CHAPTER I

ENTREPRENEURSHIP:
A THEORETICAL
FRAMEWORK

This introductory chapter presents the theoretical framework of

entrepreneurship, the process of entrepreneurship development and models of
entrepreneurship. It also describes how the small entrepreneur is a cognizable
force in the process of industrialization. An attempt is also made to highlight
the Prime Minister Rozgar Yojana as a Programme for promoting
entrepreneurship and small industrial development.

Introduction
Most of the social scientists agree that man stands at the centre of
economic activity and he assumes various roles in the development process,
namely, as an organiser of human and material resource, worker, consumer
and a change agent. Out of these multiple roles his role as organizer of human
and material resource is the most important and basic one and it is the essence
of entrepreneurship1. Various social scientists also felt that entrepreneurship is
the key variable which links the socio - cultural milieu with the rate of
economic development. Of late, even the industrial economists have shifted
their emphasis from the rate of capital formation to the growth of high - level
man-power such as entrepreneurship, as the major determinant for industrial
development vis-a-vis social transformation and economic growth2.
Entrepreneurship: A theoretical framework.
The word entrepreneur appeared in the French language long before
the emergence of the concept of entrepreneurial function. In the early 16th
Century, it was applied to those who were engaged in military expeditions. In

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the 17th century it was extended to cover civil engineering activities such as
construction and fortification. However, the concept of entrepreneurship was
used once in the beginning of the 18th century to refer to economic activities.
Richard Cantill defined entrepreneur as a person who fugs factor services at
certain process with a view to search its product at uncertain prices in the
future. He further conceived entrepreneur as a bearer of non-insurable risk.
J.B. Say was of the opinion that an entrepreneur is the economic agent who
unites all means of production - land, labor, capital and thus produces a
socially viable product. According to Joseph Schumpeter, an entrepreneurs in
an advanced economy is an individual who introduces something new in the
economy a method of production not yet trusted by experience in the branch
of manufacture concerned, a product with which consumers are not yet
families and new source of raw material or of new markets and the like.
The entrepreneur, according to Knight, is the economic functionary
who undertakes such responsibility which by its nature, can not be insured nor
salaried. He described entrepreneurs are a specialized group of persons, who
bear uncertainty; and uncertainty is defined as the risk which can not be
calculated.

He also felt that the supply of entrepreneurship involves free

factors; namely ability and power to extend such guarantee. Further he has
gone a step ahead and identified the psychological, social and economic
factors which govern the supply of entrepreneurship in general and industrial
development so particular.

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Entrepreneurship
Entrepreneurship is an elusive concept. Hence, it is defined differently
by different authors. While some call entrepreneurship as risk-bearing,
others view it innovating and yet others consider it thrill-seeking. Let us
consider some important definitions of entrepreneurship to understand what
entrepreneurship is all about.
Entrepreneurship is the attempt to create value through recognition of
business opportunity, the management or risk-taking appropriate to the
opportunity, and through the communicative and management skills to
mobilize human, financial and material resources necessary to bring a project
to fruition.
A.H. Cole, Entrepreneurship is a purposeful activity of an individual
or a group of associated individuals, undertaken to initiate, maintain a profit
by production or distribution of economic goods and services.
According to Schumpeter, Entrepreneurship is based on purposeful
and systematic innovation. It included not only the independent businessman
but also company directors and managers who actually carry out innovative
functions.
In all above definitions, entrepreneurship refers to the functions
performed by an entrepreneur in establishing an enterprise. Just as
management is regarded as what managers do, entrepreneurship may be
regarded as what entrepreneurs do. In other words, entrepreneurship is the act
of being an entrepreneur. Entrepreneurship is a process involving various

actions to be undertaken to establish an enterprise. It is, thus, process of

giving birth to a new enterprise. Table 1.1 and 1.2 show changing definitions
of entrepreneur and entrepreneurship and conceptual differences between
them respectively.

