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ENTREPRENEURSHIP DEVELOPMENT

PRASANJEET BHATTACHARJEE

UNIT - I

Definition of Entrepreneur
The entrepreneur, by definition, shifts resources from areas of low productivity and yield to areas of higher productivity and yield. Of course, there is a risk the entrepreneur may not succeed.
(Drucker, 85)

DEFINITION OF ENTREPRENEURSHIP
It is more than mere creation of business Entrepreneurship is a process of innovation and new venture creation through four major dimensions individual, organizational, environmental and process. The entrepreneurship process is aided by collaborative networks in government, education and institutions.

DEFINITION OF ENTREPRENEURS Functional definition of entrepreneurs offers the following definition: Entrepreneurs are individuals who actively form or lead their own business and nurture them for growth and prosperity.

What is an Entrepreneur?
An Entrepreneur (ahntra pra nur) is a person who organizes and manages a business undertaking, assuming the risk for the sake of profit. Any person (any age) who starts and operates a business is an entrepreneur.

Definition: Entrepreneurship
The Spirit of Creative Risk Taking

Entrepreneurship is the act of:


Creating new ventures that generate and capture value by realizing opportunities through creativity, innovation, knowledge, skill and passion while managing resources and risks!

What is entrepreneurship?
A person who destroys the existing economic order by introducing new products and services, by creating new forms of organization, or by exploiting new raw materials Schumpeter Someone who perceives an opportunity and creates an organization to pursue it - Bygrave Most current: A way of thinking and acting that is opportunity obsessed, holistic in approach and leadership balanced for the purpose of wealth creation - Babson College

Entrepreneurship
Some advantages
You are your own boss Enjoy the profits from you efforts Sense of pride in your business Flexibility in your work schedule

Entrepreneurship
Some disadvantages
Will need to put in long hours Need money to start Have to keep up with government rules and regulations May have to mark hard decisions (hiring, firing, etc.) May lose money

Intrapreneurship defined
Intrapreneurship is entrepreneurship by employees

in existing organisations
Source: Antoncic and Hirsh, 2003

Entrepreneurship (contd)
Intrapreneurs
Individuals (managers, scientists, or researchers) who work inside an existing organization and notice an opportunity for product improvements and are responsible for managing the product development process.
Intrapreneurs frustrated with the lack of support or opportunity at their firm often leave and form their own new ventures.

Entrepreneurship Vs Management
Entrepreneurship
Creating something new New product, new method of production, new markets, new source of raw material Challenges the norm

Management
Protects Stewardship of existing resources

Why become an Entrepreneur?


Personal situation Resources Entrepreneurial skills Success stories Desire for independence Opportunity to exploit a gap Frustration

Characteristics of an Entrepreneur
Drive Perseverance Ambition Leader Survivor status Competitive Interpersonal skills Innovative skills Ability to bounce back Vision Motivation Self-confidence Self Satisfaction Extrovert Results orientated Committed Risk taker Sociable

Psychological Characteristics of Entrepreneurs


Need for achievement Locus of Control Internal External Risk-taking Prosperity Tolerance for ambiguity Type A Behaviour Impatient, time urgency, driving ambition, competitiveness Need for Independence

What is the Role of the Entrepreneur?


Opportunity recognition Market uncertainties
Dealing with the future

Risk taking
Businesses, financial and personal

Resource gathering Profits/Reward

Skills & Competencies


(Birdthistle)

I can.Communicate I can.... Present I can. Represent my opinion I can. Co-ordinate tasks I can. Develop alternative plans I can. Hand tasks over to a 3rd party I can. Co-operate with others I can. Negotiate I can . Sell I can. Organise and plan I can. Handle numbers I can. Handle technical devices My literacy is . My interaction with people is .

Reasons for Entrepreneurial Success


Hard work and long hours Dedication, drive, enthusiasm and belief in the idea Unsatisfied market demand Managerial competence Luck Strong control systems Sufficient capital

Hurdles in starting up a a business


Lack of the right business idea Complicated regulatory efforts Own financial risk Lack of courage Lack of right founding partner Lack of equity Lack of debt capital Know-how-deficit

Hurdles in starting up a a business


Lack of contact clients/customers Economic cycle Business environment Fear of failure Support by family and friends Lack of time Lack of entrepreneurial skills

Have you the fire in your belly? Not indigestion but a vision; a concept; a belief; in your future? Have you the guts to take the rough with the smooth? Sure rough times but accept it and move on. If you are entrepreneur work is fun!! Have some fun.

CATEGORIES OF ENTREPRENEURS

Entrepreneurship in India comes in three forms


Types of Entrepreneurship

Individual
Entrepreneurship driven by instincts to survive
Vegetable vendor Cattle rearing Tea Stall

Micro & Small Enterprises


Small to medium businesses with scope and employment
5-100 employees Relies on internal business sense to succeed

Large Markets
Large businesses with large scope and employment
Typically run by highly educated managers Exit markets well understood

The area of microfinance Supported by small loans between USD $50 - $200 Debt structure; short payback period Proven area for finance

Currently with limited financial support Need USD $20K to $250K Generally rely on personal funds, family, friends, and money lenders

Significant conventional venture capital support Need USD millions in equity Primarily service export or urban focused Proven area for finance

Factors that Shape Future Entrepreneurs


Traits

Environment

Behavior

Functions of an Entrepreneur
Job Creator Risk Taker

Coordinator
Promoter

Value Creator
Profit Maximiser

What is EM?
Entrepreneurial motivation refers to the way in which urges, drives, desires, striving, aspirations or needs direct, control or explain the entrepreneurial behavior of human beings.

