This document provides an overview of entrepreneurship and defines key related concepts. It discusses how entrepreneurship involves creativity, innovation, risk-taking and exploiting opportunities. Entrepreneurship is defined in various ways that commonly reference creating value, starting new businesses, and bringing together resources to meet needs. Creativity is described as bringing something new into existence, while innovation is transforming creative ideas into useful applications. The relationship between creativity, innovation and entrepreneurship is explored. The document also outlines the creative process and discusses how innovation is a tool that entrepreneurs use to exploit change and create opportunities.

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Unit-1:Entrepreneurship:AnIntroduction
Structure of Unit:
1.0 Objectives
1.1 Introduction
1.2 What is Entrepreneurship?
1.3 Tools ofEntrepreneurship
1.4 Nature and Characteristics ofEntrepreneurship
1.5 WhyEntrepreneurship?
1.6 FactorsAffecting Entrepreneurship
1.7 Entrepreneurship andEconomic Development
1.8 Barriers to Entrepreneurship
1.9 The FutureofEntrepreneurship
1.10 Summary
1.11 SelfAssessment Questions
1.12 Reference Books
1.0 Objectives
After completingthis unit, you willbe able to:
 Understand and define Entrepreneurship.
 Differentiate betweencreativityand innovation.
 Explaintheprocess ofcreativity.
 Describe how innovationis important as adimension ofentrepreneurship.
 Focus on variousfeatures ofentrepreneurship.
 Know that how entrepreneurship plays animportance rolein economic development.
 Point out variousfactorsaffecting entrepreneurship.
 Studyand analyze the barriers inthegrowth ofentrepreneurship.
1.1 Introduction
Entrepreneurialactivityisincreasing throughout theworld. InIndia too, there has beenasignificant change
inthemindset ofthe society.Thereisno doubtthat entrepreneursand entrepreneurshipareplayingimportant
roles in today’s globalbusiness environment. So what is entrepreneurship?And who are entrepreneurs?
These are the main topics weare going to explore inupcoming units.
The concept ofentrepreneurship is a complex phenomenon. Broadly, it relates to the entrepreneur, his
visionand itsimplementation. Entrepreneurship refers to a process ofactionanentrepreneur (person) and
it is a creative and innovative response to the business environment. It promotes capitalformationand
creates wealth, and it has thethrillofrisk, change, challenge and growth. Entrepreneurshipextends beyond
a conventionalbusinessand economic perspective.
Entrepreneurship is a composite skill, which include imagination, readiness to take risks, ability to bring
together and put to user other factors ofproduction, capital, labour, land, as also intangiblefactors such as
the abilityto mobilize scientific and technologic advances. One ofthe qualities ofentrepreneurship is the
ability to discover an investment opportunityand to organize an enterprise, therebycontributing to real
economic growth. It involves taking of risks and making the necessaryinvestments underconditions of
uncertaintyand innovating, planning andtaking decisions.

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The positiveimpact ofentrepreneurialfirmsisseenthroughout theeconomyand thesociety. Entrepreneurial
firms createjobs,contributeto economicgrowththeyreshapethebusiness ecosystem,createanenvironment
where theyplaya major role inintroducing innovations, commercializing newtechnologies, opening new
market, and creating value bycombining resources inexciting new ways.
InIndiavarious socialchanges aretaking place like, increaseinliteracylevels, greaterconsumerawareness,
enhanced media penetration, and basic changes in familystructure. Thesechanges are bound to resultin a
higherlevelofentrepreneurialactivityinfuture. So whetheryou want to be the next MichaelDell,BillGates,
or Ambani brothers, or whether you just want to achieve your own personal dreams, understanding
entrepreneurship is animportant first step!
1.2 What is Entrepreneurship?
Wherever you turn these days, you willcome across the termentrepreneuror entrepreneurship. Pick up a
current newspaperor magazine or turnonTV news broadcast. Or log onto websites there is ahuge chance
that you’llfind at least one story(and probablymanymore) about an entrepreneur or an entrepreneurial
business. Entrepreneurship is a popular topic these days! So it is necessaryto know what it is. Let’s tryto
answer thisbylooking at howentrepreneurship is defined.
Defining Entrepreneurship:
Defining entrepreneurship might seem simple, but it isn’t! There are about as many definitions of
entrepreneurship. Everyone seems to have his or her own views about what it is and in the same waythey
have definedit. Let’s look at some ofthe various ways in which entrepreneurship has been defined.
“Entrepreneurship is the propensity of mind to take calculated risks with confidence to achieve a pre-
determined businessor industrialobjective. Insubstance, it is therisk-taking abilityoftheindividual, broadly
coupled withcorrect decision-making.”
In another view “Entrepreneurship refers to an action process of entrepreneur towards establishing an
enterprise. It is a creative and innovative process and adaptingresponse to environment. Thisconcept can
be seen in Figure 1.1
Entrepreneurship has longbeen described byresearchers and writers with terms suchas new, innovative,
flexible, dynamic,creative,andrisk-taking. Manyauthorshavesaidthat identifyingandpursuingopportunities
are animportant part ofentrepreneurship.
According to Frank Knight, “It involves a specialized group or persons who bear ‘risks’ and meet the
uncertainty”.
Figure 1.1 : Concept of Entrepreneurship
Entrepreneur Entrepreneurship Enterprise Creation
Individual/Person An Action Process Object

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According to Musselman and Jackson, “Entrepreneurship is the investing and risking oftime, money
and effort to start a business and make it successful.”
In thewordsofB. Higgins,“Entrepreneurship ismeant thefunctionofseekinginvestment and production
opportunity, organizing anenterprise to undertake anew productionprocess, raisingcapital, hiringlabour,
arranging thesupplyofraw materials, findingsite, introducing anew technique, discovering newsources of
rawmaterialsandselectingtopmanagersfordayto dayoperationsoftheenterprise.”Thisdefinitionhighlights
risk-taking, innovatingand resource organizing aspectsofentrepreneurship.
According to Franklin Lindsay,“Entrepreneurship is defined as anticipating the future requirements of
societyand successfullymeetingthese needswithnew, creativeandimaginativecombinationsofresources”.
AccordingtoH. Cole,“Entrepreneurshipisthepurposefulactivitiesofanindividualsoragroupofassociated
individuals undertakento initiate, maintainand aggrandizeprofit byproductionordistributionofeconomic
goodsandservices”. Thisdefinitionstatesthat entrepreneurshipisgoal-orientedprocessinvolvingproduction
or distributionofproducts and goods. It maybe undertakenbyperson or bygroup ofpersons.
According toV.R. Gaikaward, ‘’It connotes innovativeness, anurge to take risk in face ofuncertainties,
and an intuitioni.e., a capacityofseeing things in a waywhich afterwards prove to be true”.
In a another view “Entrepreneurship isthe process ofbringing together creative and innovative ideas and
actions withthemanagement and organizationalskillsnecessaryto mobiles theappropriate people, money,
and operating resources to meet an identifiable need and create wealthin the process.”
According to Richma and Copen, “Entrepreneurship implies more creative, externalor open systems
orientation. It involves risk-bearing and relativelydynamic leadership.”
Schumpeterdefines,“Entrepreneurshipisaninnovativefunction.Itisaleadershipratherthananownership.”
Other authors have said that entrepreneurship involves the creation ofvalue, the process ofstarting or
growing anew profit-making business, theprocessofprovidinganewproduct orservice,andtheintentional
creationofvaluethroughorganizationbyanindividualcontributor or a smallgroup ofpartners.
According to Rao and Mehta, “Entrepreneurship can be described as creative and innovative response
to theenvironment”.
According to John Kao, “Entrepreneurship is the attempts to create values recognition of business
opportunity, themanagement ofrisk-taking appropriateto the opportunityandthroughthecommunicative
and management skills to mobilize humanfinancialand materialresourcesnecessarilyto bring a project to
fruition.”Thisdefinitionrecognizesthat entrepreneurshipinvolvesthefusionofcapitaltechnologyandhuman
talent to complete a project successfullyand withreasonable degree ofrisk.
According to HowardW. Johnson,“Entrepreneurship isa composite ofthree basic elements-invention,
innovationand adaptation”.
In the words ofW.N. Loucks, “Entrepreneurship is a mixture of willingness to take risks, a desire for
incomeandprestige, theurgeforself-expression, creativeness, and independencewitha dashofthegambling
spirit and possiblyadditionalsubtle psychic components”.
John J.Kao has developed a conceptualmodelofentrepreneurship. This modelis presented inFigure 1.2
on the next page.

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Figure 1.2 :AConceptual Model of Entrepreneurship
According to Kao, the most successfulentrepreneur isone who adapts himselfto the changing needsofthe
environment and makesit hospitableforthegrowthofhis businessenterprise. This ECO(Entrepreneurship,
creativityad organization)analysis frame work developedand conceptualized byJohnJ. Kao contributes a
great dealto the emergence as well as sustenance ofentrepreneurship and entrepreneurial talent inthe
prevailingbusiness environment.
According Peter Drucker, “Entrepreneurship is neither a science nor an art. It is a practice. It has a
knowledge base. Knowledge inentrepreneurship is ameans to anend. Indeedwhat constitutes knowledge
in practiceis largelydefined bythe ends;that is, bythe practice. Let’s look closer at these common themes
so we canbeginto better understandwhat entrepreneurship is.
Figure 1.3: Common Themes in Definitions of Entrepreneurship
Thus entrepreneurship is a complex phenomenon. “Some think ofentrepreneurs primarilyas innovators,
some chieflyas managers ofenterprise, some as bearers ofrisksand others place major emphasis ontheir
functionas mobilisersand allocators ofcapital.”
1.3 Tools of Entrepreneurship
Entrepreneurship wasdefined as the processofuse ofinnovationto exploit orcreatechangeandopportunity
forthepurposeofmakingprofit. Changecreatesopportunityandentrepreneurship createvalue byexploiting
Entrepreneurship
The Environment
The Organization The Task
The Person
Risk and uncertainty
oriented
Creativity The Action Process
of Entrepreneur
Leadership
Invention
Profit or
Not-for-Profit
Creating
Value
Accepting
Challenges
Decision
Making
Growth
Innovation
Enterprise
Creation
Defining
Entrepreneurship

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or creating change, forexample intechnology, materials, prices or demographic. Entrepreneurialsecret for
creatingvalue iscreativityand innovation.
Entrepreneurship is the result ofa disciplined, systematic process ofapplying creativityand innovation to
needs and opportunities inthe marketplace. It involves applying exposedstrategies to new ideas andnew
insights to create a product ora service that satisfies customers’needs or solves their problems.
Thetermscreativityandinnovationareoftenusedto meanthesamething, but eachhasauniqueconnotation.
Creativityis“theabilityto bring something newinto existence.”Thisdefinitionemphasizesthe“ability,” not
the’“activity,”ofbringingsomething newinto existence.Apersonmaythereforeconceive ofsomething new
andenvisionhowit willbeuseful, but not necessarilytakethenecessaryactionto makeit areality.Innovation
is the process of doing new things. This distinction is important. Simply having a great new idea isnot
enough;transforming the idea into a tangible product, service orbusiness venture is the essentialnext step.
Innovation, therefore, is the transformation of creative ideas into useful applications, but creativityis a
prerequisite to innovation. Entrepreneurship requires business owners to be bold enough to trytheirnew
ideas, flexibleenoughto throw asidethose that do not work, andwise enoughto learnabout what willwork
basedontheirobservations ofwhat did not. Entrepreneursdevelopnewideas and, fromtheir ideas,establish
newenterprisesthat addvaluetosociety. Creativethinkinghasbecomeacorebusinessskill, andentrepreneurs
lead the wayin developing andapplying that skill. Infact, creativityand innovationoften lie atthe heart of
smallcompanies’abilityto compete successfullywiththeir larger rival.
According to PeterDrucker,“Admittedly, allnew smallbusinesses have manyfactors incommon. But to
entrepreneurial, an enterprise has to have special characteristics over and above being new and small.
Indeed, entrepreneursareaminorityamongnewbusinesses.Theycreatesomethingnew, somethingdifferent;
theychangeontransmute values.Arecent studybytheSmallBusinessAdministrationfoundthat smallfirms
produce more economically and technically important innovations than larger firms. Millions of people
come up withcreative ideas for new or different products and services; most ofthem, however, neverdo
anything with them. Entrepreneurs are people who connect their creative ideas withthe purposefulaction
and structureofa business. Thus, successfulentrepreneurship is a constant process that reliesoncreativity,
innovation, and applicationinthe marketplace.
Creativity –Anecessity forSurvival: In this fiercelycompetitive, globalworld, creativityis not onlyan
important sourceforbuildingacompetitiveadvantage, but it isalso a necessityforsurvival. Whendeveloping
creative solutions to modern problems, entrepreneurs must go beyond merelyrelying onwhat has worked
in the past. Ideas usuallyevolve througha creative process wherebyimaginative people germinate ideas,
nurture them, and develop them successfully. Various labels have been applied to stages in thecreative
process, but most social scientists agree on five stages.Amodel ofthe entrepreneur’s creative process is
shown inFigure 1.4.
Figure 1.4 : The Creative Process
Recognition of
Idea/Idea
generation (the
base stage of a
new idea)
Rationalizing the
idea through
conscious search
for knowledge
Fantasize/
incubation with
assimilation of
relevant
information
Making the idea
feasible by
illumination/
realization of
idea
Verification
and validation
that the idea has
value

