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CHAPTER II

INTRODUCTION

ENTREPRENEURSHIP

ENTREPRENEUR

THE THEORITICAL PERSPECTIVES.

PSYCHOLOGICAL THEORIES OF ENTREPRENEURSHIP

SOCIOLOGICAL THEORIES OF ENTREPRENEURSHIP

APPROACH TO THE STUDY

COMPETENCY THE CONCEPT AND COMPONENTS

ENTREPRENEURIAL COMPETENCY

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ENTRPRENEURSHIP,ENTREPRENEUR, ENTRPRENEURIAL COMPETENCY

CONCEPTS AND REVIEW OF LITERATURE

INTRODUCTION

Entrepreneurship plays a vital role in the economic development of any country. Around the

world, economically developed countries like Japan, U.S.A., Germany, England and others

have the evidence that the significant advancements in their economies are the outcomes of

the very basic vibrant cause which is otherwise known as entrepreneurship. It can be as well

linked to economic growth and ultimately to the overall prosperity of any nation.

Entrepreneurship is a critical factor in social and economic development of a country has

been amply documented in the literature in development economics ( Baumol 1968 :

Harbison , 1956 : Harbison & Meyer, 1959 : Leibenstein,1968,

1987:Schumpeter,1934,1950),sociology(Cochran ,1971: Etzioni, 1987: Young, 1971),socialpsychology ( Mc Clelland , 1961: Schatz,!965),and strategic management ( Drucker ,1985.)

For example, Schumpeter (1934) viewed entrepreneurship as an engine of creative

destruction involving the carrying out of new combinations, including the introduction of a

new product in to the market, the introduction of a new method of production, the opening of

a new market for output, the discovery of a new source of raw materials, and the creation of

a new form of industrial organization. Despite this recognition of the role of

entrepreneurship in socio economic development, controversy abounds concerning how

entrepreneurship in the developing countries is (or should be) promoted, what is required for

its emergence and so on. Sociologists maintain that certain cultures are more effective in

promoting entrepreneurship (and in fostering socio economic progress) than others (Shapero

and Sokol, 1982: Young, 1971). They suggest a need for a national programme of social

enlightenment to promote entrepreneurial values and related sociological qualities among

non-traditional entrepreneurial classes.

Social psychologists, on the other hand, associate entrepreneurship with certain

psychological characteristics and traits that members of a society exhibit. These traits

include need for achievement (McClelland, 1961), propensity to take risk, and locus of

control (Brockhaus, 1982) and so on. Policy implications stemming from this view have

emphasized the provision of rigorous training to particular individuals in order to instill the psychological qualities necessary for entrepreneurial success. For example, McClelland

(1961) argued that the urge to achieve is the single most important psychological factor for

entrepreneurial success, and that contrary to the views of other psychologists, this trait could

be acquired through education and training. Accordingly, economic development might be

achieved through administering training progrommes that helps individuals to develop

entrepreneurial competency for business start ups in developing countries. The present study

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is an attempt in this direction that entrepreneurship can be promoted across different social

groups subject to the condition that the members of such groups develop their

entrepreneurial competency.

ENTREPRENEURSHIP

Entrepreneurs are the key persons of any country for promoting economic growth. All such

efforts which are made by an entrepreneur is called entrepreneurship. The emergence of

entrepreneurship is directly related to the socio economic development of the society. The

growth of the modernization process, such as, industrialization, urbanization, migration and

the economic reforms initiated in India in 1991 further encourage it. Industrialization as well

as urbanization serve two purposes. First they provide greater opportunities for productive

employment and secondly they function as an instrument of social change. Similar is the

effect of migration. The socio economic development of the country is attained only when

the society creates large number of entrepreneurs from various strata of population,particularly among the socially and economically backward and disadvantaged groups.

Entrepreneurship is an area of interest which has different connotation and it is understood

differently by different people. Entrepreneurship does not need a well developed institutional

support for its emergence but it is also characterized by the conditions associated with

underdevelopment. Therefore the entrepreneur under this condition need not be an

innovator but can very well be an imitator who would imbibe for his enterprise the

organization, technology and products of the innovators in other developed regions.

His role as an imitator is likely to be guided and controlled by the various constraints and

conditions peculiar to his area of operation and the factors under which he conducts his

minimal modest entrepreneurial activity. Ultimately entrepreneurship can be referred to a

forth factor of production and a catalyst of development.

Early studies debate at length the question of how entrepreneurs should be defined. The

debate is not yet concluded and there are n numbers of working definitions and the

justification of which is rarely made clear. Now a day increasing attention is being paid to

entrepreneurship as a component of economic growth. The basis for defining entrepreneurs

has ranged from across the following: According to Cole (1964: 8), to study entrepreneur isto study the cultural figure in modern economic history. For East (1946: 16), to investigate

the role of entrepreneurs is to study the personal function in economic history and to

introduce the problem of the business man. The very definition of entrepreneurship is a

difficult problem. The term entrepreneur has been used not only to denote industrial owner

and manager but also to cultivator (Sayigh. 1962: 26), and educationist (Young. 1971: 147).

Singer (1972: 283) used the term to refer to a Minister of Industries in the Government of

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Tamil Nadu. Traders are also entrepreneurs in the sense that they are combiners and

dispensers of resources .In fact the term entrepreneur was first used to refer to military

expeditions and it meant a person who brought and sold goods at varying prices (Cochran,

1968: 87).

