Energy of will and mind to overcome static habits, desires and emotions. Schumpeter made it clear that an entrepreneur doesn’t have a single person but equal to an organisation. Theory of Leadership. He stressed that people with high achievement oriented (need to succeed) were more likely to become entrepreneurs. 26, Issue 3, pp. Entrepreneurship is “at the heart of national advantage” (Porter, 1990, 125). Welcome to EconomicsDiscussion.net! Demand Structure- The demand structure is of economic nature. 4. Theories of Entrepreneurship: Historical Development and Critical . For example, consumer electronics organizations, such as Samsung, creates opportunities by developing new products, trying out those products in the market, finding out the products that are reasonably successful, and filtering the successful products and improving their marketability. Entrepreneurship theories explain the concept of entrepreneurship. iii. So unless a theory of entrepreneurship is woven into sociological, cultural, psychological, political and managerial fibre, it cannot give a sense of economic web. Supply of entrepreneurs is a function of social, political and economic structure. the tendency of acquisition and rational attitude towards action which are generated by ethical values. Schumpeter’s concept of entrepreneurship is quite broad based. Its importance for the economy is reflected in its visible growth as a subject of in-terest for the economic press and … Model personality as a derivative of social conditioning, the role is partly shaped by the model personality that is a derivative of social conditioning of his generation. Cultural Theory. That is why, Hagen visualised an innovative personality. 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. The importance of entrepreneurship is not to be understated. He emphasized that entrepreneurial energies are exogenous supplied by means of religious beliefs. As such, the social factors like social attitudes, values and institutions significantly influences the entrepreneurial supply in a society. They believe that the economic incentive is the basic condition of entrepreneurship. Harvard school contemplated that entrepreneurship involves any deliberate activity that initiates, maintains and grows a profit-oriented enterprise for production or distribution of economic goods or services, which is inconsistent with internal and external forces. 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. Also, technology sets a basis upon which innovation is created and facilitated. Overall this theory emphasises on economic gains and economic incent­ives which emerge the entrepreneurial class in a society. Max Weber opined that the spirit of rapid industrial growth depends upon a rationalised technology, acquisition of money and its rational use for productivity and multiplication of money. Maintenance of a combination is not an entrepreneurial activity. entrepreneurship is most likely to emerge under a specific social culture. 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 … iii. According to this theory, psychological factors are the primary source of entre­preneurship development. Discovering a new source of raw materials. This theory is also called innovation theory or dynamic theory. People with high n-achievement behave in an entrepreneurial way. They imagined themselves in need of challenges and success for which they had to set planned and achievable goals. According to Kunkel, Individuals perform various activities of which some are accepted by the society while others are not. (iii) Presentation of disequilibrium situation through entrepreneurial activity – The entrepreneurial activity represents a disequilibrium situation, a dynamic phenomenon and a break from the routine or a circular flow towards equilibrium. He think that the marginal persons are more able in making creative adjustment in changed situations and during the adjustment process they make efforts in bringing real innovations in social behaviour. The individuals and the opportunities have influence on each other. Importance of Entrepreneurship Theories. ii. A. Schumpeter, David C. McClelland, Everett E. Hagen and John H. Kunkel have given their own opinion on concept of psychological theory of entrepreneurship. Entrepreneurship theories bring greater understanding of entrepreneurship behaviour exhibited by different entrepreneurs. (ii) The role expectations held by sanctioning groups and. According to Leibenstein, entrepreneurial functions are determined by the X-efficiency which means the degree of inefficiency on the use of resources within the firm. Under this experiment, young adults were selected and put through a three month training programme. However theory tries to provide a comprehensive framework to the entrepreneurship. Your email address will not be published. are thoroughly effected to entrepreneurship development. The theory assumes the ideal structures for the supply of entrepreneur. The brief description of each theory are as follows: 1. He has burning desires for creative activities. Sociological Theory 12. At last but not the least, we conclude that all the authors i.e., J. Schumpeter’s innovating entrepreneurs represents the enterprise with the R&D and innovative character. He found his thesis true about other communities also, e.g. His theory deals with the functional behavior of entrepreneur and his qualities which are crucial for his success. But generally there is discrepancy between objectives, structures and the actual incidence of entrepreneurs. “human values and motives that lead man to exploit opportunities, to take advantage of favourable trade conditions.” That is why he gives importance to the innovative characteristics of entrepreneurial role. This becomes more prominently evident when we contrast the Indian culture with that of the western of particularly of the American culture. Hoselitz opined that entrepreneurship can develop in a society where its culture permits a variety of choices and where social processes are not rigid. Development in his sense implies that carrying out of new combinations of entrepreneurship is basically a creative activity. Overall, when a group sees their lower positional conditions & experience, they grow an entrepreneurial tendency due to reactive capacity. According to this theory, an entrepreneurship is important to emerge when the society has sufficient supply of individuals possessing particular psychological elements. The I/O model asserts that opportunities are discovered by scanning the business environment and analyzing the market and industry