ENTREPRENEUR

The word "entrepreneur" is derived from a French root ‘entreprendre’, meaning, "to
undertake". The term "entrepreneur" seems to have been introduced into economic theory by
Cantillon (1755) but Say (1803) first accorded the entrepreneur prominence. It was
Schumpeter however, who really launched the field of entrepreneurship by associating it
clearly with innovation. Drucker’s definition of entrepreneurship, brought a new level of
understanding in the field of entrepreneurship.

Difference between Entrepreneur and manager

Entrepreneur
1 An entrepreneur sets up a new
enterprise or undertakes a venture
for action.
2 An entrepreneur assumes risk of
uncertainty involved in the
enterprise
3 The reward of an enterprise for his
risk bearing role is profits.
4 The entrepreneur applies innovation
from time to time in the enterprise
by adopting new technology.
Manager
A manager does not take a new venture
and renders services in an existing
enterprise
A manager does not assume or share any
risk involved in the enterprise.
The reward of a manger for rendering his
services is salary.
A manager simply keeps running the
enterprise on already established lines on
a routine basis.

5 An entrepreneur is his own boss and A manager is a salaried person, he is

enjoys an independent status as the dependent on entrepreneur.
owner of the enterprise.
6 An entrepreneur needs qualities like A manager needs distinct qualifications
mission, creative thinking, risk such as knowledge of human behavior,
bearing ability. management theory etc.

Schumpeter’s Definition of entrepreneurship

Schumpeter, identified five ways of revolutionising the pattern of production

 The development of a new product i.e., a product never introduced before, or
the substantial improvement of quality of an existing product.
 The discovery of a new production method. The term discovery does not
necessarily mean scientific discovery but the genuine application of an
existing method to an Industry
 The discovery and exploitation of a new market. The term discovery does not
necessarily apply to a new geographical market or an unknown market, but
rather a market that an industry has not explored before.
  The discovery and exploitation of a new source of supply of raw materials.
Again the term "discovery" does not necessarily apply to a new geographical
resource market or an unknown resource, but rather a resource that was
never used in a certain industry.
 The discovery/development and implementation of a new way of organisation

Wealth is created when such innovation results in new demand. From this viewpoint, one can
define the function of the entrepreneur as one of combining various input factors in an
innovative manner to generate value to the customer with the hope that this value will exceed
the cost of the input factors, thus generating superior returns that result in the creation of
wealth.

Characteristics/ qualities of an entrepreneur

 Visionary/ foresighted
 Creative / innovative
 He is a moderate risk taker and works under uncertainty for achieving the
goal.
 Mental ability : reasonably intelligent, technical knowledge of the field
 Clear Objective
 High need for achievement
 He peruses the deviant pursuits
 Reflects strong urge to be independent.
 Persistently tries to do something better.
 Dissatisfied with routine activities.
 Prepared to withstand the hard life
 Human relation skills : Ability to organise team, emotional stability, tactfulness
 Communication skills
 Confidence

Types of Entrepreneurs

Based on the Type of Business:

1. Trading Entrepreneur:

As the name itself suggests, the trading entrepreneur undertake the trading activities. They
procure the finished products from the manufacturers and sell these to the customers directly
or through a retailer. These serve as the middlemen as wholesalers, dealers, and retailers
between the manufacturers and customers.

2. Manufacturing Entrepreneur:

The manufacturing entrepreneurs manufacture products. They identify the needs of the
customers and, then, explore the resources and technology to be used to manufacture the
products to satisfy the customers’ needs. In other words, the manufacturing entrepreneurs
convert raw materials into finished products.

3. Agricultural Entrepreneur:

The entrepreneurs who undertake agricultural pursuits are called agricultural entrepreneurs.
They cover a wide spectrum of agricultural activities like cultivation, marketing of
agricultural produce, irrigation, mechanization, and technology.

Based on the Use of Technology:

1. Technical Entrepreneur:

The entrepreneurs who establish and run science and technology-based industries are called
‘technical entrepreneurs.’ Speaking alternatively, these are the entrepreneurs who make use
of science and technology in their enterprises. Expectedly, they use new and innovative
methods of production in their enterprises.