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In eachstage, a creative individualbehaves differentlyto move anidea fromthe seedstage ofgermination
to verification, andbehavior varies greatlyamong individualsand their ideas.
Boltonand Thompson(2000) associate inventioncloselywithcreativitybut link it withentrepreneurship if
theinventionis to becomeacommercialopportunityto beexploited. ‘Creativityisthestarting point whether
it isassociated withinventionoropportunityspotting. Thiscreativityis turnedto practicalreality(aproduct,
for example) throughinnovation. Entrepreneurship then setsthat innovationinthe context ofanenterprise
(theactualbusiness),whichissomethingofrecognizedvalue.’Creativityandinnovationneedtheentrepreneurial
context to becomea business reality-supported bya certainmixoftalents and temperamentsand based on
appropriate knowledgeand skills.
ThematrixinFigure1.5showstherelationship betweencreativityandtheentrepreneurship. Onlyinquadrant
Ais therea, winningcombination, ofcreativityandentrepreneurship. Inquadrant Bthereisa firmstruggling
withtoo manywasted ideas. It lacksanentrepreneur withtheabilitybothto seethe commercialapplication
of the idea and to exploit it. In quadrant C there is a firm that lacks creativity but can at least copy and
perhaps improve on creativity coming fromother firms if theyhave a commercial application. Firms in
quadrant D lack creativityand entrepreneurship are certain never to grow and indeed their survivalmaybe
questioned.
Innovation andEntrepreneurship
Ifcreativityis the seed that inspires entrepreneurship, innovationis the process ofentrepreneurship. This
was Schumpeter’s conclusion when he wrote about the eco­nomic foundations of free enterprise and
entrepreneurship.Accordingto himinnovationdoesnot happenas arandomevent. Centralto the process
is the entrepreneur. It is theywho introduce and thenexploit the new innovations. For Schumpeter,‘the
entrepreneur initiates change and generates new opportunities. Untilimitators force pricesand costs into
conformity, the innovator is able to reap profits and disturb equilibrium’. Sometimes innovation involves
generating something fromnothing. However, innovation is more likelyto result fromelaborating onthe
present, fromputting old things togetherinnew ways, orfromtaking something awayto create something
simpler or better.
Peter Druckerbelieves that innovationisthe specifictoolofentrepreneurs, the means bywhichtheyexploit
change as anopportunityfor a different business or a different service. ­It is capable ofbeing presented as
a discipline, capable of being learned and capable of being practiced. Entrepreneurs need to search
purposefullyfor the sources ofinnovation, the changes and their symptoms that indicate opportunities for
successfulinnovation.And theyneed to know andto applythe principles ofsuccessfulinnovation.
High
Low
Entrepreneurship
Figure 1.5 : Creativity and Entrepreneurship
Creativity

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Drucker, therefore, believes innovation can be practiced systematically. Firms ­that practice innovation
systematicallysearchforchangethencarefullyevaluateitspotentialforaneconomic or socialreturn. Change
provides the opportunityfor innovationto makeaneconomic return.
Mintzberg (1983) defines innovation as ‘the means to break away from established patterns’, in other
wordsdoingthingsreallydifferently.Therefore,simplyintroducinganewproductorservicethathascustomer’s
willing to buyit, is not necessarilyinnovation. Innovations have to break the mould ofhowthingsare done.
To really­innovate Mintzberg says that ‘one engages indivergent thinking aimed at innovation;theother is
convergent thinkingaimed at perfection’.
The innovationcan, of course, be ofvarying degrees ofuniqueness. Most innovations introduced to the
market are ordinaryinnovations, that is, with little uniqueness ortechnology.As expected, there are fewer
technologicalinnovationsandbreakthroughinnovationswiththenumberofactualinnovationsdecreasingas
the technology involved increases. Regardless ofits levelof uniqueness or technology, each innovation
(particularlythe lattertwo types) evolves into and develops toward commercializationthroughone ofthree
mechanisms: the government, intrapreneurship, or entre­preneurship.
Innovation means “doing new things or the doing of things that is already being done in a new way.”It
includesnew processesofproduction, introductionofnewproducts, and creationofnew markets, discovery
ofa new and better formofindustrialorganization.
Earlier, we definedinnovationasthe processofdoingnew things. It is important torecognize theinnovation
more focusonactionnot conceivingnew ideas only. Whenpeople have passed throughthe Realizationand
Validation stages ofcreativityprocess, theymayhave become inventors, but theyare not yet innovators.
The difference betweencreativityand innovation is showninFigure 1.6
To innovate effectively, therefore, requires insight - into customers and markets, into what is possible and
what is not, and into howto make things happen. It is also helpedbygood luck. What is more, innovation
maybe a ­necessarycondition for establishing a growth
business, but it isnot asufficient condition.To exploitaninnovationsuccessfullyrequiresstrengthofpersonal
character, managerialabilityand often money, whichbring us back to the centralrole ofthe entrepreneur.
1.4 Nature and Characteristics of Entrepreneurship
The maincharacteristics ofentrepreneurship are givenbelow:
1. EconomicActivity: Entrepreneurship is primarily an economic activitybecause it involves the
creationand operationofanenterprise. Itis basicallyconcernedwiththeproductionand distribution
ofgoodsand services and optimallyutilizes the resource towardsproductive use.
Creativity
Innovation
Creating
something new
The transformation
of an idea and
resources into
actual useful way
Results in
new knowledge
Results in new
products, services,
processes and
market places
Figure 1.6: Invention Versus Innovation

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2. Entrepreneurship Involves Innovation:Entrepreneurship involves changing, revolutionizing,
transforming, and introducing new approaches. Entrepreneurship is an innovative functionas it
involves doing things in a new and better way. Innovation maytake severalforms, suchas a new
product, a newsource ofraw materiala new market, anew method of-production, not yet applied
ina particularbranchor, manufacturing etc. Drucker says, “Innovation is thespecific instrument of
entrepreneurship”. Entrepreneur isa change agent.
3. Goal-orientedActivity: The entrepreneur who creates and operates enterprises seeks to earn
profitsthroughsatisfactionofneedsofconsumers;hence, entrepreneurshipisagoal-orientedactivity.
Entrepreneurship emphasizes results, achievements and targets achieved. It is work done not
imaginaryplansor paper decisions. Hence entrepreneurship is a goaloriented activity.
4. Value Creation: Next, we find that the process ofcreating value is a characteristic in describing
entrepreneurship. Throughentrepreneurship, new products, services, transactions, approaches,
resources, technologies, and markets are created that contribute some value to a communityor
marketplace. We can also see value created when, through entrepreneurship, resources are
transformed into outputssuchas products orservices. During this transformationprocess, value is
created because the entrepreneur is fashioning something worthwhile and useful. Drucker says,
“Untilentrepreneurialact, everyplant is a seed and everymineraljust another rock”.
5. Enterprise Creation: The next characteristic ofentrepreneurship is enterprise creation. Inorder
to pursue the perceived opportunities for innovationand to create value, there must be organized
efforts and actions. Someone must take the initiative to do something – take action to get the
entrepreneurialventure upand running. Entrepreneurship is a creative response to changes in the
environment. Itinvolvesinnovationor introductionofsomething neworimproved.Anentrepreneur
is an agent to effect change.
6. AFunction of Risk Bearing:Riskis an inherent and inseparable element ofentrepreneurship.An
entrepreneur works underuncertainties and he assumes the uncertaintyoffuture. Inthe pursuit of
profit, there is possibilityofloss also.
7. Entrepreneurship Implies Growth: The next characteristic inentrepreneurship isgrowth. One
major difference between entrepreneurialventures and other small businesses is the emphasis on
growth. Entrepreneurship isabout growinga businessand pursu­ing opportunities astheyarise. It’s
not about standing stillor being content to stayinone market or withone product.
8. Managerial Skill and Leadership Function: Managerial skill and leadership are the most
important facets ofentrepreneurship.Anentrepreneur must havethe abilityto leadand manage. He
provides direction, create work culture, and build teamwork and cohesivenessamong employees.
9. Recognition that it is a process:The characteristics commonlyfound inentrepreneurship is the
recognitionthatit isaprocess,verysimply,isaset ofongoingdecisionsandactions. Entrepreneurship
is not aone-time phenomenon;it occursovertime. It involvesa series ofdecisionsand actions from
initialstart-up tomanagingthe entrepreneurialventure.
10. Gap Filling Function: The gap between human needs and the available products and services
filled byentrepreneurship.Anentrepreneur determinesthe needs ofpeopleand combinesresources
to produce goods and services ofrequirements. He introducesnew products and

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services, newmethods ofproduction anddistribution, new sources ofinputs and new market s for
this purpose.
11. Dynamic Process: Entrepreneurshipis a dynamic function. Entrepreneur thrives onchangesinthe
environment, whichbring usefulopportunities forbusiness.Anentrepreneur dealsproactivelywith
changing markets ­andenvironment. He looks at the changes as the sourceofmarket advantages,
not as aproblem. Uncertainties are market opportunities for him. He capitalizesonfleeting market­
anomalies.
12. Uniqueness: Othercharacteristicfound inentrepreneurshipis that ofuniqueness. Entrepreneurship
involvesnewcombinations andnewapproacheswithwhichentrepreneursarewillingto experiment.
Through Entrepreneurship unique products are created and unique approaches are tried.
Entrepreneurship isn’t merelyimitatingwhat othershave done. It’sdoingsomethingnew, something
untested and untried– something unique.
13. OrganizingFunction:Itistheabilitytobringtogetherproductiveresourcesofsociety. Entrepreneur
coordinates and controlthe efforts ofallthe persons engagedin his enterprises. He harnesses land,
labour, capitaland other resources offor the benefits ofmankind. Therefore, an entrepreneur is
called as anorganizationbuilder.
14. Essentialin EveryActivity:Entrepreneurship isrequired inalltypesofbusinesses – smallor big,
trading or manufacturing or service industry. It is essentialfor everybusiness to exist and grow.
Drucker says, “Entrepreneurship is byno means confined solelyto economic institutions.”
15. Knowledge-based Practice: Drucker writes, “Entrepreneurshipis neither a science nor anart. It
isapractice. Ithasaknowledgebase. Heuseshisexperiencesforhighachievements. Theenterprising
qualityis generated after a long practiceofrisk-bearing behaviour.”
16. Another Characteristics ofentrepreneurship is a recognition that entrepreneurship can take
place in both profit and not-for-profit environments. Although we tend to assume that
entrepreneurialactivityisgearedat makingaprofit (andweagreethat muchofit is), entrepreneurship
also occursinsocialservice agencies, incommunityarts organizations, or inother typesofnot-for-
profit settings.
17. Entrepreneurship and Management:Management istheagent throughwhichallentrepreneurial
decisions and plans are implemented. The entrepreneur brings new changes and improvements
through management. To survive and win, the managers must become entrepreneurial in their
approach and tasks.
18. Other Characteristics :
(1) It relatesto updating ofknowledgerelating to entrepreneurship promotionona regular basis.
(2) It aims at development of skills ad capabilities in identifying latent entrepreneurial traits of
entrepreneurs.
(3) It is a means of rapid economic development which is likely to result in creation of gainful
employment insociety.
(4) It believes in the fact that entrepreneurs are not born, theycan be created. In the light ofthis,
large numbers of Entrepreneurship Development Programmes are conducted to promote
entrepreneurshipinthe country.
(5)Itoptimizes the useofresources byarrivingatthemost productive combinationthat willprovide
the societythe need goodsand services.

