Entrepreneurship: Myths and facts

By Dr. Y. Ratnayake, former director of the Institute of Bankers of Sri Lanka.

Introduction:

Entrepreneurship development, a polemic and much-hyped subject discussed at the global level, is recognised as a well-tested economic strategy for accelerating the economic development of any country since it is a self-propelled mechanism energised by the profit motive of individuals in society. Contributions made by entrepreneurs to the growth of national wealth and thereby to economic advancement have been proven with axiomatic evidence both in developed as well as developing countries, and therefore economic planners have placed much emphasis on the development strategies evolving around entrepreneurship promotion. 

According to the secondary data available, entrepreneurship-based economic development strategies have supposedly produced exponential growth momentum in India, Vietnam, Thailand, and China, inter alia, in the last few decades, irrespective of the different approaches that have been employed in those countries depending on their development visions and political philosophy. Apart from economic propulsion generated by entrepreneurs, their efforts transformed into enterprises are capable of producing multiple spillover effects, such as the generation of employment opportunities at low capital investment, mobilisation of idling economic resources into the mainstream of development, reduction of disparity in income distribution, etc., which vastly ease out the burden of government responsibility on the one hand and minimise the disbursement of taxpayers’ money on the other hand for discharging its economic and social obligations such as poverty alleviation and reduction of disparity in income distribution.

Ambiguity of Definitions

In the simplest terms, entrepreneurs are individuals who run enterprises by utilising different economic resources to make profits through creating meaningful exchanges between the enterprise and its prospective customers. Nonetheless, this simple definition appears to be amateurish in the face of different dimensions brought into the subject arena by numerous management specialists like Peter Drucker, who is of the view that all businessmen are not entrepreneurs. A meta-analysis of the related literature and empirical data available in the public domain regarding business failures corroborates the fact that starting a business alone is not sufficient testimony to prove the existence of entrepreneurship and therefore cannot be applied to adjudicate the existence of entrepreneurship with all business entities or their owners.

Even though entrepreneurs in different countries share some ubiquitous characteristics, they may also demonstrate certain traits that are ethnocentric, geocentric, and nationality-oriented. The link between entrepreneurship behaviour and cultural values is well expounded by Hofstede (1980) in his theoretical model, showcasing Turkey. It observes the existence of positive influence exerted by the national culture on designing the fabric of entrepreneurship in any country, irrespective of its location. 

A plethora of definitions can be found in the academic writing on entrepreneurship, among which Onuoha (2007) describes it as the practice of starting new organisations or revitalising mature organisations, particularly new businesses in response to identified opportunities. Schumpeter (1965), a widely recognised authority on the subject, defines entrepreneurs as individuals who exploit market opportunity through technical and/or organisational innovation. Frank H. Knight (1921) and Peter Drucker (1970) perceive entrepreneurship as risk- and challenge pursuing. For Bolton and Thompson (2000) entrepreneurs are individuals who habitually create and innovate in designing objects of recognised value with the purpose of capitalising on the opportunities perceived by them. Hisrich (1990) states that an entrepreneur is characterised as someone who demonstrates initiative and creative thinking, is able to organise social and economic mechanisms to turn resources and situations into items of social value, and has strengths to navigate through both risks and failures. Although some of the above definitions are based on the fringe characteristics of the reference group, none of them can be rejected as irrelevant since entrepreneurs always demonstrate multifaceted talents and behavioural characteristics subject to different degrees of variation.

An overview of different definitions can lead to a categorisation of the subject under four headings encompassing economic, sociological, business, and behavioural, all of which are characterised by ubiquitous as well as distinctive attributes of entrepreneurs. For economists, entrepreneurship is a phenomenon related to the human talent that enables the possessor of such talents to utilise the other three factors of production, namely land, labour and capital, to begin a productive enterprise. It is interesting to note that economists clearly distinguish labour from entrepreneurship, although it is a competency provided by human beings similar to that of labour.

The sociology of entrepreneurship analyses the social context, process, and effects of entrepreneurial activity in the human paradigms. Within this perspective, ‘‘entrepreneurship’’ can be construed either narrowly as purposeful action leading to the creation of new formal organisations or more broadly as any effort to introduce durable innovations in routines, technologies, organisational forms, or social institutions. Research in the sociology of entrepreneurship tends to differ from related work in industrial psychology and economics.

