RGPV Question Papers with Solutions rgpv syllabus rgpv ...€¦ · Web viewEntrepreneur plays important role in economic growth of a country. Industrialisation is an ongoing process

ENTREPRENEUR DEFINITION AND CONCEPTUnit-5

Page 1 of 201. ENTREPRENEUR DEFINITION AND CONCEPTThe word entrepreneur has been taken from French language, 'Entrepreneur' which means to designate an organiser of musical or other entertainments. In early 16th century, it was applied to those who were engaged in military expeditions. In the early 18th century that word was used to refer economic aspects. The term 'entrepreneur' is used in various ways and various views. Broadly 'entrepreneur' can be classified into three groups, risk-bearer, organiser and innovator.

Definitions: According to Richard Cantillon, "An entrepreneur is a person who buys factor services at certain prices with a view to selling its product at uncertain prices in future." •

According to F.R. knight, "entrepreneurs are a specialised group of persons who bear risks and deal with uncertainty."

According to International Labour Organisation (ILO), "entrepreneurs are those people who have the ability to see and evaluate business opportunities, together with the necessary resources to take advantage of them and to initiate appropriate action to ensure success."

According to Akhouri, "entrepreneur is a character which combines innovativeness, readiness to take risk, sensing opportunities, identifying and mobilising potential resources, concern for excellence and who is persistent in achieving the goal.

According to Peter F. Drucker, "entrepreneur is one who always searches for change, responds to it and exploits it as an opportunity. Innovation is the basic tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or service."

In a nutshell, an entrepreneur is described as a person who tries to create something new, organises production and undertakes risks of uncertainty and the act of bearing such risk of uncertainty is termed as, entrepreneurship.

2. CHARACTERISTICS OF ENTREPRENEURSHIPFollowing are the important characteristics of entrepreneurship:

(i) Innovation(ii) Risk bearing(iii) Building organisation(iv) Decision making(v) Fore-sightness(vi) Accepting challenges(vii) Optimum utilisation of resources(viii) Hard working(ix) Skillful management


Page 2 of 20

Table 5.1 Relationship between entrepreneur and entrepreneurship

S. No. Entrepreneur Entrepreneurship

1 Entrepreneur is a person Entrepreneurship is a process.2 Entrepreneur is a organiser Entrepreneurship is a organisation.3 Entrepreneur is a Innovator. Entrepreneurship is a innovation4 Entrepreneur is a risk bearer Entrepreneurship is a risk bearing process5 Entrepreneur is a motivator Entrepreneurship is a kind of motivation6 Entrepreneur is an initiator. Entrepreneurship is taking an initiative7 Entrepreneur is a visualiser Entrepreneurship is the vision8 Entrepreneur is a decision maker Entrepreneurship is a decision making activity

3. COMPARISON BETWEEN AN ENTREPRENEUR AND A MANAGERSometimes, the term entrepreneur is considered synonym with a manager. In reality the two terms are completely different in their meaning. The major points of their differences are given in Table 2

Table 2

S. No.

Points Entrepreneur Manager

1 Innovation Entrepreneur is an innovator, He himself thinks over what and how to work to meet the changing market demand.

Manager works as per entrepreneur's plan idea, and established rules, policies, procedures etc.

2 Risk bearing Entrepreneur being owner of enterprise bears all the risks (calculated or moderate risks)

Manager is employee of entrepreneur. Manager does not bear any risk involved in the enterprise.

3 Motive To set up an enterprise To render his services in an enterprise.

4 Status Owner of the enterprise Employee of the enterprise.

5 Reward He continuously puts his efforts for achieving the goals and bears risks involved in the enterprise. He earns uncertain profits as reward.

A manager gets salary as reward.

4. DISTINCTION BETWEEN AN ENTREPRENEUR AND AN INTRAPRENEURIn big organisations, the top management is encouraged to do new things according to market requirement and competition, through research and development activities within the framework of existing organisation. These persons (top management) are called "entrepreneurs." They emerge from within the existing enterprise. They provide new innovative ideas having enough to offer ample scope of making good profit. This concept of entrepreneurship has become popular in developed countries like America, to incash the market opportunity and to motivate entrepreneurs, to inaugurate new products. For example, in college situation, if any senior faculty


Page 3 of 20brings consultancy work by having good knowledge, expertise and contacts, He is encouraged by top level management and is given major share of consultancy fee.After understanding the meaning of entrepreneur and entrepreneur, it can be easily distinguished as follows:

Table 5.3

S.No. Points Entrepreneur Intrapreneur1 Dependency Entrepreneur is independent Intrapreneur is semi independent

2 Raising of funds

Entrepreneur raises their funds for the enterprise on his own

Intrapreneur depends upon the industry or entrepreneur initiative i.e. the owner

3 Risk Entrepreneur bears the full risk involved in his business

Intrapreneur bears the risk of the business which is a small part of the enterprise

4 Operation Entrepreneur operates from outside An intrepreneur operates from

within the organisation itself

5 Ownership Entrepreneur is the real owner of the enterprise.

Intrapreneur works for the enterprise he is not owner of enterprise

6 Profit sharing Entrepreneur is entitled to take profit of business because he is owner of business

Intrapreneur is provided with a variety of perquisite for their innovation.

