Maharaja Surajmal Institute

(Affiliated to GGSIPU, Delhi)

Course: Bachelor of Business Administration

Subject Module
on
Entrepreneurship Development (BBA)
(The study material of this subject has been compiled from various online sources/
websites/books/articles and is only meant for reference purpose for students only and is not
meant for any kind of commercial activity.)

V semester Credit: 4

Module compiled by:

Prof. Jagbir Ahlawat
Dr. Monika Tushir
Dr. Parul Deshwal
Dr. Anshu Lochab

July, 2021

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 GURU GOBIND SINGH INDRAPRASTHA UNIVERSITY, DELHI
BACHELOR OF BUSINESS ADMINISTRATION (BBA)

BBA-307 Entrepreneurship Development

L-4 T-0 Credits —4 External Marks: 75

Objective: It provides exposure to the students to the entrepreneurial cultural and industrial
growth so as to prepare them to set up and manage their own small units.
Course Contents
Unit I (14 Hours)
Introduction: The Entrepreneur: Definition, Emergence of Entrepreneurial Class; Theories
of Entrepreneurship.
Unit II (14 Hours)
Promotion of a Venture: Opportunity Analysis; External Environmental Analysis
Economic, Social and Technological; Competitive factors; Legal requirements of
establishment of a new unit and Raising of Funds; Venture Capital Sources and
Documentation Required, Forms of Ownership.
Unit III
Entrepreneurial Behaviour: Innovation and Entrepreneur; Entrepreneurial Psycho-
theories, Social responsibility.
Entrepreneurial Development Programmes (EDP): EDP, Their Role,
Achievements; Role of Government in Organizing EDP's Critical Evaluation.
(14 Hours) Behaviour and Relevance

Unit IV (14 Hours)

Role of Entrepreneur: Role of an Entrepreneur in Economic Growth as an
Innovator, Generation of Employment Opportunities, Complimenting and Supplementing
Economic Growth, Bringing about Social Stability and Balanced Regional Development of
Industries: Role in Export Promotion and Import Substitution, Forex Earnings.

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 CONTENTS

Unit Unit Name Page

No. Number
I Chapter 1:Entrepreneur: meaning and importance 4-16
Chapter 2: Theories of Entrepreneurs 17-29

II Chapter 3: Entrepreneurial Environmental Analysis 30-40

Chapter 4: Venture Capital 41-51

III Chapter 5: Innovation and Entrepreneur 52-88

IV Chapter 6: Entrepreneurial Development Programme 89-92

Chapter 7: Role of Entrepreneur in the economic 93-119
growth

Suggested Readings:
th
1. Charantimath, (8 Ed.,2014), Entrepreneurship
Development and Small Business Enterprise,
Education.
n
2. Bamford C.E. (I Ed. 2015), Entrepreneurship: A
Small Business Approach, McGraw Hill Ed
3. Balaraju, Theduri, (2012), Entrepreneurship
Development: An Analytical Study, Akansha P
House.
4. David, Otes, (2014), A Guide to Entrepreneurship,
Jaico Books Publishing House, Delhi.
5. Kaulgud, Aruna, (2012), Entrepreneurship
Management, Vikas Publishing House, Delhi.
6. Chhabra, T.N. (2014), Entrepreneurship
Development, Sun India.

3
 Unit 1
Chapter: 1
ENTREPRENEUR: MEANING AND IMPORTANCE

Entrepreneur: Meaning and Characteristics:

The word ‘Entrepreneur’ is derived from the French word “Entreprendre” means, “to undertake.”
There are two popular beliefs about who the person was who used the term entrepreneur in
economics .It is believed that the word “Entrepreneur” was first used by the Irish banker
operating in Franco Ricardo Cantillon. Another belief is that the French economist J. B. Say
(1824) was first used the word entrepreneur in economics. It is derived from the French word
“Entreprendre” means, “to undertake”.
Oxford English dictionary has adopted this word in 1897 and meant as “director or manager of a
public musical institution”. The term goes through evolutionary changes of meaning. Till now,
there is no consensual concept of entrepreneurs. In the early 16th century, it was applied to those
who were engaged in military expeditions. It was extended to cover civil engineering activities
Such as construction and fortification in the 17th century. It was only at the beginning of the 18th
century that the word was used to refer to economic aspects. In this way, the evolution of the
concept of an entrepreneur is considered over more than four centuries. Since then, the term
‘entrepreneur’ is used in various ways and various views. These views are broadly classified
into three groups, namely, risk-bearer, organizer and innovator.
Entrepreneur as a Risk-Bearer
Richard Cantillon, an Irish man living in France, was the first who introduced the term
‘entrepreneur’ and his unique risk-bearing function in economics in the early 18th century.
He defined an entrepreneur as an agent who buys factors of production at certain prices to
combine them into a product to sell it at uncertain prices in the future. He illustrated a farmer
who pays out contractual incomes which are certain to the landlords and laborers and sells at
prices that are ‘uncertain’. He further states that so do merchants also who make certain
payments in expectation of uncertain receipts.
Thus, they too are ‘risk-bearing’ agents of production. Knight also described an entrepreneur to
be a specialized group of persons- who bear uncertainty. Uncertainty is defined as a risk that
cannot be insured against and is incalculable. He, thus, distinguishes between ordinary risk and
uncertainty. A risk can be reduced through the insurance principle, where the distribution of the
outcome in a group of instances is known. On the contrary, uncertainty is the risk that cannot be
calculated. The entrepreneur, according to Knight, is the economic functionary who undertakes
such responsibility of uncertainty which by its very nature cannot be insured, nor capitalized nor
salaried too.
Entrepreneur as Organizer
Jean-Baptiste Say, an aristocratic industrialist, with his unpleasant practical experiences
developed the concept of entrepreneur a little further which survived for almost two centuries.
According to him, an entrepreneur combines the land of one, the labor of another and the capital
of yet another, and, thus, produces a product. By selling the product in the market, he pays
interest oh capital, rent on land and wages to laborers and what remains is his/her profit. Thus,
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 Say has made a clear distinction between the role of the capitalist as a financer and the
entrepreneur as an organizer. He further elaborates that in the course of undertaking several
complex operations like obstacles to be surmounted, anxieties to be suppressed, misfortunes to
be repaired and expedients to be devised, three more implicit factors are deemed to be essential.
These are:
1. Moral qualities for work judgment, perseverance and a piece of knowledge about the
business world.
2. Command over enough capital, and
3. Uncertainty of profits.
Marshall also advocated the significance of organization among the services of a special class of
business undertakers.

Entrepreneur as an Innovator
Joseph A, Schumpeter, for the first time in 1934, assigned a crucial role of ‘innovation’ to the
entrepreneur in his magnum opus ‘Theory of Economic Development’. Schumpeter considered
economic development as a discrete dynamic change brought by an entrepreneur by instituting
new combinations of production, i.e., innovations. The introduction of a new combination of
factors of production, according to him, may occur in any one of the following five forms:
1. The introduction of a new product on the market.
2. The instituting of a new production technology which is not yet tested by experience in
the branch of manufacture concerned.
3. The opening of a new market into which the specific product has not previously entered.
4. The discovery of a new source of supply of raw material.
5. The carrying out of the new form of organization of any industry by creating a monopoly
position or the breaking up of it.
Schumpeter also made a distinction between an inventor and an innovator. An inventor is one
who discovers new methods and new materials. And, an innovator utilizes inventions and
discoveries to make new combinations.

Experts in the field of economics, business and sociology have defined entrepreneurs from
various points of view.
What is an Entrepreneur?
Adam Smith (1776) considers entrepreneur as a proprietary capitalist who supplies capital and
works as a manager intervening between labor and the consumer.
Francis A. Walker (1870) calls the entrepreneurs as engineers of progress and the chief agents of
production.
F. H. Knight (1921) propounds that entrepreneurs are a specialized group of persons who bear
risks and deal with uncertainty.
J-A. Mill (1848) advocates for using the word entrepreneur in the sense of an organizer who is
paid for his non-manual type of work.
J.B. Say (1824) defines an s entrepreneur as “an economic agent who assembles factors of
production, sees the price of produce in such a way that ensures the cost and profit, re-
accumulates capital and possesses administrative and productive knowledge.”
“Entrepreneur is a person who accepts challenges, gives emphasis on production for
development, exercises vigilance about success and failure at the time of taking standard risks
and considers, carefully and significant stove conditions before arriving at any decision.”
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 The concept has taken us to the idea of efforts and ventures that contribute to the advent of facial
progress leading to human welfare; it constructs upon physical activities involved with the
generation of products as writ as the psychological aspect associated with entrepreneurial
success.

Characteristics of an Entrepreneur
An entrepreneur is a person who is action-oriented and highly motivated to take a risk and to
achieve such a goal dot brings about a change in the process of generating goods or services or
re-initiates progress in the advent of creating new organizations.
Therefore, experts have nine characteristics for the entrepreneur from different conceptual
viewpoints.
1. Entrepreneur is an agent.
2. Entrepreneur is a risk-taker.
3. Entrepreneur is a profit maker.
4. Entrepreneur is an achievement motivator.
5. Entrepreneur is a capital provider.
6. Entrepreneur is the determinant of the nature of the business.
7. Entrepreneur is an innovator.
8. Entrepreneur is a reward receiver.
9. Entrepreneur is a challenge taker.
The characteristics that encompass the concept of the entrepreneur are discussed below:
1. Entrepreneur is an agent
An entrepreneur is perceived as an economic agent who assembles materials for producing goods
at a cost that ensures profits and re-accumulation of capital.
He is also understood as a change agent who brings about changes in the structure and formation
of the organization, market and the arena of goods and services.
2. Entrepreneur is a risk-taker
Many experts – old and new, have emphasized this characteristic. Back I955, Redlich pointed
out that an entrepreneur is a person who identifies the nature of risk and takes a decision.
Later on, Burch, Meredith and other experts have agreed that an entrepreneur is a risk-taker
while undertaking a venture.
3. Entrepreneur is a profit maker
An entrepreneur is an individual who establishes and manages the business for the principal
purpose of profit and growth.
4. Entrepreneur is an achievement motivator
David C. McClelland has initiated this concept of the entrepreneur by calling him “as per sun
with a strong desire for achievement.”
Later on, Meredith and others have expressed the same concept while they termed “entrepreneurs
are action-oriented, highly’ motivated individuals.”
Therefore, entrepreneurs have to have a deep-rooted need for achieving their goals.
5. Entrepreneur is a capital provider
Entrepreneur a person who operates a business by investing his or her capital. Abbett first
pointed out this characteristic in 1967.
It supported by Nadkami (l97S) and Sharma (1981). They perceived entrepreneur as the founder
of an enterprise who assembles necessary resources for the operation of the enterprise.

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6. Entrepreneur is the determinant of the nature of the business
This characteristic /concept of the entrepreneur was promoted by Evans in 1957 It says that an
entrepreneur is the person or group of persons who perform the task of determining the kind of
business to the operated.
Therefore, entrepreneurs promote diversified and distinct types of business in society.
7. Entrepreneur is an innovator
Joseph A. Schumpeter {1934) characterized entrepreneur as an innovator of a new combination
in the field of production Later on Robinson (1962) and Hagen (1962) have described
entrepreneurs as a person who lakes a small venture to the edge of success by his efforts,
innovation and motivation. Innovation is perceived by Schumpeter as an action that introduces a
product, a new quality, a new method of production, a new market and a new organization.
Therefore, an entrepreneur innovates something that brings about disequilibria in the industry.
8. Entrepreneur is a reward receiver
An entrepreneur is a person who creates something new of value by devoting time and efforts
and in tum receives monetary and personal rewards. Max Weber, Hartman, Hisrich and Peters
have recognized this distinct phenomenon of entrepreneurs.
9. Entrepreneur is a challenge taker
It perceives an entrepreneur as a person who accepts challenges for developing and exercising
vigilance about success and failure to take a risk and to generate products.
The above-mentioned characterizes an entrepreneur show’ that an entrepreneur is a dynamic
person who promotes society and civilization by taking ventures that give an enormous variety of
goods and organizations to bring about changes in the arena of industrial activity.

Types of Entrepreneurs
There is a long list of entrepreneurs in our civilization who were instrumental in introducing new
methods, products, new markets, and new forms of industrial organization. Entrepreneurs take
various initiatives with various motives that direct them to various functional areas.

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 Nature Basis Entrepreneurs Classification
Nature denotes here the human characteristics that act as a prime motivator for taking
entrepreneurial ventures. On this basis entrepreneurs are classified into two groups;
i. Individual entrepreneur: Person is the pioneer of entrepreneurship in the history of
human civilization. When a single person undertakes an entrepreneurial venture then it is termed
as an individual entrepreneur.
ii. Institutional entrepreneur: Institutions are-groups of persons with a common goal.
When an institution undertakes entrepreneurial ventures then it is called an institutional
entrepreneur.
Both of the above categories; individual and institutional are further classified into various types
of their motivational force.
1. Technical Entrepreneur
The entrepreneur that utilities a modified form of existing technology for producing a good or
rendering service is known as a technology entrepreneur.
The person familiar to a particular technology may see some of the prospective changes, which
will make cost-effective output. This generates/ promotes technical entrepreneurs.
These entrepreneurs may enter the business to commercially exploit their inventions and
discoveries.
Their main asset is technical expertise.
They raise the necessary capital and employ experts in financial, legal, marketing and other areas
of business. Their success depends upon how fast they start production and on the acceptance of
their products in the market.
2. Innovative Entrepreneur
An innovative entrepreneur is a person who discovers new use of the old product through adding
new utilities; innovation denotes new techniques of work, new market, a new source of
materials, new management style or system, a new strategy or a new opportunity in the present
or future environment.
Therefore, the person who takes the initiative to do existing activities in a new way that has value
to customers is called an innovative entrepreneur.
3. Drone Entrepreneur
Drone entrepreneurs are those persons who can immediately transfer an opportunity into a viable
project. The environment is an ever-changing phenomenon.
Any change in any variable of an environment may bring about a profitable opportunity for
initiating some activity of entrepreneurship.
A wise and prudent entrepreneur may grasp the visible change and its potentiality and initiates a
venture of enormous prosperity. Therefore, they are known as drones or opportunist
entrepreneurs.
4. Imitative Entrepreneurs
Imitation is the art of creating a product similar to another product already in (he market. A
person who adopts this technique is an imitative or adoptive entrepreneur.
Franchising is a popular way to imitate a product. Imitative entrepreneurs are most suitable for
under-developed nations because in these nations people prefer lo imitate the technology,
knowledge, and skills already available in more advanced countries.
5. Fabian Entrepreneurs
Fabian entrepreneurs are very cautious and skeptical while practicing any change. They are shy
and lazy. Their dealing is determined by custom, religion and past practices.
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 Fabian entrepreneurs do not have much interest in taking a risk and try to follow the footsteps of
the predecessors. When they are clear that the chance of failure does not exist and there is no
possibility of loss in a particular- venture from the experience of others in the market, then they
take the venture initiatives.
6. Forced Entrepreneurs
The entrepreneurs who are forced to be so by the competing environment are known as forced
entrepreneurs. The fall of a business may force a person to initiate a new venture.
Gender Basis Entrepreneurs Classification
Entrepreneurs are classified based on the natural division of human and therefore, there are two
sections of entrepreneurs on the criteria of gender. They are male and female entrepreneurs.
Historically, male entrepreneurs are the dominant entrepreneurial class in our civilization.
Place Basis Entrepreneurs Classification
The place of entrepreneurial activity is the basis of classifying entrepreneurs into two categories,
such as rural and urban entrepreneurs. Urban entrepreneurs are the persons who initiate their
venture in the urban area of a country. They are large in number in all the countries of the world.
The balanced growth of the economy requires rural entrepreneurs too. Rural entrepreneurs take
their initiatives in rural areas of the country. They use indigenous resources, which enhance the
use of local natural resources and enhance the local standard of living.

Size Basis Entrepreneurs Classification

The size of an entrepreneurial project is taken as a basis for categorizing entrepreneurs into two
classes.
They are;
1. Small scale entrepreneur: Small-scale entrepreneurs are those who have small capital or
investment, as well as small production capacity, number of employment and a small area of the
market, it denotes the limited operation of a business.
2. Large scale entrepreneurs: Large-scale entrepreneurs are those persons or groups of
persons who initiate a venture with a large-scale production capacity. They address large
aggregate demand and involve with huge investment in production technology. They are small in
number in all the countries of the world.
Generation Basis Entrepreneurs Classification
Entrepreneurs are classified in the context of generation loo. The enormous types of new
ventures initiate this classification.
1. New generation entrepreneurs: New generation entrepreneurs arc those who utilize
technology or idea in their new version. Cybercafe, fast-food shop, virtual universities are a few
of the examples of new generation entrepreneurial projects.
2. Old generation entrepreneurs: Old generation entrepreneurs arc those who do not like
change. They normally take the initiation of old styled projects. They are hesitant lo hew
technology but fond of familiar or traditional and prevailing technology.
Conclusion: Difference

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Though the term entrepreneur is often used interchangeably with entrepreneurship, yet
they are conceptually different.
The relationship between the two is just like the two sides of the same coin as depicted in the
following;
Entrepreneur Entrepreneurship

Person Process

Organizer Organization

Innovator Innovation

Risk-bearer Risk-bearing

Motivator Motivation

Creator Creation

Visualizer Vision

Leader Leadership

Imitator Imitation

An entrepreneur is perceived as a person or a group of persons who holds multiple mental

strengths and takes manifold efforts to generate and to make a venture successful.
In sum, the concept of the entrepreneur is intimately associated with the 3 elements; risk-bearing,
organizing and innovating. Thus, an entrepreneur can be defined as a person who tries to create
something new, organizes production and undertakes risks and handles economic uncertainty
involved in the enterprise.

The Emergence of Entrepreneurial Class in India

Ancient India was known across the world for its affluence and wealth. Traders from all over the
world travelled to India to take part in this affluence. Be it the Mughals, the Portuguese, the Turks
or the British – all of them ventured into Indian boundaries for various financial reasons. While
over a long period of time, the entrepreneurial drive among Indians was notably absent, modern
India has risen up to the task again. Even those who have little or no entrepreneurial experience
are choosing to take part in an entrepreneurship management course to gain theoretical knowledge
as well as practical experience before starting their entrepreneurial journey.
It is notable how Indian entrepreneurship is seeing a rise these days. The country stands third in
the list of countries with the fastest-growing list of start-ups. The first two countries are the USA
and the UK. The digitization of India has led to an ever-increasing interest in the online market.

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 Both urban and rural India are seeing a boom in the way internet-based apps and products are
interacting with the people.

Factors Leading to Increase in Entrepreneurship

1. Encouraging schemes by the government authorities
Government of India is also encouraging the interest in entrepreneurship. It has launched a ‘start-
up India’ campaign that provides support to entrepreneurial initiatives. Schemes have been floated
to promote world-class innovation hubs and self-employment opportunities for the youngsters.
The focus is especially high in technology-driven areas. The government of India realises the
potential that entrepreneurship holds in giving a boost to the economy and uplifting the financial
status of the people of the country. Such faith in entrepreneurship from the highest body in India
leads to the development of interest in this field among the youth of the country.
2. The Rise of Technology
Technology has led to India becoming a software power. It has the second-highest number of
internet users in the world. In addition to this, the uncertainty regarding jobs is fuelling people’s
interest in having their own business. Industries are in constant need for innovation to move
forward and start-ups are coming up in fields like artificial intelligence and machine learning to
help businesses solve their inherent issues or to bring in more efficiency.
3. Female Entrepreneurs
The entrepreneurial wave is also being driven by women entrepreneurs who are carving a niche
for themselves. Start-ups like Zivame, Kaaryah, YourStory and POPxo have become successful
ventures. Led by women founders, they are answering the market needs in their respective
segments.

Challenges for Indian Entrepreneurs

1. Raising Funds for the Business
The challenge for any start-up lies in raising funds for the business. To do so, they need to have a
dependable business plan and a strategy on how they want to enter the market. Start-ups get funds
from venture capitalists once they have convinced them about the venture’s potential for success.
2. Knowledge on How to Run a Business
As simple as it may seem, any venture needs to have a good plan, to begin with. Various business
schools have started entrepreneurship courses to answer the requirements of interested students
who seek to become an entrepreneur. These courses help the students get their expectations right
and prepare themselves for a career in entrepreneurship.
3. Keeping Up with Technology
This point is important for start-ups in the technology sector. It is important for them to keep track
of the latest technology and stay ahead of the curve. These days, technological innovations are
happening every day leading to technology getting obsolete quickly. They need to keep on
improving their products and give new and innovative products to their customers. Innovations
need to be useful for customers. They need to have good research backing their product launches.
If the product does not answer any need gap in the market, then it will not be successful in the
market even if there is cutting edge technology behind it.
4. Quality of Human Resources
Any business’ success is dependent on the people who work for it. It is critical to have the right
mix of people. These people should be trained for their job profiles. For example, a marketing
manager should understand the industry and its customers and accordingly plan marketing
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campaigns. They should also have practical experience in performing their jobs properly.
Additionally, they should have the right attitude and keen interest in doing their work to the best
of their abilities.
Entrepreneurship thrives in a conducive environment that facilitates the growth of a business. It is
crucial for a booming economy to have entrepreneurs since they do not seek jobs but are the job
creators for the rest of the people. With the right support, India’s entrepreneurship story can lead
to its economic growth as well as the prosperity of its people.

Importance of Entrepreneurship:
 Creation of Employment- Entrepreneurship generates employment. It provides an entry-
level job, required for gaining experience and training for unskilled workers.
 Innovation- It is the hub of innovation that provides new product ventures, market,
technology, and quality of goods, etc., and increase the standard of living of the people.
 Impact on Society and Community Development- A society becomes greater if the
employment base is large and diversified. It changes society and promotes facilities like
higher expenditure on education, better sanitation, fewer slums, a higher level of
homeownership. Therefore, entrepreneurship assists the organization in a more stable and
high quality of community life.
 Increase Standard of Living- Entrepreneurship helps to improve the standard of living
of a person by increasing the income. The standard of living means, increase in the
number of consumption of various goods and services by a household for a particular
period.
 Supports research and development- New products and services need to be researched
and tested before launching in the market. Therefore, an entrepreneur also dispenses
finance for research and development with research institutions and universities. This
promotes research, general construction, and development in the economy

Differences between Entrepreneurship and Intrapreneurship

Points of difference Intrapreneurship Entrepreneurship

Definition Intrapreneurship is the Entrepreneurship is the

entrepreneurship within an dynamic process of creating
existing organization. incremental wealth.

Core objective To increase the competitive To innovate something new of

strength and market socio-economic value.
sustainability of the
organization.

Primary motives Enhance the rewarding Innovation, financial gain tad

capacity of the organization independence.
and autonomy.

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Activity Direct participation, which is Direct and total participation
more than a delegation of in the process of innovation. _
authority.

Risk Hears moderate risk. Bears all types of risk.

Status Organizational employees The free and sovereign person

expecting freedom at work. doesn’t bother with status.

Failure and Keep risky projects secret Recognizes mistakes and

mistakes unless it is prepared due to high failures to take new innovative
concern for failure and efforts.
mistakes.

Decisions Collaborative decisions to Independent decisions to

execute dreams. execute dreams.

Whom serves Organization and intrapreneur Customers and entrepreneur

himself. himself.

Family heritage May not have or a little Professional or small business

professional post. family heritage.

Relationship with Authority structure delineates A basic relationship based on

others the relation. interaction and negotiation.

Time orientation Self-imposed or There is no time-bound.

organizationally stipulated time
limits.

The focus of on Technology and market. Increasing sales and sustaining

attention competition.

Attitude towards Follows self-style beyond the Adaptive self-style

destiny given structure. considering Structure as
inhabitants.

Attitude towards Strong self-confidence and Strong commitment to self-

destiny hope for achieving goals. initiated efforts and goals.

Operation Operates from inside the Operates from outside the

organization. organization.

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Difference between Entrepreneurs and Managers
Area of Entrepreneurs Manager
operation

Motive To start a venture of difference to To render effective and efficient

provide with distinct qualitative goods service in a created venture of the
or services to the economy. entrepreneur to run the venture
successfully.

Status Owner of the venture or the holder of Servant of the venture organization
the patented goods or service. who is a salaried person and not
independent of his employer, the
entrepreneur.

Risk-taking Assumes all types of risks. He is not a It doesn’t take any risk.
gambler but he faces uncertainty and He is responsible for systematic risks
lakes both systematic and but not for any uncertainty involved in
unsystematic risks. running the enterprise.

Reward The profit is uncertain. Independence Salary, that is certain.

and psychic satisfaction.

Innovation Innovate new ventures with the vision Executes innovation developed by the
and values of the entrepreneur to meet entrepreneur. Managers translate the
the changing needs of the market and entrepreneur’s ideas into practice.
the organization with a new,
differentiated, modified and effective
way.

Qualification A set of entrepreneurial qualities. A set of managerial qualities.

Thinking Abstract, creative and imaginative. Concrete, absolute and organizational.

Entrepreneurs have a high tolerance Managers have a low tolerance for
for ambiguity and uncertainty. ambiguity and seek.

Responses to Do not submit to any authority and Identify themselves in a positive

authority accept organizational roles that have constructive way with authority
driven them to become entrepreneurs. figures using them as role models.
They are a misfit for the given
authority rather they enact their
authority to obey and execute in their
ventures.
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Orientation Self-oriented, action-oriented, highly Power-oriented while work along with
motivated for achievement. others.
Comparison of Managers, Intrapreneurs and Entrepreneurs
To understand more about managers, intrapreneurs, and entrepreneurs; we have to compare them
in their activities and roles.
Features Managers Entrepreneurs Intrapreneurs

Primary Promotion and other Independence, Independence and

Motive traditional corporate opportunity to create, ability to advance with
rewards, such as office, and money the corporate rewards
staff, and power.

Time Short-term-meeting Survival and achieving Between

orientation quota and budgets; 5-to 10- years growth entrepreneurial and
weekly, monthly, of a business traditional managers,
quarterly, and the depending on urgency
annual planning to meet the self-
horizon. imposed and corporate
timetable.

Activity Delegates and Direct Involvement. Direct involvement

supervises more than more than delegation.
direct involvement.

Risk Careful Moderate risk-takers Moderate risk taker

Status Concerned with status No concern with status Not concerned with
symbols. symbols. traditional status
symbols- desires
independence.

Failure and Tries to avoid mistakes Deals with mistakes Attempts to hide risky
Mistakes and surprises and failures projects from view
until ready

Decisions Usually agrees with Follows dream with Able to get others to
those in upper decisions. agree to help achieve a
management positions. dream.

Who serves Others Self and customers Self, customers, and

sponsors

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Family Family members Entrepreneurial small Entrepreneurial small-
history worked for large business, professional, business, professional.
organizations. or farm background or firm background

Relationship hierarchy as a basic Transactions and deal- Transactions within

with others relationship making as the basic hierarchy
relationship

References:
This unit has been compiled with the help of various references from
different sources/websites for reference purpose only.

