1.0 Introduction to Entrepreneurship
The words entrepreneur and entrepreneurship have
acquired special significance in the context of economic growth in a rapidly
changing socio-economic and socio-cultural climates, particularly in industry,
both in developed and developing countries.
2.0
What BASIC PRINCIPLE OF ENTREPRENEURSHIP
is
entrepreneurship?
Entrepreneurship was derived from French word Entreprendre
means ³to undertake´.
Entrepreneurship can be defined by describing what
entrepreneurs do. For example:
"Entrepreneurs use
personal initiative, and
engage in calculated
risk-taking, to create
new business ventures
by raising resources to apply innovative new ideas that solve problems,
meet challenges, or satisfy the needs of a clearly defined market."
Therefore entrepreneurship can be defined as:-
The process which involve identifying business
opportunities and gathering the necessary resources to initiate and manage
successfully a business activity
But as the definitions state, entrepreneurship is
not restricted to business and profit: Entrepreneurship involves bringing about
change to achieve some benefit. This benefit may be financial but also involves
the satisfaction of knowing you have changed something for the better. Entrepreneurship
is essentially the act of creation requiring the ability to recognize an
opportunity, shape a goal, and take advantage of a situation. Entrepreneurs plan, persuade, raise
resources, and give birth to new ventures.
Who is an
Entrepreneur?
An entrepreneur is a person who starts an
enterprise. He searches for change and responds to it. A number of
definitions have been given of an entrepreneur- The economists view him as a
fourth factor of production along with land labor and capital.
Therefore Entrepreneur can be defined as:-
A person who has the ability to see and evaluate
business opportunities, to gather the necessary resources, to take advantage of
them and to initiate appropriate action to ensure success
To put it very simply an entrepreneur is someone
who perceives opportunity, organizes resources needed for exploiting that
opportunity and exploits it.Computers, mobile phones, washing machines, ATMs,
Credit Cards, Courier Service, and Ready to eat Foods are all examples of
entrepreneurial ideas that got converted into products or services.
What is an enterprise?
Entrepreneur is a person who starts an enterprise.
The process of creation is called entrepreneurship. The entrepreneur is the
actor and entrepreneurship is the act. The outcome of the actor and the act is
called the enterprise.
Therefore Enterprise can be defined as:-
An enterprise is the business organization that is
formed and which provides goods and services, creates jobs, contributes to
national income, exports and overall economic development.
1.0 Characteristics of successful entrepreneurs
Entrepreneurs are
different from each other; they come in various ages, income levels, gender,
and race. They differ in education and experience, but successful entrepreneurs
tend to share certain characteristics. Not all of them have developed each of
the following to the same degree, but they tend to have developed most of them
to some degree. Here are some common characteristics of successful
entrepreneurs.
(i)
Disciplined
Entrepreneurs are focused on making their businesses
work, and eliminate any hindrances or distractions to their goals. They have
overarching strategies and outline the tactics to accomplish them. Successful
entrepreneurs are disciplined enough to take steps every day toward the
achievement of their objectives
(ii)Confidence
The entrepreneur does not ask questions about
whether they can succeed or whether they are worthy of success. They are
confident with the knowledge that they will make their businesses succeed. They
exude that confidence in everything they do.
(iii) Open Minded
Entrepreneurs realize
that every event and situation is a business opportunity. Ideas are constantly
being generated about workflows and efficiency, people skills and potential new
businesses. They have the ability to look at everything around them and focus
it toward their goals.
(iv) Self Starter
Entrepreneurs know
that if something needs to be done, they should start it themselves. They set
the parameters and make sure that projects follow that path. They are
proactive, not waiting for someone to give them permission.
(v) Competitive
Many companies are
formed because an entrepreneur knows that they can do a job better than
another. They need to win at the sports they play and need to win at the
businesses that they create. An entrepreneur will highlight their own company’s
track record of success.
(vi) Creativity
One facet of
creativity is being able to make connections between seemingly unrelated events
or situations. Entrepreneurs often come up with solutions which are the
synthesis of other items. They will repurpose products to market them to new
industries.
(vii) Determination
Entrepreneurs are not
thwarted by their defeats. They look at defeat as an opportunity for success.
They are determined to make all of their endeavors succeed, so will try and try
again until it does. Successful entrepreneurs do not believe that something
cannot be done.
(viii) Strong people skills
The entrepreneur has
strong communication skills to sell the product and motivate employees. Most
successful entrepreneurs know how to motivate their employees so the business
grows overall. They are very good at highlighting the benefits of any situation
and coaching others to their success.
(ix) Strong work ethic
The successful
entrepreneur will often be the first person to arrive at the office and the
last one to leave. They will come in on their days off to make sure that an
outcome meets their expectations. Their mind is constantly on their work,
whether they are in or out of the workplace.
(x) Passion
Passion is the most
important trait of the successful entrepreneur. They genuinely love their work.
They are willing to put in those extra hours to make the business succeed
because there is a joy their business gives which goes beyond the money. The
successful entrepreneur will always be reading and researching ways to make the
business better.
(xi) Not
Afraid of Risk or Success
Entrepreneurs are not immune to fear.
But they prioritize their approach to life so that the fear of failure,
frustration, boredom, drudgery, and dissatisfaction far outweighs the lingering
fear of success.
1.0 Qualities of a successful entrepreneur
Being an entrepreneur is about more than just starting a business or
two, it is about having attitude and the drive to succeed in business. All
successful Entrepreneurs have a similar way of thinking and possess
several key personal qualities that make them so successful in business.
All successful entrepreneurs have the following qualities:
(i)
Inner Drive to Succeed:
Entrepreneurs are
driven to succeed and expand their business. They see the bigger picture
and are often very ambitious. Entrepreneurs set massive goals for
themselves and stay committed to achieving them regardless of the obstacles
that get in the way.
