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The Entrepreneur
THEINTACTFRONT13 JUN 2019 3 COMMENTS
An entrepreneur is an individual who creates a new business, bearing most of the risks and
enjoying most of the rewards. The entrepreneur is commonly seen as an innovator, a source of
new ideas, goods, services, and business/or procedures.
Entrepreneurs play a key role in any economy. These are the people who have the skills and
initiative necessary to anticipate current and future needs and bring good new ideas to market.
Entrepreneurs who prove to be successful in taking on the risks of a startup are rewarded with
profits, fame and continued growth opportunities. Those who fail, suffer losses and become
less prevalent in the markets.
• An entrepreneur is an individual who creates a new business, bearing most of the risks and enjoying
most of the rewards.
• An entrepreneur combines capital, land, and labor to manufacture goods or provide services through
the formation of a firm.
• In a market full of uncertainty, it is the entrepreneur who can actually help clear up uncertainty, as he
makes judgments or assumes the risk.
• Entrepreneurship is high-risk, but also can be high-reward as it serves to generate economic wealth,
growth, and innovation
Entrepreneurship is one of the resources economists categorize as integral to production, the

other three being land/natural resources, labor and capital. An entrepreneur combines the first
three of these to manufacture goods or provide services. They typically create a business plan,
hire labor, acquire resources and financing, and provide leadership and management for the
business.
Entrepreneurs commonly face many obstacles when building their companies. Three that many
of them cite as the most challenging are: overcoming bureaucracy, hiring talent and obtaining
financing.
Given the riskiness of a new venture, the acquisition of capital funding is particularly
challenging, and many entrepreneurs deal with it via bootstrapping: financing a business using
methods such as using their own money, providing sweat equity to reduce labor costs,
minimizing inventory and factoring receivables.
While some entrepreneurs are lone players struggling to get small businesses off the ground on
a shoestring, others take on partners armed with greater access to capital and other resources.
In these situations, new firms may acquire financing from venture capitalists, angel investors,
hedge funds, crowdsourcing or through more traditional sources such as bank loans.
Entrepreneurs Impact the Economy

In economist-speak, an entrepreneur acts as a coordinating agent in a capitalist economy. This
coordination takes the form of resources being diverted toward new potential profit
opportunities. The entrepreneur moves various resources, both tangible and intangible,
promoting capital formation.
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In a market full of uncertainty, it is the entrepreneur who can actually help clear up uncertainty,
as he makes judgments or assumes the risk. To the extent that capitalism is a dynamic profit-
and-loss system, entrepreneurs drive efficient discovery and consistently reveal knowledge.
Established firms face increased competition and challenges from entrepreneurs, which often
spurs them toward research and development efforts as well. In technical economic terms, the
entrepreneur disrupts course toward steady-state equilibrium.
Entrepreneurs Help Economies

Nurturing entrepreneurship can have a positive impact on an economy and a society in several
ways. For starters, entrepreneurs create new business. They invent goods and services, resulting
in employment, and often create a ripple effect, resulting in more and more development. For
example, after a few information technology companies began in India in the 1990s, businesses
in associated industries, like call center operations and hardware providers, began to develop
too, offering support services and products.
Entrepreneurs add to the gross national income. Existing businesses may remain confined to
their markets and eventually hit an income ceiling. But new products or technologies create
new markets and new wealth. And increased employment and higher earnings contribute to a
nation’s tax base, enabling greater government spending on public projects.
Entrepreneurs create social change. They break tradition with unique inventions that reduce
dependence on existing methods and systems, sometimes rendering them obsolete.
Smartphones and their apps, for example, have revolutionized work and play across the globe.
Entrepreneurs invest in community projects and help charities and other non-profit
organizations, supporting causes beyond their own. Bill Gates, for example, has used his
considerable wealth for education and public health initiatives.
Entrepreneurial Ecosystems
There is research that shows high levels of self-employment can stall economic development:
Entrepreneurship, if not properly regulated, can lead to unfair market practices and corruption,
and too many entrepreneurs can create income inequalities in society. Overall, though,
entrepreneurship is a critical driver of innovation and economic growth. Therefore, fostering
entrepreneurship is an important part of the economic growth strategies of many local and
national governments around the world.
To this end, governments commonly assist in the development of entrepreneurial ecosystems,

which may include entrepreneurs themselves, government-sponsored assistance programs and
venture capitalists; they may also include non-government organizations, such as
entrepreneurs’ associations, business incubators, and education programs.
For example, California’s Silicon Valley is often cited as an example of a well-functioning

entrepreneurial ecosystem. The region has a well-developed venture capital base, a large pool
of well-educated talent, especially in technical fields, and a wide range of government and non-
government programs fostering new ventures and providing information and support to
entrepreneurs.
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Emergence of
Entrepreneurial classes
Ancient India was known across the world for its affluence and wealth. Traders from all over
the world travelled to India to take part in this affluence. Be it the Mughals, the Portuguese, the
Turks or the British – all of them ventured into Indian boundaries for various financial reasons.
While over a long period of time, the entrepreneurial drive among Indians was notably absent,
modern India has risen up to the task again. Even those who have little or no entrepreneurial
experience are choosing to take part in an entrepreneurship management course to gain the
theoretical knowledge as well as practical experience before starting their entrepreneurial
journey.
It is notable how Indian entrepreneurship is seeing a rise these days. The country stands third
in the list of countries with fastest growing list of start-ups. The first two countries are the USA
and the UK. The digitization of India has led to an ever-increasing interest in the online market.
Both urban and rural India are seeing a boom in the way internet-based apps and products are
interacting with the people.
Factors Leading to Increase in Entrepreneurship
1. Encouraging schemes by the government authorities
Government of India is also encouraging the interest in entrepreneurship. It has launched a

‘start-up India’ campaign that provides support to entrepreneurial initiatives. Schemes have
been floated to promote world-class innovation hubs and self-employment opportunities for
the youngsters. The focus is especially high in technology driven areas. The government of
India realises the potential that entrepreneurship holds in giving boost to the economy and
uplifting the financial status of the people of the country. Such faith in entrepreneurship from
the highest body in India leads to development of interest in this field among the youth of the
country.
2. The Rise of Technology
Technology has led to India becoming a software power. It has the second highest number of
internet users in the world. In addition to this, the uncertainty regarding jobs is fuelling people’s
interest in having their own business. Industries are in constant need for innovation to move
forward and start-ups are coming up in fields like artificial intelligence and machine learning
to help businesses solve their inherent issues or to bring in more efficiency.
3. The Female Entrepreneurs
The entrepreneurial wave is also being driven by women entrepreneurs who are carving a niche
for themselves. Start-ups like Zivame, Kaaryah, YourStory and POPxo have become successful
ventures. Led by women founders, they are answering the market needs in their respective
segments.
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Challenges for Indian Entrepreneurs
1. Raising Funds for the Business
The challenge for any start-up lies in raising funds for the business. To do so, they need to have
a dependable business plan and a strategy on how they want to enter the market. Start-ups get
funds from venture capitalists once they have convinced them about the venture’s potential for
success.
2. Knowledge on How to Run a Business
As simple as it may seem, any venture needs to have a good plan to begin with. Various
business schools have started entrepreneurship courses to answer the requirements of interested
students who seek to become an entrepreneur. These courses help the students get their
expectations right and prepare themselves for a career in entrepreneurship.
3. Keeping Up with Technology
This point is important for start-ups in the technology sector. It is important for them to keep
track of the latest technology and stay ahead of the curve. These days, technological
innovations are happening every day leading to technology getting obsolete quickly. They need
to keep on improving their products and give new and innovative products to their customers.
The innovations need to be useful for the customers. They need to have good research backing
their product launches. If the product does not answer any need gap in the market, then it will
not be successful in the market even if there is cutting edge technology behind it.
4. Quality of Human Resources
Any business’ success is dependent on the people who work for it. It is critical to have the right
mix of people. These people should be trained for their job profiles. For example, a marketing
manager should understand the industry and its customers and accordingly plan marketing
campaigns. They should also have practical experience for performing their jobs properly.
Additionally, they should have the right attitude and keen interest in doing their work to the
best of their abilities.
Entrepreneurship thrives in a conducive environment that facilitates the growth of business. It

is crucial for a booming economy to have entrepreneurs since they do not seek jobs but are the
job creators for the rest of the people. With the right support, India’s entrepreneurship story
can lead to its economic growth as well as prosperity of its people.
Theories of Entrepreneurship
1. Schumpeter’s Theory of Innovation:

Joseph Schumpeter propounded the well-known innovative theory of entrepreneurship.
Schumpeter takes the case of a capitalist closed economy which is in stationary equilibrium.
He believed that entrepreneurs disturb the stationary circular flow of the economy by
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introducing an innovation and takes the economy to a new level of development. The activities
of the entrepreneurs represent a situation of disequilibrium as their activities break the routine
circular flow.
Innovations of entrepreneurs are responsible for the rapid economic development of any
country.
Talking about innovation, he referred to new combinations of the factors of production,

Schumpeter had assigned the role of innovator to the entrepreneur, who is not a man of ordinary
managerial ability, but one who introduces something entirely new.
Innovation could involve any of the following:
1. Innovation of new products.

2. Innovation in novel methods or processes of production.
3. The opening up of a new market.
4. Entrepreneurs might find new source of supply of raw materials
5. Innovation in management. This means reorganization of an industry.
Let us try to understand the meaning of different facets of the term innovation.
The introduction of new product means the product which the consumers have not seen and is
of a new and better quality and utility. A new method of production refers to a novel process
not yet been used in manufacturing and commercial production. This may increase the
productivity and lower cost of production.
The discovery of a new market means a new market which may have existed before but was
not entered by the enterprise for commercial purposes. A new source of raw material similarly
refers to a source or a place which has not been commercially exploited by the enterprises
before. Innovation in management refers to reorganization and reconciliation of the position of
the enterprise in the industry by building a monopoly like control or dismantling existing
monopoly of others in the industry.
Schumpeter was very explicit about the economic function of the entrepreneur, whom he
considered as the prime mover in economic development and the entrepreneur’s task is to
innovate or carry out new combinations.
Schumpeter had differentiated between invention and innovation. We should understand that
invention refers to creation of new materials and innovation refers to application of new
materials into practical use in industry. Similarly, there is a distinction between an innovator
and an inventor. The inventor is the one who invents new materials and new methods. On the
other hand, the innovator is the one who utilizes these inventions and discoveries in order to
make new combinations.
Bringing about innovations is the main task of the entrepreneur and not the maintenance of the
enterprise. Entrepreneurs dream and have a willingness to establish a private kingdom. They
enjoy creating and getting things done. These “innovating entrepreneur” has played an
important role in the rise of modem capitalism.
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Criticisms:
Schumpeter’s theory has been subjected to the following criticisms:
1. Critics feel that the theory over emphasized on innovative functions of the entrepreneur. It ignored
the organizing aspects of entrepreneurship.
2. Schumpeter had completely ignored the risk-taking function of the entrepreneur, which cannot be
ignored. Whenever an entrepreneur develops a new combination of factors of production, there is
enough risk involved.
3. The theory is more applicable in developed countries only. In developing countries there is a paucity
of innovative entrepreneurs.
4. The theory does not provide the explanation as to why few countries have more entrepreneurship
talent than others.
Despite of all the above criticisms Schumpeter’s theory is considered as a landmark in the
expansion of entrepreneurship theories.
2. Max Weber’s Theory of Social Change (Emphasis on Impact of Religion):

Max Weber advocated a sociological explanation for the growth of entrepreneurship in his
theory of social change. He felt that religion had a profound influence on the growth of
entrepreneurship. The religious belief and ethical value associated with the society plays a vital
role in determining the entrepreneurial culture.
Max Weber opined that the entrepreneurial energies of a society are exogenously generated
and supplied by religious believes. Some religions profess the basic values to earn and acquire
money whereas some religions put less emphasis on it. In order to understand the gist of Max
Weber’s theory we need to understand few fundamental points of the theory.
In his theory spirit of capitalism is a fundamental concept. Capitalism refers to the economic
system where market forces of demand and supply are allowed to play freely. As economic
freedom and private enterprises are promoted in capitalism, the entrepreneurism is eulogized
and entrepreneurial pursuits are encouraged. Spirit of capitalism promotes the entrepreneurs to
engage in entrepreneurial pursuits and earn more and more profits.
The urge to acquire money and profits drives the individuals to become entrepreneurs. The
spirit of capitalism will be widespread in the society that favours capitalism. Another associated
concept was that of adventurous spirit which refers to the impulsive force that influences and
promotes entrepreneurism. Weber felt that the belief systems of Hinduism didn’t encourage
entrepreneurship.
Hinduism laid less emphasis on wealth accumulation, and material life. The Hinduism didn’t
profess the spirit of capitalism and was thus an obstacle in the promotion of entrepreneurship.
Weber was of the opinion that the Protestant ethic provided the mental attitude in a society that
promotes spirit of capitalism and favours entrepreneurship.
The rate of industrial growth depends upon the values professed by the religion of the society.
The Protestants had advanced at a faster rate in establishing capitalism in Europe owing to the
value system professed by Protestant ethic. Protestant ethic granted them the rational economic
attitude, accumulating assets, and permitted them to take pleasure in the material life.
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Criticisms:
Max Weber had tried and made a commendable contribution in explaining the growth of
entrepreneurship.
But, his theory has been challenged and criticized by many researchers and scholars on
the following grounds:
1. The theory is based on unrealistic and invalid assumptions.

2. The theory has been found empirically invalid.
3. Max Weber has been criticized by many sociologists on his view on Hinduism and entrepreneurship.
The rapid expansion of entrepreneurship in India in the post-independence period disproves that
Hinduism is averse to the spirit of capitalism and to adventurous spirit.
4. The views on Protestant ethic were also not completely correct. Capitalism has flourished in regions
where Protestant ethic is not present.
3. The Uncertainty-Bearing Theory of Knight:

Frank H. Knight (1957) in his book Risk, Uncertainty and Profit regards profit of the
entrepreneur as the reward of bearing non-insurable risks and uncertainties. Entrepreneurship
is genuinely associated with risk bearing. Knight had distinguished risk into insurable risks and
non-insurable risks.
Let us try to understand the underling concept of risks.
There are certain risks that are measurable and the probability of such risk can be statistically
estimated and hence such risks can be insured. Example of insurable risks include theft of
commodities, fire in the enterprise, accidental death etc. On the other hand, there are certain
risks which cannot be calculated.
The probability of their occurrence cannot be statistically ascertained. Such risks include risks
associated to changes in prices, demand and supply. These risks are non-insurable. Prof. Knight
opined that the profit is the reward for bearing the non-insurable risks and uncertainties.
Uncertainty-bearing is one of the most vital functions in a dynamic economy. The entrepreneur
bears the uncertainty involved in the enterprise. The expectation of profit is the supply price of
the entrepreneurial uncertainty bearing exercise. In a state of economy (competitive) where
there is no risk, every entrepreneur will have a minimum supply price.
If the reward allocated to the entrepreneur is below it, the entrepreneurs will abstain from
providing their entrepreneurial services. The existence of uncertainty tends to raise the
minimum supply price. The entrepreneurs expect a level of profit for bearing the uncertainty.
The salient points of Knight’s theory include:
1. According to the theory, the entrepreneur earns pure profits for bearing the uncertainty.
2. The probability of uncertainty or non-insurable risks cannot be statistically estimated.
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3. Entrepreneurs undertake risks of varying degrees according to their ability ad inclination. The theory
suggests that the more risky the nature of enterprise, the higher level of profit earned by the
entrepreneurs.
4. Profit is the reward of the entrepreneur for bearing uncertainties and risks. Hence, it should be a part
of the normal cost.
5. The reward of the entrepreneur is uncertain. Entrepreneur guarantees interest to lender of capital,
wages to workers and rent to the landlord.
6. The level of uncertainty in business can be reduced by applying the technique of consolidation. The
total level of uncertainty can be reduced by pooling individual instances.
Criticisms:
F.H. Knight’s theory is one of the most sophisticated theories to explain supply of
entrepreneurship based on profit. But, the theory suffers from certain drawbacks as pointed by
the critics.
1. The role of an entrepreneur has not been elaborately provided by the theory. The entrepreneur’s
activity has been restricted to uncertainty bearing. Modern business activities are different. Often,
there is a dichotomy between ownership and management. These factors have not been taken into
consideration.
2. The uncertainty-bearing theory discussed the concept of profit in a vague way. The exact estimation
of profit for the entrepreneur has not been provided in the theory.
3. Profit as a residual income of the entrepreneur has been criticized.
4. Critics feel that uncertainty-bearing should not be treated like other factors of production like land,
labour and capital. It is a psychological concept and should be treated in a different manner.
4. Theory of Frank Young (Emphasis on Changes in Group Level Pattern):

A Micro-sociological interpretation of entrepreneurship as coined for the theory propounded
by Frank Young emphasizes that the entrepreneurial initiatives are conditioned by group level
pattern. Young rejected the psychogenic interpretations of entrepreneurship. He considered the
solidarity groups responsible for building entrepreneurship.
We shall try to understand his theory by studying the various specific elements attached to this
theory.
Frank Young opined that the entrepreneurial characteristics are observed in clusters, ethnic
groups, occupational groups and groups with political orientation. Entrepreneurism at the
individual level is the manifestation of the group level pattern. Young disapproves the notion
of an entrepreneur working individually. The entrepreneur functions as a member of a group.
The entrepreneurial initiatives and actions are the outcome of the experiences and exposures
of an individual entrepreneur as a member of a particular group, the family background of the
entrepreneur and the manifestation of the general values of the group. The economic problems
faced by the individual entrepreneurs are mitigated by the solidarity of entrepreneurial groups.
The individual entrepreneurs enjoy the confidence of their association with the solidarity
groups which help the individual entrepreneurs to overcome any sort of economic problems.
Frank Young deduced the group level pattern behaviour exhibited by the entrepreneurs on the
basis of his test known as Thematic Appreciation Test (TAT) on groups of entrepreneurs.
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The Young’s theory includes the idea of reactive subgroups. These reactive sub-groups play
an important role in enterprise creation. The reactive groups crop up whenever a group
experiences low status recognition, limited or no access to social networks and have better
institutional resources as compared to other groups in the society at the same level.
5. Economic Theory of Entrepreneurship:

