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Summary Principles of Management IIB (Entrepreneurship) Chpt.4 - The Entrepreneurial Environment
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- University Of The Witwatersrand (wits)
External Factors and their Impact on Entrepreneurship
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Principles of Management IIB (Entrepreneurship) by ProfessorBurgerQueenChapter 4: The Entrepreneurial Environment
Importance of the Environment
- The external environment is defined as forces or elements that influence a venture
from outside of the organisation
- As conditions change in the environment (in politics, the economy, society,
technology, laws and regulations) or in one’s industry (for example, competitive
intensity, threats to entry, the influence of suppliers and consumers and the threat of
generic products), there must be compulsion for an internal response
- The outcome of the internal response may manifest as new products, technologies,
distribution channels, costs containment, and staff redeployment.
- A change in one variable element triggers change in others
- Macro and industry variables are largely uncontrollable therefore entrepreneurs must
cushion for impact.
- The environmental forces surrounding an entrepreneur can be assessed according to
two (2) main measures:
- Changeability: the degree to which the environment is likely to change. For
example, there is low changeability in the baked beans market and high
changeability in the various computer software markets.
- Predictability: the degree to which such change can be predicted. For
example, changes can be predicted with certainty in the furniture market, but
remain largely unknown in biogenetics
- These measures can be subdivided further:
- Changeability:
- Complexity: the degree to which factors such as internationalisation, social,
technological, and political complications affect the entrepreneur.
- Novelty: the degree to which new situations transpire within the
entrepreneur's environment.
- Predictability: The visibility of the future, the efficacy and availability of data
used to predict the future.
- In stable environments, the development of creative responses to change
conditions are hardly needed, in contrast, in conditions where survival is
determined by the effective response to market variations , entrepreneurship
and innovation are prerequisites.
, Principles of Management IIB (Entrepreneurship) by ProfessorBurgerQueen
Factors and their Impact on Entrepreneurship
- Technological Factors:
- Typical changes in technology include:
- Advancements in science and technology (e.g. nanotechnology and open
innovations);
- Technology that is currently available (computers, machinery, tools);
- The percentage of Gross National Product (GNP) set aside for investment in
research and development; and,
- Technology competence of the labour force and general populous
- The implications of technological factors for entrepreneurs are:
- New technologies create new markets.
- The ICT industry is one such environment characterised by swift
change and decreased product and business lifecycle, where future
profit steams from current operations are uncertain and firms should
persistently seek out new opportunities;
- Fast-paced technological development apply pressure on an organisation to
continuously innovate and develop and utilise their resources in order to meet
their customer demands;
- Economic Factors:
- Micro and Macroeconomic indicators, such as:
- Individual discretionary income;
- Inflation and interest rates;
- Tax scenarios;
- Level of economic development;
- Market imperfections;
- Economic activity and statistics;
- GDP and GNP;
- Rate of Growth (real GNP or GDP);
- Personal income per capita
- Average family income;
- Distribution of wealth; and,
- Income classes.
- Implications for entrepreneurs are:
- Economic growth and social wealth increase the level of opportunity
exploitation and hence entrepreneurship;
- The increasing level of inequality in South Africa acts as a major determinant
to growth, development, and employment creation;
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