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Thus, entrepreneurship ismulti-dimensionalconcept. It isboth the science as wellas art. But ismore anart
than science as there are veryfew ground rules or principles that can be used to create and run business
enterprises ina fat changing andheterogeneous environment.
1.5 Why Entrepreneurship?
Entrepreneurship is, and continues to be, important to everysectorinIndia and inother globaleconomies.
Entrepreneurship contributes to economic and socialdevelopment ofa country. Operating an enterprise,
wealthcreation,makinginnovativedecisionsormanaginganorganization, allhavethethrillofrisk, challenges
and profitableopportunities.
Entrepreneurial firms are not just money-making ventures for their promot-ers. The positive impact of
entrepreneurialfirmsis seenthroughout theeconomyand society.Avast majorityofthishigh-impact .firms
are fast ­growing companies. David Birchhas differentiated these firmsbycalling themgazelles. Hedefines
a gazelle as a business establishment withat least 20 per cent growth everyyear.
Entrepreneurshiphasmanyfunctionsto performandrolesto playineverytypeofeconomy. Entrepreneurship
is the life blood of anyeconomy and it applies more to a developing economy like India. It influences a
numberofareassuchasinnovation, jobcreation, career alternativesetc. Thecontributionofentrepreneurship
liesinthe following areas:
1. Innovation: Innovating is a process of creating, changing, experimenting, transforming and
revolutionizing. Innovationisoneofthekeydistinguishingcharacteristicsofentrepreneurialactivity.
The passionate drive and intense hunger ofentrepreneurs to forge new direc­tions products and
processes and to take risks set inmotion a series ofdecisions that lead to the innovations that are
important foreconomicvitality.Without thesenewideas, economic, technological,andsocialprogress
would be slow indeed.
The “creative destruction” process ofinnovating leads to technologicalchanges and employment
growth. Entrepreneurialfirms act as these “agents ofchange” byproviding anessentialsource of
new andunique ideas that might otherwise go.
2. Job Creation: We know that job creation is vital to the overall long-term economic health of
communities, regions, ad nations. Entrepreneurial ventures play very important role in it. Small
businesscreatemorejobsthanlargebusinessdo. Duringeconomic recession, whenlargecompanies
are on their wayto retrenchment oftheir work force, individuals whose jobs are eliminated find
employment with smallbusiness. The creation ofjobs bysmallbusinesses is expected to continue
into the futureas new firms start smalland grow.
3. Numberof New Start-ups:Allbusinesses whether theyfit the definitionofentrepreneurialor not
– at one point in time were start-ups, the most convenient measure we have of the role that
entrepreneurship plays inthis economic statistic isto look at thenumber ofnew firms over a period
of time. The assump­tion that we have to make, then, is that some of these new firms engage in
activi­ties that areentrepreneurialinnature.
Thenext importantfunctionofentrepreneurshipisstartingtheventure. Infact, entrepreneursidentify
opportunities and possible competitive advantages. They set goals and strategies. Pursuit of
entrepreneurship contributed to the overallcreationofnew firms. Whyis the creation ofnew firms
so important?It’s important because thesenewfirms contribute to economic development through

11. 11
benefits such as product-process innovations, increased tax rev­enues, societalbetterment, and
job creation.
4. Opportunity to Contribute to Society and Be Recognized for Your Efforts: Often, small
business owners are among the most respected and most trusted members oftheir communities.
Businessdealsbasedontrustandmutualrespectarethehallmarkofmanyestablishedsmallcompanies.
These owners enjoythe trust and recognitiontheyreceive from the customers theyhave served
faithfullyoverthe years.
Entrepreneurship oftendeals with the difficult issues ofsocialresponsibilityand ethicalproblems.
Entrepreneurship produces such goods and services that protect consumer health and global
environment and helpsin creating better livingconditions insociety. It generates employment and
conservesnaturalresources, balancesgrowthinthecountryand providesmoreamenities to people.
Ethicalconsiderationsalso playa role in decisions and actions ofentrepreneurs.
5. Path of CreatingTomorrow:Peter DruckerSays, “Entrepreneur hasto seek offyesterdayand to
render obsoletewhat alreadyexists andis alreadyknown. He has to create tomorrow. Making the
business oftomorrow cannot be aflashofgenius. It requires systematic analysis andhard, rigorous
work today·. The specific job ofentrepreneurship is to make today’s business capable ofmaking
the future, ofmaking itselfinto a different business”.
6. Entrepreneurship Provides an Opportunity to Make a Difference and CreateYour Own
Destiny: Increasingly, entrepreneurs are starting businesses because theysee anopportunityto
make adifference in a cause that is important to them. Entrepreneurs are finding ways to combine
their concerns for socialissues ad their desire to earn a good living. Owning a business provides
entrepreneurs theindependence and the opportunityto achieve what isimportant to them.
7. EntrepreneurshipServeSmallMarketsWithNewTechnology:Large firms,withtheir crippling
overheads, do not find it profitable to serve smallpopulations. This iswhere smallentrepreneurial
firms serveaninvaluable role byprovidingspecializedproducts tonichecustomers. Entrepreneurial
firmsareusuallyfasterto cometo the market withradicalnewtechnologies. Ultimately,thiswilllead
to a betterstandard ofliving for thewhole society.
8. Entrepreneurship Provides Opportunityto ReachYourFullPotentialand Reap Impressive
Profit:Toomanypeoplefind.theirworkboring,unchallenging,andunexciting,butnot entrepreneurs.
To them, there is little difference betweenwork and play;the two are synonymous. Entrepreneurs’
businesses becometheir instruments for self-expressionand self-actualization. Theyknowthat the
onlyboundaries ontheir success are thoseimposed bytheir owncreativity, enthusiasm, and vision.
Althoughmoneyisnot theprimaryforcedriving most entrepreneurs, the profitstheir businessescan
earnare animportant motivating factor intheir decisions to launchcompanies. Most entrepreneurs
never become super-rich: but manyofthemdo become quite wealthy.
9. OtherContribution:
 Entrepreneurship insmallbusinesses helps in distributionofproducts oflargebusiness. They, thus,
support thelarge business houses.

12. 12
 It offers business avenues to womenand minorities. Women and minorities areallowed the benefit
offinancialindependence and a chance to exhibit the abilityto manage business enterprises.
 Dispersalofeconomic activities to different sectors ofeconomy and identifying new avenues of
growth.
 Improvement ofthe standard oflivingofdifferent weaker sections in the society.
 Bring socio politicalchange inthe society.
 Develop technologicalknow-how.
 Improve culture ofbusiness and expandcommercialactivities.
 Entrepreneurship acts as a change agent to meet the requirements of the changing markets and
customer preferences.
 Develop a cultureofachievement orientation.
 It helpsinbringingabout changeanddevelopment ofthecivilizationthroughchangeintrade, comment
beand industrialization.
 It arouses the need for achievement in individuals which brings about a change in the economic
scenario througheconomic development and growth.
 It resultsinexploitationofeconomy’sresources, suchas labour, capitaland technologyto thefullest
extent.
1.6 Factors Affecting Entrepreneurship
Theentrepreneurialactivityat anytimeisdependent uponacomplexand varying combinationofeconomic,
social, political, psychologicaland other factors. Thesefactors mayhave been bothpositive and negative
effluences onthe emergence ofentrepreneurship. Positive influences constitute facilitative and conductive
conclusive for theemergence ofentrepreneurship whereasnegativeinfluences create inhibitingmilieu to the
emergence ofentrepreneurship.
Following factorscontribute to the successofentrepreneurship:
1. Economic Factor: Factorssuchasavailabilityoffinance, labour, land,accessibilityofcustomers,
suppliers are the factors that stimulate entrepreneurship. Capital is one of the most important
prerequisitestoestablishanenterprise.Availabilityofsufficientcapitalaffectstheintroduction, survival
and growth ofa business enterprise.
Capitalis regarded as lubricant to the process ofproduction. Ifwe increase incapitalinvestment,
capitaloutput ratio also tends toincreases. This resultsinincrease inprofit, whichultimatelygoes to
capitalformation. Dueto this capitalsupplyincrease, entrepreneurship also increases.
2. Socio-Economic Factors:Theentrepreneurialactivityat anytimeandplaceisgovernedbyvarying
combinationofsocio-economic factors. The empiricalstudies have identified the following socio-
economic factors:
Cast/religion
Familybackground
LevelofEducation
Levelofperception
LegitimacyofEntrepreneurship
Migratorycharacter
SocialMobility
SocialSecurity

13. 13
Investment capacity
Ambition/motivation
3. Personal Factors: McClelland assumes ‘that achievement motivation is the immediate cause of
theoriginofentrepreneurship. Heexplainedentrepreneurialgrowthintermsofneedforachievement
motivation. Thus,hefound highcorrelationbetweenneedfor achievement and successfuleconomic
activities.
Personalitytraits such as inner desire for controloftheir activities, tolerance for risk, highlevelof
tolerancetofunctioninadversesituationsandbackgroundexperiencessuchasthefamilyenvironment,
levelofeducation,ageandworkhistorytoleranceforambiguityareimportant personalcharacteristics
that affectentrepreneurship. Individuals who aredesirous ofworkingindependently;willingto work
for longhours and assume risk;are self-confident andhard-workingarelikelyto bemore successful
as entrepreneurs thanthose who do not posses these qualities.
4. Political: Someresearchersfelt that the growthofentrepreneurship cannot beexplained fullyunless
the politicalset-up ofacountryistakeninto consideration. Bouldingheldthat politicalstructure was
the deciding factorin entrepreneurialgrowthofFrance and Russia. Similarly, Hoselitz argued that
France laggedbehind economicallybecause hissocialstructure did not provide sufficient incentives
and securityto entrepreneurs. Medhora also conc1uded that the entrepreneurialgrowth in India
was delayed not because oflack ofentrepreneurialmotivationbut due to non-commitment of-the
politicalstructure.
5. Deregulation and Privatization:Phillips (1985) gives evidence that smallfirms are dominant in
theincreaseofentrepreneurialactivityinsectorsthathavebeenrecentlyderegulated. Liberaleconomic
policiesinChinahaveledtophenomenalgrowthfuelledbyentrepreneurs.Thecollapseofcommunism
in Eastern Europe has led to thrivingentrepreneurship in the new free-market economies. Even in
the rest ofthe world, conservative economicpolicyhas givenwayto a brave newapproachthat has
led to broad levelderegulation across industries. Now companies have to dealwithfewer licenses
and fewergovernmentalcontrols. Manystate-ownedenterprises have also beenprivatized leading
to a greaterrole or the privatesector in generaland entrepreneurs in particular.
6. Internal Control System: Entrepreneurship largelydepends upon the controlsystem designed
for controlling the business activities. Ifthe controlsystem is effective they willresult in optimal
inventory, good qualityproducts and high profit margins. This willhave a positive effect on the
success ofentrepreneurship.
7. Government Incentives ad Subsidies: Loveman and Sengenberuer (1991) have discussed the
positive role ofgovern­ment incentives and subsidies. In India, there are incentivesbeing given by
both the state and centralgovernment, manyofthe incentive are often sector specific, being given
bytheconcernedministry. Similarly, entrepreneurship isbeing encouraged inmanycountrieswitha
variety ofincentives such as tax breaks, preferred sourcing or grants. Performance, in terms of
economic growth, is shaped by the degree to which the prevalent industry structure efficiently
utilizes scarce resources.
8. Impact of Ethical Value System: Max Weber was first to point out that the entrepreneurial
growthwas governedbythe ethicalvaluesystemofthe societyconcerned. He said that the spirit of
rapidindustrialgrowthdepends upona rationalizedtechnology, acquisitionofmoneyand itsrational
use for productivityand multiplication of money. These elements depend upon a specific value
orientationofindividuals.

