Chapter II

Entrepreneurship:
A Theoretical Framework

57

Introduction
Since the days of the Industrial Revolution, the enterprises and entrepreneurs
are in the centre stage of modernisation. Economists, sociologists, psychologists and
anthropologists have studied this concept, usually within the frontiers of their
respective disciplines. This has led to more divergence than convergence in moving
towards the goal of practical conceptualization of entrepreneurship.
This chapter presents a theatrical framework of entrepreneurship. At the outset
it seeks to present a glimpse of various theoretical approaches and expositions made
over time and across disciplines to capture the phenomenon of entrepreneurship. And
after familiarizing oneself with the conceptual map, an attempt is made to project a
paradigm shift whereby the entrepreneur is recast into a pragmatic mode, keeping in
perspective the need to intervene for augmenting and harnessing the entrepreneurial
skills.
In spite of the fact that entrepreneurship is a significant factor in economic
development, no attempts were made by economists for formulating a systematic
theory of entrepreneurship with the possible exception of Schumpeter who gave a
central place to the innovative role played by entrepreneurs in his theory of economic
development. Before reviewing different theories of entrepreneurship, it is imperative
to give an account of historical evolution of the concept of entrepreneurship.
Evolution of the Concept of Entrepreneur
For a long time there was no equivalent for the term entrepreneur in the
English language. Three words are commonly used to connote the sense the French
term carried: adventurer, undertaker and projector; these were used interchangeably

58

and lacked the precision and characteristics of a scientific expression 1 . Hence, the
term entrepreneur did not find any prominence in the history of economic thought.
The earliest attempt to invest the concept with some economic content could be traced
to the works of a French writer, Bernard F.de Belidor, in the 18th century who defines
entrepreneurship as buying labour and materials at uncertain prices and selling the
resultant output at contracted prices

2.

Entrepreneurship as a concept gathered

prominence in economic literature mainly through the writings of Richard Cantillon

(1680-1734), who assigned the entrepreneur an economic role by emphasizing on
risk as prominent entrepreneurial function.
The Mercantilist writer Cantillon introduced the term entrepreneur.

He

defined entrepreneur as the agent who purchases means of production in order to

combine them to produce a product to sell at prices that are uncertain at the moment at
which he commits himself to his cost.
The distinction between the entrepreneur and capitalist was facilitated in the
second half of the 19th century by the fact that changing methods of business finance
produced a rapidly increasing number of instances in which capitalists were no
entrepreneurs and entrepreneurs were no capitalists 3 .
Frank H. Knight emphasized the assumption of risk and uncertainty as the
main function of entrepreneur 4 . Harvey Leibenstein ascribed two more functions to
an entrepreneurgap filling and input completing. While the former refers to the
discovery and development of markets and creation of other agents to fill-in the
existing gaps the latter is associated with procuring the needed inputs either
domestically or from abroad 5 .

59

On the basis of the degree of innovative zeal, propensity to introduce change,

and qualities of leadership displayed, entrepreneurs have been classified by Danhof
into four distinct types.

The first one is innovating entrepreneurship which is

aggressive in experimentation and always ready for putting attractive possibilities into
practice. The second is imitative entrepreneurship distinguished by preparedness to
adopt successful innovations initiated by the innovating entrepreneurs. The third
category is Fabian entrepreneurship, characterized by great caution and skepticism,
which introduces changes only when the non-introduction leads to loss. The fourth
category is the drone entrepreneurship which is characterized by refusal to try new
methods even at the risk of loss 6 . While the innovative and imitative categories form
the active entrepreneurial resource the latter two types the Fabian and drone type,
point to potential entrepreneurship which can be activated by designing and
implementing a scheme of incentives. Infact, the problem in less developed
economies is much more than increasing the supply of innovative or imitative
entrepreneurship.
In India, while certain industrial centers have long experience of more than a
century there are many regions with little or no industrial tradition. It is not feasible
to speak of developing innovative entrepreneurship in these regions. The immediate
need is to supply the imitative type and to activise the Fabian and Drone types of
entrepreneurs. Development of modern small scale industries helps in augmenting the
supply of these types of entrepreneurship in these regions.
Thus, the word entrepreneur is drawn from the French language where it
originally meant to designate an organizer of musical or other entertainments. Oxford
English Dictionary (in 1897) also defined an entrepreneur in similar way as the
director or a manager of a public musical institution, one who gets-up entertainment,
60

