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Chapter 1: INTRODUCTION
1.1 Entrepreneurship Scenario
The Term entrepreneur first used in 1723 mainly implies qualities of leadership,
initiative and innovation required in a successful manufacturing and service enterprise.
The term originally loaned from French, was first defined by the Irish French Economist
Richard Cantillon and appeared in the French Dictionary “Dictionnaire Universal de
Commerce “of Jacques des Bruslons published in the year 1723. Entrepreneur is one
who organizes a business. The credit of coining the term has been attributed to another
French economist Jean Baptiste Say, though Richard Cantillon first defined it. Say and
Cantillon’s approaches towards entrepreneurship were different; Cantillon considered an
entrepreneur as a risk taker while Say considered an entrepreneur more as a “Planner”.
Cantillon’s entrepreneur was primarily engaged in making decisions about sourcing and
utilizing the resources while accepting the risk of the entire activity. Thus Cantillion’s
concept of entrepreneur and entrepreneurship definition extended beyond that of Say.
1.2 A Chronological List of the Definition of ‘Entrepreneur’
Richard Cantillon: Described entrepreneurs as one who incurs fixed cost but earns
uncertain income. (Wikipedia )1
Jean Baptiste Say: His definition was that, an entrepreneur is an economic agent
who produces a product by utilizing all means of production such as land, labour and
capital, all owned by others. The entrepreneur’s profit is what remains after paying the
rent for the land, wages for the labour, interest for the capital, from the sales proceeds,
obtained from the sale of manufactured product. According to Say the entrepreneur shifts
economic resources out of an area of lower productivity into an area of higher
productivity and greater yield. (Wikipedia )1
Schumpeter: He considered entrepreneurs as innovators, who by breaking the status
quo of the existing product and services, creates new product and services. He was of the
opinion that an entrepreneur does not take risk; it is the capital provider who takes the
risk. (Wikipedia )1
David McClelland: He considered an entrepreneur as a person with high
achievement needs, energetic and moderate risk taker. (Wikipedia )1
Peter Drucker: He thought of an entrepreneur to be responsible for converting
source into resource by looking for a change and exploiting that opportunity. He uses the
Page 2 of 253
tool of innovation for the said change. Peter Drucker along with Frank Knight considered
an entrepreneur as a risk taker. (Wikipedia )1
Kilby: considered entrepreneur, an important individual in developing economies.
He also considered entrepreneur who does not innovate but initiates technologies
innovated by others. (Wikipedia )1
Albert Shapero: According to him entrepreneur takes initiative, assumes risk of
failure and have internal locus of control. (Wikipedia )1
Ronald May: Looked at entrepreneurship from the angle of commercialization of
innovation. (Wikipedia )1
Economist Robert Reich considered team building, leadership and management
ability as the important characteristics of an entrepreneur. (Wikipedia )1
Shane, Scott and Venkatraman, S., created a frame work for exploring
entrepreneurship. They identified two entrepreneurial phenomena, “enterprising
individuals” and “entrepreneurial opportunities”. According to them the researcher
should study the nature of (characteristics, personality traits) of the individuals who
respond to the opportunities when others do not, as also the opportunities and the
relationship between the entrepreneurs and the opportunities. (Shane Scott, 2000)2
Joseph Schumpeter referred to capabilities of innovating, introducing new technologies,
increasing efficiency and productivity, generating new products or services as the
characteristics of an entrepreneur. (Wikipedia )1
1.3 Some More Definitions of Entrepreneur
The Entrepreneur is a catalyst for the economic change; he uses purposeful idea
exploration, immaculate, wary planning, and good judgment for carrying out
entrepreneurial process. Entrepreneur works imaginatively to establish new resources or
develop existing ones with a new capacity, all for the purpose of generation of wealth.
Entrepreneurship is an interaction of attitudes, activities, and aspirations, which
are dynamic in nature and vary across the different stages of the economic development.
(Zoltan J. Acs, 2010)3
The role of entrepreneur in this process of entrepreneurship is that of an innovator or
developer, facilitator who recognizes and seizes opportunities; converts those
opportunities into feasible and marketable ideas; add value through time, efforts, money,
or skills; take the calculated risk and effectively mobilize the available resources to
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realize the rewards from all these efforts. An entrepreneur is also called as a catalyst for
change in the business environment. Entrepreneur is an independent thinker who is ready
for taking risk, for competing with self and others and also wants to do something
different than others in the background of common events.
As is evident from above, there is no single definition of entrepreneur available in the
literature. Considerable debate has centered around the ‘entrepreneur’ and
‘entrepreneurship’ however, this research makes an attempt towards identifying the
essential elements or characteristics for presenting a comprehensive framework for
analyzing the entrepreneurial characteristics and the resultant entrepreneurial process.
In the current time, India is in the midst of a new wave of business environment and
economic development, where entrepreneurship is an important catalytic element. The
entrepreneurs will continue their role as the agent of change in the business environment.
In fact, until the 1950s the majority of definitions and references to entrepreneurship
have come from Economists. Adam Smith, in his “Wealth of Nations” described,
entrepreneur as an individual who undertakes the formation of an organization for
commercial purposes. In Smith’s view, entrepreneur reacted to economic change,
thereby becoming the economic agent, who transforms demand into supply. (Smith,
1937)4
According to Carl Menger, entrepreneur is a change agent who transforms resources into
useful goods and services, and thus led to the industrial growth. (Menger, 1950)5
The contribution of psychologist helped to understand the psychological variables
responsible for creating an entrepreneurial personality, rather than entrepreneurial
function and processes. The most seminal work was done by David McClelland. In his
book “The Achieving Society”, the most distinguishing feature of an entrepreneurial
personality, he presented was ‘nAch’ - need for Achievement Motivation. The higher the
‘nAch’ in a person, the better entrepreneur he would be. In his conclusion, people from
various countries possess varying degrees of ‘nAch’. He emphasized that achievement
motivation is not inborn and can in fact be developed. (McClelland, 1961)6
Joseph Schumpeter did not equate entrepreneur with inventors, he viewed that the role of
inventor might be restricted only to create a new product, whereas entrepreneur goes
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beyond that and gathers the resources, organizes the talent, and provides leadership to
make it a commercial success. (Schumpeter, 1934)7. Further Peter Drucker, described the
above viewpoint and explained the entrepreneurial role as gathering and using the
resources to produce results and allocating those to opportunities. (Drucker, 1964)8
Furthermore, based on these two definitions, William Bygrave, defined entrepreneur as,
an Entrepreneur is someone who perceives an opportunity and creates an organization to
pursue it further. (Bygrave, 1991)9
The above definitions emerge from a few key questions in the field that are shown in the
following table.
Key Questions Focused on the Entrepreneur
Sr. No. Questions focused on the entrepreneur
1. Who becomes an entrepreneur?
2. Why do people become entrepreneur?
3. What are the characteristics of a successful entrepreneur?
Table 1.1
The above questions helps to define the traits required for entrepreneur. A review of
literature related to entrepreneurial characteristics reveals the existence of large number
of required qualities. The common characteristics of entrepreneurs are as follow:
1.4 Characteristics often attributed to Entrepreneurs
i.Total commitment, determination and perseverance.
ii.Drive to achieve and grow.
iii.Opportunity and goal orientation.
iv.Taking initiative and shoulder personal responsibility.
v.Persistent in problem solving.
vi.Realistic goal setting.
vii.Seeking and using feedback.
viii.Internal locus of control.
ix.Calculated risk taking and risk seeking.
x.Low need for status and power.
xi.Integrity and reliability.
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xii.Tolerance for failure.
xiii.Tolerance for ambiguity.
xiv.Creativity and Innovativeness.
Hornaday examined various research sources and formulated a list of 42 characteristics
often attributed to entrepreneurs.
1. Confidence
2. Perseverance and determination
3. Energy
4. Resourcefulness
5. Ability to take calculated risk
6. Dynamism
7. Leadership
8. Optimism
9. Need to achieve
10. Versatility: knowledge of product, market, machinery technology
11. Creativity
12. Ability to get along with people
13. Initiative
14. Flexibility
15. Intelligence
16. Orientation
17. Positive response to challenges
18. Independence
19. Responsiveness to suggestions and criticism
20. Time competence and efficiency
21. Ability to take quick decisions
22. Responsibility
23. Foresight
24. Accuracy
25. Cooperativeness
26. Profit Orientation
27. Ability to learn from mistakes
28. Sense of power
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29. Pleasant personality
30. Egotism
31. Courage
32. Imagination
33. Perceptiveness
34. Toleration for ambiguity
35. Aggressiveness
36. Capacity for enjoyment
37. Efficacy
38. Commitment
39. Ability to trust workers
40. Sensitivity to others
41. Honesty and Integrity
42. Maturity and Balance (Hornaday, 1982)10
1.5 Entrepreneurial Competencies
A competence is a core characteristic of a person, which results in valuable and superior
performance of the work. It is the fundamental characteristic of a person, comprising
motive / traits / skills or aspect of one’s self-image or a body of knowledge which one
uses in one’s vocation. Competence is a combination of a body of knowledge, attitude
and aptitude. It is set of skills and cluster of appropriate motives and traits that an
individual possesses, to perform and achieve task or goal effectively and efficiently.
Therefore, knowledge, skills, traits, characteristics and motives form various components
of entrepreneurial competencies, which are required to launch an industrial venture and
manage it successfully.
David C McClelland’s experiment at Kakinada was considered as the central theme in
the personality of successful entrepreneur. (McClelland, 1961)6 Achievement motivation
is an urge in an individual to excel, to do better and better, to compete against self-set
standards, to be unique or to perform unique tasks and to be involved in long-term career
goals. The list of characteristics was identified by McClelland, through the research
project, which was spread over in three countries – India, Malawi & Equador. The
projects involved identifying top performing entrepreneurs and matching average
performer in same product line and in the same environment. Based on the research
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analysis a list of competencies was identified for successful entrepreneur. The descriptive
list of competencies is as follow:
1. Initiative
2. See and Acts on Opportunities
3. Persistence
4. Information Seeking
5. Concern for high Quality of Work
6. Commitment to Work Contract
7. Efficiency Orientation
8. Systematic Planning
9. Problem Solving
10. Self-confidence
11. Assertiveness
12. Persuasion
13. Use of influencing Strategies
14. Monitoring
15. Concern for Employee Welfare (McClelland, 1961)6
Moving ahead an entrepreneur is one who possesses certain characteristics and some
competencies too.
1.6 Types of Entrepreneurs
In the initial stages of economic development, entrepreneurs tend to have less initiative and
drive. As development proceeds, they become more innovating and enthusiastic. Similarly,
when entrepreneurs are shy and humble, the environment is underdeveloped. Business
environment becomes healthy and developed when entrepreneurs are innovative. As we
know, entrepreneurs are found in every economic system and in every form of economic
activity. It is found that entrepreneurship exists only when, there is freedom to establish an
economic venture, and freedom to be creative and innovative with that enterprise. Secondly
there must be favorable economic conditions that give an entrepreneurial organization the
opportunity to gain and grow.
In a study of an American agriculturist, Clarence Danhof has classified entrepreneurs in the
following categories.
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1.6.1 Innovating Entrepreneurs
Innovation is a key function of an entrepreneur. It is the means through which he either
creates new wealth producing resources or endows existing resources with enhanced potential
for creating wealth. Innovative Entrepreneurs are found engaged aggressively in gathering of
information and doing the analysis of results derived from sound combination of factors.
This type of entrepreneur is generally aggressive in experimentation and cleverly puts
attractive possibilities into practice. An innovating entrepreneur sees the opportunity, and with
the help of innovation converts it into marketable idea. Schumpeter, described the difference
between ‘innovator’ and ‘inventor’. Inventor discovers new methods and new products but
innovators commercialize and implement these inventions. Innovative entrepreneurs are
engaged in following activities:
i. Introducing a new technique or introduction of a new quality of an existing product.
ii. Introduction of new methods of production.
iii. Identifying or opening a new market.
iv. Discovering new source of supply of raw materials or semi-finished goods.
v. New form of industrial organization to achieve venture success. (Schumpeter, 1934)7
Innovating entrepreneurs are very commonly found in developed countries. Innovating
entrepreneurs played the key role in the rise of modern capitalism, through their enterprising
spirit, hope of moneymaking, ability to recognize and exploit opportunities.
1.6.2. Adaptive or Imitative Entrepreneurs
In imitative entrepreneurship, entrepreneurs are ready to adopt successful innovations created
by innovative entrepreneurs. Instead of innovating the changes themselves, they just imitate
the technology and techniques innovated by others. Such entrepreneurs are particularly
important in underdeveloped countries because they contribute significantly to the develop-
ment of such economies. Imitative entrepreneurs are most suitable for the underdeveloped
nations because in these nations people prefer to imitate the technology, knowledge and skills
already available in more advanced countries.
Imitative entrepreneurs help to transform the system with the limited resources available.
However, these entrepreneurs face few risks and less uncertainty than innovative
entrepreneurs. Imitative entrepreneurs are adoptive. Imitative entrepreneurs are also found to
be revolutionary and important. This type of entrepreneur is more of an organizer of factors of
production than a creator.
