UNIT I

OVERVIEW OF ENTREPRENEURSHIP

Introduction

Entrepreneurship is a way of life. Being entrepreneurial means being creative

enough to identify, start and maintain a viable and profitable business, particularly a small
enterprise.

Most people spend a large part of their lives working for somebody else. Several of
them eventually rise to positions of wealth and power, but the rest languish in
unchallenging and low-paying jobs. However, there is a selected few who strikes it out on
their own. Rather than working for others, they put up their own business and find
themselves successful. Thus, they considered entrepreneurship as a rewarding endeavor.

On the other hand, the government encourages people to become employers rather
than mere employees. This is because the government considers the vital role of
entrepreneurship in economic development. And in order to support this activity, the
government enacted several laws and policies.

Aside from being creative, the entrepreneur possesses ten important competencies
needed to successfully operate the business and to overcome various challenges and
problems. An emerging concept called intrapreneurship is also a growing concern in the
corporate world. This is necessary so that the organization will remain competitive and
profitable.

Entrepreneurship has various roles in supporting economic development. With

these positive effects, the entrepreneur needs to balance the operations of the enterprise
by not only focusing on the profits but also on its responsibilities to the society and to the
other stakeholders.

At the end of the unit, the student is expected to:

1) state the nature of entrepreneurship;

2) recognize the development of entrepreneurship;
3) define entrepreneurship and entrepreneur;
5) describe the personal entrepreneurial competencies;
6) recognize the ethics and social responsibilities of entrepreneurs;
8) explain the role of entrepreneurship in economic development;
9) describe the emerging trends and issues in entrepreneurship
 LESSON 1 NATURE AND DEVELOPMENT OF ENTREPRENEURSHIP

Some notable persons and their works in entrepreneurship history

Richard Cantillon (1697-1734). Irish economist of French descent, introduced the

term entrepreneur who organizes and assumes the risk of a business in return for the
profits. According to Cantillon’s original formulation, the entrepreneur is a specialist in
taking on risk. He “insures” workers by buying their products (or their labor services) for
resale before consumers have indicated how much they are willing to pay for them. The
workers receives an assured income while the entrepreneur bears the risk caused by price
fluctuations in consumer markets.

Joseph Schumpeter (1883-1950). Took a different approach, emphasizing the role

of innovation. According to Schumpeter, the entrepreneur is someone who carries out
“new combinations” by such things as introducing new products or processes, identifying
new export markets or sources of supply, or creating new types of organization.
Schumpeter presented an heroic vision of the entrepreneur as someone motivated by the
“dream and the will to find a private kingdom”; the “will to conquer: the impulse to fight ,
to prove oneself superior to others”; and the “joy of creating.”

Frank Knight (1885-1972). Refined Cantillon’s original formulation and distinguished

between risk, which is insurable and uncertainty, which is not. Risk relates to recurring
events whose relative frequency is known from past experience, while uncertainty relates
to unique events whose probability can only be subjectively estimated.

Peter Drucker (1970). For him, entrepreneurship is about taking risk. The
entrepreneur is the kind of person that is willing to put his career and financial security on
the line for an idea, spending his time and capital in an uncertain venture.

Pinchot (1985) coined the term intrapreneurship to describe entrepreneurial – like

activities inside organization and government.

Theories that explain how economies grow.

This topic is needed to determine what theory supports entrepreneurship as aid to

economic development. The theories about economic development are classified into
three (3):

1. theories which view economic growth as a natural and inevitable process ( general
explanations of economic development)
2. theories that explain economic development as a rational process brought about
when men respond to opportunities (economic explanations of development)
3. socio-psychological theories

General Explanations of Economic Development

1. Economic development proceeds according to a master plan or "Law of Nature".
There are two (2) proponents under this theory, one is Spengler. According to
Spengler, economic development is likened to a living organism that grows, lives
and dies. Economic development is also a natural thing. Herbert Spencer offers
similar view about this. He said that society is like an organism constantly in the
process of evolution. As it evolves, it increases in complexity since new institutions
become increasingly specialized.

