Entrepreneurship Education Study Notes PDF

Preview

Summary

Entrepreneurship Education for teachers...

Description

EDCI 411: ENTREPRENEURSHIP EDUCATION NOTES 1.0 Introduction to Entrepreneurship 1.1 What is entrepreneurship? In economics there are four factors of production namely, land, labour capital, and entrepreneurship. Entrepreneurship is important because it harnesses all the human and material resources, provides the finances required, takes risk and initiates the ideas to transform into consumable products. Entrepreneurship is the economic engine driving many nations’ economies in the global competitive landscape. Entrepreneurship is the dynamic process of creating incremental wealth. The wealth is created by individuals (entrepreneurs) who assume the major risks in terms of equity, time and/or career commitment to provide value for some product or service. The key word in entrepreneurship is RISK. If risk is mitigated in a venture then that does not qualify to be called entrepreneurship. Entrepreneurship is the process of creating something new with value by devoting the necessary time and effort; assuming the accompanying financial, psychic, and social risks and uncertainties; and receiving the resulting rewards of monetary and personal satisfaction. “Entrepreneurship is the control and deployment of resources to create an innovative economic organization (or network of organizations) for the purpose of gain or growth under conditions of risk and uncertainty”(Dollinger,2008,p.9). Entrepreneurship refers to a process of action an entrepreneur undertakes to establish his enterprise. It is a creative and innovative response to the environment. In other word, it is the ability to discover, create or invent opportunities and exploit them to the benefit of the society, which in turn brings prosperity to the innovator and his organization. Selected Definitions of entrepreneurship from key theorists Knight (1921) - profits from bearing uncertainty and risk Joseph A. Schumpeter (1934) defines entrepreneurship as carrying out of new combinations of firm organization-new products, new services, new sources of raw material, and new methods of production, new markets, and new forms of organization. NOTE: He referred to it as a process of creative destruction through which existing products or methods of production are destroyed and replaced with new ones. It is concerned with discovering and exploiting profitable opportunities. Hoselitz (1952)-uncertainty bearing…coordination of productive resources…introduction of innovations and the provision of capital. 1

Cole (1959)-purposeful activity to initiate and develop a profit-oriented business. McClelland(1961)- moderate risk taking Gartner(1985)- creation of new organizations 1.2 Who is an entrepreneur?  Entrepreneur; common meaning; one who starts his own new and small business.  Entrepreneurs are individuals, acting independently or as part of an organization, who create a new venture or develop an innovation and take on the risks involved in introducing it to the marketplace.  It is an individual who takes initiative to bundle resources in innovative ways and is willing to bear the risk and/or uncertainty to act. Risk refers to the variability of outcomes or returns; if there is no risk the returns are certain, and the enterprise will continue to expand. It is a limit to ever-expanding entrepreneurship. Risk is measured quantitatively using statistics that measure dispersion like the variance and standard deviation. Uncertainty refers to the confidence entrepreneurs have in their estimates of how the world works-their understanding of the causes and effects in the environment.

Entrepreneur originates from the French word ‘entreprendre’ which means ‘to undertake’. (Akanni, 2010).In the 16th century the term was used in France to refer to the Frenchmen who organized and led military expeditions. In business context it means to start a business, identify a business opportunity, organize resources, manage and assume the risk of a business or enterprise. The term was first applied to business in the early 18 th century by Richard Cantillon, an Irishman living in France to refer to economic activities. According to him ‘an entrepreneur is a person who buys factor services at certain prices with a view to selling its product at uncertain prices”. An entrepreneur is a bearer of risk which is non-insurable. JB Say, another Frenchman expanded Cantillon’s ideas and conceptualized an entrepreneur as an organizer of a business firm, central to its distributive and production functions. According to Say, an entrepreneur is the economic agent who unties all means of production, the labour force of the one and the capital or land of the others and who finds in the value of the products his results from their employment, the reconstitution of the entire capital that he utilizes and the value of the wages, the interest and the rent which he pays as well as profit belonging to himself. He laid emphasis on the functions of coordination, organization and supervision. The entrepreneur is an organizer and speculator of a business enterprise. He lifts economic resources from an area of lower into an area of high productivity and greater yield. An entrepreneur means different things to different people. For example to an economist, an entrepreneur is a person who brings resources,labour,materials,and other assets into 2