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1.6.3. Fabian Entrepreneurs:
Entrepreneurs of this type are very cautious and skeptical while practicing any change. They
neither have the will to introduce new changes nor the desire to adopt new methods innovated
by the most enterprising entrepreneurs. Such entrepreneurs lack initiative and proactive
attitude. Their activities are determined by custom, religion, tradition and past practices. They
are not much interested in taking risk and they try to follow the footsteps of their
predecessors. This type of entrepreneurs continues to carry out business in the traditional way
even if losses are incurred.
1.6.4. Drone Entrepreneurs
Drone entrepreneurship is characterized by a refusal to adopt and use opportunities to make
changes in production. Such entrepreneurs may even suffer losses but they do not make
changes in production methods. These entrepreneurs continue to operate in their traditional
way and resist change. When their product loses marketability and their operations become
uneconomical they are pushed out of the market. They are conventional in the sense that they
stick to conventional products and ideas. (Danholf, 1949)11
, (Dr.Malyadri, 2014)12
According to Dr. Dinesh Awasthi, the largest number of entrepreneurs, even in developed
societies fall in the category of imitators. The developing economies have higher share of
Fabians. Innovative entrepreneurs are very small in numbers. (Awasthi, 2003)13
1.7 Some more categories of entrepreneurs are given below:
1.7.1. Individual and Institutional Entrepreneurs:
In the small scale sector individual entrepreneurs are dominant. Small enterprises outnumber
the large ones in every country. Such entrepreneurs have the advantages of flexibility and
quick decision making. A single individual can establish, operate and control an organization
up to a limit. Thereafter, it becomes necessary to institutionalize entrepreneurship. The
business will have to acquire a number of new entrepreneurial skills through a corporate
body. A group of entrepreneurs has to be developed to handle the increasingly complex
network of decision-making. The central function of the entrepreneur remains the same but
the basic decisions like the product line of business, financial decision, etc. are taken
collectively by the group of promoters. Thus, individual entrepreneur and institutional
entrepreneur coexist and support each other.
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1.7.2. Entrepreneurs by Inheritance:
At times, people become entrepreneurs when they inherit their family business. In India, there
are a large number of family-controlled business houses. Firms in these houses are passed
from one generation to another.
1.7.3. Technocrat Entrepreneurs:
Due to the rise of scientific and technical institutions, technically qualified persons have
entered in new venture creation. These entrepreneurs may enter business to commercially
exploit their inventions and discoveries. Their main asset is technical expertise. They raise the
necessary capital and employ experts in financial, legal, marketing and other areas of
business. Their success depends upon how fast they start production and on the acceptance of
their products in the market.
1.7.4. Forced Entrepreneurs:
Many persons become entrepreneurs on account of the circumstances. The educated
unemployed seeking self- employment may also be described as forced entrepreneurs. This
class of entrepreneurs accounts for the maximum number of failures because there is no
proper planning, selection and execution of business plan.
1.8 Classification of Entrepreneur by Arthur Cole
Arthur Cole has following classification of Entrepreneurs to offer.
1.8.1 Empirical Entrepreneur:
This type of entrepreneur is one who never introduces anything revolutionary in methods of
production or business. They follow the principle of going by rule of thumb. Empirical
entrepreneur is similar to drone entrepreneur.
1.8.2Rational Entrepreneur
This entrepreneur is ready to introduce revolutionary changes on the basis of general
economic conditions prevailing in that area. Their decisions are based on the situations.
1.8.3 Cognitive Entrepreneur
This type of entrepreneur is one who takes the advices and services of experts and
introduces changes. As these entrepreneur’s decisions are based on expert advice they,
are called as cognitive entrepreneur. (Cole, 1959)14
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1.8.4 Twenty First Century Entrepreneur
Fifteen years ago an entrepreneur might have been described as a business owner who
without help of training or education and without assistance of bankers or other experts
manages his business. Things are different now. Today, class of professional
entrepreneur is emerging, who rely more upon their brains than gut, who have been
trained to use methods and technology to analyze the business environment.
Tom Richman, has briefly stated the difference between today’s entrepreneur and
traditional entrepreneurs which is summarized in the following Table,
Difference between Traditional and Today’s Entrepreneur
Traditional Entrepreneur Today’s Entrepreneur
Small business Founder True Entrepreneur
Boss Leader
Lone Ranger Networker
Secretive Open
Self-reliant Inquisitive
Seat of the Pants*# Business Plan
Snap Decisions Consensus
Male Ownership Mixed Ownership
Idea Driven Superior Execution of Idea
Knows the Trade Knows the Business
Automation Innovation
Table 1.2
(*#Based on using intuition and experience rather than a plan or method.
*# Performed without using an instrument (aviation))
The difference between traditional entrepreneur and today’s entrepreneur is like night
and day. The old style of entrepreneurial business founders was thought to be about
earning a living, while today’s entrepreneur’s intention is building a significant company
that can create wealth for entrepreneur and investors. (Richman, 1997)15
The new entrepreneurs are coming from different sources. Many of them are pushed out
due to company’s downsizing, perceived opportunities, career dissatisfaction, and
enhanced financial capability of individual. The creation of venture is not only dependent
Page 12 of 253
on the individual ability or competency but to realize and exploit this potential in right
direction is extremely important. For this in-depth understanding of entrepreneurship
process is required.
1.9 Entrepreneurship Process
Definition of Entrepreneurship:
Entrepreneurship is a process of innovation and new venture creation through four major
dimensions- individual, organization, environment and process – that is aided by
collaborative networks in government, education, and institutions.
In the year 1934, the renowned Joseph A Schumpeter (Schumpeter, 1934)7, described
entrepreneurship as process. Further he described entrepreneurship as a force of
‘creative destruction’ where established ways of doing things are destroyed by the
creation of new and better ways to get things done. Schumpeter provides the framework
for understanding the two terms i.e. entrepreneur and entrepreneurship. Further he added
that an entrepreneur seeks to reform or revolutionize the pattern of production by
exploiting an invention or, more generally, an untried technological possibility for
producing a new commodity or producing an old one in a new way, by opening up a new
source of supply of materials or a new outlet products. In his view an entrepreneur is a
dynamic agent or a catalyst who transforms increasingly, physical, natural and human
resources into corresponding production possibilities. Schumpeter did not equate
entrepreneurs with inventors, suggesting that an inventor might only create a new
product, whereas an entrepreneur will gather resources, organizes talent, and provide
leadership to make it a commercial success.
Arthur H Cole and Schumpeter established the Research Center in Entrepreneurial history at
Harvard in 1948. His study led him to modify Schumpeterian model to a certain extent.
Instead of concentrating on individual doers, he equated entrepreneurship with significant
managerial function- with purposeful activity or integrated sequence of individual or a group
of individuals undertaken to initiate and organize a profit oriented business unit for the
production or distribution of economic goods or services.
By the end of the 1950s, the major elements of entrepreneurial function and processes
emerged. Gustav F. Papanek, has laid special emphasis on deeper insight into social context
of the enterprise. (Papnek, 1962)16
. Max Weber a few years later had tried to analyze the
economic behavior in the context of the religious- cultural ethos. (Max, 1958)17
. Cole, in
1946, had referred to diverse psychological imperatives and changing environmental forces as
Page 13 of 253
factors influencing the entrepreneurial decision. (Cole, 1959)14
The contribution of
sociologists helped to understand the environmental factors while designing the
Entrepreneurship Development Programme.
The evolution of the concept has generated many definitions. After reviewing the evolution of
entrepreneurship and examining its varying definitions, Robert C. Ronstadt, put together a
summary description, according to which entrepreneurship is the dynamic process of creating
incremental wealth. This wealth is created by individuals who assume the major risks in term
of equity, time, and/or career commitment of providing value for some product or service.
The product or service itself may or may not be new or unique, but the entrepreneur must
somehow infuse value by securing and allocating the necessary skills and resources.
(Ronstadt, 1984)18
The contribution of William Bygrave is considered for developing the entrepreneurship
process. William Bygrave and Hofer Charles gave two working definitions as follow:
An Entrepreneurial Event involves the creation of a new organization to pursue an
opportunity.
The Entrepreneurial Process involves all the functions, activities, and actions
associated with the perceiving of opportunities and the creation of organizations to
pursue them. (Bygrave, 1991)9
The two definitions given above are the outcomes of some of the key questions focused
on the Entrepreneurial Process which are given in the following Table.
Key Questions Focused on the Entrepreneurial Process
Questions Focused on the Entrepreneurial Process
1. What is involved in perceiving opportunities effectively &
efficiently?
2. What are the key tasks in successfully establishing new
organizations?
3. How are these tasks different from those involved in successfully
managing ongoing organizations?
4. What are the entrepreneur’s unique contributions to this process?
Table 1.3
(Bygrave, 1991)9
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1.10 Entrepreneurial Process Characteristics
With the help of above questions, William Bygrave (Bygrave, 1991)9 has defined some
of the important characteristics of entrepreneurial process as follow:
It is initiated by an act of human decision.
It occurs at the level of individual firm.
It involves the change of the state.
It involves a discontinuity.
It is a holistic process.
It is unique.
It involves numerous antecedent variables.
Its outcomes are extremely sensitive to the initial conditions of these variables.
Taken together these characteristics create a set of parameters and criteria that will have
to be met by any ‘ideal’ model of entrepreneurship. It is therefore appropriate to examine
each of them more carefully and completely.
As described by Bygrave(Bygrave, 1991)9 the characteristics of the entrepreneurial
process described above are, theoretically, extremely demanding. In his research on
“What do they involve for ‘Ideal’ model of entrepreneurship?” he stated that the essence
of entrepreneurship is ‘the entrepreneur’. This has been shown by the following Figure;
the relation between entrepreneur and entrepreneurship process. The act of becoming
entrepreneur involves changing the external environment from one state i.e. a person
without the venture to another i.e. with the venture.
Entrepreneur and Entrepreneurship Process
Figure 1.1
(Bygrave,1991) 9
The
characteristics
and Functions of
Entrepreneur
The
characteristics
of the
Entrepreneurial
Process
Page 15 of 253
In entrepreneurship, there is an agreement that entrepreneur and his/her behavior
includes traits that are similar to entrepreneurship process as the relationship is shown in
above Figure. These traits and required activities for entrepreneurship are:
i. Taking initiative
ii. Organizing and mobilizing various resources
iii. Acceptance of risk
iv. Non routine activity
v. Satisfying the economic desire
vi. Innovation
vii. Career
This explanation helped to analyze and also identify the various factors that create an
entrepreneur.
Entrepreneurship as a topic for discussion was introduced by the economists of
eighteenth century and continued to attract the economists in the nineteenth century. In
twentieth century, the word became more popular.
The importance and evolution of entrepreneurship is well recognized in the twenty first
century. Donald F. Kuratko and Richard M. Hodgetts have developed an integrated
definition of entrepreneurship. According to them, entrepreneurship is a dynamic process
of vision, change and creation. It requires an application of energy and passion toward
the creation and implementation of new ideas and creative solutions. Essential
ingredients include the willingness to take calculated risks – in terms of time, equity, or
career; the ability to formulate an effective venture team; the creative skill to marshal
needed resources; the fundamental skills of building a solid business plan; and finally,
the vision to recognize opportunity where others perceive it as chaos, contradiction, and
confusion. (Donald, 2004)19
1.11 Entrepreneurship Process Dimensions
Entrepreneurship is a multi-dimensional concept and it is necessary to consider many
factors and perspectives. The qualities and function of entrepreneurs evolves from
entrepreneurship process. This field has developed; research methodology progressed
from empirical surveys of entrepreneurs to more contextual and process oriented
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research. However, the comprehensive theory base has not been emerged till date.
Hence, the efforts are taken to examine the activities involved in entrepreneurship
through a process approach. Numerous methods and models attempt to structure the
entrepreneurial process and its various factors. We shall examine the efforts taken by the
various researchers.
According to Carol Moore and William Bygrave, the entrepreneurial process is built on a
cycle of four activities. This cycle is shown in the following Figure.
i. Innovation
ii. A Triggering Event
iii. Implementation and
iv. Growth
In this cycle, different variables interact with the environment to influence the
entrepreneurial process.
Page 17 of 253
Model of the Entrepreneurial Process
Figure1.2
(Bygrave W. D., 2004)20
A more integrative picture of the entrepreneurial process is provided by Michael Morris
and Donald Sexton. This model is built around the concepts of inputs and outcomes of
entrepreneurial process. The input component of the following Figure focuses on the
entrepreneurial process and identifies five key elements that contribute to the process and
they are as follow:
i. Environmental Opportunities: Such as a demographic change, the development of
new technology, or modification to current regulations.
Personal Personal Sociological Personal Organizational
Achievement Risk taking Networks Entrepreneur Team
Locus of Job Teams Leader Strategy
control dissatisfaction Parents Manager Structure
Ambiguity Job loss Family Commitment Culture
Tolerance Education Role models Vision Products
Risk taking Age
Personal Commitment
values
Education
Experience
Innovation Triggering
event Implementation Growth
Environment Environment Environment
Opportunities Competition Competitors
Role models Resources Customers, Suppliers
Creativity Incubator Investors, Bankers
Government Policy Lawyers
Resources
Government Policy
Page 18 of 253
ii. Individual Entrepreneurs: The person who assumes personal responsibility for
conceptualizing and implementing a new venture.
iii. Organizational Context: Implementing the business idea typically requires some
type of organizational context, which could range from sole proprietorship which can be
started from entrepreneur’s home or a franchise of some chain of industry to corporatized
legal formats.
iv. Unique Business Concepts: A business idea which can be commercialized and
would grow as a sound business.
v. Resources: A wide variety of financial and non-financial resources are required. The
output component of Figure 1.3, first includes the level of entrepreneurship being
achieved. Thus, the process can result in number of start-ups, value creation; new
products and transformation processes; profits, job creation and economic growth.
