ENTREPRENEURSHIP DEVELOPMENT The word entrepreneur immediately conjures up images of business tycoons like L N Mittal or Bill Gates.

While these rich, famous and successful individuals can be inspirational for some, most of us would find it difficult to associate our own lives, personalities or abilities with them. But the fact is that virtually everybody is entrepreneurial provided s/he exhibits certain characteristics decision making, risk taking, creativity etc. Entrepreneur is a person who creates an enterprise. The process of creation is called as entrepreneurship. The word entrepreneur is derived from the French word Entreprendre which means to undertake, i.e. a person who undertakes the risk of new enterprise. In the context of employment generation, the three terms i.e. income generation, self employment and entrepreneurship are often used interchangeably. Entrepreneurship refers to identification of innovative ideas, setting up a new enterprise. Whereas, self-employment refers to full time involvement in ones own occupation. One may or may not be bearing risk, mobilizing inputs, organizing production and marketing the product or service. Income generating activities, on the other hand, are part time, casual and practiced with a view of raising additional income. All entrepreneurs are self-employed and income generating persons. But all self-employed and income generating persons may not be entrepreneurs. All entrepreneurs are business persons but all business persons are not entrepreneur. What the difference between Entrepreneur and Entrepreneurship? Enterpreneur Person Visualiser Organiser Decision maker Innovator Risk bearer Motivator Creator Leader Manager Initiator Planner Communicator Administrator Entrepreneurship Process Vision Organisation Decision making Innovation Risk bearing Motivation Creation Leadership Management Initiation Planning Communication Administration

Various Definitions of an Entrepreneur The New Encyclopaedia Britannica considers an entrepreneur as an individual who bears the risk of operating a business in the face of uncertainty about the future conditions.

According to International Labor Organisation (ILO), entrepreneurs are people who have the ability to see and evaluate business opportunities; together with the necessary resources to take advantage of them; and to intimate appropriate action to ensure success. As Professor Jan Tinberg points out: The best entrepreneur in any developing country is not necessarily the man who uses capital, but rather the man who knows how to organize the employment and training of employees. Whoever concentrates on this is rendering a much more important service to his country than the man who uses huge capital. With J.A. Schumpeter, the term entrepreneur had received a wide acclaim. He defined the entrepreneur as an innovator who carries out new combination to initiate the process of economic development through introduction of new products, new markets, conquests of new source of raw materials and establishment of a new organization of industry. He said, The carrying out of a new combination we call enterprise, the individuals whose function is to carry them out we call entrepreneurs. The entrepreneur is also a change agent who provides economic leadership. Cole described entrepreneur as an individual who undertakes to initiate, maintain or aggrandize a profit-oriented business unit for production or distribution of economic goods and services. J A Schumpeter thus writes: The 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 manufacturer concerned, a product with which consumers are not yet familiar, a new source of raw material or of new markets and the like. He further states the entrepreneurs function is to reform or revolutionize the pattern of production by exploiting an invention or more generally, an untried technological possibility for producing a new commodity Briefly, an entrepreneur is one who innovates, raises money, assembles inputs, chooses managers and sets the organization going with his ability to identify them. Innovation occurs through (i) the introduction of a new quality in a product, (ii) a new product, (iii) a discovery of a fresh demand and a fresh source of supply and (iv) by changes in the organization and management. In the case of a developing country like India, the concept is being understood differently. An entrepreneur in a developing economy is one who starts an industry (old or new), undertakes risk, bears uncertainties and also performs the managerial functions of decision-making and co-ordination. He also puts the new process based on technological research into operation. Even if he imitates any technique of production from a developed economy, he is called an entrepreneur. Unlike in the developed industrial world, emphasis is not put (nor is there any need for it) only on Schumpeterian innovations in the case of developing countries. Entrepreneurship the Dynamic Need Entrepreneurship is the dynamic need of a developing nation. Entrepreneurship is one of the most important inputs in the economic development of a country or a region. Employment generation Growing unemployment, particularly educated unemployment, is an acute problem of the nation. The available employment opportunities can cater to only 5-10 per cent of the unemployed. This employment is a self-saturating process. When government creates, say a hundred jobs in various departments, 100 persons get employed and the vacancies are filled 2

