Entrepreneurship

Module 1

The Concept of Entrepreneurship

 Entrepreneurship started in France after the French Revolution. It was the start of capitalism
and feudalism (20th century)
 The word entrepreneur was coined by Jean Baptiste Say – a renowned French economist
 It promotes doing something different (new) rather than making the existing better.
 Joseph Schumpeter believed that entrepreneurship provides a dynamic disquilibria brought
about by the innovative entrepreneur that brings a healthy economy.

By definition:
 Economists –

i) “...consists in doing things that are not generally done in the ordinary course of business
routine; it is essentially a phenomenon that comes under a wider aspect of leadership.
--Cantillon, 1725
ii) “entrepreneurship, rigorously defined, refers to the creation of a new economic entity
centered on a novel product or service or, at the very least, one which differs significantly
from products or services offered to elsewhere in the market”
--Joseph schumpeter,1934

The Evolution of Entrepreneurship

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The Role of Entrepreneurship in

 Economic Growth
i) Is the increase in value of goods and services produced by an economy.
ii) It is measured as the percent rate of increase in real gross domestic product or GDP.
iii) In economics, economic growth refers to growth of potential output (production) at full
employment, which is caused by growth in demand, or output.

Contributions of Entrepreneurship to the Economy

 Entrepreneurship employs the various resources present in the economy.
 Entrepreneurs need manpower for the business operations.
 It is said that Entrepreneurship is the backbone of the economy.
 An entrepreneur is in their ability to innovate goods and services.
 An entrepreneur is their ability to gain international popularity and prestige for their country.
 Their willingness to take risk, risk that society will otherwise be hesitant to take.
 Although many people do not recognize it, entrepreneurs also profoundly inspire budding and
potential entrepreneurs.

Theories that Explain how Economies Grow

Theories of economic growth maybe classify into three broad groups:
 Consists of theories viewing economic growth as a natural and inevitable process.
 Explains economic development as a rational process brought about when men respond to
opportunities in the environment to promote their own self-interest or material welfare.
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 Views economic development as a result of economically irrational yet

psychologically and sociologically satisfying activities of enterprising men.

Theories on Entrepreneurship as a natural and inevitable process.

GENERAL EXPLANATIONS:
1. Law of nature - in 1932, Spengler explained economic development by likening a culture or society
to a living organism that grows, lives, and dies; it is a part of life and is something to be expected.
2. Invisible Hand – 18th century, Adam Smith advanced the principle. According to Smith, any
society including a very under developed one can be made to prosper with little or no intervention
from government because economic is brought about as a natural course of things.
3. Cultural Diffusion – Anthropologist introduced the idea that over the ages and across the years,
societies have been involved in different social experiments in various economic, political, religious or
social aspects of life.
4. Racial Heritage – The belief that one race is superior to another on the basis of color, build and
other genetic heritage has been around for a long time.
5. Climate conditions – Ellsworth Huntington, wrote that most of the great civilizations flourished in
the tropics or the far north. He maintained that the most stimulating climate for man involves an
average temperature range between winter and summer of 40 to 60 F with moderate rainfalls and
frequent mild storms.
6. Challenge of the natural environment – advanced by A,J. Toynbee, it traces economic and cultural
changes to a combination of natural (geographic) phenomena and socio-psychological pressure of
stimuli.

Economic Development as a rational process

1. Technology improvements and division of labor – Adam Smith, believed that the intervention of
better machines and equipments brought about increased productivity, which together with
specialization or division of labor made economic growth possible.
2. Neo-classical growth model – develop by Robert Solo and Paul Samuelson in the 1950’s, this model
assumes that countries use their resources efficiently and that there are diminishing returns to capital
and labor increases.
3. Endogenous Growth Theory – included a theory of technological advancement. These models also
incorporated a new concept of human capital, the skills and knowledge that make workers
productive.
4. Big Push Theory – one popular theory in the 70’s was that of the “Big Push” which suggested that
countries needed to jump from one stage to another through a virtuous cycle in which large
investments in infrastructure and education coupled to private investment would move the economy
to a more productive stage.
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5. Population Changes – according to David Ricardo, population increases eventually lead to

stagnation or a final stationary state of the economy. However, according to John Maynard Keynes,
the capitalist or entrepreneurs are most likely to invest their resources when there is demand for the
commodity.
6. Entrepreneurship – economist recognized that for production to take place, someone had to
mobilize all resources ( land, labor and capital ).

