ME5075 - Entrepreneurship

Development

UNIT - I
 Syllabus
ENTREPRENEURSHIP
Entrepreneur – Characteristics – Types
of Entrepreneurs – Difference between
Entrepreneur and Intrapreneur – Role
of Entrepreneurship in Economic
Development – Factors Affecting
Entrepreneurial Growth – Economic,
Non Economic, Government Actions.
 Introduction

 The concept of entrepreneurship has a wide range of

meanings. On the one extreme an entrepreneur is a person
of very high aptitude who pioneers change, on the other
extreme of definitions, anyone who wants to work for
himself or herself is considered to be an entrepreneur.
 The word entrepreneur originates from the French word,
entreprendre, which means "to undertake." In a business
context, it means to start a business.
 DEFINITIONS OF ENTREPRENEUR
 “An entrepreneur is one who creates a new business in the

face of risk and uncertainty for achieving profit and growth

opportunities and assembles the necessary resources to
capitalize on those opportunities”.
 "An entrepreneur is a person who combines various factors

of production, processes the raw material, converts the raw

material into a finished product and creates utility in the
product and sells the product in the market in order to earn
profit".
 CHARACTERISTICS
 If we go through the business history of India, we come across the

names of persons who have emerged as successful entrepreneurs.

 For example, Tata, Birla, Ambani, Modi, Dalmia, Kirlosker and

others are well-known names of successful entrepreneurs in the

country who started their business enterprises with small size and
made good fortunes.
 Success or otherwise of a small enterprise is, to a great extent,

attributed to the success or otherwise of the entrepreneur

himself/herself.
 CHARACTERISTICS

1. Hard Work
 Willingness to work hard distinguishes a successful
entrepreneur from unsuccessful one.
 The entrepreneur with his tedious (dullness), sweat-filled

hours and perseverance revive (become active) their business

even from on verge of failure.
 In nutshell (something of small size), most of the successful

entrepreneurs work hard endlessly, especially in the

beginning and the same becomes their whole life.
CHARACTERISTICS

2. Desire for High Achievement

 The entrepreneurs have a strong desire to achieve high goals in

business.
 This high achievement motive strengthened them to surmount

(to prevail over) the obstacles, suppress anxieties, repair

misfortunes and devise expedients and only set up and run a
successful business.
 CHARACTERISTICS

3. Highly Optimistic

 The successful entrepreneurs are not disturbed by the present

problems faced- by them.

 They are optimistic for future that the situations will become

favourable to business in future.

 Thus, they can run their enterprises successfully in future.
 CHARACTERISTICS

4. Independence
One of the common characteristics of the successful
entrepreneurs has been that they do not like to be
guided by others and to follow their routine.
They resist to be pigeonholded (Assign to a particular
category).
They liked to be independent in the matters of their
business.
CHARACTERISTICS

5. Foresight
The entrepreneurs have a good foresight to know

about future business environment.

In other words, they well visualise the likely changes

to take place in market, consumer attitude,

technological developments, etc. and take timely
actions.
CHARACTERISTICS
6. Good Organiser

Different resources required for production are

divorced from each other.

It is the ability of the entrepreneurs that brings

together all resources required for starting up an

enterprise and then to produce goods.
CHARACTERISTICS

7. Innovative
 Production is meant to meet the customers' requirement the

changing taste of customers from time to time, the entrepreneurs

initiate innovative activities to produce goods to satisfy the
customers' changing the products.
 The research institutes/ centres established by Tata, Birla,

Kirloskar are examples of the innovative activities taken by the

successful entrepreneurs in our country.
 CHARACTERISTICS
8. Perseverance

 One of the qualities of successful entrepreneurs is that they possess and exhibit
tremendous perseverance in their pursuits.
 They do not give up their effort even if they fail.
 They undergo lots and lots of failures, but donot become disheartened.
 Instead, they take failure as learning experience and make more dedicated and
serious effort on the next time.
 Ultimately become successful.
 Example of sunil mittal, given earlier under “desire for High Achievement” is an
example of entrepreneurial perseverance also.
CHARACTERISTICS

9. Team Spirit:
 The word “team” refers to T for Together, E for Everyone, A Achieves and

M for More.
 Team, results in synergy (cooperation of two).