for thirty years or so, till these people retire and the vacancies are filled for thirty years or so, till these people retire and vacancies re-emerge. If a hundred persons become entrepreneurs they not only create jobs for themselves but create a hundred jobs to many more. As the time passes these enterprises grow providing direct and indirect employment to many more. Thus, entrepreneurship is the best way to fight the evil of unemployment. National income This consists of goods and services produced in the country and imported. The goods and services produced are for consumption within the country as well as to meet the demand of exports. The domestic demand increases with ever increasing population and standard of living. The export demand also increases to meet the needs of growing import due to various reasons. An increasing number of entrepreneurs are required to meet this increasing demand for goods and services. Thus, entrepreneurship increases national income. Dispersal of economic power The world affairs have been dominated by power. Economic power is the natural outcome of industrial and business activity. Developing a large number of entrepreneurs helps in dispersing the economic power amongst the population. When a society produces a small number of entrepreneurs, the enterprises due to lack of competition grow into a few big business houses. This results in concentration of wealth in a few families. This can have serious social and national implication. But when the same is shared by a large number of entrepreneurs it leads to dispersing wealth and thus leading to a healthy economy. Balanced regional development The growth of industry and business leads to a large number of public benefits like road transport, health, education, entertainment etc. When the industries are concentrated in selected cities, the development gets limited to these cities. A rapid development of entrepreneurship ensures a balanced regional development. When the new entrepreneurs grow at a faster pace, in view of the increasing competition in and around the cities, they are forced to set up their enterprises in the smaller towns away from big cities. This helps in the development of the backward regions.

Characteristics of a Successful Entrepreneur The following are some characteristics that every successful entrepreneur must possess in adequate measure. a) Innovation: The terms creativity and innovation are often used to mean the same thing, but each has a unique connotation. Creativity is the ability to bring something new into existence. This definition emphasizes the ability, not the activity of bringing something new into existence. A person may therefore conceive of something new and envision how it will be useful, but not necessarily take necessary action to make it a reality. Innovation is the process of doing new things, but creativity is a prerequisite to innovation. Ideas usually evolve through a creative process whereby imaginative people bring them into existence, nurture them, and develop them successfully. Entrepreneurs innovate. Innovation is the specific instrument of entrepreneurship. It is the act that endows resources with a new capacity to create wealth. Innovation, indeed, creates a resource. Successful entrepreneurs are not content simply to improve on what already exists, or to modify it. They try to create new and different values and new and different satisfaction, to convert a material into a resource, or to combine existing resources in a new and more productive configuration. It is change that always provides the opportunity for the new and different. 3

b) Dynamism: Innovation together with dynamism constitutes a potential combination for prosperity. Dynamism revises the targets of the enterprise upwards time and again. The enterprise may open new vistas, better product mix, charismatic product image stimulating steady growth. c) Leadership: Leadership is the basic quality of an entrepreneur. This spirit keeps his pace forward in any field. Leadership qualities will enable a person to stand apart in whatever profession he might be in. The quality of his leadership is clear from personal relationships, mode of handling a problem, generating resources and taking others in to ones own stride. An enterprise endowed with the resource of leadership will always be prominent in the market. d) Teambuilding: An entrepreneur should have an ability to build a team. A team is a group of individuals with a common purpose that is focused and aligned to achieve a specific task or set of outcomes. A good team will be able to share knowledge, core competency, and goals. e) Risk taking ability Entrepreneurs are persons who take decisions under conditions of uncertainty, and therefore are willing to bear risk but never gamble with results. This is evidenced by market studies, exploring alternative lines of production or a new product mix, or a new combination of inputs, and so on. They set goals that require high level of performance. Risk bearing and decision making calls for absolute clarity in thinking and coordinated actions. Though decision-making can be taught in classrooms and perfected through experience, individual ability always stands supreme. Every decision pertaining to an enterprise involves risk. As a matter of fact, economic decisions become critical in an atmosphere of uncertainty. An uncertainty is faced not just by a single enterprise but by all, like the market. An entrepreneur has to make decisions under uncertainty and he has to take actions with unknown and unpredictable results. They seem to be very much aware of no risk-no return, high risk-high return continuum. They take moderate challenging risk where moderate returns are attainable and the same are influenced by their abilities and decisions. This characteristic of entrepreneurs has significant implications for the ways decisions are made, and thus, for the success or failure of the business. f) Decision making ability Decision-making in an environment of uncertainty requires anticipation of risk. Profit is said to be the reward for anticipating and taking such a risk. The stakes involved in the event of a wrong decision are enormous. The risk, however, needs to be always well calculated. How far risk taking is justified depends on the caliber of the entrepreneur. Persons who can take risks and make quick decisions tend to prosper. Therefore, entrepreneurs develop the art of decision making under conditions of uncertainty as a matter of survival. However, the progress of an entrepreneur depends increasingly on effective knowledge and its continuous updating and proper utilization. g) Business planning For converting an idea into reality, an entrepreneur has to develop a business plan. A comprehensive and concise business plan is basically a route map. It includes inputs for the project like land, machinery, power, material etc. financial aspects like sources of finance, assets and liabilities cost of production and marketability total income, operative net profit, technological feasibility, licensing regulation etc.- information regarding marketing, present demand, marketing strategies etc.- availability of government support, importance of project to national economy.