7 Responsibility

Entrepreneur converts the ideas of intrapreneur into viable opportunities Entrepreneur is free to take decision, when and how new ideas of intrapreneur should be implemented

Intrapreneur is responsible to generate new ideas and innovation of any kind from within the organisation.

5. CLASSIFICATION OF ENTREPRENEURIn global scenario, there are various types of entrepreneurs in the world. They are working in the field of industrial, agriculture, and other commercial activities. On the basis of clearance Danhof's study of American Agriculture, he classified entrepreneurs into four categories. These are:

1. Innovating Entrepreneurs. An innovating entrepreneur is one who senses the golden opportunities for introduction of new goods, new method of production, discovers new market and creating new enterprise.

2. Imitative or Adaptive Entrepreneurs. These entrepreneurs adopt successful innovations inaugurated by innovating entrepreneurs. These entrepreneurs imitate the technology and methods innovated by others. Such types of entrepreneurs are suitable for the underdeveloped countries.

3. Fabian Entrepreneurs. They love to remain in the existing enterprise and don't want to experiment any change in their existing enterprise. They only adopt and imitate new technologies and new techniques when it perfectly clears to them that failure to adopt will result in a loss or collapse of the enterprise.


Page 4 of 204. Drone Entrepreneurs. Drone entrepreneurs are conservative. They never like to exploit

opportunities for making cost effective production system. They love their traditional system of business or traditional production system, may even suffer from losses.

6. THEORIES OF ENTREPRENEURSHIPIn classical theories of economic development, there is no weightage for entrepreneurship.And, economic development seems to be automatic and self regulated. But presently developed countries like Japan, Russia and America realise and support that "an economy is an effect for which entrepreneurship is he cause." There are various theories on entrepreneurship, can be categorised as under:

1. Sociological theories2. Economic theories3. Cultural theories4. Psychological theories

6.1. Sociological Theories. There are following theories explain how sociological factors accelerate and related to growth of entrepreneurship:

(a) Theory of religious belief-Max Weber(b) Theory of entrepreneurial supply-Thomas Cochran(c) Theory of social change-E.E. Hagen(d) Theory of group level pattern-young.1. Theory of Religious Belief. Max Weber says, entrepreneurship is a function of religious

belief. Religious provides and develops entrepreneurial culture. There are so many important factors spirit of capitalism, adventurous spirit, protestant ethic and inducement of profit can be grown only when mental attitude in the society is favourable.

Hinduism is neither stumbling block nor a de-motivating religious belief to develop entrepreneurs and innovative enterprises.

2. Theory of Entrepreneurial Supply. Thomas Cochran emphasises on cultural values, role model of society, role expectation and social sanctions as the important factors that determine the supply of entrepreneurs.

3. Theory of Social Change. This theory explains how a traditional society adopts new concept of development and becomes modern society. Innovative and creative activities of entrepreneur are the key element of social transformation, social development and social economic growth.

4. Theory of Group Level Pattern. Frank Young's theory explains that group level pattern develops entrepreneurs or entrepreneurial supply isa function of group level pattern which gives emphasis on the concept of solidarity clusters, ethnic communities and other groups.

6.2. Economic Theories. Entrepreneurship and economic development are interrelated. General economic conditions in a country are determined by a set of variables, the role of entrepreneurship is an integral part, among which the more important are:

(i) Level of per capita income and its trends(ii) Employment trends(iii) Pattern of income distribution(iv) Pattern of savings and expenditures(v) Agricultural and industrial output trends, etc.

The following theories explain how economic development and entrepreneurship are interrelated to each other:


Page 5 of 20(i) Schumpeter's theory of innovation(ii) Leibenstein's theory Xsefficiency(iii) Mark Casson's theory(iv) Papanek and Harris theory(v) M. kirzner's theory(vi) David McClelland's theory of achievement(vii) Knights' theory of profit(viii) Hayek's theory of market equilibrium(ix) Harvard school theory.

1. Schumpeter's Theory of Innovation. According to Schumpeter, an entrepreneur is one who perceives the opportunities for innovating something new and different then figure out new combinations. New combination covers the following five cases:

(i) The introduction of new goods(ii) The introduction of new method of production(iii) The opening of a new market(iv) The conquest of a new source of supply of a raw material(v) The carrying out of the new organisation.

