Published on October 31, 2009
Slide 1: THEORIES OF ENTREPRENEURSHIP Slide 2: Entrepreneurship is an evolved thing. With the advancement of science and technology it has undergone metamorphosis change and emerged as a critical input for socio-economic development. Various writers have developed various theories on entrepreneurship and popularized the concept among the common people. The theories propounded by them can be categorized as under- Sociological theories Economic theories Cultural theories Psychological theories Slide 3: Sociological Theories The following theories explain how sociological factors acclelerate the growth of entrepreneurs: 1-Theory of religious beliefs 2- Theory of social change Theory of religious beliefs Max Weber has propounded the theory of religious belief. According to him, entrepreneurism is a function of religious beliefs and impact of religion shapes the entrepreneurial culture. He emphasized that entrepreneurial energies are exogenous supplied by means of religious beliefs. the important elements of Weber’s theory are discussed further- Slide 4: 1- Spirit of Capitalism- in the Webrian theory, spirit of capitalism is highlighted. We all know that capitalism is an economic system in which economic freedom and private enterprise are glorified, so also the entrepreneurial culture. 2- Adventurous Spirit- Weber also made a distinction between spirit of capitalism and adventurous spirit. According to him, the former is influenced by the strict discipline whereas the latter is affected by free force of impulse. Entrepreneurship culture is influenced by both these factors. 3- Protestant ethic- according to Max Weber the spirit of capitalism can be grown only when the mental attitude in the society is favorable to capitalism 4 -Inducement of profit- Weber introduced the new businessman into the picture of tranquil routine. The spirit of capitalism intertwined with the motive of profit resulted in creation of greater number of business enterprises. Slide 5: In fact, this theory suited the british rulers, who desired to encourage European entrepreneursip in India. This theory was vehementaly criticized by many researchers because of the unrealistic assumpitions. Theory of Social Change Everett E. Hagen, in his theory of social change propounded how a traditional society becomes one in which continuing technical progress takes place. The theory exhorts the following feature which presumes the entrepreneur’s creativity as the key element of social transformation and economic growth. Presentation of general model of the society- the theory reveals a general model of the society which considers interrelationship among physical environment, social structure, personality and culture. Economic Growth : product of social change and political change : According to Hagen, most of the economic theories of underdevelopment are inadequate. Rejection of followers syndrome : Hagen rejected the idea that the solution to economic development lies in imitating western technology. So the followers syndrome on the part of the entrepreneur, is discouraged. Slide 6: Historic shift as a factor of initiating change- Hagen in his book, How Economic Growth Begins, depicts historic shift as the crucial force which has brought about social change technological progress thereby leading to the emergence of entrepreneurial class from different castes and communities. Withdrawal of status respects as the mechanism for rigorous entrepreneurial activity- Closely consistent with the historic shift it is the social group that plunges into rigorous entrepreneurism which experiences the status withdrawal or withdrawal of status respects. hence, Hagen’s creative personality is the admixture of Schumpeters innovation and McClellands high need for achievement. but Hagen’s analysis fails to give policy measures for backward countries which are striving for economic development as he identifies status withdrawal as the causal factor in the emergence of creative presonality. Hagen’s thesis of disadvantaged minority groups ha its own limitations. There are many disadvantaged minority groups in India which have not supplied a good number of entrepreneurs. Slide 7: ECONOMIC THEORIES Entrepreneurship and economic development are interdependent. Economic development takes place when a country' real rational income increases overall period of time wherein the role of entrepreneurs is an integral part. Schumpeter’s Theory of Innovation Schumpeter’s theory of entrepreneurship is a pioneering work of economic development. development in his sense, implies that carrying out of new combination of entrepreneurship is basically a creative activity. According to Schumpeter an entrepreneur is one who perceives the opportunities to innovate, i.e. to carry out new combinations or entreprise. In his views, the concept of new combination leading ti innovation covers the following 5 cases- 1- The introduction of new goods, that is the one with which consumers are not yet familiar, of a new quality. 