Theories & Concepts of Entrepreneurship

Mohamed Dahlan Ibrahim, Ph.D Associate Professor

Session Objectives
At the end of the session, students should be

able to:
Understand the various theories and concepts of entrepreneurship Have a deeper understanding of the discipline of entrepreneurship

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Definition of an Entrepreneur
An entrepreneur is a person who undertakes to

do a job. The term entrepreneur originated from a French word entrependre was first coined by Richard Cantillon (1755). In Malaysia, the term usahawan is used to mean entrepreneur.

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Definition of Entrepreneurship
Entrepreneurship involves not only the process

that leads to the setting-up of a business entity but also the expansion and development of an going concern. The study of entrepreneurship is concerned with the entrepreneurial behavior, the dynamics of business set-up and expansion or development of an entrepreneurial organization.
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Development of Entrepreneurship Theories

Adam Smith (1776) An entrepreneur is a person who acts as agent in transforming demand into supply. Jean Baptiste Say (1803) An entrepreneur is a person who shifts resources from an area of low productivity to higher productivity. John Stuart Mill (1848) An entrepreneur is a prime mover in the private enterprise. The entrepreneur is the fourth factor of production.

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Development of Entrepreneurship Theories

Carl Menger (1871) The entrepreneur acts as an economic agent who transforms resources into products and services. These transformation process gives added value to the output. Joseph Aloysius Schumpeter (1934) The entrepreneur is an innovator. The economy moves through leaps and bounds because of the innovations. This process is known as creative destruction Alfred Marshall (1936) The process of entrepreneurship development is evolutionary. The entrepreneur is responsible for the evolution of sole proprietorships into a public company.
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Development of Entrepreneurship Theories

Ibnu Khaldun (Abdul Rahman Mohamed Khaldun) The entrepreneur is seen as a knowledgeable individual and is instrumental in the development of a city-state where enterprises emerge. David C. McLelland (1951) The entrepreneur is a person with a high need for achievement. This need for achievement is the foundation of the entrepreneurship process.

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Islamic Entrepreneurship

Discussion on Islamic entrepreneurship is based on the following main topics:

Integration Human nature Motivation Islamic business and entrepreneurs Islamic economic system Guidelines Exemplary conducts

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The Concept of Integration

Islam is a complete way of life. There is no

separation between business and religion. Islamic entrepreneurship is part of the way of life. Muslims are encouraged to get involve in business activities. (9/10 rezeki adalah dalam perniagaan Hadis Nabi)
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Human Nature
It is part of human nature to follow the teachings of their religion. In Islam, Muslims are required to fulfill two important duties, ibadah and khalifah. In Islamic entrepreneurship, Muslims are able to perform both duties. Maximizing profit is not the ultimate aim of Muslim entrepreneurs. Islamic Man versus Economic Man

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Motivation
Following the sunnah of ambiya and the

companion of Rasulullah saw. Islamic entrepreneurship leads to the path of success both in this world and the hereafter. Success in Islam is not measured by the end result but also the means and ways of achieving them.
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The type of success according to Al-Qurtubi

Halal (Rightful means of living)
Qanaah (Satisfying) Taufiq (Guidance) Saadah (Tranquility) Jannah (Heaven)

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The level of success according to Al-Ghazali

Depends on the following:

Level of knowledge Level of repentance Level of challenges Level of obstacles Level of motivation Level of handicap Level of praise and thankfulness
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Possession of Wealth
In Islam, possession of wealth is allowed based

on the following principles:

Allah s.w.t. is the absolute owner of wealth Allah s.w.t. has created wealth in abundance and sufficient for all Allah s.w.t. has created wealth for mankind Wealth is entrusted to mankind

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Entrepreneurship as Ibadah
Muslim entrepreneurs involvement in business is

to fulfill an obligation known as fardhu kifayah Muslim entrepreneurs bear the responsibility to provide goods and services primarily to the Muslim community and to others

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Islamic Entrepreneurship Model

Islam Propagates (Business Venture) Allah Prepared (Facilities) Islam Provides (Guidelines & Procedures)

Allah Promised (Rewards)

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Islamic Economic System

Islamic entrepreneurship is part of the framework

of the Islamic Economic System. Islamic economic system involves:

Islamic banking Islamic insurance (takaful) Islamic capital markets

Islamic economic system is based on Islamic

jurisprudence.

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Guidelines and Procedures

Islam has provided an extensive guidelines for

Islamic entrepreneurship activities. Among others:

The principle of buying and selling The permissible types of business The principle of zakat in business Business ethics and so on

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Entrepreneurial Ethics
Prevent laziness Eradicate fear/shyness Search for legitimate ventures Avoid unlawful sources of income Show gratitude and thankfulness Grow and develop wealth Diversify business ventures Avoid greediness

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Entrepreneurial Ethics
Avoid malicious behavior Avoid squandering Avoid stinginess Pay zakat and alms Be trustworthy Pray consistently Tawakkal Patience Qanaah

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Exemplary Conducts of Muslim Entrepreneurs

Business is secondary to the call of jihad

(crusade) Never use power or influence for self-interest Afraid of accumulated wealth Leadership qualities in all aspects Practice moderate way of life

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