Entrepreneurial ventures begin with a big dream in mind of the person concerned. But to transform that dream into reality is not everyone’s cup of tea. This is because the entrepreneurs face a lot of troubles and problems in the process of attainment of their respective. In spite of all the efforts made by individuals and the government to promote entrepreneurship, some societies are unable to produce sufficient numbers of successful entrepreneurs.
What are the Barriers to Entrepreneurship
It has been observed that some societies are more entrepreneurial than others. These societies promote and encourage entrepreneurial behaviour and as a result they throw up more number of entrepreneurs as compared to other societies. The importance of entrepreneurship to the society in general and its economic development in particular. All governments encourage and promote entrepreneurship in all sections of the society.
In spite of all their efforts some societies are unable to produce sufficient numbers of entrepreneurs. There are certain factors which either support entrepreneurship or act as barriers to entrepreneurship. Such factors are economic, social, political and psychological. Their negative influence creates an inhibiting milieu to the emergence of entrepreneurship.
There are primarily three economic barriers whose inadequacy is the primarily course of lack of entrepreneurship in certain regions:
Capital is the most important pre-requisite for setting up the new enterprise. Capital is a lubricant to the process of production. Money is the resource that helps mobilise other resources like men, materials and machines. Entrepreneurship in any society increases with the increase in the supply of capital. Thus, lack of availability of capital with any society or nation acts as a serious barrier for promoting entrepreneurship in that society.
It is the poor quality of labour rather than inadequate quantity of labour force that acts as a real barrier to entrepreneurship. Cheap labour of a developing country may primafaci appear to be strength in promoting enterprises, but the fact is that cheap labour is often unproductive or has a low level of productivity.
This unskilled and low productive labour acts as a barrier in setting up modern enterprises. However, by using labour saving innovations, the innovative entrepreneurs have been able to overcome the disadvantage of high cost labour in developed economies.
iii. Raw Material:
In the absence of raw material no enterprise can be established and in the absence of enterprises the entrepreneurs do not emerge. The lack of raw materials is normally the greatest economic barrier for growth of entrepreneurship. Japanese society has been able to overcome the problem of lack of raw material through innovative management systems.
A large number of sociological and psychological factors act as non-economic barriers. Many societies and regions endowed with skilled labour and natural raw material have remained entrepreneurially backward because of such factors. The factors which prevent the emergence of entrepreneurs can be classified as environmental and personal barriers.
The environmental barriers are rooted deep in the society and are also known as societal barriers. In some societies such barriers are stronger than in others. However, with time many changes take place in society. Some of the societies are able to overcome these barriers easily while others may find it difficult to change the factors acting as barriers.
Some of the important environmental barriers are as follows:
i. Cultural Block:
People are bound by their cultural values. Every society lays down some unwritten norms of acceptable behaviour. All members of that society are required to follow these norms. If such norms are broken, the society does not approve of the resultant behaviour and exert direct and indirect pressure on the individual to conform to a particular way, purely because it is customary. Ground rules of social behaviour are learnt from the parents at a very early age.
During school days, the support and approval of others is conditional on certain standards relating to good behaviour, good exam-results and so on. Even at home and office, the conformity is at a premium. As against this, an entrepreneur is required to be innovative, thus, conformity and enterprise seldom go hand-in-hand. Enterprise needs the status quo to be investigated, challenged and if necessary changed. The dilemma for entrepreneurs lies in balancing the creative urge to ‘improve’ something with the natural human need for ‘acceptance by others’.
Most people do not like to be too unlike their peers. They are sensitive to the reaction of those around them. There is a latent desire to conform to an accepted pattern. Such desire and cultural block prevent persons from setting up their own ventures in non-entrepreneurial societies.
ii. Practical Values:
Most of progressive societies discourage day dreaming, playfulness and fantasy by their adult members. Such behaviour is considered childish and unsuitable for grown up persons. The adults are required to be functional in their thinking. Psychologists agree that children are more creative than adults, as adults are more aware of their practical constraints. As a person grows and matures, more and more stress is placed on practical aspects of the achievement as a result mental playfulness, fantasy and reflectiveness are driven out.
