Role of socio-economic environment in entrepreneurship

Role of economic environment in the development of entrepreneurship

One of the most important factors affecting entrepreneurship is economic environment. It exercises the most direct and immediate influence on entrepreneurship. Economic environment is usually complex, rapidly changing, uncertain and not easily controllable. Hence its study becomes all the more important.  Economic environment mainly includes the economic system economic conditions, economic policies, state of various resources and facilities like capital, raw materials, infrastructure and so on prevailing within the country. Economic conditions play an important role in the formation of stratifies business policies. For example in the developing nation’s level of income, consumption, savings, employment and demand is lower in comparison to the developed nations. Keeping in view of all these factors, an entrepreneur takes decisions about his economic activities. Similarly, if the interest rates are increased, then the funds needed for investment may become costlier. Again, business tax policies can encourage some enterprises for expansion, diver- ossification, or modernization programmers. Export promotion schemes announced by the Government may attract many new entrepreneurs to form their ventures. The influence of these economic factors may differ from venture to venture, especially keeping in mind their internal environment. The important elements of economic environment and their influences may be discussed as follows:

 1) Economic System: Economic System of a country may be capitalist, socialist, democratic or mixed. Economic system determines the nature and scope of entrepreneurship. It also affects mobilization of resources. In the capitalist system, entrepreneur-ship developed rapidly while socialist economy creates hindrance in the way of entrepreneurship. Entrepreneurs can work independently in the capitalist economy which is not so in the socialist economy.

(2) Economic Conditions: Economic condition of a country may be of developed, developing and underdeveloped. The nature of Entrepreneurship is determined by the level of development of economy. ‘In developed economy, entrepreneurs have to undertake innovative activities for survival and growth but in the developing and underdeveloped countries, entrepreneurs do not take much interest in the innovative activities. In these countries, entrepreneurs have to face many problems and challenges for their development,

(3) Structure of Economy: The factors like national income, rate of capital formation, development of capital market, rate of investment, saving and foreign trade etc., is the structure of the economy. The favorable growth of these factors may promote entrepreneurship.

(4) Trade Cycles: Cycle of inflation and deflation, create many challenges and problems in the development and expansion of entrepreneurship. Changes in major economic variables like money income, cost of living, interest rates, savings, credit availability etc. have an immediate impact on the working an enterprise.

(5) Economic Policies and Laws: The government enacts various laws to regulate the business environment. Industrial policy, Licensing policy, monetary policy, import-export policy are considered economic policies which produce a great effect on the entrepreneurship activities. Company Law, Banking Law, Foreign Exchange Law and other laws affect the business environment. Favorable economic policies and laws promote the development of entrepreneurship.

(6) Financial Resources: Adequate Funds are required for bringing together other factors of production. It also encourages innovations and introduction of new things. Lack of required capital for industrial activities may impede and discourage entrepreneurs.

(7) Human Capital Formation: Human capital formation is the process of increasing knowledge, work skills and the abilities of all people engaged in productive activities. The low level of education, knowledge and efficiency or labor may inhibit emergence of entrepreneurship.

(8) Resources of production: Supply of various resources of production such as raw material, machines and equipment, power technical labor etc. deeply affect the growth of enterprise and risk-takers. Labor’s expectations, prevailing wage rates, productivity, labor union activities etc. influence the growth of entrepreneurship.  (9) Market, prices and competition: In the modern competitive world, no entrepreneur can think of surviving in the absence of latest knowledge about market and various marketing techniques, the size and composition of market, price level of products, and the position of competing institutions also affect the survival and growth of entrepreneurship.

Role of social environment in the development of entrepreneurship

Social environment strongly affect the entrepreneurial behavior, which contribute to entrepreneurial growth. Social environment includes the values, attitudes, beliefs, customs, religion and habits of the people. Prosperous and developing social environment motivate the development of entrepreneurship whereas traditional and orthodox social environment put hindrance in the way of entrepreneurship development. In brief, effect of social environment on the entrepreneurship development may be explained as follows:  

(i) Customs and Religious Traditions: Customs, religious faith and ideology also affect entrepreneurial growth. In a developing country like India, there are such religious traditions which are not conductive to entrepreneurship. People are fatalists and they do not like to work hard or do something new. They remain satisfied with old.

(ii) Family Background: The environment of family affects entrepreneurship. Joint family can provide family resources to invest and expand family business. If the father is a professional, entrepreneur or businessman, the son is more likely to enter the same line because of certain inherent advantages. Mobility of the entrepreneur is influenced by the occupational and social status of the family.

(iii) Desire for improvement and protection of status: The desire for improvement and protection of status forces people to behave responsibly. People work hard to maintain and improve their status and it contributes to entrepreneurial growth.

(iv) Social Mobility and Social Marginality: There are some persons of the view point that high degree of mobility is conductive for the emergence of entrepreneurship. Social marginality also positively influences entrepreneurship.

(v) Values: Values are enduring beliefs that people hold about morals, equality, freedom, work ethic, and so on. When values change, the impact is felt in the ways in which entrepreneurs, government and society operate.

(vi) Attitude towards changes and Risk-taking: People’s attitude towards changes, capacity and feelings of risk-taking etc. also affects the entrepreneurial environment. Positive attitude to adopt changes and risk-taken, influence the development of entrepreneurship.

(vii) Work Ethics: It is dedication or preoccupation with work. It is a sense of duty and work which is needed for entrepreneurial progress. The Japanese have achieved tremendous progress because of their commitment of work.

(viii) Educational and Technical Know How: Education, entrepreneurship and development are very closely related, rather say they are interrelated. Education is the best means of developing man’s resourcefulness, which encompass different dimensions of entrepreneurship. It is further expected that the high level of education may enable the entrepreneurs to exercise their entrepreneurial talent more effectively and efficiently.