ECONOMIC AND SOCIAL FACTORS AFFECTING ENTREPRENEURIAL GROWTH

The emergency and development of entrepreneurship is not a spontaneous one but a dependent phenomenon of economic, social, political, psychological factors often nomenclatures as supporting conditions to the entrepreneurship development. These conditions may have both positive and negative influences on the emergence of entrepreneurship. Positive influence constitute facilitate and conducive conditions for the emergence of entrepreneurship, whereas negative influences create inhabiting milieu to the emergence of entrepreneurship. There are certain factors, which works as “supportive conditions”. These factors are broadly classified into economic and non-economic factors. While economic factors consist of capital, labor, raw material and market; non-economic factors include social and psychological factors like legitimacy of entrepreneurship, social mobility, marginality, security, need achievement, withdrawal of status respect, etc. the government actions also influence the emergence and development of entrepreneurship in a economy.

ECONOMIC FACTORSFrom a strictly economic viewpoint, it can be said that the same factors, which promote economic development, account for the emergence of entrepreneurship also. Some of these factors are discussed in below:

1. Capital: Capital is one of the most important prerequisites to establish an enterprise. Availability of capital facilitates the entrepreneur to bring together the land of one, machine of another and raw material of yet another to combine them to produce goods. Capital is, therefore, regarded as lubricant to the process of production. Our accumulated experience suggests that with an increase in capital investment, capital-output ratio also tends to increase. This results in increase in profit, which ultimately goes to capital formation. This suggests that as capital supply increases entrepreneurship also increases.

Labor: the quality rather quantity of labor is another factor, which influences the emergence of entrepreneurship. It is noticed that cheap labor is often less mobile or even immobile. In addition, the potential advantages of low-cost labor negated by the deleterious effect of labor immobility. Division of labor is an important element in economic development. Division of labor which itself depends upon size of the market leads to improvement in the productive capacities of labor due to an increase

in the dexterity of labor. Notwithstanding, it appears that the labor problem clearly MOBILITY OF

ENTREPRENEURSHIP

Since human life between two poles- movement and settlement. Movement of entrepreneurs from one location to another and one occupation to another has certain distinct features of its own kind which affect the pace and pattern of entrepreneurship development. Various factors like one’s education and experience, availability of facilities, political conditions, etc. Influence the entrepreneurs to move from one location and occupation to another. Occupational mobility takes place in the forms of ‘inter-generation occupational mobility’ and ‘intra-generation occupational mobility’. Given the limited resources and information, the entrepreneurs tend to establish their units at their own places, i .e., homelands. With increase in their resources and information flows, the spatial horizons of the entrepreneurial mobility tend to expend from local to regional, national and international arena. The major factors influencing mobility and its types are discussed below.

Factors infusing mobility There cannot be a common factor infusing all entrepreneurs to move from one location to another and similarly from one occupation to another. In fact, different factors influence the entrepreneurial mobility differently. These factors may serve as ‘pull’ and

‘push’ factors. Following are some important factors which generally influence the entrepreneurial mobility in a given situation and time:

1. Education: education enlarges one’s thinking and understanding horizons. It enables one to comprehend conditions more easily and clearly and in a better manner. An educated person can easily adjust with the changed environment, hold better discussion and communicate in a more convincing manner. That an educated entrepreneur tends to be more mobile than an uneducated one is supported by empirical evidences also.

2. Experience : an entrepreneur’s experience in the business and industry also increases his propensity to move. An experienced entrepreneur better perceives the available opportunities, better analyses his strengths and weakness and also better understands the complexities involved in running an enterprise. That the technical experience influences the entrepreneurial mobility is indicated by an increasing number of people with technical knowledge and experience assuming to the entrepreneurial roles at distant places.

3. Availability of facilities : a tendency is noticed among the entrepreneurs to move from the areas with no or less facilities to the areas with more or better facilities. The reason lies in the fact that these have proximity to various agencies, facilities like transport, communication, power, market, etc.

4. Political conditions : entrepreneurial mobility is influenced by political factors. For example, many well known enterprising communities lost everything during the partition and were compelled to move to every corner of the country in pursuit of profit and opportunities.

