Introduction to the entrepreneurship concept
Motivated by the goal of understanding the developments that have been characteristic of this phenomenon, management scholars and social scientists concerned with entrepreneurship have been inclined to studying new business formation, which offers a steady and straightforwardly de-limited base for quantitative, experiential work (Jones & Zeitlin, 2008). Contrary to this, historical examination on entrepreneurship began much earlier. Its roots can be traced back to various motivations and hypothetical concerns. The historical study of the subject has been precisely worried with appreciating the process of structural transformation and progress within economies (Westhead & McElwee, 2011).
This essay first introduces the concept of entrepreneurship by examining its relationship with the emergence of business history. The second part of the essay explores what traits make up an entrepreneur as the traits theory posits. Thereof, the third section, and which forms the bulk of the paper examines the role of knowledge in running an entrepreneurial enterprise. Lastly, the essay concludes with an exploration of policy recommendations that can help entrepreneurs who are already in the market or those willing to join the field of entrepreneurship. A detailed list of references is also included at the end of the essay.
Reynolds (1991) posits that business historians have paid attention to comprehending the fundamental nature and causes of the historical renovation of businesses, industries, and economies. This historical study characteristically employed a Schumpeterian meaning of entrepreneurship (Shane, 2003). Unlike the current management scholarship, it has not concentrated principally on the latest firm base, but rather on the anecdotal forms that pioneering activity has taken, and on the function of innovative entrepreneurship in motivating changes, in the historical milieu of business, industry, and the economy. The economic approaches to business used by such scholars highlight the role of knowledge in the organization of an entrepreneurial enterprise (Bridge, O’Neill, & Cromie, 2003).
The idea of entrepreneurship had a significant function in the surfacing of business history as a separate academic field (Reid, 2007). As early as the middle of the nineteenth century, economic academicians had commented on the stagnant approaches of classical and neoclassical economic thought by archiving the modes in which the organization of economies had transformed changed over time (Casson, 2002). This early historicism was concerned with the means by which the institutions of capitalism and industrialism evolved. At the start of the twentieth century, however, several historians and historical sociologists graduated from the above perception, and began to highlight the approach and agency of entrepreneurs in the course of economic change (Shane, 2003).
Bridge, O’Neill, & Cromie (2003) describe entrepreneurship as the creative extraction of value from the environment. As such, the concepts of creativity, invention and innovation are also closely linked with enterprising outcomes. They cover part, but not all, of the processes of generating those outcomes. Invention, it is generally agreed, is the origination of a new concept or idea as the result of a process of creativity (Katz, & Shepherd, 2003). There is little consensus on the concept of innovation. Some argue that it is the new or adopted ideas themselves. These approaches are linked, however, and there is general agreement that invention precedes innovation and that the latter can be viewed as the successful exploitation of new ideas, but not the origination of the ideas. Creativity possesses the idea, and innovation is its application. Down (2010) holds that creactivity is not itself enterprising, and neither is invention because it does not generate change. That does not happen until the innovator takes the idea and does something with it. Innovation has a prominent place in commercial success as it leads to the successful exploitation of new ideas that lead to any form of increased organizational or social benefit (Down, 2010).
What constitutes an entrepreneur?
A successful innovator needs to be able to develop and consider novel solutions to problems, and evaluate them in terms of criteria broader than conformity to pre-existing practice. Gartner (2001) argues that self-reliance, flexibility, originality and independence are some of the traits that are likely to be found in entrepreneurial individuals. Entrepreneurs ought to develop a vision of something new, generate a power base to progress the idea, and build commitment and systems to sustain the new endeavour. The vision emerges from kaleidoscopic thinking. Some people have the capacity to view existing structures and behaviours from a variety of perspectives and, unrestrained by existing assumptions, are able to see useful new combinations of resources. Once envisioned, this new possibility must be communicated enthusiastically and articulately to others (Storey, 1994).
The question as to whether entrepreneurs are born is a subject of heated debates as far as the entrepreneurship field is concerned. The proponents of the supposition that entrepreneurs are born hold that they have certain inherent traits that make them be enterprising (Gartner, 2001). As such, a person who is not born with these traits cannot become an entrepreneur by subsequent upbringing. On the other hand, proponents of the notion that an entrepreneur can be made suggest that, at least, a certain amount of making is possible in the making of an entrepreneur. Such disparities have made scholars come up with different approaches to entrepreneurship. This essay draws much from the economic approach to entrepreneurship.
The economic theories of the enterprise are precisely worried with entrepreneurship and the role that an entrepreneur has in an economy. An entrepreneur is perceived as the seeker of opportunities and the innovator of resources in the pursuit of profit (Reynolds, 1991). Equilibrium theories of economics consider these profits short-lived as competitiveness increases. However, due to their foresight and effective judgment about sources and combination of resources, they reap economic rewards. Of all the theories of entrepreneurship, economic theories are of the longest standing. Nevertheless, they fail to show why some individuals become entrepreneurs, while others do not (Cuervas, 2001).