2. Economic development is brought about by an "invisible hand". Adam Smith said

that while individuals seek to work for their own personal goals, they unknowingly
promote what is best for all.

3. Economic development is brought about by "cultural diffusion". Anthropologists

introduced the idea that over the ages and across the years, societies have been
involved in different social or cultural "experiments". For example is the evolution
of machines. Man can now produce more and at the same time has more energy
left for other productive activities. Because of cultural diffusion, hence there is what
we call transfer of technology. As one culture that has began to use a new
technique interacts with another that has not been exposed to the technique. The
former is able to influence the latter to discard old ways and adopt new ones.

4. Racial heritage determines the economic development of people.

5. Climatic conditions determine the energy level of people and, in turn, its rate of
development. Ellsworth Huntington concluded that extremes of temperatures as
well as high fluctuation of climatic conditions would have a detrimental effect on the
energy levels of people. An average temperature is the most stimulating climate.

6. The challenge of the natural environment is responsible for the rise of civilization. A
country for instance that has an absolute advantage would really have a more
developed economy over the others.

Economic Explanations of Development

1. Technology improvements and division of labor lead to development. Adam Smith

believed that the invention of better machines and equipment leads to an increase in
productivity which, together with specialization or division of labor makes economic
growth possible. The introduction of assembly lines, for instance, permits division of
labor and a more efficient production since there is a decrease on the rate of
wastage.

2. Population changes affect development. David Ricardo believed that increase in

population eventually lead to stagnation or a final stationary state of the economy.
Ricardo illustrated that when population increases, there is more demand for food
 which in turn leads to an unproductive land (overused). With this, prices of finished
products increase and so employees would seek for higher salaries. This results to
lower profits on the part of the business.

In contrast to this point of view, John Maynard Keynes pointed out that capitalists or
entrepreneurs are most likely to invest their resources when there is demand for the
community. With increasing demand by an increasing population, capitalists would
most likely invest more.

3. Entrepreneurship is an important factor in development. For production to take

place, someone has to mobilize all resources of the enterprises.

Socio-Psychological Theory

Economic growth is a product of individual human behavior - a person's decisions,

thoughts and actions. Economic growth takes place because enterprising individuals seek
to fulfill their need for achievement. David Mc Clelland concluded that achievement
motive contributes most for individuals to do economic activities. Child rearing contributes
to this since early independent training of parents to their children further leads to a higher
need for achievement.

Categories of Enterprises

In a bid to bolster financial support for small business, President Arroyo on signed
into law the Magna Carta for Micro, Small and Medium Entrepreneurs (MSMEs) or Republic
Act 9501.

The law aims to strengthen financial support to small businesses by addressing the
problem of lack of capital and access to credit and is part of the priority legislative agenda
crafted by the Legislative Executive Development Advisory Council (LEDAC) for the
remaining session days of Congress.

RA 9501 requires banks and lending institutions to allocate at least eight percent of
their loan portfolio to micro and small enterprises.

The present law requires only a six percent minimum allocation for micro and small
enterprises and a minimum of two percent for medium enterprises.

It also adjusted the definition of MSMEs:

Firms will now be considered as micro enterprises when they have total assets of
not more than P3 million, up from the previous threshold amount of P1.5 million.
 Small enterprises will be those with total assets of P3 million to not more than P15
million.

Medium enterprises are those with total assets of P15 million to P100 million, from
the previous threshold amount of P60 million. (Arroyo signs MSME law; redefines micro,
small traders
05/23/2008 | 07:23 PM http://www.gmanews.tv/story/97000/Arroyo-signs-MSME-law-
redefines-micro-small-traders)

The figure below shows that majority of the businesses that operate in the country
are micro, small and medium enterprises. Eighty-eight per cent (88.45%) are micro
enterprises.

MSMEs help assure a more equitable distribution of income. It disperses economic

activities to the countryside and are a potent force in the war against poverty. Undeniably
they are good sources of income for the government. The figure below shows that MSMEs
provide the most employment for the people.
The Government and Entrepreneurship

Classifying enterprises is very important because the government will be able to

identify the specific services each classification requires. The government has to make sure
that it has programs to assist all firms that need help. Some firms however, need more
assistance than the others do.

