Role of Entrepreneurship and Innovation Essay Example for Free

Role of Entrepreneurship and Innovation Essay They have employed existing means of production differently, more appropriately, more adventurously. They have â€Å"carried out new combinations†. They are entrepreneurs† – Joseph Schumpeter (Lumsdaine and Binks, 2007). Entrepreneurship is a procedure through which individuals identify opportunities (problems that need to be solved or unmet needs) in the market place, allocate resources, initiate change by being innovative and creative and create value through solutions. One of the Factors of Production to produce goods or services is Enterprise with Land, Labour and Capital; an entrepreneur combines all other factors of production by enterprise, which is actually problem solving, risk taking and creativity, to come up with innovative products or services. â€Å"Innovation is the ability to see change as an opportunity not a threat†. (Steve Jobs,2010). It is not necessary that Innovation is something completely new which is stated as ‘Discrete Change’ by Joseph Schumpeter, it can also be a ‘Gradual Change’, that is a product or service which is better than what was there before (Lumsdaine and Binks, 2007). It can be called a process by which an Idea or invention is translated into a product or service for which people will pay and perceive it as being new. Entrepreneurship is incomplete without Innovation as Steve Jobs said, â€Å"Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth. †. (Steve Jobs,2010). Economic Development can be defined as the development of economic wealth for the well being of a country’s inhabitants. It implies progressive changes in the socio-economic structure of an economy, change in the distribution pattern of income, adoption of new technologies, creation of jobs, transition from agro-based to industry-based economy and general improvements in living standards. According to Lumsdaine and Binks,â€Å"In the context of entrepreneurship, it is creativity that leads to Innovation, that is development of new products and processes which when innovated replace the traditional and previous versions. Creativity leads to a greater fulfillment on an individual basis as we use our imagination to create our new horizons for what we do in our lives. By imagining what we could be and achieve, we move beyond the boundaries we have previously set for ourselves. Innovation can be seen as practical application of creativity in an organization. † (Lumsdaine and Binks, 2007) So Innovation is actually the product of Creativity and Problem Solving with the help of Entrepreneurship. â€Å"Entrepreneurs are the catalysts that spur the economy with their innovations and technological change† – Joseph Schumpeter (Lumsdaine and Binks, 2007). Entrepreneurship leads to Economic Change and economic development through creative destruction. When the Entrepreneurs sell their Idea, the Idea is a solution to a problem and is a need that has not been met before which means there was a gap in the market for that product or service which he innovated, consumers buy it because there is a demand for it which the entrepreneur realized and innovated it and as more and more consumers buy it, more will be the improvement in Living Standards of the inhabitants of the Economy; in conclusion, entrepreneurs showing their creativity solve a problem and innovate a product or service which benefits the economic development of an economy directly and indirectly. Wal-Mart Stores is a relevant example for understanding the relationship between Entrepreneurship, Innovation and Economic Development, the company which is ranked no. 18 in the Forbes List of â€Å"Global 2000 Leading Companies 2011†. Samuel Moore Walton is one of the most successful entrepreneurs who made it possible in less than half a century. He founded the Company in 1962 when he opened the company’s first discount store in Rogers, Arkansas, USA after watching a market gap of Discount stores in his State of Arkansas. He just figured out a problem that people in the urban areas have to pay higher prices at stores in the city center since the country side is far away for the consumers to go there and the stores used to take an advantage of that and charge higher prices. Sam Walton imagined using his creativity, what if there is a discount store in the city which buys everything in bulk from the country side and uses its own transport for delivery of good to the store, would the consumers buy from there at lower prices rather than going to other stores in the city with higher prices. He just used his creativity to solve the problem and Innovated world’s first and most successful Discount Store, Wal-Mart. Sam Walton, in his autobiography, said, â€Å"If you think about it from the point of view of the customer, you want everything: a wide assortment of quality merchandise; the lowest possible prices; guaranteed satisfaction; friendly, knowledgeable service; convenient hours; and a pleasant shopping experience. You love it when a store exceeds your expectations, and you hate it when a store inconveniences you, gives you a hard time, or pretends you’re invisible. (2011). When he opened his first Wal-Mart store, no one imagined he was introducing a retailing formula that within a generation would impact the lives of millions of people. Wal-Mart Stores grew gradually but at a good pace and then reached to the position it has achieved today. In 1975, it employed only 7500 employees, 125 stores with Sales of $340 billion. In 1983, The Forbes Magazine ranked it no. 1 General retailer for the eighth year straight. In 1991, Wal-mart became an international supermarket chain with more than 1200 stores and more than 200,000 employees. Wal-Mart launched Sam’s clubs which was also a success and reached 1995 stores, 239 supercentres, 433 Sam’s Clubs and 276 international stores with 675,000 employees by the end of 1995. By 1997, Wal-Mart Stores had entered into another part of the world, which is China and was taking Environmental friendly measures and also became the largest private employer in the US with 680,000 employees and additional 115,000 international employees serving 90 million customers per week worldwide. By the end of the 1990s, Wal-Mart had opened stores in Korea and Germany and had become the largest private employer of the World with total of 1,140,000 employees. By 2004, Wal-Mart had been declared as the third most admirable company in the US by Fortune Magazine, ranked among the companies with â€Å"Top 25 Diversity Recruitment Programs† and was awarded the â€Å"Corporate Patriotism Award†. In 2005, The Wal-Mart Foundation started working much actively and donated $18 million for US hurricane relief efforts and the Company employed more than 1. million employees and owned 3800 Stores in the US and 3800 International Stores with Annual Sales of $312. 4 billion and existed in 16 countries. Today, Wal-Mart Stores owns 9826 stores in 28 countries with 2. 