MBA II SEM

ENTREPRENEURSHIP DEVELOPMENT

Unit I

The Entrepreneurship Development Perspective: Concept of

Entrepreneurship and Development , Conceptual models of entrepreneurship;
Entrepreneur v/s Intrapreneurs, Entrepreneurship v/s Entrepreneur in India
economy and developing economics with reference to Self-employment
Development, Entrepreneurial Culture. Case Study.

The Concept of Entrepreneur :

The word “Entrepreneur” is derived from the French verb “entrepredre”. It
means to undertake. Since the early 18th century the word has meant – one
who takes the risk of starting a new organization or introducing a new idea,
product or service to society.

J.B. Say says “ An entrepreneur is the economic agent who unites all means
of production, land of one, the labour of another and the capital of yet another
and thus produces a product. By selling the product in the market he pays rent
of land, wages to labour, interest on capital and what remains is his profit.”

An entrepreneur is an organizer who combines various factors of production

to produce a socially viable product. It is a dynamic activity that help in the
bringing about of change in the process or production, innovation in
production, new usage of materials and creator of market. An entrepreneur is a
person with knowledge, skills, initiate drive and spirit of innovation who aims
at achieving goals. He identifies opportunities and seizes them for economic
benefits.

Joseph Schumepeter defines it as “ An entrepreneur in an advanced economy

is an individual who introduces something new in the economy, a method of
production not yet tested by experience in the branch of manufacture
concerned, a product with which consumers are not yet familiar, anew source
of raw material or of new markets or the like.”

The functions of an entrepreneur are;

1. introduction of a new product.
2. introduction of new methods of production
3. developing new markets and finding new sources of raw material
4. making changes.

Concept of Entrepreneurship:
Though the terms entrepreneur and entrepreneurship are often used as
synonyms, conceptually, they are different.

Entrepreneurship is the process of identifying opportunities in the market

place, arranging resources required and investing the resources to exploit them
to gain long term gains. It involves creating wealth by bringing together
resources in new ways.

Arthur H. Cole defines entrepreneurship as “ the purposeful activity of an

individual or a group of associated individuals undertaken to initiate, maintain
and aggrandise profit by production or distribution of economic goods and
services.”
According to Higgins; “ Entrepreneurship means the function of foreseeing
investment and production opportunities, organinsing an enterprise to
undertake a new production process, raising capital, hiring labour, arranging
the supply of raw materials, finding site, introducing a new technique,
discovering new resources or raw materials and selecting managers for day to
day operations of the enterprise.”

These definitions highlight risk bearing, innovation and resources

development processes. In other words, entrepreneurship is a set of activities
performed by an entrepreneur. Thus, entrepreneur preceeds entrepreneurship.

The relationship between entrepreneur and entrepreneurship can be shown by

the following table;

Sl. Entrepreneur Entrepreneurship

---------------------------------------------------------
1. person process
2. Visualisor vision
3. Organisor organization
4. Decision maker decision making
5. Innovator Innovation
 6. Risk bearer Risk bearing
7. Motivator Motivation
8. Creator Creation
9. Leader Leadership
10. Manager Management
11. Initiator Initiation
12. Planner Planning
13. Technician Technology
14. Communicator Communicator
15. Administrator Administration

Conceptual Models of Entrepreneurship:

Entrepreneurship has be been classified in the following ways;

Entrepreneur
______________________________l_________________________________
l l l l
A. B C D
Clarence Danhof Arthur Cole Ownership Scale of Enterp
l l l l
1. Aggressive/ Emperical Private Small Scale
Innovative

2. Immitative Rational Public Large Scale

3. Fabian Cognitive

4. Drone

A. Clarence Danhof Classification:

This classification has been divided into four types:

1. Innovative: Innovative entrepreneur is one who assembles and
synthesizes information and introduces new
combinations of factors of production. Eg: different ways
 of making houses and designer clothes. Making new
styles and models of cars.

2. Immitative: Immitative entrepreneur is known as an adoptive

entrepreneur. He simply adopts successful innovations
introduced by other innovators. Eg: manufacturing of
soft drinks and soaps. Manufacturing of ready-made
clothes.