Table 1.1
The changing definitions of Entrepreneur /Entrepreneurship
Year

Name of the social

scientist

1755

Richard cantillon

1816

Jean Baptiste Say

Brief definition
A person bearing risk

Agent combination all

factors of production
Frank Knight
Recipient of pure
1921
profits
Joseph Schumpeter
Ability to identify new
1934
opportunities
The relentless pursuit of
Stevenson and Sahlman
1985
opportunity
1988
Gartner
Actions taken to create
organization
Bygrave and Hofer
Characteristics of
1991
entrepreneurial
Source: Madhurima Lall and Shikha Sahai, Entrepreneurship, Excel
Books, New Delhi, 2006 P. 8.

Table 1.2
Conceptual differences between the words Entrepreneur and
Entrepreneurship
Entrepreneur

Entrepreneurship

Refers to a person
Visualiser
Creator
Organiser
Innovator
Technician
Initiator
Decision maker
Planner
Leader
Motivator
Programmer
Risk taker

Refers to a process
Vision
Creation
Organisation
Innovation
Technology
Initiative
Decision
Planning
Leadership
Motivation
Action
Risk taking

Source: Madhurima Lall and Shikha Sa iai, Entrepreneurship,

Excel Book, New Delhi, 2006 P.8

Characteristics of an Entrepreneur 3
If we go through the business history of India, we come across the
names of persons who have emerged as successful entrepreneurs. Success or
otherwise of a small enterprise is, to a great extent, attributed to the success or
otherwise of the entrepreneur himself/herself. The scanning of their personal
characteristics shows that there are certain characteristics of entrepreneurs
which are found usually prominent in them. The principal ones are scanned
and discussed here:

Hard Work:

Willingness to work hard distinguishes a successful

entrepreneur from unsuccessful one. The entrepreneur with his tedious, sweatfilled hours and perseverance revive their business even from on verge of

6
failure. In nutshell, most of the successful entrepreneurs work hard endlessly,
especially in the beginning and the same becomes their whole life.

Desire for high achievements: 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.

Highly optimistic: The successful entrepreneurs are not disturbed by the

present problems faced by them. They are optimistic for future that the
situations will become favourable to business in future. Thus, they can run
their enterprises successfully in future.

Independence: One of the common characteristics of the successful

entrepreneurs has been that they do not like to be guided by others and to
follow their routine. They resist to be pigeonnholded. They liked to be
independent in the matters of their business.

Foresight: The entrepreneurs have a good foresight to know about future

business environment. In other words, they well visualize the likely changes
to take lace in market, consumer attitude, technological developments, etc.
and take timely actions accordingly.

Good organiser Different resources required for production are divorced

from each other. It is the ability of the entrepreneurs that brings together all
resources required for starting up an enterprise and then to produce goods.

Innovative: Production is meant to meet the customers requirements. In

view of the changing taste of customers from time to time, the entrepreneurs

7
initiate research and innovative activities to produce goods to satisfy the
customers changing demands for the products.

Functions of Entrepreneur
Entrepreneur does perform all the functions necessary right from the
genesis of an idea upto the establishment of an enterprise. These can be listed
in the following sequential manner.

Idea generation and scanning of the best suitable India

Determination of the business objectives

Product analysis and market research

Determination of form of ownership/organization

Completion of promotional formalities

Raising necessary funds

Procuring machine and material

Recruitment of men

Undertaking the business operations4

Types of Entrepreneurs
Entrepreneurs is classified in to four types.
1. Innovating Entrepreneurs: An innovating entrepreneur is one who
introduces new goods, inaugurates new method of production,
discovers new market and reorganizes the enterprise. It is important to
note that such entrepreneurs can work only when a certain level of
development is already achieved, and people look forward to change
and improvement5.

