Entrepreneurship Theoretical Framework - Essay Example

?Entrepreneurship Entrepreneurship Introduction Market has been referred to the procedure of development, detection, rivalry and change; it is a process where entrepreneurs who are alert pounce on an opportunity while others miss these opportunities. It is even a process in which entrepreneurs develop things that have not yet been discovered and pursue one of the several opportunities that will become successful and easy to create. The process of entrepreneurs pursuing opportunities through different decision making skills is regarded as the entrepreneurial procedure. Economic is regarded as a study of behavior of individuals, it concentrates on individuals and not the products that are physical in nature, it focuses on the achievements of individuals in future due to their current actions. Successful entrepreneurs are those who identify development and manufacturing of a future state which is unknown to others and is much better than the current opportunities available. The main function of an entrepreneur is to keep a continuous check on the available opportunities before these opportunities are addressed by competitors. According to various theorists an entrepreneur is not a risk bearer and they believe that this entity is a very confident individual and believes that his forecast of the future is very perfect and operations will happen exactly in accordance to his budgets. An entrepreneur is not unaware that uncertainty prevails but he is so certain about his own forecast due to which his confidence in his correctness increases. According to Mises the only thing that an entrepreneur sees is the profitability of his actions and Kirzner states an entrepreneur eliminates uncertainty and has the ability to make a discovery of something achievable without any cost (BACKHAUS, 2005, p.135 & CARSRUD, 2007, p.8). Risk is not the selection and pursuing of alternatives, it is the difference between the difference between the opinion that an individual hold regarding the correctness of his future forecast and the future forecast of his competitors. An entrepreneur is never recognized as a risk bearer because he has no doubts that his forecast is not correct. Economists believe that an entrepreneur is a risk bearer because he calculates the probability of his forecast being successful and unsuccessful, they are wrong in believing so because a true entrepreneur will never calculate probability of his decision because he is confident about it and if he acts in accordance to his plans, then he can never go wrong. The economy in general consists of two kinds of markets, one is regarded as asset and other is regarded as good market. In case of good market, when a customer purchases a specific good, he has the option of changing the choice of purchasing that good. In asset market, once the consumer has purchased an asset he will have to stick with the asset and can not immediately replace it with the other asset. For example: if an individual purchases a can of beans and utilizes it, he can change choice of can of beans when the next time he purchases it and purchase it from another seller. But if an individual purchases an asset and the asset fails to provide satisfactory results, he can not replace the asset immediately and will have to stick with it or sell it to another individual. The actions of the entrepreneur alter the thinking ability, expectations, and values of other individuals and provide other individuals with new knowledge. Entrepreneurs are found in abundance, all human beings are entrepreneurs because they have the ability to think in a different manner and act in a different manner. Entrepreneurship is regarded as a spiritual phenomenon because they have the ability to impact an individuals thinking and expectations and they even influence how an individual perceives his world. Entrepreneurship is the process through which novel expectations of the future are created and it is the process that insures that this novel thought is brought into this world at a future date. During the era of 1900s, several economist have came up with their own clarifications of entrepreneurship process, the economists that will be highlighted in this writing includes: Joseph Schumpeter, Peter Druker, David McClelland, Max S Wortman. Murray B. Low, Ian C. MacMillan, Mark Casson, Jean-Baptiste Say and Richard Cantilon (PIPEROPOULOS, 2011, p.18). This writing will focus on the development and the changes made to the theory of Entrepreneurship by several economists over a long period of time and this paper will even consider the current theoretical frame work of entrepreneurship. Body The term entrepreneur was first used in the region of French during the era of middle ages; the term was used to refer to the individual who had the responsibility of being in charge of the great artistic work that took place during that time period. Since the tem was first used by French people, the French economist named Richard Cantillon was the first to use the term in relation to economics (KURATKO, 2009, p.4). He came up with an economic system that was dependant on