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LESSON 1
ORIGIN AND NATURE OF ENTREPRENEURSHIP
The concept of entrepreneurship has gone through an evolution or process that
commenced with providing service in feudalistic society. Even in its early beginning or
inception, there was no indication that entrepreneurship or entrepreneurism was not purely
business activity with a profit as the primary motive or purpose. From the service orientation,
it has evolved into a kind of endeavor still without definite bias as to whether an entrepreneur
exist in the business that is purely meant for personal gain (profit) or simply providing service
in general.
Entrepreneurship plays an important role in the creation and growth of businesses,
as well as in the growth and prosperity of the nations. These large-scale outcomes can have
quite humble beginnings; entrepreneurial actions begin at the link of a lucrative opportunity
and an enterprising individual. Entrepreneurial opportunities are “those situations in which
new goods, services, raw materials, and organizing methods can be introduced and sold at
greater than their cost of production. For example, an entrepreneurial opportunity could stem
from introducing an existing technological product used in one market to create a new
market. Alternatively, an entrepreneurial opportunity could be creating a new technological
product for an existing market or creating both a new product/service and a new market. The
recurring theme is that an entrepreneurial opportunity represents something new. However,
such possibilities require an enterprising individual or a group of enterprising individuals to
recognize, evaluate, and exploit these situations as possible opportunities. Therefore,
entrepreneurship requires action— entrepreneurial action through the creation of new
products/processes and/or the entry into new markets, which may occur through a newly
created organization or within an established organization.
Entrepreneurs act on what they believe is an opportunity. Because opportunities exist
in (or create and/or generate) high uncertainty, entrepreneurs must use their judgment about
whether or not to act. However, doubt can undermine entrepreneurial action. Therefore, a
key to understanding entrepreneurial action is being able to assess the amount of
uncertainty perceived to surround a potential opportunity and the individual’s willingness to
bear that uncertainty. The individual’s prior knowledge can decrease the amount of
uncertainty, and his or her motivation indicates a willingness to bear uncertainty.

Learning Objectives:
At the end of the lesson the student will be able to:

a. Define the origin and nature of Entrepreneurship

b. Analyze the innovation process of Entrepreneurship
c. Explain the impact of Entrepreneurship on the growth of the economy
d. Define the contemporary views on Entrepreneurship

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Origin of Entrepreneurship

• Entrepreneur or Entrepreneurship originated in Europe sometime in the

Middle Ages.
• Entrepreneur originated from the French word Entreprendre which means to
undertake.
• Entrepreneurship is the ability of the individual to determine and come up with
the proper combination of the resources available in his environment and
transform this into an output of either goods or services, and obtain a fair
profit at the price the entrepreneur sets.

Evolution of the term Entrepreneurship

Below is a summary of various economist’s view of entrepreneurship, including the

year they conceptualized this view.

Contributor and Year of Contribution to Entrepreneurship Thought

Contribution
Jean Baptiste Say (1800) Entrepreneurship refers to the shifting of
economic resources out of an area of lower
and into higher productivity and greater yield
Carl Menger (1871) Entrepreneurship involves obtaining
information, calculation, an act of will and
supervision
Joseph Schumpeter (1910) Entrepreneurship is, in its essence, the
finding and promoting new combinations of
productive factors.
Harvey Liebenstein (1970) Entrepreneurship is a reduction of
organizational efficiency
Israel Kirzner (1975) Entrepreneurship is the identification of
market arbitrage opportunities.
Albert Shapiro (1975) Entrepreneurship involves a kind of behavior
that includes initiative taking, organizing and
recognizing social mechanism to turn
resources and situation to practical account,
and the acceptance of risks and failures.
Karl Vesper (1980) Entrepreneurship is the dynamic process of
creating incremental wealth.
W.Ed Mc Mullan and Wayne A. Long Entrepreneurship is the building of new
(1990) growth organization
Howard Stevenson (1992) Entrepreneurship is the pursuit of opportunity
beyond the resources currently under one’s
control.
Jeffrey Timmons (1994) Entrepreneurship is the ability to create and
build a vision from practically nothing.

