Economic Theory

Economic Theory

Established by an Irish French economist Richard Cantillon. He visualized an entrepreneur as a broker who buys production factors at a specific price to sell the product at a changeable future price. Richard viewed an entrepreneur as a risk-taker (Carayannis, Bakouros, & Samara, 2015). The theory suggests that economic growth occurs when the financial provisions are favorable .the scholar states financial incentives to be the primary motivators for entrepreneurship .the incentives include;

• Taxation and industrial policy
• Infrastructure availability
• Source of raw material and finance
• Opportunities in investments and banking.
• Investment and marketing
• Access to information on market conditions and technology

The Australian market process, classical and neoclassical school of thought, collaborates why entrepreneurs focus on the economic conditions and opportunities they bring in.

Classical theory

Was an outcome of the British industrial revolution and was the work of scholars Adam smith, David Richard, and john Stuart mill. The theory bases on the virtues of economic freedom and economic growth. Smith argued that a nation’s economic growth could be promoted free trade and free competition is not hampered (David, 2013). The theory asserts an entrepreneur’s role in the distribution and production of movable goods in a market that is competitive. The approach articulates the tools of production to be labor, land, and capital. The classical theory argument limitation is that it does not cover the dynamic uplift caused by industrial entrepreneurs.

Neoclassical theory

It has emerged as a critic of classical theory as it uses marginal analysis to explain commodity and factor prices. The neoclassical theory states the ability of people to maximize the value of output affects productivity determining the allocation of resources and distribution of income (David, 2013).critics against the argument is that aggregate demand ignores the specific individual level of entrepreneurship activity.

Austrian market process

The theory describes entrepreneurship to be a driver of market-based systems. AMP states that entrepreneurs are driven to use occasional knowledge to create value. Critics of the method is that market systems can include antagonistic cooperation.

1. Sociological Theory

The supporters of the theory state that sociological enterprise bases on the social context. The theory states that entrepreneurial activities are affected by the social values and status. The approach identifies four social settings that consociate to opportunities for entrepreneurship. The first is social context, where the concentration is on creating social bonds and social relationships that do not promote self-interest rather than confidence and reliance. It states that to be successful, an entrepreneur should not focus on taking advantage of customers; instead, the entrepreneur should focus on building trust with consumers. The next context is known as life course stage. The stage includes studying and evaluating the situations of life and behavior of individuals who have made up their mind to venture into entrepreneurship. By doing so, the experiences evaluating entrepreneurs can make a person focus on taking part in meaningful activities with their life. The third context that consociate to opportunities of entrepreneurship is ethnic identification. An individual’s social surrounding plays a significant role in the push whether to venture into entrepreneurship or become an entrepreneur. Because an individual’s background determines how much a person is willing to sacrifice. People from marginalized societies tend to go against all the odds and obstacles to such success to make a difference in their life. The last context is population ecology, which states that for the survival of a business, one must take into account the environmental factors surrounding the industry. The factors of environment that may impact the success of a current business project are political system, employees, customers, government legislation, and competition. The entrepreneur and the success of entrepreneurship highly depend on the role expectations set by society.

1. Psychological Theory

The psychological theory focuses its analysis on the individual characteristics basing on the mental and emotional elements that push entrepreneurs. It states that entrepreneurs are driven by the need for achievement that influences their entrepreneurial activities. The characteristics linked with entrepreneurial tendency are:

• Personality traits

Our distinguishing features that an individual demonstrates in various scenarios. Scholars argue that there exist particular potential and inborn qualities of a person that logically make them an entrepreneur. The theory states that entrepreneurs appear to be more driven by the opportunities surrounding them. Entrepreneurs also tend to exhibit a high level of business knowledge and possess natural management skills. Entrepreneurs also appear to show a high degree of creativity and innovation. Entrepreneurs are believed to have the ability to make a change individually and possess a high level of integrity.

