They apply a unique combination of resources, means they do things differently to bring innovation. In his theory, Hoselitz had highlighted the importance of the culturally marginal groups in development of entrepreneurship and their contribution to economic development of the economy. iii. Sociological Theory 12. Innovation requires creativity and such creative individuals cause economic growth. It reveals a general model of the society which considers interrelationship among physical environment, social culture, personality etc. Economic incentives include taxation policy, industrial policy, sources of finance and raw materials, infrastructure availability, investment and marketing opportunities, access to information about market conditions, technology etc. Creation Theory 10. An understanding of entrepreneurship is vital when determining its benefits and failures. Innovation Theory 2. Although there are several theories on entrepreneurship, there are very few The important elements of Weber’s theory are described further: i. 4. This pattern of social behaviour is entrepreneurial behaviour. The theories attempt to define entrepreneurship and its origins. Four Qualities of Entrepreneur 1. This theory was developed by David. But the view from the center of each is distinct and different. Theory of Economic Incentives – Papanek and Harris, 3. CHAPTER 2: ENTREPRENEURSHIP THEORY AND CREATIVITY 1987:151). Even if we contrast the different sub cultures within the same larger society, the story of economic development is explained.”. With the advancement of science and technology it has undergone metamorphosis change and emerged as a critical input for socio-economic development. The brief description of each theory are as follows: 1. According to this theory, the postulate presupposes the fact that there is no need for further information to modify the decision. Economic theories of entrepreneurship. But, an innovator is one who applies inventions and discoveries in order to make now combinations. The problem of labour immobility can be solved by providing infrastructural facilities including efficient transportation wherever an entrepreneurship is promoted. According to this theory, the entrepreneurs emerges because of individuals having certain psychological elements i.e., will power, self-intuitions, tolerance capacity. iii. Behavioural model concerned with the overtly expressed activities of individuals and their relations to the previous and present surroundings, social structures and physical conditions. The theory only suggests that the people who had enjoyed social standing at some stage in their histories fall into a retreatist phase with an urge to regain the lost status and emerge as an entrepreneurship personality. (iii) Opportunity Structure – It consists of the availability of capital, management and technological skills, information concerning production methods, labour and markets. (i) Limitation Structure – The society limits specific activities and this limitation structure affects all the members (including entrepreneurs) of a society. (ii) Changes in perception, mood and meaning; (iii) New knowledge, both scientific and non-scientific. Theories of Entrepreneurship: Historical Development and Critical . According to this theory, the root of entrepreneurial process can be traced to the initiative taken by some individuals to go beyond the existing way of life. Critical evaluation of theories. In the past 20 years development of the current theories of entrepreneurship have centered on either opportunity recognition or the individual entrepreneur. Disclaimer Copyright, Share Your Knowledge 7. For example, Government of India and State Governments are trying to encourage first generation entrepreneurs by offering them various types of incentives and subsidies. The success of an entrepreneur is basically affected from the following factors: i. Joseph A. Schumpeter is the propounder of innovation theory. According to G.F.Papanek and J.R.Harris Theory, economic incentives are the integral factors that have induced entrepreneurial initiatives. The theories of Weber and Cocharan Thus, in the Weberian system, the motivating force for entrepreneurial activity is provided by Calvinist ethic irrespective of the cultural background, personality type of the individual and the social environment to which he lives. Hindu, Jain and Juda. Life skills and values associated with child right, Underlying principles for the rights and welfare of the child, Appropriate life skills eliminating child labor, Community level of awareness on child labor, Factors that facilitate the spread of HIV& AIDS, Skills and values that help in prevention of HIV & AIDS, Myths and misconceptions about HIV & AIDS, Values necessary in the prevention of drug and substance abuse, Life skills necessary in the prevention of drug and substance abuse, Entrepreneurship and Communication skills, Office Managment And Office Administration. Sociological Theory – Entrepreneurship is a sociological concept and process. The importance of exchange coupled with diminishing marginal utility created enough impetus for entrepreneurship in the neoclassical movement (Murphy, Liao & Welsch, 2006). Businesses either of small scale or large scale, all have various types of disc risks and uncertainties persisting at each step. Entrepreneurship theories and research remain important to the development of the entrepreneurship field. That is why McClelland suggests that in order to raise the level of achievement motivation, parents should set high standards for their children. According to him, needs for high achievement is an essential feature of entrepre­neurial behaviour. This becomes more prominently evident when we contrast the Indian culture with that of the western of particularly of the American culture. ‘Entrepreneur’ is an innovator– who carry new combination of: New goods/ services. In the words of Gartner, “We in the field of entrepreneurship are unaware of the assumptions that we make, in our theoretical perspectives.”