Chapter 1

Theory & Concept of Entrepreneurship

The Evolution of Entrepreneurship Theory

Definition of an entrepreneurship
1. Richard Cantillon
Undertakes to do a job.
2. Adam Smith
Agent transforming demand into supply.
3. Jean Babtiste Say
Shift resources from low productivity to high
productivity.
4. John Stuart Mill
Prime mover.
5. Carl Menger
Transforms resources into products and services.
6. Joseph Aloysius Schumpeter
Innovator.
7. Alfred Marshall
Incremental and evolutionary.
8. Ibnu Khaldun
Knowledgeable individual.
9. David McClelland
High need of achievement.

The Importance of Entrepreneurship to Malaysian

Economy
Entrepreneurship effect our future in many ways
1. Innovation and creation of opportunities.
2. Represent working future due to lay off and shrinking of
job opportunities.
3. Creation of new venture and small businesses.
4. Entrepreneurial Small Medium Enterprises provide services
neglected by big company.

Islamic Entrepreneurship
Eight principles of thoughts
1. Islamic entrepreneurship as an integral part of religion.
2. Human nature
Perform business not for profit but to fulfill fardu
kifayah.
3. Motivation
Success is not measured by end result but ways of
achieving them.
Success according to Al Qurtubi
Halal Outline by Allah and Syariah.
Qanaah Pleased with ones earning.
Taufiq Asking blessing from Allah.
Saadah Spiritual happiness.
Jaanah Success in afterlife.
Seven steps towards a success in life according to Imam Al
Ghazali
Knowledge.
Taubat.
Temptation.
Obstacles.
Motivation.
Handicap.
Praise and thankfulness.

 Possession of wealth
Allah is absolute owner of wealth.
Allah created wealth in abundance and sufficient for
all.
Wealth created for mankind.
Wealth entrusted to mankind.
4. Ibadah
Business is part of ibadah through the fulfillment of
fardu kifayah.
5. Position of business and entrepreneur
Islam proposed business venture.
Allah prepares facilities.
Islam outlines rules and regulation.
Allah promised reward.
6. Guiding principles of Islamic entrepreneurship
Guidelines for Islamic entrepreneurship based on Al
Quran and Al Hadith.
7. Muslim entrepreneurship ethics
Prevent laziness.
Search legitimate ventures.
Avoid forbidden source of income.
Avoid greediness.
Ethical behavior of Muslim entrepreneurship
Avoid malicious behavior.
Avoid squandering.
Avoid stinginess.
Pay zakat.

 Exemplary conduct based on Nabi Muhammad

Business is secondary when being call for crusade.
Afraid of accumulated wealth.
Leadership qualities.
Practice moderate way of life.

Chapter 2
Entrepreneurial Motivation and
Competencies

Entrepreneurial Motivation
1. Motivation is defined as a drive that causes a person to take
some goal.
2. Three general categories of social motives as important
determinant of human behavior
I. The need of Achievement
Drive to do well, strive for excellent and
overcome challenges.
II. The need of Power
Drive to control, influence other and change
situation.
III. The need of Affiliation
Drive to establish, maintain and renew
relationship.

Common Characteristics Associated with

Achievement Oriented Entrepreneur
1. Drive to archive
Compete with other.
2. Calculated risk taking
Do not take unnecessary risk.
3. Internal locus of control
Belief that success or failure is determined by own
effort.
4. Tolerance for failure
Take failure as learning experience.
5. Seeking feedback
Used feedback to know how well they are and how
improve performance.
6. Integrity and reliability
Build and sustain trust and confidence.

Competence Motivation
1.
2.
3.
4.

Drive to do high quality job.

Seek mastery in job.
Develop problem solving skill.
Be innovative.

Entrepreneurial Competencies (McClelland and McBer)

1. Initiative
Take action beyond his job requirement.
2. Sees and acts on opportunities
Looks for and take action on opportunities.
3. Persistence
Take repeated or different action to overcome
obstacle.
4. Information seeking
Seek information or clarify business problems.
5. Concern for high quality of work
Doing things that meet standard of excellence.
6. Commitment to work contract
High priority to complete a job.
7. Efficiency orientation
Do things faster with fewer resources or at low cost.
8. Systematic Planning
Step by step plan to reach goal.
9. Problematic solving
Use new and unique ideas to reach goal.
10.Self confidence
Strong belief in own abilities.
11.Assertiveness
Confront problems with other directly.
12.Persuasion
Persuade or influence other.
13.Use of influence strategies
Make use of influential people.

Chapter 3
Creativity and Innovation

Phase of Creative Process

Phase 1 Background or knowledge accumulation
Gathering information through observation, reading
and conversation.
Phase 2 Incubation process
Letting subconscious mind work on the problems.
Phase 3 The idea experience
Discovery of idea or solution.
Eureka factor.
Phase 4 Evaluation and implementation
Evaluation and implementation of workable ideas.