Moreover, the outcome can be a failure and thereby bring about the economic, psychic,
and social costs associated with the failure.
An Integrative Model of Entrepreneurial Inputs and Outcome
Figure 1.3
(Morris M. M., 1994)21
This model provides a comprehensive picture of entrepreneurship and can be applied at
designing the strategy of Entrepreneurship Development Programme in a broader context
which also includes government interventions and promotion. From this model, we can
understand that entrepreneurial process is a continuous and progressive process wherein
an entrepreneur needs to do certain tasks in order to ensure success. (Morris, 1994)21
A going venture
Value creation
New products,
services
Processes
Technologies
Profits and / or
personal benefits
Employment,
asset, and
revenue growth
Environmental
Opportunities
Entrepreneurial
Individuals
An organizational
Context
Unique business
Concepts
Resources
Identify
opportunity
Assess and
acquire
necessary
resources
Implementation
The
Entrepreneurial
Process Number of events
(and)
Degree of
Entrepreneurship
Entrepreneurial Intensity
(EI)
Innovation Risk
taking Proactiv
eness
Outcomes Input
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Model, depicted in the following Figure, developed by Robert C. Ronstadt, stresses
making assessments qualitatively, quantitatively, and strategically with regard to
entrepreneur. This model emphasizes on the stages of the entrepreneurial career – early,
mid, or late. This model helps us to design the various target group of Entrepreneurship
Development Programme. Again the needs of supportive environment or policies
especially from the government could be different for each target or type of entrepreneur.
An understanding of this would also make the policies or programs more effective.
Entrepreneurial Assessment and Stages
Figure 1.4
(Ronstadt, 1984)18
Type of
Venture
Qualitative,
Quantitative,
Strategic,
And Ethical
ASSESSMENTS Type of
Environment
Type of
Entrepreneur
Stage of Entrepreneurial Career
Do the Results of Assessments make Sense
Given:
Prior Experience
and Education
Early
Career
Mid Career
Late
Caree
Page 20 of 253
1.12 Entrepreneurial Assessment Approach
Hisrich and Peters [20] identified four distinct phases of activities in the entrepreneurial
process:
i.Identification and Evaluation of Opportunity.
ii.Development of Business Plan.
iii.Determination of the required resources and
iv.Management of resulting enterprise. (Hisrich, 2002)22
According to William B. Gartner, the process of entrepreneurship is a multidimensional
and weaves together the concepts of individual, environment, organization, and process.
(Gartner, 1985)23
. The following Figure depicts the interaction of the four major
dimensions of this entrepreneurial or new venture, process and lists more variables. This
type of process moves entrepreneurship from a segmented school of thoughts to a
dynamic, interactive process approach.
Page 21 of 253
Variables in New Venture Creation
Figure 1.5
(Gartner,1985)23
Environment
Venture capital availability
Presence of experienced
entrepreneurs
Technically skilled labour force
Accessibility of customers or new
markets
Governmental influences
Proximities of universities
Availability of land or facilities
Accessibility of transportation
Attitude of the area population
Availability of supporting services
Living conditions
High occupational and industrial
differentiation
High percentage of recent immigrants in
the population
Large industrial base
Large urban areas
Availability of financial resources
Barriers to entry
Rivalry among existing players
Pressure from substitute products
Bargaining power of buyers
Bargaining power of suppliers
Organization
Differentiation
Focus
The new product or services
Parallel competition
Franchise entry
Geographical transfer
Supply shortage
Tapping unutilized resources
Customer contract
Becoming a second source
Joint ventures
Licensing
Market replenishment
Sell-off division
Favored purchasing by government
Governmental rule changes
Process
Locating a business opportunity
Accumulating resources
Marketing products & resources
Production
Building an organization
Responding to government &
society
Individual(s)
Need for achievement
Locus of control
Risk taking propensity
Job satisfaction
Previous work experience
Entrepreneurial parents
Age
Education
Page 22 of 253
1.13 Factors for Entrepreneurship
It is important to understand the various factors that are stimulating entrepreneurship.
The sociological approach tries to explain the social conditions from which entrepreneurs
emerge and the social factors that influence the decision. The sociological model was
explained by Karl Vesper. It is stated that a decision of an individual to become
entrepreneur depends on two factors:
i.Impetus Factors for Entrepreneurship
ii.Situational Factors for Entrepreneurship.
1.13.1 Impetus Factors
It is observed that, individuals are propelled towards entrepreneurship due to some
positive push such as immigration, fired from job or bored by job, de-layering of
organization, Voluntary Retirement Scheme (VRS) or Compulsory Retirement Scheme
(CRS) and middle aged etc. Positive pull are where individual is influenced from parent,
customer, potential partner and mentor; Positive Pull includes a career path that offers
entrepreneurial opportunities or education that gives the individual appropriate
knowledge and opportunity which leads towards entrepreneurship.
1.13.2 Situational Factors
Once the individual makes his/her mind for entrepreneurship, two situational factors i.e.
perceptions of desirability and perceptions of feasibility determine the new venture
creation.
1.13.3 Perceptions of desirability
The factors that affect the individual perception of desirability come from individual’s
culture, family, peers and colleagues, or mentors. In this entrepreneurship must be seen
as desirable in order to pursue.
1.13.4 Perceptions of Feasibility
Would-be or potential entrepreneur needs role models and examples to set the goal to
become entrepreneur. In this, they require motivation support, financial support and
other supports. (Vesper, 1980)24
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1.14 Factors Stimulating Entrepreneurship:
Many factors induce prospective entrepreneurs to take up new venture. These factors act
as stimulants for taking up entrepreneurial activity and thereby generating economic
development in the country. These factors are:
i. Finance availability for entrepreneurs to start new venture.
ii. Entrepreneurship Development Programme organized through Government and Non
Government Organizations (NGO) to develop entrepreneurs.
iii. Infrastructure facilities.
iv. Conducive environment to transform innovative ideas into economically viable
projects.
v. Collateral arrangement to establish a cordial relationship between business and
research for easy transferability of technology to marketplace.
1.15 Entrepreneurial Culture
Entrepreneurial culture implies a set of values, norms, and traits that are conducive to the
growth of entrepreneurship. It is the culture that focuses on the emergence of new
opportunities, the means of exploiting opportunities, and creation of the new form of
organization structure for venture creation.
David McClelland’s (McClelland, 1961)6 review of literature of different countries and
their development has revealed that those countries which had a larger number of
achievement themes reflecting in their literature had economic development a few years
later. Further, he explains this with an example that if children get exposed to
achievement themes and hear stories about characters striving for excellence, their
thought processes get influenced. As a result, these children are likely to become
entrepreneurs in their adult careers and thus contribute to economic development. An
implication of this finding is to encourage achievement oriented literature in school
curricula. (McClelland, 1961)6
Uday Pareek and Manohar Nadkarni are regarded as Indian Behavioral experts in
achievement motivation training. According to them entrepreneurship is a function of
several factors. In the conceptual model for Development of Entrepreneurship, according
to them, four sets of the factors depicted in the following Figure interact and influence
entrepreneurship. In their view the individual, the environment and support systems
Page 24 of 253
directly influence entrepreneurship, and socio-cultural background contribute through the
individual.
i. Individual
ii. Environment
iii. Socio-cultural factors and
iv. Support systems.
Dynamics of Entrepreneurship
Figure 1.6
(Uday Pareek,1978)25
1.16 Dynamics of Entrepreneurship
Each set of these factors is discussed in Indian context, some details are given in the
following paragraphs: (Uday Pareek, 1978)25
1.16.1 The Individual:
The Indian potential entrepreneur as an individual takes the decision to start or not to
start an enterprise. And it is he who strives to make it a success. It is necessary, therefore,
to understand the various factors which influence the individual. The three main factors
which influence the individual behavior are as follows,
Support
Systems
Environment Entrepreneurship
Individual
Socio-cultural
Factors
Page 25 of 253
1.16.2 Motivational Factors:
In this the inner urge of individual to do something new and unique is important. Along
with this the entrepreneurial motivation, personal efficacy and coping capability is
required to start the venture.
a. Various skills that are crucial for entrepreneur are project development, enterprise
management and enterprise building.
b. Knowledge of several relevant aspects that are likely to contribute to success of the
entrepreneurial roles like knowledge about the business environment, industry, and
technology is considered important.
1.16.3 Environment:
The various factors for entrepreneurship explain the importance of environment analysis
for an entrepreneur for perception of market opportunities, gaining command over scarce
resources, and marketing of products, dealing with public, bureaucratic concessions,
licenses, taxes, and management of human relations within the firm and with customers
and suppliers, financial and production management, technological knowledge. Further,
Fox and Papanek states that economic opportunities and political conditions are the
important influential factors in entrepreneurship. (Fox R., 1973)26
C. H. Pathak supports the observation that for making choice of an enterprise, it is
rewarding if there is a wide range of alternatives available to an entrepreneur. This is
possible if the entrepreneur has adequate knowledge about the various alternate
industries, and more detailed knowledge about the industry which he wants to set up and
also about other related industries which have a bearing on the one he selects to
operate.(Pathak, 1987)27
This knowledge would cover aspects like required investments, marketability of
products, skills required for the enterprise, raw materials and other material needed,
competitors in the field etc. He should also know about the manufacturing processes,
choice of products and about their commercial feasibility. H N Pathak in his paper
mentions that in-depth knowledge about the technological aspects of that industry would
be of vital importance. (Pathak H. , 1978)28
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1.16.4 Socio-cultural factors
Nandy explains that the supporting community and self image gives meaning, value and
status to an entrepreneurial career. (Nandy, 1973)29
McClelland explains socio-cultural
factors like the family background and the norms and values of the immediate social
circle contribute substantially to entrepreneurial development. (McClelland,
1961)6.Behaviors which reflect inclinations towards initiative and risk taking,
dependence or self-reliance (independence) etc. are a result of the socialization process
in the family, in the school, and in the society. Behavior is rewarded through
appreciation and encouragement, other extrinsic as well as an intrinsic device gets
reinforced and related values and norms develop. Thus, training through socialization is
important. For entrepreneurial development two factors are important i.e. normative
behavior and socialization.
a. Normative Behavior
McClelland, Nandy and Fox state the aspects of normative behavior that are relevant
for entrepreneurship; family expectations and pressures, risk-taking, self reliance, work
and values regarding work have been found to be important factors in the
entrepreneurship. (McClelland, 1961)6
b. Socialization
The values supporting or influencing entrepreneurship are developed through
socialization. The family and other social institutions play a crucial role to train
individuals to behave in a certain way. According to David McClelland, training for
independence certainly contributes to the development of achievement motivation.
Similarly training to take initiative and risk is an important factor in promoting values,
supportive to entrepreneurship. (McClelland, 1961)6
1.16.5 Support Systems
The success of entrepreneur generally gets enhanced by efficient and effective operation
of the support systems. Role of Government and several other agencies and organizations
operate to help and support the entrepreneur. Few, listed by McClelland are, financing
institutions including banks, extension services of the department of industries including
Small Industries Service Institute (SISI), non-governmental organizations of small
industries or entrepreneurs, consultants, private agencies doing research, or providing
services to entrepreneurs, training institutions etc., educational institutions working in the
Page 27 of 253
field of entrepreneurship like Institutes of Technology, management institutes,
Universities, engineering colleges etc., development administration in the district; and
Large industrial establishments interested in developing ancillary industries thereby
helping small units to grow and develop.
Different support systems perform different roles and emphasize the entrepreneurial
behavior. Therefore, support systems have to be clear about their roles, relevant activities
and consequent expectations from the entrepreneur to design effective mechanism to
support entrepreneur.
Considering the above factors, in Entrepreneurship Development and promotion the
supportive role played by government and governmental institutions is of paramount
importance. Care needs to be taken to create conducive environment for developing the
entrepreneurs in all their stages.
1.17 Environment for Entrepreneurship
Entrepreneurs do not come into existence spontaneously on their own. As stated earlier,
there are certain factors, which stimulate them to start an enterprise. Environment plays a
very significant role in promoting entrepreneurship. However, entrepreneurship is not
influenced by a single factor but it is the outcome of the interaction of the various
environmental factors like:
i. Political stability and Government policy.
ii. Social recognition for an entrepreneur.
iii. Role of Education and Technical Institution.
iv. Finance availability.
v. Availability of supporting facilities.
vi. Socio-economic environment.
vii. Achievement motivation in the society.