especially musical performance7. In the early 16th century, it was applied to those
who were engaged in military expeditions. It was extended to cover civil engineering
activities such construction and fortification in the 17th century. It was only in the
beginning of the 18th century that the word was used to refer to economic aspects 8 .
Since then, the term entrepreneur is used in various ways and various views. These
are broadly classified into three groups, viz., risk-bearer, organizer and innovator.
Entrepreneur as a Risk-Bearer: Richard Cantillon, an Irish man living in France,
was the first to introduce the term entrepreneur in the early 18th century. He defined
entrepreneur as an agent who buys factors of production at certain prices in order to
combine them into a product with a view to selling it at uncertain prices in future 9 .
Knight

10

also described entrepreneur to be a specialized group of persons who bear

uncertainty. Thus, entrepreneur is the economic functionary who undertakes such

responsibility of uncertainty which by its very nature cannot be insured, or capitalized
or salaried too.
Entrepreneur as an Organizer: Jean Baptist Say defined an entrepreneur as one
who combines the land of one, the labour of another and the capital of yet another,
and, thus, produces a product. By selling the product in the market, he pays interest
on capital, rent on land and wages to labourers and what remains is his/her profit

11

.Thus, Say has made a clear distinction between the role of the capitalist as a financer
and the entrepreneur as an organizer.
Entrepreneur as an Innovator: Joseph A. Schumpeter, for the first time in 1934,
assigned a crucial role of innovation to the entrepreneur in his magnum opus
Theory of Economic Development. Schumpeter considered economic development
as a discrete dynamic change brought by entrepreneur by instituting new
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combinations of production, i.e., innovations 12. The introduction of new combination

of factors of production, according to him, may occur in any one of the following
forms: (a) the introduction of a new product in the market, (b) the instituting of a new
production technology, (c) the opening of a new market, (d) the discovery of a new
source of supply of raw material and (e) the carrying out of the new form of
organization of any industry.
while, Harbinson 13 enumerates four distinct entrepreneurial functions; such as
undertaking or managing of risks and handling of economic uncertainty; planning and
innovation; coordinating, administration and control; and routine supervision. Tandon
14

emphasizes that an entrepreneur must possess: a) the capacity to assume risk and

self confidence; b) technological knowledge, alertness to new opportunities,

willingness to accept change and ability to initiate; c) ability to mobilize resources;
and d. ability for organization and administration.
Meredith Geoffrey & others

15

have described entrepreneurs as people who

have the ability to see and evaluate business opportunities together with the necessary
resources to take advantage of them and to ensure success.
Arthur Dewing

16

has conceptualized the function of entrepreneur as one that

promotes ideas into business. Thus, entrepreneur brings an over all change through
innovation for the maximum social good. According to him an entrepreneurs is a
visionary with outstanding leadership qualities.
Peter Drucker

17

has observed that innovation is the specific tool of entrepreneurs,

the means by which they convert changes into opportunities for a different business or
a different service. It is capable of being presented as a discipline, capable of being
learned, and capable of being practiced. Entrepreneurs need to search purposefully for
62

the sources of innovation, the changes and their symptoms that indicate opportunities
for successful innovation. And they need to know and to apply the principle of
successful innovation.
Sharma

18

opines that entrepreneurs are those who exhibit qualities of

leadership in solving persistent professional problems and demonstrate an eagerness

to seize unusual opportunities. Habakkuk

19

has points out that entrepreneurs have

certain common characteristics: a flair for identifying and seizing opportunities for
profit, an eye for the possibility of new products, unexploited raw material supplies,
untapped markets, willingness to take considerable risk; vision, drive and initiative,
the ability to devote their whole energies completely to attain their ends.
Of late, a new breed of entrepreneurs is coming to the fore in large industrial
organizations.

