Theories of Entrepreneurship: Hoselitz’s Sociological Theory of Entrepreneurship

 Hoselitz’s Sociological Theory of Entrepreneurship

Sociologists have argued that entrepreneurship is most likely to emerge under a specific social culture. They feel that social sanctions, cultural values and role expectations are responsible for the emergence of entrepreneurship. According to Cochran (1965) the entrepreneur represents society’s model personality. His performance depends upon three factors : (i) his own attitude towards his occupation, (ii) the role expectations held by the sanctioning groups, and (iii) the occupational requirements of the job. Society’s values are the most important determinant of the attitudes and role expectations.

Hoselitz (1964), formulated his social-cultural theory on the assumption that certain persons are endowed with creative power in any cultural or social group and they develop different attitudes while practicing social conduct. Entrepreneurship can be developed only in a society in which cultural norms permit variability in the choice of paths of life and in which the relevant process of socialization of the individuals are not so completely standardized. The entrepreneurs develop their attitudes in the direction of productivity and creative integration.

Hoselitz argued that entrepreneurship can develop in a society when its culture permits a variety of choices and where social processes are not rigid and in a situation which encourages the development of personalities interested in enterprise the suggested that culturally marginal groups promote entrepreneurship and economic development. Such groups, because of their ambiguous position are peculiarly suited to make creative adjustments and there by develop genuine innovations. In several countries, enterprisers have emerged from particular socio-economic classes. History reveals that many leading entrappers have emerged from a particular socio-economic class. Fore example. Marwaris and pareses in India and Samurai in Japan are considered to be the dominant social classes as the source of entrepreneurship.

In short, Hoselitz’s Sociological Theory of Entrepreneurship is one of the important frameworks that explains the role of social and cultural factors in the development of entrepreneurship. Bert F. Hoselitz, a prominent economic historian and sociologist, proposed this theory in the 1950s. He emphasized that entrepreneurship does not develop in isolation but is significantly influenced by the social, cultural, and institutional environment in which it operates.

Key Concepts of Hoselitz's Sociological Theory of Entrepreneurship

Hoselitz's theory integrates sociological perspectives into the study of entrepreneurship. He argued that cultural and social factors play a crucial role in fostering or hindering entrepreneurial activities. His theory can be summarized into several key points:

1. Role of Social Marginality:

Hoselitz suggested that entrepreneurship is often driven by "socially marginal" individuals or groups who do not belong to the dominant social or economic class. These individuals, due to their unique social positions, are more likely to take risks, innovate, and venture into new business activities.

Marginal individuals are often motivated by a desire to improve their social and economic status, leading them to adopt entrepreneurial roles.

1. Cultural Diversity as a Source of Innovation:

He believed that societies with diverse cultural backgrounds are more likely to produce entrepreneurs. Cultural diversity fosters different perspectives, ideas, and practices, which in turn stimulates innovation and entrepreneurial activities.

In contrast, homogenous societies might lack the dynamism and diversity needed for entrepreneurial growth because they tend to resist change and innovation.

1. Role of Institutions and Social Structure:

Hoselitz argued that institutions (such as family, religion, education, and community) and social structures significantly impact entrepreneurial behavior. For example, in societies where the family unit is tightly knit and cohesive, there might be less encouragement for individual risk-taking and entrepreneurship.

Societies with more open social structures, where upward social mobility is possible, are more conducive to the development of entrepreneurial activities. These societies allow individuals to break free from traditional roles and pursue new economic opportunities.

1. Entrepreneurship as a Catalyst for Economic Development:

Hoselitz viewed entrepreneurship as a key driver of economic development, particularly in developing countries. He argued that the emergence of entrepreneurs could lead to industrialization, innovation, and modernization.

Entrepreneurs act as agents of change, transforming traditional economies into modern, industrialized ones by introducing new products, services, and production methods.

1. Emphasis on Non-Economic Factors:

Hoselitz emphasized that non-economic factors, such as social status, religious beliefs, cultural values, and family background, play a significant role in determining who becomes an entrepreneur. He argued that psychological traits alone cannot fully explain entrepreneurship without considering the broader social and cultural context.

1. Education and Entrepreneurship:

He highlighted the role of education in shaping entrepreneurial attitudes and skills. Education provides not only technical knowledge and skills but also fosters critical thinking, problem-solving, and a mindset that encourages innovation and risk-taking.