different actors of three different classes and one of these classes of actors was entrepreneur. He believed that the class of landlords were rich individual and did not depend on the finances of others, where as the class of entrepreneurs and hirelings experienced dependency on the finances of others. He stated that hirelings were dependant and earners of income which was fixed in nature, while on the other hand entrepreneurs used their capital to set up their own businesses or they used their own labor to pursue economic goals without having any capital and they were regarded as those who were living in a world of uncertainty. Cantillon believed that those individuals are recognized as entrepreneurs who purchases goods from another party and then sold those goods at an uncertain value. After Cantillon, Jean Baptiste Say became a part of the world of entrepreneurship and tried to bring various changes to the though of entrepreneurship proposed by Cantillon. He himself was the first professor of Europe to teach economics and was a business owner. He was the owner of a cotton spinning mill located in the region of Pas de Calais. His experience with business gave him the ability to view the economic system through the lens of entrepreneurship. The theory of production produced by Say was dependant on three elements of production including land, human labor and capital found in both monetary and machinery forms (HENRY, 2003, p.30). He believed that if production was to take place then land and capital can not be ignored and production can not take place if one of these two elements did not exist. He even accepted that in order to produce goods, human labor was of greatest importance. He recognized that human capital comprised of hard work, information and application of the process of entrepreneurship. Say believed that entrepreneurs are responsible for the coordination o all the elements of production and they are the ones who challenge risky and uncertain scenarios. He stated that entrepreneurs earn through the return on the risk they have taken and various qualities are required by an individual to conduct the task of entrepreneurship. The most important of these qualities was the ability of an entrepreneur to identify needs that are not yet satisfied in the market and identification of methods to satisfy those unmet needs. Mark Casson proposed and established his theory regarding the premise of entrepreneurship during 1982 and is of the major theories of this premise (MOHANTY, 2010, p.42). He focused his work on entrepreneur’s role of efficiently using scarce resources in a world where knowledge is not perfect. He believed that an entrepreneur is an individual who have specialized in the area of making decisions regarding the appropriate allocation of resources that are scarce. Casson believes that an entrepreneur has an unmatched capability of specializing in the area of making judgments and he believes that this ability can not be copied through training and development. He refers to this ability as a scarce resource and states that very few individuals within the society have such abilities. He believes that two capabilities including the capability to imagine and foresee are most important for an entrepreneur to be successful. He believes that these two abilities are very important because imagination provides and entrepreneur with the ability of imagining different alternatives and the ability to foresee complements the ability to imagine because there is lack of information and to ensure that an alternative will work, the ability to foresee is necessary. He further argues that these two abilities are very powerful for an entrepreneur, but these two abilities require the backing of abilities to delegate work and to operate an organization. The second most important characteristic of an entrepreneur highlighted by Casson was the ability to make judgments. He gives importance to this ability because there are certain scenarios where information is not available to make decision, in such scenarios entrepreneurs have to use their ability to make judgments to take a decision. The third element of Casson’s approach to entrepreneurship involves the element of allocation of resources. He states that an entrepreneur is continuously involved in the process of allocation and reallocation of resources. This means that an entrepreneur changes his decisions of allocation of resources with changes in alternatives. Entrepreneur’s role in the system of economics is said to have been experienced before the 1920s, several researchers of the contemporary era believe that this role was first defined by Joseph Schumpeter (ARENA, 2002, p.167). The insight regarding the role played by Entrepreneurs in economic systems have been discussed by several researchers. The concept of the process of entrepreneurship provided by Schumpeter is quite unique as compared to the ways it has been defined by theorists and economists before him. He has defined the roles and the functions of entrepreneurs are relation to the development of economics. Theorists prior to Schumpeter stated that capitalism played a major role in the