(ii)
Strong Belief in themselves:
Successful
entrepreneurs have a healthy opinion of them and often have a strong and
assertive personality. They are focused and determined to achieve their
goals and believe completely in their ability to achieve them. Their
self-optimism can often been seen by others as flamboyance or arrogance
but entrepreneurs are just too focused to spend too much time
thinking about un-constructive criticism.
(iii) Search
for New Ideas and Innovation:
All entrepreneurs have
a passionate desire to do things better and to improve their products or
service. They are constantly looking for ways to improve. They're creative,
innovative and resourceful.
(iv) Openness
to Change:
If something is not
working for them they simply change. Entrepreneurs know the importance of
keeping on top of their industry and the only way to being number one is to
evolve and change with the times. They're up to date with the latest technology
or service techniques and are always ready to change if they see a new
opportunity arise.
(v)
Competitive by Nature:
Successful
entrepreneurs thrive on competition. The only way to reach their goals and live
up to their self-imposed high standards is to compete with other successful
businesses.
(vi) Highly
Motivated and Energetic:
Entrepreneurs are
always on the move, full of energy and highly motivated. They are driven
to succeed and have an abundance of self-motivation. The high standards and
ambition of many entrepreneurs demand that they have to be motivated!
(vii)Accepting
of Constructive Criticism and Rejection:
Innovative
entrepreneurs are often at the forefront of their industry so they hear the
words "it can't be done" quite a bit. They readjust their path
if the criticism is constructive and useful to their overall plan, otherwise
they will simply disregard the comments as pessimism. Also, the best
entrepreneurs know that rejection and obstacles are a part of any leading
business and they deal with them appropriately.
(viii)
An entrepreneur
must have a wide network of contacts:
He must have numerous connections with other entrepreneurs, so as to
expand his horizons and discover further business opportunities.
(ix) An entrepreneur must know how to rise again when he
stumbles:
Failure is not the end of the game. Instead, it should be considered as
a challenge and as the start of another business chapter. Through failures, one
learns to cope and recover, as experience is gained at each circumstance.
1.0
CLASSIFICATION OF ENTREPRENEURS
Entrepreneurs can be classified on different basis. Some of these bases
include:
a)
Innovative entrepreneur
This is the one who
introduces a new product or a new method of production or opens a new
market or explore new source of supply of raw material or carry out a new
type of organization. Innovative entrepreneur are real entrepreneur.
b)
Imitative/adoptive entrepreneur
These are those who imitate the successful entrepreneurs in techniques
innovated by others.
c)
Drone entrepreneur
Drone entrepreneur are those who never allow any change in their
production & style of functioning. They never explore anything. They
are also called Laggards. They are pushed out of market when product loses its marketability.
d)
Fabian
entrepreneur
These are always cautious. They neither introduce new changes nor adopt
new methods invented by others. They are lazy. They follow old customs, old
method of production, techniques.
2.1
THE ENTREPRENEURIAL
PROCESS
A wide range of factors could influence someone to
become an entrepreneur, including environmental, social, personal
ones, or a combination of them. After one decides to be an
entrepreneur, there are four steps of the entrepreneurial process he/she
has to follow:
1.
Spot and assess the opportunity.
2.
Draw up a business plan.
3.
Establish the resources needed and get them.
4. Run the company
created.
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Spot and assess the opportunity
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Develop
the business Plan
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Establish
the resources needed and provide them
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Run
the business created
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1.
Spot and
assess the opportunity
To identify an opportunity and analyses
its potential in terms of: market needs, competitors and market potential
and product lifecycle. It is important the entrepreneur to test his/her
business idea/concept with potential customers, asking if they would buy the
product or service, doing some research to find the market size and whether if
it is growing, stable or stagnating, finding out about his/her competitors
strengths and weaknesses, threats and opportunities.
2.
Draw up the
business plan
The business plan is an important part of the
entrepreneurial process. A well planned business will have more chance to
succeed all the other aspects of the company being equal. It is crucial
for the entrepreneur to know how to plan his/her actions and lay out
strategies for the business to be created or under expansion.
3. Establish the resources needed and provide them.
The entrepreneur should use his/her
planning ability and bargaining skills to get to know the best alternatives on
the financing market for their business, that is, which will offer the best
cost benefit ratio.
4. Run the business created
Running the business can seem to be the
easiest part of the entrepreneurial process, since the opportunity has
been identified, the business plan developed and the source of funding
provided. But running a business is not as straightforward as it seems. The
entrepreneur must recognize his/her limitations, recruit a first rate team
to help manage the business, implementing actions to minimize problems and maximize
profits. That is, the business has to produce more, with the fewest resources
possible, combining efficiency and efficacy.
1.0
ENTREPRENEURIAL MOTIVATION
Motivation is the act of stimulating someone or
oneself to get a desired course of action, to push the right button to get
the desired results. Someone can be motivated to be an entrepreneur due to
internal as well as external factors
a)
Internal factors
i)
Strong desire to
do something new.
ii)
To be independent
in Life.
iii)
Making the
maximum use of technical/professional knowledge.
iv)
Occupational
experience/background.
v)
Passionate about
particular activity.
vi)
Dissatisfaction
with present job.
vii)
To attain
self-satisfaction.
b)
External factors
i)
Utilizing Government grants &subsidiaries.
ii)
To continue ancestor business.
iii)
Financial assistance from Institutions.
iv)
Availability of resources.
v)
Encouragement from big business houses.
vi)
Availability of sick units/ easy financial terms.
vii)
Encouragement from family member
ECONOMIC IMPORTANCE OF
ENTREPRENEURSHIP
The entrepreneur who is a business leader looks for
ideas and puts them into effect in fostering economic growth and development.
Entrepreneurship is one of the most important inputs in the economic
development of a country. The major roles played by an entrepreneur in the
economic development of an economy are discussed as follows:
(i) Promotes Capital
Formation:
Entrepreneurs promote capital formation by
mobilizing the idle savings of public. They employ their own as well as
borrowed resources for setting up their enterprises. Such type of
entrepreneurial activities leads to value addition and creation of wealth,
which is very essential for the industrial and economic development of the
country.