Business point of view considers entrepreneurship as the process of creating, developing, and managing a new business venture with the aim of generating profits or creating value. Furthermore, the entrepreneur is a bearer of risks mainly in relation to the financial investment in establishing and running a business, using innovative ideas and strategies to capitalise on market opportunities. The main motive that propels the entrepreneurial goals, according to this interpretation, is the profits for the achievement of which the person may handpick the appropriate tools from the entrepreneurial armoury as long as such tools serve the entrepreneur’s business purpose. A contrast between entrepreneurship and the war of attrition can perhaps be brought into focus for the purpose of clarifying the concept since in both scenarios the guiding philosophy is stated as the end justifies the means. Business magnates who mercilessly exploit resources and capitalise on market opportunities, sometimes stamped as robber barons, can be cited as specimen individuals belonging to this category, although some social scientists disagree with the tenet that all businessmen are entrepreneurs.

The behavioural perspective of entrepreneurship clearly distinguishes entrepreneurs from ordinary human beings on the basis of entrepreneurs’ unique behavioural traits influenced by their outlook towards life, society and value proposition. This may be further expounded on the line of MacGregor’s categorisation of individuals as X and Y types, where entrepreneurs are, without doubt, fall into the category of Y.

Induced/Incubated Entrepreneurship

Many countries both in the southern and the northern hemisphere, having recognised the potency of entrepreneurship development as an economic strategy, have embarked on numerous entrepreneurship promotion programs by allocating enormous amounts of public funds on a priority basis at a very high opportunity cost to their national economies. In this context, the neighbouring countries of Sri Lanka, namely India, China, and Vietnam, inter alia, are supposed to have achieved noteworthy success in entrepreneurship development programmes in numerical terms but there is no consensus on whether the benefit-cost ratio of such programmes is justifiable, except in China, in view of the enormous amounts of public funds disbursed by those countries. 

In contrast, Chinese entrepreneurs are relatively more successful because of their adaptability, relentless work ethics, and ability to innovate within the fast-paced, competitive environment of China’s emerging economy. Their success is also propelled by a unique fusion of traditional Chinese values and a keen eye for global business trends, harnessing a powerful combination of local knowledge and international outlook. Being in an environment that encourages the rapid growth of new industries and businesses also provides fertile ground for entrepreneurial ventures. Juxtapose how rapidly Chinese entrepreneurs responded to Western products and technical widgets introduced to the market by producing accessories, supplementary items, and cheaper versions of the same products that sprang to the market in no time to fill the unattended vacuum accompanied by the new Western electronic epiphany. Chinese entrepreneurs are so versatile, and their values, business ethics, and innovative capacity encounter no restriction when it comes to business and money, which, according to some Chinese, is their god. 

In Vietnam, the percentage of adults who believe they have entrepreneurial capabilities has risen from 34 in 2013 to 57 in 2015, bringing it closer to the average of 66 percent in other factor-driven economies. In addition, Vietnam’s established business ownership rate is reported at 19.6 percent, placing it in the third place out of 60 ranked countries on this measure. Added to this, the number of new business registrations grew by 26.6 percent between 2014 and 2015, while the total registered charter capital in 2015 grew by 39.1 percent over the previous year. Despite this, the number of businesses that temporarily ceased operating was 22.4 percent higher in 2015 than that of the previous year, signifying a ubiquitous ailment that prevails in the SME sector irrespective of locational differences. Another salient characteristic of entrepreneurs in Vietnam is the scant attention given by the enterprises to the quality of their products and services since they are mainly driven by a quick profit mentality rather than building a long-standing and sustainable business.

