Theories of Entrepreneurship Two major schools •Supply side perspective •Demand side perspective • Supply side perspective •Supply side perspective –focuses on the individual traits of entrepreneurship –the dominant school of research •The central argument of the supply-side perspective and its traits-oriented approach is that special types of individuals create entrepreneurship • to advanced economically, this special person provides society’s needs •This special person can be changed according to psychological, social, cultural ethnic characteristics of individuals Psychologists in supply side consider individual characteristics such as; •Need for achievement •locus of control •risk taking •problem solving styles •willingness to innovation •leadership styles Sociologists consider; •Attributes of culture •Social class •Ethnic group/religion –Criticism • Important variable like age, education, gender, work experience are not examined Demand side perspective •Opportunity structure decides the formation of entrepreneurship •business firm/venture •technology •resources •market •Social environment • Influence of firm- examined by organizational theorists •Single unite enterprise •Small organization low rate of entrepreneurship • •multiunit enterprise •large organization high rate of entrepreneurship • •Management style – • Strict management • flexible management • § § Influence of socio-economic environment •Social values •Technology •Density of industries •Market – liberal, closed • Theories •Theories Can be categorized as; •Psychological theories •Cultural theories •Social theories •Economic theories Theory of Needs- David McClelland’s •Works- The Achieving Society (1961) • Motivating Economic Achievement (1971) §In his acquired need theory, proposed that an individual’s specific needs are acquired over time and are shaped by one’s life experiences. §Most of these needs can be classed as; achievement, affiliation, and power §A person’s motivation and effectiveness in certain job functions are influenced by these three needs. Need for achievement •People with high need for achievement seek to excel and thus tend to avoid both low-risk and high risk situation •Achievers avoid low-risk situations because the easily attained success is not a genuine achievement. •In high risk projects, achievers see the outcome as one of chance rather than one’s own effort. •Achievers need regular feedback in odder to monitor the progress of their achievements. Need for affiliation •Those with a high need for affiliation need harmonious relationship with others and need to feel accepted by others. •They tend to conform to the norms of their work group. •High need affiliation individuals prefer work that provides significant personal interactions • they perform well in customer service and client interactions situations Need for power •A person’s need for power can be one of two types- personal and institutional •Those who need personal power want to direct others, and this need often perceived as undesirable •Person who need institutional power (also known as social power) want to organize the efforts of others to further goals of the organization •Managers with a high need for institutional power tend to be more effective than those who with a high need for personal power Characteristics of high achievers •Desire for risk taking at given time •Determination in achieving targets •Desire for success •Self feedback •Future planning and time management •Awareness of significance of a goal cnt •When creating one’s achieving mentality, personality development in childhood is important •Mother- baby relationship (positive thinking-encourage) •Father-baby (authority- discourage) • Psychological theories •Theory of Dynamic Personality – Daniel Lerner •Work – The Passing of traditional Society §Examined facts that led to development in middle east countries §Augment- dynamic personality creates entrepreneurship §He used the concept of empathy to introduce the characteristics of dynamic personality §Empathy is the internal mechanism of an individual’s ability to change according to dynamic environment • cnt •Ability to internalize one’s achievement/ success and modernize his/her personality •This is a psychological mechanism •It can be seen as; • Projection • introjections •Projection – building up the mind to adopt new situation, thinking of others as same cnt •Introjections – accept new situation but remove the ability to adopt •Social changed fact such as urbanization, modernization, communication, technology influence to create dynamic personality • Theory of Withdrawal of Status Respect – Everett Hagen •Everett Hagen’s argument is that certain social changes are cause of psychological changes in a group or in an individual of the society. •When members of a given social group perceive that they are not respected by the dominant groups in society, this triggers a personality change (creativity) that encourages entrepreneurial behaviors (Dana, 1995). •He believes that the initial condition leading to eventual-entrepreneurial behavior is the loss of status by a group of collectivity. •According to Hagen loss of status can occur in one of the four ways- cnt 1.when a formerly high-status group is displaced by a new group with better technology 2.when the symbols of a social group are denigrated due to some change in attitude by the elites 3.when inconsistencies arise between the status symbols of a group and their actual economic reality (e.g., when the stories of elders reflect a more favorable past than the present 4.a lowering of status due to immigration to another society outcomes or reactions of the loss of status •Retreatism •Ritualism •Innovation •Reformism •Rebellion •Among these reactions, retreatism is important for entrepreneurship. Because retreatism is characterized by psychological repression of the trauma associated with the status loss. cnt •This psychological repression is developed by mothers in the socialization process. It goes generation to anther. •criticism has centered on the long period of time- as much as five or more generations are required for the withdrawal of status respect to result in the emergence of entrepreneurship. Socio-cultural theories •Theory of prismatic society- Fred W Riggs •Work- Administration in Developing Countries •Argument- the nature/structure of society creates entrepreneurship •Society nature/structure can be seen as; 1.Fused society 2.Diffracted society 3.Prismatic society Fused society •Bourgeoisie class rule the society •There is no opportunity to social mobility •Bourgeoisies are the dominant group in society •Lack of innovation •Eg. Traditional Asian societies • Diffracted society •This is an open society •High Individual mobility •Rules and regulations encourage entrepreneurs to growth •Individual progress is evaluated •Eg. Western societies • • Prismatic society •Both fused and diffracted characteristics are consisted •There are limited means to mobility (caste, ethnicity) •Non bourgeoisies in society achieve mobility §This entrepreneur introduced as, pariah entrepreneur §Also, aristocrats in this society ten to invest §But they utilize profit to keep their power §Entrepreneurs are controlled, by imposing rules, regulations §But entrepreneurs are needed to aristocrats’ survive § • • • Economic theories- Schumpeter’s Theory of Innovation •Entrepreneurship and economic development are interdependent. Economic development takes place when a country' real national income increases overall period of time wherein the role of entrepreneurs is an integral part. •Schumpeter’s theory of entrepreneurship is a pioneering work of economic development. Development in his sense, implies that carrying out of new combination of entrepreneurship is basically a creative activity. •Schumpeter believes that creativity or innovation is the key factor in any entrepreneur’s field of specialization. •He argued that knowledge can only go a long way in helping an entrepreneur to become successful. •He believed development as consisting of a process which involved reformation on various equipment’s of productions, outputs, marketing and industrial organizations. •However, Schumpeter viewed innovation along with knowledge as the main catalysts of successful entrepreneurship. •He believed that creativity was necessary if an entrepreneur was to accumulate a lot of profits in a heavily competitive market. The concept of innovation embraces five functions: • •1. Introduction of a new good •2. Introduction of a new method of production •3. Opening of a new market •4. Conquest of a new source of supply of raw materials and •5. Carrying out of a new organization of any industry • According to Schumpeter •Development is not an automatic process, but must be deliberately and actively promoted by some agency within the system. Schumpeter called the agent who initiates the above as entrepreneur •He is the agent who provides economic leadership that changes the initial conditions of the economy •By nature he is neither technician, nor a financier but he is considered an innovator •Entrepreneurship is not a profession or a permanent occupation and therefore, it cannot formulate a social class like capitalist • Features of Schumpeter Theory •High degree of risk and uncertainty in Schumpeterian World •Highly motivated and talented individual •Profit is merely an part of objectives of entrepreneurs •Progress under capitalism is much slower than actually it is •It is leadership rather than ownership which matters. •