A factor of production (alongside land, labor & capital).
It is the process of setting up a business. Entrepreneurs typically create a business plan, hire
labor, acquire resources and financing, and provide leadership and management for the business.
Role of knowledge creation in opportunity identification by entrepreneurs
Entrepreneurs are good at identifying/discovering opportunities.
Opportunities are the result of purposeful investments into the creation of new knowledge
and ideas through expenditures on R&D and augmentation to human capital.
Why some individuals and firms are more likely to discover a given opportunity than others?
• Willingness to incur risk.
• Preference for autonomy and self-direction.
• Access to scarce and expensive resources, such as financial capital, human capital, social
capital, and experiential capital.
Knowledge creation is an integral part of entrepreneurship. Organizations do not use all the
knowledge created by their human capital to identify new opportunities. Some individuals see
opportunities within such unused knowledge and use it to create new technologies and new
The transmission of knowledge to uncover new opportunities that have not yet been seized by
They are the companies formed by taking advantage of an incumbent firm’s under-utilized (unused)
knowledge. A spinoff is also defined as the branching off of a division from the parent company with
the aim of specialization.
Ex. Acer’s contract manufacturing division was spun off as Wistron. Ex Acer employees founded ASUS.
Collectively knowledge spillover and spinoffs led to the establishment of an innovative industry
According to the Marshall–Arrow–Romer(MAR) spillover theory, the closeness of enterprises
belonging to a common industry has a significant impact on how well knowledge travels among
them. The greater the MAR spillover, the closer the enterprises are to one another, and therefore
Ex. Science Parks enclosing a unique discipline has fostered the growth and development of
innovative technologies. As several firms with similar degrees of specialization are located at close
quarters, the amount of knowledge spillover is high.
According to Michael Porter, when local economies are competitive, the innovations of local firms
are rapidly adopted and improved by neighbouring firms. This in turn has led to the development of
a series of technologically advanced companies, which collectively form an industry on par with
Financing Start-ups/New projects
Even in large firms, technology managers often report that they have more projects that they would
like to undertake than funds to spend on them. Some of the reasons for this problem are as follows.
• Low expected returns due to an inability to capture the profits from an invention
• The uncertainty and risk associated with the project over-optimism on the part of managers
• Any problems associated with financing investments in new technology will be most apparent
for new entrants and startup firms.
Thus, any country should possess a financial assistance ecosystem (capable of withstanding
failures), for start-ups and new projects.
Contribution of Public Entities
Public entities contribute to the supply of ideas through the funding of research and
development activities and the performance of research
Universities and government labs are important external partners that provide access to
complementary knowledge that may extend both the exploratory capability as well as the capacity
of the firm to exploit commercial opportunity
Private R&D funding is typically oriented towards activities that will be rewarded by the
In contrast, government funds basic research that asks fundamental questions, without direct
concern about practical applications, and is more experimental and theoretical
Establishment of political and economic stability
Contribution of Government
Creating funding sources
Development of quality basic infrastructure
Development of semi- and high-skilled labor
Providing tax and other benefits for entrepreneurs
Ultimate objective of a government should be to increase the ease of doing business
Contribution of Universities
Increasing the stock of knowledge
Training skilled graduates
Creating new instrumentation and methodologies
Facilitating the formation of problem-solving networks
Increasing the capacity for problem solving
Creating new firms
It is important to promote below 4 factors simultaneously,
1. Supporting technology transfer to the country through FDIs.
2. Start establishing a startup eco-system around the FDIs.
3. Aligning the overall education strategy to support the expansion of the industry.
4. Supporting existing research centers and establishing new ones.
Sri Lankan government focus on 2,3 & 4. However, for them to be fruitful 1 should also happen.
* To succeed as a nation, Sri Lanka should develop an ecosystem conducive for new knowledge
creation and entrepreneurship.