A PERSPECTIVE ON ENTREPRENEURSHIP

Entrepreneurship is a very important component of a capitalist economy like the Philippines. It thrives in
economic systems that support innovation and hard work. When entrepreneurs become successful, the
nation is immensely benefited.

What is entrepreneurship and how does it affect the economic well-being of many people? What is the
task of the entrepreneur? This chapter is an attempt to provide answers to concerns like those stated
above.

Entrepreneurship and Economic Development

Economic development is a scheme aimed at improving the living standards of the nation's citizenry. To
achieve economic development goals, proper management of the following elements is necessary:

1. human resources (labor supply, education, discipline, motivation);

2. natural resources (land, minerals, fuel, climate);

3. 4. capital formation (machines, factories, roads); and technology (science, engineering, management,
entrepreneurship).

The effective and efficient utilization of the various resource elements contribute to the economic
growth. This happens when the element of entrepreneurship is per- formed well by the players. The
abundance of natural resources like fertile land, min- erals, fuels and good climate are plus factors but
they are not guarantees for positive economic development. There is a need for entrepreneurs to
perform the function of harnessing the potentials of any or all of the various elements, determining the
right quantity of resources needed, and applying the elements at the right time.

The performance of the entrepreneur, however, will depend much on the support provided by the
government. Apart from other obstacles, government restrictions limit the effectiveness of
entrepreneurs.
What Is Entrepreneurship

Entrepreneurship refers to the economic activity of a person who starts, manages, and assumes the risk
of a business enterprise. The person who undertakes entrepre- neurial activities is called an
entrepreneur.

The entrepreneur identifies an economic need, considers offering a business solution, proceeds to
assemble the resources required, and assumes the risk of either succeeding or failing. An example of
these activities is properly shown on the succeed- ing page:

Entrepreneur's Concern 1. Identifying an economic

need.

Problem at Hand

Entrepreneur's Action

1. Establish a high

standard school for high

1. High income families are not satisfied with the services provided by high schools in the area.

2. Assembling resources required.

2. Resources must be made available.

school students. 2. Acquire funds, hire

people, construct
buildings, and the like.

3. Venture must be made.

3. Prepare project study, advertise, maintain good relationship with em- ployees and customers, among
others.

ap

3. Assuming risk.

The Entrepreneur's Task

If all the requirements in a capitalist economy are in place, the entrepreneur can assume his assigned
role in the development of the economy. A review of the contri- butions of entrepreneurs will reveal
that no business, big or small, started without the hand of the entrepreneur. Even if many of these
businesses failed to survive, still a sizable number developed and proceeded to make the capitalist
economy a viable concern. This is made possible because the surviving enterprises are responsible for
providing the following:

1. products and services for customers and producers;

2. employment;

3. taxes;

4. demand for suppliers' products and services; and

5.

training facilities for future entrepreneurs.

An inspection of the array of products offered for sale in a typical supermarket reveals a wide choice
provided to the consumer. When a consumer is making a deci- sion on which brand of soap he is going
to buy, for instance, he will be choosing from as many as 10 different brands. Many years ago, his choice
was limited to one or two brands. Much earlier, soap was not even available for sale. The consumer had
to pro- duce his own requirement.

What brought the consumer to the situation where he has the luxury of choosing from many options?
And this does not refer to soaps alone but other products as well.

Services which were not previously available are now at the beck and call of the consumer. The fastfood
canteen at the corner, parcel delivery, communication through cellphones, cable television, short-term
credit through credit card, money remittance, and the like, are among the many services made possible
by entrepreneurs.

A review of the statistical reports prepared by the government shows that busi- ness organized by
entrepreneurs employs millions of people.

The taxes paid to the government in the form of licenses, fees, and permits applicable to the
enterprises, as well as income taxes applicable to the employees and entrepreneurs, easily amount to
billions of pesos. The taxes collected are, in turn, into development projects of the government.