The government plays a vital role in entrepreneurship development. It sets up

economic and social infrastructures that aid in the smooth flow of commerce and trade.
The government also provides policies and infrastructures to speed up the growth of the
economy.

Government Laws that Support Micro, Small and Medium Enterprises

1. RA 9178 or the Barangay Micro Business Enterprises (BMBE) Act of 2002. It is

an act to promote the establishment of barangay micro business enterprises,
and to provide incentives and benefits to entrepreneurs. A BMBE is defined as
any business enterprise engaged in production, processing or manufacturing
of products, including agro-processing, as well as trading and services, with
total assets of not more than P3 million.

Incentives of BMBE’s under the Act:

 Exemption from income tax for income arising from the operations of the
enterprise;
 Exemption from the coverage of the Minimum Wage Law;
 Special credit window; and
  Technology transfer, production and management training and marketing
assistance.

2. RA 6977 (amended by RA 8289) or the Magna Carta for Small Enterprises. It is

an act to promote, develop, and assist small and medium scale enterprises
through the creation of a Small and Medium Enterprise Development (SMED)
Council. The SMED Council is an interagency body established on January 4,
1991. The Council is attached to the DTI Several agencies are involved in the
SMED council namely: Bureau of Domestic Trade Promotion (BDTP); Bureau of
Small and Medium Enterprises Development (BSMED); Philippine
International Trading Corporation (PITC); Philippine Trade and Training Center
(PTTC); Product Development and Design Center of the Phils (PDDCP);
Regional Operations Group (ROG); Small Business Guarantee Finance
Corporation (SBGFC) and Trade and Industry Information Center (TIIC).

The following are the specific objectives of the SMED Plan:

1. To increase the share of small and medium segments from 8.7% to

10% by fortifying micro enterprises into small businesses and
generating new ones.
2. To strengthen 20 strategic SME centers all over the Philippines and
3. To intensify awareness of government initiatives to provide assistance
to SMEs.
3. RA 3883 or Business Name Registration. It protects an enterprise
guaranteeing exclusive use of its registered name and goodwill.
4. Fair Trade Laws. The government defines operating boundaries within which
businesses can carry out their affairs while at the same time protecting the
interest of consumers. The government can close the firm down when it is
proven that something harmful is being done to the public.
5. Decentralization and localization. With this, there has been an increase in the
participation of local government in crucial business activities. The
Department of Trade and Industry (DTI) for instance implements various
efforts such as consolidating business registration requirements, buyer-
supplier matching, streamlining financial requirements of government
financing institutions (GFIs) and other similar initiatives toward reducing the
cost of doing business. The Department of Interior and Local Government
(DILG) provides one-stop shops to address complaints and other concerns
about the local government. Both aforementioned agencies offer business
counseling as well as service facilities such as fax, computer and the like
through SME centers.

Programs and Services for Micro, Small and Medium Enterprises

 Programs for the promotion, expansion, and growth of small and medium industries
are grouped into three broad categories namely financial assistance, technology/production
assistance, marketing assistance and training assistance.