The entrepreneur as a unique risk bearer was identified by Richard Cantillon in the

beginning of the 18th century (Cochran, 1968: 88). For him the most important aspect of an

entrepreneur was his readiness to take risk. Say (1816: 28-29) emphasize the role of

entrepreneur as coordinator and planner of productive resources. It is Schumpeter

(1947:151) who stressed the human element of entrepreneurial function as a major factor in

the process of economic growth. For him innovation was the criterion of entrepreneurship,

which is simply the doing of things that are already done in a new way. Schumpeter

(1947:74-75) calls the carrying out of new combinations asenterpriseand the individuals

whose function is to carry them out as entrepreneurs .These include not only independent

business man but also employees.

Adding another dimension to the concept, Drucker (1985) defines entrepreneurship as

innovation in a business setting. Further, Oison (1985) states entrepreneurship as an

invention, an activity analogous to innovation as a primary entrepreneurial activity. Further,

Carland et al. (1984) proposes that innovation as the critical factor in distinguishing

entrepreneurs from managers and small business owners. Mc Clelland (1961) Hornaday and

Abound (1971) Timmons (1978) Brockhaus (1982) Carland et al. (1984) and Gartner (1990)

state that innovation remains a frequently identified functional characteristic of

entrepreneurs. Timmons (1978) suggested that creativity and innovation were conditions

inherent in the role of entrepreneurship.

Similarly McClelland (1961) conclude that a high need for achievement would influence

the self selection of an entrepreneurial position . Further evidences by Hornaday and

Banker ( 1970 ) Hornaday and Abond (1971) DeCarlo and Lyons (1979) Lachman ( 1980)

and Begley and Boyd ( 1986) show a positive relation ship between achievement

motivation and entrepreneurship. The most pertinent definition of entrepreneurship suitable

for developing countries like India has been provided by Erick and Longford (1997) who

define an entrepreneur as some one who created or seized his or her own business

The various definitions and characteristics of entrepreneurs and entrepreneurship which

evolved in past came from the academicians of advanced countries. But the problem of the

third world countries did not receive so much of attention. These conditions were formulated

from the view point of developed countries. Modern scholars, however, have adopted a

practical approach in understanding the concept of entrepreneurship. It is very obvious that

the entrepreneurs of developing countries are facing specific problems such as, shortage of

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capital and skilled labour, imperfect market and lack of other infrastructural facilities. The

entrepreneurs of such countries have to perform multiple functions to run enterprises

successfully. It seems for them only to concentrate on large scale manufacturing.

It is also important to note that the concept of entrepreneurship is not empirically delineated

in the right perspective and in fact, it is virtually a black box. With all these unresolved

issues, the economic show has been going on in every country of the world basically through

the revolutionary, change, agents called entrepreneurs.

ENTREPRENEUR

The word entrepreneur itself has an interesting history and it appeared first in French

according to Encyclopedia Britannica, long before there was any general concept of an

entrepreneurial function. By the early 16th century men engaged in leading military

expeditions were referred to as entrepreneurs. From this usage it was easy to move toapplying the word entrepreneur to other types of adventures. After 1700, entrepreneur

was a word which was frequently applied by the French to government road, bridge, harbor

and fortification contractors.

The term entrepreneur was first used by Richard Cantillon in his essay on The Nature of

Commerce (1755). According to him an entrepreneur was one who buys factor services at

certain prices in order to combine them to produce a product and sell it at uncertain prices at

the moment at which he commits himself to his costs. This analysis recognizes business

activity as a function and emphasizes the elements of direction and speculation which enter

into entrepreneurial activity. In other words an entrepreneur has the willingness to bear risk.

Cantillon viewed the term entrepreneur from the supply side and ignored the demand side.

Adam Smith (1776) regarded the entrepreneur as a capitalist undertaker (employer).The

undertaker provided his workers, capital and set them to work in order to make a profit, it

is only for the sake of profit that any man employs his capital in support of industry the

produce of which is likely to be of the greatest value, or to exchange (it) for the greatest

quantity either of money or other goods. Further he glorified the role of the capitalist-

employer by saying, By pursuing his own interest he frequently promotes that of the society

more effectively than when he really intends to promote. Thus, Smith regarded theentrepreneur as promoting the interest of society at large, while advancing his own self

interest i.e. profit.

The term entrepreneur was later applied to architects. Seeing such activities as the

entrepreneurial function, Bernard f.de.Bolidor,Says and Hoselitz, defined it as buying labour

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and material at uncertain prices and selling the resultant product at a contracted price.

(Gautam, 1979).

It can also be supplemented with Hoselitzs (1951) words. The word entrepreneur comes

from the French word entreprendre, which means to do some thing , and it was originally

used in the Middle Ages in the sense of a person who is active, who gets things done.

Vesper (1980) mentions that there are 11 types of entrepreneurs operating in the community.

However, all of Vesper's types are private sector related.

Ciastkowski and Vailey (1990) write: "It is of interest to note however that when

entrepreneurs are defined, they are rarely characterized by the pursuit of financial gain. Thus

persons who work in the public or social system might also be defined as entrepreneurs if the

entrepreneurial processes of searching for opportunities and accessing resources are applied

to this public or social role."

J B Say defined entrepreneur as the agent who combines the factors into a productive

organism. He described the entrepreneurs functional role as hiring the factors, combining

them, and overseeing them at work. Say explained that the entrepreneur shifts economic

resources out of an area of lower into an area of higher productivity and greater yield. J S

Mill, following Say, underlined specific entrepreneurial functions: direction, control,

superintendence, and risk bearing. The last function distinguished the entrepreneur from the

manger. For bearing the risk he was rewarded the residual value of the product, which was

termed as profit. He emphasized the function of direction in the productive process and

went on to say that very often it required no ordinary skill. Alfred Marshall, however,

treated profit as a single undifferentiated flow of income, and relegated entrepreneurship to

management, a special variety of brain-labour.