Hence, instead of finding innovative alternative solutions adults normally end up with ‘derivative innovations’ that are based on logic, existing systems and products. When the new system is close to the existing one, it is easier to understand and work with, and people feel more secure as compared to the more imaginative innovations. The preponderance of practical values as a part of cultural blocks prevent innovation and act as a barrier to entrepreneurship.
iii. Importance of Logic:
Many people give higher importance to reason and logic as compared to intuition and subjective evaluation. Number of alternative patterns of logic are in conflict, the consumers and sellers can have conflicting logics. People have a tendency to see logic as fixed and this stems from the historical background of our culture. Pragmatism and logic are considered associated with masculinity while intuition, imagination, poetry, music and tenderness are associated with femininity.
Males and females have their preferred methods of thinking. Males use more of the left brain, the logical part. As men have dominated society for long, it is this type of thinking which is identified as most valuable. Right brain thinking, where women tend to excel, is not given importance in society. We have already established that entrepreneurship requires a high level of creativity, an area in which the right brain dominates. Thus, over importance of logic, the left brain, is a barrier to entrepreneurship.
iv. Respect for Entrepreneurs:
The socio-cultural setting of any society determines the degree of approval or disapproval of the entrepreneurial activities. Schumpeter calls it an appropriate social culture for entrepreneurship. The social status of the entrepreneur in a society is an important factor that has a direct bearing on the emergence of entrepreneurs in a society.
The societies which tend to view the entrepreneurs as role models and heroes, accord due status to the entrepreneurs, encourage their people to choose entrepreneurial careers. In most of the Indian societies, businessmen and entrepreneurs are not accorded a high status. Rather, business is considered a profession of lower hierarchy. This lack of legitimacy to entrepreneurship and lower social status of entrepreneurs in a society is a major barrier to entrepreneurship.
v. Tradition Binding:
Some people take pride in their traditional culture and preserve their dress, dance, architecture and traditional ceremonies. This provides emotional support to the individuals and shared interests and values to their society. Binding tradition represents a substantial block to change and progress. Social movements, attitudes, entertainment and dress styles are continuously changing.
Many people dislike such changes either because of fear or distrust or some unpleasant past experience. People prefer to live in the good old days. Some cultures place a great deal of emphasis on the preservation of traditional ways of life at the expense of innovation and development. Such societies resist introduction of any change. Thus, tradition-binding cultures are a barrier to entrepreneurship.
vi. Emotional Block:
Entrepreneurship involves risk, besides financial risk it involves emotional risk. Every entrepreneur runs a risk of making mistakes and incurring losses in his venture. People usually understand two situations, i.e., either a person is right or wrong. Throughout one’s life one is trying to find right answers to the problems and avoid the wrong solutions. Right answer is considered synonymous to success and being wrong is considered as failure. A fear of being wrong leads one to construct elaborate justification for own judgements and actions.
At work, people use a number of productive tools like sales forecast, market research, budgets etc., so that in case of failure their decisions are perceived as rational. In case the decision proves to be wrong one can defend it by claiming that a high level of prudence was exercised. People are afraid of not only making mistakes but more so appearing foolish because of such mistakes. This emotional fear is the barrier to entrepreneurship.
Personal Barriers to Entrepreneurship
In a given environment few people take up the career of entrepreneurship. Even among the societies which are considered entrepreneurially progressive only selected few ventures set up their own enterprises. This indicates that personal barriers prevent people from launching their enterprises.
Some of the points of personal barriers are described below:
- Lack of sustained motivation
- Difficulty with ambiguity
- Inability to dream
- Impatience in solving problems
- Risk Avoidance
- Lack of clean perception.
