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Import substitution is the process in which an economy replaces imported goods with domestic goods. In doing so, it creates a stronger and more diverse domestic economy. Entrepreneurship can play an important role in this process. Entrepreneurs can become the driving force behind the new domestic industries. They can identify industries that they think will succeed. Having done that, they take the risk (which is a major aspect of entrepreneurship) of devoting resources to this new industry. Their efforts and their willingness to accept risk can help to create a variety of new industries in a country that is trying to adopt an import substitution strategy.
Entrepreneurs play a major role in the achievement of self sufficiency, and import substitution becomes a central way to achieve this goal. Import substitution involves the decrease of an economy’s imports and instead focuses on incubating and developing its internal industries driven by entrepreneurship. The purpose is to allow room for the entrepreneurs to establish themselves enough, in order to compete with the imports, which eventually reduces an economy’s reliance on external products.
The import substitution policy is achieved by imposing high tariffs and stringent quotas on imports. This discrimination would in turn force businesses to source products locally and fuel entrepreneurship, which is geared towards providing the required products. This theory then places the entrepreneur at a vantage point, because it is the entrepreneur’s activities that are expected to improve the competitive standards of a country’s economy in the global marketplace.
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