Entrepreneur and Venue Creation - Assignment Example

ENTREPRENEUR AND VENUE CREATION TABLE OF CONTENTS TABLE OF CONTENTS 2 Introduction: 3 Entrepreneurship: 4 Business Cycle: 5 Recession in UK economy –5 Theatrical models on Entrepreneurship – 6 The great recession and entrepreneurship 9 Recession and unemployment: 10 Role of entrepreneurship to reduce employment during UK recession – 11 Key types of entrepreneurial activity – 14 Importance of entrepreneur’s activities on economic performance – 15 Conclusion: 18 Reference List 19 Q1: Construct a detailed analysis of entrepreneurial theory and relate this to the UK economy coming out of recession. Introduction: The Great Recession, trigger by collapse of mortgage market, has deeply affected the business economy as well as politics and personal lives of many people. If we take the example of UK economy, it can be seen that the financial crisis increased uncertainty in the real economy, many firms went bankrupt and millions of people lost their jobs and houses. The straggling economics felt a global downturn in its economic activities throughout the world. The term entrepreneur is one of the prime factors in micro economics. According to Hisrich and Peters (1992), “entrepreneur is one who undertakes innovation, finance and business acumen in effort to transform innovation into the economic growth”. As the entrepreneurs are the great sources of creating new job in any economy, there is growing evidence regarding the entrepreneurship activities during the recession. In this context, Robbins et al. (2000) opined that, entrepreneurs have the capability of simplifying matters and creating a proper plan for following the objectives of the business. In the global economy, entrepreneurs are the major force to bring economic changes and transforming the economy into a restless capitalist economic system. The main purpose of the essay is to discuss a brief description of the entrepreneurial theory and analyse its importance to the UK economy coming out of the recession. Further, the researcher also evaluates key types of entrepreneur activities and its impact on the economic growth at country’s level. Entrepreneurship: Entrepreneurship is a process for starting a new business. The classical and neo-classical theorists have tried to provide different ideas and opinion to define the meaning of entrepreneurship, but there is no single definition of this particular term. It all depends on focus and perspectives of each of the theorist they look at it. Some researchers have looked at the term from economic and psychologist aspect, whereas some look it from the management perspectives. Thus, entrepreneur is a multidimensional concept (Van Stel et al. 2005). Carree et al. (2002, pp.232-234) opined that, “entrepreneur is an individual that equilibrates supply and demand in the economy and in this function bears risk of uncertainty”. On the other hand, Laforet and Tann (2006, pp-435-444) provided a different interpretation to the entrepreneurship term. He said that, “entrepreneur as a manager of a firm and an input in the production process”. Georgelli et al. (2000) look entrepreneurship from different point of view and opined that it is an action that seeks to change the future. Van Stel et al. (2005) suggests that, the entrepreneurial orientation of a firm is basically measured by the extent to which the management team are able to take risk, exploit innovation and favour changes in the organizational process to gain competitive advantage. The entrepreneur receives certain attributes, namely, an ability to develop unique operation and exploit innovation to support business growth. One of the key aspects of the nature of entrepreneurship is “meta economic event” which causes a major change in the market economy and in the basic forms of the business organization (Bygrave and Minniti, 2000). Drucker (1955) has shared the same view and described that it is a type of innovation as being the “fustest with the moistest”. However, he does not restrict his view of entrepreneurship within the meta economic events, rather includes some other form of innovation like, business expansion, which is considered as the subject of entrepreneurial. As per (Drucker, 1955), there are three different types of opportunities, for instance, the creation of new information, exploitation of market opportunities and use relatively cost and benefit alterative resources in the production process. Over the decade, an entrepreneur has been described as the innovator, coordinator and risk bearer, where innovation is an important part of entrepreneur process. Business Cycle: Audretsch and Lehman (2005) have defined that, the business cycle as a type of fluctuation in the aggregate economic activity of nations that helps business enterprises to organize their work properly. In other word, business cycle consist of expansion of the economic activities followed by recessions, revivals and contractions that merge the expansion of the economy into new phase of economic cycle. The duration of economic cycle varies from one year to ten or twelve years. In short, the business cycle consists of a trough followed by recovery and expansion and a peak followed by contraction or recession. Peak is the maximum level that aggregate economic activities can reach. Conversely, trough is a minimum level of aggregate economic activities that can be reached. The recession or contraction can be