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THEORIES OF ENTREPRENEURSHIP

An entrepreneur is the risk bearer and works under uncertainty. But no attempts were made by economists for formulating systematic theory of entrepreneur. According to William J. Baumol, the economic theory has failed to provide a satisfactory analysis of either the role of entrepreneurship or of its supply. Traditional model treat entrepreneurial function like a managerial function. Similarly, in modern growth theory also, any contribution of entrepreneurship is typically contained in a residual factor.

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Different thinkers have evolved different theories of entrepreneurs 1. Psychological Theory Psychological characteristics affect the supply of entrepreneurs in the society. Joseph Schumpeter, Mc Clelland, Hagen and Kunkel 2. Sociological Theory Sociological factors accelerate the growth of entrepreneurs. Max Weber, Cochran, Hoselitz, Stokes and Young

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1. Innovation Theory

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This theory was propounded by J.A. Schumpeter. According to Schumpeter, entrepreneur is basically an innovator and innovator is one who introduces new combinations. In practice, New combination theory covers five cases The introduction of a new good which consumers are not yet familiar or a new quality of good The introduction of new method of production The opening of a new market

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2. Need for Achievement Theory

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This theory was developed by David C. Mc Clelland concerned himself with economic growth and the factors that influence it high achievement orientation Mc Clelland emphasis on two factors internal human values and motives and external factors economic growth. Internal factors i.e., human values and motives that lead man to exploit opportunities to take advantage of favourable trade conditions innovative characteristics. The entrepreneur is concerned with need for

3. Status Withdrawal Theory

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E. Hagen attempted to formulate a theory of social change. 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. According to Hagen, entrepreneurship is a function of status withdrawal. This theory provides that a class which lost its previous prestige or a minority group tends to show aggressive entrepreneurial drive.

Hagen postulates four types of events which can produce status withdrawal Displacement of a traditional elite group from its previous status by another traditional group by physical force. Denigration of values, symbols through some change in the attitude of superior group. Inconsistency of static symbol with a changing distribution of economic power and Non-acceptance of expected status on migration to a new society.

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4. Theory of Social Change

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Max Weber who first of all took the stand that entrepreneurial growth was depend upon ethical value system of the society. Webers theory of social change consists treatment of the protestant ethic and the spirit of capitalism. Moreover, this theory provides an analysis of religion and its impact on entrepreneurial culture. Weber analysed his theoretical formulation by the relationship between protestant ethic and the spirit of capitalism.

The important elements of Webers theory are 1. Spirit of Capitalism The capitalism is an economic system in which economic freedom and private enterprise are glorified. 2. Adventurous Sprit He also made distinction between spirit of capitalism and adventurous spirit. According to him, the former is influenced by the strict discipline. Whereas the latter if affected by free force of impulse.

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3. Protestant Ethic

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According to Max Weber the spirit of capitalism can be grown only when the mental attitude in the society is favourable to capitalism. 4. Inducement of profit Weber introduced the new business man into the picture of tranquil routine. The spirit of capitalism intertwined with the motive of profit resulted in creation of greater no of business enterprise. Infact, this theory suited the British rules, who desired to encourage European entrepreneurship in

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The important elements of Webers theory are 1. Spirit of Capitalism The capitalism is an economic system in which economic freedom and private enterprise are glorified. 2. Adventurous Sprit He also made distinction between spirit of capitalism and adventurous spirit. According to him, the former is influenced by the strict discipline. Whereas the latter if affected by free force of

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3. Protestant Ethic

According to Max Weber the spirit of capitalism can be grown only when the mental attitude in the society is favourable to capitalism. 4. Inducement of profit Weber introduced the new business man into the picture of tranquil routine. The spirit of capitalism intertwined with the motive of profit resulted in creation of greater no of business enterprise. Infact, this theory suited the British rules, who

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5. Theory of Leadership

According to Hoselitz, entrepreneurship is a function of managerial skills and leadership. Business also requires finance but that is of secondary important. 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. In this process, he has to show his ability to lead and manage. There are three types of leadership Merchant

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1. Money lenders are market oriented which deals in goods and services. 2. Managers - are authority oriented. 3. Entrepreneurs production oriented, they creates his own commodity and its acceptability is uncertain.

Therefore, the entrepreneur assumes more risk as compared to a trader or a money lender. Therefore, GOI and State Governments are trying to encourage first generation entrepreneurs by offering them various types of incentives and subsidies.

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7. Theory of Model Personality

The theory of Cocharn is a sociological theory of entrepreneurial supply. Cocharn emphasizes cultural values, role expectations and social sanctions as the key elements that determine the supply of entrepreneurs. According to him, an entrepreneur is neither a super normal individual nor a deviant person but represents a societys model personality. His performance is influenced by three factors 1. His own attitudes towards his occupation

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8.Theory of Systematic Innovation

Prof Drucker has developed the theory of systematic innovation. innovation consists in the purposeful and organised search for changes and in the systematic analysis of the opportunities economic and social innovation. innovation consists of seven sources for innovative opportunity within the enterprise (4) and outside the enterprise of industry (3)

Systematic

Systematic

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Internal sources - within the enterprise, whether business or public service institution or within an industry or service sector The unexpected the unexpected success, the unexpected failure. The incongruity between reality as it actually is and reality as it is assumed. Innovation based on process need Changes in industry structure or market structure that catch every one unawares. External sources - outside the enterprise of industry

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