation of:
The services/products that the enterprise needs to provide with their respective uniqueness. It
also describes the qualification of the entrepreneurs. States what resources it will need to
implement the vision and who the team will be that will have the skills and leadership to execute
the vision, and what path they will follow to get there. It is also expected the financial position
and the funds needed with their source The components of a business plan:
• Executive summary • Organizational plan
• Product/service plan • Marketing plan
• Management team plan • Financial plan
• Industry/market analysis • Growth plan

• Operational plan
Executive Summary:
Brief recounting (summarizing) of the key points contained in a business plan. Investors & lenders
rely on this to decide if the concept interests them. Mostly it is not longer than two pages.
Include the most important information from each section of the plan. It is Written at last.

Product/Service Plan:
Presentation of the product or service you’re offering, nature of your business, unique features
of your product/service and any possible spin-offs; Additional products or services that might be
offered once the business is established.
Management Team Plan:
Present entrepreneur’s qualifications & those of any partners involved in the business venture.
Analyze expertise you’re missing & how you will solve that problem. Describe any advisory
board members/Board of Directors that will assist in getting the business started.
Industry/Market Analysis:
Convince the reader that an explosive market opportunity exists; Presents research into the
industry & market. Analyze customers, competition, & industry. It provides information about
the prospective geographic location, economic & demographic data.
Operational Plan:
Includes all processes involved in producing and/or delivering the product or service to the
customer.
• Status of product development
• Equipment, inventory, production
• Time & money needed

Organizational Plan:
• People aspects of the business. Includes:
• Management philosophy
• Legal form of the company

• Key management personnel
• Key employment policies
Marketing Plan:
How your company makes its customers aware of its products or services
• Market segment • Marketing strategies
• Pricing policy • Promotional plan
• Company image • Marketing budget
Financial Plan:
It presents the forecasts for the future of the business. Includes assumptions made when
calculating your forecast figures; usually in the form of financial statements.

Growth Plan:
Looks at how the business will expand in the future. Investors & lenders look to see if the business
has the potential & the plans to grow over its life.
2.2. Ideas versus Opportunities
A business idea is the response of a person or persons, or an organization to solving an identified

problem or to meeting perceived needs in the environment (markets, community, etc.). Finding
a good idea is the first step in transforming the entrepreneur’s desire and creativity into a business
opportunity.
Business Idea:
A business idea is a concept that can be used to make money. Usually it centers on a product or
service that can be offered for money. An idea is the first milestone in the process of founding
a business. Every successful business started as someone’s idea.
Although a business idea has the potential to make money, it has no commercial value initially.
In fact, most business ideas exist in abstract form; usually in the mind of its creator or investor
and not all business ideas, no matter how brilliant they may seem, would end up being
profitable. To find out about an idea’s chances in the market and check its innovative content
and feasibility, you need to conduct a plausibility check. A promising business idea must have
the following characteristics:
 Relevant (must fulfill customers’ needs or solve their problems)
 Innovative
 Unique
 Clear focus
 Profitable in the long run
The acceptability and profitability of a business idea hinges largely on how innovative the idea
is. Being innovative means using conventional production or distribution methods that have
rarely been adopted before. In fact, the entire business system could be innovated.
A successful business idea must meet the following three conditions:

 It must offer benefit to the customer by solving a problem or fulfilling a need. Customers
buy products and services for just one reason; to satisfy a need. So, if your business idea
cannot satisfy customers, it won’t be successful. Every successful business idea must have
a unique selling proposition.
 It must have a market that is willing to accept it. A promising business idea must offer a
product or service that would be accepted by a large market. It must also have feasible
arrangements for catering to that large market as well as unique values that differentiates
it from the competition.
 It must have a mechanism for making revenue. A successful business idea must show how
much money can be earned from it and how the money will be earned..”
Why Generate Business Ideas?
 You need an idea to start a new business
 Business ideas need to respond to market needs