14. 14
Robert Kennedy and Yale also held the view that entrepreneurship developed rapidly in those
societies where ethicalvalues provided independent capacityofdecision making. No doubt, this
view has some truth but it was not accepted universally.
9. Increasing Demand forVariety: Increased wealth has led to increase in the demand for variety
(Jackson1984).The increasingdemandfornewproductsisofadvantageto smallerfirms.Anumber
ofstudies haveshown the comparative advantage ofsmaller firms inbeing innovative and coming
upwithnewproducts(PrusaandSchmitz1991, Rothwcll1984).Iftheproductshasunmet demand,
it willcreate a market foritself. The success ofentrepreneurship is, therefore, dependent uponthe
extent to which the product isindemand.
Changes inconsumer tastes are a major reasonfor growthofentrepreneur­ship(Brock and Evans
1989). People are, inclined to products that are specificallydesigned to meet their specialneeds.
Mass produced homogenous goods do not enjoyas wide an appealanymore. Jovanovic (1993)
states that large firms have not been comfortable entering into niche markets.
10. Impact of Services Sector: Increase inper capita income leads to a greater share ofthe services
sector in the national economy (Inmar 1985). The average size of firms’ mmanysections ofthe
servicessector arerelativelysmall. This inturnpromotesentrepreneurialactivityacrossa numberof
service sector industries. Even for some developing countries such as India, services account for
over halfofthe totalGDP. Growing importance ofservices in the overalleconomyhas paved the
wayforentrepreneurialactivity. New industriessuchas software andbusiness process outsourcing
have emerged andthese have a large numberofentrepreneurialfirms.
11. WorkEnvironment: Iftheenvironment that a individualis working inisunsatisfactory,that is, not
conducive to his growth needs, it is likely that the individual will quit his job and start his own
business asanentrepreneur. Unsatisfied personalneeds forgrowthandachievement inemployment
conditions resultsinsuccessfulentrepreneurship.
12. EasierAccess to Resources Promotes Entrepreneurship:Today, it is easier for an entrepreneur
to accessdebt and equityfinancethanever before. Not just capital, most otherfactors ofproduction
are now easilyavailable to entrepreneurs. With greater flow ofinformation, it is easier to contact
and to deal with resource providers such as raw materialsuppliers and dealers ofcapital goods.
Also, manybusiness services are now tailored to suit.
13. CareerTransitions: “Career transitionpoints are circumstances in whichanindividualis moving
between one type of career-related activity and another.” Retirement from existing service or
completion ofa degree course isthe factors that boost up a person’s moraleto start a ventureofhis
own.
14. EntrepreneurialEducation:Moreandmorepeoplewithhighacademicattainmentsstartedjoining
the ranks ofindustrialists, especiallythe professionals holding qualifications inengineering, law,
medicine, cost andcharteredaccounting. The newer entrepreneurshave a larger proportionoftheir
floatationinthe traditionalsector, but these professionals have byand large preferred to make their
investments inmodernsector. The technicians inparticular among botholdand new entrepreneurs
have entered industriesin the modernsector having a bearing oftheir academic qualifications.
Manyuniversities and institutes are nowadays offering entrepreneurship education. Anumber of
instituteshavesetupsuccessfulentrepreneurshipcenters,whichprovidehelpto buddingentrepreneurs
byconducting formaltrainingand structuredmentoring programmes.

15. 15
1.7 Entrepreneurship and Economic Development
Let’s try to look at what entrepreneurship contributes towards economic development. The role of
entrepreneurship ineconomic development variesfromeconomyto economydependinguponits materials
resources, industrialclimateand the responsiveness ofthe politicalsystemto the entrepreneurialfunctions.
Theentrepreneurscontributemoreinfavorable opportunityconditionsthanintheeconomies withrelatively
less favorableopportunityconditions.
Entrepreneurship constitutes an important input inthe process of economic development. It channelizes
resources, capitalandmenforeconomicgrowth.It isthebesta1ternateto overtheproblemofunemployment
andpoverty:It managesgrowth.J.A.Timmonshasremarked,“Itcreatesandbuildssomethingfrompractically
nothing. It takescalculatedrisks. Itistheknackforsensinganopportunitywhereothersseechaoscontradiction
and confusion. It is the know-howto find, and controlresources and to makesure that the venturedoes not
run out of money when it is needed most”. Robert Ronstadt writes, “Entrepreneurship is the dynamic
process ofcreating incrementalwealth.”
According to Schumpeter, economic development consists of“employing resources ina different way”,
bringing inanew combinationofmeansofproduction. The entrepreneurlooks for ideas andputs theminto
effect foreconomic development.
Entrepreneurship has great importance in various economic systems. It is all the more important under
capitalism - and mixed economy where not only the responsibilities of entrepreneur in production and
distributionarerecognized but the objectiveofgrowth ofbusiness and profit maximization isalsoattained.
Therefore, theimportance ofentrepreneurship stands beyond challenge in everyeconomic systemexcept
under socialismwhere it appears ina different form, yet, entrepreneurship prevails in alleconomicsystems
in one formor the other. Anentrepreneur has a criticalrole in competitive market economy, especiallyin
developing contrives like India.Anentrepreneuracts as a trigger head to give sparkto economic activities
byhisentrepreneurialdecisions.
Further, India whichitselfis anunder-developedcountryaims at decentralized industrialstructureto militate
the regionalimbalances in levels ofeconomic development, small-scale entrepreneurshipin suchindustrial
structureplaysanimportant roleto achievebalanced regionaldevelopment. It isunequivocallybelievedthat
smallscale industries provide immediate large scale employment, ensure a more equitable distribution of
nationalincomeandalso facilitateaneffective. resourcemobilizationofcapitalandskillwhichmight otherwise
remainunutilized. Entrepreneurshipcontributes ineconomic development infollowing ways:
1. Increasing Income and PerCapita Income: Entrepreneur brings innew products and services
and developsnew marketsfor growthofeconomythus increasinggross nationalproduct aswellas
percapitalincomesofthepeopleinthecountry.Theroleofentrepreneurshipineconomicdevelopment
involvesmorethanjust increasingpercapitaoutput andincome;it involvesinitiatingandconstituting
change economic growthdepends on the rate ofapplied technicalprogress (i.e., innovation) and
rate oftechnicalprogressintheeconomic field whichinturndependsonthesupplyofentrepreneurs
in the society. Thus the entrepreneur is the agent ofchange in society.
2. Wealth Creation and Distribution:Entrepreneurialactivityleadsto value additionand creation
ofwealthand capitalinthestructure ofbusinessandsociety. This change isaccompanied bygrowth
andincreasedoutput whichallowsmorewealthto bedividedbythevariousparticipants.It provides

16. 16
businessmen with a realistic basis to identify, analyze, and exploit a business opportunity. It takes
most challenging decisions to help towards the building ofa rapid growthand financially sound
enterprise WilliamJames says, ‘’It is onlythrough risking our decisions fromone hour to another
that we createwealthand capital”. The wealthalso gets distributed to morepeople and geographic
areas, thusgiving benefit to larger sectionofsociety.
3. Production EvolutionProcess:Entrepreneurunderstands andtakesupproduct evolutionprocess.
This is aprocess where innovationdevelopsandanentrepreneur commercializesthe new products.
Here an entrepreneur combines different technologies andfuses themin to products and services
whichturninto marketableitems. Entrepreneursalso focusoncostsand efficiency. It asks, “to what
results should the resources and efforts ofthe business be allocated so as to reach extraordinary
productivityand results.
Theimportant rolethat entrepreneurshipplaysinthe economicdevelopment ofaneconomycannow beput
in amore systematic and orderlymanner as follows:
 Entrepreneurship promotescapitalformationbymobilizingthe idle saving ofthe public.
 It provides immediate large-scale employment. Thus, it helps reduces the
unemployment problemin the country, i.e. the root ofallsocio-economic problem.
 It promotesbalanced regionaldevelopment.
 It helps reduces the concentrationofeconomic power.
 It simulatestheequitable redistributionofwealth, income and evenpoliticalpowerintheinterestof
the country.
 It encourages effective resource mobilization ofcapitaland skill which might ­otherwise remain
unutilized.
 It also induces backward and forwardlinkages which stimulate the process of
economic development inthe country.
 Last but no means the least;it also promotes country’sexport trade i.e., animportant ingredient to
economic development.
Thus, it isclear that entrepreneurship servesas a catalyst ofeconomic development. Onthe whole,the role
ofentrepreneurship ineconomic development ofacountrycan be best beput as “an economyis the effect
for whichentrepreneurshipis the cause.”
1.8 Barriers to Entrepreneurship
Alargenumber ofentrepreneurs particularlyinthe smallenterprisesfaildueto severalproblemsandbarriers
like:
 Lack ofmarket knowledge
 Lack oftechnicalknow how
 Lack ofseed capital
 Lack ofbusiness know how
 Complacency–lack ofmotivationand individualspirit
 Unfavorable familyground
 Lack ofEducation
 Lack ofattitude and training
 Influence ofGender, Caste, Custom.
 Inadequate infrastructurefacilities.
 Lack oftransportationand communicationfacilities.