Functions of an entrepreneur Scouting of Entrepreneurial Opportunities The entrepreneurs perceive opportunities, synthesize the available information and analyze emerging patterns that escape the attention of other people. They are people with a vision, capable of persuading others such as customers, partners, employees and suppliers to see the opportunity, share it and support it. For them the opportunity exists in the environment in the form of needs and problems of people and society. After spotting an opportunity, they evolve a strategy to find a creative solution to the problem or need. Sensing entrepreneurial opportunities is a process of perceiving the needs and problems of people and society and arriving at creative solutions. E.g. Nirma detergent powder was introduced to meet the demands of the lower income groups who could not afford expensive detergents like Surf and Ariel. ii) Generation of business ideas Another important function of a dynamic entrepreneur is the generation of an idea that is new and appears to be worthwhile for further use. This involves a lot of creativity on the part of the entrepreneur. The business idea arises from an opportunity in the environment. It originates from real demand for any product or service that an entrepreneur should have a keen and open mind to look for opportunities and generate business idea. iii) Converting the idea into reality The entrepreneur takes steps to convert the idea into reality. The entrepreneur has to determine and lay down the objectives of the business e.g. the nature and type of business. For this, the entrepreneur has to proceed from: gathering relevant information and expertise related to the tools and techniques required to design the idea, product or service acquiring necessary skills to handle the idea, product or service studying the socio-economic environment where the idea, product or service is marketed arranging human, physical and other resources for putting the idea into reality. iv) Arranging resources This entrepreneurial function is concerned with the identification and assessment of various resources that are put into the system which have bearing on the quality, cost and continuity of the product or the service being offered. The types of resources to be taken care of include human resources, materials, money or capital, machines, technology. Raising funds (internally as well as externally) is an important activity because all the activities of a business depend upon the finance and its proper management. With the raising of funds follow procurement of raw materials and machinery. v) Supply of capital In several cases, entrepreneurs start business enterprises with their own financial resources. Thus, they supply initial capital to the business and undertake business risks. However, other entrepreneurs approach financial institutions to raise risk capital for their ventures or enter into partnership with those who can contribute capital to the business. vi) Market research Market research and product analysis are important functions of the entrepreneur. Market research is the systematic collection of data regarding the product/services which the entrepreneur wants to manufacture. Entrepreneur has to undertake market research persistently in order to know the details of the intending product, i.e. the demand for the product, the supply of the product, the price, the size of the customers etc. while starting an enterprise. vii) Establishment of enterprise Establishment of the enterprise is the prime activity of the entrepreneur. Though he might have the knowledge, technology and the resources available at his disposal, unless the enterprise is established, other functions do not get due focus. The task of i)