1 million employees and serves more than 176 million customers annually. Walmart Foundation now is too active and donates largely in relief efforts and for causes; it has separate programs for different fields like Health, Disable people and Education (Wal-mart Stores, 2011). Sam Walton said it best, â€Å"If we work together, we’ll lower the cost of living for everyone†¦we’ll give the world an opportunity to see what it’s like to save and have a better life. † (2011). This was the innovation mainly in his Idea of Discount Stores to save people’s money, to help them live better was the goal that Sam Walton envisioned when he opened the doors to the first Walmart (2011). If his vision was to help people live better which means improving their living standards, then there is no doubt that how much Wal-Mart would have contributed towards positive economic development just because of Sam Walton’s entrepreneurship and Innovation. A company that employs 2. 1 million people cannot be questioned for its contribution towards economic development. Since it generated a lot of employment opportunities the economy was benefited in the form of expenditure on goods and services by the employees; moreover, all the employees working there earn a salary from Wal-Mart and then spend it on goods and services in their own economies. Expenditures like education and health increase the demand of goods and services in the economy leading to economic growth. This has lead to increase in the economy’s PPF outwards as A. D of the economy has increased. On the basis of the figures provided in the 2010’s Annual Report of Wal-Mart Stores and the World Bank’s statistics of the US’s GDP of the year 2010, Wal-Mart Stores had contributed approximately 2. 8 percent to the Annual GDP of the US in 2010. (Yahoo Finance and World Bank, 2011). This Calculation can be supported by the Statistics provided by the website of Wall-Mart Stores, that in 2010, Wal-Mart’s sales were $307. billion in U. S. retail sales as the  next five largest U. S. retailers combined  sales of $324. 5 billion: Kroger ($78. 3 billion), Target ($65. 8 billion), Walgreen ($61. 2 billion), Home Depot ($60. 1 billion) and Costco ($58. 9 billion). In 2005, almost half (46%) of Americans lived within 5 miles of a Walmart or Sams Club, and 88% lived within 15 miles of a Walmart of Sams Club which also shows the contribution of Wal-Mart towards U. S. ’s economy and in 2011, every $45 dollars spent in the U. S. economy, almost $1 was spent on a purchase at a Walmart. (Wal-mart Stores, 2011). Therefore, the presence of Wal-mart in the US economy generated income not only for the employees but for the economy as a whole. Among all of the great scholars of entrepreneurship, Joseph Schumpeter is the only one who has explained properly the relationship between Entrepreneurship, Innovation and Economic Development. According to Lumsdaine and Binks (2007), â€Å"The crucial contribution made by Joseph Schumpeter in The theory of Economic Development (ref. 2. 1) was to highlight the entrepreneur’s role as the catalyst for economic development. This contribution connects entrepreneurship, creativity and economic development. To understand the actual and potential impact of entrepreneurship, it is important to consider his analysis. Schumpeter portrayed any economy as a collection of enterprises and business where each represented a particular combination of production factors in the form of machines, people, land, premises, finance, and so on, in some sense every business relied for its market upon the successful activities of all others. This interdependence through customer demand meant that changes in the nature or level of economic activity would be caused only when a new combination of factors of production was introduced. The diverse operations of Walmart did not only benefit the US but has also contributed to economic development of under-developed and developed countries of Africa. According to Brown and Sander (2007), large multinational supermarket chains are rapidly expanding in developed and developing economies. These supermarket chains tend to import agriculture products from developing and under-developed economies; this is due to the advantage developing and under developed countries offer them in quality and prices. Which in a way is good for the development of the under developed and developing countries. According to Brown and Sander (2007), â€Å"In the continent of Africa, where small farmers account for both 90 per cent of agricultural production and 73 per cent of Africa’s rural poor, access to valuable international markets could play a crucial role in wider poverty reduction†, most Multinational Supermarket chains buy Fruits and Vegetables from small holder farmers of Sub-Saharan Africa which also increases exports of these poor countries resulting in higher economic development of their country by improvement in their living standards. According to Stokk (2007), â€Å"Supply chain development initiated by supermarkets can help farmers escape the low productivity trap. Supermarkets face a short run cost, but gradually benefit from the agricultural skill upgrading in terms of increased market share. Our result suggests that when farmers do not meet the required standards, supermarkets have an incentive to invest in farm assistance programs that improve the productivity of local suppliers. Supermarket expansion not only affects farmers in the supply chain, but also has consequences for the rest of the food retail sector. Traditional retailers face increased competition and potential loss of market share, but may benefit from foreign supermarkets through spillover effects of the latest retail techniques. † (2009). Higher productivity and latest retail techniques do affect the economic development to a great extent. In the same article Stokk said, â€Å"The value of local purchases made to operate the Wal-Mart stores and facilities such as tilities and business services. The value of goods sold by local manufacturers to Wal-Mart, The types of Wal-Mart facilities present within the MSA (Metropolitan Statistical Area), while the price effects from retail stores can be significant, other facilities such as distribution centers can also have positive economic impacts. † In conclusion, this essay has clearly analysed the relationship between entrepreneurship, innovation and economic development and has also briefly explain the role Creativity and Problem Solving play in this relationship. In this relationship between entrepreneurship, innovation and economic development, Innovation is the base, since economic development is influenced by entrepreneurship through Innovation. However, it is not necessary that all entrepreneurs benefit the economic development; it can only have a positive implication on economic development if there is innovation. And for innovation to effect the economic development positively with entrepreneurship, the entrepreneur should be creative in problem solving. Creativity is a foundation of this relationship and problem solving is an essential tool for this relationship to come over difficulties and carry on with the flow from entrepreneurship to positive economic development through innovation. However, long term economic development cannot lack of innovation and entrepreneurship, simultaneously, as tools of innovation, creativity and problem solving play a vital role in the whole process. Word Count: 1651 words without referencing.