Buy an essay: Entrepreneurship and SME

1.1. Concept of Entrepreneurship
Entrepreneurship is an independent activity carried out at one’s own risk, aimed at gaining regular profit from the use of property, sale of goods, performing works or services by persons registered in the manner prescribed by law (Peters, 2006). Entrepreneurship is an essential attribute of a market economy, penetrating all its institutions.
Establishment (starting) of a business entity – a legal entity, as well as corporate rights ownership are not business activities, except cases provided by law.
An English professor Alan Hosking states that an individual entrepreneur is a person, who runs a business at his own expense, personally manages the business, is personally responsible for providing the necessary means, and makes decisions independently. His reward is a profit received as a result of business activity, and satisfaction he feels from running a free business (Rowley, 2010). But along with this, he also has to take the risk of losses in case of bankruptcy of his company. There is no generally accepted economic theory of entrepreneurship, although the need for such a theory has long been very urgent.
The development of scientific understanding of the practice of entrepreneurship could be roughly called the three waves of development of the theory of business function.
The first wave, which dates back to the 18th century, was associated with concentrating on the risks of an entrepreneur. The second wave in the scientific understanding of the entrepreneurship is associated with determination of innovation as its main feature. The third wave is specific for the focus on the particular personal qualities of the entrepreneur (the ability to react to changes in economic and social situation, independence in choosing and decision-making, management skills) and the role of entrepreneurship as a regulating principle in the balancing of eco system (Peters, 2006).
The current stage of development of the theory of business function can be attributed to the fourth wave, the emergence of which is associated with the focus on the management aspect in the analysis of actions of the entrepreneur, and therefore – on the interdisciplinary level of analysis of business problems.
Currently, theoretical studies pay attention not only to entrepreneurship as a way of running business on the independent basis, but also to internal entrepreneurship, or intrapreneurship (Pinchot, 2000). The emergence of intrapreneurship is associated with the factor that many large industrial structures overtake the entrepreneurial form of organization of production. Since entrepreneurship implies the compulsory right for creative freedom, the units of integrated production structures get the right for the freedom of action, which implies the existence of intracapital – the capital necessary for the implementation of the ideas lying in the base of the intra-company entrepreneurship (Pinchot, 2000; Teece, 2009).
Entrepreneurship is a specific kind of economic activity (by which we mean a purposeful activity aimed at profit-making), which is based on self-initiative, responsibility and innovative entrepreneurial idea.
Entrepreneurship is characterized by the presence of innovative moment – whether it be manufacturing of a new product, change of the profile of activity or establishment of a new enterprise. The new system of production and quality management, introducing new methods of organizing production or new technologies are also innovative moments (Jones, 2003). Entrepreneurship represents a specific type of economic activity, since its initial stage is connected, as a rule, only with the idea – the result of intellectual activity consequently gaining the materialized form.
1.2. Small and Medium Sized Enterprise
The classification of small and medium-sized enterprises is usually based on the recommendations of the EU Commission of 3 April 1996, which suggests the following parameters (Jeppesen, 2005):
Small and medium enterprises are the enterprises having less than 250 employees; or having an annual turnover of no more than ECU 40 million; or have a total annual balance sheet not exceeding ECU 27 million; satisfy the criterion of independence.
A small business is defined as an enterprise which has less than 50 employees; or has an annual turnover not exceeding ECU 7 million; or has a total annual balance sheet not exceeding ECU 5 million; satisfies the criterion of independence.
If a company initially operating as a small (medium) business within two years exceeds the criterion for the number of employees or capital structure, it loses its status as a small (medium) enterprise (Jeppesen, 2005).
Modern socio-economic situation in the world is characterized by (Jones, 2003):
– Globalization of production and markets, high rates of technological development and modernization, increasing share of high-tech products in the market;
– Short life cycles, high degree of diversification of products and services, sharp fluctuations of demand for different types of products;
– Increasing value of intangible production, creative capital and knowledge economy in the global economy;
– Limited material resources and increasing requirements for environmental friendliness and safety of products;
– Increased demands for quality of goods and services, introduction of unified international quality standards.
In these circumstances, SMEs are more flexible in responding to constantly changing market conditions, providing high efficiency of investment. As the engine of innovation, small firms provide a rapid generation of new jobs and self-employment of population when employment in traditional fields falls, thus weakening the social tension in depressed regions. Increase of the number of economically active citizens helps establish civic awareness of the population, increases creativity and willingness of society to social partnership, reduces the budget social loading, increasing opportunities to invest in development (Bhat, 2004; Jeppesen, 2005; Jones, 2003, Pinchot, 2000).
Small & Medium Entrepreneurship is the basis of a stable civil society. SMEs not only play a huge social role in supporting the economic activity of most of the population, but also provide significant tax revenue. In the current difficult situation, it is the SMEs that can act as a stabilizer, and therefore are worth the appropriate attention of society and government (Peters, 2006).
World experience shows that if the state wants to develop dynamically and steadily, its socio-economic programs should always include measures to encourage small and medium businesses. Today, in developed countries, SMEs provide 40% to 90% of the gross domestic product (GDP) (Jeppesen, 2005). And so, it is natural that the governments of these states give priority to support the sector, providing high guarantees of private property preservation, broad economic independence and freedom of action, support of fair competition and anti-monopolistic activities, preferential loans and financing, substantial assistance in investment.
Small and medium enterprises (SMEs) are recognized as an important part of the world economy and its economic structure, increasing flexibility, adaptability, enhancing stability at the expense of attracting new workers. The growing importance of small and medium-sized enterprises in industrial development, exports and employment is proved by the data of the labor force participation rates of non-agricultural SMEs (China – 84.3%, Hong Kong – 63.0% Indonesia – 79.2%, Republic of Korea -78.5% Mexico – 58.5%, Philippines – 32,0%, Taiwan – 68,6%, Thailand – 73.8%) (Jeppesen, 2005).
In the 90’s, it was typical for TNCs to use the form of small business to expand their production and marketing networks. Such involvement of small enterprises is determined, above all, by the extent of their distribution. Small business is a kind of an antipode to orientation on a standardized large-scale production, which certainly played a role in the 50’s and 70’s creating in developed countries the basis for their welfare (Peters, 2006).
The decisive role in the reassessment of SMEs was played by shifts in the socio-economic structure of developed countries, the change of orientation in consumer attitudes, motivation of labor. A differentiated point demand started to form. Individualization of consumption has changed the paradigms of service provision, stipulated the emergence of small flexible units able to rapidly respond to consumer demand (Bhat, 2004).
Partial modernization that helped SMEs to fix in the world economic structure, and most importantly, rapidly changing consumer demand have created a new principle of production and sales, named customization. Its meaning is the orientation of manufacturer to the universal satisfaction of buyers’ requests, constant appeasing of consumer, and his binding to manufacturer.
So the increase in the number of SMEs and their forms are directly dependent on industrial policy in general: small businesses are closely related to large ones, which updates the SMEs. Governments of the newly industrialized countries have managed to create competitive conditions in the economy, despite the strong position of major national conglomerates. Achieving a critical mass of SMEs in the national economy may be a factor of self-sustaining growth.