EntrepreneurshipETR3153

Theories & Concepts of Entrepreneurship

By: Wan Nurhamizah Wan Zakaria

Session ObjectivesAt the end of the session, students

should be able to:Understand the various theories and concepts of entrepreneurship

Have a deeper understanding of the discipline of entrepreneurship

Definition of an Entrepreneur“An entrepreneur is a person who undertakes to do a job”. The term entrepreneur originated from a French word “entreprendre” was first coined by Richard Cantillon (1755).

In Malaysia, the term “usahawan” is used to mean entrepreneur.

Definition of Entrepreneurship

• Entrepreneurship involves not only the process that leads to the setting-up of a business entity but also the expansion and development of an going concern.

• The study of entrepreneurship is concerned with the entrepreneurial behavior, the dynamics of business set-up and expansion or development of an entrepreneurial organization.

Development of Entrepreneurship Theories

Adam Smith (1776) – An entrepreneur is a person who acts as agent in transforming demand into supply.

Jean Baptiste Say (1803) – An entrepreneur is a person who shifts resources from an area of low productivity to higher productivity.

John Stuart Mill (1848) – An entrepreneur is a prime mover in the private enterprise. The entrepreneur is the fourth factor of production.

Development of Entrepreneurship Theories

Carl Menger (1871) – The entrepreneur acts as an economic agent who transforms resources into products and services. These transformation process gives added value to the output.

Joseph Aloysius Schumpeter (1934) – The entrepreneur is an innovator. The economy moves through leaps and bounds because of the innovations. This process is known as “creative destruction”

Alfred Marshall (1936) – The process of entrepreneurship development is evolutionary. The entrepreneur is responsible for the evolution of sole proprietorships into a public company.

Development of Entrepreneurship Theories

Ibnu Khaldun (Abdul Rahman Mohamed Khaldun) – The entrepreneur is seen as a knowledgeable individual and is instrumental in the development of a city-state where enterprises emerge.

David C. McLelland (1951) – The entrepreneur is a person with a high need for achievement. This need for achievement is the foundation of the entrepreneurship process.

Islamic EntrepreneurshipDiscussion on Islamic entrepreneurship is based on the following main topics:IntegrationHuman natureMotivationIslamic business and entrepreneursIslamic economic systemGuidelinesExemplary conducts

The Concept of Integration

Islam is a complete way of life. There is no separation between business and religion.

Islamic entrepreneurship is part of the way of life.

Muslims are encouraged to get involve in business activities. (9/10 rezeki adalah dalam perniagaan – Hadis Nabi)

Human NatureIt is part of human nature to follow the

teachings of their religion.In Islam, Muslims are required to fulfil

two important duties, “ibadah” and “khalifah”.

In Islamic entrepreneurship, Muslims are able to perform both duties.

Maximizing profit is not the ultimate aim of Muslim entrepreneurs.

“Islamic Man” versus “Economic Man”

MotivationFollowing the sunnah of ambiya and the companion of Rasulullah saw.

Islamic entrepreneurship leads to the path of success both in this world and the hereafter.

Success in Islam is not measured by the end result but also the means and ways of achieving them.

The type of success according to Al-Qurtubi

Halal (Rightful means of living)Qanaah (Satisfying)Taufiq (Guidance)Sa’adah (Tranquility/Happy)Jannah (Heaven)

The level of success according to Al-Ghazali

Depends on the following:Level of knowledgeLevel of repentanceLevel of challengesLevel of obstaclesLevel of motivationLevel of handicapLevel of praise and thankfulness

Possession of WealthIn Islam, possession of wealth is allowed

based on the following principles:Allah s.w.t. is the absolute owner of wealth

Allah s.w.t. has created wealth in abundance (melimpah ruah) and sufficient (mencukupi) for all

Allah s.w.t. has created wealth for mankind

Wealth is entrusted to mankind

Entrepreneurship as IbadahMuslim entrepreneurs involvement in business is to fulfill an obligation known as “fardhu kifayah”

Fardhu kifayah~ Unless and until there is an entrepreneur in a community, the entire community is deemed to be sinful.

Muslim entrepreneurs bear the responsibility to provide goods and services primarily to the Muslim community and to others

Islamic Entrepreneurship Model

Islam Propagates(Business Venture)

Allah Prepared(Facilities)

Islam Provides(Guidelines & Procedures)

Allah Promised(Rewards)

Islamic Economic SystemIslamic entrepreneurship is part of

the framework of the Islamic Economic System.

Islamic economic system involves:Islamic bankingIslamic insurance (takaful)Islamic capital markets

Islamic economic system is based on Islamic jurisprudence.

Guidelines and Procedures

Islam has provided an extensive guidelines for Islamic entrepreneurship activities.

Among others:The principle of buying and sellingThe permissible types of businessThe principle of “zakat” in businessBusiness ethics

Entrepreneurial Ethics

Prevent lazinessEradicate fear/shynessSearch for legitimate venturesAvoid unlawful sources of incomeShow gratitude and thankfulnessGrow and develop wealthDiversify business venturesAvoid greediness

Entrepreneurial EthicsAvoid malicious behaviorAvoid squandering (elakkan

membazir)Avoid stinginess (elakkan kedekut)Pay zakat and alms (sedekah)Be trustworthyPray consistentlyTawakkalPatienceQanaah

Exemplary Conducts of Muslim Entrepreneurs

Business is secondary to the call of jihad (crusade)

Never use power or influence for self-interest

Afraid of accumulated wealthLeadership qualities in all aspectsPractice moderate way of life