(ii) Creates Large-Scale
Employment Opportunities:
Entrepreneurs provide immediate large-scale
employment to the unemployed which is a chronic problem of underdeveloped
nations. With the setting up of more and more units by entrepreneurs, both on
small and large-scale numerous job opportunities are created for others.
(iii) Promotes Balanced
Regional Development:
Entrepreneurs help to remove regional
disparities through setting up of industries in less developed and backward
areas. The growth of industries and business in these areas lead to a large
number of public benefits like road transport, health, education,
entertainment, etc.
(iv) Reduces Concentration
of Economic Power:
Economic power is the natural outcome of
industrial and business activity. Industrial development normally leads to
concentration of economic power in the hands of a few individuals which results
in the growth of monopolies. In order to redress this problem a large number of
entrepreneurs need to be developed, which will help reduce the concentration of
economic power amongst the population.
(v) Wealth Creation and
Distribution:
It stimulates equitable redistribution of
wealth and income in the interest of the country to more people and geographic
areas, thus giving benefit to larger sections of the society. Entrepreneurial
activities also generate more activities and give a multiplier effect in the
economy.
(vi) Increasing Gross
National Product and Per Capita Income:
Entrepreneurs are always on the lookout for
opportunities. They explore and exploit opportunities, encourage effective
resource mobilization of capital and skill, bring in new products and services
and develop markets for growth of the economy. In this way, they help
increasing gross national product as well as per capita income of the people in
a country.
(vii) Improvement in the
Standard of Living:
Increase in the standard of living of the
people is a characteristic feature of economic development of the country.
Entrepreneurs play a key role in increasing the standard of living of the
people by adopting latest innovations in the production of wide variety of
goods and services in large scale that too at a lower cost. This enables the
people to avail better quality goods at lower prices which results in the
improvement of their standard of living.
(viii) Promotes Country's
Export Trade:
Entrepreneurs help in promoting a country's
export-trade, which is an important ingredient of economic development. They
produce goods and services in large scale for the purpose earning huge amount
of foreign exchange from export in order to combat the import dues requirement.
Hence import substitution and export promotion ensure economic independence and
development.
PROBLEM THAT HINDER DEVELOPMENT
OF SMEs IN TANZANIA
i)
Low
technological base
ii)
Inadequate
managerial and technical skills
iii)
Lack
of entrepreneurship culture
iv)
Financial
Problems
v)
High
competition from both imports and domestic large scale enterprises
vi)
Lack
of availability and dissemination of relevant information
vii)
Infrastructural
Inadequacy and Lack of Social Support
viii)
Poor
Economic Condition
ix)
Improper
and Poor Planning
x)
Corruption
xi)
Poor
Accounting and Book-Keeping Practices
SMALL ENTERPRISE
(SMEs)
SMEs all over in the world are known to play a
major role in social economy development. This is apparently the case of
Tanzania, where SMEs contribute significantly to employment creation, income
generation and stimulation of growth in both urban and rural areas.
Definition
The SMEs nomenclature is used to mean micro, small
and medium enterprises. It is sometimes referred to as micro, small and medium
enterprises (MSMEs).The SMEs cover non -farm economic activities mainly
manufacturing, mining, commerce and services.
There is no universally accepted definition of SME.
Different countries use various measures of size depending on their level of
development. The commonly used yardsticks are total number of employees, total
investment and sales turnover.
In the context of Tanzania, micro enterprises are
those engaging up to 4 people, in most cases family members or employing
capital amounting up to Tshs.5.0 million. The majority of micro enterprises
fall under the informal sector. Small enterprises are mostly formalized
undertakings engaging between 5 and 49 employees or with capital investment
from Tshs.5 million to Tshs.200 million. Medium enterprises employ between 50
and 99 people or use capital investment from Tshs.200 million to Tshs.800
million. This is illustrated in the table below:
CATEGORIES OF SMEs IN TANZANIA
|
Category
|
Employees
|
Capital investment
in machinery (Tshs)
|
|
Micro enterprise
|
1 – 4
|
Up to 5 million
|
|
Small enterprise
|
5 – 49
|
Above 5 mil. to 200 mil.
|
|
Medium enterprise
|
50 – 99
|
Above 200 mil. to 800 mil.
|
|
Large enterprise
|
100+
|
Above 800 million
|
N.B.In the event of an enterprise falling
under more than one category, then the level of investment will be the deciding
factor.
INDUSTRY
TRENDS AND DATA TO IDENTIFY BUSINESS OPPORTUNIES
2.1 BUSINESS OPPORTUNITY
A business opportunity
is a viable business potential to create something new by engaging new
technologies in the industry.
Entrepreneurship is
a thought process, once the entrepreneur has established in his/her mind what
direction he/she wants to take for his/her venture, he/she will necessary need
to identify a specific gap that has not previously been tapped in the industry
he/she has chosen.
What is a business opportunity?
Business opportunity
is a viable business potential to create something new i.e. a product or a
service, establish new market by engaging new technologies.
A business
opportunity is a situation in which changes in technology, or economic,
political, social, and demographic conditions generate the potential to create
something new.
SOURCES OF BUSINESS
OPPORTUNITY
Business opportunity
arises from the following sources
i)
Technological Change
ü Makes it possible for people to do
things in new and more productive ways.
ü Larger technological changes are a
greater source of opportunity.
ii)
Political & Regulatory Change
ü Makes it possible to develop business ideas to use
resources in new ways that are either more productive, or that redistribute
wealth from one person to another.