G.F. Papanek (1962) and J.R. Harris (1970) were of the view that economic incentive is the
main factor that influences entrepreneurial activities. Economic gains spontaneously develop
the willingness among the entrepreneurs to undertake diverse entrepreneurial initiatives. The
relationship between an individual’s inner urge and the desired economic gains has a profound
influence in the development of entrepreneurial competencies. Entrepreneurship development
and economic growth takes place whenever certain economic conditions are favourable.
6. Mark Casson Theory (Economic Theory):

Mark Casson’s theory is an original synthesis of other approaches. Mark Casson in his book
‘The entrepreneur- An Economic Theory’, published in 1982, talks about the entrepreneur.
According to Mark Casson the Entrepreneur might be a property developer, a small
businessman or just someone who knows how to ‘turn a fast buck’. His book as expressed by
Mark Casson endeavoured to provide a balanced view on the topic of entrepreneur.
Mark Casson felt that there was no established economic theory of the entrepreneur. Except
for the discipline of Economics, all the social sciences had a definition of entrepreneur. He felt
that there were two main reasons for the non-existence of an economic theory of the
entrepreneur. These reasons were related to the limitations of the two main schools of economic
thought prevalent at that point of time. First reason was that the neoclassical school of
economics made extreme assumptions regarding the access to information.
The second reason was that the Austrian school of economics was committed to extreme level
of subjectivism. This made the formulation of predictive theory of the entrepreneur impossible.
The Mark Casson’s book the theoretical reconstruction proceeds on two fronts. The first is to
recognize that individuals differ not only in their tastes but in their access to information.
Individuals with similar taste but with different information may take different decisions. The
entrepreneur exhibits this phenomenon. The entrepreneur will decide in one way which would
be very different from what everyone else would decide. The entrepreneur considers that the
totality of the information available to him/her with respect to some decision is unique. The
entrepreneur’s perception of the situation has a profound influence on the allocation of
resources. The entrepreneur expects to earn profit from the difference in perception by ‘taking
a position’ vis-a-vis other people.
Many of the predictions of the economic theory of entrepreneurship come from considering
the tactical aspects of the strategy of the entrepreneur. The second area of reconstruction stems
from recognition of the difficulty that is inherent in organizing a market. Mark Casson
suggested that unlike neoclassical assumptions in reality transaction involves a significant
resource cost. It is important for the entrepreneur’s success that the entrepreneur minimizes the
transaction cost incurred in establishing any given volume of trade.
Mark Casson has presented his book on Entrepreneur- An economic theory in fifteen chapters.
Mark Casson had attempted to converge the two different approaches associated with the
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entrepreneurship theory. The functional approach was adopted by the economists and the
indicative approach adopted by economic historians. The entrepreneur is defined as someone
who specializes in taking judgmental decisions about the coordination of scarce resources.
7. Kunkel’s Theory (Emphasis on Entrepreneurial Supply):

John H. Kunkel had built up his theory on the edifice of entrepreneurship supply. He was of
the opinion that the sociological and psychological factors influence the emergence of
entrepreneurs.
Supply of entrepreneurs has a functional relationship with the social, political and economic
structure.
In order to understand Kunkel’s theory, let us understand few concepts associated with his
theory.
In an economy, the supply of entrepreneurship depends on the following structures

existing in the economy:
(i) Demand Structure:
This refers to the demand situation prevailing in the economy. The entrepreneurs expect
rewards for their contributions and their behaviour is influenced by the rewards. The demand
structure of an economy can be enlarged by rewarding the entrepreneurs with material rewards
for their entrepreneurial activities.
(ii) Limitation Structure:
This structure influences the entrepreneurs and other members of a society. The society in this
structure restricts specific activities. The entrepreneurs and the other members come within the
ambit of this structure.
(iii) Opportunity Structure:
This structure is regarded as one of the most significant structure that influences the supply of
entrepreneurs in an economy. This structure includes the existing market structure, the
available managerial and technical skills, information about production techniques, supply of
labour and capital.
(iv) Labour Structure:
This structure relates to the availability of skilled labour willing to work. The labour structure
in influenced by number of factors like the mobility of labour, available alternatives of
employment, level of traditionalism and prevailing work culture.
In Kunkel’s theory, the conditioning procedure is a major determinant of the activities of the
individuals. The behaviour of the individuals is highly subjected to the conditioning procedure
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surrounding the environment of the individuals. To influence and alter the individuals’
activities there is a need to change certain factors of situation that influences the conditioning.
Criticisms:
Kunkel’s theory despite of great recognition is criticized on the following grounds:
1. The theory is based on unrealistic postulates.

2. The different structures that influence supply of entrepreneurship are not that simple.
3. The theory of Kunkel tried not consider the ambiguous concepts like values, personality etc.
8. Hoselitz’s Theory (Emphasis on Marginal Groups):

Hoselitz’s theory emphasized that the cultural factors and the role of culturally marginal groups
in entrepreneurial development. In his theory, Hoselitz had highlighted the importance of the
culturally marginal groups in development of entrepreneurship and their contribution to
economic development of the economy. The marginal groups are the minorities in the society
and they yearn to elevate their conditions and in the process promote economic development.
In several countries the entrepreneurial aptitude are associated to persons of particular socio-
economic classes. The importance and contribution of the culturally marginal groups like
Lebanese in West Africa; Jews in Europe towards the economic development of those regions
reflect the gist of the theory.
Hoselitz opined that the marginal men placed in an ambiguous position and therefore they are
best suited to make creative adjustments in situations of change. They bring about genuine
adaptations in their behaviours. They become entrepreneurs and promote economic
development.
9. Cochoran’s Theory:
Thomas Cochran in his theory had tried to discuss the supply of entrepreneurship from the
sociological point of view.
We can understand the crux of his theory by discussing some of the principle elements of his
theory.
Cochran had suggested that the cultural values of a society, social expectations and role
expectations play an important role in determining the supply of entrepreneurs. The basic
problems associated with economic development include non-economic issues. The social
factors are responsible in determining the entrepreneurial dynamism and the supply of
entrepreneurs.
As far as the entrepreneur is concerned, Cochran opined that the entrepreneurs are not
extraordinary persons or super normal persons and they are not abnormal individuals deviant
from the society. Rather the entrepreneurs represented role models of the society. An
entrepreneur represents a society’s model personality.
The entrepreneur plays an important social role. The role played by the entrepreneur is highly
influenced by the model personality that crops up depending on the social conditioning. The
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role of an entrepreneur is defined by the defining group in corporate world which include the
members of board of directors and other top officials.
Cochran was of the opinion that the intrinsic character and behaviour of the executive is highly
dependent and conditioned by the type of childbearing and schooling. Thus all social and
cultural factors play an important role in influencing the expectation levels, personality,
behaviour of everyone in the society and entrepreneur’s role specially.
The level of dynamics associated with entrepreneurial depends on social factors. These factors
result in major changes. The model of Cochran was built on American experience of
entrepreneurial dynamism. In the nineteenth century, American economy had experienced
major changes as a result of the dynamism exhibited by the entrepreneurs.
Thomas Cochran held the view that the factors having a profound influence on the performance
of the entrepreneurs include- First, the attitude of a person towards his/her own occupation.
Second, the role expectations conceived and expected by the sanctioning group. And third, the
operational requirements of the concerned job.
Criticisms:
Cochran’s theory despite having earned high appreciations has been criticized on the
following counts:
1. The theory doesn’t provide a satisfactory explanation of the supply of entrepreneurs in an economy.
2. The theory concentrates only on the social factors and their impact.
3. The theory ignores the influence of important elements like risk, profit and innovation.
4. The multiple roles associated with the entrepreneur have not been focused in the theory.
10. E. E. Hagen’s Theory (Emphasis on Withdrawal of Status Respect):

Hagen in his theory had accredited the withdrawal of status respect of a group as the starting
point for entrepreneurship development process. Before we discuss the concept of withdrawal
of status respect let us try to consider the various crucial facets of the theory.
The theory is based on a general model of the society. His theory viewed the entrepreneur as a
trouble shooter who contributes to economic development. The creativity of the entrepreneur
brings about social transformation and economic development. Economic growth is associated
with the social and political changes. He didn’t encourage the entrepreneurs to imitate other’s
technology.
Hagen had ascribed the genesis of entrepreneurship to withdrawal of status respect of a group.
The social group that experiences the withdrawal of status respect engulfs itself into aggressive
entrepreneurism. In such a situation the status loosing group and the members of status loosing
group endeavour to regain their status by undertaking rigorous entrepreneurial drive.
Hagen had suggested the events that could create as well as indicate withdrawal of status
respect of a social group. First, dislodgment of a traditional elite group from its prior status,
Second, defamation of valued symbols through some change in the attitude of the superior
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group. Third, Unpredictability of status symbols in the changed allocation of economic power.
Fourth, when social group doesn’t enjoy the expected status when it migrates to a new society.
There four possible reactions to the withdrawal of status respect which relates to four
different personality types:
(i) The retreatist – An individual who works in the society but is indifferent to the work and
position.
(ii) The ritualist – An individual who works in the manner accepted and approved by the society
but has no hopes of improving his/her position.
(iii) The reformist – An individual who fights against the injustice and tries to rebels against
the established society in order to form a new society.
(iv) The innovator – An individual who endeavours to bring about new changes and utilizes all
opportunities. This personality reflects the personality of an entrepreneur.
Criticisms:
1. The theory lacks general application. It is not always true that all the social groups have behaved in
the manner as advocated in the theory.
2. The theory ignores the various other factors accountable for development of entrepreneurship.
11. Leibenstein’s Theory (Emphasis on X-Efficiency):

The concept of X-efficiency was introduced by Harvey Leibenstein a noted economist in1966
in his article titled “Allocative efficiency vs. X-efficiency”. This is also referred to as X-
inefficiency. In general X-inefficiency refers to the difference between the optimal efficient
behaviour of business in theory and the observed behaviour is practice which occurs owing to
different factors.
X-efficiency refers to the effectiveness with which a given set of inputs are used to produce
outputs. If a particular firm is producing the maximum output it can, given the resources it
employs with the best available technology, it is said to be technical-efficient. X-inefficiency
occurs when technical-efficiency is not achieved. Whenever an input is not used effectively the
difference between the actual output and the maximum output attributable to that input is a
measure of the degree of X-efficiency.
Harvey Leibenstein had mentioned that for allocative efficiency the whole economy was
considered whereas in case of X-efficiency just specific companies and industries are to be
considered.
X-efficiency arises either because the firm’s resources are used in the wrong way or because
they are wasted, that is, not used at all.
The entrepreneur has been entrusted two roles; first the role of a gap filler and second an input
completer. The production function usually has certain deficiencies. These deficiencies and
gap arise because all the factors of production function cannot be marketed. The entrepreneur
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has been entrusted the job to fill the gaps in the market. The second role of the entrepreneur is
input completion. The entrepreneur has to mobilize all the available inputs in order to improve
the efficiency of existing production methods.
Leibenstein advocated two types of entrepreneurship. First type is the ‘Routine

entrepreneurship’ which involves the important functions of management of business. Second
type is that of the ‘New entrepreneurship’ which involves innovative entrepreneurship.
Criticisms:
The Leibenstein’s theory has been often compared with the neoclassical views.
The theory has many novel contributions but has been criticized on following counts:
1. The exact influence which the X-efficiency has on output of an organisation cannot be determined.
2. The theory is less predictable as compared to normal theories.
12. M. Kirzrier’s View on Entrepreneurship:

Israel Meir Kirzner, an American economist has made remarkable contributions towards
entrepreneurship. He has contributed many books. His ideas and theory on entrepreneurship
can be understood by the going through his book ‘Competition and entrepreneurship’ published
in 1973. There are six chapters. The second chapter is devoted to discuss the topics like nature
of entrepreneurship, the different facets of entrepreneurs, entrepreneurial profits.
We shall try to understand the basics features enshrined in his ideas.
The basis of Kirzner’s idea of entrepreneurship is spontaneous learning. The simplest situation
in which spontaneous learning can occur is a Crusoe situation. Further, Kirzner calls the state
of mind that enables spontaneous learning to occur alertness.
Kirzner introduces the notion of the pure entrepreneur by saying that there are two distinct
ways in which this notion enters the analysis of the market process: First, by means of contrast
with Robbinsian economizers, and Second, through the alertness.
According to Kirzner, the pure entrepreneur is “a market participant whose decisions are
entirely incapable of being subsumed under the category of Robbinsian economizing.” And the
pure entrepreneur is “a decision-maker whose entire role arises out of his alertness to hitherto
unnoticed opportunities.”
Kirzner’s notion of entrepreneurship as equilibrating combines three ideas. The first is that
subconscious learning is equilibrating to the isolated actor. The second is that subconscious
learning about arbitrage opportunities is equilibrating in markets. The third is that subconscious
learning would lead to a general equilibrium if there were no changes in the non-entrepreneurial
determinants of demand and supply.
13. Baumol’s View on Entrepreneurship:

William J. Baumol a noted economist had made significant contributions towards the theory
of entrepreneurship. He has many articles like ‘Entrepreneurship in Economic Theory’,
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‘Entrepreneurship: Productive, Unproductive, and Destructive’ to his credit that reflects his
notion on entrepreneurship.
Baumol (1968) discussed role of entrepreneur. He felt that the role of the entrepreneur is vital
to economic growth. Baumol’s approach to entrepreneurship within the economy shows that
the entrepreneur is basically nonexistent in the models of economics. He stated that the
entrepreneur has been read out of the model because the economic models are based on well-
defined variables like output and price. There is no scope for analyzing the issues related to
like inventiveness, cleverness, ambition of the entrepreneur in the models. He opined that
theories won’t be able to portray the function of entrepreneurial activity.
Again in an article Baumol laid out a simple hypothesis. He stated that the total supply of
entrepreneurs varies across the societies. Moreover, the productive contribution of the society’s
entrepreneurial activities also varies due to allocation of their activities into productive and
unproductive activities.
14. Peter Drucker’s View on Entrepreneurship:

Peter Ferinand Drucker was an Austrian born American multifaceted management consultant,
author, professor who described himself as a social ecologist. Drucker’s book Innovation and
Entrepreneurship published in 1985 is a great contribution. Peter Drucker regards the definition
of J. B. Say on entrepreneur. J.B. Say was of the opinion that the “entrepreneur shifts economic
resources out of an area of lower and into area of higher productivity and greater yield.”
Peter Drucker viewed the entrepreneur as a unique agent of change. Drucker writes that “the
entrepreneur always searches for change, responds to it, and exploits it as an opportunity.”
In his book “Innovation and Entrepreneurship”, Peter Drucker offers guidelines on how
entrepreneurs can become innovative. Drucker opined that successful innovation practices are
result of systematic hard work. Drucker introduces systematic innovation as a framework for
exploiting innovative opportunities.
He also considered that the entrepreneurial society is the outcome of innovative

entrepreneurship combined with government facilitation.
Drucker takes the instance of the United States of America as a successful entrepreneurial
economy. He has separately dealt with three branches- existing business, public service
institutions, and new ventures.
Opportunity Analysis
Be it individuals or corporate, opportunities are always available. As an individual, you have

