Factors

affecting
Entrepreneurs
hip
Development
relivingmbadaysDecember 26, 2012Entrepreneurship

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Entrepreneurship is influenced by four distinct factors: economic development, culture,
technological development and education. In areas where these factors are present, you can
expect to see strong and consistent entrepreneurial growth.

These conditions may have both positive and negative influences on the emergence of
entrepreneurship. Positive influences constitute facilitative and conducive conditions for the
emergence of entrepreneurship, whereas negative influences create inhibiting milieu to the
emergence of entrepreneurship.

Let us look at each one of them in details.

Economic Factors
Economic environment exercises the most direct and immediate influence on
entrepreneurship. This is likely because people become entrepreneurs due to necessity when
there are no other jobs or because of opportunity.

The economic factors that affect the growth of entrepreneurship are the following:

1. Capital

Capital is one of the most important factors of production for the establishment of an
enterprise. Increase in capital investment in viable projects results in increase in profits which
help in accelerating the process of capital formation. Entrepreneurship activity too gets a
boost with the easy availability of funds for investment.

Availability of capital facilitates for the entrepreneur to bring together the land of one,
machine of another and raw material of yet another to combine them to produce goods.
Capital is therefore, regarded as lubricant to the process of production.

France and Russia exemplify how the lack of capital for industrial pursuits impeded the
process of entrepreneurship and an adequate supply of capital promoted it.
2. Labor

Easy availability of right type of workers also effect entrepreneurship. The quality rather than
quantity of labor influences the emergence and growth of entrepreneurship. The problem of
labor immobility can be solved by providing infrastructural facilities including efficient
transportation.

The quality rather quantity of labor is another factor which influences the emergence of
entrepreneurship. Most less developed countries are labor rich nations owing to a dense and
even increasing population. But entrepreneurship is encouraged if there is a mobile and
flexible labor force. And, the potential advantages of low-cost labor are regulated by the
deleterious effects of labor immobility. The considerations of economic and emotional
security inhibit labor mobility. Entrepreneurs, therefore, often find difficulty to secure
sufficient labor.

3. Raw Materials

The necessity of raw materials hardly needs any emphasis for establishing any industrial
activity and its influence in the emergence of entrepreneurship. In the absence of raw
materials, neither any enterprise can be established nor can an entrepreneur be emerged

It is one of the basic ingredients required for production. Shortage of raw material can
adversely affect entrepreneurial environment. Without adequate supply of raw materials no
industry can function properly and emergence of entrepreneurship to is adversely affected.

In fact, the supply of raw materials is not influenced by themselves but becomes influential
depending upon other opportunity conditions. The more favorable these conditions are, the
more likely is the raw material to have its influence of entrepreneurial emergence.

4. Market

The role and importance of market and marketing is very important for the growth of
entrepreneurship. In modern competitive world no entrepreneur can think of surviving in the
absence of latest knowledge about market and various marketing techniques.

The fact remains that the potential of the market constitutes the major determinant of
probable rewards from entrepreneurial function. Frankly speaking, if the proof of pudding
lies in eating, the proof of all production lies in consumption, i.e., marketing.

The size and composition of market both influence entrepreneurship in their own ways.
Practically, monopoly in a particular product in a market becomes more influential for
entrepreneurship than a competitive market. However, the disadvantage of a competitive
market can be cancelled to some extent by improvement in transportation system facilitating
the movement of raw material and finished goods, and increasing the demand for producer
goods.

5. Infrastructure
Expansion of entrepreneurship presupposes properly developed communication and
transportation facilities. It not only helps to enlarge the market, but expand the horizons of
business too. Take for instance, the establishment of post and telegraph system and
construction of roads and highways in India. It helped considerable entrepreneurial activities
which took place in the 1850s.

Apart from the above factors, institutions like trade/ business associations, business schools,
libraries, etc. also make valuable contribution towards promoting and sustaining
entrepreneurship’ in the economy. You can gather all the information you want from these
bodies. They also act as a forum for communication and joint action.

Social Factors
Social factors can go a long way in encouraging entrepreneurship. In fact it was the highly
helpful society that made the industrial revolution a glorious success in Europe. Strongly
affect the entrepreneurial behavior, which contribute to entrepreneurial growth. The social
setting in which the people grow, shapes their basic beliefs, values and norms.

The main components of social environment are as follows:

1. Caste Factor

There are certain cultural practices and values in every society which influence the’ actions of
individuals. These practices and value have evolved over hundred of years. For instance,
consider the caste system (the varna system) among the Hindus in India. It has divided the
population on the basis of caste into four division. The Brahmana (priest), the Kshatriya
(warrior), the Vaishya (trade) and the Shudra (artisan): It has also defined limits to the social
mobility of individuals.

