Role of Entrepreneurial Firm in Connecting Entrepreneurship and Economic Development



Role of Entrepreneurial Firm in Connecting Entrepreneurship and Economic Development!

Porter (1990) has summed up the importance of entrepreneurship by stating that invention and entrepreneurship are at the heart of national advantage. The analysis of Porter’s diamond by Wennekers and Thurik (1999) also brings out vital aspects about the connection between entrepreneurship and economic development.

According to them, although entrepreneurship is initiated at the individual level, its importance gets multiplied at the firm and the macro level, where the sum of the individual activities manifests itself in the form of more innovations, new ideas and initiatives, new markets, new industries, etc.

This creative disruption leads to a change in the market and industry structure in the form of selection of competitive, viable firms and weeding out of obsolete firms. Entrepreneurial activities, therefore, promote economic activity at the aggregate level leading to economic development.

Entrepreneurial firms are not just money-making ventures for their promoters. The positive impact of entrepreneurial firms is seen throughout the economy and society. A vast majority of these high-impact firms are fast-growing companies.

David Birch has differentiated these firms by calling them gazelles. He defines a gazelle as a business establishment with at least 20 per cent growth every year. Here are some of the major contributions of entrepreneurial firms.

Job Creation:

When many large firms are talking about downsizing and lay-offs, new ventures are continually hungry for quality manpower.

Economic Growth:

The spectacular growth of new businesses, especially gazelles, contributes significantly to maintain a high growth rate for the whole economy.

New Technology:

Entrepreneurial firms are usually faster to come to the market with radical new technologies. These are also likely to try out new business models. Ultimately, this will lead to a better standard of living for the whole society.

Serving Small Markets:

Large firms, with their crippling overheads, do not find it profitable to serve small populations. This is where small entrepreneurial firms serve an invaluable role by providing specialized products to niche customers.