MODULE - 1 ENTREPRENEURSHIP (Entrepreneurship - Definition — Meaning ~ Concepts - Characteristics - Functions ~ Entrepreneurial Traits — Motivation — Role of entrepreneur in economic dévelopment — Factors affecting entrepreneurial growth) Introduction In a developing economy entrepreneurial development is of immense importance. Two major problems faced by the developing countries are unemployment and under-employment. Unemployment is a situation where the individuals do not get any jobs and thereby | earnnothing. It reduces the standard of living of the people and affects the economic growth of the country. On the other hand, under employment is a situation where individuals are employed on jobs which are below their educational standard. For example, if an engineer is appointed as a bank clerk it can be treated as a case of under employment. In fact, an engineer is not expected to do any clerical work. Under employment adversely affects the economic progress of the nation. Entrepreneurship is an effective remedy for unemployment as well as underemployment. Entrepreneur Ga entrepreneur is a person who organises and operates a business concern for the purpose of making profit. He is a specially talented person having the qualities of skill, initiative and an insight of innovation to achieve high goals. He looks for opportunities, identities and seizes them for making economic gains. Entrepreneurs play a vital role in the economic development of a country. The economic progress of a country depends primarily on the success or failure of the entrepreneurial development in that country.6 Chay, oN" Bs fit Hrship Development and Project Mana Map wey Evolution of the term ‘entrepreneur’ The word ‘entrepreneur’ is derived from the French ‘entreprendre’ which means ‘to undertake’, Originally it designate an organizer of musical or other entertainments. In the gs,” 16" century it was applied to those who were engaged in milig! expeditions, It was extended to cover civil engineering activities Sug 4s construction and fortification in the 17! century. It was only in th beginning of the 1gt century that the word was used to Tefer 4 economic activities. Thus, the concept of entrepreneur is Consider, to be evolved about more than four centuries. Since then, the tey ‘entrepreneur’ is used in various ways expressing various views, Definition 0; was mean, 4 The term ‘entrepreneur’ is defined in a variety of ways. Economists differ in their opinion regarding the meaning of this term. Some economists and writers have given importance to the ‘organising aspect, some others to the ‘innovative’ aspect and certain others to the ‘risk-bearing’ aspect of the term. Richard Cantillon The term ‘entrepreneur’ was first used in the business field by Richard Cantillon, the French economist, To him, @n entrepreneur means a dealer who purchases the means of production for combining them into marketable Products.) J.B. Say According to J.B. Say, another French economist, “an entrepreneur is an economic agent who unites all means of production, the labour force of the one and the capital or land of the others and who finds in the value of the products which results from their employment, the reconstitution of the entire capital that he utilizes and the vale of the wages, the interest and the rent which he pays as well as profit belonging to himself.” In the above definition, J.B. Say gives emphasis to the management functions of co-ordination, supervision, and organization of an entrepreneur. Further, it can be said that an entrepreneur is an organizer and speculator of a business unit,ae YQ) Entreprencurship Development and Project Monge Organisation [— Organisation | Innovation Skill + Vision - Risk Growth Enterprise Management Meaning An individual can set up business ventures and enterprises by utilizing his entrepreneurial talents. He can earn profit through production, processing or distribution of goods and services to the society. He is one of the important segments of economic growth. ‘An entrepreneur is enriched with the inborn qualities of adventurism, willingness to face risks, innovative urge and creativity. He is an action-oriented, highly motivated individual who takes risks to attain goals. An entrepreneur is one who puts up new projects, creates employment opportunities, and thereby paves the way for the growth of other sectors. In short, the entrepreneur is a person who brings in overall changes through innovation with a view to attaining social go Entgépreneurship Entrepreneurship is a multi-dimensional task defined differently by different scholars. For some, entrepreneurship is ‘risk-bearing’, for some others, it is ‘innovating’ and for certain others, it is ‘thrill-seeking’. Entrepreneur is essentially a business leader and the function performed by him is entrepreneurship. ence nor an art. It is a practice. 7 entrepreneurship is a meansQ. Aventreprencur ia arlak bearer, | 9, Atvontorprlie nan under that Involves Uneertanit tial, Horvice unt, talc, y and 3. AN aa ace PW LA. An enterprise utitinen raw other oi materials and other resources materiale and other resources for production, for production, 4. An entrepreneur ts a decision a maker, An onterprive Implements the decisions taken by the entre- preneur, ‘The main enterprenurial func They are: A Innovation U~* Risk-bearing, and Making alterations in the organization and management. Innovation is different from research and invention, While research aims at expanding knowledge, invention aims at theZi fe MD Ps easpcns a x0 = Enteepreneurship Development and Project Many = ‘ser application of knowledge derived from research. Innovation lead i 3 researeh and invention. ty Risk -bearing v Risk is inherent in every business. ‘No