The entrepreneurs also make sure that the suppliers will have a ready market for their products and
services. The retailers, for instance, assure the viability of big com- panies like San Miguel Corporation
and Purefoods Company. Hollow block manu- facturers utilize the output of big cement factories. VCD
and DVD shops provide the necessary linkage between consumers and producers of movies and
recorded music.

Lastly, business enterprises provide a training ground for future entrepreneurs. A number of
entrepreneurs were former employees of enterprising persons. Many of them used their acquired skills
in starting new businesses. Some even improved on the entrepreneurial skills passed on to them.

The Entrepreneur's Task

Land

(Natural Resources)

Labor (Human Resources)

Capital (Financial Resources)

Entrepreneur

Production Process

Finished Goods and Services

Figure 1

In the attempt to make profits, the entrepreneur performs the following specific functions:

1. To supply the necessary capital;

2. To organize production by buying and combining inputs like materials and labor;

3. To decide on the rate of output, in the light of his expectation about demand;

And

4. To bear the risk inherent to the venture.

Any business enterprise must offer products or service to the buyers whether the buyers must be
bought or manufactured. In any case, there will be a need to hire the services of employees, laborers,
and managers. Equipment, furniture, and machi- nery must be acquired. All of the above will need funds
which the entrepreneur must produce, in addition to whatever fund reserves are required.

The next specific function of the entrepreneur is to assemble a production unit complete with
manpower and equipment, the quality and quantity of which have been predetermined by him.

The entrepreneur will also determine and make decisions on the rate of output

the firm must produce. This will have to be tied up with demand.

Finally, whatever risk is involved in the entrepreneurial activity, he must suffer the consequence of
losses if he fails, but he will enjoy the profits as a reward if he succeeds.

Entrepreneurship and Innovation

The freedom of competition afforded by the capitalist economy serves to drive the entrepreneur to
innovate and get ahead of his competitors lest he is driven out of the market. Buyers of commodities
have a tendency to patronize innovative offerings of any kind and if one wants patronage, he must
remember this motivation. Innovation may be defined as the introduction of a new procedure, cus-

tom, device, among others. Innovation could be any of the following:

1. a new product;

2. a new of production;

3. the substitution of a cheaper material in an unaltered product;

4. the reorganization of production, internal function, or distribution arrange- ment leading to increased
efficiency, better support for a given product, or lower costs; or

5. an improvement in instruments or methods of doing innovation. Innovation may also be viewed as

the last stage in an important process consisting of the following: invention - which refers to the
discovery or devising of new products

a.

and processes;

b. development - which refers to the process by which the ideas and prin- ciples generated from the
stage of invention are embodied in concrete products and techniques; and

c. innovation-which refers to the actual introduction of a new product or process.

Innovation, if it must be made successful, must provide value to the buyers over and above those
offered by competitors. To achieve this, innovation must reduce costs or improve the quality of products
or services offered for sale

Examples of successful innovations are the following:

1. The cordless 2. Microphone; the microwave oven;

2. The cellular phone;

4.

The kung fu fight scenes developed by Bruce Lee in the movies;

5. The karaoke music appliance;

6.

7.

The use of Laser in the treatment of eye conditions; and

The use of computers by engineers and architects in the design of buildings.

New Ventures and Long-Term Enterprises

A new venture cannot remain as such forever. The entrepreneur must develop it into a small business or
make it grow into a mature and bigger company if he is to recoup the cost of opening a new venture and
take advantage of the opportunities presented by a mature business.

The transition from a new venture to a successful long-term enterprise consists of at least four major
stages. The stages are as follows:

1. The prestart-up stage

2. The start-up stage

3. The early growth stage

4. The late growth stage

The prestart-up stage happens when the entrepreneur starts to question the feasibility of an idea,
product, or service. He seeks answers to questions regarding potential markets, production, and
financing. This is a very important stage that the entrepreneur must consider. If he errs in his evaluation,
he will fail before considerable growth is attained.
In the start-up stage, the following activities are undertaken:

1. Formation of the business;

2. Generation of necessary capital;

Purchase of facilities and equipment; constructing prototype products; and 4.