 Business ideas need to respond to changing consumer wants and needs
 Business ideas help entrepreneurs to stay ahead of the competition
 Business ideas use technology to do things better
 Business ideas are needed because the life cycles of products are limited
 Business ideas help to ensure that businesses operate effectively and efficiently
 Business ideas can help specific groups of people (elderly, disadvantaged, those with
disabilities)
 Business ideas help to solve natural resource scarcity, pollution and depletion.
Sources of Business Ideas
Good business ideas are a prerequisite for initiating a new business venture. However, good
business ideas do not usually just occur to an entrepreneur. Sources:
 Hobbies/Personal Interests
 Personal Skills and Experience
 Media (newspapers, magazines, TV, Internet)
 Business Exhibitions
 Surveys

 Customer Complaints
 Natural scarcities and pollution
 Changes in Society
 Brainstorming
 Being Creative
 Ideas from overseas (Global) Potential Imports
Evaluating a Business Idea:
Once you're satisfied that you have a good potential idea that will address your opportunity, you
need to evaluate it thoroughly to ensure that it is realistic, doable, and the right idea for you. If
you answer all the questions below that apply to your idea, you'll be better able to make a
decision about basing a new venture on it.
1. What do others think of your idea? If it's a product, have you shown the idea to a product
designer for evaluation? What did he or she tell you about the product's chances for
success? If it's a service, do people tell you it sounds feasible or not?
2. Is the idea directly related to the opportunity? Explain how the idea will specifically
address the opportunity.
3. Has the idea been tried before? If not, do you know why it hasn't? If it has, do you know
if it succeeded or failed and the reasons? If it has been tried before and failed, how will
you improve it to ensure it doesn't fail this time?
4. Did you base this idea on accurate, reliable, information? For example, did you read just
one article or book and then decide on the idea, or did you do a thorough review of the
literature?
5. What risks are associated with this idea? Do you know how to reduce and manage these
risks? Are you prepared to assume the necessary risks?
6. Will there be resistance to this idea? (There almost always is.) Where will this resistance
come from, and why? Will you be able to overcome this resistance?
7. Do you know how much it will cost to turn your idea into an actual business? Can you
access the resources—money and people—that you will need to make this idea work?
8. How do you feel about the idea? Are you excited? Worried? Skeptical? You'll need to be
really excited and confident if you're going to make a success of it.

Each business idea should be evaluated in terms of:
 Present market. The size of the presently available market must provide prospects of
immediate sales volume to support operations
 Market growth. There should be prospects for rapid growth and high return on invested
capital
 Costs. Some of the costs of production will include:
 Start up costs  Service, warranty, customer
 Costs of raw material inputs complaints and
 Labor costs  Patents and licenses.
 Selling costs
 Efficiency of production processes,

 Business risks. In assessing business risk consider the following factors:
 Market stability in economic cycles
 Technological risks
 Import competition Size and power of competitors
 Legislation and controls
 Time required generating profit

Business Opportunities:
A business opportunity on the other hand is a proven concept that generates on-going income. In
other words, a business opportunity is a business idea that has been researched upon, refined and
packaged into a promising venture that is ready to launch.
While multiple business ideas may strike you on a daily basis, only few of them will be profitable
in the long run based on market research and feasibility study conducted. These few are the real
business opportunities. An opportunity is regarded as one after it has been found to meet the
following criteria:
 It must have high gross margins.
 It must have the potential to reach break-even cash flow within 12 months – 36 months.

 The startup capital investments must be realistic and within the range of what you can
provide.
 You must have the strength and ability needed to drive the business to success.
 Your level of enthusiasm for the business must be very high.
 It must have the potential for residual income.
 It must have the potential to keep on improving with time.
 It must have a low level of liability risk.
After you have refined and packaged your business opportunity in your mind, you can have it
documented by writing a business plan. You can then either implement on your own or sell it to
someone else for profit (probably because you cannot afford the capital required to flag off the
business).
In conclusion, the world is filled with brilliant ideas but the world lacks entrepreneurs who have
the capacity to turn such ideas to profitable business opportunities. It is one thing to develop an
idea, but it is an entirely different ball game to turn an idea into a business opportunity.
So, a major difference between an idea and an opportunity is that you can sell a business
opportunity, but you cannot sell an idea (it is not entirely impossible but it’s difficult). It is
obvious that investors invest in business opportunities and ventures, not business ideas.
Now how do you turn a business idea into an opportunity? Well, you can turn a business idea
into a business opportunity by conducting market research and feasibility study on your idea,
writing a business plan and assembling a business team that will work with you on your idea.
Only then will such idea become an opportunity that will attract investors and probably get the
needed financing.
2.3. Commercialization of technology-based innovation
Technology Commercialization is the process of making the new technology for public use through
different business strategies. It is the spread new technology to the mass society. Universities and
other research institutions mostly play in research and development; not on commercialization of
technology. Governments and other responsible parts should lead the line of commercialization of
technology by encouraging private sectors which are mostly involved and SMS enterprises.

