importance of entrepreneurship theories

In this context, it is important to note that making profit is not enough to succeed in entrepreneurship. The theories of Weber and Cocharan Entrepreneurs are defined by their risk taking abilities and their intentions to fill in the void because of the existing lack of knowledge about a product. The quality of labour influences the emergence and growth of entrepreneurship. iv. a. In economic development process, entrepreneurs have been assigned a crucial role so that tempo of growth is maintained effectively. He found his thesis true about other communities also, e.g. In other words, Max Weber is connected with the emergence and success of entrepreneurs with social ethical values systems. v. Managerial ability and leadership quality is must for entrepreneurship development. (4) No acceptance of expected status on migration to a new society. of Economics and International Studies . In the words of Gartner, “We in the field of entrepreneurship are unaware of the assumptions that we make, in our theoretical perspectives.”. For example, Government of India and State Governments are trying to encourage first generation entrepreneurs by offering them various types of incentives and subsidies. They tried to imitate their role models those who performed well. The theory of Cocharn is a sociological theory of entrepreneurial supply. According to Hoselitz, “The development of industrial entrepreneur is based on only which type of society are there.”. He has given stress on the following four types of structure for the deve­lopment of entrepreneurship: The description of each point is given as follows: 1. 2. This is one of the famous theories of entrepreneurship up to date. Schumpeter. According to Hagen’s concept status withdrawal as fall of status of social group is the primary cause of personality development. All these things completely affect by their professional life, energy, livelihood and enthusiasm. An entrepreneur is neither technical man nor a capitalist but simply an innovator. For achieving heights of excellence and specific performances, an entre­preneur needs rational thinking, new combinations, deep thinking, power etc. This paper examines six entrepreneurship theories with underlying empirical studies. The sociological theories depend on this concept. He says that an entrepreneur is one who is innovative, creative and has a foresight. The basic tenet and argument put forward by cultural theorists is that entrepreneurship is a product of culture (Mohanty, 2005). According to these theories, entrepreneurship and economic growth take place when the economic conditions are favourable. These three aspects give rise to two logical, consistent theories of entrepreneurship, namely, discovery theory and creative theory. Cultural theories pointed out that entrepreneurship is the product of the culture. (iv) It assumes an entrepreneur as a large scale business man. According to Hagen, entrepreneurship is a function of status withdrawal. Assessment . This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. Everything you need to know about the theories of entrepreneurship. To learn about various theories of entrepreneurship. Disclaimer Copyright, Share Your Knowledge (v) The carrying out of the new organisation of any industry like the creation of a monopoly position (for example, through trustification) or the breaking up of a monopoly position. The theories attempt to define entrepreneurship and its origins. (iii) Presentation of disequilibrium situation through entrepreneurial activity – The entrepreneurial activity represents a disequilibrium situation, a dynamic phenomenon and a break from the routine or a circular flow towards equilibrium. Beginning with the premise that fundamental problems of economic development are non-economic, he emphasizes on the cultural values, role expectation and social sanctions as the key elements that determine the supply of entrepreneurs. He has presented a theory of entrepreneurial behaviour in connection to the development of entrepreneurship. In Schumpeterian theory, the main theme is the innovation. Research studies on the psychological roots of entrepreneurship reveal that high achievement orientation ensures the success of entrepreneurs. Entrepreneurs play an important role in the society. “He loves practice without theory is like the sailor who boards ship without a rudder and compass and never knows where he may case.” – Leonardo Da Vinci. Theory of Systematic Innovation 9. Life skills and values associated with child right, Underlying principles for the rights and welfare of the child, Appropriate life skills eliminating child labor, Community level of awareness on child labor, Factors that facilitate the spread of HIV& AIDS, Skills and values that help in prevention of HIV & AIDS, Myths and misconceptions about HIV & AIDS, Values necessary in the prevention of drug and substance abuse, Life skills necessary in the prevention of drug and substance abuse, Entrepreneurship and Communication skills, Office Managment And Office Administration. The creation theory is opposite to I/O nexus. Adventurous spirit – Webber also made a distinction between spirit of capitalism and adventurous spirit. Personality development is an essential quality for entrepreneurship development. In this way, an entrepreneur is an innovator. Theories of-entrepreneurship 1. A. Schumpeter, David C. McClelland, Everett E. Hagen and John H. Kunkel have given their own opinion on concept of psychological theory of entrepreneurship. It exhorts certain elements which presume the entrepreneur’s creativity as the key element of social transformation and economic growth. Judgmental decisions. – The entrepreneurial activity represents a disequilibrium situation, a dynamic phenomenon and a break from the routine or a circular flow towards equilibrium. (ii) The role expectations held by sanctioning groups and. New source of supply of raw materials. Especially in Britain, the term "adventurer" was often used to denote the same meaning. The spirit of capitalism intertwined with the motive of profit resulting in creation of greater number of business enterprises. He emphasized the role of culturally marginally groups like Jews and the Greeks in medieval Europe, the Chinese in South Africa and Indians in East Africa in promoting economic developments. 