FYBCOM Commerce Sem 1 Chapter 8 Notes

Table of Contents

Entrepreneurship

1) Explain the nature and characteristics of Entrepreneurship.

According to Robert Hisrich
“Entrepreneurship is the process of creating something new and assuming the risks and rewards”.

According to Peter P. Drucker
“Entrepreneurship is neither a science nor an art. It is a practice. It has a knowledge base. Knowledge in entrepreneurship is a means to an end; that is, by the practice”.

1) Innovation :
A businessman, who simply behaves in traditional ways, cannot be an entrepreneur. Innovation involves problem solving and the entrepreneur is a problem solver. According to Schumpeter entrepreneurship is a creative activity. An entrepreneur is basically an innovator who introduces something new in the economy.

2) Risk and Rewards :
Entrepreneurship activity is undertaken to assume risks and rewards. Any innovative activity is always subject to risks and uncertainties. If the innovative activity is successful, the entrepreneur will reap rewards, otherwise, the entrepreneur has to assume risks of failure. Therefore, an entrepreneur needs guts to assume risks, and he gets glory when there is success.

3) Managerial skill and leadership :
Managerial skill and leadership are the most important facets of entrepreneurship. Financial skills are only of secondary importance. A person who is to become an industrial entrepreneur must have more than the drive to earn profit. He must have the ability to lead and manage.

4) Group Level Pattern :
Entrepreneurial characteristics are found in clusters which may qualify themselves as entrepreneurial groups. Entrepreneurial activity is generated by the particular family background, experience as a member of certain groups and as a reflection of general values.

5) Gap Filling Functions :
The most significant feature of entrepreneurship is gap filling. It is the Job of the entrepreneur to fill the gap or to make up the deficiencies which always exist in the knowledge above the production function. Some inputs like motivation and leadership are vague and their output is indeterminate. An entrepreneur has to marshall all the inputs to realize the final product.

6) High Achievement :
People having high need for achievement are more likely to succeed as entrepreneurs. The achievement motive is, by assumption a relatively stable enduring characteristic of an individual. Achievement motive can be increased by deliborate efforts. Various studies an psychological roots of entrepreneurship reveal the presence of high achievement among successful entrepreneurs.

7) Organisation Building :
Entrepreneurship implies the skill to build an organization. Organization building ability is the most critical skill required for industrial development. This skill means the ability to multiply one self by effectively delegating responsibility to other.

2) Define the term entrepreneurship and explain the importance of Entrepreneurship.

Answer : The term “entrepreneurship” is often used synonymously with “entrepreneur”. Though they are two sides of the same coin, conceptually they are different. The entrepreneur is a business leader and the function performed by him is entrepreneurship. The process of finding, starting, and running a new business endeavor or enterprise with the intention of making a profit and expanding it is known as entrepreneurship. It encompasses people who go by the name of entrepreneurs who act as risk-takers and innovators, pooling resources like capital, labor, and technology to create and market new goods, services, or business models.

i) IMPORTANCE OF ENTREPRENEURSHIP : The importance of entrepreneurship in a developing economy lies in the fact, that an entrepreneur as a change agent is alone responsible for the development. Following are the importance of Entrepreneurship.

1) Economic Development :
Economic development is a highly dynamic process characterized by continual and of ten changes. As industry grows and income rises, pattern of demand shifts, new product are needed, new opportunities appear for the production of goods within the country, resulting in growth within the country, resulting in growth and development of the nation. Entrepreneurship activity contributes to the economic development of a nation.

2) Social Development :
Entrepreneurs play an important role in social development of a nation. He contribute funds towards social development activities like health, education, and community development activities. They also generate new and innovative ideas to enhance social development in the society.

3) Regional Development :
The growth of industry and business leads to a lot of benefits to the society. When the industries are concentrated in selected cities, development gets limited to these cities. When the new entrepreneurs grow at a faster rate, in view of increasing competition in and around cities, they are forced to set up their enterprises in the smaller town away from big cities. This helps in the development of backward regions.

4) Create wealth :
All individuals who search business opportunities usually, create wealth by entering into entrepreneurship. The wealth created by the same play a considerable role in the development of nation. The business as well as the entrepreneur contributes in some or other way to the economy, may be in the form of products or series or boosting the GDP rates or tax contribution. Their ideas, thoughts and inventions are also a great help to the nation.

5) Capital Formation :
Entrepreneurs facilitate capital formation in the country. The entrepreneur provide employment to people. The employees save a part of their income. The entrepreneurs also save a part of their profits. These savings lead to investment. Investment in term facilitates capital formation, i.e. production of capital goods, which can be used for further production of consumer goods and services.