2. Non-Technical Entrepreneur:

Based on the use of technology, the entrepreneurs who are not technical entrepreneurs are
non-technical entrepreneurs. The forte of their enterprises is not science and technology.
They are concerned with the use of alternative and imitative methods of marketing and
distribution strategies to make their business survive and thrive in the competitive market.

Based on Ownership:

1. Private Entrepreneur:

A private entrepreneur is one who as an individual sets up a business enterprise. He / she it’s
the sole owner of the enterprise and bears the entire risk involved in it.

2. State Entrepreneur:

When the trading or industrial venture is undertaken by the State or the Government, it is
called ‘state entrepreneur.’

3. Joint Entrepreneurs:
When a private entrepreneur and the Government jointly run a business enterprise, it is called
‘joint entrepreneurs.’

Based on Gender:

1. Men Entrepreneurs:

When business enterprises are owned, managed, and controlled by men, these are called ‘men
entrepreneurs.’

2. Women Entrepreneurs:

Women entrepreneurs are defined as the enterprises owned and controlled by a woman or
women having a minimum financial interest of 51 per cent of the capital and giving at least
51 per cent of employment generated in the enterprises to women.

Based on the Size of Enterprise:

1. Small-Scale Entrepreneur:

An entrepreneur who has made investment in plant and machinery up to Rs 1.00 crore is
called ‘small-scale entrepreneur.’

2. Medium-Scale Entrepreneur:

The entrepreneur who has made investment in plant and machinery above Rs 1.00 crore but
below Rs 5.00 crore is called ‘medium-scale entrepreneur.’

3. Large-Scale entrepreneur:

The entrepreneur who has made investment in plant and machinery more than Rs 5.00 crore
is called ‘large-scale entrepreneur.’

Based on Clarence Danhof Classification:

Clarence Danhof (1949), on the basis of his study of the American Agriculture, classified
entrepreneurs in the manner that at the initial stage of economic development, entrepreneurs
have less initiative and drive and as economic development proceeds, they become more
innovating and enthusiastic.

1. Innovating Entrepreneurs:
Innovating entrepreneurs are one who introduce new goods, inaugurate new method of
production, discover new market and reorganise the enterprise. It is important to note that
such entrepreneurs can work only when a certain level of development is already achieved,
and people look forward to change and improvement.

2. Imitative Entrepreneurs:

These are characterised by readiness to adopt successful innovations inaugurated by

innovating entrepreneurs. Imitative entrepreneurs do not innovate the changes themselves,
they only imitate techniques and technology innovated by others. Such types of entrepreneurs
are particularly suitable for the underdeveloped regions for bringing a mushroom drive of
imitation of new combinations of factors of production already available in developed
regions.

3. Fabian Entrepreneurs:

Fabian entrepreneurs are characterised by very great caution and skepticism in experimenting
any change in their enterprises. They imitate only when it becomes perfectly clear that failure
to do so would result in a loss of the relative position in the enterprise.

4. Drone Entrepreneurs:

These are characterised by a refusal to adopt opportunities to make changes in production

formulae even at the cost of severely reduced returns relative to other like producers. Such
entrepreneurs may even suffer from losses but they are not ready to make changes in their
existing production methods.

Theories of entrepreneurship
1. Sociological Theory
Entrepreneurship is likely to get a boost in a particular social culture

Society’s values, religious beliefs, customs, taboos influence the behaviour of

individuals in a society

The entrepreneur is a role performer according to the role expectations by the society

2. Psychological Theory
Entrepreneurship gets a boost when society has sufficient supply of individuals with
necessary psychological characteristics
 The psychological characteristics include need for high achievement, a vision or
foresight, ability to face opposition

These characteristics are formed during the individual’s upbringing which stress on
standards of excellence, self reliance and low father dominance

3. Entrepreneurship Innovation theory

Theory by Joseph Schumpeter who believes that entrepreneur helps the process of
development in an economy

He says that an entrepreneur is the one who is innovative, creative and has a foresight

