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    © All Rights Reserved
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    4 views27 pages

    2.0 Role of Entreprenuership in Economic Development +3.0 Small Business Dev

    Uploaded by

    Gasper Shirima

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 27
    cENTREPRENEURSHIP FOR ENGINEERS . HAND OUT 2: ROLES OF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT Economic development is a process of uoward change whereby the real per capita income of a country increases over a period of time, Entrepreneurship is known to be one of the most important inputs in economic development. ‘This is exemplified by the econamic history of the Presently advanced countries like USA, Russia and Japan which supports the fact that economic development is the outcome of entrepreneurship. Also, for many developing countries, private sector development has been a powerful engine of economic growth and wealth creation, and crucial for improving the quality, number and variety of employraent opportunities for the poor. Ieis now a widely accepted fact that active and enthusiastic entreprencurship can exploit the such as Iebour, capital and technology available in country to bring about rapid resource economic development. Roles of Entrepreneurship in Economic Development include the following: Employment Creation Entrepreneurship generates employment due to the fact that entreprensuurs are self employed ane! at the same time start many industrial units which offer jobs to millions. In this way they offer solution to the growing unemployment particularly educeted unemployment which is a problem of many nations. In Tanzania it is estimated that there are about 700,000 new entrants into the labour force every year. Public'sector employs only about 40,000 of the new entrants into the ‘abour market, leaving many people to join the unemployed or the underemployed reserve, Most of these persons end up in business enterprises, Therefore entrepreneurship ean provide employment, income, and productive outlets for many of the disadvantaged, marginal, or economically discriminated sections handicapped or the disabled people, of the community such ss vomen, urban youths, the Contribution to the Country’s National Income Entreprencurship increases the natfonal income rough entrepreneurs who produce goods and services for consumption within the country as well as to meet the demand of exports. The ‘Any decision a small business owner is to be made has (o be consulted and approved by the a franchisors. This limits the authoritative control of the sraall business owner to a great extent. There are several occasions when the termand conditions imposed by the investors and franchisors are biased. ‘A complete and thorough research is required to select the right ftanchise and to determine whether it would work for the business or not. Disputes can occur between the small business and franchisor | ‘This is a business involving buying trade rights from a large business. For example Coca-Cola Production company. A franchise is a temporary business investment involving renting or leasing an opportunity, not the purchase of a business for the purpose of ownership. Businesses for which franchising work best be one or several of the following characteristics + A.good track record of profitability + Ease of duplication | «Detailed systems, processes and procedures + Aunique or unusual concept + Broad geographic appeal + Relative ease of operation + Relatively inexpensive operation. Advantages of Franchises It provides an established name recognition to the business. If a small business is associated and inked with a big business-then there is a high probability that the small business would be boosted due to the firm backup anld support of an cstablished big business. ‘When a business is associated with a franchisor then the big-business themselves help in corporate marketing of the small industry or business they are providing support for. Tt gives bulk purchasing power to small business znd insiustries which enables the business to buy equipments, products and other necessities (o run the business with ease and without worrying about the financial investment. i ‘The franchisor provides the fie and management facilities to the business, A company which provide capital and investment to any small business have vested interest in the success of the small business. \ ‘The big business and industry provides all the necessary training to the small business staff and : ies 5 provide additional resources and on capabilities to a small business. Disadvantages of Franchises Advantages: { + Stakeholders have limited liability for business debts * The business has a perpetual life © Itis easy to transfer ownership © _ Tseasy to expand the business © Its applicable to both small and large businesses: Disadvantages © Itis expensive to register, organize and manage *. Starting the business is colplicated ‘There are many government regulations to consider Cooperative ( | A cooperative is formed by a nuhber of people who decide to work together voluntarily. All members are equal and have equal voting powers. A cooperative must be registered with the Registrar of Cooperatives. ‘Advantages * Low cost to start the business . There is no personal liability by the members for the debis Disadvantages © Itis complicated in the pricedure of starting the business. Franchise a | Limited Company ‘This is a form of business whicl is set up as 0 separate body legal entity from persons ie shareholders who own it. The company owns assets, makes contracts and conducts business transactions in its own eapacity ag legal entity. Memorandum of Aricles of Association is filed by the Registrar of Companies for registration who the issues a certificate of incorporation signifying that the limited company is formed. A company is owned by one or more people. The Board of Directors makes operational decisions. © wners are protected (shielded) from liabilities of the corporation, and the corporation pays corporat: income taxes. A company can be & limited liability company when jt is formed by "members" whose liability is limited to their investment. An LLC is often used in place of partnerships to limit liability, while having the option of being taxed through the personal tax returns of the members. Types of companies Private companies are normally {formed by persons with pricr relationships other than only business relationship e.g. Father|and son's and or daughters, friends etc. A private company is prohibited from inviting the general public to subscribe to its shares, it cannot have more than $0 members, and its shares| are not freely transferable between members. I Public companies are open ended, and there is no ‘striction on the maximum number of members, while the minimum number is seven. A public company, , may offer its shares to the general public. There is no maximum number of members and its shares are freely transferable. \ Such a company is the equivalent of a corporation in many other countries. Foreign companies are companies incorporated outside Tanzania. Their offices in Tanzania are | treated as branches of foreign company. Parastatal