Relationship between entrepreneruship
Discuss the relationship between entrepreneurship, innovation and economic development. What role do creativity and problem solving play in this relationship? Refer to both theories and examples from the business world to support your discussion. Since last century, entrepreneurship and innovation have been heavily discussed. Entrepreneurs create new business and provide the Job opportunities to society as well as promote the economic development.
However, with the increasing global economic competition, normal entrepreneurship becomes less competitiveness, government committed to develop innovative entrepreneurship in recent years Cukier, 2006). Therefore, the relationship between innovation and entrepreneurship becomes one of the most significant topics in the business field. Economists do a large number of researches to explore the connection between entrepreneurship and innovation as well as the position they related in economic development.
During the process of exploring, a considerable amount of definitions are put forward by experts based on their research knowledge and the analysis of entrepreneurs developed in recent decades. This essay will list the definitions put forward by ifferent economists, then support the ideas that innovation, entrepreneurship and economic development are deeply connected and interacted. Finally, combine with the experience of university group entrepreneurship project, attempt to explain importance role that the creativity and problem solving played in this process.
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Definition of the innovation and entrepreneurship is colored by different economists according to their observation, research and knowledge. From the innovation perspective, one of the most important definitions is related to the Joseph Schumpeter, a pioneer of the innovation management, who put forward a theory ccording to his early studying. Schumpeter (1934) defines innovation as the combination of new goods, new methods of production, the opening of new markets, the conquest of new sources of supply and the carrying out of a new organization of any industry.
Jocabs (2007) list several definitions in her article based on her study: Peter Drucker believed that innovation is a process that change and creates a new dimension of performance; Jose Campos, director of the Center for Rapid Innovation considered that innovation is kind of the ability to which can deliver value to a ustomer; David Schmittlen has a deeper opinion, he believed that product is not the only factor innovation related, the processes and approaches to the marketplace is where innovation occur.
All these definitions have their limitations and emphasizes, but with the change of the social and economic environment, innovation may have a wider meaning such as Regins Cabral mentioned in his opinion which connect the innovation with the network. From the entrepreneurship perspective, the word "entrepreneurship" related to many meanings. In the second volume of The Isolated State (1850) provided by Johann von Thunen, he defined the entrepreneurship as a way which earns profits after cutting over all the expenses such as payments to capital, labor and insurance, and needs to take unpredictable risk.
Risk part in this theory was supported by Frank Knight, and he believed the only risk that leads to profit is a unique uncertainty resulting from an exercise of ultimate responsibility which in its very nature cannot be insured nor capitalized nor salaried" (Knight, 1921). Joseph Schumpeter is one of the most influential economists in the history. His theory of entrepreneurship heavily ased on his innovation theory and roughly experienced three stages. In the early stage of his studying, his notion of entrepreneurship emphasized newness and innovation, and aimed at encouraging economic development (1928).
Later, with more research had been done; Schumpeter gave up the risk-taking, one of the characteristics of entrepreneurship which is agreed by von Thunen and Knight. In the 1940s, Schumpeter's work on entrepreneurship became broader. In this period, he was no longer limited by original theory, but discussed several types of the entrepreneurs and extended the meaning of entrepreneurship. Another very important definition in history was made by Ludwing von Mises and Friedrich von Hayek.
Ludwing von Mises (1963) has different ideas with Schumpeter by stated entrepreneurship involves anticipations of uncertain events rather than innovations. The reason why he said that is because there is a belief that entrepreneur gain profits by correctly anticipating the market and providing the products to customer before the competition driven by a desire for money. The definitions of the innovation and entrepreneurship are of variety, but viewpoint about the relationship between them is quite similar.
Peter Drucker mentioned that entrepreneurship and innovation is companion terms, innovation is a tool that entrepreneurship can take advantage of. From the perspective of entrepreneurship, Schumpeter (1928, 1939) mentions that entrepreneurship as the source of the innovation and innovation as the engine of economic development, which emphasize the many attributes and motivation of the entrepreneur. This is an idea which was a leading though, many economist after Schumpeter agree with this idea.
From the innovation perspective, economists such as Pretorius and Millard strongly supported he theory which considered a significant innovation is usually the basis of the successful entrepreneurial venture. Consider the opinions above all; innovation and entrepreneurship are deeply interacting with each other. For example, McDonalds' analyzed the marketplace and consumers' need; design the new production lines and new methods trained staff. According to the definitions listed before, due to McDonald's creative new marketplace and consumer, and combine with the improving of the management, it is entrepreneurship.
In addition, cause the increasing global economic competition, government as well as individual oncentrate more on the innovative entrepreneurship. Evidences shows that government of The European Union, United States and countries in Asia all published policies to support, lead and value the innovative entrepreneurship due to the large contributions it comes in the future (Cukier 2006). The relationship between innovation and economic growth is closely connected and the relationship between them is mutual. On the one hand, innovation is a source of economic development.