• Bearing of control

Was popularized by scholar Julian Rotter, in the Year 1950, describing the aspect to mean a person’s perception involving the fundamental reasons behind the events of an individual’s past and present life. Locus of control relates to the outcomes of our actions with personal supervision and outside influence. It states that an entrepreneur’s success depends majorly on the individual’s ability and the external support that the person gets. Business owners have been confirmed to possess a higher self-locus of control compared to other individuals. Other studies have confirmed the presence of a high level of competitiveness and aggressiveness owned by entrepreneurs

• Obligation to achieve.

The thesis states that, humanity possess the motive to excel, accomplish goals, and succeed in life. Entrepreneurs are pushed by the urge to excel and achieve success in business. There exists confirmation to support the liaison between motivations to achieve along with entrepreneurship success. Attainment to deliver remains the convincing phonological element that relates to the creation of a new enterprise or business.

1. Entrepreneurship Innovation Theory

The theory was written by one of the greatest 20th-century economists, Joseph Alois Schumpeter. Schumpeter assumed the event of closed capitalist economy that is based on an equilibrium that is stationary. Schumpeter believed that an entrepreneur plays a significant role in helping in the process of developing an economy. Schumpeter believed that performing new combinations of entrepreneurship was a creative activity. According to Schumpeter, for one to be an entrepreneur, one must have the desire to innovate. He states that an entrepreneur is a person who is creative, innovative, and has foresight. The theory suggests that innovation occurs in the process when a manager can:

• Introduce a good that is new in the market or a different version of an already existing commodity.
• Come up with different and better methods of manufacturing and sales.
• Create and open up a new market.
• Get a different way to supply raw material.
• Carry out new organization in the business or industry, such as disruption of monopoly.

The theory makes a distinction between invention and innovation. It states that creativity is the building of new products in the market, while change is the putting of new ideas and practices into practical use. The theory describes the development as the transformation of the economy due to the functions of entrepreneurs. The argument is criticized on the following grounds: The approach focuses mainly on innovation without including risk-taking and the organization’s aspects. The theory primarily focuses on large scale entrepreneurs who major on new technology ignoring small scale entrepreneurs who possess the need for imitation and not innovation. The method does not elaborate on why other entrepreneurs are more skilled than others. Despite the criticisms, the theory is still rated as one of the best approaches in entrepreneurial development.

TASK 2

The success story of an entrepreneur.

ENTREPRENEUR JEFF BEZOS.

Bezos was born in the year 1964 on January the 12th, in the town of Albuquerque, New Mexico. Bezos started exhibiting interest in finding out how things worked at an early age which ended up with him turning his parents’ garage into an electrical lab. The family of Bezos moved to Miami when he became a teenager. While in Miami he ended up developing a liking for computers resulting to him graduating top of his high school. Bezos was able to start his first business which he named, Dream Institute, while still in high school. The idea was to start an educational summer camp that served fourth to sixth graders. After high school Bezos joined Princeton University, where he achieved a degree in electrical engineering and computer science in 1986. After graduation Bezos was able to work for several firms at Wall Street. The firms included Bankers Trust, Fitel, and settled at an investment firm known as D.E Shaw. At the firm, Bezos was able to rise to the ranks of Vice President, becoming the youngest leader of the company (En.wikipedia.org. 2020). In 1994 Bezos chose to quit his lucrative job to risk his opportunities in the field of e-commerce. Bezos then to Seattle, where he was able figure out the intact potential the city possessed in the internet business market. The potential pushed Bezos to start an online bookstore. In the year 1995, Bezos started Amazon.com. An online store named after a river in South America. Bezos chose 300 friends to test his site. Leading to the launch of the website, Bezos, with a few friends, started developing software of the site in his garage but later he switched to a two bedroomed house equipped with Sun Micro stations. The company sold books across the United States and 45 other countries within a period of one month. After two 60 days, the company made $20000, multiplying more than Bezos had estimated. Amazon went public in 1997 with the doubt from analysts whether it would succeed. After two years, Amazon.com eclipsed its competitors, becoming a top company in e-commerce. Bezos introduced the sale of CDs and videos in 1998 before, adding the sales of toys, clothes, and electronics through retail partnerships. The sales jumped from $510000 to $17 billion in 2011. As of August 2019, Bezos was estimated by Forbes to have a net worth of $110 billion.