1. Lack of Sustained Motivation:
Most people enjoy starting a new product. People generally have a need for new experiences and involvements. Being a part of new development furthers their status. They appreciate the idea of being a part of something new. Thus, it is easy to attain a high level of commitment, enthusiasm and motivation at the initiation stage of an enterprise. However, when the project is off the ground or faces the first obstacle the initial level of interest gradually wanes off.
Entrepreneurship requires a sustained level of motivation and commitment and it is often difficult to sustain this motivation against the initial hurdles. Maintaining a pace for entrepreneurship requires emotional qualities of toughness and persistence which are normally at odds with enthusiastic or manic type of personalities that are best suited for the initial phase.
People normally lack motivation to initiate a new venture and take the risk of setting up an enterprise. Those who cross this hurdle have a more difficult task of maintaining this motivation while facing different obstacles in setting up the new enterprise.
2. Difficulty with Ambiguity:
Most people are more at ease with certainty than with uncertainty. We all like to live having an order around us. Thus, one tries to impose a controlled orderliness in various aspects of one’s life. One also develops strategies to cope up with inevitable uncertainties that crop up in our lives. Some people are very compulsive and become upset if the order of their physical life is violated. Such people prefer everything to be at its right place. This is also true to mental processes and in certain cases ability to create a new structure or sequence may also be impaired because of lack of orderliness.
Although orderliness provides the advantage of aesthetics and functionality, it is important to have an ability to cope with asymmetry. When a new method of working is initiated, it is not possible to foresee every eventuality and predict the exact outcome. Some of the things cannot be simulated and have to be tested only by experience.
In many situations the data collected will be hazy or imperfect and ultimate decisions will be based upon opinion and value judgements. People who excessively depend on order will find it a hindrance. Entrepreneurs do need an ability to bring order to chaos and their first requirement is “to be able to tolerate chaos”.
3. Inability to Dream and Use Subconscious:
It is a general experience that when a deadline is fixed for an assignment, the initial progress is slow and gains pace when the last minute approaches. Most people do their best work immediately prior to the final deadline as they allocate enough time in the early stages of the assignment to store up the information in their subconscious. This is because one needs time for ideas to ‘incubate’. That is why when one faces a difficult problem, one is advised to “sleep on it”.
This recognises the power of the subconscious, the underused part of one’s intellect. The entrepreneur needs to use both parts of his intellect, the subconscious for incubation of ideas and conscious for resolution of problems. A balance between reflection and activity allows an entrepreneur the opportunity to consider alternative and more productive methods of operation. The sub-conscious intellect facilitates day dreaming. Entrepreneurs are day dreamers and a few in our society have the ability to daydream and use their subconscious intellect.
4. Impatience in Solving Problems:
When people face difficult problems generally they grab the first available solution and try to implement the same. People sometimes act so because of their emotional insecurity or with a view of hiding their incompetence. As a result only the most important aspect of the problem is addressed too inefficiently by an inadequate and unimaginative solution and the rest of the problem remains unattended. This solution mostly lacks imagination, creativity, enterprise and is normally less sustainable.
The entrepreneur has to find more creative, imaginative and sustainable solutions. Thus, setting up an enterprise needs a lot of patience and an eye for details by the entrepreneur. This attitude of finding quick solutions prevents people from setting up the enterprise and acts as a barrier to entrepreneurship.
5. Risk Avoidance:
Ned Heizer, who founded Heizer Centre for Entrepreneurship Development at Northwestern University’s Kellogg School, believes that business schools teach students to avoid risk and that big companies build the avoidance of risk into their management structure. He says that analysis of both is limited to risk analysis and the belief that “no one is paid to take risks”. Entrepreneurs are less risk averse than the traditional managers and spend more time analysing how to get something done, rather than worrying about what to do if they fail.
To entrepreneurs, risk is merely one factor of the risk-reward equation; risk is a flashing yellow traffic light that you glance at as you whiz by on the road. To (managers) others, however, risk is a barrier; risk is flashing red traffic lights that you keep your eyes on and that makes you stop. Risk is real, but perception varies.
