Entrepreneurship and Venture Creation - Coursework Example

ENTREPRENEURSHIP AND VENTURE CREATION By of the of the School Entrepreneurship results from a complex balance of risks, opportunity initiatives, and rewards. Entrepreneurship refers to the process through which individuals pursue opportunities, fulfill needs and wants through innovations no considering the resources they currently control. A country’s entrepreneurial resource is a very crucial component of its economic growth and development; however, successful economic growth requires the country’s citizens to be the major participants in the process. This aids in bringing about changes in consumption patterns and structure of economic and population growths. Entrepreneurship is powerful tool of capital formation, employment generation, facilitating transfer of technology, raising productivity through innovation, redistribution of wealth and income, playing vital role in commercialization of new products, promoting social welfare, earning foreign exchange and the like thus facilitating industrialization in a country. A successful development of entrepreneurship requires availability of adequate information. Entrepreneurs are required to understand their markets and key people in the buyer organization to develop successful businesses that may bring economic growth. Since such understanding and information is not easily, rapidly or cheaply acquired, networks between sellers, buyers and other related parties must be established so as to form an effective communication. This will help in addressing more problems faced by new entrants due to the fact that buyers are more secure with existing suppliers. The paper attempts to analyze how entrepreneurial theory can help in removing UK economy out of recession. It also distinguishes debates and argues how key types of entrepreneurial activities affect economic performance. It takes franchising networks as a key variable because it helps in overcoming barriers of innovation and creativity and entrepreneurship development. Introduction Being a many-sided concept, entrepreneurship can be used in a range of contexts to bring economic growth and help the country’s economy come out of recession. At the heart of the concept are entrepreneurs. Entrepreneurs are individuals that possess certain traits that help them come up with viable and unique business opportunities. Such groups of people are described as innovators who undertake the new combination of factors of production. They are able to introduce new products, open new markets, introduce new methods of production, reorganize any industry and even conquer new source of supply of factors of production (Casson, 2003, 39). Being highly talented and greatly motivated, entrepreneurs are able to see potentially profitable opportunities and strengths and tend to exploit them. Mere existence of resources is not a guarantee to economic growth however it basically takes human effort to mobilize capital and exploit natural resources to create innovative products and new markets and to carry out trade (Samli, 2009, 96). Entrepreneurship is therefore the central figure of the growth and development process as entrepreneurs in the contemporary complex economic world are able to create new opportunities for production technology by discovering or expanding markets, new source of resources or new products. Such activities embrace uncertainties and risks as well as increasing the demand for increased or higher investment in the economy. Demand for increased investment necessitates capital accumulation and consequently the demand for increased savings rate in the economy. These will results in increased income levels and total production of services and goods in the economy, thereby resulting in economic growth which when coupled with proper and equitable distribution policies bring about real development in the economy (Cuervo et al ,2007, 138). However, for entrepreneurship to be successful in bringing economic development the problem of inadequate information must be overcome by entrepreneurs. This problem is however addressed by the existence of information technology which helps entrepreneurs to gather various information needed, exchange views with other entrepreneurs both locally and abroad, share experience and take suggestions from successful ones. Collecting information from such networking system helps entrepreneurs to reduce production costs hence contributing more to the economic development. This paper tries to establish how entrepreneurial development through networking reduces cost of production and evaluate whether it brings economic growth and development. Critical Evaluation of Existing Theories of Entrepreneurship Currently, there are numerous entrepreneurship theories that aid in the development of entrepreneurship. Such theories include Psychological Theories The fundamental nature of such theories is the difference in attitudes of people. This category argues that the difference in person’s attitude that is their internal attitude and capacity to assess and forecast a situation lead people to be successful entrepreneurs. Some significant theories of this field include. The theory of Internal-External Locus of Control that was introduced by Professor J.D Rotter of Ohio University emphasizes a person’s the self-confidence, the dependency on the external environment and fortune for becoming a successful entrepreneur. This theory argues that internal locus of control, for instance, extreme belief over a person’s ability and power and self-confidence normally motivates a person to go for initiatives for innovation (Nafziger, 2006, 158). This is very helpful for the individual as well as for the society. The success of entrepreneurs come from their own abilities as well as support from