Entrepreneurship Theory - Literature review Example

Entrepreneurship Theory Name Institution Introduction For several years, the topics on entrepreneurship have been controversial with the individuals, economists, societies and researchers failing to agree on the concrete definition. Repeatedly, people have been asking questions relating to visionary entrepreneur. To handle such questions, it is imperative to examine the array of theories available today. From the basic definition, an entrepreneur is a leader dealing with issues associated with entrepreneurship challenges to commence a new venture or idea within potential industries (Congregado, 2008). Most people tend to argue that the concept of entrepreneurship originated from Richard Cantillon, a French economist. Initially, people associated the concept of entrepreneurs with the willingness to take up responsibilities for the consequences associated with risks and uncertainty. Therefore, they are the risk bearers. In the modern society, the entrepreneurs exist all over the known industries, and they are agitating the industries to be highly competitive in nature. From the economical point of view, entrepreneurial activities are crucially substantial to ensuring the flourishing on the economy and business industries. In addition, the entrepreneurship should be able to move large companies forward through the application of innovative practices (Parker, 2004; Praag & Versloot, 2007). Even though the theorists have not been able to agree on the mutual definition of an entrepreneur, nonetheless, they concur on the significance of the roles played by the entrepreneurs within the society and economy. Various kinds of literature have been published on entrepreneurship concept with the first theory being that of Cantillon in the 1700s. Most economists relate entrepreneurial roles to economic development. As a result, the paper aims at discussing various entrepreneurial theories and factors influencing the tendency of people to take part in entrepreneurial accomplishments including personality characteristics and behaviours (Brown & Thornton, 2014). Literature Review In 1755, the French economist Richard Cantillon viewed entrepreneurs as people conducting businesses and taking on the calculated risks in every business deal with the main objective of capitalizing in the process. Through the years of development, Cantillon was able to expand the concept of entrepreneurship and suggested that people with uncertain income could qualify as an entrepreneur (Vaggi & Groenewegen, 2003). From such definition, most economists believe that entrepreneurs can stimulate production and businesses thus enabling the market equilibrium to be part of the neoclassical theory (Hausman, 2008). However, such definitions were far from that of the innovator. On the other hand, Israel Kirzner viewed the entrepreneurs as the middlemen who are aware of any profitable opportunity and take the advantage through calculated risks. According to Kirzner, the prosperous entrepreneurs only make profit due to their exceptional level of alertness that separate them others (Blokker & Dallago, 2008). However, it is important to note that Kirzner’s concept differed from that of Cantillon with reference to their backgrounds on issues associated with economic theory. Kirzner was an Australian economist who views entrepreneurship as a driving force of cushioning the market towards the equilibrium by correcting the past errors associated with business and economic activities. However, according to Frank Knight’s theory, the entrepreneurs never had the knowledge of predicting the output prices and returns. Due to high uncertainties in different areas, they have to take the risks while conducting their businesses (Schulte & Sauer, 2014). Moreover, Knight believed that entrepreneurs had to possess some personal traits like self-confidence, daring personality, and insight to take benefit of the opportunities within the market. Therefore, Knight never believed that people were born with entrepreneurial skills. According to Elias’ demand and supply for entrepreneurship theory, the concept of entrepreneurship stems from the need of adjusting to the change while the supply of entrepreneurs is limited by the deficiency of the desired personal qualities (Pressman, 2006). According to the theory, the qualities of a person could drive him/her to take up the entrepreneurial initiatives. Moreover, these qualities are innate including the quality of imagination (Praszkier & Nowak, 2012). Therefore, an entrepreneur is any person with a speciality in making judgemental decisions about the coordination of the limited resources. However, some researchers tend to contemplate that entrepreneurship involves any activity considered deliberate and can initiate, maintain, and grow any profit-oriented organization for the production and distribution of products and services that are consistent with both internal and external forces (Cantillon & Van, 2015; Shane, 2003). With reference to the theory, the internal forces are internal qualities presented by the people with intelligence, skills, experience, knowledge, exposure, and internal influence related to entrepreneurial activities carried out by individuals to great levels. In addition, the theory states that external factors like economic, socio-political, cultural, and legal activities tend to influence the origin, which makes entrepreneurship within an economy to be conducive to encourage growth and development (Binder & Coad, 2010). Jean-Batiste Say in 1828 stated that the main duty of the entrepreneurs was to facilitate and manage the production factors. According to Say, the entrepreneurs as individuals dictated the different factors of production; as a result, they took any residuals presented to them as profit. In addition, Say had a similar perspective to that of Knight’s which believes that any successful entrepreneur requires some qualities such as perseverance, foresight, and experience (Mattingly, 2015). Say believed that the entrepreneurs were resourceful and had the ability to overcome several challenges. However, various researchers tend to criticise Say’s concept of entrepreneurship citing that other economists as well contributed to the concept put across by Say. Josef Schumpeter viewed the concept of entrepreneurship and innovation to be dependent on one another. According to such perspective, the entrepreneurs developed new technologies that cushion the economic development of the markets (Casson & Buckley, 2010; Ruef & Lounsbury, 2007). These actions underlined the foundation principle cause associated with economic growth. Schumpeter was to design a principle identified as the creative destruction that would spike innovative activities within the economy. As a result, these activities would render some of the products and involved production processes outdated and useless. Other competitors would imitate in mass the new products and process within the market (Basu et al., 2008). Furthermore, Schumpeter’s perspective failed viewed the entrepreneurs as calculating risk takers but rare and extraordinary people motivated by their instincts. David McClelland was among the first people who attempted to define the psychological profile of entrepreneurs. According to McClelland’s concept, it was fundamental that the entrepreneurs embrace the ‘need for achievement’ (n-Ach) for success without focusing much on the desire for money. Besides having the ‘n-Ach,’ McClelland opposed to viewing the entrepreneurs as being proactive, people who the role of making their decisions, enjoy risks, require feedbacks and get bored easily since most of them dislike mundane and droning works (Audretsch, Falck, & Heblich, 2009). Moreover, as a psychologist, McClelland cited that it was possible to coach and trained people to acquire such characteristics. From such perspectives, it is clear and simple to draw a wide range of opinions with an emphasis on the different areas within the economic community. However, it is important to note that there are clear overlaps with some economists sharing more than one concept (Oliver & Goodwin, 2010; Chaston, 2009). Additionally, it is crucial to note the similarities and differences presented from the Neoclassical, Australian, and Schumpeterian as presented by economists Cantillon, Kirzner, and Schumpeter respectively. Even though the entrepreneurship theories differ in characteristics, they tend to share some of the basic perspectives. Neoclassical theory bases its argument on the belief that the market in most case the market is in equilibrium and the outcomes of the economy are based on the inputs. However, most economists criticize the theory since it has less entrepreneurial features. On the other hand, the Australian theory believes that the market environment also plays an important role in determining the outputs rather that the inputs alone. The theory states that entrepreneurship drives the market towards the equilibrium; nonetheless, considering the ever-changing market trends, the equilibrium is never reached (Gates & Leuschner, 2007). Consequently, the theory suggests that entrepreneurship is the method that guarantees that the markets continue regenerating and growing. Although the Schumpeter theory tends to be similar to the Australian theory since they both believe in the dynamism of the market environment, nevertheless, Schumpeter’s theory conditions that the economic growth depends on innovation and selection. Human Relations Movement (HRM) Elton Mayo developed the theory in the 1930s. Finally, both the unions and government regulations had the opportunity of reacting to the dehumanizing effects of the entrepreneurship theories. In addition, organizations gave much attention to the people with unique capabilities (Kumawat, 2009). One of the common belief was that organizations would prosper if the employees prospered which led to the establishment of several organizational human resource departments. Moreover, the behavioural sciences played an important role in assisting in understanding the requirements of the employees, organizational needs, and ways of better aligning the workers. As a result, several new theories spawned based on the behavioural sciences (Kuratko & Hodgetts, 2004). Some economists view entrepreneurs as people who perceive the opportunities to innovate including carrying new combinations. Innovations do not involve solving problems while an entrepreneur is a problem solver. Harvey Leibenstein developed the theory of X-efficiency that in most cases fill the identified gap theory. According to the theory, X-efficiency determines the entrepreneurial functions, which relates to the degree of efficiency using organizational resources. However, it is important to note that the X-efficiency often arises either due to improper utilization of organizational resources or wasteful practices (Dontigney & Media, n.d.). Several factors govern the supply of entrepreneurship including input completing capacity and less motivational state. Entrepreneurship Theory as presented by Scott Shane consists of opportunity discovery, evaluation, and decisions of exploiting the identified opportunities. Other important elements presented in the theory include self-employment, organizational operations, and performances. In addition, the theory highlighted four concepts of measuring performance including survival, growth, income, and experiencing initial offering (IPO). Survival relates to the continuation of any entrepreneurial activity while growth is the increment in the sales of ventures and employment (Shetty, 2004). In addition, profitability relates to new surpluses of revenue over the cost while experiencing IPO is the sale of stock to the public. It is important to note that organizations and external environment create opportunities for the entrepreneurs who could identify them to either begin or improve their business operations and welfare (Dana, 2006; Prashantham, 2008). The ability of the entrepreneur to identify and tap these opportunities tend to differ between them which also depend on their ability to access information and willingness to act upon such information with regard to risks. The industrial type could also affect the discovery of opportunities. Industrial sectors like distribution, agriculture, and business services offer the most attractions to the entrepreneurs. Besides, individual attributes also affect the discovery associated with entrepreneurial opportunities. These attributes psychological and demographic factors includes the motives, risk attitudes, education, and social status (Casson & Adamson, 2003). Changes in business environments could also affect opportunity discovery. For example, entrepreneurial income level, availability of capital, and laws relating to private enterprises might as well affect the discovery of opportunities. Industrial concentration within an area is also another factor. Therefore, evaluation of the identified opportunities is an integral step in entrepreneurial processes and appropriate decision at this stage could lead to exploitation of the opportunities. Conclusion The entrepreneurial decision to exploit the identified opportunities depends on their intentions criteria used in decision-making. However, the level of exploitation depends on their education levels or knowledge acquired through working experience and the cost-benefit analysis. The decision to exploit these opportunities could lead to the quest for the micro-finance, which is the acquisition of the resources. It is substantial to take into account that previous studies on entrepreneurship were inconsistent and contradictory although they attempted to establish the approaches to explaining the entrepreneurial concept. These approaches included psychological and behavioural features of an entrepreneur, which the economists analysed to distinguish them from one another. 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