The Relationship Between Entrepreneurship, Innovation and Economic Development
Essay Preview: The Relationship Between Entrepreneurship, Innovation and Economic Development
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The general relationship between innovation and entrepreneurship in organization is universally believed as complementing and interacting with each other. From perspective of innovation, it is the base of entrepreneurship. Just as the theory put forward by Ireland, Hitt, Camp and Sexon, that “the successful entrepreneurial venture is usually based on a significant innovation.” It can be proved by a simple model of the entrepreneurial process presented by Brazeal and Herbert revealing that innovation is the foundation of entrepreneurship.In this model, authors considered the ultimate entrepreneurial event is driven by psychological innovation, which is the consequence of creativity plus technical innovation. Meanwhile the original change leading to technical innovation is environmental change (Brazeal Herbert, 1999). From perspective of entrepreneurship, it is the inspiration of innovation. A significant problem that an increasing number of companies have realized is that a strong entrepreneurial approach to innovative activities is necessary to their external market and internal organization (Ortt and Smits, 2006). Obviously, it is a manager rather than an entrepreneur who lacks of entrepreneurship contributes to this problem due to changeless organizational routines combined with entrepreneurial awareness. Consequently, Thornpson accentuated that “if we want more innovation, we need more entrepreneur”. However, consider above all, based on much controversy about “who is the first”, the relationship between both of them is concluded as interacting and complementing with each other.For instance, Zhao (2005) insists that “a combination of entrepreneurship and innovation holds the key to organization sustainability in this period of rapid change and nonlinear dynamics” .In addition, Drucker (1985) argues that “entrepreneurship is held to promote wealth creation through innovation”. The success of innovative company named Biocad can supports this opinion: the innovative company grows from distributing popular generic drugs to developing new medications and is headed by Dmitrii Morozov who possesses entrepreneurship like forwardthinking and risk-taking (Ruta and Friederike, 2008 ). The relationship between innovation and economic development is mutual. On the one hand, innovation guarantees the high performance of economic development. To quote Linsu (1999), more than 50 per cent of long-term economic growth in advanced countries stems from innovation. Wong et al.
(2005) explains it as “the innovative activity of entrepreneurs feeds a creative destruction process (Schumpeter, 1942) by causing constant disturbances to an economic system in equilibrium, creating opportunities for economic rent.” It means that innovation inspires knowledge accumulation which gives rise to the high technology intensity, also, the economic opportunities will be explored from the changing of ancient system due to revolution of technology, which lead to economic growth. China is a typical example to prove that innovation benefits economic development. The annual increasing amount of investment of China in Research and Demand in the past 8 years, which corresponds to 1.4 per cent of its GDP of 2008, contributes to its top rank among development states (Sevastian, 2010). Meanwhile, the environment of high-level economic development also makes a positive influence on innovation. A study in Europe indicates that relationship between the level of development and innovative activities. From the early 1990s onwards, the higher the level of GDP per capita, the higher proportion of companies reporting to participate innovation activities (Fagerberg, 2009). Three reasons interpret as follows: first of all, government with advanced economy can provide sound framework condition for research and innovation; secondly, high-level of economic development can guarantee continuous and adequate monetary supporting; finally, a friendly environment for innovation is also supported by developed economy. Japan– a high-level economic developed countrie-has high investment in innovative activities and adopts many policies to create the best possible framework condition for innovative activities. To make things better, Japan opens the market to ensure the vigorous competition and contestable markets (Annex). Entrepreneurship is beneficial to the economic development, but it is not the case that all the entrepreneurship is stimulative. The contribution towards economic