According to A P Usher, the ever-increasing division of labour necessitated a separate

entrepreneurial function, the essence of which lay in coordination of different economic

activities. This view reduced entrepreneurship to no more than a managerial function. J B

Clark in his Dynamic Theory defined profit as a residual payment and thereby

distinguished undertaker-cum-investor or risk-bearer from the manager. Profit was due to

the function of being a pioneer, of affecting changes in economic organizations, andadopting resources to them. Profit was, therefore, the excess of the earnings of the

undertaker over and above his possible alternative incomes interest and wages. This

excess income was due to a monopoly advantage over his rivals.

J A Hobson pointed out that, Profit is great or small according as (the undertaker) can buy

the other factors cheap and sell the produce dear. This is because of the fact that, the

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number of competing entrepreneurs buying other factors is smaller than the number of

separate units of labour-power, capital, and land, which are competing to find buyers, and

the competition of the former is less keen, constant, and ubiquitous than the latter.

According to Prof. Cassel, profit is obtained due to a privileged position which the business

had secured in one or other respects. Profit must be regarded as a rent of position, and the

position, itself has a capital valuation which figures when the business is sold. In this

context, we may recall Clarks revealing statement: If competition rules without let or

hindrance, pure business profit would be annihilated as fast as it could be crated

entrepreneurs as such would never get and keep any income.

According to Maurice Dobb, monopoly was the Aladdins lamp to wealth. It was based on

property right, a right which bars others free access to scarce resources or markets. Further,

according to him, for the wealthy the marginal utility of money was less, and therefore

savings would be more, and the increased possession of wealth would increase the credit

worthiness, of utilizing the resources of others and thereby to enhance the monopoly power.

With Joseph Schumpeter, the term entrepreneur had attained a wider connotation. He

defined the entrepreneur as an inventor, and he included in innovation, introduction of new

products, new production methods, finding new markets, and building up of a new

organization of industry.

He said, The carrying out of new combinations we call enterprise; the individuals whose

function is to carry them out we call entrepreneurs, He attributed profit to innovations,

and once innovations cease capitalism is doomed. Schumpeter viewed development as a

deliberate and actively promoted process by some agency within the system and the agents

who provide economic leadership for initiating such changes are entrepreneurs. To Cole, an

entrepreneur is an individual who undertakes, to initiate, maintain, or aggrandize a profit-

oriented business unit for production, or distribution of economic goods and services.

Knight identified entrepreneur as recipient of pure profit as a reward for bearing the costs of

uncertainty. Uncertainty is identified with a situation where the probability of alternative

cannot be determined either by a priori reasoning or by statistical inference.

A F Barlett saw the entrepreneurs singleness of purpose as his most critical characteristicand ...this is not simply his determination to achieve his objective it is in fact a

concentration of his efforts and his resources on the critical factors that, in his view, create

the ultimate profit generation.

William J. Baumol, distinguishing between an entrepreneur and a manager, opined that, the

entrepreneur (whether or not, in fact, also doubles as a manager) has a different function. It

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is the entrepreneurs job to locate new ideas and put them into effect. He must lead, perhaps

even inspire; and for him todays practice is never good for tomorrow, In short, he is the

Schumpeterian innovator, and something more, who exercises leadership. Baumol,

emphasizing the vital role of the entrepreneurial function in; economic growth, comments:

By ignoring the entrepreneur we are prevented from accounting full for a very substantial

portion of our historic growth.

Harvey Leibenstein defined entrepreneur as, An individual or group of individuals with for

major characteristics: he connects different markets, he is capable of making up for market

deficiencies (gap-filling), he is an input completer, and he creates or expands time-binding,

input-transforming entities (i.e., firms). While the role of Input completion involves

making available such inputs which improve the efficiency of existing production methods,

or facilitate the introduction of new ones, the gap-filling role is akin to the arbitrage

function. His special entrepreneur, in the less developed world, is one who performs most or

all these functions: search, discover, and evaluate economic opportunities, marshal thefinancial resources necessary for the enterprise, make time-binding arrangements, take

ultimate responsibility for management, be the ultimate uncertainty and /or risk bearer,

provide and be responsible for the motivational system within the firm, search and discover

new economic information, translate new information into new markets, techniques and

goods and provide leadership for the work group.

To sum up, an entrepreneur is described as a capitalist-employer seeking profit, a risk-

bearer, a monopolist, a decision-maker, an organizer, an innovator, and a manager. The

compound of all these attributes in operation may be termed as entrepreneurship

THE THEORITICAL PERSPECTIVES.

Entrepreneurship has developed in a systematic way since the beginning of industrial

revolution in Europe. The life-span of its development is a little more than two hundred

years. The data generated from various nationalities and societies have contributed largely

to the formation of various theoretical frame works for analyzing entrepreneurial

development. There has not been any monolithic approach towards theory building in the

field of entrepreneurial development. Various authors have taken multiple approaches to the

study of entrepreneurial development. No single factor therefore works as the onlydetermining variable for the phenomenon of entrepreneurship.

However, there have been efforts to bring out few variables to analyze entrepreneurship. For

instance, ethical values (Spirit) are said to be dominant factors for the growth of capitalism,

i.e., entrepreneurial behaviour (Max Weber). Minority group morale and status withdrawal is

said to be the cordial principle for entrepreneurial development (E. Hagen). Psychological

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need for achievement motivation (David McClelland) is said to be responsible for

accomplishing industrial development. Boulding and Hoselitz argued that it is the political

system which determines the happening of entrepreneurship. For a few others exposure to

new ideas and opportunities (Tripathi and Sharma) explain the occurrence of

entrepreneurship. Thomas Tim berg and K.L. Sharma postulate the importance of family

background in the development of entrepreneurship. However, it must be said that the few

variables as have been suggested by various authors are not the only causative factors. The

stress is on the point that these variables are the important ones out of several variables.

