Foundations of Entrepreneurship

Introduction
Economic contributions (and other value
creation) of an enterprise and entrepreneurs
 Books
1. Entrepreneurship by Robert D. Hisrich, Michael Peters,
Dean Shepherd (Mcgraw-Hill publishing), latest edition – 10th
edition, 2016
2. Entrepreneurship: Theory, Process, and Practice by
Donald F. Kuratko, (South Western Educational Publishing), 9th
edition, 2015
3. Education Tools for Entrepreneurship Creating an
Action-Learning Environment through Educational
Learning Tools - Marta Peris-Ortiz and others – (Springer
International Publishing), 2016
4. Innovation and Entrepreneurship by Peter F. Drucker
5. Technology Entrepreneurship: Creating, Capturing, and Protecting
Value by Thomas N. Duening, Robert D. Hisrich, Michael A. Lechter
(Elsevier)
 Motivating Factors to Become Entrepreneur
Internal Factors:
1. Identifying a pain, inventing a compelling solution, a clear plan to put it in a business model and
passionate about executing the plan.
2. Desire to do something new and ground breaking.
3. To become independent – be your own boss – sense of control.
4. Achieve what one wants to have in life – personal growth.
5. Be recognized for one’s contribution – sense of accomplishment.
6. One’s educational background – empowerment through knowledge.
7. One’s occupational background and experience in the relevant field.
8. For the passion to do something significant to change the world for better.
External Factors
1. Government assistance - conducive environment and financial support.
2. Availability of labour and raw material – ready inputs.
3. Encouragement from big business houses - intrepreneurship.
4. Promising demand for the product – demand supply gap.
5. Demand by the society
6. Bring change in the society
Some may be
motivated by
the shear
prospect of
creating
wealth and
move up the
pyramid.
 Ultimate Objective of an Economy
is to gain “Full employment” – a situation where there is enough overall
demand in the economy for everyone who wants a job to have one at
the prevalent salary. Full employment powers consumption, that in turn
creates demand and that induces creation of new capacity and more
employment. The cycle continues. However, only entrepreneurs can
create employment and keep the cycle going.

Entrepreneurs create jobs, increase employment, enhance

consumption.
Higher levels of business increase government income helping the
government to invest in infrastructures and improve public wellbeing,
provide quality healthcare, basic amenities, communication,
entertainment quality of life of citizens ( sounds quite like utopia).
 Wealth Creation for the Nation
• Adam Smith: The Wealth of Nations. First published in 1776 –
inspired by the industrial revolution.
– the division of labour, productivity, and free markets. Real measure of
the wealth of a nation is the stream of goods and services that the
nation creates.
• John Maynard Keynes: The General Theory of Employment,
Interest and Money – published in 1936
– consumption function, the multiplier (1 Rupee of investment creates
income of several Rupees), the marginal efficiency of capital, the
principle of effective demand and liquidity preference.  
• Joseph Schumpeter - Creative Destruction as a model for economic
growth through innovation and entrepreneurship.
• Entrepreneurs are the drivers of economy in all these models.
Literature Substantiating Economic Growth
Driven by Entrepreneurship
• Stel A. v, M. Carree and R. Thurik (2005), The effect of
entrepreneurial activity on national economic growth, Small
Business Economics, Vol. 24, No. 3, pp. 311-321
• Praag C. M. Van, and P. H. Versloot (2007), What is the value of
entrepreneurship? A review of recent research, Small Business
Economics, Vol. 29, pp. 351–382
• Aparicio S., D. Urbano and D. Audretsch (2016) Institutional
factors, opportunity entrepreneurship and economic growth:
Panel data evidence, Technological Forecasting and Social
Change, Technological Forecasting and Social Change, Vol. 102,
pp. 45–61
• Rajiv Shah, Zhijie Gao, Harini Mittal (2015) Innovation,
Entrepreneurship, and the Economy in the US, China, and India -
Elsevier
 Rank Country GDP pc GEI
1 United States 52676 83.6
Global Entrepreneurship Index (GEI)-

2 Switzerland 54933 80.4

3 Canada 42104 79.2
4 United Kingdom 37451 77.8
5 Australia 42149 75.5
2018

6 Denmark 44005 74.3

7 Iceland 34541 74.2
Per-capita GDP
8 Ireland increases with 42012 73.7
9 Sweden increase in GEI 45533 73.1
10 France 37948 68.5
68 India 5372 28.4
High ease of doing business index (EDBI)
guarantees higher Global Entrepreneurship
Index, that in turn ensures better quality of
life for its citizens: see slides bellow.
 Correlation Coefficients
Ease of Doing Global Ent. Per-Capita
Business Index GDP
Global Entrepreneurship 0.81
Index
0.0000
Per-Capita GDP 0.73 0.83
0.0000 0.0000
Quality of Life Index 0.74 0.84 0.76
0.0000 0.0000 0.0000