defined as significant decline in total output, employment, income and trade. Recession in UK economy – National Bureau of Economic Research an official tracker of economic cycle has defined that, recession is a period between an economic tough and peak (of a business cycle) during which a significant part of the economic activities declines across the economy (Bathelt, 2001). The economic recession is characterised by increase in the unemployment rate and negative impact on the real GDP (gross domestic product). In the UK economy, the influence of recession is based on several factors like, the oil price shock, the bursting of dot-com bubble and the bursting of housing bubble. In UK, recession is not a rare economic phenomenon, rather it has segmented into various dimension. From the year 1812-1821, there is a list of recession that has affected the economy. During the mid of 20th century, i.e. just before the major structural changes of the 1980s, cyclical fluctuation in the UK economy were associated with swings in demand for the durable manufacturer goods (RSA, 2014). This has highly affected its employment term, especially in the industrial sectors. The recession has caused cumulative loss of 1% to 1.5 % in 2010, 3% to 3.5% in 2011 and 3.25 to 3.75 output during 2012 (RSA, 2014). Further, the recent recession resulted in negative 2.6% GDP growth rate. The unemployment levels in UK were affected vastly during the recession. The rate of change in basic earning has continually fell from the mid of 2008 to the end of 2009. Thus, the basic earnings of the people remain above the inflation rate. The economy has witnessed a major change in its net internal mitigation where around 36,000 people moved into the international region (RSA, 2014). Theatrical models on Entrepreneurship – The concept of entrepreneurship is a relatively young field of study and has come into interest of the researchers during the period 1980s. An entrepreneur plays an enormous role in any economy. However, Kiessling and Richey (2004) recognise that, entrepreneurship lacks to form a consistent theory that combines various literatures eventually. Various theories and perspectives that contributed towards understanding of entrepreneurship are discussed in below: The Australian View of Entrepreneurship – The Australian school has an influential role in understanding the concept of entrepreneurship. The Australian economist like, Hill and LaForge (1992) and Gilbert (1990), thinks that it is a historical category where uncertainty is its key idea. As per the Australian view, “entrepreneurship is an outcome of the entrepreneur’s ability to bear uncertainty”. There are basically two types of uncertainty, namely, parametric uncertainty and structural uncertainty. The Australian view describes entrepreneur as a fundamental aspect to define economic behaviour. The “Schumpeter’s Innovation Entrepreneur” theory has described that innovation is the major explaining variable where economic agents are responsible for such innovation. It also suggests that, innovation also exists in the factor market as in case of discovering raw materials. In the same way, an entrepreneur takes high unemployment during the recession period as opportunities to start up a new business. During the uncertainty period, the entrepreneur plays an integral part to correct the disequilibrium situation and thereby it is a mechanism through which inefficiencies in the economy can be discovered and mitigated. Ecological perspective of Entrepreneurship – The ecological perspective of entrepreneurship concerned with population of an organization and focuses on how these factors changes over time, especially through the demographic process. This theory mainly focuses on analysing organizational population with the biological ecology. The ecological perspective deals with generating various environmental conditions that are essential to generate variations among the firms, found over the time (Holtman and Idson, 1991). This perspective is basically used to explain reasons for fall and rise of industries over time. Ecological mechanism analyse community ecology in terms of theoretical and empirical consistency. Marshall’s approach to entrepreneurship – Marshall is one of the major contributors to the entrepreneurship theory. According to this theory, the managers in modern corporations are not able enough to play the role of an entrepreneur properly. Thus, Marshallian economist has analysed the concept of equilibrium under the assumption of perfect knowledge, no excess profit opportunity and free entry-exit. Marshall uses small changes in the market process (through innovation) and indicates a large-scale production and economic progress. He always emphasised on a small contributions to motivate large numbers of modest entrepreneur to lead economic progress. Kirzner’s “alert” entrepreneur – While the neo-classical economists, like Marshall has given major focus on sustaining the necessary condition to ensure market equilibrium, Kirzner represents a Neo-Austrian approach to answer whether market forces work to lead an economy towards an equilibrium or not. Kirzner’s theory suggests that, at the initial period competition among the alert entrepreneur’s leads to equilibrium (Douhan et al. 2007). However, if the market is not perfectly informed, for any changes to occur the entrepreneur need to provide incentive to the agent in terms of knowledge and