UNIT 1: An Overview of Entrepreneurship

The concept, role and importance of entrepreneur in economic growth

Distinguish between Entrepreneur-Intrapreneur and Manager
Functions of an Entrepreneur
Characteristics of a successful entrepreneur
Small business venture and entrepreneurship
Women entrepreneurship development in Nepal
Case study on women entrepreneurship

Concept of Entrepreneur
Entrepreneurs are individuals who recognize opportunities where others see chaos.
They are aggressive catalysts for change within the marketplace.
The word entrepreneur is derived from the French verb enterprendre and its literal
meaning is to undertake.
The word was originally used to describe people who take on the risk between
buyers and sellers or who undertake a task such as starting a new venture.
An entrepreneur assembles and then integrates all the resources needed the money,
the people, the business model, the strategy and the risk-bearing ability to transform
the invention into a viable business.
It was applied to leaders of military expeditions in the early 16th century.
However, around 1790 A.D. it was used in the context of other types of adventures like
architects and contractors of public works.
The Oxford English Dictionary in 1887 states that entrepreneur simply is the director
or manager of public musical institution; one who puts up entertainments, especially
musical performance.
A further revision has appeared in it in 1933 and the word entrepreneur had a place in
business and would mean one who undertakes an enterprise especially a contractor
acting as intermediary between capital and labor.
Undertaking of an enterprise is regarded as entrepreneurship and one who undertakes it
one who coordinates capital and labor for the purpose of production is an
entrepreneur.
Now:
This is the entrepreneurial age and it is estimated that as many as 600 million persons
worldwide were either actively in trying to start a new venture or were owner-
managers of new business in 2010.
More than a thousand new businesses are born every hour of every working day in US.
Entrepreneurs are driving a revolution that is transforming and renewing economic
worldwide.
New and emerging businesses create a very large proportion of innovative products
and services that transform the way we work and live, such as personal computers,
software, the Internet, biotechnology drugs etc.
From 1990 to 1994, small, growing firms with 100 or fewer workers generated 7 to 8
million new jobs in the U.S. economy, whereas firms with more than 100 workers
destroyed 3.6 million jobs.
An entrepreneur is someone who perceives an opportunity and creates an organization
to pursue it.
 The entrepreneurial process involves all the functions, activities and actions associated
with perceiving opportunities and creating organizations to pursue them.

Why Become an Entrepreneur?

The three primary reasons that people become entrepreneurs and start their own firms
are to:
1) Be their own boss;
2) Pursue their own ideas;
3) Realize financial rewards.

Nature of Entrepreneur
The entrepreneur is expected to identify the environmental change as an opportunity
and uses the factors of production to produce new goods and services.
Entrepreneur is motivated to:
The desire to found a private commercial kingdom,
The will to get the better of and prove his superiority
The joy of creating, getting things done or simply of exercising ones energy and
ingenuity.
Entrepreneur is expected to posess certain attitude & values in order to perform the
expected entrepreneurial behavior.
The expectations regarding entrepreneurial values and attributes were termed as
entrepreneurial orientation.
Entrepreneurial orientation is prerequisite condition for an entrepreneur.
Entrepreneurial orientation consists of:
Risk bearing propensity (Attitude)
Change process
Ambition
Long term profit perspective
Positive attitudes towards management and workers.

Definitions of Entrepreneur
An entrepreneur is the agent who buys means of production at certain prices in order to
combine them into a product that he is going to sell at prices that are uncertain at the
moment at which he commits himself to his costs.- Cantillon
The entrepreneur is the economic agent who unites all means of production.the labor
force of the one and the capital or the land of the others and who finds in the value of
products his results from their employment reconstitution of the entire capital that he
utilizes and the value of the wages, the interest and the rent which he pays as well as
profits belonging to himself. J.B. Say
It treats an entrepreneur as an individual who bears the risk of operating a business in
the face of uncertainty about the future conditions. The New Encyclopedia Britannica
Entrepreneur as an individual who carries out new combines of means of production by
which there occurs disequilibrium Joseph A. Schumpeter
Entrepreneurs innovate. Innovation is the specific instrument of entrepreneurship. It is
the act that endows resources with a new capacity to create wealth. Innovation, indeed
creates a resource- Peter F. Drucker
Entrepreneurial Characteristics
1. Change Agent:
An entrepreneur is expected to work as a change agent.
The entrepreneur is a catalyst for change.
He should be alert to the signs that change is needed.
Both external-internal forces affects on the entrepreneurial organization, just as
they do on others.
The complex and uncertain environment can create the need to change.
Entrepreneur is the person who recognizes the need for change and directs it.
Whenever a particular need to change is recognized the entrepreneur becomes
the key person to initiate that change.

2. Self Confidence:
Entrepreneurs should have confidence in their abilities to make both strategic
and day-to-day decisions regarding technical matters, marketing and overall
business strategy.
They should also feel capable of overcoming any future unanticipated problem.
Since entrepreneur is to work as cheerleader and coach while implementing
change, he requires capability to overcome any resistance to change.
Actually overcoming any resistance to change requires intense interpersonal
efforts and support.

3. Energy Level:
To be successful, a new venture requires hard work and dedication.
In practice, success of an entrepreneur needs the ability to work for long hours in
completing the task.
Entrepreneurs need an unusually high energy level in order to meet the demands
of launching and running a business.

4. Level of Risk:
The entrepreneur assumes risk.
Entrepreneurs shift resources from areas of low productivity and yield to areas
of higher productivity and yield.
Of course, there is a risk they may not succeed.
But if they are even moderately successful, the returns should be more than
adequate to offset whatever risk there might be.
Thus, entrepreneurs are typically characterized as risk takers. Successful
entrepreneurs actually tend to take moderate risk rather than little risk or
excessive risk.

5. Need for Achievement:

Entrepreneurs exhibit a high need for achievement which accounts for their
seemingly endless drive.
Studies show that people with high need achievement like to take risks but only
reasonable ones and such risks stimulate them to greater effort.
Moreover, McClelland found that certain societies tended to produce a larger
percentage of people with high need achievement.
 Thus, high achievers set ambitious short-term and long-term goals that challenge
them and that provide great personal satisfaction when achieved.

6. Tolerance for Ambiguity (Uncertainty):

Imperfection in information is always possible and manager is required to take
decisions with incomplete or unclear information.
But entrepreneurs even face more ambiguity since they may be doing certain
things for the first time and they are risking their livelihood.
Thus, entrepreneurs should be comfortable and capable of making decisions
based on incomplete or little information.
Practically, it is a critical trait for entrepreneurs who face a great deal of
uncertainty at the time of starting new enterprise.

7. Locus of Control:
General idea that individuals not luck or fate control their own lives.
Entrepreneurs work with impression that they are pulling their own strings.
Thus, entrepreneurs tend to believe that they have a high degree of control over
their lives.
Side by side they oppose to believe their lives are governed by luck, fate or other
external sources.
Since they feel in control of their lives they should be able to strike out on their
own and assess the future prospects by their own calculations.