the opportunity to become a sports professional or a management professional. The type of
profession you choose, and the variables that you weigh for making your decision, is the
process known as opportunity analysis.
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Just like you look at career opportunities, and then decide to follow one career of your choice,
companies too have many opportunities lying in front of them. By the use of opportunity
analysis, the company can make the right decision, thereby advancing in its goal of earning
more profits.
An example of opportunity analysis is the “Stay healthy” frenzy which has gripped many
nations. More and more people are realizing that by staying healthy they can have a more
enjoyable life as compared to being obese or having the wrong habits. This resulted in the rise
of organic farming. Fast food chains like Subway and others came up just to give the customers
“Healthy food” like they wanted. Nike and Adidas focused exclusively on fitness. Fitness
equipment shops opened up and business of Gymnasiums, Yoga, Zumba etc boomed.
Because of a simple opportunity in the business of “Staying healthy”, so many products from
so many different sectors were formed. Just so that businesses could profit from this
opportunity. This is how opportunity analysis works.
Advantages of opportunity analysis
• Growth of company: As more and more opportunities are explored and established, the company will
grow.
• Better margins: As the company starts growing because of capitalizing on new opportunities, it will
start having better margins because it has entered new segments.
• Brand building: With better margins and a faster growth, company can easily invest in brand building
activities and get a better brand reputation then ever.
• Economies of scale: As the business is growing all round, it achieves economies of scale with the fixed
costs remaining the same and only the variable cost growing. Thus, the reputation and margins keep
on increasing.
However, although there are advantages, there are several disadvantages of opportunity
analysis as well.
• Taking the wrong decisions: As an individual, many a times we take wrong decisions in the
stock markets when we invest in a poor stock just because we are greedy or we dreamt of too much
growth. A similar thing can happen in case of opportunity analysis, wherein a company invests heavily
in a product which probably will not work in the market.
• Loss of reputation: A successful opportunity can lead to building reputation. On the other hand, an
opportunity which failed, can affect the company’s reputation in a negative manner also.
• Dead investments: If opportunity analysis is not done properly, and you invest in a product which
does not grow, then the investment is also a dead investment and does not do much in terms of ROI.
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Although there are several disadvantages of opportunity analysis, the same can be ignored
because no company can survive without moving forward, and for moving forward, it has to
keep analysing more and more opportunities.
The best way to analyse and opportunity and find out whether it will be profitable in the long
term or not, is a 360 degree feedback. Take feedback from your employees,
distributors, channel partners, customers as well as the management team so that the right
decision can be taken for any opportunity which has cropped up.
For the success of opportunity analysis, the following factors need to be considered.
• Competitive analysis: What if the opportunity you are thinking has profitable, already has many
unorganized players and hence wont be profitable in the long run? You need to find out the complete
competitive landscape to conduct opportunity analysis properly and for its success in the near future.
• Demand forecasting: An opportunity analysis will not be complete unless and until you forecast the
probable demand for the product. You can’t invest in a product for which you don’t know the ROI.
• Targeted marketing: Once the opportunity has been analysed, then you need to develop a
targeted marketing plan. This is because each customer is different and hence the segment which you
are going to target will be different too.
• Market research: Market research is an intrinsic part of opportunity analysis as it gives insight in the
customers mind and whether or not the customer will adopt this product. It can also give further ideas
and features / attributes which can be added to the end product.
Overall, the generation of opportunities is important for any firm. If a firm thinks that there are
no opportunities to expand in the market, then it is not conducting a 360 feedback. Any
company has employees and channel partner who know a lot about the market. Feedback from
these people will always lead to the development of the company.
External Environment
Analysis: PESTEL
THEINTACTFRONT21 APR 2018 5 COMMENTS
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External environment analysis is an important part of strategic management.
PESTEL Analysis
PESTEL analysis includes Political, Economic, Social, Technological, Environmental and
Legal analysis. It is an external environment analysis for conducting a strategic analysis
or carrying out market research. It offers a certain overview of the varied macro-
environmental factors that the company has to consider.
PESTEL
• Political factors analysis is related with how and to what extent a government interferes
in the economy. Specifically, political factors include tax policy, labor law, environmental
law, trade restrictions, tariffs, and political stability. Political factors may also be related
with goods and services which the government allows (merit goods) and those that the
government does not want to allow (demerit goods). The government can have a great
influence on the overall health, education, and infrastructure of a country.
• Economic factors contain factors such as economic growth, interest rates, exchange
rates and the inflation rate. These factors may have an influential effect on how the
businesses operate and make decisions. For example, interest rates can affect the firm’s
cost of capital and thereby influence business growth and expansion. Exchange rates can
affect the costs of export and the supply and price of imports.
• Social factors contain issues such as health consciousness, population growth rate, age
distribution, career attitudes and emphasis on safety. Trends in the social factors may
affect the demand for a company’s goods and how the company operates. For example,
ageing population leads to smaller and less-willing workforce (and increases the cost of
labor). Moreover, companies may change various management strategies in sync with the
social trends (such as recruiting more females).
• Technological factors include ecological and environmental aspects, such as R&D
activity, automation, technology incentives and the rate of technological change. They can
determine barriers to entry, minimum efficient production level and influence outsourcing
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decisions. Furthermore, technological shifts can affect costs, quality, and lead to
innovation.
• Environmental factors are the conditions such as weather, climate, and climate change,
which may especially influence tourism, farming, and insurance sectors. Growing
awareness to climate change are increasing the interest in how companies operate and
what products they offer; it is both creating new markets and damaging the existing ones.
• Legal factors include laws pertaining to discrimination, consumer affairs, antitrust,
employment, and health and safety. These factors can affect the operations, costs, and
the demand for the products. Legal factors can also influence the brand value and
reputation of a company. They are increasingly paid more attention to in the current
decade.
While in external analysis, three correlated environment should be studied and analyzed:
• immediate / industry environment

• national environment
• broader socio-economic environment / macro-environment
Examining the industry environment needs an appraisal of the competitive structure of

the organization’s industry, including the competitive position of a particular organization
and it’s main rivals. Also, an assessment of the nature, stage, dynamics and history of the
industry is essential. It also implies evaluating the effect of globalization on competition
within the industry. Analyzing the national environment needs an appraisal of whether
the national framework helps in achieving competitive advantage in the globalized
environment. Analysis of macro-environment includes exploring macro-economic,
social, government, legal, technological and international factors that may influence the
environment. The analysis of organization’s external environment reveals opportunities
and threats for an organization.
Strategic managers must not only recognize the present state of the environment and their
industry but also be able to predict its future positions.
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Competitive factors
1. Understand Core Products and Services

Every successful business begins with a product or service. When you move your company
into analytics, you should begin with this core. Trying to collect data on the world creates a
potentially endless loop of information that you cannot pull back into anything meaningful.
Instead of looking at everything your business or a competitor does, focus on the core and what
matters most to creating and building on success. This starting point defines the direction for
the research and allows your analysis to take shape.
2. Long- and Short-Term Trends

The information that matters most depends on many factors within your industry. For a
company emerging into a new niche, some long-term trends in the industry may not matter as
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much as those short-term trends from more recent quarters. Conversely, examining longer-term
data should not create panic if a temporary event creates an alarming data spike. Smart
companies look at both long- and short-term trends, but dig deeper to examine the context
within which those changes occur. By contextualizing competitive analysis within real-world
circumstances, your organization can develop a more complete picture of the landscape in
which you operate.
3. Focus on the Right Competitors

Similarly, overreacting to information about other companies in the same market space may be
counterproductive when those companies do not compete directly with you. Identifying the
competitors inside what Forbes calls the addressable market is key. If your company operates
in brick-and-mortar locations without a heavy online presence, competitors operating outside
of those physical markets have little bearing on your results. E-commerce trends will matter to
anyone working online, but moving in closer to find the competitors penetrating the same
markets makes the difference between effective competitive analysis and spinning your wheels
in a muddy field of data.
4. Keep a Purpose
Smart businesses constantly analyze the competition. But this should never be the end in itself;
rather, companies must maintain a focus on the purpose of the analyses.
As Entrepreneur states, the purposes of competitive analysis should include fostering
strategies to develop a distinct marketing advantage. Collecting data and creating a picture of
the competitive landscape serve as tools in the arsenal, rather than end goals in themselves.
You should use the information you glean from analytics to build forward toward improving
your positions within the competitive market.
5. Be Flexible
While data analysis should aim toward understanding the competitive landscape and building
competitive advantages, this process works best when you build and follow a flexible approach
to what you see. Data may move in directions that do not align with your expectations or current
understanding of the competitive landscape. When surprises pop into the equation, reacting
and adjusting well to the new information places you in the best position to succeed. This may
mean adjusting your strategies, re-assessing who serves as your primary competitive threat, or
even capitalizing on new market opportunities outside your initial business model. Stay nimble
by using multiple data sources, finding success where it presents itself, and moving quickly
when your analysis turns up opportunities for your business.
6. Don’t Act too Hastily

At the same time, bailing out of a sound business strategy based on data emerging from your
current competitive analysis should not be your first reaction. Competitive analysis identifies
emerging and longstanding trends, but often your business strategy is built to withstand some
of what comes out of this. When your organization develops a strategy based on market
research and a firm understanding of itself and its capabilities, knee-jerk reaction to
unfavorable data, or even to data that suggests new opportunities, can push you further from
your goals. At times, a full understanding of the data requires you to make smaller adjustments
while you stay the course.
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7. Move Forward
All of the competitive analysis your company conducts should be part of a forward-looking
strategy. You need to look to the past and present as a way of directing moves into the future:
for both the industry and company. Analytics necessarily focus on historical data as the starting
point; you cannot collect analytical information on what has not yet occurred. But if you remain
mired only in what has been without incorporating the information into a set of goals and
expectations, you will miss out on the full potential of competitive analysis. Instead, take the
historical information you have and identify the trends you can use to chart a more effective
course–both to define more clearly what success should include, and then to drive toward that
success. The companies that find ways to organize this information within a coherent strategy
for the future gain significant advantages over those that fail to do so.
Competitive analysis in the business world allows the companies that work effectively with
new information to build. Not only does historical and current information help your
organization adjust on the fly, but emerging trends that the data reflect can help clarify your
corporate visions and identify powerful strategies to take advantage of the changing and
emerging competitive landscape.
Legal requirement of establishment

of a new unit and Raising of funds
Legal Requirements for Establishment of a New Unit

Establishing a new business unit is a complex and risky task. Entrepreneurs have to fulfil
various legal formalities for establishment of a new unit. Hence, the entrepreneur needs to be
aware of any regulation that may affect the establishment of his new unit. Legal
formations may be necessary at different stages of the start up. These formalities differ in
relation to the form of enterprise adopted by the entrepreneur, such as sole proprietorship,
partnership firm and company. The legal requirements also differ in reference to the size of
the business unit, such as small scale, medium scale, or large scale enterprise. Moreover,
consumer product enterprise and industrial product enterprise may attract different legal
formalities. Following legal requirements are fulfilled for the establishment of a new business
unit:
(1) Incorporation and Registration: There found various forms of business proprietorship in
the private sector such as sole-trader, partnership, Joint Hindu family and company etc. In case
of sole-proprietorship, partnership and Joint Hindu family, registration is not compulsory,
while in case of company, incorporation and registration is essential.
INCORPORATION OF A COMPANY
Company is established through legal procedure and have a separate legal entity from its
owners. Legal procedure of establishment a company is termed as incorporation. For
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this purpose, registration of company has to be made with the Registrar of companies. An
entrepreneur is required to submit an application for registration following documents:
(i) Application form duly filled in and signed by an authorised person.
(ii) Memorandum of Association: The Memorandum of Association, is the charter of the

company. This includes its objectives, its name, the address of its registered office, the capital
which the company is authorised to raise, the nature of liability of members as well as the
names, addresses and agreement of people who agree to form a company.
(iii) Articles of Association: The other important document is the articles of association which
contains the rules and regulations relating to the internal management of the company.
However, it is not necessary for a public company limited by shares to file the articles of
association. If such public company does not file Articles of Association, it is deemed to have
adopted ‘Table A’ of schedule I of the Act.
(iv) Written consent of the directors: Written consent of the directors who are agreed to act
in that capacity, duly signed by each director, along with a written undertaking by them to take
the necessary qualification shares, if any, as provided in the articles.
(v) A copy of agreement with any individual for appointment as a managing director, or a
whole-time director or manager.
(vi) A statutory declaration stating that all the legal requirements of the Act precedent to
incorporation have been complied.
(vii) A letter of intent under Industries (Development and Regulation) Act, 1951, if the
company s business comes with the purview of this Act.
(viii) Address of registered office of the company. However a company may file registered
address within 30 days of its registration.
(ix) At the time of registration, the prescribed registration fees and filing fee for each document
filed for registration are to be paid to the Registrar’s office. After receiving these documents,
Registrar scrutinize these documents and if he is satisfied that all the documents are in order, he
shall enter the name of the company in the register of companies and issue a certificate of
incorporation.
CAPITAL SUBSCRIPTION
Next step in the registration of a company is to raise capital for the proposed company.
Company obtain the necessary capital by selling shares to the public. Following procedure is
adopted for this purpose:
(i) Permission of public issue from ‘The Securities and Exchange Board of India.
(ii) Agreements with the underwriters, brokers and share issue managers.
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(iii) Filing a copy of prospectus with the Registrar.
(iv) Invite the public to purchase the shares of the company by putting the prospectus in
circulation.
(v) Receiving applications for shares through the company’s banker.
(vi) Formal resolution of allotment, if the subscribed capital is at least equal to minimum
subscription of 90% of capital issue.
(vii) In case, minimum subscription is not received, the entire amount with application would
have to be refunded at the end of 120 days from the circulation of prospectus.
(viii) Issue of allotment letters and share certificates.
(ix) In case a company having a share capital, but not issuing a ‘prospectus’, filing a ‘Statement
in lieu of Prospectus’ with the Registrar at least three days before the first allotment resolution.
COMMENCEMENT OF BUSINESS
A public company cannot commence business immediately after incorporation unless it has
obtained a certificate of commencement of business from the Registrar. Following documents
have to be filed for this purpose:
(i) Shares payable in cash have been allotted to the extent of the minimum subscription;
(ii) Every director has paid in cash the application and allotment money on the shares taken by
him;
(iii) No money is liable to be refundable to the applicants for failure to apply or obtain
permission for the shares or debentures to be dealt in on any recognised stock exchange.
(iv) A statutory declaration duly verified by one of the directors or the secretary in the
proscribed form that the above conditions have been complied with has been filed with
the Registrar.
The Registrar will scrutinize those documents and if the is satisfied, he shall issue a “certificate
of commencement of Business, This certificate is conclusive evidence that the company
can commence its business and use its borrowing powers
(2) Small Unit Registration Certificate: The entrepreneur of a small scale unit should seek
registration of his selected project unit with the Directorate of industries. This will make the
entrepreneur and his unit eligible for availing Government assistance. A unit is normally
registered provisionally first and accorded permanent registration later.
(3) Registration under the Factories Act: An entrepreneur must registered his enterprise
under the ‘Factories Act, 1948’, before starting the manufacturing unit. Factories Act contains
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provisions regarding licencing and registration of factories, working hours, health, safety and
welfare measures, employment of women and young persons, annual leaves, dangerous
operations etc. The Act fixes the minimum age of persons who can enter a factory for work at
14 years. The Act, lays down the provisions regarding cleanliness, ventilation,
overcrowding, lichting, explosive gases, dust, fume, fencing of machinery etc.
(4) Import License: If imported raw-material and other equipments are necessary for the new
business enterprise, then he should obtain the import licence from the export-import controller.
(5) Permission of Finance Ministry: For the agreement of foreign collaboration, an

entrepreneur must obtain the permission of finance ministry.
(6) No Objection Certificate (NOC): The unit must obtained all necessary clearances. For
example, NOC from Pollution Control Board is obtained if required.
(7) Industries (Development and Regulation) Act, 1951: The licencing policy for industries
is determined under this Act. The Act states that the Central Government may specify
the requirements which shall be complied by small scale industrial undertakings to be regarded
as a small scale or an ancillary industry. This may be done by the Central Government with a
view ascertaining which small scale or ancillary industrial undertaking needs supportive
measures, exemptions or other favourable treatment under this Act to enable them to
maintain their viability and strength.
(8) Foreign Exchange Regulation Act: All foreign collaborations required the approval of the
government and are subject to the regulations under the Foreign Exchange Regulation Act. All
investment by foreign companies in India is permitted only with the approval of the Reserve
Bank of India. The Reserve Bank of India’s approval is again based on the approval of the
investment proposal by the government.
(9) Registration of Trademark: According to Trade and Merchandise Marks Act, 1958
(India) the mark’ “includes a device, brand, heading, label ticket, name signature, word, letter
or numeral or any combination thereof.” The purpose of registration of trademark is that the
consumer may distinguish the product of manufacturer/service provider from others and
therefore ‘decepti.vely similar’ trademarks are not allowed to be used because they can cause
confusion to users. Once a trademark is registered as per provisions of Trade and Merchandise
Marks Act, 1958 and Trademarks Act, 1999 no one else can use similar trademark on any of
its packing. The trademarks are registered for unlimited period and helps in the promotion of
sales.
(10) Registration under the Sales-tax Authority: An entrepreneur should get registered his
enterprise in the sales-tax department of the state government and obtain certificate for
this purpose. Besides above mentioned legal formalities, an entrepreneur have to fulfil some
other formalities also depending on the nature of product produced by the new business unit.
For example he has to get registered his unit under the Service Tax Act, Food and
Drugs Control Act etc.
Before setting up a business and raising funds there are some legal requirements one must
fulfill.
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In order to set up new unit/firm and raise funds the legal requirements are:
(i) Registration of Firm: Before operation, the firm must be registered in order to follow the
constitutional requirements.
(ii) Registration of License: Firm requires a licence for operation by the government locally,
nationally and internationally.
(iii) Sales Permission: A firm requires permission to sell their goods in the market after they
are approved by the government.
(iv) Tax Payments: The firm must pay all levied taxes in order to operate.
Venture capital Sources and

Documentation required
The term venture capital was originally coined in U.S.A. and has been developing world
wide. The move spread in India in 1973 when R.S. Bhatt Committee recommended the
formation of venture capital fund in the country. The concept of venture capital was
evolved to help those persons who have good product ideas, but lack the necessary funds
to convert these ideas into production. It is a source of finance for the new and untried
enterprises having new ideas and new technologies with high risk, but with a potential for
rapid growth. Venture capital is usually structured in the form of equity and debt capital. It
is provided by the wealthy investors, firms, institutions and companies for all stages of
financing the new venture. Some think that venture capital is the early-stage financing
of new start-up ventures. Others think that venture capital is the financing of high and new
technology-based enterprises. More accurately, venture capital is an alternative form of
equity and debt financing made available to new ventures who have technically qualified
entrepreneurs with inadequate funds, having high risk but good growth prospects. A few
definitions of Venture Capital are as follows :
International Finance Corporation, Washington (IFCW) defines venture capital as “equity

or equity featured capital seaking investment in new ideas, new companies, new products,
new processes or new services that offer the potential of high returns on invest. ment. It
may also include, investment in turn around situations, ” According to the Bank of England,
“Venture capital is an activity by which investors support entrepreneurial talent
with finance and•business skills to exploit capital gain.” According to Pratt, Venture capital
is thought of as, “the early stage financing of new and young enterprises seeking to grow
rapid Thus, venture capital is an alternative form o/ equity financing made available to new
ventures and technically qualified entrepreneurs with inadequate funds, high risk and
good growth prospects.
Entrepreneurial firms which are high risk units, high return ventures and which face the
difficulty of funds get their finances from venture capitalists, This type of capital is provided
only for new ventures.
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CHARACTERISTICS OR ESSENTIALS OF VENTURE CAPITAL
The venture capital financing is different from traditional or conventional financing in that
the traditional financiers invest in proven technologies and low risk ventures, whereas
venture capitalists invest in new technologies and high risk ventures. Some of the main
distinguishing features of venture capital may be summarised as follows :
(1) High Risk : Venture capitalists provide finance to high risk ‘high-reward ventures.
These risks involve technology risk, market risk, liquidity risk or any other type of risk.
(2) Equity-Debt Financing : Venture capitalists manage for both equity and debt
finances. They invest in shares to get high returns. They earn capital gains by selling the
shares once the enterprise prove profitable. They provide debt financing in the form of
debentures.
(3) Long-Term Investment : Venture financing is a long-term investment of funds. Funds

are provided för 5 to 10 years. Venture capi!al is not repayable on demand. The investor
has to wait for a long time to earn profit.
(4) Participation in Management : As already explained venture capitalist not only

invests in the equity shareholding of the entrepreneurs company but also participates in
the management affairs and gives his advice from time to time. Venture Capitalist has an
active involvement in the business of the entrepreneur after making an investment. Thus
we can say that venture capitalists don’t just invest, rather they build companies.
(5) Creative Capital : Venture Capital is termed as a creative capital as it propelled new
ideas to major commercial successes. It helps entrepreneurs to launch enterprise with a
specific promise.
(6) Professional Entrepreneurs : Usually, the venture capital is provided to those

entrepreneurs who are professionally or technically qualified but lack adequate funds to
start a new venture. The entrepreneur should have the capability to make an intense effort
to do the business. He should also have proper knowledge of his markets, along with risk
management quality.
(7) New Technology : Venture capitalists provide finance usually to those entrepreneur
who try or employ new technology which may produce uncertain results.
SOURCES OF VENTURE CAPITAL