1. Diffusion of Entrepreneurship:

Hoselitz argued that entrepreneurship spreads in society through imitation and social diffusion. When successful entrepreneurs emerge, they serve as role models for others, inspiring them to pursue similar ventures. This creates a ripple effect, leading to more widespread entrepreneurial activity.

Assumptions of Hoselitz's Sociological Theory of Entrepreneurship

1. Social and Cultural Environment Shapes Entrepreneurship:

The theory assumes that the social and cultural environment of a society plays a significant role in shaping the entrepreneurial behavior of individuals. Factors such as family background, social class, cultural diversity, and religious beliefs can either encourage or hinder entrepreneurship.

1. Marginalized Groups Are More Entrepreneurial:

It assumes that individuals or groups who are socially or economically marginalized are more likely to become entrepreneurs as they seek to improve their social and economic status. These marginalized groups are often driven by a need for social mobility and recognition.

1. Entrepreneurship as a Means of Upward Social Mobility:

Hoselitz’s theory assumes that entrepreneurship provides a pathway for upward social mobility in societies where social structures are relatively open. Individuals who are not bound by traditional roles or restrictions are more likely to pursue entrepreneurial activities to achieve higher social status.

1. Importance of Non-Economic Factors:

The theory assumes that non-economic factors, such as social status, cultural values, and family dynamics, play a critical role in entrepreneurial development. Unlike purely economic theories, Hoselitz's approach highlights the importance of understanding the broader social context.

1. Influence of Cultural Diversity:

It assumes that societies with greater cultural diversity are more likely to be innovative and entrepreneurial. This diversity fosters a range of perspectives, encouraging creativity, risk-taking, and the development of new ideas.

1. Education as a Catalyst for Entrepreneurship:

The theory assumes that education plays a vital role in fostering entrepreneurial skills and attitudes. Education provides not only the technical knowledge necessary for business but also instills a mindset of critical thinking and innovation.

Criticisms of Hoselitz's Sociological Theory of Entrepreneurship

1. Overemphasis on Social Marginality:

One of the main criticisms is that Hoselitz places too much emphasis on the role of social marginality in entrepreneurship. While some entrepreneurs do come from marginalized groups, there are also many successful entrepreneurs from dominant or privileged social backgrounds. Entrepreneurship can be driven by a variety of factors beyond social marginality.

1. Neglect of Economic Factors:

Critics argue that Hoselitz’s theory underestimates the importance of economic factors such as access to capital, market demand, infrastructure, and government policies in fostering entrepreneurship. These economic factors are crucial determinants of entrepreneurial success and cannot be ignored.

1. Generalization Across Cultures:

The theory has been criticized for making broad generalizations about the impact of social and cultural factors on entrepreneurship across different societies. The relationship between culture and entrepreneurship is complex, and what applies to one culture may not necessarily apply to another.

1. Lack of Empirical Evidence:

Critics point out that there is a lack of empirical evidence to support some of Hoselitz’s claims, particularly the assertion that socially marginalized groups are more likely to become entrepreneurs. The theory would benefit from more systematic empirical research to validate its assumptions.

1. Overlooking the Role of Individual Traits and Psychological Factors:

While Hoselitz focuses on sociological and cultural factors, he tends to downplay the role of individual traits and psychological factors, such as risk-taking propensity, need for achievement, and innovativeness, which are also crucial for entrepreneurial success.

1. Static View of Social Structures:

The theory has been criticized for assuming a relatively static view of social structures and their impact on entrepreneurship. In reality, social structures are dynamic and can evolve over time, influencing entrepreneurial activities in different ways.

1. Insufficient Focus on Policy and Institutional Framework:

The theory does not adequately address the role of government policies, institutional frameworks, and economic policies in promoting or hindering entrepreneurship. These factors are essential in creating a conducive environment for entrepreneurial growth and development.

1. Limited Practical Application:

The theory is often seen as more descriptive than prescriptive. While it provides insights into the sociological aspects of entrepreneurship, it offers limited practical guidance for policymakers or practitioners on how to foster entrepreneurial development in different contexts.

