Discuss the relationship between entrepreneurship, innovation and economic development. What role do creativity and problem solving play in this relationship? Refer to both theory and examples from the business world to support your discussion.
From 18th century, economists have paid great attention to the effect which entrepreneurship and innovation have on the development of economy (Van Dijk, 1999). Hisrich, Peters and Shepherd (2010) have discussed that an entrepreneur can be defined as an individual who has the ability to manage the limited resources more effective, applies creativity and innovation in the marketplace in order to appropriate profits and is keen to bear the uncertain condition. Since it can act to integrate three factors of production in productive ways to cater to the needs of characters, several economists regard it as a special factor of production besides labor, capital and land (Kirby, 2003). In addition, innovation means not only the creation of better or more effective products, technologies or ideas which are accepted by markets, but also the existing products of which quality are improved to satisfy consumers (Shane and Ulrich, 2004). It seems that both entrepreneurship and innovation rank high on promoting the development of economy. Accordingly, this essay will discuss the close relationship between entrepreneurship, innovation and economic development in small firms with a few specific examples. Besides, as two key factors in this relationship, creativity and problem solving will be also discussed in this essay.
In general, innovation has been regarded as one of the most momentous factors to the whole process of entrepreneurship. Similarly, entrepreneurship has become one of the most significant factors to innovation. It is said by Castillo (2009) that neither entrepreneurs nor innovators has considered themselves as each other, though, entrepreneurship requires innovation and vice versa. Usually, entrepreneurs desire to find out the best way, which can produce newer and better products and improve the quality of their previous goods, to search for new markets and capture purchasers’ attention by using the limited resources, and at the end of this, they can obtain more profits. In this process, when an entrepreneur creates a new product or uses a method that is new to it, it makes a technical change. At that time, the first firm which made the change is an innovator. Thus, it is the same with what Drucker (1989) said that, during this process of exploring the right way, innovation is the specific means of entrepreneurs, that is to say, innovators have the abilities to exploit change as a chance for a new product and increase the value of existing products by means of improving its quality. Ultimately, the new and updated products will develop new markets and meet the needs to purchasers through the cooperation between entrepreneurship and innovation. In a word, as a special section of the process of entrepreneurship, innovation always accompanied with entrepreneurship, and meanwhile, they supplement each other.
In the term of entrepreneurship, it is received by a host of scholars that there is an affinitive relationship between entrepreneurship and the development of economy. To begin with, as a matter of fact, there is an approach of which the name is Global Entrepreneurship Monitor (GEM) to examining the complicated relationship between the level of entrepreneurship and the level of economic growth. In this method, researchers considered the growth of a nation’s gross domestic product (GDP) as the representative of the economic development, and then, they set up a GEM model, which is made up of demand side which is represented by entrepreneurial opportunities and supply side which is represented by entrepreneurial capacity factors. After measuring large bodies of data around forty countries, the GEM consortium is sure that entrepreneurship has a positive effect on the...
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