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2. Imitative Entrepreneurs: These are characterized by readiness to
adopt successful innovations inaugurated by innovating entrepreneurs.
Imitative entrepreneurs do not innovate the changes themselves, they
only imitate techniques and technology innovated by others. Such
types of entrepreneurs are particularly suitable for the under-developed
regions for bringing a mushroom drive of imitation of new
combinations of factors of production already available in developed
regions.
3. Fabian Entrepreneurs: Fabian entrepreneurs are characterized by
very great caution and skepticism in experimenting any change in their
enterprises. They imitate only when it becomes perfectly clear that
failure to do so would result in a loss of the relative position in the
enterprise.

4. Drone Entrepreneurs: These are characterized by a refusal to adopt

opportunities to make changes in production formulae even at the cost
of severely reduced returns relative to other like producers. Such
entrepreneurs may even suffer from losses but they are not ready to
make changes in their existing production methods.
Thus, an entrepreneur is one who bears competence to prescribe new
opportunities, liking to take risks in exploring them and undergo, if necessary,
rigorous hardships of the business. He is a critical factor in economic
development and an integral part of socio-economic transformation.

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Entrepreneurship is recognized as an essential ingredient in the process
of industrialization vis-a-vis economic development of an economy. It is a
purposeful activity indulged in initiating, promoting and maintaining
economic activities for the production and distribution of wealth. It could be
conceived as an individual free-choice activity or a social groups occupation
or profession.
Entrepreneurship is a function of multiple factors. It is generated in
society by individuals who initiate, establish, maintain and expand new
enterprises. It has received much attention during the last few decades. The
subject has become an object of serious interest and study among policy
makers, academicians and researchers. Of late, the subject has become even
worthy of manipulation, exploitation than even before. Increasing knowledge
about the nature and characteristics of entrepreneurial behavior has resulted in
attempts to devise deliberate packages for stimulation, facilitation and support
of

entrepreneurial

behavior.

Idle

speculative

descriptions

about

entrepreneurial behavior and entrepreneurship by stray writers has given place

to planned, purposeful empirical investigation. Therefore, the following pages
present various facets that are closely intertwined with the entrepreneurship.
Entrepreneurship: A function of innovation6
Joseph A Schumpeter was of the opinion that man is the centre for the
process

of

economic

development

and

emphasized

the

role

of

entrepreneurship in his theory of economic development. According to him,

the process of development can be generalized by five important events.

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Firstly, it can be the outcome of the introduction of a new product in
the market. Secondly, it can be the result of a new production technology.
Thirdly, it may arise on account of a new market. Factors, it may be the
consequence of a new source of supply. Finally, it may be due to the new
organization of any industry. He strongly felt that innovation is a creative
process to a situation and socio-economic development in any economy is not
a spontaneous process, but it must be deliberately and actively promoted by
some agency within the given system of environment.

Entrepreneurship: A function of group level pattern7

Frank W. Young strongly felt that the entrepreneurship is a function of
group level pattern that has the capacity to react. He further stated that a group
has a higher degree of institutional and occupational diversity relative to its
acceptance. He tends to integrate its internal communication which gives rise
to a unified definitions of the situation. He also postulated a casual sequence
where, transformation codes are developed by the solidarity groups to
improve their symbolic position in the larger structure and become
entrepreneurs. He interpreted that the individual level entrepreneurial
characteristics as the underside of a group level pattern.

Entrepreneurship: a function of managerial skills and leadership8.

Bert F. Hoselitz stated that a person who wants

to become an

industrial entrepreneur must have additional personality traits to those

resulting from a dive to amass wealths. In addition to being motivated by the
expectations of profit, entrepreneur must also have some managerial abilities

11

and more importantly

he must have ability to dealt. He asserted that

managerial skills and leadership are the important facets of entrepreneurship.

