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A. WHAT IS ENTREPRENEURSHIP? Before we fully discuss concepts in the course “Entrepreneurship,” it is best to have a •clear idea on what entrepreneurship is really all about.Entrepreneurship, in the simplest sense, refers to the ability of an individual to determine and come up with the proper combation of the resources available in his environment and transform this into an output of either goods or services, and obtain a fair at the price the entrepreneur sets. It. entails the activities of potting opportunities, .conceptualizingthese ideas into opportunities, ridentifing affa using resources in his ènvironmenL and thaking use of thesé resources t6 pràduce products and make profits out oI them. It also includes aset of behaviors,skifls and attributes conducive to the development of 1hnoatioh and creativity. An-entrepreneur uses several factors to turn his idea into a profitable product. It would already be obvious that an entrepreneur‟s first investment in his business enterprise is an idea. An idea is simply something an entrepreneur has already conceptualizedor imagined, painting a more or less clear picture in his mind, giving him a clear plan of action. In other words, an idea is a clear blueprint in the entrepreneur‟s mind. Raw materials are the basic inputs that the entrepreneur uses to come up with his products. These inputs come from his environment, and are usually found to be in their unprocessed or natural states. Thus, the term “raw.” , on the other hand, refers to the buildings, machinery, equipment and tools used in the course of production. More often than not, an entrepreneur hires laborers — people directly responsible in the production process. The place where all of these physical factors are found is generally called a (production) plant. Having all these things allows the entrepreneur to have what he calls a business enterprise. When these inputs are transformed into outputs or what we call as finished products, the entrepreneur now brings these finished products to his market. A market is simply the buyers and users of the entrepreneur‟s product. Technically, people who buy the product are called cusomers, while people who use the product are called consumers or end-users. Before we proceed any further, let us first try to determine how entrepreneurship really evolved.

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B. ORIGINS OF ENTREPRENEURSHIP It is not really clear where entrepreneurship began. Even though the term did originate from the French, we can suspect that entrepreneurship began even before there ias a term for it. After all, business and trade started way before the French even evolved as a people and as a nation. Due to its elusive nature, entrepreneurship is often overlooked in Development . Nonetheless, entrepreneuip is a necessary ingredient for stimulating . To achieve successful ecdndmic development, a country must experience both economic growth and „fundamental changes in the structure of its economy.” Entrepreneurs orchestrate these transformations in society and create new channels or economic activity and . Thus, all countries wishing to pursue continued development must encourage the sustained growth of entrepreneurship. Throughout the theoretical history of entrepreneurship, scholars from multiple disciplines in the social sciences have had difficulty with a diverse set of interpretations and definitions to concretize this abstract idea. Even though certain themes continually resurface throughout the history of entrepreneurship theory, presently there is no single definition of entrepreneurship that is accepted by all economists or that is applicable in every economy in the world today. Some schools of thought on entrepreneurship suggest thaf the primary role of the entrepreneur is that of a -bearer in the event of and the lack of perfect information. These taken, however, are more often than not, calculated risks. Some claim that an entrepreneur will be willing to bear the risk of a new business venture if he believes that there is a significant chance for making reasonable profits. Although many current theories on entrepreneurship agree that there is an inherent component of risk, the risk-bearer theory alone cannot explain why some individuals become entrepreneurs while others who are also known risk-bearers do not.

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Some other schools of thought claim that the role of the entrepreneur is that of an innovator — as suggested by the original French term. However, the definition of is still widely debatable since the degree of innovation or, in some cases, a very close imitation to categorize the product as an innovation per Se, is rather difficult to establish. Others would agree that the necessary characteristic of the entrepreneur is alertness or his general awareness to his environment, and no intrinsic skills, other than that of recognizing opportunities, are necessary. The earliest historical accounts of entrepreneurs „and entrepreneurial activities are traced to the great adventurer Marco Polo who made the practice of selling his goods to a moneyed person with both of them signing a contract. He was the forerunner of a venture capitalist. While it is true that a venture capitalist is a passive risk-taker, the merchan:t-adventurer takes on the active role of trading and bearing almost all forms of risk. In the middle ages,- entrepreneurs were described either as actors or the managers of large production projects using resources. Those people were called clerics — people in charge of building castles and fortifications, public buildings, cathedrals,. etc. A noted economist and author in the 17th century, , introduced the term “entrepreneur.” This explains why some „consider him as the father of the theory of entrepreneurship. Cantillon viewed entrepreneurs as risk-takers. He observed that , farmers, craftsmen and other proprietors buy merchandise at a certain price, but sell it at an uncertain price. These people, therefore, operate at a risk, and should receive income for taking the risks involved, separate from the income for owning the resources. In his writings, he formally defined the entrepreneur as the “agent who buys means of production at certain prices in order to combine them into a new product. Shortly thereafter, the French economist Jean Baptiste Say added to Cantillon‟s definition by including the idea that entrepreneurs had to be leaders. Say claimed that an entrepreneur is one who brings other people together in order to build a single productive organism. In the next century, British economists such as , , and briefly touched on the concept of entrepreneurship, broadly referring to the English term as “business .” Whereas the writings of Smith and Ricardo

