12 Factors Affecting Entrepreneurship Growth
- Learning Outcome:
After studying this module the learners will be able to:
- Know the factors that affect the establishment and growth of entrepreneurship;
- Understand the role of economic factors in the growth of entrepreneurship;
- Explain the various types of non-economic factors that affect the entrepreneurship development;
- Describe the relevance of psychological factors in the development of entrepreneurial society;
- Know the importance of government action in the growth of entrepreneurship; and
- Analyse other factors along with their implications in the growth of entrepreneurship.
2. Introduction
Entrepreneurship has significantly and positively contributed in the development of many regions of the globe. It reduces the main problems like vast unemployment, poverty reduction, heavy dependence on agriculture, and regional imbalances. Most of the countries of the world are trying to shift their economy from agriculture/horticulture driven to entrepreneurial driven economy. Presently USA and China are one of the leading entrepreneurial societies in the world and due to entrepreneurship growth; both are enjoying various kinds of economic as well as social benefits. But, it is not that simple to develop entrepreneurship in any region. The establishment and growth of entrepreneurship is not natural. Development of entrepreneurship and entrepreneurial society depend on various factors. It is not only entrepreneurs who can develop the enterprise or not only their personal ability or characteristics that can contribute in the growth of entrepreneurship. Along with entrepreneurs’ personal or psychological factors, there are many other factors like economic conditions of the country, social- cultural environment, government and political environment and few others that also affect the emergence and development of entrepreneurship. These factors are generally known as conditions for the development of entrepreneurship. These factors or conditions may have both positive and negative impacts on the establishment and growth of entrepreneurship. Positive impacts include the facilitative conditions for the entrepreneurship while negative impacts include all the inhibiting factors for the growth and development of entrepreneurship. For a prospective entrepreneur, it is very important and relevant to have a detailed information and knowledge about the various factors that can affect his enterprise and business. A vigilant entrepreneur always analyses all the factors very carefully that may have direct or indirect impacts on her/his business and classify these factors in favourable and inhibiting factors. After analyses, S/he designs her/his future strategy accordingly for the growth of his business.
3. Factors Affect Entrepreneurship
For detail analysis, it is important to know and understand each and every components of business environment that may affect the functioning of enterprise or business. These components may be internal to entrepreneurs or external. Factors that affect entrepreneurship growth are divided into various groups so that strategies according to each group of factors can be devised. These factors are classified into following categories/ groups:
1. Economic Factors
2. Social Factors
3. Psychological Factors
4. Government/Political Factors
5. Other factors
All the factors listed above are interconnected and mutually dependent on each other. No single factor can facilitate the complete growth of entrepreneurship. For the effective functioning and speedier growth of entrepreneurship, all the factors must contribute in positive manner.
Let us discuss each factor in detail and try to understand their implications in the emergence and growth of entrepreneurship.
4. Economic Factors
Economic factors are those which contribute in the economic development of the economy. From economic point of view, these factors create conducive environment for the economic development of country and also account for the establishment and development of entrepreneurship. These factors actually provide the economic security and favourable environment to an enterprise. Some of the major economic factors that affect entrepreneurship growth are discussed as follow:
4.1 Capital: Capital or finance is the life blood of any enterprise or business and one of the major prerequisite to start an entrepreneurial activity. Without capital, entrepreneurs can never think to initiate his business. Availability of capital helps an entrepreneur to arrange the basic means of business i.e. land, machinery, material, manpower, etc.. Without adequate capital no one can combine all the means of production. Supply of adequate capital also assists in generating or increasing capital and profits. Supply of adequate capital is regarded as lubricant to drive the engine of entrepreneurship growth. Research suggests that as the supply of capital increases, entrepreneurship also increases and this has been already experienced in the entrepreneurial societies like USA, China, Russia, and France. Researches further suggest that one of the major reasons for entrepreneur’s failure is lack of sufficient capital in many parts of the world.
4.2 Labour: The famous economist Adam smith has considered labour as an important factor for economic development. Availability of quality labour in right quantity always considers one of the major factors of economic as well as entrepreneurship development. Cheap labour is another requisite of entrepreneurship growth as it directly affects the emergence of entrepreneurship. Availability of low-cost labour is a boost for entrepreneurs as it directly linked with the smooth functioning andprofitsofan enterprise. Labourproblemsaffectthehighlabour intensiveenterprises but entrepreneurs can manage the impacts of this problem by bringing labour– saving innovations or through technology like Japan and USA did to solve the problems of their industries. Labour issue can be better managed than capital issue.
4.3 Raw Material: Another factor under economic factors that affect the growth of entrepreneurship is necessity of quality raw material in economic cost. To establish an enterprise in any region, availability of raw material is major determinant. In the absence of raw material, neither entrepreneurship developed not entrepreneur emerged. For example an entrepreneur wants to start a furniture house, he arranged capital through private investment and borrowings from family, also arranges skilled labour, but, if there is no timber available in nearby markets, all efforts will go in vain. Entrepreneurs must understand the relevance of availability of raw material as it directly affects the cost of production. Raw materials supply does not totally hamper the growth of entrepreneurship as entrepreneurs can manage the problems of supply of raw material through innovative supply chain system and application of effective technology. If supply of raw materials is regular in the market, then there is no need to put extra efforts for the growth of enterprise.