6) National Income :
National Income consist of the goods and services produced in the country and imported. The goods an services produced are for consumption within the country as well as to meet the demand of exports. The domestic demand increases with increase in population and increase in standard of living. The export demand also increases to meet the needs of growing imports due to various reasons. Thus entrepreneurs increase the national income.

7) Consumer welfare :
Entrepreneurship activity facilitates consumer welfare. Due to innovative ideas, consumers can enjoy new and better types of goods and services. Also due to employment, purchasing power of the people increases, resulting in more demand for new and better type of goods. Therefore, the standard of living of the society improves.

8) Revenue to the Government :
The entrepreneurs provide revenue to the government. They provide revenue in the form of direct and indirect taxes. The direct revenue comes in the form of personal income tax and corporate tax paid by entrepreneurs. The indirect revenue comes in the form of excise duty, custom duty, service tax etc., paid by the entrepreneurs. The entrepreneurs paid revenue to the government in the various forms of taxes.

3) What are the factors contributing to the growth of Entrepreneurship?

Answer : The emergence of entrepreneur in a society depends upon closely interlinked economic, social, cultural, psychological, political and personality factors. The factors contributing to the growth of entrepreneurship are as follows :

1) Economic Policies :
The economic policies of the government and other financial institutions and the opportunities available in a society as a result of such policies play a crucial role in exerting direct influence on entrepreneurship in view of the haphazard development of economic zones.

2) Government Incentives :
Government is encouraging the entrepreneurs to establish their business in backward and tribal areas. This is primarily to arrest the migration of people from the villages to cities and to create employment opportunities locally. Government is promoting such development by giving incentives like tax holidays, subsidized power tariff, raw materials, transportation cost etc.

3) Social Factors :
A society that is rational in decision making would be favourable to entrepreneurship growth. Several less developed countries characterized by the presence of a social set up which is generally hostile to entrepreneurship. Education research and training are given very little importance. The process of division of labour comes to be decided upon by the hereditary principle rather than by aptitudes, skills and attainments of individuals.

4) Cultural factors :
If the culture is economically or monetarily oriented, entrepreneurship would be applauded and praised. In the less developed countries, people are not economically motivated. Monetary incentives have relatively less attraction. People have ample opportunities of attaining social distinction by non-economic pursuits. Men with organizational abilities are therefore not dragged into business.

5) Personality Factors :
In our country the entrepreneurship is looked upon with suspicion. The result is the personality of the entrepreneur has got greatly affected. Public opinion in the developing nations sees in the entrepreneur only a profit maker and exploiter. Many of the developing nations were exploited by foreigners for centuries. The people and their leaders therefore tend to see in the entrepreneur a suspect personality.

6) Political Factors :
The political scenario and also the political stability of country influence the growth of entrepreneurship. The political system, which promotes free market, individual freedom and private enterprise, will promote entrepreneurship. It means entrepreneurship growth is depends upon the political factors.

4) Distinguish between entrepreneur and manager.

	Entrepreneur	Manager
1) Motive	Entrepreneur is characterized by concepts such as creativity, innovation and soon, indicators of the desire to create “something from nothing”	A manager is characterized by concepts such as order, organization, procedures and so on indicating the desire to organize and maintain what exists.
2) Activity	Entrepreneur gets directly involved in he business activity. Major areas of the venture are looked after by the entrepreneur himself.	A manager may delegate and supervise the activities of his subordinates. There may less direct involvement in the activities of the organization.
3) Status	An Entrepreneur is not concerned about status symbols in his organization. He may not be influenced by titles or position symbols in the organization.	A manager is concerned about status symbols or titles in the organization. The titles / symbols fulfill ego needs of a manager.
4) Risk	The myths describe entrepreneur as “wild risk takers”, although many studies have shown that in fact the typical entrepreneur is very good at assessing risks.	On the other hand, the manager, who sees his task as strengthening and maintaining the company, is naturally afraid of risks and tries to maintain the status quo.
5) Responsibility	An entrepreneur takes up personal responsibility or failures. This is because, he is directly involved in decision – making and action.	A manager may try to avoid responsibility. He may blame internal and external environment for failure. He may even collect selective dates to substantiate the failure.
6) Decision making	The entrepreneurial organization is characterized by its informal, flexible structure, which allows it to adopt to changes required by its rapid growth.	A manager makes decisions after collecting detailed information and reaching operative conclusions, while relying on experts both from within and outside the organization.
7) Innovation	Entrepreneurs always need to be innovative and dynamic. Creative ideas may enable them to succeed in the competitive world.	The manager also needs to be innovative, but not always. Especially managers at lower maintain status quo.
8) Failures and mistakes	Entrepreneur undertakes risky activities. He accepts responsibility for failures. He deals with mistakes and failures.	A manager is cautious in his approach and therefore, he tries to avoid mistakes and surprises.
9) Approvals	An entrepreneur makes his own decisions. No need for approval from others.	A manager at lower and middle level has to obtain approval for decision making from higher authorities.