Functions of an Entrepreneur

1. Innovation:
Innovation means doing the new things or doing of things that are already being done
in a new way.
However, there is distinction between creativity and innovation. Creativity is the
ability to bring something new into existence.
Innovation is the transformation of creative ideas into useful applications but creativity
is a prerequisite to innovation.
Schumpeter described entrepreneurs as innovators who use the process of shatter the
status quo through new combinations of resources and new method of commerce.
It includes new processes of production, introduction of new products, creation of new
markets, discovery of a new and better form of industrial organization.
Peter Drucker also elaborates that innovation is the specific tool of entrepreneurs the
means by which they exploit change as an opportunity for a different business or a
different service.

2. Risk-Taking:
The risk is the condition of not knowing the outcome of an activity or decision.
Risk is capable of being evaluated for relative probabilities.
Risk bearing means provision for capital in order to enable the entrepreneur to
establish and operate the business.
Economists like Cantillon, J.B.Say and others stressed risk taking as the specific
function of an entrepreneur.
 Entrepreneur is required to reduce uncertainty in his investment strategies by initiating
expansion and diversification programs in the enterprise.
Entrepreneur should try to reduce the level of uncertainty by analyzing the problem in
proper perspective.
Actually business game consists of great risks and rewards are also great when risks
involved are inseparable.

3. Organization and Management:

The process of organization and management includes planning of an enterprise
coordination, control and supervision.
Prof. Alfred Marshal recognized this function as an important function of an
entrepreneur.
Entrepreneurs often fall into the trap of thinking that just because their business is
small, they do not really need a comprehensive system of organization and
management.
They may rationalize that by designing an effective organizational and management
control system.
They cannot improve their capabilities because of their limited knowledge about
possible methods of effective control.

4. Business Decision:
Arther H. Cole described an entrepreneur as a decision maker. The decisions with
regard to what to produce, how to produce and for whom to produce are to be taken by
the entrepreneur himself.
Prof. Cole described the functions of an entrepreneur as:
The determination of those objectives of the enterprise and the change of
those objectives as conditions required or made advantageous.
The development of an organization including efficient relations with
subordinates and all employees.
The securing of adequate financial resources, the relations with existing and
potential investors.
The requisition of efficient technological equipment and the revision of it as
new machinery approach.
The development of a market for products and the devising of a new product
to meet or anticipate consumers demand.
The maintenance of good relations with public authorities and with society
at large.

Types of Entrepreneurs
1. Innovative Entrepreneurs
2. Imitating Entrepreneurs
3. Fabian Entrepreneurs
4. Drone Entrepreneurs

Innovative Entrepreneurs:
They are characterized by effective assemblage of information and the analysis of
results originated from different set of combinations.
 According to Schumpeter, innovative entrepreneurs are those who may raise money to
launch an enterprise, assemble the various factors, select top executives and set the
organization operational.
They also identify the opportunity for introducing a new technique or a new
commodity or a new market.
These entrepreneurs are quite aggressive in experimentation and putting attractive or
viable possibilities into practice.
Thus, innovative entrepreneurs are one who believe in introducing new goods, adopt
new method of production, develop new market and restructure the organization under
their command.
Innovative entrepreneurs are the product of developed nations and they are in position
to adopt and implement innovative process in action.
But underdeveloped nations are unable to have this type of entrepreneurs as they lack
resources and expertise to invest in innovation process.

Imitating Entrepreneurs:
These entrepreneurs are those entrepreneurs who are unable to innovate the changes
themselves but they are capable enough to imitate the techniques and technology
innovated by innovating entrepreneurs.
These entrepreneurs are always ready to adopt successful innovation executed by
innovating entrepreneurs as there is little involvement of huge capital expenditure in
this process.
Developing economies or underdeveloped economies need this type of entrepreneurs.
Prospective entrepreneur of these nations prefer to imitate the technology, knowledge
and skill developed by innovating entrepreneurs.

Fabian Entrepreneurs:
These entrepreneurs are shy and lazy in their working.
Their dealings are guided by the customs, religion, tradition and past practices.
Actually, Fabian entrepreneurs are always conscious in their dealings and believe in
skepticism in initiating any change.
They do not have any will power to initiate new changes as well as lack desire to adopt
new methods innovated by innovating entrepreneurs.
They always believe in tested routes of production and not interested in taking risk.
Actually they are habitual of following the paths directed by earlier entrepreneurs.
They avoid in taking challenges in production system and that is why they are unable
to maximize the fruits of entrepreneurial actions.

Drone Entrepreneurs:
These entrepreneurs are those who are not inclined to bring changes in their production
system as demanded by the change in consumer preferences, technological innovation,
economic and social behavior of the prospective customers.
Market always provides opportunities to the entrepreneurs but this type of
entrepreneurs generally fail to use these opportunities in profitable way. Due to this
reason they fail to earn profit or even suffer loss.
They are traditional in their approaches and do not make changes in production
methods.
 They generally risk their identity as their product loses marketability and at the end
uneconomic or unviable operation pushes them out of the market.

Entrepreneurship

Definitions:
Entrepreneurship is based on purposeful and systematic innovation..it essentially
consists in doing things that are not generally done in the ordinary course of business
routine Joseph Schumpter
Entrepreneurship is gathering and using resources to produce resultsit is allocating
resources to opportunities rather than to problems Peter Drucker
Entrepreneurship is a process of innovation that reallocates resources to new
opportunitiesthrough unusual combinations of resources and the skills of risk-taking
David Holt
Entrepreneurship is the process of creating something different with value by devoting
the necessary time and effort, assuming the accompanying risks, and receiving the
resulting rewards Hisrich and Peters

Economic Approach
Entrepreneur as a person who pays a certain price for a product to resell it an uncertain
price thereby making decisions about obtaining and using resources while
consequently assuming the risk of enterprise R. Cantillon, 1755
Entrepreneur is an individual who undertook the formation of an organization for
commercial purposes. He is a person with unusual foresight who could recognize
potential demand for goods and services. He reacts to economic change, becoming the
economic agents who transformed demand into supply. Adam Smith, 1776
An entrepreneur is one who possessed certain arts and skills of creating new economic
enterprises, yet a person who had exceptional insight into societys need and was able
to fulfill them. J.B. Say, 1803
Entrepreneurs as a force of creative destruction whereby established ways of doing
things are destroyed by the creation of new and better ways to get things done.
Joseph Schumpeter, 1934
Entrepreneurship occurs when resources are redirected to progressive opportunities not
used to ensure administrative efficiency Peter F. Drucker, 1985

Sociological Approach:
Sociologist considers the entrepreneurship as a process of role performance.
Entrepreneurs are expected to be governed by the wishes of the society, customers,
ethical values, child rearing practices etc.
Thomas Cocharan concluded in his study the entrepreneur in economic change
explorations in entrepreneurial history 1965 that the entrepreneur represents societys
model personality.
Entrepreneur performance depends upon his own attitudes towards his occupation, the
role of expectations of sanctioning groups and the occupational requirements of the
job.
Societys values are the most important determinant of the attitudes and role
expectations.
 Psychological Approach:
This concept developed by McClelland and Hagen. In his work- The Achieving
Society- 1961, David McClelland stated that it is the high need for achievement which
drives people towards entrepreneurial activities.
Achievement motive is basically measured through child rearing practices which stress
standards of excellence, material warmth, self-reliance, training and low father
dominance.
Individuals with high achievement motive tend to take keen interest in situations of
high risk, desire for responsibility and desire for a concrete measure of task
performance.
E.E. Hagen also in his study on the theory of social change How Economic Growth
Begins 1964 deals about the withdrawal of status respect as the trigger mechanism
for changes in personality formation.
Status withdrawal is the perception on the part of members of some social group in the
society whom they respect and whose esteem they value.

