Role Of An Entrepreneur 62312m

The Roles of the Entrepreneur as

an

Entrepreneur as innovator

innovator Joseph Schumpeter (1883-1950), Austrianborn professor, is famous for focusing on the Successful entrepreneurs are usually modeled as entrepreneur as the central figure in advancing combinations of innovators (with creative and the wealth of nations and creating dynamic innovative flair) and managers (with strong disequilibrium in the global economy. In the general management skills, business know-how, process of “creative destruction” (of the and sufficient s). Over the years, market system), entrepreneurs plays a central economists have, however, described more roles role by constantly assimilating knowledge not of entrepreneurs. The following is a summary yet in current use and setting up new of the

economists' interesting

that, production forms and functions to produce aspiring entrepreneurs may, hopefully, find and market new products. He pointed out that useful.

discourse

knowledge underlying the innovation need not be newly discovered and may be existing

Entrepreneur as risk-taker

knowledge that has never been utilized in

Richard Cantillon (1680-1734) suggested that an production. Therefore, the entrepreneur need entrepreneur is someone who has the foresight not be an inventor and vice versa. He is the and willingness to assume risk and take the one who turns an invention into commercial requisite action to make a profit (or loss). exploitation. For Schumpeter, successful Cantillon’s entrepreneur is forward-looking, risk- innovation requires an act of will, not of taking, alert though need not be innovative in the intellect. It therefore depends on economic strict sense. leadership and not mere intelligence. He felt that such a hazardous activity would not be Two different kinds of risk were distinguished by undertaken by ordinary economic agents but Frank Knight (1885-1972): one is capable of only by entrepreneurs with the vision, drive being measured (i.e., objective probability that an and commitment to survive the uncertainty event will happen) and shifted from the and turbulence involved. When he succeeds, entrepreneur to another party by insurance; the the entrepreneur will realize exceptional (be it other is un-measurable (i.e., no objective measure temporary monopoly) profits and he may be

of probability of gain or loss), e.g., the inability to able to fundamentally change existing or predict consumer demand. According to Knight, introduce new market and industry structures. the entrepreneur takes the latter risk: “true” Therefore, Schumpeter’s theory of “creative uncertainty found in situations, which do not destruction” has sometimes also been known repeat themselves with sufficient conformity to as “heroic entrepreneurship”. make possible a computation of probability (what we

nowadays

term

as

"unknown

unknowable").

and While Schumpeter emphasizes technological innovation and improvement, Ludwig von Mises (1881-1973) declared that changes in

Entrepreneur as business manager

consumer demand may require adjustments,

Frank Knight established a boundary between which

have

no

reference

at

all

to

management and entrepreneurship. He sees technological innovations and improvements. entrepreneurs in the strict sense as producers; He

thought

that

the

business

of

the

while the great mass of population furnish them entrepreneur is not merely to experiment with with productive services, placing their persons new technological methods, but to select and property at the disposal of entrepreneurs who those, which are best, fit to supply the public guarantee

to

them

a

fixed

remuneration. in the cheapest way with the things they are

Entrepreneurial profit depends on whether an asking for most urgently. Whether a new entrepreneur can make productive services yield technological procedure is or is not fit for this more than the price fixed upon them by those who purpose is provisionally decided by the furnish productive services think they can make entrepreneur and finally decided by the them yield. Therefore, its magnitude is based on a conduct of the buying public. For Mises, the margin of error in calculation by entrepreneurs activities of the entrepreneur consist in and non-entrepreneurs who do not force the making entrepreneurs to pay as much for productive regarding

decisions

and

innovation

while and

decisions

technological

services as they could be forced to pay. It is this improvement come under his purview, such margin of error in judgment that constitutes true decisions

alone

do

not

constitute

an

uncertainty that is borne by the true entrepreneur exhaustive set. This echoed the viewpoint of and which results in his profit. In Knight’s view, American economist, F.W.Taussig (1859the function of manager thus does not itself imply 1940) that although innovation is one of the entrepreneurship.

activities performed by the entrepreneur, it is

not the only one, and perhaps not even the most important one.

