Providing a clear view for Business Structure - Free Essay Example

In the influential article written by Mr. Robert Solow in the year 1956, a structure was given for the readers to have a clear view of the linkage between economic growth and the basic important factors of production. He suggested ways in which maximum economic growth is easily achievable through his dynamic state of the art framework. Mr. Robert Solows model named as the growth accounting framework, includes two factors; physical capital and labor precisely, whereas technological change being the implicit factor. Adding up to the entrepreneurial activity and economic growth, Mowery (2005,p.1) suggested that entrepreneurial activities have been generating economic growth not only in Europe, but also in the other parts of Atlantic. During the 1900s various observers observed the high power of entrepreneurship in the United States. This new economy era helped in the illustration of the increase in the economy. The new firms that emerged as a resultant of high power of entrepreneurship were seen as important sources of economic change and increase in the employment opportunities. These firms were majorly disapproved of in the last decade by the MIT Commission on Industrial Productivity (Dertouzos et al.,1989) for the failure that they faced in maintaining competition against large non US firms. Solows accounting mo del has a little to do with the appearance of entrepreneurship in the growth policy similar to the fact that Research and Development, knowledge capital and physical capital were considered as large corporation phenomenon according to Chandler (1977, 1990). The conclusion of Joseph A. Schumpeter (1942, p.106), was also supported by a generation of scholars that large scale establishement has come to the most powerful engine of progress especially the long run expansion of output. John Kenneth Galbraith (1956, p.86) gave his interpretation about the competition that would be faced in the future in terms of technological improvements as well as the product development. One of the basic purposes is to tell the reader about the entrepreneurial trends going on in the world. Entrepreneurship is a central focus in the growth policy which is well matched in the Solows model and it is also linked to the economic growth at the same time. It is linked to the economic growth in the sense tha t it is facilitating the current organizations through spillover of knowledge and in turn increasing the economic growth. According to Acs et al. 2004 and Audretsch et al. 2006 the term knowledge filter for the commercialization of the firm in terms of RD, human capital, university research etc may not be the only sources of economic growth. It has been noticed that the investment in new knowledge has been substantial resulting in growth and decrease in unemployment, but it clogs commercialization of new knowledge investments in turn reducing innovative activity and ultimately stagnating growth. The surfacing of entrepreneurship policy to promote economic growth is an attempt to create entrepreneurship capital, or the ability of an economy to generate the start-up of new firms. The link between knowledge spillovers and economic growth is essential just like the link between entrepreneurship and economic growth. Solow growth accounting framework has proven strong and flexible, enabling an interpretation of the recent emergence of public policy to create entrepreneurship capital as a means for generating economic growth. Romer and Krugman in 1990 and 1991 respectively have thrown light over the economic growth under macroeconomics. Whereas different scholarly tradition linking growth to industrial organization dates back at least to Schumpeter (1934); according to which economic growth is also the efficiency of using scare resources. Porter in 1990 said that Entrepreneurship is at the heart of national advantage. The role of entrepreneurship motivates economic growth through innovation and sustaining of competition among competitors. Entrepreneurship is an important facet of industrial growth and the backbone of any country for its economic development. The spirit of entrepreneurship brings about enthusiasm, persistence and the ability to seek entrepreneurial opportunities that lead to success. A countrys ability to generate a steady stream of bus iness opportunities can only come about when its people take to entrepreneurial activities. Entrepreneurs are essentially the engines of growth for a country. New products as well as new methods of production are a part of innovativeness in emtreprenuership says Acs and Audretch (1990,2003 respectively). Entrepreneurs are the pioneers in introducing new products and often play a vital role in early stages of the industries. They are likely to increase the productivity and profits through providing a tough competitive environment says Geroski (1989), Nickel et al. (1997. Increased competition results in enhancement of knowledge amongst the consumers by preferring the better and dominant variations of the products and services. Entrepreneurship and entrepreneurs are vital drivers of economic growth, employment, innovation and productivity and it has been long understood by analysts and economic theoreticians. Entrepreneurship is the driving force behind the growth in the modern economy. Busenitz, West III et al, 2003 tells us that entrepreneurship