3. Fabian: The Fabian entrepreneur is timid and cautious. He

imitates other innovations only if is certain that failure to
do so may damage his business. Eg: offering discounts
and free material or offering special facilities in goods, as
being done by other sellers.

4. Drone: His entrepreneurial activity may be restricted to just one

or two innovations. He refuses to adopt changes in
production even at the risk of reduced returns.

B. Arthur H. Cole Classification:

1. Empirical: This is an entrepreneur who hardly introduces anything
and only follows the principles of rule of thumb. Eg:
Family business .

2. Rational: The rational entrepreneur is well informed about the

general economic conditions and introduces changes
which look more revolutionary. Eg: Mobile
manufacturers.

3. Cognitive: Cognitive entrepreneurs are well informed and draw

upon the services of experts and introduce changes that
reflect complete break from the existing scheme of
enterprise. Eg: Cold-storage facilities. Transportation of
material. Material handling equipments, etc.
C. Classification on the basis of ownership:
1. Private: Private entrepreneurs are motivated by profits and are self-
owned.

2. Public: These are entrepreneurships that are owned by the

government and public interest and welfare is the prime
importance, rather than profit only.

D. Classification on the basis of scale of entrepreneurship:

1. Small Scale: This classification is especially popular in the

underdeveloped countries. There are many entrepreneurs
who do not have the resources, talent or know how to
introduce revolutionary technological changes. They rely
on home productions on small scales. Eg: gram udyogs.

2. Large Scale Industries: In developed countries and highly techno-

savy already existing industries, where resources or money
is not a limiting factor, many entrepreneurs go in for large
scale entrepreneurships. They posses the financial and
necessary skills to initiate and introduce new technical
changes. They are able to sustain a high level of consistent
level of production.

Characteristics of an Entrepreneur:
An entrepreneur is a highly achievement oriented person with high degrees of
enthusiasm and energy. They have the following characteristics;

1. They are action oriented. They are highly motivated individuals who
take risks to achieve goals. They work hard and endlessly.
2. They have unwavering determination and commitment. They are
creative and result oriented. They have a strong desire to achieve high
goals in business.
3. They accept responsibilities with enthusiasm.
4. They are full of self confidence. They are dedicated and have their
fingers on the latest in the market trends. They are highly optimistic
5. They are both thinkers and doers, planners and workers.
 6. They can foresee the future, have a salesman’s persuasiveness, an
auditor’s precision and a penchant for money generation.
7. They are intelligent, imaginative and have strength of purpose, highly
innovative and independent in nature.

Qualities of an Entrepreneur:
1. Success and achievement: The entrepreneurs are self determined to
achieve high goals in business. Their determination helps them to
surmount obstacles and suppress anxieties, repair misfortune and
overcome all stumbling blocks in their enterprise.
2. Risk Bearer: Though they select a moderate risk situation, they are
willing to bear all risks. They avoid gambling and understand the
risk involved and find scientific ways of handling those situations.
3. Opportunity explorer: A good entrepreneur is always on the look
out for viable opportunities. After locating them, he loses no time in
converting them into achievable goals
4. Perseverance: They make extreme efforts and work hard till their
goals are achieved. They are perseverant and not deterred by
uncertainties or risks that may come their way.
5. Facing Uncertainty: Achievement oriented people are not afraid of
uncertainties. They go ahead with solutions to whatever problem
may arise.
6. Feedback: Entrepreneurs like to have and insist on prompt feedback
of their performance.
7. Independence: Entrepreneurs like to be their own masters and want
to be responsible for their own decisions. He is a job giver and not a
job seeker.
8. Flexibility: Entrepreneurs make decisions based on the prevailing
situations. They do not hesitate in revising their decisions. His is an
open mind which is not rigid .
9. Planner: Entrepreneurs frame realistic business plans and follow
them rigorously in order to obtain their goals within stipulated time
limits.
10. Self-confidence: An entrepreneur knows his strengths and
weaknesses and works with self-confidence within his parameters.
11. Motivator: Entrepreneurs influence and motivate people to think in
his way and to act accordingly.
12. Stress taker: He keeps cool under all conditionas and absorbs stress.
Functions of an Entrepreneur:
Like other managers and leaders, an entrepreneur has to perform essential
function that will lead to the expansion of his enterprise.
Functions may be divided into two categories.
1. Primary functions
2. Other functions