Out of a large number of theories having a bearing on entrepreneurial characteristics,

behaviour and competency, a two-fold categorization has been made for the purpose of the

present study. In the first category are the theories which fall within the realm of

psychology and in the second category is the theories having sociological basis. Those

advocated psychological theories include J.A. Schumpeter, D.McClelland. E.Hagen and

John Kunkel. The theories having sociological orientation are postulated by Max Weber,Cochran, Frank Young and Hoselitz.

PSYCHOLOGICAL THEORIES OF ENTREPRENEURSHIP

J.A. Schumpeter has given a model of economic development. He has identified

entrepreneurial function as a distinctive function, which yields, separate returns, and

entrepreneurial gains as monopoly gains. His concept of innovation is more fundamental

than that of entrepreneurship. Though innovations are fundamental in the process of

economic development, the role of entrepreneurs is equally important. Schumpeter has

visualized innovative type of entrepreneurship in the process of industrialization. In fact,

Schumpeter has over emphasized the creative nature of innovations and creative

entrepreneurship in its strict sense, i.e. the entrepreneur is an innovator who is characterized

by potentialities of doing new things or doing things in a new way.

Thus, according to Schumpeter, an entrepreneur is a person who forces the opportunity and

tries to exploit it by introducing a new product, a new method of production, a new market, a

new source of raw material or a new combination of factors of production. By introducing

new ideas, new processes, new products and services, Schumpeterian entrepreneursultimately renew the economic activities not only of the firms and industries, but also those

of the region in which they are situated. When these entrepreneurial initiatives are

aggregated and evaluated in terms of economic impacts at a territorial level, it could mean

economic growth. Obviously, entrepreneurship is a kind of leadership which makes things

to happen in a way the leader decides rather than an ownership.

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McClelland has explained a model of entrepreneurial development which is rather a

psychological perspective to understand the entrepreneurial growth.McClelland found high

correlation between the need for achievement motivation (n/ach) and successful economic

activities in his study of motivational orientation of American college students. His thesis

was further supported by data on principles of rearing boys who turned out to have high

degree of need for achievement motivation with the underlying motivational structure of

Puritans. To him a person who adds up a column of figures is not an entrepreneur; he is

simply following the established rules. In his theoretical assumption, an entrepreneur is a

man who decides to add a new line to his business; he cannot know in advance whether his

decision will be correct. The theory of entrepreneurship given by him can be seen as

development of Webers protestant Ethic in which an intermediary psychological motive, i.e.

the need for achievement, is introduced.

McClelland generalized the application of his thesis in analyzing entrepreneurial growth of

different communities and societies by interpreting it in the terms of ideologies reflected inliterature, art, history and religion, which according to him, generated the need for

achievement motivation. As Jains and Parsis progressed economically due to high degree of

their need for achievement motivation as a result of their child rearing practices.

McClelland does not differ from Weber and Hagen, because need for achievement

(McClelland) is more or less in the similar sense, as the terms, rationality or economic

rationality given by Weber and increased creativity by Hagen. There is no difference in

saying that the progress made by the Jains, is comparatively more, due to high degree of

n/ach or rationality or due to increased creativity. K.L. Sharma explains that

McClelland comes closer to Weber when he takes legends, child rearing practices and

ideologies as factors generating need for achievement motivation because these reflect

ethical values too. McClelland tries to relate motivation directly with entrepreneurship

assuming that it is the immediate cause of the entrepreneurship. The author more explicitly,

emphasizes the need for achievement or achievement orientation as the most relevant factor

for explaining economic behaviour. The high achievement is very much associated with

better performances which require some imagination, manipulation or new ways of putting

things together. Such people do better in a non-traditional way which requires some degree

of initiative or even inventiveness.

Evertt Hagens approach to entrepreneurial function has much in common withMcClellands conception of entrepreneurship. Hagens theory presents psychological

explanation and his concept of creative personality is also of an individual characterized

by a high need of achievement. This creative personality is interested in accelerating change

driven by a duty to achieve.

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While describing the process of change in any society as the transition to economic growth

Hagen tries to find out the causes of transition. According to him the economic growth has

been very gradual and as such may or may not occur in the same generation but it is more

likely to be an inter-generational change.

Hagen develops the thesis that the disadvantaged minority group is mostly the source of

entrepreneurship. He gives a brief sketch of history of Japan. He indicates that Japan

developed sooner than any non-western society except Russia. He highlights two historical

forces: one, Japanese had been free from colonial disruption and another, the repeated long

continued withdrawal of expected status of Samurais from important groups in the Japanese

society. Hagen observes the child-rearing practices among the Samurais in giving a

particular shape to all the personalities. He argues that the forces of disruption against the

stability of traditional society should be equally powerful to have creative personalities. The

withdrawal of status respect may occur when a traditionally alike group is displaced by

force from its previous status by another traditional group, or when any superior groupchanges its attitude toward a subordinate group, or on migration to other place or a new

society.

Like Hagen, Park and Stonequist also have emphasized that technological innovations are

caused more by the culturally marginal persons than others. Jews and Greeks were such

races. The concept of marginal man is quite similar to the concept of disadvantaged

minority. Frayer also emphasized that Parsis could give lead in Indian entrepreneurship

because traditionally they had enjoyed prestige of which they were deprived later on. Their

strong desire and efforts to revive their lost prestige led them to successful entrepreneurship.