6. Lack of Clear Perception:
An entrepreneur is one who can easily identify an opportunity and exploit it for commercial gain. Most people will agree that the number of times they have failed in seeing an opportunity or an obvious solution to a problem. When the opportunity is exploited by others, they realise how their perception was biassed in some way or the other. Normally one is swayed by irrational prejudice and tries to impose one’s pre-conceived ideas as a solution. This behaviour is a major barrier to entrepreneurship.
People often have “stereotyped” ideas about particular groups of people. Such stereotypes are generally based upon past experiences with a few individuals and certain specific situations concerning such groups. Thus, people tend to prejudge certain types of people and situations. Their judgement seems irrational to others as they do not share or understand their experiences.
Although prejudging based on very limited experiences normally leads to confusion and misunderstanding, prejudging can sometimes prove to be useful. People need to be careful in distinguishing between casual and serious factors on which to base their judgement. Mostly they are misled by their memories because their attitudes, opinions and beliefs affect their perception.
As the memory does not store every detail of each experience, the mind normally only stores the framework of an event. Hence, even when the new experience varies in detail from the previous one the stereotype prevails as there is a similarity in the framework. This leads to an inaccurate understanding of experience and is thus a barrier to entrepreneurship.
Tunnel Vision is another case of unclear perception. This limits the way people look at things. Our cultural barriers prompt us to conform to set patterns and this tendency of conformity limits our field of imagination and restricts our ability to innovate.
Let us consider an example. Try to join the nine dots given below by using four continuous lines without raising the pencil from the paper.
Many people find it difficult to solve this puzzle as most of us think inside rather than outside. We create our boundaries and try to find the solution of our problems within these boundaries. We refuse to look beyond these set boundaries. This is a case of tunnel vision.
A favourite trap for the professionals in all fields is “to ignore the obvious”. They are used to looking into all problems in the correct professional way and as a result often ignore the obvious. Newton, the greatest scientist and mathematician of his times, had two cats, one was big and the other was a small one.
He built a cage for these two cats and provided two doors in it. He told his friend that the smaller door was for the small kitten while for the bigger cat there was a big door. His friend asked if one door would not suffice. At this Newton replied how the big cat can come out from the smaller door. The friend remarked that the smaller kitten can definitely use the bigger door. At this Newton realised that he had ignored the obvious.
Barriers to Entrepreneurship
The problems or barriers to entrepreneurship can be categorised as:
1. Environmental Barriers to Entrepreneurship:
i. Raw Material:
Non-availability of raw material required for production of goods, especially during the peak season, causes impediment in the growth of the business. In such a situation, competition causes an increase in the price of the raw material. This problem becomes more severe if there are alternative goods or services available in the market. (If the plastic granules required for production of glasses are not present then the demand can shift to the alternative thermocol glasses.) It becomes very difficult to shift the consumer back to the former product.
Human resources have been identified as the most important resource in an organisation. But unfortunately, there is always a dearth of the desired manpower in an organization-either because of the lack of skilled labour in the market or because of lack of committed and loyal employees in the organization. Both these factors are involved in the growth of the organization.
Good machineries are required in the organization for production and operation of goods. These machines come at a cost and because of rapid technological developments they also become obsolete very soon and need to be replaced, which requires a lot of cash-in- hand. This is very difficult to maintain, especially in a small business organization.
iv. Land and Building:
Acquisition of land and construction of buildings at prime locations with respect to business requires expenditure of large amounts of scarce cash, especially in the small organizations. An alternative approach could be acquiring land on lease or rent. But this becomes a matter of constant concern for the entrepreneur.
v. Other Infrastructure Requirements:
Apart from the factors of production mentioned above, there are other infrastructure requirements of the business and which when not present in adequate amounts, can further cause barriers to the growth of business. Any business organisation requires some basic infrastructure support like adequate power supply, proper roads, water and drainage facilities etc. This support has to come from the various development authorities, which again is a chain in a long bureaucratic system that suffers from problems like corruption and red-tapism.
