Why do the entrepreneurial firms exist?
CEOs must revisit the question as to why do their entrepreneurial firm exists? This may not be an extension to the reason of the term transaction cost with a reference to the “cost of using the price mechanism” as described in the ‘Nature of the firm.’ Firms have a nature towards transaction of any order and with the passage of time they have deliberated on transaction cost economics in a highly competitive context for existence. The institutional economics has changed, and the vertical boundaries of the firm have evolved. In a global context and in the race to exist, every CEO and the entrepreneurial firm is baffled with this principal query, as to why do they exist? Think fast, think slow?
Classical economic theories did not find place for entrepreneurship until Schumpeter in 1934 articulated the role of entrepreneurs who were experts in innovations, bringing the gale of ‘creative destruction’. The step by these innovators was to destroy the basis of competition in an industry while creating a new industry structure. Prior to this, sociologist and psychologists tried to lay a trap in capturing the ‘Heffalump’- an animal that had been found to have existed, but no body had been able to describe it fully. How far you as a CEO trying to do so? Have you spotted the ‘Heffalump’ in your industry?
Subsequently, Austrian economist Kirzner in 1973 created the concept of entrepreneurial ‘alertness’, describing the process of identifying and seizing opportunities. While the others met disorder and chaos. Where do you belong to? Over the years, there has been a debate whether entrepreneurship is the “creation of a new firm” or ‘creation of new enterprise’? As an informed CEO in a highly volatile, uncertain, complex and ambiguous (VUCA) world, be prepared to pound upon strong signals and amplifying weak signals, surrounding your business. How alert you think you are, will make a strategic difference?
The individual initiatives carried by entrepreneurial people in their respective organizational contexts will hence, result in new ventures. These may be in the form of ‘new enterprises’ or introducing desirable changes within established firms. But there is a big question. Why will individuals undertake initiatives? The essence of entrepreneurship from entrepreneurial intent to orientation, to entrepreneurial events to creation of the enterprise, is what a new ordered CEO must ponder.
It is still unclear, however, how this enterprise translates into an entrepreneurial firm or why innovation is the core defining it. In the current context of hyper challenges, radical innovations in emerging markets are fast pacing. The business must table an act of innovation creating value in the form of wealth and employment.
There is an opportunity school of thought triggering entrepreneurs to have special capabilities on finding and exploiting opportunities in chaos. The resource-based view of the firm aids in using upon the innovating capability, overcoming entry barriers or in creating new market segments. Please introspect where does your firm’s structure belong to?
Agtmael, an employee of the International Finance Corporation of World Bank, is credited to have coined the term “emerging markets” in 1981. He characterised these markets with reforms on economic restructuring, thereby, enabling them to offer new growth opportunities. Thus, these emerging markets evinced as high growth stems attracting honeybees in the form of unlimited opportunities. Some of these leading emerging markets were identified as India, China, Hong Kong, Taiwan, Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Vietnam, South Korea, Argentina, Mexico, Brazil, Poland, Turkey, South Africa, Chile, Venezuela, Greece, Israel, Portugal, The Czech Republic, Hungary, and even Russia. These emerging markets to any entrepreneur have offered a latent potential for economic progress. As a CEO how much have you mastered the emerging markets around you, is a potentially pertinent query.
Their economic development in terms of GDP is remarkable with the pace followed by the market governance. These are often termed as transitional economies, as a must watch by any CEO. These emerging markets contrast with the developed economies in the level of economic development; the state of economy, economic and political reforms, economic framework, evolving market institutions, market instability, social and cultural resistance to market economy, with a room to expand into. Thus, CEOs must implicitly examine the institutional framework affecting the strategies and performance of the firms. The scantily available institutional framework, combined with poor infrastructure and control-oriented regimes can timid the entrepreneurial firm and hence, question its existence.
Thus, the new order CEOs must redefine their entrepreneurial firm with a purpose of generating economic value. The entrepreneurial firm must, therefore, generate an identity of its own, a classic dimension for survival, with a clear differentiation from people engaged into it and from other existing firms. This may not be a new opportunity or a radical innovation of any kind but different in its originality, resources, markets, followed by a clear trajectory with some sense.
Gone are the days when such firms existed in the Schumpeterian format challenged by today’s new order chaos of rapid market failure, or a malfunctioning market and the entrepreneurial initiative undertaken by an individual or group of individuals on exploiting market imperfections. The game theory has changed, lured by the market gap or being pushed into exploring the opportunity with no better alternative.
Local firms will raise their capabilities in raising their innovation level and steal the attention in their home markets. Such initiatives will be in deluge on finding opportunities in solving the problems of people that until seem to have appeared unsolvable. The entrepreneur cum CEO can aggregate the demand or supply developing new order business models. These incumbent CEOs have revisited the classical theories on why firms exist, their intensity in the emerging markets and redefining their trajectory into emerging as an entrepreneurial firm.
Mr. CEO, the market opportunities may arise because of high transaction costs in conducting the trade. Are you ready to respond and hedge to the invisible forces of business, nature and whatever you say that are unexpected and unknown? Do you have the raincoat? If yes, you qualify to be termed by the futurist and foresight community, as the CEO with the Raincoat!
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