Hagens analysis fails to give policy measures for backward countries which are striving for

economic development as he identifies status withdrawal as the causal factor in the

emergence of creative personality and status withdrawal. On the other hand, Hagens thesis

of disadvantaged minority group has its own limitations. There are many disadvantaged

minority groups such as the Catholics in England, Negroes in the United States and

Scheduled Casts, Scheduled Tribes and Most Backward Casts in India which have not

supplied a good number of entrepreneurs. McClelland modifies Hagens thesis to explain

such cases. The subordination of minority group may develop upon the initial level of

motivation. Such modification can be supported by empirical findings in India whereminority or the disadvantaged groups could not develop their business schemes due to the

lack of social support and the means of development.

John Kunkels theory of entrepreneurial supply is of behavioural model. He presents this

model in contrast to Youngs treatment of social values and psychic needs. Kunkel takes the

position reducing values and personality types to the behaviour patterns from which they are

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inferred. The entrepreneurial behaviour according to Kunkel is a function of the social

incentives.

It is very clear from human economic history that entrepreneurs are not equally distributed in

the population, and the minorities, on the basis of religion, ethnic, migration or displaced

elites have provided most of the entrepreneurial talent but not all the minority groups are the

sources of entrepreneurship. Kunkel argues that the marginal situation is not the guarantee

for the growth of entrepreneurship. There must be some additional significant factors at

work. He further states that the Industrial entrepreneurship depends upon four structures

which are found within a society or community. These are: imitation structure, demand

structure, opportunity structure and labour structure.

According to Kunkel entrepreneurial growth depends on the existence and expends to which

these factors are found in a society and proposes the hypothesis that the incidence of

entrepreneurship depends on both the objective and perceived configuration of the fourstructures. Any discrepancy between objective structures and the actual incidence of

entrepreneurs will be due to inadequate or incorrect perceptions of the various structures.It

is evident, however, that entrepreneurship depends on rather specific combinations of

circumstances which are difficult to create and easy to destroy.

In all, Kunkels model suggests that entrepreneurial behavior is a function of the surrounding

social structure and it is influenced by manipulable economic and social incentives.

Therefore, his model is based upon experimental psychology but identifies sociological

variables as the determinants of entrepreneurial growth.

SOCIOLOGICAL THEORIES OF ENTREPRENEURSHIP

Max Weber analysed religion and its impact on economic aspect of the culture. According

to him, religious beliefs are the driving force for generating entrepreneurial activity. The

beliefs play a very crucial role in determining the future course of action on the

entrepreneurs. Weber was perhaps the first of the social scientists who took the position that

entrepreneurial growth is dependent upon ethical value system of the society.

Weber observed that the spirit of rapid industrial growth depends upon a rationalizedtechnology, acquisition of money and its rational use for productivity and multiplication of

money. These elements denote the spirit of capitalism and are basis for industrial growth.

They depend upon a specific value orientation of individuals and are generated by ethical

values. Weber illustrates his theoretical formulation by the relationship that he found

between protestant ethic and the spirit of capitalism. He holds his thesis true about the other

communities also, e.g. Hindu, Jain and Juda. He argues that the Protestants progress fast in

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bringing capitalism because their ethical value system provided them with rational economic

attitude, while the Jews and Jains fail to develop industrial capitalism because of their value

of Pariha, (i.e. restrictions on having contact of any type with other communities).

Although, Robert Kennedy and Yale also have the same opinion that entrepreneurship

develops faster in those societies where ethical values help to develop independent capacity

of decision making. But Webers stand is not accepted universally. Samuelson criticizes his

thesis and indicates that capitalism also develops in those societies where protestant ethic is

not prevalent. Hoselitz argues that even Protestants could not develop industries in France

because they were not given political security.

In the Indian context, Tripathi observes that the Jains ethic is more rigorous than the Hindu

ethic. It is this reason, Jains should have been economically less developed than Hindus. But

the position is rather reverse. The commercial development of Jains is not due to their ethic

but it is due to their emergence from Hindu Vaishya, i.e. the traditional commercial

community in India. Morris criticizes Weber strongly by pointing out his failure to note thatthere might be ideological unity in India but there is never a unified Hindu value system.

Hindu value system is so diversified that even Jains are influenced by it and there is no

conflict in the ethical and professional values of the people. He also disagrees that caste has

restriction on people of non-business strata to enter manufacturing as he observes that

several Brahmins have entered into manufacturing concerns.

Above all, Carroll makes the conclusion from an empirical investigation of Philippin,

manufacturing entrepreneurs that ethical values have some effect on entrepreneurial growth

but to consider them all in all would be unrealistic. In short, Webers model is not adequate

to explain or to analyse the entrepreneurship in Indian situation as it is developed from the

western social system.

Another sociological theory of entrepreneurship is of Thomas Cochran. His approach of

entrepreneurship is based on the key elements, which are: cultural values, role expectations

and social sanctions. According to him the entrepreneurs are the individuals who represent

model personality of a society. This is to be seen in reference to the prevailing child

rearing practices and schooling common to the culture. As a businessman the performance

of the individuals may be seen in reference to the individuals own attributes towards

occupation, role expectations held by sanctioning groups, social values and the sanctions arethe most important determinants of these factors in the performance of businessmans

entrepreneurial roles.

Frank Young shares Cocharans position as to the role of personality factor. He, in his

theory of entrepreneurship, differs with Cocharan. Cocharan focused on social values and

sanctions in shaping the entrepreneurial activity. But Youngs sole concern is on inter-

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group relation. He does not accept the characteristic of the entrepreneur at the individual

level. He says that instead of individuals, one must find clusters, called entrepreneurial

groups with higher differentiation having the capacity to react. Youngs theory of

entrepreneurship is a theory of change based on societys incorporation of reactive sub-

groups. The reactive ness of a sub-group, if experiences low status in the larger society will

lead to entrepreneurial behaviour, particularly, if the group has better institutional resources

than others in the society at the same level. The model of entrepreneurship presented by

Young suggests creation of supporting institutions in the society as determinates of

entrepreneurship.