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suggest that they likely undervalued the importance of entrepreneurship, Mill‟s writings stress the significance of entrepreneurship for economic growth. He claimed that entrepreneurship requires „no ordinary skill,” and he laments the fact that there is no good equivalent English word to encompass the specific meaning of the French term entrepreneur‟. Adam Smith maintained that was due to a phenomenon known as. the theory. According to this theory, business ventures and nations will develop to a particular direction without necessitating the effort nor the, desire of the capitalists, thereby espousing the thought that economic development is but a natural thing that comes about. This master plan of economic development was otherwise known as the Law of Nature. In the 18th century, J.B. Say distinguished between profits of entrepreneurs and profits of capital. Francis Walker, on the other hand, distinguished between individuals who supplied funds and receive,d for these funds, and those who received profit from managerial capabilities. Yet another distinguished economist, , first formally recognized the necessity of entrepreneurship for production in 1890. In his famous treatise, “Principles of Economics,” Marshall asserted that there are four : land, labor, capital, and organization. In later usage, “organization” would be replaced by the term “entrepreneurship.” According to Marshall, organization is the coordinating factor in the production process which brings the other factors together. Marshall believed that entrepreneurship is the driving element behind organization. By creatively organizing, entrepreneurs create new commodities or improve “the plan of producing an old commodity.”, To do this, Marshall believed that entrepreneurs must have a thorough understanding of their industries, and they must be natural leaders. This belief is very similar to the theory of J.B. Say. Additionally, Marshall‟s entrepreneurs must have the ability to foresee changes in and be willing to act on such risky forecasts in the absence of complete information. Thus, the, key characteristic of entrepreneurs is their willingness to take risks. Like John Stuart Mill, Marshall suggested that the skills associated with entrepreneurship are rare and limited in supply — that entrepreneurs had “no ordinary skills.” Entrepreneurs should then

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possess extraordinary skills. Marshal argued that the abilities of the entrepreneur are so great and so numerous that very few people can exhibit them all in a very high degree. He implied, however, that people can be taught to acquire the abilities that are necessary to becoming an entrepreneur. Unfortunately, the opportunities for entrepreneurs are often limited by the economic environment which surrounds them. This would mean that an entrepreneur must make do with the current opportunities and resources he finds in his environment. Additionally, although entrepreneurs must share some kind of common identifiable abilities, all entrepreneurs are different. Their (individual) successes depend on the economic situations in which they attempt their endeavors. Since the time of Marshall, the concept of entrepreneurship has continued to undergo theoretical evolution. For example, whereas Marshall believed entrepreneurship was simply the driving force behind organization, many economists today believe that entrepreneurship is by itself the fourth factor of production that coordinates and profitably combines the other three — land, labor and capital. Unfortunately also, although many economists agree that entrepreneurship is necessary for economic growth and development, they continue to debate over the actual role that entrepreneurs play in generating growth in a nation‟ s economy. Other economists in the innovation school of thought claim that entrepreneurs have special skills that enable them to participate in the process of innovation. Along this line, Harvey Leibenstein claims that the dominant and necessary characteristic of entrepreneurs is being gap-fillers. This means that they have the ability to perceive where the market fails to develop new products or processes that the market demands, but which are not currently being supplied. Thus, Leib.enstein proposes that entrepreneurs must have that rare ability to assess different market needs and demands and make up for market failures and deficiencies. Additionally, drawing from the early theories of Say and Cantillon, Leibenstein suggests that entrepreneurs have the ability to combine various inputs into new in order to satisfy unfulfilled market demand. This proposition of Leibenstein — that of the determination and satisfaction of unfulfilled demands — has evolved into a key component in the creation of modern-day feasibility studies.

