The Importance of Entrepreneurship in the Present Business Environment - Essay Example

The Importance of Entrepreneurship in the present Business Environment Table of Contents Table of Contents 2 Entrepreneurship & Economic Development3 Government & Small Business 5 Entrepreneurial Opportunities 6 Psychology of the Entrepreneur 8 Growth & Development in the International SME 9 References 11 Entrepreneurship & Economic Development The hypothesis, that entrepreneurship and economic growth are linked, finds the closest foundation in common sense, simple intuition and economic observations. The notion is that, activities required for transforming simple ideas into economic opportunities lie at the core of entrepreneurship. Entrepreneurship is a source of change and innovation that fosters economic competitiveness and improvements in the productivity. In this age of globalization, two new factors, namely flexibility and knowledge have gained high significance in entrepreneurial activities. Furthermore, with the improvement of technology and increasing competition caused due to economic liberalization and globalization, the assumption which holds that fostering entrepreneurship will enhance a country’s competitiveness seems to be valid like never before. According to Shane and Venkatraman (2000), entrepreneurship is an act of being an entrepreneur or one, who discovers, exploits, and assesses the opportunities of developing new products or services, innovative production process, new strategies or exploring new markets. Often, entrepreneurship is discussed under the entrepreneurial functions, entrepreneurial factors, entrepreneurial behaviour and entrepreneurial initiatives. Friijs, Paulsson and Karlsson (2002), stated that entrepreneurship mainly relates with the functional activities which include innovation, coordination, capital supply, uncertainty bearing, making decision and allocation of resources. Entrepreneurs have always been the strong contributor in most of the theories related with distribution, production and growth. The role of entrepreneurs in driving the economic growth of a country can be best described with the help of theory of long waves by Joseph Schumpeter. According to Schumpeter (1942), "Everyone is an entrepreneur when he actually carries out new combinations". Finding out new combinations pertaining to the factors of production can be cited as the entrepreneurial discovery that ultimately becomes the fuel of economic development. According to the author, the new combinations are better approaches to fulfil customer needs, developing new products and creative destruction to some extent. Now based on the notion of creative destruction, the theory of long waves (regarding the economic growth and business cycles) has been formulated. The theory states that a business cycle comprises of creation of new products and services along with the implementation of new strategies. These phenomenons ultimately lead towards the growth of national economy and create new employment opportunities. In the context of empirical literature, economic growth and entrepreneurship can be linked in different ways. In order to cite an example, one way of linking economic growth and entrepreneurship can be the measure of entrepreneurship in the context of comparative share of economic activities accounted by the small companies. On the contrary, some studies take into account the number of market participants (intensity of competition) and the self employment rate. There are large numbers of cases where entrepreneurial activities have played major roles in developing a country’s economy. The case can be best described with the development of Hong Kong. With the opening up of new SMEs in Hong Kong, the country has been able to ensure huge economic developments. In a short span of time the country succeeded to staggering growths in the per capita income. The average annual growth of the country also witnessed similar growth in short a span of time. (Kuratko, 2008) (Kuratko, 2008) Therefore from the findings of the literature study it can be stated that Entrepreneurship & Economic Development are closely related with each other. In other words, entrepreneurship highly contributes towards the development of the national economy. Government & Small Business SMEs are the integral part of a country’s economy and the flourish of an economy is highly dependent upon the progress of the SMEs. Apart from the development of the national economies, SMEs also play a major role in generating new employment opportunities within the country. Hence, this sector is of utmost importance from the point of view of a nation. A few decades ago, the governments in various countries hardly paid attention towards the development of SMEs. However, in the recent past there have been drastic changes in the government’s outlook to small and medium business sectors of the nation. The government of these countries now have a crucial role to play in the development of small business. In the recent past the policy makers have shown immense interest in the small and medium enterprises. The