CHAPTER III

THEORITICAL ASPECTS OF ENTREPRENEURSHIP

ENTREPRENEURSHIP CONCEPT

The term entrepreneurship is the tendency of a person to organize the business of his

own and to run if profitably, using all the qualities of leadership, decisions making and

managerial caliber etc,.

The term ‘Entrepreneur’ is often used interchangeably with entrepreneurship. But

conceptually they are different. The entrepreneur is essentially a business leader and the

function performed by him is entrepreneurship. In other words entrepreneurship is the quality

or attitude of being an entrepreneur. While entrepreneur is an individual entrepreneurship is

an attribute possessed and practiced by an entrepreneur. It is a creative and innovative

response to the environment.

DEFINITIONS OF ENTREPRENEURSHIP

Entrepreneurship is an elusive concept. Hence, it is defined differently by different

authors at different periods.

According to A. H. Cole, “Entrepreneurship is the purposeful activity of an individual

or a group of associated individuals, undertaken to initiate, Maintain or organize, a profit

oriented business unit for the production or distribution of economic goods and services”.

In other words of McClelland, “Entrepreneurship is neither science nor art it is a

practice it has knowledge as base, knowledge in entrepreneurship is a means to an end.

Indeed, what constitutes knowledge in practice is largely defined by the ends that is, by the

practice”.
 Robert K lamb defines, “entrepreneurship is that form of social decision making which

is performed by economic”.

From the above definitions, It is clear that entrepreneurship is the ability to identify the

investment opportunity and to organize an enterprise in order to contribute for real economic

growth. Entrepreneurship combines many qualities such as innovation, risk taking,

combining factors of production. Thus, entrepreneurship plays an important role in the

development of society. Entrepreneurship has facilitated large scale production and

distribution. It has widened the area and scope of marketing of goods and services. Hence

entrepreneurship acts as a positive force in economic development by creating national

wealth and new jobs.

Historical sketch of entrepreneurship

That a proper understanding of the growth of entrepreneurship of any country would

evolve within the context of the economic history of the particular country becomes the

subject matter of this section. The growth of entrepreneurship in India is, therefore presented

into two sections, viz. entrepreneurship during Pre-Independence and Post-Independence.

Pre – Independent Era:

The Indian entrepreneurial history form time immemorial has been characterized by a

kind for stratification on religious and regional basis. The social value system in India with its

rigid segregation of occupation on caste is said to have affected the growth of

entrepreneurship maximum Weber contended that religious belief system of Hinduism did

not encourage the spirit of capitalism and thus discouraged the growth of entrepreneurship.

Where the caste system was relatively loose, the danger of ostracisation absent and the

trading castes missing people of their castes also moved into these occupation and caste to be

regarded as members of the business community.

wealthiest Indian communities controlling whatever foreign trade and industrial activities

were controlled by Chettis, Chettiars, Nagrani Mappilas, Moplah and Konkanis.

The beginning of the 20th century witnessed the emergence of Marwaris and Chettiars

of Tamilnadu on the industrial scene. The Maarwari entrepreneur came to industry in large

numbers as a result of flash of post was prosperity, whereas the chettairs came to industry as

a result of being un welcome elsewhere and wanted to find use for their accumulated

resources in their own country.

The Indian industry, which was basically a cottage and small scale, declined at the end

of 18th century for various, such as the disappearance of Indian courts competition from big

units, establishment of an alien rule with the influx of the many foreign influences and

absence of broad based market, the modern industry came to India in the middle of the 19 th

century as an after match of the industrial revaluation in England.

The British were looking for wider markets for production of their factories and

consequently involved the Indian market with their factory products. In the process the Indian

handicraft industry was destroyed. The colonial regime was not serious about Indian

industrialization and never conceived of promoting growth of entrepreneurship.

The examination of entrepreneurship history reveals that several factor are responsible

for the slow growth and absence of broad based entrepreneurship in the pre-independent

India.

This situation is continued in the post-independent period also. Further, as the liberation

movement gained momentum, many talented young many talented young men drifted

towards political activity and also maintained that a number of factors such as lack of capital,

lack of organized banking, inefficient labour, lack of fund, difficulty in obtaining cheap

power, lack of fund, difficulty in obtaining cheap power, lack of working in metals,
especially iron and steel, early open for foreign competition, lack of facilities for technical

education and indifference of the Govt to industrial development resulted in the slowness of

industrial development in pre-independent India.

Post Independent Era:

In the post independent period, the emergence of state as entrepreneur through the

creation of the public sector is as important feature of the entrepreneurial growth in India.

This sector has discharged its entrepreneurial role by establishing many industries, which

were not present in the country before independence. The state has also offered several

concessions, subsidies, privileges and establishment for private out an important role to the

Small-Scle private sector for the diversification of industry to the backward areas and its

ability to generate employment opportunities.

Therefore, the Government has come out with a new industrial policy resolution and

assured sphere and also stressed the need for state. As a result, in the private sector, the

family based and others established new frontiers and abnormally expanded the existing

units. These entrepreneurs diversified the industrial base of economy in this period. Also a

new class of entrepreneurs has emerged and set up large business houses.

The pre-independent entrepreneurial picture reveals that entrepreneurship is a

prerogative of certain communities or castes and family background certain much influence

the emergence of it. But the role played by the state in the post independent period has

resulted in the emergence of entrepreneurs in the small-scale sector from diverse social and

economic backgrounds.

