Theories of entrepreneurship by Stewart Mbegu

3.1       Entrepreneurship and small business creation

The term SMEs is used to mean micro, small and medium enterprises.  It is sometimes referred to as a micro, small and medium enterprises (MSMEs).  The SMEs cover all economic activities including manufacturing, mining, commerce and services, etc.

Economic development can be directly attrib­uted to the level of entrepreneurial activity in a Country (Schumpeter 1934; Bird 1989). Entrepreneurial businesses ensure growth in the economy. Large corporations retrench, automate, downsize, unbundle, outsource and become smaller. Entrepreneurs intend to grow their businesses and are responsible for growth and job creation in the economy. Although entrepreneurs mostly own their own business­es, they can also be part of a team owning a business, or in large corporations or firms, or even in the public sector.

It is important to note that the combination of all businesses, namely small, micro- and medi­um-sized enterprises as well as large national and international businesses determines the state of the economy. Employment is closely linked to the state of the economy. When there is no growth in the economy, there are fewer employment oppor­tunities available. The success of other leading countries in the world, such as the United States of America, Japan and England, has proven that the only growth sector in the economy is the SMME sec­tor, driven by entrepreneurs. This means that SMMEs are being established and grow.

In con­trast, employees of large businesses are often laid off or become self-employed. They also become employed by new SMMEs that are formed as some of the activities of large busi­nesses are contracted out. In addition, some of the sections of these large businesses are closed down or sold off to function as SMMEs.

Once again, entrepreneurs play an important role. They are responsible for the formation of new businesses to which non-core functions are outsourced, to take over or buy the sec­tions that would have been closed down. An example is the mushrooming of municipal services and security companies in the country. These kind of SMMEs were and are been created as a result of restructuring in big corporation which are eager to focus on their core operations.

The importance of entrepreneurship is therefore crucial for the improvement of the Tanzanian economy and is also regarded as the best employment opportunity that exists.

Depending on their level of development different countries use various measures to measure the size of SMMEs.  The commonly used methods 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 then informal sector.  Small enterprises are mostly formalized undertakings engaging between 5 and 49 employees or with capital investment form 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.

In Tanzania, SMEs contribute significantly to poverty alleviation through job creation, contribution to economy through taxation and rejuvenation of indigenous technology. SMEs tend to be more effective I the utilization of local resources using simple and affordable technology.  SMEs play a role in utilizing and adding value to local resources.  In addition, development of SMEs facilitates distribution of economic activities within the economy and thus rosters equitable income distribution. Furthermore SMEs technologies are easier to acquire transfer and adopt.  In addition, SMEs are better positioned to satisfy limited demands brought about by small and localized markets due tot heir lower overheads and fixed costs, in short, SMEs are very important to our national economy.

The term SMEs is used to mean micro, small and medium enterprises.  It is sometimes referred to as a micro, small and medium enterprises (MSMEs).  The SMEs cover non-farm economic activities mainly manufacturing, mining, commerce and services.

3.2           Why there is so much interest shown to entrepreneurs today?

Entrepreneurs are important because they:

·         Develop new markets. Under the modern concept of marketing, markets are people who are willing and able to satisfy their needs. In Economics, this is called effective demand. Entrepreneurs are resourceful and creative. They can create customers or buyers. This makes entrepreneurs different from ordinary businessmen who only perform traditional functions of management like planning, organization, and coordination.

·          Discover new sources of materials. Entrepreneurs are never satisfied with traditional or existing sources of materials. Due to their innovative nature, they persist on discovering new sources of materials to improve their enterprises. In business, those who can develop new sources of materials enjoy a comparative advantage in terms of supply, cost and quality.

·         Mobilize capital resources. Entrepreneurs are the organizers and coordinators of the major factors of production, such as land labor and capital. They properly mix these factors of production to create goods and service. Capital resources, from a layman's view, refer to money. However, in economics, capital resources represent machines, buildings, and other physical productive resources. Entrepreneurs have initiative and self-confidence in accumulating and mobilizing capital resources for new business or business expansion.

·         Introduce new technologies, new industries and new products. Aside from being innovators and reasonable risk-takers, entrepreneurs take advantage of business opportunities, and transform these into profits. So, they introduce something new or something different. Such entrepreneurial spirit has greatly contributed to the modernization of economies. Every year, there are new technologies and new products. All of these are intended to satisfy human needs in more convenient and pleasant way.

·         Create employment. The biggest employer is the private business sector. Millions of jobs are provided by the factories, service industries, agricultural enterprises, and the numerous small-scale businesses. For instance, the super department stores like SM, Uniwide, Robinson and others employ thousands of workers. Likewise giant corporations like SMC, Ayala and Soriano group of companies are great job creators. Such massive employment has multiplier and accelerator effects in the whole economy. More jobs mean more incomes. This increases demand for goods and services. This stimulates production. Again, more production requires more employment.