is becoming increasingly relevant to economic output and labour employment which helps in building an entrepreneurial society and contributions are needed from everyone within that society according to the European Union, 2003. Taking into consideration the topic I have chosen the following dimensions: Entreprenuership Investment Commercialization New firms Capital Now I will thoroughly discuss each dimension seperately Entrepreneurship: According to the Small Business service 2002 the term entrepreneurship is derived from the word entrepreneur, and it is commonly referred to as the activity that individuals connect in that is often characterized by a unique reflection, innovative approaches and jeopardy taking in order to create a new business or grow an existing business. It can be defined as a managerial performance that time after time develop opportunities to bring results beyond the individuals own capabilities, which involves creativity and innovation says Thompson (1999) and it is also a focus on change and opportunity as well as organization-wide management says Wickham (2001). Entrepreneurship is an attitude that covers an individuals motivation and capability, independently or within the context of an organization, to spot an opportunity and to pursue it in order to create wealth or economic success. It is innovation- thinking outside the box resultantly creating new ideas, new products or services. B etter production methodologies and efficient ways of doing things also helps in economic growth according to Khan (2008). Richard Cantillon, a French economist in the 1700s, used the term entrepreneur to refer to a person who took an active risk-bearing role in pursuing opportunity. It is not a 21st century phenomenon as Coulter (2003) says. Deakins and Freel (2003) in their research found out that entrepreneurship acts as a catalyst in bringing about an economic change and helps in economic development. Many research has shown that entrepreneurship is really essential for the economic development of a nation according to Audretsch, 2002; Mazzarol, Volery et al, 1999; Jack and Anderson, 1999; Olson, 1985 and it is an effectual means to fight unemployment according to Audretsch, Carree et al, 2001 and Busenitz, West III et al, 2003.Small Business Service in 2002 reports that entrepreneurship is responsible for boosting productivity by increasing competitive pressure within the market economy, which in turn forces players in the market to increase their efficiency. Therefore, in order to have sustainable economic growth and a low rate of unemployment, we should promote the notion of entrepreneurship. Entrepreneurship is the apparent aptitude and enthusiasm of persons, on their individual base, in groups, inside and outside existing organizations to make out and generate new economic opportunities (new products, new production methods, new organizational schemes and new product-market combinations), and to introduce their ideas in the market, in the face of uncertainty and other obstacles, by making decisions on location, form and the use of resources and institutions says Wennekers and Thurik (1999). fundamentally, entrepreneurship is a behavioral trait of persons. Entrepreneurship is not an occupation and that entrepreneurs are not a well-defined occupational class of persons. Even obvious entrepreneurs may exhibit their free enterprise only during a c ertain phase of their career and/or concerning a certain part of their activities. Audretsch, Carree and Thurik (2001) have identified an ambigious relationship between unemployment and entrepreneurship. According to them on one hand unemployment encourages entrepreneurship which is termed as refugee affect, whilst on the other hand higher levels of entrepreneurship reduces unemployment, which is also known as Schumpeter effect. Schumpeter in his theory of Economic Development emphasizes the role of the entrepreneur as basic cause of economic development. He describes how the innovating entrepreneur challenges existing firms by introducing new inventions that make current technologies and products obsolete. This process of creative destruction is the main characteristic of what has been called the Schumpeter Mark I regime. In free enterprise, communalism and social equality, Schumpeter focuses on novel activities by large and established firms. He describes how large firms are better than their smaller counterparts in the innovation and misuse process through a strong positive feedback loop from innovation to increased RD activities. This process of creative accumulation is the main characteristic of the Schumpeter Mark II regime. A significant amount of economic research has focused on entrepreneurship as the result of a maximization process in which individuals have to select between alternative employment options according to Parker (2004). Lazear (2004, 2005) and Wagner (2003), for example, have suggested that entrepreneurs must be jacks-of-all-trades with the ability to perform many tasks without necessarily excelling at any of them. Entrepreneurship has also been studied comprehensively in economics to examine issues of innovation and information creation. For example, Audretsch and Keilbach (2004, 2005) suggest that entrepreneurship is crucial in driving the process of selecting innovations, hence in creating diversity of knowledge, which, i n turn, serves as a