They are called intrapreneurs. The intrapreneurs are usually top

executives encouraged to catch hold of new ideas to convert them into products. Thus,
intrapreneurship serves as a seed-bed for the development of innovative
entrepreneurship.
ENTREPRENEURSHIP: Concept and background
Entrepreneurship is the propensity of mind to take calculated risks with
confidence to achieve a pre-determined business or industrial objective. In substance,
it is the risk-taking ability of the individual, broadly coupled with correct decision
making. The capacity to take risk independently and individually with a view to
making profits and seizing opportunity to make more earnings in the market-oriented
economy is the dominant characteristic of modern entrepreneurship. However, in
countries like India, a new species of entrepreneurs is desirable because here the
economic progress has to be brought about along with social justice.
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Entrepreneurship in India therefore, has to sub-serve the national objectives.

The apparent conflict between social objectives and economic imperatives has to be
resolved first by the individual entrepreneur in his own mind and initiate economic
growth which includes industrial development as one of the instruments of attaining
the social objectives. Thus, a high sense of social responsibility is an essential
attribute of the emerging entrepreneurship in India.
In a Conference on Entrepreneurship held in the United States, the term
entrepreneurship was defined as the attempt to create value through recognition of
business opportunity, the management of risk-taking appropriate to the opportunity,
and through the communicative and management skills to mobilize human, financial
and material resources necessary to bring a project to fruition 20 .
In the opinion of A.H. Cole, entrepreneurship is the purposeful activity of an
individual or a group of associated individuals, undertaken to initiate, maintain or
aggrandize profit by production or distribution of economic goods and services 21 .
Schumpeter states that entrepreneurship is based on purposeful and systematic
innovation. It included not only the independent businessman but also company
directors and managers who actually carry out innovative functions

22

.Thus,

entrepreneurship refers to the functions performed by an entrepreneur in establishing

an enterprise.
THEORIES OF ENTREPRENEURSHIP
The concept and theories of entrepreneurship evolved over more than two
centuries have undergone major changes. Over the years the social scientists have
interpreted the phenomenon of entrepreneurship differently in accordance with their

64

perception and economic environment. Infact, the concept of entrepreneurship is

complex in its content, and it is influenced by not only economical aspects, but also
by sociological, political, psychological, ethical, religious and cultural values. With
the above background, some of the important theories of entrepreneurship are
presented in the following discussion.
a) Schumpeter: The most celebrated theory on entrepreneurship was propounded by
Joseph Schumpeter, who in turn brought the conceptual change in the definition and
functions of entrepreneur. According to him, entrepreneur is a key functionary of
economic development. Further, he said that development implies carrying out of the
new combinations and the concept of combination covers the following five cases23; i)
the introduction of a new good; ii) the introduction of a new method of production;
iii) the opening of a new market; iv) the conquest of a new source of supply of raw
materials; and v) the carrying out of the new organization of any industry.
Thus, the carrying out of these new combinations, Schumpeter calls
enterprise, the individuals who carryout them he calls entrepreneur.
b) Max Weber: The core aspect of the Weberian theory of social change consists in
his treatment of the protestant ethic and the spirit of capitalism. He said that the
inducement of profit results in greater number of business enterprises and a complete
re-organization of the industry occur 24.
In the Weberian system the entrepreneurial energies are generated by
following exogenously supplied religious belief i.e., Protestant ethic. For people who
believe in this ethic, hard work in their walks of life is not only to enable them to have
their worldly desires met but also to have their spiritual needs satisfied.

65

c) Everett.E.Hagen: Hagen makes an attempt to formulate a theory of social change

