THEORIES OF ENTRPRENEURSHIP

1) MAX WEBER¶S THEORY OF SOCIAL CHANGE
‡ According to Weber rapid industrial growth depends upon rational use of technology, acquisition of money and its rational use for productivity and multiplication of money. ‡ Max Weber , analyzed religion and its impact on entrepreneurial culture. ‡ He said that PROTESTANTS progressed fast in bringing capitalism because their ethical value system provided them with rational economic attitude.

‡ While HINDUISM lacks such an attitude because of their value of Paritha (the restriction on having any contact with other communities). ‡ According to him the spirit of capitalism shapes attitudes towards the acquisition of money and the activities involved in it.

CRITICISMS
‡ The rapid growth of entrepreneurship in India since independence proves that Indians are not averse to the spirit of capitalism. ‡ Hinduism has contributed a lot to the development of entrepreneurs in India.

2) HOSELITZ SOCIOLOGICAL THEORY
‡ Entrepreneurship can be developed only in a society in which cultural norms permit variability. ‡ Where social processes are not rigid. ‡ A situation which encourages development of personalities who are interested in enterprise.

3) TRAIT THEORY OF ENTREPRENEURSHIP
‡ According to F.A.Walker to be successful as an entrepreneur, an individual must possess certain traits or characteristics of personality like :  Creativity  Self confidence  Risk taking  Imagination  Perseverance

4) ECONOMIC THEORY OF ENTREPRENEURSHIP
‡ This theory was developed by G.F.Papanek and J.R. Haris. ‡ According to them economic incentives are the main drive for the entrepreneurial activities. ‡ Economic factors include:  Market incentives  Availability of sufficient capital  Institutional support

‡ According to this theory when favorable economic condition are prevailing, entrepreneurs develop at a faster rate.

5) SCHUMPETER¶S INNOVATION THEORY
‡ Developed by Joseph Schumpeter. ‡ He proposed that an entrepreneur sees the potential profitable opportunities and exploits them. ‡ An entrepreneur is one who:  Innovates  Raises money  Collects inputs  Organizes talent  Provides leadership  Sets the organization

‡ Assumptions: 
Existence of sufficient availability of capital. Existence of developed banking system Existence of a high level developed technology Existence of private initiative

‡ Schumpeter also differentiates between an inventor and innovator.
Inventor
Inventor discovers new methods and raw materials

Innovator
Innovator utilizes discoveries in order to make new combinations

‡ Innovation leads to the following changes: 
Introduction of new goods with which customers are not familiar.  Introduction of a new method of production.  Opening of a new market.  Finding a new source of raw materials or half-manufactured goods.  Reorganization of process or enterprise.

‡ An entrepreneur as an innovator has the following motives: 
There is a dream and the will to establish a private kingdom. There is a will to conquer: ± The impulse to fight ± To prove oneself to others ± To succeed for self satisfaction There is the joy of creating, of getting things done.

‡ Criticisms
± This theory is more applicable to developed economies. ± A person is an entrepreneur when he innovates but he ceases to be so when he settles down and runs a established business. ± This theory ignores risk-taking and organizing aspects of entrepreneurship. ± Schumpeter s assumption that an entrepreneur is a large scale business man is not true because an entrepreneur cannot have large scale business operations from the start.

6) McCLELLAND¶S PSYCHOLOGICAL THEORY
‡ David McClelland developed this theory to explain the psychological roots of entrepreneurship. ‡ Certain needs are learned and socially acquired as the individuals interact with the environment. ‡ Such needs drives individuals towards entrepreneurial activities.

‡ Types of needs:
I. Need for Achievement (n Ach) II. Need for Power (n Pow) III. Need for Affiliation (n Aff)

‡ Need for Achievement:
± Its is a drive to excel, advance and grow. ± Some people desire to do something better or more efficiently than it has been done before. ± High achievers dislike succeeding by chance. ± They prefer the challenge of working at a problem and accepting the personal responsibility for success or failure. ± They take calculated risks for achieving targets. ± They are focused towards their task. ± Goal achievement intrinsically satisfies them and they are not very much desirous for material rewards.

‡ Need for Power:
± It s a drive to influence others and situations. ± Individuals high in nPow enjoy being in charge ± Prefer to be placed into competitive and status oriented situations ± Tend to be more concerned with gaining prestige.

‡ Need for affiliation:
± It s a drive for friendly and close inter-personal relationships. ± Its is a desire to be liked and accepted by others. ± They prefer co-operative situations rather than competitive ones. ± Such people receive inner-satisfaction from socializing.

‡ Conclusion
± Mc Clelland found that the combination of a moderate to high need for power and a lower need for affiliation enables people to be effective entrepreneurs. ± High need for Achievement gives rise to entrepreneurs ± They like to take calculated risk. ± They are highly motivated by challenging and competitive work situations.

7) THEORY OF SOCIAL BEHAVIOR
‡ According to Kunkel, individuals perform various activities of which some are accepted by the society while others are not. ‡ The accepted ones are rewarded. ‡ The rewards act as reinforcing stimulus increasing the probability of repeating that behavior pattern. ‡ This pattern of social behavior is entrepreneurial behavior.

‡ Supply of Entrepreneurship depends on four structures: 
Limitation structure Demand structure Opportunity structure Labor structure

‡ Limitation It assumes ideal structure for supply of entrepreneurs.

8) X-EFFICIENCY THEORY
‡ According to Liebenstein, the most significant feature of Entrepreneurship is Gap Filling. ‡ An entrepreneur has to command all the inputs to achieve efficiency and economy. ‡ Innovative entrepreneurs come forward to check inefficiencies in the utilization of various resources.

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