NCERT Solutions for Class 12 Commerce Business studies Chapter 5 - Entrepreneurship Development

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Answer:

Risk refers to the probability that the realised profits are less than the expected profit. When an entrepreneur sets up a venture, he is not sure of its success. There is no assurance of returns or profits. Moreover, he also takes up the risk of choosing entrepreneurship as a career over practice of a profession that involves an assured pay off. However, an entrepreneur always takes calculated risk. As per their skill, training and confidence, they try to minimize the risk. For example, an entrepreneur might enter into prior contracts with the customers and thereby, ensure the sale of the product. Thus, it can be said that entrepreneurs undertake moderate and calculated risk.

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An entrepreneur performs various functions such as risk-taking, provisioning of capital and organisation of production and day to day conduct of business. Although innovation is an important 'characteristics' of an entrepreneur but, it is not his core function. While, an entrepreneur needs to be innovative while planning and deciding upon business activities as to fulfill the public demand but, it is not his duty to innovate new technology or products. Thus, innovation is not a function to be performed rather an essential characteristic of a successful entrepreneur.

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The sentence that does not clearly distinguishes between entrepreneurship and management is 'Entrepreneurship is once for all activity; management is a continuous activity'. It is often said that once the business starts up, the role of entrepreneur ends and the manager comes in to run and stabilise it. However, entrepreneurs, even after the business is established, remain attached to the day-to-day activities. They also take up managerial role as and when required. In other words, as the managers are expected to play entrepreneurial role when needed, the entrepreneurs are also expected to handle the managerial function when needed.

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Peter Kilby identified certain roles and functions of an entrepreneur in relation to the enterprise. Under the aspect of political administration, he identified three functions- dealing with public bureaucracy, managing human relations within the firm and managing customer and supplier relations. The function of 'Introducing new production techniques and products' was given in the aspect of technology.

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For a successful entrepreneurship, the three attitudes as mentioned in the question that is, living the business day by day, innovating and improvising continuously and producing as per customer’s requirement are essential. Although, investing in R and D also forms an important aspect, however, it comes only after the other three have been achieved and the enterprise has reached a certain appreciable level. For the short-term success, it is not essential for the entrepreneur to invest in R and D. This is because the investment in Rand D requires a huge investment outlay and thereby, can impede the operations of the business.

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The three terms 'entrepreneur', 'entrepreneurship' and 'enterprise' are different yet interrelated to each other. An entrepreneur refers to a person/individual who starts up a business. He is the one who takes up the basic idea of setting up the business. In the process of setting up the business, he undertakes risk, coordinates production resources and undertakes innovation. This whole process of setting up a new business is called entrepreneurship. The final result, that is, the business which is established after undertaking the process of entrepreneurship is called an enterprise. Thus, 'entrepreneur is the person' who undertakes the 'process of entrepreneurship' to set up an 'enterprise'.

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Entrepreneurship is a process of setting up ones own business by an individual. Entrepreneurship is regarded as a highly creative activity as it is said that entrepreneurship adds or creates 'value'. An entrepreneur creates a link between the raw materials and the products produced as per the needs of the society. Such process adds to the income and wealth. Even if new creation destroys the existing industries, for instance, new laptops are replacing the old desktop computers, it is termed as creative destruction. Entrepreneurship is also regarded as creative in the sense that it involves introduction of new products and technology. Even if new products or technology are not discovered rather adopted from existing ones, they are no less than innovation. This is because to use old techniques in a new way requires creativity. For instance, the creator of laptops used the old technique of table computers in a new way and thereby created laptops. Thus, creativity can be called as essence of entrepreneurship.

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In the writings of Richard Cantillon, an entrepreneur is described as an agent who purchases means of production at certain prices, converts them into final products to sell them at uncertain prices in future. Herein, the key element which needs to be taken into consideration is 'uncertainty regarding future'. When an entrepreneur starts up a new business he is never sure of its success. It may happen that the business may flourish in the successful direction or it might also happen that it ruins everything that the entrepreneur has. Although the possibility of absolute ruin is very rare, but the risk is always there. Moreover, when an individual opts for entrepreneurship as a career he gives up career in employment. That is, he gives up a well promised job or profession that provides assured returns. However, in reality what he is taking up is called moderate and calculated risk. When an entrepreneur decides to take up a new business venture, then first of all he weighs the favours against the odds on the basis of his skills, abilities and confidence. On this basis, they generally avoid the situations that are highly risky. Thus, they do undertake risks but such risks are moderate and calculated ones. They take up those ventures where the odds and favours are in equal probability and where they have the confidence of converting a only a 50% probability of success into 100% success. Thus, it can be said that they undertake moderate and calculated risk.