1. Economic incentives are the main motivators for entrepreneurial activities. Goal’s achievement is less important than the means by which goals are achieved. 20 The Impact of Entrepreneurship on Economic Growth 559 countries. With the help of new combination, he pro­duces newer and better goods which yields satisfaction as well as profits. Society’s values, religious beliefs, customs, taboos etc., influence the behaviour of individual’s in a society. With the help of these new combinations, he produces newer and better goods which yield satisfaction as well as profits. This theory provides that a class which lost its previous prestige or a minority group tends to show aggressive entrepreneurial drive. iii. The first and second assumptions of the discovery theory also support the risk bearing condition of entrepreneurship. According to J.R. Harris and G. F. Papanek, “The inner drive of a man is associated with economic gains, which drive him into economic activities. There are four responses which assess the personality-. These forces influence the entrepreneurial activities of an individual to a great extent. ii. So unless a theory of entrepreneurship is woven into sociological, cultural, psychological, political and managerial fibre, it cannot give a sense of economic web. Max Weber theory says that those persons who are related with religious, community etc., follow the rules and regulations of that community only. However, despite the above criticisms, this theory is regarded as one of the best theories in the history of entrepreneurial development. Even if we contrast the different sub cultures within the same larger society, the story of economic development is explained.”. According to them social sanctions, cultural values and role expectations are responsible for the emergence of entrepreneurship. 2. People with high achievement needs success on work i.e., challenging, satisfying, stimulating and complexing. According to this theory, the postulate presupposes the fact that there is no need for further information to modify the decision. Hagen’s theory laid more stress on technological changes which is the result as individual’s creativity. They imagined themselves in need of challenges and success for which they had to set planned and achievable goals. To search and evaluate economic opportunities. However, this type of entrepreneur is rarely available in developing countries like India. Entrepreneurship is “at the heart of national advantage” (Porter, 1990, 125). 3. Conducted by McClelland in America, Mexico and Mumbai. To master the process of mobilizing resources to accomplish the goal. The creation theory also emphasizes that opportunities are created through a series of decisions to exploit a potential opportunity. Joseph A. Schumpeter is the propounder of innovation theory. In his views development means basic transformation of the economy that is brought about by entrepreneurial functions. Creation Theory 10. As such, the social factors like social attitudes, values and institutions significantly influences the entrepreneurial supply in a society. According to this theory, an entrepreneur executes all activities due to economic incentives. 2. To interconnect the different market segments for creating an absolutely ideal marketing environment. Main features of this theory are pure profit, situation of uncertainty, risk bearing capability, guarantee of specified sum, identification of socio economic and psychological factors, use of consolidation techniques to reduce business risks. entrepreneurship is most likely to emerge under a specific social culture. An entre­preneurship is formed for establishing his industrial empire. Harvey Leibenstein propounded the theory of X-efficiency which is popularly called Gap Filling Theory. But generally there is discrepancy between objectives, structures and the actual incidence of entrepreneurs. According to this theory, set of supporting instructions are the primary determinant factors of entrepreneurship development. This theory approaches three assumptions in entrepreneurship, which are as follows: a. On the other hand, the creation theory supports the view that opportunities are created by hypothesis testing and learning. (iii) It laid too much emphasis on innovative functions. 5. “The modern economic development is explained to a greater extent, by the social factors as discussed in the foregoing lines. a. Overall entre­preneurship development is associated with social environment. The theory emphasizes on innovation and excludes the risk taking and organizing aspects. 2. Entrepreneurs create firms that identify and monitor sources of volatility and channel information to key decision makers in the firm; entrepreneurial firms are located at nodes of information networks. The assumptions are:1. Schumpeter’s theory of innovation: Development implies carrying one of new combinations of entrepreneurship. Takes pleasure of creativity and earning experiences of skills for doing various tasks. According to Leibenstein, entrepreneurial functions are determined by the X-efficiency which means the degree of inefficiency on the use of resources within the firm. Theories of Entrepreneurship 1) X-Efficiency Theory by Leibenstein Harvey Leibenstein was a Ukrainian-born American Jewish economist. This structure affect the development of an entrepreneur. Theory of Frank Young (Emphasis on Changes in Group Level Pattern) 5. (3) One who forms a rebellion and attempts to establish a new society is called Reformist. Such type of individual feels a sense of increased pleasure when facing a problem and tolerates disorder without discomfort. At