Challenges Faced By Jeff Bezos.

Investors in the e-commerce field, experience inevitable challenges like change in the field of technology, to pending legislative issues. It was keeping pace with E-commerce growth. Amazon has, over the years, continued to adjust their operations through diversification with new products and services say investing in food market. This fast growth of the company exposes it and makes it vulnerable to risk which has resulted to scaling of its infrastructure to support its retail and services businesses. Massive expansion has gradually increased the complexity of the company and placed a compelling burden on the management, technical performance, operations, personnel, systems, financial resources, and the internal financial control (Landau, 2013). The government is involved with legislative issues regarding retailers who deal in ecommerce involving matters concerning protection of data, taxation, and payment of online services. In the case scenarios, Jeff had challenges on how to ensure data security and risk mitigation monitoring. Taxation laws were up for discussions in the Supreme Court that would result in extra taxes for online investors. Online payment services that have emerged with the changes around monetary transactions have had significant implications for ecommerce retailers—optimization of data & fulfillment centers. Adequate prediction of customer demand a perfect network and data centers resulted in either excess or deficient use of data center capacity. Thus the additional costs and impairment charges.. Inventory optimization increases margins while lowering shipping costs. Since it is a third party dependent company, Amazon relied on a cost-effective compliance, reliable delivery, and excellent services for its shipping and delivery services. Rapidly evolving business model. The ever-changing technology at its fast speed calls for adaptation of habit. Due to its stock value as a publicly-traded company, Amazon is responsible to its stakeholders while trying to manage a growing pace of growth.

How the entrepreneur handled the challenges.

By Amazon announcing its raise of the minimum wage for its employees in America to 5.7 Omani Rials per hour, Jeff strongly believed that this would benefit his business by investing in his employees. Prior information indicated the presence of conditions that had been labeled “deadly and dehumanizing.” The issues were to cause protests due to constant surveillance fear of missing targets, health concerns, and robotic treatment. Bezos, in his act, focused on corporate perks of amazon’s career choice and amazon’s future engineering program. Bezos dealt with his competitors by listening to his customers instead of waiting for his rivals to come up with something. Amazon developed its own Amazon Web Services (AWS) platform. The platform is made to fix the problems with too-expensive in-house application hosting and open-source products that are not robust to support fast-growing companies easily (Landau, 2013). AWS is now an over 3.8 billion Omani Rails worth business. Amazon has been continuously taking risks for market leadership. By getting three tries to get its business as a selling and fulfillment platform off the ground through Amazon Auctions, that morphed into shops and then into Amazon Marketplace, that accounts for half the units sold on the company website.

Why did you choose this entrepreneur, and what inspired you most in his story?

I chose Jeff Bezos because his amazon.com is one of the best performing e-commerce companies globally. Bezos became the first billionaire to appear in Forbes magazine and was announced to be the richest person in history with a net worth 57 billion Omani Rials in 2018. Bezos Company made it to be the first company to ever reach a market cap of 384.5 billion Omani Rials. Bezos’s story inspires people to work hard and to work with what they have on their disposal to achieve their dreams. Bezos worked on his amazon company from scratch as an online bookstore, which grew to a wide variety of products becoming the largest global online sales company (Landau, 2013). Bezos used his close friends to help him design the software showing the importance of working together as a group to attain a specific goal. Bezos’s story teaches about the significance of believing in our ideas as he was able to quit his well-paying job to focus on his dream and purpose.