By social mobility’ we mean the freedom to move from one caste to another. The caste
system does not permit an individual who is born a Shridra to move to a higher caste. Thus,
commercial activities were the monopoly of the Vaishyas. Members of the three other Hindu
Varnas did not become interested in trade and commence, even when India had extensive
commercial inter-relations with many foreign countries. Dominance of certain ethnical
groups in entrepreneurship is a global phenomenon

2. Family Background

This factor includes size of family, type of family and economic status of family. In a study
by Hadimani, it has been revealed that Zamindar family helped to gain access to political
power and exhibit higher level of entrepreneurship.

Background of a family in manufacturing provided a source of industrial entrepreneurship.

Occupational and social status of the family influenced mobility. There are certain
circumstances where very few people would have to be venturesome. For example in a
society where the joint family system is in vogue, those members of joint family who gain
wealth by their hard work denied the opportunity to enjoy the fruits of their labor because
they have to share their wealth with the other members of the family.

3. Education

Education enables one to understand the outside world and equips him with the basic
knowledge and skills to deal with day-to-day problems. In any society, the system of
education has a significant role to play in inculcating entrepreneurial values.

In India, the system of education prior to the 20th century was based on religion. In this rigid
system, critical and questioning attitudes towards society were discouraged. The caste system
and the resultant occupational structure were reinforced by such education. It promoted the
idea that business is not a respectable occupation. Later, when the British came to our
country, they introduced an education system, just to produce clerks and accountants for the
East India Company, The base of such a system, as you can well see, is very anti-
entrepreneurial.

Our educational methods have not changed much even today. The emphasis is till on
preparing students for standard jobs, rather than marking them capable enough to stand on
their feet.

4. Attitude of the Society

A related aspect to these is the attitude of the society towards entrepreneurship. Certain
societies encourage innovations and novelties, and thus approve entrepreneurs’ actions and
rewards like profits. Certain others do not tolerate changes and in such circumstances,
entrepreneurship cannot take root and grow. Similarly, some societies have an inherent
dislike for any money-making activity. It is said, that in Russia, in the nineteenth century, the
upper classes did not like entrepreneurs. For them, cultivating the land meant a good life.
They believed that rand belongs to God and the produce of the land was nothing but god’s
blessing. Russian folk-tales, proverbs and songs during this period carried the message that
making wealth through business was not right.

5. Cultural Value

Motives impel men to action. Entrepreneurial growth requires proper motives like profit-
making, acquisition of prestige and attainment of social status. Ambitious and talented men
would take risks and innovate if these motives are strong. The strength of these motives
depends upon the culture of the society. If the culture is economically or monetarily oriented,
entrepreneurship would be applauded and praised; wealth accumulation as a way of life
would be appreciated. In the less developed countries, people are not economically
motivated. Monetary incentives have relatively less attraction. People have ample
opportunities of attaining social distinction by non-economic pursuits. Men with
organizational abilities are, therefore, not dragged into business. They use their talents for
non-economic end.

Psychological Factors
Many entrepreneurial theorists have propounded theories of entrepreneurship that concentrate
especially upon psychological factors. These are as follows :

1. Need Achievement

The most important psychological theories of entrepreneurship was put forward in the early)
960s by David McClelland. According to McClelland ‘need achievement’ is social motive to
excel that tends to characterise successful entrepreneurs, especially when reinforced by
cultural factors. He found that certain kinds of people, especially those who became
entrepreneurs, had this characteristic. Moreover, some societies tend to reproduce a larger
percentage of people with high ‘need achievement’ than other societies. McClelland
attributed this to sociological factors. Differences among societies and individuals accounted
for ‘need achievement’ being greater in some societies and less in certain others.

The theory states that people with high need-achievement are distinctive in several ways.
They like to take risks and these risks stimulate them to greater effort. The theory identifies
the factors that produce such people. Initially McClelland attributed the role of parents,
specially the mother, in mustering her son or daughter to be masterful and self-reliant. Later
he put less emphasis on the parent-child relationship and gave more importance to social and
cultural factors. He concluded that the ‘need achievement’ is conditioned more by social and
cultural reinforcement rather than by parental influence and such related factors.

2. Withdrawal of Status Respect

There are several other researchers who have tried to understand the psychological roots of
entrepreneurship. One such individual is Everett Hagen who stresses the-psychological
consequences of social change. Hagen says, at some point many social groups experience a
radical loss of status. Hagen attributed the withdrawal of status respect of a group to the
genesis of entrepreneurship.

Hage believes that the initial condition leading to eventual entrepreneurial behavior is the loss
of status by a group. He postulates that four types of events can produce status withdrawal:

1. i. The group may be displaced by force;

2. ii. It may have its valued symbols denigrated;
3. iii. It may drift into a situation of status inconsistency; and
4. iv. It may not be accepted the expected status on migration in a new society.