17. 17
 Unavailabilityofraw material.
 Absence ofregular supplyofpower.
 Absence ofIdealMarket conditions.
 Corruptioninadministration.
 Unstable state government.
 Legalconstraintsand regulations
 Monopolyand protectionism
Allthesecausesareduetounfavorablesocio economicconditions.KarlH.Vesperlistscertainentrepreneurial
factors that help to reduce the effect ofthese barriers. The following figure depictshow it happens:
Figure 1.7: Barriers to Entrepreneurship
Source: Karl H. Vesper, Entrepreneurship and National Policy (1983), Walter E. Heller, International
Institute forSmallBusiness.
Manyentrepreneursmaylack managerialskills, marketingcapability, orfinancialresources. Theirinventions
areoftenunrealistic,requiringsignificantmodificationto bemarketable. Inaddition, entrepreneursfrequently
do not know how to interfacewith allthe necessaryentities, such as banks, suppliers, customers, venture
capitalists distributors and advertising agencies.
Yet, inspite ofallthesedifficulties, entrepreneurshipis presentlythe most effec­tive methodfor bridging the
gapbetweenscienceand the marketplace, creatingnew enterprises, and bringingnewproducts and services
to the market. These entrepre­neurialactivities significantlyaffect the economyofan area bybuilding the
eco­nomic base and providing jobs. Givenits impact onboththe overalleconomyand the employment of
an area, it is surprising that entrepreneurship has not become even more of a focal point in economic
development
Environmental Helps
1.Market Contacts
2.Local Incubator Companies
3.Capable Local Manpower
4.Technical Education and Support
5.Supplier Assistance
and Credit
6.Local Venture Capitalists
7.Venture-savvy Bankers
8.Capable Local Advisor
9.Entrepreneurial Education
10.Successful Role Models
Barriers
A.Lack of Viable Concept
B.Lock of Market Familiarity
C.Lack of Technical Skills
D.Lack of Seed Capital
E.Lack of Business Knowhow
F.Complacency-Non –motivation
G.Social Stigma
H.Job “Lock-ins” Golden Handcuffs”
I.Time Pressure, Distractions
J.Legal Constraints, Regulation Red Tape
K.Protectionism Monopoly
L.Patent Inhibitions
Personal
Pulls
Personal
Pulls

18. 18
1.9 The Future of Entrepreneurship
Asevidenced bythe manydifferentdefinitions, thetermentrepreneurshipmeans dif­ferent thingsto different
people and canbe viewed fromdifferent conceptualper­spectives. However, in spite of the differences,
there are some common aspects: risk taking, creativity, innovation, independence, and rewards. These
commonthemes willcontinueto bethedrivingforcebehindthenotionofentrepreneurshipinthefuture. One
thingisclear:Thefutureforentrepreneurshipappearsto bebright.Wearelivingintheageoftheentrepreneur,
withentrepreneurship endorsed byeducationalinstitutions governmentalunits, society, and corporations.
Entrepreneurialeducation has never been so important in terms ofcoursesand academic research.
Variousgovernmentsaretakinganincreasedinterestinpromotingthegrowthofentrepreneurship. Individuals
are encouraged to formnew business andprovided suchgovernment support as tax incentives, buildings,
roads, and acommunicationsystemto facilitatethis creationprocess. Encouragementbylocalgovernments
should continue in the future as more lawmakers understand that new enterprises create jobsand increase
economic output in the area. Some state governments in the India like Gujarat are developing their own
innovative industrialstrategies for fostering entrepreneurialactivityand the timelydevelopment of the
technologyofthe area. The impact ofthis strategyis seeninthe venture - capitalindustry, whichis always
sensitive to governmentregulations andpolicies.
Society’s support ofentrepreneurship willalso continue.Thissupport is criticalinprovidingbothmotivation
and public support. Never before have entrepreneursbeenso revered bythegeneralpublic. Entrepreneurial
endeavors are considered honorable and even, in manycauses, prestigious pursuits.Amajor factor inthe
development of this societal approval is the media. The media has played, and will continue to play, a
powerful and constructive role byreporting on the generalentrepreneurialspirit ad highlighting specific
success cases ofthe spirit in operation.
Forbes magazinecomes out withalist ofthe world’srichest persons everyyear, years back this list used to
be dominated bymonarchs and heirs offamilyfortunes build up over years. Now, the case is verydifferent,
7 out ofthe top 10 are self-made. Thisgoes a long wayto prove that entrepreneurship is the pathto riches.
Table :1.1 Forbes World’s Richest
Rank Name Ctizenship Age Net Worth ($
billion)
1 WilliamGates III Unites States 51 56.0
2 Warren Buffett Unites States 76 52.0
3 CarlosSlimHelu Mexico 67 49.0
4 Ingvar Kamprad Sweden 80 33.0
5 LakshmiMittal India 56 32.0
6 SheldonAdelson United States 73 26.5
7 BernardArnault France 58 26.0
8 Amancio Ortega Spain 71 24.0
9 LiKa-Shing HongKong 78 23.0
10 David Thomson Canada 49 22.0
Source: Forbes magazine, 2007

19. 19
Avarietyofsocial, economic, politicalandculturalfactors are stimulating entrepreneurialactivityand thus
generating more robust economic development. These stimulantsare as follows:
 Availabilityofcapitalis a stimulateto an entrepreneur to start a new firmand/or give birthto anew
idea.
 Theabilityto transformscientific andtechnicaldevelopment throughnewinstitutionaldevelopment
is asecond stimulant.
 Athirdstimulant is the supportivegovernment programmes.
 Availabilityofrequired training and input is ranked fourth.
 A collaborative relationship between business and research and their direct attempts to transfer
technology, to the market place mayprovide stimulus to a number ofentrepreneurs who seek the
opportunityto commercializetheir ideas and
 Finally, anendeavorto create anenvironment conducive to innovation willprovidea much needed
stimulant to entrepreneurialactivities.
Theinnovationcentre providestechnologicalevaluation,entrepreneurialassessment and otherrelatedlevels
ofassistance to entrepreneurs.
Misconceptions about Entrepreneurship:
1. Successful Entrepreneurship Needs Onlya Great Idea.Having a great idea is onlypart ofthe
equationforsuccessfulentrepreneurship. Understanding thedemands ofthe different phases ofthe
entrepreneurialprocess, taking an organized approach to developingthe entrepreneurialventure,
and coping withthe challenges ofmanaging the entrepreneurialventure are also keyingredients to
successfulentrepreneurship.
2. Entrepreneurship is Easy. Entrepreneurship is not easy! It takes commit­ment, determination,
and hard work. And even ifyou have these qualities, it still isn’t effortless!Entrepreneurs often
encounter difficulties and setbacks, but the successfulentrepreneursare those who pushon inspite
ofthe difficulties.
3. Entrepreneurship is a Risky Gamble. Although entrepreneurs aren’t afraid to take risks,
entrepreneurship involves calculated risks, not unnecessaryones. In fact, there are times when
successfulentrepreneurship meansavoiding or minimizing risks.
4. Entrepreneurship is Found Only in Small Businesses. Manypeople have the mis­taken idea
that entrepreneurshipis associated onlywithsmallorganizations. Thetruthis that entrepreneurship
can be found in any size organization. On the other hand, just because an organization is small
doesn’t automaticallymake it entrepreneurial.
1.10 Summary
Globalisationhasbrought a structuralchangeinthe economyandhenceintheentrepreneurship.It isbreaking
the artificialboundaries and giving wayto new products, new services and new waysto manufacturingand
service methods. The current fast changes are being lead bytechnologyadvancements. The globalisation
also has brought change of mind set with the government to help entrepreneurship byadopting suitable
policies, regulationsandinvitingforeigncapital. Theenvironmentisposingchallengesofincreasedcompetition,
new products, substitute products and emerging markets.
Anyeconomycandevelop to itsextent ifit hasentrepreneurship. It is necessaryto recognize entrepreneurial
role as a separate and important factor ofproduction. Largeindustrialunits and businesshouses also play

20. 20
animportant role indeveloping andsustaining new entrepreneurship. Forthis, it should benoted that while
the growthofentrepreneurship in India in the last 25-30 years have been remarkable, entrepreneurship is
stillacomparativelyscarce factor inIndia, as indeed inalldeveloping countries.
The studyofentrepreneurship has relevancetoday, not onlybecauseit helps entrepreneurs betterfulfilltheir
personalneedsbut becauseoftheeconomiccontri­butionofthenewventures. More thanincreasingnational
income bycreatingnew jobs entrepreneurship actsas a positive forceineconomic growthbyservingas the
bridge between innovationand the marketplace. With this entrepreneurial skills and store ofknowledge,
Indian entrepreneurs becoming creative and innovative and this will ensure that India willrise as aglobal
economic power house. The entrepreneurship development movement in India had received significant
attention; this is borne out bythe fact that the small manufacturing enterprises have made phenomenal
progress during the last three decadesand todayoccupyanimportant positionintheindustrialeconomyof
India.
1.11 Self Assessment Questions
1. Define ‘Entrepreneurship’. Describe its characteristics.
2. Discuss the variousdefinitions of‘Entrepreneurship’.
3. Entrepreneurship is aninnovative function. It isa leadership rather thananownership”. Discuss.
4. “Entrepreneurship connotesinnovation, risk-bearing and relativelydynamic leadership”. Explain
thestatement..
5. Discuss the various views ofentrepreneurship. Explainitsnature / characteristics.
6. Explainthe meaningand importance ofEntrepreneurship.
7. Define ‘Entrepreneurship’.Also discuss its significance.
8. State the factors that affect entrepreneurship.
9. “Without vision, thepeople perish. Without entrepreneurship, theeconomyand business
stagnate”. (RalphHorwitz). Discuss the statement.
10. “To studythe entrepreneur is to studythe main figure ineconomic activity”. Discussthe role
ofentrepreneurship ineconomic development ofa countrywithreference to above statement.
11. What have beenthe main barriers for the growth in entrepreneurship?
1.12 Reference Books
 Sharma Sudhir, SinghBalraj, SinghalSandeep (2005), “Entrepreneurship Development”, Wisdom
Publications, Delhi.
 BadiR.V., BadiN.V. (2010), “Entrepreneurship”, Vrinda Publications (P) Ltd., Delhi.
 DesaiVasant (2009), “The Dynamics ofEntrepreneurialDevelopment and Management - Planning
for FutureSustainable Growth”, Himalaya PublishingHouse, India.
 VasishthNeeru (2008), “Business Organization”, TaxmannAllied Services (P.) Ltd., New Delhi.
 Holt David H. (2004), “Entrepreneurship – NewVenture Creation”, Prentice HallofIndia Private
Limited, New Delhi.

21. 21
 RoyRajeev(2009)], “Entrepreneurship”, Oxford UniversityPress, New Delhi.
 Burns Paul(2001), “Entrepreneurship and SmallBusiness”, Palgrave Mecmillan, China.
 Sudha G.S. (2005), “Management and Entrepreneurship Development”, IndusValleyPublications,
New Delhi.
 Basotia G.R., Sharma K.K. (1991), “Handbook of Entrepreneurship Development – An
Entrepreneurs Guide to Planning, Starting, Developingand Managing a New Enterprise”, Mangal
Deep Publications, Jaipur.
 Coulter Mary(2003), “Entrepreneurship inAction”, Prentice HallofIndia Private Limited, New
Delhi.
 ZimmererThomasW., ScarboroughNormanM. (2009), “EssentialsofEntrepreneurshipand Small
Business Management”, PHI Learning Private Limited, New Delhi.
 Hisrich Robert D., Peters Michael P. (2002), “Entrepreneurship – International Edition”, The
McGraw-HillCompanies, NewYork.

22. 22
Unit-2 :Theoriesof Entrepreneurship
Structure of Unit:
2.0 Objectives
2.1 Introduction: HistoricalPerspectives onEntrepreneurship
2.2 Different OpiniononEmergence ofEntrepreneurship
2.3 Theories ofEntrepreneurship
2.4 Entrepreneurship Globally
2.5 Summary
2.6 SelfAssessment Questions
2.7 Reference Books
2.0 Objectives
After completingthis unit, you willbe able to:
 Describe the historicalperspectives ofentrepreneurship.
 Point out economical, sociologicaland psychologicalview onthe emergenceofentrepreneurship.
 Understand various theoriesofentrepreneurship propounded byvarious eminent authors.
 Focus onvarious multitudes offactorswhichinfluence entrepreneurship.
 Studyand analyzeglobalimpact ofentrepreneurship.
 Explainand correlatevarious theories fromyour ownpoint ofview.
 Understand Entrepreneurship asmultidimensionalconcept
2.1 Introduction: Historical Perspectives on Entrepreneurship
Thedefinitionofentrepreneurshipinvolvescreationofvalue throughfusionofcapital,risktaking, technology
and human talent. It is a multidimensionalconcept. The distinctive features ofentrepreneurship over the
years are:
 Innovation,
 AFunctionofhighachievement,
 Organisationbuilding,
 Group levelactivities,
 Managerialskills and leadership,
 Gapfillingactivity
 Entrepreneurship –Anemerging class.
For Scientist, ‘theory’ refers to therelationships betweenfacts. Inanother words, theoryis someordering
principles. There arevarious theories ofentrepreneurship which maybe explained fromthe viewpoints of
economists, sociologistsandpsychologists. Thesetheorieshavebeensupportedandgivenbyvariousthinkers
over a period of more than two and half centuries. Let’s understand the Historical perspective of
Entrepreneurship inFigure2.1:

23. 23
Figure 2.1: Time table of the Development of Entrepreneurship Theory
Althoughthecurrentpopularityofentrepreneurialexploitswouldtendto makeyou thinkthat itisatwentieth
or twentyfirst centuryphenomenon, but it’s not like this. Earlyin the eighteenth century, the French term
entrepreneur was first used to describe a “go-between” or a “between-taker.” Richard Cantillon, a noted
economist and reknowned author in the 1700s, is regarded bymanyas the originator ofthe
Early
1700s
Late
1700s
Richard Cantillon (economist)coined term entrepreneur
(“go-between” or “between-taker”)
Entrepreneur bears risks and plans, supervises organizes
and owns factors of production
1803
Late
1800s
Jean Baptiste Say (economist) proposed that the
profits of entrepreneurship were separate from
profits of capital
ownership
Distinction made between those who supplied
funds and earned interest and those who
profited from entrepreneurial abilities
1934
Joseph schumpeter (economist) described
entrepreneur as someone who is an innovator and
someone who “creatively destructs”
Eighteenth
Century
Eighteenth
Century
Nineteenth
Century
Eighteenth
Century
Eighteenth
Century
Twenty First
Century
Peter Drucker (Management author) described
the entrepreneur as someone who
maximizes opportunity
2004-10
1964
As technology changes and global connectivity improves,
entrepreneurship means that the entrepreneur not only has to
ensure profits for all stakeholders, he has to fix problems, tap
new markets, bring cutting edge ideas to the table, and lead
cross-culturalteams. Entrepreneurship has taken on new
meaning and greater challenges in the last decades. The real
skill is learning how to influence through commitment, loyalty
and trust.