information. If there is equilibrium in the market, then there is nothing for an entrepreneur to do as everybody is able to carry out their initial determined exchange plan. On the other hand, if the economic agents are suffering from the “ultra ignorance”, i.e. do not aware about the additional information in the market, the entrepreneur can discover new business opportunity to eliminate these “ultra ignorance” and move the economy towards the equilibrium. The Kirzner’s “alert” entrepreneur suggests that, disequilibrium from the market economy can only be corrected by alerting entrepreneur, who takes a significant part to produce and exchange economic resource. Since there are lots of uncertainties in the business environment, profit to the entrepreneur may not be always positive and thus entrepreneurship is a risk taking act. The great recession and entrepreneurship Entrepreneurship and recession have an interesting relationship. Entrepreneurship has affected the UK economy during the recession period in several areas. There can be multiple influences of recession over the entrepreneurial decisions because of its overall affect on the entire economic environment. As illustrated by Bruce et al. (2009, pp-230), “On the other hand, recession decrease potential business income and wealth, but on the other hand they restrict opportunities in the wage/salary sector leaving the net effects on the entrepreneurship ambiguous”. There is also an interesting dynamics between the increase in supply of labour (as the unemployment rate increases) and reduce supply in finance. During the recession period, the issue of financial constraints de-motivates the entrepreneur to start up a new business. On the other hand, the increasing unemployment rate has raised the opportunities for the employer to exploit the cheap labour and thus boosts the odds of entrepreneurship. Looking at the various scenarios, Carree (2002) said that, great recession had a negative impact on the UK economy; firm formation has declined by 6%. In order to overcome from the recession period, the UK economy requires drastic measure to consolidate its public finance and to improve its competitiveness. As most of the public expenditures were cut down, some tax rates were also raised. In this situation, innovation in the business process proves to be very effective in reducing the length of downturn in business and stabilise a sustainable investment in infrastructure and education to bring structural changes and put the economy on stronger and more knowledge incentive growing path. According to Bygrave and Minniti (2000), an entrepreneur acts as an agent to bring in changes; those effectively anticipate and trigger economic development. He found that, Entrepreneur’s behaviour leads to positive impact on the organizational productivity and mitigate the shocks that occurred during the recession by diffusing and innovating new products. Thus, it can be said that entrepreneurship is a way out procedure for the UK economy from recession into growth. However, the ambiguity in the relationship between entrepreneurship and recession do not end here. Another question involved to entrepreneurship is the nature of firm formation during the recession period. Generally, entrepreneurs straits firms out of the necessity, instead of motivating them to increase their production during the recession period. Recession and unemployment: The UK economy went into the recession during the second quarter of 2008, caused decline in output and increase in the unemployment rate. From the period of economic peak to trough (in business cycle), the real output fell by 6.4%. In the previous recession period (that of early1980s), the UK labour market has taken a longer time to recover from the demand shocks. Still, the UK economy is viewed as having a highly flexible labour market in comparison to the other Western European countries (Acs and Armington, 2004). Over the course of action, the concept of entrepreneurship is playing an important role in returning the labour market to the equilibrium position. Thus, other developed countries like the USA, UK did not introduce a cyclical package of discretionary fiscal measures. Also unlike other countries such as Japan, it does not have to bring forward its labour market to moderate the impact of recession. As an impact of recession, the employment levels fall down in the economy by 580,000, from the beginning of 2008 to the end of 2010 (RSA, 2014). In the recession period, the increase in employment has not been observed due to decrease in labour market flexibility, but because of collapse in labour demand, which in turn reflects fall in customer’s confidence, severe credit rationing and delays in the response by monetary authorities. All these issues have directly impinged in the labour market and affects market efficiency. Role of entrepreneurship to reduce employment during UK recession – The entrepreneurial opportunities not only arise as a result of push effects of employment, but also of pull effect, produced by flourishing full opportunities of the economy. The relationship between entrepreneurship and unemployment is surrounded with uncertainty. There are many views regarding the relationship between entrepreneurial activities and unemployment. The simple theory of income choices, based on “the decision confronted by individual to start a firm and become an entrepreneur”, suggests that, increase in