ENTREPRENEUR DEFINITION AND CONCEPT
Unit-5
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1. ENTREPRENEUR DEFINITION AND CONCEPT
The word entrepreneur has been taken from French language, 'Entrepreneur' which means to designate an organiser of musical or other entertainments. In early 16th century, it was applied to those who were engaged in military expeditions. In the early 18th century that word was used to refer economic aspects. The term 'entrepreneur' is used in various ways and various views. Broadly 'entrepreneur' can be classified into three groups, risk-bearer, organiser and innovator.
· Definitions: According to Richard Cantillon, "An entrepreneur is a person who buys factor services at certain prices with a view to selling its product at uncertain prices in future." •
· According to F.R. knight, "entrepreneurs are a specialised group of persons who bear risks and deal with uncertainty."
· According to International Labour Organisation (ILO), "entrepreneurs are those people who have the ability to see and evaluate business opportunities, together with the necessary resources to take advantage of them and to initiate appropriate action to ensure success."
· According to Akhouri, "entrepreneur is a character which combines innovativeness, readiness to take risk, sensing opportunities, identifying and mobilising potential resources, concern for excellence and who is persistent in achieving the goal.
· According to Peter F. Drucker, "entrepreneur is one who always searches for change, responds to it and exploits it as an opportunity. Innovation is the basic tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or service."
In a nutshell, an entrepreneur is described as a person who tries to create something new, organises production and undertakes risks of uncertainty and the act of bearing such risk of uncertainty is termed as, entrepreneurship.
2. CHARACTERISTICS OF ENTREPRENEURSHIP
Following are the important characteristics of entrepreneurship:
(i) Innovation
(ii) Risk bearing
(iii) Building organisation
(iv) Decision making
(v) Fore-sightness
(vi) Accepting challenges
(vii) Optimum utilisation of resources
(viii) Hard working
(ix) Skillful management
Table 5.1 Relationship between entrepreneur and entrepreneurship
S. No. / Entrepreneur / Entrepreneurship1 / Entrepreneur is a person / Entrepreneurship is a process.
2 / Entrepreneur is a organiser / Entrepreneurship is a organisation.
3 / Entrepreneur is a Innovator. / Entrepreneurship is a innovation
4 / Entrepreneur is a risk bearer / Entrepreneurship is a risk bearing process
5 / Entrepreneur is a motivator / Entrepreneurship is a kind of motivation
6 / Entrepreneur is an initiator. / Entrepreneurship is taking an initiative
7 / Entrepreneur is a visualiser / Entrepreneurship is the vision
8 / Entrepreneur is a decision maker / Entrepreneurship is a decision making activity
3. COMPARISON BETWEEN AN ENTREPRENEUR AND A MANAGER
Sometimes, the term entrepreneur is considered synonym with a manager. In reality the two terms are completely different in their meaning. The major points of their differences are given in Table 2
Table 2
S. No. / Points / Entrepreneur / Manager1 / Innovation / Entrepreneur is an innovator, He himself thinks over what and how to work to meet the changing market demand. / Manager works as per entrepreneur's plan idea, and established rules, policies, procedures etc.
2 / Risk bearing / Entrepreneur being owner of enterprise bears all the risks (calculated or moderate risks) / Manager is employee of entrepreneur. Manager does not bear any risk involved in the enterprise.
3 / Motive / To set up an enterprise / To render his services in an enterprise.
4 / Status / Owner of the enterprise / Employee of the enterprise.
5 / Reward / He continuously puts his efforts for achieving the goals and bears risks involved in the enterprise. He earns uncertain profits as reward. / A manager gets salary as reward.
4. DISTINCTION BETWEEN AN ENTREPRENEUR AND AN INTRAPRENEUR
In big organisations, the top management is encouraged to do new things according to market requirement and competition, through research and development activities within the framework of existing organisation. These persons (top management) are called "entrepreneurs." They emerge from within the existing enterprise. They provide new innovative ideas having enough to offer ample scope of making good profit. This concept of entrepreneurship has become popular in developed countries like America, to incash the market opportunity and to motivate entrepreneurs, to inaugurate new products. For example, in college situation, if any senior faculty brings consultancy work by having good knowledge, expertise and contacts, He is encouraged by top level management and is given major share of consultancy fee.