policy makers believe that, in order to prosper economic growth and generate high employment opportunities, the progress of SMEs are an obligation. Government develop policies that foster the growth of SMEs in accordance with the theories of economy. However, at times, theses policies have a negative impact on the companies due to certain reasons. The government develops policies to support SMEs in such a way that the basic necessities of these companies are fulfilled. For example, the basic requirements are easy access to finance, strong infrastructure and sound technology. With the availability of these basic features, the SMEs of a country can enhance their productivity or may convert their business operation from small scale to large scale. Thus government plays a major role in the development of SMEs. The current trends of the government polices of some country clearly reflects their positive outlook towards SMEs. For example, recently there have been noticeable changes in the South Korean government policies pertaining to SMEs. The policy is inclined towards competitive SMEs rather than protecting and subsidizing the weakest ones. The policy is also focused towards transforming the traditional SMEs to the high growth large scale organizations. In the similar context, the government of Singapore has made substantial changes in their SME policies. The government of the country is presently trying to make diversifications in the high growth sectors. In Singapore two agencies have played major roles in supporting the growth of the SME sector. The two agencies are SPRING and GET-Up. SPRING help SMEs to get easy access to finance, technology and internationalization. On the other hand GET-Up looks after the R&D activities of the company (European Commission, 2011). Hence from these findings, it is obvious that government of most of the countries are optimistic towards the growth and development of SMEs. Entrepreneurial Opportunities In this section, the study will mainly analyze the entrepreneurial opportunities of the business sector. Now a days, we find there are several, industries which are moving at a rapid pace; hence, the opportunity to carry out entrepreneurial activities increases rapidly. One of the viable changes that took place in the last 2-3 decades is the emergence of service sector. According to reports, 70 % of the workforce of developed countries is currently working in the service sector. In addition, the outcomes of this ongoing trend are creation of new jobs in the service sector, possibility of emergence of new firms belonging to service sector and high chances of rapid growth in the service sector. Such observations strongly indicate that there are large changes in the society thereby creating entrepreneurial opportunities. However, the growth is not only constrained within the service sector, other sectors also witness strong growths. Casson (1982) defined entrepreneurial opportunities as those circumstances, where new goods and services can be offered to the potential customers at a higher price than the cost of production. The entrepreneurial opportunities depend heavily on the business opportunities and the external business environment of a country. In general there are two integrated processes which are responsible for creating entrepreneurial opportunities. The growing use of business intelligence, IT services and marketing by the companies in line with their increasing turnover. Growth in division and specialization of business sector. In other words, companies are more focused towards the use of external suppliers and core activities in order to successfully accomplish their goals (Lindmark, 2006). The literature regarding entrepreneurial opportunities is comparatively less than the amount of literature available for entrepreneurship. However the study by Sarasvathy et al. (2003) helps to get a clear idea about how entrepreneurial opportunities are created. Their study revealed that changes in the society are the driving force towards new entrepreneurial opportunities. According to Longenecker, Moore, Palich and Petty (2006), entrepreneurial opportunities persist only for those people who have the ability to manufacture products or offer services required by the customers. In general, an entrepreneurial opportunity has more value than an interesting business idea. The entrepreneurial opportunities involve creation of products and services that attracts customers and will influence them to buy the same. Therefore it is also important that entrepreneurs must offer product or service value to the customers so as to get benefitted by the prevailing opportunities. The authors defined entrepreneurial opportunity as the timely and desirable innovation, which creates a value for the end users or the potential customers and also distinguishes between ideas and the opportunities. Meanwhile, some of the well known researchers have conducted study on entrepreneurial opportunities. According to Kirzner (1973), entrepreneurial opportunities are generally created by the newness and radical business opportunities. The author