Researcher – Richa Rajput
MBA Department, YMCA University of Science & Technology
Faridabad | Haryana | India
An Entrepreneur is a person who sets up a business by taking financial risks in the hope of earning profits with his ability to spot new opportunities. The three basic sources of growth in an economy are growth in the inputs of Production, Improvements in the efficiency of allotment of inputs across economic activities and Innovation that creates new products along with the new uses of the existing products. This paper provides an overview of the interrelation of Entrepreneurship Innovation and Economic Development. Economic Growth of a country is largely affected by the Entrepreneurship Innovation. It is through entrepreneurship that new sources of supply, new business opportunities and new unexploited markets are discovered that directly affect the economy.
Key Words – Entrepreneurship Innovation, Economic Development.
An entrepreneur is a person who sets up a business by taking various financial and other related risks in the hope of earning higher profits. Entrepreneurship is a process involving various actions that are performed in order to establish a new enterprise to earn profits on new found opportunities. Entrepreneurship involves various risks and uncertainties especially when new products are created for which there is no existing market. It is through entrepreneurship that important innovations enter into the market resulting in the introduction of new products and new uses of existing products which increases efficiency by resulting in healthy competition in the market. As a result of healthy competition consumers can avail various benefits and get new introduced products at reasonable prices. Their innovativeness introduces new ways of production and new markets that have not been exploited. It is through entrepreneurship that new source of supply are discovered and creation of new business organizations that directly affect the economy. Creation of new business opportunities through entrepreneurship, productivity and innovation leads to economic growth of the country. This therefore means that when there will be more entrepreneurship and its related innovation then growth in an economy is expected. Hence the economic development of a country and amount of entrepreneurs are in direct proportion with each other as more the number of entrepreneurs in the country more will be the development of a country in economic terms.
Joseph A. Schumpeter (1934;103) for the first time in 1934 discussed about the important role played by ‘Innovation’ in the entrepreneur in his magnum opus ‘Theory of Economic Development’. Schumpeter considered economic development as a dynamic change brought by entrepreneur by using new combination of factors of production which he called as ‘Innovation’. According to him the Innovation i.e. introduction of new combination of factors of production may occur in any of the following forms.
- Introduction of a new product
- Introduction of new methods of production
- Exploring of new markets
- Finding of new sources of supply of raw materials
- Running a new form of organization of any industry.
According to Harvard School approach entrepreneurship consists of any purposeful activity that initiates, maintains and develops a profit-oriented business along with the economic, political and social factors surrounding the business (Cole 1949; 85-107) Robert Bednarzick also presented an argument that entrepreneurship is not solely affected by the traditional factors of economic growth. In his article “The Role of Entrepreneurship in U.S. and European Job Growth,” Bednarzick identified seven main factors that influence entrepreneurship in a given country: the opportunities for entrepreneurship present, the demographics, the level of education, the entrepreneurial capacity, the infrastructure, the extent to which culture encourages entrepreneurship, and whether the country capital is controlled chiefly by banks or public markets (Bednarzick, pp. 14-15). Bednarzick also argues that there is a positive relationship between entrepreneurship and economic growth (Bednarzick, p. 14).
Entrepreneur is a self employed person with vision in his mind and having an original idea and tries to create something new with his decision making skills and one who arranges all the factors of production. He undertakes various risks and handles economic uncertainty involved in an enterprise. He acts as a risk bearer and as a coordinator or organizer.
Entrepreneurship is the process of designing, launching and running a new business. In a conference on Entrepreneurship held in United States, the term Entrepreneurship was defined as follows: Entrepreneurship is the attempt to create value through recognition of business opportunity, the management of risk taking appropriate to the opportunity and through the communicative and management skills to mobilize human, financial and material resources necessary to bring a project to fruition (Kao and Stevenson 1984)
An innovation is the way of doing the things differently and in a better modified way. Innovation involves application of information and imagination to produce greater and different values from resources and includes all processes by which new ideas are generated and converted into useful products. In business, innovation often results when ideas are applied by the company in order to further satisfy the needs and expectations of their customers. There is a basic difference between Invention and Innovation. Invention is the creation of something new which results in the creation of new knowledge while an Innovation is the transformation of an idea or resources into their useful application. It results in the formation of new products, services and processes. An inventor produces an idea while an innovator converts that idea into reality.