Developed technology must be commercialized and lead to products and industries, and eventually
this will be the natural consequence of a rise in efficiency through innovative R&D systems.
 You must have the strength and ability needed to drive the business to success.
 Your level of enthusiasm for the business must be very high.
 It must have the potential for residual income.
 It must have the potential to keep on improving with time.
 It must have a low level of liability risk.
After you have refined and packaged your business opportunity in your mind, you can have it
documented by writing a business plan. You can then either implement on your own or sell it to
someone else for profit (probably because you cannot afford the capital required to flag off the
business).
In conclusion, the world is filled with brilliant ideas but the world lacks entrepreneurs who have
the capacity to turn such ideas to profitable business opportunities. It is one thing to develop an
idea, but it is an entirely different ball game to turn an idea into a business opportunity.
So, a major difference between an idea and an opportunity is that you can sell a business
opportunity, but you cannot sell an idea (it is not entirely impossible but it’s difficult). It is
obvious that investors invest in business opportunities and ventures, not business ideas.
Now how do you turn a business idea into an opportunity? Well, you can turn a business idea
into a business opportunity by conducting market research and feasibility study on your idea,
writing a business plan and assembling a business team that will work with you on your idea.
Only then will such idea become an opportunity that will attract investors and probably get the
needed financing.
2.3. Commercialization of technology-based innovation
Technology Commercialization is the process of making the new technology for public use through
different business strategies. It is the spread new technology to the mass society. Universities and
other research institutions mostly play in research and development; not on commercialization of
technology. Governments and other responsible parts should lead the line of commercialization of
technology by encouraging private sectors which are mostly involved and SMS enterprises.

Developed technology must be commercialized and lead to products and industries, and eventually
this will be the natural consequence of a rise in efficiency through innovative R&D systems.
Technology commercialization can:
a. Oneself technology Commercialization
Oneself technology Commercialization is where the technology developer directly conducts

the additional sale, marketing etc. for the whole public use.
b. Technology-out Commercialization:
Technology-out Commercialization is where the results developed from specific stages are
commercialized by licensing them out.
Technology commercialization has to be thought of in relation to technology transfer, and
appropriate technology transfer activities can increase the success rate of technology
commercialization.
Importance of Technology Commercialization:
In a society based on knowledge, technology innovation is being appraised as the important factor
that sways national competitiveness and corporate competitiveness. As a result, governments of
various countries around the world are becoming involved in technology innovation with a keen
interest and active involvement in technology commercialization. At present the recognition that
developed technology itself is not the result but that technology must create additional value through
proliferation & commercialization has set in, and technology commercialization policy has taken the
core position of industrial technology policies of every country.
Obstacles in the Technology Commercialization:
 Insufficient funds for commercialization
 lack of government support
 lack of active participation of SMEs

 marketing & sales
 Imitation industry
 Technical & research personnel
 Burdensome evaluation standards

As a result, increasing the commercialization rate and the commercialization success rate is
definitely necessary in strengthening national science & technology competitiveness, and in terms
of finding solutions for the above obstacles, support policies must be created. Also, with the
emergence of the participatory government, discovery and cultivation of new generation growth
dynamic business areas are being actively conducted as a new platform.
Consequently, there needs to be a transformation of policy aims from the policy of increasing
technology development investment scale to a commercialization policy. Government has to
recognize the importance of technology commercialization and they must increase the budget figures
for technology commercialization related funds. Technology which has not been commercialized
does not have any economic value. In other words, investments in technology developments that are
not feasible in terms of business must change their direction and reconsider the concept of
commercialization in their mind set.