risk, no business) 9, , * isk, no gain’ are the common maxims associated with business, 7, Ng bearing may be explained as the willingness to face the losses Atisins from the uncertainties in the field of business bravely. ig Richard Cantillon has the opinion that the most importa, function of an entreprencur is the risk and uncertainty bearing. he defines entrepreneur as an agent who buys factors of production a certain prices in order to combine them into a product with a view «¢ selling at uncertain prices in future. The terms risk and uncertain are often used synonymously. But there is difference between these two terms. Uncertainty is defined as a risk that cannot be insureg against or calculated. But, a risk can be measured by analysing th. available information and reduced through insurance. Losses from fire, theft etc. are examples of risk against which one can insure one’s property. On the other hand, changes in fashion, variations jn government policies, etc. are cases of uncertainties against which one cannot insure one’s property. The success of an entrepreneur depends mainly on predicting these uncertainties and thereby minimising the losses. Whenever an entrepreneur is making an innovation he must be vigilant of the unexpected risks inherent in it. Organising and Managing the Enterprise ‘Organising’ in Economics means bringing together of various factors of production .It is one of the important functions perfomed by an entrepreneur. Proper organising will help to reduce the coxt of production and thereby achieve the organisational objective. of maximisation of profit. In the initial stages of organising an enterprise, important decisions are to be taken by the entrepreneur himself. In later stages, he can delegate his authorities to his subordinates>.While delegating authorities to the subordinates, he should keep in mind the fact that he cannot delegate the responsibilities. So, he must have a close supervision on the activities performed by his subordinates. He should also make sure that the activities of the enterprise are notUntyprenenT shi ana eonmneaas || deviated from the proposed objective, Thus, the final word regarding organization and management should be that of the entrepreneur, Other Functions. Besides the above, the entrepreneur performs the following functions also: a) ~ Exploring market opportunities Marketing of products in the competitive market is a tough function, In the case of new entrepreneurs, the marketing function creates many problems, It is better for the entrepreneur to seek the advice of experts in the field. }) Mobilization of production resources Production resources are scarce, Mobilization of the production resources minimises difficulties in production and reduces cost of production and helps the entrepreneur earn more, ‘The resources mobilized by the entrepreneur must be sufficient to produce quality goods which can compete with other products in the market. Managing Finance Finance is the life blood of business. In an entrepreneurial concern, the total financial investment should be decided by the entrepreneur himself. He has to find sources of funds to be invested in business. If he is in shortage of funds, borrowings may be made from financial institutions or from govt. agencies engaged in industrial finance. For this, proper financial planning should be made. 9 Stanaging Production Process Production process is one of the determinants of the profitability of business. Efficient management of the production process helps the entrepreneur in the reduction of cost of production, improvement of quality of products, bettér utilization of factors of production, minimisation of wastages and profitable employment of labour force. e)/ Dealing with Governmental matters The entrepreneur has to deal with many governmental matters like industrial licensing, sales tax and income tax. Proper advice from experts in the concerned field can be sought by the entrepreneur.avn wy the innovative entrepreneurs in the developed countries. They start their enterprises on a small scale to satisfy the needs of the local customers, The imitative entrepreneurs constitute the main spring of i€ development of under developed countries. Faotors affecting Entrepreneurial Growth The development of a nation depends on the development of entrepreneurship. The emergence and development of entrepreneurship is not a spontaneous phenomenon. It depends on several economic, social, political and psychological factors which are often regarded as supporting conditions to entrepreneurship growth. These conditions may have both positive and negative influences_on the emergence and growth of entrepreneurship. Positive influences constitute facilitative and conducive conditions for entrepreneurship growth, whereas negative influences inhibit the same. A careful analysis of these factors reveals that they can be broadly classified under two major heads. Viz. economic factors and non-economic factors. 