Entrepreneurship does not emerge and develop automatically and spontaneously, its emergence and development purely depend on supportive conditions.
A business enterprise does not exist in a vacuum. It exists in a world of concrete places and things, natural resources, important abstractions and living persons.
The sum of all of these factors and forces is called the entrepreneurial environment. Although, entrepreneurial environment constitutes both internal and external factors. Environment refers to all external factors which have a bearing on the functioning of the enterprise.
It refers to those aspects of the surrounding of business enterprise and circumstances of business units which affect or influence its activities and operations and decides its effectiveness. The environment of the business enterprise is always changing and uncertain.
“The environment includes factors outside the firm which can lead to opportunities for or threats to the firm. Although there are many factors, the most important are socio-economic, technological, suppliers, competitors and government”.
Factors for Entrepreneurial growth:
Entrepreneurship does not emerge and develop automatically and spontaneously, its emergence and development largely depend on various supportive conditions.
These supportive depend on various supportive conditions. These supportive conditions or factors are popularly known as economic and non-economic factors for entrepreneurial growth.
So entrepreneurial growth is not spontaneous and as such it is dependent on economic, social, political and psychological factors. Various factors affect5ing entrepreneurial growth may be stated in the following diagram.
Economic environment influences the entrepreneurship to a great extent. It refers to all those economic factors which affect the functioning of a business enterprise. Dependence of business on economic environment is total i.e. for input and also to sell the finished goods.
Economic environment has reference to the economic system which the entrepreneur has to operate. The present day economic environment of business is a complex one. The business sector has economic relations with the government, capital market, household sector and with global sector.
These sectors together influence the trends and structure of economic system is conditioned by socio-political arrangements.
The survival and success of a business enterprise is finally decided by the economic environment and various market conditions. The important external factors that affect the economic environment of a business are as follows:
1. Economic Conditions:
The general economic conditions prevailing in the country i.e. national income, per capita income, economic resources, distribution of income and assets, economic development, etc are important determinants of business environment.
Business cycles and economic growth of the economy are important factors defining the economic environment. The stage of economic development.
The stage of economic development decides the size of the local or domestic market and its dynamism affects the business.
In economics where the income of the people is rising, business prospects for entrepreneurs will be brighter and investment will get automatic attraction.
2. Economic System:
The economic system operating in the country also affects the business enterprise to a very great extent. The economic system of a country may be capitalist, socialist, communist or mixed. Government regulations of economic activities depend upon on the nature of the economic system.
The economic environment of business enterprise is determined according to the economic system obtained within a country. The economic activities are mainly framed with a purpose of earning, spending and savings.
An economy can be explained in terms of the system of production, consumption, selling and exchange transactions. Without production in a country, system cannot be worked out and other activities are also crucial i.e. consumption, selling and exchange transactions.
3. Economic Planning:
Economic planning deals with a systematic and co-ordinate effort on the part of the political authority to improve the effectiveness of the economy. The government set up the Planning Commission in India in 1950 for the assessment of country’s need of capital and human resources.
The various activities of economic planning such as making real assessment of resources, formulation of a plan, implementation of plan, identifying the resources regarding economic growth.
Determining the plan machinery, making periodic assessment etc directly and indirectly influence the economic environment of an entrepreneurship.
4. Economic Infrastructure:
Economic infrastructure consists of the provision of roads and railways, hydro-electric works, telecommunications, irrigation dams etc.
Some attempts have been made to involve the private sector is some areas of infrastructure as power generation, roads construction, building highways and telecommunication but by and large, the responsibility for infrastructure development rests with the government.
Economic infrastructure can cater to the supply of market information, encouraging modern designs and undertaking research and development for entrepreneurs, besides undertaking the marketing of their products.
5. Availability of Capital Facilities:
Capital is one of most dominant prerequisites to establish an enterprise. Availability of capital helps the entrepreneur to bring together the labour, machine, raw material. Capital is treated is a lubricant to the process of production.
An increase in capital investment tends to increase the capital output ratio. This results in increase in profit which ultimately goes to capital formation. This suggests that as capital supply increases entrepreneurship also increase.
The quality and quantity of labour is another very important component which influence the growth of entrepreneurship in the country. The division of labour is considered as an important element in economic development and leads to improve the production capacities.
7. Per Capita Income:
Entrepreneurs locate and exploit opportunities. They convert the latent and idle resources like land, labour and capital into national income and wealth in the forms of goods and services. They help to increase Net National Product and per capita income in the country.