Theories & Concepts of Entrepreneurship

1. Theories & Concepts of Entrepreneurship Entrepreneurship ETR3153 By: Wan Nurhamizah Wan Zakaria

2. Session Objectives • At the end of the session, students should be able to: • Understand the various theories and concepts of entrepreneurship • Have a deeper understanding of the discipline of entrepreneurship

3. Definition of an Entrepreneur • “An entrepreneur is a person who undertakes to do a job”. The term entrepreneur originated from a French word “entreprendre” was first coined by Richard Cantillon (1755). • In Malaysia, the term “usahawan” is used to mean entrepreneur.

4. Definition of Entrepreneurship • Entrepreneurship involves not only the process that leads to the setting-up of a business entity but also the expansion and development of an going concern. • The study of entrepreneurship is concerned with the entrepreneurial behavior, the dynamics of business set-up and expansion or development of an entrepreneurial organization.

5. Development of Entrepreneurship Theories • Adam Smith (1776) – An entrepreneur is a person who acts as agent in transforming demand into supply. • Jean Baptiste Say (1803) – An entrepreneur is a person who shifts resources from an area of low productivity to higher productivity. • John Stuart Mill (1848) – An entrepreneur is a prime mover in the private enterprise. The entrepreneur is the fourth factor of production.

6. Development of Entrepreneurship Theories • Carl Menger (1871) – The entrepreneur acts as an economic agent who transforms resources into products and services. These transformation process gives added value to the output. • Joseph Aloysius Schumpeter (1934) – The entrepreneur is an innovator. The economy moves through leaps and bounds because of the innovations. This process is known as “creative destruction” • Alfred Marshall (1936) – The process of entrepreneurship development is evolutionary. The entrepreneur is responsible for the evolution of sole proprietorships into a public company.

7. Development of Entrepreneurship Theories • Ibnu Khaldun (Abdul Rahman Mohamed Khaldun) – The entrepreneur is seen as a knowledgeable individual and is instrumental in the development of a city-state where enterprises emerge. • David C. McLelland (1951) – The entrepreneur is a person with a high need for achievement. This need for achievement is the foundation of the entrepreneurship process.

8. Islamic Entrepreneurship • Discussion on Islamic entrepreneurship is based on the following main topics: • Integration • Human nature • Motivation • Islamic business and entrepreneurs • Islamic economic system • Guidelines • Exemplary conducts

9. The Concept of Integration • Islam is a complete way of life. There is no separation between business and religion. • Islamic entrepreneurship is part of the way of life. • Muslims are encouraged to get involve in business activities. (9/10 rezeki adalah dalam perniagaan – Hadis Nabi)

10. Human Nature • It is part of human nature to follow the teachings of their religion. • In Islam, Muslims are required to fulfil two important duties, “ibadah” and “khalifah”. • In Islamic entrepreneurship, Muslims are able to perform both duties. • Maximizing profit is not the ultimate aim of Muslim entrepreneurs. • “Islamic Man” versus “Economic Man”

11. Motivation • Following the sunnah of ambiya and the companion of Rasulullah saw. • Islamic entrepreneurship leads to the path of success both in this world and the hereafter. • Success in Islam is not measured by the end result but also the means and ways of achieving them.

12. The type of success according to Al-Qurtubi • Halal (Rightful means of living) • Qanaah (Satisfying) • Taufiq (Guidance) • Sa’adah (Tranquility/Happy) • Jannah (Heaven)

13. The level of success according to Al-Ghazali • Depends on the following: • Level of knowledge • Level of repentance • Level of challenges • Level of obstacles • Level of motivation • Level of handicap • Level of praise and thankfulness

14. Possession of Wealth • In Islam, possession of wealth is allowed based on the following principles: • Allah s.w.t. is the absolute owner of wealth • Allah s.w.t. has created wealth in abundance (melimpah ruah) and sufficient (mencukupi) for all • Allah s.w.t. has created wealth for mankind • Wealth is entrusted to mankind

15. Entrepreneurship as Ibadah • Muslim entrepreneurs involvement in business is to fulfill an obligation known as “fardhu kifayah” • Fardhu kifayah~ Unless and until there is an entrepreneur in a community, the entire community is deemed to be sinful. • Muslim entrepreneurs bear the responsibility to provide goods and services primarily to the Muslim community and to others

16. Islamic Entrepreneurship Model Islam Propagates (Business Venture) Allah Prepared (Facilities) EXAMPLE EXAMPLE Islam Provides (Guidelines & Procedures) Allah Promised (Rewards)

17. Islamic Economic System • Islamic entrepreneurship is part of the framework of the Islamic Economic System. • Islamic economic system involves: • Islamic banking • Islamic insurance (takaful) • Islamic capital markets • Islamic economic system is based on Islamic jurisprudence.

18. Guidelines and Procedures • Islam has provided an extensive guidelines for Islamic entrepreneurship activities. • Among others: • The principle of buying and selling • The permissible types of business • The principle of “zakat” in business • Business ethics

19. Entrepreneurial Ethics • Prevent laziness • Eradicate fear/shyness • Search for legitimate ventures • Avoid unlawful sources of income • Show gratitude and thankfulness • Grow and develop wealth • Diversify business ventures • Avoid greediness

20. Entrepreneurial Ethics • Avoid malicious behavior • Avoid squandering (elakkan membazir) • Avoid stinginess (elakkan kedekut) • Pay zakat and alms (sedekah) • Be trustworthy • Pray consistently • Tawakkal • Patience • Qanaah

21. Exemplary Conducts of Muslim Entrepreneurs • Business is secondary to the call of jihad (crusade) • Never use power or influence for self-interest • Afraid of accumulated wealth • Leadership qualities in all aspects • Practice moderate way of life