outside. Individuals that have strong internal locus of control are often very successful entrepreneurs because they are well aware of their capacities. Such people have self-confidence, independent thinking, and self-controlling ability necessary to avoid social condemnation for becoming a successful entrepreneur. They are able to take risks and overcome uncertainties resulting in higher investment in the economy which necessitates capital accumulation and increased rate of savings in the economy. As a result, peoples’ income level and total production of services and goods in the economy increases in the economy, thereby resulting in economic growth (Casson, 2003, 158). Everett Hagen’s theory of withdrawal of status respect argues that certain social changes and adjustments can cause psychological changes in an individual or in a group of the society. According to Hagen, the initial condition that leads to eventual entrepreneurial behavior is the group’s loss of status of collectivity. He further states that loss of status is brought about by forceful displacement, denigration of their valued symbols and drifting into a situation of inconsistency of status. The individuals may not accept the loss in status and their reactions to the situation may be innovation, ritualism, retreatism, rebellion and reformism (Nielsen, 2012, 94). Among the above reactions, retreatism is very crucial for entrepreneurship. Since retreatism is caused by psychological repression of the trauma that is connected with the loss of status, the consequent suppressed rage from the loss of status increases the standards of achievement of the later generation. The later generations become more innovative thus making entrepreneurship a feasible outlet for the tendencies. Even though this theory results into a successful business venture, it has been criticized for being post hoc. Hagen discovered withdrawal of status respect by first examining situations that brought economic growth and then status losses that might have paved the way for such growth (Cuervo et al., 2007, 110). Another criticism is that the time taken for entrepreneurship to emerging may be too long, for instance, in so far as five or more generations. Another theory that is the most one of the numerous theories on entrepreneurship is David McClelland’s theory on the need for achievement. In the theory, David McClelland put emphasis on the relationship of need for achievement or achievement motivation to economic development through entrepreneurial activities and interests. He wrote “the presumed mechanism by which n Achievement level translate itself into economic growth is the entrepreneurial class. If then Achievement level is high, there will presumably be more people who behave like entrepreneurs-----” As maintained by McClelland, and individual would anticipate a relatively larger amount of entrepreneurship in a society in case the average level of need achievement in such a society is relatively high due to the fact that having high average level of need achievement makes a person to sit demanding goals, work extra hard to achieve them by using the abilities and skills that are required to accomplish them (LandströM & Lohrke, 2010, 61). Furthermore, it is a person’s inner drive that pushes them to put more effort and achieve their goals for their own advantage by taking personal risk. A person’s high need for achievement mirrors a strong goal direction, an obsession with task or job that is to be done. Therefore, entrepreneurship becomes intervening variable or link between need achievement and economic growth. According to David McClelland, a society should ensure that there is increasing the level of need-achievement so as to fire up entrepreneurship and economic growth. McClelland clearly states that people are usually triggered to be successful entrepreneurs by the desire to do well and high extent of achievement motivation, not just for the sake of prestige or social recognition, but for their inner drive for personal accomplishment. He also proposes that a person’s need for achievement can be increased through creation of appropriate culture as well as through training. Successful entrepreneurship results to businesses that employ more workers and contribute to innovation that produces positive spill-over effects in other industries that removing a country out of recession. In motive-Acquisition theory, a revised version of McClelland’s need for achievement theory states that an individual’s thinking power, mentality, attitude, and personality are not in-born but instead are flexible and varies with the situation. This theory, therefore articulates that a person needs frequent training and development programs so that they are influenced and motivated towards a goal by altering his/her mentality, thinking, and attitude (Casson, 2003, 98). Encouraging entrepreneurship through education forms the basis for successful entrepreneurial ventures. For instance, in higher education, building intellectual capital in UK universities has fostered entrepreneurship. This coupled with superior research centers within the country helps in attracting and retaining top-quality individuals stimulate technological innovations and assist in the relocation of technology to the private sector. This aids in raising awareness of entrepreneurship thus resulting into successful business ventures that lead to economic development (Stel, 2005, 192). Sociological and Anthropological theories This category of theories is based on sociological and anthropological aspects because socio-cultural factors have significant influence in the creation of entrepreneurs and entrepreneurship as well. Furthermore, cultural and social factors put a substantial value on risk taking, independence and innovation thus being more likely to create