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NATURE AND SCOPE OF ENTREPRENEURSHIP

Entrepreneurship can be sought to have come from French word ‘‘entreprendre’’ which means ‘’to undertake’’.

Entrepreneurs are the people with the ability to see and evaluate business opportunities to gather the necessary
resources to take advantage of them and initiate appropriate action to insure success.

Entrepreneurship is a dynamic process of creating something new with value by devoting the necessary time and
effort, assuming accompanying risks (financial, psychic and social) and receiving the resulting rewards (monetary,
personal satisfaction and independence).

He is the person who owns, organise and manage a business and in so doing assumes the risk of either making
profit or losing the investment. He is the planner with the vision and mission who is dedicated to run his business with
success.

The entrepreneur always looking for new opportunities either in the existing enterprise or by creating new enterprise.

They produce the combination of ideas, money, skills, equipment and market that forms a successful enterprise.

Entrepreneurship involves the main three components.

 Initiative taking
 Organizing and reorganize social and economic mechanisms to turn resources and situation into something
of value (practical account)
 Accepting of risk of failure and capital losing

Who is an entrepreneur
 A person who develops and owns enterprise
 Takes calculated risk and works under uncertainty for achieving the goal.
 He is innovative and creative
 He identifies new products and opportunities
 Persistently tries to do something better
 Dissatisfied with routine activities
 Prepared to withstand the hard life
 Who can raise financing to realize the enterprise
 Determined but patient
 Sense of leadership
 Takes personal responsibilities
 Oriented towards the future
 Tends to persist in the face of adversity
 Converts a situation into opportunity.

Characteristics of unique entrepreneur

 Need for achievement
 High need for power
 Confident
 Self-driven
 Independence
 Propensity to take risk
 Personal modernity
 Leadership

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 Ability to overcome obstacles that may hinder operations

REASONS TO BECOME ENTREPRENEUR

What leads a person to strike out on his own and start a business?
 Perhaps a person has been laid off once or more. Sometimes a person is frustrated with his or her current
job and doesn't see any better career prospects on the horizon.
 Sometimes a person realizes that his or her job is in jeopardy. A firm may be contemplating cutbacks that
could end a job or limit career or salary prospects. Perhaps a person already has been passed over for
promotion.
 Perhaps a person sees no opportunities in existing businesses for someone with his or her interests and
skills.
 Some people are actually repulsed by the idea of working for someone else. They object to a system where
reward is often based on seniority rather than accomplishment, or where they have to conform to a
corporate culture.
 Other people decide to become entrepreneurs because they are disillusioned by the bureaucracy or politics
involved in getting ahead in an established business or profession.
 Some are tired of trying to promote a product, service, or way of doing business that is outside the
mainstream operations of a large company.

No one reason is more valid than another; none guarantee success. However, a strong desire to start a business,
combined with a good idea, careful planning, and hard work, can lead to a very engaging and profitable endeavour.

Advantages of becoming entrepreneur

 You are the boss. It offers the prestige of being the person in charge.
 They decide what hours to work, as well as what to pay and whether to take vacations.
 It gives an individual the opportunity to build equity, which can be kept, sold, or passed on to the next
generation.
 All the business profit is yours. Entrepreneurship offers a greater possibility of achieving significant financial
rewards than working for someone else.
 There is great variety of roles and tasks. It provides the ability to be involved in the total operation of the
business, from concept to design and creation, from sales to business operations and customer response.
 It gives an individual the opportunity to build equity, which can be kept, sold, or passed on to the next
generation.
 Entrepreneurship creates an opportunity for a person to make a contribution. Most new entrepreneurs help
the local economy. A few through their innovations – contribute to society as a whole. One example is
entrepreneur Steve Jobs, who co-founded Apple in 1976, and ignited the subsequent revolution in desktop
computers.
 Increase self confidence
 Work can be satisfying

Disadvantages of becoming entrepreneur

 All things are looking at you

 All losses are yours
 Working without compensations (salary) for long period
 Long hours working
 Exiting the business will be difficult
 Business pressure would affect your family life
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Risk and Rewards of Entrepreneurship