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 Peter Drucker (1998) Entrepreneurship is the process of starting
one’s own, new and small business. It is also
the process of innovation and new venture
creation through four (4) major dimensions-
individual, organizational, environmental,
process – aided by collaborative networks in
government, education and institution.
Robert Hisrisch (2001) Entrepreneurship involves the creation
process, requires the devotion of the
necessary time and effort, assumes the
accompanying financial, psychic and social
risks, and receives the resulting rewards of
monetary and personal satisfaction and
independence.

Development of the word Entrepreneur

Contributor and Year of Contribution to the definition of

Contribution Entrepreneurship
Earliest Period An entrepreneur as a go-between, like the
transaction done by Marco Polo.
Middle Ages An entrepreneur is an actor and a person in
charge of a large-scale production projects.
17th Century A person bearing risks of profits (loss) in a
fixed price contract with the government.
Richard Cantillon (1725) A person bearing risks is different from the
one supplying the capital.
Beaudeau (1797) A person bearing risks, planning supervision,
organizing and owning.
Francis Walker (1876) An entrepreneur is either one who supplies
funds and receives interest, or one who
received profits from managerial capabilities.
Frank Knight (1921) An entrepreneur is a manager responsible for
direction and control who bears uncertainty.
Joseph Schumpeter (1934) An entrepreneur is an innovator and develop
untried technology.
Edith Penrose (1959) A person with managerial capabilities
separates from an entrepreneur’s capabilities
and able to identify opportunities and develop
small enterprise.
David McClelland (1961) An entrepreneur is energetic, and a moderate
risk taker.
Peter Drucker (1964) An entrepreneur is someone who maximize
opportunities.

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 Albert Shapiro (1975) An entrepreneur takes initiative, organizes
some social economic mechanisms and
accepts risk of failure.
Donald Kuratko (1995) The entrepreneur is one who organizes,
manages and assumes risk of business.
Peter Drucker (1998) One who starts his own new and small
business.
Robert Hisrisch (2001) The entrepreneur is an innovator. His function
is to reform or revolutionize the pattern of
production by exploiting an invention or more
generally an untried technological possibility
for producing a new commodity or producing
an old one in a new way.

Carol Moore An entrepreneur is someone who perceives

an opportunity and creates an organization
and pursue it.

Entrepreneur
An entrepreneur is comprehensively defined by Zimmerer & Scarborough (2005) as
someone who “creates a new business in the face of risk and uncertainty for the purpose of
achieving profit and growth by identifying significant opportunities and assembling the
necessary resources to capitalize on them”. They are the ones who act on their business
ideas.

An Entrepreneur is a person who starts and or operates a business. An

entrepreneur is creative and innovative.
 He is a person who starts something new. An entrepreneur may be male or
female, young or old, professionals, college graduate or school dropout,
comes from A, B C, D or E economic group. He is an owner-manager who is
willing to take risks. Usually, he is someone not willing to work for others.
Instead, he wants others to work for him. Usually, also his kind of business is
single proprietorship because he does everything from production to selling.

Four basic aspects of being an entrepreneur

1. Creation of something value- This means entrepreneurs create products or
services that can be offered for a price.
2. Devotion of necessary time and effort- Entrepreneurs devote their time and effort
towards the attainment of their personal goals. In business, some of these goals are
to earn profits, to make products/services available in the community, to provide
employment and income for their family and other reasons.
3. Assumption of necessary risks- In the pursuit of their goals, entrepreneurs
assume risks on the possibility of losing whatever they put in. in business there is the
possibility to fail and lose everything. But the possibility of earning big is even
greater.

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 4. Getting rewards- Many entrepreneurs reap the rewards of their efforts through the
generation of profits and business expansion. Moreover, the prestige of being a
business owner provides intrinsic satisfaction.

Entrepreneurship as a Process and Approach

Entrepreneurship is also described by renowned scholars as a dynamic process and

approach.