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 Chapter: 2
Theories of Entrepreneurship

1. Schumpeter’s Theory of Innovation:

Joseph Schumpeter propounded the well-known innovative theory of entrepreneurship.
Schumpeter takes the case of a capitalist closed economy which is in stationary equilibrium. He
believed that entrepreneurs disturb the stationary circular flow of the economy by introducing an
innovation and takes the economy to a new level of development. The activities of the
entrepreneurs represent a situation of disequilibrium as their activities break the routine circular
flow.Innovations of entrepreneurs are responsible for the rapid economic development of any
country.Talking about innovation, he referred to new combinations of the factors of production,
Schumpeter had assigned the role of innovator to the entrepreneur, who is not a man of ordinary
managerial ability, but one who introduces something entirely new.
Innovation could involve any of the following:
1. Innovation of new products.
2. Innovation in novel methods or processes of production.
3. The opening up of a new market.
4. Entrepreneurs might find new source of supply of raw materials
5. Innovation in management. This means reorganization of an industry.
Let us try to understand the meaning of different facets of the term innovation.
The introduction of new product means the product which the consumers have not seen and is of
a new and better quality and utility. A new method of production refers to a novel process not yet
been used in manufacturing and commercial production. This may increase the productivity and
lower cost of production.
The discovery of a new market means a new market which may have existed before but was not
entered by the enterprise for commercial purposes. A new source of raw material similarly refers
to a source or a place which has not been commercially exploited by the enterprises before.
Innovation in management refers to reorganization and reconciliation of the position of the
enterprise in the industry by building a monopoly like control or dismantling existing monopoly
of others in the industry. Schumpeter was very explicit about the economic function of the
entrepreneur, whom he considered as the prime mover in economic development and the
entrepreneur’s task is to innovate or carry out new combinations.
Schumpeter had differentiated between invention and innovation. We should understand that
invention refers to creation of new materials and innovation refers to application of new
materials into practical use in industry. Similarly, there is a distinction between an innovator and
an inventor. The inventor is the one who invents new materials and new methods. On the other
hand, the innovator is the one who utilizes these inventions and discoveries in order to make new
combinations.Bringing about innovations is the main task of the entrepreneur and not the
maintenance of the enterprise. Entrepreneurs dream and have a willingness to establish a private
kingdom. They enjoy creating and getting things done. These “innovating entrepreneur” has
played an important role in the rise of modem capitalism.
Criticisms:
Schumpeter’s theory has been subjected to the following criticisms:
1. Critics feel that the theory over emphasized on innovative functions of the entrepreneur.
It ignored the organizing aspects of entrepreneurship.

17
2. Schumpeter had completely ignored the risk-taking function of the entrepreneur, which
cannot be ignored. Whenever an entrepreneur develops a new combination of factors of
production, there is enough risk involved.
3. The theory is more applicable in developed countries only. In developing countries there
is a paucity of innovative entrepreneurs.
4. The theory does not provide the explanation as to why few countries have more
entrepreneurship talent than others.
Despite of all the above criticisms Schumpeter’s theory is considered as a landmark in the
expansion of entrepreneurship theories.

2. Max Weber’s Theory of Social Change (Emphasis on Impact of Religion):

Max Weber advocated a sociological explanation for the growth of entrepreneurship in his
theory of social change. He felt that religion had a profound influence on the growth of
entrepreneurship. The religious belief and ethical value associated with the society plays a vital
role in determining the entrepreneurial culture. Max Weber opined that the entrepreneurial
energies of a society are exogenously generated and supplied by religious believes. Some
religions profess the basic values to earn and acquire money whereas some religions put less
emphasis on it. In order to understand the gist of Max Weber’s theory we need to understand few
fundamental points of the theory.
In his theory spirit of capitalism is a fundamental concept. Capitalism refers to the economic
system where market forces of demand and supply are allowed to play freely. As economic
freedom and private enterprises are promoted in capitalism, the entrepreneurism is eulogized and
entrepreneurial pursuits are encouraged. Spirit of capitalism promotes the entrepreneurs to
engage in entrepreneurial pursuits and earn more and more profits. The urge to acquire money
and profits drives the individuals to become entrepreneurs. The spirit of capitalism will be
widespread in the society that favours capitalism. Another associated concept was that of
adventurous spirit which refers to the impulsive force that influences and promotes
entrepreneurism. Weber felt that the belief systems of Hinduism didn’t encourage
entrepreneurship. Hinduism laid less emphasis on wealth accumulation, and material life. The
Hinduism didn’t profess the spirit of capitalism and was thus an obstacle in the promotion of
entrepreneurship. Weber was of the opinion that the Protestant ethic provided the mental attitude
in a society that promotes spirit of capitalism and favours entrepreneurship.
The rate of industrial growth depends upon the values professed by the religion of the society.
The Protestants had advanced at a faster rate in establishing capitalism in Europe owing to the
value system professed by Protestant ethic. Protestant ethic granted them the rational economic
attitude, accumulating assets, and permitted them to take pleasure in the material life.
Criticisms:
Max Weber had tried and made a commendable contribution in explaining the growth of
entrepreneurship.
But, his theory has been challenged and criticized by many researchers and scholars on the
following grounds:
1. The theory is based on unrealistic and invalid assumptions.
2. The theory has been found empirically invalid.
3. Max Weber has been criticized by many sociologists on his view on Hinduism and
entrepreneurship. The rapid expansion of entrepreneurship in India in the post-independence
period disproves that Hinduism is averse to the spirit of capitalism and to adventurous spirit.
18
4. The views on Protestant ethic were also not completely correct. Capitalism has flourished
in regions where Protestant ethic is not present.
3. The Uncertainty-Bearing Theory of Knight:
Frank H. Knight (1957) in his book Risk, Uncertainty and Profit regards profit of the
entrepreneur as the reward of bearing non-insurable risks and uncertainties. Entrepreneurship is
genuinely associated with risk bearing. Knight had distinguished risk into insurable risks and
non-insurable risks.
There are certain risks that are measurable and the probability of such risk can be statistically
estimated and hence such risks can be insured. Example of insurable risks include theft of
commodities, fire in the enterprise, accidental death etc. On the other hand, there are certain risks
which cannot be calculated.The probability of their occurrence cannot be statistically
ascertained. Such risks include risks associated to changes in prices, demand and supply. These
risks are non-insurable. Prof. Knight opined that the profit is the reward for bearing the non-
insurable risks and uncertainties.Uncertainty-bearing is one of the most vital functions in a
dynamic economy. The entrepreneur bears the uncertainty involved in the enterprise. The
expectation of profit is the supply price of the entrepreneurial uncertainty bearing exercise. In a
state of economy (competitive) where there is no risk, every entrepreneur will have a minimum
supply price.
If the reward allocated to the entrepreneur is below it, the entrepreneurs will abstain from
providing their entrepreneurial services. The existence of uncertainty tends to raise the minimum
supply price. The entrepreneurs expect a level of profit for bearing the uncertainty.
The salient points of Knight’s theory include:
1. According to the theory, the entrepreneur earns pure profits for bearing the uncertainty.
2. The probability of uncertainty or non-insurable risks cannot be statistically estimated.
3. Entrepreneurs undertake risks of varying degrees according to their ability ad inclination.
The theory suggests that the more risky the nature of enterprise, the higher level of profit earned
by the entrepreneurs.
4. Profit is the reward of the entrepreneur for bearing uncertainties and risks. Hence, it
should be a part of the normal cost.
5. The reward of the entrepreneur is uncertain. Entrepreneur guarantees interest to lender of
capital, wages to workers and rent to the landlord.
6. The level of uncertainty in business can be reduced by applying the technique of
consolidation. The total level of uncertainty can be reduced by pooling individual instances.
Criticisms:
F.H. Knight’s theory is one of the most sophisticated theories to explain supply of
entrepreneurship based on profit. But, the theory suffers from certain drawbacks as pointed by
the critics.
1. The role of an entrepreneur has not been elaborately provided by the theory. The
entrepreneur’s activity has been restricted to uncertainty bearing. Modern business activities are
different. Often, there is a dichotomy between ownership and management. These factors have
not been taken into consideration.
2. The uncertainty-bearing theory discussed the concept of profit in a vague way. The exact
estimation of profit for the entrepreneur has not been provided in the theory.
3. Profit as a residual income of the entrepreneur has been criticized.

19
4. Critics feel that uncertainty-bearing should not be treated like other factors of production
like land, labour and capital. It is a psychological concept and should be treated in a different
manner.

4. Theory of Frank Young (Emphasis on Changes in Group Level Pattern):

A Micro-sociological interpretation of entrepreneurship as coined for the theory propounded by
Frank Young emphasizes that the entrepreneurial initiatives are conditioned by group level
pattern. Young rejected the psychogenic interpretations of entrepreneurship. He considered the
solidarity groups responsible for building entrepreneurship.
We shall try to understand his theory by studying the various specific elements attached to this
theory.
Frank Young opined that the entrepreneurial characteristics are observed in clusters, ethnic
groups, occupational groups and groups with political orientation. Entrepreneurism at the
individual level is the manifestation of the group level pattern. Young disapproves the notion of
an entrepreneur working individually. The entrepreneur functions as a member of a group.
The entrepreneurial initiatives and actions are the outcome of the experiences and exposures of
an individual entrepreneur as a member of a particular group, the family background of the
entrepreneur and the manifestation of the general values of the group. The economic problems
faced by the individual entrepreneurs are mitigated by the solidarity of entrepreneurial groups.
The individual entrepreneurs enjoy the confidence of their association with the solidarity groups
which help the individual entrepreneurs to overcome any sort of economic problems.
Frank Young deduced the group level pattern behaviour exhibited by the entrepreneurs on the
basis of his test known as Thematic Appreciation Test (TAT) on groups of entrepreneurs.
The Young’s theory includes the idea of reactive subgroups. These reactive sub-groups play an
important role in enterprise creation. The reactive groups crop up whenever a group experiences
low status recognition, limited or no access to social networks and have better institutional
resources as compared to other groups in the society at the same level.

5. Economic Theory of Entrepreneurship:

G.F. Papanek (1962) and J.R. Harris (1970) were of the view that economic incentive is the main
factor that influences entrepreneurial activities. Economic gains spontaneously develop the
willingness among the entrepreneurs to undertake diverse entrepreneurial initiatives. The
relationship between an individual’s inner urge and the desired economic gains has a profound
influence in the development of entrepreneurial competencies. Entrepreneurship development
and economic growth takes place whenever certain economic conditions are favourable.
6. Mark Casson Theory (Economic Theory):
Mark Casson’s theory is an original synthesis of other approaches. Mark Casson in his book ‘The
entrepreneur- An Economic Theory’, published in 1982, talks about the entrepreneur. According
to Mark Casson the Entrepreneur might be a property developer, a small businessman or just
someone who knows how to ‘turn a fast buck’. His book as expressed by Mark Casson
endeavoured to provide a balanced view on the topic of entrepreneur.
Mark Casson felt that there was no established economic theory of the entrepreneur. Except for
the discipline of Economics, all the social sciences had a definition of entrepreneur. He felt that
there were two main reasons for the non-existence of an economic theory of the entrepreneur.
These reasons were related to the limitations of the two main schools of economic thought

20
prevalent at that point of time. First reason was that the neoclassical school of economics made
extreme assumptions regarding the access to information.
The second reason was that the Austrian school of economics was committed to extreme level of
subjectivism. This made the formulation of predictive theory of the entrepreneur impossible. The
Mark Casson’s book the theoretical reconstruction proceeds on two fronts. The first is to
recognize that individuals differ not only in their tastes but in their access to information.
Individuals with similar taste but with different information may take different decisions. The
entrepreneur exhibits this phenomenon. The entrepreneur will decide in one way which would be
very different from what everyone else would decide. The entrepreneur considers that the totality
of the information available to him/her with respect to some decision is unique. The
entrepreneur’s perception of the situation has a profound influence on the allocation of resources.
The entrepreneur expects to earn profit from the difference in perception by ‘taking a position’
vis-a-vis other people. Many of the predictions of the economic theory of entrepreneurship come
from considering the tactical aspects of the strategy of the entrepreneur. The second area of
reconstruction stems from recognition of the difficulty that is inherent in organizing a market.
Mark Casson suggested that unlike neoclassical assumptions in reality transaction involves a
significant resource cost. It is important for the entrepreneur’s success that the entrepreneur
minimizes the transaction cost incurred in establishing any given volume of trade.
Mark Casson has presented his book on Entrepreneur- An economic theory in fifteen chapters.
Mark Casson had attempted to converge the two different approaches associated with the
entrepreneurship theory. The functional approach was adopted by the economists and the
indicative approach adopted by economic historians. The entrepreneur is defined as someone
who specializes in taking judgmental decisions about the coordination of scarce resources.

7. Kunkel’s Theory (Emphasis on Entrepreneurial Supply):

John H. Kunkel had built up his theory on the edifice of entrepreneurship supply. He was of the
opinion that the sociological and psychological factors influence the emergence of entrepreneurs.
Supply of entrepreneurs has a functional relationship with the social, political and economic
structure.In order to understand Kunkel’s theory, let us understand few concepts associated with
his theory.
In an economy, the supply of entrepreneurship depends on the following structures existing
in the economy:
(i) Demand Structure:
This refers to the demand situation prevailing in the economy. The entrepreneurs expect rewards
for their contributions and their behaviour is influenced by the rewards. The demand structure of
an economy can be enlarged by rewarding the entrepreneurs with material rewards for their
entrepreneurial activities.
(ii) Limitation Structure:
This structure influences the entrepreneurs and other members of a society. The society in this
structure restricts specific activities. The entrepreneurs and the other members come within the
ambit of this structure.
(iii) Opportunity Structure:
This structure is regarded as one of the most significant structure that influences the supply of
entrepreneurs in an economy. This structure includes the existing market structure, the available
managerial and technical skills, information about production techniques, supply of labour and
capital.
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 (iv) Labour Structure:
This structure relates to the availability of skilled labour willing to work. The labour structure in
influenced by number of factors like the mobility of labour, available alternatives of
employment, level of traditionalism and prevailing work culture.
In Kunkel’s theory, the conditioning procedure is a major determinant of the activities of the
individuals. The behaviour of the individuals is highly subjected to the conditioning procedure
surrounding the environment of the individuals. To influence and alter the individuals’ activities
there is a need to change certain factors of situation that influences the conditioning.
Criticisms:
Kunkel’s theory despite of great recognition is criticized on the following grounds:
1. The theory is based on unrealistic postulates.
2. The different structures that influence supply of entrepreneurship are not that simple.
3. The theory of Kunkel tried not consider the ambiguous concepts like values, personality
etc.

8. Hoselitz’s Theory (Emphasis on Marginal Groups):

Hoselitz’s theory emphasized that the cultural factors and the role of culturally marginal groups
in entrepreneurial development. In his theory, Hoselitz had highlighted the importance of the
culturally marginal groups in development of entrepreneurship and their contribution to
economic development of the economy. The marginal groups are the minorities in the society
and they yearn to elevate their conditions and in the process promote economic development.
In several countries the entrepreneurial aptitude are associated to persons of particular socio-
economic classes. The importance and contribution of the culturally marginal groups like
Lebanese in West Africa; Jews in Europe towards the economic development of those regions
reflect the gist of the theory.
Hoselitz opined that the marginal men placed in an ambiguous position and therefore they are
best suited to make creative adjustments in situations of change. They bring about genuine
adaptations in their behaviour. They become entrepreneurs and promote economic development.

9. Cochoran’s Theory:
Thomas Cochran in his theory had tried to discuss the supply of entrepreneurship from the
sociological point of view.
We can understand the crux of his theory by discussing some of the principle elements of his
theory.Cochran had suggested that the cultural values of a society, social expectations and role
expectations play an important role in determining the supply of entrepreneurs. The basic
problems associated with economic development include non-economic issues. The social
factors are responsible in determining the entrepreneurial dynamism and the supply of
entrepreneurs.
As far as the entrepreneur is concerned, Cochran opined that the entrepreneurs are not
extraordinary persons or super normal persons and they are not abnormal individuals deviant
from the society. Rather the entrepreneurs represented role models of the society. An
entrepreneur represents a society’s model personality. The entrepreneur plays an important social
role. The role played by the entrepreneur is highly influenced by the model personality that crops
up depending on the social conditioning. The role of an entrepreneur is defined by the defining
group in corporate world which include the members of board of directors and other top officials.

22
 Cochran was of the opinion that the intrinsic character and behaviour of the executive is highly
dependent and conditioned by the type of childbearing and schooling. Thus all social and cultural
factors play an important role in influencing the expectation levels, personality, behaviour of
everyone in the society and entrepreneur’s role specially.
The level of dynamics associated with entrepreneurial depends on social factors. These factors
result in major changes. The model of Cochran was built on American experience of
entrepreneurial dynamism. In the nineteenth century, American economy had experienced major
changes as a result of the dynamism exhibited by the entrepreneurs. Thomas Cochran held the
view that the factors having a profound influence on the performance of the entrepreneurs
include- First, the attitude of a person towards his/her own occupation. Second, the role
expectations conceived and expected by the sanctioning group. And third, the operational
requirements of the concerned job.

Criticisms:
Cochran’s theory despite having earned high appreciations has been criticized on the
following counts:
1. The theory doesn’t provide a satisfactory explanation of the supply of entrepreneurs in an
economy.
2. The theory concentrates only on the social factors and their impact.
3. The theory ignores the influence of important elements like risk, profit and innovation.
4. The multiple roles associated with the entrepreneur have not been focused in the theory.

10. E. E. Hagen’s Theory (Emphasis on Withdrawal of Status Respect):

Hagen in his theory had accredited the withdrawal of status respect of a group as the starting
point for entrepreneurship development process. Before we discuss the concept of withdrawal of
status respect let us try to consider the various crucial facets of the theory.
The theory is based on a general model of the society. His theory viewed the entrepreneur as a
trouble shooter who contributes to economic development. The creativity of the entrepreneur
brings about social transformation and economic development. Economic growth is associated
with the social and political changes. He didn’t encourage the entrepreneurs to imitate other’s
technology.
Hagen had ascribed the genesis of entrepreneurship to withdrawal of status respect of a group.
The social group that experiences the withdrawal of status respect engulfs itself into aggressive
entrepreneurism. In such a situation the status loosing group and the members of status loosing
group endeavour to regain their status by undertaking rigorous entrepreneurial drive.
Hagen had suggested the events that could create as well as indicate withdrawal of status respect
of a social group. First, dislodgment of a traditional elite group from its prior status, Second,
defamation of valued symbols through some change in the attitude of the superior group. Third,
Unpredictability of status symbols in the changed allocation of economic power. Fourth, when
social group doesn’t enjoy the expected status when it migrates to a new society.
There four possible reactions to the withdrawal of status respect which relates to four
different personality types:
(i) The retreatist – An individual who works in the society but is indifferent to the work and
position.
(ii) The ritualist – An individual who works in the manner accepted and approved by the society
but has no hopes of improving his/her position.
23
 (iii) The reformist – An individual who fights against the injustice and tries to rebels against the
established society in order to form a new society.
(iv) The innovator – An individual who endeavours to bring about new changes and utilizes all
opportunities. This personality reflects the personality of an entrepreneur.
Criticisms:
1. The theory lacks general application. It is not always true that all the social groups have
behaved in the manner as advocated in the theory.
2. The theory ignores the various other factors accountable for development
of entrepreneurship.

11. Leibenstein’s Theory (Emphasis on X-Efficiency):

The concept of X-efficiency was introduced by Harvey Leibenstein a noted economist in1966 in
his article titled “Allocative efficiency vs. X-efficiency”. This is also referred to as X-
inefficiency. In general X-inefficiency refers to the difference between the optimal efficient
behaviour of business in theory and the observed behaviour is practice which occurs owing to
different factors.
X-efficiency refers to the effectiveness with which a given set of inputs are used to produce
outputs. If a particular firm is producing the maximum output it can, given the resources it
employs with the best available technology, it is said to be technical-efficient. X-inefficiency
occurs when technical-efficiency is not achieved. Whenever an input is not used effectively the
difference between the actual output and the maximum output attributable to that input is a
measure of the degree of X-efficiency.Harvey Leibenstein had mentioned that for allocative
efficiency the whole economy was considered whereas in case of X-efficiency just specific
companies and industries are to be considered.X-efficiency arises either because the firm’s
resources are used in the wrong way or because they are wasted, that is, not used at all.
The entrepreneur has been entrusted two roles; first the role of a gap filler and second an input
completer. The production function usually has certain deficiencies. These deficiencies and gap
arise because all the factors of production function cannot be marketed. The entrepreneur has
been entrusted the job to fill the gaps in the market. The second role of the entrepreneur is input
completion. The entrepreneur has to mobilize all the available inputs in order to improve the
efficiency of existing production methods.
Leibenstein advocated two types of entrepreneurship. First type is the ‘Routine entrepreneurship’
which involves the important functions of management of business. Second type is that of the
‘New entrepreneurship’ which involves innovative entrepreneurship.
Criticisms:
The Leibenstein’s theory has been often compared with the neoclassical views.
The theory has many novel contributions but has been criticized on following counts:
1. The exact influence which the X-efficiency has on output of an organisation cannot be
determined.
2. The theory is less predictable as compared to normal theories.

12. M. Kirzrier’s View on Entrepreneurship:

Israel Meir Kirzner, an American economist has made remarkable contributions towards
entrepreneurship. He has contributed many books. His ideas and theory on entrepreneurship can
be understood by the going through his book ‘Competition and entrepreneurship’ published in

24
1973. There are six chapters. The second chapter is devoted to discuss the topics like nature of
entrepreneurship, the different facets of entrepreneurs, entrepreneurial profits.
We shall try to understand the basics features enshrined in his ideas.
The basis of Kirzner’s idea of entrepreneurship is spontaneous learning. The simplest situation in
which spontaneous learning can occur is a Crusoe situation. Further, Kirzner calls the state of
mind that enables spontaneous learning to occur alertness.
Kirzner introduces the notion of the pure entrepreneur by saying that there are two distinct ways
in which this notion enters the analysis of the market process: First, by means of contrast with
Robbinsian economizers, and Second, through the alertness.According to Kirzner, the pure
entrepreneur is “a market participant whose decisions are entirely incapable of being subsumed
under the category of Robbinsian economizing.” And the pure entrepreneur is “a decision-maker
whose entire role arises out of his alertness to hitherto unnoticed opportunities.”Kirzner’s notion
of entrepreneurship as equilibrating combines three ideas. The first is that subconscious learning
is equilibrating to the isolated actor. The second is that subconscious learning about arbitrage
opportunities is equilibrating in markets. The third is that subconscious learning would lead to a
general equilibrium if there were no changes in the non-entrepreneurial determinants of demand
and supply.

13. Baumol’s View on Entrepreneurship:

William J. Baumol a noted economist had made significant contributions towards the theory of
entrepreneurship. He has many articles like ‘Entrepreneurship in Economic Theory’,
‘Entrepreneurship: Productive, Unproductive, and Destructive’ to his credit that reflects his
notion on entrepreneurship.
Baumol (1968) discussed role of entrepreneur. He felt that the role of the entrepreneur is vital to
economic growth. Baumol’s approach to entrepreneurship within the economy shows that the
entrepreneur is basically nonexistent in the models of economics. He stated that the entrepreneur
has been read out of the model because the economic models are based on well-defined variables
like output and price. There is no scope for analyzing the issues related to like inventiveness,
cleverness, ambition of the entrepreneur in the models. He opined that theories won’t be able to
portray the function of entrepreneurial activity.
Again in an article Baumol laid out a simple hypothesis. He stated that the total supply of
entrepreneurs varies across the societies. Moreover, the productive contribution of the society’s
entrepreneurial activities also varies due to allocation of their activities into productive and
unproductive activities.

14. Peter Drucker’s View on Entrepreneurship:

Peter Ferinand Drucker was an Austrian born American multifaceted management consultant,
author, professor who described himself as a social ecologist. Drucker’s book Innovation and
Entrepreneurship published in 1985 is a great contribution. Peter Drucker regards the definition
of J. B. Say on entrepreneur. J.B. Say was of the opinion that the “entrepreneur shifts economic
resources out of an area of lower and into area of higher productivity and greater yield.”
Peter Drucker viewed the entrepreneur as a unique agent of change. Drucker writes that “the
entrepreneur always searches for change, responds to it, and exploits it as an opportunity.”
In his book “Innovation and Entrepreneurship”, Peter Drucker offers guidelines on how
entrepreneurs can become innovative. Drucker opined that successful innovation practices are

25
result of systematic hard work. Drucker introduces systematic innovation as a framework for
exploiting innovative opportunities.
He also considered that the entrepreneurial society is the outcome of innovative entrepreneurship
combined with government facilitation.
Drucker takes the instance of the United States of America as a successful entrepreneurial
economy. He has separately dealt with three branches- existing business, public service
institutions, and new ventures.

References:
This unit has been compiled with the help of various references from different
sources/websites for reference purpose only.

Long Questions:

1) Differentiate between Kunkel’s theory and Hoselitz theory.

2) Briefly discuss the major inputs from different theories of entrepreneurship that will serve
as examples for the entrepreneurs.
3) Define an Entrepreneur. “An entrepreneur is an innovator”. Justify this statement.
4) Explain the various types of entrepreneurs with relevant examples.
5) Differentiate between Entrepreneur, and Intrapreneur.
6) Differentiate between Entrepreneur, and Manager.
7) Explain in detail the various challenges faced by the Indian Entrepreneurs and possible
solutions.
8) Highlight the various factors that will help in the growth of entrepreneurs in detail.
9) Critically explain Schumpeter’s theory of entrepreneurship.
10) Which theory of entrepreneurship emphasis on the impact of religion. Critically explain.

MCQ

1. Which one of the following actions by an entrepreneur is most likely to contribute to creative
destruction?
A) Development of a new product
B) Take-over of a competitor
C) Issuing shares
D) Reducing prices

2. An advantage of the small firm in the innovation process?

A) Ability to carry out R&D
B) Ability to raise finance
C) Ability of the entrepreneur to carry out multiple tasks
D) Ability of the entrepreneur to act on new ideas or product development

3. External links may provide incentives to:

A) Raise finance
B) Introduce new working practices
26
C) Introduce improvements to products
D) Attend business exhibitions

4. Firms located on science parks compared to those located off science parks are:
A) More innovative
B) Less innovative
C) No more or less innovative
D) More growth orientated

5. Innovative small firms are more likely in:

A) Knowledge-based sectors
B) Biotechnology
C) Automobile manufacture
D) Aerospace manufacture

6. Schumpeter considered that innovative entrepreneurs would:

A) Thrive
B) Disappear
C) Be absorbed within large innovative firms
D) Be absorbed within non-innovative firms

7. Innovative entrepreneurs face special issues in raising:

A) Development capital
B) Structured capital
C) Human capital
D) Seed capital

8. Innovative entrepreneurs may have to pay high insurance premiums due to the:
A) The need to protect patents
B) Greater employee liability
C) Greater customer liability
D) Greater trading risks

9. Networking by innovative entrepreneurs may be most encouraged by?

A) Science parks
B) Business incubators
C) Chambers of Commerce
D) Business associations

10. The most likely problem encountered by innovative entrepreneurs in raising finance is:
A) Limited security since R&D is an intangible asset
B) The costs of the patenting system
C) The exhaustion of personal equity in R&D
D) Inability of potential external funders to understand technology

27
11. Which of the following is NOT recognized as a misconception about entrepreneurship?
A) Successful entrepreneurship needs only a great idea.
B) Entrepreneurship is easy.
C) Entrepreneurship is found only is small businesses.
D) Entrepreneurial ventures and small businesses are different.

12. All of the following are characteristics of small businesses EXCEPT:

A) Small businesses are independently owned, operated, and financed.
B) Small businesses have fewer than 100 employees.
C) Small businesses emphasize new or innovative practices.
D) Small businesses have little impact on industry.