1 Economic Factors The economic factors that affect the growth of entrepr-eneurship in less developed countries are the following:OY x = Entrepreneurship Development and Proje el MQ hy Ss} Lack of adequate infrastructural facilities, “y Non-availability of capital, NN os Presence of high risk, tay Non-availability of technical know-how and skills, “y Non-availability of skilled labour, 3 ) Absence of the Subject as a Programme in academic Curriculum and -2~ Lengthy and cumbersome Procedure to start business, a)- Lack of adequate infrastructural facilities: Supply, technical know’ help the entre ‘argin and discourages him. It is not possible for an up his own railway line or Power project and then, indulgein innovational activity. Dy ‘ Non-availability of Capital: Maximisation of producti objectives of all inventions. Huge amounts of capital is needed for conducting Tesearch and development activities. Capital is needed for Purchasing machinery and equipments, to adopt latest innovations, non-availability of adequate f domestic savings Prevent the development of. entrepreneurship in less developed nations, aa of high risk Risk is comparatively hi veloped nations than in developed nations. In less developed nations the entrepreneurs na ‘ : si to face situations where the capacity of their plants and the size of ts. TI their investments are placed at the mercy of unforeseen events. They also face the following problems:Entreprencurthp = = 7 ee k of reliable information regarding the market conditions. ah oo to make correct €stimates, Seasonal fluctuations 9 Fon avatiiity of Technical know-how and skills (The availability of technical know-how is the prime factor for the entrepreneurial growth) A country having sufficient educational facilities in science and hnology can create talented and successful entrepreneurs. Our educational system is insufficiently work-oriented and worn out in many ways. It stands as a hindrance in the development of science and technology. Every year our universities produce thousands of gradustes and post- graduates. But they cannot seek self-employment as most of them have no technical education. e)Y Non-availability of skilled labour Less developed nations are labour tich nations due to the growing population. But lack of labour skills is the characteristic feature of these nations. Entrepreneurship can be encouraged only when there is mobile and flexible labour force. Economic and emotional factors hinder labour mobility. So, the entrepreneurs often face the problem of non-avialability of skilled labour. WV hiner of the subject as a programme in academic curriculum Entrepreneurship as a programme is not introduced in academic curriculum. Only when the basics of entrepreneurship is taught at schools and colleges, students will become more interested in entrepreneurship. 8) ‘Téngthy and cumbersome procedure to start business In comparison with other countries, the procedure to start a business in India is quite long and cumbersome. The procedures take more and cost high. Il. Non-economic factors Sociologists and psychologists are of the opinion that economic factors may be necessary conditions, but they are not sufficient forSr alaann LANAI Development and Vrojeet Manag . em the emergence of entrepreneurship, They believe that the inf of ewnomic factors on entrepr-encurial emergence large! on non-coonomic fretays in the society. They ‘YY may be classifi cultural, and psychological factors as analysed below: Wen, ly depen, ed ag HOCK A. Social Factors N Social factors play a vital role in developin, The social attitudes towar Success in Europe. The 8 entrepreneurshig nds the Industrial Revolution made it a Glorioy, following are included in social factors; i Rational Behaviour A society which is rational in decision making would be favourable to entrepreneurial growth, society is said to be rational when decisions regarding resources are based on empirical facts and critica, Scientific standards. it would be non-rational if decisions regarding the use of capital, hiring of labour, designing of products ete. are based on customs and traditions, Rational behaviour is the order of the day, in developed nations, while non-rational behaviour is followed by less developed nations, and is not supporting to entrepreneurship, Thus, in a society where joint family system exists, the members of the joint family who gain wealth by their hard work are denied the opportunity to enjoy the fruits of their labour because they have to share their wealth with the other members of the family. In these circum-stances, very few people would dare to be venturesome, 2. Legitimacy of entrepreneurship The advocates of social factors attribute emphasis to the relevance of a system of norms and values within a socio-cultural setting for the emergence of entrepreneurship. Such a system can be referred to as a ‘legitimacy of entrepreneurship’. Schumpeter recognized the importance of such legitimacy in terms of appropriate social climate for entrepreneurship. The social status enjoyed by entrepreneurs has been considered as one of the most important contents of entrepreneurial legitimacy. 3. /Bocial mobility It involves the degree of both social and geographical moby, Th ontradicting views about the importance of social mobility itindueing trepren-eurship. Both Hoselitz and Me Cle i express Boe erat mobility within a social system is essential fp eaieprencutehip development. But, B.E. Haggen ar a8 Several scholars consider ¢ Pater en 2 yo the view that lack of mobility Pornibiliies promotes entreprenourahip, However, social mobility alone tay rahi y Jol Ukoly to datluence entrepreneurship, but its influence is largoly doter mained by ites eoonomic factors, other non 4, Social marginality ‘ Some scholars argue that soctat Marainality also pr entrepreneurship, ‘They believe that individuals or grou ane perimeter ora given social system or between two norlal mea provide the personnel to assume the entrepreneurial rolea ‘they Hi be drawn fom religious, cultural, ethnic, or migrant minority nn and thelr marginal social position is generally believed Cte psychological effects which make entrepreneurship yy -ticttarly attractive for them, eee 5, Security eee re Send Htrepreneurial security as an important facilitator of entrepreneurship, But some scholars are not definite about the amount of security needed. A. Cole suggests “minimal security” while Me Clelland advocates “moderate s curity". However, Peterson and Berger hold the view that entrepreneurship is more likely to emerge under turbulent conditions than under conditions of equilibrium. Redlich provides the middle position in this regard when he suggests that insecuirty does not hinder entrepreneurship, B,/ Psychological factors There are different theories of entrepreneurship which deal with psychological factors. 