establishing an enterprise calls for mobilization of various resources. This needs an initial investment in fixed assets. viii) Manpower staffing The entrepreneur has to estimate manpower need of the organization, lay down selection procedure/criteria, compensation scheme, training and development rules etc. ix) Managing the enterprise The entrepreneur has also to perform the role of a manager to manage the enterprise effectively. Managing involves decision-making, planning, organizing, staffing, directing, and controlling. x) Growth and development An entrepreneur cannot afford to remain at his starting point. He has to look for growth potential of his products and services. He has to pursue higher goals and expand his market. He has to watch for the activities of the competitors and formulate appropriate strategies of growth. Managers and Entrepreneurs Differing Focus Areas of Similarity To produce results Managers -Results of today, this month, this year. Short-term and medium term. -Have usually to handle people oriented to day-to-day management nitty-gritty and nuts and bolts type Men of details -Operational and administrative decisions, which have a bearing on short-term and medium-term results. -The constraints are usually organizational i.e. those within an organization like machine capacity, labour productivity, routing and scheduling, information availability, financial limitations etc. -The principles are more oriented towards internal administration and control like delegation, accountability, responsibility, planning, budgeting, reporting and information system. Entrepreneurs -Results of tomorrow, next year and coming five years. Longterm and very long-term -Have to deal with people who can conceptualize with aggregate perspectives Strategists -Mostly strategic decisions, involving growth through expansion, diversification, takeovers and mergers. -The constraints are organizational as well as environmental which lie outside an organization like policy of financial institutions, import policy, licensing policy, infrastructural constraints etc. -The principles are with reference to macro-social aspects like social responsibility, equal opportunity, employment, ethical advertisement practices, adherence to government policies etc.

To produce through people

results

To take decisions

To co-operate constraints

under

To follow principles management

sound of

Difference between and Entrepreneur and a Manager Intrapreneur Of late, a new breed of entrepreneurs is coming to the fore in large industrial organizations. They are called intrapreneurs. They emerge from within the confines of an existing enterprise. In big organizations, the top executives are encouraged to catch hold of new ideas and then convert these into 6

products through research and development activities within the framework of organization. The concept of intrapreneurship has become very popular in developed countries. It is found that an increasing number of intrapreneurs are leaving their jobs in big organizations and starting their own ventures. What is more is that they are causing a threat to the organizations they have left. Such intrapreneurs breed to the innovative entrepreneurs who inaugurate new products. Entrepreneur -An entrepreneur is independent in his operations. -An entrepreneur himself raises funds required for the enterprise. -Entrepreneur bears the risk involved in the business. Intrapreneur -An intrapreneur is dependent on the entrepreneur, i.e. the owner. -Funds are not raised by the intrapreneur. -An intrapreneur does not fully bear the risk involved in the enterprise. -An entrepreneur operates from -An intrapreneur operates from outside. within the organization itself.

Dependency Raising of Funds Risk

Operation

Types of Entrepreneur a) Based on Functional Characteristics i) Innovative entrepreneur Such entrepreneurs introduce new goods or new methods of production or discover new markets or reorganize their enterprise. Entrepreneurs in this group are characterized by an aggressive assemblage of information and analysis of results, for trying out a novel combination of factors. Such an entrepreneur is one who sees the opportunity for introducing a new technique of production process, a new commodity, a new market, a new service or even reorganization of an existing enterprise. ii) Imitating or adoptive entrepreneur Such entrepreneurs do not innovate themselves, but imitate techniques and technology innovated by others. They do not try out new ideas or products, but if a new idea is accepted by the market, they imitate the new idea and hence join in the competition. Entrepreneurs in this group are characterized by their readiness to adopt successful innovations by successful entrepreneurs. Such entrepreneurs are particularly suitable for developing and underdeveloped economies as adoption saves costs of trial and error, and contribute significantly to the development of such economies. iii) Fabian entrepreneur Such entrepreneurs display great caution and skepticism in experimenting with any change in their enterprise. They neither have the will to introduce new changes nor desire to adopt new methods innovated by the most enterprising entrepreneurs. They change only when there is an imminent threat to the very existence of their enterprise. They are not much interested in taking risk and they try to follow the footsteps of their predecessors. They are readily interested in introducing any change in their organization and when they do so it is because unless they introduce the change they would be out of the market. iv) Drone entrepreneur This is characterized by a refusal to adopt and use opportunities to make changes in production. They do not like changing the working organization with changing times. They prefer facing loses to introducing changes in their present 7

