Entrepreneurship and Small Firms - Assignment Example

Identify, through a literature review, contemporary theories, models and empirical research in a selected area of SME development (A19 & 20). Theories, Models and Empirical Research (1): The idea that the entrepreneur has a significant role in economic development has been developed by writers outside the mainstream economic thinking. Their contributions now have an important place, but it is only relatively recently that they have been recognized. As attention has become more focused on the importance of the Small and Medium-Sized Enterprise (SME) sector for economic development and job creation so greater attention has also been directed at theories of entrepreneurship. In any scientific method the theory can be used for developing hypotheses about the behaviour of successful entrepreneurs. The hypotheses are then tested against the observed characteristics of entrepreneurs and small business owners in the real world. However, there are a number of problems with this approach that have been discussed as follows:- 1. Some regions are more favored than others at establishing successful small businesses and entrepreneurs and hence their economic development is more successful. The question of whether this is due to characteristics in the population or due to certain aspects of the environment and infrastructure which enable potential entrepreneurs to exploit their skills and opportunities more easily, remains, at this stage, an open one. For example, research undertaken for Scottish Enterprise (2), after concern with low participation rates in entrepreneurship, showed that a complex series of factors contributed to low participation rates in Scotland. For example, the historical dependence of the population on a limited number of large employers coupled with inward investment (North Sea oil) had produced a 'dependency culture', that is, that people were used to depending on large employers for employment. Thus, the thought of going into business on their own account did not come easily to them. Yet other factors were important as well such as lack of finance. This example shows why participation rates might be different in particular regions for varying complex reasons. 2. Concern has been expressed at the existence of latent entrepreneurial talent. For example, why are there so few successful female entrepreneurs Again this remains open question which appears to have no simple solution but rather is caused by a complex combination of social and economic reasons. Little research has been conducted specifically on these groups in the UK, although a study carried out by the David Deakins and Ram (3) with African - Caribbean entrepreneurs suggests that motivations among this minority group in the UK consists of a combination of positive (pull) and negative (push) factors. Positive factors are associated with the attractions of entrepreneurship and negative factors are associated with limited opportunities in the inner-city and deprived urban environments. 3. Attention has focused on the role of networks in successful entrepreneurial development. For example, some research suggests that inter-firm networks contribute to successful entrepreneurship as discussed below. Start-ups (4): We know that a high proportion of new firms fail within three years of start - up. For example, in the UK, 30 percent of new firms cease trading by the third year and 50 percent by the fifth year. In addition, there is only a small proportion that grow to employ 50 workers. One of the factors is the potential loss of control faced by the entrepreneur as the firm grows. New small firms and entrepreneurs that are successful are predominantly located in the South - East in the UK. This suggests that the environment and infrastructure is at least as important as the characteristics of the entrepreneur. It is also likely that the development of inter-firm networks is more advanced in the South - East than in other regions of the UK. Inter -Organizational Networks (5): The inter-organizational networks that link firms after they are established have been found to be important to the on- going success of firms. Efficient networks that foster good communications between firms contribute to entrepreneurial behaviour and success. Critically analyse, compare and contrast the findings of the literature search to produce a comprehensive view of the main themes in the specified area (A21; B12; D26). THINKING APPROACH (6): Two major lines of thinking have developed: the Knightian (13) approach which highlights the risk bearing and uncertainty reducing role of entrepreneurs, and the Schumpeterian (14) approach in which the entrepreneur is an innovator, a forger of new systems and production possibilities. Other perspectives highlight the knowledge and insight of the entrepreneur to possibilities and the role of Kirzner's (15) middleman. This coordinating role has been developed and emphasized by Casson (16), but in addition it is clear that there are other factors which influence participation in entrepreneurship such as access to resources and facilities in the local environment. Finally, it is probably more useful to look at the entrepreneurial function rather than any set of characteristics which are necessary to become an entrepreneur. THE ENTREPRENEURIAL PERSONALITY (7) The second approach to entrepreneurship is to identify certain personality characteristics or 'traits' in individuals that appear to be possessed by successful entrepreneurs. The characteristics literature has been concerned with testing and applying some perceived characteristics in individuals. From this approach, it is possible to argue that the supply of potential entrepreneurs is limited to a finite number of people that have innate abilities, that they have a set of characteristics marking them out as special and have particular insights, not possessed by others. Some of this research stems from the original work carried out by McClelland (8), who gives the following key competencies of successful entrepreneurs: Proactivity: initiative and assertiveness Achievement orientation: ability to see and act on opportunities Commitment to others. A further example is provided by Meredith et al. (9) who gives five core traits: Self-confidence Risk taking activity Flexibility Need for achievement Strong desire to be independent. Again the trait of need for achievement is represented. In general the following traits have been suggested as important. Need for achievement Internal locus of control High propensity for risk taking Need for independence Deviants (see below) Innovative behaviour. INTRAPRENEUR (10): The deviant personality is associated with the third approach to the entrepreneur that of the social behavioural school, associated with Kets de Vries (17). A deviant character is associated with individuals who do not easily fit in with their existing employment, e.g., someone who is out of place in a large firm. However, this would seem to rule out the possibility of the dynamic employee wishing to create change in the large firm, the intrapreneur. Timmons (18) considers that both need for achievement and locus of control can be acquired along with other leadership abilities and competencies such as the ability to take responsibility for actions/decisions. Many of these characteristics are management skills. That is, entrepreneurs obviously need to be ambitious but need to be satisfied that they have achieved personal goals and ambitions. He considers that dealing with failure can be an important attribute of entrepreneurs. However, the ability to tolerate failure depends on the culture. In Britain, our culture is less tolerant of failure and too often highly talented individuals have not been able to recover from failure. The culture and environment is crucial to tolerance of failure. There is little doubt that Britain has lost many potentially successful entrepreneurs, because having failed once, they have not been allowed to recover from that failure, perhaps from an inability to raise capital having been through bankruptcy. Failure is a very valuable learning experience, as many entrepreneurs have admitted. It is a pity in Britain that we too often do not allow potential entrepreneurs a further opportunity so that they can benefit from their experience, apply lessons learned, and build a successful business. Communicate the findings of the literature review of contemporary sources in the selected area in a style appropriate for an academic paper. (D26 & 27) Findings (11): Problems arise whenever attempts are made to measure these characteristics. The problems with measurement are that: 1. Characteristics are not stable and change over time. 2. In many cases they are subjective judgements that do not lend themselves to objective measurement. For example, how do we define being innovative It can simply be the ability to deal with change and cope with new processes and solutions. How do we measure the calculated risk taker In many respects there are unsatisfactory definitions of these concepts which makes their measurement difficult to justify. 3. Concentrating on personality characteristics means that we are in danger of ignoring environmental and cultural influences which can be just as if not more important than any set of personality traits. 4. Placing too much importance on an inherent set of personality characteristics reduces the role of education and training. Learning can be a very valuable process that allows potential entrepreneurs to acquire skills to develop methods of business planning. While we would agree that many people are not suited to entrepreneurship, there is still much that can be learned by potential entrepreneurs and this process is far from understood. There is a danger that these approaches can influence and dominate approaches to small firm ownership and entrepreneurship so that important influences on entrepreneurship such as quality of the infrastructure provided in the environment are ignored. There are a number of problems with these approaches which have been mentioned above. They include ignoring issues such as gender, age, social class, and education, all of which can have a bearing on the propensity of an individual to enter entrepreneurship. OVERALL COMMENT (12): 1. The attempts to develop tests on entrepreneurial characteristics owe something to the development of theories of entrepreneurship. 2. Concern with the entrepreneurial personality, however, has diverted attention away from learning and development process in entrepreneurship and enterprise development, away from recognition that the individual entrepreneur acquires skills and abilities, which are learned from the very process of entrepreneurship, as much as from innate abilities. 3. There is a need to re-focus research away from the investigation of the entrepreneurial personality, towards identifying the important factors, of which environment might only be one, that affect the process of learning and development in entrepreneurship. 4. Support for entrepreneurship can then be better informed to enable individuals to acquire management skills that enable them to learn from their experience and from their solution of problems. 5. Small business plays an important role in delivering enhanced economic growth and opportunity for all. A strong and dynamic entrepreneurial base is an essential driver of productivity and prosperity in modern economy, and underpins the economic flexibility that allows the UK to compete effectively in a globalize economy (19). Bibliography: Deakins, David. (1996) "Entrepreneurship and Small Firms", McGraw-Hill international (UK) limited, London. References/ Work cited: 01. Contemporary theories, models and empirical research (A19 & 20): Deakins, David. (1996) "Entrepreneurship and Small Firms", McGraw-Hill international (UK) limited, London. 02. Scottish Enterprise: Scottish Enterprise (1993) "Scotland's Business Birth Rate: A National Enquiry", Scottish Enterprise, Glasgow. 03. Ram: Ram, M. (1993) "Managing to Survive: Working Lives in Small Firms", Blackwell, Oxford. 04. Start-up in UK: Barkham, R. (1992) "Entrepreneurship and Regional Development- Regional Variations in Entrepreneurship: some evidence from the UK", Vol.4, no.3, pp. 225-44. 05. Inter-organizational Networks: Butler, J, E. and Hansen, G. S. (1991) "Entrepreneurship and Regional Development-Network Evolution, Entrepreneurial Success and Regional Development", Vol.3, no.1, pp. 1-16. 06. Thinking Approach: Deakins, David. (1996) "Entrepreneurship and Small Firms", McGraw-Hill international (UK) limited, London. 07. The Entrepreneurial Personality: Deakins, David. (1996) "Entrepreneurship and Small Firms", McGraw-Hill international (UK) limited, London. 08. McClelland: McClelland, D. C. (1961) "The Achieving Society", Van Nostrand, New Jersey. 09. Meredith et al: Meredith. G., Nelson, R. E., and Neck, P.A. (1982) "The Practice of Entrepreneurship", International Labour Office, Geneva. 10. Intrapreneur: Deakins, David. (1996) "Entrepreneurship and Small Firms", McGraw-Hill international (UK) limited, London. 11. Findings: Deakins, David. (1996) "Entrepreneurship and Small Firms", McGraw-Hill international (UK) limited, London. 12. Overall Comment: Deakins, David. (1996) "Entrepreneurship and Small Firms", McGraw-Hill international (UK) limited, London. 13. Knight: Frank.H.Knight (1885 - 1972) 14. Schumpeterian: Joseph. A. Schumpeter (1883 - 1950) 15. Kirzner's: Israel M. Kirzner (1930- ) 16. Casson: Mark Casson 17. Kets de Vries: Manfred Kets de Vries 18. Timmons: Jeffrey Timmons 19. Overall Comments pt.5: Read More