2. Financial Barriers to Entrepreneurship:
Availability of funds is one of the most important ingredients required for the successful running of a business. There are various methods by which an entrepreneur arranges for funds like his own savings, borrowing from friends and relatives, banks and other institutional bodies supporting new ventures.
If there is a delay in the release or payments by the source of finance, it causes delay in starling and/or running business.
3. Personal Barriers to Entrepreneurship:
These barriers are caused by emotional blocks of an individual. These barriers cause mental Obstruction to the individual and lead to failure in business.
Some of the personal barriers have been explained below:
i. Lack of Confidence:
Many people think that they lack what it takes to become an entrepreneur. They look at successful entrepreneurs and think that they could never emulate them. To be fair, they probably couldn’t. They think that they would never be able to find a successful idea or would be unable to attract the resources required and therefore dismiss the thought of becoming self-employed as irrelevant. They may regard themselves as risk- averse and feel that running a business is too risky. They may not feel that they could master all the necessary skills.
ii. Lack of Dependability on Others:
Many entrepreneurs aim to gain their additional expertise through the trial and error of experience, rather than seeking further personal development or assistance from others.
As businesses grow. They increasingly need to replace the initial, largely informal management arrangements with more formality. They also need to think more strategically (Burns and Harrison). Often this is uncomfortable for the entrepreneur, who is far more interested in spotting and filling market needs than in devising effective management systems, but is essential if the business is to grow and prosper.
Those who do recognize that they need support when they start to do things for the first time-employing people, exporting, introducing total quality management, raising equity are far more likely to be successful in the long run.
iii. Lack of Sustained Motivation:
When an individual starts a new business venture he is filled with enthusiasm and drive to achieve success, but when he faces the challenges of real business, bears losses or his ideas don’t work, he loses interest/motivation. This causes further loss of interest and the entrepreneur starts withdrawing herself/himself from the mainstream competition.
iv. Lack of Patience:
This barrier is more dominant amongst entrepreneurs. The desire to achieve success in the first attempt or to become rich instantly is the motivating factor of modern youth. They want to achieve success through cakewalk. When such desires are confronted by business challenges/problems they lose interest. Apart from the inability to get into the details of business.
v. Inability to Dream:
It has been rightly said, “Think Big to Achieve Big”. The entrepreneurs who are short of vision or become complacent (satisfied) with what they achieve sometimes lose interest in further expansion/growth of the business, which further impedes the growth of the business.
Barriers to Entrepreneurship in India
Process of entrepreneurship can be affected by regulatory measures and other environmental factors. Barriers to entrepreneurship can stifle innovation if promoted enterprises are protected unnecessarily from the government and competitive forces which generate new ideas. Excessive promotional costs, uncertainty, ineffective political leadership make the potential entrepreneurs shy away from risk taking behaviour.
These barriers are as follows:
1. Regulatory Barriers:
Generally, the government regulates entry to markets, defining registration requirements and reporting and disclosure norms and ensuring tax compliance. In practice, there are different legal forms of business organisations each of which offers different merits and limitations, registration and reporting requirements.
These situations force the entrepreneurs to weigh their relative costs and benefits. Normally, the procedure for registering as a sole trader and unlimited liability partnerships are relatively simple and costs are minimal. Formation of private companies is also easy and these forms are generally adopted by small entrepreneurs.
Besides, for Government support, entrepreneurs are also expected to produce a business plan certified by technical consultancy organisations which attest to the enterprise’s viability.
2. Mergers and Acquisitions:
Flexible merger and acquisition policy generally discourages entrepreneurs and forces them to shy away from entrepreneurial behaviour. They apprehend that whenever they are able to bring success to the enterprise, other entrepreneurs will try to initiate the process of mergers and acquisitions.
Effective mergers and acquisitions policy allows entrepreneurs to define their role and ensure smooth sailing for entrepreneurship. It also enables the entrepreneurs to think that they have to run their promoted enterprises for a long period. Small entrepreneurs are unable to compete with medium and big enterprises and that is the main reason for growing sickness in small enterprises.