Elements of EM
Motive Behavior Goal
Goal

Motive

Behavior

Relationship between Motive, Behavior & Goal


Effort

Help (Assistance)

Goal

Barriers (Internal) Activity

Intention (Motive)

Barriers (External)

Expectation (+ve/-ve)

Feelings (+ve/-ve)

Sources of Entrepreneurial Motivation


Internal/Intrinsic
Personal goals Need for achievement Ambition

External/Extrinsic
Compulsion Support Successful entrepreneurs Access to capital Status

Models of EM
Needs-based entrepreneurial motivation A general model of entrepreneurial motivation Entrepreneurial intentions model Enterprise formation model Model of entrepreneurial motivation and the entrepreneurial process

David McClelland, Psychologist (1917-98)

Needs-based Entrepreneurial Motivation

David McClelland's Needs-Based Motivational Model


Need for achievement (n-ach)
attainment of realistic but challenging goals, and advancement in the job. Feedback as to achievement and progress, and a sense of accomplishment.

Need for authority and power (n-pow)


influential, effective and to make an impact ,personal status and prestige.

Need for affiliation (n-aff)


friendly relationships and interaction with other people

Need for security/safety (n-sec)


Comfortable with secure employment and unwillingness to take higher risk

Behavior of Achievement-Motivated People


Achievement is more important than material or financial

Achieving the aim or task gives greater personal


Financial reward is regarded as a measurement of
satisfaction than receiving praise or recognition success, not an end in itself.

reward.

Security is not prime motivator, nor is status.

Behavior of Achievement-Motivated People


Feedback is essential, because it enables
Achievement-motivated people constantly seek
improvements and ways of doing things better.
measurement of success, not for reasons of praise or recognition.

Achievement-motivated people will logically favor


jobs and responsibilities that naturally satisfy their needs, i.e. offer flexibility and opportunity to set and achieve goals, e.g., sales and business management, and entrepreneurial roles.

Behavior of Achievement-Motivated People


Capacity to set high personal but

obtainable goals Concern for personal achievement rather than the rewards of success (How well am I doing?) rather than for attitudinal feedback (How well do you like me?)

The desire for job-relevant feedback

A Model of Entrepreneurial Motivation


PC PE PG
Internal
Expectation/ Outcome Comparison Intrinsic/Extrinsic Rewards

Decision to behave Entrepreneurially

Entrepreneurial Strategy

Entrepreneurial Management

Firm Outcomes

Implementation/ Outcome Perception PC = Personal Characteristics PE = Personal Environment PG = Personal Goals BE = Business Environment

BE IDEA

Internal/External

Entrepreneurial Intentions Model


Perceived net desirability of self-employment (NDSE)

Tolerance for risk (TR)


Perceived feasibility (self-efficacy) of selfemployment (SE)

Self-employment intentions

Factors Critical to Start-Up & Reasons for Not Starting-Up

A Model of Enterprise Formation


PERSONAL BACKGROUND:
Age Gender Previous employment Family and ethnic group Education

DECISION:
START (Triggers > Barriers)

ENVIRONMENT:
Industry Social Economic Political Infrastructure development

INTENTIONALITY

DECISION:
ABANDON (Triggers < Barriers)

Triggers to start up
Invest (need a job; way to personal savings, super,
redundancy; earn a better salary)

Creativity (take advantage of own talents; have an


interesting job; create something new; realise a dream)

Autonomy (work own hours, own location; be ones


own boss)

Status (follow example of a person I admire;


increase status/prestige; maintain family tradition)

Market Opportunity (saw one) Money (make more, keep more RM)
41

Barriers to start up
Lack of resources - lack of marketing skills, lack of management/financial expertise, lack of information, difficulty in obtaining finance Compliance costs - high taxes and fees, compliance with government regulation, problems finding suitable labour Hard reality - assessment that risks are greater than expected, uncertainty and fear of failure

Entrepreneurial Motivation & Entrepreneurship Process

Source: Shane, et.al. (2003)

Entrepreneurial Behavior & Favorable Business Outcome

Pull Factors

Religious Values
A lot of bounties in business Follow the teachings of the religion Duty to lead a prosperous life

Psychological
Doesnt like to be controlled Want freedom

Pull Factors

Riches and Power


Rich and famous Sophisticated life-style

Service to the Society


Corporate social responsibility Philanthropic activities

Entrepreneurial Culture
Entrepreneurial mindset Business succession

Push Factors

Frustration
Limited job mobility VSS and retrenchment Dissatisfaction

Necessity
No jobs Need to support family Lack educational qualifications

Barriers to Entrepreneurship
Too much to lose Personal inadequacy Fear of Competition Lack of Capital Lack of Opportunity

