Republic of the Philippines

CARCAR CITY COLLEGE

Luanluan Street, Poblacion I, Carcar City, Cebu
Tel # 487-0063/487-9077
carcarcitycollege.edu.ph

Subject : ENTREPRENERIAL BEHAVIOUR Discussion No. : P1

Topics : PROSPECTIVE ON ENTREPRENEURSHIP

Objectives : At the end of this weekly module, you are expected to:

a. discuss the meaning of entrepreneurship and innovation;

b. analyze the factors that affect entrepreneurship in the Philippines;
and
c. explain the rewards of Successful Entrepreneurs.

ABSTRACTION:

Discussion Proper:

Entrepreneurship is a very important component of a capitalist economy like the Philippines. It

thrives in economic systems that support innovation and hard work. When entrepreneurs
become successful, the nation is immensely benefited.

What is entrepreneurship and how does it affect the economic well-being of many
people? What is the task of the entrepreneur regarding economic development? This chapter
attempts do provide answers to concerns like this stated above.

Entrepreneurship and Economic Development

Economic development is a scheme aimed at improving the living standards of the

nation's citizenry. To achieve economic development goals, proper management of the
following elements is necessary:

1. Human resources (labor supply, education, discipline, motivation);

2. Natural resources (land, minerals, fuel, climate);
3. Capital formation (machines, factories, roads); and
4. Technology (science, engineering, management, entrepreneurship).
The effective and efficient utilization of the various resource elements contribute to the
economic growth. This happens when the element of entrepreneurship is performed well by the
players. That abundance of natural resources like fertile land, minerals, fuels, and good climate
are plus factors but are not guarantees for positive economic development. There is a need of
entrepreneurs to perform the function of harnessing the potentials of any or all of the various
elements, determining the right quantity of resources needed, and applying the elements at the
right time.

The performance of the entrepreneur, however, well depend much on the support
provided by the government. Apart from other obstacles, government restrictions limit the
effectiveness of entrepreneurs.

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What is Entrepreneurship

Entrepreneurship refers to the economic activity of a person who starts, manages, and
assumes the risk of a business enterprise. The person who undertakes entrepreneurial activities
is called an entrepreneur.

The entrepreneur identifies an economic need, considers offering a business solution,

proceeds to assemble the resources required, and assumes the risk of either succeeding or
failing. An example of these activities is properly shown on Table 1.

Table 1. An Example of Entrepreneurship Activity

Entrepreneur's Concern Problem at Hand Entrepreneur's Action

1. Identifying an 1. High income families 1. Establish a high

economic need are not satisfied with school education with
the services provided higher standards than
by high schools in the current high
their area. schools are providing.
2. Resources must be 2. Acquire funds, hire
made available. people, construct
2. Assembling resources
building, and the like.
required
3. Prepare project study,
3. Venture must be
advertise, and
made.
3. Assuming risk maintain good
relationship with
employees and
customers, among
others.

The Entrepreneur's Task

If all the requirements in a capitalist economy are in place, the entrepreneur can
assume his assigned role in the development of the economy. A review of the contributions of
entrepreneurs will reveal that no business, big or small, started without the hand of the
entrepreneur. Even is many of these businesses, failed to survive, still a sizable number
developed and proceeded to make the capitalist economy a viable concern. This is made
possible because the surviving enterprises are responsible for providing the following:

1. products and services for customers and producers;

2. employment;
3. taxes;
4. demand for suppliers' products and services; and
5. training facilities for future entrepreneurs.

An inspection of the array of products offered for sale in a typical supermarket reveals a
wide choice provided to the consumer. When a consumer is making a decision on which brand

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of soap he is going to buy, for instance, he will be choosing from as many as 10 different
brands. Many years ago, his choice was limited to one or two brands. Much earlier, soap was
not even available for sale. The consumer had to produce his own requirement.

What brought the consumer to the situation where he has the luxury of choosing from
many options? And this does not refer to soaps alone but other products as well.

Services which were not previously available are now at the beck and call of the
consumer. The fast-food canteen at the corner, parcel delivery, communication through
cellphones, cable television, short-term credit through credit card, money remittance, and the
like, are among the many services made possible by entrepreneurs.

A review of the statistical reports prepared by the government shows that business
organized by entrepreneurs’ employs millions of people.

The taxes paid to the government in the form of licenses, fees, and permits applicable
to the enterprises, as well as income taxes applicable to the employees and entrepreneurs,
easily amount to billions of pesos. The taxes collected are, in turn, poured into development
projects of the government.