Characteristics of Entrepreneurship
Dynamic process
Innovation
Risk taking
Decision making
Accepting challenges
Organization
Skillful management
Making the enterprise a success

Entrepreneur Entrepreneurship

1. Refers to an individual. 1. Refers to a process.

2. It is a creator. 2. It is creation.

3. It is a visionary. 3. It is vision

4. It is an innovator. 4. It is innovation.

5. It is a risk-bearer. 5. It is process of risk-bearing.

6. It is a motivator. 6. It is motivation.

7. It is an organizer. 7. It is organization.

8. It is a leader. 8. It is leadership.

9. It is an imitator. 9. It is imitation.

Importance of Entrepreneurship
Capital Formation
Employment Creation
Creating Innovation
Fuelling Economic Growth
Identifying Ownership Opportunities
 Enhancing Welfare Amenities
Increased Productivity
Balanced Development
Equitable Distribution
Industrialization
Opportunities for Entrepreneur

Barriers of Entrepreneurship
Regulatory Barriers
Merger and Acquisitions
Competition Policy
Defective Tax Structure
Delayed Payments
Absence of Protection of Intellectual Property Rights
Defective Administrative and Compliance System

Theories of Entrepreneurship

1. Innovation Theory:
This theory was propounded by J.A. Schumpeter. According to him,
entrepreneur is basically an innovator and innovator is one who introduces new
combinations.
In practice, new combination theory covers five cases, which are given below:
The introduction of a new goods which consumers are not yet familiar
or of a new quality of a goods.
The introduction of a new method of production, that one not yet tested by
experience in the branch of manufacture concerned, which need by no
means be founded upon a discovery scientifically new and can also exist
in a new way of handling a commodity commercially.
The opening of a new market i.e. market into which the particular branch
of manufacture of the country in question has not previously entered,
whether or not this market has existed before.
The conquest of a new source of supply of raw materials or half
manufactured goods, irrespective of whether this source already exists or
whether it has first to be created.
The carrying out of the new organization of any industry like the creation
of a monopoly position or the breaking up of a monopoly position.

Critical evaluation of innovation theory:

It excludes individuals who merely operate an established business without
performing innovative functions.
Innovating entrepreneur represents the most vigorous type of enterprise.
However, this type of entrepreneur is rarely available in developing countries
like Nepal.
It laid too much emphasis on innovative functions. But it ignores the risk taking
and organizing aspects of entrepreneurship.
 It assumes an entrepreneur as a large scale business man. He is a person who
creates something new. But in practice, an entrepreneur cannot have large scale
operations from the very beginning.
It fails to suitably answer to question like- why some countries had more
entrepreneurial talent than others.

2. Need Achievement Theory:

This theory was developed by David C. McClelland & concerned with economic
growth and the factors that influence it.
In this context, he tries to find the internal factors i.e. human values and motives
that lead man to exploit opportunities, to take advantage of favourable trade
conditions.
The entrepreneur is concerned with need for achievement (n-achievement).
The n-achievement is called as a desire to do well, not so much for the sake of
social recognition or prestige, but for the sake of an inner feeling of personal
accomplishment.
People with high n-achievement behave in an entrepreneurial way.
McClelland identified two characteristics of entrepreneurship, first doing things
in a new and better way and secondly, decision making under uncertainty.
The tendency to strive for success in situations involving an evaluation of ones
performance in relation to some standard of excellence.

Critical Evaluation of n-achievement theory:

High achievement orientation ensures the success of entrepreneurs.
It is necessary to create a climate (especially in educational institutions at various
levels) to enable the children to grow to become individuals with high n-
achievement.
It is possible to improve the performance of existing entrepreneurs thro imparting
proper training & education.

3. Status Withdrawal Theory:

E. Hagen attempted to formulate a theory of social change.
The theory of social change explains that when members of some social groups
feel that their values and status are not respected by the society, they turn to
innovation to get the respect of the society.
Entrepreneurship is a function of status withdrawal.
This theory provides that a class which lost its previous prestige or a minority
group tends to show aggressive entrepreneurial drive.
Hagen postulates four types of events which can produce status withdrawal:
Displacement of a traditional elite group from its previous status by another
traditional group by physical force,
Unfair criticism of values, symbols through some change in the attitude of
superior group,
Inconsistency of static symbol with a changing distribution of economic power
and,
Non-acceptance of expected status on migration to a new society.
Critical Evaluation:
The theory acts to distinguish between entrepreneurship and Intrapreneurship.
There are different factors within the organization which motivate the executives
and professionals to do some innovative behavior leading to new products and
services.
Actually, they are not governed by status withdrawal.
The theory only suggests that the people, who had enjoyed social standing at some
stage in their histories fall into a retreatist (one who combines to work in the
society but remains indifferent to his work and position) phase and urge to regain
that lost status emerge as entrepreneurial personality.
It is long term journey of entrepreneur but in practically, first generation
entrepreneurs are quite successful in their entrepreneurial behavior.

4. Theory of Social Change:

It was Max Weber who first of all took the stand that entrepreneurial growth was
dependent upon ethical value system of the society concerned.
The central figure of the Webers theory of social change consists in his treatment
of the protestant ethic and the spirit of capitalism.
Moreover, this theory provides an analysis of religion and its impact on
entrepreneurial culture.
The spirit of rapid industrial growth depends upon a rationalized technology,
acquisition of money and its rational use for productivity and multiplication of
money.
The tendency of acquisition and rational attitude towards action which are
generated by ethical values.
Protestant progress fast in bringing capitalism because their ethical value system
provided them with rational economic attitude, while the Jews and Jains failed to
develop industrial capitalism because of their value of Pariha(the restriction on
having any contact with other communities).

Critical Evaluation :
There is single system of religious value.
The specific society and their community internalized those values and
translated them in to day behavior
These values remained immune to and insulated against external pressures and
change.

5. Theory of Social Behavior:

Kunkel presents a behavioral model of entrepreneurship.
Supply of entrepreneurs is a function of social, political and economic structure.
Behavioral model concerned with the overtly expressed activities of individuals
and their relations to the previous and present surroundings, social structures and
physical conditions.
According to Kunkel, individuals perform various activities of which some are
accepted by the society while others are not. The accepted are rewarded.
The rewards act as reinforcing stimulus increasing the probability of repeating that
behavior pattern.
 This pattern of social behavior is entrepreneurial behavior.
The supply of entrepreneurship depends upon four structures found in a society,
which are:
Limitation Structure: The society limits specific activities and this limitation
structure affects all the members of a society.
Demand Structure: Material rewards are necessary to lay the foundation for
future social gains. Moreover, behavior of people can be made entrepreneurial
by manipulating certain selected components of the demand structure.
Opportunity Structure: It consists of the availability of capital, management
and technological skills, information concerning production methods, labor and
markets.
Labor Structure: It is concerned with the supply of competent and willing
labor. The supply of labor is governed by several factors such as available
alternative means of livelihood, traditionalism and expectations of life.

Critical evaluation:
The theory assumes the ideal structures for the supply of entrepreneurs. But
generally, there is discrepancy between objectives, structures and the actual
incidence of entrepreneurs.
It is due to the fact that there are inadequate or incorrect perceptions attached
with these perceptions.
In practice, entrepreneurship is also governed by the specific combinations of
circumstances which are generally not available in the environment.