Entrepreneur as exceptional leader Hans Karl Emil von Mangoldt

(1824-1868)

developed the notion that entrepreneurial profit is Peter

Drucker

(1909-2005)

notes

that

the rent of ability. He divided entrepreneurial entrepreneurship can be defined as changing income into three parts: (1) a on the yield of resources (seen in supply or uninsured risks; (2) entrepreneur interest and production ) or as changing the value wages, including only payments for special forms and satisfaction obtained from resources by of capital or productive effort that did not it the consumer (defined in demand ) and of exploitation by anyone other than the owner; innovation to be the specific instrument of and (3) entrepreneurial rents or payments for entrepreneurship. Like Taussig and Mises, differential abilities or assets not held by anyone Drucker asserts that innovation does not have else. The first part is a return on risk taking; the to be technical and are often social as well. He second part from capital use and production argued that management (as ‘a useful effort, and the third part from ability or asset knowledge’) is an innovation of the 20th specificity. Alfred Marshall (1842-1924) carried century as it has made possible the emergence forward Mangoldt’s notion of rent-of-ability by of the entrepreneurial economy in America adding

the

element

“entrepreneurial”

of

leadership

responsibilities.

to and converted modern society into something

Marshall’s brand new: a society of organizations. He

entrepreneurs “must be a natural leader of men therefore prescribed a systematic form of who can choose assistants wisely but also exercise entrepreneurship

management,

based

on

a general control over everything and preserve systematic innovation: “Systematic innovation order and unity in the main plan of business. In consists in the purposeful and organized fulfilling

this

organizational

function,

the search for changes and in the systematic

entrepreneur must always be “on the lookout for analysis of the opportunities such changes methods that promise to be more effective in might

offer

proportion to their cost than methods currently in innovations” use”. Marshall noted that not everyone had the innate ability to perform this entrepreneurial role as these abilities are so great that very few persons can exhibit all of them in a very high

for

economic

or

social

degree.

Accordingly,

he

termed

the

entrepreneurial rents specifically as a “quasirent”, which is a return for exceptional natural abilities, which are not made by human effort, and enable the entrepreneur to obtain a surplus income over what ordinary persons could expect for similar exertions following similar investments of capital and labour in their education and start in life.

Entrepreneur as perceiver/restorer John Bates Clark (1847-1938) noted that as static conditions change over time: population grow, wants

change,

and

improved

production

technologies are discovered and implemented, the mobility of capital and labour is necessary to restore new equilibrium. He sees the entrepreneur as

the

human

agent

responsible

for

the

coordination that restores the economy to an equilibrium position. For Israel Kirzner (1930- ), knowledge is never complete or perfect in a dynamic economy; markets are constantly in states of disequilibrium and it is disequilibrium that bars the return to equilibrium. Kirzner focused on the “discovery process” by which entrepreneurs discover error and new profitable opportunities, and thus move the market toward equilibrium.

Therefore,

the

role

of

the

entrepreneur is to achieve the kind of adjustment necessary to move economic markets toward the equilibrium state. According to Kirzner, the

essence of entrepreneurship consists of the alertness to profit opportunities. By stressing alertness, Kirzner emphasizes the quality of perception, perceiving an opportunity that is a sure thing.

Entrepreneur plays a significant role in generation of employment opportunities As we all know, entrepreneurship is a purposeful activity indulged in initiating, promoting and maintaining economic activities for production and distribution of goods and commodities, the person behind these economic activities is, therefore, a critical factor as well as an integral component of socio-economic transformation. The development strategy of our country confronts two important problems-unemployment and poverty of the masses. These problems can be effectively minimized by activating the latent human potentials through entrepreneurship. This leads to the creation of self-employment avenues for large number of people. For reduction of unemployment, entrepreneurship in small and tiny sector industries, both in manufacturing and service sectors, is imperatively needed. Thus, the role of entrepreneur and its significance in generation of employment opportunities can be depicted under the following heads. 1.Establishing tiny, micro and small scale enterprises: Role of entrepreneur in establishment the above types of enterprises is perceived as a powerful medium to address several socioeconomic issues and the chief among them is generation of employment opportunities for millions. In a developing economy like India, where population pressure is quite high and job employment is limited, the role of entrepreneur is very much significant. Entrepreneurial development gives rise to economic independence through self-employment. Creation of tiny, micro and small enterprises by the entrepreneurs can lead to creation of both self- employment and wage- employment opportunities, thereby solving the problem of unemployment in the economy. 2. Giving emphasis upon village and cottage industries Upliftment of economically backward sections of the society can be possible if self- employment opportunities can be provided at the grass root level. To enable these people in backward regions of the state to set up village and cottage industries, government has implemented several antipoverty programmes like PMRY,

TRYSEM, SGSY, REGP etc, and the importance of entrepreneurs in cottage and village industries sector has been clearly acknowledged by Mahatma Gandhi by his policy priorities in village upliftment including khadi and village industries in his famous constructive programme in 1922. Prior to independence, cottage industries and handicraft production located in rural areas had occupied a distinct place in Indian economy because of their high potential in employment generation and income creation especially in rural and backward areas. As such, entrepreneur can play a significant role in setting up and reviving the cottage and village industries, thereby creating employment opportunities to a large number of people living in rural and backward pockets of the country. 3. Utilizing the surplus labour force in industrial activities: India is a primary producing country. This characteristics feature is further accentuated by seasonality feature of the agriculture. Therefore, for a large part of the year, people remain, more unemployed. Disguised unemployment is a chronic phenomenon in agriculture where in more people work in a field than actually required. So the surplus labour force is transferred and utilized by the entrepreneur in non-farm sector activities like small tiny, cottage and village industries which are labour intensive

in

nature.

