Analysis of Self-employment or Entrepreneurship - Essay Example

?How useful are the concepts of enterprise 'push' and 'pull' in explaining the factors that influence the decisions of individuals to become self-employed and/or start up a business. Self-employment or entrepreneurship is an option for the individuals, who are young and can channel their enthusiasm, and energy for problem solving and innovative venture. This study aims at analyzing the factors that motivate an individual to choose entrepreneurship or self-employment, the concept of enterprise push or pull, and the role that it plays in taking decisions for self-employment or entrepreneurship. It has been noticed that the new firms created by entrepreneurs bring in new opportunities. They also involve innovative activities that are why entrepreneurship is also viewed as a major transmission mechanism that not only creates knowledge but also motivates economic growth (The World Bank, 2011). Apart from this, entrepreneurship or self-employment also acts an alternative source of employment for the labour force. Self-employment is a type of labour status which involves an extensive range of diverse activity. Starting an own business offers flexibility to the individuals and assist them in meeting the financial goals as well as the professionals goals. Entrepreneurship or self-employment has been always supported by government of the different countries because it not only creates employment within the country but also supports in overall growth and development of the country. Moreover, progress of the country in terms of trade, commerce and innovation can be estimated from the increasing rate of self-employment or entrepreneurship in the country (US Department of Labour, n. d.). Many studies in entrepreneurship literature have focused on the factors that lead the individuals to decide on for self-employment. The two major factors or variable that is commonly associated with self-employment is dissatisfaction and uncertainty avoidance. According to Brockhaus (1980), the dissatisfaction of the employee with the previous work is strongly associated with the self-employment or entrepreneurial decision of the individual. The second reason is uncertainty avoidance, which signifies the degree to which an individual feels threatened to an unknown or uncertain situation. This involves indicators like stability of employment, tendency of staying longer in a particular job, etc. The present economic condition of the global market, rising level of unemployment in the world, and volatile financial condition has led to the increase of uncertainty among the individuals, which directs them towards self-employment. Various scholars have further contributed in understanding the factors that leads to entrepreneurship (Hamilton and Harper, 1994). Other than the perceived capability that leads to self-employment or entrepreneurship, such as social, or financial, individuals would also have to reveal an enthusiasm for being self-employed. In this case entrepreneurial motivation plays an important role. Gilad and Levine (1986) has explained the distinctions between pull and push entrepreneurial motivational factors. It has been argued in the Model of the Entrepreneurial Event, that the advent of any business depends on the changes that take place in the life of the individual, which is also called a displacement. This displacement may be negative that is job loss, divorce, etc, or may be positive, such as property or business inherited, etc. The characteristics of the individual determine the way the disruptive events are perceived, valued or experienced (Shapero and Sokol, 1982). The decision for the entrepreneurial career is taken by the individual not because of an objective situation, but because of the perceptions that he/ she has. The individuals start a new business as a response to certain disturbing events that occur in their lives, or may go in other directions too. Individuals get motivated through various factors for entrepreneurship. The primary approaches that leads to the development of entrepreneurial motivation can be segregated into two distinct categories, such as push and pull theories (Hakim, 1989; McClelland et. al., 2005; Schjoedt and Shaver, 2007; Segal et al., 2005). The push factors involve the external and personal factors which have a negative effect on the individuals. On the other hand, the pull factors include those aspects which draw individuals to start a new venture or business, which means seeking a new opportunity (Hakim, 1989). Generally, it has been noticed that the pull factors are more prevalent than the push factors (Shinnar and Young, 2008). This is because the individuals or entrepreneurships that start their business because of the push factors are less successful in their venture than those who being because of pull factors (Amit and Muller, 1995). Based on the push motivation theory, Oxenfeldt (1943) proposed that the unemployed or those individuals suffering from instability at work place often have the tendency to become self-employed for earning their living. Since early time, individuals have made decision between three basic activities such as employment, unemployment and self-employment. Self-employment is generally regarded as the consequence of unemployment. Self-employment leads to reduction of the opportunity cost, which further