chapter 1: introduction -...

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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

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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

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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

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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

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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.

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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

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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

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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.

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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

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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

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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

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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

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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.

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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,

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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

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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

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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.

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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.

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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.

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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

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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.

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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.

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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

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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

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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

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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

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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

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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.

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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

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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

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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.

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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.

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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

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! 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

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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

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MSME Market Value of Fixed Assets

Projected Data 2007-08 to 2011-12

Chart 1.4


MSME Gross Output

Projected Data for 2007-08 to 2011-12

Chart 1. 5


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

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MSME Activities

Chart 1.6

Percentage Distribution of Enterprises by type of Organization

Chart 1.7


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

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MSME Area wise Share

Chart 1.8


All India Growth Rate %

Chart 1.9


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

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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

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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)

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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.

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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

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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.

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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

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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.

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