5) Distinguish between entrepreneur and intrapreneur.

	Entrepreneur	Intrapreneur
1) Meaning	Entrepreneur is a person who undertakes business venture and assumes risks and rewards.	Intrapreneur is a person who acts like an entrepreneur within an existing organization.
2) Flexibility	Entrepreneurship is flexible and agile, focused on establishment and growth.	Corporations have a tendency to be bogged down in self- preservation, the demands of stock holders and senior members dedicated to maintaining the status quo.
3) Reward	All progress, patent rights and profits are available to the entrepreneur.	The employing company owns the progress patents rights, and profits, which may or may not be shared with the intrapreneur.
4) Activity	Entrepreneur gets directly involved in the business activity. Major areas are looked after by the entrepreneur himself.	For an Intrapreneur, there is direct involvement in the project, and there is less of delegation.
5) Goals	Business goals, culture, and operational rules are the sole discretion of the entrepreneur.	Intrapreneur must remain within the boundaries of the business goals, culture, and operational rules.
6) Ownership and control	Entrepreneurs possess direct ownership and control of resources. Entrepreneur may not have to depend on other for the allocation and utilization of resources.	An intrapreneur lacks ownership as he works in an existing organizations, but he has control over allocated resource.
7) Failure and mistakes	Entrepreneur does not hide failures or mistakes. He takes up the responsibility for failures or mistakes.	An Intrapreneur may make an attempt to hide mistakes or to hide risky projects before they are ready.
8) Approvals	An Entrepreneur makes his own decisions. No need for approval from others.	An Intrapreneur may have to take approval for major decisions from top management.
9) Resources	An entrepreneur makes use of his own resources, whether owned or borrowed.	An Intrapreneur makes use of resources of the firm in which he is working.

6) Write short notes:

a. Characteristics of entrepreneurship
1) Exploits change into an opportunity :
An entrepreneur always looks for a change. If there is a potential for a change, he responds to it. He exploits the change as an opportunity for different business. Seeking change and converting into an opportunity is the hallmark of entrepreneurship.

2) Social and Economic Development :
Entrepreneurship activity facilitates social and economic development. Due to entrepreneurship, the production of better quality goods and services take place, which in turn facilities economic growth of the nation. Also entrepreneurs play an important role in social development by supporting social development activities like health, education, community development, etc.

3) Innovation :
A businessman, who simply behaves in traditional ways, cannot be an entrepreneur. Innovation involves problem solving and the entrepreneur is a problem solver. According to Schumpeter entrepreneurship is a creative activity. An entrepreneur is basically an innovator who introduces something new in the economy.

4) Managerial skill and leadership :
Managerial skill and leadership are the most important facets of entrepreneurship. Financial skills are only of secondary importance. A person who is to become an industrial entrepreneur must have more than the drive to earn profit. He must have the ability to lead and manage.

5) Group Level Pattern :
Entrepreneurial characteristics are found in clusters which may qualify themselves as entrepreneurial groups. Entrepreneurial activity is generated by the particular family background, experience as a member of certain groups and as a reflection of general values.

b. Intrapreneur
Answer : In 1985, Gifford Pinchot introduced the term Intrapreneurship. Pinchot states that Intrepreneur is an entrepreneur within an already existing organization. The prime motive of intrapreneurship is independence and to get rewarded for performance. Due to high technology, increasing global competitive pressures, new market opportunities, need for innovation and timely action in rapidly changing business environment a rare new breed of corporate heroes have come to the fore in large organizations called intrapreneurs.

i) Intrapreneurs are entrepreneurs who stay at home, who catch hold of a new idea for a product, process or service and work to bring their vision to fruition within the framework of the organization. An Intrapreneur is defined as “any of the dreamers who do”.
Those who take hand on responsibility for creating innovation of any kind within the organization.

ii) The intrapreneur may be a creator or inventor but he is always dreamer who finds out how to turn an idea into a profitable reality. Without them innovation remain merely a potential for the future.

iii) Many forward-thinking businesses promote intrapreneurism since it can result in innovation, improved competitiveness, and growth. Employees that desire to pursue entrepreneurial ideas within the corporation are frequently given resources, support, and incentives by businesses that promote an intrapreneurial culture. In a competitive world that is changing quickly, this strategy can aid businesses in being flexible and nimble.

Chapter-1–2–3–4–5–6–7–8–9

FYBCOM Commerce Sem 1 Chapter 8 Notes | Entrepreneurship | Mumbai University