IMO STATE POLYTECHNIC UMUAGWO

(ORLU CAMPUS)

SCHOOL OF BUSINESS AND MANAGEMENT

DEPARTMENT OF MASS COMMUNICATION

NAME:
OKAFOR AMARACHI LILIAN

REG NO
2018/ND/MAC/80226

COURSE TITLE: ECONOMICS

COURSE CODE: GNS 222

ASSIGNMENT ON
EFFECTS OF ENTREPRENEUR AS A FACTOR OF
PRODUCTION TO THE NIGERIA ECONOMY

LECTURER NAME:
MR. LUCKY

MARCH, 2021.

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Introduction

Entrepreneurship is the ability and readiness to develop, organize and run a

business enterprise, along with any of its uncertainties in order to make a profit.
The most prominent example of entrepreneurship is the starting of new businesses.

In economics, entrepreneurship connected with land, labour, natural resources and

capital can generate a profit. The entrepreneurial vision is defined by discovery and
risk-taking and is an indispensable part of a nation’s capacity to succeed in an
ever-changing and more competitive global marketplace.

An entrepreneur is someone who organizes, manages, and assumes the risks of a

business or enterprise. An entrepreneur is an agent of change. Entrepreneurship is
the process of discovering new ways of combining resources. When the market
value generated by this new combination of resources is greater than the market
value these resources can generate elsewhere individually or in some other
combination, the entrepreneur makes a profit. An entrepreneur who takes the
resources necessary to produce a pair of jeans that can be sold for thirty dollars and
instead turns them into a denim backpack that sells for fifty dollars will earn a
profit by increasing the value those resources create. This comparison is possible
because in competitive resource markets, an entrepreneur’s costs of production are
determined by the prices required to bid the necessary resources away from
alternative uses. Those prices will be equal to the value that the resources could
create in their next-best alternate uses. Because the price of purchasing resources
measures this OPPORTUNITY COST— the value of the forgone alternatives—the
profit entrepreneurs make reflects the amount by which they have increased the
value generated by the resources under their control.

Entrepreneurs who make a loss, however, have reduced the value created by the
resources under their control; that is, those resources could have produced more
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value elsewhere. Losses mean that an entrepreneur has essentially turned a fifty-
dollar denim backpack into a thirty-dollar pair of jeans. This error in judgment is
part of the entrepreneurial learning, or discovery, process vital to the efficient
operation of markets. The profit-and-loss system of CAPITALISM helps to quickly
sort through the many new resource combinations entrepreneurs discover. A
vibrant, growing economy depends on the EFFICIENCY of the process by which
new ideas are quickly discovered, acted on, and labeled as successes or failures.
Just as important as identifying successes is making sure that failures are quickly
extinguished, freeing poorly used resources to go elsewhere. This is the positive
side of business failure.

Successful entrepreneurs expand the size of the economic pie for everyone. Bill
Gates, who as an undergraduate at Harvard developed BASIC for the first
microcomputer, went on to help found Microsoft in 1975. During the 1980s, IBM
contracted with Gates to provide the operating system for its computers, a system
now known as MS-DOS. Gates procured the software from another firm,
essentially turning the thirty-dollar pair of jeans into a multibillion-dollar product.
Microsoft’s Office and Windows operating software now run on about 90 percent
of the world’s computers. By making software that increases
human PRODUCTIVITY, Gates expanded our ability to generate output (and
income), resulting in a higher standard of living for all.

Origin of Entrepreneurship

The term entrepreneurship is derived from a French word ‘Entreprendre’ which

means ‘to undertake’, ‘to pursue opportunities’, or ‘to fulfill needs and wants
through innovation and starring businesses’. The word first appeared in the French
dictionary in 1723.

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It is believed that the Irish Banker operating in France, Ricardo Cantillon (Kent,
1984) was the first person who used the word ‘entreprendre’ in economics as “an
agent who assembles material/inputs for producing goods at a specific price and
through coordination of those inputs produces goods whose sales price is uncertain
in comparison with production cost”.