Primary functions:
1. Planning: Planning is the first step in the direction of setting up an
enterprise. He plans all the activities in a systematic manner and
prepares a blueprint of each activity. After this, legal sanction is
acquired.
The planning process involves the following steps;
1. Scanning the best ideas.
2. Selection of product line. Product research and market analysis.
3. Determination of type of business organization ( individual,
partnership or corporate).
4. Estimation of the capital needed.
5. Selection of capital resources.
6. Selection of location
7. Acquiring knowledge of Govt rules and regulations and policies.
8. Selecting ways of fulfilling Govt. formalities.
9. Surveying availability of labour force.
10. Study of market strategy to be adopted.

2. Organisation: An entrepreneur coordinates, assembles, and supervises

land, labour and capital during the beginning stage to ensure optimum
utiliastion of resources. He organizes an efficient operational network.

3. Decision Making: An entrepreneur is a decision maker. He takes

decisions regarding the following matters;

1. the business objectives of the organization

2. procurement of men, machine, material, money and market.
3. procurement of efficient technology and equipments.
4. developing the need of the product.
5. good public relations with authorities and the public at large.
 4. Management: The entrepreneur has to manage not only the working of
the venture, but also the day to day working of the unit as well as its
problems. It includes future expansion and spelling out of working
policies. Men, material, machines and money have to be channelised
properly.

5. Innovation: This means doing new things or doing things that are
already being done, in a new way. It may occur in any one of the
following ways;

1. Launching of new products in the market

2. Introduction of new technologies
3. Creation of new market
4. Discovering new and better source of raw material
5. building or breaking up of monopoly in business.

6. Risk bearing: An entrepreneur carries the burden of shouldering all

responsibility for any loss that may arise due to any unforeseen
contingencies in the future. He guarantees interest to creditors, wages to
labour and rent to the landlord.

7. Uncertainty bearing: There are many risks which cannot be ensured

against – for example the uncertainty in the market, trade credits, etc.
The entrepreneur has to bear the risk of such uncertainties.

Other functions:

1. Diversification of production
2. expansion of the enterprise.
3. Maintaining cordial employer-employee relationship
4. Tackling labour problems.
5. Co-ordination with outside agencies.

Functions of Entrepreneurs in Underdeveloped countries:

1. Management of scarce resources.

2. Dealing with the public as ell as bureaucracy ( concessions, licenses)
 3. Acquiring and overseeing assembly of the factory.
4. Industrial designing and engineering.
5. Marketing of product and responding to competition
6. Incorporating new products
7. Availing market opportunities.
8. Financial and production management
9. Customers and suppliers relationship

NATURE AND CHARACTERISTICS OF ENTREPRENEURSHIP

The process of entrepreneurship is extremely complex. The characteristics of

entrepreneurship are equally complex. They are;

1. Ability to create enterprise: Entrepreneurship is primarily an economic

activity because it involves creation of an enterprise. It deals basically
with the preation or production of goods and services, which are
distributed to customers.
2. Organising function: In order to produce goods and services, an
entrepreneur brings together various factors of production for an
economic use. He coordinates and controls the factors to make the
optimum use of these factors.
3. Innovation: Entrepreneurship involves innovation and creative powers
because it brings about something new and dynamic.
4. Risk bearing capacity: Risk is an inherent part of entrepreneurship. The
entrepreneur has to bear the burden of all risks that may arise in the
future. Others may shirk the responsibility, but he has to pay the rent,
the wages, the bonus, interests and also create profit for future
expansion and operation.
5. Managerial and leadership functions: An entrepreneur has to have
managerial and leadership qualities also. He must motivate and guide
his workers to bring out the best in them and assure economic viability
of the enterprise.
6. Gap filling: An entrepreneur has to identify the gaps that may arise in
production and distribution and be able to fill those gaps to achieve his
aims.
 Ability to Organising
create Factors of Innovative
enterprise production ideas
Risk bearing Managerial & Gap filling
capacity leadership function
activity

Characteristics of Entrepreneurship

Scope of Entrepreneurship:
Entrepreneurship works in different ways under different economic systems
such as capitalism, socialism and mixed economy.