ü Deregulation
ü Regulations that support particular
types of business activities
ü Regulations that increase demand for
particular activities or subsidize firms that undertake them
ü Policy that increases innovation
iii)
Social & Demographic Change
ü Alters demand for products and
services
ü Makes it possible to generate
solutions to customer needs that are more productive than those currently
available
FORMS OF A
BUSINESS OPPORTUNITY
i)
New products and
services,
ii)
New methods of
production,
iii)
New markets,
iv)
New ways of
organizing, and
v)
New raw
materials.
CHARACTERISTICS OF A GOOD BUSINESS OPPORTUNITY
i)
Be competitive
The product or services should be equal to or better
than other available products or services
ii)
Availability of resources
It should be with the research of the entrepreneur in
terms of resources, competence, legal requirement etc
iii)
Meet objective
It should meet the goals and desire of the person or
organization taking the risks
iv)
There should be demand
Business should be able to provide timely and
acceptable profit for the risk and effort required.
BUSINESS IDEA
Before starting any
activity, one should have an idea of what she or he wants to do.
In all business
activities/enterprises the starting point is business idea. But not all
business ideas can be a good business opportunities.
Business idea:
Is a response of a
person or an organization to solving an identified problem or to meet perceived
needs in the environment.
To have business
idea is the first step the second step is to turn it business idea into
business opportunity.
THE SOURCES OF BUSINESS IDEAS
(i)
Hobbies/interest
Many
people in perusing their hobbies or interests have founded business example one
may be cooking trading and playing with computes and these interests or hobbies
may be developed into the business opportunity.
(ii)
Surveys
The focal
point for a new business idea should be the customer. Survey might be conducted by talking to
people that is your familiar, friends to find out what they think is need or
wanted. Those are not available or
their not satisfied with the available service or product.
(iii)
Mass media
Is the
great source of information, ideas and often business opportunities? These
media are such as radio, newspapers, television, etc.
Example, Article may appear
in the newspaper that in a certain region in Tanzania, weather is too cold;
this can be just news to normal people but for the entrepreneur can have
business idea to satisfy the needs of that market.
(iv)
Exhibitions
In
attending these exhibitions one may come up with the business ideas. May be a certain product he is highly needed
or you may get good information on how to conduct a certain business.
(v)
Complaints
Complaints
from the customers about a certain products or service may give someone
business idea. Example people are complaining that in area “X” there is a
scarcity of red beans or soya beans, this can give someone a business idea that
is an idea to start business to provide such kind of service to the people.
(vi)
Personal skills and experience
Most of
the business ideas come from experience. Example teacher with experience in
working may have an idea of operating his/her own schools, doctors may have
idea of setting of setting his/her own dispensary, hospital or a pharmacy, etc.
PROCESSING & SELECTION OF IDEA
(i)
Technical feasibility:
The product chosen should be technically
feasible I e should be capable of being manufactured using some technology.
(ii)
Commercial viability:
Refers to cost benefit analysis to know
whether the product would yield expected rate of return.
(iii)
Financial & managerial considerations:
Amount of finance required, sources
of finance to be worked out & managerial sources, its availability
& its cost.
(iv)
Final selection:
Products which pass through all the tests(be
technically feasible, commercially viable) are considered for final selection.
Some points may be allotted for each test and that product which gains highest
points may be selected for production.
DECIDING THE LOCATION
Factors to consider in deciding and selecting
business location are numerous and complex. The following are the factors
influencing location of the business.
a)
Many factors
influence the location of the unit.
b)
Availability of
raw materials.
c)
Market
accessibility
d)
Human resource
e)
Supply of
power
f)
Fuel & water
g)
Transportation
h)
Government
policies-subsidies & incentives
i)
Climate.
j)
Scope for further
expansion.
DETERMINING FACTORS FOR EXPLOITING A BUSINESS
OPPORTUNITY
(SWOT
ANALYSIS)
What is SWOT Analysis?
SWOT Analysis is
a tool that identifies the Strengths,
Weaknesses,
Opportunities
and Threats
of an organization.
Specifically,
SWOT is a basic, straightforward model that assesses what an organization can
and cannot do as well as its potential opportunities and threats.
The method of
SWOT analysis is to take the information from an environmental analysis and
separate it into internal (strengths and weaknesses) and external issues
(opportunities and threats). Once this is completed, SWOT analysis determines
what may assist the organization in accomplishing its objectives, and what obstacles
must be overcome or minimized to achieve desired results.
SWOT stands for Strengths, Weaknesses, Opportunities
and Threats. It is a way of summarizing
the current state of a business and helping to devise a plan for the future.
The following are the characteristics of SWOT
v
Strength and
Weaknesses tend to describe the PRESENT situation
v
Strengths and
Weakness are typically INTERNAL factors
v
Strength and
Weaknesses are POSITIVE factors
v
Opportunities and
Threats tend to describe the immediate FUTURE situation
v Opportunities and Threats are typically EXTERNAL
factors
v Opportunities and Threats are NEGATIVE factors
These characteristics are summarized in the
following diagram:
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Strengths:
|
Weaknesses:
(Weak points)
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Opportunities:
|
Threats:
|
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a)
Strengths
Your strengths
are usually easy to identify, through your continuing dialogue with customers
and suppliers.
Your records (eg
sales) will also help to indicate areas where you are particularly strong (eg
rising sales for a particular product).
For most
businesses, strengths will fall into four distinct categories.
i) Sound finances may give you advantages over your
competitors.
ii) Marketing may be the key to your success.
iii) Management strength and personnel skills may
provide equally important for business success.
iv) Strengths in production may include the right
premises and plant, and good sources of materials
b)
Weaknesses
Your weaknesses are often known but ignored.
A SWOT analysis should be the starting point for tackling underperformance in
your business.
Examples of weaknesses can be:-
i)
Poor financial
management
ii)
Lack of marketing
focus
iii)
Management and
personnel weaknesses
iv)
Insufficient
production, premises, and plant
c)
Opportunities
External changes provide opportunities that
well managed businesses can turn to their advantage.