6. Theory of Leadership
According to Hoselitz, entrepreneurship is a function of managerial skills and
leadership.
Business also requires finance but that is of secondary importance.
He further explains that a person who is to become an industrial entrepreneur
must have more than the drive to earn profits and a mass wealth.
There are generally three types of leadership- merchant, money lenders,
managers and entrepreneurs.
Money lenders are market oriented and managers are authority oriented but
entrepreneurs have in addition to these a production orientation.

Critical evaluation:
It is quite true that marginal men or groups enjoying an ambiguous culture and
social position having no burden of tradition to inhibit them from
entrepreneurship development.
But there are certain economic and political factors also which encourage the
people to initiate entrepreneurial behavior.

7. Theory of Model Personality:

The theory of Cocharn is a sociological theory of entrepreneurial supply.
He emphasizes cultural values, role expectations and social sanctions as the key
elements that determine the supply of entrepreneurs.
 An entrepreneur is neither a super normal individual nor a deviant person but
represents a societys model personality.
His performance is influenced by three factors:
His own attitudes towards his occupation,
The role expectations held by sanctioning groups,
The operational requirements of the job.

Entrepreneurship

Process
The
Uniqueness Entrepreneur

Defining
Growth Entrepreneurship Innovation

Profit or Organization
Nonprofit Creation
Creating
Value

The Entrepreneurial
Process

Starting the Venture:

Identifying
Exploring the Researching Feasibility
Opportunities/Possible
Entrepreneurial Competitive Advantage Planning the Venture
Context Organizing the Venture
Launching the Venture

Managing the Venture:

Managing Processes
Managing People
Managing Growth
Special Issues

Benefits of Small Business Ownership

The opportunity to:
create your own destiny
make a difference
reach your full potential
reap unlimited profits
contribute to society and be recognized for your efforts
do what you enjoy and have fun at it
Create more jobs than big businesses
 Drawbacks of Small Business Ownership
Uncertainty of income
Risk of losing your entire investment
Long hours and hard work
Lower quality of life until the business gets established
High levels of stress
Complete responsibility
Discouragement
Small Businesses

Women Entrepreneurship
Women who initiate, organize and run a business enterprise, called women
entrepreneurs.
In terms of Schumpeterian concept of innovative entrepreneurs, women who innovate,
imitate or adopt a business activity are called women entrepreneurs.
The Government of Nepal has defined to women entrepreneurs based on women
participation in equity and employment of a business enterprise.
Since women are also human beings the term entrepreneur embraces both male and
female.
Women entrepreneur is one who creates a new business in the face of risk and
uncertainty for the purpose of achieving profit and growth by identifying opportunities
and assembling the necessary resources to capitalise those opportunities Thomas W.
Zimmerer
Women entrepreneurs may be defined as a woman or group of women who initiate,
organise and run a business enterprise.
Women entrepreneurship is the process of creating new venture by women through
risk-taking, innovating and managing for rewards.
It is related to women in independent business.
Women stand as a special focus group for entrepreneurship development.
Women entrepreneurs are women who innovate, imitate or adopt a business activity-
Joseph Schupeter
The desire for economic independence is the key factor for emergence of women
entrepreneurs.
The rising consciousness through education and training among women has facilitated
the growth of women entrepreneurs.

Functions of Women Entrepreneurs

To perform all the functions involved in establishing an enterprise like:
Idea generation and screening,
Determination of objectives,
Project preparation,
Product analysis,
Determination of forms of business organization,
Completion of promotional formalities,
Raising funds,
Procuring men, machine and materials
 Operation of business.

Frederick Harbison classify five functions of Women Entrepreneurs

Exploration of the prospects of starting a new business enterprise
Undertaking of risks and the handling of economic uncertainties involved in business
Introduction of innovation or imitation of innovations
Coordination, administration and control
Supervision and leadership

Problems of Women Entrepreneurship

1. Problem of Finance
2. Stiff Competition
3. Limited Mobility
4. Family Pressure
5. Legal constraints
6. Lack of Education
7. Male-dominated Society
8. Low Risk-Bearing Ability

UNIT-2 Entrepreneurship Motivation Theories

The Concept
Motivating Factors
Motivation Theories
Maslows Needs Hierarchy Theory
Mc Cleland's Acquired Needs Theory

Concept:
Motivating the potential entrepreneur to undertake
entrepreneurial activities are an important task in
accelerating the pace of economic development.
It is the force that initiates, directs and sustains
entrepreneurial behavior.
Motive may be defined as an inner state of our mind
that moves or activates or energizes and directs our
behavior towards our goals.
Motives are expressions of a persons goals or needs.
 Motivation may be defined as the process that
motivates a person into action and induces him to
continue the course of action for the achievement of
goals.
Motives are indications of an individuals need.
Motivation may be defined as the willingness to exert
high levels of effort to reach organizational goals
conditioned by the efforts ability to satisfy individual
need.
It is the force that moves individuals to work for higher
performance.
Motivation refers to the way in which urges, drives,
desires, striving, aspirations or needs direct, control or
explain the behavior of human being Dalton EML
Farland
Motivation consists of three elements like motive,
behavior and goal.

Assumptions
The urges, drives, desires, aspirations, striving or needs
of human being influence human behavior.
The factors which influence human behavior are
psychological, sociological, economic and managerial.
The efficiency of such behavior may be tested by the
resultant action, whether this behavior has directed,
controlled or implemented the desired action.

Steps in Motivation
Recognizing a need;
Selecting ways to satisfy that need;
 Engaging in behavior with the goal of satisfying the
need;
Assessing the outcome and reward of the chosen
behavior.

Contemporary approaches to motivation explain three

dimensions:
i. Need theories examine the internal needs that drive
people to take action;
ii. Process theories consider the thought process that
people use when deciding how to act rather than the
needs that stimulate action;
iii. Reinforcement theories are concerned with how and
why rewards and punishments influence behaviour.

Maslows Hierarchy of Needs Theory

This theory is governed by the fact that people are
universally motivated to satisfy a sequence of five
categories of needs.
They start by addressing the basic needs and then they
advance up the hierarchy as they seek to satisfy each
progressively higher need.

i) Physiological Needs:
These needs are basic to human life and include food,
clothing, shelter, air, water and other necessities of life.
They exert tremendous influence on human behaviour.
Entrepreneur also being a man needs to meet his
physiological needs for survival.
Hence, he/she is motivated to work in the enterprise
to have economic rewards to meet the basic needs.
ii) Safety and Security Needs:
After satisfying the physiological needs, the next needs
felt are called safety and security needs.
These needs find expression in such desires as
economic security and protection from physical
dangers.
Meeting these needs requires more money and hence,
the entrepreneur is prompted to work more in his/her
enterprise.
Like physiological needs, these become inactive once
they are satisfied.

iii) Social Needs:

Man is a social factor. So, societal recognition is most
important to impart individual intuition of the people.
These needs, therefore, refer to belongingness.
All individuals want to be recognized and accepted by
others.
Likewise, an entrepreneur is motivated to interact with
fellow entrepreneurs, his employees & others.

iv) Esteem Needs:

These needs refer to self-esteem and self-respect.
They include such needs which indicate self-confidence,
achievement, competence, knowledge and
independence.
In case of entrepreneurs, the ownership and self-
control over enterprise satisfies their esteem needs by
providing them status, respect, reputation and
independence.
v) Self-Actualization:
The final step under the need hierarchy model is the
need for self-actualization.
This refers to self-fulfillment.
The term self-actualization was coined by Kurt
Goldstein and means to become actualized in what one
is potentially good at.