The carrying out of the above mentioned new combinations, Schumpeter calls enterprise and the individual who performs them calls entrepreneur.2. Leibenstein's Theory of X-Efficiency. This theory is also known as gap filling theory."According to Leibenstein, entrepreneurial functions are determined by the X-efficiency. X-efficiency means the degree of inefficiency on the use of resources within the enterprise. Leibenstein identified two broad types of entrepreneurship. They are:

(a) Routine Entrepreneurship. This type of entrepreneurship is intertwined with the important functions of management of the enterprise

(b) New Entrepreneurship. This type of entrepreneurship is innovative entrepreneurship. It searches and works in new business area.

Leibenstein highlighted two main functions of entrepreneur(i) Gap filling(ii) Input completing

Entrepreneur has to fulfill gap and provide proper input to increase the efficiency and reduce X-efficiency factor.3. Mark Casson's Theory: Mark Casson's was a renowned economist. His theory of entrepreneurship deals with the functional behaviour of entrepreneur and his qualities which are important for his success. His theory emphasized on following factors:

(i) Demand for entrepreneurship stems from the need to adjust to change.(ii) Supply of entrepreneur is limited by the scarcity of the desired personal qualities and then

identification of qualities.4. Papanek and Harris Theory. Papanek and Harris accept that when certain economic conditions are favourable, entrepreneurship and economic growth both will take place.The main points of their theory are as follows:(a) Economic Incentives. Economic incentives are the main motivating factor for entrepreneurial development.(b) Economic Gains and Innerwish. According to the above economist, economic gains and a person's Innerwish are interlinked and play vital role in entrepreneurial development. Economic gain is considered as the sufficient condition for the origin of entrepreneurial initiatives in the economy growth.


Page 6 of 205. M. Kirzner's Theory. M. kirzner's theory is also known as "theory of adjustment of price." This theory has the following main points:

(a) Adjustment of Price. Adjustment of price plays important role in profit, wrong price may reduce the profit of the entrepreneur. It different prices prevail in the same market, then there is scope for profitable arbitrage to entrepreneur.

(b) Alertness to Disequilibrium. Alertness enables the entrepreneur to intervene in the market by changing the price while other entrepreneurs simply respond by changing their buying and selling plans, in lieu of the new price.

6. David McClellands's Theory of Achievement. This is also known as "theory of high achievement." McClelland stressed the twin important characteristics of entrepreneurship that control the economic behaviour of a person to become entrepreneurial. They are:(i) Doing things in a new and better way(ii) Decision making under uncertainty.David McClelland and his associates developed the theory of achievement motivation.They pointed out mainly on the following three aspects:

(i) Need for achievement(ii) Need for power(iii) Need for affiliation

(a) Need for Achievement. They stressed the need for achievement or achievement orientation as the most important factor for explaining economic behaviour. People having high need for achievement are more likely to succeed as entrepreneur. They are self-confident and don't believe in mere luck. Therefore, McClelland wrote, "Need for achievement is a desire to do well, not so much for the sake of social recognition of prestige, but for the sake of an inner feeling of personal accomplishment."(b) Need for Power. They seek leadership and feel satisfied having a large number of

followers.(c) Need for Affiliation. They love others and wish to be loved by others. They are sensitive

to social relationship.Keeping in view the above needs, need for achievement, power, affiliation, McClelland has given more weightage on need for achievement for entrepreneurial development.

7. Knights's Theory of Profit. Entrepreneur bear risk and deals with uncertainty and receives pure profit. Knight's theory has the following features:(a) Pure Profit. Pure profit means profit refers to the reward for bearing the cost of uncertainty and entrepreneur is a recipient of pure profit.(b) Situation of Uncertainty. Uncertainty is a situation where the probabilities of alternative outcomes cannot be determined by a prior data or statistical method.(c) Risk Bearing Capability. It means capability to bear risk. Risk bearing means responsibilities of loss or gain that may occur due to unforeseen contingencies of the future.

8. Hayek's Theory of Market Equilibrium. Hayenk's main contribution to entrepreneurial theory is to point out that the absence of entrepreneurs in Neo-classical economics which is associated with the assumption of market equilibrium. The theory of market equilibrium can be depicted as follows:(a) Postulate of Full Equilibrium. As per Hayek, postulate of full equilibrium is equivalent to a postulate of full information. Full information means, there is no need for further information to modify anyone's decisions.(b) Acquisition and Communication of Knowledge. This process provides empirical content of economics relates to the process of adjustment towards the equilibrium.


Page 7 of 20(c) Market as the Medium of Communication. Markets help entrepreneur to communicate their discoveries to others and learn of other's discoveries. Then, they move towards a sale of equilibrium.9. Harvard School Theory. According to the Harvard School (1949), entrepreneurship involves any purposeful activity that initiates, maintains and develops profit-oriented enterprise for production or distribution of goods or services, in interaction with the internal situation of the enterprise or with external forces i.e., economic, political and social factors, The Harvard school theory emphasised on two types of entrepreneurial activities, they are:

(c) Entrepreneurial functions like organisation or coordination activity(d) Sensitivity to environmental condition that influences decision making.

