Impact of Entrepreneurship on Modern Economy - Example

Impact of entrepreneurship on modern economy Introduction Globalization trend and its impact on production,transportation, communication and other aspects of business are tremendous. Merging of economies and national cultures in one global culture and market has led to increased competition. It has been observed that many companies operating conventionally are facing a difficult time meeting the competition. With opening of economies, complexity has also increased by many folds. To succeed in such an environment, it is necessary to incorporate innovation in the activities. The advantage of this situation has been taken by entrepreneurs, who apart from self-development, have also contributed towards development of their respective economies. The paper discusses entrepreneurial development, role of entrepreneurs in meeting global economic challenges and their contribution of in development of national economy. Entrepreneurship In common parlance, entrepreneur was derived from the French term, ‘enteprendere’, meaning ‘to undertake’. In broad sense, it can be said that entrepreneurs are those people who initiate a new business or activity or enterprise by undertaking risk and converting opportunities into consumer demands. The entrepreneurial function can be explained as recognition, assessment and exploitation of opportunities in the form of new product, new service or new method of production. The ability of entrepreneurs to take risk and add innovation in their activities for earning profit distinguishes them from common businessmen. The major traits of an entrepreneur are risk-taking abilities, opportunity seeking, innovative, self-motivated, purpose oriented, taking initiatives, problem solving and positive attitude (Cuervo, Ribeiro & Roig, 2007). Entrepreneurial motivation is an important factor, which initiates and accelerates economic development by inspiring individuals to undertake risk bearing activities. The main advantages of entrepreneurship includes better exploitation of resources, elimination of backwardness of people, proper utilization of human potential, creation of employment opportunity, removal of regional imbalance, rise in economic gain and development of rural areas (Śledzik, 2013). Different authors have framed different theories for the purpose of explaining entrepreneurship, but they all claimed that entrepreneurship is an important driver of economic development. According to Cantillon’s theory, entrepreneurship involves risk, which helps in equilibrating demand and supply in the economy (Bula, 2012). Schumpeter argued that entrepreneurial innovation is extremely necessary for economic development. His theory suggests that entrepreneurs succeed because they seek profit through innovation (Śledzik, 2013). Even Peter Drucker argued that innovation is used as an instrument by entrepreneurs for exploiting opportunities. It has been explained by various authors and scholars that economic development and entrepreneurship are interdependent. Development of entrepreneurs for societal improvement is supported by other well-known theories such as, Maslow’s hierarchy of needs and David McClelland’s theory of needs (Bula, 2012). Is entrepreneurship good for economic development? In past few years, a question has been asked several times by different academicians and scholars, that is whether entrepreneurship is needed for economic development. A simple answer to this question is yes because entrepreneurs innovates by creating new business or expanding and modifying existing business that yields employment, intensifies competition and improves productivity through technological integration. The increasing level of entrepreneurship is directly related to economic growth; however, it is not a very simple process. The innovative techniques of entrepreneurship are frequently challenged by conventional industrial laws and bureaucratic processes. According to a number of economists, there are three major stages of economic development. The first stage involved production of small-scale manufacturing and agricultural products. This stage was marked by high level of non-agricultural self-employment. The second stage exhibited shifting of small-scale production towards manufacturing. During this stage, self-employment faced setbacks and entrepreneurial activities declined. During this period, managers and other senior management employees realized that their earnings will be higher if they are employed by someone else. The third stage is characterized by increasing growth of entrepreneurial activities. It was a phenomenal change as observed by many economists and they reasoned that entrepreneurial development as the result of certain circumstantial changes such as, decline in manufacturing sector, growth of technological innovation and elasticity of substitution (Acs, 2006). During this period, the business service sector grew, while share of manufacturing sectors declined in the economy. This gave scope of entrepreneurial development to individuals. In addition, technological development such as, information technology, internet, web services and integrated telecommunication services, connected individuals all over the world with one another as well as linked to resources, which further supported entrepreneurship. Over years, entrepreneurship has developed beyond a mere concept and brought in changes that one could not perceive, until third stage of economic development (Audretsch, Keilbach & Lehmann, 2006). Social entrepreneurship Social entrepreneurs play a distinctive role in creating change across the world. They can be distinguished from various non-profit organizations by their long-term goals, focusing on creating mass changes at systematic level of the society. On this context, it is important to describe who is a social entrepreneur. A social entrepreneur is a person who recognizes societal problems and utilizes various principles of entrepreneurship for creating, organizing and managing ventures that support social changes. Although business entrepreneurs determine performance, in terms of profit and return, the focus of social entrepreneurs is on formation of social capital for betterment of society and environment (Peredo & McLean, 2006). The importance of social entrepreneurship in context of social and economic development is quite high. A few of these aspects are: Employment development Social entrepreneurship shares certain similar goals with business entrepreneurship and one of them is creation of employment. Presently, a number of people are employed in social enterprises. In addition, social entrepreneurs ensure that employment is generated in under-privileged areas such as, those with homeless and disabled people, long-term unemployed youth and gender discriminated women. Innovating goods and services Social enterprises apply innovation in development of goods and services that are necessary for social and economic progress. Many of their activities are related to major societal problems such as, HIV, illiteracy, drug abuse, mental ill-health and crime. Social capital If enhancing economic capital is the passion of business entrepreneurs, creation of social capital is the main