1 co _-Need Achievement This is the best known psychological theory put forward by Me Clelland known as “theory of need achievement”. According to this theory, a constellation of personality characteristics which are indicative of high need achievement greatly influence entrepreneurship * development. Withdrawal of Status Respect According to Haggen, the withdrawal of status respect of a group contributes heavily to the emergence of the entrepreneurship. He states that four types of events can produce status withdrawal:Entrepreneurship Development and Project Managen, Bem 0 — —— The group may be displaced by force, E a) b) It may have its valued symbols denigrated, 1 c) It may drift into a state of status inconsistency, and d) ‘It may have lost the expected status on migration to a new socig ‘ set up. ; Cultural Factors Entrepreneurial growth requires proper motives like profj making, acquisition of prestige, and attainment of social status, Ambitious and talented men will take risks and innovate if they motives are strong. The strength of these motives depends on th culture of the society. If its culture is economically or monetaril oriented, entrepreneurship will be applauded and praised, and wealth accumulation as a way of life will be appreciated. In less developed nations, people are not economically motivated. Monetary incentives have relatively less attraction. People have ample opportunities of attaining social distinction by non-economic pursuits. They use their talents for non -economic ends. ee Factors The personality factors also have an influence in entre less developed countries the entrepreneur is looked cion. It seriously affects the personality of the rofit-maker and an exploiter. preneurship. In I upon with suspi entrepreneur. People consider him as a p!dt 11) eee ‘ - = - minaiin 9 tne eftiorts ot the eitreprencurs, iy the abaenee at entreproneura, meni aoientific diseoverios Would remain aa (hey a sete entreprertenirahip ere, So Innovation ia the we ali, Role of Eutropronours in Hoonombo Development Av entvepreneur is an hovitabte Ingrediont of econonic development, Re vets as a driving foree for the performance of econ ae gotivities, The following points ehicidate the pivotal role played by tl : entrepronent’s in the economic development, ae te re Capital Formation Capital is essential for every business, One single individual will pot be able to contribute the entire capital required for a big business concern, So, the entrepreneur mobilises the small and “scattered savings thom the houscholds and this will lead to capital formation, a Qénerating Employment Opportunities Aine most important socio-economic problem faced by the developing countries is unemployment, The entrepreneurs by setting up new business concerns can generate employment opportunities. Most of the entrepreneurial concerns are labour oriented and they provide large scale employment opportunities to the unemployed. Mnally, this will lead to improvement in the standard of living of the people. i eat Regional Development Setting up of business concerns in the rural or under developed areas Will help to achieve a balanced regional development of the nation, Small business concerns can be set up at places where raw materials and labour forces are available. 4... Reduces the concentration of economic power Entrepreneurship reduces the accumulation of economic power in a few hands. It ensures a wider distribution of economic power among the people. 5. eee the effective utilisation of Capital and natural Tesources Entrepreneurs help in the effective utilisation of idle funds in the society, They can also profitably utilise the natural resources atBh Entrepreneurship Development and Project Management their place of operation. In the absence of entrepreneurs these funds and resources will be kept idle. 6. / Promotes Export trade So Exports are necessary for earning foreign exchange. So the countries follow a policy of export promotion and import substitution, Entrepreneurs setting up their business as EOUs (Export Orienteq Units) at EPZs (Export Promotion Zones) will help to increase the level of exports of the nation. The level of exports is one of the vital ingredients of homic development. 7./ Promotes the equitable distribution of wealth, national income and political Power Entrepreneurship helps to achieve the socialistic objective of the nation. It helps to reduce disparity in income and wealth of the people. It creates wealth, generates employment and income, and increases the standard of living of the people. 