1.18 Barriers to Entrepreneurship
Many new entrepreneurs, particularly in the small enterprise, fail due to several problems
and barriers. Karl H. Vesper has identified the following barriers:
1. Lack of a viable business idea or concept.
Page 28 of 253
2. Lack of market knowledge
3. Lack of technical skills
4. Lack of seed capital.
5. Lack of business know-how.
6. Complacency – lack of motivation
7. Social stigma
8. Time presence and distractions
9. Legal constraints
10. Monopoly and protectionism
11. Inhibitions due to patents
(Vesper, 1980)24
In addition to this small scale entrepreneur faces following entry barriers:
1. Access to raw material and other input component e.g. skilled labor.
2. Difficulties of supply of material lack of infrastructure, distribution channels.
3. Technological and product obsolescence.
4. Maintaining standard for quality of product or service.
5. Managing uncertainty.
To overcome the barriers the environmental help like market contacts, local incubators,
technical education and support, supplier assistance and credit, local venture capitalists,
capable local advisors, entrepreneurial education and role of successful entrepreneurs as
role model and mentor can help.
Entrepreneurship, as a discipline is one of the few subjects that push integration of
functional knowledge and abilities to the limit. The abilities and knowledge needed for
the establishment of a business differ from the ability and knowledge needed for the
growth of the business. It is important to notice that entrepreneurship, as a process is as
complex as any science. In addition to this, Gartner regards entrepreneurship as a non-
continual, non-linear process known for its multi-disciplinary characteristics. (Gartner,
1985)23
William Bygrave compares entrepreneurship with science. He points out that in the
hierarchy of Sciences, Mathematics (as basic science) would feature on top and
sociology at the bottom. In this context entrepreneurship should be regarded as an
applied science, rather than basic. He further points out that with all the applied sciences,
Page 29 of 253
engineering would be on top whereas entrepreneurship right at the bottom. The multi-
disciplinary characteristics of entrepreneurship are proven because some of the basic
sciences (mathematics, physics, biology, psychology and sociology) as well as applied
sciences (medical, economic and business management) show a degree of
correspondence and are mostly contained within the field of entrepreneurship. (Bygrave
W. D., 2004)20
.Churchill points out that physics as a science already had its origin
around 5 B.C. (Democritus and Plato). Entrepreneurship on the other hand originated in
the 18th
century (Adam Smith era). Training in the aforementioned science reaches back
more than 2000 years whilst training in entrepreneurship is only about 30 to 40 years old.
The newness of entrepreneurship as an applied science creates a situation wherein
virtually no agreed method, concept, data or accepted practices (especially training
context) exist.
There may be three patterns of entrepreneurial behavior. One relates to small business
owners, another to an entrepreneur who embraces the challenges of growth –oriented
venture, and third, to intra –corporate entrepreneurs i.e. intrapreneurs who find ways to
satisfy their ambitions within the established companies.
All this has resulted into two major developments; first entrepreneurship is on the rise in
terms of status, publicity and economic development. This enhancement of
entrepreneurship is attracting both young and seasoned employees. Second, large
industries are raising internal venture capital and are capable of financing more new
ventures. The capital market is enabling new entrepreneurs to launch the projects. This
development is encouraging people with innovative ideas to leave the companies and set
a venture on their own.
1.19 History of Entrepreneurship in India
In the olden days, in India, occupational immobility was created by the prevailing
customs. It was hard to break these customs. The occupational division, was created by
the cast system, more than anything else. This resulted into situations where the
commercial activity totally vested with Vaishyas. The onset of the European commercial
enterprise in India in 1600,did not have any major impact on the occupational basis of
the Indian society. There was tremendous demand for the Indian goods, especially the
textile goods in Europe. The balance of trade was in favor of the Indians. The mercantile
community was benefited immensely as the weavers who used to manufacture the textile
Page 30 of 253
goods were too poor to finance their activity and the traders by providing finance,
obtained the goods for trade. The mercantile community used their profits to finance
mainly their trade and money lending. The behavior of the mercantile community was
not observed to be entrepreneurial in today’s sense and the members of the other cast did
not break the occupational barriers due to the sanctity received by the religious and
cultural practices and believes. The educational system then, also reinforced the
occupational structure as it was laid down by the caste structure. Business was held in
low esteem. Kautilya, the famous economist believed that a “businessman was a thief but
was not called so”, was accepted by the society. The general climate was not favorable
for entrepreneurship. The weak economic infrastructure, pre 1800, was not capable to
induce major entrepreneurial activity amongst those who were already in trade. The non
commercial classes did not see anything tempting to give their traditional occupations
and accept entrepreneurship. McClelland considered entrepreneurial response, distinct
from adventure or gambling as it consists of moderate risk resulting from a combination
of achievement motivation and expectancy of reward. (McClelland, 1961)6. A low
expectancy of reward probably explains the business behavior and the prevailing
occupational structure in the pre British India period.
After 1600 AD, European Companies started establishing Indian trade. This intensified
after the British occupation of Bengal as it helped the establishment and operations of
British merchants. British operated with greater aggressiveness, drive and imagination in
their business strategies. As India had abundant natural resources many of the agency
and trade houses promoted by British nationals, financed and promoted, indigo
plantations, coal mining and even steel making. The demonstration effect of these
activities on Indian entrepreneurship though was limited but it certainly started affecting
the material changes, thinking and value systems. The tight grip of religious and
traditional ideas started loosening. An evidence of this was the entrepreneurial activities
of people like Dwarkanath Tagore, a Brahmin, who established a Company jointly with
an Englishman, named as “Carr Tagore Company” to start the same activities which
were carried out by British Agency houses. Dwarkanth Tagore was the first high caste
Hindu to enter business. Between 1834 and 1847 many Bengalis started ventures jointly
with Englishmen. This has been considered as a major breakthrough in the Indian
entrepreneurial pattern. The activities of the English entrepreneurs showed increasing
business opportunities, the good management practices as also superior technology.
During the 19th century the western ideas and education made considerable progress in
India and India started its journey towards modern age. During the latter half of 19th
Page 31 of 253
century post and telegraph systems were established, roads, railways were constructed,
which improved transportation and communication, thus expanding the horizons of
business. The first cotton mill was established by a Parsee, Cowajee Nanabhoy Davar, in
Bombay in 1851. He imported machines and technicians from Lancashire. His success
gave a model for the establishment and management of new mills. Parsees dominated
and played a pioneering role in the initial stages of development of entrepreneurship in
India. Later J.N. Tata entered the field of Iron and steel making in spite of the many
earlier failures and complicated, unfriendly laws. The pioneer of Ahmedabad textile
industry was a Brahman by name, Ranchodlal Chhotalal. Bechardas Laskarni, a kunbi by
cast established another cotton mill in Ahmedabad after Ranchhodlal. Other on Vaishyas
to enter modern industrial ventures were, N. M. Tripathy who started a publishing house,
Rajendra Nath Mookerjee who started an engineering firm and in Maharashtra Laxman
Rao Kirloskar, a Brahmin with technical education started a Company for the
manufacture of agriculture machines.
There was a noticeable movement from the traditional cast based occupational system to
entrepreneurial activities independent of cast and creed. It was not religion but new ideas
and values which were bringing in this change. The Swadeshi movement was also
instrumental in fostering entrepreneurship amongst many Indian communities such as
Jains, Marwaris, who hitherto restricted their activities to mainly money lending. Seeing
the profits in other industrial activities as also demand for Indian goods due to Swadeshi
movement many Jains and Marwaris started manufacturing activities. Some of the
famous business houses of today, the Birlas, Goenkas, Dalmias, Walchand Hirachand
entered many fields such as sugar, cement, textile, chemicals, construction, newspaper,
publishing etc. Post Second World War many opportunities for manufacture of Indian
goods sprang up and these entrepreneurs along with others grabbed it. The Indian
independence generated new confidence in entrepreneurship and the facilities provided
by the national government gave a further push to entrepreneurial upsurge.(Tripathi,
1971)30
Entrepreneurship in India is definitely evident from olden days. The barter system of the
earlier Indian economy was indeed based on entrepreneurship as each one was engaged
in activity or vocation based on the skills either acquired or inherited by the individual.
In the pre independence and immediately after independence, the Gandhian philosophy
of “production by masses as against mass production” was also directed towards creating
an economy which definitely encouraged cottage industries, rural entrepreneurship. This
further developed into a promotion policy for small scale units.
Page 32 of 253
1.20 Few facts supporting Indian Entrepreneurship:
i. From the Global perspective the entrepreneurial activities in India are far ahead than
the Latin American, British as well as some European nations.
ii. Entrepreneurial activity is increasing after privatization in the reserved industry
where previously the Government used to be a major player.
iii. The motives in India for entrepreneurship were opportunity based and necessity
based. It was also found that the opportunity-based entrepreneurship (12%) is
substantially more than necessity based entrepreneurship (5%). Conversely, in 2001 in
India necessity based entrepreneurship, which was 7.5% and opportunity, based
entrepreneurship was 3.7%. Family inheritance was 0.7%.
iv. Males are more than twice as likely as females to engage in entrepreneurial activities.
v. Individuals from the age group of 35-44 are more involved in entrepreneurial
activities.
vi. Income and education is affecting entrepreneurship in inverse manner. With higher
income people tend to get more cautious and lack in risk taking ability. Entrepreneurship
in India is more need based where uneducated individuals look towards entrepreneurship
as a mode of living.
vii. Most of the firms are single-owner businesses.( Manimala, 2002)31
An overall picture of entrepreneurial framework condition in India is given in the
following Table.
Page 33 of 253
Rating of Entrepreneurial Framework Condition in India
Worse than the average About the same as the
average Better than the average
Government Policy on
new firm
Government
programms for new firms
Education and training
support
Research and
Development Transfer
Market openness and
ease of entry
Adequacy of Physical
infrastructure
Cultural facilitation of
entrepreneurship
Social support for
entrepreneurship
Intellectual property
rights(IPR)law &
enforcement
Facilitation of women
entrepreneurship
Financial Support to
new firms
Skills and
competencies for
managing new and
growing ventures
Commercial, Legal &
Professional Infrastructure
Opportunities for new
venture creation
Table 1.4
(KPMG 2008)105
In the above table, the conditions which are better than the average are: a) Commercial
and professional infrastructure, and b) Opportunities for new venture creation. The
conditions which are about the same as average are: a) Financial support for new firms;
b) Skills and competencies for managing new and growing firms. Out of these four, the
last one is about individual skill and competencies.
Page 34 of 253
1.21 Entrepreneurship in India: Some perspectives.
The Global Entrepreneurship Monitor (GEM) developed by Manimala, Mathew J
(Manimala, 2002)31
is a research project aimed at assessing the levels of entrepreneurial
activity prevailing in different nations of the world. It also involves linking of these
activities to the entrepreneurial framework conditions of the country on one hand and
projected economic growth on the other. The project was initiated in 1999 by London
Business School, UK, and Babson College, USA. Since then this activity has been
continued. In India, the Indian Institute of Management, Bangalore, supports this
research.
The Global Entrepreneurship Index is an index designed to measure the qualitative and
quantitative aspects of entrepreneurship. The Index measures entrepreneurial
performance in 71 countries through three subindexes,14 pillars and 31 individual and
institutional variables. The Global Entrepreneurship Monitor’s Total Early Stage
Entrepreneurial Activity (TEA) ratio is a widely used measure of entrepreneurship. TEA
index measures the percentage of a country’s working population who are trying to start
a new business and those who are in business for not more than three and half years.
(Niels Bosma, 2008)32
Global Entrepreneurship and Development Index (GEDI) Rankings
Rank Country GEDI
Score
Rank Country GEDI
Score
1 Denmark 0.76 37. Poland 0.29
2. Canada 0.74 38. Croatia 0.28
3. United States 0.72 39. Peru 0.28
4. Sweden 0.69 40. China 0.28
5. New Zealand 0.68 41 Colombia 0.28
6. Ireland 0.63 42. South Africa 0.28
7. Switzerland 0.63 43. Turkey 0.27
8. Norway 0.62 44 Mexico 0.27
9. Iceland 0.62 45. Dominican
Republic
0.26
10. Netherlands 0.62 46. Indonesia 0.26
11. Australia 0.60 47. Hungary 0.25
12. Belgium 0.58 48. Romania 0.25
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13. Finland 0.56 49. Macedonia 0.24
14. United
Kingdom
0.56 50 Egypt 0.24
15. Singapore 0.56 51 Jordan 0.23
16. Germany 0.54 52 Panama 0.23
17. Puerto Rico 0.54 53 India 0.23
18. France 0.50 54 Brazil 0.23
19. Slovenia 0.49 55 Venezuela 0.22
20. Korea 0.49 56 Thailand 0.22
21. Israel 0.47 57 Russia 0.22
22. Austria 0.45 58 Tunisia 0.22
23. Hong Kong 0.45 59 Morocco 0.22
24. United Arab
Emirates
0.42 60 Jamaica 0.21
25. Czech Republic 0.42 61 Algeria 0.19
26. Chile 0.41 62 Serbia 0.18
27. Italy 0.41 63 Kazakhstan 0.18
28. Spain 0.40 64 Bosnia and
Herzegovina
0.18
29 Japan 0.40 65 Iran 0.17
30. Saudi Arabia 0.38 66 Ecuador 0.17
31. Malaysia 0.36 67 Bolivia 0.16
32. Latvia 0.36 68 Syria 0.16
33. Portugal 0.35 69 Guatemala 0.15
34. Greece 0.32 70 Philippines 0.13
35. Uruguay 0.30 71 Uganda 0.10
36 Argentina 0.30
Table 1.5
(Niels Bosma, 2008)32
Source: Acs, Z.J., and L. Szerb, “The Global Entrepreneurship Index (GEINDEX).”