structure. Presented By – Mayank Vashishth and Mohit Dubey Semester III (MBA – M52) MONIRBA, University of Allahabad 2. (v) The carrying out of the new organisation of any industry like the creation of a monopoly position (for example, through trustification) or the breaking up of a monopoly position. Actually, they are not governed by status withdrawal. Assessment . This theory presents the certain psychological motives that are responsible for the evolution of entrepreneurship. He further explains that a person who is to become an industrial entrepreneur must have more than the drive to earn profits and amass wealth. (iii) The opening of a new market i.e. Opportunities are subjective in nature. According to him, an inventor discovers new methods and new materials. According to him, innovation occurs when the entrepreneur: ii. The origin of this concept of psychological theory of entrepreneurship is based on Samurai community of Japan. In this context, it is important to note that making profit is not enough to succeed in entrepreneurship. University of Buckingham UK . This is one of the famous theories of entrepreneurship up to date. He makes a distinction between an innovator and an inventor. Theory of Entrepreneurial Supply – Cochran. Entrepreneurship theories and research remain important to the development of the entrepreneurship field. Schumpeter’s theory of innovation is criticized on the following ground: i. 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. Further if different prices prevail in the same market, there in an opportunity for profitable arbitrage between two segments. (iv) It assumes an entrepreneur as a large scale business man. a. Hoselitz reveals that in several countries entrepreneurial talents are found in persons having particular socio-economic background. Critical evaluation of theories. According to him, an entrepreneur is neither a super normal individual nor a deviant person but represents a society’s model personality. (i) Retreatist – One who combines to work in the society but remains indifferent to his work and position. Some of the theories of entrepreneurship are:-, 1. Culturally marginal groups are important characters for development process. In practice, entrepreneurship is also governed by the specific combination of circumstances which are generally not available in the environment. Hence, the entrepreneur is regarded as the basis of busine… An inventor discovers new methods and new material whereas an innovator is one who utilises or applies inventions and discovers to produce better quality goods that give greater satisfaction to customer and high profit to entrepreneurs. It includes among other things, technology, education, institutional organisation and entrepreneurship. The field of entrepreneurship continues to struggle with the development of a modern theory of entrepreneurship. It is a universal fact that entrepreneurship is an important factor in economic development. Discovery theories of entrepreneurship . “What matter is the behaviour not the actor?” He emphasised more on technological innovations rather than on orga­nisational innovations. In India, first generation entrepreneurs are quite successful in their entrepreneurial behaviour. Need for Achievement Theory 3. Theory of Adjustment of Price – Kirzner, 7. It explains how a traditional society becomes one in which continuing technical progress takes place. Overall entre­preneurship development is associated with social environment. 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. (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. As a society’s model personality, entrepreneur is neither a supernormal individual nor a deviant person but is a role model of the society representing model personality. But no attempts were made by economists for formulating systematic theory of entrepreneurship. A group comes in reactive status when the following circumstances happen at one attempt. v. Managerial ability and leadership quality is must for entrepreneurship development. Four Qualities of Entrepreneur 1. In Schumpeterian theory, the main theme is the innovation. 2. It is quite true that marginal men or groups enjoying an ambiguous culture and social position having no bondage of tradition to inhibit them from entrepreneurship development. Adventurous spirit – Webber also made a distinction between spirit of capitalism and adventurous spirit. Privacy Policy3. Some of the theories of Entrepreneurship are as follows: 1. People having high need for achievement are more likely to succeed as entrepreneurs. C. McClelland. In this way, an entrepreneur is an innovator. In economic development process, entrepreneurs have been assigned a crucial role so that tempo of growth is maintained effectively. In traditional societies, position of authority are granted on the basis of status, rather than individual ability. Till a person is not ready to bear them, the question of starting a business does not rise. Everything you need to know about the theories of entrepreneurship. ii. They tried to imitate their role models those who performed well. Moreover, this theory provides an analysis of religion and its impact on entrepreneurial culture. The theory emphasizes on innovation and excludes the risk taking and organizing aspects. The capacity of becoming an entrepreneur develops due to desire of reaching heights of excellence and specific performance. "Entrepreneur" (/ ˌ ɒ̃ t r ə p r ə ˈ n ɜːr,-ˈ nj ʊər / (), UK also /-p r ɛ-/) is a loanword from French.The word first appeared in the French dictionary entitled Dictionnaire Universel de Commerce compiled by Jacques des Bruslons and published in 1723. Everett E. Hagen has also given a particular concept about an entre­preneurship. Cultural theory of entrepreneurship helps to influence the stakeholders of their enterprise by instilling in their minds the importance of culture with respect to the business (Chatterji et al., 2013). The process of creation is called “entrepreneurship”. Invention means creation of new things and innovation means application of new things onto practical use. But the empirical tools of concept used by McClelland are found to be highly suspect and one wonders how many of the individuals who are judged to have high n-achievement could succeed in utilising it in practice in the present day developing countries unless strengthened by other reinforcing circumstances. For example, new scientific knowledge is not the most reliable or most predictable source of successful innovations. However, despite the above criticisms, this theory is regarded as one of