3. Motives

Other psychological theories of entrepreneurship stress the motives or goals of the

entrepreneur. Cole is of the opinion that besides wealth, entrepreneurs seek power, prestige,
security and service to society. Stepanek points particularly to non-monetary aspects such as
independence, persons’ self-esteem, power and regard of the society.

On the same subject, Evans distinguishes motive by three kinds of entrepreneurs

1. Managing entrepreneurs whose chief motive is security.

2. Innovating entrepreneurs, who are interested only in excitement.
 3. Controlling entrepreneurs, who above all otter motives, want power and authority.

Finally, Rostow has examined inter gradational changes in the families of entrepreneurs. He
believes that the first generation seeks wealth, the second prestige and the third art and
beauty.

4. Others

Thomas Begley and David P. Boyd studied in detail the psychological roots of
entrepreneurship in the mid-1980s. They came to the conclusion that entrepreneurial attitudes
based on psychological considerations have five dimensions:

1. First came ‘need-achievement’ as described by McClelland. In all studies of successful

entrepreneurs a high achievement orientation is invariably present.
2. The second dimension that Begley and Boyd call ‘locus of control’ This means that the
entrepreneur follows the idea that he can control his own life and is not influenced by
factors like luck, fate and so on. Need-achievement logically implies that people can
control their own lives and are not influenced by external forces.
3. The third dimension is the willingness to take risks. These two researchers have come to
the conclusion that entrepreneurs who take moderate risks earn higher returns on their
assets than those who take no risks at all or who take extravagant risks.
4. Tolerance is the next dimension of this study. Very few decisions are made with
complete information. So all business executives must, have a certain amount of
tolerance for ambiguity.
5. Finally, here is what psychologists call ‘Type A’ behavior. This is nothing but “a
chronic, incessant struggle to achieve more and more in less and less of time”
Entrepreneurs are characterize by the presence of ‘Type A’ behavior in all their
endeavors.

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Re l ate d

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Importance of Entrepreneur in Economic GrowthIn "Entrepreneurship"

Schumpeter’s Theory on EntrepreneurshipIn "Entrepreneurship"

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 54 Comments

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July 25, 2013 at 8:06 pm

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October 18, 2013 at 8:42 am

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 October 19, 2013 at 8:02 am

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April 1, 2014 at 8:39 pm

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June 17, 2014 at 1:11 pm

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 Reply

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June 20, 2014 at 1:14 pm

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August 28, 2014 at 9:06 am

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August 28, 2014 at 9:35 am

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September 14, 2014 at 8:41 pm
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1. Mike
August 20, 2017 at 9:15 am

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September 25, 2014 at 6:52 am

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October 1, 2014 at 1:48 pm

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 October 9, 2014 at 6:57 pm

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August 6, 2015 at 12:20 pm

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September 25, 2015 at 7:59 am

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1. Boniface kimanthi
February 10, 2019 at 1:43 pm

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21. Nyuon Kuany
February 7, 2017 at 5:54 pm

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March 20, 2017 at 5:48 pm

how does capital and intuition contribute to entrepreneurship??

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April 4, 2017 at 12:20 pm

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May 25, 2017 at 5:56 pm
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June 27, 2017 at 1:30 pm

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August 23, 2017 at 4:37 pm

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October 9, 2017 at 7:39 am

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28. liz
 October 18, 2017 at 7:24 am

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October 18, 2017 at 8:35 am

what are the cultural factors affecting entrepreneurship

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October 18, 2017 at 12:05 pm

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November 4, 2017 at 1:56 pm

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32. Tabitha mwangeje
November 8, 2017 at 9:46 am

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April 12, 2018 at 11:04 pm
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April 24, 2018 at 7:58 pm

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July 12, 2018 at 5:29 pm

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July 14, 2018 at 7:26 am

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 July 30, 2018 at 10:51 pm

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September 21, 2018 at 6:07 am

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October 3, 2018 at 12:52 pm

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42. sharif Warya

October 17, 2018 at 6:55 am

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43. sharif Warya
October 17, 2018 at 6:55 am

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October 30, 2018 at 6:18 pm

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November 4, 2018 at 3:14 pm

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February 24, 2019 at 1:13 pm

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February 26, 2019 at 2:22 pm

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March 1, 2019 at 4:32 am

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49. Jacksonville
March 11, 2019 at 6:27 am

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50. MICH
April 11, 2019 at 5:37 pm
 Thank you the writer for the information

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51. Fidela
May 3, 2019 at 1:49 am

what about the factors that causes fluctuations in markets which causes a
barrier to entrepreneurship?

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52. Brunda shree

August 18, 2019 at 4:15 pm

It was difficult to understand as the concept was totally un related at some

point

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