Foundations and Trends in Entrepreneurship 5, no. 5 (2009): 341-435.33
Note :Shading indicates countries at the innovation-driven level of development
Page 36 of 253
Country Rankings
The Global Entrepreneurship Sub-index Country Scores and Ranks
Country GEDI Attitude Activities Aspirations
Score Rank Score Rank Score Rank Score Rank
Denmark 0.76 1 0.75 5 0.97 1 0.57 6
Canada 0.74 2 0.77 3 0.89 2 0.55 9
United States 0.72 3 0.75 6 0.71 8 0.69 1
Sweden 0.69 4 0.77 4 0.71 7 0.57 5
New Zealand 0.68 5 0.86 1 0.69 11 0.49 14
Ireland 0.63 6 0.52 14 0.83 4 0.54 10
Switzerland 0.63 7 0.60 12 0.73 6 0.56 8
Norway 0.62 8 0.70 8 0.74 5 0.43 20
Iceland 0.62 9 0.65 10 0.56 18 0.64 2
Netherlands 0.62 10 0.70 7 0.67 12 0.48 16
India 0.23 53 0.22 62 0.23 51 0.23 40
Brazil 0.23 54 0.33 42 0.19 60 0.16 53
Table 1.6
If you examine all the tables, it would be observed that in terms of total ranking as well
as the scores in each of the important elements for fostering Entrepreneurship, India is
almost in all cases midway. In terms of ranking India is at 53rd
position compared to 40th
of China. India’s ranking in terms of attitude and aspirations is very much on the lower
side.
Page 37 of 253
Comparison of the United States, China, and India
Figure 1.7
If you look at the above figure, which is a graphical representation of comparison
between U.S., India and China with regards to about fourteen important conditions for
entrepreneurship development, it would indeed be clear that in all most all U.S. is far
ahead of China and India. Even China in many areas scores over India. We see India and
China almost at the same level when we consider factors such as opportunity perception,
cultural support, internationalization. India is ahead of China in terms of new technology
availability and adoption. Availability of risk capital is low in India.
The EY G 20 Entrepreneurship Barometer -2013 is the model developed to ascertain the
Entrepreneurship environment ranking amongstG20 countries. The model uses five
pillars of entrepreneurship. The five pillars or the areas of entrepreneurship were
originally identified as being key to any entrepreneurial ecosystem at the G 20 YEA
summit in Toronto, 2010. This model help identify areas of relative strength by a country
and also areas where improvements are required.
Page 38 of 253
The Entrepreneurial development framework-Five pillars that foster
entrepreneurship.
Figure 1.8
Access to funding
Seed
Start-up
Expansion
Growth Capital
Tax & Regulations
Taxation incentives
Ease of starting business
Business friendly legislation
and policies.
Coordinated support
Mentors, Advisors, Networks,
clubs, Business incubators
Clusters, Parks, Business Parks.
Education & Training
Pre university Education
University Education
Entrepreneurship Specific
Training
Informal Education
Life Long Learning
Entrepreneurship Culture
Tolerance of Risk and Failure
Preference for self employment
Innovation and Research culture
Celebration of Self made wealth
Page 39 of 253
EY –G20 Entrepreneurship Barometer : Overall Results
Ranking and Score.
Overall Country Ranking
Ranki
ng
Access to
funding score
Entrepreneu
rship culture score
Tax
&Regulation
Scor
e
Education
& Training score
C0-
0rdinated
support
Score
1 United
states 7.12
United
States 7.67
Saudi
Arabia 6.40 France 6.58 Russia 6.23
2 United
Kingdom 6.86
South
Korea 7.53 Canada 6.34
Australi
a 6.53 Mexico 5.89
3 China 6.75 Canada 7.45 South
Korea 6.34
United
States 6.50 Brazil 5.87
4 Canada 6.62 Japan 7.28 United
Kingdom 6.19
South
Korea 6.40
Indo
nesia 5.84
5 Australia 6.48 Australia 7.18 South
Africa 6.10 EU 6.25 India 5.76
6 South
Africa 5.95
United
Kingdom 7.00 Japan 6.07
United
Kingdo
m
5.98 China 5.75
7 Japan 5.81 Germany 6.88 Germany 5.84 German
y 5.89 Turkey 5.66
8 South
Korea 5.75 EU 6.07 Australia 5.75
Argentin
a 5.85
South
Africa 5.65
9 Brazil 5.67 France 5.68 Russia 5.65 Canada 5.81 Argenti
na 5.64
10 Indonesia 5.53 Russia 5.05 EU 5.48 Brazil 5.78 German
y 5.53
11 India 5.48 India 4.95 Turkey 5.45 South
Africa 5.67 France 5.41
12 EU 5.41 Brazil 4.88 Indonesia 5.38 Saudi
Arabia 5.66
Saudi
Arabia 5.39
13 Saudi
Arabia 5.25 Italy 4.67
United
States 5.33 Italy 5.47 EU 5.37
14 Germany 5.23 South
Africa 4.33 Mexico 5.21 Russia 5.46
South
Korea 5.36
Page 40 of 253
Table 1.7
Countries are listed in alphabetical order per quartile.
Quartile 1 Quartile 2 Quartile 3 Quartile 4
Australia EU Brazil Argentina
Canada France China India
South Korea Germany Mexico Indonesia
United Kingdom Japan Russia Italy
United States South Africa Saudi Arabia Turkey
Table 1.8
Quartile 1 represents the countries that are leading in fostering entrepreneurship.
Each of the five pillars, access to funding, entrepreneurship culture, tax and regulation,
education and training, coordinated support were weighted equally to provide an overall
country ranking. India as it would be noted is in the fourth quartile indicating deficient
entrepreneurship in almost all factors.
The EY –G20 EntrepreneurshipBarometer2013 is the result of a survey conducted
amongst 1500 entrepreneurs from 20 countries. (EY, 2013)34
As per the study of E&Y, the entrepreneurs from the EU supplied 67% jobs in 2012.In
China entrepreneurs provided about 75% of all jobs.
In the US startups and firms less than five years old accounted for nearly all net jobs over
the past three decades. Entrepreneurs are the vehicles of new ideas development and
commercialization. In the EU survey 74% of the entrepreneur respondents states that
15 Russia 5.04 Turkey 4.30 France 5.12 Mexico 5.32 Australi
a 5.31
16 France 4.74 Argentina 4.06 China 5.07 Japan 4.72 Canada 5.29
17 Turkey 4.57 Mexico 3.96 Brazil 4.83 Turkey 4.39
United
Kingdo
m
5.19
18 Mexico 4.42 China 3.88 Italy 4.76 China 4.35 Japan 5.04
19 Italy 4.03 Indonesia 3.80 India 4.39 Indonesi
a 3.88 Italy 4.97
20 Argentina 3.27 Saudi
Arabia 3.38 Argentina 4.31 India 3.49
United
States. 4.35
Page 41 of 253
they had increased their workforce over the past year as a result of the Company’s
innovation. (EY, 2013)34
.
Taking an overall view, entrepreneurship condition in India is closely linked with
freedom. The government has taken the appropriate steps to create the favorable
condition for entrepreneurship. To stimulate entrepreneurship efforts should be taken to
open up more sectors and empower individual entrepreneurs.
1.22 Role of Micro, Small and Medium (MSME) Enterprises in India
MSME constitutes a very important segment of the Indian economy. The development of
this erstwhile Small Scale sector was pioneered through the vision of former Prime
Minister Shri. Jawaharlal Nehru. The small –scale sector has emerged as a dynamic and
vibrant sector of the Indian economy. It holds the key to economic success of India.
Indian economy is characterized by abundant labour supply, high percentage of
unemployment and underemployment, capital scarcity, growing modern large industrial
sector providing scope for ancillarization.
The importance of Micro, Small and Medium Enterprises(SSI) is summarized as follow:
i.It provides increased employment through labour intensive process.
ii.Require lower gestation period.
iii.Easy to set up in rural and backward areas.
iv.Fulfill need of small and local market.
v.Encourage growth of local entrepreneurship.
vi.Create a decentralized pattern of ownership.
vii.Foster diversification of economic activities.
viii.Introduce new products particularly to cater to local needs.
ix.Influence the standard of living of local people.
x.Provide equitable dispersal of industries throughout rural and backward areas.
1.23 Impact of Globalization on MSME in India
Economic reforms were introduced in 1991 following inevitable globalization. The SSI
sector then was somewhat overprotected. The hope that the infant would grow into an
adult who could be freed to face competition has been completely belied. The small-scale
industry in India never had a strong desire to grow to medium and large-scale industry.
The main underlying reason was the protection offered to this industry. Many
Page 42 of 253
government policies then discouraged the very growth of this industry into a large one.
With the advent of globalization the MSMEs today are exposed to severe competition
both from the large scale sector-domestic and foreign, and from Multinational
Corporations.
In order to protect, support, and promote small enterprise as also to help them become
self-supporting, a number of protective and promotional measures have been undertaken
by the central government.
The promotional measures include:
i.Industrial Extension services.
ii.Institutional support in respect of credit facilities.
iii.Provision of developed sites for construction of sheds.
iv.Provision of training facilities.
v.Supply of machinery on hire-purchase terms.
vi.Assistance for domestic marketing and exports.
vii.Special incentive for setting up enterprises in backward areas and elsewhere.
viii.Technical consultancy and financial assistance for technological up gradation.
All the above measures are offered to attract investment and promote small industries
with a view of enhancing industrial production and generating employment.
1.24 Problems of MSME Segment
The problems of MSME segment (MSME) are categorized into two groups – external
and internal. External problems are those which result from factors beyond the control of
the industrialist. Internal problems are those which are related to organization,
organization structure, production and distribution channel, technical know-how,
training, industrial relations inadequacy of management and so on.
The following is a brief list of problems faced by small scale industries:
1.24.1 Internal Problems:
i. Choice of idea
ii. Feeble structure
iii. Faulty planning
iv. Poor project implementation
Page 43 of 253
v. Poor management
vi. Poor production
vii. Poor Quality
viii. Poor Marketing Efforts
ix. Inadequate finances
x. Labour problems
xi. Capacity utilization
xii. Lack of vertical and horizontal integration
xiii. Inadequate training in skills
xiv. Poor and loose organization
xv. Lack of strategies
1.24.2 External Problems
i. Infrastructure: Location, power, water, communication and so on.
ii. Financial: Capital, working capital, long-term funds, and recovery.
iii. Marketing
iv. Taxation.
v. Raw material
vi. Industrial and Financial regulations
vii. Government inspections
viii. Technology know-how.
ix. Government policy.
x. Competitive and volatile environment.
In the changed environment the MSME Industry sector of India needs to integrate itself
with the overall domestic economy and global markets by gearing itself to greater
interdependence by networking and subcontracting. To meet the present as well as future
requirements of the sector and the national economy satisfactorily, the policies and the
projects for MSMEs sector need to be effective and growth oriented, so as to achieve
competitiveness and capacity to upgrade itself through collective approach.
The present Indian environment in some respect is highly conducive for generating more
entrepreneurs. The nation today requires more entrepreneurs to enhance its economy.
Page 44 of 253
1.25 Role of Government with special reference to MSME
The Micro Small and Medium Enterprises (MSME) sector contributes significantly to
the manufacturing output, employment and exports of the country. It is estimated that in
terms of value, this sector accounts for about 45 per cent of the manufacturing output and
40 percent of the total exports of the country. The sector is estimated to employ about 42
million persons in over 13 million units. Further, this sector has consistently registered a
higher growth rate than the rest of the industrial sector. There are over 6000 products
ranging from traditional to high-tech items, which are being manufactured by the
MSMEs in India. It is well known that after agriculture, the MSMEs provide the
maximum opportunities for both self-employment and jobs.
1.26 Origin of the Entrepreneurship Movement in India
Immediately after the independence in 1947, a direction to industrial development was
provided through the first Industrial Policy Resolution in 1948. Thereafter in 1954, the
Government of India established Small Industry Organization, now known as Small
Industry Development Organization (SIDO), it is an apex body for policy planning, and
coordinating the institutional activities at Central and State level, also implementing
programmes for the development of Small Scale Industries (SSI) and developing
infrastructure for sustained organized growth. The National Small Industries Corporation
(NSIC) was set up in 1955 to help small entrepreneurs by providing machinery and
equipment. In the year 1957 All India Village Industries Association and the All India
Spinners Association were merged to form Khadi Village Industry Commission (KVIC)
which became a statutory body.
The major breakthrough in the national policy on industrial development came through
Industrial Policy Resolution of 1956. This policy emphasized the significance of small
scale and village industries in the overall strategies for the economic development of the
country. The resolution spelt the advantages of small industry, such as creation of
employment, equitable distribution of national income, effective mobilization of capital
resources and skills, which may remain unutilized.
