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THEORIES OF ENTREPRENEURSHIP

INTRODUCTION

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 various theories on entrepreneurship and popularized the concept among the common people.

ECONOMIC THEORY

• Entrepreneurship and economic development are interdependent. Economic development takes place when a country' real rational income increases overall period of time wherein the role of entrepreneurs is an integral part.

• Entrepreneurship and economic growth take place when the economic conditions are favorable.

• Economic incentives are the main motivators for entrepreneurial activities.

• Economic incentives include taxation policy, industrial policy, sources of finance and raw material, infrastructure availability, investment and marketing opportunities, access to information about market conditions, technology etc.

PSYCHOLOGICAL THEORY

• Entrepreneurship gets a boost when society has sufficient supply of individuals with necessary psychological characteristics.

• The psychological characteristics include need for high achievement, a vision or foresight, ability to face opposition.

THEORY OF HIGH ACHIEVEMENT/ACHIEVEMENT MOTIVATION

• McClelland identified 2 characteristics of entrepreneurship

– Doing things in a new and better way

– Decision making under uncertainty

• He stressed that people with high achievement orientation (need to succeed) were more likely to become entrepreneurs.

• Such people are not influenced by money or external incentives.

• They consider profit to be a measure of success and competency.

MOTIVATION THEORY (ACQUIRED NEEDS THEORY)

• According to McClelland, a person has three types of needs at any given time, which are:

– Need for achievement (get success with one’s own efforts).

– Need for power (to dominate, influence others)

– Need for affiliation (maintain friendly relations with others).

• The need for achievement is the highest for entrepreneurs.

SOCIOLOGICAL THEORIES

• Entrepreneurship is likely to get a boost in a particular social culture Society’s values, religious beliefs, customs, taboos influence the behavior of individuals in a society.

• The following theories explain how sociological factors accelerate the growth of entrepreneurs:

• Theory of religious beliefs

• Theory of social change

THEORY OF RELIGIOUS BELIEFS

Max Weber has propounded the theory of religious belief.entrepreneurism is a function of religious beliefs and impact

of religion shapes the entrepreneurial culture.entrepreneurial energies are exogenous supplied by means of

religious beliefs.

ELEMENTS OF WEBER’S THEORY Spirit of Capitalism -In the Weber’s theory, spirit of capitalism

is highlighted. We all know that capitalism is an economic system in which economic freedom and private enterprise are glorified, so also the entrepreneurial culture.

Adventurous spirit -Weber also made a distinction between spirit of capitalism and adventurous spirit. According to him, the former is influenced by the strict discipline whereas the latter is affected by free force of impulse. Entrepreneurship culture is influenced by both these factors.

• Protestant ethic-The spirit of capitalism can be grown only when the mental attitude in the society is favorable to capitalism.

Inducement of profit - The spirit of capitalism intertwined with the motive of profit resulted in creation of greater number of business enterprises. In fact, this theory suited the British rulers, who desired to encourage European entrepreneurship in India. This theory was vehemently criticized by many researchers because of the unrealistic assumptions.

THEORY OF SOCIAL CHANGE

Everett E. Hagen, in his theory of social change propounded how a traditional society becomes one in which continuing technical progress takes place.

• Presentation of general model of the society- The theory reveals a general model of the society which considers interrelationship among physical environment, social structure, personality and culture.

• Economic Growth

• Rejection of followers syndrome -Hagen rejected the idea that the solution to economic development lies in imitating western technology. So the follower’s syndrome on the part of the entrepreneur is discouraged.

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Continued….

• Historic shift as a factor of initiating change-Hagen in his book, How Economic Growth Begins, depicts historic shift as the crucial force which has brought about social change technological progress thereby leading to the emergence of entrepreneurial class from different castes and communities.

• Withdrawal of status respects as the mechanism for

rigorous entrepreneurial activity-Closely consistent with the historic shift it is the social group that plunges into rigorous entrepreneurism which experiences the status withdrawal or withdrawal of status respects.

CULTURAL THEORIES

• Entrepreneurship is the product of culture. Entrepreneurial talents come from cultural values and cultural system embedded into the cultural environment.

Hoselitz’s Theory

• The supply of entrepreneurship is governed by cultural factors, and culturally minority groups are the spark-plugs of entrepreneurial and economic development. In many countries, entrepreneurs have emerged from a particular socio-economic class.

ENTREPRENEURSHIP INNOVATION THEORY

• Theory by Joseph Schumpeter believes that entrepreneur helps the process of development in an economy.

• He says that an entrepreneur is the one who is innovative, creative and has a foresight.

• According to him, innovation occurs when the entrepreneur-

– Introduces a new product.

– Introduces a new production method.

– Opens up a new market.

– Finds out a new source of raw material supply.

– Introduces new organization in any industry

• The theory emphasises on innovation, ignoring the risk taking and organising abilities of an entrepreneur.

Leibenstein X-efficiency theory “When an input is not used effectively the difference between the

actual output and the maximum output attributable to that input is measure of Degree of X—Efficiency.”

Types of Entrepreneurship Routine entrepreneurship Innovational entrepreneurship

Role of Entrepreneurship Input completion Gap filling

Continued… Entrepreneurs must be able to perceive

1.buying and selling opportunities in different markets.

2.the possibility of transforming input into output

3.determine the profitable activities

Evaluation of Leibenstein’s theory• It analyzes role of entrepreneur in terms of efficiency.• It tells us why growth rate is different in different countries.• This theory shows that a firm will achieve maximum efficiency when

the firm minimizes cost.

Trait Theory Of Entrepreneurship• Acc. To F.A.Walker, an entrepreneur is one who is

endowed with more than avg. capacities in the task of organizing and co-ordinating the factor of production. For eg: Land, labour , capital, enterprise.

• To be successful, as an entrepreneur, an individual must possess certain traits or characteristics of personality like creativity, self confidence, risk taking, imagination, preservance etc.

Theory Of Social Behaviour• 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 the behavior pattern.

The supply of entrepreneurship depends upon four structures found in society. These are as follows:

Limitation Structure: The society limits specific activities and this limitation structure affects all the members (including entrepreneurs) of a society.

Demand Structure: Material rewards are necessary to lay the foundations for future social gains. Moreover, behaviour of people can be made entrepreneurial by manipulating certain selected components of the demand structure.

Continued…. Opportunity structure: It consists of the availability of capital

management and technological skills, information concerning production methods, labour and markets. This structure is required to increase the probability of entrepreneurial activity.

Labour structure: it is concerned with the supply of competent and willing labour . The supply of labour is governed by several factors such as available alternative means of livelihood, traditionalism, expectations of life etc.