The concept of venture capital was originated in the U.S.A. Now it has become a
worldwide concept in the field of risk financing of industrial projects. The development of
venture capital in India is still in infancy, being about a decade old. It is a growing
capital market. In fact in India, ‘risk financing is still in an evolutionary state. The funds
available to Indian venture capital industry are small. What is the need or relevance of
venture capital in India when there are commercial banks and financial institutions to
provide funds to industrial enterprises, small or large ? In developed countries, where
there is highly progressive industrial environment as well as advanced entrepreneurial
culture, it is common for entrepreneurs to set up companies to produce new products
by Obtaining funds from venture capitalists. On the other hand, in India and also in other
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developing countries, ‘risk’ financing of this type is yet in its infant stage. Of course, there
are a large number of commercial banks and financial institutions in India, which
provide ‘traditional’ (non-risk) financing mainly to those enterprises that use proven or
established technologies with minimum level of risk. Such financing is collateral-security
oriented and asset-based. It involves uniform repayment of fixed instalment. It is
security oriented rather than risk-oriented. Traditional finance has a preference for foreign
technology firms, and do not trust the entrepreneurs who adopt new products or new
technology involving greater risk. In this background of weaknesses or drawbacks
of traditional finance the venture capital assumes an important role to play in providing
risk finance to small and medium size entrepreneurs. Sources of Venture Capital in India
may be divided into three categories :
(I) All India Level Venture Capital Funds.
(Il) State-Level Venture Capital Funds.
(Ill) Specific Venture Capital Funds.
(1) ALL INDIA LEVEL VENTURE CAPITAL FUNDS :– Many Venture Capital Funds are
established at All India level to provide venture capital in India. Some of the important
venture capital funds are as follows :
(1) IFCI Venture Capital Fund Limited : IFCI provided venture capital assistance for the
first time in 1975 after the establishment of risk capital foundation (RCF). The financial
capital assistance under IFCI’s risk foundation scheme has been mainly for the traditional
industries like textile, iron and steel and chemical. It provides assistance basically for
technologists and professionals. General limit of contribution is up to 50% of promoter’s
contribution, subject to a ceilling of Rs. million. Only public limited companies were eligible
for this finance. IFCI charge no interest on such loans but a nominal service charge
is levied. Mode of repayment was that, repayment will be out of dividends and the period
of repayment is fixed according to the facts of each case.
(2) IDBI Venture Capital Fund : IDBI Venture Capital Fund (VCF) was started in 1986 with
an initial capital ofRs. 10 crore. This fund provide venture capitåLto low and medium grade
ventures. IDBI has started seed capital scheme for venture capital finance Main points of
seed capital scheme of IDBI are :
(i) Project cost upto ‘Rs.Æ0 ‘millions’and project should be in small or medium firms.
(ii) Assistance will not exceed Rs. 1.5 per project.
(iii) Debt-equity norm of 2 : 1 is stipulated.
(iv) Free of interest loans and nominal service charge.
(v) Assistance is provided through SIDCs/SFCs.
(vi) Policy of being lender of last resort for financial requirements.
27
(3) ICICI Venture Management Company Ltd : The Government of India issued Venture
Capital Guidelines in Novem- ber, 1988. These guidelines authorised all India Financial
Institutions, Commercial Banks and their subsidiaries to launch venture capital
companies. ICICI in 1988 formed Technology Development and Investment Corporation
of India. (TDICI). This corporation managed various schemes •of venture capital financing
on commerciallines. This is also the largest venture capital firm in India. It
provides assistance to industries directly or through venture funds which are managed by
it for other institutions and venture funds out of its own resources. TDICI accepts and
evaluates the promotor’s business plan by knowing his management team, nature of his
product, market conditions for his product, competition, his investment requirement etc.
TDICI goes through the entrepreneur’s business plan, if it finds the plan to be good, and
the promotor is clear about his business he gets, his work is almost done, otherwise his
project is dropped.
(4) Canbank Venture Capital Fund Limited (CVCFL) : Canbank Venture Capital Fund
Limited was established in 1989. At present Canbank has three subsidiary units which
possess Rs. 164 crore, Rs. 10•5 crore and Rs. 30 crore respectively. Up to 30th
March 2003 Canbank has provided financial aid of Rs. 3424 crore to 51 institutions.
Influenced by the success of these venture funds, Canbank is going to establish a fourth
venture fund subsidiary, which will be able to provide assistance of venture capital of Rs.
100 crore.
(11) STATE LEVEL VENTURE CAPITAL FUNDS :- In India various state level venture
capital funds have been established by the State Governments after realising
the significance and role of venture capital in industrial development. These venture
capital funds have been promoted by state government. A few among them are :
(1) Gujarat venture Finance Limited (GVFL) : Under venture capital funds sponsored
by state level financial institutions is
(iii) Debt-equity norm of 2 : 1 is stipulated.
(iv) Free of interest loans and nominal service charge.
(v) Assistance is provided through SIDCs/SFCs.
(vi) Policy of being lender of last resort for financial requirements.
(3) ICICI Venture Management Company Ltd : The Government of India issued
Venture Capital Guidelines in November, 1988. These guidelines authorised all India
Financial Institutions, Commercial Banks and their subsidiaries to launch venture capital
companies. ICICI in 1988 formed Technology Development and Investment Corporation
of India. (TDICI). This corporation managed various schemes •of venture capital financing
on commerciallines. This is also the largest venture capital firm in India. It
provides assistance to industries directly or through venture funds which are managed by
it for other institutions and venture funds out of its own resources. TDICI accepts and
evaluates the promotor’s business plan by knowing his management team, nature of his
product, market conditions for his product, competition, his investment requirement etc.
TDICI goes through the entrepreneur’s business plan, if it finds the plan to be good, and
28
the promotor is clear about his business he gets, his work is almost done, otherwise his
project is dropped.
(4) Canbank Venture Capital Fund Limited (CVCFL): Canbank Venture Capital Fund
Limited was established in 1989. At present Canbank has three subsidiary units which
possess Rs. 164 crore, Rs. 10.5 crore and Rs. 30 crore respectively. Up to 30th
March 2003 Canbank has provided financial aid of Rs. 3424 crore to 51 institutions.
Influenced by the success of these venture funds, Canbank is going to establish a fourth
venture fund subsi diary, which will be able to provide assistance of venture capital of Rs.
100 crore.
(11) srrATE LEVEL VENTURE CAPITAL FUNDS
In India various state level venture capital funds have been established by the State
Governments after realising the significance and role of venture capital in industrial
development. These venture capital funds have been promoted by state government. A
few among them are :
(1) Gujrat venture Finance Limited (GVFL) : Under venture capital funds sponsored by
state level financial institutions is GVFL promoted in July, 1990 to provide venture capital
for the commercialisation of new technological developments and innovative products. It
shares risk of entrepreneurs by providing financial as. sistance in the form of equity and
quasi equity.
(2) Punjab Infotech Venture Fund (PIVF) : PIVF i dedicated to investing in companies
in the Information Technology Sector within the State of Punjab. The Fund’s investments
in companies will be through the route of equity and quasi equity instruments. The Fund
will seek to achieve its returns through dividends and capital gains at the time of
divestment through an initial public offering or a negotiated sale ofits holding. The Fund is
being managed by Punjab Venture Capital Limited, an asset management company,
promoted by the PSIDC acting as the nodal agency ofthe Government of Punjab.
(111) SPECIFIC VENTURE CAPITAL FUNDS Despite of Commercial Banks, Private

Sector Banks and Financial institutions are also providing venture capital funds
to entrepreneurs. Some ofthese VCFs are :
(i) India Investment Fund which is established by Grindly Bank and afterwards it was taken
over by Standard Chartered Bank.
(ii) Credit Capital Venture Fund established by Credit Capital Corporation.
(iii) Technology Development and Information Co. Ltd. At present around 16 private sector
funds are registered with SEBI and this number is expected to grow faster.
DIFFERENCE BETWEEN TRADITIONAL AND VENTURE CAPITAL
29
Basis Venture
Traditional Financing
of Distinction Capital Financing
Traditional Financing Provides

Technology funds to new or untried
technology.
It involves low risk.

Risk
It involves high risk.
The lender adopts a

policy of ‘playing safe’
This is not necessary to
and insists on some demand security for
Security
valuable collateral venture capital
security for repayment financing.
of loan amount.
The venture capitalist

actively involves
Investor does not take
any responsibility for himself in the
Participation in
Management management of the management of
borrower’s enterprise. borrower’s firm.
Basically it is provided
It is provided in the
inthe start-up stage,
developmental stage.
Finance Stage
although it is also given
for expansion,
30
development or
traditional acquisition
purpöses
Period it is generally a It is a long-term

medium-term finance financing.
Traditional lenders
Amount of Funds Venture capitalists
provide small funds.
provide huge funds.
They maintain long-

They maintain conditional
commercial term business relation-
Relations
relations.
ships with entrepreneurs.
Explain the Venture Capital Fund.
According to SEBI or Securities and Exchange Board of India, Venture Capital Fund is a
Fund registered in the form of a company or corporation or trust according to the
guidelines of SEBI and :
(i) Have a sufficient fund of capital;
(ii) Collect the fund according to the prescribed rules of SEBI;
(iii) Invest Funds according to the rules laid down by SEBI.
A venture capital fund can be constituted in the form of a trust or a company. Venture
capital fund appoints on asset Management Company to manage the portfolio of the fund.
A venture capital fund should have Rs. 5 crore (Rs. 50 million) before it can start
venture capital activities. As per guidelines issued by the Central Board of Direct Taxes,
a venture capital fund could invest upto 40% of the Paid up capital of investor company or
upto 20% of the corpus of the fund in one venture.
Describe in brief the various documents required for venture capital.
Venture capital process is different from normal project financing. Tyebjee and Bruno
(1984) have given a model of venture capital investment activity which, with some
variations, is conmonthly used at present. According to them the venture capital
31
investment process is a sequential process that involve five steps. Documents required at
each stage are as follows :
(1) Deal Orientation : At this stage, a letter of introduction is necessary from the referring
party sent to the Venture Capital Company. It should present details about the potential
venture, its technical viability and good image of the entrepreneur.
(2) Screening : Screening of proposals is necessary to save the time and money cost.
Only proposals which clear screening test are considered for evaluation. At this stage the
Venture Capital Company may ask for technology and product profiles as well as venture
or investment profile depending on the criteria used in the screening process.
(3) Evaluation or Due Diligence : Evaluation or due diligence means careful and proper
detailed analysis, The proposals that have successfully passed through the screening
process are then subjected to a detailed evaluation process called due diligence. Most of
the venture coming to a venture capitalist are new ventures being set up by first-time
promoter, neither the ventures have any track record nor the entrepreneur are have any
operating experience. In such cases, the venture capital company uses a subjective but
comprehensive evaluation. At this stage the Business Plan is an important document
upon which the evaluation is based. Most venture capitalists ask for a business plan to
make an assessment of the possible risk and return on the venture. Well prepared plan is
the best introduction of the entrepreneur who is going to set up a new venture. A detailed
and well-organized business plan is the only way to gain the attention Of the venture
capitalist and to obtain the needed funds.
(4) Deal Structuring : If the proposed venture and its business plan are found as viable,
then venture capitalist and the entrepreneur negotiate the terms of the deal, such as : the
amount Of money to be invested, the form of investment (equity or debt), the price of
Investment, exit period, etc. This process is termed as deal structuring. At this stage, a
written agreement is prepared between the entrepreneur and the venture capitalist. This
contains all the terms and conditions agreed between them. This agreement is written on
a stamp paper, signed by both and is registered with the government agency. It is treated
as a valid evidence before a court of law in case of a dispute.
Explain the Seed Capital.

Seed Capital is relatively small amount of capital provided to an entrepreneur, generally
to prove a concept or an idea. According to The European Venture Capital
Association “Seed Finance is the fianncing of the initial product development or the capital
provided to an entrepreneur to prove the feasibility of profitability; seed capital in other
words is a start up capital. ” According to Mumford and Dotzler, “seed capital is used
to finance initial research and development on the concept, build a prototype, to market
research analysis the business plan. ” Seed Finance stage is the most difficult stage to
finance because (i) the entrepreneur’s idea is yet to take a definite and commercial shape,
(ii) he has no business plan, (iii) his product has recently passed through research and
development stage (iv) there is yet no complete management team. When an
entrepreneur who does not have adequate funds of his own, approaches the suppliers of
seed capital with his proposal. It is the riskiest stage of venture capital because
returns from seed capital investments typically don’t start to come through for seven to
ten years.
32
Forms of Venture Capital ownership
Types of Venture Capital funding

The various types of venture capital are classified as per their applications at various
stages of a business. The three principal types of venture capital are early stage financing,
expansion financing and acquisition/buyout financing.
The venture capital funding procedure gets complete in six stages of financing
corresponding to the periods of a company’s development
• Seed money: Low level financing for proving and fructifying a new idea
• Start-up: New firms needing funds for expenses related with marketingand product
development
• First-Round: Manufacturing and early sales funding
• Second-Round: Operational capital given for early stage companies which are selling
products, but not returning a profit
• Third-Round: Also known as Mezzanine financing, this is the money for expanding a newly
beneficial company
• Fourth-Round: Also calledbridge financing, 4th round is proposed for financing the “going
public” process
A) Early Stage Financing:

Early stage financing has three sub divisions seed financing, start up financing and first
stage financing.
• Seed financing is defined as a small amount that an entrepreneur receives for the purpose
of being eligible for a start up loan.
• Start up financing is given to companies for the purpose of finishing the development of
products and services.
• First Stage financing: Companies that have spent all their starting capital and need finance
for beginning business activities at the full-scale are the major beneficiaries of the First
Stage Financing.
B) Expansion Financing:
Expansion financing may be categorized into second-stage financing, bridge financing
and third stage financing or mezzanine financing.
Second-stage financing is provided to companies for the purpose of beginning their

expansion. It is also known as mezzanine financing. It is provided for the purpose of
assisting a particular company to expand in a major way. Bridge financing may be
provided as a short term interest only finance option as well as a form of monetary
assistance to companies that employ the Initial Public Offers as a major business strategy.
C) Acquisition or Buyout Financing:
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Acquisition or buyout financing is categorized into acquisition finance and management or
leveraged buyout financing. Acquisition financing assists a company to acquire certain
parts or an entire company. Management or leveraged buyout financing helps a particular
management group to obtain a particular product of another company.
Advantages of Venture Capital
• They bring wealth and expertise to the company

• Large sum of equity finance can be provided
• The business does not stand the obligation to repay the money
• In addition to capital, it provides valuable information, resources, technical assistance to
make a business successful
Disadvantages of Venture Capital
• As the investors become part owners, the autonomy and control of the founder is lost
• It is a lengthy and complex process
• It is an uncertain form of financing
• Benefit from such financing can be realized in long run only
Exit Route
There are various exit options for Venture Capital to cash out their investment:
• IPO
• Promoter buyback
• Mergers and Acquisitions
• Sale to other strategic investor
Examples of venture capital funding
• Kohlberg Kravis & Roberts (KKR), one of the top-tier alternative investment asset
managers in the world, has entered into a definitive agreement to invest USD150 million
(Rs 962crore) in Mumbai-based listed polyester maker JBF Industries Ltd. The firm will
acquire 20% stake in JBF Industries and will also invest in zero-coupon compulsorily
convertible preference shares with 14.5% voting rights in its Singapore-based wholly
owned subsidiary JBF Global Pte Ltd. The fundingprovided by KKR will help JBF complete
the ongoing projects.
• Pepperfry.com, India’s largest furniture e-marketplace, has raised USD100 million in a
fresh round of funding led by Goldman Sachs and Zodius Technology Fund. Pepperfry
will use the fundsto expand its footprint in Tier III and Tier IV cities by adding to its growing
fleet of delivery vehicles. It will also open new distribution centres and expand its carpenter
and assembly service network. This is the largest quantum of investmentraised by a sector
focused e-commerce player in India.
Innovation and Entrepreneur