Young maintains that entrepreneurial activity is generated by the particular family

background, experiences as a member of certain kind of groups and as a reflection of general

cultural values. A group will become reactive, as per Youngs theory, when the three

conditions coincide: first, when a group experiences low status recognition; second, when

the denial of access to important social networks; and third, when the group has betterinstitutional resources, than other groups in the society at the same level, then the

entrepreneurship emerges.

There is a consensus among some of the sociologists that creative nature of innovations,

need for achievement motivation, disadvantaged minority group morale, ethical value

system, cultural value system, role expectations and social sanctions, and reactiveness of a

sub-group experiences low status in the larger society, etc. cannot fully explain the growth of

entrepreneurship. One should have to consider the political structure of society also.

Political structure of France and Russia was the decisive factor for the growth of

entrepreneurship in these countries. In France (before 1789) and Russia (before 1917)

entrepreneurship did not flourish as the property and power were in the hands of a few

pleasure loving and irresponsible aristocrats. The persons who had opportunities had no

creative ability while others were having no opportunities.

Hoselitz argues that France lagged behind economically as her social structure did not

provide sufficient incentives and security to entrepreneurs. The same thesis he found true

when she observed the case of Japan and India. While explaining the faster growth of small

scale entrepreneurship in Japan in comparison to India, Hoselitz gives two reasons: First,

that the units in Japan leaned towards sub-contracting form due to institutional factors,where as in India sub-contracting system did not evolve due to lack of support of the

institutional factors; and second, that Japanese dual economy persisted in its own impetus,

where as Indian dual economy did so due to deliberate efforts of the government. According

to him, Japanese entrepreneurship could find active expression and resulted in faster

economic progress because her political system properly integrated the industrial and

agricultural economy; large, small and handicraft industries, labour intensive and capital

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intensive technology; traditional and modern social structure; and because of non-existence

of colonial disruption.

On the basis of historical study of entrepreneurial growth in India and a few case studies of

the Indian pioneering entrepreneurs, Tripathi observes that the common factors between

Parsi and Hindu entrepreneurs was not the religious values but their exposure to new ideas

and values. The role of social movement like Brahma Samaj and Arya Samaj, and

expansion of education are very significant in exposing the Indian entrepreneurs to western

ideas leading them to entrepreneurship. K.N. Sharma explains the process of entrepreneurial

spread by analyzing the differential responses of the social groups to the opportunities

provided by the commitment of the political system to industrialization. To explain the

differences in responses, the political and the cultural system were considered by him. He

stated that the Parsis gave a lead because their value system did not refrain them from

developing contacts with Britishers, while Hindu business community could not develop

contacts owing to their religious values, therefore, they lagged behind. Muslims, too, laggedbehind due to their hostile attitudes towards non-Muslims as a result of their religious

beliefs. Therefore, exposure to new ideas as well as opportunities remained very limited.

Tripathi and Sharma both agree on the thesis that exposure to new ideas leads to entry in

manufacturing and success therein. Both of them differed on emphasizing the traditional

collectivities and group affinities based on religion, region and caste (K.N. Sharma) and

formal education (Tripathi).

The impact of regional industrial climate on the growth of entrepreneurship is also an

important factor. Pundit laid stress on the industrial climate. While analyzing the studies of

the Gujarati, Marwari Vaishyas scholars highlight their respective religious values and

certain groups characteristics. But Pundit challenged this interpretation and she argued that

the dominance of Gujarati and Marwari Vaishyas might be explained not in the terms of

ethical values or group characteristics but in terms of the regional factor, i.e. industrial

climate in these regions. She began her study with the question Since Jains and Vaishyas

were in every corner of India, why was it that only Marwari and Gujarati Vaishyas and Jains

gave in entrepreneurship, mostly in Gujarat, and why was that even non-Vaishyas and non-

Jains emerged in entrepreneurship in that area? While interpreting the date she argued that

Gujarat had a climate favorable to business and industry, even the Parsis showed higher

entrepreneurship because they belong to Gujarat. While comparing the industrial climate oftwo cities Ahmedabad and Bombay, she attributes the greater success of Gujarati

entrepreneurs in Bombay than in Ahmedabad due to relatively better industrial climate of

Bombay. The entrepreneurs of Bombay were more pioneering than the entrepreneurs of

Ahmedabad. The arguments of Pundit seem to be more convincing, even then, the group

factors and political structure, too, cannot be ignored altogether.

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APPROACH TO THE STUDY

Early research into entrepreneurship often focused on the psychological characteristics of

entrepreneurs. Trait approaches were often employed, and long lists of entrepreneurial traits

were identified.

Recently, it has been argued that we can identify the potential entrepreneur through the

examination of key attitudes and intentions (Carsrud and Krueger 1995; Krueger and Brazeal

1994; Krueger 1995). Empirical studies show that intention is the single best predictor of

human behavior (Ajzen 1991; Kim and Hunter 1993), and some argue that launching a new

venture should be regarded as intentional as well (Katz and Gartner 1988; Krueger and

Carsrud 1993). Because intentions and the attitudes behind them appear consistent across

cultures (McGrath and MacMillan 1992), formal models of intentions should be applicable

to the study of how people come to see themselves as entrepreneurs.