 Successful entrepreneurs build teams and work with teammates.

 Team is group of individuals who work in a face-to-face relationship to

achieve a common goal.

 They share collective accountability for the outcome of the teams effort.
 Types of Entrepreneurs
Classification on the basis of:

1. Types of Business: Business entrepreneur, trading

entrepreneur, industrial entrepreneur, corporate entrepreneur

and agricultural entrepreneur.

2. Use of technology: technical entrepreneur, non-technical

entrepreneur and professional entrepreneur.

3. Motivation: pure entrepreneur, induced entrepreneur,

motivated entrepreneur and spontaneous entrepreneur.

 Types of Entrepreneurs
4. Growth: growth entrepreneur and super growth

entrepreneur.

5. Stages in development: First generation

entrepreneur, modern entrepreneur and classical

entrepreneur.

6. Others: Area (rural and urban), gender (men and

women), scale (micro, small and medium).

 Intrapreneur

Intrapreneur
 Acting like an entrepreneur within a larger organization.

 The term is derived from a combination of "intra" or internal, and

"entrepreneurship."
 Intraprenuers are usually highly self-motivated, proactive and

action-oriented people who are comfortable with taking the

initiative, even within the boundaries of an organization, in
pursuit of an innovative product or service.
 Difference between Entrepreneur and
Intrapreneur
Sl. No Bases of Difference Entrepreneur Intrapreneur
An Intrapreneur is
An entrepreneur is independent dependent on the
1. Dependency
in his operations. entrepreneur. i.e. the
owner
An entrepreneur himself raises Funds are not raised by
2. Raising of Funds
funds required for the enterprise the Intrapreneur.
An Intrapreneur does
Entrepreneur bears the risk not fully bear the risk
3. Risk involved in the
involved in the business
enterprise.

On the contrary, an
An entrepreneur operates from Intrapreneur operates
4. Operation
out-side. from within the
organisation itself.
 ENTREPRENEURSHIP
Advantages
 You are your own boss –
independency.
 The income increases.
 You have the chance to be
original.
 You have part of excitement
and adventure.
 There are a lot of possibilities.
 Salary potential – you decide
upon your own salary.
Disadvantages
 Money pressure – giving up on
the security of a regular
paycheck.
 Less benefits as the business is
new.
 Long working hours.
 Mistakes are magnified.
 All decisions must be made
alone.
 INTRAPRENEURSHIP
Advantages
 Ability to stay in a friendly,
well known environment
Practicing your skills within
an organization-lower risk
 Using companies .resources,
good name, knowledge.
 Access to customers,
infrastructure.
Disadvantages
 Reward may not be up to
expectation .
 Innovation may not be
appreciated accordingly.
 You can be innovative but to a
certain limit you are not your
own boss.
 Role of entrepreneurship in economic development
1. Employment opportunities

 Entrepreneurs employ labour for managing their business

activities and provide employment opportunities to a large

number of people.

 They remove unemployment problem.

2. Balanced Regional Development

 Government promotes decentralized development of industries as

most of the incentives are granted for establishing industries in

backward and rural areas.

Role of entrepreneurship in economic
development
2. Balanced Regional Development
 Thus, the entrepreneurs to avail the benefits establish industries

in backward and rural areas.

 They remove regional disparities and bring balanced regional

development.
 They also help to reduce the problems of congestion, slums,

sanitation and pollution in cities by providing employment and

income to people living in rural areas.
 They help in improving the standard of living of the people

residing in suburban and rural areas.