. Frank Young’s theory says about the concept of changeable society. ii. Various writers have developed variety theories on entrepreneurship and popularized the concept among the common people. The supporters of sociological theory says that the entrepreneurial activities is affected from social status hierarchy and values. When there are sufficient number of persons having the same psychological characteristics in the society, then there are bright chances of development of entrepreneurship. According to these theories, entrepreneurship and economic growth take place when the economic conditions are favourable. This aspect seems to have been subsumed within ‘innovation’ which has been studied more as the ‘change’ or ‘newness’ associated with the term rather ‘pro-activeness’. Entrepreneurship theories bring greater understanding of entrepreneurship behaviour exhibited by different entrepreneurs. This theory is developed by Everett E. Hagen. John H. Kunkel has also given a particular concept about entrepreneurship. But theory fails to incorporate all these requirements. The theories bring out various approaches and perceptions held by entrepreneurs. McClelland theory has numerous practical implications. To interconnect the different market segments for creating an absolutely ideal marketing environment. The theory also presupposes a long term perspective for entrepreneurial growth about three to five generations for the emergence of entrepreneurship. (i) There is a single system of Hindu value. (ii) Suitable training can provide necessary motivation to an entrepreneur. a. It includes routine entrepreneur, new entrepreneurship, and twin roles of entrepreneur, gap filling, input completing and X-efficiency factor. However because there is a lack of clarity about the theoretical assumptions that entrepreneurship scholars use in their work, assumptions from both individual opportunity recognition and economics, have been used as if they are interchangeable. According to this concept, the sociological factors are the secondary source of entrepreneurship development. 1. The assumptions are:1. 3. 26, Issue 3, pp. However, an entrepreneur creates his own commodity and its acceptability is uncertain. Protestant ethic – According to Max Webber the spirit of capitalism can be grown only when the mental attitude in the society is favourable to capitalism. Similar to the individual/opportunity nexus, the creation theory also approaches three assumptions in entrepreneurship. Introduces a new methods of production, iv. He stressed that people with high achievement oriented (need to succeed) were more likely to become entrepreneurs. 4. (iv) Innovator- A creative individual who is likely to be an entrepreneur. There are different factors within the organisation which motivate the executives and professionals to do some innovative behaviour leading to new product and services. Many of the economists believe that entrepreneurship is itself the fourth factors of production that is the most important in driving a successful economy. Biological theories of entrepreneurship . This is one of the famous theories of entrepreneurship up to date. It is due to the fact that there are inadequate or incorrect perceptions attached with these perceptions. Cultural theories of entrepreneurship explain the differences in entrepreneurial ability and spirit across different cultures. According to him, innovation occurs when the entrepreneur: ii. Labour structure- The labour structure is directed by several factors such as source of livelihood, traditional outlook and life ambitions. McClelland identified two characteristics of entrepreneurship. Under this experiment, young adults were selected and put through a three month training programme. The theory emphasizes on innovation, ignoring the risk taking and organizing abilities of an entrepreneur. This promotes the general development, research, and development in the economy. Thus, bear uncertainty not risk. This theory asserts that opportunities do not have an existence without the actions of entrepreneurs. Maintenance of a combination is not an entrepreneurial activity. Prof. Drucker, further remarked that the lines between these seven sources areas of innovative opportunities are blurred, and there is considerable overlap between them. The supply of labour is governed by several factors such as available alternative means of livelihood, traditionalism and expectations of life. According to Hagen’s concept status withdrawal as fall of status of social group is