The post independence era has thus seen the emergence of new class of entrepreneur’s

expansion and diversification by old industrial houses, the growth of state entrepreneurship

and also the entrance of Multinational Corporation on the industrial scene.

small entrepreneurs to meet the nations aspirations of rapid industrialization & balanced

regional growth, coupled with the fact that the country lacks a broad based entrepreneurship,

thus the country lacks a broad based entrepreneurship development in India.

Characteristics of An Entrepreneur

Any person can become an entrepreneur provided he has got a certain set of behavioral

qualities and mental aptitude. His success depends more on hard work than good luck.

Some of the characteristics of an entrepreneur are as follows.

1. Hard work

Willingness to work hard distinguishes a successful entrepreneur from unsuccessful

one. In nutshall, most of the successful entrepreneurs work hard endlessly, especially

in the beginning and the same becomes their whole life.

2. Desire for high achievement

The entrepreneurs have a strong desire to achieve high goals in business. This high

achievement motive strengthened them to surmount the obstacles, suppress anxieties,

repair misfortunes and devise expedients and only set up and run a successful

business.

3. Risk Bearer

An entrepreneur takes calculated risks, he is not a gambler and assumes risk. So

entrepreneur accepts risk, they select a moderate risk situation, they understand and

take up the risk.

4. Independence

Entrepreneur is the owner and master of business. He has to take his own decision for

the establishment and the promotion of business and he is responsible for such

decision. So entrepreneur is a job giver and not job seeker.

Production is meant to meet the customer’s requirements. In view the changing taste

of customers from time to time, the entrepreneurs initiate research and innovative

activities to produce goods to satisfy the customers changing demands for the

products.

6. Good Organizer

An entrepreneur should have the ability to organize and manage the various factors of

production to the best of his enterprise.

7. Foresight and Vision

The entrepreneurs have a good foresight to know about future business environment.

In other words, they well visualize the likely changes to take place in market,

consumer attitude, technological developments, etc. and take timely actions

accordingly.

8. Efficient Monitoring

Another important characteristics of entrepreneur is personal supervision of the work

to ensure that the work is done according to the standards established or fixed.

Functions of Entrepreneurs

An entrepreneur is an agent who buys various factors of production with a view to

combining them into a finished product which can be sold in the market. While doing so he

performs the following functions.

1. Idea generation and scanning of the best suitable idea.

2. Determination of the business objectives.

3. Product analysis and market research

4. Determination of form of ownership/organization

6. Raising necessary funds

7. Procuring machine and material

8. Recruitment the business operations.

Problems of Entrepreneurship

The entrepreneurs face number of problems in promotion of units and production,

marketing, distribution, procurement of raw material and aviling the incentives offered by

the State Government.

So problems faced by the entrepreneur are divided into two classes, viz,

A. Planning related problems

a. Technical feasibility

Inadequate technical know-how

Locational disadvantage

Outdated production process

b. Economic viability

High cost of inputs

Break-even point too high

Uneconomic size of project

Choice of idea

Faulty planning

Poor project implementation

Lack of strategies

Lack of motivation

Under estimation of financial requirements

Over estimation of demand.

Delay in getting licenses and sanctions etc, and inadequate mobilization of finance

causes for increasing costs.

General problems

a. Production management

Inappropriate product mix

Poor quality control

Poor capacity utilization

High cost of production

Poor inventory management

High wastage and poor production

b. Labour management

Inefficient handling of labour problems

Excessive high wage structure

Poor labour productivity and relations

Lack of trained skilled labour.

c. Marketing management

Dependence on a single customer of a limited number of customer/single or a

limited number of products.

Poor sales realization

Weak market organization

Lack of market feed back and market research

Lack of knowledge of marketing techniques

Defective pricing policy

Poor resource management & financial planning

Faulty costing

Literal dividend policy

Deficiency of funds

Inadequate working capital

e. Administrative management

Over centralization

Lack of professionalism

Lack of control

Lack of timely diversification

Excessive expenditure on R & D.

II. external problems

a. Infrastructural

Location

Power

Water

Post office

Transportation

b. Financial

Capital

Working capital

Long term funds

Recovery

c. Marketing
 d. Taxation

e. Industrial & financial regulations

f. Government policy

g. Administration hurdles

h. Lack of direction

i. Competitive & volatile environment

Institutional Support to Entrepreneurs

After independence of our country the Government of India found that on one hand

industrial development was confined to a few developed cities and on the other it was

concentrated in the hands of a few top business houses. So the Government decided to

promote entrepreneurial activity through various incentives in both industrially backward

and rural areas. Some of the institutional support to the entrepreneurs are as follows.

I. Institutions at the National level

1. Small Scale Industries Board (SSIB)

2. Small Industries Development Organization (SIDO)

3. Small Industries Services Institute (SISI)

4. National Small Industries Corporation (NSIC)

5. National Productivity Council (NPC)

6. National Research Development Corporation (NRDC)

7. Khadhi &Village Industries Commission (KVIC)

II. Industry Associations

1. World associations for small & medium enterprises

2. Federation of association of small industries of India

3. Federation of Indian micro & small & medium enterprises

5. Other industry associations

III. Industry related research institutions

IV. Specialized training institutions

V. Institutions at Tamil Nadu

1. small industries development corporation (SIDCO)

2. industries technical consultancy organization of Tamil Nadu (ITCOT)

3. district industries centre (DIC)