CHAPTER 3
INTERNATIONAL TECHNOLOGY TRANSFER AND MULTINATIONAL
ENTERPRISES
3.1. What is Technology transfer?
Technology is a Systematic knowledge (conceptual, empirical, “Scientific”) embodied into tools,

to perform human tasks. It is mixture of physical artifact, social content and context, and procedures.
Knowledge, BY ITSELF, is not technology unless it is embodied into some tools and techniques
that can enhance human performance. Import of technology also known as technology transfer
which involves sharing of skills , knowledge and facilities among government and business so that
these technological developments are accessible to a wide range of users for commercial and
welfare purposes.
 It can be in form of business agreement between two businesses or MNC’s 
It can be as trade agreement b/w two nations.
Technology transfer [and commercialization] is defined as the transfer of results of basic and
applied research to the design, development, production, and commercialization of new and
improved products, services or processes. That which is transferred is often not really technology
but rather a particular kind of knowledge that is a precursor of technology. The transfer process
emphasizes the value and pro; Gary Matkin, Technology Transfer and the University, 1991.
Technology transfer and commercialization requires a dedicated effort to be successful. The skills
necessary for successful technology transfer and commercialization are different than the skills
necessary to do good science. At this time research organization of developing countries must watch
out carefully and heavily involved in technology transfer.
Technology Transfer is a Process:
It has stages, phases, and typical behaviors. It operates and can be understood at different levels
(e.g., technology policy, individual scientists) with different “stakeholder” and perspectives. It is
therefore a “communication process.”
So... Where to enter the catalytic process of technology transfer?
1. Universities and Research Institutes: Mainly on the level of basic and applied research, and
early stage development.
2. Entrepreneurial companies: Any stage from research and development to the market.

Classification of Technology
New Technology: A newly introduced technology that has an impact on how company produces
products example computer software. Any technology is new whenever it is introduced for time in
a place.
Emerging Technology: it is a technology that is not yet fully commercialized but will become so
within a period of years.
High Technology: It refers to advanced and highly sophisticated technology. It is used by variety
of industries having certain characteristics such as:
 It employs a highly educated people, most of them are scientist and engineers.
 It competes with technological innovation.
 It has high level of research and development expenditure.
Forms of Technology Transfer: Internalized form: In this form control resides with the technology
transferor (the owner) holding the majority or full equity ownership. (It can influence the sales, it
is integral part of global strategy, control on investment decisions).
 Externalized form: it refers to joint ventures with local control, licensing strategic alliances
and international subcontracting.
LEVELS OF TECHNOLOGY TRANSFER
 Operational Level: Processes form of technology which involves manufacturing process,

quality controls and maintenance.
 Adaptive Level: Imported technologies are adapted and advanced skills for more complex
engineering methods are learned.
 Innovative Level: it is based on formal Research and development that is useful in constant
improvement in technology and to generate new technologies.
 Duplicative level: At this level investment capacity is expanded in order to import
technology and integrate the foreign technology with existing ones
3.2 Multinational enterprises/corporations:

Multinational corporation is an enterprise which own or control production or service facilities

outside the countries in which they are based. Or Multinational corporations are companies that
manufacture and market the products or services in several countries.
Features of MNCs:
a. Single managerial control: MNC is ultimately controlled by a single managerial authority which
makes the key managerial decisions relating to the operations of the parent firm and all its
affiliates.
b. Global perspective:
The managers of MNCs are presumed to possess a global perspective. It implies the absence of
any preferential emphasis upon the current country’s home market on the part of those
managers.
c. Integrated worldwide business systems
d. Offers new markets for products or services
Role of MNCs for Developing Countries:
The growth and efficiency of developing countries have opened their doors to the MNCs.
a. Capital: capital, the means of production is the basic need for developing countries. It allows
for improvement in the structure of the economic system. Through foreign Direct
Investment (FDI), MNCs are able to diffuse the much needed resource into developing
countries.
b. Transfers of Technology: it is also brought in to the country with MNCs; the movement of
technology to produce goods as well as for communication purposes. This is not only
important for production and distribution by the foreign firms, but also for the development
of similar, local companies.
c. Increases level of integration with different countries
d. Modern work practices are introduces
e. Improved infrastructure
f. Better access to world-wide market
g. Better access to capital investment
h. Local suppliers development
i. Gaining new products or services