McClellands Acquired Needs Theory

i) Need for Affiliation: These refer to needs to establish
and maintain friendly and warm relations with others.
ii) Need for Power: These mean the ones desire to
dominate and influence others by using physical
objects and actions.
iii) Need for Achievement: This refers to ones desire to
accomplish something with own efforts. The implies
ones will to excel in his/her efforts.

Motivating Factors
1. Internal Factors:
i) Desire to do something new
ii) Educational background
iii) Occupational background or experience

2. External Factors:
i) Government assistance and support
ii) Availability of labor and raw material
iii) Encouragement from big business houses
iv) Promising demand for the product.
 UNIT3
Growth of Entrepreneurship

The growth concept

Economic factors for growth
Non-economic factors for growth
Rural entrepreneurship in Nepal
INGOs and NGOs in entrepreneurial development in Nepal
Entrepreneurship competency development in Nepal
Case study in Rural entrepreneurship and ECD

Growth Concept
Growth means positive changes in the physical and
mental status of a particular person.
Managerial entrepreneurial growth may be the most
critical tactic for the future success of business
enterprises.
After initiation of a new venture, the entrepreneur
needs to develop an understanding of management
change.
This is a great challenge, it often encompasses the art
of balancing mobile and dynamic factors.
Thus, the survival and growth of a new venture require
that the entrepreneur possess both strategic and
tactical skills and abilities. Which specific skills and
abilities are needed depend in part on the ventures
current development.
In organization, growth reflect the positive results of
the organization towards goals.
The process of growing.
 Full development; maturity.
An increase, as in size, number, value, or strength.
Something that grows or has grown.
The growth stage often requires major changes in
entrepreneurial strategy.
Competition and other market forces call for the
reformulation of strategies i.e. some firms find
themselves growing out of business because they are
unable to cope with the growth of their ventures.
Highly creative entrepreneurs sometimes are unable, or
unwilling, to meet the administrative challenges that
accompany this growth stage.
As a result, they leave the enterprise and move on to
other ventures.
This growth stage presents newer and more substantial
problems than those the entrepreneur faced during the
start-up stage.
These newer challenges force the entrepreneur into
developing a different set of skills while maintaining an
entrepreneurial perspective for the organization.
The growth stage is a transition from entrepreneurial
one-person leadership to managerial tea-oriented
leadership.

Growth Strategy
Under growth strategy, an enterprise is expected to
increase its level of business operations than its
immediate past.
Actually, in this strategy, a firm increases its expected
performance in terms of market share, sales revenue,
earnings etc.
 A growth strategy is one that an enterprise pursues
when it increases its level of objectives upward in a
significant increment much higher than an
extrapolation of its past achievement level.
The basic purpose of this strategy is to achieve higher
growth by initiating growth mechanism.
These mechanisms are entering new market, capturing
large share of the markets by improved product,
developing new products, acquiring latest technology,
acquiring better resources and inculcating
professionalism in management.

Features of Growth Stage

Strategy which involves holding the relative position of
the firm in a high-growth product market areas.
Increase market share in high growth market.
Increase market share in slow growth (matured
markets).
Hold strong relative position in slow growth market:
use excess cash flow, funds capacity and other
resources to support penetration of multi-national
markets with existing product line.
Hold strong relative position in a maturing market: use
excess cash flow, external funds capability and other
resources to support penetration of new product
market areas domestically.
Hold strong relative position in multi-national markets
with present product line, use excess cash flow, funds
capability and other resources to diversify products.
 Hold strong position in diversified product line
domestically, use excess cash flow, funds capability and
other resources to diversify markets.

Rationale of Growth Stage

Growth company holds better public image and able to
attract professional managers.
Growth firm easily adjusts itself with the changing
scenario specially in terms of opportunities available,
technological change etc.
Growth firm motivates management for high
performance by initiating higher compensation
packages and satisfying power and recognition needs.

Stages of Growth

Phase 1: Coming into Existence

This is the birth stage of the organization, where the

emphasis is on creating both a product and a market
for it.
The organization is a simple one and the entrepreneur
does everything and directly supervises subordinates.
Communication within the organization is frequent and
informal and decision making is highly sensitive to
market feedback.
The key questions for the organization at this stage are
as follows:
Can it get enough customers?
Does it have enough cash to cover the expenses of
starting up?
Phase 2: Survival
By this stage, the start-up has demonstrated that it is a
workable business unit.
Now, the emphasis shifts to the validity of the business
model.
The organization is still simple, but now it has the
semblance of an organizational structure.
Systems have not been fully developed, but accounting
systems are introduced.
The goal continues to be survival, although now the
organization is confident of achieving it.
Still, the owner is very closely identified with the
business.
The following are the main issues for the organization:
Can it generate enough cash to breakeven or replace
worn-out assets?
Is it capable to generate cash to grow to earn an
economic return on assets?

Phase 3: Success
The company is reasonably stable and profitable, and
the entrepreneur has to take a decision to grow further
or to maintain status quo.
Often, the entrepreneurs at this stage disengage and
allow the company to stay at this stage indefinitely.
This is not necessarily a bad thing, provided the
company is big enough and has sufficient markets to
ensure continued economic success.
The entrepreneur may decide to consolidate and grow
the company.
 Usually, that would mean taking on fresh debt to
finance growth.
There is likely to be a decentralized organizational
structure and much greater responsibility is passed on
to middle-level management with the entrepreneur
restricted to managing by exception.
The concept of a profit centre may be introduced.
The following will be the main issues of this stages:
Will the managers be capable of meeting the needs of
the growing business?
Will the cash be sufficient to finance both the basic
business and the growth plans?

Phase 4: Take-Off
At this stage, the organization is decentralized and has
various departments.
The head office has overall control and a few critical
functions are centralized.
Systems are being expanded and refined to meet
growing requirements and there is extensive
operational and strategic planning.
The key managers are competent to handle the new
and dynamic circumstances.
The company is still dominated by the entrepreneur
and the entrepreneur usually has controlling equity.
If the entrepreneur is able to meet the challenges, the
firm can grow into a big business.
Can decision making be effectively delegated?
Will there be enough cash flow to meet liquidity
demands?
 Phase 5: Consolidation
The start-up has finally arrived.
Now, it has the financial and managerial resources to
be a formidable force in the industry.
It has the ability to engage in detailed strategic and
tactical planning.
The focus is on solving problems through team action
and experimentation is encouraged.
Both a habit structure and a reflective structure
emerge.
The entrepreneurs role is restricted to providing broad
directional cues and the day-to-day management is
carried out by the management team.
Will the company be able to eliminate the inefficiencies
that growth can bring ?
Can the company be professional without stifling its
entrepreneurial qualities?

Economic Factors for Growth

The economic factors that affect entrepreneurship
development are Capital, Labour, Technology, Raw
Materials and Market.