13. Which of the following is NOT on of the three areas in which the importance of
entrepreneurship can be shown?
A) Innovation
B) Number of new start-ups
C) Job creation and employment
D) bureaucracy

14. The creation of new firms is important because these new firms contribute to economic
development through benefits that include all of the following EXCEPT:
A) Product-process innovation
B) Increased tax revenues
C) Unemployment
D) Social betterment

15. All of the following represent countries in which the highest level of entrepreneurial activity
was found EXCEPT:
A) Australia
B) Korea
C) Norway
D) Japan

16. Positive external trends or changes that provide unique and distinct possibilities for
innovating and creating value are called _____________.
A) Strengths
B) Opportunities
C) Weaknesses
D) Threats

17. An individual who has no prior business ownership experience as a business founder,
inheritor of a business, or a purchaser of a business is called a(n) ____________ entrepreneur.
A) Habitual
B) Novice
28
 C) Serial
D) Portfolio
18. An individual who has prior business ownership experience is called a(n) ____________
entrepreneur.
A) Novice
B) habitual
C) Serial
D) Portfolio

19. All of the following are popular demographic factors about entrepreneurs that have been
studied EXCEPT:
A) Self-confidence
B) Gender
C) Education
D) Family birth order

20. The three main responsibilities involved with managing an entrepreneurial venture once its
up and running include all of the following EXCEPT:
A) Managing processes
B) Managing people
C) Managing bureaucracy
D) Managing growth

Answer key

1 2 3 4 5 6 7 8 9 10
a d c c a c d a b c
11 12 13 14 15 16 17 18 19 20
d c d c d b b b a c

29
 Unit-2
Chapter: 3
Entrepreneurial environmental analysis
OPPORTUNITY ANALYSIS
It is a tool to identify and access the attractiveness of a business opportunity. It is a part of the
business planning or strategy processes wherein before undertaking a new product or service,
you analyze the market for it to determine probable profit and revenue from it. One of the most
important factors considered and analyzed in market opportunity analysis is the forecasted
demand for the product or the service.
Some important questions which one tries to answer through a market opportunity analysis are
the most profitable market segment, rate at which the opportunity is growing, competitor and gap
analysis, what are the key sustainable differentiation points etc. Through these, one tries to
answer questions on how to enter the market and what should be the key value proposition.

Five steps that can be followed to analyze market opportunity analysis

1) Identify the business environmental forces – The factors to consider while analyzing the
business environmental factors are - Economic conditions and trends, Legal and regulatory
situations and trends, Technological positioning and trends (state of the art; related R&D),
Relevant social changes and Natural environment.

2) Describe the industry and its outlook – The factors to be considered while performing
industry analysis are - Type of industry, Size -now and in 3-5 years, Types of marketing
practices, Major trends and Implications for opportunity.

3) Analyze the key competitors – The factors considered here are - Product description, Market
positioning (relative strength and weaknesses, as seen by customers), Market practices: channels,
pricing, promotion, service, Estimated market share (if relevant) and Reactions to competition

4) Create a target market profile – The factors to be considered are - Levels: generic needs,
product type, specific brands, End-user focus; also channel members, Targeted customer
profiles, Who are my potential customers , What are they like as consumers/businesspeople,
How do they decide to buy / not buy , Importance of different product attributes and What
outside influences affect buying decisions.

5) Set Sales Projections – As many formal or intuitive approaches as possible for determining
this should be used and then the results obtained should be compared and then a decision should
be taken on go or no go for the product/service in question.

ENVIRONMENTAL ANALYSIS
Environmental analysis is a strategic tool. It is a process to identify all the external and internal
elements, which can affect the organization’s performance. The analysis entails assessing the
level of threat or opportunity the factors might present. These evaluations are later translated into
the decision-making process. The analysis helps align strategies with the firm’s environment.
Our market is facing changes every day. Many new things develop over time and the whole
scenario can alter in only a few seconds. There are some factors that are beyond your control.
But, you can control a lot of these things.
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Businesses are greatly influenced by their environment. All the situational factors which
determine day to day circumstances impact firms. So, businesses must constantly analyze the
trade environment and the market.
There are many strategic analysis tools that a firm can use, but some are more common. The
most used detailed analysis of the environment is the PESTLE analysis. This is a bird’s eye view
of the business conduct. Managers and strategy builders use this analysis to find where their
market currently. It also helps foresee where the organization will be in the future

PESTLE ANALYSIS
PESTLE analysis is one of the most popular tools used in business analysis, and for good reason!
It can tell you all about the circumstances that an individual, product, or organization finds itself
in, which can help in making decisions and understanding its current (or future) position in the
market. In this article, we’ll be thoroughly exploring the humble PESTLE analysis in order to
ensure you a complete understanding of this invaluable business tool.
It is a business analysis technique which takes into account six groups of external factors that can
affect businesses. The six categories included are:
 Political factors
 Economic factors
 Sociocultural factors
 Technological factors
 Legal factors
 Environmental factors
This tool is an extension of ‘PEST’ analysis, which only looks at the first four of those factors.
You might also come across ‘PESTEL’ analysis (which is exactly the same), ‘STEEP’ analysis
(which forgoes legal factors), or ‘STEEPLE’ analysis (which further includes ethical factors).
POLITICAL FACTORS
The political factors taken into account for in PESTLE analysis are the variables which pertain to
both local and global politics, but yet still influence businesses. In PEST analysis, factors relating
to the law and legal environment are often grouped together with political factors; however, it’s
important to distinguish those as ‘legal’ factors in PESTLE analysis. Nonetheless, examples of
political factors might include:
 A country’s political system
 International relationships
 Government sanctions
 Subsidies
ECONOMIC FACTORS
In PESTLE analysis, the economic factors are ones which are connected with the general state of
the economy, goods, services and money. There are a number of different economic factors
which can affect business, including:
 Supply and demand for a certain product
 Taxes
 Interest rates
 Inflation
SOCIOCULTURAL FACTORS
The ‘S’ in PEST(LE) stands for ‘sociocultural’ factors, or sometimes just simply ‘social’ factors.
These are the factors connected with the general public and their behavior (in other words,
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society and its culture). Here are some of the social factors that might have an impact on
business:
 Consumer lifestyles
 Social classes
 Immigration and emigration
 Family size
TECHNOLOGICAL FACTORS
Technological factors are ones which “relate to the existence, availability, and development of
technology”. It’s important to remember, though, that this is not just exclusive to digital
technology, but also includes mechanical and other physical technologies. Some examples of
technological factors are:
 The development of robots
 Internet connectivity
 Security in cryptography
 Engine efficiency
LEGAL FACTORS
PESTLE analysis also accounts for the legal factors that might affect a business. These are
external factors which focus on the influence that the law may have on business operation and
customer behavior. The important distinction between legal factors and political factors is that
the latter is concerned with government intervention in society and the economy to create
growth, while the former is concerned with government intervention in society and the
economy to maintain fairness and wellbeing. Some examples of legal factors that you might
come across in a PESTLE analysis are as follows:
 Consumer law
 The legality of doing XYZ
 Fraud law
 Import/Export law
.ENVIRONMENTAL FACTORS
Environmental factors, also known as ‘ecological’ factors, refer to the variables pertaining to
the physical environment of the world we live on. A few examples are:
 Climate change
 Animal extinction
 Pollution

SWOT ANALYSIS
SWOT analysis is an acronym for strengths, weaknesses, opportunities, and threats and is a
structured planning method that evaluates those four elements of an
organization, project or business venture. A SWOT analysis can be carried out for a company,
product, place, industry, or person. It involves specifying the objective of the business venture or
project and identifying the internal and external factors that are favorable and unfavorable to
achieve that objective. Some authors credit SWOT to Albert Humphrey, who led a convention at
the Stanford Research Institute (now SRI International) in the 1960s and 1970s using data
from Fortune 500 companies. However, Humphrey himself did not claim the creation of SWOT,
and the origins remain obscure. The degree to which the internal environment of the firm
matches with the external environment is expressed by the concept of strategic fit.

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  Strengths: characteristics of the business or project that give it an advantage over
others
 Weaknesses: characteristics of the business that place the business or project at a
disadvantage relative to others
 Opportunities: elements in the environment that the business or project could exploit
to its advantage
 Threats: elements in the environment that could cause trouble for the business or
project
Identification of SWOTs is important because they can inform later steps in planning to
achieve the objective. First, decision-makers should consider whether the objective is
attainable, given the SWOTs. If the objective is not attainable, they must select a different
objective and repeat the process.
Users of SWOT analysis must ask and answer questions that generate meaningful
information for each category (strengths, weaknesses, opportunities, and threats) to make the
analysis useful and find their competitive advantage
SWOT analysis aims to identify the key internal and external factors seen as important to
achieving an objective. SWOT analysis groups key pieces of information into two main
categories:
1. Internal factors – the strengths and weaknesses internal to the organization
2. External factors – the opportunities and threats presented by the environment
external to the organization
Analysis may view the internal factors as strengths or as weaknesses depending upon their
effect on the organization's objectives. What may represent strengths with respect to one
objective may be weaknesses (distractions, competition) for another objective. The factors
may include all of the 4Ps as well as personnel, finance, manufacturing capabilities, and so
on.
The external factors may include macroeconomic matters, technological change, legislation,
and sociocultural changes, as well as changes in the marketplace or in competitive position.
The results are often presented in the form of a matrix.
SWOT analysis is just one method of categorization and has its own weaknesses. For
example, it may tend to persuade its users to compile lists rather than to think about actual
important factors in achieving objectives. It also presents the resulting lists uncritically and
without clear prioritization so that, for example, weak opportunities may appear to balance
strong threats.
It is prudent not to eliminate any candidate SWOT entry too quickly. The importance of
individual SWOTs will be revealed by the value of the strategies they generate. A SWOT
item that produces valuable strategies is important. A SWOT item that generates no
strategies is not important.
Example
A small start-up consultancy might draw up the following SWOT Analysis:
Strengths
 We are able to respond very quickly as we have no red tape, and no need for higher
management approval.
 We are able to give really good customer care, as the current small amount of work
means we have plenty of time to devote to customers.

33
  Our lead consultant has a strong reputation in the market.
 We can change direction quickly if we find that our marketing is not working.
 We have low overheads, so we can offer good value to customers.
Weaknesses
 Our company has little market presence or reputation.
 We have a small staff, with a shallow skills base in many areas.
 We are vulnerable to vital staff being sick or leaving.
 Our cash flow will be unreliable in the early stages.
Opportunities
 Our business sector is expanding, with many future opportunities for success.
 Local government wants to encourage local businesses.
 Our competitors may be slow to adopt new technologies.
Threats
 Developments in technology may change this market beyond our ability to adapt.
 A small change in the focus of a large competitor might wipe out any market position we
achieve.
As a result of their analysis, the consultancy may decide to specialize in rapid response, good
value services to local businesses and local government.
Marketing would be in selected local publications to get the greatest possible market presence for
a set advertising budget, and the consultancy should keep up-to-date

Guidelines & Procedures for Starting a New Business in India

1. Obtain PAN Number from Income Tax Department
Permanent Account Number (PAN) is a ten-digit alphanumeric number, issued in the form of a
laminated card, by the Income Tax Department.
PAN enables the department to link all transactions of the “person” with the department. These
transactions include tax payments, TDS/TCS credits, returns of income/wealth/gift/FBT,
specified transactions, correspondence, and so on. PAN, thus acts as an identifier for the
“person” with the tax department.
PAN was introduced to facilitates linking of various documents, including payment of taxes,
assessment, tax demand, tax arrears etc. relating to an assessee, to facilitate easy retrieval of
information and to facilitate matching of information relating to investment, raising of loans and
other business activities of taxpayers collected through various sources, both internal as well as
external, for detecting and combating tax evasion and widening of tax base.
It is mandatory to quote PAN in all documents pertaining to the following financial transactions:-
 sale or purchase of any immovable property valued at five lakh rupees or more;
 sale or purchase of a motor vehicle or vehicle, [the sale or purchase of a motor vehicle or
vehicle does not include two wheeled vehicles, inclusive of any detachable side-car
having an extra wheel, attached to the motor vehicle;]
 a time deposit, exceeding fifty thousand rupees, with a banking company ;
 a deposit, exceeding fifty thousand rupees, in any account with Post Office Savings
Bank;
 a contract of a value exceeding one lakh rupees for sale or purchase of securities;

34
 opening a bank account;
 making an application for installation of a telephone connection (including a cellular
telephone connection);
 payment to hotels and restaurants against their bills for an amount exceeding twenty-five
thousand rupees at any one time ;
 payment in cash for purchase of bank drafts or pay orders or banker’s cheques for an
amount aggregating fifty thousand rupees or more during any one day;
 deposit in cash aggregating fifty thousand rupees or more with a bank during any one
day;
 payment in cash in connection with travel to any foreign country of an amount exceeding
twenty-five thousand rupees at any one time.
2. Open a current account with a Bank.
3. Register a Limited Liability Partnership (LLP)
The Limited Liability Partnership (LLP) is an alternative corporate business vehicle that
provides the benefits of limited liability but allows its members the flexibility of
organizing their internal structure as a partnership based on a mutually arrived agreement
4. Incorporate Your Business (Private Limited Company)
The essential Steps involved in Incorporating a New Business in India

1. Name Your Business Entity

2. Register For e-Filing at MCA Portal
3. Apply For Director Identification Number (DIN)
4. Obtain Digital Signature Certificate ( DSC)
5. Register DSC at MCA Website
6. Apply for Approval of the Name of Company
7. Formulate Memorandum of Association
8. Formulate Articles of Association (AoA)
9. Verify, Stamp & Sign AOA
10.Forms Required for Incorporation of Company
11. Formation of Public Limited Company (Additional Steps)

5. Register For Service Tax

Service tax is, as the name suggests, a tax on Services. It is a tax levied on the transaction
of certain services specified by the Central Government under the Finance Act, 1994. It is
an indirect tax (akin to Excise Duty or Sales Tax) which means that normally, the service
provider pays the tax and recovers the amount from the recipient of taxable service.
6. Register for VAT / Sales Tax
VAT is a multi-point destination based system of taxation, with tax being levied on value
addition at each stage of transaction in the production/ distribution chain. The State
Governments, through Taxation Departments, are carrying out the responsibility of
levying and collecting VAT in the respective States. While, the Central Government is
playing the role of a facilitator for the successful implementation of VAT.
7. Excise Duty (Check Applicability)
Indirect tax levied on those goods which are manufactured in India and are meant for
home consumption. Cetain industries are exempted from payment of Excise Duty.
35
 8. Shop & Establishment Act
Shop and Establishment Act is to provide statutory obligation and rights to employees
and employers in the unorganised sector of employment, i.e., shops and establishments.
A state legislation; each state has framed its own rules for the Act
9. Customs Duty
Customs Duty is Indirect Tax levied on Imports as well as Exports.
10. File Entrepreneurship Memorendum at DIC (Optional)
Although not mandatory, you may File Part I of Entrepreneurs Memorandum to the
District Industries Centre. This may be necessary for claiming certain incentives /
subsidies and for certain formalities at the state level.
11. Apply for TAN
All those persons who are required to deduct tax at source or collect tax at source on
behalf of Income Tax Department are required to apply for and obtain TAN
12. Permissions Required at the Construction Stage
a) Application for plot/shed, offer letter, payment of earnest money deposit
b) Allotment of plot/shed, payment of balance occupancy price, taking over
possession thereof
c) Application for issuance of NOC/SSI registration
d) Execution of Lease Agreement
e) Application for grant of connection for construction water
f) Application for grant of connection for construction power
13. Employee's Provident Fund
In respect of establishments employing 20 or more persons and engaged in industry notified
under Section 6 of Act ( other than the Establishments. declared as sick ) 12% of the basic pay
DA , Cash value of food concession and retaining allowance , if any, subject to a maximum of
Rs.6500/- per month. Voluntary higher contributions are also acceptable at the joint request of
the member and the employer . However, the rate of contribution is 10% in respect of the
following categories of establishments:
1. Any establishment covered prior to 22.9.97 in which less than 20 persons are employed.
2. Any sick industrial company as defined in Clause(0) of Sub-Section(1) of Section 3 of
the sick industrial companies ( special provisions ) Act 1985 and which has been declared
as such by the Board for Industrial and Financial Reconstruction.
3. Any Establishment which has at the end of any financial year accumulated losses equal to
or exceeding its entire net worth.
4. Any Establishment engaged in manufacturing of (a) Jute , (b) Beedi , (c) Brick , (d) Coir
(other than spinning sector), (e) Guar Gum Industries/Factories.
14. Employees State Insurance (ESI) Scheme
The Act is applicable to non-seasonal factories employing 10 or more persons.
The Scheme has been extended to shops, hotels, restaurants, cinemas including preview
theatres, road-motor transport undertakings and newspaper establishments employing 20*
or more persons.

36
HOW TO FUND START UP?
According to a recent study, over 94% of new businesses fail during first year of operation. Lack
of funding turns to be one of the common reasons. Money is the bloodline of any business. The
long painstaking yet exciting journey from the idea to revenue generating business needs a fuel
named capital. That’s why, at almost every stage of the business, entrepreneurs find themselves
asking – How do I finance my start-up?
Now, when would you require funding depends largely on the nature and type of the
business. But once you have realized the need for fund raising, below are some of the different
sources of finance available.
Here is a comprehensive guide that lists 10 funding options for start-ups that will help you raise
capital for your business. Some of these funding options are for Indian business, however,
similar alternatives are available in different countries.
1) Bootstrapping your start up business:
Self-funding, also known as bootstrapping, is an effective way of start up financing, especially
when you are just starting your business. First-time entrepreneurs often have trouble getting
funding without first showing some traction and a plan for potential success. You can invest
from your own savings or can get your family and friends to contribute. This will be easy to raise
due to less formalities/compliances, plus less costs of raising. In most situations, family
and friends are flexible with the interest rate.
Self-funding or bootstrapping should be considered as a first funding option because of
its advantages. When you have your own money, you are tied to business. On a later
stage, investors consider this as a good point. But this is suitable only if the initial requirement
is small. Some businesses need money right from the day-1 and for such businesses,
bootstrapping may not be a good option.
Bootstrapping is also about stretching resources – both financial and otherwise – as far as they
can. Check out these 30 tips to save money and improve your business cash flow.

2) Crowdfunding as a Funding Option:

Crowdfunding is one of the newer ways of funding a start-up that has been gaining lot of
popularity lately. It’s like taking a loan, pre-order, contribution or investments from more
than one person at the same time.
This is how crowdfunding works – An entrepreneur will put up a detailed description of his
business on a crowdfunding platform. He will mention the goals of his business, plans for
making a profit, how much funding he needs and for what reasons, etc. and then consumers can
read about the business and give money if they like the idea. Those giving money will make
online pledges with the promise of pre-buying the product or giving a donation. Anyone can
contribute money toward helping a business that they really believe in.
Why you should consider Crowdfunding as a funding option for your business:
The best thing about crowd funding is that it can also generate interest and hence helps in
marketing the product alongside financing. It is also a boon if you are not sue if there will be any
demand for the product you are working on. This process can cut out professional investors and
brokers by putting funding in the hands of common people. It also might attract venture-capital
investment down the line if a company has a particularly successful campaign.
Also keep in mind that crowdfunding is a competitive place to earn funding, so unless your
business is absolutely rock solid and can gain the attention of the average consumers through just

37
a description and some images online, you may not find crowdfunding to work for you in the
end.

3) Get Angel Investment In Your Start-up:

Angel investors are individuals with surplus cash and a keen interest to invest in upcoming start-
ups. They also work in groups of networks to collectively screen the proposals before
investing. They can also offer mentoring or advice alongside capital.
Angel investors have helped to start up many prominent companies, including Google, Yahoo
and Alibaba. This alternative form of investing generally occurs in a company’s early stages of
growth, with investors expecting aupto 30% equity. They prefer to take more risks in investment
for higher returns.
Angel Investment as a funding option has its shortcomings too. Angel investors invest lesser
amounts than venture capitalists (covered in next point).
Here is a list of popular Angel Investors in India – Indian Angel Network, Mumbai
Angels, Hyderabad Angels.
Also check out the list of individual Angel Investors in India, some of these active angel
investors have invested in many successful start-ups.

4) Get Venture Capital For Your Business:

This is where you make the big bets. Venture capitals are professionally managed funds who
invest in companies that have huge potential. They usually invest in a business against equity and
exit when there is an IPO or an acquisition. VCs provide expertise, mentorship and acts as a
litmus test of where the organisation is going, evaluating the business from the sustainability and
scalability point of view.
A venture capital investment may be appropriate for small businesses that are beyond the start-up
phase and already generating revenues. Fast-growth companies like Flipkart, Uber, etc with an
exit strategy already in place can gain up to tens of millions of dollars that can be used to invest,
network and grow their company quickly.
However, there are a few downsides to Venture Capitalists as a funding option. VCs have a short
leash when it comes to company loyalty and often look to recover their investment within a
three- to five-year time window. If you have a product that is taking longer than that to get to
market, then venture-capital investors may not be very interested in you.
They typically look for larger opportunities that are a little bit more stable, companies having a
strong team of people and a good traction. You also have to be flexible with your business and
sometimes give up a little bit more control, so if you’re not interested in too much mentorship or
compromise, this might not be your best option.

Some of the well-known Venture Capitalists in India are – Nexus Venture Partners, Helion
Ventures, Kalaari Capital, Accel Partners, Blume Ventures, Canaan, Sequoia
Capital and Bessemer Ventures.

5) Get Funding From Business Incubators & Accelerators:

38
Early stage businesses can consider Incubator and Accelerator programs as a funding option.
Found in almost every major city, these programs assist hundreds of start-up businesses every
year.
Though used interchangeably, there are few fundamental differences between the two terms.
Incubators are like a parent to to a child, who nurture the business providing shelter tools and
training and network to a business. Accelerators so more or less the same thing, but an incubator
helps/assists/nurtures a business to walk, while accelerator helps to run/take a giant leap.
These programs normally run for 4-8 months and require time commitment from the business
owners. You will also be able to make good connections with mentors, investors and other
fellow start-ups using this platform.
In India, popular names are Amity Innovation Incubator, AngelPrime, CIIE, IAN Business
Incubator, Villgro, Start-up Village and TLabs.
Popular business accounting software – ProfitBooks is also a part of Washington based
accelerator Village Capital.

6) Raise Funds By Winning Contests:

An increase in the number of contests has tremendously helped to maximize the opportunities for
fund raising. It encourages entrepreneurs with business ideas to set up their own businesses. In
such competitions, you either have to build a product or prepare a business plan.
Winning these competitions can also get you some media coverage. We, at ProfitBooks
benefitted a lot when we were regional finalists in Microsoft BizSparks in 2013 and won Hot100
Start-up Award in 2014.
You need to make your project stand out in order to improve your success in these contests. You
can either present your idea in person or pitch it through a business plan. It should be
comprehensive enough to convince anyone that your idea is worth investing in.
Some of the popular start-ups contests in India are NASSCOM’s 10000 start-ups, Microsoft
BizSparks, Conquest, NextBigIdea Contest, and Lets Ignite. Check out the latest start-up
programs & contests in your area. Here is a calendar of various Business Plan competitions.

7) Raise Money Through Bank Loans:

Normally, banks is the first place that entrepreneurs go when thinking about funding.
The bank provides two kinds of financing for businesses. One is working capital loan, and other
is funding. Working Capital loan is the loan required to run one complete cycle of revenue
generating operations, and the limit is usually decided by hypothecating stocks and debtors.
Funding from bank would involve the usual process of sharing the business plan and the
valuation details, along with the project report, based on which the loan is sanctioned.
Almost every bank in India offers SME finance through various programs. For instance, leading
Indian banks – Bank Of Baroda, HDFC, ICICI and Axis banks have more than 7-8 different
options to offer collateral free business loans. Check out the respective bank sites for more
details.

8) Get Business Loans from Microfinance Providers or NBFCs

What do you do when you can’t qualify for a bank loan? There is still an option. Microfinance is
basically access of financial services to those who would not have access to conventional

39
banking services. It is increasingly becoming popular for those whose requirements are limited
and credit ratings not favoured by bank.
Similarly, NBFCs are Non-Banking Financial Corporations are corporations that provide
Banking services without meeting legal requirement/definition of a bank.
Check MicroFinance Institute Network for more details. Here is a list of top MicroFinance
companies in India.

9) Govt Programs That Offer Start-up Capital:

The Government of India has launched 10,000 Crore Start-up Fund in Union budget 2014-15 to
improve start-up ecosystem in India. In order to boost innovative product companies,
Government has launched ‘Bank Of Ideas and Innovations’ program.
Government backed ‘Pradhan Mantri Micro Units Development and Refinance Agency
Limited (MUDRA)‘ starts with an initial corpus of Rs. 20,000 crore to extend benefits to around
10 lakhs SMEs. You are supposed to submit your business plan and once approved, the loan
gets sanctioned. You get a MUDRA Card, which is like a credit card, which you can use to
purchase raw materials, other expenses etc. Shishu, Kishor and Tarun are three categories of
loans available under the promising scheme. Learn more about MUDRA.
Also, different states have come up different programs like Kerala State Self Entrepreneur
Development Mission (KSSEDM), Maharashtra Centre for Entrepreneurship
Development, Rajasthan Start-up Fest, etc to encourage small businesses.
SIDBI – Small Industries Development Bank of India also offer business loans to MSME sector.

10) Quick Ways to Raise Money for Your Business

There are few more ways to raise funds for your business. However, these might not work for
everyone. Still, check them out if you need quick funds.
Product Pre-sale: Selling your products before they launch is an often-overlooked and highly
effective way to raise the money needed for financing your business. Remember how Apple &
Samsung start pre-orders of their products well ahead of the official launch? Its a great way
to improve cash flow and prepare yourself for the consumer demand.
Selling Assets: This might sound like a tough step to take but it can help you meet your short
term fund requirements. Once you overcome the crisis situation, you can again buy back the
assets.
Credit Cards: Business credit cards are among the most readily available ways to finance a
start-up and can be a quick way to get instant money. If you are a new business and don’t have a
tons of expenses, you can use a credit card and keep paying the minimum payment. However,
keep in mind that the interest rates and costs on the cards can build very quickly, and carrying
that debt can be detrimental to a business owner’s credit.

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 Chapter: 4
VENTURE CAPITAL

Venture Capital has emerged as a new financial method of financing during the 20th century.
Venture capital is the capital provided by firms of professionals who invest alongside
management in young, rapidly growing or changing companies that have the potential for high
growth. Venture capital is a form of equity financing especially designed for funding high risk
and high reward projects. There is a common perception that venture capital is a means of
financing high technology projects. However, venture capital is investment of long term finance
made in: 1. Ventures promoted by technically or professionally qualified but unproven
entrepreneurs, or 2. Ventures seeking to harness commercially unproven technology, or 3. High
risk ventures. The term ‘venture capital’ represents financial investment in a highly risky project
with the objective of earning a high rate of return. While the concept of venture capital is very
old the recent liberalisation policy of the government appears to have given a fillip to the venture
capital movement in India. In the real sense, venture capital financing is one of the most recent
entrants in the Indian capital market. There is a significant scope for venture capital companies in
our country because of increasing emergence of technocrat entrepreneurs who lack capital to be
risked. These venture capital companies provide the necessary risk capital to the entrepreneurs so
as to meet the promoters’ contribution as required by the financial institutions. In addition to
providing capital, these VCFs (venture capital firms) take an active interest in guiding the
assisted firms. A young, high tech company that is in the early stage of financing and is not yet
ready to make a public offer of securities may seek venture capital. Such a high risk capital is
provided by venture capital funds in the form of long-term equity finance with the hope of
earning a high rate of return primarily in the form of capital gain. In fact, the venture capitalist
acts as a partner with the entrepreneur. Thus, a venture capitalist (VC) may provide the seed
capital for unproven ideas, products, technology oriented or start-up firms. The venture
capitalists may also invest in a firm that is unable to raise finance through the conventional
means. Features of Venture Capital “Venture capital combines the qualities of a banker, stock
market investor and entrepreneur in one.”
The main features of venture capital can be summarised as follows:
i. High Degrees of Risk: Venture capital represents financial investment in a highly risky
project with the objective of earning a high rate of return.
ii. Equity Participation: Venture capital financing. is, invariably, an actual or potential
equity participation wherein the objective of venture capitalist is to make capital gain
by selling the shares once the firm becomes profitable.
iii. Long Term Investment: Venture capital financing is a long term investment. It
generally takes a long period to encash the investment in securities made by the
venture capitalists.
iv. Participation in Management: In addition to providing capital, venture capital funds
take an active interest in the management of the assisted firms. Thus, the approach of
venture capital firms is different from that of a traditional lender or banker. It is also
different from that of a ordinary stock market investor who merely trades in the
shares of a company without participating in their management. It has been rightly
said, “venture capital combines the qualities of banker, stock market investor and
entrepreneur in one”.