Capitalism: A capitalistic economy represents free enterprise, ie, freedom to

save and invest, free competition, consumer sovereignty and very little
interference from the Government. Price of products is determined on
the basis of demand and supply vis a vis cost of production. The
entrepreneur controls all activities in connection with the process of
production and distribution. He plays a very important role as he has a
very strong say in the market position.

Socialism: Private entrepreneurship is absent in a socialistic system of

economy. It is the Economic and Financial experts who play an
important role in the development of entrepreneurship. It is the purpose
of such entrepreneurship to serve the satisfaction of society and not to
make profits or to mint money. It is the Government that frames
policies, makes plans and procedures, mobilizes resources to those
producers whom they think require them. In this system, the
entrepreneur neither has any importance nor role nor responsibility.

Mixed Economy: In the mixed economy, both the private as well as public
sectors co-exist side by side. Both take part in the same line of
production. Usually consumer goods are produced by private
organizations and capital goods are produced by Government agencies.
Mixed economy solves the problems of production, pricing and
distribution in a better way. It helps in the reduction of inequality of
income among people It also helps in the fixation of minimum wages to
be paid to employees.
DISTINCTION BETWEEN ENTREPRENEUR & MANAGER:

Point Entrepreneur Manager

Goal Mgmt. Starts a venture by setting renders service in an

Up a new enterprise for already existing set up
Personal benefit started by someone else.

Status Owner employee/ servant

Risk Bears all risks and response bears no risk or respon

sibilities involved in enterpr sibility in the enterprise.
ise.

Rewards Gets profit which is uncerta- receives salary for service

in and irregular and may even rendered and is fixed
be negative. And regular and never
negative.

Innovation He is an innovator and called executes plans of entrr-

Change agent and meets prise. Translates existing
Changing needs of customers plans of others.

Qualifications Needs to possess such high needs to posses distinct

Qualities and qualifications qualifications such as
Like high achievement knowledge in management
Motive, originality in theory and practice.
Thinking, foresight, risk
Bearing ability and so on

INTRAPRENEUR:
Some entrepreneurs who are already working within a big organization, catch
hold of new ideas and then convert these ideas into fresh products through
research and development activities. within the framework of the
organization.

This concept has become very popular in developed countries like America. It
has also been found that an increasing number of intrapreneurs have been
leaving their jobs in big organizations and setting up enterprises on their own
and have become exceedingly successful in their ventures. They, thus become
a threat to the organizations that they leave.

The difference between the two can be seen in the following aspects;

Difference Entrepreneurs Intrapreneurs

Dependency Independent in his opinion dependent on the

entrepreneur

Raising of raises funds required funds are not raised

Funds by himself by him.

Risk bears all risks involved bears only partial risk9

Operation Operates from outside Operates from inside.

GROWTH OF ENTREPRENEURSHIP IN INDIA:

The growth of Indian entrepreneurship may be presented in two sections, one
– entrepreneurship during pre-Independence days and two – entrepreneurship
in the post-Independence period.

Entrepreneurship in the pre-Independence Period:

India entrepreneurship in the pre-Independence period goes back to the days

of the Rigveda. During that time, metal handicrafts existed in the society.
Handicraft entrepreneurship in India is as old as human civilization itself.
Here, the people were organized in a particular type of economic and social
system of the village community. During that time, it was the village
community that that was of prominence. There was an elaborate caste-based
division of workers which consisted of farmers, artisans and religious priest
(Brahmins). The majority of the artisans were treated as village servants.
Because the artisans were kept compactly secluded from the competition of
the rest of the world, all industry was localilsed.

Organised industrial activity among the Indian artisans could be seen only a
few recognizable cities such as Benaras, Allahabad, Gaya, Puri and Mirzapur,
which were established along river banks. This was most probably because the
river served as a basis means of transportation. Because of royal patronage,
these artisan industries thrived.