The entrepreneurs also make sure that the suppliers will have a ready market for their
products and services. The retailers, for instance, assure the viability of big companies like San
Miguel Corporation and Purefoods Company. Hollow block manufactures utilize the output of big
cement factories. VCD and DVD shops provide the necessary linkage between consumers and
producers of movies and recorded music.

Lastly, business enterprises provide a training ground for future entrepreneurs. A

number of entrepreneurs were former employees of enterprising persons. Many of them used
their acquired skills in starting new businesses. Some even improved on the entrepreneurial
skills passed on to them.

Land Labor Capital

(Natural Resources) (Human Resources) (Financial Resources)

Entrepreneur

Production Process

Finished Goods and

Services

Figure 1. The Entrepreneur’s Task

In the attempt to make profits, the Entrepreneur performs the following specific
functions:
1. to supply the necessary capital;
2. to organize production by buying and combining inputs like materials and labor;
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 3. to decide on the rate of output, in the light of his expectation about demand;
and
4. to bear the risk inherent to the venture.
Any business enterprise must offer products or services to the buyers whether these
buyers are consumers or producers. The products or services that will be sold to the buyers
must be bought or manufactured. In any case, there will be a need to hire the services of
employees, laborers, and managers. Equipment, furniture, and machinery must be acquired. All
of these will need funds which the entrepreneur must produce, in addition to whatever fund
reserves are required.
The next specific function of the entrepreneur is to assemble a production unit complete
with manpower and equipment, the quality and quantity of which have been predetermined by
him.
The entrepreneur will also determine and make decisions on the rate of output the firm
must produce. This will have to be tied up with demand.
Finally, whatever risk in involved in the entrepreneurial activity, he must suffer the
consequence of losses if he fails, but he will enjoy the profits as a reward if he succeeds.

Entrepreneurship and Innovation

The freedom of competition afforded by the capitalist economy serves to drive the
entrepreneur to innovate and get ahead of his competitors lest he is driven out of the market.
Buyers of commodities have tendency to patronize innovative offerings of any kind and if one
wants patronage, he must remember this motivation.
Innovation may be defined as the introduction of a new method, procedure, custom,
device, among others. Innovation could be any of the following:
1. new product;
2. new process of production;
3. substitution of a cheaper material in an unaltered product;
4. reorganization of production, internal function, or distribution arrangement leading
to increased efficiency, better support of a given product, or lower costs, or
5. improvement in instruments or methods of doing innovation. Innovation may also be
viewed as the last stage in an important process consisting of the following:
a. Invention - which refers to the discovery or devising of new products and
processes;
b. Development - which refers to the process by which the ideas and principles
generated from the stage of invention are embodied in concrete products and
techniques; and
c. Innovation - which refers to the actual introduction of a new product or process.
Innovation, if it must be made successful, must provide value to the buyers over and above
those offered by competitors. To achieve this, innovation must reduce costs or improve the
quality of products or services offered for sale.
Examples of successful innovations are the following:
1. cordless microphone;
2. microwave oven;
3. cellular phone;
4. kung fu fight scenes developed by Bruce Lee in the movies;
5. karaoke music appliance;
6. use of Laser in the treatment of eye conditions; and
7. use of computers by engineers and architects in the design of buildings.

New Ventures and Long-term Enterprises

A new venture cannot remain as such forever. The entrepreneur must develop it into a
small business or make it grow into a mature and bigger company if he is to recoup the cost of
opening a new venture and take advantage of the opportunities presented by a mature
business.

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 The transition from a new venture to a successful long-term enterprise consists of at
least four major stages. The stages are as follows:
1. prestart-up stage;
2. start-up stage;
3. early growth stage; and
4. late growth stage.
The prestart-up stage happens when the entrepreneur starts to question the
feasibility of an idea, product, or service. He seeks answers to questions regarding
potential markets, production, and financing. This is a very important stage that the
entrepreneur must consider. If he errs in his evaluation, he will fail before considerable
growth is attained.
In the start-up stage, the following activities are undertaken:
1. formation if the business;
2. generation of necessary capital;
3. purchase of facilities and equipment;
4. constructing prototype products; and
5. Testing the market.
No full-scale activity must be undertaken at this stage for the simple reason that
feasibility must be established and verified.
The early growth stage follows after establishing feasibility. Activities will be on a small
scale, i.e., selling to limited markets with limited resources. If losses occur, it will naturally be
limited also. If the enterprise is successful at this stage, the option to move to the next stage
can be exercised.
The late growth stage is the final stage before the new venture matures into a stable
enterprise. This is when management is structured, long-term financing is established, and
facilities planning are undertaken. This is also the stage where the skills of the entrepreneur are
less needed. Instead, the skilled manager begins to take over.