It is also believed that the Frenchman J.B. Say (1824) first used the term
‘entrepreneur’ as an economic agent who brought together the factors of
production in such a way that new wealth can be created.

Oxford English dictionary adopted the word ‘entreprendre’ as “entrepreneur” in

1897 and meant;

“director or manager of a public musical institution; one who gets up

entertainments, especially musical performance”.

Webster’s Third New International Dictionary (1961) takes it as;

‘an organizer of an economic venture, especially one who organizes, owns,

manages, and assumes the risk of a business’.

The Oxford English dictionary has revised the meaning of entrepreneur in / 1933
and meant ‘a contractor acting as an intermediary between capital and labor”.

Today, entrepreneurship is used with different meanings such as innovating, risk-

bearing, adventurism, wealth creation, thrill-seeking, etc.

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 Concept of Entrepreneurship

Like other economic concepts, entrepreneurship has been a subject of much debate
and discussions. It is an elusive concept.

Hence, it is defined differently by different authors. While some call

entrepreneurship as ‘risk-bearing’, others view it innovation and yet others
consider it ‘thrill-seeking’. Let us consider some important definitions of
entrepreneurship to understand what entrepreneurship is all about.

In a Conference on Entrepreneurship held in the United States, the term

‘entrepreneurship’ was defined as follows:

“Entrepreneurship is the attempt to create value through recognition of business

opportunity, the management of risk-taking appropriate to the opportunity, and
through the communicative and management skills to mobilize human, financial
and material resources necessary to bring a project to fruition”.’

In the opinion ‘of A.H. Cole, “Entrepreneurship is the purposeful activity of an

individual or a group of associated individuals, undertaken to initiate, maintain or
aggrandize profit by production or distribution of economic goods and services”.

According to Schumpeter, “Entrepreneurship is based on purposeful and

systematic innovation. It included not only the independent businessman but also
company directors and managers who carry out innovative functions”.

In all the above definitions, entrepreneurship refers to the functions performed by

an entrepreneur in establishing an enterprise. Just as management is regarded as
What managers do, entrepreneurship may be regarded as what entrepreneurs do. In
other words, entrepreneurship is the act of being an entrepreneur.

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Entrepreneurship is a process involving various actions to be undertaken to
establish an enterprise. It is, thus, the process of giving birth to *new enterprise. ‘

Innovation and risk-bearing are regarded as the two basic elements involved in
entrepreneurship. Let us understand what these two terms mean.

Innovation

Innovation, i.e., doing something new or something different is a necessary

condition to be called a person as an entrepreneur.

The entrepreneurs are constantly on the lookout to do something different and

unique to meet the changing requirements of the customers.

They may or may not be inventors of new products or new methods of production,
but they possess the ability to foresee the possibility of making use of the
inventions for their enterprises. Let some facts speak.

To satisfy the changing preference of customers, nowadays fruit juice is sold in

small cartons (Mango Fruity) instead of bottles so that customers can carry it and
throw away the container after drinking the juice. Let us take another example.

Lipton offers its tea in small packs known as ‘PUDIYAS’ to meet the requirements
of its rural customers.

You may have heard of Henry Ford, the founder of the Ford Motor Company in
the United States.

Remember, Henry Ford himself did not invent the automobile. Foreseeing the
people’s desire to have passenger cars at somewhat lower rates, he applied new
methods of mass production to offer passenger cars to the customers at an
affordable price.

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Since customers’ tastes and preferences always keep on changing, hence the
entrepreneur needs to apply invention after invention continuously to meet the
customers’ changing demands for products.

Risk-Bearing

Starting a new enterprise always involves risk and trying to do something new and
different is also risky.

The reason is not difficult to seek. The enterprise may earn profits or incur losses
because of various factors like increasing competition, changes in customer
preferences, shortage of raw material and so on.

An entrepreneur, therefore, needs to be bold enough to assume the risk involved in

the enterprise.

He needs to be a risk-taker, not a risk avoider. His risk-bearing ability enables him
even if he fails in one time or one venture to persist on and on which ultimately
helps him succeed.