the same time many theoretical insights have come from economics, including a rediscovery of the work of Schumpeter. People with a high need for achievement derive satisfaction from achieving goals. Selection of occupation pursuits is effected from religious and social values. The entrepreneurial behaviour is likely to emerge when a society has sufficient number of people who possess certain sociological, psychological and economical features. This theory is also called innovation theory or dynamic theory. Making use of the work of Stonequist and Park, Hoselitz formulated the hypothesis that marginal men, because of their ambiguous position from a cultural or social stand point, are peculiarly suited to make creative adjustments in situations of change and in the course of this adjustment process too, they are able to develop genuine innovations in social behaviour. In business, there are generally three types of leadership—merchant money lenders, managers and entrepreneurs. Actually, they are not governed by status withdrawal. Entrepreneurship affects all organizations regardless of size, or age, whether they are considered a private or public body, and independently of their objectives. Theory of Entrepreneurial Supply – Cochran. Dept. iii. Hence, entrepreneurial behaviour is a function of surrounding and social struc­tures, both past and present and can be readily influenced by the manipulative economic and social incentives. An Economic Theory 4 Given by Mark Casson in his book The Entrepreneur—An Economic Theory Demand for entrepreneurship arise from the need to change and the supply of entrepreneurship is limited. Schumpeter made it clear that an entrepreneur doesn’t have a single person but equal to an organisation. According to him, innovation occurs when the entrepreneur: ii. The behaviour of individual can be made enterprising by affect­ing the main elements of demand structure. Thus, the discovery theory states that opportunities are objectives, individuals are unique, and entrepreneurs are risk bearers. An inventor discovers new methods and new material whereas an innovator is one who utilises or applies inventions and discovers to produce better quality goods that give greater satisfaction to customer and high profit to entrepreneurs. ii. This theory is developed by John H. Kunkel. The standard rational action model of neoclassical economics is generalized to an uncertain world of volatility and differential access to information, which generates differing perceptions of the business environment. Our mission is to provide an online platform to help students to discuss anything and everything about Economics. Potential entrepreneurs are also opting for enterprise development without cringe for social or cultural restrictions. Individuals with high achievement motive tend to take keen interest in situation of high risk desire for responsibility and a desire for a Concrete measure of task performance. “What matter is the behaviour not the actor?” He emphasised more on technological innovations rather than on orga­nisational innovations. (iii) The opening of a new market i.e. Economic theories of entrepreneurship. He makes a distinction between an innovator and an inventor. This theory emphasizes on two types of entrepreneurial activities i.e.- (i) Entrepreneurial functions like organization and combination of resources for creating viable enterprises, and (ii) The responsiveness to the environmental condition that influences decision making function besides the above mentioned activities. At last but not the least, we conclude that all the authors i.e., J. The supporters of sociological theory says that the entrepreneurial activities is affected from social status hierarchy and values. iv. (ii) Ritualist – One who adopts a kind of defensive behaviour and acts in the ways accepted and approved in his society but with no hopes of improving his position. In his theory, Hoselitz had highlighted the importance of the culturally marginal groups in development of entrepreneurship and their contribution to economic development of the economy. Schumpeter’s theory of innovation is criticized on the following ground: i. Entrepreneurship theories and research remain important to the development of the entrepreneurship field. According to McClelland, individuals with high need achievement will not be motivated by monetary incentives but that monetary rewards will constitute a symbol of achievement for them. Schumpeter’s entrepreneur is a large scale businessman, who is rarely found in developing countries, where entrepreneurs are small scale businessmen who need to imitate rather than innovate. Martin Ricketts 5 th June 2005 . 167). However, an entrepreneur creates his own commodity and its acceptability is uncertain. Schumpeter’s innovating entrepreneurs represents the enterprise with the R&D and innovative character. Similarly, they are also not interested much for social recognition or prestige but their ultimate goal is personal accomplishment. Profit is the most important factor for encouraging entrepreneur to assume risky behaviour. The theories of entrepreneurship that are propounded by many eminent theorists have been grouped under four categories. Theories of Entrepreneurship. John H. Kunkel theory laid more stress on types of structure i.e., demand, opportunity, labour and limitation. (ii) The introduction of a new method of production, that one not yet tested by experience in the branch of manufacture concerned, which need by no means be founded upon a discovery scientifically new and can also exist in a new way of handling a commodity commercially. The rewards act as reinforcing stimulus increasing the probability of repeating that behaviour pattern. According to this concept, psychological factors are the primary source of entrepreneurship development. Theintactfront 13 Jun 2019 3 Comments. In economics, x-efficiency is the effectiveness with which a given set of inputs are used to produce outputs. That is why he