After understanding the meaning of entrepreneur and entrepreneur, it can be easily distinguished as follows:
Table 5.3
S.No. / Points / Entrepreneur / Intrapreneur1 / Dependency / Entrepreneur is independent / Intrapreneur is semi independent
2 / Raising of funds / Entrepreneur raises their funds for the enterprise on his own / Intrapreneur depends upon the industry or entrepreneur initiative i.e. the owner
3 / Risk / Entrepreneur bears the full risk involved in his business / Intrapreneur bears the risk of the business which is a small part of the enterprise
4 / Operation / Entrepreneur operates from outside / An intrepreneur operates from within the organisation itself
5 / Ownership / Entrepreneur is the real owner of the enterprise
. / Intrapreneur works for the enterprise he is not owner of enterprise
6 / Profit sharing / Entrepreneur is entitled to take profit of business because he is owner of business / Intrapreneur is provided with a variety of perquisite for their innovation.
7 / Responsibility / Entrepreneur converts the ideas of intrapreneur into viable opportunities Entrepreneur is free to take decision, when and how new ideas of intrapreneur should be implemented / Intrapreneur is responsible to generate new ideas and innovation of any kind from within the organisation.
5. CLASSIFICATION OF ENTREPRENEUR
In global scenario, there are various types of entrepreneurs in the world. They are working in the field of industrial, agriculture, and other commercial activities. On the basis of clearance Danhof's study of American Agriculture, he classified entrepreneurs into four categories. These are:
1. Innovating Entrepreneurs. An innovating entrepreneur is one who senses the golden opportunities for introduction of new goods, new method of production, discovers new market and creating new enterprise.
2. Imitative or Adaptive Entrepreneurs. These entrepreneurs adopt successful innovations inaugurated by innovating entrepreneurs. These entrepreneurs imitate the technology and methods innovated by others. Such types of entrepreneurs are suitable for the underdeveloped countries.
3. Fabian Entrepreneurs. They love to remain in the existing enterprise and don't want to experiment any change in their existing enterprise. They only adopt and imitate new technologies and new techniques when it perfectly clears to them that failure to adopt will result in a loss or collapse of the enterprise.
4. Drone Entrepreneurs. Drone entrepreneurs are conservative. They never like to exploit opportunities for making cost effective production system. They love their traditional system of business or traditional production system, may even suffer from losses.
6. THEORIES OF ENTREPRENEURSHIP
In classical theories of economic development, there is no weightage for entrepreneurship.
And, economic development seems to be automatic and self regulated. But presently developed countries like Japan, Russia and America realise and support that "an economy is an effect for which entrepreneurship is he cause." There are various theories on entrepreneurship, can be categorised as under:
1. Sociological theories
2. Economic theories
3. Cultural theories
4. Psychological theories
6.1. Sociological Theories. There are following theories explain how sociological factors accelerate and related to growth of entrepreneurship:
(a) Theory of religious belief-Max Weber
(b) Theory of entrepreneurial supply-Thomas Cochran
(c) Theory of social change-E.E. Hagen
(d) Theory of group level pattern-young.
1. Theory of Religious Belief. Max Weber says, entrepreneurship is a function of religious belief. Religious provides and develops entrepreneurial culture. There are so many important factors spirit of capitalism, adventurous spirit, protestant ethic and inducement of profit can be grown only when mental attitude in the society is favourable.
Hinduism is neither stumbling block nor a de-motivating religious belief to develop entrepreneurs and innovative enterprises.
2. Theory of Entrepreneurial Supply. Thomas Cochran emphasises on cultural values, role model of society, role expectation and social sanctions as the important factors that determine the supply of entrepreneurs.
3. Theory of Social Change. This theory explains how a traditional society adopts new concept of development and becomes modern society. Innovative and creative activities of entrepreneur are the key element of social transformation, social development and social economic growth.
4. Theory of Group Level Pattern. Frank Young's theory explains that group level pattern develops entrepreneurs or entrepreneurial supply isa function of group level pattern which gives emphasis on the concept of solidarity clusters, ethnic communities and other groups.
6.2. Economic Theories. Entrepreneurship and economic development are interrelated. General economic conditions in a country are determined by a set of variables, the role of entrepreneurship is an integral part, among which the more important are:
(i) Level of per capita income and its trends
(ii) Employment trends
(iii) Pattern of income distribution
(iv) Pattern of savings and expenditures
(v) Agricultural and industrial output trends, etc.