Economic Development as a rational process

1. Technology improvements and division of labor – Adam Smith, believed that the intervention of
better machines and equipments brought about increased productivity, which together with
specialization or division of labor made economic growth possible.
2. Neo-classical growth model – develop by Robert Solo and Paul Samuelson in the 1950’s, this model
assumes that countries use their resources efficiently and that there are diminishing returns to capital
and labor increases.
3. Endogenous Growth Theory – included a theory of technological advancement. These models also
incorporated a new concept of human capital, the skills and knowledge that make workers
productive.

4. Big Push Theory – one popular theory in the 70’s was that of the “Big Push” which suggested that
countries needed to jump from one stage to another through a virtuous cycle in which large
investments in infrastructure and education coupled to private investment would move the economy
to a more productive stage.
5. Population Changes – according to David Ricardo, population increases eventually lead to
stagnation or a final stationary state of the economy. However, according to John Maynard Keynes,
the capitalist or entrepreneurs are most likely to invest their resources when there is demand for the
commodity.
6. Entrepreneurship – economist recognized that for production to take place, someone had to
mobilize all resources ( land, labor and capital ).

Economic Development as a result of economically irrational yet psychologically and sociologically

satisfying
SOCIO - PSYCHOLOGICAL EXPLANATIONS:
Sociological Factors – sociologist explain economic growth in terms of social or cultural values, norms
and other structures that differentiate modern and traditional economies.
Psychological Factors – identified positively as one, which enterprising individuals seek to fulfill in
the need to achieve. As a product of individual human behavior, that is, of a person’s decision
thoughts and actions.
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CATEGORIES OF ENTERPRISES
 Micro-Enterprise
Asset Size: less than P3 Million
 Small Enterprise
Asset Size: Over P3M to P15M
 Medium Enterprise
Asset Size: Over P15M to P100M
 Large Enterprise
Asset Size: Over P100M
ASSET SIZE EXCLUDES THE VALUE OF LAND

Benefits of Entrepreneurship
 Creates employment
 Improves quality of life
 Contributes to more equitable distribution of income and therefore eases social unrest
Risk of Entrepreneurship
 Risk of Failure
 Unpredictable business conditions
 Long hours of work
 Unwanted or unexpected responsibilities
Rewards of Entrepreneurship
 Have unlimited opportunity to make money
 Be your own boss
 Tapo your creativity
 Overcome challenges and feel fulfilled

Entrepreneurs may be categorized into the following:

1. The intrapreneur - an entrepreneur with an existing organization referred to as the corporate
entrepreneur.
2. The solo self-employed individual - includes all agents, repairmen, brokers, accountants,
physicians who operate alone or only with a few employees and perform works personally.
3. The dealer to dealers – include highly knowledgeable businessmen engaged in various forms of
trades frequently, directly or indirectly related to their line of work.
4. The team builders – individuals who go on building larger companies using hiring and delegation.
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5. The independent innovators – include person who hit upon ideas for better products or services
and then create companies to develop, produce and sell.
6. The pattern multipliers – who spot an effective business pattern
7. The economy scale exploiters - entrepreneurs who locate their business in lower rent and tax areas.
8. The capital aggregators – smart entrepreneurs who use their experience and expertise in pooling a
group of financiers to engage in a business.
9. The acquirers - entrepreneurs who acquires business.
10. The independent investors- include pure inventors who develop their new product or inventions
and take care of marketing them.
11. The buy and sell artists - they include the wise guys referred to as corporate raiders and brokers
who turn around, sell and liquidate.
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The Role of Entrepreneurship in….

Economic Growth
 Is the increase in value of goods and services produced by an economy.
 It is measured as the percent rate of increase in real gross domestic product or GDP.
 In economics, economic growth refers to growth of potential output (production) at full
employment, which is caused by growth in demand, or output.
What is Entrepreneurship?
The act of building and creating a business enterprise.
A process of doing something new (CREATIVE) and something different (INNOVATIVE) for the
purpose of creating wealth for the individual and adding value to society.