Module 2 - THE ROLE OF Entrepreneurship IN Society PDF

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Module 2. Lecture Handout THE ROLE OF ENTREPRENEURSHIP IN SOCIETY Entrepreneurship has become a buzzword in the developing world. It is believed that it has the ability to bring major changes in the economy and within a society. A great deal of attention has been paid to entrepreneurship over the past few years, stemming primarily from the d iscovery by economic analysts that small firms contribute considerably to economic growth and vitality. Entrepreneursh ip is not only about management, but also about the persons involved in the business, the community and the environment. In this topic we will discuss the role that Entrepreneurship plays in society. THE ROLE OF ENTREPRENEURSHIP IN SOCIETY Entrepreneurship as a whole contributes to a society’s social wealth by creating new markets, new industries, new technology, new institutional forms, new jobs and net increases in real productivity. The jobs created by entrepreneurship in turn lead to equitable distribution of income, which results in higher standards of living for the population. In this way, the resources available to government also increases, the tax base grows. Additional taxes enable governments to improve social services, like hospitals and schools, to enhance infrastructure and to keep law and order. Benade et al., (2011) describes the benefits that entrepreneurship can have for society, including individuals, families and the community as follows.

1. Employment opportunites Entrepreneurship not only offers self‐employment opportunities, but also creates employment for others, often better jobs. Self‐employment offers more job satisfaction and fexibility of the work force. Such job creation initiatives utilise the human resources of the particular country and helps the natural talent materialise. Many people with disabilities, particularly those in rural areas where jobs are often scarce, have already created opportunities for themselves through entrepreneurship. We can thus say that entrepreneurship provides self‐sufficiency. Entrepreneurs Create Jobs As entrepreneurs start new businesses, they need to hire employees. These new companies become engines of job creation. According to the Small Business Administration, small firms have created 62 percent of new jobs since the Great Recession. Entrepreneurs create entirely new industries and opportunities for employment.

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2. Income generaton and fewer social problems Successful entrepreneurship activities increase the income level of the average person, and also the standard of living in the community. Individuals who search for business opportunities usually create wealth through entrepreneurship. This wealth plays a considerable role in the development of a nation. If more people are employed more people pay taxes, which means more income for the government. It also means that the crime rate will go down and the country can become a safer location with more tourists willing to visit the country. If tourism increases, more job opportunities will become available and more people will be employed. Entrepreneurship can also attract more foreign investment, which in return can also create more job opportunities. Entrepreneurs Raise Standards of Living Entrepreneurship is a process. Entrepreneurs see a need in the marketplace and use their innovative talents to find a solution. They start a new business and hire employees. The workers earn an income, which they spend in the local economy. All of this creates wealth for the population and raises the standard of living for everyone involved. Studies from economists show that increases in productivity improve the standard of living for a population. The process of entrepreneurship leads to higher productivity. Innovation applies more efficient technologies to create something new or improved. It finds more superior ways of doing something. The result is that employees become more efficient. Profits go up, and costs go down. Incomes rise, and demand increases. Altogether, the economy gets stronger, creating more jobs. When one company comes out with a better product or service, the competition has to improve its game or go out of business. The increased competition forces everyone to become more efficient and better at their jobs. In other words, they become more productive and enjoy a higher standard of living.

3. Personal Challenge Entrepreneurship is a challenging task, but if successful the rewards are worth the effort. Rewards for an entrepreneur can be both financial and personal. The entrepreneur gains self‐ satisfaction and confidence as he or she succeeds.

4. Improvements in Industry Entrepreneurship leads to the development of more industries, especially in rural areas or regions where there are very few economic activities. This does not only mean more goods and services, but also higher quality products, because of healthy competition between the different businesses. Entrepreneurs are Innovators Technology is rapidly changing the fabric of the nation's workforce. Old, blue‐collar manufacturing jobs are declining, and other occupations simply don't exist anymore. Remember telephone switchboard operators, movie film projectionists or elevator attendants? ATTRIBUTION: The information described in this module was downloaded and modified from Commonwealth of Learning usi ng the CC‐BY‐SA (share alike with attri buti on). Goto‐ http://creat ivecommons.org/licenses/b y‐sa/4.0

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Entrepreneurs observe these changes and step in to fill the voids. They see the negative consequences and the losses of some occupations caused by technology, but they sense opportunities in the new landscape. As a result, entrepreneurs innovate. They create new products and services that advances in technology have made possible. Look at what Steve Jobs did. He knew that everyone liked music, and he suspected people would like to have their own personal collection to carry around. Hence, the iPod. Apple sold millions of iPods and went on to develop more related products. Like Steve Jobs, entrepreneurs don't stop with just innovating one product or service. They find related products. They grow by developing new markets. In the process, they hire more employees. Nobody likes to pay high hotel rates, right? Some people wouldn't mind making a little money renting out their home, cottage or room. The founders of Airbnb saw this need and found the opportunity to fill it. They match homeowners with people who want to rent something short term. Airbnb now has an inventory of over 800,000 properties located in 34,000 cities, and they have expanded by adding experiences. Paddle down a river to local breweries in North Carolina or take a photoshoot on the Brooklyn Bridge in New York City. Airbnb stirs the imagination of renters and property owners in ways they had never considered. Innovators look for consumers' needs and find ways to fulfill them. It's this innovation that creates employment.