the primary cause of personality development. Key Takeaways Entrepreneurship is important, as it has the ability to improve standards of … According to this concept, psychological factors are the primary source of entrepreneurship development. Management, Entrepreneurship, Theories of Entrepreneurship. He has given stress on the following four types of structure for the deve­lopment of entrepreneurship: The description of each point is given as follows: 1. This is because the technology is an integral part of socio cultural-complex, and super-imposition of the same into different socio-cultural set-up may not deliver the goods. The entrepreneur is concerned with need for achievement (n-achievement). Max Weber’s Theory of Social Change (Emphasis on Impact of Religion) 3. In his views development means basic transformation of the economy that is brought about by entrepreneurial functions. One of his most important contributions to economics was the concept of x-efficiency. iv. (ii) Denigration of values, symbols through some change in the attitude of superior group. According to him, an entrepreneur is an innovator who desires to earn profit through innovation. As per these two assumptions, individuals can only discover and avail opportunities, but cannot create opportunities. Hagen insisted that the follower’s syndrome on the part of the entrepreneur is discouraged. Secondly, decision making under uncertainty. He emphasized the role of culturally marginally groups like Jews and the Greeks in medieval Europe, the Chinese in South Africa and Indians in East Africa in promoting economic developments. Throughout the theoretical history of entrepreneurship, scholars from multiple disciplines in the social sciences have grappled with a diverse set of interpretations and definitions to conceptualize this abstract idea. But an innovator is one who applies inventions and discovers in order to make new combination. What follows is a compromise between these possibilities. In India, first generation entrepreneurs are quite successful in their entrepreneurial behaviour. Welcome to EconomicsDiscussion.net! 3. (iv) The conquest of a new source of supply of raw materials or half manufactured goods, irrespective of whether this source already exists or whether it has first to be created. When group do not make approach upto effective social machinery. The creation theory also emphasizes that opportunities are created through a series of decisions to exploit a potential opportunity. In other words, Max Weber is connected with the emergence and success of entrepreneurs with social ethical values systems. First doing things in a new and better way. (3) Inconsistency of status symbols with a changing distribution of economic power. It is a universal fact that entrepreneurship is an important factor in economic development. According to them, the entrepreneur ventures are carried out where there is a gap in the development of a product. Spirit of capitalism – In the Webbrian theory, spirit of capitalism is highlighted. But the most important problem attached with this theory is the question of reliability and predictability of seven sources. The sociological theories depend on this concept. ii. The quality of labour influences the emergence and growth of entrepreneurship. Introduction of new methods of production. Kunkel, “The supply and development of an entrepreneur depends upon the existence and extensiveness of four structure i.e., limitation structure, demand structure, opportunity structure, and labour structure.”. Role expectations and entrepreneurial role: Primary cultural factor operating on the personality of the executive and the defining of his role by those involved must accommodate to some degree to the necessities of the operation to be carried out. Overall, when a group sees their lower positional conditions & experience, they grow an entrepreneurial tendency due to reactive capacity. It exhorts certain elements which presume the entrepreneur’s creativity as the key element of social transformation and economic growth. The theory emphasizes on innovation and excludes the risk taking and organizing aspects. The studies further show that Hinduism is not averse to the spirit of capitalism and to adventurous spirit. The achievement motive is uncalculated through child rearing practices, which stress standards of excellences, material warmth, self-reliance training a low, further dominance. To master the process of mobilizing resources to accomplish the goal. Entrepreneurship is the pioneering zeal that provides events in our civilization. Other theorists mentioned above such as Schumpeter and Hagen have no explanation of this occurrence. Overall this theory emphasises on economic gains and economic incent­ives which emerge the entrepreneurial class in a society. It is this motive of n-achievement that guides the actions of entrepreneur. According to Kunkel, Individuals perform various activities of which some are accepted by the society while others are not. Supply of entrepreneurs is a function of social, political and economic structure. (ii) The role expectations held by sanctioning groups and. This theory emphasizes on two types of entrepreneurial activities i.e.