which explains how a traditional society becomes one in which continuous technical
progress take place. He supports the idea that economic growth occurs interwoven
with political and social change. He rejected the idea that the solution to economic
underdevelopment lies in imitating western technology. The reason is that technology
is a part of the whole socio-cultural complex and transplantation of it into a different
socio-cultural set up may not deliver the goods.
He said that it is the social group which experienced withdrawal of status respects
that turns to rigorous entrepreneurial activities. They are a group of individuals,
creative, alienated from traditional values, driven by burning passion to prove
themselves, seek for an area being so far untouched, preferably an area where they
can gain more power, etc 25.
d) Thomas Cochran: Cochran propounded a sociological theory of entrepreneurial
supply. The basic assumption is that fundamental problems of economic development
are non-economic, he emphasizes cultural values, role expectations and socialsanctions are the key elements that determine the supply of entrepreneurs. According
to him, an entrepreneur is neither a super-normal individual nor a deviant person but
represents a societys model personality 26.
Thus, the individuals performance as an entrepreneur will be influenced by
his own attitude towards his occupation, the role expectations held by sanctioning
groups and the operational requirements of the job.
e) Frank Young: Frank Young was of the opinion that entrepreneur typically does
not work single handed. He said that, entrepreneur is simply the most visible member
from an economic point of view of what is typically a cluster of families whose
66

activity is mutually reinforcing and co-ordinated by a coherent outlook on the world

27

.
Young also claims that many entrepreneurial functions are implied in his

concept of solidarity. And this solidarity of the entrepreneurial group also avoids
many economic problems that crop up in the case of an individual entrepreneur.
f) John.H.Kunkel: Kunkel has given a behavioral model which in turn begins with
the assumption that mans internal state is beyond the scope of presently available
means of measurement and objective analysis, and knowledge of it is largely
unnecessary for the explanation and prediction of behavior 28.
According to this behavioral model, the determinants of an individuals
activities are to be found largely in the conditioning procedures-both deliberate and
accidental to which he has been subjected in the past, and in the sets of reinforcing
and discriminative stimuli which became part of his behavioral chains and are part of
present social context. The relationship between the social environment and the
individual is reciprocal. Thus, entrepreneurship is basically an outcome of the society
and its expectations.
g) David C. McClelland: McClelland was very much concerned with economic
growth and the factors responsible for it. He wanted to find the internal factors, i.e.,
human values and motives that lead man to exploit opportunities, to take advantage of
favourable trade conditions 29.
He found that the chief inner concern or motive is that of a need for
achievement: a desire to do well, not so much for the sake of social recognition of
prestige, but for the sake of an inner feeling of personal accomplishment. Infact, it is

67

this motive in turn guides the actions of entrepreneurs. He said that the important
characteristics of an entrepreneur are, no hard work at routine tasks, avoiding
gambling situations, showing interest in finding out results of their decisions, and
prefer to work hard at tasks that involve a real challenge.
h) Harbison: Harbison did not propound any theory pertaining to entrepreneurship,
but made an interesting observation about entrepreneurship as a factor in economic
development. In most enterprises, a hierarchy of individuals is required to perform
them. Thus, the entrepreneur is in essence an organization which comprises of all the
people required to perform entrepreneurial functions 30.
He suggested that entrepreneurship should be treated as a resource which has
both qualitative attributes and quantitative dimensions.

He also said that the

effectiveness of business organizations require dynamic and innovative entrepreneurs.

A dynamic organization needs ideas, creativity and people who can plan and initiate
changes.
i) Hoselitz:

Hoselitz emphasizes the role of culturally marginal groups, are

responsible for promoting economic development. Marginal groups, because of their

ambiguous positions from a cultural or social stand point, are peculiarly suited to
make creative adjustments in situations of change and in the course of this adjustment
process to develop genuine innovations in social behaviour 31.
Thus, it is quite interesting to note that the theories discussed so far give
prominence to either sociological or psychological factors as determinants of supply
of entrepreneurship. Moreover, most of the theories are based on actual experiences
of some countries or regions in countries during specific periods, the general

68

impression one gets from them is that it is not really possible to build an economic
theory of entrepreneurial supply with the given socio-cultural milieu.
But for the first time, Peter Kilby attempted to formulate such an economic
theory of entrepreneurship using the familiar tools of the economist.
j) Kilby: Kilby observed that the psychological drive for pecuniary gain (desire to
maximize profits) is an exogenous factor taken to be given which is supposed to be
operative in all societies. This profit motive combined with a particular definition of
entrepreneurial role provides the highly elastic supply of entrepreneurial services. He
said that given a favourable economic setting, the main function of an entrepreneur is
to make decisions under uncertainty.
Thus, the different theories outlined above involve varied approaches to
grapple with the problem of social and economic change, the change agent and nature
of its motivation.