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In the 19th century, espoused the idea that entrepreneurs are innovators and developers of untried technology. This was the age wherein entrepreneurship was used synonymously with innovation. David McClelland maintained that is dependent upon the energy levels of people, and that entrepreneurs are energetic and, therefore, productive. He also espoused the idea that entrepreneurs are moderate risk- takers. Management guru emphasized the idea that entrepreneur‟s are people who look for and maximize opportunities. Albert Shapiro argued that entrepreneurs take initiatives,, organize some social and economic mechanisms and accept risks of failure. Although many economists accept the idea that entrepreneurs are innovators, it can be difficult to apply this theory of entrepreneurship to less developed countries (LDCs). Often in LDCs, entrepreneurs are not truly innovators in the traditional sense of the word. In many instances, the sad reality is that instated of innovating, theso-cal1ed entrepreneurs are fond of being copy-cats or imitators. The Philippines is no exemption from this observation. Creative imitation takes place when „the imitators better understand how an innovation can be applied, used, or sold in their particular market niche (namely, their own countries) than do the people who actually created or discovcred the original innovation. Thus, the innovation process in LDCs is often that of imitating and adapting, instead of the traditional notion of new product or process discovery and development. This phenomenon of simply. imitating has actually lessened the enthusiasm of so many to invent things and develop truly genuine products. Throughout the evolution of entrepreneurship theory, different scholars have offered varied theories on entrepreneurship, and the entrepreneur‟s different and common characteristics. By combining the schools of thought cited above, one can establish a clearer understanding of entrepreneurship and economic development. C. EVOLUTION OF THE TERM ENTREPRENEURSHIP Let us now take a look at how this course of study evolved over the years. Below is a summary of various economists‟ view of entrepreneurship, including the year they conceptualized this view.

CONTRIBUTOR CONTRIBUTION TO AND YEAR OF ENTREPRENEURSHIP THOUGHT CONTRIBUTION

Jean Baptiste Say Entrepreneurship refers to the shifting of (1800) economic resources out of an area of lower and into higher greater yield. productivity and

Carl Menger Entrepreneurship involves information, calculation, (1871) an and supervision. obtaining act of will and supervision.

Joseph Schumpeter Entrepreneurship is, in its finding and promoting (1910) new of productive factors. essence, the combinations

Harvey Liebenstein Entrepreneurship is the reduction of organizational (1970) inefficiency. Entrepreneurship is the (1975) identification of market arbitrage opportunities. Albert Shapiro Entrepreneurship involves a kind of (1975) behavior that includes initiative taking, organizing and recognizing social mechanism to turn resources and situations to practical account, and the acceptance of risks and failures. Karl Vesper Entrepreneurship is the dynamic process of (1980) creating incremental . W. Ed Mc Mullan and Entrepreneurship is the building of new growth

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Wayne A. Long (1990) organization. Howard Stevenson Entrepreneurship is (1992) the pursuit of opportunity beyond the resources currently under one‟s control. Jeffrey Entrepreneurship is the ability to create Timmons and build a vision from practically (1 nothing. 994) Peter Drucker Entrepreneurship is the process of (1998) starting one‟s own, new and . It is also the process of innovation and new venture creation through four major dimensions — individual, organizational, environmental, process — aided by collaborative networks in government, and institutions. Robert Hisrisch Entrepreneurship involves the creation process, (2001) requires the devotion of the necessary time and effort, assumes the accompanying financial, psychic and social risks, and receives the resulting rewards of monetary and persOnal satisfaction and independence.

