Values of Innovation and Entrepreneurship in Economic Development

Subject: Management
Pages: 7
Words: 1936
Reading time:
8 min
Study level: PhD


Since the advent of the industrial revolution, technology has played an important role in the human society. The post industrial society has become very technology-based and highly depends on innovation and creativity for long-term economic and social stability. The 21st century has been marked by globalization principles and there has been as shift giving impetus to knowledge as the new source of competitiveness in the new world business order. The traditional business and economic policies have not lived up to expectation in the 21st century setting and there are concerns that they can no longer guarantee high employment and economic growth. In line with new thinking and acknowledgement of a new economic dispensation, policy makers have touted entrepreneurship and innovation as vital components to economic growth and post-industrial revolution growth and development.

This century is full of very successful innovations mainly fronted by small and medium enterprises. In this knowledge based economy, there have been numerous cases where small start-up companies led by young entrepreneurs have produced major technological breakthroughs that easily dwarf the research and development efforts of more established global players (Tidd & Bessant, 2011, p. 189). Start ups like Google, Facebook and Microsoft have their origins in humble beginnings whose inspiration came from the innovation and entrepreneurial spirit that drives the economy nowadays. Additionally, there are numerous cases where large firms have used small and medium enterprises as vehicles for innovation and generation of new ideas that breed competencies, new products and strategies. It is therefore safe to conclude that innovations by small and medium enterprises have become the engines innovation and technological changes in the new world of economic dispensation.

As said above, the importance of a combined entrepreneurship and innovation approach is a phenomenon whose importance has grown tremendously in the last decade. Despite the close association of the two phenomena, there has not been enough research to help distinguish between them. Many scholars consider entrepreneurship and firm creation as the main determinants that facilitate innovation (Welter & Aidis, 2008, p. 193). The link between entrepreneurship and innovation mainly stems from the strengthening of firm creation policies that in turn fuel a rise in entrepreneurship effectively fostering innovation. It is important to note at this point that the interdependence between innovation and entrepreneurship works in both ways. Turner (2009, p. 89) asserts that policies in favour of innovation have helped in commercialising results from research and development initiatives effectively boosting firm creation.

This discussion will focus on both phenomena with emphasis put on each of them separately to determine how their separate development affects one another. There is consensus among scholars that entrepreneurship has emerged mainly from the small and medium enterprise section of the economy while the innovation aspect is primarily as a result of science and technology and research and development initiatives. The discussion will therefore focus on aspects separately and later on will address the link between them.

Entrepreneurship and small and medium enterprises

The discussion on entrepreneurship will not be complete without the inclusion of small and medium enterprises. According to Kanter, an entrepreneur is any person who starts a small business on his own and delved from a new or modified idea (1984, p. 64). Kanter notes that not all new business start ups ate entrepreneurial and not all these start-ups are innovative. For an entity to be considered entrepreneurial there has to be some sort of change provable through the way business is conducted and the course the business is taking. In the decades preceding 1990, the role of large corporations in driving the economy was stressed. From the 1990’s however, the role of small businesses picked up and many experts agree that small and medium enterprises are crucial to economic growth.

More often than not, SME’s are defined according to their size in an effort to distinguish them from other enterprises. Many factors including the model of business, the market segment in which it operates and growth orientation help in making the above differentiation between SME’s and other enterprises (Terzioyki, 2008, p. 84). More importantly however, SME’s and their qualification as entrepreneurships largely depend on the age and the lifecycle stage of a business start-up. In some cases, entrepreneurship policy makers take a keen approach in differentiating between new business start-ups and enterprises that have been in business for some time. While the application and use of the terms “SME” and “entrepreneurship” apply synonymously, it is important to note that not all entrepreneurial start-ups remain as SME’s.

Wang & Chen (2005, p. 32) say that more often than not, entrepreneurship emphasises the individual person rather than the business. Most entrepreneurship policies therefore are geared towards creating a conducive environment so that entrepreneurial individuals can thrive through new start ups and growth of newly established firms.

Innovation and Science and Technology

As mentioned earlier, technology has been the force behind the sweeping economical and social changes that have characterised life in the 21st century. Change and advances in technology have generated a greater need for human capital effectively raising the knowledge among workers in the modern enterprise setting. On the face of improving technology the prevailing economic settings have become synonymous with increased production, and an innovation culture that is driving up science-based entrepreneurship in virtually every field.

Innovation is a diverse term that incorporates many meanings and its use is applicable across the various economic and scientific segments. According to Kinney & Harris (2004, p. 66), innovation is used to connote some institutions whose aim is the promotion, acquisition and dissemination of scientific knowledge. In broader sense innovation recognises the above institutions as parties of much wider and bigger system that includes either the economic and social system within a nation state or global system.