6.3. Cultural TheoriesCultural values and cultural systems are directly responsible for the emergence of entrepreneurship. Following theories support above statement:

1. Hoselitz's theory2. Stoke's theory

The performance of a entrepreneur is influenced by following three factors:(a) His own attitude towards his occupation.(b) The role expectations held by the sanctioning groups.(c) The operational requirement of the job or business.

The first two factors are directly related to society values.6.4. Psychological Theories. Psychological characteristics influence the supply of entrepreneurship. The following theories are related-to emergence and supply of entrepreneurs:

1. Theory of personal resourcefulness2. Theory of entrepreneurial supply(a) Theory of Personal Resourcefulness. Personal resourcefulness is an important factor for

creating and development of entrepreneurship. Cognitively mediated behaviour like emotions, sentiments, thoughts etc. affect entrepreneurs’ performance. Human aspects of psychology also influence to entrepreneurship. Thus, studies about non-economic factors have brought out the fact that only provisions of economic incentives may not itself guarantee success in entrepreneurial ventures, organisation and psychological factors also affect the entrepreneurs performance.

(b) Theory of Entrepreneurial Supply. Theory of entrepreneurial supply is the behaviouristic model advocated and elaborated by John kunkal in 1965. According to him, psychological and sociological factors are the main determinants for the emergence of entrepreneurs.

J.H. kunkal in his behavioural model depicted that entrepreneurial supply is concerned with overtly expressed activities of individuals and their relations to both, present surrounding social structures and physical conditions.

7. ENTREPRENEUR TRAITSAn ideal entrepreneur possesses some outstanding qualities which distinguish him among the ordinary ones. Essential qualities of a successful entrepreneur are as follows:

1. Risk Bearer. Entrepreneurs are the persons who take decisions under uncertainty. However, the nature of the risk happens to be moderate and fairly reasonable to win. In simple words, entrepreneurs take calculated risk.

2. Organiser. Different resources required for production are organised by entrepreneur in such a way that, the maximum output may be obtained at the minimum cost.


Page 8 of 203. Innovator. An ideal entrepreneur is ever innovating. He always keeps himself updated

and increases the values of product. Value analysis must be done during product design.1. Value analysis provides cost reduction without decreasing its quality and utility.4. An Optimist. Entrepreneur always keeps optimistic view and boldly faces the adverse

circumstances. They are optimistic for future and run their enterprises successfully in future.

5. Exploiter of Opportunities. To incash the good opportunities are more important than the other factor (i.e., risk taking) for becoming a successful. Entrepreneur always exploits the opportunities to derive social gains as well as personal gains.

6. Desire for High Achievement. Entrepreneur always aims to reach the heights of his profession. Desire for high achievement motivates him and he remains fully devoted to his task.

7. Independence Lover. He doesn't bind himself to follow, obey the others.2. Entrepreneur takes the decisions independently, in the matters of their business and acts

accordingly.8. Managerial Skill. This is also an important quality of his character. Entrepreneur

manages all business related activities efficiently.

Figure-Characteristics of an Entrepreneur

8. PSYCHOLOGICAL THEORIES OF ENTREPRENEURIAL BEHAVIOURFollowing are the important theories of entrepreneurial behaviour:

3. Maslow's need hierarchy theory.4. McClelland's need achievement theory.


Page 9 of 20(a) Maslow's need hierarchy theory. Refer page no of unit II.(b) McClelland's Need Achievement Theory. David McClelland and his associates developed the theory of achievement motivation in the late 1940s. They stressed the need for achievement or achievement orientation as the most important factor for explaining economic behaviour. People having high need for achievement are more likely to succeed as entrepreneur. They are self-confident and don't believe in mere luck. Need for achievement depends upon entrepreneurial motivation. This need motivates the entrepreneur to take risk following are the psychological factors which influence the entrepreneurial motivation:

(i) Need for achievement through performance review.(ii) Need for achievement through goal setting and problem solving.(iii) Need for achievement through high desire to undertake moderate risk, to take personal

responsibility.(iv) Need for achievement through spirit to achieve success, inner sprit to attain a

measurable target.(v) Anticipating feasible possibilities, and new instrumental activity.

9. ROLE OF ENTREPRENEUR IN ECONOMIC GROWTHEntrepreneur plays important role in economic growth of a country. Industrialisation is an ongoing process which accelerates economic growth and induces social change. An entrepreneur is the person who ventures out, prefers something new or better as a means of growth and is ready to take calculated risks. Entrepreneur selects the proper technology according to the social and economic environment in India, many organisations and institutions are producing excellent entrepreneur, resulting in the speedy growth of industrial ventures. Entrepreneur works for nation development by providing employment, export opportunities, and foreign investment.

David Ricardo identified only three factors of production machinery, capital and labour.These factors generate earnings and distributed as rent, profit and wages. Ricardo says, profit leads to saving of wealth which ultimately goes to capital formation.