In entrepreneurship and small business research, a firms performance is often considered

the ultimate criterion in both empirical studies ( Barkham, 1994; Box et al., 1994; Dyke et

al., 1992; Ibrahim and Goodwin, 1986; Learner et al., 1997) and theoretical models (Herron

and Robinson, 1993; Keats and Bracker, 1987; Hofer and Sandberg, 1987). The

entrepreneurs demographic, psychological and behavioral characteristics, as well as his or

her managerial skills and technical know-how ( collectively known as his potentials ) are

often cited as the most influential factors related to the performance of an enterprise .

It has been seen in different studies that entrepreneurial potentials are not found with all

individuals (Learned 1992). Shapero (1981) introduced the notion of entrepreneurial

potential. According to him, potential entrepreneurs surface and take the initiative when an

attractive opportunity presents itself. Individuals perceive opportunities. For an opportunity

to be seized, someone must first recognize it as a personally viable opportunity. When

potential entrepreneurs and opportunities coincide, entrepreneurial behavior may take place,

and a new firm can be founded. Thus, the joint occurrence of two events is critical for the

emergence of entrepreneurship and as a result creation of a new firm. The first is the

presence of an opportunity suited for a new firm and the second is a person who is able and

willing to take advantage of an entrepreneurial opportunity. Hence, before there can be anentrepreneurship, there must be an individual who is competent for entrepreneurship,

whether in a community seeking to develop or in a large organization seeking to innovate

(Krueger and Brazeal 1994).

Measures of entrepreneurial potential often relate to various personality profiles and

demographic characteristics with minimal predictive validity (e.g. Carsrud et al. 1993). It is

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surprisingly difficult to distinguish entrepreneurs from non-entrepreneurs. It is even more

difficult to differentiate the potential entrepreneur, if we rely on personality or demographic

data. Although it has been claimed that personality factors have the least predictability, yet

there are good number of studies to prove that personality factors or characteristics or other

wise known as competency, could well be used to predict entrepreneurship in a given group.

The influence of an entrepreneur is addressed by the competency approach from a process or

behavioral perspective. Entrepreneurial competencies are considered a higher-level

characteristic encompassing personality traits, skills and knowledge, and therefore can be

seen as the total ability of the entrepreneur to perform a job role successfully.

The main advantage of using this approach is that it offers us a way to investigate

entrepreneurial characteristics that have long-term effects and closer links to organizational

performance. Twenty five major areas of entrepreneurial competencies are identified for the

present study which include : Concern for high quality, Self confidence, Locus of control,Dealing with failures, Tolerance for ambiguity, Self esteem, Performance, Initiative, Sees

and acts on opportunity, Persistence, Assertiveness, Need for achievement, Need for

autonomy / power, Risk taking, Drive and energy, Innovation, Creativity, Information

seeking ,Systematic planning, Problem solving, Persuasion, Goal setting & perseverance,

Communication ability, Technical knowledge and Social skills.

As the focus of the model is the central role of the entrepreneur in determining firms

performance, this model implies that developing entrepreneurial competencies is the most

important issue than directly providing more resources and a positive environment to theentrepreneur.

The competency approach is also a way of studying individual characteristics leading to the

accomplishment of a job role or organizational success. It has been widely applied to the

study of managerial performance since the work of Boyatzis (1982), and is increasingly used

in the field of entrepreneurial performance.

In other words, this approach is a response to the need for long-lasting individual

characteristics leading to success, rather than simply skills and abilities, in facing increasing

competition. Therefore, the use of the competency approach matches the long-termorientation characteristic of competitiveness.

While competency can be studied from its inputs (antecedents to competencies), process

(task or behavior leading to competencies), or outcomes (achieving standards of competence

in functional areas) (Mole et al., 1993), we currently emphasize the process or behavioral

approach to studying entrepreneurial competencies in order to be in line with the process

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dimension of the competitiveness condition. This approach assumes that the mere possession

of competencies does not necessarily make an entrepreneur competent. Rather,

competencies can only be demonstrated by a persons behavior and action, which

correspond to the dynamic characteristic of competitiveness.

In terms of a casual relationship, behavior is closer to performance than other entrepreneurial

characteristics, such as personality traits, intentions or motivations (Herron and Robinson,

1993; Gartner and Starr, 1993). According to Bird (1995), competencies are seen as

behavioral and observable but only partly intrapsychic characteristics of an entrepreneur.

Consequently, competencies are changeable and learnable, allowing intervention in terms of

the selection, training and development of entrepreneurship. These natures allow

entrepreneurial competencies to indicate the controllability characteristic of competitiveness.

In sum, the characteristics of entrepreneurial competencies can be investigated from a

process perspective, reflecting the actual behavior of the entrepreneur. They fit into thelong-term orientated, dynamic, and controllable natures of some competitiveness. They can

be considered as higher-level characteristics, representing the ability of the entrepreneur to

perform a job role successfully (Lau et a;., 1999) and encompassing personality traits, skills

and knowledge, which are in turn influenced by the entrepreneurs experience, training,

education, family background and other demographic variables (bird, 1995; Herron and

Robinson, 1993). We have examined previous empirical studies in entrepreneurial

competencies in an attempt to categorize all of the identified competencies into relevant

activities or behavior in business start up and its sustenance. Consequently, the twenty five

competencies are identified for this study.

Moreover, the moderating or interactive relationships suggested imply that there should be a

balance between various competency areas in order to ensure long-term performance. The

approach also calls for a study in the form of qualitative investigations into these

competency areas with an inter industry; inter social groups comparisons and a statistical

validation.

COMPETENCY THE CONCEPT AND COMPONENTS

Literature review suggests that definitions of competency may be drawn from a domain of

knowledge, skill, attitude and performance indicators. The F. E. U define competency as

the possession and development of sufficient skills, knowledge, appropriate attitudes and

experience for success in life roles (F. E.U, 1984).

