Joseph Schumpeter’s Concept of Entrepreneurship and Combinations

Joseph Schumpeter was an outstanding economist that immigrated to the U.S. Many of his works were not mathematical like other economists but he did delve into the economy as a complete economic system. His work has led to new ways of thinking about the economy as a system and offered a greater understanding of creative destruction and entrepreneurship as part of the economic model. 

He believed that entrepreneurship is an important part of the economic system. These difficult to account for innovations result from companies that have the ability to research important product improvements.  Innovative improvements are a force that changes the market and allows some companies to earn higher levels of revenue for a time until their products are copied by others. The innovative process is needed to maintain new products and a market leading position. 

He outlined his theory in the book Theory of Economic Development (1911) and maintained the fundamentals throughout his life. He believed development is not possible without new products and services. He outlined his concept of innovation through a idea called combination that includes (pg. 66):

1) The introduction of a new good, not yet familiar or of a new quality of good.

2) The introduction of a new method of production.

3) The opening of a new market.

4) The conquest of a new source of supply of raw materials.

5) The carrying out of a new organization of any industry, like the creation of a monopoly position or the breaking up of a monopoly position.

Those creating the combinations are called entrepreneurs. They can be within a company or have their own business. They take information, connect it to new uses, and develop products. Economic development comes from this process of finding new sources of knowledge and putting them to productive use. 

As markets change and adjust there are cycles of destruction and creation. War, famine, political forces, scarcity and much more cause the constant need for change to seek a system in equilibrium. Large adjustments can cause pain but can also put a system on a higher plane of existence. Without pressure to change, few things will develop and the economy will become stagnant.

Schumpeter, J.A. (1934). The theory of economic development. Oxford University Press, New

York.

Migration of Labor Skills as a Function of Opportunity

Labor is an important component of economic development. Employers need skilled labor to produce new products and lower skilled labor to fulfill standard functions. When areas gain or lose their workforce it has a natural impact on the economic strength of that area. Research by Son and Noja, 2013) delves into labor’s economic contributions as well as the influx/outflux of human capital in new EU countries. The general findings can be applied to other areas and highlight the need to match skills to the market. 

When surplus labor exists, the unemployment rate will be higher. In this study, the labor was broken into low and high skilled labor for analysis. Higher unemployment causes an outflux of individuals seeking opportunities in other geographic locations where jobs are plentiful. This is a natural cause of opportunity matching skills to create an employment opportunity. 

Those that update their skills and find new types of employment (labor shift) may more easily find future opportunities. It is an economic and personal choice based upon the ability to attend school, obtain new certificates, or move to locations that offer employment opportunities. There is a level of personal and societal adjustment that occurs in response to economic shifts in the market. 

When both low and high-skilled labor migrates out of an area it indicates the fundamentals of the infrastructure are not in place. Skill levels are not matching opportunities and those with the most resources can move to other areas to find greater opportunities. Losing highly skilled labor means  creating new opportunities will be more difficult in the future as a result of human capital drain. 

Destination countries that receive highly skilled labor have an easier time growing. This growth is based upon the skills received and whether or not they are matching the economic needs of the area. Sending countries slow down in technological progress, innovation and GDP per capita growth rate while receiving countries increase in their abilities to enhance economic growth. Sending countries will need to educate their populations to create greater home abilities and rebalance available skills to the market.

Son, L. & Noja, G. (2013). The role of the human capital and investment in human capital within the sustainable socio-economic development. How labour force migration affects competitiveness? Theoretical and Applied Economics, 20 (1).

Using Cognitive Risk Engagement in Marketing Messages

Marketing is a fundamental function of any business or organization. Without a strong marketing mix and design maximization revenue will be limited. A study by Zhang & Buda (1999) tested the effectiveness of message framing and need for cognition to determine which types of people certain advertisements appeal. Most demographics are based in tangible concepts such as locality and income but the psychological depth of processing advertising has not been fully explored. 

All marketing messages are part of a communication. It follows a process where the sender encodes information, uses a medium (i.e.) media, is distorted by environmental noise (internal or external), decoded by the receiver, that elicits a response (i.e. to purchase or not purchase) (Yehsin, 1999). The depth by which person decodes and interprets information is important for determine marketing effectiveness. Those with a need for higher or lower cognitive engagement will naturally have different responses. 

Message framing is a concept that explains how the word choices are formulated to make positive or negative impressions in the listener’s minds. A positively framed message emphasizes the products advantages while a negatively framed message highlights the losses that result from not taking action. Products become evaluated on their economic gains and losses while mediated by consumer personality.