Theories of Entrepreneurship: Need for Achievement Theory of McClelland

 Need for Achievement Theory of McClelland

According to McClelland the characteristics of entrepreneur has two features - first doing things in a new and better way and second decision making under uncertainty. McClelland emphasises achievement orientation as most important factor for entrepreneurs. Individuals with high. achievement orientation are not influenced by considerations of money or any other external incentives. Profit and incentives are merely yardsticks of measurement of success of entrepreneurs with high achievement orientation. People with high achievement (N-Ach) are not influenced by money rewards as compared to people with low achievement. The latter types are prepared to work harder for money or such other external incentives. On the contrary, profit is merely a measure of success and competency for people with high achievement need. 

Professor David McClelland, in his book The Achieving Society, has propounded a theory based on his research that entrepreneurship ultimately depends on motivation. It is the need for achievement (N-Ach), the sense of doing and getting things done, that promote entrepreneurship. According to him, N-Ach is a relatively stable personality characteristic rooted in experiences in middle childhood through family socialisation and child-learning practices which stress standards of excellence, material warmth, self-reliance training and low father dominance. According to him a person acquires three types of needs as a result of one’s life experience. These three needs are: 

• Need for Achievement. A drive to excel, advance and grow. 
• Need for Power. A drive to dominate or influence others and situations. 
• Need for Affiliation. A drive for friendly and close inter-personal relationships. 

McClelland found that certain societies tended to produce a large percentage of people with high achievement. He pointed out that individuals, indeed whole societies that possess N-ach will have higher levels of economic well-being than those that do not. McClelland’s work indicated that there are five major components to the N-ach trait: 

1. responsibility for problem solving, 
2. setting goals, 
3. reaching goals through one’s own effort, 
4. the need for and use of feedback, and 
5. a preference for moderate levels of risk-taking. 

The individual with high levels of need achievement is a potential entrepreneur. The specific characteristics of a high achiever (entrepreneur) can be summarized as follows: 

1. They set moderate realistic and attainable goals for them. 
2. They take calculated risks. 
3. They prefer situations wherein they can take personal responsibility for solving problems. 
4. They need concrete feedback on how well they are doing. 
5. Their need for achievement exist not merely for the sake of economic rewards or social recognition rather personal accomplishment is intrinsically more satisfying to them. 

According to McClelland, motivation, abilities and congenial environment, all combine to promote entrepreneurship. Since entrepreneurial motivation and abilities are long run sociological issues; he opined it is better to make political, Social and economic environments congenial for the growth of entrepreneurship in underdeveloped and developing countries.

In short, David McClelland's Theory of Achievement Motivation, also known as the Need for Achievement Theory, focuses on how individuals are motivated by three primary needs: the need for achievement (nAch), the need for power (nPow), and the need for affiliation (nAff). This theory was developed in the 1960s by David McClelland, a psychologist and professor at Harvard University, and it became one of the most influential theories of motivation in psychology and organizational behavior.

The Kakinada Experiment was a practical application of McClelland's Theory of Achievement Motivation in India, aiming to stimulate entrepreneurial development. Conducted in the late 1960s in Kakinada, a small town in Andhra Pradesh, India, this experiment sought to test if training programs based on achievement motivation could enhance the entrepreneurial spirit among the local business community.

Key Components of McClelland's Theory of Achievement Motivation

1. Need for Achievement (nAch):

The need for achievement is the desire to excel, accomplish challenging tasks, and achieve personal standards of excellence. Individuals with a high need for achievement are motivated by a strong desire for success and are willing to take calculated risks to achieve their goals.

Characteristics:

• Preference for challenging tasks: They prefer tasks that are moderately difficult and avoid tasks that are too easy (as they provide no sense of achievement) or too difficult (as they pose a risk of failure).
• Desire for personal responsibility: Individuals high in nAch prefer to take personal responsibility for the outcomes of their actions rather than relying on others.
• Need for feedback: They seek frequent feedback on their performance to improve and achieve their goals.
• Long-term goals: They are more focused on setting and achieving long-term goals rather than seeking immediate gratification.

1. Need for Power (nPow):

The need for power refers to the desire to control, influence, or have an impact on others. People with a high need for power are motivated by a desire to lead, persuade, and gain authority over others.

Characteristics:

• Desire for influence: Individuals high in nPow seek positions of leadership and authority to influence others.
• Competitive and status-oriented: They often engage in competitive activities to assert dominance and gain recognition.
• Concerned with prestige: They are often motivated by the status and prestige associated with their position or achievements.
• Can be personalized or socialized: The need for power can manifest as a personalized need (seeking power for personal gain) or a socialized need (using power to benefit others or achieve organizational goals).