Some theories represent essentially mental constructs like

Schumpeter others are empirical in the sense that they are inspired by social and
economic reality as perceived by theorists.
Webers theory draws attention to religious percepts that induce or inhibit the
entrepreneurial activity. McClellands theory gives us two important factors for the
policy makers viz., it is necessary to create a climate to enable children to grow with
high n-ach. And it is possible to improve the performance of entrepreneurs through
proper training and education.
Hagens theory shows that entrepreneurial supply can be expected from
groups which experienced status withdrawal.

Hoselitzs theory reveals the

importance of minority (marginal) groups which in turn display considerable

69

entrepreneurial drive. The theories of Cochran, Young and Kunkel provide good
insights into the social processes responsible for the development of entrepreneurial
skills in the people.
Finally, Kilbys model highlights the environmental economic variables
present are responsible for the demand side of market for entrepreneurship.
Thus, there being multi-faceted dimensions to the problem, no simple theory
can prove all the data or conceptual apparatus necessary to develop the haffa lump
policy and programme. Planners may take this into account and devise suitable
measures to identify the right type of person, give him the right type of training,
provide effective institutional support and devise suitable modes of evaluating the
impact of such efforts 32.Therefore; it is quintessential to take into account the holistic
view of all the theories.
Growth of Entrepreneurship in India: Pre-Independence:
The evolution of the Indian entrepreneurship can be traced back to even as
early as Rig-Veda, when metal handicrafts existed in the society 33.
This brings the point home that handicrafts entrepreneurship in India was as old as the
human civilization itself, and was nurtured by the craftsmen as a part of their duty
towards the society. Then, the village community featured the economic scene in
India. The elaborated cast-based diversion of workers consisted of farmers, artisans
and religious priests. The majority of the artisans were treated as village servants.
Such compact system of village community effectively protecting village artisans
from the onslaughts of external competition was one of the important contributing
factors to the absence of localization of industry in ancient India 34.

70

Thus, from the immemorial till the earlier years of the eighteenth century,
India enjoyed the prestigious status of the queen of the international trade with the
help of its handicrafts.
Unfortunately, so much prestigious Indian handicraft industry, which was
basically a cottage and small sector, declined at the end of the eighteenth century for
various reasons

35

. These include among other things, disappearance of the Indian

Royal Courts, who patronized the crafts earlier; the lukewarm attitude of the British
Colonial Government towards the Indian crafts; imposition of heavy duties on the
imports; low-priced British-made goods produced on large scale; development of
transport which facilitated the easy access of British products; changes in the tastes
and habits of the Indians;etc.
Some scholars hold the view that manufacturing entrepreneurship in India
emerged as the latent and manifest consequence of East India Companys advent in
India. Particularly, the Parsis established good rapport with the Company and were
much influenced by the Companys commercial operations.

The Company

established its first ship-building industry in Surat where from 1673 onwards the
Parsis built vessels for the Company. The most important was shipwright LowjeeNushirvan, who migrated to Bombay around 193536.
In 1677, Manjee Dhanjee was given a contract for building the first large gunpowder-mill in Bombay for the East India Company. Besides, a Parsi foreman of a
gun factory belonging to the company established a steel industry in Bombay in 1852.
Thus, it can be stated that the East India Company made contribution towards
entrepreneurial growth in India.