visualised an innovative personality. It is a universal fact that entrepreneurship is an important factor in economic development. Cocharn emphasises cultural values, role expectations and social sanctions as the key elements that determine the supply of entrepreneurs. It was Max Weber who first of all took the stand that entrepreneurial growth was dependent upon ethical value system of the society concerned. Thus, the desire of increasing actual income and economic gains exist in any type of society. The theories bring out various approaches and perceptions held by entrepreneurs. Discovering a new source of raw materials. Max Weber’s Theory of Social Change (Emphasis on Impact of Religion) 3. Even need for achievement starts from profit making process. The Theories and Contributions of ... they do, however, agree on the importance of entrepreneur’s role and responsibility in society and in the economy. Theory of Social Behaviour 6. However, Schumpeter’s theory suffers from following limitations: (i) It excludes individuals who merely operate an established business without performing innovative functions. According to him, needs for high achievement is an essential feature of entrepre­neurial behaviour. Theories of Entrepreneurship: Historical Development and Critical . Its importance for the economy is reflected in its visible growth as a subject of in-terest for the economic press and … Share Your Word File McClelland identified two characteristics of entrepreneurship. According to Mark Christopher Casson theories, entrepreneurship can provide a synthetic theory of the business firm that provides an integrated framework for many partial theories of the firm. This tendency creates the spirit of economic development. According to him, the former is influenced by the strict discipline whereas the latter is affected by free force of impulse. This is because the technology is an integral part of socio cultural-complex, and super-imposition of the same into different socio-cultural set-up may not deliver the goods. It is a universal fact that entrepreneurship is an important factor in economic development. Theories of Entrepreneurship, Innovation and the Business Cycle. People having high need for achievement are more likely to succeed as entrepreneurs. The theory assumes the ideal structures for the supply of entrepreneur. (ii) It is possible to improve the performance of existing entrepreneurs through imparting proper training and education. Overall, when a group sees their lower positional conditions & experience, they grow an entrepreneurial tendency due to reactive capacity. Key Takeaways Entrepreneurship is important, as it has the ability to improve standards of … Content Guidelines 2. Although, this theory also included other characteristics i.e., risk taking, superintendence and coordination, he emphasised that these attributes without the ability to innovate will not make an individual as an entrepreneur. c. Individuals bear uncertainty not risk. Each window shows some features that can also be seen from the window on either side of it. It is this motive of n-achievement that guides the actions of entrepreneur. Similar to the individual/opportunity nexus, the creation theory also approaches three assumptions in entrepreneurship. The traditional notion of an entrepreneur is that he brings together the factor inputs and organises productive activity. Supply of entrepreneurs is a function of social, political and economic structure. Share Your PPT File. But the most important problem attached with this theory is the question of reliability and predictability of seven sources. Conquests of new source of supply of raw material. It refers to one’s desire to influence and dominate other through use of authority. Entrepreneurship theories and research remain important to the development of the entrepreneurship field. According to Stokes, personal and societal opportunities and the presence of requisite psychological distributions may be seen as conditions for an individual movement to get changed into industrial entrepreneurship. (ii) Denigration of values, symbols through some change in the attitude of superior group. c. Risk bearing is an essential part of the entrepreneurial process. B. F. Hoselitz has given the importance to social factor. It is implied in need for achievement process. The Hinduism has contributed a lot in entrepreneurship development in India which is based on capitalism. According to William J. Baumol, the economic theory has failed to provide a satisfactory analysis of either the role of the entrepreneurship or its supply. People with low achievement needs stability security and predictability. Thus, in the Weberian system, the motivating force for entrepreneurial activity is provided by Calvinist ethic irrespective of the cultural background, personality type of the individual and the social environment to which he lives. There are different factors within the organisation which motivate the executives and professionals to do some innovative behaviour leading to new product and services. An institutional capacity to see the things in a way which afterwards proves to be true. In the past 20 years development of the current theories of entrepreneurship have centered on either opportunity recognition or the individual entrepreneur. Entrepreneurship theories bring greater understanding of entrepreneurship behaviour exhibited by different entrepreneurs. An enterprise is created by an entrepreneur. Theory of Model Personality 8. He has burning desires for creative activities. 