3.

5. Testing the market.

No full-scale activity must be undertaken at this stage for the simple reason that feasibility must be
established and verified.

The early growth stage follows after establishing feasibility. Activities will be on

A small scale, i.e., selling to limited markets with limited resources. If losses occur, it

Will naturally be limited also. If the enterprise is successful at this stage, the option to

Move to the next stage can be exercised.

The late growth stage is the final stage before the new venture matures into a stable enterprise. This is
when management is structured, long-term financing is established, and facilities planning are
undertaken. This is also the stage where the skills of the entrepreneur are less needed. Instead, the
skilled manager begins to take over.

Rewards for Successful Entrepreneurship

The use of any of the factors of production deserves to receive some form of com- pensation. The
factors referred to as "things required for making a commodity" con- sist of land, labor, and capital. To
make them work, however, a fourth factor becomes necessary and this is the entrepreneur.

When land is used in production activities, the owners of land are paid a com-

pensation called rent. The term "rent" refers specifically to the price paid per unit of

time for the services of a durable good, which, most often, refers to land or buildings.

For the effort of laborers, they are paid wages or salaries. Wages may be deter- mined on a piece-rate
basis, while salary is based on time-rate.

Interest is the compensation paid to owners of invested capital.

When all the factors of production are properly compensated, whatever is left as profits are regarded as
income and they accrue to the account of the entrepreneur.

The rates of compensation provided to the factors of production are limited to a large extent by either
industry norms or market forces. Legislation, however, have modified the rates like the minimum wage
rates and mandated interest rates on capital.

The profits accruing to the entrepreneur, on the other hand, are limited only by his skill and industry. He
may reap huge amounts of profits, but he may also lose large amounts in the exercise.

As the landowner earns rent for allowing use of his property, the owner of capital earns interest for
allowing use of his capital. The laborer on duty earns wages for his effort, while the entrepreneur earns
profits for deciding how the business shall be run. If he succeeds, he is compensated for his vision,
originality, and bold undertaking.

Factors of Production
Economic Reward

Land

Capital

Labor

Entrepreneur

rent

interest

wages/salary

profits

Limiting Factor for Rewards Received

supply and demand

industry rates/government mandated rates

supply and demand legislation

skill of entrepreneur
Figure 2. The Factors of Production and Their Rewards

The Entrepreneur’s Predicament

In the race for winning the all-important consumers’ pesos, the business will have to offer products or
services that have certain advantages over the competition’s wares.

In the creation of a new venture, the entrepreneur may be successful in offering innovative products or
services. At this stage, he will reap the profits for being ahead of the competitors. This situation may be
temporary because the competitor may attempt to improve his position by making moves to outpace
the entrepreneur in the race. The competitor may either imitate or offer better innovations. If the
competitor is successful, the profits of the entrepreneur will decline (Figure 3).

To be ahead again, the entrepreneur will consider offering newer and better innovations. The cycle
continues until one or both find a reason to stop.

Entrepreneur

Year 1

Introduce

Innovative product

Year 2

Reap

Moderate profits
Year 3

Maximize profits

Entrepreneur 2

Inactive

Entrepreneur 3

Inactive

Inactive

Introduce

Innovative product

Reap

Moderate profits

Year 4

Profits decline

Maximize profits
Year 5

Introduce innovative product

Profits decline

Introduce

Innovative product

Reap moderate profits

Maximize profits

Figure 3. Innovation and Its Possible Effects on Competing Firms

Entrepreneurship and Business Size

To many people, entrepreneurship means running a small business. New busi ness ventures, however,
can also be undertaken on a large scale. Both small and larg businesses are confronted by problems that
are entrepreneurial in nature.

To effectively compete, business of whatever size must adapt innovative ap proaches to its activities.
Examples of innovations are the following:

1. Offering business services during Sundays and holidays; 2. Manufacture and sale of new
products; and

2. Selling on a deferred payment scheme.