Business Studies Test - 16

The correct answer is Both 1 and 2 

Key Points

Impact on Local Communities by economic functions of entrepreneur:

• Entrepreneurship, in its natural habitat, that is, small business is a great leveler.
• Small-scale entrepreneurship enables marginalised groups as women, SC, ST and OBC to pursue their economic dreams.
• As there are no entry barriers in terms of educational qualifications, entrepreneurship is an even more attractive career option for such marginalised groups.
• Agro-based rural industries and craft-based cottage industries can really catapult local communities to socio-economic success stories.
• Local governments do their bit in developing these entrepreneurship clusters with a view to encouraging inter-firm collaboration and the development of common facilities. entitled, ‘Entrepreneurship Clusters in India.’
• In regard to the development of entrepreneurship for impacting local communities, some corporate-sector initiatives also deserve a mention.
• ITC through their ‘e-Chaupal’ (visit http:/ www.itcportal.com agri_exports/ e-choupal_new.htm) and HLL through their ‘Shakti’ (visit www.hllshakti.com) initiatives have sought to mobilise native entrepreneurs for improving the lot of those lying at the bottom of the economic pyramid

The correct answer is 1, 2 and 3. 

Key Points

Functions of entrepreneurs in relation to economic development.

• In the absence of this function, all other resources, namely land, labour and capital would remain idle.
• They may not be inventing/discovering the products, their role in commercial exploitation of the advancements in science and technology via organisation of the productive apparatus makes the other resources productive and useful.
• So much so that it is said that in the absence of entrepreneurial intervention, every plant would remain a weed and every mineral would remain a rock.

Improvement in Economic Efficiency:

• Efficiency means to have greater output from the same input.
• Entrepreneurs improve economic efficiency by, 

1. Improving processes, reducing wastes, increasing yield ,and,
2. Bringing about technical progress, that is, by altering labour-capital ratios. If labour is provided with good implements (capital), its productivity increases.

The correct answer is Entrepreneur(S)→Entrepreneurship(V)→Enterprise(O).

Key Points

Entrepreneurship 

• Entrepreneurship is the process of setting up one’s own business as distinct from pursuing any other economic activity, be it employment or practising some profession.
• The person who set-up his business is called an entrepreneur.
• The output of the process, that is, the business unit is called an enterprise.
• You may invoke ‘subject verb-object (SVO)’ relationship in English grammar to clearly understand these terms.
• See below for SVO Analogy:
• Entrepreneur(S)→Entrepreneurship(V)→Enterprise(O).
• It is interesting to note that entrepreneurship besides providing self-employment to the entrepreneur is responsible to a great extent for the creation and expansion of opportunities for the other two economic activities, that is, employment and profession.
• Further, each business gives rise to other businesses the suppliers of raw materials and components, service providers (be it transport, courier, telecom, distributor middlemen and advertising firms, accounting firms and advocates etc. 
• And, in the process, entrepreneurship becomes crucial for overall economic development of a nation..

The correct answer is Both 1 and 2.

Key Points

Need for entrepreneurship: 

• Every country, whether developed or developing, needs entrepreneurs.
• Whereas, a developing country needs entrepreneurs to initiate the process of development, the developed one needs entrepreneurship to sustain it.
• In the present Indian context, where on the one hand, employment opportunities in public sector and large-scale sector are shrinking, and on the other, vast opportunities arising from globalisation are waiting to be exploited; entrepreneurship can really take India to the heights of becoming a super economic power. 
• Studies by Global Entrepreneurship Monitor, a research programem involving annual assessment of the national level of entrepreneurial activity across a number of countries (visit, www.gemconsortium.org) show that differences in the levels of entrepreneurial activity account for the differences in the level of economic growth to the extent of as much as 33%.

The correct answer is 1, 2 and 3 only.

 Environmental development is not the function of entrepreneurs in relation to economic development.  

Key Points

Functions of entrepreneurs in relation to economic development

Contribution to GDP:

• Increase in the Gross Domestic Product or GDP is the most common definition of economic development. You are aware that income is generated in the process of production. So, entrepreneurs generate income via organisation of production be it agriculture, manufacturing or services.  

Capital Formation:

• The entrepreneurial decision, in effect, is an investment decision that augments the productive capacity of the economy and hence results in capital formation.
• In fact, GDP and capital formation are related to each other via Capital Output Ratio (COR); more precisely Incremental Capital Output Ratio (ICOR) that measures the percentage increase in capital formation required obtaining a percentage increase in GDP. 

Generation of Employment:

• Every new business is a source of employment to people with different abilities, skills and qualifications.
• As such entrepreneurship becomes a source of livelihood to those who do neither have capital to earn interest on nor have the land to earn rent.
• In fact, what they earn is not only a livelihood or means of sustenance but also a lifestyle for themselves and their families as well as personal job satisfaction. 