INNOVATION IN THE ENTREPRENEURS
Along with the traditional factors such as the amounts of labour, capital and technical knowledge innovation has also become an important factor in the success of a business in such a competitive environment. Innovation is closely related with changes in the structure of the economy and technological up gradation in production. The innovation in the Entrepreneurs includes the development of new products, new processes, new sources of supply along with the exploitation of new markets and the development of new ways to organize a business. It is mandatory for the entrepreneurs to be innovative in the way they operate their business as it is not only necessary for the success of the business but has also become the need of the hour in such a competitive environment of Globalization.. Even in the traditional economic sectors such as textiles, leather, or food processing, innovation along with the technological advancement has become for the growth of the business. The same applies for service sectors such as distribution and retailing, financial services and ICT services. In developing countries, innovative entrepreneurs initially focus on doing improvements in the existing foreign designs rather than getting involved in the risky development of products and new advanced technologies. Once the entrepreneurs have established themselves then they gradually shift to innovations ways which in the later stages ultimately help the growth of a country in economic terms.
NEED FOR ENTREPRENEURS
The entrepreneurs are considered as change agents in the industrial and economic development of a country. In fact they are the spark plug who transform the country in economic sense. For example Japan, China and United States are developed because of their entrepreneurial development while Bangladesh and Nepal are underdeveloped because of the lack of their entrepreneurial development. The same is true in the case of India. Within India, Gujarat and Punjab are developed states because of the large number of emerging entrepreneurs while Bihar and Orissa are backward or underdeveloped because of the lack of entrepreneurial development. Mr. Rahul Bajaj, Chairman and Managing Director of Bajaj Auto emphasized the need and significance of entrepreneurs in India in these words : “If we could have a entrepreneur in every family, India’s economy would sky rocket. We could then be able to take our rightful place as an economic super power in the community of nations. Entrepreneurs create jobs. They create wealth. They create products and services.” Thus, with entrepreneurs the societies develop and prosper and without them they are poorer.
FACTORS INFLUENCING ENTREPRENEURSHIP
An entrepreneur is affected by various External and Internal Factors. The Internal Factors are related to the personality of an individual and are psychological in nature that encourages a person to become an entrepreneur.
Internal factors include Demographic variables, Personal characteristics, Personality traits, Social Cultural factors, Psychological Factors and Environmental factors. In Internal Factor Demographic Variables includes age, gender, birth order, Education, ethical background of the person and the nationality. Personality characteristics consists of technical expertise, Managerial expertise, entrepreneurial expertise, leadership skills and Personal values. Social Factors consists of Parental role model, Cultural role model, Family support and the community. Personality traits includes the zeal of an entrepreneur to achieve success, focus of control, his ability to take risks and the tolerance power. Environmental Factors consists of various circumstances like lack of employment opportunities, little opportunity for advancement, available economic resources in a country and finally the prevailing political environment. Psychological Factor is in turn affected by various sub factors like Need for achievement. It motivates to enhance business tasks for the achievement of success and is a form of psychological power. Next is Perception and motivation. They both help in supporting entrepreneurial behavior by enhancing positive forces to enter into business. Finally Psychological Factor includes Learning and personality. More learning about business increases the efficiency of various business operations. Different personality including reformist, innovator and realists.
External Factors include Political environment, Social and Cultural environment, Economic environment, Legal environment and Technological environment.
Economic environment has the most direct and immediate influence on entrepreneurship. It is affected by various sub factors. First sub factor is Markets of the business. The size and composition of market both influence entrepreneurship in their own ways. Practically, monopoly in a particular product in the market becomes more influential for entrepreneurship than a competitive market. Second is Capital. Availability of capital helps to bring together the labour, machine and raw material and combine them to produce products and services. Third is Labour. Labour is the most important factor of economic condition of entrepreneurship. It appears that if there is labour problem then entrepreneurs can not emerge at a faster pace. Next is Raw materials. Without raw materials business can not be started because of the absence of production process. Last is Industrial and Fiscal policy. Industrial policy includes rules and incentives whereas Fiscal policy includes value added tax.
Social environment in a country has a significant impact on the emergence of entrepreneurship. The main components of social environment are Social Mobility, Security and Legitimacy of entrepreneurship. Social Mobility means the people of society transfers from one place to another, exchange culture, attitude etc. If mobility is positive then growth is also positive. Entrepreneurship security is an important facilitator of entrepreneurial behavior. Insecurity does not hinder entrepreneurship. Different kinds of insecurity results in different kinds of entrepreneurship.
A country’s economic growth largely depends on its political factors. The political factors include Political stability and Nature of change in political ideology. Political stability of government influences the development of entrepreneurship and if it is favorable to business growth then entrepreneurs takes new initiative to bring out innovation. Due to the change of government the political ideology also changes again and again. As a result new sectors arise by declining the previous already established sectors.