5. Higher productvity and economic growth More industries can create higher production at lower prices. Entrepreneurship encourages the use of local materials to produce finished goods for domestic consumption, as well as for export. Entrepreneurship enables the country to produce more and more goods locally and thereby build its capacity and resources. If we change our raw materials into consumable goods we add value to our products, which means that we can now receive a much higher price and at the same time create more jobs. With the new inventions and development in technology, a nation can use its resources more effectively. Entrepreneurship Creates Economic Growth. What do entrepreneurs contribute to the economy? It starts with new businesses generating wealth for the population. New markets add wealth to the economy when entrepreneurs invest their own money to develop innovative products and services. Lenders and other investors contribute more capital to the new ventures to put more funds at work. Businesses pay taxes on their profit, and employees pay taxes on their income. The government takes this added income and spends it to stimulate the economy. The gross domestic product is a measure of the economic status and improvement of a country. A stronger economy increases the gross domestic product per capita of the country. An improving gross domestic product is an important goal for economic development because it means that each individual is becoming more productive and earning more money.

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6. Increases in exports and less dependence on imports Entrepreneurship leads to the development of new markets. If we produce more, we can export products that are not sold locally. This means that a country’s products can also enter foreign markets. From time to time a country’s government officials sign agreements with other countries to promote trade. These are opportunities that should be taken into account when we are planning and growing our new business. Currently many developing countries (including small states) rely heavily on imports, especially from the developed nations. This means that money flows out of the country. Exports must exceed imports in order to create an economic advantage. Earnings from exports inevitably stimulate the economy. From the above discussion, it is clear that entrepreneurship improves the economy and creates a better place to live. Entrepreneurship definitely offers many advantages to individuals, families and the general community. These advantages infuence one another and are interwoven to create a multiplier effect. When we become more creative, we can develop new and unique products. As we succeed, we become proud of our achievements, and we are motivated to increase our production. When we produce more goods, we can lower our need for imports and have excess goods for export, while simultaneously creating jobs. Entrepreneurship is advantageous, but it also involves hard work and sacrifices. It can boost the economy, improve living conditions and reduce dependence on government.

Benefits of Entrepreneurship to Society Social entrepreneurs apply their innovative instincts to important societal issues. They build profitable businesses that deal with hunger, education, health problems and financial literacy. The early founders of the internet did not just want to make money, they wanted to give the public more access to information, ideas and communication. Entrepreneurs do more than form new companies. They effect social changes. Andrew Carnegie did more than build a steel empire. He also built a system of public libraries. Carnegie designed a formula that combined funds from his foundation with a local commitment from the community to contribute a building site. Over 36 years of operation, his program helped to create over 2,500 public libraries. Innovators have a term for social‐impact businesses: base of the pyramid. This refers to creating businesses that target the most people with the lowest economic status. The objective is to find new ways and products to improve the living standards of this sector of the population. One example of an impact product is an inexpensive, solar‐powered lantern developed by a California company. These lamps are designed for use in impoverished countries where electricity is not available and families depend on kerosene lanterns for light. Kerosene is expensive, dangerous to use and gives off pollutants, which are trapped indoors and create a poisonous environment. Solar‐powered lanterns eliminate all of these problems. This California business has already sold several thousand of its lamps to countries such as Indonesia, Cameroon and the Republic of Congo. In addition to improving people's lives, the company is also making a profit. ATTRIBUTION: The information described in this module was downloaded and modified from Commonwealth of Learning usi ng the CC‐BY‐SA (share alike with attri buti on). Goto‐ http://creat ivecommons.org/licenses/b y‐sa/4.0