34
Inereasingly, creativity and innovation are seen as being the key to survival in an ever-more
competitive and global economy. In fact change and innovation are becoming a ‘way of life’
for most entrepreneurs. An entrepreneur always takes a personal responsibility for encouraging
any type of innovative idea, product, or process in the enterprise. Peter Drucker has rightly
observed that “Innovation is the specific tool of entrepreneurs, the means by which they exploit
changes as an opportunity for a different business or a different service. It is capable of being
presented as a discipline, capable of being learned and practised. Entrepreneurs need to search
purposefully for the sources of innovation, the changes and their symptoms that indicate
opportunities for successful innovation. kid they need to know and apply the Principles of
successful innovation.” Drucker is of the opinion that an entrepreneur is one who always
searches for changes responds to it andexploits it as an oppor tunity. Innovation is treated as an
instrument of entrepreneurship. R.M. Kanter says, “Winning in business today demands
innovation” and such is the stark reality facing today s entrepreneurs. In the dynamic, chaotic
world of global competition, entrepreneurs must create new products and services and adopt
new technology, ifthey are to compete successfully, The organisation that is not creative and
innovative may not survive. Thus, entrepreneurs are looking for ways to encourage and foster
in creativity and innovation on both the individual and the venture level. Thus it can be
concluded that innovation and entrepreneurs are indispensable to each other. Both are useless
and incomplete in absence of one another.
Characteristics of Innovation and Entrepreneurship:

Durability:
Innovation: Innovation can have a short durability.
Entrepreneurship: Entrepreneurship has a long durability which adds and improves the value
of the opportunity created.
Risk Taking:
Innovation: In innovation, there is no major risk involved.
Entrepreneurship: In converting an idea into a business opportunity, risk-taking cannot be

avoided. Risk taking is a key factor in entrepreneurship.
Interest:
Innovation: Innovators lose interest after idea stage.
Entrepreneurship: Entrepreneurs fail, rethink and work hard to make the venture more
successful.
Skills:
Innovation: Innovators have a passion for inquiry, experiment with creative thinking.
35
Entrepreneurship: Entrepreneurs need skills like planning, leading, managing, and decision
making. Entrepreneurs take risks, work hard and are committed to achieving success in their
business.
Cause:
Innovation: Innovation is the outcome of a new thinking.
Entrepreneurship: Entrepreneurship is the process of making the innovation to a business

opportunity.
Entrepreneurial Behavior
and Psycho-Theories
Behaviour is a manifestation of what a person thinks, feels and acts. An entrepreneur is a

creative person. Need for self actualisation as manifested in the need for achievement forces
him to create something new, a new product, a new way of doing things, a new source of raw
material, a new market etc. Behaviour is always caused and is never spontaneous. Behaviour
is basically goal-oriented. Entrepreneurial Behaviour includes the goal-oriented acts
or decisions of an entrepreneur. The entrepreneurial behaviour means the manners or way in
which the entrepreneur deals with its total environment: internal and external. It is the way or
approach to look at the physical and human resources and the society. The entrepreneurial
bvehaviour is a view of or orientation towards risk-bearing, innovation, achievement, goal-
setting, ethics, social responsibility, motivation, challenges and values cf human society, and
other psychological elements.
Entrepreneurial behaviour is influenced by many psycho-concepts such as perception,

motivaticn, optimism, conditioning, cognition, self actualisation or other psychological
thoughts, These psychological processes influence the thinking and behaviour of entrepreneur.
Main psycho-theories of entrepreneurial behaviour may be d •scussed as follows :
(1) Achievement Theory of McClelland: This theory was propounded by David Mc-Clelland
in his book, ‘The Achieving Society’. He states that people who persued entrepreneur
like careers were high in need achievement. The n-achievement is called a desire to do well,
not so much for the sake of social recognition or prestige but for the sake of an inner feeling
of personal accomplishment. It is this motive of n-achievement that guide the action of
entrepreneur. People with high nachievement behave in an entrepreneurial way. They do things
in a new and better way. They make decisions under uncertainty. Entrepreneurs with a high-
need to achieve feel that their success or failure is due to their own actions. McClelland
indicates that there are five major component to the need achievement trait. (i) responsibility
for problem solving, (ii) setting goals, (iii) reaching goals through one’s own effort, (iv) the
need for and use of feedback, and (v) a preference for moderate levels of risk-taking. Thus
people with high need for achievement are motivated to be an entrepreneur.
36
(2) Self-Monitoring Theory: Self-monitoring is a personality trait that measures an
individual’s ability to adjust his behaviour to external situational factors. This theory states that
high monitor entrepreneurs can be more successful in entrepreneurial jobs and managerial
positions where they are required to play multiple roles, They tend to display their true
dispositions and attitudes in every situation. The high self-monitor entrepreneur is capable of
putting on different faces for different audiences.
(3) Risk-Propensity Theory: Risk-propensity is the to which an individual is willing to take

chances and make risky decisions. An entrepreneur with a high risk propensity might be villing
to experiment with new ideas and gamble on new products He might also lead the venture in
new and different directions Thus, risk taking-whether financial, social or psychological is an
impatant part of the entrepreneurial behaviour.
(4) Motivation Theory: People differ not only in their ability to do, but also in their will to do
or motivation. Motives are the mainsprings of action. Entrepreneurial motivation may be
defined as a set of motives, needs, urges or desires such as need for power, to earn money or
to be one’s own boss, to dominate and influence others by earning industrial power etc. These
behavioural dimensions motivate the people to start a new venture.
(5) Role Models and Support Systems Theory: Every entrepreneur has a choice of a role
model. He follows and learns for the behaviour of his role model. Many new entrepreneurs
need guidance and moral support. In addition to moral encouragement, the entrepreneur needs
advice and counsel throughout his entrepreneurial behaviour. Each entrepreneur needs to
establish both a moral and a professional support network. These contacts provide
confidence, support, advice, and information. As one entrepreneur stated, “In your own
business, you are all alone. There is a definite.need to establish support groups to share
problems with and gain overall support for the new venture. ”
CHARACTERISTICS OF ENTREPRENEURIAL BEHAVIOUR
The entrepreneurial behaviour is different from the capitalist’s behaviour. The capitalists
assume a traditional or conservative approach. He believes in “safe-playing” while investing
his money in the enterprises. He is concerned mainly with his share of interest on his
investment. On the other hand, entrepreneur loves to take risk and tends to establish a new
enterprise and adopts a new technology, or a new product, or tries to find cut a new raw
material. He is always looking out for a new thing or a new method. He is a high achiever. He
is guided mainly by achievement motivation. Main characteristics of entrepreneurial
behaviour may be summarised as follows:
(1) Intitiative Behaviour: It is the entrepreneur who takes or imitate the first move towards
setting up of an enterprise. Entrepreneur basically is an innovator who carries out new
combinations to initiate and accelerate the process of economic development.
(2) Challenge accepting behaviour: Entrepreneurs take problem as a challenge and put in
their best for finding out the most appropriate solution for the same. They will first of all
understand the problem and then evolve appropriate strategy for overcoming the problem.
37
(3) Assertive Behaviour: An assertive person knows what to say, when to say, how to say and
whom to say. He believes in his abilities and ensures that others fall in line with his thinking,
aimed at promoting the interests ofthe organisation.
(4) Persuasive Behaviour: A successful entrepreneur through his sound arguments and logical
reasoning is in a position to convince others to do the works the way he wants them to do. It is
not physical but intellectual force he will use for convincing others.
(5) Effective Monitoring: Entrepreneurs ensure that everything is carried out in their
organisations as per their wishes. They ensure regular monitoring of the working so that the
goals of the organisation are achieved in best possible manner.
(6) Looking for Opportunity: An entrepreneur is always on the lookout or searching for
opportunity and is ready to exploit it in the best interests of the organisation.
(7) Persistence: An entrepreneur is never disheartened by failures. He believes in the Japanese

proverb ‘Falls even times, stand up eight’. He follows Try-Try Again for overcoming
the obstacles that come in the way of achieving goals.
(8) Information Seeker: A successful entrepreneur always keep his eyes and ear open and is
receiptive to new ideas which can help him in realising his goals.
(9) Quality Consciousness: Successful entrepreneurs do not believe in moderate or average

performance. They set high quality standards for themselves and then put in their best for
achieving these standards. They believe in excellence, which is reflected in everything they do.
(10) Recognizing the importance of Business Relationships: Entrepreneur acts to build

repport or friendly relationships with customers. He sees interpersonal relationships as a
fundamental business resource. He places long-term goodwill over short-term gain.
(11) Commitment to Work: Successful entrepreneures arc prepared to make all sacrifices for
honouring the commitments they have made. Whatever they commit, they take it as a moral
binding for honouring their commitments, irrespective of the costs innolved.
(12) Independent Behaviour: Entrepreneurial behaviour posseyses strong need for

independence and due to this desire they are motivated to start a business. They always
concentrate to achieve their goals.
Psychological factors to effect the entrepreneurial behaviour.

The behaviour of an entrepreneur is dependent largely on his psychology and motives which
are the main determinants of be. haviour. These motives are based on needs for survival and
growth. The movements of an entrepreneur are affected by the psychological background.
Many theorists Akouri, McClelland, Javillionar & Winter have given views related to
psychological factors as follows:
(1) Achievement Motive: Achievement motive is most important for an entrepreneur. It is this
motive which motivates people to do something different and extraordinary so that one may
38
feel that he has achieved or created something which others are not able to do..lt motivates an
entrepreneur to take an initiative for innovation. It also makes one personally responsible for
his actions and performances. It helps to develop self-reliance and develops the spirit of risk-
taking which is very -essential part of entrepreneurial behaviour, one will not establish a unit
unless he is prepared to take risk.
(2) Desire to Influence Others: Strong desire of the need for power, helps a person to become
a successful institution builder, Thus, it is necessary that an entrepreneur must have the ability
of self-management with a strong will power. Thus, they possess a strong desire towards the
need of influencing others.
(3) Desire for Independence: Entrepreneur possesses strong desire for independence and it is
only due to this desire that they are motivated to start a new business. According
to psychologists, the feeling of independence is acquired by them through the family
atmosphere. Due to this they do not want to work under anyone rather they like to work
independently.
(4) Innovation: This is an important psychological factor Of entrepreneurs. Generally, an

entrepreneur does those acts which are not taken up by other persons. They transform the
creative ideas into useful applications. Accordmg to Schumpeter, a person is an entrepreneur
only when he is an innovator, engaging himself in an innovative behaviour. Thus, innovative
behaviour is an entrepreneurial behaviour,
(5) Hope for Success: Entrepreneurs are always hopeful for future success. They work for
being successful which enlightens them with the confidence, positive attitude and high energy
level. Hope for success makes their behaviour strong and stable.
(6) Calculated Risk Taking: Entrepreneur is a person who is always in a position to accept
challenging job, He works on those projects only, which are risky but have a probability of
success through their efforts. He does not rely on those ventures, which totally depends on
chance. In other words, the entrepreneur belives in calculated risk-taking.
(7) Immediate feed back: Entrepreneur wants immediate feedback of the progress of his
entrepreneurial targets so that he can improve the way of achieving the targets and his
behaviour changes according to the situations.
(8) Self-Efficacy: An entrepreneur has a drive for self-efficacy. They want to become the
problem solver, instead of problem avoiders. They do not want to copy others but they want
others to copy them. Further they feel proud of their achievements and live in the present.
(9) Self-Expression: The desire for self-expression appears to be a common thread and may
help explain why so many men and women prefer to work for themselves than for someone
else.
(10) Self Confidence: Entrepreneurs believe in themselves. They have confidence that they
can outdo anyone in their field. They tend not to accept the status quo, believing instead that
they can change the facts. Often, they insist the odds are better than the facts would justify.
They have winning habits. On the basis of self-confidence, they become overachievers.
39
(11) Different Way: Although all people are different, entrepreneur is different from all others.
They judge the world in terms of their own beliefs, values and expectations. A
good entrepreneur behaves like human being rather than rational machine. They sce their work
world differently. They differ in their psycho-personalities, needs, time periods, social
surroundings and perception.
Social Responsibilities
“The entrepreneur is the pivot of development.”
“The entrepreneur is the pivot of development,” this statement attract our attention
towards the importance of entrepreneurs in economic development. Economic
development of a country takes place when output increases as a result of entrepreneurial
activity. The entrepreneur is the central figure in the process of development. The
economic development of a country to a large extent depends on human resources. But
the human resources alone cannot bring economic development and for solving this
purpose, there must be dynamic entrepreneurs. A country maybe rich in natural resources
but if it lacks in dynamic entrepreneurs then, it may not be able to utilise the resources
and it may lag in economic development. Entrepreneurs are action oriented, highly
motivated
individuals who take risks to achieve goals. An entrepreneur is one who looks for
opportunities, identifies and seizes them mainly for profit. Entrepreneurs seizing
opportunities set up business undertaking and industries,
economic thereby make transformation.
Entrepreneurs perform vital functions in economic development. They have been referred
to as the human agents needed to mobilise capital, to exploit natural resources, to create
markets and to carry on trade. It has been well said that entrepreneurial inputs spells the
difference between prosperity and poverty among nations.
MEANING AND DEFINITIONS OF SOCIAL RESPONSIBILITY

Business ventures are a unit of society in which they operate. These enterprises depend
on society for the needed resources like men, material, capital and also for selling their
products. In fact, business depends on the society for its existence, growth and promotion.
Hence entrepreneurs have a definite social role and responsibility towards the society.
Social responsibility denotes the responsibility of the business towards various sections
of the society.
Businessmen must consider wider public interest while taking business decisions. A few
scholars have defined ‘social responsibility’ in the following way :
According to Koontz and O’Donnell, “Social responsibility is the personal obligation of
every one, as he acts in his own interest, to assure that the rights and legitimate interests
of all others are not infringed.”
In the words of Adolph Berle, “Social responsibility is the business’s responsiveness to
public consensus, i.e., the obligation of the business to meet those demands and
aspirations of the society about which there ispublic consensus. ” H.R. Bowen defines as
“Social responsibility is the obligation to pursue those policies, to make those decisions or
40
to follow those lines of action tv hich are desirable in terms of objectives and values of our
society,”
Nicholas Sirpolis has defined social responsibility as: “The circle of care and concern that
a business has for the well-being of society. ”
PROFIT MOTIVE AND SOCIAL RESPONSIBILITIES
It is a misnomer that the concept of social responsibilities is against the profit motive.
Some scholars have views that entrepreneur’s primary responsibility is to earn profit
for stock-holders. Milton Friedman has observed, “There is one and only one social
responsibility of business i.e., to use its resources and engage in activities designed to
increase its profits so long as it stays within the rules of the game which is to say it engages
in open and free competition without deception or fraud.” According to Henry Ford Il
the foremost social responsibility of business lies in earying out its operations efficiently
and economically. He observes, “Today we need the phrase ‘business is business”‘ to
remind us that business is not first and foremost a social institution, a charitable agency,
a cultural gathering, community service, a public spirited citizen. It is an action
organisation geared to produce economic results in competition with other business. On
the other hand, some scholar’s views that enterprise are not independent entities
responsible only to stock-holders. They also have a responsibility to the larger society that
provide their creation through various laws and regulations and supports them by
purchasing their products and services. Peter F. Drucker has observed, “Business should
develop concern for society and pursue welfare activities which should form an important
area of its operation. It is a demand that quality of life becomes the business of business.
The new demand for business is to make social values and beliefs, create freedom for
individual and al-together produce good society. ” Socially responsible behaviour of an
entrepreneur not only helps the society but is also self-rewarding for the venture in
several ways.
ARGUMENTS ‘FOR’ ENTREPRENEUR’S SOCIAL RESPONSIBILITY
The arguments supporting a major role for the social responsibility of entrepreneurs are
as follows:
(1) Moral Justification: There is a growing realisation that it is the moral duty of business
houses to serve the society. They enjoy wide economic and social power. Their power
should be balanced with social responsibility. Business has the resources and capabilities
to solve social problems.
(2) Long-term Self-interest of Business: In the long run, no business enterprise can
survive and grow unless it enjoys a good image in the public. The image of the firm can
be improved in the eyes of the society by serving their (society) interests.
(3) Public Image: Socially responsible behaviour create a positive public image of an
enterprise.
(4) Profitable Opportunities: That Business has little chance of success in a society
which is plagued with enormous problems and evils. Business can meet the challenges
41
by converting the problems into profitable opportunities. The securities of a socially
responsible company enjoy a wider market among the investors.
(5) Ensuring Law and Order: To maintain law and order in a country, business should
shoulder its responsibilities towards the society, otherwise people will resort to anti-social
activities which may ultimately harm business. The doctrine of social responsibilities is
helpful in ensuring law and order in the society. It is a preventive measure against social
disorders.
(6) Balance of Responsibility and Power: Since business entrepreneurs already have
a great deal of social power, their social responsibility should be equally great.
(7) Public Expectations: There is a deep conviction that entrepreneur has a clear
obligation to the good ofthe greater society. The business enterprise is expected to be
efficient, profitable and at the same time socially responsible.
(8) Interdependence: Society and business affect each other. For example, goods and
services provided by the business determine the standard of living in the society. In case
business does not produce and supplies goods of good quality at moderate prices, society
will react and stop inputs in business. Therefore, it is in the interest of the business to be
responsible to its social obligations.
ARGUMENTS “AGAINST” ENTREPRENEUR’S SOCIAL RESPONSIBILITY
The major arguments against the assumption of broad social responsibilities include the
following:
(1) Reduction in Total Profits: It is thought that diverting resources away from the firm
to socially responsible programmers may undermine the competitive strength of
entrepreneur.
(2) Financial Burden on the Institution: Social obligations can be very expensive and
may cause entrepreneurs to forgo attractive business investments or even to go out of
business.
(3) Lack of Skills: Most entrepreneurs do not have the skills and training to work
effectively with social issues.
(4) Lack of Accountability: There is no way to hold entrepreneurs accountable for the
outcomes of its social programmes.
(5) Dilution of Purpose: The pursuit of social goals may dilute the economic productivity
of the business enterprise.
SOCIAL RESPONSIBILITY OF ENTREPRENEUR TOWARDS DIFFERENT SECTIONS