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 v. Achieve Social Objectives: It is different from the development capital provided by
several central and state level government bodies in that the profit objective is the
motive behind the financing. But venture capital projects generate employment, and
balanced regional growth indirectly due to setting up of successful new business.
vi. Investment is liquid: A venture capital is not subject to repayment on demand as with an
overdraft or following a loan repayment schedule. The investment is realised only
when the company is sold or achieves a stock market listing. It is lost when the
company goes into liquidation. Origin Venture capital is a post-war phenomenon in
the business world mainly developed as a sideline activity of the rich in USA. The
concept, thus, originated in USA in 1950s when the capital magnets like Rockfeller
Group financed the new technology companies. The concept became popular during
1960’s and 1970’s when several private enterprises started financing highly risky and
highly rewarding projects. To denote the risk and adventure and some element of
investment, the generic term “Venture Capital” was developed. The American
Research and Development was formed as the first venture organisation which
financed over 100 companies and made profit over 35 times its investment. Since
then venture capital has grown’ vastly in USA, UK, Europe and Japan and has been
an important contribution in the economic development of these countries
Of late, a new class of professional investors called venture capitalists has emerged whose
specialty is to combine risk capital with entrepreneurs management and to use advanced
technology to launch new products and companies in the market place. Undoubtedly, it is the
venture capitalist’s extraordinary skill and ability to assess and manage enormous risks and
extort from them tremendous returns that has attracted more entrants. Innovative, hi-tech
ideas are necessarily risky. Venture capital provides long-term start-up costs to high risk and
return projects. Typically, these projects have high mortality rates and therefore are
unattractive to risk averse bankers and private sector companies. Venture capitalist finances
innovation and ideas, which have potential for high growth but are unproven. This makes it a
high risk, high return investment. In addition to finance, venture capitalists also provide
value-added services and business and managerial support for realizing the venture’s net
potential.

Types of Venture Capitalists

Generally, there are three types of organized or institutional venture capital funds
i. Venture capital funds set up by angel investors, that is, high network individual investors
ii. Venture capital subsidiaries of corporations - these are established by major corporations;
commercial bank holding companies and other financial institutions
iii. Private capital firms/funds-The primary institutional source of venture capital is a
venture capital firm venture capitalists take high risks by investing in an early stage
company with little or no history and they expect a higher return for their high-risk
equity investments in the venture.
Modes of Finance by Venture Capitalists
Venture capitalists provide funds for long-term in any of the following modes:
1. Equity - Most of the venture capital funds provide financial support to entrepreneurs in
the form of equity by financing 49% of the total equity. This is to ensure that the
ownership and overall control remains with the entrepreneur. Since there is a great
uncertainty about the generation of cash inflows in the initial years, equity financing is
42
 the safest mode of financing. A debt instrument on the other hand requires periodical
servicing of debt.
2. Conditional loan - From a venture capitalist~ point of view, equity is an unsecured
instrument and hence a less preferable option than a secured debt instrument. A
conditional loan usually involves either no interest at all or a coupon payment at nominal
rate. In addition, a royalty at agreed rates is payable to the lender on the sales turnover.
As the units picks up in sales levels, the interest rate are increased and royalty amounts
are decreased.
3. Convertible loans - The convertible loan is subordinate to all other loans, which may be
converted into equity if interest payments are not made within agreed time limit.
Areas of Investment
Different venture groups prefer different types of investments. Some specialize in seed
capital and early expansion while others focus on exit financing. Biotechnology, medical
services, communications, electronic components and software companies seem to be
attracting the most attention from venture firms and receiving the most financing. Venture
capital firms finance both early and later stage investments to maintain a balance between
risk and profitability. In India, software sector has been attracting a lot of venture finance.
Besides media, health and pharmaceuticals, agribusiness and retailing are the other areas that
are favored by a lot of venture companies.
Stages of Investment Financing
“Venture capital firms finance both early and later stage investments to maintain a balance
between risk and profitability.” Venture capital firms usually recognise the following two
main stages when the investment could be made in a venture namely:
A. Early Stage Financing
i. Seed Capital & Research and Development Projects.
ii Start Ups
iii Second Round Finance
B. Later Stage Financing
i Development Capital
ii Expansion Finance
iii Replacement Capital
iv Turn Arounds
v Buy Outs
A. Early Stage Financing
This stage includes the following:
I. Seed Capital and R & D Projects:
Venture capitalists are more often interested in providing seed finance i. e. making
provision of very small amounts for finance needed to turn into a business. Research
and development activities are required to be undertaken before a product is to be
launched. External finance is often required by the entrepreneur during the
development of the product. The financial risk increases progressively as the
research phase moves into the development phase, where a sample of the product is
tested before it is finally commercialised “venture capitalists/ firms/ funds are always
ready to undertake risks and make investments in such R & D projects promising
higher returns in future.

43
II. Start Ups:
The most risky aspect of venture capital is the launch of a new business after the
Research and development activities are over. At this stage, the entrepreneur and his
products or services are as yet untried. The finance required usually falls short of his
own resources. Start-ups may include new industries / businesses set up by the
experienced persons in the area in which they have knowledge. Others may result
from the research bodies or large corporations, where a venture capitalist joins with
an industrially experienced or corporate partner. Still other start-ups occur when a
new company with inadequate financial resources to commercialise new technology
is promoted by an existing company.
III. Second Round Financing:
It refers to the stage when product has already been launched in the market but has
not earned enough profits to attract new investors. Additional funds are needed at
this stage to meet the growing needs of business. Venture Capital Institutions (VCIs)
provide larger funds at this stage than at other early stage financing in the form of
debt. The time scale of investment is usually three to seven years.
B. Later Stage Financing
Those established businesses which require additional financial support but cannot raise
capital through public issue approach venture capital funds for financing expansion,
buyouts and turnarounds or for development capital.
I. Development Capital: It refers to the financing of an enterprise which has
overcome the highly risky stage and have recorded profits but cannot go public,
thus needs financial support. Funds are needed for the purchase of new
equipment/ plant, expansion of marketing and distributing facilities, launching of
product into new regions and so on. The time scale of investment is usually one to
three years and falls in medium risk category.
II. Expansion Finance: Venture capitalists perceive low risk in ventures requiring
finance for expansion purposes either by growth implying bigger factory, large
warehouse, new factories, new products or new markets or through purchase of
existing businesses. The time frame of investment is usually from one to three
years. It represents the last round of financing before a planned exit.
III. Buy Outs: It refers to the transfer of management control by creating a separate
business by separating it from their existing owners. It may be of two types.
i. Management Buyouts (MBOs): In Management Buyouts (MBOs) venture
capital institutions provide funds to enable the current operating
management/ investors to acquire an existing product line/business. They
represent an important part of the activity of VCIs.
ii. Management Buyins (MBIs): Management Buy-ins are funds provided to
enable an outside group of manager(s) to buy an existing company. It
involves three parties: a management team, a target company and an
investor (i.e. Venture capital institution). MBIs are more risky than MBOs
and hence are less popular because it is difficult for new management to
assess the actual potential of the target company. Usually, MBIs are able
to target the weaker or under-performing companies.
IV. Replacement Capital-V CIs another aspect of financing is to provide funds for
the purchase of existing shares of owners. This may be due to a variety of reasons
44
 including personal need of finance, conflict in the family, or need for association
of a well-known name. The time scale of investment is one to three years and
involve low risk.
V. Turnarounds-Such form of venture capital financing involves medium to high
risk and a time scale of three to five years. It involves buying the control of a sick
company which requires much specialised skills. It may require rescheduling of
all the company’s borrowings, change in management or even a change in
ownership. A very active “hands on” approach is required in the initial crisis
period where the venture capitalists may appoint its own chairman or nominate its
directors on the board. In nutshell, venture capital firms finance both early and
later stage investments to maintain a balance between risk and profitability.
Venture capitalists evaluate technology and study potential markets besides
considering the capability of the promoter to implement the project while
undertaking early stage investments. In later stage investments, new markets and
track record of the business/entrepreneur is closely examined.

Factors Affecting Investment Decisions

The venture capitalists usually take into account the following factors while making investments:
 Strong Management Team.
Venture capital firms ascertain the strength of the management team in terms of
adequacy of level of skills,., commitment and motivation that creates a balance
between members in area such as marketing, finance and operations, research and
development, general management, personal management and legal and tax issues.
Track record of promoters is also taken into account.
 A Viable Idea.
Before taking investment decision, venture capital firms consider the viability of
project or the idea. Because a viable idea establishes the market for the product or
service. Why the customers will purchase the product, who the ultimate users are,
who the competition is with and the projected growth of the industry?
 Business Plan.
The business plan should concisely describe the nature of the business, the
qualifications of the members of the management team, how well; the business has
performed, and business projections and forecasts. The promoters experience in the
proposed or related businesses is an important consideration. The business plan
should also meet the investment objective of the venture capitalist.
 Project Cost and Returns
A. VCI would like to undertake investment in a venture only if future cash inflows
are likely to be more than the present cash outflows. While calculating the Internal
Rate of Return (IRR) the risk associated with the business proposal, the length of
time his money will be tied up are taken into consideration. Project cost, scheme of
financing, sources of finance, cash inflows for next five years are closely studied.
 Future Market Prospects.
The marketing policies adopted, marketing strategies in relation to the competitors,
market research undertaken, market size, share and future market prospects are some
of the considerations that affect the decision.
45
 Existing Technology.
Existing technology used and any technical collaboration agreements entered into by
the promoters also to a large extent affect the investment decision.
Selection of Venture Capitalists
Venture capital industry has shown tremendous growth during the last ten years. Thus, it
becomes necessary for the entrepreneurs to be careful while selecting the venture capitalists.
Following factors must be taken into consideration:
 Approach adopted by VCs - Selection of VCs to a large extent depends
upon the approach adopted by VCs. a. Hands on approach of VCs aims at
providing value added services in an advisory role or active involvement in
marketing, recruitment and funding technical collaborators. VCs show keen
interest in the management affairs and actively interact with the entrepreneurs
on various issues. b. Hands off approach refers to passive participation by the
venture capitalists in management affairs. VCs just receive. periodic financial
statements. VCs enjoy the right to appoint a director but this right is seldom
exercised by them. In between the above two approaches lies an approach
where V C’ s approach is passive except in major decisions like change in top
management, large expansion or major acquisition.
 Flexibility in deals - The entrepreneurs would like to strike a deal with such
venture capitalists who are flexible and generous in their approach. They
provide them a package which best meet the needs of the entrepreneurs. VC’s
having rigid attitude may not be preferred.
 Exit policy - The entrepreneurs should ask clearly the venture capitalists as to
their exit policies whether it is buy back or quotation or trade sale. To avoid
conflicts, clarifications should be sought in the beginning, the policy should
not be against the interests of the business. Depending upon the exit policy of
the VCs, selection would be made by the entrepreneurs.
 Fund viability and liquidity - The entrepreneurs must make sure that the
VCs has adequate liquid resources and can provide later stage financing if the
need arises, also, the VC has committed backers and is not just interested in
making quick financial gains.
 Track record of the VC & its team - The scrutiny of the past performance,
time since operational, list of successful projects financed earlier etc. should
be made by the entrepreneur. The team of VCs, their experience,
commitment, guidance during bad times are the .other consideration affecting
the selection of VCs.

References: This unit has been compiled from different sites and following books (E-Books)
 Garg, M.C, “Entrepreneurial Development”
 Jose C. Sanchez-Garcia, “Entrepreneurship Education and Training”
 Pandey, I.M.; Venture Capital –The Indian Experience, Prentice Hall of India,
2003.
 New Venture Creation; Holt: Entrepreneurship, Prentice Hall of India

46
 Long Questions:
1) Define venture capital. Explain the various features and types of venture capitalists.
2) Explain the various stages in investment financing. Also define the various factors
that affect the investment decisions.
3) Define: a) Opportunity Analysis b) Environmental Analysis
c) Pestle Analysis d) SWOT Analysis
4) How to fund a start up? Explain all the steps in detail.
5) Explain the procedure involved in starting a New Business in India.
6) How does government support a start up? Name few schemes to fund a start up
initiated by the government.

MCQ for practice

1. Why are small businesses important to a country's economy?

A. They give an outlet for entrepreneurs.
B. They can provide specialist support to larger companies.
C. They can be innovators of new products.
D. All the above.

2. Entrepreneurs are motivated by _________.

A. money.
B. personal values.
C. pull influences.
D. All the above.

3. Which of the following is least likely to influence the timing of new business births?
A. Government policies.
B. Profitability.
C. Consumer expenditure.
D. Weather conditions.

4. Which of the following statements is false?

A. Market segmentation is a useful process for small businesses to undertake.
B. Selling is essentially a matching process.
C. A benefit is the value of a product feature to a customer.
D. It is a good idea for small businesses to compete solely on price.

5. Which of the following is a recognized disadvantage of setting up as a start-up as compared

with other routes to market entry?
A. Less satisfaction of the owners.
B. Less helps from various agencies.
C. There are more funds required.
D. There is a high failure rate.

47
6. To provide financial assistance to entrepreneurs the government has set up a number
of___________
A. Financial advisors.
B. Financial intermediaries.
C. Industrial estates.
D. Financial institutions.

7.“Seed Capital Scheme” is being operated by?

a. IDBI
b. SIDC
c. ICICI
d. IFCI

8. Calcutta “Y” Self- Employment Centre targets unemployed youths between?

a. 18 to 30 years
b. 16 to 25 years
c. 18 to 25 years
d. 20 to 30 years

9. In the 1995 – 96 periods what percentage of the total entrepreneurs were women
entrepreneurs?
a. 10 %
b. 11.2%
c. 13%
d. 9%

10. Why the majority of women are unaware of technological developments?

a. Low-risk bearing ability
b. Low mobility
c. Lack of education
d. Low need for achievement

11. Which of the following is a remedy to solve the problems of women entrepreneurs?
a. Social attitude
b. Finance cells
c. Stiff Competition
d. Supervision

12. When was the “Yashaswini Programme” held in Mysore?

a. November 2000
b. July 2001
c. June 2002
d. November 2001

48
13. What is the analytical study of the end products and by-product can throw light on new
product ideas?
a. Emerging technologies
b. Market characteristics
c. Social and economic trends
d. Product profile

14. Who manufactured “Sumeet” mixies to suit Indian conditions?

a. Manohar Kumar Mathur
b. Satya Prakash Mathur
c. Mridula Kumar Mathur
d. Prakash Kumar Mathur

15. What can be defined as an attractive project idea which an entrepreneur accepts as a basis for
his investment decision?
a. Possibility
b. Business
c. Opportunity
d. Notion

16. What is a two-way exchange process in which the needs and wants of the buyer and seller are
satisfied?
a. Marketing
b. Selling
c. Producing
d. Accounting

17. Which phase starts after the investment decision is taken?

a. Normalisation phase
b. Construction phase
c. Pre-investment phase
d. Product identification phase

18. What provides all the necessary information of the unit proposed to be set-up for the
manufacture of a product or rendering a service?
a. Project description
b. Project appraisal
c. Project implementation schedule
d. Project report

19. BEP = (F/(S-V)) x 100

What does F stand for?
a. Fixed sales
b. Fixed cost
c. Finished stock

49
d. Final output

20. Which statement gives a projection of future sources of cash and their applications?
a. Cash flow statement
b. Fund flow statement
c. Income statement
d. Balance sheet

21. In long term capital, the repayment of money is arranged for what time period?
a. Within 1 year
b. More than 2 years
c. More than 7 years
d. More than 5 years

22. Ownership capital is also known as?

a. Debt
b. Equity
c. Loan
d. Mortgage

23. To whom does the company pay interest?

a. Shareholder
b. Customer
c. Debenture holder
d. Creditor

24. When was the first SFC (State Financial Corporation) set up in Punjab?
a. 1950
b. 1958
c. 1953
d. 1960

25. When was Small Scale Industries Board constituted?

a. 1958
b. 1960
c. 1953
d. 1954

26. Which type of industrial estates is called conventional industrial estates?

a. General type of industrial estate
b. Special type industrial estate
c. Ancillary industrial estate
d. Workshop bay

50
27. Government industrial estates come under which type of classification?
a. Variant
b. Objective
c. Functional
d. Organizational

28. Under Section 80J of the Income Tax act, 1961 new industrial undertakings are exempted
from the payment of income tax on their profits subject maximum of what percentage of their
capital employed?
a. 5%
b. 6%
c. 10%
d. 15%

29. Rehabilitation allowance is granted under which section of the Income Tax Act, 1961?
a. 30-B
b. 80-C
c. 32-D
d. 33-B

30. When was the investment allowance introduced?

a. 1970
b. 1961
c. 1967
d. 1976

Answer Key:
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
d d d d d d a a b c b d d b c
16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
a b d b a d b c c d a d b d d

51
 Unit-III
Chapter: 5
INNOVATION AND ENTREPRENEUR

● CONCEPT OF INNOVATION

Innovation is the process of doing new things or doing old things through new techniques. It
transforms creative ideas into useful application. For businesses, this could mean implementing
new ideas, creating dynamic products or improving your existing services. Innovation can be a
catalyst for the growth and success of your business, and help you to adapt and grow in the
marketplace.

Being innovative does not only mean inventing. Innovation can mean changing your business
model and adapting to changes in your environment to deliver better products or services.
Successful innovation should be an in-built part of your business strategy, where you create a
culture of innovation and lead the way in innovative thinking and creative problem solving.