Examples of opportunities can be:-
i)
Deterioration in
a competitor’s performance, or the insolvency of a competitor
ii)
Improved access
to potential new customers and markets (eg overseas)
iii)
Increased sales
to existing customers
iv)
The development
of new distribution channels (eg the Internet)
v)
Political,
legislative or regulatory change, For example, a change in legislation that
requires customers to purchase a product.
d)
Threats
Threats can be minor or can have the
potential to destroy the business.
The following are some of examples which can
be threats to a business:-
i)
Improved
competitive products or the emergence of new competitors
ii)
Loss of a
significant customer
iii)
Failure of
suppliers to meet quality requirements.
iv)
Key personnel
leaving, perhaps with trade secrets.
v)
Political,
legislative or regulatory change. For example, new regulation increasing your
costs or requiring product redesign.
vi)
Social
developments. For example, consumer demands for ‘environmentally-friendly’
products
vii)
New technology.
For example, technology that makes your products obsolete or gives competitors
an advantage.
ACTION
The results of SWOT analysis — and the action
needed will be different for every business.
Some of the actions to be taken into
consideration are as follows:-
i)
Capitalize on
opportunities that play to your strengths.
ii)
Diversifying away
from areas of significant threat to more promising opportunities
iii)
Decide which
weaknesses need to be addressed as a priority
iv)
Protect yourself
against threats. For example: Build relationships with suppliers and customers.
SELF EMPLOYMENT Vs WAGE EMPLOYMENT
After finishing your graduation you will be at the
crossroads of life. You will face the dilemma of choosing what you have to do
in life. You can choose your career from two broad categories of options – Wage
Employment or self-employment.
What is Self-employment?
A situation in which an individual works for
himself or herself instead of working for an employer that pays a salary or a
wage. A self-employed individual earns their income through conducting
profitable operations from a trade or business that they operate directly.
What
is Wage employment?
A situation in
which an individual works as a salaried employee earning a set amount of money
each week, they may be paid weekly, bi-weekly or monthly. These are the ones
who work over 40 hours a week, but are paid for 40 no matter what.
In case you opt
for self-employment you will be your own boss. In case of wage employment one
is engaged in routine work carried on for others for which he receives salary
or wages. He has to follow instructions and executes plans laid down by his
superior. One can choose to be employed in Government Service or the Public
Sector or the Private sector. Some of the main differences between
self-employment and wage employment career options are as under-
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WAGE EMPLOYMENT
i)
Work for Others
ii)
Follow Instructions
iii)
Routine Job
iv)
Earning is fixed, never negative
v)
Does not create wealth
vi)
Can choose from-
·
Government service
·
Public Sector,
·
Private Sector
|
SELF EMPLOYMENT
i)
Own Boss
ii)
Make own plans
iii)
Creative activity
iv)
Can be negative sometimes, generally surplus
v)
Creates Wealth, contributes to GDP
vi)
Can choose from-
·
Industry
·
Trade
·
Service Enterprise
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ADVANTAGES
AND DISADVANTAGES OF SELF EMPOLYMENT
Advantages
i)
You can set your
own hours
ii)
Don’t need educational
degrees or certificates
iii)
You are your own
boss and can make your own decisions
iv)
You do work you
like
Disadvantage
i)
You have to work
many hours each day to make any money
ii)
Business income
varies, but business expenses are more constant (e.g., utilities, supplies,
marketing)
iii)
You usually need
capital to get started
iv)
Responsibility
for business success is stressful
ADVANTAGES
AND DISADVANTAGES OF SELF EMPOLYMENT
Advantages
i)
You receive wages
on a regular basis
ii)
You can have
opportunities for promotion
iii)
Social contact
with co-workers
iv)
Less stressful,
you can leave your work behind at the end of the day
Disadvantage
i)
You cannot set
your own schedule
ii)
Your work hours
may not be convenient for you
iii)
You have no
control over work conditions
iv)
You have limited opportunities
to make decisions
3.0 BUSINESS
ENVIRONMENT
Business
environment refers to the various facets within which enterprise (ie big,
medium, small and others) operate. The enterprise is an open system; it gets
resources from the environment and supplies goods/services to the environment.
There are different levels of environmental forces. Some are close and internal
forces while others are external forces.
External forces
may be related to national level, regional level or international level. These
environmental forces provide opportunities or threats to the business
community. Every business enterprise tries to grasp the available opportunities
and face the threats that emerge from the business environment.
Business
enterprise cannot change the external environment but they just react. They
change their internal business component (internal environment) to grasp the
external opportunities and face the external environmental threats.
COMPONENT/TYPES OF
BUSINESS ENVIRONMENT:
There are mainly two types of business environment,
internal and external. A business has absolute control in the internal
environment, whereas it has no control on the external environment. It is
therefore, required by businesses, to modify their internal environment on the
basis of pressures from external.
Component of business environment
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Component of
business environment of firm
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Internal
environment
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External
environment
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Micro
environment
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Macro
environment
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a)
INTERNAL
ENVIRONMENT FACTORS:
The internal
environment has received considerable attention by firms. Internal environment
contains the owner of the business, the shareholders, the managing director,
the non-managers, employees, the customers, the infrastructure of the business
organization, and the culture of the organization.
Internal factors are those which will ultimately influence the entrepreneurs
to take up entrepreneurial venture/enterprise. It consists of variables
(strength and weakness) that are within the enterprise itself and are not
usually within the short run control of entrepreneurs. They form the context in
which work is done.
It includes 6 Ms i.e.
i)
Man (Human Resource)
ii)
Money (Financial
Factors)
iii)
Marketing Resources
iv)
Machinery (Physical
Assets)
v)
Management Structure
and Nature
vi)
Miscellaneous Factors
(Research and Development, Company Image and Brand Equity, Value System,
Competitive Advantage)
Usually, these factors
are within the control of business. Business can make changes in these factors
according to the change in the functioning of enterprise.
b)
EXTERNAL ENVIRONMENT
FACTORS:
The external
environment of an organization comprises of all entities that exists outside
its boundaries, but have significant influence over its growth and survival. An
organization has little or no control over its external environment but needs
to constantly monitor and adapt to these external changes. A proactive or
reactive response leads to significantly different outcomes.