71

However, the actual emergence of manufacturing entrepreneurship can be

noticed in the second half of the nineteenth century. Ranchodlal Chotalal, a Nagar
Brahman, was the first Indian to think of setting up the textile manufacturing on the
modern factory lines in 1847, but failed. In his second attempt, he succeeded in
setting up a textile mill in 1861 at Ahmedabad 26.The credit for the expansion of
textile industries up to 1915 goes to the Parsis. Out of 96 textile mills existing in
1915, 43% (41) were set up by Parsis, 24 %( 23) by Hindus, 10 %( 10) by Muslims
and 23 %( 22) by British citizens37. Later on Jamshedjee Tata was the first Parsi
entrepreneur who established the first steel industry Jamshedpur in 1911.
Infact, the well-known commercial communities, namely, Jains and Vaishyas,
lagged behind in entrepreneurial initiative throughout the nineteenth century. This is
due to two factors viz., the improvement of business climate in the countryside during
this period resulted in an increase in the quantum of trade which assured quick returns
on investments and the conservative attitude to change from commercial
entrepreneurship to industrial entrepreneurship38.
Indeed, the Swadeshi campaign, i.e., emphasis on indigenous goods, provided
a proper seedbed for inculcating nationalism in the country. Further, the spirit of
indigenousness strengthened its roots so much in the country that the Krishna Mills in
its advertisement of Tribune of April 13 made the following appeal: Our concern is
financed by native capital and us under native management throughout39.
The second wave of entrepreneurial growth in India began after the First
World War. The Indian Government agreed to discriminating protection to certain
industries, even requiring that companies receiving its benefits should be registered in
India with rupee capital and have a proportion of their directors as Indian. The

72

advantages of these measures were mostly enjoyed by the Indians. The Europeans
failed to harness the protectionist policies to their interests 40.
The emergence of Managing Agency System which made its own contribution
to the Indian entrepreneurship can be traced back to 1936 when Carr, Tagore & Co.
assumed the management of Calcutta Steam Tug Association.
The credit for initiation goes to an Indian, Dwarkanath Tagore who
encouraged others to form joint-stock companies and invented a distinct method of
management in which management remained in the hands of the firm rather than of
an individual.

Brimmer41 holds the opinion that Agency Houses emerged to

overcome the limitations imposed by a shortage of venture capital and entrepreneurial

acumen though all may not agree squarely with this view.
Post - Independence:

After taking a long sigh of political relief in 1947, the

Government of India tried to spell out the priorities to devise a scheme for achieving
balanced growth. For this purpose, the Government came forward with the first
Industrial Policy, 1948 which was revised from time to time 42 .
The Government took three important measures in her industrial resolutions:
(i) to maintain a proper distribution of economic power between private and
public sector;
(ii) to encourage the tempo of industrialization by spreading entrepreneurship
from

the existing centres to other cities, towns and villages, and

(iii) to disseminate the entrepreneurship acumen concentrated in a few

dominant communities to a large number of industrially potential
people of varied social strata 43.

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To achieve the above objectives, the Government accorded emphasis on the

development of small-scale industries in the country. Particularly since the Third Five
Year Plan, the Government started to provide various incentives and concessions in
the form of capital, technical know-how, markets and land to the potential
entrepreneurs to establish industries in the industrially potential areas to remove the
regional imbalances in development.

Several institutions like Directorate of

Industries, Financial Corporations, Small-scale Industries Corporations and Small

Industries Service Institute were also established by the Government to facilitate the
new entrepreneurs in setting up their enterprises. Expectedly, the small-scale units
emerged very rapidly in India witnessing a tremendous increase in their number from
1, 21,619 in 1966 to1,90,727 in 1970 registering an increase of 17,000 units per year
during the period under reference 44.
However, in the wake of liberalization, privatization and globalization, a new
concept has emerged known as international entrepreneurship. In simple words,
international entrepreneurship is the process of an entrepreneur conducting business
activities across national boundaries. The activities necessary for ascertaining and
satisfying the needs and wants of target consumers often take place in more than one
country. International entrepreneurship occurs when an entrepreneur executives his or
her business in more than one country.
Entrepreneurship Development:

Entrepreneurship development refers to a

programme designed to help a person in strengthening his entrepreneurial motives and

in acquiring skills and capabilities necessary for playing his entrepreneurial role
effectively. The fundamental objective of the entrepreneurship development is to
transform the potential entrepreneurs into actual entrepreneurs.