1.27 Various Industrial Policy Resolutions in India : Reference to MSME Sector
1.27.1 Industrial Policy Resolution, 1948
The policy aimed at balanced growth of different manufacturing sectors and focused on
co-existence of small scale and cottage industries with large scale sector. In this policy, it
Page 45 of 253
was recognized that the cottage and small industries could play a crucial role in the
rehabilitation of displaced people through the establishment of individual / cooperative
enterprises.
1.27.2 Industrial Policy Resolution, 1956
The policy recognized the crucial role of small scale sector in generating employment
and mobilizing local skills. It was also realized that the small scale sector has potential to
work together with large scale sector as ancillary industries.
1.27.3 Industrial Policy Statement, 1977
The statement created an enabling environment and extended the list of reserved items
for exclusive production by small scale sector. The statement also provided special
consideration to tiny sector, within the small scale sector. The concept of District
Industries Centre (DIC) was mooted so that one agency in each district could be created
to meet all the requirements of small scale units.
1.27.4 Industrial Policy Statement, 1980
Besides announcing a modernization package for small and village industries, the
industrial policy statement of 1980, also redefined the small scale units by enhancing the
investment limits in plant and machinery. The statement redefined the small scale units
by raising the ceiling of investment in plant and machinery. The statement announced a
modernization package for plant and Machinery. Procedures relating to setting up of new
SSI units, import of technology were simplified.
1.27.5 Industrial Policy, 1990
This policy raised further the investment ceiling on small scale and tiny industries.
Attempts were made to enhance further the credit flow to this sector and also to motivate
more women to take up entrepreneurship.
1.27.6 Industrial Policy, 1991
The policy of large scale liberalization in all major areas also necessitated a relook at the
Industrial policy in 1991.The reform program also included in it the Small scale segment.
The investment limits in Small scale was once again modified. In order to strengthen the
capital base of Small enterprises and to motivate them for modernization and new
Page 46 of 253
technology adoption, Equity participation by other industrial undertakings were
permitted up to a limit of 24%,of shareholding.
1.28 Chronology of Policy for Protection/Reservation to Small-Scale Units
The Government of India started reserving certain products for small scale sector to
ensure their viability and sustenance. There were 47 items reserved for the Small scale
sector in 1967.Though the policy had continued over the years the reserved items list
kept of expanding and in the nineties the list of reserved items reached up to nearly 900
products. The product reservation for small scale manufacturing was considered and
brought into force with the objective of reduction in the rate of the industrial sickness in
small scale sector and to enhance competitiveness of the small enterprises.
In 1991, when the Indian government initiated the liberalization process, it also decided
to increase the capability and the potential of the small and medium enterprises through
phasing out of the policy for protection and reservation. The government appointed an
Expert Committee on Small Enterprises(1997) chaired by Abid Hussain, which came out
with several recommendations on de-reservation and other initiatives. Though the
Committee recommended a total abolition of reservation, the Government of India has
decided to de-reserve the small scale sector in a phased manner.
Source : Ministry of MSME, Government of India.35
1.28.1 Micro, Small and Medium Enterprises Development ( MSMED) Act 2006.
To address the various problems and also to give a fillip to the growth of MSME sector,
the Government of India enacted the MSMED Act 2006. The act promoted the concept
of “Enterprises” as against “Industries”. The act broadly classified enterprises as
1. Enterprises engaged in the Manufacturing /Production of goods pertaining to
Industry and
2. Enterprises engaged in providing /rendering of services.
The act introduced the process of Filing of Memoranda by MSMEs. While the filing of
Memoranda by Micro and small enterprises was made optional, for Medium enterprises
in manufacturing sector it was made mandatory. The service sector medium enterprises
are not obligated to file the memoranda.
Page 47 of 253
The act created an Apex Consultative Body with wide Representation of stakeholders.
The Consultative Body was assigned following functions.
a) Examine the factors affecting the promotion and development of MSMEs and
review the policies and programmes of the central Government.
b) Make recommendations on matters referred to as above or any other matter
referred to it by the central Government.
c) Advise the central Government on the use of funds constituted under the act.
The act also constituted Advisory committee which was to examine the matters referred
to it by the National Board and further advise the Central Government on matters
specified under different clauses of the act.
The act have provisions which stipulate that the Central Government may notify
programs, guidelines or instructions for facilitating the promotion and development and
enhancing the competitiveness of MSMEs. The act further said that the central
government may constitute by notification one or more funds. The Central Government
under the act have the power to credit to the funds such sums as it can provide by
Parliamentary approvals and appropriations. The act recognized and stated that the
policies in respect of credit to the MSMEs shall be progressive and would be aimed
towards ensuring smooth and timely credit flow to MSMEs. The policies would be
formulated to reduce sickness and make MSMEs more competitive.
The act also mandated the Government to form and notify preferential policies for
procurement of products from MSMEs by Government departments and public sector
undertakings. The other notable features of the act was provisions to ensure prompt,
timely payments of receivables by MSMEs from large companies. It also made
provisions for interest payments by large Companies on overdue bills and formation of
facilitation councils for arbitrations in respect of delayed payments by large companies
to MSMES. The act also referred to a provision to formulate escape root for sick SMEs.
The act classified Micro, Small and Medium enterprises as follows.
Page 48 of 253
Classification of MSMEs
Ceiling on investment in plant
and machinery
ENTERPRISES
Ceiling on investment
in Equipment.
MANUFACTURING SERVICES
Up to Rs. 25 lacs MICRO
Upto Rs. 10 lacs.
Between Rs. 25 lacs and 5 crores SMALL
Between 10 lacs and 2
crores
Between Rs. 5 crores and 10
crores
MEDIUM
Between Rs. 2 crores
and 5 crores.
Table 1.9
MSME Statistics
Sr.No. Year Total working
enterprises
In Lakh
Employment
lakh
Market value
of Fixed
Assets crores
Gross Output in
crores
I II III IV V VI
1 2001/02 105.21 249.33 154349 282270
2 2002/03 109.49 260.21 162317 314850
3 2003/04 113.95 271.42 170219 364547
4 2004/05 118.59 282.57 178699 429796
5 2005/06 123.42 294.91 188113 497842
6 2006/07 361.76 ! 805.23! 868543.79* 1351383.45*
7# 2007/08 373.37 842.23 917437 1435179.26
8# 2008/09 393.70 881.14 971407.49 1524234.83
9# 2009/10 410.82 922.19 1029331.46 1619355.55
10# 2010/11 428.77 965.69 1094893.42 1721553.42
11# 2011/12 447.73 1012.59 1176939.36 1834332.05
Table 1.10
Page 49 of 253
! Including activities of wholesale/retail trade, legal, education & social services, hotel &
restaurants, transports and storage & warehousing (except cold storage)for which data
were extracted Economic Census 2005,Central Statistics Office M/o SPI.
* Estimated on the basis of per enterprise value obtained from sample survey of
unregistered sector for activities wholesale/retail trade, legal, education &social services,
hotel & restaurants, transport and storage & warehousing( except cold storage) which
were excluded from Fourth All India Census of MSME unregistered sector.
#Projected(Government of India, 2012)35
Statewise contribution of MSMEs’ Employment
Graph/Chart 1.1
(Maharashtra, 2009)36
14.5%
9.7%
9.5%
8.5%
8.5% 7.6%
6.7%
5.6%
30.4%
Tamilnadu
Maharashtra
Uttar Pradesh
West Bengal
Gujarat
Andhra
Pradesh
Karnataka
Punjab
Madhya
Pradesh
Page 50 of 253
MSME Working Enterprises
Projected Data for 2007-08 to 2011-12
Chart 1.2
(Government of India, 2012)35
MSME Employment
Projected Data 2007-08 to 2011-12
Chart 1.3
(Government of India, 2012) 35
0
50
100
150
200
250
300
350
400
450
500
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
361.76 377.37
399.70 410.82 428.77 447.73
0
200
400
600
800
1000
1200
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
. In
Lak
hs.
L
ak
h
805.23
881.14
955.69 1012.59
922.19
Page 51 of 253
MSME Market Value of Fixed Assets
Projected Data 2007-08 to 2011-12
Chart 1.4
(Government of India, 2012)35
MSME Gross Output
Projected Data for 2007-08 to 2011-12
Chart 1. 5
(Government of India, 2012)35
0
200000
400000
600000
800000
1000000
1200000
1400000
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
1029331.46
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
1800000
2000000
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Cro
re
Cro
res
868543.79
917437.46 971407.49
1094893.4
2
1176939.36
1351383 1435179
1524234 1619355
1721553 1834332
Page 52 of 253
MSME Activities
Chart 1.6
Percentage Distribution of Enterprises by type of Organization
Chart 1.7
(Government of India, 2012)35
MSME Activities
Manufacturing 31.79 %
Services 68.21 %
0
10
20
30
40
50
60
70
80
90
100
Propritary Partnership Pvt.Company Co-operative Other Not Recorded
94.41
1.18 0.14 0.33
2.24 1.7
Page 53 of 253
MSME Area wise Share
Chart 1.8
(Government of India, 2012)35
All India Growth Rate %
Chart 1.9
(Government of India, 2012)35
Areawise share
Urban
Rural
Rural
Urban
0
5
10
15
20
25
2007-08-2008-09 2008-09-2009-10 2009-10-2010-11 2010-11-2011-12
10.76 10.78 10.93
19.09
Page 54 of 253
No. of MSME Units
No. of MSME Units (in Lakh Nos.)
Registered Un-registered Total
2002-2003 15.91 93.58 109.49
2003-2004 16.97 96.98 113.95
2004-2005 17.53 101.06 118.59
2005-2006 18.71 104.71 123.42
2006-2007 20.98 107.46 128.44
2007-2008
(projected) 24.68 108.99 133.67
Table 1.11
Unit Registration Scenario
Chart 1.10
(Government of India, 2012) 35
Units Registration Scenario (in Lakhs
Growth in
Growth in
Page 55 of 253
MSME Performance at a glance
PERFORMANCE OF SSI SECTOR
Year Production @
(Rs. Crore)
Employment
(Million Nos.) SSI Exports
Prices Rs. Crore
2001-02 282270 25.23 71244
2002-03 306771 26.37 86013
2003-04 336344 27.53 97644
2004-05 372938 27.76 124417
2005-06 418884 29.99 150242
2006-07 P 471663 31.25 -
Table 1.12
@ Production figures are at 2001-02 prices (Government of India, 2012)35
MSMEs Performance: Units, Investment, Production, Employment & Exports
Sr.
No. Year
Total
MSMEs
(lakh
Numbers)
Fixed
Investment
(Rs. Crore)
Production
(Rs. Crore @
current
prices)
Employment
(lakh persons)
Exports
(Rs. Crore)
1. 1992-93 73.51
(4.07)
109623
(9.24)
84413
(4.71)
174.84
(5.33)
17784
(28.10)
2. 1993-94 76.49
(4.07)
115795
(5.63)
98796
(17.04)
182.64
(4.46)
25307
(42.30)
3. 1994-95 79.60
(4.07)
123790
(6.9)
122154
(23.64)
191.40
(4.79)
29068
(14.86)
4. 1995-96 82.84
(4.07)
125750
(1.58)
147712
(20.92)
197.93
(3.42)
36470
(25.46)
5. 1996-97 86.21
(4.07)
130560
(3.82)
167805
(13.60)
205.86
(4.00)
39248
(7.62)
6. 1997-98 89.71
(4.07)
133242
(2.05)
187217
(11.57)
213.16
(3.55)
44442
(13.23)
7. 1998-99 93.36
(4.07)
135482
(1.68)
210454
(12.41)
220.55
(3.46)
48979
(10.21)
8. 1999-
2000
97.15
(4.07)
139982
(3.32)
233760
(11.07)
229.10
(3.88)
54200
(10.66)
9. 2000-01 101.10
(4.07)
146845
(4.90)
261297
(11.78)
238.73
(4.21)
69797
(28.78)
Page 56 of 253
10. 2001-02 105.21
(4.07)
154349
(5.11)
282270
(8.03)
249.33
(4.44)
71244
(2.07)
11. 2002-03 109.49
(4.07)
162317
(5.16)
314850
(11.54)
260.21
(4.36)
86013
(20.73)
12. 2003-04 113.95
(4.07)
170219
(4.87)
364547
(15.78)
271.42
(4.31)
97644
(13.52)
13. 2004-05 118.59
(4.07)
178699
(4.98)
429796
(17.90)
282.57
(4.11)
124417
(27.42)
14. 2005-06 123.42
(20.76)
188113
(4.07)
497842
(5.27)
294.91
(12.32)
150242
(4.37)
15. 2006-07 261.01
(21.50)
500758
(111.48)
709398
(166.20)
594.61
(42.49)
182538
(101.62)
16. 2007-08 272.79
(4.51)
558190
(11.47)
790759
(11.47)
626.34
(5.34)
202017
(10.67)
17. 2008-09 285.16
(4.53)
621753
(11.39)
880805
(11.39)
659.35
(5.35)
NA
NA
18. 2009-10 # 298.08
(4.53)
693835
(11.59)
982919
(11.59)
695.38
(5.46)
NA
NA
19. 2010-11 * 311.52
(4.51)
732.17
(5.29)
773487
(11.48)
1095758
(11.48) NA
Table 1.13
Source : Annual Report 2011-12, Ministry of MSME,
(Government of India M. o., 2012)37
Note: data with respect to MSMEs have been collected/compiled in 2006-07 and hence
include both the industry and service sectors.