Approach
The entrepreneur considers the business opportunity as a chance to solve the
problem rather than solving the problem itself. A striking difference between a
traditional manager and entrepreneurial manager is the bias towards growth and
expansion scenario.

Process
Albert Shapero pointed out that entrepreneurship is a dynamic process of innovation
and new venture creation through the five major dimensions individuals,
organizations, environment, process and institutions.

Socio-economic benefits of Entrepreneurship

Early economists recognized the essential role of the entrepreneur in ensuring the
welfare of free enterprise economic system.

Today, entrepreneurs play a major role as a provider of employment for the

entrepreneur himself and his immediate environment.

Entrepreneurs are vital in the economic development of the country. They provide
employment and income moves in the economy forward, as shown in the vicious cycle of
development below.

Employment and Income

Entrepreneurs Investment

Savings and Taxes

Figure 1-1. Vicious Cycle of Development

Thus, the cycle results to economic development as more people are employed and
enjoy an income through the investment of an entrepreneur. The government likewise
benefits in the process because entrepreneurs, as businessmen, pay taxes, hence, the
government has the funds to provide service to the people.

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 It should be remembered that the activity of one entrepreneur provides a multiplier
effect. For example – Jose decided to manufacture T-shirts and buys his materials from Mr.
Santos. Hence, Mr. Santos hires workers to meet the requirements of Jose and Jose hires
workers to produce the T-shirts. If Jose will close his business, eventually, Mr. Santos will
also close his shop unless he has a lot of customers. This cycle, is the opposite of the cycle
above, called the cycle of regression.
The previous cycle also shows that entrepreneurs are:

Mobilizers
of capital

Service providers Tax payers

Employers Suppliers of products

1. Mobilizers of Capital. Entrepreneurs sometimes use their own savings as capital for
their business ventures. However, if they do not have the capital, money can be
borrowed from banks to finance their intended business.
2. Service providers. Business ventures of entrepreneurs could be along the line of
service like parlor, spas or coffee shops.
3. Employers. Usually, entrepreneurs hire people to help them in their business. A
restaurant owner, for example, will hire cooks and kitchen helpers while he, the
owner, does the purchasing and attending the customers.
4. Tax payers. Business establishments pay taxes to the government. Thus , more
business would mean more taxes and better government services.
5. Suppliers of products. Products and services are available through the efforts of
the entrepreneurs. Without them, a scarcity of certain products and services will be
felt.

Entrepreneurs and their impact on jobs and economic growth

Entrepreneurs are a rare species. Even in innovation-driven economies, only 1–2%
of the work force starts a business in any given year. Yet entrepreneurs, particularly
innovative entrepreneurs, are vital to the competitiveness of the economy. The gains of
entrepreneurship are only realized, however, if the business environment is receptive to
innovation. In addition, policymakers need to prepare for the potential job losses that can
occur in the medium term through “creative destruction” as entrepreneurs strive for
increased productivity.

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Pros
 Entrepreneurs boost economic growth by introducing innovative technologies,
products, and services.
 Increased competition from entrepreneurs challenges existing firms to become more
competitive.
 Entrepreneurs provide new job opportunities in the short and long term.
 Entrepreneurial activity raises the productivity of firms and economies.
 Entrepreneurs accelerate structural change by replacing established, sclerotic firms.

Cons
 Only a few people have the drive to become entrepreneurs.
 Entrepreneurs face a substantial risk of failure, and the costs are sometimes borne
by taxpayers.
 In the medium term, entrepreneurial activities may lead to layoffs if existing firms
close.
 A high level of self-employment is not necessarily a good indicator of entrepreneurial
activity.
 Entrepreneurship cannot flourish in an over-regulated economy.

Entrepreneurship is important to economic development. The benefits to society will

be greater in economies where entrepreneurs can operate flexibly, develop their ideas, and
reap the rewards. Entrepreneurs respond to high regulatory barriers by moving to more
innovation friendly countries or by turning from productive activities to non-wealth-creating
activities. To attract productive entrepreneurs, governments need to cut red tape, streamline
regulations, and prepare for the negative effects of layoffs in incumbent firms that fail
because of the new competition.

