Entrepreneurship, Innovation and Economic Development

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Entrepreneurship, Innovation and Economic Development

“‘Discuss the relationship between entrepreneurship, innovation and economic development. What role do creativity and problem solving play in this relationship?”

In today’s world, entrepreneurship and innovation are becoming increasingly crucial as drivers of the economy, especially so in the developing economies where trade plays a major part in generating revenue. In China, small-and medium-sized enterprises (SMEs) account for almost 70 percent of all Chinese exports, a share that reflects the above statement about the importance of entrepreneurship to economic robustness. Some questions may be raised on whether entrepreneurship lead to economic development or is the latter a prerequisite to facilitate the entrepreneurship and innovation processes instead. This essay , while recognizing the need of certain institutions and framework to be in place and functioning well in order to ease the functioning of business activities, takes the stand that entrepreneurship and innovation leads to economic development more often than of the other way around. Realising its potential, governments’ initiatives have largely been centred on encouraging more entrepreneurs to start up a venture or to expand their existing businesses. In the 2013 National Budget, the Malaysian Government has allocated a fund of RM 1 billion under the SME Development Scheme (News Straits Times 2012). This very government has also recently launched SME Masterplan (2012 – 2020). These initiatives are aimed at supporting and accelerating the growth and development of SME-s across all sectors of the economy. In evaluation though, more start-ups and new business ventures in an economy does not necessarily translate into economic growth and improvement. In order for the desired economic aims to be achieved, we need to ensure that the start-ups and existing businesses thrive and not fail, for doomed enterprises more often than not suck resources out of the economy. This essay will identify how businesses, using innovative practices and creativity in both business operations as well as in problem solving, can achieve greater performance and sustainability in order to positively contribute to economic development. Jospeh Schumpeter defines entrepreneurs as innovators who implement entrepreneurial change within markets (Ahamad, 2008). This can be in the sense of introduction of a new or improved good, introduction of a new method of production or business management process, and the exploitation of a new source of supply. In short, entrepreneurship is the act of identifying market opportunities and using innovative approaches to exploit them (Ahamad, 2008). “Business opportunities are like buses, there’s always another one coming” (McAshan, 2011). Such are the words Richard Branson has used to describe the ample opportunities available for entrepreneurs to capitalize on. An entrepreneur can either start a venture by either involving themselves in a established market with certainty of demand for the goods offered, or they can exploit a new market altogether, by identifying a market niche and work on fulfilling the needs of that certain segment. By undertaking the former, entrepreneurs face a large and possibly increasing pool of competitors. This market, as described in the book Blue Ocean Strategy, is the “Red Ocean”. In contrast, entrepreneurs who venture into an untapped market space, focusing on demand creation, have unlimited potential to grow profitably (Chan & Mauborgne, 2005). “The only way to beat the competition is to stop trying to beat the competition.” Entrepreneurs should focus on undertaking the value innovation strategy proposed in the Blue Ocean Strategy. By creating a leap in value for buyers, a venture can open up new and uncontested market space, this makes competition irrelevant (Chan & Mauborgne, 2005). To be successful, entrepreneurs will need to undertake innovative processes...
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