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Entrepreneurs Are Philanthropists Entrepreneurs give back to their communities. They not only earn money for themselves and their employees, they donate to local organizations and charities too. A common sight on a baseball field is a Little League team with the name of a local company on its T‐shirts. That company probably paid for the bats, balls, equipment bags and uniforms. Kids who may not have had the money to pay for gloves now have the opportunity to enjoy America's greatest pastime, courtesy of an entrepreneur. Mark Cuban, businessman and owner of the Dallas Mavericks, is an example of a self‐made entrepreneur philanthropist. He started the Fallen Patriot Fund to help military families who had relatives injured or killed during Operation Iraqi Freedom. The Mark Cuban Foundation has donated to support research to find treatments and cures for cancer, autism, mental problems and AIDS. Alfred Mann's father was a grocer, and his mother was a pianist who immigrated from Poland. Mr. Mann made his first fortune designing solar cells for spacecraft, but he became more well known for his work with cardiac pacemakers and other medical devices. His charitable organization, the Alfred Mann Foundation, has donated millions of dollars to several universities to fund more research in biomedical engineering. Other recipients of entrepreneurs' generosity are libraries, veterans' groups, homeless shelters and health organizations. None of this would be possible if entrepreneurs didn't start new businesses and hire employees. Entrepreneurs Change the Community What role does the entrepreneur play in the local community? A business started by an entrepreneur impacts the local community. The new company reduces unemployment by hiring employees who spend their income in local stores, generating more business for those owners. The success of one business drives the progress of other organizations. Suppose the new business needs highly educated employees with specific skills. A community might respond by creating technical training schools and intern programs that provide these workers. Everyone gains. The company gets the workers it needs, and the community gets a more educated population with higher incomes. Entrepreneurs invest in community projects by giving to local charities, volunteering for food drives, working at soup kitchens and building houses. They sponsor cleanups to create green spaces and parks. These community‐minded businessmen may even continue to make donations for park and roadway maintenance. Over time, these entrepreneurs become active members in the chamber of commerce and encourage other business people to develop and grow their community. Entrepreneurs Help Other Entrepreneurs Mentorship: It's not always about the money. Entrepreneurs have an enthusiasm and passion for their businesses that they like to share with other aspiring innovators.

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Seasoned entrepreneurs can tell newcomers about the mistakes they made that could have been avoided if forewarned by someone already experienced in a startup. When guided by a mentor, a neophyte can avoid wasting time on mistakes as a result of ignorance or business immaturity. They form local groups that meet to discuss the problems of starting a business, finding employees and overcoming the hurdles of introducing new markets for products and services. These entrepreneurial booster groups serve as motivators. They are available to constantly encourage other entrepreneurs when the path gets tough. Success breeds success. Entrepreneurs do more than just find innovative solutions for products and services. Their work benefits society by hiring employees, buying supplies and materials from local vendors and becoming active donors to charities and organizations. The businesses that entrepreneurs form are engines that drive the economic growth of a community.

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TOPIC INTRODUCTION The word entrepreneur originates from the French word, entrepreneur, which means "to undertake" and was first defined by the Irish‐French economist Richard Cantillon. Jean‐ Baptiste Say, a French economist, is believed to have coined the word "entrepreneur" in the 19th century. He defined an entrepreneur as "one who undertakes an enterprise, especially a contractor, acting as intermediary between capital and labour" (Wikipedia). There has been a great deal of attention paid to the subject of entrepreneurship over the past few years, as many people realized that small firms contribute considerably to the economic growth of a country. Developing countries have established policies and tax incentives that encourage the planning and implementation of small businesses with the belief that a small business can potentially grow into a large business.

TOPIC OBJECTIVES Upon completion of this topic you should be able to: 1. 2. 3. 4.

Define the term “business”. Define entrepreneurship. Distinguish between entrepreneurship and an entrepreneur. Explain the entrepreneurial process.

It is important that you familiarize yourself with some key concepts in the field of entrepreneurship. Let’s start this topic with defining some of these concepts.

DEFINITIONS Business Defined Before a potential entrepreneur can start a business, he or she must understand what the essence of a business is. The term business has a variety of definitions. Let’s examine a few. A business is: 

“An organization operated with the objective of making a profit from the sale of goods or services.” (http: / /www.finet.c om.hk/acc ounting/b.h tm)

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

”An enterprise, commercial entity, or firm in either the private or public sector, concerned with providing products (goods or services) to satisfy customer requirements.” (www.ge o rgetown.e du /uis/ i a/dw/GLOS SARY08 1 6.htm l)



‘The buying and selling of products or services in order to make a profit.” (Mariotti, 2006)



“An economic system in which goods and services are exchanged for one another or money, on the basis of their perceived worth. Every business requires some form of investment and a sufficient number of customers to whom its output can be sold at profit on a consistent basis.” (http://www.busine ssdictionary.com/definition/busi ness.html )

The common elements in most of the definitions described above are: A business sells or buys services and products. The objective of a business is to make a profit.  All business entities have customers with specific needs and wants.  Business requires a solid financial footing. In most cases a potential entrepreneur will be creating a “small business” that he or she hopes to grow into a large and successful enterprise. Wikipedia defines a small business as “a business that is privately owned and operated, with a small number of employees and relatively low volume of sales. Small businesses are normally privately owned corporations, partnerships, or sole proprietorships”. (http://en.wikipedia.org/wiki/Small_b...