4.4 Market: It is the market that provides the potential reward to the entrepreneurs. Market consists of producers and buyers or a place where seller sells his/her produces to customers. Market is major determinant for the success of any entrepreneurial initiatives and without market no one can survive in the world of entrepreneurship. Entrepreneurs can generate capital, arrange labour, procure raw materials but he cannot create market, he can only generate demand for his produces. Consumption of final products rests with the demand of the customers. Market size and composition of market influence the behaviour of entrepreneurs. Nature, size, and composition of market especially dominance of a product in a given market more influential for the growth of entrepreneurship. Distance of market from enterprises also affects the functioning of enterprise but entrepreneur through effective transportation can manage the challenges thrown by distance issue. There are many examples where we can see that rapid development of market significantly increase the appearance of entrepreneurs like the German and Japan economy.
5. Social Factors
Social scientists support that economic factors alone are not sufficient to boost entrepreneurship in any region. An entrepreneur can never be successful where society fails. Advocates of social theory state that influence of economic factors on entrepreneurship growth depends on social factors also. Some of the social factors that affect entrepreneurship growth are discussed here under:
5.1 Entrepreneurship Legitimacy: For entrepreneurship establishment and growth, system of norms and values within a social setting are major social determinants. The system of social norms and values is known as legitimacy of entrepreneurship. Approval and rejection of society in terms of norms and value influences the entrepreneur’s behaviour. Schumpeter; famous economist, describes these social norms and values as an appropriate social climate for entrepreneurship development. Various academicians propounded that to be a successful entrepreneurs, social support is must. The social status of entrepreneurs considers the most important among the entrepreneurship legitimacy. For entrepreneurship growth, social norms and values may be adapted or changed. Entrepreneurship legitimacy may affect or disturb the appearance of entrepreneurship but not completely eliminate. Environment where legitimacy is very low but government support is very high, there entrepreneurship growth may be experienced.
5.2 Social Mobility: Entrepreneurship growth also depends on social mobility. Social mobility includes both social as well as geographical mobility. Openness and flexibility in the social and cultural system affect the entrepreneurship growth. Some academicians advocate that entrepreneurs grow in flexible and liberal society where society adapts itself according to the changing environment. There are many examples where it is proved that due to movement of young and educated males from a region results into growth of entrepreneurship after their return.
5.3 Social Marginality: Sometime entrepreneurship growth also depends on social marginality. Social marginality means a group of society supports a particular role for an individual due to differences from main social groups. An economy sees growth of entrepreneurship where a particular social system expects from an individual to assume entrepreneurial roles. This marginality may be due to religious, cultural, and migration issues, etc. Social marginality determined by entrepreneurship legitimacy and social mobility. There as examples which explain that where entrepreneurial legitimacy is low individuals are mobilized towards non-entrepreneurial roles and if legitimacy is high, main stream individuals will assume entrepreneurial roles. There are various factors that contribute for social marginality which ultimately results in entrepreneurial growth. For example one is presence of positive attitude toward a particular profession or business within the social group and another is a very high degree of unity or solidarity with in the social group.
5.4 Security: Entrepreneurs’ social and economic security also affects entrepreneurship growth. Entrepreneurs’ emerged in that society which provides security to him/her. Many scholars advocate that entrepreneurs’ security is an important facilitator of entrepreneurship growth. It is not decisive that what is the appropriate level or amount of security which results in entrepreneurial emergence. Few said a little bit security is enough while other advocate moderate security. Few other propound that entrepreneurs emerged in turbulent conditions because sometimes it positively contributes. But, security is regarded significant factor for entrepreneurial growth. This is also justifiable as entrepreneurs’ afraid from losing their assets and they expect an amount of security for their survival and where they get, entrepreneurship emerged in that society.
6. Psychological Factors
Along with economic and social factors psychological factors also contribute in the growth of entrepreneurship. If an economy provides best economic environment and society also supports entrepreneurial endeavour but, if individuals are not self motivated then all economic and social support will be wasted. There are various psychological theories of entrepreneurship which propounded that for entrepreneurship development positive attitude and motivation is crucial. Following are the psychological factors that affect entrepreneurial growth:
6.1 Motivation for high achievement: According to D. McClelland’s theory of need achievement, primarily, motivation for high achievement is the major psychological determinant for entrepreneurship development. This theory advocates that entrepreneurship emerged in a society that reflects need for achievement. Society that has high need achievement would expect high growth in entrepreneurship. McClelland further states that due to need for high achievement one succeeds and other fails in entrepreneurship due to low motivation. Further, it is suggested that need or motivation for high achievement can be developed through trainings.
6.2 Status Respect: Status respect is another psychological factor that affects entrepreneurship growth. Academicians stated that withdrawal of expected status respect forces group of society or individuals to opt for something different or unique to get the status respect and most of the times to express, dissatisfied individualsopts for entrepreneurship. Hagen (1962) supports this fact through the example of Japan’s development. He stated that Japan experience high growth in entrepreneurship due to withdrawal of status respect from colonial rule and Samurai group which force Japan’s society for increased innovation and creativity. Withdrawal of status respect may be due to:
i. Social groups displaced from their origin.
ii. Values of social groups may be disrespected.
iii. Status respect inconsistency.
iv. Migration into new society.
Withdrawal of social respect gives rise to following situations:
i. To get an identity, individuals work hard and remain different through his business.
ii. To survive in such society, adopt a new way of adaptive life.
iii. Try to be innovative and creative as an entrepreneur work to establish a new society.
7. Government/Political Approach
All above discussed economic, social and psychological factors directly or indirectly influenced by the actions of government. To achieve the developmental objectives, government through its various policy initiatives (which are discussed in module 15) tries to provide congenial environment to entrepreneurs. These policy measures may be in the form of economic policies, social schemes, and various training programmes. Government can facilitate the establishment and growth of entrepreneurship by creating basic facilities and services to the entrepreneurship. Entrepreneurial growth is affected by various government actions such as development of special economic zones, industrial areas, industrial estates, and favourable policy initiatives. In India, government is trying to provide favourable entrepreneurial environment by enacting MSMED Act 2006, establishing separate ministry for MSME sector and by launching various attractive schemes for entrepreneurs. If government is not active or least interested in the economic development of society, no growth in entrepreneurship will be there. Other factors are also influenced by the government actions and approaches towards entrepreneurship development.
8. Other Factors
Besides economic, social, psychological, and government/political factors, there are many other factors that affect the emergence and development of entrepreneurship. Few of them are discussed below:
8.1 Infrastructural Development: Ultimate goal of development is to provide the benefits to the last citizen of the country. Most of the times, economic factors are favourable for entrepreneurship, society also adapts the environment, and government policies are also attractive but poor infrastructure for the business negatively influences the psychology of the entrepreneur. Sound infrastructural development may nullify the problems of location in many cases. Infrastructural facilities create positive way for small enterprises growth whether that is artisans or agri-entrepreneurs. Infrastructural programme coordinated with other element may gear up the growth of entrepreneurship. For example; there is a small horticulturist in a hilly town and totally focusing on the development of horticulture produces but there is no cold store or warehouse to stock the produces, in such case, slowly few small entrepreneurs may leave their business which is their choice. But, in this case, if proper warehouse or cold store is developed, this will boost the growth of such kind of enterprises.
8.2 Environmental Scanning: Another factor that affects the development of entrepreneurship is integrated approach of environmental analysis. Key to growth of entrepreneurship is effective analysis or careful research of surrounding environment. Environmental scanning gives the idea of enterprise’s strengths & weaknesses and opportunities and threats posed by environment. It gives theclearideaaboutthetargetandbeneficiary customers, their activities, needs, and shopping habits. Most of the times, entrepreneurs fail due to poor analysis of environment which results in slow growth of entrepreneurship.
8.3 Training: For the proper and speedier growth of entrepreneurship, entrepreneurs should have the necessary and adequate knowledge and skills to run the enterprise. Most of the entrepreneurship initiatives fail due to poor knowledge and ineffective implementation of idea. Other reason for failure or slow growth rate of entrepreneurship establishment is lack of skills. All these components are not permanent and out of control, these can be solved through proper education and training. Training significantly contributes in the establishment and development of entrepreneurship as it imparts necessary knowledge and skills to entrepreneurs for the smooth operations of the business. Proper training institutes and training programmes boost entrepreneurs to initiate entrepreneurial activity and positively influence their psychology. Moreover, training also helps in creating high need for achievement. Training further motivates entrepreneurs to take initiative and also helps in acquiring necessary competencies to achieve success in business.
9. Summary
Growth of entrepreneurship not only rests with entrepreneurs’ action and government approach. There are various other factors that also affect the emergence and growth of entrepreneurship along with entrepreneurs’ psychology and government actions. Entrepreneurship in any country does not emerge by chance or automatically. Presence of many factors in an economy called conducive factors helps in entrepreneurship growth. These factors are economic, social, psychological, government and many others. All the above discussed factors are interlocked and mutually dependent on each other. No single factor can facilitate the establishment and growth of entrepreneurship. Economic factors include; availability of adequate capital, frequent supply of raw materials, quality labour in right quantity, and developed market. Social factors cover legitimacy of entrepreneurship, social mobility, marginality, and security. Psychological factors include motivation for achievement and status respect. For the smooth establishment and high growth of entrepreneurship, government approach is very crucial. Entrepreneurship flourishes only in that society where government takes proactive steps for the development of entrepreneurship. Entrepreneurship never grows in that environment where government is not interested in the development of entrepreneurship. Among other factors government policies, rules and regulations, infrastructure, and environment analysis are the important ones those affect the growth of entrepreneurship. In conclusion, we can say that entrepreneurship includes various economic and non-economic factors. It can only grow where conditions are conducive in terms of economic, social, personal, psychological and political, and when all are free from constraints.