According to him an entrepreneur is one who

Introduces a new product

–Introduces a new production method

–Opens up a new market

–Finds out a new source of raw material supply

–Introduces new organization in any industry

The theory emphasizes on innovation, ignoring the risk taking and organizing abilities
of an entrepreneur

Schumpeter’s entrepreneur is a large scale businessman, who is rarely found in

developing countries, where entrepreneurs are small scale businessmen who need to
imitate rather than innovate

4. Theory of High Achievement/Theory of Achievement Motivation

McClelland identified 2 characteristics of entrepreneurship

–Doing things in a new and better way

–Decision making under uncertainty

He stressed that people with high achievement orientation (need to succeed) were
more likely to become entrepreneurs

Such people are not influenced by money or external incentives

They consider profit to be a measure of success and competency

5. Motivation theory by McClelland (Acquired Needs theory)

According to McClelland, a person has three types of needs at any given time, which
are:–

Need for achievement (get success with one’s own efforts)

 Need for power (to dominate, influence others)

Need for affiliation (maintain friendly relations with others

The need for achievement is the highest for entrepreneurs

6. Economic Theory

Entrepreneurship and economic growth take place when the economic conditions are
favourable

Economic incentives are the main motivators for entrepreneurial activities

Economic incentives include taxation policy, industrial policy, sources of finance and raw
material, infrastructure availability, investment and marketing opportunities, access to
information about market conditions, technology etc

7. The Kakinada Experiment

Conducted by McClelland in America, Mexico and Mumbai

Under this experiment, young adults were selected and put through a three month training
programme

The training aimed at inducing the achievement motivation

The course contents were

–Trainees were asked to control their thinking and talk to themselves, positively

–They imagined themselves in need of challenges and success for which they had to set
planned and achievable goals

–They strived to get concrete and frequent feedback

–They tried to imitate their role models/those who performed well

Conclusions of the experiment:

–Traditional beliefs do not inhibit an entrepreneur

–Suitable training can provide necessary motivation to anentrepreneur

–The achievement motivation had a positive impact on the performance of the participants

It was the Kakinada experiment that made people realise the importance of EDP
(Entrepreneurial Development Programme) to induce motivation and competence in young,
prospective entrepreneurs.

Barriers to Entrepreneurship
  Lack of Market Knowledge
 Lack of Viable concept
 Lack of Technical Skills
 Lack of initial capital
 Lack of business know how
 Social pressure
 Legal constraints and regulations: lack of knowledge about paper work required.
 Monopoly and protectionism: existing businesses posing a barrier to new entrants.
 Lack of Motivation
 Lack of Time Management
 Lack of attachment with business

Definition

Sources of Ethics

Ethics in general refers to a system of good and bad, moral and immoral, fair and unfair. It is
a code of conduct that is supposed to align behaviours within an organization and the social
framework. But the question that remains is, where and when did business ethics come into
being?

Primarily ethics in business is affected by three sources - culture, religion and laws of the
state. It is for this reason we do not have uniform or completely similar standards across the
globe. These three factors exert influences to varying degrees on humans which ultimately
get reflected in the ethics of the organization. For example, ethics followed by Infosys are
different than those followed by Reliance Industries or by Tata group for that matter.

Religion

It is one of the oldest foundations of ethical standards. Religion wields varying influences
across various sects of people. It is believed that ethics is a manifestation of the divine and so
it draws a line between the good and the bad in the society. Depending upon the degree of
religious influence we have different sects of people; we have sects, those who are referred to
as orthodox or fundamentalists and those who are called as moderates. Needless to mention,
religion exerts itself to a greater degree among the orthodox and to lesser extent in case of
moderates. Fundamentally however all the religions operate on the principle of reciprocity
towards ones fellow beings!

Religion is the oldest source of ethical inspiration. There are more than 1, 00,000 religions
which exist across the whole world, but all of them are in agreement on the fundamental
principles. Every religion gives an expression of what is wrong and right in business and
other walks of life. The Principle of reciprocity towards one’s fellow beings is found in all
the religions. Great religions preach the necessity for an orderly social system and emphasize
upon social responsibility with an objective to contribute to the general welfare. With these
fundamentals, every religion creates its own code of conduct.