also went on to highlight that entrepreneurial opportunities are created due to the competitive behaviour of the market. In the similar manner, Koppl and Minneti (2003) stated that, the market opportunities created by the reorganization of resources are known as the entrepreneurial opportunities. However, there is a debate over the two factors that entrepreneurial opportunities are socially constructed or it exists in the objective sense. In this context Shane (2003) strongly believes that the entrepreneurial opportunities lie independently to the person, who identifies and exploits the market opportunities. The author also stated clearly that the market opportunities persist even before the identification and exploitation of the opportunities. Nevertheless, some of the researchers also believe that the entrepreneurial opportunities also depend heavily on the experience, knowledge, expertise and the characteristics of the individuals. In other words, these researches believe that, rather than the market condition the opportunities are created in the minds of the entrepreneurs. Hence, from the literature study about the area of concern it can be concluded that the entrepreneurial opportunities depend on the market condition and to some extent on the attitude of the possible entrepreneurs. From the study, the most important thing identified is to get benefitted from the prevailing marketing condition. It is important for the entrepreneurs to identify and exploit opportunities. Psychology of the Entrepreneur Psychology to some extent is tricky in nature. Therefore, identification of the proper psychological characteristics can be a complex task. The main problem lies in the fact that there is no written evidence of the set of characteristics required for being a successful entrepreneur or what the successful entrepreneur possesses. Although, there is hardly any evidence, which shed light on the psychological characteristics of the entrepreneurs, but there are some similar set of characteristics which are almost possessed by every entrepreneur. In this context Minner (1997), there are no substantial differences in psychology between successful people and entrepreneurs. Some of the common psychologies of an entrepreneur are as follows: - The Need for Achievement: - There is a common psychology of the entrepreneurs which initiates them to achieve more. Often this is cited as the cause for the success of the entrepreneurs. Since, they crave to achieve more, they continuously try to make their productive and take more risks. Strong Belief over the fact that they have huge control over the operating Environments: -The entrepreneurs have a common belief that they have high control over the external and internal business environments. Risk Taking Attitude: - Entrepreneurs have the ability to take risk or to formulate decisions which involves high risks. Interestingly, their risks paid off most of the times making them successful (Businessknowledgesource, n.d.). Nevertheless, there has been hardly any literature regarding the psychology of entrepreneurs. However, this area of study has also been explored by some of the researchers worldwide. According to a study carried out by Melek Kalkan and Canani Kaygusuz, a number of factors play a role in deciding the characteristics of an entrepreneur. For example, self confidence, flexibility, intelligence, aggression, satisfaction and maturity among others are some of the factors. This study also believes that risk taking attitude is the most common characteristics of an entrepreneur. The next common trait of the entrepreneurs is creativity and innovation. A number of studies reveal that, apart from the risk taking attitude entrepreneurs are creative and innovative in nature. Moreover Kalkan and Kaygusuz (2012) stated that entrepreneurs are able to identify the existing opportunities; they grab those opportunities to make a successful venture. Finally, according to Kuratko & Hodgetts (1998) the psychology of different entrepreneurs differs, but the successful entrepreneurs are generally patient as well as determined. Moreover, they do not avoid decision making and look for the best solution to a problem, rather than just accepting as it is. Hence, from the literature study regarding the area of concern, it can be concluded that the psychology of the entrepreneurs differs, but they possess a set common of traits. Growth & Development in the International SME There is no definition of an SME. Every country has independently defined SME on the basis of a combination of quantitative matter. For example in the UK, Canada and the USA, the SMEs are defined on the basis of the number of on-roll employees and the annual turnover. According to eminent scholars like Analoui and Karami (2003), small and Medium Enterprises (SME) are the small companies or firms whose scale of operation is small in comparison with a large organization; the number of employees are also comparatively less. Apart from that, one of the important factors is that the yearly turnover of these companies is less than yearly turnover of large