24. 24
term entrepreneur. Cantillon used the term to refer to a person who took an active risk-bearing role in
pursuingopportunities.
Late intheeighteenthcentury, theconcept ofentrepreneurship wasexpanded to includenotonlythebearing
ofrisks but also the planning, supervis­ing, organizing, and even owning the factors ofproduction.The
nineteenthcenturywasa fertile time forentrepreneurialactivitybecause technologicaladvances during the
industrialrevolutionprovidedtheimpetus for continuedinventionsand innovations. Then, towardthe endof
the nineteen century, the concept ofentrepreneurship changed slightlyagain to distinguish betweenthose
who suppliedfunds and earned interest and those who profited fromentrepreneurialabilities.
During theearlypart ofthetwentiethcentury, entrepreneurship wasstillbelieved to bedistinct and different
fromthemanagementoforganizations. However, inthemid-1930stheconceptofentrepreneurshipexpanded.
That’swheneconomist JosephSchumpeterproposedthat entrepreneurshipinvolvedinnovationsanduntried
technologiesorwhat hecalledcreativedestruction, whichisdefinedastheprocesswherebyexistingproducts,
processes, ideas, and businesses are replaced with better ones. Schumpeter believed that through the
process of creative destruction, old and outdated approaches and products were replaced with better
ones. Through the destructionofthe oldcame the creation ofthe new. He also believed that entrepreneurs
were the driving forces behind this process of creative destruction. They were the ones who took the
breakthroughideasandinnovationsinto themarketplace.Schumpeter’sdescriptionoftheprocessofcreative
destruction served to highlight further the important role that innovationplays inentrepreneurship.As our
earlier definitionofentrepreneurship showed, the conceptsofinnovation and uniqueness are (and always
have been) integralparts ofentrepreneurialactivity.
The final development from the twenti­eth century we’ll look at is Peter Drucker’s contention that
entrepreneurship involves maximizingopportunities. Drucker is awell­knownand prolific writerona wide
variety of management issues. What his perspective added to the concept of entrepreneurship is that
entrepreneurs recognize and act on opportunities. Drucker proposed that entrepreneurship doesn’t just
happen out ofthe blue but arises in response to what the entrepreneur sees as untapped and undeveloped
opportunities.
Although.we’velooked at onlya smallportion ofentrepreneurship’slong and colourfulpast, keep inmind
that the historyofentrepreneurship continues to unfold. Its historyis stillbeing written today.In the early
years ofthetwenty-first century, researcherscontinue to studyentrepreneursandentrepreneurship.Although
no generallyacceptedtheoryofentrepreneurship has emerged fromthese studies.
2.2 Different Opinion on Emergence of Entrepreneurship
The concept ofentrepreneurship has undergonemajor changesover more than two andhalfcenturies. Yet
the concept ofentrepreneurship is not clear.As the concept ofentrepreneurship is complexinits content, it
is influenced bynot onlyeconomicalaspects, but also bysociological, psychological, ethical, religious and
culturalvalues. Over the years the socialscientists have interpreted the phenomenon ofentrepreneurship
differentlyinaccordance withtheir perceptionand economic environment. Wecanidentifyfive stagesinthe
evolutionofEntrepreneurship as showninfigure 2.2:

25. 25
Figure 2.2 : Stage in Evolution of Entrepreneurship
JosephMassie observes, “However, because ofthediversityofapproaches to thestudyofentrepreneurship,
there isdifficultyindefining just what entrepreneurship isandidentifying just who isanentrepreneur.”There
are different opinions on the emergence ofentrepreneurship. These opinions maybe classified into three
categories:
A. Economist’s view
B. Sociologist’s view
C. Psychologist’s view
A. Economist’s View
Entrepreneur and entrepreneurship have been a point ofinterest to economics as earlyas 1755. The term
entrepreneur seems to have been introduced into economics byCantillon, but the entrepreneur was first
accorded prominence by Say. It was variously translated into English as ‘merchant’, ‘adventurer’and
‘employer’, thoughthe precise meaning is‘the undertaker ofa project.’James Stuart Millpopularised the
terminEngland.
The concept was
vague, wide and
not clear.
Entrepreneurs was
looked as adventurer
First Stage
Entrepreneurship
was looked as
speculative
activity
Second Stage
Thrid Stage
Entrepreneurship was
more inclined
towards innovative
and creative practices
Entrepreneurship
become an act of
visionary leaders, high
achievers towards
social decision making
Fifth Stage
It this stage
Entrepreneurship
was looked as
co-ordinator of
protective resources

26. 26
According to economists entrepreneurship and economic growthwilltake place inthose situations where
particular economic conditions are most favourable. Economic incentives are the main drive for the
entrepreneurialactivities. Theyfirmlybelievethat awelldevelopment market andefficient economicpolicies
foster entrepreneurship a big way. G.F. Papanek and J.R. Harris are the main advocates of this theory.
According to them, economic incentives arethe maindrive forthe entrepreneurialactivities. Insome cases,
it not so evident, but thepersons inner drives havealways beenassociated witheconomic gains. Therefore,
these incentives and gains are regards as the sufficient conditions for the emergence of industrial
entrepreneurship. Whenanindividualrecognizesthatthemarket foraproduct orserviceisout ofequilibrium,
he maypurchase or produce at the prevailing price and sellto those who are prepared to but at thehighest
price. Lack ofentrepreneurship is due to various kinds of market imperfections and inefficient economic
policies.
B. Sociologist’s View
Entrepreneurship is inhibited bythe socialsystem, which denies opportunities for creative facilities: The
forces ofcustom, values, the rigidityofstatus and the district ofnew ideasand ofthe exerciseofintellectual
curiosity, combine to create an atmosphere inimicalto experiment and innovation. Sociologists arguethat
entrepreneurship ismost likelyto emergeunder aspecific socialculture.Accordingto themsocialsanctions,
culturalvaluesand role expectations areresponsible for the emergenceofentrepreneurship. Social-cultural
values channeleconomic action that gives birthto entrepreneurship. The theories ofWeber and Cocharan
inthis context are mainlysociologicalinnatureand worthmention.
According to Cochran the entrepreneur representssociety’s modelpersonality. His performance depends
uponhisownattitudestowardshisoccupation,theroleexpectationsofsanctioninggroupsandtheoccupational
requirements of the job. Society’s values are the most important determinant of the attitudes and role
expectation.Accordingto Weber religious beliefs produce intensive exertionin· occupationalpursuits, the
systematic ordering ofmeans to end, and the accumulation on assets. It is these beliefs, which generate a
drive forentrepreneurialgrowth. Hoselitzsuggeststhat culturallymarginalgroupspromoteentrepreneurship
and economic development. Such groups, because oftheir ambiguous position are peculiarly suited to
make creative adjustments and thereby develop genuine innovations. In severalcountries entrepreneurs
have emerged from particular socio-economic class.According to Stokes socio-culturalvalues channel
economic action. He suggests that personal and social opportunity and the presence of the requisite
psychological distributions may be seen as conditions for an individual’s movement into industrial
entrepreneurship.
C. Psychologist’s View
The phenomenonofentrepreneurship development has beenviewed, explained andinterpreted differently.
Among those who have stressed onthepsychologicalaspects as contributing to entrepreneurialsuccess are
Joseph Schumpeter, McClelland, Hagenand Kunkal. The main focus ofthese theoriesis as follows:
Schumpeter believes that entrepreneurs are primarilymotivated byanatavisticwillto power, willto found
a private kingdomor willto conquer. According to McClelland it is the high needfor achievement which
drivespeopletowards entrepreneurialactivities. Thisachievement motiveisinculcatedthroughchildrearing
practices, which stress standards of excellence, material warmth, self-reliance training and low father
dominance. Individuals with high achievement motive tend to take keeninterest insituations ofhighrest,
desireforresponsibilityandadesirefora concretemeasureoftaskperformance. Hagenconsiderswithdrawal
ofstatus respect as the trigger mechanismfor changes is personality formation. Status withdrawalis the
perception onthe part ofthe members ofsome socialgroup that their purposes and values on life are not

27. 27
respected by groups in the society whom theyrespect Hagen identifies four types ofevents that coven
produce status withdrawal:(a) displacement byforce, (b) denigrationofvalued symbols;(c) inconsistency
of status symbols with a changing distribution of economic power, and (d) non acceptance of expected
status on migrationto a new society.
Kunkel’sbehaviouralmodelisconcernedwiththeovertlyexpressedactivitiesofindividualsandtheirrelations
to the previouslyand presentlysurroundingsocialstructures and physicalconditions. Behaviouralpatterns
in this model are determined by reinforcing and aversive stimuli present in the social context. Hence,
entrepreneurialbehaviouris a functionofthe surrounding socialstructurebothpast and present and canbe-
readilyinfluencedbythe manipulative economic and socialincentives.
According to Psychologists, entrepreneurship is most likelyto emerge when a societyhas sufficientsupply
ofindividuals possessing particular psychologicalcharacteristics. Themaincharacteristics are:
 aninstitutionalcapacityto see things innew way(vision),
 energyofwilland mind to overcome fixedhabits ofthought,
 anurgeto do something,
 to fulfila dream,
 he capacityto withstand socialopposition;and
 the highneed for achievement.
Eachoftheaboveviewpoint isincompleteandnoneofthemisright orwrong.Entrepreneurship isinfluenced
by a multitude factors and, therefore, no single factor by itself can generate entrepreneurship. Thus,
entrepreneurship is the outcome ofcomplex and varying combinationofsocio-economic, psychological
and other factors.
2.3 Theories of Entrepreneurship
Acoordinatedandcomprehensivetheoryofentrepreneurshipisyettocome. Meanwhileletstryto understand
the following theories ofentrepreneurship propounded bythe different eminent socialthinkers:
1. InnovationTheoryofSchumpeter
2. Need forAchievementTheoryofMcClelland
3. Leibenstein’s X-efficiencyTheory
4. Risk BearingTheoryofknight.
5. MaxWeber’s TheoryofEntrepreneurialGrowth
6. Hagen’sTheoryofEntrepreneurship
7. Thomas Cochran’sTheoryofCulturalValues
8. TheoryofChange inGroup LevelPattern
9. Economic TheoryofEntrepreneurship
10. ExposureTheoryofEntrepreneurship.
11. PoliticalSystemTheoryfor EntrepreneurialGrowth.
1. Innovation Theory of Schumpeter:
A dynamic theory of entrepreneurship was first advocated by Schumpeter (1949) who considered
entrepreneurship asthe catalyst that disruptsthe stationarycircularflowoftheeconomyandtherebyinitiates
and sustains theprocess ofdevelopment. Embarkingupon‘new combinations’ofthefactors ofproduction
- which he succinctly terms, innovation - the entrepreneur activates the economy to a new level of
development.