Entrepreneurship in the Philippines: Opportunities and Challenges for Inclusive

Growth
Addressing widespread poverty is the single most important policy challenge facing
the Philippines. Not only is poverty high when benchmarked against countries in Asia, but
also the rate of poverty reduction has been slow. While the Philippine economy has grown at
an average of 6 percent for the last five consecutive quarters (since 2012), poverty incidence
remains above 20 percent of the population. The critical challenge is to spread the payback
of this huge economic turnaround among the people, especially the poorest of the poor.
They should feel the benefits of the growing Philippine economy.
Entrepreneurship can provide the solution by creating wealth, jobs, and social
empowerment. If we are to address the issue of poverty with some degree of success,
history tells us we have no choice but to actively encourage entrepreneurial ventures.

Entrepreneurship in the Philippines

In the Philippines, entrepreneurship is viewed as important to empowering the poor,
enhancing production, and as an impetus to innovation. The 1987 Philippine Constitution

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recognizes entrepreneurship as an engine of economic growth. Article XII Section 1
highlights the role of private enterprises in supporting equitable distribution of income and
wealth, sustaining production of goods and services and expanding productivity, therefore
raising the quality of life.
The Philippine Development Plan (PDP) further reinforces the thrust on
entrepreneurship through trade and investment to achieve the government’s goal of
economic development and job creation. Based on the plan, measures for macro-economic
stability, employment, trade and investment, agribusiness, power-sector reforms,
infrastructure, competition, science and technology, and anti-corruption are being pursued to
strengthen Philippines’s competitiveness and contribute to job creation.
In 2011, there were approximately 830,000 business enterprises in the Philippines.
Of these, 99.6 percent are classified as micro, small, and medium-sized enterprises (MSME)
which are responsible for 38 percent of total job growth.
Micro, small and medium enterprises (SMEs) are a vital component of the economy.
Microbusiness, small and medium enterprises provide employment for 70 percent of
the Philippine labor force. According to the 2001 National Statistics (NSO), of the total
business enterprises of 811, 589 the MSMEs provide jobs to 69.1 percent of the employed
Filipino with their economic output at 32 percent. It is important for the economy to increase
the output of the MSMEs to help the economy moving and growing. To attain this, MSMEs
should have more access to (1) credit, (2) better sources of raw materials, (3) modern
technology and (4) more marketing information. The government has three strategies to help
MSMEs.
They are:
 Provide credit , technology and marketing support to new enterprises from 24 billion
Pesos in 2004 to 309.98 billion pesos in 2010.
 Tap overseas Filipino workers to invest their earning in MSMEs.
 Promote greater involvement of local government unit (LGUs) in promoting small
business activities by providing them information on business opportunities, available
sources of funds, and the latest product design.
In November 2002, RA 9178 was signed into Law. RA 9178 or the Barangay Micro
Business Enterprises (BMBEs) Act of 2002 or provides five incentives and benefits. These
incentives and benefits are:
 Exempts BMBEs from income tax and encourages LGUs to exempt or reduce local
taxes imposed on BMBEs.
 Exempts BMBEs from coverage of the minimum wage law.
 Improves credit delivery to BMBEs.
 Provides for technology transfer, production and management training and marketing
assistance to BMBEs.
 Provides trade and investment promotion to BMBEs.

Entrepreneurs are engaged in either small or medium business. This is because

basically the establishments of business are dependent upon the amount of capital that
you can put in ad the number of employees that you hire. Many businesses started small
and then moved on towards big business.