Components of Creativity
1. Creative thinking skill
Use of creative intelligent.
2. Knowledge
Four style of creative intelligent
Intuitive.
Innovative.
Imaginative.
Inspirational.
3. Motivation
Extrinsic.
Intrinsic.

Common Creativity Techniques

1.
2.
3.
4.
5.
6.

Brainstorming - Alex F.Osborn

SCAMMPERR - Micheal Michalko
Lateral Thinking - Edward De Bono
Mind Mapping - Tony Buzan
Problem Reversal - Charles Thompson
Attribute Listing

1. Brainstorming Alex F.Osborn

Rules
Do not criticize.
Do not limit number of ideas.
Do not filter ideas.
Listen to other ideas.
Do not question.
2. SCAMMPERR Micheal Michalko
3. Lateral Thinking Edward De Bono
Solve problem by unorthodox or illogical method.
Two approaches
Specific Systematic techniques.
General Exploring multiple possibilities.
4. Mind Mapping Tony Buzan
Also called spider diagram.
Represent idea, notes and information.
5. Problem Reversal Charles Thompson
Create negative statement.
Doing what everybody else doesnt.
Make a list of pairs of opposing actions.
6. Attribute Listing.

Blocks to Creativity
Classification of blocks
1.
2.
3.
4.
5.

Perceptual
Emotional
Cultural
Environmental
Intellectual/Conceptual

1. Perceptual Blocks
Inability to see problems from different perspective.
Not thinking outside the box.
2. Emotional Blocks
Fear of failure can paralyze us
Fear of problems.
Fear of work.
Fear of fun.
Fear of exploring.
Fear of abandonment.
Judging ideas.
Dislike new challenges
3. Cultural Blocks
Tradition.
Playfulness.
Fantasies.
Comfortable zone.
4. Environmental Blocks
Lack of cooperation and trust.
Lack of financial and top management support.
Bosses practice autocratic.
Too many distractions.
5. Intellectual/Conceptual Blocks
Failure to understand and acknowledge problems.

Types of Innovation
Three types of innovation
1. Technological Innovation.
2. Operational Innovation.
3. Organization Innovation.

1. Technological Innovation
Major breakthrough.
Wide impact.
Change the way people live.
2. Operational Innovation
Smaller impact.
Unnoticed by public.
Improved product and lower operating costs.
3. Organization Innovation
Change the staff work.
Change their attitudes.
Improve their skills.
Improve method they use to work.

Sources of Innovation
1. Within the company
Unexpected occurrence Penicillin.
Process needs Enzyme for cataract operation.
Incongruities Federal Express.
Industry and market changes Advances in
technology.
2. Within the social environment
Demographic changes Changes in consumer
preferences.
Perceptual changes Fitness craze.
New knowledge Robotics.

Common Characteristics of Creative Entrepreneurs

1.
2.
3.
4.
5.
6.
7.

Sensitive to problems.
Broad perspectives.
Flexible and adaptable.
Original thinker and stick to own opinion.
Risk taker.
Motivated and dedicated.
Curious.

Chapter 4
Business Opportunities

Types of Situational Factors

1. Product or service is still not in existence.
2. Product or services is already in the market but failed to satisfy
customer.
Opportunity Identification
Opportunity identification is a process that involved the search
for and discovery of business opportunities.
Approach to Opportunity Identification
1. Observe changes in the environment.
2. Recognize need that customer not satisfied.
3. Recognize problem and find ways to solve it.
Observing Changes in the Environment
Important environment forces to observe
Economic.
Social.
Technological.
Political.

Opportunity Identification Process

Search for
Changes in
the
environment

Recognize
needs and
wants, and
solutions

Discovery of
Opportunity

Mechanism to Identify Opportunities

1.
2.
3.
4.
5.
6.
7.

Customers.
Retailers
Business associates.
Bankers.
Consultants.
Employees.
Others
Evaluation and Selection

1. The evaluation and selection process involves judging the

viability of the opportunity and accessing its potential.
Criteria for Evaluation and Selection
1.
2.
3.
4.
5.

Can make money.

Less competition.
Has competitive advantage.
Workable and efficient.
Conform with laws and regulations.

Chapter 5
Business Entities & Formation

Forms of Business Entities

Businesses in Malaysia can be registered under
1.
2.
3.
4.

Business Registration Act

Company act
Cooperative act
Parliamentary act
Type of Business Entities

1. Under Business Registration Act

Sole Proprietorship.
Partnership.
2. Under Company Act
Limited Company.
Unlimited Company.
Type of Business Entities
Most common forms of business entities registered by Small
Medium Enterprises
1. Sole Proprietorship.
2. Partnership.
3. Private Limited Company.