● ELEMENTS OF INNOVATION

Innovation is a development process as shown in the figure:

`````

● WHY IS INNOVATION IS AN INTEGRAL PART OF ENTREPRENEURSHIP

52
 Management expert Peter Drucker said that if an established organization, which in this
age necessitating innovation, is not able to innovate, it faces decline and extinction.

▪ Research has indicated that competition combined with strong demand is a major driver
of innovation. Intensity of competition is the determinant of innovation and productivity.
▪ Creativity and innovation within a well-run companies have always been recognized as a
sure path to success. Stimulating creativity and exploring completely new and unknown
before territories lead as result to increasing the productivity of the organisation.
▪ Innovation improves the process of solving problems. It doesn't matter if we're talking
about developing a new strategy or an innovative way to stay ahead of the competition.
▪ Innovative problem solving gives that competitive edge that any business is striving to
achieve.

❖ SOME EXAMPLES

Richard Plepler: The traditional cable TV network is rapidly losing its share to Internet-based
networks and web content. Yet, in 2014, HBO’s customer base grew by more than it had in the
last 30 years. Continued international expansion and a partnership with AT&T for content
53
delivery were the main drivers for this growth. But CEO Richard Plepler's innovative thoughts
are not going to stop there. He continues to experiment with new streams, including plans to
introduce a new streaming service called “HBO Go” (which could add another 10-20 million
new users by opening up paid access to HBO program archives), partnering with IMAX theaters
to showcase popular shows like Game of Thrones on the big screen, and licensing media content
to Amazon.
Shivani Siroya: The CEO of in Venture, managed to fix the biggest problem of microfinance—
what should be the basis of loaning small amount of money to a person with no credit history?
Her innovative Android-based software, which borrowers download on their phones, offers
sufficient indicators to assess the person's habits, responsibilities, and behavioral patterns, thus
giving a fair idea of his creditworthiness and repayment capacity. Operating in East and Southern
Africa, the company has seen success: 85 percent of its assessed microfinance loans were
successfully repaid and 75 percent of applicants applied for second loan, which spells success for
Shivani’s solution.

ENTREPRENEURIAL BEHAVIOUR AND PSYCHOLOGICAL

THEORIES

Among the theories put forth by the experts in the field of behavioral sciences, the following theories are
very much relevant with regard to the entrepreneurial behavior.
54
 ● Maslow’s Need Hierarchy theory
● McClelland’s Need Achievement theory

MASLOW’S NEED HIERARCHY THEORY

Abraham H.Maslow, an eminent American psychologist, propounded a general theory of motivation

named need hierarchy theory. This theory is important enough to influence the human behavior in many
aspects as per the satisfaction of human needs. According to him, human needs are complex, inter-related
and ever-changing in nature and thus, there exists stratification or hierarchy of needs. The main features
of this theory can be depicted as follows:

a) The inner urge to fulfill needs is the fundamental factor in entrepreneurial motivation.
b) Human needs form a particular structure of hierarchy starting with physiological needs ending
with self-actualization needs via other needs.
c) Higher-level needs do not become an active motivating force unless and until the preceding lower
level order needs are satisfied.
d) As soon as one need is satisfied, another need crops up and this process continues.
e) The unsatisfied needs are the basic ingredients which regulate the human behaviour.
f) Various needs are interdependent and overlapping. Higher-level need emerges before the lower
level need is fully satisfied.

In view of these features, the needs can be categorized into the following five categories:

i) Physiological
ii) Safety and security
iii) Social affiliation
iv) Ego or esteem
v) Self-actualization

55
Nature of need Description
Physiological needs Biological needs to pressurize human life. These needs include food,
clothing, shelter, drink, sleep, etc. These are the basic needs which are
recurring in nature. They must be satisfied repeatedly on priority basis.
Safety needs Human beings search for a protected environment. Safety and security needs
kindle the urge for freedom from present and future physical and economic
hazards. Though these needs are finite, still they may serve as motivators in
case of arbitrary and unpredictable management action. Therefore people put
by money in form of insurance , provident fund , etc.
Social needs Man is a social animal and his desire to be loved and accepted by his near
and dear ones is enormous. Thus, he seeks social affiliation and interaction
with the people with whom he work together. In the home front, family
members and the neighbours fulfill these needs.
Ego (esteem) needs These needs arise after physiological, social and safety needs are fulfilled.
Self-esteem, self-confidence, self-respect, competence, independence and
achievements are vital elements in this process.
Self-actualization needs This desire arises after other needs are fulfilled. These are the needs for
realizing one’s full potential for continued self-development for being
creative. These are aesthetic needs to attain moral maturity, contentment,
authority, etc.

Maslow was of the opinion that people put emphasis on lower level needs and then proceed to higher
lever needs in a step-by-step approach. Satisfied needs cease to be a motivator while unsatisfied needs
regulate an individual’s behavior.
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Merits of the theory: The merits of Maslow’s Theory are as follows:

a) This theory is easy to understand.

b) This theory is generally applicable to a wide range of culture.
c) This theory is capable enough to explain how needs influence human behaviour and motivate the
human beings to chalking out their work plans.
d) This theory gives an opportunity to the entrepreneurs and the managers to understand the needs of
the people at different levels and to motivate them according to their needs.

Criticism: Maslow’s need priority model of motivation has gained extensive popularity because of its
simplicity and logical explanation. This theory also explains how human behavior differs in two similar
situations. Nevertheless, there is little impartial support for it because its proposition could not be
vigorously tested through empirical research. However, the theory is widely criticized for the following
reasons:

a) The theory does not give any scientific explanation or tool for measuring needs.
b) The theory gives an over simplification of human needs and motivation.
c) Not everyone strives for higher level needs.
d) The hierarchy of needs is not always fixed. It varies from person to person, place to place and
time to time.
e) Motivation and needs are not directly linked. The same need may lead to different types of
behavior in different individuals.
f) Deprivation of needs may not necessarily motivate, it may cause depression also.

Inspite of the criticism, Maslow’s theory has a common sense appeal for all managers and entrepreneurs.
The theory provides a deep insight into the concept of need and its relation to human behavior.

McClelland’sNEED ACHIEVEMENT THEORY

The most important theory that influences the entrepreneurial behavior is the theory of need achievement
developed by David McClelland in the late 1940’s. According to him an individual’s need for
achievement is the triggering factor which drives the individual to excel and take risk on a different way.
This type of behavior for accomplishment for goals is the entrepreneurial ways that is stimulated by the
need for achievement.

A number of psychological factors influence the entrepreneurial motivation. These are stated as under:

57
 a) Need for achievement through goal setting.
b) Moderate risk taking intuition.
c) High desire to take personal responsibility.
d) Concrete measures of task measures.
e) Possibility thinking.
f) High level of aspirations.
g) Non-traditional instrumental activities.
h) Organizing skills.
i) Decision making and swift execution policies.
j) Strong inner spirits to attain a measurable variable arising from a need.

Thus, McClelland considers the need for achievement to be the most critical factor for entrepreneurial
motivation.

SOCIAL RESPONSIBILITY OF ENTREPRENURES

INTRODUCTION

An entrepreneur is a part of the society. It is the society which offers him opportunity to fulfill

His dream by launching a feeble project. Society also offers various factors which are essential
for the success of any enterprise. These include:

1. Capital and Financial resources

2. Materials
3. Human resource
4. Technological resources
5. Infrastructure like transport, insurances banking etc.

Since entrepreneur utilize the resources provided by the society, they must assume society
responsibility, i.e., obligation towards the society in general and various sections of the society.
This study is an attempt to see the rationale and extent of social responsibility of modern
entrepreneurs and also the need for ethical entrepreneurial behavior.

WHAT IS SOCIAL RESPONSIBILITY?

58
According to Howard Bowen social responsibility of business is defined as “obligation to pursue
those policies, to make those decisions or to follow those lines of actions, which are desirable in
terms of the objectives and values of the society.”

Social responsibility is an ethical framework and suggests that an entity, be it

an organization or individual, has an obligation to act for the benefit of society at large. Social
responsibility is a duty every individual has to perform so as to maintain a balance between the
economy and the ecosystems.

� Social responsibility is an ethical or ideological theory that an entity whether it is a

government, corporation, organization or individual has a responsibility to society.

� While primarily associated with business and governmental practices, activist groups and
local communities can also be associated with social responsibility, not only business or
governmental entities.

� Corporate social responsibility (CSR, also called corporate responsibility, corporate

citizenship, and responsible business) is a concept whereby organizations consider the
interests of society by taking responsibility for the impact of their activities on customers,
suppliers, employees, shareholders, communities and other stakeholders, as well as the
environment.

� This obligation is seen to extend beyond the statutory obligation to comply with
legislation and sees organizations voluntarily taking further steps to improve the quality
of life for employees and their families as well as for the local community and society at
large.

� Social responsibility means eliminating corrupt, irresponsible or unethical behavior that

might bring harm to the community, its people, or the environment before the behavior
happens.

� The shareholders, suppliers of resources, the consumers, the local community and society
at large are affected by the way an enterprise functions. Thus a business enterprise should
be able to strike a balance between these divergent groups.

59
 � There has been greater consensus around the fact that the business enterprise which
makes use of the resources of society and depends on society for its functioning, should
discharge its duties by enhancing the overall welfare of society.

WHY DO WE NEED SOCIAL RESPONSIBILITY IN BUSINESS?

1. Attracts & Retains Investors

Investors who are pouring money into companies want to know that their funds are being used
properly.

Not only does this mean that corporations must have sound business plans and budgets, but it
also means that they should have a strong sense of corporate social responsibility.

When companies donate money to non-profit organizations and encourage their employees
to volunteer their time, they demonstrate to investors that they don’t just care about
profits.

Instead, they show that they have an interest in the local and global community.

Investors are more likely to be attracted to and continue to support companies that demonstrate a
commitment not only to employees and customers, but also to causes and organizations that
impact the lives of others.

2. Improves Brand Recognition

As companies become more active in contributing positively to society, more people hear about
it. With social media changing the way brands are viewed by the public, having as much positive
exposure as possible is crucial. The more a company is actively involved in their community, the
easier it will be for consumers to identify that company in a positive way.

Not only does helping causes, actively participating in sustainability, and making an effort to
provide cause-driven marketing provide direct ties to the community that will elicit direct actions
from consumers to positively talk about your company, it also presents great opportunities for
PR material that can be used for future promotion of your brand.

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3. Increases Sales and Consumer Sentiment

Being socially responsible is not just the correct thing to do or a nice gesture to the community.
It has a huge impact on bottom line sales and revenue for companies. Do Well Do Good released
study results that revealed important information linking social responsibility with consumer
behavior. In the study over 60% of consumers stated that they would buy a new brand if they felt
that the cause the company was supporting was one that they also cared about.

4. Improves Local Quality Of Life

Through social outreach, companies can actively improve the quality of life of those who live in
areas where the company is located. By actively participating in local causes not only does a
company build local rapport with the community which ultimately translates to higher levels of
trust and brand recognition, the causes that they support also have a direct impact on the quality
of life for residents. This holds especially true for multinational corporations that have locations
based in countries and cities with below average living conditions.

5. Insulates Against Competition

Social responsibility has a direct correlation to public opinion and, as a result, can affect
consumer choices between two brands. As activists bring more attention to large corporations
and the impact they can have on social issues (both positively and negatively), corporations that
actively participate in providing positive change for pressing issues gain a competitive edge over
other companies in the same market. In the 1990s shoe manufacturer Nike faced large customer
boycott due to the discovery that the company was using irresponsible labour practices in
Indonesia during the manufacturing of shoe products. As a result, competing shoe companies
that used responsible manufacturing processes were able to gain increases in market share
through social responsibility.

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ARGUMENTS FOR SOCIAL RESPONSIBILITY

1. Public Requirements:

Business can exist only with public support and only if business fulfils needs of society. One of
main arguments for social responsibility is that public expectations from business have changed.
Therefore if business wishes to remain in existence for a long term it must respond to society’s
needs and give society what society wants.

The business must come up to expectations of public for its survival since the demand for
products or services arises from customers who are a part of society. Since business is a part and
parcel of society, it must think of its responsibilities.

2. Favorable For Business:

Performance of social obligation by business will not only be in the interest of society but in its
own interest also. The firm which is more responsive to improvement of community quality of
life will as a result has better community in which it conducts its business.

People with healthy environment, good health and education will make them good customers and
employees. Recruitment of labour will be of higher quality. Turnover and absenteeism will be
reduced. The society may reject an enterprise which does not care for social welfare. Crime rate
will also decrease as a result of social improvements.

3. Moral Justification:

Nowadays modern industrial society faces many serious social problems as a result of emergence
of large companies. Therefore these large corporations have a moral responsibility to solve these
problems. Also business which is using so many resources of our economy has responsibility to
devote some of these resources in overall development of society.

4. Socio-Cultural Norms:

In a country like India where social and cultural values have long and rich heritage, a business
promoting social equalities, healthy employer-employee relations and consumer service will

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enjoy better social position. A business working against traditional values will face criticism
from society.

5. Business Can Shoulder Responsibility:

Many people who feel frustrated with failure of other institutions in handling social problems are
turning to the business for their solution to social problems. In such a situation, it becomes the
duty of business to come up to expectation of public and fulfill its responsibilities towards
society.

6. Responsibility Must Correspond With Power:

Business enjoys social power to a great extent. So they do affect economy, minorities and other
social problems. Business should perform equal amount of social responsibility to match their
social power. If they don’t then it will reflect their irresponsible behavior, which will ultimately
affect the natural growth.

7. Public Image:

Only that firm can enjoy better reputation in public which supports social goals. Each firm seeks
an enhanced public image so that it may gain more customers, better employees, more
responsive money markets etc. It is possible only if business performs its responsibilities towards
society whole-heartedly which will result in raising the value of shares and debentures held by
the owners.

8. Government Regulations:

If business does not respond positively to the needs of society, then it may be compelled to do so
through government laws and regulations. Before government stretches its long arms, the
business should discharge its obligations to society. It has to regulate the business in public
interest.

9. Indebted to Society:

Business units benefit from society. In return it also has certain debts that it owes to society.
Business uses vast pool of resources in terms of men, talents, expertise and money. Business is in
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a position to work for social goals with the help of these resources. Also corporations unlike
citizens are created by society so they have certain civic duties and responsibilities.

ARGUMENTS AGAINST SOCIAL RESPONSIBILITY

� Profit Maximization: Economic efficiency of business should be the top priority and the
sole mission of business. In this situation decisions are controlled by their desire to
maximize profits for the shareholders while reasonable complying with law.

� Society has to pay the Cost: Costs of social responsibility will be passed on to the society
and eventually it is the society which has to bear them.

� Lack of social skills: Business managers are goods at solving matters relating to business
and not very effective at solving social problems as their outlook is primarily economic.

� Business has enough Power: Business already has enough social power and the society
should not take any steps which give it more power as it could mold social values.

� Social Overhead Costs: Cost of social responsibility will not immediately benefit the
business. Why spend money on an object, benefits of which will be realized only in
future.

� Lack of accountability: Businessmen have no direct accountability to the people. Unless

the society can develop mechanisms which establish direct lines of social accountability
from the business to the public, business must not stay away from social activities.

� Tax Benefits: Many companies involve themselves in social activities because of the tax
exemptions on the income spent on social purposes.

KINDS OF SOCIAL RESPONSIBILITY

Social responsibilities of business can broadly be divided into four categories which are as
follows:

a. ECONOMIC RESPONSIBILITY: a business enterprise is basically an economic entity

and therefore its primary social responsibility is to produce goods and services that

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 society wants and sells them at a profit. There is discretion in performing this
responsibility.
b. LEGAL RESPONSIBILITY: every business has a responsibility to operate within the
laws of the land. Since these laws are meant for the good of the society, a law abiding
enterprise is socially responsible enterprise as well.
c. ETHICAL RESPONSIBILITY: with respect to the sentiments of people, thereby not
hurting or insulting them advertising a product, for example is expected by the society.
There is an element of voluntary action in performing this responsibility.
d. DICSRETIONARY RESPONSIBILITY: this refers to the purely voluntary obligation
that an enterprise assumes it is the responsibility of the company management to
safeguard the capital investment by undertaking only healthy business ventures which
give good returns on investment.

CARROL’S MODEL OF CORPORATE SOCIAL RESPONSIBILITY

Carroll (1991) organized different corporate social responsibilities as a four-layered pyramid

model and called it the pyramid of responsibilities. The four different responsibilities -
economical, legal, ethical and philanthropic are the layers of the pyramid.

According to Carroll and Buchholtz (2003), the pyramid of responsibilities should be seen as a
whole and the different parts should not be separated. To be profitable as a company, minimize
cost and maximize sales or make sensible strategic decisions are at the base of economic
responsibilities. Economic performance is required by the society. The second layer is the legal
responsibilities and it is also required by society. In these responsibilities companies are
expected to obey the law, because the law mirrors show the society regards as accepted or
unaccepted. The difference of the ethical responsibilities from the first two responsibilities is
that the ethical responsibilities are not required but expected by society. To assert ethical
leadership, avoid questionable practices or operate above the minimum standard of the law could
be examples for the ethical responsibilities. The philanthropic responsibilities stand at the top
of the pyramid and to be a good corporate citizen and improve the quality of life for the society

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is the aim of these responsibilities. Corporate contributions, to support the community by
providing programs or engagement in volunteerism can be example for the philanthropic
responsibilities. To some extent the philanthropic responsibilities are desired and expected by the
society.

RESPONSIBILITIES TOWARDS DIFFERENT GROUPS

� Shareholders: The primary business of a business is to stay in business. To safeguard the
capital of the shareholders and to provide reasonable dividends and returns to its
shareholders.
� Employees: The success of the organization depends largely on the morale of the
employees. Employee morale depends on employer-employee relationship. The
responsibility of the organization to the workers include:
� Payment of fair wages
� Provision of best possible working conditions
� Establishment of fair work standards
� Provision of labor welfare activities
� Arrangement of proper training of workers.
� Reasonable chances of promotion
� Proper recognition, appreciation etc.
� Installation of an effective grievance handling system

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 � Consumers:
� The consumer is the king and is the foundation of any business venture. Important
responsibilities of the business to the customers are:
� Improve efficiency so as to increase productivity and reduce prices, improve quality and
smoothen the distribution system so as to make the products easily available.
� To do research and development so as to improve quality
� To supply goods at reasonable prices, even in case of a sellers’ market
� To provide after sales service
� To ensure that the product supplied has no adverse effect.
� To provide sufficient information about the product
� To avoid misleading customers by improper advertising etc.

� Community:
� Taking steps to prevent environmental pollution
� Rehabilitating the population displaced by the operation of the business
� Assisting in the overall development of the locality
� Taking steps to conserve scarce resources and develop alternatives
� Improve the efficiency of the business operation
� Development of backward areas
� Promotion of ancillary and small scale industries
� Contributing to welfare activities like promotion of education etc.

Entrepreneurship Development Programmes(EDP)

As the term itself denotes, EDP is a programme meant to develop entrepreneurial abilities among
the people. In other words, it refers to inculcation, development, and polishing of entrepreneurial
skills into a person needed to establish and successfully run his / her enterprise. Thus, the
concept of entrepreneurship development programme involves equipping a person with the
required skills and knowledge needed for starting and running the enterprise.

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The main purpose of such entrepreneurship development programme is to widen the base of
entrepreneurship by development achievement motivation and entrepreneurial skills among the
less privileged sections of the society.”

According to N. P. Singh (1985), “Entrepreneurship Development Programme is designed to

help an individual in strengthening his entrepreneurial motive and in acquiring skills and
capabilities necessary for playing his entrepreneurial role effectively. It is necessary to promote
this understanding of motives and their impact on entrepreneurial values and behaviour for this
purpose.” Now, we can easily define EDP as a planned effort to identify, inculcate, develop, and
polish the capabilities and skills as the prerequisites of a person to become and behave as an
entrepreneur.

Role and relevance of Entrepreneurial Development Programme (EDP)

Role and relevance of Entrepreneurial Development Programme (EDP) in the process of economic
development and growth of a nation is immense. Various EDPs are designed to develop and improve
entrepreneurial skills and behavioral adjustment needed to go through

Basically the EDPs are meant to train and develop new entrepreneurs who act as catalytic agents
in the process of industrialization and economic growth. It is the entrepreneur who organises and
puts to use capital, labour and technology in the best possible manner for the setting up of his
enterprise. The entrepreneur with his vision and ability to bear risk can transform the economic
scene of the country. They play a vital role in initiating and sustaining the process of economic
development of a nation. It is the EDP through which the entrepreneurs learn the required
knowledge and skill for running the enterprise successfully which ultimately contribute towards
economic progress in the following ways: EDP is essential for first generation entrepreneurs
because they may not become successful unless a proper training is received. It is a continuous
process of motivating the entrepreneur. The potential entrepreneurs can solve many of their
problems provided proper training is given to them.

On the basis of above discussion, it can be concluded that EDP is becoming increasing popular
and it can help the country in the following ways:

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1. Eliminates poverty and unemployment:
The basis problems of most of the developing countries like India are poverty and
unemployment. Entrepreneurship development programmes can help the unemployed people to
opt for self-employment and entrepreneurial as a career.

Several programmes like National Rural Employment Programme (NREP), Integrated Rural
Development Programme (IRDP) etc. are in operation in India to help the potential
entrepreneurs. All these special schemes intend to eliminate the poverty and solve the problem of
unemployment.

2. Balanced regional development:

Successful Entrepreneurial development programmes help in foster the industrialization and
reduces the concentration of economic power. It is because the small-scale entrepreneurs can set-
up their units in remote areas with little financial resources which can help in achieving balanced
regional development.

The medium and large enterprises do not help in reducing the disparities in income and wealth of
the people. Thus, Entrepreneurial development programmes help in balanced regional
development by spreading industrial units in each, and every part of the country.

3. Prevents industrial slums:

The urban cities are highly congested and leading to industrial slums. Decentralization of
industries is very much required by relocating the industries.
Entrepreneurial development programmes help in removal of industrial slums as the
entrepreneurs are provided with various schemes, incentives, subsidies and infrastructural
facilities to set up their own enterprises in all the non-industrialized areas.

This will control the industrial slums and also reduce the pollution, traffic congestion,
overcrowding in cities etc.

4. Harnessing locally available resources:

Since abundant resources are available locally, proper use of these resources will help to carve
out a health base for sound economic and rapid industrialization.

The entrepreneurial development programmes can help in harnessing these resources by training
and educating the entrepreneurs.

5. Defuses social tension:

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Every young person feels frustrated if he does not get employment after completing his
education. The talent of the youth must be diverted to self-employment careers to help the
country in defusing social tension and unrest among youth which is possible by entrepreneurial
development programmes.

6. Capital formation:
The various development banks like ICICI, IDBI, IFCI, SFC, SIDC and SIDBI take initiative in
promoting entrepreneurship through assistance to various agencies involved in EDP and by
providing financial help to ne entrepreneurs. It is impossible to start a new enterprise without
sufficient funds.

Entrepreneurs are the organizers of factors of production who employ their own and borrowed
money for setting up of new ventures. This all results in the process of capital formation.

7. Economic independence:
Entrepreneurs develop and produce substituted products of imported goods and prevent the over-
dependence on other countries.

They also enable the country to produce different variety of better quality goods and services at
competitive prices of imported goods which help in promoting the economic independence of the
country.

8. Improvement in per capita income:

Entrepreneurs always explore and exploit the new opportunities which lead to productive use of
factors of production for more output, employment and generation of wealth.

The overall increase in productivity and income help in improvement in per capita income. EDPs
play a significant role in setting up of more industrial units to generate more employment
opportunity and to secure improved per capital income.

9. Facilitating overall development:

Entrepreneurs act as agents of proper use of various limited resources such as men, money,
material, machines etc. which leads to overall development of an area, an industry. The
successful entrepreneurs set a motivating example for others to adopt entrepreneurship as a
career. Thus entrepreneurs create a motivating environment for economic development of a
country. The institutions which are motivating potential entrepreneurs to start their own
ventures are here classified into two parts, viz. (i) Financial institutions (ii) Non-financial
institutions. Financial Institutions means the institution, which is providing various types of
financial assistance to the entrepreneurs. Whereas non-financial institution means the institution
which is providing the assistance other than in terms of financial.

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National Small Industries Corporation Ltd. (NSIC):- The National Small Industries
Corporation (NSIC) was set up in February 1955 as a central agency for promotion and
assistance to the small-scale industries in the country. Its initial assignment was to assist small
industries in obtaining a fair proportion of government contracts. It has been providing
institutional assistance to this vital sector of the economic and has been playing a significant role
in the development of small scale industry, entrepreneurial base, employment generation,
development of rural and backward areas, increased share of assistance to SC/ ST, weaker
sections of the society, ex-servicemen, women entrepreneur etc. Function's of NSIC The
corporation provides support and renders assistance in the following areas: o Supply of
indigenous and imported machines on easy hire purchase terms. Special concessional terms have
been introduced for units promoted by entrepreneurs from weaker sections of the society, women
entrepreneurs and ex serviceman

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Entrepreneurship Development Institute of India (EDII):

 The Entrepreneurship Development Institute of India (EDII), a wholly autonomous and

non-profit Institution, set up in 1983, is sponsored by apex financial institutions, the
Industrial Development Bank of India (IDBI), the Industrial Finance Corporation of India
(IFCI), the Industrial Credit and Investment Corporation of India (ICICI) and the State
Bank of India (SBI). The Government of Gujarat pledged twenty-three acres of land on
which stands the majestic and sprawling EDI campus. The EDI has been spreading
entrepreneurship movement throughout the nation. EDI has a belief that entrepreneurs
can be developed through a well-conceived and well directed activities. The
objectives/mission of the EDI are :
 To augment the supply of trained entrepreneurs through training.
 To produce multiplier effect on opportunities for self employment.
 To improve managerial capabilities of small scale entrepreneurs.
 To contribute to the dispersal of business ownership and thus expand the social base of
Indian entrepreneurial class.
 To contribute to the creation and dissemination of new knowledge and insight in
entrepreneurial theory and practice through research.
 To augment the supply of trainer - motivators for entrepreneurship development.
 To sensitize the support environment to facilitate potential as well as existing
entrepreneurs establish and manage their enterprises.
 To promote micro enterprises at a rural level.
 To inculcate the spirit of “entrepreneurship” in youth.
 To collaborate with similar organizations in India and other developing countries to
accomplish the above objectives. The EDI led to the emergence of several training
programmes in various areas, thereby advancing the frontiers of the theories and practices
of entrepreneurship, and effectively contributing to the Nation’s economic vitality. EDI
addresses its programmes to:

(i) Target Institutions

 State level ED organizations
 ED institutions at the international level
 Educational institutions:
 Non-Government organizations/voluntary organizations
 Industry organizations
 Banks / Financial institution
 Industry / Business association
 Government Organizations.
(ii) Target trainees
 Government
 Officers / Executives
 Bankers
 Trainers
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  Teachers
 Students
 Rural poor Women
 Existing entrepreneurs
 Potential entrepreneurs
 Counselors and consultants
 Technocrats
 Educated unemployed, artisans,
 Ex-serviceman : EDI programme package
 Entrepreneurship in education
 Micro enterprise and micro finance development
 Performance and growth of existing entrepreneurs
 Performance improvement of ED organizations and ED programmes
Entrepreneurship environment and support system o Strategic international programmes
Innovation centre: A national facility for Science and Technology based Entrepreneurial
Innovations is carried in innovation centre of EDI and centre for research in entrepreneurship
education and development is set up. Through these various programme packages, EDI try to
develop the capabilities, create awareness, inculcate a spirit of achievement, review the
performance, motivate potential and existing entrepreneur equip entrepreneurs with knowledge
and information about international trade linkages, which would help the entrepreneurs in
starting their own units or in their existing business. EDI today is an acknowledged national
resource institution committed to entrepreneurship education, training and research, striving to
provide innovative training techniques, competent faculty support, teaching and training
material, besides sharing benefits of in-house research as well as experience in relevant spheres.
EDI realized that such a gigantic task can only be accomplished with collaborative efforts, so
EDI has linkage with a nationwide network of organization and institutions committed to
entrepreneurship development

Incentives and assistance schemes

Different incentive schemes are offered by the central and state governments, including the
Union Territories. The list of incentives and assistance offered by either or both the Governments
to potential entrepreneurs are as follows:

(A) Financial Incentives

(i) Differential rate of interest scheme (DRI)

(ii) Composite Loan Scheme (CLS)

(iii) Margin money Scheme for Tiny sector

(iv) Special Capital Scheme of SIDBI

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(v) Seed Capital Scheme

(vi) Equity Fund Scheme

(vii) Soft-Loan Scheme for modernization

(viii) Bill Discounting Scheme

(ix) Margin Money Scheme for Revival of Sick units

(x) Scheme for Rehabilitation of Sick Units

(xi) Credit Guarantee Scheme

(xii) State Aid to Small-Scale Industries

(xiii) Interest Free Loans

(B) Fiscal Incentives:-

(i) Concessions under income-tax law

(1) Investment allowance under section 32A and 32A (2B)

(2) Amortization of certain preliminary expenses under section 35D

(3) Additional Depreciation for new plant and machinery under section 32(i)(ii a)

(4) Tax concessions in respect of newly setup small-scale industrial undertakings in rural areas
under section 80-1

(5) Tax Holiday for new industries under section 80-1

(6) Exemption from property tax (ii) Concessions under Excise tariffs

(C) General Incentives:-

(1) Reservation of items for exclusive manufacture in the small scale sector. At present, the
number of reserved items stands at 836.

(2) Reservation of items for exclusive purchase from the small scale sector. It contains 409
items.

(3) Price preference on Government purchases

(4) Registration of small-scale units for participation in Government Stores purchase

programmes.