the unemployment scenario leads to an increase in the start up activities on the view that start up cost for starting a new business has decreased (Robbins et al. 2000). This effect is sometime known as ‘shopkeeper’ or ‘refugee’ effects. If the unemployment rate is too high, it imposes lower level of personal wealth for the business owner at initial stages. In this context, Gilbert (1990) added that, low level of entrepreneur activity leads low economic growth and also higher level of unemployment. Some economists like Holtman and Idson, (1991) and Bruce et al. (2009), find that greater employment opportunity serves as a means for start up activities. On the other hand, Douhan et al. (2007) argued that higher unemployment rate reduces the amount of entrepreneur’s activities. As the unemployment rate is highly linked with the start-up activities, it can be said that entrepreneurship influences unemployment. The positive impact of entrepreneurship on the economic performance is called “Schumpeter” effects, where new start up firm hire employee and as a result there is a subsequent decrease in the employment level (Acs and Armington, 2004). Douhan et al. (2007) examined the relationship between unemployment and entrepreneurship in the UK, during the recession period. He found that, UK’s unemployment has been influenced by several exogenous shocks, like appreciation in exchange rate, falling consumer’s confidence, falling factor price, stock market crash and fall in foreign trade. He studied that, during the recession period, entrepreneurship significantly helps the economy to lower its unemployment rate. An entrepreneur is a combination of labour, capital and natural raw materials. They act as an innovator, who creates new combination of these factors and innovate new products in the market. With the advent of economic crisis, major big firms in UK are shut down, but small business plays a significant role to drive out the economy from recession. During the recession period, entrepreneurs act as drivers of small business as well as the innovator of the economy. As a result of entrepreneurship, manufacturing and service sector has come up with innovative product from raw materials. Bygrave and Minniti, (2000) point out that, entrepreneurs are the key to develop and launch new products and thereby utilising key skill of entrepreneur, the UK economy can come back out of the recession. New and innovative product development is the key source to sustain revenue growth and foreign trade. Based on the theories of Australian view, it can be said that major changes in the prevailing economic condition has become necessary to exploit new market opportunities and the ability to act entrepreneurially in exploiting innovation has become an significant part to overcome economic downturn. Key types of entrepreneurial activity – The entrepreneurial activities vary on the basis of the type of the organization, which is being set up. There are an enormous entrepreneurial activities that can place within a firm or business organization. Some of the key types of entrepreneurial activities include corporate venturing, venture capital, angel funding and non-executive director. An entrepreneur acts as the corporate venturing in which they generally conduct a financial investment from larger company to smaller ones. Corporate venture supports adoption of innovation and new projects internally (Acs and Armington, 2004). On the other hand, entrepreneurs also play an important role to form venture capital. The strategic role of entrepreneurs for the development of venture capital in the UK economy is basically to venture capital to the small companies. Venture capital is basically money that entrepreneurs invest in the early stages of business development, especially needed during high risk and high potential growth. The venture capital activities of entrepreneurs satisfy the capital requirements on the equity share of the companies. The angel funding is a similar kind of activities played by the entrepreneurs. An angel investor is basically referred a rich individual, who invest capital for a new business to start up. Entrepreneurs sometime work as an angel investor and satisfy financial requirements of a business at initial stage. Lastly, some entrepreneurs also serve as a non-executive director for starting another business rather than starting up of a business of their own. As a non-executive director, entrepreneur basically plays the roles of an outside director, who does not form a part of executive management team, i.e. they do not play any role in making financial decisions. Apart from that, there are some other form of entrepreneurship. As identified by research scholars Carree (2002), Gilbert (1990) and Bygrave and Minniti (2000), the entrepreneurs can also be termed as profit opportunist, uncertainties and risk takers; and innovator respectively. Carree (2002) has drew his attention to understand the term entrepreneur as an innovator and said that entrepreneurs align and formulate new combination of input to bring innovation in the production process. According to Gilbert (1990), entrepreneurship perceives the profit opportunity within the economy. The last role of entrepreneur as labelled by Bygrave and Minniti (2000), is to understand and take risks and uncertainties associated with running a business. However, the entrepreneur also takes risks in which new product turns out from being