The following theories explain how economic development and entrepreneurship are interrelated to each other:
(i) Schumpeter's theory of innovation
(ii) Leibenstein's theory Xsefficiency
(iii) Mark Casson's theory
(iv) Papanek and Harris theory
(v) M. kirzner's theory
(vi) David McClelland's theory of achievement
(vii) Knights' theory of profit
(viii) Hayek's theory of market equilibrium
(ix) Harvard school theory.
1. Schumpeter's Theory of Innovation. According to Schumpeter, an entrepreneur is one who perceives the opportunities for innovating something new and different then figure out new combinations. New combination covers the following five cases:
(i) The introduction of new goods
(ii) The introduction of new method of production
(iii) The opening of a new market
(iv) The conquest of a new source of supply of a raw material
(v) The carrying out of the new organisation.
The carrying out of the above mentioned new combinations, Schumpeter calls enterprise and the individual who performs them calls entrepreneur.
2. Leibenstein's Theory of X-Efficiency. This theory is also known as gap filling theory."According to Leibenstein, entrepreneurial functions are determined by the X-efficiency. X-efficiency means the degree of inefficiency on the use of resources within the enterprise. Leibenstein identified two broad types of entrepreneurship. They are:
(a) Routine Entrepreneurship. This type of entrepreneurship is intertwined with the important functions of management of the enterprise
(b) New Entrepreneurship. This type of entrepreneurship is innovative entrepreneurship. It searches and works in new business area.
Leibenstein highlighted two main functions of entrepreneur
(i) Gap filling
(ii) Input completing
Entrepreneur has to fulfill gap and provide proper input to increase the efficiency and reduce X-efficiency factor.
3. Mark Casson's Theory: Mark Casson's was a renowned economist. His theory of entrepreneurship deals with the functional behaviour of entrepreneur and his qualities which are important for his success. His theory emphasized on following factors:
(i) Demand for entrepreneurship stems from the need to adjust to change.
(ii) Supply of entrepreneur is limited by the scarcity of the desired personal qualities and then identification of qualities.
4. Papanek and Harris Theory. Papanek and Harris accept that when certain economic conditions are favourable, entrepreneurship and economic growth both will take place.
The main points of their theory are as follows:
(a) Economic Incentives. Economic incentives are the main motivating factor for entrepreneurial development.
(b) Economic Gains and Innerwish. According to the above economist, economic gains and a person's Innerwish are interlinked and play vital role in entrepreneurial development. Economic gain is considered as the sufficient condition for the origin of entrepreneurial initiatives in the economy growth.
5. M. Kirzner's Theory. M. kirzner's theory is also known as "theory of adjustment of price." This theory has the following main points:
(a) Adjustment of Price. Adjustment of price plays important role in profit, wrong price may reduce the profit of the entrepreneur. It different prices prevail in the same market, then there is scope for profitable arbitrage to entrepreneur.
(b) Alertness to Disequilibrium. Alertness enables the entrepreneur to intervene in the market by changing the price while other entrepreneurs simply respond by changing their buying and selling plans, in lieu of the new price.
6. David McClellands's Theory of Achievement. This is also known as "theory of high achievement." McClelland stressed the twin important characteristics of entrepreneurship that control the economic behaviour of a person to become entrepreneurial. They are:
(i) Doing things in a new and better way
(ii) Decision making under uncertainty.
David McClelland and his associates developed the theory of achievement motivation.
They pointed out mainly on the following three aspects:
(i) Need for achievement
(ii) Need for power
(iii) Need for affiliation
(a) Need for Achievement. They stressed the need for achievement or achievement orientation as the most important factor for explaining economic behaviour. People having high need for achievement are more likely to succeed as entrepreneur. They are self-confident and don't believe in mere luck. Therefore, McClelland wrote, "Need for achievement is a desire to do well, not so much for the sake of social recognition of prestige, but for the sake of an inner feeling of personal accomplishment."
(b) Need for Power. They seek leadership and feel satisfied having a large number of followers.
(c) Need for Affiliation. They love others and wish to be loved by others. They are sensitive to social relationship.
Keeping in view the above needs, need for achievement, power, affiliation, McClelland has given more weightage on need for achievement for entrepreneurial development.
7. Knights's Theory of Profit. Entrepreneur bear risk and deals with uncertainty and receives pure profit. Knight's theory has the following features:
(a) Pure Profit. Pure profit means profit refers to the reward for bearing the cost of uncertainty and entrepreneur is a recipient of pure profit.