74

Entrepreneurship training aims to effect change in the individual in terms of

knowledge, attitude and skills relevant to the entrepreneurship function. Persons may
be trained for entrepreneurial careers so as to increase the level of confidence and
achievement orientation as well as improve management development skill to enable
them successfully run their business45. Further, development of an entrepreneur
means inculcating entrepreneurial traits in a person imparting the knowledge,
developing the technical, financial, marketing and managerial skills. The process of
entrepreneurship development involves equipping a person with the necessary
information for enterprise building and sharpening the entrepreneurial skills 46.
Many governments in developing countries recognize that small and medium
scale industries continue to play an important role in their socio-economic
development. There is growing interest in developing programmes for stimulating
and encouraging entrepreneurship development in these countries with this the
entrepreneur become the focal point in economic activities, especially in developing
countries.
In fact, the entrepreneurship development should be viewed in the total
perspective and should integrate entrepreneurial training, provision of incentives,
consultancy services, sectoral development and other essential strategies of
intervention. As such, entrepreneurship development is viewed as behavior oriented.
One of the factors contributing to the success of this training intervention in
entrepreneurship development is that is based on experience. In entrepreneurship
training, learning by discovery is usually preferred.

Therefore, for any

entrepreneurship development programme to succeed, it is important not only to

motivate the trainees but also to provide them with all the skills necessary to run their
business successfully 47.

75

Entrepreneurship Development Programmes: It is known that an entrepreneur is

the person with a vision, with the drive and with ability to bear risk. He is the spark
plug who transforms the economic scene.

An economy is an effect for which

entrepreneurship is the cause. Entrepreneurship development has, therefore, become

a matter of great concern in all developed and developing countries all over the world.
Entrepreneurship development programmes (EDPs) are deemed to offer the solution
to this problem 48.
Need: The entrepreneurs possess certain traits or competencies.

Traits or

competencies are underlying characteristics of the entrepreneurs which result in

superior performance49. Then the crucial question arises is: Whether these
characteristics are in born in the entrepreneurs or can be induced and developed?
Behavioural scientists have tried to seek answers to these questions.
A well known behavioural scientist, David McClelland, professor at Harvard
University, USA, made an interesting investigation into why certain societies
displayed great creative powers at particular periods of their history? What was the
cause of these creative bursts of energy? He found that the need for achievement
(nach factor)50 was the answer to this question. It was a need to achieve to motivate
people to work hard.
In order to answer the next question whether this need for achievement could
be induced, he conducted a five year experimental study in one of the prosperous
district of Andhra Pradesh in India in collaboration with Small Industries Extension
and Training Institute (SIET), Hyderabad. His this experiment is popularly known as
Kakinada Experiment. Under this experiment, young persons were selected and put
through a three month training programme and motivated to see fresh goals. One of
the significant conclusions of the experiment was that the traditional beliefs did not

76

seem to inhibit an entrepreneur and that the suitable training can provide the
necessary motivation to the entrepreneurs51. The achievement motivation had a
positive impact on the performance of entrepreneurs. Thus, the Kakinada Experiment
could be treated as a precursor to the present day EDP inputs on behavioural aspects.
Based on this realization, India embarked in 1971 on a massive programme of
entrepreneurship development. Since then, there is no looking back. At present,
some 686 all India and State level financial institutions and public sector banks had so
far conducted EDPs in hundreds giving training to the candidates in thousands 52.
Objectives of EDPs: The important objectives of the Entrepreneurship Development
Programmes (EDPs) are to (i) develop and strengthen their entrepreneurial quality,
(ii) analyse environmental set up relating to small industry, (iii) select product, (iv)
formulate project for the product, (v) understand the process and procedure involved
in setting up a small enterprise, (vi) know the sources of help and support available
for starting a small scale industries, (vii) acquire the necessary managerial skills
required to run a small a enterprises, (viii) know the pros and cons in becoming an
entrepreneur, (ix) appreciate the needed entrepreneurial discipline.
The course contents of an EDP are selected in line with the objectives of the
EDPs. The training programme is usually six weeks duration consisting of general
introduction to entrepreneurship, motivation training, management skills, support
system and procedure, fundamentals of project feasibility study and plant visits.
An entrepreneurship development programme consists of the following three
phases:
1. Pre-training Phase, 2. Training Phase, and 3. Post-training Phase (Follow
up)53.