processes, equipments and policies. Such entrepreneurs are characterized by a die-hard conservatism and may even be prepared to suffer the loss of business. In the present competitive world, these entrepreneurs are simply thrown out of the business for not being able to adapt themselves to the changing dynamics of business. v) Copreneurs When both husband and wife together start and run a business venture then they are called copreneurs. Emergence of copreneurs in the present times is a reflection of the fact that womens role in business is increasing. b) Based on Types of Entrepreneurial Business Manufacturing An entrepreneur who runs such a business actually produces the products that can be sold using resources and supplies. For e.g. apparel and other textile products, chemical and related products, electronics and other electrical equipments, rubber and miscellaneous plastic products, stone etc. Wholesaling An entrepreneur with such a business sells products to the middle man. Retailing An entrepreneur with such a business sell products directly to the people who use or consume them. Service An entrepreneur in this business sells services rather than products. They continue in their traditional way and in fields their product loses its marketability or their operation becomes uneconomical they are pushed out of the market. Entrepreneurial Development Process i) Identification and evaluation of the opportunity - First, perceiving, identifying and evaluating opportunity which is a difficult task. In other words, it is the process by which an entrepreneur comes up with the opportunity for a new venture. One has to be watchful for opportunities. Ideas can come from various sources. The opportunities should be carefully screened and evaluated. It is important for the entrepreneur to understand the cause of opportunity. It may be technological changes, market shift, governmental regulations. Opportunity analysis focuses only on the opportunity but not the entire venture. Development of the business plan After having identified the project, the next step is to develop a plan for the venture. A good business plan must be developed in order to exploit the defined opportunity. Determining the required resources - A further step in the process is to assess the resource position. The resources needed for the opportunity must be determined. It is important not only for developing the opportunity but also essential to determine the resources required and obtaining these resources and successfully managing the resulting venture. Any resource that is critical must then be distinguished from those which are just helpful. Management of enterprise - Once the enterprise is established, an entrepreneur should always look forward to indefinite future, to growth, development, or at least continuation. After the resources are identified the entrepreneur must employ them through the implementation of the business plan. A control system must be established so that problem areas can be carefully monitored.

ii)

iii)

iv)

Theories of Entrepreneurship 8

Entrepreneurship is an evolved thing. With the advancement of science and technology it has undergone metamorphosis change and emerged as a critical input for socio-economic development. Various writers have developed theories on entrepreneurship and popularized the concept among the common people. 1) 2) 3) 4) 5) 6) 7) 8) Max Webers Theory of Social Change Hoselitz Sociological theory Trait theory of entrepreneurship Economic theory Schumpters Innovation theory McClellands Psychological Theory Theory of social Behavior X-Efficiency Theory

1) Max Webers Theory of Social Change Weber contended that entrepreneurial growth is dependent upon ethical value system of the society concerned. This theory provides an analysis of religion and its impact on entrepreneurial culture. According to him the spirit of capitalism is a set of attitudes towards the acquisition of money and the activities involved it. The elements of capitalism include private property ownership, creation of goods/services for profit/income, individuals and companies are allowed for their own economic gain, the accumulation of capital, voluntary exchange and wage labour. The spirit of capitalism is subjected to a strict discipline which is quite incompatible with giving free rein to impulse. This spirit of capitalism can be generated only when mental attitude in the society is favourable to capitialism. According to Weber the protestant ethic provides this mental attitude while Hinduism lacks such an attitude. However, the rapid growth of entrepreneurship in India since independence proves that Indians are not averse to the spirit of capitalism and to adventurous spirit. Hinduism has contributed a lot to the development of entrepreneurs in India. (In Weberian theory, the spirit of capitalism is highlighted. As we know capitalism is an economic system in which economic freedom and private enterprise are glorified and so also the entrepreneurial culture. Spirit of capitalism is influenced by strict discipline and adventurous spirit is affected by free force of impulse. According to Weber the spirit of capitalism intertwined with the motive of profit resulted in creation of greater number of business enterprises.) 2) Hoselitz Sociological theory Hoselitz explains that the supply of entrepreneurs is governed by cultural factors. Entrepreneurs have emerged from a particular socio-economic class. According to him, entrepreneurship can be developed only in a society in which cultural norms permit a variety of choices and where social processes are not rigid and in a situation which encourages the development of personalities interested in enterprise. Hoselitz emphasized the role of culturally marginally groups like Jews and the Greeks in medieval Europe, the Chinese in south Africa and Indian in east Africa in promoting economic development. History reveals that many leading entrepreneurs have emerged from a particular socio-economic class. For e.g. Marwaris and Parsees in India and Samurai in Japan are considered to be the dominant social classes as the source of entrepreneurship. 3) Trait theory of entrepreneurship According to F.A.Walker, an entrepreneur is one who is endowed with more than average capacities in the task of organizing and co-ordinating the factors of production, i.e. land, labor, capital and enterprise. The profit an entrepreneur gets depends on 9