Factors in Entrepreneurial Success


Achievement Oriented Personality Entrepreneurial Attitudes Belief in Self and Ability Social Context Precipitation Event Intention to Start a Venture Opportunity Recognition Controlling Resources Timing

Classification of Entrepreneurship
Contextual Basis Novelty Basis Intention Basis

Contextual Basis
Entrepreneurship (stand alone start up) Corporate entrepreneurship (new ventures within large established organizations) Co-preneurship (a working professional starts a business and runs it alongside his / her job) Technology Entrepreneurship (start-ups witjh product and process which are technology based) Service Entrepreneurship (start-ups in the services domain of activity) E-entrepreneurship (start-ups wherein business is on internet platform)

Novelty Basis
Innovating Entrepreneurship
Innovating Entrepreneurship involves introduction of new goods, new methods of production, discovers new market and reorganizes the enterprise. This is usually the case with technology companies but it is not ruled out for other ventures also. It is also called Schumpeterian Entrepreneurship.

Imitative Entrepreneurship
This is the type of entrepreneurship wherein the entrepreneur is poised to adopt successful innovations which are already in the market

Intention Basis
Build to sell

THE EVOLUTION OF ENTREPRENEURSHIP THEORY


Definition of an Entrepreneur : An entrepreneur is a person who undertakes to do a job Richard Cantillon (1755). The term entrepreneur is a French word first coined by Richard Cantillon. In Malaysia the term usahawan is used for entrepreneur.

THE EVOLUTION OF ENTREPRENEURSHIP THEORY 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 on going concern. The study of entrepreneurship is concerned with the entrepreneurial behavior, the dynamics of business set up and expansion and development.

THE EVOLUTION OF ENTREPRENEURSHIP THEORY Adam Smith (1776) - An entrepreneur is a person who acts as agent in transforming demand into supply.
Jean Babtiste Say (1803) - An entrepreneur is a person who shifts resources from an area of low productivity to high productivity.

THE EVOLUTION OF ENTREPRENEURSHIP THEORY


John Stuart Mill (1848) - An entrepreneur is a prime mover in the private enterprise. The entrepreneur is the fourth factor of production after land ,labor and capital.
Carl Menger (1871) - The entrepreneur acts as an economic agent who transforms resources into products and services. The entrepreneur transforms and gives added value.

THE EVOLUTION OF ENTREPRENEURSHIP THEORY


Joseph Aloysius Schumpeter (1934) - An entrepreneur is an innovator. The economy moves through leaps and bounds and the prime mover is the entrepreneur through the process of creative destruction.
Alfred Marshall (1936) - The process of entrepreneurship or business development is incremental or evolutionary . It evolves from sole proprietorship to a public company.

THE EVOLUTION OF ENTREPRENEURSHIP THEORY


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 enterprise will emerge.
David McClelland - The entrepreneur is a person with a high need for achievement. This need for achievement is directly related to the process of entrepreneurship.

Concept of Entrepreneurship
Development of Entrepreneurship Entrepreneurial Culture and Stages in the entrepreneurial Process
o o o o o o o o o Stage-I: Entrepreneurial Interest Stage-II: Generate Ideas for screening Stage-III: Venture Screening Stage-IV: Develop and refine the concept Stage-V: Determine resources required Stage-VI: Acquiring necessary financials Stage-VII: Developing business plan Stage-VIII: Implement and manage Stage-IX: Growth or Exit

Concept of Entrepreneurship
What makes a culture Entrepreneurial
o o o o Treat what people respect Help employees stay healthy Open doors to communication Build camaraderie

Maintaining this entrepreneurial culture


o Let the team build itself o Participate without controlling o Dont forget the little things

Development of Entrepreneurship
Key Dimensions of Entrepreneurship

Entrepreneur Economy

Venture

Entrepreneurship in Career Development Subject Area

Entrepreneurial Culture & Stages in the Entrepreneurial Process


(A) Stage I : Entrepreneurial Interest (B) Stage II : Generate Ideas for Screening (C) Stage III : Venture Screening (D) Stage IV : Develop and refine the concept (E) Stage V : Determine resources required (F) Stage VI : Acquiring necessary Financials (G) Stage VII : Developing the business plan (H) Stage VIII : Implement and Manage (I) Stage IX : Growth or Exit

What Makes a culture Entrepreneurial


(a) Treat people with respect
(b) Help employees healthy (c) Open doors to communication (d) Build camaraderie

Maintaining the entrepreneurial Culture


(a) Let team build itself

(b) Participate without controlling


(c) Dont forget the little things

UNIT - II

Idea generation & Creativity


Idea Generation Techniques:
(a) Brainstorming
(b) Fishbone diagram (c) Free Association (d) Mind mapping (e) Visual Brainstorming - Idea Generation Phase - Evaluation Phase (f) Alternative scenarios (g) Attribute listing

Idea generation & Creativity


(h) Card board story (i) Chunking (j) False faces (k) Problem reversal (l) SCAMPER
SCAMPER is the acronym of : S Substitute C Combine A Adapt M Modify P - Put to another use E Eliminate R - Reverse