2- The introduction of new method of production 3- The opening of new market 4- the conquest of new source of supply of raw material 5-The carrying out of new organization Slide 8: In view of the above, Schumpeterian theory of entrepreneurship has got the following features- 1- Distinction between invention and innovation Schumpeter makes a distinction between innovation and invention. Invention means craetion of new things and innovation means applical of new things onto practical use 2- emphasis on entrepreneurial function- Schumpeter has given emphasis on the role of entrepreneurial functions in economic development.in his views, development means basic tranformation of the economy that is brought about by entrepreneurial functions. 3- presentation of disequilibrium situation through entrepreneurial activity-the entrepreneurial activity represents a disequilibrium situation, a dynamic phenomenonand a break from the rotine or a circular flow or tendenct towards equilibrium. 4- entrepreneuralism dream and the will to found a private kingdom- the motives of creating things and applying these things into practice inspire the entrepreneur to undertake innovation. CRITICAL EVALUATIONSCHUMPETER’S THEORY OF INNOVATION IS CRITICIZED ON THE FOLLOWING GROUNDS-1- THE THEORY HA STHE SCOPE OF ENTREPRENEURISM IN THE SENSE THAT IT HAS INCLUDED THE INDIVIDUAL BUSINESSMAN ALONG WITH THE DIRECTORS AND MANAGERS OF THE COMPANY. 2- Schumpeters innovating entrepreneurs represents the enterprise with the R & D and innovative character. But developing countries lack these character.3 the theory emphasizes on innovation and excludes the risk taking and organizing aspects.4. Schumpeter’s entrepreneurs are large scale businessman who introduce new technology, method of production. : CRITICAL EVALUATIONSCHUMPETER’S THEORY OF INNOVATION IS CRITICIZED ON THE FOLLOWING GROUNDS-1- THE THEORY HA STHE SCOPE OF ENTREPRENEURISM IN THE SENSE THAT IT HAS INCLUDED THE INDIVIDUAL BUSINESSMAN ALONG WITH THE DIRECTORS AND MANAGERS OF THE COMPANY. 2- Schumpeters innovating entrepreneurs represents the enterprise with the R & D and innovative character. But developing countries lack these character.3 the theory emphasizes on innovation and excludes the risk taking and organizing aspects.4. Schumpeter’s entrepreneurs are large scale businessman who introduce new technology, method of production. Slide 10: 5- Schumpeter remained silent about as to why some economics had more entrepreneurial talent than others. However, despite the above criticisms, Schumpeterian theory is regarded as one f the best theories in the history of entrepreneurial development. CULTURAL THEORIES Advocates of cultural theories point out that entrepreneurship is the product of culture. Entrepreneurial talents come from cultural values and cultural system embedded into the cultural environment. Hoselitz’s Theory Hoselitz explains that the supply of entrepreneurship is governed by cultural factors, and culturally minority groups are the spark-plugs of entrepreneurial and economic develoment.in many countries, entrepreneurs have emerged from a particular socio-economic class. He emphasized the role of culturally marginally groups like Jews and the Greeks in medieval Europe, the Chinese in south Africa and Indian in east Africa in promoting economic development. Psychological Theories Psychological theories centre's around the psychological characteristic so the individual in a society. Psychological characteristics affect the supply of entrepreneurs in the society. Slide 11: DRUCKER ON ENTREPRENEURSHIP Peter F. Drucker opined that “an entrepreneur is one who always searches for change, responds to it and exploits it as an opportunity.” he laid emphasis on two important factors – innovation and resource- that led to emergence of entrepreneurship. According to him, innovation is the real hub of entrepreneurship which creates resource. A thing is regarded as resource when its economic value is recognized. For example, mineral oil was considered worthless until the discovery of its use. Similarly, purchasing power was considered an important resource by an American innovative entrepreneur who invented installment buying. According to Drucker, successful entrepreneurship involves the following things- Value and satisfaction obtained from resource by the consumer are increased New values are created Material is converted into a resource or exiting resources are combined in a new or more productive configuration Entrepreneurship is the practice which has a knowledge base. Entrepreneurship is not confined to big businesses and economic institutions, it is equally important to small business and non-economic institutions Entrepreneurship behavior rather than personality trait is more important to enhance entrepreneurship The foundation of entrepreneurship lies in concept and theory rather than in intuition. Slide 12: Thus, Drucker has given his views that “an entrepreneur need not be a capitalist or an owner. A banker who mobilizes other’s money and allocates it in areas of higher yield is very much an entrepreneur though he is not the owner of the money.