5. Size of enterprise: larger business houses are found more mobile than smaller ones. Initially, entrepreneurs try to consolidate their business position at a place, scale the commanding heights in the area, attain the dominating position and thereafter try to successfully seize the business opportunities elsewhere. The Indian business giants / houses like Tata, Birla, and Ambani etc. Represent such examples.

Types of mobility:

Occupational mobility: The occupational mobility denotes movement or changes in occupation. This may take place in two forms. It may be a movement of son/daughter from the principal occupation of his/her father or it may be a drift in one’s own occupation during his/her occupational career. The first type of movement is called ‘inter-generation occupational movement’ and the second type of change is referred as ‘intra-generation occupational movement’. The mobility is called ‘horizontal’ when it takes place between the occupational classes of the equal rank and ‘vertical’ when it occurs between classes of unequal rank.

Location mobility: The early theories of industrial location carried out the analysis’ on a simple framework where the location and spatial diversification were simply determined by an adjustment between location and weight distance characteristics of input and outputs. The reason is that the then industrial structure was heavily dominated by the natural resources base and consumer-oriented industries. However, over the period, the very consideration for locating industries in a particular region has undergone a considerable change. So, the early theories of industrial location have become improper to explain industrial location. Consideration of the availability of natural resources in the choice of industrial location has declined and the industries are likely to be established even in those areas with poor natural endowment. This holds especially true in the case of industries,

which are not heavily biased, in favor of raw material source for their location. It is seen that such industries are gaming increasingly greater importance in the industrial map of India during the recent decades.

Several considerations influence an entrepreneur to move to a particular area/location to establish his industry. Moreover, in this lies the significance of the location entrepreneurial mobility from one place to another.

Ownership structure

Choice of a proper form of organization is crucial for the success of a business enterprise. Every entrepreneur has to decide, at the outset the type of ownership organization in, which his enterprise has to be run. Choice of form of business organization is crucial because it determines the risk, responsibility and control of the entrepreneur as well as the division of profits. It is the long term decision because the form of organization cannot be changed frequently. The right form of organization can help the enterprise not only through initial success but in later growth too. Therefore, the form of ownership organization should be selected after due care and thought.

Before discussing the different aspects of entrepreneurship i.e., type of ownership, it is necessary to discuss the various forms of organizations and their merits and demerits. From the viewpoint of ownership, the choice can be made from four main forms. These are:

1. Sole proprietorship2. Partnership3. Joint stock company, and4. Co-operative enterprise

1. Sole proprietorship: Sole proprietorship or individual proprietorship (also called ole trade organization) is the simplest and oldest form of ownership organisation.it is a business owned and controlled by one person. The individual may borrow money and employ assistants. However, he is alone responsible for the results of the business. The individual who establishes the business is known as sole proprietor or individual proprietor or sole trader. It does not require legal recognition and attendant formalities.

“The one-man control is the best in the world if that man is big enough to manage everything”.

“The sole proprietor is that form of business organization which is owned and controlled by a single individual. He receives all the profit and bears all the risks in the success or failure of the enterprise”.

Thus, sole proprietorship is established, financed, owned and managed by a single individual who bears all the risks and receives its gains.

Main features:

The main features of proprietorship form of business owners can be listed as follows:

1. One man ownership : in proprietorship, only one man is the owner of the enterprise.

2. No separate business entity : no distinction is made between the business concern and the proprietor. Both are one and the same.

3. No separation between ownership and management : in proprietorship, management rests with the proprietor himself. The proprietor is the manager also.

4. Unlimited liability : unlimited liability means that in case the enterprise incurs losses, the private property of the proprietor can also be utilized for meeting the business obligations to outside parties.

5. All profits or losses to the proprietor : being the sole owner of the enterprise, the proprietor enjoys all the profits earned and bears the full burnt of all losses incurred by the enterprise.

6. Fewer formalities : a proprietorship business can be started without completing much legal formality. Some business too can be started simply after obtaining necessary manufacturing license and permits.

Advantages The various advantages of proprietorship are as follows:

1. Simple form of organization : proprietorship is the simplest form of organization. The entrepreneur ca starts his enterprise after obtaining license and permits. There is no need to go through the legal formalities. For starting a small enterprise, no formal registration is statutorily needed.

2. Owner’s freedom to take decisions : the owner, i .e. the proprietor is free to make all decisions and reap all the profits from its labors. There is no other person who can interface or weigh him down.