Capital:
It is a produced means of production.
Capital is a major factor and a prerequisite for the
development of entrepreneurship.
The establishment of a business cannot even be
imagined without capital.
The factors of production should be combined for
production.
 The entrepreneur combines the factors like land,
labour, machine and raw materials, which are owned
by others through the aid of capital and starts
production.
The business can be expanded and diversified
according to need only if the capital investment can be
increased.
More the increase in capital more is the increase in
capital formation.
This leads to an increases entrepreneurial activity and
the lack of capital limits the entrepreneurship.

Labour:
The quantity and quality of labour both play important
role in the emergence of entrepreneurship.
Adam Smith had viewed division of labour as an
important element of economic development.
According to him, division of labour increases the
productive capacity of labour.
The availability of skilled labour is essential for the
development of entrepreneur and entrepreneurship.
It is regarded that the productivity in Japan is high due
its labour being very efficient and skilled.
The more flow of foreign direct investment to the
countries having cheap and skilled labour also proves
the significance of labor in entrepreneurship
development.
Despite this there are also evidences that the
availability or unavailability of labor does not prevent
entrepreneurship.
 If low-cost labour is unavailable then capital intensive
technique can be used.

Technology:
According to traditional economic theory there are only
four factors of production land, labour, capital and
organization or management.
Since technology also plays a role in the increase in
production at present technology is also regarded as a
determinant of production.
Particularly in industrial production technology has
crucial role.
The technological improvement increases the efficiency
of the factors of production and productivity.
It helps to reduce cost of production and increase
profit.
Hence, while technological progress makes way for
increased production and entrepreneurship the
technological stagnation impairs entrepreneurship
development.
The development of technology creates new
opportunities.

Raw Materials:
In the absence of raw material is also essential for
production.
In the absence of raw material neither the starting of
an enterprise can be imagined nor the entrepreneurs
may emerge.
 However, in some instances the technological
innovation can compensate the scarcity of raw
material.
For example in Japan the scarcity of raw material did
not hamper the development of entrepreneurship,
rather it led the entrepreneurship to new direction.
The development of Japan, Singapore and Hong Kong
provides the example of how human resource can be
utilised to compensate the scarcity of other factors.
Despite such exceptions raw materials may be regarded
as one of the important economic factor of the
development of entrepreneurship and enterprise.
It is because in the absence of raw material the act of
producing cannot be imagined at all.

Market:
All production activities are undertaken for the market.
There is no use of production if there is no market.
Hence, the size and structure of market is equally
important in the development of enterprise and
entrepreneurship.
According D.S. Landies, Germany and Japan the rapid
development of market had led to the rapid
development of entrepreneurship.
In Nepal, the entrepreneurs often point out that the
small size of the country and the limited size of the
market due to widespread poverty is the main obstacle
in the promotion of business.
It is also argued that the limitedness of internal market
cannot be an obstacle in the development of
 entrepreneur and entrepreneurship due to
liberalization and globalization.
However, the competitive capacity of the
entrepreneurs of developing countries is low while the
developed have the growing tendency of
protectionism.

Economic System:

a. Free Market Economies:

They encourage freedom of choice and individual
initiative.
Competitive market mechanism guides business
decisions.
Profit serves as the driver of economic engine.
Factors of production are privately owned.
This economic model is ideal for entrepreneurship
growth.

b. Centrally Planned Economies:

They are centrally planned, controlled and regulated by
the government.
Public enterprises play the eminent role in the
economy.
The factors of production are government owned.
There is no room for individual initiative and creativity.
This model is not suitable for entrepreneurship growth.
North Korea, China and Cuba present examples of
centrally planned economies.

c. Mixed Economies:
 They are mix of free market economy and centrally
planned economy.
Both public and private sectors coexist.
The private sector is regulated by the government.
This model is selectively suitable for entrepreneurship
growth, especially in cottage and small scale
enterprises.
Nepal presents an example of mixed economy where
public utilities are state controlled.

Development of Multinational Corporations:

International business scenario has created favourable
conditions for the development of MNCs in home
country.
These MNCs have a direct investment abroad and
direct interest in the business environment in which
they have such investment.
Flexibility in direct foreign investment on the part of
government discourages domestic entrepreneurs to
establish new enterprises in the home country.
MNCs generally have good product image, updated
technology, quality control and effective marketing
strategies and it is difficult task before the
entrepreneurs to compete with them.

Globalization:
In the era of globalization, government itself is
interested to force the home enterprises to improve
their competitive strength in fighting for consumer
market in international environment.
 The globalization throws both opportunities and
challenges to the Nepalese entrepreneurs.
With the opening up of the economy, entrepreneurs
are facing tough competition from MNCs.
Now, they have been forced to reorient their strategies
to reduce costs, improve the quality of their products
and thereby making survival possible in the competitive
market.

GATT/WTO:
They have set in motion for expanded multilateral
trading system.
They place special emphasis on the removal of non-
tariff trade barriers and low level of tariffs and removal
of trade restrictions have exposed the Nepal
entrepreneurs o unexpected challenges.
Nepal has ratified the agreement for the establishment
of the WTO as a logical step of it endorsement of the
Uruguay round of negotiations relating to GATT.
Under these situations, Nepalese entrepreneurs are
being forced to change their strategies as there is no
option for them except to improve their competitive
strength.

International Capital Market:

In recent years, globalization process enables the joint
stock companies to approach the international capital
market for their funding programme.
It is quite true that Nepalese entrepreneurs are being
compelled to adopt international accounting and
 reporting norms but they are quite successful in
launching their new enterprises.
Entrepreneurial environment affects the growth of
entrepreneurship in the country.
Government should try to create favourable
environment for the development of an effective
entrepreneurship.

Non-Economic Factors

Political Factors:
i) Government Policies
ii) Government Actions
iii) Government Regulations

Social Factors:
i) Legitimacy of Entrepreneurship
ii) Social Mobility
iii) Marginality
iv) Security
v) Social Change

Psychological Factors:
i) Need to Achieve
ii) Withdrawal of Status Respect

Technological Factors
i) Level of Technology
ii) Pace of Technological Change
iii) Research & Development
iv) E-Commerce
 Rural Entrepreneurship
Rural entrepreneurship is that entrepreneurship which
ensures value addition to rural resources in rural areas
engaging largely rural human .
To promote entrepreneurs who would take to rural
entrepreneurship in utmost earnestness and sincerity is
to ensure rural development.
Such enterprising people who prefer rural
entrepreneurship may or may not themselves belong to
rural areas.
Entrepreneurs taking to rural entrepreneurship should
not only set up enterprises in rural areas but should be
also using rural produce as raw material and employing
rural people in their production processes.
Rural entrepreneurship is, in essence, that
entrepreneurship which ensures value addition to rural
resources in rural areas engaging largely rural human
resources.
In other words, this means that finished products are
produced in rural areas out of resources obtained in
rural areas by largely rural people
Constraints of Potential Rural Entrepreneurs and
Development Inputs
1. Low self-image and confidence. Motivational inputs,
unfreezing and experience sharing by successful local
entrepreneurs.
2. No faith on others includes friends. Group building
experiences.
3. No exposure to industry/business. Field visit to
factories and big markets.
 4. Who to contact for starting a venture, what
formalities and procedures are to be followed?
Information inputs on procedures and formalities.
How to know whether the identified business is a viable
and sound proposition? Opportunity identification and
guidance.
How to know whether the identified business is a viable
and sound proposition? Market survey, project report
preparation.
How does one carry out bank operations? Training in
simple banking procedures like filing up deposit and
withdrawal slip etc.
How to manage the business? Basic management
orientation through simulation exercises. 9. How to
read and write accounts? Functional and numerical
literacy. Simple accounting in terms of writing income
and expenditure. 10. Almost no technical skills
Technical training (on-the-job training).