mechanism facilitating the spillover of such knowledge across individuals. Investment: Investment is defined as putting money into action for the purpose of generation of profit. It is the commitment of money or capital in purchasing financial instruments or assets in order to gain profit. Profitability is the main purpose of investments (Wikipedia). Investment and entrepreneurship are inter related with each other. Entrepreneurship is not possible without investment. Investment is required for production of new products and services. It is also required for enhancing knowledge and technology which helps in innovation. In intrapreneurship: conceptualizing entrepreneurial employee behavior by Jeroen de Jong Sander Wennekers in 2008, the major disparity elements of entrepreneurship are the investment of personal financial means and the related financial risk taking, a higher degree of autonomy, and legal and fiscal aspects of establishing a new independent business. New ventures started by entrepreneurs are often risky and they require heavy investment. It is a risk that entrepreuers take; in order to bring out a new innovation in the form of a new product or new service or even a new methodology of production, into existence. The transformation of knowledge into a new product is risky and if the idea clicks the investment is turned into profit. Investment into developing new technological knowledge is made by entrepreneurs, as they put their risk and knowledge into action. By starting a new venture, entrepreneurs plainly gamble on the product, thus taking on the risk that it involves. In this risky process, entrepreneurs commercialize ideas that otherwise would not have been pursued, thus increasing the amount of utilized knowledge. Hence, entrepreneurship and its function of risk taking is an important component of the innovation process. According to Baumol (2002a, 2002b) the entrepreneurial function of risk taking in the innovation process from the role of larger incumbent corporations that are engaged into routine processes of large scale innovation. In the impact of entrepreneurship on economic growth by M.A. Carreea b.c and A.R. Thurika, a large amount of companies guide to high interest in huge amount of investment and research and development programs leading to high growth where as less amount of investments in research and development lead to slow growth. Commercialization: Commercialization is a process that helps firms achieve a good name in the market economy. New technologies are introduced in the market and they further help in attaining much public attention. Commercialization has been occurring throughout the world and proves helpful in getting much surface attention. The basic component of commercialization of innovation includes patent protection and capital investments. According to the WIPO2007; National Governors Association 2008, both the patent requests along with the easy governmental policies for promotion of capital investments in concept to the new commercial applications are rising. Economic development is possible through successful commercialization. It is a cycle as commercialization increases the economic value by creating high skilled people which in turn Is the basis of highly waged jobs and both these lead towards the stability of the economy. New technology in commercialization is playing its vital role as this knowledge when applied appropriately and in the right direction helps in the growth of the economy. A five stage model of commercialization process according to Jolly(1997) has been outlined in order to attain market entry of new procedures, goods and techniques. These stages are as follows: Imaging stage This is the first stage in which the researcher finds the basic research which relates to a new concept. Exploring of technology is the main purpose of this stage. Incubating stage In the incubating stage the already existing techniques and technologies are examined- the ones that are being generically used and tested. Demonstrating stage Prototypes are created in this stage of the new concept. Promoting stage This stage is the beginning of the entry and expansion of the prototypes being created in the demonstrating stage. Sustaining stage The last stage according to Jolly tells us that whether the prototype is able to sustain the in the long run or not. ( Source : https://pdfserve.informaworld.com/549571_778682928_906677872.pdf ) New Firms: Schumpeter in 1942 gave his work in a very influential manner and since then entrepreneurship has been the hot topic in economic growth and development. With the advent of entrepreneurship, new firms and new employment opportunities are created which brings with it productive innovation says Baumol(2002). It is important to understand the factors that alleviate entrepreneurial creativity (LEE S. Y., FLORIDA R. and ACS Z. J. (2004) Creativity and entrepreneurship: a regional analysis of new  ¬Ãƒâ€šÃ‚ rm formation, Regional Studies 38, 879-891.) it is important to understand the factors that promote new firms to economic development. High level of new firms are created with entrepreneurial activities which significantly promotes economic vitality and shows that the economy is dynamic rather than being static. Different factors affect the creation of new firms such as unemployment, population growth, industrial structure, human capital, the availability of