OF SOCIETY
Business enterprise required to discharge social responsibilities not only towards society
but also towards other social groups like employees, customers, suppliers, government,
42
creditors, unions and the global community. Social responsibility of entrepreneur towards
different sections. of society may be summarised as follows :
(1) Social Responsibility towards the Customers: It is truely said that “Customers are
the life blood of every business.” The major social responsibilities of entrepreneur towards
customers includes the following.
(i) Producing and supplying goods at reasonable prices,
(ii) Avoiding creation of artificial scarcities.
(iii) Providing after-sale-services.
(iv) To Furnish needed information to prospective customers concerning product

composition and its quality.
(v) To ensure the health and safety of customers,
(vi) To prevent formation of monopolies with the, intention of exploiting customers.
(vii) Revealing truth in advertising and levels.
(viii) To respect the integrity of the culture of the customers.
(ix) To ascertain consumer preferences and consumer satisfaction.
(x) To work within the framework of various consumer laws and legislations.
(2) Responsibility Towards the Employees: Employees produce wealth for the
business and give their best service and share in the resulting profits. Business
entrepreneurs have significant responsibilities towards employees. Entrepreneur’s basic
obligations to its employees are:
(i) To provide the opportunity for training, promotion and advancement.
(ii) To provide better working conditions and good physical facilities.
(iii) To place an employee in a position for which he is best suited by his skills and interest.
(iv) To start welfare and profit sharing plans for employees.
(v) To satisfy “employee dignity” by allowing him work freedom, self-realisation. It is the
responsibility to treat each employee as an entity and not as in impersonal part of a group
of humans.
(vi) To recognise the workers right to a fair wage, a right to participate in decisions
affecting their working life, to membership of a trade union.
43
(vii) To settle employee’s grievances and disputes smoothly.
(3) Responsibility Towards Suppliers and Creditors: Business also owns responsibility
towards suppliers, dealers and creditors as follows:
(i) All dealings with suppliers should be on fair terms regarding price, quality, delivery,
payment etc.
(ii) Business must provide accurate and correct information to creditors and suppliers;
(iii) To avoid malicious propaganda, price-cutting, cut-throat competition, unhealthy

combinations, interference in production and distribution and other dishonest
trade practices.
(iv) To avoid exploitation of small competitors.
(v) To create adequate, fair and inter-business relationship.
(vi) To provide information regarding change in habits, fashion and choices of customers,
(vii) To Promote local suppliers.
(viii) To make payment of interest at appropriate time.
(ix) To make appropriate use of debt capital.
(4) Responsibilities Towards the Community: A few responsibilities of entrepreneur

towards the community are as follows:
(i) To preserve, maintain and improve the natural wealth and resources of the society.
(ii) Economic use of natural resources so that these are not eliminated at a faster rate.
(iii) Control of pollution by providing necessary pollution-control devices in the factories,

and by facilitating pollution-control measures in the society.
(iv) Establishing of new business units in backward regions, and especially for
handicapped people and weaker sections of the society.
(v) Financial support for providing education facilities in rural areas.
(vi) Helping in health and hygiene programmes in the society.
(vii) Creation of their own townships in order to provide living places and facilities to their
own workers.
(viii) To provide assistance at the time of any natural calamities like flood, drought, famine
etc.
44
5. Responsibilities Towards the State and the Nation: Entrepreneurs owe obligation
towards the Government too. Their responsibility is:
(i) To obey the rules, regulations and the laws set forth by local, State and federal
governments.
(ii) To pay its dues and taxes to the government fully and honestly.
(iii) To conduct business in accordance with government policies.
(iv) Not to corrupt public servants and democratic processes.
(v) To avoid buying the political favor by any means.
(vi) To help government in overall planning for nation’s well-being.
6. Responsibilities towards the Business Enterprise It-self: Entrepreneur is a trustee of

the resources of the society. He has to always maintain his business efficient and
productive so that he can fulfil his responsibilities towards other sections of the
society, only a, healthy business can perform its social obligations. Thus, entrepreneurs
have to fulfill the, following obligations towards the business enterprise :
(i) To operate business efficiently at minimum cost
(ii) To make efforls for continuous growth and expansion of business
(iii) To act as an innovator.
(iv) To maintain its wealth-producing resources intact by making adequate profits to offset
the risk of economic activity.
(v) He must always, in every decision and action, put economic performance first.
Business Can only justify its existence and its authority by the economic results it
produces. (Drucker)
(vi) To encourage inventions.
(vii) To protect the interest of the enterprise.
(viii) To make optimum use of resources.
(ix) He must tries to achieve the goals of the business.
EDP their Role

45
It is rightly remarked that entrepreneurs are not necessarily born, they can also be
developed through education, training and experience. Though entrepreneurial talent
exist in every society but socio-economic environment hinders the emergence
of entrepreneurial talent. Entrepreneurship requires an environment in which
entrepreneur can learn and discharge his assigned responsibility in an efficient manner
and change his attitude. Entrepreneurial development seeks to provide constructive
direction for those who choose a career path different from traditional roles. The process
of entrepreneurial development focuses on training, education, reorientation and creation
of conductive and healthy environment for the growth of enterprise.
MEANING AND DEFINITIONS OF ENTREPRENEURIAL DEVELOPMENT

PROGRAMME
Entrepreneurial development is an act of encouraging people for entrepreneurial career

and making them capable of exploiting business opportunities. It is not simply a training
task. It is the act of motivating and developing skills of potential entrepreneur and helping
them in developing their own ventures. Entrepreneurial development is thus an organised
and systematic development. It is regarded as a tool of industrialization and a solution to
unemployment problem. The objective of entrepreneurial development is to motivate a
person for entrepreneurial career and to make him capable of perceiving and exploiting
successfully opportunities for enterprises. The trained entrepreneur can guide others on
how to start their own enterprise and approach various institutions for finance. In fact,
trained entrepreneurs become catalysts of developing industry and economic
progress. According to Prof. Pareek and Karenina, “Operationally, entrepreneurship
development would mean development Of entrepreneurs and promtion of increased flow
of individuals to entrepreneurial ranks.
” Entrepreneurial Development Programme (EDP) may be defined as “a programme

designed to help an individual in strengthening his entrepreneurial motive and in acquiring
skill andcapabilities necessary for playing his entrepreneurial role effectively.”
NATURE OR CHARACTERISTICS OF ENTREPRENEURIAL

DEVELOPMENT PROGRAMME
Following are the main characteristics of entrepreneurial development programme : it is
an organised and systematic process of enhancing the motivation, knowledge änd skills
of the potential entrepreneurs. It is based on the belief that individuals can be
developed, their outlook can be changed and their ideas can be converted into action
through training. It develops first-generation entrepreneurs who on their own cannot
become successful entrepreneurs. It is an endeavour in human resource development. it
emphasis on operational rather than academic training. It is regarded as a tool of
industrialisation and a solution to unemployment problem. It is catalyst for developing
industry and economic programmes. It is not totally based on training. The whole
process
extends much beyond ‘training’. Much of it is personal counselling and support.
OBJECTIVES OF ENTREPRENEURIAL DEVELOPMENT

Following are the main objectives of entrepreneurial development programmes:
46
(1) Promotion of Cottage and Small Scale Industries: The main objective of EDP is to
provide, in the rural areas, special programmes designed to stimulate new ventures and
encourage expansion of existing activities of small and medium scale industries.
(2) Generation of Employment Opportunities: EDP aims to encourage self-

employment among potential entrepreneurs. It generates employment and self-
employment opportunities in the processing of indigenous raw materials for local
consumption and for exports.
(3) Promotion of First-Generation Businessmen: One of the main objective of EDP is
to encourage first generation entrepreneurs who do not have any business background.
(4) TO Create Awareness about Availability of the Resources: It, aims to front, on
wnroncss about the available resources„ such raw material, technology etc. in the
prospective ontropronours.
(5) To import Training: The main objective of EDP is to in donut and train potential
entrepreneurs. It impart training in mnnngorinl understanding and skills. It also provide
post training assistance and monitoring facilities.
(6) To Develop a Broad Vision: One of the objective of EDP is to doyolop n broad vision
to see the business as a whole and to integrate his functions with it.
(7) To Remove Doubts of Entrepreneurs and to give solutionlion to their
Problems: New entrepreneurs have to face many problems in the establishment and
operation of business. To remove doubts of entrepreneurs and to give solution to their
problem is one of the main aim of EDP. It helps the entrepreneurs to set or reset the
objectives of their business and work individually and along with his group for their
realisation.
(8) To create a successful entrepreneur: One of the main aim of EDP is to create the
successful entrepreneurs. It provides constructive direction for those who choose a career
path different from traditional roles.
(9) Creation of Conductive and healthy environment for the growth of entrepreneurs
: The process of entrepreneurial development focuses on training, education,
reorientation and creation of conductive and healthy environment for the growth
of enterprises.
ROLE/IMPORTANCE OF ENTREPRENEURIAL DEVELOPMENT PROGRAMMES
EDPs have great role and relevance in increasing the supply of new entrepreneurs to
accelerate the process of industrialization. It is widely accepted that persons interested to
become entrepreneur will be greatly helped if appropriate training and
development programmes are made available to them. Need/lmportance of EDPs can be
judged on the basis of following points.
(1) Eliminating Poverty and Unemployment: Most of the under developed countries are
confronted with the chronic problem of unemployment. EDPs can help these unemployed
people in getting self-employment and at the same time generating
employment opportunities for others. Various programs initiated by the government like
NREP (National Rural Employment Programme, IRDP (Integrated Rural Development
Programmel etc. are aimed at tackling unemployment problem.
(2) Balanced Regional Development: Successful EDPs help in accelerating the pace of
industrialisation resulting in the reduction of concentiation of economic power. Small scale
units can be set up in remote areas with little financial resources and it helps in achieving
47
balanced regional development. EDPs aimed at promoting small scale units are more
useful for balanced regional development than medium and large scale units.
(3) Economic Growth: The relevance of EDPs can be clearly understood by their role in
the economic development of developing countries like India. Such programmes create
many entrepreneurs who are able to establish small and micro enterprises which
require less investment in funds. It increases new investment and bring innovations. All
these activities in turn stimulate the economic growth.
(4) Optimum use of Locally Available Resources: The EDPs can help in harnessing
locally available resouces by training and educating the entrepreneurs. Since abundant
resources are available locally, proper use of these resources will help in creating
a healthy base for sound economic growth and rapid industrialisation. EDPB also help in
minimising excessive scraps, defective output and wastage in the production process.
(5) Promote Innovations: Entrepreneurial Development Programmes initiate the people
for innovations and creativity. EDPs have become a vital strategy for harnessing the vast
untapped human skills, to channelise them into accelerating industrialisation.
(6) Defuses Social Tension: Every youth feels frustrated if he does not get employment
after completing his education. The surplus young energies can be diverted to self-
employment careers to help the country. This may defuse social tension and
unrest among youth.
(7) Development of Entrepreneurship Qualities: Thus the EDPs are needed to induce
achievement motivation and develop entrepreneurial characteristics or competencies
among young persons through training with a view to making them successful
future entrepreneurs.
(8) Preventing Industrial Slums: More industrial units are located in highly congested
areas and it leads to creation of industrial slums. EDPs help in removal of these slums
as entrepreneurs are provided with various schemes, incentives, subsidies and
infrastructural facilities to set up their own entreprises in all the places. It will help in
controlling industrial slums and also reduces pollution, traffic congestion and
overcrowding in developed areas.
(9) Fulfilment of Dreams: EDP is necessary to motivate the potential entrepreneurs to

convert their dreams into action.
(10) Successful Launching of New Units: EDP develops motivation, competence and
skills necessary for successful launching, management and growth of the enterprise.
(11) Development of Rural and Backward Areas: If new enterprises are set up in
backward and rural areas of a developing country like India, they are sure to mitigate
poverty in, such areas and also to remove lopsided economic development that
is, concentration of business enterprises in urban areas only.
Relevance and Achievements

Role and relevance of Entrepreneurial Development Programme (EDP) in the process of

economic development and growth of a nation is immense. Various EDPs are designed
to develop and improve entrepreneurial skills and behavioural adjustment needed to go
48
through the stresses of initial stages. Different programmes are designed for different
trades, industries and big projects.
Basically the EDPs are meant to train and develop new entrepreneurs who act as catalytic
agents in the process of industrialization and economic growth. It is the entrepreneur who
organises and puts to use capital, labour and technology in the best possible manner for
the setting up of his enterprise. The entrepreneur with his vision and ability to bear risk
can transform the economic scene of the country. They play a vital role in initiating and
sustaining the process of economic development of a nation. It is the EDP through which
the entrepreneurs learn the required knowledge and skill for running the enterprise
successfully which ultimately contribute towards economic progress in the following ways:
1. Creates employment opportunities:
Acute unemployment has been a chronic problem of most of the underdeveloped an

developing nations of the world. EDPs help solving the problem of unemployment by
creating adequate employment opportunities in setting up of their own small and big
industrial unit where the unemployed are absorbed.
EDPs also help the unemployed to opt for se employment by choosing entrepreneurship
as a career. In this way EDPs help the entrepreneur to get an opportunity to lead on
independent and respectable life in the society and at the same time enable others to get
gainful employment. Various programmes, schemes like Prim Minister’s Rozgar Yojana,
NREP (National Rural Employment Programme) and IR (Integrated Rural Development
Programme) etc. have been initiated by Government of In to eliminate poverty and solve
the problem of unemployment.
ii. Helps in achieving Balanced Regional Development:
Successful EDPs assist in accelerating the pace of industrialisation in the backward areas
and helps in reducing the concentration of economic power in the hands of a individual.
Government encourages to set up industries in the backward areas to remove wide gap
of income and wealth between the rich and poor. The various concessions subsidies
offered by the State and Central Governments prompted the entrepreneurs to up their own
small and medium industrial units in the rural and backward areas. EDPs in setting up
more and more industrial units in the backward areas lead to the develop of rural sector
which helps in achieving balanced regional development.
iii. Prevents Industrial Slums:
The towns and cities are highly congested and overcrowding due to the growth of industrial
slums which results in overburdening of civic amenities and a lot of problems including
adverse impact on the health of the people. EDPs help in solving the above problems by
preventing the growth of industrial slums through dispersal of industrial units in different
parts of the country including backward and rural areas. EDPs help entrepreneurs to know
about the various schemes, incentives, subsides and infrastructural requirements for
setting their enterprises, particularly in backward and rural areas. This checks migration
of rural people to urban sector and thus controls the growth of industrial slums.
iv. Use of Local Resources:
49
Plenty of locally available resources remain unutilized due to absence of initiative and lack
of adequate knowledge by the entrepreneurs. Proper use of these resources will help to
starve out a healthy base for rapid industrialisation and sound economic growth. EDPs
can help in the proper use of locally available resources by providing proper training,
guidance and education to the potential entrepreneurs.
v. Easing social tension:
EDPs help in channelizing on right lines the talent and energies of unemployed youth »1io
feel frustrated after completing their education without a job or source of livelihood.
Unemployment and frustration amongst the young and educated people lead to social
unrest Lid tension. EDPs help in diverting the talent of the youth towards self-employment
careers by establishing their own enterprises and thus creating employment opportunities
for the unemployed. In this way EDPs are able to defuse the social tension and unrest
among the youth.
vi. Economic Independence:
The entrepreneurs through EDPs are able to achieve economic independence of a

country by producing a wide variety of better quality goods and services at competitive
prices. They also through export promotion and import substitution able to earn and save
urge amount of foreign exchange which is essential for the growth and development of
any economy.
vii. Improves the standard of living and per-capita income:
EDPs provide the necessary support to entrepreneurs by educating them about the test
innovation and techniques of production to produce a large variety of quality goods id
services at competitive prices. EDPs also help in establishing more enterprises which ad
to provide more employment opportunities and help in increasing the earning of the
people. It will result in increase in per-capita income and thus helps in the improvement of
standard of living of the people.
viii. Helps in the overall development of the nation:
Entrepreneur acts as a catalyst which helps in enhancing the various activities involved a
business enterprise. In recent years EDP package, have become a vital strategy for
harnessing the vast untapped human skills, and put them into industrial development. It
results in the emergence of entrepreneurial opportunities in various fields which leads to
all-around development in a country.
Role of government in Organizing

EDP’s Critical Evaluation
50
Government plays a very important role in developing entrepreneurship. Government develop
industries in rural and backward areas by giving various facilities with the objective of balances
regional development. The government set programmes to help entrepreneurs in the field of
technique, finance, market and entrepreneurial development so that they help to accelerate and
adopt the changes in industrial development. Various institutions were set up by the central and
state governments in order to fulfill this objective.
Institutions set up by Central Government
1. Small industries development organization (SIDO)
SIDO was established in October 1973 now under Ministry of Trade, Industry and Marketing.
SIDO is an apex body at Central level for formulating policy for the development of Small
Scale Industries in the country, headed by the Additional Secretary & Development
Commissioner(Small Scale Industries)under Ministry of Small Scale Industries Govt. of India.
SIDO is playing a very constructive role for strengthening this vital sector, which has proved
to be one of the strong pillars of the economy of the country. SIDO also provides extended
support through Comprehensive plan for promotion of rural entrepreneurship.
2. Management development Institute(MDI)
MDI is located at Gurgaon(Haryana).It was established in 1973 and is sponsored by Industrial