Takeaway: Per-capita GDP of citizens of a nation and the quality of life index are highly correlated
with intensity of entrepreneurial activities. Entrepreneurs drive the economy and economic
growth, increase government income (and thus investment in infrastructure), generate
 ‘Ease of Doing Business’ and
‘Global Entrepreneurship Index’
100 Scatter plot
Global Entrepreneurship Index
40 60
20 80

40 50 60 70 80 90
Ease of Doing Business Index
‘Global Entrepreneurship Index’ and ‘Per-
Capita GDP’
80 Scatter plot
G lo bal Entrepreneu rship Index
20 40
0 60

0 20000 40000 60000 80000

Per Capital GDP
 ‘Global Entrepreneurship Index’ and
‘Quality of Life Index’
80 Scatter plot
G lobal Entrepreneurship Index
20 40
0 60

0 50 100 150 200

Quality of Life Index
 2018 Score Rank
India 35.18 57
Economy and economic growth of a China 53.6 17
nation are highly correlated with USA 59.81 6
innovation index. Innovations are carried
Switzerland 68.40 1
out by entrepreneurial ventures.
Largest economies by nominal GDP in 2017
Largest economies by PPP GDP in 2018.
According to International Monetary Fund
 estimates.
 Full Employment

http://en.wikipedia.org/wiki/Full_employment
 Keynesian Economics
• Consumption function
 Total consumption = Autonomous consumption +
Induced consumption
• Multiplier
 Private or government investments bring cycle of
spending that increases employment and prosperity.
Rs. 100 spent in labor cost of a project may lead to Rs.
80 expenditure by the labor that may lead to Rs. 64
spend by the wholesaler, and so on leading up to
aggregate spend of Rs. 500 or so. Thus, ₹
100 is multiplied five times.
Keynesian Economics
• Employment increases with consumption.
• Consumption depends on savings.
• Savings is influenced by interest rate

The principle of effective demand and liquidity

preference.

Interest
Savings
rate
Consumption
 Value Creation Process

Distribution Manufacturing or
Consumption Retailer
Channel Service Company
 

Utilities Banks and

Financial
 
Primary Inputs
Institutions Makers
Provide roughly 75%
of the fund Every time a transaction is made, economic value
is created to many stakeholders and it supports
employment. Entrepreneurs create most part of
economic values for the nation.
 Multiplication of Employment

Transport
ation
Ancillary
Casual labor units

Entrepreneuri
al venture

Supporting business
Though direct employment such as hotel, school,
Direct generation by an grocer, health worker,
employment entrepreneurial venture may utilities
appear small, indirectly it
supports employment in
several supporting industries
 Value Around a Manufacturing Unit
Utility Companies GST

Transportation

Manufacturing or Input Materials

Distributors
Service Companies

Income Tax
Infrastructures
Employment
Support to Social Infrastructures
 School
 Health Center Value Creation CONSUMPTION
 Local Transport for Local People
 Hotel
 Sources of Government Revenues 2016-17
Head In Crore of Rupees
Total income Rs.19,78,060/- crore
80% of the
Tax Revenue 63% capital
Non Tax Revenue 13% receipts are
borrowings
Capital Receipts 3%
Grand Total Rs.19,78,060/- crore

2017-2018
Tax Composition
2015-16
The following are the most significant drivers of
economic growth
• Consumption
• Employment
• Technology
• Purchasing power of domestic currency
Role of Innovation in Stimulating Economy

• The key factor for increasing consumption is

employment that again is dependent on
consumption.
• New products and efficient manufacturing
processes tend to break the equilibrium and
shift it to new paradigm.
 Economic Contributions of Entrepreneurs
Entrepreneurs
• Bring about the economic value-cycle and sustain it.
• Increase government income resulting in higher
expenditure and more consumption.
• Generate employment.
• Promote savings.
• Increase consumption.
• Stimulate new demand by offering products of higher
esteem.
 Economic Contributions of Entrepreneurs contd..

• Improve technological landscape through innovations

in all key areas.
• Facilitate diffusion of technologies from abroad into
domestic industries resulting in technological self-
reliance.
• Bring foreign exchange that increases value for local
currency. Increased forex reserves provide enormous
power to a nation and increase purchasing power to
its citizens.
• Improve quality of life of citizens.
Thought of the day:
Leveraging
Core Competency
Corporate entrepreneurship/ Intrapreneurship