Role of entrepreneurship in economic
development
3. Mobilization Of Local Resources
 Entrepreneurs help to mobilize and utilize local resources like

small savings and talents of relatives and friends, which might

otherwise remain idle and unutilized. Thus they help in effective
utilization of resources.
4. Optimization Of Capital
 Entrepreneurs aim to get quick return on investment.

 They act as a stabilizing force by providing high output capital

ratio as well as high employment capital ratio.

Role of entrepreneurship in economic
development
5. Promotion of Exports
 Entrepreneurs reduce the pressure on the country’s balance of

payments by exporting their goods they earn valuable foreign

exchange through exports.

6. Consumer Demands
 Entrepreneurs produce a wide range of products required by

consumers. They meet the demand of the consumers without

creating a shortage for goods.
 Role of entrepreneurship in economic
development
7. Social Advantage
 Entrepreneurs help in the development of the society by providing
employment to people and paves for independent living.
 They encourage democracy and self-governance.

 They are adept in distributing national income in more efficient and

equitable manner among the various participants of the society.

8. Increase per capita income

 Entrepreneurs help to increase the per capita income of the country
in various ways and facilitate development of backward areas and
weaker sections of the society.
 Role of entrepreneurship in economic
development
9. Capital formation
 A country can attain economic development only when there is more amount of

investment and production.

 Entrepreneurs help in channelizing their savings and savings of the public to

productive resources by establishing enterprises.

 They promote capital formation by channelizing the savings of public to

productive resources.
10. Growth of capital market
 Entrepreneurs raise money for running their business through shares and

debentures.
 Trading of shares and debentures by the public with the help of financial services

sector leads to capital market growth.

 Role of entrepreneurship in economic
development
11. Growth of infrastructure
 The infrastructure development of any country determines the economic

development of a country, Entrepreneurs by establishing their enterprises

in rural and backward areas influence the government to develop the
infrastructure of those areas.
12. Development of Trader
 Entrepreneurs play an important role in the promotion of domestic trade

and foreign trade.

 They avail assistance from various financial institutions in the form of

cash credit, trade credit, overdraft, short term loans, secured loans and
unsecured loans and lead to the development of the trade in the country.
Role of entrepreneurship in economic
development
13. Economic Integration
 Entrepreneur reduces the concentration of power in a few hands

by creating employment opportunities and through equitable

distribution of income.
 Entrepreneurs promote economic integration in the country by

adopting certain economic policies and laws framed by the

government.
Role of entrepreneurship in economic
development
13. Economic Integration
 They help in removing the disparity between the rich and the

poor by adopting the rules and regulation framed by the

government for the effective functioning of business in the
country.

14. Inflow of Foreign Capital

 Entrepreneurs help to attract funds from individuals and

institutions residing in foreign countries for their businesses.

 Factor affecting Entrepreneurial
growth
Introduction
 The emergence and development of entrepreneurship is not a spontaneous

one but a dependent phenomenon of economic, social, political and

psychological factors often nomenclatured as supporting conditions to
entrepreneurship development.
 These conditions may have both positive and negative influences on the

emergence of entrepreneurship.
 Positive influences constitute facilitative and conducive conditions for the

emergence of entrepreneurship, whereas negative influences create inhibiting

milieu to the emergence of entrepreneurship.
 Factors affecting
Entrepreneurial Growth

Economic Psychological Social Government

Factors Factors Factors Actions
Economic Factors
Capital

Labor

Raw material

Market

Infrastructure
 Capital
 Capital is one of the most important factors of production for the

establishment of an enterprise.
 Increase in capital investment in viable projects results in increase

in profits which help in accelerating the process of capital

formation.
 Entrepreneurship activity too gets a boost with the easy availability

of funds for investment.

 Capital

 Availability of capital facilitates for the entrepreneur to bring

together the land of one, machine of another and raw material of

yet another to combine them to produce goods.
 Capital is therefore, regarded as lubricant to the process of

production.
 Labor

 Easy availability of right type of workers also effect entrepreneurship.