Idea Screening and selection


Product / Service Sources of advantage Value creation and realization of benefits Customer / Market Competitors competitive advantage Management team Creates significant value for customers Significant profit potential Fit with capabilities of the founder Durable Amenable to financing

Feasibility Analysis
Economic Feasibility Market Feasibility Financial Feasibility Technical Feasibility

The various details that emerge from the feasibility analysis and contribute to larger portion of the business plan are as follows:
Executive summary The industry and the firm Market research and analysis The economics of the business Marketing plan Design and development plan Manufacturing and operational plan Management team Overall schedule Critical Risks, Problems and Assumptions Financial Plan Appendices

Economic Feasibility
Value cost price Hidden Costs Trade offs
Cost Functions

People / Knowledge and machines Scale Vs. Scope Market and demand Risks

Marketing Feasibility
Description of the industry Current Market Analysis Competition Anticipated Future Market potential Potential Buyers and sources of Revenues Sales Projections

Financial Feasibility
Start-Up-Capital Requirements Calculating Business Start-up costs Project Start-up costs conservatively Segregate one-time start-up costs from recurring costs Never run out of cash Cash is king Know the cash balance now Do todays work today Do the work or get someone else Do not manage from the bank balance Know your six months cash balance Cash flow problems do not just happen Have cash flow projections Take care of customers

Technical Feasibility
Preparing an outline for writing your technical feasibility study Calculating material requirements Calculating labor requirements Transportation and shipping requirements Physical location of your business Technology requirements to run your business

Project Planning
A project is an organized unit dedicated to the attainment of a goal the successful completion of a development project on time, within budget, in conformance with predetermined programme specification.

Project Classification
Quantifiable and non-quantifiable projects Sectoral projects
Agricultural and allied Irrigation and Power Industry and Mining Transport and communication Social service Miscellaneous

Techno- Economic Projects Project Identification Project Selection

Project Classification
Project Formulation Contents of a project report
Executive summary The industry and the firm Market research and analysis Economics of the business Marketing plan Design and development plan Manufacturing and operational plan Management team Overall schedule Critical risks Financial plan Appendices

Project Implementation

Project evaluation
There are various methods used for evaluating projects. Some of these are as:

Simple rate of return (SRR) Payback Period (PBP) Benefit Cost Ratio (BCR) Net present value (NVP) Internal Rate of Return (IRR)

Project Monitoring and Control


Monitoring the project
Identify risks, potential project problems, as early as possible Identify when constraints may be violated Ensure that contingency plans occur before unrecoverable problems occur Provide and receive project status for the phases and total project

Monitoring changes to workflows Monitoring system performance Controlling Changes

Creative Problem Solving (CPS)


CPS is a simple process that involves breaking down a problem to understand it, generating ideas to solve the problem and evaluating those ideas to find the most effective solutions

Steps in Creative Problem Solving


Clarify and Identify the problem Research the problem Formulate creative challenges Identify insights Generate ideas Combine and evaluate the ideas Draw up an action plan Do it! (i.e. implement the ideas)

Heuristics of Problem Solving


Heuristic problem solving are common sense rules drawn from experience, used to solve problems. General heuristics are cognitive rules of thumb that are useful in solving a great variety of problems. Heuristic problem solving involves finding a set of rules, or a procedure, that finds satisfactory solutions to a specific problem. (Why?)

Ill-structure
Problems for which there are no known algorithmic solutions are called ill-structured. A well structured problem has the following characteristics: All information relevant to the problem can be represented in an appropriate model. The model should include all feasible solutions There exists an algorithm for finding the optimal solution to the model. All data required should be economically practical to gather.

Heuristic Problem Solving


Random solutions Greedy solutions Exchanging heuristics Break-combine heuristics Improving our solutions Local optimization Iterated local search Simulated annealing

Brainstorming
Brainstorming can be effective way to generate lots of ideas on a specific issue and then determine which idea or ideas is the best solution.

Brainstorming requires a facilitator in order to guide the session. It should be energetic and openly collaborative.

Brainstorming
Step by step process of brainstorming:

Define your problem / issue Give yourself a time limit It must be written down, without any criticism Select your five best ideas best solve your problem, Criteria should start with the word should Give each idea a score (0-5 points) The idea with the highest score will best solve your problem. (Keep a record of all of your best ideas)

Brainstorming
Factors to be considered for successful brainstorming
Mixed participants Enthusiastic facilitator Well stated challenge

Brainstorming
Factors to be considered for successful brainstorming:
Mixed participants Enthusiastic facilitator Well stated challenge

Synectics and Value Analysis


Synectics was formally created by William Gordon & George Prince
Synectics
Synectics is a problem solving methodology that stimulates thought processes of which the subject may be unaware. This method was developed by George M. Prince (April 5, 1918 - June 9, 2009)[1]and William J.J. Gordon, originating in the Arthur D. Little Invention Design Unit in the 1950s. They set up Synectics Inc. (now Synecticsworld) in and the methodology has evolved substantially in the ensuing 50 years.