The Japanese proverb applies to him; “Fall seven times, stand up eight.”

Types of Entrepreneurship

Small Business Entrepreneurship-

These businesses are a hairdresser, grocery store, travel agent, consultant,

carpenter, plumber, electrician, etc. These people run or own their own business
and hire family members or local employee. For them, the profit would be able to
feed their family and not making 100 million business or taking over an industry.
They fund their business by taking small business loans or loans from friends and
family.

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Scalable Startup Entrepreneurship-

This start-up entrepreneur starts a business knowing that their vision can change
the world. They attract investors who think and encourage people who think out of
the box. The research focuses on a scalable business and experimental models, so,
they hire the best and the brightest employees. They require more venture capital
to fuel and back their project or business.

Large Company Entrepreneurship-

These huge companies have defined life-cycle. Most of these companies grow and
sustain by offering new and innovative products that revolve around their main
products. The change in technology, customer preferences, new competition, etc.,
build pressure for large companies to create an innovative product and sell it to the
new set of customers in the new market. To cope with the rapid technological
changes, the existing organizations either buy innovation enterprises or attempt to
construct the product internally.

Social Entrepreneurship-

This type of entrepreneurship focuses on producing product and services that

resolve social needs and problems. Their only motto and goal is to work for society
and not make any profits.

Characteristics of Entrepreneurship:

Not all entrepreneurs are successful; there are definite characteristics that make
entrepreneurship successful. A few of them are mentioned below:

 Ability to take a risk- Starting any new venture involves a considerable

amount of failure risk. Therefore, an entrepreneur needs to be courageous
and able to evaluate and take risks, which is an essential part of being an
entrepreneur.
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 Innovation- It should be highly innovative to generate new ideas, start a
company and earn profits out of it. Change can be the launching of a new
product that is new to the market or a process that does the same thing but in
a more efficient and economical way.

 Visionary and Leadership quality- To be successful, the entrepreneur

should have a clear vision of his new venture. However, to turn the idea into
reality, a lot of resources and employees are required. Here, leadership
quality is paramount because leaders impart and guide their employees
towards the right path of success.

 Flexible- An entrepreneur should be flexible and open to change according

to the situation. To be on the top, a businessperson should be equipped to
embrace change in a product and service, as and when needed.

 Know your Product-A company owner should know the product offerings
and also be aware of the latest trend in the market. It is essential to know if
the available product or service meets the demands of the current market, or
whether it is time to tweak it a little. Being able to be accountable and then
alter as needed is a vital part of entrepreneurship.

 Economic Activity: Entrepreneurship is an economic activity, as it involves

designing, launching and running a new business enterprises in order to earn
the profit, by ensuring best possible use of resources.

 Creativity and innovation: It involves discovering new ideas and

implementing it in business. The entrepreneur continuously evaluates current
modes of running a business and identifies new methods and techniques for
operating the business more efficiently and effectively.

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 Profit: The activity of entrepreneurship is undertaken with the sole objective
of making the profit. It is also the reward of the efforts made and risk taken
by the entrepreneur.

 Risk Bearing: “Willingness to assume the risk” is the essence of

entrepreneurship without which he/she cannot succeed. It occurs due to the
creation and implementation of new ideas. Such ideas are often uncertain,
and so the result may or may not be positive and instant.

Importance of Entrepreneurship

 Creation of Employment- Entrepreneurship generates employment. It

provides an entry-level job, required for gaining experience and training for
unskilled workers.

 Innovation- It is the hub of innovation that provides new product ventures,

market, technology and quality of goods, etc., and increase the standard of
living of people.

 Impact on Society and Community Development- A society becomes

greater if the employment base is large and diversified. It brings about
changes in society and promotes facilities like higher expenditure on
education, better sanitation, fewer slums, a higher level of homeownership.
Therefore, entrepreneurship assists the organization towards a more stable
and high quality of community life.

 Increase Standard of Living- Entrepreneurship helps to improve the

standard of living of a person by increasing the income. The standard of
living means, increase in the consumption of various goods and services by
a household for a particular period.

