Summary Indian Economics

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This is the summary of the book "Indian Economics". The author(s) of the book is/are Kathal. This summary is written by students who study efficient with the Study Tool of Study Smart With Chris.

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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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Key Problems
  • No strategic fit: interests conflict, or resources do not stimulate co-operation.
  • Resistance against co-operative projects: NIH factor
  • Managers are not able to bridge cultural gap
  • Operational misfit is ignored: become a dormant relationship and nobody profits
There is a sequential build up, as a relationship is slowly built, and commitment to partners increases as the knowledge of partner grows. Which is has two important advantages
  • if strategic misfit should develop, then a relationship with less commitment and less involvement is easier to dissolve
  • Operating misfit will be reduced over time, as the knowledge of the partner grows and goodwill develops in the relationship
Problems in SF-LF alliance Regarding control
  • Risk that LE dominates alliance and SE is dependent partner --> Calimero effect
Problems in SF-LF alliance From LE perspective
  • Lack of formal analysis by SE
  • Irritation due to SE impatience
  • Lack of knowledge of SE
Problems in SF-LF alliance From SE perspective
  • Implausible demand for info by LE
  • Decision delay (by bureacracy) by LE
  • Lack of support of LE
  • LE suffer from NIH syndrome
Renegotiation or exit Strategic misfit can be resolved by
re-evaluating the relationship. Either a common basis of interests is established again, and the relationship was repositioned accordingly, or the relationship was dissolved
Development of strategic misfit Strategic misfit could be traced back to
  • non-resolved operating misfit, combined with dependence on the parner
  • Change in firms environments and strategies. over time, interests shift and the cooperation may lose its appeal or even conflict with partners goals
Dealing with operational misfit Non-Invented-Here (NIH) facto
the smaller partners technology or product were not judged on the merit of their performance, but discounted or even rejected, simply because they were outside ideas
Dealing with operational misfit could be overcome with help of adjustments on operational level
  • Sustained operating misfit, which is not corrected, leads to dormant relationship
  • organizational differences between SE and LE, as cultural or structural, offer large potential for conflict. Can bridge this gap with special skills in communication and diplomacy
  • Managers of LE are uncomfortable with uncertainty of new org. And managers of SE must be warned for innovation will be stiffled by cooperation
  • to make it work, operational misfit needs to be acknowledged first. Partners have tendency to blame each other, rather then share responsibility
Negotiations establish operating misfit
  • What makes them attractive for each other? can also be source of conflict.
  • Some talk about culture shock, when they describe fundamental differences between SE and LE in risk taking and quality control
  • Negotiators can be ethusiastic about corporations, individuals of org. may not
  • Negotiation process often lacked depth to address operating issues: rather then spend time on hammering out co-operating details, they believe 'things will work themselves out'