Adam Smith, the foremost classical economist, says no significance role of entrepreneur in economic development. Smith extolied also agrees on rate of capital formation is an important determinant of economic development.Thus, in the classical theories of economic development, there is no room for entrepreneurship and economic development seems to be automatic and self-regulated.On the other hand, development countries like America, Russia and Japan support that the economy is an effect for which entrepreneurship is the cause. Entrepreneur played significant role in economic growth. Now developing countries have begun to realise that for achieving the goal of economic development, it is necessary to motivate, promote entrepreneurship both qualitatively and quantitatively. Innovations play vital role in economic growth and entrepreneur always does innovation.

According J.A. Schumpeter, an entrepreneur is basically an innovator who introduces new combinations of means of production. Development consists of carrying out new combinations. A new combination may be carried out by utilisation of both, used and unused means of production. As an innovator, entrepreneur does the following activities.

1. Creates New Ideas and Combinations. As an innovator, entrepreneur introduces new products, new technologies of production, new markets, new suppliers of raw materials, and mixes different combinations.


Page 10 of 202. Value Engineering. The inquiring mind is never satisfied with things as they are. It is always seeking ways to make things better and do things better. It assumes that everything and anything can be improved.

3. Methodology and Techniques. In systematic innovation process, methodology, and techniques are elements of good engineering practice applied in a systematic sequence to achieve maximum value. It makes the work easier, if applied correctly. It helps the organisation to have a higher competitive strength in the market.Benefit of Innovations can be concluded as follows.

1. Improvement in per capita income.2. Gain in capital formation.3. Increase in employment opportunities.4. Improvement in standard of living.5. Technological advancement.6. Refine and combine the ideas.

10. ROLE OF ENTREPRENEUR IN GENERATION OF EMPLOYMENTThe role of employment in poverty reduction programs in developing countries has received considerable attention worldwide, in development strategies and policies. Many new employment opportunities in many developing countries are created by entrepreneurs in small scale and medium scale enterprises. Conceptual framework for employment creation is shown below.

Figure-Conceptual framework for employment creationEntrepreneur helps in generation employment in following ways:

(vi) Establishing tiny, small and medium scale manufacturing and marketing enterprises.(vii) Giving emphasis on utilising local resources.(viii) Promoting women entrepreneurs.(ix) Providing training to unskilled labour.(x) Providing practical knowledge to local manpower.(xi) Giving emphasis on village based industries (like agriculture, milk, mineral, forest,

etc.). Village based industries being labour intensive, have high potential in employment generation and promote balanced regional development.

(xii) Exports are an important instrument for the creation of employment. Small scale sector has been given considerable importance for export by the government.

11. ROLE OF ENTREPRENEUR IN BRINGING ABOUTSOCIAL STABILITY


Page 11 of 20Entrepreneurship is influenced by an environment created by political, social, economic, national etc. Social environment has a great significance in the growth of entrepreneurship.An entrepreneurial plan cannot be formed and finalised for its implementation without social cost benefit analysis or social stability analysis. Social stability or social cost benefit analysis is a tool for evaluating the value of money, particularly of public investments.Social cost benefit analysis does not accept that the actual receipt of a project adequately measure social benefits and measure social costs. Social benefit measures the contribution to society. Social cost refers to all those harmful consequences and damages which the community on the whole sustains as a result of productive processes and for which private entrepreneurs are not held responsible manifested. Thus, social costs, social returns and social stabilities are important dimensions in project analysis. Entrepreneur helps in bringing social stability in the following ways:1. Giving Employment. Entrepreneurs absorb a large number of work-force and maintain social stability.2. Establishing Social Infrastructure. Entrepreneurs develop social infrastructure which gives social economic development and social stability. Social benefits are medical and hospital facilities, educational facilities, canteen facilities, recreation, entertainment and cultural activities, housing and township facilities, water supply, electricity and transport facilities.3. Supply of Qualitative Goods and Services. Entrepreneurs understand the requirement/need of the market then supply accordingly. Business traditionally has been responsible for quantities, for the supply of goods and jobs, for costs, prices, wages, and for standard of living. Today, however, entrepreneurship is being asked to take on responsibility for the quality of life in our society.4. Equitable Distribution of Income. There is huge difference in income between rural and urban sectors. Small scale enterprises are established in both rural and urban sectors and tries to fill the gap.5. Developing Women Entrepreneurs. There is good relationship between, women and rural entrepreneurship. Women have shown excellent performance in various sectors like in education, in office and industry.6. Providing Healthy Competition. Entrepreneurs restrict the monopolies and create favourable condition for buyers.7. Reducing Crime in Society. In society, things should be smooth, otherwise riots, crimes, etc. take place.

