Understanding Entrepreneurship

Introduction to Entrepreneurship

• Entrepreneurship serves as the bedrock for economic growth and innovation
• Entrepreneurial activities flourish in environments that encourage innovation and risk-taking
• Small and medium enterprises (SMEs) exemplify entrepreneurship.
• SMEs in developing countries account for over 90% of jobs, sales, and value added
• SMEs in developed countries account for over 50% of jobs, sales, and value

Key Learning Outcomes

• Understanding the concept of entrepreneurship
• Analyzing entrepreneurship across different countries, including the Philippines
• Tracing the evolution of entrepreneurship
• Understanding and explaining the entrepreneurial process
• Discussing the significance of entrepreneurship in economic and societal advancement
• Grasping the fundamental concepts of common competencies
• Proficiency in the core competencies essential for entrepreneurship
• Exploring various career avenues within the realm of entrepreneurship
• Understanding the sources of opportunities for business
• Determining the essentials in the entrepreneur’s opportunity seeking
• Identifying market problems and proposing potential products or services to meet needs
• Understanding the problem in which a business opportunity arises
• Identifying, screening, and proposing solutions to address problems
• Selecting the best product or service to meet market needs while considering profit generation.

Definitions of Entrepreneurship

• Knight (1921): Entrepreneurship involves deriving profits from bearing uncertainty and risk.
• Schumpeter (1934): Entrepreneurship involves the new combination of firm organization like new products, new services or new markets.
• Housesits (1952): Entrepreneurship involves uncertainty bearing coordination of productive resources, the introduction of innovations, and the provision of capital.
• Cole (1959): Entrepreneurship is a purposeful activity to initiate and develop a profit-oriented business.
• McClelland (1961): Entrepreneurship involves taking moderate risks.
• Shaper (1975): Entrepreneurship includes initiating action, organizing resources to utilize situations practically and accepting the possibility of failure.
• Casson (1982): Entrepreneurship involves decisions and judgments about the coordination of scarce resources
• Ronstadt (1984): Entrepreneurship is a dynamic process of creating incremental wealth
• Individuals assume major risks in terms of equity, time, and career commitment
• The product or service itself may or may not be new or unique
• Value must be infused by the entrepreneur by securing and allocating the necessary skills and resources
• Drucker (1985): Entrepreneurship is a behavior founded on concept and theory rather than intuition.
• Gartner (1985): Entrepreneurship involves the creation of new organizations.
• Hirsch & Bruch (1985): Entrepreneurship is creating something new with value through time, effort, financial, psychic, and social risks, and rewards.
• Stevenson & Grouse beck (1989): Entrepreneurship means to pursue opportunity without regard to resources currently controlled.
• Hart, Stevenson, and Dial (1995): Entrepreneurship means to pursue opportunity without regard to resources currently controlled but constrained by previous choices and experience.
• Shane (2003): Entrepreneurship involves discovering, evaluating, and exploiting opportunities for new goods, services, ways of organizing, markets and raw materials.
• Kratky (2009): Entrepreneurship is a dynamic process of vision and creation that requires an application of energy towards new ideas and creative solutions.
• Dyck and Neubert (2012): Entrepreneurship involves conceiving an opportunity to offer new or improved goods or services with the initiative to pursue that opportunity.

Common Elements of Entrepreneurship

• Innovation
• Opportunity seeking and exploitation
• Resource mobilizing
• Encountering risks and uncertainties
• Economic and personal rewards

Evolution of Entrepreneurship

• The evolution has been formulated based on theories rooted in economics, psychology, sociology, anthropology, and management.
• Contributors/scholars are cited based on their work across six historical periods.
• Classic contributors: Cantillon, Say, Marshall, Schumpeter, Knight, and Kirzner
• Modern contributors: Drucker, Hisrich, Timmons, and Shane