Then came into being industries or “Karkhanas” which brought the craftsmen
under an association or guild. On the whole, the distinguishing qualities of the
arts were perfection, durability and pleasingness to th eye. Bengal was well
known for corahs, Lucknow for chintzes, Ahmedabad for dupattas and
dhotis, Nagpur for silk-bordered cloths, Kashmir for shawl and Benaras for
metal wares. Till the earlier part of the 18 th century, India enjoyed the
prestigious status being the queen of international trade with the help of its
handicrafts.

However, these handicraft industries, which were basically small-scale

industries declined by the end of the 18th century for the following reasons;

1. Disappearance of the Indian Royal courts and their support.

2. The lukewarm attitude of the British Colonial Government towards
Indian crafts.
3. Imposition of heavy taxes and duties on imports of Indian goods in
England.
 4. Low-priced British good produced on large-scale
5. The availability of British good even in the remotest villages due to
improved transport facilities.
6. Changes in the habits of Indian, preferring and having craze for
foreign goods.
7. Unwillingness of Indian craftsmen to adapt to the changing tastes
and need of the people.

Some scholars are of the view that manufacturing enterprise in India began as
a consequence of the advent of the East India Company. The company
exported raw material from India and injected finished goods in India. The
Parsis were much influence with the Company’s commercial operations and
followed them.

The Company established its first ship-building industry in Surat and from
1673 onwards, the Parsis built vessels for the Company. In 1677, Manjee
Dhanjee was given a contract for building the first large gun-powder mill in
Bombay, for the East India Company. A Parsi foreman of a gun factory
belonging to the company established a steel industry in Bombay in 1852.
Thus we can see that the East India Company made some contribution
towards the entrepreneurial growth in India.

The actual growth of entrepreneurship in India can be noted in the second half
of the 19th century. Ranchodlal Chotalal, a Nagar Brahmin, was the first Indian
to think of setting up a modern textile factory on modern lines, in 1847. He
succeeded in the year 1861 in Ahmedabad. Cowwasjee Nanabhoy Davar,
followed by Nawrosjee, in Bombay, opened textile mills in 1880. Later,
Jamshedjee Tat became the first entrepreneur to establish the first steel
industry in India.

The improvement of the business climate in the countryside during this period
resulted in the increase in the quantum of trade which assured quick returns in
investment and improved the commercial activity of the country. It also
helped to change the commercial entrepreneurship to industrial
entrepreneurship.

The Swadeshi campaign also emphasized the desire of indigenous goods.

People shunned foreign goods and opted for national goods.
Another wave of entrepreneurship growth in India began after the First World
War. The India Government agreed to become biased in favour of India
entrepreneurs and required that companies receiving the favours of the
Government should be registered in Indian rupees capital and have a fixed
proportion of India directors. During these decades, the relative importance of
Parsis declined in the entrepreneurial scene and the Gujratis and Marwaris
emerged influential in their place.

The Managing Agency System made its contribution to the development of

Indian entrepreneurship in the year 1936. Carr, Tagore and Company assumed
the management of the Calcutta Steam Tug Association and encouraged others
to form joint-stock companies. They also evolved a system of Management
whereby management of the enterprise remained in the hands of the ‘firm’
rather that ‘individuals’.

The partition between India and Pakistan also affected pre-Independence

entrepreneurship in India.

1. Demographic effects: - India obtained 77% of area, 82% of

population, 90% of total industrial establishments and 93%
industrial workers. The jute, Iron & Steel and paper industries came
to India.

2. Mineral & Natural Resources: - 97% of total value of minerals,

major deposits of coal, mica, manganese, iron ore etc., came to
India.

3. Manpower & Managerial Skills: - India was at a loss for skills.

4. Transport Facilities: - 83% of total route mileage belonged to

India.

5. Major Ports : - India lost major ports which adversely affected

India’s export.

POST-INDEPENDENCE ENTREPRENEURSHIP:
The India Govt. came forward with its first Industrial policy in 1948. This has
been revised from time to time. Special stress has been laid on;

1. Identification of the responsibility of the State Govt. to promote,

assist and develop industries.
2. Recognised the vital role of the Private Sector in accepting industrial
development.