drives the individuals towards self-employment. There are other factors too which push the individuals towards the direction of new venture or business, other than unemployment. According to Giacomin et al. (2007), autonomy, family pressures are also push factors in case of self-employment, such as family business is transferred from one generation to other. Sarasvathy (2004) indicates that there are various types of requirement which lead to the inception of a new business, such as individual’s decision to leave wage based employment, who does not have the intention to commercialise their own creation for other employer, who is dissatisfied to work a particular organisational culture, etc. Several studies have shown that job dissatisfaction is another major reason under push motivation, due to which individuals move towards entrepreneurship or self-employment. According to the push hypothesis, the increasing rate of unemployment decreases the probability of paid employment, which directs an individual towards an expected return from self-employment, as it seems more attractive than employment. Moreover, in such cases the second hand capital becomes readily obtainable because during recession the frequency of business closure increases, so it can be said that the recession push proposition is also activating the interest of individuals towards self-employment. Push factors involves the negative aspects, such as barriers or loss that leads the individuals to leave their present employment and move towards entrepreneurship, so it can be said that an individual can be pushed towards self-employment because there are no other choice left. Pull Factors includes the expectation of the individual to begin a venture for betterment and stability. Push factors are associated with the aspects of dissatisfaction of the individual from his/ her present situation, while pull factor is associated with the positive outlook of the entrepreneur. Pull factors in entrepreneurial motivation involves factors such as social status, profit and opportunity. It constitutes six major motivational constructs such as independence, roles (model), learning, recognition, innovation, and financial success. Pull motivation is driven by the power of the mentioned factors, and the individuals striving to attain such features in their career move towards entrepreneurship or self-employment. In this case the individuals are not forced towards self-employment because they have various other choices too. Moreover, they are not dissatisfied with their present state of mind or career, so the motivating factor for the individuals following pull factors are the prospective growth, recognition, and successes. The major role that drives the different motives in pull factor is the wish to work independently and create a new venture. This is the reason why it is said that individuals are more pulled towards entrepreneurship than pushed. However, the occupational decision is not the only factor in pull approach, but there are other driving factors too. Several studies have indicated that there are a combination of both push and pull strategies when an individual decides to begin a new venture. In order to understand the effect of push and pull factors on the entrepreneurs, features of necessity motivated, opportunity motivated, and mixed motivated entrepreneurs or self-employed individuals can be evaluated. Several researches have been conducted to indentify the relationship between entrepreneurial motivation and gender. It has been found by Giacomin et al. (2007), that when a man takes decision to start a business after being unemployed, it has a positive effect on him. It has been found unemployment pushed entrepreneurship has a positive effect on a man because he sees the opportunities like independence, recognition, financial stability, etc in his changing status, but Bergman and Sternberg (2007) have not found significant difference of opinion in genders, when it comes to opportunity based, verses necessity based entrepreneurship. According to Reynolds et al. (2001), the age patterns of the necessity based and the opportunity based entrepreneurs are different. Age has a positive impact on the inception of a new venture when it is due to exit from the employment. In this case, the older people who exit from employment after a certain age may look to start a small business for themselves and earn their living, so it can be said that unemployment push factors acts positively for aged people, while pull factors are the motivating force for young entrepreneurs because they have the capability to handle risks, and they move towards entrepreneurship with the motive of financial gain, flexibility, independence, innovation and creativity, stability and recognition. Based on the goal setting theory, it can be said that if a person performs better that the others, even after having similar knowledge and ability, then the differentiating factor is motivational in nature. It has been noticed that individuals motivated by the push factors have the tendency to have lower inclination towards the human capital, which is significant for the successful growth of the business. On the other hand the opportunity backed entrepreneur start their business voluntarily, so they are considered to be better prepared to handle pressure and survive. Further these entrepreneurs also value