What is Entrepreneurship, Innovation and Economic Development?

Who is an entrepreneur?
What are the tasks of an entrepreneur?
What are entrepreneurial competencies?
What are the entrepreneur’s predicaments?
Explain entrepreneurship and business size, its relationship.

Activities:
1. Read RA 9178 (from DTI website, [Link])
2. What is the main objective of the law?
3. Mention the incentives from the law and explain the advantages of these
incentives to small business enterprise.
4. Identify a business in your area which became successful due to innovation.
Write about the role played by innovation in its success.
5. Prepare a list of five innovative products or services currently introduced in the
market.

Entrepreneurship
– the process of creating something new with value, devoting time and effort,
assuming the financial, psychic and social risks, receiving the resulting rewards of
monetary and personal satisfaction and independence.
-the economic activity of a person who starts, manages and assumes the risk of
a business enterprise.

Entrepreneur – is the person who undertakes the entrepreneurial activities.

Entrepreneur’s Tasks/Functions/Roles

In order for the entrepreneur to exist, function and make profits, he has to:

1. Supply the necessary capital (natural resources-land; human resources-labor;

and financial resources-capital)
2. Undergo the production process
3. Sell the finished goods and services
4. Provide products and services for customers and producers (wide array of
products and services to choose from)
5. Provide employment (businesses organized by entrepreneurs employs people)
6. Pay taxes (application fees, licenses, permits and income taxes)
7. Provide the demands for suppliers’ products and services (big companies are
assured of ready markets for their products)
8. Decide on the rate of output the firm has to produce
9. Take the risk if he fails or take the reward if he succeeds
10. Provide training facilities for future entrepreneurs (former employees of
enterprising persons acquired skills in starting and improving the entrepreneurial
skills passed on to them).
Free market economy – free competition, not controlled by any forces, production of
goods and services are based on the supply and demand of consumers.

Innovation – is the introduction of a new method, procedure, custom, device, etc. It

could be:

1. a new product,
2. a new process or method of production,
3. substitution of a cheaper material in an unaltered product,
4. reorganization of production/internal function
5. distribution arrangement to increase efficiency
6. better support or lower costs for a given product
7. improvement in instruments or methods of doing innovation (invention,
development, innovation)
a. invention – discovery or devising of new products and processes
b. development – the ideas and principles generated from invention are
embodied or put into concrete products and techniques
c. innovation – refers to the actual introduction of a new product or process. In
order for the innovation to be successful, it must provide value to the
customers over and above the other competitors, like reducing cost, or
improving the quality of products or services.

Stages from a new venture to a long-term enterprise

1. prestart-up stage – when the entrepreneur starts to question the feasibility of an

idea, product or service,
2. start-up stage – generation of the necessary capital, formation of the business,
purchase of facilities and equipment, constructing/developing prototype products
and testing the market.
3. early growth stage – follows after establishing feasibility. Activities will be on a
small scale.
4. Late growth stage – the final state before the new venture mature into a stable
enterprise.

Rewards for Successful Entrepreneurship

Factors of Production Economic Reward Limiting factor for Rewards Received

1. Land rent supply and demand
2. Labor wages/salary supply and demand, legislation
3. Capital interest industry rates/gov’t. mandated rates
4. Entrepreneur profits skill of entrepreneur

The Entrepreneur’s Predicament

1. Offer products or services that are of value to consumers/customers.

2. In order to maintain the consumers/customers patronage, the entrepreneur has
to offer improved and better quality products over the competitors.
3. Offer innovative products or services wherein he will reap better profits over the
competitors.
 4. The good profit of the entrepreneur may be temporary because the competitors
will try to outpace the entrepreneur in the race. The competitor may imitate or
improve or offer better innovations. If the competitor succeeds, the profit of the
entrepreneur will decline.
5. The entrepreneur will again offer new innovations to regain the lead in the
competition and the cycle goes on until one of them will decide to stop.

Entrepreneurship and Business Size

In order to effectively compete, businesses of whatever size must adapt

innovative approaches to its activities like:
a. Offering business services during Sundays and holidays,
b. Manufacture and sale of new products
c. Selling on a deferred payment scheme.

Small businesses have the advantage of switching to another business concept

whenever necessary.

Large businesses cannot do the same without spending much. To offset the
disadvantage, large businesses have started to engaged in entrepreneurship by
employing a person with entrepreneurial mind and skills to do the creation of innovation
in the organization.

What is a Small Business?