3. High secrecy : secrecy is another major advantage offered by proprietorship. This is because the whole business is handled by one person, as such business secrets are known to him only. The proprietor is not bounded to reveal or publish his accounts.

4. Tax advantage : as compared to other form of ownership, the proprietorship form of ownership enjoys certain tax advantages.

5. Easy dissolution : in proprietorship business, the entrepreneur is al in all . As there are no co-owners or partners, therefore, there is no scope for the difference of opinion in the case the proprietor/entrepreneur wants to dissolve the business. This is due to the easy formation and dissolution; proprietorship is often used to test the business ideas.

6. Disadvantage

The proprietorship form of ownership suffers from disadvantages also. The important ones are:

1. Limited funds : a proprietor has limited resources at his command. The proprietor mainly relies on his funds and savings and, to a limited extent, borrowings from relatives and friends. Thus, the scope foe razing funds is highly limited in proprietorship. This, in turn, deters the expansion and development of an enterprise.

2. Limited ability : proprietorship is characterized as one man show. One man may be expert in one or two areas but not in all areas like production, finance,

marketing, personnel, etc. Then, due to lack of adequate driveling knowledge, the decision taken by him is imbalanced.

3. Unlimited liability : proprietor is characterized by unlimited liability also. It means that in case of loss, the private property of the proprietor will also be used to clear the business obligations. Hence, the proprietor avoids taking risk.

4. Limited life of enterprise form : the life of a proprietary enterprise depends solely upon the life of the proprietor. When he dies or becomes insolvent or insane or permanently incapacitated, there is very likelihood of closure of enterprise, say, enterprise also dies with its proprietor.

2. Partnership:

As a business enterprise expands beyond the capacity of a single person, a group of person has to join hands together and supply the necessary capital and sills. Partnership firm thus grew out of the limitations of one man business. Need to arrange more capital, provide better skills and avail of specialization led to growth of partnership form of organization.

“A partnership is an agreement among two or more persons to carry on jointly a lawful business and to share the profits arising there from. Persons who

Enter into such agreement are known as ‘partners’ and collectively as ‘firm’”.

Main features

The main features of partnership form of business organization/ownership are as follows:

1. More persons : as against to proprietorship, there should be atleast two persons subject to a maximum of ten persons for banking business and twenty of non-banking business to form a partnership firm.

2. Profit and loss sharing : there is an agreement among the partners to share the profits earned and losses incurred in partnership business.

3. Contractual relationship : partnership is formed by an agreement-oral or written-among the partners.

4. Existence of lawful business : partnership is formed to carry on some lawful business and share its profits and losses. If the purpose is to carry some charitable works, for example, it is not regarded as partnership.

5. Utmost good faith and honesty: a partnership business solely rests on outmost good faith and trust among the partners.

6. Unlimited liability : l ike proprietorship, each partner has unlimited liability in the firm. This means that if the assets of partnership firm fall short to meet the firm’sandeep obligations, the partners’ private assets will also be used fro the purpose.

7. Restrictions on transfer of shares : no partner can transfer his share to any outside person without seeking the consent of all other partners.

8. Principal0agent relationship : the partnership firm may carry on by all partners or any of them acting for all . While dealing with firm’sandeep transactions, each partner is entitled to represent the firm and other partners. In this way, a partner is an agent of the firm and of the other partners.

AdvantagesAs an ownership of business, partnership offers the following advantages:

1. Easy formation : partnership is a contractual agreement between the partners to run an enterprise. Hence, it is relatively ease to form. Legal formalities

associated with formation are minimal. Though the registration of partners is desirable, but not obligatory.

2. More capital available : we have just seen that sole proprietorship suffers from the limitation of limited funds. Partnership overcomes this problem, to a great extend, because now there are more than one person who provide funds to the enterprise. It also increases the borrowing capacity of the firm. Moreover, the lending institutions also perceive less risk in granting credit to a partnership than to a proprietorship because the risk of loss is spread over a number of partners rather than only one.

3. Combined talent, judgment and skill : as there is more than one owner in partnership, all the partners are involved in decision making. Usually, partners are pooled from different specialized areas to complement each other.

