theories of entre

7/28/2019 Theories of Entre

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THEORIES OFENTREPRENEURSHIP


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Entrepreneurship is an evolved thing. With theadvancement of science and technology it has undergonemetamorphosis change and emerged as a critical input forsocio-economic development. Various writers havedeveloped various theories on entrepreneurship andpopularized the concept among the common people. Thetheories propounded by them can be categorized as

under-Sociological theoriesEconomic theoriesCultural theoriesPsychological theories


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Sociological TheoriesThe following theories explain how sociological factors acclelerate

the growth of entrepreneurs:1-Theory of religious beliefs2- Theory of social change

Theory of religious beliefsMax Weber has propounded the theory of religious belief.According to him, entrepreneurism is a function ofreligious beliefs and impact of religion shapes theentrepreneurial culture. He emphasized thatentrepreneurial energies are exogenous supplied by meansof religious beliefs. the important elements of Weberstheory are discussed further-


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1- Spirit of Capitalism-in the Webrian theory, spirit of capitalism is highlighted. We allknow that capitalism is an economic system in which economicfreedom and private enterprise are glorified, so also theentrepreneurial culture.2- Adventurous Spirit- Weber also made a distinction between spirit of capitalism andadventurous spirit. According to him, the former is influenced by thestrict 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 onlywhen the mental attitude in the society is favorable to capitalism

4 -Inducement of profit- Weber introduced the new businessman into the picture of tranquilroutine. The spirit of capitalism intertwined with the motive of profitresulted in creation of greater number of business enterprises.


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In fact, this theory suited the british rulers, who desired to encourageEuropean entrepreneursip in India. This theory was vehementaly

criticized by many researchers because of the unrealistic assumpitions.

Theory of Social ChangeEverett E. Hagen, in his theory of social change propounded how atraditional society becomes one in which continuing technical progresstakes place. The theory exhorts the following feature which presumes theentrepreneurs creativity as the key element of social transformation andeconomic growth.Presentation of general model of the society - the theory reveals a generalmodel of the society which considers interrelationship among physicalenvironment, social structure, personality and culture.Economic Growth : product of social change and political change :According to Hagen, most of the economic theories of underdevelopmentare inadequate.Rejection of followers syndrome : Hagen rejected the idea that thesolution to economic development lies in imitating western technology. So

the followers syndrome on the part of the entrepreneur, is discouraged.


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Historic shift as a factor of initiating change- Hagen in his book, HowEconomic Growth Begins, depicts historic shift as the crucial force which hasbrought about social change technological progress thereby leading to theemergence of entrepreneurial class from different castes and communities. Withdrawal of status respects as the mechanism for rigorousentrepreneurial activity-Closely consistent with the historic shift it is the social group that plunges intorigorous entrepreneurism which experiences the status withdrawal orwithdrawal of status respects.

hence, Hagens creative personality is the admixture of Schumpetersinnovation and McClellands high need for achievement.but Hagens analysis fails to give policy measures for backward countries

which are striving for economic development as he identifies status withdrawal asthe causal factor in the emergence of creative presonality . Hagens thesis ofdisadvantaged minority groups ha its own limitations. There are many

disadvantaged minority groups in India which have not supplied a good numberof entrepreneurs.


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ECONOMIC THEORIES

Entrepreneurship and economic development are interdependent.Economic development takes place when a country' real rational incomeincreases overall period of time wherein the role of entrepreneurs is anintegral part.

Schumpeters Theory of Innovation Schumpeters theory of entrepreneurship is a pioneering work ofeconomic development. development in his sense, implies that carryingout of new combination of entrepreneurship is basically a creative activity.According to Schumpeter an entrepreneur is one who perceives theopportunities to innovate, i.e. to carry out new combinations or entreprise.In his views, the concept of new combination leading ti innovation coversthe following 5 cases-1- The introduction of new goods, that is the one with which consumersare not yet familiar, of a new quality.2- The introduction of new method of production3- The opening of new market4- the conquest of new source of supply of raw material

5-The carrying out of new organization


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In view of the above, Schumpeterian theory of entrepreneurship has got thefollowing features-1- Distinction between invention and innovationSchumpeter makes a distinction between innovation and invention. Invention

means craetion of new things and innovation means applical of new thingsonto practical use2- emphasis on entrepreneurial function- Schumpeter has given emphasis onthe role of entrepreneurial functions in economic development.in his views,development means basic tranformation of the economy that is brought aboutby entrepreneurial functions.

3- presentation of disequilibrium situation through entrepreneurial activity-the entrepreneurial activity represents a disequilibrium situation, a dynamicphenomenonand a break from the rotine or a circular flow or tendencttowards equilibrium.4- entrepreneuralism dream and the will to found a private kingdom- themotives of creating things and applying these things into practice inspire the

entrepreneur to undertake innovation.


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5- Schumpeter remained silent about as to why some economics had moreentrepreneurial talent than others.However, despite the above criticisms, Schumpeterian theory is regarded as one fthe best theories in the history of entrepreneurial development.

CULTURAL THEORIESAdvocates of cultural theories point out that entrepreneurship is the product ofculture. Entrepreneurial talents come from cultural values and cultural systemembedded into the cultural environment.

Hoselitzs TheoryHoselitz explains that the supply of entrepreneurship is governed by culturalfactors, and culturally minority groups are the spark-plugs of entrepreneurialand economic develoment.in many countries, entrepreneurs have emerged froma particular socio-economic class. He emphasized the role of culturallymarginally groups like Jews and the Greeks in medieval Europe, the Chinese in

south Africa and Indian in east Africa in promoting economic development.Psychological TheoriesPsychological theories centre's around the psychological characteristic so theindividual in a society. Psychological characteristics affect the supply ofentrepreneurs in the society.


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DRUCKER ON ENTREPRENEURSHIPPeter F. Drucker opined that an entrepreneur is one who always searches forchange, responds to it and exploits it as an opportunity. he laid emphasis ontwo important factors innovation and resource- that led to emergence ofentrepreneurship. According to him, innovation is the real hub ofentrepreneurship which creates resource. A thing is regarded as resource whenits economic value is recognized. For example, mineral oil was consideredworthless until the discovery of its use. Similarly, purchasing power wasconsidered an important resource by an American innovative entrepreneur who

invented installment buying.According to Drucker, successful entrepreneurship involves thefollowing things-Value and satisfaction obtained from resource by the consumer are increasedNew values are createdMaterial is converted into a resource or exiting resources are combined in a new

or more productive configurationEntrepreneurship is the practice which has a knowledge base.Entrepreneurship is not confined to big businesses and economic institutions, itis equally important to small business and non-economic institutionsEntrepreneurship behavior rather than personality trait is more important toenhance entrepreneurship

The foundation of entrepreneurship lies in concept and theory rather than inintuition.


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Thus, Drucker has given his views thatan entrepreneur need not be acapitalist or an owner. A banker whomobilizes others money and allocates itin areas of higher yield is very much anentrepreneur though he is not the owner of the money.

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