 The quality rather than quantity of labor influences the emergence

and growth of entrepreneurship.

 The problem of labor immobility can be solved by providing

infrastructural facilities including efficient transportation.

 The quality rather quantity of labor is another factor which influences

the emergence of entrepreneurship.

 Labor

 Most less developed countries are labor rich nations owing to a dense and

even increasing population.

 But entrepreneurship is encouraged if there is a mobile and flexible labor

force.
 And, the potential advantages of low-cost labor are regulated by the

deleterious effects of labor immobility.

 The considerations of economic and emotional security inhibit labor

mobility.
 Entrepreneurs, therefore, often find difficulty to secure sufficient labor.
 Raw material

 The necessity of raw materials hardly needs any emphasis for

establishing any industrial activity and its influence in the

emergence of entrepreneurship.
 In the absence of raw materials, neither any enterprise can be

established nor can an entrepreneur be emerged.

 It is one of the basic ingredients required for production.

 Shortage of raw material can adversely affect entrepreneurial

environment.
 Raw material
 Without adequate supply of raw materials no industry can function

properly and emergence of entrepreneurship to is adversely

affected.
 In fact, the supply of raw materials is not influenced by themselves

but becomes influential depending upon other opportunity

conditions. The more favorable these conditions are, the more
likely is the raw material to have its influence of entrepreneurial
emergence.
 Market

 The role and importance of market and marketing is very

important for the growth of entrepreneurship.

 In modern competitive world no entrepreneur can think of

surviving in the absence of latest knowledge about market and

various marketing techniques.
 The fact remains that the potential of the market constitutes the

major determinant of probable rewards from entrepreneurial

function.
 Market

 The size and composition of market both influence

entrepreneurship in their own ways.

 Practically, monopoly in a particular product in a market becomes

more influential for entrepreneurship than a competitive market.

 However, the disadvantage of a competitive market can be

cancelled to some extent by improvement in transportation system

facilitating the movement of raw material and finished goods, and
increasing the demand for producer goods.
 Infrastructure

 Expansion of entrepreneurship presupposes properly developed

communication and transportation facilities.

 It not only helps to enlarge the market, but expand the horizons of

business too.
 Take for instance, the establishment of post and telegraph system

and construction of roads and highways in India.

 Infrastructure

Apart from the above factors, institutions like trade/

business associations, business schools, libraries, etc. also

make valuable contribution towards promoting and
sustaining entrepreneurship’ in the economy. You can gather
all the information you want from these bodies. They also
act as a forum for communication and joint action.
 Non-Economic Factors

 Social Factors

 Cultural Factors

 Personality Factors

 Technological Factors

 Educational Factors
 Social Factors
 These factors deal with the perception, attitudes, and

lifestyle of the society.

 They largely impact the motivation level of the
entrepreneurs.
 A rational society may help the entrepreneurs in

appropriate decision-making where the resources to be

used and the procedure for production are decided on
the basis of prevailing business environment.
 Cultural Factors
 Culture of any country highly influences the
entrepreneurship growth.
 These factors include a set of learning, behaviors, and

basic values of people.

 Only a money-oriented culture can value and acclaim

the importance of entrepreneurship, e.g., protestant

countries, such countries focus on work ethic and value
of work.
 Personality Factors
 Many developed and developing countries consider entrepreneurs

as 'exploiter'.
 This creates a negative impact on the personality of the

entrepreneurs.
 Therefore, sometimes it becomes' challenging for an entrepreneur

to operate in a planned economy, where the government has set the

socio-economic framework.
 So, in order to sustain the business enterprise, entrepreneurs have

to adjust with their attitudes or processes.

 Technological Factors
The introduction of new technology has generated

numerous opportunities for entrepreneurs to earn

profit.
The countries with high technological level are

likely to have high entrepreneurial growth.