the best theories in the history of entrepreneurial development. According to them social sanctions, cultural values and role expectations are responsible for the emergence of entrepreneurship. Before publishing your Articles on this site, please read the following pages: 1. According to these theories, entrepreneurship and economic growth take place when the economic conditions are favourable. Hindu, Jain and Juda. Business also requires finance but that is of secondary importance. The rewards act as reinforcing stimulus increasing the probability of repeating that behaviour pattern. The theory of social change explains that when members of some social groups feel that their values and status are not respected by the society, they turn to innovation to get the respect of the society. Entrepreneurship theories and research remain important to the development of the entrepreneurship field. Beginning with the premise that fundamental problems of economic development are non-economic, he emphasizes on the cultural values, role expectation and social sanctions as the key elements that determine the supply of entrepreneurs. It was the Kakinada experiment that made people realize the importance of EDP, (Entrepreneurial Development Programme), to induce motivation and competence in young, prospective entrepreneurs. In addition, according to the discovery theory, individuals are always alert to the existing opportunities and this alertness is not a deliberate search, but the constant scanning of environment by individuals. According to Schumpeter, entrepreneur is basically an innovator and innovator is one who introduces new combinations. The problem of labour immobility can be solved by providing infrastructural facilities including efficient transportation wherever an entrepreneurship is promoted. According to him, an entrepreneur is an innovator who desires to earn profit through innovation. This theory was developed by David. The theory is of the view that everyone who is a conducting a particular business gets a particular profit margin which is line with his or her levels of labor. In the past 20 years development of the current theories of entrepreneurship have centered on either opportunity recognition or the individual entrepreneur. The person with high need achievement needs great concern for exercising influence and control. In view of the above, Schumpeterian theory of entrepreneurship has got the following features: (i) Distinction between invention and innovation – Schumpeter makes a distinction between innovation and invention. The entrepreneur is required to identify different sources of change. iii. He is motivated by establishing his psychological power. But an innovator is one who applies inventions and discovers in order to make new combination. This theory asserts that opportunities do not have an existence without the actions of entrepreneurs. Harvard School also emphasizes on following points: i. The theory of Cocharn is a sociological theory of entrepreneurial supply. When group experiences minority situation in society. (2) It is possible to improve the performance of existing entrepreneur through imparting proper training and education. The theory only suggests that the people, who had enjoyed social standing at some stage in their histories fall into a retreatist phase and with an urge to regain that lost status emerge as entrepreneurial personality. For achieving heights of excellence and specific performances, an entre­preneur needs rational thinking, new combinations, deep thinking, power etc. According to Hagen, entrepreneurship is a function of status withdrawal. Ricardo included the term “entrepreneurial ability” as an independent factor of production and it is concerned with profit. It is these beliefs which produce intensive exertion in occupational persecutes, the systematic ordering of means to ends and the accumulation of assets. The theory emphasizes on innovation, ignoring the risk taking and organizing abilities of an entrepreneur. The emphasis is on initiative rather than reaction, although events in the environment may have provided the trigger for the person to express initiative. Hoeslitz says, “Culturally marginal groups plays an important role in encouraging the economic development of any nation.”. 3. The entrepreneurs work to fill the gap by introducing something that increases the effectiveness of the already existing product. Research studies on the psychological roots of entrepreneurship reveal that high achievement orientation ensures the success of entrepreneurs. Harvey Leibenstein propounded the theory of X-efficiency which is popularly called Gap Filling Theory. Hagen postulates four types of events which can produce status withdrawal: (i) Displacement of a traditional elite group from its previous status by another traditional group by physical force. Whenever there is a withdrawal of status respect, it would give rise to birth of innovation of a creative individual who is likely to be an entrepreneur. Entrepreneurial behaviour is an innovation action taking behaviour that involves various risks and attracts good returns. Therefore, this theory suggests that entrepreneurs are always on the lookout f… High achievers want immediate feedback on their power performances. But the most important problem attached with this theory is the question of reliability and predictability of seven sources. According to this theory, the postulate presupposes the fact that there is no need for further information to modify the decision. An entre­preneurship is formed for establishing his industrial empire. (iii) Opportunity Structure – It consists of the availability of capital, management and technological skills, information concerning production methods, labour and markets. Notably, as these changes occur, consumers change their preferences. He regarded the entrepreneurship as a catalyst who checks the static conditions of the economy, there by initiates and thrusts a process of economic development i.e., innovation. McClelland identified two characteristics of entrepreneurship. 167). Motivated by Self Interest. can be cited in this context. But there are certain economic and political factors also which encourage the people to initiate entrepreneurial behaviour. An understanding of entrepreneurship is vital when determining its benefits and failures. Theories of Entrepreneurship. i. Under this theory, the marginal persons are more able in making creative adjustment in changed situations. Conducted by McClelland in America, Mexico and Mumbai. 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