Starting or buying a new business involves risk, and the higher the rewards the greater the risk entrepreneurs usually
face. Entrepreneurs face a number of risk that can be grouped into four areas:

a) Financial risk:

In most new venture, individual resources will be lost if the venture fails. Many people are unwilling to risk their
savings, house, salary to start a new business.

b) Career risk:

People ask themselves whether they would get new job or go back to their old ones if their ventures should fail. They
fear to lose their jobs. This is the concern to managers who have a source organizational job with high salary and
good benefit package.

c) Family and social risk:

This venture uses most of entrepreneur energy and time hence foregoing other social and family commitments.

d) Psychological risk

When the entrepreneur suffers a loss of his house, he may build the other one, but when suffered with financial
catastrophes, the entrepreneurs are severely suffered psychologically and it is hard to recover from it.

MYTHS OF ENTREPRENEURSHIP

Throughout the years many myths have risen about entrepreneurship, ten most of the notable myths are here under
explained.

1. Entrepreneurs are Doers not thinkers

Entrepreneurs are action oriented; the emphasis today on the creation of clear and complete business plans is
indication that 'thinking' entrepreneurs are as important as doing entrepreneurship.
2. Entrepreneurs are born not made
The ideas that the entrepreneurs cannot be taught or learned, and one must be born entrepreneur has long
been prevalent. Today the recognition of entrepreneurship as discipline is helping to dispel this myth. Like all
disciplines, entrepreneurship has models, process and case studies that allow the topic to be studied and the
knowledge to be acquired.
3. Entrepreneurs are always inventors
The idea that the entrepreneurs are inventors are the result of misunderstanding. Although many inventors are
also entrepreneurs, numerous entrepreneurs encompass all sort of innovation activity.
4. Entrepreneurs are academic and social misfit
The belief that entrepreneurs are academically and socially ineffective is a result of some business owners
having started successful enterprise after dropping out school or quitting a job.
Today entrepreneurs is considered a hero-socially, economically and academically. No longer is a misfit, the
entrepreneur now viewed as a professional.

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5. Entrepreneurs must fit the profile
Many entrepreneurs have presented checklist of characteristics of the successful entrepreneur. These lists
were not complete and validated. Today we realize that a standard entrepreneurial profile is hard to compile.
The environment, the venture itself and entrepreneur have interactive effects which results in many different
types of profile.
6. All Entrepreneurs' need is money
It is true a venture needs capital to survive, yet having money is not the only solution to avoid failure. Failure
due to lack of proper financing often is an indicator of other problems; managerial incompetence, lack of
financial understanding, poor investment, poor planning etc. Money is resource but not an end in itself.
7. All Entrepreneurs' need is luck
Luck happens when preparations meet opportunity. Prepared entrepreneurs who seize the opportunity when it
arises often seems "luck". What appears to be luck really is preparation, determination, desire, knowledge and
innovativeness.
8. Ignorance is bliss for entrepreneurs
The myth that too much planning and evaluation lead to constant problems, that overall analysis leads to
paralysis, does not hold in today's competitive markets, which demand detailed planning and preparation. Thus
careful planning is not ignorance of if is the mark of accomplished entrepreneurs.
9. Entrepreneurs seek success but experience high failure rates
It is true that many entrepreneurs suffer a number of failures before they are successful. In fact, failure can
teach to those willing to learn. The high failure rate can be misleading several business survive.
10. Entrepreneurs are extreme risk takers (gamblers)
Entrepreneurs usually work in moderate 'calculated risk'. Looking at them as gamblers can be misleading.
Most successful entrepreneurs work hard though planning and preparation to minimise the risk involved in
order to better control the destiny of their vision.

THEORIES OF ENTREPRENEURSHIP

APPROACHES TO ENTREPRENEURSHIP

Entrepreneurship is interdisciplinary. Contains approaches that can increase one’s understanding in the field, thus
there is the need to determine the diversity of the theories as an emergence of entrepreneurial understanding.