financing and entrep reneurial individuality. Building on the contributions of urbanist Jane Jacobs, Lee, Florida and Gates (2002) showed that social diversity and human capital have constructive relationships with regional innovation production measured by per capita patent production. While it is well known that regional human capital stock positively a ¬Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬ects new  ¬Ãƒâ€šÃ‚ rm formation rates, little attention has been paid to the interaction among social diversity, human capital and entrepreneurship. The empirical results support the main assumption. New  ¬Ãƒâ€šÃ‚ rm development is sturdily connected with cultural creativity when controlled for the variables suggested in the literature. Firm formation is positively and signi ¬Ãƒâ€šÃ‚ cantly associated with the Diversity Index but insigni ¬Ãƒâ€šÃ‚ cantly with the Melting Pot Index. According to RYNOLDS et al. (1994), factors like unemployment, population, industrial scattering and financial avail ability are important in terms of new firm formation. ARMINGTEN and ACS (2002) found that industrial intensity, income growth, population growth and human capital were closely related to new  ¬Ãƒâ€šÃ‚ rm formation. KIRCHHOFF et al. (2002) found academic research and development expenditure to be associated with rates of new  ¬Ãƒâ€šÃ‚ rm structure across regions. Studies noted the significance of the function of association in entrepreneurship. SAXENIAN in (1999) found that extensive networks of Chinese and Indian workers help people start new  ¬Ãƒâ€šÃ‚ rms with the help of contacts and  ¬Ãƒâ€šÃ‚ nancial support in Silicon Valley. STUART and SORENSON (2003, p. 229) argue that businesses cluster because geographical immediacy enables them to use social ties necessary to gather together essential resources. Findings entail that an entrepreneurs social relationship is crucial in using critical business resources critical to start a  ¬Ãƒâ€šÃ‚ r m and set up a new organization.according to Creativity and Entrepreneurship:Sam Youl Lee, Richard Florida and Zoltan J Acs Capital: Capital resists quantification. Capital is the financial asset that is used for investment in the entrepreneurial activity to start a new venture of innovate the existing one. However, entrepreneurial and risk taking behavior certainly makes apparent itself in the creation of new ventures. Higher the entrepreneurship intensity is, the higher the level of the latent variable entrepreneurship capital becomes. Entrepreneurship capital means the ability for economic agents to generate new firms. Entrepreneurship has typically been referred to as an action, process, or activity whereas entrepreneurship capital is the ability of the people to generate new firms and help in the economic prosperity of the world. According to G. Hofstede (2002), entrepreneurship capital can also be a part of stock capital as it reflects other numerous factors such as legal, institutional and social factors. A recent study shows that entrpreneurship capital is somewhat a missing link in describing the variat ions in economic performance says Zoltan J. Acs and David B. Audretsch (2003). In particular, the evidence suggests that various measures of entrepreneurship capital do, in fact, contribute to output. Those regions with a higher level of entrepreneurship capital exhibit higher levels of output and productivity, while those with a scarcity of entrepreneurship capital tend to generate lesser levels of output and productivity. From the economic perspective, Hebert and Link (1989) distinguish between the supply of financial capital, innovation, allocation of resources among substitute uses and decision-making. Such perspectives generate a high propensity for economic agents to start new firms can be characterized as being rich in entrepreneurship capital. Other contexts, where the startup of new firms is inhibited, can be characterized as being weak in entrepreneurship capital. Entrepreneurship capital exerts a positive impact on economic output for a number of reasons. The fir st being mechanism for knowledge spillovers. Romer (1986), Lucas (1988 and 1992) and Gene M. Grossman and Elhanan Helpman (1991) recognized that knowledge spillovers are an important mechanism underlying endogenous expansion. A second way that entrepreneurship capital put forth a positive impact on economic out-put is through the increased competition by high number of enterprises. Jacobs (1969) and M. Porter (1990) argue that competition is more conducive to knowledge externalities than is local monopoly. A third way that entrepreneurship capital generates economic output is by providing diversity among the firms. Not only does entrepreneurship capital generate a greater number of enterprises, but it also increases the multiplicity of enterprises in the location. A key assumption made by Hannan and Freeman (1989) in the population ecology literature is that each new organization represents a unique approach. There has been a series of theoretical arguments suggesting that the degree of diversity, as opposite to homogeneity, in a locality will influence the growth potential. Entrepreneurship Capital and Economic Growth by David B. Audretsch and Max Keilbach tells that entrepreneurship capital contributes to output and growth by serving as a means for knowledge spillovers, increasing competition, and by instilling diversity.