Sole Proprietorship
1.
2.
3.
4.

Formed under Business Registration Act.

Solely own by a person.
Liability is unlimited.
Requires small amount of capital to start.
Advantages of Sole Proprietorship

1.
2.
3.
4.

Easy to manage because owner can make decision by himself.

Easy to form and dissolve with minimum formalities.
All profit goes to the owner.
The owner pays income tax.
Disadvantages of sole proprietorship

1. Liability of the business is unlimited.

2. Lifespan of the business depends upon the age of the owner.

Partnership
1. Formed under Business Registration Act.
2. Two or more partner.
3. Business can carry out by more than one person but not
exceeding 20 persons.
4. Partner share capital, profits and losses.
Advantages of Partnership
1.
2.
3.
4.

Easy to form and dissolve with minimum formalities.

Easy to secure financial assistance.
Business risk can be reduced.
Each partner pays individual income tax.
Disadvantages of Partnership

1. Liability of business is unlimited.

2. Lifespan of business depends on age of partner unless there is
an agreement.
Partnership Agreement
1. Business Registration Act does not state that partnership
agreement must be written.
2. Important elements need to be stated in the partnership
agreement
Name of business
The duration of business
Individual involved.

3. Partnership Act will be applicable if no partnership agreement

is written.
Profit and losses must be share equally.
No interest on partner capital.
Partner is entitled to participate.
No partner entitled to salary for participating.
Partners have the right to be paid based on contribution.

Registration of Sole Proprietorship and Partnership Business

1. Sole proprietorship and partnership can be registered to
Companies Commission of Malaysia (CCM).
2. Business is allowed up to 7 days after the start of operation to
be registered.
3. Application are turn down
No capital letter.
Form is too dirty and untidy.
Corrections made using liquid paper.
Existing business has not been terminated.
Verification made by unauthorized personnel.
No license or permit.

Private Limited Company

1.
2.
3.
4.

Formed under Company Act.

Must have at least 2 Malaysian and not exceeding 50 people.
Must use the word Sendirian Berhad or Sdn Bhd.
Liability of business is unlimited.
Requirement of a private limited company

1.
2.
3.
4.
5.
6.
7.

Memorandum of Association.
Articles of Association.
Members of shareholders.
Board of director.
Auditor.
Company seal.
Authorization letter.
Advantages of Private Limited Company

1.
2.
3.
4.

Shareholders are protected by law.

Shareholders are not burden with management.
Liabilities of company are limited.
Lifespan of business are not depending on registration of
members.
5. Greater potential for expansion.
6. Company is one entity by itself.
Disadvantages of Private Limited Company
1. Subjected to more rules and regulations.
2. Cost in setting up company is high.
3. Company must pay corporate tax.

Procedure in registering Private Limited Company

Company must use the service of secretary. The secretary then
forwards the form to Companies Commission of Malaysia.

Business Formation
Four common methods starting a business
1.
2.
3.
4.

Starting from Scratch.

Buying an Existing Business.
Family Business Succession.
Acquiring a Franchise.

Starting from Scratch

1. Most popular method.
2. Entrepreneur can make decision on
Form of business.
Trade name.
Location.
Advantages of Starting from Scratch
1. Free to make decision.
2. Have opportunities to use own ideas.
3. Free to choose location machine and equipment.
Disadvantages of Starting from Scratch
1. Need to put lots of effort.
2. Higher chances of losses due to high project implementation
cost.
3. Not able to accurately estimate sales, cost and profit.
4. No track record and zero business history making hard to
convince financial institution.

Buying an Existing Business

Entrepreneur start new venture by buying existing business.

1.
2.
3.
4.

Advantages of Buying an Existing Business

Time to start business is faster.
Getting a financing is greater due to good track record.
Existing market and loyal customer.
Connection with supplier, agencies and communities.
Disadvantages of Buying an Existing Business

1. Buying existing business require big capital.

2. Need lots of effort managing existing business that not well
managed.
3. Need to respect previous owner agreement.
4. Conflicts arise between new owner and existing employees.

Family Business Succession

1. Entrepreneur start off business as a successor of earlier family
members.
2. Entrepreneur does not face difficulties starting new venture.
Level of Family Business

Level 1
Business Inception (The founder)
Level 2
Business Growth and Development (The founder and 1st
generation)
Level 3
Business Maturity (The founder 1st generation 2nd
generation)
Level 4
Business Transition Period ( 1st generation 2nd generation
3rd generation)
Challenges of Family Business
1. Financing
Debt vs equity
2. Liquidity cash
Family need cash vs business need cash
3. Transition period
Older generation vs new generation

4. Succession
Finding the right successor
5. Emotion
Family interest vs business interest
6. Rivalry
Siblings or cousins

Advantages of Family Business

1.
2.
3.
4.
5.