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(5) Supply of machinery on hire purchase and/or lease basis by NSIC

(D) Special Incentives in Backward Area:-

(1) Central Investment Subsidy scheme

(2) Concessional Finance Scheme

(3) Transport subsidy Scheme

(4) Interest Subsidy Scheme

(5) Consultancy Techno-Managerial Services

(6) Levy of charges for consultancy services of SIDO

(7) Machinery on Hire-Purchase/lease to small-scale units by NSIC

(8) Income-tax incentives

(E) Other Concessions:-

(1) Export-Import subsidies and Bounties.

(2) Subsidy for Research and Development works.

(3) Subsidy for power generators.

(4) Subsidy to artisans and traditional industries, including handlooms, handicrafts etc.

(5) Special incentives to women entrepreneurs.

(6) Incentives to non-resident Indians.

(7) Interest-free sales Tax loans.

(8) Sales Tax exemptions.

(9) Subsidy for buying testing equipment.

(10) Subsidy for industrial housing.

(11) Land and building at concessional rates.

(12) Exemption from stamp duty.

(13) Concession in water and power tariffs.

(14) Subsidized raw materials.

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Assistance Programme some of the important measures of assistance now available for the
entrepreneurs in the industrial sector are:

(1) Technical assistance through industrial extension services

(2) Assistance for obtaining raw materials,

(3) Cash assistance

(4) Supply of machinery on hire-purchase basis

(5) Marketing assistance;

(6) Assistance to small entrepreneurs

(7) Rural Industries Projects

The National Science & Technology Entrepreneurship Development Board (NSTEDB)

Established by Government of India in 1982 is an institutional mechanism, with a broad

objective of promoting gainful self-employment amongst the Science and Technology (S&T)
manpower in the country and to setup knowledge based and innovation driven enterprises.

NSTEDB functions under the aegis of Department of Science & Technology. It has
representation from socio-economic and scientific Departments / Ministries, premier
entrepreneurship development institutions and all India Financial Institutions.

The major objectives of NSTEDB are:

● To promote knowledge based and innovation driven enterprises.

● To facilitate generation of entrepreneurship and self-employment opportunities for S & T
persons.
● To facilitate the information dissemination.
● To network with various Central & State Government agencies for S&T based
entrepreneurship development.
● To act as a policy advisory body to the Government agencies for S&T based
entrepreneurship development.
● To generate employment through technical skill development using S & T infrastructure.

The Programmes conducted by NSTEDB have created awareness among S&T persons to take up
entrepreneurship as a career. The academicians and researchers have started taking a keen
interest in such socially relevant roles and have engaged themselves in several programmes
initiated by NSTEDB. About 100 organizations, most of which are academic institutions and
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voluntary agencies, were drafted in the task of entrepreneurship development and employment
generation.

Target groups for EDPs

The following types of target group may be considered before starting and EDP.

1. Technical and other qualified persons:

This group includes the persons having technical knowledge of a particular course. The persons
may be degree or diploma holders in science, ITI, engineering and technology.

The government and semi-government agencies operate special EDP and scheme of assistance
for this group. The EDP for this group is designed to enable and help them to set-up their own
manufacturing units.

The enterprises selected for this purpose are directly related to their technical qualification and
experience.

2. Ex-Servicemen:
Ex-servicemen are the persons who are retired from army, navy and air-force. These persons
have acquired many useful skills and experience during their service period. They are highly
disciplined, hard working, enterprising and innovative. They can also become successful
entrepreneurs after proper entrepreneurial training.

The Government of India offer special incentives and facilities in order to rehabilitate them.
Many ex-servicemen are operating their manufacturing training and service enterprises
successfully in two countries.

3. Business executives:
After getting sufficient business experience, some business executives want to start their
independent business enterprises.

They have innovative ideas and may not be satisfied with their present economic and social
entrepreneurs after getting entrepreneurial training.

4. Women entrepreneurs:
The Government of India is encouraging women to participate in business activities. Women are
entering into business world in large numbers.

Several government and non-government agencies are specially, organizing entrepreneurial

training programmes for women.
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5. S.C. and S.T., entrepreneurs:
Government of India is committed to uplift the scheduled caste (S.C.) and scheduled tribe (S.T.).
Various government and non-government agencies give preference to S.C. and S.T.
entrepreneurs to attend EDP.

Special arrangements are made to provide them concessional loans to set up their enterprises.

The characteristics or qualities which make the entrepreneurs successful are known as
entrepreneurial competencies. The possession of certain knowledge, skill, trait and quality called
entrepreneurial competencies help the entrepreneurs to perform entrepreneurial activities
successfully.

In other words, the qualities, traits and characteristics possessed by an entrepreneur which result
in superior performance are called the entrepreneurial competencies and are developed through
entrepreneurial development programme.

Phases of EDP

EDP passes through following three stages:

I. Initial or Pre-training phase

II. Training or Development phase
III. Post training or follow-up phase

I. Pre-Training
Pre-training phase consists of all activities and
preparation to launch training programme. Pre-training
phase of EDP consists of the following activities:

1. Designing course-curriculum for training

It is essential for any EDP that whatever material for study or training is designed should fulfil
the needs or purpose of the EDP.

The main objectives to be kept in mind while designing the course curriculum are as follows:

a) To provide knowledge and information regarding entrepreneurship, role of entrepreneur in

economic development and available facilities regarding establishment of enterprise to
perspective entrepreneurs.

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b) To provide motivation training to the prospective entrepreneurs in order to develop right
approach and behaviour towards business.

c) To provide and arrange for necessary course material important for management and technical
information.

d) To collect and provide information regarding various agencies engaged in providing

assistance to entrepreneurs to establish and run the enterprises.

e) To provide various project reports so that they can study and analyse the feasibility of various
projects with regard to marketing, technical and financial aspects.

f) Arranging plant visits so that they may become familiar with real life situations. This will help
in inculcating the right behaviour and thoughts and in developing a strong personality.

2. Selection of faculty
The success of an EDP depends upon able or well qualified experienced faculty or resource
persons. Thus selection of the proper faculty is an important part of pre-training phase. For this
teacher from various universities, professional institutes, banks, research and development fields
are invited.

3. Advertisement
Next important task is giving advertisement for EDP to be conducted. So that maximum number
of candidates can participate. Advertisement can be given in local newspaper, educational
institutes or employment exchange.

4. Selection of potential or perspective Entrepreneurs

For the success, an EDP it is essential that only those participants take part who really has
qualities to be potential entrepreneurs. The selection of prospective entrepreneurs can be made
on following basis:

i. On the basis of information available from application form.

ii. On the basis of written examination to check the aptitude.
iii. On the basis of personal interview of the candidate.

II. Training phase

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The main objective of this phase is to bring desirable change in the behaviour of the trainees. The
purpose of training is to develop ‘need for achievement’ i.e. motivation among the trainees.
Accordingly, a trainer should see the following changes in the behaviour of trainees:

● Is he or she attitudinally tuned very much towards his or her proposed project idea?
● Is the trainee motivated to plunge into entrepreneurial career and beer risks involved in
it?
● How should he or she behave like an entrepreneur?
● What kinds of entrepreneurial traits the trainee lacks the most?
● Do the trainees possess the required skill in selecting the viable project, mobilizing the
required resources at the right time?

There are number of methods to provide Training:

1. Lecture method: In this method the instructor directly communicates with the
participant with regard to theory and practice to be followed. The advantage of this
method is that queries or doubts in the mind of candidates are cleared on the spot.

2. Written instructions method: Under this method written material is provided to the
participants for their use. All important factors or elements required for setting up and running an
enterprise are provided in written form.

3. Demonstration or practical method: For better understanding of the candidates everything

related to entrepreneurship is taught by demonstrations. Every minute detail is explained by
giving demonstrations for the practical performance of the work.

4. Conferences: Under conference method, experts in various fields are invited to share their
ideas with the participants. The aim is to provide knowledge to trainees for improving their
effectiveness.

5. Meetings: Meetings provide opportunities to candidates to discuss various problems faced by

them. They discuss exchange ideas on various issues at firm conclusion

6. Individual training: Under these circumstances where one person is to be given information
or knowledge on a particular aspect, then individual training is imparted.

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7.Group training: This method of training is best suited where group of individuals has to do
similar type of work and where similar types of instructions are to be given to all of them.

III. Post-training phase: The ultimate objective of the entrepreneurship development

programme is to prepare the participants to start their enterprise. The success of the EDP can be
judged from the objectives it has achieved, that is how many participants actually started their
own enterprise after getting training. This phase involves assessment to judge how far the
objectives of the program have been achieved. This is called Follow-up. In follow up following
three things come:
● Was the programme conducted as per plans?
● If not what were the deviations, loopholes in the plan?
● Taking Corrective action to improve the weaknesses after identifying them?
IV. Follow-up Phase: Follow up phase of EDP has been termed as post-training phase. The
ultimate objective is to develop competent entrepreneurs. So that they can start their project.
Post-training phase is a review phase of training programme. It consists of reviewing of work in
the following manner:
1. Review of pre-training work
2. Review of actual training programme
3. Review of post training programme so that cost effectiveness of the present programme
can be evaluated.

Critical evaluation of EDPs in India

Several evaluation studies have been conducted by various organizations and individual
researchers. Although these studies vary in their objectives, coverage and content, yet all of them
contain an evaluation of effectiveness or impact of EDPs. One of the earliest studies was made
by a team of researchers and experts appointed by the Gujarat Financial Corp. to evaluate the
effectiveness of EDPs.
A comprehensive nationwide evaluation study on EDPs was made by the Entrepreneurship
Development Institute of India, Ahmadabad. The study found that one out of every four trainees
actually started his/her enterprise after undergoing entrepreneurial training, However, the
expected final start-up rate was higher at around 32%, About 10% trainees were found blocked
due to various reasons at various stages on the process of setting up their enterprise. If they were
not helped effusively, they might join the category of those 29% trainees who had already given
up the idea of launching their ventures, Out of 430 trainees who could not be contacted
personally during the field study, 17% had given up the idea of starting ventures. In fact, they
were engaging in other activities as informed by the secondary sources such as family friends
and neighbors.
The performance of EDPs across the states and across the ED organizations has not been
uniform. The actual start up rates were observed to be oscillating between 99% and 96%,

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bringing down the overall national start up rate to about 26% which, of course, cannot be
considered an impressive performance.

EDPs in India are affected with a number of problems which are responsible for low level of
success of the programmes. The problems come from the trainers, trainees, the various
organizations imparting training programmes, the supporting organization and even sometimes
the government. Some of the important problems faced by EDPs are narrated as follows:

i. No clear-cut policy at the national level:

India do not have a clear-cut national policy on entrepreneurship. Therefore, the growth and
development of entrepreneurship put to a halt due to the antithetic attitude of the supporting
agencies like banks, financial institutions and other supporting agencies in the absence of a
policy at the national level.
ii. No clear-cut objectives:
Majority of institutions engaged in EDP are themselves not convinced and certain about the task
they are supposed to perform and objectives to achieve. They are conducting EDP because they
have to conduct the same.
iii. No clear cut course of action:
The course contents are not standardized and the agencies engaged in EDPs are themselves not
very clear about the course of action they are supposed to follow. There is no accountability and
feed back system for further improvement.
iv. Poor follow-up:
Institutions providing EDPs do not show much concern for objective identification and selection
of entrepreneurs. No follow-up actions follow EDPs after training.
v. Non-availability of Infrastructural facilities : EDPs are not successful due to non-availability
of adequate infrastructural facilities required for the conduct of EDPs. Rural and backward areas
are lacking in proper class rooms, guest speakers, boarding and lodging etc. for successful
conduct of EDPs.
vi. Lack of commitment and involvement by the Corporate Sector:
Corporate sector shows less concern for the successful conduct of EDPs. They lack of
commitment and involvement in EDPs. There seems to be low institutional support
entrepreneurs.
vii. Non-availability of competent faculty:

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The faculties selected for giving training are not sometimes competent enough to give proper
training to prospective entrepreneur. Even if competent and qualified teachers available, they are
reluctant to serve in rural and backward areas. This creates problem smooth conduct of EDPs.
viii. Non conducive environment:
Non-conducive environment and constraints in the backward regions has become a major
problem for the conduct of EDPs. It makes the trainer-motivator's role ineffective.
ix. Selection of wrong trainees:There is no uniform procedure adopted by various agencies and
institutions conducting EDPs for the selection of trainees. This results in the selection of wrong
trainees which leads to low success rate of EDPs.

Long answer type questions:

Q1. Explain the role of entrepreneurship in economic development. What are the barriers to
entrepreneurship?
Q2. Discuss the awareness, assessment and development of entrepreneurial competencies.
Q3. Discuss Entrepreneurship as a Career. What are the factors favoring entrepreneurship as a
career option?
Q4. What is the need for entrepreneurship development? Explain the role of family and society
in entrepreneurship development.
Q5. Bring out the role and methods of entrepreneurial development training.
Q6. What is innovation? What are the sources of Innovation? State the types of innovation and
describe the elements of innovation process.
Q7. Write Short Notes on:
a) Incubation of Idea
b) Brain Storming
c) Technical Innovation
d) Convergent Thinking
e) Divergent Thinking
Q8. Define Entrepreneurship Development Programme. What are its objectives? Describe the
reasons of slow development of entrepreneurship in India.
Q9. Describe the phases of Entrepreneurship Development Programme. How should an EDP be
evaluated?
Q10. Explain the role of Government in supporting Entrepreneurship Development Programmes.
Also describe the institutions set up by the Government for Conducting EDP’s.
Q11. “The concept of Social Responsibility and is ultimately in the interest of business
community itself”. Do you agree? Give reasons.
Q12. “A business owes certain obligations towards different groups. Identify those groups and
explain the obligations of business towards those groups”.

83
Q13. There have been several cases of cheating of depositors by some finance companies. Do
you consider this type of business practice unethical? Elaborate your viewpoint.
Q14. Promoting of entrepreneurship in a society leads to channeling the youth energy. How?
Q15. “Entrepreneurship is not only an exercise in self- employment, but it is also employment
generative.” Justify this statement.
MCQs
1. _______________ actions by an entrepreneur is most likely to contribute to creative
destruction.
A. Development of a new product
B. Take-over of a competitor
C. Issuing shares
D. Development of a new product
2. The resistance of employees in an organization against flexibility, growth, and diversification
can be overcome by developing_____________.
A. Entrepreneurship
B. Managerial domain
C. Intrapreneurship
D. Administrative domain
3. ______________ shows the process of creating something new.
A. Innovation
B. Business model
C. Modeling
D. Creative flexibility
4. Which one of the following is an advantage of the small firm in the innovation process?
A. Ability of the entrepreneur to carry out multiple tasks
B. Ability to raise finance
C. Ability to carry out R&D
D. Ability of the entrepreneur to act on new ideas or product development
5. The goals should be ____________ for the success of business plan.
A. Generalized
B. Specific
C. Limitless
D. Imaginary
6. _________________ gives suggestions for new product and also help to market new products.
A. Existing products and services
B. Consumers
C. Federal government
D. Distribution channels
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7. External links may provide incentives to ______________.

A. Attend business exhibitions

B. Introduce new working practices
C. Introduce improvements to products
D. Raise finance

8. Which of the following shows the process of creating something new:

A. Business model
B. Modeling
C. Creative flexibility
D. Innovation

9. EDP (Entrepreneurship Development Programmes) is required to help:

A. Existing entrepreneurs
B. First generation entrepreneurs
C. Future generation entrepreneurs
D. None of the above

10. EDPs course contents contain ___________.

A. General introduction to entrepreneurs.
B. Motivation training.
C. Managerial skills.
D. All the above

11. Innovative small firms are more likely in:

A. Knowledge-based sectors
B. Biotechnology
C. Automobile manufacture
D. Aerospace manufacture

12. Schumpeter considered that innovative entrepreneurs would:

A. Thrive
B. Disappear
C. Be absorbed within large innovative firms
D. Be absorbed within non-innovative firms

13. Innovative entrepreneurs face special issues in raising:

A. Development capital
B. Structured capital
C. Human capital
D. Seed capital
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14. Innovative entrepreneurs may have to pay high insurance premiums due to the:
A. The need to protect patents
B. Greater employee liability
C. Greater customer liability
D. Greater trading risks

15. A Pre-entrepreneur is…

A. Involved in welfare-based entrepreneurship where profit maximization is less important than
the collective
B. Involved where profit maximization is less important than the collective
C. Involved in welfare-based entrepreneurship
D. Involved in welfare-based entrepreneurship for profit maximization only

16. Which one of the following are not generally regarded as stakeholders – but could be under
specific circumstances:
A. Customers
B. Suppliers
C. Environment
D. Government
E. Employees

17. Which one of the following questions doesn’t belong in the ethics decision model?
A. What are my options?
B. Are they legal and in line with company policies and procedures?
C. How much will it cost?
D. Can I tell my friends and family about it?
E. How will I feel once I have done this?

18. An ethics hotline (Whistle Blowers’ Hotline)

A. Ensures that a case will be investigated
B. Does not guarantee anonymity
C. Could be used by clients as well as employees
D. Is an internal conflict resolution mechanism
E. Reports directly to the entrepreneur

19. Which of the following is not an assumption of Schumpeter’s stationary state ?

A. Perfect competition
B. An economy below full employment
C. No savings or technical change
D. No entrepreneurial function is required

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20. Madeline always feels like she is never included in group activities or social events. She
has become depressed and lonely. According to Maslow, which category of needs has not
been fulfilled?
A. Social (love/belonging) needs
B. Self-actualization needs
C. Physiological needs
D. Safety needs
E. Esteem needs

21. According to Maslow's hierarchy of needs, when all of the physiological needs are met,
people tend to become concerned with which of the following?
A. Social (love/belonging) needs
B. Self-actualization needs
C. Physiological needs
D. Safety needs
E. Esteem needs

22. The order of Maslow's Hierarchy of Needs, from bottom to top is:
A. Safety, Esteem, Social, Self-Actualization, Physiological
B. Physiological, Esteem, Social, Safety, Self-Actualization
C. Physiological, Safety, Social, Esteem, Self-Actualization
D. Physiological, Safety, Esteem, Social, Self-Actualization
E. Self-Actualization, Esteem, Social, Safety, Physiological

23. Self-actualisation needs on the job are fulfilled by :

(a) Ensuring hard work in the job
(b) Ensuring quality products
(c) Participating in a training programme
(d) None of the above

24. The attitude of Indian Government Machinery towards entrepreneurial development

programme is :
(a) Destructive
(b) Negative
(c) Constructive
(d) Non-cooperative

25. In India entrepreneurial development programme is :

(a) Necessary
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(b) Unnecessary
(c) Wastage of time
(d) Wastage of money

26. Entrepreneurial Development Programee provides :

(a) Self-employment
(b) Education & training
(c) Skill increment
(d) All of these

27. Maslow’s Hierarchy of needs theory is governed by the fact that:

(a) People are universally motivated by needs
(b) People are socially motivated by needs
(c) People are politically motivated by needs
(d) None of the above

28. Critical evaluation points of entrepreneurial development programme are:

(a) Organizational policies
(b) Lack of suitable selection procedure
(c) Lack quality of technical and vocational education and training
(d) All of these

Answer Key:
1 2 3 4 5 6 7 8 9 10 11 12 13 14
d c a d b d c d b d a c d a
15 16 17 18 19 20 21 22 23 24 25 26 27 28
a d c a b a d c c d a a c d

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 Unit –IV
Chapter: 6
Entrepreneur Development Programme: Objectives and Role
ED Programmes (EDP)
Entrepreneurship Development Programme (EDP) is a programme which helps in developing the
entrepreneurial abilities. The skills that are required to run a business successfully is developed
among the people through this programme. Sometimes, people may have skills but it requires
polishing and incubation. This programme is perfect for them. This programme consists of a
structured training process to develop an individual as an entrepreneur. It helps the person to
acquire skills and necessary capabilities to play the role of an entrepreneur effectively. As per
National Institute of Small Industry Extension Training, Hyderabad, an EDP is an effort of
converting a person to an entrepreneur by passing him through a thoroughly structured training.
An entrepreneur is required to respond appropriately to the market and he/she is also required to
understand the business needs. The skills needed are varied and they need to be taken care in the
best possible way. EDP is not just a training programme but it is a complete process to make the
possible transformation of an individual into an entrepreneur. This programme also guides the
individuals on how to start the business and effective ways to sustain it successfully.
As the term itself denotes, EDP is a programme meant to develop entrepreneurial abilities among
the people. In other words, it refers to inculcation, development, and polishing of entrepreneurial
skills into a person needed to establish and successfully run his / her enterprise. Thus, the
concept of entrepreneurship development programme involves equipping a person with the
required skills and knowledge needed for starting and running the enterprise.
Objectives of EDP
The objective of this programme is to motivate an individual to choose the entrepreneurship as a
career and to prepare the person to exploit the market opportunities for own business
successfully. These objectives can be set both in the short-term and long-term basis.
 Short-term objectives: These objectives can be achieved immediately. In the short-term,
the individuals are trained to be an entrepreneur and made competent enough to scan existing
market situation and environment. The person, who would be the future entrepreneur, should
first set the goal as an entrepreneur. The information related to the existing rules and regulations
is essential at this stage.
 Long-term objectives: The ultimate objective is that the trained individuals successfully
establish their own business and they should be equipped with all the required skills to run their
business smoothly.
The overall objectives of EDP are mainly to help in rapid industrialisation by supplying skilled
entrepreneurs. At the same time, it also industrialises underdeveloped areas. The performance of
small and medium scale industries are expected to improve by this and therefore providing a
huge scope of employment generation in these sectors. This programme primarily aims at
providing self-employment to the young generation.
Major Objectives of EDP
The major objectives of the Entrepreneurship Development Programmes (EDPs) are to:
(i) Develop and strengthen the entrepreneurial quality, i.e. motivation or need for achievement.
(ii) Analyse environmental set up relating to small industry and small business.
(iii) Select the product.
(iv) Formulate proposal for the product.
(v) Understand the process and procedure involved in setting up a small enterprise.
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 (vi) Know the sources of help and support available for starting a small scale industry.
(vii) Acquire the necessary managerial skills required to run a small-scale industry.
(viii) Know the pros and cons in becoming an entrepreneur.
(ix) Appreciate the needed entrepreneurial discipline.
(x) Enable to communicate clearly and effectively.
(xi) Develop a broad vision about the business.
(xii) Make him subscribe to the industrial democracy.
(xiii) Develop passion for integrity and honesty.
(ivx) Make him learn compliance with law.
An Entrepreneurship Development Programme primarily plays four roles to help an
individual to become an entrepreneur. They are:
Stimulatory Role: It aims at influencing people in large number to be the entrepreneur. This
includes:
1. Developing managerial, technical, financial, and marketing skill
2. Inculcating personality traits
3. Promotes and reforms entrepreneurial behaviour and values
4. Identifying potential entrepreneur applying scientific methods
5. Motivational training and building proper attitude
6. Strengthening the motive of a person and giving recognition
7. The valuable know-how of the local products and the processes help in selection of
products, preparation of project reports
Supportive Role: It helps in the following ways:
1. Registration of the business
2. Procurement of fund
3. Arrangement of land, power, water, shed etc.
4. Support in purchase of right kind of machinery and equipment
5. Supply of raw materials and common facilities
6. Providing tax relief, subsidy etc.
7. Guidance in product marketing
8. Support for management consultancy
Sustaining Role: It aims at providing an effective safeguard to businesses to sustain against the
cut-throat market competition. This includes:
1. Help in modernisation, expansion, and diversification
2. Additional financing for further development
3. Deferring interest payment
4. Creating new marketing processes
5. Helping access to improved services and facility centers
Socio-economic Role: It aims at upgrading the socio-economic status of the public and includes:
1. Identifying entrepreneurial qualities in practicality
2. Creating employment opportunities in micro, small, and medium industries on an
immediate basis
3. Arresting concentration of industries by supporting regional development in a balanced
manner
4. Focusing on the equal distribution of income and wealth of the nation
5. Channelizing the latent resources for building an enterprise

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 The Govt. of India has established specialised institutions to boost up the rate of entrepreneurial
development in India like NIESBUD in Noida, MSME-DI for small scale industries, NIMSME
in Yousufguda, Hyderabad, EDI, NSTEDB, IED and CED in different states.
Problems of Entrepreneurship Development Programmes (EDPs)
1. No Policy at the National Level
Though Government of India is fully aware about the importance of entrepreneurial
development, yet we do not have a national policy on entrepreneurship. It is expected that the
government will formulate and enforce a policy aimed at promoting balanced regional
development of various areas through promotion of entrepreneurship.
2. Problems at the Pre training Phase
Various problems faced in this phase are — identification of business opportunities, finding &
locating target group, selection of trainee & trainers etc.
3. Over Estimation of Trainees
Under EDPs it is assumed that the trainees have aptitude for self employment and training will
motivate and enable the trainees in the successful setting up and managing of their enterprises.
These agencies thus overestimate the aptitude and capabilities of the educated youth. Thus on
one hand the EDPs do not impart sufficient training and on the other financial institutions are not
prepared to finance these risky enterprises set up by the not so competent entrepreneurs.
4. Duration of EDPs
An attempt is made during the conduct of EDPs to prepare prospective entrepreneurs thoroughly
for the various problems they will be encountering during the setting up and running of their
enterprises. Duration of most of these EDPs varies between 4 to 6 weeks, which is too short a
period to instill basic managerial skills in the entrepreneurs. Thus the very objective to develop
and strengthen entrepreneurial qualities and motivation is defeated.
5. Non Availability of Infrastructural Facilities
No prior planning is done for the conduct of EDPs. EDPs conducted in rural and backward areas
lack infrastructural facilities like proper class room suitable guest speakers, boarding and lodging
etc.
6. Improper Methodology
The course contents are not standardized and most of the agencies engaged in EDPs are
themselves not fully clear about what they are supposed to do for the attainment of pre-
determined goals. This puts a question mark on the utility of these programmes.
7. Mode of Selection
There is no uniform procedure adopted by various agencies for the identification of prospective
entrepreneurs. Organizations conducting EDPs prefer those persons who have some project ideas
of their own and thus this opportunity is not provided to all the interested candidates.
8. Non Availability of Competent Faculty
Firstly there is problem of non availability of competent teachers and even when they are
available, they are not prepared to take classes in small towns and backward areas. This naturally
creates problems for the agencies conducting EDP.
9. Poor Response of Financial Institutions
Entrepreneurs are not able to offer collateral security for the grant of loans. Banks are not
prepared to play with the public money and hence they impose various conditions for the grant of
loans. Those entrepreneurs who fail to comply with the conditions are not able to get loan and
hence their dream of setting up their own enterprises is shattered. Helpful attitude of lending
institutions will go a long way in stimulating entrepreneurial climate.
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Stages of Entrepreneurial development programme:
An EDP consists of three stages: -
(1) Initial or Pre-training Stage.
(2) Training or Development stage.
(3) Post-training or Follow-up stage.
(1) Initial or Pre-Training Stage: -This stage includes the activities and the preparation
required to launch the training programme. Thus, it involves the identification and selection of
potential entrepreneurs and providing initial motivation to them. The main activities are:
 Creation of Infrastructure for training,
 Preparation of training syllabus
 Tie up of guest faculties
 Arrangement for inauguration of the programme
 Designing tools and techniques for selecting the trainees,
 Formation of selection committee
 Publicity campaign for the programme o Development of Application form
(2) Training Or Development Stage:- In this stage the training programme is implemented to
develop motivation and skills among the participants. The training of potential entrepreneurs
covers special inputs such as, behavioural inputs (achievement motivation) and business
opportunity guidance, information and technical inputs and managerial inputs. The trainers have
to judge how much, and how far the trainees have moved in their entrepreneurial pursuits. Most
of the business inputs can be given through management/ professional consultants, practitioners,
business and industrial executives, experts of state industrial agencies, bankers, technical
consultancy institutions and small-scale entrepreneurs. Inhouse care teams can also be formed
from the group of trainers or experts where resource persons from industry and trade are not
locally available. Field trips to selected industrial units can also be arranged to expose trainees to
actual operating conditions.
(3) Post-Training Or Follow-Up Stage:-This stage involves assessment to judge how far the
objectives of the programme have been achieved. Each group of entrepreneurs in an
entrepreneurship programme can be looked after by the entrepreneur trainer - motivator. This
involves:- follow-up on loan application for finance, o facilitating infrastructure such as land,
factory shed, power, road, etc.

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 Chapter: 7
Role of Entrepreneurs in Economic Development
Everything you need to know about the role of entrepreneurs in economic development.
Economic development essentially means a process of upward change whereby the real per
capita income of a country increases over a period of time. Entrepreneur plays a vital role in
economic development. Entrepreneurs serve as the catalysts in the process of industrialization
and economic growth. Technical progress alone cannot lead to economic development, unless
technological breakthroughs are put to economic use by entrepreneurs.
Economic development essentially means a process of upward change whereby the real per
capita income of a country increases over a period of time. Entrepreneur plays a vital role in
economic development. Entrepreneurs serve as the catalysts in the process of industrialization
and economic growth. Technical progress alone cannot lead to economic development, unless
technological breakthroughs are put to economic use by entrepreneurs.
It is the entrepreneur who organizes and puts to use capital, labour and technology. Accordingly,
“development does not occur spontaneously as a natural consequence when economic conditions
in some sense are right. A catalyst is needed and this requires entrepreneurial activity to a
considerable extent, the diversity of activities that characterizes rich countries can be attributed
to the supply of entrepreneurs.”
The entrepreneur is the key to the creation of new enterprises that energize the economy and
rejuvenate the established enterprises that make up the economic structure.
Entrepreneurs initiate and sustain the process of economic development in the following
ways:
1. Capital Formation:
Entrepreneurs mobilize the idle savings of the public through the issues of industrial securities.
Investment of public savings in industry results in productive utilization of national resources.
Rate of capital formation increases which is essential for rapid economic growth. Thus, an
entrepreneur is the creator of wealth.
2. Improvement in Per Capita Income:
Entrepreneurs locate and exploit opportunities. They convert the latent and idle resources like
land, labour and capital into national income and wealth in the form of goods and services. They
help to increase net national product and per capita income in the country, which are important
yardsticks for measuring economic growth.
3. Generation of Employment:
Entrepreneurs generate employment both directly and indirectly. Directly, self-employment as an
entrepreneur offers the best way for independent and honorable life. Indirectly, by setting up
large and small scale business units they offer jobs to millions. Thus, entrepreneurship helps to
reduce the unemployment problem in the country.
By creating a new venture, entrepreneurs generate employment opportunities for others.
Unemployment is a major issue, especially in the context of developing economies like India.
Educated youth often are unable to get a suitable employment for themselves. Thus,
entrepreneurs do a Yeoman’s service by not only employing themselves into their
entrepreneurial ventures, but also by employing others.
Within the last 15 years, Fortune 500 companies and large corporations have endured major
retrenchment and eliminated millions of jobs, whereas discoveries in the entrepreneurial sector

93