He also felt that only a strong desire to make profit is not-enough to succeed
in becoming an essential entrepreneur and added one more characteristic to
entrepreneurship which is absent in money-bending type, namely liquidity of
wealths. He further suggested that entrepreneurship can develop in a society
when its culture permits a variety of choices and where social processes are
not rigid and in a situation which encourages the development functionalities
interested in the enterprise.
Fredenik Harbison viewed that entrepreneurship is the skill to build an
organization. He laid more emphasis on the managerial skills and inactivity so
far as organization is concerned. He further felt that its ability to create an
organization is the most crucial skill which facilitates the economic use of
other innovations. If this skill is absent the other innovations fail to stimulate
economic development. It can be implied that an entrepreneur is not an
innovator but an organization builder who must be able to harness the new
ideas of different innovators to the most of the organizations.

Entrepreneurship: A function of high achievement9

David McClelland attributed the innovative

characteristics

to

entrepreneurial role. According to him, entrepreneurial role involves doing

things in a new and better way. He also explained that the entrepreneurs
interest in profitability is terms of a need for achievement. To him, profit with
high n achievement are not informed by money rewards as compared to probe

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with low n achievement. Profit with low n achievement an prepared to work

hander for money or such other extrinsic factors, for probe with high n
achievement, profit is a measure of success and competency .

McClelland postulated that a successful entrepreneur is one who takes

moderate risks, energetic, novel in his activities, anticipates future
responsibilities, files individual responsibility and possesses organizational
skills; evinces interest in entrepreneurial occupations as a function of their
prestige and riskness.

Entrepreneurship: As a gap filling function10.

Harvey

Liebenstein

identified

gap

filling

as

an

important

characteristic attributable to entrepreneurship. He defined entrepreneur as an

individual or a group of individuals having four major characteristics connection of different markets, capability of making up market deficiencies,
creation and expansion of time-binding import transforming entities. He also
stated that supply of entrepreneurship is governed by import - completing
capacity and inadequate motivational state. He suggested that a lower profit
investment that releases entrepreneurial energies and capacities may be more
fruitful than a higher profit investment. He also asserted that though not all
the characteristics are trainable, training can do something to increase the
supply of entrepreneurship

Entrepreneurship: A function of social, political and economic structure11

Kunkel

propounded

a theory

of entrepreneurial

supply

and

collaborated a behaviouristic model of entrepreneurship. He stated that the

13

industrial entrepreneurship depends upon limitation structure which views

that the most important deviant individual in economic development and
major determinate which cases such a deviance is a social structure. Demand
structure is mainly economic in nature and states that behavior of people can
be shaped in an entrepreneurial way. Opportunity structure constitutes the
availability of capital, management and technical skills, education, production
methods, labour, and markets. Labour structure, according to him, is that the
labour supply cannot be viewed on par with the supply of other material
conditions like capital.

Entrepreneurial Development models: The following are the some of

the important models that helped comprehensive understanding the concept of
entrepreneurship.

(a)

The Psychological models:

David McClelland in his theory the

Achieving Society emphasized the need for identification of determinates of

entrepreneurship. In this model he ascribes more important to achievement
motives which earlier related to child rearing practices. Later, he changed his
perception and stated that motivation is seen primarily as a result of the
identification arousal of latest need for achievement among adults. After
identifying achievement orientation as the key variable in the development of
entrepreneurship McClelland finally suggested that the motivating training
programmes as the policy measure which will make potential entrepreneurs
really willing and eager to explicit the new opportunities provided12.

14

Everett Hagens theory of social change laid emphasis n creative

personality as a causal think in entrepreneurial behavior and status
withdrawal as the determinant of creative personality. Hagen elaborately
explained the causal sequence of entrepreneurial behavior, despite this model
gave and contributed a lot in understanding to entrepreneurship, but failed to
give any policy variable to the development of entrepreneurship. The status
withdrawal would happen according to Hagen in the natural evolutionary
process of the society and not by any deliberate attempt .
John Kunkel, primarily emphasized on the psychic needs, values,
sociological variables and a behavioral model. He was under the contention
that entrepreneurial behavior is a function of the surrounding social structure
both past and present, and can really be enhanced by manipulable economic
and social incentives which identify sociological variables as the determinants
of entrepreneurial supply14.