Finance Corporation Of India,with objectives of improving managerial effectiveness in the
industry.It conducts management development programs in various fields.In also includes the
programmes for the officers of IAS,IES,BHEL,ONGC and many other leading PSU’s.
3. Entrepreneurship development institute of India (EDI)
Entrepreneurship Development Institute of India (EDI), an autonomous and not-for-profit

institute, set up in 1983, is sponsored by apex financial institutions – the IDBI Bank Ltd., IFCI
Ltd., ICICI Bank Ltd. and the State Bank of India (SBI). EDI has helped set up twelve state-
level exclusive entrepreneurship development centres and institutes. One of the satisfying
achievements, however, was taking entrepreneurship to a large number of schools, colleges,
science and technology institutions and management schools in several states by including
entrepreneurship inputs in their curricula. In the international arena, efforts to develop
entrepreneurship by way of sharing resources and organizing training programmes, have
helped EDI earn accolades and support from the World Bank, Commonwealth Secretariat,
UNIDO, ILO, British Council, Ford Foundation, European Union, ASEAN Secretariat and
several other renowned agencies. EDI has also set up Entrepreneurship Development Centre at
Cambodia, Lao PDR, Myanmar and Vietnam and is in the process of setting up such centres at
Uzbekistan and five African countries.
4. All India Small Scale Industries Board(AISSIB)
The Small Scale Industries Board (SSI Board) is the apex advisory body constituted to render
advise to the Government on all issues pertaining to the small scale sector.It determines the
policies and programmes for the development of small industries with a Central Government
Minister as its president and the representatives of various organization i.e. Central
Government,State Government,National Small Industries Corporations,State Financial
51
Corporation,Reserve Bank of India,State Bank of India,Indian Small Industries Board,Non
government members such as Public Service Commission,Trade and Industries Members.
5. National Institution of Entrepreneurship and Small Business Development(NIESBUD),New Delhi
It was established in 1983 by the Government of India.It is an apex body to supervise the
activities of various agencies in the entrepreneurial development programmes.It is a society
under Government of India Society Act of 1860.The major activities of institute are:
i) To make effective strategies and methods
ii) To standardize model syllabus for training
iii) To develop training aids,tools and manuals
iv) To conduct workshops,seminars and conferences.
v) To evaluate the benefits of EDPs and promote the process of Entrepreneurial

Development.
vi) To help support government and other agencies in executing entrepreneur development
programmes.
vii) To undertake research and development in the field of EDPs.
6. National Institute of Small Industries Extension Training
It was established in 1960 with its headquarters at Hyderabad.The main objectives of national
Institute of Small Industries Extension Training are:
i) Directing and Coordinating syllabi for training of small entrepreneurs.
ii) Advising managerial and technical aspects.
iii) Organizing seminars for small entrepreneurs and managers.
iv) Providing services regarding research and documentation.
7. National Small Industries Corporation Ltd. (NSIC)
The NSIC was established in 1995 by the Central Government with the objective of assisting
the small industries in the Government purchase programmes.The corporation provides a vast-
market for the products of small industries through its marketing network.It also assists the
small units in exporting their products in foreign countries.
8. Risk Capital and Technology Finance Corporation Ltd.(RCTFC)
52
RCTFC was established in 1988 with an authorized capital of 15 crores rupees.The main
objectives of RCTFC are provision of risk capital for the extension and expansion of
entrepreneurial development and venture capital for the projects with high techniques for
technology development and transfer.
9. Natioanl Research and development corporation (NRDC)
NRDC was established in 1953 under Department of Science and Industrial Research under
Government of India.Its main objectives are:
i) Providing assistance in technology transfer
ii) Transfer of technology
iii) Establishing relations with various technology institutions and collecting various
indigenous techniques developed by them.
10. Indian Investment Centre
This is an autonomous organization established by Central Government.Its main objective is

to assist in promoting foreign cooperation with Indian entrepreneurs and providing necessary
information to foreign entrepreneurs.
11. Khadi and village industries Commission(KVIC)
Khadi and Village Industries Commission established by an Act of Parliament in 1956.It is a

service organization engaged in promotion and development of Khadi and Village Industries
in rural areas. Its main objectives are:
i) Providing employment in rural areas.
ii) Improvement of skills
iii) Rural Industrialisation
iv) Transfer of Technology
v) Building strong rural community base and self reliance among rural people.
12. Indian Institute of Entrepreneurship(IIE)
It was established by the Department of Small Scale Industries and Agro and Rural Industries
in 1953.It is autonomous organization with its headquarters at Guwahati. Its main objective is
to undertake research,training and consultancy activities in the field of small industry and
entrepreneurship.
13. Miscellaneous Organisation
53
In addition to above various organizations at all India level are assisting and are engaged in
entrepreneur development. These include ICICI, IFCI, SIDBI, UTI, IDBI, IIBI etc.
14. National Alliance of Young Entrepreneurs(NAYE)
It has sponsored number of entrepreneurial development scheme in collaboration with various

public sector banks. The main objective of the scheme is to encourage young entrepreneurs to
explore investment and self –employment opportunities .It arranges for their training and
assists them in procuring necessary finance.In 1975 NAYE also set up a Women’s Wing to
make women self-relaint and to raise their status.
15. Centre for Entrepreneurial Development(CED) Ahmedabad
It was sponsored by the Government of Gujrat and public financial institutions operating in the
State.It conducts entrepreneurial development programmes at various centres.The important
features of training programme are:
i) Training programmes were conducted after survey for opportunities was made.
ii) Appropriate linkage was established with supporting agencies supplying finance,factory
sheds,raw materials, etc.
iii) Behavioural tests were conducted to select the entrepreneurs.
iv) Training programmes covered theoretical and practical aspects.
v) Full time project leader took follow up action after the training was over.
16. Institute for Entrepreneurial Development (IED)
It was set up by the IDBI in association with other financial institutions, public sector banks
and the State Governments. The IEDs was set up to fulfil the entrepreneurial development
needs of the industrially backward States in the country.
17. Technical Consultancy Organisation (TCOs)
A network of TCOs has been established by All India Financial Institutions and State
Government throughout the country. These organizations have been set up to provide
comprehensive package of services to entrepreneurs in general and to small business
entrepreneurs in particular. Their main functions include the following:
i) Identifying potential industrial project.
ii) Preparing project reports,feasibility reports and pre-investment status.
iii. Identifying potential entrepreneurs.
54
Providing technical and administrative support.
Conducting techno-economic studies of the projects.
Conducting market research and surveys.
Rendering advice to set up laboratories and design centre.
18. Public Sector Banks.
Public sector banks in association with NAYE have been conducting entrepreneurial
development programmes.The main thrust of these banks has been to identify potential
entrepreneurs in rural and backward areas.For example Punjab National Bank started
entrepreneurial assistance programme in March 1977 in th States of West Bengal and Bihar.
Similarly,Bank of India started entrepreneurial assistance programme since August 1972 in the
States of Punjab, Rajasthan , Himachal Pradesh,J& k and the Union Territories of Chandigarh
and Delhi.
The important Forms of entrepreneurial assistance are:
i) Identifying potential entrepreneurs
ii) Identifying viable projects.
iii) Assisting in preparation of project profiles
iv) Helping in project evaluation.
v) Arranging practical training.
vi) Financing the projects.
B) Institutions set up at State Level
There are a number of institutions establishes at state level for

organizing,developing,developing,assisting and making successful entrepreneurial
development programmes.Prominent among these are:
i) Small Industries Service Institute (SISI)
ii) State Financial Corporation (SFC)
iii) State Small Industries Corporation (SSIC)
iv) District Industries Centres(DIC)
55
v) Technical Consulting Organisation Ltd. (TCO)
vi) Industrial Directorates
vii) Commercial and Cooperative Banks
viii) State Industrial Development Corporation
ix) Industrial Estates
x) State Industries Corporation
The above mentioned State and Central level Institutions have provided a number of
concessions and facilities to promote entrepreneur development in India.They have also played
an important role in balanced industrial development in the country.
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Role of Entrepreneur in Economic

Growth as an innovator
Entrepreneurs play a vital role in economic growth of a country. Economic growth is a

process by which the per capita income and total income of a country increases during a given
period. Entrepreneurs serve as the catalysts in the process of rapid industrialisation and
economic growth. In the process of economic growth of a country, the entrepreneur plays a
motivator role. The process of economic growth cannot proceed onwards without the active
support of the entrepreneur. It is the entrepreneur who collects the natural, economic, human
and technical resources of a county and exploits them in the economic growth of a country. An
entrepreneur is more a true leader of economic progress. He is by nature a visionary. He has
innovative attitude. He loves risk-taking behaviour. He contributes to economic development
in many ways, viz., capital formation, technological breakthrough, innovating skill, market
expansion and organisation of productive resources. He scents new market opportunities and
takes the
creative decisions to exploit them. The major role of an entrepreneur in the economic growth
may be summarised as under :
(1) Role of an Entrepreneur in Economic Development: One of the most important and
basic role of an entrepreneur is to innovate. India would not have been discovered to western
world if Vasco Diagama would not have sailed to India. The natural resources of Africa would
not have been exploited if Britishers, French and Portugese would not have ventured there.
Most of discoveries would not have been translated and implemented if entrepreneurs were not
willing to establish units for setting up industries. The development of railways,
telecommunications, agriculture and industry has been possible due to
innovations. Entrepreneurship essentially means doing things that are not generally done in
ordinary course of business. An entrepreneur discovers and develops new ideas, new product,
new methods of production, opening new markets, new sources of supply of raw-material, new
type of industry, new enterprises, new methods of solving business problems, new
56
organisations, new combinations, and new opportunities. Innovation is the process of putting
new ideas into action. The higher the rate of innovation, the higher will be the rate of economic
growth. He is a catalyst ofchanée. According to W.T. Esterbook, “Entrepreneur is an
innovating giant who encourages production of new products in the industry, new techniques
of production, new machinery, use of new raw- material, use of new technology and
establishment of netv industries. ” According to Edmunds Bark, “Entrepreneur, in the true
sense, is a greedy for new things. ” According to Peter F. Drucker,
“Innovator is always in search of changes and exploits it as and when the opportunity arises.
“Innovation is the creative endeavour that creates wealth. Entrepreneurs develop new ideas
and, from their ideas, establish new enterprises that add value to society. In fact, entrepreneurs
create wealth by creating something new or different or by searching for new opportunities as
they arise to inspire new ventures. Indian entrepreneurs have set up those industries which had
opportunity. There has been fast growth of food processing, beverages, petroleum, rubber,
plastics, fertilizers, caustic soda, steel, etc. Many sophisticated industries have also been set up
but most of knowledge based industries have not been innovated by Indian entrepreneurs
because of limited interest in R & D; they have been based largely on with foreign technical
and financial collaborations.
(2) Generation of Employment Opportunities: An opportunities. An employment

entrepreneur generates entrepreneur generates employment not only for himself and members
of his family but also for others who work with him. However, the number will depend upon
the size and requirement of the enterprise concerned. Indirectly, by setting up large, medium
and small scale sized business units they offer jobs to millions. For example, if one hundred
person become entrepreneurs, they not only create a hundred jobs for themselves but also
provide employment to an army of unemployed youth. As the time passes, these entrepreneurs
grow providing direct and indirect employment. Thus, entrepreneurship is the best way to fight
the evil of unemployment and generate employment opportunities in the country. National
Alliances of Young Entrepreneur (NAYE) is rendering
assistance to young entrepreneur in collaboration with public sector banks in the country. It
helps in identifying potential projects, conducting project feasibility report and providing
financial assistance and other logistic support to the young entrepreneurs.
(3) Role of Entrepreneur in Complementing and Supplementing the Economic

Growth: In recent decades, the role of an entrepreneur has been to supplement and acclerate
the pace of growth and economic development in both the developed and developing countries
When an entrepreneur sets up an industrial or service unit it helps in economic growth.
Similarly, when economy grows it creates opportunities for further growth. Thus, every
economic growth has a multiplier affect; one complements the other and one supplements the
other. When an entrepreneur establishes a bank it complements other economic activities as it
helps further growth. When any
engineering and electronic unit is set up it requires components from large number of
manufacturers. In most engineering, electronic and electrical industries like T. V. ,
refrigerators, computer growth of one large unit gives birth to a number of ancillary units. This
is true not only for engineering and electronic industry but also for steel, textiles, chemicals,
food processing and so on. Along with complementary development there is also
supplementary development. When a spinning mill is set up it leads to development of thread
units and cloth weaving units. When a computer hardware industry is developed it leads to the
growth of software industry. The development of software industry led to its exports from India
in a big way. Thus, one leads to growth of another activity.
57
(4) Bringing about Social Stability: Economic power denotes the power and wealth owned
by an individual. Economic power is the natural result of the business activities. Establishment
of large enterprises leads to concentration of econornic power in a few hands in the society.
Such concentration has its own evils in the form of monopolies and monopolistic exploitation
of the consumers and the society as a whole. Hence developing a large number of “small
entrepreneur” helps in even distribution of economic power in a wider range, ultimately
bringing about social stability. Entrepreneurs bring such stability also by generating self-
employment and facilitating development of rural and backward areas. Generally,
entrepreneurship is taken to be synonymous with small scale enterprises. Entrepreneurs have a
definite social role and responsibility towards the society. They must act in ways that enhance
the community’s well-being. Socially responsible behaviour of an entrepreneur not only helps
the consumers and company but it also ensures social stability and order.
(5) Balanced Regional Development of Industries: Industrial development has a tendency to
establish and develop industries, big or small, in metropolitan cities like Delhi, Mumbai and
Chennai and in big towns, This brings to unbalanced regional development of industries. In
this context also, entrepreneurs are required to play an important role in balanced regional
development of dunes. They set up industries particularly in backward areas to avail the various
concessions and subsidies offered by the Central and the State Governments. The Government
of India and the State Governments are also trying to disperse the industries by establishing
industrial estates and creating infrastructural facilities in backward areas.
(6) Role of Entrepreneur in Export Promotion and Import Substitution: Export Promotion
refers to the policy of the govt. designed to encourage the exporters to export more goods from
the country than before. An entrepreneur being an industrialist has a major role to play in export
promotion. Export promotion reduces unfavourable balance of trade, decreases imports and
increases exports. It also increases valuable foreign currency reserves. Various facilities,
incentives and subsidies are provided by the Central and State Governments in the field of
export promotion. Increasing number of entrepreneurs, both old and new, are taking benefits
of incentives, conscessions and subsidies offered by the Government. Entrepreneurs establish
units for meeting domestic and export demand of goods and services. He also looks
opportunities for export promotion of surplus goods and services if he can export to
international markets. For promoting export, an entrepreneur has to take many decisions and
have to implement them. In short, he has to play following roles to promote export
(1) Exploring export promotion possibilities.

(2) Decision regarding entry in international market for export.
(3) Creation of demand in international market.
(4) Decisions regarding pricing and costing.
(5) Decisions regarding distribution or middlemen.
(6) Promotional decisions.
(7) Availing of export promotion schemes.
(8) Getting institutional support.
Generation of
Employment opportunities
58
Unemployment is one of the serious challenges that is staring in the face of many economies
today, especially after the recession of 2008. More recently, there have been concerns of lesser
number of job vacancies even in emerging countries like India and China, which were least hit
by the recession, due to higher inflation rates and slower pace of economic growth.
Unemployment is one of the main reasons for poverty as also one of the causes for rising crime
rates and suicides. Eradicating it is one tough task and a major concern not just for the
governments but also for all those who can actively contribute to be job-creators and not job-
seekers.
The system of education in India today creates store-houses of knowledge devoid of creative
thinking and new ideas. It is stereotype and rot learning that our system encourages. Our
education system, barring a few exceptions, lacks the foundations to nurture entrepreneurs,
who are willing to take risks, learn from mistakes and create empires of their own. We rear
children to become doctors and engineers today without knowing where their true abilities lie.
And these pseudo-educated knowledgeable citizens find it hard to contribute to the nation’s
economy effectively as well as to their own income and pockets.
Today, in India we face a shortage of skilled labour and manpower in blue collared jobs like
those of electrician, plumber, coconut-tree climber and so on. The persons involved in these
professions today can demand more as the supply of such workers is low. Various subsidy and
welfare schemes by the government have also given birth to the new practice of ‘full stomach
without work’ through free rice, television and grinder schemes by some governments. These
schemes encourage laziness and a lack-luster attitude towards taking up jobs and eventually
erode the government exchequers. Hence welfare schemes should not be allowed to go over-
board; After all, in the long run, teaching a person to fish is much more valuable than feeding
him a fish everyday. Bringing in skilled labour force for such manual works and also fixing a
scale of wages for them will help encourage people to take up these jobs as well provide the
industry with sufficient manpower in the form of labourers.
India also needs many more new Tata’s and Birlas and Ambanis to increase the output of our
manufacturing sectors. India today seriously needs to grow in the manufacturing sector to
sustain its high GDP growth rates. We as youngsters should pool in our ideas and work towards
creating new entrepreneurial ventures. As job-creators we can form that part of India that
offers livelihood and support to millions. Youngsters with ideas for ventures should not hesitate
to take risks but should do what their heart tells them to do and not follow the herd. Eradication
of unemployment and creation of jobs is the combined effort of the government and the spirited
and dedicated citizens with a vision. Let us strive to be one among them!
For reduction of unemployment, entrepreneurship in small and tiny sector industries, both in
manufacturing and service sectors, is imperatively needed. Thus, the role of entrepreneur and
its significance in generation of employment opportunities can be depicted under the following
heads.
Establishing tiny, micro and small scale entrprises: Role of entrepreneur in establishment
the above types of enterprises is perceived as a powerful medium to address several socio-
economic issues and the chief among them is generation of employment opportunities for
millions. In a developing economy like India, where population pressure is quite high and job
employment is limited, the role of entrepreneur is very much significant. Entrepreneurial
development gives rise to economic independence through self-employment. Creation of tiny,
59
micro and small enterprises by the entrepreneurs can lead to creation of both self- employment
and wage- employment opportunities, thereby solving the problem of unemployment in the
economy.
Giving emphasis upon village and cottage industries

Upliftment of economically backward sections of the society can be possible if self-
employment opportunities can be provided at the grass root level. To enable these people in
backward regions of the state to set up village and cottage industries, government has
implemented several antipoverty programmes like PMRY, TRYSEM, SGSY, REGP etc, and
the importance of entrepreneurs in cottage and village industries sector has been clearly
acknowledged by Mahatma Gandhi by his policy priorities in village upliftment including
khadi and village industries in his famous constructive programme in 1922. Prior to
independence, cottage industries and handicraft production located in rural areas had occupied
a distinct place in Indian economy because of their high potential in employment generation
and income creation especially in rural and backward areas. As such, entrepreneur can play a
significant role in setting up and reviving the cottage and village industries, thereby creating
employment opportunities to a large number of people living in rural and backward pockets of
the country.
Utilising the surplus labour force in industrial activities