have yielded an average of 600,000 new incorporations per year and generated millions of job
opportunities.
4. Balanced Regional Development:
Entrepreneurs in the public and private sectors help to remove regional disparities in economic
development. They set up industries in backward areas to avail various concessions and subsidies
offered by the central and state governments.
Public sector steel plants and private sector industries by Modis, Tatas, Birlas and others have
put the hitherto unknown places on the international map.
5. Improvement in Living Standards:
Entrepreneurs set up industries which remove scarcity of essential commodities and introduce
new products. Production of goods on mass scale and manufacture of handicrafts, etc., in the
small scale sector help to improve the standards of life of a common man. These offer goods at
lower costs and increase variety in consumption.
6.Economic Independence:
Entrepreneurship is essential for national self-reliance. Industrialists help to manufacture
indigenous substitutes of hitherto imported products thereby reducing dependence on foreign
countries. Businessmen also export goods and services on a large scale and thereby earn the
scarce foreign exchange for the country.
Such import substitution and export promotion help to ensure the economic independence of the
country without which political independence has little meaning.
7.Backward and Forward Linkages:
entrepreneur initiates change which has a chain reaction. Setting up of an enterprise has several
backward and forward linkages. For example- the establishment of a steel plant generates several
ancillary units and expands the demand for iron ore, coal, etc.
These are backward linkages. By increasing the supply of steel, the plant facilitates the growth of
machine building, tube making, utensil manufacturing and such other units.
8 .Others towards Entrepreneurship:
The team created by an entrepreneur for his new venture often provides the opportunity for the
employees-cum-teammates to have a first-hand experience of getting involved in an
entrepreneurial venture. This often leads eventually for these employed to become entrepreneurs
themselves after being inspired by their earlier experience of working for an entrepreneur. Thus,
this process helps in forming a chain reaction of entrepreneurial activity which directly contrib-
utes to the health of the economy.
9.Create Knowledge Spillovers:
When a scientist, an engineer, or a knowledge worker (i.e. an economic agent with endowments
of new economic knowledge) leaves an organization to create a new firm, knowledge acquired
by her in the organization gets spilled over to the new firm. Hence, entrepreneurship serves as a
mechanism by which knowledge spills over to a new firm in which it is commercialized.
Naturally, the new firm gets benefited by the experience and knowledge gained by the founder in
her erstwhile organization.
Knowledge is embodied in a worker and the new firm is created through the worker’s effort to
appropriate the value of his knowledge by way of innovative activity. Lucas (1988) established
that knowledge spillovers are an important mechanism driving economic growth.
10.Augment the Number of Enterprises:
When new firms are created by entrepreneurs, the number of enterprises based upon new
ideas/concepts/products in a region (say, a city, state, or country) increases. Not only does an
94
increase in the number of firms enhance the competition for new ideas, but greater competition
across firms also facilitates the entry of new firms specializing in a particular new product niche.
This is because the necessary complementary inputs are more likely available from small
specialist niche firms than from large, vertically integrated producers (Jacobs, 1969). Glaeser et
al. (1992) as well as Feldman and Audretsch (1999) found empirical evidence supporting the
hypothesis that an increase in competition within a city, as measured by the number of
enterprises, is accompanied by higher growth performance of that city.
11.Provide Diversity in Firms:
Entrepreneurial activity in a region often results into creation of a variety of firms in a region.
These firms operate into diverse activities and it has been found that it is this diversity in firms
which fosters economic development and growth rather than homogeneity. According to Jacobs
(1969), it is the exchange of complementary knowledge across diverse firms and economic
agents that yield an important return on new economic knowledge.
12.Organising of Society’s Productive Resources:
The important role of entrepreneurship is the optimum uses of productive resources of the
country for the benefits of the people. James Burna observes that an entrepreneur is the organiser
of society’s productive resources. While explaining the contribution of entrepreneurs Prof.
Karvar writes, the services of an entrepreneur are such which a paid manager cannot perform. In
the absence of entrepreneurs, all the productive resources remain idle.
13.Production of New Articles:
Entrepreneur performs important role in producing and presenting new products in the market.
He innovates and identifies the possibility of producing new products on the basis of innovation.
14. New Production Technique:
Entrepreneur uses the new methods of production techniques, and brings in the market varieties
of products at reasonable prices. He makes efforts to bring improvement in the present
technology of production.
15.Promotes Capital Formation:
In a developing economy, the entrepreneur only can promote capital formation by investing in
industrial activities. The entrepreneurial activity is the base for the development of capital market
in a country like India.

16. Contributes towards Creation of Industrial Climate:

Entrepreneur plays important role in building industrial climate in the country. He motivates
other entrepreneurs also to invest in industrial activities.
17. Ambassador of Social Changes:
Entrepreneurs are ambassadors of social changes in an economy. New inventions cultivated
scientific outlook among the people leaving their traditional beliefs and attitudes.
18.Removal of Regional Disparities:
Entrepreneurs contribute towards removal of geographical imbalances and economic
backwardness. Really speaking an entrepreneur bears the risk in setting up industry in backward
areas of the country in is efforts for balanced development of the country.
19.Contribution towards Economic Development of the Country:
Entrepreneur also contributes towards the development of national economy. He sets up industry
in priority areas by the government in its Five Year Plan programmes. He makes available the
source of employment to the people. By optimum use of resources, he contributes towards
increase in the national income.He encourages for capital formation in the country. In the
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modern time, an entrepreneur is a wheel of economic development and kingpin of every
economy. He is one of the most important inputs in the economic development of a country.
Entrepreneurs create an atmosphere of enthusiasm and convey a sense of purpose. They give an
organization its momentum. Entrepreneurial behaviour is critical to the long term vitality of
every economy. The practice of entrepreneurship is as important to established firms as it is to
new ones.Entrepreneurship does not emerge and grow spontaneously. There are various factors
having both positive and negative influence on the growth of entrepreneurship. (Positive
influence implies facilitating and conducive conditions whereas negative influences refer to
factors inhibiting the emergence of entrepreneurship).
Facilitating Factors:
1. Technical knowledge
2. Entrepreneurial training
3. Market contacts
4. Family business
5. Availability of capital
6. Successful role models
7. Local manpower
8. Government and institutional support
Barriers:
1. Lack of technical skills
2. Lack of market knowledge
3. Lack of business knowledge
4. Time pressure and distractions
5. Legal and bureaucratically constraints
6. Patent inhibitions
7. Political instability
8. Non-cooperate attitude of banks and other institutes
I. Economic Conditions:
Economic environment exercises the most direct and immediate influence on entrepreneurship.
Capital, labour, raw materials and markets are the main economic factors.
(a) Capital:
It is one of the most important prerequisites to establish an enterprise. Availability of capital
facilitates the entrepreneur to bring together the land of one, machine of another and raw material
of yet another to combine them to produce goods. With an increase in capital investment, capital-
output ratio also increases.
This results in increase in profit which ultimately goes to capital formation. This suggests that as
capital supply increases, entrepreneurship also increases (e.g., Russia – how lack of capital for
industrial pursuits impeded entrepreneurship).
(b) Labour:
The quality rather than quantity of labour is another factor which influence the emergence of
enterprise. Adam Smith considered division of labour as an important element in economic
development. According to him, division of labour, which itself depends upon the sizes of the
market leads to improvement in the productive capacities of labour due to an increase in the
dexterity of labour.

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(But it appears that one labour problem clearly does not prevent entrepreneurship from emerging,
for example, the problem of low cost immobile labour can be circumvented by plunging ahead
with capital intensive technologies, as Germany did.)
(c) Raw Materials:
The accessibility of raw material for establishing any industrial activity, is indisputable. In the
absence of raw materials, no enterprise can be established. Of course in some cases technological
innovation can compensate for raw material inadequacy e.g., Japan.
(d) Market:
The fact remains that the potential of the market constitutes the major determinant of probable
rewards for entrepreneurial function. The size and composition of market both influence
entrepreneurship in their own ways. Practically, monopoly in a particular product in the market
become more influential for entrepreneurship than a competitive market.
However, the disadvantages of competitive market can be cancelled to some extent, by
improvement in transportation system, facilitating the movement of raw materials and finished
goods and increasing the demand for goods. For example, Germany and Japan are prime e.g.,
where rapid improvement in market was followed by rapid entrepreneurial activities.
II. Social Factors:
Social environment in a country exercises a significant impact on the emergence of
entrepreneurship.
The various sub factors are:
(a) Legitimacy of Entrepreneurship:
The social factors give emphasis to the relevance of a system of norms and value, within a socio-
cultural setting for the emergence of entrepreneurship. This system is referred to as “legitimacy
of entrepreneurship” in which the degree of approval or disapproval granted entrepreneurial
behavior influences its emergence and characteristics if it does not emerge. Some scientists call it
appropriate social climate for entrepreneurship and some call it cultural sanctions.
(b) Social Mobility:
It involves the degree of mobility, both social and geographical and the nature of mobility
channels within a system. Some are of the view that a high degree of mobility is conducive to
entrepreneurship (e.g., openness of a system and need for flexibility in role relations imply the
need for the possibility of mobility within a system for entrepreneurship development).
In contrast, there is another group of scholars who express the view that a lack of mobility
possibilities promotes entrepreneurship. The third opinion is a combination of first two, i.e., the
need for both flexibility, the denial of social mobility. Thus a system should not be too rigid nor
too flexible. (If too flexible individual will move towards other roles, if too rigid,
entrepreneurship will be restricted along with other activities).
(c) Marginality:
A group of scholars hold a strong view that social marginality also promotes entrepreneurship.
They believe that individuals or groups on the perimeter of a given social system or between two
social systems provide the personnel to assume the entrepreneurial role.
They may be drawn from religious, cultural, ethnic or migrant minority groups and their
marginal, social position is generally believed to have psychological effects which make
entrepreneurship particularly attractive for them.
III. Psychological Factors:
(a) Need Achievement:

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E.g., David Mc Clelland’s theory of need achievement. According to him high need of
achievement is the major influencing factor for entrepreneurship development therefore if the
average level of need achievement in a society is relatively high, one would expect a relatively
high amount of entrepreneurship in that society.
Mc Clelland says that need achievement can be developed through the intensive training
programmes.
(b) Withdrawal of Status Respect:
Hagen attributed the withdrawal of status respect of a group to the genesis of entrepreneurship
e.g., Japan developed sooner than any non-western society except Russia due to two historical
differences.
First, Japan had been free from ‘colonial disruption’ and secondly, the repeated long continued
withdrawal of expected status from important groups (like Samurai) in her society drove them to
retraction which caused them to emerge alienated from traditional values with increased
creativity.
This very fact led them to the technological progress entrepreneurial roles. Hagen believes that
the initial condition leading to eventual entrepreneurial behaviour is the loss of status by a group.
He postulates that four types of events can produce status withdrawal:
(i) The group may be displaced by force
(ii) It may have, its valued symbols denigrated
(iii) It may drift into a situation of status inconsistency
(iv) Not accepted the expected status on migration in a new society
He furthers postulates that withdrawal of status respect would give rise to four possible
reactions and create four personality types:
(i) Retreatist- He who continues to work in a society, but remains different to his work and
position.
(ii) Ritualist- He who adopts a kind of defensive behaviour and acts in the way accepted in his
society but no hopes of improving his position.
(iii) Reformist- He is a person who forms a rebellion and attempts to establish a new society.
(iv) Innovator- He is a creative individual and is likely to be an entrepreneur.
Hagen maintains that once status withdrawal has occurred, the sequence of change in personality
formation is set in motion. He refers that status withdrawal takes a long period of time – as much
as five or more generations to result in the emergence of entrepreneurship.
Others:
Govt. Actions:
The government by its actions or failure to act also does influence both the economic and non-
economic factors for entrepreneurship. By creating basic facilities, utilities and services and by
providing incentives and concessions, the government can provide the prospective entrepreneurs
a facilitative socio-economic setting. Such conducive setting minimizes the risks which the
entrepreneurs have to encounter.
Various factors stated above for emergence of entrepreneurship are interlocking, mutually
dependent and mutually reinforcing.
Innovation and Entrepreneur
Increasingly, creativity and innovation are seen as being the key to survival in an ever-more
competitive and global economy. In fact change and innovation are becoming a ‘way of life’ for
most entrepreneurs. An entrepreneur always takes a personal responsibility for encouraging any
type of innovative idea, product, or process in the enterprise.
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Peter Drucker has rightly observed that “Innovation is the specific tool of entrepreneurs, the
means by which they exploit changes as an opportunity for a different business or a different
service. It is capable of being presented as a discipline, capable of being learned and practised.
Entrepreneurs need to search purposefully for the sources of innovation, the changes and their
symptoms that indicate opportunities for successful innovation. kid they need to know and apply
the Principles of successful innovation.” Drucker is of the opinion that an entrepreneur is one
who always searches for changes responds to it and exploits it as an opportunity.
Innovation is treated as an instrument of entrepreneurship. R.M. Kanter says, “Winning in
business today demands innovation” and such is the stark reality facing today s entrepreneurs.
In the dynamic, chaotic world of global competition, entrepreneurs must create new products and
services and adopt new technology, if they are to compete successfully, The organisation that is
not creative and innovative may not survive. Thus, entrepreneurs are looking for ways to
encourage and foster in creativity and innovation on both the individual and the venture level.
Thus it can be concluded that innovation and entrepreneurs are indispensable to each other. Both
are useless and incomplete in absence of one another.
Characteristics of Innovation and Entrepreneurship:
Durability:
Innovation: Innovation can have a short durability.
Entrepreneurship: Entrepreneurship has a long durability which adds and improves the value of
the opportunity created.
Risk Taking:
Innovation: In innovation, there is no major risk involved.
Entrepreneurship: In converting an idea into a business opportunity, risk-taking cannot be
avoided. Risk taking is a key factor in entrepreneurship.
Interest:
Innovation: Innovators lose interest after idea stage.
Entrepreneurship: Entrepreneurs fail, rethink and work hard to make the venture more
successful.
Skills:
Innovation: Innovators have a passion for inquiry, experiment with creative thinking.
Entrepreneurship: Entrepreneurs need skills like planning, leading, managing, and decision
making. Entrepreneurs take risks, work hard and are committed to achieving success in their
business.
Cause:
Innovation: Innovation is the outcome of a new thinking.
Entrepreneurship: Entrepreneurship is the process of making the innovation to a business
opportunity.
ROLE OF AN ENTREPRENEUR IN ECONOMIC GROWTH AS AN INNOVATOR
Entrepreneurs play a vital role in economic growth of a country. Economic growth is a process
by which the per capita income and total income of a country increases during a given
period. Entrepreneurs serve as the catalysts in the process of rapid industrialisation and
economic growth. In the process of economic growth of a country, the entrepreneur plays a
motivator role. The process of economic growth cannot proceed onwards without the active
support of the entrepreneur. It is the entrepreneur who collects the natural, economic, human and
technical resources of a county and exploits them in the economic growth of a country. An
entrepreneur is more a true leader of economic progress. He is by nature a visionary. He has
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innovative attitude. He loves risk-taking behaviour. He contributes to economic development
in many ways, viz., capital formation, technological breakthrough, innovating skill, market
expansion and organisation of productive resources.
He scents new market opportunities and takes the
creative decisions to exploit them.
The major role of an entrepreneur in the economic growth may be summarised as under-
(1) Role of an Entrepreneur in Economic Development: One of the most important and basic
role of an entrepreneur is to innovate. India would not have been discovered to western world if
Vasco Diagama would not have sailed to India. The natural resources of Africa would not have
been exploited if Britishers, French and Portugese would not have ventured there. Most of
discoveries would not have been translated and implemented if entrepreneurs were not willing to
establish units for setting up industries. The development of railways,
telecommunications, agriculture and industry has been possible due to
innovations. Entrepreneurship essentially means doing things that are not generally done in
ordinary course of business. An entrepreneur discovers and develops new ideas, new product,
new methods of production, opening new markets, new sources of supply of raw-material, new
type of industry, new enterprises, new methods of solving business problems, new organisations,
new combinations, and new opportunities. Innovation is the process of putting new ideas into
action. The higher the rate of innovation, the higher will be the rate of economic growth. He is a
catalyst of change. According to W.T. Esterbook, “Entrepreneur is an innovating giant who
encourages production of new products in the industry, new techniques of production, new
machinery, use of new raw- material, use of new technology and establishment of net industries.
” According to Edmunds Bark, “Entrepreneur, in the true sense, is a greedy for new things. ”
According to Peter F. Drucker,
“Innovator is always in search of changes and exploits it as and when the opportunity arises.
“Innovation is the creative endeavour that creates wealth. Entrepreneurs develop new ideas and,
from their ideas, establish new enterprises that add value to society. In fact, entrepreneurs create
wealth by creating something new or different or by searching for new opportunities as they arise
to inspire new ventures. Indian entrepreneurs have set up those industries which had opportunity.
There has been fast growth of food processing, beverages, petroleum, rubber, plastics, fertilizers,
caustic soda, steel, etc. Many sophisticated industries have also been set up but most of
knowledge based industries have not been innovated by Indian entrepreneurs because of limited
interest in R & D; they have been based largely on with foreign technical and financial
collaborations.
(2) Generation of Employment Opportunities: An opportunities. An employment entrepreneur
generates entrepreneur generates employment not only for himself and members of his family
but also for others who work with him. However, the number will depend upon the size and
requirement of the enterprise concerned. Indirectly, by setting up large, medium and small scale
sized business units they offer jobs to millions. For example, if one hundred person become
entrepreneurs, they not only create a hundred jobs for themselves but also provide employment
to an army of unemployed youth. As the time passes, these entrepreneurs grow providing direct
and indirect employment. Thus, entrepreneurship is the best way to fight the evil of
unemployment and generate employment opportunities in the country. National Alliances of
Young Entrepreneur (NAYE) is rendering
assistance to young entrepreneur in collaboration with public sector banks in the country. It helps

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in identifying potential projects, conducting project feasibility report and providing financial
assistance and other logistic support to the young entrepreneurs.
(3) Role of Entrepreneur in Complementing and Supplementing the Economic Growth: In
recent decades, the role of an entrepreneur has been to supplement and accelerate the pace of
growth and economic development in both the developed and developing countries When an
entrepreneur sets up an industrial or service unit it helps in economic growth. Similarly, when
economy grows it creates opportunities for further growth. Thus, every economic growth has a
multiplier affect; one complements the other and one supplements the other. When an
entrepreneur establishes a bank it complements other economic activities as it helps further
growth. When any
engineering and electronic unit is set up it requires components from large number of
manufacturers. In most engineering, electronic and electrical industries like T. V. , refrigerators,
computer growth of one large unit gives birth to a number of ancillary units. This is true not
only for engineering and electronic industry but also for steel, textiles, chemicals, food
processing and so on. Along with complementary development there is also supplementary
development. When a spinning mill is set up it leads to development of thread units and cloth
weaving units. When a computer hardware industry is developed it leads to the growth of
software industry. The development of software industry led to its exports from India in a big
way. Thus, one leads to growth of another activity.
(4) Bringing about Social Stability: Economic power denotes the power and wealth owned by
an individual. Economic power is the natural result of the business activities. Establishment of
large enterprises leads to concentration of economic power in a few hands in the society. Such
concentration has its own evils in the form of monopolies and monopolistic exploitation of the
consumers and the society as a whole. Hence developing a large number of “small entrepreneur”
helps in even distribution of economic power in a wider range, ultimately bringing about social
stability. Entrepreneurs bring such stability also by generating self-employment and facilitating
development of rural and backward areas. Generally, entrepreneurship is taken to be
synonymous with small scale enterprises. Entrepreneurs have a definite social role and
responsibility towards the society. They must act in ways that enhance the community’s well-
being. Socially responsible behaviour of an entrepreneur not only helps the consumers and
company but it also ensures social stability and order.
(5) Balanced Regional Development of Industries: Industrial development has a tendency to
establish and develop industries, big or small, in metropolitan cities like Delhi, Mumbai and
Chennai and in big towns, This brings to unbalanced regional development of industries. In this
context also, entrepreneurs are required to play an important role in balanced regional
development of dunes. They set up industries particularly in backward areas to avail the various
concessions and subsidies offered by the Central and the State Governments. The Government of
India and the State Governments are also trying to disperse the industries by establishing
industrial estates and creating infrastructural facilities in backward areas.
(6) Role of Entrepreneur in Export Promotion and Import Substitution: Export Promotion
refers to the policy of the govt. designed to encourage the exporters to export more goods from
the country than before. An entrepreneur being an industrialist has a major role to play in export
promotion. Export promotion reduces unfavourable balance of trade, decreases imports and
increases exports. It also increases valuable foreign currency reserves. Various facilities,
incentives and subsidies are provided by the Central and State Governments in the field of export
promotion. Increasing number of entrepreneurs, both old and new, are taking benefits of
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incentives, concessions and subsidies offered by the Government. Entrepreneurs establish units
for meeting domestic and export demand of goods and services. He also looks opportunities for
export promotion of surplus goods and services if he can export to international markets. For
promoting export, an entrepreneur has to take many decisions and have to implement them. In
short, he has to play following roles to promote export
(1) Exploring export promotion possibilities.
(2) Decision regarding entry in international market for export.
(3) Creation of demand in international market.
(4) Decisions regarding pricing and costing.
(5) Decisions regarding distribution or middlemen.
(6) Promotional decisions.
(7) Availing of export promotion schemes.
(8) Getting institutional support.
Generation of Employment opportunities
Unemployment is one of the serious challenges that is staring in the face of many economies
today, especially after the recession of 2008. More recently, there have been concerns of lesser
number of job vacancies even in emerging countries like India and China, which were least hit
by the recession, due to higher inflation rates and slower pace of economic growth.
Unemployment is one of the main reasons for poverty as also one of the causes for rising crime
rates and suicides. Eradicating it is one tough task and a major concern not just for the
governments but also for all those who can actively contribute to be job-creators and not job-
seekers.
The system of education in India today creates store-houses of knowledge devoid of creative
thinking and new ideas. It is stereotype and rot learning that our system encourages. Our
education system, barring a few exceptions, lacks the foundations to nurture entrepreneurs, who
are willing to take risks, learn from mistakes and create empires of their own. We rear children to
become doctors and engineers today without knowing where their true abilities lie. And these
pseudo-educated knowledgeable citizens find it hard to contribute to the nation’s economy
effectively as well as to their own income and pockets.
Today, in India we face a shortage of skilled labour and manpower in blue collared jobs like
those of electrician, plumber, coconut-tree climber and so on. The persons involved in these
professions today can demand more as the supply of such workers is low. Various subsidy and
welfare schemes by the government have also given birth to the new practice of ‘full stomach
without work’ through free rice, television and grinder schemes by some governments. These
schemes encourage laziness and a lack-luster attitude towards taking up jobs and eventually
erode the government exchequers. Hence welfare schemes should not be allowed to go over-
board; After all, in the long run, teaching a person to fish is much more valuable than feeding
him a fish everyday. Bringing in skilled labour force for such manual works and also fixing a
scale of wages for them will help encourage people to take up these jobs as well provide the
industry with sufficient manpower in the form of labourers.
India also needs many more new Tata’s and Birlas and Ambanis to increase the output of our
manufacturing sectors. India today seriously needs to grow in the manufacturing sector to sustain
its high GDP growth rates. We as youngsters should pool in our ideas and work towards
creating new entrepreneurial ventures. As job-creators we can form that part of India that
offers livelihood and support to millions. Youngsters with ideas for ventures should not hesitate
to take risks but should do what their heart tells them to do and not follow the herd. Eradication
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of unemployment and creation of jobs is the combined effort of the government and the spirited
and dedicated citizens with a vision. Let us strive to be one among them!
For reduction of unemployment, entrepreneurship in small and tiny sector industries, both in
manufacturing and service sectors, is imperatively needed. Thus, the role of entrepreneur and its
significance in generation of employment opportunities can be depicted under the following
heads.
 Establishing tiny, micro and small scale enterprises: Role of entrepreneur in
establishment the above types of enterprises is perceived as a powerful medium to
address several socio-economic issues and the chief among them is generation of
employment opportunities for millions. In a developing economy like India, where
population pressure is quite high and job employment is limited, the role of entrepreneur
is very much significant. Entrepreneurial development gives rise to economic
independence through self-employment. Creation of tiny, micro and small enterprises by
the entrepreneurs can lead to creation of both self- employment and wage- employment
opportunities, thereby solving the problem of unemployment in the economy.
 Giving emphasis upon village and cottage industries
Upliftment of economically backward sections of the society can be possible if self-
employment opportunities can be provided at the grass root level. To enable these people
in backward regions of the state to set up village and cottage industries, government has
implemented several antipoverty programmes like PMRY, TRYSEM, SGSY, REGP etc,
and the importance of entrepreneurs in cottage and village industries sector has been
clearly acknowledged by Mahatma Gandhi by his policy priorities in village upliftment
including khadi and village industries in his famous constructive programme in 1922.
Prior to independence, cottage industries and handicraft production located in rural areas
had occupied a distinct place in Indian economy because of their high potential in
employment generation and income creation especially in rural and backward areas. As
such, entrepreneur can play a significant role in setting up and reviving the cottage and
village industries, thereby creating employment opportunities to a large number of people
living in rural and backward pockets of the country.
 Utilising the surplus labour force in industrial activities
India is a primary producing country. This characteristics feature is further accentuated
by seasonality feature of the agriculture. Therefore, for a large part of the year, people
remain , more unemployed. Disguised unemployment is a chronic phenomenon in
agriculture where in more people work in a field than actually required. So the surplus
labour force is transferred and utilized by the entrepreneur in non-farm sector activities
like small tiny, cottage and village industries which are labour intensive in nature.
Complimenting and Supplementing Economic Growth
 Mobilization of Capital. Entrepreneur’s efforts to mobilize the capital results in
motivating the investors to divert their ideal savings in the industrial enterprises.
Investment of public saving in industrial sector helps the country to use financial
resources for productive purposes. The growth rate of capital formation will be increased
which is highly essential for rapid economic development of a country. It is in the sense
that entrepreneur’s grenade capital at a rapid rate and capital formation increases which is
vital for the industrial development.

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  Generation of Employment. Entrepreneurs become self-employed and self-sufficient.
They do not depend on the government jobs or private jobs and directly employ
themselves by starting their own enterprises. In fact, they also privet jobs too many
unemployed by setting up large and small scale industrial. Thus, entrepreneurs play an
important role to reduce the unemployment problem in the country and pave the way for
economic development.
 Backward and Forward Linkages. It is the entrepreneur who initiatives change and this
to maximize his profits by innovations. Setting up of an enterprise in accordance with the
changing technology has several backward and forward linkages. For example, the
establishment of a textile unit generates several ancillary units and expands demand for
cotton, chemicals, dyes, etc.
BRINGING ABOUT STABILITY AND BALANCED REGIONAL DEVELOPMENT
OF INDUSTRIES
Meaning of Balanced Regional Development:
Balanced regional development is an important condition for the harmonious and smooth
development of a country. It does not imply equal development of all regions of a country.
Rather it indicates utilisation of development potential of all areas as per its capacity so that the
benefit of overall economic growth is shared by the inhabitants of all the different regions of a
country. Thus the regional balance implies uniform distribution pattern of the planned
investment among different regions of a country. Alternatively, regional balance demands
distribution of investment in such a way so that the regional rates of growth in different parts of
the country be equally attained, eliminating the regional disparities prevailing in the country.
Regional disparities in development have been an important socio-economic and political issue
in developing countries. In our country some of the states are very developed while many others
are in very backward condition. The main objective of balanced regional development is to
develop all regions equally by making optimum utilisation of resources. Following are the aims
of balanced regional development:
1. Provide Equal Opportunities of Employment Centralization of industries provides
employment to a specific field and maintaining the condition of unemployment in other fields.
Due to this reason, entrepreneur is unable to make the optimum use of resources. If there is
balanced regional development of industries then it will provide employment to every group
reducing the employment disparities.
2. Development of Local Resources: This is national aim that we should develop the local
resources. If there is unbalanced regional development of resources then the local resources of
an area are not fully developed. As it is worldwide that every area Possess some of specialized
feature whether they are in the form of human resource, or natural resources and if these
resources are fully utilized and developed then these regions can develop fully and can contribute
in the development of nation.
3. Development of Infrastructure: The backward states may develop rapidly if there is a
rapid development in the infrastructure. If electricity, water supply and roads are
developed adequately in all the regions, then other segments of infrastructure and services sector
will automatically develop. Thus, it will help in reducing regional imbalance.
4. Development of Social Infrastructure: The social infrastructure includes investment on
education, health services under public sector etc. If the development of social infrastructure

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 is adequate then the people will be educated enough to contribute in the balanced regional
development of the nation.
5. Optimum Utilisation of Resources: The natural resources of every nation are limited. The
country should make their optimum use in such a way that some part of them might be kept in
reserve for future use. Balanced regional development can fulfil this aim, as excessive use of
resources of a particular area lead to the wastage of the resources of that area and further exhaust
them for future use.
Thus to attain regional balance, it is quite important that the backward regions should try to
attain higher rate of growth than that of developed areas. Balanced regional development does
not indicate attainment of self-sufficiency of level of industrializa-tion or uniform economic
pattern for each state rather it simply indicates wide spread diffusion of industry in backward
areas.
The balanced regional development is broadly guided by the people in backward areas which can
be attained simply through its development of agriculture, industry, infra-structure, trade and
commerce. According to Mumford, “it is a problem of increasing habitability, a problem of
social and economic renewal.” Thus by the term regional development, we mean economic
development of all regions simultaneously, raising their per capita income and living standards
by exploiting their natural and human resources fully.
Considerations and Need for Balanced Regional Development:
Balanced regional development as a policy is considered both on economic, social and political
grounds. The policy is considered in order to redress inequalities between different regions of a