12. ROLE OF ENTREPRENEUR IN EXPORTPROMOTION AND INDIGENIZATIONSGovernment always pays attention in export earnings. Exports enable the country to pay for critical imports like petroleum and new technologies. In order to achieve national objectives, the government has adopted new and attractive export policy for small scale sectors. The main products of industries in small scale sector for exporting are processed food, leather goods, garments, khadi and handloom, handicrafts including gem and jewellery. The government continues to encourage export production in the small and medium sectors by facilitating the availability of the necessary inputs, finance, market intelligence, etc. There are many incentives and facilities to exporters. They are:

1. Duty drawback.2. Duty exemption scheme.3. Excise rebate.4. Marketing development assistance.


Page 12 of 205. Supply of raw material.6. Export oriented units/export processing zone.7. Export promotion capital goods scheme.8. Other benefits.

Export increases the foreign exchange earnings and helps in meeting balance of payments deficits considerably. The small scale sector faces number of problems in export. They are:(a) Availability of raw materials(b) Quality control and(c) Marketing facilities.

The government has established following agencies to help entrepreneurs in exporting their products:

(i) Export Processing Zone (EPZ).(ii) The Federation of Indian Export Organisations (FlED).(iii) Indian Institute of Foreign Trade (IIFT).(iv) Export Inspection Councils, (EPCs).(v) State Trading Corporation of India (STCI).(vi) Mineral and Metals Trading Corporation (MMTC).(vii) 100% Export oriented units.(viii) Agricultural and processed food products export development authority, New Delhi.

Indigenisation. Indigenisation means use of indigeneous domestic products and reduce the imports. Replacing imports with domestically produced goods called import substituting industrialisations.

The role of entrepreneur in import substitution can be viewed mainly from the following angles:(ix) To achieve self-reliance in production of as many products as possible.(x) To reduce foreign exchange for import of goods.(xi) Local talents can be developed to boost employment in India.(xii) To handle fluctuating demands by local industries.(xiii) To avoid communication problems, currency fluctuations, difficulties in inspection of

foreign goods and problem of rejected imported items.(xiv) Better co-operation between the buyer and seller is possible because of close physical

proximity.Promoting indigeneous manufacturing through protection:(a) Most developing countries have tried to promote industry through orientation towards supplying the domestic market using quotas, tariffs and price preference.(b) Establishment of technology transfer centres.

Problems in indigenisation are as follows:(1) To meet the precise and high-tech nature of demands.(2) To trend technical personnel abroad to study the latest technology.(3) To make efforts at all level should be properly channelised and coordinated towards

indigenisation.

13. GROWTH STRATEGIES IN SMALL BUSINESSBusiness environment like social, economic and political environments changes with change in time. In order to survive in the changed and changing business environment, a business enterprise needs to be strong enough to cope with the changes and challenges before it. The same


Page 13 of 20underlines the need for growth of business enterprises. The main strategies of growth can be listed as follows:1. Expansion2. Diversification (vertical, horizontal, concentric, Conglomerate)3. Joint venture4. Merger5. Sub-contracting6. Franchising

14. CREATING A VENTURECreating a venture requires following analysis(i) Opportunity analysis(ii) Technological environment analysis(iii) Competitive factors analysis

1. Opportunity Analysis. Opportunity analysis is the' one of the prime and primary steps in creating a venture. Entrepreneur analyse the opportunities taking into account his own internal strength; weaknesses, opportunities and threats, which is known as 'SWOT' analysis. Entrepreneurs identify their opportunities and select their products/ services on the basis of the following analysis:Opportunity Analysis(A) Regulator/political

1. De-licensing2. De-reservations3. MRTP relaxations4. Import Iiberalisation5. Price decontrol6. Liberalisation of foreign investment and technology policy7. Capital and market reforms8. Government policies regarding incentives, subsidies

(B) Economic1. Boom2. Steady and fast increase in income

(C) Social/Demographic1. Favourable change in consumer attitude2. Increasing population3. Change in age composition of population4. Growth of consumerism5. Growth of environmentalism.

Major Stages in Opportunity Analysis. The major stages in which an entrepreneur identifies the business opportunity are as follows:Stage-I Scanning of business environmentStage-II Short listing of opportunitiesState-III Finalising the selection of product


Page 14 of 20Stage-I Scanning of Business Environment. Entrepreneurs and enterprises are influenced by the environment. Environment can be classified as follows:

Fig, 5,3. Entrepreneurial EnvironmentScanning of environment gives ideas and identifies the various business opportunities.

Stage-II Short Listing of Opportunities. Opportunities should be analysed properly by utilising scientific model like SWOT analysis. Then, best suitable opportunity should be encashed by the entrepreneur timely. Opportunities should be shortlisted after considering important factors like stability, growth, marketability, gestation period required, quality, technology, import liberalisation, price control, economic boom, scope of export, risk involved, availability of raw material, government policies regarding incentives, subsidies, exemptions, availability of manpower.

Stage-III Finalization of Opportunity or Product. After short listing two or three product, detail analysis is required to decide final product. In detail analysis, some important parameters are examined they are:

(i) Capital requirement(ii) Product ranked by capital budgeting methods

1. Net Present Value (NPV)2. Internal Rate of Return (IRR)3. Pay Back Period (PBP)

(iii) Return on investment(iv) Expected sales volume(v) Net profit/Gross profit(vi) National objective and sustainable development(vii) Commercial viability(viii) Technical viability.