So, mergers and acquisitions should contain a reorganisation process which enables the small entrepreneurs to merge their enterprises making them viable. However, merger and acquisition or reorganisation should be transparent and governed by simple procedures.
3. Competition Policy:
Gentlemen’s agreement among the entrepreneurs to monopolise the market may create problems for potential entrepreneurs. Actually, private barriers to entry can be stifling. Existing entrepreneurs might have an interest in suppressing competition among them in order to raise prices and exploit consumers.
Such agreements invariably require some attempt to keep competitors from offering what the incumbents refuse to in the way of either quantity or quality of product. Collective boycotts could be used for example to deny new competitors supplies of raw materials components and access to distribution channels.
In this context, it would be necessary to enact competition law so that it will be difficult for dominating firms to unilaterally seek to protect themselves from new competition. The intent to restrict firms to maintain large market shares solely governed by greater efficiency rather than artificial barriers to entry.
4. Defective Tax Structure:
Higher levels of tax doses tend to distort economic activity and reduce profit margin for entrepreneurs. High tax doses lead to a sub-optimal use of resources and a less efficient and dynamic economy. They reduce the returns available to entrepreneurs and discourage them from further creation or expansion.
High marginal income and corporate tax rates penalise very successful entrepreneurs. They also reduce firm’s liquidity by reducing their capacity to retain more profits for further investment. Similarly, they provide an incentive for tax avoidance and evasion, tending to expand undeclared economic activity.
Thus, low tax rates are not the only factor positively affecting the level of entrepreneurship. The relative tax structure on different forms of business organisations can also encourage one form over the other.
5. Delayed Payments:
Delayed payments from big enterprises to small enterprises are the normal feature of small business. They became a problem because of their vulnerability to cash flow constraints and because of their frequently weak bargaining position with respect to purchases. The Government of India has already introduced a separate act “Delayed Payment Act” to protect the interest of small entrepreneurs.
Legislation can offer such measures as statutory rights of interest on late payments and the right to sue late paying firms. The Abid Hussain Committee has already recommended the necessary resentments in Indian Companies Act, 1956 to make it mandatory for companies to indicate the amount due to small scale industries in their annual accounts.
6. Absence of Protection of Intellectual Property Rights:
Innovation is the basic root of entrepreneurship. Despite the potential benefits offered by research and development of new products and services, firms are reluctant to invest in R & D because the results of such spending on technological discoveries, new products and techniques, can fall easily into the hands of rivals due to the difficulty associated with attaching ownership rights to these results.
So, the Government should try to protect the innovative process developed by the entrepreneurs. It should also try to formulate a comprehensive “Intellectual Property Policy” to set an equilibrium between two objectives, first rewarding or compensating creators and inventors for innovation and second promoting the interests of business and the public at large in securing access to science, technology and culture.
This implies granting innovators the rights that are necessary to recoup their investment without stifling competition for an unduly long period of time.
7. Defective Administrative and Compliance System:
Government generally favours small entrepreneurs by granting them tax subsidies and tax incentives to achieve a wide range of economic and social objectives. These measures include tax benefits to promote employee training and R&D, special provisions to SSI’s to help them to access financial support extended by financial institutions and special tax provisions to create export promotion zones etc.
Tax subsidies and incentives require definitions of the eligible activities, accountability requirements and other administrative procedures and these generate administrative expenses for government and compliance costs for business. The Indian bureaucratic system known for its red tapism also increases the delay in execution of compliance and its costs.
So, it would be better to have a tradeoff between using the administrative system to correct market imbalances and favour particular social goals on the one hand and the objective of cost effectiveness of the compliance system on the other.
Thus, entrepreneurship ensures an accelerated pace of economic development of the country. It also encourages potential entrepreneurs to innovate for new products and services required by the society at large.
Barriers to Entrepreneurship Development
There are several barriers to entrepreneurship development. Some of them are discussed below:
1. Macroeconomic Environment:
Macroeconomic environment conducive to entrepreneurship is dependent upon the policies of the government in supporting private participation in business. Macro means large and the term macroeconomic means the larger view of the economy.