Rewards for Successful Entrepreneurship

The use of any of the factors of production deserves to receive some form of
compensation. The factors referred to as "things required for making a commodity" consist of
land, labor, and capital. To make them work, however, a fourth factor becomes necessary and
this is the entrepreneur.
When land is used in production activities, the owners of land are paid a compensation
called rent. The term "rent" refers specifically to the price paid per unit of time for the services
of a durable good, which, most often, refers to land or buildings.
For the effort of laborers, they are paid wages or salaries. Wages may be determined on
a piece-rate basis, while salary is based on time-rate.
Interest is the compensation paid to owners of invested capital.
When all the factors of production are properly compensated, whatever is left as profits
are regarded as income and they accrue to the amount of the entrepreneur.
The rates of compensation provided to the factors of production are limited to a large
extent by either industry norms or market forces. Legislation, however, have modified the rates
like the minimum wage rates and mandated interest rates on capital.
The profits accruing to the entrepreneur, on the other hand, are limited only by his skill
and industry. He may reap huge amounts of profits, but he may also lose large amounts in the
exercise.
As the landowner earns rent for allowing use of his property, the owner of capital earns
interest for allowing use of his capital. The laborer on duty earns wages for his effort, while the
entrepreneur earns profits for deciding how the business shall be run. If he succeeds, he is
compensated for his vision, originality, and bold undertaking (Table 2).

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 Table 2. The Factors of Production and Their Rewards

Limiting Factors for

Factors of Production Economic Reward
Rewards Received

Land rent supply and demand

Capital interest industry

rates/government
Labor wages/salary mandated rates
Entrepreneur profits supply and demand
legislation

skill of entrepreneur

The Entrepreneur's Predicament

In the race for winning the all-important consumers' pesos, the business will have to
offer products or services that have certain advantages over the competition's wares.
In the creation of a new venture, the entrepreneur may be successful in offering
innovative products or services. At this stage, he will reap the profits for being ahead of the
competitors. This situation may be temporary because the competitor may attempt to improve
his position by making moves to outpace the entrepreneur in the race. The competitor may
either imitate or offer better innovations. If the competitor is successful, the profits of the
entrepreneur will decline (Table 3).
To be ahead again, the entrepreneur will consider offering newer and better
innovations. The cycle continues until one or both find a reason to stop.

Table 3. Innovation and Its Possible Effects on Competing Firms

Entrepreneur Entrepreneur Entrepreneur

1 2 3

Year 1 introduce inactive inactive

innovative

product

Year 2 reap introduce inactive

moderate innovative

profits product

Year 3 maximize reap introduce

Profits moderate innovative

profits product

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 Year 4 profits maximize reap

decline profits moderate

profits

Year 5 introduce profits maximize

innovative decline profits

product

Entrepreneurship and Business Size

To many people, entrepreneurship means running a small business. New business
ventures, however, can also be undertaken on a large scale. Both small and large businesses
are confronted by problems that are entrepreneurial in nature.
To effectively compete, business of whatever size must adapt innovative approaches to
its activities. Examples of innovations are the following:
1. offering business services during Sundays and holidays;
2. manufacture and sale of new products; and
3. selling on a deferred payment scheme.
Small businesses have the advantage of switching to another business concept
whenever necessary. Large businesses cannot do the same without spending much. To offset
the disadvantage, however, large businesses have started to engage in "entrepreneurship"
where a person with entrepreneurial skills and is employed by the corporation is tasked to
launch new products. This person is responsible for creating innovation of any kind in the
organization.

Summary

Entrepreneurship is an activity that assures the viability and growth of the economy.
Through entrepreneurship, goods and services are produced, employment is provided to many
people, taxes are paid to the government, the products and services of suppliers are bought,
and future entrepreneurs are provided with venues for training.
The entrepreneur's task consists of assembling the resources consisting of land, labor,
and capital for the purpose of producing goods and services. The entrepreneur is also
responsible for deciding on the rate of output his venture must produce. He also bears the risk
inherent to the venture. If the entrepreneur's task appears to be a great burden, the prospect
of profits makes it bearable.
Innovation is an important aspect of entrepreneurship. It is defined as the introduction
of a new method, procedure, custom, device, among others.
New ventures must develop into small business or grow into a mature and bigger
company. This is because the entrepreneur must recover the cost of opening the venture.
The transition from a new venture to a long-term enterprise consists of the prestart-up
stage, start-up stage, early growth stage, and late growth stage.
The factors of production are rewarded accordingly and if the entrepreneur is successful,
he receives profits.
The entrepreneur cannot feel secure of continuous success in his new venture. There
are competitors he must contend with.
Although entrepreneurship is generally regarded as a useful means of running a small
business, it also conducive in maintaining the growth of large corporations.

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