4. April 4, 2019. These elements of industrial growth depend upon a specific value orientation of individuals i.e. According to him “Systematic innovation consists in the purposeful and organised search for changes and in the systematic analysis of the opportunities such changes might offer for economic or social innovation.” Specifically, systematic innovation means seven sources for innovative opportunity. Entrepreneurship gets a boost when society has sufficient supply of individuals with necessary psychological characteristics. Opportunities are not recognized by individuals, but created by them. At last but not the least, we conclude that all the authors i.e., Frank Young, B. F. Hoselitz, Max Weber, Cochran has given their own opinion on the concept of sociological theory. (ii) Demand Structure- Material rewards are necessary to lay the foundation for future social gains. New market. The origin of this concept of psychological theory of entrepreneurship is based on Samurai community of Japan. It includes routine entrepreneur, new entrepreneurship, and twin roles of entrepreneur, gap filling, input completing and X-efficiency factor. Culturally marginal groups are important characters for development process. What follows is a compromise between these possibilities. The theory of systematic innovation is quite comprehensive one. An entrepreneur must therefore take those changes as opportunities of succeeding in their businesses. Till a person is not ready to bear them, the question of starting a business does not rise. He emphasized that entrepreneurial energies are exogenous supplied by means of religious beliefs. This structure is changing day by day according to economic progress and govern­ment policies. Frank Young’s theory says about the concept of changeable society. i. It means that an entrepreneur finds those situations in which he can earn profit by producing goods at low cost or purchasing goods at less prices and sell those goods at higher prices in market, he will take all possible steps and tend to act. The individuals and the opportunities have influence on each other. The creation theory suggests that entrepreneurship does not require differences in individuals, but differences in their decision making under uncertainty. It explains how a traditional society becomes one in which continuing technical progress takes place. Privacy Policy3. iii. However, the main objective behind the arms is to earn profits, by way of search of new raw materials, new sources, new machinery, production of new pr… (iii) Opportunity Structure – It consists of the availability of capital, management and technological skills, information concerning production methods, labour and markets. (iii) Reformist- One who foments a rebellion and attempts to establish a new society? iv. McClelland theory has numerous practical implications. They strived to get concrete and frequent feedback. There are different factors within the organisation which motivate the executives and professionals to do some innovative behaviour leading to new products and services. Therefore, they regard econo­mic gains as a pre-condition for the supply of entrepreneurs.”. C. McClelland. Economic Theory – According to this theory, an entrepreneur executes all activities due to economic incentives. Besides, entrepreneur is also expected to assume managerial functions. According to him, entrepreneurism is a function of religious beliefs and impact of religion shapes the entrepreneurial culture. Sociological Theory 12. The entrepreneur is a role performer according to the role expectations by the society. Therefore, entrepreneurship provides funds for research and development with universities and research institutions. They believe that the economic incentive is the basic condition of entrepreneurship. These characteristics are formed during the individual’s upbringing which stress on standards of excellence, self-reliance and low father dominance. “Entrepreneurs are certainly not economic men in the theoretical sense.”. Share Your PDF File Role expectations and entrepreneurial role: Primary cultural factor operating on the personality of the executive and the defining of his role by those involved must accommodate to some degree to the necessities of the operation to be carried out. They were almost successful in creating entrepreneurs, wealth collection, technology, capital for­mation and economic development. Inducement of profit – Webber introduced the new businessman into the picture of tranquil routine. Under this experiment, young adults were selected and put through a three month training programme. Many of the economists believe that entrepreneurship is itself the fourth factors of production that is the most important in driving a successful economy. ... and the impact of results of the exchange on other market actors. The theory assumes the ideal structures for the supply of entrepreneurs. Ricardo included the term “entrepreneurial ability” as an independent factor of production and it is concerned with profit. July 11, 2019 . According to him psychological and sociological variables are the main determinants for the emergence of entrepreneurs. This theory is developed by Joseph Schumpeter, who believes that entrepreneur helps the process of development in an economy. The theory is of the view that everyone who is a conducting a particular business gets a particular profit margin which is line with his or her levels of labor. v. Schumpeter remained silent about as to why some economists had more entrepreneurial talent than others. (2) It is possible to improve the performance of existing entrepreneur through imparting proper training and education. (i) Limitation Structure – The society limits specific activities and this limitation structure affects all the members (including entrepreneurs) of a society. Made available through the changes in perception, mood and meaning ; ( iii ) the Indian culture that... Put through a series of decisions to exploit a potential opportunity, a dynamic phenomenon a. By Leibenstein Harvey Leibenstein was a Ukrainian-born American Jewish economist they apply a unique combination of: goods/... Psychological roots of entrepreneurship is a psychological process and concept the entrepreneurship field business by the. Economy that is of economic power take place when the entrepreneur is the `` great man theory '' research,. 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