Process
The process was derived from tape-recording (initially audio, later video) of thousands of meetings, analysis of the results and experiments with alternative ways of dealing with the obstacles to success in the meeting. "Success" was defined as getting a creative solution that the group was committed to implement. This history of sustained Research and Development provides a scientific foundation for the Synectics body of knowledge. Prince emphasized the importance of Creative Behaviour in reducing inhibitions and releasing the inherent creativity of everyone. He and his colleagues developed specific practices and meeting structures which help people to ensure that their constructive intentions are experienced positively by one another. The use of the Creative Behaviour tools extends the application of Synectics to many situations beyond invention sessions (particularly constructive resolution of conflict). Gordon emphasized the importance of "'metaphorical process' to make the familiar strange and the strange familiar". He expressed his central principle as: "Trust things that are alien, and alienate things that are trusted." This encourages, on the one hand, fundamental problem-analysis and, on the other hand, the alienation of the original problem through the creation of analogies. It is thus possible for new and surprising solutions to emerge. As an invention tool, Synectics invented a technique called "springboarding" for getting creative beginning ideas. For the development of beginning ideas, the method incorporates brainstorming and deepens and widens it with metaphor; it also adds an important evaluation process for Idea Development, which takes embryonic new ideas that are attractive but not yet feasible and builds them into new courses of action which have the commitment of the people who will implement them. Synectics is more demanding of the subject than brainstorming, as the steps involved mean that the process is more complicated and requires more time and effort. It is also much more rewarding because the end product is action not just ideas.

Step by Step Process of Synectics


Start with original problem statement Analyze the problem. Restate the problem. Formulate the problem as a single concrete target Generate, collect and record the first ideas that come to mind Fins a relevant analogy in one of the listed categories of analogies Ask yourself questions in order to explore the analogy Force fit various solutions to the reformulated problem statement Generate, collect and record the ideas Test and evaluate the ideas Develop the selected ideas into concepts Present your concepts to the point

Innovation
Innovation is defined as the ability to apply creative solutions to problems or opportunities to enhance or to enrich peoples lives. Innovation could take the form of
a new good a new method of production a new market a new source of supply of raw materials carrying out of a new organization

UNIT - III

International Entrepreneurship Opportunities


With the globalization of the World economy, interest in international markets has increased manifolds and thereby observed enhanced entrepreneurial activity in this domain also.
Some new ventures are born global (such as IT firms in India)

Nature of International Entrepreneurship


International Entrepreneurship is the development of international new ventures or start ups that from inception engage in international business thus viewing their operating domain as international from initial stages of the firms operation.

Nature of International Entrepreneurship


It is the study of the nature ?& consequences of a firms risk taking behavior as it ventures into international markets. A business organization that from inception seeks to derive significant competitive advantage from the use of resources and sale of outputs in multiple countries.

Nature of International Entrepreneurship


International Entrepreneurship is a firm level activity that crosses national borders and focuses on the relationship between businesses and the international environments in which they operate. Combination of innovative, proactive and risjk seeking behavior that crosses national borders.

Examples
The liberalization and globalization of Indian business has seen a lot of increased activity in this field, venture based con specialized resources are able to capitalize on markets elsewhere Dr. Reddys Lab Biocon And many more..

Importance of International Business to the firm


International Business is all business transactions private and governmental that involve two or more countries. Companies that engage in some form of international business are involved in exporting than in any other type of business transaction.

Importance of International Business to the firm


Another core Issue is the companys growth and the importance of networking and interaction i.e. collaborations, sub-contracting, etc. Diverse Markets with vibrant and varied cultural heritage.

Importance of International Business to the firm


Helps as growth strategy Helps in managing product life cycle Technology advantages New business opportunities Proper use of resources Availability of quality products Earning foreign exchange

Complexities
Controlling the market Exhausting natural resources Importance to Luxuries Trade practices Economic Development Shifting of Investment

International Vs Domestic Entrepreneurship


The dimensions on which the international and domestic entrepreneurship differ are basically to do with the reasons to go international as compared to just focus attention on domestic markets. The main reason for organizations to tread across borders has noticeably been to acquire access to larger markets. This requires making alterations to your offerings at times.

International Vs Domestic Entrepreneurship


Uncontrollable Factors: Economies Balance of payments Type of system Political-legal Environment Cultural Environment Technological environment