77

1. Pre-training Phase: The activities and preparations required to launch the training
programme come under this phase. This phase includes selection of entrepreneurs,
arrangement of infrastructure, tie-up of guest faculty for the training purposes,
arrangement for inauguration of the programme, selection of necessary tools,
techniques to select the suitable entrepreneurs, formation of selection committee for
selecting trainees, arrangement for publicity media and campaigning for the
programme, development of application form , finalization of training syllabus, and
pre-potential survey of opportunities available in the given environmental conditions.
2. Training Phase: The main objective of this phase is to bring desirable change in
the behaviour of the trainees i.e., to develop need for achievement. Accordingly, a
trainer should see the following changes in the behaviour of the trainees 54.
a.

Is he/she attitudinally tuned very much towards his/her proposed project idea?

b.

Is the trainee motivated to plunge into entrepreneurial career and bear risks
involved in it?

c.

Is there any perceptible change in his entrepreneurial attitude, outlook, skill,

role, etc.?

d.

How should he/she behave like an entrepreneur?

e.

What kinds of entrepreneurial traits the trainee lacks the most?

f.

Whether the trainee possesses the knowledge of technology, resources and

other knowledge related to entrepreneurship?

g.

Does the trainee possess the required skill in selecting the viable project,
mobilizing the required resources at the right time?

3. Post-training Phase (Follow-up): This phase involves assessment to judge how

far the objectives of the programmes have been achieved. This indicates our past
performance , drawbacks, if any, in our past work and suggests guidelines for framing
future policies to improve our performance.

78

Evaluation of EDPs: The EDPs have been considered as an effective instrument for
developing entrepreneurship in the countryside. Hundreds of EDPs are conducted by
some 686 organizations to impart entrepreneurial training to participants in
thousands55. However, there is a need to have a retrospective look into how many
participants have actually started their own enterprises after completing the training.
This calls for evaluation of EDPs.
So far some 16 evaluation studies have been conducted by various
organizations and individual researchers.

No doubt, these studies vary in their

objectives, coverage and content, but one common thread in all of them is the
assessment of effectiveness or impact of EDPs, howsoever, loosely defined. One of
the earliest attempts in this direction was made by a team of researchers and experts
appointed by the Gujarat Corporations to evaluate the effectiveness of EDPs56. The
most recent and nationwide evaluation study on EDPs is one carried out by the
Entrepreneurship Development Institute of India, Ahmedabad 57.
The birds eye view on the findings of this study are presented in the following table.
Sl.No. Description
Number Percentage
A. Sample of the Study:
1. EDPs covered (Sample Size)
145
25.00
2. EDP Trainees covered in sample EDPs
1,295
30.00
3. Sample Trainees Interviewed
865
66.80
4. Sample Trainees Not Available and Non traceable
430
33.20
B. Macro Performance of EDPs:
1. number of Units set up by the EDP trainees
277
21.39
2. Trainees actively under process
78
6.02
3. Potential Start ups (1+2)
355
27.41
4. Trainees blocked under process
129
9.96
5. Trainees who gave up
381
29.42
6. Non traceable trainees
146
11.27
7. Trainees not available for interview during survey
284
21.93
(i) Start-ups among non-available
59
4.56
(ii)Non start-ups among non-available
225
17.37
8. Actual start-up Rate (1+7.1)
336
25.95
9. Expected Final Start up Rate (2+8)
414
31.97
------------------------------------------------------------------------------------------------------Source: S.S. Khanka, Entrepreneurial Development, S. Chand & Co., New Delhi,
2006 p.65.
It is observed that one out of every four trainees (26 percent) actually started
his/her enterprise after undergoing entrepreneurial training. However, the expected
79

final start-up rate is slightly higher around 32 percent. About 10 percent trainees are
found blocked due to various reasons at various stages in the process of setting up
their enterprises. If not helped effectively, they may join the category of those 29
percent trainees who have already given up the idea of launching their ventures. Out
of 430 trainees who could not be contacted personally during the field survey,
according to the secondary sources, viz., family, friends and neighbors, 17 percent
have given up the idea of venture launching as they are engaged in other activities.
However, the performance of EDPs across the States and across the ED
organizations has not been uniform. The actual start-up rates are observed to be
oscillating between 9 percent and 56 percent, bringing down the overall national startup rate to about 26 percent58 which cannot be considered as impressive performance.

80

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