entrepreneurial incidents than a system that has contrasting values (Shane, 2003, 63). The most common type of theory under this category is Max Weber’s protestant values. In this theory, Weber maintains that the protestant or Calvinistic values or logic are very instrumental in promoting capitalist enterprises. Sociological enterprise concentrates on the social context (society). Such social contexts that relate to entrepreneurial opportunity include social networks. This social context advocates social relationships and bonds that encourage trust and not opportunism. The entrepreneur is required to keep faith with the surrounding people and not take undue advantage of them. Sociological and psychological factors play a vital and simulative role in a person for becoming a successful entrepreneur. Risk taking is the most crucial success factor of an entrepreneur however the risk should be moderate in nature and calculated. Opportunity–Based Entrepreneurship Theory This theory that was advanced by Drucker and extended by Stevenson offers a wide range of the conceptual framework for entrepreneurship research. According to this theory, entrepreneurs do no cause change but rather exploit the opportunities that changes in consumer preference or technology create (Smallbone et al. 2009, 89). Drucker further states, “this defines entrepreneur and entrepreneurship, the entrepreneur always searches for change, responds to it, and exploits it as an opportunity”. The most apparent issue in this theory is that entrepreneurs normally look at possibilities that are created by change and not the problems. Stevenson extends the opportunity based theory to include resourcefulness based on research to establish the variations between administrative management and entrepreneurial management (Cuervo et al., 2007, 88). Stevenson concludes that the core of entrepreneurial management is normally the “pursuit of opportunity without regard to resources currently controlled”. This theory ensures that entrepreneurs understand their markets and key people in the buyer organization to develop successful businesses. Successful entrepreneurship results to businesses that employ more workers and contribute to innovation that produces positive spill-over effects in other industries that removing a country out of recession. This will result in high-income levels and total production of services, and goods in the economy, thereby resulting in economic growth that when coupled with proper and equitable distribution policies bring about real development in the economy. Resource- Based Entrepreneurship Theories This theory maintains that access to resources by entrepreneurs is a crucial predictor of new venture growth. It put more emphasis on the significance of social, financial and human resources. It argues that access to resources boosts the ability of an individual to detect and act upon the realized opportunities (Shane & Eckhardt, 2003, 334). According to this theory, formation of a new business venture is very easy and common when people have access to financial capital. By implication, the theory proposes that entrepreneurs with easily accessible financial capital are very able to obtain resources to take advantage of entrepreneurial opportunities effectively and establish a firm to do so. Access to capital is necessary for the growth of new ventures because it facilitates the recognition of idle opportunities and the accumulation of new resources for the firm. Entrepreneurs who have better access to social networks, knowledge and information are more able to identify and exploit opportunities thus resulting to successful business ventures. Shane and Eckhardt (2003) says “an individual may have the ability to recognize that a given entrepreneurial opportunity exist, but might lack the social connections to transform the opportunity into a business start up. It is thought that access to a larger social network might help overcome this problem” (pp.333). Basically stronger social ties to the providers of resources help in the acquisition of necessary resources and augment the likelihood of opportunity exploitation. Therefore, nascent founders should have access to other entrepreneurs in their social networks so as to detect opportunities that may lead to successful business ventures. In addition, resource- based entrepreneurship theory maintains that an entrepreneur should have experience and education so as to be able to understand differences in the identification and exploitation of opportunities. This will enable an entrepreneur to go for only opportunities that are likely to succeed so as to employ more workers thereby resulting in increased total production of goods and services (Shane & Eckhardt, 2003, 340). Entrepreneurial activity In order to accelerate the growth and development of the economy, an entrepreneur needs to develop entrepreneurship through technology and network support for information and coordination and link it to entrepreneurship and economic development. For a business to be successful, an individual should develop entrepreneurship through technological development (Cuervo et al., 2007, 108). The efficiency and effectiveness of technological performance depend on how well it addresses internal and external environmental factors. An entrepreneur needs to evaluate the existing environment in order to design and implement effective technological development program. Therefore, it is crucial for an entrepreneur to select, transform, adapt or develop the technological factors so as to develop with a viable business idea which is likely to succeed hence creating more job opportunities. He/she needs to scan both internal and external environmental factors using Strategic Advantage Profile (SAP) and Environmental Threats and Opportunity Profile (ETOP) (Kuratko, 2009, 78). Here, the external factors are politico-legal environment, organization of the social setup socio-cultural factors, existing productive forces and relations, demographic factors, supply of technical experts in the society and infrastructural facilities of the community whereas internal factors to assess strengths and weaknesses are financial capability of an individual, human resource capability and availability, current mode of operations compared to the competitors strength, management capability, and status of information available in the organization (Naudé, 2011, 148).. This entrepreneurial activity helps in the examination of strengths, weaknesses, threats and opportunities in a bid to develop a viable business opportunity that is likely to succeed. After examination of the business environment, an entrepreneur needs to initiate strategies for technology development. Technology is a powerful tool that aids in the exploitation of the competitive advantage in a complex and interdependent world. This step requires a multi oriental consideration, in-depth deliberation as well as combination of numerous important tasks. Development of technology requires research and development program, particularly commercial research innovations and inventions, that is distributed to the entrepreneurs for adoption in their respective industries by preplanned programs (Casson, 2003, 80). Because this helps in the injection of financial benefits or gains to the total economy, an entrepreneur should take maximum care when researching the entrepreneurship development potentiality to the informal sector for urban innovation and farm sector for rural innovation. Another way of technological development is through licensing, direct foreign investment, and international sub-contracting. Technological development enables an entrepreneur to come up with innovative new products in the market. New ideas are created by knowledge-push and need-pull concepts. Such new products are successful in the market because customers normally show high interest to test revolutionary products. The entrepreneurial ventures then progressively marches forward to the maturity and growth through expansion and occupation of the market by close contact with customers, initial cost absorption, and problem solving in new ways and learning by doing methods. Technological development brings about latest information that aids an entrepreneur to invent and innovate new products, open new markets, introduce new methods of production and conquer new source of supply of factors of production. Increased expansion of new market and introduction of innovative products makes creative customers not to be satisfied by utilizing or consuming existing products and services in conventional and traditional patterns. Such customers find new methods or new offerings more satisfying and therefore a dynamic entrepreneur should conduct a survey to establish customers’ hidden demand and then translate it into a new blend of production means so as to produce a product that fulfills such demands. Successful entrepreneurial activity requires integrated assistance package to the entrepreneurs. Once the technology has been developed, it should be commercialized to its target markets (ultimate entrepreneurs) so that they can utilize it in developing new innovations and inventions (Cuervo et al, 2007, 18). Such technology is able to take care of market demand as well as planned publicity for its diffusion to the general mass so as to increase its acceptability. It is, therefore, essential to ensure continuous coordination among research and development institutes, academic and research institutions and engineering and production units so as to assess and reassess the products and commercialization results. This ensures that entrepreneurs are able to translate their dreams into economic reality by exploiting technological innovation for mass entrepreneurial supply in the economy. Thus, the implementation of the integrated assistance services and technology diffusion programs in combined form generate avenues for the entrepreneurs to establish and run their enterprises. This helps in creating a huge number of entrepreneurial ventures in the society thus leading to economic growth and development. Successful development of a product or services requires networks between entrepreneurs to customers, suppliers and markets and also between entrepreneurs and entrepreneurs. Such networks accelerate entrepreneurship development and consequently economic growth. From such networks, entrepreneurs are able to gather necessary information that relates to sources of raw materials, potential needs of customers, modern and advanced methods of production, competitive products and how they are familiar to clients, potential markets, and market share of the similar products as well as its new dimensions; with least cost. Networking systems raises revenues of entrepreneurs since they reduce the cost of products. Consequently, increased profits also increase employment, investment and productivity which lead to economic growth thereby helping the country to come of the recession. Alternatively, suppliers are able to set up supply chains with low cost by gathering required information using this network, this reduces the cost of services and products to the consumers thus raising demand, ultimately making suppliers to maximize their profits (Julien, 2007, 89). Part of the profit can be reinvested hence increasing consumption as well as creating more employment, all these factors also contributes to economic growth. Therefore, it is crystal clear that such networks are able to assist the country in accelerating economic growth and development through entrepreneurship supported by same. Economic development and globalization