Entrepreneurship And Business

Nottingham University Business School

Undergraduate Programmes

Entrepreneurship and Business

Discuss the Relationship between Entrepreneurship, innovation and Economic Development. What role does sustainability play in this relationship?

Fahd Ahmed

Student ID: 4192791

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Entrepreneurship, innovation and Economic development portray a complex yet clear-cut relationship. The idea may consist of flaws that stand out, but it brings out a unique solution as well as a dilemma to the reasons behind a successful economy. A lot is affected by what goes on in our time. Therefore, the purpose of this essay is to emphasize the importance of a sustainable life that can be achieved by observing traits that contribute to this relationship.
Although Entrepreneurship has still not proven to be a validating factor that leads to Economic Growth, nonetheless there have been abundant references on how entrepreneurship helps the economy. For instance Holocombe quotes “the engine of economic growth is entrepreneurship”(1998, p. 60), whereas neoclassical economists might have a different outlook. The reason it is so difficult to tell the relation between the two is because entrepreneurship cannot be defined in one way, although economists have beliefs on what it might be, but there is little or no practical evidence.
Innovation on the other hand gives entrepreneurship leverage to be able to prove that there exists a relation to Economics. Innovation is something not everyone can come up with, for example we can relate entrepreneurship to innovation, because (in a hypothetical situation) if a company is facing a problem with high costs because of electricity the entrepreneur will try and cut the costs down however this does not make them the inventor. Looking back we can then see that the entrepreneur does not have to come up with the idea rather they are supposed to be able to put it into the correct place, thus linking an Entrepreneur to innovation.
This theory can be thought of as a revolving staircase that has the three concepts one after the other. Thinking of it in a practical way we cannot link a small organization’s entrepreneur directly to the economy although it does contribute to it even if it is by the smallest scale. Looking at this concept it is clear that entrepreneurship leads to innovation because there might a problem they are trying to solve or just come up with an idea that may or may not change the world. This in turn plays a part if the implementation of the idea is done correctly, to the Economy.
Nowadays there are a lot of businesses in the market. The innovation factor of these businesses will vary depending on the type of the business, some may be rejected and some maybe better off. Due to the increased competition there are a lot of new ideas that come up everyday, but these ideas cannot be linked to economic development because they might not be that successful. This concept can be very contradicting because we can see that entrepreneurship, innovation and economic development are linked, but not all ideas by any business could boost the economy. Even though not all businesses can produce brilliant ideas it is understood that if every industry or business makes an effort to change the way they think or come up with something no one has ever seen before or even if it is that they upgraded a product, it will benefit the economy. Demand is directly proportionate to innovation. If the demand is high then innovation will have to take a step forward thus encouraging industries to have a department to manage the resources they work with in a more sustainable way or advance the quality or change a product to suit the market. After all competition is what drives people to do more!
To explain this taking the example of a product manufactured by a small-scale firm in Calcutta, India is the BookBook by Myco Exports. They have brought forward a product that is an accessory to another product. This is a Laptop cover. It comes with a design as it being disguised as a book. Now that in the past few years the sales for laptops have gone up, interestingly there has been a demand for these kinds of products in the US. This brings out the main factor of this product that is innovation and entrepreneurial skills. The economic point of view would be that because there has been a drastic increase in the number of laptops demanded there would also be a significant demand for its accessories. Another example would be the Apple Iphone. This product is amongst the highest in its category. The unique selling point of this phone would be the user-friendly interface and SIRI. Now taking the example of another popular phone would be the Samsung Galaxy S3. This phone is one of the most successful phones in the market, competing with the Apple Iphone. Again we see that the market is very competitive and the ideas have to be very good in our times to conquer the market and thus result in economic development. Not only do the ideas have to be good rather there should be a mixture of good entrepreneurial skills and innovation.
The link between innovation and Economic growth is just a straight line. Firms usually invest in Research and Development so that they can compete in the market and bring forward new products. Nowadays due to the technological advancements we are managing to slowly shift to a more environment friendly way of life. For example the Hybrid cars that use solar energy or electrical power to function rather than using gas, that emits harmful gases to the environment. This relationship is in fact a very sustainable one because it takes firms one-step ahead every time they make a decision.
With the correct mix of entrepreneurial objectives and ideas the economy of a country is going to benefit. Another reason why innovation is necessary is because we as humans are never satisfied with one thing, for example if a new version of the iphone came out people will buy it and it is within the firm’s hand, on how they can attract people to invest in their product/service. This way they contribute to the economy with the help of innovation, which is implemented by the entrepreneur. The general idea however remains at the point that innovation should be encouraged to generate a higher GDP.
Innovation, Entrepreneurship and Economic development go hand in hand from what we have seen. Economic Development is the prime example of why the relationship is sustainable. This Relationship will help industries/firms stay up to date and advance with time. The competitiveness within the market caused by the new entrants is viewed as a new platform to create using less, afterall this is how new firms attract customers. This inculcates the sustainability prospect into the business point of view making entrepreneurs the link between achieving Economic Development and Corporate Social Responsibility.
Ultimately this relationship comes down to a creative “destruction process”(Schumpeter, 1942), because as we have seen- there need to be rising entrepreneurs in the market to change the state of the market and result in economic development, but for that to happen they have to be replace the existing business’ that are operational but lack enough knowledge to innovate and keep up with the demands of consumers. According to this theory Schumpeter believes that if the number of entrepreneurs in the market increase it will lead to economic development Thus to stay competitive in the market firms are trying to reduce their wastes form factories or going greener to show corporate social responsibility. It is then that the combination of the relationship plays its part and helps people think of making a difference and grow towards sustainability.
Empirically linking entrepreneurship and economic development is unachievable, however theoretical literature have some references to their relationship. One of them suggests that entrepreneurship is vital for economic development in the long run (Cipolla, 1981; Lazonick, 1991), as they indicate how entrepreneurs implement new ideas to benefit their business and also think of how they can be more competitive. Also due to the technological advancements it is now possible to achieve economies of scale.
Practical evidence is not something that concludes the situation when it comes to entrepreneurial activities leading to economic growth, however if we look closely we can understand that as new firms enter the market they increase the rate of employment, whereas if their plan does not work as planned then it might not make the difference to reducing unemployment. New firms can make the difference in the levels of unemployment if the barriers to entry in the market are set lower, moreover even help the economy, however this does not prove that there might be any growth for the new firms because they might not be able to cope with the competitive market.
Throughout this relationship we have realized that it is important for these concepts to be worked on, but it should be emphasized that it works one step at a time and that there is no practical evidence to support this relationship. The possibilities can be vague but there exists a significance that the entrepreneurial activities do affect the market and these factors make them change through innovation and force the relevance of this relationship to be even more convincing.

Word Count- 1523

References

Theory of Economic Development (Social Science Classics Series by Joseph A. Schumpeter (31 Dec 1980)

David Simpson, (1983) "Joseph Schumpeter and the Austrian School of Economics", Journal of Economic Studies, Vol. 10 Iss: 4, pp.18 - 28

References: Theory of Economic Development (Social Science Classics Series by Joseph A. Schumpeter (31 Dec 1980) David Simpson, (1983) "Joseph Schumpeter and the Austrian School of Economics", Journal of Economic Studies, Vol. 10 Iss: 4, pp.18 - 28