Role of an entrepreneur as complimenting and supplementing economic growth Entrepreneur supplement and compliment economic growth of the economic in the following ways:

1.

Mobilization of Capital. Entrepreneur’s efforts to mobilize the capital results in motivating

the investors to divert their ideal savings in the industrial enterprises. Investment of public saving in industrial sector helps the country to use financial resources for productive purposes. The growth rate of capital formation will be increased which is highly essential for rapid economic development of a country. It is in the sense that entrepreneur’s grenade capital at a rapid rate and capital

2.

formation

increases

which

is

vital

for

the

industrial

development.

Generation of Employment. Entrepreneurs become self-employed and self-sufficient. They

do not depend on the government jobs or private jobs and directly employ themselves by starting

their own enterprises. In fact, they also privet jobs to many unemployed by setting up large and small scale industrial. Thus, entrepreneurs play an important role to reduce the unemployment problem

3.

in

the

country

and

pave

the

way

for

economic

development.

Backward and Forward Linkages. It is the entrepreneur who initiatives change and this to

maximize his profits by innovations. Setting up of an enterprise in accordance with the changing technology has several backward and forward linkages. For example, the establishment of a textile unit generates several ancillary units and expands demand for cotton, chemicals, dyes, etc. Schumpeter postulates that the rate of economic progress of a country depends largely upon its rate of innovation, which in turn, depends upon the entrepreneurial talents. According to Schumpeter, technological development cannot alone bring about economic growth unless they are put to practical use by the entrepreneurs. Similarly, Peter Drucker has also emphasized that this is the age of entrepreneurial society. Economic development and growth of a country depends to a great extent upon effective entrepreneurship. In his opinion, entrepreneur plays a crucial role for the creation of new small enterprises that energize the economic structure. Through constant creativity, new businessmen/entrepreneurs assure a strong economy and rising national income. Thus, the role of entrepreneur is important, as it is not only complements but also supplements the economic growth of the country.

Role of an entrepreneur in Social Stability and Balanced Regional Development of Industries Entrepreneur plays a crucial role in bringing about social stability and balanced regional development. In each and every country, entrepreneurs are considered as a valuable human resource. The responsibility of social stability lies on his shoulders. Entrepreneurs help in alleviating poverty by reducing unemployment through creation of large number of jobs by ways of setting of small and tiny units. Thus social stability is maintained. Entrepreneurs facilitates economic development and social stability through creation of social infrastructures like, schools, colleges, health care centers, vocational institutions, banking and insurance facilities, roads and buildings etc. consequent upon establishment of industries.

The role of entrepreneur is also of paramount importance in bringing about balanced regional development. Establishing industries in rural and backward regions and availing concessional finance, investment subsidy, transport subsidy and the like are provided by the government to reduce regional disparity.

Role of Export Promotion and Import Substitution In recent years, liberalization, privatization and globalization have opened up a vista of export opportunities for entrepreneurs in India. They have evinced their interest in setting up industries which are export –oriented in nature. They also find it more lucrative to establish industrial units which produce import substitutes thereby making India self-reliant. As such, the role of entrepreneur is of fundamental importance as far as export promotion and import substitution are concerned. Entrepreneurs are interested in manufacturing consumer goods as well as capital goods in the country in order to minimize dependence on foreign countries. Establishment of small industries for FMCG (fast moving consumer goods) as well as consumer durables makes the country self-sufficient and thus, they help in accelerating economic development. Export promotion policies reflect the interest of national governments to stimulate exports. Subsidies, tax exceptions, and special credit lines are the main instruments used to promote exports. The regulatory aspects of export promotion changed significantly in the late twentieth century. In the past export promotion activities were not substantially regulated, but increasingly since the creation of the World Trade Organization (WTO) in 1995 some export promotion activities have been identified as trade–distorting practices. The WTO has devised rules that allow countries that have been affected by the export promotion practices of their trading partners to use the WTO’s dispute–settlement procedure and in some cases retaliate. Export promotion is sometimes seen as a complementary development strategy to import protection. While import protection usually allows infant industry to develop, export promotion allows access to external markets. Foreign demand is often required by the limited size of domestic markets and the need to achieve economies of scale, essential in many productive activities. In a 1984 article Paul Krugman argued that, under increasing returns to scale, import protection may act as a form of export promotion, because in this case protection would allow considerable gains in of productivity that would enhance the possibilities of exporting.