Role of knowledge in the organization of an entrepreneurial enterprise
Research examining the constitution of the entrepreneurial process have conventionally paid attention to either individual personality (trait theories), or external constraints (sociological approaches) (OECD, 2010). Going by the trait approaches to entrepreneurship, a number of traits, as noted earlier in this essay, have been considered as prominent in the character of an entrepreneur. These include self-achievement, risk- taking and self-confidence. The sociological approaches emphasize on the importance of social factors in choosing an entrepreneurial career. For instance, many entrepreneurs have family members or friends, or both, who are entrepreneurs, hence, underscoring the importance of social networks. Other researches find that gender and age are also indispensable in entrepreneurship, while, for others, a variegated education and occupational background increases the chances of becoming an entrepreneur (the jack-of-all-trades theory) (Westhead & McElwee, 2011).
Concerning external constraints, heavy labour policy and market entry rules are customarily deemed as inhibitors of entrepreneurship (OECD, 2010). This also applies to contract enforcement. Liquidity challenges and credit rationing weaken entrepreneurship. These circumstances push the rich towards an entrepreneurial course, and close doors for those without the traits. Exterior constraints are the unspoken supposition of a stipulation of market balance, in which the entrepreneurial chances either are not present, or are dispersed indiscriminately across people (Frank, Lueger, & Korunka, 2007). If such is the case, avenues will possess similar significance for everyone and the solution to venturing in entrepreneurship will ultimately depend on external factors or inherent personal traits. However, for entrepreneurship to happen, the significance that economic agents assign to opportunities must inevitably be dissimilar. Jansen (2009) holds that this is because if everyone were to give the same value to an entrepreneurial avenue, competition would be high, as everyone would strive to exploit it. This would reduce the entrepreneurial gains to the extent where the incurred costs are more than the perceived anticipated returns. As such, it can be concluded that different beliefs about existing opportunities underpin the exact entrepreneurial process (Arena & Quere, 2003).
OECD (2007) observes that entrepreneurial opportunities vary across the population due to dissimilar degrees of knowledge. In deed, as Marshall puts it explicitly, ‘knowledge is the most powerful engine of production’. The information that persons marshal will differ with regard to market inefficiencies, novel technologies, or fresh blend of existing resources. These factors are a basis for entrepreneurial prospect. As such, entrepreneurship can be perceived as a practice that looks for novel links between inputs and outputs by concentrating on absent or partial information. Knowledge and particularly prior knowledge play a pivotal role in coping with scattered information. It is a principal factor in market entry and market triumph. However, post entry learning about one’s own efficiency also matters. Entrepreneurs possess a wealth of knowledge that will affect the industry they enter, as well as the likelihood of continued existence and triumph in that industry (Jansen, 2009).
Potter (2008) cites company and university spin-offs as prominent examples of the role of knowledge in the entrepreneurship process. He argues that company spin-offs harness both technological and market accrued, in their parent company, to launch their business. In deed, even when spin-offs join new market segments dissimilar to those of the original company, they are likely to initiate innovations formerly developed in the final knowledge-base organizations (Moreno, Paci, & Usai, 2005). However, they may be deficient in the market knowledge to comprehend the commercialisation latent of a novelty and marketing of a new product. Spin-offs are not the only kind of the latest firms taking the lead of prior knowledge: traditional start-ups are extremely often making use of knowledge gained in preceding familiarity as customers or suppliers to go into new ventures (Frank, Lueger, & Korunka, 2007).
OECD (2007) finds that business formation occurs when novel avenues occasioned by inefficiencies or the appearance of new technologies concurs with the prior knowledge of persons, which may be derived from educational background, as well as past employment or market familiarity. Past entrepreneurial experience is predominantly germane, because it offers an appreciation of customer desires and market performance. This is proved by the frequency of the multi-venture process characteristic of habitual entrepreneurs (Shionoya & Nishizawa, 2008).
Moreno, Paci, & Usai (2005) observe that prior knowledge not only determines market entry, but also business achievement and novelty. Spin-offs and start-ups possessing similar or related pre-entry knowledge live to tell the tale longer than other entrants do. A classical example is that of the television set industry, whose marketplace shares were almost immediately taken up by companies that previously operated in the related radio industry (OECD, 2009). Correspondingly, but from a different standpoint, although networks and an entrepreneurial family milieu affect the choice of one becoming an entrepreneur, post-entry performance is largely influenced by individual smartness and the family’s echelon of education. With regard to the latent of novelty, potential, pre-entry technological acquaintance underpins pre-entry market knowledge in influencing the skill of a firm to be pioneering (Jansen, 2009).