8. timulates economic development Entrepreneurship induces backward and forward linkages and thus stimulates the process of economic development of the country. In short, entrepreneurs are the human agents needed ‘to mobilize capital, to exploit natural resources, to create markets, and to carry on trade’. The economic progress of the USA, Japan and the European countries highlights the significance of entrepreneurship in economic development. The overall role of entrepreneurship in economic development of an economy is put as “an economy is the effect for wy which entrepreneurship is the cause.” aana aeyelopment yi us vsene Profiems of Women Entrepreneurs ‘The greatest problem faced by women entrepreneurs 18 that they are women. We are living in a male dominated society where women are treated as ‘abalas’. They have to face sev. ral economic and social problems. Usually they will not get any support or co~ operation from Various financial institutions, male entrepreneurs or even from their families. They have to face resistance not only from men but also from elderly women who are ingrained with this attitude of inequality.55 Women entrepreneurs have to face two types of problems viz. general ‘oblems of entrepreneurs and Probl ecific to women eneurs. The following are the important problems faced by women entrepreneurs: 1 cial constraints Finance is the life blood of every business. Both long term and short term funds are required for business. For obtaining loans and advances from financial institutions, they have to provide collateral securities. But, usually women do not have property in their names and this hinders them from obtaining external sources of funds. The banks also consider women as less credit worthy and discourage women borrowers on the belief that they can at any time leave their business and become housewives again. Under these circumstances, women entrepreneurs are bound to rely on their savings and loans. from friends and relatives. The quantity of such funds are often negligible leading to the failure of women enterprises. 2. er dependence on intermediaries Women entrepreneurs have to depend largely on intermediaries for the distribution of their products. These intermediaries take a major_portion_of their_profits. It may be possible for the women entrepreneurs to-eliminate the middlemen, but it requires additional investment of capital and a lot of travel. Women entrepreneurs find it difficult to ure market and popularise their products. 3. Competition Women entrepreneurs have to face stiff competition for the products from the organised industries and male entrepreneurs. They do not have organisational set up to spend a lot of. money for canvassing and advertisement. The society has a feeling that the products manufactured by women are inferior in quality on account of the fact that they are manufactured by women themselves. These factors will lead to the liquidation of women enterprises.a Entrepreneurship Development and Project May Me Scarcity of raw materials Scarcity of raw materials is by the women entrepreneurs. T and women entrepreneurs usu: discount. The failure of many making i, affect yet another important Problem fax he price of raw materials js very his ally get the raw materials at mi ‘women co-operatives en, 1971 is an example of how the scarcity 0 entrepreneurship. nimy, | aged in bask. f raw Materiay High Cost of Production Another problem faced by oduction. The government over this difficulty, but these at the initial Stages of its settis activities of pri women entrepreneurs is the high cog grants and subsidies help them tia, grants and subsidies are available only ing up. For expansion and diversification Se assistances will be negligible. Limited Mobility Unlike men, women mobility in India is highly limited due to various reasons. Physically they are not fit enough to travel a lot. 4 woman running an enterprise independently and alone is often looked upon with suspicion. The humiliating attitude of officials towards women compels them to give up the idea of starting an enterprise. ‘amily Ties The family responsibilities also hinder the development of women entrepreneurship. In India, it is mainly a woman’s duty to look after the children and other members of the family. Man plays a secondary role in these matters. In the case of married women, they have to make a fine balance between their business and family. Their success greatly depends on the support given by the family. Occupational backgrounds of families and educational level of husbands have a direct bearing on the development of women entrepreneurship, A Lack of Education In India around 60% of women are still illiterate. Illiteracy is the root cause of socio-economic problems. Due to lack stacalign, women are ignorant of business technology and are a also reduces the achievement motivation among women. , Tack of‘Types of Entreprencurs 57 education creates problems for women in the settin of business enterprises, 9. ocial attitudes g up and running This is one of the most important stumbling block in the path of women entrepreneurship. The constitution Provides equality fe both men and women, but there is widespread discrimination against women. In a male dominated society, women are not treated as equals to men. Women have the potential but they lack adequate training. There is a common belief that skill imparted to a girl is lost when she gets married. Therefore, girls continue to be helpers in agriculture and handicrafts and the rigid social attitudes prevent them from becoming successful and independent entrepreneurs. Wy, ale dominated society Male chauvinism is still the order of the day in India. The constitution of India speaks of equality between sexes. But, in practice women are treated a ‘abalas’. Women suffer from male reservations about their roles, abilities and capacities. In short, women are not treated as equal to men. This is the main barrier to women’s entry into business, 12. need for achievement The pre-requisites for success in entrepreneurship are the need for achievement, independence and autonomy. But in India the common Indian woman is happy to bask in the glory of their parents, husband, children etc. They have preconceived notions about their role in life. This inhibits them from achievements and independence. In addition to the above difficulties, lack of infrastructural facilities, shortage of power, difficulty in obtaining licenses from various control boards and a number of other socio-economic problems stand as hurdles to the women entrepreneurs.