1. Need for Affiliation (nAff):

The need for affiliation is the desire for friendly and close interpersonal relationships. People with a high need for affiliation are motivated by a desire to be liked, accepted, and to belong to a group.

Characteristics:

• Preference for teamwork: Individuals high in nAff prefer working in teams or groups where they can form strong social bonds.
• Desire for harmony: They are motivated by a desire to maintain positive relationships and avoid conflicts.
• Need for approval: They seek approval and validation from others and often conform to group norms to fit in.
• Sensitivity to social cues: They are highly sensitive to social cues and are adept at understanding the emotional dynamics of a group.

The Kakinada Experiment

The Kakinada Experiment was a practical attempt to apply McClelland's theory to real-life economic development in India. The experiment was conducted in 1964-65 by David McClelland and his team in the town of Kakinada in Andhra Pradesh, India, in collaboration with the Small Industries Extension Training (SIET) Institute in Hyderabad.

Objectives of the Kakinada Experiment

1. Stimulating Entrepreneurial Spirit:

The primary objective was to stimulate entrepreneurial behavior among small business owners and potential entrepreneurs in Kakinada by enhancing their achievement motivation.

1. Testing Achievement Motivation Training (AMT):

The experiment aimed to test the effectiveness of Achievement Motivation Training (AMT) in increasing the need for achievement (nAch) among participants, thus fostering entrepreneurial activities.

1. Promoting Economic Development:

By promoting entrepreneurship, the experiment sought to contribute to economic development in the region through the creation of new businesses, employment opportunities, and overall economic growth.

Methodology of the Kakinada Experiment

1. Selection of Participants:

A group of 52 small businessmen and potential entrepreneurs from Kakinada was selected to participate in the training program. The selection was based on their interest and potential for entrepreneurial growth.

1. Achievement Motivation Training (AMT):

The participants underwent a rigorous AMT program designed to increase their need for achievement (nAch). The training involved various psychological techniques, such as goal-setting exercises, role-playing, case studies, and discussions, aimed at developing high achievement motivation.

1. Content of the Training:

The training program focused on enhancing the participants' ability to take moderate risks, set challenging but achievable goals, seek feedback, and take personal responsibility for their actions. The program also emphasized the importance of innovative thinking and the willingness to break away from traditional business practices.

1. Post-Training Follow-Up:

After the training, the participants were closely monitored for changes in their entrepreneurial behavior and business performance. The follow-up included periodic assessments, feedback sessions, and support from trainers to help participants apply the learned principles in their business activities.

Results of the Kakinada Experiment

1. Increased Entrepreneurial Activity:

The experiment showed a significant increase in entrepreneurial activity among the participants. Many trainees started new businesses, expanded their existing businesses, or introduced innovative practices in their operations.

1. Higher Need for Achievement (nAch):

The training effectively increased the need for achievement among participants, as evidenced by their increased risk-taking ability, goal orientation, and proactive business approach.

1. Economic Growth and Development:

The Kakinada Experiment contributed to economic growth in the region by fostering a more entrepreneurial mindset among the local business community, leading to increased employment opportunities and economic development.

1. Replication and Influence:

The success of the Kakinada Experiment led to the replication of similar achievement motivation training programs in other regions of India and influenced policy-makers to consider psychological and motivational factors in entrepreneurship development programs.

Assumptions of McClelland's Theory of Achievement Motivation

1. Individuals Have Different Needs:

The theory assumes that individuals are motivated by different needs: the need for achievement (nAch), the need for power (nPow), and the need for affiliation (nAff). These needs are not mutually exclusive, and each person has a unique combination of these needs that influences their behavior.

1. Needs Can Be Measured and Developed:

McClelland's theory assumes that these needs, particularly the need for achievement, can be measured using projective tests like the Thematic Apperception Test (TAT). Furthermore, it assumes that these needs can be developed or enhanced through training and environmental influences, such as the Achievement Motivation Training (AMT) used in the Kakinada Experiment.