The successes of
entrepreneurship in a region at any point of time depend on the very many external environmental factors.
These factors influence the entrepreneurial operations and ultimately determine
the effectiveness of entrepreneurial performance. It consists of variables
(opportunities and threats) and is outside the enterprise
There are two types of
external environment
v
Micro/Operating/Task
Environment
v
Macro/General/business
Environment
v
Micro environment
(Operating/Task environment)
The micro environment
is also known as the task environment and operating environment because the
micro environmental forces, though are external factors, still have a direct
bearing on the operations of the firm. The micro environment consists of the
factors in the company’s immediate environment that affects the performance and
working of the company. The micro environmental factors are more intimately
linked with the company than the macro factors.
Micro environmental
factors are internal factors close to a business that have a direct impact on
its strategy includes:
i)
Customers
ii)
Employees
iii)
Suppliers
iv)
Shareholders
v)
Media
vi)
Competitors
v
Macro environment (General/business
environment)
Macro environment is
also known as general environment and remote environment. Macro factors are
generally more uncontrollable than micro environment factors. When the macro
factors become uncontrollable, the success of company depends upon its
adaptability to the environment. This environment has a bearing on the
strategies adopted by the firms and any changes in the areas of the macro
environment are likely to have a far-reaching impact on their operations.
The macro environment
is primarily concerned with major issues and upcoming changes in the
environment.The acronym for the macro analysis is “STEEP.” The five areas of
interest are:
i)
Socio-Cultural and
Demographics
ii)
Technology
iii)
Economic Conditions
iv)
Ecology and Physical
Environment
v) Political and Legal
i)
Socio Cultural and Demographics
Social-cultural and demographic environment is an important factor
that should be analyzed while formulating enterprise business strategies. If an
enterprise is ignoring the customs, traditions, tastes, preference, education
and population it can affect the business. It consists of factors which are
related to human relationships and the impact of social attitudes, cultural
values, size, density, and distribution and
growth rate of population
ii)
Technology
Technological factors sometimes pose serious problems. A
firm/enterprise that unable to cope with technological change may not survive.
Further, the differing technological environment of different markets or
countries may be called for product modifications. Technology is the most
important elements of macro environment. Technology is the human being
innovation. Advances in the technologies have facilitated product improvements
and introduction of new products and have considerably improved the marketability
of the product.
iii)
Economic Conditions
There is a close
relationship between business and its economic environment. It obtains all
inputs from economic environment and all its output is absorbed here with. The
economy goes through a series of fluctuations associated with general booms and
recessions in economic activity. In a boom nearly all business are benefited
whereas recession is a case vice versa.
Business is
influenced by economic aspects like interest rates, wage rates etc. The
survival and success of each and every business enterprise depends fully on its
economic environment.
iv)
Ecology and Physical Environment
The ecology and
physical environment plays a large part in many businesses especially for those
which carry out production and manufacturing activities. Businesses are
affected on daily basis due to environmental and ecological changes. Further,
government’s policies to maintain ecological balance, conservation of natural
resources etc. put additional responsibility on the business sector.
v)
Political and Legal
The political
environment of the country influences the business to a great extent. The political
environment includes the political system, the government policies and their
attitude towards the business community. All these aspects have a bearing on
the strategies adopted by the business firms.
Political changes are closely tied up with legal changes. These
affect the business and its managers to a great extent. This refers to set of
laws, regulations, which influence the business organizations and their
operations. Every business organization has to obey, and work within the
framework of law.
1.0 LEGAL FORM OF BUSINESS OWNERSHIP
One of the first decisions an
entrepreneur will make for his/her new business is choosing the type of legal
organization that’s best for him/her. The choice he/she makes is important
because it will determine what the business can and cannot do, what will happen
if someone sues him/her, and how both him and his business are taxed.
Forms of business organization are legal forms in
which a business enterprise may be organized and operated. These forms of
organization refer to such aspects as ownership, risk bearing, control and
distribution of profit.
There are basically three ways to
organize a business. Listed from the simplest to sophisticated, they are:
a)
SOLE
PROPRIETORSHIP
We go to the market to
buy items of our daily needs. In the market we find a variety of shops- some of
them small and some of them big. We may find some persons selling vegetables,
peanuts, newspapers etc. on the roadside. We may also find cobbler repairing
shoes on the footpath. Every day you come across such types of shops in your
locality. But have you ever tried to know how these businesses are run? Who are
the owners of these businesses? What exactly does an owner do for any business?
You may say, the owner
invests capital to start the business, takes all decisions relating to
business, looks after the day to day functioning of the business and finally,
is responsible for the profit or loss. Yes, you are right. The owner does
exactly all these things. In such type of business the single individual takes
all initiatives to start and run the business.
'Sole' means single and
'proprietorship' means ownership. It means only one person or an individual
becomes the owner of the business. Thus, the business organization in which a
single person owns, manages and controls all the activities of the business is
known as sole proprietorship form of business organization. The individual who
owns and runs the sole proprietorship business is called a ‘sole proprietor’ or
‘sole trader’. This form of business is the oldest and most common form of business
organization.