Stages of Economic Development


Rostow's Stages of Development
Walt Whitman Rostow (1916- 2003)
In 1960, the American Economic Historian, W. W. Rostow, suggested that countries passed through five stages of economic development. Stage 1 -- Traditional Society The economy is dominated by subsistence activity where output is consumed by producers rather than traded. Any trade is carried out by barter where goods are exchanged directly for other goods. Agriculture is the most important industry and production is labor intensive using only limited quantities of capital. Resource allocation is determined very much by traditional methods of production. Stage 2 -- Transitional Stage (the preconditions for takeoff) Increased specialization generates surpluses for trading. There is an emergence of a transport infrastructure to support trade. As incomes, savings and investment grow entrepreneurs emerge. External trade also occurs concentrating on primary products. Stage 3 -- Take Off Industrialization increases, with workers switching from the agricultural sector to the manufacturing sector. Growth is concentrated in a few regions of the country and in one or two manufacturing industries. The level of investment reaches over 10% of GNP. The economic transitions are accompanied by the evolution of new political and social institutions that support the industrialization. The growth is self-sustaining as investment leads to increasing incomes in turn generating more savings to finance further investment. Stage 4 -- Drive to Maturity The economy is diversifying into new areas. Technological innovation is providing a diverse range of investment opportunities. The economy is producing a wide range of goods and services and there is less reliance on imports. Stage 5 -- High Mass Consumption The economy is geared towards mass consumption. The consumer durable industries flourish. The service sector becomes increasingly dominant. According to Rostow, development requires substantial investment in capital. For the economies of LDCs to grow, the right conditions for such investment would have to be created. If aid is given or foreign direct investment occurs at stage 3 the economy needs to have reached stage 2. If the stage 2 has been reached then injections of investment may lead to rapid growth. Limitations Many development economists argue that Rostows's model was developed with Western cultures in mind and not applicable to LDCs. It addition its generalized nature makes it somewhat limited. It does not set down the detailed nature of the pre-conditions for growth. In reality, policy makers are unable to clearly identify stages as they merge together. Thus as a predictive model it is not very helpful. Perhaps its main use is to highlight the need for investment. Like many of the other models of economic developments it is essentially a growth model and does not address the issue of development in the wider context.

Stages of Economic Development

Stages of Economic Development


The Stages of Economic Development and Entrepreneurship
In his classic text W.W. Rostow suggested that countries go through five stages of economic growth: (1) the traditional society (2) the preconditions for take-off (3) the take-off (4) the drive to maturity and (5) the age of high mass-consumption. While these stages are a simplified way of looking at the development of modern economies, they identify critical events. While Rostow focused on the age of high mass-consumption, Porter following recent developments in the Rostow (1960). economics of innovation. Michael Porter8 has provided a modern rendition of this approach by identifying three stages of development: (1) a factor-driven stage, (2) an efficiencydriven stage and (3) an innovation-driven stage. The factor-driven stage is marked by high rates of agricultural self-employment. Countries in this stage compete through low-cost efficiencies in the production of commodities or low value-added products. Sole proprietorshipsi.e. the self-employedprobably account for most small manufacturing firms and service firms. Almost all economies experience this stage of economic development. These countries neither create knowledge for innovation nor use knowledge for exporting. To move into the second stage, the efficiency-driven stage, countries must increase their production efficiency and educate the workforce to be able to adapt in the subsequent technological development phase: the preconditions for take-off plays a crucial role. The drive to efficiency describes the first transition that is predominantly institutional in nature. To compete in the efficiency-driven stage, countries must have efficient productive practices in large markets, which allow companies to exploit economies of scale. Industries in this stage are manufacturers that provide basic goods and services. The efficiency-driven stage is marked by decreasing rates of self-employment. In the efficiency-driven economy capital and labor play a crucial role in productivity and the focus is on technology, in the decision making process. For over a century there has been a trend in economic activityexhibited in virtually every developing countrytoward larger firms. In 1957 Robert Solow at MIT modified Douglass earlier findings on the contributin of capital and labor by a kind of exponential growth factor suggested by Schumpeter early on in the Century. As the Nobel Laureate Paul Samuelson (2009, 76) recently pointed out, This residual Solow proclaimed, demonstrated that much of post-Newtonian enhanced real income had to be attributed to innovational change (rather than, as Douglas believed, being due to deepening of the capital/labor K/L ratio). The transition to the innovation driven stage is characterized by increased activity by individual agents. In the innovation-driven stage knowledge provides the key input. In this stage the focus shifts from firms to agents in possession of new knowledge.9 The agent decides to start a new firm based on expected net returns from a new product. The innovation-driven stage is biased towards high value added industries in which entrepreneurial activity is important. Institutions dominate the first two stages of development. In fact, innovation accounts for only about 5 percent of economic activity in factor-driven economies and rises to 10 percent in the efficiency driven stage. However, in the innovation-driven stage when opportunities have been exhausted in factors and efficiency, innovation accounts for 30 percent of economic activity. We see an S-shaped relationship between entrepreneurship and economic development because in the first transition stage entrepreneurship plays a

Institutional Support For New Ventures


Supporting Organizations The Government of any nation has a critical role to play in ensuring the development of a vibrant business eco-system.

Vibrant Business Eco-system


Government Support Infrastructure Support
Industrial Areas / Economic Zones

Financial Support
Debt & Equity Funding, Tax Holidays, etc.

Skills Support
Supply of educated, qualified, trained workforce

Incubation Support
Mentoring-technical & business guidance for success & growth of ventures

Procedural Support
Simplifying the process of starting & doing business

Incentive Schemes by Central Government


(A) Credit Guarantee Fund Schemes for SSI Small scale industrial units particularly the first generation of entrepreneurs faced difficulties in accessing bank credit because of their inability to provide adequate collateral security for loans

Govt. launched the credit Guarantee Fund Scheme for small Industries on 30th August, 2000 Alleviating the problem of collateral security & impediment to flow of credit to Small Scale Industries (SSI) sector The govt. approved Credit Guarantee Fund Scheme for small industries on 19th May, 2000 Loans up to Rs. 10Lacs w/o collateral / third party guarantees The scheme is being operated by the credit Guarantee Trust Fund for small for small industries (CGTSI) set up by Govt. of India & SIDBI The trust was incorporated on 27th July, 2000 The scheme has been operationalised w.e.f. 1st January, 2001