his efficiency and superior talents. In other words, to be successful an entrepreneur must possess certain traits or characteristics like creativity, self confidence, risk taking, imagination, perseverance etc. The trait theory holds that because these individuals called entrepreneurs possessed certain specific traits it made them capable of generating new ideas and creating a new venture. However, different studies have emphasized different traits which is a criticism of the theory. 4) Economic theory According to economists, entrepreneurship and economic growth will take place in those situations where particular economic conditions are most favorable. G F Papanek and J R Harris are the main advocates of this theory. According to them, economic incentives are the main drive for the entrepreneurial activities. In some cases, it is not so evident, but the persons inner drives have always been associated with economic gains. Therefore, these incentives and gains are regarded as the sufficient condition for the emergence of industrial entrepreneurship. The economic theory holds that when favorable economic conditions are prevailing, entrepreneurship develops at a faster rate and come forward to establish new ventures and bring resources, labor, materials and other assets and put them together to increase their wealth. 5) Schumpeters Innovation theory According Joseph Schumpeter, entrepreneurship is essentially a creative activity. Entrepreneurship consists of doing such things as are generally not done in the ordinary course of business. An entrepreneur is one who innovates i.e. carries out new combinations. Thus, an entrepreneur is one who innovates, raises money, collects inputs, organizes talent, provides leadership and sets the organization. Innovation may occur in the following forms: The introduction of a new product with which consumers are not yet familiar or introduction of a new quality of an existing product. The introduction of a new method of production that is, not yet tested by experience in the branch of manufacture concerned. The opening of a new market, i.e. a market into which the particular branch of manufacture of the country in question has not previously entered. Finding a new source of raw material or half-manufactured goods, again irrespective of whether this source already exists or whether it has to be created The carrying out of the new organization of any industry, like the creation of a monopoly position or the breaking up of a monopoly position. Schumpeter makes a distinction between an innovator and an inventor. An inventor discovers new methods and new materials. On the contrary, an innovator is one who utilizes or applies inventions and discoveries in order to make new combination and thus produces newer and better goods which yield both satisfaction and profits. An inventor produces ideas while the innovator implements these ideas (converts into economic performance). An individual is an entrepreneur only when he actually carries out new combinations and ceases to be an entrepreneur the moment he settles down to running the established business. The entrepreneur leads the means of production into new channels. 6) McClellands Psychological theory David McClelland (1961) developed his theory to explain the psychological roots of entrepreneurship. He argued that certain needs are learnt and socially acquired as the individual interacts with the environment. Such acquired needs or basic human 10

motives needs:

drive individuals towards entrepreneurial activities. He identified the following types of Need for achievement (n Ach): a drive to excel, advance and grow. Need for power (n Pow): a drive to influence others and situation Need for affiliation (n Aff): a drive for friendly and close inter personal relationships