purpose of social entrepreneurship. Social capital is considered very important for poverty alleviation and sustainable development of human and economic components. Equity Promotion Social entrepreneurship promotes and fosters social equitability in the society through various sustainable social missions. Equity promotion ensures development takes place beyond profit maximization (Perrini & Vurro, 2006). Women entrepreneurship Another important aspect of societal development is encouragement to women entrepreneurship. In recent years, phenomenal changes have been observed in the status of women in developed as well as developing countries. Women have emerged as rising leaders, in form of business women and Small-Medium-Enterprise (SME) operators. In 1980s, women pursued higher education and had a tendency to join family businesses as equal partners. Nevertheless, in 21st century, women have gained expertise in telecom, information technology and financial services and have pioneered in building enterprises in their core areas (ILO, 2014). Post financial crisis, it has been observed that women entrepreneurs have gained considerable popularity. According to Forbes, about 92% of women entrepreneurs believe that the stage has been set for future entrepreneurs to launch their businesses, while around 89% said that they are expecting higher overall business performance. According to Geri Stengel, the current year is expected to be that of female entrepreneurs. According to her, around 20% of angel investors invested in women entrepreneur-led businesses in 2012 (Forbes, 2014). Alongside, even venture capitalists have shown great interest in these businesses. Forbes (2014) suggests a few reasons behind growth of women entrepreneurs, which have been explained as follows: Studies indicate that women are better leaders as their team building abilities, resource allocation abilities and leadership skills are comparatively superior to men. It has been also observed that women are better at taking initiatives and are result-oriented. Consequently, they deliver better performance. Female entrepreneurs were found to be capital-efficient, innovative and diversification-oriented; hence, are capable of performing better at business than men. The other reasons for success of women entrepreneurs are that they are always in a process of continuous learning, treat failure as pillar of success and utilize their social network, peer circles and portfolios efficiently to fund their business. Role of entrepreneurs in rural development Development of entrepreneurship in rural areas is initiated through encouragement of local entrepreneurial talent and development of indigenous organizations. It has already been discussed in the paper that entrepreneurship helps in reducing regional imbalance. As per Global Entrepreneurship Monitor Report of 2000, around 70% of economic development in a region is dependent on development of entrepreneurial activities therein. According to Petrin, first generation entrepreneurs are necessary to speed up economic development in rural areas (Sherief, 2005). Studies undertaken by Food and Agricultural Organization (FAO) in Caribbean and Latin America indicated that involvement of entrepreneurship in agricultural sector can be an important agent of modernization (FAO, 2014). Studies show that about three quarters of world population is living in rural regions and are highly dependent on agriculture and other related activities for their livelihood. According to OECD (Organization for Economic co-operation and Development), major problems prevailing in rural areas include low employment opportunities due to structural changes in agricultural sector and limited availability of business services in order to support overall development. Nevertheless, there are a number of opportunities that have been listed by OECD. It has been observed in recent years that demand for rural amenities has increased greatly among urban population; SMEs are being developed in these areas and diversification of rural tourism and agro-based industries have been facilitated (OECD, 2014). The World Bank has launched a new strategy known as ‘Reaching the Rural’ in 2002. The strategy aims at increasing productivity in these areas through innovation and formation of indigenous industries. In this context, rural entrepreneurship has been considered as the key driver of growth and development (Sherief, 2005). Conclusion The main purpose of this essay was to portray the contribution made by entrepreneurs towards facilitating positive changes in the society and economy. The paper has discussed role of entrepreneurs in general and elaborately analyzed their importance in economic development. It was observed that entrepreneurship is a broad concept and is extremely difficult to narrow down. However, the entrepreneurial role has been classified as business entrepreneurs, social entrepreneurs and women entrepreneurs in order to highlight their contribution to the society more specifically. According to various studies and researchers, motivation and innovation are the key sources of entrepreneurs, which drive them to bring about development that is profitable at personal and societal level. In addition, different organizations such as, FAO, World Bank and OECD, have taken efforts towards introduction of entrepreneurship in rural areas so that economic development and regional imbalance is maintained. References Acs, Z. (2006). How is entrepreneurship good for economic growth? Innovations, 1(1), 97-107. Audretsch, D. B., Keilbach, M. C. & Lehmann, E. E. (2006). Entrepreneurship and economic growth. United Kingdom: Oxford University Press. Bula, H. O. (2012). Evolution and Theories of Entrepreneurship: A Critical Review on the Kenyan Perspective. International journal of business and commerce, 1(11), 81-96. Cuervo, A., Ribeiro, D. & Roig, S. (2007). Entrepreneurship: Concepts, Theory and Perspective. Introduction in Entrepreneurship, 1-20. FAO. (2014). Entrepreneurship and supporting institutions: an analytical approach. Retrieved from http://www.fao.org/docrep/w6882e/w6882e02.htm. Forbes. (2014). 11 Reasons 2014 Will Be A Breakout Year for Women Entrepreneurs. Retrieved from http://www.forbes.com/sites/geristengel/2014/01/08/11-reasons-2014-will-be-a-break-out-year-for-women-entrepreneurs/. ILO. (2014). Women’s Entrepreneurship Development. Retrieved from http://www.ilo.org/wcmsp5/groups/public/---ed_emp/---emp_ent/---ifp_seed/documents/publication/wcms_175471.pdf. OECD. (2014). Rural entrepreneurship. Retrieved from http://www.oecd.org/site/cfecpr/42203059.pdf. Peredo, A. M. & McLean, M. (2006). Social entrepreneurship: A critical review of the concept. Journal of world business, 41(1), 56-65. Perrini, F. & Vurro, C. (2006). Social entrepreneurship: Innovation and social change across theory and practice. Social entrepreneurship, 57-85. Sherief, S. R. (2005). Entrepreneurship as an economic force in rural development. Retrieved from http://www.africaeconomicanalysis.org/articles/gen/rural_entrepreneurship.html. Śledzik, K. (2013). Schumpeter’s View on Innovation and Entrepreneurship. Retrieved from https://www.academia.edu/5396861/SCHUMPETERS_VIEW_ON_INNOVATION_AND_ENTREPRENEURSHIP. Read More