4. Diffusion of risk : you have just seen that the entire losses are borne by the sole proprietor only but in case of partnership, the losses of the firm are shared by all the partners as per their agreed profit-sharing ratios. Thus, the share of loss in case of each partner will be les than that in case of proprietorship.

5. Flexibility : l ike proprietorship, the partnership business is also flexible. The partners can easily appreciate and quickly react to the changing conditions. No giant business organization can stifle so quick and creative responses to new opportunities.

6. Tax advantage : taxation rates applicable to partnership are lower than proprietorship and company forms of business ownership.

7. Protection for minority interest: no basic changes in the rights and obligations of partners can be made without the unanimous consent of all the partners. In case a partner feels dissatisfied, he can easily retire from or he may apply for the dissolution of partnership.

8. Better human and public relations: due to a number of representatives (partners) of the firm, it is possible to develop personal touch with employees, customers, government and the public. Healthy relations with the public help to enhance the goodwill of the firm and pave the way for steady progress have the business.

9. Business secrecy : it is not compulsory for a partnership firm to publish and file its accounts and reports. Important secrets of business remains confined to the partners and are unknown to the outside world.

Disadvantages In spite of above advantages, there are certain drawbacks associated with the partnership form of

business organization. Descriptions of these drawbacks/disadvantages are as follows:

1. Unlimited liability: in partnership firm, the liability of partners is unlimited. Just as in proprietorship, the partners’ assets may be at risk if the business cannot pay its debts.

2. Lack of continuity: death of one partner causes the partnership to end. Therefore, there remains uncertainty in continuity of partnership.

3. Risk of implied authority: each partner is a sgaent for the partnership business. Hence, the decisions made by him bind all partners. At times, an incompetent partner may lend the firm into

difficulties by taking wrong decisions. Risk involved in decision taken by one partner is to be borne by other partners also.

4. Lack of harmony : the success of partnership depends upon mutual understanding and co-operation among the partners continued disagreement and bickering among the partners may paralyses the business or May results in untimely death. Lack of a certain authority may affect the efficiency of the firm. Decisions may be delayed.

5. Limited resources: the amount of financial resources in partnership is limited to the contributions made by the partners. The number of partners cannot exceed 10 in banking business and 20 in other types of business. Therefore, partnership form of ownership is not suited to undertake business involving huge investment of capital.

6. Non-transferability of interest : no partner can transfer his share in the firm to the outsider without the unanimous consent of all partners. This makes the investment in a partnership firm non-liquid and fixed. An individual’sandeep capita is blocked.

7. Public distrust: a partnership firm lacks the confidence of public because it is not subject to detailed rules and regulations. Lack of publicity of outs affairs undermines public confidence in the firm.

3. Joint stock company With the growing needs of modern business, collection of vast financial and managerial resources

became necessary. Proprietorship and partnership forms of ownership failed to meet these needs due to their limitations, e. G, unlimited liability, lack of continuity and limited resources. The company form of business organization was evolved to overcome these limitations. Joint Stock Company becomes the dominant form of ownership for large scale enterprise because it enables collection of vast financial and managerial resources with provision for limited liability and continuity of operations.

a joint stock company’s an incorporated and voluntary association of individuals with a distinctive name, perpetual succession, limited liability and common seal, and usually having a joint capital divided into transferable shares of a fixed value.

a company can be defined as “an artificial being, invisible, intangible and existing only in contemplation of law; begin the mere creature of law it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence; and the most important of which are immortality and individuality”

A company means “an association of many persons, who contribute money or money’s and worth to a common stock and employ it for a common purpose. The common stock so contributed is denoted in money and is the capital of the company. Te persons who contribute it or to whom it belongs are members. The proportion of capital o which each member is entitled is his share.”

Main features Based on the above delimitations, given below are the main features of company form of

ownership:1. Artificial legal person : a company is an artificial person by law. Through it has no body, no

conscience, still it exist as a person. Like a person, it can enter into contract in its own name and likewise may sue and be sued in its own name.

2. Separate legal entity : a company has a distinct entity separate from its members or shareholders. Therefore, a shareholder of the company can enter into contract with the company. He can sue the company and be sued by the company.

3. Common seal : being an artificial person, company cannot sign the documents. Hence, it uses a common seal on which its name is engraved. Putting the common seal on papers relating to company’s and truncations makes them binding on the company.