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 Small and medium scale businesses are important in the country because of the
following reasons:
1. They help provide the supply of products to customers. For example, a family
needs only a can of milk per week and this need in met by the nearby store in the
community.
2. They help provide personal services. For example, you need a haircut, this service
is provided by the neighborhood barber shop.
3. Small and medium scale business serves as a means of earning to an
unemployed individual. For example, the service of Juan dela Cruz, a factory
worker, was terminated. From the separation pay he received, Mr. Juan dela Cruz
started a repair shop and earns in the process.
4. The small and medium scale businesses also provide employment to other
people. In our example under #3, Mr. Juan dela Cruz also hired workers to help
him in the process of providing repair services to his customers. Thus,
unemployment in the country is reduced.
5. Small and medium scale entrepreneurs also pay taxes to the government and
such payment allows the government to provide services to the people. Some of
these services are education, sanitation, peace and order, electricity, health and
others.

The small and medium entrepreneurs cannot be underestimated. Financially, they

provide purchasing power to their workers; psychologically, they enjoy prestige and
satisfaction because they own their business and economically, they add to the supply and
demand of goods and services.
Entrepreneurs are found practically in every community. For example, the producers
of rags sold along the busy city streets, the scissors makers in the provinces, the candle
makers, vegetable growers and, many others. These people boost the economy and make
their country proud of their industriousness.

Role of Enterprise Networks

In addressing the above-mentioned challenges, there is a need to rally behind
national advocacy to push entrepreneurship to the next level. This means nurturing
microentrepreneurs from purely “survival” into “opportunity and innovation driven” enterprise
owners. This puts a premium on the role of enterprise organizations such as chambers of
commerce, industry associations and dedicated enterprise networks.
In the Philippines, apart from institutions like chambers of commerce and industry
clubs, entrepreneurship advocacy is mainstreamed by the creation of enterprise networks
like the Philippine Center for Entrepreneurship (PCE). PCE’s concrete goal is to spawn the
creation of so-called “Go Negosyo Communities” everywhere. These are communities where
the academic, business and government sectors are drawn into a triangle of almost
seamless collaboration. In such an ecosystem, there is constant networking, mentoring and
cooperation among professors, entrepreneurs, industry experts and venture capitalists, with
the government providing support through a viable policy infrastructure. Every “Go Negosyo”
community is distinguished by its ability to produce a continuous stream of start-up ventures.
PCE also seeks to embed strong entrepreneurship lessons into the school
curriculum. If the goal is to develop a culture of enterprise and cultivate tomorrow’s

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competitive entrepreneurs, they must start at a young age. Primary and secondary schools
can teach the values and develop the mindsets of an entrepreneur. At the college level,
enterprise networks are looking at how to assist in curriculum enhancement, providing
manuals, training the teachers, and involving real entrepreneurs in the learning process.

Nurturing the Entrepreneurship Paradigm

Entrepreneurship is more than just an economic term — it is a way of thinking.
Creating jobs, empowering people, and giving individuals access to better lives for
themselves and their children is a wonderful gift. Today, it has become a dynamic,
developing part of the economy promoting inclusive growth. Entrepreneurship is a way of
inspiring creative individuals to pursue opportunities despite its risks.
In closing, the challenge for countries like the Philippines is to accelerate both the
political and economic leadership that can muster social reforms through entrepreneurship.
Entrepreneurs have the power to achieve great things. Entrepreneurs will emerge as the
well-oiled wheels that will keep the economy going and the society efficiently running.
Ryan Patrick G. Evangelista is former Executive Director of Universal Access to
Competitiveness and Trade (U-ACT). Research inputs were provided by Marlon Min and Jin
Hyuk Kim of U-ACT.

Assessment Task

Guide Questions

List down Five entrepreneurs in your community and discuss the kinds of business
they are engaged in. Find also their reasons for engaging in business.

References:
 https://wol.iza.org/articles/entrepreneurs-and-their-impact-on-jobs-and-
economicgrowth/long#:~:text=Entrepreneurs%20create%20employment
%20opportunities%20not,produ ctivity%20and%20competition%20more%20broadly.
 https://www.cipe.org/resources/entrepreneurship-philippines-opportunities-
challengesinclusive-growth/

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