India is a primary producing country. This characteristics feature is further accentuated by
seasonality feature of the agriculture. Therefore, for a large part of the year, people remain ,
more unemployed. Disguised unemployment is a chronic phenomenon in agriculture where in
more people work in a field than actually required. So the surplus labour force is transferred
and utilized by the entrepreneur in non-farm sector activities like small tiny, cottage and village
industries which are labour intensive in nature.
Complimenting and Supplementing

Economic Growth
Entrepreneur supplement and compliment economic growth of the economic in the following
ways:
1. Mobilization of Capital. Entrepreneur’s efforts to mobilize the capital results in motivating the
investors to divert their ideal savings in the industrial enterprises. Investment of public saving in
industrial sector helps the country to use financial resources for productive purposes. The growth rate
of capital formation will be increased which is highly essential for rapid economic development of a
country. It is in the sense that entrepreneur’s grenade capital at a rapid rate and capital formation
increases which is vital for the industrial development.
2. Generation of Employment. Entrepreneurs become self-employed and self-sufficient. They do not
depend on the government jobs or private jobs and directly employ themselves by starting their own
enterprises. In fact, they also privet jobs too many unemployed by setting up large and small scale
industrial. Thus, entrepreneurs play an important role to reduce the unemployment problem in the
country and pave the way for economic development.
60
3. Backward and Forward Linkages. It is the entrepreneur who initiatives change and this to maximize
his profits by innovations. Setting up of an enterprise in accordance with the changing technology has
several backward and forward linkages. For example, the establishment of a textile unit generates
several ancillary units and expands demand for cotton, chemicals, dyes, etc.
Bringing about stability and

Balanced Regional Development
of industries
Regional disparities in development have been an important socio-economic and political

issue in developing countries. In our country some of the states are very developed
while many others are in very backward condition. The main objective of balanced
regional development is to develop all regions equally by making optimum utilisation of
resources. Following are the aims of balanced regional development:
1. Provide Equal Opportunities of Employment Centralization of industries provides

employment to a specific field and maintaining the condition of unemployment in other
fields. Due to this reason, entrepreneur is unable to make the optimum use of resources.
If there is balanced regional development of industries then it will provide employment to
every group reducing the employment disparities.
2. Development of Local Resources: This is national aim that we should develop the local
resources. If there is unbalanced regional development of resources then the local
resources of an area are not fully developed. As it is worldwide that every area Possess
some of specialized feature whether they are in the form of human resource, or natural
resources and if these resources are fully utilized and developed then these regions can
develop fully and can contribute in the development of nation.
3. Development of Infrastructure: The backward states may develop rapidly if there is a
rapid development in the infrastructure. If electricity, water supply and roads are
developed adequately in all the regions, then other segments of infrastructure and
services sector will automatically develop. Thus, it will help in reducing regional
imbalance.
4. Development of Social Infrastructure: The social infrastructure includes investment on
education, health services under public sector etc. If the development of social
infrastructure is adequate then the people will be educated enough to contribute in the
balanced regional development of the nation.
5. Optimum Utilisation of Resources: The natural resources of every nation are limited.
The country should make their optimum use in such a way that some part of them might
be kept in reserve for future use. Balanced regional development can fulfil this aim, as
excessive use of resources of a particular area lead to the wastage of the resources of
that area and further exhaust them for future use.
61
Role of Export Promotion and
Import Substitution
Import Substitution Strategy:

For various reasons, many LDCs have ignored primary-exports-led growth strategies in favour
of import substitution (IS) development strategies. These policies seek to promote rapid
industrialisation and, therefore, development by erecting high barriers to foreign goods in order
to encourage domestic production. A package of policies, called import substitution (IS),
consists of a broad range of control, restriction and prohibitions such as import quotas and high
tariffs on imports.
The trade restrictions are intended to “protect” domestic industries so that they can gain
comparative advantage and substitute domestic goods for formerly imported goods. IS policies
are largely based on the belief that economic growth can be accelerated by actively directing
economic activity away from traditional agriculture and resource-based sectors of the economy
towards manufacturing.
The broad range of tariffs, quotas and outright prohibitions on imports that are part of IS
policies are clearly not a form of infant industry protection. The infant-industry argument states
that sectors and industries that can reasonably be expected to gain comparative advantage, after
some learning period, should be protected.
But the broad protection under IS policies usually protect all industries indiscriminately,
whether they generate technological externalities or have any chance of achieving competitive
efficiency.
IS policies were advocated due to a very sharp decline in the prices of commodities and raw
materials exported by many LDCs. Prebisch and Singer convincingly argued that low-income
elasticity of demand for primary products implied that, in the long run, the terms of trade of
primary product exporters would deteriorate.
In short, the IS approach to development applies the strategic argument for protection to one
or more targeted industries in the LDCs. That is, the government determines those sectors best
suited for local industrialisation, erects barriers to trade on the products produced in these
sectors in order to encourage local investment and then lowers the barriers over time as the
industrialisation process gains momentum.
If the government has targeted the correct sectors, the industries will continue to thrive even as
protection comes down. In practice, however, the trade barriers are rarely removed. In the end,
countries that follow IS strategies tend to be characterised by high barriers to trade that grow
over time.
PROBLEMS OF IMPORT-SUBSTITUTION IN INDIA
62
Following are the main problems of import substitution in India :
(1) High Production Cost at Initial Stage: Besides the raw material, certain other cost like
interest rates, higher price of importable and non traded inputs, technological factors and
low product,civil,y contribute to the high cost, of production in India Therefore, commodities
produced in the country have high prices in comparison to the imported goods and consumers
show, no interest in buying the goods produced for the intention of import-substitution.
(2) Poor Quality of Production: Poor quality and inadequacy of inputs, technology and
facilities affect the product quality. Policy of import substitution proves unsuccessful due
to poor quality products.
(3) Ignorance of Consumers: Generally, people believe that imported goods are better than
the home products. This view attract them towards the imported goods and they do not take
interest in buying goods produced in the country. Policy of
(4) Lack of Essential Resources import-substitution becomes impractical due to lack of

resources essential for production. Inadequacy of capital and raw material, backwardness of
technology create hinderane in the way of import substitution.
(5) Dampens Innovation: Critics observe that such subsidised import substitution generally
limits competition, dampens innovation and productivity growth, and keeps the country’s real
income low.
(6) Ignores Specialisation: This approach ignores the benefits of specialisation and
comparative advantage. The consumers and the entire economy might be better off if
the emphasis on import substitution were replaced by an emphasis on outward orientation.
(7) Discriminates Against Agriculture: Import substitution discriminated against agriculture

and favoured industry. It led to stagnation and impoverishment in rural This, in turn, led to
migration to the cities, necessitating the ‘unproductive’ type of investments.
MEANING OF EXPORT PROMOTION
Export promotion comprises all those government and non-government efforts, rules,
procedures, courses of action and techniques which are adopted to boost our exports in terms
of value as well as in volume. Thus all those measures, schemes, policies, procedures and
methods which are adopted for increasing export are known as export promotion measures. In
order to attain the objective of self-reliance every country is keenly interested to expand its
exports.
CRITICAL EVALUATION OF THE POLICY OF IMPORT SUBSTITUTION AND

EXPORT PROMOTION
The goal of self-reliance in vital sectors has been a long term objective of India since the
beginning of the planning. The goal can be attained through foreign trade policy in two ways
as given under :
63
1. Import substitution policy, 2. Export promotion policy.
The two broad objectives of the programme of import substitution in India were : (a) to Save
scarce foreign exchange for the import of more important goods, and (b) to achieve self-
reliance in the production of as many goods as possible. The policy in India has gone through
various phases. Broadly speaking, we can discern three distinct phases
(i) in the earlier phase, import substitution mostly took the form of domestic production of
Consumer goods;
(ii) in the second phase, emphasis shifted to the replacement of the import of capital goods and
(iii) in the third phase emphasis was on reducing the dependence on imported technology by
developing and encouraging the use of indigenous techniques. As a result of the policy of
import substitution, the structure of imports has undergone significant changes. Many items
which were previously imported are now being produced in the country itself. As a result of this
policy, the country has been able to increase the production of many industrial products like
iron and steel, automobiles, railway wagons, machine tools, diesel engines, power
transformers, etc. and in the case of many other products has achieved a stage of self-
sufficiency. As stated earlier, import substitution enabled the country to achieve
diversification and depth so necessary for further growth• However, many economists have
argued that the indiscriminate extension of import substitution to a wide range of sectors in
India without regard to costs, was not the ‘best’, or the ‘most efficient’ policy. In this context
Jaleel Ahmed states, “Valuable resources could have been saved if the process of import
substitution had been more selective with a limited number of strategically chosen sectors and
industries, where a concentration of effort and resources could have maximised the gains in
efficiency. In the heavy industry sector, in particular, simultaneous development of a plethora
of manufacturing activities may have deprived the economy of the advantages of large-scale
production and of meeting the minimum critical thresholds. In short, the policy of import
substitution was followed during sixties and up to early seventies whereas the export
promotion policy was followed since early seventies. In order to succeed government of India
has changed her EXIM policy from time to time to attain export promotion policy. In the year
1973, OPEC countries raised the prices of crude oil about four times. India has shifted
her policy from import substitution to export promotion so that she could meet the challenge
of sharp hike in oil •prices by the OPEC. Export promotion and import substitution are the two
important measures for narrowing down and ultimately wiping out the balance of payments
deficit. Infact, Import-substitution and Export Promotion are the two aspects of the coin.”
DIFFICULTIES IN EXPORT PROMOTION

If we view from the world angle we shall find that in the world export, India’s export have been
regularly decreasing from the time of independence. India’s share in the total foreign trade of
the world was 11% whereas now it has greatly decreased, A brief account, of the major
drawbacks of India’s export sector is given below
1. Technological Factors: Technological problems have very seri0US effect on India’s exports. The
Tandon Committee and Alexander Committee have referred to the adverse ‘impact of technological
backwardness on India’s exports through poor quality, low productivity, high costs, etc.
64
2. High Costs: In a large number of cases, high domestic costs are an inhibiting factor. This problem has
been clearly stated by Abid Hussain Committee, “India is often at a disadvantage vis-a-vis competing
countries because its costs of production, and hence export price, are higher than in competing
countries. It is not only because of the higher prices of importable and non-traded inputs, or because
of time and cost over-runs implicit in managerial inefficiency, but also because of much lower level of
productivity, all of which stem from the aforesaid problems.”
3. Poor Quality Image: India has a poor quality image abroad. Despite the measures taken under the
Exports (Quality Control and Inspection) Act and other laws, our exports continue to suffer because
ofquality problems. Poor quality and inadequacy of inputs, technology and facilities affect the product
quality. In several instances, carelessness or lack of commitment on the part of the exporters is also
responsible. Adulteration and dumping are also not uncommon. There is a general impression that a
proper export culture is lacking in India.
4. Unreliability: Besides quality, Indian exporters have been regarded as unreliable on certain other
factors. As the Tandon Committee has observed, a very important black mark on the Indian exporters
is reneging a term used in the USA to refer to going back on a contract and refusing to fulfil it on its
original terms.
5. Supply Problems: A serious drawback of the Indian export sector is its inability to provide continuous
and smooth supply in adequate quantities in respect of several products. The problem is that much of
the exporting is the result of the residual approach rather than conscious effort of producing for
export. The tendency for exporting what we produce rather than producing for export still continues
to characterise the export behaviour.
6. Faceless Presence Although India is an important Supplier of several commodities in foreign markets,
her presence in these markets is faceless in the sense that the consumers do not, know that these
commodities are Indian. Major export items of India like sea-foods, leather manufactures, spices, etc.,
have in many cases, a faceless presence in foreign markets. Although these exports may undergo
further processing or repackaging in many cases. In several cases the Indian exports are sold in the
foreign markets in the same condition as they are exported but under foreign brand names. It has
also been found that when the product carries a foreign brand name sometimes they fetch a much
higher price than the same product with an Indian name. This is indeed a vicious circle. The poor
quality image of the Indian products, many a time apparent than real, makes it difficult to sell under
Indian brand names. The faceless presence, on the other hand, perpetuates the problem. The faceless
presence is the result of the failure of the exporters and- export promotion agencies in India to build
up an image for Indian goods abroad. In fact, most bulk importers of Indian goods want this situation
to be perpetuated as this enables them to hold control over the market while the exporters, being at
the mercy of the foreign traders, lose bargaining power.
7. Infrastructural Bottlenecks: Infrastructural shortages such as energy shortages, inadequate and
unreliable transport and communication facilities hinder growth in exports. Power shortages and
breakdowns disrupt production schedules, increase cost and adversely affect timely shipments.
8. Uncertainties, Procedural Complexities and Institutional Rigidities : One of the defects of our trade
policy regime has been the uncertainty about future policies, incentive schemes etc. The procedural
complexities of the Indian trade regime have been indisputably acknowledged. There is a general
feeling that not only that there are too many controls and overlapping of policies but also “the
principle of Indian policy is to elaborate rule (and exceptions) to them, which are not only detailed and
specific, but also subject to wide discretion.” These are vindictive of the structural weakness of the
institution system in India,
9. Inadequacy of Trade Information System: An efficient Trade Information System is essential for
success in the dynamic global market. But, “our marketing infrastructure as well as marketing
techniques are neither effective nor efficient. We do not have any machinery to keep prompt track of
business informati0n overseas, as done by JETRO in Japan, KOTRA in Korea, CETDC in Hong Kong and
STDB in Singapore with a wide network of offices abroad. These organisations have evolved an
efficient system, which help them to get information pertaining to tenders and the like much before
65
these are released officially. In India, we get this information, at times, after the expiry date. India has,
no doubt, a plethora of organisations; governmental, semi-governmental and also non-governmental
engaged in this task in one way or other. Yet we do not have an easy access to market intelligence and
information.
Forex Earnings
Foreign exchange earnings refer to the monetary gain made by selling goods and services OR
by exchanging currencies in global markets. Such markets are known as Foreign Exchange
markets/ Forex markets. Foreign exchange earnings are denominated in convertible currencies,
which means that even though the earnings come in the respective currencies of the countries
where the products or services are sold, they have to be exchanged with the home currency in
order to be calculated.
Foreign exchange earnings can have two components:
(a) Profits from the export of goods and services
(b) Profits from the conversion of currencies due to the difference in exchange rates
The exchange rates of the currencies are a function of the demand and supply of money in a
given country and fluctuate with time.
As explained by the money market equilibrium equation (LM curve), if the money supply
increases in a country, the price of the currency generally decreases, and the converse holds
true. The interest rate, set by the government, also affects the demand for money, and thus the
amount of foreign exchange earnings that can be made from it.
Money Market Equilibrium (LM curve) –>L= kY -hi
• L= Money demand
• h= Sensitivity of money demand w.r.t interest
• k=Sensitivity of money demand w.r.t. Y
• Y= Aggregate demand
• i= Interest rate
66

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The Entrepreneur

THEINTACTFRONT13 JUN 2019 3 COMMENTS

Entrepreneurship is one of the resources economists categorize as integral to production, the

Entrepreneurs Impact the Economy

Entrepreneurs Help Economies

To this end, governments commonly assist in the development of entrepreneurial ecosystems,

For example, California’s Silicon Valley is often cited as an example of a well-functioning

Factors Leading to Increase in Entrepreneurship

1. Encouraging schemes by the government authorities

Government of India is also encouraging the interest in entrepreneurship. It has launched a

2. The Rise of Technology

3. The Female Entrepreneurs

1. Raising Funds for the Business

2. Knowledge on How to Run a Business

3. Keeping Up with Technology

4. Quality of Human Resources

Entrepreneurship thrives in a conducive environment that facilitates the growth of business. It

1. Schumpeter’s Theory of Innovation:

Talking about innovation, he referred to new combinations of the factors of production,

Innovation could involve any of the following:

1. Innovation of new products.

Schumpeter’s theory has been subjected to the following criticisms:

2. Max Weber’s Theory of Social Change (Emphasis on Impact of Religion):

1. The theory is based on unrealistic and invalid assumptions.

3. The Uncertainty-Bearing Theory of Knight:

Let us try to understand the underling concept of risks.

The salient points of Knight’s theory include:

4. Theory of Frank Young (Emphasis on Changes in Group Level Pattern):

5. Economic Theory of Entrepreneurship:

6. Mark Casson Theory (Economic Theory):

7. Kunkel’s Theory (Emphasis on Entrepreneurial Supply):

In an economy, the supply of entrepreneurship depends on the following structures

(i) Demand Structure:

(ii) Limitation Structure:

(iii) Opportunity Structure:

(iv) Labour Structure:

Kunkel’s theory despite of great recognition is criticized on the following grounds:

1. The theory is based on unrealistic postulates.

8. Hoselitz’s Theory (Emphasis on Marginal Groups):

10. E. E. Hagen’s Theory (Emphasis on Withdrawal of Status Respect):

11. Leibenstein’s Theory (Emphasis on X-Efficiency):

Leibenstein advocated two types of entrepreneurship. First type is the ‘Routine

12. M. Kirzrier’s View on Entrepreneurship:

We shall try to understand the basics features enshrined in his ideas.

13. Baumol’s View on Entrepreneurship:

14. Peter Drucker’s View on Entrepreneurship:

He also considered that the entrepreneurial society is the outcome of innovative

Be it individuals or corporate, opportunities are always available. As an individual, you have

Advantages of opportunity analysis

• immediate / industry environment

Examining the industry environment needs an appraisal of the competitive structure of

1. Understand Core Products and Services

2. Long- and Short-Term Trends

3. Focus on the Right Competitors

6. Don’t Act too Hastily

Legal requirement of establishment

Legal Requirements for Establishment of a New Unit

(i) Application form duly filled in and signed by an authorised person.