the non-monetary rewards equally as the monetary rewards, so they get disappointed with the intrinsic benefits; there is higher probability of shift or closure of business than the necessity entrepreneurs. It can be depicted that opportunity entrepreneur have higher opportunity cost than their counter-parts. Several studies have indicated that at macro level, necessity entrepreneur face the disadvantages related to performance, whereas opportunity entrepreneurship has positive impact. In the micro level, the entrepreneurship based on pull factors become more successful both in terms of financial and venture success. This is an obvious fact because the push-based entrepreneurship has an obligation to generate revenue and succeed, which is not the case in case of pull based entrepreneurship. Moreover, the push entrepreneurs start after a failure or after overcoming a negative incident, so they are risk-averse and reluctant to newer or innovative ways of doing business for the fear of failure. On the other hand, the pull entrepreneur function under no pressure of failure, so even if they fail in their venture, they can pull up and move to a new one easily. After a comprehensive analysis of the push and pull motivational factors in entrepreneurship, it is clear that these theories have a significant role in driving an individual towards self-employment. Motivation play important role in creating new business or venture. The decision of becoming an entrepreneur is viewed as an aversive choice, which involves uncertainty, failures, frustrations, and losses, it is important to know about the probable motivating factors that lead to entrepreneurship. It can be concluded that there are two major driving factors that lead to this decision-making, they are push factors and pull factors. Push factors are the negative aspects in an individual’s life which drive that person towards self-employment. The negative factors may include unemployment, retirement, issues with the organisational culture, or with boss, etc. Individuals seek for job satisfaction and income, as well as stability, which drive them towards a push based entrepreneurship. On the other hand, the pull based entrepreneurship includes recognition, growth, fame, and innovation. In this case individuals voluntarily take the decision to opt for self-employment because they wish to gain recognition, success, and fame, enjoy flexibility and freedom at workplace and generate revenue. However, push entrepreneurs can be considered positive in case of old age, while pull entrepreneurship involves high opportunity cost, so which indicates that negative as well as positive aspects are included in both the perspectives. References Amit, R., and Muller, E., 1995. Push and pull entrepreneurship (two types based on motivation). Journal of Small Business and Entrepreneurship, 12(4), p. 64-80. Bergmann, H. and Sternberg, R., 2007. The changing face of entrepreneurship in Germany. Small Business Economics, 28, p. 205-221. Giacomin, O., Guyot, J-L., Janssen, F. and Lohest, O., 2007. Novice creators: personal identity and push pull dynamics. CRECIS Working Paper 07/2007, [e-journal], Available through: Center for Research in Change, Innovation and Strategy, Louvain School of Management, . Gilad, B. and Levine, P., 1986. A behavioral model of entrepreneurial supply. Journal of Small Business Management, 4, p. 45-53. Hakim, C., 1989. New recruits to self-employment in the 1980s. Employment Gazette, 97, p. 286-97. Hamilton, R.T., and Harper, D.A., 1994. The entrepreneur in theory and practice. Journal of Economic Studies, 21(6), p. 3-18. McClelland, E., Swail, J., Bell, J., and Ibbotson, P., 2005. Following the pathway of female entrepreneurs: a six-country investigation. International Journal of Entrepreneurial Behaviour and Research, 11(2), p. 84-107. Oxenfeldt, A.R., 1943. New Firms and Free Enterprise. Washington D. C.: American Council on Public Affairs. Reynolds, P.D., Camp, S. M., Bygrave, W. D., Autio, E. and Hay, M., 2001. Global Entrepreneurship Monitor. Executive Report. Sarasvathy, S. D., 2004. Opportunity Identification and Entrepreneurial Behavior. New York: Age Publishing Inc. Schjoedt, L., and Shaver, K.G., 2007. Deciding on an entrepreneurial career: a test of the pull and push hypotheses using the panel study of entrepreneurial dynamics data. Entrepreneurship Theory & Practice, 31(5), p. 733-52. Segal, G., Borgia, D., and Schoenfeld, J., 2005. The motivation to become an entrepreneur. International Journal of Entrepreneurial Behaviour and Research, 11(1), p. 42-57. Shapero, A., and Sokol, L., 1982. The social dimensions of entrepreneurship. Englewood Cliffs, NJ: Prentice-Hall. Shinnar, R., and Young, C., 2008. Hispanic immigrant entrepreneurs in the Las Vegas metropolitan area: motivations for entry into and outcomes of self-employment. Journal of Small Business Management, 46(2), p. 242-62. The World Bank, 2011. Entrepreneurship & Self-employment. [online] Available at: < http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTSOCIALPROTECTION/EXTLM/0,,contentMDK:21234265~menuPK:7220492~pagePK:148956~piPK:216618~theSitePK:390615~isCURL:Y,00.html > [Accessed 10 October 2009]. US Department of Labour, no date. Self-Employment & Entrepreneurship. [online] Available at: < http://www.dol.gov/odep/topics/SelfEmploymentEntrepreneurship.htm > [Accessed 10 October 2009]. Read More