- (i) Entrepreneurial functions like organization and combination of resources for creating viable enterprises, and (ii) The responsiveness to the environmental condition that influences decision making function besides the above mentioned activities. People with high n-achievement behave in an entrepreneurial way. He held that Protestants progressed fast in bringing capitalism because their ethical value system provided them with rational economic attitude, while the Jews and Jains failed to develop industrial capitalism because of their value of ‘Pariha’ (the restriction on having any contact with other communities). The buyer may pay higher price or seller may accept a lower price, which gives rise to opportunities for profit. Theory of Social Behaviour 6. His theory deals with the functional behavior of entrepreneur and his qualities which are crucial for his success. AGENDA 2 Classification An economic theory Risk bearing theory of Knight Innovation theory of Schumpeter Leibenstein X-efficiency theory Harvard School theory Theory of Market Equilibrium by Hayek McClelland’s Achievement Motivation Theory Theory of Change Theory of Adjustment of Price Theory … McClelland and his associates have found that people with high power needs have a great concern for exercising influence and control. Actually, entrepreneurship is governed by human factor living in an ever-changing society pursuing simultaneously economic, social and psychological objectives. To search and evaluate economic opportunities. Business also requires finance but that is of secondary importance. “He loves practice without theory is like the sailor who boards ship without a rudder and compass and never knows where he may case.” – Leonardo Da Vinci. Trainees were asked to control their thinking and talk to themselves, positively. Carrying out a new source of an organisation. 3. His concept depended upon withdrawal of status. Innovation requires creative and such creative individuals cause economic growth. Inspite of the above discussion, this theory highlights the importance of matching the individual and the job. The capacity to withstand social opposition. Theory of Social Change 5. An entre­preneurship is formed for establishing his industrial empire. Theintactfront 13 Jun 2019 3 Comments. Till a person is not ready to bear them, the question of starting a business does not rise. In practice, entrepreneurship is also governed by the specific combination of circumstances which are generally not available in the environment. Hagen’s theory laid more stress on technological changes which is the result as individual’s creativity. These forces influence the entrepreneurial activities of an individual to a great extent. Journal of Economic Surveys, Vol. (ii) Ritualist – One who adopts a kind of defensive behaviour and acts in the ways accepted and approved in his society but with no hopes of improving his position. In traditional societies, positions of authority are granted on the basis of status, rather than individual ability. Personality development is an essential quality for entrepreneurship development. Whenever there is any withdrawal of status respect, it would give rise to innovation—a creative individual who is likely to be an entrepreneur. Everett E. Hagen has also given a particular concept about an entre­preneurship. Our mission is to provide an online platform to help students to discuss anything and everything about Economics. So it is better to develop n-achievement among individuals to ensure high scale of economic development. Organization is the coordinating factor that brings together the other three factors and entrepreneurship is the element that powers and strengthens the organization. Theories of Entrepreneurship 1) X-Efficiency Theory by Leibenstein Harvey Leibenstein was a Ukrainian-born American Jewish economist. However, different theoretical assumptions of entrepreneurship focus on three major aspects of entrepreneurship. According to him, the former is influenced by the strict discipline whereas the latter is affected by free force of impulse. c. When group is having sound and more institutional resources rather than other groups. According to Mark Christopher Casson theories, entrepreneurship can provide a synthetic theory of the business firm that provides an integrated framework for many partial theories of the firm. Rather than capital intensive, labour intensive will serve our interest in a better manner. Assessment . According to McClelland, “Burning desire of need for achievement attracts an entrepreneur for activities.”