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  Supports research and development- New products and services need to
be researched and tested before launching in the market. Therefore, an
entrepreneur also dispenses finance for research and development with
research institutions and universities. This promotes research, general
construction, and development in the economy.

Entrepreneurs Drive Economic Development

1. Investing in products and services people need.

What motivates a person to start a new business? According to traditional models,

entrepreneurs create new businesses in response to unmet needs and demands in
the market. That is, there is an opportunity to provide a product or service that is
not currently in existence, or otherwise available. Economists refer to these
business-starters as “opportunity” entrepreneurs in order to distinguish these
individuals from those who start businesses for lack of better work opportunities.
So-called “opportunity” entrepreneurs, who launch new enterprises in response to
market needs, are key players when it comes to fostering economic growth in a
region. They enable access to goods and services that populations require in order
to be productive. This is not to ignore “necessity” entrepreneurs that launch
enterprises because they have no other options. Both can and do contribute to
economic growth.

2. Providing employment opportunities.

New businesses need to hire employees. They create jobs and these economic
opportunities uplift and support communities through increasing the quality of life
and overall standard of living.

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3. Commerce and regional economic integration.

Technology has made it possible for small, entrepreneur-led businesses to expand

into regional and global markets. When new businesses export goods and services
to nearby regions, these enterprises contribute directly to a region’s productivity
and earnings. This increase in revenue strengthens an economy and promotes the
overall welfare of a population. Economies that trade with one another are almost
always better off. Politics aside, engaging in regional and international trade
promotes investment in regional transportation and infrastructure, which also
strengthens economies. This has never been more true than it is today, as we live in
an increasingly interconnected global economy. Even for a large and advanced
economy like the United States, foreign markets have a significant role. Foreign
trade, according to some estimates, is responsible for over 90 percent of our
economic growth.

What exactly is innovation and how does it promote economic development?

Under what conditions, do entrepreneurs innovate? A widely-accepted definition
measures innovation using a set of criteria including how many new products are
invented, the percentage of high-tech jobs, and the size of the talent pool available
to tech industry employers. More recently and increasingly, our definition of
innovation has expanded to include the development of new service offerings,
business models, pricing plans, and routes to market. While the role that startups
and young tech companies play in job creation is well documented, their
contribution to overall productivity is less intuitive and not discussed as often. 

4. New technologies promote efficiency.

The ability to turn ideas into new products and services that people need is the
fount of prosperity for any developed country. Economic growth, generally

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speaking, is driven by new technologies and their creative applications. Periods of
rapid innovation historically have been accompanied by periods of strong
economic growth. The impetus of innovation is the greatest natural resource of all:
the human mind. Creating innovative products and solutions requires an educated
population and an environment where collaborative work can take place. In
addition to being good for business, education increases workforce creativity and
quality of life.

Functions of an Entrepreneur

1] Initiating the Business

This is the first function of the entrepreneur, to actually start a business. Firstly the
entrepreneur spots business opportunities in the economy he can exploit. Then he
develops the project ideas and decides on the scale of the business. Finally, he
must obtain the different factors of productions to get the ball rolling.

The entrepreneur has to build up his business dynamically. He must coordinate the
factors of production and utilize them in the right proportions. The aim is to
generate higher productivity from these factors. So the entrepreneur must get the
greatest yield for the lowest cost from these factors of production.

2] Risk Bearing

This is perhaps the most important function of entrepreneurs. The entrepreneurs

bear the risks of failure in exchange for the profits of the company. So in dynamic
economic model things can change very fast. So the business plans of the
entrepreneur should be able to adapt to the changes.

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The consumer taste may change, there can be new entrants in the market, taxes may
increase, etc. These will all affect the demand and supply of the product. And in
turn, the entrepreneur may face some financial losses. Entrepreneurs have to bear
these financial risks.

Then there are technological risks as well. These days we make technological
advancements every day. So there is a risk that the product may become obsolete.
Or more innovative means of production may be developed. There are other risks
such as theft, accidents, etc.