One way to understand these theories is through studying the schools of thoughts of entrepreneurship by adopting
an approach of dividing the entrepreneurship into specific activities which falls within a macro or micro view.

These approaches are categorized into two p[arts namely:

1. School of thought approach

2. Process approach

1. SCHOOL OF THOUGHT APPROACH.

We examine diversity of theories through 'school of thoughts' approach that divides entrepreneurship into specific
activities. These activities may be thought a macro or micro view.

MACRO VIEW

This presents a broad array of factors that relate to success or failure in contemporary entrepreneurial ventures. They
include the external factors or process which sometimes are beyond control of the entrepreneur.

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There are three schools of thoughts falling under macro view, namely; Environmental school of thought,
Financial/capital school of thought and Replacement school of thought.

a) The Environmental school of thought

This deals with external factors that affect the potential entrepreneur's life style. These can either be positive
or negative.
If the middle manager experiences freedom and support to develop ideas, the work environment will serve
to promote that person's desire to pursue an entrepreneurial career. The social group also affects. The
atmosphere or friends and relatives can influence the desire to become an entrepreneur.
b) Financial/capital school of thought
The search for and growth capital is the entire focus of this entrepreneurial emphasis. This school of thought
views the entire entrepreneurial venture from a financial management stand point.

The foundations of this school are based on the capital-seeking process. The search for start-up and growth
capital is the complete focus because securing venture capital is vital to an entrepreneur’s development. In
this case, the entire entrepreneurial venture is viewed from a financial management viewpoint and decisions
involving finance occur at every major point

Decision involving finances occur at every major point in the venture process.

Venture stage Financial Consideration Decision

Start up Seed capital  Proceed or abandon

Venture capital sources

On going Cash management and  Maintain

investment financial analysis  Increase or reduce size
 Evaluation

Declining or succession Profit question  Sell

Corporate budget  Retire
 Dissolve operation
Succession budget

c) Displacement school of thought

This focuses on group phenomena, it holds that the group affects or eliminates certain factors that project
an individual into an entrepreneurial venture.

This thought process concentrates on the negative side of the existence of group, where someone can feel
out of place or be displaced from the group. It argues that a group can slow a person’s development, either
bringing it to a halt or removing specific factors vital to the individual for them to advance. As a result the
frustrated individual is motivated to succeed which can be projected into an entrepreneurial pursuit. There
are three major types of displacement that demonstrate this school of thought.

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The following three types of displacements elaborate this school; Political displacement, Cultural
displacement and Economic displacement.

i. Political displacement
This is caused by factors ranging from an entire political regime that rejects free enterprise to
government regulations and policies that limit or restrict certain industries.

ii. Cultural displacement

This deals with social groups precluded from professional fields. Ethnic background, religion, race and
sex are all examples of factors that figure the minority experience. Increasingly, this experience will turn
various individuals from standard business procession towards entrepreneurial ventures.
iii. Economic displacement
This concerns with economic variations of recession and depression, job loss, capital shrinkage or
simply 'bad times' can create the foundation for entrepreneurial pursuit.

MICRO VIEW

This examines the factors that are specific to entrepreneurship and are part of the internal locus control. The potential
entrepreneur has control to adjust the outcome of each major influence in this view.

The micro view contains three schools of thoughts; Entrepreneurial trait school of thought, The venture opportunity
school of thought and The strategic formulation school of thought.