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Entrepreneurship largely promotes the economic development of a country. Entrepreneurship helps in the diversification of economic activities. This diversification is felt across geographical, sectoral and technological scope. They break the vicious circles (of low level) on the demand side and the supply side. For instance, if the demand on the domestic front is low, production and employment remains low, which further results in low income and thereby, low demand. Entrepreneurs can break this cycle by directing production towards exports. Similarly, if the supply is constrained by, say, absence of resources, the entrepreneurs can increase the production capacity and if required import the required resources and raw materials or technology.

In addition, entrepreneurs can also bring about positive sectoral changes in the economy. Entrepreneurs diversify their activities from the stagnant sectors to the new and upcoming sectors. This diversification of activities brings about a transformation in the economy and move it towards the path of development.

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It was traditionally said that an entrepreneur is born but, in reality, an entrepreneur is not just born but is aspired to become one. Men and women who carry a sense of self-efficacy, are the ones who are capable of being a potential source of entrepreneurship. Herein, achievement motivation plays an important role in aspiring them to become an entrepreneur. What drives an individual towards entrepreneurship is the inclination towards achieving something different. Achievement and excelling over competitive situations proves as a motivating factor to take up entrepreneurship. Moreover, the desire is to accomplish difficult and different situations as independently as possible. The platform to fulfil these desires is provided by entrepreneurship. Entrepreneurship drives an individual to excel one's self and overcome the obstacles through successful exercise of talent. That is, entrepreneurship creates a platform for exercising creativity and self development. Hence, achievement motivation plays an important role in entrepreneurship.

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The following are he steps involved in setting up a new business.

i) Scanning for Opportunities:

The first step involved in starting up a business is to look out for various business opportunities. For scanning the opportunities an entrepreneur uses his personal observations, contacts, official reports, published documents, surveys, etc. He carefully analyses each opportunity and works out how he can use them to create goods and services. He analyse the situations based on several factors such as market size, where to procure goods from, at what price to sell, probable competitors, etc. Opportunities are scanned not only at the domestic/national front but also at the international front.

ii) Deciding on the Product/Idea:

Scanning of opportunities helps in identifying the broad segment or market for the business. The next step is to zero in on a particular product or service in the selected market segment. For instance, suppose an entrepreneur decides to set up a venture in the fast food market. He must decide the products or combination of products that he would supply.

iii) Analysis of Feasibility:

Once the product or service is chosen it becomes important for the entrepreneur to check whether the idea is practically possible or not. The entrepreneur needs to find this out, on the basis of different parameters such as whether the technology to be used is available, whether the product will derive profits, is the idea financially feasible and whether the good will face any legal restrictions.

iv) Appraisal by Funding Agencies:

To set up the business, an entrepreneur requires funds. For receiving the required funds, the entrepreneur discusses the business plan and the feasibility reports with the financial agencies. The financial institutions provide the funds only when they are convinced about the plan and its feasibility. Sometimes the financial institutions require the entrepreneur to fill a performa detailing about the plan.

v) Resource Mobilisation:

After the appraisal is received from funding institutions, the entrepreneur starts identifying and collecting the resources that are needed for the commencement of the project. The resources required comprise of raw materials, technology, human resources, machines, etc. The entrepreneur tries to obtain the resources at the minimum possible cost.

vi) Project Launch:

Next, the entrepreneur proceeds with the commencement of the project. That is, he undertakes activities such as establishing the factory premises, purchasing equipments, collecting the inputs for production, etc. Thereby, he establishes the enterprise.

vii) Adoption and Management of Growth:

The role of an entrepreneur do not ends with the establishment of enterprise. He performs various other day-to-day functions such as organising goods and services, ensuring production, keeping an eye on competition etc. Thus, he needs to manage the business and continuously strive for better growth and development.