(b)

The Sociological models:

Frank

W.

Youngs

theory

of

entrepreneurship is a theory of change based upon societys in corporation of

reactive sub-groups. To Young, a group will become reactive when two
conditions coincide, the group is experiencing low status recognition and
denial of access to important social networks, and it possesses a greater range
of institutional resources than groups in society at the same system level. He
looked at entrepreneurship as an organizational phenomenon and observed
whatever else it may be, economic development involves a organization of
production resources. For economic spurts, according to Young, instead of

15

looking at individuals, one must find clusters, ethnic communities,

occupational groups as politically - oriented factions15.
According to Max labour, the key to competitive success for
entrepreneurship is an entrepreneurs innovation in a through going
rationalization of eveiy aspect of enterprise. In the webersian system, the
entrepreneurial mergies are generated by religious belief. He strongly viewed
that the main factor

contributing to

the support of entrepreneurship is the

protestant ethic which changed from religious belong

system of

Calvinister Puritanism. His theory suggested that the belief system of

Hinduism, Buddhism and Islam do not entrepreneurship, this stand, however,
has been challenged by many Sociologists.

(c)

The integrated models:

T.V. Rao framed and suggested the Following dispositions for entrepreneurial
development.
1. Need for motive: The dynamic which for the prospective entrepreneur has
the greatest possibility of achieving the goals if one reforms those
activities.
2. Long-term involvement: It is the goal either at thinking level or at activity
level in the entrepreneurial activating that is viewed as a taste to be
fulfilled.
3. Resources: Personal, social and material resources which he thinks are
related to entry and success in the area of entrepreneurial activity.

16

4. Social-Political System: It is to be perceived as suitable for establishment

and development of the enterprise.
He further stated that all the above factors are additive in nature and its
optional presence lead to entry point of entrepreneurship which leads to
acquisition of material resources and standing the business. B.S. Rao
suggested five stages for emerging and developing small entrepreneurship16.
They include.
1. Stimulation: This initial stage includes creation of industrial
atmosphere, policy statement enterprising the role of small
industry, wide fathitz of industrial development programme,
formation of special schemes and nation of support institutions,
shin stage is necessary to stimulate the interest in the backward
regions in industrial activity and to create awareness and instil a
sense of initiation to start a productive activity.
2. Identification: This second stage is necessary to identify the
prospective

and

potential

entrepreneurs.

The

prospective

entrepreneurial force can be identified in rural artisans, factory

workers, reasons who have formal training in engineering and
technology

and

graduates

in

business

administration

and

management.
3. Development: This stage includes organization of motivation and
managerial training programmes along with advice on technology,
formulation of bankable project, incaution etc.

17
4. Promotion: This can be the job of supporting situations to provide
developmental factors, services and incentives.
5. Follow up: This stage includes reviewing the opticies and
programmes of the convent and seeking of new wars with view to
make it more effective.
Sharma K.L. described four stages of economic growth. They are
(a) entry into manufacturing (b) expansion of business (c) perceived stability
in business, and (d) Commitment to sustained growths. The entrepreneurial
determinants viz., need fro achievement motivation and socio-economic
background of entrepreneurs and political milieu. According to him, the
interaction of these factors, would lead to entrepreneurial

growth. The

entrepreneurial growth does not take place in vacuum but with the existence
of entrepreneurial

prerequisites like material sources, entrepreneurs vision

and confidence to run an industry and the general infrastructure available to

the entrepreneurs17. The following figure 1.1 presents different models of
entrepreneurship.