i. Entrepreneurial trait school of thought

This advocates that successful entrepreneurs tend to exhibit similar characteristics and if coped would increase
success opportunities for the emulators. Factors as achievements, creating determination and technical knowledge
are usually exhibited by successful entrepreneurs.
Family development and education incubations are also examined. Some researchers argues against educational
development because they inhibit the entrepreneur's creative and challenging nature. Others argued that new
education development is on the increase because they have been found to aid entrepreneurial development.
The family development idea focuses on the nurturing and support that exist within the home atmosphere of an
entrepreneurial family.
ii. The venture opportunity school of thought
This focused on the opportunity aspect of venture development. The search for idea sources, the development of
concepts, and the implementation of venture opportunities are all important interest areas for this school.
The school says, developing the right idea at the right time for the right market is the key to the entrepreneurial
success.
Another development is related to corridor principle. New opportunity will arise the lead entrepreneurs, in different
directions, the ability to recognise these opportunities when they arise and to implement the necessary step for
action are the key factors. The proper preparations in the interdisciplinary business segments will enhance the
ability to recognise business ventures.
iii. The strategic formulation school of thought
This emphasized the planning process in successful venture development. This approach views strategic
formulation as leveraging of unique elements.
 Unique markets: This involves identifying major market segments as well as market that arise from larger
markets.
 Unique people: Refers to skills, special talents of one or more individuals around whom the venture is built.
 Unique products: Refer to innovations that encompass new or existing markets.
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 Unique resources: Refers to the ability and special resources (land, labour etc) as a competitive advantage
against others over the long term.

2. PROCESS APPROACH

The process approach is another way of studying the entrepreneurship concepts. The approach has three traditional
processes; Entrepreneurship events approach, Entrepreneurial assessment approach and Multidimensional
approach.

a) Entrepreneurship events approach

Entrepreneurship is not a series of isolated activities, it is a process by which individuals plan, implement and
control the activities. The number of elements affects each event in entrepreneurial process.
The entrepreneurial events approach focuses on the process of entrepreneurial activity and include the following
factors:
 Initiative: An individual or group takes an initiative.
 Organization: Resources are brought together to accomplish objectives.
 Administration: Those who took the initiative take over management of the organization.
 Relative autonomy: The initiators assume relative freedom to dispose off and distribute the resources.
 Risk taking: The organization success or failure is shared by initiators, supervisors and employees.
 Environment: This includes opportunities, resources, competitors, etc that affect the entrepreneurial
events at different stages.
b) Entrepreneurial assessment approach
This stresses in assessment making qualitatively, quantitatively, strategically and ethically in regard to
entrepreneur, the venture and the environment.
To examine entrepreneurship, the results of assessment of these variables must be compared to the stage of
entrepreneurial career, early, mid or late career. This was termed as entrepreneurial perspective.
c) Multidimensional approach
In this view, entrepreneurship is a complex, multidimensional framework that emphasizes the individual,
environment, the organization and the venture process.

OPPORTUNITY:

This is the favourable circumstances to the firm. It is the exploitable set of circumstances with uncertain outcome,
requiring commitment of resources and involving exposure to risk.

The opportunity emerges at the nexus of individual aspiration with economic and social conditions perceived as
favourable to create a new product or service in existing or new market.

Preliminary information in searching business opportunity

a) Cost structure of the opportunity: what does it cost?

b) Market structure: who are the dominant players in the market?
c) Technology: is there any change in the recent technology?
d) Human resource issues: what strategies to attract good team can be used?
e) Government regulations: is there any barrier from the government towards pursuing the opportunity?

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SOURCES OF GLOBAL OPPORTUNITY TO ENTREPRENEURS

1) Economic integration or associations: Economic integration like EAC, European Union etc can form
opportunity to its members and partner states.
2) Growing international demand of products and services: it gives the opportunity to entrepreneurs with
requisite capabilities to satisfy the growing demand.
3) Revision of foreign regulations and laws eg lowering of export or import tariff, lift of import/export barrier etc.
4) Development of technology: Facilitate mobile trade and transaction eg e-commerce, online transactions etc.
5) Development in communication and transport infrastructures that link various international destinations. It
increases access to information on international opportunity.
6) Changes in life styles and living or working conditions. Foe example holiday experiences and life style in
European and American countries have opened great opportunities in tourism industry in African countries.

REACTIVE REASONS PUSHING ENTREPRENEURS TO PURSUE INTERNATIONALIZATION STRATEGY.