development of current market and market structures, but Schumpeter is of the idea that capitalism creates and then destroys the development of markets. Schumpeter was of the idea that the traditional concept of creative destruction is pivotal to the role of an entrepreneur. The concept proposed by Schumpeter holds that the main functions of entrepreneurs are to innovate and produce a combination of new alternatives that can possibly be produced. This concept of Schumpeter consists of five events: the creation of a novel good or better quality of an already available good, the creation of a production method that has never been used before, the start of novice markets, creation of new suppliers of raw materials and incompletely manufactured goods and creation of a novice organization within an industry. According to Schumpeter, the novice alternatives proposed by him can be produced in businesses that already exist. The definition of entrepreneurship proposed by Schumpeter does not only involves entrepreneurs who open up their own businesses and make use of their ideas, it even includes those entrepreneurs who are located in the top level of the organization such as managers who are operating a business by providing entrepreneurial services. Thus the concept proposed by Schumpeter includes opening up of new business ventures such as Twitter and innovation conducted in already running business ventures such as Apple Inc. Human beings and organizations are only said to be acting like an entrepreneur when they carry out the concept described by Schumpeter and once they have completed the act of innovation, their role comes to an end. Schumpeter states that human beings who are conducting the practice of entrepreneurship need to have certain traits and skills that are very special in nature. He even stated that the entrepreneur has to experience uncertain situations and deal with these changes and he stats that there is a psychological side to entrepreneurship which helps in deinking the characteristics that entrepreneurs need top have to conduct their activities. One of those who have taken a psychological route to explain entrepreneurship is David McClelland; he believes that the process of entrepreneurship is based on three needs including need for achievement (LANDSTRO?M, 2010, p.40). According to the theory of need produced by McClelland an individual has a desire to achieve aims and objectives in his or her own life. He believes that this desire may vary from people to people, certain have a higher degree of this desire and others have a lower degree of desire to achieve. The degree of desire is embedded into an individual’s cultural background, this is why certain cultures promote higher level of achievement and others do not push hard. McClelland’s theory of achievement is quite similar to Weber’s theory of achievement in which Weber states that the way parents bring up their children reflects the importance parents have given to achievement during their child rearing situations (WELSCH, 2004, p.33). McClelland believes that there is a direct link between motivation and entrepreneurship and an individual has an inner drive to become an entrepreneur because he is motivated to do so. Max S. Wortman is another pioneer of the concept of entrepreneurship who looked at the concept from a rural development point of view (ROWLEY, 1996, 47). He states that rural entrepreneurship takes place when a new establishment is created which develops a novice product, develops and provides services to a novice market or is involved in the process of utilization of novice technologies in rural environments. He further states that nations have developed their own policies regarding entrepreneurship for the development of rural areas. He states that such policies have even been created by US. He figured out that if entrepreneurial programs are backed by government, they gain more success. He stated that no model of entrepreneurship exist that will lead to successful rural entrepreneurship and stated that a unified programs are required for the development of rural entrepreneurship to ensure that development in rural areas is achieved. Peter Ducker is recognized as individual who played the front role in inventing management (STEYAERT, 2006, p.21). He has even made considerable amount of contribution to the concept and functionality of entrepreneurship. He believed that an entrepreneur has to perform same functions whether he is working for a huge organization or whether he is operating his own organization. He further states that the issues and problems experienced by enterprises that already exists are much problematic that the issues and problems faced by new firms. He believes that the definition of entrepreneur provides by Say was the best definition to date. He believes that entrepreneurship itself is not a characteristic that is embedded in individuals. He believes that it is a behavioral element that can be witnessed in the actions and behaviors of individuals working in organizations. He believed that entrepreneurs in different professions such as health and business do not something that is better in