Small business may be defined using two approaches, namely: market share
approach and total assets approach.

1. Using market share approach, small business is one which is independently

owned and which is not dominant in its field of operation.

a. Independently owned means ownership is by a privately individual,

partnership or a corporation.
b. Not dominant means it does not control a sizable share of its market. The
total sales of a business firm is less than one percent of the total demand
for its products.

2. Under the total asset approach, small business is one having a total assets of
P1.5 million to P15 million. Those with total assets valued at P1.5 million and
below will be classified as microenterprise.

One of the disadvantages of the total assets approach is that asset values are
affected by inflation. Total assets previously considered as small business may no
longer be classified as such. Market share approach is more appropriate in defining a
small business.

Kinds of Business According to Size

1. Public enterprise – Example: Land Bank of the Philippines

 2. Private Enterprise – Example: Globe Telecom
a. Micro Business
b. Cottage Business
c. Small Business
d. Medium Business
e. Large Business

Types of Small Business

1. Manufacturing – is one who converts raw materials into new products needed by
the consumers. Ex. Bakeries, tricycle side car assembly shops, bagoong
manufacturers, restaurants, etc.
2. Service – providing services
a. Business services – provide service to other business
b. Personal services – provide service to a person
c. Repair services – provide repair services to owners of machinery and
appliances
d. Entertainment and Recreation services – includes movie houses, resorts,
billiard poo centers, etc.
e. Hotels and motels
f. Education services – includes Montessori schools for children, tutorial
services to children.

3. Wholesaling – refers to establishments which sell in large amounts/bulk to

retailers and other merchants, industrial, institutional and commercial users but
do not sell in large amounts to final consumers/users.
4. Retailing – they sell goods and services to final consumers/users.
5. General Construction Firms – those engaged in the construction of buildings for
private individuals, firms, or for the government. They perform sub-contracting
jobs for the bigger contractors. They employ hundreds of thousands of people
and they operate in the countryside.

Characteristics of Small Business

1. Independent management – the owner is also the manager.

2. Small capital requirement - requires small capital and can be supplied by a single
or a few individuals.
3. Mostly local operation – usually operates in a certain locality although there are
cares when the market is not confined to a local area.

Economic Importance of Small Business

1. Providers of economic opportunities for entrepreneurs

2. Providers of products and services to consumers
3. Suppliers of products and services to other businesses
4. Distributors of products and services of other services
5. Supporters of government
6. Providers of employment
Advantages of Operating a Small Business

1. Be an employee – enjoys a fixed working schedule, salary has limited and

dependent on industry norms and the financial capability of the company.
2. Be a professional – generates higher income but limited by the number of clients
being served.
3. Be a small business Operator – keeps longer working hours, and absorbs
whatever damages that happen as a result of his faulty decision-making.
However, he enjoys the following:
a. Opportunity to gain control over his own destiny,
b. Opportunity to reach his full potential,
c. Opportunity to reap unlimited profits, and
d. Opportunity to make contribution to society and receive recognition for his
efforts.

Disadvantages of Operating a Small Business

1. Uncertainty of income,
2. Risk of losing your entire capital investment,
3. Lower quality of life until the business gets established,
4. Complete responsibility,
5. Having to serve undesirable customers,
6. Paperwork and other chores, and
7. Long hours and demanding work condition

The Ethical and Social Responsibilities of the Entrepreneur

Ethics – is the study of moral obligation involving the distinction between right and
wrong.

Business Ethics – are the rules about how entrepreneurs ought to behave. The
ethical behavior required of entrepreneurs is determined by the following:
1. Public
2. Interest groups like the society of Prevention of Cruelty to Animals
3. Business organizations
4. The individual’s personal morals and values

Factors Influencing Ethical Behavior

1. Situation
2. Reward system
3. Individual differences, and
4. Other factors

Effect of Adherence to Ethical Standards

1. Adherence to ethical standards

2. Establishment of trust between buyers and sellers, and between lenders and
borrowers
 3. Smooth flow of business exchanges (ex. Selling is faster)

Encouragement to Practice Ethical Behavior

1. Adaption of a code of ethics

2. Institution of rewards and punishments concerning ethical behavior
3. Adaption of internal programs for resolving conflicts
4. Creation of ethics review committee
5. Provision of training in ethics for employees, and
6. Top management support

Code of Ethics

Code of ethics is a formal document indicating the entrepreneur’s adapted principles

of appropriate behavior. It serves as a basic reference for employees in making their
decisions.