The Govt. decided to increase the eligibility limit of loans to be guaranteed from Rs. 10 Lacs to Rs. 25 Lacs. Necessary modifications have been carried out in the indenture of the trust to enable CGTSI to guarantee loans up to Rs. 25 Lacs & to provide for counter guarantees to other institutions

Incentive Schemes by Central Government


(B) Salient Features of the scheme
Eligibility & Coverage Guarantee & Annual Service Fee Commencement of guarantee cover Invocation of Guarantee

Incentive Schemes by Central Government


(C) Eligible Institutions
All scheduled commercial banks & Regional Rural Banks (Categorized under sustainable viability) or such of those institutions as may be directed by GOI Contribution to the Corpus Fund of CGTSI Progress of Credit Guarantee Scheme

Incentive Schemes by Central Government


(D) Initiatives for women entrepreneurs Women entrepreneurs have achieved
remarkable success The small Industries Development Organization (SIDO), the various State Small Industries Development Corporations (SSIDCs), the nationalized banks and even NGOs are conducting various programs including EDPs The office of DC (SSI) has also opened a women cell to provide coordination & assistance to women entrepreneurs

SIDBI has been implementing two special schemes for women : (i) Mahila Udyam Nidhi & (ii) Mahila Vikas Nidhi
SIDBI also provides training

Incentive Schemes by Central Government


(E) Incentives for North Eastern Region - Development of Industrial Infrastructure
- Transport Subsidy Scheme - Fiscal Incentives to new Industrial Units & their substantial Expansion - Relaxation of PMRY Norms - Other Incentives Proposed - Procedure for release of assistance under the new Initiatives - Development of village & small Industries (VSI) Sector

Financial Institutions & Small Scale Industries


Industrial Development Bank of India (IDBI) - MSME Finance
IDBI Bank SME Products:
Sulabh Vyapar / Business Solutions Dealer Finance / Dealer Solutions Vendor Financing / Vendor Solutions Funding under CGFMSE Loans to small road & water transport operations Finance to professionals & self employed Finance to medical practitioners Working capital financing to IT & ITES entities Lending against the security of future credit card receivables Entrepreneurial Development Fund Laghu Udyami Credit Cards (LUCC) SME Hoisery Current Account

Financial Institutions & Small Scale Industries


Small Industries Development Bank of India (SIDBI) Objectives
Financing Promotion Development Co-ordination for orderly growth of industry in the small scale sector

Small Industries Development Bank of India (SIDBI)


(A) Development Outlook

The major issues confronting SSIs are identified to be as follows:


- Technology obsolescence - Managerial inadequacies - Delayed payments - Poor quality - Incidence of sickness - Lack of appropriate infrastructure - Lack of marketing network

Small Industries Development Bank of India (SIDBI) (B) Co-ordination and Understanding
As an apex institution SIDBI makes use of the network of the banks & state level financial institutions which have retail outlets

SIDBI has signed memorandum of understanding with 18 banks & the agencies

Financial Institutions & Small Scale Industries


State Bank of India Punjab National Bank ICICI Bank National Small Industries Corporation Ltd. (NSIC)

Financial Institutions & Small Scale Industries


Micro, Small & Medium Enterprises Development Institute (MSME-DI)
They are field Institution office of the Development Commissioner (MSME) under the ministry of Micro, Small & Medium Enterprises, Government of India has been playing a key role for development of Micro, small & medium enterprises through counseling, consultancy & training. These were established in 1960 as Small Industries Service Institute Extension Centre, thereafter upgraded as small Industries since June, 2007 as a follow-up of the merger of the two Ministries of Small Scale Industries & Agro and Rural Industries into a newly formed Ministry of Micro, Small & Medium Enterprises. The Institute strives to achieve its avowed objective through a gamut of operations ranging from training, consultancy, buyer-seller, meet, vendor development programme as well as various awareness & modernization programmes.

Government Policies for Small Scale Industries


The Micro, Small and Medium Enterprises (MSME) sector has been recognized as the engine of growth all over the world. SMEs in India met the expectations of the Government in this respect. SMEs developed in a manner which made it possible for them to achieve the following objectives:

High Contribution to domestic production Significant export earnings Low investment requirements Operational Flexibility Location wise mobility Low intensive imports Contribution towards defense production Technology-oriented industries Competitiveness in domestic and export markets

At the same time, one has to understand the limitations of SMEs, which are as follows:

Low capital Base Concentration of functions in one / two persons Inadequate exposure to international environment Inability to face impact of WTO regime Inadequate contribution towards R&D Lack of professionalism

In site of these limitations, the SMEs have made significant contribution towards technological development and exports. EMEs have been established in almost all major sectors in the Indian industry as follows:

Food Processing Agricultural Inputs Chemicals and Pharmaceuticals Engineering, Electricals, Electronics Electro-medical equipment Textiles and Garments Leather and leather goods Meat products Bio-engineering Sports goods Plastics products Computer Software, etc.