28. 28
Schumpeter introduced a concept ofinnovation as keyfactor in entrepreneurship inaddition to assuming
risks and organisingfactor ofproduction. Schumpeter defines entrepreneurship as “acreative activity”.An
innovator who brings new products or services into economy is given the status ofan entrepreneur. He
regards innovationasa toolofentrepreneur,The entrepreneur is viewed as the ‘engine ofgrowth’,He sees
the opportunityfor introducing new products, new markets, new sourcesofsupply, new formsofindustrial
organization or for the development ofnewlydiscovered resources. The concept ofinnovation and its
corollarydevelopment embraces five functions:
 The introductionofa new product with whichconsumers are not yet familiar orintroduction ofa
new qualityofanexisting product,
 The introduction ofnew method ofproductionthat is not yet tested byexperience inthe branch of
manufacture concerned, whichneed byno means be founded upon a discoveryscientificallynew
and canalso exist ina new wayofhandling a commoditycommercially,
 Theopening ofnewmarket that isa market onto whichthe particularbranchofmanufacturer ofthe
countryinquestionhas not previouslyentered, whether or not this market has existed before,
 Conquest ofa new source ofsupplyofraw materialand
 The carrying out ofthe new organisationofanyindustry.
Schumpeter is the first major theorist to put the human agent at the centre of the process of economic
development. He is veryexplicit about the economic functionofthe entrepreneur. The entrepreneur is the
primemoverineconomicdevelopment;hisfunction,to innovateorcarryoutnew combinations. Schumpeter
makes a distinction between an innovator and an inventor.Aninventor discovers new methods and new
materials. Onthecontrary, aninnovator isone who utilises orapplies inventions and discoveriesin order to
make new combinations. An inventor is concerned with his technical work of invention whereas an
entrepreneurconvertsthetechnicalwork into economicperformance.Aninnovatorismorethananinventor
because he does not onlyoriginate as the inventor does but goes much farther inexploiting the invention
commercially.
Figure 2.3: Innovation Theory of Entrepreneurship
New Product
New Method
New Market
New Source of supply
Carries out a
new organization
Innovation
Exploiting
profitable
business
opportunities
Innovation
Creativity
Sustainable
Economic
Development
Entrepreneurship

29. 29
Wilken had added the concept ofthe changes that anentrepreneur brings:
 Expansion ofgoods, products.
 Productivityoffactorsofproductionsuchasfinance, labour, material.
 Innovation in production such as, technology, process changes and increase in human resource
productivity.
 Innovation inmarketing area such as the composition of the market, size of the market and new
markets.
To Schumpeter, entrepreneurs are individuals motivated bya will for power; their specialcharacteristic
being an­inherent capacityto select correct answers, energy, willand mind to overcome fixed talents of
thoughts, and a capacityto withstand socialopposition. The factors that contribute to thedevelopment of
entrepreneurship wouldessentiallybe a suitableenvironment ingrasping theessentialfacts.
It canbenoted that this theory’smain figure, the “innovatingentrepreneur” has played animportant role in
the rise of modem capitalism. The entrepreneur has been the prime mover - for economic development
process. On the criticism side, this theory seems one-sided as it puts too much emphasis on innovative
functions. Itignorestherisktakingandorganizingaspectsofentrepreneurship.Anentrepreneur hasnot only
to innovate but also assemble theresources and put themto optimumuse.
Whilestressingupontheinnovativefunctionoftheentrepreneur,Schumpeterignoredtherisk-takingfunction,
which is equallyimportant. When an entrepreneur develops a new combination offactors ofproduction,
there is enoughrisk involved.
Inspiteofthese lacking, the theorysupports the “enterprising spirit”ofentrepreneurto innovate. It is theact
that endows resources with a newcapacityto create wealth. Drucker says, “Innovation, indeed, creates a
resource. It endows it with economic value.” Schumpeter’s views are particularlyrelevant to developing
countries where innovations need to be encouraged. The transformationof an agrarian economyinto an
industrialeconomyrequireda great dealofinitiative and changesonthe part ofbusinessmenand managers.
2. Need forAchievement Theory of McClelland:
According to McClelland the characteristics ofentrepreneur has two features - first doing things ina new
and better way and second decision making under uncertainty. McClelland emphasises achievement
orientationasmost important factor forentrepreneurs. Individuals withhigh. achievement orientationare
not influencedbyconsiderations ofmoneyor anyother externalincentives. Profit and incentivesare merely
yardsticks ofmeasurement ofsuccess ofentrepreneurswithhighachievement orientation. People withhigh
achievement (N-Ach) arenot influenced bymoneyrewards as compared to people with low achievement.
The latter typesare prepared to workharder for moneyorsuch other externalincentives. Onthe contrary,
profit is merelya measure ofsuccessand competencyfor people withhigh achievement need.
Professor David McClelland, in his book The Achieving Society, has propounded a theorybased on his
researchthat entrepreneurshipultimatelydepends on motivation. It is the need for achievement (N-Ach),
the sense ofdoing and getting things done, that promote entrepreneurship.According to him, N-Ach is a
relativelystablepersonalitycharacteristicrootedinexperiencesinmiddlechildhoodthroughfamilysocialisation
and child-learningpractices whichstress standardsofexcellence, materialwarmth, self-reliancetraining and

30. 30
low father dominance. According to him a person acquires three types of needs as a result of one’s life
experience. These three needs are:
 Need forAchievement.Adrive to excel, advance and grow.
 Need for Power.Adrive to dominate or influence others and situations.
 Need forAffiliation.Adrive for friendlyand close inter-personalrelationships.
McClellandfoundthat certainsocietiestendedto producealargepercentageofpeoplewithhighachievement.
Hepointedout that individuals, indeedwholesocietiesthat possessN-achwillhavehigherlevelsofeconomic
well-being thanthose that do not. McClelland’s work indicated that there are five majorcomponentsto the
N-ach trait: (a) responsibilityfor problemsolving, (b) setting goals, (c) reaching goals throughone’s own
effort, (d) the need for and use offeedback, and (e) a preference for moderate levels ofrisk-taking.
The individualwithhighlevels ofneedachievement is a potentialentrepreneur.The specific characteristics
ofa highachiever (entrepreneur) canbe summarized as follows:
(i) Theyset moderate realistic and attainablegoals for them.
(ii) Theytakecalculated risks.
(iii) Theyprefer situationswhereintheycan take personalresponsibilityfor solving
problems.
(iv) Theyneed concrete feedback on how welltheyare doing.
(v) Their need for achievement exist not merelyfor the sake ofeconomic rewards or
socialrecognitionratherpersonalaccomplishment is intrinsicallymore satisfying to
them.
According to McClelland, motivation, abilities and congenial environment, all combine to promote
entrepreneurship. Since entrepreneurialmotivationand abilitiesarelong runsociologicalissues;heopined it
is better to make political, Socialandeconomic environments congenialfor thegrowthofentrepreneurship
inunderdeveloped and developing countries.
3. Leibenstein’s X-Efficiency Theory:
This theory, originallydeveloped for anotherpurpose, has recentlybeenapplied to analyse the roleofthe
entrepreneur. Basically, X-efficiencyis the degree ofinefficiencyinthe use ofresources within the firm: it
measures the extent to which the firm fails to realise its productive potential. According to Leibenstein,
When an input is not used effectivelythe difference betweenthe actualoutput and the maximumoutput
attributable to that input is ameasure ofthe degreeofX-efficiency.
X-efficiency arises either because the firm’s resources are used in the wrong way or because they are
wasted, that is, not ­used at all. Leibensteinidentifies two mainrolesfor the entrepreneur: (i)agap­filler and
(ii) aninput completer. These functions arise fromthe basicassumptions ofX-efficiencytheory. Thus it is
clearthat“ifnot allfactorsofproductionaremarketedorifthereareimperfectionsinmarkets,theentrepreneur
has to fill the gaps in the market. To put the enterprise in motion, the entrepreneur should fillenough of
gaps.”Thesecondroleisinputcompletion, whichinvolvesmakingavailableinputsthat improvetheefficiency
ofexisting productionmethods or facilitate the introductionofnew ones. The roleoftheentrepreneuris to
improve theflow ofinformationinthe market.

31. 31
The theory concludes that an entrepreneur has to act as gap filler and an input completer if there are
imperfections inmarkets. For using there unusualskills, he gets profits as wellas avarietyofnon-peculiar
advantages.According to himthere are two types ofentrepreneurship.
(i) Routine entrepreneurship – deals with normal business functions like co-ordinating the
business activities.
(ii) Innovative entrepreneurship – wherein an entrepreneur is innovative in his approach. It
includestheactivitiesnecessaryto create anenterprise wherenot allthemarketsarewell-established
or clearlydefined.
4. Risk Bearing Theory of Knight:
Akeyelement ofentrepreneurship is riskbearing. Prof. Knight andJohnStaurt Millsawrisk-bearing as the
important functionofentrepreneurs. Someimportant features ofthis theoryareas follows:
1. Riskcreates Profit:Accordingto the risk-bearingtheory, theentrepreneur earnsprofits because
he undertakes risks.
2. More RiskMoreGain:Thedegreeofriskvariesindifferent industries. Entrepreneursundertake
different degrees ofrisk according to their abilityad inclination. The risk theoryproposesthat the
more riskythe nature ofbusiness, the greater must be the profit earned byit.
3. Profit as Reward and Cost: Profit is the reward ofentrepreneur for assuming risks. Hence, it
is also treated as a part ofthe normalcost ofproduction.
4. Entrepreneur’s Income is Uncertain: He identifies uncertainty with a situation where the
probabilitiesofalterativeoutcomes cannot bedeterminedeitherbyapriorireasoningor bystatistical
inference.Apriorireasoning is simplyirrelevantto economic situationinvolvingaunique event. This
theorysummarizesthat profit is the reward ofan entrepreneur effort which arises forbearing non-
insurable risks and uncertainties and the amount of profit earned depends upon the degree of
uncertaintybearing. Knight argues that business enterprisesthe levelofuncertaintycanbe reduced
Imperfect competition/not well established market
Figure 2.4: Leibenstein X- efficiency Theory
Gap filler role of
entrepreneur
Transforming
available inputs
that improve the
efficiency of the
existing produ-
-ction method
Fill the gap in
imperfect
market to put
the enterprise in
motion