Culture

Culture is a pattern of behaviours and values that are transferred from one generation to
another, those that are considered as ideal or within the acceptable limits. Culture consists of
set of important understandings that members of a community share in common. It consists
of a basic set of values, ideas, perceptions, preferences, concept of morality, code of conduct
etc. which creates distinctiveness among human groups. No wonder therefore that it is the
culture that predominantly determines what is wrong and what is right. It is the culture that
defines certain behaviour as acceptable and others as unacceptable.

Culture facilitates the generation of commitment to something larger than one’s individual
self interest. When we talk about culture we typically refer to the pattern of development
reflected in a society’s pattern of knowledge, ideology, values, laws, social norms and day to
day rituals. Depending upon the pattern and stage of development, culture differs from
society to society. What was immoral or unacceptable in certain culture became acceptable
later on and vice versa.

During the early years of human development where ones who were the strongest were the
ones who survived! Violence, hostility and ferocity were thus the acceptable. Approximately
10,000 year ago when human civilization entered the settlement phase, hard work, patience
and peace were seen as virtues and the earlier ones were considered otherwise. These values
are still in practice by the managers of today!

Still further, when human civilization witnessed the industrial revolution, the ethics of
agrarian economy was replaced by the law pertaining to technology, property rights etc. Ever
since a tussle has ensued between the values of the agrarian and the industrial economy!

Law

Laws are procedures and code of conduct that are laid down by the legal system of the state.
They are meant to guide human behaviour within the social fabric. The major problem with
the law is that all the ethical expectations cannot be covered by the law and specially with
ever changing outer environment the law keeps on changing but often fails to keep pace. In
business, complying with the rule of law is taken as ethical behaviour, but organizations often
break laws by evading taxes, compromising on quality, service norms etc.

The legal system of any country, guide the human behaviour in the society. Whatever, ethics
the law defines are binding on the society. The society expects the business to abide by the
law. Although it is expected that every business should be law abiding, seldom do the
businesses adhere to the rules and regulations. Law breaking in business is common eg. Tax
evasion, hoarding, adulteration, poor quality & high priced products, environment pollution
etc.

Approaches to ethics
The Rights Approach

An important approach to ethics has its roots in the philosophy of the 18th-century thinker
Immanuel Kant. Our decisions should not violate the rights of any individual. Actions are
unethical if they violate the rights of individuals. Each person has a fundamental right to be
respected and treated as a free and equal rational person capable of making his or her own
decisions.

The principle states: "An action or policy is morally right only if those persons affected by
the decision are not used merely as instruments for advancing some goal, but are fully
informed and treated only as they have freely and knowingly consented to be treated."

The Utilitarian Approach

Utilitarianism was conceived in the 19th century by Jeremy Bentham and John Stuart Mill to
help legislators determine which laws were morally best. Both Bentham and Mill suggested
that ethical actions are those that provide the greatest balance of good over evil.

To analyze an issue using the utilitarian approach, we first identify the various courses of
action available to us. Second, we ask who will be affected by each action and what benefits
or harms will be derived from each. And third, we choose the action that will produce the
greatest benefits and the least harm. The ethical action is the one that provides the greatest
good for the greatest number.

Focuses on the consequences that actions or policies have on the well-being ("utility") of all
persons reasonably foreseen to be directly or indirectly (but rather immediately) affected by
the action or policy. Keep in mind, that different people often identify benefits and harms
differently.

The principle states: "Of any two actions, the most ethical one will produce the greatest
balance of benefits over harms."

The Virtue Approach

The virtue approach to ethics assumes that there are certain ideals toward which we should
strive. These ideals provide for the full development of our humanity, and are discovered
through thoughtful reflection on what kind of people we have the potential to become.