According to McClelland, it is the high need for achievement which drives people towards entrepreneurial activities (prerequisite for becoming an entrepreneur). Individuals with high achievement motive tend to take keen interest in situations of high risk, desire for responsibility and a desire for a concrete measure of task performance. They are highly motivated by challenging and competitive work situations. Employees with a high need for achievement derive satisfaction from achieving goals. 7) Theory of Social Behavior Kunkel presented a behavioral model of entrepreneurship. This model is concerned with the overtly expressed activities of individuals and their relations to the previous and present surroundings, social structures and physical conditions. 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. The supply of entrepreneurship depends upon four structures found in a society or community. These structures are: Limitation structure In this structure the entrepreneur is viewed as the most important deviant individual and such behavioral pattern is restricted. The society limits specific activities and this limitation structure affects all the members of a society. It is basically social and cultural in nature. Demand Structure It is mainly economic and changes with economic progress and government policies. It can be improved by providing material rewards. Such rewards are necessary to lay the foundation for future social gains. In short, behavior of people can be made entrepreneurial by manipulating certain selected components of the demand structure. Opportunity structure It consists of the availability of capital, management and technological skills, information concerning production methods, labor and markets. Opportunity to learn and all the activities associated with the effective planning and successful operation of industrial enterprises are also covered. This structure is required to increase the probability of entrepreneurial activity. Labor Structure It is concerned with the supply of competent and willing labor. Labor supply cannot be at par with the supply of material factors like capital. The supply of labor is governed by several factors such as available alternative means of livelihood, traditionalism and expectations of life. Thus, entrepreneurial supply depends upon the four structures given above. Entrepreneurship depends on rather specific combinations of circumstances which are difficult to create and easy to destroy. 8) X-efficiency Many firms face the problem of inefficient utilization of various inputs or resources. Innovative entrepreneurs come forward to check inefficiencies in the utilization of various resources through novel ways. According to Liebenstein, the most significant feature of 11

entrepreneurship is gap filling. It is the job of the entrepreneur to fill the gap or make up the deficiencies which always exist in the knowledge about the production function i.e. utilization of various resources. The gaps or deficiencies in the production function arise because all the inputs in the production function cannot be marketed. Some inputs like motivation and leadership are vague and their output is indeterminate. An entrepreneur has to marshall all the inputs to achieve efficiency and economy. Thus, entrepreneurship is a function of input completing and gap filling. Role of Socio Economic Environment in Entrepreneurship Development Development of entrepreneurship is not always spontaneous. It is very often affected by environmental factors like economic, social, political, legal, cultural etc. These conditions or factors may have both positive and negative influences on the emergence and development of entrepreneurship. Positive influences constitute facilitative and conducive conditions for the development of entrepreneurship, whereas negative influences discourage development of entrepreneurship. In most of the developed countries, the educational system is designed in such a way that it creates more entrepreneurs. The type of education prevailing in the country is also an important factor for entrepreneurship development. Therefore, any attempt to understand the entrepreneurial spirit among people should include an examination of the socio-economic origins of the entrepreneurs. a) Social Environment Social environment strongly affects the entrepreneurial behavior which contributes to entrepreneurial growth. The social factors can be family background, relatives, friends and teachers, religion, social status, social mobility and social marginality. Family background greatly affects the entrepreneurial environment and maintenance of social system. This factor includes size of family, type of family, and economic status of family. Joint family or nuclear families have their own benefits and disadvantages. There is more sentimental attachments of family members of joint family as compared to nuclear family. To some extent joint family provided family property to invest and expand the family firm. But even in nuclear families, sentimental association or emotional bonds are stronger in India as compared to those in the western countries. In some families due to access to political power, the members exhibited higher level of entrepreneurship. Background of a family in manufacturing provided a source of industrial entrepreneurship. Rural background is not necessarily a handicap for the exercise of entrepreneurship though urban background may provide to be an added advantage. The environment of the family also influences the entrepreneurship. Support from family and friends are important factors for motivating the people to become successful entrepreneurs. Children of entrepreneurs are more likely to adopt the same occupation because of certain inherent advantages. Caste and Religion Due to the influence of prevailing social factors, some social groups have produced more entrepreneurs than others. It has been suggested that certain religious and castes encourage the growth of entrepreneurial talent. In India, some religious communities like the Parsees, Marwaris and Sindhees seem to have an affinity for industrial activity. The protestant ethics in the west, the Sammurai in Japan and the like in other countries have distinguished themselves as entrepreneurs. However, entrepreneurship is no more confined to the traditionally known communities. Social Status It has its own role to play. Every human being aspires for a high social status and once s/he achieves a reasonable level, his aspirations and desires for it start getting 12