4. Perpetual existence : unlike partnership, the existence of a company is not affected by the death, lunacy, insolvency or retirement of its members or director. This is because the company enjoys a separate legal existence from that of its members. It is created by law and is dissolved by law itself.

5. Limited liability : liability of a limited company of the members of a company is limited to the value of the shares subscribed to or to the amount of guarantee given by them. Unlimited companies are an exception rather than the general rule. In a limited company, members cannot be asked to pay anything more than what is due or unpaid on the shares held by them even if the assets of the company are insufficient to satisfy in full the claims of its creditors.

6. Transferability of shares : the member of a public limited company can sell to shares to others without the consent of other shareholders. He has to follow the procedure laid down in the companies act for transferring his shares. However, there are restrictions for transferring shares to others in case of private limited company.

7. Separation of ownership and management : the number of members in a public limited company is generally very large so that not all of them or most of them can take active part in the day-to-day management of the company. Therefore, they elect their representatives, known as directors, to manage the company on their behalf.

8. Incorporated associations of persons : a company is an incorporated or registered association of persons. One person cannot constitute a company under the law. In case of public limited company, the minimum number of persons is seven and there is no maximum limit. But, for a private limited company, the minimum number of members is two and the maximum number is fifty.

Private and public companies:

1) Private company: it is a company which by its articles of association,a) Restricts the right of its members to transfer shares, if any:b) Limits the number of its members to 50, excluding members who are or were in the

employment of the company; andc) Prohibits any invitation to the public to subscribe for any shares in, or debentures of, the

company. The minimum number of members required to form a private company is two. Such company must use the word ‘private’ in its name. A private company enjoys special privileges and exemptions under the companies act.

2) Public company: a public company means a company, which is not a private company. In other words, a public company is one which

a) Lays down no restrictions on the transfer of its shares;b) Does not limit the maximum number of its members; andc) Can invite public for subscribing to its shares and debentures.

d) At least seven persons are required to form public company. advantages of company organization The company form of business ownership has become vary popular in modern business on accounts of its several advantages:

1. Limited liability: shareholders of a company are liable only to the extent of the face value of shares held by them. Their private property cannot be attached to pay the debts of the company. Thus, the risk is limited and known. This encourages people to invest their money in corporate securities and, therefore, contributes to the growth of the company form of ownership.

2. Perpetual existence: death, insanity, insolvency of shareholders or directors does not affect the company’s existence. A company has a separate legal entity with perpetual succession.

3. Large finance resources: company form of ownership enables the collection of huge financial resources. The capital of a company is divided into shares of small denominations so that people with small means can also by them. Benefits of limited liability and transferability of shares attract investors. Different types of securities may be issued to attract various types of investors.

4. Continuity: a company enjoys uninterrupted business life. As a body corporate, it continues to exist even if all its members die or desert it. Because of its stable nature, a company is best suited for such types of business, which requires long periods to mature and develop.

5. Transferability of shares: a member of a public limited company can transfer his shares without the consent of other members. Shares of public companies are generally listed on stock exchanges so that people can easily buy and sell them. Facility of transfer of shares makes investments in companies liquid and encourages investment of public savings into the corporate sectors.

6. Professional management: due to its large financial resources and continuity, a company can avail of the ser

2. Does not prevent entrepreneurship from emerging. For example, the problem of low-cost immobile labor can be circumvented by plunging ahead with capital-intensive technologies. It can be dealt by utilizing labor-intensive methods. By contrast, the disadvantages of high-cost labor can be modified by introduction of labor saving innovations. Thus, it appears that labor problems can be solved more easily than capital can be created.

3. Raw Material: The necessity of raw materials hardly needs any emphasis for establishing any industrial activity and, therefore, its influence in the emergence of entrepreneurship. In the absence of raw materials, neither any enterprise can be established nor can entrepreneur be emerged. Technological innovations can compensate for raw material inadequacies. The lack of raw material clearly does not prevent entrepreneurship from emerging but influenced the direction in which entrepreneurship took place. In fact, the supply of raw material is not influenced by them but becomes influential depending upon other opportunity conditions. The more favorable these conditions are, the more likely is the raw material to have its influence on entrepreneurial emergence.