Thus, sole
proprietorship can be defined as “a business enterprise
exclusively owned, managed and controlled by a single person with all
authority, responsibility and risk”
v Advantages
of Sole Proprietorship
i)
Easy to Form and Wind up:
A sole proprietorship
form of business is very easy to form. With a very small amount of capital you
can start the business. There is no need to comply with any legal formalities
except for those businesses which required license from local authorities or
health department of government. Just like formation it is also very easy to
wind up the business. It is your sole discretion to form or wind up the
business at any time.
ii)
Full control of all activities of the
business
The entrepreneur
takes all decisions affecting the business. He chalks out the plan and executes
the same. His eyes are on everything and everyone
iii)
Direct Motivation:
The profits earned
belong to the sole proprietor alone and bears the risk of losses as well. Thus,
there is a direct link between effort and reward. If he works hard, then there
is a possibility of getting more profit and of course, he will be the sole
beneficiary of this profit. Nobody will share this reward with him. This
provides strong motivation for the sole proprietor to work hard.
iv)
Quick Decision and Prompt Action:
In a sole
proprietorship business the sole proprietor alone is responsible for all
decisions. Of course, he can consult others. But he is free to take any
decision on his own. Since no one else is involved in decision making it
becomes quick and prompt action can be taken on the basis of this decision
v)
Maintenance of Business Secrets:
Business secrecy is an
important factor for every business. It refers to keeping the future plans,
technical competencies, business strategies, etc, secret from outsiders or
competitors. In the case of sole proprietorship business, the proprietor is in
a very good position to keep his plans to himself since management and control
are in his hands. There is no need to disclose any information to others.
v Disadvantages
of Sole Proprietorship
One-man
business is the best form of business organization because of the above
discussed advantages. Still there are certain disadvantages too. Let us learn
those limitations.
i)
Limited Capital:
In sole proprietorship
business, it is the owner who arranges the required capital of the business. It
is often difficult for a single individual to raise a huge amount of capital.
The owner’s own funds as well as borrowed funds sometimes become insufficient
to meet the requirement of the business for its growth and expansion
ii)
Unlimited Liability:
In case the sole
proprietor fails to pay the business obligations and debts arising out of
business activities, his personal properties may have to be used to meet those
liabilities. This restricts the sole proprietor from taking risks and he thinks
cautiously while deciding to start or expand the business activities.
iii)
Lack of Continuity:
The existence of sole
proprietorship business is linked to the life of the proprietor. Illness, death
or insolvency of the owner brings an end to the business. The continuity of
business operation is therefore uncertain.
iv)
Limited Size:
In sole proprietorship
form of business organization there is a limit beyond which it becomes
difficult to expand its activities. It is not always possible for a single
person to supervise and manage the affairs of the business if it grows beyond a
certain limit.
v)
Lack of Managerial Expertise:
A sole proprietor may
not be an expert in every aspect of management. He/she may be an expert in
administration, planning, etc., but may be poor in marketing. Again, because of
limited financial resources it is also not possible to employ a professional
manager. Thus, the business lacks benefits of professional management.
b)
PARTNERSHIP
Partnership is an
association of two or more individuals (but not more than 20) who agree to
share the profits of a lawful business which is managed and carried on either
by all or by any, or some of them acting for all.
Partnership can be
defined as the relation between persons competing to make contract who agree to
carry on a lawful business In common with a view of private gain.
The formation of partnership
is easy and simple. It is formed to meet the need for” more capital, effective
supervision and control, greater specialization, division of work between
proprietors and for spreading of risk Persons from similar background or
persons of different ability and skills, may join together to carry on a
business. Each member of such a group is individually known as ‘partner’ and
collectively the members are known as a ‘partnership firm.
Partners require a Deed of Partnership or Partnership
Agreement, which is a document that states that all partners agree to work
with each other, and an issue such as who put the most capital into the
business or who is entitled to the most profit. Other legal regulations are
similar to that of a sole proprietor.
v Advantages
of Partnership
i)
Easy to Form:
The partnership, like
the sole proprietorship, can be easily organized. There are no complicated
legal formalities involved in the establishment of partnership business. The
partners enter into a partnership agreement and start business.
ii)
Large Capital:
In case of sole
proprietorship, the capital is limited to the savings of one owner or his
borrowing capacity. Partnership can bring more capital to the business by the
joint efforts of the partners. The partnership is normally in strong position
to raise capital and expand the business.
iii)
Greater Management Ability:
As there are many
partners involved in the operation of a business, the firm can distribute the
duties and responsibilities to each partner for which one is best qualified and
suited. Division of labour and specialization, thus, can promote efficiency of
the firm.
iv)
Union of Business Ability:
There is a bid age
saying that two heads are better than one. In case of partner the partner
mutually consults each other about the lay out, production procedure, marketing
channels, etc. and as a result, a wise course of procedure results.
v)
Retention of a Skilled Worker:
If an employee in the
partnership business is found to be a man of outstanding talent and ability, he
with the mutual consultation of other partners can be given a status of a
partner in the business.
v
Disadvantages of Partnership
The partnership form of
organization suffers from certain disadvantages also. These in brief are as follows.
i)
Unlimited Liability of Partners:
One of the basic
defects of partnership is that the partners are personally and jointly
responsible for all the debts of the firm. In case the business suffers losses
and the business assets are not sufficient to satisfy the claimants on
liquidation, the personal property of one or more than one partners can be sold
under the Court order for the clearance of the debts of the business. The rich
and wealthy persons, therefore, avoid to be enlisted in partnership because
each individual partner in liable for the firm’s debt
ii)
Limited Life of Firm:
The duration of the
partnership is always uncertain. I partner dies, injured, withdraws, sells his
interest, or a new partner is admitted into the business, or arises difference,
the partnership may come to an end. There are every possibilities of the
dissolution of the firm due to internal difference
iii)
Disputes among the Partners:
The partners should be
like minded, have a common objective, be large hearted, have a cool temperament,
should not unnecessarily cause friction and confusion among the partners. The
choosing of partner is in fact like choosing a wife. Marry in haste and repent
in leisure. In case of dispute among the partners, quick action should be taken
by all the partners for the remedial measures.
iv)
Divided Control:
In a partnership, the
work of the business is divided among the partners according to their ability,
choice and taste. Divided control - and responsibility sometimes creates
confusion and delay in making decisions. The lack of efficiency on the part of
one partner can upset the whole structure of the business and ultimately lead
to dissolution of the firm.
v)
Implied Authority:
Implied authority is
the authority vested in a partner to bind the firm with any of his acts done in connection with the business of the
firms. In partnership form of organization, each partner binds other partners
by his acts done on behalf of the firm: Thus the other partners may have to pay
for the follies and dishonesty of a fellow partner
c) LIMITED COMPANY
A Company form of business organization is a
voluntary association of persons to carry on business. Normally, it is given a
legal status and is subject to certain legal regulations. It is an association
of persons who generally contribute money for some common purpose. The money so
contributed is the capital of the company.