32. 32
through‘consolidation’.Consolidationis to uncertaintyis what insurance isto risk;it isa method of
reducingtotaluncertaintybypoolingindividualinstance.Theelasticityofthesupplyofselfconfidence
is thesingle most important determinant ofthe levelofprofit and the numberofentrepreneurs.
5. MaxWeber’s Theory of Entrepreneurial Growth:
MaxWeber in his theory says religion has a large impact on entrepreneurial development.According to
Weber some religions have basic beliefsto earn and acquiremoneyand some have less ofit. He callsthem
a ‘spirit of capitalism’ and ‘adventurous spirit’. The spirit of capitalism will be generated when mental
attitude inthesocietyisfavourableto capitalism.According to MaxWeber, driving entrepreneurialenergies
are generated bythe adoption ofexogenously-supplied religious beliefs. It is these beliefs which produce
intensive exertioninoccupationalpursuits, the systematicordering ofmeans to ends, and the accumulation
of assets. His theory suggests the belief systems of Hinduism, Buddhism ad Islam do not encourage
entrepreneurship. His stand has been challenged bymany sociologists. Max Weber’s Theoryis shown in
Figure 2.5
MaxWeber’s theorysuited the colonialrulers who wanted to encourage European entrepreneurship in
India. But it has beencriticised bysubsequent researchers. Thetheoryis based onthe invalid assumptions,
whichare:
(a) There is a single systemofHindu value,
(b)The Indiancommunityinternalised those valuesand translated themtoday-to-daybehaviour, and
(c) These valuesremained immune to andinsulated against externalpressures andchange. The rapid
growth of ­entrepreneurship inIndia since independence proves that Hinduism is not averse to the
spirit ofcapitalismand to adventurous spirit.
Manythinkers haveaccepted theWeber’s analysis oflinkage betweenreligiousbeliefand entrepreneurial
growth. But this view is not accepted universally. Samuelson criticisedWeber’s view on the ground that
capitalismalso developedinthose societies whereprotestant ethic was ‘not prevalent. Hoselitz argued that
Protestant could not develop industries in France because theywere not given politicalsecurity.It can be
concluded in the words ofCarroll that “ethicalvalues have some effect on entrepreneurialgrowthbut to
consider themallin allwouldbe unrealistic.”
Figure 2.5: Max Weber’s Theory

33. 33
6. Hagen’s Theory of Entrepreneurship:
One important theoryofentrepreneurialbehaviourhas been propounded byHagenwhich is referred toas
the withdrawalofstatus respect. Hagenhasattributed thewithdrawalofstatus respect ofagroup to genesis
ofentrepreneurship. Hagen considers the withdrawalofstatus, of respect, as the trigger mechanismfor
changes in personalityformation. Status withdrawaloccurs when members ofsomesocialgroup perceive
that theirpurposes and values inlife are not respected bythe groups inthe societytheyrespect,and whose
esteemtheyvalue. Hagenpostulates four typesofevents which canproduce status withdrawal:
 Displacementofatraditionalelitegroupfromitspreviousstatusbyanothertraditionalsupplyphysical
force.
 Denigrationofvaluedsymbols throughsome changeinthe attitude ofthe superior group.
 Inconsistencyofstatussymbols witha changing’distributionofeconomic power.
 Non-acceptance ofexpected status onmigration to a new society.
Hagen furtherpostulates that withdrawalofstatus respect would giveto four possible reactionsandcreate
fourdifferent personalitytypes:
(a)Retreatist: Entrepreneur who continues to work insocietybut remains indifferent to his work or
status.
(b)Ritualist: One who works as per thenorms inthe societyhut withno hope ofimprovement inthe
working conditionsor his status.
(c)Reformist: One who is a rebellion and tries to bring innew ways of working and new society.
(d)Innovator:Anentrepreneurwho is creative and tryto achieve his goals set byhimself.
According to Hagen (1962), the creativity of a disadvantaged minority group is the main source of
entrepreneurship. He developedthis thesis fromthecase ofthe samuraicommunityofJapan. Traditionally,
this community had enjoyed a high status of which it was deprived later. To regain this lost prestige, it
became more active and vigorous and gave rise to manyentrepreneurs. McClelland supported this thesis
by admitting that a suppressed community had more creativity. He said that Jains could be successful
entrepreneurs becauseoftheir consciousness oftheir majorityand superioritycomplexes. McClellandhad
modified Hagen’sthesis slightlyin orderto explainsuchcases. He stated that the subordinationofminority
group couldarouse achievement motivationinits members but itsextent depended uponthe initiallevelof
motivationand the means available to the group to activeits achievement motivations.
7. Thomas Cochran’sTheory of CulturalValues
ThekeyproportionsinThomas Cochran’s theoryareculturalvalues, roleexpectationsand socialsanctions.
According to him, the entrepreneur represents society’s modelpersonality. His performance is influenced
bythefactorsofhis ownattitudes towards his occupation,the roleexpectations heldbysanctioning groups,
and the operationalrequirements of the job. The determinants for the first two factors are the society’s
values. Changesover time insuchvariables as population, technology,and institutionaldrift willimpinge on
the role structurebycreating new operationalneeds. Inmost countries, entrepreneurshave emergedfrom
a particular socio-economic class. The Protestant ethic of the West is said to have contributed to the
emergence ofa new class ofindustrialists. It can be notedthat various communities andcastes likesamurai
inJapan,familypatterninFrance,YorubainNigeria, KikuyainKenya, ChristiansinLebanon, HalaiMemon
industrialistsinPakistan, Parsees, MarwariesandGujaratisinIndiahavebeenthesourcesofentrepreneurship.

34. 34
8. Theory of Change in Group Level Pattern:
Young defines entrepreneurs as that the entrepreneur characteristics are found insmallgroups wherein
individuals develop as entrepreneurs. Young arrived at the group levelpattern behaviour entrepreneurs
based on his studies known as ThematicAppreciation Test (TAT) on groups of entrepreneurs. The test
revealed’the tendencyto describe the situationas a problemto be solved, anawarenessofpragmatic effort
required, confidence intheir ownabilityto solve the problemand atendencyto take theviewpointofeach
individualinturnand analyse the situationas he might see it before suggesting anoutcome.Young’s theory
is a theory ofchange based on society’s incorporation ofreactive subgroups.Agroup becomes reactive
whenthe followingthree conditions coincide:
 When denied ofaccess to important socialnetworks;
 Whena group experiences low ‘status recognition;and
 When the group has better institutionalresources than other groups in the societyat the
same level.
9. Economic Theory of Entrepreneurship
Manyeconomistsrevealedthat entrepreneurshipandeconomicgrowthwilltakeplaceinthosecircumstances
whereparticulareconomic conditions areinfavour ofthe businessenvironment. The mainadvocatesofthis
theory were Papanek and Harris. According to them economic incentives are the main forces for
entrepreneurial activities in anycountry. There are a lot ofeconomic factors which promote or demote
entrepreneurship in acountry. These factors are:
(a) The availabilityofbank credit
(b) Highcapitalformationwitha good flow ofsavings and investments
(c) Supplyfor loanablefunds with a lower rate ofinterest.
(d) Increased demand for consumer goods ad services
(e) Availabilityofproductive resources.
(f) Efficient economicpolicies like fiscaladmonetarypolicies
(g) Communicationandtransportationfacilities
Economic development was the result ofrationalizationof technology and accounting systems and the
acquisitionofcapitaland its productive usewas the mainthemeoftheWeberianthesis. Some scholars have
triedto explainthe growthofentrepreneurship interms ofregionaleconomic factors, e.i., industrialsupport
to environment inthese regions.Aquestionwhichwas analysed bya researcher is: “SinceJains andVaisyas
were in every corner of India, why was it that only Marwari ad Gujarati Vaisyas and Jains gave leadin
entrepreneurship, mostlyin Gujarat”. This analysis revealed that Gujarat had environment favourableto
business and industry.Thus, it canbeconcluded that the industrialclimatemayhaveaverysignificant impact
ontheresponse ofentrepreneurs. However, the group factors, asemphasized byvarious studies, cannot be
ignoredaltogether.
10. Exposure Theory of Entrepreneurship:
Many studies have shown that it is the exposure to new ideas and opportunities towards creativity ad
innovation whichleads to create anew venture. There is adequate empiricalevidence to prove its validity.
‘Tripathihas observed that exposure to new ideas and values were the common factor between Parsiand
Hindu entrepreneurs, whichled themto entrepreneurship. Education have played verysignificant rolein
exposing theIndianentrepreneurs to Westernideas leading themtoentrepreneurship. It isalsothedifferential
responses of the social groups to opportunities provided by the commitment of the political system to
industrialisationthat has led the processofentrepreneurialspread. Thisconcept is illustrated inFigure 2.6 as
under:

35. 35
11. Political SystemTheory of Entrepreneurial Growth:
Politicalsystemcancrateadequateinfrastructure,favourablelaws,favourabletaxationsystemandprocedures,
provide incentives and subsides, securityto entrepreneurs, create promoting policies and can encourage
peopletowardsentrepreneurship. Government canalsobuild supportingsystemforpotentialentrepreneurs.
Thus, thecommitment ofpoliticalsystemcancontributesignificantlytowardsentrepreneurialdevelopment.
According to Hoselitz, Japanese entrepreneurs could flourishbecause their politicalsystemwas ableto
properlyintegrate withvarious sectors such as the industrialand agricultural, large, smalland handicraft
industries, labour intensive and capitalintensivetechnology, traditionaland modemsocialstructure.Also,
there was no colonialdisruption. According to Boulding “politicalstructure was thedecisive factor in
entrepreneurialgrowthofFrance and Russia. But before 1917 it didnot flourishbecausethe creative ability
ofmasses could not find expression. Hoselitz argued that France lagged behind entrepreneurially, because
his politicalsystemdid not provide sufficient incentives and securityto entrepreneurs.
Entrepreneur
Exposure
Towards
- New idea and
opportunities
- creativity and
innovation
New venture
Creation
Education
Cultural
Values
Motivation Economic
factors
Religious
belief
Figure 2.6 : Exposure Theory of Entrepreneurship
Need for
achievement
Risk bearing
capacity
Figure 2.7: Political System Theory of Entrepreneurial Growth

36. 36
2.4 Entrepreneurship Globally
The GlobalEntrepreneurshipMonitor 2000 report covered21 countries that were dividedinto three levels
ofentrepreneurship (SeeTable No. 2.1).Asyou cansee fromthis data, the highest levels ofentrepreneurial
activitywere found infive countries (Australia, Canada, Korea, Norway, and the United States.)Average
levels ofentrepreneurialactivitywere foundin14 countries andthe lowest levels ofentrepreneurialactivity
were found in two countries – France and Japan. In addition, the researchers found among the major
industrialized G-7 coun-tries (group ofsevencountries including Canada, France, Germany, Italy, Japan,
the United Kingdom, and the United States), in particular, a verystrong relation­ship betweenthe levelof
entrepreneurialactivityand annualeconomic growth. The GEM report provides conclusive evidence that
promoting entrepreneurship andenhancing the entrepreneurialdynamicsofa countryshouldbe an integral
element ofanygovernment’s commitment to boosting economic well-being.
Table 2.1 Level of EntrepreneurialActivity around the Globe
Source : Based on “Economic Growth Linked to LevelofBusiness Start - ups,” GEM 2000 Report
A varietyofsocia1, economic, political and culturalfactors are stimulating entrepreneurial activityand
consequentlygeneratingeconomic development. These stimulantsare as follows:
 Anincreasing focusoncapitalformation.
 Theabilityto transformscientificandtechnicaldevelopmentsthroughnewinstitutionaldevelopment.
 The supportivegovernment programmes.
 Availabilityofrequiredtraining andinputs.
 A collaborative relationship between business and research and their direct attempts to transfer
technologyto the market place willbe an opportunityfor entrepreneurswho commercialise their
ideas.
 Finally, anendeavourto create anenvironmentconducive to innovationwillprovide amuch-needed
stimulant to entrepreneura1 activities.
Fromaglobalperspective, wecanalso concludethat entrepreneurshipplays animportant roleinacountry’s
economic growth.The future ofentrepreneurshipis bright indevelopingcountries. “We are livinginanage
ofentrepreneurialdevelopment.Theentrepreneurshipisendorsedandencouragedbyeducationalinstitutions,
governments, society/and other corporate bodiesinIndia and otherdeveloping countries. Entrepreneurial
development isintroducedasacoresubject inuniversitiescurriculum. Theresearchactivitiesinthisdirection
Top Level Middle Level Lowest Level
Australia Argentina France
Canada Belgium Japan
Korea Brazil
Norway Demark
United States Finland
Germony
India
Israel
Ireland
Italy
Sigapore
Spain
Sweden
United Kingdom