Entrepreneurship Promotion in Sri Lanka

In Sri Lanka, entrepreneurship development has been merged with economic strategy, beginning mainly in the 1960s with the establishment of institutional infrastructure through the promulgation of parliamentary acts to provide the necessary extension and support services to prospective entrepreneurs. In this context, the first formal arrangement made by the government was the establishment of the Department of Small Industries, anticipating it to perform a pivotal role in the implementation of SME development programmes in accordance with the government policy framework. Subsequently, institutional infrastructure was further broadbased in an ad hoc style to the extent that SME sector has finally proliferated with numerous, perhaps with boondoggles, government institutions and statutory bodies, which mainly provided opportunities to politicians of the ruling party for showing gratitude to their electoral organisers by way of providing employment opportunities in such institutions.  Some of the major organisations engaged in the promotion of entrepreneurship, conceding that there exist some differences in the nomenclature used by them, are the Industrial Development Board, National Youth Council, Small Enterprise Development Authority (SED), National Enterprise Development Authority (NEDA), National Apprentice and Industrial Training Authority (NAITA), National Crafts Council, Ministry of Industries, and Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL), which maintain their own service domain and separate policy specifications for all their functional purposes based on which the existence of such statutory bodies is justified. As it has been observed in the public media, some leading figures in politics in Sri Lanka, who have no iota of experience in business or work culture have expressed their future ambitions to create entrepreneurship waves in the event of their being elected to the political saddle of the country which, as a whole, can be construed as barren blathering or pipe dreams of inept politicians. 

The total cost incurred by the above institutions consists of administrative expenditure, salaries and emoluments, capital costs, and recurrent expenses, which must be totalled up to a thumping amount that is financed by the government on a perpetual basis. Thousands of employees hired into the permanent cadre, mainly clerical and semiskilled job categories, are supposed to be adding a further burden to the already bloated public sector, which is out of proportion in terms of actual personnel needs. One may be surmised to question whether the competency level of extension officers of those organisations is adequate enough since a large majority of them have meager or no industry exposure, for guiding prospective entrepreneurs who grapple with innumerable business challenges every day in both dynamic and volatile markets.

In line with the above annotations, a research study conducted by Priyanath and Sandaruwan (2015) concludes that SME development programmes in SriLanka do not positively contribute to developing a favourable transaction environment for SMEs. The study further emphasises that the government SME development programs do not facilitate SMEs to access sufficient and reliable information, which is considered a sin qua non for making more rational decisions, protecting transactions from opportunism, and selecting a suitable governance mechanism. Those in the know and have access to the statutory bodies of SME development are fully aware of the pathetic conditions of those organizations which are infected with internal conflicts, incompetent officers, partisanship, anachronism, sinecure positions, political chess playing and numerous other discrepancies that have reduced their performance almost to zero degree despite their engagement in euphoric propaganda and submission of fudged progress reports year in and year out.

Seeding and Infusing Entrepreneurial Knacks 

The crucial issue that policymakers on entrepreneurship development policy have not adequately addressed is whether the seeds of entrepreneurship can be planted by any individual human being in total negligence of his or her inner characteristics, personality traits, and motivational drives. What policymakers should program for is to locate or identify entrepreneurs rather than making a doubtful effort at creating entrepreneurship where there is no petri dish for culturing the seeds of business.  In this respect, one may be intrigued to question whether famous entrepreneurs in Sri Lanka, to name a few, Hinniappuhamy (Maliban Biscuit Company), Jayewardena (Sampath Bank), Dasa Mudalali (Dasa Industries), Jinasena (Jinasena Company), Upali Wijewardene (Upali Group), and so forth, had been promoted by government or they implored for mercy and pogies from the powers that mattered for facilitating the commencement of their enterprises. An interesting reading can be found in this respect in the book titled “Confessions of an Entrepreneur: the Story of Mendis Special’ authored by W M Mendis (1998), in which he mournfully recounted the tormenting experience he endured at the development stage of his business venture due to bureaucratic harassments; nevertheless, his company flourished and became a full-blown liquor brand in Sri Lanka, surmounting all the obstacles.