The persons
who contribute capital are its members. The proportion of capital to which each
member is entitled is called his share, therefore members of a company are
known as shareholders and the capital of the company is known as share capital.
The total share capital is divided into a number of units known as ‘shares’.
You may have heard of the names of
companies like Tata Iron & Steel Co. Limited, Hindustan Lever Limited,
Reliance Industries Limited, Steel Authority of India Limited, Ponds India
Limited etc.
The companies are governed by the
Tanzania Companies Act, 2002. The Act defines a company as an artificial person
created by law, having separate entity, with perpetual succession and a common
seal. As per Companies Act 2002, a company is formed and registered under the
Companies Act by filling article of incorporation with the appropriate state
government office.
v Advantages of Company
i)
Greater Permanency:
The life of a company compared to the
partnership is very stable. If the business remains well managed, it can live
on indefinitely. The life of a company is not affected by the death,
disability, insolvency or disagreement of a shareholder. The shareholders, may
come or go, the life of the company like an artificial person' is least
affected by these changes. There is, thus, a greater permanency of the
companies.
ii)
Limited Liability:
In a company, all the shareholders have a limited
liability. In case of loss to the company, the liability of the shareholders is
limited to the amounts; they have invested in the company.
iii)
Easy to Transfer Ownership:
One of the basic features of a company is
that the shareholders can transfer the ownership of shares to the interested
parties' through the share brokers. The company simply records change of
ownerships. This facility provides liquidity to the investors and stability to
the company.
iv)
Attraction of Huge Capital:
The companies divide the share capital into
shares of small denominations in order to attract capital from large number of
investors for starting big business and industrial enterprises.
v)
Recognized Legal Entity:
The company is incorporated under the
Companies Ordinance. In all legal matters, therefore, it is dealt with as an
individual person. The company can enter into contracts; borrow money, open
banking account in its name. It can sue or be sued, hold, deal and dispose of
property in its own name
v
Disadvantages of Company
There
is no doubt that company enjoys certain distinct advantages of limited
liability, greater permanence etc. but there are also certain abuses/draw backs
which are associated with the joint stock company. They, in brief, are as
follows:
i) Formation
of a Company Complicated:
The formation of a
joint stock company is much more complicated than sole proprietorship or
partnership. There are many legal formalities, which are to be observed which
consume a greater amount of time, energy and the money also.
ii) Double
Taxation:
The joint stock company
is subject to doubt taxation. It pays tax on its earnings to the government.
The tax is also paid by the shareholders on the receipt of dividend from the
company. This amounts to taxing the earnings of company twice Double taxation
of earnings is considered to be a barrier to-the capital formation in the
country.
iii) Separation
of Ownership from Control:
In a joint stock
company, the shareholders who are real investors are not allowed to take part
in the operations of the business. There is thus a separation of ownership from
control. The directors in collaboration with the managers often exploit the
helpless shareholders
iv)
Favoritism and Nepotism:
There is often a top
heavy management in the company's organization. The directors, managers etc
employ their near and dear ones at the key positions of the company who may or may
not be f the assigned responsibilities.
v) Lack
of Secrecy:
In a joint stock
company, the management has to make an annual report, regarding sales, net profits,,
assets, liabilities etc of the company. The competitors thus gain full
knowledge of strong and weak points of the company. The employees also disclose
the secrets of the business to rivals in the business.
d)
LIMITED LIABILITY COMPANY (LLC)
A
Limited Liability Company (LLC) is a hybrid business entity having certain
characteristics of both a corporation and a partnership or sole proprietorship
(depending on how many owners there are). An LLC, although a business entity,
is a type of unincorporated association and is not a corporation.
The
primary characteristic an LLC shares with a corporation is limited liability,
and the primary characteristic it shares with a partnership is the availability
of pass-through income taxation. It is often more flexible than a corporation,
and it is well-suited for companies with a single owner.
v Advantages
of LLC
i)
Limited
liability.
Members are protected from
personal liability for business decisions or actions of the LLC. This means
that if the LLC incurs debt or issued, members' personal assets are usually
exempt. This is similar to the liability protections afforded to shareholders
of a corporation. Keep in mind that limited liability means "limited"
liability - members are not necessarily shielded from wrongful acts, including
those of their employees.
ii)
Choice
of taxation.
Owners can choose to have their
LLCs taxed like a corporation or a partnership. This allows the owners to elect
the way they want to be taxed. No other business formation gives you this much
flexibility.
iii)
Easy Set-Up:
Starting a Limited Liability
Corporation is generally faster than traditional incorporation because there
are less registration requirements and there are smaller start-up costs.
iv)
Flexible
distribution of profits and losses.
There are fewer restrictions on
profit sharing within an LLC, as members distribute profits as they see fit.
Members might contribute different proportions of capital and sweat equity.
Consequently, it's up to the members themselves to decide who has earned what
percentage of the profits or losses.
v Disadvantages
of LLC
i)
Limited life span
LLCs have to identify dissolution
dates in the articles of organization.
ii)
Fewer
incentives
LLCs can’t deduct the cost of
fringe benefits.
iii)
Taxes
LLC members must pay
self-employment taxes on profits.
iv)
Paperwork
The paperwork required is more
than what is required of sole proprietors
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