The figures in brackets show the % growth over the previous year. The data for the
period up to 2006-07 is only for small scale industries (SSI).Subsequent to 2006-07, data
with reference to micro, small and medium enterprises are being compiled.
# Provisional,* Projected.
Page 57 of 253
Export Performance of SSI Sector in India
Export Performance of SSIs during 2005-06 2006-07 2007-08
Total exports of the country 456,417 571,779 655,863
Exports from SSI sector 150,242 182,537 202.017
Share of SSI in total exports of the
country (%)
32.92 31.92 30.80
Growth of SSI exports over the
previous year (%)
20.76 21.50 10.67
Growth of India’s exports over the
previous year (%)
21.60 25.28 14.71
Table 1.14
Source: Compiled from data given by Ministry of MSME; Ministry of Commerce and Industry,
Govt. of India. (Government of India, 2012)35
The global economy has also preponderance of small and medium enterprises and almost
ninety percent of the world economy is dependent on small and medium enterprises. The
Government has taken several initiatives and measures for enhancing the
competitiveness of MSMEs in the present global environment, recognizing the
importance of the segment. The most important amongst such initiatives is the enactment
of the ‘Micro, Small and Medium Enterprises Development Act, 2006’, which aims to
facilitate the promotion and development and enhance the competitiveness of MSMEs.
The Act which came into existence from 2nd October 2006 was enacted primarily to
offer certain special advantages, benefits and protection for the effective, efficient and
competitive operation of these units. Considering a large number of such enterprises and
the inherent weaknesses they may have, their failures may have detrimental effect on the
economy including unproductive asset creation and utilization, hence probably a need of
such an enactment might have been rightly felt by the government.
The Ministry of Micro Small and Medium enterprises were formed on May 9th
, 2007 as a
result of amendment of the Government of India (Allocation of Business) Rules,1961
and merger of the earlier Ministry of Small scale Industries and the Ministry of Agro and
Rural Industries. This Ministry is now mandated to design policies, projects and schemes
for the development of MSMEs and also to look into its implementation. The Primary
responsibility of promotion and development of the MSMEs vests with the respective
State Governments. The efforts of the state Governments are supposed to be
supplemented by the Central Government. The primary responsibility of fostering
Page 58 of 253
entrepreneurship is of the state Government. It is also the responsibility of the State
Governments to assist the MSMEs in enhancing their competitiveness. The various
schemes and programs initiated by the Ministry and different organizations floated by it
endeavor to provide,
1. Adequate flow of credit from Banks and financial institutions
2. Support for technology upgradation and modernization
3. Integrated infrastructural facilities
4. Modern testing facilities and Quality certifications.
5. Access to Modern Management practices.
6. Entrepreneurship development and skill up gradation through appropriate
training facilities.
7. Support for product development, design intervention and packaging
8. Welfare of artisans and workers
9. Domestic and international market development support.
10. Cluster with measures to promote capacity building and empowerment of the
units. (Government of India, 2012)35
The Government has also announced a comprehensive package for promotion of Micro
Small and Medium enterprises. The Package comprised several proposals/schemes for
providing requisite support to the MSMEs in the areas relating to credit, fiscal support,
cluster-based development, infrastructure, technology and marketing. The Package also
provides thrust on capacity building of MSME Associations and support to women
entrepreneurs.
1.29 “National Manufacturing Competitiveness Program”.
1.29.1 Objectives.
The objectives of such a program are multifold and are as follows,
1. The first component made operational under the Programme was "Marketing
Assistance/ Support to MSMEs".
2. The scheme for "Building Awareness on Intellectual Property Rights (IPR) was
launched to enable Indian MSMEs to attain global leadership position and to empower
them in using effectively the protection tools of Intellectual Property Rights (IPR) for
their innovative projects.
Page 59 of 253
3. Providing Support for “Entrepreneurial and Managerial Development of MSMEs
through Incubators" aims at nurturing innovative business ideas (new/ingenious
technology, processes, products, procedures, etc.), which could be commercialized in a
year.
4. Enabling Manufacturing Sector to be “Competitive through Quality Management
Standards (QMS) and Quality Technology Tools (QTT)" in order to improve quality and
productivity in the MSE sector.
5. “Mini Tool Rooms under public Private Participation mode".
6. Sixth component of the NMCP, namely, "Lean Manufacturing Competitiveness
Programme for MSMEs”, was launched on a pilot basis in 2009.
7. The remaining four components of NMCP seek to address issues of Information
and Communication Technology (ICT), Marketing and Energy Efficiency relating to the
MSME sector and are at various stages of approval.
8. The component on "Promotion of Information & Communication Tools (ICT)” in
Indian MSME sector envisages identifying some of those clusters of SMEs, which have
quality production and export potential, and assist them in adopting ICT applications to
achieve competitiveness in the national and international markets.
9. The main objective of "Design Clinics Scheme for MSMEs” is to bring the
MSME sector and design expertise on to a common platform and to provide expert
advice and solutions on real time design problems, resulting in continuous improvement
and value-addition for existing products.
10. The "Marketing Assistance and Technology Up gradation Scheme for MSMEs”
aims at improving the marketing competitiveness of MSME sector by improving their
techniques and technology for promotion of exports.
11. The objective of "Technology and Quality Up gradation Support to MSMEs” is to
sensitize the manufacturing MSME sector in India to upgrade their technologies, usage
of energy efficient technologies to reduce emissions of Green House Gases, adoption of
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other technologies mandated as per the global standards, improve their quality and
reduce cost of production, etc., towards becoming globally competitive.
The various components of NMCP envisage providing competitive edge to the MSMEs
in the long run by focusing on cost reduction and efficiency improvement. This is
expected to not only help in achieving a higher growth rate for the MSME sector but
would also provide considerable opportunities to them in expanding their markets, both
at the domestic and global level.
With these initiatives, it is expected that the MSME sector will be able to achieve new
heights and also become more competitive. It will be in a position to provide more jobs
and employment throughout the country.
1.30 The Research
Earlier studies on “Entrepreneurial Heuristics” had shown that entrepreneurial
performance (especially in terms of innovativeness, which is the essence of
entrepreneurship) varies significantly with the types of policies and strategies adopted by
the enterprise / entrepreneur. Such policies and strategies were then designated as
‘heuristics’ because of their non-formal and evolutionary nature. In an entrepreneurial
venture the primary source of such policies, strategies, or heuristics is naturally the
founder who normally has the maximum influence on the decisions made in the
enterprise. Based on this logic, it was decided to undertake a follow-up study to ascertain
the extent of association, if any, between the founder characteristics and management
policies, strategies in the first instance.
There appeared to be inconclusive results in establishing relationship between
entrepreneurial characteristics and the performance of the organization which is
dependent on the management policies or the strategies. In the type of organizations
being studied that is the Micro Small and Medium enterprises the management policies
are nothing but the decisions either short term, midterm or long term taken by the
entrepreneur or the owner of the firm. Here the word firm was used which connoted
Companies, organizations, enterprises etc. The word firm was used as it appeared to be
appropriate and more related to the size as firm depicts an enterprise of small size as we
were studying small and medium enterprises. There also appeared to be lack of research
on the effect of external environment factors Such as government initiatives, incentives
(more precisely the government incentives under the NMCP for manufacturing
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companies in the context of this study) for enhancing the competitiveness of the firm.
Whether the management policies have any bearing of such government policies. Hence
this study also researched whether the management policies or the strategies included
certain benefits provided by the external environment, in this case the government, under
its specialized incentive schemes and whether such inclusion of incentives has worked in
making the firms more competitive. Lastly there was a definite need to examine the
above two in the Pune industrial segment as there has not been any such formal study
carried out so far, which encompasses all the above elements and its inter relationship.
The research problem was whether the entrepreneurial characteristics play any role in the
formulation of management policies of the small and medium enterprises, which have
contributed to the competitiveness of the MSMEs and further the government of India
policies to be more precise, National Manufacturing Competitiveness program and the
various incentives and concessions under this policy, had been adopted by the
entrepreneur and if so whether it had any effect on the enhancement of the
competitiveness of the researched SMEs, in the Pune region. The research questions
were summarized as,
1.30.1 Research Questions
What are the factors on which the performance of an entrepreneur at his
enterprise depends?.
What are the typical characteristics of an entrepreneur in terms of back ground,
personal traits, motives behind the start up?
Is there any relationship between entrepreneurial characteristics and policies of
the enterprise?
What policies, management practices, strategies of the entrepreneur makes the
unit competitive?
What is competitiveness?
What role the government policies with specific reference to National
Manufacturing competitiveness has played in increasing the competitiveness of the small
and medium enterprises in Pune region?
The research sample was representative hence it to certain extent generalized the findings
for the Pune region.
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This research therefore was to investigate important issue in entrepreneurship, the strong
relationship between the entrepreneur characteristics and management policies of the
enterprise as also external stimulus such as government policies.
In this research following variables were investigated:
1. Background and early experiences of the entrepreneur.
2. Personal traits of the entrepreneur.
3. Motives of the entrepreneur.
(iv) Management practices (policies and strategies) of the enterprise.
(v) Role of National Manufacturing competitiveness program (NMCP of government of
India) for increasing the competitiveness of the SME.
Research on entrepreneurship has had its focus shifting between the person, the
management policy or strategy and the environment though very rarely special support
given by the government. Prior studies have emphasized and examined the relationship
between three major entrepreneurial characteristics on the performance of the SME, they
are 1) Demographic 2) Psychological 3) Behavioral. The results have not been able to
conclusively establish any relationship. Some prior studies have suggested that
performance is influenced not only by entrepreneurial characteristics but contextual
factor which include organizational factors and strategies. The possible explanation for
inconclusive findings could be stochastic nature of the process, presence of many
variables of controllable and uncontrollable nature and more precisely factors beyond the
control of the entrepreneur which may not have been identifiable with regards to results
and effects.
Many arguments are in favor of the two models, the strategic choice model (see Child
1972, Evan 1976, Hirsch 1975, and Starbuck 1976 for arguments in support of the
strategic choice model) and environmental determinism. (Hanna& Freeman 1977,
Aldrich 1979, Delacroix and Carroll 1983, Greenfield and Strickon 1986, Kaufman
1987, Meyer 1978 and Pennings 1980 for arguments in support of environmental
determinism). However, an empirical research analysis has shown that innovative start-
ups are influenced more by the features of the general environment (the economic,
political, social, cultural and educational environment) than by the immediate task-
environment (availability of finance, technology, raw-material, consultants, training
institutions, etc.). In other words, the environment influences the business creation more
by shaping the attitudes and skills of the individual than by providing specific services
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and facilities. There is therefore a renewed interest in studying the characteristics of the
entrepreneurial individual, as may be inferred from the recent literature on
entrepreneurship (Miner 2000, Hyrsky 1999, Wiklund 1999, Busenitz 1999, Mishra and
McConaughy 1999, Minniti and Bygrave 1999, Teal and Carroll 1999, Stewartetal 1999,
Stormeretal 1999, McCarthy and Leavy 1998-99, Hunt and Adams 1998, Roper 1998,
Rosa 1998, Chenetal 1998, Gimeno et al 1997, Sapienza and Grimm 1997.)
The long list of recent research studies on various aspects of the entrepreneurial
personality is undoubtedly an indication of the realization by the community of
researchers that among the trinity of, person, project, and environment, it is the person
that plays the largest role in the creation of an enterprise. The reasons are almost
deceptively obvious, and yet often unrecognized. Yet it remains to be researched what
factors whether personal characteristics or environmental factors shape the person’s
behavior.
1.30.2 Research Focus
This research focused on following parts:
A. Personality Characteristics
Following characteristics were investigated:
(1) ‘Self-made man’ orientation,
(2) Risk-taking ability,
(3) Concern for one’s image,
(4) Business of convenience.
(5) Strategic Orientation
B. Motives
The motives variables named as:
(1) Self-actualization,
(2) Power and status
(3) Innovation
(4) Financial security, and
(5) Autonomy/independence.
(6) Growth
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C. Management Policies and Practices
Enterprise policies and practices may be determined by the nature of the project, the type
of business environment and the personality of the entrepreneur of these
(1) Supervision and control
(2) Professionalism
(3) Initial strategies on revenues and costs,
(4) Partnership for capital,
(5) Extrinsic support orientation,
(6) Reliance on judgment, and
(7) Business secrecy, protection of intellectual property rights.
(8) Pursuit of core-competence/excellence
(9) Risk-management,
(10) Organic growth orientation (that is, building up to the enterprise primarily
through the accumulation of internal strengths),
Competitiveness is the eventual effect or result of the strategies and policies adopted and
implemented by the entrepreneur. It is the culmination of various operational actions and
decisions taken by the entrepreneur in the short, mid and long term.