Entrepreneurship Across Historical Periods

• The Earliest Period: Entrepreneurship was demonstrated by Marco Polo (1254-1324), a Venetian merchant trading in Asia
• Polo entered formal agreements with capitalists to sell goods, bearing risks of damage or loss
• Profits were divided as agreed upon after sales
• The Middle Ages: The term meant both an actor and a manager of large production projects.
• This individual managed projects using government resources without assuming risks
• Entrepreneurs oversaw architectural works like public buildings and cathedrals
• 17th Century: It became associated with risk.
• The entrepreneur entered formal agreements with the government for products or services
• Prices were agreed upon upfront, with the entrepreneur bearing either profits or losses.
• Richard Cantillon (1680-1734) viewed the entrepreneur as a risk-taker and bearer of uncertainty.
• 18th Century: The entrepreneur was distinguished from the capitalist.
• Jean-Baptiste Say (1767-1832) described the entrepreneur as central to coordinating production and sales activities
• Responsible for coordinating, leading, and managing all firm activities
• 19th and 20th Centuries
• There was little distinction between entrepreneurs and managers initially.
• Joseph Schumpeter (1883-1950) refuted that idea and defined the entrepreneur as an innovator
• Entrepreneurs seek opportunities and channel existing production means into new avenues
• Risk and financing became the role of bankers or other parties providing capital
• Peter Drucker (1909-2005) conceptualized the entrepreneur as someone who seeks and exploits change as an opportunity.
• 21st Century: Is hailed as the DotCom era.
• Entrepreneurs are considered heroes of free enterprise
• Creativity and innovation enable exploitation of high growth potentials
• The Internet drives significant business changes, providing opportunities

Entrepreneurship Around the World

• United States: A friendly environment for entrepreneurs, home to companies like Apple, Google, Starbucks, Walmart, and Walt Disney
• China: Emerging hub for entrepreneurs manufacturing various products.
• Singapore: Innovates on existing services for local and international use, controlling a significant portion of the Asian economy.
• Canada: Explores internet opportunities; example: Sanikiluag selling wood carvings online.
• India: Supports entrepreneurship through venues like Delhi Huts and Cottage Industries compound.
• Taiwan: Encourages entrepreneurship through medium enterprise incubation centers.
• Hong Kong: Utilizes human resources for entrepreneurship, flourishing in real estate, retail, food, tourism, and agricultural exports.
• Thailand: Supports entrepreneurs in international airport in Bangkok and also tourism internationally and agriculture.
• Malaysia: Increasing in popularity with international and local businesses.
• South Korea: Surpassing the Asia financial crisis, with enterprising spirit apparent in companies like Samsung and Kia.

Entrepreneurship in the Philippines

• Since the interaction of early Filipinos with traders from Malaysia, Indonesia, and China
• Began through the barter system
• Transitioned to a money economy
• Colonization by Spain, Japan, and America changed society, economy, education, and political systems
• Became predominantly family-centered, Catholic, capitalistic, and democratic
• After independence, the government acknowledged its importance to people, society, and the country
• 99.7% of firms are SMEs, employing 69% of the labor force.
• 47% of the 803,476 registered establishments are SMEs owned by women.
• SMEs and large enterprises are predominantly in Metro Manila.
• The government aims to promote entrepreneurship through regulatory frameworks and support.
• SME-friendly laws include the Magna Carta for Small Enterprises and the Barangay Micro-Business Enterprises Act.
• The 1935 Constitution first recorded national commitment to economic success through industrial and technological growth
• Intensification of entrepreneurship development started in the 1970s, with emphasis on the SME sector in the Philippine Development Plan (1972-1976)
• The 1987 Philippine Constitution reinforced commitment to the private sector’s development and government reforms
• The Magna Carta for Small Enterprises is landmark legislation fostering a dynamic SME sector
• R.A. 7882, the Act Providing Assistance to Women, recognizes women's role in development and supports women entrepreneurs
• Government financing institutions (GFIs) like Landbank of the Philippines (DBP) are mandated to assist women's enterprises
• NGOs developing women’s enterprises can receive up to ₱2 million
• Existing women's enterprises can receive up to ₱50,000
• Potential women entrepreneurs can receive training up to ₱25,000
• The government, through the Department of Trade and Industry, promotes entrepreneurship through holistic and strategic interventions

The relevance of entrepreneurship to an organization

• Development of Managerial capabilities

Concept of Entrepreneurship

• The word "entrepreneur” means “to undertake.”
• It points to those who “undertake" the risk of enterprise.
• Entrepreneurs are innovators, taking risks and generating new ideas for unique and profitable solutions.