Financial Assistance

1. SULONG (SME Unified Lending Opportunities for National Growth)

Program. This is the financing initiative of the SMED Plan. It supports the
One Town, One Product, One Million Pesos Program. OTOP is a priority
program of President Gloria Macapagal Arroyo to promote
entrepreneurship and create jobs. OTOP – Philippines encourages the
country’s MSMEs to produce and market distinct products or services using
indigenous raw materials and manpower.
2. Industrial Guarantee and Loan Fund (IGLF). This loan program meets the
financing needs of collateral-deficient small and medium enterprises.
Viable economic projects in need of capital may avail of the IGLF assistance
under liberalized terms and procedures, such as collateral short guarantee
coverage of up to 25% and credit risk guarantee coverage of up to 60%.
3. Guarantee Fund for Small and Medium Enterprises (GFSME). The GFSME
encourages banking institutions to lend to small and medium scale agri-
based entrepreneurs. The fund supports the participating financial
institutions by assuming up to 85% of the total risk involved in lending
small and medium enterprises.
4. Export Industry Modernization Program (EIMP). The EIMP of the
Technology and Livelihood Resource Center (TLRC) is designed to respond
to the needs of the export industry by providing loan funds to small and
medium businessmen in the preparation and implementation of
modernized projects.
5. Agro-Industrial Technology Transfer Program (AITTP). It is a program of the
Philippine Government managed by the TLRC and funded by Japan
Overseas Economic Cooperation Fund (OECF). Eligible projects for the
program are financially viable agri-based projects that contribute to
technology transfer particularly for production and processing for the
export market.
6. Urban Livelihood Financing Program (ULFP). It is organized and funded in
1981. It is also implemented for Metro Manila and sub-urban areas by the
TLRC.
7. DBP Agri-Small and Medium Industries lending Program (A-SMILE). It aims
to infuse much required financial resources into countryside development.
It is particularly concerned with accelerating the growth of agricultural and
small and medium-scale industries.
8. Bagong Kilusang Kabuhayan at Kaunlaran Program. (B-KKK). It provides a
new perspective in the delivery of livelihood services. This is a recognized
program of the previous KKK. Its efforts are directed to create livelihood
 opportunities for the economically depressed sectors by encouraging and
supporting labor-intensive projects.

Balikatan sa Kabuhayan Program. Launched in October 1986, this program

aims to deliver livelihood assistance to small business enterprises and
export firms. A technology information is offered to its clients.

Kabuhayan sa Nayon Program. This program aims to promote the

establishment of labor-intensive projects of small and micro enterprises in
the countryside. This is being undertaken jointly with the private and
public banking institutions.

 Anchor chain type. This consists of an existing established anchor firm.

Smaller business entities are linked to the anchor firm under a
subcontracting or contract-growing arrangement. Loans up to Php 1M
may be granted to the anchor firm, the smaller entities or both.
 Stand alone type. This consists of any new or existing livelihood
enterprise not falling under the anchor chain type.
9. Agricultural Loan Fund (ALF). The ALF program is designed by the Central
Bank to supplement traditional sources of farm credit to boost
productivity, to generate employment and to raise farm income. This fund
provides short-term, medium and long-term credit to finance eligible
agricultural and agri-business projects.
10. DTI "Tulong sa Tao" Program (TST). It is developed in line with the national
objective of developing programs that generate employment
opportunities.

Technical/Production Assistance. Assistance in the areas of planning, development,

programming, monitoring and evaluation of services and technical assistance is
continuously being provided to SMEs through the various development and implementing
office of the Department of Trade and Industry, governmental and non-governmental
agencies and various external organizations, among others.

1. Agencies of the Department of Trade and Industry

a. Bureau of Small and Medium Business Development (BSMBD). This

Bureau formulates and monitors development programs for private
institutions involved in assisting trade and industry sector, delivery
mechanisms and linkage for marketing, financial and sub-contracting
services.
b. Bureau of Product Standards (BPS). Some of its responsibilities are the
following: (1) It studies and/or does research on the various reference
materials to be used as basis for the start of whatever analysis or
evaluation is demanded by the products under examination or
investigation. (2) It establishes standards for all products of the
 Philippines. (3) It ensures the manufacture, production and distribution
of quality products for the protection of consumers. (4) It maintains
consultative liaison with the International Organization for
Standardization, Pacific Area Standards Congress, and other
international standards organization.
c. Bureau of Patents, Trademarks and Technology Transfer. It registers
trademarks, trade names and other marks of ownership.
d. Board of Investments. This agency is responsible for the coordination,
formulation and implementation of short, medium and long-term
industrial plans.
e. Cottage Industries Technology Center (CITC). This provides technical
training.
f. Regional Operations Group (ROG). It serves as the implementing arm of
the DTI. It operates in 16 regions and 79 provinces nationwide.
2. Other Governmental and Non-Governmental Institutions
a. The Department of Science and Technology (DOST) gives financial
assistance, technical and training assistance to scientific, engineering
and technological undertakings.
b. Other research and development institutes
1. Technology and Livelihood Resource Center (TLRC). The TLRC
serves the public through the acquisition and promotion of
livelihood skills and information for Filipinos worldwide. It is
attached at the Office of the President and operates as a self-
sustaining institution with minimal subsidy from the National
Treasury.
2. National Food Authority. The NFA is envisioned to be at the
forefront in providing excellent needed services to the food
marketing industry towards global competitiveness an committed
to ensuring food security.
3. Food and Nutrition Research Institute. The principal research arm
of the government in food and nutrition is one of the research
and development institutes of the DOST. it is mandated to define
the citizenry’s nutrition status, develop recommendations for
improvement of nutrition status, and disseminate research
findings and recommendations.
4. Packaging research and Development Center. This serves as a
venue to conduct package research and development, testing,
training, and as depository of packaging information, standards
and regulations.
5. Product Development and Design Center of the Philippines. It
promotes design as a tool for improving the quality and
competitiveness of Philippine products. it services the design
needs and requirements of SMEs.
6. UP-AYALA Technology Business Incubator. It is a joint
experimental facility on technology development and technology-
 based entrepreneurship program by the University of the
Philippines and the Ayala Foundation. The partnership seeks to
create a community of innovators and entrepreneurs by providing
a facility that offers an IT-friendly environment, access to
academe research, and access to IT industry breakthroughs.