MSME-New Policy and Definition


The small scale industry sector output contributes almost 40% of the gross industrial value-added 45% of the total exports from India (direct as well as indirect exports) and is the second largest employer of human resources after agriculture. The development of small scale sector has therefore been assigned an important role in Indias national plans. In order to protect , support and promote small enterprises as also to help them become self-supporting, number of protective and promotional measures have been undertaken by the Government.

The promotional measures cover

Industrial extension services Institutional support in respect of credit facilities Provision of developed sites for construction of sheds Provision of training facilities Supply of machinery on hire purchase terms Assistance for domestic marketing as well as exports Special incentive for setting up enterprises in backward areas, etc. Technical consultancy and financial assistance for technological up gradation

Government Policies and Support A brief History


1948-91: Office of Development Commissioner was established in 1954 1991-1999: Small Industries Industrial Development Bank was created 1999 onwards: A new ministry was formed and a new policy package was announced in August 2000 to address the problems of credit, infrastructure, marketing and technology up gradation effectively

Present Policy Frame work and Focus Areas


By enacting the micro, small and Medium enterprises Development act 2006, the Government has recently fulfilled one of the needs felt and articulated by this segment for long. Focus Areas: Credit / Finance Priority Sector Lending Institutional Arrangement Credit Guarantee Scheme Performance and Credit Rating Scheme

Technological Up gradation
Department of Science and Technology Department of Bio-technology National Research and Development Corporation Commercial Activities Promotional Activities Development and Promotion of Rural Technology Export of Technology Dissemination of Information on Technology and its and its transfer to Industry

UNIT - IV

FAMILY & NON FAMILY ENTREPRENEURS


Role of Professionals
The real professional is able to see trends and value them in the emerging patterns of relationship and is able to value it. The professional has an understanding of the way things work in the sphere of activity that he/ she is and has adequate knowledge. He / she brings more professionals into organization from other field to understand and get things done. A professional ids continuously on work towards his / her development and growth professional should be able to guide social establishment by way of training and competence development on his / her part.
In addition to ability, confidence, responsibility, belief sand respect other key personal qualities that define a professional are honor, reputation and trustworthiness.

Elements of Professionalism
Altruistic: Showing unselfish concern for welfare of others Accountability responsibility and reliability Excellence
Knowledgeable Competency to retrieve and handle information Appropriate decision making skills Competency in communication

Integrity the quality of being honest moral soundness undivided or unbroken Dutiful appreciation of the role aptitude for personal development Respect to others

Professionalism v/s Family Entrepreneurs


Family entrepreneurship is defined as ownership control by members of a family strategic influence of a family in the management of the firm concern for family relationship the dream of continuity across generation
Degree of open mindedness New Practices Impartial HRM Organization Decision making style

Role of Woman Entrepreneur


Reasons why women have started looking towards entrepreneurial careers in todays time:
Limited job opportunities Pressing need to earn income to supplement the family income due to the high cost of living Social pressure of increasing standard of living Utilization of spare time Self esteemed need Increasing socio-economic awareness Impact of role models in industry and business Constant motivation by government institutions Impact of media Attractive incentive, subsidies and schemes

Opportunities for Women Entrepreneurs


Beauty Parlors Communication Centers Community Kitchens Computer maintenance Computer services and information dissemination Computer training at various levels Crches Culture centers Distribution and trading of household provisions as well as saris, dress materials, etc. Health clubs Job contract for packaging goods Mini Laundry, community eating centre And many more

Role of Women Entrepreneurs


Desire to serve others Needs in community Self-Actualization Desire to achieve change Other

Venture Capital: Nature & Overview


Venture Capital (VC) is one of the many ways in which a growth-oriented venture can obtain funds in exchange for certain equity in the venture. VC is a fund which is managed by class of people / organizations that support stimulate and sustain entrepreneurship by way of providing for equity capital at different stages of a venture depending upon their fund requirements and growth aspirations.

Venture Capital: Nature & Overview


Venture capitalists provide funds and at the same time support to the extent of
Being like a business partner-sharing the risks & rewards Being like mentor

VC is different from other type of financing as in following: Development Finance Seed capital Term Loan Passive equity investment support R&D funding sources

Venture Capital Process


The venture capital model typically works by way of an investment made by investors in an fund (Trust). This fund has a fixed time period of 5+2 years. The asset management company (AMC) manages the investments for the trust and charges the fund an annual operating cost of approx. 2.5 % PA To obtain returns from this fund, the AMC invests in several companies. The upside of this whole equation is shared between the AMC and investors approx. 25:75 subject to minimum invested return. Typically, a venture fund may invest in up to 20 companies out of which 10 would fail, 4 will succeed and 6 may do okay. The venture capital funds do not shy away from risk but manage them by way of a balanced portfolio of investments, focusing on the people and the ideas and mentoring, coaching, adding value to the companies they fund. All new ventures are high risked- there is a significant chance of loss. That is why the expectations of a VC fund are of gaining the typical 300-400 % ROI in each venture. When 4 out of 20 succeed in expected manner, the fund is able to obtain more than type of returns that they had in mind while investing.

Locating Venture Capitalists


The spread of VC firms in India is not confirmed to one specific location but are located mostly in large metropolitans type of locations. At the same time, there are global firms in this league that operate in India also.

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