Competitiveness is the ability of the firm not only to withstand the competition in the
industry but to emerge out of it as a winner or a successful enterprise. Competition is
central to the success or failure of the firm. It determines not only the existence, survival
but the sustenance of the firm. The appropriateness of a firm’s strategies is basically
dependent on the competition to which the firm is exposed to. Innovation, cohesive
culture, good implementation, the relevance and effectiveness gets defined in the context
of competition. (Porter, 1985)38
. A holistic definition for competitiveness is
“Competitiveness is relative and absolute. It depends on shareholder and customer
values, financial strengths which determines the ability to act and react within the
competitive environment and the potential of people and technology in implementing the
necessary strategic changes. Competitiveness can only be sustained if maintained
between these factors which can be of conflicting nature.” (Chaharbarghi, 1994)39
A universal and exact definition of competitiveness does not exist. Competitiveness may
connote different meaning to different entities and researchers. It could be the ability to
persuade customers to choose their offerings over competitors and other firms. That is
gaining market and keep it expanding. It could also mean adding new products or
develop new products for the market or existing customer. Increased profitability,
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exporting its products and such other business parameters may define competitiveness in
the context of this research. It could also mean for a small and medium enterprise to be a
regular vendor to an established Original Equipment supplier (OEM). It could also mean
the capacity and capability of the firm to stay afloat even in the down turns and financial
and economic slowdowns. In the context of various research and studies carried out and
also considering the units and region of this research a contextual definition will have to
be derived. The purpose of this research was not to examine the competitiveness in
greater depth but was to find out the relationship between entrepreneurial characteristics,
management policies and strategies, the government policies and the effect of all these in
increasing the capacity and capability in the general sense of various parameters such as
consistent growth in operations, profitability, securing consistent prestigious orders from
recognized OEMs, etc. Hence the meaning of competitiveness used in this study was
very limited and restrictive. Besides it was also a perceived problem that majority of the
SMEs are not ready to divulge information on profitability, turnover, order position etc.
in quantitative form. Hence the parameters used were simple and more judgmental and
indicative. Competitiveness in this context was to be a vendor of a major Original
Equipment supplier over a consistent period, showing growth in volume of production,
revenue and the bottom line that is profit. Expanding operations by adding products and
facilities.
The research was conducted in Pune region which besides being major automobile and
engineering hub, could also be considered as a MSME hub considering the presence of a
larger number of small and medium enterprises.
1.31 Salient features of the auto components Industrial segment In Pune
Of 12500 MSME manufacturing units in Pune more than 6000 are dependent on
the auto industry.
Presence of tier 1, tier 2 and tier 3 vendors to large units.
Presence of major Indian and foreign players.
New entrants such as Volkswagen, General Motors, Jon Deer, JCB, with huge
investments.
Pune to have export opportunity of$8 billion in auto components by 2015.
(MCCIA, 2009)40
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Even in the pre independence period, mid forties Pune started developing as an
engineering hub. The credit for this development goes to Kirloskar group who in
association with the British company started manufacturing activity. After the
establishment of Maharashtra Industrial Development Corporation ( MIDC) industrial
area many large and renowned manufacturers such as Finolex, J.N. Marshell, Swiss
companies such as Alfa Laval, Atlas Copco, Sandvik, SKF, Bajaj Auto, Bajaj Tempo
(Now Force Motors), TELCO( Now Tata Motors) established their base and gradually
expanded their operations. This development not only contributed in the development of
engineering and auto hub in Pune but also gave a fillip for development of this region as
an auto component, auto ancillary hub. The development of Pune as an auto-hub was
evident in the period 1960-1990 and the development still continues. It is an important
auto hub since it produces different ranges of vehicles from 2,3,4 wheelers to trucks,
tractors, buses, luxury cars, earth moving equipments etc. There is a presence of auto
majors like Tata Motors, Bajaj Auto, Mahindra and Mahindra, Force Motors, Daimler
Chrysler. Bharat Forge has emerged as one of the biggest forging companies of the
world. The hub has been further strengthened in its recognition by the entry of
Volkswagen, General Motors, JCB, John Deer and also Photon Auto from China.
The auto component industry has already received global recognition because of its
quality products, lower cost, lower turning around times. The units in this area, primarily
started as single product, single unit, single customer have now transcended not only the
Pune borders but the state and country boarders. Today they are multi location, multi
unit, multi product companies. Some of them have established units in foreign countries
to take care of the requirements of the OEMs in that area more efficiently. This is
definitely reflective of their competitiveness. Competitiveness has already been exhibited
and recognized, now the question to be investigated and researched is what contributed
to this, whether personal characteristics whether their entrepreneurial characteristics or
the environment which includes the government policies.
There are about 300 German Companies in this region and many international companies
from U.K., U.S.A., Taiwan, Korea, Japan have their manufacturing units in this area.
The characteristic of this region is that most of the units have been promoted by first
generation technocrats, entrepreneurs. This is very relevant in the context of the study
being carried out, as it would be a perfect sample for the research.
Global sourcing companies are outsourcing substantial contracts to India and to Pune.
The region has seen many a development activities which indicates acceptability and
practice of innovativeness. Pune has all features of a rapidly maturing engineering hub. It
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has also a very well developed ecosystem of suppliers, supporting the large companies
and the OEMs.
It has also been observed that units in this area have respect for cost consciousness,
quality and adherence to standard manufacturing practices required by the large OEMs.
This could be the primary reason for their selection of Pune region for setting up their
plants.
The region is also known for its industrial infrastructure, availability of skilled
manpower, presence of many business support organizations such as banking and
finance, consultancy services, I.T and I.T.E.S services and other related business
services. A survey by MCCIA indicates that nearly 14 % of the industry already incurs
planned R& D expenses for enhancing their products. The R &D expenses seem to
account for around 1- 2% of the total turnover of the Company.(MCCIA, 2009)40
This region as has been mentioned above is not only a matured manufacturing hub but
from the research perspective would be an ideal ground. Because of the maturity which
would have been the result of strategic management policies, it would be an ideal sample
for identification and study of the relationship which this researcher intends to carry out.
1.32 Research Scope & Objectives
Based on the literature review on entrepreneurship following variables will be used for
investigation:
(i) Background and early experiences of the entrepreneur
(ii) Personality traits of the entrepreneur
(iii) Motives of the entrepreneur, and
(iv) Management policies and practices of the entrepreneur/enterprise.
4. Role of NMCP to build the competitiveness of the enterprises. In terms of
investigation of competitiveness the following model appears to be a good guide
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Model of Competitiveness.
Figure 1.9
(Guzman, 2012)41
The above model could be a guiding model to establish the following relationship
Relationship Model
Figure 1.10
The above model set the context of the research in proper perspective.
The research involved gathering data through questionnaire, personal interviews,
collection of statistics from various sources.
Competitiveness
Financial Performance
Cost Reduction
Use of Technology
Entrepreneurial
characteristics
Personal Behavioral
Traits
Management
Policies Competitiveness
Government
Policies
NMCP
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1.33 Research within the field of Entrepreneurship
Research into the field of entrepreneurship suffers greatly from a lack of communal
structure, framework and the generally accepted definitions of constructs. The general
direction for the future of entrepreneurial research is seen as very much a fragmented
one.
The entrepreneurial theory and research is divided in three main categories, firstly the
entrepreneur and his/her actions and qualities; secondly, the entrepreneurial process; and
thirdly, the factors involved in increasing the promotion of the development of
entrepreneurs and entrepreneurial activity. The study therefore fundamentally aims to
undertake this problematic issue within entrepreneurial research, scientifically as well as
to point out the problem areas within entrepreneurial promotion by the government by its
various schemes. The study will not only ascertain the efficacy of the governmental
schemes but also suggest a new framework for promotion of entrepreneurship and its
competitiveness.
1.33.1 Entrepreneurship as a subject
Hornaday and Vesper point out that from a historical perspective the first entrepreneurial
programme was taught at the Harvard Business School as early as 1947. (Hornaday,
1982)10
(Vesper, 1980)42
As regard to entrepreneurship’s existence and its right to exist as one is characterized by
a long struggle to develop identity and acquire some recognition. The first hurdle was
possibly the battle to differentiate between “entrepreneurship” and “small business
management” as disciplines. The small business sector has been renowned for being a
sector with a lack of growth and innovation. It was therefore difficult to ascertain a
separate identity for entrepreneurship without stigmatizing it as a part of small business
management. Karl Vesper regards phase (the pre-70s phase) as one where
entrepreneurship accepted “borrowed” or “stolen” principles that didn’t put the
establishment of identity at the forefront. Further, he points out that entrepreneurship, as
a subject, could be viewed as a tangential activity, academically flaky, and lacking in a
scholarly body of knowledge. Little research continues in entrepreneurship on and
consequently the literature on it remains thin. The authors argue that the development of
entrepreneurship as a discipline went through different fundamental phases before it
could be acknowledged as an acceptable academic subject. (Vesper, 1980)24
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1.33.2 Trends in Research and Education
The major themes that characterize recent research about entrepreneurship and new
venture creation are as follow:
1. Research on the psychological aspects that can predict future success.
2. Women and minority entrepreneurs, their obstacles and difficulties form those
other entrepreneurs.
3. Entrepreneurship in India.
4. Venture financing and other innovative financing techniques have emerged.
5. Intrapreneurship and the need for entrepreneurial culture have gained much
attention during the past years.
6. Entrepreneurial Career is a subject of keen research interest.
1.33.3 Cultural Values and Entrepreneurship
Value systems and cultural norms affect the acceptability and perceived utility of
entrepreneurial activity. Thus, whereas Western culture tends to encourage the drive to
achieve that McClelland found to be a key aspect of the entrepreneurial personality, the
Indian culture consists of a network of beliefs that in many ways run counter to
entrepreneurship. (McClelland, 1961)6
For example, Indians believe that being passive
and content with the status quo is healthier for the inner soul than striving to improve
one's situation. They believe that peace of mind can be achieved from spiritual calm
rather than from material- Work, in and of itself, is not valued in India, (Sinha, 1978)42
,
and is done with the involvement only when done for a nurturing superior; otherwise, it
gets perfunctory attention. (Sinha J. B.)42
. People in India perform their work only as a
favor to their employer. (McClelland)6. As Kahar explains, people in this country are
more sensitive to emotional affinity in the workplace than to work and productivity.
(Kahar)43
Western theorists—in societies where people value control—interpret passivity,
withdrawal, and submissiveness as inward behaviors, which in Western culture are signs
of relinquished control. However, Rothbaum, Weisz, and Snyder suggest that these
behaviors are instead manifestations of "secondary control." While primary control
involves bringing the environment in line with one's wishes, secondary control is
bringing oneself in line with environment, which is uncontrollable. (Rothbaum, 1982)44
.
Weisz, Rothbaum, and Blackburn elaborate that secondary control (passivity and
submissiveness) is a means for one to maximize satisfaction from the status quo. (Weisz
Page 71 of 253
John R., 1984)45
Mastering one's mind can often be easier (and perhaps wiser) than
attempting to innovate, as per Schumpeter’s emphasis on entrepreneurial activity.
(Schumpeter J. , 1934)7 In India, most of the energy and creativity (which may
have been manifested in entrepreneurial behavior in the context of a
different culture) is redirected toward aligning oneself with the environment
status quo (accepting destiny).
When a culture is such that people are conditioned to believe in an external
locus of control (emphasis on destiny, for instance), self-efficacy may be low,
resulting in low levels of entrepreneurial effort. Many researchers have found
correlations between self-efficacy and subsequent task performance (Bandura,
Bandura and Adams); Bandura, Adams, and Beyer; Bandura, Adams, Hardy and
Howells ; Chambliss and Murray; Feltz and Locke et al.. (Bandura, 1982)46
,
(Bandura A. N., 1977)47
(Bandura A. A., 1980)48
, (Chambliss, 1979)49
(Feltz,
1982)50
In India, the external locus of control has been reinforced by the caste
system, which has impeded class mobility for centuries. Gadgil, Medhora and
Weber, among others, observed that the caste system and its series of obligations
reinforce the practice of following a family occupation rather than launching a new
venture. (Gadgil, 1959)51
, (Medhora, 1965)52
, (Weber, 1958)53
Furthermore, as
noted by Nafziger, it used to be that leading entrepreneurs tend to belong to
communities in which caste divisions were not rigidly observed. (Nafiziger)54
As
summarized by Hoselitz that entrepreneurship can develop only in a society in
which cultural norms permit variability in the choice of paths of life. (Hoselitz,
1960)55
The importance of entrepreneurial resource as a crucial input in the process of economic
development has now been widely recognized by scholars and policy-makers. With
growing emphasis on the role of medium and small-scale enterprises in view of their
contributions to employment generation, regional development and economic growth, a
wide range of schemes and programmes aimed at accelerating the tempo of new
activities in the decentralized sector has been devised in many developing countries. It is
found from experience that entrepreneurs do not respond spontaneously to available
business opportunities despite of various incentives and inducements. An effective
mechanism is, therefore, sought to enlarge the pool of new entrepreneurs who will be
helped to face risks and uncertainties while establishing new ventures.
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In order to accelerate the formulation of such new enterprises, imaginative programmes
and policies, backed up by sound institutional support, are called to identify, motivate
and strengthen the new breed of entrepreneurs.
The programmes are also meant to make contributions towards individual growth as part
of a national drive for human resource development. Finally, the programmes are aimed
at tackling the problems arising out of 'sick industry' phenomenon in the small-scale
sector especially in recent times.
Page 73 of 253
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