2. Technological Environment AnalysisWhy should technology be upgraded?Technical Feasibility. Inadequate technical know-s-how, locational disadvantages, outdated production process are the main factors for industry sickness.For doing a job, there are numerous ways of doing it. But there is only one best way of doing it, which is the most cost effective, efficient and highly productive. This concept should be realised by all entrepreneurs, but they try "trial and error" methods, wasting their time, money, energy and other resources.


Page 15 of 20Technological innovations and changes are taking place in industrially developed countries of the world and small scale industries in those countries are also correspondingly responding by upgrading their technology. On the other side, through upgrading the technology and automation, labour requirement is reduced.Thus, while promoting new venture, the entrepreneur has to take into account the entire technological environment for the purpose of taking strategic decision in selecting the technology, as teleological feasibility is a critical input for the success of any kind of enterprise.

3. Competitive factors. Competitor analysis is necessary for formulating right strategies and determining the right positioning for the firm in the industry.

Competitor analysis seeks to find answers to certain basic questions such as:1. Who are the competitors of the firm?2. What are the current strategies of the competitors?3. What are their future goals and likely strategies?4. What drives the competitor?5. Where is the competitor vulnerable?6. How are the competitors likely to respond to the strategies of others?

Competitive factors are also very important for any entrepreneur. Competitive analysis has gained 'great popularity, the state of competition is an industry depends on five basic competitive forces, viz.

(i) Rivalry among existing forms(ii) Threat of new entrants(iii) Threat of substitutes(iv) Bargaining power of buyers(v) Bargaining power of suppliers.

(i) Rivalry among Existing Firms. There are number of factors which influence the intensity of rivalry. These are:

(a) Number of firms, and their relative market share, strengths etc.(b) State of growth of industry.

(ii) Threat of New Entrants. A prospective industry often faces threat of new entrants which can alter the competitive environment. There may, however, be a number of barriers to entry. Potential competition tends to be high if the industry is profitable or critical, entry barriers are low and expected retaliation from the existing firms is not senous.Following are some of the important common entry barriers:

(i) Government Policy. In many cases government policy and regulation are important entry barriers. For example, prior to the economic liberalisation in India, government dictated entry barriers were rampant, like reservation of industries/products for public sector and small scale sector, industrial licensing, regulations under MRTP Act, import restrictions, restrictions on foreign capital and technology etc.

(ii) Economies of Scale. Economic of scale can control entry in two ways: it keeps out small players and discourages even potentially large players because of the risk of large stakes.

(iii) Cost Disadvantages Independent of Scale. Entry barrier may also arise from the cost advantages, besides that of economies of scale, enjoyed by the established firms which cannot be replicated by new firms, such as proprietary product technology, learning or experience curve, favourable access to raw materials, favourable location, government subsides etc.


Page 16 of 20(iv) Product Differentiation. Product differentiation characterised by brand image,

customer loyalty, product attributes etc. may form an entry barrier forcing new entrants to spend heavily to overcome this barrier.

(v) Monopoly Elements. Proprietary product/technology, monopolisation/effective control over raw material supplies, distribution channels etc. are entry barriers which are insurmountable or difficult to overcome.

(vi) Capital Requirement. High capital intensive nature of the industry is an entry barrier to small firms. Further, the risk of huge investment could be a discouraging factor even for other firms.

3. Threat of SubstitutesAn important force of competition is the power of substitutes. "Substitutes limit the potential returns in an industry by placing a ceiling on the price firms in the industry can profitability charge. The more attractive the price performance alternative offered by substitutes, the firmer the lid on industry profits."Firms in many industries face competition from those marketing close or distant substitutes.Porter points out that substitute products that deserve the most attention are those that (1) are subject to trends improving their price-performance trade off with the industry's product, or (2) are produced by industries earning high profits.4. Bargaining Power of BuyersFor several industries, buyers are potential competitors-they may integrate backward. Besides, they have different degrees of bargaining power. "Buyers compete with the industry by forcing down prices, bargaining for higher quality or more services, and playing competitors against each other-all at the expense of industry profitability."Important determinants of the buyer power, explained by Porter, are the following:

1. The volume of purchase relative to the total sale of the seller.2. The importance of the product to the buyer in terms of the total cost.3. The extent of standardisation or differentiation of the product.4. Switching costs.5. Profitability of the buyer (low profitability tends to pressure costs down).6. Potential for backward integration by buyer.7. Importance of the industry's product with respect to the quality of the buyer's production

or services.8. Extent of buyer's information.

5. Bargaining Power of Suppliers1. The important determinants of supplier power are the following:1. Extent of concentration and domination in the supplier industry.2. Importance of the product to the buyer.3. Importance of the buyer to the supplier.4. Extent of substitutability of the product.5. Switching costs.6. Extent of differentiation or standardisation of the product.7. Potential for forward integration by suppliers.