Economic growth is normally brought about by entrepreneurial activities where individuals have direct ownership interest in the business. Opportunity entrepreneurship is the best option that is available for employment because such ventures are likely to produce more high-growth firms thus providing more jobs (Szirmai et al., 2011, 147). Thus, a positive and direct relationship exists between entrepreneurship ration and income level. An increase in entrepreneurship creates more business ventures and consequently more jobs with increase a country’s income level. In other words, nations where a greater portion of entrepreneurship is motivated by economic opportunity that is realized than by necessity tends to have higher income levels, this implies that entrepreneurship is good for a country’s economic development. When more citizens of a country are leaving necessity entrepreneurship (self-employment) to get involved in opportunity entrepreneurship, raises the level of economic development. This is so because entrepreneurial re4source of a country is very a vital component of its economic growth and development; however, successful economic growth requires the country’s citizens to be the major participants in the process. Increased entrepreneurial activities bring about changes in consumption patterns and structure of economic and population growths (Steyaert & Hjorth, 2006, 208). Entrepreneurship is very helpful in employment creation, rising of productivity through innovation, transfer of technology, redistribution of wealth and income and promoting social welfare thus leading to industrialization in the country. Entrepreneurship results into small business ventures that expand to larger corporations’ thereby influencing the growth of the countrys economy by creating new plants. This in turn increases the rate of innovation and competition. At low national income levels, self-employment is able to provide scope for the development of markets and job opportunities. However, as the GDP per capita income rises, the emergence of economies of scale and new technologies permits greater and well-established businesses to meet the rising demands of expanding markets and to enhance their relative role in the economy (Casson, 2003, 39). Entrepreneurs, therefore, play competitive advantage in high-income economies with reduced costs and fast technological development. The country’s economic development should focus on the conditions that are able to improve financial market, labor market, infrastructure, policies and rules which then aid in creating a pillar for entrepreneurship environment. Such conditions are also able to aid in attracting foreign direct investment that also generates technology exchange, employment, improve tax revenues and import-exports. Conclusion The paper clearly outlines that the entrepreneurship is the vital and key factor that explores various opportunities from the nation’s surrounding environment for economic development. It has also presented critical evaluation of existing theories of entrepreneurship development in a bid to find out success factors that play a key role for facilitating the rate of entrepreneurship development with a view to accelerate entrepreneurship towards economic growth. Successful entrepreneurship results to businesses that employ more workers and contribute to innovation that produces positive spill-over effects in other industries that removing a country out of recession. Entrepreneurship development is facilitated through technology. With the help of technology, entrepreneurs are able to exercise their command on existing resources. Technological development brings about latest information that aids an entrepreneur to invent and innovate new products, open new markets, introduce new methods of production and conquer new source of supply of factors of production. Networking system helps entrepreneurs to collect information or knowledge for generating new ideas with reduced cost. Also, it assists entrepreneurs to coordinate both vertically and horizontally. This ensures that entrepreneurs are able to translate their dreams into economic reality by exploiting technological innovation for mass entrepreneurial supply in the economy. Further, with the help of these networks earns more profit by increasing the volume of total sales and productivity, reducing costs of production and expanding markets. The profit also is able to increase investment for the economic growth of the country. Part of the profit can be reinvested thus creating more employment. Likewise other stakeholders like suppliers and customers can also increase their profit by establishing supply chains with low cost, increasing the number of users, and purchasing products with low cost respectively, consequently contributing to economic growth of the country along with the entrepreneurs. References Casson, M. (2003). The entrepreneur an economic theory. Cheltenham, U.K., Edward Cuervo García, A., Ribeiro, D., & Roig, S. (2007). Entrepreneurship concepts, theory and perspective. Berlin, Springer. Julien, P.-A. (2007). A theory of local entrepreneurship in the knowledge economy. Cheltenham, UK, Edward Elgar. Kuratko, D. F. (2009). 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(2009). Entrepreneurship and growth in local, regional and national economies frontiers in European entrepreneurship research. Cheltenham, UK, Edward Elgar. 59 Stel, A. J. V. (2005). Entrepreneurship and economic growth some empirical studies. [Amsterdam], Thela Thesis. Steyaert, C., & Hjorth, D. (2006). Entrepreneurship as social change a third new movements in entrepreneurship book. Cheltenham, UK, Elgar. Szirmai, A., Naudé, W., & Goedhuys, M. (2011). Entrepreneurship, innovation, and economic development. Oxford [etc.], Oxford University Press. Read More