Generation of Business Opportunities for Others:

• Every new business creates opportunities for the suppliers of inputs (this is referred to as backward linkages) and the marketers of the output (what is referred to as forward linkages).
• As a pen manufacturer you would create opportunities for refill manufacturers as well as wholesalers and retailers of stationery products. 

Improvement in Economic Efficiency:

• Efficiency means to have greater output from the same input.
• Entrepreneurs improve economic efficiency by, a.Improving processes, reducing wastes, increasing yield ,and, b. Bringing about technical progress, that is, by altering labour-capital ratios. 

Increasing the Spectrum and Scope of Economic Activities:

• Development does not merely mean ‘more’ and ‘better’ of the existing, it also and more crucially means diversification of economic activities– across the geographic, sectoral and technological scope 

The correct answer is Need for Affiliation.

Key Points

Entrepreneurial Motivation

Men and women who have a perception of self-efficacy and are yet to feel interested in or motivated by the idea of being on their own comprise a potential, future source of entrepreneurship. What motivates a person is a question easier asked than answered.

Since entrepreneurial situation is characterised by personal accomplishment in competitive situations and involving higher standards of excellence, one often come across reference to ‘need for achievement’ or N-ach for short as the primary driver of entrepreneurial behaviour.

Need for Achievement (N-Ach.):

• Need for achievement implies a desire to accomplish something difficult.
• To master, manipulate, or organise physical objects, human beings or ideas.

Need for Power (N-Pow):

• Need for Power is the concern for influencing people or the behaviour of others for moving in the chosen direction and attaining the envisioned objectives.

Need for Affiliation (N-Aff.):

• Often you must have heard your parents saying that whatever they do they do it for their children.
• If a man thinks about interpersonal relationships, he has a concern for affiliation.

Need for Autonomy (N-Aut.):

• The need for autonomy is a desire for independence and being responsible and accountable to oneself rather than some external authority for performance. It is the desire for an opportunity for the fullest expression of one’s abilities.
• In the context of entrepreneurship, it is usually interpreted as the determination not to work for someone else. 

The correct answer is b only. 

Key Points

Differences between Entrepreneurship and Management

The correct answer is Richard Cantillon.

Key Points

• The term ‘entrepreneur’ was first introduced in economics by the early 18th century French economist Richard Cantillon.
• In his writings, he formally defined the entrepreneur as the “agent who buys means of production at certain prices in order to sell the produce at uncertain prices in the future”.
• Since then a perusal of the usage of the term in economics shows that entrepreneurship implies risk/uncertainty bearing; coordination of productive resources; introduction of innovations; and the provision of capital.
• We would like to define entrepreneurship as a systematic, purposeful and creative activity of identifying a need, mobilising resources and organising production with a view to delivering value to the customers, returns for the investors and profits for the self in accordance with the risks and uncertainties associated with the business.

The correct answer is Managing customer and supplier relations.

Key Points

Roles and Functions of the Entrepreneur in relation the Enterprise

Developing Exchange Relationships

1. Perceiving market opportunities
2. Gaining command over scarce resources
3. Purchasing inputs
4. Marketing of Products and responding to competition

Political Administration

1. Dealing with public bureaucracy (approvals, concessions, taxes)
2. Managing human relations within the firm
3. Managing customer and supplier relations.

Management Control

1. Managing finance
2. Managing production

Technology

1. Acquiring and overseeing assembly of the factory
2. Industrial engineering (minimising inputs with a given production process)
3. Upgrading the production process and product quality
4. Introducing new production techniques and products.

The correct answer is None of the above.

Key Points

Characteristics of Entrepreneurship

• Entrepreneurship is about the process of setting up a business.
• One cannot help but marvel at the beauty of the process: how does one first of all decide to choose own business as a career; how does one sense a market opportunity; how does one muster up courage to embark upon it, and mobilise the requisite resources, etc.; so much so that recourse to entrepreneurship, in common parlance, is considered as an exclusive preserve of a few gifted individuals

Systematic Activity:

• Entrepreneurship is not a mysterious gift or charm and something that happens by chance! It is a systematic, step-bystep and purposeful activity.

Lawful and Purposeful Activity:

• The object of entrepreneurship is lawful business. It is important to take note of this as one may try to legitimise unlawful actions as entrepreneurship on the grounds that just as entrepreneurship entails risk, so does illicit businesses

Innovation:

• From the point of view of the firm, innovation may be cost saving or revenue-enhancing. If it does both it is more than welcome. Even if it does none, it is still welcome as innovation must become a habit! 

Organisation of Production:

• Production, implying creation of form, place, time personal utility, requires the combined utilisation of diverse factors of production, land, labour, capital and technology. Entrepreneur, in response to a perceived business opportunity mobilises these resources into a productive enterprise or firm.

Risk-taking:

• As the entrepreneur contracts for an assured supply of the various inputs for his project, he incurs the risk of paying them off whether or not the venture succeeds. Thus, landowner gets the contracted rent, capital providers gets the contracted interest, and the workforce gets the contracted wages and salaries. However, there is no assurance of profit to the entrepreneur.