15. SOURCES OF FUNDSources of fund could broadly be classified into two sources. There are:

1. Internal sources2. External sources


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Figure Sources of FundInternal sources, funds are raised from within the enterprise itself. In external sources, funds are raised from other than internal sources. There are various types of capitals in organisation, shown in Figure and explained as follows:

Fixed capital is the money invested in some fixed assets like land, building, machinery, equipment, furniture etc.

Working capital is the money invested in current assets like raw material work-in-progress, finished goods, debtors etc.

Short term capital usually refers to funds required for a period of less than one year and is to be repaid within one year.


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Medium-term capital usually refers to funds required for one year to five year. Medium term capital is usually required for permanent working capital, small expansions, replacements modifications etc.


Page 19 of 20Long-term capital is such money whose repayment is arranged for more than five years.

Long-term capital is required for procuring fixed assets, for the establishment of a new business, for substantial change of existing business, etc.

16. ENTREPRENEURIAL DEVELOPMENTPROGRAMME (EDP)Entrepreneurial Development Programme (EDP) is designed to guide and help properly to a person in strengthening and fulfilling his entrepreneurial motive and in acquiring required skills and capabilities for playing his entrepreneurial role effectively. EDP is very useful for developing those first generation entrepreneurs, who really need help for becoming successful entrepreneurs. It covers three major variables; location, target group and enterprise (entrepreneurial activities). EDP is a tool for developing human resources and it has following objectives

1. Removing unemployment.2. Accelerating industrial development.3. Promoting small-scale industries.4. Developing industrially underdeveloped regions.5. Developing entrepreneurial qualities.6. To let the entrepreneur set or reset the objectives of his business and work individually

and along with his group for their realisation.7. To enable entrepreneur to take strategic decisions.8. To enable entrepreneur to cope with and coordinate all relevant paper work, most of

which is statutorily obligatory.

The basic features of the EDP programme: potential entrepreneurs, and industrial prospects of the area. The training programme should be planned for four to six weeks. EDP training programme modules are as follows:

1. Introduction of entrepreneurship.2. Motivation training.3. Fundamentals of management concept.4. Fundamentals of project feasibility study and project report.5. Organising the business.6. Plant visit.

The Three-phase Programme ImplementationThe EDPs are implemented in three phases:

(i) Pre-training phase. Identification, selection and initial motivation of potential entrepreneurs

(ii) Training phase and(iii) Post-programme follows-up phase.

(I) Pre-training Activities. The objectives ofthe pre-training activities are to make an entry into the location to understand the people, their socio-economic conditions, their values, their attitudes and belief, their hopes and aspirations, their fears and frustrations and so on. Pre-training activities involve following activities.(a) Promotional Activities. The promotion of the programme needs the adoption of a multi-pronged strategy. The aim is to reach to potential trainees. Besides personal contacts, the major modes of programme promotion are advertising in newspapers, distribution of handouts, contacting youth clubs, seeking support of the leaders etc.


Page 20 of 20Another main activity during this phase, important to the success of the programme, is the identification of viable business opportunities that can be promoted among the trainee entrepreneurs.Adequate care is taken in consideration that the opportunities have the potential to preferably utilise local resources, can be carried out within the existing infrastructural constraints, are eco-friendly, and do not lead to further environmental degradation.(b) Selection of Trainee. The entrepreneur identification and selection mechanism, which precedes training, is based on the following key assumptions:(i) Not everybody can become an entrepreneur, as an entrepreneur must have certain traits.(ii) Such traits are identifiable and measurable through some psychological and behavioural tests supported by social indices. (iii) People possessing these traits or showing evidence of these traits can be developed to acquire necessary dimensions of entrepreneurship.Potential entrepreneurs between 18 to 35 years of age are usually considered for selection.Applications are called for a personal interview after screening the applications and administering a written test to assess their entrepreneurial tendencies. Those possessing a developable level' of entrepreneurial traits are selected.(II) Training Phase. Training inputs, to take care of the felt needs of potential entrepreneurs, include

1. Behavioural inputs2. Business opportunity identification and guidance3. Information and technical inputs4. Managerial inputs5. Marketing skills6. Soft skill development and7. Legal system related inputs.

The duration of an EDP vary from 15 days to 3 months among various organisations depending upon the target group characteristics, projects size and local environment.(III) Post Programme Follow up Phase. The objective of an EDP is not only to strengthen entrepreneurial characteristics, but also to' help the trainees launch their ventures. Project implementation starts after the formal training.Follow-up phase involves

(i) Follow-up loan application for finance(ii) Facilitating infrastructure such as land, factory shed, power etc, and finally(iii) Trouble shooting.

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RGPV Question Papers with Solutions rgpv syllabus rgpv ...€¦ · Web viewEntrepreneur plays important role in economic growth of a country. Industrialisation is an ongoing process