organizations. Despite of that, SMEs plays an important role in the development of a national economy. According to reports, in a number of countries SMEs outnumber large companies by a huge margin. The report also emphasizes on the fact that every year, near about 600,000 new SMEs around the world starts their operation. Nevertheless, out of this number only 10 % survive and the rest shut down within 2 years of operation (Teall, 2012). Small and medium enterprises, around the world are portrayed as the fuel that drives economic growth. In addition, growth and development of the international SMEs have also brought about new employment opportunities and financial stability within the country. This is the reason why we find, that the government of most of the countries are putting in tremendous efforts to augment the skill and competencies of the companies belonging to this sector. Hence this can be cited as the cause of increased growth of small and medium sector. The growth rates of SMEs have increased drastically in the last decade due to the prevailing opportunities in the market and also due to the support from the government (Carter and Jones-Evans, 2012). The growth and development of the SMEs around the world have provided several benefits to the economy. Some of the evident ones are presented below: - Economic Growth: - SMEs throughout the world have played a major role in the development of national economies of their respective countries. Employment Opportunity: - With the increasing number of SMEs in a country, the employment opportunities of a country increases rapidly. Innovation in Products and Services: - SMEs have the ability to bring in innovation into the products and services. Since the risk associated with SMEs is comparatively less than the large organizations, the risk taking capability of the SMEs also increases drastically. This fosters the SMEs to come up with new products and services in the market place. SMEs have been able to mark their presence in the international avenue as well. In this context, Nummela (2010) stated that the three main drivers towards the growth and development of the SMEs and making their presence in the international marketplace are mainly transition from a product based economy to a service based economy, reducing role of the location of doing business due to the advancement of information technology and growth in the communication technology. Therefore, from this literature study about the growth and development of SMEs, it can be sated that information technology and transition towards service based economy has been the major force which led the SMEs towards doing business in the international arena. In addition, the study also revealed that SMEs have been a major driving force in the growth of national economies. References Analoui, F., and Karami, A., 2003. Strategic Management: In Small and Medium Enterprises. Connecticut: Cengage Learning EMEA. Businessknowledgesource, (N.D.). The Psychology of an Entrepreneur. [online] Available at: [Accessed 04 February 2013]. Carter, S., and Jones-Evans, D., 2012. Enterprise and Small Business. Principles, Practice and Policy. 3rd ed. London: Prentice-Hall. Casson, M., 1982. The Entrepreneur: An Economic Theory. New Jersey: Barnes & Noble Books. European Commission, 2011. Policies in Support of High-Growth Innovative SMEs. [online] Available at: [Accessed 04 February 2013]. Friijs, C., Paulsson, T., and Karlsson, C., 2002. Entrepreneurship and Economic Growth: A Critical Review of Empirical and Theoretical Research. Sweden: Institutet för tillväxtpolitiska studier. Kalkan, M., and Kaygusuz, C., (2012). The Psychology of Entrepreneurship. [pdf] Available at: [Accessed 04 February 2013]. Kirzner, I. M., 1973. Competition and Entrepreneurship. Chicago: University of Chicago Press. Koppl, R., and Minetti, M., 2003. Market Processes and Entrepreneurial Studies. Dordrecht: Kluwer. Kuratko, D. F., 2008. Entrepreneurship: Theory, Process, Practice. 8th ed. Connecticut: Cengage Learning. Kuratko, D. F., and Hodgetts, R. M., 1998. Entrepreneurship: A Contemporary approach. Hinsdale: Dryden Press. Lindmark, L., 2006. Sources of Entrepreneurial Opportunities. [pdf] Available at: [Accessed 04 February 2013]. Longenecker, J. G., Moore, C. W., Palich, L. E., and Petty, J. W., 2006. Small Business Management: An Entrepreneurial Emphasis. 13th ed. Connecticut: Cengage Learning. Minner, J. B., 1997. A Psychological Typology of Successful Entrepreneurs. West Port: Greenwood Publishing Group. Nummela, N., 2010. International Growth of Small and Medium Enterprises. Abingdon: Taylor & Francis. Schumpeter, J. A., 1942. Capitalism, Socialism, and Democracy. 3rd ed. New York: Harper and Bros. Shane, S., 2003. A General Theory of Entrepreneurship. The individual – opportunity Nexus. Cheltenham: Edward Elgar. Shane, S., and Venkatraman, S., 2000. The promise of Entrepreneurship as a Field of Research. Academy of Management Review, 25 (1), 217-226. Teall, J. L., 2012. The Small and Medium Enterprise (SME), Success and Failure. [pdf] Available at: [Accessed 04 February 2013]. Read More