Demerits of MNCs
a. Drain of resources for profit maximization
b. Insignificant in employment potential
c. Influence in culture
3.3 Technology usage and adoption by SMEs
Technology Absorption:
Technology Absorption refers to the acquisition, development, assimilation & utilization of

technological knowledge and capability by a firm or some macro entity from an external source. It
occurs between transferring & receiving entities. The technology absorption is wider in scope than
technology acquisition.
• Technology absorbed without changing parameters of acquired technology is called

Technology Adoption.
• Technology absorbed by changing certain parameters of acquired technology is called

Technology Adaptation.
Technology Adaptation may arise due to following reasons:
• Non availability of supporting infrastructure
• For meeting location
• cation / market specific needs
• To make it compatible with existing plant & machinery
• Non availability of ancillary units for components
• To meet legal requirements

Pressure from NGOs, environmentalist, human rights group viz.example: Government

insistence to not to use BVO in soft drinks, forced cola companies to change their
formulations.
Organizations take following steps to manage technology absorption:
• Developing good understanding and mutual trust between technology transferor and
technology recipient organizations
• Proper, clearcut and well-defined agreement between technology transferor and technology
recipient organizations
• Developing time-bound and target-oriented schedule for technology absorption
• Top management support to the technology absportion
• Use of multifunctional teams by the technology acquiring organization
• Regular review of the absorption progress by the highest level.
• Installation of effective communication system by the technology acquiring organization.

Seeking workers’ particicpation, involving one and all in the absorption process;
overcoming the resistance to change through education and motivation through rewards etc.
• Hiring of requisite skilled workforce; if same is not available, seeking early training of own
current employees by technologists / technicians from the transferor enterprise.
• By actively complying with various government directives and requirements on technology
upgradation and technology absorption. Technology Diffusion:
Diffusion is the process by which a new product is accepted by the market. It is the spread of
applications / usage of a new technology and its related products, services or processes from one
nation to another; from one entity to another; from one industry to another; from the owner entity
to user or supplier; and from current user to the prospective user. It is the study of how, why, and at
what rate new ideas and technology spread across the economy.
Patterns of Technology Transfer:
• During the intial stage i.e. innovation stage, technology and innovation gets diffused within
the innovative organizations. Such organizations usually follow technology leadership
strategy.

• During next stage i.e. consolidation stage, diffusion takes place amongst major competitors.
During the last stage, i.e. mature technology stage, diffusion spreads to laggards. These
laggards are, usually, risk-averse and small organizations or small market players.
• The rate of learnings / spread amongst various entities is influenced by profitability and
investment required.
Characteristics of Technology Diffusion:
• Diffusion is not one-way traffic. The innovator can also learn from imitator.
• Diffusion is not once- for-all occurance. It is cyclical in nature.
• Diffusion can take place in varying degrees: IntraFirm - diffusion of lowest degree ;
InterFirm- diffusion of medium degree; Economy wide- diffusion of highest degree.
• Diffusion can take place in variety of forms … viz product , service or a process: use &
production; stock of technological knowledge
3.4. Promotion of technological development
What are Global Trends in Technology Management?
Prior to 1990, rate of technological change has been slow due to cold war between USA & USSR,
restriction on MNCs, existence of high trade barriers across countries. Since 1990s rate of
technological change has become faster.
This increased rate of technological change is noticeable in following areas:
• Most of nations have adopted formal technology development policy and aim at gaining
technological progress / advancement.
• Innovations (new product / process developments) are no more confined to developed world.
They can take place anywhere, anytime.
Globalisation of technology is taking place at a faster pace due to variety of factors
• Technological development is becoming highly customer-oriented. As the customer needs
& tastes are increasing and changing, technological changes are increasing.
• Decreasing payback period – to derive benefits of technology development