Gertler (2003) posits that although information can be effortlessly exchanged through the Internet, the knowledge that leads to long-term growth is practical, comprehensive, context-specific, and implicit. This implies that it cannot be pinned down as blueprints or transferred over long distance. Instead, it requires close, local contact to be exchanged. This knowledge is not just formed a priori in the course of investments in learning or the appeal and maintenance of qualified labour. The precise interface process between consumers and suppliers or between users and producers also develops it. This explains why propinquity is so critical for knowledge spillovers to occur (Marshall, 2009).
Jansen (2009) holds that knowledge spillovers are not only limited to the same geographical location, but also only applicable within the similar or related industries. This implies that cognitive closeness is necessary, and knowledge spillovers will be likely only if both parties implicated in the swap process share some technological commodities. Knowledge from one business will spill over effortlessly to another allied industry. Significant innovations are more probable when knowledge spillovers occur between sectors that have similar competences, instead of within one particular sector. Consequently, industries depend on a common knowledge foundation in order to be established within the same geographical location. The correlated diversity of local industries is perceived to augment economic progress (Storey, 1994).
OECD (2004) holds that new entrepreneurial enterprises can profit considerably from knowledge spillovers. Owing to the fact that these firms have la small number of assets and resources, they spend less in research and design than large companies do. As such, they are more likely to innovate by drawing on partnership. In addition, these firms have inadequate search patterns and will, as a result, work together only with other firms situated in the proximity. Business collaborations are, therefore, critical for the inventive endeavours of entrepreneurs (Frank, Lueger, & Korunka, 2007).
In a study carried out to analyse high-tech enterprises, it was found that innovation collaborations optimistically have an effect on both product and procedure innovation, and that the constructive association between firm dimension and innovation disappears when networks are brought into perspective (OECD, 2010). This, apparently, implies that small businesses are prone to compensating for their lack of vital mass via business networks and knowledge spillovers. Particularly, knowledge obtained form public research organizations is deemed precisely indispensable for the innovation actions of entrepreneurial enterprises. In deed, a recent strand of theory suggests that entrepreneurial activity is robustly influenced by the knowledge created, but not put into use by current organizations. This renders entrepreneurship a course that stalwartly depends on knowledge spillovers (Ucbarsaran, Westhead., & Wright, 2001).
Frank, Lueger, & Korunka (2007) posit that local knowledge flows are essential to entrepreneurship in a novelty system. This is because they reinforce the knowledge foundation and the absorptive ability of local firms. However, in recent times, globalisation has undermined the input of global knowledge flows to national and local competitiveness. This has been through the creation of new avenues for knowledge generated, in a foreign country, to be used locally and the vice versa. Global knowledge flows occur through three principal ways. These include cross-border collaborations among businesses and research organisations; knowledge transmittance from foreign direct investment; and pull of experienced labour (Ucbarsaran, Westhead., & Wright, 2001). These three channels can add to the making, diffusion and utilization of knowledge, hence, escalating technological expansion and entrepreneurship in terms of latently usable new products, services and organizational ways (Storey, 1994).
Conclusion and policy recommendations
The gist of this essay is that knowledge of markets and technologies is essential in the entrepreneurial venture and can be obtained through the partaking of entrepreneurs in home and worldwide knowledge flows. Knowledge determines the possibility of entrepreneurs setting out in business and their ensuing business triumph. It is also vital to the novelty performance of small and medium enterprises (SMEs). In addition, many high potential first-time entrepreneurial enterprises, including corporate and university spin-offs, depend on the market and technological knowledge obtained in their original organisations for their success. Grounded on these nucleus messages, there are several policy recommendations that can help in the organisation of entrepreneurial enterprises.
To begin with, there is a need to plan for advisory and training programmes for start-up entrepreneurs possessing technological knowledge, but devoid of the market and business expertise. Diagnostic and training programmes highlighting business planning and outstanding management values embody fruitful strategy options to reinforce the pre-entry knowledge and abilities of entrepreneurs (OECD, 2010). There is also a need to endorse spin-offs, both commercial and university-based, as latent knowledge-intensive businesses (OECD, 2004). The two are a principal goal for promotion efforts because the in-house expertise and market competencies they possess from their initial institutions render them more likely to develop more rapidly than the typical start-up.
Other policy recommendations include endorsement of labour mobility in order to speed up knowledge flows with manifold industry applications, as well as reinforcing the absorptive aptitude of SMEs. Gertler (2003) proposes that encouraging candidness to international sources of knowledge is also noteworthy as it eliminates knowledge deprivation and economic lethargy. Policy makers can aid entrepreneurs handle information barriers and risk cost associated with globalization by establishing legal services or warranty schemes, or by organising study visits and commerce forums for local entrepreneurs (OECD, 2010).
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