Marketing Assistance. The marketing assistance programs being developed and

implemented through the DTI are spearheaded by the following government agencies and
NGOs:

1. Agribusiness and Marketing Assistance Service. It is mandated to facilitate and

coordinate the efforts of the Department in all matters pertaining to
agribusiness development and marketing activities.
2. Bureau of Domestic Trade Promotion. Develops, strengthens and promotes
the domestic market for MSMEs. It ensures the rational, economical and
steady flow of materials to production centers and increases domestic trade
through effective marketing and efficient distribution of finished goods.
3. Bureau of Export Trade Promotion. The main concern of the BETP is the
expansion of foreign trade. It seeks to enable Philippine exporters to compete
with world-class products and services in the international market.
4. Center for International Trade Exposition and Mission. The agency organizes
efficient participation in trade fairs.
5. Market Encounter Goes to Manila (MEGMA) Foundation, Inc. A non-stock,
non-profit organization registered at the SEC. It was established primarily to
assist in the full development of the domestic market as primary market for
micro, small and medium enterprises.
6. Philippine International Trading Corporation. It undertakes both import and
export of a wide range of commodities, industrial products and consumer
goods.
7. Philippine Shippers Council. It handles negotiations for more favorable
shipping rates.

Training Assistance

1. Asian Institute for Entrepreneurship (Asian Institute of Management). It brings

together classic, corporate, and social entrepreneurs who want to create value
and bring their organizations to higher levels of productivity, profitability and
professionalism.
2. Center for Small Entrepreneurs. It is committed to work for the development of
micro and small enterprises by providing holistic programs to enhance the
entrepreneurs’ management skills and knowledge in enterprise development.
3. Cottage Industry Technology Center. Provides production-related and skills
development training programs, technical assistance, facility servicing, and
consultation services for the country’s furniture, gifts and housewares, fine
jewelry and leather footwear industries.
 4. Philippine trade training center. Designs and develops training curricula and
corresponding instructional materials, and conducts training programs for micro,
small and medium enterprises, business support organizations and the
government sector.
5. Technical Education and Skills Development Authority (TESDA). Manages and
supervises technical education and skills development in the Philippines.
6. UP – Institute for Small-Scale Industries. It is a training, research and
consultancy organization for SME development and new enterprise promotion.

LESSON 1
SUMMARY

Entrepreneurship has been practiced even during the early times. There were
notable individuals who contributed to its development which helps us to better
understand the concept today. Entrepreneurship has been associated with economic
development. The topic on the different theories must have helped you identify what
theory supports entrepreneurship.

As entrepreneurship becomes widely accepted, efforts were made for its further
development. In the Philippines, enterprises were categorized into Micro, Small and
Medium in order to determine what needs more assistance and in what way. The
government supports entrepreneurship in various ways. It could be in the form of laws or
more specific assistance along financial, marketing or technical.