INTEGRATED-CONTEXTUAL MODEL
POLITICAL

ORGANISATIONAL

ECONOMIC

SOCIO-CULTURAL

PSYCHOLOGICAL

Fig. 5.1 : A Model of Factors.Influencing the Emergence of Entrepreneurship

Source

: Adapted from Abdul Aziz Mahmud, "Developing Effective Indigenour Entrepre

neurs," Malnyaxum Management Review, April 1974, Vol. 9 No. 1, p. 47

18
The above analysis of various models and view points led us to
conclude that entrepreneurship has been considered and requested as a potent
factors in economic development. The concept of entrepreneurship is
decorated by various factors like innovation organization building ability,
gap-filling function, input completing etc. The persons with these traits are
recognized to initiate and sustain the process of industrialization. Prime
Minister Razgar Yojana, has been conceived as an important programme and
it objectives and philosophy

denoted towards identification of educated

unemployed youth, as potential entrepreneurs, train and extend all possible

help, support and encouragement them to start small enterprises with the hope
that all these would change their income, generate employment opportunities,
in particular and industrial growth and development.

Entrepreneurship a plinth for industrial development:

Entrepreneur has been identified by many economists as a vital force in
the process of economic development in general and industrialization in
particular. Industrial development, as a matter of fact, essentially a visible &
feasible factor in overall development of the economy. In the context of
Indian economy a large shunk of population depend on agriculture, and
poverty, regional imbalances , unemployment, underemployment and
alarming growth of educated unemployed youth are some of the pressing
problems. In this regard, next to agriculture, industrial sector is considered an
important sector which a can provide gainful employment on large scale.
This, in turn, in a long run will lead to socio-economic development of the

19
country and the people as a whole. However, entrepreneur alone can not be
responsible for the development of industrialization rather the Govt, nonGovt. agencies, financial and training institutions, should extend their support
in different forms. Then alone, the entrepreneur can really translate his
potential skills into realities and can make the industrial development
possible.

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References:
1. Subba Rao, P.D and Sundaram on Entrepreneurial Challenge in under
developed sectors, Kanishka Publishers, New Delhi, 1993 p.9.
2. Sheobahal Singh., Entrepreneurship and social change, Rawat
Publications, Jaipur, 1995, p. 120.
3. Khanka, S.S., Entrepreneurial Development, S. Chand & Co, Ltd, New
Delhi, 2004, pp. 1-2
4. Ibid p. IS
5. Ibid p. 5
6. Schumpeter, J.A., Economic Theory and Entrepreneurial History In
Exporations inEnterprise, Harvard University Press, Cambrige,
1965.
7. Young,F.W,A Micro Sociologiealnterpretation of Entrepreneurship
American Journal of Sociology, Vol.12, No.l. Oct 1956, p. 106.
8. Hoselitz, B.F., Entrepreneurship and Economic Growth The
American Journal of Economics and Sociology, Vol.No.l2,No.l Oct
1952.
9. McClelland, D.C., Achievement Motivation can be Developed
Harvard Business Review, Vol.No.43,No.6, Nov-Dec, 1965
10.Liebenstein, Harvey., Entrepreneurship and Development American
Economic Review, Vol. No. LVIII, No.2, May 1968.
11. Kunkel, John H., Society and Economic Growth: A Behavioural
Perspective of Social Change, Oxford University Press, London, 1910.
12. McClelland David.C., op.cit., p. 110.
13.Hagen, E.E., On the theory of Social Change, Vakils, Feffer and
Simons (P) Ltd, Bombay, 1962.
14. John Kunkel., Psychological Fetors in the Analysis of Economic
Development, Journal of Social Issues , XIX, No.l Jan. 1963, pp.6887.

21

15. Young, Frank W., A Macro Sociological Interpretation of

Entrepreeurship, in Entrepreneurship and Economic Development,
the Free Press, New Yark, 1971.
16. Rao. R.K., Small Industries in the Seventies, Vikas Publications, Delhi,
1971. p.14
17. Sharma, K.L., A Multi - Varite Model for the
Entrepreneurship in Manufacturing Organsiation,
Buletion, Vol. No.l, March, 1978. p. 45

Analysis of
Sociological