country and also for raising standard of living to a higher level at a uniform rate.The Second Five
Year Plan documents of India observed in this connection, “In any comprehensive plan of
development, it is axiomatic that the special needs of the less developed areas should receive due
attention. The pattern of development must be so devised as to lead to balanced regional
development.”
Balanced regional development is having both economic and non- economic considerations.
Economic Considerations:
Balanced regional development is advocated mostly for the following three economic
considerations:
a) Utilisation of local resources:
Balanced regional development paves the way for optimum utilisa-tion of resources available in
different regions of the country. Over concentration of industrial activity into certain centres
leads to wastage of local resources like raw materials, fuels, labour, skills, etc. for their non
utilisation.
(b) Expansion of employment opportunities:
Employment opportunities in a country will be expanded uniformly at a satisfactory rate under
balanced regional development opportunities in different industries over different parts of the
country.
(c) Utilisation of Infra-structural Facilities:
Balanced regional development paves the way for total utilisation of various infra-structural
facilities like means of transport and communications, power resources, irrigation facilities,
educational and health facilities developed in all the different regions of the country.
Non-Economic Considerations:
The following are the two non-economic considerations of balanced regional development:
(a) Socio-Political Arguments:
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Balanced regional development can remove those socio-political problems related to health,
housing, law and order, cultural decadence etc. arising out of concentration of industries at a few
points. Moreover, it can avoid the necessity of large scale emigration of labour to distant
industrial centres through regional dispersion of industrial activity.
Besides, balanced regional development can pave the way for an egalitarian society having
negligible differentials in per capita incomes and other parameters existing between classes and
regions.
(b) Strategic Considerations:
Balanced regional development favours regional dispersion of industrial activities under strategic
considerations, i.e., under considerations of national defence and industrial security. Now-a-days,
concentration of industries at a few points is risky as it becomes easy targets of attack and
bombardment during wars.

Proper Strategy for Regional Development:

Development of backward regions requires a proper strategy to be adopted for attaining a
balanced regional development.
Adoption of a proper strategy includes:
(a) An examination of the existing criteria for the identification of backward areas of the country,
(b) Adoption of a selective and purposeful system of fiscal incentives so as to fulfill the basic
objectives of expansion of employment opportunities, utilisation of available local resources,
exploitation of local development potential, linkage effects, distributional impact, expansion of
infra-structural facilities, etc.,
(c) Proper co-ordination of development strategy formulated by various agencies, viz., the
central and State Governments, financial institutions, private sector units, etc.
(d) Adopting location specific and appropriate project oriented programmes having importance
on growth centre approach,
(e) Introducing a sustained programme of investment by the public sector to realise the objective
of employment expansion and income distribution, if) development of proper and adequate
institutional framework to attain the development of backward areas.
In this connection, Gunner Myrdal has rightly observed that, “inequality and the trend towards
rising inequality stand as a complex of inhibitions and obstacles to development and
consequently there is an urgent need for reversing the trend and creating greater equality as a
condition for speeding up development.” Balanced regional development is a well known proven
objective. All regions must develop itself along with the national economy. Different regions can
try to utilise its potential fully as an integral part of the country. Thereby, with the advancement
of national economy, all round regional development is attained.Under the present
circumstances, what is imperative is that in order to reduce regional imbalance, it is necessary to
exploit the natural resources of backward regions, to work continuously in those directions where
development is attained and also to attain a selective and judicious dispersal of the available
resources so as attain rational and balanced regional development
ROLE OF EXPORT PROMOTION AND IMPORT SUBSTITUTION
Import Substitution Strategy:
For various reasons, many LDCs have ignored primary-exports-led growth strategies in favour of
import substitution (IS) development strategies. These policies seek to promote rapid
industrialisation and, therefore, development by erecting high barriers to foreign goods in order
to encourage domestic production. A package of policies, called import substitution (IS), consists
106
of a broad range of control, restriction and prohibitions such as import quotas and high tariffs on
imports.
The trade restrictions are intended to “protect” domestic industries so that they can gain
comparative advantage and substitute domestic goods for formerly imported goods. IS policies
are largely based on the belief that economic growth can be accelerated by actively directing
economic activity away from traditional agriculture and resource-based sectors of the economy
towards manufacturing.
The broad range of tariffs, quotas and outright prohibitions on imports that are part of IS policies
are clearly not a form of infant industry protection. The infant-industry argument states that
sectors and industries that can reasonably be expected to gain comparative advantage, after some
learning period, should be protected.
But the broad protection under IS policies usually protect all industries indiscriminately, whether
they generate technological externalities or have any chance of achieving competitive efficiency.
IS policies were advocated due to a very sharp decline in the prices of commodities and raw
materials exported by many LDCs. Prebisch and Singer convincingly argued that low-income
elasticity of demand for primary products implied that, in the long run, the terms of trade of
primary product exporters would deteriorate.
In short, the IS approach to development applies the strategic argument for protection to one or
more targeted industries in the LDCs. That is, the government determines those sectors best
suited for local industrialisation, erects barriers to trade on the products produced in these sectors
in order to encourage local investment and then lowers the barriers over time as the
industrialisation process gains momentum.
If the government has targeted the correct sectors, the industries will continue to thrive even as
protection comes down. In practice, however, the trade barriers are rarely removed. In the end,
countries that follow IS strategies tend to be characterised by high barriers to trade that grow
over time.
PROBLEMS OF IMPORT-SUBSTITUTION IN INDIA
Following are the main problems of import substitution in India :
(1) High Production Cost at Initial Stage: Besides the raw material, certain other cost like interest
rates, higher price of importable and non traded inputs, technological factors and
low product,civil,y contribute to the high cost, of production in India Therefore, commodities
produced in the country have high prices in comparison to the imported goods and consumers
show, no interest in buying the goods produced for the intention of import-substitution.
(2) Poor Quality of Production: Poor quality and inadequacy of inputs, technology and facilities
affect the product quality. Policy of import substitution proves unsuccessful due to poor quality
products.
(3) Ignorance of Consumers: Generally, people believe that imported goods are better than the
home products. This view attract them towards the imported goods and they do not take interest
in buying goods produced in the country. Policy of
(4) Lack of Essential Resources import-substitution becomes impractical due to lack of
resources essential for production. Inadequacy of capital and raw material, backwardness of
technology create hinderane in the way of import substitution.
(5) Dampens Innovation: Critics observe that such subsidised import substitution generally limits
competition, dampens innovation and productivity growth, and keeps the country’s real income
low.

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 (6) Ignores Specialisation: This approach ignores the benefits of specialisation and comparative
advantage. The consumers and the entire economy might be better off if the emphasis on import
substitution were replaced by an emphasis on outward orientation.
(7) Discriminates Against Agriculture: Import substitution discriminated against agriculture and
favoured industry. It led to stagnation and impoverishment in rural This, in turn, led to migration
to the cities, necessitating the ‘unproductive’ type of investments.
MEANING OF EXPORT PROMOTION
Export promotion comprises all those government and non-government efforts, rules,
procedures, courses of action and techniques which are adopted to boost our exports in terms of
value as well as in volume. Thus all those measures, schemes, policies, procedures and methods
which are adopted for increasing export are known as export promotion measures. In order to
attain the objective of self-reliance every country is keenly interested to expand its exports.
CRITICAL EVALUATION OF THE POLICY OF IMPORT SUBSTITUTION AND
EXPORT PROMOTION
The goal of self-reliance in vital sectors has been a long term objective of India since the
beginning of the planning. The goal can be attained through foreign trade policy in two ways as
given under :
1. Import substitution policy, 2. Export promotion policy.
The two broad objectives of the programme of import substitution in India were : (a) to Save
scarce foreign exchange for the import of more important goods, and (b) to achieve self-
reliance in the production of as many goods as possible. The policy in India has gone through
various phases. Broadly speaking, we can discern three distinct phases
(i) in the earlier phase, import substitution mostly took the form of domestic production of
Consumer goods;
(ii) in the second phase, emphasis shifted to the replacement of the import of capital goods and
(iii) in the third phase emphasis was on reducing the dependence on imported technology by
developing and encouraging the use of indigenous techniques. As a result of the policy of import
substitution, the structure of imports has undergone significant changes. Many items which were
previously imported are now being produced in the country itself. As a result of this policy, the
country has been able to increase the production of many industrial products like iron and steel,
automobiles, railway wagons, machine tools, diesel engines, power transformers, etc. and in the
case of many other products has achieved a stage of self-sufficiency. As stated earlier, import
substitution enabled the country to achieve diversification and depth so necessary for further
growth• However, many economists have argued that the indiscriminate extension of import
substitution to a wide range of sectors in India without regard to costs, was not the ‘best’, or the
‘most efficient’ policy. In this context Jaleel Ahmed states, “Valuable resources could have been
saved if the process of import substitution had been more selective with a limited number of
strategically chosen sectors and industries, where a concentration of effort and resources
could have maximised the gains in efficiency. In the heavy industry sector, in particular,
simultaneous development of a plethora of manufacturing activities may have deprived the
economy of the advantages of large-scale production and of meeting the minimum critical
thresholds. In short, the policy of import substitution was followed during sixties and up to early
seventies whereas the export promotion policy was followed since early seventies. In order to
succeed government of India has changed her EXIM policy from time to time to attain export
promotion policy. In the year 1973, OPEC countries raised the prices of crude oil about four
times. India has shifted her policy from import substitution to export promotion so that she could
108
 meet the challenge of sharp hike in oil •prices by the OPEC. Export promotion and import
substitution are the two important measures for narrowing down and ultimately wiping out
the balance of payments deficit. Infact, Import-substitution and Export Promotion are the two
aspects of the coin.”
DIFFICULTIES IN EXPORT PROMOTION
If we view from the world angle we shall find that in the world export, India’s export have been
regularly decreasing from the time of independence. India’s share in the total foreign trade of the
world was 11% whereas now it has greatly decreased, A brief account, of the major drawbacks
of India’s export sector is given below
1. Technological Factors: Technological problems have very seri0US effect on India’s
exports. The Tandon Committee and Alexander Committee have referred to the adverse ‘impact
of technological backwardness on India’s exports through poor quality, low productivity, high
costs, etc.
2. High Costs: In a large number of cases, high domestic costs are an inhibiting factor. This
problem has been clearly stated by Abid Hussain Committee, “India is often at a disadvantage
vis-a-vis competing countries because its costs of production, and hence export price, are higher
than in competing countries. It is not only because of the higher prices of importable and non-
traded inputs, or because of time and cost over-runs implicit in managerial inefficiency, but also
because of much lower level of productivity, all of which stem from the aforesaid problems.”
3. Poor Quality Image: India has a poor quality image abroad. Despite the measures taken
under the Exports (Quality Control and Inspection) Act and other laws, our exports continue
to suffer because of quality problems. Poor quality and inadequacy of inputs, technology and
facilities affect the product quality. In several instances, carelessness or lack of commitment on
the part of the exporters is also responsible. Adulteration and dumping are also not uncommon.
There is a general impression that a proper export culture is lacking in India.
4. Unreliability: Besides quality, Indian exporters have been regarded as unreliable on
certain other factors. As the Tandon Committee has observed, a very important black mark on
the Indian exporters is reneging a term used in the USA to refer to going back on a contract and
refusing to fulfil it on its original terms.
5. Supply Problems: A serious drawback of the Indian export sector is its inability to
provide continuous and smooth supply in adequate quantities in respect of several products. The
problem is that much of the exporting is the result of the residual approach rather than conscious
effort of producing for export. The tendency for exporting what we produce rather than
producing for export still continues to characterize the export behaviour.
6. Faceless Presence Although India is an important Supplier of several commodities in
foreign markets, her presence in these markets is faceless in the sense that the consumers do
not, know that these commodities are Indian. Major export items of India like sea-foods, leather
manufactures, spices, etc., have in many cases, a faceless presence in foreign markets. Although
these exports may undergo further processing or repackaging in many cases. In several cases the
Indian exports are sold in the foreign markets in the same condition as they are exported but
under foreign brand names. It has also been found that when the product carries a foreign brand
name sometimes they fetch a much higher price than the same product with an Indian name. This
is indeed a vicious circle. The poor quality image of the Indian products, many a time apparent
than real, makes it difficult to sell under Indian brand names. The faceless presence, on the other
hand, perpetuates the problem. The faceless presence is the result of the failure of the exporters
and- export promotion agencies in India to build up an image for Indian goods abroad. In fact,
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 most bulk importers of Indian goods want this situation to be perpetuated as this enables them to
hold control over the market while the exporters, being at the mercy of the foreign traders, lose
bargaining power.
7. Infrastructural Bottlenecks: Infrastructural shortages such as energy shortages, inadequate
and unreliable transport and communication facilities hinder growth in exports. Power
shortages and breakdowns disrupt production schedules, increase cost and adversely affect
timely shipments.
8. Uncertainties, Procedural Complexities and Institutional Rigidities: One of the defects of
our trade policy regime has been the uncertainty about future policies, incentive schemes
etc. The procedural complexities of the Indian trade regime have been indisputably
acknowledged. There is a general feeling that not only that there are too many controls and
overlapping of policies but also “the principle of Indian policy is to elaborate rule (and
exceptions) to them, which are not only detailed and specific, but also subject to wide
discretion.” These are vindictive of the structural weakness of the institution system in India,
9. Inadequacy of Trade Information System: An efficient Trade Information System is
essential for success in the dynamic global market. But, “our marketing infrastructure as well
as marketing techniques is neither effective nor efficient. We do not have any machinery to keep
prompt track of business informati0n overseas, as done by JETRO in Japan, KOTRA in Korea,
CETDC in Hong Kong and STDB in Singapore with a wide network of offices abroad. These
organisations have evolved an efficient system, which help them to get information pertaining to
tenders and the like much before these are released officially. In India, we get this information, at
times, after the expiry date. India has, no doubt, a plethora of organisations; governmental, semi-
governmental and also non-governmental engaged in this task in one way or other. Yet we do
not have an easy access to market intelligence and information.
FOREX EARNINGS:
Meaning:
If a Kashmiri shawl maker sells his goods to a buyer in Kanya kumari, he will re-ceive in terms
of Indian rupee. This suggests that domestic trade is conducted in terms of domestic currency.
But if the Indian shawl- maker decides to go abroad, he must exchange Indian rupee into franc or
dollar or pound or euro.
To facilitate this exchange form, bank-ing institutions appear. Indian shawl maker will then go to
a bank for foreign currencies. The bank will then quote the day’s exchange rate—the rate at
which Indian rupee will be exchanged for foreign currencies. Thus, for-eign currencies are
required in the conduct of international trade. In a foreign exchange mar-ket comprising
commercial banks, foreign ex-change brokers and authorised dealers and the monetary authority
(i.e., the RBI), one cur-rency is converted into another currency.
A (foreign) exchange rate is the rate at which one currency is exchanged for another. Thus, an
exchange rate can be regarded as the price of one currency in terms of another. An exchange rate
is a ratio between two monies. If 5 UK pounds or 5 US dollars buy Indian goods worth Rs. 400
and Rs. 250 then pound- rupee or dollar-rupee exchange rate becomes Rs. 80 = £1 or Rs. 50 =
$1, respectively. Ex-change rate is usually quoted in terms of ru-pees per unit of foreign
currencies. Thus, an exchange rate indicates external purchasing power of money.
A fall in the external pur-chasing power or external value of rupee (i.e., a fall in exchange rate,
say from Rs. 80 = £1 to Rs. 90 = £1) amounts to depreciation of the Indian rupee. Consequently,
an appreciation of the Indian rupee occurs when there occurs an increase in the exchange rate
from the existing level to Rs. 78 = £1.
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In other words, external value of the rupee rises. This indicates strengthening of the Indian rupee.
Conversely, the weakening of the Indian rupee occurs if external value of rupee in terms of
pound falls. Remember that each currency has a rate of exchange with every other currency. Not
all exchange rates but about 150 currencies are quoted, since no significant foreign exchange
market exists for all currencies. That is why exchange rate of these national currencies are quoted
usually in terms of US dollars and Euros.
2. Exchange Rate Determination:
Now two pertinent questions that usually arise in the foreign exchange market are to be
an-swered now. Firstly, how is equilibrium ex-change rate determined and, secondly, why
exchange rate moves up and down?
There are two methods of foreign exchange rate determination. One method falls under the
classical gold standard mechanism and another method falls under the classical pa-per currency
system. Today, gold standard mechanism does not operate since no stand-ard monetary unit is
now exchanged for gold.
All countries now have paper currencies not convertible to gold. Under inconvertible pa-per
currency system, there are two methods of exchange rate determination. The first is known as the
purchasing power parity theory and the second is known as the demand-sup-ply theory or
balance of payments theory. Since today there is no believer of purchasing power parity theory,
we consider only demand-supply approach to foreign exchange rate determination.
Demand-Supply Approach of For-eign Exchange, Or BOP Theory of For-eign Exchange:
Since the foreign exchange rate is a price, economists apply supply-demand conditions of price
theory in the foreign exchange mar-ket. A simple explanation is that the rate of foreign exchange
equals its supply. For sim-plicity, we assume that there are two coun-tries: India and the USA.
Let the domestic cur-rency be rupee. US dollar stands for foreign exchange and the value of
rupee in terms of dollar (or conversely value of dollar in terms of rupee) stands for foreign
exchange rate. Now the value of one currency in terms of another currency depends upon
demand for and supply of foreign exchange.
(i) Demand for foreign exchange:
When Indian people and business firms want to make payments to the US nationals for buy-ing
US goods and services or to make gifts to the US citizens or to buy assets there, the de-mand for
foreign exchange (here dollar) is gen-erated. In other words, Indians demand or buy dollars by
paying rupee in the foreign ex-change market. A country releases its foreign currency for buying
imports. Thus, what ap-pears in the debit side of the BOP account is the sources of demand for
foreign exchange. The larger the volume of imports the greater is the demand for foreign
exchange.
The demand curve for foreign exchange is negative sloping. A fall in the price of foreign
exchange or a fall in the price of dollar in terms of rupee (i.e., dollar depreciates) means that
foreign goods are now more cheaper. Thus, an Indian could buy more American goods at a low
price. Consequently, imports from the USA would increase resulting in an increase in the
demand for foreign exchange, i.e., dol-lar. Conversely, if the price of foreign exchange or price
of dollar rises (i.e., dollar appreciates) then foreign goods will be expensive leading to a fall in
import demand and, hence, fall in the demand for foreign exchange.
Since price of foreign exchange and demand for foreign exchange move in opposite direction,
the im­porting country’s demand curve for foreign exchange is downward sloping from left to
right.
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In Fig. 5.4, DD1 is the demand curve for foreign exchange. In this figure, we measure exchange
rate expressed in terms of domestic currency that costs 1 unit of foreign currency (i.e., dollar per
rupee) on the vertical axis. This makes demand curve for foreign exchange negative sloping.
If exchange rate is expressed in terms of foreign currency that could be pur-chased with 1 unit of
domestic currency (i.e., dollar per rupee), the demand curve would then exhibit positive slope.
Here we have chosen the former one.
(b) Supply of foreign exchange:
In a simi-lar fashion, we can determine supply of for-eign exchange. Supply of foreign currency
comes from its receipts for its exports. If the foreign nationals and firms intend to purchase
Indian goods or buy Indian assets or give grants to the Government of India, the sup-ply of
foreign exchange is generated. In other words, what the Indian exports (both goods and
invisibles) to the rest of the world is the source of foreign exchange. To be more spe-cific, all the
transactions that appear on the credit side of the BOP account are the sources of supply of
foreign exchange.
A rise in the rupee-per-dollar exchange rate means that Indian goods are cheaper to foreigners in
terms of dollars. This will induce India to export more. Foreigners will also find that investment
is now more profitable. Thus, a high price or exchange rate ensures larger supply of foreign
exchange. Conversely, a low exchange rate causes exchange rate to fall. Thus, the supply curve
of foreign exchange, SS1, is positive sloping.
Now we can bring both demand and supply curves together to determine foreign exchange rate.
The equilibrium exchange rate is determined at that point where demand for foreign exchange
equals supply of foreign exchange. In Fig. 5.4, DD1 and SS1 curves intersect at point E. The
foreign exchange rate thus determined is OP. At this rate, quantities of foreign exchange
demanded (OM) equals quantity supplied (OM). The market is cleared and there is no incentive
on the part of the players to change the rate determined.

Suppose that at the rate OP, Rs. 50 = $1, demand for foreign exchange is matched by the supply
of foreign exchange. If the current exchange rate OP1 exceeds the equilibrium rate of exchange
(OP) there occurs an excess supply of dollar by the amount ‘ab’. Now the bank and other

112
institutions dealing with foreign exchange—wishing to make money by exchanging currency—
would lower the exchange rate to reduce excess supply.
Thus, exchange rate will tend to fall until OP is reached. Similarly, an excess demand for
for­eign exchange by the amount ‘cd’ arises if the exchange rate falls below OP, i.e., OP2. Thus,
banks would experience a shortage of dollars to meet the demand. Rate of foreign exchange will
rise till demand equals supply.

The exchange rate that we have deter-mined is called a floating or flexible exchange rate. (Under
this exchange rate system, the government does not intervene in the foreign exchange market.) A
floating exchange rate, by definition, results in an equilibrium rate of exchange that will move up
and down accord-ing to a change in demand and supply forces. The process by which currencies
float up and down following a change in demand or change in supply forces is, thus, illustrated
in Fig. 5.5.

Equilibrium Exchange Rate

This is the balance of payments theory of exchange rate determination. Wherever gov-ernment
does not intervene in the market, a floating or a flexible exchange rate prevails. Such system may
not necessarily be ideal since frequent changes in demand and supply forces cause frequent as
well as violent changes in exchange rate. Consequently, an air of uncertainty in trade and
business would prevail. Such uncertainty may be damaging for the smooth flow of trade. To
prevent this situation, government intervenes in the for-eign exchange rate. It may keep the
exchange rate fixed. This exchange rate is called a fixed exchange rate system where both
demand and supply forces are manipulated or calibrated by the central bank in such a way that
the ex-change rate is kept pegged at the old level.
Often managed exchange rate is suggested. Under this system, exchange rate, as usual, is
determined by demand for and supply of for-eign exchange. But the central bank intervenes in
the foreign exchange market when the situ-ation demands to stabilise or influence the rate of
foreign exchange. If rupee depreciates in terms of dollar, the RBI would then sell dol-lars and
buy rupee in order to reduce the downward pressure in the exchange rate. Foreign exchange
earnings refer to the monetary gain made by selling goods and services OR by exchanging
currencies in global markets. Such markets are known as Foreign Exchange markets/ Forex
markets. Foreign exchange earnings are denominated in convertible currencies, which means that
even though the earnings come in the respective currencies of the countries where the products
or services are sold, they have to be exchanged with the home currency in order to be calculated.
The rate at which currency of one country can be exchanged for currency of another country is
called the Rate of Foreign Exchange.
It is the price of a country’s currency m terms of another country’s currency. Put in another way,
the rate of foreign exchange is the amount of domestic currency that must be paid to obtain one
unit of foreign currency. For instance, if 1 American dollar can be obtained (exchanged) for 50
Indian rupees, then foreign exchange rate is $1 = Rs 50. This (50 to J dollar) will be called
foreign exchange rate between USA and India. In other words, 1 dollar can purchase 50 rupees
of Indian money clearly; the rate of exchange of a currency simply expresses its external value or
its external purchasing power.
Stability in exchange rate is one of the important factors which indicate economic stability of a
country Earnings from exports and payments for imports are directly affected by the foreign
exchange rate .Nominal vs. Real Exchange Rate.Nominal exchange rate is price of foreign
113
 currency in terms of domestic currency. Real exchange rate is the relative price of foreign goods
in terms of domestic goods. It is equal to the nominal exchange rate multiplied by foreign price
level and divided by domestic price level.
Foreign exchange earnings can have two components:
(a) Profits from the export of goods and services
(b) Profits from the conversion of currencies due to the difference in exchange rates
The exchange rates of the currencies are a function of the demand and supply of money in a
given country and fluctuate with time.
As explained by the money market equilibrium equation (LM curve), if the money supply
increases in a country, the price of the currency generally decreases, and the converse holds true.
The interest rate, set by the government, also affects the demand for money, and thus the amount
of foreign exchange earnings that can be made from it.
Money Market Equilibrium (LM curve) –>L= kY -hi
 L= Money demand
 h= Sensitivity of money demand w.r.t interest
 k=Sensitivity of money demand w.r.t. Y
 Y= Aggregate demand
 i= Interest rate
Foreign Exchange Market:
The market in which national currencies of various countries are converted, exchanged or traded
for one another is called foreign exchange market. It is not any physical place but is a network of
communication system which connects the whole complex of institutions. It includes banks,
specialised foreign exchange dealers, brokers and official government agencies through which
the currency of one country can be exchanged (converted) for that of another country. Again,
foreign exchange market is of two types—Spot market and Forward market.
Functions:
Foreign exchange market performs three main functions, namely (i) transfer function, (ii) credit
function and (iii) hedging function. Transfer function refers to transferring purchasing power
between countries; credit function refers to providing credit channels for foreign trade and
hedging function pertains to protecting against foreign exchange risks. Hedging is an activity
which is designed to minimise risk of loss. When people want to operate in the foreign exchange
market, it implies that they intend to buy or sell foreign exchange depending on their demand for
or supply of foreign exchange.
For instance, when we (Indian residents) buy foreign goods, say, Japanese goods, it shows
supply of rupees to foreign exchange market to be exchanged for yen because seller of Japanese
goods will expect payment in yen only. Similarly, Indian exporters of their goods will expect to
be paid in rupees for which foreigners will have to sell their currency in the exchange market to
buy rupees in return. It shows demand for rupees in foreign exchange market. Transactions in
foreign exchange market are reflected in the balance of payment account.

***
Long Questions:
1) Explain the role of an entrepreneur in the economic development of the country.
2) “Entrepreneur creates employment opportunities”. Explain
3) How does an entrepreneur contribute in the import and export of a country?

114
 4) Define EDPs. Explain the role and importance of EDPs in producing quality and
successful entrepreneurs.
5) Elaborate the various steps involved in organizing EDPs.
6) Why do you think that EDPs are gaining importance now a day? Give suitable reasons
highlighting the need for EDPs.

MCQ

Question 1.
Self-actualisation needs on the job are fulfilled by:
(a) Ensuring hard work in the job
(b) Ensuring quality products
(c) Participating in a training programme
(d) None of the above

Question 2.
The attitude of Indian Government Machinery towards entrepreneurial development programme
is :
(a) Destructive
(b) Negative
(c) Constructive
(d) Non-cooperative

Question 3.
According to sociological approach, entrepreneurship
(a) Process of sensitivity
(b) Process of role performance
(c) Process of economic change
(d) All of these

Question 4.
Which of the following attitudes Is not generally associated with successful entrepreneurship :
(a) Competition and co-operation
(b) Desire to influence others
(c) Innovation and product improvement
(d) Status quo in business

Question 5.
The function of entrepreneur are:
(a) To imagine a business idea
(b) To study project feasibility
(c) To setup enterprise
(d) All the above

Question 6.
Which of the following sentence is not a characteristic of entrepreneurship:
115
(a) Risk taking
(b) Innovation
(c) Creative activity
(d) Managerial training

Question 7.
An entrepreneur is:
(a) Born
(b) Made
(c) Bom and made both
(d) All of these

Question 8.
Entrepreneurship fails to lead :
(a) Partnership firm
(b) New corporate division
(c) New subsidiary venture
(d) None of these

Question 9.
__ gives financial assistance to entrepreneurs:
(a) ICICI
(b) SBI
(c) Indian Bank
(d) IMF

Question 10.
Social and economic development of a Nation is the result of………..:
(a) Entrepreneur
(b) Planning
(c) Operation
(d) Government

Question 11.
The future of entrepreneurial in India is:
(a) In dark
(b) Bright
(c) In difficulty
(d) None of these

Question 12.
Entrepreneurial Development Institute of India was established by:
(a) Maharashtra Government
(b) Gujarat Government
(c) Madhya Pradesh Government
(d) Tamil Nadu Government
116
Question 13.
Entrepreneurship is ensured by:
(a) Subsidiaries
(b) Larger Firm
(c) Medium Firm
(d) Small Firm

Question 14.
In India entrepreneurial development programme is :
(a) Necessary
(b) Unnecessary
(c) Wastage of time
(d) Wastage of money

Question 15.
Entrepreneurial Development Program provides :
(a) Self-employment
(b) Education & training
(c) Skill increment
(d) All of these

Question 16.
Maslow’s Hierarchy of needs theory is governed by the fact that:
(a) People are universally motivated by needs
(b) People are socially motivated by needs
(c) People are politically motivated by needs
(d) None of the above

Question 17.
Critical evaluation points of entrepreneurial development programme are:
(a) Organisational policies
(b) Lack of suitable selection procedure
(c) Lack quality of technical and vocational education and training
(d) All of these

Question 18.
Entrepreneurship falls to lead :
(a) Partnership firm
(b) New corporate division
(c) New subsidiary venture
(d) None of these

Question 19.
An entrepreneur is said to be:
(a) Promotor of economic development
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(b) Motivator of economic development
(c) Both the above
(d) None of the (a) and (b)

Question 20.
Which of the following sentence is inconsistent in the context of entrepreneur:
(a) He is owner of the business
(b) He is risk taker
(c) He operates production activities
(d) He searches out business opportunities

Q21. Which of the following shows the process of creating something new:
A. Business model
B. Modeling
C. Creative flexibility
D. Innovation

Q22. The entrepreneur was distinguished from capital provider in:

a) Middle ages
b) 17th century
c) 18th century
d) 19th and 20th century

Q23. A corporate manager who starts a new initiative for their company which entails setting up
a new distinct business unit and board of directors can be regarded as:
a) Ecopreneur
b) Technopreneur
c) Intrapreneur
d) Social Entrepreneur

Q24. Family business always interested to handover the change of his business to:
a) Indian Administration Officers
b) Professional Managers
c) Next generation
d) None of the above

Q25. EDP (Entrepreneurship Development Programmes) is required to help:

a) Existing entrepreneurs
b) First generation entrepreneurs
c) Future generation entrepreneurs
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d) None of the above

Q26. A Micro Enterprise is an enterprise where investment in plant and machinery does not
exceed (According to MSMED Act, 2006):
a) Rs. 25 Lakh
b) Rs. 20 Lakh
c) Rs. 15 Lakh
d) Rs. 30 Lakh

Q27. Why should an entrepreneur do a feasibility study for starting a new venture:
a) To identify possible sources of funds
b) To see if there are possible barriers to success
c) To estimate the expected sales
d) To explore potential customers

Q28. Which one of the following is the next stage to the Concept Stage of Product Planning and
Development Process:
a) Idea Stage
b) Product Planning Stage
c) Product Development Stage
d) Test Marketing Stage

Q29. What is the process by which individuals pursue opportunities without regard to resources
they currently control:
A. Startup management
B. Entrepreneurship
C. Financial analysis
D. Feasibility planning

Q30. An individual who initiates, creates and manages a new business can be called
_____________.
A. A leader
B. A manager
C. A professional
D. An entrepreneur
Answer Key:
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
c d b d d d c a a a b b b a a
16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
c d a c c d c c c b a b c b d
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Suggested Readings:
1. Charantimath, (8th Ed.,2014), Entrepreneurship Development and
Small Business Enterprise, Pearson Education.
2. Bamford C.E. (In Ed. 2015), Entrepreneurship: A Small Business
Approach, McGraw Hill Education.
3. Balaraju, Theduri, (2012), Entrepreneurship Development: An
Analytical Study, Akansha PublishingHouse.
4. David, Otes, (2014), A Guide to Entrepreneurship, Jaico Books
Publishing House, Delhi.
5. Kaulgud, Aruna, (2012), Entrepreneurship Management, Vikas
Publishing House, Delhi.
6. Chhabra, T.N. (2014), Entrepreneurship Development, Sun India.

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