Factors Affecting Entrepreneurship

• Innovation, risk-taking, and problem-solving are key traits.
• Personality Factors:
• Initiative: Doing things before being told.
• Proactive: Classifying and seizing opportunities.
• Problem Solver: Retaining good relationships.
• Perseverance: Pursuing things despite struggles.
• Persuasion: Enticing people to buy products.
• Planner: Planning and monitoring tasks.
• Risk-taker: Willing to gamble with calculation.
• Environmental Factors: Political, climate, legal, economic, and social conditions

Common Competencies in Entrepreneurship

• Decisiveness
• Communicator
• Leadership
• Opportunity seeking
• Proactivity
• Risk Taking
• Innovative

Core Competencies in Entrepreneurship

• Economic and dynamic activity: Creating value or wealth through optimal resource utilization.
• Innovative: Creative thinking for new ideas.
• Profit Potential: Being compensated by operation profit.
• Risk bearing: Needing to gamble but wise enough to offset the risk.

Types of Entrepreneurs

• Innovative entrepreneur: Creates new things, by thinking of new ideas.
• Imitating entrepreneurs: Do not create new things but only follows.
• Fabian entrepreneurs: Skeptical; don’t initiate, but only after satisfied.
• Drone entrepreneur: Lives on the labor of others; die-hard conservatives.
• Social entrepreneurs: Initiate changes in fields like education, health, human rights, and environment.

Essentials in Entrepreneur’s Opportunity Seeking

• Entrepreneurial mind frame: Enables a positive and optimistic outlook to find solutions.
• Entrepreneurial heart flame: Driven passion attracts satisfaction in discovery.
• Entrepreneurial gut game: Intuition creates confidence in achieving aspirations.

Sources of Opportunities

• Changes in the Environment: Entrepreneurial ideas can arise from changes in the external environment
• External Environment: The physical, societal, and industry environments where a business operates
• Physical Environment: Includes climate, natural resources, and wildlife
• Climate: weather conditions.
• Natural resources: minerals, forests, water, fertile land can be used for economic gain.
• Wildlife: includes all mammals, birds, reptiles, fish, that live in the wild.
• Societal Environment: various forces like political, economic, and sociocultural
• Political forces: laws, rules and regulations, permits, approvals and licenses
• Economic forces: income level and employment rate
• Sociocultural forces: customs, lifestyles and values
• Technological environment: new inventions and technology innovations
• Industry environment: competitors, customers, creditors, employees, government, and suppliers
• Technological discovery and advancement: a person with entrepreneurial interest sees possibility of business opportunities
• Government’s thrust, programs, and policies: priorities/projects/programs/policies are also good
• People’s interest: hobbies and preferences are also good
• Past experiences: Expertise and skill lead to opening related businesses

Forces of Competition Model

• The “five forces of competition” creates a competitive environment always
• Competition – act of getting something
• Five forces competing within the industry:
• Buyers: pays cash in exchange for goods and services
• Buyers possess strong and magnified bargaining power
• This power less if there are several suppliers available in the market + potential for backwards integration + minimal switching cost + product represents a high percentage of the buyer’s cost + purchase large portions
• Potential new entrants: is the one who enters something
• If a business requires huge capital, new entrants should decline
• This gives a threat when substantial capital requirement + strict government policy + difficulty w/ distribution channels + scale economies + high product differentiation and switching cost
• Rivalry among existing firms: people/groups competing
• Look at your competitor in marketing (freebies)
• Depends on its diversity and the number of competing firms
• Substitute products: they replace other functions
• Threat exists the switching cost is low + customer tastes easily change + product differentiation is highly noticeable + quality increases + are substantially lowers
• Suppliers: needs and wants

Career Opportunities in Entrepreneurship

• Business Consultant
• Teacher
• Sales
• Business Reporter