1) Desire to respond to demand of products/services in the foreign country

2) Decision of following its key competitor in international market
3) Regulation, business environment or work safety may be easier or convenient in overseas market hence
attract internationalization decision.
4) Changes in any of the external forces (macro-environmental factors) such as political, technology,
demography.

METHODS OF GOING INTERNATIONAL

The choice of a method to use entering the market depends on the organization needs and risk willing to be taken.
Some of the ways are:

a) Importing

This is buying and shipping foreign goods for domestic consumption. Countries do importation for different reasons
such as:

 Cheaper than producing at home

 Some products cannot be domestically produced
 Rising cost of labour, material and energy at home makes uncompetitive to produce
 Lower capital needed compared to the production investment

b) Exporting

This is the shipping from domestic to abroad for consumption. This is the method of increasing the market of the
venture though it takes some times to be profitable.

Strategies which can be used during exportation:

 Market differentiation through competitive pricing or brand identification.

 Focus strategy involving special products for particular customers
 Achieving technological superiority of certain product
 Product oriented emphasis, using elements of customer service and high quality

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Exporting may be of different strategies as follows:

 Exporting management company: This is the use of private company that serves as export department for
several manufacturers. The company solicits and transacts export business on behalf of its client in return of
commission.
 Freight forwarders: This is the business that handles export shipments in return for compensation. They
start from preparing necessary documents, quotes inland and ocean shipping costs and advice
requirements eg on international packaging.
c) Joint venture:

This is when two or more firms pool their resources and create a new entity to undertake productive economic
activities.

Advantages

 Gaining of intimacy of local conditions and government where the facility is located
 Each participant is able to use the resources of the other firm involved in the venture.
 Both the initial capital and overall risk would be lower than if the firm were setting up the operation alone
 It is a powerful tool for growth in international markets as it can effectively combine the strengths of partners.

Disadvantages

 Problem of fragmented control; Decisions are coming from two partners, if one of them is unwilling to
undertake any beneficial opportunity, the other partner cant.
 Local counterpart may claim more share than the foreign.

d) Direct foreign investment:

 This is the domestically controlled foreign production facility. The firm can make direct investment by several
methods.
 Acquire an interest in on-going foreign operation.
 Acquiring firm may purchase part of assets of foreign concern in order to establish a direct investment.
 The firm may decide to build the facility in the foreign country

Reasons of using direct investment strategy

 Some countries have some prohibitions or restrictive trade barriers on imports of certain goods.
 Foreign governments may grant tax incentives for a firm seeking direct investment in the country.
 Enable the company to utilize the specialized skills of local experts
 Require low initial capital outlay
 Reduce transportation costs to market places
 Gain entry into neighbouring markets

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e) Licensing

Is the business arrangement in which the manufacturer grants permission to other individuals to manufacture that
product in return for specified royalties or other payments.

Under such arrangement, an entrepreneur need not to make an extensive capital outlay to participate in international
market, Nor does the licenser need to be concerned with the daily production, marketing, technical or management
requirements; the licensee will handle all of this.

The foreign firm merely looks for the domestic firm for expertise and perhaps an opportunity to sell a product owned
by the licenser.

Advantages

 Is an attractive way to enter international area

 It is more realistic form of expansion than exporting particularly in high tech firm
 Access to market is easier compared to equity investment
 Potentials exist for licensee to become partner and contributor in improving the learning curve of technology.

Disadvantages

 The licensee will become competitive after the contract expires

 The license must get the licensee to meet constructional obligation and to adjust product to fit licensee
market
 The licensing entrepreneur must manage relationship conditions and circumstances as well as resolve
conflicts or misunderstanding as they occur
 Integrity and independence of both licensor and licensee must be maintained

f) Management contracts(A case of NETGROUP and City Water in Tanzania)

Companies with abundant management techniques and management skills contract their personnel to run a turnkey
project where the foreign owner wants to maintain the management of the turnkey supplies at a fee.

 It allows the purchasing country to gain foreign management expertise without turning ownership of its
resources over a foreigner
 To supplier of management contract it is another way of entering into a foreign market
 It’s another way of reaping a profit without the need of large equity investment.

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