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The relationship between entrepreneurship and economic development can be highlighted with the help of the following functions performed by entrepreneurs.

i) Contribution to GDP

Economic development of any economy is often related to increase in GDP. As entrepreneurs takes up production activities, he directly contribute towards the generation of income. In addition to the process, he appoints various factors of production such as land, labour and capital. In return of the services provided, the factors of production receive income. Land gets rent, labour gets wages and capital receives interest and all these values add to the GDP.

ii) Capital Formation

The GDP of an economy is directly related to the rate of capital formation. Higher the desired rate of growth of GDP, higher is the required rate of capital formation. Entrepreneurs invest their own savings as well as mobilise the savings of others. Thereby, they contribute in the process of capital formation.

iii) Generating Employment

Many people are not able to earn a living due to lack of opportunities. A new business provides employment opportunity to such people and act as a source to earn livelihood. An entrepreneur by setting up a business provides employment directly as well as indirectly. For instance, it provides employment to labourers building up a factory, to people who will be working in the production process, etc.

iv) Generation of Business Linkages

An entrepreneur helps in creating a chain of business linkages. An enterprise provides opportunities to both the suppliers of the inputs as well as the marketers who will be selling the output. For instance, if an entrepreneur decides to manufacture tables and chairs, he creates business opportunities for the people who provide the input resources such as wood, steel, etc. Similarly, he will provide work for workers, transporters as well as for the retailers who will sell them further.

v) Increased Efficiency

An entrepreneur improves economic efficiency by avoiding wastage of resources. He focuses on optimisation of resources and aims at producing greater output from the available input. He also works on the technological upgradation and thereby, contributes to increased productivity.

vi) Increasing the Range of Economic Activities

Entrepreneurs always look out for fresh areas to invest their savings into or to start up a new business. By doing so, they help in increasing the scale of economic development. By bringing out new opportunities and serving as a source of livelihood in new sectors rather than the stale ones, they help in diversifying the economic activities across geographical and technological and sectoral scope.

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Many people are efficacious in the sense that they have a self-perception along with the confidence of turning the odd situations into the favourable ones. Such individuals have the potential of becoming a successful entrepreneur. Such individuals have the ability required to be an entrepreneur. What they require is a set of motivating factors. There are many enablers and disablers of entrepreneurship such as socio-cultural situations, individual values, etc. which affect the decision to take up entrepreneurship as a career. Four primary drivers of entrepreneurial behaviour have been identified, namely, N-Ach, N-Pow, N-Aff and N-Aut.

Need for Achievement (N-Ach)

An urge to accomplish the competitive situations and to use ones talent to achieve high standards of excellence drives an individual towards entrepreneurship. This need for achievement refers to mastering, manipulating and organising the human resources and ideas in order to attain something difficult. Entrepreneurship creates a platform for exercising creativity and self development. Entrepreneurship drives an individual to excel one's self and to overcome the obstacles through successful exercise of talent.

Need for Power (N-Pow)

Power refers to the authority to influence and direct people. An entrepreneur is the owner of his enterprise and thereby holds the power to control its various activities. Moreover, a successful entrepreneur uses his power to fulfill not only his own personal interests but also at the same time can provide positive impetus to the society as well.

Need for Affiliation (N-Aff)

Every person has a need for affiliation. That is, he desires to conform to the wishes and aspirations of the people whom he/she values. Although entrepreneurs are believed to be low on affiliation but, this is not true. One may not work for self-fulfillment but for his/her family's gratification. For instance, one may wish to carry on with his family business and works to take it to a greater height. This is perceived as the need for affiliation. Thus, entrepreneurship fills in the need for affiliation and motivates a person to satisfy his social needs via choosing entrepreneurship as a career.

Need for Autonomy (N-Aut)

Need for autonomy refers to the need for freedom and independence. Unlike other professional practices, entrepreneurship provides the freedom of being responsible to one’s own self. In other words, entrepreneurship provides the opportunity of being responsible and accountable to ones’ own self rather than working under some external authority. Such a freedom motivates the people to take up entrepreneurship as a career.

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