TASK 3

Factors that influence the success of an entrepreneur

Peace and political stability are the conditions that allow for the formation and growth of sustainable enterprises. The political system in Oman has been stable under the rule of Sultan Qaboos bin Said al-Said enabling a stable environment for both local and international business. Poor governance, corruption, and inefficient institutions can discourage entrepreneurship. Governance power in Omanis placed in the hands of a few, and this has caused corruption scandals slowing down entrepreneurship. Social dialogue is essential when promoting decent and productive work conditions. Oman has a legal framework for dialogue between employers and workers. A sound and stable macroeconomic policy and proper management of the economy are good for business (Santosdiaz, 2020). The economic performance of Oman is associated with world oil prices. Oil resources are costly and challenging to extract, making the government focus on the diversification of the economy. Diversification will promote entrepreneurship in the country. Social elements like the Oman government recognizing the private sector and embarking on a privatization program is essential in promoting entrepreneurship. Oman has also placed great importance on education. The Oman government is committed to protecting the environment introducing a set of environmental laws and regulations. Oman has signed international treaties and accords to protect its environment as this encourages entrepreneurship. The current commercial and industrial structure enables job allocations to the youth in Oman. The government has also created modern institutions with current technology to curt the technological gap experienced by entrepreneurs. The government is concerned with improving the industrial sector. The legal requirements in Oman have put in place to enable foreigners to participate in entrepreneurship after attaining a permit. The rules have to allow for a conducive environment to conduct trade. The Sultanate of Oman strives to ensure that entrepreneurs get a conducive environment that enables them to do business smoothly.

Challenges Faced By Omani Entrepreneurs.

Competitive pressure in the market. Small, medium enterprises face this challenge because they have a small market, facing competition from imported products, and having a weak connection to enable them to exploit markets, such as the difficulty of marketing externally. Small, medium enterprises find it hard to market their products because of the unqualified employees in the marketing departments, lack of finances to conduct market research or the capital to enable them to venture into the international market or participate in trade fairs. High labor cost is also one of the challenges facing small businesses in Oman as they cannot afford to employ a high number of workers to improve their productivity. High operating costs. Research shows that small firms in Oman are not satisfied with the loss of operating business as they claim that it is high and doesn’t favor their business. Lack of raw materials. Raw materials are essential to the growth of any economy. In Oman, medium firms have reported to lack of raw materials for their production. Sturdy states that only 30% of raw materials are purchased locally, while 70% comes from other countries. The difficulty in getting raw materials to affect the internal production of industries (Tenfelde, 2019). Lack of skilled labor is a result of rigid labor regulations in Oman and caused by the lack of an uneducated workforce in the country. An uneducated workforce is only able to provide for unskilled labor. High-interest rates for business loans. Sturdy states that enterprises in Oman face difficulty in obtaining finance from banks. There are limited opportunities for businesses to receive credits as the interest rate is high for medium and small companies. The conditional lending also affected various companies as it requires beneficiaries to purchase products from a specific agent—the difficulty of getting visas for foreign workers. Female workers applying to work in Oman have to wait for almost more than a year for the paperwork as others claim denial of work permits. Due to trouble witnessed in getting clearances and abiding by Omanisasion laws. The law affects enterprises that rely on imported labor. The small and medium enterprises mainly see problems and challenges.

Solutions Available

The government of Oman should put regulations that control imports of products to protect the local small enterprises from the pressure caused by imported goods. The rules will enable small firms to market their goods locally, increasing their production—provision of raw materials by government. The European commission through recycling ensures the supply of raw materials from global markets in countries like China and India. The Sultanate of Oman can adopt the same approach by providing industries with natural materials to boost their exports through production. The Sultanate can also emphasize educating and training its citizens in raw materials research and mining engineering. The approach of conditional loan should not stand to allow business owners to choose freely on who to purchase supplies from either in Oman or internationally within set standards after taking the loan. The government should also intervene and set a reasonable interest rate to support the small business. The government can solve the high cost of operation problems by setting standards that are suitable for running small enterprises. To solve the problem of difficulty in getting visas, the Oman government can reduce the time it takes on clearing visas and also regulates the strict policy set by the Oman laws for foreigners (Leon, 2015). The Oman government, by giving full support to the small and medium companies will improve the enterprises’ performance, hence leading to the improvement of the Oman economy.

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