combinations that make their value greater than before, introduces changes, innovations and order. To a psychologist-an entrepreneur is a person driven by certain forces-the need to attain something, experiment, or escape the authority of others. To a businessman-an entrepreneur is a threat, an aggressive competitor, Although being an entrepreneur means different things to different people, there is agreement that we are talking about a kind of behavior that encompasses: (i) initiative taking (ii) the organizing and reorganizing of social and economic mechanisms to bundle resources in innovative ways, and (iii) the acceptance of risk, uncertainty and/or the potential for failure. “An entrepreneur can therefore be described as a person who tries to create something new, organizes production, and undertakes risks and handles economic uncertainty involved in enterprise”(Havinal,2009,p.96). Teaching Note: Successful entrepreneurs have entrepreneurial-mindset i.e. they value uncertainty in the marketplace and seek to continuously identify opportunities with the potential to lead to important innovations. For entrepreneurship to flourish there must be (i) freedom-to establish an economic venture and freedom to be creative and innovative, and (ii) prosperity- favourable economic conditions that give an entrepreneurial organization/enterprise to grow. Some definitions of entrepreneur F.A.Walker- “An entrepreneur is one who is endowed with more than average capacities in the task of organizing and coordinating the factors of production i.e. land, labour, capital and enterprises”. Marx- regarded an entrepreneur as a social parasite. Peter F. Drucker in his book “Innovative Entrepreneurs” defines an entrepreneur as one who always searches for change, responds to it and exploits it as an opportunity. Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or service. Entrepreneurship is capable of being learned as a discipline and practiced. E.E.Hagen- “an entrepreneur is an economic man who tries to maximize his profits by innovation, involve problem solving, and gets satisfaction from using his capabilities on attacking problems”. Frank Young- defined an entrepreneur as a change agent.

3

Max Weber- “entrepreneurs are a product of particular social condition in which they are brought up and it is the society which shapes individuals as entrepreneurs”. International Labour Organization (ILO) - defines entrepreneurs as those people who have the ability to see and evaluate business opportunities together with the necessary resources to take advantage of them to initiate appropriate action to ensure success. Concept of entrepreneurship can be best expressed with a diagram. Entrepreneur

entrepreneurship

Enterprise

(Person)

(Process of action)

(Object)

1.3 Characteristics/Features of Entrepreneurs An entrepreneur is a person who perceives business opportunities and promptly seizes them for exploitation. He/she therefore needs to possess certain attributes and competencies to perform entrepreneurial activities. Some of the characteristics associated with entrepreneurs include: Initiative-does things before asked for or forced to by events. This is the ability to generate new ideas and implement them ahead of others to be able to create a competitive edge. An entrepreneur has to be able to find new ideas and always be ahead of others in business. Action-oriented-are able to visualize the steps from idea to actualization. there are attitudinal characteristics that underlie the success of an entrepreneur. Having identified them, the trainees will be motivated to take action to develop such characteristics and prepare for future entrepreneurial roles. Independent: Entrepreneurs like doing things their own way. The characteristics of independence and determination are the drives that make an entrepreneur start their own business. In a way, their own business fulfills the need for independence. They like to be own bosses. Positive: An entrepreneur is an optimistic person, exhibiting positive and optimistic attitudes towards uncertain opportunities. The entrepreneur approaches tasks with the hope of success and not with fear of failure. Creative and innovative: Creativity is the ability to generate ideas and being innovative in getting new ideas off the ground in practical terms. Some people are good at coming up with ideas but never put them into good use. Others do not generate ideas but with enthusiasm, they 4