According to the Schumpeter (1942), who considered the innovation activity of entrepreneur of a process which provide a creative 'destruction rocess' by causing sustain disturbances to an economic system in equilibrium, and create new opportunities to economic. It means that innovation encourages the changes of economy system and creates opportunities which are beneficial to economic development. Peter Drucker is one of the influential economists, stated that the innovation is the central issue in economic prosperity.
He listed five principles of innovation and the first one is the innovation beginning with analysis of the opportunities, starting from the small entrepreneurs and aiming at market leadership. In addition, a large amount of the empirical work showed evidence to ndicate that the level of the technological innovation do large contribute to economic performance, both at the companies and industry aspects. Economic development also creates a suitable environment for innovation. A high level economic development is conducive to innovation.
The Global Innovative Index, which is established by INSEAD Business School and World Business, it measures the world's best and worst performing economies with measurement of innovation. It also evaluate the nation's strengths and weaknesses in their economic development environment especially policies and practices related to innovation. United States, Israel and Switzerland are top three countries. All of these countries have a common strength which is the positive environment for innovation, especially in United States. Government policies are firmly support the development of innovation.
For example, Silicon Valley in California, which is the typical example to indicate government policies are essential fact to stimulate innovation. Similar to innovation and economic development, it is widely believed that entrepreneurship and economic development influence each other deeply. Entrepreneurship is beneficial for economic development. Entrepreneurship in the early twentieth century, according to the statement of Cipolla (1981) and Lazonick (1991), plays an essential role in the long-term economic. The contribution to the growth of economy was attributed to entrepreneurs.
They seek for new opportunities, diversified the productions and develop a new market. With the change of the economic environment, in middle of the twentieth century, entrepreneurship lost its superiority, however, in the recent decades, with the revolution of the knowledge and technologies; it encouraged the development of entrepreneurship thinking Oovanovic, 1982; Audretsch, 1995). In the perspective of the economic development, entrepreneurs not only create new market but also provide the new ideas to marketplace, and promote the economic growth through a process of fierce competition.
However, not all kinds of entrepreneurship are effective for economic development. According to the research by Global Entrepreneurship Monitor (GEM), there are two kinds of entrepreneurship. One is "necessity entrepreneurship" and the other is "opportunity entrepreneurship". Necessity entrepreneurship nas a negative ettect on economic development. A typical example of it is that after the fall of Berlin Wall, any workers in socialist countries found them had no options but work for themselves, this necessity entrepreneurship caused several years of negative GDP growth.
On the contrary, opportunity entrepreneurship could lead to an economic development. Based on the statistics collected from the eleven countries, entrepreneurship which has multiple opportunities could lead to economic development (Asc, 2006). For one country, due to the fact that different countries have different economic development level, government should fgure out what kind the entrepreneurship is and develop opportunity entrepreneurship. For individuals, it is essential to analyze the opportunities and potential market before starting an enterprise.
Creativity and problem solving cannot be ignored in the relationship among the entrepreneurship, innovation and economic development. Creativity is an essential characteristic in the problem solving process and it is usually defined as a process though which invention occurs something new comes into existence (Herbert et al. , 1999), and they also regard creativity as the starting point of the innovation. Analyzing creativity from the entrepreneurship direction, in past several decades, esearchers did a great deal studies to explore the position of creativity in the process of the development of entrepreneurship.
Shaw (1996) mentions that opportunity is the first step that entrepreneurship pursued and creativity is the key point to identify business opportunity (Hills and Shrader 1998). Venture capitalist Vinod Khosla also said that no problem means no opportunity, no solution and no company. Therefore, due to the significant position in the entrepreneurial process, creativity is the soul of entrepreneurship (Morris and Kuratko, 2002). Since nnovation, entrepreneurship and economic development is closely connected, creativity is the fundamental of the whole relationship.
In university, Entrepreneurship and Business is one of the most important modules which students need to major in. group project is the significant concept to help students to understand entrepreneurship and essential position that creativity in problem solving process. Kirkham, Mosey and Binks (2009) state that the process of problem can be three steps: define, discover and determine. The project started from defines a problem, and then use the creativity thinking to discovery a large amount of olutions. Finally, determine the most effective solution.
This process is what the entrepreneurship usually does in their commercial field. Identifying a problem in business, then analyze the business opportunities and use creativity thinking to find potential solutions in the marketplace, eventually decide the most effective way to establish an enterprise. To sum up, entrepreneurship, innovation and economic development are deeply connected. Definition of innovation and entrepreneurship various from people to people, but all these leads to a conclusion that innovation and entrepreneurship are ompanies terms.
Innovation is the basis of the entrepreneurship and entrepreneurship as the source of innovation. In addition, in the process of economic development, all evidences show innovation promotes the economic development and an environment which support by government policies encourages the innovation as well. Entrepreneurship benefit to economic development, although only opportunity entrepreneurship has a positive effect to economy. Though the analysis of creativity and problem solving, recognize the importance role it play in the economic development. words: 1896
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Relationship between entrepreneruship. (2018, Jun 20). Retrieved from https://phdessay.com/relationship-between-entrepreneruship/
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