In exchange for all these risks, the entrepreneurs enjoy the profits earned by the
firm. Profit is their reward for bearing the risks. Unlike some of the other
management functions, risk bearing cannot be delegated to the manager. The
owner/entrepreneurs have to bear all the risk.

3] Innovation

One of the other important functions of entrepreneurs is to continuously innovate.

This innovation can be in the field of new products, new production
methods/technology, new business models, exciting and new promotion tactics,
exploring new markets, etc. This will help entrepreneurs with the economic growth
of the firm.

However, any new innovation or technology comes with its own share of new risks
as well. It will be the job of the entrepreneur to manage such risks in exchange for
the scope for higher returns and higher profits. Ultimately this innovative spirit of
the entrepreneur will lead to advancements in the firm and even the economy as a
whole. The most successful entrepreneurs are all great innovators.

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 Effect of Entrepreneur to Economy Development

Entrepreneurship is important for a number of reasons, from promoting social

change to driving innovation. Entrepreneurs are frequently thought of as national
assets to be cultivated, motivated, and remunerated to the greatest possible extent.
In fact, some of the most developed nations such as the United States are world
leaders due to their forward-thinking innovation, research, and entrepreneurial
individuals.

Great entrepreneurs have the ability to change the way we live and work, on local
and national bases. If successful, their innovations may improve standards of
living, and in addition to creating wealth with entrepreneurial ventures, they also
create jobs and contribute to a growing economy. The importance of
entrepreneurship is not to be understated.

Entrepreneurs Spur Economic Growth

New products and services created by entrepreneurs can produce a cascading
effect, where they stimulate related businesses or sectors that need to support the
new venture, furthering economic development.

For example, a few information technology companies made up the IT industry in

India during the 1990s. The industry quickly expanded and many other sectors
benefited from it. Businesses in associated industries—such as call center
operations, network maintenance companies, and hardware providers—flourished.
Education and training institutes nurtured a new class of IT workers who were
offered better, high-paying jobs.

Similarly, future development efforts in other countries require robust logistics

support, capital investments, and a qualified workforce. From the highly qualified
programmer to the construction worker, entrepreneurship benefits a large part of
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the economy. In the U.S. alone, small businesses created 1.6 million net jobs in
2019.

Entrepreneurs Add to National Income

Entrepreneurial ventures help generate new wealth. Existing businesses may
remain confined to existing markets and may hit a limit in terms of income. New
and improved products, services, or technology from entrepreneurs enable new
markets to be developed and new wealth to be created.

Additionally, increased employment and higher earnings contribute to better

national income in the form of higher tax revenue and higher government
spending. This revenue can be used by the government to invest in other struggling
sectors and human capital. Although it may make a few existing players redundant,
the government can soften the blow by redirecting surplus wealth to retrain
workers.

Entrepreneurs Create Social Change

Through offering unique goods and services, entrepreneurs break away from
tradition and reduce dependence on obsolete systems and technologies. This can
result in an improved quality of life, improved morale, and greater economic
freedom.

For example, the water supply in a water-scarce region will, at times, force people
to stop working to collect water. This will impact their business, productivity, and
income.

However, with a project such as the U.S. Agency for International Development's
Kenya RAPID program, an innovative and automatic pump powered by smart
sensors fills people's water containers automatically, ensuring more than 184,000
people now have improved access to clean and safe drinking water. This type of
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innovation ensures people are able to focus on their jobs without worrying about a
basic necessity like water. More time to devote to work translates to economic
growth.

For a more contemporary example, smart phones and apps have revolutionized
work and play across the globe. Smartphone are not exclusive to wealthy countries
or people, as more than 5 billion people have mobile devices around the world. As
the growth of the smartphone market continues, technological entrepreneurship can
have a profound, long-lasting impact on the world.

Moreover, the globalization of technology means entrepreneurs in developing

countries have access to the same tools as their counterparts in developed
countries. They also have the advantage of a lower cost of living, so a young
entrepreneur from a developing country can compete with a multimillion-dollar
existing product from a developed country.

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