The story at the global level is not different at all from that of Sri Lanka if one bothers to peruse the humble beginnings of major business juggernauts such as, to name a few, Durant, William – Automobiles (General Motors), Ellison, Larry – Software (Oracle),Ford, Henry – Automobiles (Ford Motor Company), Gates, William – Software (Microsoft),Jobs, Steve & Wozniak, Steve – (Pixar Studios & Apple Computer),Johnson, Robert & Johnson, James – Medical Products (Johnson & Johnson), Morita, Akio and Ibuka, Masaru – Consumer Electronics (Sony), Packard, David – Electronics (Hewlett-Packard), Paul, Galvin – Electronics (Motorola), Pfizer, Charles & Erhart, Charles – Medical Products (Pfizer), Walton, Sam – Discount Retail (Wal-Mart) who were all self-driven entrepreneurs that did not bank on the availability of government concessions when moving into business.

The message sent by the local and global experience is loud and clear: what the individuals with genuine entrepreneurial intentions require is not what the promotional agencies offer under their archaic and repetitive promotional programs. For instance, entrepreneurs in the agricultural sector in Sri Lanka are faced with mounting shortages of infrastructural facilities in vital fields of marketing, institutional, informational and transport, improvement of which will definitely encourage the entrepreneurs in the sector to execute their new business ideas and expand existing enterprises due to the enhanced profitability derived from improved infrastructure. Farmers engaged in vegetable cultivation and microlevel cultivators in their homesteads cannot be sidestepped as non-entrepreneurs but their entrepreneurial desire and efforts are pathetically remained at the start-up stage even after continuation of business for several years due to macro-economic factors which are beyond the ability of their control.

Other major hurdles that lie in the path of business development, particularly in the SME sector, are caused by the imperfect market infrastructure that creates a detrimental gap between entrepreneurs and their prospective customers in terms of information, geographical location, etc., which can effectively be bridged through the intervention of promotional agencies engaged in the particular sector. Instead of making an effort to address the practical difficulties, the public sector agencies entrusted with the task of ministration are incarcerated themselves in the conventional conceptual frame that emphasises conducting training programs based on the misconception that what entrepreneurs are lacking is training, and training can instill entrepreneurship with any jobless individual. There is no doubt that some individuals may be encouraged to start  a business resulting from the entrepreneurship sponsoring programs launched by public sector institutions due to the financial and other supportive facilities offered to such people on very receiver friendly terms but the perpetuity  of such ventures records a very low numerical value and they perish when the assistance programs cease, like a  hybrid plant that cannot survive under arid soil conditions without artificial manuring.

Another predominant myth associated with the concept of entrepreneurship is that many policymakers and perhaps academicians link the concept to a narrow amphitheater relating to the production of goods and services, presumably to business enterprises,  but, the concept is much broader and virtually its existence can be found in all activities performed by the human beings pervading to, inter alia, music, teaching, knowledge development, customer care, medicine and even politics.

Conclusion

Experience world over relating to the entrepreneurship development programs implemented as a part of national economic strategy does not reflect a stable and adequately positive relationship with the consequential outcomes that substantiate the high financial outlay disbursed and the resources mobilised by the public sector institutions. It has been found very often that entrepreneurship programs appear to be on the wrong footing and therefore a necessity has been observed to rephrase the terminology as entrepreneur identification instead of using entrepreneurship development since entrepreneurship fostering is unlikely to be practical where human and social factors do not perform a supportive role for such endeavors. Incubated entrepreneurship created through spoon-fed programs launched by government agencies is very often ephemeral by nature in addition to its adverse effects in   forming dependency syndrome among the promoted businesses that insists on perpetual government assistance in the form of tax concessions, subsidized utility prices, low-cost capital, protection from imports and so forth for their survival, siphoning off the already strained tax income of the government. Furthermore, entrepreneurship is intrinsically entwined with human creativity and therefore is not confined only to a narrow field of commercial business as many have perceived today, but can also be found and applied in a much larger atmosphere of human and social activities for the purpose of achieving more satisfactory solutions to many problems encountered by human beings. 

Furthermore, for entrepreneurship promotion to be an effective apparatus of development strategy, it should be a multipronged approach that incorporates the promotional programs with three major ccomponents,namely the identification of individuals with entrepreneurial comportment, the most crucial factor that determines the success of the subsequent activities, and thereafter capacity enhancement of the identified target group accompanied by delivery of convenience access to infrastructure support through a well-orchestrated plan of action.