Entrepreneurship Competency Development Programs in

Nepal
In Nepal, entrepreneurship has not been developed as
expected.
Due to this one of the main reason of the slow
industrial progress in the country is regarded to be the
lack of dashing entrepreneurs.
According to Ramesh NathDungel (1983), In the
present stage, when the private sector has enough
leadership and strength, nor fulfils the natural
requirement of entrepreneurship, the public sector
 should be viewed as feasible and only alternative of
entrepreneurship growth.
Similarly as opined by Ram SharanMahat (1981),
Despite all constraints a class of Shumpeters dashing
entrepreneurs with drive, initiative, ambition and
combinations of business activity would be required for
promoting industrial development, such class does not
seem to exist in Nepal.
The entrepreneurship development program
conducted in Nepal may be explained as follows:

1. Government Agencies:
It cannot be ignored that the government of Nepal is
effortful for the development of entrepreneurship in
the country since long time.
In line with the government policy some government
agencies have been involved in entrepreneurship
development since long time.
An institution known as GhareluIlamPracharAdda had
been established in 1936.
It had used to impart training to the local people for
developing skill on selected craft industries.
Later after the conversion of this office to Cottage
Industry Department the training and production
centre had been extended to all the districts of the
country.
This department used to impart training on carpentry,
black-smithy, sewing, weaving, dyeing and so on.
At present, the Cottage and Small Industry
Department has been imparting training on paper,
 cloth, readymade garment, leather etc. only in the
central level.
This department at present conducts different types of
income generating, skill-oriented and employment-
promoting trainings for the deprived and unemployed
persons.
It has also been conducting entrepreneurship
development program in a limited scale.
Likewise, it has been providing consultancy service for
the expansion of industry and for the establishment of
new industries.
Cottage and Small Industry Development Committee
has been providing skill development training on
different subjects to the entrepreneurs.
The technical schools operating under Council for
Technical and Vocational Training (CTEVT) have been
imparting technical and vocational training.
One of the functions of Nepal Industrial Development
Corporation (NIDC) established in 1959 is to make all
types of study, research, survey, analysis regarding the
establishment and operation of industry, and to make
available training, consultancy and other information.
This corporation had launched nationwide
entrepreneurship development program in 1980s.
The participants of the training were provided basic
knowledge on project identification, preparation,
analysis, history of industrialization, role of financial
intermediaries, laws, rules and regulations relating to
industries, government plan and industrial programs,
role of entrepreneurs in entrepreneurship promotion
etc.
 Realizing that entrepreneurship is not a natural product
but the product of education, training and environment
Women Training Centre was established in 1956 to
provide income-earning skill to the women.
Small Business Promotion Project (SBPP) was
established in fiscal year 2039/40 with the objective of
developing entrepreneurship in the country through
new business creation training, business management,
training, research and consultancy and to promote
small business.
This was converted to Industrial Enterprise
Development Centre in 2052, which was later
converted to Industrial Enterprise Development
Institute since Kartik, 2053.
This institute has been conducting various programs
such as new business creation training, development
and creation of micro enterprise, women
entrepreneurship development, business management
training, small enterprise consultancy service, business
information service, and operational research programs
in various districts.

2. Non-governmental organization (NGOs):

The non-governmental organizations besides being
involved in different type of activities have also been
involved in entrepreneurship development.
Federation of Nepal Chamber of Commerce and
Industry (FNCCI) and the associations associated with,
it have been imparting entrepreneurship and skill
development training.
 The FNCCI has established women entrepreneur
development committee for the development of
women entrepreneur and agriculture enterprise centre
for the development, training and consultancy of agro-
enterprises/entrepreneurs.
Federation of Cottage and Small Industry has been
imparting skill development and entrepreneurship
development training to the small entrepreneurs.
Federation of Business and Professional Women
(FBPWN) is to encourage young women to initiate and
develop their own business and impart training to
increase skill, knowledge and attitude for the
fulfillment of that purpose.
Women in Science and Technology (WIST), another
organization of women has been effortful to augment
knowledge of science and technology on women
through workshop, training & seminar.
Another important organization of women
entrepreneurs is Women Entrepreneurs Association of
Nepal (WEAN).
This non-government organization was established in
1987 with the initiative of some famous women
entrepreneurs.
The objective of its establishment was to help other
women in establishing new enterprise and expand
established business.

Entrepreneurship Competency Development

Concept of Entrepreneurship Competency
All new ventures do not succeed.
 Some entrepreneurs are successful while others are
failure.
What makes entrepreneurs successful, this is important
question.
Entrepreneurship competencies play a leading role in
making entrepreneurs successful.
Competence is an underlying personal characteristic
which leads to superior performance.
It is a combination of knowledge, skills, attitudes and
motives.
The competencies possessed by an entrepreneur which
lead to superior performance are known as
entrepreneurial competencies.

Components of Entrepreneurship Competencies

1. Knowledge
2. Skills
3. Attitude
4. motives

Types of Entrepreneurship Competencies

1. Analytical Competency:
It is ability to identify, analyze and solve problems
under conditions of risk and uncertainty.
Entrepreneurs are risk takers.

2. Interpersonal Competency:
It is ability to lead, influence, communicate, supervise,
negotiate, and control people at all levels.
It is ability to get along with people and motivate
people to perform jobs.
 Entrepreneurs must effectively manage their team.

3. Emotional Competency:
It is capacity to be stimulated by emotional and
interpersonal crises.
It involves bearing high levels of responsibility without
becoming paralyzed.
Entrepreneurs have persistence to succeed in their
purpose.

Need for Entrepreneurship Competency Development

Develop entrepreneurs
Change infusion
Provide managerial know-how
information

Objective of ECD
Improve Competencies
Facilitate Environmental Adaptation
Strengthen Motivation
Impart Business Knowledge
Provide Start-up Information
Impart Managerial Skills and Techniques

ECD in Nepal
Entrepreneurship development has become a matter of
great concern in developed as well as developing
countries like Nepal.
ECD serve as the means for developing entrepreneurs.
Nepal had a late start in development.
It is least developed.
 Industrial development is slow in the country.
More than 90 percent of the industrial establishment
are small and medium enterprises.
However, more than 60% of such enterprises remain
sick or closed.
Nepal has a poor track record of entrepreneurship
development.
Entrepreneurship competency development program
have been going on since early 1960s.
The ECD programs in Nepal are conducted both in the
government and non-government sectors.