Innovation can also be described as a new way of doing things or a radical shift that leads to revolutionary changes in the social, economic and industrial setting. According to VonZedtwitz (2003, p. 136), there should be an effort to distinguish between the invention of ideas and successful implementation of these ideas. According to him innovation is a tool that entrepreneurs use to make the most out of change. Some scholars agree with him by presenting innovation as a discipline and culture that is practice based. In essence therefore, innovation consists of a systematic search of opportunities that may in the end offer some economic yields. While in the past innovation primarily came out of R&D efforts of large corporations, the new generation of entrepreneurs mainly is composed of people leaving their positions in the corporate world to venture into risky start-ups, often with limited funding.

There have been concerted efforts to link innovation with entrepreneurship. In Europe for instance governments have devoted considerable funds to research and development with the hope that new inventions will be made. Other scholars however prefer a multifaceted approach to innovation which places emphasis on innovation as a processes that encompasses not only invention oriented policies but also diffusion of knowledge and new technologies.

Innovation and Entrepreneurship

In the United Sates, the innovation and entrepreneurship started a bit earlier than many other places. By the end of the 1980’s decade, millions of Americans derived income through provision of services. This laid the foundation of the now well established entrepreneurial culture (Ibata-Arens, 2005, p. 99). Coupled with advances in technology for instance the computer boom, and ‘can do’ attitude, the business world experienced a new generation of business people with a high appetite for risk who ventured into new areas with and gave rise to the mainly service sector that accounts for the highest percentage of many countries’ GDP.

While it has been given a priority in research and development for many years, innovation has become a necessity in the 21st century. The business climate in is now characterised by competition and firms both small and large have been forced to find new ways to attract and retain customers. In other words, the scope of the market has widened and only innovative ways through product improvement and customer service can assure a firm maintains its niche (Potter, J. et al., 2009, p. 77).

The above aspects of entrepreneurship and innovation are complicated and cannot be dealt with exhaustively. However, what interests scholars and researchers is the link between the two. With the advent of increased technology and speedy integration in politics and business, globalisation has come to characterise nearly every aspect of life (Wustenhagen, 2008, p. 229). Everything is being internationalised and observers initially thought that small and medium enterprises will become obsolete and with it entrepreneurship. To the contrary however, SME’s have thrived in the globalisation climate thanks to a creation of comparative advantage that give impetus to a knowledge based economy. Safe for a few low-cost locations such as China, large corporations have seen their competitive advantage eroded and their place taken by small businesses led by entrepreneurs, who, are spearheading the majority of new innovations. In the European Union for instance, 37% of all large companies created after 1980 were out of entrepreneurial start-ups s while in the US, the rate stood at 82%. The rest of the large companies resulted from mergers and acquisitions (Audretsch, B. et al. 2009, p. 26).

In the quest to distinguish between innovation and entrepreneurship, it is important to bear in mind that entrepreneurship can be innovative or ordinary. Job creation is mainly the main driving force behind ordinary entrepreneurship while innovative entrepreneurship is motivated by desire to create value-added jobs that are capable of growing through innovativeness.

Brem captures the point by alluding that both innovation and entrepreneurship depend on each other. Innovation alone cannot lead to entrepreneurship (2008, p. 54). For instance, there is a lot of innovation in Japan but the county ranks behind its peers in terms of entrepreneurship. The main link therefore comes from factors such as necessity, opportunity and desire to succeed. In crisis times like the present recession, entrepreneurs see an opportunity to cash in. Malfunctioning of the system precipitates a crisis of such magnitude. Additionally, there always are loopholes in the economic systems that make a section of consumers unhappy with the service they are receiving. To address such issues, it therefore takes an entrepreneurial mind to innovate creative ways through which he/she can eliminate the problem while benefiting from the situation.

In all, entrepreneurship is likely to thrive in environments that spot and appreciate high levels of entrepreneurial activity rather than environments that show no activity at all (Carlsson, 2006, p. 67). That therefore calls for the adoption of entrepreneur and innovation policies that can enable creation of a conducive climate for growth of ideas and business start-ups.


There is no doubt that innovation and entrepreneurship is crucial to economic growth as well as industrial development. However, it is also important to acknowledge that no scholar has been able to capture the exact link between the two. In most cases, the link between them is indirect with unclear influences of factors such as availability of capital and entrepreneurial and innovation policies. However, one thing is clear; that a combination of both innovation and entrepreneurship in most occasions gives rise to new research based firms with high potential for growth.

At a time like this when large corporations are faced with many issues including financial management, dwindling customer bases and high turnover rates, the SME entrepreneurs backed by innovation offers the best chance of salvaging the global economy. It therefore calls for the formulation of effective policies, fostering an entrepreneurial culture, availing capital for start ups and creating a conducive atmosphere for innovation to thrive.


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