• Time compression – decrease in time available in various activities / phases of technology

development
• There is faster movement of products and services from Research & Development center to
markets (reduction in lead times).
• There is increasing focus on simplification of products viz journey from earlier big
computers to modern portable computers; emerging nano-technology.
There is more focus on ergonomics (human convenience to use)
• Technology life cycle is getting shorter due to fast technological changes or technological
discontinuties.
• Product life cycles are decreasing due to fast changes in consumer needs, increasing
awareness about new or improved technologies.
• Technological change may occur not only due to development of improved / hybrid / new
technology but it can occur even due to some development in unrelated technology.
3.5 Public regulation of technology transfers
Protection of Intellectual Property: The Process by which the private value of the creative outputs
of research are protected.
What of Value is protected?
 Intellectual Property:
o The results of research or other creative work that can be protected by law
 Realizing private value from intellectual property: Using a legal mechanism which
permits selected par
 ties to utilize a particular invention, work, or similar creative product; and precludes
others from doing so.
 Value: Private (commercial) value is not the same as public value. It is usually not
possible to achieve private value from creative work which is in the public domain.
First Step in a Protection Strategy is the Invention Disclosure:
 Filed with institutional intellectual property office
 Evidence for date of invention or creation and names of inventors or creators (for
primary)

 Identifies funding source
 Provides information for choosing a protection approach (or whether to protect)
 A disclosure assumes that intellectual property exists, and has value (in fact, these
assumptions are often unwarranted)
Patents:
 Specific criteria defined by law
 Novelty, non-obviousness, utility
 Burden of proof on the applicant
 Applicant must prove in the examination that the invention meets the
criteria
 Careful examination
 Technically qualified examiners
 Review of the “prior art”
 Every country has a different system
Patents are granted by national offices and one invention may differ in coverage from country to
country. Criteria for Patentability
NEW:
 No “prior art” - a novel invention
 Has not been publicly disclosed
 Has not been made or sold in commerce NOT OBVIOUS:

 Not obvious to a person “skilled in the art
 No “prior art” which would suggest the invention

USEFUL:
 has a purpose
What is Patentable?
May include anything “under the sun” made by man...
 Process—a method of doing something (e.g., manufacturing steel, surgical or

medical procedures)
 Machine—combination of mechanical elements
 Article of manufacture—anything which has been manufactured
 Composition of matter—a new chemical, a new formulation of elements, a genetic

construct o Ideas and “principles of nature” are not patentable. Copyrights:
It is the exclusive right granted by the government to the owner of an original work of authorship
to reproduce, distribute, perform, prepare derivative works, and/or display the copyright work.
Trademarks:
A name or logo which is affixed to goods or services placed in commerce and indicates the source
and quality of the goods or services
 Term is indefinite (while still in use)
 Easily protected via registration, and easily obtained indefinitely
 May be worth more than the invention or creation
 Trademarks can be registered within a state, or nationally.
“8 Golden Rules” for Patenting:
 Avoid early public disclosure. File first, then disclose.
 Do not publish interim results or speculate on broader applications of a discovery.

 Do research on the commercial market and technical novelty of an invention before

filing a patent application.
 Consider the possibilities to license or develop an invention before filing.
 If you cannot protect the patent from infringement, don’t file.
 File locally first. Drop international applications if there is no interest in

development in a reasonable time.
 If you cannot prove the concept of a new invention in a reasonable time, drop the
application.
 Periodically clean out your patent portfolio if you are a research institute. Do not
pay for non-productive patents.
3.6 Diffusion and Mechanisms of Technology Transfer

Techniques in Technology Transfer
 Foreign Direct Investment: Through this technique organization transfer its technology to
target nation through its subsidiary i.e. by investing themselves for example Toyota Motors
brought in its technology of invisible mirror through its subsidiaries in various countries.
 Licensing: License is provided for the use of technology to the user Under which only a
license holder can use the technology for example software like operating systems of
Windows or Linux etc. comes with specific code and identity of the system through which
they can be used on authorized system only by the authorized user of that system.
 Franchising: It is quite similar to licensing where organization set up there franchises and
transfer their technology to the franchisee. The franchisee operates on behalf of the
organization under this the company have direct control, the franchisee only carry the name
and trademark for example KFC, McDonalds, Peter England, Monginis, Nescafe etc
 Management Contracts: Here technology is transferred under certain terms and conditions
or by establishing projects for host and training there personnel to operate it and transfer the
control to hosts.
 Contract Manufacturing: It refers to transfer of technology to the user and get the product
manufactured from user themselves.