. ii. Entrepreneurial behaviour is an innovation action taking behaviour that involves various risks and attracts good returns. This theory is developed by Joseph Schumpeter, who believes that entrepreneur helps the process of development in an economy. He carries economy to new height of develop­ment. Discovery theories of entrepreneurship . Thus, entrepreneurial development brings economic development. According to this theory, set of supporting instructions are the primary determinant factors of entrepreneurship development. A group comes in reactive status when the following circumstances happen at one attempt. Thus, the desire of increasing actual income and economic gains exist in any type of society. It was Max Weber who first of all took the stand that entrepreneurial growth was dependent upon ethical value system of the society concerned. New source of supply of raw materials. Psychological Theory – Entrepreneurship is a psychological process and concept. (1) One who combines to work in the society but remains indifferent to work and position is called Retreatist. In this context, society’s values are the most important determinant of the attitudes and role expectations. They enable one to understand the need for entrepreneurship and why some people are more entrepreneurial than others. These opportunities are made available through the changes in technology, society or culture. Schumpeter’s theory of innovation: Development implies carrying one of new combinations of entrepreneurship. Main features of this theory are pure profit, situation of uncertainty, risk bearing capability, guarantee of specified sum, identification of socio economic and psychological factors, use of consolidation techniques to reduce business risks. According to him, an inventor discovers new methods and new materials. That is why, Hagen visualised an innovative personality. According to him, non-convents groups are those groups who gives pressure on capitalism, money rationality and thinking. 20 The Impact of Entrepreneurship on Economic Growth 559 countries. In practice, new combination theory covers five cases which are given below: (i) The introduction of a new good which consumers, are not yet familiar—or of a new quality of a good. Such people are not influenced by money or external incentives. ii. (4) A creative individual who is likely to be an entrepreneur is called Innovator. Entrepreneurship is innovation and hence the innovated ideas of goods and services have to be tested by experimentation. Some of the theories of Entrepreneurship are as follows: 1. (iv) It assumes an entrepreneur as a large scale business man. New method of production. The I/O model asserts that opportunities are discovered by scanning the business environment and analyzing the market and industry structure. the tendency of acquisition and rational attitude towards action which are generated by ethical values. b. Although, this theory also included other characteristics i.e., risk taking, superintendence and coordination, he emphasised that these attributes without the ability to innovate will not make an individual as an entrepreneur. The training aimed at inducing the achievement motivation. Thomas Cochran emphasizes on the cultural values, role expectation and social sanctions as the key elements that determine the supply of entrepreneurs. Schumpeter’s entrepreneur is a large scale businessman, who is rarely found in developing countries, where entrepreneurs are small scale businessmen who need to imitate rather than innovate. This theory is developed by John H. Kunkel. The theories of entrepreneurship that are propounded by many eminent theorists have been grouped under four categories. It is due to the fact that there are inadequate or incorrect perception. TOS4. (iii) The achievement motivation had a positive impact on the performance of the participants. entrepreneurship is most likely to emerge under a specific social culture. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. (ii) Innovating entrepreneur represents the most vigorous type of enterprise. Max Weber has propounded the theory of religious belief. (ii) The introduction of a new method of production, that one not yet tested by experience in the branch of manufacture concerned, which need by no means be founded upon a discovery scientifically new and can also exist in a new way of handling a commodity commercially. The theory acts to distinguish between entrepreneurship and intra-preneurship. It includes among other things, technology, education, institutional organisation and entrepreneurship. The elasticity of bank credit causes a disparity between the natural and market rate of interest. C. McClelland. Entrepreneurship is a process of actions of an entrepreneur who is a person always in search of something new and exploits such ideas into gainful opportunities by accepting the risk and uncertainty with the enterprise. Similarly, they are also not interested much for social recognition or prestige but their ultimate goal is personal accomplishment. Entrepreneurship affects all organizations regardless of size, or age, whether they are considered a private or public body, and independently of their objectives. Inducement of profit – Webber introduced the new businessman into the picture of tranquil routine. Status Withdrawal Theory 4. The importance of entrepreneurship is not to be understated. Opportunity structure- The opportunity structure is formed by combination of supply of capital, managerial and technical skill production methods, labour and market, training opportunity establishment of an enterprise and conducting different activities. (2) One who adopts a kind of defensive behaviour and acts in the ways accepted and approved in his society but with hopes on of improving his position is called Ritualist. Privacy Policy3. The theory also views the level of knowledge of an entrepren… Theories of Entrepreneurship 1. Further, innovation and invention go together with the type of conditioning in the society. 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