Three measures were taken;

1. To maintain proper distribution of economic power between private
and public sector.
2. To increase the tempo of entrepreneurship from existing centres to
other places.
3. To spread the skills of knowledge and entrepreneurship to other than
commercial classe.

The Government accorded importance to the development of small-scale

industries. Certain discounts and incentives have been given for the
establishment of industries. Several institutions like Directorate of Industries,
Financial Corporations, Small-Scale Industries Corporation and Small
Industries Service Institute have been established.

Entrepreneurship gained tremendous impetus after the Second World War. The
Five Year Plans, especially the Third Five Year Plan has seen tremendous
increase in the number to enterprises. But they all lacked entrepreneurial
ability. Still certain entrepreneurial families like the Tatas, the Birlas, the
Mafatlals, Kirloskars and others emerged on the entrepreneurial scene.

Role of Entrepreneurship in Economic Development:

Economic development essentially means a process of upward change
wherein the real per capita income of a country increases over a long period of
time.

Adam Smith, the foremost classical economist, assigned no significance to

entrepreneurship role in economic development. He said that it was the rate
of capital formation that was important for the determination of economic
development. According to him, the ability to save is governed by
improvement in productivity and the increase in the skill of every worker due
to division of labour.

David Ricardo identified only three factors of production , namely,

machinery, capital and labour, among whom the entire produce is distributed
in the form of rent, profit and wages, respectively. According to him, profit
leads to saving of wealth which ultimately goes to capital formation.

Thus, in both the classical theories of economic development, there is no

room for entrepreneurship. It appeared that economic development was
automatic and self-regulated.

Presently developed countries such as Russia, America and Japan , however,

believe that entrepreneurship is the cause of economic development. The
development made by the developed countries has led to the same belief in
other under-developed countries also. Now people have begun to realize that
for achieving economic development, it is necessary to increase
entrepreneurship, both quantitatively and qualitatively.

J.A. Schumpeter visualized entrepreneurs as the key figure in economic

development of a country because of his role of introducing innovations. T.
Parson and N.J. Smelser described entrepreneurship as one of the two
necessary conditions for economic development. R. Harbinson includes
entrepreneurs among the prime movers of innovation.

The role of entrepreneurship in economically developed countries varies from

that of under deveopled and developing countries. It also depends on the
availability of material resources, industrial climate and political systems in
the country.

Because of various factors such as lack of funds, lack of skilled labour and
non existence of minimum social and economic overheads, the environment is
less conducive for entrepreneurs. There is lack of well developed institutions
to support and encourage them. Therefore, there may be many imitators rather
than innovators who copy the innovations of other entrepreneurs.

Because of lack of funds, research work is done on a very small scale which in
turn, would involve less risk. Because things are not done on a massive scale,
economic development and results are on the lower scale and may not be
perceptible.

India aims at decentralized structure to reduce regional imbalances in levels of

economic development. It encourages small-scale industries. This provides
immediate large scale employment and equitable distribution of wealth. It
facilitates mobilization of resources.

The important role of entrepreneurship can be put forth as ;

1. Entrepreneurship promotes capital formation by mobilizing the idle

savings of the public.
2. It provides immediate large-scale employment
3. It promotes balanced regional development.
4. It helps to reduce concentration of economic power.
5. It stimulates the equitable distribution of wealth, income and even
political power in the interest of the country.
6. It induces linkage both backward and forward, which in turn, helps
in the development of the country.
7. It encourages resource mobilization of capital and skill, which might
otherwise have remained unutilized.
8. It promoted the country’s export trade.

Questions:
1. Define Entrepreneurship.
2. Distinguish between Entrepreneur and Intrapreneur.
3. Describe in detail the types of entrepreneurs.
4. Explain the main functions performed by entrepreneurs.
5. Explain “ Developing countries require intuitive rather than innovative
entrepreneurs”.
6. Write notes on the following;
(i) Innovative Entrepreneurs
(ii) Intrapreneurs
(iii) Imitative Entrepreneurs.

8. In the India context, explain the specific role that entrepreneurship has
fulfilled in the economic development of the country.
9. Write an essay on the growth of entrepreneurship in India.