make things happen. Entrepreneurs are highly creative and always think of how to do things in a better way. Self-confident: This is being sure of one-self. An entrepreneur is confident of achieving realistic and challenging goals. Self-confident couple with sense of effectiveness will ultimately contribute to the success of the venture. Hardworking-they are workaholics who put continuous efforts to achieve success and know that there is no substitute for hard work. Successful entrepreneurs are willing to work a little harder and a little longer. They work not only for rewards, but for the pleasure of creating the enterprise. Enthusiastic: An underlying enthusiasm helps successful entrepreneurs maintain the level of creative thinking and focused activity necessary to carry out successful venture. Profit-oriented: Entrepreneurs have a desire for profit with which they measure their successes. Because of the profit motive, entrepreneurs will tend to find an efficient use of resources. Flexible: Entrepreneurs are flexible the meet changing goals, pressures, technologies, and competition. They feel that their own flexibility will allow them to change things if decisions turn out badly.  Perceiving opportunities/ability to identify opportunities-identifies business opportunities and mobilizes necessary resources to make good an opportunity e.g. by meeting the unmet demand, introducing a better product, solving an annoyance customers have.  Persistence-take repeated or different actions to overcome obstacles  Desire to succeed/Need for achievement-has a strong desire to succeed in life. They constantly work to achieve higher goals.  Locus of control Risk-taking propensity/willingness to take risk-he does not fear risk taking and assumes the uncertainty of the future by guaranteeing rent to the landlord, wages to employees and interest to the investor in the hope of earning more than the expenses.  Efficiency orientation-finds ways and means to do things faster, better and economically  Visionary-visualizes market demand, socio-economic environment and the future of business venture.  Knowledgeable-has sound conceptual knowledge about all the technicalities of his business. 5

 Both thinkers and doers  High tolerance to ambiguity 1.4Types of Entrepreneurs/Classifications of Entrepreneurs Entrepreneurs are not just entrepreneurs but they are of different types engaging in different types of activities-industrial, agricultural, service, and commercial. Some writers have identified several categories of entrepreneurs. (i)

Clarence Danhof’s Classification In a study on American agriculture, Danhof identified four classifications of entrepreneurs. These are: Innovative entrepreneurs These are: innovative, -sense opportunities for introduction of new ideas, technology, discovering new markets and creating new organizations -can work when certain level of development is achieved and people look forward to change and improve -They bring about a life style transformation -are industry leaders Imitative/adoptive entrepreneurs -Imitate/copy the existing entrepreneurs in terms of innovations and methods -Suitable for under-developed countries for imitating from developed countries Fabian entrepreneurs -are highly cautious and timid in accepting new innovations. They will imitate only when sure that failure to do so may damage their business. Drone entrepreneurs -are conservative or orthodox in orientation. They feel comfortable in their old fashioned production technology in the face of change, even at the risk of reduced returns. Teaching Note: An economy characterized by technical advancement has more innovative and imitative entrepreneurs than Fabian and drone entrepreneurs. An economy where production systems are owned by Fabian and drone entrepreneurs may not experience technological advancement even if there are innovators.

(ii) Arthur H. Cole’s Classification Empirical entrepreneur-hardly introduces anything revolutionary but follows the rule of thumb. Rational entrepreneur-is well informed about the general economic conditions and introduces changes which look more revolutionary.

6

Cognitive entrepreneur-is well informed, draws upon the advice and services of experts and introduces changes that reflect complete break from the existing scheme of enterprise. Classification According to Technology Technical Non-technical Professional According to Motivation Pure Induced Motivated Spontaneous According to Scale of Operation Small scale entrepreneurs Large scale entrepreneurs According to Gender Men/women entrepreneurs According to Type of Business Business entrepreneurs Trading Industrial Imitative Corporate Agricultural

7

1.5 Function of entrepreneur An entrepreneur has to perform a number of functions right from the generation of idea up to the establishment of the enterprise. The following are the main functions of an entrepreneur. (i)

Idea generation; this implies product selection and project identification. It is possible through vision, insight, keen observation, education, experience and exposure. It requires environmental scanning and market survey.