Virtues are attitudes or character traits that enable us to be and to act in ways that develop our
highest potential. They enable us to pursue the ideals we have adopted. Honesty, courage,
compassion, generosity, fidelity, integrity, fairness, self-control, and prudence are examples
of virtues frequently cited throughout the world. Virtues are like habits; that is, once
acquired, they become characteristic of a person. Moreover, a person who has developed
virtues will be naturally disposed to act in ways consistent with moral principles. The
virtuous person is the ethical person.
In dealing with an ethical problem using the virtue approach, we might ask, what kind of
person should I be? What will promote the development of character within myself? within
my community? Etc.

The principle states: "What is ethical is what develops moral virtues in ourselves and our
communities."

The Fairness and Justice Approach

The fairness or justice approach to ethics has its roots in the teachings of the ancient Greek
philosopher Aristotle, who said that "equals should be treated equally and unequals
unequally."

The basic moral question in this approach is: How fair is an action? Does it treat everyone in
the same way, or does it show favouritism and discrimination?

Favouritism gives benefits to some people without a justifiable reason for singling them out;
discrimination imposes burdens on people who are no different from those on whom burdens
are not imposed. Both favouritism and discrimination are unjust and wrong.

The principle states: "Treat people the same unless there are morally relevant differences
between them."

The Common good Approach

The common good is defined as "certain general conditions that are important equally to
everyone's advantage."

In this approach, we focus on ensuring that the social policies, social systems, institutions,
and environments on which we depend are beneficial to all. Examples of goods common to
all include affordable health care, effective public safety, peace among nations, a just legal
system, and an unpolluted environment

The principle states: "What is ethical is what advances the common good."

Business Ethics:
Meaning:
The term ‘Business Ethics’ refers to the system of moral principles and rules of the conduct
applied to business. Business being a social organ shall not be conducted in a way detrimental
to the interests of the society and the business sector itself. Every profession or group frames
certain do’s and do not’s for its members. The members are given a standard in which they
are supposed to operate. These standards are influenced by the prevailing economic and
social situations. The codes of conduct are periodically reviewed to suit the changing
circumstances.
Definitions:

“Business Ethics is generally coming to know what is right or wrong in the work place and
doing what is right. This is in regard to effects of products/services and in relationship with
the stake holders.” —Cater Mcnamara

Business ethics should take into consideration the following factors:

1. A business should aim to have fair dealing with everyone dealing with it.

2. Ethics should be fixed for everyone working in the organisation at any level and their
implementation should be linked with reward- punishment system.

3. Any violation of ethics should be detected at the earliest and remedial measures taken
immediately.

4. Business ethics should be based on broad guidelines of what should be done and what
should be avoided.

5. The ethics should be based on the perception of what is right.

Professional Codes of Ethics

A code of ethics...prescribes how professionals are to pursue their profession like Doctor
Lawyer or engineer. The code is to protect each professional from certain pressures (for
example, the pressure to compromise safety standards to minimize cost).

An individual’s professional ethics are derived from the profession and its code, tradition,
society's expectations, contracts, laws, and rules of ordinary morality

A professional has obligations to his/her

Employer
Clients/Customers
Other Professionals
Society - responsibility to serve the public interest

Example :

For a Lawyer :
A lawyer shall provide competent representation to a client. Competent representation
requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for
the representation.
For a Medical Professional:
He/ She would place the interests of patients above other considerations, such as personal
interests (eg, financial incentives) or employer business interests.

Engineering Ethics

Engineers, in the fulfillment of their professional duties, shall:

1. Hold paramount the safety, health, and welfare of the public.
2. Perform services only in areas of their competence.
3. Issue public statements only in an objective and truthful manner.
4. Act for each employer or client as faithful agents or trustees.
5. Avoid deceptive acts.
6. Conduct themselves honorably, responsibly, ethically, and lawfully so as to enhance the
honor, reputation, and usefulness of the profession.

The processes and methods used to transform tangible inputs (raw materials, semi-finished
goods, subassemblies) and intangible inputs (ideas, information, knowledge) into goods or
services. Resources are used in this process to create an output that is suitable for use or has
exchange value.

The factors of production include land, labor, capital and entrepreneurship. These production
factors are also known as management, machines, materials and labor, and knowledge has
recently been talked about as a potential new factor of production