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D. CONTRIBUTIONS OF ENTREPRENEURSHIP TO THE ECONOMY Entrepreneurship employs the various resources present in the economy. Many of these resources tend to be unutilized and unmaximized. Entrepreneurs, therefore, make productive use of otherwise non-productive resources. Entrepreneurs need manpower for their business operations. They provide employment opportunities to various individuals. Note that when these entrepreneurs hire people, they also bear the burden of providing training for these individuals. Professional growth and skills enhancement are also important contributions of entrepreneurs. It is said that entrepreneurship is the backbone of the economy. Contrary to popular belief, it is the small and medium enterprises that make up the great bulk of the Gross Domestic Product (DP) of a country. Economists estimate that 50-80% of the GDP of most countries actually comes -from SME‟s. It has been found out through international research that entrepreneurs tend to multiply during times of economic slumps and . This is particularly true in Southeast Asia. If people lose employment opportunities due to economic slowdowns, business would be a logical choice for livelihood. A fourth contribution of entrepreneurs is in their ability to innovate . The root of the word “entrepreneur” means to innovate, and this is precisely what entrepreneurs bring to society. They make life more comfortable and convenient for us. They make products more accessible and easier to use. A fifth contribution of entrepreneurs is their ability to gain international popularity and prestige for their country. This is true especially when these entrepreneurs are already able to export their products or even bring their abroad. The entrepreneurs‟ country of origin becomes known while allowing t-he country to earn income via stronger currencies. A sixth important contribution of entrepreneurs is their willingness to take risks, risks that society will otherwise be hesitant to take. These people accumulate great learning experiences, which may be passed on to other businesspeople through seminars, workshops, speaking engagements and others.

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Although a lot of people don‟t recognize it, entrepreneurs also profoundly inspire budding and potential entrepreneurs. It is said that only a master can produce a master; likewise, only businesspeople can teach others to venture into business. Successful entrepreneurs become paragons for other entrepreneurs, potential or actual. E. SOCIO-ECONOMIC BENEFITS FROM ENTREPRENEURSHIP The following is a summary of the various socio-economic benefits derived from the pursuit of entrepreneurship: • Promotes self-help and employment Mobilizes capital •• Provides taxes to economy + Empowers individual •• Enhances national identity and pride + Enhances competitive consciousness + Improves quality of life •• Enhances equitable distribution of income and wealth F. CATEGORIES OF SMALL AND MEDIUM ENTERPRISES (SMEs) Any business activity or enterprise engaged in commerce or industry, and services whether a single proprietorship, partnership, or cooperative — inclusive of those arising from but exclusive of the land in which the particular business entity‟s office is located, plant and equipment are situated — must have the following values in order to be categorized under the following categories. The other category of small and medium enterprises is that which categorizes them according to the size of their labor force or the total number of employees. These categories are stated herein below:

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IN TERMS OF CAPITALIZATION:

SMALL AND MEDIUM ENTERPRISE CATEGORY & AMOUNT OF CAPITALIZATION

Micro Enterprise  less than Php 3 Million

Small Enterprise  from Php 3 Million to Php 15 Million

Medium Enterprise  from Php 15 Million to 100 Million

Large Enterprise  Php 100 Million and above

IN TERMS OF EMPLOYMENT SIZE: SMALL AND MEDIUM ENTERPRISE CATEGORY & AMOUNT OF CAPITALIZATION

Micro Enterprise  less than 10 employees

SMALL AND MEDIUM ENTERPRISE CATEGORY & AMOUNT OF CAPITALIZATION

Small Enterprise  from 10 employees to 100 employees

Medium Enterprise  from 100 employees to 500 employees

Large Enterprise  500 employees and above

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G- BARRIERS TO GROWTH OF PHILIPPINE SMEs Over the years, the following have been determined to be the major reasons why entrepreneurship has not really developed in the country: •• Poor access to finance + Obsolete technology + Low productivity + Lack of skills upgrading + Lack of information •. Inability to make entrepreneurial transition •• Poor linkage among small, medium and large industries + Inappropriate location Management incompetence •• Poor market access + Lack of infrastructure + Bureaucratic/cumbersome procedures + Severe global H. IMPORTANCE & BENEFITS OF SMALL BUSINESSES TODAY Havmg been able to identify the important contributions of entrepreneurship to the economy, let us now delimit our discussion to the importance and consequent benefits of small businesses today. The small business sector continues to create many of the new ideas and innovations that future tend to take for granted. Small businesses and schools offering courses for smU business development and management become the seedbed Of