1. High Need for Achievement Leads to Success:

The theory assumes that a high need for achievement (nAch) is a significant predictor of success in entrepreneurship, business, and leadership roles. Individuals with a high nAch are seen as more likely to set challenging goals, take calculated risks, seek feedback, and ultimately achieve success.

1. Motivation Drives Behavior:

The theory assumes that internal motivation drives behavior. For example, individuals with a high need for power will seek leadership roles, while those with a high need for affiliation will prefer cooperative and team-oriented environments. This assumption forms the basis of how individuals' needs influence their professional and personal choices.

1. Achievement-Oriented Individuals Prefer Moderate Risk:

It is assumed that individuals with a high need for achievement prefer tasks that involve moderate levels of risk—tasks that are neither too easy nor too difficult—because they provide the greatest opportunity for satisfaction from success.

1. Culture and Environment Can Influence Needs:

The theory assumes that the cultural and environmental context can influence individuals' motivational needs. Training programs, societal values, and organizational culture can shape or enhance a person's need for achievement.

Criticisms of McClelland's Theory of Achievement Motivation

1. Simplistic Categorization of Human Needs:

One of the major criticisms is that McClelland's theory simplifies human motivation into just three needs. Critics argue that human motivation is far more complex and cannot be reduced to just achievement, power, and affiliation. There are other needs, such as security, autonomy, and creativity, that also play significant roles in influencing behavior.

1. Overemphasis on Achievement Motivation:

The theory places significant emphasis on the need for achievement as a predictor of success, especially in entrepreneurship and business. However, critics argue that other factors, such as market conditions, capital availability, social networks, and luck, can be equally or more important in determining success.

1. Limited Applicability Across Cultures:

McClelland's theory has been criticized for its limited applicability across different cultural contexts. The need for achievement may not have the same level of importance or manifestation in collectivist cultures (such as many Asian cultures) compared to individualistic cultures (such as Western cultures), where individual achievement is more highly valued.

1. Reliance on Projective Testing:

The theory relies on projective tests like the Thematic Apperception Test (TAT) to measure needs, particularly the need for achievement. Critics argue that projective tests lack reliability and validity, and the results can be subjective and open to interpretation. This raises questions about the accuracy of measuring achievement motivation.

1. Neglect of Situational Factors:

McClelland's theory primarily focuses on internal factors (needs) and largely neglects external or situational factors that can significantly impact motivation and behavior. For example, organizational culture, job characteristics, leadership style, and economic conditions can all influence motivation and success.

1. Generalization Issues:

The theory tends to generalize that individuals with a high need for achievement will always succeed in entrepreneurial ventures. However, this overlooks the diversity of personalities and other non-achievement-related factors that can also contribute to entrepreneurial success or failure.

Criticisms of the Kakinada Experiment

1. Short-Term Observations:

The Kakinada Experiment is often criticized for its short-term observation period. While the experiment reported positive outcomes in terms of increased entrepreneurial activity, there was a lack of long-term follow-up to assess the sustained impact of Achievement Motivation Training (AMT) on participants.

1. Small Sample Size:

The experiment had a relatively small sample size (52 participants), which raises concerns about the generalizability of the findings. A larger sample size would have provided more robust data to support the effectiveness of AMT in fostering entrepreneurship.

1. Selection Bias:

The participants in the Kakinada Experiment were selected based on their interest and perceived potential for entrepreneurship. This introduces a selection bias, as the participants might already have had a predisposition toward entrepreneurship and achievement, skewing the results.

1. Overemphasis on Psychological Training:

Critics argue that the experiment placed too much emphasis on psychological training as a means to foster entrepreneurship, without adequately considering other critical factors such as access to capital, market conditions, infrastructure, and government policies, which are essential for entrepreneurial success.

1. Cultural and Contextual Limitations:

The experiment was conducted in a specific cultural and regional context (Kakinada, India), and the results may not be replicable in different cultural or socio-economic contexts. The influence of local culture, societal norms, and economic conditions might have impacted the outcomes.

1. Lack of Control Group:

The Kakinada Experiment did not have a proper control group for comparison. A control group would have allowed researchers to better isolate the effects of the Achievement Motivation Training (AMT) from other external influences and provide stronger evidence of causality.

1. Focus on Individual Effort Over Structural Issues:

The experiment emphasized the development of individual achievement motivation without addressing broader structural issues that affect entrepreneurship, such as regulatory barriers, market access, and social capital.