How these messages are framed has an important impact on the reaction of viewers. Prospect theory helps understand that risk aversion and risk prone behaviors are a result of how the message is framed (Kahneman and Tversky, 1979). When messages are positive viewers may think in terms of avoiding risk while when a message is negative people are likely more risk-prone in avoiding loss. Negative messages seem to have a greater influence in attracting interest. 

The need for cognition is another variable in the marketing mix. Cognition is associated with the ability to think about the message and process it deeper than those who have a lower need for cognition (Andres, et. al., 1990).  There are some people in the environment who want critical information to gain benefits and process information deeper while some process information at a lower rate and make decisions based on less logical motivations.  

Those with higher levels of education are likely to be more focused on the gains (i.e. positively framed messages) while those with less education are more respondent to negatively framed messages (Smith, 1996). Educated managers and experienced businesspersons are likely to pay attention to more critically oriented positively framed messages. A higher value product will require additional cognitive engagement when compared to lower priced convenience products. 

The researchers found through their study of 160 participants that framing has a significant influence on consumer’s response. Messages should be framed by cognitive predispositions of the target audience. Those with a lower need for cognition are more susceptible to negatively framed messages while those with a higher need for cognition are more receptive to positively framed messages. Expert opinions are supported by those who have lower cognition levels while such opinions are less useful for those with higher level cognition.  Higher cognition people focused on the message core while lower cognition people focused on the message context. 

Comment: Demographics and culture can change the way in which people understand and react to marketing messages. This leaves some difficulty finding ways to market within different cultures. Since cognitive engagement, or lack of cognitive engagement, is a universal aspect of being human it is less subject to cultural decoding bias. Business to Business marketers may want to focus on high cognition marketing (the message) while retail and convenient product markets may want to focus on low cognition marketing (the context).

Ahang, Y. & Buda, R. (1999). Moderating effects of need for cognition on responses to positively versus negatively framed advertising messages. Journal of Advertising, 28 (2).

Andrews, et. al. (1990) A Framework for Conceptualizing and Measuring the Involvement Construct in Advertising Research," Journal of Aduertmng,19 (4), 27-40.

Kahneman, Da. and TverBky, A. (1979), Prospect Theory: An Analysia of Decision Under RiBk., Econometrica, 47, 263-291.

Smith, G. (1996). Framing in Advertising and the Moderating Impact of Consumer Education. Journal of Advertising Research, 36 (5), 49-64.

Yehsin, T. (1999). Integrated marketing communications. Butterworth Heinemann, Oxford.

150 Colleges Seek to Double International Study Opportunities

Would you like to study overseas? Perhaps you want to learn a foreign language, gain international experience, or see the historic sites.  150 U.S. colleges are seeking to double the amount of students studying overseas through international and educational exchanges. The five-year initiative by the Institute of International Education hopes to increase the amount of international students from 295,000 to around 600,000. 

With only 10% of students gaining international experience the U.S. is suffering from a lack of global marketplace knowledge. Being separated by great oceans once helped protect our borders but may now be a detriment to our economic growth. Our students, and the next generation of leaders, do not have enough familiarity with foreign cultures to effectively compete in this arena. 

In business, international experience is also very important for effectiveness. Multinational firms have distribution networks that reach into multiple countries. Management may find themselves in a number of different cultures throughout their lifetimes and will need some method of formulating an understanding of international culture to be successful. 

Even though sending students overseas is great there is also a higher cost associated with such opportunities. Research on virtual teams and international online classrooms helps support the idea that many of these benefits can be obtained without the expense of international travel. Students can see other perspectives, collaborate on projects, gain experience, and understand international laws better. 

Whether colleges support travel or virtual work groups will depend on their personal strategies. In either event, students are likely to gain needed knowledge of how the international environment works and will be able to apply that knowledge to future jobs. It is these skills that help American businesses become more competitive the globe round. 

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Study Abroad Initiative

Call for Papers: Business Strategy and Social Sciences

August 16-17, 2014

Conference Main Theme:   Issues concerning Business Strategy and Social Sciences field towards sustainable development

The International Conference on Business Strategy and Social Sciences is organized by the Asian Economic and Social Society, and Pak Publishing Group. The purpose of this conference is to bring together researchers from around the globe in order to present and discuss new trends in the fields of Business Strategy and Social Sciences.

All selected papers will be published in a book with an ISBN (978-969-9347-16-0)  by Pak publishing Group.

After conference presentation a few selected papers will be published in the special or regular issues of the ISI and Scopus indexed journals.

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