SMEs and Entrepreneurship

• The objectives of this module are to differentiate between entrepreneurship and entrepreneurs, list the characteristics of entrepreneurs, and select/interpret characteristics of an entrepreneur
• Entrepreneurship is a frequently discussed hot topic that is widely agreed to be a good thing

SMEs and Entrepreneurship

• Small and medium-sized enterprises (SMEs) and entrepreneurship are recognized as sources of dynamism, innovation, and flexibility
• They exist in advanced industrialized countries and developing countries like the Philippines
• SMEs are responsible for new job creation and contribute to productivity and economic growth

Definition of Entrepreneurship

• A key concept of entrepreneurship is innovation, encompassing new or different ways of doing things in areas like technology, marketing, human relations, and management
• Innovation occurs when a new product is created or when an existing product is sold using a different approach
• Other definitions view it as taking risks to start, own, and manage a small business or as a force that mobilizes resources to meet unmet market demand
• Entrepreneurship involves creating value by combining resources to exploit opportunities and perceiving/delivering needed products/services at the right time, place, price, and to the right people
• Professor Nathaniel Left defines entrepreneurship as the capacity for innovation, investment, and expansion in new markets
• An enterprise is at work when individuals take risks and invest resources to create something new/unique, design a new way of doing something existing, or create new markets

Aspects of Entrepreneurship

• Entrepreneurship is not limited to business enterprises; it can also be done in schools, hospitals, and other social service institutions
• It involves creating something new or something different, in short, it is innovating

Characteristics of Entrepreneurs

• Entrepreneurs create something new or different to gain a competitive advantage and must perceive opportunities inherent in change, create a desire to pursue opportunities, and foster an environment where success is possible and failure is tolerable
• Entrepreneurs possess positive characteristics such as self-confidence, leadership, and creativity
• Optimism and positive thinking can greatly affect their success
• Hardworking and opportunity-seeking entrepreneurs may acquire more profit by creating better goods and services which increases the standard of living

Definitions of Entrepreneurs

• Cantillon: Someone who bears uncertainty, buys labor/materials, and sells products at uncertain prices, and takes risks/makes innovations on production factors
• French Concept: An adventurer, undertaker, and projector whose function is to supply and accumulate capital for business
• Schumpeter: An innovator who does new things or does things in a new way, supplies new products, makes new production techniques, discovers new markets, and develops new raw material sources
• Peter Drucker: Someone who always searches for change and exploits it as an opportunity

Alternative Views of an Entrepreneur

• An economist says an entrepreneur is one who shifts resources from an area of lower productivity to one of higher productivity
• An entrepreneur organizes, operates, and assumes the risk for business ventures
• "Pure" entrepreneurs launch ventures from scratch, develop scarce resources into successful businesses using instinct, timing, hard work, and idea-production
• Geoffrey Meredeth said entrepreneurs can see/evaluate opportunities, gather resources, act to ensure success
• An entrepreneur creates new combinations of production factors, takes risks, eliminates market disequilibrium, or owns/operates a business
• Entrepreneurs posses a new enterprise/venture/idea, assume accountability, perceive/take advantage of opportunities, innovate, and invest time/money/effort
• They discover market needs and launch firms to meet those needs and are risk takers that provide impetus for change/innovation/progress

Forms of Business Organizations

• The objectives of this module are as follows: Differentiate between sole proprietorship, partnership, corporation and cooperative and choose a form of agribusiness organization
• Understanding the basic concepts of starting a business can help prospective entrepreneurs make less risky ventures
• The major forms of business organizations are sole proprietorships, partnerships, and corporations

Sole Proprietorship

• A business owned by just one person, is easy to start with limited funds
• Mostly concentrated in retailing and farming and allows the proprietor to work independently

Partnership

• A legal association of two or more persons who act as co-owners
• Combines skills of several people, has a direct interest in business success, and has good profits

Corporation

• An artificial person with unlimited lifespan empowered to conduct a specific line of business
• Owned by shareholders/stakeholders who are liable for damages only to the extent of their holdings, and is the most significant in terms of size, money, and power

Cooperative

• An association of people or companies sharing products, services, or interests, can be formed to obtain power. Cooperatives give members buying/selling power by joint action
• This does not deprive members of independence

Kinds and Sizes of Business Enterprises

• Philippine business enterprises can be categorized as micro(1-9 employees, assets not exceeding PHP 3 million), small(10-99 employees, assets over PHP 3 million up to PHP 15 million), medium(100-199 employees, assets over PHP 15 million up to PHP 100 million), and large(over 200 employees, assets exceeding PHP 100 million).

Organization Business Arrangements

• In addition to the form of business, entrepreneurs should also choose the best organizational arrangement
• A joint venture involves two or more companies establishing a new one to pursue a mutual goal, either through technical partnerships or syndicates
• The focal point need not always be the farm, it may also be the processing plant or the marketing organization

Types of Contract Arrangements

• Contract growing: An established processing firm contracts individual/small farmers to ensure raw materials, also helps small farmers by providing assistance/outlet
• Contract marketing: Individual/small farmers contract an established marketing firm: Allows farmers to assure market/earn income

Contract Processing

• Export traders with marker information contract processors as an alternative to putting up factories
• Several marketing firms can also contract processors because of costs
• A disadvantage is that the plant can get into producing and marketing themselves
• For contract arrangements to be viable, terms/conditions and financial benefits must be favorable to both sides