Freedom and flexibility in making decision.

Pride of family culture high commitment and motivation.
Family members willing to sacrifice time and money.
High possibility of achieving great monetary success.
Family member have good exposure.
Disadvantages of Family Business

1.
2.
3.
4.

Unstructured early stage business.

Early stage limited financial resources.
Family conflict.
Nepotism (incompetent family member is giving better
position).
5. Tradition practice by older generation.
6. Difficult in getting right successor.

Acquiring a Franchise
1. Made between two parties
Franchisor
Franchisee
2. Franchisor sells the right to franchisee to operate the franchise.
3. Franchisee purchases the right from franchisor to operate the
franchise.

4. The right to operate the franchisee by franchisor to franchisee

involve few payments
Franchisee fee (one off payment to purchase right).
Royalty (on going payment based on percentage of
sales).
Advertising and promotion contribution (on going
payment funding).
Types of Franchise Systems
1. Product/Trade name
Automotive
Coca-Cola
Tire Industries
2. Business Format
KFC
SCR

Advantages of Franchising
To the Franchisee

Lower business risk.

Better market acceptance.
Benefit of economic scale.
Guidance by the franchisor.

To the Franchisor

Expanding business by new franchisee

Benefit of economic scale.
Problem related human resources are reduced.
Franchisor can put more effort on RnD.
Disadvantages of Franchising

To the Franchisee
Limited freedom and flexibility.
Franchisee pay franchise fee, royalty and advertisement
& promotion.
Limited product varieties.
Chain reaction effect whole franchise system such as
bad reputation due to fault of franchisor or franchisee.
To the Franchisor
Franchisee conformity (operational methods are not
followed).
Wrong franchisee who want to gain instant popularity.
Franchisor and franchisee goal is different.
Competition due to imitation of business concept.

Chapter 6
Business Regulation and Support System

Approval and Licensing

1. Manufacturing License
Manufacturing license under Industrial Coordinate Act
(ICA).
Application made to Malaysian Industrial Development
Authority (MIDA).
Only apply to manufacturing companies with
shareholder fund of RM2.5M or 75 employees.
2. No Objection Letter for Location
No - Objection letter from respective state government.
Summited to Malaysia Industries Development
Authority.
3. Approval for Planning
Town and Country Planning Act.
4. Approval for Building Plan
Street, Drainage and Building Act.
5. Approval for Certificate of Fitness for Occupation
Uniform Building by Laws.
6. Approval for Environmental Control
Environment Quality Act.
7. Approval for Safety and Health
Factories and Machinery Act.
8. Excise License and Sales Tax License
Excise License Act.
Sales Tax Act.

Infrastructure Facilities
Industrial Estates
Develop by State Economic Development Corporations
(SEDCs).
Regional Development Authorities (RDAs).
Free industrial Zones (FIZs)
Established mainly for export purposes.
Duty free import of raw material and minimal formalities
for export.
Licensed Manufacturing Warehouses (LMWs)
Enable companies to enjoy FIZ facilities.
LMWs need 80% of product for export and raw materials
are imported.

Financial Assistance
Purpose of Financing
1.
2.
3.
4.
5.
6.
7.

Strengthening skills.
Entrepreneur development.
Marketing and Promotion.
Product Development.
Technology Development.
Debt restructuring
General.

Types of Financing
1.
2.
3.
4.
5.
6.

Soft loan.
Grants.
Equity.
Capital.
Guarantee.
Incentives.

Two main providers for financial assistance

1. Ministry
Ministry of Entrepreneur and Cooperative
Development (MECD).
Ministry of Science Technology and Innovation
(MOSTI).
2. Agencies
1. Banks
Bank Kerjasama Rakyat Malaysia.
Bank Negara Malaysia.
SME Bank.
Agro Bank Malaysia.

2. Non Banks
Perbadanan Nasional Berhad.
Perbadanan Usahawan Nasional Berhad.

Employment Policies and Legislations

1.
2.
3.
4.

Employment Policies Act.

Employer Provident Fund (EPF).
Social Security Organization (SOCSO).
Occupational Safety and Health.

Employment Act
Provide minimum standards working hours and overtime
and public holidays.
Employer Provident Fund (EPF)
Provide retirement benefits through their savings.
All employers and employees except foreign workers.
Social Security Organization (SOCSO)
Provide injury insurance.
Covers only Malaysian workers and permanent residents.
Occupational Safety and Health
Safety and health at work.

Manpower Development and Training Facilities

1.
2.
3.
4.
5.
6.

National Vocation Training Council.

Ministry of Human Resources.
Malaysia Productivity Fund.
Malaysian Entrepreneurship Development Centre.
Perbadanan Usahawan Nasional Berhad.
Majlis Amanah Rakyat.