Socio-Economic Factors Influencing

Topics: Entrepreneurship, Venture capital, Business Pages: 22 (6756 words) Published: August 30, 2010

The emergence and development of entrepreneurship is not a spontaneous one but a dependent phenomenon of economic, social, political, psychological factors often nomenclature as supporting conditions for entrepreneurship development. These conditions may have both positive and negative influences on the emergence of entrepreneurship. Positive influences constitute facilitative and conductive conditions for the emergence of entrepreneurship, whereas negative influences create inhibiting milieu to the emergence of entrepreneurship.

Some scholars have prepared a list of environmental conditions that may play a role in developing entrepreneurship in a country or region. Others have a more descriptive approach to show "what is out there" in a particular country or region still others have focused on what governments can do or have done to develop entrepreneurship.

Thus, while the role of environmental conditions in developing entrepreneurship has been recognized, most of these studies have been fragmented, highly descriptive, and focused on only a few aspects of the environment. More importantly, most of the literature has neither paid adequate attention to the needs of the entrepreneur--the main beneficiary of the environment--nor described the environmental conditions in terms of the process of new venture creation.

Gaps are evident in the literature. First, a conceptual framework is lacking to integrate the available literature on entrepreneurial environments. Second, explicit links have not been established between the needs of entrepreneurs and how environments can fulfill entrepreneurs' needs, induce or reinforce their desire to go into business, and thus facilitate the process of new venture creation. Third, limited guidelines exist to conduct empirical research on entrepreneurial environments. Finally, a limited body of literature addresses the needs of policy makers despite the recognition of this group as an important audience for research on entrepreneurship.

In an attempt to bridge these gaps in the literature, we first develop a conceptual framework to integrate existing literature on entrepreneurship environments. Then, we introduce the core elements of the new venture creation process and explicitly link the environmental dimensions to the process of new venture creation and show how environments can help increase people's likelihood to go into business.

Economic factors such as proportion of small firms in the population of firms, extent of economic growth, and diversity of economic activities also influence the rate of new venture creation and growth. Research has shown that the greater the percentage of small firms in growing sectors, the greater the share of jobs created by small firms in the industries operating in those sectors (Phillips, 1993). Firms are more likely to grow if they are in highly innovative industries than if they are in less-innovative industries research has shown that cities having a larger number of economic development programs achieve a higher rate of growth in new venture establishments than cities having a smaller number of such programs. Factors such as high sophistication of buyers, strong distribution channels, and intense rivalry among existing firms provide an opportunity for entrepreneurs to pursue innovation.

Capital is one of the most important prerequisites to establish an enterprise. Availability of capital facilitates the entrepreneur to bring together the land of one, machine of another and raw materials of yet another to combine them to produce goods. Capital is therefore regarded as lubricant of the process of production. Accumulated experience suggests that with an increase in capital investment capital output ratio also tends to increase. The result in increasing profit ultimately goes to capital formation.

The quality rather quantity of labor is...
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