However, in policy circles export promotion or export oriented industrialization (EOI) is seen more often as an alternative development strategy to import substitution industrialization (ISI). Import substitution is the process in which an economy replaces imported goods with domestic goods. In doing so, it creates a stronger and more diverse domestic economy. Entrepreneurship can play an important role in this process. Entrepreneurs can become the driving force behind the new domestic industries. They can identify industries that they think will succeed. Having done that, they take the risk (which is a major aspect of entrepreneurship) of devoting resources to this new industry. Their efforts and their willingness to accept risk can help to create a variety of new industries in a country that is trying to adopt an import substitution strategy. Entrepreneurs play a major role in the achievement of self sufficiency, and import substitution becomes a central way to achieve this goal. Import substitution involves the decrease of an economy’s imports and instead focuses on incubating and developing its internal industries driven by entrepreneurship. The purpose is to allow room for the entrepreneurs to establish themselves enough, in order to compete with the imports, which eventually reduces an economy’s reliance on external products. The import substitution policy is achieved by imposing high tariffs and stringent quotas on imports. This discrimination would in turn force businesses to source products locally and fuel entrepreneurship, which is geared towards providing the required products. This theory then places the entrepreneur at a vantage point, because it is the entrepreneur’s activities that are expected to improve the competitive standards of a country’s economy in the global marketplace.

Role of entrepreneur in Foreign Exchange Earnings and Meeting Local Demand The earnings of small scale sector have been increasing at a faster rate and so also the FOREX earnings. Increase in exports brings about increase in foreign exchange earnings and thereby helping to achieve a favorable balance of payment. It is known that expansion of exports is kingpin of any policy of solving the problem of deficit and increase of foreign exchange earnings. The entrepreneurs of small scale units, therefore, play a great role in augmenting

exports and thereby leading to earnings of foreign exchange reserve which is much needed for the development of a country like ours.

Foreign trade acts as an engine of growth for the underdeveloped countries. Nowadays entrepreneurs of developing countries are no longer exporters of primary products and importers of manufactured goods. According to GATT (General Agreement on Tariffs and Trade) they import only one-third of their total consumption of manufactured articles and even this proportion is on the decline. They produce the remaining two-third at their home Conclusion The Indian economy provides a revealing contrast between how individuals react under a government-controlled environment and how they respond to a market-based environment. The evidence presented here suggests that recent market reforms encouraging individual enterprise have led to higher economic growth in that country. The reasoning here is not new, although it is refreshing to discover that this “tried-and-true” reasoning applies to developing as well as to developed nations. Specifically, reliance upon a free market, with its emphasis upon individual self-interest in survival and wealth accumulation, can yield a wide range of economic benefits. In India those benefits have included, among other things, increased economic growth, reduced inflation, a smaller fiscal deficit, and higher inflows of the foreign capital needed for investment. We further conclude that India can generate additional economic growth by fostering entrepreneurial activities within its borders, particularly within its burgeoning middle class. Not only has entrepreneurship been found to yield significant economic benefits in a wide variety of nations, but India specifically has reached a point in its development where it can achieve similar results through entrepreneurial efforts. Among other things, India is poised to generate new business startups in the high technology area that can help it become a major competitor in the world economy. For example, it has a strong education base suited to entrepreneurial activities, increased inflows of foreign capital aimed at its growing information technology services sector, and a host of successful new business startups. To pursue further the entrepreneurial approach to economic growth, India must now provide opportunities for (1) education directed specifically at developing entrepreneurial skills, (2) financing of entrepreneurial efforts, and (3) networking among potential entrepreneurs and their experienced counterparts.

Obviously, the government can play a substantial role in helping to provide these types of opportunities. It can also provide the appropriate tax and regulatory policies and help the citizens of India to understand the link between entrepreneurial efforts and economic prosperity. However, its role overall must be minimized so that the influence of the free market and individual self-interest can be fully realized. Only time will tell if increased entrepreneurial activities in India will actually yield the economic benefits found in so many other nations of the world. Should India decide to pursue that avenue of economic development, then future research needs to examine the results of India’s entrepreneurial programme. Perhaps more important, that research also needs to determine how India’s success in entrepreneurial efforts might differ from those pursued in developed nations.