It is different from the micro (small) view which concerns a firm or a company in the market. For example, in India the process of liberalisation started during the mid-1980s whereby the government started the process of encouraging foreign MNCs (multinational corporations) to create joint ventures (JVs) with Indian domestic companies.
This process created a macroeconomic environment in which many new small and medium enterprises (SMEs) evolved to become suppliers and vendors for the JVs created. Prior to that, the macro- economic environment in India was a big deterrent to entrepreneurship, as there was no freedom for entrepreneurs to set up their ventures without taking the “licences” (approvals) from the government.
That period is often known as the “License Raj.” Macroeconomic policy also affects the entrepreneur’s decision to invest, especially in projects that require a longer time to produce a return.
2. Legal and Regulatory Environment:
The legal and regulatory environment for entrepreneurship is formed by registration and licensing procedures, commercial and contractual laws, property rights laws, bankruptcy and collateral law, real estate regulations and labour laws.
If the administrative procedures and laws are unclear, time-consuming and cumbersome, they would pose barriers to entrepreneurship. If these procedures and laws are changed/revised frequently, it would create a sense of uncertainty and risk in the minds of entrepreneurs trying to establish a new business venture in the region.
3. Corruption and Unfair Competition:
A corrupt economy can lead to unfair competition, which in turn can become a major deterrent to entrepreneurial activity. Excessive regulations and approvals from the government required by entrepreneurs may make the government officials corrupt. They develop this attitude of taking bribes from entrepreneurs in return for speedy approvals.
In this way, honest entrepreneurs suffer due to unfair competition from other entrepreneurs who get early approvals due to “under the table” payments to government officials. An unhealthy environment develops, which deters new entrepreneurs from setting up new ventures.
4. Financial Obstacles:
Start-up ventures are usually dependent upon capital to be sourced from banks and financial institutions. It has been observed that in many economies (even developed ones), banks are reluctant to give loans to small start-up firms. In the caselet on Kiran Mazumdar Shaw, it is evident that often banks have gender bias as well in this regard. Banks often seek high collateral amounts (as guarantee for repayment of loans) or charge high interest rates, which pose a major obstacle to entrepreneurs.
5. Tax Burden:
In many regions, the government charges high taxes from even small start-up ventures and has tedious procedures for compliance of tax submission formalities. In order to promote entrepreneurship, the governments would need to have rational tax structures with easy tax submission procedures. Otherwise, high taxes add to the cost of operations for a start-up company, thus weakening its competitive position for survival and growth. High taxes in a region also pose an entry barrier for entrepreneurs.
6. Challenges in Attracting Talent:
This is another big issue faced by small start-up companies. The best of talent in engineering, management and other disciplines wants to work for multinational corporations (MNCs) rather than for small start-ups. This attitude of professionals makes it difficult for entrepreneurs to attract them for their entrepreneurial ventures. Thus, there is a dire need to create an ecosystem for entrepreneurship so that budding professionals start valuing their association with entrepreneurial ventures compared to working for the MNCs.
7. Difficulty to Source Raw Material:
For entering a market with a product, an entrepreneur has to identify if the suppliers of raw materials and components, existing in the market have adequate capacity or are willing to expand capacity to meet the requirements of a new player in the industry. If not, then it becomes imperative to establish new suppliers in the market, which may be cumbersome for the entrepreneur. Thus, this difficulty to source raw materials and components often deters entrepreneurs from entering the market.
8. Expensive to Access Proprietary Technology:
Kuratko & Welsch cite the expenses to access proprietary technology as one of the barriers to entrepreneurship. For example, big companies like Texas Instruments invent breakthrough technologies which have the potential of applications in many fields.
They give licences of such state-of-the-art technology to other companies worldwide to develop and market products based upon it. They charge hefty licence fees from such companies in return. Entrepreneurs find it hard to arrange for such staggering licence fees and thus face entry barriers in such fields.