a total failure. Importance of entrepreneur’s activities on economic performance – In the modern era of business environment, entrepreneur’s activities have become dispensable for both developing and developed economics. The entrepreneurship has been considered as the necessary condition for genuine economic development. Many countries have perceived the significance entrepreneurship towards economic development and thereby promote entrepreneurial activities. As illustrated by Bruce et al. (2009), entrepreneurship is an instrumental factor for economic growth because of its efficiency in creating new jobs, employment opportunity, income, wealth and innovation in the economy. However, entrepreneur’s activity varies among the country depending on the level of economic development within the economy. The developing countries mainly characterised by poor economic conditions and thereby require massive investment to start up a new business. On the other hand, entrepreneurial activities in developing countries mostly based on creating new opportunities in the market. The relationship between economic growth and entrepreneurship in developing economy like UK reflected as the ‘U’ shaped relation. Government or the policy makers plays an important role in promoting the role of entrepreneurship and their activities in relation to the economic growth. Thus, the relationship between entrepreneurship and economic performance is captured by various factors, including wellbeing of the population, economic power and so on. Figure 1: Key aspect of Entrepreneurial activities (Source: Bruce et al. 2009, p.230) The entrepreneurial activities are crucial to create new firms, especially during the recession period. Entrepreneurship adopts resource from the economy and creates new firms to develop new products and launch them in both domestic and foreign market (Hisrich and Peters, 1992). Thus, the entrepreneurship is the strategic element to utilize economic resource properly to form dynamic industries and thereby increase the likelihood of sustained new firms. Further, entrepreneur’s capital provides economic growth by developing competition and increasing number of industries in the market. Apart from that, entrepreneur’s activities also contribute to the economic growth by serving the channels of information. Thus, to sum up, entrepreneur’s activities contributes to the economic growth from the four standard of empirical evidence. The first evidence deals with the size of the market and number of market participants in the industry which has very important impact on the economic growth. The second evidence is the availability of employment opportunity at any state of economic growth. The third standard of evidence is turbulence effects of entrepreneurship on the economic growth. In other word, total number of entry and exists in an industry is an important indicator of entrepreneur’s activities. The change in the size of distributor channel is the last evidence of entrepreneur’s activities to sustain economic growth. The turbulence effect of entrepreneurship provides minimal effects on the economic growth in the short run. In the UK economy, turbulence effect has a major contribution in the service sector than in the manufacturing sector. Apart from that, the entry exist turnover also provides a significant contribution to the UK’s service industries. Increasing competition among the firms is a common place of entrepreneurial activities that have a positive impact on the growth of the UK economy (Georgelli et al. 2000). In particular, local competition in terms of the relative number businesses has encouraged employment growth and thereby economic growth during the recession period. Entrepreneurship actives also encourages self employment opportunities and that has been found to have a strong impact on the overall productivity growth. However, Bruce et al. (2009) argued that, high level of self employment opportunity sometime provides negative impact on the economic growth. The UK economy is characterised by relatively slow level of self-employment opportunities than the equilibrium. The industrial policy in the UK economy is designed to bring structural changes in the large industries as well as increases the scope of new small scale industries through the promotion of innovative activities in the UK economy. Conclusion: The above paper focuses on analysing the key aspect of entrepreneurship and its impact to move out of the UK economy from the recession period. Great recession have a long term effect on the UK economy in terms of lower potential level of business wealth, lowers wage and salary earnings, increase in unemployment rate and so on. In this context, entrepreneurship has been considered as an important part to carry the economy out of the recession. It is an important ingredient to develop an economy by creating new job opportunities and build up robust community. However, net effects of entrepreneurship are theoretically ambiguous. It has been criticised by the researcher as it acts as a restriction in context of wage/salary measurement opportunities. Still, entrepreneurship activities have a strong implication to form political stability and economic growth. The government in the UK economy should develop entrepreneurship activities by critically analysing major differences existing in its business owner and economic needs. 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