 Educational Factors
There are entrepreneurs who have a strong

educational background and there are some

who are under-educated.
But, the growth of an entrepreneur can only be

evaluated from his/her level of success.

 Government Actions
 The government by its actions or failure to act also does influence both

economic and non-economic factors for entrepreneurship.

 Any interested Government in economic development can help

through its clearly expressed industrial policy, promote

entrepreneurship in one way or other. By creating basic facilities,
utilities and services, the Government can create a facilitative set up to
establish enterprises by the entrepreneurs.
 Development of industrial estates, export promotion zones, special

economic zones etc., at among other things, to create a facilitative

environment for establishing enterprises in these areas.
 Government Actions
 Similar, the Government can also encourage prospective

entrepreneurs to establish enterprises by providing them

various incentives and entrepreneurs to establish enterprises
by providing them various incentives and concessions to offset
the initial costs involved in establishing enterprises.
 Example: the Government of India for first time announced a

separate industrial policy title "Policy Measures for Promoting

and Strengthening Small, Tiny and Village enterprises 1991" to
develop small enterprises in the country.
 Government Actions
 With a view to further boost the develop of small enterprises in the

country, the Government of India has recently enacted "Micro Small

and Medium Enterprises Development (MSMED) Act, 2006" and also
set up a separate Ministry of Micro Small and Medium Enterprises.
 As a result, there has been continuous growth in the number of

MSMEs in the country.

 Government's such measures minimize the risk involved in setting

up enterprises, on the one hand, and encourage the prospective

entrepreneurs to plunge into entrepreneurial career on the other.
 Government Actions
 There is evidence to believe that the supportive actions of the

Government appear as the most conducive to the entrepreneurial growth.

 This is true of the Indian entrepreneurship also. Scholars like Medhora

(1965) conclude that the late inception of entrepreneurial growth in

India was not due to lack of entrepreneurial motivation but due to non-
commitment of the political-structure.
 So much so, the early ledger of the Indian entrepreneurship also tends to

support that the Government's negative actions such as colonial

disruption acted as an inhibiting factor in the way of entrepreneurship
development.
 Government Actions
 To conclude, in the societies, or say, states in India itself where the

Government was committed to their economic development like

Governments of Maharashtra and Gujarat, Bihar and North Eastern States
where the Government was either the least or not interested in their
economic development.
 one way of examining the role of Government in influencing

entrepreneurship may be the extent to which the Government is a

competitor with entrepreneurs from private sector, whether for factors of
production or for markets.
 The greater the extent of this competitive role, the less favourable the

opportunity conditions for private entrepreneurship will be.

 Government Actions
 The fact remains that the various factors, as observed in the

preceding pages, which cause emergence of entrepreneurship are

integral and not additive at all.
 They are interlocking, mutually dependent and mutually reinforcing.

 On the whole, the various factors influencing the emergence of

entrepreneurship can now best be put as per the following model

developed by Abdual Aziz Mahmud that, perhaps, goes a long way to
explain the interplay of various supporting factors in
entrepreneurship development.
Government Actions
Source: Adapted
from Abdul Aziz
Mahmud,
"Developing
Effective
Indigenous
Entrepreneurs"
Malayasian
Management
Review, April
1974, Vol.9 No.1,
Pg.47
Summary

 Entrepreneurship does not emerge and develop automatically and spontaneously.

it emergence and development depend upon the availability of certain factors also
called "supportive conditions". These factors are broadly classified into economic
and non-economic factors. the main economic factors consist of capital, labor, raw
materials and market.
 Non-economic factors include social factors such as legitimacy of
entrepreneurship, Social Factors, Cultural Factors, Personality Factors,
Technological Factors and Educational Factors.
 The Government actions also influence the emergence and development of

entrepreneurship in a country. Where Government is committed to economic

development of societies by way of providing a conducive environment,
entrepreneurship flourishes (accompaniments) and does not flourish in the
societies where the Government is either the least or not interested in their
economic development.