 Joint Venture: Technology is transferred to joint venture partner and technology is

provided to host nation through a partner from host nation.
3.7 Intellectual Property Rights and the Appropriateness of Technology
Appropriate Technology:
Appropriate technology is the appropriate selection of a device or solution to a problem based on

the individual needs of an area, or a population; which generally utilizes simple and user friendly
products and or systems.
 Simple: technology that is simple in using and effectively achieves the desired results.
 Environment friendly: Technology that support the environment by avoiding all possible
activities that could cause harm to nature.
 Non-Violent / sustainable (no damage to the environment)
 Renewable Sources of Energy

 Create Job opportunities
 Created locally
 Use Local skills
 Use local materials
 Low Cost
Problems in Technology Transfer:
 Costly: Investment in technology higher than the level of attained profits. Cast paid for
royalty and interest is higher than that of inflow.
 Appropriateness: Technology in many cases is not suitable with the socio economic
priorities and conditions
 Dependence: Technological dependence has to increase in import of modern sophisticated
technology that has displaced indigenous technology. The new product and processes
introduced by multinational into developing countries discouraged the self dependence on
technology

 Obsolescence: Import of outdated technology thus the importing action lag behind, the
owners of modern technology view developing nations as a mean to salvage technology that
is obsolescent in advanced country if when they posses advanced technology.

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1 [HARAMAYA INSTITUTE OF TECHNOLOGY] [2021]

THE ENTREPRENEUR AND THE ENTREPRENEURIAL VENTURE

Main objectives of the chapter

 To define what entrepreneur and its characteristics.

 To define entrepreneurship and its main features.

 To distinguish between entrepreneur and entrepreneurship.

 To identify the conceptual framework/model of entrepreneurship and its contribution to the

1.2 Entrepreneurs and entrepreneurship

Mechanical Engineering Department By-Yared W.

1.3 Innovative Vs Adaptive Entrepreneur

Mechanical Engineering Department By-Yared W.

A common stereotype of the entrepreneur emphasizes such characteristics:

1. Need for achievement:

 Harvard psychologist McClelland discovered a positive correlation between the

Mechanical Engineering Department By-Yared W.

 Innovation activity is a hallmark of entrepreneurship, but not necessarily of the

2. Improvement in per capital income:

4. Balanced regional development:

5. Improvement in living standards:

7. Backward and forward linkage:

10. Imitating role

Mechanical Engineering Department By-Yared W.

Success Factors of Entrepreneurs

4. Business Ideology: from an entrepreneur’s perspective, every venture has an ideology or

The Concept of Entrepreneurship:

Mechanical Engineering Department By-Yared W.

 Fundamentally, entrepreneurship is a human creative act. It involves finding personal energy

Nature and Characteristics of entrepreneurship:

The distinctive features of entrepreneurship are summarized as below:

1. Innovative functions: Entrepreneurship is an innovative function as it involves doing things

2. Function of risk bearing: Risk is an inherent and inseparable element of entrepreneurship.

3. A function of high achievement

4. Economic activity: Entrepreneurship is primarily an economic function because it involves

Mechanical Engineering Department By-Yared W.

6. An organizing function: An entrepreneur brings together various factors of production. He

Role of Entrepreneurship in Society and Economic Development:

 Entrepreneurship plays a vital role in economic development. Entrepreneurs serve as the

 Investment in Productive Assets- A business needs capital investments to create productive

Mechanical Engineering Department By-Yared W.

Deadly Mistakes of Entrepreneurship:

1.2 The entrepreneur as an Individual, Creativity and Innovation

Innovation = Invention + Commercialization

The innovation process

“Management of the process is crucial “

Mechanical Engineering Department By-Yared W.

 taking the initiative

 being highly competitive

 Knowledge consists of a set or body of information stored, which may be recalled at an

Mechanical Engineering Department By-Yared W.

 An inventor creates something new.

 Reap impressive profits

 Feeling of freedom and independence

 Providing jobs and benefits to others (investors, suppliers, bankers,

 Always concerned about the business

 Needs high energy

 Sacrifices other important aspects of life

 Limited social life

 Not much time with family and friends

 Risk of losing your entire investment

 Lower quality of life until the business gets established

Mechanical Engineering Department By-Yared W.

Entrepreneurs discover an entrepreneurial opportunity when they find a compelling solution to

Types of Business Planning: