Entrepreneurship development is the process of enhancing the knowledge and skills of entrepreneurs with the help of various classroom and training programs. The aim of entrepreneurship development (ED) is to increase the number of entrepreneurs in the country. It helps in economic development by increasing capital formation and employment. It also promotes balanced regional growth in the country.
Theories of Entrepreneurship development:
1. Economic Theory:
The theory defines the relationship between economic growth and entrepreneurial development. It postulates that only when there are economic incentives, the entrepreneur gets motivated to take the project. Hence, there should be favorable economic conditions. Various economic incentives take the form of concessional tax policies, industrial policies, easy access to sources of finance and raw materials, along with the availability of infrastructure access to information about technology and market conditions and technology.
2. Sociological Theory:
This states that entrepreneurship behavior gets influenced by various factors such as customs, religious beliefs, society's values, taboos etc. Thus, an entrepreneur's development is based on the social and cultural atmosphere that surrounds him. The role of an entrepreneur is determined by the expectation of society.
According to Jean Baptiste, 'Entrepreneur combines land of one labor for another and capital of yet another to produce a product."Thus, here he has distinguished between the entrepreneur and capitalist. Capitalist provides finance to the entrepreneur and entrepreneur organizes them.
3. Entrepreneurship Innovation Theory:
According to Joseph Schumpeter, "An entrepreneur is an individual who has new ideas and is able to convert these ideas to innovation." This means entrepreneurship combines already existing inputs and builts new industries and products. Thus, as per this theory, if existing technologies are used and applied in a new way, then it is considered entrepreneurship. Thus, it establishes a link between innovation and entrepreneurship.
4. Psychological Theory:
It postulates that when society has individuals with defined psychological characteristics, then it will lead to entrepreneurship. These traits can include the need for achievement, the ability to face criticism, a vision and being a self-driven person. These traits are formed when the individuals grow and when there are high standards of performance and excellence. Thus, individuals who have self-reliance can become successful entrepreneurs.
5. Theory of Achievement Motivation:
This was developed by David Mclelland. The theory revolves around the need for power, affiliation, achievement. An industrial must have a motive for achievement to become a successful entrepreneur. In the Kakinada experiment, which was conducted by McClelland, the trainees were asked to imagine themselves in search of success and challenge. They were directed to set achievable goals and imitate the role models. The result of the experiment identified two attributes in this process. One was trainees did the same things in a better and new way and second, they were able to make decisions in uncertain conditions. Thus, the theory highlights that individuals who are not influenced by external incentives (such as economic incentives) or money, rather are motivated by a high sense of achievement, i.e. need to succeed.
6. Status Withdrawl Theory:
It was developed by Hagen. This theory states that a section of society or a class that was mistreated, such as a minority group, shows aggression towards entrepreneurship. Thus, it is the withdrawal in status or that drives an individual to become an entrepreneur.
If an individual or a section of society feels that they are not being respected by society, Then they use innovation and entrepreneurship to earn the status and respect back. Thus, there are four conditions that result in the withdrawal of status.
These are as follows
- When a traditional elite class is displaced by natural and physical forces.
- When the symbols, values are defamed and denigrated.
- When a class migrates to another place, they may face non-acceptance of the status which they desire to receive.
- When there is a change in economic power then there can be the inconsistency of the static symbol. Hagen also propagated that such an individual is a 'creative problem shooter'. He visualized an innovative personality as innovation, reformist, ritualist and retreats.
7. Theory of Social Change:
It was given by Max-weber that is based on an ethical value system. It argued that religion plays an important role in entrepreneurship. He opined that industrial growth is dependent on the acquisition of money, multiplication of money, technology and productive/rational use of money. All these elements are based on the same ethical values passed by an individual.
8. Theory of Social Behaviour:
It was developed by Kunkel. It started that the economic, political and social structure affects the supply of entrepreneurs. There are four structures in society which are labor structure, opportunity structure, demand structure and limitation structure. The entrepreneurs perform tasks where some of these behaviors are accepted and others are not, based on the structures.
9. Theory of Leadership:
It was given by Hoselitz. He said that entrepreneurship is a function of leadership skills and managerial skills. The individual who has the ability to lead and manage can become an entrepreneur. The social conditions help in the development of entrepreneurial personalities. Thus, the theory relates administrative, managerial skills with entrepreneurship.
10. Theory of Model Personality:
It was developed by Cochain, which is a social theory of supply of entrepreneurs. He emphasized social sanctions, role expectations and cultural values. He believed the performance of an entrepreneur is affected by his role expectations, his attitude towards his job and various operational requirements in his work. However, it is criticized that the theory is based on entirely social factors.
11. Theory of Systematic Innovation:
It was developed by Peter F Drucker. He stated, "Systematic innovation consists in the purposeful and organized search for changes and in the systematic analysis of the opportunities such as change might offer for economic and social innovation." The systematic innovation is based on seven sources of innovative opportunity where four sources are within the organization. They are
Incongruity: It is the incompatibility between the reality assumed and actual reality.
Unexpected: It deals with unexpected failure, unexpected success and any unexpected event.
Industrial Structure: Any changes in industrial structure or market.
Innovation: It deals with any innovation that takes place due to process needs.
The remaining three sources of opportunities for innovation deal with
- Demographic factors: Change in population, taste, gender, income etc.
- Perception: Change in moods and perception.
- New Knowledge: When there is new knowledge whether scientific or unscientific.
Therefore, this theory relates systematized innovation with entrepreneurship. However, it is criticized that the reliability of seven factors is questionable.
Thus, it is learned that there are various theories of entrepreneurship that are used to developing individuals as entrepreneurs.