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tomorrow‟s products and daily convenience. It is said that all big enterprises come from small beginnings. Small businesses contribute to the Gross National Product (GNP) of a country and meet local needs that many of the national producers do not offer. Local producers and suppliers of services form a great part in the day-to-day activities of every community — be it a small town or a large municipality. Furthermore, it is the vibrance of the local economy that continues to draw into an area, and encourage local people to stay and contribute to the community‟s productivity. When the local economy is not vibrant, people tend to emigrate into cities and metropolitan areas or, worse, to other countries. Having a strong local economy allows a more distributed growth and development in a country. Needless to say, the presence of micro-enterprises and small busiiesses contribute to the of local communities. The more enterprises there are, the more transactions and government revenues are generated. With regard to the benefits of being small, small businesses survive and prosper for many different reasons: > Small businesses develop more personal relationships. Big businesses and corporation tend to be impersonal to their markets. This may be explained by the fact that have their own personalities. Personal relationships allow to have “a more human” contact with products and producers. This face-to-face interaction of business transactions provides better information for customers, allows quicker feedback for businesses, and appeals to the inherent need of customers for a personal touch, especially among Filipino consumers. In the long-run, this person-to-person interaction is important in building and keeping loyalty. > Relatively low costs. Due to their small scale of operation, small businesses have lower overheads to cover. They can operate in small premises with low heating and lighting costs, and only limited rent and rates to pay. In many cases, production plants are found in the residential areas of entrepreneurs themselves. Cheaper, or even free., labor may be

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derived from members of the household or the community. Low costs can then be passed on to consumers as low prices. > Catering to limited or niche markets. Big businesses, due to their scale of operations, have to achieve of scale to recover costs and investments. This would mean producing greater quantities to be cost-efficient. However, producing great quantities means selling in big quantities. It is therefore logical for big businesses to sell products to big market segments that have more or less similar characteristics. Small businesses, on the other hand, cannot compete with their bigger brothers in industry, so they instead cater to the special needs of individuals that do not share the same characteristics as those of the bigger markets. This is true for people who would like to receive special care (e.g. health and -body care, barbershops and salons), buy products with specialized (often personalized) designs (e.g. clothes, furniture), demand special ingredients (e.g. made-to-order cakes, catering), or even ask for personalized items (e.g. jewelry). Quicker response to trends and situations. Large firms tend to be slower in reacting to changes in their environment and changes in the economy due to their sizeable investments. Their actions largely depend upon several people, such as and corporate officers who consUme much time in implementing strategic decisions. Small businesses, on the other hand, take relatively less time in deciding, and require less resources in implementing decisions. For many businesses that thrive on trends, they can offer the product‟ in demand at a faster rate (e.g. clothing, telecommunication accessories, entertainment paraphernalia). In instances of economic recessions, smaller businessmen are more adaptable and quicker to change lines of businesses in response to signals sent by the economy. This is largely due to their smaller capital and smaller enterprises. I. CHALLENGES FOR SMALL BUSINESSES Being small does have some disadvantages. Running an enterprise on your own involves hard work and having to make most decisions on your own. Usually, the time involved in running an enterprise exceeds the time needed in working

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for an employer (i.e. 8 hours). In fact, businesses are open during holidays and, in many instances, even on holy days. It is rather difficult to achieve economies of scale and be cost-efficient when capitalization and other resources are not abundant. This could mean more manual labor exhausted in producing products rather than the use of machines and equipment. Errors in production and non-conformity to quality standards of some products are bound to occur, adding to operational costs. Discounts in terms of buying raw materials are also limited for a small business that tends to buy in smalier quantities. Furthermore, if these raw materials are not abundant in the immediate environment of the entrepreneur, the costs of transporting these materials from their distant sources, or the costs of locking for viable substitute add to operational costs. Another key limitation of small businesses is their inability to employ specialists or highly skilled laborers in their enterprises. Consequently, quality and productivity will be affected. The need for training these laborers and consequent costs is a prime consideration for the entrepreneur in terms of the quality and range of products he wants to offer to his clients. Better technology and better information (or production processes) may not necessarily be readily available for small enterprises, unlike their bigger counterparts who can afford to buy newer equipment, and to maintain a research and development department. Access to greater financing presents yet another formidable challenge to entrepreneurs. Unlike corporations which can easily increase capitalization by increasing offered shares of stocks, many small entrepreneurs rely on their own pockets for , their immediate family, relatives and friends — all of which add up to a mere fraction of the capital of big businesses. These challenges, needless to say, would imply that although entrepreneurship is worth pursuing either as a course or as a way of livelihood, it remains largely not for the fainthearted.

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