It means the country’s law and order situation. If the rules and regulations of the government of the country are framed in such a way that it promotes liberal trade policies, then entrepreneurial growth will be high. Various types of legal factors include Income tax law, Labor law and Wage law.
FACTORS AFFECTING ENTREPRENEURSHIP INNOVATION
The level to which innovation exists in an entrepreneur depends upon various factors like access to Financial resources, availability of skilled labour and access to knowledge. Innovative entrepreneurs often face greater difficulties when it comes to accessing to finance than larger firms. Another important input is skilled labour. The challenge of accessing labour can also be particularly difficult for innovative start-ups The administrative burdens of employment are often more difficult for smaller businesses to handle than for larger firms. Finally Knowledge also plays a crucial role to enhance the innovation of the entrepreneurs. Access to knowledge can be particularly important for innovative entrepreneurship as collaborations may allow overcoming disadvantages related to size of the business firms. The phenomenal success of the Indian Software Industry, India’s Education system and Public Policies largely affects the Entrepreneurship, Innovation and Growth.
ROLE OF ENTREPRENEUR IN ECONOMIC DEVELOPMENT
Entrepreneurship is one of the most important factor in the economic development of a country. He plays a crucial role not only in the development of the industrial sector of a country but also in the development of service sector. Economic Development of a country means an increase in Real GDP. Economic growth means there is an increase in national output and national income. Economic growth is caused by two main factors: an increase in aggregate demand and an increase in aggregate supply (productive capacity). Increase in the capital stock, advances in technology, entrepreneurship advancement and improvement in the quality and level of education & knowledge are considered as the principal causes of economic growth. Entrepreneurs promote capital formation by increasing the savings of public. They employ their own as well as borrowed resources for setting up their enterprises. Such type of activities by the entrepreneurs leads to value addition and creation of wealth, which is very essential for the industrial and economic development of the country. Entrepreneurs provide large-scale employment to the unemployed people. With the setting up of more units by entrepreneurs numerous job opportunities are created for others. As these enterprises further grow they provide direct and indirect employment opportunities to many more. In this way, entrepreneurs play an effective role in reducing the problem of unemployment in the country which in turn clears the path towards economic development of the nation.
Moreover Entrepreneurs help to remove regional differences by setting industries in less developed and backward areas of the country. The growth of industries and business in these areas results in large number of public benefits like road transportation, education, entertainment and health facilities. Setting up of more industries lead to higher development of backward regions and thereby promoting balanced regional development. which will help reduce the concentration of economic power amongst the population. Entrepreneurship helps in the equal distribution of wealth and income among the people of the country and geographic areas, thus giving benefits to the larger sections of the society. Entrepreneurial activities also generate more activities and give a multiplier effect in the economy. Entrepreneurs always look out for opportunities. They explore and exploit various opportunities, encourage effective resource utilization of capital and skill, bring in new products and services and develop markets for growth of the economy. In this way, they help in increasing the gross national product as well as per capita income of the people in a country. Increase in gross national product and per capita income of the people in a country, is a sign of economic growth.
Increase in the standards of living of the people is a characteristic feature of economic development of the country. Entrepreneurs play a key role in increasing the standards of living of the people by adopting latest innovations in the production of various goods and services at a lower cost. This enables the people to avail better quality products at lower prices which results in the improvement of their standard of living. Further Entrepreneurs help in promoting a country’s export-trade, which is an important ingredient of economic development. They produce goods and services in large scale for the purpose earning huge amount of foreign exchange from export in order to tackle the import dues requirement. Hence import substitution and export promotion ensure economic independence and development.
Entrepreneurs like to work in an environment of change and try to maximize profits by innovation. When an enterprise is established in accordance with the changing technology, it induces backward and forward linkages which stimulate the process of economic development in the country. Entrepreneurs act as catalytic agent for change which results in chain reaction. Once an enterprise is established, the process of industrialization is set in motion. This unit will generate demand for various types of units required by it and there will be so many other units which require the output of this unit. This leads to overall development of an area due to increase in demand and setting up of more and more units. In this way, the entrepreneurs multiply their entrepreneurial activities, thus creating an environment for overall development of the area
The level of entrepreneurship innovation as well as the number of entrepreneurs in a given country has a positive impact on the level of economic development in that country.
Hence it can be concluded that efforts should be made by the entrepreneurs to be innovative in the way they operate their business as it not only necessary for the success of the business but has also become the need of the hour in such a competitive environment of Globalization. Moreover young professionals should be motivated to become entrepreneurs and not force them to do only jobs for life time as more the entrepreneurs more the country will prosper!!