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Competencies are sufficient knowledge, skills, and abilities of a person to meet a need such

as effective job performance. Boyatzis' (1982) performed a comprehensive study of over

2000 managers and he identified and assessed over a hundred potential competencies. Other

theorists have presented models of leadership and management that reveal general

agreement with Boyatzis' (1982) configuration (Locke et al. 1991; Yukl, 1989).

Competency shall be defined as a set of knowledge, skill and personality variables that are

linked with competent behaviour in a designated field. Confusion surrounds this definition.

Usage of the term competency varies and sometimes skills are called competencies which is

a broader term which encompasses knowledge, personality and behavioral variables as well.

This arises for each of the attributes of competency.

A competency also refers to a behavior or set of behaviors that describes excellent

performance in a given context. It does not refer to those behaviours which do not

demonstrate excellent performance. Therefore, they do not include knowledge, but doinclude applied knowledge or the behavioral application of knowledge that produces

success. In addition, competencies do include skill, but only the manifestation of skills that

produce success. Finally, competencies are not work motives, but do include observable

behaviors related to motives.

In fact competency is a wider concept which embodies the ability of a person to transfer his

skills and knowledge to new situations within the occupational area. It encompasses

organization and planning or work, innovation and coping with non-routine activities.

Definitions of competency may vary in terms of whether personality variables are viewed as

contingency or integral factors of competency. A competency may depend on a set of

personality precursors (Raven, 1984, P96). Furthermore, the works of McBer & Company

have found the soft skills (Personality variables) can be identified to predict performance

in more than 50 professions. This finding followed on from work that found at a series of

soft skills predicted competency in Foreign Service Officers e. g., non-verbal empathy (See

Spencer, 1983). The relation complicated with the suggestion that a competency may be a

feeling that is linked with motivation and high level performance (Arnold, 1988).

However there is some variation concerning what components are included as integral tocompetency. Competent performance may consider being the result of competency, equal to

competency or as a component of competency. It can be suggested that performance is a

result of competencies when it presents separate lists of competencies and performance

indicators (Training Agency, March 1989, 3).

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It appears to be important to recognize the various components of competency. Personality,

knowledge, skill and performance variables need to be considered in any study of

competency. It is important for definitional purposes to clarify how these variables interact

to form a competency.

The profile of entrepreneurs, when we see, reveals that some of them run their business

successfully while others do not. Then the question arises naturally as to what makes the

entrepreneurs successful. In other words, what are the characteristics or qualities of the

successful entrepreneurs?

The possession of certain knowledge ,skill or personality profile called Entrepreneurial

Competency or Traits help the entrepreneurs perform well .In simple words , competency is

an underlying characteristics of a person which leads to his / her effective or superior

performances in a job .A job competence is a good combination of ones knowledge , skill ,

motive etc., which one uses to perform a given job well.

It is important to mention that the existence of these underlying characteristics may or may

not be known to the person concerned. This implies that the underlying characteristics

possessed by an entrepreneur which result in superior performance are called entrepreneurial

competency.

ENTREPRENEURIAL COMPETENCY

Entrepreneurial competency refersto the sum of the entrepreneurs requisite attributes forsuccessful and sustainable entrepreneurship (Kiggundy, 2002). According to Kiggundy,

these attributes include attitudes, values, beliefs, knowledge, skills, abilities, personality,

wisdom, expertise (social, technical, and managerial), mindset, and behavioral tendencies.

Cunningham and Lischeron (1991) identified six schools of thought on entrepreneurship that

explain what constitutes an entrepreneur. Of the six schools, three assert that entrepreneurial

traits are innate and cannot be developed or trained in the classroom. The other three schools

of thought hold that entrepreneurial skills and competencies can be acquired through formal

training

Responding to the need to produce people with the necessary entrepreneurial competencies,training academies like EDI Ahamadabat provide work-based learning programs in order to

simulate an environment in which these competencies can be developed.

There are suggestions in the literature that entrepreneurial attributes are associated with high

level performance and perceived competence (Arnold, 1985). This study showed that

perceived competency is related to intrinsic motivation and a high level of performance

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when causes for competency are attributed to personal factors (Arnold, 1985). Freedman &

Phillips also maintain the relevance of internal locus of control to the ability to maintain

stronger feelings of competence and self-determination (Freedman & Phillips, 1985).

Entrepreneurial attributes of motivation and internal locus of control appear to be very

relevant to a perception of competency. Pay rewards, for instance, appear to have no effect

on perceived competence, causal attribution of competence, motivation or performance

(Arnold, 198e). This study suggests that highly competent performance may be cultivated

by developing motivation. Motivation depends on perceiving that one is competent and

attributing this competence to personal ability and personality (Arnold, 1985).

The relation between enterprise and competence is further supported by Raven (Raven,

1984). He claims that competent behavior is dependant on many enterprise attributes.

These attributes refer to the motivation and ability to take the initiative and responsibility

(Raven, 1984, P96). Competence also depends on the understanding of concepts of risk-taking, efficiency, leadership, responsibility, accountability, communication, participation

and wealth (Raven, 1984, ap96).

It appears that there is some overlap between the attributes associated with competence and

enterprise. However, Ravens claim implies that one cannot be competent without being

enterprising.

It is important to consider methods of identifying competencies in the context of an activity

or job, given the abstract nature of competency. It has been argued that the assessment of

competency has better predictive validity than intelligence testing for predicting job success

(McClelland, 1973). Furthermore, a study of professional competence revealed that it is

more related to superior performance than amounts of knowledge (Klemp, 1977).