or state owned rai are normally private companies which have more than 50% stake in the government, 20 Bach partner is jointly and separately fiable for all the debts incurred A partnership may be formed by apy kind of agreement expressed or implied without any special formality but usually it is in wtiting, The death, resignation or retirement of any individual partner dissolves a partnership unless, as is usual, the partnership agreement provides otherwise. Business partners have to enter info a partnership agreement, ‘This agreement should cover: © What line of business the partners are going to be in * How the profit or loss is going to be divided by the partners * Duties of each partner | ‘There is general partnership in which all partners are active in management and ore jointly responsible for the business and all its debis. ‘There is also limited partnership in which there is one or more who manage the business while other partners contritmte to capital but do not manage the business. Limited partners are not jointly responsible for all the debts of the business but one partner must be a general partner who is liable for all the debts for the firm without a limit. A limited partnership must be registered. Partnership taxes are paid by the partners on their personal tax returns, in proportion|to their share of ownership. Advantages: : © Easy to start, organize and discontinue © Combines individual talents, skills and judgment ‘There is increased sources of capital for business development. . There is definite legal status of the busine under law. +” Has certain tax advantages, Disadvantages | © Partners have an unlimited and mutual liability for business debts. * Life of business may be limited with enforced termination, + There is a possibility of disagreements among partners. 19 Legal Forms of Business Sole proprietorship ‘This is a type of business formed, owned and controlled by one person. The business owner is not legally separated from the business. Tt has Jess goverment control and there is no direct income tax on the business only on the owner which means business taxes are paid by the owner through his or her personal income tax retum. The owner also has all the control and all the liability from the business operations. The business is terminated upon the death of the owner. (N.B Most SMEs in this country operate in this form of business ownership). Advantages: i, Simple in organization. | ii. Owner free to make all adbisions iii, Owner enjoys all the profit. iv, There are Few legal restrgtions. v. Easy to discontinue business operations. ‘Owner's lack of ability and experience might hinder progress/growth of the business, ii. Difficult to attract and keep good employees. Disadvantages: iii, Difficult to raise capital required by the business, iv. Proprietor has unlimited personal liability for business debts Proprietor tales responsibility of all losses made by the business Partnership This is a type of business formed by two or more persons who come together for the purpose of establishing and running a business and sharing profits. A partnership is res icted to a maximum of 20 persons in general trading’ or 10 in banking business. If these numbers are exceeded the partnership must be | registered der the Companies Ordinance. i 18 ' During growth: | (Businesses experience expansion of its activities and enhancement of its customer base (i) Products and services are gaining acceptance in the marketplace and customers are patronizing them in increasing numbers. (ii) Profit margins tend to increase. (iv) Business require infusion of additional capital to buy capital equipment to increase production (for manufacturing businesses), to establish additional service network (for service providers) or produre more goods for trade (for trading businesoc), | Maturity/Stabilization Phase: This is the third stage of a business development. During this phase cash flows stabilize and establishment of marketing networks and operational channels are completed. The respective brands become well known and there is a stable and faithful customer following, | \ | © What is the proposed leve} of managerial resources | * How committed they are | + How well it has been planned + Risk awareness \ Financial projections * Additional costs involved and payback py | * Balance sheet and Profit& Loss projections + Cash flow projections + Punding needed and sources * Contingency provision | ‘Small businesses have to plan development around opportunities presented by products, markets and processes. According to Igor Asoff business growth can be achieved through market and product. | : 2 Growth Model ecard to Igor Asoff. Market Mar ket ers Old Product | Penetration Development Product Old Market | Market Product ‘Diversification feet New Product | Development | product Old Market | Market Most important, results of project evaluation are crucial in ensuring business growth is successfully achieved. There are a number of factors that influence the capacity of smali busine include the three P’s of growth which are: to grow. These i, The Porformance- Past and present: How good is the business performance in the market, in ts operations and in finfncial term ii, The Potential- Capacity of the business to grow How stron; is the business potential for growth in terms of resources, experience, control, ideas and leadership. iii, ‘The Project- The specific, growth plan: How sound is the specific growth project in terms of objectives, the scale of resources requirement, management ability & commitment | and financial projections. Evaluating the Project | Market | + Proposed product/service * Evidence of customer acteptability al the prics, ability to manufacture/service, enough customers, ability to enter market, ability to match cornpetition or better, how to reach customers + Market potential trends, * Competitive advantage Resource Requirements © Scale of operations planned Additional physical resources requirements: land, premises, machinery Additional financial resouirce requirements and how to acquire them. © Additional people/skills required { Management Ability and Commitment * Specific new abilities required * How existing abilities match new requirements { t 15 . 5 Furthermore it is crucial to ata changes in family circumstances, key personnel in the external environment (bankers land suppliers), regulatory environment and also. political, economic and technological changes. This is required for development of contingency plans for unforeseen problems that can octur in the business dus to these changes. It ig also important to select and use professional advisers who can give counseling/advice in financial, legal, technical, marketing issues. Bu: ess Growth Phase Hl Framework for Growth Business growth is in terms of increasing in size, profitability, turnover, capital etc. Businesses grow by developing profitable products or markets, by improving, the processes ie. becoming 1 more efficient or by combination of the sbove. { Fig 1: Diagrammatic Representation of Business Growth 2. Objective: Where do you want the business to be | 3. Planning Pees 4. How to get there (The project) ies

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