Factors affecting Entrepreneurship

Factors affecting Entrepreneurship


Entrepreneurship is a complex phenomenon influenced by the interplay of a wide variety of factors. The entrepreneurial activity at any time is dependent upon a complex and varying combination of economic, social, political, psychological and other factors. These factors may have been both positive and negative effluences on the emergence of entrepreneurship. Positive influences constitute facilitative and conductive conclusive for the emergence of entrepreneurship whereas negative influences create inhibiting milieu to the emergence of entrepreneurship. Following factors contribute to the success of entrepreneurship:

1.Personality Factorsfactors_effecting_entrepreneurship_001

Personality traits such as inner desire for control of their activities, tolerance for risk, high level of tolerance to function in adverse situations and background experiences such as the family environment, level of education, age and work history tolerance for ambiguity are important personal characteristics that affect entrepreneurship. Individuals who are desirous of working independently; willing to work for long hours and assume risk; are self-confident and hard-working are likely to be more successful as entrepreneurs than those who do not posses these qualities

Personal factors, becoming core competencies of entrepreneurs, include:

(a) Initiative (does things before being asked for)

(b) Proactive (identification and utilization of opportunities)

(c) Perseverance (working against all odds to overcome obstacles and never complacent with success)

(d) Problem-solver (conceives new ideas and achieves innovative solutions)

(e) Persuasion (to customers and financiers for patronization of his business and develops & maintains relationships)

(f) Self-confidence (takes and sticks to his decisions)

(g) Self-critical (learning from his mistakes and experiences of others)

(h) A Planner (collects information, prepares a plan, and monitors performance)

(i) Risk-taker (the basic quality).

2. Environmental factors

These factors relate to the conditions in which an entrepreneur has to work. If the environment that a individual is working in is unsatisfactory, that is, not conducive to his growth needs, it is likely that the individual will quit his job and start his own business as an entrepreneur. Unsatisfied personal needs for growth and achievement in employment conditions results in successful entrepreneurship.

3. Political

 Some researchers felt that the growth of entrepreneurship cannot be explained fully unless the political set-up of a country is taken into consideration. Political stability in a country is absolutely essential for smooth economic activity. Frequent political protests, strikes, etc. hinder economic activity and entrepreneurship. Unfair trade practices, irrational monetary and fiscal policies, etc. are a roadblock to the growth of entrepreneurship

4. Socio-Economic Factors

The entrepreneurial activity at any time and place is governed by varying combination of socio-economic factors. The empirical studies have identified the following socio economic factors:

  • Cast/religion
  • Family background
  • Level of Education
  • Level of perception
  • Legitimacy of Entrepreneurship
  • Migratory character
  • Social Mobility
  • Social Security
  • Investment capacity
  • Ambition/motivation

5. Economic Factor

Factors such as availability of finance, labor, land, accessibility of customers, suppliers are the factors that stimulate entrepreneurship. Capital is one of the most important prerequisites to establish an enterprise. Availability of sufficient capital affects the introduction, survival and growth of a business enterprise. Capital is regarded as lubricant to the process of production. If we increase in capital investment, capital output ratio also tends to increases. This results in increase in profit, which ultimately goes to capital formation. Due to this capital supply increase, entrepreneurship also increases.

6. Other Factors

  • Entrepreneurial Education

More and more people with high academic attainments started joining the ranks of industrialists, especially the professionals holding qualifications in engineering, law, medicine, cost and chartered accounting. The newer entrepreneurs have a larger proportion of their floatation in the traditional sector, but these professionals have by and large preferred to make their investments in modern sector. The technicians in particular among both old and new entrepreneurs have entered industries in the modern sector having a bearing of their academic qualifications. Many universities and institutes are nowadays offering entrepreneurship education. A number of institutes have set up successful entrepreneurship centers, which provide help to budding entrepreneurs by conducting formal training and structured mentoring programs.

  • Impact of Services Sector

 Increase in per capita income leads to a greater share of the services sector in the national economy. The average size of firms’ m many sections of the services sector are relatively small. This in turn promotes entrepreneurial activity across a number of service sector industries. Even for some developing countries such as India, services account for over half of the total GDP. Growing importance of services in the overall economy has paved the way for entrepreneurial activity. New industries such as software and business process outsourcing have emerged and these have a large number of entrepreneurial firms.

  • Increasing Demand for Variety

 Increased wealth has led to increase in the demand for variety (Jackson 1984). The increasing demand for new products is of advantage to smaller firms. A number of studies have shown the comparative advantage of smaller firms in being innovative and coming up with new products . If the products has unmet demand, it will create a market for itself. The success of entrepreneurship is, therefore, dependent upon the extent to which the product is in demand. Changes in consumer tastes are a major reason for growth of entrepreneurship. People are, inclined to products that are specifically designed to meet their special needs. Mass produced homogenous goods do not enjoy as wide an appeal anymore.

  • Impact of Ethical Value System

Max Weber was first to point out that the entrepreneurial growth was governed by the ethical value system of the society concerned. He said that the spirit of rapid industrial growth depends upon a rationalized technology, acquisition of money and its rational use for productivity and multiplication of money. These elements depend upon a specific value orientation of individuals. Entrepreneurship develops rapidly in those societies where ethical values provided independent capacity of decision-making. No doubt, this view has some truth but it is not accepted universally.

  • Internal Control System

Entrepreneurship largely depends upon the control system designed for controlling the business activities. If the control system is effective they will result in optimal inventory, good quality products and high profit margins. This will have a positive effect on the success of entrepreneurship.


For more notes on Entrepreneurship Development click on the link below:

Entrepreneurship Development Notes/ Study Material


Scroll to top
You cannot copy content of this page. The content on this website is NOT for redistribution