MNE2601 Detailed Summary exam prep

TOPIC 1 STUDY UNIT 1 Chapter 1: The Nature and Development of Entrepreneurship (Pg 3 – TB) Introduction: The Economic impetus of Entrepreneurship Economic development can be directly attributed to the level of entrepreneurial activity in a country. A combination of all types of businesses from Small, Medium, and Micro enterprises (SMME’s), to large National and International organisations (Private and Public owned) collectively determines the overall state of the economy. GDP or the – real Gross Domestic Product – is the value of all production within a country’s geographical boundaries, and it is used to measure the growth activity within our economy – that is, whether the economy is growing or declining. The Economic growth rate is determined by the year-on-year change in the value of real GDP. Employment is also closely linked to the state of the economy. During periods of poor economic growth, less job opportunities are available. The importance of entrepreneurs is crucial for the improvement of the South African economy and is also regarded as the best opportunity that exists. Most entrepreneurial activity takes place in small, medium and micro enterprises (SMME’s). SMME’s form 97.5% of all businesses in RSA, they generate 35% of GDP, employ 55% of all formal private sector employees and contribute 43% of the total value of salaries and wages paid in RSA. The Development of Entrepreneurship Theory (entreprenology) The progress in entrepreneurship and our understanding of entrepreneurs can be divided into five periods according to Fillion (1991). Period Topics Authors and Researchers 1. What entrepreneurs do 1700 – (1950) From an Economic perspective Cantillon, Say, Schumpter 2. Who entrepreneurs are 1960 – (1980) From a Behavioural perspective Weber, McClelland, Rotter, De Vries 3. What entrepreneurs do 1980 – From a Management science perspective (finance, marketing, operations, human resources) Drucker, Mintzberg 4. What support is needed by entrepreneurs 1985 – From a Social perspective, including economists, geographers and sociologists. Gartner, Welsh, Bygrave, Reynold 5. What entrepreneurial activities are, and what competencies are required to perform them 1990 – From an Entrepreneurial perspective Timmons, Vesper, Brockhaus ENTREPRENEURSHIP & SMALL BUSINESS MANAGEMENT Page | 2 Defining Entrepreneurship, Small business and Entrepreneurial ventures Entrepreneur and Entrepreneurship (Pg 9 – TB) Entrepreneurship: is the emergence and growth of new business. The motivation for entrepreneurship is to make a profit. Entrepreneurship involves the process that causes changes in the economic system through innovations of individuals who respond to opportunities in the market. In the process entrepreneurs create value for themselves and society. Defining an entrepreneur remains a problem as researchers and academics never seem to reach agreement. Some definitions of an entrepreneur are given below: Carland, Hoy, Boulton & Carland: An entrepreneur is an individual who establishes and manages a business for the main purposes of profit and growth. The entrepreneur is characterised principally by innovative behaviour and employ strategic management practices in the business. Watson: The distinguishing factors of entrepreneurs are mostly innovation, and then opportunity recognition and growth in a business An entrepreneur can be defined as follows: “an entrepreneur is a person who sees an opportunity in the market, gathers resources and creates and grows a business venture to meet these needs. The entrepreneur bears the risk of the venture and is rewarded with profit if it succeeds. The key concepts of an entrepreneur that follow the definitions above are:  Identifying an opportunity: A real business opportunity must exist  Innovation and creativity: Some new and different is required  Getting resources: Capital labour and operating equipment must be found  Creating and growing a venture: Refers to the starting of a new business venture or the conversion of an existing business  Taking risks: Personal and financial risks are involved for the person who embarks on the entrepreneurial process.  Being rewarded: Reward is an essential element of the free market system. It can be in the form of profit or an increase in the value of the business.  Managing the business: The entrepreneurial process requires planning, organisation, leadership and control of all the functions in the business venture. Small business It is important to distinguish between entrepreneurial ventures and small businesses. Both are crucial to the performance of the economy but serve different economic functions. Watson: Small business owners are individuals who establish and manage their businesses for the principal purpose of furthering personal goals and ensuring security. The activities of artisans/craftsmen, administration/manager and security/family are indicated as characteristics of small business ownership. ENTREPRENEURSHIP & SMALL BUSINESS MANAGEMENT Page | 3 Carland: Therefore, a small business is any business that is independently owned and operated, but is not dominant in its field and does not engage in any new marketing practices. The National Small Business Amendment Act 26 of 2003 offers an official definition of small business in South Africa. The Act covers all sectors of the economy, as well as all types of enterprises, and consists of two parts – qualitative and quantitative criteria: Qualitative criteria ...which relate to the ownership structure of the business, specifies that it must:  Be a separate and distinct business entity  Not be part of a group of companies  Include any subsidiaries and branches when measuring the size  Be managed by its owners  Be a natural person, sole proprietorship, partnership or a legal person, such as a close corporation or company. Quantitative criteria ...quantitative criteria are presented in the Schedule to the Act and classify businesses into micro, very small, small and medium, using the following guidelines in respect of different sectors of the economy:  Total full-time paid employees  Total annual turnover  Total gross asset value (excluding fixed property) Small business owners are not necessarily interested in growth as an objective, they regard themselves as successful when their businesses are profitable. Entrepreneurial Ventures (Pg 10 – TB) Entrepreneurial ventures are businesses in which the principal objectives are profitability and growth. Three characteristics distinguish the entrepreneurial venture from small business (Wickham); Innovation: Entrepreneurial ventures thrive on innovation, be it technological innovation, a new product or a new way of producing, offering a service, marketing or distributing or even the way in which an organisation is structured or managed. Small business is usually only involved in delivering an established product or service. Potential for growth: Due to its innovative approach, an entrepreneurial venture has a great deal more potential for growth than a small business. It is in a position to create its own market. The small business operates in an established industry and is unique only in terms of its locality. Strategic Objectives: The entrepreneurial venture will usually set itself strategic objectives in relation to:  Market targets  Market development  Market share  Market position