ECD Program in Nepal

Government Sector Program:

Department of Cottage and Small Industries
Cottage and Small Industries Development Board
Industrial Enterprise Development Institute
Department of Labour
Other Institutions

Non-Government Sector Program:

Trade Associations
Federation of Business and Professional Women Nepal
Women Entrepreneurs Association of Nepal
Swiss Contact
Private Organizations

Problems of ECD Programs in Nepal

Poor Quality Control
Urban Bias
 High Cost
Poor Coordination
Politicization

Unit V
Institutional Support to Entrepreneurship in Nepal

The Support Concept

Financial Support Agencies
Commercial Banks
Finance Companies and Cooperatives

Need for Institutional Support:

Institutions can be government, non-government,
cooperatives and private organizations.
Institutional support can be promotional, supportive
and facilitative.
Such support is needed to solve and mitigate various
problems faced by entrepreneurs.
Availability of support and facilities makes the business
environment conducive and enabling for
entrepreneurs.
However, the main problems that confront
entrepreneurs are:
Poor access to capital and credit.
Scarcity of raw materials: Unreliable supply
sources for inputs.
Marketing problems: Poor access to market and
tough competition. Lack of market information.
 Lack of opportunities for competency
development.
Lack of access to appropriate infrastructure: It is
very costly to develop by entrepreneur.
Poor access to information, research and
extension services
Lack of supportive policies and incentives.

Institutional support to entrepreneur is mainly needed

in the following areas:

1. Capital Resources:
Entrepreneurs lack adequate capital resources.
New ventures do not get easy access to capital market
instruments.
Loans from formal financial sector such as commercial
banks, cooperatives and other financial institutions are
needed to finance new ventures.
The cost of such credit tends to be low compared to
informal sector.
International NGOs also provide concessionary loans to
target entrepreneurs.

2. Raw Material Supply:

Easy availability of raw materials facilitates
entrepreneurial growth.
New ventures, especially those based on new
technology, require raw materials from foreign
sources.
 Entrepreneurs of such ventures lack time, experience
and foreign exchange resources to import the needed
raw materials.
Institutions are needed to take care of raw material
supply for entrepreneurs.

3. Marketing Outlets:
Entrepreneurs lack skills, experience, information and
resources to market their finished products.
Many new ventures fail because they fail at the
marketing front.
Institutions are needed to provide marketing outlets
for the products of entrepreneurs.
They establish emporiums, organize trade fairs and
exhibitions to market the products of cottage and
small industries.
NGO also carry out the function of marketing the
products of entrepreneurs.

4. Competency Development:
Entrepreneurs need to develop their self-competency.
They need to develop the skills of their employees.
Various education and training programmes are
needed for updating and upgrading competencies.
Such programmes are expensive.
Entrepreneurs lack capabilities and resources to
organize them.
Institutions are needed to cater for competency
development needs of entrepreneurs.
 Various government institutions provide training and
development programmes at no cost or highly
subsidized cost.
NGOs also provide training programmes.
Private organizations are also active in skill
development but their programmes tend to be costly.

5. Infrastructure Availability:
Entrepreneurs need infrastructural facilities.
They can be industrial sheds, transport,
communication, power, water, waste disposal etc.
Such facilities need huge resources to build.
Entrepreneurs do not posses huge resources to build
infrastructure.
Institutions are needed to build infrastructure.
Government institutions, supported by foreign aid,
undertake the task of infrastructure development.
E.g. government of Nepal has established Bhaktapur
Industrial District exclusively for the establishment of
cottage and small industries.

6. Access to Information, Research and Extension Services:

Information is power.
Research is the source of inventions and innovations.
Extension services provide knowledge about
technological and other developments in the industrial
environment.
Entrepreneurs lack resources to build facilities for
information, research and extension services.
Institutions are needed to supply relevant information
to entrepreneurs.
 Institutions also conduct research and provide
extension services relevant to entrepreneurial
activities.
Government institutions are important to fulfil such
needs.

7. Policies and Incentives:

Entrepreneurs need supportive policy environment to
survive and grow.
Government institutions are the source of policies.
The Industrial policy of Nepal has reserved cottage and
small industries for Nepalese citizens.
The legal framework enacted by the government
generally carries various incentives for entrepreneurial
activities.
Special packages are provided to revive sick industries
or start new ventures.

Financial Institutions
The establishment of Nepal Bank Ltd. 1937 marks the
beginning of financial institution in Nepal.
This was followed by Nepal Rastra Bank in 1956, Nepal
Industrial Development Corporation in 1956,
RastriyaBanijya Bank in 1966, and Agricultural
Development Bank in 1968.
Financial institutions in Nepal were all government
owned institutions till 1984.
They consisted of Nepal Rastra Bank, 2 Commercial
Banks, 2 Insurance Companies, 2 Development Banks,
1 Employee Provident Fund and 1 Credit Guarantee
Corporation.
 The liberalization policy of the government in the early
1980s opened up the door for private sector initiative
in the financial sector.
In Nepal, 31 commercial banks, 87 development bank,
79 finance and 21 micro-credits are in operation.
The commercial banks accounted for about 70% of
total financial system assets.
The two development banks (ADB and NIDF) account
for 8%.
The finance companies account for 4%.
Rural development banks focus on poor rural women.
Loan disbursement by commercial banks increased
more than four-fold between 1994 and 2003.
Similarly, for Agricultural Development Bank, it
increased four-fold over the same period.
Employees Provident Fund also has performed well.
But the performance of Nepal Industrial Development
Finance has been poor.
Banking financial institutions support entrepreneurs in
Nepal.
In July 2009, commercial banks had advanced 39% of
their total loans to industrial sector.
Similarly, Agricultural Development Bank had advanced
32% of its total loans for agro-industries and agro-
business.
Nepal Industrial Development Finance had advanced
62% of total loans to manufacturing industries.

Institutional Finance
Finance is important for start up and growth of new
ventures.
 Entrepreneurs lack adequate finance.
Both government and private financial institutions are
important sources of institutional finance for
entrepreneurs.

1. Commercial Banks:
Commercial banks can be government-owned,
privately-owned or jointly owned by government and
the private sector.
They provide both short and long-term loans to
industries.
They are the prime source of meeting working capital
needs.
Commercial banks collect deposits form public, invest
in loans and overdrafts, sell and purchase bills, open
letter of credit for export and import, provide bank
guarantee, deal in foreign exchange and invest in
stocks and bonds.
They also implement directed credit programmes for
specific target groups.
In the past, commercial banks extended little credit to
cottage and small industries due to their low
creditworthiness and high risk.
However, central banks have directed them to invest in
cottage and small industries.
The rate of interest is concessional for this sector.

2. Development Banks:
They are specialized financial institutions.
They work as development finance institutions.
 They take high risk by providing loans for venture
capital.
Development banks cater to the needs of
entrepreneurs for industry, agriculture, import-export,
cottage and small industries, cooperatives.
Development banks perform both financial and
promotional functions.

i) Financial Functions:
Mobilize deposits from national and international
sources.
Provide loans to industries and other enterprises.
Perform merchant banking functions and
underwrite share issues.
Purchase equity and debentures of industries,
including investment in venture capital for
entrepreneurs.
Provide guarantees and refinance facilities.

ii) Promotional Functions:

Carry out market and investment research
Carry out technical and economic research of
industries
Provide technical, managerial and financial services
Attract foreign investment
Develop capital market

3. Finance Companies & Cooperatives:

They accept fixed and saving deposits.
They provide loans to industries and individuals.
 Cottage and small industries find them simple to get
loans.
Their functions are:
Collect fixed and saving deposits. They provide
higher rate of interest.
Provide term loans to small businesses, industries
and individual. They charge higher rate of interest.
Provide hire purchase loan.
Perform merchant banking functions.
Invest in stocks and bonds.
Provide lease finance for properties and equipment
leasing.