THEORIES OF ENTRPRENEURSHIP

1) MAX WEBER’S THEORY OF SOCIAL CHANGE

• According to Weber rapid industrial growth depends upon rational use of technology, acquisition of money and its rational use for productivity and multiplication of money.

• Max Weber , analyzed religion and its impact on entrepreneurial culture.

• He said that PROTESTANTS progressed fast in bringing capitalism because their ethical value system provided them with rational economic attitude.

• While HINDUISM lacks such an attitude because of their value of ‘Paritha’ (the restriction on having any contact with other communities).

• According to him the ‘spirit of capitalism’ shapes attitudes towards the acquisition of money and the activities involved in it.

CRITICISMS• The rapid growth of

entrepreneurship in India since independence proves that Indians are not averse to the spirit of capitalism.

• Hinduism has contributed a lot to the development of entrepreneurs in India.

2) HOSELITZ SOCIOLOGICAL THEORY

• Entrepreneurship can be developed only in a society in which cultural norms permit variability.

• Where social processes are not rigid.

• A situation which encourages development of personalities who are interested in enterprise.

3) TRAIT THEORY OF ENTREPRENEURSHIP

• According to F.A.Walker to be successful as an entrepreneur, an individual must possess certain traits or characteristics of personality like :

CreativitySelf confidenceRisk taking ImaginationPerseverance

4) ECONOMIC THEORY OF ENTREPRENEURSHIP

• This theory was developed by G.F.Papanek and J.R. Haris.

• According to them economic incentives are the main drive for the entrepreneurial activities.

• Economic factors include:Market incentivesAvailability of sufficient capital Institutional support

• According to this theory when favorable economic condition are prevailing, entrepreneurs develop at a faster rate.

5) SCHUMPETER’S INNOVATION THEORY

• Developed by Joseph Schumpeter.

• He proposed that an entrepreneur sees the potential profitable opportunities and exploits them.

• An entrepreneur is one who: Innovates Raises money Collects inputs Organizes talent Provides leadership Sets the organization

• Assumptions:Existence of sufficient

availability of capital.Existence of developed

banking systemExistence of a high level

developed technologyExistence of private

initiative

• Schumpeter also differentiates between an inventor and innovator.

InventorInventor discovers new methods and raw materials

InnovatorInnovator utilizes discoveries in order to make new combinations

• Innovation leads to the following changes:

Introduction of new goods with which customers are not familiar.

Introduction of a new method of production.

Opening of a new market. Finding a new source of raw materials or

half-manufactured goods. Reorganization of process or enterprise.

• An entrepreneur as an innovator has the following motives:

There is a dream and the will to establish a private kingdom.

There is a will to conquer:–The impulse to fight–To prove oneself to others–To succeed for self satisfaction

There is the joy of creating, of getting things done.

• Criticisms

– This theory is more applicable to developed economies.

– A person is an entrepreneur when he innovates but he ceases to be so when he settles down and runs a established business.

– This theory ignores risk-taking and organizing aspects of entrepreneurship.

– Schumpeter’s assumption that an entrepreneur is a large scale business man is not true because an entrepreneur cannot have large scale business operations from the start.

6) McCLELLAND’S PSYCHOLOGICAL THEORY

• David McClelland developed this theory to explain the psychological roots of entrepreneurship.

• Certain needs are learned and socially acquired as the individuals interact with the environment.

• Such needs drives individuals towards entrepreneurial activities.

• Types of needs:I. Need for Achievement (n Ach)II. Need for Power (n Pow)III. Need for Affiliation (n Aff)

• Need for Achievement:

– Its is a drive to excel, advance and grow.– Some people desire to do something better

or more efficiently than it has been done before.

– High achievers dislike succeeding by chance.– They prefer the challenge of working at a

problem and accepting the personal responsibility for success or failure.

– They take calculated risks for achieving targets.

– They are focused towards their task.– Goal achievement intrinsically satisfies them

and they are not very much desirous for material rewards.

• Need for Power:– It’s a drive to influence others and situations.– Individuals high in nPow enjoy being “in charge”– Prefer to be placed into competitive and status

oriented situations– Tend to be more concerned with gaining prestige.

• Need for affiliation:– It’s a drive for friendly and close inter-personal

relationships.– Its is a desire to be liked and accepted by others.– They prefer co-operative situations rather than

competitive ones.– Such people receive inner-satisfaction from

socializing.

• Conclusion– Mc Clelland found that the combination of a

moderate to high need for power and a lower need for affiliation enables people to be effective entrepreneurs.

–High need for Achievement gives rise to entrepreneurs

– They like to take calculated risk.– They are highly motivated by challenging and

competitive work situations.

7) THEORY OF SOCIAL BEHAVIOR

• According to Kunkel, individuals perform various activities of which some are accepted by the society while others are not.

• The accepted ones are rewarded.• The rewards act as reinforcing

stimulus increasing the probability of repeating that behavior pattern.

• This pattern of social behavior is entrepreneurial behavior.

• Supply of Entrepreneurship depends on four structures:Limitation structureDemand structureOpportunity structureLabor structure

• Limitation

It assumes ideal structure for supply of entrepreneurs.

8) X-EFFICIENCY THEORY

• According to Liebenstein, the most significant feature of Entrepreneurship is Gap Filling.

• An entrepreneur has to command all the inputs to achieve efficiency and economy.

• Innovative entrepreneurs come forward to check inefficiencies in the utilization of various resources.