multiplied. People, therefore, become quite responsible in the wake of protecting and developing their status. Chester Barnard said that the desire for improvement of status and especially the desire to protect status appears to be the basis of a sense of general responsibilities. People work hard to maintain their status as it also contributes to their entrepreneurial growth. Social Mobility It involves the degree of social and geographical mobility and the nature of mobility channels within a system. Hoselitz and McClellands need for openness of a system and the flexibility in role relations respectively reveal an imperative role of mobility within a system for entrepreneurship development. Their viewpoint is that high degree of social mobility would help in the emergence of entrepreneurship. b) Economic Environment The entrepreneurship growth and development is also governed by the economic environment. It encompasses a wide spectrum of items, namely land, availability of raw materials, skilled labour, infrastructure, machinery, capital and so on. Apart from this, if an entrepreneur does not posses knowledge and various marketing techniques, he is unlikely to survive. Barriers to Entrepreneurship Personal Barriers These barriers are caused by emotional blocks of an individual. These barriers cause mental obstruction to the individual and lead to the failure in business. Some of the personal factors are: Lack of Confidence Many people think that they lack what it takes to become an entrepreneur. They think that they would never be able to find a successful idea or would be unable to attract the resources required and therefore dismiss the thought of becoming self-employed as irrelevant. They may regard themselves as risk-averse and feel that running a business is too risky. Lack of Dependability on Others Many entrepreneurs aim to gain their additional expertise through the trail and error of experience, rather than seeking further personal development or assistance from others. As business grows, they increasingly need to replace the initial, largely informal management arrangements with more formality. They need to think more strategically and devise effective management systems in order to grow and prosper. Individuals who do not recognize that they need support when they start to do things are likely to be less successful in the long run. Lack of Motivation When an individual starts a new business venture he is filled with enthusiasm and drive to achieve success, but when he faces the challenges of real business, bears losses or his ideas dont work, he loses interest/motivation. This causes further loss of interest and the entrepreneur starts withdrawing from the mainstream competition. Lack of Patience The desire to achieve success in the first attempt or to become rich instantly are the motivating factors of modern youth. They want to achieve success through cakewalk. When such desires are confronted by business challenges/ problems they lose interest. Apart from inability to get into the details of business. Inability to Dream It is being rightly said, think big to achieve big. The entrepreneurs who are short of vision or become complacent (satisfied) with what they achieve sometimes lose interest in further expansion/growth of business, which further impedes the growth of the business.

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Environmental Barriers These are the factors which do not lie within the individual but are present in the environment. Raw materials Non-availability of raw materials required for production of goods, especially during the peak season causes hindrances in the growth of the business. In such kind of situation, competition causes increase in the price of the raw material. This problem becomes more severe if there are alternative goods or services available in the market. Labour Human resources have been identified as the most important resource in an organization. But unfortunately, there is always a dearth of the desired manpower in an organization either because of the lack of skilled labour in the market or because of lack of committed and loyal employees in the organization. Machinery Good machineries are required in the organization for production and operation of goods. These machines come at a cost and because of rapid technological developments they also become obsolete very soon and need to be replaced, which requires a lot of money. Land and building Acquisition of land and construction of building at prime location with respect to business requires a lot of expenditure. An alternative approach could be acquiring land on lease or rent. But this becomes a matter of constant concern for the entrepreneur. Other Infrastructure requirements Apart from the factors of production mentioned above, there are other infrastructure requirements of the business and which when not present in adequate amount, can further cause barriers to the growth of business. Any business organization requires some basic infrastructure support like adequate power supply, proper roads, water and drainage facilities etc. This support has to come from the various development authorities, which again is a chain in a long bureaucratic system that suffers from problems like corruption and red-tapism. Financial Barriers Availability of funds is one of the most important ingredients required for the successful running of a business. There are various methods by which entrepreneur arranges for funds like his own savings, borrowing from friends and relatives, banks and other institutional bodies supporting new ventures. If there is a delay in the release of payments by the source of finance, it causes delay in starting and/or running business.

Societal Barriers Traditionally, the hardest barrier to overcome is the societal barrier, which inhibits many people even from thinking of starting a business. For e.g. it is still rare that teachers or doctors suggest, as an active choice, that people should consider starting their own business. Conversely, people whose parents have run their own business are usually more disposed to consider their own business. Arguably, more needs to be done to raise awareness of the option of starting a business. Starting off ones own enterprise needs to be seen a positive career option.

(Please read the text book in addition to the guiding notes)

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