Indian Economics

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Summary - Indian Economics

  • 1 Nooteboom: innovation and di\ffusion in SE

  • LE face a paradox
    to obtain similar advantages as SE they must loosen control, but to obtain the advantages of size (economies of scale, scope & learning) they must maintain control.
  • Sources of diversity
    • Backgrounds
    • Motives
    • goals
    of an entrepreneur
  • Stages of innovation
    • invention
    • development
    • production
    • introducing to market
    • diffusion
  • Structure-Conduct performance
  • There is a statistic and a qualitative definition of SE & LE
    • Statistic: Micro (less then 10), Small (10-50), medium (50-250) and large (250-500)
    • Qualitative: SE is a small independent business unit, this includes small independent division in LE
  • Diversity can lead to a dilemma in developing policies in SE
    • One hand: want rich diversity of policy, tailored to diverse needs of SE
    • Other hand: in view of limited capacity for collecting external information, it makes environment to complex for effective entrepreneurship
  • Diffusion, defined by Nooteboom
    Process of sprading, partly by adaption of new users in a social system.
    Important concept is tacit knowledge
  • stages of adoption
    • knowledge (awareness)
    • conviction (interest)
    • decision (evaluation)
    • implementation (trial)
    • confirmation (adoption)
  • Tacitness can be a problem, but also has a positive side
    • protect knowledge from leakage (spillover) to competition
    • knowledge is more difficult to transfer and to copy
  • Advantages of SE & LE
    • LE: material (resources, knowledge, external conditions)
    • SE: behavioral (motivation, flexibility, design, ideas)
  • in process of innovation, strength of SE lies in
    • greater motivation
    • better survey of entire project
    • tacit knowledge in unkown skills
    • more informal communication
    • less bureaucracy
    • greater proximity to market and own product
    • closer interaction with customer
    More likely to be better at small scale applications of fundamental technologies
  • According to classic diffusion models in marketing, innovation spread by two effects
    • autonomous or external effect on potential adopters
    • internal effect, due to contagion of those who have not yet adopted by those who have
  • Fig. 4, pag. 334
    shows several Strength and Weaknesses related to SE characteristics
  • In process of innovation, strenght of LE lies in
    • deeper level of specialization (people and equipment)
    • science-based knowledge
    • economies of scale and scope
    • experience
    • larger financial resources
    • spread of risk
    More likely to generate fundamentally new, and science based technologies
  • SE is more productive in innovation then LE, when industry is
    • relatively low capital intensity
    • low concentration
    • high level of innovation
    Summing up, in general, SE has lesser participation in R&D, but a greater intensity and productivity when they participate.
  • Refuge hypothesis
    people take refuge in entrepreneurship by lack of employment. In many poor countries entrepreneurship is only way to provide themselves and relatives
  • People resort to independency for 3 reasons
    • push factors: entrepreneur is not satisfied with his current position
    • Pull factors: attractiveness of being self-employed (will to power, richness, creativeness, freedom)
    • Coincidence: being at right place at right time
  • Tacit knowledgde
    • knowledge that we have typically acquired in learning by doing
    • teaching by extension rather then abstract teachting
    • Become a second nature
  • Diversity is the most important characteristic of SE. There are conditions that allow diversity, and sources that produce diversity. These are
    • Environment, in which business is operating. Ex. standards and rules
    • Resources available, often problems for SE in gaining access to funding.
  • SE has three general characteristics
    • personality (of entrepreneur and business)
    • independence (freedom of entrepreneur)
    • small scale
  • Diffusion, defined by Schumpeter
    Creative destruction, innovation is primarily accomplished by LE and is concentraded in markets
  • Relation between characteristics and performance
    • characteristics do not determine performance directly
    • goes in interaction with contingency factors and strategies
    • different conditions allow different actors, and yield different outcomes
    • set of characteristics may be beneficial in one, but fatal in other situation
  • Knowledge in SE tends to be
    • shallow (undeep: no specialists)
    • tacit (could be obstacle in first stage of adoption, knowledge)
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Example questions in this summary

There is a statistic and a qualitative definition of SE & LE
in process of innovation, strength of SE lies in
According to classic diffusion models in marketing, innovation spread by two effects
In reaching a decission, an angel must balance risk and reward. An angel will be faced with a choice, characterized by
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