(ii)

Determination of business objectives: He states and lays down business objectives. They should be in clear terms i.e. about the nature of business whether trading, manufacturing, or service.

(iii)

Raising of funds: all business activities depend on funds hence fund raising is a critical function in entrepreneurship. An entrepreneur can raise funds internally or externally. He should be aware of the various sources of funds ie friends,bootstrapping,venture capitalists,angels,banks etc

(iv)

Procurement of machines and materials: Has to identify cheap sources of procuring machines and raw materials.

(v)

Market research: is the systematic collection of data regarding the product which the entrepreneur wants to manufacture. He has to undertake market research to know such details as demand for the product, size of the market/customers, competition, price etc.

(vi)

Determining the form of enterprise; e.g. sole proprietorship, Joint Stock Company, cooperative society etc.

(vii)

Recruitment of manpower; estimating manpower requirement, laying down selection procedures, designing scheme of compensation, laying down service rules, designing mechanisms for training and development.

(viii)

Implementation of the project; develops schedule and action plan for the implementation of the project. Project implementation should be in time bound manner. He organizes and coordinates various activities and resources.

1.6 The Benefits of Entrepreneurship Entrepreneurship has at least four social benefits. It fosters economic growth; it increases productivity; it creates new technologies, products and services; and it changes and rejuvenates market competition. 8

Economic growth: One-reason economists started paying more attention to small new firms is that they to provide most of the new jobs in the economy. Economic contributions of small businesses in Kenya can be viewed in all parts of the country on how the businesses have changed the lives of communities in Kenya:

1. Small businesses in Kenya employ between 1 to 100 people thus it’s a source of employment. 2. The second contribution is since being a source of employment; small businesses contribute to the

wealth

of

nation

by

taxes

levied

on

these

employees.

3. Over dependence on government handouts is reduced as individuals are able to meet basic needs. 4. Use of local raw materials which could have gone to waste is utilized by the small businesses for

example

the

recycling

of

waste

papers.

5. Small businesses unlike large firms drive innovation where young entrepreneurs are coming up with new innovations example the recent innovation of tamper prove of the speed governors. Productivity: productivity-the ability to produce more goods and services with less labour and other inputs has increased. One reason for greater interest in entrepreneurship has been the growing recognition of its role in raising productivity. Two keys to higher productivity are research and development (R&D) and investment in new plant and machinery. There is a close link between R&D and investment programs, with a higher entrepreneurial input into both. New Technologies, products, and services: Another consequence of the association between entrepreneurship and change is the role that entrepreneurs play in promoting innovative technologies, products, and services. Sometimes one entrepreneurial innovation gives rise to many others. Many people who have developed technologies, products or services were employees of large corporations that refused to use the new inventions forcing the inventors to become entrepreneurs. Marketplace Change: Entrepreneurs stir up the waters of competition in the market place. Small businesses created by entrepreneurs are referred to as agents of change in a market economy. The international market also provides entrepreneurial opportunities by companies.

9

Advantages of Entrepreneurship (i)

To an Individual(Rewards of being an entrepreneur)  Provides self generation

employment

for

the

entrepreneur,relatives,others,future

 Freedom to use own ideas-innovation and creativity  Unlimited income/higher retained income Being own boss  Satisfaction  To achieve financial independence  Respect of family and friends (ii)

To the nation  Provides employment to citizens/source of employment creation  Results in wider distribution of wealth9higher the employment the higher the distribution of wealth)  Mobilize local resources, skills and savings  Accelerates the pace of economic development; It is a good vehicle for economic development  Stimulates innovation and efficiency Penalties of Being an Entrep...