comparison on the basis of profession, but they do things in a very different manner. Ducker believes that every individual who comes up with a business can not be regarded as entrepreneur, this is because individuals might take the risk of opening up a retail shop or a franchising outlet, he/she has not created anything new and has failed to create something new that will increase the customer’s value. Ducker states that believing that entrepreneurs are risk bearers is simply a myth because all entrepreneurs do is moving resources from alternatives that are less profitable to alternatives that may provide higher profits and returns. He believes that a business even becomes less risky when they are just adding value or changing the current alternative and by pursuing and increasing the quality of current alternatives, businessmen fail to realize the importance of other available alternatives. He states that successful entrepreneurs are those who are involved in the process of implementing and accepting change and those entrepreneurs are risk bearers who do not play by the rules. He states that the level of risk of entrepreneurship goes down to zero when the process is well managed, has a purpose and is systematic in nature. Ducker believes that if an organization has to remain in the play for a long period of time, then they will have to transform into an entrepreneurial organization. Ducker goes on to describe innovation in the context of entrepreneurship and states that innovation only arises when an act results in changes in the wealth producing ability of an alternative that is already being pursued. During 1988, researchers including Murray Low and Ian MacMillan came up with figured out that there were six concerns related to the research that has already taken place, research that is being conducted and research that will be conducted on entrepreneurship (BARRINGER, 2008, p.21). The six significant areas of concern included: purpose of the research, theories that have already been created regarding the subject, focus of the entrepreneurial research, method used to conduct research, time frame consumed for the research and the degree of analysis of entrepreneurial research. Ample amount of importance has been given to these concerns of research and mostly the use of prior entrepreneurial theories has experienced criticism. Conclusion This paper focused on the development of the thought of entrepreneurship, the development of this thought started taking place in France when the term was used to refer to those who supervised works of art and architecture. The writing even focused on the thoughts that early economists proposed regarding the process of entrepreneurship and this writing even focused on how economists understand the role played by an entrepreneur in obtaining economic growth. The Austrian and no-Austrian theorists were even involved in the process of defining entrepreneurship and figured out the various functions and roles that entrepreneurs play. Their findings included key areas of entrepreneurship including resource allocation, identification and taking advantage of alternatives, risk taking and the level of uncertainty that is experienced by entrepreneurs. The lead of defining the roles of entrepreneurs was taken by Joseph Schumpeter who proposed that these individuals figure out new things and innovate. This writing even focused on the psychological sector of entrepreneurship in which McClellands view of entrepreneurship was defined. According to him, parents inject motivation of entrepreneurship in children from a very young age. References ARENA, R., & DANGEL-HAGNAUER, C. (2002). The contribution of Joseph Schumpeter to economics: economic development and institutional change. London, Routledge. BACKHAUS, J. G. (2005). Entrepreneurship, money, and coordination Hayek's theory of cultural evolution. Northhampton, MA, Edward Elgar Pub. http://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=142512. BARRINGER, B. R., & IRELAND, R. D. (2008). What's stopping you?: shatter the 9 most common myths keeping you from starting your own business. Upper Saddle River, N.J., FT Press. CARSRUD, A. L., & BRA?NNBACK, M. (2007). Entrepreneurship. Westport, Conn, Greenwood Press. http://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=224830. HENRY, C., HILL, F., & LEITCH, C. (2003). Entrepreneurship education and training. Aldershot, Hants, England, Ashgate. KURATKO, D. F. (2009). Entrepreneurship: theory, process, practice. Mason, Ohio, South-Western Cengage Learning. LANDSTRO?M, H. (2010). Pioneers in entrepreneurship and small business research. New York, Springer. http://dx.doi.org/10.1007/b102095. MOHANTY, S. K. (2010). Fundamentals of entrepreneurship. New Delhi, PHI Learning Private Ltd. PIPEROPOULOS, P. G. (2011). Entrepreneurship, innovation and business clusters. Farnham, Gower. ROWLEY, T. D. (1996). Rural development research: a foundation for policy. Westport, Conn, Greenwood Press. STEYAERT, C., & HJORTH, D. (2006). Entrepreneurship as social change. Cheltenham, UK, Edward Elgar. WELSCH, H. P. (2004). Entrepreneurship: the way ahead. New York, Routledge. Read More