MGT602 Assignment 2 Solution idea Fall 2020

Requirement:

Identify at least 4 institutional obstacles which prevent business graduates from being an Entrepreneur in any developing country like Pakistan.

Answer:

The prospects of a career as an entrepreneur depend on the economic environment, which Can be facilitative or detrimental. A multitude of factors determine this environment: rules and Regulations, the quality of government, the availability of education, and the ambient culture. Many of these factors fall under the heading of institutions, by which we mean the constraints on behavior imposed by the state or societal norms that shape economic interactions of particular importance in determining the abundance of entrepreneurs are the following:

1. Rules, regulations, and property rights, and their enforcement matter because they affect What we call transactional trust: the degree of trust the parties to a business transaction place in each other. Entrepreneurship requires long term transactions, such as skilled employees or financial backers investing their time and money now for rewards in the distant future.

2. Government matters because it establishes and enforces rules, regulations, and property rights. Good government raises transactional trust and so facilitates entrepreneurship. Insufficient government fails to protect the rights of the weak, and this discourages entrepreneurship. What impoverished entrepreneur would work day and night to build a new firm knowing that robber barons will seize it at the first signs of profit? But excessive government can be just as bad.

3. Culture matters, for the literature shows that authoritarian and hierarchical societies fail to honor self-made success, and social status is surely part of the payoff to entrepreneurs.

4. Very basic institutions matter profoundly. Universal basic education lets latent entrepreneurs realize that opportunities exist. Openness to the outside world lets in foreign ideas and opportunities along with foreign goods and capital. Diversity also matters because it opens minds to new ideas. These factors all affect entrepreneurship because they stimulate information exchange. New ideas are a necessary condition for successful entrepreneurship.

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